Eco City Vehicles PLC Acquisition of Tax Computer Systems Limited (7159C)

TIDMECV

RNS Number : 7159C

Eco City Vehicles PLC

01 July 2016

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES OF AMERICA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, AUSTRALIA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION MAY CONTRAVENE LOCAL SECURITIES LAWS OR REGULATIONS

Eco City Vehicles PLC

("ECV" or the "Company")

Proposed GBP73m Acquisition of Tax Computer Systems Limited, GBP45m Placing and re-admission to AIM as Tax Systems plc

Eco City Vehicles PLC (AIM: ECV) is pleased to announce that it has agreed to acquire Tax Computer Systems Limited ("TCS"), a leading supplier of corporation tax software to the large corporate sector and the accounting profession in the UK and Ireland, for an enterprise value of GBP73 million. The Company has also conditionally raised GBP45 million by way of an oversubscribed placing of New Ordinary Shares.

Highlights

   --     Acquisition of a leading corporation tax software business with a blue chip customer base 
   --     43 of FTSE 100 customers 
   --     19 of top 20 UK accountancy firms 

-- Established for over 25 years with GBP12.8 million revenue (90% are recurring) and 52% EBITDA margin in 2015

   --     GBP73 million enterprise value, payable in cash, representing an EV/ EBITDA multiple of 11x 
   --     Gavin Lyons, partner in MXC Capital, to become Executive Chairman 

-- Opportunity to invest further in the platform and team, accelerate organic growth and seek complementary acquisitions

-- MXC Capital is subscribing for GBP8.7 million of equity and will own 20% of issued share capital post Admission

-- Oversubscribed Placing to raise GBP45 million at a price of 67 pence per share (post Share Consolidation)

-- New debt facilities of GBP30 million comprising GBP9 million term loan and GBP11 million revolving credit facility with HSBC Bank plc in addition to GBP10 million unsecured loan notes issued to the Business Growth Fund plc

   --     Proposed change of name to Tax Systems plc 
   --     Proposed consolidation of every 50 Existing Ordinary Shares into one New Ordinary Share 

The Acquisition will be funded by a combination of the Company's existing cash resources, the proceeds of the Placing and the Debt Facilities.

Clive Carver, Non-Executive Director of ECV, said:

"It has been our stated strategy to seek an investment in the technology sector where we believe there are opportunities for growth. TCS is a business that meets these criteria and represents a strong and stable platform from which to build a UK tax automation and compliance software business of scale. We look forward to the future with confidence."

Gavin Lyons, proposed Executive Chairman of ECV, said:

"TCS has a market leading corporation tax software platform established over the past 25 years which is used by a large number of the UK's leading companies and accountancy practices. We will invest in the excellent product portfolio, making it even more relevant to our valued customer base. As we expand our service, we will also grow the TCS team. We aim to accelerate the organic growth of the business whilst seeking opportunities to acquire companies with complementary products and services."

The Acquisition constitutes a reverse takeover under Rule 14 of the AIM Rules for Companies and is therefore conditional, inter alia, on approval by Shareholders which will be sought at a general meeting of the Company to be held on 25 July 2016 at 10 a.m. at the offices of K&L Gates LLP, One New Change, London EC4M 9AF, notice of which is set out at the end of the Admission Document, which will be posted to Shareholders today and is available on the Company's website: www.ecocityvehicles.co.uk

Further to the announcement of 21 January 2016, trading in the Company's shares will remain suspended pending Shareholder approval at the General Meeting.

Eco City Vehicles PLC

Clive Carver, Non-Executive Director [phone]

MXC Capital Markets LLP (Financial Adviser)

Marc Young/ Charlotte Stranner [phone]

finnCap Limited (Nomad and Broker)

   Jonny Franklin-Adams/James Thompson (Corporate Finance)                          [phone] 

Tim Redfern (Corporate Broking)

The following text has been extracted from the Admission Document which has been published today.

Capitalised terms shall have the same meaning as in the Admission Document unless the context requires otherwise.

   1.          INTRODUCTION 

On 1 July 2016, the Company announced that it had conditionally agreed to purchase the entire issued share capital of Tax Computer Systems. The consideration for the Acquisition is GBP73 million, payable wholly in cash, in addition to a cash for cash payment estimated to be GBP34.5 million. In order to part fund the consideration payable pursuant to the Acquisition, as well as Transaction costs, the Company has also today announced the conditional placing of 67,164,180 New Ordinary Shares at 67 pence per share to raise GBP45 million (GBP41 million net of costs). The Acquisition constitutes a reverse takeover of the Company for the purposes of the AIM Rules for Companies and accordingly requires Shareholder approval.

At the same time as the Acquisition and the Placing, the Directors are making other consequential proposals comprising the Capital Reorganisation, the adoption of the New Articles and the change of the Company's name to Tax Systems plc.

The Proposals and the Consequential Proposals are conditional, inter alia, upon the passing of the Resolutions at a General Meeting to be held at the offices of the Company's solicitors, K&L Gates LLP at One New Change, London EC4M 9AF, at 10 a.m. on 25 July 2016, and Admission taking place. It is expected that Admission will become effective, and that dealings in the Enlarged Issued Share Capital will commence on AIM, on 26 July 2016.

This document contains detailed information about TCS, the Acquisition and the Placing and explains why the Board considers the Proposals to be in the best interests of the Company and its Shareholders as a whole, and recommends that you vote in favour of the Resolutions to be proposed at the General Meeting, notice of which is set out at the end of this document.

   2.          BACKGROUND ON THE COMPANY 

The Company was admitted to AIM on 11 October 2007 as a specialist vehicle distributor and one of London's two authorised main dealers for LTI London Taxis selling new and used vehicles and offering a range of after sales services. As a result of challenging trading conditions and being unable to secure additional funding for the Company, administrators were appointed in October 2014 and the Company subsequently exited administration in December 2014 by way of a company voluntary arrangement following approval by both creditors and shareholders. In March 2015, the Company raised GBP250,000 by way of a private placing of convertible loan notes and the Existing Ordinary Shares were re-admitted to trading on AIM and the Company became an investing company under the AIM Rules with a policy to invest in and/or acquire companies and/or assets in the telecommunications, media and technology sectors. In December 2015, a further GBP5 million was raised by the issue of Existing Ordinary Shares and the Company appointed MXC Capital, through its FCA regulated subsidiary MXC Capital Markets LLP, to assist with identifying suitable acquisitions.

   3.          SUMMARY INFORMATION ON TCS 

TCS is a leading supplier of corporation tax software to the large corporate sector and the accounting profession in the UK and Ireland. TCS' portfolio of products manage and automate the end to end corporation tax compliance processes, including year-end tax reporting and HMRC tax computations.

TCS' lead product is Alphatax, which deals with virtually all of a company's corporation tax needs and covers practically every aspect of corporation tax. TCS also offers a range of complementary specialist applications and a range of professional services.

Detailed information on TCS and its products and services is set out in Part II of this document and historical financial information on TCS can be found in Part V of this document.

   4.          REASONS FOR THE ACQUISITION 

In line with its investing policy, the Company's stated strategy is to invest in and/or acquire companies and/or assets in the telecommunications, media and technology sectors where the Board believes there are opportunities for growth which, if achieved, will enhance earnings for Shareholders. The Directors believe that in TCS they have identified a business that meets these criteria and which represents a strong and stable platform from which to expand both organically and via acquisition, and on a national and international level.

The Directors and Proposed Directors consider that the opportunity represented by the Acquisition is in the best interests of the Company and Shareholders for the following reasons:

-- TCS is a leading brand in its field in the UK and Ireland, offering a comprehensive set of corporation tax reporting solutions and additional professional services

-- TCS is an established business with a very high proportion of recurring revenue (c. 90% of total revenues in the last financial year to 31 December 2015) with strong cash generation and low customer churn

-- TCS' market share among large corporates and accountancy firms is ahead of its competitors, with TCS being able to name 43 of the FTSE 100 companies and 19 out of the top 20 accountancy firms among its customers; however there remains a significant opportunity to further penetrate these markets, as well as others, further details of which are given in paragraph 5 below

-- Members of the TCS team have built up a substantial amount of sector expertise which would be very difficult to duplicate, providing a high barrier to entry to the market

-- Managing tax risk and compliance is an increasingly significant challenge for companies. Initiatives such as the European Union's Common Consolidated Tax Base and the OECD's Country by Country reporting are likely to increase the consistency of the requirements of corporate tax authorities in many countries as well as increase the level of work, regulation and complexity associated with corporation tax representing a significant opportunity for TCS as a leading incumbent player in the UK and Ireland

   5.          MARKET OPPORTUNITY AND GROWTH STRATEGY FOR THE ENLARGED GROUP 

The Directors and Proposed Directors believe that TCS, as a leading supplier of corporation tax software in the UK and Ireland, has a solid platform with an impressive customer base from which to accelerate growth. This growth could come from the existing tax compliance market within which TCS already operates and from the wider accounting and enterprise software sector as a whole. The strategic objectives are to grow both organically and via acquisition through:

   (a)     Further penetration of existing markets 

TCS' client base currently comprises circa 900 corporate customers and over 120 accountancy practices including 56 of the top 100 accountancy practices in the UK. The total population in the UK and Ireland of large corporate entities is estimated at around 7,500 and there are over 3,000 accountancy practices with more than 2 partners, providing significant opportunity to increase market share.

Furthermore, sales of TCS' other products are modest, presenting substantial cross-selling opportunities for the Enlarged Group with respect to existing products and new products.

   (b)    SaaS offering to medium sized companies 

The UK Government's Department for Business, Innovation and Skills ("BIS") estimates the number of medium sized companies in the UK and Ireland at 33,000, a market which TCS currently does not address. The Directors and Proposed Directors believe that a SaaS version of Alphatax with appropriate functionality would be well-placed to penetrate those companies within this market sector which manage their own tax in-house.

   (c)     International expansion 

International growth involving solutions for other countries outside of the UK and Ireland represents a substantial opportunity for the Enlarged Group. TCS' Irish business has demonstrated that the product portfolio can be localized and sold successfully. Expansion internationally could involve the acquisition of local players which could then benefit from TCS' product portfolio to become more established in their regions. The products can easily be adapted to function in any language using the Roman alphabet.

   (d)    International Governmental Initiatives 

New international governmental regulations on the exchange of tax information across borders impose significant additional compliance burden on corporates. For example, under the US Foreign Account Tax Compliance Act ("FATCA"), all US tax payers investing in UK financial institutions have to report the relevant information to HMRC. TCS has developed Alphacat which enables companies to prepare and manage FATCA reportable accounts filings to HMRC for onward transmission to the Internal Revenue Service ("IRS") in the US. Alphacat is in the process of being introduced to the market and the Directors and Proposed Directors consider that this presents a major opportunity for the Enlarged Group.

Furthermore, the Organisation for Economic Cooperation and Development ("OECD") has introduced a Common Reporting Standard which will require the exchange of information similar to that required under FATCA between all member countries from 2017. Additionally, the UK is mandating all UK Crown Colonies and Overseas Territories to report similar data relating to UK tax payers to HMRC with respect to 2014 onwards by September 2016. The Directors and Proposed Directors believe that TCS is ideally placed to provide the necessary processes within its software to enable companies to comply with the new requirements.

The OECD has also introduced country by country reporting which requires multinational corporations to report their business activities on a country by country basis with effect for accounting periods commencing on or after 1 January 2016. TCS has developed an intelligent web based application, Alphatrac CbyC, which has been specifically designed to manage a corporation's country by country reporting requirements and can be accessed at anytime from anywhere in the world.

The Directors and Proposed Directors see these recently introduced or incoming governmental initiatives which aim to increase the consistency of the requirements of the corporate tax authorities in many countries as being a significant growth opportunity for the Enlarged Group.

   (e)     New product offerings 

The Directors and Proposed Directors believe that there is an opportunity to build a software business with a comprehensive set of products covering tax compliance and the wider accounting and financial reporting market by adding new products either by developing them in house or via the acquisition of companies operating in relevant areas.

The addition of synergistic products could be accelerated by the acquisition of companies operating in relevant areas, such as VAT automation or payroll.

   6.          CURRENT TRADING AND PROSPECTS 

Eco City Vehicles

Eco City Vehicles is currently an investing company and does not trade. Its results for the year ended 2015 were announced on 16 May 2016 and showed net assets of GBP4.9 million at the year end. Since the year end, the Company has incurred expenditure in line with the Directors' and Proposed Directors' expectations.

TCS

Since the date to which the latest financial information included in this document has been prepared, TCS has continued to trade in line with the Directors' and Proposed Directors' expectations.

Prospects for the Enlarged Group

The Directors and Proposed Directors believe that the Enlarged Group has considerable growth opportunities in the tax compliance market and the wider accounting and financial reporting market, both organically and via selected acquisitions and views the future with confidence.

   7.          DIRECTORS AND PROPOSED DIRECTORS 

Directors

The Board currently comprises the following Directors:

Clive Carver, Non-Executive Director

Clive, aged 55, is a Fellow of the Association of Corporate Treasurers and specialized in corporate tax while qualifying as a chartered accountant at Coopers & Lybrand and has spent 17 years in the corporate broking arena becoming, successively, head of corporate finance at Seymour Pierce, Williams de Broë and finnCap. Since 2006, Clive has been chairman of Roxi Petroleum PLC, becoming executive chairman in June 2012. Clive is also non-executive chairman of Ascent Resources PLC and 365 Agile Group plc and a non-executive director of Darwin Strategic Limited.

Charles Vivian, Non-Executive Director

Charles, aged 42, is a Partner at MXC Capital Markets LLP and member of the Advisory Board of MXC Capital Limited, the Company's advisor and institutional investor respectively. Previously he has worked as an Investment Executive at EPIC Private Equity and Marwyn Capital. Charles specialises in listed, buy-and-build investment strategies and has led numerous acquisitions and disposals as well as managing the investments in portfolio companies. In addition, Charles worked for over six years at international law firm Freshfields Bruckhaus Deringer, where he specialised in public and private M&A. Charles will resign from his office as a Director on Admission.

Proposed Directors

On Completion, it is proposed that the following will be appointed as directors of the Company:

Gavin Lyons, Proposed Executive Chairman

Gavin, aged 38, has had a distinguished career in the TMT sector, most recently as CEO of Accumuli PLC, a successful buy and build in the IT security sector sold to NCC Group plc for GBP55m. Prior to Accumuli PLC, Gavin was Head of Telecoms & Utilities UK&I at SAP and held a senior position at Trend Micro Inc. having also worked at Xerox, Compuware and The Caudwell Group. Gavin is currently executive chairman at adept4 plc and is a partner at MXC Capital, the AIM quoted technology focused merchant bank appointed by Eco City Vehicles to advise on the Company's strategy and identify acquisition opportunities.

Grahame Benson, Proposed Finance Director and Chief Operating Officer

Grahame, aged 48, is a chartered management accountant who has held senior positions in finance from a relatively early stage in his career. Grahame was previously Chief Financial Offer of Arrow ECS, a subsidiary of Arrow Electronics, the NYSE listed global IT distributor of electronics, where he was part of a small team growing the UK business from c.GBP200m in revenue to c.GBP1 billion via a mixture of organic and acquisitive growth. Prior to Arrow ECS, Grahame was Finance Director of Clarity Technology, a subsidiary of Horizon Technology Group.

Linda Beal, Proposed Non-Executive Director

Linda, aged 54, is a chartered accountant and up until 30 June 2016 was a tax partner at Grant Thornton UK, specializing in tax structuring and global tax compliance and outsourcing for international groups. Prior to Grant Thornton UK, Linda was at PricewaterhouseCoopers LLP and one of its legacy firms from 1982 until 2013, becoming a tax partner in 1997. Linda has significant experience of using Alphatax and competing products and supporting in house teams on tax compliance. She has a strong network of contacts across large and medium sized companies operating in the UK and internationally as well as across a number of accountancy firms.

   8.          PRINCIPAL TERMS AND CONDITIONS OF THE ACQUISITION 

On 30 June 2016, the Company entered into the Acquisition Agreement with the Vendors and the Minority SPAs with the Minority Shareholders pursuant to which the Company has conditionally agreed to acquire the entire issued share capital of TCS. The consideration for the Acquisition is GBP73 million, to be satisfied wholly in cash on Completion, in addition to a cash for cash payment estimated to be GBP34.5 million. Completion of the Acquisition Agreement is conditional, amongst other things, upon:

-- the Placing Agreement being in full force and effect and the Loan Facilities and Loan Notes being available for drawdown;

   --     Shareholder approval of the Resolutions; and 
   --     Admission. 

Additional information relating to the Acquisition Agreement and the Minority SPAs is set out in paragraph 13.2 of Part VII of this document.

   9.          FINANCING OF THE ACQUISITION 

The Company will use its existing cash resources along with the proceeds of the Placing, the Loan Notes and the Loan Facilities to satisfy the consideration for the Acquisition. Further details of the Loan Notes and Loan Facilities are set out in paragraphs 13.3 and 13.4 of Part VII of this document respectively.

The pro-forma statement of net assets of the Enlarged Group set out in Part VI of this document shows proforma net liabilities of GBP25.3 million as at 31 December 2015 after adjusting for the Acquisition.

   10.        DEBT FACILITIES 

Conditional upon Completion, the Company has entered into the Loan Facilities with HSBC Bank plc, comprising a term loan of GBP9 million and a revolving credit facility of GBP11 million. Further details of the Loan Facilities are set out in paragraph 13.3 of Part VII of this document.

In addition, and conditional upon Completion, the Company has issued GBP10 million unsecured loan notes to the BGF. The Loan Notes have a 6 year term, with redemption permissible from the third anniversary and required from the fifth anniversary, and carry interest at a rate of 6% per annum. In addition, the Company has, subject to Completion, agreed to grant the BGF an option to subscribe for 5,970,149 New Ordinary Shares at the Issue Price. Further details of the Loan Notes and the option to be granted to the BGF are set out in paragraphs 13.4 and 13.5 of Part VII of this document.

   11.        THE PLACING 

In order to part fund the consideration for the Acquisition and related costs of the Proposals, the Company is seeking to raise GBP45 million (gross) (GBP41 million net of expenses) pursuant to the Placing through the issue of the Placing Shares at the Issue Price. The Placing Shares will represent approximately 88 per cent. of the Enlarged Issued Share Capital immediately following Admission. Further details of the Placing Agreement which contains the terms upon which the Placing is being undertaken are described in paragraph 13.6 of Part VII to this document.

The Placing is not being underwritten. Following Admission the Placing Shares will rank pari passu with the Existing Ordinary Shares. Application will be made for the admission of the Enlarged Issued Share Capital to trading on AIM which is expected to take place on 26 July 2016.

   12.        WARRANTS 

The Company and MXC Guernsey Limited have entered into a warrant instrument whereby, conditional upon Admission, MXC Guernsey Limited will be issued with Warrants to subscribe for 4,409,299 New Ordinary Shares at the Issue Price which are exercisable from the third anniversary of the date of grant dependent on share price performance. Combined with its holding of Warrants as at the date of this document, MXC Guernsey Limited will hold in aggregate 4,851,184 Warrants on Admission. Additional information relating to the Warrants in issue at the date of this document, the additional Warrants to be issued by the Company on Admission and the Warrants to be issued on further share issuances are set out in paragraph 13.11 of Part VII of this document.

   13.        INCENTIVISATION ARRANGEMENTS 

The Directors and Proposed Directors believe that the success of the Enlarged Group will depend, to a high degree, on management and other members of staff being appropriately motivated and rewarded. The Enlarged Group has therefore established the New Employee Share Scheme, designed to assist in the recruitment, motivation and retention of staff and which, for executive directors and senior managers, carries performance conditions which align the interests of the management team with those of Shareholders.

Participants in the New Employee Share Scheme will be entitled in aggregate to 6 per cent. of future Shareholder value generated, which will be calculated by reference to the growth in the market capitalisation of the Company following Admission over a period of between 3 to 7 years, as adjusted for the issue of New Ordinary Shares after Admission (but excluding any New Ordinary Shares issued pursuant to the New Employee Share Scheme) and taking into account dividends and capital returns, if any. Allocations to participants in the New Employee Share Scheme will be made post Admission. Further details of the New Employee Share Scheme are set out in paragraph 12 of Part VII of this document.

   14.        LOCK-INS AND ORDERLY MARKET PROVISIONS 

Gavin Lyons and Grahame Benson have given undertakings in lock-in deeds not to sell, charge or grant any interests over any New Ordinary Shares held by them on Admission (subject to certain exemptions) during the 12 month period commencing on Admission. Summaries of the lock-in deeds are set out in paragraph 13.7 of Part VII of this document.

   15.        RELATED PARTY TRANSACTIONS 

The participation of Henderson and Euroblue Investments Limited, substantial shareholders in the Company, in the Placing constitute related party transactions for the purposes of Rule 13 of the AIM Rules for Companies.

The fee received by MXC Capital as part of the Transaction (as set out in paragraph 13.10 of Part VII of this document) and the participation of MXC Capital, as a substantial shareholder in the Company, in the Placing and the issue of the Warrants (as set out in paragraph 13.11 of Part VII of this document) constitute related party transactions for the purposes of Rule 13 of the AIM Rules for Companies.

The independent director, Clive Carver, having consulted with the Company's nominated adviser, finnCap, considers that the terms of the Related Party Transactions are fair and reasonable insofar as independent Shareholders are concerned.

   16.        DIVID POLICY 

Any future dividends will naturally be proposed or declared taking account of the Enlarged Group's profitability, cash position and prospects, whilst also having regard to the future cash demands of the business. The Directors and Proposed Directors do not anticipate the proposal or any payment of any dividends during the next full financial year to 31 December 2016.

   17.        CORPORATE GOVERNANCE 

The Directors and Proposed Directors support high standards of corporate governance. Accordingly, the New Board will meet regularly throughout the year and all necessary information will be supplied to the New Board on a timely basis to enable it to discharge its duties effectively. Additionally, special meetings will take place or other arrangements will be made when Board decisions are required in advance of regular meetings.

The New Board has established financial controls and reporting procedures which are considered appropriate given the size and structure of the Enlarged Group. It is the intention of the New Board that these controls will be reviewed regularly in light of the future growth and development of the Enlarged Group and adjusted accordingly.

Share dealing code

The Directors comply with Rule 21 of the AIM Rules for Companies relating to directors' and applicable employees' dealings in the Company's securities and will comply with MAR, which comes into force on 3 July 2016 and which will provide a legal prohibition on trading by "persons discharging managerial responsibilities" during closed periods. Existing Rule 21 of the AIM Rules for Companies will be replaced with a new rule requiring an AIM company to have a reasonable and effective dealing policy. Accordingly, the Company has adopted a share dealing code for directors and applicable employees and the Company will take all reasonable steps to ensure compliance by its directors and applicable employees with the provisions of MAR and of the AIM Rules for Companies relating to dealing in securities.

Compliance with the Corporate Governance Code

The New Board intends, following Admission, so far as is practicable and appropriate for a company of its size, stage of development and nature as a company whose securities are traded on AIM to follow the provisions of the Corporate Governance Code.

On Admission, the New Board is expected to comprise four directors, of whom two are executive and two are non-executive. The Corporate Governance Code states that the board should determine whether a director is independent in character and judgment and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director's judgment.

The New Board considers Clive Carver (non-executive director) and Linda Beal (non-executive director) to be independent for the purposes of the UK Corporate Governance Code.

The New Board will have an audit committee and remuneration and nomination committee with formally delegated duties and responsibilities, as described below.

Audit committee

The Audit Committee will be responsible for monitoring the integrity of the Company's financial statements, reviewing significant financial reporting issues, reviewing the effectiveness of the Company's internal control and risk management systems, monitoring the need for or the effectiveness of the internal audit function and overseeing the relationship with the external auditors (including advising on their appointment, agreeing the scope of the audit and reviewing the audit findings).

The Audit Committee will comprise Clive Carver and Linda Beal and is chaired by Linda Beal. The Audit Committee will meet at least twice a year at appropriate times in the reporting and audit cycle and otherwise as required. The Audit Committee will also meet regularly with the Company's external auditors.

Remuneration and nomination committee

The Remuneration and Nomination Committee will be responsible for determining and agreeing with the New Board the framework for the remuneration of executive directors and other designated senior executives and, within the terms of the agreed framework, determining the total individual remuneration packages of such persons including, where appropriate, bonuses, incentive payments and share options or other share awards. The remuneration of non-executive directors will be a matter for the chairman and the executive members of the New Board. No director will be involved in any decision as to his or her own remuneration.

The Remuneration and Nomination Committee will comprise Clive Carver, Gavin Lyons and Linda Beal and is chaired by Clive Carver. The Remuneration and Nomination Committee will meet at least twice a year and otherwise as required.

   18.        IRREVOCABLE UNDERTAKINGS AND NOTIFICATIONS OF INTENT 

MXC Capital and Euroblue Investments Limited have given irrevocable undertakings to the Company to vote in favour of the Resolutions to be proposed at the General Meeting (and, where relevant, to procure that such action is taken by the relevant registered holders if that is not one of them) and Henderson Global Investors Limited have given a notification of intent to vote in favour of the Resolutions to be proposed at the General Meeting, in respect of certain of their holdings totalling, in aggregate, 333,468,852 Existing Ordinary Shares, representing approximately 75.5 per cent. of the Existing Issued Share Capital.

   19.        CHANGE OF NAME 

It is proposed to change the name of the Company to Tax Systems plc immediately prior to Admission by resolution of the Board in accordance with the power conferred by the New Articles.

Upon the change of name being registered at Companies House, the Company's AIM ticker symbol will be changed to TAX. The Company's website address will be changed to www.taxsystemsplc.co.uk.

   20.        NEW ARTICLES OF ASSOCIATION 

The New Board proposes the adoption of the New Articles by special resolution at the General Meeting. A copy of the proposed New Articles is available for inspection at the offices of the Company's solicitors, K&L Gates LLP at One New Change, London, EC4M 9AF, during usual business hours on any business day up to and including the day of the General Meeting and will also be available for inspection at the General Meeting for at least 15 minutes prior to and during the meeting. Additionally the proposed New Articles are available for inspection on the Company's website at the following address: www.ecocityvehicles.co.uk (www.taxsystemsplc.co.uk with effect from Admission). The principal changes proposed to be made to the Articles are described at paragraph 5 of Part VII of this document.

   21.        CAPITAL REORGANISATION 

Under the Share Consolidation it is proposed that every 50 Existing Ordinary Shares be consolidated, subdivided and reclassified as one New Ordinary Share and one Deferred Share. Accordingly, the proportion of Existing Ordinary Shares held by each Shareholder immediately before the Share Consolidation will, save for fractional entitlements (which are discussed further below), be the same as the proportion of New Ordinary Shares held by each Shareholder immediately after the Share Consolidation. In the event that the number of Existing Ordinary Shares held by a Shareholder is not exactly divisible by 50, the Share Consolidation will generate an entitlement to a fraction of a New Ordinary Share and a fraction of a Deferred Share. Any New Ordinary Shares in respect of which there are such fractional entitlements will be aggregated and sold in the market for the best price reasonably obtainable and the net proceeds of such sale distributed in due proportion among those members entitled to fractions of a New Ordinary Share except that any amount otherwise due to a member of less than GBP5 will be retained for the benefit of the Company. Any Shareholder holding fewer than 50 Existing Ordinary Shares at the Record Date will cease to be a Shareholder. The Directors and Proposed Directors believe that the Share Consolidation will result in a more appropriate number of shares in issue given the Company's size.

The Deferred Shares will be created pursuant to the New Articles to be adopted at the General Meeting. The Deferred Shares will be created with rights that give them no economic value. The New Board can see no reason for the Deferred Shares to remain on the balance sheet and recommends that the Deferred Shares are purchased by the Company. Under the provisions of the Act, a public limited company may not fund the purchase of its shares except out of its distributable reserves or the proceeds of a fresh issue of shares made solely for the purpose of such buy-back. The Company has no distributable reserves with which to fund the Buy-Back and therefore it is proposed that the Buy-Back is funded out of a fresh issue of shares issued solely for the purpose of the Buy-Back as permitted by the Act. Accordingly, the Company has issued Existing Ordinary Shares to the Company secretary to raise sufficient funds to acquire the Deferred Shares. Under the provisions of the New Articles, the Company will have the power to buy back the Deferred Shares for GBP0.01 in aggregate per each holder of Deferred Shares. To simplify the Buy-Back, the Company will use its irrevocable authority under the provisions of the New Articles to appoint any person to execute on behalf of the holders of the Deferred Shares a transfer of the Deferred Shares to a custodian pending completion of the Buy-Back. In accordance with this authority, prior to the acquisition of the Deferred Shares by the Company pursuant to the Buy-Back Agreement, the Deferred Shares will be transferred to Gravitas Nominees Limited, a nominee of the Company's solicitors, K&L Gates LLP. Accordingly, the total cost of the Buy-Back will be GBP0.01. Once the Buy-Back has been completed the Deferred Shares will be cancelled. A copy of the Buy-Back Agreement is available for inspection at the Registered Office. A copy of the Buy-Back Agreement will also be available for inspection at the General Meeting. The Buy-Back is conditional upon Shareholder approval, and, at the General Meeting, Shareholders will be asked to approve, if thought fit, the terms of the Buy-Back Agreement.

   22.        GENERAL MEETING 

Set out at the end of this document is a notice convening the General Meeting to be held on 25 July 2016 at 10 a.m. at the offices of K&L Gates LLP at One New Change, London EC4M 9AF at which the following Resolutions will be proposed, of which Resolutions 1 to 8 (inclusive) will be proposed as ordinary resolutions and Resolutions 9 and 10 will be proposed as special resolutions:

   1.     the approval of the Acquisition for the purposes of Rule 14 of the AIM Rules for Companies; 
   2.     the appointment of Gavin Lyons as a director of the Company; 
   3.     the appointment of Grahame Benson as a director of the Company; 
   4.     the appointment of Linda Beal as a director of the Company; 
   5.     the approval of the Share Consolidation; 
   6.     the approval of the Buy-Back Agreement; 

7. the authorisation of the Directors to allot New Ordinary Shares in connection with the Placing, the Warrant Instrument, the Option and the New Employee Share Scheme as well as a general authorisation to allot or grant rights to subscribe for New Ordinary Shares with an aggregate nominal value equal to one third of the aggregate nominal value of the Enlarged Share Capital at Admission;

8. the approval of loans to be made by TCS to directors of the Company to cover tax liabilities in relation to the Employee Share Scheme

   9.     the adoption of the New Articles; and 

10. the disapplication of statutory pre-emption rights in respect of the allotment of New Ordinary Shares in connection with the Placing, the Option, Warrant Instrument and the New Employee Share Scheme and otherwise up to an aggregate nominal value equal to 15 per cent. of the aggregate nominal value of the Enlarged Share Capital at Admission.

   23.        ADMISSION AND CREST SETTLEMENT 

As the Acquisition constitutes a reverse takeover of the Company under the AIM Rules for Companies, Shareholder consent to the Acquisition is required at the General Meeting. If the Resolutions are duly passed at the General Meeting, the admission of the Company's Existing Ordinary Shares to trading on AIM will be cancelled (immediately prior to Admission) and the Enlarged Issued Share Capital will be admitted to trading on AIM.

Application will be made to London Stock Exchange for the Enlarged Issued Share Capital to be admitted to trading on AIM. Admission is expected to take place at 8 a.m. on 26 July 2016.

The New Ordinary Shares are eligible for CREST settlement. CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by a written instrument in accordance with the requirements of CREST. The New Articles permit the holding and transfer of Ordinary Shares to be evidenced in uncertificated form in accordance with the requirement of CREST. Accordingly, following Admission, settlement of transactions in Ordinary Shares may take place within the CREST system if the relevant Shareholder so wishes. CREST is a voluntary system and Shareholders who wish to receive and retain share certificates will be able to do so.

INFORMATION ON TAX COMPUTER SYSTEMS LIMITED

   1.          INFORMATION ON TCS 

TCS has a 25 year track record and is a leading supplier of corporation tax and associated software and services to large corporates and the accountancy profession in the UK and Ireland. TCS' portfolio of products automates and simplifies the complexity of corporation tax compliance. The products attract an annual fee which covers provision of an all-inclusive service, where the customer can expect regular product enhancements complemented by a spectrum of professional services. The products may be installed in-house, or as a hosted solution.

TCS portfolio of products include:

Alphatax

Alphatax is TCS' lead product. It provides an end-to-end tax compliance process. It supports virtually all phases of the compliance cycle, from streamlining data collection, simplifying tax analyses, producing computations and tax accruals, and managing the overall process. It is fully enabled for Inline Extensible Business Reporting Language ("iXBRL") online filing and is recognised by HMRC. It provides solutions for all sizes of company and accountancy firm.

The Alphatax software incorporates a comprehensive range of corporation tax rules and logic. The integrated tax logic brings high levels of automation when preparing tax computations and reports. These rules are updated regularly in line with tax law and legislative changes. Furthermore, Alphatax has an interactive help system with legislative references and up-to-date tax content providing users with the technical support they need when preparing computations.

There are four available versions of Alphatax for corporate customers, as well as a version for corporate partnerships and a version of Alphatax specifically designed for life assurance companies called Alphalife. In addition to the core computation and filing software, Alphatax has a range of fully integrated software functions which add value and functionality to the end-to-end tax compliance process.

   --        Alphatag 

Alphatag converts a Word or Excel document prepared for the statutory accounts to an iXBRL file in a format suitable for HMRC. iXBRL allows organisations to automate the submission of financial statements. Alphatag incorporates the tools and functions required to manage the process of tagging statutory accounts documents so that they can be filed automatically with HMRC. The submission of tagged accounts is a requirement from HMRC.

   --        Alphatrac 

Alphatrac is workflow software providing a dashboard for status reporting concerning the entire tax compliance process, including across multiple countries. It uses web-based technology to manage risk and improve efficiencies. It assigns tasks to individuals; tracks deadlines and issues alerts; and uploads documents for file sharing.

   --        Alphacat 

Under FATCA, non-US financial institutions are required to report US client account management to the IRS. The UK is one of over 100 participating tax authorities. Financial organisations in the UK affected by FATCA are required to report key information to HMRC on an annual basis. In addition, under the Common Reporting Standards ("CRS"), the US FATCA model has been extended to other OECD countries.

Alphacat enables companies to prepare and manage FATCA reportable accounts filings to HMRC for onward transmission to the IRS in the US. Alphacat also effectively manages a company's end-to-end CRS compliance processes.

TCS has also formed TCSL Consultancy as a branded offering focusing directly on providing corporate tax technology consulting services. Professional services provided include:

   --        Strategic Consulting 

TCS offers strategic consulting on every aspect of the corporation tax compliance cycle.

   --        Hosted Service 

The hosted service for Alphatax provides anytime, anywhere remote access to Alphatax. TCS uses Rackspace Ltd to provide high levels of security and availability. This eliminates the need for the client to install any software on its network and permits entirely flexible working from office, home and elsewhere.

   --        Outsourced Corporation Tax Service 

TCS provides a fully outsourced service providing data collection, preparation of the tax computation, client approval, testing of eFiling with attachments, and the final client sign-off.

   --        iXBRL Tagging Service 

For companies that prefer to outsource the process of tagging, TCS takes statutory accounts from the client; carries out the requisite tagging; ensures sign off by the client; and delivers the files on the web.

   --        Tax Reporting Solutions 

It is necessary for companies to have a standardised process to complete their interim and year-end tax provision calculations. TCS offers a service which automates this process and provides a comprehensive suite of tax reports for both company and group accounting.

   --        Training 

For companies that want to manage their tax computations and returns in-house, TCS provides The Corporation Tax Technical Training Course. This is an intensive, two day course which enables finance professionals to control their tax compliance process.

   --        Support Services 

TCS provides first level support on all its licence sales.

   2.          OPERATING STRUCTURE 

TCS has 60 employees, 56 in the UK located in Staines-upon-Thames and 4 in Ireland located in Dublin.

There are three senior managers covering Sales (Corporate), Development & IT and Ireland. There are a further three managers heading up Sales (Professional Firms), Alphatax Tax Development and Finance.

TCS has a team of 11 tax consultants who continually update the software to ensure it is aligned with any tax legislation changes and provide consultancy and support services.

Sales are direct to the customer, with many new sales coming through referrals. The sales team consists of 4 people who manage web demonstrations and orders, and occasionally visit prospects on-site.

The account management team consists of 5 people who communicate mainly by phone with the client base, identifying areas of further client requirements. The development and IT team consists of 29 people.

TCS arranges occasional conferences and runs four user groups, in Edinburgh, Leeds, Birmingham, and London, who meet annually. Included in the user group meetings are tutorials on software changes over the previous 12 months, presentations of the roadmap of future developments, and discussions of problems which are commonly experienced.

   3.          MARKETS AND CUSTOMER BASE 

TCS currently serves the needs of circa 900 corporations in the UK, as well as almost all of the large accounting firms including 19 of the top 20 UK practices.

Recurring revenues represented more than 90% of total revenues in the year to 31 December 2015, and client retention levels are high at 95%.

TCS has strong relationships across its customer base, including significant historical length of tenure with many of its key customers with the average length of relationship with the top 10 customers being 11 years.

The top 20 customers generated c.23% of total revenues in the year to 31 December 2015 of which the largest generated c.5%, showing a good customer spread with no significant reliance on any one customer.

The levels of penetration of Alphatag, Alphatrac and Alphacat are still modest with Alphatax representing

c.89% of total revenues.

Corporates

The tax market for large corporates was until recently primarily served by large accountancy firms, whose business model places a significant preference for providing advice rather than compliance. Accordingly many large corporates now do their own tax compliance.

According to BIS, in 2015 there was a population of around 7,000 large businesses in the UK with at least 250 employees. The Irish economy is of the order of 10% of the size of the UK economy, so for these purposes it is assumed that there is a population of around 7,500 large businesses with at least 250 employees in the UK and Ireland. TCS has c.900 of these as customers, so it can be assumed that TCS' market share of large corporates in the UK and Ireland is around 12% and will target those other large corporates which manage their own corporation tax in-house.

Although TCS' products are appropriate for all company sizes, TCS has a very small penetration of the market for medium sized companies. For the purpose of estimating TCS' total accessible market, the market for medium sized companies has not been taken into account, although this is clearly very conservative. According to BIS, there are some 33,000 medium sized companies (50 to 250 employees) in the UK. The New Board believes that the market potential for sales to those medium sized companies which manage their own corporation tax in-house is considerable.

Accountancy Practices

Of the top 100 accountancy firms (by revenue) in the UK, TCS has 56 as customers. The Financial Reporting Council identified 3,201 accountancy firms with 2 to 50 partners, representing a significant number of potential new customers for TCS to target.

   4.          FINANCIAL INFORMATION ON TCS 

The following audited information relating to TCS has been extracted from the historical financial information set out in Section B of Part V of this document:

 
 GBP'000s             December   December   December 
                          2013       2014       2015 
-------------------  ---------  ---------  --------- 
 Revenue                12,664     12,656     12,779 
 EBITDA                  6,762      6,305      6,603 
 EBITDA margin (%)          53         50         52 
 Operating cash 
  flow conversion 
  (%)*                     106        101         95 
 

* Calculated as net cash inflows from operating activities, adjusted for tax then divided by EBITDA.

Revenue from licence sales is recognized as follows: 90% of the value of the annual licence sale is recognized as revenue on its due date. The remaining 10% is regarded as support revenue and is recognized over the relevant 12 months on a time basis.

Corporates are priced on a per user basis and accountancy firms are priced on the number of tax computations performed using TCS' software.

TCS' recurring revenue is in excess of 90% and has low level of cancellations. For example, the average customer churn for the past 3 years for the lead product, Alphatax, is only 6% illustrating the 'stickiness' of TCS' products and customers' dependence thereon.

TCS experienced impressive growth from 2005 - 2011, going from revenues of GBP3.370 million to GBP12.575 million. Since 2011 revenue growth has remained consistent at around GBP12 million. However, EBITDA margin has remained strong at c. 50%. Going forward, revenue growth is expected to come from building the sales team to better penetrate existing markets, cross-selling of TCS' portfolio of products as well as expansion into new territories and potential acquisitions.

Historically, TCS has not capitalized any research and development costs. The New Board intends to capitalize certain research and development costs going forward.

   5.          COMPETITORS 

TCS has a number of competitors, with the main ones being Thomson Reuters (ONESOURCE), Sage and Wolters Kluwer (CCH). Thomson Reuters ONESOURCE is TCS' main competitor and the software covers multiple tax jurisdictions. Sage's product is designed for users of Sage products and CCH's software has limitations for very complex tax computations and companies with multiple subsidiaries.

In addition, there are several companies that have appended simple tax products to their portfolio, targeted at small companies and hence TCS very rarely competes with them.

TCS excels in complex environments; the more convoluted the tax system in a given jurisdiction and the higher the compliance barrier, the better TCS does and the harder it is for the competition. The main reason behind this is the strength of TCS' core processing engine and its ability to encode complex calculation rules and mask them from the user between data entry and report production. This acts as a plus for TCS' products and a barrier for other systems.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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July 01, 2016 02:00 ET (06:00 GMT)