tax efficient review - ram capital...memorandum ("earthworm eis fund”) which is undated and a...

Tax Efficient Review

EditorMartin ChurchillBSc (Econ) FCA

www.taxefficientreview.com

Enterprise Investment Scheme EIS Fund targeting higher returns without a track record - recycling"

Earthworm EIS Fund

December 2016

This communication is provided for informational purposes only. This information does not constitute advice on investments within the meaning of Article 53 of the Financial Services and Markets Act (Regulated Activities) Order 2001. Should investment advice be required this should be sought from a FCA authorised person

Reprinted for the use of Earthworm Capital LLPTax Efficient Review reviews are completely independent and providers do not pay for inclusion in Tax Efficient Review

Providers who wish to distribute their review as part of their marketing can do so for a standard fee

Tax Efficient Review Reprinted for the use of Earthworm Capital LLP December 20162

EIS Fund targeting higher returns without a track record - recycling

Tax Efficient Review is published by Tax Efficient Review Ltd

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RISK WARNINGS AND DISCLAIMERS

GENERAL RISK WARNINGS

Fluctuations in Value

of-Investments

Suitability

Past performance

Legislation

Taxation

ADDITIONAL RISK WARNINGS

This communication is provided for informational purposes only. This informa-tion does not constitute advice on investments within the meaning of Article 53 of the Financial Services and Markets Act (Regulated Activities) Order 2001. Should investment advice be required this should be sought from a FCA authorised person.

The information and opinions expressed and contained in Tax Efficient Review (“TER”) are proprietary to TER and are not intended to represent investment advice or recommendation to buy or sell any security. TER is not responsible for any damages or losses arising from any use of this information.

Your attention is drawn to the following risk warnings which identify some of the risks associated with the investments which are mentioned in the Review:

The value of investments and the income from them can go down as well as up and you may not get back the amount invested.

The investments may not be suitable for all investors and you should only invest if you understand the nature of and risks inherent in such investments and, if in doubt, you should seek professional advice before effecting any such investment.

Past performance is not a guide to future performance.

Changes in legislation may adversely affect the value of the investments.

The levels and the bases of the reliefs from taxation may change in the future. You should seek your own professional advice on the taxation consequences of any investment.

Enterprise Investment Schemes1. EIS companies are unquoted2. The value of EIS Shares can fluctuate and Investors may not get back their investment; 3. There is no market for EIS Shares and Shareholders may not be able to realise their shareholding

unless the EIS company is sold or floated on a recognised Stock Exchange. Dividends may not be paid.

4. Potential Investors should consider that past performance of the EIS Manager is no indication of future performance and there can be no guarantees that the EIS Company will meet its objectives.

5. Investment in unquoted companies can offer good investment returns, but, by its uncertain nature involves a much higher degree of risk than investment in a quoted portfolio.

6. Whilst it is the intention of the EIS Directors that the EIS company will be managed so as to qualify as an EIS, there can be no guarantee that it will maintain such status. A failure to qualify could result in the Company losing the tax reliefs previously obtained, resulting in adverse tax consequences for Investors, including a requirement to repay the 30 per cent. income tax relief.

7. Levels and bases of, and relief from, taxation are subject to change. Such changes could be retrospective.

8. Fees charged by the EIS. Usually there is an initial cost of around 5%-10% to cover issuing the prospectus and paying a commission to introducers. This is paid out of the initial investment paid by the investor and the effect is that the EIS company receives around 90%-95%. Thereafter annual running costs of about 3%-3.5% are incurred by the EIS and met out of EIS income. On top of these, the EIS management usually have a performance incentive which pays a proportion of the return made usually after meeting some hurdle. A typical incentive might be that the management receives 20% of any uplift in net asset value over a return of original capital.

RISK WARNINGS

Copyright © 2016 Tax Efficient Review Ltd. All Rights Reserved. The information, data and opinions (“Information”) expressed and con-tained herein: (1) are proprietary to Tax Efficient Review Ltd and/or its content providers and are not intended to represent investment advice or recommendation to buy or sell any security; (2) may not normally be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Tax Efficient Review Ltd reserves its rights to charge for access to these reports. Tax Efficient Review Ltd is not responsible for any damages or losses arising from any use of the reports or the Information contained therein. The copyright in this publication belongs to Martin Churchill, all rights reserved, and for a fee the author has granted Earthworm Capital LLP an unlimited non-exclusive and royalty free licence to use the publication

3 Tax Efficient Review Reprinted for the use of Earthworm Capital LLP December 2016


Earthworm Environmental EIS Fund

Disclaimer

Lack of track record

Classification

Review based upon

Offering type

Scheme Type Alternative Investment FundBusiness Waste and RecyclingSize Open-endedPromoter RAM Capital Partners LLPManager Thompson Taraz Managers LtdInvestment Adviser Earthworm Capital LLP (EWCAP)Minimum Subscription £10,000Minimum to proceed NoneClosing date Open-endedFacilitation payment The Manager will facilitate payment of adviser charges from

the investor to their adviser on an upfront and basis only (appli-cable to Advised Retail Clients)

Commission 3% adviser fee with 0.5% trail feeTable 1: Tax Efficient Review summary of offering Pros and Cons

PROS CONS• First EIS vehicle returned £1.15 per £1 invested

over a 4 1/2 year period• TER do not consider this as an arm's length

transaction• Earthworm has experience in the main areas being

considered for investment• Future for In Vessel Composting could be

negatively impacted by local council moves to segregated waste collection

This communication is provided for informational purposes only. This information does not constitute advice on investments within the meaning of Article 53 of the Financial Services and Markets Act (Regulated Activities) Order 2001. Should investment advice be required this should be sought from a FCA authorised person.

We currently review business opportunities offering potential EIS benefits split between:• those targeting growth returns in unquoted companies seeking growth with higher returns• those targeting lower returns from unquoted companies targeting lower returns and probably

shorter holding periods.In our view the lack of significant asset backing (in our definition asset backing means the ability

of assets to be sold for a high proportion of their cost if not being used in their current trade) and the target return of £1.20 moves it into the "targeting growth returns" section of our classification.

In addition we segment between those• with a relevant track record• those without a relevant track record. This offer in our view does not have a track record given that this is the second fund EWCAP has

launched and the recent exit on their first EIS qualifying opportunity was not made to an outside party nor was it supported by an independent valuation. We cover this in more detail below under "Track Record".

We classify this as an "EIS Fund targeting higher returns without a track record - recycling".

This review is based upon a meeting with Ben Prior (co-founder of Earthworm), the Information Memorandum ("Earthworm EIS Fund”) which is undated and a presentation (EW CAP SEIS AND EIS 2016.pptx) dated October 2016.

The Fund is an alternative investment fund managed by Thompson Taraz Managers Ltd (‘the Manager’), a private company registered in England and Wales with registered number 04482509 and whose registered office is c/o Thompson Taraz LLP, 4th Floor, Stanhope House, 47 Park Lane, London, W1K 1PR. The Manager will act as the investment fund manager in making investments in EIS qualifying companies in the recycling and waste management sectors. The Manager is



Advance Assurance

When can investors expect to receive their tax certifi-

cates

authorised by the FCA to act as an investment fund manager; its FCA registration number is 226978. In connection with its investment management services, the Manager will be advised by Earthworm Capital LLP, an English limited liability partnership with the registered number OC357150.

The Fund is a Complying Fund and so is not a UCIS. This means that the Fund is not subject to the marketing restrictions introduced by the Financial Conduct Authority (“FCA”) in respect of “non- mainstream pooled investments” and can be marketed to retail clients. However, participation in the Fund is restricted to investors who can be categorised as equivalent to elective professional clients within the meaning of the FCA Conduct of Business Rules; that is to say, to investors who have been assessed by their independent financial adviser as having the expertise, experience and knowledge to make their own investment decisions regarding participation in the Fund and to understand the risks involved.

The advice in relation to this has been provided to EWCAP by RW Blears.TER by reviewing the product does not validate, ratify, endorse or confirm its classification nor

has it asked to be shown nor seen the advice provided by RW Blears.Prime Chartered Accountants and RW Blears has been retained to provide ongoing general tax

advice and accounting services.

Companies that are hoping to attract subscriptions under the EIS can seek an assurance from HMRC, in advance of inviting applications for shares, to the effect that it is accepted that the conditions of the scheme will be satisfied. The response to a request for an assurance will take the form of a statement as to whether, on the basis of the information provided, HMRC would be able to authorise the company to issue certificates under ICTA/S306 (2) or ITA/S204 in respect of the shares to be issued, following receipt of a form EIS1 satisfactorily completed.

For this Fund, we are told that no investment will be made into a company unless advanced assurance has been received prior to the date of investment.

The tax relief rules for EIS investment are complex and need careful planning as both initial income tax relief and , if applicable, Capital Gains Tax deferral are involved. Without careful planning investors could find that claims for initial income tax relief fall into tax years where they might lack capacity and CGT deferral could fall outside the three year period after the capital gain crystallises during which it can be deferred by investing in an EIS company.

Among the key points to consider are:• The Earthworm EIS Fund is unapproved so tax relief will only be available from the date

of the underlying EIS investments. The risk for investors in an unapproved fund, such as EWCAP’s, is that they cannot be sure how much tax relief will be available in a certain tax year, as it is driven by the investment rate of the provider, nor when they will become fully invested.

• Initial income tax relief is only available when the underlying EIS company investments are made by the discretionary fund manager and is not the date that funds are sent to the manager.

• CGT deferral is always driven by the date of the underlying EIS investments.• Receipt of certificates allowing investors to claim tax relief can take a long time, sometimes

in excess of 12 months. If the EIS Company is not yet trading as at the date of investment then it must start trading and only after four months of trading can it apply to HMRC for permission to issue EIS 3 certificates to investors. HMRC then need time to look into the claim and agree than the Company can issue certificates to investors.

Please note Tax Efficient Review does not give tax advice.We asked Earthworm for their view on when investors can:• Expect to be allotted shares in the underlying EIS company(ies)• When are the underlying companies expected to start trading• When are the underlying companies expected to deploy their funds (it is only at this point



Overview

that investors have an investment with earning potential rather than just cash in the bank)Their answers are:• "The first allotment will take place in January 2017. This is an open-ended fund therefore

allotments will occur quarterly from January 2017, April (tax year-end) 2017, July 2017 and so on."

• "We have a number of companies already trading so we anticipate that investors will receive their EIS 3 certificates in a very timely fashion after the allotment has taken place."

• "Funds will be deployed immediately into projects which already have the benefit of planning permission and are either already under construction or soon to begin construction."

By way of track record:• EWCAP’s first single company EIS offer, Earthworm plc, which closed in December 2011,

delivered EIS3 certificates to investors in March 2012 (representing a certification turnaround time of 3 months).

• EWC’s second single company EIS offer, Earthworm Energy plc, which closed at the end of July 2014, delivered EIS3 certificates to investors in November 2014 (representing a certification turnaround time of 4 months).

The intention of the Earthworm EIS Fund (‘Fund’) is to remain open at all times to potential investors. The Fund opened for investment in November 2016.

EWCAP intends to invest in a minimum of 3 qualifying investments at each quarterly allotment point. The aim is for each of the investee companies to be fully funded through equity and not use debt. EWCAP has shown that it has the ability to raise funds from investors having raised £14m in its first offering. It has now engaged the services of RAM Capital Partners LLP as promoters to the offer which should serve to increase the inflows into the fund.

So what will investors find that they are invested in? The fund is focussed on delivering investment opportunities in two main areas, recycling and

waste management. This is where the management team has made its name to date and has successfully achieved an exit from its first EIS offering in 2011 at a price of £1.15 per share (see below for our views on why we do not consider that this exit creates a track record).

EWCAP believes that a significant proportion of the investments they make can be classified as asset backed. A typical investment would comprise of investment in buildings, plant and machinery at about 80% out of the total costs. The nature of the feedstock contracts attached to each site provide predictable and stable earnings, and argues that this adds to the ‘asset backed’ nature of the investment. In a worst-case scenario, given the modest levels of debt anticipated, EWCAP believes that a significant proportion of costs could be recovered in a downside situation through a sale of assets and contracts to another operator.

We take a view that the assets involved have no real reuse value in different trades (our definition of asset backing) as they are specialised and are nearly always on leased land well away from conurbations.

Table 2 shows detail provided to us by Earthworm for a possible investment in an in-vessel composting site totalling £5.3m together with a view of how many of the assets might have a reuse value in a different trade. We see the different trade restriction as being needed as covering the worst case scenario where the IVC trade is no longer a possibility.

In our view the table shows that the bulk of the assets in that example do not provide asset backing.

Examination of the investee companies mentioned to us by EWCAP shows that the areas covered include:• Open windrow composting and waste wood recycling (TW Composting)• Waste water treatment (Astwood Energy Trading Limited)• In-vessel composting (Beechwood Recycling Trading Limited)We think that the key features of the two non-liquid waste streams are:



• the waste stream can be either food waste, garden/green waste or comingled (garden/green waste intermingled with food waste

• Earthworm seeks to invest in two waste technologies - open windrow composting and in-vessel composting

• Food waste must be handled within an enclosed environment, with accurate temperature control and monitoring.

• Open windrow composting cannot be used to handle a waste stream containing food waste as it involves laying out the waste stream in the open air and turning it regularly to allow it to absorb oxygen. Food waste cannot be processed outdoors, it must be processed within an enclosed environment. Cycle time is around 8-12 weeks and the output is a range of low-value products suitable for various end uses such as soil conditioning.

• In-vessel composting can be used to treat food and garden waste mixtures. These systems ensure that composting takes place in an enclosed environment, with accurate temperature control and monitoring. Cycle time is around 6 weeks and the output is a range of low-value products suitable for various end uses such as soil conditioning.

• As opposed to Anaerobic Digestion (the break down of biodegradable material in the absence of oxygen by micro-organisms called methanogens resulting in the production of a mixture of methane and carbon dioxide and low-value biofertiliser) there is no ability for either technology to capture gases given off by the process and so there is no revenue stream from either generating electricity from the gases nor selling the gases themselves.

• This means that both technologies are entirely reliant on gate fees which are a product of supply and demand in the market and they are in competition with AD plants for waste sources.

Table 2: Example of capital expenditure breakdown for an IVC plant Source EarthwormDoes asset have reuse value in a different trade

according to Earthworm

Does asset have reuse value in a different trade

according to Tax Efficient Review

Design & Planning 105,000 No NoSite Works 400,000 No NoSubstructures 606,000 No NoSuperstructures 1,827,000 Some SomeAerated Floors 350,000 No NoAir Handling & Biofilters 570,000 Some SomeSupervisory control and data acquisition system 20,000 Some NoFire Detection & Suppression System 20,000 Some NoWeighbridges, software, intercoms 30,000 Some SomeShredders 250,000 Yes Second hand

value.Screen 100,000 Yes Second hand

value.Loading Shovels 188,000 Yes Second hand

value.Bagging Machine 35,000 Yes Second hand

value.Drainage 40,000 Yes NoOffice 75,000 Yes NoIncoming Services 25,000 Yes NoContractor Prelims 100,000 Yes NoContractor OH&P 284,460 Yes NoContingency 251,273 Yes NoCapX £5,276,733



Earthworm background

• Annual revenues will be dependent upon signing contracts with local authorities (or waste companies who hold such contracts) for waste disposal.

• Future resale value of the plants will in our view be mainly dependent upon the continuing availability of co-mingled waste sources from local authorities. IVC can take non co-mingled waste streams (and co-mingle them in the IVC) but will be in competition for these which could push down gate fees and hence IVC revenues.

In our view EWCAP has experience in In-vessel composting, open windrow composting and waste wood recycling. EWCAP tell us that the recycling technologies used on all of their sites are well established technologies with a long-standing and proven track record in the waste management industry.

Because of the importance we place on track record, we invited EWCAP to comment:"We have been involved in the waste management industry and the processing of organic waste for 5 years and our experience covers the full range of finding sites suitable for development, gaining planning approval and environmental permits, construction and operation of waste facilities. Waste water treatment is a new trade which we have been developing over the past 2 years and we have been running a smaller scale waste water treatment unit on our site in Northamptonshire for the past 12 months. We believe that we understand all of the processes relating to building, organising and running a successful waste management facility regardless of whether that site is processing food, garden, wood or water waste.There are a number of barriers to entry to this industry which we welcome as this ensures that competition in our industry remains at a low level. Such barriers include:1. Obtaining planning permission for waste management facilities can be expensive, time

consuming and difficult to achieve. Our EIS fund only commits to investing in projects with the benefit of planning permission.

2. The environmental permitting process, which each waste management facility must undergo with the Environment Agency (EA) before commencing operations, now takes approximately 1 year to achieve. When our team delivered our first composting project 5 years ago, this process took 4 months.

3. In addition, once a site receives its EA permit, the amount of regulatory hurdles which a site is required to comply with has had the effect of squeezing out the single site operator and those companies who provide waste management services as an addition to their core business (usually farmers). As a direct result of this we have already assisted in securing 3 open windrow composting sites as a result of the owners of the site (all of them farmers) no longer wanting to operate under the increasing regulatory burden.

The IM says that the EWCAP team has been “investing in projects which make a positive impact on our environment since 2011. EWCAP was established in 2010 and now manages in excess of £40m of investors’ capital and oversees investments in a range of sectors from waste management and recycling to renewable energy and power generation. Our journey began in 2008 when we decided to build our own recycling facility to provide a showcase for what we could do. From a blank sheet of paper we conceived the idea, business plan and financial model, obtained planning permission and an environmental permit, signed long-term waste contracts, funded, built and physically operated the plant and machinery. This 4 year journey from creation of the idea to receiving waste on site has given us huge experience which we are applying in all of our investee companies.”

Ben Prior is the key driving force behind EWCAP and entered the arena of EIS in 2001 as a promoter of EIS and other tax-efficient vehicles. EWCAP worked alongside Foresight Group for a period of 4 years from September 2010 to April 2014. More recently EWCAP became an appointed representative of Thompson Taraz and is now an investment adviser.



Ben Prior has multiple interest in various areas which could mean that he might be stretched in the future. His comment is

"'My business interests in the last 5 years have included both EIS and non-EIS businesses. We currently have over £40m under management and, as such, we now have a certain critical mass which will allow us to take on more resource as we move into 2017. I have spent a lot of time over the last 6 years building this business which has stretched me somewhat but the additional resource will mean that i can focus on building on the momentum we have already created rather than starting from scratch which has been extremely time consuming."

The typical deal size for each investment opportunity will be between £2m and £5m depending on the size of the project. EWCAP intend to deploy capital immediately into underlying investee companies which are already trading and have already distributed EIS 3 certificates to investors.

EWCAP do not intend to use any third party debt once operational as it is intended that the equity raised in each EIS company will provide sufficient funding for each project. EWCAP does reserve the right to use third party debt only where necessary and commits in the IM that this cannot be more than 30% loan to value of the project.

Each investee company will be 100% owned by its investors. EWCAP charges an annual management fee of 2% + VAT per annum and is also incentivised in the form of a performance fee which is only payable if a cash return in excess of £1.20 has been received by investors. The performance fee equates to a fee of 30% of returns received above the £1.20 minimum threshold.

In regard to the management fee, EWCAP has committed to reducing its annual management fee from 2% per annum to 0.5% per annum after 5 years. This is an investor friendly strategy not implemented by the majority of EIS fund managers which ensures that managers seek a timely exit rather than continue to receive annual management fees beyond the targeted date of exit. In EWCAP’s case, the targeted exit for the fund is 4-5 years so a reduction in annual management fees after 5 years would seem appropriate.

The Fund will focus on investing in qualifying companies which seek to build and operate recycling and waste management facilities. EWCAP believe this to be an area which is undergoing and will continue to undergo unprecedented growth in the next 10 years. The UK has specific waste management targets laid down by Government and the EU that it must meet or it will face the threat of financial penalties.

In the case of waste management, the UK must meet a 50% recycling target of all household waste by 2020. The current level of recycling in the UK according to DEFRA (the Department for the Environment and Rural Affairs) was 43.3% in 2011, 44.1% in 2012 and 44.2% in 2013. These statistics demonstrate that the UK has some way to go to meet its 2020 target. In order to tackle this potential shortfall the government has initiated a slate of legislation, most notably in the implementation of a landfill tax to encourage local authorities, commercial and industrial businesses to avoid sending waste to landfill.

Landfill tax is currently set at £84.40 per ton which, if combined with the actual disposal cost of this waste to landfill takes the total disposal cost to over £100 per ton. In a 6 year period between 2009 and 2015 landfill tax rates doubled from £40 per ton to over £80 per ton. EWCAP tell us that landfill sites in the UK are still being used because there are not enough recycling sites being built despite local authorities being pressured to use alternative forms of waste disposal to save money and thus avoid landfill tax. This is demonstrated best in Scotland where the country has struck out on its own to ban disposal of food waste to landfill from 2017. The rest of the UK, specifically England, is unable to commit to this bold step for the simple reason that there are not enough recycling sites operating in England able to take the diverted food waste.

The majority of companies EWCAP is seeking to invest in on behalf of the Fund will seek to charge its customers a waste disposal charge ranging between £20 and £50 per ton depending on the type and volume of waste. This compares very favourably with the disposal costs of landfill as mentioned above at c£100 per ton. EWCAP make the case that there is a significant amount of

Strategy



Investment areas

:

waste availability in the UK for recycling facilities because they provide a far cheaper alternative to landfill. EWCAP and its investee companies aim to work with a range of customers including local authorities, waste management companies, supermarkets, food manufacturing companies and other organic waste producers to provide them with the double benefit of additional green credentials and to save them money by avoiding landfill tax.

In addition to the legislative drivers encouraging the disposal of waste away from landfill, each local authority publishes a ‘waste framework policy document’ which clearly designates areas within their region which would be suitable for waste and recycling processes. This has the benefit of allowing EWCAP to identify locations as designated by local authorities where a need for additional recycling is required and appropriate. EWCAP then carries out its own due diligence to identify whether there is sufficient demand for a facility offering recycling services (usually within 50 miles of the facility). EWCAP has found that local authorities have been largely positive when discussing the building of new facilities as this in turn provides the local authority with the opportunity to reduce their own reliance on landfill which is still where over 55% of municipal waste is sent in the UK. The UK waste statistics compare unfavourably with Germany and other EU states who have recently achieved a ‘zero to landfill’ rate. EWCAP tell us that the UK’s stated aim of achieving a 50% recycling figure by 2020 is a long way off and, at current rates, will be missed by a wide margin.

We asked EWCAP for brief descriptions of each of the main potential investment areas.• In-vessel composting (Beechwood Recycling Ltd) is building a 50,000 ton per annum

in-vessel composting (IVC) plant in Warwickshire. The site is a former landfill where heads of terms have been agreed on a 25 year lease. The facility will be looking to process organic waste consisting of food, garden and wood waste in an enclosed area. 30,000 tons of feedstock material has already been secured under a long-term contract. It is intended that further contracts will be agreed before the site enters its operational phase. Revenues will be derived from a combination of gate fees (the fee Beechwood charges its clients for receiving waste), the sale of compost and topsoil as well as the sale of biomass fuel to energy from waste developers. Construction of the site has begun and the site will commence operations at the end of Q1 2017.

• Open windrow composting (TW Composting Ltd) is seeking to develop a number of open windrow composting sites to receive garden and wood waste. The sites being targeted are ‘open’ sites where the processing of waste happens on a concrete pad usually in an agricultural area. Much like Beechwood, TW will charge its customers a gate fee for receiving garden and wood waste. TW will then either compost the garden waste or process the wood waste ready for sale as a fuel for the biomass industry. There is a growing demand for outlets processing organic waste like garden and wood waste as the UK moves away from the disposal of waste to landfill and seeks to use waste materials as a resource such as for regeneration projects or for energy purposes. TW Composting has already secured leases on 3 sites in the Midlands and is already trading on these sites.

• Waste water treatment (Astwood Energy Ltd). Waste water is generated in a huge number of commercial and industrial processes. This water usually requires a series of chemical processes in order to be cleaned. Astwood Energy provides an evaporation technology to its customers which is currently in use predominantly in the United States which is designed to greatly reduce the cost of disposal of the waste water. This technology is also an environmentally responsible means of processing waste water through evaporation to reduce its volume by over 90%. The large reduction in the volume of the waste water means the disposal charge of the waste water for chemical treatment is significantly reduced. Astwood is targeting owners of landfill sites who are required to tanker away millions of tons of landfill ‘leachate’ at a very expensive cost to their business. Astwood Energy’s first project is currently under construction in Warwickshire.

• Wood waste recycling (Beechwood Recycling Ltd and TW Composting Ltd). Wood



waste has become a much sought after commodity as the UK seeks to meet its renewable energy targets and reduce its reliance on coal and other fossil fuels. The recycling of wood waste is a process which requires shredding of the material followed by a screening process to remove contaminants such as metals and plastics which may be present in the wood. A number of EWCAP’s investee companies will be focussing on the receipt and processing of wood waste to supply a range of customers including as fuel to the biomass industry. Not only will these businesses be able to charge for the receipt of this wood waste but also, once processed, this material should command a gate fee subject to it meeting certain quality specification requirements.

Each investee company will own and take responsibility for operating its own facilities. EWCAP tell us that they will assist and advise each facility where necessary through the aspects of construction, commissioning and operating their respective facilities. EWCAP maintain that this sets them apart from a typical fund manager who will tend not to get as involved in the underlying project. EWCAP believe that this gives them a greater insight and control over each investee company which, in their view, can only be an asset to investors.

Table 3 shows the current status of each potential investee company as at the end of November 2016.

Table 3: Current position of potential investee companies Source EarthwormBeechwood Recycling Ltd TW Composting Ltd Astwood Energy Ltd

Technology used

"In-vessel composting, biomass energy and waste water treatment facilities. The unit, to be built at the Meriden Quarry site off Cornets End Lane, will be capable of processing waste

water and up to 45,000 tonnes of food, green and wood waste every year. Despite planning officers at Solihull Council

admitting the scheme would be harmful to the environment and the green belt, the plans were still approved by the authority’s

planning committee." (Source Birmingham Mail 22 Jan 2016)

Open windrow composting operating

on multiple sites.

Water evaporation from Draygon.

Current funds invested (£M) £3m Nil £2.5mPrice per share for new

investors £1 £1 £1

Details of lease of land involved with term, annual rent and

break clauses25 year lease, no break

Focussed on developing a number of sites with

minimum 5 year leases.25 years, no break.

Current construction status In construction Investment ready In constructionOutstanding charges (Amount,

annual interest %, person entitled. brief description)

No charges outstanding No charges outstanding No charges outstanding

If operational, what % of rated throughput has been achieved

in last six monthsNot yet operational Not yet operational Not yet operational

Has site received any fines or operating restrictions since

being builtNo No No

Type of feedstock required Food, garden, wood waste Garden and wood waste Water wasteWhat contracts are in place

currently to provide feedstock (source, gate fee, term of

contract)30,000 tpa comingled contract with 11 years duration

7,000 tpa garden waste contract w/4 years

duration

40,000 water contract on rolling 12 month

term with large waste company.

Comments

The contractor is installing foundations for the new buildings. The site of the development was a former inert landfill with poor quality existing ground of demolition brick and rubble to 8m in depth. This material is not suitable to carry the new buildings so

their foundations must pass through this poor quality ground. The contractor is installing 10m long concrete piles which are

being driven into the ground by two large Piling rigs so that the duration of this activity is kept to a minimum.

Sites identified and ready for operation as

soon as financial close is reached.

Expected to go operational in April 2017. Foundations built, steel frame to be erected in

January.



The Fund will only commit to invest in an underlying company once the following parameters are met:

1. The facility has a fully consented planning application2. The facility is at heads of terms on either a long-term lease or a purchase of the land.3. The facility has visibility on at least 50% of the waste material required to feed the site4. The facility has begun the process of obtaining an Environmental Permit to operate from the

Environment Agency5. Where applicable, the facility has begun the process of obtaining an Animal Health

License from DEFRA to receive food waste and other organic waste requiring a process of pasteurisation

6. The facility has a scheduled and fully costed construction budget delivered by an independent quantity surveyor or construction company for the delivery of the whole of the facility

7. A comprehensive insurance package is in place for the construction of the site

The Fund will invest in companies with the following typical revenue drivers.• Gate fees for the receipt of all organic feedstocks. These will ordinarily be signed under

contract with a range of customers from local authorities to food producers to other commercial and industrial businesses.

• Revenues derived from the sale of products, for example PAS100 accredited compost, top soil or fuel for biomass combined heat and power and other energy facilities.

• Revenues derived from the receipt of waste water to include landfill leachate, commercial water waste and any other effluent requiring industrial treatment.

It is expected that returns for the underlying companies will be driven by a function of gate fees received versus the inherent processing cost of the waste material in question.

EWCAP tell us that revenues are predictable and stable and can easily be mapped from one year to the next. The seasonality has a small bearing on waste ‘inflows’ – for example, more green and garden waste is received in the growing seasons in March and September than in the winter months of November, December and January. This is well understood by EWCAP given that they have been running a site for over 4 years. EWCAP also tell us that the number of ‘bad debts’ is extremely low as, if customers’ bills remain unpaid, then they are refused access to site until the outstanding liability is up to date. With no other outlet to take the waste other than landfill, EWCAP’s experience is that customers pay in a timely fashion 30 days’ after the date of the monthly invoice.

While the EIS funds will be deployed initially to construct each recycling facility, the risk of the construction will be outsourced to a third party construction company and agreed under a fixed design and build contract where the construction company commits to deliver the project for a specific price and within a specific timescale.

Each recycling facility will also take out an insurance policy to cover the facility both from a health and safety and operational perspective but also to protect the company’s anticipated income streams in the event of a forced shutdown of the site which is outside the management team’s control. A forced shutdown might be in the form of a significant failure of the technology on site. Not only would the manufacturer or technology provider be obliged to fix the problem under warranty but also the anticipated revenues which might be lost as a result of the shutdown are covered under the facility’s insurance policy.

EWCAP tell us that the typical processing cost of an organic waste recycling facility would be in the region of £10 per ton. The anticipated gate receipts for waste material received by each facility would range from £20 to £50 per ton depending on the size and type of the waste and depending also on the length of contract committed to by the customer. So the margin each recycling facility expects to make is a function of the combined gate fees received on the site less the cost of processing.

Investment criteria

Potential returns



Target returns

Management Team

Illustrative target returns are in excess of £1.20 over a 4-5 year period (this return does not include the 30p initial income tax relief). (Returns are set out for illustrative purposes only and are not a reliable indicator of future performance. No warranty as to future outcome is implied or should be inferred. Actual results will be different).

Key drivers in this potential return scenario are:• Initial costs and fees are 3% for Advised Retail Clients (6% for Professional investors which

includes introducer commission of 3%).• EWCAP charges an annual management fee of 2% + VAT. EWCAP charges no deal fees and

no monitoring fees. The 2% fee covers all administration fees and all running costs associated with managing the fund including legal, tax, accounting and investor relations.

• VAT is added to the annual management fee of 2% per annum. However, the EIS companies are all VAT registered, and as such any VAT added will be reclaimable by the companies in full.

• EWCAP expects that each investee company will take up to a year to complete construction and commence operations. Revenues will begin to be generated from year 2 onwards. A key driver is the ability to begin generating revenues as soon as construction and commissioning has been completed.

The possible reasons why investors might receive a negative return (i.e receive back less than the 100p invested) include (the list is not intended to be exhaustive):• The operating costs of the facility are significantly higher than anticipated• The facility is unable to process the expected tonnages• The facility experiences ongoing and prolonged mechanical failure leading to extended

downtime• A trade buyer cannot be found at the expected EBITDA multiple anticipated by EWCAP

Our biggest concern with the IVC portion of this offer is the future of co-mingled waste. The only way, apart from expensive landfill, for local councils to dispose of a co-mingled waste stream is to an In-vessel composting plant. This is because AD plants cannot take the levels of green waste and windrows cannot accept any food content. Should councils move to separate collections of garden/green waste and food waste then there are cheaper disposal methods - the food waste could go to AD plants at around £10 per ton and the garden/green waste to windrow at around £20 per ton. This would put downward pressure on gate fees for IVC plants.

Ben Prior disputes this possible future scenario and says that some Councils are moving towards scrapping food waste collections because of their cost.

In addition the contract lengths with councils are shortening and it is possible that when investors are looking for a possible exit after around five years that the IVC plants have no contracts for feedstock in place.

With that said it is clear that this is an industry which is growing. The government has targeted increasing recycling rates to 50% by 2020. At the moment recycling rates are falling and it is clear that something must change in the industry in order for this to alter. Landfill tax is encouraging a concerted move away from the disposal of waste to landfill and it would appear that a number of technologies could be used in order to process this waste in an environmentally friendly way.

There are three main methods for the recycling of food and/or garden waste, loosely termed organic waste. These are IVC (In vessel composting), AD (Anaerobic digestion) and OW (Open windrow composting). EWCAP intends to employ two of the three methods and chooses to disregard AD. EWCAP cannot invest in AD as part of this fund because AD is no longer a qualifying EIS trade. EWCAP tell us that they would not invest in AD in any case given that the government has recently announced some changes to the incentive structures around AD which, they believe, make the technology unviable when looking to process food waste.

The EWCAP Management Team is listed in Appendix A.



Track record In terms of a track record, Earthworm point to the exit for EIS investors in Earthworm Limited. Through a 100% owned subsidiary called Earthworm Operations Limited, investors put up £2m in late 2011 to own and operate an in-vessel composting plant in Daventry, Northamptonshire. The plant is on land owned by the family of one of the founders, Spencer Burnham, was built in early 2012 and started operations in October 2012. The structure of the company was different to that being used now in that the original investors put up £2m for 50% of the equity (2,226,374 Ordinary shares) with the two founders (Ben Prior and Spencer Burnham) owning the balance having not put up any investment (2,000,000 nil paid B ordinary shares). Santander loaned £850,000 to the company. So the company has a share capital made up of 4,226,374 shares each of which shares equally in dividends and distributions.

We asked Ben Prior to show us evidence that the plant has been operating profitably. It suffers from downward pressure on the gate fees (its only revenue source)that it can charge. The accounts to both 30 June 2014 and 2015 say:

"The company operates in an extremely competitive market, particularly with regard to price. This results in downward pressure on achievable margins. The directors continually monitor the market conditions and the performance of our major competitors."

In addition to commercial pressures on gate fees, operationally the site has had serious difficulties over many years resulting in a need to ship incoming waste to competitors. The accounts to 30 June 2014 say:

"The current year of operations has seen many improvements, particularly in the operational efficiency on site and a big increase in the amount of tonnage processed. However, an oversupply of contracted waste has continued to hamper the business with the associated costs of diverting this waste to local competitors. The directors are raising further funds in 2015 which will see new facilities built in the Midlands area. This will release pressure on the facility at Daventry and will enable a reorganisation of assets designed to develop new revenue streams for the company. These will be in the form of renewable heat and electricity generation revenues as well as revenues derived from the sale of high quality compost to landscapers and amenity suppliers."

The problem persists as covered in the accounts to 30 June 2015:"The company continues to improve operational efficiency but the site is still hampered by

the increasing oversupply of contracted waste and the associated costs of diverting this waste to competitors. The directors are currently exploring a number of avenues with regards to offering an exit to shareholders in the coming months."

In the 2015 accounts, the key risk facing the company was identified as:"At this stage of the company's development the key risk is considered to be obtaining appropriate levels of working capital to fund the acquisition of the fixed assets and the ongoing business."

However Ben Prior says that commercially it is unclear whether the facility has operated profitably or not because they have been building a team and developing sites which will allow them to deliver and operate multiple sites in the future which now form part of the current fund.

We asked Ben Prior to explain this comment, what fixed assets were being acquired":"We set this business up to be able to deliver multiple sites and opportunities throughout the UK.

This was a pre-requisite of the original group of investors as they wanted all waste opportunities to be developed within the existing EIS-funded business rather than developed in other companies outside of their control. We now have a team of 25 individuals within the business who are solely focussed on developing sites and operating them once they go live. In addition, we have been signing contracts in order to be able to feed new sites when they enter the operational phase. Unfortunately contracts don’t just come available when we want them to. We made the decision to try to secure them now and send the oversupply to competitors until such time as we could handle the material at new sites. To clarify, if it was only ever our intention to build one site then we wouldn’t have a team of 25, a team of 5 could easily run this operation from day to day.” In terms of the exit, this was carried out at arm’s length on the approval of our independent board



Exits

using a combination of our own funds and third party debt. The agreed valuation was a function of calculating the value of the assets, contracts and goodwill which had been gathered over the last 5 years, using two independent valuations carried out on the site previously and recommended to shareholders by our independent board."

So overall an exit from what seems to be a loss making operation with continuing operating difficulties. In our view this is not an arm's length transaction as no independent valuation was obtained to set the value range.

Ben Prior vigorously disagrees:"This was an arm’s length transaction between two independent parties. I would have agreed with you if we, the management team, had control of both sides of this transaction. The facts are that we didn't as it was the board of Earthworm who decided that this was a fair price for the business. The board consisted of 5 individuals out of which Spencer, my co-founder and colleague, and I received 2 votes, our two largest EIS investors received 2 votes and an IFA responsible for recommending £1m of investors received 1 vote. This put Spencer and I in a minority position on the board - we established the board from the outset specifically to avoid this type of criticism in the future. As such, the board recommended to the 18 shareholders to accept the offer to which all 18 accepted.So firstly I don't see how you can say that this is anything other than an arm's length transaction - a management team makes an offer to a board, majority controlled by EIS shareholders, who accept the offer. Secondly, the transaction is still an exit and thus clearly demonstrates a track record. We have never hidden the fact that the management team wanted to buy the investment back from shareholders in the future and this is how I sold the offer back in 2011. To now be unfairly disadvantaged for carrying out what we aimed to deliver at the outset despite the presence of a board in which we were in the minority strikes me as unfair."

Ben Prior tells us that the two founder shareholders have made no return from their involvement and have taken no salary for the last four years. They are now co-owners at no cost to themselves of a company valued at more than £4m, although they have invested significant amounts of their time.

EWCAP intend to seek an exit for shareholders between years 4 and 5 from the date of investment. In order to meet the targeted investment return of in excess of £1.20, a trade sale of the underlying businesses would be required.

EWCAP tell us that they anticipate the underlying businesses being attractive to one of the large waste management and logistics companies in the UK. They maintain that a portfolio of recycling facilities in specific locations across the UK will be attractive to the larger waste management players seeking to drive down their own costs of waste disposal and transport costs.

In simple terms, successful waste management sites are those with plentiful access to waste local to where the waste arises. Not only does this discourage others from attempting to compete in the area as the waste contracts in the area are effectively ‘tied up’ but it also provides the relevant local authority with the most cost effective solution for its waste disposal problems as a result of the low number of miles the waste has to travel in order to be disposed of. As an example, the original composting site developed by EWCAP in Daventry, Northamptonshire receives waste from householders in Warwickshire, over 30 miles away. This waste must be collected by refuse collection vehicles, delivered to a ‘bulking’ facility in Nuneaton and then loaded onto and transported on articulated lorries to the site in Daventry. EWCAP believes the cost to the local authority of bulking and delivery on articulated lorries to be in the region of £15 per ton which equates to an additional £330,000 per annum on the 22,000 ton per annum contract. If householders in Warwickshire had a composting site in the local vicinity, this money would be saved. Beechwood Recycling, one of the target investee companies for this fund, is currently constructing a 50,000 ton per annum composting facility in Warwickshire and it is EWCAP’s



intention to pass the responsibility for the Warwickshire contract to this business. EWCAP tell us that their exit multiple expectations are a 3x EBITDA multiple on year 3 numbers

which they believe to be a conservative estimation for a market where a multiple of 8 to 10x would be achievable. Each facility and their return expectations will of course be slightly different depending on the size and scale of each project. EWCAP is seeking to invest in a ‘cluster’ of facilities focussed on specific areas in England. The first cluster is in Warwickshire and the West Midlands, the second is in the East Midlands and the third is in South Yorkshire. The ‘cluster’ approach is designed to deliver a series of assets to a potential buyer who can then leverage these sites to provide a whole logistical solution to a specific region, county or local authority. EWCAP believe that this will be a more attractive asset which one of the large UK waste management company’s will buy at a premium. Large waste management companies tend not to commit to buying single sites but prefer acquiring a portfolio of assets and, as a result, a far greater processing capacity.

All costs incurred in relation to the Offer will be paid by the companies out of the proceeds of the Offer. The upfront fees are 3% of funds raised for Advised Retail Clients (6% for Professional Clients including intermediaries' commission of up to 3.0%). For Professional Clients, commissions can be rebated reducing the total upfront cost to 3%. An annual management fee of 2% + VAT is charged by EWCAP.

A performance fee is payable once the Fund has returned to investors aggregate distributions in excess of £1.20 per £1.00. EWCAP will be entitled to a performance fee of 30% of any return in excess of £1.20.

A fund raising from relatively new EIS entrant Earthworm seeking to raise an unlimited amount to invest in a number of EIS qualifying companies.

Examination of the investee companies mentioned to us by the investment adviser shows that the areas covered include:• In-vessel composting (Beechwood Recycling Trading Limited)• Open windrow composting and waste wood recycling (TW Composting)• Waste water treatment (Astwood Energy Trading Limited) using an evaporation process from

the USA but not yet installed in Europe In our view Earthworm have experience so far in In-vessel composting, open windrow and wood

waste processing. Because of the lack, in our view, of asset backing and because, in our view, the first exit from EIS

company Earthworm Limited was not at arm's length, we consider this to be an offer targeting higher returns without a track record in the recycling arena.Tax Efficient Review Total rating: 84 out of 100 (for EIS Fund targeting higher returns without a track record - recycling)

Risk Factors reproduced from the Information MemorandumPotential Investors are recommended to seek independent financial and tax advice before

investing. Please note that the Manager is unable to provide you with advice about whetheryou should invest in the Fund.

RW Blears Capital Limited and EW Cap have taken all reasonable care to ensure that this Informa-tion Memorandum is fair, clear and not misleading, but the statements of opinion or belief con-tained in this document regarding future events constitute their own assessment and interpretation of information available to them at the date of issue of this document and no representation is made that such statements are correct or that the objectives of the Fund will be achieved. Addi-tionally, some information contained in this document has been obtained from published sources prepared by other parties and no responsibility is assumed for the accuracy or completeness of such information. Accordingly, each prospective Investor must determine for himself/herself what reliance (if any) he/she should place on such statements and information and no responsibility is

Fees

Conclusion



accepted by RW Blears Capital Limited and EW Cap in respect thereof. The information and illustra-tions in this document are stated as at 01/10/2016. The information contained in this Information Memorandum makes reference to the current laws of England and Wales concerning EIS Relief and associated tax benefits as at the date of the Information Memorandum. The levels and bases of relief may be subject to change. The Tax Reliefs referred to herein are those currently available and are of summary nature only. The application and value of such Tax Reliefs depends upon individual circumstances of each Investor. Accordingly the Tax Reliefs may or may not apply to any specific individual depending on their circumstances, and may change or be withdrawn by the government or the taxation authorities. If you are in any doubt as to your position, you are strongly advised to consult your professional adviser before making an investment.

An investment in the Fund is subject to a number of risks and prospective Investors should con-sider carefully whether an investment in the Fund is suitable for them in the light of the informa-tion in this document and the financial resources available to them. Additional risks and uncertain-ties relating to the Investee Companies that are not currently known to the Manager, or that the Manager currently deems immaterial, may also have an adverse effect on the Investee Companies’ businesses, financial condition, operating results or share price. The value of the Investments made by the Fund could be substantially reduced as a result of any of these risks and Investors may lose all or part of their Investment in the Investee Companies. Past performance is not necessarily a guide to the future. The following lists of potential risks are not intended to be comprehensive. Investors may not receive back the full amount that they have invested. The value of each Invest-ment made by the Fund may fall and may even lose all of its value. The rates of tax, tax benefits and allowances described in this Information Memorandum are based on current legislation and HMRC practice and are summaries only. Stated rates may change from time to time and are not guaranteed.

General Risks In common with other enterprises across the UK, companies in the environmental, waste man-

agement and recycling sectors have the normal commercial risks, bad debts, bad marketplace etc as other trading companies. There are also several technical risks associated with the industry, such as securing planning permission and keeping the equipment operating efficiently. Environmental, waste management and recycling companies own machinery which can break down, causing delays, and sometimes suppliers fail to deliver on time, which in turn affects the output of the facilities for which the Investee Companies may suffer reduced revenues or performance penalties. EW Cap will endeavor to ensure that the Investee Companies in which the Fund invests have robust procedures in place to deal with technical and mechanical issues, but there will always be a residual risk of equipment breakdown or other business interruption.

Investment in smaller, unquoted companies, by its nature, involves a high degree of risk. Proper information for determining such companies’ value or the risks to which they are exposed may also not be available. Investment in such companies can offer good investment returns but the market for unquoted shares is often illiquid and uncertain by its nature. Consequently, such investment involves a higher degree of risk than a portfolio of quoted shares. In view of the nature of the proposed trading activities of the Investee Companies, an investment in the Fund should not be regarded as a short-term investment and interests in the Companies will not be Readily Realisable. In addition, the EIS rules require minimum holding periods or the EIS Reliefs may be withdrawn. It is therefore very unlikely that any exit will occur during the statutory three year minimum holding period of an Investment. The Fund may not be able to arrange liquidity in the underlying Investments. There can be no guarantee that any appreciation in the value of any of the Investee Companies will occur or that the commercial objectives of the Investee Companies will be achieved. Investments in small companies are acknowledged widely to be high-risk investments. Such companies fail for many reasons and such failure often leads to a total loss of the investment mon-ies. EIS investments are to an extent protected against such risks because of the Tax Reliefs which attach to such investments.

Changes in economic conditions including, for example, interest rates, rates of inflation, industry



conditions, competition, political and diplomatic events and trends, tax laws and other factors can substantially and adversely affect equity investments in general and the Investee Companies’ prospects in particular.

The shares of the Investee Companies will not be publicly traded and there will not be any other liquid market. As such, an Investment by the Fund will not be readily realisable. The Investments’ value will, therefore, be very difficult to determine. Additionally, an Investment in the Investee Companies will be inherently more risky than an investment in a publicly traded company and will be highly illiquid such that Investors may be unable to realise their Investment or may only be able to do so at a significant loss. Prospective Investors should also be aware that the reporting and disclosure requirements that apply to publicly traded companies will not apply to private companies and accordingly, shareholders may receive less detailed information about the financial and com-mercial progress of the Investee Companies in which the Fund invests.

Risks Relating to the Performance of EW Cap The performance of the Fund is dependent on the ability of EW Cap to source and complete suit-

able environmental, waste management and recycling investments using the skills and experience of EW Cap and the relationships it has forged with prospective customers and suppliers. As such, were a key partner, consultant or employee of EW Cap to leave, this might reduce the pipeline of possible investee companies in which the Fund can invest and also the smooth-running of the busi-nesses in which the Fund has already invested.

Riske relating to Conflicts of Interest Conflicts of self-interest may arise between EW Cap and Investee Companies if EW Cap, or an

Associate contracts with an Investee Company. EW Cap has undertaken to the Manager that if it or an Associate has or may have any material interest in relation to an Investee Company that conflicts with the interests of the Investors in that Investee Company then, as soon as practicable after that material interest is foreseen or has arisen, EW Cap shall engage the Manager with details of all material information relating to the nature and extent of the material interest in question and such further information concerning directly or indirectly the matters referred to in the submission as the Manager may reasonably require and, further EW Cap has undertaken that it and its Associates shall not do any act or transaction in relation to the matter in respect which the conflict of interest arises without the consent of the independent chairman of the Investee Company and also of the Manag-er. In addition, EW Cap will also abide by the conflicts of interest policy statements set out on page 18. If EW Cap should become the discretionary investment manager of the Fund, it will appoint an independent advisory board to fulfil the same function as the Manager.

Risks Relating to the EIS There are several circumstances in which an Investor could cease to qualify for any of the Tax

Reliefs and as a result any tax which would have been payable to HMRC, but for the Investor obtain-ing the relevant Tax Reliefs, could become payable. These circumstances may relate to an Investee Company ceasing to be an EIS Qualifying Company or the Investor himself/herself failing or ceasing to qualify for EIS Relief. For example, an Investor could cease to qualify for full EIS Relief if he or she receives value from one of the Investee Companies during the period beginning one year before the shares in the Investee Companies are issued and ending on the conclusion of the three year holding period.

If an Investee Company ceases to carry on business of the type prescribed for EIS Qualifying Com-panies during the three-year holding period, this could prejudice its qualifying status under the EIS. The situation will be closely monitored with a view to preserving the Investee Company’s qualifying status, but this cannot be guaranteed. A failure to meet the qualifying requirements for the EIS couldresultin:•Investorsbeingrequiredtorepaythe30%incometaxreliefreceivedonsubscrip-tionforthesharesintheInvesteeCompanies;and•aliabilitytotaxoncapitalgainsondisposalofthe Investee Companies’ shares;

Although provisional approval will normally be sought from HMRC that the Investee Companies and their activities should qualify under the EIS, there is no guarantee that the formal EIS clearance will be granted or that such clearance will not be subsequently withdrawn. In those circumstances,



Subscription Monies will not be returned to Investors. If an investee company fails to obtain EIS Qualifying Company status or if such status were to be withdrawn, EIS Relief would not be available to Investors or could be withdrawn.

The rates of tax, tax benefits and allowances described in this Information Memorandum are based on current legislation and HMRC practice and may change from time to time and are not guaranteed.

Risks on Returns The value of the Fund Investments depends on the performance of the Investee Companies and

other market factors outside the Manager and EW Cap’s control. There can be no assurance that the Fund or the Investee Companies will meet their objectives or that suitable investment opportuni-ties will be identified by EW Cap.

Fund Issues The Manager reserves the right to cease to manage the Fund in certain circumstances set out in

the Investor’s Agreement, in which event it will try to transfer their mandate to act as Investors’ in-vestment manager to another fund manager authorised by the FCA, including, potentially, EW Cap itself or (with the consent of EW Cap) to terminate the Fund in an expeditious way. The Manager as advised by EW Cap will seek to realise Investments in an orderly fashion over a period of three to five years from the date of investment but it cannot be guaranteed that the Investments made can easily be realised within this period and, even where they can be realised, that this can be done on an advantageous basis. Generally, the Manager reserves the right to return a small surplus of cash if it concludes that it cannot be properly invested. There can be no guarantee that market conditions will be propitious in respect of the sale of any shares at the time the Fund has targeted such a sale. This may significantly delay the targeted exit. It may be difficult to predict when an exit may take place and there can be no guarantee that an exit will ever take place. Accordingly, Investors may potentially lose the total amount of their Subscription.

It may be difficult and time-consuming for an Investor to terminate his/her Investor’s Agreement or dispose of his/ her Investments made by the Fund due to the illiquid nature of the Investments. The Fund may not be able to realise such Investments quickly, at a reasonable price or, in some circumstances, at any price.

Although the fund will aim to invest all Investors’ funds in a target of 3 Investee Companies spe-cial circumstances may apply to certain investors which may mean that they hold investments in fewer Investee Companies than this. Such investors will not benefit from the same diversification, and consequently, their investment in the Fund will carry a higher risk.

The timing of any realisation cannot be predicted and proper information for calculating the current value of the Fund’s Investments or the degree of risk posed may not be available. EW Cap may, at its discretion, elect to terminate the Manager’s appointment as the manager and select a new person to act as the manager, which may be EW Cap (“New Manager”) on terms the same as, or substantially similar to, those contained in the Investor’s Agreement in substitution for, and to the exclusion of, the Manager, provided that such New Manager is sufficiently authorised under the Financial Services and Markets Act 2000 to discharge its duties as your discretionary investment manager. Otherwise there is no mechanism to remove or change the Manager of the Fund other than by way of termination of the Investor’s Agreement. The Fund should therefore be considered a captive investment and an Investor should assume that any investment in the Fund will be man-aged by the Manager until realised. Investee Companies may fail, as may the assets they own or operate, and Investments in Investee Companies may be realised for substantially less than the acquisition cost or may be impossible to realise at all.

Forward Looking Statements Investors should not place reliance on forward-looking statements. This Information Memoran-

dum includes statements that are (or may be deemed to be) “forward looking statements”, which can be identified by the use of forward-looking terminology including the terms “believes”, “con-tinues”, “expects”, “seeks”, “intends”, “may”, “will”, “would”, “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters



that are not historical facts. Forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements contained in this Informa-tion Memorandum, based on past trends or activities, should not be taken as a representation that such trends or activities will continue in the future.

Custody Risk Your cash and assets deposited with, and held by the Administrator (in its capacity as receiving

agent), the Manager and EW Cap (to the extent it or an Associate provides nominee services to Investors) shall be held at Investors’ risk and neither the Manager, the Administrator nor EW Cap (including their respective directors, shareholders, partners, officers, employees, agents or advis-ers), will be liable to any Investor in the event of insolvency of the bank in which your cash and assets are held, nor in the event of any restriction on the Administrator and Manager’s ability to withdraw funds from such bank for reasons beyond their reasonable control.



Appendix A: Management team Source Earthworm• Ben Prior - Managing Partner - has been operating in the tax-efficient space for 16 years and has raised over £485m for

several industry leading managers. Starting at Noble & Company in 2001, Ben then spent 5 years at Brewin Dolphin before co-founding RAM Capital Partners in 2007. RAM is now one of the most successful independent fundraisers of tax-efficient products in the UK. Ben left RAM in 2010 and subsequently established the first Earthworm project, a composting facility in Daventry, Northamptonshire. Ben co-founded this business with Spencer Burnham and the two developed the facility from a blank sheet of paper including conceiving, fundraising a £2m single EIS company, building and operating the facility which now processes 30,000 tons of organic waste per annum. He and Spencer then ran the day to day operations of this business through to investor exit. Following this Ben also led the fundraising for Midlands Planning Services Limited and Earthworm Energy Limited, both companies providing professional development and planning services to the recycling and renewable energy industries. These companies had a combined raising of £3.5m and have since gone on to achieve 15 successful planning applications.

• Mike Capewell - Director of Operations - has a strong background in the development, monitoring and due diligence of large scale environmental and infrastructure projects. An experienced consultant with the global firm Deloitte, he worked alongside national and international clients (including the UK Ministry of Defence, National Health Service, various UK Councils, Evergreen and AstraZeneca) to assist them with major capital programmes and transformation projects. Mike provided expert resource for programme management, cost and financial modelling of long term projects (life span of 20 -30 years) and management and tracking of capital deployment. Following his spell with Deloitte Consulting, Mike founded his own specialist financial modelling consultancy and advised the NHS, MoD and provided due diligence on over 20 renewable energy schemes with a combined value of £65m.

• Spencer Burnham - Project Development & Investment Oversight - is a co-founder of the original Earthworm recycling facility in Daventry, Northamptonshire. Having spent 5 years in the city with Dresdner Kleinwort Benson and Ernst & Young corporate finance, Spencer left to help setup the first Earthworm project, an organics recycling facility with Ben in Northamptonshire in 2011, he and Ben then ran the day to day operations of this business. He has been involved in the waste and recycling industry since 2008. He is also co-founder of Earthworm Energy, a company providing professional services to the waste, recycling and renewable energy industries.

• James Kater – Composting and biomass expert - has spent the last 15 years working on systems, machinery and logistics for composting and biomass energy systems. James established the first in-vessel composting system in his native Australia and has since installed and commissioned 37 biomass composting systems for clients in Europe over the last 10 years.

• Tony Webhy - Project Development & Construction - has 25 years’ experience in the construction industry. He has overseen a number of complex construction projects with large UK contractors including ISG, Carillion and most recently as director of Anglo Holt Construction. Tony is a Fellow and formerly Chairman of the Chartered Institute of Building (CIOB) in the Midlands. Tony works closely with clients and contractors in the West Midlands as a director of WMCCE, and is Chairman of the Construction Industry Partnerships Centres in Warwickshire. Tony’s experience in construction is important to the majority of EWCAP’s investee companies who seek to build and operate infrastructure in order to realise their plans and he is instrumental in working with local planning authorities to identify suitable locations for EWCAP’s investment opportunities.

• Phil Stephens - Project Development & Investment Oversight - has a strong track record in the electricity sector having held numerous senior roles in the energy and infrastructure marketplace. This includes a major UK generator, where he was responsible for the businesses transition from a national electricity generator to a premium low carbon energy supplier. As partner in global consulting firms, Phil’s background is in energy utilities, leading practices and projects in North America, Europe and Asia Pacific. He has worked with large and small organisations in roles as diverse as interim strategy director to commercial due diligence and post-acquisition value realisation for private equity investors. Phil is currently a director of a STOR business, building a 20MW plant in South West England, but has held numerous senior roles in the energy and infrastructure market, including: Head of commercial – British Energy Group plc, Group Commercial Director – Mears Group plc and Asia Pacific energy & utilities leader – PA Consulting Group.

• Neil Drake - Project Development - spent a number of years at EDF Energy where he held positions forming commercial strategies for both Corporate and B2B functions. Between 2009 and 2011 Neil oversaw the development and delivery of EDF’s strategy for the commercialization of nuclear power; a project that culminated in the launch of Blue, the company’s most successful product in both B2B and residential markets. More recently, Neil has held strategy roles in EDF’s Energy Services and Export Services and Supply functions; creating commercial propositions for the UK’s largest business consumers and independent generators. Neil has also acted as a National level spokesperson for EDF, led influencing initiatives with Ofgem, Defra and DECC and represented EDF Group on the international stage as part of the World Resources Institute’s working group on carbon accounting.

• Richard Nuth - Project Development - has extensive experience leading project teams in high technology and aerospace sectors, for commercial and military applications. He began his career at Rolls Royce, working on a wide variety of engine blade programs within the turbine department. After successful execution of a number of high profile programs, Richard worked for leading airlines in Scandinavia; here he was responsible for the maintenance program within aircraft and engine management. Varied experience saw Richard appointed to a position at an aerospace market leader, a subsidiary of Cranfield University, in rapid prototyping. Heading up the Office of Airworthiness and Certification, Richard specialised in achieving approval of many complex projects (including surrogate UAVs and volcanic ash detection aircraft).

• Charlie Morgan - Project Development - has spent the previous twenty-five years working in the Global Debt and Equity Markets for various banks and brokers in differing roles resulting him living in Paris, Hong Kong and Johannesburg at different times in his career. In 2009 he was a founding partner of Parkwalk Advisors, which is now one of the most successful EIS Funds in the country to date. Parkwalk specialised in investing in early-stage technology emanating from UK Universities and it was during this time that he developed a keen interest in the Clean Technology arena. One of the outstanding investments made was in Xeros, a virtually waterless washing business.

tax efficient review - ram capital...memorandum ("earthworm eis fund”) which is undated and a...

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