Cross Oak Inns plc - The Tax Shelter Report

Management Agreement
The Manager of the business will be Cross Oak Limited, of which Peter Eyles and Dinah Young are
directors and which is controlled by Peter Eyles. The fee structure of the Management Agreement has
been designed to keep the fixed costs to a minimum and to assist the Company during its formative
period whilst at the same time giving the Manager a strong incentive to develop the concept and make
the Company a success. The only significant central overhead costs projected to be incurred by the
Company, in addition to the management fee, are Directors’ remuneration, keyman and directors’ and
officers’ insurance, stocktaking costs, health and safety consultancy fees and the audit fee.
Without prejudice to the Company’s Articles of Association, the Board has adopted the policy that in
any Board meeting of the Company where the Management Agreement, and more particularly the
performance of the Manager, is discussed, Peter Eyles and Dinah Young will abstain from taking part
in the discussion or voting, in order to avoid any conflict of interest in relation to their position as
directors and shareholders of the Manager.
The Management Agreement is exclusive and continues until 30 September 2008. The agreement is
then automatically renewable but may be terminated by either party on 12 months’ notice to be given no
earlier than 30 September 2007.
The principal responsibilities of the Manager under the Management Agreement are as follows:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
identifying, appraising and recommending to the Company suitable premises for acquisition,
supported by an independent report and valuation;
day to day management, supervision, control and operation of the pub restaurants, including
arrangements with suppliers;
maintaining financial, accounting, maintenance and operating systems and records relating to
the pub restaurants and meeting all costs relating thereto;
organising repairs and refurbishment;
recruitment, training and supervision of all employees;
organising marketing and advertising activities;
arranging for the grant or renewal of licences as appropriate and arranging suitable insurance
cover;
supervision of health and safety procedures.
The Manager will be remunerated for its services by way of an incentive payment to be paid monthly.
The management fee is calculated in accordance with a formula relating to the net sales of each pub
restaurant and the total net operating profit of the Company. Further details are set out in Part VII
paragraph 8.1.
The Directors and Vantis have given much consideration to the structure of the incentive payments with
a view to establishing arrangements that should work in the best interests of the shareholders and be
fair to the Manager. The Directors believe that the arrangements between the Manager and the
Company:
• will assist the Company to minimize management costs in its formative years;
• are straightforward and transparent;
• are linked directly to the trading performance of the pub restaurants;
• will incentivise the Manager to improve the profitability of the pub restaurants, hence the capital
value of the Company’s assets and thus the level of return to shareholders;
• will assist the Company in complying with its banking covenants in its formative years.
Furthermore, there is no supply agreement whereby the Company might in effect agree to share with
the Manager discounts obtained by the Manager from the price lists of third party drinks suppliers. In
the absence of such an agreement, the Company will benefit from 100% of any such discounts, which
might otherwise have been shared by the Company and the Manager. The Directors believe that such
discounts could represent a significant component of the Company’s gross margin.
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