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<p>Can we simply the BCH offering as it&rsquo;s in danger of being too complicated, and we risk being back where we started with management cost burden of building another Opco dragging on pub performance.</p>

<p>If we ran each pub as an individual going concern we would would not want another approx. 130k of overhead (12 x &pound;3500 plus Head office allocation &pound;75-100k) on top of head chef / front of house pub manager / staffing costs.&nbsp;</p>

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<p>1. Which pubs are actually going to work? Those that aren&rsquo;t should be put into CVA or request working capital injection from respective shareholder groups.</p>

<p>2. The Management fee should be a straight cost past through model. Even their back of the envelope calculations look too high particularly if not all pubs reopen for business.</p>

<p>3. We can align incentives for Ducalian as follows:</p>

<p>&nbsp;</p>

<p>i) Genuine management costs should be on cost basis.</p>

<p>ii) Management performance fee should be on 10-20% fee of EBITDA. Incentive to maximise revenue and reduce costs (head office or otherwise)</p>

<p>iii) Performance fee (10-20%) on sale based on July MTM &lsquo;Fair value&rsquo; - &nbsp;somewhere between low value being Bricks &amp; mortar valuation and higher end adding some enterprise value.&nbsp;</p>

<p>iv) Pub valuations will be driven by multiple of EBITDA and/or securing planning rights etc.</p>

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<p>e.g. Harcourt had EBITDA 2017/18 &pound;125k and 18/19 &pound;180k even taking into account ridiculous cost base / management charges&nbsp;</p>

<p>Opportunity to get to management fee of &pound;15-30k assuming 15%&nbsp;</p>

<p>Bricks and mortar valuation of &pound;2mio and/or enterprise value of &pound;3.5mio (AG&amp;G) so maybe strike fair value at &pound;3mio and participation at 15% would generate another &pound;75k&nbsp;</p>

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<p>If you have 4 viable pubs you can earn a management fee of 120k if they all did &pound;1m quid t/o and EBITDA of &nbsp;&pound;100-200k .</p>

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<p>Otherwise, you are looking at minimum management fee of &pound;250k, plus allocation of head office costs that still seem high given scale.</p>

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<p>Inclusion/removal of cap/floor in the GOP fees?</p>

<p><strong>#6</strong>&nbsp;Proposal: No change to cap/floor &nbsp;</p>

<p>If pubs are genuinely underperforming and have no chance of covering operating costs then need to be put into CVA.</p>

<p>As per above, the floor needs to be zero. Ducalian will have multiple incentives to get pubs back to profitable operations with a realistic chance of participation in equity upside from current &lsquo;fair&rsquo; levels. Removing the cap increases incentives to grow revenue and reduce costs.&nbsp;</p>

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<p>Accept may have to have a maintenance / admin fee if decision made to mothball pubs pending reopen.</p>

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<p>Termination rights&nbsp;&nbsp; &nbsp; &nbsp; &nbsp;&nbsp;</p>

<p>Seems sensible / equitable</p>

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<p>Sale of pub vs On-going - avoid conflict of interest on sale vs on-going operation&nbsp;&nbsp;</p>

<p>Agree there should be a performance incentive based on some fair value July / August 2020. Also, moves some of the &ldquo;day to day&rsquo; cost base into exit performance fee.</p>

<p>Agree - Participation rate should be lower given the restrict on MTM.</p>

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<p>Kind regards,</p>

<p>&nbsp;</p>

<p>David</p>

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