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Item 1.01. Entry into a Material Definitive
Agreement.
Since
July 11, 1990, Consolidated Water Co. Ltd. (the “Company”) has had the exclusive
right to provide potable water to retail customers within a specified service
area under a license issued by the Cayman Islands government. The
present service area is comprised of an area on Grand Cayman Island that
includes the Seven Mile Beach resort area and the district of West Bay, two of
the three most populated areas in the Cayman Islands. For the year
ended December 31, 2009, the Company generated approximately 40% of its
consolidated revenues and 58% of its consolidated gross profits from the retail
water operations conducted within the area covered by the license.
On July20, 2010, the Company entered into a three-month extension of the license so
that the Company could complete negotiating the terms of a new license with the
Cayman Islands government. The license was set to expire on July 10,2010. No other terms of the license were modified.
During
the course of the negotiations, representatives of the Cayman Islands government
have indicated their intention to structure the terms of a new license to employ
a “rate of return on invested capital water rate model”. Depending
upon the terms included in such new license, the Company’s water rates to
customers could be reduced, thereby resulting in a corresponding reduction in
the Company’s operating income as compared to operating income that the Company
has historically generated under the license.
During
the three-month extension of the license, the Company intends to continue
negotiating a new license agreement with the Cayman Islands
government. As long as the Company is not in default of any terms of
the existing license, even if a new license agreement is not concluded during
the three-month extension, the Company would have a right of first refusal to
renew the license on terms that are no less favorable than those that the
government might offer in the future to a third party.
If the
Company does not enter into a new license agreement at the conclusion of the
three-month period or any agreed extension, and no other party is awarded a
license, the Company expects to be permitted to continue to supply water to its
service area. However, the terms of such continued supply
may not be as favorable to the Company as the terms in the existing
license. It is possible that the government could offer a third party
a license to service some or all of the Company’s present service
area. In such event, the Company may assume the license offered to
the third party by exercising the Company’s right of first
refusal. The terms of the new license agreement may not be as
favorable to the Company as the terms under which the Company is presently
operating.
Item
9.01 Financial Statements and
Exhibits.
(c) Exhibits
Exhibit
No.
Title
10
Amendment
to License Agreement, dated July 20, 2010, between the Government of the
Cayman Islands and Cayman Water Company
Limited
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
