1021-00007 · Verimark Hospitality Group · Title & Survey

title-commitment-review-memo.docx DOCUMENT Real Estate

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Douglas Fairchild, Responsible Partner, Real Estate Practice Group

FROM: Grace Nakamura, Lead Associate, Real Estate Practice Group Rafael Dominguez, Working Associate, Real Estate Practice Group

DATE: January 4, 2023

RE: Title Commitment Review — Coral Palms Grand Resort & Spa, 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037

CLIENT: Verimark Hospitality Group Inc.

MATTER NO.: 1021-00007

This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. It is intended solely for the use of the addressee and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

I. PURPOSE AND SCOPE

This memorandum summarizes Calderwood & Harkness LLP's review and analysis of the title commitment (the "Title Commitment") issued by Meridian Title & Escrow, Inc. (Title Officer: Lisa Portman) in connection with the proposed $160,000,000 first mortgage refinancing loan (the "Loan") from Pinnacle Atlantic Capital, LLC ("PAC") to Coral Palms Resort Holdings LLC (the "Borrower" or "CPRH"), a Florida limited liability company and wholly owned indirect subsidiary of Verimark Hospitality Group Inc. ("VHG" or the "Guarantor"). The Loan will be secured by a first-priority mortgage lien on the Coral Palms Grand Resort & Spa (the "Property"), a 350-key oceanfront resort and spa complex located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037.

The Title Commitment was issued in connection with the refinancing of the existing first mortgage loan from Tidewater National Bank, N.A. ("Tidewater"), which has an outstanding principal balance of approximately $118,500,000 as of the date of this memorandum. The Tidewater mortgage is recorded in Official Records Book 2892, Page 0445, Public Records of Monroe County, Florida. The proceeds of the PAC Loan will be used to retire the existing Tidewater indebtedness in full, with the balance available for borrower's capital expenditure reserves, working capital, and closing costs.

The purpose of this memorandum is to: (a) identify all matters affecting title to the Property as disclosed by the Title Commitment; (b) flag any exceptions from coverage that require cure, endorsement, or affirmative coverage prior to closing; (c) analyze the requirements that must be satisfied as conditions to the issuance of the lender's title insurance policy in favor of PAC as mortgagee; and (d) recommend specific next steps and action items for the deal team in coordination with PAC's counsel, Whitford Baines & Driscoll LLP ("WBD"), and the title company.

In conducting our review, we examined the Title Commitment in conjunction with the following additional materials:

• The ALTA/NSPS Land Title Survey of the Property prepared by Landis & Shaw Surveying, Inc. (Robert Tran, PLS, Florida Professional Surveyor License No. LS 7214), dated November 18, 2022 (the "Survey"), which is the subject of a separate Survey Review Memorandum;

• The existing Tidewater loan documents as recorded with the Clerk of the Circuit Court, Monroe County, Florida;

• WBD's title and survey requirements letter dated November 28, 2022, issued on behalf of PAC (the "Lender's Title Requirements");

• The PAC Commitment Letter dated October 15, 2022, and the draft Loan Agreement circulated by WBD on December 12, 2022;

• Monroe County public records searches conducted by this firm; and

• Organizational documents for CPRH and VHG as provided by VHG's in-house counsel, Margaret Huang.

The scope of this memorandum is limited to title matters. Environmental due diligence, insurance compliance, zoning and land use regulatory compliance (beyond endorsement availability), and survey-specific issues are addressed in separate workstreams and memoranda, except where cross-referenced herein.

II. TITLE COMMITMENT OVERVIEW

A. Commitment Identification

The Title Commitment bears Commitment No. MT-2022-FL-048771 and was issued by Meridian Title & Escrow, Inc. with an effective date of November 22, 2022 at 8:00 a.m. (Eastern Time), reflecting the date and time through which Meridian Title's search of the Public Records of Monroe County, Florida was conducted. The proposed policy amount is $160,000,000.00 for the lender's title insurance policy to be issued in connection with the PAC Loan.

The issuing title insurer is Meridian Title & Escrow, Inc., with principal offices located at 9100 South Dadeland Boulevard, Suite 1500, Miami, Florida 33156. The designated Title Officer for this transaction is Lisa Portman, who may be reached at (305) 555-4820. We have been in contact with Ms. Portman's office regarding the timeline for endorsement availability and the anticipated closing procedures.

As of the effective date, the Title Commitment reflects Meridian Title's examination of the public records in Monroe County, including the records of the Clerk of the Circuit Court (Official Records), the Monroe County Tax Collector, and applicable state and federal judgment and lien indices. A supplemental search will be required closer to closing to capture any recordings or filings that may occur between the effective date of the commitment and the anticipated closing date, which is currently targeted for on or about February 15, 2023.

B. Type of Policy to Be Issued

The Title Commitment proposes to issue an ALTA Loan Policy (2006 Form, as amended), in the amount of $160,000,000.00, insuring the lien of PAC's mortgage as a valid first-priority mortgage lien on the Property. The policy will insure PAC, as mortgagee, that the mortgage to be executed and delivered by CPRH in favor of PAC constitutes a valid and enforceable lien upon the fee simple estate in the Property, subject only to the permitted exceptions set forth in Schedule B of the policy as finally issued.

No owner's title insurance policy is being issued in connection with this transaction, as the refinancing does not involve a transfer of ownership of the Property. CPRH's existing owner's policy (if any) issued in connection with its original acquisition of the Property will remain in effect and is not affected by this transaction. We have requested confirmation from Meridian Title as to whether an owner's policy was issued to CPRH at the time of the vesting deed and, if so, the policy number and issuing underwriter.

III. SCHEDULE A — INSURED INTEREST AND PARTIES

A. Fee Simple Owner

Schedule A of the Title Commitment identifies Coral Palms Resort Holdings LLC, a Florida limited liability company, as the fee simple owner of the Property. The vesting instrument is a Warranty Deed recorded in Official Records Book 2847, Page 1122, Public Records of Monroe County, Florida, dated March 14, 2019 (the "Vesting Deed"). The Vesting Deed conveyed the Property to CPRH from Key Largo Oceanside Partners, Ltd., a Florida limited partnership, the prior owner of the Property.

We have confirmed through our independent review of the Monroe County Official Records that CPRH remains the fee owner of record. No intervening conveyances, quitclaim deeds, or other instruments of transfer affecting fee title have been identified subsequent to the recording of the Vesting Deed. Furthermore, we have confirmed that no lis pendens or notice of claim has been filed against the Property that would suggest a challenge to CPRH's ownership.

CPRH is a wholly owned subsidiary of Verimark Resort Properties LLC, a Delaware limited liability company, which is in turn a wholly owned subsidiary of VHG, a Delaware corporation. This organizational structure has been confirmed through our entity due diligence review and is consistent with the representations made by VHG in connection with the PAC Loan application.

B. Property Description

The legal description set forth in Schedule A of the Title Commitment describes the Property as a portion of Section 27, Township 60 South, Range 39 East, Monroe County, Florida, as more particularly described in the Vesting Deed recorded at Official Records Book 2847, Page 1122, Public Records of Monroe County, Florida. The full metes and bounds legal description is attached to the Title Commitment as an exhibit and is reproduced in Exhibit B to this memorandum.

The Property is assigned Monroe County Property Appraiser Folio No. 00460780-000100 and bears the street address of 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037. The Property comprises approximately 22.4 acres of land improved with the Coral Palms Grand Resort & Spa, a 350-key full-service oceanfront resort featuring conference facilities, a full-service spa, three restaurants, a 42-slip marina, swimming pools, and related amenities.

Consistency Check: We are in the process of comparing the legal description set forth in the Title Commitment against: (a) the legal description to be included in the proposed mortgage instrument (as drafted by WBD); and (b) the legal description shown on the Landis & Shaw ALTA/NSPS Survey. It is imperative that the legal descriptions in all three instruments be identical. Any discrepancies — even minor variations in bearing calls, distances, or reference points — must be identified and reconciled prior to closing. We will request that the ALTA 25 (Same as Survey) endorsement be issued to confirm consistency between the legal description in the title policy and the surveyed boundaries. We will flag any discrepancies to WBD and Meridian Title promptly upon completion of our comparison.

C. Proposed Insured Mortgage

Schedule A identifies the proposed insured mortgage as a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "PAC Mortgage") to be granted by Coral Palms Resort Holdings LLC, as mortgagor, in favor of Pinnacle Atlantic Capital, LLC, as mortgagee, securing a Promissory Note in the original principal amount of $160,000,000.00 (the "Note"). The PAC Mortgage will encumber the Property and all improvements, fixtures, and personal property located thereon, and will include an assignment of all leases, rents, profits, and revenues derived from the operation of the Property.

The Title Commitment requires that the PAC Mortgage be recorded as a first-priority lien on the Property, subject only to the permitted exceptions that will be listed in Schedule B of the lender's title insurance policy as finally issued. This is consistent with PAC's requirements as set forth in the Commitment Letter and the draft Loan Agreement. The satisfaction and discharge of the existing Tidewater mortgage is the critical prerequisite to establishing first-lien priority for the PAC Mortgage.

D. Amount of Insurance

The proposed amount of insurance under the lender's title insurance policy is $160,000,000.00, which corresponds to the original principal amount of the PAC Loan. This amount is subject to adjustment in the event that the final loan amount is modified based on appraisal results, repricing, or other adjustments agreed upon between PAC and the Borrower prior to closing. As of the date of this review, the Title Commitment reflects the original loan amount as set forth in the PAC Commitment Letter, and no adjustment has been communicated. We will confirm the final loan amount with WBD and PAC prior to closing to ensure that the policy amount is accurate.

IV. SCHEDULE B-I — REQUIREMENTS

A. Overview. Schedule B-I of the Title Commitment sets forth the conditions and requirements that must be satisfied prior to the issuance of the lender's title insurance policy. These requirements are standard for a commercial mortgage refinancing transaction in Florida, with certain property-specific and transaction-specific conditions that warrant particular attention. We have reviewed each requirement and assessed the current status of compliance. The following is a detailed analysis of each identified requirement.

B. Specific Requirements Identified

1. Recording of Proposed Mortgage. Schedule B-I requires the execution and recording of the PAC Mortgage in the Public Records of Monroe County, Florida, in proper form, with all requisite documentary stamp taxes and intangible taxes paid at the time of recording.

Under Florida law, the following transfer taxes apply to the recording of the PAC Mortgage:

(a) Florida Documentary Stamp Tax on the Mortgage. Pursuant to Florida Statutes § 201.08, documentary stamp tax is imposed on promissory notes and other written obligations to pay money at the rate of $0.35 per $100 (or fraction thereof) of the face amount of the obligation. For a $160,000,000 note, the documentary stamp tax would be $560,000. However, Florida law provides a credit for documentary stamp taxes previously paid on the existing Tidewater note to the extent the new PAC note represents a renewal or replacement of the existing obligation. Under Florida Department of Revenue guidance, the documentary stamp tax on the new note should apply only to the "new money" — i.e., the difference between the PAC Loan amount ($160,000,000) and the outstanding balance of the Tidewater loan ($118,500,000), provided that the Tidewater note is surrendered and cancelled at closing and appropriate documentation is presented to the Monroe County Clerk. The taxable new money amount would therefore be approximately $41,500,000, resulting in a documentary stamp tax of approximately $145,250 (subject to confirmation of the exact Tidewater payoff balance at closing).

(b) Florida Nonrecurring Intangible Tax. Pursuant to Florida Statutes § 199.133, a nonrecurring intangible tax is imposed on obligations secured by a mortgage on Florida real property at the rate of $0.002 per $1.00 of the amount of the obligation. For a $160,000,000 mortgage, the intangible tax would be $320,000. As with the documentary stamp tax, a credit is available for the intangible tax previously paid on the Tidewater mortgage to the extent the new PAC mortgage secures obligations that replace the existing Tidewater indebtedness. The intangible tax on new money ($41,500,000) would be approximately $83,000. We are coordinating with the Borrower's tax counsel at Hartwell & Crane LLP to confirm the availability and calculation of these credits and to prepare the requisite affidavits and documentation for filing with the Monroe County Clerk.

We will prepare or review the tax credit affidavits required to claim the documentary stamp tax and intangible tax credits and will coordinate with WBD and Meridian Title to ensure proper calculation and payment at closing.

2. Satisfaction and Discharge of Existing Tidewater Mortgage. Schedule B-I requires that the existing mortgage held by Tidewater National Bank, N.A., recorded at Official Records Book 2892, Page 0445, Public Records of Monroe County, Florida (the "Tidewater Mortgage"), be satisfied and discharged of record at or prior to closing. This is the single most critical title requirement for the transaction, as the PAC Mortgage must be insured as a first-priority lien.

The following actions must be completed in connection with the satisfaction of the Tidewater Mortgage:

(a) Calderwood & Harkness has submitted a formal payoff request letter to Tidewater (Attention: Alan Prescott, Senior Vice President — Commercial Real Estate Lending) requesting: (i) a payoff statement reflecting the outstanding principal balance, accrued and unpaid interest, escrow balances, and all other amounts due under the Tidewater loan documents as of the anticipated closing date; (ii) per diem interest calculations; (iii) calculation of any prepayment premium or yield maintenance amount (estimated at $1,185,000 if prepaid before March 1, 2023, based on the 1.0% prepayment premium provision in the Tidewater Loan Agreement); (iv) a fully executed Satisfaction of Mortgage in recordable form; and (v) an executed UCC-3 Termination Statement. As of the date of this memorandum, we have not yet received the payoff statement from Tidewater and will follow up promptly.

(b) The Satisfaction of Mortgage must be recorded in the Public Records of Monroe County, Florida, simultaneously with or immediately prior to the recording of the PAC Mortgage. We will coordinate with Meridian Title to establish the closing mechanics, which will likely involve Meridian Title holding the PAC Loan proceeds in escrow pending simultaneous recording of the Satisfaction of Mortgage and the PAC Mortgage. Alternatively, Meridian Title may agree to insure over the gap between the disbursement of the Tidewater payoff proceeds and the recording of the Satisfaction of Mortgage, provided that Tidewater delivers the executed Satisfaction of Mortgage to Meridian Title at closing.

(c) A related UCC-3 Termination Statement must be filed with the Florida Secured Transaction Registry (Florida Department of State, Division of Corporations) terminating UCC-1 Financing Statement File No. 202219087643, which was filed by Tidewater as secured party naming CPRH as debtor. This filing is discussed in further detail under Exception 8 below.

We recommend that Douglas contact Alan Prescott at Tidewater directly if the payoff statement is not received within the next ten business days, given the anticipated closing timeline.

3. Evidence of Entity Existence and Authorization. Schedule B-I requires evidence of the legal existence and good standing of the Borrower and the Guarantor, as well as evidence of authorization for the transaction. Specifically, the following are required:

(a) A Certificate of Good Standing (or Certificate of Status) for Coral Palms Resort Holdings LLC from the Florida Department of State, Division of Corporations, dated not more than thirty (30) days prior to the closing date;

(b) A Certificate of Good Standing for Verimark Hospitality Group Inc. from the Delaware Secretary of State (Division of Corporations), dated not more than thirty (30) days prior to the closing date, confirming VHG's good standing in its state of incorporation;

(c) A Certificate of Authorization (Foreign Qualification Certificate) for VHG in the State of Florida, if VHG is transacting business in Florida and is required to be qualified as a foreign corporation under Florida Statutes § 607.1501. We are reviewing VHG's Florida qualification status with VHG's in-house counsel, Margaret Huang. If VHG is executing the Guaranty in Florida or has other contacts sufficient to constitute "transacting business" in the state, foreign qualification will be necessary;

(d) Certified copies of authorizing resolutions (or written consent in lieu of meeting) from CPRH's sole member (Verimark Resort Properties LLC) or manager, as applicable under CPRH's operating agreement, authorizing the execution, delivery, and performance of the PAC Mortgage, the Note, and all related loan documents;

(e) Certified copies of authorizing resolutions from VHG's board of directors authorizing the execution, delivery, and performance of the Guaranty of Payment and Performance and any other loan documents to which VHG is a party; and

(f) A certificate of the Secretary or an Assistant Secretary of each entity certifying the incumbency and specimen signatures of the officers or authorized signatories executing the loan documents on behalf of such entity.

We have communicated these requirements to Margaret Huang and are coordinating with her to prepare the requisite organizational documents. We anticipate receiving drafts of the authorizing resolutions for review within the next week.

4. Satisfactory Survey. Schedule B-I requires receipt by Meridian Title of a current ALTA/NSPS Land Title Survey of the Property, certified to Meridian Title & Escrow, Inc., Pinnacle Atlantic Capital, LLC, Calderwood & Harkness LLP, and Whitford Baines & Driscoll LLP. Landis & Shaw Surveying, Inc. (Robert Tran, PLS) has been engaged by the Borrower, with PAC's approval, to prepare the Survey. A preliminary version of the Survey was delivered on November 18, 2022, and is currently under review. We have requested that Landis & Shaw update the certification to include all required certifying parties and to address certain Table A optional survey items requested by WBD. A detailed analysis of the Survey is set forth in a separate Survey Review Memorandum being prepared concurrently with this memorandum.

5. Real Property Tax Clearance. Schedule B-I requires evidence that all ad valorem real property taxes and non-ad valorem assessments on the Property (Folio No. 00460780-000100) are current, with no delinquencies, outstanding tax sale certificates, or unpaid special assessments. We have requested a tax search from the Monroe County Tax Collector's office, and preliminary results indicate that all taxes and assessments are current through the 2022 tax year. The 2022 tax bill for the Property was approximately $1,842,000, based on a taxable value of approximately $112,400,000. We will obtain a formal tax clearance letter or certificate from the Monroe County Tax Collector prior to closing. The results of our preliminary tax search are attached as Exhibit E to this memorandum.

It should be noted that, under Florida law, real property taxes for a given year become a lien on January 1 of that year but are not due and payable until November 1 of that year (with discounts for early payment). The 2023 taxes, which will become a lien on January 1, 2023, will not be due until November 1, 2023. We will confirm with Meridian Title that the standard tax exception in the title policy will be limited to taxes for the year 2023 and subsequent years, not yet due and payable, and that no prior year delinquencies exist.

6. Judgments and Liens Search. Schedule B-I requires a satisfactory judgment, lien, and litigation search against both CPRH and VHG. The search must cover:

(a) Monroe County, Florida (county of property location) — state court judgments, state tax liens, and lis pendens;

(b) Miami-Dade County, Florida (county of CPRH's registered office and VHG's principal Florida office) — state court judgments, state tax liens, and lis pendens;

(c) Federal court (United States District Court for the Southern District of Florida) — federal judgments, federal tax liens, and pending litigation; and

(d) Florida Department of State (Secretary of State) — UCC lien search against CPRH and VHG.

We have ordered these searches through Meridian Title's affiliated search company and expect results within approximately ten business days. We are not aware of any outstanding judgments, tax liens, or pending litigation against either CPRH or VHG that would encumber the Property, based on representations made by VHG's in-house counsel. However, we will independently verify the absence of such encumbrances through the title search process.

7. Gap Coverage / Bring-Down. Schedule B-I provides that Meridian Title will furnish gap coverage or a bring-down endorsement from the effective date of the Title Commitment (November 22, 2022) through the recording date of the PAC Mortgage. This is a standard requirement and ensures that no intervening liens, encumbrances, or adverse filings recorded between the effective date and the closing date will impair the priority of the PAC Mortgage. We will confirm with Meridian Title that the gap coverage will be provided at no additional premium and that the bring-down will be conducted immediately prior to the recording of the PAC Mortgage.

8. Payment of Title Insurance Premiums. Schedule B-I requires payment of all title insurance premiums, endorsement premiums, and related charges for the lender's title insurance policy. Under Florida's promulgated rate schedule, the premium for a $160,000,000 lender's policy is calculated based on the Florida Department of Financial Services rate schedule, which provides for tiered pricing based on the policy amount. We have requested a premium calculation from Meridian Title and anticipate that the total premium (including endorsements) will be in the range of $400,000 to $475,000. This amount is included in the overall estimated closing costs of approximately $3,250,000 provided to the Borrower. Under the terms of the Loan Agreement, the Borrower is responsible for payment of the title insurance premium.

V. SCHEDULE B-II — EXCEPTIONS FROM COVERAGE

A. Standard / Pre-Printed Exceptions

The following standard or pre-printed exceptions appear in Schedule B-II of the Title Commitment. These are boilerplate exceptions that appear in most title commitments and are subject to deletion or modification through the provision of appropriate documentation, endorsements, and/or affidavits.

1. Rights or Claims of Parties in Possession. Schedule B-II, Exception 1 sets forth the standard exception for "rights or claims of parties in possession not shown by the public records." This exception, if retained, would exclude from coverage any possessory interests in the Property held by parties whose rights are not reflected in the recorded documents.

Analysis and Recommendation: This exception should be deleted or substantially modified. The Property is operated as a full-service resort hotel, and the only parties in possession are hotel guests (who are short-term transient occupants), employees of the Borrower and its hotel management company, licensees operating under concession or management agreements (such as the spa operator and marina operator), and invitees. There are no residential tenants, no unrecorded long-term leases, and no adverse possessors.

We recommend requesting deletion of this exception upon delivery of an affidavit of possession from the Borrower confirming that: (a) the Property is occupied only by hotel guests, licensees, and permittees under the hotel operations; (b) there are no unrecorded leases with terms exceeding one year; (c) there are no parties in possession claiming adverse ownership or possessory rights; and (d) there are no tenancies or occupancies other than those arising in the ordinary course of the hotel business. In the alternative, we can request that the exception be modified to exclude only "rights of hotel guests and transient occupants as guests of the resort."

Additionally, if an ALTA 3.1 (Zoning) endorsement is obtained, it will provide a measure of affirmative coverage with respect to the use of the Property as a resort hotel, which indirectly addresses possessory concerns.

2. Encroachments, Overlaps, Boundary Line Disputes, and Matters of Survey. Schedule B-II, Exception 2 is the standard survey exception covering "encroachments, overlaps, boundary line disputes, or other matters which would be disclosed by an accurate survey and inspection of the premises."

Analysis and Recommendation: This exception should be deleted and replaced with a survey-based exception that references the specific Landis & Shaw ALTA/NSPS Survey by surveyor name, date, and job number. The replacement exception should read substantially as follows: "Matters shown on the survey prepared by Landis & Shaw Surveying, Inc. (Robert Tran, PLS), dated [final date], Job No. [number]." This is standard practice in commercial mortgage transactions and is required by PAC under the Lender's Title Requirements. The issuance of the ALTA 25 (Same as Survey) endorsement will further confirm the correspondence between the surveyed property and the insured property.

Any encroachments, boundary issues, or other survey matters disclosed by the Landis & Shaw Survey will be specifically identified and separately addressed. Our preliminary review of the Survey has not revealed any material encroachments or boundary disputes, but this analysis is set forth in detail in the separate Survey Review Memorandum.

3. Easements or Claims of Easements Not Shown by Public Records. Schedule B-II, Exception 3 is the standard exception for "easements or claims of easements not shown by the public records."

Analysis and Recommendation: This exception should be deleted upon delivery of an affidavit from the Borrower confirming that the Borrower has no knowledge of any unrecorded easements or claims of easements affecting the Property. The Survey should also be reviewed to confirm that it does not depict any visible evidence of unrecorded easements (such as well-worn paths, utility lines not corresponding to recorded easements, or other physical evidence of prescriptive or implied easements). Our preliminary survey review has not identified any such evidence.

4. Mechanic's Liens and Materialmen's Liens. Schedule B-II, Exception 4 is the standard exception for "any lien, or right to a lien, for services, labor or material heretofore or hereafter furnished, imposed by law and not shown by the public records."

Analysis and Recommendation: The Borrower completed a comprehensive renovation of the Property in August 2021 at a cost of approximately $47,000,000. The renovation involved substantial structural and cosmetic improvements to the guest rooms, lobby, conference center, pool areas, and spa facilities. Under Florida's Construction Lien Law (Florida Statutes § 713.01 et seq.), the deadline for recording a claim of lien is ninety (90) days after the final furnishing of labor, services, or materials (or the date of the contractor's final payment affidavit, whichever is earlier). Given that the renovation was completed in August 2021, the statutory lien periods for the renovation work expired no later than November 2021, well before the effective date of the Title Commitment.

However, we must confirm with VHG whether any subsequent capital improvement, maintenance, or repair work has been performed at the Property since the completion of the major renovation that could give rise to new mechanic's lien claims. Even relatively minor work — such as HVAC replacement, roof repairs, or dock improvements — could create lien exposure if the work was performed within the ninety-day statutory period preceding the closing date.

We recommend the following actions: (a) request deletion of this exception upon receipt of a contractor's final affidavit or a borrower's lien affidavit confirming that no work has been performed within the applicable lien period for which payment remains outstanding; (b) obtain lien waivers from any contractors who have performed work at the Property within the last one hundred twenty (120) days; and (c) if any work is currently in progress or has been recently completed, require partial lien waivers from all contractors, subcontractors, and material suppliers. We have communicated this requirement to Margaret Huang and are awaiting a response regarding recent capital improvements.

5. Taxes and Assessments. Schedule B-II, Exception 5 excepts from coverage "taxes and assessments for the year 2023 and subsequent years, not yet due and payable."

Analysis and Recommendation: This is a standard exception that is typically retained in the final title policy. However, the exception language should be reviewed to confirm that it does not except taxes for the year 2022 or any prior year, as all such taxes should be confirmed as paid. We will verify with Meridian Title that the exception is limited to non-delinquent taxes for 2023 and subsequent years only. If any prior-year taxes remain unpaid or if any special assessments are outstanding, the exception must be modified to reflect the actual status, and arrangements must be made for payment at or before closing.

6. Matters That Would Be Disclosed by an Accurate Survey. Schedule B-II, Exception 6 overlaps substantially with Exception 2 above and similarly references "matters that would be disclosed by an accurate survey and inspection of the premises."

Analysis and Recommendation: This exception is duplicative of Exception 2 and should be deleted in its entirety and consolidated with the survey-based replacement exception described under Exception 2 above. We will address this in our Title Objection Letter to Meridian Title.

B. Special Exceptions — Recorded Instruments

The following special exceptions are listed in Schedule B-II and reference specific recorded instruments or matters affecting the Property. Each is analyzed below with our recommended disposition.

7. Existing Tidewater National Bank Mortgage. Schedule B-II, Exception 7 references the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing from Coral Palms Resort Holdings LLC to Tidewater National Bank, N.A., recorded in Official Records Book 2892, Page 0445, Public Records of Monroe County, Florida, securing a Promissory Note in the original principal amount of $125,000,000.00 (with an outstanding balance of approximately $118,500,000.00 as of the date of this memorandum). The Assignment of Leases and Rents component was recorded concurrently with the mortgage instrument.

Action Required: This exception must be removed from Schedule B-II prior to the issuance of the lender's title insurance policy. The Tidewater Mortgage must be satisfied and discharged at closing through the application of a portion of the PAC Loan proceeds to retire the Tidewater indebtedness in full. As noted above, Calderwood & Harkness has submitted a payoff request to Tidewater (Alan Prescott, SVP — Commercial Real Estate Lending) seeking the payoff statement, per diem interest calculations, prepayment premium calculation, and a fully executed Satisfaction of Mortgage in recordable form.

The closing mechanics should be structured so that Meridian Title disburses the Tidewater payoff amount from the PAC Loan proceeds directly to Tidewater at closing, simultaneously with or immediately prior to the recording of the PAC Mortgage. Meridian Title must receive the executed Satisfaction of Mortgage from Tidewater at or before closing and must record the Satisfaction of Mortgage in the Monroe County Official Records prior to or simultaneously with the PAC Mortgage, thereby ensuring that the PAC Mortgage is insured as a first-priority lien. In the alternative, Meridian Title must agree to insure over the gap and assume responsibility for recording the Satisfaction of Mortgage promptly after closing.

This is the single most critical title requirement for the transaction. Failure to obtain the Satisfaction of Mortgage from Tidewater will prevent the issuance of the lender's title policy and will constitute a failure of a closing condition under the Loan Agreement.

8. UCC Financing Statement — Tidewater. Schedule B-II, Exception 8 references a UCC-1 Financing Statement filed with the Florida Secured Transaction Registry (Florida Department of State, Division of Corporations), File No. 202219087643, naming Coral Palms Resort Holdings LLC as debtor and Tidewater National Bank, N.A. as secured party. The UCC-1 covers personal property collateral associated with the existing Tidewater loan, including (based on our review of the filing) all furniture, fixtures, equipment, accounts, inventory, and general intangibles used in connection with the operation of the Property.

Action Required: A UCC-3 Termination Statement must be filed with the Florida Secured Transaction Registry at or promptly after closing, terminating Tidewater's security interest in the personal property collateral. We have included the UCC-3 Termination Statement in our payoff request to Tidewater and will confirm that Tidewater will deliver the executed UCC-3 in exchange for payoff proceeds at closing. PAC will simultaneously file a new UCC-1 Financing Statement naming CPRH as debtor and PAC as secured party, covering the personal property collateral described in the PAC Mortgage.

We note that the UCC-1 Financing Statement is a personal property filing and does not technically constitute a lien on real property that would be covered by the title insurance policy. However, because the PAC Mortgage includes a fixture filing component covering fixtures located on the Property, the termination of Tidewater's UCC-1 is necessary to ensure that PAC's fixture filing has priority over any competing security interests.

9. Restrictive Covenants / Declaration of Covenants, Conditions and Restrictions. Schedule B-II, Exception 9 references certain restrictive covenants and/or a Declaration of Covenants, Conditions and Restrictions ("CC&Rs") applicable to the Property or the broader development area within Key Largo. The specific recorded instrument(s) referenced in this exception include:

(a) Declaration of Covenants, Conditions, and Restrictions for the Overseas Highway Commercial Corridor, recorded at Official Records Book 2312, Page 0877, Public Records of Monroe County, Florida, as amended by First Amendment to Declaration recorded at Official Records Book 2456, Page 0312; and

(b) Development Order No. 97-0042, issued by the Monroe County Board of County Commissioners, recorded at Official Records Book 2198, Page 0215, Public Records of Monroe County, Florida.

Analysis: We have obtained and are reviewing copies of both referenced instruments. Our preliminary analysis indicates the following:

The Declaration of Covenants for the Overseas Highway Commercial Corridor appears to be a set of development standards and use restrictions applicable to commercial properties along the U.S. Route 1 corridor in Key Largo. The covenants address building setbacks, signage, landscaping, and general aesthetic standards. Preliminary review does not indicate any provisions that would: (i) prohibit or restrict resort hotel use of the Property; (ii) prohibit or restrict mortgage financing or the granting of a security interest; (iii) create rights of first refusal or consent-to-transfer requirements that would apply to a refinancing; or (iv) create any lien or assessment obligations superior to the PAC Mortgage other than those that would run with the land as equitable servitudes.

The Development Order appears to be a standard Monroe County development order issued in connection with the original development of the resort property, establishing density, intensity, and design standards consistent with the Monroe County Comprehensive Plan and the Florida Keys Area of Critical State Concern regulations. We will complete our review of these instruments and provide a supplemental memorandum or summary to WBD for PAC's review and approval as permitted exceptions.

Recommendation: These exceptions are likely standard for resort and commercial properties in Monroe County and will need to be accepted as permitted exceptions under the Loan Agreement. We will determine whether any provisions require endorsement or affirmative coverage and whether the ALTA 9 (Restrictions, Encroachments, Minerals) endorsement can be obtained to provide additional comfort that the restrictive covenants do not contain provisions that would result in a loss or forfeiture of title or impair the lien of the PAC Mortgage.

10. Easements of Record. Schedule B-II, Exception 10 references multiple recorded easements affecting the Property. Based on our review, the following specific easements have been identified:

(a) Utility Easements — Electrical. Easement in favor of the Calderon Partners LLC ("FKEC"), recorded at Official Records Book 1987, Page 0334, Public Records of Monroe County, Florida, granting FKEC the right to install, operate, maintain, repair, and replace electrical transmission and distribution lines, poles, transformers, and related equipment across certain designated portions of the Property.

(b) Utility Easements — Water and Sewer. Easement in favor of the Florida Keys Aqueduct Authority ("FKAA"), recorded at Official Records Book 2015, Page 0712, Public Records of Monroe County, Florida, granting FKAA the right to install, operate, and maintain water transmission lines and related infrastructure within a twenty-foot-wide strip along the northern boundary of the Property.

(c) Utility Easements — Telecommunications. Easement in favor of Quillon Industries (successor to Harborline Partners LLC), recorded at Official Records Book 2044, Page 0118, Public Records of Monroe County, Florida, for the installation and maintenance of telecommunications infrastructure.

(d) Access Easement — Overseas Highway. Ingress and egress easement from and to Overseas Highway (U.S. Route 1), recorded at Official Records Book 2199, Page 0455, Public Records of Monroe County, Florida, providing vehicular and pedestrian access to and from the Property via the main resort entrance and service road.

(e) Drainage Easement. Drainage easement in favor of the South Florida Water Management District, recorded at Official Records Book 2200, Page 0138, Public Records of Monroe County, Florida, granting rights for stormwater management and drainage across certain low-lying portions of the Property.

(f) Marina Access Easement. Easement for marina access and waterfront use, recorded at Official Records Book 2311, Page 0901, Public Records of Monroe County, Florida, providing access to and use of the marina basin and dock facilities. This easement appears to be appurtenant to the Property and may benefit adjacent property owners for limited purposes.

(g) Cross-Easement Agreement. Cross-Easement Agreement between Key Largo Oceanside Partners, Ltd. (CPRH's predecessor in title) and Overseas Highway Partners, LLC, recorded at Official Records Book 2350, Page 0655, Public Records of Monroe County, Florida, providing reciprocal access and utility easements between the Property and the adjacent commercial parcel to the south.

Analysis: We are reviewing each easement instrument to determine: (i) the precise location of each easement as depicted on the Landis & Shaw Survey; (ii) the scope of the rights granted and whether such rights are limited to the specific purposes described; (iii) whether any easement encroaches upon or unduly burdens the existing improvements on the Property; and (iv) whether any easement grants rights that could interfere with the operation of the resort or the exercise of PAC's rights under the PAC Mortgage.

Our preliminary analysis indicates that the utility easements (electrical, water/sewer, and telecommunications) are standard for a property of this size and type and are located within designated utility corridors that do not materially interfere with the resort improvements. The access easement to Overseas Highway is a critical benefit to the Property and should be confirmed and protected through the ALTA 17 (Access) endorsement. The drainage easement and marina access easement are consistent with the Property's physical characteristics and operations.

The cross-easement agreement with the adjacent property owner (Overseas Highway Partners, LLC) requires more detailed review to confirm that it does not impose obligations on the Property that could create liens or encumbrances superior to the PAC Mortgage and that it does not contain provisions restricting the Property owner's ability to encumber the Property.

Recommendation: Most of the recorded easements are standard for an oceanfront resort property in Monroe County and will be accepted as permitted exceptions under the Loan Agreement. Any easement that encroaches on or unduly burdens the improvements should be flagged for further review and possible endorsement through the ALTA 28 (Easement) endorsement or affirmative coverage. We will provide WBD with a summary of each easement and a recommended disposition (accept, endorse, or further review) for PAC's approval.

11. Zoning and Land Use Restrictions. Schedule B-II contains a reference to compliance with local zoning ordinances and land development regulations, including the Monroe County Land Development Code and the Florida Keys Area of Critical State Concern designation applicable to all of Monroe County.

Analysis: This reference is somewhat unusual in a Schedule B-II exception, as zoning and land use compliance is typically not a title matter but rather a regulatory matter. Standard ALTA title policies exclude loss arising from governmental regulations of land use unless specifically endorsed. However, Monroe County title practices sometimes include informational references to the Florida Keys Area of Critical State Concern designation (pursuant to Florida Statutes § 380.05), which imposes heightened land use and development restrictions throughout the Florida Keys.

Recommendation: To the extent PAC requires assurance of zoning compliance, we recommend requesting the ALTA 3.1 (Zoning — Land Under Development) endorsement from Meridian Title. This endorsement will confirm that: (a) the Property's zoning classification under the Monroe County Land Development Code permits resort hotel use with all ancillary commercial uses (including restaurant, spa, marina, and conference center operations); (b) the existing improvements comply with applicable building setback, height, density, and floor area ratio requirements; and (c) parking (the Property provides approximately 1,200 parking spaces) and loading facilities comply with Monroe County zoning requirements. WBD has confirmed that PAC requires this endorsement as a condition to closing.

12. Environmental and Coastal Regulatory Matters. Schedule B-II contains informational references to state and federal environmental regulations affecting properties in the Florida Keys, including:

(a) Florida Keys National Marine Sanctuary restrictions (administered by the National Oceanic and Atmospheric Administration);

(b) United States Army Corps of Engineers jurisdiction over wetlands and navigable waterways adjacent to the Property, including the marina basin;

(c) Florida Department of Environmental Protection ("DEP") Coastal Construction Control Line ("CCCL") regulations applicable to construction seaward of the CCCL; and

(d) Monroe County Environmental Land Use and Resource Management provisions.

Analysis: These references are informational in nature and reflect regulatory regimes that may affect future development or modification of the Property rather than title defects. Standard ALTA title policies exclude from coverage loss arising from governmental regulations, including environmental laws and coastal construction restrictions. These matters are not curable as title exceptions and cannot be deleted from the title commitment through endorsement or affirmative coverage.

These environmental and coastal regulatory matters are being addressed through separate due diligence workstreams. Oakridge Environmental Consulting Group, Inc. (Dr. James Whitmore, Senior Environmental Scientist) is preparing a Phase I Environmental Site Assessment ("Phase I ESA") of the Property on behalf of PAC in accordance with ASTM Standard E1527-21. The Phase I ESA will identify any recognized environmental conditions ("RECs"), controlled recognized environmental conditions ("CRECs"), or historical recognized environmental conditions ("HRECs") at the Property. Additionally, coastal construction compliance and CCCL matters are being reviewed by the Borrower's environmental consultant in connection with the existing improvements and any planned future capital improvements.

Recommendation: These informational exceptions should be noted but cannot be deleted. We will coordinate with Oakridge Environmental to confirm that the Phase I ESA does not identify any RECs that would affect title insurability. No further title action is required with respect to these items.

13. Flood Zone Designation. Schedule B-II contains a notation that the Property is located within a Special Flood Hazard Area ("SFHA") as designated by the Federal Emergency Management Agency ("FEMA") on the applicable Flood Insurance Rate Map ("FIRM") for Monroe County, Florida. Based on the Property's oceanfront Key Largo location, the flood zone designation is anticipated to be Zone AE (areas subject to inundation by the 1-percent-annual-chance flood event with base flood elevations determined) or Zone VE (coastal flood zone with velocity hazard — wave action), or a combination of both designations across different portions of the Property.

Analysis: This is an informational exception that is standard for properties located in SFHA areas and is not curable as a title matter. The flood zone designation is addressed through flood insurance requirements under the National Flood Insurance Program ("NFIP") and supplemental surplus lines flood coverage.

The Borrower currently maintains flood insurance coverage through the NFIP, subject to the maximum coverage limits available under that program, with supplemental excess flood insurance coverage provided by Bayfront Specialty Insurance Corp. to meet PAC's insurance requirements. The PAC Loan Agreement will require the Borrower to maintain flood insurance coverage in amounts and with deductibles satisfactory to PAC throughout the term of the Loan.

Recommendation: We will confirm that the flood zone designation in the Title Commitment is consistent with the flood zone certification shown on the Landis & Shaw Survey and with the flood zone determination obtained by PAC's flood zone determination company. Any inconsistency must be resolved prior to closing. No further title action is required with respect to this exception.

14. Mineral Rights / Submerged Lands Reservations. Schedule B-II, Exception 14 contains a standard Florida exception for state-retained mineral rights and/or sovereign submerged lands reservations. Under Florida law, the State of Florida has historically reserved mineral rights in certain conveyances, and sovereign submerged lands below the mean high-water line are held by the State in trust for the public.

Analysis: This exception is significant for the Property because the 42-slip marina facility extends into the waters adjacent to the upland portion of the Property. The marina basin and dock structures are likely located, in whole or in part, on sovereign submerged lands held by the State of Florida, administered by the Board of Trustees of the Internal Improvement Trust Fund and the Florida Department of Environmental Protection. Operation of a marina on sovereign submerged lands requires a Sovereign Submerged Lands Lease from the State.

We have confirmed through our preliminary review that CPRH (or its predecessor in title) entered into a Sovereign Submerged Lands Lease with the Board of Trustees of the Internal Improvement Trust Fund, Lease No. 440037870 (the "Submerged Lands Lease"), for the portion of the marina basin and dock structures located on sovereign submerged lands. We are in the process of obtaining a copy of the current Submerged Lands Lease and confirming the following:

(a) The Submerged Lands Lease is current and in good standing, with all annual lease payments current;

(b) The term of the Submerged Lands Lease extends beyond the maturity date of the PAC Loan (anticipated to be a 10-year term with a maturity date in approximately 2033);

(c) The Submerged Lands Lease is assignable or financeable — i.e., that the lessee's interest may be encumbered by a mortgage or security interest in favor of PAC without the prior consent of the Board of Trustees, or that such consent can be obtained; and

(d) The Submerged Lands Lease does not contain provisions that would cause a default or termination upon the granting of the PAC Mortgage or the exercise of remedies by PAC (including foreclosure).

With respect to the upland portions of the Property, the fee interest conveyed to CPRH in the Vesting Deed should include all appurtenant riparian rights associated with the Property's waterfront location. We will confirm that the Vesting Deed does not contain any reservation of riparian rights by the grantor.

Recommendation: If a Submerged Lands Lease exists (as we believe it does), we must obtain a copy of the lease and confirm that it is in good standing, financeable, and of sufficient term. PAC and WBD will require evidence of the lease and its terms as a condition to closing. If the lease is not assignable or financeable without state consent, we will need to coordinate with the Florida DEP to obtain the necessary consent. This could be a timing-sensitive issue and should be addressed promptly.

Additionally, we recommend requesting the ALTA 35 (Minerals — Surface Damage) endorsement to provide coverage against surface damage resulting from the exercise of any retained mineral rights, although the risk of mineral extraction in the Florida Keys is minimal.

15. Prior Deed Restrictions or Conditions. Schedule B-II, Exception 15 references conditions, reservations, or restrictions contained in the Vesting Deed (O.R. Book 2847, Page 1122) or in prior deeds in the chain of title.

Analysis: We have reviewed the Vesting Deed and have not identified any reverter clauses, conditions subsequent, use restrictions, consent-to-encumbrance provisions, or rights of first refusal that would adversely affect the PAC Mortgage or the Property's use as a resort. However, we are conducting a full chain of title review to examine prior deeds for any restrictions that may have been imposed by earlier grantors and that may run with the land. In particular, we are reviewing deeds from the original development of the Property to confirm the absence of any developer's retained rights or restrictions that could be invoked to challenge the resort use or the granting of the mortgage.

Recommendation: Subject to the completion of our chain of title review, we do not anticipate that this exception will present a material issue. If no problematic restrictions are identified, this exception can likely be accepted as a permitted exception with endorsement coverage under the ALTA 9 (Restrictions, Encroachments, Minerals) endorsement.

16. Potential Condominium / HOA Matters. Analysis: We have confirmed through our review of the Monroe County Official Records that no Declaration of Condominium has been recorded against the Property and that the Property is not subject to a homeowners association or condominium association. The Property is a single-owner resort property, and the Title Commitment does not identify any condominium or HOA-related instruments of record. This is consistent with the Property's use as a single-asset resort hotel and with the representations of VHG.

Recommendation: No further action is required. We will confirm with Meridian Title that the lender's title policy will not contain any exception for condominium or HOA matters and that the title company affirmatively confirms the absence of any condominium declaration of record affecting the Property.

VI. ENDORSEMENTS TO BE REQUESTED

A. Lender's Endorsements Required by PAC

Based on PAC's title and endorsement requirements as specified in the Commitment Letter, the draft Loan Agreement, and WBD's title requirements letter dated November 28, 2022, the following endorsements should be obtained from Meridian Title & Escrow, Inc. in connection with the issuance of the lender's title insurance policy:

1. ALTA 3.1 — Zoning (with Parking and Loading). This endorsement will confirm that the Property's zoning classification under the Monroe County Land Development Code permits resort hotel use with all ancillary uses (including restaurant, spa, marina, conference center, and related commercial activities) and that the existing improvements, including approximately 1,200 parking spaces and loading facilities, comply with all applicable Monroe County zoning requirements for the permitted use. This endorsement is specifically required by PAC as a closing condition.

2. ALTA 9 — Restrictions, Encroachments, Minerals. This comprehensive endorsement will provide coverage with respect to the recorded restrictive covenants identified in Exception 9 above, confirming that the covenants do not contain provisions that would result in a forfeiture or reversion of title, and will address any encroachment issues identified by the Survey and any mineral reservations affecting the Property.

3. ALTA 9.7 — Land Under Development. This endorsement should be obtained if any portions of the Property are subject to continuing development, phased improvements, or planned future construction. Based on our current understanding, no active development is underway; however, we will confirm with VHG whether any future development plans (such as additional guest room towers, expanded conference facilities, or marina improvements) are contemplated that would warrant this endorsement.

4. ALTA 17 — Access. This endorsement will confirm that the Property has both legal and physical access to Overseas Highway (U.S. Route 1), a publicly maintained roadway. Given the Property's location in the Florida Keys, where access is limited and dependent on U.S. Route 1, this endorsement is critically important. We will provide Meridian Title with the Survey showing the access points and the recorded access easement (O.R. Book 2199, Page 0455) to support the issuance of this endorsement.

5. ALTA 17.2 — Access and Entry. If access to the marina facility involves separate or distinct access rights (such as the marina access easement recorded at O.R. Book 2311, Page 0901), this endorsement may be necessary to confirm that the marina access is legally established and insured. We will evaluate the need for this endorsement based on our detailed review of the marina access easement.

6. ALTA 19 — Contiguity. If the Property consists of multiple tax parcels or legally distinct parcels that together form the resort property, this endorsement will confirm that the parcels are contiguous. Based on our preliminary review, the Property appears to be assessed under a single folio number (00460780-000100), suggesting a single parcel. However, if the legal description encompasses multiple parcels or lots, the contiguity endorsement will be necessary. We will confirm the parcel configuration with Meridian Title and the Monroe County Property Appraiser.

7. ALTA 22 — Location. This endorsement will confirm that the Property is located at the street address of 99000 Overseas Highway, Key Largo, Florida 33037, as identified in the Loan Agreement and other loan documents. This is a straightforward endorsement and should be readily available.

8. ALTA 25 — Same as Survey. This endorsement will confirm that the legal description in the lender's title policy is the same as the property depicted on the Landis & Shaw ALTA/NSPS Survey. This endorsement is essential to confirm consistency between the insured property and the surveyed property and is required by PAC under the Lender's Title Requirements.

9. ALTA 28 — Easement. If specific easement benefits are appurtenant to the Property (such as the access easement to Overseas Highway and the marina access easement), this endorsement will provide affirmative coverage confirming those easement benefits. We will identify the specific easements for which this endorsement is appropriate based on our detailed review of the easement instruments.

10. ALTA 35 — Minerals (Surface Damage). This endorsement will provide coverage against loss or damage to the surface of the Property resulting from the exercise of any reserved mineral rights. While the risk of mineral extraction in the Florida Keys is negligible, this endorsement is standard for commercial mortgage transactions and is included in PAC's endorsement requirements.

11. Comprehensive (Florida Form 9) Endorsement. The Florida-specific comprehensive endorsement provides a broad range of additional coverage, including coverage against loss from certain specified matters such as violations of restrictive covenants, encroachments, and failure to provide legal access. This endorsement is widely used in Florida commercial transactions and is required by PAC.

12. Usury Endorsement. If available under Florida title insurance regulations and Meridian Title's underwriting guidelines, this endorsement would provide coverage against loss arising from a determination that the interest rate or other terms of the PAC Loan are usuri

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Douglas Fairchild, Responsible Partner, Real Estate Practice Group
FROM: Grace Nakamura, Lead Associate, Real Estate Practice Group Rafael Dominguez, Working Associate, Real Estate Practice Group
DATE: January 4, 2023
RE: Title Commitment Review — Coral Palms Grand Resort & Spa, 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037
CLIENT: Verimark Hospitality Group Inc.
MATTER NO.: 1021-00007
This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. It is intended solely for the use of the addressee and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
I. PURPOSE AND SCOPE
This memorandum summarizes Calderwood & Harkness LLP's review and analysis of the title commitment (the "Title Commitment") issued by Meridian Title & Escrow, Inc. (Title Officer: Lisa Portman) in connection with the proposed $160,000,000 first mortgage refinancing loan (the "Loan") from Pinnacle Atlantic Capital, LLC ("PAC") to Coral Palms Resort Holdings LLC (the "Borrower" or "CPRH"), a Florida limited liability company and wholly owned indirect subsidiary of Verimark Hospitality Group Inc. ("VHG" or the "Guarantor"). The Loan will be secured by a first-priority mortgage lien on the Coral Palms Grand Resort & Spa (the "Property"), a 350-key oceanfront resort and spa complex located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037.
The Title Commitment was issued in connection with the refinancing of the existing first mortgage loan from Tidewater National Bank, N.A. ("Tidewater"), which has an outstanding principal balance of approximately $118,500,000 as of the date of this memorandum. The Tidewater mortgage is recorded in Official Records Book 2892, Page 0445, Public Records of Monroe County, Florida. The proceeds of the PAC Loan will be used to retire the existing Tidewater indebtedness in full, with the balance available for borrower's capital expenditure reserves, working capital, and closing costs.
The purpose of this memorandum is to: (a) identify all matters affecting title to the Property as disclosed by the Title Commitment; (b) flag any exceptions from coverage that require cure, endorsement, or affirmative coverage prior to closing; (c) analyze the requirements that must be satisfied as conditions to the issuance of the lender's title insurance policy in favor of PAC as mortgagee; and (d) recommend specific next steps and action items for the deal team in coordination with PAC's counsel, Whitford Baines & Driscoll LLP ("WBD"), and the title company.
In conducting our review, we examined the Title Commitment in conjunction with the following additional materials:
• The ALTA/NSPS Land Title Survey of the Property prepared by Landis & Shaw Surveying, Inc. (Robert Tran, PLS, Florida Professional Surveyor License No. LS 7214), dated November 18, 2022 (the "Survey"), which is the subject of a separate Survey Review Memorandum;
• The existing Tidewater loan documents as recorded with the Clerk of the Circuit Court, Monroe County, Florida;
• WBD's title and survey requirements letter dated November 28, 2022, issued on behalf of PAC (the "Lender's Title Requirements");
• The PAC Commitment Letter dated October 15, 2022, and the draft Loan Agreement circulated by WBD on December 12, 2022;
• Monroe County public records searches conducted by this firm; and
• Organizational documents for CPRH and VHG as provided by VHG's in-house counsel, Margaret Huang.
The scope of this memorandum is limited to title matters. Environmental due diligence, insurance compliance, zoning and land use regulatory compliance (beyond endorsement availability), and survey-specific issues are addressed in separate workstreams and memoranda, except where cross-referenced herein.
II. TITLE COMMITMENT OVERVIEW
A. Commitment Identification
The Title Commitment bears Commitment No. MT-2022-FL-048771 and was issued by Meridian Title & Escrow, Inc. with an effective date of November 22, 2022 at 8:00 a.m. (Eastern Time), reflecting the date and time through which Meridian Title's search of the Public Records of Monroe County, Florida was conducted. The proposed policy amount is $160,000,000.00 for the lender's title insurance policy to be issued in connection with the PAC Loan.
The issuing title insurer is Meridian Title & Escrow, Inc., with principal offices located at 9100 South Dadeland Boulevard, Suite 1500, Miami, Florida 33156. The designated Title Officer for this transaction is Lisa Portman, who may be reached at (305) 555-4820. We have been in contact with Ms. Portman's office regarding the timeline for endorsement availability and the anticipated closing procedures.
As of the effective date, the Title Commitment reflects Meridian Title's examination of the public records in Monroe County, including the records of the Clerk of the Circuit Court (Official Records), the Monroe County Tax Collector, and applicable state and federal judgment and lien indices. A supplemental search will be required closer to closing to capture any recordings or filings that may occur between the effective date of the commitment and the anticipated closing date, which is currently targeted for on or about February 15, 2023.
B. Type of Policy to Be Issued
The Title Commitment proposes to issue an ALTA Loan Policy (2006 Form, as amended), in the amount of $160,000,000.00, insuring the lien of PAC's mortgage as a valid first-priority mortgage lien on the Property. The policy will insure PAC, as mortgagee, that the mortgage to be executed and delivered by CPRH in favor of PAC constitutes a valid and enforceable lien upon the fee simple estate in the Property, subject only to the permitted exceptions set forth in Schedule B of the policy as finally issued.
No owner's title insurance policy is being issued in connection with this transaction, as the refinancing does not involve a transfer of ownership of the Property. CPRH's existing owner's policy (if any) issued in connection with its original acquisition of the Property will remain in effect and is not affected by this transaction. We have requested confirmation from Meridian Title as to whether an owner's policy was issued to CPRH at the time of the vesting deed and, if so, the policy number and issuing underwriter.
III. SCHEDULE A — INSURED INTEREST AND PARTIES
A. Fee Simple Owner
Schedule A of the Title Commitment identifies Coral Palms Resort Holdings LLC, a Florida limited liability company, as the fee simple owner of the Property. The vesting instrument is a Warranty Deed recorded in Official Records Book 2847, Page 1122, Public Records of Monroe County, Florida, dated March 14, 2019 (the "Vesting Deed"). The Vesting Deed conveyed the Property to CPRH from Key Largo Oceanside Partners, Ltd., a Florida limited partnership, the prior owner of the Property.
We have confirmed through our independent review of the Monroe County Official Records that CPRH remains the fee owner of record. No intervening conveyances, quitclaim deeds, or other instruments of transfer affecting fee title have been identified subsequent to the recording of the Vesting Deed. Furthermore, we have confirmed that no lis pendens or notice of claim has been filed against the Property that would suggest a challenge to CPRH's ownership.
CPRH is a wholly owned subsidiary of Verimark Resort Properties LLC, a Delaware limited liability company, which is in turn a wholly owned subsidiary of VHG, a Delaware corporation. This organizational structure has been confirmed through our entity due diligence review and is consistent with the representations made by VHG in connection with the PAC Loan application.
B. Property Description
The legal description set forth in Schedule A of the Title Commitment describes the Property as a portion of Section 27, Township 60 South, Range 39 East, Monroe County, Florida, as more particularly described in the Vesting Deed recorded at Official Records Book 2847, Page 1122, Public Records of Monroe County, Florida. The full metes and bounds legal description is attached to the Title Commitment as an exhibit and is reproduced in Exhibit B to this memorandum.
The Property is assigned Monroe County Property Appraiser Folio No. 00460780-000100 and bears the street address of 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037. The Property comprises approximately 22.4 acres of land improved with the Coral Palms Grand Resort & Spa, a 350-key full-service oceanfront resort featuring conference facilities, a full-service spa, three restaurants, a 42-slip marina, swimming pools, and related amenities.
Consistency Check: We are in the process of comparing the legal description set forth in the Title Commitment against: (a) the legal description to be included in the proposed mortgage instrument (as drafted by WBD); and (b) the legal description shown on the Landis & Shaw ALTA/NSPS Survey. It is imperative that the legal descriptions in all three instruments be identical. Any discrepancies — even minor variations in bearing calls, distances, or reference points — must be identified and reconciled prior to closing. We will request that the ALTA 25 (Same as Survey) endorsement be issued to confirm consistency between the legal description in the title policy and the surveyed boundaries. We will flag any discrepancies to WBD and Meridian Title promptly upon completion of our comparison.
C. Proposed Insured Mortgage
Schedule A identifies the proposed insured mortgage as a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "PAC Mortgage") to be granted by Coral Palms Resort Holdings LLC, as mortgagor, in favor of Pinnacle Atlantic Capital, LLC, as mortgagee, securing a Promissory Note in the original principal amount of $160,000,000.00 (the "Note"). The PAC Mortgage will encumber the Property and all improvements, fixtures, and personal property located thereon, and will include an assignment of all leases, rents, profits, and revenues derived from the operation of the Property.
The Title Commitment requires that the PAC Mortgage be recorded as a first-priority lien on the Property, subject only to the permitted exceptions that will be listed in Schedule B of the lender's title insurance policy as finally issued. This is consistent with PAC's requirements as set forth in the Commitment Letter and the draft Loan Agreement. The satisfaction and discharge of the existing Tidewater mortgage is the critical prerequisite to establishing first-lien priority for the PAC Mortgage.
D. Amount of Insurance
The proposed amount of insurance under the lender's title insurance policy is $160,000,000.00, which corresponds to the original principal amount of the PAC Loan. This amount is subject to adjustment in the event that the final loan amount is modified based on appraisal results, repricing, or other adjustments agreed upon between PAC and the Borrower prior to closing. As of the date of this review, the Title Commitment reflects the original loan amount as set forth in the PAC Commitment Letter, and no adjustment has been communicated. We will confirm the final loan amount with WBD and PAC prior to closing to ensure that the policy amount is accurate.
IV. SCHEDULE B-I — REQUIREMENTS
A. Overview. Schedule B-I of the Title Commitment sets forth the conditions and requirements that must be satisfied prior to the issuance of the lender's title insurance policy. These requirements are standard for a commercial mortgage refinancing transaction in Florida, with certain property-specific and transaction-specific conditions that warrant particular attention. We have reviewed each requirement and assessed the current status of compliance. The following is a detailed analysis of each identified requirement.
B. Specific Requirements Identified
1. Recording of Proposed Mortgage. Schedule B-I requires the execution and recording of the PAC Mortgage in the Public Records of Monroe County, Florida, in proper form, with all requisite documentary stamp taxes and intangible taxes paid at the time of recording.
Under Florida law, the following transfer taxes apply to the recording of the PAC Mortgage:
(a) Florida Documentary Stamp Tax on the Mortgage. Pursuant to Florida Statutes § 201.08, documentary stamp tax is imposed on promissory notes and other written obligations to pay money at the rate of $0.35 per $100 (or fraction thereof) of the face amount of the obligation. For a $160,000,000 note, the documentary stamp tax would be $560,000. However, Florida law provides a credit for documentary stamp taxes previously paid on the existing Tidewater note to the extent the new PAC note represents a renewal or replacement of the existing obligation. Under Florida Department of Revenue guidance, the documentary stamp tax on the new note should apply only to the "new money" — i.e., the difference between the PAC Loan amount ($160,000,000) and the outstanding balance of the Tidewater loan ($118,500,000), provided that the Tidewater note is surrendered and cancelled at closing and appropriate documentation is presented to the Monroe County Clerk. The taxable new money amount would therefore be approximately $41,500,000, resulting in a documentary stamp tax of approximately $145,250 (subject to confirmation of the exact Tidewater payoff balance at closing).
(b) Florida Nonrecurring Intangible Tax. Pursuant to Florida Statutes § 199.133, a nonrecurring intangible tax is imposed on obligations secured by a mortgage on Florida real property at the rate of $0.002 per $1.00 of the amount of the obligation. For a $160,000,000 mortgage, the intangible tax would be $320,000. As with the documentary stamp tax, a credit is available for the intangible tax previously paid on the Tidewater mortgage to the extent the new PAC mortgage secures obligations that replace the existing Tidewater indebtedness. The intangible tax on new money ($41,500,000) would be approximately $83,000. We are coordinating with the Borrower's tax counsel at Hartwell & Crane LLP to confirm the availability and calculation of these credits and to prepare the requisite affidavits and documentation for filing with the Monroe County Clerk.
We will prepare or review the tax credit affidavits required to claim the documentary stamp tax and intangible tax credits and will coordinate with WBD and Meridian Title to ensure proper calculation and payment at closing.
2. Satisfaction and Discharge of Existing Tidewater Mortgage. Schedule B-I requires that the existing mortgage held by Tidewater National Bank, N.A., recorded at Official Records Book 2892, Page 0445, Public Records of Monroe County, Florida (the "Tidewater Mortgage"), be satisfied and discharged of record at or prior to closing. This is the single most critical title requirement for the transaction, as the PAC Mortgage must be insured as a first-priority lien.
The following actions must be completed in connection with the satisfaction of the Tidewater Mortgage:
(a) Calderwood & Harkness has submitted a formal payoff request letter to Tidewater (Attention: Alan Prescott, Senior Vice President — Commercial Real Estate Lending) requesting: (i) a payoff statement reflecting the outstanding principal balance, accrued and unpaid interest, escrow balances, and all other amounts due under the Tidewater loan documents as of the anticipated closing date; (ii) per diem interest calculations; (iii) calculation of any prepayment premium or yield maintenance amount (estimated at $1,185,000 if prepaid before March 1, 2023, based on the 1.0% prepayment premium provision in the Tidewater Loan Agreement); (iv) a fully executed Satisfaction of Mortgage in recordable form; and (v) an executed UCC-3 Termination Statement. As of the date of this memorandum, we have not yet received the payoff statement from Tidewater and will follow up promptly.
(b) The Satisfaction of Mortgage must be recorded in the Public Records of Monroe County, Florida, simultaneously with or immediately prior to the recording of the PAC Mortgage. We will coordinate with Meridian Title to establish the closing mechanics, which will likely involve Meridian Title holding the PAC Loan proceeds in escrow pending simultaneous recording of the Satisfaction of Mortgage and the PAC Mortgage. Alternatively, Meridian Title may agree to insure over the gap between the disbursement of the Tidewater payoff proceeds and the recording of the Satisfaction of Mortgage, provided that Tidewater delivers the executed Satisfaction of Mortgage to Meridian Title at closing.
(c) A related UCC-3 Termination Statement must be filed with the Florida Secured Transaction Registry (Florida Department of State, Division of Corporations) terminating UCC-1 Financing Statement File No. 202219087643, which was filed by Tidewater as secured party naming CPRH as debtor. This filing is discussed in further detail under Exception 8 below.
We recommend that Douglas contact Alan Prescott at Tidewater directly if the payoff statement is not received within the next ten business days, given the anticipated closing timeline.
3. Evidence of Entity Existence and Authorization. Schedule B-I requires evidence of the legal existence and good standing of the Borrower and the Guarantor, as well as evidence of authorization for the transaction. Specifically, the following are required:
(a) A Certificate of Good Standing (or Certificate of Status) for Coral Palms Resort Holdings LLC from the Florida Department of State, Division of Corporations, dated not more than thirty (30) days prior to the closing date;
(b) A Certificate of Good Standing for Verimark Hospitality Group Inc. from the Delaware Secretary of State (Division of Corporations), dated not more than thirty (30) days prior to the closing date, confirming VHG's good standing in its state of incorporation;
(c) A Certificate of Authorization (Foreign Qualification Certificate) for VHG in the State of Florida, if VHG is transacting business in Florida and is required to be qualified as a foreign corporation under Florida Statutes § 607.1501. We are reviewing VHG's Florida qualification status with VHG's in-house counsel, Margaret Huang. If VHG is executing the Guaranty in Florida or has other contacts sufficient to constitute "transacting business" in the state, foreign qualification will be necessary;
(d) Certified copies of authorizing resolutions (or written consent in lieu of meeting) from CPRH's sole member (Verimark Resort Properties LLC) or manager, as applicable under CPRH's operating agreement, authorizing the execution, delivery, and performance of the PAC Mortgage, the Note, and all related loan documents;
(e) Certified copies of authorizing resolutions from VHG's board of directors authorizing the execution, delivery, and performance of the Guaranty of Payment and Performance and any other loan documents to which VHG is a party; and
(f) A certificate of the Secretary or an Assistant Secretary of each entity certifying the incumbency and specimen signatures of the officers or authorized signatories executing the loan documents on behalf of such entity.
We have communicated these requirements to Margaret Huang and are coordinating with her to prepare the requisite organizational documents. We anticipate receiving drafts of the authorizing resolutions for review within the next week.
4. Satisfactory Survey. Schedule B-I requires receipt by Meridian Title of a current ALTA/NSPS Land Title Survey of the Property, certified to Meridian Title & Escrow, Inc., Pinnacle Atlantic Capital, LLC, Calderwood & Harkness LLP, and Whitford Baines & Driscoll LLP. Landis & Shaw Surveying, Inc. (Robert Tran, PLS) has been engaged by the Borrower, with PAC's approval, to prepare the Survey. A preliminary version of the Survey was delivered on November 18, 2022, and is currently under review. We have requested that Landis & Shaw update the certification to include all required certifying parties and to address certain Table A optional survey items requested by WBD. A detailed analysis of the Survey is set forth in a separate Survey Review Memorandum being prepared concurrently with this memorandum.
5. Real Property Tax Clearance. Schedule B-I requires evidence that all ad valorem real property taxes and non-ad valorem assessments on the Property (Folio No. 00460780-000100) are current, with no delinquencies, outstanding tax sale certificates, or unpaid special assessments. We have requested a tax search from the Monroe County Tax Collector's office, and preliminary results indicate that all taxes and assessments are current through the 2022 tax year. The 2022 tax bill for the Property was approximately $1,842,000, based on a taxable value of approximately $112,400,000. We will obtain a formal tax clearance letter or certificate from the Monroe County Tax Collector prior to closing. The results of our preliminary tax search are attached as Exhibit E to this memorandum.
It should be noted that, under Florida law, real property taxes for a given year become a lien on January 1 of that year but are not due and payable until November 1 of that year (with discounts for early payment). The 2023 taxes, which will become a lien on January 1, 2023, will not be due until November 1, 2023. We will confirm with Meridian Title that the standard tax exception in the title policy will be limited to taxes for the year 2023 and subsequent years, not yet due and payable, and that no prior year delinquencies exist.
6. Judgments and Liens Search. Schedule B-I requires a satisfactory judgment, lien, and litigation search against both CPRH and VHG. The search must cover:
(a) Monroe County, Florida (county of property location) — state court judgments, state tax liens, and lis pendens;
(b) Miami-Dade County, Florida (county of CPRH's registered office and VHG's principal Florida office) — state court judgments, state tax liens, and lis pendens;
(c) Federal court (United States District Court for the Southern District of Florida) — federal judgments, federal tax liens, and pending litigation; and
(d) Florida Department of State (Secretary of State) — UCC lien search against CPRH and VHG.
We have ordered these searches through Meridian Title's affiliated search company and expect results within approximately ten business days. We are not aware of any outstanding judgments, tax liens, or pending litigation against either CPRH or VHG that would encumber the Property, based on representations made by VHG's in-house counsel. However, we will independently verify the absence of such encumbrances through the title search process.
7. Gap Coverage / Bring-Down. Schedule B-I provides that Meridian Title will furnish gap coverage or a bring-down endorsement from the effective date of the Title Commitment (November 22, 2022) through the recording date of the PAC Mortgage. This is a standard requirement and ensures that no intervening liens, encumbrances, or adverse filings recorded between the effective date and the closing date will impair the priority of the PAC Mortgage. We will confirm with Meridian Title that the gap coverage will be provided at no additional premium and that the bring-down will be conducted immediately prior to the recording of the PAC Mortgage.
8. Payment of Title Insurance Premiums. Schedule B-I requires payment of all title insurance premiums, endorsement premiums, and related charges for the lender's title insurance policy. Under Florida's promulgated rate schedule, the premium for a $160,000,000 lender's policy is calculated based on the Florida Department of Financial Services rate schedule, which provides for tiered pricing based on the policy amount. We have requested a premium calculation from Meridian Title and anticipate that the total premium (including endorsements) will be in the range of $400,000 to $475,000. This amount is included in the overall estimated closing costs of approximately $3,250,000 provided to the Borrower. Under the terms of the Loan Agreement, the Borrower is responsible for payment of the title insurance premium.
V. SCHEDULE B-II — EXCEPTIONS FROM COVERAGE
A. Standard / Pre-Printed Exceptions
The following standard or pre-printed exceptions appear in Schedule B-II of the Title Commitment. These are boilerplate exceptions that appear in most title commitments and are subject to deletion or modification through the provision of appropriate documentation, endorsements, and/or affidavits.
1. Rights or Claims of Parties in Possession. Schedule B-II, Exception 1 sets forth the standard exception for "rights or claims of parties in possession not shown by the public records." This exception, if retained, would exclude from coverage any possessory interests in the Property held by parties whose rights are not reflected in the recorded documents.
Analysis and Recommendation: This exception should be deleted or substantially modified. The Property is operated as a full-service resort hotel, and the only parties in possession are hotel guests (who are short-term transient occupants), employees of the Borrower and its hotel management company, licensees operating under concession or management agreements (such as the spa operator and marina operator), and invitees. There are no residential tenants, no unrecorded long-term leases, and no adverse possessors.
We recommend requesting deletion of this exception upon delivery of an affidavit of possession from the Borrower confirming that: (a) the Property is occupied only by hotel guests, licensees, and permittees under the hotel operations; (b) there are no unrecorded leases with terms exceeding one year; (c) there are no parties in possession claiming adverse ownership or possessory rights; and (d) there are no tenancies or occupancies other than those arising in the ordinary course of the hotel business. In the alternative, we can request that the exception be modified to exclude only "rights of hotel guests and transient occupants as guests of the resort."
Additionally, if an ALTA 3.1 (Zoning) endorsement is obtained, it will provide a measure of affirmative coverage with respect to the use of the Property as a resort hotel, which indirectly addresses possessory concerns.
2. Encroachments, Overlaps, Boundary Line Disputes, and Matters of Survey. Schedule B-II, Exception 2 is the standard survey exception covering "encroachments, overlaps, boundary line disputes, or other matters which would be disclosed by an accurate survey and inspection of the premises."
Analysis and Recommendation: This exception should be deleted and replaced with a survey-based exception that references the specific Landis & Shaw ALTA/NSPS Survey by surveyor name, date, and job number. The replacement exception should read substantially as follows: "Matters shown on the survey prepared by Landis & Shaw Surveying, Inc. (Robert Tran, PLS), dated [final date], Job No. [number]." This is standard practice in commercial mortgage transactions and is required by PAC under the Lender's Title Requirements. The issuance of the ALTA 25 (Same as Survey) endorsement will further confirm the correspondence between the surveyed property and the insured property.
Any encroachments, boundary issues, or other survey matters disclosed by the Landis & Shaw Survey will be specifically identified and separately addressed. Our preliminary review of the Survey has not revealed any material encroachments or boundary disputes, but this analysis is set forth in detail in the separate Survey Review Memorandum.
3. Easements or Claims of Easements Not Shown by Public Records. Schedule B-II, Exception 3 is the standard exception for "easements or claims of easements not shown by the public records."
Analysis and Recommendation: This exception should be deleted upon delivery of an affidavit from the Borrower confirming that the Borrower has no knowledge of any unrecorded easements or claims of easements affecting the Property. The Survey should also be reviewed to confirm that it does not depict any visible evidence of unrecorded easements (such as well-worn paths, utility lines not corresponding to recorded easements, or other physical evidence of prescriptive or implied easements). Our preliminary survey review has not identified any such evidence.
4. Mechanic's Liens and Materialmen's Liens. Schedule B-II, Exception 4 is the standard exception for "any lien, or right to a lien, for services, labor or material heretofore or hereafter furnished, imposed by law and not shown by the public records."
Analysis and Recommendation: The Borrower completed a comprehensive renovation of the Property in August 2021 at a cost of approximately $47,000,000. The renovation involved substantial structural and cosmetic improvements to the guest rooms, lobby, conference center, pool areas, and spa facilities. Under Florida's Construction Lien Law (Florida Statutes § 713.01 et seq.), the deadline for recording a claim of lien is ninety (90) days after the final furnishing of labor, services, or materials (or the date of the contractor's final payment affidavit, whichever is earlier). Given that the renovation was completed in August 2021, the statutory lien periods for the renovation work expired no later than November 2021, well before the effective date of the Title Commitment.
However, we must confirm with VHG whether any subsequent capital improvement, maintenance, or repair work has been performed at the Property since the completion of the major renovation that could give rise to new mechanic's lien claims. Even relatively minor work — such as HVAC replacement, roof repairs, or dock improvements — could create lien exposure if the work was performed within the ninety-day statutory period preceding the closing date.
We recommend the following actions: (a) request deletion of this exception upon receipt of a contractor's final affidavit or a borrower's lien affidavit confirming that no work has been performed within the applicable lien period for which payment remains outstanding; (b) obtain lien waivers from any contractors who have performed work at the Property within the last one hundred twenty (120) days; and (c) if any work is currently in progress or has been recently completed, require partial lien waivers from all contractors, subcontractors, and material suppliers. We have communicated this requirement to Margaret Huang and are awaiting a response regarding recent capital improvements.
5. Taxes and Assessments. Schedule B-II, Exception 5 excepts from coverage "taxes and assessments for the year 2023 and subsequent years, not yet due and payable."
Analysis and Recommendation: This is a standard exception that is typically retained in the final title policy. However, the exception language should be reviewed to confirm that it does not except taxes for the year 2022 or any prior year, as all such taxes should be confirmed as paid. We will verify with Meridian Title that the exception is limited to non-delinquent taxes for 2023 and subsequent years only. If any prior-year taxes remain unpaid or if any special assessments are outstanding, the exception must be modified to reflect the actual status, and arrangements must be made for payment at or before closing.
6. Matters That Would Be Disclosed by an Accurate Survey. Schedule B-II, Exception 6 overlaps substantially with Exception 2 above and similarly references "matters that would be disclosed by an accurate survey and inspection of the premises."
Analysis and Recommendation: This exception is duplicative of Exception 2 and should be deleted in its entirety and consolidated with the survey-based replacement exception described under Exception 2 above. We will address this in our Title Objection Letter to Meridian Title.
B. Special Exceptions — Recorded Instruments
The following special exceptions are listed in Schedule B-II and reference specific recorded instruments or matters affecting the Property. Each is analyzed below with our recommended disposition.
7. Existing Tidewater National Bank Mortgage. Schedule B-II, Exception 7 references the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing from Coral Palms Resort Holdings LLC to Tidewater National Bank, N.A., recorded in Official Records Book 2892, Page 0445, Public Records of Monroe County, Florida, securing a Promissory Note in the original principal amount of $125,000,000.00 (with an outstanding balance of approximately $118,500,000.00 as of the date of this memorandum). The Assignment of Leases and Rents component was recorded concurrently with the mortgage instrument.
Action Required: This exception must be removed from Schedule B-II prior to the issuance of the lender's title insurance policy. The Tidewater Mortgage must be satisfied and discharged at closing through the application of a portion of the PAC Loan proceeds to retire the Tidewater indebtedness in full. As noted above, Calderwood & Harkness has submitted a payoff request to Tidewater (Alan Prescott, SVP — Commercial Real Estate Lending) seeking the payoff statement, per diem interest calculations, prepayment premium calculation, and a fully executed Satisfaction of Mortgage in recordable form.
The closing mechanics should be structured so that Meridian Title disburses the Tidewater payoff amount from the PAC Loan proceeds directly to Tidewater at closing, simultaneously with or immediately prior to the recording of the PAC Mortgage. Meridian Title must receive the executed Satisfaction of Mortgage from Tidewater at or before closing and must record the Satisfaction of Mortgage in the Monroe County Official Records prior to or simultaneously with the PAC Mortgage, thereby ensuring that the PAC Mortgage is insured as a first-priority lien. In the alternative, Meridian Title must agree to insure over the gap and assume responsibility for recording the Satisfaction of Mortgage promptly after closing.
This is the single most critical title requirement for the transaction. Failure to obtain the Satisfaction of Mortgage from Tidewater will prevent the issuance of the lender's title policy and will constitute a failure of a closing condition under the Loan Agreement.
8. UCC Financing Statement — Tidewater. Schedule B-II, Exception 8 references a UCC-1 Financing Statement filed with the Florida Secured Transaction Registry (Florida Department of State, Division of Corporations), File No. 202219087643, naming Coral Palms Resort Holdings LLC as debtor and Tidewater National Bank, N.A. as secured party. The UCC-1 covers personal property collateral associated with the existing Tidewater loan, including (based on our review of the filing) all furniture, fixtures, equipment, accounts, inventory, and general intangibles used in connection with the operation of the Property.
Action Required: A UCC-3 Termination Statement must be filed with the Florida Secured Transaction Registry at or promptly after closing, terminating Tidewater's security interest in the personal property collateral. We have included the UCC-3 Termination Statement in our payoff request to Tidewater and will confirm that Tidewater will deliver the executed UCC-3 in exchange for payoff proceeds at closing. PAC will simultaneously file a new UCC-1 Financing Statement naming CPRH as debtor and PAC as secured party, covering the personal property collateral described in the PAC Mortgage.
We note that the UCC-1 Financing Statement is a personal property filing and does not technically constitute a lien on real property that would be covered by the title insurance policy. However, because the PAC Mortgage includes a fixture filing component covering fixtures located on the Property, the termination of Tidewater's UCC-1 is necessary to ensure that PAC's fixture filing has priority over any competing security interests.
9. Restrictive Covenants / Declaration of Covenants, Conditions and Restrictions. Schedule B-II, Exception 9 references certain restrictive covenants and/or a Declaration of Covenants, Conditions and Restrictions ("CC&Rs") applicable to the Property or the broader development area within Key Largo. The specific recorded instrument(s) referenced in this exception include:
(a) Declaration of Covenants, Conditions, and Restrictions for the Overseas Highway Commercial Corridor, recorded at Official Records Book 2312, Page 0877, Public Records of Monroe County, Florida, as amended by First Amendment to Declaration recorded at Official Records Book 2456, Page 0312; and
(b) Development Order No. 97-0042, issued by the Monroe County Board of County Commissioners, recorded at Official Records Book 2198, Page 0215, Public Records of Monroe County, Florida.
Analysis: We have obtained and are reviewing copies of both referenced instruments. Our preliminary analysis indicates the following:
The Declaration of Covenants for the Overseas Highway Commercial Corridor appears to be a set of development standards and use restrictions applicable to commercial properties along the U.S. Route 1 corridor in Key Largo. The covenants address building setbacks, signage, landscaping, and general aesthetic standards. Preliminary review does not indicate any provisions that would: (i) prohibit or restrict resort hotel use of the Property; (ii) prohibit or restrict mortgage financing or the granting of a security interest; (iii) create rights of first refusal or consent-to-transfer requirements that would apply to a refinancing; or (iv) create any lien or assessment obligations superior to the PAC Mortgage other than those that would run with the land as equitable servitudes.
The Development Order appears to be a standard Monroe County development order issued in connection with the original development of the resort property, establishing density, intensity, and design standards consistent with the Monroe County Comprehensive Plan and the Florida Keys Area of Critical State Concern regulations. We will complete our review of these instruments and provide a supplemental memorandum or summary to WBD for PAC's review and approval as permitted exceptions.
Recommendation: These exceptions are likely standard for resort and commercial properties in Monroe County and will need to be accepted as permitted exceptions under the Loan Agreement. We will determine whether any provisions require endorsement or affirmative coverage and whether the ALTA 9 (Restrictions, Encroachments, Minerals) endorsement can be obtained to provide additional comfort that the restrictive covenants do not contain provisions that would result in a loss or forfeiture of title or impair the lien of the PAC Mortgage.
10. Easements of Record. Schedule B-II, Exception 10 references multiple recorded easements affecting the Property. Based on our review, the following specific easements have been identified:
(a) Utility Easements — Electrical. Easement in favor of the Calderon Partners LLC ("FKEC"), recorded at Official Records Book 1987, Page 0334, Public Records of Monroe County, Florida, granting FKEC the right to install, operate, maintain, repair, and replace electrical transmission and distribution lines, poles, transformers, and related equipment across certain designated portions of the Property.
(b) Utility Easements — Water and Sewer. Easement in favor of the Florida Keys Aqueduct Authority ("FKAA"), recorded at Official Records Book 2015, Page 0712, Public Records of Monroe County, Florida, granting FKAA the right to install, operate, and maintain water transmission lines and related infrastructure within a twenty-foot-wide strip along the northern boundary of the Property.
(c) Utility Easements — Telecommunications. Easement in favor of Quillon Industries (successor to Harborline Partners LLC), recorded at Official Records Book 2044, Page 0118, Public Records of Monroe County, Florida, for the installation and maintenance of telecommunications infrastructure.
(d) Access Easement — Overseas Highway. Ingress and egress easement from and to Overseas Highway (U.S. Route 1), recorded at Official Records Book 2199, Page 0455, Public Records of Monroe County, Florida, providing vehicular and pedestrian access to and from the Property via the main resort entrance and service road.
(e) Drainage Easement. Drainage easement in favor of the South Florida Water Management District, recorded at Official Records Book 2200, Page 0138, Public Records of Monroe County, Florida, granting rights for stormwater management and drainage across certain low-lying portions of the Property.
(f) Marina Access Easement. Easement for marina access and waterfront use, recorded at Official Records Book 2311, Page 0901, Public Records of Monroe County, Florida, providing access to and use of the marina basin and dock facilities. This easement appears to be appurtenant to the Property and may benefit adjacent property owners for limited purposes.
(g) Cross-Easement Agreement. Cross-Easement Agreement between Key Largo Oceanside Partners, Ltd. (CPRH's predecessor in title) and Overseas Highway Partners, LLC, recorded at Official Records Book 2350, Page 0655, Public Records of Monroe County, Florida, providing reciprocal access and utility easements between the Property and the adjacent commercial parcel to the south.
Analysis: We are reviewing each easement instrument to determine: (i) the precise location of each easement as depicted on the Landis & Shaw Survey; (ii) the scope of the rights granted and whether such rights are limited to the specific purposes described; (iii) whether any easement encroaches upon or unduly burdens the existing improvements on the Property; and (iv) whether any easement grants rights that could interfere with the operation of the resort or the exercise of PAC's rights under the PAC Mortgage.
Our preliminary analysis indicates that the utility easements (electrical, water/sewer, and telecommunications) are standard for a property of this size and type and are located within designated utility corridors that do not materially interfere with the resort improvements. The access easement to Overseas Highway is a critical benefit to the Property and should be confirmed and protected through the ALTA 17 (Access) endorsement. The drainage easement and marina access easement are consistent with the Property's physical characteristics and operations.
The cross-easement agreement with the adjacent property owner (Overseas Highway Partners, LLC) requires more detailed review to confirm that it does not impose obligations on the Property that could create liens or encumbrances superior to the PAC Mortgage and that it does not contain provisions restricting the Property owner's ability to encumber the Property.
Recommendation: Most of the recorded easements are standard for an oceanfront resort property in Monroe County and will be accepted as permitted exceptions under the Loan Agreement. Any easement that encroaches on or unduly burdens the improvements should be flagged for further review and possible endorsement through the ALTA 28 (Easement) endorsement or affirmative coverage. We will provide WBD with a summary of each easement and a recommended disposition (accept, endorse, or further review) for PAC's approval.
11. Zoning and Land Use Restrictions. Schedule B-II contains a reference to compliance with local zoning ordinances and land development regulations, including the Monroe County Land Development Code and the Florida Keys Area of Critical State Concern designation applicable to all of Monroe County.
Analysis: This reference is somewhat unusual in a Schedule B-II exception, as zoning and land use compliance is typically not a title matter but rather a regulatory matter. Standard ALTA title policies exclude loss arising from governmental regulations of land use unless specifically endorsed. However, Monroe County title practices sometimes include informational references to the Florida Keys Area of Critical State Concern designation (pursuant to Florida Statutes § 380.05), which imposes heightened land use and development restrictions throughout the Florida Keys.
Recommendation: To the extent PAC requires assurance of zoning compliance, we recommend requesting the ALTA 3.1 (Zoning — Land Under Development) endorsement from Meridian Title. This endorsement will confirm that: (a) the Property's zoning classification under the Monroe County Land Development Code permits resort hotel use with all ancillary commercial uses (including restaurant, spa, marina, and conference center operations); (b) the existing improvements comply with applicable building setback, height, density, and floor area ratio requirements; and (c) parking (the Property provides approximately 1,200 parking spaces) and loading facilities comply with Monroe County zoning requirements. WBD has confirmed that PAC requires this endorsement as a condition to closing.
12. Environmental and Coastal Regulatory Matters. Schedule B-II contains informational references to state and federal environmental regulations affecting properties in the Florida Keys, including:
(a) Florida Keys National Marine Sanctuary restrictions (administered by the National Oceanic and Atmospheric Administration);
(b) United States Army Corps of Engineers jurisdiction over wetlands and navigable waterways adjacent to the Property, including the marina basin;
(c) Florida Department of Environmental Protection ("DEP") Coastal Construction Control Line ("CCCL") regulations applicable to construction seaward of the CCCL; and
(d) Monroe County Environmental Land Use and Resource Management provisions.
Analysis: These references are informational in nature and reflect regulatory regimes that may affect future development or modification of the Property rather than title defects. Standard ALTA title policies exclude from coverage loss arising from governmental regulations, including environmental laws and coastal construction restrictions. These matters are not curable as title exceptions and cannot be deleted from the title commitment through endorsement or affirmative coverage.
These environmental and coastal regulatory matters are being addressed through separate due diligence workstreams. Oakridge Environmental Consulting Group, Inc. (Dr. James Whitmore, Senior Environmental Scientist) is preparing a Phase I Environmental Site Assessment ("Phase I ESA") of the Property on behalf of PAC in accordance with ASTM Standard E1527-21. The Phase I ESA will identify any recognized environmental conditions ("RECs"), controlled recognized environmental conditions ("CRECs"), or historical recognized environmental conditions ("HRECs") at the Property. Additionally, coastal construction compliance and CCCL matters are being reviewed by the Borrower's environmental consultant in connection with the existing improvements and any planned future capital improvements.
Recommendation: These informational exceptions should be noted but cannot be deleted. We will coordinate with Oakridge Environmental to confirm that the Phase I ESA does not identify any RECs that would affect title insurability. No further title action is required with respect to these items.
13. Flood Zone Designation. Schedule B-II contains a notation that the Property is located within a Special Flood Hazard Area ("SFHA") as designated by the Federal Emergency Management Agency ("FEMA") on the applicable Flood Insurance Rate Map ("FIRM") for Monroe County, Florida. Based on the Property's oceanfront Key Largo location, the flood zone designation is anticipated to be Zone AE (areas subject to inundation by the 1-percent-annual-chance flood event with base flood elevations determined) or Zone VE (coastal flood zone with velocity hazard — wave action), or a combination of both designations across different portions of the Property.
Analysis: This is an informational exception that is standard for properties located in SFHA areas and is not curable as a title matter. The flood zone designation is addressed through flood insurance requirements under the National Flood Insurance Program ("NFIP") and supplemental surplus lines flood coverage.
The Borrower currently maintains flood insurance coverage through the NFIP, subject to the maximum coverage limits available under that program, with supplemental excess flood insurance coverage provided by Bayfront Specialty Insurance Corp. to meet PAC's insurance requirements. The PAC Loan Agreement will require the Borrower to maintain flood insurance coverage in amounts and with deductibles satisfactory to PAC throughout the term of the Loan.
Recommendation: We will confirm that the flood zone designation in the Title Commitment is consistent with the flood zone certification shown on the Landis & Shaw Survey and with the flood zone determination obtained by PAC's flood zone determination company. Any inconsistency must be resolved prior to closing. No further title action is required with respect to this exception.
14. Mineral Rights / Submerged Lands Reservations. Schedule B-II, Exception 14 contains a standard Florida exception for state-retained mineral rights and/or sovereign submerged lands reservations. Under Florida law, the State of Florida has historically reserved mineral rights in certain conveyances, and sovereign submerged lands below the mean high-water line are held by the State in trust for the public.
Analysis: This exception is significant for the Property because the 42-slip marina facility extends into the waters adjacent to the upland portion of the Property. The marina basin and dock structures are likely located, in whole or in part, on sovereign submerged lands held by the State of Florida, administered by the Board of Trustees of the Internal Improvement Trust Fund and the Florida Department of Environmental Protection. Operation of a marina on sovereign submerged lands requires a Sovereign Submerged Lands Lease from the State.
We have confirmed through our preliminary review that CPRH (or its predecessor in title) entered into a Sovereign Submerged Lands Lease with the Board of Trustees of the Internal Improvement Trust Fund, Lease No. 440037870 (the "Submerged Lands Lease"), for the portion of the marina basin and dock structures located on sovereign submerged lands. We are in the process of obtaining a copy of the current Submerged Lands Lease and confirming the following:
(a) The Submerged Lands Lease is current and in good standing, with all annual lease payments current;
(b) The term of the Submerged Lands Lease extends beyond the maturity date of the PAC Loan (anticipated to be a 10-year term with a maturity date in approximately 2033);
(c) The Submerged Lands Lease is assignable or financeable — i.e., that the lessee's interest may be encumbered by a mortgage or security interest in favor of PAC without the prior consent of the Board of Trustees, or that such consent can be obtained; and
(d) The Submerged Lands Lease does not contain provisions that would cause a default or termination upon the granting of the PAC Mortgage or the exercise of remedies by PAC (including foreclosure).
With respect to the upland portions of the Property, the fee interest conveyed to CPRH in the Vesting Deed should include all appurtenant riparian rights associated with the Property's waterfront location. We will confirm that the Vesting Deed does not contain any reservation of riparian rights by the grantor.
Recommendation: If a Submerged Lands Lease exists (as we believe it does), we must obtain a copy of the lease and confirm that it is in good standing, financeable, and of sufficient term. PAC and WBD will require evidence of the lease and its terms as a condition to closing. If the lease is not assignable or financeable without state consent, we will need to coordinate with the Florida DEP to obtain the necessary consent. This could be a timing-sensitive issue and should be addressed promptly.
Additionally, we recommend requesting the ALTA 35 (Minerals — Surface Damage) endorsement to provide coverage against surface damage resulting from the exercise of any retained mineral rights, although the risk of mineral extraction in the Florida Keys is minimal.
15. Prior Deed Restrictions or Conditions. Schedule B-II, Exception 15 references conditions, reservations, or restrictions contained in the Vesting Deed (O.R. Book 2847, Page 1122) or in prior deeds in the chain of title.
Analysis: We have reviewed the Vesting Deed and have not identified any reverter clauses, conditions subsequent, use restrictions, consent-to-encumbrance provisions, or rights of first refusal that would adversely affect the PAC Mortgage or the Property's use as a resort. However, we are conducting a full chain of title review to examine prior deeds for any restrictions that may have been imposed by earlier grantors and that may run with the land. In particular, we are reviewing deeds from the original development of the Property to confirm the absence of any developer's retained rights or restrictions that could be invoked to challenge the resort use or the granting of the mortgage.
Recommendation: Subject to the completion of our chain of title review, we do not anticipate that this exception will present a material issue. If no problematic restrictions are identified, this exception can likely be accepted as a permitted exception with endorsement coverage under the ALTA 9 (Restrictions, Encroachments, Minerals) endorsement.
16. Potential Condominium / HOA Matters. Analysis: We have confirmed through our review of the Monroe County Official Records that no Declaration of Condominium has been recorded against the Property and that the Property is not subject to a homeowners association or condominium association. The Property is a single-owner resort property, and the Title Commitment does not identify any condominium or HOA-related instruments of record. This is consistent with the Property's use as a single-asset resort hotel and with the representations of VHG.
Recommendation: No further action is required. We will confirm with Meridian Title that the lender's title policy will not contain any exception for condominium or HOA matters and that the title company affirmatively confirms the absence of any condominium declaration of record affecting the Property.
VI. ENDORSEMENTS TO BE REQUESTED
A. Lender's Endorsements Required by PAC
Based on PAC's title and endorsement requirements as specified in the Commitment Letter, the draft Loan Agreement, and WBD's title requirements letter dated November 28, 2022, the following endorsements should be obtained from Meridian Title & Escrow, Inc. in connection with the issuance of the lender's title insurance policy:
1. ALTA 3.1 — Zoning (with Parking and Loading). This endorsement will confirm that the Property's zoning classification under the Monroe County Land Development Code permits resort hotel use with all ancillary uses (including restaurant, spa, marina, conference center, and related commercial activities) and that the existing improvements, including approximately 1,200 parking spaces and loading facilities, comply with all applicable Monroe County zoning requirements for the permitted use. This endorsement is specifically required by PAC as a closing condition.
2. ALTA 9 — Restrictions, Encroachments, Minerals. This comprehensive endorsement will provide coverage with respect to the recorded restrictive covenants identified in Exception 9 above, confirming that the covenants do not contain provisions that would result in a forfeiture or reversion of title, and will address any encroachment issues identified by the Survey and any mineral reservations affecting the Property.
3. ALTA 9.7 — Land Under Development. This endorsement should be obtained if any portions of the Property are subject to continuing development, phased improvements, or planned future construction. Based on our current understanding, no active development is underway; however, we will confirm with VHG whether any future development plans (such as additional guest room towers, expanded conference facilities, or marina improvements) are contemplated that would warrant this endorsement.
4. ALTA 17 — Access. This endorsement will confirm that the Property has both legal and physical access to Overseas Highway (U.S. Route 1), a publicly maintained roadway. Given the Property's location in the Florida Keys, where access is limited and dependent on U.S. Route 1, this endorsement is critically important. We will provide Meridian Title with the Survey showing the access points and the recorded access easement (O.R. Book 2199, Page 0455) to support the issuance of this endorsement.
5. ALTA 17.2 — Access and Entry. If access to the marina facility involves separate or distinct access rights (such as the marina access easement recorded at O.R. Book 2311, Page 0901), this endorsement may be necessary to confirm that the marina access is legally established and insured. We will evaluate the need for this endorsement based on our detailed review of the marina access easement.
6. ALTA 19 — Contiguity. If the Property consists of multiple tax parcels or legally distinct parcels that together form the resort property, this endorsement will confirm that the parcels are contiguous. Based on our preliminary review, the Property appears to be assessed under a single folio number (00460780-000100), suggesting a single parcel. However, if the legal description encompasses multiple parcels or lots, the contiguity endorsement will be necessary. We will confirm the parcel configuration with Meridian Title and the Monroe County Property Appraiser.
7. ALTA 22 — Location. This endorsement will confirm that the Property is located at the street address of 99000 Overseas Highway, Key Largo, Florida 33037, as identified in the Loan Agreement and other loan documents. This is a straightforward endorsement and should be readily available.
8. ALTA 25 — Same as Survey. This endorsement will confirm that the legal description in the lender's title policy is the same as the property depicted on the Landis & Shaw ALTA/NSPS Survey. This endorsement is essential to confirm consistency between the insured property and the surveyed property and is required by PAC under the Lender's Title Requirements.
9. ALTA 28 — Easement. If specific easement benefits are appurtenant to the Property (such as the access easement to Overseas Highway and the marina access easement), this endorsement will provide affirmative coverage confirming those easement benefits. We will identify the specific easements for which this endorsement is appropriate based on our detailed review of the easement instruments.
10. ALTA 35 — Minerals (Surface Damage). This endorsement will provide coverage against loss or damage to the surface of the Property resulting from the exercise of any reserved mineral rights. While the risk of mineral extraction in the Florida Keys is negligible, this endorsement is standard for commercial mortgage transactions and is included in PAC's endorsement requirements.
11. Comprehensive (Florida Form 9) Endorsement. The Florida-specific comprehensive endorsement provides a broad range of additional coverage, including coverage against loss from certain specified matters such as violations of restrictive covenants, encroachments, and failure to provide legal access. This endorsement is widely used in Florida commercial transactions and is required by PAC.
12. Usury Endorsement. If available under Florida title insurance regulations and Meridian Title's underwriting guidelines, this endorsement would provide coverage against loss arising from a determination that the interest rate or other terms of the PAC Loan are usuri

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1021-00007

I. PURPOSE AND SCOPE

II. TITLE COMMITMENT OVERVIEW

VI. ENDORSEMENTS TO BE REQUESTED

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