<p>&nbsp;</p>

<p><a name="_MailEndCompose"></a></p>

<p><a name="_MailOriginal"><strong>From:</strong></a> Steven Partridge &lt;sjpmhh@gmail.com&gt;<br />
<strong>Sent:</strong> 07 July 2020 19:44<br />
<strong>To:</strong> Nicholas Stockdale &lt;nicholasstockdale@googlemail.com&gt;<br />
<strong>Cc:</strong> John Soden &lt;soden.j@gmail.com&gt;; Stephen Nurse &lt;nurse_stephen@hotmail.com&gt;; Alistair Higgins &lt;Alistair.higgins@gmail.com&gt;; Denis Shafranik &lt;denis@ermakgroup.com&gt;; Nicholas Curtis &lt;n.curtis123@btinternet.com&gt;; parkhouse87@btinternet.com; Stephen Phillips &lt;Stephen.Phillips@templebright.com&gt;<br />
<strong>Subject:</strong> Re: Rob&#39;s proposal - Work in Progress</p>

<p>&nbsp;</p>

<p>Initial reaction:</p>

<p>&nbsp;</p>

<p>The priority&nbsp;is to formulate an immediate crisis plan for each&nbsp;pub, including an assessment of future trading viability, how much further&nbsp;funding is required and whether&nbsp;it can be borrowed,&nbsp;and a recommendation as to how we should move forward.&nbsp; &nbsp;</p>

<p>&nbsp;</p>

<p>As to which&nbsp;of their suggested &quot;Ducalian involvement&quot; options is best, I don&#39;t&nbsp;know ,&nbsp; This needs to be talked through&nbsp;with them so we can form a&nbsp;proper&nbsp;view..</p>

<p>&nbsp;</p>

<p>Their deal obviously needs to be&nbsp;worked out.&nbsp; Obviously it should be largely if not entirely&nbsp;based on sharing future&nbsp;upside.&nbsp; And cashless.&nbsp; Can we make it option/equity based rather than fee based.&nbsp; (I can check if any EIS impact for us).&nbsp; &nbsp;They should be incentivised in particular to achieve termination&nbsp;of both&nbsp;the Harcourt&nbsp;Investments and Harcourt Inns management fee/service agreements (plus of course the Andrew Endean version) , and all related outstanding liabilities on acceptable terms to us as soon as possible.</p>

<p>&nbsp;</p>

<p>Their own outstanding liability btw is &pound;292k not &pound;275k per slide 6.&nbsp; I&#39;m taking it as a given this will be waived.</p>

<p>&nbsp;</p>

<p>I wouldn&#39;t be too quick to offer them the world.&nbsp; They are also in part responsible for getting us into this mess and I think this weighs reasonably heavily on them.&nbsp; But it&#39;s clearly worth our while to share upside with them relative&nbsp;to where we are today, provided we have confidence that they can deliver.&nbsp; We don&#39;t after all have too many options right now.</p>

<p>&nbsp;</p>

<p>It should be made clear to them that it will not be business as before.&nbsp; They will be dealing with, and reporting to, the advocacy team on a week to week basis initially and assuming they can turn things around, on a frequent and active basis for the foreseeable future.,&nbsp;</p>

<p>&nbsp;</p>

<p>Best</p>

<p>&nbsp;</p>

<p>Steve</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>On Tue, 7 Jul 2020 at 16:19, Nicholas Stockdale &lt;<a href="mailto:nicholasstockdale@googlemail.com">nicholasstockdale@googlemail.com</a>&gt; wrote:</p>

<p>﻿John - agree with all you say.&nbsp;</p>

<p>&nbsp;</p>

<p>Straw man proposal below comprising two fee components to Cherry &amp; Co:</p>

<p>&nbsp;</p>

<p>1. Profit share - set base profit share at 25% of profit (profit after tax with depreciation added back)</p>

<p>&nbsp;</p>

<p>Increase the above base profit share as key milestones are sorted out - eg getting rid of McCulloch&rsquo;s management contract (on acceptable terms to us - we set out those parameters in advance - see below) and all the other contracts (again on acceptable terms to us); and getting EIS sorted out.&nbsp;</p>

<p>&nbsp;</p>

<p>Happy to potentially offer up to another 25% profit share for the above milestones in aggregate as they are taking on an absolute mess. And 50% of profits should hopefully seriously incentivise them if they believe the story in their own proposal.&nbsp;</p>

<p>&nbsp;</p>

<p>Above profit shares to fall away on pub sales. And also there needs to be a termination notice period and termination payment provisions. Details to be worked out - to avoid another situation like the one we&rsquo;re now in. &nbsp;</p>

<p>&nbsp;</p>

<p>2. Share of sale price above the initial gross amount we all put in - here happy to go up to 50% if it really incentivises them and given where we are today.&nbsp;</p>

<p>&nbsp;</p>

<p>Rationale for setting the hurdle high is at the amount we paid in, is because the pubs are in way better condition than when we bought them and have additional revenue streams from the bedrooms. If properly run they should be very valuable assets. They are all in prime locations.&nbsp;</p>

<p>&nbsp;</p>

<p>Obviously could change this share of sale price around to: a lower percentage above a lower hurdle.&nbsp;</p>

<p>&nbsp;</p>

<p>Finally, the &pound;475k they mention in the proposal is owed to them to fall away not least as &pound;200k of it has nothing to do with us in any event.&nbsp;</p>

<p>&nbsp;</p>

<p>The McCulloch 2% of our equity put in management contract buy out:&nbsp;</p>

<p>&nbsp;</p>

<p>He&rsquo;s currently owed &pound;950k and has a long term (25 year) contract in place. The pubs could fall into administration, and whilst he&rsquo;s likely to get his &pound;950k (though nothing more as they will be sold and his contract would terminate) he will be in a world of pain with the administrators, along with likely law suits against him (or at least threats of them) from some extremely angry shareholders. [Administration would though likely be a Pyrrhic victory for us as sale would be at rock bottom and no upside.]</p>

<p>&nbsp;</p>

<p>So we could make an offer of 1/3 to 1/2 of the &pound;950k, though payable on sale of the pubs as we don&rsquo;t have the cash now as him and Harris have run them into the ground. And even this amount that we agree should decrease if EIS fails to come through on the pubs or if there is claw back.&nbsp;</p>

<p>&nbsp;</p>

<p>Whatever happens I&rsquo;d want McCulloch and Harris no where near these pubs or the management of them.&nbsp;</p>

<p>&nbsp;</p>

<p>Thanks</p>

<p>&nbsp;</p>

<p>Nick</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>Sent from my iPhone</p>

<p><br />
&nbsp;</p>

<p>On 7 Jul 2020, at 15:33, John Soden &lt;<a href="mailto:soden.j@gmail.com" target="_blank">soden.j@gmail.com</a>&gt; wrote:</p>

<p>﻿</p>

<p>﻿I have had a quick read and it is sensible stuff but doesn&rsquo;t focus enough on the immediate crisis management necessary - but they don&rsquo;t necessarily know how bad it is.</p>

<p>&nbsp;</p>

<p>1. it looks as if they are owed both &pound;200k by JM and accrued management fees of &pound;275k by the pubs. I was hoping that these were the same thing. They will be open to waiving both but no doubt in expectation of an appropriate economic deal which is not specified and recognising that JM probably won&rsquo;t pay and the pubs can&rsquo;t at the moment. However they have done pretty well so far and apparently had &pound;450k out of JM as well as retaining the storage side of the business. So they are the ones who have benefited most so far.&nbsp;</p>

<p>2. They are willing to become directors under various scenarios.</p>

<p>3.&nbsp; I think there is a first phase of, say, 3 months, where they stabilise, seek to manage away liabilities and take out costs, negotiate deals with lenders where required and work up a strategy for each pub and try to address the EIS issues.</p>

<p>4.&nbsp; In the second phase I think they should focus on what the trading vision should be for each. I suspect only 2 or 3 will actually have one and others are sold or mothballed.</p>

<p>&nbsp;</p>

<p>So the big question is how much is this worth and what do they want?</p>

<p>&nbsp;</p>

<p>Sent from my iPad</p>

<p><br />
&nbsp;</p>

<p>On 7 Jul 2020, at 15:07, Stephen Nurse &lt;<a href="mailto:nurse_stephen@hotmail.com" target="_blank">nurse_stephen@hotmail.com</a>&gt; wrote:</p>

<p>﻿</p>

<p>Forwarding as it arrives.&nbsp; I haven&rsquo;t read yet, but getting out to you all asap</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p><strong>From:</strong> Robert Cherry &lt;<a href="mailto:robert.cherry@ducalian.co.uk" target="_blank">robert.cherry@ducalian.co.uk</a>&gt;<br />
<strong>Sent:</strong> 07 July 2020 13:43<br />
<strong>To:</strong> Stephen Nurse &lt;<a href="mailto:nurse_stephen@hotmail.com" target="_blank">nurse_stephen@hotmail.com</a>&gt;<br />
<strong>Subject:</strong> Pub cos</p>

<p>&nbsp;</p>

<p>Hi Steve,</p>

<p>&nbsp;</p>

<p>Please find the attached. As mentioned on the phone it is a start and options can be explored,</p>

<p>&nbsp;</p>

<p>The split with JM meant that he left Ducalian and the storage projects and James H and I left the pub SPVs and op co. James M bought me and James H out of Ducalian Investments LLP (James M retained this) and it was a three year deferred consideration, (&pound;230k at completion, &pound;220k 1st anniversary, &pound;200k 2nd anniversary) and this now has the &pound;200k left to pay due on 18 April 2021.</p>

<p>&nbsp;</p>

<p>Ducalian had management fees owing from the pubs that we had deferred and part of the split deal was that Ducalian would keep some retained debt that pub cos would repay over a three year period. These are specified in the doc. No retained debt payments to Ducalian have been made so far.</p>

<p>&nbsp;</p>

<p>If you have any questions just let me know,</p>

<p>&nbsp;</p>

<p>Best regards,</p>

<p>&nbsp;</p>

<p>Robert Cherry</p>

<p>Ducalian Capital</p>

<p>&nbsp;</p>

<p>Linkedin: <a href="http://www.linkedin.com/in/cherryrob" target="_blank">http://www.linkedin.com/in/cherryrob</a></p>

<p>&nbsp;</p>

<p>Ducalian Capital</p>

<p>Studio 2</p>

<p>Henry Wood House</p>

<p>2 Riding House Street</p>

<p>W1W 7FA</p>

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