Cocoon Green Energy Solar Fund

Transcription

1 Cocoon Green Energy Solar Fund November 2014 A renewable energy investment opportunity Discretionary Fund Management Provided by Cocoon Investments Limited

2 Contents Important Notice 3 Investment Summary 5 Key Project Partners and Professional Advisers 7 Details of the Business 9 Financial Illustrations 14 Costs and Fees 19 Taxation Analysis 21 Risk Factors and Risk Management 23 Application Process 28 Appendices 29 Glossary of Terms 31 2

3 Important Notice This document has been issued by Cocoon Investments Limited ( CIL ) which is authorised and regulated by the Financial Conduct Authority. Your capital is at risk and you may not get back the full amount invested. The tax treatment of an investment depends on the individual circumstances of each investor and may be subject to change. The availability of tax reliefs also depends on the investee companies maintaining their qualifying status. Cocoon Green Energy Solar Fund invests into an unquoted company which is likely to have higher volatility and liquidity risk than shares quoted on the London Stock Exchange Official List. Past performance is not a reliable indicator of future results and any forecast is not a reliable indicator of future performance. These risks are outlined in full on pages 23 to 27. This promotion does not offer investment or tax advice and this investment is not suitable for everyone. We recommend you seek independent investment or tax advice before investing. This document is confidential and is submitted solely for the use of the person to whom it is delivered. This document may only be forwarded, reproduced or redistributed to people to whom such communication may lawfully be made in accordance with the provisions of the Financial Services and Markets Act ("FSMA") and with the prior written consent of CIL. Unauthorised communication may constitute a criminal offence. This document does not constitute a Prospectus and is not intended to be treated as an offer to the public. CIL will restrict the number of investors to whom an offer will be made for a particular class of Preference Shares to fewer than 150. This document is only intended to provide recipients with an indication of the nature of the investment opportunity of Cocoon Green Energy Solar Holdings Limited (the "Company"), the activities to be undertaken by the Company and the potential returns from such activities. While all reasonable care has been exercised in preparing this document, recipients are strongly recommended to make the decision whether to invest in the Company directly or on the basis of independent investment, taxation and other relevant professional advice taken by them. Investment in the Company may not be suitable for all recipients of this document. Your attention is drawn to the section headed Risk Factors and Risk Management. Nothing in this document constitutes investment, tax, legal, accounting or other advice by CIL. This document has not been reviewed, authorised or otherwise approved by the FCA or any other regulatory body. This document does not constitute an offer to sell or a solicitation of an offer to purchase securities in any state, country or other jurisdiction outside of the United Kingdom. In particular, this document is not being, will not be and must not be, distributed directly or indirectly in or from the United States, Canada, Australia or Japan. 3

4 Important Notice Marketing to Retail Investors The Company will be treated as an Alternative Investment Fund ( a Fund ) for the purposes of the FCA Handbook. The Fund is an unregulated AIF and as such falls within the definition of a non-readily realisable security. All FCA regulated firms are permitted to communicate a direct-offer financial promotion relating to a non-readily realiseable security to a retail client: i) on an advised basis, if a firm other than CIL provides an assessment of suitability under COBS 9; or ii a) on a non-advised basis if, the client is able to confirm that they have the status of an individual who has the requisite experience, knowledge or expertise to understand the risks of an investment in an non-readily realisable security (see below); and ii b) CIL will perform an appropriateness test on which FCA regulated firms may rely. CIL will be arranging a deal in securities allotted by the Fund as part of its duties as Manager of the Fund and CIL s commitment to potential investors and FCA regulated firms will be that the test aims to satisfy the condition in COBS Investor Status The types of retail client to whom a financial promotion relating to the Fund may be made include: i) a certified high net worth investor (COBS 4.7.9); ii) a certified sophisticated investor (COBS 4.7.9); iii) a self-certified sophisticated investor (COBS 4.7.9); iv) a certified restricted investor (COBS ); or v) a person receiving a personal recommendation from an FCA regulated firm. All investors that seek to apply for shares in the Fund will be required to attest as to their status. No applicants will be permitted to apply without confirmation of their status satisfying one of the conditions referred to above. The information contained in this document is subject to updating, completion, revision and amendment. It has not been the subject of independent verification. CIL has taken all reasonable steps to ensure that the facts stated in this document are true and accurate in all material respects and there are no material facts omitted. However, subject to any liability under the FSMA and related regulations which cannot be excluded, CIL accepts no liability for any inaccurate or misleading information contained in, or any omissions from, this document except to the extent that the inaccurate or misleading nature of such information, or such omission, arises from the wilful default or fraud of CIL. No representation is made or assurance given that the statements, projections, forecasts or views set out in this document are correct or that the objectives will be achieved. Actual results could differ materially from those set forth in the document. CIL has not authorised any person to make representations or give information to any person on their behalf in relation to this document. Recipients of this document should therefore not rely on any such representation or information made or given by any such person as having been made or given on behalf of CIL. Reliance on this document or on any information derived from them, subsequent or prior communications may expose an investor to the risk of losing all the monies invested in the Company, or of incurring additional liability. In particular (but without limitation), this document may be being used in relation to a presentation by an investment advisor to his or her clients, on the basis that the investment adviser considers that the Fund may be of interest to them. Any such communication or presentation and its compliance with FSMA and the rules of the FCA are the sole responsibility of the relevant investment adviser. 4

5 Investment Summary Potential investors are being offered the opportunity to participate in the Cocoon Green Energy Solar Fund (the "Fund"), a Fund which will be managed by CIL that may subscribe investors for preference shares (the Preference Shares ) in Cocoon Green Energy Solar Holdings Limited (the Company ). The Company is incorporated in the UK and offers investors the opportunity to participate in low risk Government-backed ground-mounted solar PV renewable energy projects. A holder of Preference Shares is expected to receive an annual return of RPI 1 plus 2.5% (subject to a minimum return of 3% and maximum of 7.5%). Certain UK investors may also benefit from 100% Business Property Relief ("BPR"), which removes the investment from their estate for Inheritance Tax purposes after a holding period of two years. The Preference Shares will be issued in a number of different classes, initially to be designated as Class A Preference Shares and thereafter Class B Preference Shares, Class C Preference Shares and such further classes as required. The Company will use investors' subscription monies to incorporate and finance a number of Subsidiaries (each, a Subsidiary ), each of which will construct and operate one or more solar PV plants in the UK which will manufacture electricity. The returns generated by each Subsidiary shall be remitted to the Company and pooled (thus providing diversification) in order to pay the Preference Share dividends. The Subsidiaries will combine the funding received from the Company with bank debt to enhance returns. The electricity generated by a solar PV plant will be sold to an energy purchaser under a Power Purchase Agreement ( PPA ). The generation of electricity from renewable sources will also entitle the Subsidiary to receive Government-backed index linked subsidies (Renewable Obligation Certificates ROCs ). Once a solar PV project is commissioned, the ROC level is locked into the project for a 20 year lifetime and RPI index linked. The revenue from the ROCs is expected to equate to c53% of the total income from the solar plant in the first 20 years of the plant s life, with c47% of revenues derived from the sale of electricity. Each Subsidiary will appoint experienced Engineering, Procurement and Construction ( EPC ) contractors with a proven management team and will also work in conjunction with a Project Manager, Cocoon Green Energy Limited ( CGE or the Project Manager ) who has knowledge and experience in renewable energy to deliver quality turn-key projects and who will provide ongoing supervision and management. The Project Manager has identified a pipeline of 20 construction ready sites of various sizes with installation capacity of 80MW. Recognising that investors' circumstances can change, the fund has a liquidity facility which will enable up to 25% of the total Preference Share equity to be redeemed, without the need for further capital raising, disposal of assets or refinancing. The anticipated investment horizon is five to ten years and it is expected that the underlying assets held by each Subsidiary will be sold or refinanced at that time, subject to prevailing market conditions, to facilitate a return of capital to holders of the Preference Shares. At the point of returning funds, investors will be given the opportunity to reinvest in other projects. The Project Manager will co-invest alongside investors, by subscribing for ordinary shares of 1 each in the Company (the Ordinary Shares ) and thus will be in a subordinate position to holders of Preference Shares. The interests of the Project Manager and investors are therefore aligned. No initial fees are deducted from the investments made by holders of Preference Shares, so 100% of investors' capital generates their return. The fees to pay the promoter and any other marketing expenses on an initial and ongoing basis are funded by ordinary capital subscribed by CGE. The Project Manager will only receive a return if it successfully delivers the entire RPI + coupon and return of principal to investors. 1 RPI is the rolling 12 month average ONS published figure 5

6 Investment Summary Investment Options and Suitability Investing in Preference Shares is expected to be suitable for a broad range of investors provided that they satisfy certain criteria as assessed by the Manager. This includes persons who are sophisticated or have specific investment objectives and who understand and meet the investment profile and risks of an investment in the Preference Shares. Discretionary Fund Management Cocoon Investments Limited will be appointed as the Discretionary Fund Manager or "DFM" of the Fund under the terms of the Management Agreement between the Company and CIL and is responsible for overseeing the selection and management of suitable investments. The Financial Services Compensation Scheme provides protection if an authorised investment firm is unable to pay claims against it. For example: y For loss arising from bad investment advice, poor investment management or misrepresentation; y When an authorised investment firm goes out of business and cannot return investments or money. For further information about compensation arrangements, please refer to the FSCS by calling or visiting their website fscs.org.uk. 6

7 Key Project Partners and Professional Advisers Discretionary Fund Manager Cocoon Investments Limited ( CIL ) CIL is authorised and regulated by the Financial Conduct Authority in the United Kingdom. CIL will review the appropriateness of an investment for each client on the basis of the information provided in the Subscription Pack. CIL will not provide advice and will determine the appropriateness of this investment separate from any other advice or services provided by any other professional adviser. CIL will issue a Letter to each client setting out the basis on which it has determined that an investment is appropriate, or not, before an investment is made. 7

8 Key Project Partners and Professional Advisers Project Manager Cocoon Green Energy Limited ("CGE") A joint venture company formed between Cocoon Wealth LLP and Gardner Asset Management LLP. Gardner Asset Management LLP ( GAMllp ) GAMllp bring 20 years of experience of acquiring and successfully operating cashgenerative SME businesses, maximising their capital value by selling the consolidated companies. The senior management team of Douglas Gardner and Chris Isard were CEO and MD respectively of AWD, which was one of Europe s largest independent financial advice groups. GAMllp advises business and private clients on renewable energy assets and has developed solar projects with installed capacity exceeding 50MWs. See for further information. Cocoon Wealth LLP ( Cocoon ) Cocoon is a private investment company which invests in developing businesses they are passionate about and where they can play a key role in shaping their success. Through a combination of Cocoon's own investment, enthusiasm for developing great businesses and proven ability to transform opportunities, they often attract private and professional investors to invest alongside them. Cocoon has particular expertise in renewable energy development project and asset management. Key personnel include Tim Levy as Managing Partner with Neil Manaley and Peter Conway driving new product design and renewable energy expertise respectively. Tim has been involved in the project and venture investing market since 1997 and has originated, marketed, raised and executed over 7 billion of projects and venture investments, including over 500 million of renewable energy projects. See for further information. CGE has created a proven process for building and managing ground-mounted solar PV projects that brings together a team of industry-recognised technical, legal and financial advisers and utilises market-leading counterparties. They are currently managing the design and build of Cocoon s Green Energy EIS solar PV installation. CGE as Project Manager will work with their advisers to provides services and contract negotiation in respect of: y Design, build, connection, operations and maintenance y Commercial, legal, financial, accountancy & insurance services ypower Purchase Agreement y Operations management from set-up to realisation y Company management from set-up to realisation yagreed communications for investors y Corporate governance Lending Bank The bank lending will be provided by a leading UK financial institution and will be limited recourse to the income each Subsidiary receives from its solar plants(s). Other Parties: Infrata Technical Adviser Infrata ( is appointed by the Project Manager and the Company for the provision of technical and engineering consultancy services to provide independent scrutiny of the projects including the EPC and Operations & Maintenance ("O&M") contracts, and selection of the equipment to be used for the solar PV installation (solar panels, inverters etc). To date Infrata has provided technical advice and due diligence on more than 120 projects totalling in excess of 500MW. Osborne Clarke Project Solicitor Osborne Clarke has expertise in the provision of legal services to the renewable energy sector and is appointed by the Project Manager and the Company to advise on all contractual documentation for the solar PV projects. Osborne Clarke have been project lawyers on more than 40 solar projects totalling over 600MW. EPC & O&M Contractors The EPC and O&M contractors are selected by the Company with the recommendation of the Project Manager and are approved by the Bank. The contractors must have a track-record of having completed and provided O&M services of large scale solar installations totalling more than 80MW (further details are provided on page 29). The EPC contractors the Project Manager is looking to work with have installed and operate over 30 projects totalling 300MW. The EPC and O&M contracts are expected to be for an initial term of two years and renewable for typically five years thereafter. Auditors: Hillier Hopkins LLP Dukes Court 32 Duke Street St James's London SW1Y 6DF 8

9 Details of the Business Each Subsidiary will build, own and operate one or more solar PV renewable energy projects. Each Subsidiary will lease land which is suitable to accommodate a solar PV plant, acquire and install the solar panels, connect the installation to the national grid, and operate and maintain the plant. An experienced EPC Contractor will be appointed to each project with a proven management team and will also work in conjunction with the Project Manager who has knowledge and experience in renewable energy to deliver quality turn-key projects and who will provide ongoing supervision and management for the project. The Subsidiaries will derive the majority of their revenues from two sources: 1. Electricity exported to the national grid The electricity produced by a solar project is sold under a PPA and paid for by a utility company or power company based on the metered production. 2. Government incentive payments Renewable Obligation Certificates (ROCs) are the Government support mechanism that provide a 20 year subsidy at a locked-in level (for the level is 1.4 ROCs/MWh). The revenue from ROCs is also received under the PPA. Market Background The Renewable Energy Directive ( RED ) was introduced in 2007 and set out the legally binding targets for renewable energy by 2020 being, broadly, a 20% reduction in carbon emissions. This was implemented by each member state and became the key driver of renewable policies across the EU. In January 2014 the EU published the proposal A policy framework for climate and energy in the period from 2020 to The proposal confirms that there is to be a target of 40% reduction in carbon dioxide emissions by 2030, double the current aim to cut 20% by 2020, and that there is, also, to be a target of 27% of its energy from renewables by The UK Government target is in fact to cut carbon emissions by 30% and deliver at least 15% of all energy consumed from renewables by The longer-term aim is to reduce emissions by a total of 80% by 2050 and, at the same time, lower the UK s reliance on imported oil and gas by encouraging, through incentives and subsidies, a mix of low-carbon energy production. The UK is obliged to meet EU targets and so the Government continues to focus on supporting infrastructure projects, such as large-scale solar energy projects, that deliver meaningful green energy. The contribution of renewables to gross electricity consumption in the UK was 10.8% in 2012 (Department of Energy and Climate Change, DECC ). Further demand for renewables can be expected in the coming years as the UK power sector undergoes some significant changes from its historical generation capacity. Under requirements of The Large Combustion Plant Directive 2008, 8GW of coal plant and 3GW of oil plant generation will be closed down by the end of From 2016 the Industrial Emissions Directive ( IED ) will require certain plants to install facilities to reduce nitric oxide emissions. With the required equipment being expensive to install, it is likely that some 11GW of coal will not undertake such installations and will opt out of the IED. Within gas fired generation 3.1GW of capacity has been mothballed and whilst it could be brought back on stream or kept as reserve capacity it is of low efficiency and not particularly flexible and thus there are doubts as to its long term future. In nuclear power around 7.5GW of generation will reach the end of its useful life and be decommissioned within the next decade, with the initial 3.4GW being decommissioned by 2019 and the remainder in The UK will shed some 17GW of capacity by 2019 and a further 15GW by 2023, amounting to 32GW in total. Against this, c. 18GW in replacement capacity has been commissioned or is visible. Therefore, without a significant amount of investment in the coming 4-5 years (ie in order to deliver new capacity pre-2023), there can be an expectation of 14GW shortfall. To date there has been 5GW of solar energy projects installed in the UK and the most recent Government document, UK Solar PV Strategy: Road map to a Brighter Future 2 published in October 2013, confirms the Government s support for solar energy with their statement 20GW of deployed solar is not only desirable but also potentially achievable within a decade. The Renewables Obligation ( RO, introduced in 2002 in England, Wales and Scotland) is the main support mechanism for renewable electricity projects in the UK

10 Details of the Business It places an obligation on UK electricity suppliers to source an increasing proportion of the electricity they supply from renewable sources. This proportion is set to increase annually until 2037 as determined by the DECC 3. For solar projects the relevant incentive scheme is the Renewable Obligation Certificates (ROCs) payable for the production of electricity. ROCs are issued to generators of accredited renewable generating plants (i.e. the Subsidiaries) for the eligible renewable electricity they generate. These ROCs together with the electricity produced are then sold to licensed UK electricity suppliers. The price paid for a ROC under a PPA is typically equivalent to the ROC buy-out price less a small discount to the counterparty. The ROC buy-out price (announced annually) is paid at a fixed price per MWh and is adjusted in line with the RPI each year. The UK Government s December 2012 review 4 provides confirmation of solar energy support for the period 1 April 2014 to 31 March 2015 at 1.4 ROC/MWh. Once a solar energy project is commissioned at a particular ROC level then that ROC is locked in to the project for a 20 year lifetime. Electricity suppliers meet their obligations under the RO by presenting their ROCs (bought from renewable energy generators) to Ofgem or otherwise pay a penalty to Ofgem (equal to the buy-out price) for each MWh shortfall in renewable energy production. All buy-out payments in the penalty fund are recycled back to the suppliers who were able to meet their obligations, in proportion to the number of ROCs they hold. This payment is known as the ROC recycle price. Suppliers who did not submit any ROCs will not receive any proportion of the buy-out fund. The buy-out fund therefore acts as a financial incentive to suppliers to source their energy from renewable generators. The UK Government has analysed the likely deployment of solar PV through to 2020 and in their document Renewables Obligation Banding Review for the period 1 April 2013 to 31 March 2017 they deem 20GW of solar PV (both large- and small-scale) to be the theoretical technical maximum that can be accommodated on the national grid by ROC levels have been set in the knowledge of this limitation on installations and whilst the level of ROC payments is forecast to reduce each year, it should be noted that a solar PV project will have locked-in to the 1.4 ROC level of subsidy for 20 years where it is grid-linked prior to 1st April

11 Details of the Business Investment Structure Individual Investor Equity Preference shares issued Project income Cash Subscription Solar Co. A Builds, operates solar project A Loan Cocoon Investments Ltd (Discretionary Fund Manager) DFM contributes cash to CGES Holdings pursuant to the Investor Application Cocoon Green Energy Solar Holdings Ltd Subscription proceeds (less the liquidity reserve) advanced to subsidiaries Solar Co. B Builds, operates solar project B Loan Bank Cash subscription Project income Ordinary shares issued Cocoon Green Energy Ltd Equity (Project Manager) Project income Solar Co. C Builds, operates solar project C Loan yminimal maintenance is required y Systems are modular and quick to install y No infrastructure required for fuels or waste materials y Solar panels are installed with 10+ year warranties Ground-based solar installations are a relatively mature infrastructure investment with predictable revenue from proven and easily maintained cash generative assets that use daylight to produce electricity. Empirical data based on known daylight, which will be obtained for the solar project site, will support the forecast output used to calculated the expected project income. Revenue will be generated from Government incentive ROC payments and for electricity delivered to the national grid. Potential revenue risks are reduced through the following: Cash Subscriptions Monies paid on application will be held by the Company on trust in a separate bank account. This will not be used for business purposes until Preference Shares are issued and monies transferred out of the trust account. Appropriateness Test The Manager will consider applications from all investors but will only make an offer to subscribe for new Preference Shares where the investor meets certain conditions as outlined on page 4. Solar PV Projects The DFM will contribute investors cash to the Company, which will then advance funds net of the 10% liquidity reserve (see below) to the Subsidiaries. The nature of the trades of the Subsidiaries is the manufacture and sale of electricity. Each Subsidiary will achieve this by acquiring a lease of land (expected to be for years) suitable to accommodate a solar PV plant, acquiring and installing the solar PV equipment having appointed a bank-approved EPC contractor, operating and maintaining the plant, and entering into a PPA with a Bank approved offtaker. The project site will have full planning consent and grid connection confirmed by the technical adviser (Infrata) and project solicitors (Osborne Clarke) in advance of the solar installation and commitment of investment monies. Infrata will also undertake thorough due diligence on all technical, EPC contractual terms, and engineering aspects of the plant. The project site will, therefore, be ready for construction to commence. Further details are provided in the Appendices on pages 29 and 30. There are key practical and financial advantages to solar energy: y Solar panels have no moving parts to wear out, break down or replace y Electricity produced is automatically paid for by the energy purchaser under a Power Purchase Agreement y ROC payments are based on the metered production and also paid for under the Power Purchase Agreement There are no planning or grid connection risks as a selected solar PV project site will have these already granted and it is therefore construction ready which means the installer can commence building the project once funds are in place. Installation should take under 12 weeks and the first revenue should be received within eight weeks of the commissioning date. The selected specialist installer will work to an EPC contract with defined working practices and warranties on equipment and outputs. The EPC contract provides the basic guarantees of the system output. The quality of solar panels are rated in three Tiers, the premium equipment being Tier 1 whose producers use the best grade of silicon to produce solar cells. The higher the 11

12 Details of the Business silicon grade, the longer the solar cell will last and the better it will perform. The installer for the solar PV project of each Subsidiary will use Tier 1 solar panels and equivalent equipment. Panel manufacturers guarantee the solar panels output for between years. The business operations are low risk and will be further de-risked through: y The use of industry standard electronic monitoring equipment y UK political support for solar renewable energy generation y Assets selected, built and managed to meet institutional due diligence requirements y Warranties and guarantees on equipment and output y Independent due diligence reports on all elements ycontractors All Risks Insurance Policy yuk corporate governance As part of risk management, the project will have a Contractors All Risks Insurance Policy in place, which will include business interruption in order to protect revenue. There will also be a construction guarantee. Bank Loan A bank loan of up to 65% of project cost, DSRA and bank fees is expected to be available to each Subsidiary. This will be drawn upon, as required, alongside funds from the Company. This is a senior loan with limited recourse to the underlying assets and a first charge over each Subsidiary s income and assets only. The loan cost will be fixed and will fully amortise over a set term, unless the asset is disposed of earlier in which case it will be repaid with the disposal proceeds. Each subsidiary will initially secure a loan of c.50% of the project cost and fees with the option to draw down an additional facility of c.15% of the project cost and fees to the extent it is required required for liquidity purposes (see below). Liquidity Reserve As investors circumstances can change unexpectedly, the Company will have access to funds totalling 25% of the issued Preference Share equity and these funds can be used to make early redemptions of the Preference Shares, if required. These redemptions can therefore happen without the need to raise further capital, dispose of assets, or refinance. This is possible because the Company retains 10% of the proceeds of the Preference Share subscriptions, and under each Subsidiary s 65% loan facility there will be provision to draw down the undrawn facility at any time. Holders of Preference Shares are entitled to request early redemption at any time (subject to a one month notice period). An early redemption charge of 3% of the issue price value of the shares redeemed will apply to all early redemptions, unless 12 months notice is given, or the redemption is due to the death of the Shareholder. If the 25% liquidity reserve has been fully depleted any further early redemption requests will be at the discretion of CIL, as the DFM, but are expected to be approved and paid within one month. Priority will be given to redemption requests as a result of the death of Shareholders. Investment Realisation The anticipated investment horizon is between five to ten years and it is expected that the underlying assets will be sold or refinanced at this time, subject to prevailing market conditions, to facilitate a return of investors initial capital via a redemption of the Preference Shares at the issue price. An active secondary market for established solar PV plants exists, as the asset class is of significant interest to a range of institutional investors (for example insurance companies, annuity providers, infrastructure and pension funds). The Project Manager has a high degree of confidence in an exit during the above timeframe. In the event that an exit has not materialised by year ten, all cash generated (after debt service, costs, and the payment of the Preference Share RPI dividend) shall be returned to Preference Share investors, year on year, via the redemption of Preference Shares. In this manner a full return of principal would be expected no later than 20 years after the capital raise of the particular class of Preference Shares. The National Association of Pension Funds ( NAPF ) investment report published in July 2013 Trends in defined benefit asset allocation: the changing shape of UK pension investment 5 stated that Without legislative or regulatory change it seems likely that the trend in defined benefit scheme closures to new members or future accrual is likely to continue. The demand for other assets which allow schemes to hedge their liabilities, or provide them with an attractive risk/return profile compared to the very low real returns on index-linked gilts, is therefore likely to continue to grow. 5 investment_napf_research_paper_july_2013_document.ashx 12

13 Details of the Business The Project Manager is aware of the considerable growth of interest in solar assets in this area, including examples such as Aviva s (formerly Norwich Union) acquisition of more than 100m of solar assets in August 2012 and Pension Insurance Corporation s acquisition of 40m of such assets in November In October 2013 the 4.6 billion Lancashire County Pension Fund similarly bought a 23.5 year solar bond in a solar power plant in Oxfordshire for 12m 6. The well established infrastructure funds managed by major investment banks and private equity and investment fund managers usually acquire established projects in pursuit of assets that deliver a target yield and return on investment. Some examples include: The Renewables Infrastructure Group ( TRIG ) which has already raised 312 million for investment in UK renewables and is aiming to increase the proportion of solar assets in its portfolio to around a third, an increase from the current level of 17% and up from the 10% portion of its portfolio that solar held last year 7 ; in 2013 specialist debt finance boutique Independent Debt Capital Markets ( IDCM ) announced the listing and placement of 40m of senior-secured RPI-linked notes, secured against the cashflows from two accredited UK solar parks with an aggregate output of 9.97MW. IDCM cofounder Justin May says there are a number of investors looking at the infrastructure space, and its cashflow stability is attractive from a debt investor point of view 8. Shares are redeemed at the issue price. It is anticipated that all of the solar PV projects will be disposed of together to benefit from the economies of scale of larger portfolio disposals. Therefore it is likely that all of the Preference Shares will be redeemed at the same time. If however the portfolio is disposed of piecemeal for any reason, the Preference Shares will be redeemed proportionally as soon as possible after each disposal. A disposal of the portfolio may also be considered through trade sale or re-finance, subject to the prevailing market conditions. There are no pre-arrangements or pre-agreements with prospective purchasers in place and there is no guarantee that a solar PV project could be sold at a targeted price or in a particular timescale. Ultimately the Company and the Project Manager will pursue a strategy of capital preservation and maximising returns when considering the value and timing of any project disposal. As the Project Manager is sitting in a subordinate position to the holders of Preference Shares, in order for it to receive a return on its investment the net disposal proceeds must be greater than the outstanding bank debt plus the issue price of the Preference Shares. It is therefore in the best interests of the Project Manager to ensure that the Preference

14 Financial Illustrations Holders of Preference Shares can expect to receive an annual return of RPI plus 2.5% (subject to a minimum of 3% and a maximum of 7.5%) of the full amount subscribed for the shares (i.e. no initial fees are charged to the investor, so 100% of the capital invested generates their return). The Company expects to always pay the quarterly dividend and CGE is prepared to make additional contributions to the Company, from time to time, up to 15% of the value of the Preference Share subscriptions, cumulatively, in order to ensure that the Company has sufficient distributable reserves to pay the Preference Share dividends and return of investment capital. Notwithstanding this, the target return is a target only and there is no guarantee that it can or will be achieved. The Preference Share dividends will be paid from the income generated by the Subsidiaries (from the electricity and ROC sales) after bank debt is paid, but before the Project Manager receives any return via its ordinary equity holding. The Project Manager will not receive a return until the holders of Preference Shares have received all the amounts which have accrued to them. The following illustrations depict the expected cashflows and cover ratios for the holders of Preference Shares assuming that a single Subsidiary is incorporated which constructs and operates a solar PV plant. Cover ratios are the number of times the preference share dividend obligation can be paid out of the Company s cash (after bank debt is serviced). The expected headroom when redeeming the Preference Shares shows the expected low risk nature of the investment. Note that where there is no disposal by year 10 all cash after debt service and costs goes to holders of Preference Shares each year to 1) pay RPI+2.5% return, and 2) redeem Preference Shares, until Preference Shares are fully redeemed (see Table 2). Table 1: Sale in Year 8 Annual Cash Flow - PREFERENCE SHARES Date Preference Shares Preference Share Dividends Paid Preference Share Redemptions Annual* return % Cover Ratio times 30-Sep-14 (5,000,000) Sep , % Sep , % Sep , % Sep , % Sep , % Sep , % Sep , % Sep ,000 5,000, % 4.80 TOTAL (5,000,000) 2,000,000 5,000, % * Assuming RPI of 2.5% 14

15 Financial Illustrations Table 2: No Sale Annual Cash Flow - PREFERENCE SHARES Date Preference Shares Preference Share Dividends Paid Preference Share Redemptions Annual return * % Cover Ratio times 30-Sep-14 (5,000,000) Sep , % Sep , % Sep , % Sep , % Sep , % Sep , % Sep , % Sep , % Sep , % Sep ,000 1,200, % Sep , , % Sep , , % Sep , , % Sep , , % Sep , , % Sep , , % Sep , , % Sep-32-66, , % Sep-33-19, , % TOTAL (5,000,000) 3,640,164 5,000, % * Assuming RPI of 2.5% 15

16 Financial Illustrations Financial Assumptions Bank Loan Drawdown 5,000,000 Preference Shares 5,000,000 CGE Ordinary Shares 134,638 Project Assumptions Inflation Factor (RPI) 2.50% Discount Factor 7.00% Installation Cost per kw 1,050 CGE Cash Contribition 87,450 TOTAL FUNDS RAISED 10,222,088 Cash Reserve ( 147,088) Degradation Power Price Inflation ROCs term 0.60% p.a. 4.25% p.a. 20 years Marketing Costs ( 75,000) Bank Loan Arrangement Fee ( 130,000) Bank Loan Commitment Fee ( 21,000) Debt Service Reserve Account ( 249,064) Liquidity Reserve * ( 500,000) Expenditure on Solar Project 9,099,936 Bank Loan Interest Rate 5.50% Bank Loan Term - amortising over 15 years * 10% of Preference Share subscriptions are retained for a liquidity reserve to fund Preference Share redemptions. ROC Buyout Price 2015 /MWh ROC Recycle Price Annual 2015 /MWh 5.13 Triad/Embedded Benefits 5.00 LEC Price 5.23 Number of ROCs 1.4 ROC Buyout Passthrough 94% ROC Recycle Passthrough 100% Wholesale Passthrough 98% LEC Price Passthrough 85% Triad/Embedded Benefits Passthrough 100% Wholesale Power Price Total PPA price Operation 99% Irradiation PVGIST - hours p.a. (south of Birmingham) 1195 Operational Life - years 25 PV panel losses 18% Performance ratio 82% Total Annual Running Costs 174,372 Tax Assumptions Capital Allowances - 8% p.a. Corporation Tax Rate y/e 31 Mar 15 21% Corporation Tax Rate thereafter 20% 16

17 Financial Illustrations It should be noted that these numbers are estimated projections only and are subject to change depending on the exact project site identified for the Subsidiary's solar PV installation. The financial model prepared by the Project Manager uses numbers based on the outlined assumptions in this Brochure and are subject to the risks as identified in the relevant sections on pages 23 to 27. The actual results achieved may differ from those expressed or implied by any statement in this document. Whilst the Project Manager has sought to mitigate the revenue risks and stable, proven modular solar technology has been selected, there is no guarantee of the financial projections. Revenue assumptions are supported by the Government incentives provided in the UK, the details of which are confirmed on the Government s web site under the DECC; organisations/department-of-energyclimate-change The financial model relies on industry standard assumptions on electricity output. The key project assumptions upon which a project's financial model is built are confirmed by the technical advisor (Infrata). This includes a risk assessment of equipment, site irradiation assumptions and a forecast of a project site's performance. Empirical evidence from sites using similar technology managed by the Project Manager continue to out-perform the industry standard assumptions which suggests the output forecasts are conservative. However, there are no guarantees. The trading performance is delivered in a management agreement under the EPC with the EPC contractor. The energy price used in the financial model is advised upon by professional energy consultants and is reviewed regularly under that professional advice. The costs used in the projections are based on standard contracts with relevant parties. The projections are based on a full 25 year operational period cash flow illustrating the projected financial performance of a 8.7 MW installed capacity solar PV plant. The DFM, Project Manager, the Company, Subsidiaries, persons connected with the preparation of the financial information and advisers cannot provide any warranties or guarantees on these projections and no liability can or will be accepted. 17

18 Financial Illustrations Holders of Preference Shares in the Company Shareholders can be either UK tax resident or non-uk resident individuals. Companies will also be admissible as Shareholders. Trusts will also be admissible but should take appropriate professional advice regarding the application of trust and tax law. Company information Shareholders will receive semi annual updates including information on the performance of the solar PV projects. A copy of the auditor s reports, accompanied by copies of the balance sheet and profit and loss account of the Company will be delivered by or sent by post to the registered address of a Shareholder no less than 21 days before the date of the annual meeting and within nine months of the accounting year end of the Company. Termination of the Company The Company intends to carry on a business for a period of five to ten years, and ultimately dispose of the solar PV assets in this timeframe, either together or individually, as asset sales or sales of the Subsidiaries as agreed with the purchaser(s). The disposal proceeds will be used to repay any outstanding bank debt and cover any costs, then redeem the outstanding Preference Shares at the issue price, with the remainder going to the Project Manager as the holder of the Ordinary Shares. At this time the Company and any Subsidiaries it still owns will be wound up. Investors will be given the opportunity to reinvest funds in other projects. If for any reason it is not possible to sell the solar PV assets within 10 years, all cash left in the Company after running costs are paid, the bank debt is serviced, and the Preference Share dividends accrued are fully paid, will be used to redeem the outstanding Preference Shares. It is expected that all of the Preference Shares will be redeemed by year 20. If it is not possible to sell the solar PV assets, consideration will also be given to refinancing the structure to enable the Preference Shares to be redeemed at the issue price. The Preference Shares Under the terms of the Articles of Association of the Company, the Preference Shares will be issued in a number of different classes as designated by the Directors. The first class of Preference Shares shall be designated as Class A Preference Shares and the intention is that subsequent classes shall be designated Class B Preference Shares, Class C Preference Shares and Class D Preference Shares. Each class of Preference Share (Class A, B, C, D or otherwise) will be issued as non-voting redeemable Preference Shares and will carry the right to receive annual dividends equal to the subscription price paid for such Preference Share multiplied by RPI plus 2.5% (subject to a minimum of 3% and a maximum of 7.5%). Other than in limited circumstances (such as in respect of a winding up or in relation to matters affecting the holders of Preference Shares), the holders of Preference Shares will have no voting rights and therefore will not be entitled to vote at general meetings of the Company. The Preference Shares may be redeemed by each holder giving the Company no less than one months notice at any time. A redemption charge of 3% of the issue price of the Preference Shares will apply to all such redemptions, unless 12 months notice is given or the redemption is due to the death of the Shareholder. If the 25% liquidity reserve has been fully depleted, further redemptions will be at the sole discretion of the DFM and therefore there is no guarantee that they will be satisfied. In these circumstances, priority will be given to redemptions arising as a result of death of a shareholder. In addition to interim redemptions as set out above, each class of Preference Shares will also be redeemed pro-rata upon a sale of a Subsidiary. It is anticipated that all of the Subsidiaries will be disposed of together. Therefore it is likely that all of the Preference Shares will be redeemed at the same time. In the absence of such a sale, subject to available cash, Preference Shares will be redeemed after a period of 10 years from issue. The Ordinary Shares Once the dividends have been paid to the holders of Preference Shares in any particular calculation period, as set out above, the Ordinary Shares carry the right to receive all dividends rights attaching declared by the Company. On a winding up, provided the Company has satisfied all of its liabilities, the holders of Ordinary Shares are entitled to all of the surplus assets of the Company. Holders of Ordinary Shares will be entitled to attend and vote at all general meetings of the Company and, on a poll, to one vote for each Ordinary Share held. 18

19 Costs, Fees and Reserves Costs associated with the origination, management, and operation of a solar PV project including any fees due for legal, planning, grid connection, surveys and development will be borne by the Company. Operational costs of a solar PV project include insurance, performance monitoring, maintenance and security and the majority are fixed by agreements. The Project Manager will oversee the performance and delivery of the contracts entered into and the operation of the solar PV installation. Annual administration costs of the Company and the Subsidiaries will also be borne by the Company (e.g. audit fees) total annual running costs for a solar project of 8.7MW are not expected to exceed 3.5% of 5m Preference Share equity and have been factored in the calculation of cover ratios for the holders of Preference Shares. 19

20 Costs, Fees and Reserves Lending Fee The loan from the Bank to each Subsidiary has an arrangement fee of 2% of the facility amount. Debt Service Reserve The loan from the Bank to each Subsidiary requires the Subsidiary to hold an amount equal to the aggregate repayments due under the loan for the first six months of the term of the loan as a debt service reserve. For a bank loan of 5m the debt service reserve is assumed at 249,064 (see page 12). Project Manager Fee No Project Manager fees are payable. Instead the Project Manager, as holder of the Ordinary Shares, will receive its return only once the holders of Preference Shares have received the amounts due to them in full. Promoter Fee CIL as DFM will receive an initial capital raising fee of an amount equivalent to 1.5% of the proceeds of the subscriptions for Preference Shares, such fee payable from the ordinary equity subscribed by CGE. CIL will in turn pay introducing advisors an initial marketing allowance of 1% of the subscriptions for Preference Shares. CIL will also receive an annual marketing fee equivalent to 0.5% of the Preference Share capital introduced and, of this, 0.375% shall be payable to introducing advisors if required, CGE will provide additional funds to the Company to facilitate payment of the annual marketing fee payable to CIL. The annual marketing fee will not dilute the target return for investors. It should be noted that regardless of the Promoter Fees, the RPI based return is payable on the full Preference Share capital invested. 20

21 Taxation Analysis The analysis below is intended as a guide for a UK resident individual taxpayer. Investors who are not individuals should seek appropriate professional opinion as to the treatment of dividends and redemption proceeds. No responsibility is accepted for the analysis below and investors are advised that they should seek professional opinion as to their own circumstances and should not rely upon the analysis here. Income Tax Dividends received will be deemed to be net of a tax credit equivalent to 10% of the gross dividend. Investors who pay basic rate tax will have no further tax due on the dividend. Investors who are liable to tax at higher rates will be required to pay a further amount of tax. Investors who are non-taxpaying in the period in which the dividend is paid, will not be able recover the tax credit attached to the dividend. 21

22 Taxation Analysis Capital Gains Tax The Company will redeem the Preference Shares at the issue price on disposal of the underlying solar PV projects of Subsidiaries using the net disposal proceeds. No gain (or loss) will be triggered as redemption is at par. Inheritance Tax Companies whose shares are eligible for Business Property Relief are often referred to as qualifying trading companies, however the statutory definition is not framed in this way (s105 (3)). The statute effectively provides that shareholdings in all companies are eligible for BPR unless the company s business consists wholly or mainly of: y dealing in shares and securities or land and buildings; or y making or holding investments (subject to an important exception for qualifying holding companies see below). Qualifying holding companies Section 105 (4)(b) contains a special rule that enables shares in most holding companies to qualify for BPR. Broadly, a company whose business consists wholly or mainly in being a holding company qualifies for BPR provided at least one of its subsidiaries carries on a qualifying trade. (For these purposes, a holding company follows the definition in s1159 and Schedule 6, Companies Act 2006.) The BPR status of the Company shall be reviewed each year by professional advisers. 100% BPR 100% BPR potentially applies to all unquoted shareholdings in qualifying trading companies (see below). BPR is available to both working and passive shareholders, and it is not necessary for them to be a director or work full time in the company. There is no minimum shareholding requirement and hence holdings of all sizes can qualify. It is also possible for non-voting and preference shares to attract relief. Shares held in a qualifying trading company should often be completely exempt from IHT, both on a chargeable lifetime transfer and on death. BPR is not given on a potentially exempt transfer ( PET ) but may be used to reduce the IHT payable on a failed PET provided certain conditions are satisfied (s113a). Two-year holding requirement The relevant shareholding must be held for at least two years prior to the transfer/death to qualify for the relief (s106, s107). However, where the shares are acquired on the death of a spouse/civil partner (but not a lifetime transfer), the deceased s period of ownership also counts towards the two-year minimum ownership period (s108(b)). Further details can be found through HMRC s guidance at: Stamp Duty Reserve Tax No stamp duty reserve tax will be payable on the issue of unlisted preference share certificates. On the basis that the Preference Shares are redeemable, there should be no stamp duty reserve tax payable upon their redemption. This Brochure is prepared in accordance with DFM's interpretation of current legislation, rules and practice. Such interpretation may not be correct and it is always possible that legislation, rules and practice may change. Any such changes, and in particular any changes to the bases of taxation, tax relief, rates of tax or the Shareholders' tax position, may affect the availability of tax reliefs and may also affect the Shareholders' return on investment. Although the Shareholders may be looking to obtain certain tax reliefs on their investment (e.g. BPR) DFM cannot provide any warranty or guarantee in this regard or any warranty or guarantee that, if tax reliefs are given, such tax reliefs will not be withdrawn. Investors must take their own advice and rely on it. BPR operates by reducing the value of the shareholdings to nil, for IHT purposes. No formal claim is necessary to obtain the relief but an intention to deduct BPR from the value of qualifying shares, etc, must be signalled on the IHT account, showing the amount deducted. 22

23 Risk Factors and Risk Management This section contains the material risk factors that CIL and the Project Manager believes to be associated with an investment in the Company. If any of the following events or circumstances arise, the business of the Company could be materially and adversely affected, as could the availability of tax reliefs. In such case, an investor may lose all or part of their investment and/ or an investor may lose all or part of any tax reliefs claimed. Additional risks and uncertainties not presently known to the Project Manager, or that these persons deem immaterial, may also have an adverse effect on the Company s business and the risks below do not necessarily comprise all the risks associated with an investment in the Company as described in this Brochure. Prior to making an investment decision, a prospective investor should carefully consider all of the information set out in this Brochure, and should consider whether an investment in the Company constitutes a suitable investment in light of their personal circumstances, tax position and the financial resources available to them. An investment in the Company involves a high degree of risk and may not be suitable for all investors. Investors may not get back the amount invested. Prospective investors should therefore seek advice from a stockbroker, accountant, fund manager or other independent financial adviser before making any decision to invest. Prospective investors are also recommended to consult a professional adviser regarding their personal tax position and the consequences of an investment in the Company. CIL will determine the appropriateness of an investment based on the personal circumstances of a client as set out in the Subscription Pack. Potential investors should ensure that they provide full details of their investment objective, financial situation and any relevant knowledge and experience which would assist CIL in making its decision to make an offer of investment on behalf of the investor. Risks Associated with a Solar Project The Government could change the ROC scheme retrospectively and the ROC level for already installed solar energy could be reduced. Following the December 2012 consultation document, the Government set the ROC terms based on a forecast level of energy production and the October 2013 publication UK Solar PV Strategy Part 1: Road map to a Brighter Future confirms the UK Government support for solar. There is a clear road map which confirms that the level of Government subsidy is reducing over the next three years. On 13 May 2014 the Department of Energy and Climate Change (DECC) published their latest Consultation document 9 on financial support for large-scale solar PV projects. This document indicates that the Government is planning from 1 April 2015 on removing support from the RO system for solar PV installations with capacity above 5MW. Projects of 5MW and below will continue to be eligible for support under either the RO or small-scale FIT scheme. Before the 1 April 2015 closure date, new solar PV plants above 5MW can continue to be accredited under the RO if they have commissioned and submitted an accreditation application before 1 April 2015 and meet all the other usual RO eligibility requirements. Subject to fulfilment of the required capital raise by the Company, the solar PV project of the Company should be installed in under 12 weeks and commissioned prior to 1 April The EPC construction contract will contain a cut-off date for implementing projects over 5 MW before 1 April 2015 and the contractor shall be liable to pay delay liquidated damages in the event that the commissioning certificate has not been issued on or before the guaranteed commissioning certificate issue date. The new proposals are undergoing consultation and are thus subject to change pending the response(s) to the consultation document and any further changes the DECC make as a result. It is envisaged some minor changes may come through consultation but it is expected that project development above 5MW will cease from 1 April The selected installer will be a wellestablished business and have a good track-record of completing solar projects on time. The chosen contractor will also need to be approved by the Bank. In the event that the EPC contractor is not able to successfully complete the project, a construction guarantee, if required, will be triggered to ensure completion of the contract. Under the terms of the EPC contract, stage payments are made to the installer only on sign off of the completed work, which is reviewed by the technical advisers (Infrata) to the Company, by the Company and/or the Project Manager. Equipment such as the panels and inverters will belong to the Company or the Subsidiary

24 Risk Factors and Risk Management Grid connection A contract for connection having been agreed with the District Network Operator ( DNO ) will mitigate grid connection risk and provided the fees are paid for this connection it will be made available. Any assumptions, projections, intentions or targets included within this document cannot and do not constitute a definitive forecast of investor returns. Forecasts have been prepared using conservative output assumptions and costs, which the Project Manager consider reasonable and pragmatic. Solar Radiation Electricity is produced from sunlight through a process called a photovoltaic (PV) system. Solar PVs, more commonly known as solar panels, convert the energy of light directly into electricity. Modern solar panels require daylight for power generation, and so do not need direct sunlight to work. In fact, they are able to produce electricity on rainy, overcast days, although they are at their most effective on clear, bright days. Germany is not renowned for its sunny weather, however they have the largest global capacity of solar energy and much of England and Wales has comparable irradiation levels (a measure of solar energy received on a given surface area) to Germany. Solar panels conduct electricity more efficiently when they are cooler and so the higher wind speeds that can be found in the UK can cool the solar panels, leading to higher efficiencies than could be expected at the UK s level of irradiation. The technical adviser (Infrata) to a Subsidiary's solar PV project oversees the design and build of the project site having conducted independent due diligence on a site and its potential output. This includes a risk assessment of equipment, site irradiation assumptions and a forecast of a project site s performance. Once these numbers are produced they are cross-checked and independently verified to demonstrate an achievable set of figures against analysts data and modelling. These are then considered in relation to the Power Purchase Agreement output to build the conservative set of assumptions used in the financial model prepared by the Project Manager. Force Majeure The solar project may be adversely affected by risks outside of its control, including adverse weather conditions, civil disorder, war, subversive activities or sabotage, fires, floods, explosions or other catastrophes, epidemics or quarantine restrictions. 24

25 Risk Factors and Risk Management Offtake Risk There is an established market for renewable energy generation in the UK with legislative demand placed upon electricity suppliers to source an increasing proportion of the electricity they supply from renewable sources. There will be a long-term PPA in place for a Subsidiary's solar project which will contain RPI-linked payments for ROCs and power offtake. The PPA is Bank approved. Operation The solar PV project will be operated by an experienced contractor with the O&M contract covering operational risks and providing minimum performance guarantees. The solar PV project uses proven technology e.g., Tier I solar panels, and the key equipment is appropriate for the project design. Technical Risks Though not particularly complex, nevertheless solar panels can incur mechanical failure. The use of proven and reputable suppliers in the construction process mitigates but does not entirely eliminate this risk. Equipment malfunction is mitigated by equipment warranties and guarantees. Risks Relating to the Company and the Preference Shares No operating history The Company is newly incorporated and has no operating history or revenues. Investors therefore have no basis on which to evaluate the Company s ability to achieve its investment objective and implement its investment policy. Risks relating to the Company s performance and target returns and dividends Prospective investors should be aware that the distributions made to Shareholders will comprise amounts periodically received by the Company in repayment of, or being distributions on, the funds it advances to the Subsidiaries. Project income of the Subsidiaries will derive from the solar PV assets. Although it is envisaged that receipts derived from solar PV assets over the life of the Company will generally be sufficient to fund such periodic distributions and repay the value of the Company s original investments in the solar PV assets over the long-term, this is based on estimates and cannot be guaranteed. The Company s target returns and dividends for the Preference Shares are based on assumptions which the Directors and the Project Manager consider reasonable. However, there is no assurance that all or any assumptions will be justified, and the returns and dividends may be correspondingly reduced. In particular, there is no assurance that the Company will achieve its stated policy on returns and dividends or distributions. CGE is prepared to make additional contributions to the Company, from time to time, up to 15% of the value of the Preference Share subscriptions, cumulatively, in order to ensure that the Company has sufficient distributable reserves to pay the Preference Share dividends and return of investment capital. Dependence on the Project Manager The ability of the Company to achieve its investment objective depends upon the ability of the Project Manager to identify, select and execute investments which offer the potential for satisfactory returns. The availability of suitable investment opportunities will depend, in part, upon conditions in the UK solar PV markets and the level of competition for assets in the solar PV sectors. There can be no assurance that the Project Manager will be able to identify and execute a sufficient number of opportunities to enable the Company to achieve its investment objective and to grow its portfolio of solar PV assets to the level it is seeking. Risks associated with participation in the Company The Company has no operating history upon which to evaluate its likely performance. There is no guarantee that the Company s investment objectives will be achieved. Suitability The opportunity described in this document may not be suitable for all recipients. A prospective investor should satisfy themself as to the suitability for them of any participation in the Company. A prospective investor is accordingly recommended to consult their professional advisers and a specialist tax adviser. Long-term Gain The opportunity described in this document is not suitable for those recipients looking for a short-term gain. No Diversification The investment will be made into one or more private companies, therefore your own individual shareholding may not be diversified. As a result, any returns will be determined by the performance of one or more small companies. 25

26 Risk Factors and Risk Management Illiquidity Since there is no liquid market for the Preference Shares, it may be difficult for an investor to obtain information relating to the value of his or her interests or to transfer his or her interests before a sale of the underlying Company assets. Realisation of Profit The Company will carry on business with a view to realising profit in which an investor will participate according to their Investor Agreement. The realisation of such profit and the extent of any profit realised is, however, dependent on a number of factors and there can be no guarantee as to profitability. Residency The generic tax position described above may not apply to any individual who ceases to be resident or ordinarily resident for tax purposes in the United Kingdom. 26

27 Risk Factors and Risk Management Current Legislation This document has been prepared on the basis of taxation,renewable energy and other applicable legislation, practice and concession and interpretation thereof. These factors may change as a result of future changes in law. New legislation or changes in practice or legislation may have a retrospective effect. There is no guarantee that (i) existing regulations will not be amended, (ii) new laws will not be adopted, (iii) the strategy selected by the Company will comply with future regulatory requirements or (iv) the laws and regulations will not adversely affect the Company s financial conditions. Tax Position An investor's tax position is dependent upon their personal circumstances. There can be no certainty that HMRC will agree that an investor s tax position is as described in this document. Individuals should seek independent tax advice to determine the suitability of the taxation position as set out in this document. Taxation Treatment It is expected that the business of manufacturing and selling of electricity will be a trade for tax purposes, on the basis that there are a significant number of entities already engaged in this activity and HMRC have accepted they are trading. It is possible that HMRC may challenge this. If the Company is not regarded as trading it is arguable that the tax treatment should be identical to that of a trade, in accordance with s10 or s12 ITTOIA If HMRC successfully contend the Company has a non-trade business and that either s10 or s12 ITTOIA 2005 did not apply then IHT BPR could be at risk. The Company is, however, in any event not carrying on a business activity that would preclude it from qualifying for IHT BPR for the purposes of the legislation. A change in the interpretation of the taxation position or a change in the taxation treatment of the Company or its assets may alter the profitability of the Company. The comments in this document relating to taxation are intended to be a brief description of some of the tax consequences of participating in the Preference Shares. Prospective investors should consult their specialist tax advisers on the taxation consequences of becoming investors in the Company as DFM and the Company s legal and tax advisers can take no responsibility in this regard. Conflicts The Project Manager and DFM are associated companies in the Cocoon Wealth Group. The Cocoon Wealth Group may have clients seeking similar investment opportunities at the same time. Therefore Cocoon or its clients may have a financial or competing interest in the outcome of a particular investment. In the event of such a conflict, Cocoon will disclose in writing the nature and source of the conflict before undertaking any investments and enable the client to make an informed decision about their investment in the context of which the conflict of interest has arisen. 27

28 Application Process How to Apply In order to invest in the Fund, the investor must make a Subscription of not less than 5,000 at the same time as submitting their Subscription Pack. The investor may make further applications to the Fund at any time. Subscription monies will be held in a trust bank account. Investors will be protected for claims made against the Company until shares are issued. The investor acknowledges that the interim investments and any proceeds on the disposal of Preference Shares held on deposit or invested in cash equivalents or money market funds by the DFM or the bank are held at the investor s risk and that neither the DFM nor any director or officer within the Cocoon Wealth Group, will be liable to the investor in the event of any loss in value of such investments or the insolvency of any bank with which the investor s funds are deposited, nor will they be so liable in the event of any restriction on their ability to withdraw funds from such bank for reasons beyond the reasonable control of any of them. In the case of there being excess subscriptions to the Fund which are not, in CIL s view, capable of being invested appropriately in accordance with the Investment Policy prior to the Closing Date, the investor will be deemed to have instructed the DFM to amend his subscription form to reflect a revised subscription and to return the balance to the investor. Suitable evidence of identity and address, to ensure compliance with the Money Laundering Regulations 2007 (as amended) will also be required. For further information, please contact Cocoon Wealth LLP. Right of Cancellation The investor has the right to cancel their subscription within 14 days of CIL receiving their Application Form. If the investor exercises the right to cancel their Subscription, CIL will refund any monies paid by the Investor less any charges CIL has already incurred for any services undertaken. In any event, the bank is obliged to hold subscriptions until the DFM has completed its money laundering checks in respect of an investor to its satisfaction. CIL will endeavour to arrange the return of any such monies as soon as possible (but in any event, not more than 30 days following cancellation). The investor will not be entitled to interest on such monies. The right to cancel under the FCA Rules does not give the investor the right to cancel, terminate and/or reverse any particular investment transaction executed for the account of the investor before cancellation takes effect. In the case of there being insufficient Subscriptions to facilitate an issue of a class of Preference Shares, Subscription monies will be returned to the investor. 28

29 Appendices Appendix A Investment Criteria The Project Manager and the Bank have created standard criteria that the solar PV projects will be delivered to, so investors can contribute funds with the confidence that they will derive returns from a quality project that meets minimum standards to deliver a target financial return. Project Building and Operation EPC and O&M Contractor Under an EPC contract, the contractor designs the installation, procures the necessary materials and is responsible for building the project. The selected contractors work to approved EPC contracts which conform to the Project Manager s minimum standard quality of materials, products, installation and management, all of which drive value. The EPC contractor must meet the following minimum requirements: y Be Bank approved, or capable of being so y A bankable balance sheet or parent company, if not, must provide: a guarantee bond for construction warranties on build, equipment and design backed by insurance policies y Proven ability to deliver to the performance specification and standards that the completed facility is required to achieve y Track-record of having completed and now managing large scale solar installations totalling more than 80MW y Demonstrate process and risk management with suitable accreditations y Work to satisfactory EPC and O&M contracts y Work to specific milestones and payment terms The contractor carries the risk for the solar project s build schedule as well as the budget in return for a fixed price. Contractors are prepared to work to a fixed price given the known building requirements and modular nature of the installations that deliver to them a fixed margin. There are, therefore, established costs to build a solar project under a quality EPC contract. The EPC contractor will provide the O&M of the solar project for a minimum of two years (usually with a five year extension) so that the responsibility for snagging and the performance warranties are retained by the EPC contractor. Maintenance is straightforward and there is the requirement to have remote monitoring of the system. Independent Technical Reports The Project Manager insists on obtaining independent technical reports (for example, by Infrata) which cover each element of a solar PV project, and will include the EPC and O&M contractor and the selected equipment and their manufacturers. The reports are key to the Project Manager s approach to achieving very high minimum standards by identifying any issues and mitigating risks for investors prior to the deployment of funds into a project. Grid Connection Confirmation The solar PV project site will be construction ready, in other words it will be ready for the building works to commence once funds are deployed as there will be in place: y Written confirmation of grid connection from the local DNO y Deposit paid or the full grid connection cost paid y Grid connection date confirmed Planning Approval Full planning approval will have been received in writing from the local authority. The solar project and site selection will accord with the local, regional and national planning policies and not cause any detrimental impact on the locality. The site will be acceptable in terms of scale, appearance and siting and not considered to have any significant impact on the character of an area or the amenities of local residents. Sites will have similar characteristics and their selection will be based on their being in an isolated area with sufficient distance from residential properties with no highway safety, ecological or environmental issues. 29

30 Appendices Appendix B Material Contracts and Agreements Project Manager There is a project management agreement between the Company and the Project Manager, which includes the Project Manager s responsibilities, duties and general requirements. A key role of the Project Manager is to advise on the sourcing and development of a suitable site for the solar PV project of each Subsidiary. The Project Manager will advise on the total funding and deployment package for a solar project under this agreement and will also provide administrative support services. EPC Contract An EPC contract will be secured with a preferred contractor that is approved by the Bank with a proven track record that must demonstrate delivery and operation of quality projects that total in excess of 80MWs. An independent technical due diligence report is carried out on contractors and equipment that will be used on the projects. The EPC contract: y Defines guarantees y Defines scope, specifications and quality this ensures the quality of the project y Defines milestones meticulously and project duration ydefines liquidated damages/ penalty clauses y Makes payment terms very specific y Provides single point of responsibility y Delivers ready availability of post-commissioning services y Provides a fixed price contract, ensuring there is certainty on cost An EPC contractor will provide guarantees on both the photovoltaic modules and the installation, backed by appropriate guarantee bonds and insurance cover. There are minimum 10 year guarantees for design and manufacturing for material and manufacturing defects and guarantees that the modules will deliver at least 90% of their initial nominal power during the first 10 years, and a minimum of 80% during the next 15 years. O&M Contract The EPC contractor is expected to provide the O&M services given the initial warranties on the solar equipment provided by them and their suppliers. This continuity of their involvement in the solar project will ensure they have responsibility for post-construction snagging. Solar projects require little maintenance. Panels require cleaning every year, vegetation and grass levels controlled, some panels may require replacement and the performance of inverters requires monitoring. Lease Agreement The lease agreement will be for a period of years. Power Purchase Agreement The terms of the PPA will mean that the metered electricity output of the project at the delivery point will be sold to the purchaser from the commencement date to the date of expiry or termination of the agreement together with all the embedded benefits (power output, ROC s and Levy Exemption Certificates) related to such metered output. This agreement will be in the form of a long term arrangement with a credit-worthy purchaser that meets the approval of the Project Manager and the Bank. Delegation and Assignment The Project Manager may employ agents, including associates, to perform administrative, custodial or ancillary services to assist in the operation of a solar PV project and trade of the Company and Subsidiaries. 30

31 Glossary of Terms Definitions Bank The bank lending to the Company, a leading UK financial institution Brochure Means this document Business Property Relief or BPR A relief from Inheritance Tax on relevant business assets, outlined in the Inheritance Tax Act 1984 Capital Allowances Tax relief for the depreciation of assets, outlined in the Capital Allowances Act 2001 CIL Cocoon Investments Limited, a company incorporated in England with company number and whose registered address is 10 Old Burlington Street, London W1A 3AG. Authorised and regulated by the Financial Conduct Authority CGT Capital Gains Tax Cocoon Green Energy Ltd A company incorporated in England and whose registered address is 10 Old Burlington Street, London W1S 3AG Cocoon Wealth Group Cocoon Wealth LLP and its wholly owned Subsidiaries Cocoon Wealth LLP or Cocoon A Limited Liability Partnership incorporated in England with registered number OC and whose registered address is at 10 Old Burlington Street, London, W1S 3AG Company Cocoon Green Energy Solar Holdings Ltd, company incorporated in England and Wales and whose registered address is 10 Old Burlington Street, London, W1S 3AG Contractors All Risks Insurance Policy The insurance policy held by an EPC contractor for the construction and ongoing maintenance of the Subsidiaries solar installation 31

32 Glossary of Terms DB Defined benefit DECC Department of Energy and Climate Change Directors Means the directors of the Company as registered with Companies House Discretionary Fund Manager or DFM Means Cocoon Investments Limited DNO District Network Operator; has responsibility for connections to the Grid DSRA Debt Service Reserve Account EPC Engineering, Procurement and Construction FCA Financial Conduct Authority FIT Feed-in-Tariff FSMA The Financial Services and Markets Act 2000 (as amended) GAMllp Gardner Asset Management LLP, 17 Clifford Street, London W1S 3RQ Grid Means the national grid, the network of high-voltage power lines between major power stations HM Revenue & Customs IHTA Inheritance Tax Act 1984 Inheritance Tax Tax usually payable on an estate when somebody dies. It can also be payable on trusts or gifts made during a person s lifetime. Further defined within the Inheritance Tax Act 1984 Investment Adviser An investment adviser, solicitor, accountant or other appropriate professional adviser authorised by the FSA to provide independent financial advice ITTOIA 2005 Income Tax (Trading and Other Income) Act 2005 Levy Exemption Certificates Certificates provided to suppliers of electricity from designated renewable sources that exempt them from the climate change levy MWh Megawatt hours O&M Operations and Maintenance Ofgem Office of Gas and Electricity Markets Ordinary Shares Ordinary shares of 1 each in the Company Preference Shares Preference shares issued by the Company, the first class to be issued being Class A Preference Shares. Project Manager Cocoon Green Energy Ltd PPA Power Purchase Agreement PV Photovoltaic RED Renewable Energy Directive RO Renewables Obligation ROC Renewable Obligation Certificate RPI Retail Price Index rolling 12 month average as published by the Office of National Statistics Shareholders Holders of Preference Shares and Ordinary Shares HMRC 32

33 For further information please contact: Cocoon Wealth LLP 10 Old Burlington Street, London, W1S 3AG T: +44 (0) F: +44 (0) E: W: cocoonwealth.com This document relates to the Cocoon Green Energy Solar Fund and is issued and approved by Cocoon Investments Limited ( CIL ) which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Any decision in connection with an investment in a Company should therefore be made only on the basis of information contained in this document issued in connection with the offer and not on this document. Nothing in this document is intended to constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for a Company. If you are in any doubt about the content of the document, and/or any action you should take, you are strongly recommended to seek advice immediately from an independent financial adviser authorised under the Financial Services and Markets Act 2000 (FiSMA) who specialises in advising on opportunities of this nature. Nothing in this document constitutes investment, tax, legal or other advice by CIL. An investment in a Company will not be suitable for all recipients of this document or the document and your attention is drawn to the section headed Risk Factors in the document. All statements of opinion or belief contained in this document and all views expressed, statements made and all projections and forecasts regarding future events or the anticipated future performance of a Company represent CIL own assessment and interpretation of information available to them as at the date of the document. No representation is made, or assurance given, that such views, statements, projections, forecasts or anticipated future performance are correct, attainable or complete or that the objectives of a Company will be achieved. The views, statements, projections, forecasts and anticipated future performance are based upon various assumptions and estimates which involve significant judgment and analysis and which are subject to uncertainties and contingencies; actual results could differ materially from those set forth in such projections, views, statements, forecasts and anticipated future performance. Prospective investors must determine for themselves what reliance, if any, they should place on such statements, views or forecasts and no responsibility is accepted by CIL in respect thereof. C200019