The Cochabamba Project Limitedindustrial and provident society Offer for Ordinary Shares Issue date: March 2011 The Cochabamba Project Ltd. is an industrial and provident society that was formed to enable socially minded investors to invest in the reforestation of one of the world’s most valuable and bio-diverse habitats - the Bolivian Amazon Rainforest - whilst also providing poor communities with genuine sustainable alternatives to farming that would otherwise lead to further deforestation and loss of biodiversity.
Page 2 Important NoticeThis invitation to subscribe for shares in The Cochabamba Project Ltd. is not regulated, to the extent that itis taking deposits by issuing withdrawable shares. Therefore, the money you pay for your shares is notsafeguarded by any depositor protection scheme or dispute resolution scheme.Our shares are not “investments” for the purposes of the Financial Services and Markets Act 2000. You donot therefore have the level of protection that you might otherwise be offered by the Act. In particular, thisdocument does not need approval (and has not been approved) by an “approved person” under Section 59of the Financial Services and Markets Act 2000.This issue of shares is not regulated by the Financial Services and Markets Act 2000 or subsidiary regula-tions. This document is not regulated by the Prospectus Regulations 2005. Those regulations do not applybecause there is a specific exemption for industrial and provident societies that conduct their business forthe benefit of the community.Should The Cochabamba Project Ltd get into financial difficulty:• We may have to suspend your rights to withdraw your shares• We may have to write down the value of your shares• You may lose all the money you pay for your shares• You should buy shares only with money you can afford to have tied up, without interest, and without capi-tal appreciation, for several years or longer.You should buy shares only with money that you are prepared to lose. Can you afford to be without themoney you pay for these shares? If not, do not buy the shares.The documents that are available for your inspection are as follows:• The Rules of The Cochabamba Project Ltd• The contracts relating to investments in the ArBolivia project• Financial Accounts for the period to 31/10/2010You may inspect these, during normal business hours at the registered office with prior arrangementRegistered office: 52a High Street, Beighton, Sheffield, S20 1EDContact Address: 100 Whirlowdale Road, Sheffield, S7 2 NJAdvisers and BankersSolicitors:Coffin Mew LLP, Kings Park House, 22 Kings Park Road, Hampshire, SO15 2UFBankers:The Co-operative Bank, PO Box 250 Skelmersdale, WN8 6WTContact:For all enquiries contact David Vincent, 100 Whirlowdale Road, Sheffield, S7 2NJ.Tel: 0114 2368 168Email: firstname.lastname@example.orgWebsite: www.cochabamba.coop
Contents Page 3 Letter from the founder................................................................... 4 Executive Summary........................................................................ 5 Arbolivia.......................................................................................... 6 The Social and Environmental Returns & Financial Returns … …. 7 About the Society & Investment Information for the Issuance of Shares............................................................................................. 8 Risk & Conflicts of Interest.............................................................. 10 Terms and Condition of Applying for Shares, Directors Declaration, Miscellaneous.............................................. 12 FURTHER READING: Background to the Arbolivia Project & Distinguishing Features of The Forestry Plantations................................... … …... 13 Social and Environmental Benefits................................................. 14 Carbon Credits and Environmental Services & Employment of the Society’s Funds................................................ 15 Financial Projections....................................................................... 16 The Society’s Directors, Advisory Committee & Interests and Partnerships.............................................................. 19 Risks .............................................................................................. 20
Page 4 Letter From The Society’s FounderAfter more than two decades in financial services, and fourteen years advising on ethical investment, thecollapse of the stockmarket in 2008 finally persuaded me that there had to be a better way for ordinary peo-ple to put capital to work and tackle the major social and environmental issues of our time. Poverty and cli-mate change must be considered as the two most pressing of these, yet the opportunities to make a differ-ence through investment, particularly in developing countries, are sadly very rare.I decided to focus on “real” tangible assets and, having researched and advised on forestry investment for anumber of years, I was keen to explore the opportunities in this sector. I came across Sicirec during my ini-tial research into teak plantations back in 2003 and was immediately impressed by the candour and experi-ence of its founder, Popko van der Molen, so it was an obvious choice for me to contact him in early 2008to discuss how we could work together.Initially, it took me some time to “get it” but the more I thought about it, the more compelling the project be-came. The ArBolivia project in which the Society invests, is not just about growing trees for profit. It is awhole new model of co-operative enterprise that combats poverty, empowers communities and tackles theroot cause of deforestation, which is a major cause of climate change. This model can serve as a templatefor projects throughout the Amazon region and the wider developing world.Many forestry schemes offer seemingly attractive returns but often lack transparency and independentscrutiny. ArBolivia was one of the first reforestation projects to receive accreditation from the United NationsFramework for Consensus on Climate Change. In our view, this demonstrates clearly that ArBolivia meetswith the highest standards of due diligence and on-going public scrutiny. By joining the society, investorscan pool their resources and spread the investment risk associated with ownership of small numbers oftrees. In addition, the individual nature of the project design, which includes 19 different native tree species(plus teak, which is the only introduced species) and consists of hundreds of individual micro-plantationsspread across a vast area of the Bolivian Amazon, also provides further diversification and comprehensivecontrol of the natural risks normally associated with plantation forestry. As the founder of The Cochabamba Project Ltd I believe that the Industrial and Provident Society modelprovides the most appropriate structure available for socially minded investors in the UK to achieve theirsocial and environmental objectives whilst maintaining the prospect of a reasonable financial return. This isbecause the social objectives of the society are the reason for its existence and are enshrined in its rules. Itis a democratic and transparent institution in which both its members and its officers are duty bound tomake the society’s social objectives their priority. This also applies to the annual interest rates set for mem-bers, which must be high enough to attract investors capital (and keep it invested) but should not be a drainon profits, which must be directed to achieving the society’s social purpose.Your participation will help us to maintain the forestry parcels that have been planted to date and will en-courage further investment from other private investors, thereby enabling the project to expand to its fullpotential. I hope you are able to support our efforts and look forward to welcoming you as a partner.Yours faithfullyDavid Vincent
Executive Summary Page 5This document details and contains an invitation to subscribefor shares in The Cochabamba Project Ltd. The CochabambaProject Ltd (Society) was established in March 2009 as anIndustrial and Provident Society for the Benefit of the Commu-nity. Your money will fund a public-spirited “not-for-profit or-ganisation which was formed for the specific purpose of sup-porting an established reforestation project known as ArBo-livia. This project is a true partnership with Bolivian farmers, asnet revenues from the timber are shared equally between in-vestors and the farmers, with the former providing investmentcapital and the latter providing land and labour. Arbolivia hasalso been acknowledged for its role in mitigating the impact ofclimate change, having originally been accredited as a CleanDevelopment Mechanism project under the Kyoto protocol.The Bolivian government has since withdrawn its support forCDM, which has forced ArBolivia to seek alternative forms ofaccreditation. Accreditation under the Plan Vivo standard isanticipated by the end of March, further underlining the highenvironmental and social qualities of the project.Investing in The Cochabamba Project Ltd should be seen primarily as a social rather than a financial invest-ment. The society may only pay a low rate of interest on shares and, in certain circumstances, may not payinterest at all. However, the Society intends to be able to pay interest on shares of up to 7.5%, which itselfwill accrue each year at the same interest rate applicable to ordinary shares and to pay this when sharesare eventually withdrawn. The society will use new shareholder funds to pay the on-going project costs as-sociated with growing trees until they are ready to be harvested for timber. In exchange the society is enti-tled to a 50% share in the future net revenues generated from timber sales, and by discounting the futurevalue of timber revenues, the society expects to be able to offer every member a fair return on their invest-ment whenever they choose to withdraw their holding. The first substantial revenues are predicted to bereceived in the 2016/17 season and for this reason the directors do not currently intend to approve anywithdrawals in the first five years of investment. Any surplus after paying interest to members will be usedby the society to benefit the local communities in Bolivia. For the foreseeable future this will be achieved byreinvesting in the expansion of the project.This document is important and requires your detailed attention. If you require advice you should consult anIndependent Financial AdviserThe Amazon Rainforest is almost unquestionably one of the most valuable and important single habitats onour planet making a vital contribution in maintaining the balance of oxygen in our atmosphere and providingunrivalled biodiversity1. Over the last few decades, however, the western fringes of the Amazon have beenthe scene of some of the most aggressive deforestation in the world2. Driven by desperation, migrants havemoved down from the Andes and have now been granted official title to land within the perimeter of therainforest, enabling them to exploit the valuable timber and establish smallholdings to eke out a living fromthe land3. After decades of adopting poor agricultural practices and without the capital to invest in a viablealternative, smallholders are still forced to continue their “slash and burn” methods in order to maintain theirmeagre existence. To compound the problem one of their main traditional crops is coca, which whilst beinga legal substance for domestic consumption, poses a significant risk of enticing desperate smallholders intothe illegal drugs trade. Without an alternative, these problems will persist.The Society is investing in just such an alternative – the ArBolivia Project. This has been established totackle the multiple problems of poor land management, deforestation, coca growing and poverty, and is theculmination of many years of consultation between local co-operatives, regional and international develop-ment agencies and ecological consultants. The Society’s forestry investment not only makes a clearlyquantifiable contribution to combating climate change through the sequestration of carbon, but it is alsocontributing to the protection, repair and enhancement of biodiversity in the region. Most importantly, how-ever, it is providing substantial and sustainable economic benefits to individual families and local communi-ties in Bolivia.Your investment will help to establish this project as a model of community-based forestry, which mightthen be replicated elsewhere and make a demonstrable impact in countering loss of biodiversity, preventingclimate change and reducing global poverty.
Page 6 ArBolivia The Society invests in the Arbolivia Project. As described above, this project was established to tackle the multiple problems of poor land manage- ment, deforestation, coca growing and poverty. The origins of the project date back to 1995 (see page 15), since when the project has been estab- lished as a commercial enterprise, having planted over 1500 hectares of predominantly native hard- wood trees in previously deforested areas of the Bolivian Amazon.The project is pioneering a new model of community based forestry that shares the net proceeds of the tim-ber equally between investor and farmer, thereby giving farmers sufficient economic incentive to both refor-est part of their land and to remove the need to clear further areas of prime tropical rainforest. Technicalassistance is provided to the farmers so that they can derive a better income from their land as a whole andcan also manage this in a more ecologically sustainable manner. Intercropping is encouraged so that farm-ers can cultivate both food crops and timber on the same plot of land, whilst predominantly native speciesof trees are used in a patchwork of different tree types. Instead of planting one non-indigenous tree type ina concentrated area, 19 different species have been planted on widely dispersed small plots of land. Theresulting biodiversity gains together with the focus on putting farmers’ interests at the heart of the project,make Arbolivia a very special forestry project that stands out from other ‘sustainable’ forestry schemes (seepage 16 for further details).Managing almost 1000 widely dispersed farmers (as at 1st October 2010) in what can be quite a difficultenvironment with poor communications, poses something of a challenge and requires a sizeable team oftechnicians and managers to ensure that quality standards are met and to maintain good relations withfarmers, many of whom have little or no education. This necessitates much higher costs than would nor-mally be associated with a project of this size but it also means that the community aspects of the projecthave enabled it to attract additional funding from the sale of carbon credits and environmental services (seepage 17), without which the project would not have been possible.The project is managed on the ground by the Sicirec Bolivia, a company limited by guarantee established inBolivia by – but independent from - Sicirec Group BV, a firm of Dutch forestry professionals with consider-able experience of assessing and managing tropical forestry projects around the world. However, the pro-ject is also notable for its partnerships between NGOs, international governments, peasant farmers, forestryexperts, investors and academics (see Interests and Partnerships page 19 for further details). At the currenttime, Arbolivia is committed first to raise finance to fund the project at its current size of 1400 hectares untilit reaches breakeven, which is expected in 2015/16, and further planting will only take place when sufficientfunds are in place to proceed. Maintaining the current plantations will require a total investment of around£2.4m (at current exchange rates) over the next 5 years and the society has committed to funding Arboliviauntil the project is self-financing. This will require ongoing fundraising and sale of carbon credits and treesubsidy certificates.
Environmental, Social & Financial Returns Page 7The project is pioneering community based forestry which confers major social and environmental benefitsEnvironmental Returns High rates of carbon capture through reforestation in the Tropics Avoidance of further deforestation Enhanced biodiversity Nature conservation Protection of stocks of native seed More sustainable agricultural practices Intercropping to produce food as well as timber Carbon capture through intercropping Low impact on soil, water systems and micro- climate Enhanced soil water retention leading to reduced flooding Erosion controlSocial Returns Prospective trebling of incomes on forested land of participating smallholders Increased incomes from non-forested land through increased yields Increased incomes from fair trade accreditation and collective bargaining Employment of up to 200 people in the nurseries (during high season) Establishment of microenterprises including seed farms, nurseries and maintenance contractors Capacity building through forestry committees, mar- keting support and technical assistanceMany of these benefits have been independently verified and through ArBolivia’s comprehensive onlinedatabase and Google Earth, it is possible to connect with individual farmers on the project’s website(www.arbolivia.org) by viewing the individual parcels and the details of the farmers and also tree speciesassociated with individual plots. For further details on the social and environmental aspects of the projectsee page 17.Financial ReturnsIn determining the level of interest, the directors will primarily take into account the society’s intention tocontribute financially to the community, with the expectation of a social dividend, rather than any personalfinancial reward. However, the directors are also mindful of the need to pay an interest rate sufficient to at-tract and retain capital, especially given the high level of risk associated with the project. With this in mindthe directors hope to be able to pay interest at a rate of up to 7.5%, based on the annual increase in thevalue of timber assets and interest payments received from loans to the project. This return is in no wayguaranteed and is dependent upon a number of factors. Furthermore, in the absence of actual revenue,interest will be accrued until the member chooses to withdraw his/her holding. (For investors who requireincome to be paid out, a small amount of loan stock may be available from time to time on a first come firstserves basis, although a lower rate will apply. Please contact the society for further details). Investorsshould be aware that they are responsible for declaring interest payments through their Self Assessmentreturn and are liable to tax on their interest when it is actually received.Early Bird IncentiveAnnual interest payments will be based on the amount of paid up shares held in each full year ending on31st October. In the financial year 2010/11, interest will be awarded in proportion to the number of sharesheld at 31st October 2010 and at the end of each subsequent quarter .In other words an investor who paysfor shares before 30th April 2011 will be awarded 2 full quarters’ interest for the year to 31st October 2011.An investor who pays for shares between 1st May and 31st July 2011 will only receive interest for 1 quarter.
Page 8 About The SocietyThe Cochabamba Project Ltd is an Industrial and Provident Society for the Benefit of the Community andoperates on a ‘one member one vote’ principle, irrespective of the size of a member’s shareholding. Thesociety is governed by its rules which are available on the society’s website at www.cochabamba.coop. Thepurpose of the society is to benefit the communities of the departments of Cochabamba, Santa Cruz, Beniand La Paz in Bolivia. The directors intend to achieve this by investing the society’s funds for the foresee-able future in the ArBolivia project.The society was formed on 9th March 2009. As at 1st January 2011 the society had issued share capital of£1,223,903 and had 213 members, including Rathbones Investment Management and Ethical InvestmentsLtd, who act as nominees on behalf of a number of private clients.The current directors of the society are David Vincent, John Fleetwood and Daniel Brewer, who betweenthem, have considerable experience and expertise in advising on sustainable forestry and other invest-ments with a high social impact (see page 23 for director profiles). The society has also appointed an advi-sory committee to provide guidance to the directors on different aspects of the project. We are currentlyfortunate to have two of the leading experts in their fields on our advisory committee – former head of theFinancial Services Authority, David Jackman and leading environmental academic, Mike Berners-Lee (seepage 23 for profiles). Membership of the society is afforded to holders of ordinary shares. These shares canbe withdrawn in accordance with the society’s rules and this Invitation to Invest but cannot be sold or trans-ferred and there is no prospect of them ever being worth more than their nominal value).
Information For The Issuance Of Shares Page 9The Society is offering 1m of new ordinary shares available for purchase to fund the maintenance of treesgrowing in the existing 1400 planted hectares for the period 1st July 2011 to 30th June 2012. The societyneeds to raise £450,000 however it is expected that a considerable proportion of this amount will be re-ceived from the sale of carbon credits or environmental services.Once there is sufficient surplus to fund the foreseeable management costs until break even we will considerallocating funds to the planting of new hectares. Each ordinary share in The Cochabamba Project Ltd has anominal value of £1.00. The minimum shareholding for an individual is £1,000 and the maximum (set bylaw) is £20,000. The closing date for the current offer is 30th April 2011. The offer is open to: Individuals over the age of 16 Trusts, including a bare trust arrangement for children Self Invested Personal Pension Plans Nominee Services Corporate entities, groups and associationsPlease read this section carefully – it sets out the details of becoming a member and investor in TheCochabamba Project Ltd.Legal InformationThis document is issued by The Cochabamba Project Ltd, registered number 30642R, as an Industrial andProvident Society incorporated in England and Wales on the 9th March 2009 under the Industrial and Provi-dent Societies Act 1965. The Cochabamba Project Ltd is a Society for the benefit of the community.ShareholdingsThe minimum shareholding which you can apply for under this prospectus is £1,000 and the maximum(except for other industrial and provident societies) is £20,000. Larger sums can be made available to thesociety as donations, grants or loans. The society also has a smaller amount of loanstock available fromtime to time for investors who prefer income to be paid out but are prepared to accept a lower rate of inter-est). Please contact the Secretary at the registered address for further information. All applications are sub-ject to the terms set out in the Rules of The Cochabamba Project Ltd. There is only one class of ordinarywithdrawable share. The shares are not transferable. Subject to the 5 year holding period, the shares arewithdrawable on 180 days notice. In the case of joint investments, all investors concerned must agree to awithdrawal. Shares will be repaid at the original price (subject to the comments hereafter). The Directors ofThe Cochabamba Project Ltd have the right to change the notice period for withdrawals, or to suspendwithdrawals, but this action would only be taken under exceptional circumstances or if the Project Manag-ers were unable to meet redemption requests and new investor capital was not sufficient to meet redemp-tions. The Directors have the right to write down the value of shares, if the liabilities of The CochabambaProject Ltd (and its share capital) should exceed the value of its assets. Shareholders who then withdrawtheir shares will only receive the written down value of their shares. In the event of The Cochabamba Pro-ject Ltd ceasing to trade, shareholders will be re-paid up to a maximum of £1.00 for every £1.00 shareowned, once all creditors have been repaid n full. Please see the “risk factors section” below.Nomination optionIn the event of the death of a shareholder, the repaid value of the shares will normally be added to the es-tate for probate purposes. For investments up to £5,000 you may elect to nominate a recipient for the valueof the shares and thus (under current legislation) remove the value of the shares (up to £5,000) from yourestate for probate (but not tax) purposes.
Page 10VotingEach member has one vote regardless of the size and value of their shareholding. It is proposedthat investor members will be kept informed of the activities of the Cochabamba Project Ltdthrough an occasional newsletter, a website, the annual reports and the Annual General Meeting.InterestProvision is made in The Cochabamba Project Ltd Rules for paying interest on the share capitalat such rate or rates as may be determined by the board of directors from time to time. In line withthe Rules, the directors intend to award interest in order to provide a reasonable incentive for investors tomaintain their support for the activities which contribute financially to the local communities in Bolivia.Therefore, whilst the directors will bear in mind the level of risk of investing in a developing country and thepotential illiquidity of forestry assets, investors should not expect an interest which mirrors the returns offully commercial investments.Charges & Running CostsThere are no charges made on your investment but the costs of running the Society and attracting capitalwill be paid for by the Society and this will be taken into account when setting the annual interest rate. Ac-counts for the financial year31/10/2009 to 31/10/2010 are available at www.cochabamba.coop or on re-quest.In particular you should note the following costs: The Directors are currently paid £475 per month each plus expenses. Mr Vincent acts as company secretary for which he is paid £2,000 pa. Ethical Investments receives a payment of 8% of any sums raised for the Society. Ethical Investments may, out of its own 8% marketing fee, pay financial advisers and other introdu- cers an introducer’s fee of up to 3% Advertising and direct promotional costs are anticipated to be in the region of £10,000 for the current share issue.Withdrawal of SharesOur rules allow for shares to be withdrawn at the discretion of the board, subject to 180 days’ notice whichallows the directors time to plan the most appropriate method of realising the capital required . In additionthe directors will not allow withdrawals in the first five years unless there are extenuating, unforeseen cir-cumstances and the society has the cash resources to do so without putting the wider interests of the soci-ety and its members at risk. These restrictions apply because there will be no significant timber revenuesuntil the 2015/16 season (1st July 2015 – 30th June 2016), and hence no income to repay investors untilthat time.The society aims to provide for future withdrawals in a number of ways: The society owns the rights to a large volume of carbon credits which can be sold to generate cash. However it also needs to reserve cash in order to meet its maintenance commitments until there is sufficient revenue from timber sales to meet both maintenance costs, interest payments and de- mands for withdrawals The society is free to sell its timber rights to other parties in order to raise capital to fund redemp- tions. The society may raise capital to meet redemptions through a further share or loan stock offer.However, the Directors of The Cochabamba Project Ltd have the right to suspend withdrawals should thethe society have difficulty in raising cash through these means. Please refer to the Investment Informationfor the Issue of Shares later in this document for further details. The Directors also reserve the right to scaledown and/or refuse some applications. Shares cannot be listed on any market and cannot be sold or trans-ferred to any other party.
Risk Factors Page 11The directors consider that the following are the most important risks to the project, although thereare significant additional risks (see page 26): The project may not be able to secure sufficient funding to meet ongoing running costs and as a re- sult, may place the project in financial jeopardy The project depends in part on revenues from the sale of carbon credits or environmental services to help fund the maintenance of the trees and farmer payments for the first 5 - 8 years of growth prior to first commercial thinnings. Should the market for these credits and services deteriorate or disappear the project may become unviableInvestment in the society should be regarded as long term in nature and involving a substantial degree ofrisk. Accordingly, investors should consider carefully all the information set out in this prospectus and therisks attaching to their investment in the Society including, in particular, the risks described on page 26. Asa result of these risks you may lose the value of your shares and any interest accrued.However, the directors will seek to protect against such risks through the following: Maintaining a balance of funding and revenue sources including equity investment, debt instruments, sales of carbon credits, payments for environmental services and timber revenues. Working (together with Sicirec Investment Management BV and a number of other partners) to se- cure long-term funding Adopting conservative estimates of future timber prices based solely on local market prices and low annual increases. In addition the society is able, after consultation with the forestry manager, to time the harvesting of trees to benefit from the most favourable market conditions Close cooperation with the local population, non-governmental organisations and the Bolivian Gov- ernment Careful site selection, matching of species and soil types and use of natural flood-resistant tree spe- cies Legal contracts with farmers and collective organisations of farmers, including permanent land use restrictions and long term financial incentives Forestry committees consisting of representatives from the participating farmers have been estab- lished as part of the risk management strategy. An Arbitration Board is made up of 2 members of Sicirec Bolivia and 2 members from the participating farmers. This board has binding powers to settle disputes between farmers and the project. Fair trade principles: Due to the scale of the project access to markets by Sicirec Bolivia will be much better than for individual farmers. In addition operational costs can be shared, resultingin prices, which might be 3 to 8 times higher than those achievable by one smallholder acting alone. It should be clear that even though they will only receive 50% of the higher price, there is a very clear financial incentive for smallholder to meet their contractual obligations, thereby reducing the risk of “back door” sales.
Page 12Please note: By law we cannot offer a generous interest rate. Since the project will not receive any meaningful timber revenue for many years and revenues from carbon credit sales will be used to meet maintenance costs in the interim any interest payments will be accrued until the shares are withdrawn. Each year’s interest rate will be set at the discretionof the directors and is not guaranteed. Shares in this industrial and provident society cannot be sold or traded and there is no prospect of them ever being worth more than their nominal value. After the initial five year period, you may be able to withdraw your shares on 180 days notice. If you withdraw your shares The Cochabamba Project Ltd will not repay more than you originally paid for your shares. The value of your shares may fall. Although shares in this industrial and provident society are withdrawable, you may not be able to withdraw your shares if the Society does not have sufficient funds available at the time you want to withdraw them. In some circumstances, the directors may be compelled to write down the value of your shares. Should you then wish to withdraw your shares, you should expect to receive only their written down value. As an industrial and provident society, The Cochabamba Project Ltd does not need to be authorised by the Financial Services Authority to take deposits by issuing these withdrawable shares.Conflicts of InterestThe Directors and the service providers may have conflicts of interest in relation to their duties to the Soci-ety. However, each shall, at all times, act in accordance with their obligation to act in the best interest of theSociety. The following is a summary of the present conflicts of interest of the Society’s Directors and service providers: Mr Vincent has made a private investment in the rights to timber revenues. Ethical Investments Ltd, which is solely owned by Mr Vincent has also made a private investment in the rights to timber reve- nues. Mr Fleetwood has made a loan to the society. Mr Brewer is connected to a private investor who has provided a loan to the society. Ethical Investments Ltd. is entitled to a payment of 8% on the sale of shares in the society and a payment of 4% on the sale of any carbon credits. Any profit resulting from this is shared equally between Ethical Investments Ltd and Ethical Money Ltd, the company owned by Mr Fleetwood
Terms & Conditions for applying for shares Page 13Your Application You cannot withdraw your application for shares after we receive your application form. The directors do not have to accept your application for shares. They may decide not to issue shares toyou or may allocate you less shares than you applied for. They do not have to give any reason for their de-cision.Your application will be considered for approval at the first convenient Board of Directors meeting after theclosing date for the offer, and therefore you should not expect an immediate response.Your PaymentThe directors will acknowledge receipt of your cheque and application (where possible by email). They maycash your cheque as soon as it is received. The Cochabamba Project Ltd will hold your money on trust foryou in a separate account until the directors consider your application. The directors will return your moneyto you (within twenty eight days of the Board of Directors meeting at which we consider your application) ifthey decide not to issue shares to you. If they decide to issue fewer shares to you than you applied for, theywill return the balance to you (within twenty eight days of that Board of Directors meeting). The money willbelong to The Cochabamba Project Ltd (and the directors will no longer hold it on trust for you) as soon asthe directors issue shares to you (to the extent that they take it as payment for shares). The company willnot pay you interest on any money it returns to you.Your promises to usYou promise that:• Your cheque will be honoured on presentation.• You, as an individual, are at least 16 years of age.• You have authority to sign the application form. If you are signing it for another person, you will providethe directors with evidence of your authority to sign if they ask to see it.• You will supply us with proof of your identity and address, if the directors ask for it. We may needto do this to comply with the Money Laundering Regulations 2003. The directors may have tohold back your shares until they see this.Demutualisation – protection from “carpet-baggers”You may not benefit financially from your shares if The Cochabamba Project Ltd converts, or transfers itsbusiness or is wound up. In this case, the only financial benefits you may receive from your shares are:• The possibility of interest (at a low rate)• The possibility of the return of the money you pay for your sharesThe directors draw your attention to your obligations under rule 14 regarding the windfall if the Society con-verts, transfers its business, or is wound up. Should any greater financial benefit come into your hands, itwill belong to such charity or community benefit Society as we may nominate from time to time. You are tohold the benefit on trust for that charity or community benefit Society. To secure that (and your obligationsunder Rule 14.2 of our Rules) you appoint as your attorney the person holding office (from time to time) asour Secretary. That appointment is irrevocable. Your attorney has power to sign – on your behalf – an un-dertaking for which we may ask in accordance with Rule 14.3.Directors’ declaration.The Directors whose names are set out above accept responsibility for the information contained in the Of-fer Document. To the best of the knowledge of the Directors, who have taken all reasonable care to ensurethat this is the case, the information contained in this document is in accordance with the facts and does notomit anything likely to affect its import.MiscellaneousThe law of England applies to these terms. The courts of England and Wales have non-exclusivejurisdiction. You will be bound by the rules of The Cochabamba Project Ltd (as may be amended from timeto time) if the directors issue shares to you.
Background To The Project Page 15Since 1995, the Food and Agriculture Organisation of the United Nations (FAO), the European Union andthe Belgian government together with the regional government in Bolivia have funded the reforestation of2000 hectares as part of the regional sustainable development programme. The aim of this program was topromote and implement economically viable and labour-intensive land-use and forest resource manage-ment practices in the Cochabamba Tropics region of Bolivia, in the form of plantation forestry, agroforestry,silvipastoral systems and sustainable management of residual primary forests. The program served as apilot for the ArBolivia project and generated knowledge on how trees can fit into an integrated farming sys-tem as part of plantation forestry, agroforestry and silvipastoral systems.In 2002 the Centro Tecnico Forestal (Cetefor), a Bolivian foundation set up to attract internationalinvestment into sustainable forestry and farming development, signed an agreement with Sicirec,an experienced firm of consultants specialising in sustainable tropical forestry from the Netherlands, as ad-visers to the project with the objective of creating a comprehensive programme, which would qualify as aClean Development Mechanism activity. A joint venture organisation, Asociacion Accidental Cetefor – Sici-rec, was established in order to establish contracts with individual smallholders, apply for accreditation as aClean Development Mechanism and receive funding from the sale of the resultant carbon credits , knownas Certified Emissions Reductions. After 6 years of monitoring and research relating to a the whole portfolioof activities ArBolivia received a positive validation report from the Designated Operational Entity (DOE) in2007 which resulted in the registration of the first official CDM-AR Small Scale Activity (registration number2510) in 2009. An Emissions Reduction Purchase Agreement was signed by the Flemish government forthe forward purchase of credits for the years 2008, with a further option to purchase credits for the years2013 – 17.A series of research documents and evaluation tools relating to the project is available at: http://www.joanneum.at/encofor/casestudies/Chapare_tools.html The full validation report can be found on the UNFCCC website at: http://cdm.unfccc.int/UserManagement/FileStorage/H56C84P7GYEWT9U3XDNB1ZVFSORLQAA total of 8 separate Project Design Documents covering a total surface of 5,000 hectares were to besubmitted for registration under UNFCCC regulations. A further 1,000 hectares were also to be dedicated toconservation activities outside the remit of CDM activity.However at the end of 2010 only the first of these PDDs had received a letter of approval from the Boliviangovernment. Following the failure of talks at the Copenhagen summit in December 2009 the Bolivian gov-ernment withdrew its support for the Clean Development mechanism, which meant that ArBolivia could nolonger count on further Letters of Approval and would therefore no longer be able to deliver the certificationrequired by the Flemish government under the ERPA. This has meant that ArBolivia has had to seek alter-native certification in order to sell its credits in the voluntary market, where the approval of the host countryis not required.A new submission for current and projected activities has now been made under the Plan Vivo standard.The verification is now well underway and should reach a conclusion by the end of March 2011.It is worth mentioning that, at the time of writing, the market price of Plan Vivo credits was substantiallyhigher than the price agreed under the ERPA with the Flemish government. However the financial projec-tions on pages 20 and 21 have assumed a conservative initial price of £4.00 per tonne, slightly below theprice agreed with the Flemish in 2007 (5 Euros per tonne) .This latest development means that the project should be able to generate greater financial subsidies,sooner than originally anticipated, which should in theory contribute to providing earlier and more substan-tial profits in the long run.At full scale the project will be responsible for planting approximately 5,000 hectares of commercial timberwithin small, isolated parcels owned by roughly 2000 smallholders who belong to co operatives within thedepartments of Cochabamba,Santa Cruz, Beni and La Paz. A further 1,000 hectares will be planted foragro-forestry (cocoa and citrus fruits) and a further 1,000 hectares of planting will be devoted purely forconservation.
Page 16 Distinguishing Features of the Forestry PlantationsThe commercial forestry enterprise undertaken by the ArBolivia project is very different from more conven-tional forestry plantations, even those that are termed ‘sustainable’: The forested land is not owned by the project manager. Each forestry parcel is owned by an individual smallholder. As at 1st October 2010 the forested areas consist of 2789 separate “sectores” (an area defined by a specific species and planting date) spread across 4 separate “departmentos” (federal states). This geo- graphic distribution and isolation of individual parcels means that any incidence of fire, dis- ease or insect attack is confined and will have little or no impact on other forestry parcels, providing highly effective natural, risk manage- ment. Farmers can choose from 19 native tree spe- cies as well as teak, which is not indigenous but is a globally popular timber species that has adapted well locally. Having a range of indigenous tree species on widely dispersed plots contrasts starkly with the norm of mono- culture plantations where “identikit” trees stretch monotonously in to the horizon. This diversity is not only good for the environ- ment but it means that smallholders are able to select species to match the exact conditions of their land, ensuring that survival rates and yields are optimised. The high levels of technical expertise and management demanded by this model serve to reduce significantly the risk of disease or poor growth. The cost of this additional skilled manpower is compensated by carbon credit payments, which are only awarded if the pro- ject is able to show “additionality” the provision of social benefits ( i.e. additional local employ- ment) and environmental benefits (improved soils and biodiversity) that a purely commer- cial project would not consider. Some of the species are faster growing but the most valuable timber is from trees which may take 35 – 40 years to mature. This is much longer than most commercial forestry enterprises will entertain so the ability to generate carbon credits and revenues from other environmental services whilst the trees are growing is extremely valuable. Each smallholder will receive 50% of the net timber revenues from the trees he/she plants and main- tains as well as receiving regular payments and technical support in managing the whole of their land. By aggregating and co-ordinating supplies for the larger timber merchants ArBolivia believes it is able to secure much higher prices than individual smallholders are able achieve by themselves. Current estimates indicate a premium of at least 300% and as much as 800% for more mature timber sold for export over that sold domestically. Smallholders therefore have a huge incentive to look after their forestry parcels. There are also a range of additional safeguards to ensure that smallholders fulfil their contractual obligations
Social & Environmental Benefits Page 17The Arbolivia Project is remarkable for its high social and environmental impacts. These include the follow-ing: Carbon capture - The project is an accredited “Clean Development Mechanism” under the terms of the Kyoto protocol. This means that the carbon absorption of the project has been independently verified to a very high order. At full scale the verified amount of carbon captured over a 21 year pe- riod 2,196,129 tonnes. Avoided deforestation – the project addresses the root causes of deforestation by providing a real economic alternative to further deforestation and by improving agricultural practices. Enhanced biodiversity – By using 19 indigenous species of trees, intercropping and working with over 2,000 farmers on widely distributed plots, as well as creating wildlife corridors, biodiversity is substantially enhanced. Increased incomes for poor farmers - Profits are shared between local farmers and investors. The average current annual earnings of participating smallholders are only around $2,300 and the liveli- hood of local farmers is central to the vision and operation of the project. By participating in the pro- ject smallholders can expect to treble their earnings on their forested land over the 40 year project term. Smallholders are also benefitting from both financial and practical assistance to increase effi- ciency and the yields on their remaining land through agro-forestry (e.g. cocoa and citrus fruits) and through collective bargaining and fair trade accreditation Conservation - The Society’s trees not only absorb carbon, but the tree growing programme includes valuable conservation work to combat erosion and improve biodiversity. Improved Agricultural Management – Arbolivia works with smallholders to improve agricultural man- agement practices, thereby reducing deforestation and improving smallholder incomes. Employment in nurseries - A number of new nurseries have been established which are privately owned by local families and employ hundreds of people at the height of the season. Education and Capacity Building - Many additional social benefits are provided though a programme of education and capacity building, which makes use of existing social structures such as community committees, farmers co-operatives and other NGOs working in the area. For example, training on fire risks and control is an important additional weapon against “slash and burn” farming methods. The Society also wants to promote the integrated approach of the project on websites, publications and presentations for schools, local organisations and business clubs. Nature conservation - A conservation project has been initiated to plant 400,000 trees in designated conservation areas. The objective is to counter the loss of biodiversity by repairing dedicated areas and corridors in order to provide a network of secure habitats and thoroughfares. Much of the conser- vation work is focussed on controlling erosion from increased local flooding during the wet season (which is itself a direct consequence of deforestation). Support of local communities - In the longer term, the directors believe that significant surpluses of revenue may accrue over and above the amounts needed to retain capital for investors. Any such surplus profits after the payment of reasonable interest to members will be used by The Cocha- bamba Project Ltd to benefit the local communities in the areas in which the project operates. Technical & Marketing Support - Smallholders receive one-to-one practical advice and support on all aspects of farm management, including land use, crop and stock selection as well as marketing sup- port. Intercropping - Many of the trees are inter-planted with other crops to improve fertility, reduce labour, provide structural support, competition for growth and increased yields per hectare. Locally sourced seed - The project only buys locally sourced seed. ArBolivia certifies the best seed trees, which then provide a source of income for the owner and a financial incentive to preserve the tree for the future. NGO Alliances - ArBolivia has also fostered relations with other NGOs and development projects, including, for example, a fair-trade organic cocoa project based at ArBolivia’s office in Chapare.
Page 18 Carbon Credits & Environmental ServicesIn order to fund the many social and environmental aspects of the project which could be regarded as lesscommercial, the project is able to benefit from selling carbon credits, which serve to subsidise the projectactivities. Whatever the merits /faults of the current system of carbon offsetting and carbon trading, it is anundisputable fact that the ArBolivia project relies heavily on its ability to monetise the social and environ-mental aspects of its work.There are two distinct markets for carbon credits;– the compulsory market and the voluntary market:The compulsory market includes buyers from the 39 developedcountries, who signed up to the Kyoto protocol. The most com-mon type of compliance credit is a CER (Certified Emission Re-duction unit) which originates from projects in developing coun-ties. Certification and overall approval of these abatement pro-jects and their credits is known as the Clean DevelopmentMechanism (CDM).In order to gain accreditation CDM projects must demonstrate: The amount of carbon they lock up for the long term after taking account of all “leakage” (caused, for example by relocating the damaging activities elsewhere) A positive effect on biodiversity A positive and sustainable effect on local communities, based on full consultation and agreement “Additionality” – i.e. that the project would not have gone ahead without accreditation and the subsequent benefits from carbon credits.It is extremely difficult for forestry projects both to fulfil the conditions for CDM status and also to be able toevaluate whether these conditions have been met. For these reasons only a handful of reforestation pro-jects in the whole world have so far been accredited – and ArBolivia was one of them.However, the Bolivian government has decided not to support the CDM system and therefore ArBolivia hasno prospect of being able to sell certified credits under CDM. It has nevertheless been independently au-dited and has been shown to have met all the exacting quality standards required to do so. It is thereforevery clear that this is a project of the highest quality, whose credits should command a significant premiumin the voluntary market.The project also produces substantial additional volumes of vol-untary credits (VERs) by planting trees in new conservation ar-eas and creating ecological corridors. Partnerships have beenformed with a number of organisations to sell these credits toboth individuals and major corporations.In the light of on-going criticism of the existing carbon tradingmarket and the failure of the international community to agreealternative mechanisms for reducing carbon emissions (anddeforestation in particular), a growing number of organisationsare committing to sponsoring tree planting schemes, withoutlinking their investment to levels of carbon sequestration. Treesponsorship deals have been concluded with a number of well-known brand names including Nestlé Vittel, Procter and Gambleand Hugo Boss. Carbon credits and environmental services areexpected to contribute around 50% of ArBolivia’s overall financ-ing costs over the next 5 years, so they constitute a vital part ofthe project and demonstrate the value of such financing mecha-nisms to projects like Arbolivia. The society already has a letterof intent from HAFTrust for a minimum of 50,000 tonnes overthe 12 months following Plan Vivo accreditation. A copy of thisletter is available on the “downloads” page of our website.
Page 19Employment of the Society’s FundsAs at 31st December 2010 The Cochabamba Project Ltd had raised a total of £1,223,903At the same date, ArBolivia had planted a total of 1557 hectares of commercial forestry parcels on landowned by approximately 1000 participating smallholders.As at 1st March 2011 the society owned the rights to 50% of the net timber revenues from a total of 986hectares of forestry parcels. It had also agreed the acquisition of a further 123 hectares from 3 private in-vestors.As a result of the re-adjustments required, now that CDM accreditation will not be forthcoming, the societyhas now agreed to commit to funding future managements costs for the current 1400 hectares in full(subject to agreed budgets, as shown on pages 20 and 21).In exchange the society has negotiated the repayment of some of the Sicirec Bolivia’s loan commitmentsand is refinancing a number of arrangement with private investors in the UK. It has also acquired the rightsto 311,256 tonnes of Voluntary Emissions Reductions units, which it intends to sell as soon as accreditationhas been received under Plan Vivo ( a field visit by external verifiers commenced on 28th February).Once verification is completed, which is expected by the end of March, the society fully expects to sign anagreement with HAFTrust for it to sell its credits to its corporate sponsors and partners.The society is also in discussion with a small number of private investors to acquire the rights to further tim-ber revenues in consideration for its commitment to underwriting the ongoing maintenance costs from itsacquisition of carbon credits.The primary objective of the current round of fundraising is therefore to attract sufficient capital so that wecan continue to maintain the parcels, which have been established to date.The operational costs which the society has agreed to fund for the period 1st July 2011 to 30th June 2012are set at 50,000 US $ per month. An additional payment will be made in December each year to coveradditional expenses incurred in that month.The directors expect that at least £250,000 of the total required to come from the sale of VERs throughHAFTrust and other parties. However, neither the amount nor the timing of payments can be guaranteed soit is important that we plan for the worst case.
Page 21 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16BALANCE SHEETFixed Assets Timber interests Net Book Value 1,484,714 1,879,714 2,215,214 2,502,714 2,763,214 2,995,714 Carbon Credits Net Book Value 147,610 0 0 0 0 0Current Assets Bank 227,259 156,705 220,559 351,990 265,926 163,542 Loans (0) 0 0 0 0 0Current Liabilities Loans (554,108) (445,845) (335,429) (224,881) (114,198) (3,381) Share interest due (156,216) (278,008) (417,801) (569,594) (685,317) (789,165)Net Assets 1,149,259 1,312,566 1,682,543 2,060,229 2,229,624 2,366,710Capital and Reserves Called up share capital 1,383,903 1,623,903 1,863,903 2,023,903 1,922,708 1,841,513 Profit and loss account (234,644) (311,337) (181,360) 36,326 306,916 525,197Shareholders funds 1,149,259 1,312,566 1,682,543 2,060,229 2,229,624 2,366,710Notes:1) Marketing costs:The directors intend to limit advertising costs for the current share offer to £10,000. In addition to advertis-ing costs a fee of 8% of capital raised will be paid to Ethical Investments Ltd. Ethical Investments may payindependent financial advisers and other introducers a fee of up to 3% of capital invested, which will bepaid from (i.e. not in addition to) the amount it receives.2) Directors Salaries.The current level of remuneration for each director is £5,700 per annum.3) Timber Maintenance / Annual Maintenance Adjustment:The society has agreed to pay to Sicirec Bolivia the fixed amounts shown in order to maintainthe full current 1400 hectare project as explained above (Employment of the Society’s Funds page 15). Anannual amount is also paid in December to meet additional regular costs incurred in that month4) Loans.The society has received two loans of £150,000 and £75,000 respectively, with an interest rate of10% perannum. The society is currently paying £1,250 per month until 30th June 2011 in respect of the £150,000but interest is accruing on the £75,000. The society intends to repay the smaller loan at the end of June andis in the process of refinancing the second loan. The society has also recently agreed a financing deal withtwo private investors in exchange for the timber rights to a further 120 hectares. The society will pay 5%and, subject to favourable cash flow will repay 20% of capital each year starting in October 2012.5) Interest On SharesFor the purposes of these financial projections annual interest has been assumed at 7.5%6) Profit Before TaxFor tax purpose the directors intend to exclude appreciation of the society’s timber assets in order to createcapital losses which can be carried forward in order to offset these against higher anticipated future timberrevenues.
Page 22One of the unique characteristics of forestry is the length of time between the initial capital investment andthe receipt of eventual revenues. It is therefore standard accounting practice to seek to minimise future taxliabilities by carrying forward substantial annual losses in order to offset them against even larger antici-pated future revenues. One of the unique features of the “Industrial and Provident Society for the benefit ofthe community” model is the ability to award interest to individual investors in each financial year from yearone, without reference to the actual accounting profit or loss achieved in any particular year. In this way thesociety is able to reward all investors fairly from the very first year whilst also reducing the level of tax pay-able by the society once its revenues start to come on-stream. Interest awarded to shareholders is noted asa normal business expense and hence serves to reduce profit or create a larger loss to be carried forward.The financial projections provided here cover the next five years and assume that no further planting willoccur beyond the current 1400 hectares. In practice the society hopes that the project will attract sufficientfunding to expand further, thus achieving efficiencies of scale and a resulting higher return on capital. Thefigures also assume that additional income received by the society from carbon credit sales is sufficient tomeet ArBolivia’s operational costs each month. However no additional income has been assumed for otherecosystem services, such as tree planting sponsorships.Timber revenues are expected to begin in earnest in 2016/17and the trend will be for revenue levels to in-crease steadily from then on although there will be one or two odd years where no revenue is expected.Further details of the anticipated management costs and timber revenues for each year until 2043 are avail-able on request.The directors hope to be able to pay interest at a rate of up to 7.5%, based on the annual increase in thevalue of timber assets and carbon credit sales. The value of growing forestry assets is normally assessedusing a “discounted cash flow” method – in other words a discount is applied to the predicted future reve-nues according to the length of time the investor has to wait before receiving them. This discount is thenreduced steadily as time elapses. In this way the society expects to be able to offer all members a fair re-turn on their investment whenever they choose to withdraw their holding.In recognition of the loss of anticipated revenues from the Flemish Government and its commitment to pro-viding a commitment to meet the ongoing operational costs for the 1400 hectares planted to date, the soci-ety has recently acquired the rights to all the carbon credits relating to these hectares – a total of 311,256tonnes. The society has already had a written commitment from HAFTrust to purchase a minimum of50,000 tonnes within the next 12 months at a price in excess of 6.50 US$. We have therefore used a cau-tious estimate of £4.00, which also allows for any unfavourable movement in currency rates.An additional advantage to the society of owning the rights to carbon credits is that we can sell these in theUK – or indeed anywhere in the world so we are less vulnerable to currency risks than we would be if wehad to rely solely on timber revenues.A major factor that will influence the long term financial return on the society’s investments in the ArBoliviaproject is how quickly, if at all, the project is able to expand to its full size (5,000 hectares). Due to efficien-cies of scale, the rate of return should increase significantly if the project expands beyond the existing 1400hectares. However, the Society also has significant costs which need to be taken in to account in settingthe annual rate of interest, including the cost of finance, marketing costs, administration, legal costs anddirectors’ salaries, as outlined. These costs may increase as the Society grows and will obviously impact onthe society’s profitability. With these points in mind the directors believe that it will be able to award interestin the range of 5 – 7.5% each year, depending on the scale of the project and the speed at which it is ableto expand. However the longer term increase in the value of the Society’s assets cannot in any way beguaranteed and the rate of interest will continue to be reviewed each year.
The Society’s Directors and Special Advisors Page 23The Society’s DirectorsDavid VincentDavid began his career in financial services in 1988 and established his firm Ethical Investments in 1996with a view to advising on investments which incorporated social and environmental criteria. Together withJohn Fleetwood he co-founded the Ethical Investment Association, a trade association for independent fi-nancial advisers with a specific interest in socially responsible investment and he remained as a member ofits steering committee until 2008. David became involved in forestry investment in 2003 and has worked asa consultant for the Quadris Environmental Fund. In 2009 David took the decision to relinquish his authori-sation as an independent financial adviser in order to promote direct investment in specific social / environ-mental projects. The Cochabamba Project Limited is the first of such projects and was established in March2009.John FleetwoodJohn has been involved in the financial services industry since 1991, initially as an independent financialadviser specialising in ethical investment, and latterly developing ethical investment portfolios that focus oninvesting in solutions to social and environmental challenges. John’s company, Ethical Money, providesconsultancy services to a number of ethical fund and portfolio managers and has increasingly focussed oninvestments with a high social or environmental impact.Daniel BrewerDaniel is one of the founder directors of Resonance Limited. The organization was founded in 2002 byDaniel Brewer and the Dawe Charitable Trust as a financial intermediary to match values-ledInvestors with high impact businesses. It has particular, but not exclusive, expertise in raising risk capital forproperty acquisitions and development, sustainable energy businesses, businesses employing marginal-ized people and businesses tackling global poverty. To date Resonance has introduced over £10m of in-vestment to around 20 social enterprises. Daniel also acts as a non-executive director for a small numbersocial enterprises.Advisory CommitteeDavid JackmanDavid is the author of the FSA’s Training and Competence rules and was part of the managementteam that set up the FSA. Previously he was in charge of T&C, internal training and consumer education atIMRO and had related roles at SFA and the Securities and Investment Institute. David started his career inbanking. The first CEO of the Skills Council for Financial Services (FSSC), David chairs the British Stan-dard’s Committee for Financial Services and is closely involved with the continuing development of T&C,especially in the institutional sector.As first ‘Business Ethics Adviser’ for FSA David pioneered principles-based regulation and Treating Customers Fairly (TCF). He joined Compliance.co.uk Group in October 2006to steer the development of services particularly focussing on business principles and ethics.Mike Berners-LeeMike is a director of Small World consulting group which brings together environmental and business exper-tise, to enable strategic and value enhancing responses to climate change. Mike is an expert in greenhousegas footprinting and organisation development and author of “How Bad Are Bananas?: The carbon footprintof everything”.
Page 24 Interests and Partnerships:The overall design of the ArBolivia has been the responsibility of Sicirec Group, a private consultancybased in The Netherlands. In order to deliver the project on the ground Sicirec Group established a sepa-rate, independent company, Sicirec Bolivia Limitida, which is registered in Bolivia. Sicirec Group does notown shares in Sicirec Bolivia but is represented on its board of directors. This ensures that, in the event ofthe demise of Sicirec Group, no charge would be levied against the assets of Sicirec Bolivia.At the start of the project Sicirec Bolivia also worked with a local NGO, Cetefor (Centro Tecnico Forestal –“Technical Centre for Forestry”). The formal name of this joint venture vehicle is the “Asociación AccidentalCetefor Sicirec”. In practice Cetefor has suffered like many NGOs from lack of funding and this partnershipis to all intents and purposes redundant with Sicirec Bolivia having a majority on the board of the AACS andcomplete control of the project and its finances.The following organisations are associated with the ArBolivia Project and/or the society:Sicirec Group:The Sicirec Group is based in The Netherlands, where interest and expertise in tropical forestry and agricul-ture is highly developed, with some forestry investment schemes dating back to the 1980s. Sicirec SA wasoriginally established in 1991 in Costa Rica by Popko P. van der Molen and has been one of the leadingenvironmental consultancies in its field for almost 20 years with experience of designing and managing suc-cessful commercial projects in developing countries in Latin America, South America and Africa. SicirecInvestment Management BV is one of only a handful of companies in the Netherlands authorised to man-age and promote forestry funds. These funds are only available to suitably qualified investors in the UK witha minimum investment level of 50,500 Euros. Sicirec Investment Management BV is responsible for findingthe finance necessary for the further expansion of the ArBolivia project. Sicirec Forestry Consulting BV pro-vides consultancy services in project design, investment structures and carbon credit accreditation. EcosafeTrust BV holds forestry assets in custody on behalf of investors in the Netherlands. Mr van der Molen, abiologist and forest ecologist, established Sicirec SA in 1991 in Costa Rica with the remit of providing ser-vices for investors in tropical forestry (primarily teak). In 1997 he became vice president of a failing planta-tion teak forestry company, Bosque Puerto Carrillo (BPC) and led a successful effort to rescue the busi-ness. In 1998 he set up NIBO (Nederlandse Internationale Bosbouw-Onderneming), which acquired a con-trolling stake in BPC. A new company, Pan American Woods (PAW), was subsequently created, which isstill trading successfully. He left PAW in 2001 to concentrate on developing new projects and in particularthe FAO pilot project which became ArBoliviaFurther information is available on the group’s website at www.sicirec.orgSicirec Bolivia Limitida / Sicirec Bolivia SA:Sicirec Bolivia Limitida is the independent company established under Bolivian law by the directors of Sici-rec Group. Sicirec Bolivia’s board of directors are Popko van der Molen (also CEO of Sicirec Group), AnkoStilma, managing director, Rodrigo Méndez, a Bolivian lawyer, and David Vincent, who represents the inter-ests of the society and other UK investors. Sicirec Bolivia Limitida does not have any shareholders and assuch its assets are fully protected in the event of the demise of Sicirec Group. However the company is cur-rently in the process of restructuring as a “Sociedad Anonima”. The society will be represented as a share-holder in the new company through a shareholding in ArBolivia (UK) Ltd (see below).Sicirec MixfundThis is the forestry investment fund managed by Sicirec Investment Management and authorised in theNetherlands. It has an interest in 130 hectares of the 1400. Under a recent agreement the society has nowacquired the carbon credits relating to these hectares in exchange for a commitment to pay the Mixfund’sshare of the maintenance costs. Further information about the Sicirec Mixfund can be found atwww.sicirec.orgArbolivia:Arbolivia is the name of the project in Bolivia, in which the society invests. A special purpose vehicle hasbeen established under Bolivian law between Sicirec Bolivia S A and Cetefor Carbono Limitida, the tradingarm of a local NGO, Fundación Cetefor in order to conduct the day to day field management and monitoringof the project.
Page 25AACS – Asociación Accidental Cetefor- SicirecThis is the formal name of the project management organisation established to carry out the day to daybusiness of the project. In practice, Sicirec Bolivia has a controlling interest in the AACS and is fully respon-sible for the financial management of the project and is ultimately responsible for all management deci-sions.Fundacion Cetefor:Cetefor stands for Centro Técnico Forestal (Centre for Technical Forestry) and is a Bolivian NGO whichpromotes the sustainable use of land, forest and other natural resources.Arbolivia (UK) LtdThis is a newly established UK company set up by the directors of the society with a view to representingthe interests of all UK investors, including the society, on the board of Sicirec Bolivia. All UK investors in theArBolivia project, including the IPS are invited to purchase shares of a nominal value in ArBolivia (UK) Ltd,which has a seat on the board of Sicirec Bolivia SA, which will be maintained at least as long as the societyremains the largest investor in the project. This seat is currently taken by David Vincent.Ethical Investments Ltd:Sheffield based Ethical Investments, undertakes to promote the share offer and to provide administrativeservices to the Society (www.ethicalinvestments. co.uk). Ethical Investments Ltd also provides specialistservices to facilitate and support socially responsible investment projects in the UK and abroad, having ad-vised on tropical forestry investment since 2003.Food and Agriculture Organisation of the UNThe FAO leads international efforts to defeat hunger by helping developing countries and countries in tran-sition modernize and improve agriculture, forestry and fisheries practices and ensure good nutrition for all.FAO provided the finance and technical expertise for a pilot project, which formed the basis of the ArBoliviaproject. The FAO’s project leader, Anko Stilma has since become the project leader for Arboliva and hasrecruited a number of key staff from that time.FECAR (The Federación de Comunidades Agropecuarias de Rurrenabaque)This is one of the largest of the organisations which represent the smallholders who provide the land onwhich the project’s trees are grown and the labour for planting and maintaining them.Vlaams Gewest (Government Of Belgium)The Belgian government signed a major agreement for international aid for Bolivia in 1995 and much of theearly development work for the current project has been based on funds from this source. The Belgian gov-ernment was also the first purchaser of carbon credits from the project having signed a contract to pur-chase certified emission reductions (CERs) for the period from 2007 to 2012 and a further option to pur-chase credits for the period 2013 – 18.Pur Projet (France)Pur Projet is an established environmental consultancy based in France, which provides sponsorship fromsocially minded blue chip corporations for a portfolio of environmental projects in developing countries. PurProjet’s clients provide funds which directly subsidise Tree Planting within the ArBolovia project. ArBoliviaagrees to independent monitoring in order enable Pur Projet’s clients to provide information to their custom-ers. Pur Projet has so far secured contracts with Vittel, Procter & Gamble and Hugo Boss. Pur Projet alsoacts as a broker for carbon credits and has recently secured a contract with ABN AMRO.HAFTrustHAFTrust (Hadlow Agriculture and Forestry Trust) is a foundation with links to Hadlow College, which ispart of Greenwich University. The Trust invests in agricultural and forestry projects in developing countries.HAFTrust has indicated its intention to buy at least 50,000 tonnes of credits from the society during 2011.Plan VivoPlan Vivo is UK based foundation which provides accreditation for carbon credits from forestry projects withadditional social and environmental credentials. ArBolivia is currently undergoing external verification foraccreditation under the Plan Vivo Standard as an alternative to CDM and as a basis for promoting addi-tional environmental services in the UK and elsewhere.
Page 26 RisksLiquidityThe liquidity of investments held by the Society cannot be guaranteed. Any illiquidity may prevent the Soci-ety from concluding an investment transaction on satisfactory terms and, in certain circumstances, may pre-vent redemptions of investments. The directors have the right to refuse redemption requests, so unlike acommercial fund it is not possible for a run of redemptions from the society’s own members to trigger aforced sale of assets. However, ArBolivia is highly dependent for its liquidity on both the flow of revenuesfrom carbon credits and environmental services as well as timber sales. In the event that the Society (orany other owner of forestry assets managed by ArBolivia) wishes to realise its investment prior to the for-estry assets reaching full maturity (and therefore the highest value), ArBolivia may not be able to meet suchrequests for realisation from available liquidity and may only be able to meet such requests by selling for-estry assets before maturity, thereby achieving a significantly lower value than would have been achievedat full maturity. This may result in delays in redeeming members’ shares or significant reduction in the valueof the redemption proceeds, which the directors may not consider to be acceptable for the majority of mem-bers.Valuation RiskIn calculating the Net Asset Value and the Net Asset Value per Share, the value of the Society’s rights totimber revenues and carbon assets are calculated in accordance with policies set out in this prospectus.There can be no guarantee that any such investments will ultimately be realised at any such valuation. Thesociety’s valuation model creates an intrinsic value based on cash flow forecasts many years into the fu-ture. This may not be representative of the market value of these assets, particularly where assets have tobe sold quickly as an emergency measure. In the event that there is a forced sale of forestry or carbon as-sets prior to anticipated maturity, the assumptions made in the valuation model will not all continue to applyand the Net Asset Value of the Society and any redemptions proceeds will be affected accordingly. In addi-tion, the unquoted nature of the Society’s investments may mean that they may be difficult to realise in atimely manner or at all. Valuations of the Society’s assets are made on valuation information provided byArBolivia and other third parties. Although the current directors will evaluate all such information or data, thecurrent directors are generally not in a position to confirm the completeness, genuineness or accuracy ofsuch information.Country RiskThe Society intends to invest almost exclusively in the rights to forestry assets located in Bolivia. Invest-ments in developing markets such as Bolivia may, among other things, carry the risks of less publicly avail-able information, more volatile markets, a greater likelihood of severe inflation, corruption, unstable cur-rency, inadequate investor protection, contradictory legislation, rudimentary, unpredictable, incomplete, un-clear and changing laws, lack of established or effective avenues for legal redress, lack of standard finan-cial or commercial practices, disclosure and confidentiality customs characteristic of developed markets,and lack of enforcement of existing laws and regulations. Investing in Bolivia also creates greater exposureto economic structures that are generally less diverse and mature. It may also be difficult to obtain and en-force a judgment. There is also the possibility of expropriation or confiscatory taxation, imposition of with-holding or other taxes on dividends, interest, capital gains or other income, limitations on the removal offunds or other assets of the Society, political changes, government regulation, social instability or diplomaticdevelopments (including war), all of which could affect adversely the country’s economy or the value of thesociety’s investments in BoliviaPhysical risks associated with timberNatural causes such as fire, insect infestation, extreme weather, disease and other causes beyond the con-trol of the Society may have an impact on the timing of harvests, or reduce the volume and value of timberharvested from the Society’s parcels. This in turn may adversely affect the Society’s operations and finan-cial condition. For example, infestation by certain insects could necessitate the early harvesting of affectedtrees. Extreme drought conditions could reduce the survival rate of trees planted within a year of thedrought conditions. Hail and tropical storms could necessitate the early or unplanned harvesting of affectedtrees. Prolonged periods of adverse weather could negatively affect the quality of the timber produced ornegatively affecting the value of the harvest. The Society will not maintain insurance for any loss to its tim-ber from natural disasters or other similar causes, which is consistent with normal industry practices.
Page 27Physical Risks associated with carbonLoss of timber stocks also directly affect the levels of carbon stored, which may in turn affect the validity ofa number of the credits ownsAs part of any accreditation scheme it is common practice to insist on withholding a buffer of available cred-its to act as an insurance against failures from any of the above sourcesArBolivia therefore retains a buffer of 30% of the total credits available for sale. This means that should thetrees which produce specific credits fail, they can be replaced by trees from other locations in order to pre-serve the validity of the credits in question. With this in mind The Society does not currently intend to not maintain insurance for any loss to its creditsfrom natural disasters or other similar causes, which is consistent with normal industry practices.All forestry parcels are formally registered on the official land use register and they must therefore be usedonly for the registered purpose, i.e. forestry. This means that leakage cannot occur as it would involve achange of land use within the smallholding, which would be ruled out under the terms of the contract withthe project.The most likely cause of a failure through lack of management control is a lack of funding. However, even ifthe project ran out of money and no management controls could be implemented, it is unlikely that the land-owners would cut down their trees before the end of the qualifying period. This is because they would stillhave a legal obligation to continue growing trees on the land and it would be a criminal offence to clear felltrees in order to put the land for alternative use.Economic risks associated with timberThe Society’s operating revenues are dependent on prevailing market prices for wood products, which canfluctuate over time. Prevailing wood product prices are affected by changes in supply and demand, espe-cially within a particular geographic area. Decreases in demand, increases in supply, or both, may reducetimber prices, which in turn may reduce the Society’s revenues and affect its ability to fund redemption re-quests and pay interest. The industries that use these various wood products drive the demand for them.Each market prices the product in a manner that is largely independent from the other markets. It is possi-ble that all markets could deteriorate simultaneously, and negatively affect the ability of the Society to fundredemption requests and interest payments. The number of timber sellers and the volume of timber avail-able for sale determine the supply of timber. Historically, increases in timber prices have caused forestowners to increase their timber cutting. An increase in supply may partly offset price increases. Changes ingovernment regulations and restrictions could adversely affect operating results and timber prices. Certaingovernment agencies have the ability to affect the market for timber due to their forestry holdings. Any sub-stantial increase in sales of timber from government lands could reduce timber prices. Alternatively, govern-ment imposed conservation and environmental restrictions, whether federal, state, or local, could result in areduced ability to harvest from timberlands. Future and existing environmental laws and regulations couldadversely affect the Society’s revenues. The supply of timber available for harvest may also be affected by,among other things, environmental and other legal restrictions on harvesting. Regulations could also dimin-ish the residual value of the assets of the Society. The Society’s operations may also be subject to lawsand regulations specifically governing forestry operations and health and safety. These laws could imposesignificant costs, penalties and liabilities on ArBolovia for violations, whether or not ArBolivia caused orknew about them, which could adversely affect the society’s own operating results. Future regulations maycause the Society to alter certain aspects of its investment strategy and may adversely affect the Society’soperating results and financial condition. Environmental laws and regulations may become more restrictivein the future.Economic risks associated with carbon creditsThe carbon credit market is still relatively young and is vulnerable to high levels of volatility. This may bedue to changes in national and international regulation and agreements or public and corporate reaction todeveloping awareness of the market. There is also a risk that the project’s chosen standard may be super-ceded by more popular or more readily marketable standards.Personnel RisksThe ability of the Society to achieve its investment objective is significantly dependent upon the expertise ofthe current directors of both the society and its partner organisations. The Society is also reliant upon theskills of its other non-executive Directors and the loss of any of these persons could reduce the Society’sability to achieve its planned investment objectives if no suitable replacement is identified and appointed ina timely manner.
Page 28Investment StrategyThe Society cannot be sure that its directors will be successful in obtaining suitable investments on finan-cially attractive terms in the future or that, if the directors recommend investments on the Society’s behalf,the investment objectives will be achieved. The success of the investment strategy followed by the directorsdepends upon their success in correctly interpreting market data. No assurance can be given that the strat-egy to be used will be successful under all or any market conditions. There is also risk that investmentsmade may be in areas where the directors may lack experience or knowledge.Currency RiskThe Society will primarily invest in rights to a share in timber revenues which are denominated in US dollarsand, thus the equivalent sterling value of these assets will fluctuate in line with exchange rates.Title RiskWhilst the individual parcels of land upon which the forestry assets are planted are owned by a large num-ber of individual smallholders and it is part of the independent certification process to verify title to the landupon which the forestry assets are planted, there may be an adverse impact on the value of the forestryassets in the event of any dispute arising out of such joint ownership or leasehold possession.Legal, regulatory and tax risksLegal and regulatory changes, particularly those concerning taxation, could occur that may adversely affectthe Society. Changes in the regulation of industrial and provident societies may adversely affect the valueof the Society’s timber rights Laws governing transactions and contractual relationships are or may be newand largely untested in Bolivia. There can be no assurance that this difficulty in protecting and enforcingrights will not have a material adverse effect on the Society’s investments.THE FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF ALLOF THE RISKS INVOLVED. POTENTIAL INVESTORS SHOULD READ THIS OFFERING DOCUMENT INITS ENTIRETY BEFORE DETERMINING WHETHER TO SUBSCRIBE FOR SHARES.References1. http://assets.panda.org/downloads/facts___figures.pdf2. http://rainforests.mongabay.com/deforestation/2000/Bolivia.htmLand Use Policy Volume 23 issue 3, July 2006, Pages 205-225 Ecology and Society Vol 13, issue 1, article36 -www.ecologyandsociety.org/vol13/iss1/art36/3. http://www.boliviainfoforum.org.uk/inside-page.asp?page=43 §ion=2http://www.jstor.org/pss/4315690http://www.ohchr.org/EN/NewsEvents/Pages/LandBolivia.aspx