## 13. Commitments and contingencies 

## Commitments: 

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

## CONSOLIDATED WATER CO. LTD. 

(Expressed in United States dollars) 

The Company has committed to lease premises in the Cayman Islands for a period of two years from February 1, 2000 at approximately $75,000 per annum. 

The Company is subject to an ongoing obligation to supply water to new customers in the Cayman Islands within the areas in which it is licensed to operate and where the supply of such water is considered commercially feasible. 

The Company is subject to a commitment in the Cayman Islands under the Water Purchase Agreement (Note 14). 

The Group is subject to a commitment to supply water to the Water and Sewerage Authority of Belize and property in South Bimini Island, Bahamas (Note 15). 

## Contingencies: 

The license that the Company has with the government of the Cayman Islands (the “Government”) requires it to obtain approval from the Government for the issuance or transfer of shares which a) exceeds 5% of the issued share capital of the Company, or b) would, upon registration, result in any shareholder owning more than 5% of the issued share capital of the Company. 

More than 5% of the ordinary shares of common stock are registered in the name of Cede and Co., the nominee for Depository Trust Company, which is a clearing agency for shares held by participating banks and brokers. The Company does not believe that these shareholdings by Cede and Co. constitute a breach of the intent of the license. The Company believes that the purpose of this clause of the license is to allow the Government to approve significant shareholders of the Company. Cede and Co. and Depository Trust Company, however, act solely as the nominee for banks and brokers, and have no beneficial ownership in the ordinary shares of common stock. Nevertheless, the Company’s Cayman Islands legal counsel (“Legal Counsel”) has advised it that the shareholdings by Cede and Co. are probably a technical breach of its license. 

In August and September 1994, the Company completed an offering of 400,000 ordinary shares of common stock under rule 504 of Regulation D of the Securities Act of 1933. In September 1995, the Company completed a private placement of 100,000 ordinary shares of common stock plus warrants to subscribe for an additional 100,000 ordinary shares of common stock under Regulation S of the Securities Act of 1933. In April 1996 and May 2000, the Company completed a public offering of 515,000 and 773,000 ordinary shares, respectively. Based upon the advice of Legal Counsel, the Company determined that the license did not require the Government's approval to complete these offerings. However, if a court determined that the Government’s approval of these offerings was required under the license, the Company would be in breach of the license. Legal Counsel has advised the Company that in order to make this determination, a court would have to disagree with the Company’s interpretation of the license and dismiss several defenses that would be available to the Company. These defenses include acquiescence and waiver on the part of the Government with respect to these offerings. 

Further, the Company received a letter dated June 1, 2000, from an official in the Government, stating that the public offering of the ordinary shares of common stock that was completed in 1996 was a breach of the license. The letter is not clear as to whether the Government views the public offering completed in 2000 as a breach of the license. The Company responded to this letter and stated that it does not believe that it is in breach of the license. A meeting with officials of the Government, to discuss this matter, was held on June 16, 2000 in accordance with the Government's suggestion in the June 1st letter. Discussion of the matter is ongoing as of December 31, 2000. The Company has been advised by Legal Counsel that the June 1st letter from the Government does not constitute a formal "notice of breach of the license" as contemplated in the license. Accordingly, other than pursuing discussions of this matter with the Government, no other actions are presently being pursued by the Company to "cure" any such alleged breaches. 

