<p>Dear James,</p>

<p>Thanks for coming back to me.</p>

<p>We would obviously prefer to find a consensual solution to the current concerns and issues but given the lack of progress to date and the comments in your email yesterday, we are concerned this is unlikely. As such, we have sent you a shareholder requisition to remove the current directors and appoint new directors for five of the pub companies. The requisition for the KPH will come early next week. Clearly if we are able to find a solution in the intervening period we can reconsider those requisitions.</p>

<p>We have taken note of the comments in your email of 11 August and will ensure that shareholder communications are based on the correct position. We have no intention to mislead anyone but note that a week has passed since our communication and you have not identified any specific points that you assert as incorrect.</p>

<p>We note also that you have not responded to a number of the other points that we raised in the draft letter. Many of these arose directly from our conversations with you/and or Rachel. For example we were told by Rachel that a &pound;50k &ldquo;bounce-back&rdquo; loan has been taken in the Harcourt SPV and then used to repay outstanding debt to Harcourt Investments and lent on to another pub.</p>

<p>Did this have board approval?</p>

<p>With regard to the management contracts, we have taken both legal advice and gained an understanding of the market norms at the time they were entered into. Although we were aware of the headline terms from the Information Memorandum, having now seen some of the Management Contracts as part of our discussion it is clear many of the terms are significantly off market. A key point is that you are due a management fee based on a capital raise without any reference to the value of the pubs or the financial performance.&nbsp; We also are concerned that in many of the contracts profit is defined in a way to allow the exclusion of key costs such as interest and annual management fees.</p>

<p>It is not clear why any board would enter into a management contract for such length without performance related termination grounds.&nbsp; None of the six pubs you manage has ever made a profit and management fees are a key element driving losses. The heart of the issue is that you are both manager and director and so there is an inherent conflict of interest &ndash; what incentive do you have to renegotiate the contract to market terms?</p>

<p>We are also concerned that post capital raising you may have entered into operational contracts without any reference to shareholders.&nbsp; For example you seem to have taken on an operational role at the Harcourt whilst the Sansar contract continues to run&ndash; who and how was this approved?&nbsp; &nbsp;Any owner would particularly want to look at it closely when the person signing it off from the company was also a director and shareholder in the management company and, as such, is likely to have benefitted from the fees received.&nbsp;</p>

<p>We are also struggling to reconcile the management fees charged to each pub with the disclosure in the Information Memorandum. To give a few examples where it has been hard to understand the disclosure versus the accounts:</p>

<p>&nbsp;</p>

<p><strong>Crown: </strong>The management fee set out in the Information Memorandum entitles Ducalian to receive a management fee of 2% of the money raised in the offering being &pound;5m (effectively a &pound;100k pa fee). The Information Memorandum discloses that performance fees become payable only after each investor has received distributions (whether capital or income) on their investment equal to their original capital subscription.&nbsp; No distributions have been made available and so on the face of the disclosure Harcourt Investment&rsquo;s only entitlement to fees is &pound;100k pa (subject to an inflationary rachet).&nbsp; The fees in the 2019/20 accounts are &pound;268k (in one month alone March 2020 the fees paid were &pound;184k).&nbsp; On what contractual basis is the &pound;268k charged? Have you signed an operational contract?&nbsp; If so &ndash; who approved it?</p>

<p>&nbsp;</p>

<p><strong>Coach: </strong>there are two line items referring to management fees in the 2018/2019 amounting to &pound;259k of management fees (&pound;118k and &pound;140k). The Management Fee disclosed in the Information Memorandum was 2% on the amount of the initial raise (being &pound;4.72m ie &pound;94k subject to an inflation ratchet, plus 25% of profits).&nbsp; As the Coach has never made a profit &ndash; please explain the basis of your contractual entitlement to &pound;259k.</p>

<p>&nbsp;</p>

<p><strong>Harcourt: </strong>Again a 2% annual management fee was disclosed which would entitle you to 88k pa. There is a 10% fee on profits, but again no profits have ever been made at the Harcourt. Please explain the basis of your contractual entitlement to management fees of 221k in the period 2017/19?</p>

<p>&nbsp;</p>

<p>To the extent that we can&#39;t come to an agreement with Harcourt Investments on the management contracts and the fees charged then we would expect new directors will commence an investigation.&nbsp; Any new board will look carefully at the conflicts of interest, the quantum of fees, consistency of charging between pubs and the governance structure particularly where there are any post capital raises or amended contracts.&nbsp; We would imagine the board will look to appoint forensic accountants to assist in this process.&nbsp; &nbsp;Clearly if you can explain the rationale, and show that conflicts of interest were adequately dealt with, and fiduciary duties were followed as a director of the company, for entering into the management contract and operational contracts on those terms and for the fees charged, then we are interested to hear that explanation.&nbsp; As a starting point please confirm whether the management contracts have materially changed since the capital raise and confirm whether you have entered into new management or operational contacts or taken assignments of old contracts.&nbsp;</p>

<p>&nbsp;</p>

<p>You have now suggested a meeting next Tuesday which is helpful and I can confirm that Nick Curtis and I will attend. Please confirm whether you will be attending alone or with your solicitor. We are happy to have that meeting on a &#39;without prejudice&#39; basis in the hope that we might find a solution. In essence the shareholders are determined to make a fresh start with new directors and a new manager.&nbsp; We believe it is in all stakeholders&rsquo; interest to agree a consensual solution to effect this change as soon as possible given the perilous state of the pubs and look forward to meeting you to discuss a&nbsp;way forward.&nbsp;</p>

<p>&nbsp;</p>

<p>John</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p><strong>From:</strong> James McCulloch &lt;<a href="mailto:james@harcourtinns.co.uk">james@harcourtinns.co.uk</a>&gt;<br />
<strong>Date:</strong> 13 August 2020 at 16:52:29 BST<br />
<strong>To:</strong> John Soden &lt;<a href="mailto:soden.j@gmail.com">soden.j@gmail.com</a>&gt;<br />
<strong>Cc:</strong> Clive J Halperin &lt;<a href="mailto:cjhalperin@gscsolicitors.com">cjhalperin@gscsolicitors.com</a>&gt;, Rachel Rossiter &lt;<a href="mailto:rachel@harcourtinns.co.uk">rachel@harcourtinns.co.uk</a>&gt;<br />
<strong>Subject:</strong> <strong>Harcourt Pubs</strong></p>

<p>﻿</p>

<p>Dear John,</p>

<p>&nbsp;</p>

<p>I write further to your emails of 11 August.</p>

<p>&nbsp;</p>

<p>Firstly, as I wrote on 11 August, I will get back to you next week once I have fully considered your email. I note that you have chosen not to address the point that I made to you regarding the defamatory and misleading comments you have already made. I would urge you to ensure that should you choose to communicate with other shareholders or any other third parties you ensure that you do not make any defamatory or untrue statements. You should consider taking advice as to the consequences of seeking other shareholders to make decisions based on incorrect information.</p>

<p>&nbsp;</p>

<p>One of the key points that I think it is very important to stress is the issue of the management agreements. You suggest some kind of impropriety but the key commercial terms of the management agreements (including their duration) were contained in the prospectuses and shareholder approval was sought and obtained under the advice of a reputable law firm who managed this process. To suggest that either these agreements are not valid or somehow were entered into without disclosure is without any basis whatsoever. I mention this so that you understand that while you may be dissatisfied by your investment, it is simply not the case as you seek to allege that this is down to any misconduct on my part. There have also been previous discussions and conversations with shareholders regarding the management agreements and the issue of management fees has been transparent.</p>

<p>&nbsp;</p>

<p>There is no basis to terminate the management agreements and they will continue to apply, whether I am a director or not.</p>

<p>&nbsp;</p>

<p>Your letter also contains many fundamental misunderstandings including the bases on which valuations of businesses and properties in this sector are made. That I have not chosen to address them in this email does not mean that I accept any of the allegations and reserve the right to do so.</p>

<p>&nbsp;</p>

<p>In terms of re-opening the pubs we have plans in place for this to happen. While you - a small number of the shareholders - have stated to me that you do not want this to happen, this is a decision for the board of directors and not the shareholders and we are keeping this under review. While you are not required or entitled to have any say in the management of the companies, the only suggestion you have put forward is for the contract with Harcourt Investments to be terminated and you seem unwilling to discuss anything other than that. I hope I have made it clear both previously and from the above that these Contracts are legally enforceable and so these are not constructive suggestions.</p>

<p>&nbsp;</p>

<p>Therefore if you want to meet, which I am happy to do, it needs to be to discuss something other than the Contracts with Harcourt Investments.</p>

<p>&nbsp;</p>

<p>As previously mentioned, I am also trying to secure alternative backing to buy out some of the locations, particularly given your view that they should not reopen (although I reiterate that any decision to open or not is that of the board of directors&rsquo;). I am sure you understand that this is extremely difficult in the current environment but I hope to be able to present something in the next few days.</p>

<p>&nbsp;</p>

<p>I am more than happy to discuss any of the above and given the tone of your correspondence I have copied my solicitor on this e-mail.</p>

<p>&nbsp;</p>

<p>Regards,</p>

<p>&nbsp;</p>

<p>James McCulloch</p>

<p>Managing Director</p>

<p>Harcourt Inns</p>

<p>Tel: 07904910301</p>

<p><a href="mailto:james@harcourtinns.co.uk">Email: james@harcourtinns.co.uk</a></p>

<p>Post: 139 Ladbroke Grove, Notting Hill, London W10 6HJ</p>