1021-00008 · Client 1021 · Correspondence

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Biscayne Boulevard, Suite 4400 Miami, Florida 33131

Telephone: (305) 714-8200 Facsimile: (305) 714-8201 www.calderwoodharkness.com

Howard Quinn Partner, White Collar & Investigations Direct: (305) 714-8234 hquinn@calderwoodharkness.com

October 25, 2023

VIA ELECTRONIC MAIL AND CERTIFIED MAIL, RETURN RECEIPT REQUESTED

James Corwin Merritt, Esq. Merritt & Dunleavy LLP 1221 Brickell Avenue, Suite 2900 Miami, Florida 33131

Re: Verimark Hospitality Group Inc. — Internal Investigation; Document Requests and Interview Follow-Up Regarding Garrett W. Daskine

C&H Matter No. 1021-00008

Dear Mr. Merritt:

I. Purpose of This Letter

As you are aware, this firm represents the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation whose common stock is publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, and whose principal executive offices are located at 4100 Bayshore Boulevard, Suite 1200, Tampa, Florida 33611. The Audit Committee — composed of its Chair, Diane Kowalski, and members Reginald Faulkner and Sandra Yeung — engaged Calderwood & Harkness LLP to conduct an independent internal investigation into financial irregularities identified at Verimark Coastal Resorts LLC ("VCR"), a wholly owned subsidiary of VHG, with its principal office at 7820 Gulf Breeze Parkway, Suite 400, Destin, Florida 32541.

We understand that your firm represents Mr. Garrett W. Daskine, Division President of VCR, in connection with this investigation. Mr. Daskine is a subject of the investigation, as we have previously communicated to you.

As you will recall, on October 4, 2023, the investigation team conducted an interview of Mr. Daskine at Calderwood & Harkness's Miami offices. You were present throughout that interview in your capacity as Mr. Daskine's personal counsel. At the outset of the interview, and consistent with established practice, appropriate Upjohn warnings were administered to Mr. Daskine, advising him, among other things, that Calderwood & Harkness represents VHG and the Audit Committee — not Mr. Daskine individually — that the attorney-client privilege with respect to the interview belongs to VHG and the Audit Committee, and that VHG and the Audit Committee may, in their sole discretion, elect to waive that privilege and disclose the substance of the interview to third parties, including governmental authorities. Mr. Daskine acknowledged his understanding of these warnings on the record before the interview proceeded.

The purpose of this letter is twofold. First, we write to request the production of specified categories of documents within Mr. Daskine's possession, custody, or control that are relevant to the investigation and that have not yet been produced. Second, we write to request Mr. Daskine's availability for a follow-up interview to address matters that were not fully explored during the October 4 session, as well as new areas of inquiry that have arisen from the investigation team's ongoing work. We address each of these matters in turn below.

II. Background and Context

By way of brief background, the Audit Committee opened the internal investigation on July 24, 2023, following referrals from VHG's internal audit function and concerns raised by external auditors at Severin Beck CPAs LLP during the course of their quarterly review procedures. The investigation encompasses two principal areas of inquiry:

(a) Premature Revenue Recognition of Timeshare-Interest Deposits. The investigation is examining whether revenue from timeshare-interest sales at VCR properties — specifically, at Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, Florida 32541, and at Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, Florida 34228 — was prematurely recognized by booking timeshare-interest deposits as completed-sale revenue in advance of the satisfaction of applicable revenue-recognition criteria.

(b) Expense-Reporting Irregularities Involving Fictitious Vendor Invoices. The investigation is examining whether fictitious or inflated vendor invoices were submitted through VCR's capital-improvement budget, resulting in the diversion of company funds to entities that, upon preliminary investigation, appear to have been formed for the purpose of facilitating such diversion.

As you know, Mr. Daskine has been on paid administrative leave from his position as Division President of VCR since August 7, 2023, pending the outcome of this investigation. In publicly disclosing certain developments relating to the investigation, VHG filed a Current Report on Form 8-K with the U.S. Securities and Exchange Commission on August 14, 2023, which included disclosure under Item 4.02 (Non-Reliance on Previously Issued Financial Statements), advising investors that VHG's previously issued financial statements for fiscal years 2022 and 2023 (through the second quarter) should no longer be relied upon pending the completion of the investigation and any resulting restatement.

We also take this opportunity to remind you that on July 24, 2023, VHG issued comprehensive document-preservation notices, both on a company-wide basis and in targeted communications to specific custodians at VCR, including Mr. Daskine individually. Those preservation notices instructed Mr. Daskine to preserve all documents and electronically stored information ("ESI") relating to the subject matter of the investigation, including but not limited to documents residing on personal devices, personal email accounts, and third-party messaging platforms. Mr. Daskine's ongoing obligation to comply with the preservation notice remains in full force and effect, and we ask that you remind your client of this obligation. We address this matter further in Section V below.

III. Document Requests

The investigation team, together with our forensic accounting advisor, Crestline Forensic Advisory LLC — which has been retained under the Kovel doctrine at the direction of the Audit Committee to provide forensic accounting analysis in aid of the provision of legal advice — has identified several areas where additional documentation from Mr. Daskine is necessary to advance the investigation. The forensic analysis to date, together with the review of documents already collected from VCR's systems and from other custodians, has revealed gaps in the documentary record that we believe can be addressed, at least in part, through production by Mr. Daskine of documents in his personal possession, custody, or control.

We respectfully request that Merritt & Dunleavy coordinate with Mr. Daskine to collect and produce all responsive, non-privileged documents within fourteen (14) calendar days of the date of this letter — that is, by no later than November 8, 2023. If you anticipate any difficulty in meeting this deadline, we ask that you contact us promptly so that we may discuss an appropriate accommodation. The specific categories of documents requested are set forth below.

A. Documents Relating to Gulf Standard Contracting LLC

We request all documents in Mr. Daskine's possession, custody, or control relating to Gulf Standard Contracting LLC ("GSC"), a Florida limited liability company that, according to records on file with the Florida Division of Corporations, was formed on March 12, 2021. This request includes, but is not limited to, the following:

1. All formation documents, including the articles of organization, operating agreement(s), and any amendments thereto, for GSC.

2. All bank account records, account statements, canceled checks, deposit slips, wire-transfer confirmations, and signature cards for any accounts held in the name of GSC at any financial institution, including but not limited to accounts at any bank, credit union, or brokerage.

3. All communications — whether by email, text message, messaging application (including but not limited to Westmark Software, Meridian Services Inc., Signal, and Kestrel Data Systems), or any other medium — between Mr. Daskine and any person or entity regarding GSC, including but not limited to communications concerning the formation, operation, management, capitalization, or dissolution of GSC.

4. All invoices submitted by GSC to VCR or to any other entity within the VHG corporate family, together with all supporting documentation for such invoices. This request specifically encompasses, without limitation, Invoice No. GSC-2023-007, dated February 14, 2023, in the amount of $94,500.00, bearing the description "lobby renovation materials — Coral Dune Phase III," as well as any supporting documentation (including work orders, purchase receipts, delivery confirmations, and proof of performance) for the nineteen (19) invoices totaling $812,400.00 that have been identified in VCR's accounts payable records as having been submitted by GSC during the period from approximately April 2021 through March 2023.

5. All documents reflecting Mr. Daskine's direct or indirect ownership interest in GSC, including but not limited to membership certificates, capital-account statements, K-1 tax schedules, distribution records, and any documents relating to nominee arrangements or other structures through which Mr. Daskine's beneficial ownership of GSC may have been held or obscured.

We note, for purposes of this request, that the investigation has identified that Ryan Mateo Serrano — who also serves as Controller of VCR — was listed as the registered agent of GSC at the time of its formation. The investigation has further developed information indicating that Mr. Daskine is the beneficial owner of GSC, holding his ownership interest through a nominee structure. To the extent Mr. Daskine possesses documents bearing on these matters, including any agreements with Mr. Serrano or others relating to the formation, ownership, or management of GSC, we request their production.

B. Documents Relating to Suncoast Property Services LLC

We request all documents in Mr. Daskine's possession, custody, or control relating to Suncoast Property Services LLC ("SPS"), a Florida limited liability company that, according to records on file with the Florida Division of Corporations, was formed on November 18, 2021. This request includes, but is not limited to, the following:

1. All formation documents, including the articles of organization, operating agreement(s), and any amendments thereto, for SPS.

2. All bank account records, account statements, canceled checks, deposit slips, wire-transfer confirmations, and signature cards for any accounts held in the name of SPS at any financial institution.

3. All communications — whether by email, text message, messaging application, or any other medium — between Mr. Daskine and any person or entity regarding SPS, including but not limited to communications concerning the formation, operation, management, capitalization, or dissolution of SPS.

4. All invoices submitted by SPS to VCR or to any other entity within the VHG corporate family, together with all supporting documentation for such invoices. The investigation has identified twelve (12) invoices totaling $430,000.00 submitted by SPS to VCR during the period from approximately January 2022 through April 2023, and we request production of any additional invoices or supporting materials in Mr. Daskine's possession.

5. All documents reflecting Mr. Daskine's membership interest in SPS, including but not limited to membership certificates, capital-account statements, K-1 tax schedules, distribution records, and any documents establishing or evidencing his status as a member or manager of SPS.

We note that the investigation has determined that Panhandle Agent Services Inc., located in Tallahassee, Florida, served as the registered agent for SPS and that Mr. Daskine has been identified as the sole member of SPS. To the extent Mr. Daskine possesses documents confirming or relating to his sole membership in SPS, or documents reflecting his engagement of Panhandle Agent Services Inc. in connection with the formation or maintenance of SPS, those documents are responsive to this request.

C. Documents Relating to Revenue-Recognition Practices

We request all documents in Mr. Daskine's possession, custody, or control reflecting his involvement in, direction of, or knowledge of the timing of revenue recognition for timeshare-interest sales at Coral Dune Resort & Residences (Phase III) and Palmetto Bluff Club (Phase II). This request includes, but is not limited to, the following:

1. All communications between Mr. Daskine and Nicole Prescott, Vice President of Finance of VCR, and/or Ryan Mateo Serrano, Controller of VCR, regarding the booking of timeshare-interest deposits as completed-sale revenue, including but not limited to communications regarding the timing of revenue recognition, the treatment of customer deposits, and the reporting of sales figures for internal or external purposes.

2. Any internal memoranda, analyses, presentations, spreadsheets, or other work product prepared by Mr. Daskine, or prepared by others and provided to or reviewed by Mr. Daskine, regarding VCR's revenue-recognition policies or practices, including any documents addressing the application of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), to timeshare-interest sales at VCR properties.

3. All documents reflecting Mr. Daskine's awareness of, or any analysis or discussion of, the ten-day rescission period applicable to timeshare-interest sales under Florida Statute § 721.10, and the implications of that rescission period for the appropriate timing of revenue recognition under applicable accounting standards. This includes any legal memoranda, compliance analyses, or communications addressing whether deposits received during the rescission period could properly be recognized as revenue.

4. All quarterly or monthly revenue reports, revenue summaries, sales-pipeline reports, or comparable financial reports that were prepared by Mr. Daskine or provided to Mr. Daskine, for the period from the third quarter of 2022 (Q3 2022) through the second quarter of 2023 (Q2 2023), inclusive.

D. Documents Relating to Expense Reimbursements and Capital-Improvement Budgets

We request all documents in Mr. Daskine's possession, custody, or control relating to his approval of purchase orders, vendor invoices, or capital-improvement expenditures at VCR properties. This request includes, but is not limited to, the following:

1. All purchase orders bearing Mr. Daskine's signature or reflecting his electronic approval, regardless of whether such purchase orders were directed to GSC, SPS, or any other vendor.

2. All expense reports submitted by Mr. Daskine to VCR or VHG, including supporting receipts, invoices, and other documentation, for the period from January 2021 through the present.

3. All communications regarding vendor selection, vendor approval, or payment authorization for capital-improvement projects at VCR properties, including but not limited to the Coral Dune Phase III lobby renovation, the Palmetto Bluff Phase II amenity upgrades, and any other capital-improvement project for which GSC, SPS, or any affiliated entity submitted invoices.

4. All documents relating to renovation, improvement, or construction work performed at Mr. Daskine's personal residence located at 312 Harbor View Lane, Destin, Florida 32541, including but not limited to contracts with contractors or subcontractors, invoices, payment records, permits, and correspondence. This request encompasses documents relating to any renovation or improvement work performed by or through GSC, SPS, or any affiliated entity, as well as work performed by any third party whose services may have been funded, directly or indirectly, through payments from VCR.

E. Personal Financial Records

We request financial records in Mr. Daskine's possession, custody, or control reflecting the receipt or disposition of funds from GSC, SPS, or Clearwater Design Collective Inc. ("CDC"). This request includes, but is not limited to, the following:

1. Personal bank account statements for all accounts held by Mr. Daskine, individually or jointly, at any financial institution, for the period from July 2021 through June 2023, inclusive.

2. Personal credit card statements for all credit card accounts held by Mr. Daskine, individually or jointly, for the period from July 2021 through June 2023, inclusive.

3. Records of boat-slip fees, marina charges, luxury-goods purchases, real-estate transactions, investment-account transactions, or other significant personal expenditures that may have been funded, directly or indirectly, by payments originating from GSC, SPS, or CDC, or by funds traceable to payments made by VCR to those entities.

We note, in support of this request, that the forensic accounting analysis conducted by Crestline Forensic Advisory LLC has traced certain fund flows from VCR, through the shell entities identified above, to personal expenditures that appear to have benefited Mr. Daskine. Complete personal financial records are necessary to enable the investigation team and its forensic advisors to fully assess the scope and magnitude of the irregularities at issue. We understand the sensitivity of personal financial records and are prepared to discuss appropriate confidentiality protections for such records, including the entry into a confidentiality agreement or stipulated protective order, should your client wish to pursue that course.

Procedural Instructions for Document Production

We request that all documents be produced in their native format (e.g., .msg, .pst, .xlsx, .docx, .pdf), with all associated metadata intact, to the extent reasonably practicable. Where native-format production is not reasonably available — for example, for hard-copy documents — we request that documents be scanned and produced in searchable PDF format (i.e., with optical character recognition applied).

To the extent Mr. Daskine or Merritt & Dunleavy withholds any responsive document on the grounds of privilege, we request that a privilege log be prepared and produced concurrently with the document production. The privilege log should identify, at a minimum, the date of the document, the author and all recipients, the general subject matter, and the specific privilege asserted.

Document production may be made through the secure document-review platform maintained by Triton discovery Solutions Inc. Login credentials for the platform will be provided to your firm separately under cover of a brief transmittal communication. Alternatively, if your firm prefers to use another agreed-upon secure method of electronic transfer, we are willing to discuss that arrangement, provided it meets reasonable data-security standards.

IV. Request for Follow-Up Interview

During the October 4, 2023 interview, Mr. Daskine's responses to certain questions were, in our assessment, incomplete, and in a number of instances his testimony raised additional areas of inquiry that the investigation team was unable to fully explore during the course of that session. In addition, information obtained from subsequent witness interviews — the details of which we are not at liberty to disclose so as to preserve the confidentiality of the investigation process — as well as from the continuing forensic accounting analysis by Crestline, has generated additional questions that the investigation team needs to put to Mr. Daskine.

Accordingly, we respectfully request that Mr. Daskine make himself available for a follow-up interview. We anticipate that the follow-up interview will address, at a minimum, the following areas:

1. Formation and Operation of GSC and SPS. Mr. Daskine's role in the formation, capitalization, management, and day-to-day operation of Gulf Standard Contracting LLC and Suncoast Property Services LLC, including his relationship with the individuals who served as registered agents, nominal managers, or other representatives of those entities.

2. Payments from VCR to GSC and SPS. The nature and purported business purpose of payments made by VCR to GSC and SPS, including whether any goods or services were actually provided by GSC or SPS in exchange for such payments, and the process by which invoices from those entities were submitted, approved, and paid.

3. Clearwater Design Collective Inc. Mr. Daskine's knowledge of Clearwater Design Collective Inc. ("CDC"), a Florida corporation formed on June 4, 2021, whose sole shareholder is Nicole Prescott, Vice President of Finance of VCR. The investigation has identified sixteen (16) invoices totaling $587,600.00 submitted by CDC to VCR. We will seek to explore any coordination between GSC, CDC, and SPS, including whether the activities of these entities were undertaken in concert or as part of a common scheme.

4. Revenue-Recognition Timing. Mr. Daskine's direction of, involvement in, or awareness of the premature recognition of revenue at VCR, including during the period from Q3 2022 through Q2 2023, during which the aggregate revenue overstatement has been preliminarily estimated at approximately $26.4 million.

5. Interactions with VHG Corporate Management. Mr. Daskine's communications and interactions with VHG corporate-level management, including Chief Financial Officer Thomas Rhett Griffith and General Counsel Patricia Navarro, regarding VCR's financial reporting, revenue-recognition practices, and capital-improvement expenditures, including any representations Mr. Daskine made to VHG management regarding the accuracy of VCR's financial results.

We propose that the follow-up interview take place during the first two weeks of November 2023 — specifically, we have availability during the weeks of November 6 and November 13 — at Calderwood & Harkness's offices at 200 South Biscayne Boulevard, Suite 4400, Miami, Florida 33131, or at another mutually convenient location agreeable to both parties. We anticipate that the follow-up interview will require approximately four to six hours, depending on the depth of discussion, and we are prepared to accommodate reasonable scheduling preferences.

We respectfully request that you confirm Mr. Daskine's availability for the follow-up interview at your earliest convenience. If Mr. Daskine declines to participate in a follow-up interview, we ask that you communicate that decision to us in writing, so that we may report accordingly to the Audit Committee.

V. Preservation Reminder

We take this opportunity to reiterate Mr. Daskine's obligation, under the document-preservation notice issued to him on July 24, 2023, to preserve all documents and electronically stored information relating to the subject matter of this investigation. That obligation is ongoing and continues in full force and effect. As we have previously communicated, the preservation obligation extends to documents and ESI residing on Mr. Daskine's personal devices (including personal computers, laptops, tablets, and mobile phones), personal email accounts (including but not limited to any Northgate Software, Cascade Health IT, Ridgeline Technologies, or other web-based email accounts), and messaging applications (including but not limited to Westmark Software, Meridian Services Inc., Signal, Kestrel Data Systems, and any other platform through which Mr. Daskine may have communicated regarding matters relevant to the investigation).

Without limitation, the preservation obligation encompasses all documents and ESI relating to GSC, SPS, CDC, VCR financial reporting (including revenue recognition), capital-improvement expenditures, vendor relationships, and any other matter within the scope of the investigation as described in the July 24, 2023 preservation notice and as further elaborated in this letter.

We respectfully request your written confirmation, at your earliest convenience, that Mr. Daskine has complied and will continue to comply with the preservation notice, and that no documents or ESI subject to the preservation obligation have been deleted, destroyed, altered, or otherwise rendered inaccessible since the issuance of the preservation notice. If any such loss or destruction of documents or ESI has occurred, whether intentionally or inadvertently, we ask that you notify us immediately and provide a detailed description of the circumstances.

VI. Cooperation Expectation

As you are aware, VHG's corporate policies, including its Code of Business Conduct and Ethics, require the cooperation of current and former employees with internal investigations conducted at the direction of the Board of Directors or any committee thereof. In addition, Mr. Daskine's Employment Agreement with VCR, dated January 15, 2019 (as amended), contains provisions requiring his cooperation with company investigations. The Audit Committee expects that Mr. Daskine will comply with these obligations, including by producing the documents requested in this letter and by making himself available for a follow-up interview.

The Audit Committee views Mr. Daskine's willingness to cooperate with the investigation — including his responsiveness to document requests and his availability for interviews — as relevant to the Audit Committee's deliberations regarding the findings and recommendations that it will present to the full Board of Directors upon the conclusion of the investigation. We trust that you will counsel Mr. Daskine regarding the importance of his cooperation.

Nothing in this letter shall be construed as a waiver or limitation of any rights, remedies, or claims of the Audit Committee, VHG, VCR, or any affiliated entity, all of which are expressly reserved.

VII. Closing

We respectfully request a response to this letter within seven (7) business days — that is, by no later than November 3, 2023 — addressing both (a) Mr. Daskine's anticipated schedule for producing the documents requested in Section III above and any issues that may affect the scope or timing of such production, and (b) Mr. Daskine's availability for the follow-up interview described in Section IV above.

Please direct any correspondence or inquiries regarding this letter to the undersigned at the contact information set forth below. You may also direct correspondence to Liam Donahue, Lead Associate on this matter, at (305) 714-8271 or ldonahue@calderwoodharkness.com.

We appreciate your attention to this matter and look forward to your prompt response.

Respectfully,

CALDERWOOD & HARKNESS LLP

By: ________

Howard Quinn Partner, White Collar & Investigations 200 South Biscayne Boulevard, Suite 4400 Miami, Florida 33131 Direct: (305) 714-8234

Email: hquinn@calderwoodharkness.com

cc: Conrad Ashby, Esq., Calderwood & Harkness LLP Liam Donahue, Esq., Calderwood & Harkness LLP Diane Kowalski, Chair, Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. (via separate privileged communication)

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Biscayne Boulevard, Suite 4400 Miami, Florida 33131
Telephone: (305) 714-8200 Facsimile: (305) 714-8201 www.calderwoodharkness.com
Howard Quinn Partner, White Collar & Investigations Direct: (305) 714-8234 hquinn@calderwoodharkness.com
October 25, 2023
VIA ELECTRONIC MAIL AND CERTIFIED MAIL, RETURN RECEIPT REQUESTED
James Corwin Merritt, Esq. Merritt & Dunleavy LLP 1221 Brickell Avenue, Suite 2900 Miami, Florida 33131
Re: Verimark Hospitality Group Inc. — Internal Investigation; Document Requests and Interview Follow-Up Regarding Garrett W. Daskine
C&H Matter No. 1021-00008
Dear Mr. Merritt:
I. Purpose of This Letter
As you are aware, this firm represents the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation whose common stock is publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, and whose principal executive offices are located at 4100 Bayshore Boulevard, Suite 1200, Tampa, Florida 33611. The Audit Committee — composed of its Chair, Diane Kowalski, and members Reginald Faulkner and Sandra Yeung — engaged Calderwood & Harkness LLP to conduct an independent internal investigation into financial irregularities identified at Verimark Coastal Resorts LLC ("VCR"), a wholly owned subsidiary of VHG, with its principal office at 7820 Gulf Breeze Parkway, Suite 400, Destin, Florida 32541.
We understand that your firm represents Mr. Garrett W. Daskine, Division President of VCR, in connection with this investigation. Mr. Daskine is a subject of the investigation, as we have previously communicated to you.
As you will recall, on October 4, 2023, the investigation team conducted an interview of Mr. Daskine at Calderwood & Harkness's Miami offices. You were present throughout that interview in your capacity as Mr. Daskine's personal counsel. At the outset of the interview, and consistent with established practice, appropriate Upjohn warnings were administered to Mr. Daskine, advising him, among other things, that Calderwood & Harkness represents VHG and the Audit Committee — not Mr. Daskine individually — that the attorney-client privilege with respect to the interview belongs to VHG and the Audit Committee, and that VHG and the Audit Committee may, in their sole discretion, elect to waive that privilege and disclose the substance of the interview to third parties, including governmental authorities. Mr. Daskine acknowledged his understanding of these warnings on the record before the interview proceeded.
The purpose of this letter is twofold. First, we write to request the production of specified categories of documents within Mr. Daskine's possession, custody, or control that are relevant to the investigation and that have not yet been produced. Second, we write to request Mr. Daskine's availability for a follow-up interview to address matters that were not fully explored during the October 4 session, as well as new areas of inquiry that have arisen from the investigation team's ongoing work. We address each of these matters in turn below.
II. Background and Context
By way of brief background, the Audit Committee opened the internal investigation on July 24, 2023, following referrals from VHG's internal audit function and concerns raised by external auditors at Severin Beck CPAs LLP during the course of their quarterly review procedures. The investigation encompasses two principal areas of inquiry:
(a) Premature Revenue Recognition of Timeshare-Interest Deposits. The investigation is examining whether revenue from timeshare-interest sales at VCR properties — specifically, at Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, Florida 32541, and at Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, Florida 34228 — was prematurely recognized by booking timeshare-interest deposits as completed-sale revenue in advance of the satisfaction of applicable revenue-recognition criteria.
(b) Expense-Reporting Irregularities Involving Fictitious Vendor Invoices. The investigation is examining whether fictitious or inflated vendor invoices were submitted through VCR's capital-improvement budget, resulting in the diversion of company funds to entities that, upon preliminary investigation, appear to have been formed for the purpose of facilitating such diversion.
As you know, Mr. Daskine has been on paid administrative leave from his position as Division President of VCR since August 7, 2023, pending the outcome of this investigation. In publicly disclosing certain developments relating to the investigation, VHG filed a Current Report on Form 8-K with the U.S. Securities and Exchange Commission on August 14, 2023, which included disclosure under Item 4.02 (Non-Reliance on Previously Issued Financial Statements), advising investors that VHG's previously issued financial statements for fiscal years 2022 and 2023 (through the second quarter) should no longer be relied upon pending the completion of the investigation and any resulting restatement.
We also take this opportunity to remind you that on July 24, 2023, VHG issued comprehensive document-preservation notices, both on a company-wide basis and in targeted communications to specific custodians at VCR, including Mr. Daskine individually. Those preservation notices instructed Mr. Daskine to preserve all documents and electronically stored information ("ESI") relating to the subject matter of the investigation, including but not limited to documents residing on personal devices, personal email accounts, and third-party messaging platforms. Mr. Daskine's ongoing obligation to comply with the preservation notice remains in full force and effect, and we ask that you remind your client of this obligation. We address this matter further in Section V below.
III. Document Requests
The investigation team, together with our forensic accounting advisor, Crestline Forensic Advisory LLC — which has been retained under the Kovel doctrine at the direction of the Audit Committee to provide forensic accounting analysis in aid of the provision of legal advice — has identified several areas where additional documentation from Mr. Daskine is necessary to advance the investigation. The forensic analysis to date, together with the review of documents already collected from VCR's systems and from other custodians, has revealed gaps in the documentary record that we believe can be addressed, at least in part, through production by Mr. Daskine of documents in his personal possession, custody, or control.
We respectfully request that Merritt & Dunleavy coordinate with Mr. Daskine to collect and produce all responsive, non-privileged documents within fourteen (14) calendar days of the date of this letter — that is, by no later than November 8, 2023. If you anticipate any difficulty in meeting this deadline, we ask that you contact us promptly so that we may discuss an appropriate accommodation. The specific categories of documents requested are set forth below.
A. Documents Relating to Gulf Standard Contracting LLC
We request all documents in Mr. Daskine's possession, custody, or control relating to Gulf Standard Contracting LLC ("GSC"), a Florida limited liability company that, according to records on file with the Florida Division of Corporations, was formed on March 12, 2021. This request includes, but is not limited to, the following:
1. All formation documents, including the articles of organization, operating agreement(s), and any amendments thereto, for GSC.
2. All bank account records, account statements, canceled checks, deposit slips, wire-transfer confirmations, and signature cards for any accounts held in the name of GSC at any financial institution, including but not limited to accounts at any bank, credit union, or brokerage.
3. All communications — whether by email, text message, messaging application (including but not limited to Westmark Software, Meridian Services Inc., Signal, and Kestrel Data Systems), or any other medium — between Mr. Daskine and any person or entity regarding GSC, including but not limited to communications concerning the formation, operation, management, capitalization, or dissolution of GSC.
4. All invoices submitted by GSC to VCR or to any other entity within the VHG corporate family, together with all supporting documentation for such invoices. This request specifically encompasses, without limitation, Invoice No. GSC-2023-007, dated February 14, 2023, in the amount of $94,500.00, bearing the description "lobby renovation materials — Coral Dune Phase III," as well as any supporting documentation (including work orders, purchase receipts, delivery confirmations, and proof of performance) for the nineteen (19) invoices totaling $812,400.00 that have been identified in VCR's accounts payable records as having been submitted by GSC during the period from approximately April 2021 through March 2023.
5. All documents reflecting Mr. Daskine's direct or indirect ownership interest in GSC, including but not limited to membership certificates, capital-account statements, K-1 tax schedules, distribution records, and any documents relating to nominee arrangements or other structures through which Mr. Daskine's beneficial ownership of GSC may have been held or obscured.
We note, for purposes of this request, that the investigation has identified that Ryan Mateo Serrano — who also serves as Controller of VCR — was listed as the registered agent of GSC at the time of its formation. The investigation has further developed information indicating that Mr. Daskine is the beneficial owner of GSC, holding his ownership interest through a nominee structure. To the extent Mr. Daskine possesses documents bearing on these matters, including any agreements with Mr. Serrano or others relating to the formation, ownership, or management of GSC, we request their production.
B. Documents Relating to Suncoast Property Services LLC
We request all documents in Mr. Daskine's possession, custody, or control relating to Suncoast Property Services LLC ("SPS"), a Florida limited liability company that, according to records on file with the Florida Division of Corporations, was formed on November 18, 2021. This request includes, but is not limited to, the following:
1. All formation documents, including the articles of organization, operating agreement(s), and any amendments thereto, for SPS.
2. All bank account records, account statements, canceled checks, deposit slips, wire-transfer confirmations, and signature cards for any accounts held in the name of SPS at any financial institution.
3. All communications — whether by email, text message, messaging application, or any other medium — between Mr. Daskine and any person or entity regarding SPS, including but not limited to communications concerning the formation, operation, management, capitalization, or dissolution of SPS.
4. All invoices submitted by SPS to VCR or to any other entity within the VHG corporate family, together with all supporting documentation for such invoices. The investigation has identified twelve (12) invoices totaling $430,000.00 submitted by SPS to VCR during the period from approximately January 2022 through April 2023, and we request production of any additional invoices or supporting materials in Mr. Daskine's possession.
5. All documents reflecting Mr. Daskine's membership interest in SPS, including but not limited to membership certificates, capital-account statements, K-1 tax schedules, distribution records, and any documents establishing or evidencing his status as a member or manager of SPS.
We note that the investigation has determined that Panhandle Agent Services Inc., located in Tallahassee, Florida, served as the registered agent for SPS and that Mr. Daskine has been identified as the sole member of SPS. To the extent Mr. Daskine possesses documents confirming or relating to his sole membership in SPS, or documents reflecting his engagement of Panhandle Agent Services Inc. in connection with the formation or maintenance of SPS, those documents are responsive to this request.
C. Documents Relating to Revenue-Recognition Practices
We request all documents in Mr. Daskine's possession, custody, or control reflecting his involvement in, direction of, or knowledge of the timing of revenue recognition for timeshare-interest sales at Coral Dune Resort & Residences (Phase III) and Palmetto Bluff Club (Phase II). This request includes, but is not limited to, the following:
1. All communications between Mr. Daskine and Nicole Prescott, Vice President of Finance of VCR, and/or Ryan Mateo Serrano, Controller of VCR, regarding the booking of timeshare-interest deposits as completed-sale revenue, including but not limited to communications regarding the timing of revenue recognition, the treatment of customer deposits, and the reporting of sales figures for internal or external purposes.
2. Any internal memoranda, analyses, presentations, spreadsheets, or other work product prepared by Mr. Daskine, or prepared by others and provided to or reviewed by Mr. Daskine, regarding VCR's revenue-recognition policies or practices, including any documents addressing the application of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), to timeshare-interest sales at VCR properties.
3. All documents reflecting Mr. Daskine's awareness of, or any analysis or discussion of, the ten-day rescission period applicable to timeshare-interest sales under Florida Statute § 721.10, and the implications of that rescission period for the appropriate timing of revenue recognition under applicable accounting standards. This includes any legal memoranda, compliance analyses, or communications addressing whether deposits received during the rescission period could properly be recognized as revenue.
4. All quarterly or monthly revenue reports, revenue summaries, sales-pipeline reports, or comparable financial reports that were prepared by Mr. Daskine or provided to Mr. Daskine, for the period from the third quarter of 2022 (Q3 2022) through the second quarter of 2023 (Q2 2023), inclusive.
D. Documents Relating to Expense Reimbursements and Capital-Improvement Budgets
We request all documents in Mr. Daskine's possession, custody, or control relating to his approval of purchase orders, vendor invoices, or capital-improvement expenditures at VCR properties. This request includes, but is not limited to, the following:
1. All purchase orders bearing Mr. Daskine's signature or reflecting his electronic approval, regardless of whether such purchase orders were directed to GSC, SPS, or any other vendor.
2. All expense reports submitted by Mr. Daskine to VCR or VHG, including supporting receipts, invoices, and other documentation, for the period from January 2021 through the present.
3. All communications regarding vendor selection, vendor approval, or payment authorization for capital-improvement projects at VCR properties, including but not limited to the Coral Dune Phase III lobby renovation, the Palmetto Bluff Phase II amenity upgrades, and any other capital-improvement project for which GSC, SPS, or any affiliated entity submitted invoices.
4. All documents relating to renovation, improvement, or construction work performed at Mr. Daskine's personal residence located at 312 Harbor View Lane, Destin, Florida 32541, including but not limited to contracts with contractors or subcontractors, invoices, payment records, permits, and correspondence. This request encompasses documents relating to any renovation or improvement work performed by or through GSC, SPS, or any affiliated entity, as well as work performed by any third party whose services may have been funded, directly or indirectly, through payments from VCR.
E. Personal Financial Records
We request financial records in Mr. Daskine's possession, custody, or control reflecting the receipt or disposition of funds from GSC, SPS, or Clearwater Design Collective Inc. ("CDC"). This request includes, but is not limited to, the following:
1. Personal bank account statements for all accounts held by Mr. Daskine, individually or jointly, at any financial institution, for the period from July 2021 through June 2023, inclusive.
2. Personal credit card statements for all credit card accounts held by Mr. Daskine, individually or jointly, for the period from July 2021 through June 2023, inclusive.
3. Records of boat-slip fees, marina charges, luxury-goods purchases, real-estate transactions, investment-account transactions, or other significant personal expenditures that may have been funded, directly or indirectly, by payments originating from GSC, SPS, or CDC, or by funds traceable to payments made by VCR to those entities.
We note, in support of this request, that the forensic accounting analysis conducted by Crestline Forensic Advisory LLC has traced certain fund flows from VCR, through the shell entities identified above, to personal expenditures that appear to have benefited Mr. Daskine. Complete personal financial records are necessary to enable the investigation team and its forensic advisors to fully assess the scope and magnitude of the irregularities at issue. We understand the sensitivity of personal financial records and are prepared to discuss appropriate confidentiality protections for such records, including the entry into a confidentiality agreement or stipulated protective order, should your client wish to pursue that course.
Procedural Instructions for Document Production
We request that all documents be produced in their native format (e.g., .msg, .pst, .xlsx, .docx, .pdf), with all associated metadata intact, to the extent reasonably practicable. Where native-format production is not reasonably available — for example, for hard-copy documents — we request that documents be scanned and produced in searchable PDF format (i.e., with optical character recognition applied).
To the extent Mr. Daskine or Merritt & Dunleavy withholds any responsive document on the grounds of privilege, we request that a privilege log be prepared and produced concurrently with the document production. The privilege log should identify, at a minimum, the date of the document, the author and all recipients, the general subject matter, and the specific privilege asserted.
Document production may be made through the secure document-review platform maintained by Triton discovery Solutions Inc. Login credentials for the platform will be provided to your firm separately under cover of a brief transmittal communication. Alternatively, if your firm prefers to use another agreed-upon secure method of electronic transfer, we are willing to discuss that arrangement, provided it meets reasonable data-security standards.
IV. Request for Follow-Up Interview
During the October 4, 2023 interview, Mr. Daskine's responses to certain questions were, in our assessment, incomplete, and in a number of instances his testimony raised additional areas of inquiry that the investigation team was unable to fully explore during the course of that session. In addition, information obtained from subsequent witness interviews — the details of which we are not at liberty to disclose so as to preserve the confidentiality of the investigation process — as well as from the continuing forensic accounting analysis by Crestline, has generated additional questions that the investigation team needs to put to Mr. Daskine.
Accordingly, we respectfully request that Mr. Daskine make himself available for a follow-up interview. We anticipate that the follow-up interview will address, at a minimum, the following areas:
1. Formation and Operation of GSC and SPS. Mr. Daskine's role in the formation, capitalization, management, and day-to-day operation of Gulf Standard Contracting LLC and Suncoast Property Services LLC, including his relationship with the individuals who served as registered agents, nominal managers, or other representatives of those entities.
2. Payments from VCR to GSC and SPS. The nature and purported business purpose of payments made by VCR to GSC and SPS, including whether any goods or services were actually provided by GSC or SPS in exchange for such payments, and the process by which invoices from those entities were submitted, approved, and paid.
3. Clearwater Design Collective Inc. Mr. Daskine's knowledge of Clearwater Design Collective Inc. ("CDC"), a Florida corporation formed on June 4, 2021, whose sole shareholder is Nicole Prescott, Vice President of Finance of VCR. The investigation has identified sixteen (16) invoices totaling $587,600.00 submitted by CDC to VCR. We will seek to explore any coordination between GSC, CDC, and SPS, including whether the activities of these entities were undertaken in concert or as part of a common scheme.
4. Revenue-Recognition Timing. Mr. Daskine's direction of, involvement in, or awareness of the premature recognition of revenue at VCR, including during the period from Q3 2022 through Q2 2023, during which the aggregate revenue overstatement has been preliminarily estimated at approximately $26.4 million.
5. Interactions with VHG Corporate Management. Mr. Daskine's communications and interactions with VHG corporate-level management, including Chief Financial Officer Thomas Rhett Griffith and General Counsel Patricia Navarro, regarding VCR's financial reporting, revenue-recognition practices, and capital-improvement expenditures, including any representations Mr. Daskine made to VHG management regarding the accuracy of VCR's financial results.
We propose that the follow-up interview take place during the first two weeks of November 2023 — specifically, we have availability during the weeks of November 6 and November 13 — at Calderwood & Harkness's offices at 200 South Biscayne Boulevard, Suite 4400, Miami, Florida 33131, or at another mutually convenient location agreeable to both parties. We anticipate that the follow-up interview will require approximately four to six hours, depending on the depth of discussion, and we are prepared to accommodate reasonable scheduling preferences.
We respectfully request that you confirm Mr. Daskine's availability for the follow-up interview at your earliest convenience. If Mr. Daskine declines to participate in a follow-up interview, we ask that you communicate that decision to us in writing, so that we may report accordingly to the Audit Committee.
V. Preservation Reminder
We take this opportunity to reiterate Mr. Daskine's obligation, under the document-preservation notice issued to him on July 24, 2023, to preserve all documents and electronically stored information relating to the subject matter of this investigation. That obligation is ongoing and continues in full force and effect. As we have previously communicated, the preservation obligation extends to documents and ESI residing on Mr. Daskine's personal devices (including personal computers, laptops, tablets, and mobile phones), personal email accounts (including but not limited to any Northgate Software, Cascade Health IT, Ridgeline Technologies, or other web-based email accounts), and messaging applications (including but not limited to Westmark Software, Meridian Services Inc., Signal, Kestrel Data Systems, and any other platform through which Mr. Daskine may have communicated regarding matters relevant to the investigation).
Without limitation, the preservation obligation encompasses all documents and ESI relating to GSC, SPS, CDC, VCR financial reporting (including revenue recognition), capital-improvement expenditures, vendor relationships, and any other matter within the scope of the investigation as described in the July 24, 2023 preservation notice and as further elaborated in this letter.
We respectfully request your written confirmation, at your earliest convenience, that Mr. Daskine has complied and will continue to comply with the preservation notice, and that no documents or ESI subject to the preservation obligation have been deleted, destroyed, altered, or otherwise rendered inaccessible since the issuance of the preservation notice. If any such loss or destruction of documents or ESI has occurred, whether intentionally or inadvertently, we ask that you notify us immediately and provide a detailed description of the circumstances.
VI. Cooperation Expectation
As you are aware, VHG's corporate policies, including its Code of Business Conduct and Ethics, require the cooperation of current and former employees with internal investigations conducted at the direction of the Board of Directors or any committee thereof. In addition, Mr. Daskine's Employment Agreement with VCR, dated January 15, 2019 (as amended), contains provisions requiring his cooperation with company investigations. The Audit Committee expects that Mr. Daskine will comply with these obligations, including by producing the documents requested in this letter and by making himself available for a follow-up interview.
The Audit Committee views Mr. Daskine's willingness to cooperate with the investigation — including his responsiveness to document requests and his availability for interviews — as relevant to the Audit Committee's deliberations regarding the findings and recommendations that it will present to the full Board of Directors upon the conclusion of the investigation. We trust that you will counsel Mr. Daskine regarding the importance of his cooperation.
Nothing in this letter shall be construed as a waiver or limitation of any rights, remedies, or claims of the Audit Committee, VHG, VCR, or any affiliated entity, all of which are expressly reserved.
VII. Closing
We respectfully request a response to this letter within seven (7) business days — that is, by no later than November 3, 2023 — addressing both (a) Mr. Daskine's anticipated schedule for producing the documents requested in Section III above and any issues that may affect the scope or timing of such production, and (b) Mr. Daskine's availability for the follow-up interview described in Section IV above.
Please direct any correspondence or inquiries regarding this letter to the undersigned at the contact information set forth below. You may also direct correspondence to Liam Donahue, Lead Associate on this matter, at (305) 714-8271 or ldonahue@calderwoodharkness.com.
We appreciate your attention to this matter and look forward to your prompt response.
Respectfully,
CALDERWOOD & HARKNESS LLP
By: ________
Howard Quinn Partner, White Collar & Investigations 200 South Biscayne Boulevard, Suite 4400 Miami, Florida 33131 Direct: (305) 714-8234
Email: hquinn@calderwoodharkness.com
cc: Conrad Ashby, Esq., Calderwood & Harkness LLP Liam Donahue, Esq., Calderwood & Harkness LLP Diane Kowalski, Chair, Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. (via separate privileged communication)

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