26th Oct 2006 18:24
Primary Health Properties PLC26 October 2006 26 October 2006 Primary Health Properties PLC (the "Company") Circular to Shareholders in relation to the proposed amendment to the terms of the Management Agreement The Independent Directors (being the directors of the Company other than HarryHyman and James Hambro) announce that the Company wishes to seek Shareholderapproval to the amendment to the terms of the existing management agreement (the"Management Agreement") between the Company, Nexus PHP Management Limited ("Nexus") and J O Hambro Capital Management Limited "JOHCML") (the "Proposals") bymeans of the execution of a deed of variation (the "Deed of Variation"). The Independent Directors believe that it is important to continue toincentivise Nexus and JOHCML (the "Joint Managers"). The Independent Directorshave carefully considered the methods of incentivising the Joint Managers in thelight of those methods operated by comparable property companies listed in theUnited Kingdom. The Independent Directors consider that amending the ManagementAgreement to facilitate changing from a share based payment in the form ofmanagement options to cash based incentive arrangements in the form of aperformance incentive fee is the most appropriate. The share based paymentsdescribed in the Management Options Agreement dated 17 September 2003 ceasedwhen the management options were exercised on 21 September 2006 and theIndependent Directors believe that it is important to continue to incentiviseNexus and JOHCML. On balance, the Independent Directors believe that thecontinued incentivisation of the Joint Managers is in the interests of theShareholders. Background Pursuant to the terms of the Management Agreement, the Joint Managers areresponsible for managing all aspects of the Group for an annual fee of 1 percent. of the first £50 million of the gross assets of the Group and thereafter0.75 per cent. In addition to the fees they receive for acting as managers, Nexus and JOHCMLwere granted management options over 1.6 million Shares (representing 6.59 percent. of the current fully diluted issued share capital of the Company) (the "Management Options"). In addition, the Deed of Variation acknowledges that themanagement agreement was novated to Nexus on 14 February 2005, and updates thedirectors' fees payable to the Joint Managers in line with current levels.Lastly, the Deed of Variation acknowledges that the Management Options wereexercised in full on 21 September 2006 and, accordingly, the Management Optionagreements are spent. The Joint Managers have been instrumental in managing the Group's assetportfolio. The assets have increased from £15.6 million, at the time of theCompany's launch in 1996 to £71.3 million as at 30 June 2006 and the basic netasset value per share has increased from 97.3p to 314.5p as at 30 June 2006,with a corresponding fully diluted net asset value per share of 305.1p and anadjusted fully diluted net asset value per share of 392.4p. All 30 June 2006figures are derived from the Group's Annual Report for the year ended 30 June2006. All 1996 figures quoted herein are extracted without material adjustmentfrom the Group's audited accounts for the period from incorporation on 16 March1995 and ended 30 June 1996. The adjusted fully diluted net asset valueexcludes deferred taxation. Parties interested in the Resolutions • Harry Hyman is the Managing Director of the Company and chiefexecutive and founder of Nexus and with his family interests has a 70.4 percent. beneficial interest in the capital of Nexus Structured Finance Limited(the parent company of Nexus). Consequently Harry Hyman is a related party asdefined in the UK Listing Rules; • James Hambro is a Director of the Company and the chairman ofJOHCML and has a 13.12 per cent. beneficial interest in the capital of J OHambro Capital Management Group Limited (the holding company of JOHCML) and istrustee of family trusts which are interested in 9.89 per cent. of the issuedshare capital, aggregating 23.0 per cent. of the issued share capital of thatcompany. • As both are Directors of the Company, they are deemed to berelated parties for the purposes of Listing Rule 11.1.4(2) and as such willbenefit from the proposed Performance Incentive in favour of the Joint Managers. • Under the Management Agreement as originally executed, theCompany appointed Nexus Property Management Services Ltd and JOHCML as jointmanagers in 1996. Nexus and JOHCML continue to be responsible for managing allaspects of the Company on a day-to-day basis as the Company has no employees ofits own other than its Directors. Consequently, any contracts between eitherJOHCML or Nexus and the Company, are deemed to be with Nexus and JOHCML jointly. Due to Nexus and JOHCML's joint interest in the Management Agreement and theirdirectors' interests in the Company, Nexus and JOHCML are deemed as jointlyhaving the ability to exercise significant influence over the Company. Accordingly, the proposed amendment to the terms of the Management Agreement bymeans of the Deed of Variation is a transaction with parties that are eitherrelated parties under the Listing Rules (LR 11.1.4R), or parties that canexercise significant influence over the Company (LR 11.1.4R (4)) and, as such,requires the prior approval of the Shareholders. Amendment to the Management Agreement The Management Agreement is to be amended subject to shareholders' approval bymeans of a Deed of Variation providing for the creation of a performanceincentive fee (the "Performance Incentive") whereby the Joint Managers will beentitled to 15% of any performance in excess of an 8% per annum increase in theCompany's "Total Return" (such "Total Return" being derived from the auditedaccounts for the financial year ending on 30 June (or on such other date asshall be the accounting reference date of the Company) in the year immediatelypreceding the proposed date of payment and, on the basis of those financialstatements, the "Total Return" being determined by calculating the change in thenet asset value per Share, on a fully diluted basis, and after adjustment forany increase or reduction in the issued share capital of the Company, and afteradding back gross dividends paid per Share). Further the Deed of Variation notes the following: • following on from the novation of the Management Agreement by Nexus Property Management Services Limited to Nexus, Nexus is now a Joint Manager; • the current fees payable to the Company's directors, which fees have been increased in line with the provisions of the Management Agreement since the date the Management Agreement was originally executed; and • following on from the exercise in full of the Management Options, the provisions of the Management Option agreements are spent. Extraordinary General Meeting ("EGM") The Circular setting out the details of the Proposals together with the Noticeof the Extraordinary General Meeting is expected to be posted to theShareholders of the Company today. The Extraordinary General Meeting is to beheld immediately following the Annual General Meeting to be held at 10.30 am on16 November 2006, Ground Floor, Ryder Court, 14 Ryder Street, London SW1Y 6QB . This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Primary Health