-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QAIO3AVI2w1g8gr7ZIWWUefr90cTNxrOX+vhnY2E4eNFtwlGcsbiJktHhc81H+tP tkDvIn7Bn0SGVf7iGk0CBw== 0000950144-04-003858.txt : 20040414 0000950144-04-003858.hdr.sgml : 20040414 20040414155729 ACCESSION NUMBER: 0000950144-04-003858 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 31 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED WATER CO LTD CENTRAL INDEX KEY: 0000928340 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 000000000 STATE OF INCORPORATION: E6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25248 FILM NUMBER: 04733141 BUSINESS ADDRESS: STREET 1: TRAFALGAR PL STREET 2: WEST BAY RD CITY: GRAND CAYMAN BWI CAY STATE: E9 ZIP: 00000 BUSINESS PHONE: 8099474277 MAIL ADDRESS: STREET 1: TRAFALGAR PLACE, WEST BAY ROAD, P.O. BOX STREET 2: GRAND CAYMAN, CAYMAN ISLANDS, BWI FORMER COMPANY: FORMER CONFORMED NAME: CAYMAN WATER CO LTD DATE OF NAME CHANGE: 19941212 10-K 1 g88198e10vk.htm CONSOLIDATED WATER CO. LTD. CONSOLIDATED WATER CO. LTD.
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

     
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

     
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transaction period from                     to                    

Commission File Number: 0-25248

CONSOLIDATED WATER CO. LTD.

(Exact name of Registrant as specified in its charter)
     
CAYMAN ISLANDS   N/A
  		 
 
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer Identification No.)
     
Trafalgar Place, West Bay Road, P.O. Box
1114GT, Grand Cayman, B.W.I. 		   
N/A
  		 
 
(Address of principal executive offices)   (Zip Code)

Registrant’s Telephone number, including area code: (345) 945-4277

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

ORDINARY SHARES, PAR VALUE CI$1.00

(Title of Class)

 

Table of Contents

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
      Yes [X]  No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10-K or any amendments to this Form 10-K. [Not Applicable]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act. Yes [   ]  No [X]

The aggregate market value of common stock held by non-affiliates of the registrant, based on the closing sales price for the registrant’s ordinary shares, as reported on the Nasdaq National Market on March 29, 2004, was $107,861,186.

As at March 29, 2004, there were 5,746,467 shares of the registrant’s ordinary shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

EXCHANGE RATES

Unless otherwise indicated, all dollar amounts are in United States Dollars and references to “$”, “U.S.”, or “U.S.$” are to United States Dollars.

The official fixed exchange rate for conversion of CI$ into U.S.$, as determined by the Cayman Islands Monetary Authority, has been fixed since April 1974 at U.S. $1.20 per CI$1.00.

The official fixed exchange rate for conversion of BZE$ into U.S.$, as determined by the Central Bank of Belize, has been fixed since 1976 at U.S.$ 0.50 per BZE$ 1.00.

The official fixed exchange rate for conversion of BAH$ into U.S.$, as determined by the Central Bank of The Bahamas, has been fixed since 1973 at U.S.$ 1.00 per BAH$ 1.00.

The official fixed exchange rate for conversation of BDS$ into U.S.$ as determined by the Central Bank of Barbados has been fixed since 1975 at U.S.$ 0.50 = BDS$ 1.00.

The British Virgin Islands’ currency is U.S.$.

 

TABLE OF CONTENTS

             
Section
   Description
   Page
           
  Business     1  
  Properties     21  
  Legal Proceedings     23  
  Submission of Matters to a Vote of Security Holders     23  
           
  Market for Registrant’s Common Equity and Related Stockholder Matters     24  
  Selected Financial Data     26  
  Management’s Discussions and Analysis of Financial Condition and Results of Operations     27  
  Quantitative and Qualitative Disclosure about Market Risk     44  
  Financial Statements and Supplementary Data     45  
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     84  
  Controls and Procedures     84  
           
  Directors and Executive Officers of the Registrant     85  
  Executive Compensation     91  
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     99  
  Certain Relationships and Related Transactions     102  
  Principal Accounting Fees and Services     102  
           
  Exhibits, Financial Statement Schedules and Reports on Form 8-K     103  
        110  
 EMPLOYMENT CONTRACT/ PETER RIBBINS
 AMENDMENT TO EMPLOYMENT CONTRACT/ PETER RIBBINS
 EMPLOYMENT CONTRACT/ JEFFREY PARKER
 EMPLOYMENT CONTRACT/ FREDERICK MCTAGGART
 2ND AMENDT. EMPLOYMENT CONTRACT/ GREGORY MCTAGGART
 LEASE OF PART DATED MARCH 1, 2003
 LEASE OF PART DATED JULY 1, 2003
 AMENDED LEASE
 AMENDMENT TO DISTRIBUTION AGREEMENT
 DISTRIBUTION AGREEMENT
 EMPLOYEE SHARE OPTION NOTICE LETTER/ ABEL CASTILLO
 EMPLOYEE SHARE OPTION NOTICE LETTER/ BILLY BANKER
 EMPLOYEE SHARE OPTION NOTICE LETTER/ CHET RITCH
 EMPLOYEE SHARE OPTION NOTICE LETTER/ DAVID HOOKER
 EMPLOYEE SHARE OPTION LETTER/ ELIZABETH TRIANA
 EMPLOYEE SHARE OPTION LETTER/ HELVERT RODRIGUEZ
 EMPLOYEE SHARE OPTION NOTICE LETTER/ IVAN TABORA
 EMPLOYEE SHARE OPTION NOTICE LETTER/ LUIS WOOD
 EMPLOYEE SHARE OPTION NOTICE LETTER/ MAGGIE JULIER
 CODE OF BUSINESS CONDUCT & ETHICS
 SUBSIDIARIES OF THE REGISTRANT
 CONSENT OF KPMG (CAYMAN ISLANDS)
 CONSENT OF KPMG (BRITISH VIRGIN ISLANDS)
 CERTIFICATION BY THE CEO PURSUANT SECTION 302
 CERTIFICATION BY THE CFO PURSUANT SECTION 302
 CERTIFICATION BY THE CEO PURSUANT SECTION 906
 CERTIFICATION BY THE CFO PURSUANT SECTION 906
 COMPENSATION COMMITTEE CHARTER
 AUDIT COMMITTEE CHARTER
 NOMINATIONS COMMITTEE CHARTER

 

Table of Contents

PART I

ITEM 1. BUSINESS

Introduction

     Our company, Consolidated Water Co. Ltd., was incorporated in 1973 and uses reverse osmosis technology to produce freshwater from seawater. We process and supply water to our customers in the Cayman Islands, Belize, Barbados, the British Virgin Islands and the Commonwealth of the Bahamas. We sell water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities.

     Effective February 1, 2003, we acquired interests in five companies which operate a total of seven desalination plant facilities. On July 30, 2003, we acquired a further 13.5% of Waterfields and effective August 1, 2003, acquired an additional 64.7% interest resulting in total controlling interest of 90.9% of Waterfields. These acquisitions increased our daily water production capacity in the Cayman Islands and the Commonwealth of the Bahamas and expanded our geographic presence to include Barbados and the British Virgin Islands. As a result of these acquisitions, our daily capacity has more than tripled from approximately 2.9 to 10.9 million U.S. gallons per day. With one of these acquisitions, we obtained the exclusive right through October 2009 to distribute the DWEER™ Energy Recovery System for use in reverse osmosis seawater desalination plants in the Caribbean basin. We believe the DWEER™ System gives us a distinct competitive advantage when bidding for new plant construction projects.

     Our strategy is to provide water services in areas where the supply of potable water is scarce. We have focused on the Caribbean basin and adjacent areas as our principal market because these areas have: little or no naturally occurring fresh water; limited local regulations and taxes allowing for higher returns than most highly regulated countries; a large proportion of tourist properties, which historically have generated higher volume sales than residential properties.

     To execute this strategy, we plan to grow our business by:

•   continuing to develop our production and distribution infrastructure and providing high quality potable water to our licensed area in the Cayman Islands;
 
•   expanding our existing operations in Belize, Barbados, the British Virgin Islands and the Commonwealth of the Bahamas;
 
•   extending our operations to other markets outside our current areas of operation where there is a need for potable water; and
 
•   broadening our existing and future operations into complimentary services.

     Our business group structure is defined based on areas of management responsibility, which are (i) the operations to supply water to retail customers, (ii) the operations to supply water to bulk customers, and (iii) the provision of engineering and management services. In 2003, we changed the composition of our reportable segments. The operations in the Cayman Islands and the Bahamas that had previously been reported as separate geographical segments are included in Retail Water and the operation in Belize is included in Bulk Water. Services is a new business segment created as a result of our recent acquisitions. In 2003, our Retail Water, Bulk Water and Services segments accounted for 57%, 37% and 6%, respectively of our total revenue. In 2002, these percentages were 88%, 12% and nil%, respectively.

1

Table of Contents

Financial Information about Business Segments

     Financial information about business segments is included in Note 17 of the Consolidated Water Co. Ltd. consolidated statements set forth in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA herein.

Business Combination

     Consolidated financial statements have been presented which include the accounts of the Company’s wholly-owned subsidiaries Cayman Water Company Limited, Belize Water Limited, Ocean Conversion (Cayman) Limited, DesalCo Limited, DesalCo (Barbados) Ltd, and its majority owned subsidiary Waterfields Company Limited. The operating results of Ocean Conversion (Cayman) Limited, DesalCo Limited, DesalCo (Barbados) Ltd. have been included in the consolidated financial statements effective February 1, 2003. The operating results of Waterfields Company Limited have been included in the financial statements effective August 1, 2003. All inter-company balances and transactions have been eliminated. Our investment in Ocean Conversion (BVI) Ltd. has been accounted for under the equity method of accounting.

RETAIL WATER OPERATIONS

     Our Retail water segment accounted for 57% of our revenues in 2003 and is comprised of businesses in the Cayman Islands and the Commonwealth of the Bahamas. These businesses produce potable water from seawater and distribute this water to end-users, including residential, commercial and government customers.

Retail Water Operations in the Cayman Islands

     In the Cayman Islands, we sell retail water to a variety of customers through our wholly-owned subsidiary Cayman Water Company Limited.

     Our retails operations in the Cayman Islands currently produce potable water at three reverse osmosis seawater conversion plants in Grand Cayman, namely our Governor’s Harbour plant, West Bay plant and Britannia plant. We own the land where two of our three water plants are located and have entered into a 25-year lease on the site where the third plant is located. The current production capacities of our Governor’s Harbour plant, West Bay plant, and Britannia plant are 1.2 million, 710,000, and 440,000 U.S. gallons per day, respectively. Since the plants began production of water, they have consistently been capable of operating at or near their rated capacity.

     Feed water for the reverse osmosis units is drawn from deep wells with associated pumps on the properties. Reject water is discharged into brine wells on the properties at a deeper level than the feed water intakes.

     Electricity to our plants is supplied by Caribbean Utilities Co. Ltd., a publicly-traded utility company. At all three plant sites from which we supply water to our distribution pipeline, we maintain diesel driven, standby generators with sufficient capacity to operate our distribution pumps and other essential equipment during any temporary interruptions in the electricity supply.

2

Table of Contents

     In the event of an emergency, our distribution system is connected to the George Town, Grand Cayman distribution system of Water Authority-Cayman. In prior years in order to efficiently maintain our equipment, we have purchased water from Water Authority-Cayman for brief periods of time. We have also sold potable water to the Water Authority-Cayman from time to time.

     Our pipeline system in the Cayman Islands covers the Seven Mile Beach and West Bay areas of Grand Cayman and consists of approximately 67 miles of PVC pipeline. We extend our distribution system periodically as property developments are completed. We have a main pipe loop covering a major part of the Seven Mile Beach area. We place extensions of smaller diameter pipe off our main pipe to service new developments in our service area. This system of building branches from the main pipe keeps our construction costs low and allows us to provide service to new areas in a timely manner. During 2003, we completed a number of small pipeline extensions into newly developed properties within our franchise area.

     Developers are responsible for laying the pipeline within their developments at their own cost, but in accordance with our specifications. When a development is completed, the developer then transfers operation and maintenance of the pipeline to us.

     We have a comprehensive layout of our pipeline system, which is maintained in a computer aided design (“CAD”) system. This system is integrated with digital aerial photographs and a computer generated hydraulic model, which allows us to accurately locate pipes and equipment in need of repair and maintenance. It also helps us to plan extensions of and upgrades to our existing pipeline system.

Residential and Commercial Operations in the Cayman Islands

     We enter into standard contracts with hotels, condominiums and other properties located in our existing licensed area to provide potable water to such properties. We currently have agreements on differing terms and rates to supply potable water to the 309-room Marriott Hotel and the 343-room Westin Hotel, the 357-room Hyatt Hotel and Britannia Golf Course, and to supply non-potable water to the SafeHaven Golf Course.

     In the Seven Mile Beach area, our primary customers are the hotels and condominium complexes which serve the tourist industry. In the West Bay area, our primary customers are residential homes. Occasionally, we also supply to, or buy from, on an as-needed basis, the Water Authority-Cayman, which serves the business district of George Town and other parts of Grand Cayman.

     Although at a slower pace than in previous years, development is taking place on Grand Cayman, and particularly in our licensed area to accommodate both the growing local population and the tourism market. Because our license requires us to supply water to developments in our licensed area, the planning department of the Cayman Islands government routinely advises us of proposed developments in our licensed area. This advance notice allows us to manage our production capacity to meet anticipated demand. We believe that we have, or have contracted for, a sufficient supply of water to meet the foreseeable future demand.

     We bill on a monthly basis based on metered consumption. Receivables are typically collected within 30 to 35 days after the billing date and receivables not collected within 45 days subject the customer to disconnection from our water service. In 2003, bad debts represented less than 1% of our total sales for the year. Customers who have had their service disconnected must pay re-connection charges.

3

Table of Contents

     The following table shows, for each of the five years ended December 31, 2003, our total number of customer connections at the end of each year and metered sales of water for that year:

                                         
    2003
   2002
   2001
   2000
   1999
Number of Customers
     3,300       3,100       2,999       2,836       2,606  
Miles of Pipeline
     67       66       65       64       63  
Metered Sales (in thousands of U.S. gallons):
                                        
Commercial
     429,013       405,545       358,711       345,940       308,949  
Residential
     107,528       103,661       104,002       97,759       86,712  
Government facilities
     6,164       13,789       11,425       7,599       5,686  
 
    
 		      
 		      
 		      
 		      
 		  
Total Metered Sales
     542,705       522,995       474,138       451,298       401,347  
 
    
 		      
 		      
 		      
 		      
 		  

     The table above does not precisely represent the actual number of customers we service. In hotels and condominiums, we may only have one customer, which is the operator of the hotel or the condominium, but we actually supply water to all of the units within that hotel or condominium development. Of the customers indicated in the table above, as of 2003, 51.0% were residential, 48.3% were hotels, condominiums and other commercial customers and 0.7% were government facilities.

     In the past, demand on our pipeline distribution has varied throughout the year. Demand depends upon the number of tourists visiting and the amount of rainfall during any particular time of the year. In general, the majority of tourists come from the United States.

     We have a two-year agreement expiring on December 31, 2004 with Safehaven Ltd. to supply non-potable water on demand to irrigate an 18-hole golf course. After December 31, 2004, the agreement may be terminated by either party upon four months notice.

     Before 1991, any owner of property within our licensed area could install water-making equipment for its own use. Since 1991, that option is only available to private residences, although water plants in existence prior to 1991 can be maintained but not replaced or expanded. When the Marriott Hotel was built in 1990 in our licensed area, the developer installed its own reverse osmosis seawater desalination equipment. The equipment proved unreliable, and on February 4, 1994, we entered into an agreement with the owner of the Marriott Hotel to supply between 60,000 and 180,000 U.S. gallons of water per month at our standard tariff rates. If we are required to supply more than 180,000 U.S. gallons in a month, we will provide the water at our standard tariff rates on a best efforts basis. The Marriott Hotel has recently discontinued operation of its own reverse osmosis equipment, and increased the capacity of its service connection to our pipe line. However the owner of the hotel has indicated that it may refurbish the reverse osmosis equipment. We believe that refurbishment or replacement of the plant may be a breach of law, and have advised the Water Authority-Cayman of our concern.

     In 1995, we entered into a 10-year agreement with the owner of the Westin Hotel. This agreement requires us to supply up to 1.86 million U.S. gallons per month at a discount to our standard tariff rates, and to supply any additional demand on a best efforts basis. The Westin Hotel maintains storage capacity on-site, assists pressurization with on-site re-pumping facilities, and has provided us with a letter of credit that covers the cost of water supply for 45 days.

     In 2001, we entered into a 25-five year agreement, which took effect February 1, 2002, to acquire the Britannia plant and to supply a minimum of 62 million U.S. gallons of potable water per year on a take or pay basis to Cayman Hotel and Golf, Inc., the owner of the Hyatt Grand Cayman Resort and Britannia golf course. We are required by our government license to meet any water demand from our customer above the 62 million U.S. gallons of water supplied per year.

4

Table of Contents

Retail Water Operations in the Bahamas

     In 2000, we entered into a water supply agreement with South Bimini International Ltd., a company incorporated in the Commonwealth of Bahamas, and on July 11, 2001 we began to provide potable water from one reverse osmosis seawater conversion plant in South Bimini, Bahamas capable of producing 115,000 U.S. gallons per day. Potable water is supplied to the marina and condominium development, Bimini Sands Resort and Bimini Beach Hotel, a 40 room hotel. The developer of the Bimini Sands Resort continues to develop the property, but we are not currently aware of any time schedule by the developer for the completion of the additional condominium units. Under our agreement, South Bimini International Ltd. is committed to pay for a minimum of 3,000 U.S. gallons of water per customer per month (36,000 U.S. gallons per customer per year) on a take or pay basis in relation to the Bimini Sands Resort. The price of water supplied is adjusted for inflation annually based on Bahamian and U.S. government indices, and adjusted monthly for changes in the cost of electricity. During 2003, we supplied South Bimini International Ltd. with 3.4 million U.S. gallons of water.

     We believe that water sales in Bimini will be cyclical. We expect that our sales will be higher during the summer months when tourists and fisherman arrive from the United States by boat, and when several large angling tournaments are traditionally held in Bimini. We expect that our sales will be lower during winter months when the weather is not conducive to pleasure boat travel from the United States.

     Feed water for the reverse osmosis unit is drawn from deep wells with associated pumps on the property. Reject water is discharged into brine wells on the property at a deeper level than the feed water intakes.

     Electricity to our plants is supplied by Bahamas Electricity Corporation. We maintain a diesel driven, standby generator with sufficient capacity to operate our distribution pumps and other essential equipment during any temporary interruptions in the electricity supply.

Retail Water Demand and Average Sales Price

     The table below lists the total volume of water we supplied on a quarterly basis for the five years ended December 31, 2003 to all of our Retail Water customers:

                                         
    2003
   2002
   2001
   2000
   1999
            (in thousands of U.S. gallons)        
First Quarter
     141,575       141,559       119,115       125,869       107,031  
Second Quarter
     144,134       146,488       129,305       117,766       113,007  
Third Quarter
     125,510       120,201       119,182       100,259       90,888  
Fourth Quarter
     134,957       119,231       107,536       107,404       90,421  
 
    
 		      
 		      
 		      
 		      
 		  
Total
     546,176       527,479       475,138       451,298       401,347  
 
    
 		      
 		      
 		      
 		      
 		  

5

Table of Contents

     Our average sales price per 1,000 U.S. gallons of potable water sold to our Retail water customers for the three years ended December 31, 2003, 2002 and 2001 are as follows:

                         
    2003   2002   2001
    (per 1,000 U.S. gallons)
Average Sales Price
   $ 19.69     $ 19.79     $ 20.62  

BULK WATER OPERATIONS

     Our Bulk water segment accounted for 37% of our revenues in 2003 and is comprised of businesses in the Cayman Islands, Belize, British Virgin Islands, and the Commonwealth of the Bahamas. These businesses produce potable water from seawater and sell this water to governments and private customers.

Bulk Water Operations in the Cayman Islands

     In the Cayman Islands, we sell bulk water, through our wholly-owned subsidiary Ocean Conversion (Cayman) Limited, to the Water Authority-Cayman who in turn distribute that water to properties in the parts of Grand Cayman that are outside of our retail licensed area. During 2003, we supplied the Water Authority-Cayman with 646 million US gallons of water.

     As a result of our acquisition of Ocean Conversion (Cayman) Limited, we operate, but do not own, three additional reverse osmosis seawater conversion plants in Grand Cayman with a total installed capacity of 2.9 million U.S. gallons per day: the Red Gate Road plant with a production capacity of 1.3 million U.S. gallons per day, the Lower Valley plant with a production capacity of 792,000 U.S. gallons per day and the North Sound plant with a production capacity of 792,000 U.S. gallons per day. The plants that we operate for Water Authority-Cayman are located on land owned by the Cayman Islands government. Ocean Conversion (Cayman) Limited provides water on a take or pay basis to the Water Authority-Cayman, a government owned utility and regulatory agency, under various licenses and agreements.

     In April 1994, our wholly-owned subsidiary, Ocean Conversion (Cayman) Limited, was granted a seven-year water supply license by the government of the Cayman Islands and the Water Authority-Cayman to supply desalinated water from the Red Gate Road plant. In January 2001, this agreement was extended for seven years with effect from December 2001. Under the terms of this license Ocean Conversion (Cayman) Limited is obligated to deliver to the Water Authority-Cayman the amount of water it demands or 1.2 million U.S. gallons of water per day on average each month, which ever is less.

     In June 1997, our wholly-owned subsidiary, Ocean Conversion (Cayman) Limited, was granted a seven-year water supply license by the government of the Cayman Islands and the Water Authority-Cayman to supply desalinated water from the Lower Valley plant. In August 1999, this agreement was extended with effect from March 1999 until March 2006. Under the terms of this license Ocean Conversion (Cayman) Limited is obligated to deliver to the Water Authority-Cayman the amount of water it demands or 713,000 U.S. gallons of water per day on average each month, which ever is less.

6

Table of Contents

     In December 2001, our wholly-owned subsidiary, Ocean Conversion (Cayman) Limited, was granted a seven-year water supply license, with effect from November 2002, by the government of the Cayman Islands and the Water Authority-Cayman to supply desalinated water from the North Sound plant. Under the terms of this license Ocean Conversion (Cayman) Limited is obligated to deliver to the Water Authority-Cayman the amount of water it demands or 713,000 U.S. gallons of water per day on average each month, which ever is less.

Bulk Water Operations in Belize

     In Belize, we sell bulk water through our wholly-owned subsidiary Belize Water Limited to Belize Water Services Ltd. (“BWSL”), which distributes the water through its own pipe line system to residential, commercial and tourist properties in Ambergris Caye, Belize. During 2003, we supplied BWSL with 99.9 million U.S. gallons of water.

     On July 21, 2000, we acquired Seatec Belize Ltd. and subsequently changed the name of the company to Belize Water Limited. Belize Water Limited provides potable water from one reverse osmosis seawater conversion plant in Ambergris Caye, Belize, Central America, capable of producing 420,000 U.S. gallons per day, to BWSL, which acquired the operations of the Belize Water and Sewerage Authority in February 2001.

     On September 17, 2003 we entered into a new 23-year contract with BWSL to supply a minimum of 1.75 million US gallons of water per week, or upon BWSL’s demand up to 2.1 million US gallons per week, on a take or pay basis. Additionally we are BWSL’s exclusive supplier of desalinated water on Ambergris Caye, Belize throughout the term of the contract. The new contract has been executed, but final completion is subject to satisfying three conditions precedent, of which to date we have met one and BWSL has met one. We are awaiting confirmation from the Government of Belize that our application for extension of our existing import duty and tax exemptions has been granted until at least September 17, 2009, which will satisfy the final condition precedent. The terms and conditions of the contract signed on June 26, 1992 between BWSL and our company remain in full force and effect until all conditions precedent are satisfied. On November 12, 2003, we offered and BWSL accepted a reduced concessionary water rate, effective November 1, 2003, which is equal to the water rate that we will charge BWSL under the new agreement. This reduced concessionary rate can be withdrawn by us at any time and we expect to offer the reduced rate until we satisfy the conditions precedent in the new contract.

     The new contract terminates on March 23, 2026. However BWSL has the option to advise us no later than six months before the termination date that it wishes to renew the contract for a further 25-year period on the same terms and conditions.

     On June 26, 1992 we entered into a contract with BWSL to supply a minimum of 135,000 U.S. gallons of water per day to BWSL, which expires in 2011, unless otherwise terminated in accordance with the terms of our new contract signed on September 1, 2003. While we own our production plant in Belize, we lease the parcel of land on which our plant is located from the Government of Belize at an annual rent of BZE$1.00. The lease commenced on April 27, 1993 and was extended on January 2, 2004 to a period of 33 years.

     When we originally acquired Belize Water Limited in July 2000, we were contractually obligated to supply water to Belize Water and Sewerage Authority, a Belize government organization. In early 2001, BWSL, a private company, purchased Belize Water and Sewerage Authority and assumed our contract with the Belize Water and Sewerage Authority.

     The base price of water supplied, and adjustments thereto, are determined by the terms of the

7

Table of Contents

contracts, which provide for annual adjustments based upon the movement in the government price indices specified in the contract, as well as monthly adjustments for changes in the cost of diesel fuel and electricity.

     We bill on a monthly basis based on metered consumption. Receivables are due within 21 days after the billing date. Interest of 1.5% per month (1% per month under the new contract) is charged on any delayed payments.

     BWSL distributes our water primarily to residential properties, small hotels, and businesses that serve the tourist market.

     We have operated our plant in Belize since July 2000. We believe that water sales in Belize are less cyclical, but on a similar cycle to sales in the Cayman Islands. Although both operations cater to similar tourist markets, Belize has a greater proportion of residents to tourists.

     In early 2003 our customer, BWSL, repaired several leaks in its distribution pipe line in Ambergris Caye. As a result, our water sales decreased by approximately 19% during January 2003, and continued to be lower than 2002 water sales for the full year in 2003. Our sales in 2003 were 11.2% lower by volume than in 2002. We expect this lower sales level to continue, and that modest increases will occur because of ongoing residential and tourist property development.

     Feed water for the reverse osmosis units is drawn from deep wells with associated pumps on the property. Reject water is discharged into brine wells on the property at a level below that of the feed water intakes.

     Electricity to our plant is supplied by Belize Electricity Limited. At the plant site, we maintain a diesel driven, standby generator with sufficient capacity to operate our essential equipment during any temporary interruptions in the electricity supply.

Bulk Water Operations in the British Virgin Islands

     In the British Virgin Islands, we sell bulk water through our affiliate, Ocean Conversion (BVI) Ltd., to the Government of the British Virgin Islands Water and Sewerage Department (“BVIW&S”), which distributes the water through its own pipe line system to residential, commercial and tourist properties on the islands of Tortola and Jost Van Dyke. During 2003, Ocean Conversion (BVI) Ltd. supplied BVIW&S with 297 million U.S. gallons of water.

     We account for our interests in Ocean Conversion (BVI) Ltd. using the equity investment method, and therefore the operating results of Ocean Conversion (BVI) Ltd. are not consolidated in our financial statements. Income from this equity investment has been included in our bulk water operations segment, since the business of Ocean Conversion (BVI) Ltd. is similar to the business of our bulk water operations segment.

     On February 7, 2003, we completed our purchase of 50% of the issued and outstanding voting stock, certain profit sharing rights and all of the non-voting shares of Ocean Conversion (BVI) Ltd. Also on that date we surrendered 18.2% of our profit sharing rights for 45,000 non-voting shares of Ocean Conversion (BVI) Ltd. On May 9, 2003 we sold all of our non-voting shares of Ocean Conversion (BVI) Ltd. to Sage Water Holdings (BVI) Limited. We now own 50% of the voting shares and 50% of the profit sharing rights of Ocean Conversion (BVI) Ltd.

8

Table of Contents

     Ocean Conversion (BVI) Ltd. supplies desalinated water produced from its Baughers Bay desalination plant in Tortola, British Virgin Islands to BVIW&S. On May 31, 1999, the British Virgin Islands Government did not extend the water supply agreement for a seven-year period, and did not make a terminal payment of $1.42 million to Ocean Conversion (BVI) Ltd., which would have entitled them to take possession of the Baughers Bay plant. On January 28, 2000, the government advised Ocean Conversion (BVI) Ltd. that it considered a water sales arrangement to be in force on a monthly basis until negotiations for a new agreement could be concluded. Negotiations on the terms of a new agreement have not proceeded since our acquisition of interests in Ocean Conversion (BVI) Ltd., and we are presently awaiting an indication from government that they wish to meet to discuss the terms of a new agreement.

     Ocean Conversion (BVI) Ltd.’s Baughers Bay plant was expanded in December 2003 to a capacity of 1.7 million U.S. Gallons per day. The plant is dual-train seawater reverse osmosis plant with an advanced energy recovery system. Ocean-Conversion (BVI) Ltd. generates its own electrical power on site using two large Caterpillar diesel driven generator units. Ocean Conversion (BVI) Ltd. also purchases electricity from the BVI Electric Co. to power ancillary equipment and provide building lighting.

     Our wholly-owned subsidiary, DesalCo Limited, provides a Vice President and Chief Executive Officer as well as other management and engineering services to Ocean Conversion (BVI) Ltd. in the form of accounting services, personnel management and plant management for a monthly fee of $20,400. DesalCo Limited also receives a bonus of 4% of the annual net operating income of Ocean Conversion (BVI) Ltd.

     Under the Articles of Association of Ocean Conversion (BVI) Ltd., we are able to appoint three of the six directors of the company. Sage Water Holdings (BVI) Limited, which owns the remaining 50% of the issued and outstanding voting shares, is entitled to appoint the remaining three directors. If there is a tied vote on any matter, the President of the Caribbean Water and Wastewater Association will be entitled to appoint a junior director to break the tie.

Bulk Water Operations in the Bahamas

     In the Commonwealth of the Bahamas, we sell bulk water through our majority-owned subsidiary, Waterfields Company Limited, to the Water and Sewerage Corporation of the Bahamas (“WSC”), which distributes the water through its own pipe line system to residential, commercial and tourist properties on the island of New Providence. During 2003, Waterfields Company Limited supplied WSC with 587 million U.S. gallons of water.

     As a result of our acquisition of DesalCo Limited on February 7, 2003 we acquired a 12.7% interest in Waterfields Company Limited. On July 30, 2003, we acquired a further 13.5% of Waterfields and effective August 1, 2003, acquired an additional 64.7% interest resulting in total controlling interest of 90.9% of Waterfields.

     We supply bulk water to WSC from our Windsor Plant under the terms of a 15-year water supply agreement dated May 7, 1996. We are required under this agreement to provide WSC with at least 16.8 million US gallons per week of potable water, and WSC has contracted to purchase at least that amount from us on a take-or-pay basis. The water supply agreement expires on the later of March 1, 2013 or after the plant has produced approximately 13.1 billion U.S. gallons of water. At the conclusion of the initial term of the water supply agreement, WSC has the following options:

•   extend the term of the agreement for an additional five years at a reduced rate specified in the agreement;

9

Table of Contents

•   exercise a right of first refusal to purchase any materials, equipment and facilities that Waterfields intends to remove from the site, and negotiate a purchase price with Waterfields; or
 
•   require Waterfields to remove all materials, equipment and facilities from the site.

     Feed water for the reverse osmosis unit is drawn from deep wells with associated pumps on the property. Reject water is discharged into brine wells on the property at a deeper level than the feed water intakes.

     Electricity to our plants is supplied by Bahamas Electricity Corporation. We maintain, standby generator with sufficient capacity to operate essential equipment at our Windsor Plant and are able to produce water with this plant during any temporary interruptions in the electricity supply.

Bulk Water Demand and Average Sales Price

     The table below lists the total volume of water we supplied on a quarterly basis for the four years ended December 31, 2003 to all of our Bulk water customers:

                                 
    2003
   2002
   2001
   2000
    (in thousands of U.S. gallons)
First Quarter
     133,682       24,751       24,589       —  
Second Quarter
     208,107       30,206       26,519       —  
Third Quarter
     300,429       30,028       21,404       19,507  
Fourth Quarter
     350,143       27,552       21,266       19,624  
 
    
 		      
 		      
 		      
 		  
Total
     992,361       112,537       93,778       39,131  
 
    
 		      
 		      
 		      
 		  

     Our average sales price per 1,000 U.S. gallons of potable water sold to our Bulk water customers for the three years ended December 31, 2003, 2002 and 2001 are as follows:

                         
    2003   2002   2001
    (per 1,000 U.S. gallons)
Average Sales Price
   $ 7.10     $ 13.07     $ 13.12  

10

Table of Contents

SERVICES (ENGINEERING AND MANAGEMENT) OPERATIONS

Engineering Services Operations acquired through DesalCo Limited

     As a result of our acquisition of DesalCo Limited effective February 1, 2003, we provide management, engineering and construction services for desalination projects and are the exclusive agents for sales of DWEER™ energy recovery systems for desalination plants in the Caribbean basin until October 2009. DesalCo Limited, which is recognized by suppliers as an original equipment manufacturer of reverse osmosis seawater desalination plants, also acts as the purchasing agent for all companies affiliated with our company.

     In 2003 DWEER Technology Ltd. (“DWEER Tech”), the owner of the DWEER™ technology, licensed the world-wide rights to the DWEER™ technology to Calder AG, a Swiss company. On February 26, 2004 we entered into a new exclusive Caribbean distributorship agreement with Calder AG for the DWEER™ technology, and amended the terms of our distributorship agreement with DWEER Tech. The Calder agreement supercedes our agreement with DWEER Tech, and contains terms comparable to the DWEER Tech agreement.

Service Operations in Barbados

     Effective February 1, 2003, we acquired all of the issued and outstanding stock of DesalCo Limited. DesalCo Limited owns all of the issued and outstanding stock of DesalCo (Barbados) Ltd., a Barbados company, which operates a desalination plant for Sandy Lane Properties Ltd. in St. James, Barbados. As a result of our acquisition of DesalCo Limited, we acquired control of its wholly-owned subsidiary, DesalCo (Barbados) Ltd.

     Under the terms of a supply agreement and operating agreement with Sandy Lane Properties Ltd., DesalCo Limited constructed and operates a seawater desalination plant, which provides irrigation water for several golf courses on the Sandy Lane Resort in St. James, Barbados. The plant and property are owned by Sandy Lane Properties Ltd. and DesalCo Limited operates the plant under the terms of a five-year operating agreement, which expires in January 2006. Sandy Lane Properties Ltd. has the option to cancel the operating agreement with three months prior notice to DesalCo Limited, subject to certain penalties for early termination of the operating agreement. The operating agreement was assigned to DesalCo Limited’s wholly-owned subsidiary, DesalCo (Barbados) Ltd., in January 2001 and DesalCo (Barbados) Ltd. pays a monthly assignment fee to DesalCo Limited equal to 8% of the gross revenue received under the operating agreement. DesalCo Limited also provides certain engineering services and pays a portion of the plant manager’s salary in exchange for a management fee of approximately $12,640 per month and reimbursement of expenses. This management fee was reduced in May 2003 from approximately $14,700 per month.

OTHER INFORMATION REGARDING THE COMPANY’S BUSINESS

Wastewater Services in the Cayman Islands

     We began providing sewerage services on Grand Cayman in 1973. In 1987, the Cayman Islands government, through Water Authority-Cayman, constructed a public sewerage system in part of the Seven Mile Beach area where Governor’s Harbour is located. In 1988, Water Authority-Cayman began processing sewage delivered by the pipelines and lift stations in that area and we stopped our processing of sewage. Water Authority-Cayman currently directly bills our former sewerage customers for its services. In October 2001, we reached an agreement with the Water Authority-Cayman pursuant to which

11

Table of Contents

Water Authority-Cayman assumed, in November 2002, the operation of two remaining sewage lift stations, which we had operated. No revenue was earned for wastewater services during the three years ended December 31, 2003.

The Government in the Cayman Islands, Customs Duties and Taxes

     The Cayman Islands are a British Overseas Territory of the United Kingdom and have had a stable political climate since 1670, when the Cayman Islands were ceded to England by the Treaty of Madrid. The Queen of England appoints the Governor of the Cayman Islands to make laws with the advice and consent of the legislative assembly. There are 15 elected members of the legislative assembly and three members appointed by the Governor from the Civil Service. The Executive Council is responsible for day-to-day government operations. The Executive Council consists of five ministers who are chosen by the legislative assembly from its 15 popularly elected members, and the three Civil Service members. The Governor has reserved powers and the United Kingdom retains full control over foreign affairs and defense. The Cayman Islands are a common law jurisdiction and have adopted a legal system similar to that of the United Kingdom.

     We have exemptions from, or receive concessionary rates of, customs duties on capital expenditures on plant and major consumable spares and supplies imported into the Cayman Islands as follows:

•   there are no local taxes on profit, income, distributions, capital gains or appreciations of our company in the Cayman Islands;
 
•   we do not pay any import duty or taxes on permeator membranes, electric pumps and motors and chemicals, and we pay duty at the rate of 10% of the cost, including insurance and transportation to the Cayman Islands, of other plant and associated materials and equipment to manufacture or supply water in Seven Mile Beach or West Bay areas; and
 
•   Ocean Conversion (Cayman) Limited pays all customs duties up to 10% in respect of materials and supplies imported for the Red Gate plant and is reimbursed amounts in excess of this by Water Authority-Cayman.

     A major source of revenue to the Cayman Islands government is a 7.5% or 9% stamp tax, depending on location, on the transfer of ownership of land in the Cayman Islands. During the period of November 14, 2001 to date the stamp tax rate is temporarily set at 5%. To prevent stamp tax avoidance by transfer of ownership of the shares of a company, which owns land in the Cayman Islands (as opposed to transfer of the land itself), The Land Holding Companies (Share Transfer Tax) Law was passed in 1976. The effect of this law is to charge a company, which owns land or an interest in land in the Cayman Islands, a tax based on the value of its land or interest in land attributable to each share transferred. The stamp tax calculation does not take into account the proportion which the value of a company’s Cayman land or interest bears to its total assets and whether the intention of the transfer is to transfer ownership or part of a company’s entire business or a part of its Cayman land or interest.

     Prior to our ordinary shares becoming quoted in the United States, we paid this tax on private share transfers. We have never paid the tax on transfers of our publicly traded shares. Since 1994, we requested that the Cayman Islands government exempt us from the share transfer tax. On April 10, 2003, we received notice that the Cayman Islands government had granted an exemption from taxation for all transfers of our shares. We believe it is unlikely that government will seek to collect this tax on transfers of our publicly traded shares between the period 1994 through April 10, 2003.

12

Table of Contents

The Government in the Bahamas, Customs Duty, and Taxes

     The Commonwealth of the Bahamas is a constitutional parliamentary democracy with the Queen of England as the constitutional head of state. The basis of Bahamian law and legal system is the English common law tradition with a Supreme Court, Court of Appeals, and a Magistrate court.

     We have not been granted any tax exemptions for our Bahamian operations. Bahamian companies are subject to an annual business license fee ranging from 1% to 2% of their gross revenues. We did not pay any business license fees to the Bahamian government in respect of our Bimini retail water operations during 2001, 2002, or 2003, other than National Insurance Board tax on our employees. We estimate our potential tax liability based on our 2003, 2002 and 2001 gross revenues to be less than $2,500.

The Government in Belize, Customs Duty, and Taxes

     Belize (formerly British Honduras) achieved full independence from the United Kingdom in 1981. Today, Belize is a constitutional monarchy with the adoption of a constitution in 1991. Based on the British model with three independent branches, the Queen of England is the constitutional head of state, represented by a Governor General in the government. A prime minister and cabinet make up the executive branch, while a 29 member elected House of Representatives and a nine member appointed Senate form a bicameral legislature. The cabinet consists of a prime minister, other ministers and ministers of state who are appointed by the Governor-General on the advice of the Prime Minister, who has the support of the majority party in the House of Representatives. Belize is an English common law jurisdiction with a Supreme Court, Court of Appeals and local Magistrate Courts.

     The Government of Belize has exempted Belize Water Limited from all import duties and stamp taxes until January 28, 2005, and company taxes until January 28, 2006. Belize levies a gross receipts tax on corporations at a rate varying between 0.75% and 25%, depending on the type of business, and a corporate income tax at a rate of 25% of chargeable income. Gross receipts tax payable amounts are credited towards corporate income tax. We believe our business would be subject to a 1.25% gross receipts tax and income tax without our exemption. Belize levies import duty on most imported items at rates varying between 0% and 45%, with most items attracting a rate of 20%. While the Government of Belize confirmed its commitment in a letter dated June 29, 1992 from the Financial Secretary of Belize to support all future applications for extensions or additional tax exemptions for the life of the water supply contract, future exemptions must be approved by the Belizean legislature and we cannot give any assurance that we will be granted any further tax exemptions after January 28, 2006.

     In January 2004, in connection with our new water sales contract with BWSL, we submitted an application to the Government of Belize requesting that our existing stamp tax, import duty, and company tax exemptions are extended until March 23, 2026. We have received confirmation that our application is currently under review, and we are awaiting a reply from the government.

The Government in the British Virgin Islands and Customs, Duties and Taxes

     The British Virgin Islands is an Overseas Territory of the United Kingdom that was first settled by the Dutch in 1648 and annexed by the British in 1672. It adopted a constitution in 1977 and is now a constitutional democracy with three branches of government: the Executive Council, the Judiciary and the Legislative Council. Executive authority is vested in the Queen of England, exercised through her representative, the Governor. The Governor has responsibility for the courts, public service, police, and foreign affairs and full policy-making authority. The Governor is not a member of the Executive Council but receives assistance with the day-to-day operations of the government. The Executive Council is made

13

Table of Contents

up of various members of the legislature. The Parliament or Legislative Council is made up of (13) thirteen seats with members elected by popular vote, serving up to but no more than five-year terms. The British Virgin Islands are an English common law jurisdiction with a Supreme Court, Court of Appeals and Magistrates Court.

     The British Virgin Islands imposes a corporate income tax at a rate of 15% of net income. However, Ocean Conversion (BVI) Ltd. received an exemption, under the water supply agreement with the British Virgin Islands government, from all taxes, duties, levies and impositions on items which it imports for the Baugers Bay plant.

The Government in Barbados and Customs, Duties and Taxes

     Barbados is an independent island nation that was initially occupied by the British in 1627. It remained a British colony until 1961 when it was granted internal autonomy. Barbados gained full independence in 1966 but remains a member of the British Commonwealth that appoints the Governor General. The Governor General appoints members of the cabinet with the advice of the prime minister. The parliament consists of the senate whose 21 members are appointed by the Governor General and the assembly whose 28 members are popularly elected. Barbados is an English common law jurisdiction with a Supreme Court.

     The net income of DesalCo (Barbados) Ltd. is subject to a 40% Barbados corporate tax, and all dividend payments and supplier payments are subject to a Barbados withholding tax of 15%. All customs duties due on parts and equipment for the plant are paid by DesalCo (Barbados) Ltd. since a concession on such duties held by Sandy Lane Properties Ltd. expired in March 2004. Value added taxes are paid by Sandy Lane Properties Ltd. DesalCo (Barbados) Ltd. has made all necessary tax filing and payments.

Government Regulation

     In the Cayman Islands, we are regulated by the Water Authority-Cayman on behalf of the Cayman Islands Government and believe that our operations comply with all local laws and regulations.

     We have received confirmation from the Public Utilities Commission of Belize that they approve of the terms and conditions of our new contract with Belize Water Services Limited. We believe that our operations in Belize comply with all other local laws and regulations.

     We believe that our operations in the Bahamas, the British Virgin Islands and Barbados comply with all local laws and regulations, and we are currently reviewing our Bahamian tax status as it relates to our Bimini operation, as disclosed above.

Market and Service Area

     Although we currently operate in the Cayman Islands, Belize, Barbados, the British Virgin Islands and the Bahamas, we believe that our potential market consists of any location where there is a need for potable water. The desalination of seawater, either through distillation or reverse osmosis, is the most widely used process for producing fresh water in areas with an insufficient natural supply. We believe our experience in the development and operation of distillation and reverse osmosis desalination plants as well as our exclusive rights in the Caribbean to the DWEER™ energy recovery system provides us with a significant opportunity to successfully expand our operations beyond the markets in which we currently operate.

     Prior to our acquisition of Ocean Conversion (Cayman) Limited in February 2003, the market that we serviced under our exclusive license in the Cayman Islands consisted of Seven Mile Beach and

14

Table of Contents

West Bay, Grand Cayman, two of the three most populated areas in the Cayman Islands. The Cayman Islands Government, through Water Authority-Cayman, supplies water to parts of Grand Cayman, which are not within our licensed area, as well as to Little Cayman and Cayman Brac. As a result of our acquisition of Ocean Conversion (Cayman) Limited, we operate all the reverse osmosis desalination plants of Water Authority-Cayman on Grand Cayman and supply water under licenses and supply agreements held by Ocean Conversion (Cayman) Limited with Water-Authority Cayman.

     According to the most recent figures published by the Economics and Statistics Office of the Cayman Islands Government, the population of the Cayman Islands was approximately 39,410 in 1999. The figures published by the Cayman Islands Government Department of Tourism show that for the year ended December 31, 2003, the tourist air arrivals decreased by 3% and tourists cruise ship arrivals increased 16% from the prior year. Total visitors increased to 2.1 million persons for the year ended December 31, 2003 from 1.9 million during the year ended December 31, 2002. We believe that our water sales in the Cayman Islands are more positively impacted by tourists that arrive by air than by those arriving by cruise ship, since cruise ship tourists generally only remain on island for one day or less.

     During 2003, construction progresses markedly within our franchise area on the 360-room Ritz Carlton Hotel, condominiums and golf course development. The developer of this project has announced an anticipated completion date of December 2004. We are not currently aware of any similar large developments in the final planning stages or under construction within our service area in the Cayman Islands.

     During 2002, the government of the Cayman Islands amended the Development and Planning Law to permit construction of buildings up to seven stories in certain zones within our franchise area, including commercial and hotel zones. Previously, buildings in these zones were only permitted to be built to five stories. We believe that this change in the law will facilitate the development of certain properties within our franchise area that may have otherwise not developed under the old height restriction, and it has already facilitated the re-development of one existing property, which has been demolished and re-built as a seven-story structure.

     Our current operations in Belize are located on Ambergris Caye, which consists of residential, commercial and tourist properties in the town of San Pedro. This town is located on the southern end of Ambergris Caye. Ambergris Caye is one of many islands located east of the Belize mainland and off the southeastern tip of the Yucatan Peninsula. Ambergris Caye is approximately 25 miles long and, according to the Belize National Population Census 2000, has a population of about 4,500 residents, which has increased approximately 144% over the past ten years. We provide bulk potable water to Belize Water Services Limited which distributes this water to this market. Belize Water Services Limited (“BWSL”) currently has no other source of potable water on Ambergris Caye. Our new contract with BWSL makes us the exclusive producer of desalinated water on Ambergris Caye though 2026.

     A 185 mile long barrier reef, which is the largest barrier reef in the Western Hemisphere, is situated just offshore of Ambergris Caye. This natural attraction is becoming a choice destination for scuba divers and tourists. According to information published by the Belize Trade and Investment Development Service, tourism is Belize’s second largest source of foreign income, next to agriculture.

     Our current operations in the Bahamas are located on South Bimini Island and in New Providence. The Bimini Islands consist of North Bimini and South Bimini, and are two of 700 islands which comprise the Bahamas. The Bimini Islands are located approximately 50 miles east of Ft. Lauderdale, Florida and are a premier destination for sport fishing enthusiasts. The population of the Bimini Islands is approximately 1,600 persons and the islands have about 200 hotel and guest rooms available for tourists. The total land area of the Bimini Islands is approximately 9 square miles.

15

Table of Contents

     New Providence, Lyford Caye and Paradise Island, connected by several bridges, are located approximately 150 miles east southeast of the Bimini Islands. With an area of 151 square miles and a population of approximately 211,000, Nassau is the political capital and the commercial hub of the Bahamas. As the largest city with its famed Cable Beach, it accounts for more than two-thirds of the four million tourists who visit the Bahamas annually. New Providence is presently experiencing intermittent water shortages and imports about one-half of its water from Andros Island, which lies about 35 miles west of New Providence.

     The British Virgin Islands, like the Cayman Islands, are an Overseas Territory of the United Kingdom and are situated east of Puerto Rico. They consist of 16 inhabited and more than 20 uninhabited islands, of which Tortola is the largest and most populated island. The islands are the center for many large yacht-chartering businesses.

     Barbados, located northeast of Venezuela between the Caribbean Sea and the North Atlantic Ocean, is an independent sovereign nation member of the British Commonwealth. It has a population of approximately 277,000 and was traditionally known for its cultivation of sugar cane. More recently, the economy has diversified to include tourism and light manufacturing.

Growth Strategy

     Our strategy is to provide water services in areas where the supply of potable water is scarce. We have focused on the Caribbean basin and adjacent areas as our principal market because these areas have: little or no naturally occurring fresh water; limited local regulations and taxes allow for higher returns than most highly regulated countries; and a large proportion of tourist properties, which historically have generated higher volume sales than residential properties.

     Our growth strategy is as follows:

•   We intend to continue to develop our production and distribution infrastructure and provide high quality potable water to our licensed area in the Cayman Islands. We have increased our share of the potable water market in the Cayman Islands as a result of our purchase of the Britannia plant and recent acquisition of Ocean Conversion (Cayman). We also intend to explore the feasibility of either acquiring or obtaining the license from the Cayman Island government to operate Water Authority-Cayman, which supplies water to parts of Grand Cayman, Little Cayman and Cayman Brac.
 
•   We intend to expand our existing operations in the Cayman Islands, Belize, Barbados, the British Virgin Islands and the Commonwealth of the Bahamas. For example, through negotiations with Belize Water Services Limited, we have extended the term of our agreement to 23 years and increased the guaranteed minimum quantities supplied. We intend to seek new water supply agreements for other areas in Belize. Similarly, as the development of resort properties in Bimini continues, we expect to sell more water to additional customers further utilizing our current plant until the installation of a larger plant becomes necessary. We also believe that the water supply needs in New Providence, Bahamas are growing and we are pursuing two new opportunities to produce and sell more water in New Providence. In the British Virgin Islands, we expanded the capacity of our existing plant on the island of Tortola from 1.2 million to 1.7 million U.S. gallons per day, and we are constructing a second plant on the island of Tortola.
 
•   We intend to expand our operations to other markets outside of our current areas of operation where there is need for potable water. In addition to our recent acquisitions, we are currently involved in preliminary discussions to operate water-making plants and to supply water in other new markets and may pursue these opportunities either on our own or through joint

16

Table of Contents

    ventures. So far, we have focused on various locations throughout the Caribbean basin and Central America.
 
•   We intend to broaden our existing and future operations into complementary services. Prior to the installation of a central wastewater system by the Cayman Islands government, we provided wastewater services on Grand Cayman. We may reenter this field in the Cayman Islands and intend to use our expertise to provide such services outside of the Cayman Islands.

Reverse Osmosis Technology

     The conversion of saltwater to potable water is called desalination. There are two primary forms of desalination: distillation and reverse osmosis. Both methods are used throughout the world and technologies are improving to lower the costs of production. Reverse osmosis is a separation process in which the water from a pressurized saline solution is separated from the dissolved material by passing it over a semi-permeable membrane. An energy source is needed to pressurize the saline (or feed) water for pretreatment, which consists of fine filtration and the addition of precipitation inhibitors. Pre-treatment removes suspended solids, prevents salt precipitation and keeps the membranes free of microorganisms. Next, a high-pressure pump enables the water actually to pass through the membrane, while salts are rejected. The feed water is pumped into a closed vessel where it is pressurized against the membrane. As a portion of the feed water passes through the membrane, the remaining feed water increases in salt content. This remaining feed water is discharged without passing through the membrane. As the discharged feed water leaves the pressure vessel, its energy is captured by an energy recovery device which is used to pressurize incoming feed water. The final step is post-treatment, which consists of stabilizing the water, removing hydrogen sulfide and adjusting the pH and chlorination to prepare it for distribution.

     We use reverse osmosis technology to convert seawater to potable water. We believe that this technology is the most effective and efficient conversion process for our market. However, we are always seeking ways to maximize efficiencies in our current processes and to investigate new more efficient processes to convert seawater to potable water. The equipment at our plants is among the most energy efficient available and we monitor and maintain our equipment in an efficient manner. As a result of our years of experience in seawater desalination, we believe that we have an expertise in the development and operation of desalination plants which is easily transferable to locations outside of our current operating areas.

     In addition, DesalCo Limited, our recently acquired wholly-owned subsidiary, is the exclusive distributor in the Caribbean basin for the DWEER™ system produced by DWEER Technology Limited for use in reverse osmosis seawater desalination plants. An advanced energy recovery system, the DWEER™ system is utilized to efficiently recover energy from the high-pressure brine that is the by-product of the reverse osmosis desalination process. Unlike pump/turbine systems used in many desalination plants around the world, the DWEER™ system recovers nearly 100% of the energy contained in the reject water (or brine) from the reverse osmosis process. As a result, the DWEER™ energy recovery system for reverse osmosis seawater desalination plants is one of the most energy efficient systems of its kind. The DWEER™ system is used on all desalination plants that DesalCo Limited has designed since 1990. As a result of the completion of the DesalCo Limited acquisition in February 2003, our company has the exclusive distribution rights for the DWEER™ system in the Caribbean basin through October 2009.

17

Table of Contents

Raw Materials and Sources of Supply

     All materials, parts and supplies essential to our business operations can normally be obtained from multiple sources, except for the DWEER™ energy recovery devices which are exclusively manufactured by Calder AG, a Swiss company, and which we use at all of our plants with the exception of the Belize and Britannia plants. We have obtained, through our subsidiary DesalCo Limited, a seven-year exclusive distributorship agreement with Calder AG for the DWEER™ system. We do not manufacture any parts or components for equipment essential to our business. Our access to seawater for processing into potable water is granted through our licenses and contracts with governments of the various jurisdictions in which we have our operations.

Licenses, Franchises and Concessions

     Our exclusive operational license was issued to us by the Cayman Islands government under The Water (Production and Supply) Law of 1979. Unless renewed, the license terminates on July 11, 2010.

     Two years prior to the expiration of the license, we have the right to negotiate with the government to extend the license for an additional term. Unless we are in default under the license, the government may not grant a license to any other party without first offering the license to us on terms that are no less favorable than those which the government offers to a third party.

     We must provide, within our licensed area, any requested piped water service that, in the opinion of the Executive Council of the Cayman Islands government, is commercially feasible. Where supply is not considered commercially feasible, we may require the potential customer to contribute toward the capital costs of pipe-laying. We then repay these contributions to the customer, without interest, by way of a 10% discount on future billings for water sales until this advance in aid of construction has been repaid. We have been installing additional pipeline when we consider it to be commercially feasible, and the Cayman Islands government has never objected to our determination regarding commercial feasibility.

     Under our exclusive license, we pay a royalty to the government of 7.5% of our gross water sales revenue. Other than the selling prices provided in our agreements with the Westin Hotel, the Hyatt Hotel and Britannia Golf Course and SafeHaven Golf Course, the selling price of water under the license varies depending upon the type and location of the customer and the monthly volume of water purchased. The license provides for an automatic adjustment for inflation or deflation on an annual basis, subject to temporary limited exceptions, and an automatic adjustment for the cost of electricity on a monthly basis. The Water Authority-Cayman, on behalf of the government, reviews and approves the calculations of the price adjustments for inflation and electricity costs.

     If we want to adjust our prices for any reason other than inflation or electricity costs, we have to request prior approval of the Executive Council of the Cayman Islands government. If the parties fail to agree, the matter is referred to arbitration. The last such price increase that we requested was granted in full in June 1985.

Seasonal Variations in Our Business

     Although, our water sales in the Cayman Islands, Belize and Bimini are seasonal, the variations between the periods are not significant. We normally sell more water during the first and second quarters when greater numbers of tourists are present. Our sales are also affected to some extent by the weather. We sell less water during the third and fourth quarters, which normally experience higher rainfall amounts than other times of the year. We do not believe that our operations in Nassau and Tortola will be subject

18

Table of Contents

to significant seasonal variations in demand. Our operation in Barbados has been subject to seasonal demand variations since Sandy Lane finished the grow-in of the grass on their three golf courses in early 2003.

Competition

     We do not compete with other utilities within our licensed area in the Cayman Islands. Although we have been granted an exclusive franchise for our present service area, our ability to expand our service area is limited at the discretion of the government. At the present time, we are the only non-municipal public water utility on Grand Cayman. The Cayman Islands government, through Water Authority-Cayman, supplies water to parts of Grand Cayman which are not within our licensed area.

     On Ambergris Caye in Belize, our new water supply contract with Belize Water Services Limited is exclusive, and Belize Water Services Limited can no longer seek contracts with other water suppliers, or produce water themselves, to meet their future needs in San Pedro, Ambergris Caye, Belize.

     On South Bimini Island in the Bahamas, we supply water to a private developer and do not have competitors. AquaDesign, an Ionics Inc. company, operates a seawater desalination plant on North Bimini Island. We are aware that AquaDesign/Ionics, Enerserve/Vivendi, IDE, Pridesa, Inima and Biwater are competing with us for a new contract with the Bahamian government to build and operate a seawater desalination plant at Blue Hills, New Providence, Bahamas. We expect to compete with these companies in the future for similar projects.

     AquaDesign operates seawater desalination plants in West End and Sea Cows Bay, Tortola, and on Virgin Gorda in the British Virgin Islands and generally bids against Ocean Conversion (BVI) Ltd. for projects. There are currently water shortages in certain areas of Tortola, particularly on the eastern end of the island, and we believe that additional desalination plants will be required to alleviate these shortages. Ocean Conversion (BVI) Ltd. is currently designing a seawater desalination plant to be constructed on a site already identified in East End, Tortola.

     DesalCo (Barbados) Ltd., the wholly-owned subsidiary of DesalCo Limited, operates a seawater desalination plant which provides irrigation water for several golf courses on the Sandy Lane Resort in St. James, Barbados. Ionics Inc. competed with us for this operating agreement. We expect that Ionics and other companies of comparable size and financial resources will compete with us for future agreements with the Sandy Lane Resort as well as any other agreements which we may seek in Barbados.

     To implement our growth strategy outside our existing operating areas, we will have to compete with the same companies we are presently competing with for the Blue Hills project in Nassau, Bahamas. These companies currently operate in areas in which we would like to expand our operations. These companies already maintain world-wide operations and have greater financial, managerial and other resources than our company. We believe that our low overhead costs, knowledge of local markets and conditions, exclusive rights in the Caribbean to the DWEER™ energy recovery system and our efficient manner of operating desalinated water production and distribution equipment will provide us competitive advantage on projects, ranging in size up to 8 million U.S. gallons per day, in the Caribbean basin and surrounding areas.

Environmental Matters

     With respect to our Cayman Islands operations, although not required by local government regulations, we operate our water plants in accordance with guidelines of the Cayman Islands Department of Environment. Under these guidelines, our plants may not have emissions of hydrogen sulfide at levels greater than 20 milligrams per liter at the exit of the air scrubbers. We are licensed by the government to

19

Table of Contents

discharge concentrated seawater, which is a byproduct of our desalination process, into deep disposal wells.

     Our Cayman Islands license requires that our potable water quality meet the World Health Organization’s Guidelines for Drinking Water Quality and contain less than 200 mg/l of total dissolved solids. On February 1, 2003, we entered into a license amendment with the government under which we were required by October 1, 2003 to improve the aesthetic quality of our potable water supply in our licensed area to the same quality as that supplied by Ocean Conversion (Cayman) Limited to Water Authority-Cayman. We completed upgrades to our Governor’s Harbour, West Bay and Britannia plants before the October 1st deadline, and we meet all of the water quality requirements in our Cayman license. In addition, noise levels at our plants cannot exceed the standards established by the U.S. Occupational Safety and Health Act. To date, we have not received any complaints from any regulatory authorities concerning hydrogen sulfide emissions.

     With respect to our Belize, Bahamas and British Virgin Islands operations, we are required by our water supply contracts to take all reasonable measures to prevent pollution of the environment. We are licensed by the Belize and Bahamian governments to discharge concentrated seawater, which is a byproduct of our desalination process, into deep disposal wells, and by British Virgin Islands government to discharge concentrated seawater into the coastal marine environment. We operate our plants in a manner so as to minimize the emission of hydrogen sulfide gas into the environment. We are not aware of any existing or pending environmental legislation which may affect our operations in Belize, the Bahamas and the British Virgin Islands. To date we have not received any complaints from any regulatory authorities regarding hydrogen sulfide gas emission, nor any other matter relating to operations.

     In Barbados, we operate a seawater desalination plant for Sandy Lane Properties Ltd., who holds all of the government and environmental permits relating to the construction and operation of the plant. We are not aware of any existing or pending environmental legislation which may affect our operations in Barbados.

Employees

     Including employees from our acquisitions in February 2003, we employ 55 persons in the Cayman Islands, seven of whom are executive and management personnel who have an average of 15 years experience with our company or in a directly related position. Ten employees are engaged in administrative and clerical positions. The remaining staff are engaged in engineering, plant maintenance and operations, pipe laying and repair, leak detection, new customer connections, meter reading and laboratory analysis of water quality. Our staff has significant experience and on average has worked with us for eight years, with three of the employees having worked over 20 years with us. We presently employ six persons in Belize to manage and operate our plant. Waterfields Company Limited presently employs eight persons to operate the plant in New Providence, Bahamas. We directly employ one person to manage and operate our water plant and distribution system in South Bimini, Bahamas. We presently employ five persons in Barbados to operate the water plant for Sandy Lane Properties. Currently, we manage the five employees of Ocean Conversion (BVI) Ltd. in the British Virgin Islands. None of our employees is party to a collective bargaining agreement. We consider our relationship with our employees to be good.

20

Table of Contents

ITEM 2. PROPERTIES

Cayman Island Properties

     Governor’s Harbour Plant

     We own our Governor’s Harbour plant and the 8,745 square feet of buildings which contain the water treatment facility, and operate and maintain the plant through our wholly-owned subsidiary Ocean Conversion (Cayman) Limited. The plant is located on 3.2 acres, including 485 feet of waterfront. The current water production capacity of our Governor’s Harbour plant is 1.2 million U.S. gallons per day. On this site we also have three 1.0 million U.S. gallon potable water storage tanks, which were constructed in 2003 to replace our previous 2.0 million U.S. gallon fabric-lined storage tanks. The property surrounding the facility has yet to be fully developed, although these areas are being developed for residential and tourist accommodations.

     West Bay Plant

     We own, operate and maintain our West Bay plant in Grand Cayman, which is located on 6.1 acres in West Bay. The plant began operating on June 1, 1995 and was expanded in February 1998 and again in February 2000. On this site, we have a 2,600 square foot building which houses our water production facilities, a 2,400 square foot building which houses the potable water distribution pumps, a water quality testing laboratory, office space and water storage capacity consisting of three 1.0 million U.S. gallon potable water tanks. The current capacity of our West Bay plant is 710,000 U.S. gallons per day.

     Britannia Plant

     On February 1, 2002, we purchased the Britannia seawater desalination plant in Grand Cayman, which consists of four seawater reverse osmosis production units with a combined nominal production capacity of 440,000 U.S. gallons of water per day, an 840,000 U.S. gallon bolted steel water tank, potable water high service pumps, and various ancillary equipment to support the operation. We have entered into a lease of the 0.73 acre site and steel frame building which houses the plant, from Cayman Hotel and Golf Inc., for a term of 25 years at an annual rent of $1.00.

     Distribution System

     We own our Seven Mile Beach and West Bay potable water distribution systems in Grand Cayman. The combined systems consist of approximately 67 miles of polyvinyl chloride and polyethylene water pipes, valves, curb stops, meter boxes, and water meters installed in accordance to accepted engineering standards in the United States of America.

     Leased Properties

          In addition to the properties where our water plants are located, we rent approximately 4,350 square feet of space for our executive offices at Trafalgar Place, West Bay Road, Grand Cayman under a lease which expires on January 31, 2008, with an extension provision until January 31, 2010.

     Operations Acquired as a Result of Our Recent Acquisition of Ocean Conversion (Cayman) Limited

     Following completion of our acquisition of all of the outstanding stock of each of DesalCo

21

Table of Contents

Limited and Ocean Conversion (Cayman) Limited, we assumed operational control over four water production plants in the Cayman Islands, one of which we already owned, but had contracted with Ocean Conversion (Cayman) Limited to operate until December 2004.

     Red Gate Road Plant

     Under the terms of the water production and supply license between Ocean Conversion (Cayman) Limited and the government of the Cayman Islands, Ocean Conversion (Cayman) Limited is allowed to use the property on which the plant is located to produce approximately 1.3 million U.S. gallons of desalinated water per day for sale to the Water Authority-Cayman. Ocean Conversion (Cayman) Limited owns all of the buildings, equipment feed water wells and brine disposal wells with the exception of the piping from the wells to the plant (including feed water and brine disposal) and the main electrical service disconnect, both of which are owned by Water Authority-Cayman. The property on which the plant is located is also owned by Water Authority-Cayman. The plant was originally powered only by electricity, but was upgraded in 1994 to include diesel driven high-pressure pumps. The original electric driven pumps are still in place as backups, although the electric pumps alone are not capable of powering the plant at the full production rate. Upon expiration of the water production and supply license on November 30, 2008, Water Authority-Cayman will take possession of the plant for no consideration. This license was extended in November 2001 for a period of seven years and no further extension options are included in the present license.

     Lower Valley Plant

     Ocean Conversion (Cayman) Limited provided the plant and equipment to Water Authority-Cayman under a seven-year vendor-financed sale and operating agreement. Ocean Conversion (Cayman) Limited operates the electrically-powered 850,000 U.S. gallons per day rated plant and supplies approximately 792,000 U.S. gallons of desalinated water per day to Water Authority-Cayman. Ocean Conversion (Cayman) Limited leases the property on which the plant is located from Water Authority-Cayman for a minimal annual rent for the duration for the sale and operating agreement, which expires on March 9, 2006, but which contains a provision to extend the operating portion of the agreement for an additional period. Responsibility for operation of the plant passes to Water Authority-Cayman upon expiration of the lease-purchase and operating agreement. No further expansions of the plant are possible due to the restrictive size of the site and special considerations related to the feed water and brine disposal wells.

     North Sound Plant

     Construction of this plant commenced in June 2002 and was completed in November 2002. Ocean Conversion (Cayman) Limited provided the plant and equipment to Water Authority-Cayman under a seven-year vendor-financed sale and operating agreement. Ocean Conversion (Cayman) Limited operates the electrically powered plant and supplies approximately 792,000 U.S. gallons of desalinated water per day to Water Authority-Cayman. Ocean Conversion (Cayman) Limited leases the property on which the plant is located from Water Authority–Cayman for a minimal annual rent, for the duration of the sale and operating agreement. Responsibility for operation of the plant passes to Water Authority-Cayman upon expiration of the sale and operating agreement on November 28, 2009.

     Management Services Agreement

     The management services agreement between DesalCo Limited and Ocean Conversion (Cayman) Limited was terminated on December 1, 2003. Our company now provides management and engineering resources directly to its wholly-owned subsidiary, Ocean Conversion (Cayman) Limited.

22

Table of Contents

Belize Properties

     We own our San Pedro water production facility in Ambergris Caye, Belize. The plant consists of a one story concrete block building, which contains a seawater RO water production plant with a production capacity of 420,000 US gallons per day. We lease from the Government of Belize at an annual rent of BZ$1.00, the parcel of land on which our plant is located. The lease commenced on April 27, 1993 and was recently extended for a term of 33 years.

Bahamas Properties

     We own our Bahamas water production facility in South Bimini, Bahamas. The plant consists of two 40 foot long standard refrigerated shipping containers, which contain a seawater RO water production plant with a rated capacity of 115,000 US gallons per day, a 250,000 US gallon bolted steel potable water tank, and a high service pump skid. The facility is located on a parcel of land owned by South Bimini International Ltd., and we are allowed, under the terms of our water supply agreement, to utilize the land for the term of the agreement, without charge.

     We own our Bahamas water production facility in Nassau, New Providence, Bahamas. The plant consists of four independent seawater reverse osmosis units, each with a production capacity of 700,000 U.S. gallons of water per day, a brackish water reverse osmosis plant with a production capacity of 2.6 million U.S. gallons per day, feed water deep wells, brine injection wells, fuel storage tanks, and other ancillary equipment. All of the seawater units feed their product into the brackish water unit which produces water for the Water and Sewerage Corporation of the Bahamas containing less than 50 mg/l of total dissolved solids. The plant is powered by a combination of diesel engine-driven high pressure pumps, and electrical power purchased from the Bahamas Electricity Corporation to power all other loads in the plant. The plant is contained within a 13,000 sq. ft. concrete and steel building, which also contains a warehouse, workshop and offices. The plant is located on land owned by the Water and Sewerage Corporation of the Bahamas and our fifteen-year water sales agreement gives us a license to use the land throughout the term of that agreement.

ITEM 3. LEGAL PROCEEDINGS

     We are not currently a party to any ongoing or pending legal proceeding.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted during the fourth quarter of the fiscal year covered by this Annual Report to a vote of security holders, through the solicitation of proxies or otherwise.

23

Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

     Our ordinary shares of common stock (“ordinary shares”) are listed on the Nasdaq National Market and trade under the symbol “CWCO”. Our ordinary shares are not traded on any market other than the Nasdaq National Market. Listed below, for each quarter of the last two fiscal years, are the high and low closing bid prices for the ordinary shares on the Nasdaq National Market.

                 
    HIGH
   LOW
First Quarter 2002
     14.75       11.49  
Second Quarter 2002
     15.10       13.13  
Third Quarter 2002
     15.20       11.24  
Fourth Quarter 2002
     14.74       11.58  
First Quarter 2003
     15.47       13.77  
Second Quarter 2003
     15.91       13.50  
Third Quarter 2003
     17.75       14.02  
Fourth Quarter 2003
     20.98       17.37  

     The high and low closing bid prices in the table reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

     There is no trading market for our redeemable preferred shares, which are only issued to, or purchased by, long-term employees of our company and which must be held by these employees for a period of four years before they vest.

     On December 31, 2003, we issued options to purchase an additional 165,752 ordinary shares having an exercise price of $20.05 to two directors and three executive officers. These options are exercisable until April 7, 2007. The options issued on December 31, 2003 were exempt from registration under Regulation S promulgated under the Securities Act of 1933 because the options were offered and sold outside of the United States to non-U.S. persons, as defined in Regulation S. All of the options were issued as consideration for services that the directors and the executive officer provided to us during fiscal year 2003.

Holders

     On March 29, 2004, we had 654 holders of record of our ordinary shares.

Dividends

     We have paid cash dividends on our ordinary shares since 1985. The board of directors’ policy is to pay cash dividends out of accumulated profits on a quarterly basis, if funds are available. Our board of directors have established a policy, although not a binding obligation, that, subject to annual review by the board of directors, our company will maintain a dividend pay-out ratio in the range of 50% to 60% of

24

Table of Contents

net income. Our payment of any future cash dividends, however, will still depend upon our earnings, financial condition, capital demand and other factors, including the condition in our loan agreement with Scotiabank (Cayman Islands) Ltd. that dividends be paid from current cash flow. The board of directors declares and approves all interim dividends. It is a requirement of our Articles of Association for the board of directors to seek shareholder approval of the final dividend, if any, at the annual meeting of our shareholders.

     Listed below, for each quarter of the last two fiscal years, is the amount of interim dividends, in U.S. dollars, declared on our issued and outstanding ordinary shares and redeemable preferred shares. No final dividend was declared during the last two fiscal years.

                 
First Quarter 2002
     0.105     Per Share
Second Quarter 2002
     0.105     Per Share
Third Quarter 2002
     0.105     Per Share
Fourth Quarter 2002
     0.105     Per Share
First Quarter 2003
     0.105     Per Share
Second Quarter 2003
     0.105     Per Share
Third Quarter 2003
     0.105     Per Share
Fourth Quarter 2003
     0.105     Per Share

     On February 10, 2004 our board of directors declared an interim cash dividend of $0.115 per share, an increase of approximately 10%, payable on April 30, 2004 to shareholders of record on March 31, 2004.

Exchange Controls and Other Limitations Affecting Security Holders

     Our company is not subject to any governmental laws, decrees or regulations in the Cayman Islands which restrict the export or import of capital, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities. The Cayman Islands does not impose any limitations on the right of non-resident owners to hold or vote our ordinary shares other than stated below. There are no exchange control restrictions in the Cayman Islands.

Taxation

     The Cayman Islands presently impose no taxes on profit, income, distribution, capital gains, or appreciations of our company and no taxes are currently imposed in the Cayman Islands on profit, income, capital gains, or appreciations of the holders of our securities or in the nature of estate duty, inheritance, or capital transfer tax. There is no income tax treaty between the United States and the Cayman Islands.

     As discussed in Part I, Item 1, we were subject in the Cayman Islands to a stamp tax when our shares are transferred. Prior to our ordinary shares becoming quoted in the United States, we paid this tax on private share transfers. We have never paid the tax on transfers of our publicly traded shares. Since 1994, we requested that the Cayman Islands government exempt us from the share transfer tax. On April 10, 2003, we received notice that the Cayman Islands government had granted an exemption from taxation for all transfers of our shares. We believe it is unlikely that government will seek to collect this tax on transfers of our publicly traded shares during the period 1994 through April 10, 2003.

25

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA

     As a result of a management decision we have voluntarily adopted accounting principles generally accepted in the United States of America (“US-GAAP”) effective January 1, 2000. Previously, annual financial statements were prepared in accordance with International Accounting Standards (“IAS”). As a result all prior periods’ financial information presented in the selected financial data have been prepared in accordance with “US-GAAP”.

     The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries Cayman Water Company Limited, Belize Water Limited, Ocean Conversion (Cayman) Limited, DesalCo Limited, DesalCo (Barbados) Ltd, and its majority owned subsidiary Waterfields Company Limited. The operating results of Ocean Conversion (Cayman) Limited, DesalCo Limited, DesalCo (Barbados) Ltd. have been included in the consolidated financial statements effective February 1, 2003. The operating results of Waterfields Company Limited have been included in the financial statements effective August 1, 2003. All inter-company balances and transactions have been eliminated.

     Set forth below is selected financial data based upon our consolidated financial statements. The table contains information, expressed in US dollars, derived from our audited consolidated financial statements for the five-year period ended December 31, 2003. This selected financial data should be read in conjunction with the more detailed financial statements and related notes thereto contained elsewhere in this Annual Report. The audited consolidated financial statements for the years ended December 31, 2000 and 1999 and accountant’s reports thereon are not included in this Annual Report.

                                         
    YEAR ENDED DECEMBER 31,
    2003
   2002
   2001
   2000
   1999
Statement of Income Data:
                                        
Revenue
   $ 19,054,205     $ 12,154,689     $ 11,248,105     $ 9,795,751     $ 7,936,118  
Net Income (1)
     4,177,081       2,576,310       2,764,573       2,404,820       1,569,717  
Balance Sheet Data:
                                        
Total Assets
     68,562,126       25,507,637       22,721,178       21,845,672       16,431,321  
Long Term Debt Obligation
     16,633,437       2,074,609       1,213,804       1,131,986       1,926,786  
Redeemable preferred stock
     16,302       23,688       30,234       40,361       49,270  
Dividends Declared Per Share
     0.42       0.42       0.40       0.34       0.20  
Basic Earnings Per Share
     0.85       0.65       0.71       0.68       0.51  
Based on Number of Shares
     4,917,183       3,969,861       3,897,969       3,532,501       3,044,293  
Diluted Earnings Per Share
     0.83       0.63       0.69       0.67       0.49  
Based on Weighted Number of Shares
     5,037,530       4,087,532       3,999,691       3,616,271       3,188,048  

(1)   Net Income represents income after a cumulative change in accounting principle in 1999 of $117,576 as Statement of Position 98-5 “Reporting on the Costs of Start-Up Activities” requires start up costs to be expensed as incurred rather than deferred.

26

Table of Contents

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     Our objective is to provide water services in areas where the supply of potable water is scarce and where the use of RO technology to produce potable water is economically feasible. By focusing on this market, we believe that we can provide a superior financial return to our investors. To increase share value and maintain dividend payouts in accordance with current company policy, we need to expand our revenues by developing new business opportunities both within our current service areas, and in new areas. We need to maintain our high operating efficiencies by adhering to our strict equipment maintenance and water loss mitigation programs in order to achieve gross profit margins between 40% and 45%. We further believe that many Caribbean basin and adjacent countries, while being water scarce, also present opportunities for operation of our plants in limited regulatory settings which are less restrictive than the highly regulated markets of North America, which promotes cost effective operation of our equipment.

     Our business operations and activities after our acquisitions in February 2003, are conducted in five countries: the Cayman Islands, Belize, Barbados, the British Virgin Islands and the Bahamas. The recent acquisitions increase our daily water production capacity in the Cayman Islands and the Bahamas and expand our geographic presence to include Barbados and the British Virgin Islands.

Operations Before and After Recent Acquisitions

                                     
Operations Before Recent Acquisitions   Operations After Recent Acquisitions
Location   Plants   Capacity*   Location   Plants   Capacity*
Cayman Islands
    3       2.4     Cayman Islands     6       5.3  
Bahamas
    1       0.1     Bahamas     2       2.7  
Belize
    1       0.4     Belize     1       0.4  
                  Barbados     1       1.3  
                  British Virgin Islands     1       1.2  
Total
    5       2.9     Total     11       10.9  

     *Million U.S. gallons of water per day.

Cayman Islands

     We have been operating our business on Grand Cayman Island since 1973 and have been using RO technology to convert seawater to potable water since 1989. There is a limited natural supply of fresh water on the Cayman Islands. We currently have an exclusive license from the Cayman Islands government to process potable water from seawater and then sell and distribute that water by pipeline to Seven Mile Beach and West Bay, Grand Cayman. Prior to our acquisition of Ocean Conversion (Cayman) Limited, our Cayman Islands operations consisted of three reverse osmosis seawater conversion plants in Grand Cayman: the Governor’s Harbour plant, the West Bay plant and the Britannia plant. The combined capacity of these plants is 2.4 million U.S. gallons per day. Our pipeline system in the Cayman Islands covers the Seven Mile Beach and West Bay areas of Grand Cayman and consists of approximately 67 miles of polyvinyl chloride pipe. Retail water sales in Grand Cayman are made within our licensed area

27

Table of Contents

to approximately 3,300 customers. During 2003, we supplied approximately 543 million U.S. gallons of water to our Retail water customers in Grand Cayman.

     As a result of our recent acquisition of Ocean Conversion (Cayman) Limited, we now operate an additional three reverse osmosis seawater conversion plants in Grand Cayman with a total installed capacity of 2.9 million U.S. gallons per day. Ocean Conversion (Cayman) Limited provides water on a take or pay basis to the Water Authority-Cayman, a government regulatory agency, under various licenses and agreements. During 2003, we supplied approximately 646 million U.S. gallons of water to our Bulk water customer in Grand Cayman.

     DesalCo Limited provides management, engineering and construction services for desalination projects and is the exclusive agent for sales of DWEER™ energy recovery systems for desalination plants in the Caribbean basin for the next seven years. DesalCo Limited, which is recognized by suppliers as an original equipment manufacturer, also acts as the purchasing agent for all companies affiliated with our company.

Belize

     Our Belize operation, which was acquired on July 21, 2000, consists of one reverse osmosis seawater conversion plant on Ambergris Caye, Belize, Central America, which is capable of producing 420,000 U.S. gallons per day. We sell water to one customer, Belize Water Services Limited, which then distributes the water through its own distribution system to residential, commercial and tourist properties on Ambergris Caye. During 2003, we supplied approximately 100 million U.S. gallons of water to our Bulk water customer in Belize.

Bahamas

     Prior to our acquisition of operational control of Waterfields Company Limited, our Bahamas operations consisted of one reverse osmosis seawater conversion plant in Bimini, Bahamas. Our Bimini plant is capable of producing 115,000 U.S. gallons per day and provides potable water to Bimini Sands Resort and to the Bimini Beach Hotel. During 2003, we supplied approximately 3 million U.S. gallons of water to our retail water customer in Bimini, Bahamas. We expect the demand for water from our plant in Bimini to increase as additional phases are completed at the Bimini Sands development.

     As a result of our acquisition of Waterfields Company Limited, we acquired an additional reverse osmosis seawater conversion plant in the Bahamas. Waterfields produces potable water from one reverse osmosis seawater conversion plant in New Providence and has a total installed capacity of 2.6 million U.S. gallons per day. Waterfields Company Limited provides water on a take or pay basis to the Water and Sewerage Corporation of the Bahamas under a long-term build, own and operate supply agreement. During 2003, we supplied approximately 247 million U.S. gallons of water to our Bulk water customer in the Bahamas.

Barbados

     The recently acquired Barbados operation consists of a service agreement to operate one reverse osmosis seawater conversion plant with a capacity of 1.3 million U.S. gallons per day which is owned by Sandy Lane Resort. This plant is operated by DesalCo (Barbados) Ltd., the wholly owned subsidiary of DesalCo Limited. The plant provides water to the Sandy Lane Resort, and during 2003, we produced approximately 261 million U.S. gallons.

28

Table of Contents

British Virgin Islands

     We recently entered the market in the British Virgin Islands when our wholly-owned subsidiary, DesalCo Limited acquired an equity position and shared management control of Ocean Conversion (BVI) Ltd., which produces potable water from one reverse osmosis seawater conversion plant in Tortola, British Virgin Islands. The plant has a total installed capacity of 1.7 million U.S. gallons per day. Ocean Conversion (BVI) Ltd. provides water to the Department of Water and Sewerage of the Ministry of Communications and Works of the Government of the British Virgin Islands. During 2003, we supplied approximately 297 million U.S. gallons of water to our bulk water customer in the British Virgin Islands.

Critical Accounting Policies

     The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to trade accounts receivable, intangible assets and goodwill. Our company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies are the most important to the portrayal of our financial condition and results and require management’s more significant judgments and estimates in the preparation of our company’s consolidated financial statements.

     Trade accounts receivable: We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Management continuously evaluates the collectibility of accounts receivable and record allowances for doubtful accounts based on estimates of the level of actual write-offs which might be experienced. These estimates are based on, among other things, comparisons of the relative age of accounts and consideration of actual write-off history.

     Goodwill and other intangible assets: Goodwill represents the excess costs over fair value of the assets of an acquired business. Goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimatable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. The Company periodically evaluates the possible impairment of goodwill. Management identifies its reporting units and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company determines the fair value of each reporting unit and compares it to the carrying amount of the reporting unit. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the Company is required to perform the second step of the impairment test, as this is an indication that the reporting unit goodwill may be impaired. In this step, the Company compares the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141, “Business Combinations”. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the implied fair value is less than its carrying amount, the impairment loss is recorded. Our annual impairment tests resulted in no goodwill impairment.

29

Table of Contents

Quarterly Results of Operations

     The following table presents unaudited quarterly results of operations for the eight quarters ended December 31, 2003. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts started below to present fairly such quarterly information.

                                 
    For the year ended December 31, 2003
    First   Second   Third   Fourth
    Quarter   Quarter   Quarter   Quarter
Total revenue
   $ 4,018,725     $ 4,750,381     $ 5,004,101     $ 5,280,998  
Gross profit
     1,944,686       2,351,485       2,081,866       1,999,887  
Net income
     1,017,998       1,013,041       1,121,298       1,024,744  
Diluted earnings per share
     0.24       0.23       0.20       0.18  
                                 
    For the year ended December 31, 2002
    First   Second   Third   Fourth
    Quarter   Quarter   Quarter   Quarter
Total revenue
   $ 3,184,805     $ 3,291,929     $ 2,915,066     $ 2,762,889  
Gross profit
     1,518,353       1,494,795       1,201,119       1,058,245  
Net income
     926,500       811,259       604,769       233,782  
Diluted earnings per share
     0.23       0.20       0.15       0.06  

Revenue

     Revenue is comprised of retail water sales via pipeline to individual customers, bulk water sales to large commercial or municipal customers, and fees for management and engineering services.

Expenses

     Expenses include the cost of sales (“direct expenses’’) and general and administrative expenses (“indirect expenses”). Direct expenses include royalty payments, electricity and chemicals expenses, production equipment and facility depreciation costs, equipment maintenance expenses, operational staff costs and amortization of intangible assets. Indirect expenses consist primarily of salaries and employee benefits for administrative personnel, stock compensation expenses, office lease payments, depreciation on fixed assets used for administrative purposes, amortization of bank fees and legal and professional fees. There are no income taxes in the Cayman Islands, and we are currently exempt from taxes in the British Virgin Islands and Belize. We pay an annual business license fee in the Bahamas. We pay income tax in Barbados.

30

Table of Contents

Results of Operations
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenue

     Total revenue increased by 56.8% from $12,154,689 to $19,054,205 for the year ended December 31, 2003 when compared to the same period in 2002.

     Revenue from our retail water (“Retail”) operations increased by 2.2% from $10,683,592 to $10,918,151 for the year ended December 31, 2002 and 2003, respectively. Sales in our primary market in the Cayman Islands were generally flat during the year, although we did experience an increase in sales of 13.2% during the fourth quarter of 2003 over the same period in the prior year.

     Revenue from our bulk water (“Bulk”) operations increased by 378.9% from $1,471,097 to $7,045,761 for the year ended December 31, 2002 and 2003, respectively. This increase was due to our recent acquisitions of Ocean Conversion (Cayman) Limited and Waterfields Company Limited and was slightly offset by a 15.3% decrease in our bulk water sales in Belize for the year ended December 31, 2003.

     Revenue from services (“Services”) was $1,090,293 for the year ended December 31, 2003. All Services revenues pertain to our recent acquisition of DesalCo Limited and its wholly-owned subsidiary DesalCo (Barbados) Ltd.

Other Income (Expenses)

     Total other income (expenses) changed from an expense of $52,198 to income of $182,748 for the year ended December 31, 2003 when compared to the same period in 2002. This increase was comprised of income and profit sharing from our equity investment in Ocean Conversion (BVI) Ltd. and was offset by interest expense related to the loan used to finance our recent acquisitions, amortization of bank fees and the early repayment fees paid on our loan from the European Investment Bank that was extinguished on June 20, 2003.

     We expect loan interest costs to decrease because a portion of the proceeds received from our completed equity offering was used to repay our Scotiabank six-month term loan on July 9, 2003 and we expect amortization of bank fees to decrease because we have fully amortized all fees relating to our bridge financing that was used to complete our recent acquisition..

Cost of Sales

     Total cost of sales increased by 55.1% from $6,882,177 to $10,676,281 for the year ended December 31, 2003 when compared to the same period in 2002. During this same period, our total revenue increased by 56.8%.

     Cost of sales of our Retail operations decreased by 14.6% from $5,824,815 to $4,972,300 for the year ended December 31, 2002 and 2003, respectively, while our Retail revenue increased by 2.2% for the year ended December 31, 2003. This decrease in cost of sales resulted primarily from the cancellation of the Governor’s Harbour plant operating contract on February 7, 2003, which decreased our water purchase expense. We expect our Retail cost of sales going forward to remain at this lower percentage of Retail revenues.

     Cost of sales of our Bulk operations increased by 393.0% from $1,057,362 to $5,212,388 for the

31

Table of Contents

year ended December 31, 2002 and 2003, respectively, while our Bulk revenue increased by 378.9% for the same period. This increase in cost of sales resulted almost entirely from the operating costs of Ocean Conversion (Cayman) Limited and Waterfields Company Limited, which were consolidated in our accounts from February 1, 2003 and August 1, 2003 respectively. It also includes the amortization costs of the intangible assets that were recognized in conjunction with our recent acquisition of Ocean Conversion (Cayman) Limited.

     Cost of sales of our Services reporting segment were $491,593 for the year ended December 31, 2003. These relate to our recent acquisition of DesalCo Limited and its wholly-owned subsidiary DesalCo (Barbados) Ltd. and include the amortization cost of the intangible assets that was recognized in conjunction with our recent acquisition of DesalCo Limited and DesalCo (Barbados) Ltd.

Gross Profit

     Overall gross profit margin increased from 43.4% to 44.0% for the year ended December 31, 2003 when compared to the same period in 2002, for the reasons explained below.

     Gross profit margin for our Retail operations increased from 45.5% to 54.5% for the year ended December 31, 2003 when compared to the same period in 2002. The primary reason for this increase is that our Retail cost of sales decreased as a result of the cancellation of the Governor’s Harbour plant operating contract.

     Gross profit margin for our Bulk operations decreased from 28.1% to 26.0% for the year ended December 31, 2003 when compared to the same period in 2002. In 2003, we incurred additional direct costs in our Belize Bulk operations for leasing a temporary potable Reverse Osmosis unit which we operated to meet our customer’s water demand while we carried out maintenance on our permanent Reverse Osmosis units. We ceased using the plant on September 30, 2003 and we do not expect to incur costs for this plant beyond April 2004. We generally sell water to our Bulk customers at a lower profit margin than to our Retail customers.

     Gross profit margin for our Services reporting segment was 54.9% for the year ended December 31, 2003.

General and Administrative Expenses

     Total general and administrative expenses increased by 64.1% from $2,644,004 to $4,339,524 for the year ended December 31, 2003 when compared to the same period in 2002. General and administrative expenses were at 21.8% and 22.8% of total revenue for the year ended December 31, 2002 and 2003, respectively.

     General and administrative expenses related or allocated to our Retail operations increased by 11.0% from $2,418,378 to $2,684,216 for the year ended December 31, 2002 and 2003, respectively. This increase is comprised primarily of higher insurance premiums, office rent and staff costs.

     General and administrative expenses related or allocated to our Bulk operations increased by 547.5% from $225,626 to $1,460,883 for the year ended December 31, 2002 and 2003, respectively. This increase is almost entirely the result of the inclusion of the general and administrative expenses of Ocean Conversion (Cayman) Limited and Waterfields Company Limited. We expect to reduce general and administrative expenses as we continue to assimilate the administrative functions of our recent acquisitions.

     General and administrative expenses related or allocated to our Services reporting segment were

32

Table of Contents

$194,425 for the year ended December 31, 2003. This is entirely the result of our recent acquisitions of DesalCo Limited and its wholly-owned subsidiary DesalCo (Barbados) Ltd. We expect to reduce general and administrative expenses as we continue to assimilate the administrative functions of our recent acquisitions.

Net Income

     Net income increased by 62.1% from $2,576,310 to $4,177,081 for the year ended December 31, 2003 when compared to the same period in 2002. We expect future net income to be positively affected because; interest expense decreased after we repaid the bridge financing using the proceeds from our recent equity offering and we fully amortized the bank fees related to this bridge financing on July 9, 2003 and we anticipate that general and administrative expenses will decrease as we continue to assimilate our recent acquisitions.

Dividends

     On January 31, 2003, we paid a dividend of $0.105 to shareholders of record on December 31, 2002; on April 30, 2003, we paid a dividend of $0.105 to shareholders of record on March 31, 2003; on July 31, 2003, we paid a dividend of $0.105 to shareholders of record on June 30, 2003 and on October 31, 2003, we paid a dividend of $0.105 to shareholders of record on September 30, 2003. We have consistently paid dividends to owners of our ordinary and redeemable preferred shares since we began declaring dividends in 1985. Our board of directors has established a policy, but not a binding obligation, that we will seek to maintain a dividend pay out ratio in the range of 50% to 60% of net income. While this policy is subject to modification by our board of directors, we expect to continue increasing our dividends, if our earnings grow. Our payment of any future cash dividends, however, will depend upon our earnings, financial condition, capital demand and other factors, including the condition in our new loan agreement effective February 7, 2003, with Scotiabank (Cayman Islands) Ltd. that dividends be paid only from current cash flows.

     On February 10, 2004, our board of directors declared an interim cash dividend of $0.115 per share, an increase of approximately 10%, payable on April 30, 2004 to shareholders of record on March 31, 2004.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenue

     Total revenue increased by 8.1% from $11,248,105 to $12,154,689 for the years ended December 31, 2001 and 2002, respectively. Total water sales increased as a result of several factors detailed below.

     Revenue from our retail water (“Retail”) operations added $666,262 to retail revenue for the year ended December 31, 2002, which is an increase of 6.7% over the prior year and represents 73.5% of the total increase in revenues. The number of U.S. gallons we sold during the year ended December 31, 2002 increased by 10.3% over the prior year. This is the result of supplying water to the Hyatt Hotel and the Britannia golf course. Our water sales to customers other than the Hyatt Hotel and the Britannia golf course were essentially flat when compared to the prior year, despite a 9.4% reduction in tourist air arrivals to the Cayman Islands due to continued air travel concerns and the downturn of the U.S. economy during the year ended December 31, 2002.

     Revenue from our bulk water (“Bulk”) operations added $240,322 to water sales for the year ended December 31, 2002, which is an increase of 19.5% over the prior year and represents 26.5% of the

33

Table of Contents

total increase in revenue. In June 2002, the automatic inflation adjustment decreased our Belize water rates by an average of 0.08%. This was more than offset by a 20.0% increase in the number of U.S. gallons sold for the year ended December 31, 2002 over the prior year. This increase occurred because during the year ended December 31, 2001, we experienced equipment malfunctions which temporarily reduced the production capacity of our plant by 50% during certain periods in August and September 2001.

Other Income (Expenses)

     Total other income (expenses) changed from income of $125,645 to an expense of $52,198 for the year ended December 31, 2002 when compared to the same period in 2001. This decrease was a result of the February 1, 2002 termination of the dispute settlement agreement with Cayman Hotel and Golf Inc., the owner of the Hyatt Grand Cayman Resort and Britannia golf course.

Cost of Sales

     Total cost of sales increased by 12.7% from $6,109,117 to $6,882,177 for the years ended December 31, 2001 and 2002, respectively, while water sales revenues increased by 8.1% for the year ended December 31, 2002.

     Cost of sales of our Retail operations increased by $627,522 for the year ended December 31, 2002, which is an increase of 12.1%, compared to an increase of 6.7% in water sales revenue, over the prior year and represents 81.2% of the total increase in cost of water sales. The cost of water sales increased as a result of direct costs incurred to operate the Britannia plant in the Cayman Islands, which was acquired on February 1, 2002. These costs included salaries and benefits for additional staff, equipment maintenance costs, electricity, chemicals and insurance, which will continue now that we operate the Britannia plant. Higher insurance costs also increased cost of water sales due to higher premium rates from our insurance provider, and additional insured values following the purchase of the Britannia plant and the insurance for the full replacement value of all our reverse osmosis desalination plants. Some of this increase was offset, after the Britannia plant was purchased, by a decrease in water purchase costs resulting from lower volume purchases from Ocean Conversion (Cayman) Limited. We were unable to take full advantage of the lower per gallon production costs of the Britannia plant as it only operated at 47.6% capacity in the eleven months that we owned the Britannia plant due to contractual minimum purchase requirements from Ocean Conversion (Cayman) Limited.

     Cost of sales of our Bulk operations increased by $145,538 for the year ended December 31, 2002, which is an increase of 16.0%, compared to a 19.5% increase in bulk revenues over the prior year and represents 18.8% of the total increase in total cost of sales. During the year ended December 31, 2002, we completed scheduled preventive maintenance on a major piece of equipment in Belize, which increased our cost of water sales. Also increasing our cost of water sales in 2002 were additional repairs and maintenance on the existing reverse osmosis equipment. During the year ended December 31, 2002, we also settled various claims for compensation made by our customer in Belize in March 2002. These claims were the result of our equipment failures that occurred in August and September 2001 and a minor miscalculation in the annual inflation adjustment formula in our contract. The miscalculation dated back to November 1995, which was prior to our acquisition of Belize Water Limited, and upon correction, reduced our unit rate for water to our customer by $0.09 per 1,000 U.S. gallons.

Gross Profit

     Overall gross profit margins decreased from 45.7% to 43.4% for the years ended December 31, 2001 and 2002, respectively.

34

Table of Contents

     Gross profit margins for our Retail operations decreased from 48.1% to 45.5% for the years ended December 31, 2001 and 2002, respectively. The primary reasons for this decrease are (i) approximately two thirds of the water produced by our Britannia plant in the Cayman Islands was sold to the Hyatt Hotel and Britannia golf course at a lower rate than our standard commercial water rate, (ii) due to flat water sales to other customers, we were only able to utilize approximately 47.6% of the production capacity of the Britannia plant and (iii) we were not able to acquire water from our lowest priced source as a result of the minimum water purchase obligation we have with Ocean Conversion (Cayman) Limited.

     Gross profit margins for our Bulk operations increased from 25.9% to 28.1% for the years ended December 31, 2001 and 2002, respectively. The reason for the increase in the gross profit margin is the increased revenues from the 20% increase in the number of U.S. gallons sold over the prior year were greater than in increase in cost of sales due to the settlement costs with Belize Water Services Ltd. as discussed above and additional repairs and maintenance on the reverse osmosis equipment in Belize.

General and Administrative Expenses

     Total general and administrative expenses increased by 5.8% from $2,500,060 to $2,644,004 for the years ended December 31, 2001 and 2002, respectively. Indirect expenses were at 22.2% and 21.8% of total revenue for the year ended December 31, 2001 and 2002, respectively.

     General and administrative expenses related or allocated to our Retail operations increased by $109,140 for the year ended December 31, 2002, which is an increase of 4.7% over the prior year and represents 75.8% of the total increase in general and administrative expenses. We attribute this increase to our accounting for stock compensation costs, unanticipated professional fees relating to our December 31, 2001 audit and Form 10-K review together with increased insurance premiums on our commercial and directors and officers insurance. Stock compensation costs increased $266,773 for the year ended December 31, 2002 as a result of an increase in our shares price during the last fiscal quarter. Unanticipated professional fees relating to our December 31, 2001 audit and 10-K review were $59,311 and our commercial and directors and officers insurance increased by $78,503. We also had additional reporting costs in 2002 due to increased demand for our annual report and proxy statements. These increases were mostly offset by a reduction in bonus costs and subscription costs for the year ended December 31, 2002 compared to the prior year.

     General and administrative expenses related or allocated to our Bulk operations increased by $34,804 for the year ended December 31, 2002, which is an increase of 18.2% over the prior year and represents 24.2% of the total increase in indirect expenses. During the year ended December 31, 2002, we had additional costs as a result of higher insurance premiums and increased costs to repatriate funds.

Net Income

     Net income decreased by 6.8% from $2,764,573 to $2,576,310 for the years ended December 31, 2001 and 2002, respectively, as a result of the factors indicated above.

Dividends

     In December 2001, we increased our per share dividend from $0.10 to $0.105 per quarter and have paid dividends in this amount during the year ended December 31, 2002

35

Table of Contents

Liquidity and Capital Resources

Overview

     For the year ended December 31, 2003, we generated cash primarily from the sale of our shares and through loans and credit facilities and to a lesser extent, from our operations in the Cayman Islands, the Bahamas, Belize and Barbados and from dividends and profit sharing rights from our equity investment in the British Virgin Islands. Cash flow is dependent upon the timely receipt of customer payments, operating expenses, the timeliness and adequacy of rate increases (excluding automatic adjustments to our rates for inflation and electricity costs), and various factors affecting tourism in the Cayman Islands, Belize, the British Virgin Islands, Barbados and the Bahamas, such as weather conditions and the economy. We use cash to fund our operations in the Cayman Islands, Belize, the British Virgin Islands, Barbados and the Bahamas, to fund capital projects, to expand our infrastructure, to pay dividends, to repay principal on our loans, to repurchase our shares when appropriate and to take advantage of new investment opportunities which expand our operations.

Operating Activities

     Cash generated from operating activities for the years ended December 31, 2002 and 2003 was $4,115,090 and $6,506,826, respectively. We generate cash through the utilization of our existing plants, equipment and resources in all segments of the business, minimization of water losses and operating efficiencies created by our management team. We believe that our administrative staff will be able to manage all our combined operations so that our indirect costs will not increase in proportion to revenues.

Investing Activities

     Cash used in investing activities during the years ended December 31, 2002 and 2003 was $3,568,723 and $29,645,995, respectively. Cash in the amount of $28,917,513 was used for our recent acquisitions of DesalCo Limited, its wholly owned subsidiary DesalCo (Barbados) Limited, Ocean Conversion (Cayman) Limited, Waterfields Company Limited and our equity investment in Ocean Conversion (BVI) Ltd. Cash of $1,874,286 was also used in the construction of three 1.0 million U.S. gallon potable water storage tanks at our Governors Harbour plant to replace our previous 2.0 million U.S. gallon fabric-lined storage tanks. During the same period in 2002, our investing activities consisted of expenditures for new property, plant and equipment, including $1,500,000 used to purchase the Britannia reverse osmosis plant in the Cayman Islands.

Financing Activities

     Cash used in financing activities for the year ended December 31, 2002 was $494,509 and cash provided by financing activities for the year ended December 31, 2003 was $30,807,789, respectively. On February 7, 2003, we utilized a credit facility with Scotiabank (Cayman Islands) Ltd. to complete our recent acquisitions and repay our debts with the Royal Bank of Canada and the European Investment Bank. During the year ended December 31, 2003, our primary financing activities were to draw down $28,056,126 from our Scotiabank facilities and $18,373,814 of equity through our secondary share offering. From these amounts $1,687,500 was used to repay our Royal Bank of Canada credit facility, $905,384 was used to fully repay our European Investment Bank loan, $869,091 was used for financing fees and $12,411,606 was repaid on our Scotiabank bridge financing facilities.

     During the year ended December 31, 2002, our primary financing activity was a draw down of our Royal Bank of Canada credit facility for an additional $1,500,000 in order to finance the investment in the Britannia reverse osmosis plant, plus an increase in our short-term bank indebtedness. We also had proceeds from an issuance of ordinary shares to certain directors and officers who exercised stock

36

Table of Contents

options. These were offset by the payment of our quarterly dividends and principal payments on our term loans. During the year ended December 31, 2003, no shares were repurchased. During the year ended December 31, 2002, we repurchased 2,184 ordinary shares from a long-term employee at an average price of $15.05 and 702 redeemable preference shares from a former employee at an average price of $5.47. All of the shares repurchased were cancelled in accordance with Cayman Islands’ law.

Material Commitments for Capital Expenditures and Contingencies

     The following table summaries our contractual obligations as at December 31, 2003:

                                         
            Less Than   1–3   3–5   After 5
    Total
   1 Year
   Years
   Years
   Years
Long term debt
   $ 20,396,581     $ 3,808,555       10,159,459       5,714,288       714,279  
Operating leases
     481,100       113,289       357,282       9,949       —  
Other
     352,495       —       205,686       —       146,809  

     At December 31, 2003, we had committed approximately $600,000 for capital expenditures for the purchase, site preparation and construction of one water storage tank at our Ambergris Caye, Belize plant. We intend to finance these projects using cash from operations

     On February 7, 2003, we entered into a loan agreement with Scotiabank (Cayman Islands) Ltd. to finance the recent acquisitions and refinance our existing debt. The facilities are comprised of the following:

•   $2 million revolving line of credit bearing interest at the floating base rate as established by Cayman Island Class A licensed banks from time to time. The present interest rate is 5.0%
 
•   $20 million seven-year term loan bearing interest at an annually adjusted floating rate of LIBOR plus 1.5% to 3%, depending on the ratio of our consolidated debt to our consolidated earnings before interest, taxes and depreciation. The present interest rate is 2.64%.
 
•   $17.1 million six-month term loan bearing interest on the same basis as the seven-year term loan. This facility was fully repaid by the proceeds from our equity offering on July 9, 2003

     We have used the proceeds from these facilities to refinance our existing debt, for working capital and to finance our recent acquisitions.

     As of December 31, 2003, we have an outstanding balance of $17,857,143 on our Scotiabank loan facilities. We are required to make monthly payments of interest for all borrowings under the revolving line of credit and quarterly payments of interest for all amounts drawn down under the two term loans. We are obligated to make 28 equal quarterly payments of principal under the seven-year term loan.

     We have collateralized all borrowings under the three facilities by providing Scotiabank with a first lien on all of our assets, including the capital stock of subsidiaries and investment in equity we acquired in our recent acquisitions.

     The loan agreement for the three facilities contains standard terms and conditions for similar bank loans made in the Cayman Islands, including acceleration of the repayment of all borrowings either upon the demand of Scotiabank (Cayman Islands) Ltd. or in the event of default under the loan agreement.

     We have guaranteed to Scotiabank 50% of the Ocean Conversion (BVI) Ltd. loan of $880,056.

37

Table of Contents

The Scotiabank loan is repayable in 6 equal semi-annual installments of $125,000 with the balance of principal due May 31, 2006, bearing interest at 3-month LIBOR plus 1.5%.

     As a result of our acquisition of interests in Waterfields Company Limited, we guaranteed the performance of Waterfields Company Limited to the Water & Sewerage Corporation of the Bahamas in relation to the water supply contract between Waterfields Company Limited and the Water & Sewerage Corporation.

     Through a performance and operation bond, the Royal Bank of Canada, Nassau, has made a guarantee in the amount of $1,910,775 to the Water & Sewerage Corporation of The Bahamas that we shall duly perform and observe all terms and provisions pursuant to the contract between the Water & Sewerage Corporation of The Bahamas and us. In the event of our default on our obligations, the Royal Bank of Canada, Nassau, shall satisfy and discharge any damages sustained by the Water & Sewerage Corporation of The Bahamas up to the guaranteed amount.

Impact of Inflation

     Under the terms of our Cayman Islands license and our water sales agreements in Belize, Bahamas, British Virgin Islands and Barbados, our water rates are automatically adjusted for inflation on an annual basis, subject to temporary exceptions. We, therefore, believe that the impact of inflation on our net income, measured in consistent dollars, will not be material.

Exchange Rates

     The official exchange rate for conversion of United States dollars into Cayman Islands dollars, as determined by the Cayman Islands Monetary Authority, has been fixed since 1974 at U.S. $ 1.00 = CI$ 0.83.

     The official exchange rate for conversion of United States dollars into Belizean dollars, as determined by the Central Bank of Belize, has been fixed since 1976 at U.S.$ 1.00 = BZE$ 2.00.

     The official fixed exchange rate for conversion of United States dollars into Bahamian dollars as determined by the Central Bank of The Bahamas, has been fixed since 1973 at U.S.$ 1.00 = BAH$ 1.00.

     The official fixed exchange rate for conversation of United States dollars into Barbadian dollars as determined by the Central Bank of Barbados has been fixed since 1975 at U.S.$ 1.00 = BDS$ 2.00.

     The British Virgin Islands’ currency is United States dollars.

38

Table of Contents

Forward-Looking Statements

     We discuss in this Annual Report matters which are not historical facts, but which are “forward-looking statements.” We intend these forward looking statements to qualify for safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, our future plans, objectives, expectations and events, assumptions and estimates about our company and our industry in general.

     The forward-looking statements in this Annual Report reflect what we currently anticipate will happen. What actually happens could differ materially from what we currently anticipate will happen. We are not promising to make any public announcement when we think forward looking statements in this Annual Report are no longer accurate whether as a result of new information, what actually happens in the future or for any other reason.

     Important matters that may affect what will actually happen include, but are not limited to: tourism and weather conditions in the areas we service; our ability to manage, integrate and realize the benefits from our recent acquisitions; scheduled new construction within our operating areas; the economies of the U.S. and the areas we service; regulatory matters; availability of capital to repay a substantial portion of our bank debt and for expansion of our operations; and other factors described in the “Risk Factors” section below as well as elsewhere in this Annual Report.

Risk Factors

     We have described for you below some risks which may materially and adversely affect our business, financial condition or results of operations.

     Our exclusive license for our service area in the Cayman Islands may not be renewed in the future and requires that we obtain prior approval for any rate increase for reasons other than inflation. In the Cayman Islands, we presently operate as a public water utility under an exclusive license originally issued to us in December 1979 by the government of the Cayman Islands. Our existing license expires on July 11, 2010. If we are not in default of any terms of the license, we have a right of first refusal to renew the license on terms that are no less favorable than those which the government offers to a third party. Nevertheless, we cannot assure you that the government will renew our license or that we will be able to negotiate a new license on satisfactory terms. We would retain ownership of our production infrastructure and substantially all of our distribution infrastructure if our license were not renewed.

     Under our existing license, we must obtain prior approval from the Cayman Islands government to increase our rates for any reason other than inflation. Our ability to raise our rates is limited by this requirement, including potential delays and costs involved in obtaining government approval for a rate increase. Failure to obtain adequate rate increases could have an adverse effect on our results of operations.

     We rely on water supply agreements with our customers in the Cayman Islands, Belize, the Bahamas and Barbados which, upon their expiration, may not be renewed or may be renegotiated on less favorable terms to us. We presently operate as bulk water suppliers under water sales agreements in the Cayman Islands with our customer the Water Authority-Cayman, in Belize with our customer, the Belize Water Services Limited, in the Bahamas with our customers, the Water & Sewerage Corporation and South Bimini International Ltd. and in Barbados with our customer Sandy Lane Properties Ltd. Upon expiration, these agreements may not be renewed or may be renewed on less favorable terms.

39

Table of Contents

     Termination of our exclusive distributorship agreement with DWEER Technology Ltd. would eliminate one competitive advantage that we presently have over our competition in obtaining new plants in the Caribbean basin. Our wholly-owned subsidiary, DesalCo Limited, is currently the exclusive distributor in the Caribbean basin for the DWEER™ system produced by DWEER Technology Ltd. for use in reverse osmosis seawater desalination plants. As a result, none of our competitors are able to offer this technology when bidding for new reverse osmosis seawater desalination plants in the Caribbean basin. As the DWEER™ system is one of the most energy efficient recovery systems of its kind, the distributorship agreement with DWEER Technology Ltd. gives us a unique competitive advantage. If the distributorship agreement were terminated or not renewed on equally favorable terms, we would lose this competitive advantage, and it may be more difficult for us to obtain new contracts for plants in the Caribbean basin.

     The British Virgin Islands Water and Sewerage Department has taken the position that our water supply agreement is operating on a month-to month basis. We have accepted the position of the British Virgin Islands Water and Sewerage department that Ocean Conversion (BVI) Ltd.’s existing water supply arrangement the British Virgin Islands is in force on a month to month basis until negotiations for a definitive agreement are finalized. In May 1999, the British Virgin Islands government did not make a required buyout payment of $1.42 million for the Baughers Bay plant and has taken the position that the water supply agreement continues on a month-to-month basis. Thus, it is possible, but in our opinion unlikely, that the government could cease purchasing water at any time. While Ocean Conversion (BVI) Ltd. is currently attempting to negotiate a new water supply agreement, there is no guarantee such agreement will be obtained, or if obtained, would be on terms favorable to Ocean Conversion (BVI) Ltd. Cessation of the government water purchases, or failure to negotiate a new agreement on terms favorable to us, could have an adverse effect on our results of operations.

     We may not be able to successfully integrate the new assets that we acquired in the recent acquisitions. Increasing the size of our company in a relatively short period of time has placed a significant strain on our management resources. Management may be required to spend additional time and money on integration that would otherwise be spent developing our business and services and may not be successful in integrating the acquired assets into our current operations. For example, integrating our new assets requires us to expand our management information systems and control our operating expenses. As a result, we cannot assure you that the acquisitions will provide us with the expected benefits. In addition, we cannot assure you that the acquisitions will not have a negative impact on our business and results of operation.

     The costs of integrating our new assets may affect our ability to pay dividends. We have historically sought to pay cash dividends to our shareholders out of our net income on a quarterly basis if funds are available. The costs associated with integrating the new assets into our company, however, may reduce our net income. If our net income is reduced, we will have fewer funds available to pay dividends. In addition, our bank loan agreement with Scotiabank (Cayman Islands) Ltd. requires that we pay dividends from current cash flows.

     Our business is affected by tourism, weather conditions, the economies of the locations where we provide service and the U.S. and European economies. Tourist arrivals and weather conditions within our operating areas affect the demand for our water to a greater extent in the Cayman Islands and in Belize than in the Bahamas, the British Virgin Islands and Barbados. In the Cayman Islands and Belize, the highest demand is normally in the first two quarters of each calendar year. The lowest demand for water occurs in the third quarter of each calendar year. A significant percentage of tourists visiting the Cayman Islands and Belize come from the U.S. or certain European countries. In addition, development activity in our service areas in the Cayman Islands is significantly impacted by the U.S. economy. Accordingly, a significant downturn in tourist arrivals to the Cayman Islands or in the U.S. or European economies for any reason would be detrimental to our revenues and operating results.

40

Table of Contents

After the events of September 11, 2001, tourism decreased in the Cayman Islands and is only gradually returning to historical levels. Additional terrorist activities in the United States, Europe or in areas served by us or extended hostilities in the Persian Gulf would likely have a material adverse effect on our business and results of operations.

     We may have difficulty accomplishing our growth strategy within and outside of our current operating areas. Even though we have an exclusive license for our present operating area in the Cayman Islands and supply agreements in the Cayman Islands, the Bahamas, the British Virgin Islands, Barbados and Belize, our ability to expand our operating areas is often subject to the approval of the respective governments in each location.

     Further, part of our long-term growth strategy is to expand our water supply and distribution operations to other locations outside of the Cayman Islands, the Bahamas, Barbados, the British Virgin Islands and Belize. Our expansion into new locations depends on our ability to obtain necessary permits, licenses and approvals to operate in new territories. We may not obtain these necessary permits, licenses and approvals in a timely and cost efficient manner, or at all.

     Our expansion to territories outside of our current operating areas includes significant risks, including, but not limited to, the following:

•   regulatory risks, including government relations difficulties, local regulations and currency controls;
 
•   risks related to operating in foreign countries, including political instability, reliance on local economies, environmental or geographical problems, shortages of materials, immigration restrictions and skilled labor;
 
•   risks related to development of new operations, including assessing the demand for water, engineering difficulties and inability to begin operations as scheduled; and
 
•   risks relating to greater competition in these new territories, including the ability of our competitors to gain or retain market share by reducing prices.

     Even if our expansion plans are successful, we may have difficulty managing our growth. We cannot assure you that any new operations outside of our current operating areas will attain or maintain profitability or that the results from these new operations will not negatively affect our overall profitability.

     We do not own a majority interest in Ocean Conversion (BVI) Ltd. We recently acquired 50% of the voting shares of Ocean Conversion (BVI) Ltd. which allows us to appoint three of the six directors of that company. Sage Water Holdings (BVI) Limited, which owns the remaining 50% of the voting shares, is entitled to appoint the remaining three directors. If there is a tied vote of the directors on any matter, the president of the Caribbean Water and Wastewater Association is entitled to appoint a temporary director to break the tie. As a result, we have to share the management of Ocean Conversion (BVI) Ltd. with Sage Water Holdings (BVI) Limited. Although we provide management and engineering services to Ocean Conversion (BVI) Ltd. we do not fully control the operations of the company.

     Our operations in the Caribbean could be harmed by hurricanes. A significant hurricane could cause major damage to our equipment and properties and the properties of our customers, including the large tourist properties in these areas. This would result in decreased revenues and profits from water sales until our damaged equipment and properties are repaired and our customers and the tourism industry

41

Table of Contents

returned to the status quo before the hurricane. We do not insure our underground water distribution system on the Cayman Islands.

     Contamination to our processed water may cause disruption in our services and adversely affect our revenues. Our processed water may become contaminated by naturally-occurring or man-made compounds and events. In the event that a portion of our processed water is contaminated, we may have to interrupt the supply of that water until we are able to install treatment equipment or substitute the flow of water from an uncontaminated water production source. In addition, we may incur significant costs in order to treat a contaminated source of plant feed water through expansion of our current treatment facilities, or development of new treatment methods. Our inability to substitute processed water from an uncontaminated water source, or to adequately treat the contaminated plant feed water in a cost-effective manner may have an adverse effect on our revenues.

     In addition, in the wake of the September 11, 2001 terrorist attacks in New York, Washington, D.C. and Pennsylvania, we have taken steps to heighten employee awareness of threats to our water supply. While we are not aware of any specific threats to our facilities, operations or supplies, we have and will continue to take security precautions to protect our facilities, operations and supplies. It is possible, however, that we would not be in a position to control the outcome or the costs of such events should they occur, which could have an adverse effect on the results of our operations.

     We could be negatively affected by potential government actions and regulations. Any government that regulates our operations may issue legislation or adopt new regulations, including but not limited to:

•   restricting foreign ownership of our company;
 
•   providing for the expropriation of our assets by the government;
 
•   providing for nationalization of public utilities by the government;
 
•   providing for different water quality standards;
 
•   resulting in unilateral changes to or renegotiation of our exclusive licenses; or
 
•   causing currency exchange fluctuations or devaluations or changes in tax laws.

     We rely heavily on the efforts of several key employees. Our success depends upon the abilities of our executive officers. In particular, the loss of the services of Jeffrey Parker, our Chairman of the Board, or Fredrick McTaggart, our President and Chief Executive Officer, could be detrimental to our operations and our continued success. Although Messrs. Parker and McTaggart have entered into three-year employment agreements which may be extended every year for an additional one-year term, we cannot guarantee that Mr. Parker or Mr. McTaggart will continue to work for us during the term of their agreements. Except for Messrs. Parker and F. McTaggart, none of our other employees have entered into non-compete agreements with us.

     Provisions in our articles of association and an option deed adopted by our board of directors may discourage a change in control of our company and may make it more difficult for you to sell your ordinary shares. Our articles of association include provisions which may discourage or prevent a change in control of our company. For instance, our board of directors consists of three groups. Each group serves a staggered term of three years before the directors in the group are up for re-

42

Table of Contents

election. Also, our board of directors may refuse to register any transfer of shares on our books for any reason.

     We have also adopted an option deed, which is similar to a poison pill. The option deed will discourage a change in control of our company by causing substantial dilution to a person or group who attempts to acquire our company on terms not approved by the board of directors. The option deed will expire on July 31, 2007.

     As a result of these provisions, which discourage or prevent an unfriendly or unapproved change in control of our company, our shareholders may not have an opportunity to sell their ordinary shares at a higher market price, which, at least temporarily, typically accompanies attempts to acquire control of a company through a tender offer, open market purchase or otherwise.

     There may be a risk of variation in currency exchange rates. Although we report our results in United States dollars, the majority of our revenue is earned in Cayman Islands dollars, Belizean dollars, Bahamian dollars and Barbados dollars. All of the currencies in our operating areas have been fixed to the United States dollar for over 20 years. As a result, we do not intend to hedge against any exchange rate risk associated with our reporting in United States dollars. If any of these fixed exchange rates becomes a floating exchange rate, however, our results of operations could be adversely affected.

     Service of process and enforcement of legal proceedings commenced against us in the United States may be difficult to obtain. Service of process on our company and our directors and officers, fourteen out of sixteen of whom reside outside the United States, may be difficult to obtain within the United States. Also, since substantially all of our assets are currently located outside the United States, any judgment obtained in the United States against us may not be collectible.

     There is no reciprocal statutory enforcement of foreign judgments between the United States and the Cayman Islands, so foreign judgments originating from the United States are not directly enforceable in the Cayman Islands. A prevailing party in a United States proceeding against us or our officers or directors would have to initiate a new proceeding in the Cayman Islands using the United States judgment as evidence of the party’s claim. A prevailing party could rely on the summary judgment procedures available in the Cayman Islands, subject to available defenses in the Cayman Islands courts, including, but not limited to, the lack of competent jurisdiction in the United States courts, lack of due service of process in the United States proceeding and the possibility that enforcement or recognition of the United States judgment would be contrary to the public policy of the Cayman Islands.

     Depending on the nature of damages awarded, civil liabilities under the Securities Act of 1933 or the Securities Exchange Act of 1934 for original actions instituted outside the Cayman Islands may or may not be enforceable. For example, a United States judgment awarding remedies unobtainable in any legal action in the courts of the Cayman Islands (for example, treble damages, which would probably be regarded as penalties), would not likely be enforceable under any circumstances.

43

Table of Contents

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Credit Risk

     We are not exposed to significant credit risk on retail customer accounts in the Cayman Islands, and Bimini, Bahamas, as our policy is to cease supply of water to customers whose accounts are more than 45 days overdue. Our main exposure to credit risk is from our bulk water sales customers in Belize, the Bahamas, the British Virgin Islands, Barbados and the Cayman Islands. In addition, the entire balance of our loan receivable is due from the Water Authority-Cayman.

Interest Rate Risk

     As of December 31, 2003, we had loans outstanding totaling $20,396,581, all of which bear interest at various lending rates such as LIBOR, Cayman Island’s Prime Rate or Nassau Prime Rate. We are subject to interest rate risk to the extent that any of these lending rates change.

Foreign Exchange Risk

     All of our foreign currencies have fixed exchanged rates to the U.S. dollar. If any of these fixed exchange rates become a floating exchange rate, however, our results of operation could be adversely affected.

44

Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         
    Page
CONSOLIDATED WATER CO. LTD.
        
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
        
Independent Auditors’ Report
    46  
Consolidated Balance Sheet as at December 31, 2003 and 2002
    47  
Consolidated Statement of Income for each of the years ended December 31, 2003, 2002, and 2001
    48  
Consolidated Statement of Stockholders’ Equity for each of the years ended December 31, 2003, 2002, and 2001
     49  
Consolidated Statement of Cash Flows for each of the years ended December 31, 2003, 2002, and 2001
     50  
Notes to Consolidated Financial Statements
     51  
OCEAN CONVERSION (BVI) LTD.
        
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
        
Independent Auditors’ Report
     73  
Consolidated Balance Sheet as at December 31, 2003
     74  
Consolidated Statement of Income for the year ended December 31, 2003
     75  
Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2003
     76  
Consolidated Statement of Cash Flows for the year ended December 31, 2003
     77  
Notes to Consolidated Financial Statements
     78  

45

Table of Contents

Independent Auditors’ Report

The Board of Directors and Stockholders
Consolidated Water Co. Ltd

We have audited the accompanying consolidated balance sheets of Consolidated Water Co. Ltd. and subsidiaries (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects, the financial position of Consolidated Water Co. Ltd. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and cash flows for each of the three years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

George Town, Cayman Islands
April 7, 2004

46

Table of Contents

CONSOLIDATED WATER CO. LTD.

CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars)

                 
    December 31,
    2003   2002
ASSETS
                
Current assets
                
Cash and cash equivalents (Note 4)
   $ 8,236,924     $ 568,304  
Accounts receivable (Note 5)
     3,859,496       1,406,947  
Inventory (Note 6)
     1,546,185       388,131  
Prepaid expenses and other assets
     596,386       370,429  
Deferred expenditures
     —       887,856  
Current portion of loans receivable (Note 7)
     1,098,732       —  
 
    
 		      
 		  
Total current assets
     15,337,723       3,621,667  
Loans receivable (Note 7)
     3,194,346       —  
Property, plant and equipment, net (Note 8)
     29,662,297       20,253,646  
Other assets
     505,793       —  
Investment in affiliates (Note 9)
     10,034,260       12,450  
Intangible assets (Note 10)
     6,431,955       1,619,874  
Goodwill (Note 11)
     3,395,752       —  
 
    
 		      
 		  
Total assets
   $ 68,562,126     $ 25,507,637  
 
    
 		      
 		  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities
                
Dividends payable (Note 12)
   $ 686,118     $ 508,444  
Accounts payable and other liabilities
     2,072,245       1,143,850  
Current portion of long term debt (Note 13)
     3,763,144       518,275  
 
    
 		      
 		  
Total current liabilities
     6,521,507       2,170,569  
Long term debt (Note 13)
     16,633,437       2,074,609  
Other liabilities
     352,495       136,235  
 
    
 		      
 		  
Total liabilities
     23,507,439       4,381,413  
 
    
 		      
 		  
Minority Interest in Waterfields Company Limited
     806,160       —  
 
    
 		      
 		  
Stockholders’ equity
                
Redeemable preferred stock, $1.20 par value. Authorized 100,000 shares; issued and outstanding 13,585 shares in 2003 and 19,740 shares in 2002 (Note 14)
     16,302       23,688  
Class A common stock, $1.20 par value. Authorized 9,840,000 shares; issued and outstanding 5,687,010 shares in 2003 and 3,993,419 shares in 2002
     6,824,412       4,792,103  
Class B common stock, $1.20 par value. Authorized 60,000 shares; Issued and outstanding nil shares for 2003 and nil shares for 2002 (Note 14)
     —       —  
Stock and options earned but not issued
     21,494       424,841  
Additional paid-in capital
     26,773,342       7,354,395  
Retained earnings
     10,612,977       8,531,197  
 
    
 		      
 		  
Total stockholders’ equity
     44,248,527       21,126,224  
 
    
 		      
 		  
Commitments (Note 20)
                
Total liabilities and stockholders’ equity
   $ 68,562,126     $ 25,507,637  
 
    
 		      
 		  

The accompanying notes are an integral part of these consolidated financial statements.

47

Table of Contents

CONSOLIDATED WATER CO. LTD.

CONSOLIDATED STATEMENTS OF INCOME
(Expressed in United States dollars)

                         
    For the year ended December 31,
    2003   2002   2001
Retail water sales
   $ 10,918,151     $ 10,683,592     $ 10,017,330  
Bulk water sales
     7,045,761       1,471,097       1,230,775  
Services revenue
     1,090,293       —       —  
 
    
 		      
 		      
 		  
Total revenue
     19,054,205       12,154,689       11,248,105  
 
    
 		      
 		      
 		  
Retail cost of sales
     (4,972,300 )     (5,824,815 )     (5,197,293 )
Bulk cost of sales
     (5,212,388 )     (1,057,362 )     (911,824 )
Service cost of sales
     (491,593 )     —       —  
 
    
 		      
 		      
 		  
Total cost of sales (Note 15)
     (10,676,281 )     (6,882,177 )     (6,109,117 )
 
    
 		      
 		      
 		  
Gross profit
     8,377,924       5,272,512       5,138,988  
General and administrative expenses (Note 15)
     (4,339,524 )     (2,644,004 )     (2,500,060 )
 
    
 		      
 		      
 		  
Income from operations
     4,038,400       2,628,508       2,638,928  
 
    
 		      
 		      
 		  
Other income (expenses)
    —       —       —  
Interest income
     82,334       14,711       28,584  
Interest expense
     (1,163,637 )     (103,986 )     (99,956 )
Other income
     438,022       37,077       197,017  
Equity in earnings of affiliate
     826,029       —       —  
 
    
 		      
 		      
 		  
 
     182,748       (52,198 )     125,645  
 
    
 		      
 		      
 		  
Net income before income taxes and minority interest
     4,221,148       2,576,310       2,764,573  
Income taxes
     (23,743 )     —       —  
Minority interest
     (20,324 )     —       —  
 
    
 		      
 		      
 		  
Net income
   $ 4,177,081     $ 2,576,310     $ 2,764,573  
 
    
 		      
 		      
 		  
Basic earning per share (Note 16)
   $ 0.85     $ 0.65     $ 0.71  
 
    
 		      
 		      
 		  
Diluted earning per share (Note 16)
   $ 0.83     $ 0.63     $ 0.69  
 
    
 		      
 		      
 		  
Weighted average number of common shares used in the determination of:
                        
Basic earnings per share (Note 16)
     4,917,183       3,969,861       3,897,969  
 
    
 		      
 		      
 		  
Diluted earnings per share (Note 16)
     5,037,530       4,087,532       3,999,691  
 
    
 		      
 		      
 		  

The accompanying notes are an integral part of these consolidated financial statements.

48

Table of Contents

CONSOLIDATED WATER CO. LTD.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
(Expressed in United States dollars)

                                 
    Redeemable preferred    
    stock
   Common stock
    Shares
   Dollars
   Shares
   Dollars
Balance at December 31, 2000
     33,634     $ 40,361       3,863,144     $ 4,635,774  
Issue of share capital
     5,821       6,985       67,860       81,431  
Conversion of preferred shares
     (14,260 )     (17,112 )     14,260       17,112  
Repurchase and cancellation of ordinary shares
     —       —       (25,200 )     (30,240 )
Net income
     —       —       —       —  
Dividends declared
     —       —       —       —  
Issue of options and share grants
     —       —       —       —  
 
    
 		      
 		      
 		      
 		  
Balance at December 31, 2001
     25,195     $ 30,234       3,920,064     $ 4,704,077  
Issue of share capital
     3,330       3,996       67,456       80,947  
Conversion of preferred shares
     (8,083 )     (9,700 )     8,083       9,700  
Redemption of preferred shares
     (702 )     (842 )     —       —  
Repurchase and cancellation of ordinary shares
     —       —       (2,184 )     (2,621 )
Net income
     —       —       —       —  
Dividends declared
     —       —       —       —  
Issue of options and share grants
     —       —       —       —  
 
    
 		      
 		      
 		      
 		  
Balance at December 31, 2002
     19,740     $ 23,688       3,993,419     $ 4,792,103  
Public offering of ordinary shares, $14.75, net of issue costs
     —       —       1,392,150       1,670,580  
Issue of share capital
     3,837       4,604       291,463       349,756  
Conversion of preferred shares
     (9,978 )     (11,973 )     9,978       11,973  
Redemption of preferred shares
     (14 )     (17 )     —       —  
Net income
     —       —       —       —  
Dividends declared
     —       —       —       —  
Issue of options and share grants
     —       —       —       —  
 
    
 		      
 		      
 		      
 		  
Balance at December 31, 2003
     13,585     $ 16,302       5,687,010     $ 6,824,412  
 
    
 		      
 		      
 		      
 		  

     

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                 
    Stock and                
    options   Additional           Total
    earned but   paid-in   Retained   stockholders’
    not issued
   capital
   earnings
   equity
Balance at December 31, 2000
   $ 380,850     $ 6,726,749     $ 6,443,709     $ 18,227,443  
Issue of share capital
     (340,125 )     411,599       —       159,890  
Conversion of preferred shares
     —       —       —       —  
Repurchase and cancellation of ordinary shares
     —       (241,595 )     —       (271,835 )
Net income
     —       —       2,764,573       2,764,573  
Dividends declared
     —       —       (1,575,246 )     (1,575,246 )
Issue of options and share grants
     169,599       —       —       169,599  
 
    
 		      
 		      
 		      
 		  
Balance at December 31, 2001
   $ 210,324     $ 6,896,753     $ 7,633,036     $ 19,474,424  
Issue of share capital
     (227,980 )     490,889       —       347,852  
Conversion of preferred shares
     —       —       —       —  
Redemption of preferred shares
     —       (2,999 )     —       (3,841 )
Repurchase and cancellation of ordinary shares
     —       (30,248 )     —       (32,869 )
Net income
             —       2,576,310       2,576,310  
Dividends declared
             —       (1,678,149 )     (1,678,149 )
Issue of options and share grants
     442,497       —       —       442,497  
 
    
 		      
 		      
 		      
 		  
Balance at December 31, 2002
   $ 424,841     $ 7,354,395     $ 8,531,197     $ 21,126,224  
Public offering of ordinary shares, $14.75, net of issue costs
     —       16,118,254       —       17,788,834  
Issue of share capital
     (544,756 )     3,300,838       —       3,110,442  
Conversion of preferred shares
     —       —       —       —  
Redemption of preferred shares
     —       (145 )     —       (162 )
Net income
             —       4,177,081       4,177,081  
Dividends declared
             —       (2,095,301 )     (2,095,301 )
Issue of options and share grants
     141,409       —       —       141,409  
 
    
 		      
 		      
 		      
 		  
Balance at December 31, 2003
   $ 21,494     $ 26,773,342     $ 10,612,977     $ 44,248,527  
 
    
 		      
 		      
 		      
 		  

The accompanying notes are an integral part of these consolidated financial statements.

49

Table of Contents

CONSOLIDATED WATER CO. LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)

                         
    For the year ended December 31,
    2003   2002   2001
Net income
   $ 4,177,081     $ 2,576,310     $ 2,764,573  
Adjustments to reconcile net income to net cash
                        
Depreciation
     1,699,140       1,269,126       1,113,041  
Amortization of intangible assets and bank fees
     1,318,102       194,906       193,703  
Stock compensation on share grants
     138,750       175,330       289,174  
Loss on sale of fixed assets
     —       —       7,702  
Undistributed income from affiliates
     (1,060,188 )     —       —  
Minority interest
     20,324       —       —  
(Increase) decrease in accounts receivable
     (82,939 )     (83,791 )     165,573  
Increase in inventory
     (10,088 )     (68,620 )     (165,278 )
(Increase) decrease in prepaid expenses and other assets
     60,041       (50,529 )     (20,401 )
Increase in accounts payable and other liabilities
     230,725       56,380       19,956  
Increase (decrease) in other liabilities
     15,878       45,978       (3,596 )
 
    
 		      
 		      
 		  
Net cash provided by operating activities
     6,506,826       4,115,090       4,364,447  
 
    
 		      
 		      
 		  
Cash flows from investing activities
                        
Deferred expenditures
     —       (460,886 )     —  
Purchase of property, plant and equipment
     (2,159,860 )     (3,107,837 )     (1,892,147 )
Business combinations, net of cash acquired
     (19,495,005 )     —       —  
Investment in affiliate
     (8,961,622 )     —       (12,450 )
Collection from loans receivable
     970,492       —       —  
Proceeds from sale of property, plant and equipment
     —       —       360  
 
    
 		      
 		      
 		  
Cash used in investing activities
     (29,645,995 )     (3,568,723 )     (1,904,237 )
 
    
 		      
 		      
 		  
Cash flows from financing activities
                        
Net proceeds from credit facility
     27,187,035       1,500,000       500,000  
Deferred expenditures
     —       (426,970 )     —  
Dividends paid
     (1,924,067 )     (1,669,088 )     (1,477,828 )
Net proceeds from issuance of stock
     19,037,034       615,019       40,075  
Principal repayments of long term debt
     (13,492,213 )     (476,760 )     (281,922 )
Payment to acquire common stock
     —       (32,869 )     (271,595 )
Payment to acquire redeemable preferred shares
     —       (3,841 )     —  
Decrease in bank overdraft
     —       —       (703,331 )
 
    
 		      
 		      
 		  
Net cash provided by (used in) financing activities
     30,807,789       (494,509 )     (2,194,601 )
 
    
 		      
 		      
 		  
Net increase in cash and cash equivalents
     7,668,620       51,858       265,609  
Cash and cash equivalents at beginning of year
     568,304       516,446       250,837  
 
    
 		      
 		      
 		  
Cash and cash equivalents at end of year
   $ 8,236,924     $ 568,304     $ 516,446  
 
    
 		      
 		      
 		  
Interest paid in cash
   $ 770,438     $ 101,764     $ 97,550  
Interest received in cash
   $ 81,836     $ 11,380     $ 15,676  
Corporation tax paid
   $ 40,090     $ —     $ —  

The accompanying notes are an integral part of these consolidated financial statements.

50

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Principal activity

Consolidated Water Co. Ltd., its wholly-owned subsidiaries, majority-owned subsidiary and affiliate (together the “Company”) use reverse osmosis technology to produce fresh water from seawater. The Company processes and supplies water to its customers in the Cayman Islands, Belize, Bahamas, Barbados and British Virgin Islands. The Company sells water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The base price of water supplied by the Company, and adjustments thereto, are generally determined by the terms of the license and contracts, which provide for adjustments based upon the movement in the government price indices specified in the license and contracts, as well as monthly adjustments for changes in the cost of energy. The Company also provides consulting services under long-term agreements, under which the Company designs and constructs desalination plants, and manages and operates plants owned by other companies.

2. Accounting policies

Basis of preparation: The consolidated financial statements presented are prepared in accordance with the accounting principles generally accepted in the United States of America.

Use of estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include the carrying value of property, plant and equipment, intangible assets, goodwill, allowances for receivables and inventory. Actual results could differ from those estimates.

Basis of consolidation: The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries Cayman Water Company Limited, Belize Water Limited, Ocean Conversion (Cayman) Limited, DesalCo Limited, DesalCo (Barbados) Ltd, and its majority owned subsidiary Waterfields Company Limited. The operating results of Ocean Conversion (Cayman) Limited, DesalCo Limited, DesalCo (Barbados) Ltd. have been included in the consolidated financial statements effective February 1, 2003. The operating results of Waterfields Company Limited have been included in the financial statements effective August 1, 2003. All inter-company balances and transactions have been eliminated.

Foreign currency: The Company’s reporting currency is the United States dollar. The functional currency of the Company and its foreign subsidiaries is the currency for each respective country. The exchange rates between the Cayman Islands dollar, the Belize dollar, the Bahamian dollar and the Barbados dollar have been fixed to the United States dollar during all periods presented.

Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Foreign currency transactions are translated at the rate ruling on the date of the transaction. Net exchange gains and losses are included in other income in the consolidated statements of income.

Cash and cash equivalents: Cash and cash equivalents comprise cash at bank on call and highly liquid deposits with an original maturity of three months or less.

51

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Accounting policies (continued)

Trade accounts receivable: Trade accounts receivable are recorded at invoiced amounts based on meter readings. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable balance. The Company determines the allowance for doubtful accounts based on historical write-off experience and monthly review of delinquent accounts. Past due balances are reviewed individually for collectibility and disconnection. Account balances are charged off against the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered by management to be remote.

Inventory: Inventory primarily includes replacement spares and parts that are valued at the lower of cost and net realizable value on a first-in, first-out basis. Inventory also includes potable water held in the Company’s reservoirs. The carrying amount of the water inventory is the lower of the average cost of producing or purchasing water during the year and its net realizable value.

Deferred expenditures: Deferred expenditures represented direct costs incurred in connection with planned business combinations and financing transactions.

Loans receivable: Loans receivable relate to amounts advanced to customers to facilitate the construction of water desalination plants. The allowance for loan losses, if any, is the Company’s best estimate of the amount of portable credit losses in the Company’s existing loans and is determined on an individual loan basis. Management believes the loans receivable are collectible and, therefore, no loan allowance has been established as of December 31, 2003.

Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using a straight line method with an allowance for estimated residual values. Rates are determined based on the estimated useful lives of the assets as follows:

     
Buildings
  5 to 40 years
Plant and equipment
  4 to 25 years
Distribution system
  3 to 40 years
Office furniture, fixtures and equipment
  3 to 10 years
Vehicles
  3 to 10 years
Leasehold improvements
  Shorter of 5 years and operating lease term outstanding
Lab Equipment
  3 to 10 years

Additions to property, plant and equipment are comprised of the cost of the contracted services, direct labour and materials. Assets under construction are recorded as additions to property, plant and equipment upon completion of the projects. Depreciation commences in the month of addition.

Interest costs directly attributable to the construction of qualifying assets, which are assets that necessarily take a substantial period of time to ready for their intended use, are added to the cost of those assets until such time as the assets are substantially ready for use or sale.

During the year ended December 31, 2001, the Company carried out an extensive engineering analysis of its potable water production and distribution equipment in Grand Cayman. The Company’s analysis concluded that certain assets would not need to be replaced or relocated as early as previously planned. As a result of these circumstances, management considered it appropriate to reassess the estimated useful economic life of these assets. The reassessment of the useful economic lives of these assets resulted in decreased depreciation expense on an annual basis in the amount of $197,472, which increased basic and fully diluted earnings per share by $0.05 for the year ended December 31, 2001.

52

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Accounting policies (continued)

Goodwill and intangible assets: Goodwill represents the excess costs over fair value of the assets of an acquired business. Goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimatable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. The Company periodically evaluates the possible impairment of goodwill. Management identifies its reporting units and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company determines the fair value of each reporting unit and compares it to the carrying amount of the reporting unit. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the Company is required to perform the second step of the impairment test, as this is an indication that the reporting unit goodwill may be impaired. In this step, the Company compares the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141, “Business Combinations”. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the implied fair value is less than its carrying amount, the impairment loss is recorded. The Company’s annual impairment tests resulted in no goodwill impairment.

Investment: Investments where the Company does not exercise significant influence over the operating and financial policies of the investee and holds less than 20% of the voting stock are recorded at cost. Investments where the Company has significant influence over the operating and financial policies of the investee and holds 20% to 50% of the voting stock are recorded using the equity method of accounting for investments in common stock. The Company recognizes an impairment loss on declines in value that are other than temporary.

Other assets: Other assets consist of the bank financing fees paid on the drawdown of the Company’s long term debt and is being amortized on a straight line basis over the term of the loans.

Other liabilities: Other liabilities consist of security deposits and advances in aid of construction. Security deposits are received from large customers as security for trade receivables. Advances in aid of construction are recognized as a liability when advances are received from condominium developers in the licensed area to help defray the capital expenditure costs of the Company. These advances do not represent loans to the Company and are interest free. However, the Company allows a discount of ten percent on future supplies of water to these developments until the aggregate discounts allowed are equivalent to advances received. Discounts are charged against advances received.

Shares repurchased: Under Cayman Islands law, shares repurchased out of capital by the Company are treated as cancelled upon redemption, and the Company’s issued share capital is reduced by the par value of those shares, with the difference being adjusted to additional paid up capital.

53

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Accounting policies (continued)

Stock and stock option incentive plans: The Company issues stock under incentive plans that form part of employees and non-executive Directors’ remuneration and grants options to purchase ordinary shares as part of remuneration for certain long-serving employees and the executive Officers.

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees”, and related interpretations to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123 “Accounting for Stock-Based Compensation” established accounting and disclosure requirements using a fair-valued-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company continues to apply the intrinsic-value method of accounting described above and has adopted the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method has been applied to all outstanding and unvested awards in each period.

                         
    2003   2002   2001
Net income, as reported
   $ 4,177,081     $ 2,576,310     $ 2,764,573  
Add stock-based employee compensation expense included in reporting net income
     138,750       442,497       169,599  
Deduct total stock-based employee compensation expense determined under fair-value-based method for all rewards
     (950,147 )     (622,702 )     (645,290 )
 
    
 		      
 		      
 		  
Pro forma net income
   $ 3,365,684     $ 2,396,105     $ 2,288,882  
 
    
 		      
 		      
 		  
Earnings per share:
                        
Basic – as reported
   $ 0.85     $ 0.65     $ 0.71  
Basic – pro forma
   $ 0.68     $ 0.60     $ 0.59  
Diluted – as reported
   $ 0.83     $ 0.63     $ 0.69  
Diluted – pro forma
   $ 0.67     $ 0.58     $ 0.57  

The intrinsic value of stock based compensation is recorded in stockholders’ equity and is expensed to the consolidated statements of income based on the vesting period of the options. On exercise of options, proceeds up to the par value of the stock issued are credited to ordinary share capital; any proceeds in excess of the par value of the stock issued are credited to additional paid in capital in the period in which the options are exercised. Options that expire without exercise are also credited to additional paid in capital in the period in which the option expired.

Revenue and cost of sales: Customers are billed monthly based on meter readings performed at or near each month end and in accordance with agreements which stipulate minimum monthly charges for water service. An accrual, where necessary, is made for water delivered but unbilled at year end when readings are not performed at the year end date. The accrual is matched with the direct costs of producing, purchasing and delivering water.

Consulting revenue is recognized on the accrual basis based upon time spent at agreed upon rates and is included under service revenue.

Plant construction revenue is recognized using the percentage-of-completion method. The recognized income is that percentage of estimated total income that incurred costs to date bear to estimated total costs after giving effect to estimates of costs to complete based upon most recent information. This revenue is included under services revenue.

Interest income is recognized by the Company over the term of the loan based on the interest rate stated in the loan and is included in interest income.

54

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Accounting policies (continued)

Repairs and maintenance: All repair and maintenance costs are expensed as incurred.

Comparative figures: Certain of the prior year’s figures have been adjusted to conform to the current year’s presentation. The Company has reallocated maintenance expenses in cost of sales and general and administrative expenses as management has determined it more appropriate to reflect these amounts in its current allocations. There is no impact to net income of the Company.

3. Acquisitions

Effective February 1, 2003, the Company acquired 100% of the outstanding voting common shares of DesalCo Limited, its wholly owned subsidiary DesalCo (Barbados) Limited and Ocean Conversion (Cayman) Limited. The total consideration paid was $26,976,648, comprised of $24,202,651 in cash and 185,714 ordinary shares of the Company and $482,286 in costs related to the acquisitions.

Effective February 1, 2003, the Company acquired as part of this acquisition of DesalCo Limited, 12.7% of the outstanding voting common shares of Waterfields Company Limited (“Waterfields”). On July 30, 2003, the Company acquired a further 13.5% of Waterfields and effective August 1, 2003, acquired an additional 64.7% interest resulting in total controlling interest of 90.9% of Waterfields. The total consideration paid was $9,652,491, comprising of $9,431,610 in cash and $220,881 of acquisition related costs.

These acquisitions provide the Company with a reverse osmosis plant design, construction and facility management and engineering services firm, as well as facilities and contracts to supply additional bulk potable water services in the Cayman Islands, Bahamas and Barbados.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the acquisitions.

         
Current assets
     7,187,798  
Property, plant and equipment
     8,947,932  
Investments in affiliates
     12,069,998  
Intangible assets
     5,766,886  
Goodwill
     3,395,752  
Other assets
     4,190,883  
 
    
 		  
Total assets acquired
     41,559,249  
 
    
 		  
Current liabilities
     1,877,490  
Long term debt and liabilities
     2,266,784  
 
    
 		  
Total liabilities assumed
     4,144,274  
 
    
 		  
Less: Minority interest in Waterfields Company Limited
     785,836  
 
    
 		  
Net assets acquired
   $ 36,629,139  
 
    
 		  

55

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Acquisitions (continued)

The results of operations of DesalCo Limited, DesalCo (Barbados) Limited, Ocean Conversion (Cayman) Limited are included in the consolidated statements of income from February 1, 2003 and the results of operations of Waterfields Company Limited are included in the consolidated statements of income from August 1, 2003. The unaudited pro forma consolidated results of operations of Consolidated Water Co. Ltd., DesalCo Limited, DesalCo (Barbados) Limited, Ocean Conversion (Cayman) Limited, Waterfields Company Limited and an equity interest in Ocean Conversion (BVI) Ltd., had the companies been acquired at January 1, 2003 or 2002 would be as follows:

                 
    December 31,
    2003   2002
Pro forma revenue
   $ 21,841,916     $ 21,923,798  
Pro forma net income
   $ 4,704,114     $ 4,145,465  
Pro forma earnings per share:
                
Basic
   $ 0.83     $ 0.75  
Diluted
   $ 0.82     $ 0.73  

4. Cash and cash equivalents

Cash and cash equivalents are not restricted as to withdrawal or use. At December 31, 2003, the equivalent United States dollars are denominated in the following currencies:

                 
    December 31,
    2003   2002
Bank accounts
                
United States dollars
     3,459,939       144,354  
Cayman Islands dollar
     1,650,342       27,755  
Bahamian dollar
     492,076       297  
Belize dollar
     320,300       88,599  
Barbadian dollar
     15,175       —  
 
    
 		      
 		  
 
     5,937,832       261,005  
 
    
 		      
 		  
Term deposits
                
United States dollars
     1,505,192       —  
Bahamian dollar
     474,901       —  
Belize dollar
     318,999       307,299  
 
    
 		      
 		  
 
     2,299,092       307,299  
 
    
 		      
 		  
Total cash and cash equivalents
   $ 8,236,924     $ 568,304  
 
    
 		      
 		  

5. Accounts receivable

Accounts receivable comprise receivables from customers and are shown net of an allowance for doubtful accounts of $74,867 (2002: $12,000). Significant concentrations of credit risk are disclosed in Note 25.

56

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Inventory

                 
    December 31,
    2003   2002
Water stock
     42,440       40,409  
Consumables stock
     190,280       122,150  
Spare parts stock
     1,313,465       225,572  
 
    
 		      
 		  
 
   $ 1,546,185     $ 388,131  
 
    
 		      
 		  

7. Loans receivable

As part of the acquisition of Ocean Conversion (Cayman) Limited, the following loans receivable were acquired. Management estimates these loans to be fully collectible and as such no impairment allowance has been provided at December 31, 2003.

                 
    December 31,
    2003   2002
Due from Water Authority Cayman: Original loan of $1,216,000, non-interest bearing, balance receivable in monthly installments of $14,476 to November 30, 2008. Loan secured by Red Gate plant, machinery and equipment.
   $ 854,095     $ —  
Due from Water Authority Cayman: Two loans originally aggregated $1,819,920, bearing interest at 5% per annum, receivable in combined monthly installments of principle and interest of $25,721 to March 2005, secured by Lower Valley plant, machinery and equipment.
     373,275       —  
Due from Water Authority Cayman: Two loans originally aggregated $1,168,600, bearing interest at 5% per annum, receivable in combined monthly installments of principle and interest of $16,516 to March 2006, secured by Lower Valley plant, machinery and equipment.
     420,958          
Due from Water Authority Cayman: Two interest free loans originally aggregated $3,129,000, receivable in monthly installments of $37,250 to November 2009, secured by North Sound Road plant, machinery and equipment.
     2,644,750       —  
 
    
 		      
 		  
Total loans receivable
     4,293,078       —  
Less current portion
     (1,098,732 )   ( — )
 
    
 		      
 		  
Loans receivable, excluding current portion
   $ 3,194,346     $ —  
 
    
 		      
 		  
Principal amounts due in each of the next five years are as follows:
                
2004
           $ 1,098,732  
2005
             887,789  
2006
             669,855  
2007
             620,714  
2008
             606,238  
Thereafter
             409,750  

57

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Property, plant and equipment

                 
    December 31,
    2003   2002
Cost
                
Land
     475,679       475,679  
Buildings
     4,149,669       2,211,200  
Plant and equipment
     15,923,840       11,288,460  
Distribution system
     17,781,207       13,237,043  
Office furniture, fixtures and equipment
     864,426       715,539  
Vehicles
     700,750       607,230  
Leasehold improvements
     246,777       39,480  
Lab equipment
     41,305       41,035  
Assets under construction
     628,504       1,202,058  
 
    
 		      
 		  
 
     40,812,157       29,817,724  
Accumulated depreciation
     (11,149,860 )     (9,564,078 )
 
    
 		      
 		  
Net book value
   $ 29,662,297     $ 20,253,646  
 
    
 		      
 		  

At December 31, 2003, the Company had outstanding capital commitments of approximately $600,000 (2002: $1,080,000). It is the Company’s policy to maintain adequate insurance for loss or damage to all fixed assets that in management’s assessment may be susceptible to loss. The Company does not insure the costs of its underground distribution system which total $9,751,456 (2002: $9,806,663).

9. Investments in affiliates

The Company also acquired as part of the acquisition described in Note 3, 50% and 100% of the outstanding voting common shares and non-voting common shares of Ocean Conversion (BVI) Ltd., respectively. On May 9, 2003, the Company sold 100% of its non-voting shares in Ocean Conversion (BVI) Ltd. to Sage Water Holdings (BVI) Limited for approximately $2,120,250. The Company now owns 50% of the voting common shares of Ocean Conversion (BVI) Ltd., representing a 43.5% interest in the company.

The Company’s investment in Ocean Conversion (BVI) Ltd. is accounted for using the equity method of accounting.

The excess cost over the Company’s share of fair value net assets acquired of Ocean Conversion (BVI) Ltd. is $6,654,362 which is considered equity-method goodwill. In accordance with SFAS No. 142 this equity-method goodwill is not being amortized, but is analyzed for impairment. At December 31, 2003, management believes there to be no impairment of this equity-method goodwill.

58

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Investments in affiliates (continued)

Summarized financial information of Ocean Conversion (BVI) Ltd. is presented as follows:

                 
    December 31,
    2003   2002
Current assets
   $ 2,154,380     $ 2,771,844  
Non-current assets
     4,612,348       3,608,175  
 
    
 		      
 		  
Total assets
   $ 6,766,728     $ 6,380,019  
 
    
 		      
 		  
Current liabilities
   $ 1,006,733     $ 540,617  
Non-current liabilities
     1,410,063       1,739,379  
 
    
 		      
 		  
Total liabilities
   $ 2,416,796     $ 2,279,996  
 
    
 		      
 		  
                 
    For the year ended December 31,
    2003   2002
Water sales
   $ 4,819,605     $ 5,427,108  
Cost of water sales
     2,110,066       1,862,747  
Income from operations
     1,663,353       2,205,086  
Net income
     1,738,200       2,229,625  

10. Intangible assets

Effective February 1, 2003, the Company acquired 100% of the outstanding voting common shares of DesalCo Limited, its wholly-owned subsidiary DesalCo (Barbados) Ltd., and Ocean Conversion (Cayman) Limited. A portion of the purchase price was allocated to the following identifiable intangible assets.

(a)    As part of the acquisition of DesalCo Limited the Company attributed $726,902 to an intangible asset which represents the fair value of a Management Services Agreement originally dated December 4, 2000, under which DesalCo Limited provides management and engineering services to Ocean Conversion (BVI) Ltd an affiliated company. Original agreement was amended on February 7, 2003 such that there is no expiration term for this agreement. Management of the Company has determined that this intangible asset has an indefinite life, and therefore it is not being amortized.

(b)    As part of the acquisition of DesalCo Limited, the Company attributed $337,149 to an intangible asset which represents the fair value of the DWEER™ Distribution Agreement between DesalCo Limited and DWEER Technology Limited which expires on October 31, 2009. Under this agreement DesalCo Limited was granted an exclusive right, within certain geographical areas in the Caribbean, Central and South America, to distribute certain patented equipment, which can increase the operational efficiency of reverse osmosis seawater desalination plants. The carrying amount attributable to the intangible asset of the DWEER™ Distribution Agreement is being amortized over the remaining term of the seven-year agreement and has a weighted average useful life of 6.83 years.

(c)    As part of the acquisition of DesalCo Limited, the Company attributed $104,050 to an intangible asset which represents the fair value of an operations agreement between Sandy Lane Properties Ltd. and DesalCo (Barbados) Limited, a wholly owned subsidiary of DesalCo Limited. Under the terms of the agreement, DesalCo (Barbados) Limited provides operations and maintenance services for a seawater reverse osmosis desalination plant. The carrying amount attributable to the intangible asset of the operations agreement is being amortized over the remaining term of the five-year agreement and has a weighted average useful life of 3.0 years.

59

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Intangible assets (continued)

(d)    As part of the acquisition of Ocean Conversion (Cayman) Limited, the Company attributed $4,598,785 to intangible assets which represent the fair value of three Water Production and Supply Agreements between Ocean Conversion (Cayman) Limited and the Government of the Cayman Islands, dated April 25, 1994, June 18, 1997 and December 31, 2001. Under these agreements, Ocean Conversion (Cayman) Limited built reverse osmosis seawater desalination plants for the Government of the Cayman Islands. Ocean Conversion (Cayman) Limited operates the plants until the expiration of the agreement term, as extended, at which time the plant operations will be transferred to the Government of the Cayman Islands for no consideration. The carrying amounts attributable to the intangible assets of the Water Production and Supply Agreements are being amortized over the remaining term of the agreements, which are approximately 6, 3 and 7 years, respectively and has a weighted average useful life of 5.8 years.

(e)    On September 17, 2003, the Company signed a new agreement with its Belize customer for the provision of water from a seawater desalination plant for an initial term of 23 years. The new agreement has been executed, but final completion is subject to satisfying three conditions precedent, of which to date we have met one and BWSL has met one. We are awaiting confirmation from the Government of Belize that our application for extension of our existing import duty and tax exemptions has been granted until at least September 17, 2009, which will satisfy the final condition precedent. The terms and conditions of the contract signed on June 26, 1992 between BWSL and our company remain in full force and effect until all conditions precedent are satisfied. The carrying amount of the Belize Water Production and Supply Agreement which was previously being amortized over its weighed average useful life of 10.75 years is now being amortized over the term of the new 23-year agreement and has a weighted average useful life of 23.0 years.

                 
    December 31,
    2003   2002
Cost
                
Non-amortizable intangible asset
                
Management service agreement
     726,902       —  
Amortizable intangible assets
                
DWEERTM distribution agreement
     337,149       —  
Operations agreement with Sandy Lane
     104,050       —  
Cayman water production and supply agreements
     4,598,785       —  
Belize water production and supply agreement
     2,095,255       2,095,255  
 
    
 		      
 		  
 
     7,862,141       2,095,255  
 
    
 		      
 		  
Accumulated amortization
                
Non-amortizable intangible asset
                
Management service agreement
     —       —  
Amortizable intangible assets
                
DWEERTM distribution agreement
     (45,250 )     —  
Operations agreement with Sandy Lane
     (31,793 )     —  
Cayman water production and supply agreements
     (718,346 )     —  
Belize water production and supply agreement
     (634,797 )     (475,381 )
 
    
 		      
 		  
 
     (1,430,186 )     (475,381 )
 
    
 		      
 		  
Net book value
   $ 6,431,955     $ 1,619,874  
 
    
 		      
 		  
Amortization for each of the next five years are as follows:
                
2004
           $ 966,465  
2005
             966,465  
2006
             857,528  
2007
             825,244  
2008
             703,073  
Thereafter
             1,386,278  

60

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Goodwill

As of January 1, 2002, the Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets”, and in accordance with this statement the goodwill is not amortized, but is analyzed for impairment annually. The carrying amount of goodwill allocated to the reporting units for the year ended December 31, 2003 are as follows:

                                 
    Retail   Bulk   Services    
    Segment   Segment   Segment   Total
Balance as of December 31, 2002
   $ —     $ —     $ —     $ —  
Goodwill acquired during the year
     1,170,511       2,136,524       88,717       3,395,752  
 
    
 		      
 		      
 		      
 		  
Balance as of December 31, 2003
   $ 1,170,511     $ 2,136,524     $ 88,717     $ 3,395,752  
 
    
 		      
 		      
 		      
 		  

The reporting segments are tested for impairment in the fourth quarter, by comparing the fair value of the reporting segments to the carrying value. The fair value is determined using discounted cash flow based on management’s best estimates of forecasts for each segment. At December 31, 2003, the results of the impairment tests did not require the Company to recognize an impairment loss.

12. Dividends

Quarterly interim dividends were declared in respect of class A common stock and redeemable preferred stock as follows:

                         
    2003   2002   2001
March 31
   $ 0.105     $ 0.105     $ 0.10  
June 30
   $ 0.105     $ 0.105     $ 0.10  
September 30
   $ 0.105     $ 0.105     $ 0.10  
December 31
   $ 0.105     $ 0.105     $ 0.10  

Interim dividends for the first three quarters were paid during each respective year. The interim dividend for the fourth quarter was declared by the Board of Directors in October of each respective year. These quarterly interim dividends are subject to no further ratification and consequently the fourth quarter interim dividends have been recorded as a liability in each respective year. Included in dividends payable at December 31, 2003 are unclaimed dividends of $79,311 (2002: $85,671).

13. Long term debt

                 
    December 31,
    2003   2002
Scotiabank $20,000,000 term loan bearing interest at an annually adjusted floating rate of LIBOR plus 1.5% to 3%, depending on the ratio of the Company’s consolidated debt to its consolidated earnings before interest, taxes and depreciation, repayable in quarterly payments of $714,286 plus interest, due February 6, 2010. (Rate at December 31, 2003 was 2.68%)
   $ 17,857,143       —  
Scotiabank $1,428,000 term loan bearing interest at 3-month LIBOR plus 1.5%, repayable in semi-annual installments of $240,000 plus interest, due December 31, 2007.
     1,188,000          
Royal Bank of Canada loan bearing interest at LIBOR plus 1.75%, repayable in quarterly installments of principal and interest, due in 2007
     801,414          

61

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Long term debt (continued)

                 
    December 31,
    2003   2002
Royal Bank of Canada loan bearing interest at Nassau Prime Lending rate plus 1.5%, repayable in quarterly installments of principal and interest, due in 2007
     470,024          
Inter-American Investment Corporation loan bearing interest at LIBOR plus 2.75%, repayable in quarterly installments of $40,000 plus interest, due in 2004.
     80,000          
European Investment Bank loan bearing interest at 3.36%, repayable in semi annual installments, repaid in full during the year ended December 31, 2003.
     —       905,384  
Royal Bank of Canada loan bearing interest at six month LIBOR plus 1.5%, repayable in semi annual installments of $62,500 plus interest, Repaid in full during the year ended December 31, 2003.
     —       312,500  
Royal Bank of Canada loan bearing interest at monthly LIBOR plus 1.5%, repayable in monthly installments of $12,500 plus interest, repaid in full during the year ended December 31, 2003.
     —       1,375,000  
 
    
 		      
 		  
Total long term debt
     20,396,581       2,592,884  
Less current portion
     (3,763,144 )     (518,275 )
 
    
 		      
 		  
Long term debt, excluding current portion
   $ 16,633,437     $ 2,074,609  
 
    
 		      
 		  

In addition to these facilities, as at December 31, 2003, the Company has un-drawn available lines of credit with Scotiabank for $2,000,000 bearing interest at the floating base rate as established by Cayman Islands Class A licensed banks from time to time and with Royal Bank of Canada for $500,000 bearing interest at Nassau Prime plus 1%.

The Company is in compliance with restrictive covenants associated with all its long term debts.

The Company has collateralized all borrowings under the $20,000,000 seven-year term loan and the $2,000,000 un-drawn line of credit by providing Scotiabank with a first debenture over fixed and floating assets, first legal charge over land and buildings, security interest in all insurance policies and claims, reimbursement agreement for standby letters of credit, pledge of capital stock of each subsidiary and guarantees and negative pledges from each company where majority interest was acquired.

The two Royal Bank of Canada loans and the loan from Inter-American Investment Corporation have been collateralized by the assets of Waterfields Company Limited.

The aggregate capital repayment obligations over the next five years are as follows:

         
2004
   $ 3,808,555  
2005
     3,745,610  
2006
     3,461,920  
2007
     2,951,929  
2008
     2,857,144  
Thereafter
     3,571,423  

62

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Share capital and additional paid in capital

Redeemable preferred stock (“preference shares”) is issued under the Company’s Employee Share Incentive Plan as discussed in Note 22 and carries the same voting and dividend rights as ordinary shares of common stock (“ordinary share”). Preference shares vest over four years and convert to common stock on a share for share basis on the fourth anniversary of each grant date. Preference shares are only redeemable with the Company’s agreement. Upon liquidation, preference shares rank in preference to the ordinary shares to the extent of the par value of the preference shares and any related additional paid in capital.

The Company has a Class ‘B’ stock option plan designed to deter coercive takeover tactics. Pursuant to this plan, holders of ordinary shares and preference shares were granted options which entitle them to purchase 1/100 of a share of Class ‘B’ stock at an exercise price of $37.50 if a person or group acquires or commences a tender offer for 20% or more of the Company’s ordinary shares. Option holders (other than the acquiring person or group) will also be entitled to buy, for the $37.50 exercise price, ordinary shares with a then market value of $75.00 in the event a person or group actually acquires 20% or more of the Company’s ordinary shares. Options may be redeemed at $0.01 under certain circumstances. 60,000 of the Company’s authorized but unissued ordinary shares have been reserved for issue as Class ‘B’ stock. The Class ‘B’ stock ranks pari passu with ordinary shares for dividend and voting rights. No Class ‘B’ stock options have been exercised or redeemed up to December 31, 2003.

15. Expenses

                         
    For the year ended December 31,
    2003   2002   2001
Cost of water sales comprise the following:
                        
Water purchases
     263,586       1,952,331       2,074,759  
Depreciation
     1,586,217       1,175,349       1,018,541  
Amortization of intangible asset (Note 10)
     954,804       194,906       193,703  
Employee costs
     2,046,181       1,042,192       939,976  
Fuel oil
     639,434       179,275       91,842  
Royalties (Note 20)
     781,632       737,064       694,351  
Electricity
     2,499,695       710,168       534,919  
Insurance
     224,386       124,404       89,808  
Maintenance
     1,144,141       441,396       262,092  
Other direct costs
     536,205       325,092       209,126  
 
    
 		      
 		      
 		  
 
   $ 10,676,281     $ 6,882,177     $ 6,109,117  
 
    
 		      
 		      
 		  
General and administrative expenses comprise the following:
                        
Employee costs
     2,198,906       1,427,182       1,299,877  
Depreciation
     112,923       93,777       94,500  
Professional fees
     352,340       278,433       280,297  
Insurance
     414,525       141,650       89,328  
Directors’ fees and expenses
     164,794       157,877       107,184  
Maintenance
     197,787       21,339       22,663  
Other indirect costs
     898,249       523,746       606,211  
 
    
 		      
 		      
 		  
 
   $ 4,339,524     $ 2,644,004     $ 2,500,060  
 
    
 		      
 		      
 		  

63

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Earnings per share

Basic earnings per common share (“EPS”) is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS assumes the issuance of common shares for all potential common shares outstanding during the reporting period. In addition, the dilutive effect of stock options is considered in earnings per common share calculations, if dilutive, using the treasury stock method.

The following summarizes information related to the computation of basic and diluted earnings per share for the three years ended December 31, 2003.

                         
    2003
   2002
   2001
Net income
   $ 4,177,081     $ 2,576,310     $ 2,764,573  
Less:
                        
Dividends paid and earnings attributable on preference shares
     (5,706 )     (8,913 )     (10,794 )
 
    
 		      
 		      
 		  
Net income available to holders of ordinary shares in the determination of basic earnings per ordinary share
   $ 4,171,375     $ 2,567,397     $ 2,753,779  
 
    
 		      
 		      
 		  
Weighted average number of ordinary shares in the determination of basic earnings per ordinary share
     4,917,183       3,969,861       3,897,969  
Plus:
                        
Weighted average number of preference shares outstanding during the year
     19,604       23,801       31,213  
Potential dilutive effect of unexercised options and warrants
     100,743       93,870       70,509  
 
    
 		      
 		      
 		  
Weighted average number of shares used for determining diluted earnings per ordinary share
     5,037,530       4,087,532       3,999,691  
 
    
 		      
 		      
 		  

17. Segmented information

Due to the recent acquisitions, management changed the Company’s internal organizational structure to effectively assimilate the business activities of the acquired companies. Consequently, management no longer considers it appropriate to report separate business segments based on geographical location. Under the Statements of Financial Accounting Standards 131, “Disclosure about Segments of an Enterprise and Related Information”, management now considers; (i) the operations to supply water to retail customers, (ii) the operations to supply water to bulk customers, and (iii) the provision of engineering and management services, as separate business segments. The segmented information that was previously reported for the Cayman Islands and the Bahamas is now reported as part of the Retail Water segment, and segmented information for Belize is now reported as part of the Bulk Water segment.

For purposes of segment information, the accounts of Ocean Conversion (BVI) Ltd. have been proportionally consolidated into the Bulk Water segment. An adjustment has been made in reconciling items to account for the investment under the equity method. Also included in reconciling items are corporate expenses including interest expense that do not relate to any specific operating segment.

64

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Segmented information (continued)

                                                                         
    As at December 31 and for the year then ended
    Retail
   Bulk
   Services
    2003
   2002
   2001
   2003
   2002
   2001
   2003
   2002
   2001
Water sales
     10,918,151       10,683,592       10,017,330       9,130,741       1,471,097       1,230,775       1,090,293       —       —  
Other income
     (297,793 )     (60,487 )     97,182       (420,445 )     8,289       28,463       (51,694 )     —       —  
Other income includes:
                                                                        
Interest revenue
     11,597       —       30       89,679       14,711       28,554       197       —       —  
Interest expense
     422,510       103,427       99,865       368,462       559       91       99,281       —       —  
Cost of water sales
     4,972,300       5,824,815       5,197,293       5,920,393       1,057,362       911,824       491,593       —       —  
General and administrative
     2,684,216       2,418,378       2,309,238       1,731,595       225,626       190,822       194,425       —       —  
Cost of water sales and general and administrative expenses include:
                                                                        
Depreciation
     1,077,609       1,089,021       952,216       835,315       180,105       160,825       5,105       —       —  
Amortization
     —       —       —       877,761       194,907       193,703       77,043       —       —  
Income taxes
     —       —       —       —       —       —       23,743       —       —  
Net income
     2,963,842       2,379,912       2,607,981       1,038,771       196,398       156,592       328,839       —       —  
Property, plant and equipment
     19,701,187       18,812,973       16,873,140       11,954,770       1,440,673       1,541,795       14,095       —       —  
Total assets
     45,028,169       23,347,530       20,410,406       22,224,004       2,160,107       2,310,772       4,255,510       —       —  

     

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                 
    As at December 31 and for the year then ended
    Reconciliation
   Total
    2003
   2002
   2001
   2003
   2002
   2001
Water sales
     (2,084,980 )     —       —       19,054,205       12,154,689       11,248,105  
Other income
     952,680       —       —       182,748       (52,198 )     125,645  
Other income includes:
                                                
Interest revenue
     (19,139 )     —       —       82,334       14,711       28,584  
Interest expense
     273,384       —       —       1,163,637       103,986       99,956  
Cost of water sales
     (708,005 )     —       —       10,676,281       6,882,177       6,109,117  
General and administrative
     (269,924 )     —       —       4,339,524       2,644,004       2,500,060  
Cost of water sales and general and administrative expenses include:
                                                
Depreciation
     (218,889 )     —       —       1,699,140       1,269,126       1,113,041  
Amortization
     —       —       —       954,804       194,907       193,703  
Income taxes
     —       —       —       23,743       —       —  
Net income
     (154,371 )     —       —       4,177,081       2,576,310       2,764,573  
Property, plant and equipment
     (2,007,755 )     —       —       29,662,297       20,253,646       18,414,935  
Total assets
     (2,945,557 )     —       —       68,562,126       25,507,637       22,721,178  

65

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Segmented information (continued)

For the year ended December 31, 2003, revenues from the Cayman Island operations were $15,541,455 (2002: $10,565,568; 2001: $9,990,997). Revenues from all foreign country operations were $3,512,750 (2002: $1,589,121; 2001: $1,257,108). Included in the revenues from foreign countries is $1,869,077 (2002: $118,024; 2001: $26,333) from the operations in Bahamas, $1,245,744 (2002: $1,471,097; 2001: $1,230,775) from our operations in Belize and $397,929 (2002: $nil; 2001: $nil) from our operations in Barbados.

For the year ended December 31, 2003, property, plant and equipment located in the Cayman Islands was $19,375,384 (2002: 17,698,944; 2001: 15,770,560). Property, plant and equipment in all the foreign country operations were $10,286,913 (2002: $2,554,702: 2001: 2,644,375). Included in property, plant and equipment from foreign operations is $8,904,739 (2002: $1,114,029; 2001: $1,102,580) from the operations in Bahamas and $1,373,357 (2002: $1,440,673; 2001: $1,541,795) from our operations in Belize.

For the year ended December 31, 2003, revenues in the amount of $4,022,544 (2002: $nil; 2001: $nil) were earned from one customer. These revenues are located in the Bulk segment.

During the year end December 31, 2003, revenues which were earned in the Service segment from the Bulk segment through various management service agreements and an engineering service agreement amounted to $1,038,435 (2002: $nil; 2001: $nil). Any intercompany amounts included in this amount have been eliminated in accordance with the basis of consolidation.

18. Related party transactions

A professional service firm, of which a director was a partner, provided professional services during the year ended December 31, 2003 for which it charged $200,685 (2002: $225,400; 2001: $275).

As at December 31, 2003, the amounts receivable from Ocean Conversion (BVI) Ltd. relating to revenue earned was $227,432, from revenues of $579,950.

19. Leases

The Company has committed to lease premises in the Cayman Islands for a period of four years from February 1, 2004 to January 31, 2008 at approximately $118,512 per annum.

During the year ended December 31, 2003, the Company entered into a six month lease which ended on September 30, 2003, to rent a portable reverse osmosis machine capable of producing 150,000 US gallons of water per day. Total lease payments made during the year were $120,000.

20. Commitments

The Company is obligated to supply water, where feasible, to customers in the Cayman Islands within its licence area in accordance with the terms of the licence. Royalties are paid to the Government of the Cayman Islands at the rate of 7.5% of gross water sales.

The Company has six water supply agreements under which it is required to provide minimum water quantities.

As part of the acquisition of the Company’s interests in Ocean Conversion (Cayman) Limited, with the approval of Scotiabank (Cayman Islands) Ltd., the Company has guaranteed the performance of Ocean Conversion (Cayman) Limited to the Cayman Islands government, pursuant to the water supply contract with the Water Authority-Cayman dated April 25, 1994 as amended.

66

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. Commitments (continued)

The Company has guaranteed to Scotiabank 50% of the Ocean Conversion (BVI) Ltd. loan of $880,056. The Scotiabank loan is repayable in 6 equal semi-annual installments of $125,000 with the balance of principal due May 31, 2006, bearing interest at 3-month LIBOR plus 1.5%. At December 31, 2003 the outstanding balance of this loan was $505,000 which is also collaterized by other assets of Ocean Conversion (BVI) Ltd.

As a result of the Company’s acquisition of interests in Waterfields Company Limited, it guaranteed the performance of Waterfields Company Limited to the Water & Sewerage Corporation of the Bahamas in relation to the water supply contract between Waterfields Company Limited and the Water & Sewerage Corporation.

In addition to the above guarantee provided by the Company to Water & Sewerage Company of the Bahamas, the Company also provides a bank guarantee, with the Royal Bank of Canada, Nassau, in the amount of $1,910,775 to the Water & Sewerage Corporation of The Bahamas in that the Company shall duly perform and observe all terms and provisions pursuant to the contract between the Water & Sewerage Corporation of The Bahamas and the Company. In the event of the Company’s default on its obligations, the Royal Bank of Canada, Nassau, shall satisfy and discharge any damages sustained by the Water & Sewerage Corporation of The Bahamas up to the guaranteed amount.

21. Water purchase agreement

As a result of the Company’s acquisition of Ocean Conversion (Cayman) Limited (“OCL”), the Company cancelled its water purchase agreement with OCL, which originally was planned to expire on December 31, 2004. Under the terms of the agreement, the Company was required to purchase an annual minimum amount of water. At December 31, 2003, accounts payable includes $nil (2002: $208,556) outstanding under the agreement.

22. Stock compensation

The Company operates various stock compensation plans that form part of employees’ remuneration. Stock compensation expense of $138,750 (2002: $442,497; 2001: $169,599) is recorded in accordance with APB Opinion No. 25 and included within employee costs. Had compensation cost for the Company’s stock based compensation plans been determined on the fair value at the grant dates for award under those plans consistent with the method of SFAS 123, the Company’s net income and earnings per shares would have been reduced to the pro forma amounts below:

                         
    For the Year ended December 31,
    2003
   2002
   2001
Net income — as reported
   $ 4,177,081     $ 2,576,310     $ 2,764,573  
Net income — pro forma
   $ 3,365,684     $ 2,396,105     $ 2,288,882  
Earnings per share:
                        
Basic — as reported
   $ 0.85     $ 0.65     $ 0.71  
Basic — pro forma
   $ 0.68     $ 0.60     $ 0.59  
Diluted — as reported
   $ 0.83     $ 0.63     $ 0.69  
Diluted — pro forma
   $ 0.67     $ 0.58     $ 0.57  

67

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. Stock compensation (continued)

     In calculating the fair value for these options under SFAS 123 the Black-Scholes model was used with the following weighted average assumptions:

                         
    2003
   2002
   2001
Exercise price
   $ 19.59     $ 12.17     $ 10.55  
Grant date market value
   $ 19.50     $ 14.71     $ 10.97  
Risk free interest rate
     2.37 %     2.24 %     3.93 %
Expected life
   3.22   years   3.23   years   3.21   years
Expected volatility
     35.55 %     42.91 %     52.79 %
Expected dividend yield
     2.16 %     2.85 %     3.67 %

Employee Share Incentive Plan (Preference shares)

The Company awards preference shares for $nil consideration under the Employee Share Incentive Plan as part of compensation for eligible employee services, excluding Directors and Executive Officers, that require future services as a condition to the delivery of ordinary shares. In addition options are granted to purchase preference shares at a fixed price, determined annually, which will typically represent a discount to the market value of the ordinary shares. In consideration for preference shares, the Company issues ordinary shares on a share for share basis. Under the plan the conversion is conditional on the grantee’s satisfying requirements outlined in the award agreements. Preference shares are only redeemable with the Company’s agreement.

The details of preferred shares and preferred share options granted and exercised under the Employee Share Incentive Plan are as follows:

                                         
    Year of           Strike   Options   Options
    Grant
   Granted
   Price
   Exercised
   Expired
Preferred shares
     2001       3,963     $nil     N/A       N/A  
 
     2002       2,713     $nil     N/A       N/A  
 
     2003       2,993     $nil     N/A       N/A  
Preferred share options
     2001       3,963     $ 5.32       1,858       2,105  
 
     2002       2,713     $ 8.13       617       2,096  
 
     2003       2,993     $ 8.95       844       2,149  

Each employee’s option to purchase preferred shares must be exercised within 30 days of the grant date, which is the 90th day after the date of the auditor’s certificate on the financial statements for the relevant year.

Employee Share Option Plan (Ordinary Stock Options)

In 2001, the Company introduced an employee stock option plan for certain long-serving employees of the Company. Under the plan these employees are granted in each calendar year, as long as the employee is a participant in the Employee Share Incentive Plan, options to purchase ordinary shares. The price at which the option may be exercised will be the closing market price on the grant date, which is the 90th day after the date of the auditor’s certificate on the financial statements for the relevant year. The number of options each employee is granted is equal to five times the sum of (i) the number of preference shares which that employee receives for $nil consideration and (ii) the number of preference share options which that employee exercises in that given year. Options may be exercised during the period commencing on the fourth anniversary of the grant date and ending on the thirtieth day after the fourth anniversary of the grant date.

68

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. Stock compensation (continued)

Non-Executive Directors’ Share Plan

In 1999, the Company introduced a stock grant plan, which forms part of Directors’ remuneration. Under the plan Directors receive a combination of cash and ordinary shares in consideration of remuneration for their participation in Board meetings. All Directors are eligible except Executive Officers, who are covered by individual employment contracts and the Government elected board member. The number of ordinary shares granted is calculated with reference to a strike price that is set on October 1 of the year preceding the grant. Stock granted during the year ended December 31, 2003 totaled 7,735 shares (2002: 6,305) at a strike price of $11.79 (2002: $10.70).

Directors and senior management stock compensation

Certain members of senior management are entitled to receive, as part of the compensation for their services to the Company, options to purchase ordinary shares. During the year ended December 31, 2003, the option plan for senior management was amended as part of renegotiations of employee contracts. The amended contracts terminated the stock option plans for all years commencing from January 1, 2004. The 2003 stock option exercise price was set at the market price on December 31, 2003.

The following table summarizes information about the Company’s stock option plans as of December 31, 2003, 2002 and 2001, and changes during the years ended on those dates.

                                                 
    2003   2002   2001
            Exercise           Exercise           Exercise
    Number
   price
   Number
   price
   Number
   price
Outstanding at beginning of year
     394,530     $ 10.02       341,136     $ 8.59       243,045     $ 5.73  
Granted
     183,490     $ 19.50       114,086     $ 12.17       162,054     $ 10.55  
Exercised
     (96,453 )   $ 8.51       (58,596 )   $ 5.94       (61,858 )   $ 2.58  
Forfeited
     (2,149 )   $ 8.95       (2,096 )   $ 8.14       (2,105 )   $ 5.32  
 
    
 		              
 		              
 		          
Outstanding at end of year
     479,418     $ 13.96       394,530     $ 10.02       341,136     $ 8.59  
 
    
 		              
 		              
 		          
Exercisable at end of year
     428,373     $ 14.13       358,230     $ 9.90       318,531     $ 8.55  
 
    
 		              
 		              
 		          

The following table summarizes the weighted average grant-date fair value of options during the year:

                         
    For the year ended December 31,
    2003
   2002
   2001
Options granted with an exercise price below market price on the date of grant:
                        
Senior management
     —     $ 4.93     $ 3.78  
Non executive Director
     —       —     $ 3.89  
Employees — preferred shares
   $ 5.47     $ 5.72     $ 3.88  
Overall weighted average
   $ 5.47     $ 4.95     $ 3.81  
Options granted with an exercise price at market price on the date of grant:
                        
Senior management
   $ 4.70       —       —  
Employees — ordinary share options
   $ 4.12     $ 4.41     $ 3.08  
Overall weighted average
   $ 4.65     $ 4.41     $ 3.08  

69

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. Stock compensation (continued)

Summary of options outstanding at December 31, 2003

At December 31, 2003, the range of exercise prices on outstanding options was $6.75 — $20.05. Accordingly the following information is presented on options outstanding, which are all exercisable, at December 31, 2003:

                     
    Exercise prices
from		   Exercise prices
from
    $6.75 - $10.84
   $11.17 - $20.05
Number of options outstanding at December 31, 2003
     164,943         263,430    
Weighted average exercise price
   $ 9.49       $ 17.04    
Weighted average remaining contractual life
     0.74  years       2.25  years  

The weighted average fair value per share under SFAS 123 for shares granted during the year below market price on the date of grant follows:

                                                 
    2003   2002   2001
            Exercise           Exercise           Exercise
    Number
   price
   Number
   price
   Number
   price
Overall weighted average
     13,133     $ 12.42       11,941     $ 11.12       11,456     $ 7.86  

23. Taxation

Under current laws of the Cayman Islands, there are no income, estate, corporation, capital gains or other taxes payable by the Company on its Cayman Islands operations.

Under the current laws of Belize, the Company has received a tax exemption with respect to its Belize operations. The exemption expires in January 2006 and may be renewed in accordance with local legislation.

Under current laws of The Commonwealth of The Bahamas, there are no income, corporation, capital gains or other taxes payable by the Company. The Company is required to pay an annual business license fee, the calculation of which is based on the Bahamanian company’s preceding year’s financial statements, and such fees are payable between January and April of the subsequent year.

Under the current laws of Barbados, the Company’s Barbados operations are subject to a 40% Barbados corporate tax and all dividend payments and non-tax treaty supplier payments are subject to a Barbados withholding tax of 15%. As at December 31, 2003, the Company had income tax receivable in the amount of $3,335. The Company has not recorded any deferred tax asset or liability as management believes that such items would be, if any, immaterial to the financial statements.

A significant majority of the net income of the Company is not subject to current taxation. The overall net tax expense is less than 1%, which is attributable to continuing operations in Barbados. There are no significant permanent reconciling items.

70

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24. Pension benefits

Staff pension plans are offered to all employees in the Cayman Islands. The plans are administered by third party pension plan providers and are defined contribution plans whereby the Company matches the contribution of the first 5% of each participating employee’s salary. The total amount recognized as an expense under the plan during the year ended December 31, 2003 was $119,800 (2002: $70,210; 2001: $63,740).

25. Financial instruments

Credit risk:

The Company is not exposed to significant credit risk on the vast majority of customer accounts as the policy is to cease supply of water to customers’ accounts that are more than 45 days overdue. The Company’s exposure to credit risk is concentrated on receivables from its Bulk water customers. The balances from these customers are current or an allowance has been made for collection as at December 31, 2003 and management does not anticipate any losses on these concentrations.

Interest rate risk:

The interest rates and terms of the Company’s loans are presented in Note 13 of these financial statements. The Company is subject to interest rate risk to the extent that the LIBOR or Nassau Prime Lending rates change.

Foreign exchange risk:

All relevant foreign currencies have fixed exchange rates to the United States dollar as detailed under the foreign currency accounting policy note. If any of these fixed exchange rates become floating exchange rates, the Company’s results of operations could be adversely affected.

Fair values:

At December 31, 2003 and 2002, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other liabilities and dividends payable approximate fair values due to the short term maturities of these assets and liabilities. Management considers that the carrying amounts for loans receivable and long term debt due to Scotiabank and the Royal Bank of Canada approximate their fair value.

26. Non-cash transactions

The Company made the following non-cash transactions:

                         
    2003
   2002
   2001
Redemption of preference shares and issue of replacement ordinary shares at $nil consideration
   $ 11,974     $ 9,700     $ 17,112  
 
    
 		      
 		      
 		  
Preference shares issued to employees at $nil consideration (Note 22)
   $ 3,592     $ 3,256     $ 4,756  
Redemption of preference shares at $nil consideration
     (162 )     —       —  
Ordinary shares issued under the Non-executive Directors Share Plan at $nil consideration (Note 22)
     102,602       66,600       56,998  
Ordinary shares issued under senior management employment agreements at $nil consideration (Note 22)
     28,715       30,303       —  
Additional paid in capital from exercise of stock options
     37,500       75,171       227,420  
 
    
 		      
 		      
 		  
 
   $ 172,247     $ 175,330     $ 289,174  
 
    
 		      
 		      
 		  

71

Table of Contents

CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26. Non-cash transactions

                         
    2003
   2002
   2001
Reduction in ordinary shares and additional paid-in capital from cancellation of shares repurchased
   $ —     $ 36,710     $ 271,595  
 
    
 		      
 		      
 		  
Addition of ordinary shares and additional paid-in capital from issuance of shares in the acquisition
   $ 2,291,711     $ —     $ —  
 
    
 		      
 		      
 		  
Dividends declared but not paid (Note 12)
   $ 686,118     $ 508,444     $ 499,383  
 
    
 		      
 		      
 		  

27. Impact of recent issued accounting standards

The Financial Accounting Standards Board issued three standards and one interpretation that effect the Company. A summary of these standards and interpretation is given below:

In June 2001, the FASB issued SFAS No. 143, “Accounting for Assets Retirement Obligations”. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Company also records a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. The Company adopted SFAS No. 143 early during the year ended December 31, 2002. The adoption did not have a material effect on the Company’s financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statements No. 123”. This Statement amends FASB Statement No. 123 “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition the Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. All of the disclosure modifications required for the annual financial statements have been included in the notes to these consolidated financial statements.

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities”. This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For public enterprises with a variable interest entity created before February 1, 2003 the Interpretation applies to that enterprise no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. The application of this Interpretation is not expected to have a material effect on the Company’s financial statements.

In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities. The Company does not expect the adoption of the Statement to result in an impact on the Company’s financial statements.

72

Table of Contents

Independent Auditors’ Report

The Board of Directors
Ocean Conversion (BVI) Ltd

We have audited the accompanying consolidated balance sheet of Ocean Conversion (BVI) Ltd. and its subsidiary (the “Company”) as of December 31, 2003 and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects, the financial position of Ocean Conversion (BVI) Ltd. and its subsidiary as of December 31, 2003, and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Chartered Accountants

March 12, 2004

73

Table of Contents

OCEAN CONVERSION (BVI) LTD.

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2003

(Expressed in United States dollars)

         
    2003  
ASSETS
        
Current assets
        
Cash and cash equivalents (Note 3)
   $ 1,196,267  
Accounts receivable (Note 4)
     696,818  
Deferred fees
     18,968  
Inventory (Note 5)
     217,605  
Prepaid expenses and other assets
     24,722  
 
    
 		  
Total current assets
     2,154,380  
Property, plant and equipment, net (Note 6)
     4,612,348  
 
    
 		  
Total assets
   $ 6,766,728  
 
    
 		  
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
Current liabilities
        
Accounts payable and other liabilities
   $ 756,733  
Current portion of long term debt (Note 7)
     250,000  
 
    
 		  
Total current liabilities
     1,006,733  
Profit sharing provision (Note 11)
     905,063  
Long term debt (Note 7)
     505,000  
 
    
 		  
Total liabilities
     2,416,796  
 
    
 		  
Stockholders’ equity
        
Class A, voting shares, $1 par value. Authorized 600,000 shares:
        
Issued and outstanding 555,000 shares
     555,000  
Class B, voting shares, $1 par value. Authorized 600,000 shares:
        
Issued and outstanding 555,000 shares
     555,000  
Class C, non-voting shares. $1 par value. Authorized 600,000 shares;
        
Issued and outstanding 165,000 shares
     165,000  
Additional paid-in capital
     225,659  
Retained earnings
     2,849,273  
 
    
 		  
Total stockholders’ equity
     4,349,932  
 
    
 		  
Commitments (Note 8)
        
Total liabilities and stockholders’ equity
   $ 6,766,728  
 
    
 		  

The accompanying notes are an integral part of these consolidated financial statements.

74

Table of Contents

OCEAN CONVERSION (BVI) LTD.

CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, 2003

(Expressed in United States dollars)

         
    2003  
Water sales
     4,819,605  
Cost of water sales (Note 9)
     (2,110,066 )
 
    
 		  
Gross profit
     2,709,539  
General and administrative expenses (Note 9)
     (1,046,186 )
 
    
 		  
Income from operations
     1,663,353  
 
    
 		  
Other income (expense)
        
Interest income
     103,225  
Interest expense
     (28,378 )
 
    
 		  
 
     74,847  
 
    
 		  
Net income
   $ 1,738,200  
 
    
 		  

The accompanying notes are an integral part of these consolidated financial statements.

75

Table of Contents

OCEAN CONVERSION (BVI) LTD.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

YEAR ENDED DECEMBER 31, 2003

(Expressed in United States dollars)

                                         
    Common stock
   Additional
paid-in		   Retained   Total
stockholders’
    Shares
   Dollars
   capital
   earnings
   equity
Balance at January 1, 2003
     1,230,000     $ 1,230,000     $ 165,200     $ 2,704,823     $ 4,100,023  
Issuance of Class C stock
     45,000       45,000       60,459       —       105,459  
Net income
                             1,738,200       1,738,200  
Dividends declared
     —       —       —       (1,593,750 )     (1,593,750 )
 
    
 		      
 		      
 		      
 		      
 		  
Balance at December 31, 2003
     1,275,000     $ 1,275,000     $ 225,659     $ 2,849,273     $ 4,349,932  
 
    
 		      
 		      
 		      
 		      
 		  

The accompanying notes are an integral part of these consolidated financial statements.

76

Table of Contents

\

OCEAN CONVERSION (BVI) LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2003

(Expressed in United States dollars)

         
    2003
  
Net income
   $ 1,738,200  
Adjustments to reconcile net income to net cash
        
Depreciation
     502,666  
Profit sharing
     527,393  
Gain on disposal of property, plant and equipment
     —  
Decrease in accounts receivable
     1,606,496  
(Increase) in inventory
     (38,779 )
(Increase) in prepaid expenses and other assets
     (18,974 )
Decrease (increase) in accounts payable and other liabilities
     466,116  
 
    
 		  
Net cash provided by operating activities
     4,783,118  
 
    
 		  
Cash flows from investing activities
        
Proceeds on sale of property, plant and equipment
     —  
Purchase of property, plant and equipment
     (1,506,839 )
 
    
 		  
Cash used in investing activities
     (1,506,839 )
 
    
 		  
Cash flows from financing activities
        
Profit sharing rights paid
     (506,250 )
Proceeds from long term debt
     880,000  
Dividends paid
     (1,593,750 )
Principal repayment of long term debt
     (1,125,000 )
 
    
 		  
Cash used in financing activities
     (2,345,000 )
 
    
 		  
Net increase (decrease) in cash and cash equivalents
     931,279  
Cash and cash equivalents at beginning of year
     264,988  
 
    
 		  
Cash and cash equivalents at end of year
   $ 1,196,267  
 
    
 		  
Interest paid in cash
   $ 28,378  
Interest received in cash
   $ 103,225  

The accompanying notes are an integral part of these consolidated financial statements.

77

Table of Contents

OCEAN CONVERSION (BVI) LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Principal activity

The Company was incorporated in the British Virgin Islands under the Companies Act, Cap 285, on May 14, 1990 and is engaged in the production and sale of potable water to the Government of the British Virgin Islands (the “Government”). The Company has an agreement with the Government, its sole customer, to produce and supply a guaranteed quantity and quality of potable water. This agreement provides for specific penalties should the Company not be able to provide the guaranteed quantity of water.

On January 24, 1992, the Company amended the original agreement with the Government to allow for the expansion of its plant in order to increase its production capacity from 360,000 imperial gallons of water to 510,000 imperial gallons per day. Under this agreement, the Government had the option to purchase the facility, at a cost of $1,420,000, in May 1999 or renew the agreement for a period of seven years. The Government has not exercised its option to purchase the plant but advised the Company of its desire to negotiate an amended agreement.

2. Accounting policies

Basis of preparation: The consolidated financial statements presented are prepared in accordance with the accounting principles generally accepted in the United States of America.

Basis of consolidation: The consolidated financial statements include the financial statements of Ocean Conversion (BVI) Ltd. and its majority owned subsidiary. All significant intercompany balances and transactions have been eliminated.

Use of estimates: The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include the carrying value of property, plant and equipment and inventory. Actual results could differ from those estimates.

Cash and cash equivalents: Cash and cash equivalents comprise cash at bank on call and highly liquid deposits with an original maturity of three months or less.

Trade accounts receivable: Trade accounts receivable are recorded at invoiced amounts based on meter readings reduced by appropriate allowances for estimated irrecoverable amounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable balance. The Company determines the allowance based on historical write-off experience.

Inventory: Inventory primarily includes replacement spares and parts that are valued at the lower of cost and net realizable value on a first-in, first-out basis.

Impairment of Long-Lived Assets: In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the exceeds the fair value of the asset.

78

Table of Contents

OCEAN CONVERSION (BVI) LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. Accounting policies (continued)

Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using a straight line method with an allowance for estimated residual values. Rates are determined based on the estimated useful lives of the assets as follows:

     
Plant and equipment
  4 to 25 years
Office furniture, fixtures and equipment
  3 to 10 years
Vehicles
  3 to 10 years
Lab Equipment
  3 to 10 years

Additions to property, plant and equipment are comprised of the cost of the contracted services, direct labour and materials. Assets under construction are recorded as additions to property, plant and equipment upon completion of the projects. Depreciation commences in the month of addition.

Interest costs directly attributable to the construction of qualifying assets, which are assets that necessarily take a substantial period of time to ready for their intended use, are added to the cost of those assets until such time as the assets are substantially ready for use or sale.

Water sales and cost of water sales: The Government is billed monthly based on meter readings performed at or near each month end and in accordance with the water sales agreement which stipulates minimum monthly charges for water service.

Repairs and maintenance: All repair and maintenance costs are expensed as incurred.

3. Cash and cash equivalents

Cash and cash equivalents are not restricted as to withdrawal or use.

4. Accounts receivable

Accounts receivable comprise receivables from our sole customer, the Government of the British Virgin Islands. Significant concentrations of credit risk are disclosed in Note 15.

5. Inventory

         
    2003
Inventory
   $ 248,000  
Less allowance for obsolescence
     (30,395 )
 
    
 		  
Total
   $ 217,605  
 
    
 		  

79

Table of Contents

OCEAN CONVERSION (BVI) LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. Property, plant and equipment

         
    2003
Cost
        
Plant and equipment
   $ 8,973,271  
Office furniture, fixtures and equipment
     27,658  
Vehicles
     71,600  
Lab equipment
     11,637  
Assets under construction
     451,666  
 
    
 		  
 
     9,535,832  
Accumulated depreciation
     (4,923,484 )
 
    
 		  
Net book value
   $ 4,612,348  
 
    
 		  

It is the Company’s policy to maintain adequate insurance for loss or damage to all fixed assets that in management’s assessment may be susceptible to loss.

7. Long term debt

         
    2003
Scotiabank (Cayman Islands) Ltd., loan bearing interest at three month LIBOR plus 1.5% per annum, with interest calculated daily and payable quarterly, repayable in 6 equal semi-annual installments of $125,000 commencing December 31, 2002, the balance of principal and interest then outstanding due May 31, 2006
   $ 755,000  
Bank of Butterfield loan bearing interest at three month LIBOR plus 1.5%, repayable in semi annual installments of principal and interest of $125,000; repaid in full during the year ended December 31, 2003.
     —  
 
    
 		  
Total long term debt
     755,000  
Less current portion
     (250,000 )
 
    
 		  
Long term debt, excluding current portion
   $ 505,000  
 
    
 		  
The aggregate capital repayment obligations over the next five years are as follows:
        
2004
     $250,000
2005
     250,000  
2006
     5,000  
Thereafter
     —  

Any amounts drawn under the Scotiabank facility are collateralized by a fixed and floating charge of $1,250,000. The fixed and the floating charge covers all other assets of the Company.

At year end the Company is in compliance with all restrictive covenants.

80

Table of Contents

OCEAN CONVERSION (BVI) LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. Commitments

The Company rents property upon which it has installed walls and boreholes necessary for the production of water. Future minimum lease payments under the non cancelable operating lease at December 31, 2003 are as follows:

         
Operating Lease
        
2004
   $ 18,055  
2005
     18,055  
2006
     18,055  
2007
     18,055  
Thereafter
     144,440  

9. Expenses

         
    2003
  
Cost of water sales comprise the following:
        
Fuel oil
   $ 356,427  
Electricity
     324,162  
Maintenance
     288,697  
Depreciation
     502,573  
Employee costs
     417,861  
Insurance
     77,790  
Other direct cost
     142,556  
 
    
 		  
 
   $ 2,110,066  
 
    
 		  
General and administrative expenses comprise the following:
        
Maintenance costs
   $ 709  
Depreciation
     92  
Professional fees
     13,150  
Management fees
     333,904  
Directors fees and expenses
     60,647  
Profit sharing
     527,393  
Other indirect costs
     110,291  
 
    
 		  
 
   $ 1,046,186  
 
    
 		  

10. Related party transactions

A professional service firm, of which a director is a principal, provided pension services during the year ended December 31, 2003 for which it charged $345.

Pursuant to a Management Services Agreement dated October 1, 1992 between DesalCo Ltd. and the Company, DesalCo Ltd. provides the Company with management, administration, finance, operations, maintenance, engineering and purchasing services, and is also entitled to be reimbursed for all reasonable expenses incurred on behalf of the Company. The Company incurred fees of $333,904 related to this management service agreement for the year ended December 31, 2003.

81

Table of Contents

OCEAN CONVERSION (BVI) LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. Profit sharing provision

         
    2003
Opening balance
     989,739  
Additions
     421,574  
Distributions
     (506,250 )
 
    
 		  
 
   $ 905,063  
 
    
 		  

In 1993, the Company and its existing shareholders at that time, entered into two Share Repurchase and Profit Sharing Agreements (the “Agreements”) to repurchase 225,000 shares each from those shareholders (the “Parties”), whose shares were issued in exchange for guarantees of the Company’s long term debt. The Agreements were subsequently approved by special dissolution at an Extraordinary Meeting of all the Company’s shareholders entitled to vote, held on the same date.

Under the terms of the Agreements, the Company, in exchange for the above-mentioned shares, grants the Parties, profit sharing rights in the Company’s profits for as long as the Company remains in business as a going concern. The Agreement states that where the Company has profits available for the payment of dividends and pays a dividend there from, a distribution shall be made to each of the Parties equal to 202,500 times the dividend per share received by the remaining shareholder and paid concurrently with such dividend. The factor of 202,500 shall be subject to amendment by the same proportion and at the same time as changes take place or adjustments are made in respect of the remaining shareholders.

The current shareholders and an affiliate of a current shareholder have acquired these profit sharing rights. The Company has made an allowance at December 31, 2003 for the maximum profit shares payable to the Parties if all retained earnings were to be distributed as dividends and profit shares.

12. Taxation

Under the terms of the water sales agreement with the Government, the Company is exempt from all taxation in the British Virgin Islands.

13. Non-cash transaction

         
    2003
Issuance of Class C shares
   $ 45,000  
 
    
 		  

During the year ended December 31, 2003, 45,000 Class C non-voting shares were issued in exchange for cancellation of an equal portion of profit sharing rights.

82

Table of Contents

OCEAN CONVERSION (BVI) LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. Pension plan

Effective December 1, 2003, the Company established the MWM Global Retirement Plan (the “Plan”). The Plan is a defined contribution plan whereby the Company will contribute 5% of each participating employee’s salary to the Plan. The total amount recognized as an expense under the plan during the year ended December 31, 2003 was $nil and will approximate $17,900 per year going forward.

15. Financial instruments

Credit risk:

Financial assets that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company’s cash is placed with high credit quality financial institutions. The accounts receivable are due from the Company’s sole customer, the Government (Note 1). As a result, the Company is subject to credit risk to the extent of any non-performance by the Government.

Interest rate risk:

The interest rates and terms of the Company’s loans are presented in Note 7 of these consolidated financial statements. The Company is subject to interest rate risk to the extent that the LIBOR rate may fluctuate.

Fair values:

At December 31, 2003 the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other liabilities approximate fair values due to the short term maturities of these assets and liabilities. Management considers that the carrying amount for long-term debt approximates fair value.

83

Table of Contents

OCEAN CONVERSION (BVI) LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     On June 27, 2002, we dismissed our independent auditors, PricewaterhouseCoopers. The decision to dismiss PricewaterhouseCoopers was recommended and approved by the audit committee of our board of directors. During the fiscal years ended December 31, 2000 and 2001, PricewaterhouseCoopers’ report on our financial statements did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, during each of our fiscal years ended December 31, 2000 and 2001 and the interim period through June 27, 2002, we did not have any disagreements with PricewaterhouseCoopers on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of PricewaterhouseCoopers, would have caused PricewaterhouseCoopers to make reference to the subject matter of the disagreements in connection with its reports on our financial statements for the year or period in question. We engaged KPMG to replace PricewaterhouseCoopers on July 9, 2002. We have authorized PricewaterhouseCoopers to respond fully to the inquiries, if any, of KPMG, our present independent accountants, regarding any accounting or financial matters relating to us. KPMG has re-audited the financial statements for the years ended December 31, 2000 and 2001 and there have been no re-statements of the prior audited financial statements resulting from the re-audits.

ITEM 9A. CONTROLS AND PROCEDURES

     Our Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for our company and our subsidiaries. Such officers have concluded (based upon their evaluation of these controls and procedures as of the end of the period covered by this report) that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this report is accumulated and communicated to management, including our principal executive officers as appropriate, to allow timely decisions regarding required disclosure.

     The Certifying Officers also have indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses.

     Our management, including each of the Certifying Officers, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

84

Table of Contents

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our Directors and Executive Officers

     This table lists information concerning our executive officers and directors:

             
Name
   Age
   Position
Jeffrey M. Parker
    59     Director, Chairman of the Board of Directors
Frederick W. McTaggart
    41     Director, President, Chief Executive Officer
Kenneth R. Crowley
    39     Vice President of Overseas Operations
Gregory S. McTaggart
    40     Vice President — Operations (Cayman Islands)
Robert B. Morrison
    50     Vice President of Purchasing and Information Technology
Gerard J. Pereira
    33     Vice President of Engineering
Peter D. Ribbins
    55     Director of Public Relations
Brent J. Santha
    33     Chief Financial Officer and Company Secretary
William T. Andrews *
    55     Director
J. Bruce Bugg, Jr.
    49     Director
Brian E. Butler *
    53     Director
Steven A. Carr *
    53     Director
Carson J. Ebanks *
    46     Director
Richard L. Finlay
    45     Director
Clarence B. Flowers, Jr. *
    48     Director
Wilmer Pergande *
    63     Director
Raymond Whittaker *
    49     Director

* The Board of Directors has determined that each of such persons is an “independent director” under the corporate governance rules of The Nasdaq Stock Market, Inc. (“Nasdaq”)

     Jeffrey M. Parker has been a director of our company since 1980 and the Chairman of the Board since 1982. On January 1, 2004, Mr. Parker resigned as Chief Executive Officer, a position he held since 1994 but remained employed by the Company as Executive Director responsible for investor relations and business expansion and Chairman of the Board. In addition to serving as our Chairman of the Board, Mr. Parker is a Chartered Accountant and practices at Moore Stephens in the Cayman Islands, a member of Moore Stephens International Ltd. From 1993 to 1995, Mr. Parker served as a director of The International Desalination Association representing the Caribbean & Latin America. Mr. Parker received his ACA designation as a chartered accountant in England and Wales in 1967, and his FCA designation in 1977.

     Frederick W. McTaggart has been a director of our company since 1998, President since October 2000 and Chief Executive Officer since January 1, 2004. Also on January 1, 2004, Mr. McTaggart resigned as Chief Financial Officer, a position he held since February 2001. From April 1994 to October 2000, Mr. McTaggart was the Managing Director of the Water Authority-Cayman, the government-owned water utility serving certain areas of the Cayman Islands. He received his B.S. degree in Building Construction from the Georgia Institute of Technology in 1985. Mr. McTaggart is the brother of Mr. Gregory S. McTaggart, the Vice President - Operations (Cayman Islands).

85

Table of Contents

     Kenneth R. Crowley was appointed our Vice President of Overseas Operations in March 2003 and holds a Bachelor of Science degree in Mechanical Engineering from the University of Maryland. In 1989, he joined Reliable Water Co. Ltd, the predecessor of Ocean Conversion (Cayman) Limited, as Operations Engineer in the Canary Islands and the Cayman Islands. He was promoted to Operations Manager of Ocean Conversion (Cayman) Limited in 1991. In 1998, Mr. Crowley transferred to DesalCo Limited to work on the design, construction and operation of reverse osmosis water plants including high efficiency work exchanger energy recovery systems in the Cayman Islands, the Bahamas, Barbados and the British Virgin Islands with a combined capacity in excess of 9 million U.S. gallons per day.

     Gregory S. McTaggart is our Vice President-Operations (Cayman Islands). Mr. McTaggart joined our company in January 1991 as our resident engineer and has served in his current capacity since 1994. For three years before joining us, Mr. McTaggart worked for the Caribbean Utilities Company as a mechanical engineer. Mr. McTaggart obtained his B.S. degree in Mechanical Engineering from the Georgia Institute of Technology in 1986. Mr. McTaggart is the brother of Frederick W. McTaggart, the President, Chief Executive Officer and a director of our company.

     Robert B. Morrison was appointed Vice President of Purchasing & Information Technology in March 2003. Mr. Morrison holds the designation Certified Professional Purchaser and has over twenty five years experience in the purchasing and logistics field. He joined DesalCo Limited as Purchasing Manager in June of 1996 in which position he also employed his more than 20 years of information technology experience as software and systems developer, network administrator and end user support resource for PC and mainframe environments. Prior to joining DesalCo Limited, Mr. Morrison was Principal Purchasing Officer for the Ministry of Works & Engineering of the Bermuda government and Purchasing Manager for American-Standard in Toronto, Canada.

     Gerard J. Pereira was appointed Vice President of Engineering in March 2003. Mr. Pereira obtained his BS and MS in Chemical Engineering from the University of Waterloo, Ontario, Canada and joined Ocean Conversion (Cayman) Limited as Operations Engineer in 1995. He was promoted to Operations Manager of Ocean Conversion (Cayman) Limited in 1998, which post he held until our acquisition of the company.

     Peter D. Ribbins is our Director of Public Relations. In September 2003, Mr. Ribbins resigned as Company Secretary and as a director, a position he held since 1989. Mr. Ribbins joined our company in 1983 as its General Manager, a position he held until 1989, when he was appointed Managing Director. He was appointed President and Chief Operating Officer in 1994 and resigned from that position in October 2000. Mr. Ribbins obtained his B.S. degree in Kinanthropology from the University of Ottawa, Canada in 1971.

     Brent J. Santha joined our Company as Management Accountant in January 2001 and was appointed Vice President of Finance and Assistant Company Secretary in March 2003. In December 2003, Mr. Santha resigned as Assistant Company Secretary and was appointed Company Secretary. On January 1, 2004, Mr. Santha was appointed Chief Financial Officer. Mr. Santha is a member of the Canadian Institute of Chartered Accountants having received his Chartered Accountant designation in 1997. Previously, he was employed, for six years, by Johnsen Archer Chartered Accountants leaving as Manager of Audit & Business Services.

     William T. Andrews became a director of our company upon completion of our acquisition of DesalCo Limited in February 2003. Since 2002, he has been Managing Director of DWEER Technology Ltd., which designs and manufactures patented high efficiency energy reduction pumping equipment for seawater reverse osmosis desalination. From 1991 to 2003, Dr. Andrews has been Managing Director of DesalCo Limited. He was formerly President of Reliable Water Inc., and Vice President of Polymetrics Inc., focusing on seawater reverse osmosis desalination in both cases. Dr. Andrews attended universities

86

Table of Contents

in England, receiving a bachelor’s degree in Physics from the University of Newcastle-upon-Tyne, and a doctorate in Atomic Physics at Oxford University, as a Rhodes Scholar. He is a registered Mechanical Engineer in California and Bermuda. Since 1976, Dr. Andrews has continuously been a member of the International Desalination Association (IDA). He has been a director of IDA since 1995, and had served as President until October 2003. He is a member of the European Desalination Society and the Caribbean Water & Wastewater Association.

     J. Bruce Bugg, Jr. has been a director of our company since 1998 and in 2003 Mr. Bugg resigned as Vice-Chairman of the Board and member of the Executive Committee, positions he has also held since 1998. Mr. Bugg is also, and has been since 1997, the Chairman of the board of directors and Chief Executive Officer of Argyle Investment Co., the general partner of Argyle Partners Ltd., the sole general partner of Argyle/Cay-Water, Ltd. From 1996 to 1997, Mr. Bugg served as Vice Chairman of First Southwest Company and Chairman of its Investment Banking Group.

     Brian E. Butler has been a director of our company since 1983. Since 1977, Mr. Butler has been the principal of Butler Property Development Group, a property development company specializing in luxury resort projects in the Cayman Islands.

     Steven A. Carr has served as a director of the Company since 1998. Since 1994, Mr. Carr has been the President of Carr & Associates, a private investment firm located in Bryan, Texas. Mr. Carr received his Bachelor of Science degree from Texas A&M University in 1973 and his Master of Arts degree from the University of Texas in 1980. Before joining Carr & Associates, Mr. Carr held executive positions and participated in the ownership and management of a number of broadcast and telecommunications ventures throughout the United States. From 1998 to 2000, Mr. Carr served as an alternate director on our board of directors and was elected as a full director in May 2000. Mr. Carr is a director of the First National Bank of Bryan and Waterfields, Ltd. He is Senior Lecturer at Texas A&M University’s Mays Business School, a councilor of the Texas A&M Research Foundation and serves on numerous other boards and councils.

     Carson K. Ebanks became the Cayman Islands government nominated director of our company in May of 2001. Mr. Ebanks was the Director of Planning for the Cayman Islands from 1991 — 1997. Since 1997, he has served the Cayman Islands Government as a Permanent Secretary currently for the Ministry of Community Services, Women’s Affairs, Youth and Sports. Mr. Ebanks is a Justice of the Peace, a Fellow of the Royal Geographic Society and a member of the American Planning Association. He holds a Bachelor of Environmental Studies (Hons. Urban and Regional Planning — Peace and Conflict Studies Minor) from the University of Waterloo and a Master of Arts — Planning in Community and Regional Planning from the University of British Columbia. He is a Director of the Water Authority — Cayman and a trustee of the National Gallery of the Cayman Islands. Mr. Ebanks has served on the Boards of the Trustees for the Cayman Islands Museum, the Cayman Islands Civil Service Co-operative Credit Union, the Housing Development Corporation and the Vice President of the Cayman Islands Olympic Committee.

     Richard L. Finlay has served as a director of our company since 1995. Mr. Finlay is an attorney and partner with the Cayman Islands law firm of Conyers, Dill and Pearman. Before joining this firm in 2003, he was a partner with Charles Adams, Ritchie and Duckworth since 1993. Prior to that, Mr. Finlay served as Director of Legal Studies of the Cayman Islands Government from 1989 to 1992. From 1983 to 1989, Mr. Finlay was a partner with the Canadian law firm of Olive, Waller, Zinkhan and Waller. Mr. Finlay has served as the Cayman Islands’ representative to the International Company and Commercial Law Review and is a former editor of the Cayman Islands Law Bulletin.

     Clarence B. Flowers, Jr. has been a director of our company since 1991. Mr. Flowers is, and has been since 1985, the principal of Orchid Development Company, a real estate developer in the Cayman

87

Table of Contents

Islands. Mr. Flowers also serves as a director of C.L. Flowers & Son, which is the largest manufacturer of wall systems in the Cayman Islands, and Cayman National Bank, a retail bank.

     Wilmer Pergande has been a director of our company since 1978. Mr. Pergande is the Global Leader for Desalination and Process Equipment, GE Water Technologies/GE Osmonics. Mr. Pergande previously held the position of Vice-President of Special Projects of Osmonics, Inc. of Minnetonka, Minnesota. Before joining Osmonics, Mr. Pergande was the Chief Executive Officer of Licon International, Inc., a publicly traded manufacturer of liquid processing equipment. Previously, Mr. Pergande held several executive positions with Mechanical Equipment Company, Inc., a manufacturer of seawater conversion equipment.

     Raymond Whittaker has served as a director of our company since 1988. Mr. Whittaker was the Managing Director of TransOcean Bank & Trust, Ltd., a bank and trust company located in the Cayman Islands and a subsidiary of Johnson International, Inc., a bank holding company located in Racine, Wisconsin from 1984 to December 2000. He is now the principal of his own company and management firm.

Composition of the Board of Directors

     The board of directors is organized into three groups. Each group holds office for a three-year period and re-election of the board members is staggered so that two-thirds of the board members are not subject to re-election in any given year. The groups are organized alphabetically as follows:

         
Group 1
   Group 2
   Group 3
William T. Andrews
  Carson K. Ebanks, JP   Wilmer Pergande
J. Bruce Bugg Jr.
  Richard Finlay   Raymond Whittaker
Brian Butler
  Clarence Flowers, Jr.    
Steven A. Carr
  Frederick McTaggart    
  Jeffrey M. Parker    

     The directors of Group 3 were re-elected at our annual shareholders’ meeting in May 2003. The directors in Group 1 will be proposed for re-election in 2004, Group 2 in 2005 and then Group 3 again in 2006.

     Under our Cayman Islands license which was transferred to our wholly-owned subsidiary, Cayman Water Company Limited in July 2003, the Cayman Islands government may nominate three persons to serve on the board of directors of Cayman Water Company Limited. We must cause one of the persons nominated by the government to be elected as a director. In May 2001, Carson K. Ebanks, JP was elected as the government’s nominee but remains on the board of Consolidated Water Co. Ltd. Government has not yet nominated their director for Cayman Water Company Limited.

     Under the terms of the Share Sale Agreement between DesalCo Limited and our company under which we acquired all of the issued and outstanding stock of DesalCo Limited on February 7, 2003, we appointed William T. Andrews to our board of directors as a director in Group 1.

Committees of the Board of Directors

     The board of directors has established the following committees:

Executive Committee

     The Board of Directors has an Executive Committee, which is comprised of Messrs. Frederick McTaggart, Finlay, Flowers, Parker and Whittaker. The functions of the Executive Committee include

88

Table of Contents

meeting on a regular basis to review the operations of the Company, ensuring that any matters, which must be dealt with before the next Board of Directors meeting, are addressed in a timely matter.

Compensation Committee

     The Board of Directors has a Compensation Committee, which is comprised of Messrs. Finlay, Flowers, and Pergande. Pursuant to the Compensation Committee Charter, which is filed as Exhibit 99.1 to this Annual Report, the Compensation Committee is responsible for reviewing and approving the executive compensation program for the Company and its subsidiaries, assessing executive performance, making grants of salary and annual incentive compensation, and approving certain employment agreements. The Board of Directors has determined that all members of the Compensation Committee, except Mr. Finlay, are “independent directors,” as such term is defined under the corporate governance rules of Nasdaq. Mr. Finlay is not an “independent director” as defined in Nasdaq Rule 4200 because the Company paid a law firm in which he was a partner for part of 2003 in excess of $200,000 for legal services provided to the Company during 2003. Notwithstanding Mr. Finlay’s previous relationship with that law firm, the Board of Directors believes it is required in the best interest of the Company and its shareholders for Mr. Finlay to serve as a member of the Compensation Committee and the Audit Committee because of his experience as a director or the Company since 1995 and his knowledge of corporate governance matters relating to Cayman Islands’ corporations.

Audit Committee

     The Board of Directors has an Audit Committee, which is comprised of Messrs. Butler, Carr, Finlay and Whittaker.

     The Audit Committee assists the Board of Directors in monitoring the financial reporting process, the internal control structure and the independence and performance of the internal audit department and the independent public accountants. Its primary duties are to serve as an independent and objective party to monitor the Company’s financial process and internal control system, to review and appraise the audit effort of the Company’s independent accountants and to provide an open avenue of communications among the independent accountants, financial, and senior management and the Board of Directors. The Board of Directors has adopted a written charter for the Audit Committee, which is filed as Exhibit 99.2 to this Annual Report. During the year, the Board of Directors examined the composition of the Audit Committee in light of Nasdaq’s corporate governance rules and the regulations under the Securities Exchange Act of 1934 (“Exchange Act”) applicable to audit committees. Based upon this examination, the Board of Directors has determined that all members of the Audit Committee, except Mr. Finlay, are “independent directors” within the meaning of Nasdaq’s rules and the Exchange Act and the rules and regulations thereunder. The Board of Directors has also determined that Steven A. Carr qualifies as an “audit committee financial expert” under the regulations of the Exchange Act.

Nominations Committee

     The Board of Directors has a Nominations Committee, which is comprised of Messrs. Pergande, Carr and Parker. The Nominations Committee makes recommendations to the Board of Directors regarding the size and composition of the Board of Directors, establishes procedures for the nomination process, recommends candidates for election to the Board of Directors and nominates officers for election by the Board of Directors. The Board of Directors has determined that all members of the Nominations Committee, except Mr. Parker, are “independent directors”, as such term is defined under the corporate governance rules of Nasdaq. Mr. Parker is not an “independent director” under the Nasdaq’s rules because he was Chief Executive Officer of the Company from 1994 until January 1, 2004 and he received compensation for his services to the Company in excess of $60,000. See Item 11 of this Annual Report. Notwithstanding Mr. Parker’s employment relationship with the Company, the Board of Directors

89

Table of Contents

believes that it is required in the best interest of the Company and its shareholders for Mr. Parker to serve as a member of the Nominations Committee because of his involvement with the Company since 1980 and his knowledge if corporate governance matters relating to Cayman Islands’ corporations. The Nominations Committee Charter is filed as Exhibit 99.3 to this Annual Report.

     To recommend a prospective nominee for the Nominations Committee’s consideration, a shareholder may submit the candidates name and qualifications in writing to the Secretary of the Company, Trafalgar Place, West Bay Road, Grand Cayman, Cayman Islands, B.W.I.

Code of Ethics

     Our Code of Ethics for the Chief Executive Officer and Chief Financial Officer is filed as Exhibit 14 to this Annual Report.

90

Table of Contents

ITEM 11. EXECUTIVE COMPENSATION

     The following table provides summary information concerning the annual and long-term compensation earned by the company’s chief executive officer and each of the four other most highly compensated executive officers of the company during the fiscal years ended December 31, 2003, 2002 and 2001:

Summary Compensation Table

                                                 
    Annual Compensation
   Long-Term Compensation
                            Other Annual   Securities   All Other
    Year   Salary   Bonus   Compensation   Underlying Options (2)   Compensation
Name and Principal Position
   ($)
   ($)
   ($)
   ($)
   (#)
   ($)
Frederick W. McTaggart (1)
     2001       118,006       88,765       —       28,533       —  
Director, President and Chief Executive Officer
                                                
 
     2002       118,006       66,066       —       26,427       —  
 
     2003       118,006.       185,890       —       43,808       —  
Gregory S. McTaggart
     2001       85,932       8,759       —       20,800       —  
Vice President — Operations (Cayman Islands)
     2002       85,932       —       —       19,325       —  
 
     2003       85,932       36,450       —       31,735       —  
Jeffrey M. Parker (1)
     2001       95,895       86,176       —       28,507       —  
Chairman of the Board of Directors
     2002       95,895       39,243       —       26,159       —  
 
     2003       95,895       316,816       —       45,117       —  
Peter D. Ribbins
     2001       118,006       —       —       27,646       —  
Director of Public Relations
                                                
 
     2002       118,006       —       —       25,767       —  
 
     2003       105,922       —       —       34,957       —  
Brent J. Santha
     2001       77,040       10,000       —       —       —  
Chief Financial Officer and Company Secretary
     2002       80,899       10,000       —       —       —  
 
     2003       90,000       —       —       10,487       —  

(1) Mr. Parker and Mr. McTaggart served as the Chief Executive Officer and Chief Financial Officer, respectively, until January 2004.

(2) All options granted to Messrs. Frederick McTaggart, Gregory McTaggart, Parker, Ribbins and Santha in 2001, 2002 and 2003 have an exercise price of $10.84, $11.93 and $20.05 per share, respectively.

91

Table of Contents

Stock Option Grants

     The following table provides information, with respect to the chief executive officer and the other named executive officers listed in the Summary Compensation Table, concerning stock options granted on ordinary shares in fiscal year 2003:

                                                 
                                     
                                Potential Realizable Value
            % of Total                   at Assumed Annual Rates
            Options                   Of Stock Price Appreciation
            Granted                   for Option Term
            To              
    Options   Employees   Exercise or           At 5% Annual   At 10% Annual
    Granted   in   Base Price   Expiration   Growth Rate   Growth Rate
Name
   (#)
   Fiscal Year
   ($/Sh)
   Date
   ($)
   ($)
Frederick W. McTaggart
     43,808       26 %     20.05       04/07/07       141,138       282,275  
Gregory S. McTaggart
     31,735       19 %     20.05       04/07/07       102,242       204,483  
Jeffrey M. Parker
     45,117       27 %     20.05       04/07/07       145,355       290,710  
Peter D. Ribbins
     34,957       21 %     20.05       04/07/07       112,622       225,244  
Brent J. Santha
     10,487       6 %     20.05       04/07/07       33,786       67,573  

Stock Option Holdings

     The following table provides information, with respect to the chief executive officer and the other named executive officers listed in the Summary Compensation Table, concerning the holding of unexercised options at the end of, fiscal year 2003:

                                                 
                         
                    Number of Securities   Value of Unexercised
                Underlying Unexercised   In-The-Money
    Shares
Acquired on		   Value   Options at Fiscal Year End
   Options at Fiscal Year End
    Exercise   Realized   Exercisable   Unexercisable   Exercisable   Unexercisable
Name
   (#)
   ($)
   (#)
   (#)
   ($)
   ($)
Frederick W. McTaggart
     5,607       42,389       98,768       —       477,376       —  
Gregory S. McTaggart
     —       —       71,860       —       348,487       —  
Jeffrey M. Parker
     —       —       126,707       —       823,626       —  
Peter D. Ribbins
     —       —       93,979       —       536,484       —  
Brent J. Santha
     —       —       10,487       —       —       —  

92

Table of Contents

Incentive Compensation

     Employee Share Incentive Plan

     Since April 8, 1987, we have maintained an employee share incentive plan for our long-term employees who are not directors. To become eligible for the employee share incentive plan, an employee must complete four years of service with us and then retain the shares for an additional four years before he can transfer or sell the shares. We may, at our option, offer to exchange the redeemable preferred shares issued to the employee for an equal number of freely tradable ordinary shares at any time during the four year holding period. Within the four year holding period, if an employee ceases to be employed by our company, our company, at the sole discretion of the board of directors, may redeem the redeemable shares held by that employee for less than four years at the price which the employee originally paid for the shares.

     Under the plan, employees are issued redeemable preferred shares on an annual basis at no cost based on a formula which takes into consideration the employee’s salary and the total dividend paid to ordinary shareholders as a percentage of the total shareholder’s equity in each year. If an employee remains employed by us for at least four years, or a person or affiliated group of persons acquires 30% or more of our ordinary shares, we are obligated to exchange the redeemable preferred shares (whether or not the redeemable preferred shares have been held for four years) for the same number of ordinary shares. We are also obligated to exchange the redeemable preferred shares for an equal number of ordinary shares if an employee’s employment with us or any of our affiliates terminates by reason of the employee’s death, permanent disability or the employee reaches the age of 65 years. However, if an employee’s employment with us or any of our affiliates terminates for any other reason, we may at any time up to and including the first anniversary of such termination, redeem the employee’s redeemable preferred shares for cash equal to 75% of the average of the closing market price for our ordinary shares on each of the first seven trading days in the month of October of the year in which the redeemable preferred shares were issued to the employee.

     Under the plan, when an employee is issued redeemable preferred shares, the employee is also granted an option to purchase an equal number of redeemable preferred shares at approximately 75% of the average market price of the ordinary shares. The exercise price is determined using the average of the closing market price for our ordinary shares on each of the first seven trading days in the month of October of the year in which the redeemable preferred shares were issued to the employee. The grant date is determined as 90 days after the date of the auditor’s certificate on the financial statements for the relevant year.. This option expires, unless exercised by the employee, within thirty (30) days after the date of grant. Since we adopted the employee share incentive plan, our employees have acquired 128,183 redeemable preferred shares, of which 114,598 have been redeemed for an equal number of ordinary shares.

     Employee Share Option Plan

     In 2001, we established an employee share option plan for certain long-term employees who participate in the share incentive plan. This plan was introduced in order to compensate these employees for adjustments in the employee share incentive plan. Under the share option plan, these employees are granted in each calendar year, as long as the employee is a participant in the employee share incentive plan, options to purchase ordinary shares of common stock. The price at which the option may be exercised will be the closing market price on the grant date, which is 90 days after the date of the auditor’s certificate on the financial statements for the relevant year. The number of options each employee is granted is equal to five times the sum of (i) the number of redeemable preferred stock which that employee receives for $nil consideration and (ii) the number of redeemable preferred stock options which that employee exercises in that given year. The option may be exercised during the period

93

Table of Contents

commencing on the fourth anniversary of the grant date and ending on the thirtieth day after the fourth anniversary of the grant date.

     Since we adopted the employee share option plan, we have granted 22,605 options to purchase ordinary shares at an exercise price of $9.20 with an expiration date of August 4, 2005 and 13,695 options to purchase ordinary shares at an exercise price of $14.69 with an expiration date of July 30, 2006.

     Non-Executive Directors’ Share Plan

     In 1999, we implemented a share grant plan for our directors who are not executive officers or serving as the Cayman Islands’ government representative on our board. Under this plan, a director receives ordinary shares based upon the number of board and committee meetings that the director attends during the year. On January 1, 2004, director’s fees have been increased to take into account the increasing responsibilities and duties of our directors, however the share equivalent portion of these fees remains unchanged. Each board meeting is worth the share equivalent of a $1,200 fee and each committee meeting is worth the share equivalent of a $600 fee. Attendance fees are accumulated throughout the year and then divided by the prevailing market price on October 1st, or the next trading day if October 1st falls on a non-trading day, of the preceding year to determine the number of shares to be granted for the current year.

     As a result of the non-executive directors’ share plan, the directors, as a group, as of December 31, 2003, are entitled to receive 1,082 ordinary shares, based upon the prevailing market price for the ordinary shares on October 1, 2003 of $17.75.

Pension Plan

     As with every employer in the Cayman Islands, we are required by the National Pension Law to provide a pension plan for our employees in the Cayman Islands. We belong to both the Cayman Islands Chamber Pension Plan and the Ocean Conversion Staff Pension Plan in the Cayman Islands. The Chamber Pension Plan is a non-profit entity which is administered by the Bank of Butterfield and the Ocean Conversion Staff Pension Plan has as its trustee, Colonial Private Trustee Limited and is administered by the British Caymanian Insurance Company Ltd.

     Under the Cayman Islands National Pensions Law, all employees between the ages of 18 and 60 must contribute a specified minimum percentage of their earnings to a pension plan. Until recently, the exact percentage of contributions varied according to the age of each employee. Since June 1, 2002, however, all employees must contribute 5% of their earnings to a pension plan. An employee also has the option of contributing more than the prescribed minimum. Our company is required to match the contribution of the first 5% of each participating employee’s salary to a maximum of $72,000. Employees earning more than $72,000 are not required to make contributions on amounts over $72,000. All contributions by our employees are collected by us and paid into the various pension plans on a monthly basis.

     Both plans are defined benefit plans, and as such the amount that an employee receives upon retirement is directly related to the amount contributed to the plan by the employee while working. Once an employee retires (employees become eligible for retirement at age 60 in the Cayman Islands), an employee has the following options for receiving benefits:

•   Receive a cash payout if the employee’s retirement savings is less than $6,000;

•   Transfer the retirement savings to a life annuity for investment by a life insurance company and payment of a regular income stream to the employee for the remainder of the employee’s life (and

94

Table of Contents

    the employee’s spouse’s life if the employee is married at the time of retirement); or
 
•   Transfer the retirement savings to a Retirement Savings Arrangement account with an approved provider or bank and receive regular income payments until the account is depleted.

Employment Agreements

     On January 1, 2004, we entered into a three-year employment agreement with Jeffrey M. Parker, our Chairman of the Board of Directors. This agreement supersedes all prior contracts and understandings between the parties save that benefits earned or accrued under prior contracts shall not be extinguished or affected. This agreement is subject to extension each year if the Board so determines and shall be extended such that the term shall be for three years from January 1st of the next following year. If we terminate Mr. Parker without cause, he is entitled to twice the annual remuneration set out in this agreement, adjusted for any annual increases received.

     Under a previous employment agreement for the year ended December 31, 2003, which was amended to adjust the exercise price of his options from the first seven trading days in the month of October of that year to December 31st of that year, Mr. Parker was granted an option to purchase 45,117 ordinary shares at an exercise price of $20.05. For the year ended December 31, 2002, Mr. Parker was granted an option to purchase 26,159 ordinary shares at an exercise price of $11.93 per share. All options granted to Mr. Parker after March 1999 expire on the third anniversary of the date of the auditor’s report on the financial statements for the year of the grant. Under the terms of his new employment agreement Mr. Parker will no longer be granted options.

     For the year ended December 31, 2003, under the terms of his previous employment agreement, Mr. Parker is entitled to receive an annual bonus for each completed financial year during which he serves in the capacities of Chairman and Chief Executive Officer. The amount of the bonus consists of the following two amounts: (a) 1.5% of our net profits for that financial year, before charging this bonus, dividends, or crediting any amounts arising from the re-valuation of our assets and (b) 15% of the amount by which our net profits for that financial year (calculated in the same manner as in (a) above) exceed the highest annual net profits earned by us in any prior financial year.

     For each completed financial year beginning with the financial year 2004, Mr. Parker will be paid a bonus calculated as (a) 1.5% of the net profits for that financial year, before charging this bonus, dividends, or crediting any amounts arising from the re-valuation of our assets to a maximum of 40% of Mr. Parkers annual remuneration and (b) 15% of the amount by which our net profits for that financial year (calculated in the same manner as in (a) above) exceed the highest annual net profits earned by us in any prior financial year. This bonus shall be paid as to 75% in cash and , subject to approval of the members of the Company at the Company’s next annual general meeting, as to 25% in ordinary shares of the Company valued at the market price at the close of trading of the same on December 31st of the relevant financial year. If such approval is not obtained the bonus shall be paid entirely in cash.

     On January 1, 2004, we entered into a three-year employment agreement with Frederick W. McTaggart, our President and Chief Executive Officer. This agreement supersedes all prior contracts and understandings between the parties save that benefits earned or accrued under prior contracts shall not be extinguished or affected. This agreement is subject to extension each year if the Board so determines and shall be extended such that the term shall be for three years from January 1st of the next following year. If we terminate Mr. Frederick McTaggart without cause, he is entitled to twice the annual remuneration set out in this agreement, adjusted for any annual increases received.

     Under a previous employment agreement for the year ended December 31, 2003, which was amended to adjust the exercise price of his options from the first seven trading days in the month of

95

Table of Contents

October of that year to December 31st of that year, Mr. Frederick McTaggart was granted an option to purchase 43,808 ordinary shares at an exercise price of $20.05. For the year ended December 31, 2002, Mr. Frederick McTaggart was granted an option to purchase 26,427 ordinary shares at an exercise price of $11.93 per share. All options granted to Mr. Frederick McTaggart expire on the third anniversary of the date of the auditor’s report on the financial statements for the year of the grant. Under the terms of his new employment agreement Mr. Frederick McTaggart will no longer be granted options.

     For the year ended December 31, 2003, under the terms of his employment agreement, Mr. Frederick McTaggart is entitled to receive an annual bonus for each completed financial year during which he serves in the capacities of President and Chief Operating Officer. The bonus consists of the following two amounts: (a) 2.5% of our net profits for that financial year, before charging this bonus, dividends or crediting any amounts arising from the re-valuation of our assets and (b) 5% of the amount by which our net profits for that financial year (calculated in the same manner as in (a) above) exceed the highest annual net profits earned by us in any prior financial year.

     For each completed financial year beginning with the financial year 2004, Mr. Frederick McTaggart will be paid a bonus calculated as (a) 2% of the net profits for that financial year, before charging this bonus, dividends, or crediting any amounts arising from the re-valuation of our assets to a maximum of 50% of Mr. Frederick McTaggart’s annual remuneration and (b) 5% of the amount by which our net profits for that financial year (calculated in the same manner as in (a) above) exceed the highest annual net profits earned by us in any prior financial year. This bonus shall be paid as to 75% in cash and subject to approval of the members of the Company at the Company’s next annual general meeting, as to 25% in ordinary shares of the Company valued at the market price at the close of trading of the same on December 31st of the relevant financial year. If such approval is not obtained the bonus shall be paid entirely in cash.

     On September 30, 2003, we entered into an employment agreement with Peter D. Ribbins, our former President and Chief Operating Officer and currently Director of Public Relations. The agreement fixes the salary of Mr. Ribbins until October 31, 2005 and thereafter it will be determined by mutual consent. For the financial year 2003 only, Mr. Ribbins will be granted an option to purchase that number of ordinary shares which equals 5/6 of 1% of our net profit for the 2003 year. The exercise price of the options to be granted will be equal to the closing market price of the ordinary shares on December 31, 2003. For the year ended December 31, 2003, Mr. Ribbins was granted an option to purchase 34,957 ordinary shares at an exercise price of $20.05 per share. For the year ended December 31, 2002, Mr. Ribbins was granted an option to purchase 25,767 ordinary shares at an exercise price of $11.93 per share. All options granted to Mr. Ribbins expire on the third anniversary of the date of the auditor’s report on the financial statements for the year of grant. Mr. Ribbins’ employment agreement will be terminated if he dies, becomes bankrupt, gives the Company six months written notice or conducts himself in a manner that would justify his dismissal under the Cayman Islands Labour Law. If his employment agreement is terminated, any unvested options will automatically vest on a pro rata basis based upon the number of months remaining in the year from the date of termination. In addition, if the employment agreement is terminated, Mr. Ribbins will be allowed to purchase the medical insurance provided by us to our employees for the rest of his life.

     We entered into a three-year employment agreement with Gregory McTaggart, our Vice President of Operations. This agreement, as amended, was originally scheduled to expire on August 19, 2001, although it extends automatically each year for an additional one year term. Under the agreement, if we terminate Mr. Gregory McTaggart without cause, he is entitled to all financial benefits under the agreement for a period of one year. Under the terms of his employment agreement, Mr. Gregory McTaggart is granted an option to purchase that number of ordinary shares which equals 0.75% of our net profit for that year. The exercise price of the options to be granted to Mr. Gregory McTaggart was

96

Table of Contents

amended on December 5, 2003 to be equal to the closing price of the Company’s ordinary shares on the 31st of December of the relevant financial year. For the year ended December 31, 2003, Mr. Gregory McTaggart was granted an option to purchase 31,735 ordinary shares at an exercise price of $20.05 per share. For the year ended December 31, 2002, Mr. Gregory McTaggart was granted an option to purchase 19,325 ordinary shares at an exercise price of $11.93 per share. All options granted to Mr. Gregory McTaggart expire on the third anniversary of the date of the auditor’s report on the financial statements for the year of grant. As a result of the option grant described above, Mr. Gregory McTaggart was no longer eligible to participate in the employee share incentive plan for fiscal years after 1999.

     Under the terms of his employment agreement, Mr. Gregory McTaggart is entitled to receive an annual bonus for each completed financial year during which he serves in the capacity of Vice President of Operations. The bonus consists of 2.5% of the amount by which our net profits for that financial year (before charging this bonus, dividends or crediting any amounts arising from the re-valuation of our assets) exceed the highest annual net profits earned by us in any prior financial year.

     As a result of our recent acquisitions, we entered into employment agreements with Gerard Pereira, our new Vice President of Engineering, Kenneth Crowley, our new Vice President of Overseas Operations and Robert Morrison, our new Vice President of Purchasing and Information Technology. Each employment agreement provides that the agreements shall remain in force unless terminated by either party upon 90 days written notice (except in cases of gross negligence or misconduct). Under the terms of Mr. Pereira’s employment agreement, he is entitled to receive an annual bonus equal to 0.6% of the sum of the net profits as at the end of each fiscal year of Ocean Conversion (BVI) Ltd. and DesalCo (Barbados) Ltd. (before charging this bonus, dividends or crediting any amounts arising from the re-valuation of our assets). Under the terms of Mr. Crowley’s employment agreement, he is entitled to an annual bonus of 1.5% of the sum of net profits as at the end of each fiscal year of Waterfields Company Limited and Belize Water Limited (before charging this bonus, dividends or crediting any amounts arising from the re-valuation of our assets).

     We have also entered into a two-year employment agreement with Brent Santha, our Vice President of Finance and Assistant Secretary. During 2003, Mr. Santha was appointed Company Secretary and resigned from the position of Assistant Company Secretary and on January 1, 2004, Mr. Santha was appointed Chief Financial Officer. Mr. Santha is currently in negotiations to amend his employment agreement to incorporate his appointment of Chief Financial Officer and is still working under the existing agreement. This agreement will expire on January 1, 2005, unless extended by agreement of the parties. In addition to his salary, Mr. Santha is entitled to an annual bonus as determined at the discretion of the President of our company and an option to purchase that number of ordinary shares which equals 0.25% of our net profit for that year. The exercise price of the options to be granted to Mr. Santha shall be equal to the average of the closing market price of our ordinary shares on the last trading day of that year. For the year ended December 31, 2003, Mr. Santha was granted an option to purchase 10,487 ordinary shares at an exercise price of $20.05 per share. All options granted to Mr. Santha expire on the day before the third anniversary of the date of the auditor’s report on the financial statement for the year of the grant. Mr. Santha may terminate this employment agreement upon three months written notice prior to the anniversary of this agreement. We may terminate this employment agreement without reason if we pay Mr. Santha 25% of his annual salary at the time the termination takes place.

Compensation Committee Interlocks and Insider Participation in Compensation Decisions

     The Compensation Committee of the Board of Directors consists of Richard Finlay, Clarence Flowers, Jr., and Wilmer Pergande. No member of the Compensation Committee is, or at any time in the past has been, an officer or employee of the Company or any of its subsidiaries.

97

Table of Contents

Indemnification Provision

     Pursuant to our Articles of Association, we have indemnified our directors and officers from and against all actions, proceedings, costs, charges, losses, damages and expenses incurred in connection with their service as a director or officer. Our Articles of Association do not indemnify our officers or directors for actions, proceedings, costs, charges, losses, damages and expenses incurred by these officers or directors as a result of their willful neglect or default of their obligations to us.

     The Board of Directors of the Company has approved that the Company enter into indemnification agreements with each officer and director, pursuant to which they would be indemnified from and against all actions, proceedings, costs, charges, damages and expenses incurred in connection with the execution of their duties on behalf of the Company, except for willful neglect or default in connection with the exercise of their duties. The shareholders of the Company must approve these agreements before they will be effective.

     To the extent that indemnification for liabilities arising under the Securities Act of 1933 may be available under the above provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act of 1933 and is unenforceable in the United States.

98

Table of Contents

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

     The table below sets forth the beneficial ownership of our ordinary shares, par value CI$1.00 per share, of which 5,746,467 are outstanding as of March 29, 2004, and our redeemable preferred shares, par value CI$1.00 per share, of which 13,585 are outstanding as of March 29, 2004 by:

•   each person or entity that we know beneficially owns more than 5% of our ordinary shares or redeemable preferred shares;

•   each of our executive officers and directors; and

•   all of our officers and directors as a group.

                     
Title of   Identity of   Amount   Percentage
Class
   Person or Group
   Owned
   of Class
Ordinary Shares
   Jeffrey M. Parker,                
 
   Chairman of the board,     281,708       4.9 %
Ordinary Shares
   Frederick W. McTaggart,                
 
   Director, President and                
 
   Chief Executive Officer     104,477       1.8 %
Ordinary Shares
   Peter D. Ribbins,                
 
   Director Public Relations     193,579       3.4 %
Ordinary Shares
   Gregory S McTaggart,                
 
   Vice President - Operations                
 
   (Cayman Islands)     102,866       1.8 %
Ordinary Shares
   Kenneth R. Crowley,                
 
   Vice President of Overseas                
 
   Operations     —       *  
Ordinary Shares
   Robert B. Morrison,                
 
   Vice President of Purchasing                
 
   and Information Technology     100       *  
Ordinary Shares
   Gerard J. Pereira,                
 
   Vice President of Engineering     —       *  
Ordinary Shares
   Brent J Santha,                
 
   Chief Financial Officer and                
 
   Company Secretary     11,687       *  
Ordinary Shares
   J. Bruce Bugg, Jr.,                
 
   Director     3,656       *  
Ordinary Shares
   William T Andrews,                
 
   Director     254       *  
Ordinary Shares
   Brian E. Butler,                
 
   Director     21,500       *  
Ordinary Shares
   Steven A. Carr,                
 
   Director     46,252       *  
Ordinary Shares
   Carson K. Ebanks,                
 
   Director     —       *  
Ordinary Shares
   Richard L. Finlay,                
 
   Director     10,574       *  
Ordinary Shares
   Clarence B. Flowers, Jr.,                
 
   Director     5,204       *  

99

Table of Contents

                     
Title of   Identity of   Amount   Percentage
Class
   Person or Group
   Owned
   of Class
Ordinary Shares
   Wilmer Pergande,                
 
   Director     5,803       *  
Ordinary Shares
   Raymond Whittaker,                
 
   Director     12,953       *  
Ordinary Shares
   Directors and Executive                
 
   Officers as a Group                
 
   (17 persons)     800,613       13.1 %
Redeemable
   Gregory McTaggart                
Preferred Shares
   Vice President Operations     297       2.1 %
Redeemable
   Directors and Executive                
Preferred Shares
   Officers as a group (1                
 
   person)     297       2.1 %
Redeemable
   Abel Castillo                
Preferred Shares
   Operations Manager     2,388       17.6 %
Redeemable
   Margaret Julier,                
Preferred Shares
   Office Manager     2,274       16.7 %
Redeemable
   William Banker                
Preferred Shares
   Operations Manager     2,570       18.9 %
Redeemable
   Chet Ritch                
Preferred Shares
   Operations     887       6.5 %
Redeemable
   Helbert Rodriquez                
Preferred Shares
   Operations     868       6.4 %
Redeemable
   Ivan Tabora                
Preferred Shares
   Operations     731       5.4 %
Redeemable
   Elizabeth Triana                
Preferred Shares
   Customer Service     744       5.5 %

     An asterisk (*) in the above table indicates less than one percent

     The address for Jeffrey Parker, Frederick McTaggart, Peter Ribbins, Gregory McTaggart, Kenneth Crowley, Robert Morrison, Gerard Pereira, Brent Santha Abel Castillo, Margaret Julier, William Banker, Chet Ritch, Helbert Rodriquez, Ivan Tabora and Elizabeth Triana is as follows: c/o Consolidated Water Co. Ltd., Trafalgar Place, West Bay Road, P.O. Box 1114GT, Grand Cayman, B.W.I. The address for each of J. Bruce Bugg Jr. and Argyle/Cay-Water, Ltd. is c/o Argyle Investment Corp., 1500 Nations Bank Plaza, 300 Convent Street, San Antonio, Texas 78205. The address for William Andrews is “De Salt House”, 7 Salt Kettle Lane, Paget PG 01, Bermuda. The address for Brian Butler is P.O. Box 2581GT, Grand Cayman, B.W.I. The address for Steven A. Carr c/o Carr & Associates, 4103 South Texas Avenue, Suite 209, Bryan, Texas 77802. The address for Caron Ebanks is Government Administration Building, Georgetown, Grand Cayman, B.W.I. The address for Richard Finlay is P.O. Box 31442 SMB, Grand Cayman, B.W.I. The address for Clarence Flowers, Jr. is P.O. Box 2581GT, Grand Cayman, B.W.I. The address for Wilmer Pergande is 3724 Bengal Road, Gulf Breeze, Florida 32561. The address for Raymond Whittaker is P.O. Box 1982GT, Grand Cayman, B.W.I.

     Unless otherwise indicated, to our knowledge, the persons named in the table above have sole voting and investment power with respect to the shares listed. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares issuable under stock options exercisable within 60 days after March 18, 2004 are deemed outstanding for that person but are not deemed outstanding for computing the percentage of ownership of any other person. Of the 281,708 ordinary shares owned by Mr. Parker, 5,100 have shared investment power and 99,783 are ordinary shares underlying options granted to Mr. Parker, which may be exercised within 60 days after March 18, 2004. Of the 104,477 ordinary shares owned by Mr. Frederick McTaggart, 98,768 are ordinary shares underlying options granted to Mr. Frederick McTaggart, which may be exercised within 60 days after March 18,

100

Table of Contents

2004. Of the 193,579 ordinary shares owned by Mr. Ribbins, 88,370 are ordinary shares underlying options granted to Mr. Ribbins, which may be exercised within 60 days after March 18, 2004. Of the 102,866 ordinary shares owned by Mr. Gregory McTaggart, 71,860 are ordinary shares underlying options granted to Mr. Gregory McTaggart, which may be exercised within 60 days after March 18, 2004 and 297 are redeemable preferred shares, which may be exercised or converted within 60 days after March 18, 2004. Of the 11,687 ordinary shares owned by Mr. Santha, 1,200 have shared investment power and 10,487 are ordinary shares underlying options granted to Mr. Santha, which may be exercised within 60 days after March 18, 2004. Of the 21,500 ordinary shares owned by Mr. Butler, 3,500 have shared investment power.

Equity Compensation Plan Information

     The following table sets forth certain information as of December 31, 2003, with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance under:

•   all compensation plans previously approved by our security holders; and

•   all compensation plans not previously approved by our security holders.

                         
                    Number of securities
                    remaining available for
                    future issuance under
    Number of securities to   Weighted-average   equity compensation
    be issued upon exercise   exercise price of   plans (excluding
    of outstanding options,   outstanding options,   securities reflected in
    warrants and rights   warrants and rights   column (a))
Plan category   (a)   (b)   (c)
Equity compensation plans approved by security holders
     428,373     $ 14.13       *  
Equity compensation plans not approved by security holders
     51,045 **   $ 12.47       *  
 
    
 		      
 		          
Total
     479,418     $ 13.96       *  
 
    
 		      
 		          

* Our equity compensation plans do not have any limits on the amount of shares reserved for issuance under the plans.

** Of these 51,045 shares, 51,045 are issuable pursuant to our employee stock option plan. See Note 22 to the Notes to Consolidated Financial Statements.

101

Table of Contents

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     For a discussion of the employment agreements we have with our executive officers, see Part III, Item 11 of this Annual Report.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     The following table shows the fees that the Company paid or accrued for the audit and other services provided by KPMG and PricewaterhouseCoopers for the fiscal years ended December 31, 2003 and 2002.

                 
Services   Dollar Amount (2003)   Dollar Amount (2002)
Audit Fees
   $ 122,859     $ 134,652  
Audit-Related Fees
   $ 121,859     $ 273,956  
Tax Fees
   $ —     $ —  
All Other Fees
   $ 288,372     $ 7,420  
 
    
 		      
 		  
Total
   $ 533,091     $ 416,028  
 
    
 		      
 		  

     The dollar amounts relating to KPMG for each of the fiscal years ended December 31, 2003 and 2002 are $244,718 and $329,333, respectively. The dollar amounts relating to PricewaterhouseCoopers for each of the fiscal years ended December 31, 2003 and 2002 are $nil and $86,695, respectively.

     Audit Fees: This category includes the fees for the examination of the Company’s consolidated financial statements, review of the Company’s Annual Report on Form 10-K and the quarterly review of the interim financial statements included in the Company’s Quarterly Reports on Form 10-Q.

     Audit-Related Fees: This category consists of services that are closely related to the financial audit process and primarily consists of review of reports filed and to be filed with the U.S. Securities and Exchange Commission and accounting advice relating thereto.

     Tax Fees: This category relates to professional services for tax compliance, tax advice, and tax planning. No such services were provided to the Company during the years ended December 31, 2003 and 2002.

     All Other Fees: During the year ended December 31, 2003, KPMG and PricewaterhouseCoopers provided non-audit services related to our recent acquisitions and subsequent share offering. During the fiscal years ended December 31, 2002, KPMG and PricewaterhouseCoopers provided non-audit services related to assistance with the implementation of FASB Statement No. 123, a United States standard for accounting for stock compensation expense and it also includes fees from PricewaterhouseCoopers for successor auditor inquires made by KPMG.

     All audit and non-audit services performed by KPMG and PricewaterhouseCoopers were approved by the Audit Committee. The Audit Committee gives due consideration to the potential effect of non-audit services on maintaining KPMG’s audit independence.

102

Table of Contents

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FROM 8-K

             
(a)
    1.     Financial Statements
 
            
          The Consolidated Water Co. Ltd. financial statements found in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for the year ended December 31, 2003 are incorporated herein by reference.
 
            
          Pursuant to Rule 3-09 of Regulation S-X, when either the first or third condition set forth in Rule 1-02(w), substituting 20 percent for 10 percent, is met by a 50 percent-or-less-owned person accounted for by the equity method separate financial statements shall be filed. The Ocean Conversion (BVI) Ltd. financial statements found in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for the year ended December 31, 2003 are incorporated herein by reference.
 
            
    2.     Financial Statement Schedules
 
            
          None
 
            
    3.     Exhibits
     
Exhibit    
Number
   Exhibit Description
2.1
  Share Sale Agreement dated October 4, 2002, among Consolidated Water Co. Ltd. and William T. Andrews and Margaret D. Andrews (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.2
  Agreement to Amend Share Sale Agreement dated November 29, 2002 between the Company and William T. Andrews and Margaret D. Andrews (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.3
  Agreement to Amend Share Sale Agreement dated December 30, 2002 between the Company and William T. Andrews and Margaret D. Andrews (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.4
  Agreement to Amend Share Sale Agreement dated January 31, 2003 between the Company and William T. Andrews and Margaret D. Andrews (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.5
  Share Sale Agreement dated October 4, 2002, among Consolidated Water Co. Ltd., North American Mortgage & Finance Corporation and Transcontinental

103

Table of Contents

     
Exhibit    
Number
   Exhibit Description
  Finance Corporation Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.6
  Agreement to Amend Share Sale Agreement dated November 29, 2002 among the Company North-American Mortgage & Finance Corporation and Transcontinental Finance Corporation Limited (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.7
  Agreement to Amend Share Sale Agreement dated December 30, 2002 among the Company North-American Mortgage & Finance Corporation and Transcontinental Finance Corporation Limited (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.8
  Agreement to Amend Share Sale Agreement dated January 31, 2003 among the Company North-American Mortgage & Finance Corporation and Transcontinental Finance Corporation Limited (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.9
  Agreement dated October 8, 2002 between Consolidated Water Co. Ltd. and Sage Water Holdings (BVI) Limited (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.10
  Amending Agreement dated November 15, 2002 between the Company and Sage Water Holdings (BVI) Limited (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.11
  Amending Agreement dated December 18, 2002 between the Company and Sage Water Holdings (BVI) Limited (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.12
  Amending Agreement dated January 28, 2003 between the Company and Sage Water Holdings (BVI) Limited (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.13
  Share Sale Agreement dated December 16, 2002 between Consolidated Water Co. Ltd. and Bacardi & Co. Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
2.14
  Registration Rights Agreement dated February 7, 2003 between Consolidated Water Co. Ltd. and North American Mortgage & Finance Corporation (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)

104

Table of Contents

     
Exhibit    
Number
   Exhibit Description
4.1
  Amended and Restated Memorandum of Association of Consolidated Water Co. Ltd., dated December 4, 1998 (incorporated by reference to the exhibit filed as part of our Form 20-F for the fiscal year ended December 31, 1998, Commission File No. 0-25248)
 
    
4.2
  Amended and Restated Articles of Association of Consolidated Water Co. Ltd., dated December 4, 1998 (incorporated by reference to the exhibit filed as part of our Form 20-F for the fiscal year ended December 31, 1998, Commission File No. 0-25248).
 
    
10.1
  License Agreement, dated July 11, 1990, between Cayman Water Company Limited and the Government of the Cayman Islands (incorporated herein by reference to the exhibit filed as a part of our Form 20-F dated December 7, 1994, Commission File No. 0-25248).
 
    
10.2
  First Amendment to License Agreement, dated September 18, 1990, between Cayman Water Company Limited and the Government of the Cayman Islands. (incorporated herein by reference to the exhibit filed as a part of our Form 20-F dated December 7, 1994, Commission File No. 0-25248).
 
    
10.3
  Second Amendment to License Agreement, dated February 14, 1991 between Cayman Water Company Limited and the Government of the Cayman Islands. (incorporated herein by reference to the exhibit filed as a part of our Form 20-F dated December 7, 1994, Commission File No. 0-25248).
 
    
10.4
  An Amendment to a License to Produce Potable Water, dated August 15, 2001, between Consolidated Water Co. Ltd. by the Government of the Cayman Islands (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2001, Commission File No. 0-25248)
 
    
10.5
  Fourth Amendment to a License to Produce Potable Water, dated February 1, 2003 between Consolidated Water Co. Ltd. by the Government of the Cayman Islands (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2002, Commission File No. 0-25248)
 
    
10.6
  Agreement, dated December 19, 2002, between Consolidated Water Co. Ltd. (formerly Cayman Water Company Limited) and Safe Haven Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2002, Commission File No. 0-25248)
 
    
10.9
  Water Supply Agreement, dated December 18, 2000, between Consolidated Water Co. Ltd. and South Bimini International Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K dated March 30, 2001, Commission File No. 0-25248)
 
    
10.10
  Employment Agreement, dated August 30, 2000, between Consolidated Water Co. Ltd. and Peter D. Ribbins (incorporated herein by reference to the exhibit filed as a part of our Form 10-K dated March 30, 2001, Commission File No. 0-25248)

105

Table of Contents

     
Exhibit    
Number
   Exhibit Description
10.11
  Employment contract dated September 30, 2003 between Peter Ribbins and Consolidated Water Co. Ltd.
 
    
10.12
  Amendment of employment contract dated December 5, 2003 between Peter Ribbins and Consolidated Water Co. Ltd.
 
    
10.13
  Engagement Agreement, dated December 30, 1998 between Consolidated Water Co. Ltd. and Jeffrey Parker (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)
 
    
10.14
  Amendment of Engagement Agreement, dated October 26, 1999, between Consolidated Water Co. Ltd. and Jeffrey Parker (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)
 
    
10.15
  Second Amendment of Engagement Agreement, dated March 21, 2000, between Consolidated Water Co. Ltd. and Jeffrey Parker (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)
 
    
10.16
  Employment contract dated December 5, 2003 between Jeffrey Parker and Consolidated Water Co. Ltd.
 
    
10.17
  Employment Contract, dated July 12, 2000, between Consolidated Water Co. Ltd. and Frederick W. McTaggart (incorporated herein by reference to the exhibit filed as a part of our Form 10-K dated March 30, 2001, Commission File No. 0-25248)
 
    
10.18
  Employment contract dated December 5, 2003 between Frederick McTaggart and Consolidated Water Co. Ltd.
 
    
10.19
  Employment Contract, dated August 19, 1998, between Cayman Water Company Limited and Gregory Scott McTaggart (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)
 
    
10.20
  First Amendment to Employment Contract, dated April 17, 2000, between Consolidated Water Co. Ltd. and Gregory Scott McTaggart (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)
 
    
10.21
  Second amendment of employment contract dated December 5, 2003 between Gregory McTaggart and Consolidated Water Co. Ltd.
 
    
10.22
  Specimen Service Agreement, between Cayman Water Company Limited and consumers (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-1 dated March 26, 1996)
 
    
10.23
  Summary Share Grant Plan for Directors (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)

106

Table of Contents

     
Exhibit    
Number
   Exhibit Description
10.24
  Employee Share Option Plan (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2001, Commission File No. 0-25248)
 
    
10.25
  Option Deed, dated August 6, 1997, between Cayman Water Company Limited and American Stock Transfer & Trust Company (incorporated herein by reference to the exhibit filed on our Form 6-K, dated August 7, 1997, Commission File No. 0-25248)
 
    
10.26
  Purchase and Sale Agreement, dated December 10, 2001, between Consolidated Water Co. Ltd., Cayman Hotel and Golf Inc., Ellesmere Britannia Limited and Hyatt Britannia Corporation Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2001, Commission File No. 0-25248)
 
    
10.27
  Agreement, dated February 1, 2002, between Consolidated Water Co. Ltd. and Cayman Hotel and Golf Inc. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2001, Commission File No. 0-25248)
 
    
10.28
  Consulting Agreement, dated November 17, 1998, between Cayman Water Company Limited and R.J. Falkner & Company, Inc. (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)
 
    
10.29
  Agreement, dated July 24, 1995, between Cayman Water Company Limited and Galleon Beach Resort Limited (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)
 
    
10.30
  Agreement, dated February 9, 1994, between Cayman Water Company Limited and Widar Ltd. (incorporated herein by reference to the exhibit filed as part of our Registration Statement on Form F-2 dated May 17, 2000, Commission File No. 333-35356)
 
    
10.31
  Lease of Part, dated October 13, 2000, between Consolidated Water Co. Ltd. and Colmar Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K dated March 30, 2001, Commission File No. 0-25248)
 
    
10.32
  Lease of Part, dated March 1, 2003, between Consolidated Water Co. Ltd. and Colmar Ltd.
 
    
10.33
  Lease of Part, dated July 1, 2003, between Consolidated Water Co. Ltd. and Colmar Ltd.
 
    
10.34
  Lease, dated December 10, 2001, between Cayman Hotel and Golf Inc. and Consolidated Water Co. Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2001, Commission File No. 0-25248)

107

Table of Contents

     
Exhibit    
Number
   Exhibit Description
10.35
  Lease, dated April 27, 1993, signed July 18, 2001 between Government of Belize and Belize Water Limited (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2001, Commission File No. 0-25248)
 
    
10.36
  Amended lease, dated April 27, 1993, signed January 2, 2004 between Government of Belize and Belize Water Limited
 
    
10.37
  Loan Agreement dated February 7, 2003 between Consolidated Water Co. Ltd. and Scotiabank (Cayman Islands) Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 8-K dated February 13, 2003, Commission File No. 0-25248)
 
    
10.38
  Employment Contract dated February 10, 2003 between Gerard Pereira and Consolidated Water Co. Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2002, Commission File No. 0-25248)
 
    
10.39
  Employment Contract dated February 21, 2003 between Kenneth Crowley and Consolidated Water Co. Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2002, Commission File No. 0-25248)
 
    
10.40
  Employment Contract dated March 7, 2003 between Robert Morrison and Consolidated Water Co. Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2002, Commission File No. 0-25248)
 
    
10.41
  Employment Contract dated December 31, 2002 between Brent Joseph Santha and Consolidated Water Co. Ltd. (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2002, Commission File No. 0-25248)
 
    
10.42
  Distributorship Agreement dated September 24, 2002 between DWEER Technology Ltd. and DesalCo Limited (incorporated herein by reference to the exhibit filed as a part of our Form 10-K for the fiscal year ended December 31, 2002, Commission File No. 0-25248)
 
    
10.43
  Amendment to the Distributorship Agreement dated September 24, 2002 between DWEER Technologies Ltd. and DesalCo Limited
 
    
10.44
  Distributorship Agreement dated February 26, 2004 between Calder AG and DesalCo Limited
 
    
10.45
  Employee share option notice letter dated May 26, 2003 between Abel Castillo and Consolidated Water Co. Ltd.
 
    
10.46
  Employee share option notice letter dated May 26, 2003 between Billy Banker and Consolidated Water Co. Ltd.
 
    
10.47
  Employee share option notice letter dated May 26, 2003 between Chet Ritch Consolidated Water Co. Ltd.

108

Table of Contents

     
Exhibit    
Number
   Exhibit Description
10.48
  Employee share option notice letter dated May 26, 2003 between David Hooker and Consolidated Water Co. Ltd.
 
    
10.49
  Employee share option notice letter dated May 26, 2003 between Elizabeth Triana and Consolidated Water Co. Ltd.
 
    
10.50
  Employee share option notice letter dated May 26, 2003 between Helverth Rodriguez and Consolidated Water Co. Ltd.
 
    
10.51
  Employee share option notice letter dated May 26, 2003 between Ivan Tabora and Consolidated Water Co. Ltd.
 
    
10.52
  Employee share option notice letter dated May 26, 2003 between Luis Wood and Consolidated Water Co. Ltd.
 
    
10.53
  Employee share option notice letter dated May 26, 2003 between Maggie Julier and Consolidated Water Co. Ltd.
 
    
14
  Code of Business Conduct and Ethics
 
    
21
  Subsidiaries of the Registrant
 
    
23.1
  Consent of KPMG (Cayman Islands) Chartered Accountants
 
    
23.2
  Consent of KPMG (British Virgin Islands) Chartered Accountants
 
    
31.1
  Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
    
31.2
  Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
    
32.1
  Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002
 
    
32.2
  Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002
 
    
99.1
  Compensation Committee Charter
 
    
99.2
  Audit Committee Charter
 
    
99.3
  Nominations Committee Charter

(b) Reports on Form 8-K

    A report on Form 8-K was filed with the Securities and Exchange Commission on November 17, 2003 under Items 5 and 12.

109

Table of Contents

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     
  CONSOLIDATED WATER CO. LTD.
 
    
  By: /s/ Jeffrey M. Parker
 
 
  Jeffrey M. Parker
  Chairman of the board of directors

Dated: April 14, 2004

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

             
    Signature
   Title
   Date
By:
  /s/ Jeffrey M. Parker        
 
 		        
  Jeffrey M. Parker   Chairman of the board of directors   April 14, 2004
 
            
By:
  /s/ Frederick W. McTaggart        
 
 		        
  Frederick W. McTaggart   Director, Chief Executive Officer and President (Principal Executive Officer)   April 14, 2004
 
            
By:
  /s/ Brent J. Santha        
 
 		        
  Brent J. Santha   Chief Financial Officer (Principal Financial and Accounting Officer)   April 14, 2004
 
            
By:
  /s/ Peter D. Ribbins        
 
 		        
  Peter D. Ribbins   Director of Public Relations   April 14, 2004
 
            
By:
  /s/ J. Bruce Bugg, Jr.        
 
 		        
  J. Bruce Bugg, Jr.   Director   April 14, 2004
 
            
By:
  /s/ William T. Andrews        
 
 		        
  William T. Andrews   Director   April 14, 2004

110

Table of Contents

             
    Signature
   Title
   Date
By:
  /s/ Brian E. Butler        
 
 		        
  Brian E. Butler   Director   April 14, 2004
 
            
By:
  /s/ Steven A. Carr        
 
 		        
  Steven A. Carr   Director   April 14, 2004
 
            
By:
  /s/ Richard L. Finlay        
 
 		        
  Richard L. Finlay   Director   April 14, 2004
 
            
By:
  /s/ Clarence B. Flowers, Jr.        
 
 		        
  Clarence B. Flowers, Jr.   Director   April 14, 2004
 
            
By:
  /s/ Wilmer Pergande        
 
 		        
  Wilmer Pergande   Director   April 14, 2004
 
            
By:
  /s/ Raymond Whittaker        
 
 		        
  Raymond Whittaker   Director   April 14, 2004
 
            
By:
  /s/ Carson K. Ebanks        
 
 		        
  Carson K. Ebanks   Director   April 14, 2004

111

Table of Contents

CONSOLIDATED WATER CO. LTD.

INDEX TO EXHIBITS FILED WITH 10-K

     
10.11
  Employment contract dated September 30, 2003 between Peter Ribbins and Consolidated Water Co. Ltd.
 
    
10.12
  Amendment of employment contract dated December 5, 2003 between Peter Ribbins and Consolidated Water Co. Ltd.
 
    
10.16
  Employment contract dated December 5, 2003 between Jeffrey Parker and Consolidated Water Co. Ltd.
 
    
10.18
  Employment contract dated December 5, 2003 between Frederick McTaggart and Consolidated Water Co. Ltd.
 
    
10.21
  Second amendment of employment contract dated December 5, 2003 between Gregory McTaggart and Consolidated Water Co. Ltd.
 
    
10.32
  Lease of Part, dated March 1, 2003, between Consolidated Water Co. Ltd. and Colmar Ltd.
 
    
10.33
  Lease of Part, dated July 1, 2003, between Consolidated Water Co. Ltd. and Colmar Ltd
 
    
10.36
  Amended lease, dated April 27, 1993, signed January 2, 2004 between Government of Belize and Belize Water Limited
 
    
10.43
  Amendment to the Distributorship Agreement dated September 24, 2002 between DWEER Technologies Ltd. and DesalCo Limited
 
    
10.44
  Distributorship Agreement dated February 26, 2004 between Calder AG and DesalCo Limited
 
    
10.45
  Employee share option notice letter dated May 26, 2003 between Abel Castillo and Consolidated Water Co. Ltd.
 
    
10.46
  Employee share option notice letter dated May 26, 2003 between Billy Banker and Consolidated Water Co. Ltd.
 
    
10.47
  Employee share option notice letter dated May 26, 2003 between Chet Ritch Consolidated Water Co. Ltd.
 
    
10.48
  Employee share option notice letter dated May 26, 2003 between David Hooker and Consolidated Water Co. Ltd.

 

Table of Contents

     
10.49
  Employee share option notice letter dated May 26, 2003 between Elizabeth Triana and Consolidated Water Co. Ltd.
 
    
10.50
  Employee share option notice letter dated May 26, 2003 between Helverth Rodriguez and Consolidated Water Co. Ltd.
 
    
10.51
  Employee share option notice letter dated May 26, 2003 between Ivan Tabora and Consolidated Water Co. Ltd.
 
    
10.52
  Employee share option notice letter dated May 26, 2003 between Luis Wood and Consolidated Water Co. Ltd.
 
    
10.53
  Employee share option notice letter dated May 26, 2003 between Maggie Julier and Consolidated Water Co. Ltd.
 
    
14
  Code of Business Conduct and Ethics
 
    
21
  Subsidiaries of the Registrant.
 
    
23.1
  Consent of KPMG (Cayman Islands) Chartered Accountants.
 
    
23.2
  Consent of KPMG (British Virgin Islands) Chartered Accountants
 
    
31.1
  Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
    
31.2
  Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
    
32.1
  Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002
 
    
32.2
  Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002
 
    
99.1
  Compensation Committee Charter
 
    
99.2
  Audit Committee Charter
 
    
99.3
  Nominations Committee Charter

 

EX-10.11 3 g88198exv10w11.txt EMPLOYMENT CONTRACT/ PETER RIBBINS Exhibit 10.11 EMPLOYMENT CONTRACT THIS AGREEMENT is made the 30th day of September, 2003 BETWEEN: CONSOLIDATED WATER CO. LTD., a Cayman Islands company having its registered office at Trafalgar Place, West Bay Road, P. O. Box 1114GT, Grand Cayman, B.W.I. ("the Company") AND: PETER D. RIBBINS of P.O. Box 1114GT, Grand Cayman, B.W.I. ("the Director of Public Relations") IT IS AGREED as follows:- EMPLOYMENT 1. The Director of Public Relations is engaged and employed as an Officer of the Company with responsibility for public relations, excluding financial and investor relations, ("the Capacities") commencing on the 16th day of October, 2000 but subject to the termination provisions set out in Clause 15. During the term of this Agreement the Board of Directors of the Company ("the Board") will propose the appointment of the Director of Public Relations as an Officer of the Company and will vote in favor of such proposal. REMUNERATION 2. The salary of the Director of Public Relations is fixed until October 31, 2005 at CI$50,000 per annum, payable monthly in arrears, less deductions (other than for Medical Insurance) and other amounts which the Company is, by law, entitled or required to deduct from an employee's remuneration. Thereafter, the salary of the Director of Public Relations shall be as agreed between the parties hereto. The Company will pay the full cost of providing Medical Insurance, as generally provided for the Company's employees from time to time, for the Director of Public Relations and his family. 1 The Director of Public Relations will remain as a member of the pension scheme provided for the Company's employees from time to time and the Company will make contributions thereto on behalf of the Director of Public Relations as it is required to do pursuant to the law. 3. The Director of Public Relations' salary will be reviewed as of January 1st each year by the Company's Board who may grant an increase (and/or make a payment by way of bonus) but who shall not reduce the Director of Public Relations' salary below the level set out in Clause 2 hereof. AREA 4. The Director of Public Relations' work will be performed mainly in West Bay, Grand Cayman. The Company reserves the right to transfer the Director of Public Relations to any other place of business which it may establish in the Cayman Islands. RESPONSIBILITIES 5. Until October 31, 2005, the Director of Public Relations must devote substantially the whole of his time to the Company's business and must use his best endeavors to promote the Company's interests and welfare. Except where such information is a matter of public record or when required to do so by law, the Director of Public Relations must not, either before or after this Agreement ends, disclose to any person any information relating to the Company, its business, customers, suppliers or employees or any other confidential information of which he becomes possessed while acting in the Capacities. 6. The Director of Public Relations must perform the duties reasonably required of and assigned to him by the President or the Board. The Director of Public Relations must perform his duties under this Agreement during normal business hours from Monday to Friday inclusive (save on bank holidays) but he accepts that his duties, which include travelling on the company's business both within the 2 Cayman Islands and abroad, may, from time to time, require work to be undertaken on Saturdays, Sundays and bank and public holidays. The Director of Public Relations must report to the President, diligently follow and implement all management policies and decisions which the Board communicates to him and prepare and forward in a timely manner all reports and accountings the President or the Board requests. The Director of Public Relations will not directly or indirectly engage in any activities or work which are deemed by the Board to be detrimental to the best interests of the Company, provided, however, that the Company consents to the Director of Public Relations continued involvement as a shareholder and director of Eats Limited. 7. In the case of inability to work due to illness or injury, the Director of Public Relations must notify the Company immediately and produce a medical certificate for any absence longer than ten working days. The Company may have the Director of Public Relations examined by a doctor approved by it. The Director of Public Relations agrees to submit to any medical examination that the Company requires. 8. The Director of Public Relations will be entitled to up to ten (10) days sick leave per year without a medical certificate. HOLIDAYS 9. The Director of Public Relations is entitled, during every twelve (12) month period of employment to the following holidays:- (a) all public holidays in the Cayman Islands, and (b) six (6) weeks vacation at a time to be approved by the President. 3 REIMBURSEMENT OF EXPENSES 10. All expenses for which the Director of Public Relations claims reimbursement must be within pre-approved budgets. Subject to this, the Company must reimburse the Director of Public Relations for the cost of entertaining the Company's customers and travelling on the Company's business on the production of the necessary vouchers or on the Director of Public Relations' proving to the Company's satisfaction the amount that he has spent for those purposes, even though he is unable to produce vouchers. NON-SOLICITATION 11. The Director of Public Relations must not at any time while he is acting in the Capacities or afterwards either on his own account or for any other person, firm or company solicit, interfere with or endeavor to entice away from the Company any person, firm or company who at any time during or at the date when his employment ends were employees or customers of or were in the habit of dealing with the Company. COMPANY DOCUMENTS 12. All books, records, notes, files, memoranda, reports, customer lists and other documents, and all copies of them, relating to the Company's business which the Director of Public Relations keeps, prepares or conceives or which become known to him or which are delivered or disclosed to him or by any means come into his possession, and all the Company's property and equipment are and will remain the Company's sole and exclusive property. If the Director of Public Relations' employment is terminated for any reason whether voluntarily or involuntarily or if the Company at any time requests, the Director of Public Relations must promptly deliver to the Company the originals and all copies of all relevant documents that are in his possession, custody or control, and any other property belonging to the Company. TERMINATION 13. Except as provided herein and to the extent previously accrued, all rights and obligations of the Company and the Director of Public Relations shall cease if any of the following events occurs:- 4 (a) The Director of Public Relations dies. (b) The Director of Public Relations is adjudicated bankrupt or makes any composition with his creditors. (c) The Director of Public Relations gives six (6) months written notice to the Company to terminate this Agreement. (d) with immediate effect if the Director of Public Relations conducts himself in a manner which would justify dismissal in accordance with the Labour Law. Provided, however, that the Director of Public Relations shall remain an employee of the Company during his life and be entitled to participate, at his own expense, in any Medical Insurance provided for the Company's Employees from time to time. NOTICES 14. Any notice to be served under this Agreement must be in writing and will be deemed duly served if, in the case of a notice addressed to the Company, it is sent by registered post or left at the Company's registered office, or, in the case of a notice sent to the Director of Public Relations, it is handed to him personally or is delivered to his last known residential address in the Cayman Islands. A notice sent by post will be deemed to be served on the third day following the date on which it is posted. PREVIOUS AGREEMENTS SUPERSEDED 15. This Agreement supersedes all prior contracts and understandings between the parties and may not be changed or terminated orally. No change or attempted waiver of any provision of this Agreement will be binding unless in writing and signed by the party against it is sought to be enforced. CLAUSE HEADINGS 16. Clause headings are included herein for convenience only and have no legal effect. 5 APPLICABLE LAW AND JURISDICTION 17. This Agreement will be construed and the legal relations between the parties determined in accordance with the laws of the Cayman Islands and the parties agree to submit to the jurisdiction of the Cayman Island's courts. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid, but if any provision of this Agreement or the application of it is prohibited or held to be invalid, that prohibition or invalidity will not affect any other provision, or the application of any other provision which can be given effect without the invalid provision or application, and, to this end, the provisions of this Agreement are declared to be severable. EXECUTED by and on behalf of CONSOLIDATED WATER CO. LTD. The Company by In the presence of:- /s/ Tracey Ebanks /s/ Frederick McTaggart - ----------------------------- ------------------------------------ Witness Director Tracey Ebanks Frederick McTaggart EXECUTED by the Director of Public Relations In the presence of:- /s/ Tracey Ebanks /s/ Peter Ribbins - ----------------------------- ------------------------------------ Witness Peter D. Ribbins Tracey Ebanks Peter Ribbins 6 EX-10.12 4 g88198exv10w12.txt AMENDMENT TO EMPLOYMENT CONTRACT/ PETER RIBBINS Exhibit 10.12 AMENDMENT OF EMPLOYMENT CONTRACT THIS AGREEMENT is made this 5th day of December, 2003 BETWEEN: CONSOLIDATED WATER CO. LTD., a Cayman Islands company having its registered office at Trafalgar Place, West Bay Road, P.O. Box 1114 GT, Grand Cayman, BWI ("the Company") AND: Peter D. Ribbins of P.O. Box 1114GT, Grand Cayman, BWI ("the Director of Public Relations") WHEREAS: A. The Company and the Director of Public Relations entered into an employment contract dated the 30th of September 2003("the Employment Contract") B. The parties are now desirous of amending the same, in accordance with the terms of this Agreement. NOW IN CONSIDERATION of the mutual covenants contained herein the parties agreed that the Employment Contract shall be amended and/or rectified as follows: By adding the following paragraph as the second paragraph of Clause 3; "For the financial year 2003 only, the Director of Public Relations shall be granted an option to purchase for cash payable in full upon the exercise of the option, a number of Ordinary Shares which equals the number of US$ which represents 5/6 x 1% of the net profit of the Company for the 2003 financial year at the closing market price of the Company's Ordinary Shares on December 31, 2003. The options may be exercised at any time after they are granted and before the close of business on the day before the third anniversary of the Auditor's Report on the financial statements for the 2003 financial year." THE PARTIES HERETO have set their hands and seals the day and date first above written. SIGNED AND SEALED in the presence of:) CONSOLIDATED WATER CO. LTD. ) ) /s/ Frederick McTaggart ) ------------------------------------- ) /s/ Brent Santha ) Frederick McTaggart - ----------------------------------- ) ------------------------------- witness Brent Santha SIGNED AND SEALED in the presence of:) ) ) ) ) /s/ Brent Santha ) /s/ Peter Ribbins - ----------------------------------- ) ------------------------------------- witness Peter D Ribbins Brent Santha EX-10.16 5 g88198exv10w16.txt EMPLOYMENT CONTRACT/ JEFFREY PARKER EXHIBIT 10.16 ENGAGEMENT AGREEMENT THIS AGREEMENT is made the 5th day of December 2003 BETWEEN: CONSOLIDATED WATER CO. LTD., a Cayman Islands company having its registered office at Trafalgar Place, West Bay Road P.O. Box 1114 GT, Grand Cayman, B.W.I. ("the Company") AND JEFFREY M. PARKER of 81 Drake Quay, Governors Harbour, P. O. Box 30749 SMB, Grand Cayman, B.W.I. ("the Chairman") IT IS HEREBY AGREED:- ENGAGEMENT 1. Subject to satisfaction of the condition precedent in Clause 11 on or before December 31, 2003, the Chairman is engaged as Chairman of the Company for three (3) years commencing on the 1st day of January, 2004 subject to the termination provisions set out in Clauses 17 and 18 hereof and to the extension provisions set out in Clause 19 hereof. REMUNERATION 2. The Chairman's remuneration will be US$165,000.00 per annum, payable monthly in arrears. 3. In addition, during the term of this Agreement, the Company will pay the full cost of providing medical insurance, as generally provided for the Company's employees from time to time, for the Chairman and his spouse. 4. In addition, during the term of this Agreement, the Company will make contributions to a pension scheme, of the Chairman's choice but approved pursuant to the National Pensions Law (1998 Revision) of the Cayman Islands, in the same manner and on the same basis as it makes contributions, from time to time, in respect of its other employees pursuant to the National Pensions Law. 5. The Chairman's remuneration will be reviewed by the Company's Board of Directors (the "Board") as of January 1st each year who may grant an increase but shall not reduce the Chairman's salary below the level set out in Clause 2 hereof. 6. Further, for each completed financial year beginning with the financial year 2004, not later than 28th February following the end of each financial year, the Chairman will be paid a bonus calculated as follows; (a) PERFORMANCE BONUS 1.5% of the net profit of the Company (calculated before charging this bonus and before charging dividends or crediting any amount accruing from the re-valuation of the Company's assets) to a maximum of 40% of the remuneration set out in Clause 2 (as adjusted by Clause 5); and (b) INCREMENTAL BONUS 15% of the amount, if any, by which the net profits (calculated as in clause 6(a)) of the Company for that financial year exceeds the highest annual net profit earned by the Company in any prior financial year. The aggregate of the Performance Bonus and the Incremental Bonus, if any, calculated aforesaid shall be paid as to 75% in cash and, subject to approval of the members of the Company at the Company's next annual general meeting, as to 25% in ordinary shares of the Company valued at the market price at the close of trading of the same on December 31st of the relevant financial year (or if such day is not a trading day, at the close of trading on the preceding trading day). If such approval is not obtained, the aggregate of the Performance Bonus and the Incremental Bonus shall be paid entirely in cash. RESPONSIBILITIES 7. The Chairman shall use his best endeavors to promote the Company's interests and welfare. 8. The Chairman shall perform the duties commonly performed by a Chairman of a publicly listed company and also the duties reasonably required of and assigned to him by the Board including, without limiting the generality of the foregoing, management of corporate governance issues, financial public relations and identification and initial investigation of new projects. 2 The Chairman shall discharge his duties in accordance with the directions of the Board. The Chairman accepts that his duties, which include traveling on the Company's business, both within the Cayman Islands and abroad, may from time to time require work to be undertaken on Saturdays, Sundays, bank and public holidays. The Chairman shall not, directly or indirectly, engage in any activities or work which are deemed by the Board to be detrimental to the best interests of the Company. The Board hereby consents to the Chairman's continued involvement with Moore Stephens, Chartered Accountants. 9. In case of inability to work due to illness or injury, the Chairman shall notify the Company immediately and produce a medical certificate for any absence longer than ten working days. 10. The Chairman is entitled to up to ten (10) days sick leave per year without a medical certificate. 11. This Agreement is conditional upon the Chairman undergoing a medical examination in such form as is usual and customary in the Cayman Islands, the results of which demonstrate to the Board's satisfaction that the Chairman is capable of performing the responsibilities set forth in Clauses 7 and 8. HOLIDAYS 12. The Chairman is entitled, during every calendar year to the following holidays during which his remuneration will continue to be payable:- (a) all public holidays in the Cayman Islands, and (b) five (5) weeks vacation to be taken at a time to be approved by the Board. REIMBURSEMENT OF EXPENSES/FEES 13. (a) All expenses for which the Chairman claims reimbursement shall be in accordance with any policies established by the Board from time to time and shall be within the operating budgets approved by the Board. The Company shall reimburse the Chairman for the costs incurred by the Chairman in his performance of the Capacity on production of the necessary vouchers or, if he is unable to produce vouchers, on the Chairman proving, to the Board's satisfaction, the amount he has spent for those purposes. 3 (b) All fees and payments received by the Chairman for or in relation to acting as director or officer of a subsidiary or affiliate of the Company shall be retained by the Chairman who shall not be required to account to the Company for the same. NON-COMPETITION 14. Providing that the Chairman may make investments in quoted companies not exceeding 1% of the issued share capital thereof, the Chairman agrees, as a separate and independent agreement, that he will not, during any period for which he has been remunerated hereunder, whether for his own account or for the account of any other person, either alone or jointly with or as manager, agent for or employee of or as consultant to any person, company or firm, directly or indirectly, carry on or be engaged or concerned or interested in any person firm or entity who conducts business identical to or similar to that conducted by the Company in any jurisdiction in which the Company carries on business (whether directly or indirectly). COMPANY INFORMATION, DOCUMENTS, CONFIDENTIALITY AND NON-SOLICITATION 15. (a) All information, documents, books, records, notes, files, memoranda, reports, customer lists and other documents, and all copies of them, relating to the Company's business or opportunities which the Chairman keeps, prepares or conceives or which become known to him or which are delivered or disclosed to him or which, by any means come into his possession, and all the Company's property and equipment are and will remain the Company's sole and exclusive property both during the term of this Agreement and after the termination or expiration hereof; (b) If this Agreement is terminated for any reason, or if the Company at any time requests, the Chairman must promptly deliver to the Company the originals and all copies of all relevant documents that are in his possession, custody or control together with any other property belonging to the Company. (c) The Chairman shall not, at any time during the term of this Agreement or after it's termination or expiration, either for his own account or for the account of any other person, firm or company, solicit or endeavor to entice away from the Company any person, firm or company who, at any time during the currency of this Agreement were employees, customers or suppliers of or were in the habit of dealing with the Company. 16. Except where such information is a matter of public record or when required to do so by law, the Chairman must not, either before or after 4 this Agreement ends, disclose to any person any information relating to the Company or its customers of which he becomes possessed while acting as Chairman. TERMINATION 17. This Agreement shall terminate and, except to the extent previously accrued, all rights and obligations of both parties under it shall cease if any of the following events occurs:- (a) The Chairman dies. (b) The Chairman is adjudicated bankrupt or makes any arrangement or composition with his creditors. (c) In any year, the company does not extend the term of this Agreement in accordance with Clause 19 hereof. (d) The Chairman gives six (6) months written notice of termination to the Company. 18. (a) The Company may, by written notice, terminate this Agreement with immediate effect if the Chairman conducts himself in a manner that would justify immediate dismissal of an employee in accordance with the Labour Law and, except to the extent previously accrued, all rights and obligations of both parties under this Agreement shall cease. (b) If through physical or mental illness, the Chairman is unable to discharge his duties for sixty (60) successive days, as to which a certificate by any doctor appointed by the Company shall be conclusive, the Chairman shall be relieved of his duties and his salary shall be reduced to US$1,000.00 per annum and his bonus entitlement suspended, and the Company shall continue to pay the full cost of providing medical insurance for the Chairman and his immediate family together with pension contributions (such contributions to be based on the pension contribution made on behalf of the Chairman for the previous financial year of the Company) for a period of two years at which time his employment shall be terminated. Extension 19. On or before June 30th of each year during the term of this Agreement (or any extension thereof), the Board shall determine whether to extend the term of this Agreement, and if the Board so determines the term of 5 this Agreement shall be extended such that the term shall be for three years from January 1st of the next following year. In the event that the Board determines not to extend the Agreement in any year, the term of the Agreement shall expire on December 31stof that year and the Company, on that date, shall pay to the Chairman, in cash, twice the annual remuneration as set out in Clause 2 as adjusted by Clause 5 hereof. NOTICES 20. Any notice to be served under this Agreement must be in writing and shall be deemed to be duly served if it is handed personally to the Secretary of the Company or to the Chairman as the case may be, or if it is sent by registered post to the address at the head of this Agreement. A notice sent by post shall be deemed to be served on the third day following the date on which it was posted. PREVIOUS AGREEMENTS SUPERCEDED 21. This Agreement supersedes all prior contracts and understandings between the parties save that benefits earned or accrued under prior contracts shall not be extinguished or affected except to the extent that the words `each of the first seven trading days in the month of October' in clause 8(b)(ii) of the Second Amendment of Engagement Agreement dated March 21, 2000 shall be deleted and replaced with the words `December 31st' as they relate only to the options granted in respect of the calendar year 2003. No change or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom it is sought to be enforced. HEADINGS 22. The headings herein are included for convenience only and have no legal effect. APPLICABLE LAW AND JURISDICTION 23. This Agreement shall be construed and the legal relations between the parties determined in accordance with the laws of the Cayman Islands to the jurisdiction of the courts of which the parties hereby agree to submit. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid. If any provision of this Agreement or the application of it is prohibited or is held to be invalid, that prohibition or invalidity shall not affect any other provision, or the application of any other provision which can be given effect without the invalid provision or prohibited application and, to this end, the provisions of this Agreement are declared to be severable. 6 EXECUTED FOR AND ON BEHALF OF CONSOLIDATED WATER CO. CONSOLIDATED WATER CO LTD. LTD. BY: IN THE PRESENCE OF: /s/ illegible /s/ Richard Finlay - ----------------------------- ----------------------------------- WITNESS EXECUTED BY JEFFREY M. PARKER IN THE PRESENCE OF: /s/ illegible /s/ Jeffrey Parker - ----------------------------- ----------------------------------- WITNESS JEFFREY M. PARKER 7 EX-10.18 6 g88198exv10w18.txt EMPLOYMENT CONTRACT/ FREDERICK MCTAGGART Exhibit 10.18 ENGAGEMENT AGREEMENT THIS AGREEMENT is made the 5th day of December 2003 BETWEEN: CONSOLIDATED WATER CO. LTD., a Cayman Islands company having its registered office at Trafalgar Place, West Bay Road P.O. Box 1114 GT, Grand Cayman, B.W.I. ("the Company") AND: FREDERICK W. MCTAGGART of P. O. Box 321SAV, Grand Cayman, B.W.I. ("the President") IT IS HEREBY AGREED:- ENGAGEMENT 1. Subject to satisfaction of the condition precedent in Clause 11 on or before December 31, 2003, the President is engaged as President and Chief Executive Officer of the Company for three (3) years commencing on the 1st day of January, 2004 subject to the termination provisions set out in Clauses 18 and 19 hereof and to the extension provisions set out in Clause 19 hereof. REMUNERATION 2. The President's remuneration will be US$200,000.00 per annum, payable monthly in arrears. 3. In addition, during the term of this Agreement, the Company will pay the full cost of providing medical Insurance, as generally provided for the Company's employees from time to time, for the President and his immediate family. 4. In addition, during the term of this Agreement, the Company will make contributions to a pension scheme, of the President's choice but approved pursuant to the National Pensions Law of the Cayman Islands, in the same manner and on the same basis as it makes contributions, from time to time, in respect of its other employees pursuant to the National Pensions Law. 5. The President's remuneration will be reviewed by the Company's Board of Directors (the "Board") as of January 1st each year who may grant an increase but shall not reduce the President's salary below the level set out in Clause 2 hereof. 6. Further, for each completed financial year beginning with the financial year 2004, not later than 28th February following the end of each financial year, the President will be paid a bonus calculated as follows; (a) PERFORMANCE BONUS 2% of the net profit of the Company (calculated before charging this bonus and before charging dividends or crediting any amount accruing from the re-valuation of the Company's assets) to a maximum of 50% of the remuneration set out in Clause 2 (as adjusted by Clause 5); and (b) INCREMENTAL BONUS 5% of the amount, if any, by which the net profits (calculated as in clause 6(a)) of the Company for that financial year exceeds the highest annual net profit earned by the Company in any prior financial year. The aggregate of the Performance Bonus and the Incremental Bonus, if any, calculated aforesaid shall be paid as to 75% in cash and, subject to approval of the members of the Company at the Company's next annual general meeting, as to 25% in ordinary shares of the Company valued at the market price at the close of trading of the same on December 31st of the relevant financial year (or if such day is not a trading day, at the close of trading on the preceding trading day). If such approval is not obtained, the aggregate of the Performance Bonus and the Incremental Bonus shall be paid entirely in cash. RESPONSIBILITIES 7. The President's work will be performed mainly in West Bay, Grand Cayman. The Company reserves the right to transfer the President to any other place of business which it may establish in the Cayman Islands. The Company will provide the President with a motor vehicle which, in the sole opinion of the Company, is suitable for the discharge of the President's duties hereunder. 2 8. The President shall devote substantially the whole of his time as is necessary to perform his functions hereunder and shall use his best endeavors to promote the Company's interests and welfare. The President shall perform the duties commonly performed by a President/Chief Executive Officer of a publicly listed company and also the duties reasonably required of and assigned to him by the Board which he shall discharge in accordance with directions of the Board. Without limiting the generality of the foregoing, the President shall serve on the board of directors of such subsidiaries or affiliates of the Company as the Board may direct. The President shall perform his duties under this Agreement during normal business hours from Monday to Friday inclusive (save on bank holidays) but he accepts that his duties, which include traveling on the Company's business both within the Cayman Islands and abroad, may, from time to time, require work to be undertaken on Saturdays, Sundays and bank and public holidays. The President shall report to the Board, diligently follow and implement all management policies and decisions which the Board communicates to him, prepare and forward in a timely manner all reports and accountings the Board requests and generally be responsible for the effective operation of the Company in accordance with pre-agreed financial and operating budgets. The President shall not directly or indirectly engage in any activities or work which are deemed by the Board to be detrimental to the best interests of the Company. 9. In case of inability to work due to illness or injury, the President shall notify the Company immediately and produce a medical certificate for any absence longer than ten working days. 10. The President is entitled to up to ten (10) days sick leave per year without a medical certificate. 11. This Agreement is conditional upon the President undergoing a medical examination in such form as is usual and customary in the Cayman Islands, the results of which demonstrate to the Board's satisfaction that the President is capable of performing the responsibilities set forth in Clauses 7 and 8. The Company will meet the cost of such medical 3 examination, or any amounts not covered by the Company's health insurance plan. HOLIDAYS 12. The President is entitled, during every calendar year to the following holidays during which his remuneration will continue to be payable:- (a) all public holidays in the Cayman Islands, and (b) four (4) weeks vacation to be taken at a time to be approved by the Board. REIMBURSEMENT OF EXPENSES/FEES EARNED 13. (a) All expenses for which the President claims reimbursement shall be in accordance with any policies established by the Board from time to time and shall be within the operating budgets approved by the Board. The Company shall reimburse the President for the costs incurred by the President in his performance of the Capacity on production of the necessary vouchers or, if he is unable to produce vouchers, on the President proving, to the Board's satisfaction, the amount he has spent for those purposes. (b) All fees and payments received by the President for or in relation to acting as director or officer of a subsidiary or affiliate of the Company shall be the property of the Company and the President shall account to the Company for the same. NON-COMPETITION 14. The President agrees, as a separate and independent agreement, that he will not during any period for which he has been remunerated hereunder, whether for his own account or for the account of any other person, firm or company during the term of this Agreement, either alone or jointly with or as manager, agent for or employee of or as consultant to any person, company or firm, directly or indirectly, carry on or be engaged or concerned or interested in any person firm or entity who conducts business identical to or similar to that conducted by the Company in any jurisdiction in which the Company carries on business (whether directly or indirectly). 4 COMPANY INFORMATION, DOCUMENTS, CONFIDENTIALITY, AND NON-SOLICITATION 15 (a) All information, documents, books, records, notes, files, memoranda, reports, customer lists and other documents, and all copies of them, relating to the Company's business or opportunities which the President keeps, prepares or conceives or which become known to him or which are delivered or disclosed to him or which, by any means come into his possession, and all the Company's property and equipment are and will remain the Company's sole and exclusive property both during the term of this Agreement and after the termination or expiration hereof; (b) If this Agreement is terminated for any reason, or if the Company at any time requests, the President must promptly deliver to the Company the originals and all copies of all relevant documents that are in his possession, custody or control together with any other property belonging to the Company, provided, however, that should the President require access to copies of such documents for any reasonable purpose, the Company shall provide the same at his request; (c) The President shall not, at any time during the term of this Agreement or after it's termination or expiration, either for his own account or for the account of any other person, firm or company, solicit, interfere with or endeavour to entice away from the Company any person, firm or company who, at any time during the currency of this Agreement were employees, customers or suppliers of or were in the habit of dealing with the Company. 16. Except where such information is a matter of public record or when required to do so by law, the President must not, either before or after this Agreement ends, disclose to any person any information relating to the Company or its customers of which he becomes possessed while acting as President. TERMINATION 17. This Agreement shall terminate and, except to the extent previously accrued, all rights and obligations of both parties under it shall cease if any of the following events occurs:- (a) The President dies. (b) The President is adjudicated bankrupt or makes any arrangement or composition with his creditors. 5 (c) On the 31st of December of any year in which the Company does not extend the term of this Agreement in accordance with Clause 19 hereof. (d) The President gives six (6) months written notice of termination to the Company. 18. (a) The Company may, by written notice, terminate this Agreement with immediate effect if the President conducts himself in a manner that would justify immediate dismissal of an employee in accordance with the Labour Law and, except to the extent previously accrued, all rights and obligations of both parties under this Agreement shall cease. (b) If through physical or mental illness, the President is unable to discharge his duties for sixty (60) successive days, as to which a certificate by any doctor appointed by the Company shall be conclusive, the President shall be relieved of his duties and his salary shall be reduced to US$1,000.00 per annum and his bonus entitlement suspended, and the Company shall continue to pay the full cost of providing medical insurance for the President and his immediate family together with pension contributions (such contributions to be based on the pension contribution made on behalf of the President for the previous financial year of the Company) for a period of two years at which time his employment shall be terminated.; EXTENSION 19. On or before June 30th of each year during the term of this Agreement (or any extension thereof), the Board shall determine whether to extend the term of this Agreement, and if the Board so determines, the term of this Agreement shall be extended such that the term shall be for three (3) years from January 1st of the next following year. In the event that the Board determines not to extend the Agreement in any year, the term of the Agreement shall expire on December 31st of that year and the Company, on that date, shall pay to the President, in cash, twice the annual remuneration as set out in Clause 2 as adjusted by Clause 5 hereof. 6 NOTICES 20. Any notice to be served under this Agreement must be in writing and shall be deemed to be duly served if it is handed personally to the Secretary of the Company or to the President as the case may be, or if it is sent by registered post to the address at the head of this Agreement. A notice sent by post shall be deemed to be served on the third day following the date on which it was posted. PREVIOUS AGREEMENTS SUPERCEDED 21. This Agreement supersedes all prior contracts and understandings between the parties save that benefits earned or accrued under prior contracts shall not be extinguished or affected except that the words "average closing market price of the Company's Ordinary Shares on each of the first seven trading days in the month of October" in Clause 5 of the Engagement Agreement dated July 12, 2000 shall be replaced with the words "closing market price of the Company's Ordinary Shares on December 31st" as they relate only to the options granted pursuant to that Engagement Agreement in respect of the calendar year 2003. No change or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom it is sought to be enforced. HEADINGS 22. The headings herein are included for convenience only and have no legal effect. APPLICABLE LAW AND JURISDICTION 23. This Agreement shall be construed and the legal relations between the parties determined in accordance with the laws of the Cayman Islands to the jurisdiction of the courts of which the parties hereby agree to submit. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid. If any provision of this Agreement or the application of it is prohibited or is held to be invalid, that prohibition or invalidity shall not affect any other provision, or the application of any other provision which can be given effect without the invalid provision or prohibited application and, to this end, the provisions of this Agreement are declared to be severable. 7 EXECUTED FOR AND ON BEHALF OF CONSOLIDATED WATER CO. CONSOLIDATED WATER CO LTD. LTD. BY: IN THE PRESENCE OF: /s/ illegible /s/ Rick Finlay - ---------------------------------- ----------------------------------------- WITNESS DIRECTOR EXECUTED BY FREDERICK W. MCTAGGART IN THE PRESENCE OF: /s/ Tracey Ebanks /s/ Frederick McTaggart - ---------------------------------- ----------------------------------------- WITNESS FREDERICK W. MCTAGGART Tracey Ebanks 8 EX-10.21 7 g88198exv10w21.txt 2ND AMENDT. EMPLOYMENT CONTRACT/ GREGORY MCTAGGART EXHIBIT 10.21 SECOND AMENDMENT OF EMPLOYMENT CONTRACT THIS AGREEMENT is made this 5th day of December 2003 BETWEEN: CONSOLIDATED WATER CO. LTD., a Cayman Islands company having its registered office at Trafalgar Place, West Bay Road, P.O. Box 1114 GT, Grand Cayman, BWI ("the Company") AND: GREGORY S. MCTAGGART of 422 Ocean Club, P.O. Box 30984 SMB, Grand Cayman, BWI ("the Vice President") WHEREAS: A. The Company and the Vice President entered into an employment contract dated the 19th of August 1998, which was amended by amendment of the employment contract dated the 7th of April 2000 ("the Employment Contract") B. The parties are now desirous of amending the same, in accordance with the terms of this Agreement, in order to change the date on which the exercise price of options to purchase Ordinary Shares granted to the Vice President is established. NOW IN CONSIDERATION of the mutual covenants contained herein the parties agreed that the Employment Contract shall be amended and/or rectified as follows: 1. Clause 4 (c) of the First Amendment of the Employment Contract shall be amended as follows; Delete the words "average of the closing market price of the Company's Ordinary shares on each of the first seven trading days in the month of October of that financial year" and substitute "closing price of the Company's Ordinary shares on the 31st of December of the relevant financial year". THE PARTIES HERETO have set their hands and seals the day and date first above written. SIGNED AND SEALED in the presence of: ) CONSOLIDATED WATER CO. LTD. ) ) ) /s/ Frederick McTaggart ) ------------------------------- /s/ Brent Santa ) Frederick McTaggart - ----------------------------------- ) ------------------------------- witness Brent Santha SIGNED AND SEALED in the presence of: ) ) ) ) ) /s/ Brent Santha ) /s/ Gregory McTaggart - ----------------------------------- ) ------------------------------- witness Gregory S. McTaggart Brent Santha EX-10.32 8 g88198exv10w32.txt LEASE OF PART DATED MARCH 1, 2003 EXHIBIT 10.32 THIS LEASE is made the 1st day of March, 2003. BETWEEN: COLMAR LTD. of P. O. Box 31492 SMB Grand Cayman (hereinafter called "the Landlord") AND CONSOLIDATED WATER CO. LTD. P. O. Box 1114 GT Grand Cayman Cayman Islands (hereinafter called "the Tenant") WITNESSES AS FOLLOWS: 1. In consideration of the rent and Tenant's covenants hereinafter reserved and contained the Landlord HEREBY DEMISES unto the Tenant ALL THOSE premises described in the first schedule hereto (hereinafter called the "Demised Premises") and which form part of the buildings known as Trafalgar Place, West Bay Road, Grand Cayman, Cayman Islands (hereinafter called "the Building") TOGETHER WITH AND SUBJECT TO (but to the exclusion of all other liberties, easements, rights and advantages) the particular rights and matters also contained in the Schedule hereto TO HOLD the same unto the Tenant for the period from March 1st 2003 ("the Commencement Date") to January 31st 2004 subject nevertheless to the provisos for sooner determination hereafter contained and paying therefor from the Commencement Date the annual rents set forth in the second schedule hereto payable in equal monthly installments in advance for the said period the first of which payments shall be due on March 1st 2003. 2. The Tenant HEREBY COVENANTS with the Landlord as follows: 2.1. To pay the said rent on the days and in the manner aforesaid and to pay to the Landlord a sum equal to a fair proportion as hereinafter defined of the amount of the aggregate annual sum payable (if any) to the Cayman Islands Government or to any other authority whether local, governmental and/or otherwise in respect of the Building for site value tax or for any other rates, taxes, assessments or outgoings (including without restricting the foregoing, sewage and water) whatsoever now or hereafter imposed or charged such additional payment to be made on the date for payment of rent next after receipt by the Landlord of a demand therefor. For the purpose of this sub-clause the amount of such fair proportion of the sum hereinbefore referred to shall be such proportion thereof as equals the proportion which the area of the Demised Premises as set forth in the First Schedule hereto ("the Floor Area") bears to 15,687 square feet being the total area of the Building PROVIDED THAT should different areas of the Building suffer land tax at different rates then the said proportion shall be adjusted ratably to reflect such difference. 2.2. To pay to the Landlord on exchange and delivery of this Lease a security deposit ("the Deposit") of CI$2,048.49 which deposit shall be held by the Landlord on the following terms and conditions: 2.2.1. No interest shall accrue to the Deposit. 2.2.2. The Landlord may deduct from the Deposit 7 days after notifying the Tenant of its intention to do so any unpaid rent; unremedied damage or unpaid late charges. 2.2.3. Upon the deduction of any sum pursuant to Clause 2.2.2 hereof the Tenant shall within 14 days of the Landlord deducting the said sum pay the Landlord such sum as is necessary to reinstate the Deposit to the monthly rent payable by the Tenant at the time the reinstatement is due. 2.2.4. Upon the expiry of this Lease and upon the Tenant having observed its covenants hereunder the Landlord shall return the Deposit to the Tenant provided always that if the Tenant is in breach of any provisions of this Lease or has failed to remedy any such breach or damage the Landlord may deduct from the Deposit such sums as may be necessary including reasonably incurred attorney's fees (whether such are allowed on a taxation or otherwise) to remedy the said breach or make good the said damage. 2.3. To pay all charges for telephone, electricity, sewage, water, and other utilities actually consumed or charged to or used in the Demised Premises or such fair proportion thereof during the said term and in January of each year to pay to the Landlord an annual amount of CI$800.00 towards the maintenance of a dumpster for garbage disposal at the Demised Premises. 2.4. To keep the interior of the Demised Premises and the appurtenances thereof including floors, walls, ceilings, the insides of doors entering into corridors, the glass windows and all the fixtures and fittings and painting, papering and decoration in the Demised Premises well and sufficiently cleaned (in the case of windows at regular intervals) and in good and substantial repair and condition (including where relevant replacement thereof) and to permit the Landlord and 2 the Landlord's agents or contractors on its behalf to clean, paint or treat as the case may be the outside of all doors entering into corridors from the Demised Premises and the outside of all window frames and glass in the Demised Premises in such colour and in such manner and at such times as the Landlord may desire or direct with the right to enter the Demised Premises as may be necessary for such purposes. 2.5. Not to alter, injure, cut or maim any of the floors, walls, ceilings, windows, doors, wiring, pipes, appurtenances, fixtures or fittings including air conditioning and other equipment in, of or to the Demised Premises nor to make any alterations or additions to the interior or exterior appearance of the Demised Premises without the prior consent in writing of the Landlord nor permit any of the foregoing to be done. Such consent not to be unreasonably withheld by the Landlord. 2.6. To permit any agent or employee of the Landlord to enter the Demised Premises in the ordinary course of his duty and to permit the Landlord and the Landlord's agents surveyors and workmen to enter with all necessary appliances upon the Demised Premises at any reasonable time having given prior notice of such intention and in the case of fire or any other emergency without notice and/or for the purpose of examining the condition thereof or of doing such works and things as may be required for any repairs, alterations, additions, maintenance, cleaning, installations, improvements or renewals of or to the Demised Premises or any part of the Building or apparatus or equipment therein and also for the purpose of viewing the state and condition of the Demised Premises and before the expiration of one calendar month's notice given in writing by the Landlord to execute any repairs lawfully required to be done by the Tenant and in accordance with such notice and if the Tenant shall within such time fail to execute such work the Landlord may thereupon cause such work to be done and recover the cost thereof from the Tenant but without prejudice to the Landlord's right of re-entry hereinafter mentioned. 2.7. Subject to sub clause 2.25, to use the Demised Premises only as business offices for Consolidated Water Co. Ltd. 2.8. Not knowingly to do or permit or suffer to be done upon or within the Demised Premises anything which shall constitute or may be or become a nuisance or annoyance to or in any way interfere with the quiet and peaceful user of the other portions of the Building or any adjoining or neighbouring premises. 2.9. Not to use or permit the Demised Premises to be used for residential purposes or for overnight accommodation. 3 2.10. Not to obstruct or litter or deface in any manner the vestibules, lifts, entrances, stairways, corridors, passages and other common areas of the Building or the carpark and areas adjacent to the Building. 2.11. Not to do or suffer to be done knowingly anything whereby the policy or policies of insurance on the Demised Premises or on the Building against fire or any other risk may become void or voidable or whereby the premium thereon may be increased and to repay to the Landlord all sums paid by the Landlord by way of increased premiums and all expenses incurred by the Landlord in or about any renewal of such policy or policies and any other expenses or charges incurred by the Landlord or rendered necessary by reason of a breach or nonobservance of the provisions of this sub-clause. 2.12. Not to permit any open use of internal combustion fire to be burned or cooking to be done (excluding the heating of water for beverages or cooking appliances within a restaurant that is in good standing with all Cayman Islands Government departments) within the Demised Premises without the prior consent in writing of the Landlord. 2.13. Not without the prior consent of the Landlord to bring or allow to be brought on to the Demised Premises or any part of the Building any machines or machinery save equipment and furnishings as are requisite for the Tenant's business and to observe such regulations as the Landlord shall specify regarding load factors and stresses within the Building. 2.14. Not to paint, affix or exhibit any name or writing or any sign, placard or advertisement in the vestibules, entrances, stairways, corridors or passages of or upon or outside any wall, door, entrance, window, roof or exterior wall of the Building or any entrance door to the Demised Premises from the corridors giving access thereto without the consent in writing from the Landlord such consent not to be unreasonably refused PROVIDED however that all signs of any type whatsoever shall in each case conform with that reasonably approved by the Landlord and any requirements of the Central Planning Authority. 2.15. Not to charge, encumber, assign, sublet or part with possession of the Demised Premises or any part thereof without the previous consent in writing of the Landlord (which shall not be unreasonably withheld) PROVIDED that upon any breach by the Tenant of this sub-clause the Landlord may at any time re-enter upon the Demised Premises and if the Landlord shall do so the term hereby created shall terminate absolutely. 4 2.16. Not to bring or permit or suffer to be brought onto the Demised Premises any materials or objects of a type likely to cause a nuisance and to indemnify the Landlord against all actions, suits, claims or demands arising out of the presence on the Demised Premises of any materials or objects or out of their escape or leakage therefrom. 2.17. Not to bring or permit to be brought any vehicles, bicycles, animals or birds into the Building and not to use the Demised Premises or permit the same to be used for any illegal or immoral purpose or any purpose of a nature likely to injure the reputation of Trafalgar Place. 2.18. To observe and conform to all reasonable regulations and restrictions made by the Landlord or its agents or servants for the proper management of the Building and notified in writing by the Landlord or its agents or servants to the Tenant from time to time. 2.19. To indemnify and hold harmless the Landlord against all damage, loss or injury to the Demised Premises or any other part of the Building or Trafalgar Place (including windows thereof) or to any person caused by any act, default or negligence of the Tenant, its servants, agents, licencees or invitees and to pay and make good to the Landlord all and every loss or damage whatsoever incurred or sustained by the Landlord as a consequence of every breach or non-observance of the Tenant's covenants herein contained and to indemnify and hold harmless the Landlord against all actions, claims, liabilities costs and expenses thereby rising. 2.20. To yield up the Demised Premises as the expiration or sooner determination of the term hereby created with fixtures and fittings thereto in good and tenantable repair and condition fair wear and tear excepted. 2.21. To pay the stamp duty attracted by this Lease from time to time and registration fees in relation thereto. 2.22. To pay a charge of CI$50.00 for each day that the rent payable by the Tenant under this Lease remains unpaid for 5 days or more, provided that the Landlord shall have notified the Tenant in writing by delivery of a notice of unpaid rent to the Demised Premises. The notice specified by this clause need not be a notice of default as defined by the Registered Land Law. 2.23. To obtain and keep in force at the sole expense of the Tenant a policy of insurance against public liability in respect of death, injury or other damage to persons when in or upon the Leased Premises with an insurance company and in an amount of not less than US$1,000,000.00 such policy naming the Landlord 5 as an additional insured party and including a ten day notice of cancellation or non-renewal to the Landlord and to pay all premiums necessary for the above purposes and to produce to the Landlord or its agent on request the policy and the receipts for payment of the premiums. 2.24. To keep at the Tenant's expense the air-conditioning equipment installed in and utilized for the Leased Premises in good running order and to pay the running and maintenance costs (including, but not limited to the cost of replacing and maintaining the air conditioning filters) in respect thereof. 2.25. To obtain and maintain all licenses and other approvals from the Cayman Islands Government or any other appropriate licensing authorities in the Cayman Islands as shall be necessary to conduct the business set out in sub clause 2.7. 3. The Landlord hereby covenants with the Tenant as follows: 3.1. Subject to the provisions of sub-clauses 2.1, 2.2, 2.3, 2.21 and 2.22 to pay all existing and future taxes, rates and out-goings payable in respect of the Demised Premises or of the Building. 3.2. To insure and at all times during the said term keep insured the Building (unless the insurance thereon shall be made void through or by reason of the act or default of the tenants or any of them) against loss or damage by fire, hurricane, earthquake, riot, strike and such other hazards and risks as the Landlord may desire. 3.3. Unless prevented by any cause beyond the control of the Landlord to clean and keep tidy the common areas of and adjacent to the Building and as and when necessary repair and re-paint the same and all windows affording light to the same and keep the same and the building in good and tenantable repair (and in the case of lavatories and washing conveniences supplied with running water) TOGETHER WITH the roofs, and exterior walls of the Building and the wiring, drains, downpipes and water pipes thereof. 3.4. That the Tenant paying the rent hereby reserved and performing and observing the covenants on the Tenant's part herein contained shall subject to the provisions of this Lease be entitled peaceably to hold and enjoy the Demised Premises without any interruption by the Landlord or any person rightfully claiming under it. 6 4. Provided always and it is hereby agreed as follows: 4.1. All fixtures, fittings, partitioning, installations, alterations and additions in the Demised Premises (except all such fixtures in the nature of trade fixtures or machinery as shall have been installed by the Tenant during the term hereof which subject to the proviso hereinafter as to repair of damage the Tenant shall be entitled to remove at the termination of the term hereby created) shall unless expressly otherwise agreed in writing by the Landlord, be and become the property of the Landlord (whether paid for by the Tenant or the Landlord) and shall not be removed by the Tenant PROVIDED always that the Landlord may at the termination of the term hereby created require if it so desires the Tenant to remove any of the foregoing (including trade fixtures or machinery) placed or affixed by the Tenant in the Demised Premises and to make good at the Tenant's expense any damage caused thereby. 4.2. If the Demised Premises or any part thereof is damaged or destroyed by fire, storm or tempest or other act of God or the Queen's enemies or any other cause whatsoever during the continuance of the term hereby created so as to render the Demised Premises unfit for occupation and use the Landlord will until such time as the Demised Premises shall be fit for occupation or use allow the Tenant total or just proportionate abatement of the rent reserved as the case may be according to the nature and extent of the damage sustained for so long as the Demised Premises shall be unfit for occupation and use PROVIDED always that the Tenant's right to abatement of the rent shall cease if the insurance monies shall be wholly or partially irrecoverable by reason solely or in part of any act or default of the Tenant. 4.3. If at any time during the term hereby created the Demised Premises shall be destroyed or damaged by fire, storm or tempest or other act of God or the Queen's enemies so as to become totally unfit for occupation and use or such damage shall in the opinion of the Landlord not be capable of repair within 180 days of its occurrence then and in such case the Landlord shall be under no liability to reinstate the Demised Premises and in such case either party shall have the right to terminate this demise by giving to the other fourteen days' notice in writing whereupon this demise and everything contained herein shall cease but without prejudice to the rights and remedies of either party in respect of any antecedent claim or breach of covenant. 4.4. If the rent hereby reserved or any part thereof shall at any time be unpaid for 14 days after becoming payable (whether formally demanded or not) or if any of the stipulations on the Tenant's part herein contained shall not be performed or 7 observed or if the Tenant shall go into liquidation whether voluntarily or otherwise or shall call a meeting of the Tenant's creditors or enter into any agreement with such creditors it shall be lawful for the Landlord at any time thereafter to re-enter the Demised Premises or any part thereof in the name of the whole and thereupon the term created hereby shall absolutely determine but without prejudice to the right of action of the Landlord in respect of any antecedent breach of the Tenant's obligations herein contained. 4.5. During the last three months of the term hereby created the Landlord shall have the right at reasonable times and upon giving the Tenant 24 hours notice to enter and show the Demised Premises to prospective tenants thereof. 4.6. Any notice under this Lease shall be in writing. Any notice to the Tenant shall be sufficiently served if addressed to the Tenant and delivered to the Demised Premises. Any notice to the Landlord shall be sufficiently served if addressed to the Landlord at its registered office. Any notice posted to the Landlord or the Tenant shall be deemed to have been served within two days following that on which it was posted. 4.7. Insofar as terms and provisions of this Lease are inconsistent with the terms and provisions of the Registered Land Law, (1995 Revision) the said Registered Land Law, (1995 Revision) shall be deemed to have been varied to that extent. 4.8. In this Lease where the context so admits:- 4.8.1. words importing the masculine gender shall include the feminine gender and VICE VERSA and words importing the singular number only shall include the plural number and VICE VERSA and words importing persons and all references to persons shall include corporations and firms; 4.8.2. if at any time two or more persons are included in the expression "the Tenant" then covenants entered into or implied therein by or on the part of the Tenant shall be deemed to be and shall be construed as covenants entered into by and binding on such persons jointly and severally. 4.9. The Lease shall be binding on and enure to the benefit of each party's respective successors and assigns. 5.0. The Tenant shall have the right to extend the term of this lease for 1 further Term of 1 year ending on January 31, 2005 provided that the rents payable by the Tenant to the Landlord 8 shall be as set forth in the Second Schedule. Any such exercise of this option by the Tenant shall be exercised by notice in writing delivered to the Landlord at least 3 months prior to the termination of the current period. THE FIRST SCHEDULE ALL THOSE premises comprising 2 separate units of 640 and 512 square feet in Trafalgar Place ("the Building") known as B5 on the second floor of Building B and C4 on the second floor of Building C situated on the West Bay Road, Grand Cayman, Cayman Islands and shown edged red on the plans annexed hereto and being part of parcel 79 of block 11B of the West Bay Beach North Registration Section TOGETHER WITH the use in common with the Landlord and other tenants of the Building (and their servants, agents, invitees, licencees or visitors) parking and other conveniences provided for the use of the tenants of the Building AND TOGETHER ALSO WITH the right for the Tenant to the free and uninterrupted use of all electric, telephone and other wires and cables upon, through or under adjacent premises in the Building so far as necessary in the enjoyment of the Demised Premises and in common with the Landlord and all others so authorised by the Landlord and all other persons entitled thereto EXCEPTING AND RESERVING to the Landlord and the tenants and occupiers of other parts of the Property and all such other persons entitled thereto the right of free passage and running of water, upon, through or under the Demised Premises and the free and uninterrupted use of all electric, telephone and other wires, pipes and cables upon, through or under the same. THE SECOND SCHEDULE MARCH 1ST 2003 TO JANUARY 31ST 2004 CI$2,048.49 P.M. PERIOD OF EXTENSION FEBRUARY 1ST 2004 TO JANUARY 31ST 2005 CI$25,565.00 P.A. Ref: Lease - Consolidated Water (B5 & C4) 2003 IN WITNESS WHEREOF the parties hereto have caused this Deed to be executed as their respective acts and deeds the day and year before written. THE COMMON SEAL OF ) COLMAR LTD. ) was hereunto affixed and ) acknowledged by ) ) /s/ Andrew Johnson ) ------------------------------ Andrew N. Johnson ) Alternate Director ) ) /s/ Christopher Whorms and ) ------------------------------ Christopher M. Whorms ) Assistant Secretary ) 9 in the presence of: ) ) /s/ illegible ) - ------------------------------ ) THE COMMON SEAL OF ) CONSOLIDATED WATER CO. LTD. ) was hereunto affixed by ) ) /s/ Frederick McTaggart Frederick McTaggart ) ------------------------------ ) Director and ) ) /s/ Peter Ribbins Peter Ribbins ) ------------------------------ ) Secretary in the presence of: ) ) /s/ Jeffrey Parker ) - ------------------------------ ) CERTIFICATE OF IDENTIFICATION COLMAR LTD. By: ANDREW N. JOHNSON - ALTERNATE DIRECTOR and by: CHRISTOPHER M. WHORMS - ASSISTANT SECRETARY I HEREBY CERTIFY that the above named persons appeared before me on the ....10th.. day of......March..... 2003 and being known to me acknowledged the above signature or mark to be theirs and that they had freely and voluntarily executed this instrument and understood its contents. /s/ illegible ---------------------------------------------- Signature and designation of person certifying 10 CERTIFICATE OF IDENTIFICATION CONSOLIDATED WATER CO. LTD. By: PETER RIBBINS --------------------------------------- and by: FREDERICK MCTAGGART ---------------------------------- I HEREBY CERTIFY that the above named persons appeared before me on the ....4th... day of...March.. 2003 and being known to me acknowledged the above signature or mark to be theirs and that they had freely and voluntarily executed this instrument and understood its contents. Jeffrey Parker ---------------------------------------------- Signature and designation of person certifying 11 EX-10.33 9 g88198exv10w33.txt LEASE OF PART DATED JULY 1, 2003 EXHIBIT 10.33 THIS LEASE is made the 1st day of July, 2003. BETWEEN: COLMAR LTD. of P. O. Box 31492 SMB Grand Cayman (hereinafter called "the Landlord") AND CONSOLIDATED WATER CO. LTD. P. O. Box 1114 GT Grand Cayman Cayman Islands (hereinafter called "the Tenant") WITNESSES AS FOLLOWS: 1. In consideration of the rent and Tenant's covenants hereinafter reserved and contained the Landlord HEREBY DEMISES unto the Tenant ALL THOSE premises described in the first schedule hereto (hereinafter called the "Demised Premises") and which form part of the buildings known as Trafalgar Place, West Bay Road, Grand Cayman, Cayman Islands (hereinafter called "the Building") TOGETHER WITH AND SUBJECT TO (but to the exclusion Nyi a of all other liberties, easements, rights and advantages) the particular rights and matters also contained in the Schedule hereto TO HOLD the same unto the Tenant for the period from February 1st 2005 ("the Commencement Date") to January 31st 2008 subject nevertheless to the provisos for sooner determination hereafter contained and paying therefor from the Commencement Date the annual rents set forth in the second schedule hereto payable in equal monthly installments in advance for the said period the first of which payments shall be due on February 1st 2005. 2. The Tenant HEREBY COVENANTS with the Landlord as follows: 2.1. To pay the said rent on the days and in the manner aforesaid and to pay to the Landlord a sum equal to a fair proportion as hereinafter defined of the amount of the aggregate annual sum payable (if any) to the Cayman Islands Government or to any other authority whether local, governmental and/or otherwise in respect of the Building for site value tax or for any other rates, taxes, assessments or outgoings (including without restricting the foregoing, sewage and water) whatsoever now or hereafter imposed or charged such additional payment to be made on the date for payment of rent next after receipt by the Landlord of a demand therefor. For the purpose of this sub-clause the amount of such fair proportion of the sum hereinbefore referred to shall be such proportion thereof as equals the proportion which the area of the Demised Premises as set forth in the First Schedule hereto ("the Floor Area") bears to 15,687 square feet being the total area of the Building PROVIDED THAT should different areas of the Building suffer land tax at different rates then the said proportion shall be adjusted ratably to reflect such difference. 2.2. To pay to the Landlord on exchange and delivery of this Lease a security deposit ("the Deposit") of CI$8,290.58 of which CI$7,115.16 has already been paid and CI$1,175.42 shall be due which deposit shall be held by the Landlord on the following terms and conditions: 2.2.1. No interest shall accrue to the Deposit. 2.2.2. The Landlord may deduct from the Deposit 7 days after notifying the Tenant of its intention to do so any unpaid rent; unremedied damage or unpaid late charges. 2.2.3. Upon the deduction of any sum pursuant to Clause 2.2.2 hereof the Tenant shall within 14 days of the Landlord deducting the said sum pay the Landlord such sum as is necessary to reinstate the Deposit to the monthly rent payable by the Tenant at the time the reinstatement is due. 2.2.4. Upon the expiry of this Lease and upon the Tenant having observed its covenants hereunder the Landlord shall return the Deposit to the Tenant provided always that if the Tenant is in breach of any provisions of this Lease or has failed to remedy any such breach or damage the Landlord may deduct from the Deposit such sums as may be necessary including reasonably incurred attorney's fees (whether such are allowed on a taxation or otherwise) to remedy the said breach or make good the said damage. 2.3. To pay all charges for telephone, electricity, sewage, water, and other utilities actually consumed or charged to or used in the Demised Premises or such fair proportion thereof during the said term and in January of each year to pay to the Landlord an annual prorated amount equal to the amount assessed by the Department of Environmental Health or other government department responsible for the assessment and collection of garbage fees towards the maintenance of a dumpster for garbage disposal at the Demised Premises. 2.4. To keep the interior of the Demised Premises and the appurtenances thereof including floors, walls, ceilings, the insides of doors entering into corridors, the glass windows and all the fixtures and fittings and painting, papering and decoration in the Demised Premises well and sufficiently cleaned (in the case of windows at regular intervals) and in good and substantial repair and condition (including where relevant replacement thereof) and to permit the Landlord and the Landlord's agents or contractors on its behalf to clean, paint or treat as the case may be the outside of all doors 2 entering into corridors from the Demised Premises and the outside of all window frames and glass in the Demised Premises in such colour and in such manner and at such times as the Landlord may desire or direct with the right to enter the Demised Premises as may be necessary for such purposes. 2.5. Not to alter, injure, cut or maim any of the floors, walls, ceilings, windows, doors, wiring, pipes, appurtenances, fixtures or fittings including air conditioning and other equipment in, of or to the Demised Premises nor to make any alterations or additions to the interior or exterior appearance of the Demised Premises without the prior consent in writing of the Landlord nor permit any of the foregoing to be done. Such consent not to be unreasonably withheld by the Landlord. 2.6. To permit any agent or employee of the Landlord to enter the Demised Premises in the ordinary course of his duty and to permit the Landlord and the Landlord's agents surveyors and workmen to enter with all necessary appliances upon the Demised Premises at any reasonable time having given prior notice of such intention and in the case of fire or any other emergency without notice and/or for the purpose of examining the condition thereof or of doing such works and things as may be required for any repairs, alterations, additions, maintenance, cleaning, installations, improvements or renewals of or to the Demised Premises or any part of the Building or apparatus or equipment therein and also for the purpose of viewing the state and condition of the Demised Premises and before the expiration of one calendar month's notice given in writing by the Landlord to execute any repairs lawfully required to be done by the Tenant and in accordance with such notice and if the Tenant shall within such time fail to execute such work the Landlord may thereupon cause such work to be done and recover the cost thereof from the Tenant but without prejudice to the Landlord's right of re-entry hereinafter mentioned. 2.7. Subject to sub clause 2.25, to use the Demised Premises only as business offices for Consolidated Water Co. Ltd. 2.8. Not knowingly to do or permit or suffer to be done upon or within the Demised Premises anything which shall constitute or may be or become a nuisance or annoyance to or in any way interfere with the quiet and peaceful user of the other portions of the Building or any adjoining or neighbouring premises. 2.9. Not to use or permit the Demised Premises to be used for residential purposes or for overnight accommodation. 3 2.10. Not to obstruct or litter or deface in any manner the vestibules, lifts, entrances, stairways, corridors, passages and other common areas of the Building or the carpark and areas adjacent to the Building. 2.11. Not to do or suffer to be done knowingly anything whereby the policy or policies of insurance on the Demised Premises or on the Building against fire or any other risk may become void or voidable or whereby the premium thereon may be increased and to repay to the Landlord all sums paid by the Landlord by way of increased premiums and all expenses incurred by the Landlord in or about any renewal of such policy or policies and any other expenses or charges incurred by the Landlord or rendered necessary by reason of a breach or nonobservance of the provisions of this sub-clause. 2.12. Not to permit any open use of internal combustion fire to be burned or cooking to be done (excluding the heating of water for beverages or cooking appliances within a restaurant that is in good standing with all Cayman Islands Government departments) within the Demised Premises without the prior consent in writing of the Landlord. 2.13. Not without the prior consent of the Landlord to bring or allow to be brought on to the Demised Premises or any part of the Building any machines or machinery save equipment and furnishings as are requisite for the Tenant's business and to observe such regulations as the Landlord shall specify regarding load factors and stresses within the Building. 2.14. Not to paint, affix or exhibit any name or writing or any sign, placard or advertisement in the vestibules, entrances, stairways, corridors or passages of or upon or outside any wall, door, entrance, window, roof or exterior wall of the Building or any entrance door to the Demised Premises from the corridors giving access thereto without the consent in writing from the Landlord such consent not to be unreasonably refused PROVIDED however that all signs of any type whatsoever shall in each case conform with that reasonably approved by the Landlord and any requirements of the Central Planning Authority. 2.15. Not to charge, encumber, assign, sublet or part with possession of the Demised Premises or any part thereof without the previous consent in writing of the Landlord (which shall not be unreasonably withheld) PROVIDED that upon any breach by the Tenant of this sub-clause the Landlord may at any time re-enter upon the Demised Premises and if the Landlord shall do so the term hereby created shall terminate absolutely. 2.16. Not to bring or permit or suffer to be brought onto the Demised Premises any materials or objects of a type likely to 4 cause a nuisance and to indemnify the Landlord against all actions, suits, claims or demands arising out of the presence on the Demised Premises of any materials or objects or out of their escape or leakage therefrom. 2.17. Not to bring or permit to be brought any vehicles, bicycles, animals or birds into the Building and not to use the Demised Premises or permit the same to be used for any illegal or immoral purpose or any purpose of a nature likely to injure the reputation of Trafalgar Place. 2.18. To observe and conform to all reasonable regulations and restrictions made by the Landlord or its agents or servants for the proper management of the Building and notified in writing by the Landlord or its agents or servants to the Tenant from time to time. 2.19. To indemnify and hold harmless the Landlord against all damage, loss or injury to the Demised Premises or any other part of the Building or Trafalgar Place (including windows thereof) or to any person caused by any act, default or negligence of the Tenant, its servants, agents, licencees or invitees and to pay and make good to the Landlord all and every loss or damage whatsoever incurred or sustained by the Landlord as a consequence of every breach or non-observance of the Tenant's covenants herein contained and to indemnify and hold harmless the Landlord against all actions, claims, liabilities costs and expenses thereby rising. 2.20. To yield up the Demised Premises as the expiration or sooner determination of the term hereby created with fixtures and fittings thereto in good and tenantable repair and condition fair wear and tear excepted. 2.21. To pay the stamp duty attracted by this Lease from time to time and registration fees in relation thereto. 2.22. To pay a charge of CI$50.00 for each day that the rent payable by the Tenant under this Lease remains unpaid for 5 days or more, provided that the Landlord shall have notified the Tenant in writing by delivery of a notice of unpaid rent to the Demised Premises. The notice specified by this clause need not be a notice of default as defined by the Registered Land Law. 2.23. To obtain and keep in force at the sole expense of the Tenant a policy of insurance against public liability in respect of death, injury or other damage to persons when in or upon the Leased Premises with an insurance company and in an amount of not less than US$1,000,000.00 such policy naming the Landlord as an additional insured party and including a ten day notice 5 of cancellation or non-renewal to the Landlord and to pay all premiums necessary for the above purposes and to produce to the Landlord or its agent on request the policy and the receipts for payment of the premiums. 2.24. To keep at the Tenant's expense the air-conditioning equipment installed in and utilized for the Leased Premises in good running order and to pay the running and maintenance costs (including, but not limited to the cost of replacing and maintaining the air conditioning filters) in respect thereof. 2.25. To obtain and maintain all licenses and other approvals from the Cayman Islands Government or any other appropriate licensing authorities in the Cayman Islands as shall be necessary to conduct the business set out in sub clause 2.7. 3. The Landlord hereby covenants with the Tenant as follows: 3.1. Subject to the provisions of sub-clauses 2.1, 2.2, 2.3, 2.21 and 2.22 to pay all existing and future taxes, rates and out-goings payable in respect of the Demised Premises or of the Building. 3.2. To insure and at all times during the said term keep insured the Building (unless the insurance thereon shall be made void through or by reason of the act or default of the tenants or any of them) against loss or damage by fire, hurricane, earthquake, riot, strike and such other hazards and risks as the Landlord may desire. 3.3. Unless prevented by any cause beyond the control of the Landlord to clean and keep tidy the common areas of and adjacent to the Building and as and when necessary repair and re-paint the same and all windows affording light to the same and keep the same and the building in good and tenantable repair (and in the case of lavatories and washing conveniences supplied with running water) TOGETHER WITH the roofs, and exterior walls of the Building and the wiring, drains, downpipes and water pipes thereof. 3.4. That the Tenant paying the rent hereby reserved and performing and observing the covenants on the Tenant's part herein contained shall subject to the provisions of this Lease be entitled peaceably to hold and enjoy the Demised Premises without any interruption by the Landlord or any person rightfully claiming under it. 4. Provided always and it is hereby agreed as follows: 4.1. All fixtures, fittings, partitioning, installations, alterations and additions in the Demised Premises (except all such fixtures in the nature of trade fixtures or machinery as 6 shall have been installed by the Tenant during the term hereof which subject to the proviso hereinafter as to repair of damage the Tenant shall be entitled to remove at the termination of the term hereby created) shall unless expressly otherwise agreed in writing by the Landlord, be and become the property of the Landlord (whether paid for by the Tenant or the Landlord) and shall not be removed by the Tenant PROVIDED always that the Landlord may at the termination of the term hereby created require if it so desires the Tenant to remove any of the foregoing (including trade fixtures or machinery) placed or affixed by the Tenant in the Demised Premises and to make good at the Tenant's expense any damage caused thereby. 4.2. If the Demised Premises or any part thereof is damaged or destroyed by fire, storm or tempest or other act of God or the Queen's enemies or any other cause whatsoever during the continuance of the term hereby created so as to render the Demised Premises unfit for occupation and use the Landlord will until such time as the Demised Premises shall be fit for occupation or use allow the Tenant total or just proportionate abatement of the rent reserved as the case may be according to the nature and extent of the damage sustained for so long as the Demised Premises shall be unfit for occupation and use PROVIDED always that the Tenant's right to abatement of the rent shall cease if the insurance monies shall be wholly or partially irrecoverable by reason solely or in part of any act or default of the Tenant. 4.3. If at any time during the term hereby created the Demised Premises shall be destroyed or damaged by fire, storm or tempest or other act of God or the Queen's enemies so as to become totally unfit for occupation and use or such damage shall in the opinion of the Landlord not be capable of repair within 180 days of its occurrence then and in such case the Landlord shall be under no liability to reinstate the Demised Premises and in such case either party shall have the right to terminate this demise by giving to the other fourteen days' notice in writing whereupon this demise and everything contained herein shall cease but without prejudice to the rights and remedies of either party in respect of any antecedent claim or breach of covenant. 4.4. If the rent hereby reserved or any part thereof shall at any time be unpaid for 14 days after becoming payable (whether formally demanded or not) or if any of the stipulations on the Tenant's part herein contained shall not be performed or observed or if the Tenant shall go into liquidation whether voluntarily or otherwise or shall call a meeting of the Tenant's creditors or enter into any agreement with such creditors it shall be lawful for the Landlord at any time thereafter to re-enter the Demised Premises or any part 7 thereof in the name of the whole and thereupon the term created hereby shall absolutely determine but without prejudice to the right of action of the Landlord in respect of any antecedent breach of the Tenant's obligations herein contained. 4.5. During the last three months of the term hereby created the Landlord shall have the right at reasonable times and upon giving the Tenant 24 hours notice to enter and show the Demised Premises to prospective tenants thereof. 4.6. Any notice under this Lease shall be in writing. Any notice to the Tenant shall be sufficiently served if addressed to the Tenant and delivered to the Demised Premises. Any notice to the Landlord shall be sufficiently served if addressed to the Landlord at its registered office. Any notice posted to the Landlord or the Tenant shall be deemed to have been served within two days following that on which it was posted. 4.7. Insofar as terms and provisions of this Lease are inconsistent with the terms and provisions of the Registered Land Law, (1995 Revision) the said Registered Land Law, (1995 Revision) shall be deemed to have been varied to that extent. 4.8. In this Lease where the context so admits:- 4.8.1. words importing the masculine gender shall include the feminine gender and VICE VERSA and words importing the singular number only shall include the plural number and VICE VERSA and words importing persons and all references to persons shall include corporations and firms; 4.8.2. if at any time two or more persons are included in the expression "the Tenant" then covenants entered into or implied therein by or on the part of the Tenant shall be deemed to be and shall be construed as covenants entered into by and binding on such persons jointly and severally. 4.9. The Lease shall be binding on and enure to the benefit of each party's respective successors and assigns. 5.0. The Tenant shall have the right to extend the term of this lease for 1 further Term of 2 years ending on January 31, 2010 provided that the rents payable by the Tenant to the Landlord shall be as set forth in the Second Schedule. Any such exercise of this option by the Tenant shall be exercised by notice in writing delivered to the Landlord at least 3 months prior to the termination of the current period. 8 THE FIRST SCHEDULE ALL THOSE premises comprising 6 separate units of 640 square feet and 1 separate unit of 512 square feet in Trafalgar Place ("the Building") known as B1 and B2 on the ground floor of Building B, B5 through B8 on the second floor of Building B and C4 on the second floor of Building C situated on the West Bay Road, Grand Cayman, Cayman Islands and shown edged red on the plans annexed hereto and being part of parcel 79 of block 11B of the West Bay Beach North Registration Section TOGETHER WITH the use in common with the Landlord and other tenants of the Building (and their servants, agents, invitees, licencees or visitors) parking and other conveniences provided for the use of the tenants of the Building AND TOGETHER ALSO WITH the right for the Tenant to the free and uninterrupted use of all electric, telephone and other wires and cables upon, through or under adjacent premises in the Building so far as necessary in the enjoyment of the Demised Premises and in common with the Landlord and all others so authorised by the Landlord and all other persons entitled thereto EXCEPTING AND RESERVING to the Landlord and the tenants and occupiers of other parts of the Property and all such other persons entitled thereto the right of free passage and running of water, upon, through or under the Demised Premises and the free and uninterrupted use of all electric, telephone and other wires, pipes and cables upon, through or under the same. THE SECOND SCHEDULE FEBRUARY 1ST 2005 TO JANUARY 31ST 2006 CI$99,487.00 P.A. FEBRUARY 1ST 2006 TO JANUARY 31ST 2007 CI$99,487.00 P.A. FEBRUARY 1ST 2007 TO JANUARY 31ST 2008 CI$99,487.00 P.A. PERIOD OF EXTENSION FEBRUARY 1ST 2008 TO JANUARY 31ST 2009 CI$102,471.00 P.A. FEBRUARY 1ST 2009 TO JANUARY 31ST 2010 CI$105,545.00 P.A. Ref: Lease - Consolidated Water 2005 IN WITNESS WHEREOF the parties hereto have caused this Deed to be executed as their respective acts and deeds the day and year before written. 9 THE COMMON SEAL OF ) COLMAR LTD. ) was hereunto affixed and ) acknowledged by ) ) /s/ Andrew Johnson ) -------------------------- Andrew N. Johnson ) Alternate Director ) ) /s/ Christopher Whorms and ) -------------------------- Christopher M. Whorms ) Assistant Secretary ) in the presence of: ) /s/ illegible ) - ---------------------------------- ) THE COMMON SEAL OF ) CONSOLIDATED WATER CO. LTD. ) was hereunto affixed by ) ) /s/ Frederick McTaggart Frederick McTaggart ) -------------------------- ) Director and ) ) /s/ Brent Santha Brent Santha ) -------------------------- ) Secretary in the presence of: ) /s/ Stephen Jacoby ) - ---------------------------------- ) Stephen Jacoby 10 CERTIFICATE OF IDENTIFICATION COLMAR LTD. By: ANDREW N. JOHNSON - ALTERNATE DIRECTOR and by: CHRISTOPHER M. WHORMS - ASSISTANT SECRETARY I HEREBY CERTIFY that the above named persons appeared before me on the ....29th.. day of......August.. 2003 and being known to me acknowledged the above signature or mark to be theirs and that they had freely and voluntarily executed this instrument and understood its contents. /s/ illegible ---------------------------------------------- Signature and designation of person certifying CERTIFICATE OF IDENTIFICATION CONSOLIDATED WATER CO. LTD. By: FREDERICK MCTAGGART - DIRECTOR -------------------------------------- and by: BRENT SANTHA - SECRETARY ------------------------------------ I HEREBY CERTIFY that the above named persons appeared before me on the ...19th. day of...August.. 2003 and being known to me acknowledged the above signature or mark to be theirs and that they had freely and voluntarily executed this instrument and understood its contents. Jeffrey Parker ---------------------------------------------- Signature and designation of person certifying 11 EX-10.36 10 g88198exv10w36.txt AMENDED LEASE Exhibit 10.36 BELIZE CERTIFICATE OF LEASE THE REGISTERED LAND ACT, 1980 CHAPTER 194, REVISED EDITION LAWS OF BELIZE LEASE / SUB-LEASE REGISTERED SECTION BLOCK PARCEL San Pedro 7 1870/1 - --------- ------- ------ Area: 1.186 Acres LESSOR Government of Belize RENT $1.00 p.a. TERM 33 years 27/4/93 THIS IS TO CERTIFY THAT BELIZE WATER LTD. of #37 Regent Street, Belize City, Belize District Is now registered as the proprietor of the leasehold interest above referred to, subject to the agreements and other matters contained in the registered lease, to the entries in the register relating to the lease and to such of the overriding interests set forth in section 31 of the Registered Land Ord. 1977 as may for the time being subsist and affect the land comprised in the lease. At the date thereof the following entries appear in the register relating to the lease: PART A- Property Section (EASEMENTS, ETC.) PART B- Proprietorship Section (INHIBITIONS, CAUTIONS AND RESTRICTIONS) - ----------------------------------------------------------------------- Not to transfer the land, lease or charge without written consent of Lessor. Hereinafter subject to the lease conditions attached. PART C- Incumbrances Section (LEASES, CHARGES,ETC.) GIVEN UNDER MY HAND AND THE SEAL OF THE LAND REGISTRY THIS 2nd DAY OF January, 2004 /s/ E. WELCH ------------------------------------- REGISTRAR OF LANDS EX-10.43 11 g88198exv10w43.txt AMENDMENT TO DISTRIBUTION AGREEMENT Exhibit 10.43 DATED FEBRUARY 26, 2004 DWEER TECHNOLOGY LTD. -AND- DESALCO LIMITED --------------------------------------------------- Amendment to the Distributorship Agreement dated 24 September 2002 between DWEER Technology Ltd. and DesalCo Limited relating to DWEER Products --------------------------------------------------- [Campbells Logo] 4th Floor, Scotiabank Building P.O. Box 884GT Grand Cayman Cayman Islands THIS AGREEMENT is made on February 26, 2004 BETWEEN: (1) DWEER TECHNOLOGY LTD., a Cayman Islands exempted company, the registered office of which is c/o Campbell Corporate Services Limited, 4th Floor, Scotiabank Building, P.O. Box 268GT, Grand Cayman, Cayman Islands (hereinafter "DWEER-Tech"); and (2) DESALCO LIMITED, a Cayman Islands company duly incorporated in the Cayman Islands, the registered office of which is Trafalgar Place, 1428A West Bay Road, Grand Cayman, Cayman Islands (hereinafter "DESALCO"). WHEREAS: (A) Pursuant to and upon the terms of a Distributorship Agreement dated 24 September 2002 between DWEER-Tech and DesalCo (the "DWEER-Tech Distributorship Agreement"), DWEER-Tech appointed DesalCo as its exclusive distributor for Products in the Territory (both terms as defined in the DWEER-Tech Distributorship Agreement) and gave DesalCo the exclusive right to sell and distribute the Products in the Territory. (B) Pursuant to and upon the terms of a Technology Licence relating to the manufacturing, marketing and sale of DWEER and LinX products, work exchangers and related products dated 30 April 2003 ("the Technology Licence") between DWEER-Tech and Calder AG, a Swiss company, the registered office of which is Binzenholzstrasse 447, Industrie Nord, Ch-5704 Egliswil, Switzerland (hereinafter "Calder") DWEER-Tech granted Calder the exclusive right to, inter alia, design, manufacture and sell, inter alia, the Products worldwide, excluding the rights granted to DesalCo under the DWEER-Tech Distributorship Agreement which were reserved to DWEER-Tech. (C) By virtue of the fact that Calder has the exclusive right to manufacture the Products worldwide pursuant to the Technology Licence and will, during the term of the Technology Licence, be manufacturing and supplying Products on a worldwide basis, the parties hereto wish to suspend the DWEER-Tech Distributorship Agreement in order to allow Calder and DesalCo to enter into a new distribution agreement in the form of that attached at the Schedule hereto ("the Calder Distributorship Agreement"), in order to enable DesalCo to deal directly with Calder with respect to the 1 distribution of Products in the Territory so long as the Technology Licence is in effect. (D) Concurrent with the execution of this Agreement, the Technology Licence has been amended to remove the exclusion of rights mentioned in recital B above and so as to permit and enable Calder and DesalCo to enter into the Calder Distributorship Agreement. (E) Pursuant to this Agreement, the DWEER-Tech Distributorship Agreement is to be suspended for so long as the Technology Licence is in effect, on the basis that, inter alia, all clauses thereof that are intended to survive termination (e.g. 6.5 - Confidentiality) remain in effect, that DWEER-Tech undertakes to inform DesalCo of termination of the Technology Licence, and that the suspension is to be lifted immediately upon termination of the Technology Licence. NOW IT IS HEREBY AGREED as follows:- 1. INTERPRETATION 1.1 In this Agreement, save where otherwise provided or where the context otherwise requires or admits, capitalised terms and expressions defined in the DWEER-Tech Distributorship Agreement shall have the same meaning herein. 1.2 In this Agreement, save where otherwise provided or where the context otherwise requires or admits: (a) references to any law or provision of law shall include a reference to any law or provision of any law which amends or replaces, or has amended or replaced, it; (b) references to this Agreement or any other agreement or document shall be construed as a reference to this Agreement as the same may from time to time be amended, varied or supplemented; (c) a "clause" or "schedule" is a reference to a clause hereof or schedule hereto; (d) a "sub-clause" is a reference to a sub-clause of the clause in which the reference appears; 2 (e) any word, term or expression (including defined terms and expressions) that imports any gender shall include all genders and words and terms (including defined terms and expressions) importing the singular shall include the plural and vice versa. 1.3 In this Agreement the headings are inserted for convenience only and shall not affect the construction hereof. 2. DWEER-TECH DISTRIBUTORSHIP AGREEMENT 2.1 The DWEER-Tech Distributorship Agreement is hereby suspended for so long as the Technology Licence remains in full force and effect. In the event that the Technology Licence is terminated, the DWEER-Tech Distributorship Agreement shall revive. 2.2 During the period that the DWEER-Tech Distributorship Agreement is suspended:- 2.2.1 Neither party shall exercise any rights or perform any obligations it has under the DWEER-Tech Distributorship Agreement excepting only such rights and obligations that have accrued or arisen prior to the date of this Agreement; and 2.2.2 Notwithstanding the foregoing, the provisions of clauses 6 and 10 of the DWEER-Tech Distributorship Agreement shall continue to apply. 2.3 In the event that the DWEER-Tech Distributorship Agreement revives: 2.3.1 The DWEER-Tech Distributorship Agreement shall thereafter apply and continue in force and effect as if this Agreement had not been entered into and executed by the parties hereto; and 2.3.2 Any rights, remedies or obligations of Calder which are expressed or intended to continue after termination of the Calder Distributorship Agreement that are intended to protect the intellectual property rights and interests of DWEER-Tech (including without limitation the provisions of clause 6 thereof) shall be enforceable by DWEER-Tech instead of Calder. 3 2.4 In the event that the Technology Licence is terminated DWEER-Tech shall give DesalCo notice in writing thereof within 14 days of such termination. 2.5 DWEER-Tech hereby advises DesalCo that the Technology Licence includes a provision that Calder may not amend, waive or vary any of the provisions of the Calder Distributorship Agreement without DWEER-Tech's prior written permission (which may be given or withheld at its exclusive discretion). Any amendment to the Calder Distributorship Agreement shall not in any way be deemed to vary the DWEER Distributorship Agreement. 2.6 DesalCo shall use its best endeavours to enable DWEER-Tech to conduct testing and experimentation of Products on plants owned or operated by DesalCo or its Affiliates at which Products are installed provided that DWEER-Tech shall indemnify and save harmless DesalCo from any costs, expenses, loss or damage, of whatever type and howsoever caused arising from or relating to such tests or experiments. 3. TERMINATION The DWEER-Tech Distributorship Agreement shall terminate forthwith upon termination of the Calder Distributorship Agreement unless the latter is caused by the termination of the Technology Agreement, but, for the avoidance of doubt, such termination shall be without prejudice to any rights, remedies or obligations that have accrued or arisen under or pursuant to the DWEER-Tech Distributorship Agreement prior to termination thereof and any rights, remedies or obligations which are expressed or intended to continue after termination thereof. For the avoidance of doubt and notwithstanding the foregoing, in the event that the Technology Licence is terminated (following which the Calder Distributorship Agreement is terminated pursuant to clause 9.4 thereof), the DWEER-Tech Distributorship Agreement shall revive in accordance with Clause 2.1 of this Agreement. 4. MISCELLANEOUS PROVISIONS 4.1 Nothing in this Agreement shall create or be deemed to create a partnership or relationship of principal and agent or employer and employee between the parties. 4.2 This Agreement together with the DWEER-Tech Distributorship Agreement contains the entire agreement between the parties with respect to the subject 4 matter hereof, supersede all previous agreements and understandings between the parties with respect hereto, and may not be modified except by an instrument in writing signed by the duly authorised representatives of the parties. 4.3 Each party acknowledges that in entering into this Agreement it does not do so on the basis of, and does not rely on, any representation, warranty or other provision except as expressly provided herein, and all conditions, warranties, or other terms implied by statute or common law are hereby excluded to the fullest extent permitted by law. 4.4 If any provision of this Agreement or any agreement entered into pursuant hereto is or becomes illegal, invalid or unenforceable in any jurisdiction, that shall not affect:- (a) the validity or enforceability in that jurisdiction of any other provision of this Agreement or such other agreement; or (b) the validity or enforceability in other jurisdictions of that or any other provision of this Agreement or such other agreement. 5. JURISDICTION This Agreement shall be governed by and construed in all respects in accordance with the laws of the Cayman Islands and each party hereby submits to the non-exclusive jurisdiction of the Cayman Islands Courts. 6. NOTICES All notices or other communications required or permitted to be given hereunder shall be in writing and shall be served by delivering the same by hand or by sending the same by facsimile or reputable courier service and shall be deemed given, if sent by hand, when delivered, if sent by facsimile, upon the date stated in the transmission report or, if sent by courier service, on delivery by the relevant courier service, in each case, to the address set out below or such other address as is notified by the relevant person from time to time, provided that a notice given in accordance with the above but received on a non-working day or after business hours in the place of receipt shall only be deemed to be given on the next working day in that place: 5 6.1 if to DWEER-Tech: 48 Par-la-Ville Road, Suite 1231 Hamilton HM 11, Bermuda Attention: Managing Director Facsimile No:+1 (441) 292-2024 6.2 if to DesalCo: Trafalgar Place 1428A West Bay Road Grand Cayman, Cayman Islands Attention: President Facsimile No:+1 (345) 949-2957 AS WITNESS whereof the parties have hereto set their hands the day and year first before written. 6 THE SCHEDULE The Calder Distributorship Agreement 7 SIGNED FOR AND ON BEHALF OF ) DESALCO LIMITED by ) Frederick W. McTaggart, Director ) /s/ Frederick McTaggart in the presence of: ) --------------------------------- Frederick W. McTaggart, Director Witness: /s/ ERNST KUNDIG ----------------------------- Witness name: Ernst Kundig Address: CH-J704 Egliswil, Switzerland Occupation: Managing Director SIGNED FOR AND ON BEHALF OF ) DWEER TECHNOLOGY LTD. by ) William T. Andrews, Director ) /s/ William Andrews in the presence of: ) --------------------------------- William T. Andrews, Director Witness: /s/ ERNST KUNDIG ----------------------------- Witness name: Ernst Kundig Address: CH-5704 Egliswil, Switzerland Occupation: Managing Director 8 EX-10.44 12 g88198exv10w44.txt DISTRIBUTION AGREEMENT Exhibit 10.44 DATED FEBRUARY 26, 2004 CALDER AG -AND- DESALCO LIMITED --------------------------------------- Distributorship Agreement relating to DWEER Products --------------------------------------- [Campbells Logo] 4th Floor, Scotiabank Building P.O. Box 884GT Grand Cayman Cayman Islands THIS DISTRIBUTORSHIP AGREEMENT is made on February 26, 2004 BETWEEN: (1) CALDER AG, a Swiss company, the registered office of which is Binzenholzstrasse 447, Industrie Nord, Ch-5704 Egliswil, Switzerland (hereinafter "CALDER"); and (2) DESALCO LIMITED, a Cayman Islands company duly incorporated in the Cayman Islands, the registered office of which is Trafalgar Place, 1428A West Bay Road, Grand Cayman, Cayman Islands (hereinafter "DESALCO"). WHEREAS: (A) Pursuant to and upon the terms of a Distributorship Agreement dated 24 September 2002 between DWEER Technology Ltd., a Cayman Islands company ("DWEER-Tech") and DesalCo (the " Original Distributorship Agreement"), DWEER-Tech appointed DesalCo as its exclusive distributor for Products in the Territory (both terms as defined in this Agreement) and gave DesalCo the exclusive right to sell and distribute the Products in the Territory. (B) Pursuant to and upon the terms of a Technology Licence relating to the manufacturing, marketing and sale of DWEER and LinX products, work exchangers and related products dated 30 April 2003 between DWEER-Tech and Calder ("the Technology Licence") DWEER-Tech granted Calder the exclusive right to, inter alia, design, manufacture and sell, inter alia, the Products worldwide, excluding the rights granted to DesalCo under the Original Distributorship Agreement which were reserved to DWEER-Tech. (C) By virtue of the fact that Calder has the exclusive right to manufacture the Products worldwide pursuant to the Technology Licence and will, during the term of the Technology Licence, be manufacturing and supplying Products on a worldwide basis, DWEER-Tech and the parties hereto wish to suspend the Original Distributorship Agreement and enter into this Agreement, in order to enable DesalCo to deal directly with Calder with respect to the distribution of Products in the Territory so long as the Technology Licence is in effect. 1 (D) Concurrent with the execution of this Agreement, the Technology Licence has been amended to remove the exclusion of rights mentioned in recital B above and so as to permit and enable Calder and DesalCo to enter into this Agreement. (E) Concurrent with the execution of this Agreement, the Original Distributorship Agreement has been suspended for so long as the Technology Licence is in effect, on the basis that, inter alia, all clauses thereof that are intended to survive termination (e.g. 6.5 - Confidentiality) remain in effect, that DWEER-Tech undertakes to immediately inform DesalCo of termination of the Technology Licence, and that the suspension is to be lifted immediately upon termination of the Technology Licence. NOW IT IS HEREBY AGREED as follows:- 1. INTERPRETATION 1.1 In this Agreement, save where otherwise provided or where the context otherwise requires or admits, the following terms and expressions shall have the meaning set out below: "AFFILIATE" means at any time during the term of this Agreement or extension thereof with respect to a person, another person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such person; "DWEER INTELLECTUAL PROPERTY" any patent, copyright, registered or unregistered design, trade mark, or other industrial or intellectual property right subsisting worldwide in respect of the Products, and any applications for the same; "ORIGINAL DISTRIBUTORSHIP AGREEMENT" means the Original Distributorship Agreement as defined in the recitals hereto. "PERSON" includes an individual, partnership, firm, company, association, unincorporated association or organisation or 2 any entity or body of whatsoever nature including a governmental, quasi governmental, judicial or regulatory entity or any department, agency, or political subdivision thereof; "PRODUCTS" means the work-exchanger (also called pressure-exchanger) energy-recovery systems, components and sub-components thereof for use for water desalination using the reverse osmosis process manufactured and sold by Calder pursuant to the Technology Licence; "TECHNOLOGY means the Technology Licence as LICENCE" defined in the recitals hereto. "TERRITORY" means: (a) all countries, territories and protectorates in or bordering on the Gulf of Mexico and the Caribbean Sea excluding, except as provided for in sub-clause (c) hereof, the mainland of Mexico, Belize, Guatemala, Honduras, Nicaragua, Costa Rica, Panama, Colombia and Venezuela; and (b) the Bahamas, Barbados, and the Turks and Caicos Islands; and (c) the mainland territory within 30 miles of the Gulf of Mexico or Caribbean Sea coasts of Mexico, Belize, Guatemala, Honduras, Nicaragua, Costa Rica, Panama, Colombia and Venezuela save that the continental United States and associated United States coastal islands (e.g. Florida Keys, but not the U.S. Virgin Islands or Puerto Rico) are specifically excluded; "TRADE MARKS" the trademarks "DWEER" and "LinX" and all other names, symbols, trade and service marks (whether registered or unregistered) used by DWEER-Tech or Calder in 3 connection with or in relation to the Products from time to time. 1.2 In this Agreement, save where otherwise provided or where the context otherwise requires or admits: (a) references to any law or provision of law shall include a reference to any law or provision of any law which amends or replaces, or has amended or replaced, it; (b) references to this Agreement or any other agreement or document shall be construed as a reference to this Agreement as the same may from time to time be amended, varied or supplemented; (c) a "clause" or "schedule" is a reference to a clause hereof or schedule hereto; (d) a "sub-clause" is a reference to a sub-clause of the clause in which the reference appears; (e) any word, term or expression (including defined terms and expressions) that imports any gender shall include all genders and words and terms (including defined terms and expressions) importing the singular shall include the plural and vice versa. 1.3 In this Agreement the headings are inserted for convenience only and shall not affect the construction hereof. 2. DISTRIBUTION OF PRODUCTS IN THE TERRITORY 2.1 For the period set out in clause 9 below, Calder hereby grants DesalCo the exclusive right to distribute and sell the Products in the Territory, and DesalCo agrees to act in such capacity, subject to and upon the terms and conditions of this Agreement. For the avoidance of doubt, DesalCo may sell and/or deliver the Products purchased under this Agreement inside or outside of the Territory, provided that such Products are to be installed and used within the Territory. 2.2 For the period that DesalCo has the exclusive right to distribute and sell the Products in the Territory, Calder: 4 (a) shall not appoint any other person as a distributor or agent for the Products in the Territory; (b) shall not supply the Products to any person other than DesalCo or, at the request of DesalCo, Affiliates of DesalCo, who, to the knowledge of Calder, intends to use or install such Products in the Territory or intends to resell such Products to any person who intends to use or install such Products in the Territory without the prior written consent of DesalCo; and (c) shall obtain a written undertaking, from all persons to whom it sells the Products (other than DesalCo and Affiliates of DesalCo which it supplies at the request of DesalCo) that they (1) shall not use or install such Products within the Territory and (2) shall not resell such Products to any person who intends to use or install such Products inside the Territory. 2.3 DesalCo and its Affiliates shall during the term of this Agreement: (a) not obtain the Products from any person other than Calder for use or installation inside the Territory; (b) not obtain any goods which compete with the Products; (c) not be concerned or interested, either directly or indirectly, in the design, manufacture, distribution, marketing or sale of any goods which compete with the Products; (d) not sell the Products purchased from Calder under this Agreement to any person who, to the knowledge of DesalCo or its Affiliates, intends to use or install such Products in any country which is outside the Territory or intends to resell such Products to any person who intends to use or install such Products outside the Territory; and (e) obtain a written undertaking from all persons to whom it sells the Products purchased from Calder under this Agreement that they (1) shall not use or install such Products outside the Territory and (2) shall not resell such Products to any person who intends to use or install such Products outside the Territory. 5 2.4 For so long as this Agreement is in force: (a) in the event that DesalCo wishes to purchase any Products from Calder for use or installation outside the Territory, it shall place an order for such Products with Calder stating that such Products are intended for use or installation outside the Territory and stating where such Products are intended to be used, or installed; and (b) in the event that Calder agrees to supply such Products, DesalCo may purchase such Products for use or installation outside the Territory, free of any of the restrictions contained in this Agreement, and the provisions of this Agreement shall not apply to any Products so purchased by DesalCo or any Affiliate thereof Provided That, notwithstanding this, clause 6 of this Agreement shall apply to all information disclosed to DesalCo by DWEER-Tech or Calder or which relates to the Products and which comes into the knowledge, possession or control of DesalCo whether pursuant to or in connection with this Agreement or pursuant to or in connection with the Original Distributorship Agreement, and the provisions of clauses 5.4 5.5, 5.7 and 5.8 of this Agreement shall also apply outside the Territory. 2.5 Any energy-recovery devices (including pressure-exchangers or work-exchangers) for water desalination using the reverse osmosis process to be installed on reverse osmosis desalination units with a brine flowrate of less than 880 US gallons per minute (200 m3/hour) shall be deemed to be goods which do not compete with the Products. 2.6 DesalCo shall be entitled to describe itself as the "authorised exclusive distributor" for the Products in the Territory but it shall not hold itself out as DWEER-Tech's or Calder's agent for sales of the Products or as being entitled to bind DWEER-Tech or Calder in any way. 2.7 DesalCo shall not without the express written permission of Calder sell through a sales agent or to a sub-distributor any Products which it purchases from Calder under this Agreement. 2.8 Nothing in this Agreement shall entitle DesalCo to; (a) any priority of supply in relation to the Products as against Calder's other distributors or customers; 6 (b) any right or remedy against Calder if any Product supplied by Calder or its Affiliates is sold, installed, or used in the Territory by any person other than DesalCo or its Affiliates, provided that Calder can show that it has obtained the written undertaking required by sub-clause 2.2(c) above from the person to whom Calder supplied the Product and further provided that Calder shall, at the request and expense of DesalCo, take all such steps as DesalCo may reasonably require to assist DesalCo in preventing the installation, use or resale of such Products in the Territory. 2.9 Calder shall not have any right or remedy against DesalCo if any Product supplied by DesalCo or its Affiliates is sold, installed or used outside the Territory by any person other than DesalCo or its Affiliates, provided that DesalCo can show that it has obtained the written undertaking required by clause 2.3(e) above from the person to whom DesalCo supplied the Product and further provided that DesalCo shall, at the request and expense of Calder, take all such steps as Calder may reasonably require to assist Calder in preventing the installation, use or resale of such Products outside the Territory. 3. SUPPLY OF PRODUCTS 3.1 Calder shall use its reasonable endeavours to supply the Products to DesalCo in accordance with DesalCo's orders from time to time and to deliver the same in accordance with DesalCo's directions. 3.2 Calder shall not be under any obligation to continue the manufacture of all or any of the Products, and shall be entitled to make such alterations to the specifications of the Products as it may think fit from time to time and may, as it thinks fit from time to time, change, amend or replace any trademark used in relation to the Products (including, without limitation, the Trade Marks). 3.3 The prices for each order of Products to be supplied under this Agreement shall be at least as good as and shall not be more than the lowest price charged by Calder for comparable orders of Products by other persons. 3.4 Each order for Products by DesalCo shall be in writing and shall constitute a separate contract and payment for such Products shall be made by DesalCo without deduction or set-off. The standard terms and conditions of sale of Calder from time to time shall apply to all sales of the Products to DesalCo under this 7 Agreement except to the extent that any of the same is inconsistent with any of the provisions of this Agreement, in which case the latter shall prevail, and subject to any modifications thereto agreed to in writing between DesalCo and Calder. 3.5 Prior to acceptance of an order, DesalCo shall provide Calder with comprehensive accurate drawings and plans showing the manner in which Products will be incorporated into and installed in the relevant desalination plant. DesalCo shall give due regard to any observations or comments made by Calder in relation thereto provided that Calder shall not thereby incur any liability to DesalCo. Calder's observations and comments shall be limited to compatibility of the Products with the relevant desalination plant. Save as agreed in writing by Calder, Calder shall not be liable or responsible for the design, operation or functioning of any desalination plants. 4. MARKETING AND USE OF THE PRODUCTS 4.1 DesalCo shall use its best endeavours to promote the sale and use of the Products throughout the Territory and to satisfy market demand therefor. 4.2 DesalCo shall be entitled, subject to the terms of this Agreement, to promote and market the Products in the Territory in such manner as it may think fit, and in particular shall be entitled to resell the Products to its customers on such terms and at such prices as it may determine. 4.3 DesalCo shall maintain such stocks of parts for the Products as may be necessary to meet its customers' requirements. 4.4 In connection with the promotion, marketing and the sale of the Products, DesalCo shall: (a) make clear, in all dealings with its customers and prospective customers, that it is acting as distributor of the Products and not as agent of Calder or DWEER-Tech; (b) comply with all legal requirements from time to time in force relating to the storage and sale of the Products; (c) use only such advertising, promotional, and selling materials as are approved in writing by Calder; 8 (d) provide an after sale service for customers in relation to the Products on terms to be agreed from time to time between DesalCo and Calder; and (e) advise Calder of projected sales of Products as early as reasonably possible. 4.5 Calder shall, from time to time, provide DesalCo with such samples, catalogues, brochures, and up to date information concerning the Products as Calder may consider reasonably appropriate in connection with the sale of the Products in the Territory, and Calder shall endeavour to answer as soon as practicable any technical enquiries concerning the Products which are made by DesalCo or its customers. 4.6 DesalCo shall use its best endeavours to enable Calder to conduct testing and experimentation of Products on plants owned or operated by DesalCo or its Affiliates at which Products are installed provided that Calder shall indemnify and save harmless DesalCo from any costs, expenses, loss or damage, of whatever type and howsoever caused arising from or relating to such tests or experiments. 5. INTELLECTUAL PROPERTY 5.1 Calder hereby authorises DesalCo to use the Trade Marks in the Territory on or in relation to the Products for the purposes only of exercising its rights in performing its obligations under this Agreement and Calder shall not so authorise any other person, firm or company for such use provided that Calder and/or DWEER-Tech may prohibit by notice in writing to DesalCo any particular use of the Trade Marks which in the opinion of Calder damages the goodwill of Calder or DWEER-Tech in such Trade Marks. 5.2 DesalCo shall ensure that each reference to and use of any of the Trade Marks by DesalCo is in a manner, from time to time, approved by Calder and, if requested, accompanied by an acknowledgement, in a form approved by Calder, that the same is a trade mark (or registered trade mark as the case may be) of Calder or DWEER-Tech as the case may be. 5.3 DesalCo shall not: (a) make any unauthorised modifications to the Products; 9 (b) alter, remove, or tamper with any Trade Marks, numbers or other means of identification used on or in relation to the Products; (c) use any of the Trade Marks in any way that might prejudice their distinctiveness or validity; (d) use in relation to the Products any trade marks other than the Trade Marks without first obtaining the prior written consent of Calder; or (e) use in the Territory any trade marks or trade names so resembling any Trade Marks or the trade names of DWEER-Tech or Calder as to be likely to cause confusion or deception. 5.4 Except as provided in clause 5.1, DesalCo shall have no rights in relation to any of the Trade Marks or the goodwill associated therewith, and DesalCo hereby acknowledges that, except as expressly provided in this Agreement, it shall not acquire any rights in respect thereof and that all such rights and goodwill are, and shall remain, vested in DWEER-Tech or Calder, as the case may be, and that all rights and benefits arising from the use of the Trade Marks by DesalCo shall accrue to and be for the benefit of Calder or DWEER-Tech as the case may be. 5.5 DesalCo shall, at the request and expense of Calder, take all such reasonable steps as Calder may reasonably require to assist Calder in maintaining the validity and enforceability of any DWEER Intellectual Property during the term of this Agreement. 5.6 DesalCo shall, at the request and expense of Calder, execute such agreements or licences in respect of the use of the Trade Marks in the Territory as Calder may reasonably require, provided that the provisions thereof shall not be more onerous or restrictive than the provisions of this Agreement. 5.7 DesalCo shall not, during the term of this Agreement, challenge the validity of any DWEER Intellectual Property. 5.8 DesalCo shall not do or authorise any third party to do any act which would or might invalidate or be inconsistent with any DWEER Intellectual Property and shall not omit or authorise any third party to omit to do any act which, by its omission, would have that effect or character. 10 5.9 DesalCo shall promptly and fully notify Calder of any actual threatened or suspected infringement in the Territory of any DWEER Intellectual Property which comes to DesalCo's notice, and of any claim by any third party so coming to its notice that the importation of the Products into the Territory, or their sale therein, infringes any rights of any other person, and DesalCo shall at the request and expense of Calder do all such things as may be reasonably required to assist Calder or DWEER-Tech in taking or resisting any proceedings in relation to any such infringement or claim. 6. CONFIDENTIALITY 6.1 Except as provided by clauses 6.3 and 6.4 below, DesalCo and any Affiliate thereof shall at all times during the continuance of this Agreement and thereafter: (a) use its best endeavours to keep all Restricted Information (as defined below) confidential and accordingly shall not disclose any Restricted Information to any other person; and (b) not use any Restricted Information for any purpose other than the performance of its obligations under this Agreement or any other agreement for the sale of the Products. 6.2 "Restricted Information" means any information: (a) which is disclosed to DesalCo by Calder or DWEER-Tech pursuant to or in connection with this Agreement or the Original Distributorship Agreement or any other agreement for the sale of the Products; (whether orally or in writing); or (b) which relates to the Products and which comes into the knowledge, possession or control of DesalCo pursuant to this Agreement or the Original Distributorship Agreement or any other agreement for the sale of the Products; regardless of whether or not such information is expressly stated to be confidential or marked as such. 6.3 Notwithstanding clauses 6.1 and 6.2 above, any Restricted Information may be disclosed by DesalCo to: 11 (a) any customers or prospective customers; (b) any governmental or other authority or regulatory body; (c) any employees or Affiliates of DesalCo; to the extent only as is required for the purposes contemplated by this Agreement, or as is required by law and subject in each case to DesalCo using its best endeavours to ensure that the person in question keeps the same confidential and does not use the same except for the purposes for which the disclosure is made. 6.4 Any Restricted Information may be used by DesalCo or its Affiliates for any purpose, or disclosed by DesalCo to any other person, to the extent only that it is, at the date hereof, or hereafter, is or becomes public knowledge through no fault of DesalCo or its Affiliates (provided that in doing so DesalCo and its Affiliates shall not disclose any Restricted Information which is not public knowledge). 6.5 Any press releases, learned papers or similar publications made by Calder that make reference to DesalCo or its Affiliates or plants owned or operated by DesalCo or its Affiliates shall be approved in advance by DesalCo provided that such approval shall not be unreasonably withheld and shall be given in a sufficiently timely manner. 7. REPRESENTATIONS, WARRANTIES AND LIABILITY 7.1 Subject as herein provided Calder warrants to DesalCo that: (a) all the Products supplied hereunder shall be of satisfactory quality and shall comply with any legal or other specification, agreed for them; (b) it is not aware of any rights of any third party in the Territory which would or might render the sale of the Products, or the use of any of the Trade Marks on or in relation to the Products, unlawful. 7.2 In the event of any breach of Calder's warranty in clause 7.1 above (whether by reason of defective materials, production faults or otherwise) Calder's liability shall be limited to: (a) replacement of the Products in question; or 12 (b) at Calder's option, repayment of the purchase price therefor (where this has been paid). 7.3 Notwithstanding anything to the contrary in this Agreement, DWEER-Tech and/or Calder shall not be liable to DesalCo by reason of any representation or implied warranty, condition or other term or any duty at common law, or under the express terms of this Agreement, for any consequential loss or damage (whether for loss of profit or otherwise and whether occasioned by the negligence of DWEER-Tech and/or Calder or its employees or agents or otherwise) arising out of or in connection with any act or omission of DWEER-Tech and/or Calder relating to the manufacture or supply of the Products, their resale by DesalCo or their use by any customer. 7.4 Each party hereto represents and warrants to the other that: (a) It is a validly existing company in good standing under the laws of its jurisdiction of incorporation and is duly qualified as necessary to carry on its business in the jurisdictions in which such business is carried on; and (b) this Agreement has been duly authorised, executed and delivered by it and is a valid and legally binding obligation of it enforceable in accordance with its terms. 8. FORCE MAJEURE 8.1 If either party's performance of this Agreement is affected by Force Majeure (as defined below) it shall forthwith notify the other party of the nature and extent thereof. 8.2 Neither party shall be held to be in breach of this Agreement, or otherwise be liable to the other, by reason of any delay in its performance, or non performance, of any of its obligations under this Agreement to the extent that such delay or non performance is due to Force Majeure of which it is notified to the other party, and the time for performance of such obligations shall be extended accordingly. 8.3 If the Force Majeure in question prevails for a continuous period in excess of 180 days, the parties shall enter into bona fide negotiations with a view to alleviating its effects, or to agreeing such alternative arrangements as may be fair and 13 reasonable, and if no agreement is reached between the parties with respect thereto within 30 days, then either party may upon giving written notice to the other, terminate this Agreement without prejudice to any rights, remedies or obligations which have accrued prior to termination. 8.4 "Force Majeure" means, in relation to either party, any circumstances beyond the reasonable control of that party (including, without limitation, acts of god, war, strike, lock out, go slow, work to rule or other form of industrial action, fire, flood, civil disturbance, or government intervention or government failure to act). 9. DURATION AND TERMINATION 9.1 This Agreement shall come into force on the date of this Agreement and, subject as provided in clauses 9.2, 9.3, 9.4 and 9.5 below, shall continue in force until 31st October, 2009 whereupon it shall terminate unless previously renewed or extended by the mutual written agreement of the parties hereto. 9.2 Calder shall be entitled to terminate this Agreement if: (a) DesalCo fails to diligently promote the sale of and the use of the Products throughout the Territory provided that DesalCo does not have to offer to sell or sell the Products to competitors that are bidding in connection with the construction or expansion of desalination projects in the Territory in connection with which DesalCo or any of its Affiliates is also bidding (but DesalCo may do so at its sole and absolute discretion); or (b) DesalCo at any time challenges the validity of all of any of the DWEER Intellectual Property; provided that DesalCo fails to remedy the same within 30 days after receipt of written notice giving full particulars of the breach and requiring it to be remedied. 9.3 DesalCo may, at any time, terminate this Agreement upon one (1) month's prior written notice to Calder. 9.4 This Agreement shall automatically terminate upon termination of the Technology Licence. 14 9.5 Either party shall be entitled forthwith to terminate this Agreement by written notice to the other (provided that such termination shall not affect any orders accepted by and binding on Calder as provided in clause 3.4 above) if: (a) that other party commits any material breach of any of the provisions of this Agreement and, in the case of a breach capable of remedy, fails to remedy the same within 30 days after receipt of a written notice giving full particulars of the breach and requiring it to be remedied; (b) an encumbrancer takes possession or a receiver is appointed over any of the property or assets of that other party; (c) that other party makes any voluntary arrangement with its creditors or goes into winding up or liquidation (except for the purposes of amalgamation or reconstruction and in such manner that the company resulting therefrom effectively agrees to be bound by or assume the obligations imposed on that other party under this Agreement); (d) anything analogous to any of the foregoing under the law of any jurisdiction occurs in relation to that other party; or (e) that other party ceases, or threatens to cease, to carry on business. 9.6 For the purposes of clause 9.5 above, a breach shall be considered capable of remedy if the party in breach can comply with the provision in question in all respects other than as to the time of performance (provided that time of performance is not of the essence). 9.7 Any waiver by either party of a breach of any provision of this Agreement shall not be considered as a waiver of any subsequent breach of the same or any other provision thereof. 9.8 The rights to terminate this Agreement given by this clause 9 shall be without prejudice to any other right or remedy of either party in respect of the breach concerned (if any) or any other breach. 10. CONSEQUENCE OF TERMINATION OR EXPIRATION Upon termination of this Agreement for any reason: 15 10.1 the terms of this Agreement shall continue in full force for so long as is required and to the extent and insofar as is necessary to allow DesalCo to complete any binding contracts for the sale of the Products in effect at the date of termination and any bids, offers, quotations and/or proposals made by DesalCo to other persons prior to termination of this Agreement which have been accepted before termination of this Agreement or are capable of being accepted after termination of this Agreement provided that, for the avoidance of doubt and notwithstanding the foregoing, the provisions of clauses 2.1, 2.2 and 2.6 above shall cease to apply forthwith upon termination of this Agreement; 10.2 DesalCo shall cease to promote, market or advertise the Products or to make any use of the Trade Marks other than for the purpose of selling existing stock consisting of the Products and for such purpose only and to such extent the provisions of this Agreement shall continue in full force and effect; 10.3 the provisions of clause 6, and any other clauses which are intended to survive the termination of this Agreement, shall continue in force in accordance with their respective terms notwithstanding termination of this Agreement; 10.4 DesalCo shall have no claim against Calder for compensation for loss of distribution rights, loss of goodwill or any similar loss; 10.5 subject to as otherwise provided herein and to any rights, remedies or obligations which have accrued prior to termination, neither party shall have any further obligation to the other under this Agreement. 11. MISCELLANEOUS PROVISIONS 11.1 Calder shall be entitled to perform any of the obligations undertaken by it and to exercise any of the rights granted to it under this Agreement through any Affiliate and any act or omission of any such Affiliate shall for the purposes of this Agreement be deemed to be the act or omission of Calder. 11.2 DesalCo may assign this Agreement to any Affiliate, but otherwise DesalCo may not without the prior written consent of Calder assign, mortgage, charge (otherwise than by floating charge) or dispose of any of its rights hereunder, or subcontract or otherwise delegate any of its obligations hereunder. 16 11.3 Nothing in this Agreement shall create or be deemed to create a partnership or relationship of principal and agent or employer and employee between the parties. 11.4 This Agreement contains the entire agreement between the parties with respect to the subject matter hereof, supersedes all previous agreements and understandings between the parties with respect hereto, and may not be modified except by an instrument in writing signed by the duly authorised representatives of the parties. 11.5 Each party acknowledges that in entering into this Agreement it does not do so on the basis of, and does not rely on, any representation, warranty or other provision except as expressly provided herein, and all conditions, warranties, or other terms implied by statute or common law are hereby excluded to the fullest extent permitted by law. 11.6 If any provision of this Agreement or any agreement entered into pursuant hereto is or becomes illegal, invalid or unenforceable in any jurisdiction, that shall not affect:- (a) the validity or enforceability in that jurisdiction of any other provision of this Agreement or such other agreement; or (b) the validity or enforceability in other jurisdictions of that or any other provision of this Agreement or such other agreement. 12. JURISDICTION This Agreement shall be governed by and construed in all respects in accordance with the laws of the Cayman Islands and each party hereby submits to the non-exclusive jurisdiction of the Cayman Islands Courts. 13. NOTICES All notices or other communications required or permitted to be given hereunder shall be in writing and shall be served by delivering the same by hand or by sending the same by facsimile or reputable courier service and shall be deemed given, if sent by hand, when delivered, if sent by facsimile, upon the date stated in the transmission report or, if sent by courier service, on delivery by the relevant courier service, in each case, to the address set out below or such other address as is notified by the relevant person from time to time, provided that a notice given in accordance with the above but received on a non-working 17 day or after business hours in the place of receipt shall only be deemed to be given on the next working day in that place: 13.1 if to Calder: Binzenholzstrasse 447, Industrie Nord CH-5704 Egliswil Switzerland Attention: President Facsimile No:+(41) 62 769 60 70 13.2 if to DesalCo: Trafalgar Place 1428A West Bay Road Grand Cayman, Cayman Islands Attention: President Facsimile No:+1 (345) 949-2957 18 AS WITNESS whereof the parties have hereto set their hands the day and year first before written. SIGNED FOR AND ON BEHALF OF ) DESALCO LIMITED by ) Frederick W. McTaggart, Director ) /s/ Frederick McTaggart in the presence of: ) ------------------------------------ Frederick W. McTaggart, Director /s/ William Andrews - ------------------------------------ Witness Witness name: William Andrews Address: Bermuda Occupation: Managing Director SIGNED FOR AND ON BEHALF OF ) CALDER AG by ) Ernst Kundig, Director and President ) /s/ Ernst Kundig in the presence of: ) ------------------------------------ Ernst Kundig, Director and President /s/ William Andrews - ------------------------------------ Witness Witness name: William Andrews Address: Bermuda Occupation: Managing Director 19 EX-10.45 13 g88198exv10w45.txt EMPLOYEE SHARE OPTION NOTICE LETTER/ ABEL CASTILLO Exhibit 10.45 May 26, 2003 Abel Castillo Dear Abel, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 400 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 2,000 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-10.46 14 g88198exv10w46.txt EMPLOYEE SHARE OPTION NOTICE LETTER/ BILLY BANKER Exhibit 10.46 May 26, 2003 Billy Banker Dear Billy, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 315 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 1,575 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-10.47 15 g88198exv10w47.txt EMPLOYEE SHARE OPTION NOTICE LETTER/ CHET RITCH Exhibit 10.47 May 26, 2003 Chet Ritch Dear Chet, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 194 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 970 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-10.48 16 g88198exv10w48.txt EMPLOYEE SHARE OPTION NOTICE LETTER/ DAVID HOOKER Exhibit 10.48 May 26, 2003 Dave Hooker Dear David, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 146 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 730 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-10.49 17 g88198exv10w49.txt EMPLOYEE SHARE OPTION LETTER/ ELIZABETH TRIANA Exhibit 10.49 May 26, 2003 Elizabeth Triana Dear Elizabeth, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 197 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 985 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-10.50 18 g88198exv10w50.txt EMPLOYEE SHARE OPTION LETTER/ HELVERT RODRIGUEZ Exhibit 10.50 May 26, 2003 Helverth Rodriguez Dear Helverth, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 243 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 1,215 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-10.51 19 g88198exv10w51.txt EMPLOYEE SHARE OPTION NOTICE LETTER/ IVAN TABORA Exhibit 10.51 May 26, 2003 Ivan Tabora Dear Ivan, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 185 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 925 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-10.52 20 g88198exv10w52.txt EMPLOYEE SHARE OPTION NOTICE LETTER/ LUIS WOOD Exhibit 10.52 May 26, 2003 Luis Wood Dear Luis, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 146 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 730 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-10.53 21 g88198exv10w53.txt EMPLOYEE SHARE OPTION NOTICE LETTER/ MAGGIE JULIER Exhibit 10.53 May 26, 2003 Maggie Julier Dear Maggie, RE: EMPLOYEE SHARE INCENTIVE PLAN AND EMPLOYEE SHARE OPTION PLAN In accordance with the Employee Share Incentive Plan ("the Preference Share Plan"), you are hereby advised that the Grant Date is June 4, 2003 for benefits you have accrued during the year ended 31 December 2002. Accordingly you are granted 279 Preference Shares in the Company. You have the option to purchase an equal number of Preference Shares at a price of CI$7.46 each, which has been calculated in accordance to the terms of the Preference Share Plan. If you intend to exercise this option, then payment must be received in full no later than the close of business on July 4, 2003. As a member of the Employee Share Option Plan ("the Option Plan"), you will also be granted, as of June 30, 2003, the option to purchase 1,395 Ordinary Shares in the Company. These options are exercisable in accordance to the terms of the Option Plan. You furthermore have the opportunity to obtain an equal amount of options to purchase Ordinary Shares of the Company, in accordance to the terms of the Option Plan, if you exercise your right to purchase the above additional Preference Shares before June 30, 2003. Your continued dedication and hard work have contributed to another successful year for Consolidated Water, and I look forward to a very bright future. Yours sincerely, /s/ Frederick McTaggart Frederick W. McTaggart President and COO EX-14 22 g88198exv14.txt CODE OF BUSINESS CONDUCT & ETHICS Exhibit 14 CONSOLIDATED WATER CO. LTD. CODE OF BUSINESS CONDUCT AND ETHICS ADOPTED BY THE BOARD OF DIRECTORS ON FEBRUARY 10, 2004 This Code of Business Conduct and Ethics covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide all directors, officers, and employees (collectively, "affiliates") of Consolidated Water Co. Ltd. (the "Company"). All of our affiliates must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. The Code will also be provided to and followed by the Company's agents and representatives, including consultants. If a law conflicts with a policy in this Code, you must comply with the law. If you have any questions about these conflicts, you should ask the Company's Ethics Officer, whose contact information is attached to this Code. Each affiliate must sign the attached acknowledgement of receipt of this Code and confirm that the affiliate has carefully read and understands this Code. Those who violate the standards in this Code will be subject to disciplinary action, up to and including termination of employment and may be subject to legal action and/or prosecution. IF YOU ARE AWARE OF OR IN A SITUATION WHICH YOU BELIEVE MAY VIOLATE OR LEAD TO A VIOLATION OF THIS CODE, FOLLOW THE GUIDELINES DESCRIBED IN SECTION 14 OF THIS CODE. In the event this Code is modified, then every affiliate will be provided with a copy of the modified Code and will be deemed to have accepted and will abide by the modified Code. 1. COMPLIANCE WITH LAWS, RULES AND REGULATIONS Obeying the law, both in letter and in spirit, is the foundation on which this Company's ethical standards are built. All affiliates must respect and obey the laws of the countries in which we operate. Although not all affiliates are expected to know the details of these laws, it is important to know enough to determine when to seek advice from supervisors, managers or other appropriate personnel. If requested, the Company will hold information and training sessions to promote compliance with laws, rules and regulations, including insider-trading laws. 2. DUTY TO PROMOTE THE COMPANY'S INTERESTS AND TO AVOID CONFLICTS OF INTEREST It is the responsibility of each affiliate to act in a manner which promotes, and is consistent with, the Company's interests and welfare. It is also the responsibility of each affiliate to avoid "conflicts of interest". A conflict of interest exists when a person's private interest interferes in any way with the interests of the Company. A conflict situation can arise when affiliates take actions or have interests that may make it difficult to perform their Company work objectively and effectively. Such situations may include any financial, romantic or nepotistic relationship with another affiliate, supplier, competitor or anyone who represents, does work for, or on behalf of, the Company, or any relationship that, by its nature, may appear to interfere with the affiliate's ability to dispassionately and objectively act in the best interests of the Company, its employees, customers or shareholders. Conflicts of interest may also arise when affiliates or members of their family, receive improper personal benefits as a result of their position in the Company. Loans to, or guarantees of obligations of, affiliates and their family members may create conflicts of interest and shall not be permitted without the express prior approval of the Audit Committee. It is almost always a conflict of interest for a Company affiliate to work simultaneously for a competitor, customer or supplier. You are not allowed to work for a competitor, customer or supplier as an employee consultant or board member. The best policy is to avoid any direct or indirect business connection with our customers, suppliers or competitors, except on our behalf. Conflicts of interest are prohibited as a matter of Company policy, except when specifically approved by the Audit Committee. Conflicts of interest may not always be clear-cut, so if you have a question, you should, in the first instance, consult with the Company's Ethics Officer. The following are some general principles that should be kept in mind: o Avoid situations where your personal interests conflict, or appear to conflict with, those of the Company. o An affiliate may own up to 1% of the stock in a competitor, customer or supplier without seeking prior approval from the Audit Committee so long as the stock is in a public company and the affiliate does not have discretionary authority in dealing with that company. If an affiliate wants to purchase more than 1% of the stock in a customer, competitor or supplier, or the company is nonpublic or the affiliate has discretionary authority in dealing with that company, then the stock may be purchased only with prior approval of the Audit Committee. o If an affiliate has a financial interest in a transaction between the Company and a third party - even an indirect interest through, for example, a family member - that interest must be approved by the Audit Committee. However, if an affiliate has a financial interest in a -2- supplier or customer only because someone in the affiliate's family works there, then you do not need to seek prior approval unless the affiliate deals with the supplier or customer or your family member deals with the Company. o For any transactions that would require reporting under SEC rules, directors of the Company must obtain written confirmation from the Audit Committee that the proposed transaction is fair to the Company. o Loans from, or guarantees of obligations by, the Company to directors or executive officers of the Company are prohibited. Loans from the Company to other officers and employees must be approved in advance by the Audit Committee. Please keep in mind, that this Code does not specifically address every potential conflict, so use your conscience and common sense. When questions arise, seek guidance from the Ethics Officer. Any affiliate who becomes aware of a conflict or potential conflict should bring it to the attention of the Ethics Officer. Consult the procedures described in Section 14 of this Code. 3. INSIDER TRADING It is the Company's goal and policy to protect shareholder investments through strict enforcement of the prohibition against insider trading set forth in the United States securities laws and regulations. Affiliates who are aware of material non-public information about the Company are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of our business. All non-public information about the Company should be considered confidential information. To use material non-public information for personal financial benefit or to "tip" others who might make an investment decision on the basis of this information is both unethical and illegal and will be dealt with firmly by the Company and may be subject to criminal prosecution. Material information has been defined differently by different courts, but one of the most commonly referenced definitions is from a U.S. Supreme Court case which suggested that information is material if "there is a substantial likelihood that a reasonable shareholder would consider it important" in making an investment decision. Importantly, this definition does not require an investor to show actual reliance on the information in connection with a trade, but only to consider it important. This standard has been articulated elsewhere as a requirement that, for information to be material, there must be a substantial likelihood that a fact "would have been viewed by a reasonable investor as having significantly altered the `total mix' of information made available." Of course, information will also be considered material if its disclosure would be expected to alter significantly the market price of the Company's stock. Obviously, it is -3- very difficult to determine materiality, and the facts in each case must be carefully weighed. Furthermore, it should be remembered that plaintiffs who challenge and judges who rule on particular transactions or activities have the benefit of hindsight. Accordingly, if you have any questions, in the first instance, please consult the Ethics Officer. Examples of information that may be considered confidential information in some circumstances are: o Undisclosed annual, quarterly or monthly financial results, a change in earnings or earnings projections, or unexpected or unusual gains or losses in major operations; o Undisclosed negotiations and agreements regarding mergers, concessions, joint ventures, acquisitions, divestitures, business combinations or tender offers; o An undisclosed increase or decrease in dividends on the Company's ordinary shares; o Undisclosed major management changes; o A substantial contract award or termination that has not been publicly disclosed; o A major lawsuit or claim that has not been publicly disclosed; o The gain or loss of a significant customer or supplier that has not been publicly disclosed; o An undisclosed filing of a bankruptcy petition by the Company or a significant subsidiary; o Information that is considered confidential; and o Any other undisclosed information that could affect the Company's stock price. 4. CORPORATE OPPORTUNITIES Affiliates are prohibited from taking for themselves personally, opportunities that are discovered through the use of corporate property, information or position without the consent of the Audit Committee. No affiliate may use corporate property, including but not limited to vehicles, tools, supplies, vendor charge accounts, credit cards, parts, computers, telephones or any other Company asset not specifically authorized by the Company for personal use, information, or position for improper personal gain or benefit, -4- and no affiliate may compete with the Company directly or indirectly. Affiliates owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. 5. COMPETITION AND FAIR DEALING We seek to outperform our competition fairly and honestly. Stealing proprietary information, possessing trade secret information that was obtained without the owner's consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each employee should endeavor to respect the rights of and deal fairly with the Company's customers, suppliers, competitors and employees. No employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice. All affiliates shall ensure that they do not disclose to the Company any proprietary information or trade secrets that they may have obtained in a previous employment or relationship. The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers. No gift or entertainment should ever be offered, given, provided or accepted by any affiliate, family member of an affiliate or agent unless it: (1) is not a cash gift, (2) is consistent with customary business practices, (3) is not excessive in value, (4) cannot be construed as a bribe or payoff and (5) does not violate any laws or regulations or could, in any way, influence the affiliate's ability to interact with the giver or recipient in a dispassionate, objective way. Please discuss with the Ethics Officer any gifts or proposed gifts which you are not certain are appropriate. 6. DISCRIMINATION AND HARASSMENT The diversity of the Company's employees is a tremendous asset. We are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment of any kind. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances. Any instances of such behavior, whether the affiliate is a participant or observer, should be immediately reported to the Ethics Officer. 7. HEALTH AND SAFETY The Company strives to provide each affiliate with a safe and healthy work environment. Each affiliate has responsibility for maintaining a safe and healthy workplace for all affiliates by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions. Violence and threatening behavior are not permitted. Affiliates should report to -5- work in condition to perform their duties, free from the influence of illegal drugs or alcohol. The use of illegal drugs or alcohol in the workplace will not be tolerated and may result in disciplinary action up to and including termination. 8. ACCOUNTING POLICIES/RECORD-KEEPING The Company and each of its subsidiaries will make and keep books, records and accounts, which in reasonable detail accurately and fairly present the transactions and disposition of the assets of the Company. All of the Company's books, records, accounts and financial statements must appropriately reflect the Company's transactions and must conform both to applicable legal requirements and to the Company's system of internal controls. Unrecorded or "off the books" funds, assets or liabilities shall not be maintained. All affiliates and other persons are prohibited from directly or indirectly falsifying or causing to be false or misleading any financial or accounting book, record or account. Affiliates are expressly prohibited from directly or indirectly manipulating an audit, and from destroying or tampering with any record, document or tangible object with the intent to obstruct a pending or contemplated audit, review or investigation. The commission of, or participation in, one of these prohibited activities or other illegal conduct will subject affiliates to criminal penalties, as well as punishment of up to and including termination of employment. No affiliate of the Company may directly or indirectly: o make or cause to be made a materially false or misleading statement, or o omit to state, or cause another person to omit to state, any material fact necessary to make statements made not misleading in connection with the audit of financial statements by independent accountants, the preparation of any required reports whether by independent or internal accountants, or any other work which involves or relates to the filing of a document with the U.S. Securities and Exchange Commission. Many affiliates regularly use business expense accounts, which must be documented and recorded accurately. If you are not sure whether a certain expense is legitimate, ask the Ethics Officer. Business records and communications often become public, and we should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memos, and formal reports. Records should always be retained or destroyed according to the Company's record retention policies. In accordance with those policies, in the event of litigation or governmental investigation please consult the Ethics Officer. -6- 9. CONFIDENTIALITY Affiliates must maintain the confidentiality of confidential information entrusted to them by the Company, except when disclosure is authorized by the Audit Committee or required by laws or regulations. Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers, if disclosed. It also includes information that suppliers and customers have entrusted to us. The obligation to preserve confidential information continues even after employment or other relationship with the Company ends. 10. PROTECTION AND PROPER USE OF COMPANY ASSETS All affiliates should endeavor to protect the Company's assets and ensure their efficient use. Theft, fraud, and waste have a direct impact on the Company's profitability. Any suspected incident of theft, fraud or waste should be immediately reported to the Audit Committee for investigation. Company equipment should not be used for non-Company business, though incidental personal use may be permitted. The obligation of affiliates to protect the Company's assets includes its proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this information is a violation of Company policy and could be illegal and result in civil or even criminal penalties. 11. PAYMENTS TO GOVERNMENT PERSONNEL As we are a publicly-held company in the United States, and as such under the laws of the United States, we are subject the provisions of the U.S. Foreign Corrupt Practices Act. The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of governments or political candidates in order to obtain or retain business. It is strictly prohibited to make illegal payments to government officials of any country. 12. WAIVERS OF THE CODE OF BUSINESS CONDUCT AND ETHICS Any waiver of this Code may be made only by the Board of Directors or the Audit Committee of the Board of Directors and will be promptly disclosed as required by law or stock exchange regulation. 13. REPORTING ANY ILLEGAL OR UNETHICAL BEHAVIOR Affiliates are encouraged to communicate, anonymously if desired, with the -7- Ethics Officer about perceived illegal or unethical behavior and when in doubt about the best course of action in a particular situation. It is the policy of the Company not to allow retaliation for reports of misconduct by others made in good faith by affiliates. The most important point is that possible violations should be reported and we support all means of reporting them. Affiliates are expected to cooperate in internal investigations of misconduct. 14. COMPLIANCE PROCEDURES We must all work to ensure prompt and consistent action against violations of this Code. However, in some situations it is difficult to know if a violation has occurred. Since we cannot anticipate every situation that will arise, it is important that we have a way to approach a new question or problem. These are the steps to keep in mind: o MAKE SURE YOU HAVE AS MANY FACTS AS POSSIBLE BUT DO NOT DELAY YOUR ACTION IN COLLECTING FACTS. In order to reach the right solutions, we must be as fully informed as possible. o ASK YOURSELF WHAT SPECIFICALLY AM I BEING ASKED TO DO? DOES IT SEEM UNETHICAL OR IMPROPER? This will enable you to focus on the specific question you are faced with, and the alternatives you have. Use your judgment and common sense; if something seems unethical or improper, it probably is. o CLARIFY YOUR RESPONSIBILITY AND ROLE. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem. o DISCUSS THE PROBLEM WITH THE ETHICS OFFICER. This is the basic guidance for all situations, except as otherwise specified in this Code. In many cases, the Ethics Officer will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is the Ethics Officer's responsibility to help solve problems. o SEEK HELP FROM COMPANY RESOURCES. In the rare case where it may not be appropriate to discuss an issue with the Ethics Officer, or where you do not feel comfortable approaching the Ethics Officer with your question, discuss it with the Chairman of the Audit Committee of the Board of Directors whose contact information is attached to this Code. o YOU MAY REPORT ETHICAL VIOLATIONS IN CONFIDENCE AND WITHOUT FEAR OF RETALIATION. If your situation requires that your identity be kept secret, your anonymity will be protected. TELEPHONE, FAX OR WRITE TO THE ETHICS OFFICER WHOSE CONTACT INFORMATION IS ATTACHED TO THIS CODE The Company does not permit retaliation of any kind against affiliates for good faith reports of ethical violations. -8- o ALWAYS ASK FIRST, ACT LATER: If you are unsure of what to do in any situation, seek guidance from the Ethics Officer BEFORE YOU ACT. -9- APPENDIX CODE OF ETHICS FOR CEO AND SENIOR FINANCIAL OFFICERS The Company has a Code of Business Conduct and Ethics applicable to all affiliates of the Company. The CEO and all senior financial officers, including the CFO and principal accounting officers, are bound by the provisions set forth therein relating to ethical conduct, conflicts of interest and compliance with law. In addition to the Code of Business Conduct and Ethics, the CEO and senior financial officers are subject to the following additional specific policies: l. The CEO and all senior financial officers are responsible for full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the Company with the U.S. Securities and Exchange Commission. Accordingly, it is the responsibility of the CEO and each senior financial officer promptly to bring to the attention of the Chairman of the Audit Committee any material information of which he or she may become aware that affects the disclosures made by the Company in its public filings or otherwise assist the Audit Committee in fulfilling its responsibilities as specified in the Audit Committee's Charter. 2. The CEO and each senior financial officer shall promptly bring to the attention of the Chairman of the Audit Committee any information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data or (b) any theft or fraud, whether or not material, that involves affiliates who have a significant role in the Company's financial reporting, disclosures or internal controls. 3. The CEO and each senior financial officer shall promptly bring to the attention of the chairman of the Audit Committee any information he or she may have concerning any violation of the Company's Code of Business Conduct and Ethics or of these additional policies, including any actual or apparent conflicts of interest between personal and professional relationships, involving any affiliate who has a significant role in the Company's financial reporting, disclosures or internal controls. 4. The CEO and each senior financial officer shall promptly bring to the attention of the Chairman of the Audit Committee any information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to the Company and the operation of its business, by the Company or any agent thereof. 5. The Board of Directors shall determine, or designate appropriate persons to determine appropriate actions to be taken in the event of violations of the Code of -10- Business Conduct and Ethics or of these additional procedures by the CEO and the Company's senior financial officers. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code of Business Conduct and Ethics and to these additional policies, and shall include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board) and termination of the individual's employment. In determining what action is appropriate in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action and whether or not the individual in question had committed other violations in the past. -11- CONTACT INFORMATION ETHICS OFFICER Richard L. Finlay c/o Conyers Dill & Pearman Cayman Attorneys At Law Century Yard, Cricket Square P.O. BOX 2681GT Grand Cayman Telephone: 345 945 3901 Fax: 345 945 3902 CHAIRMAN OF AUDIT COMMITTEE Brian E. Butler P.O. Box 30864 SMB Grand Cayman Telephone: 345 945 4977 Fax: 345 945 5012 -12- EX-21 23 g88198exv21.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21 CONSOLIDATED WATER CO. LTD. AND SUBSIDIARY COMPANIES SUBSIDIARIES OF THE REGISTRANT The following list includes all of the Registrant's wholly-owned subsidiaries as of December 31, 2003. All subsidiaries of the Registrant appearing in the following table are included in the consolidated financial statements of the Registrant.
Name of Subsidiary Jurisdiction of Incorporation - ------------------ ----------------------------- Belize Water Limited Belize Cayman Water Company Limited Cayman Islands DesalCo Limited Cayman Islands DesalCo (Barbados) Ltd. Barbados Ocean Conversion (Cayman) Limited Cayman Islands Waterfields Company Limited Commonwealth of the Bahamas
EX-23.1 24 g88198exv23w1.txt CONSENT OF KPMG (CAYMAN ISLANDS) Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 333-10206) and the Registration Statement on Form F-3 (Registration No. 333-104902) of Consolidated Water Co. Ltd. of our report dated April 7, 2004 relating to the financial statements which appear in this Form 10-K. /s/ KPMG Chartered Accountants Cayman Islands April 14, 2004 EX-23.2 25 g88198exv23w2.txt CONSENT OF KPMG (BRITISH VIRGIN ISLANDS) Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 333-10206) and the Registration Statement on Form F-3 (Registration No. 333-104902) of Consolidated Water Co. Ltd. of our report dated March 12, 2004 relating to the financial statements which appear in this Form 10-K. /s/ KPMG Chartered Accountants British Virgin Islands April 14, 2004 EX-31.1 26 g88198exv31w1.txt CERTIFICATION BY THE CEO PURSUANT SECTION 302 EXHIBIT 31.1 CERTIFICATION PURSUANT TO RULE 13A-14(a)/15D-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 In connection with the Annual Report of Consolidated Water Co. Ltd. (the "Company") on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof, I, Frederick W. McTaggart, the Chief Executive Officer of the Company, certify, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, that: 1. I have reviewed the Annual Report on Form 10-K of the Company for the year ended December 31, 2003; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 14, 2004 By: /s/ Frederick W. McTaggart ----------------------------- Name: Frederick W. McTaggart Title: Chief Executive Officer EX-31.2 27 g88198exv31w2.txt CERTIFICATION BY THE CFO PURSUANT SECTION 302 EXHIBIT 31.2 CERTIFICATION PURSUANT TO RULE 13A-14(a)/15D-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 In connection with the Annual Report of Consolidated Water Co. Ltd. (the "Company") on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof, I, Brent Santha, the Chief Financial Officer of the Company, certify, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, that: 1. I have reviewed the Annual Report on Form 10-K of the Company for the year ended December 31, 2003; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 14, 2004 By: /s/ Brent Santha ----------------------------------- Name: Brent Santha Title: Chief Financial Officer EX-32.1 28 g88198exv32w1.txt CERTIFICATION BY THE CEO PURSUANT SECTION 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Consolidated Water Co. Ltd. (the "Company") on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frederick W. McTaggart, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: April 14, 2004 By: /s/ Frederick W. McTaggart ------------------------------------ Name: Frederick W. McTaggart Title: Chief Executive Officer EX-32.2 29 g88198exv32w2.txt CERTIFICATION BY THE CFO PURSUANT SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Consolidated Water Co. Ltd. (the "Company") on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Brent Santha, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: April 14, 2004 By: /s/ Brent Santha -------------------------------- Name: Brent Santha Title: Chief Financial Officer EX-99.1 30 g88198exv99w1.txt COMPENSATION COMMITTEE CHARTER Exhibit 99.1 COMPENSATION COMMITTEE CHARTER OF CONSOLIDATED WATER CO. LTD. I. COMPOSITION AND QUALIFICATIONS The Compensation Committee (the "Committee") of the Board of Directors (the "Board) of Consolidated Water Co. Ltd. (the "Company") shall be comprised of not less than three (3) members of the Board, each of whom is determined by the Board to be "independent" under the rules of the Nasdaq Stock Market, Inc. ("Nasdaq"). However, one (1) member of the Board may serve as a member of the Committee for a period of no longer than two (2) years who does not qualify as "independent" under Nasdaq Rule 4200 if the Board determines that such person's membership on the Committee is required in the best interest of the Company and its stockholders. II. APPOINTMENT AND REMOVAL The members of the Committee shall be appointed by the Board and shall serve until such member's successor is duly elected and qualified or until such member's earlier resignation or removal. A member of the Committee may be removed, with or without cause, by a majority vote of the Board. III. DUTIES The duties of the Committee are as follows: 1. Discharge the Board's responsibilities to the stockholders and investment community relating to the compensation of the Company's executive officers; 2. Review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer and other executive officers; 3. Review and evaluate the performance of the Chief Executive Officer and other executive officers and other key employees of the Company in light of the goals and objectives of the Company, and either as a committee or together with the other independent directors (as directed by the Board) determine and approve their annual compensation packages, including base salaries, cash bonuses, stock options and other stock-based incentives, based on these evaluation; 4. Monitor the effectiveness of benefit plan offerings and approve changes where appropriate; 5. Make an annual report on executive compensation in the Company's annual proxy statement or annual report on Form 10-K as required by the rules of the U.S. Securities and Exchange Commission and other regulatory bodies; 6. Review and approve, or recommend to the full Board, its annual retainer and compensation plans and equity-based plans in which non-executive members of the Board are eligible to participate; 7. Supervise and oversee the administration of the Company's incentive compensation programs. 8. Review management proposals to; A. designate employees for incentive compensation programs; and B. approve new benefit plans; 9. Report regularly to the Board; A. following meetings of the Committee; B. with respect to those matters that are relevant to the Committee's discharge of its responsibilities; and C. with respect to those recommendations that the Committee may deem appropriate. The report to the Board may take the form of an oral report by the Chairman of the Committee or any other member of the Committee designated by the Committee to make such report. 10. The Committee shall review and reassess periodically the adequacy of this Charter and recommend to the Board any improvements to this Charter that the Committee considers necessary or valuable. IV. MEETINGS The Committee shall meet at such times as the Committee shall consider appropriate to fulfill its duties and responsibilities. 2 V. ADVISORS The Committee shall have the exclusive authority, at the expense of the Company, to retain and terminate: 1. executive compensation consultants, including the fees and other terms of their engagements, to advise on the evaluation and compensation of the members of the Board, the Chief Executive Office and other executive officers of the Company; and 2. such outside counsel and other advisors as it deems appropriate in its sole discretion. 3 EX-99.2 31 g88198exv99w2.txt AUDIT COMMITTEE CHARTER Exhibit 99.2 CONSOLIDATED WATER CO. LTD. AUDIT COMMITTEE CHARTER PURPOSE The purpose of the Audit Committee of Consolidated Water Co. Ltd. (the "Corporation") is to act on behalf of the board of directors and to oversee all material aspects of the organization's financial reporting, control and audit functions, including but not limited to, reviewing the financial information to be provided to the Corporation's shareholders, reviewing the systems of internal controls established by the Corporation's officers and board of directors and selecting and evaluating the Corporation's independent accountants. The Audit Committee does not itself prepare financial statements or perform audits, and its members are not auditors or certifiers of the Corporation's financial statements. Consistent with this purpose, the Audit Committee shall encourage continuous improvement of, and foster adherence to, the Corporation's policies, procedures and practices at all levels. The Audit Committee shall provide assistance to the directors of the Corporation in fulfilling their responsibility to the shareholders and investment community relating to corporate accounting, reporting practices of the Corporation, and the quality and integrity of the financial reports of the Corporation. In so doing, it is the responsibility of the Audit Committee to maintain free and open means of communication between the directors, the independent auditors, and the financial management of the Corporation. In discharging its oversight role, the Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Corporation. MEMBERSHIP The Audit Committee shall be composed of not less than three (3) directors of the Corporation, each of whom is "independent" as such term is described in the rules of the Nasdaq Stock Market, Inc. ("Nasdaq") and the Securities Exchange Act of 1934 (the "Act") and the rules and regulations thereunder, as in effect from time to time. However, one (1) director may serve as a member of the Audit Committee for a period of no longer than two (2) years who does not qualify as "independent" under Nasdaq Rule 4200, if the Corporation's board of directors determines that such person's membership on the Audit Committee is required in the best interest of the Corporation and its shareholders. Each member of the Audit Committee shall be able to read and understand fundamental financial statements at the time of his or her appointment. All Audit Committee members will be financially literate, and at least one member shall qualify as an "audit committee financial expert," as such term is defined in the Instructions to paragraph (h)(1) of Item 401 of Regulation S-K, as in effect from time to time. The members of the Audit Committee shall be elected by the board of directors of the Corporation following each annual general meeting of shareholders and shall serve until their successors shall be duly elected and qualified or until their earlier resignation and removal. Unless the chairperson of the Audit Committee is elected by the full board of directors of the Corporation, the members of the Audit Committee may designate a chairperson by a majority vote of the full Audit Committee membership. The Chairperson of the Audit Committee shall be an "independent" director under the Nasdaq rules, as well as the Act and the rules and regulations promulgated thereunder. MEETINGS The Audit Committee shall generally hold regular meetings at least quarterly but more frequently if circumstances make that preferable. The chairperson of the Audit Committee has the power to call an Audit Committee meeting in person or by conference call whenever he or she thinks there is a need. Audit Committee agendas shall be the responsibility of the chairperson, with input from the other members of the Audit Committee. The Audit Committee may designate subcommittees of one or more of its members to report to the full Audit Committee. The majority of the members of the Audit Committee shall constitute a quorum. Minutes of the meetings of the Audit Committee shall be prepared by the chairperson or his or her designee and maintained at the Corporation. Draft minutes shall be circulated to members for approval. Resolutions by the Audit Committee may also be adopted by unanimous written consent of all members. DUTIES AND RESPONSIBILITIES In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and to ensure to the directors and shareholders that the corporate accounting and reporting practices of the Corporation are in accordance with all requirements and are of the highest quality. In carrying out these responsibilities, the Audit Committee will: o Obtain the full board of directors' approval of this Charter and review and reassess this Charter as conditions dictate (at least annually). o Select the independent auditors to audit the financial statements of the Corporation and its divisions and subsidiaries. The Audit Committee will also review and set any fees paid to the independent auditor and review and approve dismissal of the independent auditor. o Analyze and discuss with the independent auditors the fees charged to the Corporation for services rendered by the independent auditor. o Conduct an annual evaluation of the independence of the outside auditor, based in part on review and discussion of a formal written statement delineating all relationships between the auditor and the Corporation and any other relationships that may adversely affect the independence of the auditor. o Have a clear understanding with the independent auditors that they are ultimately accountable to the board of directors and the Audit Committee, as the shareholders' representatives, who have the ultimate authority in deciding to engage, evaluate, and if appropriate, terminate their services. o Meet with the independent auditors and financial management of the Corporation to -2- review the scope of the proposed audit for the current year and timely review of the Corporation's quarterly reports, and the audit procedures to be utilized, and at the conclusion thereof review such audit or review, including any comments or recommendations of the independent auditors. o Review with the independent auditors and the Corporation's financial and accounting personnel, the adequacy and effectiveness of the accounting and financial controls of the Corporation, and elicit any recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of such internal controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper. Further, the Audit Committee should periodically review the Corporation's policy statements to determine their adherence to the Corporation's code of conduct. o Provide sufficient opportunity for the independent auditors to meet with the members of the Audit Committee without members of management present. Among the items to be discussed in these meetings are the independent auditors' evaluation of the Corporation's financial, accounting, and auditing personnel, and the cooperation that the independent auditors received during the course of the audit. o Establish policies and procedures for the engagement of outside auditors to provide non-audit services, including procedures for pre-approval of non-audit services permitted by law to be performed by the independent auditor outside the scope of the engagement letter, and consider whether the independent auditor's performance of such services, together with any other non-audit services being performed, is compatible with the auditor's independence. o Set clear hiring policies for employees or former employees of the independent auditors that meet the requirements set forth in Rule 2-01(c)(2)(ii) of Regulation S-X, as amended from time to time, and all applicable stock exchange or NASDAQ listing standards. o Review any material pending legal proceedings involving the Corporation and other contingent liabilities. o Review accounting and financial human resources and succession planning within the Corporation. o Submit the minutes of all meetings of the Audit Committee to, or discuss the matters discussed at each Audit Committee meeting with, the board of directors. o Investigate any matters brought to its attention within the scope of its duties, with the power to retain outside counsel and other experts for this purpose if, in its judgment, that is appropriate. -3- o Review management's assertion on its assessment of the effectiveness of internal controls as of the end of the most recent fiscal year and the independent auditors' report on management's assertion. o Establish policies and procedures to receive and process: (1) complaints received by the Corporation concerning accounting, internal accounting controls or auditing matters, and (2) the confidential anonymous submissions by employees of the Corporation of concerns regarding questionable accounting or auditing matters. o Review the quarterly financial statements with financial management and the independent auditors prior to the filing of the Form 10-Q (or prior to the press release of results, if possible) to determine that the independent auditors do not take exception to the disclosure and content of the financial statements, and discuss any other matters required to be communicated to the committee by the auditors. The chair of the committee may represent the entire committee for purposes of this review. o Review the financial statements contained in the annual report to shareholders with management and the independent auditors to determine that the independent auditors are satisfied with the disclosure and content of the financial statements to be presented to the shareholders. Review with financial management and the independent auditors the results of their timely analysis of significant financial reporting issues and practices, including changes in, or adoptions of, accounting principals and disclosure practices, and discuss any other matters required to be communicated to the committee by the auditors. Also review with financial management and the independent auditors their judgments about the quality, not just acceptability, of accounting principles and the clarity of the financial disclosure practices used or proposed to be used, and particularly, the degree of aggressiveness or conservatism of the organization's accounting principles and underlying estimates, and other significant decisions made in preparing the financial statements. o Review and discuss with management and the independent auditor any material financial or other arrangements of the Corporation which do not appear on the financial statements of the Corporation. o Establish policies and procedures providing for Audit Committee review and approval of all "related party transactions" for potential conflicts of interest. For purposes of this provision, "related party transactions" refer to transactions required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Securities Exchange Act of 1934. o Review and discuss with management and the independent auditors any accounting policies and estimates which may be viewed as critical to the Corporation and any significant changes in the accounting policies of the Corporation and accounting and financial proposals that may have a significant impact on the Corporation's financial reports. -4- o On an annual basis, obtain from the independent auditors a written communication delineating all their relationships and professional services as required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. In addition, review with the independent auditors the nature and scope of any disclosed relationships or professional services and take, or recommend that the board of directors take, appropriate action to ensure the continuing independence of the auditors. o Review the report of the Audit Committee in the annual report to shareholders and the Annual Report on Form 10-K disclosing whether or not the committee had reviewed and discussed with management and the independent auditors, as well as discussed within the Audit Committee (without management or the Independent auditors present), the financial statements and the quality of accounting principles and significant judgments affecting the financial statements. In addition, disclose the Audit Committee's conclusion on the fairness of presentation of the financial statements in conformity with GAAP based on those discussions. o Review the Company's disclosure in the proxy statement for its annual general meeting of shareholders that describes that the Audit Committee has satisfied its responsibilities under this Charter for the prior year. In addition, include a copy of this Charter in the annual report to shareholders or the proxy statement at least triennially or the year after any significant amendment to the Charter. -5- EX-99.3 32 g88198exv99w3.txt NOMINATIONS COMMITTEE CHARTER Exhibit 99.3 NOMINATIONS COMMITTEE CHARTER OF CONSOLIDATED WATER CO. LTD. I. COMPOSITION AND QUALIFICATIONS The Nominations Committee (the "Committee") of the Board of Directors (the "Board") of Consolidated Water Co. Ltd. (the "Company") shall be comprised of not less than three members of the Board, each of whom is determined by the Board to be independent in accordance with the rules of the Nasdaq Stock Market, Inc. ("Nasdaq"). However, one (1) member of the Board may serve as a member of the Committee for a period of no longer than two (2) years who does not qualify as "independent" under Nasdaq Rule 4200 if the Board determines that such person's membership on the Committee is required in the best interests of the Company and its stockholders. II. APPOINTMENT AND REMOVAL The members of the Committee shall be appointed by the Board and shall serve until such member's successor is duly elected and qualified or until such member's earlier resignation or removal. A member of the Committee may be removed, with or without cause, by a majority vote of the Board. III. DUTIES AND RESPONSIBILITIES The duties of the Committee are as follows: 1. Make recommendations regarding the size as governed by the companies Articles of Association and the composition of the Board be not than less than one or more than fifteen members. 2. Establish and recommend to the Board criteria for the selection of new directors to serve on the Board. 3. Identify individuals qualified to become Board members and conduct a review of any candidates recommended or submitted by shareholders, consistent with criteria approved by the Board. 4. Make recommendations to the Board regarding all nominations for Board membership, whether for the slate of director nominee to be proposed by the Board to the shareholders or any director nominees to be elected by the Board to fill interim director vacancies. 5. Report regularly to the Board. 6. The Committee shall review and reassess periodically the adequacy of this Charter and recommend to the Board any changes to this Charter that the Committee considers necessary. The Committee shall conduct such reviews in the manner it deems appropriate. Page 2 IV. MEETINGS The Committee shall meet a minimum of two times per year and more frequently as circumstances require. V. ADVISORS The Committee shall have the exclusive authority, at the expense of the Company, to retain any search firms to be used to identify director candidates (including authority to approve fees and other terms of engagement) and such outside counsel and other advisors, as it seems appropriate in its sole discretion. -----END PRIVACY-ENHANCED MESSAGE-----