Written submissions

14 _b DT. ґ.Кс CLEMENT LAW FIRM Jean-Paul CLEMENT .;:: ..:=: Anne-Marie DUPUCH VALLUET Monsieur le Président VASSEUR 1st Chamber Commercial Court of PARIS PALAIS DU TRIBUNAL :. quai de Corse 75:41 - PARIS CEDEX D4 Paris, 30 March Re: - Companies SEBOL, COLLORAFI v. company MC DONALD'S RG 97/062466 RG 98 010823 DELIBERATION OF 16 MARCH 1998 B et O, LES PINS Monsieur le Président, It is with great surprise that I received the letter that my colleague Jean-Marie LELOUP sent you on 24 March. the day of 10 March, i.e. HUSSON DUMOUTIER, former court-appointed Expert. Already, his official submissions, modifying the unofficial submissions which he had given me at the summary proceedings hearing, were sent to me on 30 January, whereas the hearing was scheduled for 9 February and that within this period of ten days, I replied immediately this having been said, I reply briefly to his observations. It is obvious that document 25 (statement of losses and profits) is dated 14 April 1987 and not 1997, as indicated by mistake. “please send us a copy of your statistical report with this statement.” provides additional proof that this document emanates from the company MC DONALD'S and not from Monsieur COLLORAFI. PALAIS • J.P CLEMENT • B 406 - Anne Marie DUPUCH VALLUET . C 1253 Members of an approved management centre the payment of fees by cheque is accepted DE r.bs you will appreciate at its true value the assertion of my opponent according to which Monsieur Brian GIBSON, signatory of the document, was not a corporate officer or a director at MC DONALD'S but was a “franchise manager”. So here is a manager ... who is irresponsible! It nonetheless remains that this document greatly embarrasses MC DONALD'S company - provided turnover forecasts which were achieved and even exceeded - made forecasts of gross income of 1,233,810 francs from the third year (i.e. 6.49% of turnover) Yet, as has been indicated and as follows from the documents communicated, net income - was reached only in 1991: 1,015,000 francs . in 1992 = 1,353,000 francs and 1993 : 1,453,000 francs - in 1994 : 1,339,000 francs - in 1995 : 1,010,000 francs i.e. at most, 5 years. the years 1996 and 1997 ended, as you know, with significant losses. That is to say that over nearly 11 years of operation, the forecast profitability objectives were roughly achieved: . 2 (1989 and 1990) reached only about 100,000 francs - and 4 - 1,600,000 francs 949,000 francs 1996: slightly negative 1997: - 1,200,000 francs. The adjustment of the fees granted to B and O in 1997 is in effect 15% and not 100%, which represents: 15,000 francs * 12 = 180,000 francs i.e. about 12% of the total fees due for the three restaurants (5,940,000 francs excl. VAT). DE E493957870 It is the strategic decision of MC DONALD'S to open, whatever the cost to its franchisees, restaurants to cover the territory and to get the better of its competitors, that caused - the fall in the turnover of the company SEBOL, to 11,500,000 francs, and the non-attainment of the objectives by the company B et O and the company LES PINS (31,000,000 francs in total for the three restaurants, instead of 52,000,000 francs). If the circumstances of the case are not rigorously identical, the principle of the liability of the franchisor is transposable in the present case The opponent always Monsieur of inconsistency and once again puts forward a gratuitous assertion. COLLORAFI If Monsieur COLLORAFI was able to consign fees at the beginning of the year 1998, it is solely because his cash position improved slightly during the first quarter of 1998 and he hopes to do the same for the month of April It is a demonstration of his good faith to pay when his cash position allows him to, it being recalled that he naturally considers that the loss caused by the company MC DONALD'S is infinitely greater than the amount of the fees remaining due. ON THE REPORT OF MONSIEUR ALAIN HUSSON DUMOUTIER, FORMER COURT-APPOINTED EXPERT In their submissions filed at the hearing of 16 March, the appellants had indicated to the President that they had received 5 days in advance a report of 55 pages (plus annexes) and that they had no possibility of replying pertinently in the very short period of time left to them. While referring to their submissions filed on 15 March (and notably pages 5 and 6), the appellants consider that it is appropriate to provide the following clarifications: Monsieur GANDUR, court-appointed Expert, was extremely precise on the three questions put to him: - the calculation of the impact of the openings of ANTIBES NORD and OUEST and VALLAURIS - that of the financially acceptable rents - that of the capitalisation of the losses of gross self-financing margin,. • For the secondary questions, he did not burden his report, which could have made it incomprehensible. DE A Monsieur Alain HUSSON DUMOUTIER could have used the same precision, notably when he explains that after variable expenses, (PAC in MC DONALD'S terminology) of SEBOL, B et O and LES PINS, should be respectively 32.63 % and 32.24% of sales. It would have been good if he had explained: - that this is an estimate based on the experience of MC DONALD'S and on figures recorded in other restaurants established throughout France and achieving very different turnovers (from 5 to 35 millions), and therefore unrelated to the real operating conditions specific to the companies of the COLLORAFI group; - that the PAC calculation formula used is indeed based on averages, therefore covering restaurants given the operating conditions higher than this average, others which, for the same reason, have a lower PAC; - that the automatic application of this formula by MC DONALD'S takes no account of the data specific to the operation of SEBOL, B et O and LES PINS: - that, moreover, the PACs achieved in 1997 (which the former court-appointed Expert takes good care not to analyse) by SEBOL, B et O and LES PINS, amounted respectively to 29.49%, 29.11% i.e. 3 points lower than the figures estimated, subject to verification, by the former court-appointed expert following the company MC DONALD'S. No explanation is given for these discrepancies, whereas the PACs as a percentage of sales used by Monsieur GANDUR, respectively 27.94%, 28.16%, 29.4%, are much closer to the reality of 1997. Contrary to what Monsieur Alain HUSSON DUMOUTIER asserts, the company MC DONALD'S does not keep separate statistics for the ALPES MARITIMES and the VAR, and the consultant, Monsieur Robert GANDUR, was entirely entitled not to use only the ALPES MARITIMES Indeed, the statistics sent monthly by MC DONALD'S to its lessee-managers are those of the South-East region, which include for example the restaurants of DIGNE, DIJON, PERPIGNAN, CLERMONT-FERRAND. let us not forget the very serious error of Monsieur Robert GANDUR who confused PUGET THENIER (located in the ALPES MARITIMES) and PUGET SUR ARGENS (located in the VAR). only the word PUGET appears in the statistics of MC Ultimately, the fact of having taken the overall statistics of the VAR and of the ALPES MARITIMES demonstration of Monsieur GANDUR and moreover to the detriment of the companies of - Monsieur COLLORAFI. DE A 0493957870 P.02 Moreover, it appears normal that, in order to study the evolution of a company in relation to that of its market, the said company should not be included in the statistics of its market. it may be stressed that the calculation of the percentage of variation of the comparable average, whether with or without the COLLORAFI group, is erroneous: this percentage is calculated on the evolution from one year to the next of the average of turnovers of the comparable restaurants, but the average is based on a different number of restaurants. Yet, this number must be equal, given the very definition given to the comparable restaurants on page 11 of the report of Monsieur Alain HUSSON DUMOUTIER “Only those having at least one full financial year before the year in question”. weighted the evolution of the turnover that it achieves. It is inaccurate to assert that Monsieur GANDUR did not weight the turnover of the restaurants, according to the the difference between the evolution of the ALPES MARITIMES and the evolution of the total of the ALPES MARITIMES plus the VAR is insignificant, the weightings not being significant. Moreover, loss of SEBOL due to the openings of ANTIBES NORD and OUEST and of VALLAURIS, of 9,422,666 francs and once corrected, of one notices that the loss according to the report of Monsieur 400,000 francs more! As regards the calculation of the bearable fees, it will be observed first of all that it is not contested that even by setting the rents at their levels as calculated by HUSSON DUMOUTIER, the companies would still suffer losses - 573,000 francs for SEBOL 000 francs for B et O - 100,000 francs for LES PINS, i.e. 913,000 francs it is surprising that Monsieur Alain HUSSON DUMOUTIER restricts for the calculation of turnover statistics to the single département of the ALPES MARITIMES, in order to better apparently. to the SEBOL market, whereas he uses to calculate the PAC a formula drawn from FRANCE-WIDE statistics for which - the details of the calculations have not been communicated the results of its application to the company of Monsieur COLLORAFI differ appreciably from the PAC figures achieved by the three companies in the past. No detail of the costs concerned is provided, unlike the calculations of the report of Monsieur Robert GANDUR. DE 3493957870 P.03 Ultimately, the former court-appointed Expert, following the company MC DONALD'S, uses a purely theoretical formula for determining the PAC, without seeking whether it can apply to the companies of Monsieur COLLORAFI, given their own operating conditions. Lastly, the formula was drawn from the 1996 accounts of the restaurants: it cannot be excluded that, as for SEBOL, a decrease in the PAC rate be recorded in 1997 across all the French MC DONALD'S restaurants. Indeed, one can only recall that the significant increase in the turnover 5.4 billion in 1994 to 8.4 billion in 1997 is not due to the increase in the turnover of the restaurants, but to the opening in all directions of MC DONALD'S which, over the same period, took the number of its restaurants from 354 to 630 (+ 78%) in parallel, the turnover of the restaurants operated throughout the whole period, rose by only 1.24% in 1995. and fell by 8.35% in 1996. one can only recall, once again, that the development strategy of MC DONALD'S in FRANCE and its turnover, stemming notably from the rents and fees paid by the lessee-managers, rests on the increase in the number of restaurants and not on that of the turnover of the restaurants, the new restaurants being located either on sites until then unexplored, or on markets where the existing restaurants have reached a turnover estimated optimal by MC DONALD'S. The company MC DONALD'S therefore performed the agreement in bad faith and abused its right of termination, which, in any event, causes a very serious loss to Monsieur COLLORAFI who is losing ten years of investments and work (without any reproach being made to him). Lastly, The company MC DONALD'S. Being a matter of yourself replied that there was no dispute between them at the time of the deliberation, Please find attached VERSAILLES which orders it to its company. total sum comments of a judgment of the Commercial Court in respect of a franchisee, Monsieur de TOURIS and to 7,400,000 francs. this judgment. goes on Please accept, Monsieur le Président, the expression Jean-Paul P. S Jean-Marie Lelouf.