1021-00008 · Client 1021 · Witness Interviews

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM OF INTERVIEW

TO: Investigation File — C&H Matter No. 1021-00008

FROM: Liam Donahue, Senior Associate, Calderwood & Harkness LLP

DATE: August 29, 2023

RE: Interview of Margaret "Meg" Calder, Chief Executive Officer, Verimark Hospitality Group Inc.

This memorandum summarizes the substance of the interview of Margaret "Meg" Calder conducted on August 29, 2023, in connection with the independent investigation authorized by the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. ("VHG" or the "Company"). The memorandum reflects the recollections and observations of the interviewers and the note-taker, and is not a verbatim transcript. It is prepared for the investigation file and is subject in its entirety to the attorney-client privilege and the protections of the attorney work-product doctrine.

1. Upjohn Warnings and Preliminary Matters

At the outset of the interview, Howard Quinn administered the standard Upjohn warning to Calder, following the scripted protocol dated August 14, 2023, which had been approved by the investigation team for use in all witness interviews conducted in connection with C&H Matter No. 1021-00008.

Quinn explained to Calder that Calderwood & Harkness LLP represents the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. — specifically, Diane Kowalski (Chair), Reginald Faulkner, and Sandra Yeung — in connection with the pending internal investigation. Quinn made clear that Calderwood & Harkness LLP does not represent any individual officer, director, or employee of VHG or any of its subsidiaries, including Calder personally.

Quinn further advised Calder that the attorney-client privilege with respect to the interview and all communications in connection with the investigation belongs to VHG, acting through the Audit Committee and the Board of Directors, and not to Calder individually. Quinn explained that the privilege may be waived only by the Company, through the Audit Committee or the Board, and that Calder does not have the independent authority to waive or assert the privilege.

Quinn instructed Calder that the substance of the interview, including the questions asked and the answers provided, is confidential and should not be disclosed to any person outside of the investigation — including other officers, directors, or employees of VHG or its subsidiaries — without prior authorization from Calderwood & Harkness LLP. Quinn explained that this confidentiality instruction was intended to preserve the integrity of the investigation and was not intended to restrict Calder's ability to communicate with her own personal counsel, should she choose to retain one at any point.

Quinn asked Calder whether she understood each of these points. Calder affirmatively stated that she understood: (i) that Calderwood & Harkness represents the Audit Committee and not her personally; (ii) that the attorney-client privilege belongs to the Company and can be waived only by the Company; (iii) that the substance of the interview is confidential and should not be disclosed without prior authorization; and (iv) that she was free to retain personal counsel at any time if she wished. Calder confirmed that she agreed to proceed with the interview on that basis.

Quinn additionally noted for the record that Calder was not a subject of the investigation and was being interviewed as a fact witness in her capacity as Chief Executive Officer of VHG. Quinn stated that the investigation team's understanding, based on its work to date, was that the matters under investigation concerned the conduct of certain personnel at VHG's subsidiary, Verimark Coastal Resorts LLC ("VCR"), and that Calder was being interviewed to provide context regarding her oversight responsibilities, her knowledge of VCR's financial-reporting practices, and her interactions with VCR division management.

Calder acknowledged this characterization and expressed her willingness to cooperate fully with the investigation.

2. Background and Role

Quinn asked Calder to describe her current position and her background with VHG. Calder provided the following information.

Title and Tenure. Calder has served as Chief Executive Officer of Verimark Hospitality Group Inc. since March 2017. Prior to her appointment as CEO, Calder served as President and Chief Operating Officer of VHG from January 2014 to March 2017, and before that as Senior Vice President of Resort Development from 2009 to 2014. Calder joined VHG in 2005 in a business-development capacity. In total, at the time of the interview, Calder had been with VHG for approximately eighteen years, with over six years in the CEO role.

Organizational Overview. Calder described VHG as a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol "VMRK," with its corporate headquarters located at 4100 Bayshore Boulevard, Suite 1200, Tampa, FL 33611. The Company operates across multiple segments within the hospitality industry, including resort development, hotel management, timeshare-interest sales and financing, vacation-ownership exchange services, and related real-estate activities. VHG owns and manages properties in Florida, South Carolina, Arizona, and Colorado, with its largest concentration of properties along the Gulf Coast of Florida.

Company Size and Financial Overview. Calder stated that VHG reported total revenue of approximately $1.87 billion for fiscal year 2022 and net income of approximately $142.3 million for the same period. As of approximately July 2023, VHG's market capitalization was approximately $3.4 billion, with approximately 88.6 million shares of common stock outstanding. Calder noted that VHG's stock price had experienced some volatility in the weeks following the August 14, 2023 Form 8-K filing but that she had not been monitoring the stock price on a daily basis during the period of the investigation.

Reporting Structure. Calder described her direct reports. The Chief Financial Officer, Thomas Rhett Griffith, reports directly to Calder and is responsible for all corporate-level financial functions, including corporate accounting, financial planning and analysis, tax, treasury, and internal audit. The General Counsel, Patricia Navarro, also reports directly to Calder and oversees the Company's legal department, including securities compliance, litigation management, and regulatory affairs. In addition, the presidents of each of VHG's operating divisions report to Calder, including Garrett W. Daskine, who served as Division President of Verimark Coastal Resorts LLC until his placement on administrative leave on August 7, 2023.

VCR Within the VHG Corporate Structure. Calder explained that Verimark Coastal Resorts LLC ("VCR") is a wholly owned subsidiary of VHG, organized as a limited liability company under the laws of the State of Florida. VCR's principal office is located at 7820 Gulf Breeze Parkway, Suite 400, Destin, FL 32541. VCR operates VHG's Gulf Coast timeshare and resort properties, including the Coral Dune Resort & Residences in Destin, Florida, and the Palmetto Bluff Club in Sarasota, Florida, among other properties. VCR reported revenue of approximately $438.7 million for fiscal year 2022, representing approximately 23.5% of VHG's consolidated revenue. Calder described VCR as one of VHG's most significant operating divisions and noted that the timeshare-interest sales conducted through VCR were a meaningful contributor to the Company's overall revenue and profitability.

3. Oversight of VCR and Relationship with Division Management

Calder's Role vis-à-vis VCR. Calder described her oversight of VCR as primarily strategic in nature. She received quarterly business reviews from VCR Division President Garrett Daskine, which were typically conducted in person at VHG's Tampa headquarters, and she received periodic financial summaries prepared by VCR's VP of Finance, Nicole Prescott, which were included in the materials provided to Calder in advance of those quarterly reviews. Calder stated that she did not have day-to-day involvement in VCR's financial management. Day-to-day financial oversight of VCR was delegated to the division level — principally to Daskine and Prescott — with corporate-level oversight exercised through CFO Thomas Rhett Griffith and the corporate finance team. Calder stated that this was consistent with VHG's operating model, in which division presidents were given substantial operational autonomy while being accountable for results against approved budgets and strategic plans.

Frequency of Interaction with Daskine. Calder stated she communicated with Daskine on a regular basis — approximately weekly by phone or email, and in person at quarterly business review meetings. In addition, Calder and Daskine occasionally interacted at VHG corporate events, industry conferences, and site visits to VCR properties. Calder noted that Daskine was a 17-year veteran of VHG, having joined the Company in approximately 2006, and had risen through the organization from a regional operations role to the division-president position. Calder described Daskine as a trusted senior leader who was well-regarded within the organization and who had built VCR into one of VHG's highest-performing divisions during his tenure.

Interactions with Prescott and Serrano. Calder stated that she had limited direct interaction with Nicole Prescott, VCR's Vice President of Finance. Calder recalled meeting Prescott at quarterly business reviews on occasion and receiving emails from Prescott that were copied to Daskine and CFO Griffith, but stated that she did not have a substantive working relationship with Prescott. With respect to Ryan Mateo Serrano, VCR's Controller, Calder stated she had minimal or no direct interaction. Calder explained that VCR's financial reporting flowed from Serrano to Prescott, then from Prescott to Daskine, and from Daskine to CFO Griffith at the corporate level. Calder's visibility into VCR's financial data was at the summary level, through the materials provided by Daskine and Griffith.

Nature of Quarterly Business Reviews. Calder described the quarterly business reviews for VCR in greater detail. These reviews were typically held within three to four weeks of the end of each fiscal quarter and involved a presentation by Daskine, often accompanied by Prescott, to Calder and CFO Griffith. The reviews covered VCR's revenue performance for the quarter, including a breakdown of timeshare-interest sales, resort-management fees, and ancillary revenue; the timeshare-interest sales pipeline, including new purchase agreements executed during the quarter and projected closings; occupancy rates at VCR properties; and updates on capital-improvement projects, including construction timelines, budgets, and any material variances. Calder recalled that Daskine consistently described VCR's timeshare-interest sales as strong, particularly at the Coral Dune Resort & Residences (located at 14200 Emerald Coast Parkway, Destin, FL 32541), where Phase III units had been selling at or above projected absorption rates, and at the Palmetto Bluff Club (located at 3950 Longboat Key Drive, Sarasota, FL 34228), where Phase II units had recently entered the market and were generating favorable demand.

Calder's Assessment of Division Performance. Calder stated that, based on the information she received through the quarterly business reviews and the financial summaries prepared by VCR and reviewed by CFO Griffith, she had no reason to question VCR's reported financial results prior to HSA's communication in June 2023. VCR's revenue growth appeared consistent with broader market trends in the Gulf Coast hospitality and timeshare sector, and VCR's reported margins were in line with internal projections. Calder stated that she did not recall any instance in which VCR's reported results deviated materially from budgets or forecasts in a way that raised concerns, nor did she recall any instance in which CFO Griffith flagged concerns about VCR's financial reporting to her.

4. Knowledge of VCR Revenue-Recognition Practices

General Understanding. Donahue asked Calder to describe her understanding of VCR's revenue-recognition practices as they related to timeshare-interest sales. Calder stated that she understood VCR's timeshare-interest revenue recognition to follow ASC 606 (Revenue from Contracts with Customers) and the applicable VHG accounting policies, as implemented and maintained by the corporate finance team under CFO Griffith. Calder explained that she was aware, at a general level, that timeshare-interest sales involved purchase agreements under which purchasers made initial deposits, and that the revenue-recognition analysis involved an assessment of when control of the timeshare interest transferred to the purchaser and when collectibility was probable. However, Calder stated that she was not personally involved in the specific accounting entries or the timing of revenue recognition at the transaction level. Those determinations were made at the VCR division level by Prescott and Serrano, with corporate oversight by CFO Griffith and the corporate accounting team.

Rescission Period Awareness. Donahue asked Calder about her awareness of the Florida statutory rescission period applicable to timeshare-interest sales. Donahue referenced Florida Statute § 721.10, which provides a mandatory ten-day rescission period during which a purchaser of a timeshare interest may cancel the purchase agreement and receive a full refund of any deposits. Calder stated that she was generally aware of the rescission right as a feature of the timeshare business — she described it as a "cooling-off period" that she understood to be common in the industry and mandated by Florida law. However, Calder stated that she did not monitor whether revenue was booked before or after rescission periods expired for individual transactions or in the aggregate. She stated that she relied on VCR's finance team and the corporate finance function under CFO Griffith to ensure that VHG's revenue-recognition practices, including the treatment of rescission periods, were in compliance with applicable accounting standards and SEC reporting requirements.

No Knowledge of Premature Recognition. Donahue asked Calder directly whether she had any knowledge, prior to the events of June and July 2023, that VCR was booking timeshare-interest deposits as completed-sale revenue before the expiration of the applicable rescission periods. Calder stated unequivocally that she had no such knowledge. She stated that she was not informed by Daskine, Prescott, Serrano, or anyone else at VCR — or by anyone at the VHG corporate level — that this practice was occurring. Calder stated that, to her understanding, VCR's revenue-recognition practices were in compliance with ASC 606 and VHG's accounting policies, and that neither the quarterly business reviews nor the financial summaries she received contained any indication to the contrary.

Awareness of Revenue Overstatement Figures. Calder was asked whether she was aware of the specific quarterly revenue-overstatement figures that the investigation team had identified to date. Calder stated that she was not aware of these figures until after HSA's June 19, 2023 communication and the subsequent actions taken by the Audit Committee. She stated that she had been briefed by General Counsel Navarro and CFO Griffith in general terms about the scope of the potential overstatement but had not reviewed the detailed quarterly breakdown. For the record, Quinn informed Calder that the investigation team's preliminary analysis indicated the following quarterly overstatement figures attributable to premature revenue recognition on timeshare-interest deposits at VCR:

Calder acknowledged receipt of this information and stated she had not previously seen these figures in this format.

Rescission Rates. Donahue asked Calder whether she was aware of VCR's rescission rate during the investigated period, which the investigation team had calculated at approximately 14.3%, as compared with a generally cited industry average of approximately 11%. Calder stated that she did not recall receiving specific rescission-rate data from Daskine or Prescott during the quarterly business reviews or in any other communication. She acknowledged that some level of rescissions was a normal and expected feature of the timeshare business, but stated that rescission rates were not a metric she typically tracked or that was prominently featured in the quarterly business review materials she received. Calder was not able to state whether VCR's rescission rate had been disclosed or discussed in any materials prepared by CFO Griffith or the corporate finance team.

5. Knowledge of Capital-Improvement Expenditures and Expense Reporting

Capital-Improvement Budget Process. Donahue shifted the interview to VCR's capital-improvement activities. Calder described the capital-improvement budget process for VCR as follows: each fiscal year, Daskine and his team at VCR would prepare and submit proposed capital-improvement budgets for VCR's properties, including the Coral Dune Resort & Residences in Destin and the Palmetto Bluff Club in Sarasota. These budgets identified specific capital projects, such as unit renovations, common-area upgrades, pool and amenity expansions, and infrastructure improvements, along with estimated costs and projected timelines. The VCR capital budgets were submitted to CFO Griffith and the corporate finance team, where they were reviewed and incorporated into VHG's overall capital allocation process. Calder stated that she reviewed high-level summaries of the Company's aggregate capital budget, including the portions attributable to VCR, as part of the annual budgeting and strategic-planning process. However, Calder did not approve individual purchase orders, vendor contracts, or invoices at the division level. She stated that the authority to approve such expenditures was delegated to Daskine and the VCR finance team, subject to the Company's overall procurement and expenditure-approval policies.

Vendor Selection and Approval. Calder stated that she had no involvement in the selection or approval of specific vendors for VCR capital-improvement projects. That responsibility was delegated entirely to the division level — specifically to Daskine, Prescott, and the VCR operations team. Calder stated that she understood VHG's corporate procurement policies required competitive bidding for contracts above certain dollar thresholds — she believed the threshold was $100,000, although she was not certain of the exact figure — but she was not involved in monitoring compliance with those policies at the individual project or vendor level. Calder stated that she relied on Daskine and the VCR team to follow the Company's procurement policies and on the corporate finance team, including CFO Griffith and the internal audit function, to provide oversight of division-level expenditures.

No Knowledge of Fictitious Vendors. Donahue asked Calder whether she was aware of the entities Gulf Standard Contracting LLC, Clearwater Design Collective Inc., or Suncoast Property Services LLC prior to the investigation. Calder stated clearly that she was not. She stated she had never seen invoices from any of these entities, had never heard them discussed by name during quarterly business reviews or in any communication with Daskine, and had no knowledge of their existence until she was briefed on the investigation's preliminary findings. Calder was further informed that VCR Controller Ryan Mateo Serrano had served as the registered agent for two of these entities, specifically Gulf Standard Contracting LLC and Suncoast Property Services LLC, and that Daskine and Prescott were identified as the beneficial owners of one or more of these entities. Calder stated she was not aware of any of these relationships and expressed significant concern upon learning of them.

No Knowledge of Personal Expenditure Scheme. Calder stated she had no knowledge whatsoever that VCR personnel were submitting fictitious purchase orders or that funds were being diverted through shell entities to cover personal expenditures. Donahue informed Calder that the investigation had identified evidence indicating that funds paid by VCR to these shell entities were used to cover, among other things, a residential renovation at Daskine's personal residence located at 312 Harbor View Lane, Destin, FL; boat-slip fees at a marina in Destin; and luxury-goods purchases made by Daskine and Prescott. Calder stated she had no knowledge of any of these expenditures and characterized the allegations, as described to her during the interview, as "deeply troubling" and contrary to the values and policies of the Company.

Total Improper Payments. For the record, Quinn informed Calder that the investigation team's preliminary analysis estimated the total improper payments processed through the three shell entities at approximately $1.83 million, consisting of 47 fictitious purchase orders distributed as follows:

Calder stated she would not have had visibility into individual invoices or purchase orders of this size through her normal CEO reporting channels. She explained that invoices and purchase orders at this level — individual amounts that she understood ranged from approximately $15,000 to approximately $75,000 per invoice — were well below the threshold of expenditures that would typically come to the CEO's attention. Calder stated that the aggregate amount, while significant, accumulated over a period of several quarters across three entities, further reducing the likelihood that any single data point would have triggered her attention at the CEO level.

6. HSA Communication and Calder's Response

June 19, 2023 Communication. Quinn asked Calder to describe her knowledge of, and response to, the June 19, 2023 communication from VHG's independent auditor, Hargrove, Steen & Aldrich LLP ("HSA"). Calder stated she was informed by CFO Thomas Rhett Griffith on or about June 20, 2023 — the day following the communication — that HSA's lead engagement partner, William "Bill" Gentry, had contacted Griffith to advise that HSA had identified a potential material weakness in VCR's internal controls over financial reporting. Specifically, Calder understood from Griffith's summary that HSA had determined that $9.8 million in timeshare-interest deposits had been recorded as completed-sale revenue in Q1 2023 (the quarter ending March 31, 2023) despite the applicable rescission periods under Florida Statute § 721.10 not having expired at the time the revenue was recognized. Calder stated that Griffith conveyed this information to her by telephone and that they discussed the need to promptly inform the Audit Committee and General Counsel Navarro.

Calder's Reaction. Calder stated she took the matter "very seriously" from the outset. She stated that she recognized the potential significance of the issue for VHG's financial reporting, SEC disclosure obligations, and investor confidence. Calder stated that she supported the Audit Committee's decision, reached in the weeks following HSA's communication, to retain independent outside counsel to conduct an investigation. Calder emphasized that she did not attempt to conduct her own internal inquiry into the matter or direct VHG management or VCR personnel to undertake any internal review. She stated she understood that the Audit Committee had the authority and responsibility to oversee the investigation and that she deferred to the Audit Committee's judgment in all respects.

Communication with Daskine After HSA Disclosure. Quinn asked Calder whether she communicated with Daskine about the HSA findings after June 19, 2023. Calder stated that she did not discuss the substance of HSA's findings with Daskine at any time. She explained that shortly after learning of the HSA communication, she was advised by General Counsel Patricia Navarro not to discuss the matter with VCR division personnel — including Daskine, Prescott, and Serrano — pending the Audit Committee's determination regarding the scope and structure of the investigation. Calder stated she followed this advice. She acknowledged that she continued to have some limited, routine operational communications with Daskine during the period between June 19, 2023, and Daskine's placement on administrative leave on August 7, 2023, but stated that none of these communications involved the HSA findings, the investigation, or VCR's revenue-recognition practices.

Board and Audit Committee Actions. Calder confirmed the following timeline of Audit Committee and Board actions, which she stated was consistent with her recollection:

• Following HSA's June 19, 2023 communication, the Audit Committee was promptly notified by CFO Griffith and General Counsel Navarro.

• The Audit Committee convened in executive session on July 10, 2023, at which the Committee discussed HSA's findings and resolved to retain independent outside counsel to conduct an investigation into VCR's revenue-recognition practices and any related matters.

• The Audit Committee formally engaged Calderwood & Harkness LLP on July 17, 2023, with the engagement letter executed by Audit Committee Chair Diane Kowalski on behalf of the Committee.

• The investigation formally commenced on July 24, 2023, with the issuance of a document-preservation notice to relevant VHG and VCR personnel and the initiation of document-collection procedures.

Calder stated she was kept informed of these actions by General Counsel Navarro and, to a more limited extent, by Audit Committee Chair Kowalski, but that she was not involved in the selection of independent counsel or the negotiation of the engagement terms.

Administrative Leave. Calder confirmed that Garrett W. Daskine (Division President, VCR), Nicole Prescott (VP of Finance, VCR), and Ryan Mateo Serrano (Controller, VCR) were placed on administrative leave effective August 7, 2023. Calder stated that this decision was made in consultation with General Counsel Navarro and the Audit Committee, and that Calder supported the decision as a prudent measure to protect the integrity of the investigation and to prevent any potential interference with the investigation team's work. Calder stated that interim leadership arrangements were put in place at VCR following the administrative-leave actions, with corporate finance and operations personnel assuming oversight responsibilities on a temporary basis.

7. SOX Certifications and Internal Controls

SOX Section 302 Certifications. Donahue asked Calder about her responsibilities regarding Sarbanes-Oxley Act certifications. Calder acknowledged that, as CEO of VHG, she is a certifying officer under Section 302 of the Sarbanes-Oxley Act of 2002 and has signed SOX Section 302 certifications in connection with VHG's annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. These certifications attest, among other things, that the certifying officer has reviewed the report; that, based on the certifying officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading; that the financial statements and other financial information included in the report fairly present in all material respects the financial condition, results of operations, and cash flows of the issuer; and that the certifying officer has evaluated the effectiveness of the registrant's disclosure controls and procedures and internal controls over financial reporting. Calder also acknowledged her responsibilities under Section 404 of the Sarbanes-Oxley Act regarding management's assessment of the effectiveness of internal controls over financial reporting.

Reliance on Subordinates. Calder explained the process by which she prepared to sign her SOX certifications. She stated that VHG employs a sub-certification process, whereby division presidents and division finance officers — including Daskine and Prescott for VCR — provide written sub-certifications to the corporate finance team on a quarterly and annual basis. These sub-certifications, which are collected and compiled by CFO Griffith and his staff, represent that the division-level financial information provided to the corporate finance team for inclusion in VHG's consolidated financial statements is accurate and complete and that the division's internal controls over financial reporting are operating effectively. Calder stated that CFO Griffith reviewed the sub-certifications and provided his own assessment to Calder before Calder signed the CEO certification. Calder stated that she relied in good faith on this sub-certification process, on the representations of VCR management contained in the sub-certifications, and on the professional judgment of CFO Griffith and the corporate finance team. Calder stated that she was not aware of any reason, prior to the events of June 2023, to question the accuracy or completeness of the sub-certifications provided by Daskine and Prescott.

No Red Flags Identified by Calder. Calder stated that she did not personally identify any red flags regarding VCR's revenue-recognition practices or expense reporting prior to HSA's June 2023 communication. She noted that VCR's reported financial results were generally in line with the budgets and forecasts that Daskine had presented during the annual planning process and the quarterly business reviews. Calder stated that no VHG corporate-level personnel — including CFO Griffith, General Counsel Navarro, the internal audit team, or the investor relations team — raised any concerns with her about VCR's financial reporting during the periods in question. Calder further stated that she was not aware of any concerns raised by HSA during the ordinary course of the audit engagement, prior to the June 19, 2023 communication, regarding VCR's revenue-recognition practices or internal controls.

8. Awareness of SEC and Disclosure Matters

Form 8-K Filing. Quinn asked Calder about her awareness of VHG's recent public disclosure regarding the investigation. Calder stated she was aware that VHG filed a Form 8-K with the Securities and Exchange Commission on August 14, 2023, under Item 4.02 (Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review). The Form 8-K disclosed that the Audit Committee, in consultation with management and HSA, had concluded that VHG's previously issued financial statements for the third and fourth quarters of fiscal year 2022 and the first quarter of fiscal year 2023 should no longer be relied upon due to the identification of a material weakness in internal controls over financial reporting at VCR and the related revenue-recognition errors. Calder stated she supported this disclosure and understood it to be required by applicable SEC rules and regulations.

Coordination with Westlake Burris. Calder stated that she understood VHG's outside securities counsel, the firm of Westlake Burris & Holt LLP, under the supervision of lead partner Irene Castellanos, was advising VHG on its SEC disclosure obligations in connection with the investigation, including the preparation and filing of the Form 8-K. Calder stated that she deferred to Westlake Burris and General Counsel Navarro on the specific content, language, and timing of the disclosure, and that she reviewed and approved the Form 8-K in her capacity as CEO prior to its filing, consistent with her responsibilities as a certifying officer under the Sarbanes-Oxley Act.

SEC Inquiry. Quinn asked Calder whether she was aware of any inquiry from the Securities and Exchange Commission. At the time of the interview, August 29, 2023, Calder stated she was not personally aware of any formal SEC inquiry directed at VHG in connection with the matters under investigation. She acknowledged, however, that the possibility of an SEC inquiry or enforcement action existed given the nature and scope of the non-reliance disclosure and the underlying revenue-recognition issues. Calder stated she understood that General Counsel Navarro and Westlake Burris were monitoring the situation and would advise the Board and the Audit Committee promptly if any regulatory inquiry was received.

[Note: The SEC Division of Enforcement subsequently opened preliminary inquiry File No. HO-14237 in September 2023.]

9. Institutional Shareholders and Market Impact

Quinn asked Calder whether she had received any communications from significant institutional shareholders regarding VHG's financial reporting or the investigation. Calder stated that, as of the date of the interview (August 29, 2023), she had not received direct communications from any of VHG's significant shareholders specifically about the investigation or the non-reliance disclosure. Quinn asked specifically about communications from Ashford Capital Management LP, which is a beneficial owner of approximately 7.2% of VHG's outstanding common stock (approximately 6.38 million shares), and Ridgepoint Institutional Partners LLC, which is a beneficial owner of approximately 5.1% of VHG's outstanding common stock (approximately 4.52 million shares). Calder confirmed that she had not received direct communications from either of these shareholders regarding the investigation.

Calder noted that the Form 8-K had been filed only approximately two weeks prior to the interview (August 14, 2023) and that VHG's investor relations team, under the supervision of General Counsel Navarro and in coordination with Westlake Burris, was monitoring incoming shareholder inquiries and preparing to respond to any questions in accordance with the Company's disclosure policies and applicable regulations. Calder stated that she expected shareholder engagement on the subject would increase as the situation developed and as the Company made additional disclosures, including any restated financial statements.

10. Communications with Daskine — Detail

Tenor of Communications. Quinn asked Calder to describe her working relationship with Daskine in more detail. Calder described the relationship as professional and long-standing. Daskine reported directly to Calder in her capacity as CEO, and their working relationship spanned approximately six years, beginning when Calder assumed the CEO role in March 2017. Calder characterized Daskine as experienced, knowledgeable about the timeshare and resort-development business, well-regarded by his peers and subordinates within VHG, and someone who consistently presented VCR as a high-performing division that was a key driver of VHG's growth strategy. Calder stated she had confidence in Daskine's management capabilities and had no reason, prior to the investigation, to doubt his integrity or the accuracy of the information he provided.

Capital-Improvement Discussions. Calder recalled that Daskine periodically discussed capital-improvement projects at VCR properties during the quarterly business reviews and in occasional ad hoc conversations. Daskine described ongoing renovations and improvements at the Coral Dune Resort & Residences Phase III in Destin and the Palmetto Bluff Club Phase II in Sarasota, including unit upgrades, common-area enhancements, and infrastructure improvements. Calder stated that these discussions were conducted at a high level — Daskine typically reported on the overall status, timeline, and budget of capital projects, without going into detail about individual vendors, subcontractors, or specific invoices. Calder stated clearly that she did not recall Daskine ever mentioning the specific vendors Gulf Standard Contracting LLC, Clearwater Design Collective Inc., or Suncoast Property Services LLC by name during any conversation, presentation, or communication.

Revenue-Growth Narratives. Calder stated that Daskine consistently attributed VCR's revenue growth to strong consumer demand for timeshare interests, particularly in the Destin, Florida, and Sarasota, Florida, markets. Daskine described favorable demographic trends, increasing demand from retirees and second-home buyers, and the appeal of VCR's Gulf Coast properties relative to competitors. Calder stated that Daskine's narrative was consistent over time and aligned with the broader market data and industry reports that Calder received from other sources. Critically, Calder stated that she did not recall Daskine ever qualifying VCR's revenue figures by reference to pending rescission periods, or ever discussing the timing of revenue recognition in any level of detail. Revenue was presented by Daskine as a single-line figure or broken down by property, but never with reference to the status of rescission periods for individual transactions or cohorts of transactions.

No Written Concerns Raised. Calder stated she was not aware of any written complaints, whistleblower reports, hotline submissions, or internal concerns raised by any VCR employee regarding VCR's revenue-recognition practices or the fictitious vendor invoices at any time prior to HSA's June 2023 communication. Calder stated that she was familiar with VHG's whistleblower policy and ethics hotline, which are administered by the General Counsel's office, and that she received periodic reports summarizing hotline activity, but she did not recall any report referencing concerns about VCR's revenue recognition or capital-expenditure practices. Calder stated she was not aware of any VCR employee having raised concerns directly with Daskine, Prescott, or any other member of VCR management about these issues.

11. D&O Insurance Awareness

Quinn briefly asked Calder about her awareness of VHG's directors' and officers' liability insurance program. Calder confirmed that she had a general awareness that VHG maintains directors' and officers' (D&O) insurance coverage. She stated that she understood the Company carries a primary D&O policy with North Atlantic Indemnity Corp. (policy number NAI-DOL-2023-004891, policy period January 1, 2023, through December 31, 2023), providing a primary limit of $25 million per claim and $50 million in the aggregate. Calder further stated she was generally aware that VHG maintains a Side A difference-in-conditions ("DIC") policy with Ironbridge Specialty Insurance Ltd., providing an additional $15 million in coverage for non-indemnifiable loss to individual directors and officers. Calder stated she deferred to General Counsel Patricia Navarro on specific questions regarding the terms, conditions, and coverage applications of these policies, and she noted that she understood the Company had provided notice of the investigation and the related claims to its D&O carriers, though she was not personally involved in the notification process.

12. Closing and Follow-Up

At the conclusion of the substantive questioning, Quinn thanked Calder for her cooperation and her thorough and candid responses throughout the interview. Quinn reiterated the confidentiality obligation that had been communicated at the beginning of the interview: the substance of the interview, including the questions asked, the topics discussed, and the information provided by Calder, should not be disclosed to any person outside of the investigation without prior authorization from Calderwood & Harkness LLP.

Calder was advised that the investigation remained ongoing and that the investigation team might request a follow-up interview if additional questions arose as the team continued its document review and interviews of other witnesses. Calder confirmed her willingness to cooperate fully with the investigation, including making herself available for any additional interview sessions, and to provide any documents or information requested by the investigation team.

The interview concluded at approximately 12:45 p.m. EDT.

No documents were provided by Calder or requested from Calder at this interview. Quinn noted for the record that relevant documents in Calder's possession, custody, or control — including electronic communications, calendar entries, and files maintained on VHG's corporate systems — had already been collected and preserved through the corporate document-preservation process initiated on July 24, 2023, pursuant to the litigation-hold notice issued by General Counsel Navarro at the direction of the Audit Committee.

Prepared by: Steven Hollander, Associate, Calderwood & Harkness LLP Reviewed by: Liam Donahue, Senior Associate, Calderwood & Harkness LLP Approved by: Howard Quinn, Partner, Calderwood & Harkness LLP

Distribution: Investigation file only; Audit Committee upon request

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT This memorandum was prepared by counsel in anticipation of litigation and in connection with the provision of legal advice to the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. It is protected from disclosure by the attorney-client privilege and the attorney work-product doctrine. Any disclosure, copying, distribution, or use of this memorandum or the information contained herein by any person other than authorized representatives of the Audit Committee or Calderwood & Harkness LLP is strictly prohibited.

Date of Interview:	August 29, 2023
Location of Interview:	Calderwood & Harkness LLP, 200 South Biscayne Boulevard, Suite 4400, Miami, FL 33131 (Conference Room 44-B)
Time:	10:00 a.m. – 12:45 p.m. EDT
Interviewers Present:	Howard Quinn, Partner, Calderwood & Harkness LLP

Liam Donahue, Senior Associate, Calderwood & Harkness LLP

Also Present:	Steven Hollander, Associate, Calderwood & Harkness LLP (note-taker)
Witness:	Margaret "Meg" Calder, Chief Executive Officer, Verimark Hospitality Group Inc.
Counsel for Witness:	None present (Calder attended in her capacity as a VHG officer; she is not a subject of the investigation)
Court Reporter / Recording:	None; contemporaneous notes taken by Steven Hollander
Period	Estimated Revenue Overstatement
Q3 2022 (quarter ending September 30, 2022)	$4.7 million
Q4 2022 (quarter ending December 31, 2022)	$6.1 million
Q1 2023 (quarter ending March 31, 2023)	$9.8 million
Q2 2023 (quarter ending June 30, 2023)	$5.8 million
Total	$26.4 million
Entity	Number of Invoices	Total Amount
Gulf Standard Contracting LLC ("GSC")	19	$812,400
Clearwater Design Collective Inc. ("CDC")	16	$587,600
Suncoast Property Services LLC ("SPS")	12	$430,000
Total	47	$1,830,000

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM OF INTERVIEW
TO: Investigation File — C&H Matter No. 1021-00008
FROM: Liam Donahue, Senior Associate, Calderwood & Harkness LLP
DATE: August 29, 2023
RE: Interview of Margaret "Meg" Calder, Chief Executive Officer, Verimark Hospitality Group Inc.
This memorandum summarizes the substance of the interview of Margaret "Meg" Calder conducted on August 29, 2023, in connection with the independent investigation authorized by the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. ("VHG" or the "Company"). The memorandum reflects the recollections and observations of the interviewers and the note-taker, and is not a verbatim transcript. It is prepared for the investigation file and is subject in its entirety to the attorney-client privilege and the protections of the attorney work-product doctrine.
1. Upjohn Warnings and Preliminary Matters
At the outset of the interview, Howard Quinn administered the standard Upjohn warning to Calder, following the scripted protocol dated August 14, 2023, which had been approved by the investigation team for use in all witness interviews conducted in connection with C&H Matter No. 1021-00008.
Quinn explained to Calder that Calderwood & Harkness LLP represents the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. — specifically, Diane Kowalski (Chair), Reginald Faulkner, and Sandra Yeung — in connection with the pending internal investigation. Quinn made clear that Calderwood & Harkness LLP does not represent any individual officer, director, or employee of VHG or any of its subsidiaries, including Calder personally.
Quinn further advised Calder that the attorney-client privilege with respect to the interview and all communications in connection with the investigation belongs to VHG, acting through the Audit Committee and the Board of Directors, and not to Calder individually. Quinn explained that the privilege may be waived only by the Company, through the Audit Committee or the Board, and that Calder does not have the independent authority to waive or assert the privilege.
Quinn instructed Calder that the substance of the interview, including the questions asked and the answers provided, is confidential and should not be disclosed to any person outside of the investigation — including other officers, directors, or employees of VHG or its subsidiaries — without prior authorization from Calderwood & Harkness LLP. Quinn explained that this confidentiality instruction was intended to preserve the integrity of the investigation and was not intended to restrict Calder's ability to communicate with her own personal counsel, should she choose to retain one at any point.
Quinn asked Calder whether she understood each of these points. Calder affirmatively stated that she understood: (i) that Calderwood & Harkness represents the Audit Committee and not her personally; (ii) that the attorney-client privilege belongs to the Company and can be waived only by the Company; (iii) that the substance of the interview is confidential and should not be disclosed without prior authorization; and (iv) that she was free to retain personal counsel at any time if she wished. Calder confirmed that she agreed to proceed with the interview on that basis.
Quinn additionally noted for the record that Calder was not a subject of the investigation and was being interviewed as a fact witness in her capacity as Chief Executive Officer of VHG. Quinn stated that the investigation team's understanding, based on its work to date, was that the matters under investigation concerned the conduct of certain personnel at VHG's subsidiary, Verimark Coastal Resorts LLC ("VCR"), and that Calder was being interviewed to provide context regarding her oversight responsibilities, her knowledge of VCR's financial-reporting practices, and her interactions with VCR division management.
Calder acknowledged this characterization and expressed her willingness to cooperate fully with the investigation.
2. Background and Role
Quinn asked Calder to describe her current position and her background with VHG. Calder provided the following information.
Title and Tenure. Calder has served as Chief Executive Officer of Verimark Hospitality Group Inc. since March 2017. Prior to her appointment as CEO, Calder served as President and Chief Operating Officer of VHG from January 2014 to March 2017, and before that as Senior Vice President of Resort Development from 2009 to 2014. Calder joined VHG in 2005 in a business-development capacity. In total, at the time of the interview, Calder had been with VHG for approximately eighteen years, with over six years in the CEO role.
Organizational Overview. Calder described VHG as a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol "VMRK," with its corporate headquarters located at 4100 Bayshore Boulevard, Suite 1200, Tampa, FL 33611. The Company operates across multiple segments within the hospitality industry, including resort development, hotel management, timeshare-interest sales and financing, vacation-ownership exchange services, and related real-estate activities. VHG owns and manages properties in Florida, South Carolina, Arizona, and Colorado, with its largest concentration of properties along the Gulf Coast of Florida.
Company Size and Financial Overview. Calder stated that VHG reported total revenue of approximately $1.87 billion for fiscal year 2022 and net income of approximately $142.3 million for the same period. As of approximately July 2023, VHG's market capitalization was approximately $3.4 billion, with approximately 88.6 million shares of common stock outstanding. Calder noted that VHG's stock price had experienced some volatility in the weeks following the August 14, 2023 Form 8-K filing but that she had not been monitoring the stock price on a daily basis during the period of the investigation.
Reporting Structure. Calder described her direct reports. The Chief Financial Officer, Thomas Rhett Griffith, reports directly to Calder and is responsible for all corporate-level financial functions, including corporate accounting, financial planning and analysis, tax, treasury, and internal audit. The General Counsel, Patricia Navarro, also reports directly to Calder and oversees the Company's legal department, including securities compliance, litigation management, and regulatory affairs. In addition, the presidents of each of VHG's operating divisions report to Calder, including Garrett W. Daskine, who served as Division President of Verimark Coastal Resorts LLC until his placement on administrative leave on August 7, 2023.
VCR Within the VHG Corporate Structure. Calder explained that Verimark Coastal Resorts LLC ("VCR") is a wholly owned subsidiary of VHG, organized as a limited liability company under the laws of the State of Florida. VCR's principal office is located at 7820 Gulf Breeze Parkway, Suite 400, Destin, FL 32541. VCR operates VHG's Gulf Coast timeshare and resort properties, including the Coral Dune Resort & Residences in Destin, Florida, and the Palmetto Bluff Club in Sarasota, Florida, among other properties. VCR reported revenue of approximately $438.7 million for fiscal year 2022, representing approximately 23.5% of VHG's consolidated revenue. Calder described VCR as one of VHG's most significant operating divisions and noted that the timeshare-interest sales conducted through VCR were a meaningful contributor to the Company's overall revenue and profitability.
3. Oversight of VCR and Relationship with Division Management
Calder's Role vis-à-vis VCR. Calder described her oversight of VCR as primarily strategic in nature. She received quarterly business reviews from VCR Division President Garrett Daskine, which were typically conducted in person at VHG's Tampa headquarters, and she received periodic financial summaries prepared by VCR's VP of Finance, Nicole Prescott, which were included in the materials provided to Calder in advance of those quarterly reviews. Calder stated that she did not have day-to-day involvement in VCR's financial management. Day-to-day financial oversight of VCR was delegated to the division level — principally to Daskine and Prescott — with corporate-level oversight exercised through CFO Thomas Rhett Griffith and the corporate finance team. Calder stated that this was consistent with VHG's operating model, in which division presidents were given substantial operational autonomy while being accountable for results against approved budgets and strategic plans.
Frequency of Interaction with Daskine. Calder stated she communicated with Daskine on a regular basis — approximately weekly by phone or email, and in person at quarterly business review meetings. In addition, Calder and Daskine occasionally interacted at VHG corporate events, industry conferences, and site visits to VCR properties. Calder noted that Daskine was a 17-year veteran of VHG, having joined the Company in approximately 2006, and had risen through the organization from a regional operations role to the division-president position. Calder described Daskine as a trusted senior leader who was well-regarded within the organization and who had built VCR into one of VHG's highest-performing divisions during his tenure.
Interactions with Prescott and Serrano. Calder stated that she had limited direct interaction with Nicole Prescott, VCR's Vice President of Finance. Calder recalled meeting Prescott at quarterly business reviews on occasion and receiving emails from Prescott that were copied to Daskine and CFO Griffith, but stated that she did not have a substantive working relationship with Prescott. With respect to Ryan Mateo Serrano, VCR's Controller, Calder stated she had minimal or no direct interaction. Calder explained that VCR's financial reporting flowed from Serrano to Prescott, then from Prescott to Daskine, and from Daskine to CFO Griffith at the corporate level. Calder's visibility into VCR's financial data was at the summary level, through the materials provided by Daskine and Griffith.
Nature of Quarterly Business Reviews. Calder described the quarterly business reviews for VCR in greater detail. These reviews were typically held within three to four weeks of the end of each fiscal quarter and involved a presentation by Daskine, often accompanied by Prescott, to Calder and CFO Griffith. The reviews covered VCR's revenue performance for the quarter, including a breakdown of timeshare-interest sales, resort-management fees, and ancillary revenue; the timeshare-interest sales pipeline, including new purchase agreements executed during the quarter and projected closings; occupancy rates at VCR properties; and updates on capital-improvement projects, including construction timelines, budgets, and any material variances. Calder recalled that Daskine consistently described VCR's timeshare-interest sales as strong, particularly at the Coral Dune Resort & Residences (located at 14200 Emerald Coast Parkway, Destin, FL 32541), where Phase III units had been selling at or above projected absorption rates, and at the Palmetto Bluff Club (located at 3950 Longboat Key Drive, Sarasota, FL 34228), where Phase II units had recently entered the market and were generating favorable demand.
Calder's Assessment of Division Performance. Calder stated that, based on the information she received through the quarterly business reviews and the financial summaries prepared by VCR and reviewed by CFO Griffith, she had no reason to question VCR's reported financial results prior to HSA's communication in June 2023. VCR's revenue growth appeared consistent with broader market trends in the Gulf Coast hospitality and timeshare sector, and VCR's reported margins were in line with internal projections. Calder stated that she did not recall any instance in which VCR's reported results deviated materially from budgets or forecasts in a way that raised concerns, nor did she recall any instance in which CFO Griffith flagged concerns about VCR's financial reporting to her.
4. Knowledge of VCR Revenue-Recognition Practices
General Understanding. Donahue asked Calder to describe her understanding of VCR's revenue-recognition practices as they related to timeshare-interest sales. Calder stated that she understood VCR's timeshare-interest revenue recognition to follow ASC 606 (Revenue from Contracts with Customers) and the applicable VHG accounting policies, as implemented and maintained by the corporate finance team under CFO Griffith. Calder explained that she was aware, at a general level, that timeshare-interest sales involved purchase agreements under which purchasers made initial deposits, and that the revenue-recognition analysis involved an assessment of when control of the timeshare interest transferred to the purchaser and when collectibility was probable. However, Calder stated that she was not personally involved in the specific accounting entries or the timing of revenue recognition at the transaction level. Those determinations were made at the VCR division level by Prescott and Serrano, with corporate oversight by CFO Griffith and the corporate accounting team.
Rescission Period Awareness. Donahue asked Calder about her awareness of the Florida statutory rescission period applicable to timeshare-interest sales. Donahue referenced Florida Statute § 721.10, which provides a mandatory ten-day rescission period during which a purchaser of a timeshare interest may cancel the purchase agreement and receive a full refund of any deposits. Calder stated that she was generally aware of the rescission right as a feature of the timeshare business — she described it as a "cooling-off period" that she understood to be common in the industry and mandated by Florida law. However, Calder stated that she did not monitor whether revenue was booked before or after rescission periods expired for individual transactions or in the aggregate. She stated that she relied on VCR's finance team and the corporate finance function under CFO Griffith to ensure that VHG's revenue-recognition practices, including the treatment of rescission periods, were in compliance with applicable accounting standards and SEC reporting requirements.
No Knowledge of Premature Recognition. Donahue asked Calder directly whether she had any knowledge, prior to the events of June and July 2023, that VCR was booking timeshare-interest deposits as completed-sale revenue before the expiration of the applicable rescission periods. Calder stated unequivocally that she had no such knowledge. She stated that she was not informed by Daskine, Prescott, Serrano, or anyone else at VCR — or by anyone at the VHG corporate level — that this practice was occurring. Calder stated that, to her understanding, VCR's revenue-recognition practices were in compliance with ASC 606 and VHG's accounting policies, and that neither the quarterly business reviews nor the financial summaries she received contained any indication to the contrary.
Awareness of Revenue Overstatement Figures. Calder was asked whether she was aware of the specific quarterly revenue-overstatement figures that the investigation team had identified to date. Calder stated that she was not aware of these figures until after HSA's June 19, 2023 communication and the subsequent actions taken by the Audit Committee. She stated that she had been briefed by General Counsel Navarro and CFO Griffith in general terms about the scope of the potential overstatement but had not reviewed the detailed quarterly breakdown. For the record, Quinn informed Calder that the investigation team's preliminary analysis indicated the following quarterly overstatement figures attributable to premature revenue recognition on timeshare-interest deposits at VCR:
Calder acknowledged receipt of this information and stated she had not previously seen these figures in this format.
Rescission Rates. Donahue asked Calder whether she was aware of VCR's rescission rate during the investigated period, which the investigation team had calculated at approximately 14.3%, as compared with a generally cited industry average of approximately 11%. Calder stated that she did not recall receiving specific rescission-rate data from Daskine or Prescott during the quarterly business reviews or in any other communication. She acknowledged that some level of rescissions was a normal and expected feature of the timeshare business, but stated that rescission rates were not a metric she typically tracked or that was prominently featured in the quarterly business review materials she received. Calder was not able to state whether VCR's rescission rate had been disclosed or discussed in any materials prepared by CFO Griffith or the corporate finance team.
5. Knowledge of Capital-Improvement Expenditures and Expense Reporting
Capital-Improvement Budget Process. Donahue shifted the interview to VCR's capital-improvement activities. Calder described the capital-improvement budget process for VCR as follows: each fiscal year, Daskine and his team at VCR would prepare and submit proposed capital-improvement budgets for VCR's properties, including the Coral Dune Resort & Residences in Destin and the Palmetto Bluff Club in Sarasota. These budgets identified specific capital projects, such as unit renovations, common-area upgrades, pool and amenity expansions, and infrastructure improvements, along with estimated costs and projected timelines. The VCR capital budgets were submitted to CFO Griffith and the corporate finance team, where they were reviewed and incorporated into VHG's overall capital allocation process. Calder stated that she reviewed high-level summaries of the Company's aggregate capital budget, including the portions attributable to VCR, as part of the annual budgeting and strategic-planning process. However, Calder did not approve individual purchase orders, vendor contracts, or invoices at the division level. She stated that the authority to approve such expenditures was delegated to Daskine and the VCR finance team, subject to the Company's overall procurement and expenditure-approval policies.
Vendor Selection and Approval. Calder stated that she had no involvement in the selection or approval of specific vendors for VCR capital-improvement projects. That responsibility was delegated entirely to the division level — specifically to Daskine, Prescott, and the VCR operations team. Calder stated that she understood VHG's corporate procurement policies required competitive bidding for contracts above certain dollar thresholds — she believed the threshold was $100,000, although she was not certain of the exact figure — but she was not involved in monitoring compliance with those policies at the individual project or vendor level. Calder stated that she relied on Daskine and the VCR team to follow the Company's procurement policies and on the corporate finance team, including CFO Griffith and the internal audit function, to provide oversight of division-level expenditures.
No Knowledge of Fictitious Vendors. Donahue asked Calder whether she was aware of the entities Gulf Standard Contracting LLC, Clearwater Design Collective Inc., or Suncoast Property Services LLC prior to the investigation. Calder stated clearly that she was not. She stated she had never seen invoices from any of these entities, had never heard them discussed by name during quarterly business reviews or in any communication with Daskine, and had no knowledge of their existence until she was briefed on the investigation's preliminary findings. Calder was further informed that VCR Controller Ryan Mateo Serrano had served as the registered agent for two of these entities, specifically Gulf Standard Contracting LLC and Suncoast Property Services LLC, and that Daskine and Prescott were identified as the beneficial owners of one or more of these entities. Calder stated she was not aware of any of these relationships and expressed significant concern upon learning of them.
No Knowledge of Personal Expenditure Scheme. Calder stated she had no knowledge whatsoever that VCR personnel were submitting fictitious purchase orders or that funds were being diverted through shell entities to cover personal expenditures. Donahue informed Calder that the investigation had identified evidence indicating that funds paid by VCR to these shell entities were used to cover, among other things, a residential renovation at Daskine's personal residence located at 312 Harbor View Lane, Destin, FL; boat-slip fees at a marina in Destin; and luxury-goods purchases made by Daskine and Prescott. Calder stated she had no knowledge of any of these expenditures and characterized the allegations, as described to her during the interview, as "deeply troubling" and contrary to the values and policies of the Company.
Total Improper Payments. For the record, Quinn informed Calder that the investigation team's preliminary analysis estimated the total improper payments processed through the three shell entities at approximately $1.83 million, consisting of 47 fictitious purchase orders distributed as follows:
Calder stated she would not have had visibility into individual invoices or purchase orders of this size through her normal CEO reporting channels. She explained that invoices and purchase orders at this level — individual amounts that she understood ranged from approximately $15,000 to approximately $75,000 per invoice — were well below the threshold of expenditures that would typically come to the CEO's attention. Calder stated that the aggregate amount, while significant, accumulated over a period of several quarters across three entities, further reducing the likelihood that any single data point would have triggered her attention at the CEO level.
6. HSA Communication and Calder's Response
June 19, 2023 Communication. Quinn asked Calder to describe her knowledge of, and response to, the June 19, 2023 communication from VHG's independent auditor, Hargrove, Steen & Aldrich LLP ("HSA"). Calder stated she was informed by CFO Thomas Rhett Griffith on or about June 20, 2023 — the day following the communication — that HSA's lead engagement partner, William "Bill" Gentry, had contacted Griffith to advise that HSA had identified a potential material weakness in VCR's internal controls over financial reporting. Specifically, Calder understood from Griffith's summary that HSA had determined that $9.8 million in timeshare-interest deposits had been recorded as completed-sale revenue in Q1 2023 (the quarter ending March 31, 2023) despite the applicable rescission periods under Florida Statute § 721.10 not having expired at the time the revenue was recognized. Calder stated that Griffith conveyed this information to her by telephone and that they discussed the need to promptly inform the Audit Committee and General Counsel Navarro.
Calder's Reaction. Calder stated she took the matter "very seriously" from the outset. She stated that she recognized the potential significance of the issue for VHG's financial reporting, SEC disclosure obligations, and investor confidence. Calder stated that she supported the Audit Committee's decision, reached in the weeks following HSA's communication, to retain independent outside counsel to conduct an investigation. Calder emphasized that she did not attempt to conduct her own internal inquiry into the matter or direct VHG management or VCR personnel to undertake any internal review. She stated she understood that the Audit Committee had the authority and responsibility to oversee the investigation and that she deferred to the Audit Committee's judgment in all respects.
Communication with Daskine After HSA Disclosure. Quinn asked Calder whether she communicated with Daskine about the HSA findings after June 19, 2023. Calder stated that she did not discuss the substance of HSA's findings with Daskine at any time. She explained that shortly after learning of the HSA communication, she was advised by General Counsel Patricia Navarro not to discuss the matter with VCR division personnel — including Daskine, Prescott, and Serrano — pending the Audit Committee's determination regarding the scope and structure of the investigation. Calder stated she followed this advice. She acknowledged that she continued to have some limited, routine operational communications with Daskine during the period between June 19, 2023, and Daskine's placement on administrative leave on August 7, 2023, but stated that none of these communications involved the HSA findings, the investigation, or VCR's revenue-recognition practices.
Board and Audit Committee Actions. Calder confirmed the following timeline of Audit Committee and Board actions, which she stated was consistent with her recollection:
• Following HSA's June 19, 2023 communication, the Audit Committee was promptly notified by CFO Griffith and General Counsel Navarro.
• The Audit Committee convened in executive session on July 10, 2023, at which the Committee discussed HSA's findings and resolved to retain independent outside counsel to conduct an investigation into VCR's revenue-recognition practices and any related matters.
• The Audit Committee formally engaged Calderwood & Harkness LLP on July 17, 2023, with the engagement letter executed by Audit Committee Chair Diane Kowalski on behalf of the Committee.
• The investigation formally commenced on July 24, 2023, with the issuance of a document-preservation notice to relevant VHG and VCR personnel and the initiation of document-collection procedures.
Calder stated she was kept informed of these actions by General Counsel Navarro and, to a more limited extent, by Audit Committee Chair Kowalski, but that she was not involved in the selection of independent counsel or the negotiation of the engagement terms.
Administrative Leave. Calder confirmed that Garrett W. Daskine (Division President, VCR), Nicole Prescott (VP of Finance, VCR), and Ryan Mateo Serrano (Controller, VCR) were placed on administrative leave effective August 7, 2023. Calder stated that this decision was made in consultation with General Counsel Navarro and the Audit Committee, and that Calder supported the decision as a prudent measure to protect the integrity of the investigation and to prevent any potential interference with the investigation team's work. Calder stated that interim leadership arrangements were put in place at VCR following the administrative-leave actions, with corporate finance and operations personnel assuming oversight responsibilities on a temporary basis.
7. SOX Certifications and Internal Controls
SOX Section 302 Certifications. Donahue asked Calder about her responsibilities regarding Sarbanes-Oxley Act certifications. Calder acknowledged that, as CEO of VHG, she is a certifying officer under Section 302 of the Sarbanes-Oxley Act of 2002 and has signed SOX Section 302 certifications in connection with VHG's annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. These certifications attest, among other things, that the certifying officer has reviewed the report; that, based on the certifying officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading; that the financial statements and other financial information included in the report fairly present in all material respects the financial condition, results of operations, and cash flows of the issuer; and that the certifying officer has evaluated the effectiveness of the registrant's disclosure controls and procedures and internal controls over financial reporting. Calder also acknowledged her responsibilities under Section 404 of the Sarbanes-Oxley Act regarding management's assessment of the effectiveness of internal controls over financial reporting.
Reliance on Subordinates. Calder explained the process by which she prepared to sign her SOX certifications. She stated that VHG employs a sub-certification process, whereby division presidents and division finance officers — including Daskine and Prescott for VCR — provide written sub-certifications to the corporate finance team on a quarterly and annual basis. These sub-certifications, which are collected and compiled by CFO Griffith and his staff, represent that the division-level financial information provided to the corporate finance team for inclusion in VHG's consolidated financial statements is accurate and complete and that the division's internal controls over financial reporting are operating effectively. Calder stated that CFO Griffith reviewed the sub-certifications and provided his own assessment to Calder before Calder signed the CEO certification. Calder stated that she relied in good faith on this sub-certification process, on the representations of VCR management contained in the sub-certifications, and on the professional judgment of CFO Griffith and the corporate finance team. Calder stated that she was not aware of any reason, prior to the events of June 2023, to question the accuracy or completeness of the sub-certifications provided by Daskine and Prescott.
No Red Flags Identified by Calder. Calder stated that she did not personally identify any red flags regarding VCR's revenue-recognition practices or expense reporting prior to HSA's June 2023 communication. She noted that VCR's reported financial results were generally in line with the budgets and forecasts that Daskine had presented during the annual planning process and the quarterly business reviews. Calder stated that no VHG corporate-level personnel — including CFO Griffith, General Counsel Navarro, the internal audit team, or the investor relations team — raised any concerns with her about VCR's financial reporting during the periods in question. Calder further stated that she was not aware of any concerns raised by HSA during the ordinary course of the audit engagement, prior to the June 19, 2023 communication, regarding VCR's revenue-recognition practices or internal controls.
8. Awareness of SEC and Disclosure Matters
Form 8-K Filing. Quinn asked Calder about her awareness of VHG's recent public disclosure regarding the investigation. Calder stated she was aware that VHG filed a Form 8-K with the Securities and Exchange Commission on August 14, 2023, under Item 4.02 (Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review). The Form 8-K disclosed that the Audit Committee, in consultation with management and HSA, had concluded that VHG's previously issued financial statements for the third and fourth quarters of fiscal year 2022 and the first quarter of fiscal year 2023 should no longer be relied upon due to the identification of a material weakness in internal controls over financial reporting at VCR and the related revenue-recognition errors. Calder stated she supported this disclosure and understood it to be required by applicable SEC rules and regulations.
Coordination with Westlake Burris. Calder stated that she understood VHG's outside securities counsel, the firm of Westlake Burris & Holt LLP, under the supervision of lead partner Irene Castellanos, was advising VHG on its SEC disclosure obligations in connection with the investigation, including the preparation and filing of the Form 8-K. Calder stated that she deferred to Westlake Burris and General Counsel Navarro on the specific content, language, and timing of the disclosure, and that she reviewed and approved the Form 8-K in her capacity as CEO prior to its filing, consistent with her responsibilities as a certifying officer under the Sarbanes-Oxley Act.
SEC Inquiry. Quinn asked Calder whether she was aware of any inquiry from the Securities and Exchange Commission. At the time of the interview, August 29, 2023, Calder stated she was not personally aware of any formal SEC inquiry directed at VHG in connection with the matters under investigation. She acknowledged, however, that the possibility of an SEC inquiry or enforcement action existed given the nature and scope of the non-reliance disclosure and the underlying revenue-recognition issues. Calder stated she understood that General Counsel Navarro and Westlake Burris were monitoring the situation and would advise the Board and the Audit Committee promptly if any regulatory inquiry was received.
[Note: The SEC Division of Enforcement subsequently opened preliminary inquiry File No. HO-14237 in September 2023.]
9. Institutional Shareholders and Market Impact
Quinn asked Calder whether she had received any communications from significant institutional shareholders regarding VHG's financial reporting or the investigation. Calder stated that, as of the date of the interview (August 29, 2023), she had not received direct communications from any of VHG's significant shareholders specifically about the investigation or the non-reliance disclosure. Quinn asked specifically about communications from Ashford Capital Management LP, which is a beneficial owner of approximately 7.2% of VHG's outstanding common stock (approximately 6.38 million shares), and Ridgepoint Institutional Partners LLC, which is a beneficial owner of approximately 5.1% of VHG's outstanding common stock (approximately 4.52 million shares). Calder confirmed that she had not received direct communications from either of these shareholders regarding the investigation.
Calder noted that the Form 8-K had been filed only approximately two weeks prior to the interview (August 14, 2023) and that VHG's investor relations team, under the supervision of General Counsel Navarro and in coordination with Westlake Burris, was monitoring incoming shareholder inquiries and preparing to respond to any questions in accordance with the Company's disclosure policies and applicable regulations. Calder stated that she expected shareholder engagement on the subject would increase as the situation developed and as the Company made additional disclosures, including any restated financial statements.
10. Communications with Daskine — Detail
Tenor of Communications. Quinn asked Calder to describe her working relationship with Daskine in more detail. Calder described the relationship as professional and long-standing. Daskine reported directly to Calder in her capacity as CEO, and their working relationship spanned approximately six years, beginning when Calder assumed the CEO role in March 2017. Calder characterized Daskine as experienced, knowledgeable about the timeshare and resort-development business, well-regarded by his peers and subordinates within VHG, and someone who consistently presented VCR as a high-performing division that was a key driver of VHG's growth strategy. Calder stated she had confidence in Daskine's management capabilities and had no reason, prior to the investigation, to doubt his integrity or the accuracy of the information he provided.
Capital-Improvement Discussions. Calder recalled that Daskine periodically discussed capital-improvement projects at VCR properties during the quarterly business reviews and in occasional ad hoc conversations. Daskine described ongoing renovations and improvements at the Coral Dune Resort & Residences Phase III in Destin and the Palmetto Bluff Club Phase II in Sarasota, including unit upgrades, common-area enhancements, and infrastructure improvements. Calder stated that these discussions were conducted at a high level — Daskine typically reported on the overall status, timeline, and budget of capital projects, without going into detail about individual vendors, subcontractors, or specific invoices. Calder stated clearly that she did not recall Daskine ever mentioning the specific vendors Gulf Standard Contracting LLC, Clearwater Design Collective Inc., or Suncoast Property Services LLC by name during any conversation, presentation, or communication.
Revenue-Growth Narratives. Calder stated that Daskine consistently attributed VCR's revenue growth to strong consumer demand for timeshare interests, particularly in the Destin, Florida, and Sarasota, Florida, markets. Daskine described favorable demographic trends, increasing demand from retirees and second-home buyers, and the appeal of VCR's Gulf Coast properties relative to competitors. Calder stated that Daskine's narrative was consistent over time and aligned with the broader market data and industry reports that Calder received from other sources. Critically, Calder stated that she did not recall Daskine ever qualifying VCR's revenue figures by reference to pending rescission periods, or ever discussing the timing of revenue recognition in any level of detail. Revenue was presented by Daskine as a single-line figure or broken down by property, but never with reference to the status of rescission periods for individual transactions or cohorts of transactions.
No Written Concerns Raised. Calder stated she was not aware of any written complaints, whistleblower reports, hotline submissions, or internal concerns raised by any VCR employee regarding VCR's revenue-recognition practices or the fictitious vendor invoices at any time prior to HSA's June 2023 communication. Calder stated that she was familiar with VHG's whistleblower policy and ethics hotline, which are administered by the General Counsel's office, and that she received periodic reports summarizing hotline activity, but she did not recall any report referencing concerns about VCR's revenue recognition or capital-expenditure practices. Calder stated she was not aware of any VCR employee having raised concerns directly with Daskine, Prescott, or any other member of VCR management about these issues.
11. D&O Insurance Awareness
Quinn briefly asked Calder about her awareness of VHG's directors' and officers' liability insurance program. Calder confirmed that she had a general awareness that VHG maintains directors' and officers' (D&O) insurance coverage. She stated that she understood the Company carries a primary D&O policy with North Atlantic Indemnity Corp. (policy number NAI-DOL-2023-004891, policy period January 1, 2023, through December 31, 2023), providing a primary limit of $25 million per claim and $50 million in the aggregate. Calder further stated she was generally aware that VHG maintains a Side A difference-in-conditions ("DIC") policy with Ironbridge Specialty Insurance Ltd., providing an additional $15 million in coverage for non-indemnifiable loss to individual directors and officers. Calder stated she deferred to General Counsel Patricia Navarro on specific questions regarding the terms, conditions, and coverage applications of these policies, and she noted that she understood the Company had provided notice of the investigation and the related claims to its D&O carriers, though she was not personally involved in the notification process.
12. Closing and Follow-Up
At the conclusion of the substantive questioning, Quinn thanked Calder for her cooperation and her thorough and candid responses throughout the interview. Quinn reiterated the confidentiality obligation that had been communicated at the beginning of the interview: the substance of the interview, including the questions asked, the topics discussed, and the information provided by Calder, should not be disclosed to any person outside of the investigation without prior authorization from Calderwood & Harkness LLP.
Calder was advised that the investigation remained ongoing and that the investigation team might request a follow-up interview if additional questions arose as the team continued its document review and interviews of other witnesses. Calder confirmed her willingness to cooperate fully with the investigation, including making herself available for any additional interview sessions, and to provide any documents or information requested by the investigation team.
The interview concluded at approximately 12:45 p.m. EDT.
No documents were provided by Calder or requested from Calder at this interview. Quinn noted for the record that relevant documents in Calder's possession, custody, or control — including electronic communications, calendar entries, and files maintained on VHG's corporate systems — had already been collected and preserved through the corporate document-preservation process initiated on July 24, 2023, pursuant to the litigation-hold notice issued by General Counsel Navarro at the direction of the Audit Committee.
Prepared by: Steven Hollander, Associate, Calderwood & Harkness LLP Reviewed by: Liam Donahue, Senior Associate, Calderwood & Harkness LLP Approved by: Howard Quinn, Partner, Calderwood & Harkness LLP
Distribution: Investigation file only; Audit Committee upon request
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT This memorandum was prepared by counsel in anticipation of litigation and in connection with the provision of legal advice to the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. It is protected from disclosure by the attorney-client privilege and the attorney work-product doctrine. Any disclosure, copying, distribution, or use of this memorandum or the information contained herein by any person other than authorized representatives of the Audit Committee or Calderwood & Harkness LLP is strictly prohibited.
Date of Interview: | August 29, 2023
Location of Interview: | Calderwood & Harkness LLP, 200 South Biscayne Boulevard, Suite 4400, Miami, FL 33131 (Conference Room 44-B)
Time: | 10:00 a.m. – 12:45 p.m. EDT
Interviewers Present: | Howard Quinn, Partner, Calderwood & Harkness LLP
Liam Donahue, Senior Associate, Calderwood & Harkness LLP
Also Present: | Steven Hollander, Associate, Calderwood & Harkness LLP (note-taker)
Witness: | Margaret "Meg" Calder, Chief Executive Officer, Verimark Hospitality Group Inc.
Counsel for Witness: | None present (Calder attended in her capacity as a VHG officer; she is not a subject of the investigation)
Court Reporter / Recording: | None; contemporaneous notes taken by Steven Hollander
Period | Estimated Revenue Overstatement
Q3 2022 (quarter ending September 30, 2022) | $4.7 million
Q4 2022 (quarter ending December 31, 2022) | $6.1 million
Q1 2023 (quarter ending March 31, 2023) | $9.8 million
Q2 2023 (quarter ending June 30, 2023) | $5.8 million
Total | $26.4 million
Entity | Number of Invoices | Total Amount
Gulf Standard Contracting LLC ("GSC") | 19 | $812,400
Clearwater Design Collective Inc. ("CDC") | 16 | $587,600
Suncoast Property Services LLC ("SPS") | 12 | $430,000
Total | 47 | $1,830,000

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM OF INTERVIEW

Record

Parties

Dates

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