Document:

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                                                                    EXHIBIT 10.1

                                 LOAN AGREEMENT

This Loan Agreement is made as of February 7,2003.

BETWEEN :

         SCOTIABANK (CAYMAN ISLANDS) LTD., a banking institution organised and
         existing under the laws of the Cayman Islands, with its principal place
         of business located at Scotiabank Centre, Cardinal Avenue, George
         Town, Grand Cayman,

         - AND -

         CONSOLIDATED WATER CO. LTD., a company incorporated in the Cayman
         Islands, with its registered office located at P.O. Box 1114 GT,
         Trafalgar Place, George Town, Grand Cayman, Cayman Islands,

WHEREAS

                  A)       The Borrower is the registered proprietor with
                           absolute title to parcels 8 and 469 in Block 9A of
                           the West Bay North East Registration Section of Grand
                           Cayman, parcels 8 and 40 in Block 11D of the West
                           Bay Beach North Registration Section of Grand Cayman,
                           and is also the proprietor of a leasehold interest in
                           parcel 79 REM 1 / 2 in Block 12D of the West Bay
                           Beach South Registration Section of Grand Cayman (all
                           such parcels of land being hereinafter referred to as
                           "the Property") the same being more particularly
                           described and depicted respectively in the Land
                           Registers and Registry Maps annexed hereto as
                           Schedule "A".

                  B)       The Bank has agreed to make available to the Borrower
                           three Loans for the purposes herein set forth, in
                           the maximum aggregate amount of THIRTY NINE MILLION
                           ONE HUNDRED THOUSAND UNITED STATES DOLLARS
                           ($39,100,000.00) in consideration of the various
                           representations, warranties, covenants, security and
                           other undertakings hereinafter set forth, made or
                           agreed by the Borrower.
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                  C)       The Borrower has agreed to borrow up to an aggregate
                           maximum of such amount constituting the three Loans
                           as more fully set out hereunder.

NOW THEREFORE in consideration of the premises and the mutual agreements
hereinafter contained, it is hereby agreed by and between the parties as
follows:

                                    SECTION 1
                     DEFINITIONS AND RULES OF INTERPRETATION

SECTION 1.1       DEFINED TERMS

         Except as otherwise expressly provided herein, capitalized terms used
in this Agreement and its Schedules and Exhibits shall have the respective
meanings assigned to such terms in Appendix A hereto.

SECTION 1.2       ACCOUNTING:PRINCIPLES

         Except as otherwise,provided in this Agreement, all computations and
determinations as to financial matters, and all financial statements to be
delivered under this Agreement shall be made or prepared in Dollars in
accordance with U.S. GAAP (including principles of consolidation where
appropriate) applied on a consistent basis.

                                    SECTION 2
                                THE WORKING LOAN

SECTION 2.1       WORKING LOAN

                  (a)      The Bank agrees, upon the terms and conditions set
                           forth in this Agreement, to grant to the Borrower the
                           Working Loan, and the Borrower agrees to accept such
                           Working Loan from the Bank.

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                  (b)      The aggregate maximum amount of advances under the
                           Working Loan that may be outstanding at any time
                           shall be the lesser of i) the Borrowing Base or ii)
                           two million Dollars ($2,000,000.00).

                  (c)      The Working Loan, in a maximum principal amount of
                           two million Dollars ($2,000,000.00), shall take the
                           form of: (i) a revolving overdraft facility evidenced
                           by the records of the Bank; and (ii) the GOCI Letter
                           of Credit. The Working Loan will be payable as
                           provided herein, will be subject to all the relevant
                           conditions as set out herein, and will be secured by
                           the Security Documents as provided in this Agreement.

                  (d)      Upon the termination of the GOCI Letter of Credit in
                           accordance with the terms contained therein or upon
                           the reimbursement by the Borrower of any amount drawn
                           under the GOCI Letter of Credit by the beneficiary
                           thereof, such amounts so retired or reimbursed shall
                           constitute undrawn amounts under the Working Loan and
                           shall become available to Borrower for the purposes
                           of requesting further advances in accordance with the
                           terms hereof.

SECTION 2.2       PURPOSE OF THE WORKING LOAN

         The proceeds of the Working Loan shall be utilized by the Borrower to:
(i) finance the Working Capital requirements of the Borrower; and (ii) issue the
GOCI Letter of Credit.

SECTION 2.3       ADVANCES FROM THE WORKING LOAN

                  (a)      Provided that all the conditions precedent as set out
                           in Sections 11 and 12 hereunder have been met and the
                           Borrower is in compliance with all the terms and
                           conditions set out in this Agreement, then the
                           Borrower shall be entitled

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                  from time to time as and when required to draw from this
                  Working Loan,

                                    SECTION 3
                    THE ACQUISITION LOAN AND THE BRIDGE LOAN

SECTION 3.1       PURPOSE OF THE ACQUISITION LOAN

         The proceeds of the Acquisition Loan shall be utilized by the Borrower
to finance the Acquisition and to pay existing credit facilities which the
Borrower currently has in place with other financial institutions.

SECTION 3.2       THE ACQUISITION LOAN AND POST ACQUISITION REVOLVING LOAN

                  (a)      The Bank agrees, upon the terms and conditions set
                           forth in this Agreement, to grant to the Borrower the
                           Acquisition Loan, and the Borrower agrees to accept
                           the Acquisition Loan from the Bank, in the aggregate
                           maximum amount of twenty million Dollars
                           ($20,000,000.00).

                  (b)      Upon the request of the Borrower, the Acquisition
                           Loan may, with the Bank's prior written approval,
                           such approval to be in the sole discretion of the
                           Bank, be converted into the Post Acquisition
                           Revolving Loan provided that: (i) the Borrower has
                           repaid to the Bank all amounts outstanding under the
                           Bridge Loan; and (ii) the Borrower and the Bank shall
                           have come to a written agreement as to applicable
                           terms which shall govern the Post Acquisition
                           Revolving Loan.

                  (c)      In the event that the Acquisition Loan is converted
                           to the Post Acquisition Revolving Loan, and the
                           Borrower is in compliance with all the terns and
                           conditions set out in this Agreement, then the
                           Borrower shall be entitled from time to time as and
                           when required to draw from the Post Acquisition
                           Revolving Loan. The Post Acquisition Revolving Loan
                           will be a revolving facility evidenced by a
                           promissory note (if deemed necessary by the Bank).

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SECTION 3.3       PURPOSE OF THE BRIDGE LOAN

         The proceeds of the Bridge Loan shall be utilized by the Borrower to
finance the Acquisition.

SECTION 3.4       THE BRIDGE LOAN

         The Bank agrees, subject to the completion of the Acquisition and upon
the terms and conditions set forth in this agreement, to grant to the Borrower
the Bridge Loan, and the Borrower agrees to accept the Bridge Loan from the
Bank, in the aggregate maximum amount of seventeen million one hundred thousand
Dollars ($17,100,000.00).

SECTION 3.5       THE ACQUISITION AND BRIDGE LOANS

         The Acquisition Loan and the Bridge Loan will be payable as provided
herein, will be subject to all the relevant conditions as set out herein, and
will be secured by the Security Documents as provided in this Agreement.

SECTION 3.6       ADVANCES

         Whenever the Borrower wishes to draw down an Advance under either the
Acquisition or Bridge Loans:

                  (a)      It shall give a Drawdown Notice to the Bank in
                           relation to the relevant Loan in the form of Schedule
                           3.6(a). Each Drawdown Notice shall specify;

                           (i)      the Drawdown Date (which shall be a Business
                                    Day),

                           (ii)     the amount of the Advance or Advances, which
                                    shall be not less

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                                    than five hundred thousand Dollars
                                    $500,000.00, and

                           (iii)    the Interest Period or Interest Periods.

                  (b)      A Drawdown Notice in relation to each of the
                           Acquisition and Bridge Loans may be given to the Bank
                           no more frequently than monthly but may relate to
                           more than one Advance.

SECTION 3.7

         The Bank shall have no obligation to make any Advance under any such
Drawdown Notice unless:

                  (a)      All documents, certificates etc. referred to in
                           Sections 11 and 12 have been. received;

                  (b)      at the time when the Drawdown Notice is received by
                           the Bank and at the time for making the Advance
                           referred to in such Drawdown Notice, the
                           representations and warranties made by Borrower in
                           this Agreement and any other documents delivered by
                           the Borrower to the Bank are true and accurate in all
                           material respects at such times respectively as if
                           repeated therein;

                  (c)      at each such time no breach of covenants or other
                           event shall have occurred which is an Event of
                           Default or which with the giving of notice or the
                           lapse of time might constitute an Event of Default;

                  (d)      the Security Documents and all transactions
                           contemplated by the Security Documents shall be in
                           form and substance satisfactory to the Bank, the
                           security intended to be conferred thereby shall be a
                           valid and enforceable

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                  first lien, and the Bank shall have received such other
                  documents, authorizations, resolutions, consents, licenses or
                  opinions as it may reasonably request in relation to the
                  Security Documents; and

         (e)      the Bank is reasonably satisfied that no portion of the
                  Property has been, or is under threat of expropriation by any
                  government authority.

SECTION 3.8       EVIDENCE OF INDEBTEDNESS

         The Borrower acknowledges that the actual recording of any Indebtedness
in connection with the Loans and interest, fees and other amounts due from the
Borrower pursuant to the terms of this Agreement in an account of the Borrower
maintained by the Bank in respect thereof and payments made under the Loans in
accordance with the terms of this Agreement shall constitute, except for
manifest error, conclusive evidence of the Borrower's indebtedness and liability
from time to time under this Agreement in respect of the Loans; provided that
the failure of the Bank to record same in such account shall not affect the
obligation of the Borrower to pay or repay such indebtedness and liability in
accordance with this Agreement.

                                    SECTION 4
                                      FEES

         The Borrower agrees to pay to the Bank the fees specified in a fee
letter dated the same day as this Agreement addressed from the Bank to the
Borrower, such fees to be payable at the times and in the amounts specified in
such letter.

                                    SECTION 5
                                    SECURITY

         As security for:

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         5.1      The repayment of the Loans and the payment of interest and all
                  other amounts owing by the Borrower to the Bank under this
                  Agreement or otherwise howsoever; and

         5.2      The discharge by the Borrower of its other obligations
                  hereunder and under the Security Documents.

         The Borrower shall provide, or cause to be provided, in a form and
content acceptable to the Bank, the following:

                  (a)      The Debenture, to be stamped initially in the amount
                           of twenty-two million Dollars ($22,000,000.00), and
                           which may be up-stamped in accordance with Section
                           15.23 so as to provide the Bank, in its sole
                           discretion, adequate security.

                  (b)      The collateral Charges over the Property stamped
                           collateral to the Debenture;

                  (c)      The (Guarantees;

                  (d)      The assignment of the "All Risks" insurance policy
                           and all other insurance policies of the Borrower
                           listed in Schedule 5.2(d) and required to be
                           maintained by this Agreement, to be executed by the
                           Borrower in favor of the Bank, the terms of such
                           insurance to meet the requirements more fully set out
                           in Section 15.6;

                  (e)      Pledge of Shares providing a first charge over all
                           the Shares with the necessary notation or
                           registrations made on the books or registers of the
                           appropriate companies in order to properly reflect
                           the Bank's security interest in the Shares;

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                  (f)      Written undertakings from both Ocean Conversion
                           (Cayman) Ltd. and Waterfields Company Limited that
                           upon the occurrence of the agreed to triggering
                           events, as set out in the undertakings, the
                           respective parties shall provide to the Bank the
                           pledge of shares and guarantees in the format
                           attached to such undertakings; and

                  (g)      The Bank's standard letter of credit reimbursement
                           agreement in respect of the GOCI Letter of Credit.

                                    SECTION 6
                                    INTEREST

SECTION 6.1       INTEREST RATE

                  (a)      Working Loan - Advances under the Working Loan, other
                           than those amounts utilized for the GOIC Letter of
                           Credit, shall accrue interest at the Base Rate.
                           Advances in relation to the GOIC Letter of Credit
                           shall accrue interest at one percent (1%) per annum.

                  (b)      Acquisition Loan - Pursuant to an appropriately
                           delivered Draw down Notice, the Borrower may select
                           an Interest Period of 30, 90 or 180 days in respect
                           of the LIBO Rate subject to the definition of
                           Interest Period in Annex "A". Advances shall accrue
                           interest at a rate per annum during each Interest
                           Period, equal to the sum of the LIBO Rate then
                           applicable to the Acquisition Loan plus the
                           Applicable Margin.

                  (c)      Bridge Loan - Pursuant to an appropriately delivered
                           Draw down Notice, the Borrower may select an Interest
                           Period of 30, 90 or 180 days in respect of the LIBO
                           Rate subject to the definition of Interest Period in
                           Anwx "A". Advances shall accrue interest at a rate
                           per annum during

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                           each Interest Period, equal to the sum of the LIB0
                           Rate then applicable to the Bridge Loan plus the
                           Applicable Margin.

                  (d)      Applicable Margin - The Applicable Margin shall be
                           determined in respect of the Acquisition Loan and the
                           Bridge Loan on the first Interest Calculation Date
                           and each annual anniversary thereafter, by
                           calculating the ratio of Debt to EBITDA based on
                           information contained in the annual audited Financial
                           Statements of the Borrower and applying such ratio
                           pursuant to the table set out below. Notwithstanding
                           the above, the parties agree that the Margin shall be
                           equal to 2.75% per annum for the purposes of
                           calculating the effective interest rate on any
                           Interest Calculation Date prior to the date that the
                           year 2002 annual audited Financial Statements of the
                           Borrower are made available to the Bank. Thereafter,
                           on each annual anniversary of the Interest
                           Calculation Date, the most recent annual audited
                           Financial Statement of the Borrower shall be utilized
                           for the purposes of calculating the Applicable
                           Margin.

<TABLE>
<S>                                                                         <C>
If the ratio of the Debt to EBITDA is less than or equal to 1.5              1.5%

If the ratio of the Debt to EBITDA is greater than 1.5 but equal to         1.75%
or less than 2.0

If the ratio of the Debt to EBITDA is greater than 2.0 but equal to            2%
or less than 2.5

If the ratio of the Debt to EBITDA is greater than 2.5 but equal to         2.25%
or less than 3.0

If the ratio of the Debt to EBITDA is greater than 3.0 but equal to          2.5%
</TABLE>

                                                                              10
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<TABLE>
<S>                                                                         <C>
or less than 3.5

If the ratio of the Debt to EBITDA is greater than 3.5 but equal to         2.75%
or less than 4

If the ratio of the Debt to EBITDA is greater than 4                           3%
</TABLE>

SECTION 6.2       INTEREST RATE SELECTION PROCEDURE

                  (a)      Not later than five (5) Business Days prior to an
                           Interest Period the Borrower shall request;

                           (i)      an Interest Period as permitted pursuant to
                                    Section 6.l(b) and (c), and/or

                           (ii)     the Fixed Period, when and if applicable
                                    pursuant to Section 6.3,

                  and the Bank shall thereafter notify the Borrower of the
                  interest rate applicable two (2) Business Days prior to the
                  beginning of the Interest Period.

                  (b)      If the Borrower fails to select an Interest Period in
                           accordance with Section 6.1 (b) or (c) above, it
                           shall be deemed to have selected a LIBOR Interest
                           Period of one (1) month;

                  (c)      The Interest Period selected or deemed to be selected
                           as contemplated in this Section shall be irrevocable
                           and binding on the Borrower; and

                  (d)      Other than the last Interest Period, the termination
                           of which, must coincide with the last scheduled
                           principal repayment of the Acquisition Loan, Interest
                           Periods

                                                                              11
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                           selected, to the extent possible, should coincide
                           with the scheduled principal repayment dates for the
                           Acquisition Loan.

SECTION 6.3       FIXED RATE FUNDING OPTION

                  (a)      Upon the request of the Borrower, and at the sole
                           discretion of the Bank, as an alternative to the LIB0
                           Rate Loans, fixed rate funding for all, or no less
                           than five million Dollars ($5,000,000.00),of the
                           Acquisition Loan for periods not exceeding sixty (60)
                           months or the last Repayment Date applicable to the
                           Acquisition Loan (whichever shall first occur) shall
                           be available, from time to time, with rates to be
                           provided on a quotation basis subject to the
                           availability to the Bank of matching deposits in
                           accordance with the following:

                           (i)      Subject to the Bank's consent, and at the
                                    verbal request of the Borrower, the Bank
                                    shall notify the Borrower verbally of the
                                    fixed rate of interest applicable to the
                                    amount of the Acquisition Loan, as specified
                                    in the Borrower's request, to which the
                                    Fixed Rate Funding Option applies; and

                           (ii)     The Fixed Rate Funding Option may then be
                                    exercised by the Borrower by delivering an
                                    irrevocable written request to the Bank at
                                    least five (5) Business Days before the last
                                    day of the then current interest Period with
                                    respect thereto, stipulating that, on the
                                    last day of such interest Period, the Fixed
                                    Rate Funding Option shall be applicable to
                                    all or no less than five million Dollars
                                    ($5,000,000.00)of the Acquisition Loan at
                                    the rate of interest specified in such
                                    written request delivered by the Borrower to
                                    the Bank and acknowledged by the Bank.

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SECTION 6.4       POST-MATURITY RATES

         On any overdue portion of each Loan, the Borrower shall pay, but only
to the extent permitted by law, interest on such overdue amount at a rate per
annum equal to the LIB0 Rate of an Interest Period of one (1) month duration
plus the highest Applicable Margin pursuant to Section 6.l(d) plus an additional
2%.

SECTION 6.5       PAYMENT OF INTEREST

                  (a)      Interest on amounts outstanding under the Working
                           Loan shall be payable monthly in arrears on the last
                           Business Day of each month.

                  (b)      For any period that the Acquisition or Bridge Loans
                           are LIBOR funded, interest shall be paid on the last
                           day of every Interest Period unless the Interest
                           Period is in excess of ninety (90) days, in which
                           event interest will be paid at the end of each ninety
                           (90) days within such Interest Period, and shall also
                           be payable at the end of the Interest Period.

                  (c)      For any period that the Acquisition or Bridge Loans
                           are based upon a Fixed Rate or is Base Rate funded,
                           interest shall be paid every ninety (90) days in
                           arrears.

                  (d)      Each payment of interest shall be paid at the Bank's
                           offices in Cayman in immediately available funds, not
                           later than 12:00 noon Cayman time on the date each
                           payment is due or to such other location as the Bank
                           may designate in writing, acting reasonably. In the
                           event that the Bank designates an alternative place
                           of payment which results in the imposition of a tax
                           not otherwise payable but for the Bank's designation,
                           the Borrower shall not be responsible for the payment
                           of such tax.

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SECTION 6.6       COMPUTATION OF INTEREST

         Interest shall accrue from day to day for the actual number of days
elapsed. Interest shall be calculated a) on the basis of a 360 day year, and b)
so as to include the first day but exclude the last day. All computations
(of interest shall be made by the Bank.

SECTION 6.7       USURY INTEREST

         It is the intention of the Borrower and the Bank to comply with all
applicable usury laws; accordingly, it is agreed that no provisions in this
Agreement or any of the other Security Documents shall require the payment or
permit the collection of interest in excess of the maximum rate of interest that
can be charged in Cayman from time to time on Loans of this nature. If any
interest in excess of the Maximum Rate is provided for, or shall be adjudicated
to be so provided for, then in such event, i) the provisions of this section
shall govern, ii) neither the Borrower, or Guarantors, nor their respective
heirs, legal representatives, successors or assigns nor any other Person liable
for the payment, shall he obligated to pay interest to the extent that it is in
excess of the Maximum Rate, iii) any excess interest which may have been
collected shall, at the Bank's option, be either applied as a credit against the
then unpaid principal indebtedness or refunded to the Borrower, and iv) the
effective rate of interest automatically shall be reduced to the Maximum Rate;
provided, however, if from time to time thereafter the interest rate otherwise
then in effect shall be less than the Maximum Rate then in force, the interest
rate then in effect shall he automatically increased to the Maximum Rate and
remain at the Maximum Rate until the total amount of; (a) any excess interest
theretofore credited or repaid to the Borrower (pursuant to the foregoing
provisions of this Section); and (b) any interest which would have been earned
if the interest rate had not been reduced to the Maximum Rate (as provided in
this Section) has been fully repaid or paid to the Bank.

                                    SECTION 7
                            REPAYMENT AND PREPAYMENT

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SECTION 7.1       REPAYMENT OF THE WORKING LOAN

         Any amounts drawn under the GOCI Letter of Credit shall be repayable in
accordance with the terms contained in the Bank's standard letter of credit
reimbursement agreement. Principal, interest and all other amounts outstanding
in respect of the Working Loan (other than in connection with the GOCI Letter of
Credit), shall be paid in full upon demand.

SECTION 7.2       REPAYMENT OF THE ACQUISITION LOAN

                  (a)      The Borrower shall repay the Acquisition Loan over a
                           seven (7) year term. The seven (7) year term shall
                           commence as of the date of first draw down of the
                           Acquisition Loan. Principal payments shall be made in
                           equal installments of seven hundred and fourteen
                           thousand, two hundred and eighty-five Dollars and
                           seventy-one cents ($714,285.71), on a quarterly
                           basis, in arrears and shall be applied against such
                           Advance or Advances in the inverse order of maturity
                           if applicable, and if not applicable, as the Borrower
                           may direct in writing and in the absence of such
                           written direction, as the Bank, in its sole
                           discretion, may determine. The first principal
                           payment shall be due and payable on the three (3)
                           month anniversary of the first draw down.

                  (b)      In the event that the Acquisition Loan is converted
                           into the Post Acquisition Revolving Loan pursuant to
                           the provisions of section 3.2(b), the entire
                           principal, interest and all other amounts outstanding
                           at any given time shall he paid in full upon demand.

SECTION 7.3       REPAYMENT OF BRIDGE LOAN

         The Borrower shall repay the Bridge Loan at any time during a period of
six (6) months from the date of first draw down.

                                                                              15
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SECTION 7.4       PLACE OF PAYMENT

         Each installment shall be paid by the Borrower to the Bank at the
Bank's offices in Cayman, in immediately available funds, not later than 12:OO
noon Cayman time on the date each installment is due or to such other location
as the Bank may in writing designate, acting reasonably. In the event that the
Bank designates an alternative place of payment which results in the imposition
of a tax not otherwise payable but for the Bank's designation, the Borrower
shall not be responsible for the payment of such tax.

SECTION 7.5       OPTIONAL PREPAYMENTS

         The Borrower shall have the right at any time on giving not less than
five (5) Business Days written notice, to prepay all or a part of the principal
amount of the Acquisition Loan provided that:

                  (a)      In the case of a partial Prepayment, such Prepayment
                           shall be in multiples of five hundred thousand
                           Dollars ($500,000.00);

                  (b)      With respect to the Acquisition Loan, payments shall
                           be applied against such Advance or Advances ,in the
                           inverse order of maturity, if applicable, and if not
                           applicable, as the Borrower may direct in writing and
                           in the absence of such written direction as the Bank,
                           in its sole discretion, may determine;

                  (c)      During any period that the relevant Advance is LlBOR
                           funded, the Prepayment may only he made on the last
                           day of an Interest Period; and

                  (d)      All accrued interest on the amount of such
                           Prepayment is paid at the same time.

SECTION 7.6

                                                                              16
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         The foregoing notwithstanding, neither the requirement to provide the
Bank with at least five (5) Business Days notice nor the requirement that
Prepayments shall be in multiples of five hundred thousand Dollars ($500,000.00)
shall apply to any Prepayment resulting from the application by the Bank to the
outstanding principal of the relevant Loan of any casualty insurance proceeds or
compensation for compulsory acquisition by a Governmental Authority of any
Property.

SECTION 7.7       BUSINESS DAY

         Whenever any payment to be made hereunder shall be stated to be due, or
whenever the last day of an Interest Period would otherwise occur, on a day
other than a Business Day, such payment shall be made, and the last day of such
Interest Period shall occur, on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest, provided, however, if such extension would cause payment of
interest on or principal of loan portions to be made in the next following
calendar month, such payment shall be made on the preceding Business Day.

SECTION 7.8       INTERNATIONAL TRANSACTION - FOREIGN CURRENCY

         This Loan Agreement is an international financial transaction.
Therefore, the payment in Dollars is an essential part of this contract and the
Borrower expressly undertakes to make all payments under this contract only in
said currency, this being an essential condition for the granting of the Loans,
The Borrower also acknowledges that its obligation to make payments in Dollars
will not be affected for any reason whatsoever and that it will not claim any
excuse or justification and waives expressly any right, advantage, exception,
defence, claim, counterclaim, suit or demand to or for paying in any other
currency, or to deliver a lesser amount or suspend payments or object to the
right of the Bank to be paid in Dollars.

                                    SECTION 8
                               WITHHOLDING TAXES

                                                                              17
<PAGE>
SECTION 8.1       TAXES

                  (a)      Subject to clause 6.5(d) and 7.4, all payments to be
                           made by the Borrower to the Bank pursuant to this
                           Agreement or the Security Documents shall he made
                           free and clear of and without deduction for or on
                           account of Tax, unless such Borrower is required to
                           make such a payment subject to the deduction or
                           withholding of Tax (other than a tax imposed on the
                           net income of the Bank), and in which case the sum
                           payable by the Borrower in respect of which such
                           deduction or withholding is required to be made shall
                           be increased to the extent necessary to ensure that,
                           after the making of such deduction or withholding,
                           the Bank receives and retains (free from any
                           liability in respect of any such deduction or
                           withholding) a net sum equal to the sum which it
                           would have received and so retained had no such
                           deduction or withholding been made or required to be
                           made.

                  (b)      Without prejudice to the provisions of Section
                           8.l(a), if the Bank is required to make any payment
                           on account of Tax or otherwise (not being a Tax
                           imposed on its net income of the Bank) on or in
                           relation to any sum received or receivable hereunder
                           by the Bank (including, without limitation, any sum
                           received or receivable under this Section 8) or any
                           liability in respect of any such payment is asserted,
                           imposed, levied or assessed against the Bank, the
                           Borrower shall, upon demand of the Bank, promptly
                           indemnify the Bank against such payment or liability,
                           together with any interest, penalties and expenses
                           payable or incurred in connection therewith.

                  (c)      If the Bank intends to make a claim pursuant to
                           Section 8.l(b), then it shall; (i) notify the
                           Borrower of the event by reason of which it is
                           entitled to do so; and (ii) use commercially
                           reasonable efforts to file any

                                                                              18
<PAGE>
                           certificate or document reasonably requested by the
                           Borrower if the making of such filing would avoid the
                           need for or reduce the amount of any such indemnity
                           payment or additional amount which may thereafter
                           accrue and such filing change is not, in the
                           determination of the Bank, inconsistent with that
                           Bank's internal policies.

SECTION 8.2       TAX RECEIPTS

                  (a)      If, at any time, the Borrower is required by law to
                           make any deduction or withholding from any sum
                           payable by it hereunder (or if thereafter there is
                           any (change in the rates at which or the manner in
                           which such deductions or withholdings are
                           calculated), it shall promptly notify the Bank.

                  (b)      If the Borrower makes any payment hereunder in
                           respect of which it is required to make any deduction
                           or withholding, it shall pay the full amount
                           required to be deducted or withheld to the relevant
                           taxation or other authority within the time allowed
                           for such payment under applicable law and shall
                           deliver to the Bank, upon the Bank's request, an
                           original receipt (or a certified copy thereof) issued
                           by such authority evidencing the payment to such
                           authority of all amounts so required to be deducted
                           or withheld in respect of such payment.

                                    SECTION 9
                            CHANGES IN CIRCUMSTANCES

SECTION 9.1       INCREASED COSTS

                  (a)      If, by reason of;

                           (i)      The introduction of or any future change
                                    (including, without limitation, any change
                                    by way of imposition or increase of any

                                                                              19
<PAGE>
                                    reserve requirements) in or in the
                                    interpretation of any Cayman law or
                                    regulation, or

                           (ii)     The compliance with any future guideline or
                                    request from any central bank or other
                                    Governmental Authority (whether or not
                                    having the force of law),

                           there shall be any increase in the cost to the Bank
                           of agreeing to make or making, funding or maintaining
                           any of the Loans made to the Borrower hereunder,
                           including any increase in the cost of making
                           continuing or maintaining the Loans as LIBO Rate
                           Loans and including, without limitation, and any such
                           cost (i) results from (a) the imposition or amendment
                           of any Tax; or (b) the imposition or amendment of any
                           reserve, special deposit or similar requirement
                           against assets of, liabilities of, deposits with or
                           for the account of, or loans by the Bank, other than
                           a requirement resulting from or specifically
                           attributable to any change in the constitution or
                           financial condition of the Bank, and (ii) results in
                           an increase in cost or reduction in profit to the
                           Bank by an amount reasonably deemed material by the
                           Bank, then the Borrower shall, from time to time on
                           demand of the Bank, promptly pay it the Bank amounts
                           sufficient to indemnify the Bank against such
                           increased cost; provided, however, that the Bank is
                           then seeking reimbursement with respect to
                           substantially all other similar loans it has
                           outstanding to other borrowers of a class similar to
                           the Borrower.

                  (b)      If the Bank intends to make a claim pursuant to
                           Section 9.l(a), it shall promptly notify the Borrower
                           of the event by reason of which it is entitled to do
                           so, such notice to state, in reasonable detail, the
                           reasons therefore and the additional amount required
                           fully to compensate the Bank for such

                                                                              20
<PAGE>
                           increased cost or amount.

SECTION 9.2       ILLEGALITY

         If, at any time, it is unlawful for the Bank to make, fund or allow to
remain outstanding all or any of the Loans made by it hereunder, then the Bank
shall, promptly after becoming aware of the same, deliver to the Borrower a
certificate to that effect and the Bank shall not thereafter be obliged to make
any Advances hereunder and the amount of the Loans remaining available for
drawing shall be immediately reduced to zero.

                                   SECTION 10
                      LIBOR, FIXED RATE FUNDING PROVISIONS

SECTION 10.1      LIBO RATE LENDING UNLAWFUL

         If the Bank shall determine (which determination shall, so long as the
Bank shall then be taking the same action with respect to substantially all
other similar loans it may have outstanding to other borrowers, upon notice
thereof to the Borrower be conclusive and binding on the Borrower) that the
introduction of, or any change in, or in the interpretation of, any Cayman
Islands law makes it unlawful, or Governmental Authority asserts that it is
unlawful, for the Bank to make, continue, or maintain any Loan as, or to convert
any Loan into, a LIBO Rate Loan, the obligations of the Bank to make, continue,
maintain or convert such Loan shall, upon such determination, forthwith be
suspended until the Bank shall notify the Borrower that the circumstances
causing such suspension no longer exist, and all LIBO Rate Loans shall
automatically convert into loans on which interest shall be calculated and
accrue at the Alternative Rate or at the Substitute Basis as hereinafter
provided, which conversion shall be effective at the end of the then current
Interest Periods with respect thereto or sooner, if required by such law or
assertion.

SECTION 10.2      ALTERNATIVE INTEREST RATES

                                                                              21
<PAGE>
         If the principle London, England office of The Bank of Nova Scotia
determines that at 1 1:OO a.m. two (2) Business Days prior to an Interest
Period, no LIBO Rate is quoted for the proposed duration of such Interest Period
for an applicable Advance, then:

                  (a)      The Bank shall promptly notify the Borrower of such
                           event specifying in reasonable detail the
                           circumstances of such event;

                  (b)      the duration of that Interest Period shall be one (1)
                           month or less, such that it shall not end after the
                           Repayment Date; and

                  (c)      the rate of interest applicable to such Advance
                           during such Interest Period shall be the rate per
                           annum which is the sum of the Applicable Margin and
                           the rate per annum determined by the Bank to be the
                           arithmetic mean (rounded upwards, if not already such
                           a multiple, to the nearest whole multiple of
                           one-hundredth of one percent(100(th) of 1%) of the
                           rate or rates of the Bank which express as a
                           percentage rate per annum the Bank's lowest cost
                           alternate source of funding for commercial loans
                           comparable to such Advance during such Interest
                           Period,

         provided, however, that (b) and (c) shall not apply if the Bank and the
Borrower agree on a Substitute Basis in accordance with Section 10.3.

SECTION 10.3      SUBSTITUTE LENDING RATE

         If, (i) the event mentioned in Section 10.2 occurs, or (ii) by reason
of circumstances affecting the London Interbank Market during any period of
three (3) consecutive Business Days, no LIBO Rate is published in the London
Interbank Market, then:

                  (a)      The Bank shall promptly notify the Borrower of such
                           event specifying in

                                                                              22
<PAGE>
                           reasonable detail the circumstances of such event;

                  (b)      if the Bank or Borrower so requires, within five
                           (5)days of such notification, the Bank and the
                           Borrower shall enter into negotiations with a view to
                           agreeing a Substitute Basis, (i) for determining the
                           rates of interest from time to time applicable to the
                           affected Advances, and/or (ii) upon which the
                           Advances may be maintained thereafter and any such
                           Substitute Basis that is agreed shall take effect in
                           accordance with its terms and be binding on each
                           party hereto; and

                  (c)      if the Bank and Borrower have not reached agreement
                           on the last day of the then current Interest Period
                           applicable to the affected Advance, the Alternative
                           Rate shall thereafter apply to the affected Advance
                           until such time as the condition which resulted in
                           the change of interest rate pursuant to Section 10.2
                           no longer exists. The Bank agrees to give the
                           Borrower prompt notice as to the non-existence of
                           such condition and the Borrower shall thereafter have
                           the right to borrow at a rate fixed to the LIBO Rate.

SECTION 10.4      FUNDING LOSSES

         In the event the Bank shall incur any loss or expense (including any
loss or expense incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by the Bank to make, continue or maintain any
portion of the principal amount of any Loan as, or to convert any portion of the
principal amount of any loan into, a LIBO Rate Loan) as a result of:

                  (a)      Any conversion or repayment or Prepayment of the
                           principal amount of any Fixed Rate Loans and/or LIBO
                           Rate Loans on a date other than the scheduled last
                           day of the Interest Period applicable thereto;

                                                                              23
<PAGE>
                  (b)      any Loans not being made as LIBO Rate Loans or Fixed
                           Rate Loans in accordance with the Draw down Notice
                           therefore due to the acts or omissions of the
                           Borrower;

                  (c)      any Loans not being continued as, or converted into,
                           LIBO Rate Loans or Fixed Rate Loans in accordance
                           with a Draw down Notice;

                  (d)      any payment made in reduction of principal which does
                           not coincide with a principal repayment date (other
                           than a payment made pursuant to the provisions of
                           Section 9.1); or

                  (e)      any action taken upon the occurrence of an Event of
                           Default.

         then, upon the written notice of the Bank to the Borrower, the Borrower
shall, within five (5) days of their receipt thereof, pay directly to the Bank
such amount as will (in the reasonable determination of the Bank) reimburse the
Bank for such loss or expense. Such written notice (which shall include
calculations in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on the Borrower

                                   SECTION 11
                              CONDITIONS PRECEDENT

         The obligations of the Bank hereunder to grant the Loans are subject to
the performance by the Borrower of all the Borrower's obligations which are to
be performed prior to disbursement of any Advance, and, where applicable, to the
condition that the Bank shall have first received all of the following, in form
and substance satisfactory to the Bank in its sole discretion, and to the extent
applicable, duly executed copies by the parties thereto:

         11.1     All the documents that are referenced in Section 5 above.

                                                                              24
<PAGE>
         11.2     A plan drawn up by a registered land surveyor, showing the
                  layout of the Property, and indicating the buildings located
                  thereon, which shall confirm to the satisfaction of the Bank
                  that all buildings and facilities to be located on the
                  Property arc located within the property lines or such other
                  evidence as is reasonably satisfactory to the Bank.

         11.3     Copies, certified to be a true, complete and up-to-date copy
                  of the following documents of the Borrower and each
                  Subsidiary.

                  (a)      Memorandum and Articles of Association;

                  (b)      Certificate of Incorporation;

                  (c)      Register of Directors and Officers;

                  (d)      Certificates of good standing;

                  (e)      Register of shareholders (other than for the
                           Borrower); and

                  (f)      Register of Mortgages or Charges.

         11.4     In respect of the Borrower, a certificate of an Authorized
                  Signatory of the Borrower under its seal (if applicable) to
                  the effect that the requisite resolutions have been duly and
                  properly passed at duly convened and constituted meetings of
                  the board of directors of the Borrower authorizing (i) the
                  execution, delivery and performance of this Agreement and each
                  of the Security Documents to which the Borrower is a party and
                  (ii) a named person or persons specified therein and whose
                  specimen signatures appear thereon to sign, on behalf of the
                  Borrower, this Agreement and each of the Security Documents to
                  which the Borrower is a party and to give any notices or

                                                                              25
<PAGE>
                  certificates required in connection herewith or therewith, and
                  confirming that such resolutions are still in effect and have
                  not been varied or rescinded; (iii) that all government fees
                  and royalties payable under relevant licenses, taxes and
                  duties relating to the Property or the business of the
                  Borrower have been paid; and (iv) that all amounts payable to
                  regulatory authorities in connection with the acquisition by
                  the Borrower of the relevant shareholdings in the Subsidiary
                  has been paid in full.

         11.5     In respect of each Guarantor a certificate of an Authorized
                  Signatory of the party (if applicable) under its seal to the
                  effect that the requisite resolutions have been duly and
                  properly passed at duly convened and constituted meetings of
                  the board of directors of each party authorizing (i) the
                  execution, delivery and performance of each of the Guarantee
                  to which it is a party and (ii) a named person or persons
                  specified therein and whose specimen signatures appear thereon
                  to sign, on behalf of each party the Guarantee to which it is
                  a party and to give any notices or certificates required in
                  connection herewith or therewith, and confirming that such
                  resolutions are still in effect and have not been varied or
                  rescinded.

         11.6     Payment of all fees as provided for in the fee letter executed
                  by the Borrower in favour of the Bank and this Agreement.

         11.7     A favourable opinion from legal counsel for the Borrower
                  confirming, inter alia:

                  (a)      The corporate status of the Borrower;

                  (b)      that the Borrower is in possession of all relevant
                           agreements, licences and permits necessary to enable
                           it to conduct its business including the production
                           and sale of water;

                                                                              26
<PAGE>
                  (c)      that this Agreement and the relevant Security
                           Documents are valid and enforceable against the
                           Borrower;

                  (d)      details of all amounts payable to regulatory
                           authorities in connection with the acquisition by the
                           Borrower of the relevant shareholdings in the
                           Subsidiaries and confirmation that all such amounts
                           have been paid in full;

                  (e)      that, subject to a favourable ruling regarding the
                           effect of the Land Holding Companies Share Transfer
                           Tax Law on the sale of the Borrower's shares listed
                           on a public stock exchange, all government fees,
                           royalties payable under the relevant licenses, taxes
                           and duties relating to the Property or the business
                           of the Borrower have been paid;

                  (f)      that all authorizations (if any), other than those
                           acquired through the payment of nominal stamp duty,
                           necessary or desirable for, or in connection with,
                           the entry into and performance of this Agreement, and
                           for any other matter or thing contemplated by this
                           Agreement, have been properly obtained and are in
                           full force and effect;

                  (g)      that, where necessary, the appropriate authorizations
                           have been obtained from the relevant Governmental
                           Authorities in order to acquire the Shares; and

                  (h)      that there is no litigation, arbitration or
                           administrative proceedings in process or presently
                           pending or threatened against the Borrower or any its
                           assets, and to the best of their knowledge, no such
                           litigation, arbitration or proceeding is threatened.

                                                                              27
<PAGE>
         11.8     A favourable opinion from legal counsel for each of the
                  Guarantors confirming, inter alia:

                  (a)      The corporate status of each Guarantor;

                  (b)      that each Guarantor is in possession of all relevant
                           agreements, licences and permits necessary to enable
                           it to conduct its business including the production
                           and sale of water; and

                  (c)      that the respective Guarantee is valid and
                           enforceable against the respective Guarantor.

         11.9     An opinion of counsel to the Bank in a form reasonably
                  acceptable to the Bank, with respect to the Bank's rights in
                  the Collateral Charges and the Debenture.

         11.10    A copy of the latest audited Financial Statements for the
                  Borrower.

         11.11    A certificate from an Authorized Officer of the Borrower
                  setting out: (i) the name of each of the Subsidiaries in
                  which the Borrower intends to acquire an ownership interest
                  utilizing the funds available pursuant to this Agreement; (ii)
                  the percentage shareholding, of each Subsidiary being
                  acquired; (iii) the total consideration being paid for the
                  percentage shareholding to be acquired in each Subsidiary; and
                  (iv) executed copies of the various agreements of purchase and
                  sale and all ancillary transaction documents thereto for each
                  of the Subsidiary.

         11.12    Copies certified by an Authorized Officer of the Borrower as
                  true and accurate of all relevant licences and permits
                  necessary to enable it to conduct its business.

         11.13    Statements from the existing lenders to the Credit Parties
                  setting out the terms of such

                                                                              28
<PAGE>
                  existing facilities, (i) the outstanding balance of such
                  facilities, (ii) the applicable interest rate, (iii) the terms
                  and conditions for repayment, (iv) the current status of such
                  facilities, and (v) the security obtained in relation to each
                  existing facilities.

         11.14    Copies of all necessary approvals and authorizations from the
                  relevant regulatory authorities for the contemplated
                  acquisition by the Borrower of various shareholdings in the
                  Subsidiary.

         11.15    Copies of all necessary approvals and authorizations from the
                  existing lenders of the various Subsidiaries for the
                  contemplated acquisition by the Borrower of various
                  shareholdings in the Subsidiaries.

         11.16    With respect to each Subsidiary, and in connection with the
                  Pledge of Shares, delivery to the Bank of such other
                  documents, including without limiting the generality of the
                  foregoing, stock transfer forms, the share certificates and
                  written acknowledgements from the Board of Directors of each
                  Subsidiary confirming that they will not permit the respective
                  Subsidiary to register the transfer to a third party of the
                  pledged Shares without the Bank's consent and as are necessary
                  to perfect the interest of the Bank in and to the Shares with
                  the priority contemplated by the Pledge of Shares agreements.

         11.17    Reference letter(s) from the existing lenders of the
                  Borrower.

         11.18    Evidence of a binding purchase and sale agreement for the
                  purchase by the Borrower of the shares of the Subsidiary for
                  which financing is currently being requested.

                                   SECTION 12
                      CONDITIONS PRECEDENT TO DISBURSEMENT

                  (a)      The obligation of the Bank to make the initial
                           disbursement or any subsequent

                                                                              29
<PAGE>
                           disbursement is subject to the additional conditions
                           precedent that:

                           (i)      The Bank shall have received all of the
                                    documents listed in Section 11 above.

                           (ii)     The Bank shall have received an irrevocable
                                    Draw down Notice not less than five (5)
                                    Business Days before the date for the making
                                    of the Advance.

                           (iii)    The proposed date for the making of the
                                    Advance is a Business Day.

                           (iv)     There has been no Material Adverse Effect
                                    with respect to the Borrower or any
                                    Subsidiary.

                           (v)      No event has occurred which is or would
                                    become (with the passage of time, the
                                    giving of notice, the making of any
                                    determination hereunder or any combination
                                    thereof) an Event of Default.

                           (vi)     Evidence, satisfactory to the Bank that, all
                                    government fees, taxes and duties applicable
                                    to each Credit Party have been paid and are
                                    current.

                           (b)    The representations and warranties set out
                                    in Section 13 of this Agreement shall remain
                                    true and accurate in all respects at the
                                    time of the relevant disbursement.

                           (viii)   The obligations of the Bank to make the
                                    initial disbursement or any subsequent
                                    disbursement under the Post Acquisition
                                    Revolving Loan is subject to the additional
                                    condition precedent that prior to any
                                    drawdown under the Post Acquisition
                                    Revolving Loan, the Bank shall have received

                                                                              30
<PAGE>
                                    evidence from the Registrar of Lands (or
                                    other appropriate Governmental Authority),
                                    satisfactory to the Bank in its sole
                                    discretion, that the Debenture is valid and
                                    sufficiently stamped to provide valid and
                                    complete security for any amounts which may
                                    become outstanding under the Post
                                    Acquisition Revolving Loan.

                                   SECTION 13

                    BORROWER'S REPRESENTATIONS AND WARRANTIES

         In order to induce the Bank to enter into this Agreement the Borrower
hereby represents and warrants to the Bank that:

SECTION 13.1      VALID EXISTENCE

         The Borrower is a corporation, organized, existing and in good standing
under the laws of Cayman.

SECTION 13.2      DUE AUTHORIZATION

         The execution, delivery and performance by the Borrower of this
Agreement and the other Security Documents is within its corporate powers, have
been duly authorized by all necessary corporate action, and do not contravene

                  (c)      Its Memorandum or Articles of Association; or

                  (d)      any law or any contractual restriction binding on or
                           affecting it or its property.

SECTION 13.3      NO GOVERNMENT APPROVALS

                                                                              31
<PAGE>
         No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority or other regulatory body is required for
the due execution, delivery and performance by the Borrower of this Agreement or
the other Security Documents other than the consents set out in this Agreement.

SECTION 13.4      BINDING OBLIGATION

         This Agreement is and the other Security Documents to which it is a
party, when delivered hereunder, will be, legal, valid and binding obligations
of it enforceable against it in accordance with its terms, subject to the effect
of bankruptcy, insolvency, winding-up, non-viability, moratorium,
reorganization, liquidation and other laws relating to or affecting the
enforcement of creditors' rights generally.

SECTION 13.5      BUSINESS PERMITS

         It has obtained from the relevant Governmental Authorities all
necessary business licences to conduct the business activities.

SECTION 13.6      ABSENCE OF DEFAULT

         No Event of Default, nor any matter which with the passage of time,
occurrence of a condition or giving of notice will become an Event of Default,
has occurred and is continuing.

SECTION 13.7      NO CONTRAVENTIONS

         No event has occurred which constitutes, or which with the giving of
notice or the lapse of time or a relevant determination, or any combination
thereof, would constitute a contravention of, or default under, any agreement or
instrument by which it or any of its assets is bound or affected, and which has,
or could be regarded as having, a Material Adverse Effect on its ability to
observe

                                                                              32
<PAGE>
or perform any of its obligations under this Agreement.

SECTION 13.8      LITIGATION

         No litigation, arbitration or administrative proceeding or claim which
might itself or together with any other such proceedings or claims have a
Material Adverse Effect on its ability to observe or perform its obligations
under this Agreement, is presently in progress or pending, or to the best of the
knowledge, information and belief of it, threatened against it, or any of its
assets.

SECTION 13.9      TAXES

         All necessary returns, if any, have been delivered by or on behalf of
it to the relevant taxation authorities and it is not in default in the payment
of any Taxes, and no claim is being asserted with respect to Taxes which has not
been disclosed to the Bank except any such Taxes which are being diligently
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with generally accepted accounting principles shall have
been set aside on its books.

SECTION 13.10     FULL DISCLOSURE

         It has fully disclosed in writing to the Bank all facts relating to it
which it knows or should reasonably how and which are material for disclosure to
the Bank in the context of this Agreement.

Section 13.11     OWNERSHIP OF PROPERTIES

         It has good and marketable title to all of its material properties and
assets, real and personal, of any nature whatsoever, free and clear of all liens
except as permitted hereby. It is the owner of good title to all of its personal
property (together with all replacements, renewals and substitutions thereof and
therefor, the "Personal Property"), free and clear of any liens (other than
liens in favour

                                                                              33
<PAGE>
of the Bank), contingent or otherwise, of any nature whatsoever.

SECTION 13.12     BANKRUPTCY

         It has not taken any action, nor has any step been taken by or against
or with reference to it for the winding-up, dissolution, bankruptcy or
re-organisation of it or for the appointment of a receiver, trustee or similar
'officer of it with respect to any or all of the assets or revenues of it.

SECTION 13.13     MATERIAL LIABILITY

         There are no current liabilities or contingent liabilities which would
have a Material Adverse Effect on the Borrower.

SECTION 13.14     ENFORCEABILITY

         To the best of the Borrower's knowledge and belief, the registration of
the Security Documents by the Bank will not violate any judgement, order decree,
or statute.

SECTION 13.15     FINANCIAL INFORMATION

         All Financial Statements, shareholders' equity, and all other financial
information of it which have been or shall hereafter be furnished by or on
behalf of the Borrower to the Bank for the purposes of or in connection with
this Agreement or any transaction contemplated hereby, have been or will be
prepared in accordance with US GAAP and do or will present fairly the financial
condition of the Borrower as at the dates thereof and the results of its
operations for the periods then ended.

SECTION 13.16     LABOUR CONTROVERSIES

                                                                              34
<PAGE>
         There are no labour controversies pending or, to the best knowledge of
the Borrower, threatened against the Borrower which, if adversely determined,
would have a Material Adverse Effect on the Borrower.

SECTION 13.17     UTILITY SERVICES

         All utility services necessary for the operation of its business are in
place and are functioning.

SECTION 13.18     PROTECTION UNDER SECURITY DOCUMENTS

         Upon the due registration of the relevant Security Documents and as
long as the obligations which are secured by such !Security Documents shall be
outstanding, the Borrower shall undertake no voluntary action which shall have
the effect of granting a security interest senior to the Bank's security
interest.

SECTION 13.19     ENVIRONMENTAL PROCEEDINGS

         To the best of the Borrower's knowledge and belief based on its
environmental due diligence, there are no conditions or circumstances associated
with its property or that of the Subsidiaries which could result in a violation
of Environmental Law at the time this representation is provided.

SECTION 13.20     MATERIAL ADVERSE EFFECT

         There has been no Material Adverse Effect in the condition of either
Credit Party since October 4,2002.

         The representations and warranties set out in this Section shall
survive the execution of this

                                                                              35
<PAGE>
Agreement and shall be deemed to be included in each Draw down Notice of the
Borrower as if set forth in full. The representations and warranties set out in
this Section shall be deemed to be repeated on each Draw down Date with
reference to the facts and circumstances then subsisting five days prior to such
date, unless the Bank is notified in the five day interim period in writing that
each or any of the representations or warranties contained in this Section 13
is not correct for the date for which the representation or warranty is being
made.

                                   SECTION 14
                          BORROWER'S NEGATIVE COVENANTS

         Borrower covenants and agrees that from the date hereof and until
payment in full of the principal of and the interest on the Loans and all other
obligations hereunder and under the other Security Documents, that it shall not,
unless the Bank otherwise consents to in writing:

         14.1     LIENS

         Incur any Indebtedness, nor incur, create, assume or suffer to exist
         any real or personal property mortgage, pledge, title retention lien,
         charge, security interest, financing statement or any other lien or
         encumbrance of any nature whatsoever, any legal, voluntary, involuntary
         or consensual liens or encumbrances, on any of its assets or
         properties now or hereafter owned, except liens in favour of the Bank.

         14.2     GUARANTEES

         Guarantee, assume, endorse or otherwise become or be responsible in any
         way for the obligations of any other Person other than those guarantees
         set out in Schedule 14.4 and provided to the Bank.

         14.3     PROPERTIES

                                                                              36

         Sell, transfer or alienate in any manner a substantial part of its
         assets or inventory. Alter, destroy, abandon, remove or use its assets
         or properties for any purpose other than that for which it is now
         proposed other than in the ordinary course of business.

         14.3     MERGER, CONSOLIDATION

         Liquidate, dissolve, merge into or consolidate with any other
         corporation or entity.

         14.4     CONDITIONAL SALES

         Incur any obligations under a purchase contract or otherwise acquire
         any property subject to any conditional sale or title retention
         agreement, unless in the ordinary course of its business.

         14.5     CORPORATE FACILITIES INVESTMENTS

         Save in the ordinary course of business, make any loans, grant any
         credit to or for the benefit of any person, including any Subsidiary,
         or otherwise voluntarily assume any liability, whether actual or
         contingent, in respect of any obligation of any other person;

         14.6     CORPORATE DISTRIBUTIONS

         Pay any dividends or make any other distribution of funds to any
         shareholder, other than from Cash Flow.

         14.7     PAYMENT OF OTHER LIABILITIES

         If there is an Event of Default under this Agreement, pay the principal
         amount on any debt that has been subordinated to the Loans.

                                                                              37
<PAGE>
         14.8     CHANGE OF BUSINESS

         Change its core line of business from that of reverse osmosis plant
         construction, design, installation and operation of potable water and
         waste water treatment facilities.

         14.9     CHANGE IN OWNERSHIP OF SUBSIDIARY COMPANIES

         Permit the sale, transfer, pledge, hypothecation or alienation of the
         Shares.

         14.10    MEMORANDUM AND ARTICLES OF ASSOCIATION

         Make any material amendment to its Memorandum or Articles of
         Association.

         14.11    INVESTMENTS

         Acquire any investments other than investments which do not contravene
         any term of this Agreement or the Security Documents.

         14.12    CAPITAL EXPENDITURE

         Make in aggregate any capital expenditure in excess of two million
         Dollars $2,000,000.00 during any Financial Year.

         14.13    SHARE RETENTION REQUIREMENTS

         Dispose of its ownership interests (or voting rights) or otherwise
         allow a change of control of any of the Subsidiaries, or grant a pledge
         or any other form of security interest over its ownership interests in
         the Subsidiaries.

                                                                              38

         14.14    INTER-COMPANY PAYABLES/RECEIVABLES

         Other than in the normal course of its business, permit any
         inter-company payables or receivables between the Borrower and any of
         its Affiliates.

                                   SECTION 15

                        BORROWER'S AFFIRMATIVE COVENANTS

         The Borrower covenants and agrees that, from the date hereof and until
payment in full of the principal of and the interest on the Loans and the
discharge of all other obligations hereunder and under the Security Documents,
it shall, unless the Bank otherwise consents in writing:

SECTION 15.1      EXISTENCE AND BUSINESS LICENCES.

         Preserve and keep in full force and effect its corporate existence and
its qualification to do business, and its good standing with the Registrar of
Companies in Cayman.

SECTION 15.2      CONDUCT OF BUSINESS

         Continue to conduct and operate its business as substantially described
to the Bank in connection with this Agreement.

SECTION 15.3      MAINTENANCE AND DEVELOPMENT OF BANKING RELATIONSHIP

         To the extent that pricing is competitive, and the quality of service
is equal to that available at other banks, maintain all of its banking and
banking related business with the Bank or its designate, where the Bank or its
designate provides the service.

                                                                              39
<PAGE>
SECTION 15.4      LICENCES, PERMITS

         Maintain, preserve and protect at all times all licences and permits
necessary for the existence or operations of the Borrower, including all the
required licenses (including environmental), and comply in all material respects
with each and all of the terms, conditions and requirements of such licences and
permits. A list of the licenses and permits required is set out on Schedule 15.4
attached hereto.

SECTION 15.5      ASSETS AND PROPERTIES

         Preserve all of its assets and properties that are used in the conduct
of its business particularly those securing the Loans, keep the same in good
repair, working order and condition, and from time to time make or cause to be
made all needed and proper repairs, renewals, replacements, betterments and
improvements thereto to preserve and maintain their value, normal wear and tear
excepted, so that the business carried on in connection therewith may be
properly conducted at all times.

SECTION 15.6      PROPERTY AND LIABILITY INSURANCE

                  (a)      Insure all Assets (other than underground piping and
                           earthen berm reservoirs) at all times with
                           responsible, reputable insurance companies or
                           associations, to be approved by the Bank, exercising
                           reasonable discretion, in such amounts and covering;

                           (i)      loss or damage to the properties (including
                                    fire, earthquake, windstorm, flood,
                                    hurricane, and such other risks),

                           (ii)     business interruption insurance, and

                                                                              40
<PAGE>
                           (iii)    insurance against liability to Persons,

         all for such risks and hazards and in such amounts and with such
deductibles and from insurance companies as are reasonably acceptable to the
Bank.

                  (b)      All such insurance policies, except those relating to
                           liability coverage, shall provide for payment of the
                           proceeds thereof to the Bank as loss payee, and all
                           shall contain an endorsement providing that the
                           insurance shall not be cancellable except upon 30
                           days prior written notice to the insured. From time
                           to time at the request of the Bank, Borrower shall
                           deliver to the Bank an insurance certificate
                           indicating all insurance policies then in force.

                  (c)      If any of the Assets are destroyed or damaged by any
                           cause whatsoever while a Loan is outstanding, then
                           the Borrower may apply the proceeds of the insurance
                           policy covering the Assets in the following manner
                           set out in sub-sections (d) and (e) inclusive,
                           provided that;

                           (i)      all amounts due under this Agreement at the
                                    time of the damage had been paid,

                           (ii)     payment of any instalment of principal or
                                    interest is not more than three months in
                                    arrears at the time the proceeds of the
                                    insurance policy are received, and

                           (iii)    any arrears of principal or interest on the
                                    Loans are paid to the Bank within one (1)
                                    month of the receipt of the insurance
                                    proceeds.

                           In the event that any of the above conditions are not
                           complied with, the

                                                                              41
<PAGE>
                           Bank shall have the right, in its sole discretion, to
                           either apply any insurance policy proceeds received
                           to reduction or satisfaction of the amounts
                           outstanding on the Loans, or to apply such funds to
                           the restoration of all or a portion of the Assets. In
                           the event that Bank agrees to make the insurance
                           proceeds available for reconstruction and repair, if
                           any of the events referred to in items (i) to (iii)
                           have transpired, the Bank shall disburse such funds
                           in the manner set out in sub-section (e) below;

                  (d)      if the damages are less than fifty percent (50%) of
                           the replacement cost of the Assets, then all
                           proceeds of the insurance policy covering the Assets
                           shall be payable directly to the Borrower for the
                           purpose of repairing or replacing the Assets;

                  (e)      if the damages are more than fifty percent (50%) of
                           the replacement cost of the Assets, and the proceeds
                           of the insurance policy covering the Assets together
                           with any other funds of the Borrower are sufficient
                           to repair the damages incurred, then the Borrower may
                           apply the insurance proceeds for the purpose of
                           repairing or replacing the Assets, provided that the
                           Borrower shall provide to the Bank certification that
                           the repairs or replacements have been completed, and
                           all such insurance proceeds shall be delivered to and
                           held by the Bank and shall be disbursed to the
                           Borrower to facilitate repairs or reconstruction of
                           the Assets in accordance with disbursement procedures
                           satisfactory to the Bank in its reasonable
                           discretion, and any insurance proceeds remaining
                           after the completion of repairs or reconstruction
                           shall be applied by the Bank against Loan repayments
                           in inverse order of maturity;

                  (f)      In the event any damages are occasioned to the Assets
                           and only a portion of such damages are covered by the
                           insurance maintained by the

                                                                              42
<PAGE>
                           Borrower, then such insurance proceeds shall be
                           applied to the reconstruction/repair of the damaged
                           assets only in the event that the Borrower is able to
                           demonstrate, to the sole satisfaction of the Bank,
                           that the Borrower has sufficient capital (either by
                           way of additional equity or subordinated debt (the
                           terms and conditions of such subordinated debt to be
                           satisfactory to the Bank in its sole discretion))
                           when added to the insurance proceeds, to fully
                           rebuild all of the damaged Assets (both insured and
                           uninsured);

                  (g)      Application of insurance policy proceeds to reduction
                           or satisfaction of the amounts outstanding on the
                           Loans, or to restoration of all or a portion of the
                           Assets shall be without prejudice to any other right
                           or remedy of the Bank as provided in this Agreement.

                  (h)      Furnish to the Bank without separate request on the
                           annual anniversary date of the insurance policies, or
                           on request, duplicate originals of all policies or
                           contracts or certificates of insurance effected
                           pursuant to the foregoing covenants together with
                           confirmation from the relevant insurer or insurers
                           that the premiums in respect of such insurances have
                           been paid and that such insurances are in full force
                           and effect and that the Bank is recorded as loss
                           payee.

SECTION  15.7     ACCOUNTING RECORDS AND FINANCIAL STATEMENTS

         Make available upon request in Cayman the appropriate books of record
and accounts, and an accounting system which records are in conformity with
full, true and correct entries of all dealings and transactions in relation to
its business and affairs, and shall reasonably protect such books and accounts
against loss or damage.

                                                                              43
<PAGE>
SECTION 15.8      INSPECTION

         Permit the Bank, its agents or representatives to visit and inspect at
reasonable times, upon reasonable prior notice, Borrower's assets, properties,
books of record and accounts, and to discuss the same and the financial
condition of the Borrower with its officers. The Bank shall he entitled from
time to time as it deems necessary, and upon good cause, to cause the Property
or any portion thereof to be inspected at the Borrower's expense, by a firm of
consulting architects or engineers designated by the Bank.

SECTION 15.9      REPORTING REQUIREMENTS
                  MONTHLY STATEMENTS

                  (a)      Deliver to the Bank as soon as available and in any
                           event within forty-five (45) days after the end of
                           each calendar quarter, its unaudited consolidated
                           Financial Statements.

                  (b)      Provide to the Bank within twenty (20) days of the
                           end of each month, the Borrowing Base Calculation
                           stating on a consolidated basis for the Borrower and
                           each of its Affiliates: (i) the gross accounts
                           receivables; (ii) those accounts over ninety (90)
                           days outstanding; (iii) all offsets recorded; (iv)
                           inter-company accounts receivables; (v) amounts due
                           by officers and shareholders; (vi) and as soon as
                           available the value of the inventories.

SECTION 15.10     FINANCIAL YEAR

         Deliver to the Bank as soon as available and in any event within one
hundred and twenty days after the end of its Financial Year, its annual audited
Financial Statements prepared by an independent public accounting firm
satisfactory to the Bank.

                                                                              44
<PAGE>
SECTION 15.11     UTILIZATION OF PROCEEDS

         Utilize the proceed of each Loan in accordance with Section 2.2,3.1
         and 3.3

SECTION 15.12     ENVIRONMENTAL INDEMNIFICATION

                  (a)      Defend, indemnify and hold harmless the Bank and its
                           respective affiliates, and the directors, officers,
                           employees, agents, attorneys, consultants and
                           advisors of or to any of the foregoing (each of the
                           foregoing being "Indemnitee") from and against; (a)
                           all Environmental Liabilities and Costs arising from
                           or connected with the past, present or future
                           operations of the Borrower involving any of the
                           Property, or damage to real or personal property or
                           natural resources or harm or injury alleged to have
                           resulted from any Release of Contaminants on, upon or
                           into such property or any contiguous real estate; (b)
                           any costs or liabilities incurred in connection with
                           the investigation, removal, cleanup and/or
                           remediation of any Contaminant present or arising out
                           of the operations of any Loan of the Borrower; (c)
                           any costs or liabilities incurred in connection with
                           any Environmental Lien; (d) an costs or liabilities
                           incurred in connection with any other matter
                           affecting any Loan pursuant to Environmental Laws and
                           any applicable property transfer laws, whether, with
                           respect to any of the foregoing, such Indemnitee is a
                           mortgagee pursuant to any leasehold mortgage, a
                           mortgagee in possession, the successor in interest to
                           the Borrower, or the owner, lessee or operator of any
                           Loan of the Borrower by virtue of foreclosure,
                           except, with respect to any of the foregoing referred
                           to in clauses (a), (b), (c) and (d), to the extent
                           incurred following (1) enforcement by the Bank of its
                           interests under the Security Documents, or (2) the
                           Bank having become the successor in interest to the
                           Borrower, attributable solely to acts of the

                                                                              45
<PAGE>
                           Bank, (e) the making of any assignments of or
                           participations in the Loan, or (f) the use or
                           intended use of the proceeds of the Loan or in
                           connection with any investigation of any potential
                           matter covered hereby (collectively, the "Indemnified
                           Matters"); provided, that the Borrower shall not have
                           any obligation under this Section to any Indemnitee
                           with respect to any Indemnified Matter caused by or
                           resulting from the gross negligence or wilful
                           misconduct of that Indemnitee, as determined by a
                           court of competent jurisdiction in a final
                           non-appealable judgment or order.

                  (b)      The Bank agrees that in the event that any such
                           investigation, litigation or proceeding set forth in
                           sub-section a) above is asserted or threatened in
                           writing or instituted against it or any other
                           Indemnitee, or any remedial, removal or response
                           action is requested of it or any of its officers,
                           directors, agents and employees, for which any
                           Indemnitee may desire indemnity or defence hereunder,
                           such Indemnitee shall promptly notify the Borrower
                           in writing.

                  (c)      The Borrower, at the request of any Indemnitee, shall
                           have the obligation to defend against such
                           investigation, litigation or proceeding or requested
                           remedial, removal or response action. In the event
                           that such Indemnitee requests the Borrower to defend
                           against such investigation, litigation or proceeding
                           or requested remedial, removal or response action,
                           the Borrower shall promptly do so with legal counsel
                           of the Borrower's choice reasonably acceptable to the
                           Bank, and such Indemnitee shall have the right to
                           participate in such defence. If however there is a
                           conflict of interest between the Bank and the
                           Borrower, then the Bank shall be entitled, for the
                           cost of the Borrower, to appoint legal counsel of its
                           choice. No action taken by legal counsel chosen by
                           such Indemnitee in

                                                                              46
<PAGE>
                           defending against any such investigation, litigation
                           or proceeding or requested remedial, removal or
                           response action shall vitiate or in any way impair
                           the Borrower's obligation hereunder to indemnify and
                           hold harmless such Indemnitee.

                  (d)      The Borrower shall give the Bank reasonable prior
                           notice of any proposed settlement, compromise or
                           similar disposition by the Borrower of any
                           investigation, litigation or proceeding pursuant to
                           which the Borrower has an obligation to defend, and
                           take reasonable and due cognisance of any of the
                           Bank's views.

                  (e)      The obligations of the Borrower under this Section
                           15.12 shall survive the repayment of the Loan.

SECTION 15.13     THE BANK'S RIGHTS WITH RESPECT TO CONTAMINANTS

         The Borrower shall comply with all Environmental Laws and will assume
all Environmental Liabilities and Costs, except:

                  (a)      In cases where the Borrower is in a good faith
                           dispute concerning the application of the
                           Environmental Laws;

                  (b)      the Borrower is in a good faith dispute concerning
                           the liability and cost of any Environmental
                           Liabilities and Costs; and

                  (c)      where the obligations of this section pass to the
                           Bank or its successor in respect of acts or omissions
                           of the Bank occurring after the Bank acquires title
                           to the Property through foreclosure or otherwise. The
                           Borrower shall continue to be liable where the cause
                           of action arose prior to the Bank

                                                                              47
<PAGE>
                           acquiring title to the Property through foreclosure
                           or otherwise.

         Except in the instances set forth in subsections a) and b) above, in
the event that the Borrower fails to comply with all Environmental Laws, the
Bank may, after having given the Borrower five (5) days written notice to
comply, and the Borrower having failed to take appropriate action to comply, do
so, at its election, but without the obligation so to do, give such notices
and/or cause such work to be performed at the Property and/or take any and all
other actions as the Bank shall deem necessary or advisable in order to comply
with all Environmental Laws, and any amounts paid as a result thereof, together
with interest thereon at the post-maturity rate as set out in Section 6.4 hereof
from the date of payment by the Bank, shall be immediately due and payable by
the Borrower to the Bank and until paid shall be added to and become a part of
the Indebtedness secured by the Security documents.

SECTION 15.14     CONDEMNATION

                  (a)      The Borrower, immediately upon obtaining knowledge of
                           the institution of any expropriation proceedings in
                           relation to the Property or any portion thereof,
                           shall notify the Bank in writing of the pendency of
                           such proceedings. The Bank, at its election and in
                           its discretion, may participate in any such
                           proceedings and the Borrower from time to time shall
                           deliver to the Bank all instruments requested by it
                           to permit such participation. All expropriation
                           payments in relation to the Property or any portion
                           thereof, shall be paid in accordance with the
                           provisions of this Section. All expropriation
                           payments in relation to the Property, or any part of
                           the foregoing, are hereby assigned to and shall be
                           paid to the Bank. The: Borrower, upon the request by
                           the Bank, shall make, execute and deliver any and all
                           instruments requested for the purposes of confirming
                           the assignment of the aforesaid awards and
                           compensation to the Bank free and clear of any liens,
                           charges or encumbrances of any kind or nature

                                                                              48
<PAGE>
                           whatsoever. The Borrower hereby authorizes the Bank
                           to collect and receive such expropriation payments,
                           to give proper receipts and acquittances therefore
                           and in the Bank's sole discretion to apply the same
                           toward the payment of the Loans, notwithstanding the
                           fact that the Loans may not then be due and payable,
                           or to the purchase of replacement assets and
                           property.

                  (b)      In the event that the whole of the Property shall be
                           expropriated by any Governmental Authority, or if any
                           part thereof shall be so expropriated and the
                           Borrower cannot feasibly continue to operate its
                           business with the part thereof not so expropriated
                           (the foregoing being referred to as a "Complete
                           Taking"), then, any payment payable in connection
                           therewith shall be paid to the Bank and applied as
                           follows: first, to the payment of delinquency, post
                           maturity date charges, if any; second, to accrued and
                           unpaid interest; third, to the reduction of the
                           principal amount of the Loans; fourth, to any other
                           unpaid sums whether or not then owing under this
                           Agreement or the Security Documents, and any portion
                           of any payment remaining thereafter shall be paid to
                           the Borrower.

                  (c)      Notwithstanding any taking by eminent domain,
                           alteration of the grade of any street or other injury
                           to or decrease in value of the Property by any
                           Governmental Authority, the Borrower shall continue
                           to make all payments due hereunder.

SECTION 15.15     PAYMENT OF TAXES

                                                                              49
<PAGE>
         Timely file or cause to be filed any and all tax returns and reports.
Timely pay and discharge or cause to be paid and discharged any and all taxes
and assessments, and any and all governmental impositions, fees, charges or
levies (including but not limited to: any income taxes, municipal taxes, real
estate and personal property taxes, social security, unemployment, workers
compensation premiums), imposed upon it, its operations, or upon its income and
profits, or upon any of its properties, real, personal or mixed, or upon any
part thereof, or upon its payroll, by no later than the last day on which such
taxes may be paid without incurring any penalty. The Borrower shall provide the
Bank with evidence acceptable to the Bank of the aforesaid payments.
Notwithstanding this clause, the Borrower shall have no obligation to pay such
taxes as long as it shall be contesting the validity or amount of any such taxes
in good faith.

SECTION 15.16     STATUTORY COMPLIANCE

         Comply in all material respects with all applicable statutes,
regulations, judgments, decrees, resolutions and orders of, and all applicable
restrictions imposed by, any and all governmental entities or authorities,
judicial or administrative, applicable to the conduct of its business and
activities, the ownership of its property, its licences and permits.

SECTION 15.17     CONTRACTUAL COMPLIANCE

         Comply with the terms and conditions of any indentures, agreements,
contracts or other instruments to which it is a party and\or which may have a
Material Adverse Effect on its ability to make payment under this Agreement.

SECTION 15.18     THE SECURITY DOCUMENTATION

         At its own cost and expense, forthwith and without any delay execute
and deliver any certifications, statements, deeds, and other documents and
instruments requested by the Bank that

                                                                              50
<PAGE>
may be required, necessary and proper, in order to enable the Bank to record and
create as valid first liens the Security Documents.

SECTION 15.19     NOTICE OF LITIGATION

         Furnish the Bank by notice in writing immediately upon the Borrower
becoming aware:

                  (a)      of any and all material litigation, administrative or
                           arbitration proceedings before or of any court
                           (judicial or administrative), or government
                           authority, tribunal, arbitrator(s) or other body
                           affecting the Borrower or any Subsidiary or which may
                           be threatened, instituted or commenced and which is
                           or is likely to have a Material Adverse Effect on the
                           business(es), assets or financial condition of the
                           Borrower or any Subsidiary or which does or is likely
                           to have a Material Adverse Effect on the Borrower's
                           or any Subsidiary's ability to perform its
                           obligations under this Agreement;

                  (b)      of any material and adverse development which shall
                           occur in any litigation, arbitration, governmental
                           investigation or proceeding previously disclosed by
                           the Borrower or any Subsidiary to the Bank; and

                  (c)      with copies of all written demands of one hundred
                           thousand Dollars $100,000.00 or greater served upon
                           the Borrower or any Subsidiary.

SECTION 15.20     EVENT OF DEFAULT NOTICE

         Notify the Bank in writing of any Event of Default or event which with
the giving of notice, lapse of time, or other condition, would constitute an
Event of Default forthwith upon the occurrence thereof.

                                                                              51
<PAGE>
SECTION 15.21     FOREIGN CURRENCY

         If applicable, maintain in good standing the required authorizations
for and to diligently request the allocation of foreign currency for the service
of these Loans and for the fulfilment of the other obligations of the Borrower
under this Agreement.

SECTION 15.22     MAINTAIN FINANCIAL RATIOS

         (a)      The Borrower shall, prior to the full repayment of the Bridge
                  Loan, on a consolidated basis with the other Credit Parties,
                  maintain, on a quarterly basis, the following ratios:

                  (i)      A maximum ratio of the Acquisition Loan to EBITDA of
                           2.5:1.0.

                  (ii)     A Debt Service Coverage Ratio at least equal to or
                           greater than 1.25:1.00

                  (iii)    A maximum ratio of the aggregate of the Acquisition
                           Loan, Bridge Loan and any other debt owed to a third
                           party lending institution to EBITDA of 4.00:1.00.

         (b)      Upon the Borrower repaying all amounts outstanding under the
                  Bridge Loan, the financial ratios set out in section l5.22(a)
                  shall be adjusted pursuant to the mutual agreement of the Bank
                  and the Borrower. If the parties are unable to reach a mutual
                  agreement as to the adjusted ratios, the ratios as set out in
                  Section 15.22(a) shall continue to be effective.

SECTION 15.23     UP-STAMPING OF DEBENTURE

         In the event that: (i) any portion of the Bridge Loan remains
outstanding and owing to the

                                                                              52
<PAGE>
Bank upon the termination of the agreed to six (6) month term, then within three
(3) Business Days of the end of such term, the Borrower shall submit whatever
documentation or registrations are required together with whatever stamp duties
are payable in order to up-stamp the Debenture by the total amount of the Bridge
Loan outstanding at that time, and within thirty (30) days thereafter provide
the Bank with confirmation from the Registrar of Land that the Debenture has
been so up-stamped; and/or (ii) the Borrower desires to make a draw down under
the Post Acquisition Revolving Loan and Bank determines pursuant to Section
12(b) that there is a need to up-stamp the Debenture in order to be adequately
secured, the Borrower shall up-stamp the Debenture by an amount, sufficient to
the Bank, to provide adequate security.

SECTION 15.24     REMEDIAL WORK

         Ensure that, as soon as reasonably possible, Ocean Conversion (Cayman)
Ltd. completes all work and takes all steps necessary in order to ensure that
Ocean Conversion (Cayman) Ltd. is in full compliance with all Environmental
Laws.

SECTION 15.25     BAHAMAS INVESTMENT AUTHORITY

         Solely with respect to the acquisition of a controlling interest in
Waterfields Limited Company, submit an application to the relevant Bahamian
governmental authorities for the acquisition of a controlling interest, the
grant by Waterfields Company Limited of a guarantee, and a pledge by the
Borrower of such controlling interest to the Bank.

         SECTION  15.26    TERMINATION OF THE OCEAN CONVERSION (CAYMAN) LIMITED
WATER PURCHASE AGREEMENT #3

Ensure that the Water Purchase Agreement #3 between the Borrower and Ocean
Conversion (Cayman) Limited dated October 21, 1994, shall be mutually terminated
as between the respective

                                                                              53
<PAGE>
parties thereto and each party shall waive and release any claim, right or
action it may have against the other in relation thereto whether it arose prior
to the date hereof or subsequently.

                                   SECTION 16
                               GENERAL CONDITIONS

SECTION 16.1      BANKER'S REFERENCE LETTERS

         The Bank shall have received letters from the current
bankers/financiers of each of the Credit Parties, acceptable to the Bank in its
reasonable discretion, which state that based upon the relevant Credit Parties'
financial history and dealings with their current bankers/financiers, such
bankers and/or financiers consider the relevant Credit Party to be financially
sound and desirable customers in that they have not defaulted on any obligations
owed to such bankers or financiers.

SECTION 16.2      WORKING LOAN LIMITATIONS

         Notwithstanding anything to the contrary in this Agreement, the
aggregate amount outstanding under the Working Loan shall at no time be greater
than the Borrowing Base.

SECTION 16.3      AGGREGATE PURCHASE PRICE

         The aggregate purchase price of the shareholdings being acquired in the
Subsidiaries shall be equal to or less than the aggregate amount of the
Acquisition Loan and the Bridge Loan.

                                   SECTION 17
                                     DEFAULT

SECTION 17.1      EVENTS OF DEFAULT

         Any one or more of the following shall constitute an Event of Default
hereunder:

                                                                              54
<PAGE>

                  (a)      Borrower fails to pay when due any instalment of
                           either principal or interest under this Agreement;

                  (b)      Borrower fails to pay when due any other amount
                           (other than as set out in a) above) payable under
                           this Agreement, and such default continues unremedied
                           for a period of at least three (3) days after notice
                           thereof has been given to the Borrower;

                  (c)      any licence, permit or consent, obtained by the
                           Borrower shall lapse, unless the Borrower has applied
                           for the renewal of such licence, permit or consent
                           prior to its expiry and is diligently following up
                           same, and there is a reasonable expectation of the
                           grant of the renewal;

                  (d)      any material representation or statement made by the
                           Borrower or any party (other than the Bank) in
                           relation to this Agreement, any Security Document or
                           in any notice or other document, certificate or
                           statement delivered by it pursuant hereto or in
                           connection herewith is or proves to have been
                           incorrect or misleading in any material respect as of
                           the date when made, unless (a) the condition giving
                           rise to such false or incorrect representation or
                           warranty is capable of being remedied (in the
                           reasonable determination of the Bank), and the party
                           making such statement has commenced and is
                           diligently pursuing such efforts to effectuate a cure
                           within fifteen (15) days after such party first
                           learns or should have learned, after due inquiry,
                           that such representation or warranty was incorrect or
                           misleading, provided that the party in question shall
                           have an additional thirty (30) days or such
                           additional time as shall be necessary to remedy such
                           condition (in the reasonable determination of the
                           Bank) if, in the reasonable determination of the
                           Bank, such condition while curable, is not
                           susceptible of cure within the initial fifteen (15)
                           day period, or (b)

                                                                              55
<PAGE>
                           the failure of such representation or warranty could
                           not reasonably be expected to have a material adverse
                           effect on the financial condition, operations,
                           assets, business or properties of such party;

                  (e)      an event of default shall occur under a Security
                           Document and is not cured prior to the expiration of
                           any applicable grace or notice period;

                  (f)      the validity or enforceability of this Agreement or
                           any of the Security Documents shall be successfully
                           contested by any government authority, third party or
                           any agency or instrumentality thereof;

                           (g) Borrower or any Subsidiary shall become
                           insolvent, or admit in writing its inability to pay
                           its debts as they mature, or make an assignment for
                           the benefit of creditors, or Borrower or any
                           Subsidiary shall apply for or consent to the
                           appointment of any receiver, trustee, or similar
                           officer for it or for all or any substantial part of
                           its property, or such receiver, trustee or similar
                           officer shall be appointed without the application or
                           consent of Borrower or any Subsidiary and such
                           appointment shall continue undischarged for a period
                           of 60 days, or Borrower or any Subsidiary shall
                           institute (by petition, application, answer, consent
                           or otherwise) against Borrower or any Subsidiary any
                           bankruptcy, insolvency, reorganization, arrangement,
                           readjustment of debt, dissolution, liquidation or
                           similar proceeding relating to them under the laws of
                           any jurisdiction or any such proceeding shall be
                           instituted (by petition, application or otherwise)
                           against Borrower or any Subsidiary and shall remain
                           undismissed for a period of 60 days; or any judgment,
                           writ, warrant of attachment or execution or similar
                           process shall be issued or levied against material
                           assets of Borrower or any Subsidiary and such
                           judgment, writ or similar

                                                                              56
<PAGE>
                           process shall not be released, vacated or fully
                           bonded within 30 days after its issue or levy;

                  (h)      Borrower fails for a term in excess of 15 days after
                           being so requested in writing to reimburse to the
                           Bank any amounts that the latter has properly
                           incurred, expended or disbursed because of the
                           Borrower's failure to comply with any of its
                           obligations, covenants or undertakings under this
                           Agreement or under the relevant Security Documents;

                  (i)      any judgment, injunction or decree is entered or
                           issued and becomes final and beyond appeal against
                           Borrower or any Subsidiary, preventing the same from
                           continuing to operate a material part or all of its
                           business affairs in the normal course of business;

                  (j)      any execution or other legal process to secure the
                           effectiveness of a judgment is issued against
                           Borrower or any Subsidiary affecting a material
                           portion of its assets or property or preventing it
                           from operating its business in the normal course, and
                           Borrower or any Subsidiary fail, for a term in excess
                           of 60 days after being served with a copy of the
                           same, to have the same stayed, quashed, cancelled or
                           set aside;

                  (k)      if judgment, decree or order final and beyond appeal
                           is entered or issued against Borrower or any
                           Subsidiary in an amount in excess of two hundred and
                           fifty thousand Dollars $250,000.00 and remains
                           unsatisfied for a period in excess of 60 days;

                  (l)      Borrower fails to pay when due any payment for land
                           taxes or municipal charges over the Property secured
                           to the Bank, provided that the Borrower

                                                                              57
<PAGE>
                           is not contesting such taxes in good faith;

                  (m)      Borrower fails to use the proceeds of the respective
                           Loans for the purposes as set out in Section 2.2, 3.1
                           and 3.3 of this Agreement respectively;

                  (n)      the Borrower fails to maintain its Assets, and fails
                           to take reasonable steps to remedy such breach after
                           it has received 15 days written notice from the Bank
                           to do so;

                  (o)      any material provision of any Security Document after
                           delivery thereof pursuant to Section 5 shall for any
                           reason cease to be valid and binding on the Borrower
                           or Subsidiary party thereto unless the applicable
                           Borrower or Subsidiary shall within ten (10) days
                           after notice thereof by Bank execute and deliver such
                           further instruments and agreements and take such
                           further actions as shall be necessary in the Bank's
                           reasonable judgment to afford the Bank with all of
                           the rights and benefits contemplated by the terms of
                           the Security Documents notwithstanding the invalidity
                           or unenforceability of such material provision, or
                           the Borrower or any Subsidiary shall claim in writing
                           that any material provision of any Security Document
                           is invalid or enforceable as against the Borrower or
                           any Subsidiary;

                  (p)      any Security Document shall for any reason (other
                           than pursuant to the terms thereof) cease to create a
                           valid and perfected security interest in any, i)
                           material portion of the Property, or ii) item or
                           items of security described in the Security
                           Documents, the loss of which would have a Material
                           Adverse Effect on Bank's security, and in either
                           event, if any claim with priority to the security
                           interest created by the Security Documents shall be
                           upheld by any court of competent jurisdiction or

                                                                              58
<PAGE>
                           shall be consented to by the Borrower, other than the
                           existing liens on the Property and other security
                           contemplated herein;

                  (q)      Borrower or any Subsidiary shall fail to perform or
                           observe, after any applicable notice or grace period,
                           any term, covenant or condition contained in, i) this
                           Agreement, ii) in any of the Security Documents, or
                           iii) any other material agreement or instrument to
                           which Borrower or any Subsidiary is a party, and such
                           failure has a Material Adverse Effect on the
                           Borrower;

                  (r)      without the prior written consent of the Bank, the
                           Borrower ceases to carry on the business it carries
                           on at the date hereof or enters into any unrelated
                           business;

                  (s)      there is a change in the Borrower or any Subsidiary
                           which has a Material Adverse Effect; and

                  (t)      Any part of the Bridge Loan remains outstanding and
                           unpaid to the Bank at the end of the six (6) month
                           term thereof and the Debenture has not, within thirty
                           (30) Business Days from the end of such term, been
                           up-stamped by the amount of the Bridge Loan which
                           remains outstanding at that time.

SECTION 17.2      ACCELERATION

                  (a)      If any Event of Default occurs, the Bank may, at its
                           option, and without notice to the Borrower, after
                           expiration of any applicable cure period; a) declare
                           the balance owing under the Loans to be immediately
                           due and payable including any accrued interest,
                           commission, costs and any other

                                                                              59
<PAGE>
                           amounts due pursuant to the terms of this Agreement;
                           and b) declare that any undrawn portion of the Loans
                           shall be cancelled; provided, however, that in the
                           event of an actual or deemed entry or an order for
                           relief with respect to the Borrower under the
                           applicable laws of Cayman regarding bankruptcy,
                           reorganization or judicial administration, the
                           balance of the Loans, together with interest and all
                           such amounts shall automatically become and be due
                           and payable.

                  (b)      If pursuant to Sub-section (a) above the Bank
                           declares the Advances to be due and payable, then at
                           any time thereafter the Bank may select an Interest
                           Period of three months or less.

                  (c)      Thereafter the Bank may proceed to exercise all its
                           rights and recourses granted to it by the law, to
                           enforce collection by summary proceedings or
                           otherwise, to foreclose any and all warranties,
                           without being required to present any request,
                           demand, protest or notification of any kind and to
                           enforce any Guarantee at its option.

SECTION 17.3      SET OFF

                  (a)      Except to the extent such accounts are pledged,
                           assigned or hypothecated to creditors other than the
                           Bank, pursuant to written agreement given by the
                           Bank, following an Event of Default, the Bank may, at
                           its option, combine, consolidate or merge all or any
                           of the Borrower's accounts with any liabilities to
                           the Bank, and may set off or transfer any sum
                           standing to the credit of any such accounts in or
                           towards the satisfaction of any of the Borrower's
                           liabilities to the Bank under this Agreement, and may
                           do so notwithstanding that the balance on such
                           accounts and liabilities may not

                                                                              60
<PAGE>
                           be expressed in the same currency.

                  (b)      For the purposes of the foregoing accounts, monies or
                           investments held whether in trust or otherwise for or
                           on behalf of the Borrower by any branch of the Bank
                           wheresoever situated shall be treated as if such
                           accounts, monies or investments were held by the Bank
                           and the rights of the Bank under sub section (a)
                           above shall apply to such accounts, monies or
                           investments as if they were held by the Bank.

SECTION 17.4      OTHER REMEDIES

         If an Event of Default occurs, in addition to the remedies provided in
the above subsection, the Bank shall also be entitled to:

                  (a)      Any other remedies and rights provided in this
                           Agreement or any of the Security Documents; and

                  (b)      any other remedies at law or equity.

SECTION 17.5      DEFAULT INDEMNITY

         The Borrower shall indemnify the Bank against any loss or expense which
the Bank may sustain or incur as a consequence of:

                  (a)      The occurrence of any Event of Default;

                  (b)      any action taken or not taken by the Bank under
                           Section 17.2 above, included but not limited to any
                           loss incurred in liquidating or funding the Loans or
                           any part thereof, as to which the certificate of the
                           Bank shall, in

                                                                              61
<PAGE>
                           the absence of manifest error, be conclusive; and

                  (c)      such indemnity shall include all reasonable legal
                           costs and expenses (including reasonable attorneys
                           fees on a full indemnity basis) incurred by the Bank
                           in connection with any of the foregoing matters
                           including without limitation, the enforcement by the
                           Bank of all its legal rights under this Agreement.

                                   SECTION 18
                                  MISCELLANEOUS

SECTION 18.1      COSTS AND EXPENSES

                  (a)      The Borrower shall forthwith on demand of the Bank
                           and whether or not the Loans are disbursed, pay to
                           the Bank such amounts as are necessary fully to
                           reimburse the Bank for all the customary costs,
                           charges and expenses (including, without limitation,
                           external and in house legal fees and expenses),
                           communication, travel and all other out-of-pocket
                           expenses incurred in the preparation, execution,
                           administration, monitoring and enforcement of this
                           Agreement ( including the costs of a Receiver) and
                           the Security Documents.

                  (b)      In addition to the amount contemplated in sub-section
                           a) above, the Borrower shall, forthwith on demand of
                           the Bank, pay all present and future stamp and other
                           like duties (including interest and penalties, if
                           any) payable in respect of the Security Documents and
                           the registration, recording and other like
                           governmental fees, if any, to which this Agreement,
                           the Security Documents or any other document or
                           instrument issued in relation herewith may be subject
                           or give rise to.

                                                                              62
<PAGE>
                  (c)      The Borrower shall, from time to time on demand of
                           the Bank, reimburse the Bank for all expenses
                           incurred by the Bank in remedying any breach of
                           Environmental Laws, policies or guidelines which may
                           have occurred or as a result of any environmental
                           remedial action taken by the Bank on behalf of the
                           Borrower. In the event that the Borrower does not
                           provide immediate reimbursement, the Bank shall be
                           entitled to add all expenses arising pursuant hereto
                           to the principal outstanding under the Loans and all
                           amounts arising hereunder shall apply mutatis
                           mutandis to the provisions of this Agreement relating
                           to outstanding principal.

                  (d)      A certificate signed by an officer of the Bank
                           setting out the expenses in connection with this
                           section shall be deemed to be presumptive evidence of
                           such expenses.

                  (e)      The obligations of the Borrower under this Section
                           shall survive the repayment of the Loans and the
                           payment of all interest due thereon and other sums
                           payable hereunder.

SECTION 18.2      NO JOINT VENTURE

         Nothing herein contained shall constitute or be construed to be or to
create a joint venture and or a partnership between the Borrower and the Bank.
The Bank does not assume and shall not bear any business risks directly or
indirectly related to the Borrower.

SECTION 18.3      BANK'S OPTION RIGHT TO PAY OR PERFORM IN BORROWER'S STEAD

         The Borrower agrees that, upon the occurrence of an Event of Default
the Bank shall have the right without notice to the Borrower to advance all or
any part of amounts owing or to perform any or all required actions. No such
advance or performance shall be deemed to have cured such

                                                                              63
<PAGE>
default by the Borrower or any Event of Default with respect thereto. All sums
advanced and all expenses incurred by the Bank in connection with such advances
or actions, and all other sums advanced or expenses incurred by the Bank
hereunder or under applicable law (whether required or optional and whether
indemnified hereunder or not) shall bear interest at the post-maturity rate as .
set out in Section 6.4 hereof, be reimbursed by Borrower, and shall be secured
by the Charge and Debenture. The Borrower hereby appoints the Bank its true and
lawful attorney-in-fact to make the payments and effect the performance
contemplated by the aforesaid provisions of this Section in the name and on
behalf of the Borrower. This power, being coupled with an interest, shall be
irrevocable so long as any amounts shall remain unpaid.

SECTION 18.4      ASSIGNMENT, PARTICIPATION BY THE BANK

         The Bank may, at no cost to the Borrower, assign to one or more banks
or other Persons, or may grant participations to one or more banks or other
Persons in or to all or any part of the Loans and the Bank's rights and
obligations under the Security Documents.

SECTION 18.5      PUBLICITY

                  The Bank shall, upon obtaining the prior written consent of
the Borrower, such consent not to be unreasonably withheld or delayed, have the
right to publicize that it has granted financing to the Borrower.

SECTION 18.6      SEVERABILITY

         Any provision of this Agreement that is held to be inoperative,
unenforceable or invalid in whole or in part as to any party or in any
jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid to such extent without affecting the remaining
provisions or the operation, enforceability or validity of that provision as to
the other party or in any other

                                                                              64
<PAGE>
jurisdiction and to this end, the provisions of this Agreement are declared to
be severable.

SECTION 18.7      NO WAIVER, CUMULATIVE REMEDIES

                  (a)      No failure or delay by the Bank in exercising any
                           right, remedy, power or privilege under this
                           Agreement or any of the other Security Documents
                           shall operate as a waiver thereof. The partial or
                           single exercise of any right, remedy, power or
                           privilege under this Agreement or any of the other
                           Security Documents shall not operate as a waiver or
                           as an estoppel regarding any rights under the same.
                           All rights and remedies provided in this Agreement
                           and the other Security Documents are cumulative and
                           may be exercised contemporaneously or successively,
                           and are in addition and not exclusive of any other
                           rights and remedies provided by law.

                  (b)      Any waiver by either party of a breach of any part of
                           this Agreement caused by the other party will not
                           operate as or be interpreted as a waiver of any other
                           breach. The failure of a party to insist on strict
                           adherence to any term of the Agreement on one or more
                           occasions is not to be considered to be a waiver of
                           any of its rights under this Agreement or to deprive
                           that party of the right to insist upon strict
                           adherence to that term or any other term in the
                           future. No waiver shall be of any effect unless it is
                           in writing and authenticated by the waiving party.

SECTION 18.8      SURVIVAL

         All representations and warranties made by the Borrower in this
Agreement and the other Security Documents, its covenants and undertakings
therein, shall survive the execution of the same and the disbursements of the
Loans, and shall continue in full force and effect until the Loans are

                                                                              65
<PAGE>
paid in full, all for a period exceeding such payment in the cases so
established in this Agreement.

SECTION 18.9      JUDGMENT CURRENCY

         If for the purpose of obtaining judgment in any court or for any other
purpose hereunder it is necessary to convert an amount due hereunder in the
currency in which it is due (the "Original Currency") into another currency (the
"Judgement Currency"), the rate of exchange applied shall be that at which, in
accordance with normal banking procedures, the Bank could purchase, in the New
York foreign exchange market, at the Bank's option, the Original Currency with
the Judgement Currency on the date two Business Days preceding that on which
judgment is given. The Borrower agrees that its obligation in respect of any
Original Currency due from it to the Bank shall, notwithstanding any judgment of
payment in such other currency, be discharged only to the extent that, on the
Business Day following receipt of any sum so paid or adjudged to be due
hereunder in the Judgement Currency, the Bank may, in accordance with normal
banking procedures, purchase, in the New York foreign exchange markets, the
Original Currency with the amount of the Judgement Currency so paid or so
adjudged to be due; and, if the amount of the Original Currency so purchased is
less than the amount originally due in the Original Currency, the Borrower
agrees as a separate obligation and notwithstanding any such payment or judgment
to indemnify the Bank against such loss.

SECTION 18.10     NOTICES

         All notices, requests, consents, demands, directions, agreements or
other instruments or communications between the Bank and the Borrower required
to be given hereunder shall be in writing and shall be; (a) sent by private
courier service, next day delivery, or by telefax, or other similar form of
rapid transmission, confirmed by sending (by private courier service, next day
delivery) written confirmation; or (b) personally delivered to the receiving
party or, if not an individual, to an officer or general partner of the
receiving party. All such communications shall

                                                                              66
<PAGE>
be sent or delivered addressed as follows:

         If to the Borrower:
         Consolidated Water Co. Ltd.
         P.O.Box 1114 GT
         Trafalgar House
         Grand Cayman, Cayman Islands.

         Attn: Mr. Jeffrey Parker
         Telephone No: 345-945-4277
         Fax No:       345-949-2957

         If to the Bank:

         Scotiabank (Cayman Islands) Ltd.
         Scotia Centre,
         Cardinal Avenue,
         P.O.Box 689,
         Grand Cayman.

         Attn: Commercial Banking Manager

         Telephone: 345-949-7666
         Fax #     345- 949-5130

         Any party hereto may, by notice given hereunder, designate any further
or different addresses to which subsequent notices, requests or other
communications shall be sent. All such notices and other communications shall be
effective when received.

SECTION 18.11 APPLICABLE LAW & JURISDICTION

                  (a)      This Agreement and all other Security Documents shall
                           be construed and enforced in accordance with, and
                           governed by, the laws of Cayman.

                                                                              67
<PAGE>
                  (b)      The parties hereto irrevocably submit to the
                           jurisdiction of the courts of Cayman.

                  (c)      The submission to the jurisdiction of the courts of
                           Cayman shall not (and shall not be construed so as
                           to) limit the right of the Bank to take proceedings
                           against the Borrower in any other court of competent
                           jurisdiction, nor shall the taking of proceedings in
                           any one or more jurisdictions preclude the taking of
                           proceedings in any other jurisdiction, whether
                           concurrently or not.

SECTION 18.12     EXECUTION IN COUNTERPARTS

         This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be effective as delivery of
a manually executed counterpart of this Agreement.

SECTION 18.13     INTERPRETATION

                  (a)      This Agreement and each of the other Security
                           Documents supplement each other.

                  (b)      In this Agreement, the singular includes the plural
                           and vice versa, and references to any gender include
                           any other gender.

                  (c)      The clause headings and the titles of the paragraphs
                           and sections of this Agreement and other Security
                           Documents are inserted for convenience only and shall
                           be ignored in construing this Agreement. References
                           to

                                                                              68
<PAGE>
                           sections are references to sections in this
                           Agreement.

SECTION 18.14     THE BANK'S DISCRETION

                  (a)      Except as otherwise indicated, whenever the Bank's
                           judgment, consent or approval is required hereunder
                           for any matter, or the Bank shall have an option or
                           election hereunder, such judgment, the decision as to
                           whether or not to consider or approve the same or the
                           exercise of such option or election shall be in the
                           sole discretion of the Bank, acting reasonably.

                  (b)      Notwithstanding anything contained in any of the
                           Security Documents to the contrary, in the event that
                           the Bank i) fails or refuses to grant consent or
                           approval when required hereunder or under any other
                           Security Document for any matter or ii) acts
                           unreasonably or unreasonably withholds or delays
                           acting in any circumstance where by law or under this
                           Agreement or the other Security Documents it has an
                           obligation to act reasonably or promptly, the parties
                           agree that the damages which might arise as a result
                           of any such actions are incapable of accurate
                           determination, and accordingly agree that the
                           remedies of specific performance and injunctive
                           relief are and should be the sole remedies of the
                           Borrower against the Bank with respect to such
                           actions, and the Borrower hereby irrevocably and
                           unconditionally waives all claims for damages with
                           respect thereto, provided however the aforegoing
                           shall not apply if the Bank has acted with gross
                           negligence or wilful misconduct.

SECTION 18.15 MODIFICATION, AMENDMENT

         The Agreement and the other Security Documents may not be modified,
altered nor amended

                                                                              69
<PAGE>
in any manner whatsoever, except by another written agreement executed by the
parties with the same solemnities as the document being modified, altered or
amended.

SECTION 18.16     ENTIRE AGREEMENT

         The Agreement and the other Security Documents contain all of the
representations and warranties, undertakings, covenants and agreements between
the parties. All prior negotiations, understandings, undertakings, covenants,
representations and agreements, whether oral or written, in connection with the
Loans are merged herein.

SECTION 18.17     JUDGMENT ON A COVENANT

         The taking of a judgment or judgments on any covenant or covenants
herein contained shall not operate as a merger of the said covenant or covenants
or affect the Bank's right to interest at the rate and times herein set forth.

                 REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK

                                                                              70
<PAGE>
SIGNED, SEALED, AND DELIVERED

CONSOLIDATED WATER CO. LTD

By: /s/ Jeffrey M. Parker
    ------------------------
Authorized Signatory

SCOTIABANK (CAYMAN ISLANDS) LTD.

By: /s/ Alan Brody
    ------------------------

Authorized Signatory

                                                                              71
<PAGE>
                                     ANNEX A
                                  DEFINITIONS

         "ACQUISITION" means the acquisition by the Borrower of the Shares.

         "ACQUISITION LOAN" shall have the meaning ascribed to it in Section
         3.2(a) of this Agreement and includes where the context requires the
         Post Acquisition Revolving Loan.

         "ADVANCE" means, the principal amount of each borrowing from the Bank
         by the Borrower.

         "AFFILIATE" means, with respect to any Person, (a) any other Person
         that is directly or indirectly controlled by, under common control with
         or controls such Person, (b) any other Person owning beneficially or
         controlling more than twenty percent (20%) of the Voting Stock of such
         Person, or (c) any officer, director or partner of such Person. As used
         herein, the term "control" is defined hereunder.

         "AGREEMENT" means, the Loan Agreement dated February 7th, 2003 between
         Consolidated Water Co. Ltd. and Scotiabank (Cayman Islands) Ltd.

         "ALTERNATIVE RATE" shall have the meaning ascribed to it in Section
         10.2(c) of the Agreement.

         "APPLICABLE MARGIN" shall have the meaning set out in Section 6.l(d).

         "ASSETS" means, in respect of the Borrower and each of the
         Subsidiaries, their respective moveable assets, equipment, machinery,
         and structures.

         "AUTHORIZED SIGNATORY" means, at any time, in relation to any party and
         any communication to be made or any document to be executed or
         certified by it, any person or persons who is or are at such time duly
         authorized by or pursuant to board resolutions, equivalent corporate or
         other action or in such other manner as may be acceptable to the party
         receiving such communication to make such communication or to execute
         or certify such document on behalf of such party.

         "BANK" means Scotiabank (Cayman Islands) Ltd. as more fully described
         at the beginning of this Agreement.

         "BASE RATE" means, the variable per annum reference rate of interest
         (as announced and adjusted by Scotiabank (Cayman Islands) Ltd. from
         time to time in Grand Cayman, Cayman Islands) for United States dollar
         loans used as a reference by borrowers in their day to day operations,
         or by third parties, and which rate the Borrower and the Bank select
         for the purposes of the Working Loan. The Borrower hereby acknowledges
         that such rate is objectively determined and publicly known. Base Rate
         is subject to periodic changes and each change in Base Rate will
         simultaneously cause a change, effective at the
<PAGE>
                                      -2-

         beginning of that day, in the rate of interest charged to Borrower for
         Advances under the Working Loan for which interest is being charged
         based upon the Base Rate.

         "BINDING SALE AGREEMENTS" means, various agreements of purchase and
         sale in respect of the Shares of each of the Subsidiaries copies of
         which have been supplied to the Bank, and which are fully executed and
         represent legally binding obligations upon the Borrower, as purchaser,
         and each respective vendor to close the transaction.

         "BORROWER" means Consolidated Water Co. Ltd., as more fully described
         at the beginning of this Agreement.

         "BORROWING BASE" means, the aggregate of, (i) seventy-five percent
         (75%) of the consolidated good quality accounts receivable excluding,
         (a) accounts receivable greater than ninety (90) days after the date of
         the invoice, (b) offsets, (c) accounts receivable which are in default,
         and (d) accounts receivable between the Borrower and any Affiliate,
         shareholder of the Borrower or any Affiliate or any officer of Borrower
         or Affiliate plus fifty percent (50%) of the Borrower's consolidated
         net inventory, less security interests or charges held by other parties
         and specific payables which have or may have priority interest over the
         Bank's security.

         "BRIDGE LOAN" shall have the meaning ascribed to it in Section 3.2 of
         this Agreement.

         "BUSINESS DAY" means;

         (a)      as to LIBOR funded portions of the Loan, a day on which
                  dealings are carried on in the London interbank market and
                  banks are open for business in London, New York, Toronto and
                  Cayman; and

         (b)      as to Fixed and Base Rate funded portions of the Loan, a day
                  on which banks are open for business in New York, Toronto and
                  Cayman.

         "CASH FLOW" means, the consolidated net income (that is, the aggregate
         of all amounts which would be included as net income on the annual
         audited Financial Statements of the Borrower on a consolidated basis)
         of the Borrower for a Financial Year, plus non-cash charges, less
         capital expenditure and all debt repayment for such Financial Year.

         "CAYMAN" means, The Cayman Islands.

         "COLLATERAL CHARGE" means, a charge, in prescribed form, of the
         Property pursuant to the Registered Land Law.

         "CONTAMINANT" means, any waste, pollutant, hazardous substance, toxic
         substance, hazardous waste and any substance regulated or forming the
         basis of
<PAGE>
                                       -3-

         liability under any Environmental Law, including, without limitation,
         any special waste, petroleum or petroleum-derived substance or waste,
         or any constituent of such substance or waste.

         "CONTROL" means, possession by the Borrower, directly or indirectly, of
         the power to direct or cause the direction of the management and
         policies of a Person, whether through the ownership of partnership
         interests or voting securities, by contract or otherwise.

         "CREDIT PARTY" means, any one of the Borrower or the Guarantors.

         "DEBENTURE" means, the substituted first ranking Debenture, stamped
         initially to secure an amount of $22 million bearing even date herewith
         as executed by the Borrower in a format acceptable to the Bank.

         "DEBT" means, the aggregate outstanding and unpaid Indebtedness of the
         relevant Credit Party (taking into consideration any requested
         Advance).

         "DEBT SERVICE COVERAGE RATIO" means, for any period, EBITDA divided by
         the current portion of long term debt plus short term bank debt plus
         interest on these items.

         "DOLLARS"and "$" each means, lawful currency of the United States of
         America. (All currency figures referred to in this Agreement are in
         lawful currency of the United States of America unless set out to the
         contrary).

         "DRAW DOWN DATE" means, any date upon which an Advance is made by the
         Bank to the Borrower pursuant to the terms of this Agreement.

         "DRAW DOWN NOTICE" means, any valid and effective notice received by
         the Bank from the Borrower with respect to the draw down of an Advance,
         substantially in the form set out in Schedule 2.

         "EBITDA" means, for any Financial Year, the Net Income of the Borrower
         for such period plus; (a) to the extent deducted in determining such
         Net Income for such period, the aggregate amount of, (i) interest
         expense (excluding amortization of debt expense incurred in connection
         with the Loans hereunder), (ii) Taxes, (iii) depreciation, (iv)
         amortization and other similar non-cash charges, and (v) any
         extraordinary or other non-recurring non-cash loss minus; (b) any
         extraordinary or other non-recurring gain, confirmed by the
         consolidated Financial Statements of the Borrower.

         "ENVIRONMENTAL LAW" means, all laws, statutes, ordinances and
         regulations, now or hereafter in effect in Cayman and any other
         jurisdiction in which a Subsidiary carries on business, and in each
         case as amended or supplemented from time to time, and any judicial or
         administrative interpretation thereof, including, without limitation,
         any judicial or administrative order, consent decree or judgment,
         relating to the regulation and protection of human health, safety, the
         environment
<PAGE>
                                       -4-

         and natural resources (including, without limitation, ambient air,
         surface water, groundwater, wetlands, land surface or subsurface
         strata, wildlife, aquatic species and vegetation).

         "ENVIRONMENTAL LIABILITIES AND COSTS" means, all liabilities,
         obligations, responsibilities, Remedial Actions, losses, damages,
         punitive damages, consequential damages, , costs and expenses
         (including, without limitation, all reasonable fees, disbursements and
         expenses of counsel, experts and consultants and costs of investigation
         and feasibility studies), fines, penalties, sanctions and interest
         incurred as a result of any claim or demand, whether based in contract,
         tort, implied or express warranty, strict liability, criminal or civil
         statute, including, without limitation, any thereof arising under any
         Environmental Law, Permit, order or agreement with any governmental
         authority or other Person, which relate to any environmental, health or
         safety condition, or a Release or threatened Release, and result from
         the past, present or future operations of the Property.

         "ENVIRONMENTAL LIEN" means, any lien in favour of any governmental
         authority for Environmental Liabilities and Costs.

         "EVENT OF DEFAULT" means, any one or more of the events or
         circumstances specified in Section 17.1.

         "FINANCIAL STATEMENTS" means, a balance sheet and statement of profit
         and loss account and statement of cash flow, including all notes
         thereto and in the case of audited Financial Statements, the auditor's
         report and the chairman's or director's report(s), if any, prepared in
         accordance with GAAP; and a monthly balance sheet and profit and loss
         statement in a form as reasonably agreed to by the Bank.

         "FINANCIAL YEAR" means, the accounting period of the Borrower
         commencing each year on 1st January and ending on 31st December or such
         other accounting period of the Borrower, as the Borrower may from time
         to time designate as its accounting year with the Bank's prior written
         approval.

         "FIXED RATE" means, the rate of interest per annum, quoted, by the
         Bank, when available, and at the Bank's sole discretion, for a fixed
         period of time, and accepted by the Borrower.

         "FIXED RATE FUNDING OPTION" shall have the meaning ascribed to it in
         Section 6.3 of the Agreement.

         "GAAP" means, generally accepted accounting principles of the United
         States of America in effect from time to time, applied on a consistent
         basis as to classification of items and accounts.

         "GOCI LETTER OF CREDIT" means the standby letter of credit or letter of
         guarantee issued by the Bank at the request of the Borrower, for a term
         of no greater than six (6) months from the date of issue, in a format
         acceptable to the Bank in its
<PAGE>
                                       -5-

         reasonable discretion, and the issuance of which shall constitute an
         advance under the Working Loan.

         "GOVERNMENTAL AUTHORITY" means, any department, commission, statutory
         board, bureau or instrumentality of the government of Cayman or any
         governmental or quasi-governmental authority, now existing or hereafter
         created, having jurisdiction over the Property, the Borrower or the
         Bank;

         "GUARANTEE(S)" means, the various corporate guarantees to be provided
         by the Guarantors to the Bank.

         "GUARANTORS" means, DesalCo (Barbados) Ltd., and DesalCo Limited.

         "INDEBTEDNESS" means, for any Person, all obligations of such Person
         for borrowed money, whether present or future, actual or contingent, or
         for the repayment of which such Person, either directly or indirectly,
         is obliged or otherwise responsible (including without limitation any
         such obligations evidenced by bonds, debentures, notes or other similar
         instruments but excluding any obligation to pay trade credit in the
         normal course of business).

         "INTEREST CALCULATION DATE" shall have the meaning ascribed to it
         Section 6.2(a) of the Agreement.

         "INTEREST PERIOD" means, the period beginning on (and including) the
         date on which an Advance pursuant to the Term or Bridge Loan is made or
         remains outstanding pursuant to Section 6.1 and shall end on (but
         exclude) the day which numerically corresponds to such date one, three,
         six or twelve months thereafter (or, if such month has no numerically
         corresponding day, on the last Business Day of such month), as the
         Borrower may select in its relevant notice pursuant to Section 6.1b)
         and c); provided, however, that:-

         (a)      the Borrower shall not be permitted to select Interest Periods
                  to be in effect at any one time which have expiration dates
                  occurring on more than four (4) different dates;

         (b)      if such Interest Period would otherwise end on a day which is
                  not a Business Day, such Interest Period shall end on the next
                  following Business Day (unless such next following Business
                  Day is the first Business Day of a calendar month, in which
                  case such Interest Period shall end on the Business Day next
                  preceding such numerically corresponding day);

         (c)      no Interest Period may end later than the last day for the
                  repayment of the final instalment of principal; and
<PAGE>
                                       -6-

         (d)      if the Borrower fails to give such notice of its selection in
                  relation to an Interest Period, the duration of that Interest
                  Period shall be one (1) month.

         "LIBOR" means, for any Interest Period, the rate of interest per annum
         at which deposits of equal or like amounts in Dollars for delivery on
         the first day of such Interest Period and for the durations thereof,
         appear on the relevant page of the Telerate screen (Page 3750) at or
         about 11:00 A.M. (London time) two (2) Business Days before the first
         day of an Interest Period.

         "LIBO RATE" means, the sum of LIBOR for any relevant Interest Period
         plus the applicable margin.

         "LIBO RATE LOAN" means, a facility bearing interest, at all times
         during an Interest Period applicable to such facility, at a fixed rate
         of interest determined by reference to the LIBO Rate;

         "LOANS" collectively means, each of the Working Loan, the Acquisition
         and Post Acquisition Revolving Loan and the Bridge Loan, and the
         principal amount outstanding, and accrued interest payable, from time
         to time, thereunder.

         "MATERIAL ADVERSE EFFECT", with respect to a Person, means, an effect,
         resulting from any occurrence of whatever nature (including any adverse
         determination in any litigation, arbitration or governmental
         investigation or proceeding), materially adverse to the financial
         condition, business operations, assets or revenues, when taken as a
         whole, of such Person.

         "MAXIMUM RATE" shall have the meaning ascribed to it in Section 6.7 of
         the Agreement.

         "NET INCOME" means, for any period, the aggregate of all amounts which,
         in accordance with generally accepted accounting principles of the
         United States of America, would be included as net income on the annual
         audited Financial Statements of the Borrower.

         "PERMIT" means any permit, approval, authorization, license, variance
         or permission required from a governmental authority under an
         applicable Requirement of Law.

         "PERSON" means an individual, partnership, corporation (including,
         without limitation, a business trust), joint stock company, trust,
         unincorporated association, joint venture or other entity, or a
         governmental authority.

         "POST ACQUISITION REVOLVING LOAN" shall have the meaning ascribed to it
         in Section 3.2(b) of this Agreement.

         "PREPAYMENT" means, a non-scheduled repayment of all or any portion of
         the principal amount of the Loan.
<PAGE>
                                       -7-

         "PROPERTY" is defined in recital A) of the Agreement, and includes all
         improvements on and under the land, together with all rights,
         easements, rights of way and other appurtenances.

         "RELEASE" any release, spill, emission, leaking, pumping, injection,
         deposit, disposal, discharge, dispersal, leaching or migration into the
         indoor or outdoor environment or into or out of the Properties,
         including, without limitation, the movement of Contaminants through or
         in the air, soil, surface water, ground water or property, except that
         which is legally permissible.

         "REMEDIAL ACTION" means, all actions required or voluntarily undertaken
         to; a) clean up, remove, treat or in any other way address Contaminants
         in the indoor or outdoor environment; b) prevent the Release or threat
         of Release or minimize the further Release of Contaminants so they do
         not migrate or endanger or threaten to endanger public health or
         welfare or the indoor or outdoor environment; or c) perform
         pre-remedial studies and investigations and post-remedial monitoring
         and care.

         "REPAYMENT DATE" means, the date upon which the final payment or
         instalment is due and payable in respect of the relevant Loan.

         "REQUIREMENT OF LAW" means, as to any Person, all laws, rules and
         regulations, including, without limitation, Environmental Laws, and all
         orders, judgments, decrees or other determinations of any Governmental
         Authority or arbitrator, applicable to or binding upon such Person or
         any of its property or to which such Person or any of its property is
         subject.

         "SECURITY DOCUMENTS" means, all those documents as set out in Section 5
         of this Agreement, and any amendments, waivers or substitutions thereof
         and any document agreed between the Borrower and the Bank to be a
         Security Document.

         "SHARES" means, the shares, partnership interests or any other form or
         instrument of ownership of each of the various Subsidiaries acquired by
         the Borrower.

         "SUBSIDIARIES" means, the Guarantors, Ocean Conversion (Cayman) Ltd.,
         Ocean Conversion (BVI) Limited, Waterfields Company Limited, or any
         other company in which the Borrower acquires an interest using the
         funds provided pursuant to this Agreement; provided that each such
         company shall only be considered a Subsidiary once the Borrower has
         completed the purchase of the shares of such company.

         "SUBSIDIARY LOAN" means any loan or financing provided by the Bank to a
         Subsidiary.

         "SUBSTITUTE BASIS" shall have the meaning ascribed to it in Section
         10.3(b) of the Agreement.
<PAGE>
                                       -8-

         "TAX" or "TAXES" means any and all income, withholding or other taxes,
         or other governmental levies, imposts, deductions, charges, compulsory
         loans and withholdings whatsoever together with interest thereon and
         penalties thereto, if any.

         "WORKING CAPITAL" means, the difference in value between the current
         assets and current liabilities of the Borrower, as defined by GAAP.

         "WORKING LOAN" shall have the meaning ascribed to it in Section 2.1 of
         this Agreement.
<PAGE>
                       SCHEDULE "A" TO THE LOAN AGREEMENT

                        LEGAL DESCRIPTION OF THE PROPERTY

Parcels 8 and 469 in Block 9A of the West Bay North East Registration Section of
Grand Cayman, parcels 8 and 40 in Block 11D of the West Bay Beach North
Registration Section of Grand Cayman.

Leasehold interest in parcel 79 REM 1/2 in Block 12D of the West Bay Beach
South Registration Section of Grand Cayman.

                                                                              72
<PAGE>
                     SCHEDULE"3.6(a)"TO THE LOAN AGREEMENT
                                DRAWDOWN NOTICE

Commercial Banking Manager
Scotiabank (Cayman Islands) Ltd.
Scotia Centre P.O. Box 699,
Cardinal Avenue George Town,
Grand Cayman Cayman Islands

Re: Drawdown Notice

Pursuant to Section 3.6 of the Loan Agreement (the "Loan Agreement") dated
           , 2003 between CONSOLIDATED WATER CO. LTD., a company incorporated
under the laws of The Cayman Islands (the "Borrower") and Scotiabank (Cayman
Islands) Ltd. (the "Bank"), the Borrower hereby irrevocably requests an Advance
as follows:

         a)       from the ACQUISITION LOAN of the sum of US$20,000,000.00
                  (twenty million) on the_____day of______.

         b)       from the BRIDGE LOAN of the sum of US$___________ on
                  the_______day of________.

All capitalized terms not elsewhere defined in this Drawdown Notice shall have
the respective meaning ascribed to such terms in the Loan Agreement. The
Borrower requests that the Advance be made as a LIBO Rate Loan having an
interest period of_______________ months.

The Borrower hereby confirms that (a) all conditions to the above requested
Advance, as set forth in the Loan Agreement have been satisfied or waived, and
(b) all of the documentation delivered to the Lender on behalf of the Borrower
in compliance with the conditions precedent to an Advance are true and correct
originals or copies (as the case may be).

Further, the Borrower hereby acknowledges that, pursuant to Section 13 of the
Loan Agreement, the delivery of this Drawdown Notice constitutes a
representation and warranty by the Borrower that, on the date of such Advance,
and before and after giving effect thereto and to the application of the
proceeds therefrom all statements set forth in Section 13 are true and correct
in all material respects.

The undersigned certifies that they are an Authorized Signatory of the Borrower
and in such capacity is authorized to execute and deliver this Drawdown Notice
on behalf of the Borrower.

The Advance shall be paid as follows:

         1. US$                to [details of payment to Vendors to be set out];
<PAGE>
         2. US$[insert amount] to the Bank in payment of the fees due to the
            Bank;

         3. US$ [insert agreed amount] to the Bank in payment of the legal fees
            for the work attended to with respect to this loan transaction,
            including stamp taxes and disbursements.

                                                CONSOLIDATED WATER CO. LTD.

                                                Per:____________________________
                                                Authorized Signatory
<PAGE>
                     SCHEDULE "5.2(d)" TO THE LOAN AGREEMENT

The following list comprises insurance policies required by Section 15.6:

<TABLE>
<CAPTION>
Type of Insurance       Name of Insurance       Maximum Insurable       Details
Policy                  Company                 Benefits
<S>                     <C>                     <C>                     <C>
Public and Products     Royal and Sun           CI$1,000,000.00         Coverage in the
Liability               Alliance Insurance                              Cayman Islands and
Policy No.              (Bahamas)Limited                                the Bahamas only.
APL 099907863                                                           Deductible of
                                                                        CI$1,000.00 per loss.

Loss of Profit          Royal and Sun           CI$5,203,000.00
Policy No.              Alliance (Bahamas)
CBI 099907861           Limited

Plant and Equipment     Royal and Sun           C1$5,172,415.00         Deductible 1% of sum
all risks               Alliance (Bahamas)                              insured per item -
Policy No.              Limited                                         minimum
EMB09990823Y/03                                                         CI$1,000.00

Property all risk       Royal and Sun           CI$2,200,000.00         Coverage for
Policy No.              Alliance (Bahamas)                              buildings and storage
CFA 099907860/01        Limited                                         tanks. Deductible 2%
                                                                        of sum insured per
                                                                        item.
</TABLE>
<PAGE>
                             GUARANTEE SCHEDULE 14.2

Upon completion of the acquisition, the Borrower is securing the release of or
giving its own replacement guarantee for the following:

         A guarantee limited to US$2,400,000.00 in respect of the obligations of
         OCC by EGL in favour of The Bank of N.T. Butterfield & Son Limited
         undated but executed by virtue of a resolution of the directors of EGL
         passed on 5(th) March 2002;

         A guarantee in respect of the obligations of OCC by EGL in favour of
         the Governor of the Cayman Islands dated 5 May 1994.

         A guarantee limited to US$343,750.00 in respect of the obligations of
         OCBVI by EGL in favour of The Bank of N.T. Butterfield & Son Limited
         dated 14(th) May 2002; and

         A guarantee limited to US$343,750.00 in respect of the obligations of
         OCBVI by NAMF in favour of The Bank of N.T. Butterfield & Son Limited
         dated 14(th) May 2002.
<PAGE>
                                      -1-

                     SCHEDULE "15.4" TO THE LOAN AGREEMENT

The following list comprises all licenses and permits currently held by the
Borrower and required in order to conduct its business as is currently be
conducted at the time of execution of the Loan Agreement:

         Trade and Business (Licensing) Board license to carry on business of
         Suppliers of Desalinated Water, License No. 16551/02 valid until May 2,
         2003.

         License to Produce Potable Water granted by the Cayman Islands
         Government dated July 11, 1990 and for a stated term of 20 years.<PAGE>
                                                                     EXHIBIT 4.1

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW,
AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 AND AN EXEMPTION
UNDER APPLICABLE STATE LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

                            WARRANT TO PURCHASE STOCK

<TABLE>
<S>                          <C>
Corporation:                 Verso Technologies, Inc., a Minnesota corporation
Number of Shares:            350,000
Class of Stock:              Common Stock
Initial Exercise Price:      $.44 [an amount equal to the closing price of Verso Technologies, Inc.'s
                             common stock on the Issue Date]
Issue Date:                  February 12, 2003
Expiration Date:             February 12, 2008
</TABLE>

         THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.

ARTICLE 1.        EXERCISE.

                  1.1      Method of Exercise. Holder may exercise this Warrant
by delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.

                  1.2      Conversion Right. In the event, but only in the
event, that a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering the resale of the Shares has not been
declared effective on or before the date that is one year from original date of
issuance of this Warrant (the "Registration Date"), then in lieu of exercising
this Warrant as specified in Section 1.1, Holder may from time to time on and
after the Registration Date convert this Warrant, in whole or in part, into a
number of Shares determined by dividing (a) the aggregate fair market value of
the Shares or other securities otherwise issuable upon exercise of this Warrant
minus the aggregate Warrant Price of such Shares by (b) the fair market value of
one Share. The fair market value of the Shares shall be determined pursuant to
Section 1.3.

                  1.3      Fair Market Value. If the Shares are traded in a
public market, the fair market value of the Shares shall be the closing price of
the Shares (or the closing price of the Company's stock into which the Shares
are convertible) reported for the business day immediately before Holder
delivers its Notice of Exercise to the Company. If the Shares are not traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment.

                                        1
<PAGE>

                  1.4      Delivery of Certificate and New Warrant. Promptly
after Holder exercises or converts this Warrant, the Company shall deliver to
Holder certificates for the Shares acquired and, if this Warrant has not been
fully exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.

                  1.5      Replacement of Warrants. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of mutilation, or surrender and cancellation of this
Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor.

                  1.6      Assumption on Sale, Merger, or Consolidation of the
Company.

                           1.6.1    "Acquisition". For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.

                           1.6.2    Assumption of Warrant. Upon the closing of
any Acquisition, the successor entity shall assume the obligations of this
Warrant, and this Warrant shall be exercisable for the same securities, cash,
and property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Initial Exercise
Price and/or number of Shares shall be adjusted accordingly.

ARTICLE 2.        ADJUSTMENTS TO THE SHARES.

                  2.1      Stock Dividends, Splits, Etc. If the Company declares
or pays a dividend on its common stock (or the Shares if the Shares are
securities other than common stock) payable in common stock, or other
securities, subdivides the outstanding common stock into a greater amount of
common stock, or, if the Shares are securities other than common stock,
subdivides the Shares in a transaction that increases the amount of common stock
into which the Shares are convertible, then upon exercise of this Warrant, for
each Share acquired, Holder shall receive, without cost to Holder, the total
number and kind of securities to which Holder would have been entitled had
Holder owned the Shares of record as of the date the dividend or subdivision
occurred. If the outstanding shares are combined or consolidated, by
reclassification or otherwise, into a lesser number of shares, the Initial
Exercise Price shall be proportionately increased.

                  2.2      Reclassification, Exchange, Combinations or
Substitution. Upon any reclassification, exchange, substitution, or other event
that results in a change of the number and/or class of the securities issuable
upon exercise or conversion of this Warrant, Holder shall be entitled to
receive, upon exercise or conversion of this Warrant, the number and kind of
securities and property that Holder would have received for the Shares if this
Warrant had been exercised immediately before such reclassification, exchange,
substitution, or other event. The Company or its successor shall promptly issue
to Holder a new Warrant for such new securities or other property. The new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Initial Exercise Price and to the number
of securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.

                  2.3      Adjustments for Diluting Issuances. The Warrant Price
and the number of Shares issuable upon exercise of this Warrant shall be subject
to adjustment, from time to

                                        2
<PAGE>

time in the manner set forth in that certain Antidilution Agreement by and
between the Company and Silicon Valley Bank dated as of the date hereof.

                  2.4      No Impairment. The Company shall not, by amendment of
its Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment.

                  2.5      Fractional Shares. No fractional Shares shall be
issuable upon exercise or conversion of the Warrant and the number of Shares to
be issued shall be rounded down to the nearest whole Share. If a fractional
share interest arises upon any exercise or conversion of the Warrant, the
Company shall eliminate such fractional share interest by paying Holder the
amount computed by multiplying the fractional interest by the fair market value
of a full Share.

                  2.6      Certificate as to Adjustments. Upon each adjustment
of the Warrant Price, the Company shall promptly notify Holder in writing, and,
at the Company's expense, promptly compute such adjustment, and furnish Holder
with a certificate of its Chief Financial Officer setting forth such adjustment
and the facts upon which such adjustment is based. The Company shall, upon
written request, furnish Holder a certificate setting forth the Warrant Price in
effect upon the date thereof and the series of adjustments leading to such
Warrant Price.

ARTICLE 3.        REPRESENTATIONS AND COVENANTS OF THE COMPANY.

                  3.1      Representations and Warranties. The Company
represents and warrants to the Holder as follows:

                           (a)      The initial Warrant Price referenced on the
first page of this Warrant is not greater than the fair market value of the
Shares as of the date of this Warrant.

                           (b)      All Shares which may be issued upon the
exercise of the purchase right represented by this Warrant, and all securities,
if any, issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.

                  3.2      Notice of Certain Events. If the Company proposes at
any time (a) to declare any dividend or distribution upon its common stock,
whether in cash, property, stock, or other securities and whether or not a
regular cash dividend; (b) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights; (c) to effect any reclassification or recapitalization
of common stock; (d) to merge or consolidate with or into any other corporation,
or sell, lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; then, in connection with each such event, the
Company shall give Holder (1) at least 10 days prior written notice of the date
on which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (c) and (d) above; (2) in the case of the matters
referred to in (c) and (d) above at least 10 days prior written notice of the
date when the same will take place (and specifying the date on which the holders
of common stock will be entitled to exchange their common stock for securities
or other property deliverable upon the occurrence of such event).

                  3.3      Registration Under Securities Act of 1933, as
amended. The Company agrees that the Shares shall be subject to the registration
rights set forth in the Registration

                                        3
<PAGE>

Rights Agreement entered into between the Company and Silicon Valley Bank as of
the date hereof.

ARTICLE 4.        REPRESENTATIONS, WARRANTIES OF THE HOLDER.  The Holder
represents and warrants to the Company as follows:

                  4.1      Purchase for Own Account. Except for transfers to
Holder's affiliates, this Warrant and the securities to be acquired upon
exercise of this Warrant by the Holder will be acquired for investment for the
Holder's account, not as a nominee or agent, and not with a view to the public
resale or distribution within the meaning of the 1933 Act, and the Holder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. If not an individual, the Holder also represents that the
Holder has not been formed for the specific purpose of acquiring this Warrant or
the Shares.

                  4.2      Disclosure of Information. The Holder has received or
has had full access to all the information it considers necessary or appropriate
to make an informed investment decision with respect to the acquisition of this
Warrant and its underlying securities. The Holder further has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of this Warrant and its underlying securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Holder or to which the
Holder has access.

                  4.3      Investment Experience. The Holder understands that
the purchase of this Warrant and its underlying securities involves substantial
risk. The Holder: (i) has experience as an investor in securities of companies
in the development stage and acknowledges that the Holder is able to fend for
itself, can bear the economic risk of such Holder's investment in this Warrant
and its underlying securities and has such knowledge and experience in financial
or business matters that the Holder is capable of evaluating the merits and
risks of its investment in this Warrant and its underlying securities and/or
(ii) has a preexisting personal or business relationship with the Company and
certain of its officers, directors or controlling persons of a nature and
duration that enables the Holder to be aware of the character, business acumen
and financial circumstances of such persons.

                  4.4      Accredited Investor Status. The Holder is an
"accredited investor" within the meaning of Regulation D promulgated under the
1933 Act.

ARTICLE 5.        MISCELLANEOUS.

                  5.1      Term: This Warrant is exercisable in whole or in part
at any time and from time to time on or before the Expiration Date.

                  5.2      Legends. This Warrant and the Shares (and the
securities issuable, directly or indirectly, upon conversion of the Shares, if
any) shall be imprinted with a legend in substantially the following form:

                  THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933, AS AMENDED OR UNDER ANY APPLICABLE STATE LAWS, AND
                  MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
                  EFFECTIVE REGISTRATION THERE OF UNDER SUCH ACT AND AN
                  EXEMPTION UNDER APPLICABLE STATE LAW OR PURSUANT TO RULE 144
                  OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
                  CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
                  REQUIRED.

                                        4
<PAGE>

                  5.3      Compliance with Securities Laws on Transfer. This
Warrant and the Shares issuable upon exercise of this Warrant (and the
securities issuable, directly or indirectly, upon conversion of the Shares, if
any) may not be transferred or assigned in whole or in part without compliance
with applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, as reasonably requested by the Company). The Company shall not require
Holder to provide an opinion of counsel if the transfer is to an affiliate of
Holder or if there is no material question as to the availability of current
information as referenced in Rule 144(c), Holder represents that it has complied
with Rule 144(d) and (e) in reasonable detail, the selling broker represents
that it has complied with Rule 144(f), and the Company is provided with a copy
of Holder's notice of proposed sale.

                  5.4      Transfer Procedure. Subject to the provisions of
Section 5.3, Holder may transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) to Silicon Valley Bancshares,
or The Silicon Valley Bank Foundation, or to any affiliate of Holder at any time
without prior notice to Company; provided, however, if Holder transfers this
warrant to any other transferee, Holder will give the Company notice of the
portion of the Warrant being transferred with the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). The
Company may refuse to transfer this Warrant to any person who directly competes
with the Company unless the Company's stock is publicly traded.

                  5.5      Notices. All notices and other communications from
the Company to the Holder, or vice versa, shall be deemed delivered and
effective when given personally or mailed by first-class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
or the Holder, as the case may be, in writing by the Company or such holder from
time to time. All notices to the Holder shall be addressed as follows:

                           Silicon Valley Bank
                           Attn: Treasury Department
                           3003 Tasman Drive, HG 110
                           Santa Clara, CA 95054

                  5.6      Waiver. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.

                  5.7      Attorney's Fees. In the event of any dispute between
the parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable

                  5.8      Automatic Conversion upon Expiration. In the event
that, (i) this Warrant is convertible pursuant to Section 1.2 above, and (ii)
upon the Expiration Date, the fair market value of one Share (or other security
issuable upon the exercise hereof) as determined in accordance with Section 1.3
above is greater than the Exercise Price in effect on such date, then this
Warrant shall automatically be deemed on and as of such date to be converted
pursuant to Section 1.2 above as to all Shares (or such other securities) for
which it shall not previously have been exercised or converted, and the Company
shall promptly deliver a certificate representing the Shares (or such other
securities) issued upon such conversion to the Holder.

                  5.9      Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to its principles regarding conflicts of law.

                                        5
<PAGE>

                                    "COMPANY"
                                    Verso Technologies, Inc.

                                    By: /s/ Steven A. Odom
                                       ----------------------------------

                                    Name: Steven A. Odom
                                         --------------------------------
                                              (Print)
                                    Title: Chairman of the Board,
                                           President or Vice President

                                    By: /s/ Juliet M. Reising
                                       ----------------------------------

                                    Name: Juliet M. Reising
                                         --------------------------------
                                                 (Print)
                                    Title: Chief Financial Officer,
                                           Secretary, Assistant Treasurer
                                           or Assistant Secretary

                                    "HOLDER"
                                    Silicon Valley Bank

                                    By: /s/ Peter M. Bendoris
                                       ----------------------------------

                                    Name: Peter M. Bendoris
                                         --------------------------------
                                    Title: Vice President
                                          -------------------------------

                                        6
<PAGE>

                                   APPENDIX 1

                               NOTICE OF EXERCISE

         1.       Holder elects to purchase ___________ shares of the Common
Stock of Verso Technologies, Inc. pursuant to the terms of the attached Warrant,
and tenders payment of the purchase price of the shares in full.

         1.       Holder elects to convert the attached Warrant into Shares/cash
[strike one] in the manner specified in the Warrant. This conversion is
exercised for _____________________ of the Shares covered by the Warrant.

         [Strike paragraph that does not apply.]

         2.       Please issue a certificate or certificates representing the
shares in the name specified below:

                                    -------------------------------------
                                        Holders Name

                                    -------------------------------------

                                    -------------------------------------
                                        (Address)

         3.       The undersigned represents it is acquiring the shares solely
for its own account and not as a nominee for any other party and not with a view
toward the resale or distribution except in compliance with applicable
securities laws.

                                    HOLDER:

                                    -------------------------

                                    By:
                                           ------------------------------
                                    Name:
                                           ------------------------------
                                    Title:
                                          -------------------------------

--------------------
      (Date)

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