Exhibit 10.1
15 September 2006
BETWEEN
(1) South East Water LLC
AND
(2) Macquarie Luxembourg Water S. à. r. l.
 
FIRST AMENDMENT AGREEMENT RELATING TO
THE TERMS AND CONDITIONS OF CLASS A
PREFERRED EQUITY CERTIFICATES
 

 

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CONTENTS

         
1. DEFINITIONS AND INTERPRETATION
    3  
 
       
2. CONFIRMATION AND AMENDMENT
    4  
 
       
3. GOVERNING LAW
    4  
 
       
4. JURISDICTION
    4  

 

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THIS FIRST AMENDMENT AGREEMENT (the “Amendment Agreement”) is made on 15
September 2006.
BETWEEN:

(1)   South East Water LLC a public limited company, incorporated under the laws
of the DELAWARE and having a registered office at 125 W55th Street, 22nd floor,
New York, NY 10019 USA, with register number N/A, duly represented by a
Director,       (hereinafter the “Lender”)

AND

(2)   Macquarie Luxembourg Water S.à  r.l, a Luxembourg limited company (société
à responsabilite limitée), incorporated under the laws of Luxembourg and having
its registered office at 5, rue Guillaume Kroll, L-1882 Luxembourg, registered
with the Luxembourg register of Commerce and Companies (R.C.S. Luxembourg) under
number B100413 and having a share capital of twelve thousand five hundred euros
(EUR 25,000), duly represented by a Director,       (hereinafter the “Borrower”)

All the entities here above listed are hereinafter referred as to the “Parties”.
RECITALS:

(A)   The Parties have entered into the terms and conditions of Class A
Preferred Equity Certificated on 22 December 2004 (the “A PECs”) whereby the
Lender granted Class A Preferred Equity Certificated to the Borrower.   (B)  
The Parties now wish to amend and restate the A PECs and in particular to amend
the definition of the Company’s Income attached to the class A PECs.

THE PARTIES AGREE AS FOLLOWS:

1.   DEFINITIONS AND INTERPRETATION       In this Amendment Agreement and the
Recitals, the following words and expressions shall (unless the context requires
otherwise) have the meanings ascribed to them in the A PECs.       Words
denoting the singular shall include the plural and vice versa, words denoting
one gender shall include the other gender and words denoting persons shall
include firms, partnerships, unincorporated organizations and companies and vice
versa.       References in this Amendment Agreement to any statutory provision
shall be deemed also to refer to any statutory modification or re-enactment
thereof or any statutory instrument, order or regulation made there under or
under any such re-enactment.

 

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    References in this Amendment Agreement to any other agreement shall be
construed as a reference to that other agreement as the same may from time to
time be, amended, varied, supplemented or novated.       References to a
“person” or to “persons” in this Amendment Agreement Includes, without
limitation, a reference to any individual, firm, company, corporation or other
body corporate, government, state or agency of a state or any joint venture,
association or partnership, works council or employee representative body
(whether or not having a separate legal personality).   2.   CONFIRMATION AND
AMENDMENT   2.1.   The Parties agree to amend, with effect as of 1 April 2006,
the A PECs, and, in particular;   2.2   To amend section 1 as reproduced below,
such new section replacing the definition of the Company’s Income:      
COMPANY’S INCOME       shall mean 100% of all direct or Indirect Income
(including but not limited to dividend, capital gains and bank interest
received) less 100% of the Costs, by the Company from its Investments in the
Accrual Period.   3.   GOVERNING LAW.       This Amendment Agreement shall be
governed by and construed in accordance with the laws of Grand Duchy of
Luxembourg.   4.   JURISDICTION.       Each party Irrevocably and
unconditionally submits to the exclusive jurisdiction of the courts of
Luxembourg and the courts of appeal from them. Each party waives any right it
has to object to an action being brought in those courts including, without
limitation, by claiming that the action has been brought in an inconvenient
forum or that those courts do not have jurisdiction.

 

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IN WITNESS WHEREOF the Parties have caused this Amendment Agreement to be duly
executed and signed on the date first written above in as many original copies
as there are Parties to this Amendment Agreement, each Party declaring that it
has received one original copy.

     
/s/ Peter Stokes
  /s/ Howard Higgins
 
   
 
  Macquarie Luxembourg Water
 
  S.à.r.l.
 
   
By: PETER STOKES
   
 
   
Capacity: CHIEF EXECUTIVE OFFICER
  By: Howard Higgins
 
   
ON BEHALF OF:
  Capacity: Manager
MACQUARIE INFRASTRUCTURE
COMPANY LLC
   
 
   
AS MANAGING MEMBER OF:
   
 
   
SOUTH EAST WATER LLC
   
 
   
 
   

 

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Terms and Conditions of
Class A Preferred Equity
Certificates
Dated December 22, 2004
Macquarie Luxembourg Water Sarl (1)
South East Water LLC (2)

 

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TABLE OF CONTENTS

                AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES     1   TERMS
AND CONDITIONS     1   1    
Definitions
    1   2    
Return
    4   3    
Redemption
    4   4    
Withholding Taxes
    5   5    
Covenants
    6   6    
Default
    6   7    
Registration of the A PECs; Transfer Restrictions; Issuance and Exchange of PEC
Certificates; Loss of PEC Certificates
    6   8    
General Terms and Conditions of A PECs
    7   9    
Miscellaneous
    7  

 

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           DATE   December 22, 2004

    PARTIES       MACQUARIE LUXEMBOURG WATER Sarl., a private limited liability
company, incorporated under the laws of Luxembourg, whose registered office is
at 5, rue Guillaume, BP 2501, L-1025 Luxembourg (the “Company”); and       SOUTH
EAST WATER LLC, whose principal executive office is at 600 Fifth Avenue, 21st
Floor, New York, New York 10020 (“SEW LLC”).       AUTHORISATION FOR PREFERRED
EQUITY CERTIFICATES       The board of managers of the Company has authorised
the issuance of a number of Class A Preferred Equity Certificates (collectively
the “A PECs” and individually an “A PEC”) to SEW LLC, having an aggregate par
value of the Euro equivalent of £10,825,587.02 (less €4,375) in respect of
making equity investments in infrastructure and related assets located in
European OECD countries. The PECs shall be denominated in Euro (EUR) upon
issuance thereof. Each A PEC shall be issued in registered form.       TERMS AND
CONDITIONS   1   Definitions       As used in this Agreement, the following
terms shall have the following meaning:

         
 
  A PEC   shall mean the PECs issued, or to be issued, by the Company under this
Agreement;
 
       
 
  A PEC Register   shall mean the register and transfer book maintained by the
Company for the A PECs;
 
       
 
  Accrual Period   shall mean each period from, and including, one Payment Date
to, but excluding, the next following Payment Date, except for the initial
Accrual Period that will commence on, and include, the Date of Issuance. If the
A PECs are redeemed under any provision of Section 3, the Accrual Period, with
respect to the A PECs redeemed, shall mean the period from and including the
Payment Date immediately preceding the date of redemption of the A PECs to but
excluding the date of redemption;
 
       
 
  Annual Payment Date   shall mean each twelve-month anniversary after the
initial Payment Date;
 
       
 
  Applicable Rate   shall mean the rate of return equal to the 12 month EURIBOR
rate at the Date of Issuance of the A PECs plus 200 basis points for each
Accrual Period;

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  Available Amount   shall mean the amount available to make payments to the
holders of the A PECs;
 
       
 
  Business Day   shall mean any day other than a Saturday, Sunday or other day
on which banking institutions in Luxembourg and London are required or
authorised to remain closed;
 
       
 
  Company   Macquarie Luxembourg Water Sarl, a private limited liability
company, incorporated under the laws of Luxembourg, whose registered office is
at 5, rue Guillaume, BP 2501, L-1025 Luxembourg;
 
       
 
  Company’s Income   shall mean 85% of all income (dividend and capital gains)
less 85% of the Costs, by the Company from its Investments in the Accrual
Period;
 
       
 
  Costs   shall mean all costs and expenses incurred by the Company in the
Accrual Period that are economically attributable to the Investment. Such Costs
will not include the Return paid or accrued during such Accrual Period on the A
PECs, nor income taxes imposed by the Grand-Duchy of Luxembourg or any
sub-division, municipality or local authority thereof;
 
       
 
  Date of Issuance   shall mean the date as of which the A PECs are issued;
 
       
 
  Excess   shall mean the amount with which the Nominal Amount exceeds the
Available Amount;
 
       
 
  Excluded Return   for any given period means the total amount of return
excluded from such period by reason of the limitations set forth in Section 2.2;
 
       
 
  Initial Accrual Period   shall mean the period from and including the Date of
Issuance up to but excluding the Initial Payment Date;
 
       
 
  Initial Payment Date   will mean 31 March 2005;
 
       
 
  Insolvent   shall mean the situation where the aggregate amount of the
Company’s obligations, determined in accordance with generally accepted
accounting principles as in effect in Luxembourg, exceeds the fair market value
of the Company’s assets. The A PECs and any Class of Preferred Equity
Certificates that will be issued after this date will be regarded as obligations
of the Company for the purpose of computing the Company’s insolvency;
 
       
 
  Intermediary Payment Date   shall mean any date determined at the discretion
of the Board of Directors of the Company.
 
       
 
  Investment   shall mean the Company’s equity investment in Macquarie Water
(UK) Limited as held at the Date of Issuance or to be increased or decreased by
the Company thereafter;
 
       
 
  Liquidation   shall have meant the event of any voluntary or involuntary
liquidation, bankruptcy, dissolution or winding up of the affairs of the
Company;

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  Mandatory Redemption Date   means the Payment Date nearest and prior to the
98th anniversary of the Date of Issuance;
 
       
 
  Nominal Amount   shall mean the Par Value of any outstanding A PEC plus any
Unpaid Return;
 
       
 
  Par Value   shall mean EUR 1.00 (one Euro) with respect to each outstanding A
PEC;
 
       
 
  Payment Date   shall mean the Initial Payment Date, any Annual Payment Date,
any Intermediary Payment Date, and the Redemption Date. A reasonable amount of
time will be granted to the Board of Directors of the Company after each Payment
Date to determine the amount of Return payable for any Accrual Period;
 
       
 
  PEC   shall mean the Preferred Equity Certificate issued or to be issued by
the Company under the Terms and Conditions of Preferred Equity Certificates;
 
       
 
  PEC Register   shall mean the register and transfer book maintained by the
Company for the PECs;
 
       
 
  Person   shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organisation or
government (or any agency, instrumentality or political subdivision thereof);
 
       
 
  Redemption Date   shall mean the date fixed for redemption of the A PECs;
 
       
 
  Redemption Price   shall mean a value equal to the sum of (i) the Par Value
for each outstanding A PEC that will be redeemed plus (ii) unpaid Return
accumulated through the Redemption Date;
 
       
 
  Retained Earnings   shall mean the retained earnings of the Company determined
on an unconsolidated basis in accordance with the generally accepted accounting
principles as in effect in Luxembourg. However the retained earnings will be
computed without taking into account the Unpaid Return on the A PECs;
 
       
 
  Return   for any Accrual Period shall accrue on the A PECs from the Date of
Issuance to but not including the earlier of (i) the date on which the A PECs
have been redeemed in whole or otherwise paid in full and (ii) the Payment Date
nearest and prior to the Mandatory Redemption Date. Return will accrue for each
Accrual Period, subject to the payment limitation of section 2.2, in an amount
equal to the (i) Excluded Return for the prior Accrual Period and (ii) the
Company’s Income on the Investment during such Accrual Period. Such amount
accrued at any time for all Accrual Periods since the Date of Issuance, whether
or not declared, is herein called the “Return”. The Return shall be distributed
among the holders of A PECs in a proportion equal to that which the number of
ordinary shares in the Company held by each holder of A PECs bears to the total

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      number of ordinary shares of the Company in issue at any given time;
 
       
 
  Subordinated Securities   shall mean all shares of common stock, whether
outstanding on the date hereof or issued in the future; and
 
       
 
  Unpaid Return   shall be any amount of Return that has accrued but has not
become payable pursuant to the payment limitations of Section 2.1.

2   Return   2.1   Return on the A PECs shall be payable on each Payment Date
only if and to the extent       (a)   declared by the Board of Directors of the
Company,       (b)   the Company is not immediately before and after given
effect to such payment Insolvent; and       (c)   that such payment, will not
violate any covenant contained in or result in a default under any    
      agreement or other financial obligation of the Company.

2.2   Each payment of Return on the A PECs shall be made by the Company directly
to the holders of record as their name appears on the A PEC Register on the
record date for such payment. The record date for such payment shall be the
Business Day immediately preceding the applicable Payment Date or, if not paid
on a Payment Date, the Business Day immediately preceding the actual payment
date.

2.3   Each payment made with respect to the A PECs shall be by wire transfer to
any account maintained by such holder with a bank identified by such holder in a
written notice given to the Company not later than three Business Days prior to
the relevant Payment Date.   3   Redemption   3.1   Mandatory Redemption      
On the Mandatory Redemption Date, the Company shall redeem the outstanding A
PECs at the Redemption Price provided that:       (a)   the Par Value of the A
PECs will be payable to the extent the Company will not be
       Insolvent after making such payment; and       (b)   the Unpaid Return
will be payable only to the extent the Company will not be Insolvent after
       making such payment.       The Redemption Price shall be paid to the
holders of record on the Mandatory Redemption Date.

3.2   Redemption upon Liquidation of the Company       In the event of a
Liquidation the holders of the A PECs shall be entitled to be paid the
Redemption Price, in any event before any payment shall be made or any assets
distributed to the holders of any Subordinated Securities, provided that:      
(a)   the Par Value of the A PECs will be payable to the extent the Company will
not be Insolvent after
       making such payment; and       (b)   the Unpaid Return will be payable
only to the extent the Company will not be Insolvent after
       making such payment.       The Redemption Price shall be paid to the
holders of record ultimately on the date on which the liquidation of the Company
shall be completed.

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    The Board of Managers of the Company shall not cause the shareholders of the
Company to adopt a resolution to commence a voluntary Liquidation without the
consent of the holders of the A PECs unless the Nominal Amount of the
outstanding A PECs can be paid.       For purposes of this Section 3.2 neither
the voluntary sale, conveyance, exchange or transfer (for cash, shares, stock,
securities or other consideration) of all or substantially all the property or
assets of the Company nor the consolidation or merger of the Company with one or
more corporations shall be deemed to be a Liquidation unless such voluntary
sale, conveyance, exchange or transfer shall be in connection with a dissolution
or winding up of the business of the Company.   3.3   Optional Redemption by the
holders of A PECs       As of the date of an Event of Default (as defined in
Section 6), the holders of the A PECs shall be entitled, by notice in writing to
the Company, to have the A PECs held by it redeemed at the Redemption Price,
before any payment shall be made or any assets distributed to the holders of any
Subordinated Securities, provided that:       (a)   the Par Value of the A PECs
will be payable to the extent the Company will not be Insolvent after making
       such payment; and       (b)   the Unpaid Return will be payable only to
the extent the Company will not be Insolvent after making
       such payment.

    The Redemption Price shall be paid to the holder of record ultimately on the
15th day after the aforementioned notice has been received by the Company.   3.4
  Redemption at the option of the Company       The Company may at any time on
giving not less than 10 Business Days notice to the holder thereof, redeem the A
PECs in whole or in part (but if in part only in whole multiples of £10,000) at
par together with any accrued but unpaid Return thereon down to the date of
redemption PROVIDED THAT simultaneously with such redemption the Company redeems
an equal proportion of each of the other preferred equity certificates issued by
it (including for the avoidance of doubt, any other preferred equity
certificates issued to GIFSA).   3.5   General       Redemption of the A PECs
will be subject to the condition that:       (a)   from and after the Redemption
Date, the A PECs shall cease to accrue a Return, and the A PECs shall
       no longer be deemed to be outstanding and all rights of the holders
thereof (except the right to receive
       from the Company the Redemption Price) shall cease. Upon the Redemption
Date, specified for
       redemption in any such notice, the payment of the Redemption Price by the
Company shall become
       payable. Surrender of the A PECs shall be made at the registered office
of the Company.
       Upon surrender in accordance with said notice of the A PECs so redeemed
(properly endorsed or
       assigned for transfer, if the Board of Directors of the Company shall so
require and the notice shall so
       state), such A PECs shall be redeemed by the Company at the Redemption
Price as aforesaid;       (b)   any Return, any Unpaid Return or any other
amount due and not paid on the Redemption
       Date will accrue interest at the Applicable Rate beginning on and
including the Redemption Date.

4   Withholding Taxes       All payments on the A PECs shall be made free and
clear of withholding taxes imposed by any taxing jurisdiction, unless the
withholding of such tax is compelled by law. For purposes of this

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    Section 4, withholding taxes shall not include income taxes measured or
imposed upon the net income of the holder.   5   Covenants       After the Date
of Issuance and for so long as the A PECs are outstanding, the Company will not,
without the written consent of the holders of the A PECs, issue any shares of
capital stock having, upon or following the Liquidation of the Company, any
right to payment ranking prior or equal to the payment in full of the Nominal
Amount on the A PECs to the holders.   6   Default   6.1   Each of the following
events shall constitute an “Event of Default”:

   (a)   the Company shall fail to pay the full amount of any Return, as to
which the requirements of section 2.1 have been met, on the applicable Payment
Date or fail to make any payments required under Section 3 and such failure
continues for five Business Days following the date on which the holder of
record gives notice of such failure to the Company; or      (b)   except as
expressly permitted herein, the Company shall:

  (i)   be dissolved or liquidated;     (ii)   become insolvent or unable to pay
its debts as they become due; or     (iii)   institute or have instituted
against it a proceeding seeking a judgement of insolvency or bankruptcy or any
other relief under bankruptcy or insolvency law, and in the case any such
proceeding or petition instituted or presented against it, such proceeding or
petition:

   (A)   results in a judgement of insolvency or bankruptcy or the entry of an
order for relief or the making of an order for its winding-up or liquidation; or
     (B)   is not dismissed, discharged, stayed or restrained in each case
within 90 days of the institution or presentation thereof.

6.2   The Company shall promptly notify the holders of the A PECs if an Event of
Default occurs.   7   Registration of the A PECs; Transfer Restrictions;
Issuance and Exchange of PEC Certificates; Loss of PEC Certificates   7.1   The
A PECs shall be issued only in registered form, and the name and address of the
holder of each certificate representing the A PECs shall be entered into the A
PEC Register by the Company. Except as expressly required by law, the Person in
whose name the A PEC stand in the A PEC Register shall be deemed to be the full
and undivided owner and record holder thereof for all purposes.   7.2   Upon
request of the holder of record of the A PECs, the Company shall, at the cost of
such holder, issue a certificate evidencing one or more A PECs. In case such
certificate evidences more than one A PEC, the Company shall upon request of the
holder of record replace, at the cost of such holder, such certificate by new
certificates evidencing one or more A PECs.   7.3   Each holder of record shall
promptly notify the Company of any mutilation, loss, theft, or destruction of
any certificate or certificates evidencing the A PECs of which it is the record
holder. The Company may, in its discretion, issue a new certificate in place of
any certificate theretofore issued by it and alleged to have been mutilated,
lost, stolen or destroyed, upon satisfactory proof of such mutilation, loss,
theft or destruction.

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8   General Terms and Conditions of A PECs   8.1   Ranking       Subject to the
terms and conditions hereof, the A PECs shall, with respect to payment rights,
which includes the Return, redemption and rights on liquidation, winding up and
dissolution, rank prior to all Subordinated Securities but the obligations in
respect of the A PEC shalls, except for any other Class of Preferred Equity
Certificates issued by the Company at present or in the future which shall rank
pari passu with the A PEC’s, rank subordinate to all other present and future
obligations of the Company whether secured or unsecured.   8.2   Convertibility
      The A PECs shall not be convertible into any other security issued by the
Company.   8.3   Voting Rights       The holders of record of the A PECs shall
not be entitled to any voting rights in respect of the Company by reason of
their ownership of the A PECs.   8.4   Non recourse       Notwithstanding any
provision of these Terms and Conditions, the obligations of the Company
hereunder to make payments to the holders of the A PECs are, at any time of
determination, limited to the lesser of the Nominal Amount and the Available
Amount. The Available Amount shall, subject to any other provision of this A
PEC, at all times be limited to the income the Company has received from its
Investment up to and including the date of its Liquidation and the value of the
Investment on that date. On a liquidation of the Company, in the event that the
Nominal Amount exceeds the Available Amount, the right of any person to claim
payment in respect the Excess shall be extinguished. No party will, at any time,
have recourse to, or make demand or initiate proceedings against, the Company in
respect of the Excess. The Company shall incur no liability and be under no
additional duty to any person solely as a result of any inability on its part to
make payments or to perform other obligations hereunder, which inability results
from the operation of the foregoing provisions of this clause.   9  
Miscellaneous   9.1   Governing Law       These Terms and Conditions of the A
PECs shall be governed by and shall be construed in accordance with the laws of
Luxembourg and the Company and the holders of the A PECs accepting these terms
and conditions hereby submit to the non-exclusive jurisdiction of the Courts of
Luxembourg with respect to any suit, action or proceeding relating hereto.

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EXECUTED AS AN AGREEMENT

                 
SIGNED by
    )          
for and on behalf of
    )          
Macquarie Luxembourg Water Sarl
    )          
 
          /s/ Jim Craig    
 
    )    
 
Authorised Signatory    
 
    )          
 
    )          
 
    )          
 
          /s/ Annabelle Helps    
 
    )    
 
Authorised Signatory    
 
    )            
SIGNED by
    )          
for and on behalf of
    )          
South East Water LLC
    )          
 
          /s/ Peter Stokes    
 
    )    
 
Authorised Signatory    
 
    )          
 
    )          
 
    )          
 
               
 
    )    
 
Authorised Signatory    
 
    )          

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Terms and Conditions of
Class B Preferred Equity
Certificates
Dated 22 December, 2004
Macquarie Luxembourg Water Sarl (1)
South East Water LLC (2)

 

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TABLE OF CONTENTS

         
AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES
    1  
TERMS AND CONDITIONS
    1  
1 Definitions
    1  
2 Return
    4  
3 Redemption
    4  
4 Withholding Taxes
    6  
5 Covenants
    6  
6 Default
    6  
7 Registration of the B PECs; Transfer Restrictions; Issuance and Exchange of B
PEC Certificates; Loss of B PEC Certificates
    6  
8 General Terms and Conditions of B PECs
    7  
9 Miscellaneous
    7  

 

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  DATE   December 22, 2004

PARTIES
MACQUARIE LUXEMBOURG WATER Sarl., a private limited liability company,
incorporated under the laws of Luxembourg, whose registered office is at 5, rue
Guillaume, BP 2501, L-1025 Luxembourg (the “Company”); and
SOUTH EAST WATER LLC, whose principal executive office is at 600 Fifth Avenue,
21st Floor, New York, New York 10020 (“SEW LLC”).
AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES
The board of managers of the Company has authorised the issuance of 9,712,500
Class B Preferred Equity Certificates (collectively the “B PECs” and
individually, a “B PEC”) to SEW LLC, having an aggregate par value of £9,712,500
in respect of making debt investments in infrastructure and related assets
located in European EOCD countries. The PECs shall be denominated in British
Pounds upon issuance thereof. Each B PEC shall be issued in registered form.
TERMS AND CONDITIONS

1   Definitions

As used in these Terms and Conditions, the following terms shall have the
following meaning:

         
 
  Accrual Period   shall mean each period from, and including, one Payment Date
to, but excluding, the next following Payment Date, except for the initial
Accrual Period that will commence on, and include, the Date of Issuance. If the
B PECs are redeemed under any provision of Section 3, the Accrual Period, with
respect to the B PECs redeemed, shall mean the period from and including the
Payment Date immediately preceding the date of redemption of the B PECs to but
excluding the date of redemption;
 
       
 
  Annual Payment Date   shall mean each twelve-month anniversary after the
initial Payment Date;
 
       
 
  Applicable Rate   shall mean the rate of return equal to the 12 month EURIBOR
rate at the Date of Issuance of the B PECs plus 200 basis points for each
Accrual Period;
 
       
 
  Available Amount   shall mean the amount available to make payments to the
holders of the B PECs;
 
       
 
  B PECs   shall mean the PECs issued, or to be issued, by the Company under
this Agreement;

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  B PEC Register   shall mean the register and transfer book maintained by the
Company for the B PECs;
 
       
 
  Business Day   shall mean any day other than a Saturday, Sunday or other day
on which banking institutions in Luxembourg and London are required or
authorised to remain closed;
 
       
 
  Company   Macquarie Luxembourg Water Sarl, a private limited liability
company, incorporated under the laws of Luxembourg, whose registered office is
at 5, rue Guillaume, BP 2501, L-1025 Luxembourg;
 
       
 
  Company’s Income   shall mean all income and realised gains received by the
Company from its Investment during the Accrual Period, less the Costs;
 
       
 
  Costs   shall mean all costs and expenses incurred by the Company during the
Accrual Period that are economically attributable to the Investment. Such Costs
will not include the Return paid or accrued during such Accrual Period on the B
PECs, nor income taxes imposed by the Grand-Duchy of Luxembourg or any
sub-division, municipality or local authority thereof;
 
       
 
  Date of Issuance   shall mean the date as of which the B PECs are issued;
 
       
 
  Excess   shall mean the amount with which the Nominal Amount exceeds the
Available Amount;
 
       
 
  Excluded Return   for any given period means the total amount of return
excluded from such period by reason of the limitations set forth in Section 2.2;
 
       
 
  Initial Accrual Period   shall mean the period from and including the Date of
Issuance up to but excluding the Initial Payment Date;
 
       
 
  Initial Payment Date   shall mean 31 March 2005;
 
       
 
  Insolvent   shall mean the situation where the aggregate amount of the
Company’s obligations, determined in accordance with generally accepted
accounting principles as in effect in Luxembourg, exceeds the fair market value
of the Company’s assets. The B PECs and any Class of preferred equity
certificates that will be issued after this date will be regarded as obligations
of the Company for the purpose of computing the Company’s insolvency;
 
       
 
  Intermediary Payment Date   shall mean any date determined at the discretion
of the Board of Directors of the Company.
 
       
 
  Investment   shall mean the Company’s holding of an interest bearing loan
receivable of £55,500,000 on Macquarie Water (UK) Limited as held at the Date of
Issuance or to be increased or decreased by the Company thereafter;

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Liquidation
  shall mean the event of any voluntary or involuntary liquidation, bankruptcy,
dissolution or winding up of the affairs of the Company;
 
   
Mandatory Redemption Date
  shall mean the Payment Date nearest and prior to the 98th anniversary of the
Date of Issuance;
 
   
Nominal Amount
  shall mean the Par Value of any outstanding B PEC plus any Unpaid Return;
 
   
Par Value
  shall mean £1.00 (one British Pound) with respect to each outstanding B PEC;
 
   
Payment Date
  shall mean the Initial Payment Date, any Annual Payment Date, any Intermediary
Payment Date and the Redemption Date. A reasonable amount of time will be
granted to the board of managers of the Company after each Payment Date to
determine the amount of Return payable for any Accrual Period;
 
   
PEC or PECs
  shall mean individually or collectively the Preferred Equity Certificates
issued or to be issued by the Company under the Terms and Conditions of
Preferred Equity Certificates;
 
   
PEC Register
  shall mean the register and transfer book maintained by the Company for the
PECs;
 
   
Person
  shall mean any individual, corporation, company, voluntary association,
partnership, joint venture, trust, unincorporated organisation or government (or
any agency, instrumentality or political subdivision thereof);
 
   
Redemption Date
  shall mean the date fixed for redemption of the B PECs;
 
   
Redemption Price
  shall mean a value equal to the sum of (i) the Par Value for each outstanding
B PEC that will be redeemed plus (ii) Unpaid Return accumulated through the
Redemption Date;
 
   
Retained Earnings
  shall mean the retained earnings of the Company determined on an
unconsolidated basis in accordance with the generally accepted accounting
principles as in effect in Luxembourg. However the Retained Earnings will be
computed without taking into account the Unpaid Return on the B PECs;
 
   
Return
  for any Accrual Period shall accrue on B PECs from the Date of Issuance to but
not including the earlier of (i) the date on which all of the B PECs have been
redeemed in whole or otherwise paid in full and (ii) the Payment Date nearest
and prior to the Mandatory Redemption Date. Return will accrue for each Accrual
Period, subject to the payment limitation of Section 2.2, in an amount equal to
the sum of (a) the Excluded Return for then prior Accrual Period, (b) the
Company’s Income during such Accrual Period minus the net required taxable
profit to be reported by the Company in Luxembourg with respect to its

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  Investment during such Accrual Period. Such amount accrued at any time for all
Accrual Periods since the Date of Issuance, whether or not declared, is herein
called the “Return”.
 
   
Subordinated Securities
  shall mean all shares of common stock, whether outstanding on the date hereof
or issued in the future; and
 
   
Unpaid Return
  shall be any amount of Return that has accrued but has not become payable
pursuant to the payment limitations of Section 2.1.

2   Return   2.1   Return on the B PECs shall be payable on each Payment Date
only if and to the extent

  (a)   declared by the board of managers of the Company;     (b)   the Company
is not immediately before and after given effect to such payment Insolvent;    
(c)   that such payment, will not violate any covenant contained in or result in
a default under any agreement or other financial obligation of the Company.

2.2   Each payment of Return on the B PECs shall be made by the Company directly
to the holders of record as their names appear on the B PEC Register on the
record date for such payment. The record date for such payment shall be the
Business Day immediately preceding the applicable Payment Date or, if not paid
on a Payment Date, the Business Day immediately preceding the actual payment
date.   2.3   Each payment made with respect to a B PEC shall be by wire
transfer to any account maintained by such holder with a bank identified by such
holder in a written notice given to the Company not later than three Business
Days prior to the relevant Payment Date.   3   Redemption   3.1   Mandatory
Redemption       On the Mandatory Redemption Date, the Company shall redeem all
(but not some) of the then outstanding B PECs at the Redemption Price provided
that:

  (a)   the Par Value of the B PECs will be payable to the extent the Company
will not be Insolvent after making such payment; and     (b)   the Unpaid Return
will be payable only to the extent the Company will not be Insolvent after
making such payment.

    The Redemption Price shall be paid to the holders of record on the Mandatory
Redemption Date.   3.2   Redemption upon Liquidation of the Company       In the
event of a Liquidation the holders of the B PECs shall be entitled to be paid
the Redemption Price, in any event before any payment shall be made or any
assets distributed to the holders of any Subordinated Securities, provided that:

  (a)   the Par Value of the B PECs will be payable to the extent the Company
will not be Insolvent after making such payment; and     (b)   the Unpaid Return
will be payable only to the extent the Company will not be Insolvent after
making such payment.

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    The Redemption Price shall be paid to the holders of record ultimately on
the date on which the Liquidation of the Company shall be completed.       The
board of managers of the Company shall not cause the shareholders of the Company
to adopt a resolution to commence a voluntary Liquidation without the consent of
the holders of the B PECs unless the Nominal Amount of the outstanding B PEC’s
can be paid.       For purposes of this Section 3.2 neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares, stock, securities or other
consideration) of all or substantially all the property or assets of the Company
nor the consolidation or merger of the Company with one or more corporations
shall be deemed to be a Liquidation unless such voluntary sale, conveyance,
exchange or transfer shall be in connection with a dissolution or winding up of
the business of the Company.   3.3   Optional Redemption by the holders of B
PECs       As of the date of an Event of Default (as defined in Section 6), any
holder of B PECs shall be entitled, by notice in writing to the Company, to have
the B PECs held by it redeemed at the Redemption Price, before any payment shall
be made or any assets distributed to the holders of any Subordinated Securities,
provided that:

  (a)   the Par Value of the B PECs will be payable to the extent the Company
will not be Insolvent after making such payment; and     (b)   the Unpaid Return
will be payable only to the extent the Company will not be Insolvent after
making such payment.

    The Redemption Price shall be paid to the holders of record ultimately on
the 15th day after the aforementioned notice has been received by the Company.  
3.4   Redemption at the option of the Company       The Company may at any time
on giving not less than 10 Business Days notice to the holder thereof, redeem
the B PECs in whole or in part (but if in part only in whole multiples of
£10,000) at par together with any accrued but unpaid Return thereon down to the
date of redemption PROVIDED THAT simultaneously with such redemption the Company
redeems an equal proportion of each of the other preferred equity certificates
issued by it (including for the avoidance of doubt, any other preferred equity
certificates issued to SEW LLC).   3.5   General       Redemption of the B PECs
will be subject to the condition that:

  (a)   from and after the Redemption Date, the B PECs shall cease to accrue a
Return, and the B PECs shall no longer be deemed to be outstanding and all
rights of the holders thereof (except the right to receive from the Company the
Redemption Price) shall cease. Upon the Redemption Date, specified for
redemption in any such notice, the payment of the Redemption Price by the
Company shall become payable. Surrender of the B PECs shall be made at the
registered office of the Company. Upon surrender in accordance with said notice
of the B PECs so redeemed (properly endorsed or assigned for transfer, if the
board of managers of the Company shall so require and the notice shall so
state), such B PECs shall be redeemed by the Company at the Redemption Price as
aforesaid;     (b)   any Par Value or any Unpaid Return payable pursuant to
Section 3.1. to and including Section 3.3. but not paid on the Redemption Date
will accrue interest at the Applicable Rate beginning on and including the
Redemption Date.

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4   Withholding Taxes       All payments on the B PECs shall be made free and
clear of withholding taxes imposed by any taxing jurisdiction, unless the
withholding of such tax is compelled by law. For purposes of this Section 4,
withholding taxes shall not include income taxes measured or imposed upon the
net income of the holder.   5   Covenants       After the Date of Issuance and
for so long as any B PECs are outstanding, the Company will not, without the
written consent of the holders of the B PECs, issue any shares of capital stock
having, upon or following the Liquidation of the Company, any right to payment
ranking prior or equal to the payment in full of the Nominal Amount on each B
PEC to the holders.   6   Default   6.1   Each of the following events shall
constitute an “Event of Default”:

  (a)   the Company fails to pay the full amount of any Return, as to which the
requirements of Section 2.1 have been met, on the applicable Payment Date or
fails to make any payments required under Section 3 and such failure continues
for five Business Days following the date on which the holder of record gives
notice of such failure to the Company; or     (b)   except as expressly
permitted herein, the Company:

  (i)   is dissolved or liquidated;     (ii)   becomes insolvent or unable to
pay its debts as they become due; or     (iii)   institutes or has instituted
against it a proceeding seeking a judgement of insolvency or bankruptcy or any
other relief under bankruptcy or insolvency law, and in the case any such
proceeding or petition instituted or presented against it, such proceeding or
petition:

  (A)   results in a judgement of insolvency or bankruptcy or the entry of an
order for relief or the making of an order for its winding-up or liquidation; or
    (B)   is not dismissed, discharged, stayed or restrained in each case within
90 days of the institution or presentation thereof.

6.2   The Company shall promptly notify the holders of the B PECs if an Event of
Default has occurred.   7   Registration of the B PECs; Transfer Restrictions;
Issuance and Exchange of B PEC Certificates; Loss of B PEC Certificates   7.1  
All B PECs shall be issued only in registered form, and the name and address of
the holder of each certificate representing a B PEC shall be entered into the B
PEC Register by the Company. Except as expressly required by law, the Person in
whose name the B PECs stand in the B PEC Register shall be deemed to be the full
and undivided owner and record holder thereof for all purposes.   7.2   Upon
request of the holder of record of the B PECs, the Company shall, at the cost of
such holder, issue a certificate evidencing one or more B PECs. In case such
certificate evidences more than one B PEC, the Company shall upon request of the
holder of record replace, at the cost of such holder, such certificate by new
certificates evidencing one or more B PECs.   7.3   Each holder of record shall
promptly notify the Company of any mutilation, loss, theft, or destruction of
any certificate or certificates evidencing any B PECs of which it is the record
holder.

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    The Company may, in its discretion, issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon satisfactory proof of such mutilation, loss, theft or
destruction.   7.4   The transfer of any B PEC is subject to the prior written
consent of the Company.   8   General Terms and Conditions of B PECs   8.1  
Ranking       Subject to the terms and conditions hereof, the B PECs shall, with
respect to payment rights, which includes the Return, redemption and rights on
liquidation, winding up and dissolution, rank prior to all Subordinated
Securities but the obligations in respect of the B PECs shall, except for any
other class of preferred equity certificates issued by the Company at present or
in the future which shall rank pari passu with the B PEC’s, rank subordinate to
all other present and future obligations of the Company whether secured or
unsecured.   8.2   Convertibility       The B PECs shall not be convertible into
any other security issued by the Company.   8.3   Voting Rights.       The
holders of record of the B PECs shall not be entitled to any voting rights in
respect of the Company by reason of their ownership of the B PECs.   8.4   Non
recourse       Notwithstanding any provision of these Terms and Conditions, the
obligations of the Company hereunder to make payments to the holders of the B
PECs are, at any time of determination, limited to the lesser of the Nominal
Amount and the Available Amount. The Available Amount shall, subject to any
other provision of this B PEC, at all times be limited to the income the Company
has received from its Investment up to and including the date of its Liquidation
and the value of the Investment on that date. On a liquidation of the Company,
in the event that the Nominal Amount exceeds the Available Amount, the right of
any person to claim payment in respect the Excess shall be extinguished. No
party will, at any time, have recourse to, or make demand or initiate
proceedings against, the Company in respect of the Excess. The Company shall
incur no liability and be under no additional duty to any person solely as a
result of any inability on its part to make payments or to perform other
obligations hereunder, which inability results from the operation of the
foregoing provisions of this clause.   9   Miscellaneous   9.1   Governing Law  
    These Terms and Conditions of the B PECs are governed by, and shall be
construed in accordance with, the laws of Luxembourg and the Company and any
holders of the B PECs accepting these terms and conditions hereby submit to the
non-exclusive jurisdiction of the courts of Luxembourg with respect to any suit,
action or proceeding relating hereto.

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EXECUTED AS AN AGREEMENT

                 
SIGNED by
    )          
for and on behalf of
               
Macquarie Luxembourg Water Sarl
    )     /s/ Jim Craig                      
 
    )     Authorised signatory    
 
    )          
 
    )          
 
    )     /s/ Annabelle Helps                      
 
    )     Authorised signatory    
 
    )          
 
               
SIGNED by
    )          
for and on behalf of
    )     /s/ Peter Stokes                      
South East Water LLC
    )     Authorised signatory    
 
    )          
 
    )          
 
    )                            
 
    )     Authorised signatory    
 
    )          

8