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TABLE OF CONTENTS
AQUAVENTURE HOLDINGS LLC INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on September 25, 2015

Registration No. 333-            


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



AquaVenture Holdings LLC*
(Exact name of Registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  4941
(Primary Standard Industrial
Classification Code Number)
  20-8049083
(I.R.S. Employer
Identification Number)

14400 Carlson Circle
Tampa, FL 33626
(813) 855-8636

(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



Douglas R. Brown
Chief Executive Officer
AquaVenture Holdings LLC
14400 Carlson Circle
Tampa, FL 33626
(813) 855-8636

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Mark H. Burnett, Esq.
Michael J. Minahan, Esq.
Gregg L. Katz, Esq.
Goodwin Procter LLP
53 State Street
Boston, MA 02109
(617) 570-1000

 

Tracey A. Zaccone, Esq.
Brian M. Janson, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019
(212) 373-3000



Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

            If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:     o

            If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

            If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

            If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

            Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer  ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee

 

Common shares

  $100,000,000   $11,620

 

(1)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)
Includes the aggregate offering price of additional common shares that the underwriters have the option to purchase to cover overallotments, if any.



             The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

*
The registrant will be a public limited company organized under the laws of Curaçao known as AquaVenture Holdings N.V. Prior to the effectiveness of this registration statement, the following transactions will be completed: AquaVenture Holdings LLC will contribute to AquaVenture Holdings N.V., a Curaçao N.V. (naamloze vennootschap), the stock of Quench USA, Inc. and Seven Seas Water Corporation and all cash and other remaining assets and liabilities (other than the shares of AquaVenture Holdings N.V. it holds) in exchange for additional shares of AquaVenture Holdings N.V., which is curently expected to occur on or after October 1, 2015. Subsequently, AquaVenture Holdings LLC will merge with a newly formed subsidiary of AquaVenture Holdings N.V., resulting in the distribution of the shares of AquaVenture Holdings N.V. then held by AquaVenture Holdings LLC to its members pursuant to the terms of its limited liability company agreement. Quench USA Holdings LLC, a member of AquaVenture Holdings LLC, will then merge with a separate newly formed subsidiary of AquaVenture Holdings N.V., resulting in the distribution of the shares of AquaVenture Holdings N.V. it holds to its members pursuant to the terms of its limited liability company agreement. We refer to these transactions as the LLC Conversion. Common shares of AquaVenture Holdings N.V. will be offered by the prospectus that forms part of this registration statement. For convenience, except as context otherwise requires, all information included in the prospectus that forms part of this registration statement is presented giving effect to the LLC Conversion. Upon the contribution of assets included in the LLC Conversion, the historical consolidated financial statements of AquaVenture Holdings LLC in this registration statement will become the historical consolidated financial statements of AquaVenture Holdings N.V.

   


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 2015

PRELIMINARY PROSPECTUS

LOGO

                        Shares

AquaVenture Holdings LLC

Common Shares
$      per share



        This is the initial public offering of our common shares. We are selling                  common shares. We currently expect the initial public offering price to be between $            and $            per share.

        We have granted the underwriters an option to purchase up to                additional common shares.

        We have applied to have the common shares listed on the New York Stock Exchange under the symbol "WAAS."



         Investing in our common shares involves risks. See "Risk Factors" beginning on page 16.

        We are an "emerging growth company" as defined under the federal securities laws and, as such, we will be eligible to comply with certain reduced public company reporting requirements. See "Summary—Implications of Being an Emerging Growth Company."

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



 
  Per Share   Total
Public Offering Price   $           $        
Underwriting Discounts and Commissions (1)   $           $        
Proceeds to AquaVenture Holdings LLC (before expenses)   $           $        

(1)
We refer you to "Underwriting" for additional information regarding underwriter compensation.

        The underwriters expect to deliver the shares to purchasers on or about                , 2015 through the book-entry facilities of The Depository Trust Company.




Joint Book-Running Managers

Citigroup   Deutsche Bank Securities   RBC Capital Markets



Co-Managers

Canaccord Genuity   Raymond James



                , 2015


Table of Contents

         We are responsible for the information contained in this prospectus and in any free-writing prospectus we prepare or authorize. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.




TABLE OF CONTENTS

 
  Page

Summary

  1

Risk Factors

  16

Forward-Looking Statements

  44

Industry and Market Data

  46

Use of Proceeds

  47

Dividend Policy

  48

Capitalization

  49

Dilution

  51

Selected Consolidated Financial Data

  54

Management's Discussion and Analysis of Financial Condition and Operating Results

  56

Business

  92

Management

  110

Executive Compensation

  118

Certain Relationships and Related Party Transactions

  128

Principal Shareholders

  135

Description of Capital Stock

  137

Shares Eligible for Future Sale

  146

Certain Material U.S. Federal Income Tax Considerations

  149

Underwriting

  153

Legal Matters

  159

Experts

  159

Enforcement of Judgments

  159

Where You Can Find More Information

  160

Index to Financial Statements

  F-1




Table of Contents

 


SUMMARY

         This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common shares. You should read this entire prospectus carefully, including the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Operating Results" and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms "AquaVenture," "the company," "we," "us," and "our" in this prospectus refer to AquaVenture Holdings LLC and its subsidiaries.


Our Company

        AquaVenture is a multinational provider of Water-as-a-Service, or WAAS, solutions that provide our customers with a reliable and cost-effective source of clean drinking and process water primarily under long-term contracts that minimize capital investment by the customer. We believe our WAAS business model offers a differentiated value proposition that generates long-term customer relationships, recurring revenue, predictable cash flow and attractive rates of return. We offer our solutions in North America, the Caribbean, Latin America and the Middle East.

        We deliver our WAAS solutions through two operating platforms: Seven Seas Water and Quench. Seven Seas Water is a multinational provider of desalination and wastewater treatment solutions, providing 7 billion gallons of potable, high purity industrial grade and ultra-pure water (which is water that is treated to meet the higher purity standards required for industrial, semiconductor, utility or pharmaceutical applications) per year to governmental, municipal, industrial and hospitality customers. Contracts under our Seven Seas Water platform typically have a term of 10 to 20 years. We acquired Quench in June 2014. Quench is a U.S.-based provider of Point-of-Use, or POU, filtered water systems and related services to more than 40,000 institutional and commercial customers, including more than half of the Fortune 500. In our Quench business, our current typical initial contract term is three years with an automatic renewal provision, and our unit attrition rates imply an average rental period of more than 10 years. We define ``unit attrition rate" as a ratio, the numerator of which is the total number of removals of company-owned and billed rental units during the trailing 12-month period, and the denominator of which is the average number of company-owned and billed rental units during the same 12-month period.

        We leverage our operating and engineering expertise to develop and deliver highly reliable WAAS solutions by applying various water purification technologies, including reverse osmosis, carbon filtration, deionization, membrane bioreactors and ultraviolet sanitization. We own and operate our water systems, enabling our customers to outsource a non-core activity without investing significant capital or managerial resources.

        We believe that we are well positioned to capitalize on global growth opportunities driven by population growth, increasing urbanization and water scarcity, increasing focus on health and wellness, and the environmental impact of bottled water consumption. We believe our focus on delivering best-in-class service and efficiency to our customers will continue to lead to substantial new business, contract extensions and customer expansion opportunities. We also have a demonstrated track record of identifying, executing and integrating acquisitions, with Seven Seas Water and Quench having completed more than a dozen transactions since 2007. We plan to continue to pursue acquisitions that will expand our geographic presence, broaden our service offerings and allow us to move into additional markets.

        We are led by a talented management team with extensive industry experience, engineering knowledge, operational expertise and financial capabilities. Our team has a demonstrated record of execution, having built AquaVenture into a leader in the major markets we serve. Our Seven Seas Water team currently operates our nine water treatment facilities and previously designed and operated

 

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more than 50 desalination plants with Ionics, Incorporated (a former NYSE-traded water treatment technology company purchased by General Electric Co. in 2005). Our Quench team has grown Quench's company-owned and billed POU filtered water system installed base from approximately 11,300 units in 2009 to more than 80,000 today through organic growth and targeted acquisitions.

        For the fiscal year ended December 31, 2014, we generated revenues of $67.1 million, which represents a compounded annual growth rate, or CAGR, of 34.4% from 2009 to 2014. As of August 31, 2015, we had 539 employees.

Seven Seas Water

        Our Seven Seas Water business offers WAAS solutions by providing outsourced desalination and wastewater treatment services for governmental, municipal, industrial and hospitality customers. Our solutions utilize seawater reverse osmosis, or SWRO, and other purification technologies to produce potable and high purity industrial process water in high volumes for customers operating in regions with limited access to potable water. We assume responsibility for designing, financing, constructing, operating and maintaining the water treatment facilities. In exchange, we typically enter into long-term agreements to sell to our customers agreed-upon quantities of water that meet specified quality standards for a contracted period, for which we are paid based on actual or minimum required unit consumption. We typically enter into contracts with a term of 10 to 20 years, except in situations in which emergency water is needed or we assume an existing contract from an existing operator. With this approach, our customers benefit from a highly reliable, long-term clean water supply with predictable pricing, low customer capital investment and outsourced management of operations and maintenance.

        We offer customized solutions, often implemented using containerized or modular equipment that allows us to quickly commission, expand, curtail or move production capacity. We design, procure and engineer systems to meet the customer's specific requirements with regard to source water conditions and specific water quality and quantity needs. Once a plant commences operations, customer water demand typically increases over time, often leading to plant expansion and contract extension opportunities. We also offer quick deployment solutions to address emergency water shortages, such as those caused by natural disasters or failure and/or overburdening of existing water production infrastructure, and water reuse solutions for industrial users seeking to minimize wastewater.

        We are a leading provider of water to the Caribbean market, where we are currently the primary supplier to the U.S. Virgin Islands, or the USVI, Dutch Sint Maarten, or St. Maarten, and the British Virgin Islands, or BVI. We also maintain significant plant operations in Trinidad and Curaçao. We currently own and operate nine water treatment facilities in the Caribbean region producing over 7 billion gallons of purified water per year under long-term contracts. These projects are described in more detail in the section entitled "Business—Seven Seas Water—Our Desalination Plants."

        On June 11, 2015, through our acquisition of the capital stock of Biwater (BVI) Holdings Limited, we began operating a SWRO desalination plant in Paraquita Bay on Tortola, BVI, with 2.8 million gallons per day, or GPD, of installed capacity. The Paraquita Bay plant provides water to the BVI government pursuant to a 16-year contract, of which approximately 15 years remain. This acquisition further enhances our presence in the Caribbean.

        We expect to grow our Seven Seas Water business by expanding existing operations as customer demand increases and by selectively entering underserved markets through both new project development and acquisitions. We believe that there are a large number of medium-scale desalination plants (which we define as plants with approximately 3 million GPD to 13 million GPD of output capacity) in operation globally that could benefit from our ownership and operating expertise. Leveraging our strength in the Caribbean market and our reputation for reliability, quality and

 

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operating efficiency, we are pursuing new opportunities in North America, Latin America, India and the Middle East.

Quench

        Our Quench business offers WAAS solutions by providing bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers across the United States. Our POU systems purify a customer's existing water supply, offering a cost-effective, convenient, and environmentally-friendly alternative to traditional bottled water coolers, or BWC. We offer our solutions to a broad mix of industries, including government, education, medical, manufacturing, retail and hospitality, among others, including more than half of the Fortune 500. We install and maintain our filtered water systems in exchange for a monthly rental fee, typically under multi-year contracts that renew automatically. With an installed base of more than 80,000 company-owned systems, we believe that we are one of the largest POU-focused water services companies operating in the United States. We service customers across the United States and have a direct presence in 40 of the largest U.S. metropolitan markets. We generate sales by leveraging our team of field and inside sales representatives, supported by a marketing team with expertise in digital and traditional media. Our scale, product breadth and service expertise provide us a competitive advantage. These capabilities also help to create customer loyalty and preserve our market share. Our unit attrition rates imply an average rental period of more than 10 years.


Market Opportunity

        We primarily operate in two water sectors—desalination and commercial water filtration. We believe both sectors offer us opportunities for significant organic and inorganic growth due to their size, positive long-term growth trends and fragmentation.

        A number of key macroeconomic factors shape the global water sector, including population growth, an increasing water supply-demand imbalance, urbanization, industrialization, and consumers' heightened health and environmental awareness. Global water demand has outpaced population growth, leading to chronic water scarcity in many regions around the world. According to data from the United Nations, global water demand (excluding irrigation) will grow three times faster than the global population. In addition, as an increasing portion of the global population moves to cities, the need for sustainable water infrastructure solutions in urban areas is expected to increase.

        As clean water demand continues to grow, we believe the need for water treatment technologies, such as desalination and POU filtration, will increase, and we believe both of our operating platforms are well positioned to benefit from these trends.

Global Desalination Market

        Approximately 1% of the world's population depends on desalinated water to meet their daily water consumption needs. While historically a niche market due to the relatively high cost of production, desalination has become a more economical solution as desalination membrane and system technology has improved and equipment costs have declined.

        In recent years, there has been a rapid increase in the installation of new seawater desalination capacity. According to Global Water Intelligence, from 2004 to 2014 global contracted capacity more than doubled to more than 23 billion GPD. Approximately 29% of the desalination capacity globally is produced by medium-scale plants, which is our target market. We estimate that global medium-scale desalination plants generate approximately $7 billion in revenue from clean water sales annually. Many of the existing medium-scale plants are owned and operated by local governments and companies, and operating desalination facilities is generally not their core competency. As a result, we believe a large

 

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number of these plants could benefit from our ownership and operating expertise to generate more reliable and lower-cost clean water.

        According to the World Resources Institute's Aqueduct rankings, the Caribbean is one of the most water-scarce regions of the world in terms of fresh water availability, comparable to the Western Sahara and parts of the Middle East. We believe our Seven Seas Water platform is a leading desalination solution provider in the Caribbean, where we operate nine water treatment facilities. Our installed capacity in the Caribbean has grown from 9.2 million GPD in 2010 to 27.2 million GPD in 2015, which represents more than 30% of the region's existing medium-scale desalination capacity. Many of the Caribbean region's current desalination facilities utilize older thermal technologies that are more costly to operate than membrane-based SWRO systems. Replacing these thermal plants with new membrane plants is a significant additional opportunity for us. Given our compelling value proposition, extensive presence, and operational expertise in SWRO plants, we believe we are well positioned to further grow our Caribbean business.

        We currently have a presence or targeted business development activities in the Caribbean, Latin America, the Middle East, North America and India. The total installed capacity of medium-scale desalination plants in these locations is more than 2 billion GPD. We target specific attractive end markets, such as the municipal drinking water, mining, oil and gas, and ultra-pure industrial process water markets, in both large and mature markets, such as the United States and Saudi Arabia, as well as in fast-growing developing markets, such as Chile, Mexico and India. We believe we are well positioned to pursue opportunities in these markets through new project development, partnerships with local firms and strategic acquisitions.

U.S. Water Cooler Market

        According to a 2013 study by Zenith International, or Zenith, the U.S. commercial water cooler market is a $2.6 billion per year market, with more than 3.8 million units installed. POU water coolers represent 13.8% of that market by revenue. We believe that POU systems are taking market share from BWC systems for a variety of reasons, including cost, convenience, health benefits and environmental concerns. For example, Zenith attributes approximately 70% of all new POU accounts in the United States in 2013 to BWC conversions. As a result, from 2008 to 2013, the market share of POU systems on an installed unit basis grew from 14% to 21%, which represents an annualized unit growth rate of 9%. Zenith expects the number of POU units to grow at a CAGR of more than 8% between 2013 and 2018, while the number of installed BWC units is projected to remain nearly flat during the same period.


U.S. Water Cooler Market Share
(Source: Zenith)

GRAPHIC

        We estimate that our market share is more than 6.7% of commercial POU systems on an installed unit basis, and more than 8.7% on a revenue basis. The U.S. POU water cooler market is highly fragmented with hundreds of small regional providers, representing an opportunity for consolidation. Given the size of our addressable market and the fragmentation of the industry, we believe we are well positioned to realize growth with our focus on the commercial POU market.

 

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Our Strengths

Differentiated Water-as-a-Service Business Model

        Our WAAS business model offers an attractive value proposition to our customers by providing clean drinking and process water in a reliable, capital-efficient, cost-effective and flexible manner. Our long-term, service-focused model minimizes customer capital investment and yields long-term customer relationships. We invest capital in developing and installing engineered water systems, and generate predictable and steady revenue, earnings and cash flow, as well as an attractive return on invested capital.

Excellence in Execution Driven by Engineering and Operational Expertise

        Our experience in implementing, operating and servicing water filtration technologies is at the core of our water solutions. Our expertise drives our ability to offer customized solutions to satisfy our customers' water needs.

        Our engineering experience and expertise is critical in developing Seven Seas Water desalination solutions that meet each customer's specific water quality standards and quantity needs adapted to local conditions, including different feedwater sources. Another important aspect of engineering expertise is reliability, as evidenced by our ability to achieve an average plant uptime of approximately 97% since 2013, which provides our customers an uninterrupted water supply. Furthermore, our prefabricated containers and modular equipment are specially designed for quick deployment and maximum flexibility to adjust output capacities, allowing us to react quickly to customer emergencies or changes in demand.

        Our Quench POU filtered water systems utilize a variety of water purification technologies, including reverse osmosis, carbon filtration, deionization and ultraviolet sanitization. Our service technicians are trained to maintain and service our POU systems to provide a convenient, reliable and high quality water supply.

Experienced Management Team with Demonstrated Track Record

        Our management team, led by Chief Executive Officer Douglas R. Brown, President Anthony Ibarguen and Chief Financial Officer Lee S. Muller, has extensive industry experience. This team has a demonstrated track record of managing costs, adapting to changing market conditions, and financing, acquiring, integrating and operating new businesses and water plants.

        Our Seven Seas Water team currently operates our nine water treatment facilities and previously designed and operated more than 50 desalination plants with Ionics, Incorporated. Their significant expertise has been instrumental in creating customized and highly reliable desalination solutions even in demanding water applications.

        Our Quench team also has a demonstrated track record of expanding the Quench platform by adding new customers, retaining existing customers, and acquiring and integrating numerous POU filtered water service providers.

Strong Competitive Position Supported by Long-Term Customer Relationships

        We have long-standing customer relationships. In our experience, customers typically extend their contracts significantly beyond the original term, as the need for a clean, reliable water supply continues and the customer realizes the value proposition of our WAAS business model. Furthermore, we believe our operating and engineering expertise, experienced management team, and scale put us at the forefront of our industry, and that significant investment would be required for others to replicate our platforms.

 

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        Our water supply agreements under our Seven Seas Water platform typically provide for initial terms of up to 20 years and typically contain contractual provisions for cost pass-through and minimum volume requirements. In addition, we have a reputation for quality and customer service. We have a track record of expanding and extending our initial contracts into longer-term agreements with increasing water purchase volumes, in part, because we provide our customers with a cost-effective and reliable water solution.

        Based on a 2013 study by Zenith International, we believe our Quench platform is one of the largest POU-focused water service companies operating in the United States. Our current typical initial contract term is three years with an automatic renewal provision, and our unit attrition rates imply an average rental period of more than 10 years, in part, because we provide highly reliable and efficient services. We believe our scale, product breadth and reliability, and customer service are key differentiators in a highly fragmented industry primarily composed of smaller providers.

Significant Experience Identifying and Integrating Acquisitions

        Identifying and executing value-enhancing acquisitions is core to our growth strategy. Under our Seven Seas Water platform, we have acquired four operating desalination facilities, which had an aggregate capacity of 7.1 million GPD at the time of acquisition. Quench has also completed ten acquisitions since 2008, two of which occurred after our acquisition of Quench in June 2014, significantly expanding our installed base. We routinely evaluate opportunities for acquisitions and believe our experience and success in identifying, executing, integrating and operating acquisitions enable us to deploy capital effectively, create shareholder value and increase our market share.

Strong Financial Performance

        We have demonstrated sustained revenue growth with attractive margins under long-term customer relationships, enabling high returns on invested capital.

        Our revenues grew at a CAGR of 34.4% from 2009 to 2014. We believe we can continue our revenue growth by acquiring customers, expanding our relationships with our customers, expanding into new geographies and complementary services, and selectively acquiring related water services businesses.

        We achieve our margins due to our strong customer value proposition and our operating efficiency. For the years ended 2013 and 2014, our Adjusted EBITDA was $7.6 million and $18.8 million, respectively, while our Cash Operating Profit, which represents Adjusted EBITDA before selling and marketing expense, was $12.3 million and $29.2 million, respectively. We believe we have significant opportunities to continue to expand our margins as we further increase our scale and operating leverage. See "—Summary Consolidated Financial and Other Data—Reconciliation of Non-GAAP Financial Data" for a reconciliation of our GAAP net (loss) income to Adjusted EBITDA and Cash Operating Profit.

        To support our continuing growth, we are incurring significant selling and marketing costs, which results in lower GAAP-based margins. However, after one of our systems has been installed, the related ongoing selling and marketing costs are low for the remaining term of the contract. As a result, we believe Cash Operating Profit, which represents Adjusted EBITDA before selling and marketing expense, is an important economic measure as it more closely approximates the recurring cash generated by our installed base.

 

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Our Strategy

Continue to be an Industry Leader in Quality, Service and Efficiency

        We will continue to focus on servicing our customers and responding to changing customer needs and emergency situations in the water industry. Our WAAS business model helps us to control reliability and quality and ensure compliance with health standards and customer specifications. Our Seven Seas Water desalination plants operate efficiently with an average uptime of approximately 97% since 2013, providing an uninterrupted supply of water for our customers. Our Quench platform benefits from significant economies of scale that are expected to continue as the business grows.

Drive Sustainable and Profitable Growth

        We are focused on long-term, sustainable equity returns and intend to continue to deploy capital in high return opportunities. In both platforms, we have recurring revenue that is derived from predictable and contractually-obligated payments. In addition, our Seven Seas Water margins often benefit from contractual inflation-protection and cost pass-through provisions. We believe our growth will further enhance operating leverage and drive margin expansion.

Develop New Business Opportunities and Add New Customers for Growth

        We intend to continue to develop new business opportunities and add new customers supported by our experienced sales and marketing teams.

        Our Seven Seas Water platform has a dedicated business development team focusing on new project development opportunities globally. We strategically focus on providing municipal drinking water, wastewater recovery and industrial process water systems in the Middle East, Latin America (Mexico, Chile, Peru, Colombia), India, and new territories in the Caribbean. We also intend to expand our Seven Seas Water platform to U.S. areas, such as Texas, that are characterized by both a high concentration of process industry and water scarcity.

        Quench has an experienced and growing team of sales and marketing professionals responsible for new customer acquisition and expansion of existing customer relationships. Our sales representatives leverage our innovative, internet-focused marketing and lead generation platform to add new customers. We also have dedicated sales teams targeting certain industries, such as government, education and medical, as well as large enterprise opportunities.

Drive Growth through Increased Sales to Current Customers

        Both our Seven Seas Water and Quench platforms are well positioned to realize growth through incremental sales to current customers due to our longstanding relationships developed as a result of our reliable operating performance, competitive pricing and highly-rated customer service.

        Our Seven Seas Water platform has a track record of increasing sales to current customers. Seven Seas Water maintains a fleet of containerized and modular plants for rapid deployment and commissioning. This gives us a competitive advantage when responding to short-term water emergencies. Once these emergency systems are operating, we have the opportunity to demonstrate the high reliability our water plants have achieved elsewhere. We have had significant success converting these short-term customer relationships into much longer (10 to 20 years) contractual agreements. For example, Curaçao Refinery Utilities B.V., or CRU, a utility operator in Curaçao, requested that Seven Seas Water provide emergency service with a plant of 500,000 GPD of design capacity in 2009 as part of a plan to provide 1.5 million GPD of design capacity in the shortest timeframe possible to supplement production shortfalls at a water plant owned and operated by CRU. CRU subsequently requested an additional 1.0 million GPD of emergency capacity. More recently, CRU asked us to, and

 

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we agreed to, assume operation of their own 2.5 million GPD SWRO production facilities due to our higher service levels.

        Our Quench platform is also well-positioned to increase sales to existing customers. Not only do many of our customers add water coolers during their term, but many are also opting to purchase our related services as well, such as ice, coffee and sparkling water.

Continued Development of New Product Offerings to Open New Market Opportunities

        We intend to pursue new market opportunities and customers with our Seven Seas Water platform by leveraging our emergency response capabilities and specialized water supply systems for large-scale industrial operations such as mining, power generation and high water consumption manufacturing activities. We invest in containerized and modular water plants to enable us to provide rapid water supply solutions for customers who require water desalination solutions quickly, including in emergency situations. We are also actively examining and pursuing governmental, municipal, industrial and hospitality wastewater recovery opportunities as well as opportunities to treat produced water, which is generated through oil and gas exploration.

        In our Quench business, we intend to continue working with our suppliers and leveraging our market knowledge, to refine our water cooler product offerings and our other related water-enabled products, such as ice machines, sparkling water systems and coffee brewers.

Selectively Pursue Acquisitions

        Acquisitions have historically been a major growth driver for us, and we expect to continue to pursue acquisitions in the future.

        We intend to continue to selectively purchase, upgrade, expand and operate existing water treatment and desalination facilities in new and current markets under our Seven Seas Water platform. We can often operate these facilities more efficiently and reliably than current operators by leveraging our engineering and operating expertise.

        We believe the highly fragmented nature of the POU filtered water market will allow Quench to continue to identify and acquire POU companies to increase penetration of our current markets, broaden our product offerings and expand geographically.


Risks Related to Our Business

        Our business is subject to numerous risks, as highlighted in the section entitled "Risk Factors" immediately following this prospectus summary. Some of these risks include:

    Our results of operations may fluctuate significantly based on a number of factors.

    Failure to retain certain key personnel or the inability to attract and retain new qualified personnel could negatively impact our ability to operate or grow our business.

    Our Seven Seas Water business is dependent on a small group of customers for a significant amount of our revenue.

    The future growth of our Seven Seas Water business is dependent on our ability to identify and secure new project opportunities in a competitive environment.

    A number of factors may prevent or delay our Seven Seas Water business from building new plants and expanding our existing plants, including our dependence on third-party suppliers and construction companies.

 

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    Our ability to meet customer needs is dependent on the successful and efficient operation of our Seven Seas Water desalination facilities, which can be adversely impacted by a number of factors.

    If our Quench business experiences a higher unit attrition rate than forecasted, our revenues could decline and our costs could increase, which would reduce our profits and increase the need for additional funding.

    Increased competition could hurt our Quench business.

    Certain of our long-term water supply contracts under our Seven Seas Water business require us to transfer ownership of the desalination plant to the customer upon expiration or termination of the contract, or permit the customer to purchase the desalination plant in accordance with the contract before the expiration or termination of the contract.

    The political, economic and social conditions in our geographic markets may adversely affect our Seven Seas Water business.

    Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.


Implications of Being an Emerging Growth Company

        As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

    being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Operating Results" disclosure;

    not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;

    reduced disclosure obligations regarding executive compensation; and

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

        We may take advantage of some or all these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates or we issue more than $1 billion of non-convertible debt over a three-year period. We have taken advantage of certain reduced reporting obligations in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

        In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail

 

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ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.


LLC Conversion

        AquaVenture Holdings LLC, the registrant whose name appears on the cover of this prospectus, is a Delaware limited liability company. Before the completion of this offering, the following transactions will be completed: AquaVenture Holdings LLC will contribute to AquaVenture Holdings N.V. the stock of Quench USA, Inc. and Seven Seas Water Corporation and all cash and other remaining assets and liabilities (other than the shares of AquaVenture Holdings N.V. it holds) in exchange for additional shares of AquaVenture Holdings N.V., which is currently expected to occur on or after October 1, 2015. Subsequently, AquaVenture Holdings LLC will merge with a newly formed subsidiary of AquaVenture Holdings N.V., resulting in the distribution of the shares of AquaVenture Holdings N.V. then held by AquaVenture Holdings LLC to its members pursuant to the terms of its limited liability company agreement. Quench USA Holdings LLC, a member of AquaVenture Holdings LLC, will then merge with a separate newly formed subsidiary of AquaVenture Holdings N.V., resulting in the distribution of the shares of AquaVenture Holdings N.V. it holds to its members pursuant to the terms of its limited liability company agreement. We refer to these transactions as the LLC Conversion. Common shares of AquaVenture Holdings N.V. are being offered by this prospectus. For convenience, except as context otherwise requires, all information included in this prospectus is presented giving effect to the LLC Conversion.


Corporate Information

        AquaVenture Holdings LLC was formed as a Delaware limited liability company on December 14, 2006. AquaVenture Holdings N.V. was formed as a naamloze vennootschap organized under the laws of Curaçao on January 29, 2014. Our principal executive offices are located at 14400 Carlson Circle, Tampa, FL 33626, and our telephone number is (813) 855-8636. Our website address is www.aquaventure.com . Information contained on or that can be accessed through our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.

        AquaVenture, AquaVenture Holdings, Water-as-a-Service, WAAS and Quench are our registered trademarks in the United States and in certain other jurisdictions. Solely for convenience, the "®" and "TM" symbols have been omitted from the trademarks, service marks and tradenames referred to in this prospectus, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

 

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THE OFFERING

Common shares offered by us

            shares

Common shares to be outstanding after this offering

 

          shares (or          shares in the event the underwriters elect to exercise their option to purchase additional shares in full)

Option to purchase additional shares from us

 

We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional          shares from us.

Use of proceeds

 

We estimate that the net proceeds from the sale of our common shares in this offering will be approximately $          million (or approximately $          million if the underwriters' option to purchase additional shares in this offering is exercised in full), based upon the assumed initial public offering price of $          per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We currently intend to use the net proceeds of this offering for working capital and other general corporate purposes, including using a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. See the section titled "Use of Proceeds" for additional information.

Risk factors

 

You should read the "Risk Factors" section starting on page 16 of this prospectus and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in our common shares.

Concentration of ownership

 

Upon completion of this offering, our executive officers and directors, and their affiliates, will beneficially own, in the aggregate, approximately            % of our outstanding common shares.

Proposed NYSE trading symbol

 

"WAAS"

        The number of common shares that will be outstanding after this offering is based on                shares outstanding as of June 30, 2015, after giving effect to the LLC Conversion described under the section titled "Certain Relationships and Related Party Transactions—LLC Conversion," and excludes:

                    common shares issuable upon the exercise of options to purchase common shares that were outstanding as of June 30, 2015, with a weighted average exercise price of $                per share;

                    common shares issuable upon the exercise of options to purchase common shares granted after June 30, 2015, with a weighted average exercise price of $                per share;

 

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                    common shares issuable upon the exercise of warrants to purchase common shares, with a weighted average exercise price of $                per share;

                    common shares reserved for future issuance under our existing equity incentive plans as of June 30, 2015; and

                    common shares reserved for future issuance under our 2015 Stock Option and Incentive Plan, which will become effective upon completion of this offering, and which contains provisions that automatically increase its share reserve each year.

        Except as otherwise indicated, all information in this prospectus (other than our historical financial statements and historical financial debt) assumes:

    the consummation of the LLC Conversion described under the section titled "Certain Relationships and Related Party Transactions—LLC Conversion" prior to the completion of this offering;

    the filing and effectiveness of our amended and restated articles of association, which will occur prior to the completion of this offering;

    no exercise by the underwriters of their option to purchase up to an additional                common shares from us in this offering; and

    no exercise of outstanding options or warrants after June 30, 2015.

 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

         The following tables summarize our consolidated financial and other data. We have derived the consolidated statement of operations data for the years ended December 31, 2013 and 2014 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the six months ended June 30, 2014 and 2015 and our consolidated balance sheet data as of June 30, 2015 from our interim consolidated financial statements included elsewhere in this prospectus. You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Operating Results" sections of this prospectus. Our historical results are not necessarily indicative of results that should be expected in the future, and the financial information presented for the interim periods may not be indicative of the results of the full year.

 
  Year Ended
December 31,
  Six Months Ended
June 30,
 
 
  2013   2014(1)   2014(1)   2015  
 
  (in thousands)
 

Consolidated Statement of Operations Data:

                         

Revenues:

                         

Bulk water

  $ 27,780   $ 38,989   $ 19,067   $ 21,111  

Rental

        23,995     2,038     21,954  

Other

        4,143     306     3,733  

Total revenues

    27,780     67,127     21,411     46,798  

Cost of revenues:

   
 
   
 
   
 
   
 
 

Bulk water

    15,765     21,037     9,921     12,065  

Rental

        10,984     665     9,514  

Other

        2,091     83     2,028  

Total cost of revenues

    15,765     34,112     10,669     23,607  

Gross profit

    12,015     33,015     10,742     23,191  

Selling, general and administrative expenses

    11,764     31,653     8,474     23,763  

Income from operations

    251     1,362     2,268     (572 )

Other expense:

                         

Interest expense, net

    (949 )   (5,148 )   (1,669 )   (3,410 )

Other expense

    (124 )   (325 )   (176 )   (127 )

(Loss) income before income tax expense

    (822 )   (4,111 )   423     (4,109 )

Income tax expense (benefit)

    387     (1,984 )   238     1,464  

Net (loss) income

  $ (1,209 ) $ (2,127 ) $ 185   $ (5,573 )

Other Non-GAAP Financial Data:

                         

Adjusted EBITDA

  $ 7,632   $ 18,829   $ 8,258   $ 12,626  

Cash Operating Profit

  $ 12,348   $ 29,193   $ 11,150   $ 19,750  

(1)
Includes the operations of Quench USA, Inc. and Atlas Watersystems, Inc. from the respective dates of acquisition of June 6, 2014 and June 16, 2014.

 

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Reconciliation of Non-GAAP Financial Data

    Adjusted EBITDA and Cash Operating Profit

        A reconciliation of our GAAP net (loss) income to Adjusted EBITDA and Cash Operating Profit for the periods presented is shown below:

 
  Year Ended
December 31,
  Six Months Ended
June 30,
 
 
  2013   2014   2014   2015  
 
  (in thousands)
 

Net (loss) income

  $ (1,209 ) $ (2,127 ) $ 185   $ (5,573 )

Depreciation and amortization

    7,226     14,831     5,069     10,205  

Interest expense, net

    949     5,148     1,669     3,410  

Income tax expense (benefit)

    387     (1,984 )   238     1,464  

Share-based compensation expense

    225     1,757     446     1,650  

Loss on disposal of assets

    54     604     51     335  

Acquisition-related expenses

        265     265     1,135  

Purchase accounting adjustments

        335     335      

Adjusted EBITDA

  $ 7,632   $ 18,829   $ 8,258   $ 12,626  

Selling and marketing expenses

    4,716     10,364     2,892     7,124  

Cash Operating Profit

  $ 12,348   $ 29,193   $ 11,150   $ 19,750  

        Adjusted EBITDA, a non-GAAP financial measure, is defined as earnings (loss) before interest, income taxes, depreciation and amortization, share-based compensation, gain or loss on disposal of assets, acquisition-related expenses and certain adjustments recorded in connection with purchase accounting for acquisitions. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Management believes that the use of Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations, and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their reported GAAP results. Management believes that it is useful to exclude certain charges, such as depreciation and amortization, and non-core operational charges from Adjusted EBITDA because (1) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (2) such expenses can vary significantly between periods as a result of the timing of acquisitions or restructurings. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

    Adjusted EBITDA does not reflect interest expense, which represents a reduction in cash available to us;

    Adjusted EBITDA does not reflect income tax expenses that may represent a reduction in cash available to us;

    Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect the future need to augment or replace such assets; and

    Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

 

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        Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results.

        Cash Operating Profit, a non-GAAP financial measure, is defined as Adjusted EBITDA before selling and marketing expenses. Management believes Cash Operating Profit is an important economic measure as it more closely approximates the cash generated by our installed asset base. Cash Operating Profit should not be considered a measure of financial performance under GAAP.

        Our use of Cash Operating Profit has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. In addition to those limitations inherent in Adjusted EBITDA, the limitations of Cash Operating Profit include:

    Cash Operating Profit does not reflect changes in our selling and marketing expenses;

    Cash Operating Profit does not reflect selling and marketing expenses that may represent a reduction in cash available to us; and

    Cash Operating Profit does not reflect costs associated with our continued growth.

        Because of these limitations, you should consider Cash Operating Profit alongside other financial performance measures, including various cash flow metrics, net income and other GAAP results.

    Consolidated Balance Sheet Data

 
  As of June 30, 2015  
 
  Actual   As
Adjusted(1)(2)
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

             

Cash and cash equivalents

  $ 34,277        

Working capital

  $ 19,207        

Property, plant and equipment and construction in progress

  $ 121,102        

Total assets

  $ 469,562        

Current portion of long-term debt

  $ 17,836        

Long-term debt

  $ 128,663        

Total shareholders' equity

  $ 299,428        

(1)
Reflects, on an as-adjusted basis, our receipt of the net proceeds from our sale of                 common shares in this offering at an assumed initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(2)
Each $1.00 increase or decrease in the assumed initial public offering price of $        per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease (as applicable) the as adjusted amount of each of cash and cash equivalents, working capital, total assets and total shareholders' equity by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of one million shares offered by us would increase or decrease the as adjusted amount of each of cash and cash equivalents, working capital, total assets and total shareholders' equity by $         million, assuming the assumed initial public offering price of $        per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The as adjusted data above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing.

 

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RISK FACTORS

         Investing in our common shares involves a high degree of risk. Before you decide to invest in our common shares, you should consider carefully the risks described below, together with the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus. We believe the risks described below are the risks that are material to us as of the date of this prospectus. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common shares could decline, and you may lose all or part of your investment.

Risks Related to Our Business

Our results of operations may fluctuate significantly based on a number of factors.

        We deliver our Water-as-a-Service, or WAAS, solutions through two operating platforms: Seven Seas Water and Quench. Seven Seas Water is a multinational provider of desalination and wastewater treatment solutions, and Quench is a U.S.-based provider of Point-of-Use, or POU, filtered water systems and related services. For each of our business platforms, there are a number of factors that may negatively impact our operating results. For our Seven Seas Water business, these factors include:

    the timing of the commencement of any operations of new, expanded or acquired desalination or wastewater treatment plants;

    the disposition, termination or expiration of a water supply agreement for a desalination or wastewater treatment plant;

    variations in the volume of water purchased by our customers;

    any disruptions or errors in the operations of our plants due to severe weather conditions or natural disasters, equipment failures, extended maintenance or other factors;

    changes in demand due to fluctuations in rainfall levels, damage and repairs to our customers' infrastructure and water conservation efforts;

    changes in electricity rates, our ability to monitor and control our electric power usages, or both;

    changes in patterns of tourism;

    unforeseeable or unavoidable delays in large-scale and/or quick deploy development projects;

    our ability to enter into new markets;

    the activities of our competitors;

    our ability to control expenses;

    our inability to recruit and retain skilled labor and personnel changes;

    changes in the cultural and political landscape of the areas in which we operate;

    limitations imposed by environmental and other regulatory requirements;

    changes in our capital spending;

    changes in levels of inflation and interest rates; and

    general economic conditions.

        For our Quench business, these factors include:

    customer attrition;

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    the activities of our competitors;

    general economic conditions;

    variations in the timing of orders and installation of our systems;

    the introduction and market acceptance of new products and new variations of existing products;

    disruption in our sources of supply;

    personnel changes;

    information technology systems or network infrastructure failure, which could result in loss of operational capacities or critical data or cause delays in our billing and collection cycles;

    our ability to control expenses;

    changes in our mix of products; and

    changes in our ability to spend capital.

Failure to retain certain key personnel or the inability to attract and retain new qualified personnel could negatively impact our ability to operate or grow our business.

        The success of our business will continue to depend to a significant extent on our ability to retain or attract key personnel, particularly management, engineering, sales and operating personnel. Our management team, led by our Chief Executive Officer, Douglas R. Brown, our President, Anthony Ibarguen, and our Chief Financial Officer, Lee S. Muller, and other key personnel have extensive industry experience. Our ability to attract or retain these employees will depend on our ability to offer competitive compensation, training and benefits. If we are unable to continue to hire and retain skilled management, technical, engineering, sales, service and operating personnel, we will have trouble operating and expanding our business, including developing and operating our existing and new desalination plants. Our success depends largely upon the continued service of our management, technical, engineering, sales, service and operating personnel and our ability to attract, retain and motivate highly skilled personnel. We face significant competition for such personnel from other businesses and other organizations who may better be able to attract such personnel. The ability to attract or retain these employees will depend on our ability to offer competitive compensation, training and benefits. The loss of key personnel or our inability to hire and retain personnel who have the necessary management, technical, engineering, sales, service and operating backgrounds could materially adversely affect our business and our financial performance.

Our Seven Seas Water business is dependent on a small group of customers for a significant amount of our revenue.

        Our Seven Seas Water business focuses on large and complex projects. Consequently, we are dependent on a small number of customers for a significant amount of our revenue. Our desalination projects usually conduct business under long-term water supply agreements with one or a limited number of customers or a single government or quasi-government entity that purchase the majority of, and in some cases all of, the relevant facility's output over the term of the agreement. This customer concentration exposes us to increased risk of cancellation or delay of a project, which may cause high volatility of our revenues. For example, separate customers in Trinidad, the USVI and St. Maarten accounted for approximately 19%, 12% and 11%, respectively, of AquaVenture Holding LLC's consolidated revenues for the year ended December 31, 2014. While we intend to maintain long-term water supply agreements for each of our facilities, due to market conditions, regulatory regimes and other factors, it may be difficult for us to secure long-term agreements where our current contracts are expiring or for new development projects. In addition, the financial performance of our facilities is

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dependent on the credit quality of, and continued performance by, our customers. If any significant customer ceases payments to us, cancels or delays a project or otherwise ceases doing business with us, our business and financial condition could be materially and adversely affected. Further, if we are required to transfer or sell one or more of our desalination plants to our customers, our business and financial condition could be materially and adversely affected. While we serve quasi-governmental agency customers, those water supply agreements are neither guaranteed by the related government nor supported by the full faith and credit of such government, and no assurance can be given that such government would provide financial support.

The future growth of our Seven Seas Water business is dependent on our ability to identify and secure new project opportunities in a competitive environment.

        We are currently pursuing new opportunities for our Seven Seas Water business in North America, Latin America, India and the Middle East. Any new project we implement will require achievement of critical milestones in order to commence construction, the first of which is to successfully identify markets for such projects and secure contracts with proposed customers to sell water in sufficient quantities and at prices that make the projects financially viable.

        Our Seven Seas Water business typically incurs significant business development expenses in the pursuit of new projects and markets, and such expenses have had, and could have, an adverse impact on our results of operations and cash flows. We currently operate in the Caribbean where we have successfully identified markets that accept our build, own and operate, or BOO, model. However, we expect to face challenges when we enter new markets, including identifying and establishing relationships with appropriate local partners, locating potential sites for new plants and convincing potential customers about the benefits of our BOO model. New markets may also have competitive conditions and governmental or regulatory schemes that are different from our existing markets. Any failure on our part to recognize or respond competitively to these differences may adversely affect the success of our business development efforts or operations in those markets, which in turn could materially and adversely affect our results of operations.

        In most cases we must sign a contract and sometimes obtain, or renew, various licenses, permits and authorizations from regulatory authorities. The competition and/or negotiation process that must be followed to win such contracts is often long, costly, complex and hard to predict. The same applies to the permit authorization process for activities that may affect the environment, which are often preceded by increasingly complex studies and public investigation. We may invest significant resources in a project or public tender without obtaining the right to build the plant. This could arise for many reasons, including the failure to obtain necessary licenses, permits or authorizations or inability to respond competitively. As a result, it may increase the overall cost of our activities or, if the resulting costs were to become too high, it could potentially force us to abandon certain projects. Should such situations become more frequent, the scope and profitability of our business, growth rate, predictability of earnings and cash flow generation could be materially and adversely affected.

        As part of the bidding process that must be followed to win contracts, we must, at times, share our know-how and confidential information with third parties. The need to share other confidential information and know-how increases the risk that such know-how and confidential information become known by our competitors, are incorporated into the product development of others or are disclosed or used in a way that disadvantages our business. Given that our proprietary position is based, in part, on our know-how and confidential information, a competitor's discovery of our know-how and confidential information or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

        We may also decide to enter new markets by building reverse osmosis desalination plants before we have obtained a contract for the sale of water to be produced by the new plant or before we have

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established a customer base for the water to be produced by the new plant. Therefore, if we are unable to obtain a contract or sufficient number of customers for the plant, we may be unable to recover the cost of our investment in the plant, which could have a material adverse effect on our results of operations, cash flows and financial condition.

A number of factors may prevent or delay our Seven Seas Water business from building new plants and expanding our existing plants, including our dependence on third-party suppliers and construction companies.

        A number of factors may prevent or delay construction, expansion or deployment of our facilities, including our dependence on third-party suppliers of equipment and materials, our dependence on third-party construction companies, and the timing of equipment purchases.

        The equipment and materials required for the uninterrupted service of our Seven Seas Water plants are supplied by only a limited number of manufacturers and could only be replaced with difficulty or at significant added cost. Some materials or equipment may become scarce or difficult to obtain in the market, or they may increase in price. This could adversely affect the lead-time within which we receive the materials or components, and in turn affect our commitments to our customers, or could adversely affect the material cost or quality. The failure of any of these suppliers to fulfill their obligations to us or our subsidiaries could have a material adverse effect on our financial results. Consequently, the financial performance of our facilities is dependent in part on the credit quality of, and continued performance by, our suppliers.

        We also engage in long-term engineering, procurement and construction contracts associated with developing our new projects. If a construction company we have hired to build a new project defaults or fails to fulfill its contractual obligations, we could face significant delays and cost overruns. Any construction delays could have a material adverse impact on us.

        In addition, the timing of equipment purchased can pose financial risks to us. We attempt to make purchases of equipment and/or material as needed. However, from time to time, there may be excess demand for certain types of equipment with substantial delays between the time we place orders and receive delivery. In those instances, to avoid construction delays or service disruptions associated with the inability to own and place such equipment and/or materials into service when needed, we may place orders well in advance of deployment or when actual damage to the equipment and/or materials occurs. Thus, there is a risk that at the time of delivery of such equipment or materials, there may not yet be a need to use them; however, we are still required to accept delivery and make payment. In addition, due to the customization of some of our equipment and/or materials, there may be a limited market for resale of such equipment or material. This can result in our having to incur material equipment and/or material costs, with no use for or ability to resell such equipment.

Our ability to meet customer needs is dependent on the successful and efficient operation of our Seven Seas Water desalination facilities, which can be adversely impacted by a number of factors.

        Our ability to meet our customers' needs, as well as achieve our targeted level of financial performance, depends on the successful operation of our facilities in our Seven Seas Water business. We currently own and operate nine water treatment facilities in the Caribbean region, which generated substantially all of the revenue of our Seven Seas Water business for the year ended December 31, 2014 and the six months ended June 30, 2015. Some of these facilities serve governmental and municipal customers who provide water to the ultimate consumers. If these customers fail to provide adequate service, our reputation will suffer and our competitive position may be impaired. In addition, if the risks involved in our operations are not appropriately managed or mitigated, our operations may not be successful and this could adversely affect our results of operations. The continued operation and

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maintenance of our desalination facilities may be disrupted by a number of technical problems, including:

    breakdown or failure of equipment or processes;

    contamination of, or other problems with, the raw feedwater that we process;

    service disruptions, stoppages or variations in our supply of electricity transmitted by third parties to our desalination plants resulting in service interruptions;

    availability of materials used in the desalination process;

    problems with, or delays in availability of, water distribution infrastructure or our customers' ability to take delivery of the water we produce;

    operating hazards such as mechanical problems and accidents caused by human error, which could impact public safety, reliability and customer confidence;

    disruption in the functioning of our information technology and network infrastructure which are vulnerable to disability, failures and unauthorized access;

    natural disasters, hurricanes and other extreme weather; and

    other unanticipated operational and maintenance liabilities and expenses.

        If we do not operate our business to appropriately manage or mitigate these problems, we may breach our water supply agreement, harm our customer relationships or both, which could lead to the termination of the related water supply agreement. A decrease in, or the elimination of, the revenues generated by our key plants or a substantial increase in the costs of operating such plants could materially impact our reputation, performance, financial results and financial condition.

If our Quench business experiences a higher unit attrition rate than forecasted, our revenues could decline and our costs could increase, which would reduce our profits and increase the need for additional funding.

        Attrition is generally the result of competitive offerings, customers' ceasing or reducing their use of filtered water service, customer financial distress, customer dissatisfaction and other factors. If our unit attrition rate is higher than expected, it would reduce our revenues and could require increased marketing costs to attract the replacement customers required to sustain our growth plan, both of which would reduce our profit margin. In addition, our ability to generate positive operating cash flow in future periods will be dependent on our ability to obtain additional funding to increase our customer acquisition activities to out-pace customer attrition and absorb operating expenses. There can be no assurance that we will be able to obtain additional funding, increase our customer base at a rate in excess of our customer attrition rate or achieve positive operating cash flows in future periods. In the absence of our raising additional funding to finance increased selling and marketing activities and new customer acquisition, our customer attrition may exceed the rate at which we can replace such customers' business.

Increased competition could hurt our Quench business.

        The U.S. water cooler market is intensely competitive. We compete directly with bottled water coolers, or BWC, office coffee services, and other Point-of-Use, or POU, filtration companies, as well as with retail stores and internet sites where similar products and services may be purchased directly. Municipal tap water is also a substitute for our filtered water services. The POU filtration market is highly fragmented, with many small, local service providers. There are a number of larger POU competitors, such as DS Services, Nestlé, OneSource Water, Waterlogic International and Pure Health Solutions, Inc. We compete with companies in the BWC segment such as DS Services and Nestlé. We also compete with office coffee services and food service companies such as Aramark and Compass.

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Many of these larger businesses have substantially greater financial and management resources than we do. Our ability to gain or maintain market share may be limited as a result of actions by competitors. If we do not succeed in effectively differentiating ourselves from our competitors, based on pricing, service, value proposition, quality of products, desirability of brands or otherwise, our competitive position may be weakened. If we are unable to convince current and potential customers of the advantages of our services, our ability to sell our services may be limited.

Certain of our long-term water supply contracts under our Seven Seas Water business require us to transfer ownership of the desalination plant to the customer upon expiration or termination of the contract, or permit the customer to purchase the desalination plant in accordance with the contract before the expiration or termination of the contract.

        Approximately 38% of our long-term water supply contracts under our Seven Seas Water business require us to transfer ownership of the desalination plant to the customer upon expiration or termination of the supply contract, either for a specified amount or for no additional payment. Some of our long-term water supply contracts permit the customer to purchase the plant for amounts determined in accordance with the contract before the expiration or termination of the contract, typically with notice of six months or less. In addition, most of our long-term water supply contracts grant us the right to remove our equipment from the site of the facility in the event that the contract terminates due to a default by the customer or otherwise. If we are required to transfer or sell a desalination plant to our customer or are unable to remove our equipment upon termination of the contract for whatever reason, including customer interference, our revenue, earnings and cash flows from that desalination plant will cease, unless we are retained by the customer to continue to operate and maintain the plant. There can be no assurances that we will be retained by a customer to continue to operate and maintain the plant after its transfer to or purchase by such customer. As a result, our revenue, earnings and cash flows would decrease materially if we were to be required to transfer or sell a desalination plant. In addition, if we are required to transfer or sell a desalination plant to a customer for less than our carrying value of the plant or no consideration, we may not recoup our investment in the plant, may not receive sufficient proceeds to enable the subsidiary that owns the plant to repay any outstanding project finance debt in full, and may have to write down or write off the remaining value of the plant, any of which could materially and adversely affect our business, assets, earnings and debt covenant compliance. See "Business—Seven Seas Water—Our Desalination Plants."

The political, economic and social conditions in our geographic markets may adversely affect our Seven Seas Water business.

        Currently, all of our operating desalination plants are located in the Caribbean region. We often market our services, and sell the water we produce, to governments and governmental entities run by elected or politically appointed officials. Various constituencies, including our competitors, existing suppliers, local investors, developers, environmental groups and conservation groups, have competing agendas with respect to the development of desalination plants and sale of water in the areas in which we operate, which means that decisions affecting our business are based on many factors other than economic and business considerations.

        Political concerns and governmental procedures and policies have hindered or delayed, and in the future are expected to hinder or delay, our ability to develop desalination plants or to enter into, amend or renew water supply contracts. We cannot predict whether changes in political administrations will result in changes in governmental policy and whether such changes will affect our business. For example, our market development activities and operations can be adversely affected by lengthy government bidding, contracting, licensing, permitting, approval and procurement processes, immigration or work permit restrictions, and nationalization or expropriation of property. In addition, we may need to spend significant time and resources to inform newly elected officials, local authorities

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and others about the benefits of outsourced management of desalination plants and other water and wastewater treatment infrastructure.

        Governmental entities may suffer significant financial difficulties, including those due to downturns in the economy. Some of these entities could be unable to pay amounts owed to us or renew contracts with us at current or increased rates, which would negatively affect our financial performance.

        Furthermore, many of our targeted markets are in developing countries undergoing rapid and unpredictable economic and social changes. Many of these countries have suffered significant political, economic and social crises in the past, and these events may occur again in the future. Adverse political, economic and social conditions may affect existing operations and the development of new operations due to the resulting political economic and social changes, the inability to accurately assess the demand for water and the inability to begin operations as scheduled.

        We expect to continue to be subject to risks associated with dealing with governments and governmental entities, and political concerns and governmental procedures and policies may hinder or delay our ability to enter into supply agreements or develop our plants.

If we make any acquisitions, there can be no assurance that we will be able to operate any acquired facilities, portfolios or businesses profitably or otherwise successfully implement our expansion strategy.

        Acquisitions have historically been a major part of our expansion strategy, and we expect to continue to grow through acquisitions in the future. We expect to continue to evaluate potential strategic acquisitions of businesses or products with the intention to expand our user and revenue base, widen our geographic coverage and increase our product breadth. As part of our expansion strategy for our Seven Seas Water business, we may seek to acquire additional desalination and water treatment facilities. Potential acquisition candidates include individual plants and businesses that operate multiple plants. For our Quench business, we may seek to acquire additional portfolios of equipment or businesses with local, regional, national or international customer bases. We routinely evaluate potential acquisition candidates and engage in discussions and negotiations regarding potential acquisitions. There is significant competition for acquisition and expansion opportunities in our businesses. We compete for acquisition and expansion opportunities with companies that have significantly greater financial and management resources. There can be no assurance that any of our discussions or negotiations will result in an acquisition.

        The anticipated benefits from any of these potential acquisitions may not be achieved unless the operations of the acquired facilities, portfolios or businesses are successfully integrated in a timely manner. The integration of our acquisitions will require substantial attention from management and operating personnel, in particular to ensure that the acquisition does not disrupt any existing operations, or affect our customers' opinions and perceptions of our services, products or customer support.

        Whether we realize the anticipated benefits from these acquisitions depends, to a significant extent, on a number of factors, including the following:

    the integration of the target businesses into our company;

    the performance and development of the underlying assets, businesses, services or technologies;

    acceptance by our target's customers;

    the retention of key employees;

    unforeseen legal, regulatory, contractual, labor or other issues arising out of the acquisitions; and

    our correct assessment of assumed liabilities and the management of the relevant operations.

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        The process of integrating the various facilities, portfolios or businesses could cause the interruption of, or delays in, the activities of some or all of the existing facilities, portfolios or businesses, which could have a material adverse effect on our operations and financial results. Acquisitions also place a burden on our information, financial and operating systems and our employees and management. Our ability to manage our growth effectively and integrate the operations of acquired facilities, portfolios or businesses, or newly expanded or developed facilities, will require us to continue to attract, train, motivate, manage and retain key employees and to expand our information technology, operational and financial systems. If we are unable to manage our growth effectively, we may spend time and resources on such acquisitions that do not ultimately increase our profitability or that cause loss of, or harm to, relationships with employees, and customers as a result of the integration of new businesses.

Severe weather conditions or natural or man-made disasters may disrupt our operations and affect the demand for water produced by our Seven Seas Water business or ability to produce water, any of which could adversely affect our financial condition, results of operations and cash flows.

        Our Seven Seas Water business, operating results and financial condition could be materially and adversely affected by severe weather, natural disasters, such as hurricanes, particularly in the Caribbean, hazards (such as fire, explosion, collapse or machinery failure), or be the target of terrorist or other deliberate attacks. Repercussions of these catastrophic events may include:

    shutting down or curtailing the operation of our plants for limited or extended periods;

    the need to obtain necessary equipment or supplies, including electricity, which may not be available to us in a timely manner or at a reasonable cost;

    evacuation of and/or injury to personnel;

    damage or catastrophic loss to our equipment, facilities and project work sites, resulting in suspension of operations or delays in building or maintaining our plants;

    loss of productivity; and

    interruption to any projects that we may have in process.

        Large-scale or repetitive natural disasters, such as hurricanes, tropical storms or earthquakes, can also lead to the damage or destruction of certain infrastructure (such as electricity supply, water storage tanks, water distribution infrastructure, roads and means of communication) on which we depend for the conduct of our business and can cause damage to the infrastructure for which we are responsible.

        In addition, hazards (such as fire, explosion, collapse or machinery failure) are inherent risks in our operations, which may occur as a result of inadequate internal processes, technological flaws, human error or certain events beyond our control. Our Seven Seas Water facilities could also be the target of terrorist or other deliberate attacks which could harm our business, financial condition and results of operations. We maintain security measures at our facilities, and we have and will continue to bear increases in costs for security precautions to protect our facilities, operations, and supplies. Despite our security measures, we may not be in a position to control the outcome of terrorist events, or other attacks on our facilities, should they occur. Such an event could harm our business, financial condition and results of operations and cash flows.

        Any contamination resulting from a natural or man-made disaster to our raw feedwater supply may result in disruption in our services, additional costs and litigation, which could harm our business, financial condition and results of operations. Damage or destruction to our facilities and infrastructure could temporarily inhibit our ability to deliver water as required by our contracts, which may enable our customers to terminate such contracts.

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We may sustain losses that exceed or are excluded from our insurance coverage or for which we are not insured.

        We may from time to time become exposed to significant liabilities for which we may not have adequate insurance coverage. Because of the location of our Seven Seas Water facilities, we are exposed to risks posed by severe weather and other natural disasters, such as hurricanes and earthquakes. In addition to natural risks, hazards (such as fire, explosion, collapse or machinery failure) are inherent risks in our operations which may occur as a result of inadequate internal processes, technological flaws, human error or certain events beyond our control. The hazards described above can cause significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment and contamination of, or damage to, the environment and suspension of operations. The occurrence of any of these events may result in our being subject to investigation, required to perform remediation and/or named as a defendant in lawsuits asserting claims for substantial damages, environmental cleanup costs, personal injury, natural resource damages and fines and/or penalties. In addition, such events may affect the availability of personnel, proper functioning of our information technology infrastructure and availability of third parties on whom we rely, any of which consequences could have a material adverse effect on our business and results of operations.

        Our facilities in Trinidad, the USVI and Tortola are insured against earthquake, flood and hurricane damage as required by our lenders. Our insurance programs have varying coverage limits, exclusions and maximums, and insurance companies may seek to deny claims we might make. Each policy includes deductibles or self-insured retentions and policy limits for covered claims. As a result, we may sustain losses that exceed or that are excluded from our insurance coverage or for which we are not insured. Catastrophic events can result in decreased coverage limits, more limited coverage, increased premium costs or deductibles with respect to the insurance policies covering these facilities.

        Our facilities are fortified to withstand damage caused by severe weather, and we have not experienced any material loss or damage resulting from the natural disasters that have hit our facilities. However, we cannot assure that our facilities will withstand all natural disasters in the future, and an unforeseen natural disaster may cause damage to or the destruction of one or more of our facilities. Even if we have purchased insurance, the adverse impact on our business, including both costs and lost revenue, could greatly exceed the amounts, if any, that we might recover from our insurers. We could also suffer significant construction delays or substantial fluctuations in the pricing or availability of materials for any projects we have in process. Any of these events could cause a decrease in our revenue, cash flow and earnings.

        In our Quench business, we maintain liability insurance covering our facilities and assets, including our company-owned equipment installed in the field, which could fail and cause significant property damage, personal injury and/or loss of life. However, we can make no assurance that the adverse impact of any claim will not materially exceed the amounts that we might recover from our customers, suppliers or insurers. Moreover, significant insurance claims, even if covered, can result in decreased coverage limits, more limited coverage, increased premium costs or deductibles. Any of these events could adversely affect our operations.

Our Seven Seas Water operations may be affected by tourism and seasonal fluctuations which could affect the demand for our water.

        Our operations may be affected by the levels of tourism and seasonal variations in the areas in which we operate. Demand for our water can be affected by variations in the level of tourism, demand for real estate and rainfall levels. Tourism in our service areas is affected by the economies of the tourists' home countries, primarily the United States and Europe, terrorist activity and perceived threats thereof, the cruise industry and costs of fuel and airfares. A downturn in tourism or greater than expected rainfall in the locations we serve could adversely affect our revenues, cash flows and results of operations.

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Quench's largest customers account for a significant percentage of Quench's revenues, and our business would be harmed were we to lose these customers.

        Historically, we estimate Quench's twenty largest customers accounted for more than 15% of the revenue of our Quench business. A material reduction in purchases by, or services provided to, these customers could have a significant adverse effect on the business and operating results of our Quench business. In addition, pressures by these customers that would cause us to materially reduce the price of our products could result in a reduction to our operating margins.

Certain of our water supply contracts do not contain "take-or-pay" obligations, which may adversely affect Seven Seas Water's financial position and results of operation.

        Our water supply contracts may require customers to purchase a minimum volume of water on a take-or-pay basis over the term of those contracts. Take-or-pay provisions allow us to protect against short-term demand risk by guaranteeing minimum payments from such customers regardless of their actual requirements. However, two of our eight water supply contracts do not contain such provisions, and therefore, periods of low production requirements by our customers under such contracts may adversely affect our financial position and results of operation.

Our ability to compete successfully for acquisition opportunities and otherwise implement successfully our expansion strategy depend, in part, on the availability of sufficient cash resources, including proceeds from debt and equity financings.

        Our ability to compete successfully for acquisition opportunities and otherwise implement successfully our expansion strategy depends, in part, on the availability of sufficient cash resources, including proceeds from debt and equity financings. Our growth strategies include developing projects, the success of which depends on our ability to find new sites suitable for development into viable projects and developing those sites and projects. Any new project development or expansion project requires us to invest substantial capital. We finance some of our projects with borrowings, which are repaid in part from the project's revenues, and secured by the capital stock, physical assets, contracts and cash flow of that project subsidiary and by the company. This type of financing is usually referred to as project financing. Commercial lending institutions sometimes refuse to provide project financing in certain less developed economies, and in these situations we have sought and will continue to seek direct or indirect (through credit support or guarantees) project financing from a limited number of multilateral or bilateral international financial institutions or agencies. As a precondition to making such project financing available, the lending institutions may also require governmental guarantees of certain project and sovereign related risks. There can be no assurance, however, that project financing from international financial agencies or that governmental guarantees will be available when needed, and if they are not, we may have to abandon the project or invest more of our own funds, which may not be in line with our investment objectives and would leave fewer funds for other projects and needs.

        If the demand for our products and services declines when we are raising capital, we may not realize the expected benefits from our new facility or expansion project. Furthermore, our new or modified facilities may not operate at designed capacity or may cost more to operate than we expect. The inability to complete any new project development or expansion projects or to complete them on a timely basis and in turn grow our business could adversely affect our business and results of operations.

        We believe that our future capital requirements will depend upon a number of factors, including cash generated from operations and the rate at which we acquire additional facilities, portfolios or businesses. We expect to fund such capital expenditures with cash from operations and proceeds from debt and equity financings. However, we may be unable to raise capital or unable to raise capital on terms acceptable to us, which would have a material adverse effect on our business.

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        Financing risk has also increased as a result of the deterioration of the global economy and the recent crisis in the financial markets and, as a result, we may forgo certain development opportunities. We believe that capitalized costs for projects under development are recoverable; however, there can be no assurance that any individual project will be completed and reach commercial operation. If these development efforts are not successful, we may abandon a project under development and write off the costs incurred in connection with such project. At the time of abandonment, we would expense all capitalized development costs incurred in connection therewith and could incur additional losses associated with any related contingent liabilities.

Our substantial indebtedness could affect our business adversely and limit our ability to plan for or respond to changes in our business, and we may be unable to generate sufficient cash flows to satisfy our liquidity needs.

        Our ability to comply with the terms of the documents governing our outstanding indebtedness, to make cash payments with respect to the outstanding indebtedness or to refinance any of such obligations will depend on our future performance, which in turn, is subject to prevailing economic conditions and financial and many other factors beyond our control.

        The terms of the documents governing our outstanding indebtedness contain a number of covenants that, among other things, restrict our ability to incur additional indebtedness, pay dividends, prepay subordinated debt, dispose of certain assets, enter into sale and leaseback transactions, create liens, make capital expenditures and make certain payments, investments or acquisitions and otherwise restrict corporate activities. In addition, we are required to satisfy specified financial covenants, including debt service coverage ratios, loan life coverage ratios, leverage ratios and minimum net worth tests for our Seven Seas Water business and minimum revenue and minimum cash balances for our Quench business. Our ability to comply with such provisions may be affected by events beyond our control. The breach of any of these covenants could result in a default under some or all of the documents governing our outstanding indebtedness. In the event of any such default, depending on the actions taken by the lenders under our outstanding indebtedness, such lenders could elect to declare all amounts borrowed under such indebtedness, together with accrued interest, to be due and payable. Certain of our loans have cross-default provisions that may be triggered upon our default under the documents governing our other indebtedness and, in addition, a default may restrict our ability to effect intercompany transfers of funds.

        As of June 30, 2015, we had approximately $146.5 million of outstanding consolidated indebtedness. Although our cash flow from operations has been sufficient to meet our debt service obligations in the past, there can be no assurance that our operating results will continue to be sufficient for us to meet our debt service obligations and financial covenants. Certain of our outstanding indebtedness is collateralized by the capital stock of certain of our subsidiaries and certain other assets of our subsidiaries, and if we were unable to repay borrowings, the lenders could proceed against their collateral. If the lenders or the holders of any other secured indebtedness were to foreclose on the collateral securing our obligations to them, there could be insufficient assets required for the continued operation of our business remaining after satisfaction in full of all such indebtedness. In addition, the loan instruments governing the indebtedness of certain of our subsidiaries contain certain restrictive covenants which limit the payment of dividends and distributions and the transfer of assets to us and require such subsidiaries to satisfy specific financial covenants.

        The degree to which we are leveraged could have important consequences to the holders of our shares, including:

    our ability to obtain additional financing for acquisitions, capital expenditures, working capital, payment of dividends or general corporate purposes may be impaired in the future;

    the impact of negative pledges and financial covenants on our financial profile;

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    a substantial portion of our cash flow from operations may be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for our future growth, operations and other purposes;

    certain of our borrowings are and will continue to be at variable rates of interest, which exposes us to the risk of increased interest costs; and

    we may be substantially more leveraged than certain of our competitors, which may place us at a competitive disadvantage and make us more vulnerable to changing market conditions and regulations.

The government of the BVI has sent us notice that it believes our acquisition of the capital stock of Biwater (BVI) Holdings Limited required its written consent and that the failure to obtain such consent constitutes a breach of the water purchase agreement between the government of the BVI and Biwater (BVI) Ltd.

        On June 11, 2015, we acquired 100% of the capital stock of Biwater (BVI) Holdings Limited, or Biwater Holdings, pursuant to a stock purchase agreement. On August 6, 2015, Biwater (BVI) Ltd., a wholly owned subsidiary of Biwater Holdings, received notice from the government of the BVI stating that it considered the acquisition of the capital stock of Biwater Holdings an "assignment" under the terms of the water purchase agreement, which had been previously entered into by Biwater (BVI) Ltd. and the government of the BVI. An assignment of the water purchase agreement requires the written consent of the government of the BVI (not to be unreasonably withheld) as well as the prior written consent of the lender under the Biwater Loan Agreement. An assignment by Biwater (BVI) Ltd. of the water purchase agreement without consent may be deemed to be a company event of default under the terms of the water purchase agreement. If a company event of default has occurred, the government of the BVI may deliver a notice of intent to terminate the water purchase agreement.

        We do not believe that the acquisition of 100% of the capital stock of Biwater Holdings constituted an assignment under the terms of the water purchase agreement. We responded in writing to the BVI government's breach notice on August 10, 2015 and subsequently provided the BVI government with additional materials regarding the acquisition. Since the BVI government delivered the breach notice, the BVI government has continued to pay for water delivered in accordance with the water purchase agreement and has approved an extension of the deadline for completing the construction and testing of two sewage treatment plants required by the water purchase agreement. Our discussions with the BVI government regarding the breach notice are continuing. The BVI government has not provided a notice of a default under, or of its intent to terminate the water purchase agreement.

        If the parties are unable to resolve the dispute informally, the dispute is to be settled exclusively through arbitration in London, England at the London Court of International Arbitration. If (i) the parties are not able to resolve any dispute regarding this issue directly and (ii) an arbitrator in accordance with the water purchase agreement finds in favor of the government of the BVI, the government of the BVI may elect to terminate the water purchase agreement, transfer title of the desalination and wastewater plants to the government of the BVI, pay any outstanding payments in accordance with the water purchase agreement and pay Biwater (BVI) Ltd. an amount equal to the outstanding balance of the long-term debt between Biwater (BVI) Ltd. and a bank that, as of August 1, 2015, had a remaining unpaid principal balance of $39.4 million (excluding application of the $3.6 million debt service reserve fund). If the water purchase agreement is terminated and we are required to sell our desalination plant in the BVI, our business, results of operations and financial condition may be materially and adversely affected.

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We have significant cash requirements and limited sources of liquidity.

        We require cash primarily to fund:

    principal repayments of debt including those due in 2017, 2018 and 2019;

    interest;

    acquisitions;

    construction and other project commitments;

    equipment purchases;

    refurbishment, enhancement and improvements of existing facilities;

    other capital commitments, including business development investments;

    taxes; and

    selling and marketing and other overhead costs.

        Our principal sources of liquidity are:

    capital raises;

    dividends and other distributions from our subsidiaries;

    intercompany receivables;

    repayment of principal and interest on intercompany loans; and

    proceeds from debt financings at the subsidiary level.

        While we believe that these sources will be adequate to meet our obligations for the foreseeable future, this belief is based on a number of material assumptions, including, without limitation, assumptions about our ability to access the capital or commercial lending markets, the operating and financial performance of our subsidiaries, exchange rates, our ability to sell assets and the ability of our subsidiaries to pay dividends or repay intercompany loans. Any number of assumptions could prove to be incorrect and therefore there can be no assurance that these sources will be available when needed or that our actual cash requirements will not be greater than expected. In addition, our cash flow may not be sufficient to repay at maturity the entire principal outstanding of an indebtedness, and we may have to refinance such obligations. We have significant principal repayments due in 2017, 2018 and 2019. There can be no assurance that we will be successful in obtaining such refinancing on terms acceptable to us or at all, and any of these events could have a material effect on us.

As a part of our growth strategy, we have used, and expect to continue to use, project financing, which may adversely affect our financial results.

        We sometimes rely on project financing to fund the costs of our acquisitions and project development. Our subsidiaries have incurred, and in the future, may incur, project financing indebtedness to the extent permitted by existing agreements, and may continue to do so to fund ongoing operations. Any such newly incurred subsidiary indebtedness would be added to our current consolidated debt levels. Our project financing debt is, and would likely be structurally senior to certain of our other debt, which could also intensify the risks associated with leverage. Separately, failure to obtain project financing could result in delay or cancellation of future transactions or projects, thus limiting our growth and future cash flows.

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        While the lenders to a project subsidiary under our project financings sometimes do not have direct recourse against us (other than to the extent we give any credit support), defaults thereunder can still have important consequences for us, including, without limitation:

    our failure to receive subsidiary dividends, fees, interest payments, repayment of intercompany loans and other sources of cash, as the project subsidiary will typically be prohibited from distributing cash to us during the pendency of any default;

    triggering our obligation to make payments under any financial guarantee, letter of credit or other credit support which we have provided to or on behalf of such subsidiary;

    causing us to record a loss in the event the lender forecloses on the assets;

    triggering defaults or acceleration on our outstanding debt, and, in some cases, triggering cross-default provisions;

    the loss or impairment of investor confidence; or

    foreclosure on the assets that are pledged under the non-recourse loans, therefore by eliminating any and all potential future benefits derived from those assets.

Future revenue for our long-term water supply agreements under our Seven Seas Water business is based on certain estimates and assumptions, and the actual results may differ materially from such estimated operating results.

        We operate our Seven Seas Water business based on our current estimate of the revenues we will generate under our long-term water supply agreements. Many of the costs of operating our facilities are fixed or do not vary materially based on the water produced by the facility, particularly in the short term. Our estimates and assumptions regarding what the water facilities will produce, and the revenues it will generate, during a specific period may not materialize. Unanticipated events may cause unforeseeable downtime, which would cause us to be unable to deliver water to our customers, which could have a material adverse effect on the actual results achieved by us during the periods to which these estimates relate. If revenues generated by the facility are less than estimated, our operating profit, gross margin and profits will be adversely affected.

Our emergency response services under our Seven Seas Water business expose us to additional challenges and risks.

        Our Seven Seas Water business also provides emergency response services in the event of a water crisis caused by water shortages, the failure of existing water producing equipment, and hurricanes or other natural disasters, among other reasons. We build skids, mobile desalination plants and other components in advance of a need to deploy them. To address these situations, we typically install our containerized mobile desalination plants pursuant to water supply agreements with shorter terms, typically with terms of less than five years. Due to the reactive nature of this market, we cannot predict when we will deploy our equipment, if at all, the duration of the deployment or the other terms and conditions applicable to the deployment (including the prices we will be paid for the water purchased from us). Our inability to deploy our containerized mobile desalination plants and components in a timely manner could adversely affect our results of operations, financial condition and cash flows. Further, we rely on our ability to use this equipment in other situations. If our equipment is damaged or requires extensive refurbishing after decommissioning and before it can be redeployed, our return on the investment in that equipment may be adversely affected. If we fail to perform in an emergency as our customer expects, or if our customer perceives that we failed to perform, our reputation and business could be materially and adversely affected. In addition, the deployment of our equipment on a large scale in response to an emergency may divert management's attention and resources. This could reduce our ability to pursue other opportunities, which could have an adverse effect on our business and results of operations.

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The profitability of our Seven Seas Water facilities is dependent upon our ability to estimate costs accurately and construct and operate plants within budget.

        The cost estimates we prepare in connection with the construction and operation of our plants are subject to inherent uncertainties. Any construction and operating costs for our plants that significantly exceed our initial estimates could adversely affect our results of operations, financial condition and cash flows. Any delay in the construction of the plant may result in additional costs, and future operational costs could be affected by a variety of factors, including lower than anticipated production efficiencies and hydrological conditions at the plant site that differ materially from those we expected.

        We must satisfy each customer's specifications under our contracts, which may require additional processing steps or additional capital expenditures in order to meet such specifications. The terms of our water supply contracts typically require us to supply water for a specified price per unit during the term of the contract, subject to certain annual inflation adjustments, and to assume the risk that the costs associated with producing this water may be greater than anticipated. Because we base our contracted price of water in part on our estimation of future construction and operating costs, the profitability of our plants is dependent on our ability to estimate these costs accurately and remain within budget during the construction and operation of the facilities. In addition, most of our customers are required to supply the electricity we need to operate our desalination plants either for free or at contracted prices under their contracts with us. We will incur additional operating cost if we are required to bear the risks of fluctuations in electricity costs in the future, which may adversely and materially affect our results of operations and cash flows.

        The cost of equipment, materials and services to build a plant may increase significantly after we submit our bid for, or begin construction of, a plant, which could cause the gross profit and net return on investment for the plant to be less than we anticipated. The profit margins we initially expect to generate from a plant could be further reduced if future operating costs for that plant exceed our estimates of such costs.

Failure to comply with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.

        We are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies, including laws related to anti-corruption, export and import compliance, anti-trust and money laundering, due to our global operations. The U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act of 2010 and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. There has been an increase in anti-bribery law enforcement activity in recent years, with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice, or DOJ, and the SEC, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal control policies and procedures will always protect us from improper conduct of our employees or business partners. If we believe or have reason to believe that our employees or agents have or may have violated applicable laws, including anti-corruption laws, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, and curtailment of operations in certain jurisdictions, and might adversely affect our business, results of

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operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business.

Fluctuations in interest rates may adversely impact our business, financial condition and results of operations.

        We are exposed to fluctuations in interest rates. As of June 30, 2015, 82% of our outstanding debt was exposed to interest rate fluctuations. We have not entered into arrangements or contracts with third parties that constitute an interest rate hedge. The portion of our debt that bears interest at a fixed rate will vary from time to time. If interest rates significantly deviate from historical ranges, or if volatility or distribution of these changes deviates from historical norms, we may experience significant losses. As a result, fluctuating interest rates may negatively impact our financial results and cash flows.

Our inability to negotiate pricing terms in U.S. dollars may adversely impact our Seven Seas Water business, financial condition and results of operations.

        Most of our Seven Seas Water revenue is generated and most of our operations are conducted in developing countries. Currently, customer payment obligations under all of our water supply contracts are denominated in the U.S. dollar. If the U.S. dollar weakens against other foreign currencies, some of our component suppliers may increase the price they charge for their components in order to maintain an equivalent profit margin. In addition, there is no assurance that we will be able to negotiate U.S. dollar denominated pricing terms in the renewal of existing contracts or new contracts in the future. In certain situations, we are exposed to foreign exchange risk to the extent we have payment obligations in a local currency relating to labor, construction, consumable or materials costs or, of our procurement orders are denominated in a currency other than U.S. dollars. We have not entered into any arrangements or contracts with third parties to hedge against foreign exchange risk. If any of these local currencies change in value relative to the U.S. dollar, our cost in U.S. dollars would change accordingly, which could adversely affect our results of operations.

Our business and ability to enforce our rights under agreements relating to our Seven Seas Water business may be adversely affected by changes in the law or regulatory schemes in the jurisdictions in which we operate.

        Changes in laws governing capital controls, the liquidity of bank accounts or the repatriation of capital, repayment of intercompany loans and dividends could prevent or inhibit our receipt of cash from our foreign subsidiaries, resulting in longer payment cycles or impairment of our collection of accounts receivable. Although we may have legal recourse to enforce our rights under agreements to which we are a party and recover damages for breaches of those agreements, such legal proceedings are costly and may not be successful or resolved in a timely manner, and such resolution may not be enforced. Areas in which we may be affected include:

    forced renegotiation or modification of concessions, purchase agreements, land lease agreements and supply agreements;

    termination of permits or concessions and compensation upon any such termination; and

    threatened withdrawal of countries from international arbitration conventions.

        Any of these factors may cause our costs to build, own, operate or maintain our desalination plants to increase, may delay the commissioning of such plants, and may delay the time when we receive revenue and cash flows from such plants.

Operational and execution risks may adversely impact the financial results of our Quench business.

        Our operating results are reliant on the continued operation of our filtered water systems as well as our delivery fleet. Inherent in our operations are risks that require oversight and control, such as

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risks related to mechanical or electrical failure, fire, explosion, leaks, chemical use, and vehicle, lift or forklift accidents. We have established policies, procedures and safety protocols requiring ongoing training, oversight and control in an effort to address these risks. However, significant operating failures on our customers' premises or vehicle accidents could result in personal injury or loss of life, loss of distribution capabilities, and/or damage at the site of the filtered water system, thereby adversely impacting our business, reputation and financial results. These factors could subject us to lost sales, litigation contingencies and reputational risk.

Our multi-year contracts under our business may limit our ability to quickly and effectively react to general economic changes.

        The conditions under which we initially enter into a contract may change over time. These changes may vary in nature or foreseeability and may result in adverse economic consequences. These consequences may be exacerbated by the multi-year terms of our contracts, which may hinder our ability to react rapidly and appropriately to changes. For example, we may not be free to adapt our pricing in line with changes in cost or demand. We also are not typically able to suddenly or unilaterally terminate a contract we believe is unprofitable or change its terms.

Changes in demand for our Quench products and services may affect operating results.

        We believe that the growth of the U.S. water cooler market is due, in part, to consumer preferences for healthy products and consumer taste preferences for treated water over tap water and other beverages. Growth is also affected by the demand from our customers, whose tastes and preferences may be affected by energy efficiency standards and environmental concerns, as well as the form, features and aesthetics of our equipment, among other factors. To the extent such preferences change, demand for our products will be affected, which may materially adversely affect us.

In our Quench business, we face the risk that our customers may fail to properly maintain, use and safeguard our equipment, which may negatively affect us as the providers of the systems.

        It is generally our responsibility to service our Quench filtered water systems throughout the duration of the contract, and our customers are generally required to maintain insurance covering loss, damage or injury caused by our equipment. However, we are not able to monitor our customers' use or maintenance of their filtered water systems or their compliance with our contracts or usage instructions. A customer's failure to properly use, maintain or safeguard the filtered water system or the customer's non-compliance with insurance requirements may reflect poorly on us as the provider of the filtered water system and, as a result, damage our reputation.

Many of our Seven Seas Water facilities are located on properties owned by others. If our landlords restrict our access to those properties or damage our facilities or equipment, our ability to develop, operate, maintain and remove our equipment would be adversely affected.

        Most of our Seven Seas Water facilities are located on property owned by others, some of whom are our customers. Our rights to locate our facilities and equipment on, and to access, those properties are governed by contracts with the applicable landlords. We need access to those properties to develop, operate and maintain our facilities and equipment and, in certain cases, to remove our equipment at the end of a contract term. In certain situations, personnel having access to those properties need security and other clearances. If the landlord restricts our ability to access our facilities, our ability to develop, operate, maintain and remove our equipment would be adversely affected. We cannot guarantee that we will not encounter labor disputes (strikes, walkouts, blocking access to sites, or the destruction of property in extreme cases) that could interrupt our operations over a significant period of time. In addition, our personnel, facilities and equipment located on those properties may be harmed by other activities or events occurring on those properties, including being subject to personal injury or death, or damage. Any such restrictions or occurrences could adversely affect our business, reputation, results of operations and financial condition.

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We rely on information technology and network infrastructure in areas of our operations, and a disruption relating to such technology or infrastructure could harm our business.

        Seven Seas Water relies on our information technology and network infrastructure for both operations in our headquarters as well as our facilities, where our information technology and network infrastructure is critical for monitoring plant availability and efficiency. If our information technology or network infrastructure were to fail, such failure could lead to an inability to monitor our plant activities, and therefore could lead to noncompliance with health, safety and environmental requirements as well as increased costs and potential losses. Any increase in costs or losses could have an adverse effect on our financial condition and results of operations. In addition, the operation of our facilities relies on internet-based control systems. Interruption in internet service could limit or eliminate our ability to continue our plant operations, which would have a negative effect on our revenues.

        Quench relies on our information technology and network infrastructure for field service, customer service, billing, equipment service, inventory control, fixed asset management, financial reporting, accounting, accounts payable, payroll, lead generation, call center operations, sales analysis, vehicle tracking and profitability reporting. Our systems enable us to track the locations of our installed POU units and ensure customer compliance with payment obligations in connection with such POU units. Any failure or disruption relating to this technology or infrastructure could seriously harm our operations and/or reduce profitability. In addition, we have many projects planned to upgrade and enhance our systems' capabilities in the future, and failure to do so may result in an inability to remain competitive with respect to our service offerings, pricing and collections.

Failure to maintain the security of our information and technology networks, including information relating to our service providers, customers and employees, could adversely affect us.

        We are dependent on information technology networks and systems, including the internet, to process, transmit and store electronic information and, in the normal course of our business, we collect and retain certain information pertaining to our service providers, customers and employees, including credit card information for many of our service providers and certain of our customers. In addition, the operation of our facilities relies on internet-based control systems. If security breaches in connection with the delivery of our solutions allow unauthorized third parties to access any of this data or obtain control of our customers' systems or the systems controlling our plant operations, our reputation, business, results of operations and financial condition could be harmed.

        The legal, regulatory and contractual environment surrounding information security, privacy and credit card fraud is constantly evolving and companies that collect and retain such information are under increasing attack by cyber-criminals around the world. A significant actual or potential theft, loss, fraudulent use or misuse of service provider, customer, employee or other personally identifiable data, whether by third parties or as a result of employee malfeasance or otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could result in loss of confidential information, damage to our reputation, early termination of our service provider contracts, significant costs, fines, litigation, regulatory investigations or actions and other liabilities or actions against us. Moreover, to the extent that any such exposure leads to credit card fraud or identity theft, we may experience a general decline in consumer confidence in our business, which may lead to an increase in attrition rates or may make it more difficult to attract new customers. Such an event could additionally result in adverse publicity and therefore adversely affect the market's perception of the security and reliability of our services. Security breaches of, or sustained attacks against, this infrastructure could create system disruptions and shutdowns that could result in disruptions to our operations. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate

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preventative measures. We cannot be certain that advances in cyber-attack capabilities or other developments will not compromise or breach the technology protecting the networks that support our platform and solutions. If any one of these risks materializes our business, financial condition, results of operations and cash flows could be materially and adversely affected.

We may experience difficulty obtaining materials or components for our Quench products.

        Our Quench business utilizes third parties both inside and outside the United States to manufacture our equipment and relies upon these manufacturers to produce and deliver quality equipment on a timely basis and at an acceptable cost. Disruptions to the business, financial stability or operations, including due to strikes, labor disputes, political/governmental issues or other disruptions to the workforce, of these manufacturers, or to their ability to produce the equipment we require in accordance with our and our customers' requirements could significantly affect our ability to fulfill customer demand on a timely basis which could materially adversely affect our revenues and results of operations.

Our holding company structure effectively subordinates our parent company to the rights of the creditors of certain of our subsidiaries.

        Substantially all of our assets are held by our subsidiaries. As a result, our rights and the rights of our creditors to participate in the distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization will be subject to the prior claims of such subsidiary's creditors, except to the extent that we are reorganized as a creditor of such subsidiary, in which case our claims would still be subject to the claims of any secured creditor of such subsidiary and of any holder of indebtedness of such subsidiary senior to that held by us. As of June 30, 2015, our subsidiaries had approximately $146.5 million of indebtedness (excluding intercompany indebtedness) outstanding.

        Since operations are conducted through our subsidiaries, our cash flow and ability to service debt is dependent upon the earnings of our subsidiaries and distributions to us. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due pursuant to indebtedness of other subsidiaries or us or to make any funds available therefor. In addition, the payment of dividends and the making of loan advances to us by our subsidiaries are contingent upon the earnings of those subsidiaries and are subject to various business considerations and, for certain subsidiaries, restrictive loan covenants contained in the instruments governing the indebtedness of such subsidiaries, including covenants which restrict in certain circumstances the payment of dividends and distributions and the transfer of assets to us.

Seven Seas Water may invest in projects with third-party investors that could result in conflicts.

        We may from time to time invest in projects with third-party investors who may possess certain shareholder rights. Actions by an investor could subject our assets to additional risk as a result of any of the following circumstances:

    the investors might have economic or business interests or goals that are inconsistent with our, or the project-level entity's, interests or goals; or

    the investor may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives.

        Although we generally seek to maintain sufficient control of any investment to permit our objectives to be achieved, we might not be able to take action with respect to certain matters without the approval of the investors. We may experience strained relations with certain of our investors, resulting in liquidity constraints due to our third-party investors' failure to fund their respective capital commitments.

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In Curaçao, our customer is dependent on Petróleos de Venezuela S.A., or PdVSA (the state-owned oil company of Venezuela), and any financial or other issues our customer experiences with PdVSA could adversely affect our results of operations and financial condition.

        Our desalination facility in Curaçao sells industrial quality water to Curaçao Refinery Utilities B.V., a government owned utility that provides utility services to a refinery it has leased to PdVSA. The current term of this water sales agreement expires in 2019, but will extend to 2022 if our customer extends the lease of the refinery to PdVSA. Any financial or other issues our customer experiences with PdVSA could adversely affect our results of operations and financial condition.

Our ability to grow our business could be materially adversely affected if we are unable to raise capital on favorable terms.

        From time to time, we rely on access to capital markets as a source of liquidity for capital requirements not satisfied by operating cash flows. Our ability to arrange for financing on either a recourse or non-recourse basis and the costs of such capital are dependent on numerous factors, some of which are beyond our control, including:

    general economic and capital market conditions;

    the availability of bank credit;

    investor confidence;

    our financial condition, performance and prospects in general and/or that of any subsidiary requiring the financing as well as companies in our industry or similar financial circumstances; and

    changes in tax and securities laws which are conducive to raising capital.

        Should future access to capital not be available to us, it may become necessary for us to sell assets or we may decide not to build new plants, expand or improve existing facilities or pursue acquisitions, any of which would affect our future growth, results of operations and financial condition.

An impairment in the carrying value of long-lived assets, long-term contract costs, goodwill or intangible assets would negatively impact our consolidated results of operations and net worth.

        Long-lived assets and long-term contract costs are initially recorded at cost and are amortized or depreciated over their useful lives. Long-lived assets and long-term contract costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recognition and measurement of a potential impairment is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flows models, quoted market values and third-party independent appraisals, as considered necessary. There are inherent uncertainties related to these factors and management's judgment in applying these factors. These events or changes in circumstances and the related analyses could result in additional long-lived asset impairment charges in the future. Impairment charges could substantially affect our financial results in the periods of such charges.

        We have significant goodwill and intangible assets that are susceptible to valuation adjustments as a result of events or changes in circumstances. As of June 30, 2015, intangible assets, net and goodwill

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were $58.8 million and $123.3 million, respectively. If we determine goodwill or intangible assets are impaired, we will be required to write down these assets and record an impairment charge, which may negatively affect our results of operations. We assess the potential impairment of goodwill and indefinite lived intangible assets on an annual basis, as well as when interim events or changes in circumstances indicate that the carrying value may not be recoverable. Events or changes in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include disruptions to our business, failure to realize the economic benefit from acquisitions of other companies and intangible assets, slower industry growth rates and declines in operating results and market capitalization. Determining whether an impairment exists and the amount of the potential impairment involves quantitative data and qualitative criteria that are based on estimates and assumptions requiring significant management judgment. Future events, new information or changes in circumstances may alter management's valuation of an intangible asset. The timing and amount of impairment charges recorded in our consolidated statements of operations and write-downs recorded in our consolidated balance sheets could vary if management's conclusions change. Any impairment of goodwill or identifiable intangible assets could have a material adverse effect on our operating results and financial condition.

We may not be able to adapt to changes in technology and government regulation fast enough to remain competitive .

        The water purification industry is highly technical and thus impacted by changing technology, competitively imposed process standards and regulatory requirements, each of which influences the demand for our products and services. Advances in technology and changes in legislative, regulatory or industrial requirements may render certain of our purification products and processes obsolete or increase our compliance costs.

Changes in our effective tax rates including as a result of changes in tax law or determinations by tax authorities may adversely affect our financial results.

        Our Quench business operates in the United States, and all of our Seven Seas Water customer revenue was generated outside the United States in the year ended December 31, 2014. In light of the global nature of our business and the fact that we are subject to tax at the federal, state and local levels in the United States and in other countries and jurisdictions, a number of factors may increase our future effective tax rates, including:

    our decision to distribute U.S. or non-U.S. earnings to the parent company;

    the jurisdictions in which profits are determined to be earned and taxed;

    sustainability of historical income tax rates in the jurisdictions in which we conduct business;

    the resolution of issues arising from tax audits with various tax authorities;

    our ability to use net operating loss carry-forwards to offset future taxable income and any adjustments to the amount of the net operating loss carry-forwards we can utilize;

    changes in tax laws that impact favorable tax treatment and/or the deductibility of certain expenses from taxable income; and

    changes in the valuation of our deferred tax assets and liabilities, and changes in deferred tax valuation allowances.

Any significant increase in our future effective tax rates could reduce net income for future periods.

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We could be adversely impacted by environmental, health and safety legislation, regulation and permits and climate change matters.

        We are subject to numerous international, national, state and local environmental, health and safety laws and regulations, as well as the requirements of the independent government agencies and development banks that provide financing for many of our projects, which require us to incur significant ongoing costs and capital expenditures and may expose us to substantial liabilities. Such laws and regulations govern, among other things: emissions to air; discharges to water; the generation, handling, storage, transportation, treatment and disposal of waste materials; and the cleanup of contaminated properties. Currently, we believe we are in compliance with these laws and regulations, but there is no assurance that we will not be adversely impacted by any such liabilities, costs or claims in the future, either under present laws and regulations or those that may be adopted or imposed in the future.

        We must obtain, maintain and/or renew a number of permits that impose strict conditions, requirements and obligations, including those relating to various environmental, health and safety matters, in connection with our current and future operations and development of our facilities. The permitting rules and their interpretations are complex, and the level of environmental protection needed to obtain required permits has tended to become more stringent over time. In many cases, the public (including environmental interest groups) is entitled to comment upon and submit objections to permit applications and related environmental analysis, attend public hearings regarding whether such permits should be issued and otherwise participate in the permitting process, including challenging the issuance of permits, validity of environmental analyses and determinations and the manner in which permitted activities are conducted. Permits required for our operations and for the development of our facilities may not be issued, maintained or renewed in a timely fashion or at all, may be issued or renewed upon conditions that restrict our ability to operate or develop our facilities economically or may be subsequently revoked. Any failure to obtain, maintain or renew our permits, as well as other permitting delays and permitting conditions or requirements that are more stringent than we anticipate, could have a material adverse effect on our business, results of operations and financial condition.

        Foreign, federal, state and local regulatory and legislative bodies have proposed various legislative and regulatory measures relating to climate change, regulating greenhouse gas emissions and energy policies. If these laws, regulations and requirements become more stringent in the future, we may experience increased liabilities, compliance costs and capital expenditures or difficulty in our ability to comply with applicable requirements or obtain financing for our projects.

        The potential physical impacts of climate change on our operations are also highly uncertain and would vary depending on type of physical impact and geographic location. Climate change physical impacts could include changing temperatures, water shortages, changes in weather and rainfall patterns, and changing storm patterns and intensities. Many climate change predictions, if true, present several potential challenges to water and wastewater utilities, such as increased precipitation and flooding, potential degradation of water quality, and changes in demand for water services.

We are subject to litigation and reputational risk as a result of the nature of our business, which may have a material adverse effect on our business.

        From time to time, we are involved in lawsuits that arise from our business. Litigation may, for example, relate to product liability claims, personal injury, property damage, vehicle accidents, regulatory issues, contract disputes or employment matters. The occurrence of any of these matters could also create possible damage to our reputation. The defense and ultimate outcome of lawsuits against us may result in higher operating expenses. Higher operating expenses or reputational damage could have a material adverse effect on our business, including to our liquidity, results of operations and financial condition.

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We will incur significant costs as a result of operating as a public company, and our management will devote substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would harm our business.

        As a public company, and particularly after we cease to be an "emerging growth company," we will incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, or the Exchange Act, and regulations regarding corporate governance practices. The listing requirements of the New York Stock Exchange, or the NYSE, require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, shareholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements, and we will likely need to hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Moreover, the reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors' and officers' insurance, on acceptable terms.

        The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, beginning with our Annual Report on Form 10-K for the year ending December 31, 2016, Section 404 of the Sarbanes-Oxley Act, or Section 404, will require management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. As an emerging growth company, we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an emerging growth company. When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

In connection with the audit of our consolidated financial statements for fiscal year 2014, a material weakness in our internal control over financial reporting was identified. While we have taken steps to remediate this material weakness, we cannot provide assurance that additional material weaknesses or significant deficiencies will not occur in the future.

        In connection with the audit of our consolidated financial statements for the year ended December 31, 2014, management and our independent registered public accounting firm identified a

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material weakness in our internal control over financial reporting and financial reporting closing process. The Public Company Accounting Oversight Board, or PCAOB, has defined a material weakness as "a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim statements will not be prevented or detected." Our lack of adequate accounting personnel has resulted in the identification of material weaknesses in our internal controls over financial reporting. Specifically, the material weakness was related to audit adjustments that were not detected by management review, significant delays in the preparation of audit request lists and financial reporting items and other errors with respect to our financial statements.

        To address the material weakness, we developed and implemented a plan in late fiscal year 2014 and during the first half of 2015 that included hiring additional accounting personnel, refining the end of period closing procedures and commencing an implementation of an information technology solution to assist in automating a portion of the financial reporting process, as well as implementing additional management review controls.

        While we implemented a plan to remediate this material weakness, we cannot predict the success of such plan or the outcome of our assessment of these plans at this time. We can give no assurance that this implementation will remediate this deficiency in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which may result in a material adverse effect on our business and stock price.

        In addition, as a public company, we will be required to document and test our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which will require, beginning with our Annual Report on Form 10-K for the year ending December 31, 2016, annual management assessments of the effectiveness of our internal control over financial reporting. During the course of our assessment, we may identify deficiencies that we may not be able to remediate in time to meet our deadline for compliance with Section 404.

U.S. holders of our common shares may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

        Based on the current and anticipated value of our assets and the composition of our income, assets and operations, we do not expect to be a "passive foreign investment company," or PFIC, for the current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that the U.S. Internal Revenue Service, or the IRS, will not take a contrary position. Furthermore, a separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year. Accordingly, we cannot assure you that we will not be a PFIC for our current taxable year or any future taxable year. A non-U.S. corporation will be considered a PFIC for any taxable year if (i) at least 75% of its gross income is passive income, or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. The value of our assets generally will be determined by reference to the market price of our Shares, which may fluctuate considerably. If we were to be treated as a PFIC for any taxable year during which a U.S. Holder (as defined below under "Certain Material U.S. Federal Income Tax Considerations") holds a share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See "Certain Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations."

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You may be subject to adverse U.S. federal income tax consequences if we are classified as a Controlled Foreign Corporation.

        Each "Ten Percent Shareholder" (as defined below) in a non-U.S. corporation that is classified as a "controlled foreign corporation," or a CFC, for U.S. federal income tax purposes generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder's pro rata share of the CFC's "Subpart F income" and investment of earnings in U.S. property, even if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be classified as a CFC for U.S federal income tax purposes if Ten Percent Shareholders own in the aggregate, directly or indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A "Ten Percent Shareholder" is a U.S. person (as defined by the Code), who owns or is considered to own 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation. The determination of CFC status is complex and includes attribution rules, the application of which is not entirely certain. We do not believe that we are currently a CFC. It is possible, however, that a shareholder treated as a U.S. person for U.S. federal income tax purposes has or will acquire, directly or indirectly, enough shares to be treated as a Ten Percent Shareholder after application of the constructive ownership rules and, together with any other Ten Percent Shareholders of the company, cause the company to be treated as a CFC for U.S. federal income tax purposes. Holders are urged to consult their own tax advisors with respect to the potential adverse U.S. tax consequences of becoming a Ten Percent Shareholder in a CFC.

Risks Related to Our Common Shares

Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.

        As of                , our directors, executive officers and each of our shareholders who own greater than 5% of our outstanding common shares and their affiliates, in the aggregate, owned approximately        % of the outstanding common shares. As a result, these shareholders, if acting together, would be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may have interests that differ from yours and may vote in a way with which you disagree and that may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our other shareholders of an opportunity to receive a premium for their common shares as part of a sale of our company and might affect the market price of our common shares.

Anti-takeover provisions in our memorandum and articles of association could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management and limit the market price of our common shares.

        Provisions in our articles of association may have the effect of delaying or preventing a change of control or changes in our management. Our articles of association include provisions that:

    Authorize our board of directors to issue, without further action by the shareholders up to 25,000,000 shares of undesignated preferred shares;

    Require that any action to be taken by our shareholders be effected at a duly called annual or special meeting and not by written consent;

    Establish an advance notice procedure for shareholder approvals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors;

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    Provide that directors may be removed only for cause;

    Provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even if less than a quorum;

    Establish that our board of directors is divided into three classes—Class I, Class II and Class III—with each class serving staggered terms; and

    Require a super-majority of votes to amend certain of the above-mentioned provisions.

        These provisions, alone or together, could delay or prevent hostile takeovers and changes in control. These provisions may also frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management.

        Any provision of our articles of association or Curaçao law that has the effect of delaying or deterring a change of control could limit the opportunity for our shareholders to receive a premium for their shares of our common shares, and could also affect the price that some investors are willing to pay for our common shares.

U.S. shareholders may not be able to enforce civil liabilities against us.

        There is doubt as to the enforceability in Curaçao, whether by original actions or by seeking to enforce judgments of U.S. courts, of claims based on the federal securities laws of the United States. In addition, punitive damages in actions brought in the United States or elsewhere may be unenforceable in Curaçao. See "Enforcement of Judgments."

The rights afforded to shareholders are governed by Curaçao law. Not all rights available to shareholders under Curaçao law or U.S. law will be available to shareholders.

        The rights afforded to shareholders will be governed by Curaçao law and by the memorandum and articles of association, and these rights differ in certain respects from the rights of shareholders in typical Curaçao companies and U.S. corporations. In particular, Curaçao law significantly limits the circumstances under which shareholders of companies may bring derivative actions and, in most cases, only the corporation may be the proper claimant or plaintiff for the purposes of maintaining proceedings in respect of any wrongful act committed against it. Neither an individual nor any group of shareholders has any right of action in such circumstances. In addition, Curaçao law does not afford appraisal rights to dissenting shareholders in the form typically available to shareholders of a U.S. corporation. See "Description of Capital Stock—Differences in Corporate Law."

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our share, our share price and trading volume could decline.

        The trading market for our common share will depend on the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts change their recommendation or outlook regarding us or our shares, or provide more favorable relative recommendations or outlooks about our competitors, our share price could likely decline. Additionally, if any of the analysts do not publish or cease publishing research or reports about us, our business or our market, our share price and trading volume could decline.

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Prior to this offering, there has been no public market for our common shares, and an active trading market may not develop or be sustained following this offering.

        Prior to this offering, there has been no public market for our common shares. An active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them, or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

Future sales of our common shares in the public market could cause our share price to fall.

        Sales of a substantial number of our common shares in the public market after this offering, or the perception that these sales might occur, could depress the market price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. Based on the number of common shares outstanding as of June 30, 2015, upon the closing of this offering, we will have          common shares outstanding, assuming no exercise of outstanding options or the underwriters' option to purchase additional shares.

        All of the common shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act except for any shares held by our affiliates as defined in Rule 144 under the Securities Act.                common shares outstanding after this offering, or        % based on shares outstanding as of June 30, 2015 after giving effect to this offering, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for at least 180 days after the date of this prospectus, subject to certain extensions.

        The underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements with the underwriters prior to expiration of the lock-up period. See "Shares Eligible for Future Sale."

        The holders of          common shares outstanding after this offering, or          % based on shares outstanding as of June 30, 2015 after giving effect to this offering, will be entitled to rights with respect to registration of such shares under the Securities Act pursuant to an investors' rights agreement between such holders and us. See "Description of Capital Stock—Registration Rights." If such holders, by exercising their registration rights, sell a large number of shares, the market price for our common stock could be harmed. If we file a registration statement for the purpose of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired. We intend to file a registration statement on Form S-8 under the Securities Act to register shares for issuance under our 2015 Stock Option and Incentive Plan. Our 2015 Stock Option and Incentive Plan provides for automatic increases in the shares reserved for issuance under the plan which could result in additional dilution to our shareholders. Once we register these shares, they can be freely sold in the public market upon issuance and vesting, subject to a lock-up period of at least 180 days and other restrictions provided under the terms of the applicable plan and/or the option agreements entered into with option holders.

We may invest or spend the proceeds of this offering in ways with which you may not agree, or in ways which may not yield a positive return.

        The net proceeds from this offering may be used for working capital purposes and for other general corporate purposes.

        We will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used

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appropriately. The net proceeds may be used for corporate purposes that do not improve our results of operations or increase our market value.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

        The initial public offering price of our common shares is substantially higher than the net tangible book value per share of our outstanding common shares immediately after this offering. Therefore, if you purchase our common shares in this offering, you will incur immediate dilution of $          in net tangible book value per share from the price you paid. In addition, following this offering, purchasers in this offering will have contributed          % of the total consideration paid by our shareholders to purchase shares of common shares, in exchange for acquiring approximately          % of our total outstanding shares as of June 30, 2015 after giving effect to this offering. In addition, if outstanding options to purchase our common shares are exercised, you will experience additional dilution.

We do not intend to pay dividends for the foreseeable future.

        We have never declared or paid any dividends on our common shares. We currently intend to retain any earnings to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the future. Additionally, our ability to pay dividends on our common shares is limited by restrictions under the terms of our Curaçao credit facility. As a result, you may only receive a return on your investment in our common shares if the market price of our common shares increases.

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FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

    the high level of competition in desalination and wastewater treatment solutions and filtered water systems businesses and the impact such competition may have on pricing and sales volume;

    state and federal regulation of our products and services and the risk that we may fail to meet current regulations or that further regulations may restrict our ability to produce and distribute our products;

    potential contamination of our water sources, which could tarnish our image or result in delays in operations and the inability to meet our contractual obligations;

    disruptions to operations and facilities, which would restrict our ability to produce and distribute our products and services;

    fluctuations in the cost of essential equipment or supplies, which could significantly affect our ability to develop or maintain our facilities or deliver our products and services on a timely basis, the price of our products and services and harm our reputation and customer relationships;

    acquisitions that disrupt our business or failure to achieve the anticipated benefits from an acquisition;

    the risk that our existing customers may not extend their contracts with us;

    the ability to identify and pursue opportunities for growth;

    population growth and urbanization that will lead to an increase in the demand for water treatment technology;

    the inability of our competitors to focus on building plants with lower operating costs or plants with excess capacity;

    our competitive advantage due to, in part, low overhead costs, knowledge of local markets and our efficient manner of operating our equipment;

    our ability to purchase equipment from alternate suppliers;

    disruptions of our supply chain, distribution channels or service networks;

    our failure to provide a high level of customer service;

    our dependence on a small number of key senior managers, our continued ability to retain their services and the risk that we will be unable to find replacements with similar levels of experience or expertise;

    our ability to obtain and retain adequate managerial and operational resources to support our plans for growth and expansion;

    changing consumer preferences could decrease demand for our product;

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    our dependence on information technology and communications networks (including the internet) to operate and manage our business and the risk that our critical information systems or network connections may fail;

    a decline in the economies in the countries in which we operate and plan to expand;

    our vulnerability to the social, cultural and political volatility in the developing economies in which we operate and plan to expand;

    fluctuations in tourism in the areas we service;

    our ability to stay within budget and on schedule with respect to new construction;

    our vulnerability to adverse or abnormal weather conditions;

    litigation and legal proceedings could expose us to significant liabilities and damage our reputation;

    credit and performance risk of our counterparties;

    competition from third parties;

    loss of services of key personnel and the retention and recruitment of a skilled workforce;

    risks associated with negative developments in the capital markets;

    the availability of debt or equity capital on economic terms to fund our capital expenditures, project development and acquisitions;

    risk associated with our substantial indebtedness; and

    the other factors described under "Risk Factors."

        We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

        You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Operating Results" and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environments. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

        The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters and attributable to us or any other person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to within this prospectus.

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INDUSTRY AND MARKET DATA

        This prospectus contains statistical data, estimates, and forecasts that are based on independent industry publications, such as those published by Zenith International Ltd. and Global Water Intelligence or other publicly available information, as well as other information based on our internal sources. Although we believe that the third-party sources referred to in this prospectus are reliable, neither we nor the underwriters have independently verified the information provided by these third parties. Similarly, while we believe our internal estimates with respect to our industry are reliable, our estimates have not been verified by any independent sources. While we are not aware of any misstatements regarding any industry and market data presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under the section titled "Risk Factors" and elsewhere in this prospectus.

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USE OF PROCEEDS

        We estimate that the net proceeds from the sale of our common shares in this offering will be approximately $             million, based upon the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' option to purchase additional shares from us is exercised in full, we estimate that our net proceeds would be approximately $             million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds that we receive from this offering by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of one million in the number of common shares offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $             million, assuming the initial public offering price per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The principal purposes of this offering are to increase our financial flexibility, create a public market for our common shares, and facilitate our future access to the public equity markets.

        We currently intend to use the net proceeds that we will receive from this offering for working capital and other general corporate purposes. We have broad discretion as to the application of the proceeds used for working capital and other general corporate purposes. We may use a portion of the net proceeds that we receive to acquire or invest in complementary businesses, products, services, technologies or other assets. As part of our expansion strategy, we may acquire complementary businesses. For our Seven Seas Water business, we may seek to acquire additional desalination and water treatment plants. Potential acquisition candidates include individual plants and businesses that operate multiple plants. For our Quench business, potential acquisition candidates include local dealers as well as businesses with broader regional or national customer bases. We routinely identify and evaluate potential acquisition candidates and engage in discussions and negotiations regarding potential acquisitions. There can be no assurance that any of our discussions or negotiations will result in an acquisition. Further, if we make any acquisitions, there can be no assurance that we will be able to operate the acquired plants or businesses profitably or otherwise successfully implement our expansion strategy. We currently do not have any agreements or commitments to make any acquisitions or investments.

        Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit, or direct or guaranteed obligations of the U.S. government. You will not have an opportunity to evaluate the economic, financial or other information on which we base our decisions regarding the use of these proceeds.

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DIVIDEND POLICY

        We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, as determined at the discretion of our board of directors, which may include our financial condition, operating results, capital requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant. Additionally, our ability to pay dividends on our common shares is limited by restrictions under the terms of our Curaçao credit facility.

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CAPITALIZATION

        The following table sets forth our capitalization, as well as cash and cash equivalents, as of June 30, 2015 as follows:

    on an actual basis;

    on a pro forma basis, giving effect to the LLC Conversion which will occur prior to the date of this prospectus; and

    on a pro forma as adjusted basis, giving further effect to the sale and issuance by us of            common shares in this offering, based on the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other final terms of this offering. You should read this table together with our consolidated financial statements and related notes, and the sections titled "Selected Consolidated Financial Data", "Management's Discussion and Analysis of Financial Condition and Operating Results" and our consolidated financial statements and related notes that are included elsewhere in this prospectus.

 
  As of June 30, 2015  
 
  Actual   Pro Forma   Pro Forma as
Adjusted
 
 
  (in thousands)
 

Cash and cash equivalents

  $ 34,277   $     $    

Total debt

  $ 146,499              

Shareholders' equity:

                   

Class A preferred shares

    195,988              

Class B shares

    83,958              

Class Q shares

    143,666              

Common shares

    4,974              

Management incentive plan shares

                 

Additional paid-in capital

    4,789              

Accumulated deficit

  $ (133,947 )            

Total shareholders' equity

  $ 299,428              

Total capitalization

  $ 445,927   $     $    

        If the underwriters' option to purchase additional shares from us were exercised in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total shareholders' equity and shares issued and outstanding as of June 30, 2015 would be $             million, $             million, $             million,            and             , respectively.

        Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our cash and cash equivalents, additional paid-in capital, and total shareholders' equity by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of one million in the number of shares offered by us would increase or decrease the net proceeds that we receive from this offering by approximately

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$             million, assuming the initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The pro forma and pro forma as adjusted columns in the table above is based on            common shares outstanding as of June 30, 2015 after giving effect to the LLC Conversion described under the section titled "Certain Relationships and Related Party Transactions—LLC Conversion," and exclude:

                        common shares issuable upon the exercise of options to purchase common shares that were outstanding as of June 30, 2015, with a weighted average exercise price of $                    per share;

                        common shares issuable upon the exercise of options to purchase common shares granted after June 30, 2015, with a weighted average exercise price of $                    per share;

                        common shares issuable upon the exercise of warrants to purchase common shares, with a weighted average exercise price of $                    per share;

                        common shares reserved for future issuance under our existing equity incentive plans as of June 30, 2015; and

                        common shares reserved for future issuance under our 2015 Stock Option and Incentive Plan, which will become effective upon completion of this offering, and which contains provisions that automatically increase its share reserve each year.

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DILUTION

        If you invest in our common shares in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common shares and the pro forma as adjusted net tangible book value per share of our common shares immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of common shares in this offering and the pro forma as adjusted net tangible book value per share immediately after completion of this offering.

        Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of common shares outstanding. Our historical net tangible book value (deficit) as of June 30, 2015 was $             million, or $            per share. Our pro forma net tangible book value (deficit) as of June 30, 2015 was $             million, or $            per share, based on the total number of our common shares outstanding as of June 30, 2015, after giving effect to the LLC Conversion which will occur immediately prior to the completion of this offering.

        After giving effect to the sale by us of            common shares in this offering at the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of            would have been $             million, or $            per share. This represents an immediate increase in pro forma net tangible book value of $            per share to our existing shareholders and an immediate dilution in pro forma net tangible book value of $            per share to investors purchasing common shares in this offering at the assumed initial public offering price. The following table illustrates this dilution:

Assumed initial public offering price per share

        $    

Historical net tangible book value (deficit) per share as of June 30, 2015

             

Increase per share attributable to the conversion of all shares of preferred stock

             

Pro forma net tangible book value (deficit) per share as of June 30, 2015

  $          

Increase in pro forma net tangible book value (deficit) per share attributable to new investors in this offering

             

Pro forma as adjusted net tangible book value per share immediately after this offering

             

Dilution in pro forma net tangible book value per share to new investors in this offering

        $    

        Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $            , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $            , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of one million in the number of shares of common stock offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $            , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $            , assuming the initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses

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payable by us. In addition, to the extent any outstanding options to purchase common shares are exercised, new investors would experience further dilution. If the underwriters exercise their option to purchase additional shares from us in full, the pro forma as adjusted net tangible book value per share of our common shares immediately after this offering would be $            per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $            per share.

        The following table presents, on a pro forma as adjusted basis as of June 30, 2015, after giving effect to the LLC Conversion immediately prior to the completion of this offering, the differences between the existing shareholders and the new investors purchasing common shares in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common shares and preferred stock, cash received from the exercise of stock options, and the average price per share paid or to be paid to us at the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 
  Shares Purchased   Total Consideration    
 
 
  Average Price
per Share
 
 
  Number   Percent   Amount   Percent  

Existing shareholders

                       % $                               % $               

New investors

                               

Total

          100 % $                  100 %      

        Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all shareholders by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, each increase or decrease of one million in the number of shares of common stock offered by us would increase or decrease and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $            , and would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all shareholders by approximately $             million, assuming the initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. In addition, to the extent any outstanding options to purchase common shares are exercised, new investors will experience further dilution.

        Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters' option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full from us, our existing shareholders would own        % and our new investors would own        % of the total number of our common shares outstanding upon the completion of this offering.

        The number of common shares that will be outstanding after this offering is based on            shares outstanding as of June 30, 2015, after giving effect to the LLC Conversion described under the section titled "Certain Relationships and Related Party Transactions—LLC Conversion," and excludes:

                common shares issuable upon the exercise of options to purchase common shares that were outstanding as of June 30, 2015, with a weighted average exercise price of $            per share;

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                common shares issuable upon the exercise of options to purchase common shares granted after June 30, 2015, with a weighted average exercise price of $            per share;

                common shares issuable upon the exercise of warrants to purchase common shares, with a weighted average exercise price of $            per share;

            common shares reserved for future issuance under our existing equity incentive plans as of June 30, 2015; and

                common shares reserved for future issuance under our 2015 Stock Option and Incentive Plan, which will become effective upon completion of this offering, and which contains provisions that automatically increase its share reserve each year.

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SELECTED CONSOLIDATED FINANCIAL DATA

         You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the "Management's Discussion and Analysis of Financial Condition and Operating Results" section of this prospectus. We have derived the statement of operations data for the years ended December 31, 2013 and 2014 and the balance sheet data as of December 31, 2013 and 2014 from our audited financial statements included elsewhere in this prospectus. We have derived the statement of operations data for the six months ended June 30, 2014 and 2015 and the balance sheet data as of June 30, 2015 from the unaudited quarterly financial statements included elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future, and the financial information presented for the interim periods may not be indicative of the results of the full year.

 
  Year Ended
December 31,
  Six Months
Ended June 30,
 
 
  2013   2014(1)   2014(1)   2015  
 
  (in thousands)
 

Consolidated Statement of Operations Data:

                         

Revenues:

                         

Bulk water

  $ 27,780   $ 38,989   $ 19,067   $ 21,111  

Rental

        23,995     2,038     21,954  

Other

        4,143     306     3,733  

Total revenues

    27,780     67,127     21,411     46,798  

Cost of revenues:

   
 
   
 
   
 
   
 
 

Bulk water

    15,765     21,037     9,921     12,065  

Rental

        10,984     665     9,514  

Other

        2,091     83     2,028  

Total cost of revenues

    15,765     34,112     10,669     23,607  

Gross profit

    12,015     33,015     10,742     23,191  

Selling, general and administrative expenses

    11,764     31,653     8,474     23,763  

Income from operations

    251     1,362     2,268     (572 )

Other expense:

                         

Interest expense, net

    (949 )   (5,148 )   (1,669 )   (3,410 )

Other expense

    (124 )   (325 )   (176 )   (127 )

(Loss) income before income tax expense

    (822 )   (4,111 )   423     (4,109 )

Income tax expense (benefit)

    387     (1,984 )   238     1,464  

Net (loss) income

  $ (1,209 ) $ (2,127 ) $ 185   $ (5,573 )

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  As of December 31,    
 
 
  As of
June 30, 2015
 
 
  2013   2014(1)  
 
   
  (in thousands)
   
 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 14,277   $ 37,499   $ 34,277  

Working capital

    8,181     30,946     19,207  

Property, plant and equipment and construction in progress

    108,566     116,515     121,102  

Total assets

    135,922     376,330     469,562  

Current portion of long-term debt

    7,886     8,265     17,836  

Long-term debt

    45,666     77,766     128,663  

Class A redeemable convertible preferred shares(2)

    86,397          

Total members' equity

    (10,357 )   271,969     299,428  

(1)
Includes the operations of Quench USA Inc. and Atlas Watersystems, Inc. from the respective dates of acquisition of June 6, 2014 and June 16, 2014.

(2)
The Class A redeemable convertible preferred shares were reclassified from temporary equity to members' equity during the year ended December 31, 2014 upon elimination of the redemption and conversion features.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS

         The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled "Selected Consolidated Financial Data" and financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included elsewhere in this prospectus.


Overview

        AquaVenture is a multinational provider of Water-as-a-Service, or WAAS, solutions that provide our customers with a reliable and cost-effective source of clean drinking and process water primarily under long-term contracts that minimize capital investment by the customer. We believe our WAAS business model offers a differentiated value proposition that generates long-term customer relationships, recurring revenue, predictable cash flow and attractive rates of return. We offer our solutions in North America, the Caribbean, Latin America and the Middle East.

        We deliver our WAAS solutions through two operating platforms: Seven Seas Water and Quench. Seven Seas Water is a multinational provider of desalination and wastewater treatment solutions, providing 7 billion gallons of potable, high purity industrial grade and ultra-pure water per year to governmental, municipal, industrial and hospitality customers. Quench, which we acquired in June 2014, is a U.S.-based provider of Point-of-Use, or POU, filtered water systems and related services to more than 40,000 institutional and commercial customers, including more than half of the Fortune 500.

        Our Seven Seas Water platform generates recurring revenue through long-term contracts for the delivery of treated bulk water, generally based on the amount of water we deliver. The significant majority of our Seven Seas Water revenue is derived from our operations in five different locations:

    The USVI: Seven Seas Water provides all of the municipal potable water needs for the islands of St. Croix, St. Thomas and St. John through its two seawater desalination plants, one on St. Croix and one on St. Thomas, having a combined capacity of approximately 7.0 million gallons per day, or GPD. We also provide ultrapure water for use in power generation units by further processing a portion of the potable water we produce for certain of our customers.

    St. Maarten: Seven Seas Water is the primarily supplier of municipal potable water needs for St. Maarten through its three seawater desalination plants located around the island having a combined capacity of approximately 4.8 million GPD.

    Curaçao: Seven Seas Water provides industrial grade water through seawater and brackish water desalination facilities having a combined capacity of approximately 4.9 million GPD.

    Trinidad: Seven Seas Water provides potable water to the southern part of the island through its seawater desalination plant having a capacity of approximately 5.5 million GPD.

    The BVI: Seven Seas Water is the primary supplier of Tortola's potable water needs through its seawater desalination plant having a capacity of approximately 2.8 million GPD, which we began operating after we acquired the capital stock of Biwater (BVI) Holdings Limited on June 11, 2015.

        Seven Seas Water offers solutions that utilize reverse osmosis and other purification technologies to convert seawater or brackish water into potable, high purity industrial grade and ultra-pure water in large volumes for customers operating in regions with limited access to usable water. Our WAAS solutions allow our customers to outsource the management of the entire lifecycle of a desalination

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plant. We are supported by an operations center in Tampa, Florida, which provides general management, business development, engineering, procurement and field service support functions.

        Our Quench platform generates recurring revenue from the rental and servicing of POU water filtration systems and related equipment, such as ice and sparkling water machines, and from the contracted maintenance of customer-owned equipment. Quench also generates revenue from the sale of coffee and consumables. Our unit attrition rates imply an average rental period of more than 10 years. We receive recurring fees for the units we rent or service throughout the life of our customer relationship. We also receive non-recurring revenue from some customers for certain services, such as installation, relocation or removal of equipment, as well as from the resale of equipment. We achieve an attractive return on our rental assets due to strong customer retention. We provide our systems and services to a broad mix of industries, including government, education, medical, manufacturing, retail, and hospitality, among others. We operate across the United States and are supported by a primary operations center in King of Prussia, Pennsylvania.

        For the fiscal years ended December 31, 2013 and 2014, our consolidated revenue was $27.8 million and $67.1 million, respectively. The increase was mainly due to our acquisition of Quench USA, Inc. and Atlas Watersystems, Inc., or Atlas, in June 2014 and from new plants and plant expansions at Seven Seas Water. Including both organic and inorganic growth, our compounded annual growth rate, or CAGR, was 34.4% from 2009 to 2014. For the six months ended June 30, 2015, our consolidated revenue was $46.8 million.

Operating Segments

        We have two reportable segments that align with our operating platforms: Seven Seas Water and Quench. The segment determination is supported by, among other factors: the existence of individuals responsible for the operations of each segment and who also report directly to our chief operating decision maker, or CODM, the nature of the segment's operations and information presented to our board and our CODM. The expenses of AquaVenture Holdings LLC are included in the Seven Seas Water segment results.

History

        AquaVenture Holdings LLC was formed on December 14, 2006 with the objective to build or acquire, own and operate desalination and wastewater treatment plants. We focused on providing potable water and wastewater treatment services to what was considered a fragmented and underserved market in the Caribbean islands. The founding team included Douglas R. Brown, our current Chief Executive Officer and Chairman of the Board, and several of his former colleagues from Ionics, Incorporated, a formerly publicly-held water company that was acquired by General Electric in 2005. Our initial financing occurred on January 5, 2007, immediately preceding an acquisition on January 6, 2007 of AquaVenture Capital Limited and its wholly owned subsidiary, Seven Seas Water Corporation (USVI), in a stock-for-stock transaction valued at approximately $1.0 million. During the remainder of 2007, we completed acquisitions of two water businesses in the Turks and Caicos Islands and one water business in St. Maarten. The business acquired in St. Maarten provided us with our first long-term government contract. Also during 2007, we formed Seven Seas Water Corporation, a Delaware corporation located in Tampa, Florida, to provide centralized management, engineering, operations, procurement, business development and administrative support services to our portfolio of operating companies. From 2008 to 2015, we continued to grow our business through new projects, existing project expansions and acquisitions. During the same period, we launched business development efforts in North America, Latin America, the Middle East and India.

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Recent Acquisitions

    Quench Acquisition

        On June 6, 2014, AquaVenture Holdings LLC acquired all of the assets of Quench USA Holdings LLC under a contribution agreement in exchange for AquaVenture's issuance of 29,036,947 Class Q shares and 2,829,598 Class B shares. The assets of Quench USA Holdings LLC included all issued and outstanding capital stock of Quench and any cash held. The Class Q shares and Class B shares issued to Quench USA Holdings LLC had a fair value at the time of contribution of $143.7 million and $14.0 million, respectively (or an aggregate purchase price of $157.7 million). Our acquisition of Quench provides us with a more diversified water service offering and extends our geographical footprint into North America. Quench's results are included in our Quench segment results for the periods following its acquisition.

    Atlas Acquisition

        On June 16, 2014, Quench acquired all of the assets of Atlas, for a total purchase price of $23.6 million, which consisted of $21.1 million in cash and 505,285 Class B shares valued at $2.5 million. Our acquisition of Atlas expands Quench's presence in the northeast United States and makes us a market leader in our sector in the greater Boston area. The results of Atlas are included in our Quench segment reporting for periods following its acquisition.

    Biwater Acquisition

        On June 11, 2015, AquaVenture Water Corporation, a BVI company and our indirect wholly-owned subsidiary, acquired 100% of the capital stock of Biwater (BVI) Holdings Limited, or Biwater Holdings. Biwater (BVI) Ltd., a wholly-owned subsidiary of Biwater Holdings, provides potable water to the island of Tortola from a desalination facility located in Paraquita Bay under a water purchase agreement with the BVI government that expires in 2030. AquaVenture Water Corporation acquired all of the capital stock of Biwater Holdings for a total purchase price of $47.8 million, which consisted of $44.5 million in cash and a note payable issued by AquaVenture Holdings N.V. in the aggregate principal amount of $5.6 million with a fair value at the date of acquisition of $3.3 million. Included in the liabilities of Biwater Holdings is long-term debt between Biwater (BVI) Ltd. and a bank with a remaining unpaid principal balance as of the acquisition date of $40.8 million, excluding any application of a $3.6 million debt service reserve that is held by the lender as restricted cash. The operations of Biwater Holdings and its subsidiary are included in our Seven Seas Water reporting segment from the date of the acquisition.


Components of Revenues and Expenses

        Management reviews the results of operations using a variety of measurements and procedures including an analysis of the statement of operations which management considers an important aspect of our performance analysis. To help the reader better understand the discussion of operating results, details regarding certain line items have been provided below.

Revenues

    Seven Seas Water

        Our Seven Seas Water business generates revenue primarily from the delivery of treated bulk water to governmental, municipal, industrial and hospitality customers. We generally recognize revenue from bulk water sales and services at the time water is supplied to our customers in accordance with the applicable water supply agreements. Certain agreements contain minimum monthly charge provisions which allow us to invoice the customer for the greater of the water supplied or a minimum

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monthly charge if we have met our water supply obligations. The amount of water supplied is based on meter readings performed at or near the end of each month. Estimates of revenue for unbilled water are recorded when meter readings occur at a time other than the end of a period.

        Our Seven Seas Water business operates on a water outsourcing model. Certain contracts under which we construct a plant to provide bulk water to a specific customer contain certain terms and conditions that under U.S. GAAP accounting rules require the arrangement to be accounted for as an operating lease. We have determined that revenue recognition over the life of contracts that are categorized under U.S. GAAP as operating leases is consistent with contracts for bulk water sales and service after taking into consideration our analysis of contingent rent, any minimum take-or-pay provisions and contractual unit pricing.

        Through the Seven Seas Water operating platform, we also recognize revenue under certain contracts with our customers that are required by U.S. GAAP to be accounted for as service concession arrangements. Service concession arrangements are agreements entered into with a public-sector entity that controls both the ability to modify or approve the services and prices provided by the operating company and beneficial entitlement or residual interest in the infrastructure at the end of the term of the agreement. Our service concession arrangements require the construction of infrastructure, which is ultimately operated by us to provide bulk water to the customer in accordance with the applicable agreement. Revenue is calculated based on the amount of water supplied at contractually determined rates. The amount of water supplied is based on meter readings performed at or near the end of each month. Estimates of revenues for unbilled water are recorded when meter readings occur at a time other than the end of a period. We have determined such revenue is recognized on a basis that is consistent with the recognition of revenue from bulk water sales and service as a result of our continuing obligation to perform under the contract and after taking into consideration contractual unit pricing.

    Quench

        Our Quench business generates recurring revenue from the rental and servicing of POU water filtration systems and related equipment, such as ice and sparkling water machines, and from the contracted maintenance of customer-owned equipment. We receive non-recurring revenue from the resale of equipment and for certain services, such as installation, relocation and removal of equipment. Quench also generates revenue from the sale of coffee and consumables.

        The majority of Quench customers rent our systems under multi-year, automatically renewing contracts, and our unit attrition rates imply an average rental period of more than 10 years. We receive recurring fees for the units we rent ratably throughout the term of each contract period.

Cost of Revenues

    Seven Seas Water

        Cost of revenues for our Seven Seas Water business consists primarily of the cost of plant depreciation, amortization of long-term contract costs under service concession agreements, plant personnel costs (including compensation and other related personnel costs for plant employees), electric power, repairs and maintenance, personnel and travel costs for field engineering services and the cost of consumables.

        Plant depreciation is the largest component of our cost of revenues. In the future, we expect that our depreciation and cost of revenue will increase with the addition of new water plants and future acquisitions. Plant depreciation is calculated using a straight-line method with an allowance for estimated residual values. Depreciation rates are determined based on the estimated useful lives of the assets. Depreciation commences when the plant is placed into service.

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        Our costs for the infrastructure used to produce water for our customers under service concession arrangements are recorded as a long-term asset and are amortized over the term of the arrangement using a straight-line method. Amortization of such costs is a significant expense.

        Plant labor costs are generally fixed within a normal range of plant production but can vary from plant to plant depending on the size of the plant and the complexity of the water application. Costs of labor can vary depending on the prevailing labor market for the level of employees needed in the jurisdiction where the plant is located.

        Electrical power for our large plants is provided by the customer or charged by us to the customer as a pass through cost; however our contracts normally require us to maintain electrical usage at or below a specified level of kilowatt hours for each gallon of water produced.

        Expenditures for repairs and maintenance are expensed as incurred, whereas betterments that add capacity, significantly improve operating efficiency or extend the asset life are capitalized.

        Field engineering services include mainly the cost of labor and travel for our specially trained and skilled employees who are deployed to our plant sites under the direction of our Tampa, Florida services center. These personnel are utilized to handle more complex maintenance tasks and to troubleshoot performance issues with our plant equipment and systems. Such expenses can vary depending on the number of projects and the time and extent of the maintenance requirements.

        Consumables are typically chemical additives used in the pre- and post-production processes to meet the water quality and attribute specifications of our customers.

    Quench

        Cost of revenues for our Quench business consists primarily of the cost of personnel and travel for our field service, supply chain and technician scheduling and dispatch teams; depreciation of rental equipment and field service vehicles; the cost of equipment purchased for resale; the cost of coffee and related products; the cost of filters and repair parts; and freight costs. A portion of these expenditures are incurred in connection with the installation of our rental equipment and are capitalized.

Selling, General and Administrative Expenses

        Each segment reports the selling, general and administrative expenses that pertain to its business. In addition, the expenses of AquaVenture Holdings LLC, consisting mainly of professional service and other expenses to support its activities as a holding company, are included in the Seven Seas Water segment results.

    Seven Seas Water

        Selling, general and administrative expenses for Seven Seas Water consist primarily of compensation and benefits, third-party professional service fees and travel. Selling and marketing expenses consist mainly of personnel and travel costs of our business development organization, third-party and internal engineering costs incurred in connection with new project feasibility studies or proposals, and the costs for operating business development offices in South America and the Kingdom of Saudi Arabia.

        General and administrative expenses include personnel costs for our executive, engineering, procurement, finance, human resources organizations and other administrative employees. Third-party professional service costs included in general and administrative expenses are composed mainly of consulting, legal, accounting and tax services. Other general and administrative expenses include depreciation of vehicles, office equipment and improvements and computer systems and software not directly related to the production of water or other water services, and other corporate expenses. In the

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future, we expect that our selling, general and administrative expenses will increase due to business development efforts in new markets, the costs of being a public company and the general infrastructure to support our future growth.

    Quench

        Selling, general and administrative expenses for Quench include costs related to our selling and marketing functions as well as general and administrative costs associated with our operations center and operating locations, including information systems, finance, customer care, and human resources. Selling and marketing costs primarily include personnel costs (including salaries, benefits and share-based compensation), commissions and expenses related to lead generation. General and administrative expenses also include amortization expense associated with intangible assets acquired in connection with business combinations, which are amortized over their expected useful lives, fees for third-party professional services (including consulting, legal, accounting and tax services), travel, depreciation of non-service equipment and other administrative expenses.

Other Expense and Income

        Other expense and income consists mainly of interest expense on bank and private lender debt. In the future, we expect that our interest expense will increase as a result of the use of debt financing for new plant construction and business acquisitions (including the debt incurred and assumed in the June 2015 Biwater acquisition).


Key Metrics

        We regularly use a number of key metrics to measure our performance, evaluate growth trends and determine business strategy, including Adjusted EBITDA and Cash Operating Profit.

Adjusted EBITDA

        Adjusted EBITDA, a non-GAAP financial measure, is defined as earnings (loss) before interest, income taxes, depreciation and amortization, share-based compensation, gain or loss on disposal of assets, acquisition-related expenses and certain adjustments recorded in connection with purchase accounting for acquisitions. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Management believes that the use of Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations, and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their reported GAAP results. Management believes that it is useful to exclude certain charges, such as depreciation and amortization, and non-core operational charges, from Adjusted EBITDA because (1) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (2) such expenses can vary significantly between periods as a result of the timing of acquisitions or restructurings. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

    Adjusted EBITDA does not reflect interest expense, which represents a reduction in cash available to us;

    Adjusted EBITDA does not reflect income tax expenses that may represent a reduction in cash available to us;

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    Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect the future need to augment or replace such assets; and

    Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

        Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results.

Cash Operating Profit

        Cash Operating Profit, a non-GAAP financial measure, is defined as Adjusted EBITDA before selling and marketing expenses. Management believes Cash Operating Profit is an important economic measure as it more closely approximates the cash generated by our installed asset base. Cash Operating Profit should not be considered a measure of financial performance under GAAP.

        Our use of Cash Operating Profit has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. In addition to those limitations inherent in Adjusted EBITDA, the limitations of Cash Operating Profit include:

    Cash Operating Profit does not reflect changes in our selling and marketing expenses;

    Cash Operating Profit does not reflect selling and marketing expenses that may represent a reduction in cash available to us; and

    Cash Operating Profit does not reflect costs associated with our continued growth.

        Because of these limitations, you should consider Cash Operating Profit alongside other financial performance measures, including various cash flow metrics, net income and other GAAP results.

Reconciliation of Non-GAAP Financial Data

        A reconciliation of our GAAP net (loss) income to Adjusted EBITDA and Cash Operating Profit for the periods presented is shown below:

 
  Year Ended
December 31,
  Six Months
Ended June 30,
 
 
  2013   2014   2014   2015  
 
  (in thousands)
 

Net (loss) income

  $ (1,209 ) $ (2,127 ) $ 185   $ (5,573 )

Depreciation and amortization

    7,226     14,831     5,069     10,205  

Interest expense, net

    949     5,148     1,669     3,410  

Income tax expense (benefit)

    387     (1,984 )   238     1,464  

Share-based compensation expense

    225     1,757     446     1,650  

Loss on disposal of assets

    54     604     51     335  

Acquisition-related expenses

        265     265     1,135  

Purchase accounting adjustments

        335     335      

Adjusted EBITDA

  $ 7,632   $ 18,829   $ 8,258   $ 12,626  

Selling and marketing expenses

    4,716     10,364     2,892     7,124  

Cash Operating Profit

  $ 12,348   $ 29,193   $ 11,150   $ 19,750  

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Key Factors Affecting Our Performance and Comparability of Results

        A number of key factors have affected and will continue to affect our performance and the comparison of our operating results, including matters discussed below and those items described in the section entitled "Risk Factors."

Seven Seas Water

        The financial performance of our Seven Seas Water business has been, and will continue to be, affected by our ability to identify and secure new projects for desalination, wastewater treatment and water reuse services with new and existing governmental, municipal, industrial, and hospitality customers. Performance of an existing plant site is generally consistent over time. Our performance and the comparability of results over time, however, are largely driven by the timing of events such as securing new plant projects, plant expansions, acquisitions of existing plants, and the extension, termination or expiration of water supply agreements. The timing of many of these events is unpredictable. New plant projects, plant expansions and plant acquisitions, when they do occur, require significant levels of cash and company resources before and after the commencement of revenue and their impact on our results of operations can be significant.

        The table below summarizes significant events in 2013, 2014 and 2015 that affect performance and comparability of financial results for these and future periods:

Plant Name
  Location   Event   Capacity
(Million
GPD)
  Commencement
Date

Harley

  St. Thomas   New plant     3.3   June 2013

Point Fortin

  Trinidad   New plant     5.5   August 2013

Richmond

  St. Croix   Plant expansion     2.2   September 2013

CRU Refinery

  Curaçao   Plant expansion     0.5   October 2013

Point Blanche

  St. Maarten   Plant expansion     1.0   March 2014

CRU Refinery

  Curaçao   Plant expansion     0.5   April 2014

CRU Refinery

  Curaçao   Plant expansion     2.5   January 2015

Paraquita Bay

  BVI   Plant acquisition     2.8   June 2015

    Time and Expense Associated with New Business Development

        The period of time required to develop an opportunity and secure an award can be lengthy, historically taking multiple years during which significant amounts of business development expense may be incurred. Our business development organization seeks to identify new project opportunities for both competitive bid situations and through unsolicited negotiated arrangements. Governmental water customers generally require a competitive bid for new plant development. We believe our build, own and operate model provides a significant distinction from many of our competitors in a bid or other selection process. Participation in a formal bid process and in negotiated arrangements can require significant costs, the timing of which can impact the comparability of our financial results. While our proposed pricing factors in such costs, there is no assurance that we will secure the contract and ultimately recover our costs.

        The period from contract award to the commissioning of a new plant (and commencement of revenues) can also vary greatly due to, among other things, the size and complexity of the plant, the customer water specification, the suitability of the plant site and our ability to use existing infrastructure, the lead times for any required custom made or made to order equipment, and the ability to obtain required permits and licenses. In the case of a newly constructed plant, there is typically a ramp-up period during which the plant operates below normal capacity.

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        To increase opportunities for new business with shortened sales cycles, we have, since 2008, pursued and achieved significant additional business and established long-term customer relationships as a result of our rapid deployment capabilities, which allow us to respond to short-term emergency water shortages in our target markets, often without a competitive bid requirement. Our current business in the USVI and Curaçao is attributed in large part to earlier deployments of our mobile containerized units to address emergency shortages. We continue to maintain this capability through our investment in containerized and modular water plants that include components having long procurement lead times.

        To optimize our returns on project investment we seek to finance a portion of the construction cost through debt. The timing, extent and terms of such debt financing and the ensuing increase to interest expense can vary from project to project.

    Existing Customer Relationships

        We expect to continue to grow our business with existing customers by expanding and extending the contractual term for existing plants to meet expected increasing customer demand, each of which will impact our performance and comparability of results. As the volume of water produced at an existing plant increases, we typically experience increased sales volume and a lower cost for each incremental gallon produced, and our customers benefit from an increased and reliable supply of water. Similarly, contract extensions and renewals provide economic benefits for both the customer and us. By the time of an extension or renewal we have typically recovered meaningful portions of our capital investment and only incremental capital investment may be required. These factors provide a competitive advantage in a contract extension (or renewal) process and may enable us to reduce unit prices, sustain profitability and achieve an improved and continuing return on our invested capital.

        Historically, additional plant expansions and contract extensions have followed our initial installations. For example, in Curaçao, at the customer's request, we expanded plant production capacity in 2012 and again in 2013, in both cases also extending the contract term. In 2014, we assumed responsibility for retrofitting and operating customer-owned equipment, and we now provide approximately 80% of the water used at this customer's facility. We have also had capacity expansions in the USVI and St. Maarten and have had contract extensions at each of our first four major plants. In addition, on September 3, 2015, we amended the water sale agreement with a customer in Trinidad to expand the existing desalination plant capacity by approximately 21% and extend the term of the contract by 50 months.

    Plant Acquisitions

        Revenue and expenses will increase upon an acquisition of an existing plant from a third party, which could be a new customer, an existing customer, a third-party project developer or a facility owner. Initially an acquired plant may experience periods of downtime or reduced production levels as well as additional capital investment while we bring the plant up to our engineering and operating standards. We have completed six acquisitions of existing plant operations since inception. In June 2015, we acquired the capital stock of Biwater Holdings for a total purchase price of $47.8 million. A subsidiary of Biwater Holdings operates a 2.8 million GPD plant in the BVI, where we now provide water and services to the BVI government. Revenue after the June 2015 date of acquisition is included in the results of operations for the Seven Seas Water segment. Acquisitions are a part of our Seven Seas Water growth strategy and accordingly our ability to grow could be impacted by our effectiveness in completing and integrating our acquisitions.

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    Entry into New Markets

        Our future performance will be affected by our investment and success in securing business in new markets. While continuing to penetrate the Caribbean market, we have also expanded our business development efforts to pursue a global business footprint in North America, Latin America, the Middle East and India. As we continue to pursue entry into new markets, we may incur increasing expenses for business development that may be sustained for long periods of time before realizing the benefit of incremental revenues. In addition our entry into some new markets may be better served through partnering arrangements such as joint ventures, which may result in a minority position. Such an arrangement may be economically attractive even though, in some circumstances, we may not be able to consolidate the operating results of a partnering arrangement with our own operating results.

        Our future performance will also be affected by our efforts and ability to secure new or expanded business from new outsourcing applications such as highly specialized water for industrial companies, municipal and industrial wastewater treatment and reuse, and processing of produced water generated from oil and gas exploration. We may incur additional costs to develop industry specific knowledge about such opportunities.

    Changes to Sales Volume, Costs of Sales and Operating Expenses

        Our profitability is affected by changes in the volume of water delivered above any minimum required customer purchases and our ability to control plant production costs and operating expenses.

        Due to the capital intensive nature of our business and the relatively high level of fixed costs such as depreciation and long-term contract amortization, our Seven Seas Water model is characterized by high levels of operating leverage. As a result, significant swings in production volume will favorably or unfavorably impact profitability more significantly than business models with less operating leverage. We have mitigated the downside risk of declines in plant production through the inclusion of minimum customer purchase requirements in six of our eight water supply contracts with our major customers except where we have contractual rights to be the exclusive water supplier or where our customer must purchase all the water we produce and we must provide volume at a specified percentage of installed capacity. We design our plants to meet or exceed contractual supply requirements but our failure to meet minimum supply requirements could result in penalties that may adversely affect our financial performance.

        Electrical costs are a major expense in connection with the operation of a water treatment plant. Our major customers either, directly or through related parties, provide the electricity needed to run the plant without cost to us or reimburse us for this cost on a pass-through basis. In general our contracts require us to maintain electrical usage at or below a specified level of kilowatt hours for each gallon of water produced. Thus our cost risk is with respect to our ability to use electrical power efficiently. We have made investments in plant equipment and configuration to maintain required levels of electrical efficiency.

        Personnel costs are another major cost element for plant operations. Our contracts provide for price adjustments for inflation. Profitability, however, could be adversely affected by significant increase in market prices for labor, social taxes and benefits or changes in operations requiring additional personnel. Because we assume responsibility to run plants over long periods of time, we use plant designs, equipment and equipment maintenance programs that seek to minimize future repairs and optimize long-term cost performance. We may however, from time to time experience equipment failures outside of warranty coverage which could result in significant costs to repair.

        Our operations center in Tampa, Florida and our organization in Santiago, Chile incur significant selling, general and administrative expenses that are intended to support our plans for future growth. Certain of these expenses, in particular those related to business development, are largely discretionary

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and not correlated specifically to short-term changes in revenue. Direct engineering cost, including allocated overhead, for personnel at our operations center are capitalized as a project cost based on hours incurred on active plant construction projects which can change from period to period. The timing of new hires, the utilization of engineering personnel and the spending in these areas may affect the comparability of our results. In addition, we expect to incur increased legal, accounting and other expenses as we pursue our expansion strategy and as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, or the Exchange Act, and the listing requirements of the New York Stock Exchange. We anticipate that such operating costs as a percentage of revenue will moderate over the long term as our revenues increase.

    Contractually Scheduled and Negotiated Changes to Terms and Conditions

        Our Seven Seas Water business is conducted in accordance with the terms of long-term water supply contracts that, among other things, may provide for minimum customer purchases, guaranteed supply volumes and specified levels of pricing based on the volume of water purchased during the billing period. These contractual features are key determinants of plant revenue and plant profitability. Certain of our contracts provide for contractually scheduled price changes. In addition, most of our contracts include provisions to increase prices in accordance with a specified inflation index such as the consumer price index. From time to time, we also negotiate pricing changes with our customers as part of an arrangement to extend or renew a contract, expand plant capacity or increase minimum volumes pursuant to a take-or-pay agreement.

        Revenues and operating income can be expected to decrease, potentially by a significant amount, upon a decrease in contracted services or contract termination or expiration. We seek to mitigate the risk of such events by establishing a track record for reliability and leveraging the cost advantages of being the incumbent provider.

    Customer Demand and Certain Other External Factors

        We design plant capacity to exceed the minimum purchase requirements contained in our contracts to meet anticipated customer needs and maintain sufficient excess capacity. Our customer's water demand and our ability to meet that demand can vary among quarters and annual periods for a variety of reasons over which we have little control, including:

    the timing and length of shutdowns of customer facilities due to factors such as equipment failures, power outages, regular scheduled maintenance and severe weather which can adversely affect customer demand;

    seasonal fluctuations or downturns in the general economy can be expected to adversely affect demand from customer for whom tourism is a significant economic driver, including our municipal or resort customers;

    economic cycles may affect the industrial customers we serve, especially those in the energy sector where volatility in oil prices or consolidation of refinery capacity could adversely affect customer demand;

    excessive periods of rain or drought can impact primary demand;

    various environmental factors and natural or man-made conditions impacting the quality of source water, such as bacteria levels or contaminants in source water, can require additional pretreatment thus adding cost and reducing the level of production throughput; and

    technological advances especially in new filtration technologies, reverse osmosis membranes, energy recovery equipment and energy efficient plant designs may affect future operating performance and the cost competitiveness of our services in the market.

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Quench

    Attracting New Customers

        Our performance will be affected by our ability to continue to attract new customers. We believe that the U.S. commercial water cooler market is underpenetrated by POU water filtration, which represents only 13.8% by revenue of a $2.6 billion per year market. We intend to continue to invest in selling and marketing efforts to attract new customers for our filtered water systems, both within our existing geographic territories (to create greater customer density) and in targeted additional territories. Our ability to attract new customers may vary from period to period for several reasons, including the effectiveness of our selling and marketing efforts, our ability to hire and retain salespeople, competitive dynamics, variability in our sales cycle (particularly related to opportunities to serve larger enterprises), in the timing of the roll-out of large-enterprise orders and general economic conditions.

    Customer Relationships

        We believe that our existing customers continue to provide significant opportunities for us to sell additional products and services. These opportunities include the rental of additional and/or upgraded water coolers, as well as the rental of our newer product lines, which are enabled by POU water filtration, such as ice machines, sparkling water coolers and coffee brewers. We also expect to invest to grow the sales of consumables associated with our systems, such as coffee and related products.

        We anticipate extending our relationships with existing customers. While we typically rent our systems to customers on automatically-renewing contracts, from time to time we offer our customers upgrades or other incentives to retain their business. Some customers terminate their agreements during the agreement term, typically due to financial constraints, and others cancel at the end of the term. Our unit attrition rates imply an average rental period of more than 10 years. Our ability to retain our existing customer relationships will affect our performance and is affected by a number of factors, including the effectiveness of our retention efforts, the quality of our products and service, our pricing, competitive dynamics in the industry, product availability, and the health of the economy.

    Strategic Acquisitions

        The POU water filtration industry is highly fragmented, with a large number of local competitors and several larger regional operators. Quench has completed ten acquisitions since 2010, two of which occurred after our acquisition of Quench in 2014. We expect to continue to pursue select acquisitions to increase our scale, customer density and geographic service area. Our ability to complete acquisitions is a function of many factors, including competition and purchase price. Accordingly, it is impossible to predict whether any current or future discussions will lead to the successful completion of any acquisitions. Since acquisitions are a part of our growth strategy, the inability to complete, integrate and profitably operate acquisitions may adversely affect our operating results.

    Changes to Cost of Sales and Operating Expenses

        Profitability of our Quench platform will be affected by our ability to control our costs of sales and operating expenses.

        A majority of Quench rental agreements are priced at fixed rates for periods of up to five years. As a result, our gross margins are exposed to potential cost of sales increases that cannot be immediately offset by price adjustments. The volume, mix and pricing of equipment and consumables purchased for immediate resale (as opposed to rental) can impact the consistency and comparability of our results. The timing, number and compensation of new service hires and associated vehicles, as well as the use of outside service providers, may affect our gross margins.

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        Quench incurs selling, general and administrative costs to support a national sales force, a widely dispersed installed base of customers, and a high volume of recurring business transactions. A portion of such costs is composed of new customer acquisition costs, such as lead generation expenses and sales commissions, which are expensed upfront and recovered over the periods following the execution of a customer contract and any subsequent renewal. Selling, general and administrative costs also include certain costs to complete business acquisitions, which precede the realization of revenues generated by the acquired new business, and discretionary investments in infrastructure to support our plans for Quench's future long-term growth. The timing of these expenditures and their impact relative to the revenues generated can affect our performance and comparability of results.


Presentation of Financial Information

        We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. In the preparation of these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or operating results would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below.

Adoption of New Accounting Pronouncements

        Under the Jumpstart Our Business Startups Act, or JOBS Act, we meet the definition of an "emerging growth company." We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

        In July 2013, the Financial Accounting Standards Board, or FASB, issued authoritative guidance requiring standard presentation of an unrecognized tax benefit when a carryforward related to net operating losses or tax credits exists. This guidance is effective and was adopted by us beginning January 1, 2015. We concluded there was no material impact to our consolidated financial statements upon adoption.

        In January 2014, FASB issued authoritative guidance that specifies that an operating entity of a service concession arrangement entered into with a public-sector entity grantor should not account for the service concession arrangement as a lease. The amendments also specify that the infrastructure used in a service concession arrangement should not be recognized as property, plant, and equipment of the operating entity. The transition requires a modified retrospective approach to service concession arrangements that exist at the beginning of an entity's fiscal year of adoption. Early adoption is permitted.

        We early adopted the guidance as of January 1, 2014 on a modified retrospective approach. Prior to the adoption, we classified costs incurred to construct infrastructure required by service concession arrangements as property, plant and equipment. This property, plant and equipment was depreciated in accordance with our policy over the life of the contract. The guidance on service concession arrangements prohibits a company from recording the construction of infrastructure as property, plant and equipment. Instead we will record contract costs incurred as long-term contract costs which will be amortized over the remaining life of the contract on a straight-line basis. Revenue for service concession arrangements will be recorded consistently with revenue under the contracts recorded prior to the adoption as a result of our continuing obligation to perform under the contract.

        As of January 1, 2014, we reclassified $6.9 million of property, plant and equipment, net of accumulated depreciation, and $5.1 million of construction in progress to long-term contract costs.

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        In August 2014, the FASB issued authoritative guidance regarding disclosure of uncertainties about an entity's ability to continue as a going concern, which requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. The guidance will be effective for us for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, and early adoption is permitted. We early adopted the guidance as of December 31, 2014 on a prospective basis. As a result of there being no substantial doubt about our ability to continue as a going concern, we concluded there was no significant impact on our consolidated financial statements.

New Accounting Pronouncements

        In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers, which specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017 and interim periods within those annual periods and will require enhanced disclosures. We are currently evaluating the potential impact of the accounting and disclosure requirements on the consolidated financial statements.

        In April 2015, the FASB issued authoritative guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance will be effective for annual periods beginning after December 15, 2015, and for annual and interim periods thereafter, and early adoption is permitted. We do not expect the accounting requirements to have a material impact on our consolidated financial statements.

Critical Accounting Policies and Estimates

        Our significant accounting policies are discussed in Note 2—"Summary of Significant Accounting Policies" to the Consolidated Financial Statements, included elsewhere in this prospectus. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management's most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

    Recoverable Amount of Goodwill and Intangible Assets

        Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business combination. Goodwill associated with our business combinations has been and is expected to continue increasing in the future as further acquisitions are completed. Goodwill is reviewed for impairment at least annually and more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. We first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform the quantitative analysis of the goodwill impairment test. Otherwise, the quantitative test is optional. Under the quantitative analysis, the recoverability of goodwill is measured at the Seven Seas Water and Quench reporting unit level, which we have determined to be consistent with our operating segments, by comparing the reporting unit's carrying amount, including goodwill, to the fair market value of the reporting unit. We determine the fair market value of our reporting units based on a weighting of the present value of projected future cash flows, which we refer to as the Income Approach, and a comparative market approach under both the guideline company method and guideline transaction method, which we refer to as the Market

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Approach. Fair market value using the Income Approach is based on our estimated future cash flows on a discounted basis. The Market Approach compares each of our reporting units to other comparable companies based on valuation multiples derived from operational and transactional data to arrive at a fair value. Factors requiring significant judgment include, among others, the determination of comparable companies, assumptions related to forecasted operating results, discount rates, long-term growth rates, and market multiples. Changes in economic or operating conditions, or changes in our business strategies, that occur after the annual impairment analysis and which impact these assumptions, may result in a future goodwill impairment charge, which could be material to our consolidated financial statements.

        During the year ended December 31, 2014, we first performed a qualitative assessment of each reporting unit to determine if it was more likely than not that the fair value of the reporting unit was less than its carrying amount, including goodwill. Based upon the qualitative assessments of both the Seven Seas Water and Quench reporting units, it was determined that it was not more likely than not that the fair value of the reporting units were less than the carrying values. Therefore, no quantitative test was performed for either the Seven Seas Water or Quench reporting unit.

        Other intangible assets consist of certain trade names, customer relationships and non-compete agreements. Intangible assets which have a finite life are amortized over their estimated useful lives on a straight-line basis and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets, which consist of certain trade names, are not amortized but are tested for impairment at least annually or more frequently if events or circumstances indicate the asset may be impaired. No impairment was recorded during the year ended December 31, 2014.

    Business Combinations

        In accordance with accounting for business combinations, we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill.

        Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates.

        The valuation of net assets acquired in a business combination determines the allocation of purchase price to specific assets and the subsequent recognition of expense. Our acquisitions of Quench and Atlas in June 2014 resulted in the recording of approximately $123.0 million of goodwill and $62.5 million of intangible assets. A change in our estimate of the value assigned to intangibles acquired through these business combinations or a change in our estimate of useful life for the intangibles could impact the amount of amortization expense recorded in any period. A 10% change in the amortization expense recorded for the year ended December 31, 2014 would have impacted our pre-tax net loss by approximately $0.2 million.

    Income Taxes

        We account for income taxes using the asset and liability approach to the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We are required to exercise judgment with respect to the realization of our net deferred tax assets. Management evaluates all

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positive and negative evidence and exercises judgment regarding past and future events to determine if it is more likely than not that all or some portion of the deferred tax assets may not be realized. If appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized. We evaluate tax positions that have been taken or are expected to be taken in our tax returns, and we record a liability for uncertain tax positions. We use a two-step approach to recognize and measure uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, tax positions are measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated financial statements.

        As a limited liability company, AquaVenture Holdings LLC is not subject to U.S. federal or state income taxes and items of taxable income and expense are allocated to its members in accordance with the provisions of the LLC agreement. Under the terms of our limited liability company agreement, we are required to distribute to each member a cash distribution equal to the federal taxable income allocated to such member times the highest statutory combined federal and state income tax rate for the jurisdiction in which any member is domiciled. Certain of our subsidiaries file separate tax returns and are subject to federal income taxes at the corporate level in the U.S. or in foreign jurisdictions. Certain other subsidiaries operate in jurisdictions that do not impose taxes based on income.

        We do not believe that there is a reasonable likelihood that there will be a material change in our liability for uncertain income tax positions or our effective income tax rate. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses that could be material. We recorded a valuation allowance of $6.5 million as of December 31, 2014 related primarily to net operating losses.

        A 0.50% change in our effective income tax rate would have impacted our net loss for the year ended December 31, 2014 by approximately $0.2 million.

    Share-Based Compensation

    AquaVenture Equity Awards

        The AquaVenture Equity Incentive Plan allows for the issuance of Class B shares, Management Incentive Plan shares, or MIP shares, and Incentive shares, and the grant of options to purchase Common shares (including both Incentive shares and Ordinary shares) and Class B shares, to our officers, employees, managers, directors and other key persons, including consultants (collectively, the "Participants"). All such grants are subject to time-based vesting, which is determined on a grant-by-grant basis, and certain other restrictions. Class B shares, MIP shares and Incentive shares granted as "profits interests" for federal tax purposes have a hurdle price equal to their fair value at the time of grant, and options to purchase shares have an exercise price equal to their fair value at time of grant. The contractual term of options awarded is typically ten years, while all other award types contain no contractual term. Holders of the Class B shares, MIP shares and Incentive shares are entitled to receive distributions (i) with respect to their vested shares, when such distributions are made, and (ii) with respect to their unvested shares, when such shares vest. Upon termination of a recipient's business relationship with us, we have the right, but not the obligation, to repurchase the vested shares or shares issued upon exercise of an option, at the then fair value of such shares during periods specified in the awards.

        We expense the fair value of share-based compensation awards net of estimated forfeitures, adjusted to reflect actual forfeitures, over the requisite service period, which is typically the vesting period. We estimate the grant date fair value of Class B shares, Incentive shares and options to

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purchase Class B and Ordinary shares granted using the Black-Scholes option-pricing model that requires management to apply judgment and make estimates, including:

    expected volatility, which is calculated based on reported volatility data for a representative group of publicly traded companies for which historical information is available. Since we are privately held as of the date of the financial statements, we do not have relevant historical data to support our expected volatility. As such, we have used an average of expected volatility based on the volatilities of a representative group of publicly traded companies for a period approximating the expected term of the grant;

    the risk-free interest rate, which is based on the U.S. Treasury yield curve in effect on the date of grant commensurate with the expected term assumption;

    expected term, which we calculate using the simplified method, as we have insufficient historical information regarding our equity awards to provide a basis for an estimate;

    fair value of the underlying securities, which is determined using the option-pricing method ("OPM") or by reasonably contemporaneous arm's length transactions and was approved by our board of managers; and

    dividend yield, which is zero based on the fact that we never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.

        The following weighted average assumptions by share class were used to determine the fair value of the Class B shares, Incentive shares and options to purchase Ordinary shares granted during the year ended December 31, 2014 and for Class B shares and options to purchase Class B shares awarded during the six months ended June 30, 2015:

 
  Year Ended December 31, 2014   Six Months Ended
June 30, 2015
 
 
  Class B
Shares
  Incentive
Shares
  Options to
Purchase
Ordinary
Shares
  Class B
Shares
  Options to
Purchase
Class B
Shares
 

Expected term (years)

    2.5     2.5     6.3     2.4     6.3  

Expected volatility

    25.0 %   27.7 %   37.9 %   24.9 %   31.7 %

Risk-free rate

    0.8 %   0.6 %   2.0 %   0.7 %   1.9 %

Expected dividends

    0.0 %   0.0 %   0.0 %   0.0 %   0.0 %

        The exercise price for an option award is determined by our board of managers, based upon the fair value of the underlying security on the date of grant. Class B Shares granted as profits interests are assigned a hurdle price based on the fair value on the date of grant as determined by our board of managers and the holders thereof are entitled to value allocable to Class B shares that is above the hurdle price. Incentive shares are assigned a hurdle price also based on the fair value on the date of grant as determined by our board of managers and the holders thereof are entitled to value as determined under a distribution formula.

        We used an alternative option pricing method to derive the fair value of the MIP shares granted during the year ended December 31, 2014 as a result of MIP shares being limited to a maximum of $1.00 per share of value for the holder. The alternative option pricing method calculates the fair value of equity securities by determining the net value of call options which represent the present value of expected future returns to each class of securities. In determining the fair value of the MIP shares, we used an expected term of 1.3 years, expected volatility of 40%, a risk-free rate of 0.1%, expected dividends of 0% and the equity value of AquaVenture Holdings LLC at the date of grant. In addition, we applied a 15% discount to the calculated value of the call options due to the lack of marketability of the securities.

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    Quench Equity Awards

        For grants to Quench USA, Inc. employees, we also used the Black-Scholes option pricing model to determine both the grant date fair value and fair value as of the end of each period of the Quench USA Holdings LLC awards granted or vested subsequent to the date of the our acquisition of Quench USA, Inc. The share-based compensation expense recorded within the consolidated statements of operations reflects the vested portion of the fair value of such equity awards as of December 31, 2014 and June 30, 2015. The weighted-average assumptions for the awards granted subsequent to the date of the acquisition of Quench were: (i) expected term of 6.25 years; (ii) expected volatility of 35.2%; (iii) risk-free rate of 1.9%; and (iv) expected dividend percentage of 0.0%. As with other non-employee awards, these stock-based awards are revalued at each vesting date and period-end. Stock-based awards subject to service-based vesting conditions are expensed on a straight-line basis over the vesting period.

        As of December 31, 2014 and June 30, 2015, we determined that for the Quench awards there was no difference between the grant date fair value of the outstanding equity awards and the fair value as of each period ended, and, as a result, no additional share-based compensation was recorded.

        The amount of share-based compensation expense recognized during a period is based on the value of the portion of the awards that are expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

    Equity Awards from January 1, 2014 Through the Date of this Prospectus

        The following tables present selected information about equity awards granted from January 1, 2014 to the date of this prospectus:

AquaVenture Equity Awards

Grant Date
  Award Type   Number of
Shares
  Exercise or
Hurdle
Price
  Grant Date Fair
Value of
Underlying
Security
  Weighted
Average Grant
Date Fair Value
 

Class B shares

                             

November 14, 2014

  Class B profits interests     5,252,039   $ 4.95   $ 4.95   $ 0.82  

February 4, 2015

  Class B profits interests     70,000   $ 4.95   $ 4.95   $ 0.78  

May 6, 2015

  Class B profits interests     75,000   $ 4.95   $ 4.95   $ 0.82  

May 6, 2015

  Options to purchase Class B Shares     170,500   $ 4.95   $ 4.95   $ 1.73  

MIP shares

 

 

   
 
   
 
   
 
   
 
 

June 6, 2014

  MIP Shares     7,797,000   $   $   $ 0.31  

Incentive and Ordinary shares

 

 

   
 
   
 
   
 
   
 
 

June 6, 2014

  Incentive shares     525,000   $ 2.09   $ 2.09   $ 0.38  

June 6, 2014

  Options to purchase Ordinary Shares     320,000   $ 2.59   $ 2.59   $ 1.05  

August 1, 2014

  Options to purchase Ordinary Shares     72,000   $ 2.59   $ 2.59   $ 1.03  

Quench USA Holdings LLC Equity Awards

Grant Date
  Award Type   Number of
Shares
  Exercise or
Hurdle
Price
  Grant Date Fair
Value of
Underlying
Security
  Weighted
Average Grant
Date Fair Value
 

November 14, 2014

  Options to purchase common shares     905,000   $ 1.00   $ 1.00   $ 0.38  

        We are a private company with no active public market for our shares. Therefore, we have periodically determined the estimated per share fair value of the underlying securities at various dates referencing reasonably contemporaneous arm's length transactions with independent third parties and from valuations of the company and our shares. Once a public trading market for our common shares has been established in connection with the completion of this offering, it will no longer be necessary

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for us to estimate the fair value of our common stock in connection with our accounting for stock options and restricted stock, as the fair value of our common shares will be its trading price on the NYSE.

        For financial reporting purposes, we determined that the value of each underlying security could be reasonably determined based on (a) the equity value of the consolidated business, as determined by reasonably contemporaneous sales of Class B shares during the reporting period and (b) an allocation of such value to various categories of shares based on the respective rights of each shareholder to proceeds from a distribution, as provided within the AquaVenture Holdings LLC agreement then in effect. In conducting the valuations, we also considered the objective and subjective factors that we believed to be relevant for each valuation conducted, including our best estimate of our business condition, prospects and operating performance at each valuation date. Within the valuations performed, a range of factors, assumptions and methodologies were used. The significant factors included:

    the lack of an active public market for our shares;

    the prices of shares that we had sold to outside investors in arm's length transactions, and the rights, preferences and privileges of the shares sold relative to our other shares;

    our results of operations and financial position;

    the material risks related to our business;

    our business strategy;

    the market performance of publicly traded companies;

    the likelihood of achieving a liquidity event for the holders of our shares, such as an initial public offering or sale of the company, given prevailing market conditions; and

    any recent reasonably contemporaneous valuations of our shares.

        The dates of our valuations have not always coincided with the dates of our share-based grants. In determining the exercise and hurdle prices of the shares set forth in the table above, we considered, among other things, the most recent or reasonably contemporaneous valuations of our shares and our assessment of additional objective and subjective factors we believed were relevant as of the grant date. The additional factors considered when determining any changes in fair value between the most recent contemporaneous valuation and the grant dates included our operating and financial performance and current business conditions.

        There are significant judgments and estimates inherent in the determination of the fair value of our shares. These judgments and estimates include assumptions regarding our future operating performance, the time to completing an initial public offering, or other liquidity event, the related company valuations associated with such events, and the determinations of the appropriate valuation methods. If we had made different assumptions, our share-based compensation expense and net loss could have been significantly different. A 10% change in share-based compensation expense recorded for the year ended December 31, 2014 would have impacted our pre-tax net loss by approximately $0.2 million.

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Results of Operations

        The following tables set forth our operating results for the periods presented in dollars and as a percentage of our total revenue. These amounts include the operations of the Seven Seas Water segment for all periods presented. The consolidated and Quench segment results include the operations of Quench only for the periods following its acquisitions on June 6, 2014 and the operations of Atlas only for the period following its acquisition on June 16, 2014. In addition, Seven Seas Water amounts include the operating expenses of its parent, AquaVenture Holdings LLC.

 
  Year Ended
December 31,
  Six Months
Ended June 30,
 
 
  2013   2014   2014   2015  
 
   
  (in thousands)
   
 

Revenues:

                         

Bulk water

  $ 27,780   $ 38,989   $ 19,067   $ 21,111  

Rental

        23,995     2,038     21,954  

Other

        4,143     306     3,733  

Total revenues

    27,780     67,127     21,411     46,798  

Cost of revenues:

   
 
   
 
   
 
   
 
 

Bulk water

    15,765     21,037     9,921     12,065  

Rental

        10,984     665     9,514  

Other

        2,091     83     2,028  

Total cost of revenues

    15,765     34,112     10,669     23,607  

Gross profit

    12,015     33,015     10,742     23,191  

Selling, general and administrative expenses

    11,764     31,653     8,474     23,763  

Income from operations

    251     1,362     2,268     (572 )

Other expense:

                         

Interest expense, net

    (949 )   (5,148 )   (1,669 )   (3,410 )

Other expense

    (124 )   (325 )   (176 )   (127 )

(Loss) income before income taxes

    (822 )   (4,111 )   423     (4,109 )

Income tax expense (benefit)

    387     (1,984 )   238     1,464  

Net (loss) income

  $ (1,209 ) $ (2,127 ) $ 185   $ (5,573 )

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        The following table sets forth the components of our consolidated statements of operations for each of the periods presented as a percentage of revenue.

 
  Year Ended
  December 31,  
  Six
Months
Ended
June 30,
 
 
  2013   2014   2014   2015  

Revenues:

                         

Bulk water

    100.0 %   58.1 %   89.1 %   45.1 %

Rental

        35.7 %   9.5 %   46.9 %

Other

        6.2 %   1.4 %   8.0 %

Total revenues

    100.0 %   100.0 %   100.0 %   100.0 %

Cost of revenues:

   
 
   
 
   
 
   
 
 

Bulk water

    56.7 %   31.3 %   46.3 %   25.8 %

Rental

        17.0 %   3.1 %   20.3 %

Other

        3.1 %   0.4 %   4.3 %

Total cost of revenues

    56.7 %   50.8 %   49.8 %   50.4 %

Gross profit

    43.3 %   49.2 %   50.2 %   49.6 %

Selling, general and administrative expenses

    42.3 %   47.2 %   39.6 %   50.8 %

Income from operations

    1.0 %   2.0 %   10.6 %   (1.2 )%

Other expense:

                         

Interest expense, net

    (3.4 )%   (7.7 )%   (7.8 )%   (7.3 )%

Other expense

    (0.4 )%   (0.5 )%   (0.8 )%   (0.3 )%

(Loss) income before income taxes

    (2.8 )%   (6.2 )%   2.0 %   (8.8 )%

Income tax expense (benefit)

    1.4 %   (3.0 )%   1.1 %   3.1 %

Net (loss) income

    (4.2 )%   (3.2 )%   0.9 %   (11.9 )%

Comparison of Six Months Ended June 30, 2014 and 2015

        The financial information presented below includes the operating results of the Seven Seas Water segment for all periods presented and for the Quench segment for the six months ended June 30, 2015 and from June 6, 2014 to June 30, 2014 for the 2014 comparative period.

    Revenues

        The following table presents revenue for each of our two operating segments:

 
  Six Months
Ended June 30,
  Change  
 
  2014   2015   Dollars   Percent  
 
  (dollars in thousands)
 

Revenues:

                         

Seven Seas Water

  $ 19,067   $ 21,111   $ 2,044     10.7 %

Quench

    2,344     25,687     23,343     995.9 %

Total revenues

  $ 21,411   $ 46,798   $ 25,387     118.6 %

        Our total revenues of $46.8 million for the six months ended June 30, 2015 increased $25.4 million as compared to $21.4 million for the six months ended June 30, 2014 mainly due to $23.3 million of additional revenues from Quench in 2015.

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        Seven Seas Water revenues for the six months ended June 30, 2015 increased $2.0 million, or 10.7%, primarily due to expanded operations at our Curaçao location, where we began providing water from previously inactive, customer-owned plants that we were contracted to refurbish and operate. This increase to production capacity was implemented in multiple phases starting in December 2014 and continuing through the first half of 2015. Also contributing to our increased revenues was our service concession arrangement in the BVI, which we acquired on June 11, 2015, and increased volume from our plant in Trinidad. These increases were partially offset by lower revenue from our operations in the USVI caused primarily by a negotiated price reduction that accompanied a term extension under a short-term supply agreement with a refinery customer.

    Cost of revenues, gross profit and gross margin

        The following table presents the major components of cost of revenues, gross profit and gross margin for our two operating segments:

 
  Six Months
Ended June 30,
  Change  
 
  2014   2015   Dollars   Percent  
 
  (dollars in thousands)
 

Cost of Revenues:

                         

Seven Seas Water

  $ 9,921   $ 12,065   $ 2,144     21.6 %

Quench

    748     11,542     10,794     NM  

Total cost of revenues

  $ 10,669   $ 23,607   $ 12,938     121.3 %

Gross Profit:

                         

Seven Seas Water

  $ 9,146   $ 9,046   $ (100 )   (1.1 )%

Quench

    1,596     14,145     12,549     NM  

Total gross profit

  $ 10,742   $ 23,191   $ 12,449     115.9 %

Gross Margin:

                         

Seven Seas Water

    48.0 %   42.8 %            

Quench

    68.1 %   55.1 %            

Total gross margin

    50.2 %   49.6 %            

        Total cost of revenues increased $12.9 million for the six months ended June 30, 2015 as compared to the same period of 2014 primarily due to the additional Quench cost of revenues in 2015. Seven Seas Water cost of revenues increased $2.1 million, or 21.6%, due largely to increased depreciation and amortization ($1.0 million), higher personnel costs ($0.4 million) and increased levels of repairs and maintenance ($0.2 million). Increased personnel, deprecation and amortization costs were mainly attributed to plant expansions in Curaçao and St. Maarten and our new plant in BVI which we acquired in June 2015. Higher staffing at our Trinidad plant to support high utilization levels also contributed to higher personnel costs. We expect these increases in personnel costs and in depreciation and amortization will continue at the higher 2015 levels due to the plant expansions and acquisitions. The increase in repairs and maintenance expense was due largely to work performed on our main sourcewater intake system in Trinidad.

        Gross margin is gross profit as a percentage of revenues. The gross margin for Seven Seas Water declined from 48.0% in 2014 to 42.8% in 2015 principally due to lower gross margin in St. Maarten. In the later part of 2013 and into the first quarter 2014, under the terms of a contract extension with our customer, we made significant capital expenditures in St. Maarten to increase capacity to support future growth. We also made capital expenditures to improve the electrical efficiency of our major plant in that location. These expenditures resulted in an increase to depreciation, without a corresponding increase in water volume or revenue during this period. Additional investment in personnel and plant maintenance to support operations in Trinidad and the USVI also contributed to the lower Seven Seas

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Water gross margin in 2015. Gross margin for Quench was 68.1% in 2014 and 55.1% for 2015. The 2014 margin is higher mainly due to the timing of certain revenues during the period following its acquisition on June 6, 2014. Because of the shortened period of operations in 2014, we do not believe the 2014 gross margin provides a reasonable basis of comparison for subsequent quarterly and year-to-date periods.

    Selling, general and administrative expenses

        The following table presents the components of selling, general and administrative expenses for our two operating segments:

 
  Six Months
Ended June 30,
  Change  
 
  2014   2015   Dollars   Percent  
 
  (dollars in thousands)
 

Selling and Marketing Expenses:

                         

Seven Seas Water

  $ 2,402   $ 2,051   $ (351 )   (14.6 )%

Quench

    490     5,073     4,583     NM  

Total selling and marketing expenses

  $ 2,892   $ 7,124   $ 4,232     146.3 %

General and Administrative Expenses:

                         

Seven Seas Water

  $ 4,514   $ 5,962   $ 1,448     32.1 %

Quench

    1,068     10,677     9,609     NM  

Total general and administrative expenses

  $ 5,582   $ 16,639   $ 11,057     198.1 %

Total Selling, General and Administrative Expenses:

                         

Seven Seas Water

  $ 6,916   $ 8,013   $ 1,097     15.9 %

Quench

    1,558     15,750     14,192     NM  

Total selling, general and administrative expenses

  $ 8,474   $ 23,763   $ 15,289     180.4 %

        Total selling, general and administrative expenses increased $15.3 million for the six months ended June 30, 2015 as compared to such expenses for the same period of 2014. The increase is attributed to the additional expenses of the Quench segment in 2015 which caused a $14.2 million increase to 2015 consolidated expenses as compared to 2014. Quench incurs higher selling, general and administrative expenses in proportion to its revenues as compared to Seven Seas Water primarily due to its cost to support a higher number of customer locations and a more dispersed customer base and market.

        Seven Seas Water's selling, general and administrative expenses during the six months ended June 30, 2015 were $1.1 million higher than the same period of the prior year. Selling and marketing expenses declined by $0.4 million primarily due to decreased personnel expenses resulting from lower business development headcount and travel expenses during the early part of 2015. General and administrative expenses increased $1.4 million primarily due to a $0.9 million increase in transaction expenses incurred in connection with acquisitions, $0.6 million of higher share-based compensation expense associated with equity awards granted during 2014 and the first half of 2015, and $0.3 million of additional costs for personnel and other corporate activities incurred in preparation for operation as a publicly held company. These increases were partially offset by the effect of a $0.4 million severance accrual in 2014 for changes to executive personnel.

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    Other expense

 
  Six Months
Ended June 30,
  Change  
 
  2014   2015   Dollars   Percent  
 
  (dollars in thousands)
 

Interest expense, net

  $ 1,669   $ 3,410   $ 1,741     104.3 %

Other expense

    176     127     (49 )   (27.8 )%

Total other expense

  $ 1,845   $ 3,537   $ 1,692     91.7 %

        Interest expense, net increased in the first half of 2015 mainly due to the additional interest expense of Quench on its related debt, additional interest on borrowings under the new Curacao Credit Facility that closed on June 18, 2015 and additional interest on bank debt assumed and the note payable issued to the seller both in connection with the acquisition of Biwater Holdings. These factors were partially offset by lower interest expense related to reductions in existing Seven Seas Water borrowings that resulted from bank debt repayments.

    Income tax expense

 
  Six Months
Ended
June 30,
   
 
 
  Change
in
Dollars
 
 
  2014   2015  
 
  (dollars in thousands)
 

Income tax expense

  $ 238   $ 1,464   $ 1,327  

Effective tax rate

    56.3 %   (35.6 )%      

        For the six months ended June 30, 2015, we recorded income tax expense on a consolidated pre-tax loss primarily due to pre-tax income being generated in tax jurisdictions where no valuation allowance is deemed necessary.

Comparison of the Years Ended December 31, 2013 and 2014

        The information presented below includes the financial results of the Seven Seas Water segment for all periods presented and for the Quench segment only for the period from June 6, 2014 to December 31, 2014. The Quench segment includes the results of Atlas only for the period following its acquisition on June 16, 2014.

    Revenues

        The following table presents revenue for each of our two operating platforms:

 
  Year Ended
December 31,
  Change  
 
  2013   2014   Dollars   Percent  
 
  (dollars in thousands)
 

Revenues:

                         

Seven Seas Water

  $ 27,780   $ 38,989   $ 11,209     40.3 %

Quench

        28,138     28,138      

Total revenues

  $ 27,780   $ 67,127   $ 39,347     141.6 %

        Total revenues increased $39.3 million from $27.8 million for the year ended December 31, 2013 to $67.1 million for the year ended December 31, 2014. The increase was primarily due to $28.1 million of additional revenues from Quench and Atlas following their acquisitions in June 2014.

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        In addition, revenues for the Seven Seas Water segment increased $11.2 million in 2014 as compared to 2013 mainly due to the additional volume of water delivered by new plants and expansions that commenced operations during 2013 and 2014. A 42.9% increase in the volume of water delivered caused an $11.8 million increase in Seven Seas Water revenues in 2014 as compared to 2013. Partially offsetting the impact of higher volume was a 1.6% reduction in the average price per gallon of water delivered, which caused a $0.6 million decrease in revenues in 2014 as compared to 2013. The lower average price was largely attributed to negotiated price reductions under certain contracts. The Seven Seas Water 2014 results included $8.1 million of additional revenue from our new desalination plant in Trinidad. This plant commenced operations during August 2013 and thus was in operation for the entirety of 2014 as compared to only five months of 2013, which also included a commissioning phase during which it operated below normal capacity. In 2014, we also attained the benefit of the full year impact from expanded operations in the USVI that commenced during the second half of 2013. A new plant was completed in St. Thomas in July 2013 which was the successor to a short-term container-based plant deployed in 2011 to address an emergency water situation. A significant plant expansion was completed on St. Croix in September 2013 to augment production of an existing plant. In Curaçao, we also benefited from two separate expansions, the first of which was completed in the fourth quarter of 2013 and the second commenced production in March 2014. Incremental capacity from these new plants and plant expansions contributed to an approximate $3.0 million increase in revenue in 2014 as compared to 2013.

    Cost of revenues, gross profit and gross margin

        The following table presents the major components of cost of revenues, gross profit and gross margin for our two operating platforms:

 
  Year Ended
December 31,
  Change  
 
  2013   2014   Dollars   Percent  
 
  (dollars in thousands)
 

Cost of Revenues:

                         

Seven Seas Water

  $ 15,765   $ 21,037   $ 5,272     33.4 %

Quench

        13,075     13,075     NM  

Total cost of revenues

  $ 15,765   $ 34,112   $ 18,347     116.4 %

Gross Profit:

                         

Seven Seas Water

  $ 12,015   $ 17,952   $ 5,937     49.4 %

Quench

        15,063     15,063     NM  

Total gross profit

  $ 12,015   $ 33,015   $ 21,000     174.8 %

Gross Margin:

                         

Seven Seas Water

    43.3 %   46.0 %            

Quench

        53.5 %            

Total gross margin

    43.3 %   49.2 %            

        Cost of revenues increased $18.3 million from $15.8 million for the year ended December 31, 2013 to $34.1 million for the year ended December 31, 2014. The acquisition of Quench and Atlas in June 2014 added $13.1 million to cost of revenue in 2014.

        The $5.3 million increase in 2014 cost of revenues for the Seven Seas Water segment was due primarily to the addition of new plants and other plant expansions that commenced operations in the second half of 2013 and the first half of 2014, which resulted in increased depreciation and amortization of $2.7 million and increases in personnel expense, repairs and maintenance expenses, and field service engineering costs of $0.8 million, $1.1 million, and $0.4 million, respectively.

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        Total gross margin increased 590 bps from 43.3% in 2013 to 49.2% largely due to additional gross margin from the acquisitions of Quench and Atlas in June 2014. Quench revenue generates higher gross margins than Seven Seas Water due to the higher depreciation at Seven Seas Water associated with large scale, bulk water production.

        The Seven Seas Water segment gross margin increased 270 bps from 43.3% in 2013 to 46.0% in 2014 primarily due to the higher margin associated with new plants and plant expansions, which was partially offset by lower gross margin contribution from our operations in St. Maarten. During the later part of 2013 and into the first quarter 2014, under the terms of a contract amended with our customer, we made significant capital expenditures in St. Maarten to increase capacity to support future growth and to improve the electrical efficiency of our major plant in that location. This caused a further increase to depreciation, without a corresponding increase in water volume or revenue, while causing our cost of electricity relative to revenues to decline in 2014.

    Selling, general and administrative expenses

        The following table presents the components of selling, general and administrative expenses for our two operating platforms:

 
  Year Ended
December 31,
  Change  
 
  2013   2014   Dollar   Percent  
 
  (dollars in thousands)
 

Selling and Marketing Expenses:

                         

Seven Seas Water

  $ 4,716   $ 4,806   $ 90     1.9 %

Quench

        5,558     5,558     NM  

Total selling and marketing expenses

  $ 4,716   $ 10,364   $ 5,648     119.8 %

General and Administrative Expenses:

   
 
   
 
   
 
   
 
 

Seven Seas Water

  $ 7,048   $ 9,313   $ 2,265     32.1 %

Quench

        11,976     11,976     NM  

Total general and administrative expenses

  $ 7,048   $ 21,289   $ 14,241     202.1 %

Total Selling, General and Administrative Expenses:

   
 
   
 
   
 
   
 
 

Seven Seas Water

  $ 11,764   $ 14,119   $ 2,355     20.0 %

Quench

        17,534     17,534     NM  

Total selling, general and administrative expenses

  $ 11,764   $ 31,653   $ 19,889     169.1 %

        Total selling, general and administrative expense increased $19.9 million from $11.8 million for the year ended December 31, 2013 to $31.7 million for the year ended December 31, 2014 due mainly to the addition of expenses of Quench and Atlas after their respective acquisitions in June 2014.

        Seven Seas Water selling, general and administrative expenses increased $2.4 million in 2014 as compared to 2013. Personnel costs, excluding share-based compensation, increased $1.3 million due to a combination of additional personnel to support growth and annual salary increases, and a severance accrual recorded in the first quarter of 2014. Share-based compensation increased $1.1 million in 2014 as compared to 2013, due to the additional expense from equity incentives granted in 2014.

        As a percentage of revenues, Seven Seas Water's selling, general and administrative expenses decreased 6 percentage points in 2014 compared to 2013 as incremental volume from new plants caused revenue to increase faster than the rate of increase in total operating expenses.

        Quench's selling, general and administrative expenses as a percent of revenue is comparatively higher than that of Seven Seas Water due to the larger sales and service infrastructure needed to manage and support Quench's more widely dispersed customer base and market.

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    Other expense

 
  Year Ended
December 31,
  Change  
 
  2013   2014   Dollars   Percent  
 
  (dollars in thousands)
 

Interest expense, net

  $ (949 ) $ (5,148 ) $ (4,199 )   442.5 %

Other expense

    (124 )   (325 )   (201 )   162.1 %

Total other expense

  $ (1,073 ) $ (5,473 ) $ (4,400 )   410.1 %

        Interest expense, net increased $4.2 million in 2014 as compared to 2013. The increase included $2.3 million of interest expense incurred by Quench following its acquisition in June 2014. Interest expense for Seven Seas Water increased $1.9 million in 2014 primarily due to the final drawdowns on the existing loan facilities in Trinidad and the USVI in October 2013 thereby increasing the average outstanding debt balances during 2014.

    Income tax expense (benefit)

 
  Year Ended
December 31,
   
 
 
  Change
in
Dollars
 
 
  2013   2014  
 
  (dollars in thousands)
 

Income tax expense (benefit)

  $ 387   $ (1,984 ) $ (2,371 )

Effective tax rate

    (47.1 )%   48.3 %      

        In 2014, we recognized an income tax benefit of $2.0 million as compared to income tax expense of $0.4 million in 2013. The 2014 benefit was attributable to the recognition of an economic development benefit in the USVI and a realized benefit of prior year net operating losses in a foreign tax jurisdiction, which had a valuation allowance recorded against those net operating losses.


Liquidity and Capital Resources

Overview

        As of June 30, 2015, our principal sources of liquidity on a consolidated basis were cash and cash equivalents of $34.3 million (excluding restricted cash), which were held for working capital and investment purposes. As more fully described below, during the six months ended June 30, 2015, we raised additional equity capital of $31.4 million and entered into a $35.0 million debt facility under which we have drawn $20.0 million and have an additional $15.0 million available for future borrowings until March 18, 2016. In connection with our acquisition of the capital stock of Biwater (BVI) Holdings Limited on June 11, 2015, we invested $44.5 million of cash, assumed $40.8 million of bank debt (excluding application of the $3.6 million debt service reserve fund), and issued a $5.6 million subordinated note to the seller with a fair value at the date of acquisition of $3.3 million.

        Our cash and cash equivalents are held by our holding company and our subsidiaries principally in the form of demand deposits in domestic and foreign banks. We utilize a combination of equity financing and corporate and project debt financing through international commercial banks and other financial institutions to fund our cash needs and the growth of our business. Our debt financing arrangements contain financial covenants and provisions which govern distributions by the borrowers and may limit our ability to transfer cash among us and our subsidiaries. Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under our credit facility will be adequate to meet the future liquidity needs of our current operations for at least the next twelve months.

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        Our expected future liquidity and capital requirements consist principally of:

    capital expenditures and investments in infrastructure under concession arrangements related to maintaining or expanding our existing operations;

    development of new projects and new markets;

    acquisitions;

    debt service requirements on our existing and future debt; and

    costs and expenses relating to our ongoing business operations.

        Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, as well as future acquisitions, will depend on our future operating performance which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control.

        We may in the future be required to seek additional equity or debt financing to meet these future capital and liquidity requirements. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired or needed, our business, operating results, cash flow and financial condition would be adversely affected. We currently intend to use our available funds and any future cash flow from operations for the conduct and expansion of our business, debt service requirements and general corporate purposes.

Subsidiary Distribution Policy

        A significant portion of our cash flow is provided by operations and borrowings by our principal operating subsidiaries and their intermediate holding companies.

        With respect to our Seven Seas Water segment, our distribution policy is to maximize cash distributions from our international operating subsidiaries to our non-U.S. intermediate holding companies for redeployment in the manner intended to optimize our return on invested capital. However, certain of our subsidiaries have loan agreements that restrict distributions to related parties in the event certain financial ratios or covenants are not met, which could reduce our ability to redeploy cash. Distributions are typically in the form of dividends, principal and interest payments on intercompany loans, and repayment of intercompany advances or other intercompany arrangements, including billings from our Tampa operations center. When considering the amount and timing of such distributions, our Seven Seas Water operating subsidiaries must maintain sufficient funds for future capital investment, debt service and general working capital purposes.

        With respect to our Quench operating segment, Quench is restricted by its loan agreement from distributing cash to its parent; however, our current intent is for Quench to retain cash for working capital, investment for future growth within the segment and future debt repayment. We have also used cash from corporate financing at Quench to finance Quench's acquisitions.

        Although the governing boards of our subsidiaries have discretion over intercompany dividends or other future distributions, the form, frequency and amount of such distributions will depend on our subsidiaries' future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions as required by our lenders, tax considerations and other factors that may be deemed relevant.

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Cash Flows

        The following table summarizes our cash flows for the periods:

 
  Year Ended
December 31,
  Six Months
Ended
June 30,
 
 
  2013   2014   2014   2015  
 
  (in thousands)
 

Cash provided by operating activities

  $ 5,460   $ 16,350   $ 6,682   $ 6,274  

Cash used in investing activities

    (40,754 )   (33,115 )   (22,812 )   (55,566 )

Cash provided by financing activities

    39,454     39,987     34,428     46,070  

Net change in cash and cash equivalents

  $ 4,160   $ 23,222   $ 18,298   $ (3,222 )

    Operating Activities

        The significant variations of cash provided by operating activities and net losses are principally related to adjustments to eliminate non-cash and non-operating charges such as amortization, depreciation, share-based compensation, changes in the deferred income tax provision, and charges related to the disposal of assets. The largest source of operating cash flow is the collection of trade receivables and our largest use of cash flows is the payment of costs associated with revenue, selling and marketing activities and general and administration activities.

        Cash provided by operations during the six months ended June 30, 2014 and 2015 was $6.7 million and $6.3 million, respectively. Cash provided by operations during the year ended December 31, 2013 was $5.5 million as compared to $16.4 million for the year ended December 31, 2014. The increase for the annual period of 2014 was primarily due to increased cash provided from operations of our new plants in Trinidad and the USVI, that were commissioned during 2013, and incremental cash generated from plant expansions in Curaçao in October 2013 and April 2014. Increased cash from operating activities during the 2014 annual period as compared to 2013 was also attributable to additional cash provided by Quench and Atlas for the periods following their acquisition in June 2014.

    Investing Activities

        Cash used in investing activities during the six months ended June 30, 2015 of $55.6 million was primarily used to fund the Seven Seas Water acquisition of Biwater Holdings ($44.5 million). Cash used in investing activities during the 2015 period also included $7.8 million of capital expenditures by Seven Seas Water for plant expansion, capacity upgrade and investment in long-term service concession assets and $4.7 million of capital expenditures for Quench to support existing operations and for infrastructure investments to support future growth of the business. For the remainder of the fiscal year 2015, we currently expect to invest another $11.1 million in capital expenditures and long-term contracts costs for service concession arrangements. Such investments will be financed through existing cash, cash generated from operations and, if needed, incremental debt or equity financing.

        For the year ended December 31, 2013, net cash used in investing activities was $40.8 million, compared with $33.1 million for the year ended December 31, 2014. The net investing cash flows for 2014 were primarily the result of cash paid for Atlas net of cash acquired from Quench in connection with their acquisitions in June 2014 of $13.3 million, and capital expenditures of $20.1 million related to continued investment in Curaçao and St. Maarten, the completion of construction of Seven Seas Water projects in Trinidad and the USVI and to support continued investment by Quench to increase its installed rental unit base. During the year ended December 31, 2013, we used $41.8 million of cash for capital expenditures principally to complete construction of new water plants in Trinidad, the USVI and St. Maarten and for further plant expansion in the USVI and Curaçao.

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    Capital Expenditures on Fixed and Investments in Long-Lived Assets

        For Seven Seas Water, our primary capital expenditures are composed of construction costs of our water plants, including engineering, procurement and construction and equipment costs, internal direct labor and project development costs, which include engineering and environmental studies, permitting and licensing and certain legal costs. Major repairs and maintenance, which improve the efficiency or extend the life of our operating plants, are also included in capital expenditures. In addition to our contractually committed capital expenditures, we routinely explore project investment opportunities in our current and new geographic locations and business lines if we believe that any of the opportunities has the potential to meet our internal investment criteria. In the course of pursuing these investment opportunities, we may successfully bid on projects or operating plants that will require additional capital expenditures. Long-lived assets include capital investments in water plants under contractual arrangements with municipal customers in St. Maarten and the BVI (see "—Recent Acquisitions" below) which are accounted for as long-lived assets under U.S. GAAP accounting rules governing service concession arrangements.

        For Quench our primary capital expenditures are the acquisition of rental and related assets associated with unit placements (filtered water coolers, ice machines, sparkling water dispensers and coffee brewers), as well as typical capital expenditures for computers, field tablets and software.

    Recent Acquisitions

        As described above, we entered into the BVI Purchase Agreement on June 11, 2015, related to our acquisition of 100% of the capital stock of Biwater Holdings. Under the terms of the BVI Purchase Agreement, all of the capital stock of Biwater Holdings was acquired for a total purchase price of $47.8 million, including $44.5 million in cash and a note payable of $5.6 million to the seller with a fair value at the date of acquisition of $3.3 million (the Seller Note Payable—BVI). In addition, included in the liabilities of Biwater Holdings was long-term debt between its wholly-owned subsidiary, Biwater (BVI) Ltd., and a bank with a remaining unpaid balance as of the date of the BVI Purchase Agreement of $40.8 million, excluding application of the $3.6 million debt service reserve fund.

    Financing Activities

        Cash provided by financing activities during the six months ended June 30, 2015 of $46.1 million was primarily attributed to $31.3 million of cash from the issuance of Class B Shares and the borrowing of $20 million under a new $35 million loan facility with a bank (the Curaçao Credit Facility). During the six months ended June 30, 2015 we repaid $4.2 million of long-term debt and paid $0.4 million in debt financing fees related to the Curaçao Credit facility.

        For the year ended December 31, 2014, net cash flow provided by financing activities was $40.0 million, compared with $39.5 million provided by financing activities for the year ended December 31, 2013. During 2014, net cash provided by financing activities was primarily related to proceeds from the issuance of Class B shares of $36.0 million and $10.0 million of new borrowing from private lender used to finance Quench's acquisition of Atlas in June 2014. The proceeds were offset by $8.1 million of scheduled repayments of long-term debt.

        For 2013, financing activities included bank borrowings in Trinidad and the USVI totaling $44.1 million made under credit facilities to finance new plant construction completed in those locations during the year. In addition, $2.7 million of such borrowings was placed into debt service reserve accounts that are released to us as the underlying debt amortizes. We also made scheduled repayments of long-term debt during 2013 in the amount of $1.1 million.

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        Our long-term debt is summarized in the table below and further described in the sections that follow.

 
  December 31,    
 
 
  June 30,
2015
 
 
  2013   2014  
 
  (in thousands)
 

Trinidad Credit Agreement

  $ 28,929   $ 24,643   $ 22,500  

USVI Credit Agreement

    24,623     21,023     19,223  

Quench Loan Agreement

        39,565     39,631  

BVI Loan Agreement

            40,831  

Curacao Credit Facility

            20,000  

Seller Note Payable—BVI

            3,287  

Vehicle financing

        800     1,027  

Total debt

    53,552     86,031     146,499  

Less: current portion of long-term debt

    (7,886 )   (8,265 )   (17,836 )

Total long-term debt

  $ 45,666   $ 77,766   $ 128,663  

    Trinidad Credit Agreement

        On April 9, 2012, Seven Seas Water (Trinidad) Unlimited, our indirect wholly-owned subsidiary, entered into a credit agreement, which we refer to as the Trinidad Credit Agreement, as a borrower with a bank to partially finance the construction of a water plant in Trinidad. The Trinidad Credit Agreement was subsequently amended on April 15, 2013 to modify restrictions related to distributions and certain financial covenants; May 21, 2013 to modify project completion and drawdown dates; September 9, 2013 to modify the final drawdown date and completion certificate requirements; May 20, 2014 to modify restrictions related to distributions; on October 20, 2014 to reduce the minimum tangible net worth financial covenant of AquaVenture Holdings LLC from $65.0 million to $50.0 million; and on June 4, 2015 to modify certain covenants on capital expenditures and insurance requirements.

        We began borrowing under the Trinidad Credit Agreement in August 2012 with the final drawdown of borrowed funds occurring in October 2013. During the drawdown period, the agreement provided for variable interest at LIBOR plus 4.0%. When the drawdown period was completed in October 2013, interest on 50% of the loan was fixed at 5.64% with the remaining 50% at a variable rate based on LIBOR plus 4.0%. The weighted-average interest rate was 4.9% as of December 31, 2014. The loan principal is repayable in equal monthly installments over a seven-year period maturing in September 2020. The bank holds a security interest in the shares and all of the assets of Seven Seas Water (Trinidad) Unlimited.

        The Trinidad Credit Agreement is guaranteed by AquaVenture Holdings LLC. The Trinidad Credit Agreement limits the amount of additional indebtedness that Seven Seas Water (Trinidad) Unlimited can incur and places annual limits on capital expenditures for the subsidiary. Seven Seas Water (Trinidad) Unlimited is only permitted to make distributions to AquaVenture Holdings LLC shareholders and affiliates if specified debt service coverage ratios are met and it is in compliance with all loan covenants. The Trinidad Credit Agreement contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends), acquisitions, accounting changes, transactions with affiliates, contract amendments, sanctionable practices, prepayments of indebtedness, changes in control and capital expenditures. AquaVenture as guarantor must maintain a tangible net worth of $50.0 million and the borrower must maintain a debt service reserve fund. In addition, both Seven Seas Water (Trinidad) Unlimited and AquaVenture Holdings LLC, as guarantor, are subject to quarterly financial covenant compliance and must maintain a minimum debt service reserve fund with the bank. We were in compliance with, or received a waiver for, all such covenants as of June 30, 2015.

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    USVI Credit Agreement

        On March 27, 2013, Seven Seas Water Corporation (USVI), our indirect wholly-owned subsidiary, entered into a credit agreement to partially finance the construction of two water plants in the USVI. The USVI Credit Agreement was subsequently amended on: September 9, 2013 to set the final drawdown date and modify the requirements for the project completion certificate; May 20, 2014 to modify restrictions related to distributions; and October 20, 2014 to reduce the minimum tangible net worth financial covenant of AquaVenture Holdings LLC from $65.0 million to $50.0 million.

        We began borrowing under the USVI Credit Agreement in April 2013 with the final drawdown of borrowed funds occurring in October 2013. During the drawdown period, the credit agreement provided for variable interest at LIBOR plus 3.25%. When the drawdown period was completed in October 2013, interest on 60% of the loan was fixed at 4.55% with the remaining 40% at a variable rate based on LIBOR plus 3.25%. The weighted-average interest rate was 4.1% as of December 31, 2014. The loan principal is repayable beginning in January 2014 in twenty-four monthly installments of $300,000 followed by twenty-six monthly installments of $375,000 with a final balloon payment of $7.7 million due in March 2018. The bank holds a security interest in the shares and all of the assets of Seven Seas Water Corporation (USVI).

        The USVI Credit Agreement is guaranteed by AquaVenture Holdings LLC. The USVI Credit Agreement limits the amount of additional indebtedness that Seven Seas Water Corporation (USVI) can incur and places annual limits on capital expenditures for the subsidiary. Seven Seas Water Corporation (USVI) is only permitted to make distributions to shareholders and affiliates of AquaVenture Holdings LLC if specified debt service coverage ratios are met and it is in compliance with all loan covenants. The USVI Credit Agreement contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends), acquisitions, accounting changes, transactions with affiliates, contract amendments, sanctionable practices, prepayments of indebtedness, changes in control and capital expenditures. AquaVenture as guarantor must maintain a tangible net worth of $50.0 million and the borrower must maintain a debt service reserve fund. In addition, both Seven Seas Water (USVI) Corporation and AquaVenture Holdings LLC, as guarantor, are subject to quarterly financial covenant compliance and must maintain a minimum debt service reserve fund with the bank. We were in compliance with, or received a waiver for, all such covenants as of June 30, 2015.

        We may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part. If the prepayment is made prior to March 27, 2016, we are required to concurrently pay both a prepayment penalty of 1% of the principal payment made and any breakage fees incurred by the lender. Prepayments made after March 27, 2016 are not subject to a prepayment penalty.

    Quench Loan Agreement

        On the date Quench was acquired, the liabilities of Quench included the Amended Loan and Security Agreement between a lender and Quench. The Quench Loan Agreement included: (i) a Tranche A Term Loan of $12.5 million with a maturity date of December 23, 2018; (ii) a Tranche B Term Loan of $7.5 million with a maturity date of December 23, 2018; and (iii) a Tranche C Term Loan of $10.0 million with a maturity date of December 23, 2018.

        On June 16, 2014, the Quench Loan Agreement was amended in connection with the acquisition of Atlas. The third amendment included, among other things, the following: (i) a consent of the acquisition of Atlas; (ii) a requirement for an $11.0 million capital contribution to Quench in connection with the Atlas acquisition; (iii) added and disbursed a Tranche D Term Loan in the amount of $10.0 million with a maturity date of December 23, 2018; and (iv) a grant of seven-year warrants to the lender to purchase 60,635 of Class B Shares of AquaVenture Holdings LLC at a purchase price of $4.9477 per share.

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        The Tranche A Term Loan of $12.5 million contains an interest rate per annum equal to the base rate in effect for such month, plus 6% per annum, provided that in no event shall the interest rate per annum be less than 9.5% (9.5% as of December 31, 2014). The Tranche B, C and D Loans of $7.5 million, $10.0 million and $10.0 million, respectively, each contain an interest rate per annum equal to the base rate in effect for such month, plus 5.5% per annum, provided that in no event shall the interest rate per annum be less than 9.0% (9.0% as of December 31, 2014). The base rate for each tranche is defined as the greater of the highest Prime Rate in effect during the month or the highest three-month LIBOR rate in effect during each month, plus 2.5% per annum. Interest only payments are due monthly through 2015.

        The unpaid principal balance of the Tranche A Term Loan outstanding on December 23, 2015 is required to be repaid in: (i) 12 equal monthly principal payments of $156,250, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $208,333, commencing on January 23, 2017; and (iii) 12 equal monthly principal payments of $260,417, commencing on January 23, 2018. The remaining balance of the Tranche A Term Loan of $5.0 million is due on the maturity date of December 23, 2018. The unpaid principal balance of the Tranche B Term Loan outstanding on December 23, 2015 is required to be repaid in: (i) 12 equal monthly principal payments of $93,750, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $125,000, commencing on January 23, 2017; and (iii) 12 equal monthly principal payments of $156,250, commencing on January 23, 2018. The remaining balance of the Tranche B Term Loan of $3.0 million is due on the maturity date of December 23, 2018. The unpaid principal balance of the Tranche C Term Loan and Tranche D Term Loan outstanding on December 23, 2015 are each required to be repaid in: (i) 12 equal monthly principal payments of $125,000, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $166,667, commencing on January 23, 2017, and continuing on the same day of each month thereafter until December 23, 2017; and (iii) 12 equal monthly principal payments of $208,333, commencing on January 23, 2018. The remaining balance of the Tranche C Term Loan of $4.0 million and of the Tranche D Term Loan of $4 million are due on the maturity date of December 23, 2018.

        Quench may prepay the principal amounts of the loans prior to the maturity date in whole or in part, provided that Quench concurrently pays a prepayment fee equal to 2.0% of the amount prepaid if prepayment occurs on or prior to June 16, 2016, and 1.0% of the amount prepaid if prepayment occurs after June 16, 2016 and on or before June 16, 2017. The prepayment fee is due from Quench upon any prepayment of the principal of the loans, including any prepayment as a result of an event of default or the exercise of any rights or remedies by the lender following the same.

        The Quench Loan Agreement is secured by a pledge of substantially all of Quench's assets. In addition to a minimum net recurring revenue covenant and a covenant requiring minimum cash holdings of $1.5 million, Quench is required to comply with certain other financial and nonfinancial covenants. Quench was in compliance with, or received a waiver for, all such covenants as of June 30, 2015.

    BVI Loan Agreement

        In connection with our acquisition of the capital stock of Biwater (BVI) Holdings Limited in June 2015, we inherited the $43 million credit facility of its subsidiary, Biwater (BVI) Ltd. arranged by a bank, which we refer to as the BVI Loan Agreement. The Biwater Loan Agreement closed on November 14, 2013 and was arranged to finance the construction of the 2.8 million GPD desalination facility at Paraquita Bay in Tortola, BVI and other contractual obligations. The BVI Loan Agreement is project financing with recourse only to the stock, assets and cash flow of Biwater (BVI) Ltd. and is not guaranteed by any affiliate entities of that company. The BVI Loan Agreement is guaranteed by the Export Credit Department of the United Kingdom. The BVI Loan Agreement began amortizing its principal balance on March 31, 2015. As of the acquisition date of June 11, 2015, $40.8 million remained outstanding. In addition, approximately $820,000 remained available for draw through June

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2016. The BVI Loan Agreement was amended on May 7, 2014 and June 11, 2015 to reflect extensions in milestone dates and our acquisition of Biwater (BVI) Ltd.

        The BVI Loan Agreement provides for interest on the outstanding borrowings at LIBOR plus 3.50% per annum and interest is paid quarterly. The weighted average interest rate was 3.9% as of June 30, 2015. The loan principal is repayable quarterly beginning in March 31, 2015 in 26 quarterly installments that escalate from 3.2% of the original principal balance to 4.6% of the original principal balance. The BVI Loan Agreement is collateralized by all shares and underlying assets of Biwater (BVI) Ltd.

        The BVI Loan Agreement includes both financial and nonfinancial covenants, limits the amount of additional indebtedness that Biwater (BVI) Ltd. can incur and places annual limits on capital expenditures for this subsidiary. The BVI Loan Agreement also places restrictions on distributions made by Biwater (BVI) Ltd. which is only permitted to make distributions to shareholders and affiliates of the Company if specified debt service coverage ratios are met and it is in compliance with all loan covenants. Further, until the completion of two sewage treatment plants and related works under construction in the BVI, Biwater (BVI) Ltd. is not permitted to make any distribution without the prior approval of the bank. The BVI Loan Agreement contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends), mergers and acquisitions, accounting changes, transactions with affiliates, prepayments of indebtedness, capital expenditures, changes in nature of business and joint ventures. In addition, Biwater (BVI) Ltd is subject to quarterly financial covenant compliance, including minimum debt service and loan life coverage ratios, and must maintain a minimum debt service reserve fund with the bank.

        Biwater (BVI) Ltd. may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part without penalty.

        On August 1, 2015, we were in default of BVI Loan Agreement as a result of our failure to meet the contractual deadline of July 31, 2015 for completing construction, acceptance testing and delivery of two sewage treatment plants and related works. On September 18, 2015, we received a waiver of the defaults under the BVI Loan Agreement relating to the completion and testing of the two sewage treatment plants and related works, and such Agreement was amended to address certain issues relating to those sewage treatment plants and related works.

    Curaçao Credit Facility

        On June 18, 2015, Aqua Venture Holdings Curaçao N.V., a Curaçao naamloze vennootschap and our wholly-owned subsidiary, entered into a $35.0 million credit facility with a bank, which we refer to as the Curaçao Credit Facility. The Curaçao Credit Facility consists of a term loan of $20.0 million and a delayed draw term loan of up to $15.0 million which is available to be drawn through March 18, 2016. The Curaçao Credit Facility is non-amortizing, matures in June 2019 and bears interest at either: (i) the higher of 1% or the ICE Benchmark Administration LIBOR Rate, plus an applicable margin ranging from 7.5% to 8.5% depending upon the a leverage ratio calculation as defined within the credit facility; or (ii) the greater of the bank's base rate or a federal funds rate plus 0.5%, plus an applicable margin ranging from 6.5% to 7.5% depending upon a leverage ratio calculation as defined within the credit facility. The credit facility is guaranteed by AquaVenture Holdings LLC and contains certain financial and nonfinancial covenants. The financial covenants include minimum interest coverage and maximum leverage ratio requirements and become operative in March 31, 2016. In addition, the Curaçao Credit Facility contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends), mergers and acquisitions, accounting changes, transactions with affiliates, prepayments of indebtedness, capital expenditures, changes in nature of business and amendments of documents. The interest

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coverage ratio covenant will not apply if our minimum cash balance excluding Quench exceeds $5.0 million. There is no prepayment fee on the Curaçao Credit Facility.

    Other Debt

        In connection with our acquisition of the capital stock of Biwater (BVI) Holdings Limited in June 2015, we issued a subordinated note to the seller that bears no interest, is payable in 15 equal annual installments of $375,000 beginning on June 11, 2016, terminates if the water purchase agreement with the government of the BVI is terminated under certain circumstances, and is unsecured and subordinated to all other indebtedness of AquaVenture Holdings LLC. We finance our vehicles for a three-year term with interest rates per annum ranging from 1.6% to 6.8%.

Contractual Obligations and Other Commitments

        The following table summarizes our contractual obligations and other commitments as of December 31, 2014:

 
  Payments Due by Period  
 
  Less Than
1 Year
  1 to 3
Years
  3 to 5
Years
  More Than
5 Years
  Total  
 
  (in thousands)
 

Contractual Obligations and Other Commitments:

                               

Long-term debt

  $ 8,265   $ 31,825   $ 42,727   $ 3,214   $ 86,031  

Interest on long-term debt(1)

    5,618     8,855     2,767     66     17,306  

Operating leases(2)

    1,514     2,106     1,156     559     5,335  

Asset retirement obligations(3)

    209         663     524     1,396  

Acquisition contingent consideration(4)

    958     1,000             1,958  

Purchase commitments

    2,915                 2,915  

Other(5)

                     

Total contractual obligations and other commitments

  $ 19,479   $ 43,786   $ 47,313   $ 4,363   $ 114,941  

(1)
We calculated interest on long-term debt based on payment terms that existed at December 31, 2014. Weighted-average interest rates used are as follows: (i) Quench Loan Agreement—9.2%; (ii) USVI Credit Agreement—4.1%; (iii) Trinidad Credit Agreement—4.9% and (iv) vehicle financing—4.2%.

(2)
Operating leases include total future minimum rent payments under non-cancelable operating lease agreements.

(3)
The asset retirement obligations represent contractual requirements to perform certain asset retirement activities and are based on engineering estimates of future costs to dismantle and remove equipment from a customer's plant site and to restore the site to a specified condition at the conclusion of a contract. We have included the total undiscounted asset retirement obligation, as determined at December 31, 2014, in the table above.

(4)
The acquisition contingent consideration represents the value of the additional purchase price that is contingent on the future performance of certain acquired businesses. We have included the total undiscounted acquisition contingent consideration, as determined at December 31, 2014, in the table above.

(5)
In connection with our acquisition of Quench, we assumed the Quench USA, Inc. Amended and Restated 2011 Management Incentive Bonus Plan, or the Quench MIP. Pursuant to the Quench MIP, upon a "sale event" (as defined in the Quench MIP, which definition includes consummation of an initial public offering), a bonus pool will be created based upon the proceeds received in

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    connection with the sale event, and each participant is entitled to receive a bonus equal to his or her share of the bonus pool. The bonus pool will equal the lesser of $6 million or 10% of all proceeds received by the holders of Quench USA Holdings LLC by reason of their ownership upon the consummation of a sale event in excess of $21 million, after giving effect to payments under the Quench MIP. For purposes of a sale event that is an initial public offering, holders of Quench are deemed to receive an amount equal to the product of (x) the per share price to the public and (y) the number of shares of the type being issued in the offering that are outstanding immediately prior to the offering. As of December 31, 2014, we did not record any liability related to the Quench MIP as no events had occurred as of such date, nor was it probable an event would occur as of such date, that would require payment under the Quench MIP.

    Off-Balance Sheet Arrangements

            At December 31, 2014, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

    Quantitative and Qualitative Disclosures about Market Risk

            We are exposed to certain market risks in the ordinary course of our business. These risks primarily include credit risk, interest rate risk and foreign exchange risk.

    Credit Risk

        We are exposed to credit risk in our Seven Seas Water segment from our principal bulk water sales to customers in Trinidad, the BVI, the USVI, St. Maarten, and Curaçao. While certain of our bulk water customers are quasi-governmental agencies, such customers may not be supported by sovereign guarantees or direct financial undertakings.

    Interest Rate Risk

        We had cash and cash equivalents totaling $34.3 million as of June 30, 2015. This amount was invested primarily in demand deposits with domestic and international banks. The cash and cash equivalents are held for investment and working capital purposes. Our cash deposits are maintained for capital preservation purposes. We do not enter into investments for trading or speculative purposes. As of June 30, 2015, we have variable rate loans outstanding of $119.4 million that adjust with interest rate movements in LIBOR or the lending bank's prime lending rate. Accordingly, we are subject to interest rate risk to the extent that LIBOR or the lending bank's prime lending rate changes. A hypothetical 100 bps increase in our interest rates in effect at June 30, 2015 cause an increase to our interest expense of approximately $0.9 million on an annualized basis. A hypothetical 100 bps decrease in our interest rates in effect at June 30, 2015 would have a $0.1 million decrease to our interest expense on an annualized basis.

    Foreign Exchange Risk

        The U.S. dollar is our functional currency and, as of June 30, 2015, all of our revenue was denominated in U.S. dollars. However, we are exposed to foreign exchange risk to the extent we have payment obligations in a local currency related to labor, construction, consumables or materials costs, or if our procurement orders are denominated in a currency other than U.S. dollars. If any of these local currencies change in value versus the U.S. dollar, our cost in U.S. dollars would change which could adversely affect our results of operations.

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BUSINESS

Overview

        AquaVenture is a multinational provider of Water-as-a-Service, or WAAS, solutions that provide our customers with a reliable and cost-effective source of clean drinking and process water primarily under long-term contracts that minimize capital investment by the customer. We believe our WAAS business model offers a differentiated value proposition that generates long-term customer relationships, recurring revenue, predictable cash flow and attractive rates of return. We offer our solutions in North America, the Caribbean, Latin America and the Middle East.

        We deliver our WAAS solutions through two operating platforms: Seven Seas Water and Quench. Seven Seas Water is a multinational provider of desalination and wastewater treatment solutions, providing 7 billion gallons of potable, high purity industrial grade and ultra-pure water (which is water that is treated to meet higher purity standards required for industrial, semiconductor, utility or pharmaceutical applications) per year to governmental, municipal, industrial and hospitality customers. Quench, which we acquired in June 2014, is a U.S.-based provider of Point-of-Use, or POU, filtered water systems and related services to more than 40,000 institutional and commercial customers, including more than half of the Fortune 500. In our Quench business, our current typical initial contract term is three years with an automatic renewal provision, and our unit attrition rates imply an average rental period of more than 10 years. We define "unit attrition rate" as a ratio, the numerator of which is the total number of removals of company-owned and billed rental units during the trailing 12-month period, and the denominator of which is the average number of company-owned and billed rental units during the same 12-month period.

        We leverage our operating and engineering expertise to develop and deliver highly reliable WAAS solutions by applying various water purification technologies, including reverse osmosis, carbon filtration, deionization, membrane bioreactors and ultraviolet sanitization. We own and operate our water systems, enabling our customers to outsource a non-core activity without investing significant capital or managerial resources.

        We believe that we are well positioned to capitalize on global growth opportunities driven by population growth, increasing urbanization and water scarcity, increasing focus on health and wellness, and the environmental impact of bottled water consumption. We believe our focus on delivering best-in-class service and efficiency to our customers will continue to lead to substantial new business, contract extensions and customer expansion opportunities. We also have a demonstrated track record of identifying, executing and integrating acquisitions, with Seven Seas Water and Quench having completed more than a dozen transactions since 2007. We plan to continue to pursue acquisitions that will expand our geographic presence, broaden our service offerings and allow us to move into additional markets.

        We are led by a talented management team with extensive industry experience, engineering knowledge, operational expertise and financial capabilities. Our team has a demonstrated record of execution, having built AquaVenture into a leader in the major markets we serve. Our Seven Seas Water team currently operates our nine water treatment facilities and previously designed and operated more than 50 desalination plants with Ionics, Incorporated (a former NYSE-traded water treatment technology company purchased by General Electric Co. in 2005). Our Quench team has grown Quench's company-owned and billed POU filtered water system installed base from approximately 11,300 units in 2009 to more than 80,000 today through organic growth and targeted acquisitions.

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Market Opportunity

        We primarily operate in two water sectors—desalination and commercial water filtration. We believe both sectors offer us opportunities for significant organic and inorganic growth due to their size, positive long-term growth trends and fragmentation.

        A number of key macroeconomic factors shape the global water sector, including population growth, an increasing water supply-demand imbalance, urbanization, industrialization, and consumers' heightened health and environmental awareness. Global water demand has outpaced population growth, leading to chronic water scarcity in many regions around the world. According to data from the United Nations, global water demand (excluding irrigation) will grow three times faster than the global population. In addition, as an increasing portion of the global population moves to cities, the need for sustainable water infrastructure solutions in urban areas is expected to increase.

        As clean water demand continues to grow, we believe the need for water treatment technologies, such as desalination and POU filtration, will increase, and we believe both of our operating platforms are well positioned to benefit from these trends.

    Global Desalination Market

        Approximately 1% of the world's population depends on desalinated water to meet their daily water consumption needs. While historically a niche market due to the relatively high cost of production, desalination has become a more economical solution as desalination membrane and system technology has improved and equipment costs have declined.

        In recent years, there has been a rapid increase in the installation of new seawater desalination capacity. According to Global Water Intelligence, from 2004 to 2014 global contracted capacity more than doubled to more than 23 billion GPD. Approximately 29% of the desalination capacity globally is produced by medium-scale plants, which is our target market. We estimate that global medium-scale desalination plants generate approximately $7 billion in revenue from clean water sales annually. Many of the existing medium-scale plants are owned and operated by local governments and companies, and operating desalination facilities is generally not their core competency. As a result, we believe a large number of these plants could benefit from our ownership and operating expertise generate more reliable and lower-cost clean water.

        According to the World Resources Institute's Aqueduct rankings, the Caribbean is one of the most water-scarce regions of the world in terms of fresh water availability, comparable to the Western Sahara and parts of the Middle East. We believe our Seven Seas Water platform is a leading desalination solution provider in the Caribbean, where we operate nine water treatment facilities. Our installed capacity in the Caribbean has grown from 9.2 million GPD in 2010 to 27.2 million GPD in 2015, which represents more than 30% of the region's existing medium-scale desalination capacity. Many of the Caribbean region's current desalination facilities utilize older thermal technologies that are more costly to operate than membrane-based SWRO systems. Replacing these thermal plants with new membrane plants is a significant additional opportunity for us. Given our compelling value proposition, extensive presence, and operational expertise in SWRO plants, we believe we are well positioned to further grow our Caribbean business.

        We currently have a presence or targeted business development activities in the Caribbean, Latin America, the Middle East, North America and India. The total installed capacity of medium-scale desalination plants in these locations is more than 2 billion GPD. We target specific attractive end markets, such as the municipal drinking water, mining, oil and gas, and ultra-pure industrial process water markets, in both large and mature markets, such as the United States and Saudi Arabia, as well as in fast-growing developing markets, such as Chile, Mexico and India. We believe we are well

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positioned to pursue opportunities in these markets through new project development, partnerships with local firms and strategic acquisitions.

    U.S. Water Cooler Market

        According to a 2013 study by Zenith International, or Zenith, the U.S. commercial water cooler market is a $2.6 billion per year market, with more than 3.8 million units installed. POU water coolers represent 13.8% of that market by revenue. We believe that POU systems are taking market share from BWC systems for a variety of reasons, including cost, convenience, health benefits and environmental concerns. For example, Zenith attributes approximately 70% of all new POU accounts in the United States in 2013 to BWC conversions. As a result, from 2008 to 2013, the market share of POU systems on an installed unit basis grew from 14% to 21%, which represents an annualized unit growth rate of 9%. Zenith expects the number of POU units to grow at a CAGR of more than 8% between 2013 and 2018, while the number of installed BWC units is projected to remain nearly flat during the same period.


U.S. Water Cooler Market Share
(Source: Zenith)

GRAPHIC

        We estimate that our market share is more than 6.7% of commercial POU systems on an installed unit basis, and more than 8.7% on a revenue basis. The U.S. POU water cooler market is highly fragmented with hundreds of small regional providers, representing an opportunity for consolidation. Given the size of our addressable market and the fragmentation of the industry, we believe we are well positioned to realize growth with our focus on the commercial POU market.


Our Strengths

    Differentiated Water-as-a-Service Business Model

        Our WAAS business model offers an attractive value proposition to our customers by providing clean drinking and process water in a reliable, capital-efficient, cost-effective and flexible manner. Our long-term, service-focused model minimizes customer capital investment and yields long-term customer relationships. We invest capital in developing and installing engineered water systems, and generate predictable and steady revenue, earnings and cash flow, as well as an attractive return on invested capital.

    Excellence in Execution Driven by Engineering and Operational Expertise

        Our experience in implementing, operating and servicing water filtration technologies is at the core of our water solutions. Our expertise drives our ability to offer customized solutions to satisfy our customers' water needs.

        Our engineering experience and expertise is critical in developing Seven Seas Water desalination solutions that meet each customer's specific water quality standards and quantity needs adapted to local conditions, including different feedwater sources. Another important aspect of engineering expertise is reliability, as evidenced by our ability to achieve an average plant uptime of approximately 97% since

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2013, which provides our customers an uninterrupted water supply. Furthermore, our prefabricated containers and modular equipment are specially designed for quick deployment and maximum flexibility to adjust output capacities, allowing us to react quickly to customer emergencies or changes in demand.

        Our Quench POU filtered water systems utilize a variety of water purification technologies, including reverse osmosis, carbon filtration, deionization and ultraviolet sanitization. Our service technicians are trained to maintain and service our POU systems to provide a convenient, reliable and high quality water supply.

    Experienced Management Team with Demonstrated Track Record

        Our management team, led by Chief Executive Officer Douglas R. Brown, President Anthony Ibarguen and Chief Financial Officer Lee S. Muller, has extensive industry experience. This team has a demonstrated track record of managing costs, adapting to changing market conditions, and financing, acquiring, integrating and operating new businesses and water plants.

        Our Seven Seas Water team currently operates our nine water treatment facilities and previously designed and operated more than 50 desalination plants with Ionics, Incorporated. Their significant expertise has been instrumental in creating customized and highly reliable desalination solutions even in demanding water applications.

        Our Quench team also has a demonstrated track record of expanding the Quench platform by adding new customers, retaining existing customers, and acquiring and integrating numerous POU filtered water service providers into its platform.

    Strong Competitive Position Supported by Long-Term Customer Relationships

        We have long-standing customer relationships. In our experience, customers typically extend their contracts significantly beyond the original term, as the need for a clean, reliable water supply continues and the customer realizes the value proposition of our WAAS business model. Furthermore, we believe our operating and engineering expertise, experienced management team, and scale put us at the forefront of our industry, and that significant investment would be required for others to replicate our platforms.

        Our water supply agreements under our Seven Seas Water platform typically provide for initial terms of up to 20 years and typically contain contractual provisions for cost pass-through and minimum volume requirements. In addition, we have a reputation for quality and customer service. We have a track record of expanding and extending our initial contracts into longer-term agreements with increasing water purchase volumes, in part, because we provide our customers with a cost-effective and reliable water solution.

        Based on a 2013 study by Zenith International, we believe our Quench platform is one of the largest POU-focused water service companies operating in the United States. Our current typical initial contract term is three years with an automatic renewal provision, and our unit attrition rates imply an average rental period of more than 10 years, in part, because we provide highly reliable and efficient services. We believe our scale, product breadth and reliability, and customer service are key differentiators in a highly fragmented industry primarily composed of smaller providers.

    Significant Experience Identifying and Integrating Acquisitions

        Identifying and executing value-enhancing acquisitions is core to our growth strategy. Under our Seven Seas Water platform, we have acquired four operating desalination facilities, which had an aggregate capacity of 7.1 million GDP at the time of acquisition. Quench has also completed ten acquisitions since 2008, two of which occurred after our acquisition of Quench in June 2014, significantly expanding our installed base. We routinely evaluate opportunities for acquisitions and

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believe our experience and success in identifying, executing, integrating and operating acquisitions enable us to deploy capital effectively, create shareholder value and increase our market share.

    Strong Financial Performance

        We have demonstrated sustained revenue growth with attractive margins under long-term customer relationships, enabling high returns on invested capital.

        Our revenues grew at a CAGR of 34.4% from 2009 to 2014. We believe we can continue our revenue growth by acquiring customers, expanding our relationships with our customers, expanding into new geographies and complementary services, and selectively acquiring related water services businesses.

        We achieve our margins due to our strong customer value proposition and our operating efficiency. For the years ended 2013 and 2014, our Adjusted EBITDA was $7.6 million and $18.8 million, respectively, while our Cash Operating Profit, which represents Adjusted EBITDA before selling and marketing expense, was $12.3 million and $29.2 million, respectively. We believe we have significant opportunities to continue to expand our margins as we further increase our scale and operating leverage. See "Summary Summary Consolidated Financial and Other Data Reconciliation of Non-GAAP Financial Data" for a reconciliation of our GAAP net (loss) income to Adjusted EBITDA and Cash Operating Profit.

        To support our continuing growth, we are incurring significant selling and marketing costs, which results in lower GAAP-based margins. However, after one of our systems has been installed, the related ongoing selling and marketing costs are low for the remaining term of the contract. As a result, we believe Cash Operating Profit, which represents Adjusted EBITDA before selling and marketing expense, is an important economic measure as it more closely approximates the recurring cash generated by our installed base.


Our Strategy

    Continue to be an Industry Leader in Quality, Service and Efficiency

        We will continue to focus on servicing our customers and responding to changing customer needs and emergency situations in the water industry. Our WAAS business model helps us to control reliability and quality and ensure compliance with health standards and customer specifications. Our Seven Seas Water desalination plants operate efficiently with an average uptime of approximately 97% since 2013, providing an uninterrupted supply of water for our customers. Our Quench platform benefits from significant economies of scale that are expected to continue as the business grows.

    Drive Sustainable and Profitable Growth

        We are focused on long-term, sustainable equity returns and intend to continue to deploy capital in high return opportunities. In both platforms, we have recurring revenue that is derived from predictable and contractually-obligated payments. In addition, our Seven Seas Water margins often benefit from contractual inflation-protection and cost pass-through provisions. We believe our growth will further enhance operating leverage and drive margin expansion.

    Develop New Business Opportunities and Add New Customers for Growth

        We intend to continue to develop new business opportunities and add new customers supported by our experienced sales and marketing teams. Our Seven Seas Water platform has a dedicated business development team focusing on new project development opportunities globally. We strategically focus on providing municipal drinking water, wastewater recovery and industrial process water systems in the Middle East, Latin America (Mexico, Chile, Peru, Colombia), India, and new territories in the

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Caribbean. We also intend to expand our Seven Seas Water platform to U.S. areas, such as Texas, that are characterized by both a high concentration of process industry and water scarcity.

        Quench has an experienced and growing team of sales and marketing professionals responsible for new customer acquisition and expansion of existing customer relationships. Our sales representatives leverage our innovative, internet-focused marketing and lead generation platform to add new customers. We also have dedicated sales teams targeting certain industries, such as government, education and medical, as well as large enterprise opportunities.

    Drive Growth through Increased Sales to Current Customers

        Both our Seven Seas Water and Quench platforms are well positioned to realize growth through incremental sales to current customers due to our longstanding relationships developed as a result of our reliable operating performance, competitive pricing and highly-rated customer service.

        Our Seven Seas Water platform has a track record of increasing sales to current customers.

        Seven Seas Water maintains a fleet of containerized and modular plants for rapid deployment and commissioning. This gives us a competitive advantage when responding to short-term water emergencies. Once these emergency systems are operating, we have the opportunity to demonstrate the high reliability our water plants have achieved elsewhere. We have had significant success converting these short-term customer relationships into much longer (10 to 20 years) contractual agreements. For example, Curaçao Refinery Utilities B.V., or CRU, a utility operator in Curaçao, requested that Seven Seas Water provide emergency service with a plant of 500,000 GPD of design capacity in 2009 as part of a plan to provide 1.5 million GPD of design capacity in the shortest timeframe possible to supplement production shortfalls at a water plant owned and operated by CRU. CRU subsequently requested an additional 1.0 million GPD of emergency capacity. More recently, CRU asked us to, and we agreed to, assume operation of their own 2.5 million GPD SWRO production facilities due to our higher service levels.

        Our Quench platform is also well-positioned to increase sales to existing customers. Not only do many of our customers add water coolers during their term, but many are also opting to purchase our related services as well, such as ice, coffee and sparkling water.

    Continued Development of New Product Offerings to Open New Market Opportunities

        We intend to pursue new market opportunities and customers with our Seven Seas Water platform by leveraging our emergency response capabilities and specialized water supply systems for large-scale industrial operations such as mining, power generation and high water consumption manufacturing activities. We invest in containerized and modular water plants to enable us to provide rapid water supply solutions for customers who require water desalination solutions quickly, including in emergency situations. We are also actively examining and pursuing governmental, municipal, industrial and hospitality wastewater recovery opportunities as well as opportunities to treat produced water, which is generated through oil and gas exploration.

        In our Quench business, we intend to continue working with our suppliers and leveraging our market knowledge, to refine our water cooler product offerings and our other related water-enabled products, such as ice machines, sparkling water systems and coffee brewers.

    Selectively Pursue Acquisitions

        Acquisitions have historically been a major growth driver for us, and we expect to continue to pursue acquisitions in the future.

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        We intend to continue to selectively purchase, upgrade, expand and operate existing water treatment and desalination facilities in new and current markets under our Seven Seas Water platform. We can often operate these facilities more efficiently and reliably than current operators by leveraging our engineering and operating expertise.

        We believe the highly fragmented nature of the POU filtered water market will allow Quench to continue to identify and acquire POU companies to increase penetration of our current markets, broaden our product offerings and expand geographically.


Seven Seas Water

        Our Seven Seas Water business offers WAAS solutions by providing outsourced desalination and wastewater treatment services for governmental, municipal, industrial and hospitality customers. Our solutions utilize seawater reverse osmosis, or SWRO, and other purification technologies to produce potable and high purity industrial process water in high volumes for customers operating in regions with limited access to potable water. We assume responsibility for designing, financing, constructing, operating and maintaining the water treatment facilities. In exchange, we typically enter into long-term agreements to sell to our customers agreed-upon quantities of water that meet specified quality standards for a contracted period, for which we are paid based on actual or minimum required unit consumption. We typically enter into contracts with a term of 10 to 20 years, except in situations in which emergency water is needed or we assume an existing contract from an existing operator. With this approach, our customers benefit from a highly reliable, long-term clean water supply with predictable pricing, low customer capital investment and outsourced management of operations and maintenance.

        We offer customized solutions, often implemented using containerized or modular equipment, that allows us to quickly commission, expand, curtail or move production capacity. We design, procure and engineer systems to meet the customer's specific requirements with regard to source water conditions and specific water quality and quantity needs. Once a plant commences operations, customer water demand typically increases over time, often leading to plant expansion and contract extension opportunities. We also offer quick deployment solutions to address emergency water shortages, such as those caused by natural disasters or failure and/or overburdening of existing water production infrastructure, and water reuse solutions for industrial users seeking to reuse and/or minimize wastewater.

        We are a leading provider of water to the Caribbean market, where we are currently the primary supplier to the USVI, St. Maarten and the BVI. We also maintain significant plant operations in Trinidad and Curaçao. We currently own and operate nine water treatment facilities in the Caribbean region producing over 7 billion gallons of purified water per year under long-term contracts.

        On June 11, 2015, through our acquisition of the capital stock of Biwater (BVI) Holdings Limited, we began operating a SWRO desalination plant in Paraquita Bay on Tortola, BVI, with 2.8 million GPD of installed capacity. The Paraquita Bay plant provides water to the BVI government pursuant to a 16-year contract, of which approximately 15 years remain. This acquisition further enhances our presence in the Caribbean.

        We expect to grow our Seven Seas Water business by expanding existing operations as customer demand increases and by selectively entering underserved markets through both new project development and acquisitions. We believe that there are a large number of medium-scale desalination plants (which we define as plants with approximately 3 million GPD to 13 million GPD of output capacity) in operation globally that could benefit from our ownership and operating expertise. Leveraging our strength in the Caribbean market and our reputation for reliability, quality and operating efficiency, we are pursuing new opportunities in North America, Latin America, India and the Middle East.

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Build, Own and Operate

        Providing WAAS solutions to our customers is central to our operating model. We own, operate and maintain the desalination plants and sell water to our customers pursuant to long-term contracts. We either design, build and operate our desalination plants or acquire, refurbish and expand existing desalination plants. We assume responsibility for operating and maintaining the plants, including procuring all required equipment and arranging for related civil works. We typically design our desalination plants to exceed contractually required production capacity to ensure reliability, enable expansion to meet increased demand and to have more predictable lifecycle costs. In building our plants, we often use containerized units and modular skids with preconstructed components of the plant, which enables us to commission a plant and commence production more quickly. We also use standardized designs and equipment which help us operate and maintain our plants more efficiently and cost-effectively and simplify spare parts management.

        Under our WAAS business model, we manage the entire lifecycle of a desalination plant on an outsourced basis for our customers. Typically, a customer commits to purchase water at a fixed price per gallon, subject to adjustment based on a specified index, that meets agreed upon quality standards. Certain of our contracts require customers to purchase a minimum volume of water on a take-or-pay basis, while some do not have minimum purchase requirements. In some cases, we satisfy a customer's water requirements by utilizing our plants as its exclusive water producer. Our water purchase agreements typically provide for initial terms of up to 20 years. Customers may ask us to increase the capacity of our plants or to build additional plants to satisfy increased demand for the reliable, high quality water we produce. In connection with expanding capacity, we typically extend the term of the initial contract and reduce the unit cost that the customer pays. We monitor our plants, both remotely and on site. Our facilities are maintained as needed by Seven Seas Water employees.

        Generally, we have the right to decommission and remove our desalination plants upon the expiration or termination of the term of the water supply agreement. Our plants are generally built on property leased from the customer or its related parties pursuant to leases with terms that typically extend longer than the water purchase agreement, so that we may decommission and remove the plant. Certain of our water purchase agreements, however, provide for the transfer of the plant to our customer either at the end of the term of the agreement, upon the termination of the agreement or upon exercise of contractual buyout rights. The purchase prices payable upon exercise of the buyout rights are specified in the agreement and may be either fixed or based on factors set forth in the agreement.

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Our Desalination Plants

        We currently operate nine water treatment facilities under long-term agreements. Six exclusively provide water to the local government or government-owned utility companies and three serve private customers.

Location
  Customer   Contract
Expiration
Date
  Design
Capacity
Million GPD
 

Trinidad: Port Fortin

  WASA     2026     5.5  

United States Virgin Islands:

                 

St. Croix

  VIWAPA     2033     3.7  

St. Thomas

  VIWAPA     2033     3.3  

St. Croix

  Hovensa L.L.C.     2016     0.7  

Curaçao

  Curaçao Refinery Utilities B.V.     2019     4.9  

St. Maarten

  N.V. GEBE     2021     4.8 (1)

Bahamas

  Clearview Enterprises Limited     2019     1.0  

Turks and Caicos

  Retail water sales     N/A     0.5  

BVI: Paraquita Bay

  The Government of the Virgin Islands     2030     2.8  

(1)
Excludes expected 1.0 million GPD capacity expansion in 2016.

    Trinidad

        We built and currently own and operate a desalination plant with the design capacity of 5.5 million GPD located at Point Fortin, Trinidad. Under the terms of the water sale agreement with the Water & Sewerage Authority of Trinidad and Tobago, which we refer to as the Trinidad Water Sale Agreement, we are required to provide a minimum supply of water each month equal to a certain percentage of the design capacity of the plant, and Water & Sewerage Authority of Trinidad and Tobago, or WASA, is required to purchase all of the water we produce each month up to a certain percentage of the design capacity of the plant. If production levels fall below agreed upon contractual minimums, then the water payment owed by WASA to us is reduced. On September 3, 2015, we entered into a fourth amendment to expand the existing desalination plant capacity by approximately 21% and extend the initial term of agreement, which was set to expire in 2026, by 50 months.

        The Trinidad Water Sale Agreement may be terminated upon default. If WASA terminates the Agreement early or is in default, a penalty will be imposed that is based on estimated future production of the plant. Upon termination, we have 120 days to remove our equipment from the site.

        Under the Trinidad Water Sale Agreement, WASA is obligated to provide the electricity needed to operate our plant at no charge to us. We are not responsible for loss of production arising from a disruption to our electrical supply or a change in the quality or quantity of feedwater.

        We sublease the site where the Port Fortin plant is located from WASA, who leases the site from Petrotrin, a state-owned oil company. The initial term of the lease expires in October 2022, and we have an option to renew for an additional five years.

    United States Virgin Islands

        We built and currently own and operate three desalination plants in the United States Virgin Islands with an aggregate design capacity of 7.7 million GPD.

        We sell the water produced at our Richmond Generation Plant on St. Croix and our Randolph Harley Generation Plant on St. Thomas on an as-demanded basis to the Water & Power Authority of

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United States Virgin Islands, or VIWAPA, pursuant to the USVI Water Purchase Agreements, the current terms of which expire in 2033. Although the USVI Water Purchase Agreements do not specify a minimum consumption level, they stipulate that Seven Seas Water will be VIWAPA's exclusive supplier. The current design capacity of our Richmond Generation Plant and the Randolph Harley Generation Plant are 3.7 million GPD and 3.3 million GPD, respectively. Under the USVI Water Purchase Agreements, VIWAPA is obligated to provide the electricity needed to operate our plants at no charge to us, provided that our electrical consumption per thousand gallons of water produced does not exceed certain thresholds. If our electrical consumption does exceed such thresholds, we are required to reimburse VIWAPA at VIWAPA's then current electricity production cost, subject to adjustment for feedwater quality. We lease the sites where these plants are located from VIWAPA. The leases terminate 180 days after the contract expiration dates to enable us to remove our equipment.

        In addition, we built and currently own and operate a desalination plant with the design capacity of 700,000 GPD on St. Croix. We sell the water produced at this plant on a take-or-pay basis to Hovensa L.L.C. to support Hovensa's petroleum refinery pursuant to a water sales agreement. The term of the agreement with Hovensa will continue to at least December 2016. In connection with its proposed sale of its assets, Hovensa L.L.C. filed for bankruptcy protection on September 15, 2015. We can provide no assurances whether this agreement will be extended or will be assumed by the buyer of the assets in the bankruptcy proceedings. This plant consists of our standard containerized units that can be removed from the site and, after refurbishment, be deployed elsewhere.

    Curaçao

        We own and operate a desalination facility in Curaçao with an aggregate design capacity of 4.9 million GPD. We sell the industrial quality water produced at this facility on a take-or-pay basis to Curaçao Refinery Utilities Company B.V., a government owned utility that provides utility services to a refinery it has leased to Petróleos de Venezuela S.A., or PdVSA, a state-owned oil company of Venezuela. The current term of this water sales agreement expires in 2019, but will extend to 2022 if our customer extends the lease of the refinery to PdVSA. Under this water sales agreement, our customer is obligated to provide the electricity needed to operate our plant at no charge to us. We lease the site where this facility is located.

    St. Maarten

        We own and operate three desalination plants with an aggregate design capacity of 4.8 million GPD in St. Maarten. We built two of these plants and acquired and refurbished the third. We sell the water produced at these plants on a take-or-pay basis to the Government of St. Maarten pursuant to the St. Maarten Water Purchase Agreements, the current terms of which expire in 2021. Under the St. Maarten Water Purchase Agreements, we are obligated to pay for the electricity needed to operate our plant at fixed rate. We lease the sites where these plants are located. The St. Maarten Water Purchase Agreements require us to transfer ownership of the plants to the government under certain circumstances.

    British Virgin Islands

        In June 2015, we purchased the capital stock of Biwater Holdings, a subsidiary of which operates a desalination plant with the design capacity of 2.8 million GPD located on Tortola, BVI. We sell the water produced at this plant on a take-or-pay basis to the Government of the BVI pursuant to a water purchase agreement, the current term of which expires in 2030. Under this water purchase agreement, our customer is obligated to provide the electricity needed to operate our plant at no charge to us. We lease the site where this plant is located. We are required to transfer ownership of the plant to the government of the BVI upon the expiration of the water purchase agreement and upon the termination of the agreement under certain other circumstances. See "Risk Factors—Risks Related to Our

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Business—The government of the BVI has sent us notice that it believes that our acquisition of the capital stock of Biwater (BVI) Holdings Limited required its written consent and that the failure to obtain such consent constitutes a breach of the water purchase agreement between the government of the BVI and Biwater (BVI) Ltd."

    Other Plants

        We own and operate a desalination plant with the design capacity of 1.0 million GPD on the Island of Great Exuma, The Bahamas. We acquired the facility in 2009 and refurbished it in 2013. We sell the water produced at this plant on a take-or-pay basis to Sandals Group. We also operate and maintain a wastewater treatment plant owned by Sandals Group at the same location. The current term of these agreements expire in 2019. We lease the site where the desalination plant is located from our customer.

        We own and operate two desalination plants with the design capacity of an aggregate of 500,000 GPD on Providenciales, Turks and Caicos Islands. We built one of these plants and acquired and refurbished the other. We sell the water produced at these plants to local customers and own the sites where these plants are located.

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Technology

        Reverse Osmosis Desalination Process

GRAPHIC

        The conversion of saltwater to potable or industrial quality water is called desalination. We use a process known as reverse osmosis in our desalination plants. Reverse osmosis is the most widespread desalination technology, used in more than 11,000 desalination plants worldwide, representing more than 60% of installed capacity. Reverse osmosis is a separation process in which the water from a pressurized saline solution is separated from the dissolved material by passing it through a semi-permeable membrane. An energy source is needed to pressurize the saline water (or feedwater) for pretreatment, which consists of fine filtration and the addition of precipitation inhibitors. Pretreatment removes suspended solids, prevents salt precipitation and keeps the membranes free of microorganisms. Next, a high-pressure pump enables the water to pass through the membrane, while salts are rejected. The feedwater is pumped into a closed vessel where it is pressurized against the membrane. As a portion of the feedwater passes through the membrane, the remaining feedwater

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increases in salt content. This remaining feedwater (called brine) is discharged without passing through the membrane. As the brine leaves the pressure vessel, its energy is captured by an energy recovery device which can be used to pressurize incoming feedwater. The final step is post-treatment, which consists of stabilizing the water, removing hydrogen sulfide and adjusting the pH and chlorination to prepare it for distribution.

        We believe that this technology is the most effective and efficient conversion process for our market. However, we are always seeking ways to maximize efficiencies in our processes and to investigate new more efficient processes to convert seawater to potable or industrial quality water. We design our plants to use equipment that is among the most energy efficient available at the time, and we monitor and maintain our equipment in an effort to operate efficiently.

Customers

        The customers of Seven Seas Water platform generally fall into three categories: (i) municipal customers or government-owned utility companies, (ii) industrial, power, refining, mining and/or other manufacturing companies which require a reliable source of industrial quality water for their operations, or (iii) resorts and/or private entities. These customers may (i) contract with us through our Seven Seas Water platform to either build and operate plants, (ii) become our customers after their initial plant operator seeks to sell their interest in a plant or (iii) after such customer replaces an operator with Seven Seas Water.

        Our important target market opportunities include municipal customers or government-owned utility companies that wish to contract to have a plant constructed to increase water production for residential or industrial purposes or seek our experience in operating an existing plant. Under these arrangements the municipal customers or government-owned utility company is typically responsible for distributing water, providing power and a minimum purchase guarantee.

        Another target market is industrial customers that require clean water for an industrial purpose. Historically, prospective industrial customers generated their own water but increasingly more industrial users have outsourced the production of water to focus on their core competencies.

Business Development

        Our Seven Seas Water platform focuses on opportunities to own and operate desalination plants designed to produce 3 million GPD to 13 million GPD of water for governmental, municipal, industrial and hospitality customers, a relatively underserved sub-segment of the desalination market with limited comparable solutions or competitors. We pursue these opportunities by participating in request for proposal processes, developing plans for plants in underserved areas, acquiring existing plants and providing emergency water services. Geographically, we continue to pursue opportunities to expand in the Caribbean region, while seeking opportunities in North America, Latin America, India and the Middle East.

        Our business development function is organized into teams dedicated to pursuing opportunities in specific target markets. Company personnel dedicated to North American, the Caribbean and the Middle Eastern markets operate primarily from our Tampa, Florida offices. Our Latin American team operates from Santiago, Chile.

        As part of our expansion strategy, we may acquire additional desalination plants. Potential acquisition candidates include individual plants and businesses that operate multiple plants. We frequently evaluate potential acquisition candidates and engage in discussions and negotiations regarding potential acquisitions. There can be no assurance that any of our discussions or negotiations will result in an acquisition. Further, if we make any acquisitions, there can be no assurance that we

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will be able to operate any acquired plants or businesses profitably or otherwise successfully implement our expansion strategy.

        We also pursue opportunities to increase the amount of water we supply to existing customers. Historically, as we have provided customers with a reliable, cost-effective clean water supply, our customers experience an increase in demand from the ultimate end users, leading to opportunities for us to expand existing plants and develop new plants. These opportunities also often enable us to extend the terms of our existing water supply agreements and to reduce the unit cost to the customer.

        We also actively identify new markets that need, or could benefit from, a reliable and cost-effective supply of clean water. Once we have identified a region that would benefit from our WAAS offerings, we work with local partners to identify possible customers with whom we can enter into long-term supply agreements. In certain situations, this involves responding to requests for proposals from municipal or private sector customers. In other situations, we directly solicit potential customers to pursue a negotiated arrangement.

        We also pursue opportunities to deploy our mobile containerized and modular plants to help parties address water emergencies or crises. To address this business opportunity, we maintain a fleet of mobile containerized plants. Our ability to quickly deploy, commission and commence operation of these plants provides us a competitive advantage in these situations. We provide these rapid deploy services pursuant to contracts that typically have terms of three to five years. By assisting customers to address their emergences and crises, we are often well positioned to expand our relationship with the customer into a long-term water supply arrangement.

        Our strategy is to provide water services in areas where the supply of potable water is scarce. We have focused on the Caribbean and adjacent areas as our principal market because these areas have little or no naturally occurring fresh water.

Competition

        Seven Seas Water targets projects for medium-scale plants that it can own and operate that are accompanied by long-term contracts to sell water to customers. We compete primarily on the basis of the unit price at which water is sold to our customers, as well as our ability to build, commission, operate and maintain our plants to provide customers with a reliable long-term water supply. Our pricing depends on many factors, including the length of the water supply agreement term, the volume of water to be supplied, factors relating to the feedwater quality and location of the plant, infrastructure availability, electric power availability and costs (including who is responsible for paying those costs), and our cost of capital, among other factors.

        The competitors in our market generally fall into three categories: engineering, procurement and construction, or EPC, companies; large project developers; and other outsourced service model companies. EPC companies, which contract to build plants that satisfy specific requirements, often do not operate such plants after completion. EPC company contracts also generally satisfy the minimum customer water production requirements at the lowest reasonable capital cost. Large project developers focus on large-scale municipal desalination projects, prefer to take the role as lead developer for a customer sponsor and often do not operate plants after completion. For both of these types of competitors, the customer either assumes the responsibility of operating the plant or engages a third party to do so. We believe that generally none of these competitors focus on building a plant with low operating costs, nor focus on building plants with excess capacity in anticipation of future water needs.

        Seven Seas Water's focus on building and operating plants that can adapt to customers' changing needs has provided it with experience and a long-term approach that is well aligned with our customers' interests. Larger global competitors typically focus on larger plants with a capacity of 25 million GPD or greater, selling equipment or building plants instead of making outsourced service

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model investments. These companies, among others, currently operate in areas in which we would like to expand our operations. These companies already maintain world-wide operations and have greater financial, managerial and other resources than us. We believe that our low overhead costs, knowledge of local markets and our efficient manner of operating desalination water production equipment will provide us a competitive advantage in many smaller medium-scale applications and projects.


Quench

        Our Quench business offers WAAS solutions by providing bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers across the United States. Our POU systems purify a customer's existing water supply offering a cost-effective, convenient, and environmentally-friendly alternative to traditional bottled water coolers, or BWC. We offer our solutions to a broad mix of industries, including government, education, medical, manufacturing, retail and hospitality, among others, including more than half of the Fortune 500. We install and maintain our filtered water systems in exchange for a monthly rental fee, typically under multi-year contracts that renew automatically. With an installed base of more than 80,000 company-owned systems, we believe that we are one of the largest POU-focused water services companies operating in the United States. We service customers across the United States and have a direct presence in 40 of the largest U.S. metropolitan markets. We generate sales by leveraging our team of field and inside sales representatives, supported by a marketing team with expertise in digital and traditional media. Our scale, product breadth and service expertise provide us a competitive advantage. These capabilities also help to create customer loyalty and preserve our market share.

Products

        Our filtered water systems offer customers a cost-effective, convenient and environmentally-friendly alternative to traditional bottled water coolers, or BWC. Our systems are connected to a customers's existing water supply, which is filtered at the point of use to reduce impurities and other contaminants. Once a Quench system is installed, ongoing service requirements, including routine maintenance, repair and filter changes, are typically covered under a monthly rental agreement.

        We offer our customers filtered water systems with varying capacities to serve low, medium and high usage environments, which are available in floor-standing, countertop, under-counter and under-sink model forms. Our systems offer a variety of water dispensing options, including hot, cold, ambient and sparkling water. These systems are also available with various features, such as hands-free dispensing, anti-microbial surfaces and leak detection. Depending on the customer's purification requirements, Quench systems can employ various technologies such as carbon filtration, reverse osmosis filtration, deionization and ultraviolet sanitization.

        In addition, we offer a line of ice machines and commercial coffee brewers, both of which utilize our water filtration systems. To our coffee brewer customers, we also offer a selection of coffees, teas and other break room supplies. We also provide systems that deliver high-purity water for industrial processes.

        We purchase our filtered water systems from a variety of manufacturers, both in the United States and overseas. We also refurbish equipment that is returned from customer locations for future redeployment. We purchase nearly all of our equipment from three vendors; however, we believe that this equipment could be sourced from alternate vendors if necessary or advantageous.

        We provide our services generally under automatically-renewing rental contracts with initial terms ranging from month-to-month to five years. Our unit attrition rates imply an average rental period of more than 10 years. We bear the up-front cost of purchasing and installing systems as well as the ongoing cost of maintaining them in exchange for a recurring fee. In certain circumstances, we sell

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water filtration systems to customers, which may be accompanied by a maintenance contract. We also service equipment on a time-and-materials basis for certain customers.

Sales and Marketing

        We market our products through a variety of digital and traditional methods. Digital marketing activities include search engine marketing, email marketing, affiliate marketing and display advertising. Traditional marketing activities include telemarketing and trade shows. Marketing messages emphasize the benefits of water filtration versus those of delivered water, which include convenience, reliability of supply, cost savings, wellness and environmental sustainability. In 2013, POU system penetration was 13.8% of the U.S. commercial water cooler market, by revenue, which we believe provides a significant opportunity for additional organic growth.

        We have a team of Quench sales and marketing professionals dedicated to new customer acquisition activities across the United States. Our field sales representatives are focused on increasing penetration in the largest metropolitan markets nationwide. We also have specialized sales teams focused on large enterprises and specific industries to expand our market penetration. We maintain a presence in online advertising and lead generation, supported by an in-house team of digital marketing personnel.

        Our Quench platform is also well-positioned to increase sales to existing customers. In addition to our sales team, our customer care representatives generate revenue by selling additional products to existing customers. Additionally, as we service our equipment, we routinely identify opportunities to reassess our customer's needs and offer additional services and system upgrades. Frequently, Quench customers will add systems during the course of their relationship with Quench.

        We intend to continue to differentiate our offering to customers by adding innovative new water filtration products and related water-enabled products. We also intend to grow the geographic footprint of our high-purity industrial applications business and are considering future international and residential market expansion in our POU business.

Acquisition Activity

        Competition in the POU systems market is highly fragmented. Potential acquisition candidates include local dealers as well as businesses with broader regional or national customer bases. We routinely identify and evaluate potential acquisition candidates and engage in discussions and negotiations regarding potential acquisitions. There can be no assurance that any of our discussions or negotiations will result in an acquisition. Further, if we make any acquisitions, there can be no assurance that we will be able to operate or integrate any acquired businesses profitably or otherwise successfully implement our expansion strategy.

Customers

        We target businesses across the United States with an emphasis on companies with 20 or more employees, as well as those operating in several key industries, such as government, education, medical, retail and hospitality. We maintain a highly diversified customer base of over 40,000 customers.

Customer Service

        Our service technicians are trained to service our POU systems to ensure a convenient, reliable water supply. In larger metropolitan areas across the United States, we service equipment via local employee service technicians, who perform installations, preventive maintenance and repairs. In areas without local employees, Quench technicians travel to handle installations and preventive maintenance. When necessary, Quench engages third-party contractors for certain types of service calls.

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Competition

        We compete directly with BWC, OCS and other POU filtration companies, as well as with retail stores and internet sites where similar products and services may be purchased directly. Municipal tap water is a substitute for our water coolers and filtration services.

        The POU filtration market is highly fragmented, with many small, local service providers. There are a number of larger POU competitors, such as Nestlé, DS Services, OneSource Water, Waterlogic International and Pure Health Solutions, Inc. Our competitive position is based on pricing, service, value proposition, quality of products and desirability of brands. In the BWC segment, we compete with such companies as DS Services and Nestlé. We also compete with OCS and food service companies such as Aramark and Compass. These companies, among others, currently operate in areas in which we would like to expand our operations.

        The POU segment we serve accounts for 13.8% by revenue of the $2.6 billion per year U.S. commercial water cooler market. Though relatively small, the number of POU units has been growing consistently and is projected to continue to grow at the expense of BWCs. We believe POU systems offer an attractive alternative to BWCs primarily due to cost, convenience, health benefits and environmental considerations. In 2013, approximately 70% of all new POU accounts in the United States were attributed to BWC conversions.

        We have developed extensive capabilities to serve the needs of our customers, whether they are complicated, multi-location national accounts or small businesses, across the United States. We believe that the quality and reliability of our service, both in the field and in the back office are differentiators within our markets. We currently maintain two call centers to manage customer inquiries.


Other Facilities

        On April 20, 2007, we entered into a lease for 18,750 square feet of office space in Tampa, Florida with a lease term that ends on July 30, 2019 with an option to extend the term for a period of five years.

        On August 26, 2010, we entered into a lease, which has been amended several times, for approximately 19,900 square feet of office space in King of Prussia, Pennsylvania with a lease term that ends on September 30, 2018.

        On May 10, 2011, we entered into a lease for 23,600 square feet of office and warehouse space in Norristown, Pennsylvania with a lease term that ends on September 30, 2016 with an option to extend the term of the lease for a period of five years.

        On June 27, 2012, we entered into a lease for approximately 15,000 square feet of office and warehouse space in Waltham, Massachusetts with a lease term that ends on January 31, 2016 with an option to extend the term for a period of three years.

        On October 2, 2013, we entered into a lease for approximately 12,250 square feet of office space in Wheeling, Illinois with a lease term that ends on September 30, 2018.

        We are a party to numerous other small office, warehouse, and month-to-month storage unit leases. We believe that our warehouse and office space is sufficient to meet our current needs until the expiration of these leases and we expect to lease additional space as we expand our business.


Insurance

        We maintain insurance policies to cover workers' compensation, automobile liability, director and officer liability, general liability, foreign liability and property risks through third-party insurance programs. Deductibles for these policies depend upon the type of claim. The current insurance policies

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expire between March and June of 2016 and we anticipate continuing with similar arrangements at time of expiration. We regularly review our insurance policies and believe we have adequate coverage.

        Our Seven Seas Water facilities in Trinidad, the USVI and Tortola are insured against earthquake, flood and hurricane damage as required by our lenders. Our insurance programs have varying coverage limits, exclusions and maximums, and insurance companies may seek to deny claims we might make. Each policy includes deductibles or self-insured retentions and policy limits for covered claims.

        In our Quench business, we maintain liability insurance covering our facilities and assets, including our company-owned equipment installed in the field, which could fail and cause significant property damage, personal injury and/or loss of life. However, we can make no assurance that the adverse impact of any claim will not materially exceed the amounts that we might recover from our customers, suppliers or insurers. Moreover, significant insurance claims, even if covered, can result in decreased coverage limits, more limited coverage, increased premium costs or deductibles. Any of these events could adversely affect our operations.


Employees

        As of August 31, 2015, we had 539 employees. We have never had a work stoppage, and none of our employees are represented by a labor organization or under any collective-bargaining arrangements. We consider our employee relations to be good.


Legal Proceedings

        From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of any such outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

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MANAGEMENT

Executive Officers and Directors

        The following table provides information regarding our executive officers and directors as of September 1, 2015:

Name
  Age   Position

Executive Officers

         

Douglas R. Brown

    61   Chief Executive Officer and Chairman of the Board

Anthony Ibarguen

    56   President and Director

Lee S. Muller

    55   Chief Financial Officer, Treasurer and Secretary

Non-Employee Directors:

   
 
 

 

Michael J. Bevan(2)

    44   Director

Hugh Evans(1)(3)

    49   Director

Paul Hanrahan(2)

    57   Director

Evan Lovell(1)(2)

    45   Director

Cyril Meduña(3)

    58   Director

Brian O'Neill(3)

    62   Director

Richard Reilly(1)

    68   Director

(1)
Member of the audit committee.

(2)
Member of the compensation committee.

(3)
Member of the nominating and corporate governance committee.

        The following is a biographical summary of the experience of our executive officers and directors:

Executive Officers

         Douglas R. Brown has served as a member of our board of directors since January 2007. Mr. Brown founded AquaVenture Holdings LLC in December 2006 and has served as Chairman of AquaVenture Holdings LLC since January 2007. Mr. Brown served as chief executive officer of AquaVenture Holdings LLC from January 2007 to October 2012 and from October 2014 to present. Mr. Brown has also served as chief executive officer of Seven Seas Water Corporation from January 2007 to October 2012 and from October 2014 to present. From 2003 to 2005 Mr. Brown served as the Chief Executive Officer of Ionics, Incorporated (NYSE: ION), a water purification technology company that was sold to General Electric in 2005. Together with his prior experience at Ionics, he has 20 years of experience in the water industry. Before joining Ionics, Mr. Brown spent 17 years at Advent International, a global private equity firm, the last 7 years of which he was CEO. He also serves as an Operating Partner and Senior Advisor of Element Partners, a private equity firm. Mr. Brown received a B.S. in Chemical Engineering from Massachusetts Institute of Technology and an M.B.A. from Harvard Business School. We believe Mr. Brown is qualified to serve on our board of directors because of his experience as an executive officer of our company, his extensive business, management and executive experience and his experience as a seasoned investor.

         Anthony Ibarguen has served as a member of our board of directors since June 2014. He has served as president of AquaVenture Holdings LLC since June 2014 and as the chief executive officer of Quench since October 2010. Mr. Ibarguen has served on the board of directors of Insight Enterprises (NASDAQ: NSIT), a Fortune 500 information technology business, since July 2008, and served as its interim President and Chief Executive Officer from September to December 2009. From 2009 to 2008, Mr. Ibarguen was the Chief Executive Officer of Alliance Consulting Group, a privately-held information technology consulting form. From October 2003 through December 2007, Mr. Ibarguen

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served as a board director of C-COR Inc., a publicly-held global on-demand network solutions provider to the cable industry (NASDAQ: ARRS). From 1996 to 2000, Mr. Ibarguen was president COO and a director of Tech Data Corp., a Fortune 500 global technology distribution company (NASDAQ: TECD). He holds a B.A. in Marketing from Boston College and an M.B.A. from Harvard Business School. We believe Mr. Ibarguen is qualified to serve on our board of directors because of his experience as an executive officer of our company and Quench, his extensive business, management and executive experience, and his experience as a seasoned investor.

         Lee S. Muller has served as our senior vice president and chief financial officer since October 2014. Mr. Muller has been senior vice president and chief financial officer at Seven Seas Water Corporation since December 2013. From October 2005 to December 2012, Mr. Muller served as executive vice president and chief financial officer of ContourGlobal, a developer and operator of electric power and district heating businesses. He was a core member of the management team and was responsible for commercial and investment banking, multilateral and rating agency relationships. Mr. Muller holds a B.S. in Accounting and Finance from Boston University and an M.B.A. from the University of Chicago.

Non-Employee Directors

         Michael J. Bevan has served as a member of our board of directors since January 2007. Mr. Bevan is a co-founder and managing director at Element Partners, where he has served since 2005 and where his primary areas of investment focus include water purification, wastewater remediation, advanced materials, flow controls, advanced manufacturing, sensing technologies and instrumentation and emissions control and abatement. Mr. Bevan currently serves as a member of the board of directors of numerous private companies. Mr. Bevan holds a B.A. in English from Denison University and an M.B.A. from the Wharton School of the University of Pennsylvania. We believe Mr. Bevan is qualified to serve on our board of directors because of his experience as a seasoned investor.

         Hugh Evans has served as a member of our board of directors since December 2013. Mr. Evans has led the merger and acquisition and venture capital investments arm for 3D Systems, a leading 3D printing company since March 2013. Prior to 3D Systems, Mr. Evans served as an analyst and portfolio manager at T. Rowe Price Associates for more than 20 years. He holds a B.A. from the University of Virginia and an M.B.A. from Stanford University. We believe Mr. Evans is qualified to serve on our board of directors because of his executive and investment experience.

         Paul Hanrahan has served as a member of our board of directors since January 2012. Mr. Hanrahan is chief executive officer and co-founder of American Capital Energy & Infrastructure, a private equity firm that invests in energy infrastructure assets, and has served in this capacity since September 2012. Prior to establishing American Capital Energy & Infrastructure, Mr. Hanrahan served as the Chief Executive Officer and President of The AES Corporation (NYSE: AES), one of the largest global energy infrastructure companies in the world. Mr. Hanrahan serves on the boards of Arch Coal (NYSE: ACI), Ingredion (NYSE: INGR) and Great Point Energy, LLC. He has also served on the boards of other major publicly listed utilities in Latin America and was twice appointed by the White House to serve on the US-India CEO Forum. Mr. Hanrahan holds a B.S. in Mechanical Engineering from the United States Naval Academy and an M.B.A. from Harvard Business School. We believe Mr. Hanrahan is qualified to serve on our board of directors because of his executive experience.

         Evan Lovell has served as a member of our board of directors from January 2007 to December 2007 and from December 2008 to present. Since 2012, Mr. Lovell has been responsible for managing the portfolio and investments of Virgin Group Holdings Limited and its affiliates (collectively, the "Virgin Group") in North America and has been a partner in the Virgin Group. From 2008 to 2012, Mr. Lovell was the Founding Partner of Virgin Green Fund, a private equity fund investing in the energy and resource sector. Mr. Lovell is a member of the board of directors of Virgin America Inc.

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(NASDAQ:VA) since April 2013. From 1998 to 2008, Mr. Lovell served as an investment professional at TPG Capital, where he also served on the Board of a number of TPG portfolio companies. Mr. Lovell holds a B.A. in Political Science from the University of Vermont. We believe Mr. Lovell is qualified to serve on our board of directors because of his experience as a seasoned investor.

         Cyril Meduña has served as a member of our board of directors since January 2013. In 1989, Mr. Meduña founded Advent-Morro Equity Partners, Puerto Rico's first and largest private equity and venture capital firm and manages three private equity funds with combined capital of $120 million. Since 2008, Mr. Meduña has served as Honorary Consul of Chile in Puerto Rico and the USVI. He obtained a B.S. in Mechanical Engineering from Rensselear Polytechnic Institute and an M.B.A. from George Washington University. We believe Mr. Meduña is qualified to serve on our board of directors because of his experience as a seasoned investor and experience with multiple operating companies in the Caribbean and Latin America.

         Brian O'Neill has served as a member of our board of directors since May 2013. Mr. O'Neill has served as vice chairman of Lazard International since 2009 and as a director of M.B.A. Lazard, a leading financial asset-management business. He has served as director of Emigrant Bank since September 2009 and as a supervisory board member of Erste Group Bank AG since May 2007. Mr. O'Neill holds a B.A. from the University of San Diego and a Master's Degree from the American Graduate School of International Management. He also completed the Executive Program at the Tuck School of Business at Dartmouth College. We believe Mr. O'Neill is qualified to serve on our board of directors because of his executive banking and international business experience.

         Richard Reilly has served on our board of directors since October 2014. For 28 years prior to his retirement in 2009, Mr. Reilly served as a senior audit partner at KPMG LLP. Since July 2010, Mr. Reilly has served on the board of directors of Aspen Aerogels, Inc. (NYSE: ASPN), a leader in the energy insulation market. Mr. Reilly also serves as a member of the board of trustees and as chair of the audit committee of Perkins School for the Blind and as a member of the finance and audit committee for the Clergy Funds of the Archdiocese of Boston. From November 2012 to December 2013, Mr. Reilly served as a consultant to a Fortune 500 company related to finance, controls and governance issues at its subsidiary in India. Mr. Reilly holds a B.S. in Business Administration from Northeastern University and is a Certified Public Accountant. We believe Mr. Reilly is qualified to serve on our board of directors because of his experience in business, accounting and finance.

        Each executive officer serves at the discretion of our board of directors and holds office until his successor is duly elected and qualified or until his earlier resignation or removal. There are no family relationships among any of our directors or executive officers.

Codes of Business Conduct and Ethics

        Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including our chief executive officer, and other executive and senior financial officers. Following this offering, a copy of the code will be posted on the Corporate Governance section of our website, which is located at                        . If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.

Board of Directors

        Our business and affairs are managed under the direction of our board of directors. The number of directors will be fixed by our board of directors, subject to the terms of our articles of association that will become effective immediately prior to the completion of this offering. Our board of directors

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will consist of                        directors,                         of whom will qualify as "independent" under New York Stock Exchange listing standards.

        In accordance with our articles of association, immediately after the completion of this offering our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our shareholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows:

    the Class I directors will be                        and                         , and their terms will expire at the annual meeting of shareholders to be held in                        ;

    the Class II directors will be                        and                         , and their terms will expire at the annual meeting of shareholders to be held in                        ; and

    the Class III directors will be                        and                         , and their terms will expire at the annual meeting of shareholders to be held in                        .

        Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

        This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

Board Leadership Structure and Role of the Board in Risk Oversight

        Mr. Brown serves as our chief executive officer and as chairman of the board. The board of directors believes that having our chief executive officer as chairman of the board facilitates the board of directors' decision-making process because Mr. Brown has first-hand knowledge of our operations and the major issues facing us. This also enables Mr. Brown to act as the key link between the board of directors and other members of management. To assure effective independent oversight, the board of directors annually appoints a lead independent director.                     currently serves as our lead independent director. In this role,                     serves as chairman of the executive sessions of the independent directors and assists the board in assuring effective corporate governance. Executive sessions of the independent directors are held following each regularly scheduled in-person meeting of the board of directors.

        One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through its standing committees that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure. Our audit committee is responsible for reviewing and discussing our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies with respect to risk assessment and risk management. Our audit committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our external audit function. Our nominating corporate governance committee monitors the effectiveness of our corporate governance guidelines. Our compensation committee reviews and discusses the risks arising from our compensation philosophy and practices applicable to all employees that are reasonably likely to have a material adverse effect on us.

Director Independence

        Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his background, employment and affiliations, our

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board of directors has determined that Messrs. Bevan, Evans, Hanrahan, Lovell, Meduña, O'Neill and Reilly do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under the applicable rules and regulations of the SEC and the listing standards of the New York Stock Exchange. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled "Certain Relationships and Related Party Transactions."

Committees of the Board of Directors

        Our board of directors has established or will establish effective upon the effectiveness of the registration statement of which this prospectus forms a part, an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors.

    Audit Committee

        Upon the effectiveness of the registration statement of which this prospectus forms a part, our audit committee will consist of Messrs. Evans, Lovell and Reilly, with Mr. Reilly serving as chairman. The composition of our audit committee meets the requirements for independence under current New York Stock Exchange listing standards and SEC rules and regulations. Each member of our audit committee meets the financial literacy requirements of the New York Stock Exchange listing standards. In addition, our board of directors has determined that Mr. Reilly is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933, as amended, or the Securities Act. Our audit committee will, among other things:

    select a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

    help to ensure the independence and performance of the independent registered public accounting firm;

    discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management and the independent registered public accounting firm, our interim and year-end operating results;

    develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

    review our policies on risk assessment and risk management;

    review related party transactions;

    obtain and review a report by the independent registered public accounting firm at least annually, that describes our internal control procedures, any material issues with such procedures and any steps taken to deal with such issues; and

    approve (or, as permitted, pre-approve) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm.

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        Our audit committee will operate under a written charter, to be effective prior to the completion of this offering, that satisfies the applicable rules of the SEC and the listing standards of the New York Stock Exchange.

    Compensation Committee

        Upon the effectiveness of the registration statement of which this prospectus forms a part, our compensation committee will consist of Messrs. Bevan, Hanrahan and Lovell, with Mr. Hanrahan serving as chairman. The composition of our compensation committee meets the requirements for independence under New York Stock Exchange listing standards and SEC rules and regulations. Each member of the compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act and an outside director, as defined pursuant to Section 162(m) of the Code. The purpose of our compensation committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee, among other things:

    reviews, approves and determines, or make recommendations to our board of directors regarding, the compensation of our executive officers;

    administers our stock and equity incentive plans;

    reviews, approves and makes recommendations to our board of directors regarding incentive compensation and equity plans; and

    establishes and reviews general policies relating to compensation and benefits of our employees.

        Our compensation committee will operate under a written charter, to be effective prior to the completion of this offering, that satisfies the applicable rules of the SEC and the listing standards of the New York Stock Exchange.

    Nominating and Corporate Governance Committee

        Upon the effectiveness of the registration statement of which this prospectus forms a part, our nominating and corporate governance committee will consist of Messrs. Evans, Meduña and O'Neill, with Mr. O'Neill serving as chairman. The composition of our nominating and corporate governance committee meets the requirements for independence under New York Stock Exchange listing standards and SEC rules and regulations. Our nominating and corporate governance committee will, among other things:

    identify, evaluate and select, or make recommendations to our board of directors regarding, nominees for election to our board of directors and its committees;

    evaluate the performance of our board of directors and of individual directors;

    consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees;

    review developments in corporate governance practices;

    evaluate the adequacy of our corporate governance practices and reporting; and

    develop and make recommendations to our board of directors regarding corporate governance guidelines and matters.

        The nominating and corporate governance committee will operate under a written charter, to be effective prior to the completion of this offering that satisfies the applicable listing requirements and rules of the New York Stock Exchange.

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Compensation Committee Interlocks and Insider Participation

        None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee. None of the members of our compensation committee is an officer or employee of our company, and none of the members of our compensation committee has ever been an officer or employee of our company.

Non-Employee Director Compensation

        The following table presents the total compensation for each person who served as a non-employee member of our board of directors during 2014. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directors in 2014. Mr. Brown, who is also our Chief Executive Officer, and Mr. Ibarguen, who is our President, receive no compensation for their services as a director and, consequently, neither of them is included in this table. The compensation received by each of Messrs. Brown and Ibarguen as our employees during 2014 is set forth in the section of this prospectus captioned "Executive Compensation—Summary Compensation Table."

Name
  Fees Earned or
Paid in Cash
  Stock
Awards(1)
  Total  

Michael J. Bevan

  $   $   $  

Evan Lovell

  $   $   $  

Hugh Evans

  $   $   $  

Paul Hanrahan

  $ 40,000   $ 18,600 (2) $ 58,600  

Brian O'Neill

  $ 40,000   $ 12,400 (3) $ 52,400  

Cyril Meduña

  $   $   $  

Richard Reilly

  $ 10,000   $   $ 10,000  

(1)
The amounts reported in the Stock Awards column represent the grant date fair value of the stock granted to the non-employee directors during 2014, computed in accordance with ASC Topic 718. The assumptions used in calculating the grant date fair value of the stock reported in the Stock Awards column are set forth in Note 12 in the Notes to Consolidated Financial Statements included elsewhere in this prospectus. The amounts reported in this column reflect the accounting cost for these stock-based awards, and do not correspond to the actual economic value that may be received by the non-employee directors from the awards.

(2)
Mr. Hanrahan is chair of our compensation committee. On June 6, 2014, Mr. Hanrahan was granted an award of 60,000 MIP shares pursuant to the AquaVenture Holdings LLC Equity Incentive Plan, or the Equity Plan. As of December 31, 2014, Mr. Hanrahan held 37,500 unvested MIP shares and 22,811 incentive common shares.

(3)
On June 6, 2014, Mr. O'Neill was granted an award of 40,000 MIP shares pursuant to the Equity Plan. As of December 31, 2014, Mr. O'Neill held 25,000 unvested MIP shares and 22,500 unvested incentive common shares.

        Pursuant to his engagement letter, Mr. Hanrahan was granted an aggregate of 50,000 incentive common shares of our company before December 31, 2014 and an aggregate of 15,000 Class B shares of our company in February 2015. In addition, Mr. Hanrahan is eligible to receive 5,000 incentive common shares of our company on a semi-annual basis starting on January 1, 2016. Mr. Hanrahan was granted 60,000 MIP shares in June 2014.

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        Pursuant to his engagement letter, Mr. O'Neill was granted an aggregate of 35,000 incentive common shares of our company before December 31, 2014 and an aggregate of 20,000 Class B shares of our company in February 2015. In addition, Mr. O'Neill is eligible to receive 5,000 incentive common shares of our company on a semi-annual basis starting on January 1, 2016. Mr. O'Neill was granted 40,000 MIP shares in June 2014.

        Pursuant to his engagement letter, Mr. Reilly was granted 35,000 Class B shares of our company in February 2015 and is eligible to receive an additional 5,000 Class B shares on a semi-annual basis starting on January 1, 2016.

        Our policy has been and will continue to be to reimburse our non-employee directors for their travel, lodging and other reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors.

        We intend to adopt a non-employee director compensation policy that will be effective upon the effectiveness of the registration statement of which this prospectus is a part, pursuant to which our non-employee directors would be eligible to receive equity awards and cash retainers as compensation for service on our board of directors and committees of our board of directors.

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EXECUTIVE COMPENSATION

Overview

        The following discussion and analysis of the compensation arrangements of our named executive officers should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially from currently planned programs as summarized in this discussion.

        Historically, our executive compensation program has reflected our growth and corporate goals. To date, the compensation of the executive officers identified in the summary compensation table below, whom we refer to as our named executive officers, has consisted of a combination of base salary, bonuses and long-term incentive compensation in the form of equity awards. Our executive officers are also eligible to receive health and welfare benefits.

        As we transition from a private company to a publicly-traded company, we will evaluate our compensation values and philosophy and compensation plans and arrangements as circumstances require. At a minimum, we expect to review executive compensation annually with input from a compensation consultant if and when determined by the compensation committee. As part of this review process, we expect the board of directors and the compensation committee to apply our compensation philosophy when considering the compensation levels needed to ensure our executive compensation program remains competitive. We will also review whether we are meeting our retention objectives and the potential cost of replacing a key employee.

        The compensation provided to our named executive officers for 2014 is detailed in the 2014 Summary Compensation Table and accompanying footnotes and narrative that follows this section. This section explains our executive compensation philosophy and objectives, our compensation-setting process, and the elements of our compensation program.

        Our named executive officers in 2014 were:

    Douglas R. Brown, Chief Executive Officer, or CEO;

    Anthony Ibarguen, our President;

    Lee S. Muller, our Chief Financial Officer, Treasurer and Secretary;

    Robert Dixon, a former CEO; and

    John Curtis, a former CEO.

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Summary Compensation Table

        The following table provides information regarding the total compensation for services rendered in all capacities that was earned by each individual who served as our principal executive officer at any time during fiscal year 2014, and our two other most highly compensated executive officers during fiscal year 2014. These individuals were our named executive officers for fiscal year 2014.

Name and Principal Position
  Year   Salary   Bonus   Stock Awards(1)   Non-Equity
Incentive
Plan
Compensation(2)
  All Other
Compensation
  Total  

Douglas R. Brown

    2014   $ 8,000   $ 250,000   $ 1,842,500   $   $ 21,668   $ 2,122,168  

Chief Executive Officer

                                           

Anthony Ibarguen(3)

   
2014
 
$

167,632
   
 
$

1,222,500
 
$

144,376
 
$

10,302

(4)

$

1,544,810
 

President

                                           

Lee S. Muller

   
2014
 
$

266,250
 
$

70,000
 
$

679,800
 
$

 
$

 
$

1,016,050
 

Chief Financial Officer, Treasurer and Secretary

                                           

Robert Dixon(5)

   
2014
 
$

67,016
 
$

 
$

 
$

 
$

353,150

(6)

$

420,166
 

Former Chief Executive Officer

                                           

John Curtis

   
2014
 
$

273,980
 
$

65,000
 
$

341,000
 
$

 
$

309
 
$

680,289
 

Former Chief Executive Officer

                                           

(1)
The amounts reported represent the aggregate grant-date fair value of the equity-based compensation awarded to the named executive officers in fiscal year 2014, calculated in accordance with ASC Topic 718. Such grant-date fair value does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant date fair value of the equity awards reported in this column are set forth in the notes to our audited financial statements included in this prospectus.

(2)
The amount paid to Mr. Ibarguen was paid in accordance with his employment agreement and was based upon 2014 revenue.

(3)
The amounts in this row represent the amounts paid to Mr. Ibarguen for the period from June 6, 2014, the date of the Quench acquisition, through December 31, 2014.

(4)
The amounts reported represent payments for certain health premiums, life insurance premiums and 401(k) matching contributions.

(5)
Mr. Dixon's employment terminated effective March 3, 2014.

(6)
The amounts reported include $351,750 paid in the form of 12 months' salary continuation from March 2014 through March 2015.


Employment Agreements, Severance and Change in Control Agreements

        We have entered into an employment agreement or an offer letter with each of Messrs. Brown, Ibarguen and Muller in connection with his employment with us. Except as noted below, these employment agreements and offer letters provide for "at will" employment.

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    Douglas R. Brown

        We entered into an offer letter with Mr. Brown on January 5, 2007, as amended on October 1, 2012. The offer letter provides for his at-will employment and sets forth his initial base salary, initial equity award, and eligibility for our benefit plans. Pursuant to his offer letter, in the event Mr. Brown's employment is terminated by us other than for "cause", Mr. Brown will be entitled to receive salary continuation for the 12-month period following the termination of his employment, and any equity incentive awards he holds will vest as if he had completed an additional 12 months of service. In Mr. Brown's offer letter, "cause" is defined as (i) a willful and material breach of any obligations under the offer letter or other contract with us or our subsidiaries or affiliates, (ii) fraud or dishonesty, (iii) competition with us or our subsidiaries or affiliates in violation of any noncompetition or non-solicitation obligation to us or any of our subsidiaries or affiliates, (iv) unauthorized use of any of our trade secrets or confidential information or those of our subsidiaries or affiliates or any breach of any obligations to us or our subsidiaries or affiliates with respect to trade secrets or confidential information, or (v) Mr. Brown's failure to attend to duties assigned to him that are customary for his position and material to the success of our operations that remains unremedied for 30 days after written notice to Mr. Brown. In addition, Mr. Brown is entitled to a tax "gross-up payment" (as defined in his offer letter) in the event he receives any payments that would be subject to the excise tax imposed by Section 4999 of the Code.

        In addition, Mr. Brown has entered into a proprietary information and inventions assignment agreement that contains, among other things, non-competition and non-solicitation provisions that apply during the term of Mr. Brown's employment and for one year thereafter.

    Anthony Ibarguen

        Quench entered into an employment agreement with Mr. Ibarguen on October 10, 2010, as amended on March 26, 2012. The employment agreement provides for his at-will employment and sets forth his initial base salary, bonus opportunity, initial equity award, and eligibility for the company's benefit plans. Pursuant to his employment agreement, and subject to his execution of a release of claims and continued compliance with the ongoing obligations under his employment agreement, in the event Mr. Ibarguen's employment is terminated by Quench without "cause" or he resigns for "good reason" (as defined in his employment agreement), Mr. Ibarguen will be entitled to receive salary continuation for the 12-month period following the termination of his employment and payment of the premiums for continued health benefits for the 12-month period following the termination of his employment. In Mr. Ibarguen's employment agreement, "cause" is defined as (i) the conviction of a felony involving a crime of fraud, dishonesty, disloyalty, moral turpitude or professional misconduct with respect to us or our business, or the entry of a plea of nolo contendere for such a felony; (ii) the material breach, non-performance or non-observance of any of the terms of his employment agreement or any other agreement with us, or the material breach, non-performance or non-observance of his duties to us or any of our rules governing employee behavior, if such breach, non-performance or non-observance is not cured within a period of thirty days after written notice to Mr. Ibarguen; (iii) the existence of any legal or contractual limitation on Mr. Ibarguen's ability to engage in the business of our company that reasonably could be expected to have a materially adverse effect on Mr. Ibarguen's ability to attract or retain customers or perform services to us if such limitation is not cured within a period of thirty days after written notice to Mr. Ibarguen; (iv) any act or omission by Mr. Ibarguen which constitutes willful or gross misconduct injurious to us or our business, or which interferes with or adversely affects Mr. Ibarguen's performance of, or ability to perform, his duties under his employment agreement; or (v) Mr. Ibarguen's willful failure or refusal to follow or carry out the reasonable and lawful instructions of our board of directors concerning material duties or actions consistent with his position in a timely manner and otherwise in a manner reasonably acceptable to our board and such failure or refusal continues for a period of thirty days after receipt of written notice. In the event

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Mr. Ibarguen's employment terminates due to his death or "permanent disability" (as defined in his employment agreement), he will be entitled to receive an amount equal to his base salary and any annual bonus that is earned, prorated through the last day of the month during which the termination occurs.

        In addition, Mr. Ibarguen's employment agreement contains, among other things, non-competition and non-solicitation provisions that apply during the term of Mr. Ibarguen's employment and for two years thereafter.

    Lee S. Muller

        Seven Seas Water Corporation entered into an offer letter with Mr. Muller on November 9, 2013, as amended on June 6, 2014. The offer letter provides for his at-will employment and sets forth his initial base salary, bonus opportunity, initial equity award, and eligibility for our benefit plans. Pursuant to his offer letter, in the event Mr. Muller's employment is terminated by us other than for "cause" prior to November 30, 2015, and subject to his execution of a release of claims, Mr. Muller will be entitled to receive salary continuation for the 12-month period following the termination of his employment and the incentive shares he holds will continue to vest during such 12-month period. In Mr. Muller's offer letter, "cause" is defined as (i) a willful and material breach of any obligations under the offer letter or other contract with us or our subsidiaries or affiliates, (ii) fraud or dishonesty, (iii) competition with us or our subsidiaries or affiliates in violation of any noncompetition or non-solicitation obligation to us or any of our subsidiaries or affiliates, (iv) unauthorized use of any of our trade secrets or confidential information or those of our subsidiaries or affiliates or any breach of any obligations to us or our subsidiaries or affiliates with respect to trade secrets or confidential information, or (v) Mr. Muller's failure to attend to duties assigned to him that are customary for his position and material to the success of our operations that remains unremedied for 30 days after written notice to Mr. Muller.

        In addition, Mr. Muller has entered into a proprietary information and inventions assignment agreement that contains, among other things, non-competition and non-solicitation provisions that apply during the term of Mr. Muller's employment and for one year thereafter.

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Outstanding Equity Awards at Fiscal 2014 Year-End

        The following table sets forth information regarding outstanding equity awards held by our named executive officers at the end of fiscal year 2014. The table assumes completion of the LLC Conversion prior to the completion of this offering.

Name
  Vesting
Commencement
Date
  Security   Number of
Shares or Units of
Stock That Have
Not Vested
  Market Value of
Shares or Units
of Stock That
Have Not Vested
(dollars)(1)
 

Douglas R. Brown

  June 6, 2014   MIP shares(2)     1,250,000   $                   

  November 14, 2014   Class B Shares(3)     1,500,000   $                   

Anthony Ibarguen

 

October 7, 2011

 

Restricted shares(4)

   
9,146
 
$

                
 

  April 16, 2014   Incentive shares(5)     2,025,515   $                   

  November 14, 2014   Class B Shares(3)     1,500,000   $                   

Lee S. Muller

 

December 3, 2013

 

Incentive common shares(6)

   
195,000
 
$

                
 

  June 6, 2014   MIP shares(2)     187,500   $                   

  November 14, 2014   Class B Shares(3)     720,000   $                   

(1)
The market value is based on an assumed initial public offering price of $        , the midpoint of the estimated price range set forth on the cover page of this prospectus.

(2)
These awards have been granted pursuant to the Equity Plan as MIP shares. The MIP shares are intended to qualify as profits interests. These awards vest over two years in eight equal quarterly installments, with the first quarterly installment vesting on June 30, 2014, conditioned upon continued service through each vesting date. In the event of a Sale Event (as defined in the Equity Plan), all unvested MIP shares will vest in full.

(3)
These awards of Class B Shares have been granted pursuant to the Equity Plan and are intended to qualify as profits interests. In the event of a Sale Event, all unvested Class B Shares will vest in full. These awards vest over a four-year period, with 25% of the shares to vest upon completion of one year of service measured from the vesting commencement date, and the balance will vest in 12 successive equal quarterly installments upon the completion of each additional quarter of service thereafter.

(4)
This is an award of restricted shares in Quench USA Holdings LLC granted pursuant to the Quench USA Holdings LLC 2014 Equity Incentive Plan, or the Quench Equity Plan. This award vests over a four-year period, with 25% of the shares to vest upon completion of one year of service measured from the vesting commencement date, and the balance will vest in 36 successive equal monthly installments upon the completion of each additional month of service thereafter. In the event of a Sale Event (as defined in the Quench Equity Plan), all unvested restricted shares will vest in full.

(5)
This is an award of Incentive Shares granted pursuant to the Quench Equity Plan. This award is intended to be a grant of profits interest, with 30% of the award vesting as of the Vesting Commencement Date and 10% of the award vesting on the first day of the next seven calendar quarters, commencing on July 1, 2014. In the event of a Sale Event, all unvested incentive common shares will vest in full.

(6)
This is an award of incentive common shares granted pursuant to the Equity Plan. This award vests over a four-year period, with 25% of the shares to vest upon completion of one year of

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    service measured from December 3, 2013, and the balance will vest in 12 successive equal quarterly installments upon the completion of each additional quarter of service thereafter.


Compensation Risk Assessment

            We believe that although a portion of the compensation provided to our executive officers and other employees is performance-based, our executive compensation program does not encourage excessive or unnecessary risk taking. This is primarily due to the fact that our compensation programs are designed to encourage our executive officers and other employees to remain focused on both short-term and long-term strategic goals, in particular in connection with our pay-for-performance compensation philosophy. As a result, we do not believe that our compensation programs are reasonably likely to have a material adverse effect on us.


Quench USA, Inc. Amended and Restated 2011 Management Incentive Bonus Plan

            Before the acquisition of Quench by AquaVenture Holdings LLC, Quench USA, Inc. adopted the Quench USA, Inc. Amended and Restated 2011 Management Incentive Bonus Plan, or the Quench MIP. Pursuant to the Quench MIP, upon a "Sale Event" (as defined in the Quench MIP, which definition includes consummation of an initial public offering), a bonus pool will be created based upon the proceeds received in connection with the sale event, and each participant is entitled to receive a bonus equal to his or her share of the bonus pool. The bonus pool will equal the lesser of $6 million or 10% of all proceeds received by the former shareholders of Quench USA, Inc. by reason of their ownership upon the consummation of a sale event in excess of $21 million, after giving effect to payments under the Quench MIP. For purposes of a sale event that is an initial public offering, holders of Quench are deemed to receive an amount equal to the product of (x) the per share price to the public and (y) the number of shares of the type being issued in the offering that are outstanding immediately prior to the offering. Upon consummation of this offering, it is expected that Mr. Ibarguen will be eligible to receive a bonus of approximately $2,595,000 pursuant to the terms of the Quench MIP. The Quench MIP automatically terminates following payment of all amounts due under the Quench MIP.


AquaVenture Holdings LLC Equity Incentive Plan

            In January 2007, our members adopted the AquaVenture Holdings LLC Equity Incentive Plan, or the Equity Plan. The Equity Plan allows our board of managers, or a compensation committee appointed by the board, to make equity-based incentive awards to our officers, employees, directors and consultants.

            The Equity Plan allows for the grant of our equity in the form of Class B shares, incentive common shares and management incentive plan shares, and options to acquire, Class B shares, incentive common shares and ordinary common shares. We have reserved 6,000,000 Class B shares and 10,668,814 common shares for issuance pursuant to the Equity Plan (which may be either incentive shares or ordinary shares, as determined by our committee from time to time). In addition, the aggregate number of management incentive plan shares that may be issued and outstanding at any time under the Equity Plan is 7,900,000. These numbers are subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization, as provided in the Equity Plan and our LLC agreement.

            The shares we issue under the Equity Plan will be authorized but unissued shares or shares that we reacquire. The shares underlying any awards that are forfeited for any reason without having been vested or repurchased by us, will be added back to the shares available for issuance under the Equity Plan.

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            The Equity Plan is administered by our compensation committee. Our compensation committee has full power to, among other actions, select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the Equity Plan. Persons eligible to participate in the Equity Plan will be those full or part-time officers, employees, directors and consultants as selected from time to time by our compensation committee in its discretion.

            The Equity Plan permits the granting of incentive common shares, management incentive plan shares and options to acquire incentive common shares and ordinary common shares on terms and conditions determined by the committee consistent with the terms of the Equity Plan and our LLC agreement. The Equity Plan provides that in connection with a merger or certain other transactions, the company may continue, or an acquirer or successor entity may assume or substitute for, the outstanding awards under the Equity Plan. In addition to, or in lieu of, such treatment, the board may allow individuals holding options to exercise such options prior to the event, or may make or provide for a cash payment to option holders equal to the difference between the fair market value of the shares subject to the option and the exercise price of the options, or may terminate any options having an exercise price equal to or greater than the fair market value of the shares subject to the option without payment.

            Subject to the provisions of our LLC agreement, our board may amend or terminate the Equity Plan and the compensation committee may amend, modify or terminate outstanding awards, but no such action may materially and adversely affect rights under an outstanding award without the holder's consent. Awards will no longer be granted pursuant to the Equity Plan after completion of this offering. Following consummation of our initial public offering, we expect to make future awards under the 2015 Plan.


Quench USA Holdings LLC 2014 Equity Incentive Plan

            Prior to its acquisition by AquaVenture Holdings LLC, Quench USA Holdings LLC adopted the Quench Equity Plan. The Quench Equity Plan allows the Quench USA Holdings LLC board of managers, or a compensation committee appointed by the board, to make equity-based incentive awards to its officers, employees, directors and consultants.

            The Quench Equity Plan allows for the grant of Quench USA Holdings LLC equity in the form of incentive shares or options to acquire ordinary shares of Quench USA Holdings LLC. Quench USA Holdings LLC has initially reserved 13,000,000 common shares for issuance pursuant to the Quench Equity Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in Quench USA Holdings LLC's capitalization, as provided in the Quench Equity Plan and Quench's LLC agreement.

            The shares Quench USA Holdings LLC issues under the Quench Equity Plan will be authorized but unissued shares or shares that Quench USA Holdings LLC reacquires. The shares underlying any awards that are forfeited for any reason without having been vested or repurchased by Quench USA Holdings LLC, will be added back to the shares available for issuance under the Quench Equity Plan.

            The Quench Equity Plan is administered by Quench USA Holdings LLC's compensation committee. Quench USA Holdings LLC's compensation committee has full power to, among other actions, select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the Quench Equity Plan. Persons eligible to participate in the Quench Equity will be those full or part-time officers, employees, directors and consultants as selected from time to time by Quench USA Holdings LLC's compensation committee in its discretion.

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            The Quench Equity Plan permits the granting of incentive shares and options to acquire ordinary shares of Quench USA Holdings LLC on terms and conditions determined by the committee consistent with the terms of the Quench Equity Plan and the Quench USA Holdings LLC agreement. The Quench Equity Plan provides that in connection with a merger or certain other transactions, Quench USA Holdings LLC may continue, or an acquirer or successor entity may assume or substitute for, the outstanding awards under the Quench Equity Plan. In addition to, or in lieu of, such treatment, the Quench USA Holdings LLC board may allow individuals holding options to exercise such options prior to the event, or may make or provide for a cash payment to option holders equal to the difference between the fair market value of the shares subject to the option and the exercise price of the options, or may terminate any options having an exercise price equal to or greater than the fair market value of the shares subject to the option without payment.

            Subject to the provisions of Quench USA Holdings LLC agreement, the Quench USA Holdings LLC board may amend or terminate the Quench Equity Plan and the compensation committee may amend, modify or terminate outstanding awards, but no such action may materially and adversely affect rights under an outstanding award without the holder's consent. Awards will no longer be granted pursuant to the Quench Equity Plan after completion of this offering. Following consummation of our initial public offering, we expect to make future awards under our 2015 Stock Option and Incentive Plan.


2015 Stock Option and Incentive Plan

            Our 2015 Stock Option and Incentive Plan, or the 2015 Plan, was adopted by our board of directors in            2015 and approved by our shareholders in                    2015 and will become effective immediately prior to the time that the registration statement of which this prospectus is part is declared effective by the SEC. The 2015 Plan will replace the Equity Plan and the Quench Equity Plan, which we refer to collectively in this prospectus as the Prior Plans, as our board of directors has determined not to make additional awards under the Prior Plans following the consummation of our initial public offering. The 2015 Plan allows the compensation committee to make equity-based incentive awards to our officers, employees, directors and other key persons (including consultants).

            We have initially reserved            shares of our common stock for the issuance of awards under the 2015. The 2015 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2016, by            % of the outstanding number of shares of our common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization

            The shares we issue under the 2015 Plan will be authorized but unissued shares or shares that we reacquire. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2015 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan.

            Stock options and stock appreciation rights with respect to no more than            shares of common stock may be granted to any one individual in any one calendar year. The maximum number of shares that may be issued as incentive stock options in any one calendar year period may not exceed            shares.

            The 2015 Plan will be administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2015 Plan. Persons eligible to participate

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    in the 2015 Plan will be those full or part-time officers, employees, non-employee directors and other key persons (including consultants) as selected from time to time by our compensation committee in its discretion.

            The 2015 Plan permits the granting of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. The option exercise price of each option will be determined by our compensation committee but may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each option will be fixed by our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.

            Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each stock appreciation right will be fixed by our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each stock appreciation right may be exercised.

            Our compensation committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Our compensation committee may also grant shares of common stock that are free from any restrictions under the 2015 Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.

            Our compensation committee may grant performance share awards to participants that entitle the recipient to receive awards of common stock upon the achievement of certain performance goals and such other conditions as our compensation committee shall determine. Our compensation committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock.

            Our compensation committee may grant cash bonuses under the 2015 Plan to participants, subject to the achievement of certain performance goals.

            Our compensation committee may grant awards of restricted stock, restricted stock units, performance share awards or cash-based awards under the 2015 Plan that are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. Such awards will only vest or become payable upon the attainment of performance goals that are established by our compensation committee and related to one or more performance criteria. The performance criteria that could be used with respect to any such awards include strategic, financial or operational objectives, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. From and after the time that we become subject to Section 162(m) of the Code, the maximum award that is intended to qualify as "performance-based compensation" under Section 162(m) of the Code that may be made to certain of our officers during any one calendar year period is                        shares of common stock with respect to a share-based award and $            with respect to a cash-based award.

            The 2015 Plan provides that upon the effectiveness of a "sale event," as defined in the 2015 Plan, an acquirer or successor entity may assume, continue or substitute for the outstanding awards under the 2015 Plan. To the extent that awards granted under the 2015 Plan are not assumed or continued or substituted by the successor entity, upon the effective time of the sale event, all unvested awards

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    granted under the 2015 Plan shall terminate. In the event of such termination, individuals holding options and stock appreciation rights will be permitted to exercise such options and stock appreciation rights (to the extent exercisable) prior to the sale event. In addition, in connection with the termination of the 2015 Plan upon a sale event, we may make or provide for a cash payment to participants holding vested and exercisable options and stock appreciation rights equal to the difference between the per share cash consideration payable to shareholders in the sale event and the exercise price of the options or stock appreciation rights.

            Our board of directors may amend or discontinue the 2015 Plan and our compensation committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder's consent. Certain amendments to the 2015 Plan require the approval of our shareholders.

            No awards may be granted under the 2015 Plan after the date that is ten years from the date of shareholder approval of the 2015 Plan. No awards under the 2015 Plan have been made prior to the date hereof.


401(k) Plans

            We maintain two tax-qualified retirement plans that provide eligible employees with an opportunity to save for retirement on a tax-advantaged basis: the Seven Seas Water Corporation 401(k) Plan (the "SSW 401(k) Plan") and the Quench USA, Inc. 401(k) Profit Sharing Plan and Trust (the "Quench 401(k) Plan"). All participants' interests in their contributions are 100% vested when contributed. Participants in the Seven Seas Water Corporation 401(k) Plan receive a 3% percent safe harbor contribution from us, regardless of whether they make elective deferrals. Participants in the Quench 401(k) Plan receive a matching contribution from us equal to 50% of a participant's contributions up to 6% of a participant's compensation. Pre-tax contributions are allocated to each participant's individual account and are then invested in selected investment alternatives according to the participants' directions. Participants in the SSW 401(k) Plan are also eligible to make contributions on a post-tax basis. Both retirement plans are intended to qualify under Sections 401(a) and 501(a) of the Code.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

        In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements and indemnification arrangements, discussed, when required, in the sections titled "Management" and "Executive Compensation," the following is a description of each transaction since January 1, 2012 and each currently proposed transaction in which:

    we have been or are to be a participant;

    the amount involved exceeded or exceeds $120,000; and

    any of our directors, executive officers, or holders of more than 5% of our common shares, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.


LLC Conversion

        AquaVenture Holdings LLC, the registrant whose name appears on the cover of this prospectus, is a Delaware limited liability company. Before the completion of this offering, AquaVenture Holdings LLC will contribute to AquaVenture Holdings N.V. the stock of Quench USA, Inc. and Seven Seas Water Corporation and all cash and other remaining assets and liabilities (other than the shares of AquaVenture Holdings N.V. it holds) in exchange for additional shares of AquaVenture Holdings N.V. The shares of AquaVenture Holdings N.V. will then be distributed to the members of AquaVenture Holdings LLC pursuant to the terms of its limited liability company agreement. Quench USA Holdings LLC, a member of AquaVenture Holdings LLC, will then contribute to AquaVenture Holdings N.V. all of its assets and liabilities (other than the shares of AquaVenture Holdings N.V. it holds) in exchange for additional shares of AquaVenture Holdings N.V. The shares of AquaVenture Holdings N.V. will then be distributed to members of Quench USA Holdings LLC pursuant to the terms of its limited liability company agreement.


Equity Financings

    Class B Financing and Acquisition of Quench Assets

        From June through September 2014, in connection with our acquisition of the assets of Quench USA Holdings LLC, which we refer to as Quench, we issued an aggregate of 10,638,257 of our Class B shares, for aggregate consideration of $52.6 million. Additionally, we issued to Quench, currently a holder of more than 5% of our voting securities, 29,036,947 of our Class Q shares and 2,829,598 Class B shares in exchange for all its assets in a transaction valued at $157.7 million in the aggregate. The fair value of the Class Q and B shares at the time of the Quench transaction was $143.7 million and $14.0 million, respectively.

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        The following table summarizes the participation in the Class B financing and our acquisition of Quench assets by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

Name of Holder
  Securities Acquired   Aggregate Value
of Securities
Acquired
 

Quench USA Holdings LLC(1)

  29,036,947 Class Q shares of AquaVenture Holdings LLC and 2,829,598 Class B shares of AquaVenture Holdings LLC   $ 14,000,000  

Entities affiliated with Element Partners(2)

 

3,404,961 Class B shares of AquaVenture Holdings LLC and 9,370,000 Class B shares of Quench USA Holdings LLC

 
$

26,216,726
 

Virgin Green Fund I, L.P.(3)

 

1,000,000 Class B Shares of Quench USA Holdings LLC

 
$

1,000,000
 

Douglas R. Brown(4)

 

153,607 Class B shares of AquaVenture Holdings LLC and 500,000 shares of Class B shares of Quench USA Holdings LLC

 
$

1,260,000
 

Anthony Ibarguen

 

50,000 Class B shares of Quench USA Holdings LLC

 
$

50,000
 

Hugh Evans

 

202,114 Class B shares of AquaVenture Holdings LLC

 
$

999,999
 

(1)
Holder of more than 5% of our voting securities of AquaVenture Holdings LLC securities.

(2)
Consists of 9,229,450 Class B shares of Quench USA Holdings LLC held by Element Partners II, L.P., 140,550 Class B shares of Quench USA Holdings LLC held by Element II Intrafund, L.P., 1,399,456 Class B shares of AquaVenture Holdings LLC held by DFJ Element, L.P., 37,902 Class B shares of AquaVenture Holdings LLC held by Element Intrafund L.P., 1,938,089 Class B shares of AquaVenture Holdings LLC held by Element Partners II L.P. and 29,514 Class B shares of AquaVenture Holdings LLC. The general partner of Element Partners II, L.P. and Element Partners II Intrafund, L.P. is Element Partners II G.P. The general partner of Element Partners II G.P., L.P. is Element II G.P., LLC. The general partner of DFJ Element, L.P. and DFJ Element Intrafund, L.P. is DFJ Element Partners, LLC. The general partner of DFJ Element Partners, LLC is Element Venture Partners, LLC. Mr. Bevan, a member of our board of directors, is a managing member of Element II G.P., LLC and Element Venture Partners, LLC.

(3)
Consists of 1,000,000 common shares of Quench USA Holdings LLC held by Virgin Green Fund I, L.P. The general partner of Virgin Green Fund I, L.P. is VGF Partners I, L.P. The general partner of VGF Partners I, L.P. is VGF I Limited. Evan Lovell, a member of our board of directors, is an investment partner at the VGF I Limited.

(4)
Consists of 153,607 Class B shares of AquaVenture Holdings LLC held by DRB Pure Water Solutions IV and 500,000 Class B shares of Quench USA Holdings LLC. Douglas R. Brown, the CEO of AquaVenture Holdings LLC, acts as Manager of DRB Pure Water Solutions IV.

    December 2013 Financing of Quench

        In December 2013, Quench USA Holdings LLC issued an aggregate of 21,050,000 of its ordinary common shares for aggregate consideration of $21,050,000, and contributed the $21,050,000 of proceeds to Quench.

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        The following table summarizes the participation in the Class B financing and our acquisition of Quench assets by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

Name of Holder
  Securities Acquired   Aggregate Value
of Securities
Acquired
 

Element Entities(1)

  8,500,000 ordinary common shares of Quench USA Holdings LLC   $ 8,500,000  

Virgin Green Fund I, L.P.(2)

  500,000 ordinary common shares of Quench USA Holdings LLC   $ 500,000  

Douglas R. Brown(3)

  550,000 ordinary common shares of Quench USA Holdings LLC   $ 550,000  

(1)
Consists of 8,372,500 ordinary common shares of Quench USA Holdings LLC held by Element Partners II L.P, and 127,500 Ordinary Shares of Quench USA Holdings LLC held by Element Partners II Intrafund, L.P. The general partner of Element Partners II, L.P. and Element Partners II Intrafund, L.P. is Element Partners II G.P., L.P. The general partner of Element Partners II G.P., L.P. is Element II G.P., LLC. Michael J. Bevan, a member of our board of directors, is a managing member of Element II G.P., LLC.

(2)
The general partner of Virgin Green Fund I, L.P. is VGF Partners I, L.P. The general partner of VGF Partners I, L.P. is VGF I Limited. Evan Lovell, a member of our board of directors, is an investment partner at VGF I Limited.

(3)
550,000 Ordinary Shares of AquaVenture Holdings LLC beneficially held by DRB Pure Water Solutions III. Douglas R. Brown, the CEO of AquaVenture Holdings LLC, acts as Manager of DRB Pure Water Solutions III.

    Class B Financing

        In April 2015, we issued an aggregate of 6,063,424 of our Class B shares, for aggregate consideration of $30,000,003, and in May 2015, we issued an aggregate of 278,415 of our Class B shares for aggregate consideration of $1,377,514. In August 2015, we issued an aggregate of 49,220 shares of our Class B shares for aggregate consideration of $243,526 to certain existing shareholders in fulfillment of certain contractual preemptive rights.

        The following table summarizes the participation in the Class B financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

Name of Holder
  Securities Acquired   Aggregate Value
of Securities
Acquired
 

Element Entities(1)

  2,526,426 Class B shares of AquaVenture Holdings LLC   $ 12,500,000  

(1)
Consists of 1,791,741 Class B shares of AquaVenture Holdings LLC held by Element Partners II L.P., 27,285 Class B shares of AquaVenture Holdings LLC held by Element II Intrafund, and 1,399,456 Class B shares of AquaVenture Holdings LLC held by Element II-A, L.P. The general partner of Element Partners II, L.P. and Element Partners II Intrafund, L.P. is Element Partners II G.P., L.P. The general partner of Element Partners II G.P., L.P. is Element II G.P., LLC. The general partner of Element Partners II-A, L.P. is Element Partners II-A G.P., L.P. The general partner of Element Partners II-A G.P., L.P. is Element II-A G.P., LLC. Michael J. Bevan, a member of our board of directors, is a managing member of Element II G.P., LLC and Element II-A G.P., LLC.


Registration Rights

        We and certain of our directors, executive officers and certain holders of our common shares are party to agreements providing for rights to register under the Securities Act the resale of certain shares. See the section titled "Description of Capital Stock—Registration Rights" for more information regarding these registration rights.

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Right of First Refusal and Co-Sale

        We and certain of our directors, executive officers and certain holders of our common shares are parties to the Fourth Amended and Restated Limited Liability Agreement of AquaVenture Holdings LLC, or the LLC Agreement, under which right of first refusal and co-sale provisions imposes restrictions on the transfer of our capital stock. Upon the closing of this offering, the right of first refusal and co-sale provisions and the restrictions on the transfer of our capital stock set forth in this agreement will not apply.


Voting

        We and certain of our directors, executive officers and holders of more than 5% of our common shares are parties to the LLC Agreement under which the shareholders have agreed to vote their shares on certain matters, including with respect to the election of directors. Upon the closing of this offering, the voting provisions will not apply and none of our shareholders will have any special rights regarding the election or designation of members of our board of directors or the voting of capital stock of the company.


Other Transactions

        We have granted stock options to our executive officers and certain of our directors. See the sections titled "Executive Compensation—Outstanding Equity Awards of Fiscal 2014 Year-End" and "Management—Non-Employee Director Compensation" for a description of these options.

        We have entered into change in control arrangements with certain of our executive officers that, among other things, provide for certain severance and change in control benefits. See the section titled "Executive Compensation—Employment Agreements, Severance and Change in Control Agreements" for more information regarding these agreements.

        On June 6, 2014, AquaVenture Holdings LLC in connection with a contribution agreement with Quench USA Holdings LLC issued Class Q shares and Class B shares, which were valued at the time at $157,666,101 in the aggregate, to Quench USA Holdings LLC, in exchange for all of its assets. Immediately prior to the issuance, certain shareholders of Quench USA Holdings LLC, purchased Class B shares through Quench USA Holdings LLC which provided equivalent economic interests as AquaVenture Class B shares.

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        The following table summarizes the participation in the AquaVenture Class B share issuance and Class B share purchase through Quench by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

 
  AquaVenture   Quench    
 
 
  Aggregate Value
of Securities
Acquired
 
 
  Class B Shares   Class B Shares  

5% Shareholders:

                   

Entities affiliated with Element Partners(1)

    3,404,961     9,370,000   $ 26,216,725  

Virgin Green Fund I, L.P.(2)

        1,000,000   $ 1,000,000  

Quench USA Holdings LLC(3)

    2,829,598       $ 14,000,002  

Executive Officers and Directors:

   
 
   
 
   
 
 

Douglas R. Brown(4)

    153,607     500,000   $ 1,260,000  

Anthony Ibarguen

        50,000   $ 50,000  

Hugh Evans

    202,114       $ 999,999  

(1)
Consists of 9,229,450 Class B shares of Quench USA Holdings LLC held by Element Partners II L.P., 140,550 Class B shares of Quench USA Holdings LLC held by Element II Intrafund, 1,399,456 Class B shares of AquaVenture Holdings LLC held by DFJ element, L.P., 37,902 Class B shares of AquaVenture Holdings LLC held by Element Intrafund L.P., 1,938,089 Class B shares of AquaVenture Holdings LLC held by Element Partners II L.P., 29,514 Class B shares of AquaVenture Holdings LLC. The general partner of Element Partners II, L.P. and Element Partners II Intrafund, L.P. is Element Partners II G.P., L.P. The general partner of Element Partners II G.P., L.P. is Element II G.P., LLC. The general partner of DFJ Element Intrafund, L.P. and DFJ Element, L.P. is DFJ Element Partners, LLC. The managing member of DFJ Element Partners, LLC is Element Venture Partners, LLC. Michael J. Bevan, a member of our board of directors, is a managing member of Element II G.P., L.P. and Element Venture Partners, LLC.

(2)
The general partner of Virgin Green Fund I, L.P. is VGF Partners I, L.P. The general partner of VGF Partners I, L.P. is VGF I Limited. Evan Lovell, a member of our board of directors, is an investment partner at VGF I Limited.

(3)
Holder of more than 5% of our voting securities of AquaVenture Holdings LLC securities.

(4)
Consists of 153,607 Class B shares of AquaVenture Holdings LLC held by DRB Pure Water Solutions IV and 500,000 Class B shares of Quench USA Holdings LLC. Douglas R. Brown, the CEO of AquaVenture Holdings LLC, acts as Manager of DRB Pure Water Solutions IV.


Limitation of Liability and Indemnification of Officers and Directors

        Prior to the completion of this offering, AquaVenture Holdings N.V. expects to adopt amended and restated articles of association, which will become effective immediately prior to the completion of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Curaçao law. Consequently, our directors will not be personally liable to us or our shareholders for monetary damages for any breach of fiduciary duties as directors.

        Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Curaçao Civil Code is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Curaçao Civil Code.

        Prior to the completion of this offering, we expect to adopt amended articles of association which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he is or was one of our directors or officers or is or was serving at our request as a director or officer of

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another corporation, partnership, joint venture, trust, or other enterprise. AquaVenture Holdings N.V.'s articles of association are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our articles of association will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

        Further, prior to the completion of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Curaçao Civil Code. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements will also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

        The limitation of liability and indemnification provisions that are expected to be included in our articles of association and in indemnification agreements that we enter into with our directors and executive officers may discourage shareholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other shareholders. Further, a shareholder's investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

        We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.

        Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.

        The underwriting agreement provides for indemnification by the underwriters of us and our officers, directors and employees for certain liabilities arising under the Securities Act, or otherwise.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.


Policies and Procedures for Related Party Transactions

        We believe the terms of the transactions described above were comparable to terms we could have obtained in arm's-length dealings with unrelated third parties. Following the completion of this offering,

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the audit committee will have the primary responsibility for reviewing and approving or disapproving "related party transactions," which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. We intend to adopt a written policy, effective upon the effectiveness of the registration statement of which this prospectus forms a part, which provides that related persons are not permitted to enter into a related party transaction with us without the prior consent of our audit committee, or other disinterested members of our board of directors in the case it is inappropriate for our audit committee to review such transaction due to a conflict of interest. For purposes of this policy, a related person will be defined as a director, executive officer, nominee for director, or greater than 5% beneficial owner of our common shares, in each case since the beginning of the most recently completed year, and their immediate family members. Our audit committee charter will provide that the audit committee shall review and approve or disapprove any related party transactions. As of the date of this prospectus, we have not adopted any formal standards, policies or procedures governing the review and approval of related party transactions, but we expect that our audit committee will do so in the future.

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PRINCIPAL SHAREHOLDERS

        The following table sets forth certain information with respect to the beneficial ownership of our common shares as of June 30, 2015, and as adjusted to reflect the sale of common shares offered by us in this offering assuming no exercise of the underwriters' option to purchase additional shares, for:

    each of our named executive officers;

    each of our directors;

    all of our directors and executive officers as a group; and

    each beneficial owner of more than five percent of any class of our voting securities.

        We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have deemed our common shares subject to options that are currently exercisable or exercisable within 60 days of June 30, 2015 to be outstanding and to be beneficially owned by the person holding the option for the purpose of computing the percentage ownership of that person but have not treated them as outstanding for the purpose of computing the percentage ownership of any other person.

        We have based percentage ownership of our common shares before this offering on                        common shares outstanding as of June 30, 2015. Percentage ownership of our common shares after this offering assumes our sale of                        common shares in this offering.

Name of Beneficial Owner(1)
  Number of
common shares
owned
  Percentage
before the
offering
  Percentage
after the
offering
 

Principal Shareholder:

                   

Entities affiliated with Element Partners(2)

                   

Virgin Green Fund I, L.P.(3)

                   

Named Executive Officers:

   
 
   
 
   
 
 

Douglas R. Brown(4)

                   

Anthony Ibarguen

                   

Lee S. Muller

                   

Robert Dixon

                   

John Curtis

                   

Directors:

   
 
   
 
   
 
 

Michael J. Bevan(2)

                   

Evan Lovell(3)

                   

Hugh Evans

                   

Paul Hanrahan

                   

Brian O'Neill

                   

Cyril Meduña(5)

                   

Richard Reilly

                   

All directors and executive officers as a group (10 persons)

                   

(1)
A "beneficial owner" of a security is determined in accordance with Rule 13d-3 under the Exchange Act and generally means any person who, directly or indirectly, through any contract,

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    arrangement, understanding, relationship, or otherwise, has or shares: voting power which includes the power to vote, or to direct the voting of, such security; and/or investment power which includes the power to dispose, or to direct the disposition of, such security.

(2)
Consists of                        common shares held by Element Partners II L.P.,                         common shares held by Element Partners II Intrafund, L.P.,                        common shares held by Element Partners II-A, L.P.,                         common shares held by DFJ Element, L.P. and                        common shares held by DFJ Element Intrafund L.P. (such entities together, the "Element Entities"). The general partner of Element Partners II, L.P., Element Partners II Intrafund, L.P. and Element Partners II-A, L.P. is Element Partners II G.P., L.P. The general partner of Element Partners II G.P., L.P. is Element II G.P., LLC. The general partner of DFJ Element, L.P. and DFJ Element Intrafund, L.P. and is DFJ Element Partners, LLC. The general partner of DFJ Element Partners, LLC is Element Venture Partners, LLC. Mr. Bevan, a member of our board of directors, is a managing member of Element II G.P., LLC and Element Venture Partners, LLC. Collectively, Element II G.P., L.P. and Element Venture Partners, LLC have decision-making power over the disposition and voting of shares of portfolio investments of each of the Element Entities. Since Element II G.P., L.P. and Element Venture Partners, LLC have decision-making power over the Element Entities, Mr. Bevan may be deemed to beneficially own the shares that the Element Entities hold of record or may deemed to beneficially own. Mr. Bevan, Element II G.P., L.P. and Element Venture Partners, LLC disclaim beneficial ownership over the shares held by the Element Entities.

(3)
Consists of                        common shares held by Virgin Green Fund I, L.P. The general partner of Virgin Green Fund I, L.P. is VGF Partners I, L.P. The general partner of VGF Partners I, L.P. is VGF I Limited. Evan Lovell, a member of our board of directors, is an investment partner at VGF I Limited. VGF I Limited has decision-making power over the disposition and voting of shares held by Virgin Green Fund I, L.P. and, as such, Mr. Lovell may be deemed to beneficially own the shares held by Virgin Green Fund I, L.P. Mr. Lovell and VGF I Limited disclaim beneficial ownership over the shares held by Virgin Green Fund I, L.P.

(4)
Consists of                        common shares held by DRB Pure Water Solutions LLC,                         common shares held by DRB Pure Water Solutions II LLC,                        common shares held by DRB Pure Water Solutions IV LLC and                        common shares. Douglas R. Brown, the CEO of AquaVenture Holdings LLC, acts as Manager of the DRB entities. Mr. Brown, DRB Pure Water Solutions LLC, DRB Pure Water Solutions II LLC and DRB Pure Water Solutions IV LLC disclaim beneficial ownership over the shares held by the DRB Entities.

(5)
Consists of                        common shares held by Guayacan Private Equity Fund Limited Partnership II common shares held by Guayacan Private Equity Fund Limited Partnership II-A LLC,                        common shares held by Venture Capital Fund, Inc. and                        common shares held by Mr. Meduña. The general partner of Guayacan Private Equity Fund Limited Partnership II and Guayacan Private Equity Fund Limited Partnership II-A LLC (the "Guayacan Funds") is Advent-Morro Equity Partners GP II, LLC. Mr. Meduña acts as Managing Member of Advent-Morro Equity Partners GP II, LLC and is President and a Director of Venture Capital Fund, Inc. Advent-Morro Equity Partners GP II, LLC has decision-making power over the disposition and voting of shares of portfolio investments of the Guayacan Funds. Mr. Meduña has decision-making power over the disposition and voting of shares of portfolio investments Venture Capital Fund, Inc. Since Advent-Morro Equity Partners GP II, LLC and Mr. Meduña personally have decision-making power over the Guayacan Funds and Venture Capital Fund, Inc. (together, the "Advent-Morro Entities"), Mr. Meduña may be deemed to beneficially own the shares that the Advent-Morro Entities hold of record or may deemed to beneficially own. Mr. Meduña and Advent-Morro Equity Partners GP II, LLC disclaim beneficial ownership over the shares held by the Advent-Morro Entities.

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DESCRIPTION OF CAPITAL STOCK

         The following descriptions are summaries of the material terms of AquaVenture Holdings N.V.'s articles of association and memorandum of association. Reference is made to the more detailed provisions of, and the descriptions are qualified in their entirety by reference to, the articles of association and memorandum of association. Please note that this summary is not intended to be exhaustive. For further information please refer to the full version of AquaVenture Holdings N.V.'s articles of association and memorandum of association which is included as an exhibit to the registration statement of which this prospectus is part.


General

        Our company was established under the laws of Curaçao on January 29, 2014. AquaVenture Holdings N.V.'s register of members is kept at AquaVenture Holdings N.V.'s registered office, which is                    . Our secretary is                    . Under AquaVenture Holdings N.V.'s articles of association and memorandum of association to be effective upon the closing of this offering, our authorized share capital will consist of common shares and preferred shares. Upon completion of this offering, there will be outstanding                    common shares.


Differences in Corporate Law

         Set forth below is a comparison of certain shareholder rights and corporate governance matters under Delaware law and Curaçao law:

Corporate Law Issue
  Delaware Law   Curaçao Law
Special Meetings of Shareholders   Shareholders generally do not have the right to call meetings of shareholders unless that right is granted in the certificate of incorporation or by-laws. However, if a corporation fails to hold its annual meeting within a period of 30 days after the date designated for the annual meeting, or if no date has been designated for a period of 13 months after its last annual meeting, the Delaware Court of Chancery may order a meeting to be held upon the application of a shareholder.   Shareholders holding 10% or more of the company's voting rights and entitled to vote at the relevant meeting may legally require if the board of directors does not comply with such request, the persons constituting at least 10% of the voting rights of the company may call for the meeting themselves.

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Corporate Law Issue
  Delaware Law   Curaçao Law

Interested Director Transactions

  Interested director transactions are permissible and may not be legally voided if:

either a majority of disinterested directors, or a majority in interest of holders of shares of the corporation's capital stock entitled to vote upon the matter, approves the transaction upon disclosure of all material facts; or

the transaction is determined to have been fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof or the shareholders.

 

Article 2:11 (1) of the Curaçao Civil Code ("CCC") states that the supervisory board of directors is authorized to represent the company in legal acts with or against a director. If there is no supervisory board of directors, the general meeting of shareholders is authorized or a for that transaction appointed representative or body by the general meeting of shareholders. Article 2:11 (2) of the CCC determines that the articles of association may determine otherwise from Article 2:11 (1) of the CCC. This can also be done in a resolution as by the general meeting of shareholders if such is determined in the articles of association.


Cumulative Voting

 

The certificate of incorporation of a Delaware corporation may provide that shareholders of any class or classes or of any series may vote cumulatively either at all elections or at elections under specified circumstances.

 

The articles of association of a Curaçao corporation may provide that shareholders of any class or classes or of any series may vote cumulatively either at all elections or at elections under specified circumstances.

Approval of Corporate Matters by Written Consent

 

Unless otherwise specified in a corporation's certificate of incorporation, shareholders may take action permitted to be taken at an annual or special meeting, without a meeting, notice or a vote, if consents, in writing, setting forth the action, are signed by shareholders with not less than the minimum number of votes that would be necessary to authorize the action at a meeting. All consents must be dated and are only effective if the requisite signatures are collected within 60 days of the earliest dated consent delivered.

 

A resolution of the general meeting of shareholder may also become effective by the casting of votes in writing outside a meeting, provided no bearer shares are issued and all persons entitled to be present at a general meeting of shareholders have agreed to this manner of voting.

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Corporate Law Issue
  Delaware Law   Curaçao Law
Business Combinations   With certain exceptions, a merger, consolidation or sale of all or substantially all of the assets of a Delaware corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon.   A sale or disposal of all or substantially all the assets of a Curaçao company must be approved by the shareholders in a general meeting. A merger involving a Curaçao company must be documented in a notarial deed agreement. The proposal for the merger is done by the board of managing directors and the resolution for the merger is taken by the general meeting of shareholders.

Limitations on Director's Liability and Indemnification of Directors and Officers

 

A Delaware corporation may include in its certificate of incorporation provisions limiting the personal liability of its directors to the corporation or its shareholders for monetary damages for many types of breach of fiduciary duty. However, these provisions may not limit liability for any breach of the duty of loyalty, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, the authorization of unlawful dividends, stock purchases or redemptions, or any transaction from which a director derived an improper personal benefit. Moreover, these provisions would not be likely to bar claims arising under U.S. federal securities laws.

 

The Curaçao Civil Code does not contain any provision permitting Curaçao companies to limit the liabilities of directors for breach of their duty.

A Curaçao company itself may indemnify directors and officers for any civil law liability.

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Corporate Law Issue
  Delaware Law   Curaçao Law
    A Delaware corporation may indemnify a director or officer of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of his or her position if (i) the director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and (ii) with respect to any criminal action or proceeding, the director or officer had no reasonable cause to believe his or her conduct was unlawful.    

Appraisal Rights

 

A shareholder of a Delaware corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights under which the shareholder may receive cash in the amount of the fair value of the shares held by that shareholder (as determined by a court) in lieu of the consideration the shareholder would otherwise receive in the transaction.

 

No appraisal rights.

Shareholder Suits

 

Class actions and derivative actions generally are available to the shareholders of a Delaware corporation for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys' fees incurred in connection with such action.

 

Derivative actions are not permitted under the CCC. Class actions are generally available to shareholders of a Curaçao corporation for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys' fees incurred in connection with such action.

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Corporate Law Issue
  Delaware Law   Curaçao Law
Inspection of Books and Records   All shareholders of a Delaware corporation have the right, upon written demand, to inspect or obtain copies of the corporation's shares ledger and its other books and records for any purpose reasonably related to such person's interest as a shareholder.   The board of managing directors has the duty to have and maintain the books and records (administration) of the company in such a manner that at all times the rights and obligations can be known. Every director has the right to inspect the books and records (Article 2:15 of the CCC).

Amendments to Charter

 

Amendments to the certificate of incorporation of a Delaware corporation require the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon or such greater vote as is provided for in the certificate of incorporation. A provision in the certificate of incorporation requiring the vote of a greater number or proportion of the directors or of the holders of any class of shares than is required by Delaware corporate law may not be amended, altered or repealed except by such greater vote.

 

The articles of association of a Curaçao company may only be amended by execution of a notarial deed following a resolution of the general meeting of shareholders thereto.


Issued Share Capital

        AquaVenture Holdings N.V.'s issued share capital as of                        is                     common shares. Each issued common share is fully paid. We currently have no deferred shares in our issued share capital.


Common Shares

        The holders of common shares are entitled to receive dividends in proportion to the number of common shares held by them and according to the amount paid up on such common shares during any portion or portions of the period in respect of which the dividend is paid. Holders of common shares are entitled, in proportion to the number of common shares held by them and to the amounts paid up thereon, to share in any surplus in the event of AquaVenture Holdings N.V.'s winding up. The holders of common shares are entitled to receive notice of, attend either in person or by proxy or, being a corporation, by a duly authorized representative, and vote at general meetings of shareholders.


Preferred Shares

        Pursuant to Curaçao law and our memorandum and articles of association, our board of directors by resolution may establish one or more classes of preferred shares having such number of shares, designations, dividend rates, relative voting rights, liquidation rights and other relative participation, optional or other special rights, qualifications, limitations or restrictions as may be fixed by the board

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without any further shareholder approval. Such rights, preferences, powers and limitations as may be established would be preferential to the rights attaching to our ordinary shares and could also have the effect of discouraging an attempt to obtain control of us.


Options

        As of                    , 2015, there were options to purchase                common shares outstanding.


Anti-Takeover Effects of Certain Provisions of Our Articles of Association

General

        Our articles of association will contain provisions that could have the effect of delaying, deterring or preventing another party from acquiring or seeking to acquire control of us. These provisions, as well as our ability to issue preferred shares, are designed to discourage certain types of coercive takeover practices and inadequate takeover bids. These provisions are also intended to encourage anyone seeking to acquire control of us to negotiate first with our board of directors. However, these provisions may also delay, deter or prevent a change in control or other takeovers of our company that our shareholders might consider to be in their best interests, including transactions that might result in a premium being paid over the market price of our ordinary shares and also may limit the price that investors are willing to pay in the future for our ordinary shares. These provisions may also have the effect of preventing changes in our management. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us, and that the benefits of this increased protection outweigh the disadvantages of discouraging those proposals, because negotiation of those proposals could result in an improvement of their terms. A description of these provisions is set forth below.

Staggered Board of Directors

        Our articles of association will provide for a staggered board of directors consisting of three classes of directors. Directors of each class are chosen for three-year terms upon the expiration of their current terms and each year one class of our directors will be elected by our shareholders. The terms of the Class I, Class II and Class III directors will expire in 2016, 2017 and 2018, respectively. Beginning in 2016, our shareholders will elect directors for three-year terms upon the expiration of their current terms. Our shareholders will elect only one class of directors each year. We believe that classification of our board of directors will help to ensure the continuity and stability of our business strategies and policies as determined by our board of directors. There is no cumulative voting in the election of directors. As such, this classified board provision could have the effect of making the replacement of incumbent directors more time-consuming and difficult. At least two annual meetings of shareholders, instead of one, will generally be required to effect a change in a majority of our board of directors. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. The staggered terms of directors also may delay, defer or prevent a tender offer or an attempt to change control of us, even though a tender offer or change in control might be believed by our shareholders to be in their best interest.

Issuance of Preferred Shares

        The ability to authorize and issue preferred shares is vested in our board of directors, which makes it possible for our board of directors to issue preferred shares with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.

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Shareholder Action by Written Consent

        Subject to the right of shareholders of the company pursuant to Article 2:135 of the Curaçao Civil Code, our articles of association will provide that all shareholder actions are required to be taken by a vote of the shareholders at an annual or special meeting, and that shareholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take shareholder actions and would prevent the amendment of our articles of association or memorandum of association or removal of directors by our shareholders without holding a meeting of shareholders.

Advance Notice Procedure

        Our articles of association will provide an advance notice procedure for shareholders to nominate director candidates for election or to bring business before an annual meeting of shareholders, including proposed nominations of persons for election to the board of directors. Subject to the rights of the holders of any series of preferred shares, only persons nominated by, or at the direction of, our board of directors or by a shareholder who has given proper and timely notice to our secretary prior to the meeting, will be eligible for election as a director. In addition, any proposed business other than the nomination of persons for election to our board of directors must constitute a proper matter for shareholder action pursuant to the notice of meeting delivered to us. For notice to be timely, it must be received by our secretary not less than 90 nor more than 120 calendar days prior to the first anniversary of the previous year's annual meeting (or if the date of the annual meeting is advanced more than 30 calendar days or delayed by more than 60 calendar days from such anniversary date, not earlier than the 120 th  calendar day nor more than 90 days prior to such meeting or the 10 th  calendar day after public announcement of the date of such meeting is first made). These advance notice provisions may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain control of us.


Limitation of Liability of Directors and Officers

        Our articles of association will include provisions that indemnify, to the fullest extent allowable under Curaçao law the personal liability of directors or officers for monetary damages for actions taken as our director or officer, or for serving at our request as a director or officer or another position at another corporation or enterprise, as the case may be. We will also be expressly authorized to advance certain reasonable expenses (including attorneys' fees and disbursements and court costs) to our directors and officers and to carry directors' and officers' insurance to protect us, our directors, officers and certain employees for some liabilities.

        We believe that the indemnification provisions in AquaVenture Holdings N.V.'s articles of association and the indemnification agreements will facilitate our ability to continue to attract and retain qualified individuals to serve as directors and officers.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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Other Curaçao Law Considerations

Dividends

        AquaVenture Holdings N.V. may not declare a dividend unless our directors who are to authorize the dividend have determined that the distributions to shareholders would not result in AquaVenture Holdings N.V. having negative net equity.

Mandatory Purchases and Acquisitions

        The Curaçao Company Law provides that where a person has made an offer to acquire a class of all of our outstanding shares not already held by the person and has as a result of such offer acquired or contractually agreed to acquire 95% or more of such outstanding shares, that person is then entitled (and may be required) to acquire the remaining shares of such shares. In such circumstances, a holder of any such remaining shares may apply to the Curaçao court for an order that the person making such offer not be entitled to purchase the holder's shares or that the person purchase the holder's shares on terms different to those under which the person made such offer.

        Other than as described above, we are not subject to any regulations under which a shareholder that acquires a certain level of share ownership is then required to offer to purchase all of our remaining shares on the same terms as such shareholder's prior purchase.

Minority Shareholder Protections

        A minority shareholder having at least 10% of the common shares of AquaVenture Holdings N.V. may request a Curaçao court to conduct an investigation into the affairs and management of AquaVenture Holdings N.V. Such request will be granted if the court finds there are valid reasons to doubt the good management of AquaVenture Holdings N.V.

        A shareholder that by acts of the company or one or more of the other shareholders is harmed in such a manner that from a reasonable perspective it can no longer be expected from him to remain a shareholder, can claim from AquaVenture Holdings N.V. that AquaVenture Holdings N.V. purchases his shares in cash.


Registration Rights

        Pursuant to the terms of our fourth amended and restated investors' rights agreement, immediately following this offering, the holders of            shares of AquaVenture Holdings N.V. will be entitled to rights with respect to the registration of these shares under the Securities Act as described below.

Demand Registration Rights

        At any time after six months from the date of this offering, the holders of at least 50% of the then-outstanding shares having registration rights can request that we file a registration statement covering registrable securities. If the holders requesting registration intend to distribute their shares by means of an underwriting, the underwriters of such offering will have the right to limit the number of shares to be underwritten for reasons related to the marketing of the shares. We are only required to file registration statements that reasonably anticipated aggregate price to the public of such public offering would exceed $5,000,000. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if our board of directors determines that the filing would be adversely affect us or our shareholders, and we are not required to effect the filing of a registration statement during the period beginning on the effective date of a registration initiated by us and ending on a date 120 days following the effective date of, a registration initiated by us.

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Piggyback Registration Rights

        If we register any of our securities for public sale, holders of shares having registration rights will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to sales of shares of participants in one of our stock plans or a registration relating to a corporate reorganization or other transaction under Rule 145 of the Securities Act. The underwriters of any underwritten offering will have the right, in their sole discretion, to limit, because of marketing reasons, the number of shares registered by these holders, in which case the number of shares to be registered will be apportioned pro rata among these holders according to the total amount of securities entitled to be included by each holder, or in a manner mutually agreed upon by the holders.

Form S-3 Registration Rights

        The holders of outstanding shares reasonably anticipated aggregate price to the public of such public offering would exceed $2,000,000 having registration rights can request that we register all or part of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if our board of directors determines that the filing would be adversely affect us or our shareholders, and we are not required to effect the filing of a registration statement during the period beginning on the effective date of a registration initiated by us and ending on a date 120 days following the effective date of, a registration initiated by us.

Expenses of Registration Rights

        We generally will pay all expenses, other than underwriting discounts and commissions and the reasonable fees and disbursements of more than one counsel for the selling shareholders, incurred in connection with the registrations described above.

Expiration of Registration Rights

        The registration rights described above will expire, with respect to any particular holder of these rights, when that holder holds 1% or less of our then-outstanding common shares.


Transfer Agent and Registrar

        Upon the completion of this offering, the transfer agent and registrar for our common shares will be                .


Listing

        We have applied for the listing of our common shares on the New York Stock Exchange under the symbol "WAAS."

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there has been no public market for our common shares, and we cannot predict the effect, if any, that market sales of common shares or the availability of common shares for sale will have on the market price of our common shares prevailing from time to time. Future sales of our common shares in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common shares in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.

        Following the completion of this offering, based on the number of shares of our capital stock outstanding as of June 30, 2015, we will have a total of          common shares outstanding. Of these outstanding shares, all of the          common shares sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.

        The remaining outstanding common shares will be deemed "restricted securities" as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. In addition, all of our executive officers, directors and holders of over 90% of our common shares have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus. As a result of these agreements and the provisions of our registration rights agreement described above under the section titled "Description of Capital Stock—Registration Rights," subject to the provisions of Rule 144 or Rule 701, based on the assumed initial offering date of                , 2015, shares will be available for sale in the public market as follows:

    beginning on the date of this prospectus, the          common shares sold in this offering will be immediately available for sale in the public market;

    beginning 90 days after the date of this prospectus,          additional common shares may become eligible for sale in the public market upon the satisfaction of certain conditions as set forth in the section titled "—Lock-Up Agreements," of which the shares held by affiliates are subject to the volume and other restrictions of Rule 144, as described below;

    beginning 181 days after the date of this prospectus,          additional common shares will become eligible for sale in the public market, of which the shares held by affiliates are subject to the volume and other restrictions of Rule 144, as described below; and

    the remainder of the common shares will be eligible for sale in the public market from time to time thereafter, subject in some cases to the volume and other restrictions of Rule 144, as described below.


Lock-Up Agreements

        We, our executive officers, directors and holders of over 90% of our shares have agreed or will agree that, subject to certain exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Citigroup, dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our capital stock. Citigroup may, in its discretion, and with the company's consent, release any of the securities subject to these lock-up agreements at any time.

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Rule 144

        In general, under Rule 144 as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

        In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period, a number of shares that does not exceed the greater of:

    1% of the number of common shares then outstanding, which will equal approximately                shares immediately after this offering; or

    the average weekly trading volume of our common shares during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

        Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.


Rule 701

        Rule 701 generally allows a shareholder who purchased common shares pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.


Registration Rights

        Pursuant to a registration rights agreement, the holders of up to            common shares, or their transferees, will be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. See the section titled "Description of Capital Stock—Registration Rights" for a description of these registration rights. If the offer and sale of these shares is registered, the shares will be freely tradable without restriction under the Securities Act, and a large number of shares may be sold into the public market.


Warrants

        On June 16, 2014, we issued warrants to ORIX Finance Equity Investors, LP that are exercisable for an aggregate of 60,635 shares of our Class B shares at $4.9477 per share. Additionally, ORIX Finance Equity Investors, LP holds warrants for 956,250 ordinary common shares of Quench USA Holdings LLC exercisable at $1.00 per share.

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Registration Statement on Form S-8

        We intend to file a registration statement on Form S-8 under the Securities Act to register all of the common shares issued or reserved for issuance under our 2015 Stock Option and Incentive Plan and our Prior Plans. We expect to file this registration statement as promptly as possible after the completion of this offering. Shares covered by this registration statement will be eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates, vesting restrictions and any applicable lock-up agreements and market standoff agreements.

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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

        The following is a summary of certain material U.S. federal income tax considerations relating to the acquisition, ownership and disposition of the Shares by a U.S. holder (as defined below). This summary addresses only the U.S. federal income tax considerations for U.S. holders that are initial purchasers of the Shares pursuant to the offering and that will hold such Shares as capital assets for U.S. federal income tax purposes. This summary does not address all U.S. federal income tax matters that may be relevant to a particular U.S. holder. This summary does not address tax considerations applicable to a holder of Shares that may be subject to special tax rules including, without limitation, the following:

    banks, financial institutions or insurance companies;

    brokers, dealers or traders in securities, currencies, commodities, or notional principal contracts;

    tax-exempt entities or organizations, including an "individual retirement account" or "Roth IRA" as defined in Section 408 or 408A of the Code, respectively;

    real estate investment trusts, regulated investment companies or grantor trusts;

    persons that hold the Shares as part of a "hedging," "integrated" or "conversion" transaction or as a position in a "straddle" for U.S. federal income tax purposes;

    partnerships (including entities classified as partnerships for U.S. federal income tax purposes) or other pass-through entities, or persons that will hold the Shares through such an entity;

    certain former citizens or long-term residents of the United States;

    holders that own directly, indirectly, or through attribution 10% or more of the voting power or value of the Shares; and

    holders that have a "functional currency" for U.S. federal income tax purposes other than the U.S. dollar.

        Further, this summary does not address the U.S. federal estate, gift, or alternative minimum tax considerations, or any U.S. state, local, or non-U.S. tax considerations of the acquisition, ownership and disposition of the Shares.

        This description is based on the Code; existing, proposed and temporary U.S. Treasury Regulations promulgated thereunder; and administrative and judicial interpretations thereof, in each case as in effect and available on the date hereof. All the foregoing is subject to change, which change could apply retroactively, and to differing interpretations, all of which could affect the tax considerations described below. There can be no assurances that the U.S. Internal Revenue Service (the "IRS") will not take a contrary or different position concerning the tax consequences of the acquisition, ownership and disposition of the Shares or that such a position would not be sustained. Holders are urged to consult their own tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning, and disposing of the Shares in their particular circumstances.

        For the purposes of this summary, a "U.S. holder" is a beneficial owner of Shares that is (or is treated as), for U.S. federal income tax purposes:

    an individual who is a citizen or resident of the United States;

    a corporation, or other entity that is treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

    an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

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    a trust, if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of such trust or has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

        If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds Shares, the U.S. federal income tax consequences relating to an investment in the Shares will depend in part upon the status of the partner and the activities of the partnership. Such a partner or partnership is urged to consult its tax advisor regarding the U.S. federal income tax considerations of acquiring, owning and disposing of the Shares in its particular circumstances.

        As indicated below, this discussion is subject to U.S. federal income tax rules applicable to a "passive foreign investment company," or a PFIC.

        Persons considering an investment in the Shares are urged to consult their own tax advisors as to the particular tax consequences applicable to them relating to the acquisition, ownership and disposition of the Shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.

Distributions

        Although we do not currently plan to pay dividends, and subject to the discussion under "Passive Foreign Investment Company Considerations," below, the gross amount of any distribution actually or constructively received by a U.S. holder with respect to Shares will be taxable to the U.S. holder as a dividend to the extent of the U.S. holder's pro rata share of our current and accumulated earnings and profits as determined under U.S. federal income tax principles. Distributions in excess of earnings and profits will be non-taxable to the U.S. holder to the extent of, and will be applied against and reduce, the U.S. holder's adjusted tax basis in the Shares. Distributions in excess of earnings and profits and such adjusted tax basis will generally be taxable to the U.S. holder as either long-term or short-term capital gain depending upon whether the U.S. holder has held the Shares for more than one year as of the time such distribution is received. However, since we may not calculate our earnings and profits under U.S. federal income tax principles, a U.S. holder should assume that any distribution will be reported as a dividend. Non-corporate U.S. holders may qualify for the preferential rates of taxation with respect to dividends on Shares applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) applicable to qualified dividend income (as discussed below) if we are a "qualified foreign corporation" and certain other requirements (discussed below) are met. A non U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation with respect to any dividend it pays on shares of stock that are readily tradable on an established securities market in the United States. The Shares will be listed on the NYSE, which is an established securities market in the United States, and we expect the Shares to be readily tradable on the NYSE. However, there can be no assurance that the Shares will be considered readily tradable on an established securities market in the United States in later years. If they are, and subject to the discussion under "Passive Foreign Investment Company Considerations," below, such dividends paid by us will generally be "qualified dividend income" in the hands of individual U.S. holders, provided that a holding period requirement (more than 60 days of ownership, without protection from the risk of loss, during the 121-day period beginning 60 days before the ex-dividend date) and certain other requirements are met. Any dividend income that a U.S. Holder realizes generally will be treated as foreign source income for foreign tax credit limitation purposes. The dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. holders.

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Sale, Exchange or Other Taxable Disposition of the Shares

        A U.S. holder will generally recognize gain or loss for U.S. federal income tax purposes upon the sale, exchange or other taxable disposition of Shares in an amount equal to the difference between the U.S. dollar value of the amount realized from such sale or exchange and the U.S. holder's tax basis for those Shares. Subject to the discussion under "Passive Foreign Investment Company Considerations" below, this gain or loss will generally be a capital gain or loss. The initial tax basis in the Shares generally will be equal to the cost of such Shares. Capital gain from the sale, exchange or other taxable disposition of Shares of a non-corporate U.S. holder is generally eligible for a preferential rate of taxation applicable to capital gains, if the non-corporate U.S. holder's holding period determined at the time of such sale, exchange or other taxable disposition for such Shares exceeds one year (i.e., such gain is long-term taxable gain). The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations under the Code. Any such gain or loss that a U.S. holder recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes.

Medicare Tax

        Certain U.S. holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their "net investment income," which may include all or a portion of their dividend income and net gains from the disposition of Shares. Each U.S. holder that is an individual, estate or trust is urged to consult its tax advisors regarding the applicability of the Medicare tax to its income and gains in respect of its investment in the Shares.

Passive Foreign Investment Company Considerations

        Based on the current and anticipated value of our assets and the composition of our income, assets and operations, we do not expect to be a PFIC for the current taxable year or the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that the IRS will not take a contrary position. A non-U.S. corporation will be classified as a PFIC for any taxable year in which, after applying certain look-through rules, either (i) at least 75% of its gross income is passive income; or (ii) at least 50% of its gross assets (determined on the basis of a quarterly average) is attributable to assets that produce passive income or are held for the production of passive income.

        A separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year. As a result, our PFIC status may change. In particular, the total value of our assets for purposes of the asset test generally will be calculated using the market price of our shares, which may fluctuate considerably. Accordingly, fluctuations in the market price of our shares may result in our being a PFIC for any taxable year. In addition, the composition of our income and assets is affected by how, and how quickly, we spend the cash we raise in any offering, including this offering.

        If we are a PFIC for any taxable year during which you hold shares, you will be subject to special tax rules with respect to any "excess distribution" that you receive and any gain you realize from a sale or other disposition of shares. Under these special tax rules (i) the excess distribution or gain will be allocated ratably over your holding period for the shares, (ii) the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income, and (iii) the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

        Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment of the shares). We do not intend to provide the information necessary for U.S. Holders of our shares to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for an investment in a PFIC described above. If we

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are treated as a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries are also PFICs, you may be deemed to own shares in such lower-tier PFICs. An election for mark-to-market treatment would likely not be available with respect to any such subsidiaries. You are urged to consult your tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

Controlled Foreign Corporation Considerations

        Each "Ten Percent Shareholder" (as defined below) in a non-U.S. corporation that is classified as a "controlled foreign corporation," or a CFC, for U.S. federal income tax purposes generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder's pro rata share of the CFC's "Subpart F income" and investment of earnings in U.S. property, even if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be classified as a CFC for U.S federal income tax purposes if Ten Percent Shareholders own in the aggregate, directly or indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A "Ten Percent Shareholder" is a U.S. person (as defined by the Code), who owns or is considered to own 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation. The determination of CFC status is complex and includes attribution rules, the application of which is not entirely certain. We do not believe that we are currently a CFC. It is possible, however, that a shareholder treated as a U.S. person for U.S. federal income tax purposes has or will acquire, directly or indirectly, enough shares to be treated as a Ten Percent Shareholder after application of the constructive ownership rules and, together with any other Ten Percent Shareholders of the company, cause the company to be treated as a CFC for U.S. federal income tax purposes. Holders are urged to consult their own tax advisors with respect to the potential adverse U.S. tax consequences of becoming a Ten Percent Shareholder in a CFC.

Backup Withholding and Information Reporting

        U.S. holders generally will be subject to information reporting requirements with respect to dividends on the Shares and on the proceeds from the sale, exchange or disposition of Shares that are paid within the United States or through U.S.-related financial intermediaries, unless the U.S. holder is an "exempt recipient." In addition, U.S. holders may be subject to backup withholding on such payments, unless the U.S. holder provides a taxpayer identification number and a duly executed IRS Form W-9 or otherwise establishes an exemption. Backup withholding is not an additional tax, and the amount of any backup withholding will be allowed as a credit against a U.S. holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.

Foreign Asset Reporting

        Certain U.S. holders who are individuals are required to report information relating to an interest in the Shares, subject to certain exceptions (including an exception for shares held in accounts maintained by U.S. financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of the Shares.

         THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN THE SHARES IN LIGHT OF THE INVESTOR'S OWN CIRCUMSTANCES.

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UNDERWRITING

        Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and RBC Capital Markets, LLC are acting as joint book-running managers of the offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter's name.

Underwriter
  Number of
Shares
 

Citigroup Global Markets Inc. 

       

Deutsche Bank Securities Inc. 

       

RBC Capital Markets, LLC

       

Canaccord Genuity Inc. 

       

Raymond James & Associates, Inc. 

       

            Total

       

        The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the underwriters' option to purchase additional shares described below) if they purchase any of the shares.

        Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $                per share. If all the shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to make sales to discretionary accounts.

        If the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to                        additional shares at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriter's initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the subject of this offering.

        We, our officers, directors and holders of over 90% of our shares have agreed that, with certain limited exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Citigroup, dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. Citigroup in its sole discretion may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice.

        At our request, the underwriters have reserved up to        % of the shares for sale at the initial public offering price to persons who are directors, officers or certain employees, or who are otherwise associated with us through a directed share program. The number of shares available for sale to the general public will be reduced by the number of directed shares purchased by participants in the program. Except for certain of our officers, directors and employees who have entered into lock-up agreements as contemplated in the immediately preceding paragraph, each person buying shares through the directed share program has agreed that, for a period of 180 days from the date of this prospectus, he or she will not, without the prior written consent of Citigroup, dispose of or hedge any

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shares or any securities convertible into or exchangeable for our common shares with respect to shares purchased in the program. For certain officers, directors and employees purchasing shares through the directed share program, the lock-up agreements contemplated in the immediately preceding paragraph shall govern with respect to their purchases. Citigroup in its sole discretion may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. Any directed shares not purchased will be offered by the underwriters to the general public on the same basis as all other shares offered. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of the directed shares.

        Prior to this offering, there has been no public market for our shares. Consequently, the initial public offering price for the shares was determined by negotiations among us and the representatives. Among the factors considered in determining the initial public offering price were our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which the shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering.

        We have applied to have our shares listed on the New York Stock Exchange under the symbol "WAAS."

        The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option. In addition, we have agreed to reimburse the underwriters for certain expenses in connection with this offering, including up to $25,000 in accountable expenses.

 
  Paid by AquaVenture
Holdings LLC
 
 
  No Exercise   Full Exercise  

Per share

  $     $    

Total

  $     $    

        We estimate that our portion of the total expenses of this offering will be $                .

        In connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the underwriters' option to purchase additional shares, and stabilizing purchases.

    Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to purchase in the offering.

    "Covered" short sales are sales of shares in an amount up to the number of shares represented by the underwriters' underwriters' option to purchase additional shares.

    "Naked" short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters' option to purchase additional shares.

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    Covering transactions involve purchases of shares either pursuant to the underwriters' option to purchase additional shares or in the open market in order to cover short positions.

    To close a naked short position, the underwriters must purchase shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

    To close a covered short position, the underwriters must purchase shares in the open market or must exercise the option to purchase additional shares. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters' option to purchase additional shares.

    Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum.

        Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the NYSE, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

        The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The underwriters and their respective affiliates have in the past performed commercial banking, investment banking and advisory services for us from time to time for which they have received customary fees and reimbursement of expenses and may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. In addition, affiliates of some of the underwriters are lenders, and in some cases agents or managers for the lenders, under our credit facility. Certain of the underwriters or their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. A typical such hedging strategy would include these underwriters or their affiliates hedging such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to customers that they acquire, long and/or short positions in such securities and instruments.

        We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

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Notice to Prospective Investors in the European Economic Area

        In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this prospectus may not be made to the public in that relevant member state other than:

    to any legal entity which is a qualified investor as defined in the Prospectus Directive;

    to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by us for any such offer; or

    in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

        For purposes of this provision, the expression an "offer of securities to the public" in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe for the shares, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.

        The sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.


Notice to Prospective Investors in the United Kingdom

        This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a "relevant person"). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.


Notice to Prospective Investors in France

        Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or

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sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:

    released, issued, distributed or caused to be released, issued or distributed to the public in France; or

    used in connection with any offer for subscription or sale of the shares to the public in France.

        Such offers, sales and distributions will be made in France only:

    to qualified investors ( investisseurs qualifiés ) and/or to a restricted circle of investors ( cercle restreint d'investisseurs ), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier ;

    to investment services providers authorized to engage in portfolio management on behalf of third parties; or

    in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations ( Règlement Général ) of the Autorité des Marchés Financiers , does not constitute a public offer ( appel public à l'épargne ).

        The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .


Notice to Prospective Investors in Hong Kong

        The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.


Notice to Prospective Investors in Japan

        The shares offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.


Notice to Prospective Investors in Singapore

        This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase,

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whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

        Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

    a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

    a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

    to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;

    where no consideration is or will be given for the transfer; or

    where the transfer is by operation of law.

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LEGAL MATTERS

        Certain legal matters with respect to U.S. securities law in connection with this offering will be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts. Certain legal matters with respect to Curaçao law in connection with the validity of the shares being offered by this prospectus and other legal matters will be passed upon for us by Spigt Dutch Caribbean N.V. Certain legal matters with respect to U.S. securities law in connection with this offering will be passed upon for the underwriters by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York.


EXPERTS

        The consolidated financial statements of AquaVenture Holdings LLC as of December 31, 2013 and 2014, and for years then ended, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

        The financial statements of Quench USA, Inc. as of June 6, 2014 and December 31, 2013, and period January 1, 2014 through June 6, 2014 and for the year ended December 31, 2013, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

        The financial statements of Macke Water Systems, Inc. as of April 18, 2014 and December 31, 2013, and for the period January 1, 2014 through April 18, 2014 and for year ended December 31, 2013, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

        The financial statements of Atlas Watersystems, Inc. as of June 16, 2014 and December 31, 2013, and for the period January 1, 2014 through June 16, 2014 and for the year ended December 31, 2013, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.


ENFORCEMENT OF JUDGMENTS

        We are organized under the laws of Curaçao. We have been advised by our Curaçaoan Counsel that a judgment of a U.S. court is not directly enforceable in Curaçao.

        In the absence of an applicable treaty between the United States of America and Curaçao, a judgment rendered by a court of the United States, will not be enforceable within Curaçao. In order to obtain a judgment that is enforceable in Curaçao the claim must be relitigated before a competent Curaçao court. Under current practice, a judgment rendered by a court of the United States will be recognized by a Curaçao court if:

    (i)
    that judgment results from proceedings compatible with Curaçao concepts of due process; and

    (ii)
    if the judgment does not contravene the public policy of Curaçao.

        If the judgment is recognized by a Curaçao court, that court will generally grant the same award without review of the merits of the case.

        Curaçao courts award compensation for the loss or damage actually sustained by the plaintiff, which may include consequential damages and lost profits. Although punitive damages are generally unknown to the Curaçao legal system, there is no definitive provision of a statute or customary law stating that they are unavailable. It is therefore uncertain whether enforcement of an award of punitive

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damages would be considered contrary to Curaçao public policy. Whether a particular judgment may be deemed contrary to Curaçao public policy depends on the facts of each case, though judgments found to be exorbitant, unconscionable, or excessive may be deemed as contrary to public policy.

        Curaçao courts cannot enter into the merits of the foreign judgment and cannot act as a court of appeal or review over the foreign courts.


WHERE YOU CAN FIND MORE INFORMATION

        We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common shares offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common shares, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document is not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. You may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

        As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act, and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference facilities and the website of the SEC referred to above. We also maintain a website at www.aquaventure.com. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.

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AQUAVENTURE HOLDINGS LLC

INDEX TO FINANCIAL STATEMENTS

Historical Financial Statements

 
  Page  

AquaVenture Holdings LLC

       

Unaudited Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 2015

    F-3  

Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2014 and 2015

    F-4  

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2015

    F-5  

Notes to the Unaudited Condensed Consolidated Financial Statements

    F-6  

Report of Independent Registered Public Accounting Firm

    F-27  

Consolidated Balance Sheets as of December 31, 2013 and 2014

    F-28  

Consolidated Statements of Operations for the years ended December 31, 2013 and 2014

    F-29  

Consolidated Statements of Members' Equity for the years ended December 31, 2013 and 2014

    F-30  

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2014

    F-31  

Notes to the Consolidated Financial Statements

    F-32  

Schedule I–Condensed Financial Information of Registrant

    F-76  

Quench USA, Inc.

   
 
 

Independent Auditors' Report

    F-80  

Balance Sheets as of June 6, 2014 and December 31, 2013

    F-81  

Statements of Operations for the period from January 1, 2014 through June 6, 2014 and the year ended December 31, 2013

    F-82  

Statements of Stockholder's Equity for the period from January 1, 2014 through June 6, 2014 and the year ended December 31, 2013

    F-83  

Statements of Cash Flows for the period from January 1, 2014 through June 6, 2014 and the year ended December 31, 2013

    F-84  

Notes to the Financial Statements

    F-85  

Atlas Watersystems, Inc .

   
 
 

Independent Auditors' Report

    F-102  

Balance Sheets as of June 16, 2014 and December 31, 2013

    F-103  

Statements of Operations for the period from January 1, 2014 through June 16, 2014 and the year ended December 31, 2013

    F-104  

Statements of Stockholders' Equity for the period from January 1, 2014 through June 16, 2014 and the year ended December 31, 2013

    F-105  

Statements of Cash Flows for the period from January 1, 2014 through June 16, 2014 and the year ended December 31, 2013

    F-106  

Notes to the Financial Statements

    F-107  

Macke Water Systems, Inc.

   
 
 

Independent Auditors' Report

    F-112  

Balance Sheets as of April 18, 2014 and December 31, 2013

    F-113  

Statements of Operations for the period from January 1, 2014 through April 18, 2014 and the year ended December 31, 2013

    F-114  

Statements of Stockholders' Equity for the period from January 1, 2014 through April 18, 2014 and the year ended December 31, 2013

    F-115  

Statements of Cash Flows for the period from January 1, 2014 through April 18, 2014 and the year ended December 31, 2013

    F-116  

Notes to the Financial Statements

    F-117  

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Table of Contents

Pro Forma Financial Information

 
  Page  

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2014

    F-123  

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

    F-124  

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

 
  December 31, 2014   June 30, 2015  

ASSETS

             

Current Assets:

             

Cash and cash equivalents

  $ 37,499   $ 34,277  

Trade receivables, net of allowances of $692 and $649, respectively

    10,850     14,399  

Inventory

    4,405     5,267  

Deferred tax asset

    568     558  

Prepaid expenses and other current assets

    1,576     3,183  

Total current assets

    54,898     57,684  

Property, plant and equipment, net

    107,273     109,096  

Construction in progress

    9,242     12,006  

Long-term contract costs

    13,468     96,834  

Restricted cash

    2,700     7,224  

Other assets

    2,109     2,690  

Deferred tax asset

    2,412     1,888  

Intangible assets, net

    60,903     58,815  

Goodwill

    123,325     123,325  

Total assets

  $ 376,330   $ 469,562  

LIABILITIES AND MEMBERS' EQUITY

             

Current Liabilities:

             

Accounts payable

  $ 4,276   $ 6,018  

Accrued liabilities

    8,063     11,386  

Current portion of long-term debt

    8,265     17,836  

Deferred revenue

    3,348     3,237  

Total current liabilities

    23,952     38,477  

Long-term debt

    77,766     128,663  

Deferred tax liability

    806     1,371  

Other long-term liabilities

    1,837     1,623  

Total liabilities

    104,361     170,134  

Commitments and contingencies (see Note 9)

             

Members' Equity

             

Class A preferred shares, 40,700 shares authorized, issued and outstanding at December 31, 2014 and June 30, 2015

    195,988     195,988  

Class B shares, 23,750 shares authorized; 15,890 and 22,377 shares issued and outstanding at December 31, 2014 and June 30, 2015, respectively

    52,620     83,958  

Class Q shares, 29,037 shares authorized, issued and outstanding at December 31, 2014 and June 30, 2015

    143,666     143,666  

Common shares, 30,669 shares authorized; 11,820 and 11,873 shares issued and outstanding at December 31, 2014 and June 30, 2015, respectively

    4,931     4,974  

Management incentive plan shares, 7,900 shares authorized; 7,797 and 7,766 shares issued and outstanding at December 31, 2014 and June 30, 2015, respectively

         

Additional paid-in capital

    3,138     4,789  

Accumulated deficit

    (128,374 )   (133,947 )

Total members' equity

    271,969     299,428  

Total liabilities and members' equity

  $ 376,330   $ 469,562  

   

See accompanying notes to the unaudited condensed consolidated financial statements.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

 
  Six Months Ended  
 
  June 30, 2014   June 30, 2015  

Revenues:

             

Bulk water

  $ 19,067   $ 21,111  

Rental

    2,038     21,954  

Other

    306     3,733  

Total revenues

    21,411     46,798  

Cost of revenues:

   
 
   
 
 

Bulk water

    9,921     12,065  

Rental

    665     9,514  

Other

    83     2,028  

Total cost of revenues

    10,669     23,607  

Gross profit

   
10,742
   
23,191
 

Selling, general and administrative expenses

    8,474     23,763  

Income (loss) from operations

    2,268     (572 )

Other expense:

             

Interest expense, net

    (1,669 )   (3,410 )

Other expense

    (176 )   (127 )

Income (loss) before income tax expense

    423     (4,109 )

Income tax expense

    238     1,464  

Net income (loss)

  $ 185   $ (5,573 )

   

See accompanying notes to the unaudited condensed consolidated financial statements.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 
  Six Months Ended  
 
  June 30,
2014
  June 30,
2015
 

Cash flows from operating activities:

             

Net income (loss)

  $ 185   $ (5,573 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

             

Depreciation and amortization

    5,069     10,205  

Accretion of asset retirement obligation

    17     18  

Share-based compensation expense

    446     1,650  

Provision for bad debts

    (7 )   443  

Deferred income tax provision

        1,100  

Inventory adjustment

        (84 )

Loss on disposal of assets

    51     335  

Amortization of debt financing fees

    288     303  

Accretion of acquisition contingent consideration

    16     85  

Accretion of debt

    17     66  

Other

        (19 )

Change in operating assets and liabilities:

             

Trade receivables

    1,365     (2,644 )

Inventory

    (443 )   (778 )

Prepaid expenses and other current assets

    1,116     (798 )

Other assets

    (524 )   (173 )

Current liabilities

    (914 )   2,078  

Long-term liabilities

        60  

Net cash provided by operating activities

    6,682     6,274  

Cash flows from investing activities:

             

Capital expenditures

    (9,551 )   (11,249 )

Long-term contract expenditures

        (1,209 )

Net cash paid for businesses acquired

    (13,267 )   (43,108 )

Other

    6      

Net cash used in investing activities

    (22,812 )   (55,566 )

Cash flows from financing activities:

             

Proceeds from long-term debt

    10,000     20,000  

Payments of long-term debt

    (3,963 )   (4,155 )

Payment of debt financing fees

    (115 )   (424 )

Proceeds from stock subscription receivable

    2,500      

Payment of acquisition contingent consideration

        (732 )

Proceeds from exercise of stock options

    6     43  

Proceeds from issuance of Class B shares

    26,000     31,338  

Net cash provided by financing activities

    34,428     46,070  

Change in cash and cash equivalents

    18,298     (3,222 )

Cash and cash equivalents at beginning of period

    14,277     37,499  

Cash and cash equivalents at end of period

  $ 32,575   $ 34,277  

   

See accompanying notes to the unaudited condensed consolidated financial statements.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1. Description of the Business

        AquaVenture Holdings LLC is a Delaware limited liability company, which was formed on December 14, 2006. AquaVenture Holdings LLC and its subsidiaries (collectively, "AquaVenture" or the "Company") provides its customers Water-as-a-Service (WAAS TM ) solutions through two operating platforms: Seven Seas Water ("Seven Seas") and Quench. Both operations are critical to AquaVenture, which is headquartered in Tampa, Florida.

        Seven Seas offers WAAS solutions by providing outsourced desalination solutions and wastewater treatment for governmental, municipal, industrial and hospitality customers. These solutions utilize reverse osmosis and other purification technologies to produce potable and high purity industrial process water in high volumes for customers operating in regions with limited access to potable water. Through this outsourced service model, Seven Seas assumes responsibility for designing, financing, constructing, operating and maintaining the water treatment facilities. In exchange, Seven Seas enters into long-term agreements to sell to customers agreed-upon quantities of water that meet specified water quality standards. Seven Seas currently operates primarily throughout the Caribbean region and is supported by an operations center in Tampa, Florida, which provides business development, engineering, field service support, procurement and administrative functions.

        Quench offers WAAS solutions by providing bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers across the United States. Quench's point-of-use systems purify a customer's existing water supply. Quench offers solutions to a broad mix of industries, including government, education, medical, manufacturing, retail, and hospitality. Quench installs and maintains our filtered water systems typically under multi-year contracts that renew automatically. Quench services customers throughout the United States and is supported by an operations center in King of Prussia, Pennsylvania.

2. Summary of Significant Accounting Policies

        Unless otherwise noted below, there have been no material changes to the accounting policies presented in Note 2—"Summary of Significant Accounting Policies" of the notes to the audited consolidated financial statements of AquaVenture Holdings LLC and its Subsidiaries for the year ended December 31, 2014.

Basis of Presentation

        The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, certain information and footnotes normally required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of AquaVenture Holdings LLC and its Subsidiaries for the year ended December 31, 2014. In management's opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of the Company's unaudited condensed consolidated balance sheet as of June 30, 2015, the unaudited condensed consolidated statements of operations for the six months ended June 30, 2014 and 2015 and the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2015. The unaudited condensed consolidated balance sheet as of December 31, 2014

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

was derived from our audited consolidated balance sheet as of December 31, 2014, as presented in the audited consolidated financial statements of AquaVenture Holdings LLC and its Subsidiaries for the year ended December 31, 2014.

        The unaudited condensed consolidated financial statements include the accounts of AquaVenture Holdings LLC and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include: accounting for goodwill and identifiable intangible assets and any related impairment; property, plant and equipment and any related impairment; share-based compensation; allowance for doubtful accounts; inventory valuation; obligations for asset retirement; acquisition contingent consideration; and deferred income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

New Accounting Pronouncements

        In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers, which specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017 and interim periods within those annual periods and will require enhanced disclosures. The Company is currently evaluating the potential impact of the accounting and disclosure requirements on the unaudited condensed consolidated financial statements.

        In April 2015, the FASB issued authoritative guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance will be effective for annual periods beginning after December 15, 2015, and for annual and interim periods thereafter, and early adoption is permitted. The Company does not expect the accounting requirements to have a material impact on the Company's unaudited condensed consolidated financial statements.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

3. Business Combinations

Biwater (BVI) Holdings Limited

        On June 11, 2015, AquaVenture Water Corporation, a British Virgin Islands, or BVI, company and an indirect wholly-owned subsidiary of AquaVenture, acquired 100% of the capital stock of Biwater (BVI) Holdings Limited ("Acquiree"), pursuant to a Stock Purchase and Sale Agreement ("BVI Purchase Agreement"). Under the terms of the BVI Purchase Agreement, all of the capital stock of the Acquiree was acquired for a total purchase price of $47.8 million, including $44.5 million in cash and a note payable of $5.6 million to the seller with a fair value at the date of acquisition of $3.3 million. The note payable: (i) bears no interest; (ii) is payable in equal annual installments of $375 thousand beginning on the first anniversary of the BVI Purchase Agreement; (iii) terminates if the water purchase agreement with the government of the BVI is terminated under certain circumstances; and (iv) is unsecured and subordinated to all other indebtedness of the Company. Included in the liabilities of the Acquiree is long-term debt between Biwater (BVI) Ltd. and a bank with a remaining unpaid balance as of the date of the BVI Purchase Agreement of $40.8 million (see note 6), which approximates fair value.

        The Acquiree's wholly-owned subsidiary, Biwater (BVI) Ltd., provides potable water to the island of Tortola for a contracted fee payable by the government of BVI under a service concession arrangement, which expires in 2030. The revenue-producing operations of Biwater (BVI) Ltd. under the service concession arrangement commenced during November 2014. The Company acquired the stock of the Acquiree to expand its installed base of seawater reverse osmosis desalination facilities used to provide Water-as-a-Service.

        Transaction-related costs incurred by the Company during the six months ended June 30, 2015 were $1.1 million and were expensed as incurred within SG&A in the unaudited condensed consolidated statements of operations.

        The following table summarizes the preliminary purchase price allocated to the fair value of assets acquired, including intangibles recorded in conjunction with the business combination, and liabilities assumed (in thousands):

Assets Acquired:

       

Cash and cash equivalents

  $ 1,442  

Trade receivables

    1,321  

Restricted cash

    4,524  

Long-term contract costs

    83,560  

Total assets acquired

    90,832  

Liabilities Assumed:

       

Accounts payable and accrued liabilities

    (2,219 )

Long-term debt

    (40,831 )

Total liabilities assumed

    (43,035 )

Total purchase price

  $ 47,797  

        Due primarily to the timing of the acquisition and the complexities involved with determining fair value of assets acquired, the Company has not yet finalized the allocation of the purchase price to the assets acquired and liabilities assumed. However, on a preliminary basis, the assets and liabilities in the purchase price allocation are stated at fair value based on estimates of fair value using available

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

3. Business Combinations (Continued)

information and making assumptions management believes are reasonable. Preliminary value assigned to long-term contract costs were based on the excess cost over net assets acquired to the Company to acquire the contract. The long-term contract costs are expected to be amortized over the remainder of the service concession contract period, which is expected to be approximately 15.5 years. No goodwill was recorded in the preliminary purchase price allocation. Upon completion of the valuation of the identifiable intangible assets purchased in conjunction with the acquisition, the Company will adjust the preliminary amounts recorded for acquired intangibles. In addition, the Company will revise the future amortization of these intangible assets accordingly.

        The operations of the Acquiree is included in the Seven Seas reporting segment for periods after the date of acquisition.

Quench USA Holdings LLC

        On June 6, 2014, AquaVenture Holdings LLC acquired all of the assets of Quench USA Holdings LLC (the "Contributor") under a Contribution Agreement dated as of June 6, 2014 ("Contribution Agreement") in exchange for AquaVenture's issuance of 29,036,947 Class Q shares and 2,829,598 Class B shares (the "Contribution"). The assets of the Contributor included all issued and outstanding capital stock of Quench USA, Inc. ("Quench USA") and any cash held.

        The Class Q shares and Class B shares issued to the Contributor had a fair value at the time of contribution of $143.7 million and $14.0 million, respectively (or an aggregate purchase price of $157.7 million). The fair value of the Class Q and B shares was derived from certain equity transactions with third parties that occurred before the execution of the Contribution Agreement.

        The Company acquired the assets of the Contributor to expand its Water-as-a-Service solutions offerings.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

3. Business Combinations (Continued)

        The following table summarizes the purchase price allocated to the fair value of assets acquired, including intangibles recorded in conjunction with the business combination, and liabilities assumed (in thousands):

Assets Acquired:

       

Cash and cash equivalents

  $ 7,804  

Trade receivables

    5,584  

Inventory

    2,795  

Property, plant and equipment

    12,009  

Other assets

    1,458  

Subscription receivable

    2,500  

Customer relationships

    48,330  

Trade names

    5,130  

Non-compete agreements

    110  

Goodwill

    112,420  

Total assets acquired

    198,140  

Liabilities Assumed:

   
 
 

Accounts payable and accrued liabilities

    (4,912 )

Deferred revenue

    (2,961 )

Other current liabilities

    (306 )

Long-term debt

    (30,192 )

Acquisition contingent consideration

    (2,103 )

Total liabilities assumed

    (40,474 )

Total purchase price

  $ 157,666  

        The assets and liabilities in the purchase price allocation are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable. The subscription receivable, which was collected in full in June 2014, relates to the sale of equity by the Contributor prior to the execution of the Contribution Agreement. Intangibles identified and valued related to the transaction include customer relationships, trade names and non-compete agreements. The fair value of the trade names was determined using the relief from royalty method which is based on the present value of royalty fees derived from projected revenues using a discount rate of 9.6%. The fair value of the customer relationships was determined using the multi-period excess earnings method which is based on the present value of the projected after-tax cash flows using a discount rate of 9.6%. The Company determined the weighted average useful life at the date of valuation for the trade names to be 23.6 years, the non-compete agreements to be 5.0 years and the customer relationships to be 15.0 years.

        Goodwill was composed of synergies not assigned value in the purchase price allocation, is not deductible for tax purposes and will be recorded within the Quench reporting unit.

        Long-term debt of Quench USA at the date of contribution included: (i) the Amended Loan and Security Agreement between a lender and Quench USA ("Quench Loan Agreement") with an unpaid principal balance of $30.0 million and a fair value of $29.6 million and (ii) notes payable related to vehicle financing with a remaining unpaid balance of $574 thousand.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

3. Business Combinations (Continued)

Atlas Watersystems, Inc.

        On June 16, 2014, Quench USA, then a wholly-owned subsidiary of AquaVenture, acquired all of the assets and certain liabilities of Atlas Watersystems, Inc. ("Atlas"), pursuant to an Asset Purchase Agreement ("Atlas Purchase Agreement"). Under the terms of the Atlas Purchase Agreement, all of the assets of Atlas were acquired for a total purchase price of $23.6 million, after giving effect to a $129 thousand post-closing working capital adjustment due to the Company. The consideration included $21.1 million in cash and $2.5 million, or 505,285 shares, of Class B shares of AquaVenture. The total purchase price is subject to certain adjustments provided for in the Atlas Purchase Agreement. On the closing date, Quench placed $2.4 million of the total purchase price into escrow to secure Atlas' indemnification obligations for a period of 24 months from the closing date, and to satisfy certain adjustments to the purchase price. In June 2015, approximately 50% of the amount placed in escrow was released to the seller in accordance with the Atlas Purchase Agreement.

        The Company acquired Atlas to expand its geographical coverage and strengthen its national service network for the Quench operations.

        The following table summarizes the purchase price allocated to the fair value of assets acquired, including intangibles recorded in conjunction with the business combination, and liabilities assumed (in thousands):

Assets Acquired:

       

Trade receivables

  $ 1,559  

Inventory

    832  

Property, plant and equipment

    3,658  

Other assets

    123  

Customer relationships

    8,864  

Trade names

    16  

Non-compete agreements

    80  

Goodwill

    10,585  

Total assets acquired

    25,717  

Liabilities Assumed:

   
 
 

Deferred revenue

    (1,920 )

Other liabilities

    (226 )

Total liabilities assumed

    (2,146 )

Total purchase price

  $ 23,571  

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

3. Business Combinations (Continued)

        The assets and liabilities in the purchase price allocation are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable. Acquisition intangibles identified and valued related to the transaction include customer relationships, trade names and non-compete agreements. The fair value of the customer relationships was determined using the multi-period excess earnings method which is based on the present value of the projected net cash flows using a discount rate of 13.6%. The Company determined the weighted average useful life at the date of valuation for the trade names to be 2.0 years, the non-compete agreements to be 4.0 years and the customer relationships to be 15.0 years.

        Goodwill was composed of synergies not assigned a value in the purchase price allocation, is deductible for tax purposes and will be recorded within the Quench reporting unit.

Pro Forma Financial Information

        The following unaudited pro forma financial information (in thousands) for the Company gives effect to the acquisitions of the Contributor's assets, which occurred on June 6, 2014, Atlas' assets, which occurred on June 16, 2014, and the stock of the Acquiree, which occurred on June 11, 2015, as if each had occurred at the beginning of each period presented. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred on the date indicated, or that may result in the future.

 
  Six Months Ended
June 30,
 
 
  2014   2015  

Revenues

  $ 44,828   $ 51,349  

Net income (loss)

  $ 6,463   $ (5,167 )

        The pro forma financial information for the six months ended June 30, 2014 and 2015 includes an adjustment to record deferred revenues at their fair value as of January 1, 2014. As a result, the pro forma financial information for the six months ended June 30, 2014 includes a reduction to revenues and a corresponding reduction to net income of $335 thousand.

        The amount of revenues and net income of the Acquiree included in the unaudited condensed consolidated statements of operations since acquisition for the six months ended June 30, 2015 were $549 thousand and $31 thousand, respectively.

4. Long term Contract Costs

        At December 31, 2014 and June 30, 2015, long term contract costs were $13.5 million and $96.8 million, respectively. For the six months ended June 30, 2014 and 2015, amortization expense was $827 thousand and $1.4 million, respectively, which is included in cost of revenues in the unaudited condensed consolidated statement of operations.

        During June 2015, AquaVenture Water Corporation acquired 100% of the capital stock of the Acquiree for a total purchase price of $47.8 million (see note 3). The excess purchase price paid above net tangible assets acquired was assigned to long-term contract costs in the amount of $83.5 million.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

5. Fair Value Measurements

        At December 31, 2014 and June 30, 2015, the Company had the following assets and liabilities measured at fair value in the unaudited condensed consolidated balance sheets:

    Money market funds are measured on a recurring basis and are recorded at fair value based on each fund's quoted market value per share in an active market, which is considered a Level 1 input.

    Acquisition contingent consideration is measured on a recurring basis and is recorded at fair value based on a probability-weighted discounted cash flow model which utilizes unobservable inputs such as the forecasted achievement of performance targets throughout the earn-out period, which is considered a Level 3 input.

    The warrant liability is measured on a recurring basis and is recorded at fair value based on a Black-Scholes-Merton option pricing model. Any changes in fair value will be recorded in earnings.

        There were no transfers into or out of Level 1, 2 or 3 assets during the six months ended June 30, 2015. Transfers between levels are deemed to have occurred if the lowest level of input were to change.

        The Company's measurements at fair value on a recurring as of December 31, 2014 and June 30, 2015 were as follows (in thousands):

Assets/Liabilities
Measured at Fair Value
  Asset/
(Liability)
  Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
  Significant
Other
Observable
Inputs (Level 2)
  Significant
Unobservable
Inputs (Level 3)
 

As of December 31, 2014

                         

Recurring basis:

                         

Money market funds

  $ 4,728   $ 4,728   $   $  

Warrant liability

  $ (120 ) $   $   $ (120 )

Acquisition contingent consideration

  $ (1,855 ) $   $   $ (1,855 )

As of June 30, 2015

   
 
   
 
   
 
   
 
 

Recurring basis:

                         

Money market funds

  $ 2,251   $ 2,251   $   $  

Warrant liability

  $ (101 ) $   $   $ (101 )

Acquisition contingent consideration

  $ (1,195 ) $   $   $ (1,195 )

        The following table sets forth the changes in the estimated fair value for the Level 3 classified warrant liability (in thousands):

Fair value at December 31, 2014

  $ 120  

Change in fair value

    (19 )

Fair value at June 30, 2015

  $ 101  

        The following assumptions were used to determine the fair value of the warrant liability as of June 30, 2015: (i) expected term of 6.0 years; (ii) expected volatility of 31.2%; (iii) risk-free rate of 1.9%; and (iv) expected dividends of 0%. There was no change in fair value for the six months ended June 30, 2014. The Company recorded a gain on the change in fair value for the six months ended June 30, 2015 of $19 thousand.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

5. Fair Value Measurements (Continued)

        See Note 9—"Commitments and Contingencies" for changes in the estimated fair value and additional information on the acquisition contingent consideration.

6. Long-Term Debt

        As of December 31, 2014 and June 30, 2015, long-term debt included the following (in thousands):

 
  December 31,
2014
  June 30,
2015
 

Trinidad Credit Agreement

  $ 24,643   $ 22,500  

USVI Credit Agreement

    21,023     19,223  

Quench Loan Agreement

    39,565     39,631  

BVI Loan Agreement

        40,831  

Seller Note payable—BVI

        3,287  

Curacao Credit Facility

        20,000  

Vehicle financing

    800     1,027  

Total debt

    86,031     146,499  

Less: current portion of long-term debt

    (8,265 )   (17,836 )

Total long-term debt

  $ 77,766   $ 128,663  

        During the six-months ended June 30, 2015, the Company acquired or entered into the following debt agreements:

BVI Loan Agreement

        In connection with the acquisition of the capital stock of the Acquiree in June 2015, the Company assumed the $43.0 million credit facility of its subsidiary, Biwater (BVI) Ltd. arranged by a bank (the "BVI Loan Agreement"). The BVI Loan Agreement closed on November 14, 2013 and was arranged to finance the construction of a desalination facility at Paraquita Bay in Tortola, BVI and other contractual obligations. The BVI Loan Agreement is project financing with recourse only to the stock, assets and cash flow of Biwater (BVI) Ltd. and is not guaranteed by the Company nor any of its other subsidiaries. The Biwater Loan Agreement is guaranteed by the United Kingdom Export Finance. As of the acquisition date of June 11, 2015, $40.8 million remained outstanding. In addition, approximately $820 thousand is available for draw through June 2016. The BVI Loan Agreement is collateralized by all shares and underlying assets of Biwater (BVI) Ltd.

        The BVI Loan Agreement provides for interest on the outstanding borrowings at LIBOR plus 3.50% per annum and interest is paid quarterly. The weighted average interest rate was 3.9% as of June 30, 2015. The loan principal is repayable quarterly beginning in March 31, 2015 in 26 quarterly installments that escalate from 3.2% of the original principal balance to 4.6% of the original principal balance.

        The BVI Loan Agreement includes both financial and nonfinancial covenants, limits the amount of additional indebtedness that Biwater (BVI) Ltd. can incur and places annual limits on capital expenditures for the subsidiary. The BVI Loan Agreement also places restrictions on distributions made by Biwater (BVI) Ltd. which is only permitted to make distributions to shareholders and affiliates of the Company if specified debt service coverage ratios are met and it is in compliance with all loan covenants. Further, until the completion of two sewage treatment plants and related works under

F-14


Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

6. Long-Term Debt (Continued)

construction in the BVI, Biwater (BVI) Ltd. is not permitted to make any distribution without the prior approval of the bank. The BVI Loan Agreement contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends), mergers and acquisitions, transactions with affiliates, prepayments of indebtedness, capital expenditures, changes in nature of business and joint ventures. In addition, Biwater (BVI) Ltd is subject to quarterly financial covenant compliance, including minimum debt service and loan life coverage ratios, and must maintain a minimum debt service reserve fund with the bank.

        Biwater (BVI) Ltd. may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part without penalty.

Seller Note Payable—BVI

        In connection with the acquisition of the capital stock of the Acquiree in June 2015, the purchase price included a note payable in the amount of $5.6 million to the seller. The note payable: (i) bears no interest; (ii) is payable in equal annual installments of $375 thousand beginning on the first anniversary of the BVI Purchase Agreement; (iii) terminates if the water purchase agreement with the government of the BVI is terminated under certain circumstances; and (iv) is unsecured and subordinated to all other indebtedness of the Company. The Company will accrete the value the note payable over the life of the loan using an interest rate of 9.0%, which is consistent with the Company's current expected borrowing rate for this type of transaction. For the six months ended June 30, 2015, accretion expense was $13 thousand and was recorded as interest expense in the unaudited condensed consolidated statement of operations. There was no related accretion expense during the six months ended June 30, 2014.

Curacao Credit Facility

        On June 18, 2015, Aqua Venture Holdings Curaçao N.V., a wholly-owned subsidiary, entered into a $35.0 million credit facility with a bank (the "Curaçao Credit Facility"). The Curaçao Credit Facility consists of a term loan of $20.0 million and a delayed draw term loan of up to $15.0 million which is available to be drawn through March 18, 2016. The Curaçao Credit Facility is non-amortizing, matures in June 2019 and bears interest at either: (i) the higher of 1% or the ICE Benchmark Administration LIBOR Rate, plus an applicable margin ranging from 7.5% to 8.5% depending upon the leverage ratio as defined within the credit facility; or (ii) the greater of the bank's base rate or a federal funds rate plus 0.5%, plus an applicable margin ranging from 6.5% to 7.5% depending upon the leverage ratio as defined within the credit facility. The credit facility is guaranteed by the Company and contains certain financial and nonfinancial covenants. The financial covenants include minimum interest coverage and maximum leverage ratio requirements, become effective on March 31, 2016 and exclude the operations of Quench USA as it is considered an unrestricted subsidiary under the Curacao Credit Facility. In addition, the Curaçao Credit Facility contains a number of negative covenants restricting, among other things, indebtedness, investments, liens, dispositions of assets, restricted payments (including dividends, certain transfers to Quench USA and investments in Quench USA), mergers and acquisitions, transactions with affiliates, prepayments of indebtedness, capital expenditures, changes in nature of business and amendments of documents. The interest coverage ratio covenant will not apply if the Company's minimum cash balance excluding Quench USA exceeds $5.0 million. There is no prepayment fee on the Curaçao Credit Facility.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

7. Members' Equity

        During the six months ended June 30, 2015, the following significant changes, excluding the impact of the net loss from operations, occurred within members' equity: (i) increase in the number of Class B shares authorized for issuance to 23.8 million on April 23, 2015 from 16.5 million as of December 31, 2014; (ii) increase in the number of Class B shares issued and outstanding due to the issuance of 145 thousand Class B shares as share based compensation awards, net of forfeitures, and the issuance of 6.3 million Class B shares for proceeds, net of issuance costs, of $31.3 million; (iii) an increase in number and value of ordinary common shares issued and outstanding due to the exercise of 72 thousand options for ordinary shares for a total exercise price of $43 thousand; and (iv) an increase in additional paid in capital due to the recognition of share based compensation expense, net of forfeitures, of $1.7 million.

8. Share-based Compensation

AquaVenture Equity Awards

        The AquaVenture Equity Incentive Plan, which was amended on June 6, 2014 and October 27, 2014, allows for the issuance of Management Incentive Plan ("MIP") shares, Incentive shares and Class B shares, and the grant of options to purchase Common shares (including both Incentive shares and Ordinary shares) and Class B shares, to officers, employees, managers, directors and other key persons, including consultants to the Company (collectively, the "Participants"). All such grants are subject to time-based vesting, which is determined on a grant-by-grant basis, and certain other restrictions.

        As of December 31, 2014 and June 30, 2015, the aggregate number of shares by class authorized for grant under the Equity Incentive Plan, subject to adjustment upon a change in capitalization, was: (i) 7.9 million MIP shares; (ii) 10.7 million Common shares (including both Incentive and Ordinary shares); and (iii) 6.0 million Class B shares (including both Class B share awards issued as profits interests and options to purchase Class B shares).

        Class B shares, MIP shares and Incentive shares granted as "profits interests" for federal tax purposes have a hurdle price equal to their fair value at the time of grant, and options to purchase shares have an exercise price equal to their fair value at time of grant. The contractual term of options awarded is typically ten years, while all other award types contain no contractual term. Holders of the Class B shares, MIP shares and Incentive shares are entitled to receive distributions (i) with respect to their vested shares, when such distributions are made, and (ii) with respect to their unvested shares, when such shares vest. Upon termination of a recipient's business relationship with the Company, the Company has the right, but not the obligation, to repurchase the vested shares or shares issued upon exercise of an option, at the then fair value of such shares during periods specified in the awards. Unvested shares and options expire on the termination of the recipient's business relationship.

        During the six months ended June 30, 2015, the Company granted Class B shares and options to purchase Class B shares. Both equity award types have the following time-based vesting schedule: (i) 25% of the grant vests on the first anniversary of the vesting commencement date specified in the award and (ii) 6.25% of the grant vests quarterly thereafter.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

8. Share-based Compensation (Continued)

        The Company uses the Black-Scholes option pricing model to determine the fair value of the Class B shares and options to purchase Class B shares granted under the plan. The following weighted average assumptions by share class were used to determine such fair values of the awards granted during six months ended June 30, 2015:

 
  Class B Shares   Options to Purchase
Class B Shares
 

Expected term (years)

    2.4     6.3  

Expected volatility

    24.9 %   31.7 %

Risk-free rate

    0.7 %   1.9 %

Expected dividends

    0.0 %   0.0 %

        The simplified method was used to determine the expected term assumptions as the Company does not have sufficient history to make more refined estimates of the expected term. The risk-free rate assumption was based on U.S. Treasury yields with similar terms. Since the Company's shares are not publicly traded and its shares are rarely traded privately, expected volatility was estimated based on based on historical results of comparable industry peer companies that are publicly traded. The expected dividend yield is 0% because the Company does not have a history of paying dividends or future plans of doing so.

        The following table presents the activity of the Incentive shares, MIP shares and Class B shares for the six months ended June 30, 2015 (in thousands, except per share amounts):

 
  Incentive Shares   MIP Shares   Class B Shares  
 
  Number of
Shares
  Weighted
Average
Grant Date
Fair Value
  Number of
Shares
  Weighted
Average
Grant Date
Fair Value
  Number of
Shares
  Weighted
Average
Grant Date
Fair Value
 

Unvested as of December 31, 2014

    957   $ 0.28     4,873   $ 0.31     5,252   $ 0.82  

Granted

      $       $     145   $ 0.80  

Vested

    (213 ) $ 0.29     (1,937 ) $ 0.31     (1 ) $ 0.65  

Forfeited

    (19 ) $ 0.15     (31 ) $ 0.31       $  

Unvested as of June 30, 2015

    725   $ 0.28     2,905   $ 0.31     5,396   $ 0.81  

        During the six months ended June 30, 2015, the per share intrinsic value of the vested Incentive shares, MIP shares, and Class B shares was $2.09, $0.00 and $0.00, respectively. All of the Class B shares granted during the six months ended June 30, 2015 had a hurdle price of $4.95 per share.

        As of June 30, 2015, total unrecognized compensation expense related to the Incentive shares, MIP shares and Class B shares was $4.8 million, which will be recognized over a weighted-average remaining period of 2.9 years.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

8. Share-based Compensation (Continued)

        The following table presents the activity of options to purchase Ordinary shares and Class B shares for the six months ended June 30, 2015 (in thousands, except per share amounts):

 
  Ordinary Shares   Class B Shares  
 
  Number of
Options
  Weighted
Average
Exercise Price
Per Share
  Number of
Options
  Weighted
Average
Exercise Price
Per Share
 

Outstanding as of December 31, 2014

    1,410   $ 1.11       $  

Granted

      $     171   $ 4.95  

Exercised

    (72 ) $ 0.60       $  

Expired

    (1 ) $ 0.60       $  

Forfeited

    (2 ) $ 0.60       $  

Outstanding as of June 30, 2015

    1,335   $ 1.14     171   $ 4.95  

Exercisable as of June 30, 2015

    968   $ 0.76       $  

        Total intrinsic value of options to purchase Ordinary shares exercised during the six months ended June 30, 2015 was $1.99 per share. The remaining weighted-average contractual term for options to purchase Ordinary shares and Class B shares outstanding as of June 30, 2015 was 6.2 years and 9.9 years, respectively. The per share intrinsic value of options to purchase Ordinary shares and Class B shares outstanding as of June 30, 2015 was $1.45 and $0.00, respectively. The remaining weighted-average contractual term for options to purchase Ordinary shares exercisable as of June 30, 2015 was 5.3 years. The per share intrinsic value of options to purchase Ordinary shares exercisable as of June 30, 2015 was $1.83. As of June 30, 2015, exercise prices for options to purchase Ordinary shares and Class B shares outstanding ranged from $0.50 to $2.59 and $4.95, respectively.

        As of June 30, 2015, total unrecognized compensation expense related to the options to purchase Ordinary and Class B shares was $608 thousand, which will be recognized over a weighted-average remaining period of 3.3 years.

Quench USA Holdings LLC Equity Awards

        In addition to being eligible for AquaVenture equity awards, employees of Quench USA are eligible for continued vesting of Quench USA Holdings, LLC equity awards granted before the date of the Contribution and are eligible for new grants of equity awards of Quench USA Holdings LLC, as approved by the Compensation Committee of the Board of Managers of AquaVenture.

        The Company recognizes share-based compensation expense for equity awards that will continue to vest for awards previously granted by Quench USA Holdings LLC to the extent such expense was not previously recorded. The equity awards that will continue to vest subsequent to the date of the Contribution Agreement include options to purchase ordinary shares of Quench USA Holdings LLC and incentive shares of Quench USA Holdings LLC granted as "profits interests" for federal income tax purposes. Equity awards granted after the date of the Contribution include options to purchase ordinary shares of Quench USA Holdings LLC. The awards granted pursuant to the Quench USA Holdings LLC equity incentive plan are typically subject to time-based vesting terms from the vesting

F-18


Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

8. Share-based Compensation (Continued)

commencement date and certain other restrictions. Both options and incentive shares granted as "profits interests" are typically subject to a time-based vesting term, which is determined on a grant-by-grant basis. Incentive shares granted as "profits interests" have a hurdle price equal to their fair value at the time of grant, and options to purchase shares have an exercise price equal to their fair value at time of grant. The contractual term of options awarded is ten years, while the incentive shares contain no contractual term. Holders of incentive shares are entitled to receive distributions (i) with respect to their vested shares, when such distributions are made, and (ii) with respect to their unvested shares, when such shares vest. Upon termination of a recipient's business relationship with the Company, the Company has the right, but not the obligation, to repurchase the vested shares or shares issued upon exercise of an option, at the then fair value of such shares during periods specified in the award. Unvested shares and options expire on the termination of the recipient's business relationship.

        The following table presents the activity of the Quench USA Holdings LLC incentive shares granted as "profits interests" for the six months ended June 30, 2015 (in thousands, except per share amounts):

 
  Number of
Shares
  Weighted Average
Grant Date
Fair Value
 

Outstanding as of December 31, 2014

    5,000   $ 0.13  

Vested

    (2,000 ) $ 0.13  

Outstanding as of June 30, 2015

    3,000   $ 0.13  

        During the six months ended June 30, 2015, the intrinsic value of such vested shares was $0.00 per share.

        The following table presents the activity of options to purchase Quench USA Holdings LLC shares for the six months ended June 30, 2015 (in thousands, except per share amounts):

 
  Number of
Options
  Weighted Average
Exercise Price
Per Share
 

Outstanding as of December 31, 2014

    3,085   $ 1.01  

Expired/canceled

    (252 ) $ 1.02  

Forfeited

    (302 ) $ 1.00  

Outstanding as of June 30, 2015

    2,531   $ 1.01  

Exercisable as of June 30, 2015

    908   $ 1.04  

        There were no such options exercised during the six months ended June 30, 2015. The remaining average contractual term for such options outstanding and exercisable as of June 30, 2015 was 8.9 years and 8.6 years, respectively. The per share intrinsic value for such options outstanding and exercisable as of June 30, 2015 was $0.00 and $0.00, respectively.

F-19


Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

8. Share-based Compensation (Continued)

        As of June 30, 2015, total unrecognized compensation expense related to the Quench USA Holdings, LLC equity awards was $890 thousand, which will be recognized over a weighted-average remaining period of 2.1 years.

Share-Based Compensation Expense

        Total share-based compensation expense recognized related to all equity awards during the six months ended June 30, 2014 and 2015 was $446 thousand and $1.6 million, respectively. The share-based compensation expense for the six months ended June 30, 2014 and 2015 included $52 thousand and $403 thousand, respectively, related to the Quench USA Holdings LLC equity awards. There was no related tax benefit for the six months ended June 30, 2014 and 2015 as a full deferred tax asset valuation allowance was recorded.

9. Commitments and Contingencies

Asset Retirement Obligations

        Asset retirement obligation ("ARO") liabilities, which arise from contractual requirements to perform certain asset retirement activities and are generally recorded when the asset is constructed, are based on the Company's engineering estimates of future costs to dismantle and remove equipment from a customer's plant site and to restore the site to a specified condition at the conclusion of a contract. As appropriate, the Company revises certain of its liabilities based on changes in the projected costs for future removal and shipping activities. These revisions, along with accretion expense, are included in cost of revenues in the unaudited condensed consolidated statement of operations.

        The following table sets forth the changes of the ARO for the six months ended June 30, 2015 (in thousands):

 
  Six Months Ended
June 30, 2015
 

Asset retirement obligation at December 31, 2014

  $ 997  

Accretion of obligation

    18  

Asset retirement obligation at June 30, 2015

  $ 1,015  

        For the six months ended June 30, 2014 and 2015, the accretion of the obligation was $17 thousand and $18 thousand, respectively. At both December 31, 2014 and June 30, 2015, the current portion of the ARO liabilities was $209 thousand and was recorded in accrued liabilities in the unaudited condensed consolidated balance sheets. At December 31, 2014 and June 30, 2015, the long-term portion of the ARO liabilities was $788 thousand and $806 thousand, respectively, and was recorded in other long-term liabilities in the unaudited condensed consolidated balance sheets.

Acquisition Contingent Consideration

        Acquisition contingent consideration represents the net present value of the additional purchase price that is contingent on the future performance of an acquired business. The acquisition contingent

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

9. Commitments and Contingencies (Continued)

consideration was derived in connection with certain historical acquisitions made by Quench prior to the Contribution and are expected to be paid as required through 2016.

        The following table sets forth the changes of the acquisition contingent consideration for the six months ended June 30, 2015 (in thousands):

 
  Six Months Ended
June 30, 2015
 

Acquisition contingent consideration at December 31, 2014

  $ 1,855  

Payments

    (732 )

Interest accretion

    72  

Acquisition contingent consideration at June 30, 2015

  $ 1,195  

        For the six months ended June 30, 2014 and 2015, the accretion of the obligation was $16 thousand and $72 thousand, respectively. At December 31, 2014 and June 30, 2015, the current portion of the acquisition contingent consideration was $926 thousand and $881 thousand, respectively, and was recorded in accrued liabilities in the unaudited condensed consolidated balance sheets. At December 31, 2014 and June 30, 2015, the long-term portion of the acquisition contingent consideration was $929 thousand and $314 thousand, respectively, and was recorded in other long-term liabilities in the unaudited condensed consolidated balance sheets.

        The acquisition contingent consideration liabilities are recorded at fair value as of December 31, 2014 and June 30, 2015 based on a probability-weighted discounted cash flow model which utilizes unobservable inputs such as the forecasted achievement of performance targets throughout the earn-out period, the term of the earn-out period and a discount rate of 10%. Any change in the valuation of the acquisition contingent consideration is recorded as a valuation adjustment within selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.

Change in Control Incentive Bonus Plan

        In connection with the Contribution on June 6, 2014, the Company assumed a change in control management incentive bonus plan ("Quench MIP") pursuant to which certain employees of Quench USA are entitled to a special cash bonus upon the occurrence of a sale event. As defined in the Quench MIP, a sale event includes, but is not limited to, an initial public offering. The potential cash bonus pool under the Quench MIP would be the lesser of: (i) 10% of the value of the outstanding securities of Quench USA Holdings LLC in excess of $21.0 million after giving effect to all payments under the plan; or (ii) $6 million.

        As of December 31, 2014 and June 30, 2015, the Company has not recorded any liability related to the Quench MIP as no events have occurred nor was it probable an event would occur that would require payment under the Quench MIP.

Litigation, Claims and Administrative Matters

        The Company, may, from time to time, be a party to legal proceedings, claims, and administrative matters that arise in the normal course of business. The Company has made accruals with respect to

F-21


Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

9. Commitments and Contingencies (Continued)

certain of these matters, where appropriate, that are reflected in the unaudited condensed consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters for which an accrual has not been made, the Company has not yet determined that a loss is probable or the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, the Company currently does not expect that these proceedings and claims, individually or in the aggregate, will have a material effect on the unaudited condensed consolidated financial position, results of operations, or cash flows. The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on the unaudited condensed consolidated financial position, results of operations, or cash flows. The Company maintains liability insurance in such amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that the Company insures against are customer lawsuits caused by damage or nonperformance, workers' compensation, personal injury, bodily injury, property damage, directors' and officers' liability, errors and omissions, employment practices liability and fidelity losses. There can be no assurance that the Company's liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities. As of December 31, 2014 and June 30, 2015, the Company has determined there are no matters for which a material loss is reasonably possible or the Company has either determined that the range of loss is not reasonably estimable or that any reasonably estimable range of loss is not material to the unaudited condensed consolidated financial statements.

10. Supplemental Cash Flow Information

        Supplemental cash flow information is as follows (in thousands):

 
  Six Months Ended
June 30,
 
 
  2014   2015  

Cash paid during the period:

             

Interest, net

  $ 1,375   $ 2,872  

Non-Cash Transaction Information

             

Adjustment for extinguishment/reissuance of Class A preferred shares

  $ 109,588   $  

Class Q share issuance related to acquisitions

  $ 143,666   $  

Class B share issuance related to acquisitions

  $ 16,500   $  

Unpaid capital expenditures

  $ 743   $ 1,375  

Non-cash issuance of warrants

  $ 132   $  

Unpaid initial public offering costs

  $   $ 808  

Unpaid debt financing costs

  $   $ 288  

11. Segment Reporting

        The Company has two operating and reportable segments, Seven Seas and Quench. This determination is supported by, among other factors: the existence of individuals responsible for the operations of each segment and who also report directly to our chief operating decision maker

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

11. Segment Reporting (Continued)

("CODM"), the nature of the segment's operations and information presented to the Board of Managers and our CODM. The Quench reportable segment was established upon the acquisition of Quench USA in June 2014. The Quench reportable segment includes both post-acquisition operations of Quench USA and post-acquisition operations of Atlas Watersystems, Inc., the assets of which were also acquired in June 2014. The Seven Seas segment includes the post-acquisition operations of the Acquiree, which was acquired in June 2015.

        Seven Seas provides outsourced desalination solutions and wastewater treatment for governmental, municipal, industrial and hospitality customers internationally under multi-year contracts. Quench provides bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers throughout the United States typically under multi-year contracts. Revenues reported under the Seven Seas reportable segment primarily represent bulk water sales and service, including revenues generated from service concession arrangements, whereas revenues under the Quench reportable segment primarily represent rental of filtered water and related systems.

        The Company records all non-direct general and administrative costs in its Seven Seas reportable segment and does not allocate these costs to the Quench reportable segment. All intercompany transactions are eliminated for segment presentation purposes.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

11. Segment Reporting (Continued)

        The following table provides information by reportable segment for the six months ended June 30, 2014 (in thousands):

 
  Six Months Ended June 30, 2014  
 
  Seven Seas   Quench   Total  

Revenues:

                   

Bulk water

  $ 19,067   $   $ 19,067  

Rental

        2,038     2,038  

Other

        306     306  

Total revenues

    19,067     2,344     21,411  

Gross profit:

   
 
   
 
   
 
 

Bulk water

    9,146         9,146  

Rental

        1,373     1,373  

Other

        223     223  

Total gross profit

    9,146     1,596     10,742  

Selling, general and administrative expenses

    6,916     1,558     8,474  

Income (loss) from operations

    2,230     38     2,268  

Other expense, net

    (1,629 )   (216 )   (1,845 )

Income (loss) before income tax expense

    601     (178 )   423  

Income tax expense

    238         238  

Net income (loss)

    363     (178 )   185  

Other information:

                   

Depreciation and amortization expense

  $ 4,593   $ 476   $ 5,069  

Interest expense, net

  $ 1,453   $ 216   $ 1,669  

Expenditures for long-lived assets

  $ 8,849   $ 702   $ 9,551  

Amortization of deferred financing fees

  $ 281   $ 7   $ 288  

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

11. Segment Reporting (Continued)

        The following table provides information by reportable segment for the six months ended June 30, 2015 (in thousands):

 
  Six Months Ended June 30, 2015  
 
  Seven Seas   Quench   Total  

Revenues:

                   

Bulk water

  $ 21,111   $   $ 21,111  

Rental

        21,954     21,954  

Other

        3,733     3,733  

Total revenues

    21,111     25,687     46,798  

Gross profit:

   
 
   
 
   
 
 

Bulk water

    9,046         9,046  

Rental

        12,440     12,440  

Other

        1,705     1,705  

Total gross profit

    9,046     14,145     23,191  

Selling, general and administrative expenses

    8,013     15,750     23,763  

Income (loss) from operations

    1,033     (1,605 )   (572 )

Other expense, net

    (1,470 )   (2,067 )   (3,537 )

Loss before income tax expense

    (437 )   (3,672 )   (4,109 )

Income tax expense

    1,211     354     1,464  

Net loss

    (1,648 )   (4,026 )   (5,573 )

Other information:

                   

Depreciation and amortization expense

  $ 5,645   $ 4,560   $ 10,205  

Interest expense, net

  $ 1,343   $ 2,067   $ 3,410  

Expenditures for long-lived assets

  $ 6,591   $ 4,658   $ 11,249  

Amortization of deferred financing fees

  $ 245   $ 58   $ 303  

        As of December 31, 2014, total assets for the Seven Seas and Quench reportable segments was $159.0 million and $217.4 million, respectively. As June 30, 2015, total assets for the Seven Seas and Quench reportable segments was $251.8 million and $217.7 million, respectively.

12. Significant Concentrations, Risks and Uncertainties

        The Company is exposed to interest rate risk resulting from its variable rate loans outstanding that adjust with movements in LIBOR or the lending bank's prime lending rate.

        For the six months ended June 30, 2015, a significant portion of the Company's revenues are derived from countries in the Caribbean region. Demand for water in the Caribbean region is impacted by, among other things, levels of rainfall and the tourism industry. High levels of rainfall and a downturn in the level of tourism and demand for real estate could adversely impact the future performance of the Company.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)

12. Significant Concentrations, Risks and Uncertainties (Continued)

        At June 30, 2015, a significant portion of the Company's property, plant and equipment is located in the Caribbean region. The Caribbean islands are situated in a geography where tropical storms and hurricanes occur with regularity, especially during certain times of the year. The Company designs its plant facilities to withstand such conditions; however, a major storm could result in plant damage or periods of reduced consumption or unavailability of electricity or source seawater needed to produce water. It is the Company's policy to maintain adequate levels of property and casualty insurance; however, the Company only insures certain plants.

        The operation of desalination plants requires significant amounts of electricity which typically is provided by the local utility of the jurisdiction in which the plant is located. A shortage of supply caused by force majeure or material increases in electricity costs could adversely impact the Company's operating results. To mitigate the risk of electricity cost increases, the Company has contracted with major customers for those cost increases to be borne by the customers and has invested in energy efficient technology. Management believes that rising energy costs and availability of its supply of electricity will not have a material adverse effect on its future performance.

13. Subsequent Events

        The Company has evaluated subsequent events through September 24, 2015, the date of issuance of the unaudited condensed consolidated financial statements for the six months ended June 30, 2015. The subsequent events included the following:

(a)
On July 2, 2015 and effective July 1, 2015, Quench USA acquired substantially all of the assets and certain liabilities of Region-X, LLC ("Region-X"), pursuant to an Asset Purchase Agreement ("Region-X Purchase Agreement"). Under the terms of the Region-X Purchase Agreement, the total adjusted purchase price of $609 thousand was paid in cash and is subject to certain post-closing adjustments. The Company acquired the assets of the Region-X to enhance its service offerings for certain of its filtered water systems. Certain disclosures have not been provided as the Company has not yet prepared a preliminary purchase accounting allocation. The operations of the Region-X will be included in the Quench reporting segment.

(b)
On August 1, 2015, the Company was in default of the BVI Loan Agreement as a result of its failure to meet the contractual deadline of July 31, 2015 for completing construction, acceptance testing and delivery of two sewage treatment plants and related works. On August 15, 2015, the Company entered into an equity commitment agreement with certain shareholders to provide financing up to $40.0 million in exchange for Class B shares in the event that the bank accelerates repayment as a result of this default. On September 18, 2015, the Company received a waiver of the defaults under the BVI Loan Agreement relating to the completion and testing of the two sewage treatment plants and related works, and such Agreement was amended to address certain issues relating to those sewage treatment plants and related works.

(c)
On September 3, 2015, the Company entered into the fourth amendment to the water sale agreement with a customer in Trinidad & Tobago to expand the existing desalination plant capacity by 21% and extend the term of the contract by 50 months. The Company will purchase and install the additional equipment required to facilitate this capacity expansion and will provide the additional water to the customer at contractually agreed upon prices. The Company will be responsible for ongoing costs associated with operating and maintaining the additional equipment.

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Report of Independent Registered Public Accounting Firm

The Board of Directors
AquaVenture Holdings LLC:

        We have audited the accompanying consolidated balance sheets of AquaVenture Holdings LLC and subsidiaries as of December 31, 2013 and 2014, and the related consolidated statements of operations, members' equity, and cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we also have audited Schedule I—Condensed Financial Information of the Registrant. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

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

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AquaVenture Holdings LLC and subsidiaries as of December 31, 2013 and 2014, and the results of their operations and their cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

    /s/ KPMG LLP

Providence, Rhode Island
August 11, 2015

 

 

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

 
  December 31,  
 
  2013   2014  

ASSETS

             

Current Assets:

             

Cash and cash equivalents

  $ 14,277   $ 37,499  

Trade receivables, net of allowance for doubtful accounts

    5,082     10,850  

Inventory

    362     4,405  

Deferred tax asset

        568  

Prepaid expenses and other current assets

    1,772     1,576  

Total current assets

    21,493     54,898  

Property, plant and equipment, net

    98,249     107,273  

Construction in progress

    10,317     9,242  

Long-term contract costs

        13,468  

Restricted cash

    2,700     2,700  

Other assets

    1,973     2,109  

Deferred tax asset

        2,412  

Intangible assets, net

    766     60,903  

Goodwill

    424     123,325  

Total assets

  $ 135,922   $ 376,330  

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED SHARES AND MEMBERS' EQUITY

             

Current Liabilities:

             

Accounts payable

  $ 2,110   $ 4,276  

Accrued liabilities

    3,316     8,063  

Current portion of long-term debt

    7,886     8,265  

Deferred revenue

        3,348  

Total current liabilities

    13,312     23,952  

Long-term debt

    45,666     77,766  

Deferred tax liability

    151     806  

Other long-term liabilities

    753     1,837  

Total liabilities

    59,882     104,361  

Commitments and contingencies (see Note 14)

             

Class A redeemable convertible preferred shares, 40,700 and 0 shares authorized, issued and outstanding at December 31, 2013 and 2014, respectively

    86,397      

Members' Equity:

             

Class A preferred shares, 0 and 40,700 shares authorized, issued and outstanding at December 31, 2013 and 2014, respectively

        195,988  

Class B shares, 0 and 16,500 shares authorized; 0 and 15,890 shares issued and outstanding at December 31, 2013 and 2014, respectively

        52,620  

Class Q shares, 0 and 29,037 shares authorized, issued and outstanding at December 31, 2013 and 2014, respectively

        143,666  

Common shares, 64,969 and 30,669 shares authorized; 12,376 and 11,820 shares issued and outstanding at December 31, 2013 and 2014, respectively

    4,918     4,931  

Management incentive plan shares, 0 and 7,900 shares authorized; 0 and 7,797 shares issued and outstanding at December 31, 2013 and 2014, respectively

         

Additional paid-in capital

    1,384     3,138  

Accumulated deficit

    (16,659 )   (128,374 )

Total members' equity

    (10,357 )   271,969  

Total liabilities, redeemable convertible preferred shares and members' equity

  $ 135,922   $ 376,330  

   

See accompanying notes to the consolidated financial statements.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

 
  Year Ended
December 31,
 
 
  2013   2014  

Revenues:

             

Bulk water

  $ 27,780   $ 38,989  

Rental

        23,995  

Other

        4,143  

Total revenues

    27,780     67,127  

Cost of revenues:

   
 
   
 
 

Bulk water

    15,765     21,037  

Rental

        10,984  

Other

        2,091  

Total cost of revenues

    15,765     34,112  

Gross profit

   
12,015
   
33,015
 

Selling, general and administrative expenses

    11,764     31,653  

Income from operations

    251     1,362  

Other (expense) income:

             

Interest expense

    (961 )   (5,155 )

Interest income

    12     7  

Other expense

    (124 )   (325 )

Loss before income taxes

    (822 )   (4,111 )

Income tax expense (benefit)

    387     (1,984 )

Net loss

  $ (1,209 ) $ (2,127 )

   

See accompanying notes to the consolidated financial statements.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
(IN THOUSANDS)

 
  Class A
Preferred Shares
   
   
   
   
   
   
  Management
Incentive
Plan Shares
   
   
   
 
 
  Class B Shares   Class Q Shares   Common Shares    
   
   
 
 
  Additional
Paid-In Capital
  Accumulated
Deficit
   
 
 
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Total  

Balance at December 31, 2012

      $       $       $     11,482   $ 4,918       $   $ 1,308   $ (15,450 ) $ (9,224 )

Issuance for share-based compensation, net of forfeitures

   
   
   
   
   
   
   
894
   
   
   
   
   
   
 

Accretion of Class A Redeemable Convertible Preferred shares

                                            (148 )       (148 )

Share-based compensation

                                            224         224  

Net loss

                                                (1,209 )   (1,209 )

Balance at December 31, 2013

                            12,376     4,918             1,384     (16,659 )   (10,357 )

Issuance of shares, net of issuance costs

   
   
   
10,638
   
52,620
   
29,037
   
143,666
   
   
   
   
   
   
   
196,286
 

Issuance for share-based compensation, net of forfeitures

            5,252                 (580 )       7,797                  

Exercise of options

                            24     13                     13  

Accretion of Class A Redeemable Convertible Preferred shares

                                            (3 )       (3 )

Reclassification from temporary equity

    40,700     86,400                                             86,400  

Adjustment for extinguishment and reissuance of Class A Preferred shares

        109,588                                         (109,588 )    

Share-based compensation

                                            1,757         1,757  

Net loss

                                                (2,127 )   (2,127 )

Balance at December 31, 2014

    40,700   $ 195,988     15,890   $ 52,620     29,037   $ 143,666     11,820   $ 4,931     7,797   $   $ 3,138   $ (128,374 ) $ 271,969  

See accompanying notes to the consolidated financial statements.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 
  Year Ended
December 31,
 
 
  2013   2014  

Cash flows from operating activities:

             

Net loss

  $ (1,209 ) $ (2,127 )

Adjustments to reconcile net loss to net cash provided by operating activities:

             

Depreciation and amortization

    7,226     14,831  

Accretion of asset retirement obligation

    27     35  

Share-based compensation expense

    225     1,757  

Provision for bad debts

    4     693  

Deferred income tax provision

    206     (2,325 )

Inventory write-off

        397  

Adjustment to fully-accreted asset retirement obligation

    (234 )    

Change in fair value of acquisition contingent consideration

        (45 )

Loss on disposal of assets

    54     604  

Amortization of debt financing fees

    343     609  

Accretion of acquisition contingent consideration

        116  

Accretion of debt

        79  

Other

        4  

Change in operating assets and liabilities:

             

Trade receivables

    (1,683 )   682  

Inventory

    (126 )   (871 )

Prepaid expenses and other current assets

    (82 )   1,071  

Other assets

    219     70  

Current liabilities

    490     770  

Net cash provided by operating activities

    5,460     16,350  

Cash flows from investing activities:

             

Capital expenditures

    (41,754 )   (20,133 )

Long-term contract expenditures

        (19 )

Proceeds from restricted cash

    1,000      

Net cash paid for businesses acquired

        (13,267 )

Sale of specialty residential division

        298  

Other

        6  

Net cash used in investing activities

    (40,754 )   (33,115 )

Cash flows from financing activities:

             

Proceeds from long-term debt

    44,117     10,000  

Payments of long-term debt

    (1,072 )   (8,113 )

Payment of debt financing fees

    (891 )   (115 )

Proceeds from stock subscription receivable

        2,500  

Cash restricted for debt service commitments

    (2,700 )    

Payment of acquisition contingent consideration

        (319 )

Proceeds from exercise of stock options

        13  

Proceeds from issuance of B shares

        36,021  

Net cash provided by financing activities

    39,454     39,987  

Change in cash and cash equivalents

    4,160     23,222  

Cash and cash equivalents at beginning of year

    10,117     14,277  

Cash and cash equivalents at end of year

  $ 14,277   $ 37,499  

   

See accompanying notes to the consolidated financial statements.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Business

        AquaVenture Holdings LLC is a Delaware limited liability company, which was formed on December 14, 2006. AquaVenture Holdings LLC and its subsidiaries (collectively, "AquaVenture" or the "Company") provides its customers Water-as-a-Service (WAAS) solutions through two operating platforms: Seven Seas Water ("Seven Seas") and Quench. Both operations are critical to AquaVenture, which is headquartered in Tampa, Florida.

        Seven Seas offers WAAS solutions by providing outsourced desalination solutions and wastewater treatment for governmental, municipal, industrial and hospitality customers. These solutions utilize reverse osmosis and other purification technologies to produce potable and high purity industrial process water in high volumes for customers operating in regions with limited access to potable water. Through this outsourced service model, Seven Seas assumes responsibility for designing, financing, constructing, operating and maintaining the water treatment facilities. In exchange, Seven Seas enters into long-term agreements to sell to customers agreed-upon quantities of water that meet specified water quality standards. Seven Seas Water currently operates primarily throughout the Caribbean region and is supported by an operations center in Tampa, Florida, which provides business development, engineering, field service support, procurement and administrative functions.

        Quench offers WAAS solutions by providing bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers across the United States. Quench's point-of-use systems purify a customer's existing water supply. Quench offers solutions to a broad mix of industries, including government, education, medical, manufacturing, retail, and hospitality. Quench installs and maintains our filtered water systems in exchange for a monthly fee, typically under multi-year contracts that renew automatically. Quench services customers throughout the United States and is supported by an operations center in King of Prussia, Pennsylvania.

2. Summary of Significant Accounting Policies

Basis of Presentation

        The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of AquaVenture Holdings LLC and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include: accounting for goodwill and identifiable intangible assets and any related impairment; property, plant and equipment and any related impairment; share-based compensation; allowance for doubtful accounts; inventory valuation; obligations for asset retirement; acquisition contingent consideration; and deferred income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

Cash and Cash Equivalents

        The Company classifies all highly liquid investments with an original initial maturity of three months or less as cash equivalents. Cash and cash equivalents consist of cash on hand with domestic and foreign banks and, at times, may exceed insurance limits of the Federal Deposit Insurance Corporation, or similar insurance in foreign jurisdictions. Cash and cash equivalents are stated at cost, which approximates fair value due to the short duration of their maturities.

Restricted Cash

        The Company is required to maintain three months of debt service payments on deposit in the local restricted bank accounts as a debt service reserve fund for both the following credit agreements: (i) the Amended Credit Agreement between a bank and Seven Seas Water (Trinidad) Unlimited, an indirect wholly-owned subsidiary of the Company (collectively, the "Trinidad Credit Agreement"), and (ii) the Amended Credit Agreement between a bank and Seven Seas Water Corporation (USVI), an indirect wholly-owned subsidiary of the Company (collectively, the "USVI Credit Agreement"). The required balance of restricted cash will fluctuate over the term of both agreements based on required debt service payments. As of December 31, 2013 and 2014, $2.7 million was deposited into restricted bank accounts in accordance with the terms of these credit agreements. The debt service reserve fund for the USVI Credit Agreement and the Trinidad Credit Agreement will be fully released in March 2018 and September 2020, respectively, when the respective loan balances mature.

        During the year ended December 31, 2013, $1.0 million of restricted cash was released for general use as a result of the Company meeting certain specified construction milestones in the applicable water supply agreement.

Trade Receivables, net

        Trade receivables are recorded at invoiced amounts, based principally on: meter readings; minimum take-or-pay amounts as provided in contractual arrangements; rental agreements of Company-owned filtered water systems; upon the completion of service work performed; or delivery of goods. Trade receivables do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable balance. The Company determines the allowance for doubtful accounts based on historical write-off experience, delinquency trends, and a specific analysis of significant receivable balances that are past due. Account balances are charged off against the allowance for doubtful accounts after all reasonable collection efforts have been exhausted. As of December 31, 2013 and 2014, the allowance for doubtful accounts was $47 thousand and $692 thousand, respectively.

        The provision for bad debt expenses for the years ended December 31, 2013 and 2014 was $4 thousand and $693 thousand, respectively, and is included in selling, general and administrative expenses ("SG&A") in the consolidated statements of operations. Deductions, including write-offs of uncollectible accounts receivable, to the allowance for doubtful accounts for the years ended December 31, 2013 and 2014 were $148 thousand and $48 thousand, respectively.

Inventory

        Inventory is directly related to the plant and rental assets recorded within property, plant and equipment and includes plant and filtration and related equipment, filters and parts, consumables and

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

other ancillary products and supplies. Inventory is valued at the lower of cost or net realizable value on a first-in, first-out basis and is periodically reviewed for excess and damage.

Revenue Recognition

        Through the Seven Seas and Quench operating platforms, the Company generates revenues from the following primary sources: (i) bulk water sales and service; (ii) service concession revenue; (iii) rental of water filtration and related equipment; and (iv) sale of water filtration and related equipment, supplies and maintenance services. The revenue recognition policy for each of the primary sources of revenue are as follows:

        Bulk Water Sales and Service.     Through the Seven Seas operating platform, the Company recognizes revenues from bulk water sales and service at the time water is supplied to customers in accordance with the contractual agreements. Certain contractual agreements contain minimum monthly charge provisions which allow the Company to invoice the customer for the greater of the water supplied or a minimum monthly charge. The amount of water supplied is based on meter readings performed at or near the end of the month. Estimates of revenue for unbilled water are recorded when meter readings occur at a time other than the end of a period.

        Certain contracts require the construction of facilities to provide bulk water to a specific customer are required to be accounted for as leases. These contracts are generally accounted for as operating leases as a result of the provisions of the contract. The Company has determined revenue recognition over the life of contracts determined to be operating leases is consistent with contracts for bulk water sales and service.

        Service Concession Arrangements.     Through the Seven Seas operating platform, the Company recognizes revenues from service concession arrangements. Service concession arrangements are agreements entered into with a public-sector entity which controls both (i) the ability to modify or approve the services and prices provided by the operating company and (ii) beneficial entitlement to, or residual interest in, the infrastructure at the end of the term of the agreement. The Company's service concession arrangements require the construction of infrastructure, which is ultimately operated by the Company to provide bulk water to the customer in accordance with the contractual agreement. Revenues are calculated based on the amount of water supplied and contractually established rates. The amount of water supplied is based on meter readings, which are typically performed at or near the end of the month. Estimates of revenue for unbilled water are recorded when meter readings occur at a time other than the end of a period.

        The Company has determined revenue is recognized consistent with bulk water sales and service as a result of the Company's continuing obligation to perform under the water supply contract.

        Rental of Water Filtration and Related Equipment.     Through the Quench operating platform, the Company generates revenues through the rental of its filtered water and related systems to customers. The rental agreements, which include related executory costs, are accounted for as operating leases and are considered one unit of accounting. As a result, revenues are recognized ratably over the rental agreement term. Upon the expiration of the initial rental agreement term, the Company may enter into rental agreement extensions in which revenues are recognized ratably over the extension term. Amounts paid by customers in excess of recognizable revenue are recorded as deferred revenue on the consolidated balance sheets.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

        Sale of Water and Related Filtration Equipment, Supplies and Maintenance Services.     Through the Quench operating platform, the Company recognizes revenues from the sale of water and related filtration equipment and supplies when ownership passes to the customers, the fee is fixed and determinable and collectability is reasonably assured. Depending upon the contractual terms of the arrangement, ownership may pass upon shipment, delivery or after the successful installation of the equipment at the customer site, if required. Shipping and handling costs paid by the customer are included in revenues. Maintenance services are performed on both a time-and-materials basis and through multiyear contractual arrangements. Revenues for services performed on a time-and-material basis are recognized when services have been rendered, the fee is fixed and determinable and collectability is reasonable assured. Revenues for services performance through multiyear contracts are recognized ratably over the service period. Amounts paid by customers in excess of recognizable revenue are recorded as deferred revenue on the consolidated balance sheets.

Sales Taxes Assessed by Governmental Agencies

        The Company collects sales tax for various taxing authorities and records these amounts on a net basis; thus, sales tax amounts are not included in revenues.

Property, Plant and Equipment

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

Building and improvements

  20 years

Plants and related equipment

  5 to 25 years

Rental equipment

  2 to 7 years

Office furniture, fixtures, and equipment

  2 to 10 years

Vehicles

  3 to 7 years

Leasehold improvements

  Shorter of 7 years or remaining lease term

        Depreciation expense related to the plant operations and rental property is included in cost of revenues in the consolidated statements of operations. Expenditures for repairs and maintenance are expensed as incurred whereas major betterments are capitalized.

Construction in Progress

        Construction in progress is comprised of the cost of the contracted services, direct labor, materials, and allocable overhead related to plant construction projects. Assets under construction are recorded as additions to property, plant, and equipment upon completion of the projects. Depreciation commences in the month the asset is placed in service.

Capitalized Interest

        The Company capitalizes interest incurred during the period of plant construction. Construction period interest is recorded within construction in progress during the construction period and as a cost of the underlying property, plant and equipment once the asset is placed into service.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

Long-term Contract Costs

        Long-term contract costs represent contracted services, direct labor, materials, and allocable overhead related to the construction of infrastructure for a customer under a service concession arrangement. Once placed into service, the infrastructure is operated and maintained by the Company under the terms of the arrangement. Expenditures for repairs and maintenance of the infrastructure are expensed as incurred whereas major betterments of the infrastructure are capitalized. Long-term contract costs are amortized on a straight-line basis over the remaining service concession arrangement period. Amortization commences in the month the infrastructure is placed in service and is recorded in cost of revenues on the consolidated statements of operations.

        Long-term contract costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Goodwill and Other Intangible Assets

        Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business combination. Goodwill is reviewed for impairment at least annually on November 30 and more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. The Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the quantitative analysis of the goodwill impairment test. Otherwise, the quantitative test is optional.

        Under the quantitative analysis, the recoverability of goodwill is measured at the Seven Seas or Quench reporting unit level, which the Company has determined to be consistent with its operating segments, by comparing the reporting unit's carrying amount, including goodwill, to the fair market value of the reporting unit. The Company determines the fair value of its reporting units based on a weighting of the present value of projected future cash flows (the "Income Approach") and a comparative market approach under both the guideline company method and guideline transaction method (collectively, the "Market Approach"). Fair value using the Income Approach is based on the Company's estimated future cash flows on a discounted basis. The Market Approach compares each of the Company's reporting units to other comparable companies based on valuation multiples derived from operational and transactional data to arrive at a fair value. Factors requiring significant judgment include, among others, the determination of comparable companies, assumptions related to forecasted operating results, discount rates, long-term growth rates, and market multiples. Changes in economic or operating conditions, or changes in the Company's business strategies, that occur after the annual impairment analysis and which impact these assumptions, may result in a future goodwill impairment charges, which could be material to the Company's consolidated financial statements.

        Other intangible assets consist of certain trade names, customer relationships and non-compete agreements. Intangible assets which have a finite life are amortized over their estimated useful lives on a straight-line basis and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets, which consist of certain trade names, are not amortized but are tested for impairment at least annually or more frequently if events or circumstances indicate the asset may be impaired.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

Long-Lived Assets

        Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recognition and measurement of a potential impairment is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flows models, quoted market values and third-party independent appraisals, as considered necessary. During 2013 and 2014, there were no indicators of potential impairments identified.

Share-Based Compensation

        AquaVenture accounts for share-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. The cost is recognized over the requisite service period, net of estimated forfeitures. If the actual number of forfeitures differs from those estimated, additional adjustments to compensation expense may be required in future periods.

Asset Retirement Obligations

        The Company has asset retirement obligations ("AROs") arising from contractual requirements to perform certain asset retirement activities at the time it disposes of certain plants and equipment. The liability is recorded in the period in which the obligation meets the definition of a liability, which is generally when the asset is constructed or placed in service. The ARO liability is based on the Company's engineering estimates of future costs to dismantle and remove equipment from a customer's plant site and to restore the site to a specified condition at the conclusion of a contract. The corresponding asset retirement costs are capitalized as plant and equipment and depreciated over the asset's useful life. The liability is initially measured at fair value and subsequently adjusted for accretion expense and changes in the amount or timing of the estimated cash flows. Accretion expense is recorded in cost of revenues in the consolidated statements of operations. Actual costs are charged against the related liability as incurred and any difference between the actual costs incurred and the liability is recognized as a gain or loss in the consolidated statements of operations.

Acquisition Contingent Consideration

        Acquisition contingent consideration represents the net present value of the additional purchase price that is contingent upon future performance of an acquired business. The acquisition date fair value of acquisition contingent consideration is recognized, as deemed appropriate, as an asset, liability or equity. Acquisition contingent consideration is re-measured to fair value at the end of each reporting period with the change in fair value recorded as a gain or loss in selling, general and administrative expenses in the consolidated statements of operations. As of December 31, 2013 and 2014, the Company has classified acquisition contingent consideration as a liability on the consolidated balance sheets.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

Income Taxes

        The Company accounts for income taxes using the asset and liability approach to the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Unless it is "more likely than not" that a deferred tax asset can be utilized to offset future taxes, a valuation allowance is recorded against that asset.

        The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions. The Company uses a two-step approach to recognize and measure uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, tax positions are measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated financial statements.

        As a limited liability company, the parent company is not subject to U.S. federal or state income taxes and items of taxable income and expense are allocated to its members in accordance with the provisions of AquaVenture Holdings LLC's limited liability operating agreement ("LLC Agreement"). Under the terms of the LLC Agreement, the Company is required to distribute to each member a cash distribution equal to the federal taxable income allocated to such member times the highest statutory combined federal and state income tax rate for the jurisdiction in which any member is domiciled. Certain of the Company's subsidiaries file separate tax returns and are subject to federal income taxes at the corporate level in the U.S. or in other foreign jurisdictions. Certain other subsidiaries operate in jurisdictions that do not impose taxes based on income.

Fair Value Measurements

        Fair value is an exit price that represents the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company discloses the manner in which fair value is determined for assets and liabilities based on a three-tiered fair value hierarchy. The hierarchy ranks the quality and reliability of the information used to determine the fair values. The three levels of inputs described in the standard are:

    Level 1: Quoted prices in active markets for identical assets or liabilities.

    Level 2: Observable inputs, other than Level 1 prices, for the assets or liabilities, either directly or indirectly, for substantially the full term of the assets or liabilities.

    Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

        At December 31, 2014, the Company has valued acquisition contingent consideration and warrant liability utilizing Level 3 inputs. At December 31, 2013, there were no assets or liabilities valued utilizing Level 3 inputs.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

        The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of the short-term nature of these instruments.

Foreign Currency

        The Company's functional currency is the U.S. dollar for all foreign operations. From time to time, the Company purchases inventory, equipment, and services from businesses in countries whose functional currency is not the U.S. dollar. The Company's obligation for such transactions are generally denominated in U.S. dollars and, as such, do not represent a material currency exposure. During the years ended December 31, 2013 and 2014, the Company incurred foreign currency transaction losses of $64 thousand and $45 thousand, respectively, which was recorded in other expenses in the consolidated statements of operations.

Adoption of New Accounting Pronouncements

        In January 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that specifies that an operating entity of a service concession arrangement entered into with a public-sector entity grantor should not account for the service concession arrangement as a lease. The amendments also specify that the infrastructure used in a service concession arrangement should not be recognized as property, plant, and equipment of the operating entity. The transition requires a modified retrospective approach to service concession arrangements that exist at the beginning of an entity's fiscal year of adoption. Early adoption is permitted.

        The Company early adopted the guidance as of January 1, 2014 on a modified retrospective approach. Prior to the adoption, the Company classified costs incurred to construct infrastructure required by service concession arrangements as property, plant and equipment. This property, plant and equipment was depreciated in accordance with the Company's policy over the life of the related water supply contract. The guidance on service concession arrangements prohibits a company from recording the construction of infrastructure as property, plant and equipment. Instead, the Company records construction costs incurred as long-term contract costs which are amortized over the remaining life of the contract on a straight-line basis. Revenues for service concession arrangements will be recorded consistently with revenues under the contracts recorded prior to the adoption as a result of the Company's continuing obligation to perform under the related water supply contract.

        As of January 1, 2014, the Company reclassified $6.9 million of property, plant and equipment, net of accumulated depreciation, and $5.1 million of construction in progress to long-term contract costs.

        In August 2014, the FASB issued authoritative guidance regarding disclosure of uncertainties about an entity's ability to continue as a going concern, which requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. The guidance will be effective for the Company for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, and early adoption is permitted. The Company early adopted the guidance as of December 31, 2014 on a prospective basis. As a result of there being no substantial doubt about the ability of the Company to continue as a going concern, the Company concluded there was no significant impact on the consolidated financial statements.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements

        In July 2013, the FASB issued authoritative guidance requiring standard presentation of an unrecognized tax benefit when a carryforward related to net operating losses or tax credits exists. This guidance will be applied prospectively and is effective for the Company beginning January 1, 2015. The Company evaluated impact of the accounting and disclosure requirements and has concluded there is no material impact on the Company's consolidated financial statements.

        In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers, which specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for annual reporting periods beginning on or after December 15, 2017 and interim periods within those annual periods and will require enhanced disclosures. The Company is currently evaluating the potential impact of the accounting and disclosure requirements on the consolidated financial statements.

        In April 2015, the FASB issued authoritative guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance will be effective for annual periods beginning after December 15, 2015, and for annual and interim periods thereafter, and early adoption is permitted. The Company does not expect the accounting requirements to have a material impact on the Company's consolidated financial statements.

3. Business Combinations

Quench USA Holdings LLC

        On June 6, 2014, AquaVenture Holdings LLC acquired all of the assets of Quench USA Holdings LLC (the "Contributor") under a Contribution Agreement dated as of June 6, 2014 ("Contribution Agreement") in exchange for AquaVenture's issuance of 29,036,947 Class Q shares and 2,829,598 Class B shares (the "Contribution"). The assets of the Contributor included all issued and outstanding capital stock of Quench USA, Inc. ("Quench USA") and any cash held.

        The Class Q shares and Class B shares issued to the Contributor had a fair value at the time of contribution of $143.7 million and $14.0 million, respectively (or an aggregate purchase price of $157.7 million). The fair value of the Class Q and B shares was derived from certain equity transactions with third parties that occurred before the execution of the Contribution Agreement. Transaction-related costs incurred by AquaVenture during the year ended December 31, 2014 were $265 thousand and were expensed as incurred within SG&A in the consolidated statements of operations.

        The Company acquired the assets of the Contributor to expand its Water-as-a-Service solutions.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Business Combinations (Continued)

        The following table summarizes the purchase price allocated to the fair value of assets acquired, including intangibles recorded in conjunction with the business combination, and liabilities assumed (in thousands):

Assets Acquired:

       

Cash and cash equivalents

  $ 7,804  

Trade receivables

    5,584  

Inventory

    2,795  

Property, plant and equipment

    12,009  

Other assets

    1,458  

Subscription receivable

    2,500  

Customer relationships

    48,330  

Trade names

    5,130  

Non-compete agreements

    110  

Goodwill

    112,420  

Total assets acquired

    198,140  

Liabilities Assumed:

       

Accounts payable and accrued liabilities

    (4,912 )

Deferred revenue

    (2,961 )

Other current liabilities

    (306 )

Long-term debt

    (30,192 )

Acquisition contingent consideration

    (2,103 )

Total liabilities assumed

    (40,474 )

Total purchase price

  $ 157,666  

        The assets and liabilities in the purchase price allocation are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable. The shareholder receivable, which was collected in full in June 2014, relates the sale of equity by the Contributor prior to the execution of the Contribution Agreement. Intangibles identified and valued related to the transaction include customer relationships, trade names and non-compete agreements. The fair value of the trade names was determined using the relief from royalty method which is based on the present value of royalty fees derived from projected revenues using a discount rate of 9.6%. The fair value of the customer relationships was determined using the multi-period excess earnings method which is based on the present value of the projected after-tax cash flows using a discount rate of 9.6%. The Company determined the weighted average useful life at the date of valuation for the trade names to be 23.6 years, the non-compete agreements to be 5.0 years and the customer relationships to be 15.0 years.

        Goodwill was composed of synergies not valued, is not deductible for tax purposes and will be recorded within the Quench reporting unit.

        Long-term debt of Quench USA at the date of contribution included: (i) the Amended Loan and Security Agreement between a lender and Quench USA ("Quench Loan Agreement") with an unpaid

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Business Combinations (Continued)

principal balance of $30.0 million and a fair value of $29.6 million and (ii) notes payable related to vehicle financing with a remaining unpaid balance of $574 thousand.

Atlas Watersystems, Inc.

        On June 16, 2014, Quench USA, then a wholly-owned subsidiary of AquaVenture, acquired all of the assets and certain liabilities of Atlas Watersystems, Inc. ("Atlas"), pursuant to an Asset Purchase Agreement ("Atlas Purchase Agreement"). Under the terms of the Atlas Purchase Agreement, all of the assets of Atlas were acquired for a total purchase price of $23.6 million, after giving effect to a $129 thousand post-closing working capital adjustment due to the Company. The consideration included $21.1 million in cash and $2.5 million, or 505,285 shares, of Class B shares of AquaVenture. The total purchase price is subject to certain adjustments provided for in the Atlas Purchase Agreement. On the closing date, Quench placed $2.4 million of the total purchase price into escrow to secure Atlas' indemnification obligations for a period of 24 months from the closing date, and to satisfy certain adjustments to the purchase price.

        Transaction-related costs were insignificant and were expensed as incurred within SG&A in the consolidated statement of operations.

        The Company acquired Atlas to expand its geographical coverage and strengthen its national service network for the Quench operations.

        The following table summarizes the purchase price allocated to the fair value of assets acquired, including intangibles recorded in conjunction with the business combination, and liabilities assumed (in thousands):

Assets Acquired:

       

Trade receivables

  $ 1,559  

Inventory

    832  

Property, plant and equipment

    3,658  

Other assets

    123  

Customer relationships

    8,864  

Trade names

    16  

Non-compete agreements

    80  

Goodwill

    10,585  

Total assets acquired

    25,717  

Liabilities Assumed:

       

Deferred revenue

    (1,920 )

Other liabilities

    (226 )

Total liabilities assumed

    (2,146 )

Total purchase price

  $ 23,571  

        The assets and liabilities in the purchase price allocation are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable. Acquisition intangibles identified and valued related to the transaction include customer

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Business Combinations (Continued)

relationships, trade names and non-compete agreements. The fair value of the customer relationships was determined using the multi-period excess earnings method which is based on the present value of the projected net cash flows using a discount rate of 13.6%. The Company determined the weighted average useful life at the date of valuation for the trade names to be 2.0 years, the non-compete agreements to be 4.0 years and the customer relationships to be 15.0 years.

        Goodwill was composed of synergies not valued, is deductible for tax purposes and will be recorded within the Quench reporting unit.

Pro Forma Financial Information

        The following unaudited pro forma financial information (in thousands) for the Company gives effect to the acquisitions of the Contributor's assets, which occurred on June 6, 2014, and Atlas' assets, which occurred on June 16, 2014, as if both had occurred at the beginning of each of the periods presented. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisitions occurred on the date indicated, or that may result in the future.

 
  Year Ended
December 31,
 
 
  2013   2014  

Revenues

  $ 77,048   $ 90,544  

Net (loss) income

  $ (3,295 ) $ 4,046  

        The pro forma financial information for the year ended December 31, 2013 includes an adjustment to record deferred revenues at their fair value as of January 1, 2013. As a result, the pro forma financial information for the year ended December 31, 2013 included a reduction to revenues and a corresponding increase to the net loss of $335 thousand.

        The amount of revenues and net loss of the acquired companies, in the aggregate, included in the consolidated statements of operations since acquisition was $28.1 million and $4.8 million, respectively.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Property, Plant and Equipment and Construction in Progress

        Property, plant and equipment and construction in progress consisted of the following (in thousands):

 
  December 31,  
 
  2013   2014  

Land

  $ 2,485   $ 2,485  

Building and improvements

    1,150     1,150  

Plants and related equipment

    118,010     110,284  

Rental equipment

        17,259  

Office furniture, fixtures, and equipment

    1,705     3,772  

Vehicles

    232     1,132  

Leasehold improvements

    361     727  

    123,943     136,809  

Less: accumulated depreciation

    (25,694 )   (29,536 )

Property, plant and equipment, net

  $ 98,249   $ 107,273  

Construction in progress

  $ 10,317   $ 9,242  

        During the years ended December 31, 2013 and 2014, the Company capitalized interest expense of $761 thousand and $0, respectively. Total depreciation expense for the years ended December 31, 2013 and 2014 was $7.1 million and $10.6 million, respectively, of which $6.7 million and $9.8 million, respectively, was recorded in cost of revenues.

        Included in rental equipment are assets on lease and held for lease by the Quench operating platform. As of December 31, 2014, assets on lease were $14.4 million, net of accumulated depreciation of $1.7 million, and assets on hold for lease were $541 thousand, net of accumulated depreciation of $598 thousand.

        Future minimum rental revenues to be generated from the leased assets under non-cancelable operating leases are summarized as follows (in thousands):

Year ending December 31:
   
 

2015

  $ 26,029  

2016

    7,669  

2017

    2,343  

2018

    633  

2019

    194  

5. Long-term Contract Costs

        Long-term contract costs of $6.9 million and $5.1 million were reclassified from property, plant and equipment, net of accumulated depreciation, and construction in progress, respectively, as of January 1, 2014 in connection with the early adoption of service concession guidance. At December 31, 2014, long-term contract costs were $13.5 million. For the year ended December 31, 2014, the Company recorded amortization expense of $1.8 million.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Income Taxes

        For income tax purposes, the domestic and foreign components of income (loss) before income tax were as follows (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

Loss from domestic operations

  $ (502 ) $ (8,896 )

(Loss) income from foreign operations

    (320 )   4,785  

  $ (822 ) $ (4,111 )

        The provision for income taxes consisted of the following (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

Current:

             

Foreign

  $ 374   $ 341  

Deferred:

             

Foreign

    13     (2,325 )

  $ 387   $ (1,984 )

        As of December 31, 2013 and 2014, income tax payable was $181 thousand and $523 thousand, respectively, and was recorded in accrued liabilities in the consolidated balance sheets.

        The provision for income taxes shown above varied from the U.S. statutory federal income tax rate for those periods as follows:

 
  Year Ended
December 31,
 
 
  2013   2014  

Federal income tax rate

    34.0 %   35.0 %

State income taxes, net of Federal tax effect

    (2.7 )   6.8  

Foreign income tax rate differences

    (54.1 )   15.4  

Effect of flow-through entity

    (46.5 )   (13.1 )

Change in valuation allowance

    50.2     (36.5 )

Disallowed management fees

        (18.2 )

Economic development tax benefit

        71.8  

Investment tax allowances

        6.9  

Share-based compensation

    (10.7 )   (14.2 )

Other items, net

    (17.3 )   (5.6 )

Effective tax rate

    (47.1 )%   48.3 %

        The Company evaluates the recoverability of its deferred income tax assets by assessing the need for a valuation allowance. A valuation allowance is established against some or all of the deferred tax

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Income Taxes (Continued)

assets if the Company determines it is more likely than not that the deferred income tax assets will not be recovered.

        Deferred income tax assets and liabilities are composed of the following (in thousands):

 
  December 31,  
 
  2013   2014  

Deferred taxes, current:

             

Assets:

             

Accrued compensation

  $   $ 128  

Provision for bad debts

        289  

Expense reserves

        262  

Deferred tax asset, current

        679  

Valuation allowance

        (111 )

Deferred tax asset, net—current

        568  

Deferred taxes, non-current:

             

Assets:

             

Domestic net operating loss carryforwards

    527     20,167  

Foreign net operating loss carryforwards

    20,408     17,865  

Property, plant and equipment, net

        229  

Other

    587     1,457  

Deferred tax asset, non-current

    21,522     39,718  

Liabilities:

             

Property, plant and equipment, net

    (18,479 )   (15,971 )

Intangible assets, net

    (71 )   (15,735 )

Other

    (3 )   (30 )

Deferred tax liability, non-current

    (18,553 )   (31,736 )

Valuation allowance

    (3,120 )   (6,376 )

Deferred tax asset, net—non-current

    (151 )   1,606  

Net deferred tax asset

  $ (151 ) $ 2,174  

        As of December 31, 2013, the Company estimated $1.4 million, $1.4 million and $73.1 million of federal, state and foreign net operating loss carryforwards, respectively. As of December 31, 2014, the Company estimated $51.7 million, $39.0 million and $65.4 million of federal, state and foreign net operating loss carryforwards, respectively. The federal loss carryforwards will begin to expire in 2028. The state loss carryforwards will expire at various times beginning in 2015. The foreign loss carryforwards of $45.1 million, in the aggregate, for Trinidad, Chile and Peru do not expire. The remaining foreign loss carryforwards will begin to expire in 2018.

        Utilization of our net operating loss carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the net operating loss carryforwards before their utilization. The events that may cause ownership change include, but are not limited to a cumulative

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Income Taxes (Continued)

stock ownership change of greater than 50% over a three-year period. Also, net operating loss and credit carryforwards of one subsidiary are not currently available to offset income generated by another subsidiary, which will affect the future benefit from and utilization of these carryforwards.

        As of December 31, 2013 and 2014, the Company had invested or planned to invest approximately $12.5 million and $18.4 million, respectively, of undistributed earnings indefinitely. If in the future this income is repatriated or if the Company determines that the earnings will be remitted in the foreseeable future, additional tax provisions may be required. Management believes the amount of unrecognized deferred income tax liabilities on the undistributed earnings is immaterial.

        GAAP requires a valuation allowance to reduce the deferred income tax assets recorded if, based on the weight of the evidence, it is more likely than not, that some portion or all of the deferred income tax assets will not be realized. After consideration of all the evidence, the Company has determined that a valuation allowance of approximately $3.1 million and $6.5 million is necessary at December 31, 2013 and 2014, respectively. The company recognized a net increase in the valuation allowance of $3.4 million during the year ended December 31, 2014, of which $1.9 million related to the accounting for business combinations and $1.5 million related to the Company's determination about the realizability of the deferred tax assets.

        The Company or one of its subsidiaries files income tax returns in the US federal jurisdiction, various state jurisdictions and foreign jurisdictions. With few exceptions, the Company is no longer subject to US federal examinations by tax authorities for years before 2011 and state and local and non U.S. income tax examinations by tax authorities before 2009. To the extent net operating loss carryforwards are utilized, the tax years in which those net operating loss carryforwards were generated may be subject to adjustment by tax authorities during the examination of a tax return in which those net operating loss carryforwards are utilized.

        GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing tax returns to determine whether the tax positions are "more likely than not" to be sustained by the Company upon challenge by the applicable tax authority. Tax positions not deemed to meet the "more likely than not" threshold and that would result in a tax benefit or expense to the Company would be recorded as a tax benefit or expense in the current period. The Company's policy on its classification of interest and penalties on any unrecognized tax benefits is to recognize the interest and penalties as a component of income tax expense or benefit. Management does not believe that there are any uncertain tax positions for the years ended December 31, 2013 and 2014. No interest or penalties have been recognized in either the consolidated statements of operations or the consolidated balance sheets.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Goodwill and Other Intangible Assets

Goodwill

        The following table contains a disclosure of changes in the carrying amount of goodwill in total and for each reporting unit for the years ended December 31, 2013 and 2014 (in thousands):

 
  Seven Seas   Quench   Total  

Balance as of January 1, 2013

  $ 424   $   $ 424  

Balance as of December 31, 2013

    424         424  

Acquisition of Quench

        112,420     112,420  

Acquisition of Atlas

        10,585     10,585  

Sale of specialty residential division

        (104 )   (104 )

Balance as of December 31, 2014

  $ 424   $ 122,901   $ 123,325  

        The acquisition of Atlas in June 2014 included a division focused on specialty residential services. During October 2014, the Company sold the residential division for a total sale price of $297 thousand. The Company determined $104 thousand of the existing goodwill was related to the specialty residential division.

        The Company performed its annual impairment test as of November 30, 2014 for both the Seven Seas and Quench reporting units. The Company first performed a qualitative assessment of each reporting unit to determine if it was more likely than not that the fair value of the reporting unit was less than its carrying amount, including goodwill. Based upon the qualitative assessments of both the Seven Seas and Quench reporting units, it was determined that it was not more likely than not that the fair value of the reporting units were less than the carrying values. Therefore, no quantitative test was performed for either the Seven Seas or Quench reporting unit.

        There was no goodwill impairment charge recorded during the years ended December 31, 2013 or 2014. The carrying value of goodwill at December 31, 2013 and 2014 for both the Seven Seas and Quench reporting units represents the gross amount of goodwill attributable to each reporting unit.

Other Intangible Assets

        The gross and net carrying values of other intangible assets by major intangible asset class, are as follows (in thousands):

 
  December 31, 2013  
 
  Gross Carrying
Amount
  Accumulated
Amortization
  Carrying
Value
 

Definite-lived intangible assets

                   

Customer relationships

  $ 1,761   $ (1,268 ) $ 493  

Indefinite-lived intangible assets

                 

Trade names

    273         273  

Total

  $ 2,034   $ (1,268 ) $ 766  

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Goodwill and Other Intangible Assets (Continued)

 
  December 31, 2014  
 
  Gross Carrying
Amount
  Accumulated
Amortization
  Carrying
Value
 

Definite-lived intangible assets

                   

Customer relationships

  $ 58,955   $ (3,510 ) $ 55,445  

Trade names

    5,146     (128 )   5,018  

Non-compete agreements

    190     (23 )   167  

Indefinite-lived intangible assets

                   

Trade names

    273         273  

Total

  $ 64,564   $ (3,661 ) $ 60,903  

        Amortization expense for these intangible assets for the years ended December 31, 2013 and 2014 was $107 thousand and $2.4 million, respectively. Amortization expense for these intangible assets for 2015, 2016, 2017, 2018 and 2019 is expected to be $4.2 million, $4.2 million, $4.1 million, $4.1 million and $4.1 million, respectively.

        There was no impairment expense related to other intangible assets recorded during the years ended December 31, 2013 and 2014.

8. Accrued Liabilities

        Accrued liabilities consisted of the following (in thousands):

 
  December 31,  
 
  2013   2014  

Employee-related liabilities

  $ 156   $ 1,820  

Other accrued expenses

    3,160     6,243  

  $ 3,316   $ 8,063  

9. Long-Term Debt

        Long-term debt under the Trinidad Credit Agreement, USVI Credit Agreement, Quench Loan Agreement and vehicle financing included the following (in thousands):

 
  December 31,  
 
  2013   2014  

Trinidad Credit Agreement

  $ 28,929   $ 24,643  

USVI Credit Agreement

    24,623     21,023  

Quench Loan Agreement

        39,565  

Vehicle financing

        800  

Total debt

    53,552     86,031  

Less: current portion of long-term debt

    (7,886 )   (8,265 )

Total long-term debt

  $ 45,666   $ 77,766  

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt (Continued)

Trinidad Credit Agreement

        On April 9, 2012, Seven Seas Water (Trinidad) Unlimited, an indirect wholly-owned subsidiary of the Company, entered into a credit agreement as a borrower with a bank to partially finance the construction of a water plant in Trinidad. The Trinidad Credit Agreement was subsequently amended on April 15, 2013 to modify restrictions related to distributions and certain financial covenants, May 21, 2013 to modify project completion and drawdown dates, September 9, 2013 to modify the final drawdown date and completion certificate requirements, May 20, 2014 to modify restrictions related to distributions, on October 20, 2014 to reduce the minimum tangible net worth financial covenant of the Company from $65.0 million to $50.0 million, and on June 4, 2015 to modify certain covenants on capital expenditures and insurance requirements.

        The Company began borrowing under the Trinidad Credit Agreement in August 2012 with the final drawdown of borrowed funds occurring in October 2013. During the drawdown period, the credit agreement provided for variable interest at LIBOR plus 4.0%. When the drawdown period was completed in October 2013, interest on 50% of the loan was fixed at 5.64% with the remaining 50% at a variable rate based on LIBOR plus 4.0%. The weighted-average interest rate was 4.9% as of December 31, 2014. The loan principal is repayable in equal monthly installments over a seven-year period maturing in September 2020. The bank holds a security interest in the shares and all of the assets of Seven Seas Water (Trinidad) Unlimited.

        The Trinidad Credit Agreement is guaranteed by the parent company. The Trinidad Credit Agreement limits the amount of additional indebtedness that Seven Seas Water (Trinidad) Unlimited can incur and places annual limits on capital expenditures for the subsidiary. Seven Seas Water (Trinidad) Unlimited is only permitted to make distributions to shareholders and affiliates of the Company if specified debt service coverage ratios are met and it is in compliance with all loan covenants. In addition, both Seven Seas Water (Trinidad) Unlimited and the parent company, as guarantor, are subject to quarterly financial covenant compliance and must maintain a minimum debt service reserve fund with the bank. The Company was in compliance with, or received a waiver for, all such covenants as of December 31, 2014.

        The Company may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part. If the prepayment has been made prior to April 9, 2015, the Company is required to concurrently pay both a prepayment penalty of 1% of the principal payment made and any breakage fees incurred by the lender. Prepayments made after April 9, 2015 are not subject to a prepayment penalty.

USVI Credit Agreement

        On March 27, 2013, Seven Seas Water Corporation (USVI), an indirect wholly-owned subsidiary of the Company, entered into a credit agreement to partially finance the construction of a water plant in the USVI. The USVI Credit Agreement was subsequently amended on: September 9, 2013 to modify certain agreement definitions, on May 20, 2014 to modify restrictions related to distributions and on October 20, 2014 to reduce the minimum tangible net worth financial covenant of the Company from $65.0 million to $50.0 million.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt (Continued)

        The Company began borrowing under the USVI Credit Agreement in April 2013 with the final drawdown of borrowed funds occurring in October 2013. During the drawdown period, the credit agreement provided for variable interest at LIBOR plus 3.25%. When the drawdown period was completed in October 2013, interest on 60% of the loan was fixed at 4.55% with the remaining 40% at a variable rate based on LIBOR plus 3.25%. The weighted-average interest rate was 4.1% as of December 31, 2014. The loan principal is repayable beginning in January 2014 in twenty-four monthly installments of $300 thousand followed by twenty-six monthly installments of $375 thousand with a final balloon payment of $7.7 million due in March 2018. The bank holds a security interest in the shares and all of the assets of Seven Seas Water (USVI) Unlimited.

        The USVI Credit Agreement is guaranteed by the parent company. The USVI Credit Agreement limits the amount of additional indebtedness that Seven Seas Water Corporation (USVI) can incur and places annual limits on capital expenditures for the subsidiary. Seven Seas Water (USVI) Unlimited is only permitted to make distributions to shareholders and affiliates of the Company if specified debt service coverage ratios are met and it is in compliance with all loan covenants. In addition, both Seven Seas Water Corporation (USVI) and the parent company, as guarantor, are subject to quarterly financial covenant compliance and must maintain a minimum debt service reserve fund with the bank. The Company was in compliance with, or received a waiver for, all such covenants as of December 31, 2014.

        The Company may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part. If the prepayment is made prior to March 27, 2016, the Company is required to concurrently pay both a prepayment penalty of 1% of the principal payment made and any breakage fees incurred by the lender. Prepayments made after March 27, 2016 are not subject to a prepayment penalty.

Quench Loan Agreement

        On the date of Contribution Agreement, the liabilities of Quench USA included the Amended Loan and Security Agreement between a lender and Quench USA. The Quench Loan Agreement included: (i) a Tranche A Term Loan of $12.5 million with a maturity date of December 23, 2018; (ii) a Tranche B Term Loan of $7.5 million with a maturity date of December 23, 2018; and (iii) a Tranche C Term Loan of $10.0 million with a maturity date of December 23, 2018.

        On June 16, 2014, the Quench Loan Agreement was amended in connection with the acquisition of Atlas. The third amendment included the following: (i) a consent of the acquisition of Atlas; (ii) a requirement for an $11 million capital contribution to Quench USA in connection with the Atlas acquisition; (iii) added and disbursed a Tranche D Term Loan in the amount of $10.0 million with a maturity date of December 23, 2018; and (iv) a grant of seven-year warrants to the lender to purchase 60,635 of Class B Shares of the Company at a purchase price of $4.9477 per share.

        The Tranche A Term Loan of $12.5 million contains an interest rate per annum equal to the base rate in effect for such month, plus 6% per annum, provided that in no event shall the interest rate per annum be less than 9.5% (9.5% as of December 31, 2014). The Tranche B, C and D Loans of $7.5 million, $10.0 million and $10.0 million, respectively, each contain an interest rate per annum equal to the base rate in effect for such month, plus 5.5% per annum, provided that in no event shall the interest rate per annum be less than 9.0% (9.0% as of December 31, 2014). The base rate for each tranche is defined as the greater of the highest Prime Rate in effect during the month or the highest

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt (Continued)

three-month LIBOR rate in effect during each month, plus 2.5% per annum. Interest only payments are due monthly.

        The unpaid principal balance of the Tranche A Term Loan outstanding on December 23, 2015 shall be repaid in: (i) 12 equal monthly principal payments of $156 thousand, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $208 thousand, commencing on January 23, 2017; (iii) 12 equal monthly principal payments of $260 thousand, commencing on January 23, 2018 and (iv) the remaining amount of $5.0 million on December 23, 2018 . The unpaid principal balance of the Tranche B Term Loan outstanding on December 23, 2015 shall be repaid in: (i) 12 equal monthly principal payments of $94 thousand, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $125 thousand, commencing on January 23, 2017; (iii) 12 equal monthly principal payments of $156 thousand, commencing on January 23, 2018 and (iv) the remaining amount of $3.0 million on December 23, 2018. The unpaid principal balance of the Tranche C Term Loan and Tranche D Term Loan outstanding on December 23, 2015 shall each be repaid in: (i) 12 equal monthly principal payments of $125 thousand, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $167 thousand, commencing on January 23, 2017, and continuing on the same day of each month thereafter until December 23, 2017; (iii) 12 equal monthly principal payments of $208 thousand, commencing on January 23, 2018 and (iv) the remaining amount of $4.0 million on December 23, 2018.

        Quench USA may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part, provided that Quench USA concurrently pays:

    i.
    All accrued and unpaid interest on the principal so prepaid;

    ii.
    A prepayment fee equal to 2.0% of the amount prepaid if prepayment occurs on or prior to June 16, 2016, and 1.0% of the amount prepaid if prepayment occurs after June 16, 2016 and on or before June 16, 2017. The prepayment fee shall be due from Quench USA upon any prepayment of the principal of the loans, including without limitation any prepayment as a result of an event of default or the exercise of any rights or remedies by the lender following the same. Prepayments of the loans shall be applied pro rata to the principal installments due or outstanding on the loans.

        The Quench Loan Agreement is collateralized by substantially all of Quench USA's assets. In addition to a minimum net recurring revenue covenant, Quench USA is required to comply with certain other financial and nonfinancial covenants. Quench USA was in compliance with all such covenants as of December 31, 2014.

        As noted above, pursuant to the Quench Loan Agreement amendment on June 16, 2014, the lender was granted a seven-year warrant to purchase 60,635 Class B Shares of the Company at a purchase price of $4.9477 per share ("Class B Warrant"). The fair value of the Class B Warrant on the date of grant was determined to have an aggregate value of $132 thousand using the Black-Scholes-Merton option pricing model. The Class B Warrants are accounted for as a liability. An amount equal to the grant date fair value of the Class B Warrant was recorded as a debt discount and is being amortized over the remaining term of the Quench Loan Agreement. As of December 31, 2014, the Class B Warrant had a fair value of $120 thousand and is classified as a long-term liability in the consolidated balance sheets.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt (Continued)

        There was no debt accretion in the year ended December 31, 2013. The accretion of the Company's debt for the year ended December 31, 2014 was $79 thousand and is recorded as interest expense in the consolidated statements of operations.

Other Debt

        The Company finances its vehicles for a three-year term with interest rates per annum ranging from 1.6% to 6.8%.

Maturities of Long-Term Debt

        Maturities of long-term debt was as follows as of December 31, 2014 (in thousands):

 
  Amount Due  

2015

  $ 8,265  

2016

    15,004  

2017

    16,821  

2018

    38,440  

2019

    4,287  

2020 and thereafter

    3,214  

Total long-term debt

  $ 86,031  

Restricted Net Assets

        In accordance with the negative covenants as defined within the Quench Loan Agreement, Quench USA is prohibited from performing certain acts including, but not limited to, making loans to any other person or entity, making investments in any other person or entity, paying or declaring dividends on Quench USA's stock, or transferring any of the assets of Quench USA deemed to be collateral without prior consent of the lender. As a result of the negative covenants, Quench USA is restricted from transferring its net assets to the Company. The Trinidad Loan Agreement and USVI Loan Agreement both contain provisions to restrict assets through the prohibition of dividends and the transfer of assets in the event the Company fails to meet certain financial ratios. However, the Company exceeded such financial ratios as of December 31, 2013 and 2014 and, thus, there were no net asset restrictions for Seven Seas Water (Trinidad) Unlimited and Seven Seas Water Corporation (USVI). As of December 31, 2013 and 2014, the restricted net assets of the Company amounted to $0 and $165.0 million, or 0% and 60.7%, of total consolidated net assets, respectively.

Deferred Financing Fees

        The Company incurred debt financing fees in relation to long-term debt arrangements. These fees are amortized over the term of the related debt using the effective interest method. At December 31, 2013 and 2014, deferred financing fees, net of amortization, were $1.8 million and $1.7 million, respectively, and were recorded in other assets in the consolidated balance sheets. Amortization expense related to debt financing fees for the years ended December 31, 2013 and 2014 was

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt (Continued)

$343 thousand and $609 thousand, respectively, and was included in interest expense in the consolidated statements of operations.

10. Fair Value Measurements

        At December 31, 2013 and 2014, the Company had the following assets and liabilities measured at fair value in the consolidated balance sheets:

    Money market funds are measured on a recurring basis and are recorded at fair value based on each fund's quoted market value per share in an active market, which is considered a Level 1 input.

    Acquisition contingent consideration is measured on a recurring basis and is recorded at fair value based on a probability-weighted discounted cash flow model which utilizes unobservable inputs such as the forecasted achievement of performance targets throughout the earn-out period, which is considered a Level 3 input.

    The warrant liability is measured on a recurring basis and is recorded at fair value based on a Black-Scholes-Merton option pricing model. Any changes in fair value will be recorded in earnings.

        There were no transfers into or out of Level 1, 2 or 3 assets during the years ended December 31, 2013 and 2014. Transfers between levels are deemed to have occurred if the lowest level of input were to change.

        The Company's measurements at fair value on a recurring as of December 31, 2013 and 2014 were as follows (in thousands):

Assets/Liabilities Measured at Fair Value
  Asset/
(Liability)
  Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
  Significant
Other
Observable
Inputs (Level 2)
  Significant
Unobservable
Inputs (Level 3)
 

As of December 31, 2013

                         

Recurring basis:

                         

Money market funds

  $ 6,580   $ 6,580   $   $  

As of December 31, 2014

   
 
   
 
   
 
   
 
 

Recurring basis:

                         

Money market funds

  $ 4,728   $ 4,728   $   $  

Warrant liability

  $ (120 ) $   $   $ (120 )

Acquisition contingent consideration

  $ (1,855 ) $   $   $ (1,855 )

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Fair Value Measurements (Continued)

        The following table sets forth the changes in the estimated fair value for the Level 3 classified warrant liability (in thousands):

Fair value at December 31, 2013

  $  

Issuance of warrant liability

    132  

Change in fair value

    (12 )

Fair value at December 31, 2014

  $ 120  

        The following assumptions were used to determine the fair value of the warrant liability as of December 31, 2014: (i) expected term of 6.5 years; (ii) expected volatility of 36.4%; (iii) risk-free rate of 1.9%; and (iv) expected dividends of 0%.

        See Note 14—"Commitments and Contingencies" for changes in the estimated fair value and additional information on the acquisition contingent consideration.

11. Members' Equity

        The following table provides the number of shares authorized, issued and outstanding by class of shares issued by AquaVenture as of December 31, (in thousands):

 
  2013   2014  
Class of shares
  Authorized   Issued and
Outstanding
  Authorized   Issued and
Outstanding
 

Class A Preferred Shares:

                         

Class A-1 preferred shares

    10,000     10,000     10,000     10,000  

Class A-2 preferred shares

    10,500     10,500     10,500     10,500  

Class A-3 preferred shares

    7,700     7,700     7,700     7,700  

Class A-4 preferred shares

    12,500     12,500     12,500     12,500  

Total preferred shares

    40,700     40,700     40,700     40,700  

Class B shares

   
   
   
16,500
   
15,890
 

Class Q shares

   
   
   
29,037
   
29,037
 

Common Shares:

   
 
   
 
   
 
   
 
 

Ordinary shares

    55,000     3,384     20,000     3,408  

Incentive shares

    9,969     8,992     10,669     8,412  

Total common shares

    64,969     12,376     30,669     11,820  

Management Incentive Plan shares

   
   
   
7,900
   
7,797
 

        The Class B, Class Q and Management Incentive Plan ("MIP") shares were authorized during June 2014 by the approval of the Fourth Amended and Restated Limited Liability Agreement of AquaVenture Holdings LLC ("Amended LLC Agreement"). Certain Class B and all of the Class Q shares were issued upon completion of the Contribution in June 2014. The MIP shares were granted in connection with compensatory arrangements during June 2014. With the exception of the MIP shares which are non-voting, the Class A Preferred shares, Class B shares, Class Q shares, two classes of

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Members' Equity (Continued)

Common shares and the MIP shares differ primarily by their rights to distributions under the Amended LLC Agreement. Liability for each member is limited to its investment in the securities of the Company.

Class A Preferred Shares

        The Class A Preferred shares consist of four series of shares.

        Before the approval of the Amended LLC Agreement in June 2014, under the terms of the LLC Agreement then in effect, at any time after January 1, 2014, the holders of at least fifty-nine percent (59%) of the then outstanding Class A Preferred shares were entitled to request that the Company redeem for cash all of the outstanding Class A Preferred shares at a price equal to the greater of (a) the applicable Class A Preferred share original issue price plus a preferred return of 8% per annum, compounded annually, and any other declared distributions or (b) the amount distributable with respect to the applicable Class A Preferred share if the Company were dissolved pursuant to the terms of the LLC Agreement then in effect. As required by the Trinidad Credit Agreement, and eventually by the USVI Credit Agreement, the Class A Preferred shareholders waived their redemption rights in April 2012 while these loans remain outstanding. In June 2014, the redemption feature of the Class A Preferred shares was eliminated by the approval of the Amended LLC Agreement. Prior to the elimination of the redemption feature, the Class A Preferred shares were recorded in temporary equity in the consolidated balance sheets at it's par value as redemption was not deemed probable at December 31, 2013.

        The carrying value of the Class A Preferred shares was accreted to the applicable original per share issue price from date of issue through January 1, 2014. The amounts accreted during the years ended December 31, 2013 and 2014 were $148 thousand and $3 thousand, respectively.

        Before the approval of the Amended LLC Agreement, under the terms of the LLC Agreement then in effect, the Class A Preferred shares were convertible, at the option of the holder at any time, into such number of Ordinary shares as was determined by dividing the issuance price by the then applicable conversion price. As of December 31, 2013, each Class A Preferred share was convertible into one Ordinary share. The conversion feature of the Class A Preferred shares was eliminated and the number of Ordinary shares authorized in the event of a conversion was reduced by the approval of the Amended LLC Agreement in June 2014. The holders of Class A Preferred shares are entitled to one vote for each share.

        The elimination of the redemption and conversion features in June 2014 was treated as an extinguishment of the security and immediate reissuance of the Class A preferred shares. The Class A preferred shares were adjusted at the time of their reissuance to a fair value of $196.0 million, or a net change in value of $109.6 million, with an offsetting adjustment to accumulated deficit in the consolidated balance sheets.

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Table of Contents


AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Members' Equity (Continued)

        The following is a summary of the activity of the Company's Class A redeemable convertible preferred shares for the years ended December 31, 2013 and 2014:

 
  Shares   Amount  

Balance as of December 31, 2012

    40,700   $ 86,249  

Accretion of Class A preferred shares

        148  

Balance as of December 31, 2013

    40,700   $ 86,397  

Accretion of Class A preferred shares

        3  

Adjustment for extinguishment and reissuance of Class A preferred shares

        109,588  

Reclassification from temporary equity to permanent equity

    (40,700 )   (195,988 )

Balance as of December 31, 2014

      $  

Liquidation Rights

        Under the Amended LLC Agreement, cash or property shall be distributed on a pari passu basis as follows:

    the Class B Percentage as defined in the Amended LLC Agreement, to the holders of Class B shares;

    the Class Q Percentage as defined in the Amended LLC Agreement, to the holders of Class Q shares; and

    the Remaining Percentage as defined in the Amended LLC Agreement, to holders of Class A Preferred shares, MIP shares and Common shares (including both Incentive and Ordinary shares).

        The Class B Percentage, Class Q Percentage and Remaining Percentage are based primarily on the number of Class B shares and Class Q shares outstanding and the number of Class A Preferred shares and Common shares (including both Incentive and Ordinary shares) that were outstanding as of the date of the Contribution.

        Under the Amended LLC Agreement, cash or property to be distributed to holders of Class A Preferred shares, MIP shares and Common shares (including both Incentive and Ordinary shares) shall be distributed in the following order of priority:

    first, to holders of Class A Preferred shares in the amount of the preferred return. The preferred return is a cumulative amount that accrued daily at a rate of 8% per annum, compounded annually, through March 31, 2014 as applied to the holder's Class A investment, as though such shares were issued on the date on which the first of the respective series of Class A Preferred shares were issued;

    second, to the holders of the Class A Preferred shares with respect to their Class A Preferred shares until the Class A investment of all holders of Preferred shares is zero;

    third, to the holders of Class A Preferred shares and Ordinary shares in proportion to the number of such shares held by them until the aggregate amount of distributions made to the

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Members' Equity (Continued)

      holders of Class A Preferred shares and the Ordinary shares for such distributions equals $0.50 per share;

    fourth, if the aggregate amount of all distributions (excluding the preferred return) made to holders of the Class A Preferred share with respect to each Class A-1, A-2, and A-3 Preferred share is less than $4.65, to the holders of Class A Preferred shares, Ordinary shares and Incentive shares in proportion to the number of such shares held by them until the aggregate amount of all distributions (excluding the preferred return) to holders of Class A-1, A-2, and A-3 Preferred shares with respect to each Class A-1, A-2 and A-3 Preferred share is equal to $4.65 per respective share;

    fifth, (i) 50% to the holders of MIP shares in proportion to the number of such shares held by them until the aggregate of distributions made to MIP shares is equal to $1.00 per share; and (ii) 50% to the holders of Class A Preferred shares, Ordinary shares and Incentive shares in proportion to the number of such shares held by them;

    sixth, if the aggregate amount of all distributions (excluding the preferred return) made to holders of the Class A Preferred shares with respect to each Class A-1, A-2, and A-3 Preferred share is less than $5.50, to the holders of Class A Preferred shares, Ordinary shares and Incentive shares in proportion to the number of such shares held by them until the aggregate amount of all distributions (excluding the preferred return) to holders of Class A-1, A-2, and A-3 Preferred shares with respect to each Class A-1, A-2 and A-3 Preferred share is equal to $5.50 per share;

    seventh, to the holders of Ordinary shares and Incentive shares in proportion to the number of such shares held by them until the aggregate of all distributions to the holders of Ordinary shares with respect to each Ordinary share is $5.50 per share; and

    eighth, to the holders of Class A Preferred shares, Ordinary shares and Incentive shares in proportion to the number of such shares held by them.

        If the Company, or a direct or indirect wholly-owned subsidiary of the Company consummates a qualified public offering, the Company shall (i) determine the value of its assets by valuing its equity securities at the price per share reflected in the prospectus for the qualified public offering and (ii) using such valuation, determine the hypothetical amount of distributions that would be made to all members if the Company had dissolved and made liquidating distributions and the percentage that each share would be distributed of the total amount that would have been distributed in such hypothetical distribution (the "Post-IPO Percentages"). After the qualified public offering, distributions of cash or property at such time and record dates as determined by the Board of Directors shall be made in accordance with the Post-IPO Percentages.

        Before the qualified public offering, no holder of a Class B share, Incentive share or MIP share that is intended to qualify as a "profits interest" for federal tax purposes shall participate in (and no such Incentive share shall be treated as outstanding for purposes of apportioning) any distributions with respect to such share until a total amount equal to the hurdle price with respect to such share has been distributed in respect of such shares subsequent to the issuance of such share. After the qualified public offering, all distributions shall be made in accordance with the Post-IPO Percentages.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Members' Equity (Continued)

Other Member Rights

        Under certain circumstances members have certain rights to, among other things, (i) participate in future issuances of new equity securities to the extent needed to maintain their respective ownership on a fully diluted, as-if converted basis and (ii) purchase a pro rata percentage of future issuances of new equity that are not purchased by other Members.

12. Share-based Compensation

AquaVenture Equity Awards

        The AquaVenture Equity Incentive Plan, which was amended on June 6, 2014 and October 27, 2014, allows for the issuance of MIP shares, Incentive shares and Class B shares, and the grant of options to purchase Common shares (including both Incentive shares and Ordinary shares) and Class B shares, to officers, employees, managers, directors and other key persons, including consultants to the Company (collectively, the "Participants"). All such grants are subject to time-based vesting, which is determined on a grant-by-grant basis, and certain other restrictions.

        As of December 31, 2013, the aggregate number of shares by class authorized for grant under the Equity Incentive Plan, subject to adjustment upon a change in capitalization, was 10.4 million Common shares (including both Incentive and Ordinary shares). As of December 31, 2014, the aggregate number of shares by class authorized for grant under the Equity Incentive Plan, subject to adjustment upon a change in capitalization, was: (i) 7.9 million MIP shares; (ii) 10.7 million Common shares (including both Incentive and Ordinary shares); and (iii) 6.0 million Class B shares.

        Class B shares, MIP shares and Incentive shares granted as "profits interests" for federal tax purposes have a hurdle price equal to their fair value at the time of grant, and options to purchase shares have an exercise price equal to their fair value at time of grant. The contractual term of options awarded is typically ten years, while all other award types contain no contractual term. Holders of the Class B shares, MIP shares and Incentive shares are entitled to receive distributions (i) with respect to their vested shares, when such distributions are made, and (ii) with respect to their unvested shares, when such shares vest. Upon termination of a recipient's business relationship with the Company, the Company has the right, but not the obligation, to repurchase the vested shares or shares issued upon exercise of an option, at the then fair value of such shares during periods specified in the awards. Unvested shares and options expire on the termination of the recipient's business relationship.

        During the year ended December 31, 2014, the Company granted Incentive shares, Class B shares and options to purchase Ordinary shares, each having the following time-based vesting schedule: (i) 25% of the grant vests on the first anniversary of the vesting commencement date specified in the award and (ii) 6.25% of the grant vests quarterly thereafter. In addition, the Company granted MIP shares having time-based vesting, with 12.5% of the grant vesting quarterly, commencing on June 30, 2014.

        The Company uses the Black-Scholes option pricing model to determine the fair value of the Incentive shares, Class B shares and options for Ordinary shares granted under the plan. The following

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Share-based Compensation (Continued)

weighted average assumptions by share class were used to determine such fair values of the awards granted during the years ended December 31:

 
  2013   2014  
 
  Incentive
Shares
  Ordinary
Shares
  Class B
Shares
  Incentive
Shares
  Ordinary
Shares
 

Expected term (years)

    5.9     5.9     2.5     2.5     6.3  

Expected volatility

    38.1 %   38.0 %   25.0 %   27.7 %   37.9 %

Risk-free rate

    1.5 %   1.2 %   0.8 %   0.6 %   2.0 %

Expected dividends

    0.0 %   0.0 %   0.0 %   0.0 %   0.0 %

        The simplified method was used to determine the expected term assumptions as the Company does not have sufficient history to make more refined estimates of the expected term. The risk-free rate assumption was based on U.S. Treasury yields with similar terms. Since the Company's shares are not publicly traded and its shares are rarely traded privately, expected volatility was estimated based on based on historical results of comparable industry peer companies that are publicly traded. The expected dividend yield is 0% because the Company does not have a history of paying dividends or future plans of doing so.

        The Company used an alternative option pricing method to derive the fair value of the MIP shares granted during the year ended December 31, 2014 as a result of MIP shares being limited to a maximum of $1.00 per share of value for the holder. The alternative option pricing method calculates the fair value of equity securities by determining the net value of call options which represent the present value of expected future returns to each class of securities. In determining the fair value of the MIP shares, the Company used an expected term of 1.3 years, expected volatility of 40%, a risk-free rate of 0.1%, expected dividends of 0% and the current equity value of the Company. In addition, the Company applied a 15% discount rate to the value of the calculated value of the call options due to the lack of marketability of the securities.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Share-based Compensation (Continued)

        The following table presents the activity of the Incentive shares, MIP shares and Class B shares for the years ended December 31, 2013 and 2014 (in thousands, except per share amounts):

 
  Incentive Shares   MIP Shares   Class B Shares  
 
  Number of
Shares
  Weighted
Average
Grant Date
Fair Value
  Number of
Shares
  Weighted
Average
Grant Date
Fair Value
  Number of
Shares
  Weighted
Average
Grant Date
Fair Value
 
Outstanding as of December 31, 2012     2,658   $ 0.19       $       $  
Granted     1,125   $ 0.16       $       $  
Vested     (910 ) $ 0.21       $       $  
Forfeited     (231 ) $ 0.28       $       $  
Outstanding as of December 31, 2013     2,642   $ 0.17       $       $  
Granted     525   $ 0.38     7,797   $ 0.31     5,252   $ 0.82  
Vested     (1,105 ) $ 0.18     (2,924 ) $ 0.31       $  
Forfeited     (1,105 ) $ 0.15       $       $  
Outstanding as of December 31, 2014     957   $ 0.28     4,873   $ 0.31     5,252   $ 0.82  

        During the years ended December 31, 2013 and 2014, the per share intrinsic value of the vested Incentive shares was $0.42 and $2.09, respectively. The intrinsic value of the vested MIP shares was $0 during the year ended December 31, 2014. No Class B shares vested during the year ended December 31, 2014. As of December 31, 2014, 525 thousand Incentive shares had a hurdle price of $2.09 while the remaining 432 thousand shares had a hurdle price of $0. All of the Class B shares had a hurdle price of $4.95 per share as of December 31, 2014. The MIP shares had a hurdle price of $0.

        As of December 31, 2014, total unrecognized compensation expense related to the Incentive shares, MIP shares and Class B shares was $5.9 million, which will be recognized over a weighted-average remaining period of 3.2 years.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Share-based Compensation (Continued)

        The following table presents the activity of options to purchase Ordinary shares for the years ended December 31, 2013 and 2014 (in thousands, except per share amounts):

 
  Number of
Options
  Weighted
Average
Exercise Price
Per Share
  Weighted
Average
Grant
Date Fair
Value
 

Outstanding as of December 31, 2012

    944   $ 0.55        

Granted

    158   $ 0.50   $ 0.14  

Expired

    (13 ) $ 0.60        

Outstanding as of December 31, 2013

    1,089   $ 0.55        

Granted

    412   $ 2.59   $ 1.05  

Exercised

    (24 ) $ 0.53        

Forfeited

    (39 ) $ 2.13        

Expired

    (28 ) $ 0.53        

Outstanding as of December 31, 2014

    1,410   $ 1.11        

Exercisable as of December 31, 2014

    909   $ 0.55        

        There were no options exercised during the year ended December 31, 2013. Total intrinsic value of options exercised during the year ended December 31, 2014 was $2.06 per share. The remaining weighted-average contractual term for options outstanding and exercisable as of December 31, 2014 was 6.5 years and 5.0 years, respectively. The per share intrinsic value of options outstanding and options exercisable as of December 31, 2014 was $1.48 and $2.04, respectively. As of December 31, 2014, exercise prices for the options to purchase Ordinary shares outstanding ranged from $0.50 to $2.59.

        As of December 31, 2014, total unrecognized compensation expense related to the options to purchase Ordinary shares was $387 thousand, which will be recognized over a weighted-average remaining period of 3.2 years.

Quench USA Holdings, LLC Equity Awards

        In addition to being eligible for AquaVenture equity awards, employees of Quench USA remain eligible for continued vesting of Quench USA Holdings, LLC equity awards granted before the date of the Contribution and remain eligible for new grants of equity awards of Quench USA Holdings, LLC, as approved by the Compensation Committee of the Board of Managers of AquaVenture.

        The Company recognizes share-based compensation expense for equity awards that will continue to vest and for new awards granted by Quench USA Holdings, LLC to the extent such expense was not previously recorded. The equity awards that will continue to vest subsequent to the date of the Contribution Agreement include options to purchase ordinary shares of Quench USA Holdings, LLC and incentive shares of Quench USA Holdings, LLC granted as "profits interests" for federal income tax purposes. Equity awards granted after the date of the Contribution include options to purchase ordinary shares of Quench USA Holdings, LLC. The awards granted pursuant to the Quench USA Holdings, LLC equity incentive plan are typically subject to time-based vesting terms from the vesting

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Share-based Compensation (Continued)

commencement date and certain other restrictions. Both options and incentive shares granted as "profits interests" are typically subject to a time-based vesting term, which is determined on a grant-by-grant basis. Incentive shares granted as "profits interests" have a hurdle price equal to their fair value at the time of grant, and options to purchase shares have an exercise price equal to their fair value at time of grant. The contractual term of options awarded is ten years, while the incentive shares contain no contractual term. Holders of incentive shares are entitled to receive distributions (i) with respect to their vested shares, when such distributions are made, and (ii) with respect to their unvested shares, when such shares vest. Upon termination of a recipient's business relationship with the Company, the Company has the right, but not the obligation, to repurchase the vested shares or shares issued upon exercise of an option, at the then fair value of such shares during periods specified in the award. Unvested shares and options expire on the termination of the recipient's business relationship.

        The Company uses the Black-Scholes option pricing model to determine both the grant date fair value and fair value as of the end of each period of the Quench USA Holdings, LLC awards granted or vested subsequent to the date of the Contribution. The share-based compensation expense recorded within the consolidated statements of operations reflects the vested portion of the fair value of equity awards as of December 31, 2014. The weighted-average assumptions for the awards granted subsequent to the date of the Contribution Agreement were: (i) expected term of 6.25 years; (ii) expected volatility of 35.2%; (iii) risk-free rate of 1.9%; and (iv) expected dividend percentage of 0%. As of December 31, 2014, the Company determined there was no difference between the grant date fair value of the outstanding equity awards and the fair value as of December 31, 2014, and, as a result, no additional share-based compensation was recorded.

        The following table presents the activity of the Quench USA Holdings, LLC incentive shares granted as "profits interests" for the period from June 6, 2014 through December 31, 2014 (in thousands, except per share amounts):

 
  Number of
Shares
  Weighted
Average
Grant Date
Fair Value
 

Outstanding as of June 6, 2014

    7,000   $ 0.13  

Vested

    (2,000 ) $ 0.13  

Outstanding as of December 31, 2014

    5,000   $ 0.13  

        During the period from June 6, 2014 through December 31, 2014, the intrinsic value of such vested shares was $0 per share.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Share-based Compensation (Continued)

        The following table presents the activity of options to purchase Quench USA Holdings, LLC shares for the period from June 6, 2014 through December 31, 2014 (in thousands, except per share amounts):

 
  Number of
Options
  Weighted
Average
Exercise Price
Per Share
  Weighted
Average
Grant Date
Fair Value
 

Outstanding as of June 6, 2014

    2,189   $ 1.02        

Granted

    905   $ 1.00   $ 0.38  

Forfeited

    (9 ) $ 1.00        

Outstanding as of December 31, 2014

    3,085   $ 1.01        

Exercisable as of December 31, 2014

    897   $ 1.05        

        There were no such options exercised during the period from June 6, 2014 through December 31, 2014. The remaining average contractual term for such options outstanding and exercisable as of December 31, 2014 was 9.4 years and 9.1 years, respectively.

        As of December 31, 2014, total unrecognized compensation expense related to the Quench USA Holdings, LLC equity awards was $1.4 million, which will be recognized over a weighted-average remaining period of 2.4 years.

Share-Based Compensation Expense

        Total share-based compensation expense recognized related to all equity awards during the years ended December 31, 2013 and 2014 was $225 thousand and $1.8 million, respectively. The share-based compensation expense for the year ended December 31, 2014 includes $463 thousand related to the Quench USA Holdings, LLC equity awards. There was no related tax benefit for the years ended December 31, 2013 and 2014 as a full deferred tax asset valuation allowance was recorded.

13. Employee Benefit Plans

        On April 1, 2013, the Company began offering a defined contribution 401(k) plan to its Seven Seas employees in the United States ("SSW Plan"). The Company contributes 3% of each employee's salary to the SSW Plan. In addition, on June 6, 2014 in connection with the acquisition of Quench USA, the Company assumed the Quench USA, Inc. 401(K) Profit Sharing Plan and Trust ("Quench Plan") which covers substantially all of the employees of Quench USA. The Company matches 50% of the first 6% of the employee's compensation deferred in the Quench Plan. The Company's expense for both the plans for the years ended December 31, 2013 and 2014 was $113 thousand and $443 thousand, respectively.

14. Commitments and Contingencies

Asset Retirement Obligations

        ARO liabilities, which arise from contractual requirements to perform certain asset retirement activities and is generally recorded when the asset is constructed, is based on the Company's

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Commitments and Contingencies (Continued)

engineering estimates of future costs to dismantle and remove equipment from a customer's plant site and to restore the site to a specified condition at the conclusion of a contract. As appropriate, the Company revises certain of its liabilities based on changes in the projected costs for future removal and shipping activities. These revisions, along with accretion expense, are included in cost of revenues in the consolidated statement of operations.

        A reconciliation of the beginning and ending amounts of the ARO is as follows (in thousands):

 
  DECEMBER 31,  
 
  2013   2014  

Asset retirement obligation at beginning of year

  $ 1,078   $ 999  

Liabilities incurred

    242      

Liabilities settled

    (114 )   (36 )

Accretion of obligation

    27     34  

Adjustment to fully-accreted obligation

    (234 )    

Asset retirement obligation at end of year

  $ 999   $ 997  

        At December 31, 2013 and 2014, the current portion of the ARO liabilities was $246 thousand and $209 thousand, respectively, and was recorded in accrued liabilities in the consolidated balance sheets. At December 31, 2013 and 2014, the long-term portion of the ARO liabilities was $753 thousand and $788 thousand, respectively, and was recorded in other long-term liabilities in the consolidated balance sheets.

Acquisition Contingent Consideration

        Acquisition contingent consideration represents the net present value of the additional purchase price that is contingent on the future performance of an acquired business. The acquisition contingent consideration was derived in connection with certain historical acquisitions made by Quench prior to the Contribution and are expected to be paid as required through 2016.

        A reconciliation of the acquisition contingent consideration for the period from June 6, 2014, or date of the Contribution Agreement, to December 31, 2014 is as follows (in thousands):

Acquisition contingent consideration at June 6, 2014

  $ 2,103  

Valuation adjustments

    (45 )

Payments

    (319 )

Interest accretion

    116  

Acquisition contingent consideration at December 31, 2014

  $ 1,855  

        At December 31, 2014, the current and long-term portion of the acquisition contingent consideration was $926 thousand and $929 thousand, respectively, and was recorded in accrued liabilities and other long-term liabilities, respectively, in the consolidated balance sheets.

        The acquisition contingent consideration liabilities are recorded at fair value as of December 31, 2014 based on a probability-weighted discounted cash flow model which utilizes unobservable inputs

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Commitments and Contingencies (Continued)

such as the forecasted achievement of performance targets throughout the earn-out period, the term of the earn-out period and a discount rate of 10%. As of December 31, 2014, the Company estimated remaining payments (undiscounted) for the acquisition contingent consideration to range from $1.96 million to $2.0 million, which is the contractual cap. Any change in the valuation of the acquisition contingent consideration is recorded as a valuation adjustment within SG&A in the consolidated statements of operations.

        A change in the assumptions used to calculate the fair value of the acquisition contingent consideration could result in a significant change in the fair value. A 10% increase in the discount rate would result in a decrease in fair value of $13 thousand while a 10% decrease in the discount rate would result in an increase in the fair value of $13 thousand at December 31, 2014.

Leases

        The Company leases space and operating assets under non-cancelable operating leases expiring at various dates with some containing escalation in rent clauses, rent concessions and/or renewal options. Minimum lease payments under operating leases are recognized on a straight-line basis over the term of the lease, including any periods of free rent. Rent expense for the years ended December 31, 2013 and 2014 was $559 thousand and $1.5 million, respectively.

        Future minimum lease payment under non-cancelable operating leases are summarized as follows (in thousands):

Years ending December 31:
   
 

2015

  $ 1,514  

2016

    1,118  

2017

    988  

2018

    829  

2019

    327  

Thereafter

    559  

  $ 5,335  

Change in Control Incentive Bonus Plan

        In connection with the Contribution on June 6, 2014, the Company assumed a management and incentive bonus ("Quench MIP") pursuant to which certain employees of Quench USA are entitled to a special cash bonus upon the occurrence of a sale event. As defined in the Quench MIP, a sale event includes, but is not limited to, an initial public offering. The potential cash bonus pool under the Quench MIP would be the lesser of: (i) 10% of the value of the outstanding securities of Quench USA Holdings LLC in excess of $21 million after giving effect to all payments under the plan; or (ii) $6 million.

        As of December 31, 2014, the Company has not recorded any liability related to the Quench MIP as no events have occurred nor was it probable an event would occur that would require payment under the Quench MIP.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Commitments and Contingencies (Continued)

Litigation

        The Company, may, from time to time, be a party to legal proceedings, claims, and administrative matters that arise in the normal course of business. The Company has made accruals with respect to certain of these matters, where appropriate, that are reflected in the consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters for which an accrual has not been made, the Company has not yet determined that a loss is probable or the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, the Company currently does not expect that these proceedings and claims, individually or in the aggregate, will have a material effect on the consolidated financial position, results of operations, or cash flows. The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on the consolidated financial position, results of operations, or cash flows. The Company maintains liability insurance in such amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that the Company insures against are customer lawsuits caused by damage or nonperformance, workers' compensation, personal injury, bodily injury, property damage, directors' and officers' liability, errors and omissions, employment practices liability and fidelity losses. There can be no assurance that the Company's liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities. As of December 31, 2014, the Company has determined there are no matters for which a material loss is reasonably possible or the Company has either determined that the range of loss is not reasonably estimable or that any reasonably estimable range of loss is not material to the consolidated financial statements.

Purchase Commitments

        The Company has entered into commitments to complete the construction of certain desalination plants. As of December 31, 2014, these commitments totaled approximately $2.9 million and are expected to be fully completed and paid in 2015.

15. Supplemental Cash Flow Information

        Supplemental cash flow information is as follows for the years ended December 31 (in thousands):

 
  2013   2014  

Cash Paid during the Period:

             

Income taxes, net

  $   $ 6  

Interest, net

  $ 759   $ 4,380  

Non-Cash Transaction Information:

             

Adjustment for extinguishment/reissuance of Class A preferred shares

  $   $ 109,588  

Class Q share issuance related to acquisitions

  $   $ 143,666  

Class B share issuance related to acquisitions

  $   $ 16,500  

Unpaid capital expenditures

  $ 2,453   $ 1,223  

Non-cash issuance of warrants

  $   $ 132  

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Segment Reporting

        The Company has two operating and reportable segments including Seven Seas and Quench. This determination is supported by, among other factors: the existence of individuals responsible for the operations of each segment and who also report directly to the Company's chief operating decision maker ("CODM"), the nature of the segment's operations and information presented to the Company's governing board and CODM. The Quench reportable segment was established upon the acquisition of Quench USA in June 2014. The Quench reportable segment includes both post-acquisition operations of Quench USA and post-acquisition operations of Atlas Watersystems, Inc., the assets of which were also acquired in June 2014. The Company only had the Seven Seas reportable segment for the year ended December 31, 2013.

        Seven Seas provides outsourced desalination solutions and wastewater treatment for governmental municipal, industrial and hospitality customers internationally under long-term contracts. Quench provides bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers throughout the United States typically under multi-year contracts. Revenues reported under the Seven Seas reportable segment primarily represent bulk water sales and service, including revenues generated from service concession arrangements, whereas revenues under the Quench reportable segment primarily represent rental of filtered water and related systems.

        The Company records all non-direct general and administrative costs in its Seven Seas reportable segment and does not allocate these costs to the Quench reportable segment. All intercompany transactions are eliminated for segment presentation purposes.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Segment Reporting (Continued)

        The following table provides information by reportable segment for the year ended December 31, 2013 (in thousands):

 
  Year Ended
December 31, 2013
 
 
  Seven Seas   Total  

Revenues:

             

Bulk water

  $ 27,780   $ 27,780  

Rental

         

Other

         

Total revenues

    27,780     27,780  

Gross profit:

   
 
   
 
 

Bulk water

    12,015     12,015  

Rental

         

Other

         

Total gross profit

    12,015     12,015  

Selling, general and administrative expenses

    11,764     11,764  

Income from operations

    251     251  

Other expense, net

    (1,073 )   (1,073 )

Loss before income tax

    (822 )   (822 )

Income tax expense

    387     387  

Net loss

  $ (1,209 ) $ (1,209 )

Other information:

             

Depreciation and amortization expense

  $ 7,226   $ 7,226  

Interest expense

  $ 961   $ 961  

Expenditures for long-lived assets

  $ 41,754   $ 41,754  

Amortization of deferred financing fees

  $ 343   $ 343  

As of December 31, 2013:

   
 
   
 
 

Total assets

  $ 135,922   $ 135,922  

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Segment Reporting (Continued)

        The following table provides information by reportable segment for the year ended December 31, 2014 (in thousands):

 
  Year Ended December 31, 2014  
 
  Seven Seas   Quench   Total  

Revenues:

                   

Bulk water

  $ 38,989   $   $ 38,989  

Rental

        23,995     23,995  

Other

        4,143     4,143  

Total revenues

    38,989     28,138     67,127  

Gross profit:

   
 
   
 
   
 
 

Bulk water

    17,952         17,952  

Rental

        13,011     13,011  

Other

        2,052     2,052  

Total gross profit

    17,952     15,063     33,015  

Selling, general and administrative expenses

    14,119     17,534     31,653  

Income (loss) from operations

    3,833     (2,471 )   1,362  

Other expense, net

    (3,147 )   (2,326 )   (5,473 )

Income (loss) before income tax expense

    686     (4,797 )   (4,111 )

Income tax benefit

    (1,984 )       (1,984 )

Net income (loss)

  $ 2,670   $ (4,797 ) $ (2,127 )

Other Information:

                   

Depreciation and amortization expense

  $ 9,624   $ 5,207   $ 14,831  

Interest expense

  $ 2,829   $ 2,326   $ 5,155  

Expenditures for long-lived assets

  $ 15,300   $ 4,833   $ 20,133  

Amortization of deferred financing fees

  $ 542   $ 67   $ 609  

As of December 31, 2014:

   
 
   
 
   
 
 

Total assets

  $ 158,951   $ 217,379   $ 376,330  

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Segment Reporting (Continued)

        Revenues earned by major geographical region were (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

United States

  $   $ 28,138  

Foreign:

             

Trinidad & Tobago

    4,518     12,600  

Curaçao

    4,046     5,652  

Turks and Caicos

    1,373     1,526  

St. Maarten

    7,736     7,778  

US. Virgin Islands

    9,191     10,605  

All other countries

    916     828  

Total foreign

    27,780     38,989  

Total revenues

  $ 27,780   $ 67,127  

        Revenues earned from major customers, which are all included within the Seven Seas reportable segment, were (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

Customer in Trinidad & Tobago

  $ 4,518   $ 12,600  

Percentage of total revenues

    16 %   19 %

Customer in US. Virgin Islands

  $ 6,083   $ 7,868  

Percentage of total revenues

    22 %   12 %

Customer in St. Maarten

  $ 7,547   $ 7,539  

Percentage of total revenues

    27 %   11 %

        The following table provides revenues from external customers for each product and service by segment (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2014  

Seven Seas revenues:

             

Bulk water

  $ 27,780   $ 38,989  

Quench revenues:

             

Rental

        23,995  

Equipment

        2,892  

Coffee and consumables

        1,251  

Total Quench revenues

        28,138  

Total revenues

  $ 27,780   $ 67,127  

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Segment Reporting (Continued)

        Long-lived assets, which include property, plant and equipment, net, CIP and long-term contract costs, by major geographic region were (in thousands):

 
  December 31,  
 
  2013   2014  

United States

  $ 5,743   $ 24,738  

Foreign:

             

Trinidad & Tobago

    46,352     44,981  

Curaçao

    6,928     10,508  

Turks and Caicos

    3,593     3,417  

St. Maarten

    12,227     13,643  

US. Virgin Islands

    33,599     32,308  

All other countries

    124     388  

Total foreign

    102,823     105,245  

  $ 108,566   $ 129,983  

17. Significant Concentrations, Risks and Uncertainties

        The Company is exposed to interest risk resulting from changes in interest rates as a result of the issuance of variable-rate debt.

        For the year-end December 31, 2014, a significant portion of the Company's revenues are derived from countries in the Caribbean region. Demand for water in the Caribbean region is impacted by, among other things, levels of rainfall and by the tourism industry that is served by resort, hotel and real estate development customers. High levels of rainfall and a downturn in the level of tourism and demand for real estate could adversely impact the future performance of the Company.

        At December 31, 2014, a significant portion of the Company's property, plant and equipment is located in the Caribbean region. The Caribbean islands are situated in a geography where tropical storms and hurricanes occur with regularity, especially during certain times of the year. The Company designs its plant facilities to withstand such conditions; however, a major storm could result in plant damage or periods of reduced consumption or unavailability of electricity or source seawater needed to produce water. It is the Company's policy to maintain adequate levels of property and casualty insurance; however, the Company only insures certain plants.

        The operation of desalination plants requires significant amounts of electricity which typically is provided by the local utility of the jurisdiction in which the plant is located. A shortage of supply caused by force majeure or material increases in electricity costs could adversely impact the Company's operating results. To mitigate the risk of electricity cost increases, the Company has contracted with major customers for those cost increases to be borne by the customers and has invested in energy efficient technology. Management believes that rising energy costs and availability of its supply of electricity will not have a material adverse effect on its future performance.

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Subsequent Events

        The Company has evaluated subsequent events through August 11, 2015, the date the consolidated financial statements were available for issuance. The subsequent events included the following:

(a)
On February 4, 2015, the Company entered into addenda to its agreements with a customer in the U.S. Virgin Islands, or USVI, to provide equipment for additional treatment of water after the completion of the desalination process. The Company will purchase and install the equipment required to facilitate this additional treatment and will receive a premium on water produced for ten years beginning May 1, 2015. The customer will be responsible for ongoing costs associated with operating and maintaining the additional equipment.

(b)
During April 2015, the Company issued 6.1 million Class B shares in exchange for $30.0 million cash. In addition, during May 2015, the Company issued an additional 278 thousand Class B shares in exchange for $1.4 million cash.

(c)
On June 11, 2015, AquaVenture Water Corporation, a BVI company and an indirect wholly-owned subsidiary of AquaVenture, acquired 100% of the capital stock of Biwater (BVI) Holdings Limited ("Acquiree"), pursuant to a Stock Purchase and Sale Agreement ("BVI Purchase Agreement"). The Acquiree's wholly-owned subsidiary, Biwater (BVI) Ltd., provides potable water to the island of Tortola for a contracted fee payable by the government of BVI under a service concession arrangement, which expires in 2030. Under the terms of the BVI Purchase Agreement, all of the capital stock of the Acquiree was acquired for a total purchase price of $47.8 million, including $44.5 million in cash and a note payable of $5.6 million to the seller with a fair value at the date of acquisition of $3.3 million. The note payable: (i) bears no interest; (ii) is payable in equal annual installments of $375 thousand beginning on the first anniversary of the BVI Purchase Agreement; (iii) terminates if the water purchase agreement with the government of the BVI is terminated under certain circumstances; and (iv) is unsecured and subordinated to all other indebtedness of the Company. Included in the liabilities of the Acquiree is long-term debt between Biwater (BVI) Ltd. and a bank with a remaining unpaid balance as of the date of the BVI Purchase Agreement of $40.8 million.

The Company acquired the stock of the Acquiree to expand its installed base of seawater reverse

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Subsequent Events (Continued)

    osmosis desalination facilities used to provide Water-as-a-Service. The preliminary purchase allocation to the fair value of assets acquired and liabilities assumed is as follows (in thousands):

Assets acquired:

       

Cash and cash equivalents

  $ 1,442  

Trade receivables

    1,321  

Restricted cash

    4,524  

Long-term contract costs

    83,545  

Total assets acquired

    90,832  

Liabilities assumed:

   
 
 

Accounts payable and accrued liabilities

    (2,204 )

Long-term debt

    (40,831 )

Total liabilities assumed

    (43,035 )

Total purchase price

  $ 47,797  

    The long-term contract costs will be amortized over the remainder of the service concession contract period, which is expected to be approximately 15.5 years. The operations of the Acquiree will be included in the Seven Seas reporting segment.

(d)
On June 18, 2015, AquaVenture Holdings Curaçao N.V., a Curaçao naamloze vennootschap and an indirect wholly-owned subsidiary of the Company, entered into a $35.0 million credit facility with a bank. The credit facility consists of a Term A loan of $20.0 million and a delayed draw term loan of up to $15.0 million. The credit facility is non-amortizing, matures during June 2019 and bears interest at either: (i) the higher of 1% or the ICE Benchmark Administration LIBOR Rate, plus an applicable margin ranging from 7.5% to 8.5% depending upon the a leverage ratio calculation as defined within the credit facility; or (ii) the greater of the Citibank base rate or a federal funds rate plus 0.5%, plus an applicable margin ranging from 6.5% to 7.5% depending upon a leverage ratio calculation as defined within the credit facility. The credit facility is guaranteed by AquaVenture Holdings LLC and contains certain financial and nonfinancial covenants.

(e)
On July 2, 2015 and effective July 1, 2015, Quench USA acquired substantially all of the assets and certain liabilities of Region-X, LLC ("Region-X"), pursuant to an Asset Purchase Agreement ("Region-X Purchase Agreement"). Under the terms of the Region-X Purchase Agreement, the total adjusted purchase price of $609 thousand was paid in cash and is subject to certain post-closing adjustments. The Company acquired the assets of the Region-X to enhance its service offerings for certain of its filtered water systems. Certain disclosures have not been provided as the Company has not yet prepared a preliminary purchase accounting allocation. The operations of the Region-X will be included in the Quench reporting segment.

(f)
On August 1, 2015, the Company was in default of the long-term debt agreement between its indirect wholly owned subsidiary, Biwater (BVI) Ltd., and a bank ("Biwater Loan Agreement") as a result of its failure to meet the contractual deadline of July 31, 2015 for completing construction, acceptance testing and delivery of two sewage treatment plants and related works. In the event of a default under the Biwater Loan Agreement, the bank may exercise its available remedies under

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AQUAVENTURE HOLDINGS LLC AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Subsequent Events (Continued)

    the Biwater Loan Agreement, including: (i) accelerating repayment of the amounts outstanding under the Biwater Loan Agreement, which, as of August 1, 2015, totaled $39.4 million (excluding application of the $3.6 million debt service reserve fund), (ii) foreclosing on its security interests on the assets or equity of Biwater (BVI) Ltd. or (iii) both. If the bank accelerates repayment of the loan, certain of the Company's shareholders have committed to purchase up to an aggregate of $40.0 million of the Company's Class B shares to mitigate the impact of the default on the Company's financial condition. If the bank accelerates repayment of the loan, the Company has the ability to call the equity commitment by providing notice to the shareholders and to use the proceeds to repay the bank. The equity commitment agreement terminates on the earlier of (a) August 15, 2016, (b) the closing of an initial underwritten public offering of the shares of the Company or its affiliate and (c) the date when the Biwater Loan Agreement is repaid in full. Management believes the default under the Biwater Loan Agreement will not have an impact on the Company's ability to continue as a going concern as a result of the equity commitment by certain of the Company's shareholders.

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SCHEDULE I

AQUAVENTURE HOLDINGS LLC (PARENT COMPANY BASIS)
CONDENSED UNCONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

 
  December 31  
 
  2013   2014  

ASSETS

             

Current Assets:

             

Cash and cash equivalents

  $ 384   $ 24,764  

Prepaid expenses and other current assets

    253     149  

Total current assets

    637     24,913  

Receivables—intercompany

    16,303     19,607  

Investment in subsidiaries

    59,503     228,085  

Other long-term assets

        7  

Total assets

  $ 76,443   $ 272,612  

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED SHARES AND MEMBERS' EQUITY

             

Current liabilities:

             

Accounts payable

  $ 64   $ 34  

Accrued liabilities

    339     490  

Total current liabilities

    403     524  

Other long-term liabilities

        119  

Total liabilities

    403     643  

Class A redeemable convertible preferred shares, 40,700 and 0 shares authorized, issued and outstanding at December 31, 2013 and 2014, respectively

   
86,397
   
 

Members' Equity

   
 
   
 
 

Class A preferred shares, 0 and 40,700 shares authorized, issued and outstanding at December 31, 2013 and 2014, respectively

        195,988  

Class B shares, 0 and 16,500 shares authorized; 0 and 15,890 shares issued and outstanding at December 31, 2013 and 2014, respectively

        52,620  

Class Q shares, 0 and 29,037 shares authorized, issued and outstanding at December 31, 2013 and 2014, respectively

        143,666  

Common shares, 64,969 and 30,669 shares authorized; 12,376 and 11,820 shares issued and outstanding at December 31, 2013 and 2014, respectively

    4,918     4,931  

Management incentive plan shares, 0 and 7,900 shares authorized; 0 and 7,797 shares issued and outstanding at December 31, 2013 and 2014, respectively

         

Additional paid-in capital

    1,384     3,138  

Accumulated deficit

    (16,659 )   (128,374 )

Total members' equity

    (10,357 )   271,969  

Total liabilities, redeemable convertible preferred shares and members' equity

  $ 76,443   $ 272,612  

   

The accompanying notes to Schedule I are an integral part of these financial statements.

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SCHEDULE I

AQUAVENTURE HOLDINGS LLC (PARENT COMPANY BASIS)
CONDENSED UNCONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)

 
  Year Ended
December 31,
 
 
  2013   2014  

Revenues

  $   $  

Cost of revenues

         

Gross profit

         

General and administrative expenses

    1,124     1,555  

Loss from operations

    (1,124 )   (1,555 )

Other income

        13  

Loss on equity investment in subsidiaries

    (85 )   (585 )

Net loss

  $ (1,209 ) $ (2,127 )

   

The accompanying notes to Schedule I are an integral part of these financial statements.

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SCHEDULE I

AQUAVENTURE HOLDINGS LLC (PARENT COMPANY BASIS)
CONDENSED UNCONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

 
  Year Ended
December 31,
 
 
  2013   2014  

Cash flows from operating activities:

             

Net loss

  $ (1,209 ) $ (2,127 )

Adjustments to reconcile net loss to net cash provided by operating activities:

             

Loss on equity investment in subsidiaries

    85     585  

Change in fair value of warrant

        (12 )

Change in operating assets and liabilities:

             

Prepaid expenses and other current assets

    (132 )   103  

Receivables—intercompany

    (454 )   (1,415 )

Other long-term assets

        (9 )

Current liabilities

    81     221  

Net cash used in operating activities

    (1,629 )   (2,654 )

Cash flows from investing activities:

             

Investment in subsidiary

    (427 )   (9,000 )

Net cash used in investing activities

    (427 )   (9,000 )

Cash flows from financing activities:

             

Proceeds from exercise of stock options

        13  

Proceeds from issuance of Class B shares

        36,021  

Net cash provided by financing activities

        36,034  

Change in cash and cash equivalents

    (2,056 )   24,380  

Cash and cash equivalents at beginning of period

    2,440     384  

Cash and cash equivalents at end of period

  $ 384   $ 24,764  

   

The accompanying notes to Schedule I are an integral part of these financial statements.

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SCHEDULE I


AQUAVENTURE HOLDINGS LLC

NOTES TO THE CONDENSED UNCONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

        AquaVenture Holdings LLC ("AquaVenture") is a Delaware limited liability company, which was formed on December 14, 2006. AquaVenture wholly owns, through direct and indirect ownership, all of the AquaVenture subsidiaries. AquaVenture is headquartered in Tampa, Florida.

        The accompanying condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of its subsidiaries exceed 25% of the consolidated net assets of AquaVenture Holdings LLC and Subsidiaries (the "Company").

        The parent company records its investment in subsidiaries under the equity method of accounting. Such investment is presented on the balance sheet as "Investment in subsidiaries" and the subsidiaries' net income (loss) are recognized based on the effective shareholding percentage as income (loss) on equity investment in subsidiaries on the condensed unconsolidated statement of operations. Intercompany balances and transactions have not been eliminated.

        Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company

2. Restricted Net Assets of Quench USA

        For a discussion of the Company's restricted net assets of Quench USA, see Note 9 of the Company's consolidated financial statements for the years ended December 31, 2013 and 2014.

3. Commitments and Contingencies

        There are no significant commitments or contingencies as of December 31, 2013 and 2014. For a discussion of the Company's commitments and contingencies, see Note 14 to the Company's consolidated financial statements for the years ended December 31, 2013 and 2014.

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Independent Auditors' Report

The Board of Directors
Quench USA, Inc.:

        We have audited the accompanying financial statements of Quench USA, Inc., which comprise the balance sheets as of June 6, 2014 and December 31, 2013, and the related statements of operations, stockholder's equity, and cash flows for the period of January 1, 2014 through June 6, 2014 and for the year ended December 31, 2013, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

        Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

        Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

        An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

        We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quench USA, Inc. as of June 6, 2014 and December 31, 2013, and the results of its operations and its cash flows for the period of January 1, 2014 through June 6, 2014 and the year ended December 31, 2013 in accordance with U.S. generally accepted accounting principles.

                        /s/ KPMG LLP

Providence, Rhode Island
August 11, 2015

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QUENCH USA, INC.

Balance Sheets

June 6, 2014 and December 31, 2013

 
  June 6, 2014   December 31, 2013  

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 7,803,671   $ 32,175,019  

Trade accounts receivable, less allowance for doubtful accounts of $442,367 in 2014 and $348,656 in 2013

    5,583,580     2,296,734  

Inventories

    2,794,708     1,879,519  

Prepaid expenses and other current assets

    3,326,153     318,088  

Total current assets

    19,508,112     36,669,360  

Property and equipment:

             

Rental equipment:

    15,428,446     11,992,785  

Leasehold improvements

    315,317     308,573  

Furniture and fixtures

    309,849     310,829  

Machinery and equipment

    17,914     17,914  

Office equipment

    3,158,131     3,011,718  

Vehicles

    2,006,587     1,751,966  

    21,236,244     17,393,785  

Less accumulated depreciation

    (9,294,973 )   (8,099,934 )

Net property and equipment

    11,941,271     9,293,851  

Goodwill

    42,147,219     14,162,626  

Intangible assets, net of accumulated amortization of $10,328,367 in 2014 and $9,274,891 in 2013

    32,467,293     11,513,769  

Other assets

    170,485     197,649  

Due from shareholder

    141,378     139,982  

Debt acquisition costs, net of accumulated amortization of $142,118 in 2014 and $98,820 in 2013

    320,733     364,031  

    75,247,108     26,378,057  

Total assets

  $ 106,696,491   $ 72,341,268  

Liabilities and Stockholders' Equity

             

Current liabilities:

             

Current installments of long-term debt

  $ 218,175   $ 100,991  

Trade accounts payable

    1,537,403     538,376  

Accrued expenses and other liabilities

    4,408,346     3,236,601  

Current portion of acquisition contingent liabilities

    1,314,700     1,341,997  

Deferred revenue

    2,988,127     359,955  

Total current liabilities

    10,466,751     5,577,920  

Long-term debt, net of discount

    29,993,078     19,835,904  

Acquisition contingent liabilities

    787,713     1,600,431  

Other long-term liabilities

        18,982  

Total liabilities

    41,247,542     27,033,237  

Stockholder's equity:

             

Common stock

         

Additional paid-in capital

    144,731,396     130,001,814  

Accumulated deficit

    (79,282,447 )   (84,693,783 )

Total stockholder's equity

    65,448,949     45,308,031  

Total liabilities and stockholder's equity

  $ 106,696,491   $ 72,341,268  

   

See accompanying notes to the financial statements.

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QUENCH USA, INC.

Statements of Operations

Period from January 1, 2014 through June 6, 2014 and the year ended December 31, 2013

 
  Period Ended
June 6, 2014
  Year Ended
December 31, 2013
 

Net sales:

             

Rents

  $ 12,073,531   $ 23,656,678  

Equipment

    1,378,055     2,928,767  

Service and installation

    457,279     880,937  

Coffee and other

    440,320     272,506  

Total net sales

    14,349,185     27,738,888  

Cost of goods sold

    6,458,002     12,950,249  

Gross profit

    7,891,183     14,788,639  

Selling, general, and administrative expenses

    9,632,714     16,175,450  

Amortization

    1,053,475     1,913,473  

Operating loss

    (2,795,006 )   (3,300,284 )

Other expense:

             

Interest expense, net

    1,103,579     1,590,836  

Net loss before income tax

    (3,898,585 )   (4,891,120 )

Income tax benefit

    9,309,921      

Net income (loss)

  $ 5,411,336   $ (4,891,120 )

   

See accompanying notes to the financial statements.

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QUENCH USA, INC.
Statements of Stockholder's Equity
Period from January 1, 2014 through June 6, 2014 and the year ended December 31, 2013

 
  Series D
Preferred Stock
  Series C
Preferred Stock
  Series B
Preferred Stock
  Series A
Preferred Stock
   
   
   
   
   
 
 
  Common Stock    
   
   
 
 
  Additional
paid-in
capital
  Accumulated
deficit
   
 
 
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Total  

Balance at December 31, 2012

    8,550   $ 19,261,941     12,774   $ 33,455,438     13,000   $ 39,259,690     647   $ 6,130,847     651,073   $ 501   $ 645,231   $ (69,383,295 ) $ 29,370,353  

Repurchase of common stock

                                                    (29,369 )   (29 )   (29,340 )       (29,369 )

Equity recapitilization

    (8,550 )   (19,261,941 )   (12,774 )   (33,455,438 )   (13,000 )   (39,259,690 )   (647 )   (6,130,847 )   (621,704 )   (472 )   108,527,756     (10,419,368 )    

Issuance of common stock

                                      1                 20,743,274  

Equity contributed from Parent

                                              20,743,274          

Stock-based compensation

                                              114,893         114,893  

Net loss

                                                  (4,891,120 )   (4,891,120 )

Balance at December 31, 2013

      $       $       $       $     1   $   $ 130,001,814   $ (84,693,783 ) $ 45,308,031  

Repurchase of common stock

                                              (16,694 )       (16,694 )

Equity contributed from Parent

                                              14,000,000         14,000,000  

Stock-based compensation

                                              746,276         746,276  

Net income

                                                  5,411,336     5,411,336  

Balance at June 6, 2014

      $       $       $       $     1   $   $ 144,731,396   $ (79,282,447 ) $ 65,448,949  

See accompanying notes to the financial statements.

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QUENCH USA, INC.

Statements of Cash Flows

Period from January 1, 2014 through June 6, 2014 and the year ended December 31, 2013

 
  Period Ended
June 6, 2014
  Year Ended
December 31,
2013
 

Cash flows from operating activities:

             

Net income (loss)

  $ 5,411,336   $ (4,891,120 )

Adjustments to reconcile net loss to net cash provided by (used in)

             

operating activities:

             

Depreciation and amortization

    2,321,081     4,593,765  

Bad debt expense

    368,496     515,301  

Noncash interest expense

    161,967     418,713  

Non cash interest related to loan to shareholder

    (1,396 )   (851 )

Stock-based compensation

    746,276     114,893  

Change in fair value of acquisition contingent liabilities

    (59,406 )   167,219  

Loss on disposal of equipment

    220,498     709,926  

Deferred income tax provision

    (9,309,921 )    

(Increase) decrease in operating assets:

             

Trade accounts receivable

    (2,561,384 )   (1,118,891 )

Inventories

    (562,725 )   (14,605 )

Other assets

    (410,860 )   325,697  

Increase (decrease) in operating liabilities:

             

Trade accounts payable and accrued expenses

    1,252,945     415,779  

Deferred revenue

    1,630,365     (339,807 )

Net cash provided by (used in) operating activities

    (792,728 )   896,019  

Cash flows from investing activities:

             

Capital expenditures

    (2,379,631 )   (5,012,531 )

Business acquisitions

    (41,954,369 )   (915,619 )

Net cash used in investing activities

    (44,334,000 )   (5,928,150 )

Cash flows from financing activities:

             

Proceeds of long-term debt

    10,000,000     7,500,000  

Payment for debt financing costs

        (243,243 )

Payment of acquisition contingent liabilities

    (899,278 )   (2,021,509 )

Proceeds from capital contribution from Parent

    11,500,000     21,050,000  

Repurchase of common stock

    (16,694 )   (29,369 )

Borrowings under vehicle notes payable

    238,274     149,692  

Payments on vehicle notes payable

    (66,922 )   (348,095 )

Net cash provided by financing activities

    20,755,380     26,057,476  

Net increase (decrease) in cash and cash equivalents

    (24,371,348 )   21,025,345  

Cash and cash equivalents, beginning of year

    32,175,019     11,149,674  

Cash and cash equivalents, at end of year

  $ 7,803,671   $ 32,175,019  

Cash paid for interest

 
$

1,053,161
 
$

1,234,641
 

   

See accompanying notes to the financial statements.

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QUENCH USA, INC.

Notes to Financial Statements

June 6, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies

(a)   Description of Business

        Quench USA, Inc. (the "Company") offers WAAS solutions by providing bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers across the United States.

        The Company was a wholly owned subsidiary of Quench USA Holdings LLC (the "Parent") from December 20, 2013 to June 6, 2014. The Parent was formed on December 18, 2013 ("Merger Date") along with a newly created subsidiary Quench MergerSub Corporation ("Mergersub"). Mergersub was merged with and into the Company on the Merger Date, with the Company being the surviving entity.

        On June 6, 2014, all of the Parent's assets were acquired by AquaVenture Holdings LLC ("AquaVenture") in exchange for AquaVenture's issuance of 29,036,947 Class Q shares and 2,829,598 Class B shares to the Parent.

(b)   Use of Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include goodwill impairment, impairment of long-lived assets, useful lives of rental assets, useful lives of intangible assets, recoverability of fixed assets, allowances for doubtful accounts, realizability of inventory, share-based compensation, acquisition contingent liabilities, and other contingencies.

(c)   Cash and Cash Equivalents

        The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

(d)   Trade Accounts Receivable

        Trade accounts receivable consist of current amounts due related to invoices on operating leases of Company owned rental units, and amounts due from customers for service work performed or goods sold. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. The Company reviews its allowance for doubtful accounts monthly to determine if additional reserves are required. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company enters into lease contracts with customers, which are classified and accounted for as operating leases.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

(e)   Inventories

        Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. As of June 6, 2014 and December 31, 2013, inventory consists of water filtration systems, related ancillary products and parts.

(f)    Revenue Recognition

        The Company generates revenue through the sale and rental of equipment, service, and supplies. Revenue related to operating leases is recorded within rental revenue, net of applicable sales taxes, in the statements of operations.

        Rental of Water Filtration and related Equipment.     The Company generates revenues through the rental of its filtered water and related systems to customers. The rental agreements are accounted for as operating leases and, as a result, revenues are recognized ratably over the rental agreement term. Upon the expiration of the initial rental agreement term, the Company may enter into rental agreement extensions in which revenues are recognized ratably over the extension term. Amounts paid by customers in excess of recognizable revenue are recorded as deferred revenue on the balance sheets.

        Sale of Water Filtration and related Equipment, Supplies and Maintenance Services.     The Company recognizes revenues from the sale of water filtration and related equipment, supplies and maintenance services. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable and collectability is reasonably assured.

(g)   Property and Equipment

        Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of furniture and equipment are five to seven years, while the estimated useful lives of leasehold improvements are the shorter of the remaining life of the lease or seven years. Vehicles and computers have a three-year estimated useful life. Rental equipment is depreciated over seven years. Total depreciation for the period ended June 6, 2014 and the year ended December 31, 2013 was $1,267,606 and $2,680,292, respectively, of which approximately 78% and 84% was recorded in cost of sales and approximately 22% and 16% was recorded in selling, general and administrative expense in each period.

        The purchase of property and equipment, including rental equipment, is included in capital expenditures within the statements of cash flows.

(h)   Goodwill

        Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business combination. Goodwill is reviewed for impairment at least annually on December 31 and more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. The Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the quantitative analysis of the goodwill impairment test.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

Otherwise, the quantitative test is optional. The Company performs its annual impairment review of goodwill at December 31, and between annual impairment tests when a triggering event occurs. Management determined that goodwill was not impaired at June 6, 2014 and December 31, 2013.

(i)    Income Taxes

        Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income in the period of the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

(j)    Stock Compensation Plan

        The Company accounts for its stock-based compensation awards, including restricted stock awards, in accordance with ASC Topic 718, Compensation—Stock Compensation . ASC Topic 718 requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the grant date fair value of the award. The cost is recognized over the requisite service period, net of estimated forfeitures. If the actual number of forfeitures differs from those estimated, additional adjustments to compensation expense may be required in future periods. The Company estimates grant date fair value using the Black-Scholes-Merton option-pricing model.

(k)   Long-Lived Assets

        In accordance with the Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment Overall , long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. Management determined that there were no indicators of impairment of long-lived assets, including amortizable intangible assets, at June 6, 2014 and December 31, 2013.

(l)    Commitments and Contingencies

        Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, penalties, and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

(m)  Acquisition Contingent Liabilities

        The acquisition date fair value of contingent consideration is recognized as an asset, liability, or equity (as appropriate). Contingent consideration liabilities are re-measured to fair value at the end of each reporting period with the change in fair value reflected as income or expense.

(n)   Comprehensive Income (Loss)

        The Company reports comprehensive income (loss) as a measure of overall performance. Comprehensive income (loss) includes all changes in equity during a period, except for those resulting from investments by and distributions to stockholders. The Company's comprehensive loss is the same as its reported net loss for the period ended June 6, 2014 and for the year ended December 31, 2013.

(o)   Fair Value Measurements

        The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

    Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

    Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

    Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

        The fair value of cash and cash equivalents, trade receivables, trade payables and accrued expenses approximate their carrying values due to their short maturities. The fair value of debt approximates the carrying value of debt because the Company's interest rates approximate currently available interest rates for similar debt.

        The following table summarizes the financial liabilities measured at fair value on a recurring basis as of June 6, 2014 and December 31, 2013:

 
  Level   2014   2013  

Warrant liabilities

    3   $ 458,081   $ 320,591  

Acquisition contingent liabilities

    3     2,102,413     2,942,428  

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

        The following table summarizes the changes in acquisition contingent liabilities for the period ended June 6, 2014 and year ended December 31, 2013:

Balance at December 31, 2012

  $ 4,243,954  

Valuation adjustments

    167,219  

Additions

    230,000  

Payments

    (2,021,509 )

Interest accretion

    322,764  

Balance at December 31, 2013

  $ 2,942,428  

Valuation adjustments

    (59,406 )

Payments

    (899,278 )

Interest accretion

    118,669  

Balance at June 6, 2014

  $ 2,102,413  

        Valuation adjustments are included in selling, general, and administrative expenses. The acquisition contingent liabilities were recorded at fair value based on valuation models that utilize relevant factors such as expected life and estimated probabilities of the acquired businesses achieving the performance targets throughout the earnout periods. Unobservable inputs used in the valuation of the acquisition contingent liabilities include a discount rate of 10%, and the expectation that the acquired businesses will achieve the earnout targets in future years.

        A significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the probabilities, in isolation, would result in a significantly higher (lower) fair value measurement. A discount rate increase (decrease) of 100 basis points would lead to a lower (higher) fair value of $28,000 ($27,000).

(2) Significant Risks and Uncertainties Including Business and Credit Concentrations

        The Company has incurred losses since inception and anticipates incurring additional losses until such time, if ever, it can place significant additional revenue generating water filtration and related systems at customer locations. As described in Note 1, the Company was acquired on June 6, 2014.

        Most of the Company's customers are located in the United States. During the periods presented in these financial statements, no single customer accounted for more than 10% of the Company's net sales from rents. However, the Company's net sales from equipment are highly concentrated with two customers.

        The Company regularly maintains amounts on deposit in excess of those insured by the FDIC. The Company believes it limits its credit exposure by placing its cash with a financial institution that management believes is a high credit quality financial institution.

        The Company acquires approximately 50% of its coolers from one vendor and nearly all of its ice machines from another vendor. Management believes that such equipment could be sourced from alternative vendors if necessary.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(3) Leases

        The Company entered into a noncancelable operating lease for its corporate headquarters in August 2010, and a separate warehouse facility lease in May 2011, which expire in 2017 and 2016, respectively. Rental payments include minimum rentals and common area usage fees.

        Rent expense for the period ended June 6, 2014 and the year ended December 31, 2013 was $334,946 and $713,509, respectively.

        Future minimum lease payments under noncancelable operating leases as of June 6, 2014 are as follows:

Year ending December 31:

       

Remainder of 2014

  $ 428,139  

2015

    650,567  

2016

    535,546  

2017

    420,313  

2018 and beyond

    317,044  

  $ 2,351,609  

(4) Long-Term Debt

        On October 7, 2011, the Company entered into a Loan and Security Agreement for the Tranche A Term Loan, which was a five year term loan with a borrowing of $12,500,000. The agreement was subsequently amended in December 2013 to: (i) extend the maturity date of the Tranche A Term Loan to December 23, 2018; (ii) issue and withdraw a Tranche B Term Loan of $7,500,000 with a maturity date of December 23, 2018; and (iii) issue a Tranche C Term Loan of $10,000,000 with a maturity date of December 23, 2018. In April 2014, the Tranche C Term Loan was withdrawn in full in connection with the acquisition of a business.

        The Tranche A Term Loan of $12,500,000 contains an interest rate per annum equal to the base rate in effect for such month, plus 6% per annum, provided that in no event shall the interest rate per annum be less than 9.5% (9.5% as of June 6, 2014). The Tranche B and C Loans of $7,500,000 and $10,000,0000, respectively, each contain an interest rate per annum equal to the base rate in effect for such month, plus 5.5% per annum, provided that in no event shall the interest rate per annum be less than 9.0% (9.0% as of June 6, 2014). The base rate for each tranche is defined as the greater of the highest Prime Rate in effect during the month or the highest three-month LIBOR rate in effect during each month, plus 2.5% per annum. Interest only payments are due monthly through December 2015.

        The unpaid principal balance of the Tranche A Term Loan outstanding on December 23, 2015 shall be repaid in: (i) 12 equal monthly principal payments of $156 thousand, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $208 thousand, commencing on January 23, 2017; (iii) 12 equal monthly principal payments of $260 thousand, commencing on January 23, 2018 and (iv) the remaining amount of $5.0 million on December 23, 2018. The unpaid principal balance of the Tranche B Term Loan outstanding on December 23, 2015 shall be repaid in: (i) 12 equal monthly principal payments of $94 thousand, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $125 thousand, commencing on January 23, 2017; (iii) 12 equal monthly principal payments of $156 thousand, commencing on January 23, 2018 and (iv) the remaining

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(4) Long-Term Debt (Continued)

amount of $3.0 million on December 23, 2018. The unpaid principal balance of the Tranche C Term Loan outstanding on December 23, 2015 shall be repaid in: (i) 12 equal monthly principal payments of $125 thousand, commencing on January 23, 2016; (ii) 12 equal monthly principal payments of $167 thousand, commencing on January 23, 2017, and continuing on the same day of each month thereafter until December 23, 2017; (iii) 12 equal monthly principal payments of $208 thousand, commencing on January 23, 2018 and (iv) the remaining amount of $4.0 million on December 23, 2018.

        The Company may prepay the principal amounts of the loans, prior to the maturity date, in whole or in part, provided that the Company concurrently pays:

    (i)
    All accrued and unpaid interest on the principal so prepaid;

    (ii)
    A prepayment fee equal to 2.0% of the amount prepaid if prepayment occurs on or prior to June 16, 2016, and 1.0% of the amount prepaid if prepayment occurs after June 16, 2016 and on or before June 16, 2017. The prepayment fee shall be due from the Company upon any prepayment of the principal of the loans, including without limitation any prepayment as a result of an event of default or the exercise of any rights or remedies by the lender following the same. Prepayments of the loans shall be applied pro rata to the principal installments due or outstanding on the loans.

        The agreement is collateralized by substantially all of the Company's assets. In addition to a minimum net recurring revenue covenant, the Company is required to comply with certain other financial and nonfinancial covenants. The Company was in compliance with all such covenants as of June 6, 2014.

        Pursuant to the agreement, the Company issued a seven-year warrant (the "Initial Warrant") to the lender for the purchase of 187.5 shares of Series D Preferred Stock at $2,000 per share. Pursuant to the amendment, and on the effective date of the amendment, the Initial Warrant was amended and restated to reflect its conversion into a seven-year warrant for ordinary common shares of the Parent. In addition, in connection with the December 2013 amendment, the Parent issued a seven year warrant (the "Second Warrant") to the lender for the purchase of 225,000 ordinary common shares of Quench USA Holdings, LLC with an exercise price of $1.00 per share. In April 2014 with the disbursement of the Tranche C Term Loan, the number of shares subject to the Second Warrant were increased to 525,000.

        As of June 6, 2014, the fair value of both the Initial and Second Warrant using the Black-Scholes-Merton option pricing model was $458,080. While both the Initial and Second Warrants are liabilities of the Parent, the related debt agreement is a liability of the Company. As a result, the Parent pushed these liabilities down to the Company, and the Company records the fair value of the warrants as a debt discount that is amortized over the term of the debt.

        The Company primarily finances its vehicles for a three-year term with interest rates ranging from 1.61% to 7.64%.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(4) Long-Term Debt (Continued)

        Long-term debt at June 6, 2014 and December 31, 2013 consists of the following:

 
  June 6, 2014   2013  

Loan agreement

  $ 30,000,000   $ 20,000,000  

Discount

    381,731     254,107  

Borrowings under loan agreement, net of discount

    29,618,269     19,745,893  

Borrowings under vehicle notes

    592,984     191,002  

Total long-term debt

    30,211,253     19,936,895  

Less current installments

    (218,175 )   (100,991 )

  $ 29,993,078   $ 19,835,904  

        Aggregate annual maturities of long-term debt subsequent to June 6, 2014 are as follows:

 
  Loan agreement   Vehicle notes  

Years ending December 31:

             

2014

  $   $ 127,846  

2015

        215,255  

2016

    4,500,000     163,073  

2017

    6,000,000     73,508  

2018

    19,500,000     13,302  

  $ 30,000,000   $ 592,984  

(5) Income Taxes

        Quench USA, Inc. files a U.S. federal income tax return and U.S. state income tax returns in numerous jurisdictions. In general, the U.S. federal and state income tax returns remain open to examination by taxing authorities for tax years beginning in 2011 to present. However, if and when the Company claims net operating loss carryforwards from years prior to 2011 against future taxable income, those losses may be examined by the taxing authorities as well.

        Deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and income tax bases of assets and liabilities given the provisions of enacted tax laws. The measurement of deferred tax assets is reduced through a valuation allowance, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. As of June 6, 2014 and December 31, 2013, there is a full valuation allowance against the Company's net deferred tax assets due to the uncertainty of the Company's ability to realize the benefit of any deferred tax asset. The valuation allowance decreased by $8,627,000 and increased by $2,266,000 during the period of January 1, 2014 and June 6, 2014 and the year ended December 31, 2013, respectively, primarily due to the impact from the current year net losses incurred and purchase accounting.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(5) Income Taxes (Continued)

        As of June 6, 2014 and December 31, 2013, the Company had federal and state net operating loss carryforwards available to offset future taxable income of an estimated $46,104,000 and $43,688,000, respectively. The federal loss carryforwards will begin to expire in 2028. The state loss carryforwards will expire at various times beginning in 2015. The Internal Revenue Code contains provisions that limit the utilization of net operating loss carryforwards if there has been an ownership change. An ownership change is defined generally as a greater than 50% change in ownership by a greater than 5% shareholder over a three-year period. Such an ownership change, as described in Section 382 of the Internal Revenue Code, may limit the Company's ability to utilize its net operating loss and credit carryforwards on a yearly basis. As a result, to the extent that any single year limitation is not utilized to the full amount of the limitation, such unused amounts are carried over to subsequent years until the earlier of its utilization or the expiration of the relevant carryfoward period. Due to the Company's prior equity transactions, its net operating loss and credit carryforwards may be subject to an annual limitation.

        On April 18, 2014, the Company acquired the stock of a leading water filtration and related systems business. The Company's allocation of purchase price for this acquisition is included in Note 9 and includes a $9.3 million deferred tax liability related to the acquired identifiable intangible assets. During the period ending June 6, 2014, the Company recorded an income tax benefit of approximately $9.3 million related to the release of the valuation allowance attributable to the recording of this deferred tax liability. Future reversals of taxable temporary differences provide positive evidence to support the realization of the Company's previously existing deferred tax assets. Because the Company has not yet achieved profitable operations, the Company's deferred tax assets do not satisfy the criteria for realizability, and the Company has established a valuation allowance for such deferred tax assets, as described above.

        U.S. GAAP requires the evaluation of tax positions taken or expected to be take in the course of preparing tax returns to determine whether the tax positions are "more likely than not" to be sustained by the Company upon challenge by the applicable tax authority. Tax positions not deemed to meet the "more likely than not" threshold and that would result in a tax benefit or expense to the Company would be recorded as a tax benefit or expense in the current period. Management does not believe that there are any uncertain tax positions for the period ended June 6, 2014 and year ended December 31, 2013. The Company's policy on its classification of interest and penalties on any unrecognized tax benefits is to recognize the interest and penalties as a component of income tax expense or benefit. No interest or penalties have been recognized in either the statements of operation or balance sheets.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(5) Income Taxes (Continued)

        The components of the deferred taxes are as follows:

 
  2014   2013  

Deferred tax assets:

             

Accrued compensation

  $ 174,000   $ 62,000  

Bad debt reserve

    173,000     142,000  

Expense reserves

    58,000     123,000  

Tax basis intangibles

    3,459,000     3,865,000  

NOL carryforwards

    18,004,000     17,493,000  

Other

    622,000     728,000  

    22,490,000     22,413,000  

Deferred tax liabilities:

             

Intangibles

    (11,312,000 )   (3,181,000 )

Property and equipment

    (1,303,000 )   (730,000 )

Net deferred tax assets

    9,875,000     18,502,000  

Valuation reserve

    (9,875,000 )   (18,502,000 )

  $   $  

(6) Stockholder's Equity

        On December 18, 2013, the Parent (Quench USA Holdings LLC) was formed. On December 20, 2013 a subsidiary of the Parent merged with and into the Company (Quench USA, Inc.). As part of this merger, all stockholders of the Company exchanged their shares, both common and preferred, for common shares of the Parent. In total the shareholders of the Company exchanged their shares for a total of 109,087,399 common shares of the Parent at $1 per share. As part of the merger the Parent owned all outstanding shares of the Company (1 share outstanding) making the Company a wholly-owned subsidiary of the Parent. On December 20, 2013, the Parent contributed an additional $20,743,274 into the Company. At June 6, 2014 and December 31, 2013, the Company has 3,000 common shares authorized with $0.001 par value and one share issued and outstanding.

(7) Stock Compensation Plan

        On August 29, 2008, the Company adopted the Quench USA, Inc. 2008 Stock Plan (the "Plan"), which allows for the issuance of stock options, restricted stock awards and unrestricted stock awards to officers, employees, directors, and other key persons, including consultants and prospective employees of the Company. The Plan is administered by the Board, or by a committee of the Board. In connection with the Merger as previously discussed in note 6, all outstanding restricted shares were converted into ordinary common shares of the Parent, and all options were assumed by the Parent and are exercisable for ordinary common shares of the Parent.

        On April 16, 2014, the Parent adopted the 2014 Equity Incentive Plan (the "Incentive Plan"), which allows for the issuance of stock options, restricted stock awards, unrestricted stock awards and incentive shares to officers employees, directors, and other key persons, including consultants and prospective employees of the Company. In addition, the Parent increased the available shares for grant

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(7) Stock Compensation Plan (Continued)

to 13,000,000 and allowed for the issuance of incentive shares to be granted as "profits interests". The awards granted pursuant to the Parent's equity incentive plan are typically subject to time-based vesting and certain other restrictions. The options to purchase ordinary shares, restricted stock awards and incentive shares granted as "profits interests" are typically subject to a time-based vesting term, which is determined on a grant-by-grant basis. Incentive shares granted as "profits interests" have a hurdle price equal to their fair value at the time of grant, and options to purchase shares have an exercise price equal to their fair value at time of grant. The contractual term of options awarded is ten years, while the incentive shares contain no contractual term. Holders of incentive shares are entitled to receive distributions (i) with respect to their vested shares, when such distributions are made, and (ii) with respect to their unvested shares, when such shares vest. Upon termination of a recipient's business relationship with the Company, the Parent has the right, but not the obligation, to repurchase the vested shares or shares issued upon exercise of an option, at the then fair value of such shares during periods specified in the award. Unvested shares and options expire on the termination of the recipient's business relationship.

        During the period ended June 6, 2014, the Parent granted options to purchase ordinary shares with the following time-based vesting schedule: (i) 25% of the grant vests on April 1, 2014 and (ii) 5% of the grant vests quarterly thereafter. In addition, the Parent granted incentive shares with the following time-based vesting schedule: (i) 30% of the grant vests on April 1, 2014 and (ii) 10% of the grant vests quarterly thereafter.

        The Company uses the Black-Scholes option pricing model to determine the fair value of the options to purchase ordinary shares and incentive shares granted under the plan. The following weighted average assumptions by share class were used to determine such fair values of the awards granted during the period ending June 6, 2014:

 
  Options   Incentive
Shares
 

Valuation assumptions:

             

Expected dividend yield

    %   %

Expected volatility

    37.7 %   24.0 %

Expected term (years)

    5.9     1.8  

Risk-free interest rate

    1.9 %   0.3 %

        The simplified method was used to determine the expected term assumptions as the Company does not have sufficient history to make more refined estimates of the expected term. The risk-free rate assumption was based on U.S. Treasury yields with similar terms. Since the shares are not publicly traded and are rarely traded privately, expected volatility was estimated based on based on historical results of comparable industry peer companies that are publicly traded. The expected dividend yield is 0% because the Company does not have a history of paying dividends or future plans of doing so.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(7) Stock Compensation Plan (Continued)

        Stock option activity during 2014 is as follows:

 
  Number of
shares
  Weighted
average
exercise price
  Weighted
average
remaining
contractual
term
 

Outstanding at December 31, 2013

    97,452   $ 1.66     7.06 years  

Granted

    2,095,000   $ 1.00        

Forfeited

    (2,500 ) $ 1.02        

Expired

    (650 ) $ 2.46        

Outstanding at June 6, 2014

    2,189,302   $ 1.02     9.76 years  

Exercisable at June 6, 2014

    588,996   $ 1.07     9.54 years  

        The weighted average grant-date fair value of options granted during the period ended June 6, 2014 and for the year ended December 31, 2013 was $0.39 and $0.64, respectively. The intrinsic value of options outstanding and options exercisable at June 6, 2014 was $0. No options were exercised during the 2014 period.

        As of June 6, 2014, total unrecognized compensation expense related to options to purchase ordinary shares was $589,723, which will be recognized over a weighted-average remaining period of 3.6 years.

        A summary of the status of the Company's restricted shares and the Parent's incentive shares as "profits interests" during 2014 is presented below:

 
  Restricted Shares   Incentive Shares  
 
  Shares   Weighted
average
grant-date
fair value
  Shares   Weighted
average
grant-date
fair value
 

Outstanding at December 31, 2012

    199,471   $ 274,990       $  

Granted

    55,500     56,610          

Vested

    (86,687 )   (136,400 )        

Forfeited

    (12,529 )   (15,912 )        

Outstanding at December 31, 2013

    155,755   $ 179,288       $  

Granted

            10,000,000     1,292,500  

Vested

    (37,371 )   (50,454 )   (3,000,000 )   (387,750 )

Outstanding at June 6, 2014

    118,384   $ 128,834     7,000,000   $ 904,750  

        During the period from January 1, 2014 to June 6, 2014, the intrinsic value of restricted shares vested was $1.00 per share while the intrinsic value of incentive shares granted as "profits interests" was $0.00. As of June 6, 2014, the 7,000,000 incentive shares granted as "profits interests" had a hurdle price of $1.00.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(7) Stock Compensation Plan (Continued)

        At June 6, 2014, there was $966,561 of total unrecognized compensation cost related to restricted stock awards and incentive shares granted as "profits interests", which will be recognized over a remaining weighted-average period of 1.8 years.

        The Company recorded compensation expense related to all equity awards of $746,276 and $114,893 during the period ended June 6, 2014 and the year ended December 31, 2013, respectively.

(8) Commitments and Contingencies

        The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, results of operations, or liquidity.

        The Company has a 401(k) Plan covering substantially all nonunion employees over the age of 21. Employees may contribute up to 92% of their annual compensation to the plan, not to exceed IRS limits. The Company is required to match 50% of the first 6% of the employee's compensation deferred. Employees are 100% vested immediately as to their contributions and vest over a five year period as to the Company's contributions. Expense related to the plan was $102,443 for the period ended June 6, 2014 and $203,328 for the year ended December 31, 2013.

        The Company also has management incentive plan ("Quench MIP") pursuant to which certain employees of the Company are entitled to a special cash bonus in the event of a sale. As defined in the Quench MIP, a sale event is the sale of all or substantially all of the assets of the Company, a merger or consolidation in which the Company is a party, an acquisition of all or substantially all of the outstanding securities of the Company, an initial public offering or any other acquisition as determined by the Board of Members. The potential cash bonus pool under the Quench MIP would be the lesser of: (i) 10% of the value of the outstanding securities of the Company in excess of $21,000,000 after giving effect to all payments under the plan; or (ii) $6,000,000 million.

        As of June 6, 2014, the Company has not recorded any liability related to the Quench MIP as no events have occurred nor was it probable an event would occur that would require payment under the Quench MIP.

(9) Acquisitions

        Acquisitions are recorded using the acquisition method of accounting in accordance with ASC 805, Business Combinations . The results of the acquired companies' operations have been included in the Company's financial statements since the effective date of each respective acquisition.

        On April 18, 2014, the Company acquired all the stock of a leading water filtration and related systems business for $42 million in cash. The acquired entity was simultaneously merged into the Company. Transaction and other integration costs incurred in 2014 and included in the Company's results for the period ended June 6, 2014 were $785,216. The Company acquired the business to expand its geographic coverage and strengthen its national service network. The Company negotiated the purchase price of the business based on expected cash flows to be derived from its operations after integration into the Company's existing operations.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(9) Acquisitions (Continued)

        The following table summarizes the fair values of the assets acquired and liabilities assumed related to this acquisition. Purchase price allocations are based on management's estimates.

Assets acquired:

       

Cash

  $ 105,528  

Accounts receivable

    1,093,959  

Inventory

    352,464  

Other current assets

    74,041  

Rental equipment

    1,587,033  

Other fixed assets

    168,860  

Goodwill (not deductible for tax purposes)

    27,984,593  

Customer relationships

    21,841,000  

Non-compete agreements

    108,000  

Tradenames

    54,000  

Liabilities assumed:

       

Accounts payable

    (125,990 )

Deferred revenue

    (997,807 )

Deferred tax liability

    (9,309,921 )

Security deposits from customers

    (645,232 )

Vehicle note

    (230,631 )

Cash paid at acquisition

  $ 42,059,897  

        The goodwill recognized represents the synergies obtained from combining operations.

        During the period ended December 31, 2013, the Company purchased the assets of two small regional businesses in the water filtration and related systems industry. A total of $915,619 in cash was paid for the two businesses. Pursuant to the asset purchase agreement for one of the businesses, the Company is obligated to pay additional purchase price contingent on the annual performance of the acquired customer base. The Company estimated the net present value of the contingent purchase price at $230,000, which will be paid in 2014. Transaction and other integration costs incurred in 2013 and included in the Company's 2013 results were insignificant. The Company acquired the businesses in order to expand its geographic coverage and strengthen its national service network. The Company negotiated the purchase price of the businesses based on expected cash flows to be derived from its operations after integration into the Company's existing operations.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(9) Acquisitions (Continued)

        The following table summarizes the fair values of the assets acquired and liabilities assumed related to the 2013 acquisitions. Purchase price allocations are based on management's estimates.

Assets Acquired:

       

Rental equipment

  $ 48,650  

Other fixed assets

    13,873  

Goodwill (deductible for tax purposes)

    365,671  

Intangible assets

    790,532  

Liabilities Assumed:

       

Contingent consideration

    (230,000 )

Vehicle note

    (7,219 )

Deferred revenue

    (65,888 )

Cash paid at acquisition

  $ 915,619  

        The goodwill recognized represents the synergies obtained from combining operations.

        Total payments of acquisition contingent payments related to all acquired businesses in the amount of $899,278 were made during the period ended June 6, 2014.

Pro Forma Financial Information

        The following unaudited pro forma financial information for the Company gives effect to the acquisition which occurred April 18, 2014, as if it occurred at the beginning of 2013. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated, or that may result in the future.

 
  Period Ended
June 6, 2014
  2013  

Revenues

  $ 17,559,504   $ 38,217,633  

Net income (loss)

  $ 6,043,047   $ (479,930 )

(10) Goodwill and Other Intangible Assets

        The change in the carrying amount of goodwill is as follows:

Balance at December 31, 2012

  $ 13,796,955  

Acquisitions

    365,671  

Balance at December 31, 2013

  $ 14,162,626  

Acquisitions

    27,984,593  

Balance at June 6, 2014

  $ 42,147,219  

        $38,033,402 of the above goodwill is not deductible for tax purposes.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(10) Goodwill and Other Intangible Assets (Continued)

        The Company performs an assessment of the carrying value of goodwill on an annual basis. As of December 31, 2013, the Company determined the implied enterprise fair value using discounted cash flow analyses and compared this value to the carrying value. This assessment indicated that the Company's goodwill was not impaired.

        Other intangible assets were $32,467,293 and $11,513,769, net of accumulated amortization of $10,324,367 and $9,274,891, at June 6, 2014 and December 31, 2013, respectively. These intangible assets consist primarily of customer relationship assets that are amortized over either 7 or 12 years. There are no expected residual values related to intangible assets. Intangible assets consist of the following:

 
  June 6, 2014  
 
  Gross
carrying
amount
  Weighted
average
amortization
period
  Accumulated
amortization
 

Amortizing intangible assets:

                 

Customer relationship assets

  $ 41,277,600   10 years   $ 9,702,624  

Tradename

    1,083,600   20 years     300,325  

Purchased technology

    188,760   3 years     188,760  

Noncompete agreements

    241,700   2 years     132,658  

Total

  $ 42,791,660       $ 10,324,367  

 

 
  2013  
 
  Gross
carrying
amount
  Weighted
average
amortization
period
  Accumulated
amortization
 

Amortizing intangible assets:

                 

Customer relationship assets

  $ 19,436,600   10 years   $ 8,682,871  

Tradename

    1,029,600   20 years     274,560  

Purchased technology

    188,760   3 years     188,760  

Noncompete agreements

    133,700   2 years     128,700  

Total

  $ 20,788,660       $ 9,274,891  

        Amortization expense was $1,053,475 and $1,907,561 for the period ended June 6, 2014 and the year ended December 31, 2013, respectively.

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QUENCH USA, INC.

Notes to Financial Statements (Continued)

June 6, 2014 and December 31, 2013

(10) Goodwill and Other Intangible Assets (Continued)

        Estimated future amortization expense by year is as follows:

Years ending December 31:

       

Remainder of 2014

  $ 1,906,590  

2015

    3,052,959  

2016

    3,033,943  

2017

    2,885,682  

2018

    2,653,942  

Thereafter

    18,934,177  

  $ 32,467,293  

(11) Due from Shareholder

        On June 19, 2008, the Company loaned one of its shareholders $116,544 and concurrently entered into a promissory note agreement. On July 1, 2010 the interest rate changed to 0.61% from 8% per annum, and is due upon a liquidity event, as defined. The note receivable balance as of June 6, 2014 and December 31, 2013 was $141,378 and $139,982, respectively, and has been classified as noncurrent on the balance sheets.

(12) Subsequent Events

        The Company has evaluated subsequent events from the balance sheet date through August 11, 2015, the date which the financial statements were available to be issued.

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Independent Auditors' Report

The Board of Directors
AquaVenture Holdings LLC:

        We have audited the accompanying financial statements of Atlas Watersystems, Inc., which comprise the balance sheets as of the June 16, 2014 and December 31, 2013, and the related statements of operations, stockholders' equity, and cash flows for the period from January 1, 2014 through June 16, 2014 and the year ended December 31, 2013, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

        Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

        Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

        An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

        We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atlas Watersystems, Inc. as of the June 16, 2014 and December 31, 2013, and the results of its operations and its cash flows for the period from January 1, 2014 through June 16, 2014 and the year ended December 31, 2013 in accordance with U.S. generally accepted accounting principles.

                        /s/ KPMG LLP

Providence, Rhode Island
August 5, 2015

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Atlas Watersystems, Inc.

Balance Sheets

June 16, 2014 and December 31, 2013

 
  June 16, 2014   December 31, 2013  

Assets

             

Current assets:

             

Cash

  $ 165,046   $ 311,450  

Trade accounts receivable, less allowance for doubtful accounts at June 16, 2014 and December 31, 2013, of $30,500 and $25,000, respectively

    1,589,577     1,416,279  

Inventories

    832,473     718,616  

Prepaid expenses

    222,185     232,878  

Other receivables

    25,350     26,966  

Total current assets

    2,834,631     2,706,189  

Property and equipment:

             

Rental equipment

    7,052,882     6,548,486  

Furniture and fixtures

    198,175     195,546  

Machinery and equipment

    110,142     110,142  

Office equipment

    1,028,130     1,015,197  

Vehicles

    1,129,268     1,223,628  

    9,518,597     9,092,999  

Less accumulated depreciation

    (5,575,332 )   (5,101,052 )

Property and equipment, net

    3,943,265     3,991,947  

Other assets:

             

Deposits

    16,330     16,330  

Other assets

        9,400  

Goodwill

    22,356     22,356  

Total assets

  $ 6,816,582   $ 6,746,222  

Liabilities and Stockholders' Equity

             

Current liabilities:

             

Trade accounts payable

  $ 650,909   $ 410,249  

Accrued expenses and other liabilities

    111,813     203,988  

Notes payable

    79,903     70,766  

Current portion of long-term debt

    786,852     779,097  

Capital lease obligations

    6,355     5,953  

Deferred revenue

    2,020,706     1,927,622  

Dividends payable

        337,500  

Total current liabilities

    3,656,538     3,735,175  

Long-term debt

    373,952     743,631  

Capital lease obligations

    10,152     12,922  

Security deposits due to customers

    3,755     14,065  

Total liabilities

    4,044,397     4,505,793  

Stockholders' equity:

             

Common stock, no par value, 450,000 shares authorized, 383,696 shares issued and outstanding

    58,841     58,841  

Retained earnings

    2,713,344     2,181,588  

Total stockholders' equity

    2,772,185     2,240,429  

Total liabilities and stockholders' equity

  $ 6,816,582   $ 6,746,222  

   

See accompanying notes to the financial statements.

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Atlas Watersystems, Inc.

Statements of Operations

Period from January 1, 2014 through June 16, 2014 and Year ended December 31, 2013

 
  Period from
January 1, 2014
through
June 16, 2014
  Year ended
December 31, 2013
 

Net sales:

             

Rents

  $ 2,781,698   $ 5,808,215  

Service

    1,219,056     2,214,549  

Product

    1,521,949     3,354,311  

Other

        8,210  

Total net sales

    5,522,703     11,385,285  

Cost of goods sold

    3,015,309     6,358,578  

Gross profit

    2,507,394     5,026,707  

Selling, general, and administrative expenses

    1,831,544     3,967,903  

Operating income

    675,850     1,058,804  

Other income (expense):

             

Gain (loss) on disposal of property and equipment

    575     (38,974 )

Interest expense, net

    (30,319 )   (104,826 )

Income before income tax expense

    646,106     915,004  

Income taxes

    14,350     18,276  

Net income

  $ 631,756   $ 896,728  

   

See accompanying notes to the financial statements.

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Atlas Watersystems, Inc.

Statements of Stockholders' Equity

Period from January 1, 2014 through June 16, 2014 and Year ended December 31, 2013

 
  Common Stock    
   
 
 
  Retained
Earnings
   
 
 
  Shares   Amount   Total  

Balance at December 31, 2012

    383,696   $ 58,841   $ 1,622,360   $ 1,681,201  

Dividends declared

   
   
   
(337,500

)
 
(337,500

)

Net income

            896,728     896,728  

Balance at December 31, 2013

    383,696   $ 58,841   $ 2,181,588   $ 2,240,429  

Dividends

            (100,000 )   (100,000 )

Net income

            631,756     631,756  

Balance at June 16, 2014

    383,696   $ 58,841   $ 2,713,344   $ 2,772,185  

   

See accompanying notes to the financial statements.

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Atlas Watersystems, Inc.

Statements of Cash Flows

Period from January 1, 2014 through June 16, 2014 and Year ended December 31, 2013

 
  Period from
January 1, 2014
through
June 16, 2014
  Year Ended
December 31, 2013
 

Cash flows from operating activities:

             

Net income

  $ 631,756   $ 896,728  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Depreciation and amortization

    620,249     1,495,143  

Bad debt expense

    585     20,530  

(Gain) loss on disposal of property and equipment

    (575 )   38,974  

(Increase) decrease in operating assets and liabilities:

             

Trade accounts receivable

    (173,883 )   (25,582 )

Inventories

    (113,857 )   253,571  

Other receivables

        836  

Prepaid expenses

    10,693     (16,651 )

Trade accounts payable

    240,660     (484,871 )

Accrued expenses and other liabilities

    (92,175 )    

Deferred revenue

    93,084     203,017  

Customer security deposits

    (10,310 )   (121,254 )

Net cash provided by operating activities

    1,206,227     2,260,441  

Cash flows from investing activities:

             

Repayments from note receivable

    11,016     23,174  

Proceeds from disposal of property and equipment

    13,988     1,848  

Capital expenditures

    (584,980 )   (1,164,897 )

Net cash used in investing activities

    (559,976 )   (1,139,875 )

Cash flows from financing activities:

             

Repayment of debt

    (361,924 )   (863,850 )

Dividends paid

    (437,500 )    

Borrowings under notes payable

    113,623      

Repayment of notes payable

    (104,486 )    

Payments on capital leases

    (2,368 )   (6,864 )

Net cash used in financing activities

    (792,655 )   (870,714 )

Net (decrease) increase in cash

    (146,404 )   249,852  

Cash, beginning of year

    311,450     61,598  

Cash, at end of year

  $ 165,046   $ 311,450  

Cash paid for taxes

  $ 14,350   $ 10,624  

Cash paid for interest

  $ 35,482   $ 111,613  

   

See accompanying notes to the financial statements.

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Atlas Watersystems, Inc.

Notes to Financial Statements

June 16, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies

(a)   Description of Business

        Atlas Watersystems, Inc. (the "Company") is a water-technology company that designs, installs, and maintains water purification systems to commercial and residential customers. The Company's headquarters is located in Waltham, Massachusetts and the vast majority of its customers are located throughout New England.

        On June 16, 2014, all of the assets of the Company were acquired by Quench USA, Inc., a Delaware corporation and wholly-owned subsidiary of AquaVenture Holdings LLC (AVH) for a total purchase price of $23.7 million, including $21.2 million in cash and $2.5 million, or 505,285 shares, of Class B shares of AVH.

(b)   Use of Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include impairment of long-lived assets, useful lives of rental assets, recoverability of fixed assets, allowances for doubtful accounts, realizability of inventory, and other contingencies.

(c)   Trade Accounts Receivable

        Trade accounts receivable consist of current amounts due related to invoices on operating leases of Company owned rental units, and amounts due from customers for service work performed or goods sold. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. The Company reviews its allowance for doubtful accounts periodically to determine if additional reserves are required. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

(d)   Inventories

        Inventories are stated at the lower of average cost or market. As of June 16, 2014 and December 31, 2013, inventory consists of water filtration and related systems, related ancillary products and supplies.

(e)   Prepaid Expenses

        Prepaid expenses and other current assets consist primarily of prepaid software maintenance agreements, prepaid insurance, and rents paid in advance. These assets will be amortized over a twelve-month period or less.

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Atlas Watersystems, Inc.

Notes to Financial Statements (Continued)

June 16, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

(f)    Revenue Recognition

        The Company generates revenue through the sale and rental of equipment, service, and supplies. Revenue related to operating leases is recorded within rental revenue, net of applicable sales taxes, in the statements of operations.

        Rental of Water Filtration and Related Equipment.     The Company generates revenues through the rental of its filtered water and related systems to customers. The rental agreements are accounted for as operating leases and, as a result, revenues are recognized ratably over the rental agreement term. Upon the expiration of the initial rental agreement term, the Company may enter into rental agreement extensions in which revenues are recognized ratably over the extension term. Amounts paid by customers in excess of recognizable revenue are recorded as deferred revenue on the consolidated balance sheets.

        Sale of Water Filtration and Related Equipment, Supplies and Maintenance Services.     The Company recognizes revenues from the sale of water filtration and related equipment, supplies and maintenance services. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable and collectability is reasonably assured.

(g)   Property and Equipment

        Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of furniture and equipment are three to seven years, while the estimated useful lives of leasehold improvements are the shorter of the remaining life of the lease or five years. Vehicles and computers have an estimated useful life of three to five years. Capitalized installation and plumbing permits are depreciated over four years. Water filtration and related systems are depreciated over seven years and filtration membranes are depreciated over two years. Total depreciation for the period of January 1, 2014 through June 16, 2014 and for the year ended December 31, 2013 was $402,657 and $963,559, respectively, which is recorded in cost of sales.

        The purchase of property and equipment, including rental equipment, is included in capital expenditures within the statements of cash flows.

(h)   Income Taxes

        Atlas Watersystems, Inc. is registered as an S corporation. As such, all federal income taxes are payable by the stockholders. Therefore, the Company does not record a provision for any federal income tax expense or benefit.

(i)    Long-Lived Assets

        In accordance with the Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment Overall , long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be

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Atlas Watersystems, Inc.

Notes to Financial Statements (Continued)

June 16, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. Management determined that there were no indicators of impairment of long-lived assets at June 16, 2014 and December 31, 2013.

(j)    Commitments and Contingencies

        Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, penalties, and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

(k)   Comprehensive Income

        The Company reports comprehensive income as a measure of overall performance. Comprehensive income includes all changes in equity during a period, except for those resulting from investments by and distributions to the stockholders. The Company's comprehensive income is the same as its reported net income for the period from January 1, 2014 through June 16, 2014 and for the year ended December 31, 2013.

(l)    Fair Value Measurements

        The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

    Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

    Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

    Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

        The fair value of cash, trade receivables, trade payables and accrued expenses approximate their carrying values due to their short maturities. The fair value of debt approximates the carrying value of

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Atlas Watersystems, Inc.

Notes to Financial Statements (Continued)

June 16, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

debt because the Company's interest rates approximate currently available interest rates for similar debt.

(2) Significant Risks and Uncertainties Including Business and Credit Concentrations

        Most of the Company's customers are located in the United States. During the periods presented in these financial statements, no single customer accounted for more than 10% of the Company's net sales.

        The Company regularly maintains amounts on deposit in excess of those insured by the FDIC. The Company believes it limits is credit exposure by placing its cash with, what management believes to be, a high credit quality financial institution.

(3) Leases

        The Company entered into a non-cancellable operating lease for its corporate headquarters on February 1, 2013, which expires in 2016. The Company also entered a lease for office and warehouse space on October 1, 2011, which expires in 2016. Minimum rent payments under all operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rent expense for the period of January 1, 2014 through June 16, 2014 and for the year ended December 31, 2013 was $93,093 and $206,383, respectively.

        The Company also leases warehouse and office equipment under operating leases. Operating lease payments were $18,863 and $42,385 for the period of January 1, 2014 through June 16, 2014 and for the year ended December 31, 2013, respectively.

        Future minimum lease payments under all non-cancellable operating leases as of June 16, 2014 are as follows:

Remaining payments for calendar 2014

  $ 120,011  

2015

    229,234  

2016

    75,590  

2017

    8,770  

2018 and beyond

    0  

  $ 433,605  

(4) Long-Term Debt

        The Company is obligated to a lender under a revolving demand line of credit allowing borrowings up to $750,000 and an ACH facility allowing borrowings up to $50,000. Interest is payable monthly at the bank's prime rate subject to a floor of 4.00%. Borrowings are collateralized by all corporate assets and mature July 31, 2014. As of June 16, 2014 and December 31, 2013 there was no balance outstanding under this line of credit. The Company has three term notes with four-year terms with fixed interest rates varying from 4.00% to 5.50%. The Company also finances vehicles and some equipment with term promissory notes with fixed interest rates ranging from 5.50% to 13.00%.

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Atlas Watersystems, Inc.

Notes to Financial Statements (Continued)

June 16, 2014 and December 31, 2013

(4) Long-Term Debt (Continued)

        Long-term debt at June 16, 2014 and December 31, 2013 consists of the following:

 
  2014   2013  

Term notes payable

  $ 951,473   $ 1,266,110  

Vehicle notes

    209,331     256,618  

Total long-term debt

  $ 1,160,804   $ 1,522,728  

Less: current installments

    786,852     779,097  

  $ 373,952   $ 743,631  

        Aggregate annual maturities of long-term debt subsequent to June 16, 2014 are as follows:

Remaining payments for calendar 2014

  $ 420,930  

2015

    620,487  

2016

    110,187  

2017

    9,200  

2018 and beyond

    0  

  $ 1,160,804  

(5) Income Taxes

        Atlas Watersystems, Inc. files a U.S. federal income tax return and U.S. state income tax returns in several jurisdictions. In general, the U.S. federal and state income tax returns remain open to examination by taxing authorities for tax years beginning in 2010 to present. If the taxing authorities determine that there are adjustments, the resulting liability will be due from the stockholders.

(6) Commitments and Contingencies

        The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, results of operations, or liquidity.

        The Company sponsors a 401(k) profit sharing plan covering eligible employees meeting certain age and length of service requirements. Company contributions are made at the discretion of the board of directors. Expense related to the plan for the period of January 1, 2014 through June 16, 2014 and for the year ended December 31, 2013 was $24,655 and $51,177, respectively.

(7) Subsequent Events

        The Company has evaluated subsequent events from the balance sheet date through August 5, 2015, the date which the financial statements were available to be issued.

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Independent Auditors' Report

The Board of Directors
AquaVenture Holdings LLC:

        We have audited the accompanying financial statements of Macke Water Systems, Inc., which comprise the balance sheets as of April 18, 2014 and December 31, 2013, and the related statements of operations, stockholders' equity, and cash flows for the period of January 1, 2014 through April 18, 2014 and for the year ended December 31, 2013, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

        Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

        Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

        An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

        We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Macke Water Systems, Inc. as of April 18, 2014 and December 31, 2013, and the results of its operations and its cash flows for the period of January 1, 2014 through April 18, 2014 and the year ended December 31, 2013 in accordance with U.S. generally accepted accounting principles.

    /s/ KPMG LLP

Providence, Rhode Island
August 5, 2015

 

 

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Macke Water Systems, Inc.

Balance Sheets

April 18, 2014 and December 31, 2013

 
  April 18, 2014   December 31, 2013  

Assets

             

Current Assets:

             

Cash

  $ 105,528   $ 533,392  

Trade accounts receivable, less allowance for doubtful accounts at April 18, 2014 and December 31, 2013, of $58,231

    1,078,586     848,556  

Inventories

    352,464     347,059  

Prepaid expenses and other assets

    89,414     68,838  

Total current assets

    1,625,992     1,797,845  

Property and equipment, net:

             

Rental equipment

    4,565,581     4,540,153  

Furniture and fixtures

    17,562     17,562  

Machinery and equipment

    47,519     47,519  

Office equipment

    40,907     40,617  

Vehicles

    638,789     660,114  

    5,310,358     5,305,965  

Less accumulated depreciation

    (3,426,789 )   (3,260,938 )

Property and equipment, net

    1,883,569     2,045,027  

Total assets

  $ 3,509,561   $ 3,842,872  

Liabilities and Stockholders' Equity

             

Current Liabilities:

             

Trade accounts payable

  $ 65,574   $ 139,230  

Accrued expenses and other liabilities

    60,418     168,182  

Deferred revenue

    1,216,978     958,987  

Current portion of long-term debt

    98,849     169,857  

Total current liabilities

    1,441,819     1,436,256  

Long-term debt

    131,782     145,087  

Security deposits due to customers

    645,232     637,512  

Total liabilities

    2,218,833     2,218,855  

Stockholders' Equity:

             

Common stock, no par value, 10,000 shares authorized, 1,000 shares issue and outstanding

         

Retained earnings

    1,290,728     1,624,017  

Total stockholders' equity

    1,290,728     1,624,017  

Total liabilities and stockholders' equity

  $ 3,509,561   $ 3,842,872  

   

See accompanying notes to the financial statements.

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Macke Water Systems, Inc.

Statements of Operations

Period from January 1, 2014 through April 18, 2014 and Year ended December 31, 2013

 
  Period from
January 1, 2014
through
April 18, 2014
  Year Ended
December 31, 2013
 

Net sales:

             

Rental revenue

  $ 2,273,394   $ 7,580,575  

Service and installation

    279,779     856,317  

Coffee and other

    657,146     2,041,853  

Total net sales

    3,210,319     10,478,745  

Cost of goods sold

    1,191,449     3,727,073  

Gross profit

    2,018,870     6,751,672  

Selling, general, and administrative expenses

    1,384,423     2,338,003  

Operating income

    634,447     4,413,669  

Other expense:

             

Interest expense, net

    2,736     2,479  

Net income

  $ 631,711   $ 4,411,190  

   

See accompanying notes to the financial statements.

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Macke Water Systems, Inc.

Statements of Stockholders' Equity

Period from January 1, 2014 through April 18, 2014 and Year ended December 31, 2013

 
  Common Stock    
   
 
 
  Retained
Earnings
   
 
 
  Shares   Amount   Total  

Balance at December 31, 2012

    1,000   $   $ 1,492,827   $ 1,492,827  

Dividends

   
   
   
(4,280,000

)
 
(4,280,000

)

Net income

            4,411,190     4,411,190  

Balance at December 31, 2013

    1,000   $   $ 1,624,017   $ 1,624,017  

Dividends

   
   
   
(965,000

)
 
(965,000

)

Net income

            631,711     631,711  

Balance at April 18, 2014

    1,000   $   $ 1,290,728   $ 1,290,728  

   

See accompanying notes to the financial statements.

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Macke Water Systems, Inc.

Statements of Cash Flows

Period from January 1, 2014 through April 18, 2014 and Year ended December 31, 2013

 
  Period from
January 1, 2014
through
April 18, 2014
  Year Ended
December 31, 2013
 

Cash flows from operating activities:

             

Net income

  $ 631,711   $ 4,411,190  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Depreciation

    202,608     662,096  

Bad debt expense

    17,528     9,757  

(Increase) decrease in operating assets and liabilities:

             

Trade accounts receivable

    (247,559 )   (114,050 )

Inventories

    (5,405 )   (325,842 )

Prepaid expenses and other assets

    (20,576 )   (25,731 )

Trade accounts payable

    (73,656 )   (26,594 )

Accrued expenses and other liabilities

    (107,763 )   26,960  

Deferred revenue

    257,991     18,343  

Customer security deposits

    7,720     11,333  

Net cash provided by operating activities

    662,599     4,647,463  

Cash flows from investing activities:

             

Capital expenditures

    (41,150 )   (348,763 )

Net cash used in investing activities

    (41,150 )   (348,763 )

Cash flows from financing activities:

             

Repayment of debt

    (88,547 )   (60,000 )

Dividends paid

    (965,000 )   (4,280,000 )

Borrowings under vehicle notes payable

    42,328     166,237  

Payments on vehicle notes payable

    (38,094 )   (111,209 )

Net cash used in financing activities

    (1,049,313 )   (4,284,972 )

Net (decrease) increase in cash

    (427,864 )   13,728  

Cash, beginning of period

    533,392     519,664  

Cash, at end of period

  $ 105,528   $ 533,392  

Cash paid for taxes

  $ 32,765   $ 53,458  

Cash paid for interest

  $ 1,983   $ 2,749  

   

See accompanying notes to the financial statements.

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Macke Water Systems, Inc.

Notes to Financial Statements

April 18, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies

(a)   Description of Business

        Macke Water Systems, Inc. (the "Company") is a business-to-business water-technology company that installs, leases and services bottleless water filtration and related systems as well as ice machines, coffee brewers and related ancillary products. The Company's headquarters is located in Wheeling, Illinois and the vast majority of its customers are located in the United States.

        On April 18, 2014, all of the Company's stock was acquired by Quench USA, Inc., for a total cash purchase price of $42.1 million. The Company was simultaneously liquidated and merged into Quench USA, Inc.

(b)   Use of Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include impairment of long-lived assets, useful lives of rental assets, recoverability of fixed assets, allowances for doubtful accounts, realizability of inventory, and other contingencies.

(c)   Trade Accounts Receivable

        Trade accounts receivable consist of current amounts due related to invoices on operating leases of Company owned rental units, and amounts due from customers for service work performed or goods sold. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. The Company reviews its allowance for doubtful accounts periodically to determine if additional reserves are required. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

(d)   Inventories

        Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. As of April 18, 2014 and December 31, 2013, inventory consists of water filtration and related systems, related ancillary products and parts.

(e)   Prepaid Expenses and Other Current Assets

        Prepaid expenses and other current assets consist primarily of prepaid software maintenance agreements, and rents paid in advance. These assets will be amortized over a twelve month period or less.

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Macke Water Systems, Inc.

Notes to Financial Statements (Continued)

April 18, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

(f)    Revenue Recognition

        The Company generates revenue through the sale and rental of equipment, service, and supplies. Revenue related to operating leases is recorded within rental revenue, net of applicable sales taxes, in the statements of operations.

        Rental of Water Filtration and Related Equipment.     The Company generates revenues through the rental of its filtered water and related systems to customers. The rental agreements are accounted for as operating leases and, as a result, revenues are recognized ratably over the rental agreement term. Upon the expiration of the initial rental agreement term, the Company may enter into rental agreement extensions in which revenues are recognized ratably over the extension term. Amounts paid by customers in excess of recognizable revenue are recorded as deferred revenue on the consolidated balance sheets.

        Sale of Water Filtration and Related Equipment, Supplies and Maintenance Services.     The Company recognizes revenues from the sale of water filtration and related equipment, supplies and maintenance services. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable and collectability is reasonably assured.

(g)   Property and Equipment

        Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of furniture and equipment are five to seven years, while the estimated useful lives of leasehold improvements are the shorter of the remaining life of the lease or seven years. Vehicles and computers have a three-year estimated useful life. Water filtration and related systems are depreciated over seven years. Total depreciation for the period of January 1, 2014 through April 18, 2014 and for the year ended December 31, 2013 was $384,468 and $662,096, respectively, which is recorded in cost of goods sold.

        The purchase of property and equipment, including water filtration and related systems, is included in capital expenditures within the statements of cash flows.

(h)   Income Taxes

        Macke Water Systems, Inc. is registered as an S Corporation. As such, all income taxes are payable by the shareholders. Therefore, the Company does not record a provision for any income tax expense or benefit.

(i)    Long-Lived Assets

        In accordance with the Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment Overall , long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that

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Macke Water Systems, Inc.

Notes to Financial Statements (Continued)

April 18, 2014 and December 31, 2013

(1) Summary of Significant Accounting Policies (Continued)

asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. Management determined that there were no indicators of impairment of long-lived assets at April 18, 2014 and December 31, 2013.

(j)    Commitments and Contingencies

        Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, penalties, and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

(k)   Comprehensive Income

        The Company reports comprehensive income as a measure of overall performance. Comprehensive income includes all changes in equity during a period, except for those resulting from investments by and distributions to the shareholders. The Company's comprehensive income is the same as its reported net income for the period from January 1, 2014 through April 18, 2014 and for the year ended December 31, 2013.

(l)    Fair Value Measurements

        The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

    Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

    Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

    Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

        The fair value of cash, trade receivables, trade payables and accrued expenses approximate their carrying values due to their short maturities. The fair value of debt approximates the carrying value of debt because the Company's interest rates approximate currently available interest rates for similar debt.

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Macke Water Systems, Inc.

Notes to Financial Statements (Continued)

April 18, 2014 and December 31, 2013

(2) Significant Risks and Uncertainties Including Business and Credit Concentrations

        Most of the Company's customers are located in the United States. During the periods presented in these financial statements, no single customer accounted for more than 10% of the Company's net sales.

        The Company regularly maintains amounts on deposit in excess of those insured by the FDIC. The Company believes it limits is credit exposure by placing its cash with, what management believes to be, a high credit quality financial institution.

        The Company acquired the majority of its equipment from an entity that was owned by a material shareholder of the Company. The equipment was acquired under arms-length terms and conditions. Purchases for the period of January 1, 2014 through April 18, 2014 and for the year ended December 31, 2013 were $18,900 and $94,000, respectively. Management believes the equipment could be sourced from alternative vendors if necessary.

(3) Leases

        The Company entered into a non-cancellable operating lease for its corporate headquarters on October 1, 2013, which expires in 2018. Rental payments include minimum rentals and common area usage fees.

        Minimum rent payments under all operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rent expense for the period of January 1, 2014 through April 18, 2014 and for the year ended December 31, 2013 was $59,502 and $179,335, respectively.

        Future minimum lease payments under all non-cancellable operating leases as of April 18, 2014 are as follows:

Remaining payments for calendar 2014

  $ 109,426  

2015

    114,456  

2016

    90,078  

2017

    92,325  

2018 and beyond

    68,814  

  $ 475,100  

(4) Long-Term Debt

        The Company finances vehicles for a three to four year term with an interest rate of 1.61%.

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Macke Water Systems, Inc.

Notes to Financial Statements (Continued)

April 18, 2014 and December 31, 2013

(4) Long-Term Debt (Continued)

        Long-term debt at April 18, 2014 and December 31, 2013 consists of the following:

 
  2014   2013  

Bank Loan

  $   $ 88,547  

Borrowings under vehicle notes

    230,631     226,397  

Total long-term debt

    230,631     314,944  

Less current installments

   
(98,849

)
 
(169,857

)

  $ 131,782   $ 145,087  

        Aggregate annual maturities of long-term debt subsequent to December 31, 2013 are as follows:

Remaining payments for calendar 2014

  $ 66,682  

2015

    86,251  

2016

    59,401  

2017

    18,297  

2018 and beyond

     

  $ 230,631  

(5) Income Taxes

        Macke Water Systems, Inc. files a U.S. federal income tax return, and files U.S. state income tax returns in several jurisdictions as well. In general, the U.S. federal and state income tax returns remain open to examination by taxing authorities for tax years beginning in 2010 to present.

(6) Commitments and Contingencies

        The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, results of operations, or liquidity.

        The Company has a 401(k) Plan covering substantially all employees over the age of 21. Employees may contribute up to 100% of their annual compensation to the plan, not to exceed IRS limits. The Company may match up to 50% of the first 6% of the employee's compensation deferred. Employees are 100% vested immediately as to their contributions and vest over a 5 year period as to the Company's contributions. Expense related to the plan for the period of January 1, 2014 through April 18, 2014 and for the year ended December 31, 2013 was $8,133 and $25,579, respectively.

(7) Subsequent Events

        The Company has evaluated subsequent events from the balance sheet date through August 5, 2015, the date which the financial statements were available to be issued.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

        The following unaudited combined condensed pro forma financial information has been derived by the application of pro forma adjustments to the historical consolidated financial statements of AquaVenture Holdings LLC and Subsidiaries included elsewhere in this prospectus. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014 gives pro forma effect to the following: (i) Quench acquisition; (ii) Atlas acquisition; (iii) Macke acquisition by Quench; and (iv) proceeds from the $10.0 million Tranche C and $10.0 million Tranche D term loans of the Amended Loan and Security Agreement between a lender and Quench ("Quench Loan Agreement"), as if each had occurred on January 1, 2014. We collectively refer to the adjustments relating to Quench, Atlas and Macke acquisitions, including the financing thereof through the Tranche C and D term loans of the Quench Loan Agreement, as the "Acquisition Adjustments." The pro forma effect of the Biwater and Region-X acquisitions have not been included in the unaudited pro forma condensed consolidated financial information as each is not considered a significant acquisition. The adjustments, which are based upon available information and upon assumptions that management believes to be reasonable, are described in the accompanying notes. The unaudited pro forma condensed consolidated financial information is for informational purposes only and should not be considered indicative of actual results that would have been achieved had the transactions noted previously actually been consummated on the dates indicated and does not purport to be indicative of results of operations as of any future date or for any future period.

        The unaudited pro forma condensed consolidated financial information reflects acquisitions accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill.

        The unaudited pro forma condensed consolidated financial information and the related notes hereto should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Operating Results," our historical consolidated financial statements and the related notes thereto, the financial statements and the related notes thereto for each of Quench, Atlas and Macke, in each case included elsewhere in this prospectus.

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Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2014

(In Thousands)

 
  Historical
(a)
  Quench
Acquisition
(b)
  Atlas
Acquisition
(c)
  Macke
Acquisition
(d)
  Acquisition
Adjustments
  Pro Forma  

Revenues

  $ 67,127   $ 14,349   $ 5,523   $ 3,210   $   $ 90,209  

Cost of revenues

    34,112     6,458     3,015     1,191         44,776  

Gross profit

    33,015     7,891     2,508     2,019         45,433  

Selling, general and administrative expenses

    31,653     10,686     1,832     1,384     (319 )(e)   45,236  

Income (loss) from operations

    1,362     (2,795 )   676     635     319     197  

Other expense

    (5,473 )   (1,104 )   (30 )   (3 )   (714 )(f)   (7,324 )

(Loss) income before income tax expense

    (4,111 )   (3,899 )   646     632     (395 )   (7,127 )

Income tax (benefit) expense

    (1,984 )   (9,310 )   14         9,310   (g)   (1,970 )

Net (loss) income

  $ (2,127 ) $ 5,411   $ 632   $ 632   $ (9,705 ) $ (5,157 )

   

See accompanying notes to the unaudited pro forma condensed consolidated financial information.

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Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

(a)
Derived from the audited consolidated statement of operations for AquaVenture Holdings LLC for the year ended December 31, 2014.

(b)
Derived from the audited statement of operations for Quench for the period from January 1, 2014 through June 6, 2014.

    On June 6, 2014, AquaVenture Holdings LLC acquired all of the assets of Quench USA Holdings LLC (the "Contributor") in exchange for AquaVenture's issuance of 29,036,947 Class Q shares and 2,829,598 Class B shares. The assets of the Contributor included all issued and outstanding capital stock of Quench USA and any cash held. The Class Q shares and Class B shares issued to the Contributor had a fair value at the time of contribution of $143.7 million and $14.0 million, respectively (or an aggregate purchase price of $157.7 million).

    The following table summarizes the purchase price allocated to the fair value of assets acquired, including intangibles recorded in conjunction with the business combination, and liabilities assumed (in thousands):

Assets acquired:

       

Cash and cash equivalents

  $ 7,804  

Trade receivables

    5,584  

Inventory

    2,795  

Property, plant and equipment

    12,009  

Other assets

    1,458  

Subscription receivable

    2,500  

Customer relationships

    48,330  

Trade names

    5,130  

Non-compete agreements

    110  

Goodwill

    112,420  

Total assets acquired

    198,140  

Liabilities assumed:

   
 
 

Accounts payable and accrued liabilities

    (4,912 )

Deferred revenue

    (2,961 )

Other current liabilities

    (306 )

Long-term debt

    (30,192 )

Acquisition contingent consideration

    (2,103 )

Total liabilities assumed

    (40,474 )

Total purchase price

  $ 157,666  

    The assets and liabilities in the purchase price allocation are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable. The intangibles will be amortized on a straight-line basis over the useful life which we determined to be 23.6 years for trade names, 5.0 years for non-compete agreements and 15.0 years for customer relationships.

(c)
Derived from the audited statement of operations for Atlas for the period from January 1, 2014 through June 16, 2014.

    On June 16, 2014, Quench USA, then a wholly-owned subsidiary of AquaVenture, acquired all of the assets and certain liabilities of Atlas, pursuant to an Asset Purchase Agreement ("Atlas Purchase Agreement"). Under the terms of the Atlas Purchase Agreement, all of the assets of

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    Atlas were acquired for a total purchase price of $23.6 million, after giving effect to a $129 thousand post-closing working capital adjustment due to the Company. The consideration included $21.1 million in cash and $2.5 million, or 505,285 shares, of Class B shares of AquaVenture.

    The following table summarizes the purchase price allocated to the fair value of assets acquired, including intangibles recorded in conjunction with the business combination, and liabilities assumed (in thousands):

Assets acquired:

       

Trade receivables

  $ 1,559  

Inventory

    832  

Property, plant and equipment

    3,658  

Other assets

    123  

Customer relationships

    8,864  

Trade names

    16  

Non-compete agreements

    80  

Goodwill

    10,585  

Total assets acquired

    25,717  

Liabilities assumed:

   
 
 

Deferred revenue

    (1,920 )

Other liabilities

    (226 )

Total liabilities assumed

    (2,146 )

Total purchase price

  $ 23,571  

    The assets and liabilities in the purchase price allocation are stated at fair value based on estimates of fair value using available information and making assumptions management believes are reasonable. The intangibles will be amortized on a straight-line basis over the useful life which we determined to be 2.0 years for trade names, 4.0 years for non-compete agreements and 15.0 years for customer relationships.

(d)
Derived from the audited statement of operations for Macke for the period from January 1, 2014 through April 18, 2014.

    On April 18, 2014, Quench USA, prior to being a wholly-owned subsidiary of AquaVenture, acquired all of the stock of Macke, pursuant to a Stock Purchase Agreement ("Macke Purchase Agreement"). Under the terms of the Macke Purchase Agreement, all of the stock was acquired for a total cash purchase price of $42.1 million.

    The intangibles and related amortization resulting from the acquisition of Macke were subsequently revalued and included within the Quench USA purchase price allocation at the time Quench USA was acquired by AquaVenture.

(e)
The pro forma acquisition adjustment is to record a reduction to selling, general and administrative costs of $319 thousand, which was attributable to the following:

An adjustment to reflect the elimination of the acquisition-related expenses of $1.1 million incurred in connection with the acquisitions of Quench, as included in the audited consolidated statement of operations of AquaVenture Holdings LLC for the year ended December 31, 2014, and Macke, as included in the audited statement of operations for Quench for the period from January 1, 2014 through June 6, 2014. The acquisition-related expenses for the acquisition of Atlas were not significant during the year ended December 31, 2014.

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    An adjustment to record additional amortization expense of $731 thousand related to the identifiable intangible assets acquired in the Quench and Atlas transactions as if the acquisitions occurred on January 1, 2014. No additional amortization expense was recorded for the identifiable intangible assets acquired in the Macke acquisition as all of those intangibles were valued collectively on the Quench acquisition date as of June 6, 2014.

(f)
The pro forma acquisition adjustment is to record additional interest expense of $714 thousand, which was attributable to proceeds from Tranche C and D of the Quench Loan Agreement. On April 18, 2014, Quench withdrew the full $10.0 million under the previously undrawn Tranche C Term Loan of the Quench Loan Agreement. The proceeds from the borrowings under the Tranche C Term Loan of $10.0 million were in direct connection with the acquisition of Macke. On June 16, 2014, Quench executed the third amendment to the Quench Loan Agreement and withdrew $10.0 million under the Tranche D Term Loan. The proceeds from the borrowings under the Tranche D Term Loan of $10.0 million were in direct connection with the acquisition of Atlas. An adjustment of $673 thousand was recorded to reflect additional estimated interest expense on the proceeds from borrowings under the Tranche C Term loan and Tranche D Term Loan had the debt been outstanding as of January 1, 2014. An estimated interest rate of 9.0% per annum was used to calculate the estimated interest expense.

    As a result of the issuance of warrants at the time of the withdrawals under both the Tranche C Term loan and Tranche D Term Loan, a discount on the Quench Loan Agreement was recorded which will be amortized over the remaining term of both term loans. An adjustment of $29 thousand was recorded to reflect the accretion of the discount, which is recorded as interest expense, had the related Amended Loan and Security Agreement debt been outstanding as of January 1, 2014.

    Additionally, we incurred $115 thousand of debt financing fees in relation to the Tranche D Term Loan. These fees are amortized over remaining term of the debt using the effective interest method. An adjustment of $12 thousand was recorded to reflect additional amortization expense of the debt financing fees, which is recorded as interest expense, had the related Tranche D Term Loan been outstanding as of January 1, 2014.

(g)
The pro forma acquisition adjustment is to eliminate the effect of the income tax benefit recorded in the Quench statement of operations for the period from January 1, 2014 through June 6, 2014. The income tax benefit was related to the recognition of a deferred tax liability for the identifiable intangibles acquired in the Macke acquisition and a corresponding reduction in the valuation allowance on existing Quench deferred tax assets. The income tax benefit was eliminated from the unaudited pro forma condensed consolidated statement of operations as the intangibles related to the Macke acquisition recorded by Quench were subsequently revalued and included within the Quench USA purchase price allocation with no recognized deferred tax liability.

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AquaVenture Holdings LLC

            Common Shares

LOGO



PRELIMINARY PROSPECTUS

                        , 2015


Joint Book-Running Managers

Citigroup   Deutsche Bank Securities   RBC Capital Markets



Co-Managers

Canaccord Genuity   Raymond James



        Until                        , 2015 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

   


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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.     OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

        The following table sets forth all expenses to be paid by us, other than underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee, and the listing fee.

SEC registration fee

  $ 11,620  

FINRA filing fee

    15,500  

Listing fee

           *

Printing and engraving expenses

           *

Legal fees and expenses

           *

Accounting fees and expenses

           *

Transfer agent and registrar fees and expenses

           *

Miscellaneous

           *

Total

  $        *

*
To be completed by amendment.

ITEM 14.     INDEMNIFICATION OF DIRECTORS AND OFFICERS.

        Prior to the completion of this offering, we expect to adopt amended and restated articles of association, which will become effective immediately prior to the completion of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Curaçao law. Consequently, our directors will not be personally liable to us or our shareholders for monetary damages for any breach of fiduciary duties as directors.

        Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Curaçao Civil Code is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Curaçao Civil Code.

        In addition, prior to the completion of this offering, we expect to adopt amended and restated articles of association which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Our articles of association are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our articles of association will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

        Further, prior to the completion of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Curaçao Civil Code. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements will also require us to

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advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

        The limitation of liability and indemnification provisions that are expected to be included in our articles of association and in indemnification agreements that we enter into with our directors and executive officers may discourage shareholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other shareholders. Further, a shareholder's investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

        We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.

        The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of AquaVenture Holdings N.V. and its officers and directors for certain liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, and otherwise.

ITEM 15.     RECENT SALES OF UNREGISTERED SECURITIES .

        Since January 1, 2012, we made sales of the following unregistered securities:

    AquaVenture Holdings LLC granted to our employees, consultants and other service providers options to purchase an aggregate of 685,000 ordinary common shares under our Equity Incentive Plan at exercise prices ranging from $0.50 to $0.60 per share and 176,500 Class B shares under our Equity Incentive Plan at an exercise price of $4.9477 per share.

    We issued to our employees, consultants and other service providers an aggregate of 228,626 shares of ordinary common stock upon the exercise of options for aggregate consideration of $118,657.

    On June 16, 2014, we issued warrants to ORIX Finance Equity Investors, LP that are exercisable for an aggregate of 60,635 shares of our Class B shares at $4.9477 per share. Additionally, ORIX Finance Equity Investors, LP holds warrants for 956,250 shares of Ordinary Shares of Quench USA Holdings LLC exercisable at $1.00 per share.

    In December 2013, Quench issued an aggregate of 21,050,000 of its Ordinary Shares, for aggregate consideration of $21,050,000.

    In June through September 2014, in connection with our acquisition of the assets of Quench USA Holdings LLC, we issued an aggregate of 10,638,257 of our Class B shares, for aggregate consideration of $52.6 million. Additionally, we issued to Quench USA Holdings LLC, currently a holder of more than 5% of our voting securities, 29,036,947 of our Class Q shares and 2,829,598 Class B shares in exchange for all its assets in a transaction valued at $157.7 million in

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      the aggregate. The fair value of the Class Q and B shares at the time of the Quench USA Holdings LLC transaction was $143.7 million and $14.0 million, respectively.

    On June 6, 2014, AquaVenture Holdings LLC in connection with a contribution agreement with Quench USA Holdings LLC issued Class Q shares and Class B shares, which were valued at the time at $157,666,101 in the aggregate, to Quench USA Holdings LLC, in exchange for all of its assets. Immediately prior to the issuance, certain shareholders of Quench USA Holdings LLC, purchased Class B shares through Quench USA Holdings LLC which provided equivalent economic interests as AquaVenture Class B shares.

    In April 2015, we issued an aggregate of 6,063,424 of our Class B shares, for aggregate consideration of $30,000,003.

    In May 2015, we issued an aggregate of 278,415 of our Class B shares, for aggregate consideration of $1,377,514.

    In August 2015, AquaVenture Holdings LLC issued an aggregate of 49,220 Class B shares pursuant to a preemptive rights offering for aggregate consideration of $243,526.

        We believe these transactions were exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about our company.

ITEM 16.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)
Exhibits.

        See the Exhibit Index on the page immediately following the signature page for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.

(b)
Financial Statement Schedules.

        Schedules not listed above have been omitted because the information requested to be set forth herein is not applicable or is presented within the consolidated financial statements included in the prospectus that is part of this registration statement.

ITEM 17.     UNDERTAKINGS.

        The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Act, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is

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asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

        The undersigned registrant hereby undertakes that:

    (1)
    For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared effective.

    (2)
    For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

    (3)
    For the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

            (i)  any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

           (ii)  any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

          (iii)  the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

          (iv)  any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

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SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, State of Florida, on September 25, 2015.

    AQUAVENTURE HOLDINGS LLC

 

 

By:

 

/s/ DOUGLAS R. BROWN

Douglas R. Brown
Chief Executive Officer


POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Douglas R. Brown and Anthony Ibarguen as his true and lawful attorneys-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Registration Statement on Form S-1 of AquaVenture Holdings LLC, and any or all amendments (including post-effective amendments) thereto and any new registration statement with respect to the offering contemplated thereby filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 
/s/ DOUGLAS R. BROWN

Douglas R. Brown
  Chief Executive Officer and Chairman of the Board (Principal Executive Officer)   September 25, 2015

/s/ ANTHONY IBARGUEN

Anthony Ibarguen

 

President and Director

 

September 25, 2015

/s/ LEE S. MULLER

Lee S. Muller

 

Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

 

September 25, 2015

/s/ MICHAEL J. BEVAN

Michael J. Bevan

 

Director

 

September 25, 2015

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Table of Contents

Signature
 
Title
 
Date

 

 

 

 

 
/s/ EVAN LOVELL

Evan Lovell
  Director   September 25, 2015

/s/ HUGH EVANS

Hugh Evans

 

Director

 

September 25, 2015

/s/ PAUL HANRAHAN

Paul Hanrahan

 

Director

 

September 25, 2015

/s/ BRIAN O'NEILL

Brian O'Neill

 

Director

 

September 25, 2015

/s/ CYRIL MEDUÑA

Cyril Meduña

 

Director

 

September 25, 2015

/s/ RICHARD REILLY

Richard Reilly

 

Director

 

September 25, 2015

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Table of Contents


EXHIBIT INDEX

Exhibit
Number
  Description
  1.1 * Form of Underwriting Agreement.
  3.1 * Amended and Restated Memorandum and Articles of Association as currently in effect.
  3.3 * Articles of Association of the Registrant, as currently in effect.
  3.4 * Form of Articles of Association of the registrant to be adopted immediately prior to the completion of this offering.
  4.1 * Form of stock certificate of the Registrant.
  4.2   Fourth Amended and Restated Investor Rights Agreement, dated June 6, 2014, by and among the registrant and certain of its shareholders.
  5.1 * Opinion of Spigt Dutch Caribbean N.V.
  10.1 * Form of Indemnity Agreement between the Registrant and each of its directors and executive officers.
  10.2 #* Equity Incentive Plan, as amended, and forms of award agreements thereunder.
  10.3 #* 2015 Stock and Incentive Plan, as amended, and forms of award agreements thereunder.
  10.4 # Employment letter with Douglas R. Brown
  10.5 # Employment letter with Lee S. Muller
  10.6 # Employment letter with Anthony Ibarguen
  10.7 + Water Sale Agreement, dated May 7, 2010, among Seven Seas Water (Trinidad) Unlimited, Seven Seas Water Corporation and Water & Sewerage Authority Trinidad and Tobago, as amended.
  10.8 * Amendment, Waiver and Consent Letter, dated June 11, 2015, to Biwater (BVI) Ltd. from Barclays Bank PLC, as amended.
  10.9   Credit Agreement, dated April 9, 2012 between the Bank of Nova Scotia and Seven Seas Water (Trinidad), as amended.
  10.10   Credit Agreement, dated March 27, 2013, among Seven Seas Water (USVI), AquaVenture Holdings LLC, the Bank of Nova Scotia and Firstbank Puerto Rico, as amended.
  10.11   Credit Agreement, dated as of June 18, 2015, between Registrant and Citibank, N.A.
  10.12 * Waiver Letter dated September 16, 2015 to Biwater (BVI) Ltd. from Barclays Bank PLC
  21.1 * List of Subsidiaries
  23.1   Consent of KPMG LLP
  23.2   Consent of KPMG LLP
  23.3   Consent of KPMG LLP
  23.4   Consent of KPMG LLP
  23.5 * Consent of Spigt Dutch Caribbean N.V. (included in Exhibit 5.1).
  24.1   Power of Attorney (included on signature page).

*
To be filed by amendment.

#
Indicates management contract or compensatory plan, contract or agreement.

+
Portions of this agreement have been redacted pursuant to a request for confidential treatment with the SEC.



Exhibit 4.2

 

EXECUTION VERSION

 

FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

 

This Fourth Amended and Restated Investor Rights Agreement dated as of June 6, 2014 (the “ Agreement ”) by and among AquaVenture Holdings LLC, a Delaware limited liability company (the “ Company ”), and the persons listed on Schedule I to this Agreement (the “ Investors ”).

 

WHEREAS , certain of the Investors (the “ Existing Investors ”) hold 10,000,000 (the “ Class A-1 Preferred Shares ”) of the Company’s Class A-1 Participating Convertible Preferred Shares (the “ Class A-1 Preferred ”), 10,500,000 (the “ Class A-2 Preferred Shares ”) of the Company’s Class A-2 Participating Convertible Preferred Shares (the “ Class A-2 Preferred ”), 7,700,000 (the “ Class A-3 Preferred Shares ”) of the Company’s Class A-3 Participating Convertible Preferred Shares (the “ Class A-3 Preferred ”) and 12,500,000 (the “ Class A-4 Preferred Shares ” together with the Class A-1 Preferred Shares, the Class A-2 Preferred Shares and the Class A-3 Preferred Shares the “ Preferred Shares ”) of the Company’s Class A-4 Participating Convertible Preferred Shares (the “ Class A-4 Preferred ” and together with the Class A-1 Preferred, the Class A-2 Preferred and the Class A-3 Preferred, the “ Class A Preferred ”) and possess certain rights pursuant to the Third Amended and Restated Investor Rights Agreement dated as of June 22, 2010 between the Company and the Existing Investors (the “ Prior Agreement ”);

 

WHEREAS , the Existing Investors are holders of (i) at least a majority of the outstanding Preferred Shares (as defined in the Prior Agreement) and (ii) at least a majority of the outstanding Restricted Stock (as defined in the Prior Agreement), and desire to amend and restate the Prior Agreement and to accept the rights created pursuant to this Agreement in lieu of the rights granted to them under the Prior Agreement;

 

WHEREAS , certain of the Company intends to issue 2,829,598 shares (the “ Class B Shares ”) of the Company’s Class B Shares (the “ Class B ”) and 29,036,947 shares (the “ Class Q Shares ”) of the Company’s Class Q Shares (the “ Class Q ”) to Quench USA Holdings LLC, a Delaware limited liability company (“ Quench ”), pursuant to the Contribution Agreement by and between the Company and Quench, dated as of June 6, 2014.

 

WHEREAS , the Investors are parties to the Share Purchase Agreement dated as of the date hereof between the Company and certain of the Investors (the “ Purchase Agreement ”), pursuant to which the Company is issuing up to 5,254,967 of the Company’s Class B Shares to such Investors and such Investors’ obligations are conditioned upon the execution and delivery of this Agreement by such Investors and the Company.

 

NOW, THEREFORE, the Existing Investors hereby agree that the Prior Agreement shall be superseded and replaced in its entirety by this Agreement, and the parties to this Agreement further agree as follows:

 



 

ARTICLE I

 

DEFINITIONS

 

1.1                                Common Definitions .  Unless otherwise defined in this Agreement, capitalized terms used in this Agreement that are defined in the Purchase Agreement shall have the meanings assigned to them in the Purchase Agreement, and the rules of construction and documentary convention set forth in the Purchase Agreement shall apply to this Agreement.

 

1.2.                             Additional Definitions .  As used in this Agreement, the following terms shall have the following respective meanings:

 

Commission ” shall mean the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act.

 

Common Stock ” shall mean the common stock of any corporation that is a successor to the Company and is issuable to the Investors upon contribution, exchange or surrender of the Preferred Shares, Class B Shares, Class Q Shares or the Warrant Shares, or, if the Company is converted into a corporation, the common stock issued in respect of the Preferred Shares, Class B Shares, Class Q Shares or the Ordinary Shares held by the Investors.

 

Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, or any similar or successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

Initial Public Offering ” shall mean the initial underwritten public offering of Common Stock pursuant to an effective Registration Statement.

 

Registration Expenses ” shall mean all expenses incurred in complying with Sections 2.3, 2.4 or 2.5, including all registration and filing fees, exchange listing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees and disbursements) incurred in connection with complying with state securities or “blue sky” laws, fees of the Financial Regulatory Authority, Inc., transfer taxes, fees of transfer agents and registrars, costs of insurance and reasonable fees and disbursements of one counsel for the sellers of Restricted Stock, but excluding any Selling Expenses.

 

Registration Statement ” shall mean a registration statement filed by the Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successors, or any form for a similar limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation).

 

Restricted Stock ” shall mean (i) any shares of Common Stock, and any shares of Common Stock issued or issuable upon the conversion, exchange or exercise of, or with respect to, any other securities of the Company acquired by the Investors, and (ii) any other shares of Common Stock issued in respect of such shares (due to stock splits, stock dividends, reclassifications, recapitalizations or similar events or otherwise); provided , however , that Restricted Stock shall exclude Common Stock (a) which has been registered under the Securities Act pursuant to an effective Registration Statement filed thereunder and disposed of in

 

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accordance with the Registration Statement covering them; or (b) which have been publicly sold pursuant to Rule 144 under the Securities Act.

 

Securities Act ” shall mean the Securities Act of 1933, as amended, or any similar or successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

Selling Expenses ” shall mean all underwriting discounts and selling commissions applicable to the sale of Restricted Stock.

 

Subsidiaries ” shall mean entities listed on Schedule I attached hereto, and any other corporation, partnership, limited liability company or other Person of which more than 50% of the outstanding capital stock is at the time directly or indirectly owned by the Company, or by one or more of its other Subsidiaries, or by the Company and one or more of its Subsidiaries.

 

Warrant Shares ” shall mean shares of the Company’s Ordinary Shares issued upon the exercise of warrants of the Company by the Investors before the date hereof.

 

ARTICLE II

 

TRANSFERS OF SHARES AND REGISTRATION RIGHTS

 

2.1                                Restrictive Legend .  Each certificate representing shares of Restricted Stock shall, except as otherwise provided in this Section 2.1 or in Section 2.2, be stamped or otherwise imprinted with a legend substantially in the following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

 

A certificate shall not bear such legend if in the opinion of counsel satisfactory to the Company (it being agreed that Goodwin Procter LLP shall be satisfactory) the securities represented thereby may be publicly sold without registration under the Securities Act and any applicable state securities laws.

 

2.2                                Notice of Proposed Transfer .  Prior to any proposed transfer of any Restricted Stock (other than under the circumstances described in Sections 2.3, 2.4 or 2.5), the holder thereof shall give written notice to the Company of its intention to effect such transfer.  Each such notice shall describe the manner of the proposed transfer and, if requested by the Company, shall be accompanied by a written opinion of counsel satisfactory to the Company (it being agreed that Goodwin Procter LLP shall be satisfactory) to the effect that the proposed transfer may be effected without registration under the Securities Act and any applicable state securities laws, whereupon the holder of such stock shall be entitled under the securities laws to transfer

 

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such stock in accordance with the terms of its notice; provided , however , that no such opinion of counsel shall be required for a transfer to one or more partners of the transferor (in the case of a transferor that is a partnership), one or more members of the transferor (in the case of a transferor that is a limited liability company) or to an affiliated corporation (in the case of a transferor that is a corporation); and further provided, however , that any such transfer shall comply with any other applicable contractual obligations, including those set forth in the LLC Agreement.  Each certificate representing shares of Restricted Stock transferred as above provided shall bear the legend set forth in Section 2.1, except that such certificate shall not bear such legend if (i) such transfer is in accordance with the provisions of Rule 144 (or any other rule permitting public sale without registration under the Securities Act) or (ii) the written opinion of counsel referred to above is to the further effect that the transferee and any subsequent transferee (other than an affiliate of the Company) would be entitled to transfer such securities in a public sale without registration under the Securities Act.  The restrictions provided for in this Section 2.2 shall not apply to securities which are not required to bear the legend prescribed by Section 2.1 in accordance with the provisions of Section 2.1.

 

2.3                                Required Registration .  (a) At any time after the earlier of (x) six months after the closing of the Company’s Initial Public Offering or (y) the fourth anniversary of the date of this Agreement, the Investors who in the aggregate hold at least 50% of the total shares of Restricted Stock then outstanding may by written notice to the Company request the Company to register under the Securities Act all or any portion of the shares of Restricted Stock held by such requesting holder or holders for sale in the manner specified in such notice, provided that the reasonably anticipated aggregate price to the public of such public offering would exceed $5,000,000.  For purposes of this Section 2.3 and Sections 2.4 and 2.5, the term “ Restricted Stock ” shall be deemed to include the number of shares of Restricted Stock which would be issuable to a holder of Preferred Shares upon conversion of all shares of Preferred Shares held by such holder at such time; and provided , however , that, in any underwritten public offering contemplated by this Section 2.3 or Sections 2.4 and 2.5, the holders of Preferred Shares shall be entitled to sell such shares of Preferred Shares to the underwriters (with the underwriters’ approval) for conversion and sale of the shares of Common Stock issued upon conversion thereof.

 

(b)                                  Following receipt of a notice under Section 2.3(a), the Company shall promptly notify the Investors from whom notice has not been received.  The Company shall use its best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in any notice from requesting holders, the number of shares of Restricted Stock specified in such notice (and in all notices received by the Company from other Investors within 30 days after the giving of such notice by the Company).  If such method of disposition shall be an underwritten public offering, the holders of a majority of the shares of Restricted Stock to be sold in such offering shall designate the managing underwriter of such offering, subject to the approval of the Company, which shall not be unreasonably withheld or delayed.  The Company’s obligation to register, pursuant to this Section 2.3, Restricted Stock on a Registration Statement shall be deemed satisfied only when a Registration Statement covering all shares of Restricted Stock specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the requesting holders, shall have become effective and, if

 

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such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto.

 

(c)                                   In any Registration Statement requested pursuant to this Section 2.3, the Company shall be entitled to include, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account.  If such method of disposition shall be an underwritten public offering and in the opinion of the managing underwriter such inclusion would adversely affect the marketing of the Restricted Stock to be sold, then the Company shall reduce the number of shares of Common Stock to be sold by the Company for its own account to that number which, in the opinion of the managing underwriter, would not adversely affect the marketing of the Restricted Stock requested to be sold.  Except for Registration Statements on Form S-4 or Form S-8, or any successor thereto, or as provided in Section 2.3(b), the Company shall not file with the Commission any other Registration Statement with respect to its Common Stock, whether for its own account or that of other stockholders, from the date of receipt of a notice from requesting holders pursuant to this Section 2.3 until the completion of the period of distribution contemplated thereby.

 

2.4                                Incidental Registration .  If the Company at any time (other than pursuant to Section 2.3 or Section 2.5) proposes to register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to Registration Statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public or in connection with a Rule 145 transaction), each such time it will give written notice to all Investors of its intention so to do.  Upon the written request of any Investor, received by the Company within 30 days after the giving of any such notice by the Company, to register any of its Restricted Stock, the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the Registration Statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the holder of such Restricted Stock so registered.  In the event that any registration pursuant to this Section 2.4 shall be, in whole or in part, an underwritten public offering of Common Stock, and the managing underwriter determines in good faith that the inclusion of all shares requested to be registered would adversely affect the offering, the number of shares that may be included in the underwriting shall be allocated first, to the Company; second, to the Investors requesting to register shares in such underwritten public offering on a pro rata basis based on the total number of shares of Restricted Stock held by the Investors requesting to register shares in such underwritten public offering; and third, to any other stockholder of the Company on a pro-rata basis; provided , however , that in no event may less than one-third of the total number of shares of Common Stock to be included in such underwriting, other than the Company’s Initial Public Offering, be made available for shares of Restricted Stock.  Notwithstanding the foregoing provisions, the Company may withdraw any Registration Statement referred to in this Section 2.4 without thereby incurring any liability to the holders of Restricted Stock.

 

2.5                                Registration on Form S-3 .  If at any time (i) one or more Investors who holds Restricted Stock request that the Company file a Registration Statement on Form S-3 or any successor thereto for a public offering of all or any portion of the shares of Restricted Stock

 

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held by such requesting holder or holders, the reasonable anticipated aggregate price to the public which would exceed $2,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, then the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Restricted Stock specified in such notice.  Whenever the Company is required by this Section 2.5 to use its best efforts to effect the registration of Restricted Stock, each of the procedures and requirements of Section 2.3 (including but not limited to the requirement that the Company notify all Investors from whom notice has not been received and provide them with the opportunity to participate in the offering) shall apply to such registration; provided, however , that there shall be no limitation on the number of registrations on Form S-3 which may be requested and obtained under this Section 2.5; and provided further, however , that in any Registration Statement requested pursuant to this Section 2.5, the Company shall be entitled to include for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account, except as and to the extent that, if such method of disposition shall be an underwritten public offering, in the opinion of the managing underwriter such inclusion would adversely affect the marketing of the Restricted Stock to be sold.

 

2.6                                Limitations .  The Company shall not be required to effect any registration within 120 days after the effective date of any other Registration Statement covering a firm commitment underwritten public offering in which the holders of Restricted Stock shall have been entitled to join pursuant to Section 2.4 and in which there shall have been effectively registered all shares of Restricted Stock as to which registration shall have been requested.  If at the time of any request to register Restricted Stock by Investors pursuant to Section 2.3 or 2.5, the Company is engaged or has plans to engage in a registered public offering or is engaged in any other activity which, in the good faith determination of the Company’s managing members, would be adversely affected by the requested registration, then the Company may at its option direct that such request be delayed for a period not in excess of 90 days from the date of such request, such right to delay a request to be exercised by the Company not more than once in any 12-month period.

 

2.7                                Registration Procedures .  If and whenever the Company is required by the provisions of Sections 2.3, 2.4 or 2.5 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will, as expeditiously as possible:

 

(a)                                  prepare and file with the Commission a Registration Statement (which, in the case of an underwritten public offering pursuant to Section 2.3, shall be on Form S-1 or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such Registration Statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided);

 

(b)                                  prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period specified in paragraph (a)

 

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above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such Registration Statement in accordance with the sellers’ intended method of disposition set forth in such Registration Statement for such period;

 

(c)                                   furnish to each seller of Restricted Stock and to each underwriter such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such Registration Statement;

 

(d)                                  use its best efforts to register or qualify the Restricted Stock covered by such Registration Statement under the securities or “blue sky” laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter reasonably shall request; provided, however , that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction;

 

(e)                                   use its best efforts to list the Restricted Stock covered by such Registration Statement with any securities exchange or over-the-counter market on which the Common Stock of the Company is then listed or quoted, as the case may be;

 

(f)                                    promptly provide a transfer agent and registrar for all such Restricted Stock not later than the effective date of such Registration Statement;

 

(g)                                   immediately notify each seller of Restricted Stock and each underwriter under such Registration Statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing (it being understood that the sellers of Restricted Stock agree upon receipt of such notice forthwith to cease making offers and sales of Restricted Stock pursuant to such Registration Statement or deliveries of the prospectus contained therein for any purpose until the Company has prepared and furnished such amendment or supplement to the prospectus as may be necessary so that, as thereafter delivered to purchasers of such Restricted Stock, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing);

 

(h)                                  if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration:  (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters, stating that such Registration Statement has become effective under the Securities Act and substantially to the effect that (A) to the knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been

 

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instituted or are pending or contemplated under the Securities Act, (B) the Registration Statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements contained therein), (C) nothing has come to the attention of such counsel during the course of their representation of the Company that leads them to believe that the Registration Statement, the related prospectus or any amendment or supplement thereof (except as to the financial statements (including the notes thereto) and schedules and other financial and statistical data contained or incorporated by reference therein as to which such counsel need not express any opinion or belief) at the time the Registration Statement became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the prospectus as of its date or the date on which the shares being offered are sold to the underwriters, or any later date on which the underwriters purchase shares subject to an over allotment option, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel expresses no comment as to any financial statements (including the notes thereto) and schedules and other financial or statistical data contained in the Registration Statement, the related prospectus or any amendment or supplement thereof), and (D) to such other effects as are customary and reasonably may be requested by counsel to the underwriters or by such seller or its counsel (it being understood that if a change in the laws of the United States has occurred, such opinion shall be in a form then customary for an underwritten public offering); and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the Registration Statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and

 

(i)                                      make available for inspection by each seller of Restricted Stock upon reasonable notice, any underwriter participating in any distribution pursuant to such Registration Statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, managing members and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement.

 

For purposes of Sections 2.7(a) and 2.7(b) and of Section 2.3(c), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby and 180 days after the effective date thereof.

 

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In connection with each registration hereunder, the sellers of Restricted Stock will (a) furnish to the Company in writing such information with respect to themselves, the Restricted Stock held by them and the proposed distribution by them as reasonably requested by the Company and its counsel in connection with such registration, (b) if participating in an underwritten offering, agree to sell Restricted Stock on the basis provided in any underwriting arrangements, and (c) complete and execute all questionnaires, powers of attorney, indemnities (for representations made by the sellers and otherwise in accordance with Section 2.9 hereof), underwriting agreements and other documents as may be required under the terms of such underwriting arrangements

 

In connection with each registration pursuant to Sections 2.3, 2.4 or 2.5 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company’s size and investment stature and as are consistent with the terms of this Agreement.

 

2.8                                Expenses .  The Company will pay all Registration Expenses in connection with each Registration Statement under Sections 2.3, 2.4 or 2.5; provided, however , that if an offering pursuant to any registration commenced pursuant to Sections 2.3 or 2.5 is abandoned and the Registration Statement withdrawn prior to being declared effective at the request of the selling stockholders (other than by reason, in whole or in part, of a material adverse change in, or adverse information pertaining to, the Company’s business, affairs, assets, results of operations, financial position, cash flows or prospects that was not known to the selling stockholders prior to the commencement of such registration, in which event the Company shall bear all Registration Expenses), such selling stockholders shall either bear, in proportion to the number of shares proposed to be sold by each, all Registration Expenses incurred and paid by the Company in conjunction with such registration or shall be deemed to have exercised their rights under the applicable Section.  All Selling Expenses in connection with each Registration Statement under Sections 2.3, 2.4 or 2.5 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree.

 

2.9                                Indemnification and Contribution .  (a)  In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each of its managing members, partners and officers, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act or Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or “blue sky” laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Restricted Stock was registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state

 

9



 

therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse each such seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however , that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such losses, claims, damages or liabilities if such settlement is effected without the consent of the Company, such consent not to be unreasonably withheld or delayed, nor shall the Company be liable in any such case if and to the extent that any such losses, claims, damages or liabilities arise solely out of or are based solely upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such seller in writing specifically for use in such Registration Statement or prospectus.

 

(b)                                  In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to this Agreement, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the Registration Statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement under which such Restricted Stock was registered under the Securities Act pursuant to this Agreement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however , that the indemnity agreement contained in this Section 2.9(b) shall not apply to amounts paid in settlement of any such losses, claims, damages or liabilities if such settlement is effected without the consent of such seller, such consent not to be unreasonably withheld or delayed; further provided, however , that such seller shall be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises solely out of or is based solely upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such Registration Statement or prospectus; and provided further, however , that the liability of each seller hereunder shall not in any event exceed the net proceeds received by such seller from the sale of Restricted Stock covered by such Registration Statement.

 

(c)                                   Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof,

 

10



 

but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 2.9 and shall only relieve it from any liability which it may have to such indemnified party under this Section 2.9 if and to the extent the indemnifying party is prejudiced by such omission.  In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2.9 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however , that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred.

 

(d)                                  In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 2.9 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.9 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 2.9; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, and the Company is responsible for the remaining portion; provided, however , that, in any such case, (A) no such holder will be required to contribute any amount in excess of the net proceeds received by such holder from the sale of all such Restricted Stock offered by it pursuant to such Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

 

2.10                         Changes in Common, Class A Preferred, Class B or Class Q .  If, and as often as, there is any change in the Common Stock, the Company’s Ordinary Common Shares (the “ Ordinary Shares ”), the Class A Preferred, the Class B or the Class Q by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation,

 

11



 

reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock, the Ordinary Shares, the Class A Preferred, the Class B or the Class Q as so changed.

 

2.11                         Rule 144 Reporting .  With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Stock to the public without registration, at all times after 90 days after any Registration Statement covering a public offering of securities of the Company under the Securities Act shall have become effective, the Company shall:

 

(a)                                  make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act;

 

(b)                                  use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

 

(c)                                   furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration.

 

2.12                         Suspension of Registration Obligation .  Notwithstanding the provisions of Section 2.3, the Company’s obligation to file a Registration Statement, or to cause such Registration Statement to become and remain effective, shall be suspended for a period not to exceed 90 days in any 12-month period if there exists at the time material non-public information relating to the Company which, in the reasonable opinion of the managing members of the Company, should not be disclosed.

 

2.13                         No Third Party Registration Rights .  The Company represents and warrants that, there currently are no holders of its securities entitled to registration rights.  The Company shall not, without the prior written consent of at least a majority of the then-outstanding Restricted Stock, grant to any third party any registration rights more favorable than or inconsistent with any of those contained herein, so long as any of the registration rights under this Agreement remains in effect.

 

ARTICLE III

 

COVENANTS OF THE COMPANY

 

3.1                                Financial Statements, Reports, Etc .  The Company shall prepare its financial information in accordance with generally accepted accounting principles.  The Company shall

 

12



 

furnish to each Investor for so long as the Investor is a holder of at least 1,000,000 Preferred Shares, Class B Shares, Class Q Shares or any combination thereof:

 

(a)                                  within 150 days after the end of each fiscal year of the Company an audited consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related audited consolidated statements of income, stockholders’ equity and cash flows for the fiscal year then ended, prepared in accordance with generally accepted accounting principles and certified by a firm of independent public accountants of recognized national standing selected by the managing members of the Company;

 

(b)                                  within 45 days after the end of each quarter in each fiscal year, financial information of the type specified by the Managers of the Company (or the comparable governing body of a successor entity of the Company) from time to time, which may include a consolidated balance sheet of the Company and its Subsidiaries and the related consolidated statements of income and cash flows, unaudited but prepared in accordance with generally accepted accounting principles (other than the lack of notes thereto), such consolidated balance sheet to be as of the end of such quarter, and such consolidated statements of income and cash flows to be for such quarter and for the period from the beginning of the fiscal year to the end of such quarter;

 

(c)                                   promptly following receipt by the Company, but in any event within 10 days of receipt thereof, each audit response letter, accountant’s management letter and other written report submitted to the Company by its independent public accountants in connection with an annual or interim audit of the books of the Company or any of its subsidiaries;

 

(d)                                  promptly after the commencement thereof, but in any event within 10 days of receipt of notice thereof, notice of all actions, suits, significant claims, proceedings, investigations and inquiries;

 

(e)                                   promptly upon sending, making available or filing the same, all press releases, reports, financial statements, or other correspondence or information that the Company sends or makes available to its stockholders or managing members, committee members or files with the Commission; and

 

(f)                                    promptly, from time to time, such other information regarding the business, financial condition, operations, property or affairs of the Company and its subsidiaries as such Investor reasonably may request.

 

3.2                                Corporate Existence .  The Company shall maintain and cause each of its subsidiaries, if any, to maintain their respective corporate existence, rights and franchises in full force and effect.

 

3.3                                Properties, Business, Insurance .  The Company shall keep and cause each of its Subsidiaries to keep its properties and those of its Subsidiaries in good repair, working order and condition.  The Company shall maintain and cause each of its Subsidiaries to maintain as to their respective properties and business, with insurance companies reasonably believed by the

 

13



 

Company to be financially sound and reputable insurers, insurance against such casualties and contingencies and of such types and in such amounts as is customary for companies similarly situated, which insurance shall be deemed by the Company to be sufficient.  The Company shall not cause or permit any assignment or change in beneficiary and shall not borrow against such policy.  If requested by Investors holding at least a majority of the outstanding Preferred Shares, the Company will add up to two designees of such Investors as a notice party for such policy and shall request that the issuer of such policy provide such designee with 10 days’ notice before such policy is terminated (for failure to pay premiums or otherwise) or assigned or before any change is made in the beneficiary thereof.

 

3.4                                Inspection, Consultation and Advice .  The Company shall permit and cause each of its Subsidiaries to permit each Investor and its representatives, at such Investor’s expense, as the case may be, to visit and inspect any of the properties of the Company and its Subsidiaries, examine their books and take copies and extracts therefrom, discuss the affairs, finances and accounts of the Company and its subsidiaries with their officers, employees and public accountants (and the Company hereby authorizes said accountants to discuss with such Investor, as the case may be, and such designees such affairs, finances and accounts), and consult with and advise the management of the Company and its subsidiaries as to their affairs, finances and accounts, all at reasonable times and upon reasonable notice.

 

3.5                                Restrictive Agreements Prohibited .  Neither the Company nor any of its Subsidiaries shall become a party to any agreement which by its terms restricts the Company’s performance of any of the Transaction Documents or the LLC Agreement.

 

3.6                                Expenses of Managers .  The Company shall promptly reimburse in full, each Manager (as defined in the LLC Agreement) of the Company for all of his reasonable out-of-pocket expenses incurred in attending each meeting of the Managers of the Company or any committee thereof.

 

3.7                                Employee and Consultant Agreements .  The Company shall obtain, and shall cause its subsidiaries, if any, to use their best efforts to obtain, an Employee Non-Competition, Non-Disclosure, Non-Solicitation and Developments Agreement substantially in the form of Exhibit A from each of the officers of the Company, each key employee and each other employee now employed upon the earlier of (i) their initial employment by the Company or any of its subsidiaries, if any, or (ii) the granting of options to such employees to purchase Reserved Employee Shares.  The Company shall obtain, and shall cause its subsidiaries, if any, to use their best efforts to obtain, a Consultant Non-Competition, Non-Disclosure, Non-Solicitation and Developments Agreement in a form of Exhibit B from all consultants to the Company, upon their retention by the Company or any of its subsidiaries, if any.

 

3.8                                Activities of Subsidiaries .  Unless approved by the holders of a majority of the outstanding Preferred Shares, the Company will not organize or acquire any entity that is a subsidiary unless such subsidiary is wholly owned (directly or indirectly) by the Company.  Unless approved by the holders of a majority of the outstanding Preferred Shares, the Company shall not sell or otherwise transfer any shares of capital stock of any subsidiary, except to the Company or another subsidiary, or permit any subsidiary to issue, sell or otherwise transfer any

 

14



 

shares of its capital stock or the capital stock of any subsidiary, except to the Company or another subsidiary.  Unless approved by the holders of a majority of the outstanding Preferred Shares, the Company shall not permit any subsidiary to purchase or set aside any sums for the purchase of, or pay any dividend or make any distribution on, any shares of its stock, except for dividends or other distributions payable to the Company or another subsidiary.

 

3.9                                Keeping of Records and Books of Account .  The Company shall keep, and cause each subsidiary to keep, adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company and such subsidiary, and in which, for each fiscal year, all proper reserves required under generally accepted accounting principles consistently applied for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

 

3.10                         U.S. Real Property Interest .  The Company shall provide prompt written notice to each Investor following any “determination date” (as defined in Treasury Regulation Section 1.897-2(c)(i)(ii)) on which the Company or a subsidiary, if any, becomes a United States real property holding corporation.  In addition, upon a written request by any Investor, the Company shall provide such Investor with a written statement informing such Investor whether such Investor’s interest in the Company constitutes a U.S. real property interest.  The Company’s determination shall comply with the requirements of Treasury Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company shall provide timely notice to the Internal Revenue Service, in accordance with and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any successor regulation, that such statement has been made.  The Company’s written statement to any Investor shall be delivered to such Investor within 10 days of such Investor’s written request therefor.  The Company’s obligation to furnish a written statement pursuant to this Section 3.10 shall continue notwithstanding the fact that a class of the Company’s stock may be regularly traded on an established securities market.

 

ARTICLE IV

 

MISCELLANEOUS

 

4.1.                             Termination .  The right of a holder of Restricted Stock to request registration pursuant to Sections 2.3, 2.4 or 2.5 shall terminate with respect to such holder of Restricted Stock when, after the completion of the Initial Public Offering, such holder (together with all of such holder’s affiliates) owns less than one percent (1%) of the outstanding Common Stock.

 

(b)                                  Covenants .  Each of the covenants set forth in Article III of this Agreement shall terminate and be of no further force or effect as to an Investor only when such Investor no longer owns any Preferred Shares originally purchased by such Investor; provided, however , that the covenants set forth in Article III shall terminate and be of no further force or effect as to all of the Investors upon the completion of the Initial Public Offering.

 

4.2                                Entire Agreement .  This Agreement and the Purchase Agreement together with all exhibits and schedules to the various agreements, constitute the entire agreement among the

 

15



 

parties hereto pertaining to the subject matter hereof and, subject to the terms and conditions herein, supersede all prior and contemporaneous agreements and understandings, whether oral or written, of any of the parties hereto with respect thereto.

 

4.3                                Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.  This Agreement may be executed and transmitted by facsimile, which signature shall be binding upon the parties as if they were original signatures.  Upon such execution such party will deliver an original signature to the other party concurrently by Federal Express or similar generally recognized overnight carrier.

 

4.4                                Applicable Law .  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the choice of law rules thereof.

 

4.5                                Severability .  If any provision of this Agreement is invalid, illegal or unenforceable, that provision will, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the Parties as expressed herein.  If such a modification is not possible, the Parties shall negotiate in good faith a modification of such provision that reflects as closely as possible the economic purpose of the invalid, illegal or unenforceable provision.  If no agreement with respect to such modification is reached, the invalid, illegal or unenforceable provision will be severed from this Agreement.  In any case, the validity, legality and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby for so long as the economic or legal substance of the transactions contemplated hereby is not effected in any manner materially adverse to any party.

 

4.6                                Several Liability . The obligations of the Purchasers under this Agreement are several.  No Purchaser shall have any liability for any breach of this Agreement by any other Purchaser.

 

4.7                                Specific Performance .  In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each of the parties hereto shall be entitled to specific performance of the agreements and obligations hereunder of the Company and the other parties hereto and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction.

 

4.8                                Notices .  All notices to be given or otherwise made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument, delivered by hand in person, by express overnight courier service, or by electronic facsimile transmission (with a confirming copy sent by mail, first class, postage prepaid mail), or by registered or certified mail, return receipt requested, postage prepaid, addressed to such party at the address set forth in Schedule I of the Purchase Agreement or at such other address as may hereafter be designated in writing to the Company by the addressee.  All notices shall be considered to be delivered five (5) days after dispatch in the event of first class or registered mail, and on the next succeeding business day in the event of facsimile transmission (with confirmation of receipt) or overnight courier service.

 

16



 

4.9                                Entire Agreement; Amendment .  This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof.  No provision of this Agreement may be amended, modified or waived except by an instrument in writing executed by the Company and the holders of at least a majority of the then-outstanding Preferred Shares; provided, however , that the provisions of Article II may not be amended, modified or waived except by an instrument in writing executed by the Company and holders of a majority of the then outstanding shares of Restricted Stock; and provided further, however , that any party may waive its rights under any provision of this Agreement by delivering to the Company an instrument in writing executed by such party.  No waiver hereunder shall be deemed a waiver of any subsequent breach or default of the same or similar nature.  Upon the effectiveness of this Agreement, the Prior Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement, and shall be of no further force or effect.  Each Investor hereby waives any and all rights that such Investor may have related to any breach by the Company of the Prior Agreement.

 

4.10                         Assignment; Binding Effect .  All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any shares of Preferred Shares or Restricted Stock), whether so expressed or not; provided , however , that as a condition to the effectiveness of such transfer, the transferee shall agree in writing to be bound by the provisions of this Agreement.

 

4.11                         Aggregation of Stock .  All shares of Restricted Stock held or acquired by affiliates of an Investor (which, with respect to T. Rowe Price Small-Cap Value Fund, Inc.,  T. Rowe Price U.S. Small-Cap Value Equity Trust and T. Rowe Price U.S. Equities Trust  (collectively, “ TRP ”) only, shall include registered investment companies and accounts under common management of a registered investment adviser to which TRP has transferred such shares of Restricted Stock in accordance with the terms of this Agreement) shall be aggregated together for the purposes of determining the availability of any rights under the Agreement for such Investor.

 

4.12                         Additional Investors .  Notwithstanding anything to the contrary contained herein, if the Company issues additional Preferred Shares or Ordinary Shares after the date hereof, any purchaser of such Preferred Shares or Ordinary Shares may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder.  No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

17


 

 

IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first above written.

 

 

 

COMPANY

 

 

 

AQUAVENTURE HOLDINGS LLC

 

 

 

 

 

/s/ John F. Curtis

 

By: John Curtis

 

Title: President and CEO

 

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first above written.

 

 

 

T. ROW PRICE ASSOCIATES, INC.,

 

As Investment Adviser to and on behalf of:

 

T. ROWE PRICE SMALL-CAP VALUE FUND, INC.

 

 

 

 

 

/s/ J. David Wagner

 

Name: J. David Wagner

 

Title: Vice President

 

 

 

 

 

T. ROWE PRICE ASSOCIATES, INC.,

 

As Investment Adviser to and on behalf of:

 

T. ROWE PRICE U.S. SMALL-CAP VALUE EQUITY TRUST

 

 

 

 

 

/s/ J. David Wagner

 

Name: J. David Wagner

 

Title: Vice President

 

 

 

 

 

T. ROWE PRICE ASSOCIATES, INC.,

 

As Investment Adviser to and on behalf of:

 

T. ROWE PRICE U.S. EQUITIES TRUST

 

 

 

 

 

/s/ J. David Wagner

 

Name: J. David Wagner

 

Title: Vice President

 

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

 

 

INVESTORS

 

 

 

 

 

 

DFJ ELEMENT, L.P.

 

DFJ ELEMENT INTRAFUND, L.P.

By:

DFJ Element Partners, LLC

 

By:

DFJ Element Partners, LLC

Its:

General Partner

 

Its:

General Partner

By:

Element Venture Partners, LLC

 

By:

Element Venture Partners, LLC

Its:

Managing Member

 

Its:

Managing Member

 

 

 

 

 

 

By:

/s/ Michael J. Bevan

 

By:

/s/ Michael J. Bevan

 

Name:  Michael Bevan

 

 

Name:  Michael Bevan

 

Title:    Managing Member

 

 

Title:    Managing Member

 

 

 

 

 

 

 

 

JABE, LLC

 

 

 

 

 

 

 

 

By:

/s/ Timothy C. Draper

 

 

Name:

Timothy C. Draper

 

 

Title:

Managing Member

 

 

 

 

 

 

ELEMENT PARTNERS II, L.P.

 

ELEMENT PARTNERS II INTRAFUND, L.P.

 

 

 

By:

Element Partners II G.P., L.P.

 

By:

Element Partners II G.P., L.P.

Its:

General Partner

 

Its:

General Partner

 

 

 

 

 

By:

Element II G.P., LLC

 

By:

Element II G.P., LLC

Its:

General Partner

 

Its:

General Partner

 

 

 

 

 

 

 

 

 

 

By:

/s/ Michael J. Bevan

 

By:

/s/ Michael J. Bevan

Name:

Michael Bevan

 

Name:

Michael Bevan

Title:

Managing Member

 

Title:

Managing Member

 

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

 

/s/ DRB

 

Douglas R. Brown

 

 

 

DRB PURE WATER SOLUTIONS IV LLC

 

 

 

 

 

By:

/s/ DRB

 

Name: Douglas R. Brown

 

Title: Manager

 

 

 

DRB PURE WATER SOLUTIONS III LLC

 

 

 

 

 

By:

/s/ DRB

 

Name: Douglas R. Brown

 

Title: Manager

 

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

 

/s/ John F. Curtis

 

John Curtis

 

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

 

/s/ Lyman B. Dickerson

 

Lyman Dickerson

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

 

/s/ Frances S. Brown

 

Frances S. Brown

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

 

GUAYACÁN PRIVATE EQUITY FUND LIMITED PARTNERSHIP II

 

 

 

By: Advent-Morro Equity Partners GP II, LLC, its General Partner

 

 

 

 

 

By:

/s/ Cyril Meduna

 

 

Name: Cyril L. Meduña

 

 

Title: Manager

 

 

 

GUAYACÁN PRIVATE EQUITY FUND LIMITED PARTNERSHIP II-A BLOCKER LLC

 

 

 

 

 

By:

/s/ Cyril Meduna

 

 

Name: Cyril L. Meduña

 

 

Title: President

 

 

 

VENTURE CAPITAL FUND, INC.

 

 

 

 

 

By:

/s/ Cyril Meduna

 

 

Name: Cyril L. Meduña

 

 

Title: President

 

 

 

 

 

/s/ Cyril Meduna

 

Cyril L. Meduña

 

 

 

 

 

/s/ David A. Ashe

 

David A. Ashe

 

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

 

/s/ Hugh Evans

 

Hugh Evans

 

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 



 

 

Quench USA Holdings LLC

 

 

 

 

 

By:

/s/ Anthony Ibarguen

 

 

Name: Anthony Ibarguen

 

 

Title: Chief Executive Officer

 

 

Signature Page to Fourth Amended and Restated Investor Rights Agreement

 


 

 

Schedule I

 

SCHEDULE OF INVESTORS

 

Name and

Address of Investor

 

DFJ Element, L.P.

Three Radnor Corp. Ctr., Suite 410

100 Matsonford Road

Radnor, PA 19087

 

DFJ Element Intrafund, L.P.

Three Radnor Corp. Ctr., Suite 410

100 Matsonford Road

Radnor, PA 19087

 

JABE, LLC

Three Radnor Corp. Ctr., Suite 410

100 Matsonford Road

Radnor, PA 19087

 

Element Partners II, L.P.

Three Radnor Corp. Ctr., Suite 410

100 Matsonford Road

Radnor, PA 19087

 

Element Partners II Intrafund, L.P.

Three Radnor Corp. Ctr., Suite 410

100 Matsonford Road

Radnor, PA 19087

 

Douglas R. Brown

196 Beacon Street, Suite 3

Boston, Massachusetts 02116

 

DRB Pure Water Solutions LLC

196 Beacon Street, Suite 3

Boston, Massachusetts 02116

 

Frances S. Brown

2 Commonwealth Avenue

Boston, Massachusetts 02116

 



 

Name and

Address of Investor

 

Virgin Green Fund I, L.P.

Walkers House

87 Mary Street

George Town, Grand Cayman KY1-9002

Cayman Islands

 

With a copy to:

 

VGF Advisers (US) LLC

27 South Park Street, Suite 200

San Francisco, CA 94107

 

Guayacán Private Equity Fund Limited Partnership II

c/o Cyril L. Meduña

President

Advent-Morro Equity Partners

206 Calle Tetuan - Suite 903

San Juan, Puerto Rico 00902

Tel: 787-725-5285

Fax: 787-721-1735

 

Guayacán Private Equity Fund Limited Partnership II-A Blocker LLC

c/o Cyril L. Meduña

President

Advent-Morro Equity Partners

206 Calle Tetuan - Suite 903

San Juan, Puerto Rico 00902

Tel: 787-725-5285

Fax: 787-721-1735

 

Brooke Private Equity Advisors Fund I-A, L.P.

c/o Christopher Austen

Brooke Private Equity Advisors

84 State Street, Suite 320

Boston, MA 02109Telephone: 617.227.3160

Fax: 617.227.4128

 

Brooke Private Equity Advisors Fund I (D), L.P.

c/o Christopher Austen

Brooke Private Equity Advisors

84 State Street, Suite 320

Boston, MA 02109Telephone: 617.227.3160

Fax: 617.227.4128

 



 

Name and

Address of Investor

 

John F. Curtis

6 Tower Drive

Dover, MA 02030

 

Mario Mondo

14122 Waterville Circle

Tampa, FL 33626

 

Allan Pott

12674 Silverdale Street

Tampa, Fl 33626

 

Jeffrey R. Lentz

7 Granli Drive

Andover, MA 01810

 

Brian P. Hernon

81 Holly Berry Lane

Hanover, MA 02339

 

L. Bryan Brister

3923 Yellow Finch Lane

Lutz, FL 33558

 

Waukesha State Bank as Trustee of the Lloyd J. Dickinson IRA

Attn: WMS - Theresa Guthrie

Waukesha State Bank

P.O. Box 648

Milwaukee, WI 53187-0648

 

With a copy to:

 

Lloyd J. Dickinson

2601 N. Wahl Ave.

Milwaukee, WI 53211

 

David S. Hellerman

7453 West Shore Drive

Edina, MN 55435

 



 

Name and

Address of Investor

 

Frederick Hung

6200 Frydenhoj Estate,

Suite 4

St. Thomas, VI 00802

 

With a copy to:

 

Waukesha State Bank as Trustee of the Kwok Hing Frederick Hung Rollover IRA, the Kwok Hing Frederick Hung Roth IRA and Katherine Hintz Roth IRA

Attn: WMS - Theresa Guthrie

Waukesha State Bank

P.O. Box 648

Milwaukee, WI 53187-0648

 

Lee M. Jacobsohn

4248 Dupont Avenue South

Minneapolis, MN 55409

 

Neil Prior

Atlantic Tele-Network Inc.

9719 Estate Thomas

St. Thomas, VI 00802

 

Michael J. Thornton

5116 Irving Avenue South

Minneapolis, MN 55419

 

Shawn Meyer-Steele

2270 SW 27 th  Way

Miami, FL 33133

 

Edward A. Fuller

c/o Central Park Properties

112 Peabody Road

Birmingham, MI  48009

Attention: Edward A. Fuller

 

Don S. Morrow

4509 Knight Road, Suite B-1

Macon, GA. 31220

 

Michael J. Thornton

5116 Irving Avenue South

Minneapolis, MN 55419

 



 

Name and

Address of Investor

 

Robert A. Bergstrom Sr. Trust

5001 East Main Street, #967

Mesa, AZ 85205

 

Thomas J. O’Brien

9584 26th Bay St.

Norfolk, VA 23518

 

Quench USA Holdings LLC

780 5th Avenue, Suite 200

King of Prussia, PA 19046

 

T. Rowe Price Small-Cap Fund, Inc.

c/o T. Rowe Price Associates, Inc.

100 East Pratt Street

Baltimore, MD 21202

 

T. Rowe Price U.S. Equities Trust

c/o T. Rowe Price Associates, Inc.

100 East Pratt Street

Baltimore, MD 21202

 

T. Rowe Price U.S. Small-Cap Value Equity Trust

c/o T. Rowe Price Associates, Inc.

100 East Pratt Street

Baltimore, MD 21202

 

Hugh Evans

333 Three D Systems Circle

Rock Hill, SC 29730

 


 

 

Exhibit A

 

FORM OF EMPLOYEE NON-COMPETITION,

NON-DISCLOSURE, NON-SOLICITATION

AND DEVELOPMENTS AGREEMENT

 



 

AQUAVENTURE HOLDINGS LLC

 

Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

 

In consideration and as a condition of my employment or continued employment by AquaVenture Holdings LLC (the “Company”), I (“employee”) agree:

 

(a)   to disclose and assign to the Company (or as the Company may direct) as its exclusive property, all inventions, discoveries, innovations, improvements, trade secrets and technical or business information which I may solely or jointly develop, conceive, reduce to practice or author during the period of my employment (1) that relate to the business or the present or demonstrated or reasonably foreseeable future research or development of the Company or its parent, subsidiaries or affiliates, or (2) that result from or are suggested by any work that I may do for the Company or its parent, subsidiaries or affiliates or (3) that are otherwise made through the use of Company, or its parent, subsidiaries or affiliates, time, equipment, supplies, facilities, material or secret* or confidential* information or data.  To the extent that any court of competent jurisdiction finds that any provision of this paragraph is unenforceable because it requires the assignment of any invention in contravention of the law or public policy of that jurisdiction, this paragraph shall be interpreted to impose only the maximum permissible assignment obligation;

 

(b)   that all original works of authorship that are made by me (solely or jointly with others) within the scope of my employment and that are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C. Sec.101) and I further agree, to the extent any such work is determined not to be a “work made for hire,” that I will disclose and assign to the Company (or as the Company may direct) as its exclusive property any such original work of authorship;

 

(c)   to execute, upon the request of the Company, all necessary papers and otherwise provide proper assistance (at the Company’s expense), during and subsequent to my employment, to enable the Company to obtain for itself or its nominees, patents, copyrights, or other legal protection for such inventions, discoveries, innovations, improvements, original works of authorship, trade secrets and technical or business information in any and all countries;

 

(d)   to make and maintain for the Company adequate and current written records of all such inventions, discoveries, innovations, improvements, original works of authorship, trade secrets and technical or business information;

 

(e)   at the Company’s request, or upon any termination of my employment to deliver to the Company promptly all items that belong to the Company or its parent, subsidiaries or affiliates or that by their nature are for the use of Company employees only, including, without limitation, all written and other materials that are of a secret* or confidential* nature relating to the business of the Company or its affiliates;

 

(f)   not to use, publish or otherwise disclose (except as my Company duties may require), either during or subsequent to my employment, any secret* or confidential* information or data of the Company or its parent, subsidiaries or affiliates or any information or data of others that the Company or its parent, subsidiaries or affiliates are obligated to maintain in confidence;

 

(g)   not to disclose or use in my work with the Company any secret* or confidential* information of others (including any prior employers), or any inventions or innovations of my own that are not included within the scope of this agreement;

 

(h)   that the Company may, at any time and without further consent, access and monitor my usage of Company information and resources, including but not limited to: computers, computer software, electronic mail, on-line services, voice mail, facsimile machines, telephones and photocopiers;

 

(i)    that my employment with the Company is “at will” and that both the Company and I have the right to terminate my employment at any time, with or without advance notice and with or without cause;

 



 

(j)    that during my employment and for a period of twelve (12) months following the termination of my employment for any reason (the “Restricted Period”), I will not, without first notifying the Company and obtaining its prior written consent, directly or indirectly, whether as owner, partner, shareholder, director, consultant, agent, employee, co-venturer or otherwise, engage, participate or invest in any business activity anywhere in Mexico or the geographic region commonly known as the Caribbean that (i) develops, manufactures or markets products which are related to desalination and water purification, or (ii) develops, manufactures or markets any products, or performs any services, that are otherwise competitive with or similar to the products or services of the Company, or products or services that the Company has under development or that are the subject of active planning at any time during my employment.  Upon such notice to the Company, if I am: (a) currently receiving severance payments from the Company during the Restricted Period in accordance with the terms of my employment agreement, then the Company shall be entitled to withhold its consent, provided that, the Company continues to provide severance payments to me in accordance with the terms of my employment agreement for the remainder of the Restricted Period, or (b) not receiving severance payments from the Company during the Restricted Period, then the Company shall have the option of either: (x) withholding its consent and paying me my base salary in effect at the time of my termination from the date of such notice for the remainder of the Restricted Period in accordance with the Company’s normal payroll practices, or (y) consenting.  Upon receipt of any notice delivered pursuant to this Section (j), the Company shall have thirty (30) days to provide a written response to such notice.  In addition, during the Restricted Period, I will not, directly or indirectly, in any manner, other than for the benefit of the Company, (A) call upon, solicit, divert or take away any of the customers, business or prospective customers of the Company or any of its suppliers, and/or (B) solicit, entice or attempt to persuade any other employee or consultant of the Company to leave the services of the Company for any reason.  I acknowledge and agree that if I violate any of the provisions of this Section (j), the running of the Restricted Period will be extended by the time during which I engage in such violation(s).

 

This agreement supersedes and replaces any existing agreement between the Company and me relating generally to the same subject matter.  This agreement may not be modified or terminated, in whole or part, except in writing signed by an authorized representative of the Company. Discharge of my undertakings in this agreement shall be an obligation of my executors, administrators, or other legal representatives or assigns.   In the event that any court of competent jurisdiction concludes that any provision (or portion of any provision) of this agreement is unenforceable because it conflicts with the law or public policy of that jurisdiction, the parties agree that the court should first narrow or otherwise interpret the provision to the extent necessary to conform it to the law or public policy of that jurisdiction.  In the event that the court concludes that it is unable to narrow or otherwise interpret the provision so that it is neither invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

 

I represent that, except as stated below, I have no agreements with or obligations to others in conflict with the foregoing.

 


*These terms are used in the ordinary sense and do not refer to the official security classifications of the United States Government.  The Company generally considers “secret” or “confidential” any information or data that is not generally known - regardless of whether such information or data is in oral, written, machine readable or other form.  When in doubt, you should assume that information or data is secret or confidential unless or until determined otherwise.  Without limitation, examples of information or data that may be of a secret or confidential nature are: drawings, manuals, notebooks, reports, models, inventions, formulas, processes, machines, compositions, computer programs, accounting methods, business plans and information systems.  For further information, you should consult your Company’s assigned legal counsel.

 

[Signature Page Follows]

 



 

TYPE OR PRINT IN INK

 

Full Name

 

 

Component

 

 

 

 

Social Security No.

 

 

Location

 

 

 

 

 

 

 

 

(Signed)

 

Witness (The employee’s immediate manager or other appropriate representative of the Company)

 

(Employee’s signature — to include employee’s first name in full)

 

 

 

 

 

Employee’s Position

 

Date

 

 

 

Countersigned - Authorized Company Representative (Required only when this agreement supersedes prior agreement)

 

 

The following are the only agreements to which I am a party that may be in conflict with the obligations undertaken above:

 

 

 

 

 

 

 

 

Signature Page to Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

 


 

 

Exhibit B

 

 

FORM OF CONSULTANT NONDISCLOSURE,

NON-SOLICITATION AND DEVELOPMENTS AGREEMENT

 



 

AQUAVENTURE HOLDINGS LLC

 

Independent Contractor Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

 

In consideration and as a condition of my engagement as an independent contractor by AquaVenture Holdings LLC (the “Company”), I (“consultant”) agree:

 

(a)   to disclose and assign to the Company (or as the Company may direct) as its exclusive property, all inventions, discoveries, innovations, improvements, trade secrets and technical or business information which I may solely or jointly develop, conceive, reduce to practice or author during the period of my engagement (1) that relate to the business or the present or demonstrated or reasonably foreseeable future research or development of the Company or its parent, subsidiaries or affiliates, or (2) that result from or are suggested by any work that I may do for the Company or its parent, subsidiaries or affiliates or (3) that are otherwise made through the use of Company, or its parent, subsidiaries or affiliates, time, equipment, supplies, facilities, material or secret* or confidential* information or data.  To the extent that any court of competent jurisdiction finds that any provision of this paragraph is unenforceable because it requires the assignment of any invention in contravention of the law or public policy of that jurisdiction, this paragraph shall be interpreted to impose only the maximum permissible assignment obligation;

 

(b)   that all original works of authorship that are made by me (solely or jointly with others) within the scope of my engagement and that are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C. Sec.101) and I further agree, to the extent any such work is determined not to be a “work made for hire,” that I will disclose and assign to the Company (or as the Company may direct) as its exclusive property any such original work of authorship;

 

(c)    to execute, upon the request of the Company, all necessary papers and otherwise provide proper assistance (at the Company’s expense), during and subsequent to my engagement, to enable the Company to obtain for itself or its nominees, patents, copyrights, or other legal protection for such inventions, discoveries, innovations, improvements, original works of authorship, trade secrets and technical or business information in any and all countries;

 

(d)   to make and maintain for the Company adequate and current written records of all such inventions, discoveries, innovations, improvements, original works of authorship, trade secrets and technical or business information;

 

(e)   at the Company’s request, or upon any termination of my engagement to deliver to the Company promptly all items that belong to the Company or its parent, subsidiaries or affiliates or that by their nature are for the use of Company personnel (including independent contractors) only, including, without limitation, all written and other materials that are of a secret* or confidential* nature relating to the business of the Company or its affiliates;

 

(f)    not to use, publish or otherwise disclose (except as my Company duties may require), either during or subsequent to my engagement, any secret* or confidential* information or data of the Company or its parent, subsidiaries or affiliates or any information or data of others that the Company or its parent, subsidiaries or affiliates are obligated to maintain in confidence;

 

(g)   not to disclose or use in my work with the Company any secret* or confidential* information of others (including any prior employers), or any inventions or innovations of my own that are not included within the scope of this agreement;

 

(h)   that the Company may, at any time and without further consent, access and monitor my usage of Company information and resources, including but not limited to: computers, computer software, electronic mail, on-line services, voice mail, facsimile machines, telephones and photocopiers;

 

(i)    that during my engagement and for a period of thrity-six (36) months following the termination of my engagement for any reason (the “Restricted Period”), I will not, without first notifying the Company and

 



 

obtaining its prior written consent, directly or indirectly, whether as owner, partner, shareholder, director, consultant, agent, employee, co-venturer or otherwise, engage, participate or invest in any business activity anywhere in Mexico or the geographic region commonly known as the Caribbean that (i)  develops, manufactures or markets products which are related to desalination and water purification, or (ii) develops, manufactures or markets any products, or performs any services, that are otherwise competitive with or similar to the products or services of the Company, or products or services that the Company has under development or that are the subject of active planning at any time during my employment.  In addition, during the Restricted Period, I will not, directly or indirectly, in any manner, other than for the benefit of the Company, (A) call upon, solicit, divert or take away any of the customers, business or prospective customers of the Company or any of its suppliers, and/or (B) solicit, entice or attempt to persuade any other employee or consultant of the Company to leave the services of the Company for any reason.   I acknowledge and agree that if I violate any of the provisions of this Section (i), the running of the Restricted Period will be extended by the time during which I engage in such violation(s).

 

This agreement supersedes and replaces any existing agreement between the Company and me relating generally to the same subject matter.  This agreement may not be modified or terminated, in whole or part, except in writing signed by an authorized representative of the Company. Discharge of my undertakings in this agreement shall be an obligation of my executors, administrators, or other legal representatives or assigns.   In the event that any court of competent jurisdiction concludes that any provision (or portion of any provision) of this agreement is unenforceable because it conflicts with the law or public policy of that jurisdiction, the parties agree that the court should first narrow or otherwise interpret the provision to the extent necessary to conform it to the law or public policy of that jurisdiction.  In the event that the court concludes that it is unable to narrow or otherwise interpret the provision so that it is neither invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

 

I represent that, except as stated below, I have no agreements with or obligations to others in conflict with the foregoing.

 


*These terms are used in the ordinary sense and do not refer to the official security classifications of the United States Government.  The Company generally considers “secret” or “confidential” any information or data that is not generally known - regardless of whether such information or data is in oral, written, machine readable or other form.  When in doubt, you should assume that information or data is secret or confidential unless or until determined otherwise.  Without limitation, examples of information or data that may be of a secret or confidential nature are: drawings, manuals, notebooks, reports, models, inventions, formulas, processes, machines, compositions, computer programs, accounting methods, business plans and information systems.  For further information, you should consult your Company’s assigned legal counsel.

 

[Signature Page Follows]

 



 

TYPE OR PRINT IN INK

 

Full Name

 

 

Component

 

 

 

 

Social Security No.

 

 

Location

 

 

 

 

 

 

 

 

(Signed)

 

Witness (The contractor’s immediate manager or other contractor’s first appropriate representative of the Company)

 

(Contractor’s signature - to include name in full)

 

 

 

 

 

Contractor’s Position

 

Date

 

 

 

Countersigned - Authorized Company Representative (Required only when this agreement supersedes prior agreement)

 

 

The following are the only agreements to which I am a party that may be in conflict with the obligations undertaken above:

 

 

 

 

 

 

 

 

Signature Page to Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

 


 



Exhibit 10.4

 

AQUA VENTURE HOLDINGS LLC

 

January 5, 2007

 

PERSONAL AND CONFIDENTIAL

 

Douglas R. Brown

2 Commonwealth Avenue

Boston, MA 02116

 

Dear Mr. Brown:

 

AquaVenture Holdings LLC (the “ LLC ”) and AquaVenture Management Company Inc. (the “ Company ”) are pleased that you have agreed to join the LLC, the Company and their affiliates after the closing of the financing.  You will be employed by the Company and serve as the full-time President and Chief Executive Officer of the Company.  In addition, you will serve as the Chief Executive Officer of the LLC.  During the term of your employment, you will devote at least 50% of your business time, energies, skills and attention to the business and affairs of the Company and its affiliates, provided that you may engage in other outside activities that (whether individually or in the aggregate) do not interfere with the fulfillment of your obligations and responsibilities to the Company and its affiliates.

 

Your salary will be paid at an initial rate sufficient to cover your portion of all costs associated with your participation in the Company’s benefit plans with net after-tax dollars.  If you choose not to participate in certain of the Company’s benefit plans but instead choose to participate in other non-Company benefit plans, your salary will be adjusted so that you receive an after-tax amount sufficient to enable you to pay the costs associated with your participation in such other non-Company benefit plans.  You will be paid in accordance with the Company’s normal payroll practices as established or modified from time to time.

 

You will be eligible to participate in benefits programs to the same extent as, and subject to the same terms, conditions and limitations applicable to, other employees of the Company of similar rank and tenure.  The Company reserves the right to modify or eliminate its benefit plans from time to time.

 

You will be awarded 461,040 incentive common shares of the LLC.  The award will be subject to the terms and conditions of the LLC’s Equity Participation Plan (the “ Plan ”), which will include a four-year vesting schedule with 25% of the shares subject to your option to vest one year after the grant date and the remaining 75% of such shares to vest in equal quarterly installments over the following three years.  In addition, all then unvested shares shall vest in full immediately prior to the closing of the initial public offering of equity securities of the LLC (or any successor entity into which your shares are converted) or the occurrence of a Sale Event (as defined in the LLC’s Limited Liability Company Agreement, as amended from time to time).

 

You will be required to enter into an agreement in the form to be approved by the LLC as a condition to receiving this award.

 



 

If any Payments (as defined below) to you are subject to the Excise Tax (as defined below), the Company will pay you a Gross-Up Payment (as defined below).  The Gross-Up Payment with respect to any Payment will be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment.  For purposes of determining the amount of the Gross-Up Payment, you will be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to your residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.  If the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, the Company will make an additional Gross-Up Payment in respect of such excess.  For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax.  For purposes of this paragraph, the following terms shall have the following meanings:

 

Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

Excise Tax ” shall mean the tax imposed by Section 4999 of the Code.  The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by the Company, after consultation with its legal and tax advisors.

 

Gross-Up Payment ” shall mean, with respect to Payments to any person, the amount necessary so that the amount retained by you, after reduction for (A) any Excise Tax on the Gross-Up Payment and (B) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to you, other than the Gross-Up Payment.  The amount of the Gross-Up Payment shall be reasonably determined by the Company after consultation with its legal and tax advisors.

 

Payment ” shall mean, with respect to any individual, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (A) in the ownership or effective control of the Company or (B) in the ownership of a substantial portion of the assets of the Company (in each case, as reasonably determined by the Company in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder).  Notwithstanding the foregoing, any amount payable to (or for the benefit of) an individual shall be a Payment if an Excise Tax is imposed on such individual with respect to such payment or benefit, and such payment or benefit is contingent on a change (X) in the ownership or effective control of the Company or (Y) in the ownership of a substantial portion of the assets of the Company (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder).

 

If the Company terminates your employment other than for Cause (as defined in the Plan), the Company will continue to pay you your base salary in effect at the time of your termination for 12 months after your termination date, and any additional options that would have vested during the 12 months after your termination date will vest effective as of your termination date.

 

2



 

The Company requires you to verify that the performance of your position at the Company does not and will not breach any agreement entered into by you prior to employment with the Company (i.e., you have not entered into any agreements with previous employers that are in conflict with your obligations to the Company).  Please provide us with a copy of any such agreements.  As a condition of your continued employment and receipt of the aforementioned option grant, you will also be required to sign the Company’s standard agreements regarding confidentiality, proprietary information, inventions, noncompetition and nonsolicitation of customers, suppliers, employees and other having business relationships with the Company and its affiliates.  A copy of this agreement will be made available to you.

 

Moreover, please provide us, for purposes of completing the 1-9 form, sufficient documentation to demonstrate your eligibility to work in the United States.

 

The above terms are not contractual.  They are a summary of our initial employment relationship and are subject to later modification by the Company.  Your employment with the 4) Company will be “at-will,” meaning that either you or the Company may terminate your employment relationship at any time, for any reason, with or without prior notice.  Notwithstanding the foregoing, the provisions of the fourth (relating to the award of incentive common shares of the LLC), fifth (relating to Gross-Up Payments) and sixth (relating to certain effects of termination) paragraphs of this letter shall be binding contractual commitments of the Company and the LLC, and may not be modified without your prior written consent.

 

This terms and conditions of your employment set forth in this letter will supersede any existing or previous agreement between you and the Company or any of its affiliates. Each such previous agreement is hereby terminated without any further obligations on the part of the Company or any of its affiliates.

 

We are very interested in having you join the Company.  We look forward to receiving a response from you by January 8, 2007 acknowledging that you have accepted this offer of employment.

 

 

Sincerely,

 

 

 

 

 

/s/ Michael J. Bevan

 

Michael J. Bevan

 

 

 

 

 

/s/ Evan Lovell

 

Evan Lovell

 

 

 

 

 

AGREED TO AND ACCEPTED:

 

3



 

 

/s/ DRB

 

Douglas R. Brown

 

 

 

 

 

Date:

1/5/07

 

4



 

AQUAVENTURE HOLDINGS LLC

 

October 1, 2012

 

PERSONAL AND CONFIDENTIAL

 

Douglas R. Brown

196 Beacon Street, #3

Boston, MA 02116

 

Dear Mr. Brown:

 

This letter agreement amends the letter agreement dated January 5, 2007 between AquaVenture Holdings LLC (the “ LLC ”) and you (the “ Existing Agreement ”).  Except as expressly provided herein, all the provisions of the Existing Agreement shall remain in full force and effect.

 

From and after the date hereof, you will remain employed by Seven Seas Water Corporation (the “ Company ”) and serve as the Chairman of the Company.  In addition, from and after the date hereof, you will serve as the Chairman of the LLC.

 

From and after the date hereof, your salary will be paid at an initial rate of $150,000 per year.  You will be paid in accordance with the Company’s normal payroll practices as established or modified from time to time.

 

You will be eligible to participate in benefits programs to the same extent as, and subject to the same terms, conditions and limitations applicable to, other employees of the Company of similar rank and tenure.  The Company reserves the right to modify or eliminate its benefit plans from time to time.

 

5



 

We look forward to receiving your acknowledgement that you have accepted this offer of employment.

 

 

Sincerely,

 

 

 

AQUAVENTURE HOLDINGS LLC

 

 

 

 

 

By:

 

 

 

John F. Curtis

 

 

President

 

 

 

 

 

SEVEN SEAS WATER CORPORATION

 

 

 

 

 

By:

 

 

 

John F. Curtis

 

 

President

 

 

 

 

 

AGREED TO AND ACCEPTED:

 

 

 

 

 

/s/ DRB

 

Douglas R. Brown

 

 

 

Date: 1 October 2012

 


 



Exhibit 10.5

 

 

 

November 9, 2013

Seven Seas Water Corporation

14400 Carlson Circle

Tampa, Florida 33626

Phone  813-855-8636

Fax  813-855-8631

 

PERSONAL AND CONFIDENTIAL

 

Lee S. Muller

62 Beach Street, 3E

New York NY  10013

 

Dear Mr. Muller:

 

Seven Seas Water Corporation (the “Company”) is pleased that you have agreed to join the Company and its affiliates.  Starting on December 1, 2013, you will he employed by the Company and serve as the full-time Senior Vice President and Chief Financial Officer.  During the term of your employment, you will devote substantially all of your business time, energies, skills and attention to the business and affairs of the Company and its affiliates, provided that you may engage in other outside activities that (whether individually or in the aggregate) do not interfere with the fulfillment of your obligations and responsibilities to the Company and its affiliates.  You will report to the Company’s Chief Executive Officer.

 

Your salary will be paid at an initial rate of $21,666.67 per month, which equates to a rate of $260,000 per year.  You will be paid in accordance with the Company’s normal payroll practices as established or modified from time to time.

 

You will be eligible for an annual performance-based bonus (the “Bonus”), awarded solely at the discretion of the Company with approval of the Board of Managers (the “Board”) of AquaVenture Holdings LLC (the “Parent”) or the Compensation Committee thereof.  The target for the Bonus shall initially be $50,000 per year; it being understood that there will be no bonus for 2013 or salary adjustment for 2014.

 

You will be eligible to participate in benefits programs to the same extent as, and subject to the same terms, conditions and limitations applicable to, other employees of the Company of Similar rank and tenure.  The Company reserves the right to modify or eliminate its benefit plans from time to time.  The Company’s health insurance benefits program includes a waiting period for eligibility.  If you start with the Company on or before December 1; 2013 you would become eligible for coverage effective January 1, 2014.  The 401k eligibility has a further delay component on which our HR Manager will brief you.

 

You will be awarded 260,000 Incentive Shares (as defined in the Parent’s Equity Incentive Plan (the ‘‘Plan”)) of the Parent pursuant to the Plan.  The Incentive Shares will be subject to the terms and conditions of the Plan, which will include a four-year vesting schedule with 25% of the Incentive Shares to vest one year after the award date and the remaining 75% of such Incentive Shares to vest in equal quarterly installments over the following three years.  In

 



 

addition, all then unvested Incentive Shares shall vest in full immediately prior to the occurrence of a Sale Event (as defined in the Parent’s Limited Liability Company Agreement, as amended from time to time (the “LLC Agreement”)).  You will be required to commence your employment with the Company and to enter into the LLC Agreement and a restricted share agreement in the form to be approved by the Parent as a condition to receiving these Incentive Shares.

 

You will work principally out of the Company’s Tampa, Florida office, where the Company’s operating headquarters is located.  You will be transitioning your permanent residence to the Tampa area.  To assist you in defraying the costs of relocating to the Tampa area, a lump sum allowance of $30,000 will be paid to you at the end of your first pay period with the Company.

 

The Company requires you to verify that the performance of your position at the Company does not and will not breach any agreement entered into by you prior to employment with the Company ( i.e. , you have not entered into any agreements with previous employers that are in conflict with your obligations to the Company).  By signing and returning this letter you hereby represent and warrant to the Company that the performance of your position at the Company does not and will not breach any agreement entered into by you prior to employment with the Company and that you have not entered into any agreements with your previous employers that are in conflict with your obligations to the Company.  As a condition of your employment and receipt of the aforementioned award of 260,000 Incentive Shares, you will also be required to sign the Company’s standard agreements regarding confidentiality, proprietary information, inventions, noncompetition and nonsolicitation of customers, suppliers, employees and others having business relationships with the Company and its affiliates.  A copy of this agreement will be made available to you.

 

Please provide us, for purposes of completing the 1-9 form, sufficient documentation to demonstrate your eligibility to work in the United States.

 

In addition, this offer is subject the completion of background and reference checks with results satisfactory to the Company.  Your employment with the Company is contingent upon your authorization, and the Company’s receipt, of a background check that is satisfactory to Company.  Accordingly, please read carefully, sign and return to me the attached Disclosure and Authorization Regarding Consumer Reports, Including Investigative Reports Used for Employment Purposes.

 

The above terms are a summary of our initial employment relationship and are subject to later modification by the Company.  Your employment with the Company will be “at-will,” meaning that either you or the Company may terminate your employment relationship at any time, for any reason, with or without prior notice.  Notwithstanding the preceding sentence, if the Company terminates your employment other than for Cause (as defined in the Plan) before November 30, 2015 as long as you continue to perform your continuing obligations under any agreements with the Company or its affiliates, the Company will continue to pay you your then current base salary for one year following such termination in accordance with the Company’s

 

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normal payroll practices as established or modified from time to time, provided that you enter into (and do not revoke) a comprehensive release in the form, and of a scope, acceptable to the Company.

 

The terms and conditions of your employment set forth in this letter will supersede any existing or previous agreement or understandings between you and the Company or any of its affiliates.  Each such previous agreement is hereby terminated without any further obligations on the part of the Company or any of its affiliates.

 

We are very interested in having you join the Company.  We look forward to receiving a response from you by November 14, 2013 acknowledging that you have accepted this offer of employment.

 

 

 

Sincerely,

 

 

 

 

 

SEVEN SEAS WATTER CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ Robert D. Dixon

 

 

 

Robert D. Dixon

 

 

 

Chief Executive Officer

 

 

 

 

 

 

AGREED TO AND ACCEPTED:

 

 

 

 

 

 

 

 

/s/ Lee Muller

 

 

Lee Muller

 

 

Date: 11/12/13

 

 

 


 



Exhibit 10.6

 

GRAPHIC

 

Quench USA, Inc

780 Fifth Ave Suite 110

King of Prussia, PA 19406

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is effective as of October 20, 2010 (the “Effective Date”) and is entered into by and between Quench USA, Inc., a Delaware corporation (the “Company”), and Anthony Ibarguen, an individual residing at 1430 Kyneton Road, Villanova, PA 19085 (the “Executive”).

 

BACKGROUND

 

A.                                     The Company at present is engaged in the business of selling, delivering, installing, maintaining, leasing, removing and repairing point-of-use drinking water systems, water coolers, water filters, irradiation, water cooler and water filtration connections, equipment and materials and related business, such business being subject to change.

 

B.                                     The Company desires to engage the Executive as its President and Chief Executive Officer, and the Executive desires to be so engaged by the Company, upon the terms and conditions set forth herein.

 

TERMS

 

NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound, the parties hereto hereby agree as follows:

 

1.                                       Employment .

 

1.1                                Engagement; Duties and Powers .  The Company agrees to employ the Executive, and the Executive agrees to accept employment with the Company, as President and Chief Executive Officer and member of the Board of Directors for the Employment Period (as defined below), in accordance with the terms and conditions of this Agreement.  During the Employment Period, the Executive shall have such responsibilities, duties and authority as are customarily assigned to such position and shall render such services for the Company as the Company’s board of directors (the “Board”) may from time to time direct.  The Executive shall perform the duties and carry out the responsibilities assigned to the Executive, to the best of the Executive’s ability, in a trustworthy, businesslike and efficient manner for the purpose of advancing the business of the Company, shall comply with the Company’s policies and procedures in all material respects, and shall report to the Chairman of the Board.  The Executive

 



 

acknowledges that the Executive’s duties and responsibilities hereunder will require the Executive’s full business time and effort and agrees that, during the Employment Period, the Executive will not have any business interests which may conflict with or impair the performance of any of the Executive’s duties hereunder; provided, however, that nothing in this Section 1.1 shall be deemed to prohibit the Executive from (i) making Permitted Investments (as defined below) or (ii) serving on corporate, industry, civic, or charitable boards or committees, and retaining any compensation received for such service, so long as such activities do not interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement, or violate Section 4, 5, 6, 7, 8 or 9 of this Agreement.  The Executive represents and warrants that the Executive is not a party to or bound by any agreements or other business commitments that would in any manner restrict the Executive’s work, effort or activity on behalf of, and while employed by, the Company.  The Executive represents and warrants that the execution and delivery of this Agreement and performance of the Executive’s duties hereunder will not conflict with or breach any agreements or orders to which the Executive is a party or by which the Executive is bound.  The Executive further warrants that the Executive has not brought and will not bring to the Company or use in the performance of the Executive’s responsibilities at the Company any materials or documents of a former employer that are not generally available to the public, unless the Executive has obtained express written authorization from the former employer for their possession and use.  The Executive also agrees that the Executive is not to breach any obligation of confidentiality that the Executive has to former employers, and the Executive agrees to honor all such obligations to former employers during the Executive’s employment with the Company.

 

1.2                                Employment Period .  Executive’s employment relationship is at-will and can be terminated at any time with or without Cause.  The employment of the Executive under this Agreement shall begin on the Effective Date and shall continue until terminated as set forth in Section 1.3, 1.4, 1.5 or 1.6 of this Agreement (the “Employment Period”).

 

1.3                                Termination Upon Death .  If the Executive dies during the Employment Period, this Agreement and the Executive’s employment shall automatically terminate on the date of the Executive’s death, subject to Section 2.3(c).

 

1.4                                Termination by the Company .  The Company may terminate the Executive’s employment hereunder upon written notice to the Executive at any time (i) due to the Permanent Disability (as defined below) of the Executive or (ii) for Cause (as defined below).  The Company may also terminate the Executive without Cause, for any or no reason, upon thirty (30) days’ written notice, and such termination shall not be effective until the expiration of such notice period, unless such notice is waived in writing by the Executive (in which case such resignation shall be effective as of the date of such waiver).

 

(a)                                  For purposes of this Agreement, “Cause” means the occurrence of any of the following events, as determined solely by the judgment of the Board:

 

(i)                                      Executive’s conviction of a felony involving a crime of fraud, dishonesty, disloyalty, moral turpitude or professional misconduct with respect to the Company or its business or the entry of a plea of nolo contendere for such a felony;

 

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(ii)                                   the material breach, non-performance or non-observance by the Executive of any of the terms of this Agreement or any other agreement to which the Executive and the Company are parties, or the material breach, non-performance or non-observance by the Executive of his duties to the Company or any rules of the Company governing employee behavior, including any ethics policies, if such breach, non-performance or non-observance is not cured within a period of thirty (30) days after written notice thereof by the Company to the Executive;

 

(iii)                                the existence of any legal or contractual limitation on the Executive’s ability to engage in the business of the Company that reasonably could be expected to have a materially adverse effect on the Executive’s ability to attract or retain customers or perform the services hereunder if such limitation is not cured within a period of thirty (30) days after written notice thereof by the Company to the Executive;

 

(iv)                               any act or omission by the Executive which constitutes willful or gross misconduct injurious to the Company or its business, either financially or otherwise, or which interferes with or adversely affects the Executive’s performance of, or ability to perform, his duties under this Agreement; or

 

(v)                                  the Executive’s willful failure or refusal to follow or carry out the reasonable and lawful instructions of the Board (other than as a result of illness or disability) concerning material duties or actions consistent with the Executive’s position in a timely manner and otherwise in a manner reasonably acceptable to the Board and such failure or refusal continues for a period of thirty (30) days after receipt of written notice from the Board describing such failure or refusal in reasonable detail.

 

(b)                                  The Executive shall be deemed to have a “Permanent Disability” (i) if a qualified physician selected by the Board in its reasonable discretion and located in the Philadelphia, Pennsylvania metropolitan area determines that the Executive has been, or can reasonably be expected to be, unable to perform, by reason of physical or mental incapacity, the Executive’s duties or obligations under this Agreement even with reasonable accommodation, for sixty (60) consecutive days or for ninety (90) days in the aggregate, in any three hundred sixty-five (365) day period or (ii) if the Executive has applied for and would qualify for long-term disability benefits under the Company’s disability insurance policy then in force and applicable to the Executive.

 

1.5                                Termination by the Executive .

 

(a)                                  The Executive may terminate employment hereunder at any time for any or no reason.  The Executive shall give at least thirty (30) days prior written notice to the Company.  Upon receiving such notice, the Company may establish an earlier date for the termination, provided the Company continues Executive’s compensation and benefits through the end of the 30-day notice period.

 

(b)                                  Executive may also terminate employment hereunder for “Good Reason”, including the following:

 

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(i)                                      Material breach of any provision of this Agreement by Company, which breach shall not have been cured by Company within 30 days of receipt of a written notice specifying in reasonable detail the nature of said material breach;

 

(ii)                                   Failure by the Company to maintain Executive in a title and position commensurate with, and with duties and authority contemplated by, Section 1.1 of this Agreement, without Executive’s express written consent;

 

(iii)                                The relocation of Company’s offices at which Executive is principally employed to a location more than 25 miles away from King of Prussia, Pennsylvania, without Executive’s express written consent.

 

If Executive intends to resign for one of the Good Reasons listed above, the Executive shall give notice of such intent to the Company within ninety (90) days after knowledge of the occurrence of the circumstances giving rise to the Good Reason, detailing such Good Reason with specificity.  If the Company does not remedy the situation so as to eliminate the Good Reason within thirty (30) days of receiving such notice, then any resignation by the Executive from the Company within the two (2) month period beginning with the delivery of the notice shall be deemed a termination for “Good Reason”, provided that such termination for “Good Reason” must take place no more than ninety (90) days from the date the Executive gives the Company notice that a Good Reason condition exists.  Notwithstanding anything contained in this Agreement to the contrary, to the extent this Agreement shall be deemed subject to Section 409A, the definition of “Good Reason” shall have the meaning of applicable Treasury Department or Internal Revenue Service guidance under Section 409A.

 

1.6                                Mutual Termination .  The parties by mutual consent may decide to terminate the Executive’s employment, and if they so decide, they shall do so by separate agreement setting forth the terms and conditions of such termination.

 

2.                                       Compensation and Benefits .

 

2.1                                Base Salary .  For services rendered by the Executive hereunder during the Employment Period, the Company shall pay the Executive based upon an annualized rate of Two Hundred Fifty Thousand Dollars ($250,000.00) (the “Base Salary”) per annum, payable in accordance with the Company’s customary payroll practices as in effect from time to time.  The Board shall perform an annual review of the Executive’s Base Salary based upon, among other things, the Executive’s performance of the Executive’s duties and the Company’s other compensation policies, however, the Base Salary shall not be decreased without the written consent of the Employee.

 

2.2                                Bonus .  In February 2011, subject to the terms of the following sentence, the Executive shall be eligible to receive an annual bonus (the “2010 Bonus”) equal to the remainder of (i) 0.5% of the Company’s 2010 revenue (as determined by generally accepted accounting principles in the U.S.) (excluding any cooler equipment sales revenue) minus (ii) $25,000.  The 2010 Bonus shall be pro-rated for the portion of 2010 from the Effective Date to December 31, 2010.  For all subsequent years during the Employment Period, the Executive shall be eligible to receive an annual bonus (the “Annual Bonus”) in February of each year equal

 

4



 

to the remainder of (i) 0.5% of the Company’s prior-year revenue (as determined by generally accepted accounting principles in the U.S.) (excluding any cooler equipment sales revenue) minus (ii) $25,000.  The Annual Bonus shall be payable as determined by the Board and shall be paid only if the Executive is actively employed by the Company and the Executive has not given notice of resignation as of the date such Annual Bonus is determined to be paid by the Board.  The Board shall perform an annual review of the Executive’s Annual Bonus based upon, among other things, the Executive’s performance of the Executive’s duties and the Company’s other compensation policies.  The Executive will not earn or receive any prorated Annual Bonus except (i) in February 2011, as described in this Section 2.2 and (ii) as provided in Section 2.3(c).

 

2.3                                Compensation After Termination .

 

(a)                                  If the Executive is terminated by the Company for Cause or if the Executive resigns without Good Reason, then, except as required by law, the Company shall have no further obligations hereunder or otherwise with respect to the Executive’s employment from and after the date of said termination (except only for payment of the Base Salary and unused vacation time accrued through the date of such termination and expenses pursuant to Section 2.4(c) of this Agreement), and the Company shall continue to have all other rights available hereunder (including all rights under the Restrictive Covenants (as defined below) at law or in equity).

 

(b)                                  Subject to the Executive’s execution and delivery to the Company of an effective release substantially in the form attached hereto as revised by the Company from time to time in accordance with Section 13.3 of this Agreement (a “Release”), if the Executive is terminated by the Company without Cause or by Executive with Good Reason, then: (i) the Executive shall receive as severance pay continuation of Base Salary as of the date of termination for one (1) year (the “Severance Amount”); and (ii) if the Executive timely elects and remains eligible for continued health insurance coverage under federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”), the Company will pay the Executive’s COBRA premiums for one (1) year after the date of termination.  Payments shall commence hereunder on the 30 th  day after separation from service (under the schedule set forth above) provided that a fully effective release has been signed and returned to the Company prior to that date; provided, however, that if separation from service is due to an “Exit Incentive Program” as defined in the ADEA (as defined in the Release), payments shall commence on the 55 th  day after separation from service (under the schedule set forth herein) and only if a fully effective release has been signed and returned to the Company prior to that date.  The Severance Amount shall be payable in accordance with the Company’s customary payroll practices as in effect from time to time on the Company’s ordinary payroll schedule, and otherwise in accordance with the Company’s policies that would otherwise apply to the payment of the Base Salary, including applicable deductions and withholdings; provided all such rights to any Severance Amount or COBRA premiums shall cease and any amounts paid shall be forfeited and recoverable by the Company in the event the Company determines in good faith that the Executive has violated any Restrictive Covenants (as defined below) or any other provisions of this Agreement.  The Company shall, except as required by law, have no other obligations hereunder or otherwise with respect to the Executive’s employment from and after the termination date (except only for payment of the Base Salary and unused vacation time accrued through the date of such

 

5



 

termination and expenses pursuant to Section 2.4(c) of this Agreement), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under the Restrictive Covenants at law or in equity).  The Executive shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and, except as expressly provided herein, any compensation received under any employment subsequent to termination of the Executive’s employment with the Company shall not reduce the payments due the Executive under this Section 2.3(b); provided, however, notwithstanding the foregoing, in the event there is a Change in Control (as defined below) and the Executive remains an employee of the Company, or becomes an employee of the purchaser of the Company or its business, the successor or a new entity succeeding to the assets or membership interests of the Company, then the Company shall have no obligation to pay, and the Executive shall not be entitled to, the Severance Amount, COBRA premiums or other benefits provided under this Section 2.3(b) in connection with the Change in Control or thereafter.  For purposes of this Section, a “Change of Control” shall mean (i) any consolidation or merger of the Company with or into any corporation or other entity or person, or any other reorganization, other than any such consolidation, merger or reorganization in which the members of the Company, or the members’ affiliates, immediately prior to such consolidation, merger or reorganization, continue to hold at least a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly-owned subsidiary, its parent) immediately after such consolidation, merger or reorganization in substantially the same proportion as their voting power of the Company immediately prior to such consolidation, merger or reorganization; (ii) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred; or (iii) a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company.  For the avoidance of doubt, Executive and Company agree that in the event of a Change of Control, the surviving entity will assume and/or honor this agreement and all the terms agreed herein.

 

(c)                                   If the Executive’s employment terminates due to the Executive’s Permanent Disability or death, then the Executive or his personal representative shall be entitled to receive an amount equal to the Base Salary and any Annual Bonus that is earned, pro-rated as of the last day of the month during which termination occurs, as well as any accrued but unused Paid Time Off (as defined below).  The Company shall, except as required by law, have no other obligations hereunder or otherwise with respect to the Executive’s employment from and after the date of said termination (except only for expenses pursuant to Section 2.4(c) of this Agreement), and the Company shall continue to have all other rights available hereunder (including all rights under the Restrictive Covenants at law or in equity).

 

2.4                                Fringe Benefits; Incentive Compensation; Retirement; Welfare Benefits; Expenses .

 

(a)                                  During the Employment Period, as of the Effective Date, the Executive shall be eligible to participate in any fringe benefit, retirement, and health and welfare benefit plans, policies, or arrangements maintained by the Company for its key management employees generally from time to time in accordance with such plans, policies, or arrangements as from time to time are in effect and applicable to key management employees of the Company and are approved by the Board.  Notwithstanding the foregoing, the Company reserves the right

 

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to adopt, amend or discontinue any employee benefit plan or policy in accordance with applicable law.

 

(b)                                  During the Employment Period, the Executive shall accrue annual “Paid Time Off’ at the rate of twenty-five (25) days per calendar year, all in accordance with Company policy, pro-rated for any partial year.  Unused Paid Time Off may not be carried over into the following calendar year and will not be paid out at the end of the calendar year or at any other time, except accrued but unused days will be paid out upon termination of the Executive’s employment.

 

(c)                                   During the Employment Period, the Company shall reimburse the Executive for all ordinary, necessary and reasonable travel and other business expenses incurred by the Executive in connection with the performance of the Executive’s duties hereunder, in accordance with Board approved policy.  Such reimbursement shall be made upon presentation of itemized expense statements and such other supporting documentation as the Company may reasonably require.

 

2.5                                Employee Equity Award .  The Executive shall be eligible to participate in any employee equity plan established by the Company, subject to the terms and conditions of any such plan and in such amounts as shall be determined by the Board.  As a condition to the Executive’s participation in any such plan, the Executive must become a party to all agreements required by any such plan and by the Board.  In addition, pursuant to the restricted stock award agreement in substantially the form attached hereto as Exhibit C.  the Company shall issue to the Executive shares of Common Stock of the Company equivalent to 3.25% of the total outstanding shares of the Company (calculated on an as-converted basis).

 

2.6                                Taxes .  All compensation payable to the Executive from the Company or its subsidiaries shall be subject to all applicable withholding taxes, normal payroll withholding and any other amounts required by law to be withheld.

 

2.7                                Reimbursement and In-Kind Benefits .  Notwithstanding anything herein to the contrary or otherwise, except to the extent any expense, reimbursement or in-kind benefit provided pursuant to Section 2 does not constitute a “deferral of compensation” within the meaning of Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended from time to time (“Code”), and its implementing regulations and guidance (i) the amount of expenses eligible for reimbursement or in-kind benefits provided to the Executive during any calendar year will not affect the amount of expenses eligible for reimbursement or in-kind benefits provided to the Executive in any other calendar year, (ii) the reimbursements for expenses for which the Executive is entitled to be reimbursed shall be made on or before the last day of the calendar year following the calendar year in which the applicable expense is incurred and (iii) the right to payment or reimbursement or in-kind benefits hereunder may not be liquidated or exchanged for any other benefit.

 

2.8                                Stock Purchase .  The Executive shall purchase, pursuant to a separate purchase agreement, as soon as practicable following the execution of this Agreement, eighty (80) shares of Series C-2 Preferred Stock of the Company.

 

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3.                                       General Provisions .

 

3.1                                Executive’s Acknowledgment .  The Executive agrees and acknowledges that in order to assure the Company that it will retain the value of the Company and that of the business as a going concern, it is necessary that the Executive undertake not to utilize the Executive’s special knowledge of the Company and its business and the Executive’s relationships with customers, vendors and employees to compete with the Company.  The Executive agrees that if the Executive is offered employment or the opportunity to enter into any business venture as owner, partner, consultant or other capacity in a business while any of the Restrictive Covenants are in effect, the Executive will inform the Executive’s potential employer, partner, co-owner and/or others involved in managing the business which the Executive had an opportunity to join of the existence and terms and conditions of the Restrictive Covenants and will provide such person or persons with the text of the Restrictive Covenants, but not any other portion or text of this Agreement.  The Executive authorizes the Company to provide copies of the Restrictive Covenants to any of the persons or entities described in the preceding sentence above and to make such persons aware of the Executive’s obligations under the Restrictive Covenants.  The Executive further acknowledges that:

 

(a)                                  the Executive is engaged in, is knowledgeable about, and provides services in connection with all aspects of the Company and its business;

 

(b)                                  the Executive will occupy a position of trust and confidence with the Company, and during the Employment Period will have access to the customers, vendors, employees, and Confidential Information (as defined below) of the Company and its business;

 

(c)                                   the agreements and covenants contained in Sections 3, 4, 5, 6, 7, 8 and 9 of this Agreement (the “Restrictive Covenants”) are essential to protect the Company and its goodwill and its confidential information and trade secrets and compliance with such agreements and covenants will not impair the Executive’s ability to procure subsequent and comparable employment;

 

(d)                                  the Executive’s employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if the Executive were to violate the provisions of Sections 3, 4, 5, 6, 7, 8 and 9 of this Agreement; and

 

(e)                                   the provisions contained in Sections 3, 4, 5, 6, 7, 8 and 9 of this Agreement are integral to the Company’s willingness to employ the Executive and that the Company would not enter into this Agreement without the protections afforded by Sections 3, 4, 5, 6, 7, 8 and 9 of this Agreement.

 

3.2                                Blue-Pencil .  If any court of competent jurisdiction shall at any time determine that the term of any Restrictive Covenant is too lengthy, the Territory (as defined below) is too extensive or the scope or subject matter of any Restrictive Covenant exceeds the limitations imposed by applicable law, the parties agree that the applicable provisions shall be amended to the minimum extent necessary such that the provisions are enforceable or permissible to the maximum extent allowed under such applicable law.

 

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4.                                       Non-Compete .  During the period commencing on the Effective Date and ending two (2) years after the effective date of termination of the Executive’s employment with the Company for any reason whatsoever, the Executive shall not, directly or indirectly, as employee, agent, consultant, equityholder, director, manager, co-partner or in any other individual or representative capacity, own, operate, manage, control, engage in, invest in or participate in any manner in, act as a consultant or advisor to, render services for (alone or in association with any person or entity), or otherwise assist any person or entity that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage anywhere in the United States (collectively, the “Territory”) in any business that competes with any product or service of the Company with which the Executive worked directly or indirectly during his employment with the Company or about which the Executive acquired Confidential Information, unless the Board expressly and in its sole discretion waives in writing the Executive’s compliance with this Section 4; provided, however, that nothing contained herein shall be construed to prevent the Executive from investing in the stock or other equity interests of any competing corporation listed on a national securities exchange or traded in the over-the-counter market so long as the Executive is not involved in the business of said corporation and the Executive does not own more than two percent (2%) of the stock or other equity interests of such corporation (a “Permitted Investment”).  With respect to the Territory, the Executive specifically acknowledges that the Company’s business has heretofore been conducted or is presently proposed to be conducted throughout the United States.

 

5.                                       Confidential Information .  During the Employment Period and thereafter, the Executive shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Board, furnish, make available or disclose to any third party or use for his benefit or the benefit of any third party, any Confidential Information.  “Confidential Information” shall mean any trade secret or confidential information of the Company or relating to the business or affairs of the Company, including, without limitation, technical information, including research and/or development design, results, techniques and processes; trade practices; apparatus and equipment design; formulae; manufacturing and/or production processes; computer software; source code; technical management information, including project proposals, research plans, programs, status reports, performance objectives and criteria, and analyses of areas for business development; business information, including project, financial, accounting and personnel information, business studies, strategies, plans, procedures, forecasts, and sales and marketing plans, programs, efforts, information and data, and servicing methods; the identities of potential acquisition targets; the identities of actual and prospective customers, contractors and suppliers; the terms of contracts, agreements and arrangements with customers, contractors and suppliers; the Company’s relationship with actual and prospective customers, contractors and suppliers and the needs and requirements of, and the Company’s course of dealing with, any such actual or prospective customers, contractors and suppliers; customer and vendor credit information; information relating to domain name accreditation or registration companies or agencies; and any other confidential or proprietary information used by the Company in connection with its business; provided, however, that Confidential Information shall not include any information that is in the public domain or becomes known in the public domain through no wrongful act on the part of the Executive.  All Confidential Information shall be the sole property of the Company.  In addition, the Company has received and will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentially of such information, and the Executive, during the Executive’s

 

9



 

employment and thereafter, will not use or disclose such information except in connection with his work for the Company.

 

6.                                       Interference with Relationships .  The Executive hereby agrees that during the period commencing on the Effective Date and ending two (2) years following the termination of the Executive’s employment with the Company for any reason whatsoever, the Executive shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity: (i) without the prior written consent of the Board, recruit, hire or solicit for employment or engagement, any person who is (or was within twelve (12) months prior to the date such solicitation, recruiting or hiring commences or occurs, as the case may be) employed or engaged by the Company, or otherwise seek to influence, alter or terminate any such person’s relationship with the Company, or (ii) without the prior written consent of the Board, solicit, contact, or attempt to solicit or contact, any Customer or Prospective Customer to terminate, diminish, or alter in a manner harmful to the Company its relationship with the Company; or (iii) solicit, perform for or provide to any Customer or Prospective Customer any products or services competitive with any products or services of the Company with which the Executive worked directly or indirectly during his employment with the Company or about which he acquired Confidential Information.  For purposes of this Section 6, “Customer” shall mean any client or customer doing business with the Company in the two (2) years prior to the date on which any of the actions specified in this Section 6 occurs, if the Executive is still employed by the Company, or, if the Executive is no longer employed by the Company, as of the date of the termination of the Executive’s employment or within the two (2) year period prior to such termination, with whom or which the Executive had any contact or involvement during the Executive’s employment with the Company and “Prospective Customer” shall mean any prospective client or customer of the Company whom or which is a prospective client in the two (2) years prior to the date on which any of the actions specified in this Section 6 occurs, if the Executive is still employed by the Company, or, if the Executive is no longer employed by the Company, as of the date of the termination of the Executive’s employment and with whom or which the Executive had any contact or involvement during the Executive’s employment with the Company.

 

7.                                       Business Disparagement .  During the Employment Period and thereafter, the Executive shall not, directly or indirectly, make disparaging remarks about the Company or any of its respective directors, officers or employees.

 

8.                                       Intellectual Property, Inventions and Patents .  The Executive acknowledges that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications, works of authorship (whether or not including any Confidential Information) and all registrations, accreditations or applications related thereto, all other proprietary information and all similar or related information (whether or not patentable) that are conceived, developed or made by the Executive (whether alone or jointly with others) while employed by the Company which relate to the Company’s actual or anticipated business, research and development or existing or future products or services or which the Executive conceived, developed or made while on Company time or with Company equipment, supplies, facilities, trade secrets or Confidential Information (together “Work Product”) belong to the Company and the Executive hereby assigns all his right, title and interests in and to Work Product to the Company.  The Executive shall promptly disclose such

 

10



 

Work Product to the Company and, at the Company’s expense, perform all actions reasonably requested by the Company (whether during or after the term of the Executive’s employment with the Company) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).  In the event the Company is unable for any reason, after reasonable effort, to secure the Executive’s signature on any document in connection therewith, the Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Executive’s agent and attorney in fact, which appointment is coupled with an interest, to take such actions as to establish and confirm the Company’s ownership.  Any works of authorship falling within the definition of Work Product shall be deemed a “work made for hire” under the applicable copyright laws to the maximum extent permitted under applicable copyright law, and ownership of all rights therein shall vest in the Company.  To the extent that any Work Product cannot be deemed to be a “work made for hire” under applicable copyright law, the Executive hereby assigns and agrees to assign to the Company all right, title and interest, including without limitation, the intellectual property rights that the Executive may have in and to such Work Product.  The Executive has identified and listed on Exhibit A attached hereto all items of intellectual property that are or were owned by the Executive or were written, discovered, made, conceived or first reduced to practice by the Executive alone or jointly with another person prior to the Executive’s employment under this Agreement and that relates to the Company and/or its business or actual or demonstrably anticipated research and development by the Company.  If no such intellectual property is listed, the Executive represents and warrants to the Company that the Executive does not now nor has the Executive ever owned, nor has the Executive developed, any such intellectual property.

 

9.                                       Return of Company Property .  The Executive hereby agrees that, at the termination of his employment with the Company or at any other time the Company may request, the Executive will immediately deliver to the Company (and will not keep in his possession, recreate or deliver to any other person or entity) any and all devices, records, data, memoranda, notes, plans, records, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property (and copies thereof) relating to the Company or its business and any other forms of Confidential Information which the Executive may then possess or have under his control, as well as any and all property of the Company in his possession or control.

 

10.                                Legal Processes .  In the event that the Executive is requested pursuant to, or required by, applicable law, regulation or legal process to disclose any of the Confidential Information, the Executive will notify the Company immediately so that the Company may seek a protective order or other appropriate remedy at its sole cost.  In the event that no such protective order or other remedy is obtained, or that the Company waives compliance with the terms of Section 5 of this Agreement, the Executive will furnish only that portion of the Confidential Information which the Executive is advised in writing or orally by counsel to the Company is legally required and will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Confidential Information.

 

11.                                Effect of Termination .  If, for any reason, the Executive’s employment with the Company or this Agreement shall terminate, then, notwithstanding such termination, those provisions which must remain in effect in order for the parties’ intent to be effectuated shall

 

11



 

remain in full force and effect, including the Restrictive Covenants and Sections 10-13, which shall survive termination of the Executive’s employment and the termination of this Agreement.

 

12.                                Non-Exclusive Remedy for Restrictive Covenants .  The Executive acknowledges and agrees that the Restrictive Covenants are reasonable and necessary for the protection of the Company and the Company’s business, that irreparable injury will result to the Company if the Executive breaches any of the terms of the Restrictive Covenants, and that in the event of the Executive’s actual or threatened breach or non-performance of any of the Restrictive Covenants, the Company will have no adequate remedy at law.  The Executive accordingly agrees that in the event of any actual or threatened breach or non-performance by the Executive of any of the Restrictive Covenants, the Company shall be entitled to injunctive and other equitable relief from any court of competent jurisdiction, without the necessity of showing actual monetary damages or the posting of a bond or other security.  Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages.  The Executive agrees that, if the Company is successful in whole or in part in any legal or equitable action related to the Restrictive Covenants, the Company shall be entitled to payment of all costs including reasonable attorneys’ fees, from the Executive.  In the event the Company enforces the Restrictive Covenants through court order, the restrictions of Sections 4 and 6 shall remain in effect for two (2) years from the effective date of the order enforcing those Sections.

 

13.                                Miscellaneous .

 

13.1                         Income Tax Treatment .  The Executive and the Company acknowledge that it is the intention of the Company to deduct all amounts paid under Sections 2.1, 2.2 and 2.3(b) of this Agreement as ordinary and necessary business expenses for income tax purposes.  The Executive agrees and represents that the Executive will treat all amounts paid under such Sections as ordinary income for income tax purposes, and should the Executive report such amounts as other than ordinary income for income tax purposes the Executive will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including reasonable attorneys’ and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof.  Payments under this Agreement shall be made without regard to whether the deductibility of such payments (or any other payments) would be limited or precluded by Section 280G of the Code and without regard to whether such payments would subject the Executive to the federal excise tax levied on certain “excess parachute payments” under Section 4999 of the Code; provided, however, that if the Total After-Tax Payments (as defined below) would be increased by the limitation or elimination of any amount payable under this Agreement, then the amount payable under the Agreement will be reduced to the extent necessary to maximize the Total After-Tax Payments.  The determination of whether and to what extent payments under this Agreement are required to be reduced in accordance with the preceding sentence will be made at the Company’s expense by an independent, certified public accountant selected by the Executive and reasonably acceptable to the Company.  In the event of any underpayment or overpayment under this Agreement, the amount of such underpayment or overpayment will be immediately paid by the Company to the Executive or refunded by the Executive to the Company, as the case may be.  For purposes of this Agreement, “Total After-Tax Payments” means the total of all “parachute payments” (as that term is defined in Section 280G(b)(2) of the Code) made to or for the benefit of Executive (whether made

 

12



 

hereunder or otherwise), after reduction for all applicable federal taxes (including, without limitation, the tax described in Section 4999 of the Code).

 

13.2                         Section 409A .

 

(a)                                  ANYTHING IN THIS AGREEMENT TO THE CONTRARY NOTWITHSTANDING, IF AT THE TIME OF THE EXECUTIVE’S SEPARATION FROM SERVICE WITHIN THE MEANING OF SECTION 409A OF THE CODE, THE COMPANY DETERMINES THAT THE EXECUTIVE IS A “SPECIFIED EMPLOYEE” WITHIN THE MEANING OF SECTION 409A(A)(2)(B)(I) OF THE CODE, THEN TO THE EXTENT ANY PAYMENT OR BENEFIT THAT THE EXECUTIVE BECOMES ENTITLED TO UNDER THIS AGREEMENT WOULD BE CONSIDERED DEFERRED COMPENSATION SUBJECT TO THE 20 PERCENT ADDITIONAL TAX IMPOSED PURSUANT TO SECTION 409A(A) OF THE CODE AS A RESULT OF THE APPLICATION OF SECTION 409A(A)(2)(B)(I) OF THE CODE, SUCH PAYMENT SHALL NOT BE PAYABLE AND SUCH BENEFIT SHALL NOT BE PROVIDED UNTIL THE DATE THAT IS THE EARLIER OF (A) SIX MONTHS AND ONE DAY AFTER THE EXECUTIVE’S SEPARATION FROM SERVICE, OR (B) THE EXECUTIVE’S DEATH.  IF ANY SUCH DELAYED CASH PAYMENT IS OTHERWISE PAYABLE ON AN INSTALLMENT BASIS, THE FIRST PAYMENT SHALL INCLUDE A CATCH-UP PAYMENT COVERING AMOUNTS THAT WOULD OTHERWISE HAVE BEEN PAID DURING THE SIX-MONTH PERIOD BUT FOR THE APPLICATION OF THIS PROVISION, AND THE BALANCE OF THE INSTALLMENTS SHALL BE PAYABLE IN ACCORDANCE WITH THEIR ORIGINAL SCHEDULE.

 

(b)                                  THE PARTIES INTEND THAT THIS AGREEMENT WILL BE ADMINISTERED IN ACCORDANCE WITH SECTION 409A OF THE CODE.  TO THE EXTENT THAT ANY PROVISION OF THIS AGREEMENT IS AMBIGUOUS AS TO ITS COMPLIANCE WITH SECTION 409A OF THE CODE, THE PROVISION SHALL BE READ IN SUCH A MANNER SO THAT ALL PAYMENTS HEREUNDER COMPLY WITH SECTION 409A OF THE CODE.  THE PARTIES AGREE THAT THIS AGREEMENT MAY BE AMENDED, AS REASONABLY REQUESTED BY EITHER PARTY, AND AS MAY BE NECESSARY TO FULLY COMPLY WITH SECTION 409A OF THE CODE AND ALL RELATED RULES AND REGULATIONS IN ORDER TO PRESERVE THE PAYMENTS AND BENEFITS PROVIDED HEREUNDER WITHOUT ADDITIONAL COST TO EITHER PARTY.

 

(c)                                   ANY REFERENCE TO TERMINATION OF EMPLOYMENT UNDER THIS AGREEMENT SHALL BE DEEMED TO MEAN “SEPARATION FROM SERVICE” WITH RESPECT TO ANY PAYMENT THAT CONSTITUTES “NONQUALIFIED DEFERRED COMPENSATION” AS DEFINED UNDER SECTION 409A OF THE CODE.  THE DETERMINATION OF WHETHER AND WHEN A SEPARATION FROM SERVICE HAS OCCURRED SHALL BE MADE IN ACCORDANCE WITH THE PRESUMPTIONS SET FORTH IN TREASURY REGULATION SECTION 1.409A-1(H).

 

(d)                                  THE COMPANY MAKES NO REPRESENTATION OR WARRANTY AND SHALL HAVE NO LIABILITY TO THE EXECUTIVE OR ANY OTHER PERSON IF ANY PROVISIONS OF THIS AGREEMENT ARE DETERMINED TO

 

13



 

CONSTITUTE DEFERRED COMPENSATION SUBJECT TO SECTION 409A OF THE CODE BUT DO NOT SATISFY AN EXEMPTION FROM, OR THE CONDITIONS OF, SUCH SECTION.

 

13.3                         General Release .  The Executive acknowledges and agrees that the Executive’s right to receive the Severance Amount and other benefits pursuant to Section 2.3(b) of this Agreement is contingent upon the Executive’s compliance with the Restrictive Covenants and all other obligations of this Agreement and the Executive’s execution and acceptance of the terms and conditions of, and the effectiveness of, a general release in a form substantially similar to that attached hereto as Exhibit B (the “Release”).  If the Executive fails to comply with the Restrictive Covenants or other obligations of this Agreement or if the Executive fails to execute the Release or revokes the Release during the seven (7) day period following the Executive’s execution of the Release, then the Executive shall not be entitled to the Severance Amount or COBRA premiums or any other benefits to which the Executive would otherwise be entitled under Section 2.3(b) of this Agreement.

 

13.4                         Assignment .  The Executive may not assign any of the Executive’s rights or obligations hereunder without the written consent of the Company.  Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not.  In the event of the Executive’s death prior to completion by the Company of all payments due under this Agreement, the Company shall make all such payments to the Executive’s beneficiary or to the Executive’s estate as appropriate.

 

13.5                         Severability .  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remainder of this Agreement.

 

13.6                         Counterparts .  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement.

 

13.7                         Descriptive Headings; Interpretation .  The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.  Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns, and verbs shall include the plural and vice versa.  Reference to any agreement, document, or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof.  The use of the words “include” or “including” in this Agreement shall be by way of example rather than by limitation.  The use of the words “or,” “either” or “any” shall not be exclusive.

 

14



 

13.8                         Notices .  All notices and other communications given to any party hereto pursuant to this Agreement shall be in writing and shall be hand delivered, or sent either by (a) certified mail, postage prepaid, return receipt requested; (b) a nationally reputable overnight express courier service that provides written confirmation of delivery; or (c) facsimile transmission with written confirmation by the sending machine or with telephone confirmation of receipt (provided that a confirming copy is sent by a nationally reputable overnight express courier service that provides written confirmation of delivery), addressed as follows:

 

To the Company:

 

Quench USA, Inc.

780 Fifth Avenue Suite 110

King of Prussia, PA 19406

Attn:  Chairman of the Board

 

with copies to:

 

Goodwin Procter LLP

53 State Street

Boston, MA 02109

Facsimile:  617.523.1231

Attention:  Mark H. Burnett, Esq.

 

To the Executive at the Executive’s address as listed on Company payroll

 

Any communication given in conformity with this Section 13.8 shall be effective upon the earlier of actual receipt or deemed delivery.  Delivery shall be deemed to have occurred as follows: if hand delivered on the day so delivered; if mailed, three business days after the same is deposited in the United States Mail; if telecopied, upon written confirmation by the sending machine of effective transmission, if telecopied before 5:00 p.m. East Coast time on a business day, and otherwise on the next business day after the date of such written confirmation; and if sent by overnight express courier service, the next business day.  Any party may at any time change its address for receiving communications pursuant to this Section by giving notice of a new address in the manner provided herein.

 

13.9                         Preamble; Preliminary Recitals .  The Preliminary Recitals set forth in the Preamble hereto are hereby incorporated and made part of this Agreement.

 

13.10                  Entire Agreement .  Except as otherwise expressly set forth herein, this Agreement and the Exhibits attached hereto set forth the entire understanding of the parties, and supersede and preempt all prior oral or written understandings and agreements with respect to the subject matter hereof.

 

13.11                  Governing Law .  This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the Commonwealth of Pennsylvania without giving effect to provisions thereof regarding conflict of laws.

 

15



 

13.12                  Jurisdiction .  Without limiting the provisions of Section 13.3 of this Agreement, each party hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the Eastern District of Pennsylvania located in Philadelphia, Pennsylvania or any state court located within the Commonwealth of Pennsylvania, in respect of any claim relating to this Agreement, and hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding in which any such claim is made that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts.

 

13.13                  No Strict Construction .  The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto.

 

13.14                  Amendment and Waivers .  Any provisions of the Agreement may be amended or waived only with the prior written consent of the Company and the Executive.  No waiver by the Company of any breach of the Restrictive Covenants shall be a waiver of any preceding or succeeding breach.

 

[Remainder of Page Intentionally Left Blank; Signature Page to Follow]

 

16



 

IN WITNESS WHEREOF, the parties hereto have executed this Executive Employment Agreement as of the day and year first above written.

 

 

QUENCH USA, INC.

 

 

 

 

 

By:

/s/ DRB

 

 

Douglas Brown

 

 

Chairman of the Board

 

 

 

 

 

EXECUTIVE

 

 

 

 

 

/s/ Anthony Ibarguen

 

Anthony Ibarguen

 

17


 

 

Exhibit A

 

PRIOR INVENTIONS

 

A- 1



 

Exhibit B

 

FORM OF GENERAL RELEASE OF ALL CLAIMS

 

This General Release of All Claims is made as of             ,      (“General Release”), by and between Anthony Ibarguen (the “Executive”) and Quench USA, Inc. (the “Company”).

 

WHEREAS, the Company and the Executive are parties to an Executive Employment Agreement dated as of             ,      (the “Executive Employment Agreement”);

 

WHEREAS, the Company wishes to terminate the Executive’s employment with the Company without Cause;

 

WHEREAS, the execution of this General Release is a condition precedent to the payment of severance as set forth in Section 2.3(b) of the Executive Employment Agreement;

 

WHEREAS, in consideration for the Executive’s signing of this General Release, the Company will provide the Executive with severance benefits pursuant to Paragraph 2.3(b) of the Executive Employment Agreement; and

 

WHEREAS, the Executive and the Company intend that this General Release shall be in full satisfaction of the obligations described in this General Release owed to the Executive by the Company, including those under the Executive Employment Agreement.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be legally bound hereby, the Company and the Executive agree as follows:

 

1.                                       The Executive, for himself, the Executive’s spouse, heirs, administrators, children, representatives, executors, successors, assigns, and all other persons claiming through the Executive, if any (collectively, “Releasors”), does hereby release, waive, and forever discharge the Company and each of its respective agents, subsidiaries, parents, affiliates, related organizations, employees, officers, directors, attorneys, successors, and assigns (collectively, the “Releasees”) from, and does fully waive any obligations of Releasees to Releasors for, any and all liability, actions, charges, causes of action, demands, damages, or claims for relief, remuneration, sums of money, accounts or expenses (including attorneys’ fees and costs) of any kind whatsoever, whether known or unknown or contingent or absolute, which heretofore have been or which hereafter may be suffered or sustained, directly or indirectly, by Releasors in consequence of, arising out of, or in any way relating to: (a) the Executive’s employment with the Company and any of its subsidiaries; (b) the termination of the Executive’s employment with the Company and any of its subsidiaries; (c) the Executive Employment Agreement; or (d) any events, acts, agreements or conduct occurring on or prior to the date of this General Release.  The foregoing release and discharge, waiver and covenant not to sue includes, but is not limited to, all claims and any obligations or causes of action arising from such claims, under common law including wrongful or retaliatory discharge, breach of contract (including but not limited to

 

B- 1



 

any claims under the Executive Employment Agreement and any claims under any restricted stock or stock option or similar agreements between the Executive, on the one hand, and the Company or any of its subsidiaries, on the other hand) and any action arising in tort including libel, slander, defamation or intentional infliction of emotional distress, and claims under any federal, state or local statute including the Age Discrimination in Employment Act (“ADEA”), Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866 and 1871 (42 U.S.C. § 1981), the National Labor Relations Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973, or the discrimination or employment laws of any state or municipality, and/or any claims under any express or implied contract which Releasors may claim existed with Releasees.  This also includes a release of any claims for wrongful discharge and all claims for alleged physical or personal injury, emotional distress relating to or arising out of the Executive’s employment with the Company or any of its subsidiaries or the termination of that employment; and any claims under the WARN Act or any similar law, which requires, among other things, that advance notice be given of certain work force reductions.  This release and waiver does not apply to: (i) any right to indemnification now existing under the charter or bylaws; (ii) any rights to the receipt of employee benefits which vested on or prior to the date of this General Release; (iii) the right to receive Severance Benefits under Section 2.3(b) of the Executive Employment Agreement and the right to reimbursement of expenses under Section 2.4(c) of the Executive Employment Agreement; and (iv) right to employee-paid continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act, if available.

 

2.                                       Excluded from this General Release and waiver are any claims which cannot be waived by law, including but not limited to the right to participate in an investigation conducted by certain government agencies.  The Executive does, however, waive the Executive’s right to any monetary recovery should any agency (such as the Equal Employment Opportunity Commission) pursue any claims on the Executive’s behalf.  The Executive represents and warrants that the Executive has not filed any complaint, charge, or lawsuit against the Releasees with any government agency or any court.  The Executive also represents and warrants that he has been paid for all time worked and has received all the leave of absence and leave benefits and protections for which the Executive was eligible.

 

3.                                       The Executive agrees never to seek personal recovery from Releasees in any forum for any claim covered by the above waiver and release language.  If the Executive violates this General Release by suing Releasees, other than under the ADEA or as otherwise set forth in Section 1 hereof, the Executive shall be liable to the Company for its reasonable attorneys’ fees and other litigation costs incurred in defending against such a suit to the extent permitted by law.

 

4.                                       The Executive acknowledges and recites that:

 

(a)                                  the Executive has executed this General Release knowingly and voluntarily and is knowingly and voluntarily waiving any rights he has under the ADEA;

 

(b)                                  the Executive has read and understands this General Release in its entirety;

 

B- 2



 

(c)                                   the Executive has been advised and directed in writing (and this subparagraph (c) constitutes such written direction) to seek legal counsel and any other advice the Executive wishes with respect to the terms of this General Release before executing it;

 

(d)                                  the Executive’s execution of this General Release has not been forced by any employee or agent of the Company, and the Executive has had an opportunity to negotiate about the terms of this General Release;

 

(e)                                   the Executive’s waiver does not apply to any rights or claims that arise after the date the Executive signs this General Release;

 

(f)                                    the Executive has been offered twenty one (21) calendar days after receipt of this General Release to consider its terms before executing it;(1) and

 

(g)                                   the payment of severance pursuant to Section 2.3(b) of the Executive Employment Agreement is consideration for the Executive’s covenants and agreements set forth in this Release and is in addition to anything of value to which the Executive is otherwise entitled.

 

5.                                       This General Release shall be governed by the internal laws (and not the choice of laws) of the State of Pennsylvania, except for the application of pre-emptive Federal law.

 

6.                                       The Executive shall have seven (7) days from the date he executes this General Release to revoke his waiver of any ADEA claims by providing written notice of the revocation to the Company, as provided in Section 13.3 of the Executive Employment Agreement.  In the event of such revocation, the terms of Section 13.3 of the Executive Employment Agreement shall govern.

 

7.                                       Defined terms not defined in this General Release have the meanings given in the Executive Employment Agreement.

 

PLEASE READ THIS AGREEMENT CAREFULLY.  IT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

 

 

Date:

 

 

 

 

 

Anthony Ibarguen

 

 

 

 


(1)  In the event the Company determines that the Executive’s termination constitutes “an exit incentive or other employment termination program offered to a group or class of employees” under the ADEA, the Company will provide the Executive with: (1) 45 days to consider the General Release; and (2) the disclosure schedules required for an effective release under the ADEA.

 

B- 3


 



Exhibit 10.7

 

EXECUTION VERSION

 

WATER SALE AGREEMENT
BETWEEN WATER & SEWERAGE AUTHORITY TRINIDAD AND
TOBAGO
AND SEVEN SEAS WATER GROUP

 

This Agreement (hereinafter, this “ Agreement ”) is entered into this 7 th day of May  2010 by and between Seven Seas Water (Trinidad) Unlimited, Seven Seas Water Corporation and its affiliates ~ members of the Seven Seas Water Group (hereinafter called the “ Supplier ”) headquartered at 14400 Carlson Circle, Tampa, Florida, USA, and WATER & SEWERAGE AUTHORITY (hereinafter called the “ Client ”), located at Farm Road, Valsayn, St. Joseph, Trinidad, WI.  Client and Supplier shall each hereinafter be referred to as a “ Party ” and collectively as the “ Parties ”.

 

WHEREAS, Client desires to obtain a supply of potable quality water to support the potable water production required by Client for the Point Fortin site (“ POINT FORTIN Site ”) on the Island of Trinidad as further identified in Exhibit A-2 attached hereto;

 

WHEREAS, Client, subject to the successful completion of all of its obligations set forth in Section 6 hereof and the satisfaction of the other conditions precedent set forth in this Agreement, has requested that Supplier provide potable quality water to the POINT FORTIN Site in an amount up to 20,833 Cubic Meters Per Day (“ M3/D ”) of water effective as at the completion of the installation and commissioning of Phase Two (as each such “Phase” is hereinafter described in Exhibit A-1 ) of the System (as hereinafter defined) at the POINT FORTIN Site;

 

WHEREAS, Supplier is willing and able to provide, own, install and operate one or more desalination plants to supply such needs;

 

NOW, THEREFORE, in consideration of the mutual promises set forth herein and the monies to be paid hereunder, the Parties agree as follows:

 

1.               SERVICES AND SYSTEMS; PREMISES :

 

1.1                                Supplier agrees to sell, and Client agrees to buy, Product Water (as hereinafter defined) produced by the reverse osmosis desalination system to be installed, owned and operated by Supplier at the POINT FORTIN Site as contemplated by this Agreement with a design capacity of 20,833 Cubic Meters of water per day at the POINT FORTIN Site (collectively, the “ System ”).  The descriptions of the System and its Phases are set forth in Exhibit A-l hereto.  The System shall include, without limitation, all containers, pipes, fixtures, improvements, feed water system, associated filters, pretreatment, post-treatment, injection pumps, feed water pumps, holding tanks, piping and controls, inventories and supplies of the desalination facility and related parts and components thereof installed by or on behalf of Supplier, including any future replacements, alterations, additions, expansions or modifications thereto.  The System shall be installed at the POINT FORTIN Site provided by WASA on the real property currently owned by the Petroleum Company of Trinidad & Tobago (“Petrotrin”) (together with any future owner of such real property, hereinafter called the “ Owner ”) located at and commonly known as POINT FORTIN (the “ Property ”) in the location shown on the site plan attached hereto as Exhibit A-2 (collectively the “ Premises ”).  The System shall not include and Client shall provide (if required), at Client’s sole cost and expense Product Water distribution systems in accordance with Section 6 below (including, without limitation, tie-in points within fifty feet of the System).  The System shall at all times be the property of Supplier as provided in Section 7 below.  “ Product Water ” means the

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 



 

potable quality water produced by the System in accordance with the requirements set forth in Section 5.3 of this Agreement.

 

1.2                                Upon receipt of a written request from Supplier, Client shall provide Supplier with reasonable staging areas at the Property outside of the Premises within reasonable proximity to the Premises to facilitate the Site Civil Works (as hereinafter defined) and Site Intake/Outfall Repairs and Improvements (as hereinafter defined), storage, installation, construction, reconstruction, renovation, repair, storage, removal and/or relocation of the System from time to time.

 

1.3                                Upon receipt of a written request from Supplier, Client shall provide Supplier with a secure storage area at the Property on or outside of the Premises within reasonable proximity to the Premises to facilitate the secure storage of containerized water plants in anticipation of their arrival while the Site Civil Works and Site Intake/Outfall Repairs and Improvements are ongoing.

 

2.               TERM OF THE AGREEMENT :

 

2.1                                This Agreement shall commence upon the mutual execution and delivery of this Agreement by the Parties (the “ Effective Date ”) and shall continue for a period of thirty-six months following the Phase Two Start Date (as defined below) of the System at the POINT FORTIN Site (the “ Expiration Date ”), or until this Agreement is otherwise terminated as expressly authorized herein.  “ Agreement Term ” means the term of this Agreement from the Effective Date until the latest of the Expiration Date, the First Option Period Expiration Date (as defined below) or the Second Option Period Expiration Date (as defined below), or until this Agreement is otherwise terminated as expressly authorized herein.  “ Start Date ” means the date on which a specific Phase of the System (as described in Exhibit A-l ) has been installed and rendered operational, which, except as otherwise provided in this Agreement, shall be according to the timeline estimates presented in Exhibit D subject to the successful completion by Client of all of its obligations under Section 6 hereof, the successful completion of the Site Civil Works and Site Intake/Outfall Repairs and Improvements based on the estimated schedule at Exhibit D, and the satisfaction of the other conditions precedent set forth in this Agreement.  “ Phase Two Start Date ” means the date on which the System has been completely installed and rendered operational.

 

2.2                                Up to six (6) months before the Expiration Date (the “ Extension Date ”), Client shall have the option to provide Supplier with written notice of its election to extend the Agreement Term beyond the Expiration Date (an “ Option Extension Notice ”) for a fixed period of an additional twelve (12) months (for a total period of forty-eight (48) months  from the Phase Two Start Date) or for a fixed period of an additional twenty-four (24) months (for a total period of sixty (60) months from the Phase Two Start Date).  For purposes of this Agreement, the “ First Option Period ” means the first twelve-month extension period following the Expiration Date and the “ Second Option Period ” means the second twelve month extension period following the Expiration Date.  If prior to the Extension Date Client provides an Option Extension Notice to Supplier for the First Option Period only, then Client shall also have the right at least six (6) months (the “ Second Extension Date ”) before the expiration of the First Option Period (the “ First Option Period Expiration Date ”) to provide Supplier with an Option Extension Notice of its election to extend the Agreement Term beyond the First Option Period Expiration Date for the Second Option Period.  In addition, at least six (6) months before the expiration of the Second Option Period (the “ Second Option Period Expiration Date ”).  Client shall have the option to provide Supplier with written notice of its

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

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election to extend the Agreement Term beyond the Second Option Period Expiration Date for a mutually acceptable period on mutually acceptable terms and conditions.  The Parties agree to negotiate the period, terms and conditions of any further extension of this Agreement beyond the Second Option Period Expiration Date in good faith and upon mutually agreeable terms to be documented in an amendment to this Agreement (an “ Extension Amendment ”).  If Client fails to provide an Option Extension Notice to Supplier on or before the applicable Extension Date or the Parties are unable to negotiate and execute an Extension Amendment on or before the Second Option Period Expiration Date, the Agreement Term will expire effective as of the Expiration Date, the First Option Period Expiration Date or the Second Option Period Expiration Date, as the case may be.

 

2.3                                Notwithstanding anything contained in this Agreement, Supplier shall have a period of one hundred and twenty (120) days following the date the Agreement Term actually ends, to remove the System from the Property and Supplier shall have an easement to access the Property during such period as and whenever necessary to remove the System there from.  Upon the removal of the System, Supplier shall return the Premises to a clean and safe condition.

 

3.               MINIMUM PURCHASE AND DELIVERY COMMITMENTS :

 

3.1                                For the period beginning on the Phase One Start Date Client agrees to purchase from Supplier all of the water that the System can produce up to the maximum of the design capacity on an average monthly basis of *** (the System design capacity ***) of Product Water (the “ Phase One Guaranteed Minimum Purchase .  For the period beginning on the Phase Two Start Date Client agrees to purchase from Supplier all of the water that the System can produce up to the maximum of the design capacity on an average *** amount of *** (the System design capacity of 20,833 Cubic Meters per day ***) of Product Water (the “ Phase Two Guaranteed Minimum Purcha se”).  The Phase One Guaranteed Minimum Purchase and the Phase Two Guaranteed Minimum Purchase are also referred to herein generally as the “ Guaranteed Minimum Purchase ”.  Client shall pay Supplier each calendar month, at the applicable Water Rate (as hereinafter defined) set forth in Section 4 of this Agreement, for the greater of (i) the relevant Guaranteed Minimum Purchase or (ii) the amount of Product Water actually supplied during such calendar month.  Within five (5) days after the end of each calendar month during the Agreement Term, the actual amount of Product Water supplied during such calendar month will be calculated and Client will be invoiced for the greater of (i) the relevant Guaranteed Minimum Purchase or (ii) the amount of Product Water actually supplied during such calendar month subject to the terms and conditions of Section 3.2.

 

3.2                                Subject to Section 5.2 hereof, Supplier agrees to be able to deliver to Client a minimum amount of Product Water equal to (i) the Phase One Guaranteed Minimum Purchase during Phase One, (ii) the Phase Two Guaranteed Minimum Purchase from the Phase Two Start Date until the Expiration Date, the First Option Period Expiration Date or the Second Option Period Expiration Date, as the case may be, averaged over each calendar month during the Agreement Term (the “ Operations ”).  If the System during any calendar month produces an amount of Product Water less than the Guaranteed Minimum Purchase for such month, Client’s payment obligations will be subject to adjustment pursuant to Section 4.2 hereof.  If the System during any consecutive three-month  period produces an amount of Product Water less than *** of the Guaranteed Minimum Purchase for such three-month period (and the cause of such shortfall is not attributable to Client or any other causes set forth in Section 5.2 hereof), Client may provide written notice of default to Supplier pursuant to Section 13 hereof.  If Client fails to purchase the relevant Guaranteed Minimum Purchase at any time

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

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during the Agreement Term, Supplier (in addition to all of the other remedies available to Supplier under Section 12 hereof) shall be entitled to dismantle, remove and ship the System and charge Client for all costs incurred in connection therewith.

 

4.               CONSIDE RA TION :  Client shall pay to Supplier the following amounts:

 

4.1                                Client’s obligation for all payments for Product Water under this Agreement shall be at a price payable in U.S. currency of ***  (US ***) per *** of Product Water delivered by Supplier (the “ Water Rate ”).  In the event Client exercises its option to extend the Agreement Term beyond the Expiration Date, the Water Rate during the First Option Period and the Second Option Period will be reduced as specified in Exhibit C (the “ Option Water Rates ”).  The Water Rate and the Option Water Rates (collectively, the “ Water Rate ”) during the Agreement Term shall be subject to an annual *** adjustment in accordance with the Pricing Schedule set forth in Exhibit C (the “ Pricing Schedule ”).  A dismantling and demobilization fee (the “ Dismantling Fee ”) in the amount of *** (US $***) shall also be due and payable by Client to Supplier upon the Expiration Date, except if the Client exercises its option to extend the Agreement Term beyond the Expiration Date in accordance with Section 2.2 hereof in which case the Dismantling Fee shall be *** in accordance with the Pricing Schedule set forth in Exhibit C hereto.  Additionally, a *** will be made to the Water Rate effective from the Phase One Start Date if the Supplier’s cost of the Site Civil Works (except for the Client Site Work Preparations (as hereinafter defined) which are Client’s responsibility) and Site Intake/Outfall Repairs and Improvements *** in Sections 5.1.i and 5.1 j hereof, it being understood and agreed that Supplier will inform Client in a timely manner of timing and costs when estimated by selected civil works subcontractors and provide detailed, final accounting to Client within 60 days of completion of Site Civil Works and Site Intake/Outfall Repairs and Improvements (as set forth in Exhibits C and D ).

 

4.2                                In addition, if the System during any calendar month produces an amount of Product Water less than the Guaranteed Minimum Purchase for such month  (and the cause of such shortfall is not attributable to Client or any other causes set forth in Section 5.2 hereof), the Water Rate for such month will be *** in accordance with the Average Monthly Water Shortfall Tariff Penalty Table set forth in Exhibit C hereto.

 

4.3                                Supplier shall install two identical meters or dual meters (the “ Water Meters ”) in series to be used for measuring the water produced by the System and for billing purposes.  The Water Meters shall be certified by a laboratory satisfactory to the Client and the Water Meters will be approved by the Client in advance of their installation and such approvals will not be unreasonably withheld or delayed.  Supplier, in the presence of an authorized agent of Client, if so requested by Client and such agent is available on a timely basis, shall take monthly readings from both Water Meters for billing purposes.  The billed amount shall be the average of the two meters.  Should there be a discrepancy of over ***  between the two Water Meters, the Meters shall be calibrated at both Parties’ shared expense and jointly read by the Parties to ensure accuracy within the ***.  If one Water Meter fails to register or is obviously registering a grossly inaccurate number based on the other operating parameters of the plant (greater than ***), the second Water Meter shall be used alone until the faulty Water Meter is repaired or replaced by Supplier, which repair or replacement shall occur within sixty (60) days of the failure of the Water Meter.  Supplier shall provide Client with a copy of the accuracy and calibration certificates for the Water Meters.

 

4.4                                Client agrees to process all bills for approval within five (5) business days.  Unless notification of objections is delivered to Supplier at the end of said five day approval period,

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

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the Client agrees to pay all bills within thirty (30) days thereafter.  Supplier will prepare an invoice promptly after the end of each calendar month in accordance with this Agreement.  If any invoice remains unpaid for more than thirty-five (35) days, Supplier may provide a Notice of Amounts Due to Client.  If Client does not pay Supplier within sixty days of such Notice of Amounts Due.  Supplier may declare an immediate default and terminate this Agreement by written notice to Client pursuant to Section 12 hereof.  Such termination shall not be construed to waive or release any rights of Supplier to seek specific performance or any other remedies to which it may be entitled, including for breach of this Agreement.  Amounts overdue more than 30 days will bear interest at a rate per annum equal to the lesser of (i) ***  or (ii) the highest rate then permitted under applicable law, on the outstanding amount from the date due until the date paid, with a minimum late fee of ***.  Any taxes, duties, levies or fees to be paid by Client pursuant to Section 6 hereof shall be billed to Client as a pass-through expense.

 

5.               RESPONSIBILITIES OF SUPPLIER :

 

5.1                                Subject to the successful completion by Client of all of its obligations under Section 6 hereof and the satisfaction of the other conditions precedent set forth in this Agreement, Supplier assumes the responsibility, including all costs and expenses relating thereto, for the following duties necessary for the construction and operation of the System:

 

5.1.a.                   Provide specifications for the Client Site Work Preparations (as hereinafter defined) to Client promptly following the Effective Date and use its commercially reasonable efforts to provide for the design, engineering, construction (including the Site Civil Works), shipping, and installing the System at the POINT FORTIN Site on the Premises and render the System operational according to the schedule specified in Exhibit D .  Notwithstanding the foregoing, the Parties agree that if Supplier fails to supply Product Water in accordance with the Phase One schedule (as described in Exhibit D ) to the POINT FORTIN Site and such failure persists for more than two weeks  after the Phase One Start Date (the “ Supplier Grace Period ”), provided that Client has successfully completed all of its obligations under Section 6 and that the Site Civil Works and Site Intake/Outfall Repairs and Improvements are completed according to the schedule referenced in Exhibit D and that the cause of such failure is not otherwise attributable to Client or any other causes set forth in Section 5.2 hereof, then ***;

 

5.1.b.                   Provide coordination support for Client retained Hazardous Materials third party contractor for Client Site Work Preparations collectively specified at Exhibit D .  It is understood and agreed by the Parties that the Supplier shall not be responsible for the performance of the Client retained third party contractor.

 

5.1.c.                    Maintain, repair and provide all engineering, project management and field services required for the ongoing operations of the System throughout the Agreement Term as Supplier deems necessary.  The Supplier shall provide a monthly operation and maintenance report to the Client;

 

5.1.d.                   Provide a state of the art SCADA system to control the System and allow for remote monitoring, control and diagnostics;

 

5.1.e.                    Provide all labor, parts and consumables required to operate, maintain, repair and replace the System and its components as Supplier deems necessary;

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

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5.1.f.                     Pay all operating expenses of the System including expenses for labor, replacement membranes, filters, chemicals, parts and oil;

 

5.1.g.                    Provide all electrical and mechanical installation within the “Battery Limits” of the System;

 

5.1.h.                   Ensure there is onboard instrumentation on the System that will record conductivity, pH and such other key water quality parameters to monitor quality compliance;

 

5.1.i.                       Provide Client with a monthly report showing the aggregate cubic meters of Product Water and the average salinity level of the Product Water produced by the System during the preceding calendar month;

 

5.1.j.                      Provide the civil works at the POINT FORTIN Site as listed in Exhibit D (collectively the “ Site Civil Works ”) except for the Client Site Work Preparations allocated to Client under Section 6.2 hereof and more fully described in Exhibit D ), the cost of which Site Civil Works has been estimated for pricing purposes at $ ***; and

 

5.1.k.                   Provide the rehabilitation of the existing Petrotrin Point Fortin intake and outfall works at the POINT FORTIN Site as listed in Exhibit D (collectively the “ Site Intake/Outfall Repair and Improvements ”) except for the Client Site Work Preparations allocated to Client under Section 6.2 hereof and more fully described in Exhibit D), the cost of which Site Intake/Outfall Repair and Improvements has been estimated for pricing purposes at $ ***.

 

5.2                                Supplier shall not be responsible for a decrease in water production, quality of Product Water or System shutdown caused by the failure of Client to meet any of the requirements in Section 6 below, or contamination or change in the quality or quantity of the feed water as set forth in Exhibit B , or the unavailability of power, fuel or other utilities or supplies necessary to perform the Operations.  Should any of the aforementioned events limit the amount of Product Water produced by the System or result in a shutdown of the System, Client shall continue to make the payments required hereunder based upon the actual daily production of the System prior to the interruption or the applicable Guaranteed Minimum Purchase ***.  If any of the events described in this Section 5.2 should occur and result in a decrease in water production, quality of the Product Water or System shutdown, Supplier agrees to use its commercially reasonable efforts to assist Client in finding a solution to such interruption.

 

5.3                                Subject to the terms and conditions of this Agreement, the Product Water provided by Supplier will meet the World Health Organization (“WHO”) standard for potable water salinity having a conductivity level not to exceed *** measured by the conductivity meter (the “ Conductivity Meter ”) to be installed by Supplier as part of the System and to be used for measuring the level of salinity in the Product Water produced by the System.  This Product Water quality is warranted at the Conductivity Meter only.

 

In addition, if such standards change from those in effect on the Effective Date of this Agreement or if at any time during this Agreement Term the feed water fails to meet the specifications set forth on Exhibit B and if any such changes require additional equipment to be purchased or other capital investments to be made, Supplier, if requested by Client and provided it is commercially reasonable, will make such expenditures, as agreed between the

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

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Parties, and the Water Rate paid by Client as specified in Section 4 will be increased to amortize that capital investment over the then remaining term of this Agreement.

 

Supplier’s Product Water quality obligations and warranties are contingent upon the feed water meeting the specifications set forth in Exhibit B .  Client may, at its expense, choose to have a water sample tested at a certified testing laboratory at any time.  If the System during any calendar *** produces water with a salinity (TDS) level in excess of *** (“ Deficient Water ”).  Client may, at its option, elect to accept the Deficient Water which shall upon such acceptance be deemed to be “Product Water” for purposes of this Agreement.  If, on the other hand, Client declines to accept the Deficient Water by written notice to Supplier (and the cause of such deficiency is not attributable to Client or any other causes set forth in Section 5.2 hereof), Supplier shall have a reasonable time (not to exceed ***  from the receipt of such notice from Client) to rectify the situation (the “ Salinity Cure Period ”).

 

5.4                                Supplier shall be an independent contractor and shall have complete and undivided responsibility and sole discretion for the means by which the System is to be operated.  Without any qualification of such undivided responsibility, Supplier shall have the right to enter into such subcontracts, purchase orders, and other commitments with third parties for the performance of any part of the performance of its obligations, as may in its opinion be advantageous, necessary or desirable.  Notwithstanding the foregoing, Supplier will provide Client with a list of proposed sub-contractors within fifteen (15) days of the Effective Date; the Client will have the opportunity to raise objection to any sub-contractors on said list within forty-eight (48) hours.  The Supplier shall provide a monthly operation and maintenance report to the Client.

 

6.               RESPONSIBILITIES OF CLIENT :  Client assumes the responsibility, including all costs and expenses relating thereto, for the following duties necessary for construction and operation of the system:

 

6.1                                The Client will provide Supplier with the Premises as the location for the System as set forth in Exhibit A-2 and in furtherance of such obligations:

 

6.1.a.                   Prior to commencement of the Site Civil Works and Site Intake/Outfall Repairs and Improvements Client shall obtain a license from Petrotrin permitting full access to the Premises.  Thereafter and subject to the agreement of Petrotrin, Client shall enter into a lease with Petrotrin for the POINT FORTIN Site, on or by 1 st  June 2010, for a minimum period of Four (4) years automatically renewable annually for at least Two (2) additional years in the event of an extension of this Agreement, on such terms and conditions that are acceptable to all the Parties, including but not limited to any restrictions on operations with respect to hazardous area designation.

 

6.1.b.                   Prior to commencement of the Site Civil Works and Site Intake/Outfall Repairs and Improvements, Client shall grant a sub-license to Supplier permitting full access to the Premises.  Thereafter and subject to section 6.1.a. above, Client shall enter into a sub-lease with the Supplier, on or by ***, for the POINT FORTIN Site for a minimum period of *** automatically renewable annually for at least *** in the event of an extension of this Agreement, on such terms and conditions that are acceptable to all the Parties and such sub-lease shall include, without limitation, an appropriate indemnity paragraph against any risks caused by existing Hazardous Materials on the POINT FORTIN Site as of the Effective date and no restrictions on operations with respect to hazardous area designation.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

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6.2                                Complete the Client Site Work Preparations and connections at the Premises in accordance with the specifications provided by Supplier to Client prior to the arrival of the System at the POINT FORTIN Site, including, without limitation, at the POINT FORTIN Site, provision of tie-in point to the Trinidad water supply for the product distribution line within fifty feet of the System, and a 460-480 volt electrical supply with electricity termination to enable the System to operate (collectively, the “ Client Site Work Preparations ” (as further specified at Exhibit D, collectively the “ Client Site Work Preparations ”).  It being understood and agreed that if Client fails to complete the Client Site Work Preparations prior to the arrival of the System at the POINT FORTIN Site in accordance with the Phase One schedule (as described in Exhibit D ) and such failure persists for more than *** after such arrival (the “ Client Grace Period ”), Client shall pay Supplier (i) $*** for the first full week following the Client Grace Period and (ii) $*** for each additional *** following the Client Grace Period that Supplier is unable to install and render the System operational as a result of such failure;

 

6.3                                Provide the personnel and agents of Supplier and its designees with unrestricted 24-hour access every day to the Premises as necessary for design, construction, installation, operation, inspection, repair, maintenance, and removal of the System and for any other purposes consistent with Supplier’s rights or obligations under this Agreement;

 

6.4                                Maintain the Property and the facilities and structures enclosing the System and all utility systems serving the System in good condition and repair and in a manner sufficient to restrict access to the Premises and the System by anyone other than the authorized personnel and agents of Supplier.

 

6.5                                Provide electrical connections and disconnect switches, infrastructure for electricity supply (except transformers), the main electrical disconnect switch and the circuit breaker and an optional electric meter, and sufficient uninterrupted amounts of 460-480  volt, 3-Phase, 60  Hz electrical power to enable the System to operate, and pay for all electricity consumed by the System during the Agreement Term.

 

6.6                                Provide logistical and other support as reasonably requested by Supplier to facilitate the landing and off-loading of any barge or freight-carrying vessel or other delivery vehicles at the Client’s location, including the Premises, for the purpose of deli very/departure of large/heavy equipment, whether construction equipment or System equipment and facilitate the storage and placement of the System container and supply shipments;

 

6.7                                Provide a dedicated telephone line as well as facilitate the availability of secure, high-speed Internet connections for the control container of the System that will allow the System to communicate with Supplier with minimum internet connection speed of 6MB or a Tl Line and a static IP address with the expenses of such Internet service and telephone lines to be paid by Supplier;

 

6.8                                Use commercially reasonable efforts to mitigate all customs, duties, gross receipts taxes and other levies in respect of the System; provided , however , that Client shall assume responsibility for any local government authority levies (including any new fees, licenses, or taxes) imposed after this Agreement is signed, including without limitation any new property, excise, extraction or similar taxes in respect of the Premises and/or the System (excluding Supplier employee payroll and corporate income taxes);

 

6.9                                Use commercially reasonable efforts to obtain appropriate duty exemption or pay all import duties and fees applicable to the System as well as startup and ongoing operational spares;

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

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6.10                         Provide all connecting piping external to the System within fifty feet of the System, piping to storage facility and distribution piping identified in Exhibit A-2 .  Provide and maintain Product Water piping to the connecting flanges of the System at the Premises, with Product Water lines to have a back pressure of approximately twenty (20) pounds per square inch, but no more than twenty five (25) pounds per square inch, and maintain the quality of and assume all risks associated with the Product Water from the Water Meters onward through the distribution systems.  Client shall be solely responsible for providing and operating any desired chemical post-treatment of the Product Water supplied by the System beyond the standards called for in Section 5.3 hereof and for providing, operating and maintaining storage tanks and cisterns for Product Water and Product Water distribution systems;

 

6.11                         Maintain, repair and modify the rights of way and easements required for any pipelines outside of the System;

 

6.12                         Maintain and clean, as necessary, the water distribution system, including (but not limited to) storage tanks/cisterns for the Product Water, pumps, pipes, and fixtures, including, without limitation, maintaining an uninterrupted take away capacity for Phase One of *** and Phase Two of 20,833 M3/D (see Exhibit C) for the Product Water supplied by the System;

 

6.13                         Obtain at its own cost all necessary licenses and/or permits (and any required renewals thereof), including without limitation feed water extraction and brine disposal or discharge licenses or permits (if and when required), for the Client Site Work Preparations, Site Civil Works.  Site Intake/outfall Repairs and Improvements and the construction and operation of the System, (including but not limited to a Certificate of Environmental Clearance for the site work and for the System to be erected), the extraction of water and the sale and use of Product Water, and deliver all necessary permit applications and reports to regulatory bodies.  Client shall provide Supplier with copies of all such licenses and permits and the related applications filed by Client in connection therewith;

 

6.14                         Provide any additional post-treatment equipment required by Client; and

 

6.15                         Provide all commercially reasonable assistance to Supplier to obtain all necessary business licenses and approvals to incorporate in Trinidad.

 

7.               OWNERSHIP OF THE SYSTEM :  Supplier is the sole legal and beneficial owner and the operator of the System (as described in ExhibitA-1), free and clear of any liens or other interests in favor of Client.  The System shall remain the personal property of Supplier and shall not attach to or be deemed a part of, or become a fixture to, the Premises and/or the Property regardless of the manner of affixation to the Premises.  Without limiting the generality of the foregoing, Client hereby waives any statutory or common law lien that it might otherwise have in or to the System or any part thereof and agrees that, notwithstanding the occurrence of an event of default under this Agreement beyond all applicable notice and cure periods or the expiration or any other termination of the Agreement Term, Supplier shall maintain ownership of the System and may remove the System at any time from the Premises, whether or not affixed or attached to the realty, any building or any other equipment or property of Client or any other party.  Supplier acknowledges that the Property on which the System is located is not part of the System.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

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8.               REPRESENTATIONS AND WARRANTEES OF CLIENT :

 

Client will not alter, tamper with or in any way interfere with the System, or metering devices or controls, wiring or piping without the prior written consent of Supplier.  Any violation of these provisions shall be deemed an event of default by Client.

 

9.               RISK OF LOSS AND INSURANCE :

 

9.1                                Supplier shall, except as otherwise provided below, indemnify, defend, and hold harmless Client from and against any third party claims, suits or proceedings against Client based upon damages to persons or tangible property incurred by such third party that occur as a result of the negligence or intentional wrong doing of Supplier in connection with the performance by Supplier of its obligations under this Agreement.  Notwithstanding the foregoing, Supplier shall have no indemnification obligation in connection with any third party claim, suit or proceeding arising from:  (i) the operation or management of the Property, POINT FORTIN Site or Premises by Client or Owner, (ii) a breach by Client of any of its obligations under Section 6 hereof, (iii) a breach by Client of any of its representations or warranties set forth in Section 8 hereof, (iv) the failure of the feed water to meet any of the Specifications set forth in Exhibit B at any time during the Agreement Term or (v) any permit application or any other regulatory filing made by or on behalf of Client in connection with the System or the Premises.  Client shall indemnify, defend, and hold harmless Supplier, its affiliates and their respective employees, officers, directors, shareholders, agents, licensees, invitees, contractors, subcontractors or other representatives (“ Supplier Indemnified Parties ”) from and against any third party claims, suits or proceedings against any such Supplier Indemnified Parties based upon damages to persons or tangible property incurred by such third party as a result of the negligence or intentional wrong doing of Client or Client retained third party contractor or that otherwise arise out of any third party claim, suit or proceeding covered by (i)~(v) in the preceding sentence.  The indemnifying Party’s obligations under this Section 9.1 shall be conditioned on (a) the other Party promptly notifying the indemnifying Party, in writing, of the filing of any third party claim, suits or proceeding for which indemnification is sought hereunder, (b) the indemnifying Party having sole control and authority with respect to the defense or settlement of any such claim, suit or proceeding, and (c) the other Party cooperating fully with the indemnifying Party, at the indemnifying Party’s sole cost and expense, in the defense of any such claim, suit or proceeding.  The indemnifying Party shall not accept any settlement which imposes liability not covered by this indemnification or restrictions on the other Party without the other Parry’s prior written consent, which consent shall not be unreasonably withheld or delayed.  The indemnified Party may participate in the defense of any claim, suit or proceeding through its own counsel, and at its own expense.

 

9.2                                Prior to the installation of the System and during the Agreement Term, Supplier will maintain in full force and effect, throughout the Agreement Term, (i) a policy of special form property and casualty insurance, insuring the System against loss or damage due to fire or other casualty (excluding wind, hurricane and earthquake) equal to the full replacement value of the System, and (ii) a policy of commercial general liability insurance with coverage of at least $*** combined single limit per occurrence on a per location basis, which can be achieved through a combination of primary and umbrella liability coverage.  A Certificate of Insurance will be provided to Client upon request.

 

9.3                                THE AGGREGATE LIABILITY OF SUPPLIER .AND ITS AFFILIATES, AND THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS, SHAREHOLDERS AGENTS, LICENSEES, INVITEES, CONTRACTORS, SUBCONTRACTORS AND OTHER REPRESENTATIVES, IN CONNECTION WITH THIS AGREEMENT AND THE GOODS AND SERVICES PROVIDED HEREUNDER SHALL BE LIMITED TO THE

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

10



 

INSURANCE COVERAGE SPECIFIED IN SECTION 9.2 HEREOF.  IN NO EVENT SHALL SUPPLIER OR ANY SUPPLIER INDEMNIFIED PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR LIQUIDATED DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, DIMINUTION IN VALUE, MULTIPLE DAMAGES, LOSS OF USE, COVER OR CLAIMS BY THIRD PARTIES (OTHER THAN THIRD PARTY CLAIMS COVERED BY SUPPLIER’S INDEMNIFICATION OBLIGATIONS IN SECTION 9.1 HEREOF).

 

9.4                                Any insurance carried by either Party with respect to the System and the client insured property or any occurrences thereon shall include a clause or endorsement denying to the insurer rights of subrogation against the other Party to the extent rights have been waived by the insured prior to occurrence of injury or loss.  Each Party, notwithstanding any provisions of this Agreement to the contrary, hereby waives any rights of recovery against the other for injury or loss due to hazards covered by such insurance (or which would have been covered had such party carried the insurance required to be carried by it under this Agreement) to the extent of the indemnification received under such insurance policy (or which would have been received had such Party carried the insurance required to be carried by it under this Agreement) and to the extent of any deductible maintained by such Party.

 

10.        FORCE MAJEURE :

 

10.1                         A “ Force Majeure Event ” shall mean any event or circumstance or combination of events or circumstances that is beyond the control of the affected Party that causes the delay in, or the failure of, performance of such Party’s obligations under this Agreement but only to the extent that such act, event or circumstance that (i) is beyond the reasonable control of the Party relying thereon; (ii) is not the result of the willful misconduct or grossly negligent act or omission of such Party; and (hi) materially adversely affects the performance by that Party of its obligations under or pursuant to this Agreement (save for payment obligations), provided that the affected Party has taken commercially reasonable precautions, due care and commercially reasonable measures to prevent, avoid or overcome the effect of such event on its ability to perform its obligations under this Agreement.

 

10.2                         Without limiting the generality of the foregoing, a Force Majeure Event may include any of the following events and circumstances, but only to the extent that it satisfies the provisions of Section 10.1:  acts of God or the elements, site conditions, adverse weather conditions (including, without limitation, hurricanes, typhoons, tornadoes, cyclones, other severe storms, winds and lightning), explosion, fire, epidemic, landslide, mudslide, volcanic eruptions, sabotage, terrorism, lightning, earthquake, flood or similar cataclysmic event, an act of public enemy, war, blockade, civil insurrection, riot, civil disturbance, concealed or unknown physical conditions, or strike or other labor difficulty caused or suffered by a Party or any third party beyond the reasonable control of such Party, governmental regulation or restriction, or similar occurrence.

 

10.3                         Notwithstanding that a Force Majeure Event otherwise exists, the provision of this Section 10 shall not excuse (i) the failure of a subcontractor or supplier in the performance of its obligations to Supplier or Client, which failure itself is not caused by a Force Majeure Event, nor any financial difficulty suffered by any subcontractor, supplier or vendor of Supplier or Client in the performance of its obligations; or (ii) inability to pay or unavailability of funds.

 

10.4                         If, following a Force Majeure Event, the System cannot be repaired or rebuilt based on the terms and conditions set forth in Section 14 hereof, either party may terminate the

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

11



 

Agreement, upon ***prior written notice without liability or charge, except that Client shall remain obligated to pay all monies due to Supplier under this Agreement for water supplied through the date of termination of this Agreement.  In the event of termination due to Force Majeure (Supplier’s inability to rebuild System), the Supplier shall dismantle and remove the System from the Premises in accordance with Section 2.3 hereof at Supplier’s expense.  If the System can be repaired or rebuilt, provided that such rebuilding can be accomplished within ***.  Client and Supplier’s obligations under the Contract shall be suspended until such time as the System is rebuilt and capable of producing Product Water per the Agreement terms and conditions, after which the Parties’ obligations under the Agreement shall resume.

 

10.5                         The Party that claims to be unable to fulfill its commitments on basis of a Force Majeure Event shall inform the other Party in writing by courier, registered mail or by fax within *** after the event occurs.  The Parties shall meet to discuss the consequences of the situation within *** after the date of giving notice and shall negotiate in good faith to resolve the controversy.  The Parties acknowledge that, in connection with the notification of a Force Majeure Event, time is of the essence.  Therefore, failure by a Party to give any notice under this Section 10 shall prevent such Party from giving such notice at a later time, and may limit such party’s right to relief under Section 10.4 hereof.

 

11.        ASSIGNMENT BY SUPPLIER; RIGHT TO GRANT A SECURITY INTEREST :  Supplier may not assign this Agreement, without Client’s prior written consent, which will not be unreasonably delayed or withheld.  However, nothing herein shall relieve Supplier of its obligations hereunder to Client.  Notwithstanding anything herein to the contrary, Supplier or its successors and/or assigns may from time to time, without the prior written consent of Client, encumber the interest of Supplier or a successor and/or assignee in this Agreement and the rights granted hereunder by one or more security instruments (a “ Security Interest ”), including, without limitation, by a collateral assignment of this Agreement, provided that any Security Interest and all rights acquired under it shall be subject to each and all of the covenants, conditions and restrictions stated in this Agreement and to all rights and interests of Client and further provided, that Supplier or an assignee shall promptly upon the execution of any Security Interest deliver a written notice thereof to Client.  Without limiting the generality of the foregoing, nothing contained in such Security Interests shall release or be deemed to relieve Supplier from full and faithful observance and performance of the terms, covenants and conditions herein contained to be observed and performed by Supplier or from any liability for the non-observance or non-performance of any of the terms and conditions hereof, nor be deemed to constitute a waiver of any rights of Client hereunder, except as expressly provided for herein.  Client agrees upon request of Supplier or the holder of a Security Interest to execute an agreement in reasonable form which contains provisions and protections reasonably requested by the holder of such Security Interest.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

12



 

12.        CLIENT’S DEFAULT :  If, during the Agreement Term, Client shall fail to perform any of its material obligations under this Agreement, which default shall continue for *** after written notice thereof by Supplier (except as otherwise provided in Section 4.4 hereof in the case of a payment default), then Supplier, at its option, by written notice to Client may *** terminate this Agreement, cease to provide Product Water to Client, dismantle and remove the System from the Premises in accordance with Section 2.3 hereof, or any combination of the foregoing.  If the default however is of such nature that it cannot, with due diligence and adequate resources, be cured within ***, Supplier’s right to terminate shall be suspended during additional *** cure periods, up to a maximum of *** additional *** periods, as long as Client is diligently engaged with adequate resources in effecting a cure.  At the time of termination of this Agreement by Supplier under this Section 12 or in connection with any actual or constructive termination of this Agreement by Client other than as expressly authorized in this Agreement, Client shall pay Supplier for (i) all services performed to the date of termination in accordance with Sections 3 and 4 hereof, (ii) the *** as per Exhibit E, (iii) any un-recovered or unamortized capital expenditures, investments or improvements, and (iv) all costs incurred in dismantling, removing and shipping the System to Miami, Florida, USA.

 

13.        SUPPLIER’S DEFAULT :  If, during the Agreement Term, Supplier shall fail to perform any of its material obligations under this Agreement, which default shall continue for *** after written notice thereof by Client (or past the Salinity Cure Period under Section 5.3 hereof, if applicable), then Client, at its option, by written notice to Supplier may immediately terminate this Agreement.  If the default however is of such nature that it cannot, with due diligence and adequate resources, be cured within ***, Client’s right to terminate shall be suspended during additional *** cure periods, up to a maximum of *** additional *** periods, as long as Supplier is diligently engaged with adequate resources in effecting a cure.  At the time of termination of this Agreement by Client under this Section 13, Client shall pay Supplier for all services performed to the date of termination in accordance with Sections 3 and 4 hereof, and Supplier shall cease to provide water to Client and shall dismantle and remove the System from the Premises in accordance with Section 2.3 hereof at Supplier’s expense.

 

14.        CASUALTY OCCURRENCE :  In the event that the System shall be destroyed or substantially damaged as the result of a fire or other casualty, Supplier shall, within *** of the destruction or damage, subject to the agreement of Client (whose agreement will not be unreasonably with held), determine whether or not to rebuild or replace the System provided that such rebuilding or replacement can be accomplished within *** after the date of the destruction or damage, or to terminate this Agreement without liability or charge.  Client shall be liable for the payment for all Product Water supplied up until the date of the termination.  Client’s obligations for further payments shall cease unless and until such time as the System is rebuilt or replaced and capable of producing Product Water.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

13



 

15.        DISPUTE RESOLUTION, MEDIATION & ARBITRATION :  Any dispute or controversy arising under this Agreement that cannot be resolved by the Parties directly shall be the subject of a dispute resolution process whereby a mediator mutually acceptable to and appointed by the Parties will be involved to facilitate the process.  Any dispute or controversy arising under this Agreement that cannot be resolved through such mediation (or if the Parties fail to agree upon the selection of a mutually acceptable mediator) shall be determined and settled by arbitration conducted in accordance with the International Arbitration Rules of the International Chamber of Commerce and such arbitration shall take place in Barbados and be conducted in the English language.  Unless all parties to any dispute or controversy agree in writing to a sole arbitrator, this arbitration shall require not fewer than three arbitrators with each party to the dispute or controversy to select one arbitrator and the arbitrators thus selected to choose an additional arbitrator of international standing and the three arbitrators’ decision or arbitration award shall be final and binding, and judgment on the award may be entered by any court having competent jurisdiction.  The non-prevailing Party shall be responsible to pay all of the costs of the arbitration and the enforcement of a judgment on any award.

 

16.        COMPLIANCE WITH LAWS, POLICIES AND PERMITS :  Supplier shall comply with the requirements of all applicable laws, codes, rules and regulations governing the performance of the Operations in the jurisdiction in which the Property is located (collectively, “ Laws ”).  Other than when due to the gross negligence or intentional wrong doing of Supplier or any of its employees, agents or contractors, Supplier shall not be liable if any authorization is delayed, denied, revoked, restricted or not renewed.  In the event that any authorization is delayed, denied, revoked, restricted or not renewed, due to the act, omission or failure of Client or any of its employees, agents or contractors, and Supplier is thereby unable to perform the Operations at the System, Supplier shall be relieved of its obligations under this Agreement to perform such portion of the Operations which Supplier is not able to perform and Client shall remain obligated to pay the *** as per Exhibit E .  In the event that, notwithstanding the good faith and diligent efforts of Supplier, any of the licenses, approvals or permits required for Supplier to perform the Operations are not renewed or are terminated, then Supplier may elect to terminate this Agreement by delivery of written notice to the Client pursuant to Section 12 hereof.  Client shall be responsible for compliance with any local or other applicable entity regulations pertaining to Client’s operations, the Premises and the Property.  In the event of any changes to these regulations and policies, Client shall:  (i) promptly notify Supplier of any steps or actions Supplier must follow in association with such changes, and (ii) be responsible for all costs incurred by Supplier relating to such steps or actions.

 

17.        SUBCONTRACTING :  Supplier shall have the right to subcontract work to be performed, but shall remain liable for full performance hereunder.  Supplier shall instruct the subcontractors to abide by the same standards of behavior, rules and regulations that are required of Supplier.  If Client expresses their objection to the use of a specific Subcontractor, Supplier shall use reasonable efforts to accommodate Clients concerns.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

14



 

18.        HAZARDOUS MATERIALS :  Supplier shall not use, or permit to be used at the Property or release or permit to be released into the System or onto the Property or any area adjacent to the Property, any toxic substances, pollutants, contaminants, hazardous wastes, or radioactive substances or materials defined or regulated as hazardous materials pursuant to the Laws (collectively, “ Hazardous Materials ”).  The foregoing shall not prohibit Supplier’s use of substances and materials customarily used by Supplier in performing its obligations under this Agreement provided all such substances and materials are used, stored and disposed of in full compliance with applicable Laws.  Client shall not use, or permit to be used at the Property or release or permit to be released at or onto the Property or any area adjacent to the Property, any Hazardous Materials, except that the foregoing shall not prohibit the use of substances and materials customarily used by Client in the operation of its business at the Property provided all such substances and materials are not released or deposited into the System and are used, stored and disposed of in full compliance with applicable Laws.  Client shall indemnify, defend, and hold Supplier, its affiliates and their respective employees, officers, directors, shareholders, agents, licensees, invitees, contractors, subcontractors or other representatives harmless from any and all demands, losses, damages, liabilities, judgments, costs, claims, liens, expenses, penalties, permits and reasonable attorney’s and consultant’s fees caused by or arising out of the release, storage, disposal, placement or use of Hazardous Materials by Client or its affiliates or any of their respective agents, employees, contractors, subcontractors, clients, guests or invitees (the “ Client Parties ”) at or about the Property.  Client represents and warrants to Supplier that to Client’s best knowledge, there are no Hazardous Materials on, in or under the Property in violation of Hazardous Materials Laws.  The provisions of this Section 18 shall survive the expiration or earlier termination of the Contract Term of this Contract.

 

19.        ENFORCEABILITY; WAIVER :  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.  The failure of either Party to enforce rights granted hereunder or to take action against the other Party in the event of any default hereunder by such other Party shall not be deemed a waiver by the non-defaulting Party as to subsequent enforcement of rights or subsequent actions in the event of future defaults.  No waivers of any provisions of this Agreement shall be effective unless evidenced in writing and signed by both Parties.

 

20.        DESIGNATED PERSONNEL :  Each Party reserves the right to designate personnel to provide information and to coordinate the work with the other Party.  Client shall initially designate the following individual in such capacity:

 

***, Chief Operating Officer
Water & Sewerage Authority
Farm Road, Valsayn
St. Joseph
Trinidad, WI
Phone:  ***
NOTE:  The Chief Operating Officer may from time to time delegate this authority in writing to other WASA Management.

 

Supplier initially designates the following individuals in such capacity:

 

***
Senior Project Manager
Seven Seas Water Corporation
14400 Carlson Circle

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

15



 

Tampa, Fl 33626
Phone:  ***
Cell Phone:  ***

 

21.        NOTICE :  Any notice required or permitted to be given by either party shall be deemed to have been given seven (7) days after it is sent by fax, email and/or international courier service (such as DHL or Federal Express) as follows:

 

Supplier:                                                                                                 Seven Seas Water (Trinidad) Unlimited
Johnson, Camacho & Singh
10 Sweet Briar Rd, St. Clair
Port of Spain, Trinidad, WI
Attention: ***
Fax ***
Email ***

 

Copy to:                                                                                                 Seven Seas Water Corporation
14400 Carlson Circle
Tampa, FL 33626
Attention:  Vice President Finance and Administration
Fax ***
Email ***

 

Copy to:                                                                                                 Goodwin Procter LLP
Exchange Place
53 State Street
Boston, MA 02109
Attention:  ***
Fax ***
Email ***

 

Client:                                                                                                             Water & Sewerage Authority
Farm Road, Valsayn, St. Joseph
Trinidad, W.I.
Attention:  ***
Fax ***
Email ***

 

22.        APPLICABLE LAW :  The Parties agree that this Agreement shall be governed by and construed in accordance with the laws of the Trinidad & Tobago.

 

23.        APPLICABLE CURRENCY :  The Parties agree that unless otherwise stated, the currency shall be US dollars when the symbol “$” is used in this Agreement.

 

24.        *** .

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

16



 

25.        CONFIDENTIALITY :  Client and Supplier agree that this Agreement and the terms contained herein will be treated as strictly confidential and except as required by the Laws (or except with the written consent of the other Party).  Neither Party shall not disclose the same to any third party except for such Party’s employees, agents, partners, lenders, accountants and attorneys and like parties who have been advised of the confidentiality provisions contained herein and agree to be bound by the same.  As of the Effective Date, the Parties agree to execute the Mutual NDA at Exhibit F.

 

26.        ENTIRE AGREEMENT; MODIFICATION :  This Agreement constitutes the entire agreement between the Parties relative to the subject matter hereof.  Any previous agreement among the Parties is superseded by this Agreement.  This Agreement may not be amended or modified, except by an instrument, in writing, signed by duly authorized representatives of the Parties.

 

27.        COUNTERPARTS :  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.  This Agreement may be executed and transmitted by facsimile, which signature shall be binding upon the parties as if they were original signatures.

 

28.        THIRD PARTY BENEFICIARIES :  The Parties intend that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than the Parties.

 

29.        SURVIVAL :  The following provisions of this Agreement shall survive any expiration or termination of this Agreement:  Sections 2, 3, 4, 5.2, 6.2, 6.8, 6.9, 6.13, 7-9, 10.4, 11-16, 18-28 and 29 hereof.

 

30.        CONFLICT OF INTEREST, BRIBERY, INTEGRITY AND CORRUPTION CLAUSES :  Supplier hereby agrees that in all tender proceedings/awards/contracts with the Client and with respect thereto:

 

30.1                         Conflict of Interest

 

(i)              Not to participate directly or indirectly in any arrangement, agreement, investment or other activity resulting in any benefit in relation to any tender proceedings/award/contract with Client that is incompatible with the interests of Supplier.

 

(ii)           Not to engage in any transactions, financial or otherwise, acquire any position or have any commercial or other interest with any Party for provision of goods/services to Client that is incompatible with the interests of Supplier.

 

30.2                         Bribery

 

(i)              Not to offer, to give, or agree to offer or give any person, any bribe, gift, gratuity or commission as an inducement or reward for doing or forebearing to do any action in relation to any tender/award/contract with Client or for showing or forebearing to show favour or disfavour to any person in relation to any tender proceedings/award/contract with Client.

 

(ii)           Not give or offer to give to any person any bribe, gift, gratutity or commission as an inducement or reward:

 

(a)          For doing or forebearing to do any action in relation to the Supplier or any other contract with the Client or

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

17



 

(b)          For showing or forbearing to show favour or disfavour to any person in relation to the Supplier or to any other contract with the Client then the Client may, after having given fourteen (14) days notice to the Supplier, terminate this Agreement pursuant to Section 13 hereof.

 

30.3                         Corruption

 

The Supplier agrees not to make any offer, gifts of payment or benefit of any kind which constitutes an illegal or corrupt practice, either directly or indirectly as an inducement or reward for the award or execution of a contract.

 

30.4                         Integrity

 

To act at all times in the legitimate interest of Client and provide all goods/services with integrity and faithfulness.

 

Supplier agrees that if there is any breach of the terms of this Section 30 mentioned above, the Client shall have the right after having given fourteen (14) days written notice to the Supplier, to terminate this Agreement pursuant to Section 13 hereof.

 

[The remainder of this page has been left blank intentionally.]

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

18



 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement the day and year first above written.

 

SEVEN SEAS WATER (TRINIDAD)

 

 

UNLIMITED

 

 

 

 

 

 

 

 

 

Name:

/s/ John F. Curtis

 

 

 

 

 

 

Title:

CHIEF FINANCIAL OFFICER/DIRECTOR

 

 

 

 

 

 

 

 

 

 

[Illegible]

 

 

WITNESS

 

 

 

 

 

 

WATER & SEWERAGE AUTHORITY

 

 

Trinidad & Tobago

 

 

 

 

 

 

 

 

 

 

 

Name:

[Illegible]

 

Name:

[Illegible]

 

 

 

 

 

Title:

CHIEF EXECUTIVE OFFICER

 

Title:

CORPORATE SECRETARY

 

 

 

 

 

 

 

 

 

[Illegible]

 

[Illegible]

WITNESS

 

WITNESS

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

19


 

Exhibit A-l

 

DESCRIPTION OF SYSTEM

 

The proposed 20,833 Cubic Meters per day (M3/D) Sea Water Reverse Osmosis (“SWRO”) plant is designed to provide redundancy and reliability.

 

Projected System Performance

 

 

Parameter

 

Performance 1 st  Pass

 

 

 

Net Production

 

20,833M3/D

 

 

 

Product Salinity’

 

***

 

 

 

Salt Removal Rate

 

***

 

 

 

Product Water Recovery

 

***

 

 

 

Operating Temperature

 

***

 

 

 

Operating Pressure

 

***

 

 

 

Phase One Process Description

 

Phase I will produce *** (*** or ***).

 

·                   Seawater will be pumped from the existing pump house located on the jetty, approximately *** from the plant site.  The intake pumps will be supplied electrical power from the existing pump house substation.  The water will be transferred via a renovated existing *** diameter cement lined steel pipe.  The pumps will be 2 xl00% capacity, 1 duty I standby.

·                   Pretreatment of the seawater will be by the addition of coagulants prior to 2 stage Multi Media filtration.  1 st  stage will comprise of *** diameter FRP filters, these filters will be located on a concrete platform adjacent to the 2 nd  stage filters.  The 2 nd  stage filters will be housed in *** containers *** and will comprise *** diameter FRP Filters.

·                   Desalting will be by *** Sea Water Reverse Osmosis systems prefabricated in *** containers, each system comprises all necessary pumps, pipes, RO Vessels, energy recovery systems; controls etc to produce *** of permeate water.  Each SWRO system is equipped with a 5 micron cartridge filtration system.

·                   Reject and backwash water will be returned to the ocean via a second existing renovated *** diameter cement lined steel pipe.

·                   A remote control/monitoring system will also be supplied; this will initially be located in the ***.  Although each of the SWRO systems operate independently, a centralized control system will be used to control/ monitor all process operations including start/stop of the individual SWRO systems.

·                   Permeate from each of the SWRO containers will pass through one bank of Calcium Carbonate contactors.  The permeate will also be injected with *** of chlorine before it is fed into the client’s storage tank.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

20



 

Phase Two Process Description

 

Phase II will produce ***  (*** or ***) to give a total of *** (*** or ***).

 

·                   Additional pumps will be added to the pump station to expand the pumping capacity for Phase Two power for these pumps will be supplied from the existing pump house substation.  The water will be transferred via the same renovated *** diameter cement lined steel pipe.

·                   Pretreatment of the seawater will be by the addition of coagulants prior to flocculation clarification followed by 2 stage Multi Media filtration.  Each stage of filtration will comprise of *** diameter FRP filters.  The filters will be located on a concrete platform adjacent to the SWRO Systems.

·                   A bank of 5 micron Cartridge Filters will be installed to provide additional protection to the membrane arrays.

·                   Desalting will be by ***  Sea Water Reverse Osmosis systems, each system comprises all necessary pumps, pipes, RO Vessels, energy recovery systems, controls etc to produce *** of potable water.

·                   Reject water will be returned to the ocean via the second existing renovated ***  cement lined steel pipe.

·                   The remote control/monitoring system supplied for Phase One will be adapted for Phase Two, and this will be relocated to a new container equipped as a control room office.  Although each of the SWRO systems will operate independently, a centralized control system will be used to control/ monitor all process operations including start/stop of the individual SWRO systems.

·                   Permeate from each of the SWRO trains will pass through one bank of Calcium Carbonate contactors.  The permeate will also be injected with *** of chlorine before it is fed into the Client’s storage tank.

·                   Backwash water from the media filters will be collected in a holding tank, this will be blended with the sludge from the clarifiers as this is passed to a thickening system; filtrate from this system will be blended with the reject water going to the ocean.  The thickened sludge will then be processed by belt press to provide a material that will be disposed of at a regulated landfill.

·                   Cleanings will occasionally be performed on the SWRO trains.  A chemical cleaning system will be supplied to perform the required cleanings.  Chemicals used during the cleaning process will be neutralized after cleanings and disposed through the brine discharge line.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

21



 

Exhibit A-2

 

Description of Premises

 

There are two main sites that will be used by Suppliere to perform the Operations.

 

1.  Intake Building & Feed/Outfall Piping

2.  Equipment Site 1

 

Intake Building:

 

 

 

The intake building is located approximately *** feet out on a pier.  The overall building is in disrepair and repairs/upgrades will be needed to make it usable by Supplier as set forth in Exhibit D.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 



 

Feed/Outfall Piping:

 

 

 

There are two *** cement lined steel pipes which run from the Intake building to the general area of Equipment Site I.  Repairs/upgrades will be needed to make feed/outfall piping usable by Supplier as set forth in Exhibit D.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 



 

Equipment Site 1 :

 

Equipment Site 1 is not a perfect rectangle but the size is approximately 160’ wide by 250’ long.  The pad supported an old distiller unit foundation and pad and as such is -50-year-old poured concrete.  The slab is comprised of areas that have different elevations (as much as 3’- 4’) with small plinths, columns and piers jutting up into the air in many places where equipment was once supported.  These plinths, columns and piers would have to be removed or additional concrete poured in order to have flat areas to install equipment.  Because of these variations, a complete elevation and general layout of the site is required in order to design the most efficient layout for equipment.  It is believed that the existing concrete pad is adequate from a geotechnical standpoint, however, there is a large crack down the middle and one of the sides may be settling.  In light of the weight of the equipment to be placed on this site, an evaluation is needed on the feasibility of using the concrete slab.

 

The site is seen on Exhibit A-3.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 



 

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 



 

Exhibit B

 

Feed Water Characteristics (Standard Seawater)

 

Constituent

 

Units

 

Seawater

TDS

 

Mg/1

 

***

PH

 

Units

 

***

Temperature

 

°C

 

***

Calcium, Ca

 

Mg/1

 

***

Magnesium, Mg

 

Mg/1

 

***

Sodium, Na

 

Mg/1

 

***

Potassium, K

 

Mg/1

 

***

Barium, Br

 

Mg/1

 

***

Strontium, St

 

Mg/I

 

***

Iron, Fe

 

Mg/i

 

***

Manganese, Mn

 

Mg/1

 

***

Bicarbonate, HCO 3

 

Mg/1

 

***

Sulfate, SO 4

 

Mg/1

 

***

Chloride, CI

 

Mg/1

 

***

Fluoride, Fl

 

Mg/1

 

***

Nitrate, NO 3

 

Mg/1

 

***

Silica

 

Mg/1

 

***

Oil and Grease

 

Mg/1

 

***

Organic Chemical Pollutants

 

Mg/1

 

***

SDI

 

N/A

 

***

Turbidity

 

NTU

 

***

 

Actual regional Caribbean seawater TDS may vary ***

 

Feed Water:  The feed water shall meet the standards for ‘‘Standard Seawater” as defined by ASTM Standard D4195-88, with the following additional characteristics:  *** water temperature, clean, clear, and colorless, i.e. a maximum Silt Density Index (SDI) value of ***, turbidity level of ***, oil/grease level of ***, and *** pollutants and other non-naturally occurring substances, be they chemical or biological in origin.  Notwithstanding the above, an infrequent reading of trace amounts of pollutants in feed water will not be viewed as non-performance.

 

Exceptions:  Potable water quality produced by the System will be compromised if at any time the feed water delivered to the System is contaminated with *** exceeding ***, any organic chemicals, inorganic chemicals, with the exception of naturally occurring Boron, and any disinfection by-products (i.e. Bromate, Chlorite, HAA5, and TTHMs) oil and grease or other organic chemicals.

 

The performance of the System as detailed above is typical based on Caribbean seawater and a process temperature of ***.  As feed water conditions vary, system performance will change.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

26



 

Exhibit C

 

Pricing Schedule

 

 

 

Average
Minimum
Consumption

 

Price per ***

 

Estimated Electricity
Usage for SWRO
(***)
at ***

Phase One
***
(***)

 

All Water Produced (up to system design)

 

US$ ***

 

Less than *** (***)

 

 

 

 

 

 

 

Phase Two
20,833 M3/D (4,583,000 IGPD)

 

All Water Produced (up to system design)

 

US$ ***

 

Less than *** (***)

 

Notes:

 

1)              The pricing above assumes that Phase One will be a term of no less than *** but no more than ***  and Phase Two will be for a three (3) year term.

 

2)              ***  percent of the pricing above will be subject to a *** adjustment starting from the production start date (i.e. if Phase Two were to start producing water *** after Phase One, and the *** was ***  for that year, the Phase Two price at *** from the Phase One Start Date would be ***.

 

3)              The minimum consumption level presented above will be averaged over each monthly invoice period.

 

In the event that the actual costs incurred by Supplier with respect to Site Civil Works (see Section 5.1.i.) and Intake/Outfall rehabilitation and Improvements (See Section 5.1 J.) (except for the Client Site Work Preparations (as hereinafter defined) which are Client’s responsibility) exceeds or is less than the estimated amount in Sections 5.1 .i and 5.1.j., Supplier will inform client in a timely manner of time and costs when estimated by selected civil works subcontractors and provide detailed, final accounting within 60 days of completion of site civil works, (as set forth in Exhibit D ).

 

Options to Extend the Agreement Term

 

The Client has the right to extend the Agreement Term by an additional twelve (12) months (up to a total of forty-eight (48) months from the Phase Two Start Date) during the Agreement Term by giving written notice to the Supplier up to six (6) months before the Expiration Date, in which case (i) the Water Rate will be *** by *** (US $***) per ***of Product Water delivered during the First Option Period (i.e., months thirty-seven (37) through forty-eight (48) following the Phase Two Start Date), and (ii) the Dismantling Fee will be ***to *** (US $***) and shall be due and payable by Client to Supplier upon the First Option Period Expiration Date (i.e., at the end of the forty-eighth month following the Phase Two Start Date).

 

The Client has the right to extend the Agreement Term by an additional twelve (12) months (up to a total of sixty (60) months from the Phase Two Start Date) during the Agreement Term by giving written notice to the Supplier up to six (6) months before the Expiration Date or the First Option Period Expiration Date, in which case.(i) the Water Rate will be ***by an *** (US $***) per *** of Product Water delivered

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

27



 

during the Second Option Period (i.e. months forty-nine (49) through sixty (60) following the Phase Two Start Date), and (ii) the Dismantling Fee due upon the Second Option Period Expiration Date (i.e., at the end of the sixtieth month following the Phase Two Start Date) will be ***to *** ($***).

 

Average Monthly Water Shortfall Tariff Penalty Table

 

% Shortfall of Contractual Minimum

 

Water Tariff Reduction Rate

0-19% shortfall of Minimum

 

***

20-30% shortfall of Minimum

 

***

31-40% shortfall of Minimum

 

***

41-50% shortfall of Minimum

 

***

51-60% shortfall of Minimum

 

***

Greater than 60% shortfall of Minimum

 

***

 

By example:  During Phase Two where the average monthly guaranteed amount is *** (20,833 M3/D x ***), and SSW is able to deliver only *** for the month then the Client’s water payment to Supplier for that month will be *** by ***.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

28



 

Exhibit D

 

Site Intake/Outfall Repair and Improvements

 

The following is a brief description of the expected steps included in our proposal required to reactivate the existing intake structure, there may be additional works identified during the inspection phase that will need to be addressed individually.

 

1)              Inspection of the existing pipelines to assess the viability of reuse.

 

2)              Repair, replacement, removal of existing pipelines as determined by inspection.  Intake pipe from pump house to the proposed plant site.  Outfall from the plant site to a point 300 ft from the shore line.  Pipelines to be routed to seawater treatment facility.

 

3)              Renovation of pier supports as needed.  At present this is assumed to only include several piers in the surf zone.

 

4)              Repair of walkways and access stairs at the pump house as required for access to the pump house.

 

5)              Inspection of the existing pump structure to assess the viability of reuse.

 

6)              Removal of unsafe structure in the area of the pump house to be utilized for the new pumps, subject to the Client’s removal and disposal of all Hazardous Materials in connection with the Client Site Work Preparations (described below).

 

7)              Removal of existing pipe work in the area of the pump house that will interfere with installation of the new pump sets.

 

8)              Renovation of pump deck to accommodate new intake pumps, power/control equipment and associated piping.

 

9)              Electrical equipment and wiring from existing substation at pump house breakers to new pumps.  Client is responsible to supply of adequate, reliable power and wiring to the substation at the pump house.

 

10)       Installation of weather protection for the new installation.

 

The latest estimate of Site Intake/Outfall Repair and Improvements cost is $ *** ; the latest timeline estimate is per the attached Schedule.  The cost and timeline estimates are subject to revision based on updated civil sub-contractor estimates within fifteen (15) davs of the Effective Date and will be updated every thirty (30) days thereafter until Phase One Start Date.

 

Site Civil Works

 

The following is assumed to be the civil scope of works required to utilize the two sites identified for the seawater treatment facility.

 

1)              Survey of the two sites to determine boundaries, elevations rights of way, easements etc.

 

2)              Rework of existing concrete to allow installation of new equipment.

 

3)              Installation of additional concrete works to support all new equipment, at this time it is assumed that this will not require additional piling.

 

4)              Site finishing to match existing infrastructure.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

29



 

5)              Removal and disposal of all steel beams, walls, sheeting, roofing materials, junk, debris presently on the site and outfall/intake and additional material to be created during decommissioning and demolition efforts.

 

6)              Remediation of any subsurface contamination is the responsibility of the client.

 

The latest estimate of Site Civil Works cost is $ *** ; the latest timeline estimate is per the attached Schedule.  The cost and timeline estimates are subject to revision based on updated civil sub-contractor estimates within fifteen (15) days of the Effective Date and will be updated every thirty (30) days thereafter until Phase One Start Date.

 

Client’s Site Work Preparations

 

·                   Obtaining clear, unfettered access and use for the plots identified as Site 1 (Site of Previous Distillation Units described in Exhibit A-2), and the existing Intake/Outfall Structures.

·                   Provision of a suitable site for the System free of Hazardous Materials.

·                   The removal and disposal of all hazardous materials is the Client’s responsibility to be performed on behalf of the Client by a third party contractor, retained by the Client.

·                   A staging area for materials to be generated during the demolition phase.

·                   Clear demarcation of gas/oil/electrical/water/fiber optic piping and or lines · The cost of power to operate the plant (will be a direct pass through cost) guaranteed at a maximum consumption of ***  (***).

·                   Acquisition of any permits, licenses or fees required for the construction and operation of the System, Supplier will assist where possible by providing engineering drawings calculations etc.  The above does not include work permit fees, which will be paid by Supplier however assistance from the Client in obtaining these permits is requested.

·                   Assisting SSW personnel, contractors, and subcontractors with obtaining the any required security clearance for access to the site.

·                   Any maintenance, repairs, modifications to rights of way, easements etc. required for any pipelines outside of the Seven Seas Water scope.

·                   Electrical power supplies (*** of sufficient capacity) and incoming communications to the System (telephone/internet line).

·                   Permeate storage (minimum capacity to be agreed upon by the Parties by April 7, 2010).

·                   Any other civil or non System related items not identified in the Supplier scope listed are NOT included.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

30


 

GRAPHIC

4.5 IMGD SWRO EXHIBIT D - SCHEDULE WASA POINT FORTIN SEVEN SEAS WATER ID Task Name Duration Start Finish May 2010 June 2010 July 2010 August 2010 September 2010 October 2010 November 2010 December 2010 Janu 23 26 29 2 5 8 11 14 17 20 23 26 29 1 4 7 10 13 16 19 22 25 28 1 4 7 10 13 16 19 22 25 28 31 3 6 9 12 15 18 21 24 27 30 2 5 8 11 14 17 20 23 26 29 2 5 8 11 14 17 20 23 26 29 1 4 7 10 13 16 19 22 25 28 1 4 7 10 13 16 19 22 25 28 31 3 1 WASA SWRO PROJECT SCHEDULE 172 days Fri 4/30/10 Mon 12/27/10 2 CONTRACT MILESTONES 48 days Fri 5/7/10 Tue 7/13/10 3 CONTRACT SIGNING 0 days Fri 5/7/10 Fri 5/7/10 5/7 4 PETROTRIN CERTIFICATION OF SITE CLASSIFICATION 0 days Wed 5/12/10 Wed 5/12/10 5/12 5 WASA - OBTAINS LAND LEASE AND EXECUTES SUBLEASE 0 days Mon 6/7/10 Mon 6/7/10 6/7 6 WASA CONFIRMS LOCATION WATER TANK (PRODUCT WATER TANK) 0 days Wed 5/12/10 Wed 5/12/10 7 COMMENCE SITE CLEARING WORK-LICENSE FROM PETROTRIN 0 days Wed 5/19/10 Wed 5/19/10 8 COMMENCE PUMP HOUSE CLEARING WORK 0 days Fri 6/11/10 Fri 6/11/10 9 SITE CLEARED AND READY FOR MOBILIZATION 0 days Fri 6/11/10 Fri 6/11/10 10 WASA - T&TEC POWER TO SITE 480V/ 60HZ FEED 0 days Wed 6/30/10 Wed 6/30/10 11 WASA - 480V/3/60HZ AT PUMP HOUSE 0 days Wed 6/30/10 Wed 6/30/10 12 WASA - ALL PERMITS FOR OPERATION 0 days Thu 7/8/10 Thu 7/8/10 13 CONTAINTERIZED UNITS IN TRINIDAD 0 days Thu 5/20/10 Thu 5/20/10 14 SITE CLEARING AND PRELIMINARY EARTH WORK BEGINS 0 days Wed 5/19/10 Wed 5/19/10 15 CONSTRUCTION BEGINS ON TEMP INTAKE AND OUTFALL LINES 0 days Mon 6/14/10 Mon 6/14/10 16 CONSTRUCTION BEGINS ON INTAKE AND OUTFALL 0 days Mon 6/14/10 Mon 6/14/10 17 CONSTRUCTION BEGINS ON INTAKE BUILDING 0 days Mon 6/14/10 Mon 6/14/10 18 CONSTRUCTION BEGINS ON PHASE I CIVIL WORKS 0 days Mon 6/14/10 Mon 6/14/10 19 CONSTRUCTION BEGINS ON PHASE II CIVIL WORKS 0 days Fri 7/9/10 Fri 7/9/10 20 INSTALLATION OF PHASE I EQUIPMENT BEGINS 0 days Tue 7/13/10 Tue 7/13/10 21 WATER PRODUCTION DATES 99 days Tue 8/10/10 Mon 12/27/10 22 START-UP PHASE I WATER 1.25 IMGD 0 days Tue 8/10/10 Tue 8/10/10 23 START-UP PHASE II WATER 4.58 IMGD 0 days Mon 12/27/10 Mon 12/27/10 12/27 24 PROCESS ENGINEERING AND DESIGN 55 days Fri 5/7/10 Thu 7/22/10 29 CIVIL/ STRUCTURAL ENGINEERING AND DESIGN 30 days Fri 5/14/10 Thu 6/24/10 33 MECHANICALENGINEERING AND DESIGN 40 days Fri 6/11/10 Thu 8/5/10 41 ELECTRICAL ENGINEEERING AND DESIGN 65 days Fri 5/14/10 Thu 8/12/10 46 PROCUREMENT 115 days Fri 4/30/10 Thu 10/7/10 73 SHIPPING AND CUSTOMS CLEARANCE TIME 118 days Thu 5/13/10 Mon 10/25/10 115 CONSTRUCTION 158 days Wed 5/19/10 Mon 12/27/10 116 MOBILIZATION 0 days Wed 5/19/10 Wed 5/19/10 117 SITE CLEARING & PRELIMINARY EARTH WORK 5 days Thu 5/20/10 Wed 5/26/10 118 TEMP INTAKE AND OUTFALL LINES 35 days Mon 6/14/10 Fri 7/30/10 119 INTAKE AND OUTFALL REPAIRS AND IMPROVEMENTS 55 days Mon 6/14/10 Fri 8/27/10 120 INTAKE BUILDING REFURB 55 days Mon 6/14/10 Fri 8/27/10 121 PHASE I CIVIL WORKS 20 days Mon 6/14/10 Fri 7/9/10 122 PHASE II CIVIL WORKS 80 days Fri 7/9/10 Thu 10/28/10 123 PHASE I-CONSTRUCTION 22 days Mon 7/12/10 Tue 8/10/10 124 MECHANICAL INSTALLATION PHASE I 15 days Mon 7/12/10 Fri 7/30/10 125 ELECTRICAL INSTALLATION PHASE I 15 days Mon 7/12/10 Fri 7/30/10 126 START-UP AND COMMISSIONING PHASE I 7 days Mon 8/2/10 Tue 8/10/10 127 PHASE II CONSTRUCTION 62 days Fri 10/1/10 Mon 12/27/10 128 SWRO UNIT #1 35 days Fri 10/1/10 Thu 11/18/10 129 MECHANICAL INSTALLATION SWRO #1 25 days Fri 10/1/10 Thu 11/4/10 130 ELECTRICAL INSTALLATION SWRO #1 15 days Fri 10/22/10 Thu 11/11/10 131 START-UP AND COMMISSIONING SWRO #1 5 days Fri 11/12/10 Thu 11/18/10 132 SWRO UNIT #2 30 days Fri 10/15/10 Thu 11/25/10 133 MECHANICAL INSTALLATION SWRO #2 25 days Fri 10/15/10 Thu 11/18/10 134 ELECTRICAL INSTALLATION SWRO #2 15 days Fri 10/29/10 Thu 11/18/10 135 START-UP AND COMMISSIONING SWRO #2 5 days Fri 11/19/10 Thu 11/25/10 136 SWRO UNIT #3 30 days Fri 10/29/10 Thu 12/9/10 137 MECHANICAL INSTALLATION SWRO #3 25 days Fri 10/29/10 Thu 12/2/10 138 ELECTRICAL INSTALLATION SWRO #3 15 days Fri 11/12/10 Thu 12/2/10 139 START-UP AND COMMISSIONING UNIT #3 5 days Fri 12/3/10 Thu 12/9/10 140 SWRO UNIT #4 32 days Fri 11/12/10 Mon 12/27/10 141 MECHANICAL INSTALLATION SWRO UNIT #4 25 days Fri 11/12/10 Thu 12/16/10 142 ELECTRICAL INSTALLATION SWRO UNIT #4 15 days Fri 11/26/10 Thu 12/16/10 143 START-UP AND COMMISSIONING SWRO UNIT #4 7 days Fri 12/17/10 Mon 12/27/10 144 WATER PRODUCTION DATES 99 days Tue 8/10/10 Mon 12/27/10 145 PHASE I WATER 0 days Tue 8/10/10 Tue 8/10/10 8/10 146 PHASE II WATER 0 days Mon 12/27/10 Mon 12/27/10 12/27 Project: Trinidad WASA PT FORTIN Construction rev 6 (final) Date: Thu 5/6/10 Task Progress Summary External Tasks Deadline Split Milestone Project Summary External Milestone 5/12 5/19 5/20 5/19 6/11 6/30 6/30 7/8 8/10 6/11 6/14 6/14 6/14 6/14 7/9 7/13 5/19 Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

 

Exhibit E

 

***

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

32



 

Exhibit F

 

MUTUAL NON-DISCLOSURE AGREEMENT

 

This Non-Disclosure Agreement dated as of May 7th, 2010 (this “ Mutual NDA ”) is made by and between Seven Seas Water (Trinidad) Unlimited, Seven Seas Water Corporation (including its parents, subsidiaries and affiliates, “ Seven Seas ”)- members of the Seven Seas Water Group and Water & Sewerage Authority of Trinidad and Tobago (including its affiliates, the “ Authority ”).  Seven Seas and the Authority are also referred to individually as a “ Party ” and collectively as the “ Parties .” In consideration of the mutual agreements and other provisions of this Mutual NDA , the parties hereto agree as follows:

 

1.                                      Scope of Confidential Information .

 

The party that is disclosing its Confidential Information is the “ Disclosing Party .” The party that is the recipient of the Disclosing Party’s Confidential Information is the “ Receiving Party .”

 

Confidential Information ” means any information or data, regardless of whether it is in tangible form, that is subsequently disclosed by or on behalf of the Disclosing Party to the Receiving Party, including all designs, reports and information related to or regarding the Disclosing Party’s business plans, business methodologies, strategies, technology, design work, software, drawings, specifications, development plans, employees, customers, prospective customers, billing records, pricing information, and products or services and all notes, analyses, compilations, studies, interpretations or other documents prepared by the Receiving Party for the benefit of the Disclosing Party or are otherwise prepared by the Receiving Party which contain, reflect or are based upon, in whole or in part, the information furnished by or on behalf of the Disclosing Party to the Receiving Party.

 

Confidential Information shall not include any information which:  (a) the Receiving Party can show by written record was in its possession prior to disclosure by the Disclosing Party; (b) is or becomes generally known to the public other than through the Receiving Party’s failure to observe the terms and conditions hereof; or (c) subsequent to disclosure to the Receiving Party by the Disclosing Party, is obtained by the Receiving Party from a third person who is lawfully in possession of such information and who is not in violation of any contractual, legal or fiduciary obligations to the Disclosing Party in making such disclosure to the Receiving Party and does not require the Receiving Party to refrain from disclosing such information to others.

 

2.                                      Use and Disclosure of Confidential Information .

 

The Receiving Party may only use the Confidential Information for the purpose of evaluating a potential business transaction or relationship with the Disclosing Party (the “ Permitted Purpose ”).  The Receiving Party must keep secret and shall not disclose, publish or make accessible to anyone any of the Confidential Information of the Disclosing Party, other than furnishing such Confidential Information to the Receiving Party’s employees who are required to have access to such Confidential Information in connection with the Permitted Purpose; provided that such employees are bound by written agreements respecting the Confidential Information in the manner set forth in this Mutual NDA .  In any event, the Receiving Party shall be responsible for any breach of this Mutual NDA by any of the Receiving Party’s employees.

 

Without the prior written consent of the Disclosing Party, the Receiving Party shall not, and shall instruct its employees not to, disclose to any other person the fact that the Confidential Information has been made available to the Receiving Party or that discussions or negotiations are taking place

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

33



 

concerning a possible business transaction or relationship involving the Disclosing Party and the Receiving Party or any of the terms, conditions or other facts with respect thereto (including the status thereof).

 

The Receiving Party shall use at least reasonable care and adequate measures to protect the security of the Confidential Information of the Disclosing Party and to ensure that any Confidential Information of the Disclosing Party is not disclosed or otherwise made available to other persons or used in violation of this Mutual NDA .  Such measures shall be at least the equivalent of measures which the Receiving Party uses to protect the Receiving Party’s own most valuable proprietary information.

 

3.                                      No Grant of Rights .  The provision of Confidential Information hereunder shall not transfer any right, title or interest in such information to Receiving Party.  Disclosing Party does not grant any express or implied right to Receiving Party to or under Disclosing Party’s patents, copyrights, trademarks, trade secret information or other proprietary rights.  All tangible embodiments of the Confidential Information of Disclosing Party {e.g., drawings, memoranda and notes) and all copies thereof, whether in hard-copy or machine-readable form and whether supplied by or on behalf of Disclosing Party or made by or for Receiving Party (collectively, the “ Tangible Embodiments ”), shall at all times be and remain the property of Disclosing Party.

 

4.                                      Remedies .  Receiving Party undertakes to indemnify and keep Disclosing Party at all times, fully indemnified from and against any loss or disclosure of Confidential Information and from all actions, proceedings, claims, demands, costs, awards, damages arising directly as a result of any breach or non performance by the Receiving Party of any of the undertakings or obligations under this Mutual NDA.

 

5.                                      Notice and Effect of Termination .  This Mutual NDA shall remain in effect until it is terminated by either party with thirty (30) days prior written notice.  The terms and conditions of this Mutual NDA shall survive any such termination with respect to Confidential Information that is disclosed prior to the Effective date of termination.  In addition, Section 6 shall survive any such termination for the period specified in such Section 6.

 

6.                                      Return of Confidential Information .  Upon the earlier of (a) the termination of the Water Sale Agreement entered into  on      May, 2010, (b) Disclosing Party’s written request or (c) such time as Receiving Party no longer requires the Confidential Information for the Permitted Purpose, Receiving Party agrees to promptly return to Disclosing Party or destroy all Confidential Information and any Tangible Embodiments that are in the possession or control of Receiving Party and to certify the return or destruction of all such Confidential Information and embodiments.

 

7.                                      No Warranty .  No warranty is made by either party under this Mutual NDA .  Any information exchanged under this Mutual NDA is provided “as is.”

 

8.                                      Miscellaneous .  This Mutual NDA does not create any agency or partnership relationship between the parties hereto.  This Mutual NDA shall be governed by and construed in accordance with the laws of Trinidad & Tobago, without giving effect to any conflicts of law provisions thereof that would result in the application of the laws of any other jurisdiction.  No amendment of the terms of this Mutual NDA shall be effective unless made in writing and executed by both parties hereto.  A failure or delay in exercising any right in respect to this Mutual NDA will not be presumed to operate as a waiver, and a single or partial exercise of any right will not be presumed to preclude any subsequent or further exercise of that right or the exercise of any other right.  Any modification or waiver of any provision of this Mutual NDA shall not be effective unless made in writing.  Any such waiver shall be effective only in the specific instance and for the purpose given.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

34



 

This Mutual NDA may be executed in two or more counterparts (which may be executed and transmitted by facsimile), each of which shall be deemed an original and all of which together shall constitute one instrument.

 

IN WITNESS WHEREOF, the parties have caused this Mutual NDA to be executed below by their duly authorized signatories.

 

SEVEN SEAS WATER (TRINIDAD)
UNLIMITED

 

 

Name:

/s/John F. Curtis

 

 

 

Title: CHIEF FINANCIAL OFFICER/DIRECTOR

 

 

 

 

 

[Illegible]

 

WITNESS

 

 

WATER & SEWERAGE AUTHORITY
Trinidad & Tobago

 

 

Name:

[Illegible]

 

Name:

[Illegible]

 

 

 

 

Title: CHIEF EXECUTIVE OFFICER

 

Title: CORPORATE SECRETARY

 

 

 

 

 

 

[Illegible]

 

[Illegible]

WITNESS

 

WITNESS

 

 

 

 

 

 

Address for notices:

 

Address for notices:

 

 

 

Water and Sewerage Authority

 

Johnson, Camacho & Singh

Farm Road, St. Joseph

 

10 Sweet Briar Rd, St. Clair

Republic of Trinidad & Tobago WI

 

Port of Spain, Trinidad, WI

Attention: ***

 

Attention: ***

 

 

 

 

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

35


 

FIRST AMENDMENT TO THE
WATER SALE AGREEMENT

 

Between

 

Seven Seas Water (Trinidad) Unlimited,
Seven Seas Water Corporation and its affiliates
members of the Seven Seas Water Group
Supplier

 

And

 

WATER & SEWERAGE AUTHORITY OF TRINIDAD AND TOBAGO
Client

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

36



 

THIS FIRST AMENDMENT TO THE WATER SALE AGREEMENT (hereinafter, this “ First Amendment ”) is entered into this 10th day of October 2010 (the “ First Amendment Effective Date ”) by and between Seven Seas Water (Trinidad) Unlimited; Seven Seas Water Corporation and its affiliates - members of the Seven Seas Water Group (hereinafter called the “ Supplier ”) headquartered at 14400 Carlson Circle, Tampa, Florida, USA, and WATER & SEWERAGE AUTHORITY (hereinafter called the “ Client ”), located at Farm Road, Valsayn, St. Joseph, Trinidad, WI.  Client and Supplier shall each hereinafter be referred to as a “Party” and collectively as the “ Parties ”.

 

WHEREAS, the Parties entered into a water sale agreement on the 7 th  May 2010 (hereinafter the “ WSA ”) in respect of the Supplier agreeing to sell and the Client agreeing to buy Product Water (the “ Project ”).

 

WHEREAS, due to circumstances beyond its control, the Client was unable to complete its obligations under the Section 6 of the WSA.

 

WHEREAS, the Parties now wish to move forward with the Project and have agreed to amend the WSA in the manner hereinafter appearing in order to regularize and amend the scope and consequential provisions of the WSA.

 

NOW, THEREFORE, in consideration of the mutual promises set forth herein and the monies to be paid hereunder, the receipt and sufficiency of which each of the Parties hereby irrevocably acknowledges,  IT IS HEREBY AGREED as follows:

 

1.               DEFINTIONSAND INTERPRETATIONS

 

1.1                                Capitalized terms not defined in this First Amendment shall have the same meaning as set out in the WSA.

 

2.               AMENDMENT TO SECTION 2 - TERM OF THE AGREEMENT:

 

2.1                                Section 2.1 of the WSA is deleted and replaced with the following :

 

“2.1                          This Agreement shall commence upon the mutual execution and delivery of this Agreement by the Parties (the “ Effective Date ”) and shall continue for a period of one hundred and twenty months following the Phase Two Start Date of the System at the POINT FORTIN Site (the “ Expiration Date ”), or until this Agreement is otherwise terminated as expressly authorized herein.  “ Agreement Term ” means the term of this Agreement from the Effective Date until the latest of the Expiration Date, or the Option Period Expiration Date (as defined below), or until this Agreement is otherwise terminated as expressly authorized herein.  “ Start Date ” means the date on which a specific Phase of the System (as described in Exhibit A-l ) has been installed and rendered operational, which, except as otherwise provided in this Agreement, shall be according to the timeline estimates presented in Exhibit D subject to the successful completion by Client of all of its obligations under Section 6 hereof, the successful completion of the Site Civil Works and Site Intake/Outfall Repairs and Improvements based on the estimated schedule at Exhibit D, and the satisfaction of the other conditions precedent set forth in this Agreement.  “ Phase Two Start Date ” means the date on which the System has been completely installed and rendered operational.”

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

37



 

2.2                                Section 2.2 of the WSA is deleted and replaced with the following :

 

“2.2                          Up to six (6) months before the Expiration Date (the “ Extension Date ”), Client shall have the option to provide Supplier with written notice of its request to extend the Agreement Term beyond the Expiration Date (an “ Option Extension Notice ”) for a mutually acceptable period (the “ Option Period ”) on mutually acceptable terms and conditions.  The Parties agree to negotiate the Option Period and the related terms and conditions of any such further extension of this Agreement beyond the Expiration Date in good faith and upon mutually agreeable terms to be documented in an amendment to this Agreement (an “ Extension Amendment ”).  For the purposes of this First Amendment, the “Option Period Expiration Date” means the expiration date of the Option Period as set forth in the Extension Amendment.  If Client fails to provide an Option Extension Notice to Supplier on or before the Extension Date or the Parties are unable to negotiate and execute an Extension Amendment on or before the Expiration Date, the Agreement Term will expire effective as of the Expiration Date.”

 

2.3        AMENDMENT TO SECTION 3 - MINIMUM PURCHASE AND DELIVERY COMMITMENTS:

 

2.3.1                      Section 3.2 of the WSA is deleted and replaced with the following :

 

“3.2                          Subject to Section 5.2 hereof, Supplier agrees to be able to deliver to Client a minimum amount of Product Water equal to (i) the Phase One Guaranteed Minimum Purchase during Phase One, (ii) the Phase Two Guaranteed Minimum Purchase from the Phase Two Start Date until the Expiration Date or the Option Period Expiration Date, as the case may be, averaged over each calendar month during the Agreement Term (the “ Operations ”).  If the System during any calendar month produces an amount of Product Water less than the Guaranteed Minimum Purchase for such month, Client’s payment obligations will be subject to adjustment pursuant to Section 4.2 hereof.  If the System during any consecutive three-month period produces an amount of Product Water less than *** of the Guaranteed Minimum Purchase for such three-month period (and the cause of such shortfall is not attributable to Client or any other causes set forth in Section 5.2 hereof), Client may provide written notice of default to Supplier pursuant to Section 13 hereof.  If Client fails to purchase the relevant Guaranteed Minimum Purchase at any time during the Agreement Term, Supplier (in addition to all of the other remedies available to Supplier under Section 12 hereof) shall be entitled to dismantle, remove and ship the System and charge Client for all costs incurred in connection therewith,”

 

3.               AMENDMENT TO SECTION 4 - CONSIDERATION:

 

3.1                                Section 4.1 of the WSA is deleted and replaced with the following :

 

“4.1                          Client’s obligation for all payments for Product Water under this Agreement shall be at a price payable in U.S. currency of ***  (US $ ***) per *** of Product Water delivered by Supplier (the “ Water Rate ”), applicable from Phase One Start Date through *** following Phase Two Start Date and *** (US $***) per cubic meter of Product Water delivered by Supplier from *** through month one hundred and twenty (120) following the Phase Two Start Date.  Additionally, *** will be made to the Water Rate effective from the Phase One Start Date if the Supplier’s cost of the Site Civil Works (except for the Client Site Work Preparations (as hereinafter defined) which are Client’s responsibility) and Site Intake/Outfall Repairs and

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

38



 

Improvements *** in Sections 5.1.i and 5.1.j hereof, it being understood and agreed that Supplier will inform Client in a timely manner of timing and costs when estimated by selected civil works subcontractors and provide detailed, final accounting to Client within 60 days of completion of Site Civil Works and Site Intake/Outfall Repairs and Improvements (as set forth in Exhibits C and D ).

 

4.               AMENDMENT TO SECTION 5 - RESPONSIBILITIES OF SUPPLIER:

 

4.1                                The following Section 5.1.1 is inserted after Section 5.1.k as follows :

 

“5.1.1                Provide support to Client with respect to the delivery and installation of a *** US gallon Product Water storage tank on the Premises (the “Product Water Storage Tank”).  It is understood and agreed that all costs and expenses relating to the delivery and installation of the Product Water Storage Tank, is the responsibility of the Client.”

 

4.2                                Section 5.2 of the WSA is deleted and replaced with the following :

 

“5.2(a)           Supplier shall not be responsible for a decrease in water production, quality of Product Water or System shutdown caused by the failure of Client to meet any of the requirements in Section 6 below, or contamination or change in the quality or quantity of the feed water as set forth in Exhibit B , or the unavailability of power, necessary to perform the Operations.  Should any of the aforementioned events limit the amount of Product Water produced by the System or result in a shutdown of the System, Client shall continue to make the payments required hereunder based upon the actual daily production of the System prior to the interruption or the applicable Guaranteed Minimum Purchase ***.  If any of the events described in this Section 5.2 should occur and result in a decrease in water production, quality of the Product Water or System shutdown, Supplier agrees to use its commercially reasonable efforts to assist Client in finding a solution to such interruption.

 

5.2(b)                 Subject to the terms and conditions of this Agreement, the Product Water provided by Supplier (i) will meet the World Health Organization (“WHO”) standard for potable water salinity having a conductivity level not to exceed *** measured by the conductivity meter (the “ Conductivity Meter ”) to be installed by Supplier as part of the System and to be used for measuring the level of salinity in the Product Water produced by the System and (ii) will have a Turbidity of less than ***; a pH between ***  and *** and a residual free chlorine between *** and ***.”

 

4.3                                Section 5.3 of the WSA is deleted and replaced with the following :

 

“5.3                          The Product Water quality is warranted under Section 5.2(b) at the Conductivity Meter only.  In addition, if such standards change from those in effect on the Effective Date of this Agreement or if at any time during this Agreement Term the feed water fails to meet the specifications set forth on Exhibit B and if any such changes require additional equipment to be purchased or other capital investments to be made, Supplier, if requested by Client and provided it is commercially reasonable, will make such expenditures, as agreed between the Parties, and the Water Rate paid by Client as specified in Section 4 will be increased to amortize that capital investment over the *** of this Agreement.

 

Supplier’s Product Water quality obligations and warranties are contingent upon the feed water meeting the specifications set forth in Exhibit B .  Client may, at its expense, choose to have a water sample tested at a certified testing laboratory at any time.  If the System

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

39



 

during any *** produces water that fails to meet any of the Product Water parameters set forth in Section 5.2(b) (i.e. ***; Turbidity ***; pH below *** or above ***; or residual chlorine below *** or above ***;) (“ Deficient Water ”).  Client may, at its option, elect to accept the Deficient Water which shall upon such acceptance be deemed to be “Product Water” for purposes of this Agreement.  If, on the other hand, Client declines to accept the Deficient Water by written notice to Supplier (and the cause of such deficiency is not attributable to Client or any other causes set forth in Section 5.2 hereof), Supplier shall have a reasonable time (not to exceed ***; from the receipt of such notice from Client) to rectify the situation (the “ Salinity Cure Period ”).”

 

5.               AMENDMENT TO SECTION 6 - RESPONSIBILITIES OF CLIENT:

 

5.1                                Section 6.1.a of the WSA is deleted and replaced with the following :

 

“6.1.a                Prior to commencement of the Site Civil Works and Site Intake/Outfall Repairs and Improvements Client shall obtain a license from Petrotrin permitting full access to the Premises (“ Petrotrin Licence ”).  Thereafter and subject to the agreement of Petrotrin, Client shall enter into a lease with Petrotrin for the POINT FORTIN Site (“ Petrotrin Lease ”), on or by 24 th  September 2010, or the first board of directors meeting of Petrotrin, whichever is the later , for a minimum period of *** automatically renewable annually in the event of an extension of this Agreement, on such terms and conditions that are acceptable to all the Parties, including but not limited to any restrictions on operations with respect to hazardous area designation, PROVIDED HOWEVER that it is hereby agreed by Client that if there is a delay of more than three (3) months after the proposed 24 th  September 2010 in entering into the Petrotrin Lease the Client will use its commercially reasonable efforts to expand the scope of works within the Petrotrin Licence (with the concurrence of Petrotrin).

 

5.2                                Section 6.1.b of the WSA is deleted and replaced with the following :

 

“6.1.b                Prior to commencement of the Site Civil Works and Site Intake/Outfall Repairs and Improvements.  Client shall grant a sub-license to Supplier permitting lull access to the Premises.  Thereafter and subject to section 6.1.a. above, Client shall enter into a sub-lease with the Supplier, no later than *** after entering into the Petrotrin Lease, for the POINT FORTIN Site for a minimum period of *** automatically renewable annually in the event of an extension of this Agreement, on such terms and conditions that are acceptable to all the Parties and such sub-lease shall include, without limitation, an appropriate indemnity paragraph against any risks caused by existing Hazardous Materials on the POINT FORTIN Site as of the Effective date and no restrictions on operations with respect to hazardous area designation.”

 

5.3                                Section 6.2 of the WSA is deleted and replaced with the following :

 

“6.2                          Complete the Client Site Work Preparations and connections at the Premises in accordance with the specifications provided by Supplier to Client prior to the arrival of the System at the POINT FORTIN Site, including, without limitation, at the POINT FORTIN Site, provision of tie-in point to the Trinidad water supply for the product distribution line within fifty feet of the high service pump system, and provide a 12KV electrical supply and connection point at a mutually agreed upon Petrotrin site boundary point (as further specified at Exhibit D, collectively the “ Client Site Work Preparations ”).  It being understood and agreed that if Client fails to complete the Client Site Work Preparations prior to the arrival of the System at the POINT FORTIN Site in accordance with the Phase One schedule (as described in

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

40



 

Exhibit D ) and such failure persists for more than *** after such arrival (the “ Client Grace Period ”), Client shall pay Supplier (i) $*** for the first *** following the Client Grace Period and (ii) $*** for each additional *** following the Client Grace Period that Supplier is unable to install and render the System operational as a result of such failure.”

 

5.4                                Section 6.5 of the WSA is deleted and replaced with the following :

 

“6.5                          Provide sufficient uninterrupted amounts of 3-Phase, 60 Hz electrical power to enable the System to operate, and pay for all electricity consumed by the System during the Agreement Term.”

 

5.5                    Section 6.10 of the WSA is deleted and replaced with the following :

 

“6.10                   Provide all connecting piping external to the System piping to storage facility and distribution piping identified in Exhibit A-2 .  Provide and maintain Product Water piping to the connecting flanges of the System at the Premises, and operate and maintain storage tanks and cisterns for Product Water and Product Water distribution systems.”

 

5.6                    A new Section 6.16 is inserted as follows :

 

“6.16                   Provide total cost reimbursement to Supplier for the installation of the Product Water Storage Tank, provided that Supplier obtains the prior approval from Client with respect to the total cost reimbursement, such approval not to be unreasonably withheld or delayed.”

 

[The remainder of this page has been left blank intentionally.]

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

41



 

6.               AMENDMENT TO EXHIBIT A-l - DESCRIPTION OF SYSTEM

 

Exhibit A-l of the WSA is deleted and replaced with the following:

 

“Exhibit A-l

 

DESCRIPTION OF SYSTEM

 

The proposed 20,833 Cubic Meters per day (M3/D) Sea Water Reverse Osmosis (“SWRO”) plant is designed to provide redundancy and reliability.

 

Projected System Performance

 

Parameter

 

Performance 1 st  Pass

Net Production

 

20,833 M3/D

Product Salinity

 

***

Salt Removal Rate

 

***

Product Water Recovery

 

***

Operating Temperature

 

***

Operating Pressure

 

***

 

Phase One Process Description

 

Phase 1 will produce *** (*** or ***).

 

·                   Seawater will be pumped from the existing pump house located on the jetty, approximately *** from the plant site.  The intake pumps will be supplied electrical power from the existing pump house substation.  The water will be transferred via a renovated existing *** diameter cement lined steel pipe.  The pumps will be 2 xl 00% capacity, 1 duty 1 standby.

·                   Pretreatment of the seawater will be by the addition of coagulants prior to 2 stage Multi Media filtration.  1 st  stage will comprise of *** diameter FRP filters, these filters will be located on a concrete platform adjacent to the 2 nd  stage filters, The 2 nd  stage filters will be housed in *** containers *** and will comprise *** diameter FRP Filters.

·                   Desalting will be by *** Sea Water Reverse Osmosis systems prefabricated in *** containers, each system comprises all necessary pumps, pipes, RO Vessels, energy recovery systems; controls etc to produce ***of permeate water.  Each SWRO system is equipped with a 5 micron cartridge filtration system.

·                   Reject and backwash water will be returned to the ocean via a second existing renovated ***  diameter cement lined steel pipe.

·                   A remote control/monitoring system will also be supplied; this will initially be located in the ***.  Although each of the SWRO systems operate independently, a centralized control system will be used to control/ monitor all process operations including start/stop of the individual SWRO systems.

·                   Permeate from each of the SWRO containers will be fed calcium via a line slurry injection.  The permeate will also be injected with ***of chlorine before it is fed into the Product Water Storage Tank.  Water will be pumped from the Product Water Storage Tank into the Client’s distribution system using a high service pump system located at the site.  The water will be supplied at up to ***.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

42



 

Phase Two Process Description

 

Phase II will produce *** (*** or ***) to give a total of 20,833 M3/D (5,500,000 USGPD or 4,579,700 IGPD).

 

·                   Additional pumps will be added to the pump station to expand the pumping capacity for Phase Two power for these pumps will be supplied from the existing pump house substation.  The water will be transferred via the same renovated ***  diameter cement lined steel pipe.

·                   Pretreatment of the seawater will be by the addition of coagulants prior to flocculation clarification followed by 2 stage Mufti Media filtration.  Each stage of filtration will comprise of *** diameter FRP filters.  The filters will, be located on a concrete platform adjacent to the SWRO Systems.

·                   A bank of 5 micron Cartridge Filters will be installed to provide additional protection to the membrane arrays.

·                   Desalting will be by ***  Sea Water Reverse Osmosis systems, each system comprises all necessary pumps, pipes, RO Vessels, energy recovery systems, controls etc to produce *** D of potable water.

·                   Reject water will be returned to the ocean via the second existing renovated ***  cement lined steel pipe.

·                   The remote control/monitoring system supplied for Phase One will be adapted for Phase Two, and this will be relocated to a new container equipped as a control room office.  Although each of the SWRO systems will operate independently, a centralized control system will be used to control/ monitor all process operations including start/stop of the individual SWRO systems.

·                   Permeate from each of the SWRO containers will be fed calcium via a line slurry injection.  The permeate will also be injected with ***  of chlorine before it is fed into the Product Water Storage Tank.  Water will be pumped from the Product Water Storage Tank into the Client’s distribution system using a high service pump system located at the site.  The water will be supplied at up to ***.

·                   Backwash water from the media filters will be collected in a holding tank, this will be blended with the sludge from the clarifiers as this is passed to a thickening system; filtrate from this system will be blended with the reject water going to the ocean.  The thickened sludge will then be processed by belt press to provide a material that will be disposed of at a regulated landfill.

·                   Cleanings will occasionally be performed on the SWRO trains.  A chemical cleaning system will be supplied to perform the required cleanings.  Chemicals used during the cleaning process will be neutralized after cleanings and disposed through the brine discharge line.

 

[The remainder of this page has been left blank intentionally.]

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

43



 

7.               AMENDMENT TO EXHIBIT C - PRICING SCHEDULE :

 

Exhibit C to the WSA is deleted and replaced with the following :

 

“Exhibit C

 

Pricing Schedule

 

 

 

Average
Minimum
Consumption

 

Price per
***

 

Estimated Electricity
Usage for SWRO
(***) at ***

Phase One
*** (***)

 

All Water Produced (up to system design)

 

US$ ***

 

Less than *** (***)

 

 

 

 

 

 

 

Phase Two
20,833 Md/D (4,583,000 IGPD)

 

All Water Produced (up to system design)

 

US$ *** for *** after Phase Two Start Date
US$ *** for *** through one hundred and twenty after Phase Two Start Date

 

Less than *** (***)

 

Notes:

 

1)              The pricing above assumes that Phase One will be a term of no less than ***) but no more than *** and Phase Two will be for a ten (10) year term.

 

2)              ***  percent of the pricing above will be subject to a *** adjustment starting from the production start date (i.e. if Phase Two were to start producing water *** after Phase One, and the *** was ***  for that year, the Phase Two price at *** from the Phase One Start Date would be ***.

 

3)              The minimum consumption level presented above will be averaged over each monthly invoice period.

 

In the event that the actual costs incurred by Supplier with respect to Site Civil Works (see Section 5.1.i) and Intake/Outfall rehabilitation and Improvements (See Section 5.1 j.) (except for the Client Site Work Preparations (as hereinafter defined) which are Client’s responsibility) exceeds or is less than the estimated amount in Sections 5.1.i and 5.1.j., Supplier will inform client in a timely manner of time and costs when estimated by selected civil works subcontractors and provide detailed, final accounting within 60 days of completion of site civil works, (as set forth in Exhibit D ).

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

44



 

Average Monthly Water Shortfall Tariff Penalty Table

 

% Shortfall of Contractual Minimum

 

Water Tariff Reduction Rate

0-19% shortfall of Minimum

 

***

20-30% shortfall of Minimum

 

***

31.-40% shortfall of Minimum

 

***

41-50% shortfall of Minim um

 

***

5 3-60% shortfall of Minimum

 

***

Greater than 60% shortfall of Minimum

 

***

 

By example: During Phase Two where the average monthly guaranteed amount is *** (20,833 M3/D x ***), and Supplier is able to deliver only *** for the month, then the Client’s water payment to Supplier for that month will be *** by ***.”

 

8.               AMENDMENT TO EXHIBITD-SCHEDULE

 

8.1.                             Exhibit D - Schedule of the WSA relating to the timeline schedule will be deleted and replaced with the Exhibit D - Schedule attached hereto.

 

9.               FINAL PROVISION

 

All other terms and conditions of the WSA continue to apply without any amendments and govern this First Amendment to the WSA.

 

[The remainder of this page has been left blank intentionally.]

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

45



 

IN WITNESS WHEREOF, the Parties hereto have executed this First Amendment by their duly authorized representatives, as of the First Amendment Effective Date.

 

SEVEN SEAS WATER (TRINIDAD)

 

 

 

UNLIMITED

 

 

 

 

 

 

 

 

 

 

 

 

 

Name:

/s/John F. Curtis

 

 

 

Title:

PRESIDENT/DIRECTOR

 

 

 

 

 

 

 

 

 

 

 

 

 

[Illegible]

 

 

 

WITNESS

 

 

 

 

 

 

 

 

 

 

 

 

 

WATER & SEWERAGE AUTHORITY

 

 

 

Trinidad & Tobago

 

 

 

 

 

 

 

 

 

 

 

 

 

Name:

[Illegible]

 

Name:

/s/Dion Abdool

 

 

 

 

 

 

 

 

 

 

Title:

CHIEF EXECUTIVE OFFICER

 

Title:

CORPORATE SECRETARY

 

 

 

 

 

 

 

 

 

 

[Illegible]

 

[Illegible]

WITNESS

 

WITNESS

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

46


 

GRAPHIC

4.5 IMGD SWRO EXHIBIT D - SCHEDULEWASA POINT FORTIN SEVEN SEAS WATER IDTask NameDurationStartFinishQtr 2, 2010 Qtr 3, 2010 Qtr 4, 2010 Qtr 1, 2011 Qtr 2, 2011 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 1WASA SWRO PROJECT SCHEDULE247 daysFri 5/7/10Mon 4/18/1167% 2CONTRACT MILESTONES167 daysFri 5/7/10Mon 12/27/107% 3CONTRACT SIGNING1 dayFri 5/7/10Fri 5/7/10100% 4LICENSE AGREEMENT RECEIVED1 dayTue 7/13/10Tue 7/13/10100% 5PETROTRIN CERTIFICATION OF SITE CLASSIFICATION0 daysFri 9/10/10Fri 9/10/109/10 6WASA - OBTAINS LAND LEASE AND EXECUTES SUBLEAS0 daysFri 9/17/10Fri 9/17/109/17 7AS IS STUDY25 daysTue 9/14/10Mon 10/18/100% 8COMMENCE SITE CLEARING WORK0 daysMon 9/20/10Mon 9/20/109/20 9COMMENCE PUMP HOUSE CLEARING WORK0 days Mon 10/18/10Mon 10/18/1010/18 10SITE CLEARED AND READY FOR MOBILIZATION0 daysMon 9/20/10Mon 9/20/109/20 11WASA - T&TEC POWER TO SITE 480V/ 60HZ FEED0 daysTue 11/30/10Tue 11/30/1011/30 12WASA - 480V/3/60HZ AT PUMP HOUSE0 days Mon 12/27/10Mon 12/27/1012/27 13WASA - ALL PERMITS FOR OPERATION0 daysWed 12/8/10Wed 12/8/1012/8 14CONTAINTERIZED UNITS IN TRINIDAD0 daysWed 5/19/10Wed 5/19/105/19 15CONSTRUCTION BEGINS ON INTAKE AND OUTFALL0 daysTue 11/2/10Tue 11/2/1011/2 16CONSTRUCTION BEGINS ON INTAKE BUILDING0 daysTue 11/2/10Tue 11/2/1011/2 17CONSTRUCTION BEGINS ON PHASE I CIVIL WORKS0 daysFri 10/1/10Fri 10/1/1010/1 18CONSTRUCTION BEGINS ON PHASE II CIVIL WORKS0 daysFri 10/1/10Fri 10/1/1010/1 19INSTALLATION OF PHASE I EQUIPMENT BEGINS0 days Mon 11/29/10Mon 11/29/1011/29 20WATER PRODUCTION DATES70 daysMon 1/10/11Mon 4/18/110% 21START-UP PHASE I WATER 1.25 IMGD0 daysMon 1/10/11Mon 1/10/111/10 22START-UP PHASE II WATER 1.145 IMGD SWRO #10 daysMon 2/28/11Mon 2/28/112/28 23START-UP PHASE II WATER 1.145 IMGD SWRO #20 daysMon 3/7/11Mon 3/7/113/7 24START-UP PHASE II WATER 1.145 IMGD SWRO #30 daysMon 3/28/11Mon 3/28/113/28 25START-UP PHASE II WATER 1.145 IMGD SWRO #40 daysMon 4/18/11Mon 4/18/114/18 26START-UP PHASE II WATER 4.58 IMGD (Complete)0 daysMon 4/18/11Mon 4/18/114/18 27PROCESS ENGINEERING AND DESIGN85 daysMon 5/10/10Fri 9/3/10100% 28PROCESS FLOW DIAGRAM50 daysMon 5/10/10Fri 7/16/10100% 29PROCESS AND INSTRUMENT DIAGRAM62 daysThu 6/10/10Fri 9/3/10100% 30PROCESS DESCRIPTION30 daysMon 7/26/10Fri 9/3/10100% 31PROCESS LOGIC DESCRIPTION30 daysMon 7/26/10Fri 9/3/10100% 32CIVIL/ STRUCTURAL ENGINEERING AND DESIGN104 daysMon 5/10/10Thu 9/30/1085% 33SITE PLAN85 daysMon 5/10/10Fri 9/3/10100% 34CORE STUDY2 daysThu 7/29/10Fri 7/30/10100% 35CIVIL STRUCTURAL DETAILS33 daysTue 8/17/10Thu 9/30/1045% 36MECHANICALENGINEERING AND DESIGN87.5 daysMon 6/7/10Wed 10/6/1083% 37INTAKE/ OUTFALL DETAILS15 daysMon 7/19/10Wed 10/6/1077% 38SITE PIPE DETAILS32 daysMon 6/7/10Fri 10/1/1053% 39PRE-TREATMENT DETAILS52 daysThu 6/10/10Fri 8/20/10100% 40SWRO DETAILS40 daysMon 7/5/10Fri 8/27/10100% 41POST-TREATMENT DETAILS16 daysMon 8/9/10Fri 9/17/1069% 42STORAGE AND DISTRIBUTION DETAILS15 daysMon 8/9/10Mon 9/20/1063% 43ELECTRICAL ENGINEEERING AND DESIGN52.5 daysMon 7/19/10Wed 9/29/1083% 44MAIN POWER (SUBSTATION DESIGN)15 daysMon 7/19/10Fri 8/6/10100% 45LOW VOLTAGE DESIGN15 daysMon 7/19/10Fri 8/6/10100% 46CONTROL DESIGN30 daysMon 8/9/10Fri 9/17/1083% 47PLC/HMI AND SCADA PROGRAMMING15 daysMon 8/16/10Wed 9/29/1050% 48PROCUREMENT159 daysThu 5/13/10Tue 12/21/1061% 49LONG LEAD ITEMS159 daysThu 5/13/10Tue 12/21/1061% 50SWITCHGEAR/ VFDS48 daysMon 7/19/10Wed 9/22/1083% 51TRANSFORMERS5 daysMon 8/9/10Fri 8/13/10100% 52PUMPS30 daysMon 7/19/10Fri 8/27/10100% 53ELECTRICAL MATERIAL30 daysMon 9/13/10Fri 10/22/100% 54SWRO CONTAINERS QTY 61 dayThu 5/13/10Thu 5/13/10100% 55MMF VESSELS QTY 12 (PHASE I)71 daysThu 6/10/10Thu 9/16/1094% 56MMF VESSELS QTY 8 (SWRO #1)64 daysThu 7/15/10Tue 10/12/1066% 57MMF VESSELS QTY 8 (SWRO #2)64 daysThu 8/19/10Tue 11/16/1027% 58MMF VESSELS QTY 8 (SWRO #3)64 daysThu 9/23/10Tue 12/21/100% 59MMF VESSELS QTY 8 (SWRO #4)64 daysThu 9/23/10Tue 12/21/100% 60MECHANICAL MATERIAL PHASE I35 daysMon 10/4/10Fri 11/19/100% 61SWRO VESSEL RACK PHASE II70 daysFri 7/30/10Thu 11/4/1044% 62HP PUMP 190 daysFri 5/21/10Thu 9/23/100% 63HP PUMP 290 daysFri 5/21/10Thu 9/23/1090% 64HP PUMP 390 daysFri 5/21/10Thu 9/23/1090% 65HP PUMP 490 daysFri 5/21/10Thu 9/23/1090% 66ERI BOOST PUMP 194 daysMon 5/17/10Thu 9/23/1090% 67ERI BOOST PUMP 294 daysMon 5/17/10Thu 9/23/1090% 68ERI BOOST PUMP394 daysMon 5/17/10Thu 9/23/1090% 69ERI BOOST PUMP 494 daysMon 5/17/10Thu 9/23/1090% 70MEMBRANES UNITS 1 AND 257.97 daysFri 6/18/10Fri 11/19/100% 71MEMBRANES UNITS 3 AND 4111 daysFri 6/18/10Fri 11/19/100% 72HP PIPE WORK UNITS 1 AND 280 daysMon 5/17/10Fri 9/3/10100% 73HP PIPE WORK UNITS 3 AND 4100 daysMon 5/17/10Fri 10/1/1085% 74CIP SYSTEM45 daysMon 8/16/10Fri 10/15/1044% 75TANKS41 daysFri 7/30/10Fri 9/24/1076% 76MECHANICAL MATERIAL UNITS 1 AND 225 daysMon 8/16/10Fri 9/17/1080% 77MECHANICAL MATERIAL UNITS 3 AND 425 daysMon 8/16/10Fri 9/17/1080% 78ELECTRICAL MATERIAL UNITS 1 AND 225 daysMon 8/16/10Fri 9/17/1080% 79ELECTRICAL MATERIAL UNITS 3 AND 425 daysMon 8/16/10Fri 9/17/1080% 80SHIPPING AND CUSTOMS CLEARANCE TIME171 daysThu 5/13/10Thu 1/6/113% 81PHASE I149 daysThu 5/13/10Tue 12/7/1020% 82CONTAINERIZED UNITS5 daysThu 5/13/10Wed 5/19/10100% 83MMF VESSELS12 daysThu 9/2/10Fri 10/1/1020% 84ELECTRICAL MATERIALS PHASE I12 days Mon 10/25/10Tue 11/9/100% 85MECHANICAL MATERIALS PHASE I12 days Mon 11/22/10Tue 12/7/100% 86MEDIA AND MEMBRANES PHASE I12 daysThu 5/20/10Fri 6/4/100% 87TRANSFORMERS/SWITCH GEAR12 daysThu 9/23/10Fri 10/8/100% 88TANKS12 daysMon 9/27/10Tue 10/12/100% 89PUMPS12 daysMon 8/30/10Tue 9/14/1083% 90SWRO UNIT #167 daysMon 9/6/10Tue 12/7/100% 911 MGD SWRO UNIT12 daysFri 11/5/10Mon 11/22/100% 92HP PUMP35 daysFri 9/24/10Thu 11/11/100% Project: working Trinidad WASA PT FO Date: Tue 9/14/10 CriticalBaselineProject Summary Critical SplitBaseline SplitExternal Tasks Critical ProgressBaseline MilestoneExternal Milestone TaskMilestoneDeadline SplitSummary Progress Task ProgressSummary Page 1

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

 


GRAPHIC

4.5 IMGD SWRO EXHIBIT D - SCHEDULEWASA POINT FORTIN SEVEN SEAS WATER IDTask NameDurationStartFinishQtr 2, 2010 Qtr 3, 2010 Qtr 4, 2010 Qtr 1, 2011 Qtr 2, 2011 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 93ERI BOOST PUMP12 daysFri 9/24/10Mon 10/11/100% 94MEMBRANES12 days Mon 11/22/10Tue 12/7/100% 95HP PIPE WORK12 daysMon 9/6/10Tue 9/21/100% 96MMF VESSELS12 days Wed 10/13/10Thu 10/28/100% 97MECHANICAL MATERIAL12 daysMon 9/20/10Tue 10/5/100% 98ELECTRICAL MATERIAL12 daysMon 9/20/10Tue 10/5/100% 99CIP SYSTEM12 days Mon 10/18/10Tue 11/2/100% 100SWRO UNIT #257 daysMon 9/20/10Tue 12/7/100% 1011 MGD SWRO UNIT12 daysFri 11/5/10Mon 11/22/100% 102HP PUMP35 daysFri 9/24/10Thu 11/11/100% 103ERI BOOST PUMP12 daysFri 9/24/10Mon 10/11/100% 104MEMBRANES12 days Mon 11/22/10Tue 12/7/100% 105HP PIPE WORK12 daysMon 10/4/10Tue 10/19/100% 106MMF VESSELS12 days Wed 11/17/10Thu 12/2/100% 107MECHANICAL MATERIAL12 daysMon 9/20/10Tue 10/5/100% 108ELECTRICAL MATERIAL12 daysMon 9/20/10Tue 10/5/100% 109SWRO UNIT #379 daysMon 9/20/10Thu 1/6/110% 1101 MGD SWRO UNIT12 daysFri 11/5/10Mon 11/22/100% 111HP PUMP35 daysFri 9/24/10Thu 11/11/100% 112ERI BOOST PUMP12 daysFri 9/24/10Mon 10/11/100% 113MEMBRANES12 days Mon 11/22/10Tue 12/7/100% 114HP PIPE WORK12 daysMon 10/4/10Tue 10/19/100% 115MMF VESSELS12 days Wed 12/22/10Thu 1/6/110% 116MECHANICAL MATERIAL12 daysMon 9/20/10Tue 10/5/100% 117ELECTRICAL MATERIAL12 daysMon 9/20/10Tue 10/5/100% 118SWRO UNIT #479 daysMon 9/20/10Thu 1/6/110% 1191 MGD SWRO UNIT12 daysFri 11/5/10Mon 11/22/100% 120HP PUMP35 daysFri 9/24/10Thu 11/11/100% 121ERI BOOST PUMP12 daysFri 9/24/10Mon 10/11/100% 122MEMBRANES12 days Mon 11/22/10Tue 12/7/100% 123HP PIPE WORK12 daysMon 10/4/10Tue 10/19/100% 124MMF VESSELS12 days Wed 12/22/10Thu 1/6/110% 125MECHANICAL MATERIAL12 daysMon 9/20/10Tue 10/5/100% 126ELECTRICAL MATERIAL12 daysMon 9/20/10Tue 10/5/100% 127CONSTRUCTION156 daysMon 9/13/10Mon 4/18/110% 128MOBILIZATION5 daysMon 9/13/10Fri 9/17/100% 129SITE CLEARING & PRELIMINARY EARTH WORK5 daysMon 9/20/10Fri 9/24/100% 130INTAKE AND OUTFALL REPAIRS AND IMPROVEMENTS55 daysTue 11/2/10Mon 1/17/110% 131INTAKE BUILDING REFURB55 daysTue 11/2/10Mon 1/17/110% 132PHASE I CIVIL WORKS40 daysFri 10/1/10Thu 11/25/100% 133PHASE II CIVIL WORKS50 daysFri 10/1/10Thu 12/9/100% 134PHASE I-CONSTRUCTION32 daysFri 11/26/10Mon 1/10/110% 135MECHANICAL INSTALLATION PHASE I25 daysFri 11/26/10Thu 12/30/100% 136ELECTRICAL INSTALLATION PHASE I25 daysFri 11/26/10Thu 12/30/100% 137START-UP AND COMMISSIONING PHASE I7 daysFri 12/31/10Mon 1/10/110% 138PHASE II CONSTRUCTION105 days Tue 11/23/10Mon 4/18/110% 139SWRO UNIT #170 days Tue 11/23/10Mon 2/28/110% 140MECHANICAL INSTALLATION SWRO #130 daysTue 11/23/10Mon 1/3/110% 141ELECTRICAL INSTALLATION SWRO #125 daysTue 1/18/11Mon 2/21/110% 142START-UP AND COMMISSIONING SWRO #15 daysTue 2/22/11Mon 2/28/110% 143SWRO UNIT #260 days Tue 12/14/10Mon 3/7/110% 144MECHANICAL INSTALLATION SWRO #230 daysTue 12/14/10Mon 1/24/110% 145ELECTRICAL INSTALLATION SWRO #225 daysTue 1/25/11Mon 2/28/110% 146START-UP AND COMMISSIONING SWRO #25 daysTue 3/1/11Mon 3/7/110% 147SWRO UNIT #360 daysTue 1/4/11Mon 3/28/110% 148MECHANICAL INSTALLATION SWRO #330 daysTue 1/4/11Mon 2/14/110% 149ELECTRICAL INSTALLATION SWRO #325 daysTue 2/15/11Mon 3/21/110% 150START-UP AND COMMISSIONING UNIT #35 daysTue 3/22/11Mon 3/28/110% 151SWRO UNIT #460 daysTue 1/25/11Mon 4/18/110% 152MECHANICAL INSTALLATION SWRO UNIT #430 daysTue 1/25/11Mon 3/7/110% 153ELECTRICAL INSTALLATION SWRO UNIT #425 daysTue 3/8/11Mon 4/11/110% 154START-UP AND COMMISSIONING SWRO UNIT #45 daysTue 4/12/11Mon 4/18/110% 155WATER PRODUCTION DATES70 daysMon 1/10/11Mon 4/18/110% 156PHASE I WATER0 daysMon 1/10/11Mon 1/10/111/10 157PHASE II WATER0 daysMon 4/18/11Mon 4/18/114/18 Project: working Trinidad WASA PT FO Date: Tue 9/14/10 CriticalBaselineProject Summary Critical SplitBaseline SplitExternal Tasks Critical ProgressBaseline MilestoneExternal Milestone TaskMilestoneDeadline SplitSummary Progress Task ProgressSummary Page 2 Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

 

SECOND AMENDMENT TO THE
WATER SALE AGREEMENT

 

Between

 

Seven Seas Water (Trinidad) Unlimited,
Seven Seas Water Corporation and its affiliates
members of the Seven Seas Water Group
Supplier

 

And

 

WATER & SEWERAGE AUTHORITY
Client

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

49



 

THIS SECOND AMENDMENT TO THE WATER SALE AGREEMENT (hereinafter, this “ Second Amendment ”) is entered into this 11 th  day of January 2013 (the “ Second Amendment Effective Date ”) by and between Seven Seas Water (Trinidad) Unlimited, Seven Seas Water Corporation and its affiliates - members of the Seven Seas Water Group (hereinafter called the “ Supplier ”) headquartered at 14400 Carlson Circle, Tampa, Florida, USA, and WATER & SEWERAGE AUTHORITY (hereinafter called the “ Client ”), located at Farm Road, Valsayn, St. Joseph, Trinidad, WI.  Client and Supplier shall each hereinafter be referred to as a “ Party ” and collectively as the “ Parties ”.

 

WHEREAS, the Parties entered into a water sale agreement on the 7 th  May 2010 (hereinafter the “ WSA ”) as amended by the first amendment to the WSA dated the 7 th  October 2010, (hereinafter the “ First Amendment ”) in respect of the Supplier agreeing to sell and the Client agreeing to buy Product Water (the “ Project ”).

 

WHEREAS, since the execution of the WSA the Supplier’s cost of the Site Civil works (except for the Client Site Work Preparations which are the Client’s responsibility) has been agreed between the Parties.

 

WHEREAS since the execution of the WSA, the cost of the Site Intake/Outfall Repairs and Improvement exceeded the original budget as estimated in Section 5.1.k of the WSA, due to structural problems in relation to the existing intake and outfall structure, causing Supplier to construct a new pump house and new intake and outfall structures, which resulted in a significantly expanded new scope of the Site Intake/Outfall Repairs and Improvement (the “ New Scope ”).

 

WHEREAS in accordance with Section 4.1 of the WSA, as amended by the First Amendment, provisions were made for the price adjustment to the Water Rate in the event that the Supplier’s cost of the Site Intake/Outfall Repairs and Improvements exceeded the amount estimated in Section 5.1.k of the WSA.

 

WHEREAS the Parties have met and discussed the estimates of the cost overrun associated with the New Scope (the “ Cost Overrun ”) and have agreed to extend the Agreement Term and consequential provisions of the WSA as a result of the Cost Overrun, in the manner hereinafter appearing.

 

NOW, THEREFORE, in consideration of the mutual promises set forth herein and the monies to be paid hereunder, the receipt and sufficiency of which each of the Parties hereby irrevocably acknowledges,  IT IS HEREBY AGREED as follows:

 

1.               DEFINTIONS AND INTERPRETATIONS

 

1.1                                Capitalized terms not defined in this Second Amendment shall have the same meaning as set out in the WSA and the First Amendment where applicable.

 

2.               AMENDMENT TO SECTION 2 - TERM OF THE A GREEMENT:

 

2.1                                Section 2.1 of the WSA is deleted and replaced with the following :

 

“2.1                          This Agreement shall commence upon the mutual execution and delivery of this Agreement by the Parties (the “ Effective Date ”-) and shall continue for a period of one hundred and fifty months following the Phase Two Start Date of the System at the POINT FORTIN Site (the, “ Expiration Date ”), or until this Agreement is otherwise terminated as expressly authorized herein.  “ Agreement Term ” means the term of this Agreement from the Effective Date until the latest of the Expiration Date, or the Option Period Expiration Date (as defined below), or until this Agreement is otherwise terminated as expressly authorized herein.  “ Start Date ” means the date on

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

50



 

which a specific Phase of the System (as described in Exhibit A-l ) has been installed and rendered operational, which, except as otherwise provided in this Agreement, shall be according to the timeline estimates presented in Exhibit D subject to the successful completion by Client of all of its obligations under Section 6 hereof, the successful completion of the Site Civil Works and Site Intake/Outfall Repairs and Improvements based on the estimated schedule at Exhibit D, and the satisfaction of the other conditions precedent set forth in this Agreement.  “ Phase Two Start Date ” means the date on which the System has been completely installed and rendered operational.”

 

3.               AMENDMENT TO SECTION4 - CONSIDERATION:

 

3.1.                             Section 4.1 of the WSA is deleted and replaced with the following :

 

“4.1                          Client’s obligation for all payments for Product Water under this Agreement shall be at a price payable in U.S. currency of *** (US $ ***) per *** of Product Water delivered by Supplier (the “ Water Rate ”), applicable from Phase One Start Date through *** following Phase Two Start Date and *** (US $ ***) per *** of Product Water delivered by Supplier from *** through *** following the Phase Two Start Date.

 

4.               AMENDMENT TO SECTIONS- RESPONSIBILITIES OF SUPPLIER:

 

4.1                                Section 5.1.j of the WSA is deleted and replaced with the following :

 

“5.1.j                   Provide the civil works at the POINT FORTIN Site listed in Exhibit D (collectively the “ Site Civil Works ” except for the Client Site Work Preparations allocated to Client under Section 6.2 hereof and more fully described in Exhibit D), the cost of which Site Civil Works has been agreed between the Parties at $***; and”

 

4.2                                Section 5.1.k of the WSA is deleted and replaced with the following :

 

“5.1.k                Provide the rehabilitation of the existing Petrotrin Point Fortin intake and outfall works at the POINT FORTIN Site as listed in Exhibit D (collectively the “ Site Intake/Outfall Repair and Improvements ”) except for the Client Site Work Preparations allocated to Client under Section 6.2 hereof and more fully described in Exhibit D), the cost of which Site Intake/Outfall Repair and Improvements has been agreed between the Parties at $***.  In respect of this Section 5.1.k, the Parties have agreed that as a result of the New Scope, as set out in Exhibit D -Schedule, the Client waives its right to enforce Section 5.1.a of the WSA or bring any claim or action against Supplier in respect of any delays which may be or are caused by the New Scope, unless such delays are caused by the negligence of the Supplier.”

 

5.               AMENDMENT TO EXHIBIT C-PRICING SCHEDULE:

 

Exhibit C to the WSA as amended to the First Amendment WSA is deleted and replaced with the Exhibit C - Pricing Schedule attached hereto.

 

6.               AMENDMENT TO EXHIBITD — SCHEDULE:

 

Exhibit D - Schedule of the WSA as amended by First Amendment relating to the timeline schedule will be deleted and replaced with the Exhibit D - Schedule attached hereto.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

51



 

7.               FINAL PROVISION:

 

Save as amended in the manner hereinbefore stated, all other terms and conditions of the WSA and First Amendment continue to apply without any amendments and govern this Second Amendment, and the WSA and the First Amendment shall remain in full force and effect and shall be read and construed together with this Second Amendment in the same manner as if the amendments made herein were originally contained in the WSA.

 

[The remainder of this page has been left blank intentionally.]

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

52



 

IN WITNESS WHEREOF, the Parties hereto have executed this Second Amendment by their duly authorized representatives, as of the Second Amendment Effective Date.

 

SEVEN SEAS WATER (TRINIDAD)

 

 

 

UNLIMITED

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/John F. Curtis

 

 

 

Name: John F. Curtis

 

 

 

Title: Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WITNESS

 

 

 

 

 

 

 

 

 

 

 

 

 

WATER & SEWERAGE AUTHORITY

 

 

 

 

 

 

 

 

 

 

 

 

Name:

/s/Indar Maharaj

 

Name:

/s/Gerard Yorke

 

 

 

 

 

Title:

CHAIRMAN

 

Title:

CHIEF EXECUTIVE OFFICER

 

Indar Maharaj

 

 

Gerard Yorke

 

 

 

 

 

 

 

 

 

 

[Illegible]

 

[Illegible]

WITNESS

 

WITNESS

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

53



 

Exhibit C

 

Pricing Schedule

 

 

 

Average Minimum
Consumption

 

Price per ***

 

Estimated Electricity
Usage for SWRO
(***) at ***

Phase One
*** (***)

 

***
Produced (up to system design)

 

US$ ***

 

Less than *** (***)

 

 

 

 

 

 

 

Phase Two
20,833 M3/D (4,583,000 IGPD)

 

***
Produced (up to system design)

 

US *** for *** through *** after Phase Two Start Date
US$ *** for *** through one hundred and fifty after Phase Two Start Date

 

Less than *** (***)

 

Notes:

 

1)              The pricing above assumes that Phase One will be a term of no less than *** but no more than *** and Phase Two will be for a term of one hundred and fifty (150) months.

 

2)              *** percent of the pricing above will be subject to a *** adjustment starting from the production start date (i.e. if Phase Two were to start producing water *** after Phase One, and the *** was *** for that year, the Phase Two price at *** from the Phase One Start Date would be ***.

 

3)              The minimum consumption level presented above will be averaged over each monthly invoice period.

 

Average Monthly Water Shortfall Tariff Penalty Table

 

% Shortfall of Contractual Minimum

 

Water Tariff Reduction Rate

0-19% shortfall of Minimum

 

***

20-30% shortfall of Minimum

 

***

31-40% shortfall of Minimum

 

***

41-50% shortfall of Minimum

 

***

51-60% shortfall of Minimum

 

***

Greater than 60% shortfall of Minimum

 

***

 

By example:  During Phase Two where the average monthly guaranteed amount is ***, and Supplier is able to deliver only *** for the month then the Client’s water payment to Supplier for that month will be *** by ***.”

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

54



 

Exhibit D

 

Site Intake/Outfall Repair and Improvements

 

The following is a brief description of the expected steps included to install a new pump house and new intake and outfall structures (pipelines, walkway and intake structure).

 

1)              Remove existing *** cement lined steel pipes and transport to Petrotrin laydown yard.

 

2)              Remove and repair or replace existing pipeline supports and re-install for support of new intake and out fall pipe lines,

 

3)              Install foundations for single intake pipeline bridge and double pipeline bridge from North side of Road to Plant.  The single pipe bridge will be for the intake line and the double pipe bridge will be for WASA’s product line and the outfall pipe line.

 

4)              Supply and erect single and double pipeline bridges.

 

5)              Supply and install new onshore intake *** cement lined steel pipe and new outfall *** cement lined steel pipe.

 

6)              Remove old pipe bridge and walkway and install new pipe bridge and access walkway over Trinmar access road for new intake and outfall pipelines.

 

7)              Supply and install a *** HDPE submarine outfall line from shoreline interface with the *** cement lined steel pipe to the diffuser 1000meters from shoreline.

 

8)              Supply and install a *** HDPE submarine intake line from shoreline interface with the *** cement lined steel pipe to the intake building ~500meters from shore.

 

9)              Install new personnel access walkway from Petrotrin jetty to the new intake building (walkway is ~100meters long).

 

10)       Supply and install new intake pump house to house intake pumping system, electrical systems and auxiliary systems for supply of feed water to plant.

 

11)       Supply and installation of 12kv electrical submarine cable from splice box 2 to intake building.

 

The latest estimate of New Scope cost is $ *** :

 

Site Civil Works

 

The following is assumed to be the civil scope of works required to utilize the two sites identified for the seawater treatment facility.

 

1)              Survey of the two sites to determine boundaries, elevations rights of way, easements etc.

 

2)              Rework of existing concrete to allow installation of new equipment.

 

3)              Installation of additional concrete works to support all new equipment, at this time it is assumed that this will not require additional piling.

 

4)              Site finishing to match existing infrastructure.

 

5)              Removal and disposal of all steel beams, walls, sheeting, roofing materials, junk, debris presently on the site and outfall/intake and additional material to be created during decommissioning and demolition efforts.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

55



 

6)              Remediation of any subsurface contamination is the responsibility of the client.  The latest estimate of Site Civil Works cost is $***.

 

The latest estimate of Site Civil Works cost is $ *** .

 

Client’s Site Work Preparations

 

·                   Obtaining clear, unfettered access and use for the plots identified as Site 1 (Site of Previous Distillation Units described in Exhibit A-2), and the existing Intake/Outfall Structures.

·                   Provision of a suitable site for the System free of Hazardous Materials.

·                   The removal and disposal of all hazardous materials is the Client’s responsibility to be performed on behalf of the Client by a third party contractor, retained by the Client.

·                   A staging area for materials to be generated during the demolition phase.

·                   Clear demarcation of gas/oil/electrical/water/fiber optic piping and or lines

·                   The cost of power to operate the plant (will be a direct pass through cost) guaranteed at a maximum consumption of ***.

·                   Acquisition of any permits, licenses or fees required for the construction and operation of the System, Supplier will assist where possible by providing engineering drawings calculations etc. The above does not include work permit fees, which will be paid by Supplier however assistance from the Client in obtaining these permits is requested.

·                   Assisting SSW personnel, contractors, and subcontractors with obtaining the any required security clearance for access to the site.

·                   Any maintenance, repairs, modifications to rights of way, easements etc. required for any pipelines outside of the Seven Seas Water scope.

·                   Electrical power supplies (*** of sufficient capacity) and incoming communications to the System (telephone/internet line).

·                   Permeate storage (minimum capacity to be agreed upon by the Parties by April 7, 2010),

·                   Any other civil or non System related items not identified in the Supplier scope listed are NOT included.

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

56


 

GRAPHIC

4.5 IMGD SWRO 2nd Amendment /12 6/25/12 7/30/12 3/20/13 4/3/13 4/10/13 4/17/13 4/24/13 4/24/13 100% 96% 97% EXHIBIT D - SCHEDULEWASA POINT FORTIN SEVEN SEAS WATER ID Task Name Early Start Early Finish Duration % Complete 1 May 1 November 21 3/4 6/10 9/16 12/23 3/31 1 WASA SWRO PROJECT SCHEDULE Fri 5/7/10 Wed 4/24/13 774 days 98% 9/12 1 98% 99% 5/31/12 1/24/13 2/6/13 1/24/13 12/7/12 6/7/12 0% 2 CONTRACT MILESTONES Fri 5/7/10 Wed 2/6/13 719 days 99% 3 CONTRACT SIGNING Fri 5/7/10 Fri 5/7/10 1 day 100% 4 LICENSE AGREEMENT RECEIVED Tue 7/13/10 Tue 7/13/10 1 day 100% 5 PETROTRIN CERTIFICATION OF SITE CLASSIFICATION Fri 5/13/11 Fri 5/13/11 0 days 100% 6 WASA - OBTAINS LAND LEASE Mon 4/4/11 Thu 1/12/12 204 days 100%2 7 WASA - EXECUTES SUBLEASE Thu 1/19/12 Thu 1/19/12 0 days 100% 8 TCP PETROTRIN SUBDIVISION APPROVAL Thu 6/23/11 Thu 9/1/11 51 days 100% 9 TCP OUTLINE APPROVAL Mon 9/26/11 Mon 9/26/11 0 days 100% 10 State Lands License Thu 5/31/12 Thu 5/31/12 0 days 100% 11 AS IS STUDY Mon 9/20/10 Fri 11/5/10 35 days 100% 12 COMMENCE SITE CLEARING WORK Mon 9/27/10 Mon 9/27/10 0 days 100% 13 SITE CLEARED AND READY FOR MOBILIZATION Mon 9/27/10 Mon 9/27/10 0 days 100% 14 WASA - T&TEC POWER TO SITE 480V/ 60HZ FEED Thu 1/24/13 Thu 1/24/13 0 days 0% 15 WASA - 480V/3/60HZ AT PUMP HOUSE Wed 2/6/13 Wed 2/6/13 0 days 0% 16 WASA - ALL PERMITS FOR OPERATION Thu 1/24/13 Thu 1/24/13 0 days 0% 17 CONTAINTERIZED UNITS IN TRINIDAD Wed 5/19/10 Wed 5/19/10 0 days 100% 18 CONSTRUCTION BEGINS ON INTAKE AND OUTFALL Fri 12/7/12 Fri 12/7/12 0 days 0% 19 CONSTRUCTION BEGINS ON PHASE I CIVIL WORKS Thu 6/7/12 Thu 6/7/12 0 days 100% 20 CONSTRUCTION BEGINS ON PHASE II CIVIL WORKS Mon 6/25/12 Mon 6/25/12 0 days 100% 00 21 INSTALLATION OF PHASE I EQUIPMENT BEGINS Mon 7/30/12 Mon 7/30/12 0 days 100% % 22 WATER PRODUCTION DATES Wed 3/20/13 Wed 4/24/13 25 days 0% 23 START-UP PHASE I WATER 1.25 IMGD Wed 3/20/13 Wed 3/20/13 0 days 0% 95% 24 START-UP PHASE II WATER 832,674 IGD SWRO #1 Wed 4/3/13 Wed 4/3/13 0 days 0% 25 START-UP PHASE II WATER 832,674 IGD SWRO #2 Wed 4/10/13 Wed 4/10/13 0 days 0% 26 START-UP PHASE II WATER 832,674 IGD SWRO #3 Wed 4/17/13 Wed 4/17/13 0 days 0% 27 START-UP PHASE II WATER 832,674 IGD SWRO #4 Wed 4/24/13 Wed 4/24/13 0 days 0% 28 START-UP PHASE II WATER 4.58 IMGD (Complete) Wed 4/24/13 Wed 4/24/13 0 days 0% 29 PROCESS ENGINEERING AND DESIGN Mon 5/10/10 Fri 9/3/10 85 days 100% 30 PROCESS FLOW DIAGRAM Mon 5/10/10 Fri 7/16/10 50 days 100% 31 PROCESS AND INSTRUMENT DIAGRAM Thu 6/10/10 Fri 9/3/10 62 days 100% 32 PROCESS DESCRIPTION Mon 7/26/10 Fri 9/3/10 30 days 100% 33 PROCESS LOGIC DESCRIPTION Mon 7/26/10 Fri 9/3/10 30 days 100% 34 CIVIL/ STRUCTURAL ENGINEERING AND DESIGN Mon 5/10/10 Fri 1/14/11 180 days 100% 35 SITE PLAN Mon 5/10/10 Fri 9/3/10 85 days 100% 36 CORE STUDY Mon 10/11/10 Fri 10/29/10 15 days 100% 37 CIVIL STRUCTURAL DETAILS Tue 8/17/10 Fri 1/14/11 94 days 100% 38 MECHANICALENGINEERING AND DESIGN Mon 6/7/10 Fri 4/13/12 485 days 100% 39 INTAKE/ OUTFALL DETAILS Mon 12/6/10 Fri 4/13/12 149.5 days 100% 40 SITE PIPE DETAILS Mon 6/7/10 Thu 10/27/11 120 days 100% 41 PRE-TREATMENT DETAILS Thu 6/10/10 Fri 11/4/11 172 days 100% 42 SWRO DETAILS Mon 7/5/10 Fri 8/27/10 40 days 100% 43 POST-TREATMENT DETAILS Mon 8/9/10 Fri 11/4/11 116 days 100% 44 STORAGE AND DISTRIBUTION DETAILS Mon 8/9/10 Fri 10/14/11 15.75 days 100% 45 ELECTRICAL ENGINEEERING AND DESIGN Mon 7/19/10 Tue 1/15/13 652 days 96% 46 MAIN POWER (SUBSTATION DESIGN) Mon 7/19/10 Fri 8/6/10 15 days 100% 47 LOW VOLTAGE DESIGN Mon 7/19/10 Fri 8/6/10 15 days 100% 48 CONTROL DESIGN Mon 8/9/10 Mon 12/31/12 436 days 95% 49 PLC/HMI AND SCADA PROGRAMMING Mon 8/16/10 Tue 1/15/13 391.25 days 97% 100% 97 97 % % 50 PROCUREMENT Thu 5/13/10 Fri 11/30/12 667 days 97% 51 LONG LEAD ITEMS Thu 5/13/10 Fri 11/30/12 667 days 97% 52 SWITCHGEAR/ VFDS Mon 7/19/10 Fri 10/1/10 55 days 100% 53 TRANSFORMERS Mon 8/9/10 Fri 8/13/10 5 days 100% 54 PUMPS Mon 7/19/10 Fri 8/27/10 30 days 100% 55 ELECTRICAL MATERIAL Wed 10/12/11 Fri 8/31/12 233 days 100% 56 SWRO CONTAINERS QTY 6 Thu 5/13/10 Thu 5/13/10 1 day 100% 100% 57 MMF VESSELS QTY 12 (PHASE I) Thu 6/10/10 Fri 10/1/10 82 days 100% 58 MMF VESSELS QTY 8 (SWRO #1) Thu 7/15/10 Tue 10/12/10 64 days 100% 59 MMF VESSELS QTY 8 (SWRO #2) Thu 8/19/10 Tue 11/16/10 64 days 100% 60 MMF VESSELS QTY 8 (SWRO #3) Thu 9/23/10 Tue 12/21/10 64 days 100% 61 MMF VESSELS QTY 8 (SWRO #4) Thu 9/23/10 Tue 12/21/10 64 days 100% 62 MECHANICAL MATERIAL PHASE I Mon 7/2/12 Fri 8/17/12 35 days 100% 63 SWRO VESSEL RACK PHASE II Fri 7/30/10 Thu 11/4/10 70 days 100% 64 HP PUMP 1 Fri 5/21/10 Wed 10/20/10 109 days 100% 65 HP PUMP 2 Fri 5/21/10 Wed 10/20/10 109 days 100% 66 HP PUMP 3 Fri 5/21/10 Wed 10/20/10 109 days 100% Project: EXHIBIT D WASA PT FORTIN Date: Wed 1/9/13 Critical Progress Milestone Manual Task Task Summary Progress Duration-only Split Summary Manual Summary Rollup Task Progress Project Summary Manual Summary Critical External Tasks Start-only Critical Split External Milestone Finish-only Baseline Inactive Task Deadline Baseline Split Inactive Milestone Baseline Milestone Inactive Summary Page 1

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

 


GRAPHIC

4.5 IMGD SWRO 2nd Amendment 57% 57% 100% 87% 42% 91% 100% 90% 90% 90% EXHIBIT D - SCHEDULEWASA POINT FORTIN SEVEN SEAS WATER ID Task Name Early Start Early Finish Duration % Complete 1 May 1 November 21 3/4 6/10 9/16 12/23 3/31 67 HP PUMP 4 Fri 5/21/10 Wed 10/20/10 109 days 100% 100% 77% 0 0 0 0 % % % % 68 ERI BOOST PUMP 1 Mon 5/17/10 Thu 9/23/10 94 days 100% 69 ERI BOOST PUMP 2 Mon 5/17/10 Thu 9/23/10 94 days 100% 70 ERI BOOST PUMP3 Mon 5/17/10 Thu 9/23/10 94 days 100% 71 ERI BOOST PUMP 4 Mon 5/17/10 Thu 9/23/10 94 days 100% 72 MEMBRANES UNITS 3 AND 4 Mon 7/9/12 Fri 11/30/12 105 days 57% 73 MEMBRANES UNITS 1 AND 2 Mon 7/9/12 Fri 11/30/12 105 days 57% 74 HP PIPE WORK UNITS 1 AND 2 Mon 5/17/10 Fri 9/3/10 80 days 100% 75 HP PIPE WORK UNITS 3 AND 4 Mon 5/17/10 Fri 10/1/10 100 days 100% 76 CIP SYSTEM Mon 8/16/10 Fri 10/15/10 45 days 100% 77 TANKS Fri 7/30/10 Fri 10/15/10 56 days 100% 78 MECHANICAL MATERIAL UNITS 1 AND 2 Mon 8/16/10 Fri 8/31/12 253 days 100% 79 MECHANICAL MATERIAL UNITS 3 AND 4 Mon 8/16/10 Fri 8/31/12 253 days 100% 1 1 00% 00% 100% 100% 100% 80 ELECTRICAL MATERIAL UNITS 1 AND 2 Mon 8/16/10 Fri 8/31/12 253 days 100% 81 ELECTRICAL MATERIAL UNITS 3 AND 4 Mon 8/16/10 Fri 8/31/12 253 days 100% 82 SHIPPING AND CUSTOMS CLEARANCE TIME Thu 5/13/10 Tue 12/18/12 679 days 87% 83 PHASE I Thu 5/13/10 Thu 11/8/12 651 days 77% 84 CONTAINERIZED UNITS Thu 5/13/10 Wed 5/19/10 5 days 100% 85 MMF VESSELS Thu 9/2/10 Fri 10/15/10 12 days 100% 86 ELECTRICAL MATERIALS PHASE I Mon 9/3/12 Tue 9/18/12 12 days 100% 87 MECHANICAL MATERIALS PHASE I Mon 8/20/12 Tue 9/4/12 12 days 100% 1 0% 88 MEDIA AND MEMBRANES PHASE I Fri 8/31/12 Thu 11/8/12 50 days 42% 10 89 TRANSFORMERS/SWITCH GEAR Mon 10/4/10 Tue 10/19/10 12 days 100% 90 TANKS Mon 10/18/10 Tue 11/2/10 12 days 100% 91 PUMPS Mon 8/30/10 Tue 9/14/10 12 days 100% 92 SWRO UNIT #1 Mon 9/6/10 Tue 12/18/12 597 days 91% 93 1 MGD SWRO UNIT Fri 11/5/10 Mon 11/22/10 12 days 100% 94 HP PUMP Thu 10/21/10 Wed 12/8/10 35 days 100% 95 ERI BOOST PUMP Fri 9/24/10 Mon 10/11/10 12 days 100% 96 MEMBRANES Mon 12/3/12 Tue 12/18/12 12 days 0% 97 HP PIPE WORK Mon 9/6/10 Tue 9/21/10 12 days 100% 98 MMF VESSELS Wed 10/13/10 Thu 10/28/10 12 days 100% 99 MECHANICAL MATERIAL Mon 9/3/12 Tue 9/18/12 12 days 100% 100 ELECTRICAL MATERIAL Mon 9/3/12 Tue 9/18/12 12 days 100% 1 1 1 1 1 1 00 00% 00% 00% 00% 00% 00% % 101 CIP SYSTEM Mon 10/18/10 Tue 11/2/10 12 days 100% 102 SWRO UNIT #2 Fri 9/24/10 Tue 12/18/12 583 days 90% 103 1 MGD SWRO UNIT Fri 11/5/10 Mon 11/22/10 12 days 100% 104 HP PUMP Thu 10/21/10 Wed 12/8/10 35 days 100% 105 ERI BOOST PUMP Fri 9/24/10 Mon 10/11/10 12 days 100% 106 MEMBRANES Mon 12/3/12 Tue 12/18/12 12 days 0% 107 HP PIPE WORK Mon 10/4/10 Tue 10/19/10 12 days 100% 108 MMF VESSELS Wed 11/17/10 Thu 12/2/10 12 days 100% 109 MECHANICAL MATERIAL Mon 9/3/12 Tue 9/18/12 12 days 100% 110 ELECTRICAL MATERIAL Mon 9/3/12 Tue 9/18/12 12 days 100% 111 SWRO UNIT #3 Fri 9/24/10 Tue 12/18/12 583 days 90% 112 1 MGD SWRO UNIT Fri 11/5/10 Mon 11/22/10 12 days 100% 113 HP PUMP Thu 10/21/10 Wed 12/8/10 35 days 100% 114 ERI BOOST PUMP Fri 9/24/10 Mon 10/11/10 12 days 100% 115 MEMBRANES Mon 12/3/12 Tue 12/18/12 12 days 0% 116 HP PIPE WORK Mon 10/4/10 Tue 10/19/10 12 days 100% 117 MMF VESSELS Wed 12/22/10 Thu 1/6/11 12 days 100% 118 MECHANICAL MATERIAL Mon 9/3/12 Tue 9/18/12 12 days 100% 119 ELECTRICAL MATERIAL Mon 9/3/12 Tue 9/18/12 12 days 100% 120 SWRO UNIT #4 Fri 9/24/10 Tue 12/18/12 583 days 90% 121 1 MGD SWRO UNIT Fri 11/5/10 Mon 11/22/10 12 days 100% 122 HP PUMP Thu 10/21/10 Wed 12/8/10 35 days 100% 123 ERI BOOST PUMP Fri 9/24/10 Mon 10/11/10 12 days 100% 124 MEMBRANES Mon 12/3/12 Tue 12/18/12 12 days 0% 125 HP PIPE WORK Mon 10/4/10 Tue 10/19/10 12 days 100% 126 MMF VESSELS Wed 12/22/10 Thu 1/6/11 12 days 100% 127 MECHANICAL MATERIAL Mon 9/3/12 Tue 9/18/12 12 days 100% 128 ELECTRICAL MATERIAL Mon 9/3/12 Tue 9/18/12 12 days 100% 129 CONSTRUCTION Mon 9/27/10 Fri 8/24/12 500 days 100% 130 MOBILIZATION Wed 10/12/11 Tue 10/18/11 5 days 100% 131 SITE CLEARING & PRELIMINARY EARTH WORK Mon 9/27/10 Fri 10/1/10 5 days 100% 132 PHASE I CIVIL WORKS Fri 6/1/12 Thu 7/26/12 40 days 100% Project: EXHIBIT D WASA PT FORTIN Date: Wed 1/9/13 Critical Progress Milestone Manual Task Task Summary Progress Duration-only Split Summary Manual Summary Rollup Task Progress Project Summary Manual Summary Critical External Tasks Start-only Critical Split External Milestone Finish-only Baseline Inactive Task Deadline Baseline Split Inactive Milestone Baseline Milestone Inactive Summary Page 2

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

 


GRAPHIC

4.5 IMGD SWRO 2nd Amendment 100% 0% % 5/31/12 12 12 6/1/12 99% 0% % 0% 0% 0% 3% 100% 0% 0% 24% 85% 2% 10% 0% % 0% 10% % % 4/24/13 EXHIBIT D - SCHEDULEWASA POINT FORTIN SEVEN SEAS WATER ID Task Name Early Start Early Finish Duration % Complete 1 May 1 November 21 3/4 6/10 9/16 12/23 3/31 133 PHASE II CIVIL WORKS Mon 6/25/12 Fri 8/24/12 45 days 100% 10 100 100 100 % % % 0 8 83% 69% 56% 0% 5% 4% 5% 5% 5% 10% 0% 2/15/ 2/15/ 10 100 134 INTAKE AND OUTFALL Mon 5/2/11 Wed 3/20/13 493 days 83% 135 DETAIL DESIGN ACTIVITIES Mon 5/2/11 Thu 5/31/12 284 days 100% 136 WASA/PETROTRIN APPROVAL Mon 5/2/11 Fri 9/23/11 105 days 100% 137 APPROVAL REQUEST FOR LAND Thu 10/27/11 Thu 5/31/12 156 days 100% 138 APPROVAL OF SITE Thu 1/19/12 Thu 5/31/12 0 days 100% 139 ENGINEERING AND DESIGN Wed 9/28/11 Fri 10/28/11 23 days 100% 140 BID DRAWING RECEIVED Fri 10/28/11 Fri 10/28/11 0 days 100% 141 BID PACKAGES OUT FOR BID Fri 11/4/11 Fri 11/4/11 0 days 100% 142 BID DURATION Mon 11/7/11 Fri 11/25/11 15 days 100% 143 BID AWARD Wed 2/15/12 Wed 2/15/12 0 days 100% 144 DRAWINGS IFC Wed 2/15/12 Wed 2/15/12 0 days 100% 145 PUMP STATION PLATFORM Fri 6/1/12 Wed 3/20/13 209 days 69% 146 PERMIT Fri 6/1/12 Fri 6/1/12 0 days 100% 147 ACQUIRE PLATFORM MATERIALS/ FABRICATE TEMPLATE Mon 7/9/12 Fri 11/30/12 95 days 99% 148 MARINE MOBILIZATION Mon 12/3/12 Fri 12/7/12 5 days 0% 149 INSTALL PILING (DECK AND WALK) Wed 1/9/13 Tue 2/5/13 20 days 0% 150 FORM/ REINFORCE/ PLACE FLOOR DECK Wed 2/6/13 Fri 2/15/13 8 days 0% 151 PLACE MECHANICAL EQUIPMENT Mon 2/18/13 Fri 2/22/13 5 days 0% 152 PLACE ELECTRICAL EQUIPMENT Mon 2/25/13 Tue 2/26/13 2 days 0% 153 COMPLETE STEEL FRAME ENCLOSURE Mon 2/25/13 Fri 3/8/13 10 days 0% 154 MECHANICAL PIPE INSTALALTION Mon 2/25/13 Fri 3/8/13 10 days 0% 155 PRIMARY POWER CONDUIT CABLE Mon 2/18/13 Fri 3/8/13 15 days 0% 156 ELECTRICAL TERMINATIONS/ COMMISSIONING Mon 3/11/13 Wed 3/20/13 8 days 0% 157 OFF-SHORE WORK Fri 6/15/12 Mon 2/18/13 177 days 83% 158 PO/ FABRICATE/ DELVERY HDPE AND FITTINGS Fri 6/15/12 Thu 9/6/12 60 days 100% 159 LOCAL PRECAST ANCHOR FABRICATON Fri 8/17/12 Wed 10/31/12 54 days 100% 160 INTAKE LINE ASSEMBLY Tue 9/25/12 Thu 10/18/12 18 days 100% 161 OUTFAL LINE ASSEMBLY Tue 9/25/12 Thu 10/18/12 18 days 100% 162 DIFFUSER ASSEMBLY Tue 9/25/12 Thu 10/18/12 18 days 100% 163 INSTALL MARINE PIPELINE AND STRUCTURES Wed 1/2/13 Mon 2/18/13 34 days 0% 164 Main Construction of plant Fri 7/27/12 Wed 4/24/13 194 days 24% 165 PHASE I-CONSTRUCTION Fri 7/27/12 Fri 3/15/13 166 days 56% 166 MECHANICAL INSTALLATION PHASE I Fri 7/27/12 Fri 12/21/12 106 days 85% 167 ELECTRICAL INSTALLATION PHASE I Fri 9/14/12 Fri 1/25/13 40 days 2% 168 START-UP AND COMMISSIONING PHASE I Mon 2/25/13 Fri 3/15/13 15 days 0% 169 PHASE II CONSTRUCTION Fri 10/5/12 Wed 4/24/13 144 days 5% 170 SWRO UNIT #1 Fri 10/5/12 Wed 4/3/13 129 days 4% 171 MECHANICAL INSTALLATION SWRO #1 Fri 10/5/12 Tue 1/29/13 30 days 10% 172 ELECTRICAL INSTALLATION SWRO #1 Fri 1/25/13 Fri 3/8/13 30 days 0% 173 START-UP AND COMMISSIONING SWRO #1 Thu 3/21/13 Wed 4/3/13 10 days 0% 10 174 SWRO UNIT #2 Fri 10/26/12 Wed 4/10/13 119 days 5% 175 MECHANICAL INSTALLATION SWRO #2 Fri 10/26/12 Thu 2/14/13 30 days 10% 176 ELECTRICAL INSTALLATION SWRO #2 Fri 1/25/13 Fri 3/8/13 30 days 0% 177 START-UP AND COMMISSIONING SWRO #2 Thu 4/4/13 Wed 4/10/13 5 days 0% 0 178 SWRO UNIT #3 Wed 12/19/12 Wed 4/17/13 86 days 5% 179 MECHANICAL INSTALLATION SWRO #3 Wed 12/19/12 Mon 3/4/13 30 days 10% 180 ELECTRICAL INSTALLATION SWRO #3 Fri 1/25/13 Fri 3/8/13 30 days 0% 181 START-UP AND COMMISSIONING UNIT #3 Thu 4/11/13 Wed 4/17/13 5 days 0% 0 182 SWRO UNIT #4 Wed 1/9/13 Wed 4/24/13 76 days 5% 183 MECHANICAL INSTALLATION SWRO UNIT #4 Wed 1/9/13 Wed 3/20/13 30 days 10% 184 ELECTRICAL INSTALLATION SWRO UNIT #4 Fri 1/25/13 Fri 3/8/13 30 days 0% 185 START-UP AND COMMISSIONING SWRO #4 Thu 4/18/13 Wed 4/24/13 5 days 0% 186 WATER PRODUCTION DATES Wed 3/20/13 Wed 4/24/13 25 days 0% 187 PHASE I WATER Wed 3/20/13 Wed 3/20/13 0 days 0% 3/20/13 188 PHASE II WATER Wed 4/24/13 Wed 4/24/13 0 days 0% Project: EXHIBIT D WASA PT FORTIN Date: Wed 1/9/13 Critical Progress Milestone Manual Task Task Summary Progress Duration-only Split Summary Manual Summary Rollup Task Progress Project Summary Manual Summary Critical External Tasks Start-only Critical Split External Milestone Finish-only Baseline Inactive Task Deadline Baseline Split Inactive Milestone Baseline Milestone Inactive Summary Page 3

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

 

THIRD AMENDMENT TO THE
WATER SALE AGREEMENT

 

Between

 

Seven Seas Water (Trinidad) Unlimited,
Seven Seas Water Corporation and its affiliates
members of the Seven Seas Water Group
Supplier

 

And

 

WATER & SEWERAGE AUTHORITY
Client

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

60



 

THIS THIRD AMENDMENT TO THE WATER SALE AGREEMENT (hereinafter, this “ Third Amendment ”) is entered into this 29 th  day of January 2014 , (the “ Third Amendment Effective Date ”) by and between Seven Seas Water (Trinidad) Unlimited, Seven Seas Water Corporation and its affiliates - members of the Seven Seas Water Group (hereinafter called the “ Supplier ”) headquartered at 14400 Carlson Circle, Tampa, Florida, USA, and WATER & SEWERAGE AUTHORITY (hereinafter called the “ Client ”), located at Farm Road, Valsayn, Trinidad, WI.  Client and Supplier shall each hereinafter be referred to as a “ Party ” and collectively as the “ Parties ”.

 

WHEREAS, the Parties entered into a water sale agreement on the 7 th  May 2010, (hereinafter the “ WSA ”) as amended by the first amendment to the WSA dated the 7 th  October 2010, (hereinafter the “ First Amendment ”) and as amended by the second amendment to the WSA dated 11 th  January 2013, (hereinafter the “ Second Amendment ”) in respect of the Supplier agreeing to sell and the Client agreeing to buy Product Water (the “ Project ”),

 

WHEREAS, the Client has been made aware during several meetings between the Parties, that there have been interruptions in the electrical power supply to the System, which have resulted in a loss of production of Product Water.

 

WHEREAS, the Parties have agreed that in the event there is an unavailability of power necessary to perform the Operations, which results in a decrease in the water production of Product Water, then the Supplier will use reasonable efforts to supply the Client with additional Product Water and to assist the Client in finding a solution to such interruption subject to the terms and conditions contained herein.

 

WHEREAS, the Parties now wish to amend the WSA in accordance with Section 26 of the WSA to give effect to the Parties’ intention.

 

NOW, THEREFORE, in consideration of the mutual promises set forth herein and the monies to be paid hereunder, the receipt and sufficiency of which each of the Parties hereby irrevocably acknowledges,  IT IS HEREBY AGREED as follows:

 

1.               DEFINTIONS AND INTERPRETATIONS

 

1.1                                Capitalized terms not defined in this Third Amendment shall have the same meaning as set out in the WSA, the First Amendment and the Second Amendment where applicable.

 

2.               AMENDMENT TO SECTION 3 - MINIMUM PURCHASE AND DELIVERY COMMITMENTS:

 

2.1                                Section 3.3 is herewith added to the WSA:

 

“3.3                          With effect from the Third Amendment Effective Date and in accordance with Section 5.2(a) below, in the event that through no act or omission of the Supplier, the unavailability of power necessary to perform the Operations results in a decrease in the amount of Product Water produced by the System or results in a shutdown of the System, and the Supplier exercises its rights under Section 5.2(a) to invoice the Client for the loss of water production in accordance with Section 5.2(a), the Client shall settle the invoice in accordance with Section 4.4.  Further, the Supplier will use all reasonable efforts to supply the Client with Product Water above the Guaranteed Minimum Purchase during the three months immediately following the billing period that included the amount for loss of water production caused by the unavailability of power, unless such period is otherwise agreed to by the Parties in writing on a case

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

61



 

by case basis to make up to the Client the volume of Product Water invoiced for, but not supplied, as a result of the unavailability of power.”

 

3.               FINAL PROVISION

 

3.1                                Save as amended in the manner hereinbefore stated, all other terms and conditions of the WSA, the First Amendment and the Second Amendment continue to apply without any amendments and govern this Third Amendment, and the WSA, the First Amendment and the Second Amendment shall remain in full force and effect and shall be read and construed together with this Third Amendment in the same manner as if the amendments made herein were originally contained in the WSA.

 

IN WITNESS WHEREOF, the Parties hereto have executed this Third Amendment by their duly authorized representatives, as of the Second Amendment Effective Date.

 

SEVEN SEAS WATER (TRINIDAD)

 

 

 

UNLIMITED

 

 

 

 

 

 

 

 

By:

/s/John F. Curtis

 

 

 

Name:

JOHN CURTIS

 

 

 

Title:

DIRECTOR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WITNESS

 

 

 

 

 

 

 

 

 

 

 

 

 

WATER & SEWERAGE AUTHORITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

/s/Gerard Yorke

 

Name:

/s/Dion Abdool

 

 

 

 

 

 

 

 

 

 

Title:

CHIEF EXECUTIVE OFFICER

 

Title:

CORPORATE SECRETARY

 

 

 

 

 

 

 

 

 

 

[Illegible]

 

[Illegible]

WITNESS

 

WITNESS

 


Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request and are indicated by ***.

 

62




Exhibit 10.9

 

CREDIT AGREEMENT

 

DATED

 

APRIL 9, 2012

 

BETWEEN

 

THE BANK OF NOVA SCOTIA

 

- AND -

 

SEVEN SEAS WATER (TRINIDAD) UNLIMITED

 



 

TABLE OF CONTENTS

 

 

Page

 

 

SECTION 1 DEFINITIONS

1

 

 

SECTION 2 LOAN PARTICULARS

10

 

 

SECTION 3 INTEREST RATE

13

 

 

SECTION 4 CONDITIONS PRECEDENT TO ANY ADVANCES

15

 

 

SECTION 5 NEGATIVE COVENANTS

17

 

 

SECTION 6 AFFIRMATIVE AND FINANCIAL COVENANTS

18

 

 

SECTION 7 CHANGE OF CIRCUMSTANCES

20

 

 

SECTION 8 BORROWER’S REPRESENTATIONS AND WARRANTIES

21

 

 

SECTION 9 DEFAULT

23

 

 

SECTION 10 EXPENSES

24

 

 

SECTION 11 GENERAL

25

 

 

SECTION 12 APPLICABLE LAW AND JURISDICTION

28

 

i



 

CREDIT AGREEMENT

 

This Credit Agreement is made on the date stated at the end hereof

 

BETWEEN:

 

THE BANK OF NOVA SCOTIA , a banking institution organized and existing under the laws of Canada having its executive offices and principal place of business located at 44 King Street West, Toronto, Ontario, Canada, in its capacity as lender, (hereinafter referred to as the “Lender”);

 

- AND -

 

SEVEN SEAS WATER (TRINIDAD) UNLIMITED , a company incorporated and existing under the laws of the Republic of Trinidad & Tobago, having its principal office located at First Floor, Briar Place, 10 Sweet Briar Road, St. Clair, Port-of-Spain, Trinidad & Tobago, in its capacity as borrower, (hereinafter referred to as the “Borrower”).

 

WHEREAS

 

A)                                    The Lender has agreed to make available to the Borrower funds pursuant to this non-revolving term loan allowing a maximum aggregate value of Advances from the Lender totalling THIRTY MILLION DOLLARS ( $30,000,000 ), in consideration of the various representations, warranties, covenants, and other undertakings hereinafter set forth, made or agreed by the Borrower, (the “Loan”); and

 

B)                                    The Borrower has agreed to use the funds to be advanced pursuant to this Agreement upon and subject to the terms and conditions of this Agreement.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties as follows:

 

SECTION 1

 

DEFINITIONS

 

In this Agreement, unless otherwise defined herein, the following terms shall have the following meanings:

 

1.1                                Acceptance Fee ” means a forty-thousand Dollar ($40,000 ) non-refundable fee received by the Lender on December 27, 2011 which shall be applied towards the Lender’s internal legal fees, documentation costs, travel expenses and out-of-pocket expenses through the Effective Date and any remaining balance shall be applied towards the Up Front Fee on the Effective Date.

 

1.2                                Acquisition ” means any transaction, or any series of related transactions, consummated after the Effective Date, by which the Borrower acquires at least a twenty per cent ( 20% ) ownership interest in another Person, whether through (a) a purchase of stock or other ownership interest, (b) a merger or (c) otherwise.

 



 

1.3                                Advance ” means a cash advance made or to be made by the Lender hereunder as further evidenced by the signature of an authorized officer of the Lender on Schedule 1 to the relevant Promissory Note, substantially in the form of Appendix III.

 

1.4                                Agreement ” means this Credit Agreement including Appendices I, II, III, and IV as amended, restated or modified from time to time.

 

1.5                                Alternative Rate ” shall mean for any day, the sum of (x) the relevant Margin and (y) the rate of interest per annum in effect for such day as publicly announced from time to time by the Wall Street Journal as the “prime rate” for United States Dollar loans in the United States less (z) 1.00% per annum.

 

1.6                                Applicable Accounting Principles ” means accounting principles under which the Borrower’s audited financial statements are prepared, which shall be US GAAP, unless the Borrower notifies the Lender in writing that its audited financial statements will be prepared according to the IFRS.

 

1.7                                Business Day ” means (a) for the purpose of establishing the relevant LIBOR or Payment Date, a day on which banks are not required to close in London, United Kingdom, New York, New York, United States of America and Toronto, Ontario, Canada and (b) for the purpose of establishing the day a transfer of funds is to be made, a day on which commercial banks are open in New York, New York, United States of America, Toronto, Ontario, Canada and the Republic of Trinidad & Tobago.

 

1.8                                Capital Lease Obligations ” means obligations of any Person under any leasing or similar arrangement which, in accordance with Applicable Accounting Principles, would be classified as capitalized leases.

 

1.9                                Certificate of Environmental Clearance ” means the certificate provided by the Environmental Management Authority dated August 22, 2011 issued in connection with the Marine Environmental Baseline Study for the Construction of a Portable Salt Water Desalination Plant, Point Fortin, Trinidad, dated September 14, 2010.

 

1.10                         Change in Control ” means, with respect to the Borrower, any event that results in the Shareholder no longer (a) owning or Controlling, directly or indirectly, more than fifty per cent ( 50% ) of the Voting Stock of the Borrower or (b) maintaining or exercising, directly or indirectly, the authority to direct or cause the direction of the management and policies of the Borrower (including, without limitation, the election of a majority of directors on the board of directors of the Borrower or persons performing similar duties).

 

1.11                         Change in Law ” means (a) the introduction, enactment, adoption or phase-in of any law, rule, directive, guideline, decision or regulation (or any provision thereof) by any Governmental Authority after the Effective Date; (b) any change in any law, rule, directive, guideline, decision or regulation (or any provision thereof) or in the interpretation or re-interpretation or application thereof by any Governmental Authority after the Effective Date; or (c) compliance by any Lender with any request, guideline, decision or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Effective Date.

 

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1.12                         Change Orders ” means changes to the specifications or scope of the Project made after the Effective Date that increase the Project Budget.

 

1.13                         Commitment Fee ” means the fee equal to one and four-tenths of one per cent (1.40%) per annum, calculated on the undrawn balance of the Loan, which shall begin to accrue on the Effective Date, shall be payable on each Payment Date; and shall cease to accrue on the earlier of (i) the Final Drawdown Date, and (ii) the date the undrawn balance of the Loan is cancelled.  It shall be calculated on the basis of a three hundred and sixty (360) day year and the actual number of days outstanding.

 

1.14                         Contractor ” means any company that contracts with the Borrower to provide goods and /or services listed in the Project Budget.

 

1.15                         Control ” (including the terms “Controlling”, “Controlled by” and “under common Control with”) of a Person means the possession, direct or indirect, of the power to vote more than fifty percent ( 50% ) of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise.

 

1.16                         Debt Service ” means for any period, the sum of the following: (a) all payments of principal of Financial Debt scheduled to be made during such period; plus (b) all Interest Expense in respect of Financial Debt for such period.

 

1.17                         Debt Service Coverage Ratio ” or “ DSCR ” shall be the ratio of (a) the Borrower’s EBITDA during such period less maintenance capital expenditures, to (b) Debt Service during such period, in each case, as determined by the Borrower’s most recently available financial statements.

 

1.18                         Debt Service Reserve ” or “ DSR ” means the cash balance in a current account at the Lender’s main branch in Toronto, Ontario, Canada, established by the Borrower equal to three (3) months of Debt Service.

 

1.19                         Distributions ” means payments by the Borrower to its shareholders in respect of capital stock or any other ownership interest, including interest or principal on shareholder’s loans, dividends or withdrawal of capital, in cash or other property except for payments payable solely in stock or other ownership interests.

 

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

 

1.21                         Drawdown Date ” means the disbursement date for an Advance.

 

1.22                         Drawdown Notice ” means a notice, substantially in the form set out in Appendix I hereto, by which the Borrower requests an Advance.

 

1.23                         EBITDA ” means, for any period, the earnings of the Borrower, as set forth in the financial statements (audited or unaudited) of the Borrower available for the most recently

 

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ended accounting period (prepared in accordance with Applicable Accounting Principles), plus, (a) the sum of the following to the extent deducted in the calculation of earnings (i) interest, (ii) taxes, (iii) depreciation and amortization expense,(iv) non-cash stock based compensation expenses, (v) other non-recurring expenses of the Borrower reducing such earnings, which do not represent a cash item in such period or any future period, including without limitation non-cash expenses related to any asset sale permitted under this Agreement, (vi) extraordinary losses determined in accordance with GAAP and minus to the extent included in calculating such earnings, (b) all non-cash items increasing earnings for such period and extraordinary gains determined in accordance with GAAP.

 

1.24                         Effective Date ” means the date of execution of this Agreement.

 

1.25                         Electronic Communication Agreement ” means the agreement in the form attached as Appendix II hereto by which the Borrower as Client therein requests and authorizes the Lender as Bank therein to receive instructions and information from time to time by way of facsimile transmission equipment and/or electronic/computer mail.

 

1.26                         Environmental Laws ” means any and all Legal Requirements in the Republic of Trinidad & Tobago, now or hereafter in effect, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health or safety, or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes.

 

1.27                         Environmental Questionnaire ” means the Lender’s questionnaire pursuant to environmental risks of the Project.

 

1.28                         Event of Default ” means any one or more of the events or circumstances specified in Section 9.1 hereof.

 

1.29                         Fees ” means the Commitment Fee, the Up-Front Fee and, where applicable, the Prepayment Fee.

 

1.30                         Final Drawdown Date ” means the last date upon which Advances may be made by the Borrower, which shall be the earlier of (i) 60 days after the Project Completion Date and (ii) 15 months after the Effective Date.

 

1.31                         Financial Debt ” means the sum of short- and long-term debt of the Borrower with financial institutions and evidenced by debt instruments, including, among other things, Capital Lease Obligations, overdrafts, bank loans, bonds, commercial paper and any other interest-bearing debt instruments.

 

1.32                         Financial Documents ” shall include, but are not limited to, this Credit Agreement, the Promissory Notes, the Guarantee, the Security Documents and any documents delivered to the Lender in connection with any of the foregoing.

 

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1.33                         Fiscal Quarter ” means any quarter of a Fiscal Year.

 

1.34                         Fiscal Year ” means, with respect to the Borrower, any annual fiscal reporting period of the Borrower.

 

1.35                         Fixed Rate Base ” means the Lender’s cost of funds in the swap market for fixed interest rate funding, matching the amount and repayment schedule of the Loan, plus 0.25% per annum.

 

1.36                         GAAP ” or “ US GAAP ” means generally accepted accounting principles in the United States of America.

 

1.37                         Governmental Authority ” means any federal, provincial, local, foreign or other governmental department, agency, commission, board, bureau, court, tribunal, instrumentality, political subdivision, or other entity exercising executive, legislative, judicial, regulatory or administrative functions for or pertaining to any government or court, in each case whether associated with Canada, a province or territory thereof, or any foreign entity or government.

 

1.38                         Guarantee ” means the irrevocable, unconditional guarantee executed by the Guarantor in favor of the Lender for the Loan Amount in the form set out in Appendix IV hereto.

 

1.39                         Guarantor ” means AquaVenture Holdings LLC, a Delaware limited liability company formed on December 11, 2006.

 

1.40                         Hedging Instruments ” means options, caps, floors, collars, swaps, forwards, futures and any other agreements, options or instruments substantially similar thereto or any series or combination thereof used to hedge interest, foreign currency and commodity exposures.

 

1.41                         Hold Back ” means the amount of five million Dollars ($5,000,000) of equity contributions by the Shareholder to the Borrower in excess of thirty per cent (30%) of the Project Costs, which shall be held back from disbursement by the Lender to the Borrower as an Advance and used by the Borrower to reimburse the Shareholder, (as permitted by Section 2.1) until one complete month following the Project Completion Date, provided that the IE has certified that the Project has produced “ Product Water ” equal to at least eighty-five per cent (85%) of the “ Guaranteed Minimum Purchase ”, for the preceding month.

 

Product Water as defined in Section 1.1 of the WSA means “potable quality water produced” by the plant in accordance with Section 5.3 of the Agreement and Section 6.0 of the Amendment.

 

Guaranteed Minimum Purchase as defined in Section 3.1 of the WSA means “the maximum of the design capacity on an average monthly basis of 172,822 Cubic Meters” (the plant design capacity 5,682 Cubic Meters per day * 30.417 days / month) of Product Water (the “Phase One Guaranteed Minimum Purchase”).  For the period beginning on Phase II Start Date WASA agrees to purchase from the Seven Seas Water Group all of the water that the plant can produce up to the maximum of the design capacity on an average monthly amount of 633,677 Cubic Meters of Product Water.

 

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1.42                         IE Certificate ” means a certificate signed by the IE confirming; (i) the on-schedule/on-budget status of Project construction; (ii) that there are sufficient funds available to complete the Project; (hi) that the Project Costs referenced in the Drawdown Notice are valid costs specified in the Project Budget; and, (iv) that the work completed to date is in accordance with the WSA.

 

1.43                         IFRS ” means International Financial Reporting Standards which are principal-based accounting standards and interpretations.

 

1.44                         Independent Engineer ” or “ IE ” means an independent engineer appointed by the Borrower and approved by the Lender, with all costs payable by the Borrower.

 

1.45                         Independent Engineer Report ” or “ IE Report ” means the report prepared by the IE certifying to the best of the IE’s knowledge that, based upon, but not limited to, plans, specifications, choice of equipment, drawings and technical reports: (i) the equipment and construction plans for the Project will meet the technical requirements specified in the WSA and perform as required by the WSA; (ii) the construction budget for the Project is reasonable and the combination of debt and equity will be sufficient to complete the Project; and, (iii) there is no reason to believe that the Project would not be completed on time for a cost within the Project Budget.

 

1.46                         Indebtedness ” means, for any Person without duplication: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (and not for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within one hundred and eighty, ( 180 ), days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (e) Capital Lease Obligations of such Person; (f) Indebtedness of others guaranteed by such Person; (g) obligations of such Person in respect of surety bonds and similar obligations; and (h) Hedging Instruments.

 

1.47                         Insurance Policies ” means (i) a builder’s all-risk policy (including hurricane and earthquake risk) insuring the Project until the Project Completion Date; and, (ii) an all-risk insurance policy (including hurricane and earthquake risk) covering the Project after the Project Completion Date, such that the insurer is acceptable to the Lender.

 

1.48                         Interest Expense ” means, for any period, the aggregate amount of interest paid or required to be paid in cash by the Borrower in respect of Financial Debt during such period and in all cases excludes capitalized interest.

 

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1.49                         Interest Period ” means with respect to any Advance, (i) the period commencing on the relevant Drawdown Date listed on the first column of Schedule 1 of the Promissory Note with respect to such Advance and extending up to, but not including, the next Payment Date; and (ii) thereafter the period commencing on each Payment Date and extending up to, but not including, the next Payment Date.

 

1.50                         Legal Requirements ” means, with respect to any Person or its property, shall mean all laws, statutes, codes, acts, ordinances, permits, licenses, authorizations, directions and requirements of all governmental departments, commissions, boards, courts, authorities and agencies, and any material deed restrictions or other requirements or record, applicable to such Person or such property, or any portion thereof or interest therein or any use or condition of such property or any portion thereof or interest therein (including those relating to zoning, planning, subdivision, building, safety, health, use, environmental quality and other similar matters).

 

1.51                         LIBOR ” means, in relation to each Advance or any unpaid sum for an Interest Period:

 

(a)                                  The Bankers Association London Interbank Offer Rate as reported by Thomson Reuters per annum appearing on Bloomberg BBAM1 Page or any equivalent successor to that page (as determined by the Lender) (the “ Thomson Reuters BBA LIBOR Screen ”) at or about 11:00 a.m. (London Time) on the second Business Day preceding the first date of such Interest Period (the “ Rate Fixing Day ”) for the offering of deposits in Dollars for a period comparable to the Interest Period; and

 

(b)                                  If no relevant rate appears on the Thomson Reuters BBA LIBOR Screen for the purposes of paragraph (a) above or the Lender determines that no rate for a period of comparable duration to the relevant Interest Period appears on the Thomson Reuters BBA LIBOR Screen at the relevant time, the rate per annum appearing on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for three month deposits of United States Dollars at or about 11:00 a.m. (London time) on the second Business Day preceding the first date of such Interest Period; or

 

(c)                                   If it is not possible to determine LIBOR in the way referenced in the preceding subsections (a) and (b) for any such Interest Period, then LIBOR will mean the rate per annum determined by the Lender to be the arithmetic mean (rounded upward if necessary to the nearest one sixteenth (l/16th) of one percent (1.0%)) of the rates as supplied to the Lender, at its request, quoted by the Reference Banks as such Reference Banks’ rate at which deposits in an amount approximately equal to the amount in relation to which LIBOR is to be determined and for a period equivalent to the period for which LIBOR is to be determined are offered to prime banks in the London Interbank Market at or about 11:00 a.m. (London Time) on the date falling two (2) Business Days before the commencement of such Interest Period.

 

For the purpose of this definition, “ Bloomberg BBAM1 Page ” means the display so designated on the Reuters Screen or such other page as may replace that page on that service.

 

Reference Banks ” means any four (4) of Bank of America, Citibank N.A., Credit Suisse, Deutsche Bank AG, HSBC, JP Morgan Chase Bank, UBS AG and Barclays Bank.

 

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1.52                         Lien ” means any security interest, mortgage, pledge, hypothecation, assignment, deposit, arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever.

 

1.53                         Loan Amount ” means the aggregate amount of the principal, interest, expenses, Fees, and any other charges due and owing under this Agreement by the Borrower at any particular time.

 

1.54                         Margin ” means four per cent ( 4.00% ) per annum.

 

1.55                         Material Adverse Effect ” means a material adverse change in or material adverse effect on (a) the rights and remedies of the Lender under this Agreement, (b) the Project or the ability of the Borrower to perform its material obligations under any material agreement relating directly to the Project, or, (c) the business, financial condition or operations of the Borrower and the Guarantor, taken as a whole.

 

1.56                         Maturity Date ” means the final Payment Date which shall occur no later than eight and one-half, ( ), years after the Effective Date.

 

1.57                         Off-Taker ” means the Water and Sewerage Authority Trinidad & Tobago (“ WASA ”).

 

1.58                         Payment Date ” means the 15 th  day of each month.

 

1.59                         Performance Bonds ” means surety bonds, bank guarantees or standby letters of credit issued on behalf of Contractors pursuant to construction contracts for the Project.

 

1.60                         Permitted Liens ” means (i) any Liens granted to the Lender; (ii) Liens imposed by any Governmental Authority for taxes, assessments or charges not yet due or that are being contested in good faith by appropriate proceedings; (iii) Liens imposed by applicable law, such as carriers’, warehousemen’s, mechanics’, material men’s, repairmen’s or other like Liens arising in the ordinary course of business that are not overdue for a period of more than ninety (90) days or that are being contested in good faith by appropriate proceedings; (iv) Liens consisting of zoning restrictions, licenses restrictions and similar encumbrances on the use of property which do not interfere with the ordinary conduct of the Borrower’s business; (v) Liens granted to secure the purchase price of property acquired and any renewal or extension of such Lien which is limited to the original property covered thereby and which secures any renewal or extension of the original secured financing; (vi) Liens consisting of easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purpose; (vii) Liens securing capitalized leases permitted under Section 5.1(h), and (viii) any other Liens securing Indebtedness permitted under Section 5.1(h).

 

1.61                         Person ” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

 

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1.62                         Prepayment Fee ” means a fee payable by the Borrower to the Lender in an amount equal to one percent ( 1.0% ) of the principal of the Loan prepaid.

 

1.63                         Project ” means the construction of a desalination plant with 5.5 MGPD of water production to be located on the island of Trinidad at Point Fortin and constructed pursuant to the WSA.

 

1.64                         Project Budget ” means the document detailing the construction schedule and Project Costs, as amended or modified from time to time as contemplated by Section 6.8.

 

1.65                         Project Completion Certificate ” means a certificate prepared by the IE certifying: (i) the Project Completion Date; and, (ii) that the Project has produced Product Water equal to at least the Guaranteed Minimum Purchase for the preceding month.

 

1.66                         Project Completion Date ” means, the Phase Two Start Date, as defined in the WSA, as “the date on which the System has been completely installed and rendered operational”.

 

1.67                         Project Costs ” means all costs related to: (a) the design, engineering, development, construction, installation and commissioning of the Project; (b) interest and the Commitment Fee during the construction; and (c) DSR, the Upfront Fee, legal fees and IE fees pursuant to this Agreement.

 

1.68                         Project Documents ” shall include, but are not limited to, all contracts for construction, equipment and materials pursuant to the Project; the Water Sale Agreement and the sub-lease for the property on which the Project will be located.

 

1.69                         Promissory Note ” means the promissory note, which shall be executed by the Borrower, in the form attached hereto as Appendix III.

 

1.70                         Revenue Account ” means the current account, established by the Borrower, with Scotiabank Trinidad & Tobago Limited, into which all revenues pursuant to the Water Sale Agreement shall be sent directly from the Off-Taker by wire transfer.

 

1.71                         Sanctionable Practice ” means any action prohibited under foreign corrupt practices laws in the United States of America or Trinidad & Tobago including, but not limited to: (i) any offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party; (ii) kickbacks and bribery; (hi) any action or omission, including misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation; or (iv) impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party.

 

1.72                         Shareholder ” means Seven Seas Water (Barbados) SRL.

 

1.73                         Subsidiary ” means, with respect to any Person, any corporation or other legal entity of which more than fifty per cent ( 50% ), of the outstanding capital stock or other equity interests having ordinary voting power to elect a majority of the directors or other applicable governing body of such corporation or entity (irrespective of whether at the time capital stock or

 

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other equity interests of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person.

 

1.74                         Tangible Net Worth ” or “ TNW ” means the sum of share capital, earned and contributed surplus and postponed funds, less (i) amounts due from officers/affiliates (ii) investments in affiliates and (iii) intangible assets.

 

1.75                         Taxes ” means all present and future taxes, levies, imposts, duties, charges, fees, deductions and withholdings imposed or levied by any governmental, fiscal or other competent authority in the Republic of Trinidad & Tobago.

 

1.76                         Town and Country Planning Approval ” means the written approval for construction of the Project, issued by the Town and Country Planning Division Regional Office responsible for administering the Town and Country Planning Act of the Laws of Trinidad & Tobago, on behalf of the Minister responsible for town and country planning.

 

1.77                         Up-Front Fee ” means the fee equal to one and one-half per cent ( 1.50% ) of the Loan (four hundred and fifty thousand Dollars ( $450,000 )).  For avoidance of doubt, the Dollar value of tire Up-Front Fee shall not be reduced or refunded in the event the Loan is reduced or cancelled.

 

1.78                         Voting Stock ” means shares of capital stock of any Person or any class or classes (however designated) that have by the terms thereof normal voting power to elect the members of the board of directors of such Person (other than voting power upon the occurrence of a stated contingency such as the failure to pay the dividends).

 

1.79                         Water Sale Agreement ” or “ WSA ” means the agreement between WASA and Seven Seas Water (Trinidad) Unlimited, Seven Seas Water Corporation and its affiliate members of the Seven Seas Group dated May 7, 2010 and all amendments thereto.

 

SECTION 2

 

LOAN PARTICULARS

 

2.1                                Purpose of the Loan .  The Loan shall be used to finance up to seventy per cent (70%) of the Project Costs.  Proceeds of the Loan shall be disbursed by the Lender to pay invoices to cover the Project Costs, or to the extent the Shareholder has paid more than thirty per cent (30%) of Project Costs, to reimburse the Shareholder, subject to the Hold Back.

 

2.2                                Availability of Advances .

 

(a)                                  The Loan shall be available to the Borrower by way of Advances;

 

(b)                                  Each Advance shall be made in Dollars;

 

(c)                                   Advances shall be non-revolving;

 

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(d)                                  Notice of each requested Advance shall be given as per Section 2.4;

 

(e)                                   Any number of Advances may be requested by the Borrower, subject to the terms and conditions of this Agreement up until the Final Drawdown Date.

 

2.3                                Security .  The Loan shall be secured by (each of the following, a “ Security Document ” and collectively, the “ Security Documents ”):

 

(a)                                  The Guarantee;

 

(b)                                  A pledge of 100% of the Shareholder’s shares in the Borrower;

 

(c)                                   A first mortgage debenture securing all of the Borrower’s assets;

 

(d)                                  An assignment of funds on deposit in the DSR;

 

(e)                                   An assignment of funds on deposit in the Revenue Account;

 

(f)                                    Insurance claim proceeds wherein the insurer names the Lender as loss payee on all Insurance Policies;

 

(g)                                   Assignment of proceeds payable pursuant to Performance Bonds by means of loss payee or letters of direction, as applicable; and

 

(h)                                  The assignment of present and future cash-flows from the Water Sale Agreement, which shall include written acknowledgement from the Off-Taker.

 

2.4                                Drawdown Notice .

 

(a)                                  Whenever the Borrower wishes to obtain an Advance, the Borrower shall send to the Lender a duly completed and executed Drawdown Notice.

 

(b)                                  Once a Drawdown Notice has been received by the Lender, such instructions shall be irrevocable.

 

(c)                                   If the applicable conditions precedent set forth in Section 4 of this Agreement have been satisfied, the Lender shall provide the Advance no later than three ( 3 ) Business Days following receipt of the Drawdown Notice.

 

2.5                                Repayment of Loan Amount .

 

(a)                                  The Borrower shall repay the Loan Amount as per this Section 2.5;

 

(b)                                  The Loan principal shall be repaid, in eighty-four (84) equal, monthly, payments, commencing on the Payment Date occurring after the earlier of: (i) six (6) months after the Project Completion Date; and (ii) eighteen (18) months after the Effective Date;

 

(c)                                   Such repayment shall be made by the Borrower to the Lender without set-off or counterclaim in immediately available funds not later than 1:00 p.m. (Eastern time) at the

 

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Lender’s designated account located at: The Bank of Nova Scotia New York Agency, 1 Liberty Plaza, Floors 22-26, New York, NY, USA 10016; Fed Funds ABA#02600253-2 ; Reference: For credit to: GWS Loan Agency Operations, Toronto, Ontario Account #6027-36, Attention: Director, Agency; Re: Seven Seas Water (Trinidad) Unlimited;

 

(d)                                  The Dollar is the currency of account and payment for each and every sum at any time due from the Borrower hereunder;

 

(e)                                   Interest on the Advances shall be payable as per Section 3;

 

(f)                                    All Fees, (save and except for the Commitment Fee), legal fees and the other expenses shall be payable by the Borrower upon receipt of an invoice from the Lender pursuant to the terms and conditions of this Agreement.

 

2.6                                Voluntary Prepayment of Loan .

 

(a)                                  The Borrower shall have the right, after the Final Drawdown Date, on giving not less than thirty ( 30 ) days written notice to the Lender, which notice shall be irrevocable, to prepay all or a part of the principal of the Loan Amount, provided that:

 

(i)                                      Prepayment shall only occur on a Payment Date;

 

(ii)                                  The Borrower shall pay all break funding costs, if any, in full;

 

(iii)                              In the case of partial prepayments, such prepayments shall be in multiples of one million Dollars, ( $1,000,000 ), provided that the initial prepayment shall be no less than five million Dollars, ( $5,000,000 );

 

(iv)                               The Borrower shall, (for any prepayment made prior to three (3) years after the Effective Date), pay the Prepayment Fee; and

 

(v)                                  The Borrower shall reimburse the Lender for any minimum premium payments pursuant to Section 4.1 (b).

 

2.7                                Mandatory Prepayment of Loan .  The Borrower shall make mandatory prepayment of the Loan, plus the Make Whole Amount (if any) but without Prepayment Fee as follows: (i) in an amount equal to the expropriation proceeds and/or insurance proceeds received by Borrower from the Insurance Policies to the extent such amounts are not applied to restoration or repair of the Project; (ii) in an amount equal to termination payments received by Borrower under the Water Sale Agreement; and (iii) in an amount equal to the net proceeds of any asset sales if such net proceeds exceed in the aggregate $ 100,000 per year, provided that no mandatory prepayment shall be required if such amounts are reinvested in the Project.

 

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SECTION 3

 

INTEREST RATE

 

3.1                                Interest Rate .

 

(a)                                  No later than five (5) Business Days after the Final Drawdown Date, the Borrower shall notify the Lender as to the percentage of the Loan that shall be financed at a fixed interest rate (the “Fixed Interest Rate Percentage”), provided such Fixed Interest Rate Percentage shall be no less than 50% .  As soon as practical thereafter, the Lender shall fix the interest rate for the Fixed Interest Rate Percentage and shall notify the Borrower as to the date the fixed rate is established (the “Fixed Interest Rate Notice Date”).

 

(b)                                  The Borrower shall pay interest on all Advances on each successive Payment Date from the respective Drawdown Dates until, but not including, the first Payment Date following the Fixed Interest Rate Notice Date at the applicable LIBOR plus the Margin.

 

(c)                                   Commencing the first Payment Date following the Fixed Interest Rate Notice Date and continuing until the Maturity Date, the Borrower shall pay interest on the outstanding Loan balance for the next Interest Period at the interest rate calculated by the following formula:

 

Fixed Interest Rate Percentage x (Fixed Rate Base + the Margin) + (1 - Fixed Interest Rate Percentage) x (one month LIBOR + the Margin)

 

(d)                                  All calculations in respect of interest shall be made on the basis of a three hundred and sixty (360) day year and the actual number of days outstanding.

 

3.2                                Fixed Interest Rate Make Whole Provision .  Upon (i) the prepayment of all or part of the Loan after the Fixed Interest Rate Notice Date by the Borrower under Section 2.6 and/or 2.7, or (ii) the Lender accelerating the Loan after the Fixed Interest Rate Notice Date, as set out in Section 9.2 hereof, the Borrower shall, in addition to any other amount then payable by the Borrower pursuant to the terms hereof, in respect of the amount to be prepaid (the “ Prepayment Amount ”), pay to the Lender, in Dollars, an amount (such amount, the “ Make-Whole Amount ”) equal to the one time payment, if any, that the Lender would be required to pay, if the Lender were to enter into a notional fixed-to-floating interest rate swap (the “ Swap ”) with an acceptable investment grade financial institution counterpart, having the terms set out below;

 

The Make-Whole Amount shall be determined by the Lender in good faith pursuant to the methodology below as of the date on which the Prepayment Amount is to be paid (the “ Prepayment Date ”), as if the Lender were the floating rate payor under such Swap, which determination shall be conclusive and binding on the Borrower for all purposes in the absence of demonstrable error; provided , that, upon the request of the Borrower, the Lender shall describe in writing to the Borrower, in reasonable detail, the calculation of such direct cost.  The Swap shall have the following terms:

 

(a)                                  Both the fixed and floating rate payor dates shall be the same as the scheduled Payment Date of the applicable principal Loan Amount featuring a fixed interest rate

 

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(the number of days commencing, and including, on one such Payment Date to, but excluding, the next Payment Date being the “ Swap Interest Period ”), provided , that the initial Swap Interest Period shall commence on and include the Prepayment Date and the final Swap Interest Period shall end on but exclude the Maturity Date;

 

(b)                                  The fixed rate shall be the Fixed Rate Base;

 

(c)                                   The notional amount of the Swap shall be denominated in Dollars and shall be equal to the Prepayment Amount, amortized (if applicable) to reflect the application of the Prepayment Amount in the repayment schedule of the Loan featuring a Fixed Interest Rate;

 

(d)                                  The day count fraction shall be the actual number of days in the Swap Interest Period divided by 360;

 

(e)                                   The term of the Swap shall be equal to the period commencing on, and including, the Prepayment Date to, but excluding, the Maturity Date; and

 

(f)                                    The floating interest rate is the floating rate of interest that would be paid by the floating rate payor in respect of a swap having the terms and conditions set out above which appears on Reuters page 19901 (SEMIBOND-column 5) as of 11:00 a.m. (London time) on the day that is two (2) London Business Days preceding each Swap Interest Period (interpolated, for valuation purposes, in respect of the first calculation period of the Swap, to reflect the number of remaining days in the current Swap Interest Period).

 

(g)                                   The Lender shall first apply any Prepayment Amount pursuant to Sections 2.6 and/or 2.7 towards the portion of the Loan for which a floating interest rate applies and second towards the Fixed Interest Rate Percentage.

 

3.3                                Default Interest .  In the event any amount of principal hereof or accrued interest on a Promissory Note is not paid in full when due (whether at stated maturity, by acceleration or otherwise), the Borrower shall pay to the Lender on demand interest on such unpaid amount (to the extent permitted by applicable law) for the period from the date such amount was due until such amount shall have been paid in full at an interest rate per annum equal to 30-day LIBOR plus the Margin plus an additional two per cent ( 2.00% ) (the “ Default Margin ”) per annum.

 

3.4                                Lender’s Option to Convert Loan to a 100% LIBOR-based interest rate following an Event of Default .  If the Lender provides the Borrower with a notice pursuant to Section 9.1 (Events of Default), the Lender may, at its sole discretion, elect not to accelerate the Loan and instead declare that the Loan shall be converted to a loan payable on demand by the Lender and the Lender shall convert the interest rate on the Loan to an interest rate equal to one month LIBOR plus the Default Margin.  For avoidance of doubt, in such circumstances the provisions of Section 3.2 shall continue to apply and the Lender shall determine if a Make-Whole Amount is payable by the Borrower to the Lender.  The Make-Whole Amount shall be calculated as if the Loan Amount were being prepaid in full on such conversion date.

 

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3.5                                Market Disruption and Alternative Interest Rates .

 

(a)                                  If-on or before the day that is three (3) Business Days prior to the start of an Interest Period, the Lender determines (i) Dollar deposits in the amount of the Advance for a matching Interest Period are generally not available in the London interbank market or (ii) the cost to the Lender of obtaining matching Dollar deposits in the London interbank market in respect of any Loan principal balance would be in excess of LIBOR or (iii) adequate reasonable means do not exist for ascertaining LIBOR, then the Lender shall notify the Borrower in writing and on the last day of the then-existing Interest Period fund the Loan principal balance at the Alternative Rate.

 

(b)                                  Upon the Lender determining that the condition in Section 3.5 (a) has ceased, the Lender shall forthwith notify the Borrower in writing whereupon on the next Payment Date the Advance subject to the Alternative Rate shall be funded on the basis 3 month LIBOR.

 

SECTION 4

 

CONDITIONS PRECEDENT TO ANY ADVANCES

 

4.1                                Conditions Precedent to the Initial Advance .  The obligation of the Lender to provide the initial Advance is subject to the Lender’s satisfaction (including satisfaction as to form and content) with each of the following conditions precedent:

 

(a)                                  There has been no Material Adverse Effect since the Effective Date;

 

(b)                                  The Lender shall have received a political risk insurance policy in respect of the Loan;

 

(c)                                   All Financial Documents and Project Documents shall have been executed;

 

(d)                                  All Fees and expenses have been paid and the Borrower shall have provided the following to the Lender:

 

(i)                                      A duly completed Environmental Questionnaire to the Lender’s satisfaction;

 

(ii)                                  A copy of the Certificate of Environmental Clearance;

 

(iii)                              A copy of the Town and Country Planning Approval;

 

(iv)                               A letter from WASA addressed to the Borrower, signed by a senior officer of WASA, confirming that the Government of the Republic of Trinidad & Tobago provided WASA with its approval to enter into the WSA;

 

(v)                                  A legal opinion provided by external counsel, confirming the validity and legal enforceability of the WSA;

 

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(vi)                               The IE Report;

 

(vii)                            Evidence of the Shareholder’s capital injection equal to at least thirty percent (30%) of the Project Costs plus the Hold Back;

 

(viii)                         A written statement signed by an officer of the Borrower stating: (i) the Borrower is in possession of all relevant and material agreements, government approvals, licenses and permits necessary to enable it to conduct its business and to conduct the work under the Project Budget together with a list of such agreements, government approvals, licences and permits; (ii) all property taxes and insurance premiums have been paid and respective accounts are current; and, (iii) all applicable local environmental codes and requirements have been met;

 

(e)                                   Conditions precedent in respect of the Borrower and Guarantor:

 

(i)                                      Certificates of incumbency listing the names of the corporate officers and their respective positions within the Borrower and the Guarantor;

 

(ii)                                  Certificates of the authorized signatories of the Borrower and the Guarantor under seal, if required, to the effect that the requisite resolutions have been duly and properly passed at duly convened and constituted meetings of the shareholders or directors of the Borrower and the Guarantor, confirming that such resolutions are still in effect and have not been varied or rescinded, authorizing (A) the execution, delivery and performance of this Agreement and any ancillary documents to which the Borrower and/or the Guarantor is a party and (B) a named person or persons specified therein and whose specimen signatures appears thereon to sign, on behalf of the Borrower and the Guarantor, the Agreement, Drawdown Notices and the Guarantee and any and all Promissory Notes and ancillary documentation, to which the Borrower and/or the Guarantor is a party, and to give any notices or certificates required and confirming that such resolutions are still in effect and have not been varied or rescinded;

 

(iii)                              A Legal opinion addressed to the Lender, provided by the Borrower’s external New York counsel and external Trinidadian counsel, which shall include, among other things, an opinion: (i) on the corporate status of the Borrower and the Guarantor; (ii) that the Borrower and the Guarantor are in possession of all relevant and material agreements, licenses and permits necessary to enable it to conduct its business; and (iii) that this Agreement and the Guarantee are valid and enforceable against the Borrower and the Guarantor;

 

(f)                                    And the Guarantor shall have provided to the Lender evidence confirming that its preference shareholders have waived the right of redemption of all preference shares.

 

4.2                                Conditions Precedent to the Initial Advance and Every Subsequent Advance .  The Borrower shall provide the Lender with:

 

(a)                                  A Drawdown Notice in compliance with Section 2.4 of the Agreement; and,

 

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(b)                                  The IE Certificate in respect of the applicable Drawdown Notice.

 

4.3                                Conditions Precedent to the Advance of the Holdback .

 

(a)                                  Prior to disbursement of the Hold Back, the IE shall provide the Project Completion Certificate;

 

4.4                                In the event mat the Conditions Precedent have not been satisfied within three (3) months from the Effective Date, (as determined by the Lender in its discretion), the Lender reserves the right to amend terms and conditions herein or cancel/ or reduce the Loan.

 

SECTION 5

 

NEGATIVE COVENANTS

 

5.1                                Until the Loan is repaid in full, the Borrower shall not during the tenure of the Agreement (and the Guarantor shall not, with respect to Section 5.1(f) and (k)) without the prior consent in writing of the Lender, (such consent not to be unreasonably withheld):

 

(a)                                  Permit, (through its actions), any breach of Section 2.1 of the Agreement respecting the purpose of the Loan;

 

(b)                                  Permit a Change in Control to occur prior to repayment in full of the Loan Amount on or before the Maturity Date;

 

(c)                                   Limitation on Asset Sales : Sell or otherwise dispose of, by one or more transactions or series of transactions (whether related or not), assets of the Borrower for cumulative net proceeds greater than seven hundred and fifty thousand Dollars ($750,000) Dollars other than dispositions of obsolete, surplus or worn-out equipment.

 

(d)                                  Limitation on Acquisitions :  Enter into or make any Acquisition;

 

(e)                                   Negative Pledge :  Other than Permitted Liens, permit any Liens against the assets or the property of the Borrower as security in favour of any creditor until the Loan Amount is repaid in full;

 

(f)                                    Negative Pledge Guarantor and its subsidiaries :  Other than Permitted Liens, permit any Liens against the assets or property of AquaVenture Holdings LLC or any of its operating subsidiaries, (the “Seven Seas Group”), (except Seven Seas Water Corporation (USVI)), in respect of assets existing from the Effective Date until two years after the Effective Date, provided the Borrower is compliant with all financial and non-financial covenants under this Agreement;

 

(g)                                   Limitation on Distributions :  Permit any Distributions to its Shareholder or to any other person in respect of its capital stock or any ownership interest in the Borrower unless the projected and historical unless the DSCR on a rolling four (4) - quarter basis, is equal to at least 1.40X and all other Negative, Affirmative and Financial Covenants have been, and are, met, except as permitted pursuant to Section 2.1;

 

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(h)                                  Limitation on Indebtedness :  Permit any future Indebtedness in an amount in excess of three million Dollars ( $3,000,000 );

 

(i)                                      Limitation on Capital Expenditures :  Permit any future capital expenditures in an amount greater than one million Dollars ( $1,000,000 ) per annum;

 

(j)                                     Limitation on Change Orders :  Permit any Change Orders, (including any changes to categories within the Project Budget), so that no single Change Order, the sum of which individually or in aggregate, exceeds one million Dollars ( $1,000,000 ).

 

(k)                                  Sanctionable Practices.  Guarantor and its subsidiaries :  Engage in, or authorize or permit any member of the Seven Seas Group or any other Person acting on its behalf to engage in, with respect to its operations or any transaction contemplated by this Agreement, any Sanctionable Practices.  The Borrower further covenants that should the Lender notify the Borrower or the Guarantor of its concerns that there has been a violation of the provisions of this Section or of Section 8.11 ( Representations and Warranties ) of this Agreement, the Borrower and the Guarantor shall cooperate in good faith with the Lender and its representatives in determining whether such a violation has occurred, and shall respond promptly and in reasonable detail to any notice from the Lender and shall furnish documentary support for such response upon the Lender’s request;

 

SECTION 6

 

AFFIRMATIVE AND FINANCIAL COVENANTS

 

6.1                                The Borrower and, in respect of Sections 6.7, 6.11 and 6.13 (a) and (b) below, the Guarantor, hereby covenants and agrees with the Lender that until the Loan Amount is repaid in full, they shall at all times observe the following covenants:

 

(a)                                  Comply in all respects with all applicable Trinidadian law and regulations including Trinidadian laws relating to the payment of Taxes and corruption and bribery;

 

(b)                                  Maintain its existence, remain in good standing and shall remain duly qualified to carry on its business and own property in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except in each case, to the extent such failure could not reasonably be expected to have a Material Adverse Effect;

 

(c)                                   Use and operate all of its facilities and properties in material compliance with all applicable Environmental Laws, keep all material and necessary permits, approvals, certificates, licences and other authorizations relating to environmental matters in effect and remain in material compliance therewith and to engage in any and all legally required environmental reporting, as required, in a thorough and appropriate manner, except in each case, to the extent such failure could not reasonably be expected to have a Material Adverse Effect.

 

6.2                                The Borrower hereby covenants that it shall, on an annual basis, provide the Lender with copies of Insurance Policies covering the Project in an amount equal to replacement

 

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cost for at least thirty million Dollars ( $30,000,000 ) and such Insurance Policies shall name the Lender as loss payee;

 

6.3                                The Borrower hereby covenants that with regard to Section 6.2, it shall ensure (i) that all premiums due to any insurer in connection with the Project are paid in full on a timely basis; and (ii) that it will notify the Lender in writing promptly after acquiring knowledge of (a) any cancellation or alteration of insurance or (b) any expiry of insurance where the Borrower has determined or been advised the insurance will not be renewed.  The Borrower agrees to request its insurer(s) to provide a certificate(s) to the Lender whereby the insurer(s) endeveavour(s) to notify the Lender of any cancellation or alteration of insurance;

 

6.4                                The Borrower hereby covenants that it shall use the Advances exclusively for the purposes described in Section 2.1 of the Agreement;

 

6.5                                The Borrower shall fully fund the DSR on or prior to the Final Drawdown Date.  For the avoidance of doubt, the proceeds from Advances may be used to fund the DSR;

 

6.6                                The Borrower hereby covenants that the Project Completion Date shall occur no later than June 30, 2013 or fifteen (15) months from the Effective Date, which ever is earlier;

 

6.7                                The Borrower and the Guarantor shall assume responsibility for all cost overruns with respect to the Project and any such overruns shall be funded when due.

 

6.8                                The Borrower shall permit the Lender to inspect the Project during normal business hours, with reasonable advance notice to the Borrower and subject to reasonable conditions as to safety and other operating matters;

 

6.9                                The Borrower shall, no later than the end of each month and continuing until the Project Completion Date, provide the Lender with a progress report with variance and explanations for each item in the Project Budget (the “Project Progress Report”) as of the end of the previous month;

 

6.10                         Financial Covenant - Debt Service Coverage Ratio: The Borrower shall, at the end of each Fiscal Quarter, maintain a Debt Service Coverage Ratio greater than or equal to 1.25X which shall be calculated quarterly on a rolling four quarter basis, using the Borrower’s unaudited quarterly financial statements;

 

6.11                         Financial Covenant - Guarantor’s Minimum Tangible Net Worth: The Guarantor shall, at the end of each Fiscal Quarter, maintain a Minimum Tangible Net Worth greater than or equal to sixty-five million Dollars ( $65,000,000 ), using the Guarantor’s unaudited consolidated quarterly financial statements;

 

6.12                         The Borrower shall maintain adequate records and books of accounts;

 

6.13                         Reporting Requirements :  The Borrower and the Guarantor shall provide the Lender with the following:

 

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(a)                                  No later than one hundred and twenty ( 120 ) days after the end of the Fiscal Year of Borrower, annual, unconsolidated, audited, financial statements of the Borrower and annual, consolidated, audited financial statements for the Guarantor and the Seven Seas Group;

 

(b)                                  No later than forty-five ( 45 ) days after the end of the Fiscal Quarter of each of the Borrower and Guarantor, quarterly, unaudited, unconsolidated, financial statements from the Borrower, and quarterly, unaudited, financial statements from the Guarantor on a consolidated basis with Seven Seas Group together with a certificate in the form of a letter addressed to the Lender, signed by the president, chief financial officer or other appropriate officers, of the Borrower or Guarantor, as applicable, confirming the information in Sections 6.9 and 6.10;

 

(c)                                   A copy of the annual operating and capital expenditure budgets and cash flow projections for the Project within thirty ( 30 ) days prior to the Borrower’s Fiscal Year- end with the first such report due no later than sixty ( 60 ) days after the Project Completion Date;

 

(d)                                  A copy of a receipt issued by the Ministry of Finance, Inland Revenue Service to the Borrower in respect of withholding tax paid pursuant to interest on the Loan, each quarter; and

 

(e)                                   The Borrower’s duly completed Environmental Questionnaire within one hundred and twenty ( 120 ) days of each Fiscal Year-end.

 

SECTION 7

 

CHANGE OF CIRCUMSTANCES

 

7.1                                Change in Circumstances :  If at any time it shall become unlawful or contrary to any regulation (whether or not having the force of law) for the Lender to maintain the Advances or any part thereof, the Lender shall so certify to the Borrower by way of a written notice.  Upon receipt of such written notice, the Borrower and the Lender shall negotiate in good faith for a period up to, but not exceeding thirty ( 30 ) days with a view to the Lender making available the Advances in a manner free of such sanctions.  If upon the expiration of such a period, the Lender remains unable to continue the Advances on the agreed upon revised terms, the Lender may, by written notice, to the Borrower, declare its obligations to be terminated on a date specified in the notice whereupon the Lender’s commitments shall cease and the Borrower shall forthwith (or as specified by the Lender) prepay all Advances with accrued interest and all other reasonable amounts payable to the Lender under this Agreement and the transactions it contemplates, (such reasonable amounts with any reasonable costs incurred by Lender for the termination of the funding arrangements, (e.g. “break-funding’’ costs related to the Lender’s cancellation or prepayment of existing funding arrangements)), any reasonable documented, and out-of-pocket legal or business costs incurred by the Lender in order to investigate, assess, attempt to maintain or terminate the Loan, as mandated by competent authorities or reasonably determined by the Lender to be necessary and desirable and any other reasonable=documented out-of-pocket costs, unforeseen by the Lender as of the Effective Date hereof, directly related to the purpose of this applicable section.

 

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7.2                                Increased Costs :  If due to any Change in Law issued or made after the Effective Date by any Governmental Authority there shall be: (a) any increase in the cost to the Lender of making or maintaining the Loan; (b) any increase in the amount of capital required or maintained, or expected to be maintained, by the Lender and the amount of such capital is increased by or based upon the existence of the Loan outstanding hereunder; or (c) any decrease in the effective rate of return on the capital of the Lender of making or maintaining the Loan to a level below that which the Lender would have attained but for the Change in Law (all of the preceding excluding any such increased costs, increased capital requirements or decreased rate of return (each an “Event”, together the “Events”), resulting from (A) Taxes or (B) changes in the basis of taxation of overall net income or overall gross income affecting the Lender), (the determination of any or all of the preceding Event or Events being at the Lender’s sole and absolute discretion with respect to the Loan), then the Lender shall provide the Borrower with a notice, (hereinafter the “Notice”) that shall (1) describe in reasonable detail the Event together with the approximate date of the effectiveness thereof, (2) set forth the cost to the Lender of such Event, and (3) calculate such amount as the Lender determines in its sole and absolute discretion is necessary to be compensated for the cost of such Event.  Such Notices (or Notices) may be sent by the Lender in respect of an Event (or Events) from time to time.  The Borrower shall promptly, following receipt of such Notice, pay directly to the Lender the amount sufficient to compensate the Lender for the cost of such Event.  The Notice, including the certifications made therein, shall, in the absence of demonstrable error, be conclusive and binding on the Borrower.

 

SECTION 8

 

BORROWER’S REPRESENTATIONS AND WARRANTIES

 

In order to induce the Lender to enter into this Agreement the Borrower (and, in respect of Section 8.11, the Guarantor) hereby REPRESENTS AND WARRANTS to the Lender that at each Drawdown Date (except where specifically stated to be given as of another date):

 

8.1                                The Borrower has the power, authority, and capacity to enter into, exercise its rights under, and to perform and comply with its obligations under this Agreement, and that the execution and delivery of this Agreement has been duly authorised by all necessary actions;

 

8.2                                The obligations expressed as being assumed by the Borrower under this Agreement constitute the Borrower’s legal, valid and binding obligations, enforceable against the Borrower in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors generally and general principles of equity;

 

8.3                                As of the Effective Date, under the laws of the Republic of Trinidad & Tobago in force on the Effective Date, it is not necessary that this Agreement be filed, recorded or enrolled with any court or other authority in the Republic of Trinidad & Tobago or that any registration or similar Taxes (other than stamp duty) be paid on or in relation to this Agreement;

 

8.4                                There is no pending and, to the Borrower’s knowledge, no threatened material litigation against the Borrower;

 

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8.5                                There are no pending and, to the Borrower’s knowledge, there are no threatened (i) written claims, complaints, notices or requests for information received by the Borrower with respect to any alleged violation of any Environmental Laws by the Borrower, or (ii) written complaints notices or inquiries received by the Borrower regarding potential material liability of the Borrower under any Environmental Laws;

 

8.6                                Each Advance shall be used in a manner consistent with the purposes set out in Section 2.1 of this Agreement;

 

8.7                                No Event of Default has occurred or is continuing;

 

8.8                                Neither:

 

(a)                                  The execution and delivery of this Agreement by the Borrower:

 

(b)                                  nor the entry into and performance of all terms of this Agreement by the Borrower, any Promissory Notes or any transactions contemplated by this Agreement:

 

(i)                                      will conflict with, or result in any breach of any of the terms, conditions or provisions of, or constitute a default or require any authorization under any applicable law or regulation by which the Borrower is bound or will violate any order, licence, permit or consent applicable to the Borrower or by which the Borrower is bound; or

 

(ii)                                   will cause any limitation on any of the powers of the Borrower whatsoever and howsoever imposed, to be exceeded; or

 

(iii)                                will require any consent or approval of any officer of the Borrower or any other person which has not been obtained.

 

8.9                                The claims of the Lender regarding the Loan Amount shall rank at least pari passu in respect of the priority of payment of all other claims regarding all present and future Indebtedness of the Borrower;

 

8.10                         The Borrower is in compliance with all applicable Trinidadian laws and regulations, including Trinidadian law relating to the payment of Taxes and to corruption and bribery;

 

8.11                         No member of the Seven Seas Group, nor any Person acting on its or any of their behalf, has committed or engaged in, with respect to any of their respective operations or any transaction contemplated by this Agreement, any Sanctionable Practice;

 

8.12                         All written information heretofore furnished by the Borrower to the Lender for purposes of or in connection with this Agreement is, and all such information hereunder furnished by the Borrower to the Lender will be, true and accurate in all material respects on the date as of which such information is stated or certified.  Such information, when taken as a whole, does not contain any material mis-statement of a material fact and does not omit to state any material fact necessary to make the statements therein not misleading.  The Borrower has

 

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disclosed to the Lender in writing any and all facts known to Borrower which would reasonably be expected to have a Material Adverse Effect.

 

SECTION 9

 

DEFAULT

 

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

 

(a)                                  The Borrower fails to pay any Loan Amount when due and continues not to pay for five (5) Business Days thereafter;

 

(b)                                  Any material representation or warranty made by the Borrower hereunder or any documentation furnished by it in connection herewith shall prove to have been incorrect in any material respect when made and if capable of remedy, such default continues for fifteen (15) Business Days;

 

(c)                                   The Borrower fails to perform or observe any material term, covenant, (either affirmative, negative or financial), or condition in this Agreement and such default is not remedied within thirty (30) Business Days;

 

(d)                                  The validity or enforceability of this Agreement, the Promissory Note(s) or any Drawdown Notice shall be successfully contested in a court of competent jurisdiction, following the expiry or adjudication of any appeals, by any Governmental Authority, the Borrower or the Guarantor;

 

(e)                                   Cross Default .  The Borrower or the Guarantor is in default, or shall fail to pay any Indebtedness that is outstanding, in a principal amount of at least two hundred and fifty thousand Dollars ($250,000), when such Indebtedness becomes due and payable, and such default or failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, without waiver by the holder of the Indebtedness;

 

(f)                                    The Borrower makes a general assignment for the benefit of, or a composition with, its creditors;

 

(g)                                   A moratorium is declared by a court of competent jurisdiction on the payment of any Indebtedness with a principal amount of at least Two Hundred and Fifty Thousand ($250,000) Dollars of the Borrower;

 

(h)                                  The Borrower repudiates this Agreement;

 

(i)                                      The failure of WASA to remain a statutory body of the Government of the Republic of Trinidad & Tobago during the tenor of the Loan.

 

(j)                                     Any breach by the Borrower of the terms and conditions of the WSA,

 

9.2                                Acceleration and Suspension of Advances .  If any Event of Default occurs and is continuing, the Lender by written notice to the Borrower may do one or both of the following:

 

23



 

(a)                                  Declare the Loan to be immediately due and payable and thereafter^ proceed to exercise any rights and remedies available to it under applicable law;

 

(b)                                  By notice to the Borrower, suspend the Lender’s obligation to make Advances, which suspension will continue until such Event of Default has been cured or the Lender otherwise notifies the Borrower that the suspension is removed and such Event of Default has been waived by the Lender.

 

9.3                                Default Indemnity .

 

(a)                                  The Borrower shall indemnify the Lender against any loss, damage or expense which it may sustain or incur as a consequence of the occurrence of any Event of Default, and all actions, proceedings, costs, damages, expenses, claims and demands howsoever arising in connection therewith (excluding special, indirect and consequential losses or damages), except to the extent such loss, damage or expense is due or results from the Lender’s gross negligence or willful misconduct.

 

(b)                                  Such indemnity shall include all reasonable documented, out-of pocket legal costs and reasonable expenses (including reasonable attorney’s fees on a full indemnity basis) incurred by the Lender in connection with any of the foregoing matters including without limitation, the enforcement by the Lender of its legal rights under this Agreement (except to the extent such cost or expense is due or results from the Lender’s gross negligence, bad faith or willful misconduct).

 

SECTION 10

 

EXPENSES

 

10.1                         The Borrower shall pay the following reasonable, documented and out-of-pocket costs and expenses on demand, regardless of whether or not the transaction is consummated and, where applicable, the choice of Lender’s counsel shall be at the Lender’s sole discretion.

 

10.2                         The Lender’s documentation costs of twenty-five thousand Dollars ( $25,000 ) in respect of the preparation and execution of the Agreement and all documents pertaining thereto.

 

10.3                         The Lender’s costs of: (i) one (1) external New York counsel plus, (ii) the Lender’s cost of external Trinidad & Tobago counsel plus, (iii) the Lender’s reasonable, documented, out-of-pocket expenses, including reasonable, travel expenses for one of the Lender’s employees from The Bank of Nova Scotia, Toronto Executive Offices, in respect thereto.

 

10.4                         All fees and expenses payable to the IE.

 

10.5                         All fees and expenses (excluding premiums except for prepaid premium pursuant to Section 2.6.a(v)) payable by the Lender pursuant to section 4.1(b).

 

10.6                         The Lender’s cost to terminate funding arrangements, in accordance with Section 2.6 and 3.2, save and except where such termination arises as a consequence of an act or

 

24



 

omission or default of the Lender, independent of any act or omission or default on the part of the Borrower.

 

10.7                         All reasonable costs and expenses (including legal fees) incurred by the Lender in protecting or enforcing its rights under this Agreement.

 

10.8                         All costs and expenses incurred by the Lender following an Event of Default, in connection with all site visits and inspections deemed necessary by the Lender.

 

SECTION 11

 

GENERAL

 

11.1                         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 parties or in any other jurisdiction and to this end, the provisions of this Agreement are declared to be severable.

 

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

 

11.3                         Conclusive Evidence .  A certificate signed by an officer of the Lender shall be conclusive evidence as to any rates or amounts to be calculated or owing under or in respect of this Agreement (save for demonstrable error).

 

11.4                         Entire Agreement .  This Agreement contains 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 Agreement are merged herein.

 

11.5                         Modification, Amendment .  This Agreement may not be modified, altered nor amended in any manner whatsoever, except upon the agreement of the Lender and the Borrower, in writing and executed by the parties in the same manner as the document being modified, altered or amended.

 

11.6                         Assignment .  The Borrower may not assign, without the prior written consent of the Lender, (such consent not to be unreasonably withheld or delayed), whether in whole or in part, the benefits of this Agreement.  Prior to the Final Drawdown Date and in the absence of an Event of Default, the rights and obligations of the Lender hereunder may be assigned only with the prior written consent of the Borrower, (such consent not to be unreasonably withheld or delayed).  After the Final Drawdown Date or following the occurrence and during the

 

25



 

continuance of an Event of Default, the rights and obligations of the Lender may be assigned without notice or consent of the Borrower.

 

11.7                         Disclosure of Information — Confidentiality .  The Lender and the Borrower (each a “ Confidential Information Holder ” as the context may require) agree to maintain the confidentiality of all non-public information disclosed by the Lender or the Borrower (“ Confidential Information ”); provided, however, that a Confidential Information Holder may disclose the Confidential Information: (i) if the Confidential Information Holder obtains such Confidential Information from a third party who is not bound by the obligation of confidentiality; (ii) if the Confidential Information is a matter of public knowledge through no fault of the Confidential Information Holder; (iii) to any assignee or to any Person who may otherwise enter into contractual relations with the Confidential Information Holder in relation to this Agreement, provided, that, prior to any such disclosure, such assignee or Person shall agree to preserve the confidentiality, pursuant to this Section 11.7, of any Confidential Information received by it from the Confidential Information Holder; (iv) if the Confidential Information is disclosed under a requirement of law or by the Confidential Information Holder in the course of enforcing its rights hereunder or defending itself against any action, suit claim or similar dispute or (v) any disclosures of Confidential Information required by US GAAP.

 

Notwithstanding the foregoing, the Borrower agrees that, with tire prior written consent of the Borrower, the Lender may disclose the following information in its annual report or in advertising (in the form of a tombstone): the name of the Lender, Borrower, the date of Agreement, a general description of the transaction (including the country) and the amount of the Loan.

 

11.8                         Withholding Taxes .  All payments due hereunder (including without limitation under any Promissory Notes contemplated by this Agreement) shall be made without set off and free from all Taxes imposed on the Lender unless deduction of said Taxes can not be avoided or waived by operation of law.  In the event that the Borrower is required by law to deduct Taxes from such payment then (a) provided that the Lender would continue to be entitled to treat any such deductions by the Borrower as evidence that it has already paid taxes on payments to it from the Borrower hereunder, the Borrower shall provide the Lender with evidence that it has paid the taxes deducted from payments to the relevant authorities; (b) regardless of whether the circumstances in clause (a) are or are not applicable, the payments due by the Borrower must still be increased insofar as necessary in order to ensure that the amount which remains following such deductions shall equal the amount which would have been made payable in the absence of such requirement.

 

11.9                         Business Day Interest Extension .  Whenever a Payment Date occurs on a day other than a Business Day, such Payment Date shall be the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest.

 

11.10                  Judgment Currency .  It is of the essence of this Agreement that the respective parties make the various payments hereunder in the currency expressed for such payments, (the currency expressed with respect to each payment therein called the “ Required Currency ” of such payment).  The obligation of each party to make each payment in the Required Currency shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment,

 

26



 

which is expressed in or converted into any other currency, (including the payment of damages for the breach of this Agreement), until and except to the extent that such tender or recovery shall result in the actual receipt by the receiving party in the Required Currency of the amount expressed to be payable in that currency.  The obligation of each party to make such payment in the Required Currency shall be enforceable as an alternative or additional cause of action for the purpose of recovery in the Required Currency of the amount, (if any), by which such actual receipt shall fall short of the full amount of the Required Currency and shall not be affected by judgment being obtained for any other sums due under this Agreement.

 

11.11                  Notices .  All notices, requests, demands, directions, consents and other communications under this Agreement shall, unless otherwise stated herein, be in writing, and mailed or hand-delivered or sent by facsimile or e-mail transmission as to each party hereto, at the address for such party set forth below, or at such address as shall be designated by the party in a written notice to the other party hereto, (and, for ease of reference, facsimile or e-mail transmissions sent from the Borrower to the Lender shall be governed by the terms and conditions of the Electronic Communication Agreement, save to the extent that any of its provisions are in conflict with the terms of this Agreement, and, in such cases, the terms of this Agreement shall have priority):

 

If to the Borrower:                                            Seven Seas Water (Trinidad) Unlimited
First Floor, Briar Place
10 Sweet Briar Road
St. Clair,
Port-of-Spain
Trinidad & Tobago
Attention:  Secretary
Facsimile:  +1 (868) 622-2671

 

With a copy to:                                                             AquaVenture Holdings LLC
14400 Carlson Circle
Tampa, FL 33626
Attention:  John Curtis
Facsimile:  +1 (813) 855-8631

 

If to the Lender:                                                        The Bank of Nova Scotia
720 King Street West, 2nd Floor
Toronto, Ontario M5V 2T3
Attention:  Director Agency
Department:  Global Wholesale Services
Reference:  Seven Seas Water (Trinidad) Unlimited
Facsimile:  +1 (416) 866-5991

 

All such notices, requests, demands, directions and other communications shall, in tire case of hand delivery, overnight or international courier, and facsimile or e-mail transmission, be effective when received, if received between the hours of 8.30 am and 4.30 pm on a Business Day, and if not so received on a Business Day, shall be effective from the next day which is a

 

27



 

Business Day; and in the case of mail, (other than overnight or international courier) on the third ( 3 rd ) Business Day following the posting thereof, postage prepaid.

 

11.12                  Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same instrument.

 

11.13                  General Indemnity .  The Borrower shall indemnify, exonerate and hold the Lender and each of its respective officers, directors, employees and agents, (collectively the “Indemnified Parties”), free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith, (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable documented, out-of-pocket legal fees and disbursements, but excluding indirect, special or consequential losses or damages (collectively the “Indemnified Liabilities”), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to:

 

(a)                                  any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of this Loan;

 

(b)                                  the entering into and performance of this Agreement and the documents set out in Appendices I to IV thereto, by the Borrower, (including any action brought by or on behalf of the Borrower as a result of any determination by the Lender to suspend the Lender’s obligations to make Advances pursuant to Section 9.2 of the Agreement or to terminate an Advance pursuant to Section 7 of the Agreement but not including any breach of this Agreement and any breach of the documents set out in Appendices I to IV thereto by the Lender); and

 

(c)                                   any investigation, litigation or proceeding which relates directly to the Borrower related to any aspect of this Agreement and the documents set out in Appendices I to IV thereto,

 

except, (in relation to (a), (b) and (c) above), for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Parties’ gross negligence, bad faith, or wilful misconduct.

 

SECTION 12

 

APPLICABLE LAW AND JURISDICTION

 

12.1                         This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, United States of America, without reference to its principles of conflicts of laws, (other than Section 5-1401 of the New York General Obligations Law).

 

12.2                         The parties hereby irrevocably submit, on a non-exclusive basis, to the jurisdiction of any State or United States Federal Court sitting in the State of New York, United States of America and any appellate court thereof, in any action or proceeding arising out of or relating to this Agreement, or any Promissory Notes or for the recognition or enforcement of any

 

28



 

judgment.  The Borrower irrevocably appoints CT Corp., an agent for service of process to accept service from the courts of the State of New York, United States of America, in any action.

 

12.3                         The parties hereto each hereby irrevocably waive all right to trial by jury in any action, proceeding, or counterclaim arising out of or relating to this Agreement.

 

The rest of this page is left intentionally blank.

 

29



 

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed on the     day of April, 2012.

 

SIGNED, SEALED, AND DELIVERED

 

The Bank of Nova Scotia

 

 

 

 

 

 

 

 

 

 

By:

 

 

By:

/s/ Richard B. McCorkindale

Name: Edna Rangel

 

Name: Richard B. McCorkindale

Title: Senior Manager

 

Title: Director

 

 

 

 

 

 

Seven Seas Water (Trinidad) Unlimited

 

 

 

 

 

 

 

 

 

 

By:

/s/ DRB

 

By:

/s/ John F. Curtis

Name: Douglas R. Brown

 

Name: John F. Curtis

Title: Director

 

Title: Director

 

 

 

 

 

 

AquaVenture Holdings LLC

 

Executing the Agreement specifically and exclusively in respect of sub-Sections 1.32, 1.38, 1.39, 1.55, 2.3, 4.1(e) & (f), 5.1(f) & (k), 6.7, 6.11, 6.13(a) & (b), 8.11, 9.1(d), (e), 11.11, 12, Appendices I, II & IV.

 

 

 

 

 

 

 

 

By:

/s/ DRB

 

By:

/s/ John F. Curtis

Name: Douglas R. Brown

 

Name: John F. Curtis

Title: Chief Executive Officer

 

Title: President

 


 

APPENDIX I

 

DRAWDOWN NOTICE

 

Date:

 

The Bank of Nova Scotia
[Address] [Provide Address]

 

Attention:  [                ]

 

RE:                            Credit Agreement between The Bank of Nova Scotia (the “ Lender ”) and Seven Seas Water (Trinidad) Unlimited (the “ Borrower ”) dated the 9th day of April, 2012 (the “ Credit Agreement ”).

 

With reference to the above-cited Credit Agreement, the undersigned hereby irrevocably requests for the Lender to make an Advance in the amount of $[                ] and hereby certifies that all requirements set out as Conditions Precedents to Advances in Section 4 to obtain an Advance have been fulfilled by the Borrower and there has been no Material Adverse Effect as of the date hereof.

 

Enclosed herewith are the following:

 

1.                                       IE Certificate as per Section 4.4 .

 

2.                                       Either (mark the following):

 

a)                                      copy of invoice issued by a Contractor to the Borrower pursuant to the Project Budget with wire transfer instructions to make payment to the Contractor ; or

 

b)                                      copy of the paid invoice issued by the Contractor to the Borrower, Guarantor or the Shareholder pursuant to the Contract with wire transfer instructions to make payment to the Borrower , the Guarantor or the Shareholder .

 

Yours truly,

 

 

Authorized Officer
Seven Seas Water (Trinidad) Unlimited

 



 

APPENDIX II

 

ELECTRONIC COMMUNICATION AGREEMENT

 

To:  The Bank of Nova Scotia

 

The Borrower and the Guarantor (together the “ CLIENT ”) hereby requests and authorises The Bank of Nova Scotia (the “ BANK ”) to receive instructions and information from time to time (“ INSTRUCTIONS ”), from the CLIENT by way of electronic communication equipment, which shall include but not be limited to facsimile transmission equipment and electronic/computer mail (or e-mail) whether such electronic mail is encoded for security purposes or not (“ ELECTRONIC COMMUNICATION ”), and the BANK agrees to act upon such instructions or rely upon such information, subject to the following terms and conditions:

 

1.                                       The CLIENT agrees that the BANK shall be under no obligation to act upon any INSTRUCTIONS received from the CLIENT by way of ELECTRONIC COMMUNICATION.  The BANK may, in its sole discretion, refuse to act upon any such INSTRUCTIONS received from the CLIENT.  In the event, however, that the BANK declines to act as aforesaid, it shall so immediately advise the CLIENT and require in the alternative, original written instructions.

 

2.                                       The CLIENT agrees to assume full responsibility for all actions taken by the BANK, its correspondents, or agents in accordance with INSTRUCTIONS purporting or appearing on their face to have been received from the CLIENT by the BANK via ELECTRONIC COMMUNICATION.  The CLIENT acknowledges and agrees that if any INSTRUCTIONS received by the BANK purport or appear on their face to have been signed, sent or authorised by the CLIENT, such INSTRUCTIONS may be treated by the BANK as though they had been duly provided by the CLIENT or the authorised officers) of the CLIENT with the authority and on behalf of the CLIENT, notwithstanding that it may later be established that such INSTRUCTIONS were not so signed, sent or authorised by the CLIENT.  The CLIENT further acknowledges and agrees that if any INSTRUCTIONS are provided to the BANK via ELECTRONIC COMMUNICATION and such INSTRUCTIONS are in any way tampered with, or altered by an unauthorised party unrelated to the BANK, that the CLIENT shall bear the full responsibility for all actions taken by the BANK its correspondents, or agents in accordance with such INSTRUCTIONS.

 

3.                                       Any action taken in good faith by the BANK or any of its correspondents or agents under or in connection with any such INSTRUCTIONS shall be binding on the CLIENT without any resulting liability to the BANK, its correspondents or agents.

 

4.                                       a)                                      The CLIENT releases the BANK from any liability or claim for failure to act, execute, or complete any INSTRUCTIONS due to any reason beyond the BANK’S control;

 

b)                                      The CLIENT agrees to indemnify and save harmless the BANK and any of its correspondents or agents from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, disbursements of any kind or nature whatsoever which may be imposed upon, incurred by, or served against the BANK, its correspondents, and agents by reason of the BANK’S actions taken in accordance with INSTRUCTIONS delivered by the CLIENT.

 

2



 

c)                                       In no event will the BANK be liable for indirect, special or consequential damages.

 

5.                                       With regards to any instruction relating to the transfer of funds, the BANK may use any means and routes it, in its sole discretion, may consider suitable for the transmission of funds.  If the CLIENT should cancel any funds transfer INSTRUCTIONS, the BANK shall not be obligated to return the funds to the CLIENT unless the BANK is able to have its transfer stopped and the funds are returned to the BANK.

 

6.                                       The CLIENT will pay the BANK’S usual and customary fees for acting in accordance with any INSTRUCTIONS received.  The BANK may debit the CLIENT’S account with the amount of any such fees and charges

 

7.                                       This Agreement shall continue in effect and be binding on the parties, their successors and assigns (provided that no party may assign its rights hereunder without the consent of the other party) unless terminated by either party by written notice delivered to the other party at the address indicated above.

 

3



 

APPENDIX III

 

PROMISSORY NOTE

 

Seven Seas Water (Trinidad) Unlimited

 

US$30,000,000.00

Date: [insert date ]

 

FOR VALUE RECEIVED, Seven Seas Water (Trinidad) Unlimited , having its principal office located at First Floor, Briar Place, 10 Sweet Briar Road, St. Clair, Port-of-Spain, Trinidad & Tobago the Republic of Trinidad & Tobago (the “ Borrower ”) by this promissory note (this “ Promissory Note ”) hereby unconditionally promises to pay to the order of The Bank of Nova Scotia at 44 King Street West, Toronto, Ontario, Canada M5H 1H1 (the “ Lender ”), the principal sum of THIRTY MILLION UNITED STATES DOLLARS (US $30,000,000 ) or such lesser amount as shall be advanced by the Lender to the Borrower and evidenced hereby as set forth on the grid attached hereto as Schedule 1, in instalments as hereinafter provided and to pay interest on the principal balance from time to time outstanding, on each Payment Date, such interest accruing at a rate equal to one month LIBOR plus the Margin until the first Payment Date following the Fixed Interest Rate Date notice and at:

 

Fixed Interest Rate Percentage x (Fixed Rate Base + the Margin) + (1 - Fixed Interest Rate Percentage) x (one month LIBOR + the Margin)

 

commencing the first Payment Date following the Fixed Interest Rate Date and continuing until the Maturity Date.

 

Capitalized terms not otherwise defined shall have the meaning set forth in the Credit Agreement dated April [ insert date ], 2012 between Seven Seas Water (Trinidad) Unlimited and The Bank of Nova Scotia (the “ Credit Agreement ”).

 

Payment Date ” shall mean the 15 th  day of each month of each year.

 

The Loan principal shall be repaid in eighty-four (84) equal, monthly payments, commencing with the Payment Date following the earlier of:  (i) six (6)  months after the Project Completion Date; and (ii) eighteen (18) months after the Effective Date.  Each payment of principal shall be as set forth in Schedule 2 hereto.

 

Interest on the unpaid principal amount from time to time is due and payable on each Payment Date, beginning on the first Payment Date, so long as any principal hereof remains outstanding.  Interest will be calculated on the basis of the actual number of days elapsed (including the first day, but excluding the last day) over a year of 360 days.

 

If the Borrower fails to pay any amount owing under this Promissory Note when due (whether at stated maturity, by acceleration or otherwise), the Borrower shall pay the Lender interest on such unpaid amount as calculated as per Section 3.3 of the Credit Agreement.

 

All payments received hereunder shall be applied in the manner and order of priority determined by the Lender in its sole, reasonable discretion.

 

4



 

Whenever any payment falls due on a day that is not a Business Day, the due date for payment shall be extended to the next following Business Day.

 

All payments to be made by the Borrower under this Promissory Note shall be made in United States Dollars in immediately available and freely transferable funds no later than 1:00 pm (Eastern time) on the date on which due, without set-off, counterclaim, deduction, withholding on account of taxes levied or imposed under the laws of the Republic of Trinidad & Tobago subject, however, to the provisions of Section 11.8 of the Credit Agreement.

 

If any Event of Default occurs, the entire outstanding principal amount hereof and interest accrued thereon shall immediately become due and payable, at the option and upon the demand of the Lender and with prior written notice to the Borrower.

 

This Promissory Note shall be valid and enforceable as to its principal amount at any time only to the extent of the aggregate amounts then disbursed and outstanding, and, as to interest, only to the extent of the interest accrued thereon.

 

The Borrower hereby waives demand, diligence, presentment, protest and notice of every kind, and warrants to the holder that all actions and approvals required for the execution and delivery hereof as a legal, valid and binding obligation of the undersigned, enforceable in accordance with the terms hereof (subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors generally and general principles of equity), have been duly taken and obtained.  The failure of the holder hereof to exercise any of its rights hereunder in any instance shall not constitute a waiver thereof in that or any other instance.

 

The Borrower agrees to pay on demand all reasonable documented, out-of-pocket costs and expenses of the Lender that are incurred in connection with the enforcement of this Promissory Note, including, but not limited to, reasonable documented, out-of-pocket attorneys’ fees and expenses related thereto.

 

The rest of this page is left intentionally blank.

 

5



 

THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAWS, (OTHER THAN SECTION 5 - 1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).  Any dispute between the parties related hereto shall be determined with reference to Section 12.2 of the Credit Agreement.

 

 

SEVEN SEAS WATER (TRINIDAD) UNLIMITED

 

 

 

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

 

Name:

 

Title:

 

 

 

 

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

 

Name:

 

Title:

 

6


 

Schedule 1

 

Drawdown Date

 

Amount of Principal
Advanced

 

Signature of Authorized Officer of the
Lender

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7



 

Schedule 2

 

THE INDICATIVE REPAYMENT SCHEDULE BELOW SHALL BE REVISED AND FINALIZED AFTER THE FINAL DRAWDOWN DATE.

 

Payment
Number

 

Date

 

Percentage
Repaid

 

Opening
Balance

 

Amount
Repaid

 

Closing
Balance

 

1

 

15-Jul-13

 

1.19

%

$

30,000,000.00

 

$

357,142.86

 

$

29,642,857.14

 

2

 

15-Aug-13

 

1.19

%

$

29,642,857.14

 

$

357,142.86

 

$

29,285,714.29

 

3

 

15-Sep-13

 

1.19

%

$

29,285,714.29

 

$

357,142.86

 

$

28,928,571.43

 

4

 

15-0ct-13

 

1.19

%

$

28,928,571.43

 

$

357,142.86

 

$

28,571,428.57

 

5

 

15-Nov-13

 

1.19

%

$

28,571,428.57

 

$

357,142.86

 

$

28,214,285.71

 

6

 

15-Dec-13

 

1.19

%

$

28,214,285.71

 

$

357,142.86

 

$

27,857,142.86

 

7

 

15-Jan-14

 

1.19

%

$

27,857,142.86

 

$

357,142.86

 

$

27,500,000.00

 

8

 

15-Feb-14

 

1.19

%

$

27,500,000.00

 

$

357,142.86

 

$

27,142,857.14

 

9

 

15-Mar-14

 

1.19

%

$

27,142,857.14

 

$

357,142.86

 

$

26,785,714.29

 

10

 

15-Apr-14

 

1.19

%

$

26,785,714.29

 

$

357,142.86

 

$

26,428,571.43

 

II

 

15-May-14

 

1.19

%

$

26,428,571.43

 

$

357,142.86

 

$

26,071,428.57

 

12

 

15-Jun-14

 

1.19

%

$

26,071,428.57

 

$

357,142.86

 

$

25,714,285.71

 

13

 

15-Jul-14

 

1.19

%

$

25,714,285.71

 

$

357,142.86

 

$

25,357,142.86

 

14

 

15-Aug-14

 

1.19

%

$

25,357,142.86

 

$

357142.86

 

$

25,000,000.00

 

15

 

15-Sep-14

 

1.19

%

$

25,000,000.00

 

$

357,142.86

 

$

24,642,857.14

 

16

 

15-0ct-14

 

1.19

%

$

24,642,857.14

 

$

357,142.86

 

$

24,285,714.29

 

17

 

15-Nov-14

 

1.19

%

$

24,285,714.29

 

$

357,142.86

 

$

23,928,571.43

 

18

 

15-Dec-14

 

1.19

%

$

23,928,571.43

 

$

357,142.86

 

$

23,571,428.57

 

19

 

15-Jan-15

 

1.19

%

$

23,571,428.57

 

$

357,142.86

 

$

23,214,285.71

 

20

 

15-Feb-15

 

1.19

%

$

23,214,285.71

 

$

357,142.86

 

$

22,857,142.86

 

21

 

15-Mar-15

 

1.19

%

$

22,857,142.86

 

$

357,142.86

 

$

22,500,000.00

 

22

 

15-Apr-15

 

1.19

%

$

22,500,000.00

 

$

357,142.86

 

$

22,142,857.14

 

23

 

15-May-15

 

1.19

%

$

22,142,857.14

 

$

357,142.86

 

$

21,785,714.29

 

24

 

15-Jun-15

 

1.19

%

$

21,785,714.29

 

$

357,142.86

 

$

21,428,571.43

 

25

 

15-Jul-15

 

1.19

%

$

21,428,571.43

 

$

357,142.86

 

$

21,071,428.57

 

26

 

15-Aug-15

 

1.19

%

$

21,071,428.57

 

$

357,142.86

 

$

20,714,285.71

 

27

 

15-Sep-15

 

1.19

%

$

20,714,285.71

 

$

357,142.86

 

$

20,357,142.86

 

28

 

15-0ct-15

 

1.19

%

$

20,357,142.86

 

$

357,142.86

 

$

20,000,000.00

 

29

 

15-Nov-15

 

1.19

%

$

20,000,000.00

 

$

357,142.86

 

$

19,642,857.14

 

30

 

15-Dec-15

 

1.19

%

$

19,642,857.14

 

$

357,142.86

 

$

19,285,714.29

 

31

 

15-Jan-16

 

1.19

%

$

19,285,714.29

 

$

357,142.86

 

$

18,928,571.43

 

32

 

15-Feb-16

 

1.19

%

$

18,928,571.43

 

$

357,142.86

 

$

18,571,428.57

 

33

 

15-Mar-16

 

1.19

%

$

18,571,428.57

 

$

357,142.86

 

$

18,214,285.71

 

34

 

15-Apr-16

 

1.19

%

$

18,214,285.71

 

$

357,142.86

 

$

17,857,142.86

 

35

 

15-May-16

 

1.19

%

$

17,857,142.86

 

$

357,142.86

 

$

17,500,000.00

 

36

 

15-Jun-16

 

1.19

%

$

17,500,000.00

 

$

357,142.86

 

$

17,142,857.14

 

37

 

15-Jul-16

 

1.19

%

$

17,142,857.14

 

$

357,142.86

 

$

16,785,714.29

 

38

 

15-Aug-16

 

1.19

%

$

16,785,714.29

 

$

357,142.86

 

$

16,428,571.43

 

39

 

15-Sep-16

 

1.19

%

$

16,428,571.43

 

$

357,142.86

 

$

16,071,428.57

 

40

 

15-0ct-16

 

1.19

%

$

16,071,428.57

 

$

357,142.86

 

$

15,714,285.71

 

41

 

15-Nov-16

 

1.19

%

$

15,714,285.71

 

$

357,142.86

 

$

15,357,142.86

 

 

8



 

Payment
Number

 

Date

 

Percentage
Repaid

 

Opening
Balance

 

Amount
Repaid

 

Closing
Balance

 

42

 

15-Dec-16

 

1.19

%

$

15,357,142.86

 

$

357,142.86

 

$

15,000,000.00

 

43

 

15-Jan-17

 

1.19

%

$

15,000,000.00

 

$

357,142.86

 

$

14,642,857.14

 

44

 

15-Feb-17

 

1.19

%

$

14,642,857.14

 

$

357,142.86

 

$

14,285,714.29

 

45

 

15-Mar-17

 

1.19

%

$

14,285,714.29

 

$

357,142.86

 

$

13,928,571.43

 

46

 

15-Apr-17

 

1.19

%

$

13,928,571.43

 

$

357,142.86

 

$

13,571,428.57

 

47

 

15-May-17

 

1.19

%

$

13,571,428.57

 

$

357,142.86

 

$

13,214,285.71

 

48

 

15-Jun-17

 

1.19

%

$

13,214,285.71

 

$

357,142.86

 

$

12,857,142.86

 

49

 

15-Jul-17

 

1.19

%

$

12,857,142.86

 

$

357,142.86

 

$

12,500,000.00

 

50

 

15-Aug-17

 

1.19

%

$

12,500,000.00

 

$

357,142.86

 

$

12,142,857.14

 

51

 

15-Sep-17

 

1.19

%

$

12,142,857.14

 

$

357,142.86

 

$

11,785,714.29

 

52

 

15-0ct-17

 

1.19

%

$

11,785,714.29

 

$

357,142.86

 

$

11,428,571.43

 

53

 

15-Nov-17

 

1.19

%

$

11,428,571.43

 

$

357,142.86

 

$

11,071,428.57

 

54

 

15-Dec-17

 

1.19

%

$

11,071,428.57

 

$

357,142.86

 

$

10,714,285.71

 

55

 

15-Jan-18

 

1.19

%

$

10,714,285.71

 

$

357,142.86

 

$

10,357,142.86

 

56

 

15-Feb-18

 

1.19

%

$

10,357,142.86

 

$

357,142.86

 

$

10,000,000.00

 

57

 

15-Mar-18

 

1.19

%

$

10,000,000.00

 

$

357,142.86

 

$

9,642,857.14

 

58

 

15-Apr-18

 

1.19

%

$

9,642,857.14

 

$

357,142.86

 

$

9,285,714.29

 

59

 

15-May-18

 

1.19

%

$

9,285,714.29

 

$

357,142.86

 

$

8,928,571.43

 

60

 

15-Jun-18

 

1.19

%

$

8,928,571.43

 

$

357,142.86

 

$

8,571,428.57

 

61

 

15-Jul-18

 

1.19

%

$

8,571,428.57

 

$

357,142.86

 

$

8,214,285.71

 

62

 

15-Aug-18

 

1.19

%

$

8,214,285.71

 

$

357,142.86

 

$

7,857,142.86

 

63

 

15-Sep-18

 

1.19

%

$

7,857,142.86

 

$

357,142.86

 

$

7,500,000.00

 

64

 

15-Oct-18

 

1.19

%

$

7,500,000.00

 

$

357,142.86

 

$

7,142,857.14

 

65

 

15-Nov-18

 

1.19

%

$

7,142,857.14

 

$

357,142.86

 

$

6,785,714.29

 

66

 

15-Dec-18

 

1.19

%

$

6,785,714.29

 

$

357,142.86

 

$

6,428,571.43

 

67

 

15-Jan-19

 

1.19

%

$

6,428,571.43

 

$

357,142.86

 

$

6,071,428.57

 

68

 

15-Feb-19

 

1.19

%

$

6,071,428.57

 

$

357,142.86

 

$

5,714,285.71

 

69

 

15-Mar-19

 

1.19

%

$

5,714,285.71

 

$

357,142.86

 

$

5,357,142.86

 

70

 

15-Apr-19

 

1.19

%

$

5,357,142.86

 

$

357,142.86

 

$

5,000,000.00

 

71

 

15-May-19

 

1.19

%

$

5,000,000.00

 

$

357,142.86

 

$

4,642,857.14

 

72

 

15-Jun-19

 

1.19

%

$

4,642,857.14

 

$

357,142.86

 

$

4,285,714.29

 

73

 

15-Jul-19

 

1.19

%

$

4,285,714.29

 

$

357,142.86

 

$

3,928,571.43

 

74

 

15-Aug-19

 

1.19

%

$

3,928,571.43

 

$

357,142.86

 

$

3,571,428.57

 

75

 

15-Sep-19

 

1.19

%

$

3,571,428.57

 

$

357,142.86

 

$

3,214,285.71

 

76

 

15-Oct-19

 

1.19

%

$

3,214,285.71

 

$

357,142.86

 

$

2,857,142.86

 

77

 

15-Nov-19

 

1.19

%

$

2,857,142.86

 

$

357,142.86

 

$

2,500,000.00

 

78

 

15-Dec-19

 

1.19

%

$

2,500,000.00

 

$

357,142.86

 

$

2,142,857.14

 

79

 

15-Jan-20

 

1.19

%

$

2,142,857.14

 

$

357,142.86

 

$

1,785,714.29

 

80

 

15-Feb-20

 

1.19

%

$

1,785,714.29

 

$

357,142.86

 

$

1,428,571.43

 

81

 

15-Mar-20

 

1.19

%

$

1,428,571.43

 

$

357,142.86

 

$

1,071,428.57

 

82

 

15-Apr-20

 

1.19

%

$

1,071,428.57

 

$

357,142.86

 

$

714,285.71

 

83

 

15-May-20

 

1.19

%

$

714,285.71

 

$

357,142.86

 

$

357,142.86

 

84

 

15-Jun-20

 

1.19

%

$

357,142.86

 

$

357,142.86

 

$

(0.00

)

 

9


 

APPENDIX IV

 

GUARANTEE

 

THIS GUARANTEE (as the same may be amended, restated, amended and restated, supplemented, or otherwise modified from time to time, the “ Guarantee ”) is made and entered into effective as of this · day of April, 2012 by the undersigned, AquaVenture Holdings LLC, a Delaware limited liability company formed on December 14, 2006 (the “ Guarantor ”), in favor of and for the benefit of Lender, a banking institution organized and existing under the laws of Canada.

 

Capitalized terms used but not otherwise defined herein shall have the meaning attributed to such terms in the Credit Agreement (as defined below).

 

RECITALS

 

WHEREAS, Lender has agreed to make a loan to Borrower (hereinafter, the “ Loan ”), pursuant to the terms of the Credit Agreement (defined below); and

 

WHEREAS, one of the conditions precedent to the availability of the Loan to the Borrower is the issue of a Guarantee by Guarantor, in favor of Lender, guaranteeing the prompt, proper and full payment by the Borrower of the Guaranteed Obligations (as defined herein); and

 

WHEREAS, Guarantor has agreed to provide the Guarantee and the granting of the Guarantee has been approved by all required limited liability company action on the part of Guarantor,

 

NOW THEREFORE, in furtherance of the matters set forth above and in consideration of the Lender making the Loan or any part thereof available to the Borrower, and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by the Guarantor), the Guarantor hereby agrees as follows:

 

TERMS AND CONDITIONS

 

1.1.         “ Bankruptcy Law ” means any federal, state or local bankruptcy or insolvency law applicable to Borrower including, without limitation, the laws of the Republic of Trinidad & Tobago.

 

1.2.         “ Borrower ” means, Seven Seas Water (Trinidad) Unlimited, a Trinidad company, having its principal office located at First Floor, Briar Place, 10 Sweet Briar Road, St. Clair, Port-of-Spain, Trinidad & Tobago.

 

1.3.         “ Commitment ” means, the Lender’s obligation to make Advances under the Credit Agreement.

 

1.4.         “ Credit Agreement ” means the Credit Agreement between Borrower and Lender, dated as of April  · ,2012.

 

10



 

1.5.         “ Lender ” means The Bank of Nova Scotia, a banking institution organized and existing under the laws of Canada having its executive office and principal place of business located at 44 King Street West, Toronto, Ontario, Canada.

 

1.6.         “ Lien ” means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever.

 

1.7.         “ Financial Documents ” as defined in the Credit Agreement.

 

1.8.         “ Obligations ” means all payment obligations (monetary or otherwise) of the Borrower arising under or in connection with this Guarantee, the Credit Agreement and the other Financial Documents.

 

1.9.         “ Person ” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof

 

1.10.       “ Security ” shall have the meaning in Section 2.3 of the Credit Agreement.

 

1.11.       “ Subsidiary ” means, with respect to any Person, any corporation or other legal entity of which more than 50% of the outstanding capital stock or equity interests having ordinary voting power to elect a majority of the board of directors or other applicable governing body of such corporation or entity (irrespective of whether at the time the capital stock or other equity interests of any other class or classes of such corporation or other legal entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person.

 

2.1          Guarantee .  The Guarantor hereby absolutely, unconditionally and irrevocably guarantees the punctual payment when due, whether at scheduled maturity or on any date of a required prepayment or by acceleration, demand or otherwise, of all Obligations of the Borrower now or hereafter existing under or in respect of the Financial Documents (including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing Obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, premiums, fees, indemnities, contract causes of action, costs, expenses (including reasonable legal costs) or otherwise (such Obligations being the “ Guaranteed Obligations ”), and agrees to pay any and all reasonable, documented, out-of-pocket expenses (including, without limitation, reasonable, documented, out-of-pocket fees and expenses of counsel) incurred by the Lender in enforcing any rights under this Guarantee or any other Financial Document.  Without limiting the generality of the foregoing, the Guarantor’s liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Borrower to the Lender under or in respect of the Financial Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower.

 

11



 

3.1          Guarantee Absolute .  The Guarantor guarantees that, to the fullest extent permitted by applicable law, the Guaranteed Obligations will be paid strictly in accordance with the terms of the Financial Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender or any Lender with respect thereto.  The Obligations of the Guarantor under or in respect of this Guarantee are independent of the Guaranteed Obligations or any other obligations of the Borrower under or in respect of the Financial Documents, and a separate action or actions may be brought and prosecuted against the Guarantor to enforce this Guarantee, irrespective of whether any action is brought against the Borrower or whether the Borrower is joined in any such action or actions.  The liability of the Guarantor under this Guarantee shall be irrevocable, absolute and unconditional irrespective of, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to, any or all of the following, in each case, to the fullest extent permitted by applicable law (except for any defense of payment or performance of the Guaranteed Obligations in full):

 

(a)           any lack of validity or enforceability of any Financial Document or any agreement or instrument relating thereto;

 

(b)           any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other obligations of the Borrower under or in respect of the Financial Documents, or any other amendment or waiver of or any consent to departure from any Financial Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Borrower or any of its Subsidiaries or otherwise;

 

(c)           any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of, or consent to departure from, any other Guarantee, for all or any of the Guaranteed Obligations;

 

(d)           any manner of application of any collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other Obligations of the Borrower under the Financial Documents or any other assets of the Borrower or any other assets of the Borrower or any of its Subsidiaries;(e) any change, restructuring or termination of the corporate structure or existence of the Borrower;

 

(e)           any failure of the Lender to disclose to the Guarantor any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower now or hereafter known to such party (the Guarantor waiving any duty on the part of the other parties hereto to disclose such information);

 

(f)            the failure of any other Person to execute or deliver any other Guarantee or agreement or the release or reduction of liability of any other guarantor or surety with respect to the Guaranteed Obligations; or

 

(g)           any other circumstance (including, without limitation, any statute of limitations) or the existence of or reliance on any representation by the-Lender that might

 

12



 

otherwise constitute a defense available to, or a discharge of, the Guarantor or any other guarantor or surety (other than the defense of payment and performance of the Guaranteed Obligations in full).

 

This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by any Person upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made.

 

4.1          Waivers and Acknowledgments:

 

(a)           The Guarantor hereby unconditionally and irrevocably waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of nonperformance, default, acceleration, protest or dishonor and any other notice with respect to any of the Guaranteed Obligations and this Guarantee and any requirement that the Lender protect, secure, perfect or insure any Lien in favor of Lender or any property subject thereto or exhaust any right or take any action against the Borrower or any other Person.

 

(b)           The Guarantor hereby unconditionally and irrevocably waives any right to revoke this Guarantee and acknowledges that this Guarantee is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future.

 

(c)           The Guarantor hereby unconditionally and irrevocably waives (i) any defense arising by reason of any claim or defense based upon an election of remedies by the Lender or any Lender that in any manner impairs, reduces, releases or otherwise adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of the Guarantor or other rights of the Guarantor to proceed against the Borrower, any other guarantor or any other Person or any collateral and (ii) any defense based on any right of set-off or counterclaim against or in respect of the Obligations of the Guarantor hereunder.

 

(d)           The Guarantor hereby unconditionally and irrevocably waives any duty on the part of the Lender to disclose to the Guarantor any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any of its Subsidiaries or the Borrower now or hereafter known by the Lender.

 

(e) The Guarantor acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Financial Documents and that the waivers set forth in Section 3.1 and this Section 4.1 are knowingly made in contemplation of such benefits.

 

5.1          Subrogation .  Until all of the Guaranteed Obligations shall have been paid in full, the Guarantor hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against the Borrower that arise from the existence, payment, performance or enforcement of the Guarantor’s Obligations under or in respect of this Guarantee or any other Financial Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Lender against the Borrower, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right

 

13



 

to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right.  If any amount shall be paid to the Guarantor in violation of the immediately preceding sentence at any time prior to the payment in full of the Guaranteed Obligations, and all other amounts payable under this Guarantee, such amount shall be received and held in trust for the benefit of the Lender, shall be segregated from other property and funds of the Guarantor and shall forthwith be paid or delivered to the Lender in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Guarantee, whether matured or not matured, in accordance with the terms of the Financial Documents.  If (i) the Guarantor shall make payment to the Lender of all or any part of the Guaranteed Obligations, and (ii) all of the Guaranteed Obligations and all other amounts payable under this Guarantee shall have been paid in full in cash, the Lender will, at the Guarantor’s request and expense, execute and deliver to the Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Guaranteed Obligations resulting from such payment made by the Guarantor pursuant to this Guarantee.

 

6.1          Subordination .  The Guarantor hereby subordinates, and shall cause each of its Subsidiaries to subordinate, any and all debts, liabilities and other obligations (including, without limitation, all payment obligations) owed to the Guarantor or any such Subsidiary, as the case may be, by the Borrower (the “ Subordinated Obligations ”) to the Guaranteed Obligations to the extent and in the manner hereinafter set forth in this Section 6.1:

 

(a)           Prohibited Payments, Etc .  Except during the continuance of an Event of Default as defined in the Credit Agreement (including, without limitation, the commencement and continuation of any proceeding under any Bankruptcy Law), the Guarantor and its Subsidiaries may receive payments from the Borrower on account of the Subordinated Obligations.  After the occurrence, and during the continuance, of an Event of Default (including, without limitation, the commencement and continuation of any proceeding under any Bankruptcy Law), unless the Lender otherwise agrees, the Guarantor and its Subsidiaries shall not demand, accept or take any action to collect any payment on account of the Subordinated Obligations.

 

(b)           Prior Payment of Guaranteed Obligations .  In any proceeding under any Bankruptcy Law relating to the Borrower, the Guarantor agrees that the Lender and the Lenders shall be entitled to receive payment in full in cash of all Guaranteed Obligations (including, without limitation, all interest and expenses accruing after the commencement of a proceeding under any Bankruptcy Law, whether or not constituting an allowed claim in such proceeding (“ Post Petition Interest ”)) before the Guarantor or any of its Subsidiaries receive payment of any Subordinated Obligations.

 

(c)           Turn-Over .  After the occurrence and during the continuance of an Event of Default (including the commencement and continuation of any proceeding under any bankruptcy law relating to the Borrower), the Guarantor and its Subsidiaries shall, if the Lender so requests, collect, enforce and receive payments on account of the Subordinated Obligations as trustee for the Lender and deliver such payments to the Lender on account of the Guaranteed

 

14



 

Obligations (including all Post Petition Interest), together with any necessary endorsements or other instruments of transfer, but without reducing or affecting in any manner the liability of the Guarantor under the other provisions of this Guarantee.

 

(d)           Lender Authorization .  After the occurrence and during the continuance of an Event of Default (including the commencement and continuation of any proceeding under any bankruptcy law relating to the Borrower), the Lender is authorized and empowered (but without any obligation to so do), in its discretion, (i) in the name of the Guarantor and its Subsidiaries, to collect and enforce, and to submit claims in respect of, Subordinated Obligations and to apply any amounts received thereon to the Guaranteed Obligations (including any and all Post Petition Interest), and (ii) to require the Guarantor and its Subsidiaries (A) to collect and enforce, and to submit claims in respect of, Subordinated Obligations and (B) to pay any amounts received on such obligations to the Lender for application to the Guaranteed Obligations (including any and all Post Petition Interest).(e) Liens.  The Guarantor hereby subordinates, and shall cause each of its Subsidiaries to subordinate, any and all present and future Liens of the Guarantor or any such Subsidiary, as the case may be, on any property or assets of the Borrower, to any and all present and future Liens of the Lender, or any security trustee acting on their behalf granted to secure the Obligations of the Borrower under the Loan Documents (the “ Senior Indebtedness ”), notwithstanding the respective times of attachment of the interests of the Lender, the Guarantor or its Subsidiaries, or the respective times that the Subordinated Obligations or the Senior Indebtedness arise or are incurred.

 

7.1          Continuing Guarantee; Assignments .  This Guarantee is a continuing guarantee and shall (a) remain in full force and effect until the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guarantee, (b) be binding upon the Guarantor, its successors and assigns, and (c) inure to the benefit of and be enforceable by the Lender and its successors, transferees and assigns.  Without limiting the generality of clause (c) of the immediately preceding sentence, the Lender may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement (including, without limitation, the Promissory Note held by it) to any other Person with the prior written consent of the Guarantor (not to be unreasonably withheld or delayed), and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such assignor herein.  The Guarantor shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender.

 

8.1          Payments; Application .  All payments to be made hereunder by Guarantor shall be made in U.S. Dollars, in immediately available funds, and without deduction (whether for taxes or otherwise) or offset and shall be applied to the Guaranteed Obligations in accordance herewith subject to Section 11.8 of the Credit Agreement.

 

9.1          Attorneys Fees and Costs .  The Guarantor agrees to pay, on demand, all reasonable and documented attorneys fees and all reasonable, documented and out-of-pocket costs and expenses which may be incurred by Lender in connection with the enforcement of this Guarantee or in any way arising out of, the protection, assertion, or enforcement of the Guaranteed Obligations (or any security therefore), irrespective of whether suit is brought.

 

15



 

10.1        Notices .  All notices and other communications hereunder to Lender shall be in writing and shall be mailed, sent, or delivered in accordance with the Credit Agreement.  All notices and other communications hereunder to Guarantor shall be in writing and shall be mailed, sent, or delivered to:

 

Aqua Venture Holdings LLC
14400 Carlson Circle
Tampa, FL 33626
Attention:  The President
Facsimile:              813-855-8631

 

11.1        Cumulative Remedies .  No remedy under this Guarantee, under the Credit Agreement, or any other Financial Document is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given under this Guarantee, under the Credit Agreement, or any other Financial Document, and any remedy provided by applicable law.  No delay or omission by the Lender to exercise any right under this Guarantee shall impair any such right nor be construed to be a waiver thereof.  No failure on the part of the Lender to exercise, and no delay in exercising, any right under this Guarantee shall operate as a waiver thereof; nor shall any single or partial exercise of any right under this Guarantee preclude any other or further exercise thereof or the exercise of any other right.

 

12.1        Severability of Provisions .  Each provision of this Guarantee shall be severable from every other provision of this Guarantee for the purpose of determining the legal enforceability of any specific provision.

 

13.1        Entire Agreement: Amendments .  This Guarantee constitutes the entire agreement between parties pertaining to the subject matter contained herein.  This Guarantee may not be altered, amended, or modified, nor may any provision hereof be waived or noncompliance therewith consented to, except by means of a writing executed by Guarantor and Lender.  Any such alteration, amendment, modification, waiver, or consent shall be effective only to the extent specified therein and for the specific purpose for which given.  No course of dealing and no delay or waiver of any right or default under this Guarantee shall be deemed a waiver of any other, similar or dissimilar, right or default or otherwise prejudice the rights and remedies hereunder.

 

14.1        CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

THE VALIDITY OF THIS GUARANTEE, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS GUARANTEE SHALL BE TRIED AND

 

16



 

LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  THE GUARANTOR WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 15.1

 

THE GUARANTOR AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTEE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  THE GUARANTOR AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS SECTION MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

15.1        Counterparts; Telefacsimile Execution .  This Guarantee may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Guarantee.  Delivery of an executed counterpart of this Guarantee by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Guarantee.  Any party delivering an executed counterpart of this Guarantee by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Guarantee but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Guarantee.

 

17



 

IN WITNESS WHEREOF , the undersigned have executed and delivered this Guarantee of the date first written above.

 

 

AQUA VENTURE HOLDINGS LLC

 

 

 

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

 

Name: John F. Curtis

 

Title: President

 

 

 

 

 

 

 

THE BANK OF NOVA SCOTIA

 

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

 

Name:

 

Title:

 

18


 

FIRST AMENDMENT AND WAIVER TO THE CREDIT AGREEMENT

 

This First Amendment and Waiver to the Credit Agreement (“ Amendment No. 1 ”) is made on the 15 day of April, 2013.

 

BETWEEN:

 

The Bank of Nova Scotia (the “ Lender ”)

 

AND

 

Seven Seas Water (Trinidad) Unlimited (the “ Borrower ”)

 

AND

 

Aqua Venture Holdings LLC (the “ Guarantor ”)

 

WHEREAS

 

A)                                    The Borrower, Guarantor and the Lender entered into the credit agreement dated as of April 9, 2012 , whereby the Lender is making available to the Borrower advances for up to US$30,000,000 (the “ Credit Agreement ”);

 

B)                                    The Borrower, Guarantor and the Lender have now agreed to make certain amendments to the Credit Agreement as more fully set out in this Amendment No. 1 (such that the Credit Agreement, together with Amendment No. 1 constitute, in one integrated document, in appropriate contexts, the “ Credit Agreement ”);

 

C)                                    Section 6.13(b) of the Credit Agreement requires the Borrower and the Guarantor to provide the Lender with their respective financial statements forty-five (45) days after the end of the Fiscal Quarter and the Borrower and the Guarantor are in technical default of Section 6.13(b) (the “ Breach ”) as such financial statements for the fourth quarter ended December 31, 2012, which were due on February 15, 2013, were delivered to the Lender on April 10, 2013 (the period between February 15, 2013 to April 10, 2013 being the “ Breach Period ”); and

 

D)                                    The Lender has agreed to enter into this Amendment No. 1 to waive the Breach during the Breach Period.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties to this Amendment No. 1, that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

 

ARTICLE 1
DEFINITIONS AND INTERPRETATION

 

1.1          Wherever used in this Amendment No. 1, unless the context shall otherwise require, terms defined in the Credit Agreement shall have the same meaning herein.

 



 

1.2          In this Amendment No. 1, the singular includes the plural and vice versa, and references to any gender include any other gender.

 

1.3          The clause headings and the titles of the paragraphs and sections of this Amendment No. 1 are inserted for convenience only and shall be ignored in construing this Amendment No. 1.

 

1.4          In this Amendment No. 1 (including the recitals) unless otherwise defined or the context requires, all capitalized terms shall have the respective meanings specified in the Credit Agreement.  This Amendment No. 1 is an amendment to the Credit Agreement.  Unless the context of this Amendment No. 1 otherwise requires, the Credit Agreement and this Amendment No. 1 shall be read together and shall have effect as if the provisions of the Credit Agreement and this Amendment No. 1 were contained in one agreement.  The term “ Agreement ” or “ Credit Agreement ” when used in the Credit Agreement means the Credit Agreement as amended, supplemented or modified from time to time (including as amended by this Amendment No. 1).

 

ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT

 

2.1          Section 5.1(g) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“(g)  Limitation on Distributions :   Permit any Distributions to its Shareholder or to any other person in respect of its capital stock or any ownership interest in the Borrower unless the projected and historical DSCR on a rolling four (4) - quarter basis, is equal to at least 1.40X and all other Negative, Affirmative and Financial Covenants have been, and are, met, except as permitted pursuant to Section 2.1;”

 

2.2          Section 6.13 (b) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“No later than forty-five (45) days after the end of the Fiscal Quarter of each of the Borrower and Guarantor, with quarterly, unaudited, unconsolidated, financial statements from the Borrower, and quarterly, unaudited, financial statements from the Guarantor on a consolidated basis with Seven Seas Group together with a certificate in the form of a letter addressed to the Lender, signed by the president, chief financial officer or other appropriate officers, of the Borrower or Guarantor, as applicable, confirming the information in Sections 6.10 and 6.11;”

 

ARTICLE 3
WAIVER

 

3.1          This Amendment No 1 will serve to confirm that the undersigned, as Lender under the Credit Agreement, waives the Breach during the Breach Period and waives any Event of Default that might result there from.

 

2



 

3.2          The execution, delivery and effectiveness of this Amendment 1 shall not be deemed to be a waiver of compliance in the future or a waiver of any preceding or succeeding breach of any covenant or provision of the Credit Agreement.

 

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

 

4.1          The Borrower (and in respect of Section 8.11 of the Credit Agreement, the Guarantor) represent and warrant that the representations and warranties contained in Section 8 of the Credit Agreement are true and correct in all material respect as if made on and as of the date hereof.

 

ARTICLE 5
MISCELLANEOUS PROVISIONS

 

5.1          This Amendment No. 1 shall be construed and enforced in accordance with, the laws of the State of New York, United States of America, without reference to its principles of conflicts of laws, (other than Section 5-1401 of the New York General Obligations Law).

 

5.2          This Amendment No. 1 relates only to the specific matters expressly covered herein, and except for the amendments under the Credit Agreement expressly provided for herein, this Amendment No. 1 shall not be considered to be a waiver of any other rights or remedies the Lender may have under the Credit Agreement, and shall not be considered to create a course of dealing or to otherwise obligate in any respect the Lender to execute similar or other amendments under the same or similar or other circumstances in the future.

 

5.3          Except as specifically stated herein, the Credit Agreement and the other documents provided by the Borrower and the Guarantor to the Lender in connection thereto (the “ Loan Documents ”) shall continue in full force and effect in accordance with the provisions thereof, and all the Borrower and Guarantor’s obligations under the Credit Agreement and the Loan Documents are hereby ratified and confirmed and shall continue in full force and effect.  Except as otherwise expressly provided in Section 3.1 of this Amendment No. 1, the Lender reserves all of its rights, remedies, defenses and claims, if any, it might have against the Borrower and Guarantor or any other person under the Credit Agreement and the Loan Documents or under applicable law.

 

5.4          This Amendment No. 1 may be executed by the 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 Amendment No. 1.

 

IN WITNESS WHEREOF the parties hereto have caused this Amendment No. 1 to be duly executed as of the date set out above.

 

3



 

 

 

THE BANK OF NOVA SCOTIA

 

 

 

 

 

 

 

 

 

By:

/s/ Richard McCorkindale

 

 

Name:

Richard McCorkindale

 

 

Title:

Director, ICCB

 

 

 

 

 

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

 

Name:

Luis Pablo Bautista

 

 

Title:

Sr. Manager, ICCB

 

 

 

 

 

 

 

 

SEVEN SEAS WATER (TRINIDAD) UNLIMITED

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/Jeffrey R. Lentz

 

 

 

 

Name: Jeffrey R. Lentz

 

 

 

 

Title: Senior Vice President and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

AQUA VENTURE HOLDINGS LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/Jeffrey R. Lentz

 

 

 

 

Name: Jeffrey R. Lentz

 

 

 

 

Title: Senior Vice President and Chief Financial Officer

 

 

 

 

4


 

SECOND AMENDMENT TO THE CREDIT AGREEMENT

 

This Second Amendment to the Credit Agreement (“ Amendment No. 2 ”) is made on the 21st day of May, 2013.

 

BETWEEN:

 

The Bank of Nova Scotia (the “ Lender ”)

 

AND

 

Seven Seas Water (Trinidad) Unlimited (the “ Borrower ”)

 

AND

 

Aqua Venture Holdings LLC (the “ Guarantor ”)

 

WHEREAS

 

A)                                    The Borrower, Guarantor and the Lender entered into the credit agreement dated as of April 9, 2012 , whereby the Lender is making available to the Borrower advances for up to US$30,000,000 (the “ Credit Agreement ”);

 

B)                                    The Borrower, Guarantor and the Lender agreed to make certain amendments to the Credit Agreement as per the First Amendment and Waiver to the Credit Agreement dated April 15,2013 (“ Amendment No. 1 ”).

 

C)                                    The Borrower, Guarantor and the Lender have now agreed to make certain further amendments to the Credit Agreement and Amendment No. 1, such that the Credit Agreement, together with Amendment No. 1 and Amendment No. 2 constitute, in one integrated document, in appropriate contexts, the “ Credit Agreement ”);

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties to this Amendment No. 2, that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

 

ARTICLE 1
DEFINITIONS AND INTERPRETATION

 

1.1                                Wherever used in this Amendment No. 2, unless the context shall otherwise require, terms defined in the Credit Agreement shall have the same meaning herein.

 

1.2                                In this Amendment No. 2, the singular includes the plural and vice versa, and references to any gender include any other gender.

 

1.3                                The clause headings and the titles of the paragraphs and sections of this Amendment No. 2 are inserted for convenience only and shall be ignored in construing this Amendment No. 2.

 



 

1.4                                In this Amendment No. 2 (including the recitals) unless otherwise defined or the context requires, all capitalized terms shall have the respective meanings specified in the Credit Agreement.  This Amendment No. 2 is an amendment to the Credit Agreement.  Unless the context of this Amendment No. 2 otherwise requires, the Credit Agreement and this Amendment No. 2 shall be read together and shall have effect as if the provisions of the Credit Agreement, Amendment No. 1 and this Amendment No. 2 were contained in one agreement.  The term “ Agreement ” or “ Credit Agreement ” when used in the Credit Agreement means the Credit Agreement as amended, supplemented or modified from time to time (including as amended by this Amendment No. 2).

 

ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT

 

2.1                                Section 1.30 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“1.30 “ Final Drawdown Date ” means the last date upon which Advances may be made by the Borrower, which shall be September 30,2013.”

 

2.2                                Section 6.6 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“The Borrower hereby covenants that the Project Completion Date shall occur no later than August 30, 2013;”

 

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

 

3.1                                The Borrower (and in respect of Section 8.11 of the Credit Agreement, the Guarantor) represent and warrant that the representations and warranties contained in Section 8 of the Credit Agreement are true and correct in all material respect as if made on and as of the date hereof.

 

ARTICLE 4
MISCELLANEOUS PROVISIONS

 

4.1                                This Amendment No. 2 shall be construed and enforced in accordance with, the laws of the State of New York, United States of America, without reference to its principles of conflicts of laws, (other than Section 5-1401 of the New York General Obligations Law).

 

4.2                                This Amendment No. 2 relates only to the specific matters expressly covered herein, and except for the amendments under the Credit Agreement expressly provided for herein, this Amendment No. 2 shall not be considered to be a waiver of any other rights or remedies the Lender may have under the Credit Agreement, and shall not be considered to create a course of dealing or to otherwise obligate in any respect the Lender to execute similar or other amendments under the same or similar or other circumstances in the future.

 

2



 

4.3                                Except as specifically stated herein, the Credit Agreement and the other documents provided by the Borrower and the Guarantor to the Lender in connection thereto (the “ Loan Documents ”) shall continue in full force and effect in accordance with the provisions thereof, and all the Borrower and Guarantor’s obligations under the Credit Agreement and the Loan Documents are hereby ratified and confirmed and shall continue in full force and effect.  The Lender reserves all of its rights, remedies, defenses and claims, if any, it might have against the Borrower and Guarantor or any other person under the Credit Agreement and the Loan Documents or under applicable law.

 

4.4                                This Amendment No. 2 may be executed by the 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 Amendment No. 2 by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment No. 2.

 

IN WITNESS WHEREOF the parties hereto have caused this Amendment No. 2 to be duly executed as of the date set out above.

 

 

 

THE BANK OF NOVA SCOTIA

 

 

 

 

 

 

 

 

 

 

By:

/s/ Richard McCorkindale

 

 

Name:

Richard McCorkindale

 

 

Title:

Director, ICCB

 

 

 

 

 

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

 

Name:

Luis Pablo Bautista

 

 

Title:

Sr. Manager, ICCB

 

 

 

 

 

 

 

 

SEVEN SEAS WATER (TRINIDAD) UNLIMITED

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

 

 

Name: John F. Curtis

 

 

 

 

Title: Director

 

 

 

 

 

 

 

 

 

 

 

 

 

AQUA VENTURE HOLDINGS LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

 

 

Name: John F. Curtis

 

 

 

 

Title: President and Director

 

 

 

 

3


 

THIRD AMENDMENT TO THE CREDIT AGREEMENT

 

This Third Amendment to the Credit Agreement (“ Amendment No. 3 ”) is made on the 9th day of September, 2013.

 

BETWEEN:

 

The Bank of Nova Scotia (the “ Lender ”)

 

AND

 

Seven Seas Water (Trinidad) Unlimited (the “ Borrower ”)

 

AND

 

Aqua Venture Holdings LLC (the “ Guarantor ”)

 

WHEREAS

 

A)                                    The Borrower and the Lender entered into a credit agreement dated as of April 9, 2012, whereby the Lender made available to the Borrower a credit facility of up to US$30,000,000 (the “ Original Credit Agreement ”); and

 

B)                                    The Borrower, the Guarantor and the Lender agreed to make certain amendments to the Original Credit Agreement pursuant to a First Amendment and Waiver to tire Credit Agreement dated April 15, 2013 and pursuant to a Second Amendment to the Credit Agreement dated May 21, 2013 (the Original Credit Agreement as so amended, the “ Credit Agreement ”).

 

C)                                    The Borrower, the Guarantor and the Lender have now agreed to make certain further amendments to the Credit Agreement as set forth herein.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties to this Amendment No. 3, that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

 

ARTICLE 1
DEFINITIONS AND INTERPRETATION

 

1.1                                Wherever used in this Amendment No. 3, unless the context shall otherwise require, terms defined in the Credit Agreement shall have the same meaning herein.

 

1.2                                In this Amendment No. 3, the singular includes the plural and vice versa, and references to any gender include any other gender.

 

1.3                                The clause headings and the titles of the paragraphs and sections of this Amendment No. 3 are inserted for convenience only and shall be ignored in construing this Amendment No. 3.

 



 

1.4                                This Amendment No. 3 is an amendment to the Credit Agreement.  Unless the context of this Amendment No. 3 otherwise requires, the Credit Agreement and this Amendment No. 3 shall be read together and shall have effect as if the provisions of the Credit Agreement and this Amendment No. 3 were contained in one agreement.  The term “ Agreement ” or “ Credit Agreement ” when used in the Credit Agreement means the Credit Agreement as amended, supplemented or modified from time to time (including as amended by this Amendment No. 3).

 

ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT

 

2.1                                Section 1.30 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“1.30 “ Final Drawdown Date ” means the last date upon which Advances may be made by the Borrower, which shall be October 15, 2013.”

 

2.2                                Section 1.65 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“1.65 “ Project Completion Certificate ” means a certificate prepared by the IE certifying:  (i) the Project Completion Date and (ii) that the Project has produced Product Water equal to at least 85% of the Guaranteed Minimum Purchase for the preceding month.”

 

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

 

3.1                                The Borrower represents and warrants that the representations and warranties contained in Section 8 of the Credit Agreement continue to be true and correct as if made on and as of the date hereof.

 

ARTICLE 4
MISCELLANEOUS PROVISIONS

 

4.1                                The Borrower acknowledges and confirms that, except as amended hereby, the Credit Agreement shall remain in full force and effect, without further amendment, and is hereby ratified and confirmed, and the Guarantor acknowledges and confirms that the Guarantee remains in full force and effect and is hereby ratified and confirmed.

 

4.2                                This Amendment No. 3 shall be construed and enforced in accordance with, the laws- of the State of New York, United States of America, without reference to its principles of conflicts of laws, (other than Section 5-1401 of the New York General Obligations Law).

 

4.3                                This Amendment No. 3 relates only to the specific matters expressly covered herein, and except for the amendments under the Credit Agreement expressly provided for herein, this Amendment No. 3 shall not be considered to be a waiver of any other rights or remedies the Lender may have under the Credit Agreement, and shall not be considered to create

 

2



 

a course of dealing or to otherwise obligate in any respect the Lender to execute similar or other amendments under the same or similar or other circumstances in the future.

 

4.4                                This Amendment No. 3 may be executed by the 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 facsimile or electronic communication shall be effective as delivery of a manually executed counterpart of this Amendment No. 3.

 

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

 

3



 

IN WITNESS WHEREOF the parties hereto have caused this Amendment No. 3 to be duly executed as of the date set out above.

 

 

 

THE BANK OF NOVA SCOTIA, as Lender

 

 

 

 

 

 

 

 

 

By:

/s/ Richard McCorkindale

 

 

Name:

Richard McCorkindale

 

 

Title:

Director, ICCB

 

 

 

 

 

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

 

Name:

Luis Pablo Bautista

 

 

Title:

Sr. Manager, ICCB

 

 

 

 

 

 

 

 

SEVEN SEAS WATER (TRINIDAD) UNLIMITED, as Borrower

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

 

 

Name: John F. Curtis

 

 

 

 

Title: Director

 

 

 

 

 

 

 

 

 

 

 

 

 

AQUA VENTURE HOLDINGS LLC, as Guarantor

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

 

 

Name: John F. Curtis

 

 

 

 

Title: Director and President

 

 

 

 

4


 

Execution Version

 

FOURTH AMENDMENT AND WAIVER AGREEMENT

 

This Fourth Amendment and Waiver Agreement (the “ Fourth Amendment ”) is made on this 20 day of May, 2014.

 

BETWEEN:

 

The Bank of Nova Scotia (the “ Lender ”)

 

AND

 

Seven Seas Water (Trinidad) Unlimited (the “ Borrower ”)

 

AND

 

Aqua Venture Holdings LLC (the “ Guarantor ”)

 

WHEREAS

 

A)                                    The Borrower, the Guarantor and the Lender entered into a credit agreement dated as of April 9, 2012, whereby the Lender made available to the Borrower a credit facility of up to US$30,000,000 (the “ Original Credit Agreement ”); and

 

B)                                    In connection with the entering into of the Original Credit Agreement, the Borrower granted to the Lender certain pledges, charges and security interests in certain of its property and assets, including pursuant to a Deed of Charge (Accounts) dated July 18, 2012 between the Borrower, the Lender and Scotiabank of Trinidad and Tobago (the “ Deed of Charge (Accounts) ”; and

 

C)                                    The Borrower, the Guarantor and the Lender agreed to make certain amendments to the Original Credit Agreement pursuant to a First Amendment and Waiver to the Credit Agreement dated April 15, 2013, a Second Amendment to the Credit Agreement dated May 21, 2013 and a Third Amendment to the Credit Agreement dated September 9, 2013 (the Original Credit Agreement as so amended, the “ Credit Agreement ”); and

 

D)                                    The Borrower has breached certain covenants of the Credit Agreement as described herein and has requested the Lender waive such breaches of covenant, and the Lender has so agreed on the terms and conditions set forth herein; and

 

E)                                     The Borrower, the Guarantor and the Lender have now agreed to make certain further amendments to the Credit Agreement as set forth herein.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties to this Fourth Amendment that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

 



 

ARTICLE 1
DEFINITIONS AND INTERPRETATION

 

1.1                                Wherever used in this Fourth Amendment, unless the context shall otherwise require, terms defined in the Credit Agreement shall have the same meaning herein.

 

1.2                                In this Fourth Amendment, the singular includes the plural and vice versa, and references to any gender include any other gender.

 

1.3                                The clause headings and the titles of the paragraphs and sections of this Fourth Amendment are inserted for convenience only and shall be ignored in construing this Fourth Amendment.

 

1.4                                This Fourth Amendment is an amendment to the Credit Agreement.  Unless the context of this Fourth Amendment otherwise requires, the Credit Agreement and this Fourth Amendment shall be read together and shall have effect as if the provisions of the Credit Agreement and this Fourth Amendment were contained in one agreement.  The term “ Agreement ” or “ Credit Agreement ” when used in the Credit Agreement means the Credit Agreement as amended, supplemented or modified from time to time (including as amended by this Fourth Amendment).

 

ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT

 

2.1                                Negative Pledge by Guarantor.  Section 5.1(f) of the Credit Agreement is hereby deleted in its entirety.

 

2.2                                Limitation on Distributions.

 

(a)                                  The definition of “Distributions” is hereby deleted in its entirety and replaced with the following:

 

Distributions ” means payments by the Borrower (i) to its shareholders in respect of its capital stock or other ownership interests, including, without limitation, payment of dividends, (ii) to its shareholders or affiliates of its shareholders in respect of principal or interest on Related Party Debt and (iii) of any management, consulting or similar fees to any affiliate of the Borrower or to any director or officer of an affiliate of the Borrower or to any person not dealing at arm’s length with the Borrower, in each case, in cash or other property except for payments payable solely in stock or other ownership interests.

 

(b)                                  Section 5.1(g) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“(g)  Limitation on Distributions :  Except as permitted pursuant to Section 2.1, make any Distribution unless (i) the projected and historical DSCR on a rolling four calendar quarter basis is equal to at least 1.40X, (ii) the DSR is fully funded, and (iii) all other covenants have been, and are, met;”

 

2



 

2.3                                Limitation on Indebtedness.

 

(a)                                  The following new definition of “Related Party Debt” is hereby added to Section 1 ( Definitions ) in the correct alphabetical order:

 

Related Party Debt ” means Indebtedness owing by (i) the Borrower to a shareholder of the Borrower or (ii) the Borrower to an affiliate of a shareholder of the Borrower.”

 

(b)                                  Section 5.1(h) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“(h)  Limitation on Indebtedness :  At any time, incur, assume or permit any Indebtedness in an amount in excess of three million Dollars ($ 3,000,000 ), provided that, for the purposes of this Section 5.1(h) “Indebtedness” shall not include the Loan and any Related Party Debt.”

 

(c)                                   For avoidance of doubt, accounts payable by the Borrower to a shareholder of the Borrower or an affiliate of a shareholder of the Borrower arising from the delivery of goods or the provision of trade services to the Borrower and payable within 180 days of the delivery of such goods or the provision of such trade services are not “Indebtedness” or “Related Party Debt” as defined in the Credit Agreement.

 

2.4                                Limitation on Capital Expenditures.  Section 5.1(i) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“(i)  Limitation on Capital Expenditures :  Following the Project Completion Date, incur, make or permit capital expenditures, (excluding expenditures, regardless of when incurred, related the Project Budget, including Change Orders and Project overruns), in an amount greater than one million ($ 1,000,000 ) per annum.

 

ARTICLE 3
WAIVERS

 

3.1                                Subject to the satisfaction of the conditions set forth in Section 4.1, the Lender hereby agrees to waive:

 

(a)                                  any breach, occurring prior to the date of this Fourth Amendment, by the Borrower of the following covenants:  (i) Section 5.1(h) ( Limitation on Indebtedness ), (ii) Section 5.1(g) ( Limitation on Distributions ), (iii) Section 5.1(i) ( Limitation on Capital Expenditures ), and (iv) Section 5.1(j) ( Limitation on Change Orders );

 

(b)                                  subject to the delivery of a Variation of Deed of Charge (Accounts) in form and substance satisfactory to the Lender, any failure by the Borrower to comply with any provision of the Deed of Charge (Accounts) prior to the date of this Fourth Amendment; and

 

(c)                                   the breach by the Borrower of its obligation pursuant to Section 6.13(a) of the Credit Agreement to deliver the unconsolidated, audited, financial statements of the

 

3



 

Borrower for its fiscal year ended December 31, 2013 and the consolidated, audited, financial statements for the Guarantor for its fiscal year ended December 31, 2013 not later than 120 days after the end of the Fiscal Year of the Borrower, provided that such waiver shall automatically terminate and be of no further force or effect if such financial statements are not received by the Lender by May 31, 2014.  Failure by the Borrower to deliver such financial statements by May 31, 2014 shall constitute an Event of Default under the Credit Agreement.

 

ARTICLE 4
CONDITIONS PRECEDENT

 

4.1                                The amendments and waivers set forth in this Fourth Amendment shall become effective and binding on the Lender only upon satisfaction of the following conditions precedent:

 

(a)                                  Receipt by the Lender of a fully executed copy of this Fourth Amendment;

 

(b)                                  No event shall have occurred, and the Lender shall not become aware of, any facts not previously disclosed to it which the Lender determines is reasonably likely to have a Material Adverse Effect; and

 

(c)                                   Payment by the Borrower to the Lender of an administrative amendment fee in the amount of $5,000.

 

ARTICLE 5
REPRESENTATIONS AND WARRANTIES

 

5.1                                The Borrower represents and warrants that the representations and warranties contained in Section 8 of the Credit Agreement continue to be true and correct as if made on and as of the date hereof.

 

ARTICLE 6
MISCELLANEOUS PROVISIONS

 

6.1                                Additional Covenant.  The Borrower hereby agrees that it shall promptly reimburse the Lender for all reasonable out-of-pocket expenses incurred by the Lender in the preparation of this Fourth Amendment and the Variation of Deed of Charge (Accounts), including all reasonable fees and disbursements of counsel to the Lender.

 

6.2                                Confirmation of Agreements.  The Borrower and the Guarantor acknowledge and confirm that, except as amended hereby, the Credit Agreement shall remain in full force and effect, without further amendment, and is hereby ratified and confirmed, and the Guarantor acknowledges and confirms that the Guarantee remains in full force and effect and is hereby ratified and confirmed.

 

6.3                                Governing Law.  This Fourth Amendment shall be construed and enforced in accordance with, the laws of the State of New York, United States of America.

 

6.4                                Limited Effect.  This Fourth Amendment relates only to the specific matters expressly covered herein, and except for the amendments and waivers under the Credit

 

4



 

Agreement expressly provided for herein, this Fourth Amendment shall not be considered to be a waiver or amendment of any other rights or remedies the Lender may have under the Credit Agreement, and shall not be considered to create a course of dealing or to otherwise obligate in any respect the Lender to execute similar or other amendments and waivers under the same or similar or other circumstances in the future.

 

6.5                                Counterparts.  This Fourth Amendment may be executed by the 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 facsimile or electronic communication shall be effective as delivery of a manually executed counterpart of this Fourth Amendment.

 

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

 

5



 

IN WITNESS WHEREOF the parties hereto have caused this Fourth Amendment to be duly executed as of the date set out above.

 

 

 

THE BANK OF NOVA SCOTIA, as Lender

 

 

 

 

 

 

 

 

 

By:

/s/ Luis Bautista

 

 

Name:

Luis P. Bautista

 

 

Title:

Sr. Manager - ICCB

 

 

 

 

 

 

 

 

 

 

By:

/s/ Mazie MacDonald

 

 

Name:

Mazie MacDonald

 

 

Title:

Vice President - ICCB

 

 

 

 

 

 

 

 

SEVEN SEAS WATER (TRINIDAD) UNLIMITED, as Borrower

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

 

 

Name: John F. Curtis

 

 

 

 

Title: Director

 

 

 

 

 

 

 

 

 

 

 

 

 

AQUA VENTURE HOLDINGS LLC, as Guarantor

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

 

 

Name: John F. Curtis

 

 

 

 

Title: President and Director

 

 

 

 

6


 

FIFTH AMENDMENT AGREEMENT

 

This Fifth Amendment to the Credit Agreement (the “ Fifth Amendment ”) is made on this 20 day of October, 2014.

 

BETWEEN:

 

The Bank of Nova Scotia (the “ Lender ”)

 

AND

 

Seven Seas Water (Trinidad) Unlimited (the “ Borrower ”)

 

AND

 

Aqua Venture Holdings LLC (the “ Guarantor ”)

 

WHEREAS

 

A)                                    The Borrower, the Guarantor and the Lender entered into a credit agreement dated as of April 9, 2012 (as amended from time to time, the “ Credit Agreement ”) whereby the Lender made available to the Borrower a credit facility of up to $30,000,000.

 

B)                                    Pursuant to Section 6.11 of the Credit Agreement, the Guarantor is required to maintain a Tangible Net Worth of not less than sixty-five million dollars ($65,000,000).  In connection with a recent merger involving the Guarantor, the Borrower has requested, and the Lender has agreed, that this Tangible Net Worth covenant be reduced to fifty million U.S. dollars ($50,000,000).

 

C)                                    Accordingly, the Borrower, the Guarantor and the Lender have now agreed to make the amendments to the Credit Agreement as set forth herein.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties to this Fifth Amendment that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

 

ARTICLE 1
DEFINITIONS AND INTERPRETATION

 

1.1                                Wherever used in this Fifth Amendment, unless the context shall otherwise require, terms defined in the Credit Agreement shall have the same meaning herein.

 

1.2                                In this Fifth Amendment, the singular includes the plural and vice versa, and references to any gender include any other gender.

 

1.3                                The clause headings and the titles of the paragraphs and sections of this Fifth Amendment are inserted for convenience only and shall be ignored in construing this Fifth Amendment.

 



 

1.4                                This Fifth Amendment is an amendment to the Credit Agreement.  Unless the context of this Fifth Amendment otherwise requires, the Credit Agreement and this Fifth Amendment shall be read together and shall have effect as if the provisions of the Credit Agreement and this Fifth Amendment were contained in one agreement.  The term “ Agreement ” or “ Credit Agreement ” when used in the Credit Agreement means the Credit Agreement as amended, supplemented or modified from time to time (including as amended by this Fifth Amendment).

 

ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT

 

2.1                                Guarantor’s Minimum Tangible Net Worth.  Section 6.11 of the Credit Agreement is hereby amended by replacing the phrase “sixty-five million Dollars ($65,000,000)” with the phrase “fifty million Dollars ($50,000,000)”.

 

ARTICLE 3
CONDITIONS PRECEDENT

 

3.1                                The amendment set forth in this Fifth Amendment shall become effective only upon satisfaction of the following conditions precedent:

 

(a)                                  Receipt by the Lender of a fully executed copy of this Fifth Amendment;

 

(b)                                  No event shall have occurred, and the Lender shall not become aware of, any facts not previously disclosed to it which the Lender determines is reasonably likely to have a Material Adverse Effect; and

 

(c)                                   Payment by the Borrower to the Lender of an administrative amendment fee in the amount of $5,000.

 

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

 

4.1                                The Borrower represents and warrants that the representations and warranties contained in Section 8 of the Credit Agreement continue to be true and correct as if made on and as of the date hereof.

 

ARTICLE 6
MISCELLANEOUS PROVISIONS

 

6.1                                Confirmation of Agreements.  The Borrower and the Guarantor acknowledge and confirm that, except as amended hereby, the Credit Agreement shall remain in full force and effect, without further amendment, and is hereby ratified and confirmed, and the Guarantor acknowledges and confirms that the Guarantee remains in full force and effect and is hereby ratified and confirmed.

 

6.2                                Governing Law.  This Fifth Amendment shall be construed and enforced in accordance with, the laws of the State of New York, United States of America.

 

2



 

6.3                                Limited Effect.  This Fifth Amendment relates only to the specific matters expressly covered herein, and except for the amendments and waivers under the Credit Agreement expressly provided for herein, this Fifth Amendment shall not be considered to be a waiver or amendment of any other rights or remedies the Lender may have under the Credit Agreement, and shall not be considered to create a course of dealing or to otherwise obligate in any respect the Lender to execute similar or other amendments and waivers under the same or similar or other circumstances in the future.

 

6.4                                Counterparts.  This Fifth Amendment may be executed by the 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 facsimile or electronic communication shall be effective as delivery of a manually executed counterpart of this Fifth Amendment.

 

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

 

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IN WITNESS WHEREOF the parties hereto have caused this Fifth Amendment to be duly executed as of the date set out above.

 

 

 

THE BANK OF NOVA SCOTIA, as Lender

 

 

 

 

 

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

 

Name:

Luis Pablo Bautista

 

 

Title:

Director, International Corporate and Commercial Banking

 

 

 

 

 

 

 

 

 

 

By:

/s/ Mazie MacDonald

 

 

Name:

Mazie MacDonald

 

 

Title:

Vice-President, International Corporate and Commercial Banking

 

 

 

 

 

 

 

 

SEVEN SEAS WATER (TRINIDAD) UNLIMITED, as Borrower

 

 

 

 

 

 

 

 

 

 

 

 

By:

s/ John F. Curtis

 

 

 

 

Name: John F. Curtis

 

 

 

 

Title: Director

 

 

 

 

 

 

 

 

 

 

 

 

 

AQUA VENTURE HOLDINGS LLC, as Guarantor

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

 

 

Name: John F. Curtis

 

 

 

 

Title: President and Director

 

 

 

 

4




Exhibit 10.10

 

EXECUTION VERSION

 

CREDIT AGREEMENT

 

DATED

 

March 27, 2013

 

BETWEEN

 

SEVEN SEAS

 

SEVEN SEAS WATER CORPORATION (USVI), AS BORROWER

 

AQUA VENTURE HOLDINGS LLC, AS GUARANTOR

 

 

AND

 

THE BANK OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT

 

THE BANK OF NOVA SCOTIA, AS LENDER

 

FIRSTBANK PUERTO RICO, AS LENDER

 



 

TABLE OF CONTENTS

 

 

Page

 

 

SECTION 1 DEFINITIONS

1

 

 

SECTION 2 LOAN PARTICULARS

13

 

 

SECTION 3 INTEREST RATE

16

 

 

SECTION 4 CONDITIONS PRECEDENT TO ANY ADVANCES

19

 

 

SECTION 5 NEGATIVE COVENANTS

21

 

 

SECTION 6 AFFIRMATIVE AND FINANCIAL COVENANTS

22

 

 

SECTION 7 CHANGE OF CIRCUMSTANCES

25

 

 

SECTION 8 BORROWER’S REPRESENTATIONS AND WARRANTIES

26

 

 

SECTION 9 DEFAULT

29

 

 

SECTION 10 EXPENSES

31

 

 

SECTION 11 THE ADMINISTRATIVE AGENT

31

 

 

SECTION 12 GENERAL

35

 

 

SECTION 13 APPLICABLE LAW AND JURISDICTION

41

 

i



 

CREDIT AGREEMENT

 

This Credit Agreement is made as of the 27th day of March , 2013.

 

BETWEEN:

 

THE BANK OF NOVA SCOTIA , a banking institution organized and existing under the laws of Canada having its executive offices and principal place of business located at 44 King Street West, Toronto, Ontario, Canada, in its capacity as Administrative Agent and Lender; and

 

FIRSTBANK PUERTO RICO , a commercial banking institution whose mailing address is P.O. Box 309600, St. Thomas, U.S. Virgin Islands 00803, in its capacity as Lender;

 

- AND-

 

SEVEN SEAS WATER CORPORATION (USVI) , a company incorporated and existing under the laws of the United States Virgin Islands, having its principal office located c/o Marjorie Rawls Roberts, PC, One Hibiscus Alley, 5093 Dronningens Gade, Ste. 1, St. Thomas, VI 00802, in its capacity as borrower, (hereinafter referred to as the “ Borrower ”); and

 

AQUA VENTURE HOLDINGS LLC , a Delaware limited liability company, with an executive office located at 14400 Carlson Circle, Tampa, Florida 33626, in its capacity as Guarantor.

 

WHEREAS

 

A)                                    The Lenders have agreed to make available to the Borrower funds pursuant to this non-revolving term loan allowing a maximum aggregate value of Advances from the Lenders totalling TWENTY-FIVE MILLION DOLLARS ($25,000,000) (the “ Loan ”), in consideration of the various representations, warranties, covenants, and other undertakings hereinafter set forth, made or agreed by the Borrower; and

 

B)                                    The Borrower has agreed to use the funds to be advanced pursuant to this Agreement upon and subject to the terms and conditions of this Agreement.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties as follows:

 

SECTION 1

 

DEFINITIONS

 

In this Agreement, unless otherwise defined herein, the following terms shall have the following meanings:

 

1.1                                Acquisition ” means any transaction, or any series of related transactions, consummated after the Effective Date, by which the Borrower acquires at least a twenty per cent

 



 

( 20% ) ownership interest in another Person, whether through (a) a purchase of stock or other ownership interest, (b) a merger or (c) otherwise.

 

1.2                                Administrative Agent ” means The Bank of Nova Scotia and its successors and assigns.

 

1.3                                Administration Agent Fee ” means the annual fee payable to the Administrative Agent pursuant to the Fee Letter.

 

1.4                                Advance ” means a cash advance made or to be made by the Lenders hereunder as further evidenced by the signature of an authorized officer of the Lenders on Schedule I to the relevant Promissory Note, substantially in the form of Appendix IV.

 

1.5                                Affiliate ” means, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with, the Person specified.

 

1.6                                Agreement ” means this Credit Agreement, including Appendices I, II, III, IV, V VI and VII, as amended, restated or modified from time to time.

 

1.7                                Alternative Rate ” shall mean for any day, the sum of (x) the relevant Margin and (y) the rate of interest per annum in effect for such day as publicly announced from time to time by the Wall Street Journal as the “prime rate” for United States Dollar loans in the United States less (z) 1.00% per annum.

 

1.8                                Applicable Accounting Principles ” means accounting principles under which the Borrower’s audited financial statements are prepared, which shall be US GAAP, unless the Borrower notifies the Administrative Agent in writing that its audited financial statements will be prepared according to the IFRS.

 

1.9                                Assignment of Water Agreements ” has meaning set forth in Section 2.3(h).

 

1.10                         Board ” has the meaning set forth in Section 8.16.

 

1.11                         Borrowing Notice ” means a notice, substantially in the form set out in Appendix I hereto, by which the Borrower requests an Advance.

 

1.12                         Business Day ” means (a) for the purpose of establishing the relevant LIBOR or Payment Date, a day on which banks are not required to close in London, United Kingdom, New York, New York, United States of America and Toronto, Ontario, Canada and (b) for the purpose of establishing the day a transfer of funds is to be made, a day on which commercial banks are open in New York, New York, United States of America, Toronto, Ontario, Canada and the USVI.

 

1.13                         Capital Lease Obligations ” means obligations of any Person under any leasing or similar arrangement which, in accordance with Applicable Accounting Principles, would be classified as capitalized leases.

 

2



 

1.14                         Change in Control ” means, with respect to the Borrower, any event that results in the Shareholder no longer (a) owning or Controlling, directly or indirectly, more than fifty per cent ( 50% ) of the Voting Stock of the Borrower or (b) maintaining or exercising, directly or indirectly, the authority to direct or cause the direction of the management and policies of the Borrower (including, without limitation, the election of a majority of directors on the board of directors of the Borrower or persons performing similar duties).

 

1.15                         Change in Law ” means (a) the introduction, enactment, adoption or phase-in of any law, rule, directive, guideline, decision or regulation (or any provision thereof) by any Governmental Authority after the Effective Date; (b) any change in any law, rule, directive, guideline, decision or regulation (or any provision thereof) or in the interpretation or re-interpretation or application thereof by any Governmental Authority after the Effective Date; or (c) compliance by any Lender with any request, guideline, decision or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Effective Date.  For the avoidance of doubt, “Change in Law” shall apply to all requests, rules, guidelines or directives concerning capital adequacy issued in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives concerning capital adequacy promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III with effect on or after the Effective Date (regardless of the date adopted, issued, promulgated, or implemented).

 

1.16                         Change Orders ” means changes to the specifications or scope of the Project made after the Effective Date that increase the Project Budget.

 

1.17                         Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations thereunder, as from time to time in effect.

 

1.18                         [ Reserved ].

 

1.19                         Commitment Fee ” means the fee equal to one and three-tenths of one per cent (1.30%) per annum, calculated on the undrawn balance of the Loan, which shall begin to accrue on the Effective Date, shall be payable on each Payment Date; and shall cease to accrue on the earlier of (i) the Final Drawdown Date, and (ii) the date the undrawn balance of the Loan is cancelled.  It shall be calculated on the basis of a three hundred and sixty ( 360 ) day year and the actual number of days outstanding.

 

1.20                         Confidential Information ” has the meaning set forth in Section 12.7.

 

1.21                         Confidential Information Holder ” has the meaning set forth in Section 12.7.

 

1.22                         Contractor ” means any company that contracts with the Borrower to provide goods and /or services listed in the Project Budget.

 

1.23                         Control ” (including the terms “Controlling”, “Controlled by” and “under common Control with”) of a Person means the possession, direct or indirect, of the power to vote more than fifty percent ( 50% ) of the Voting Stock of such Person or to direct or cause the

 

3



 

direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise.

 

1.24                         Debt Service ” means for any period, the sum of the following: (a) all payments of principal of Financial Debt scheduled to be made during such period (exclusive of the remaining Loan Amount due on the Maturity Date); plus (b) all Interest Expense in respect of Financial Debt for such period.

 

1.25                         Debt Service Coverage Ratio ” or “ DSCR ” for each applicable measurement period, shall be the ratio of (a) the Borrower’s EBITDA during such period less maintenance capital expenditures, to (b) Debt Service during such period, in each case, as determined by the Borrower’s most recently available financial statements.

 

1.26                         Debt Service Reserve ” or “ DSR ” means a balance from time to time held in an account established by the Borrower at the Administrative Agent’s main branch in Toronto, Ontario, Canada in an amount equal to or greater than the next three (3) months of Debt Service, at all times subject to the provisions of Section 6.14.

 

1.27                         Default Margin ” has the meaning set forth in Section 3.3.

 

1.28                         Distributions ” means payments by the Borrower to its shareholders in respect of capital stock or any other ownership interest, including interest or principal on shareholder’s loans, dividends or withdrawal of capital, in cash or other property except for payments payable solely in stock or other ownership interests.

 

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

 

1.30                         Drawdown Date ” means the disbursement date for an Advance.

 

1.31                         DSR Drawing ” has the meaning set forth in Section 6.14.

 

1.32                         EBITDA ” means, for any period, the earnings of the Borrower, as set forth in the financial statements (audited or unaudited) of the Borrower available for the most recently ended accounting period (prepared in accordance with Applicable Accounting Principles), plus, (a) the sum of the following to the extent deducted in the calculation of earnings (i) interest, (ii) taxes, (iii) depreciation and amortization expense,(iv) non-cash stock based compensation expenses, (v) other non-recurring expenses of the Borrower reducing such earnings, which do not represent a cash item in such period or any future period, including without limitation non-cash expenses related to any asset sale permitted under this Agreement, (vi) extraordinary losses determined in accordance with GAAP and minus to the extent included in calculating such earnings, (b) all non-cash items increasing earnings for such period and extraordinary gains determined in accordance with GAAP.

 

1.33                         Effective Date ” means the date of execution of this Agreement.

 

4



 

1.34                         Electronic Communication Agreement ” means the agreement in the form attached as Appendix III hereto by which the Borrower as client therein requests and authorizes the Administrative Agent as bank therein to receive instructions and information from time to time by way of facsimile transmission equipment and/or electronic/computer mail.

 

1.35                         Environmental Laws ” means any and all Legal Requirements in the USVI, now or hereafter in effect, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health or safety, or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes.

 

1.36                         Environmental Questionnaire ” means the Administrative Agent’s questionnaire pursuant to environmental risks of the Project substantially in the form of Appendix II.

 

1.37                         ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulations promulgated thereunder.

 

1.38                         ERISA Affiliate ” means any trade or business (whether or not incorporated) which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

 

1.39                         ERISA Event ” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan, for which notice is not waived; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 430(k) of the Code; (c) with respect to any Plan, the failure to meet the minimum funding standard (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived (unless such failure is corrected by the final due date for the plan year for which such failure occurred); (d) the filing pursuant to Section 412(c) of the Code or Section 303(e) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence by the Borrower of any liability under Title IV of ERISA with respect to the termination of any Plan or Multiemployer Plan; (f) the receipt by the Borrower or any ERISA Affiliate from the PBGC of any notice relating to the intention to terminate any Plan or to appoint a trustee to administer any Plan; (g) the receipt by the Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; and (h) the occurrence of a nonexempt “prohibited transaction” with respect to which the Borrower or any of its Subsidiaries is a “disqualified person” (within the meaning of Section 4975 of the Code) or with respect to which the Borrower or any such Subsidiary could reasonably be expected to incur a material liability.

 

1.40                         Event of Default ” means any one or more of the events or circumstances specified in Section 9.1 hereof.

 

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1.41                         Event of Loss ” means with respect to any property of the Borrower relating to the Project, any loss of, destruction of or damage to, condemnation or taking of, such property.

 

1.42                         Fee Letter ” means the fee letter dated December 4,  2012 between the Administrative Agent and the Borrower.

 

1.43                         Fees ” means the Commitment Fee, the Up-Front Fee, fees referenced in the Fee Letter and, where applicable, the Prepayment Fee.

 

1.44                         Final Drawdown Date ” means the last date upon which Advances may be provided to the Borrower, which shall be August 31, 2013 .

 

1.45                         Financial Debt ” means the sum of short- and long-term debt of the Borrower with financial institutions and evidenced by debt instruments, including, among other things, Capital Lease Obligations, overdrafts, bank loans, bonds, commercial paper and any other interest-bearing debt instruments.

 

1.46                         Financial Documents ” shall include, but are not limited to, this Credit Agreement, the Promissory Notes, the Guarantee, the other Security Documents and any documents delivered to the Administrative Agent or any Lender by or on behalf of the Borrower or the Guarantor in connection with any of the foregoing.

 

1.47                         Fiscal Quarter ” means any quarter of a Fiscal Year.

 

1.48                         Fiscal Year ” means, with respect to the Borrower, any annual fiscal reporting period of the Borrower.

 

1.49                         Fixed Rate Base ” means the Lender’s cost of funds in the swap market for fixed interest rate funding, matching the amount and repayment schedule of the Loan, plus 0.25% per annum.

 

1.50                         Fixed Interest Rate ” means the Fixed Rate Base plus the Margin.

 

1.51                         Fixed Interest Rate Notice Date ” has the meaning set forth in Section 3.1 (a).

 

1.52                         Floating Interest Rate ” means LIBOR plus the Margin.

 

1.53                         GAAP ” or “ US GAAP ” means generally accepted accounting principles in the United States of America.

 

1.54                         Governmental Authority ” means any federal, provincial, local, foreign or other governmental department, agency, commission, board, bureau, court, tribunal, instrumentality, political subdivision, or other entity exercising executive, legislative, judicial, regulatory or administrative functions for or pertaining to any government or court, in each case whether associated with Canada or the United State of America, any state, a province or territory thereof, or any foreign entity or government.

 

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1.55                         Guarantee ” means the irrevocable, unconditional guarantee executed by the Guarantor in favor of the Administrative Agent, on behalf of the Lenders, for the Loan Amount in the form set out in Appendix V hereto.

 

1.56                         Guarantor ” means AquaVenture Holdings LLC, a Delaware limited liability company formed on December 11, 2006.

 

1.57                         Harley Contract ” has the meaning set forth in Section 1.119.

 

1.58                         Harley Plant ” has the meaning set forth in Section 1.91.

 

1.59                         Hedging Instruments ” means options, caps, floors, collars, swaps, forwards, futures and any other agreements, options or instruments substantially similar thereto or any series or combination thereof used to hedge interest, foreign currency and commodity exposures.

 

1.60                         Hold Back ” means the amount of up to two million Dollars ( $2,000,000 ) of the Loan Amount which shall be held back from disbursement by the Lenders to the Borrower as an Advance until the later of the Commercial Operations Date, as defined (i) in Section 3.4 of the Water Purchase Agreement dated May 12, 2011 for the Harley Plant and (ii) in Section 3.3 of the Water Purchase Agreement dated April 5, 2012 for the Richmond Plant; and in both cases provided all costs for the Project have been paid or will be paid with the final disbursement.

 

1.61                         IE Certificate ” means a certificate signed by the IE confirming: (i) the status and progress of the Project construction; (ii) to the best of IE’s knowledge, no circumstances exist that would, or would reasonably expect to (A) delay Project completion or (B) cause the Project Costs to exceed the Project Budget; (iii) to the best of IE’s knowledge and using its professional judgment, the invoices attached to the Borrowing Notice are pursuant to the contracts that form part of the Project Budget and the work/goods have been inspected by the IE and considered acceptable and, (iv) work completed as of the date of the IE Certificate is in accordance with the WPA.

 

1.62                         IFRS ” means International Financial Reporting Standards which are principal-based accounting standards and interpretations.

 

1.63                         Independent Engineer ” or “ IE ” means an independent engineer appointed by the Borrower and approved by the Lender, with all costs payable by the Borrower.

 

1.64                         Independent Engineer Report ” or “ IE Report ” means the report prepared by the IE certifying to the best of the IE’s knowledge that, based upon, but not limited to, plans, specifications, choice of equipment, drawings and technical reports:  (i) the equipment and construction plans for the Project will meet the technical requirements specified in the WPA and perform as required by the WPA; (ii) the construction budget for the Project is reasonable and the combination of debt and equity will be sufficient to complete the Project; and, (iii) there is no reason to believe that the Project would not be completed on time for a cost within the Project Budget.

 

1.65                         Indebtedness ” means, for any Person without duplication: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance

 

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and sale of debt securities or the sale of property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (and not for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within one hundred and eighty ( 180 ) days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (e) Capital Lease Obligations of such Person; (f) Indebtedness of others guaranteed by such Person; (g) obligations of such Person in respect of surety bonds and similar obligations; and (h) Hedging Instruments.

 

1.66                         Insurance Policies ” means (i) a builder’s all-risk policy (including hurricane and earthquake risk) insuring the Project until the Project Completion Date; and (ii) an all-risk insurance policy (including hurricane, earthquake risk and business interruption) covering the Project after the Project Completion Date, issued by an insurer acceptable to the Administrative Agent.

 

1.67                         Interest Expense ” means, for any period, the aggregate amount of interest paid or required to be paid in cash by the Borrower in respect of Financial Debt during such period and in all cases excludes capitalized interest.

 

1.68                         Interest Period ” means with respect to any Advance, (i) the period commencing on the relevant Drawdown Date listed on the first column of Schedule 1 of the Promissory Note with respect to such Advance and extending up to, but not including, the next Payment Date; and (ii) thereafter the period commencing on each Payment Date and extending up to, but not including, the next Payment Date.

 

1.69                         Legal Requirements ” means, with respect to any Person or its property, shall mean all laws, statutes, codes, acts, ordinances, permits, licenses, authorizations, directions and requirements of all governmental departments, commissions, boards, courts, authorities and agencies, and any material deed restrictions or other requirements or record, applicable to such Person or such property, or any portion thereof or interest therein or any use or condition of such property or any portion thereof or interest therein (including those relating to zoning, planning, subdivision, building, safety, health, use, environmental quality and other similar matters).

 

1.70                         Lenders ” shall mean, collectively, The Bank of Nova Scotia and FirstBank Puerto Rico, and their respective successors and assigns, in whole or in part.

 

1.71                         Lender’s Commitment Percentage ” means, for each Lender, the percentage listed by such Lender’s name on Appendix VII.

 

1.72                         LIBOR ” means, in relation to each Advance or any unpaid sum for an Interest Period:

 

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(a)                                  The Bankers Association London Interbank Offer Rate as reported by Thomson Reuters per annum appearing on Bloomberg BBAM1 Page or any equivalent successor to that page (as determined by the Lender) (the “ Thomson Reuters BBA LIBOR Screen ”) at or about 11:00 a.m. (London Time) on the second Business Day preceding the first date of such Interest Period (the “ Rate Fixing Day ”) for the offering of deposits in Dollars for a period comparable to the Interest Period; or

 

(b)                                  If no relevant rate appears on the Thomson Reuters BBA LIBOR Screen for the purposes of paragraph (a) above or the Lender determines that no rate for a period of comparable duration to the relevant Interest Period appears on the Thomson Reuters BBA LIBOR Screen at the relevant time, the rate per annum appearing on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for three month deposits of United States Dollars at or about 11:00 a.m. (London time) on the second Business Day preceding the first date of such Interest Period; or

 

(c)                                   If it is not possible to determine LIBOR in the way referenced in the preceding subsections (a) and (b) for any such Interest Period, then LIBOR will mean the rate per annum determined by the Lender to be the arithmetic mean (rounded upward if necessary to the nearest one sixteenth (l/16th) of one percent (1.0%)) of the rates as supplied to the Lender, at its request, quoted by the Reference Banks as such Reference Banks’ rate at which deposits in an amount approximately equal to the amount in relation to which LIBOR is to be determined and for a period equivalent to the period for which LIBOR is to be determined are offered to prime banks in the London Interbank Market at or about 11:00 a.m. (London Time) on the date falling two (2) Business Days before the commencement of such Interest Period.

 

For the purpose of this definition, “ Bloomberg BBAM1 Page ” means the display so designated on the Reuters Screen or such other page as may replace that page on that service.

 

1.73                         Lien ” means any security interest, mortgage, pledge, hypothecation, assignment, deposit, arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever.

 

1.74                         Loan Amount ” means the aggregate amount of the principal, interest, expenses, Fees, and any other charges due and owing under this Agreement by the Borrower at any particular time.

 

1.75                         Make-Whole Amount ” has the meaning set forth in Section 3.2.

 

1.76                         Margin ” means three and one-quarter per cent ( 3.25% ) per annum.

 

1.77                         Margin Stock ” means that term as defined in Regulation U of the Regulations of the Board.

 

1.78                         Material Adverse Effect ” means a material adverse change in or material adverse effect on (a) the rights and remedies of the Lender under this Agreement or any of the other Financial Documents, (b) the Project or the ability of the Borrower to perform its material

 

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obligations under any material agreement relating directly to the Project, or, (c) the business, financial condition or operations of the Borrower and the Guarantor, taken as a whole.

 

1.79                         Maturity Date ” means the final Payment Date which shall occur no later March 15 th , 2018.

 

1.80                         MGD ” means one million United States gallons per day.

 

1.81                         Multiemployer Plan ” means a “multiemployer plan” subject to the provisions of Title IV of ERISA and as defined in Section 4001(a)(3) of ERISA as to which the Borrower or any ERISA Affiliate is an “employer” as defined in Section 3(5) of ERISA.

 

1.82                         Obligations ” means all Indebtedness (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) at any time owing by Borrower to a Lender under this Agreement and/or any of the other Financial Documents of every kind and description, whether or not for the payment of money, whether direct or indirect, primary or secondary, due or becoming due, now existing or hereafter arising and all amounts required to be paid by Borrower to Lender hereunder.

 

1.83                         Payment Date ” means the 15 th  day of each month.

 

1.84                         PBGC ” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

 

1.85                         Permitted Liens ” means (i) any Liens granted to the Lender; (ii) Liens imposed by any Governmental Authority for taxes, assessments or charges not yet due or that are being contested in good faith by appropriate proceedings; (iii) Liens imposed by applicable law, such as carriers’, warehousemen’s, mechanics’, material men’s, repairmen’s or other like Liens arising in the ordinary course of business that are not overdue for a period of more than ninety (90) days or that are being contested in good faith by appropriate proceedings; (iv) Liens consisting of zoning restrictions, licenses restrictions and similar encumbrances on the use of property which do not interfere with the ordinary conduct of the Borrower’s business; (v) Liens granted to secure the purchase price of property acquired and any renewal or extension of such Lien which is limited to the original property covered thereby and which secures any renewal or extension of the original secured financing; (vi) Liens consisting of easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purpose; (vii) Liens securing capitalized leases permitted under Section 5.1(i), and (viii) any other Liens securing Indebtedness permitted under Section 5.1(i).

 

1.86                         Person ” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

 

1.87                         Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code, and in respect of which Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under

 

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Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA or Section 414 of the Code.

 

1.88                         Prepayment Amount ” has the meaning set forth in Section 3.2.

 

1.89                         Prepayment Date ” has the meaning set forth in Section 3.2.

 

1.90                         Prepayment Fee ” means a fee payable by the Borrower to the Lenders in an amount equal to one percent ( 1.0% ) of the principal of the Loan prepaid.

 

1.91                         Project ” means the construction of two sea water reverse osmosis desalination plants with a minimum capacity of 3.3 MGD each, at the Randolph Harley Power Generation Plant on St. Thomas, USVI (the “ Harley Plant ”) and at the Richmond Power Generation Plant on St. Croix, USVI (the “ Richmond Plant ”); plus a 0.55 MGD Ultra Pure Water facility at the Harley Plant and a 0.25 MGD Ultra Pure Water facility at the Richmond Plant.

 

1.92                         Project Budget ” means the document detailing the construction schedule and Project Costs, as amended or modified from time to time as contemplated by Section 5.1 (j) and attached hereto as Appendix VI.

 

1.93                         Project Completion Certificate ” means a certificate prepared by the IE certifying the Project Completion Date for each of the Harley Plant and the Richmond Plant.

 

1.94                         Project Completion Date ” means, the Commercial Operations Date as defined in Section 3.3 of the Richmond Contract and in Section 3.4 of the Harley Contract, as applicable.

 

1.95                         Project Costs ” means all costs related to: (a) the design, engineering, development, construction, installation and commissioning of the Project; (b) interest and the Commitment Fee during the construction; and (c) DSR, the Fees, legal fees and IE fees pursuant to this Agreement.

 

1.96                         Project Documents ” shall include, but are not limited to, all contracts for construction, equipment and materials pursuant to the Project; the Water Purchase Agreements and the leases dated (a) May 12, 2011, by and between WAPA and the Borrower with respect to the Harley Plant and (b) April 5, 2012 by and between WAPA and the Borrower, with respect to the Richmond Plant.

 

1.97                         Promissory Notes ” means the promissory notes, which shall be executed by the Borrower in favor of the Lenders, in the form attached hereto as Appendix IV.

 

1.98                         Reference Banks ” means any four (4) of Bank of America, Citibank N.A., Credit Suisse, Deutsche Bank AG, HSBC, JP Morgan Chase Bank, UBS AG and Barclays Bank.

 

1.99                         Regulation U ” means Regulation U of the Board from time to time in effect and all official rulings and interpretations thereunder or thereof.

 

1.100                  Required Lenders ” means as of any date, the Lender or Lenders holding in the aggregate at least a majority of the outstanding principal of the Loan Amount on such date.

 

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1.101                  Revenue Account ” means the current account, established by the Borrower, with The Bank of Nova Scotia, Altona & Welgunst Branch, Charlotte Amalie, St. Thomas into which all revenues pursuant to the Water Purchase Agreements shall be sent directly from WAPA by wire transfer.

 

1.102                  Richmond Contract ” has the meaning set forth in Section 1.119.

 

1.103                  Richmond Plant ” has the meaning set forth in Section 1.91.

 

1.104                  Sanctionable Practice ” means any action prohibited under foreign corrupt practices laws in the United States of America or the USVI including, but not limited to: (i) any offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party; (ii) kickbacks and bribery; (iii) any action or omission, including misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation; or (iv) impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party.

 

1.105                  Security Documents ” has the meaning set forth in Section 2.3.

 

1.106                  Seven Seas Group ” means AquaVenture Holdings LLC and its operating Subsidiaries in existence from time to time (unless otherwise specifically stated).

 

1.107                  Shareholder ” means Aqua Venture Capital Limited (BVI), a company incorporated under the laws of the British Virgin Islands.

 

1.108                  Subsidiary ” means, with respect to any Person, any corporation or other legal entity of which more than fifty per cent (50%) of the outstanding capital stock or other equity interests having ordinary voting power to elect a majority of the board of directors or other applicable governing body of such corporation or entity (irrespective of whether at the time capital stock or other equity interests of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person.

 

1.109                  SWAP ” has the meaning set forth in Section 3.2.

 

1.110                  SWAP Interest Period ” has the meaning set forth in Section 3.2(a).

 

1.111                  Tangible Net Worth ” or “ TNW ” means the sum of share capital, earned and contributed surplus and postponed funds, less (i) amounts due from officers/Affiliates (ii) investments in Affiliates and (iii) intangible assets.

 

1.112                  Taxes ” means all present and future taxes, levies, imposts, duties, charges, fees, deductions and withholdings imposed or levied by any governmental, fiscal or other competent authority in the USVI.

 

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1.113                  Ultra Pure Water ” shall have the meaning attributable to such term in the Harley Contract and Richmond Contract, respectively.

 

1.114                  Uniform Commercial Code ” means the Uniform Commercial Code of the State of New York in effect from time to time.

 

1.115                  USVI ” means United States Virgin Islands.

 

1.116                  Up-Front Fee ” means the fee equal to one per cent ( 1.00% ) of the Loan (two hundred and fifty thousand Dollars ( $250,000 )) payable to the Administrative Agent on behalf of the pro rata share of the Loan by each Lender.  For avoidance of doubt, the Dollar value of the Up-Front Fee shall not be reduced or refunded in the event the Loan is reduced or cancelled.

 

1.117                  Voting Stock ” means shares of capital stock of any Person or any class or classes (however designated) that have by the terms thereof normal voting power to elect the members of the board of directors of such Person (other than voting power upon the occurrence of a stated contingency such as the failure to pay the dividends).

 

1.118                  WAPA ” means the Virgin Islands Water and Power Authority and its successors.

 

1.119                  Water Purchase Agreement ” or “ WPA ” means water purchase agreements with WAPA dated May 12, 2011 (the “ Harley Contract ”) and April 5, 2012 (the “ Richmond Contract ”) respectively, and all amendments thereto.

 

1.120                  Welfare Plan ” means any employee welfare benefit plan, as such term is defined in Section 3(1) of ERISA, sponsored by, or contributed to, by Borrower.

 

SECTION 2

 

LOAN PARTICULARS

 

2.1                                Purpose of the Loan .  The Loan shall be used to finance up to seventy-five per cent ( 75% ) of the Project Costs.  Proceeds of the Loan shall be disbursed by the Administrative Agent on behalf of the Lenders to pay invoices pursuant to Project Costs, or to the extent the Shareholder has paid more than twenty-five per cent ( 25% ) of Project Costs, to the Borrower to reimburse the Shareholder, subject to the Hold Back.

 

2.2                                Availability of Advances .

 

(a)                                  The Loan shall be available to the Borrower by way of Advances;

 

(b)                                  Each Advance shall be made in Dollars;

 

(c)                                   Advances shall be non-revolving;

 

(d)                                  Notice of each requested Advance shall be given as per Section 2.4; and

 

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(e)                                   Any number of Advances may be requested by the Borrower, subject to the terms and conditions of this Agreement up until the Final Drawdown Date.

 

2.3                                Security .  The Loan shall be secured by (each of the following, a “ Security Document ” and collectively, the “ Security Documents ”):

 

(a)                                  The Guarantee;

 

(b)                                  A pledge of 100% of the Shareholder’s equity interests in the Borrower;

 

(c)                                   A first priority security in all of the Borrower’s personal property assets, including, but not limited to, all bank accounts, and proceeds from insurance claims, but excluding land leases with WAPA;

 

(d)                                  A first priority mortgage on the land known as 61 A, 61AA Estate Southgate, East End Quarter A Christiansted, St. Croix, U.S. Virgin Islands;

 

(e)                                   An assignment of funds on deposit in the DSR;

 

(f)                                    An assignment of funds on deposit in the Revenue Account and all other bank accounts in the Borrower’s name;

 

(g)                                   Insurance claim proceeds paid to the Administrative Agent in its capacity as lender loss payee under the Insurance Policies; and

 

(h)                                  The collateral assignment of present and future cash-flows from the Water Purchase Agreements under the Assignment of Water Agreements, dated as of even date herewith and executed by Borrower as assignor and the Administrative Agent as assignee (the “ Assignment of Water Agreements ”).

 

2.4                                Borrowing Notice .

 

(a)                                  Whenever the Borrower wishes to obtain an Advance, the Borrower shall send to the Administrative Agent a duly completed and executed Borrowing Notice.

 

(b)                                  Once a Borrowing Notice has been received by the Administrative Agent, such instructions shall be irrevocable.

 

(c)                                   If the applicable conditions precedent set forth in Section 4 of this Agreement are satisfied, the Administrative Agent, on behalf of the Lenders, shall provide the Advance no later than three (3) Business Days following receipt of the Borrowing Notice.

 

2.5                                Repayment of Loan Amount .

 

(a)                                  The Borrower shall repay the Loan Amount as per this Section 2.5;

 

(b)                                  The Loan principal shall be repaid, in 24 monthly instalments of US$300,000 commencing January 15, 2014 followed by 26 monthly instalments of US$375,000 and the balance of the Loan Amount ( US$8,050,000 ) on the Maturity Date.

 

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(c)                                   Such repayment shall be made by the Borrower to the Administrative Agent on behalf of the Lenders without set-off or counterclaim in immediately available funds not later than 1:00 p.m. (Eastern time) at the Administrative Agent’s designated account located at: The Bank of Nova Scotia New York Agency, 1 Liberty Plaza, Floors 22-26, New York, NY, USA 10016; Fed Funds ABA#02600253-2 ; Reference: For credit to: GWS Loan Agency Operations, Toronto, Ontario Account #6027-36, Attention: Director, Agency; Re: Seven Seas Water Corporation (USVI);

 

(d)                                  The Dollar is the currency of account and payment for each and every sum at any time due from the Borrower hereunder;

 

(e)                                   Interest on the Advances shall be payable as per Section 3; and

 

(f)                                    All Fees, legal fees and the other expenses shall be payable by the Borrower upon receipt of an invoice from the Administrative Agent pursuant to the terms and conditions of this Agreement.

 

2.6                                Voluntary Prepayment of Loan .

 

(a)                                  The Borrower shall have the right, after the Final Drawdown Date, on giving not less than thirty ( 30 ) days’ prior written notice to the Administrative Agent, which notice shall be irrevocable, to prepay all or a part of the principal of the Loan Amount, provided that:

 

(i)                                      Prepayment shall only occur on a Payment Date;

 

(ii)                                   The Borrower shall pay all break funding costs, if any, in full;

 

(iii)                                In the case of partial prepayments, such prepayments shall be in multiples of one million Dollars ( $1,000,000 ) provided that the initial prepayment shall be not less than five million Dollars ( $5,000,000 );

 

(iv)                               The Borrower shall, (for any prepayment made prior to three ( 3 ) years after the Effective Date), pay the Prepayment Fee; and

 

(v)                                  Prepayments shall be applied against installments in the inverse order of their maturities.

 

2.7                                Mandatory Prepayment of Loan/Insurance Proceeds .  The Borrower shall make mandatory prepayment of the Loan, plus the Make Whole Amount and all break funding costs (if any) incurred by the Lenders in connection with such prepayment, but without Prepayment Fee as follows: (a) in an amount equal to termination payments received by Borrower under the Water Purchase Agreements; or (b) in an amount equal to the net proceeds of any asset sales if such net proceeds exceed in the aggregate $100,000 per year, provided that no mandatory prepayment shall be required if such amounts are reinvested in the Project; or (c) in an amount equal to any expropriation proceeds received by Borrower.  In addition to the foregoing, on any date on or after the Effective Date upon which the Administrative Agent receives any insurance proceeds from the Insurance Policies in connection with an Event of Loss, an amount equal to

 

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100% of the amount of such insurance proceeds shall, upon receipt of notice to such effect from the Administrative Agent, be applied as a mandatory repayment of the Loan (together with a payment of all Make Whole Amounts and all break funding costs (if any) incurred by the Lenders in connection with such prepayment); provided , however , that if (x) the amount of insurance proceeds received by the Administrative Agent in respect of any such Event of Loss does not exceed five million Dollars ($5,000,000); (y) the Project is, and is reasonably expected to remain, in the reasonable opinion of the Administrative Agent, operational following the Event of Loss and during the occurrence of any repairs, and (z) the Project will, in the reasonable opinion of the Administrative Agent, be fully repaired within six (6) months following the date of such Event of Loss, such amounts shall not be required to be so applied on such date so long as:

 

(A)                                no Default or Event of Default then exists;

 

(B)                                such insurance proceeds are used to replace or restore any property in respect of which such insurance proceeds were paid within 180 days following the date of the receipt by the Administrative Agent of such insurance proceeds; and

 

(C)                                the Borrower has delivered a certificate to the Administrative Agent on or prior to such date stating that such insurance proceeds amounts shall be used and committed to replace or restore such property within such periods (which certificate shall set forth the estimates of the insurance proceed amounts to be so expended),

 

and the Administrative Agent shall in such case hold all insurance proceeds and reimburse the Borrower from time to time for such replacement or restoration of the affected property upon receipt by the Administrative Agent of satisfactory documentation, including invoices, of the Borrower’s expenditures in connection with such replacement or restoration.

 

If all or any portion of such insurance proceed amounts are not required to be so applied pursuant to the preceding proviso or are not so used within the timeframe specified in this section (or such earlier date, if any, as the Borrower determines not to reinvest the insurance proceeds relating to such Event of Loss as set forth above), such remaining portion shall be applied on the last day of such period (or such earlier date, as the case may be) as provided above in this section without regard to the immediately preceding proviso.

 

SECTION 3

 

INTEREST RATE

 

3.1                                Interest Rate .

 

(a)                                  No later than five ( 5 ) Business Days after the Final Drawdown Date, the Borrower shall notify the Administrative Agent and arrange to fix the interest rate for 100% of The Bank of Nova Scotia’s (in its capacity as a Lender) pro rata share of the Loan.  At the Borrower’s option and subject to the approval of the Lenders, the Borrower may also request other Lenders to fix the interest rate on their respective 100% pro rata share of the Loan.  As soon as practical thereafter, The Bank of Nova Scotia and, where applicable other Lenders, shall convert the interest rate on their pro rata share of the Loan to the Fixed Interest Rate and shall

 

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notify the Borrower as to the date the fixed rate is established (the “ Fixed Interest Rate Notice Date ”).

 

(b)                                  The Borrower shall pay interest on all Advances on each successive Payment Date from their respective Drawdown Dates until, but not including, the first Payment Date following the Fixed Interest Rate Notice Date, at the applicable Floating Interest Rate.

 

(c)                                   Commencing the first Payment Date following the Fixed Interest Rate Notice Date and continuing until the Maturity Date, the Borrower shall pay interest on the outstanding Loan balance for the next Interest Period at the Floating Interest Rate or Fixed Interest Rate applicable to each Lender.

 

(d)                                  All calculations in respect of interest shall be made on the basis of a three hundred and sixty (360) day year and the actual number of days outstanding.

 

3.2                                Fixed Interest Rate Make Whole Provision .  Upon (i) the prepayment of all or part of the Loan after the Fixed Interest Rate Notice Date by the Borrower under Section 2.6 and/or 2.7, or (ii) the Lender accelerating the Loan after the Fixed Interest Rate Notice Date, as set out in Section 9.2 hereof, the Borrower shall, in addition to any other amount then payable by the Borrower pursuant to the terms hereof, in respect of the amount to be prepaid (the “ Prepayment Amount ”), pay to the Lender, in Dollars, an amount (such amount, the “ Make-Whole Amount ”) equal to the one-time payment, if any, that the Lender would be required to pay, if the Lender were to enter into a notional fixed-to-floating interest rate swap (the “ Swap ”) with an acceptable investment grade financial institution counterpart, having the terms set out below.

 

The Make-Whole Amount shall be determined by the Lender in good faith pursuant to the methodology below as of the date on which the Prepayment Amount is to be paid (the “ Prepayment Date ”), as if the Lender were the floating rate payor under such Swap, which determination shall be conclusive and binding on the Borrower for all purposes in the absence of demonstrable error; provided , that, upon the request of the Borrower, the Lender shall describe in writing to the Borrower, in reasonable detail, the calculation of such direct cost.  The Swap shall have the following terms:

 

(a)                                  Both the fixed and floating rate payor dates shall be the same as the scheduled Payment Date of the applicable principal Loan Amount featuring a fixed interest rate (the number of days commencing, and including, on one such Payment Date to, but excluding, the next Payment Date being the “ Swap Interest Period ”), provided , that the initial Swap Interest Period shall commence on and include the Prepayment Date and the final Swap Interest Period shall end on but exclude the Maturity Date;

 

(b)                                  The fixed rate shall be the Fixed Rate Base;

 

(c)                                   The notional amount of the Swap shall be denominated in Dollars and shall be equal to the Prepayment Amount, amortized (if applicable) to reflect the application of the Prepayment Amount in the repayment schedule of the Loan featuring a Fixed Interest Rate;

 

(d)                                  The day count fraction shall be the actual number of days in the Swap Interest Period divided by 360;

 

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(e)                                   The term of the Swap shall be equal to the period commencing on, and including, the Prepayment Date to, but excluding, the Maturity Date; and

 

(f)                                    The floating interest rate is the floating rate of interest that would be paid by the floating rate payor in respect of a swap having the terms and conditions set out above which appears on Reuters page 19901 (SEMIBOND-column 5) as of 11:00 a.m. (London time) on the day that is two ( 2 ) London Business Days preceding each Swap Interest Period (interpolated, for valuation purposes, in respect of the first calculation period of the Swap, to reflect the number of remaining days in the current Swap Interest Period).

 

3.3                                Default Interest .  In the event any amount of principal hereof or accrued interest on a Promissory Note is not paid in full when due (whether at stated maturity, by acceleration or otherwise), the Borrower shall pay to the Lenders on demand interest on such unpaid amount (to the extent permitted by applicable law) for the period from the date such amount was due until such amount shall have been paid in full at an interest rate per annum equal to 30-day LIBOR plus the Margin, plus an additional two per cent ( 2.00% ) (the “ Default Margin ”) per annum.

 

3.4                                Lender’s Option to Convert Loan to a 100% LIBOR-based interest rate following an Event of Default .  If the Administrative Agent, on behalf of all Lenders, provides the Borrower with a notice pursuant to Section 9.1 (Events of Default), the Lenders may, at their sole discretion, elect not to accelerate the Loan and instead declare that the Loan shall be converted to a loan payable on demand by the Lenders and the loans pursuant to a Fixed Interest Rate shall be converted to an interest rate equal to one month LIBOR plus the Default Margin.  For avoidance of doubt, in such circumstances the provisions of Section 3.2 shall continue to apply and the applicable Lender shall determine if a Make-Whole Amount is payable by the Borrower to the applicable Lender.  The Make-Whole Amount shall be calculated as if the Loan Amount were being prepaid in full on such conversion date.

 

3.5                                Market Disruption and Alternative Interest Rates .

 

(a)                                  If on or before the day that is three (3) Business Days prior to the start of an Interest Period, a Lender determines (i) Dollar deposits in the amount of the Advance for a matching Interest Period are generally not available in the London interbank market or (ii) the cost to the Lender of obtaining matching Dollar deposits in the London interbank market in respect of any Loan principal balance would be in excess of LIBOR or (iii) adequate reasonable means do not exist for ascertaining LIBOR, then the Lender shall notify the Borrower through the Administrative Agent in writing and on the last day of the then-existing Interest Period and will fund the Loan principal balance at the Alternative Rate.

 

(b)                                  Upon the Lender determining that the condition in Section 3.5 (a) has ceased, the Lender shall forthwith notify the Borrower through the Administrative Agent in writing, whereupon on the next Payment Date the Advance subject to the Alternative Rate shall be funded on the basis of one (1) month LIBOR.

 

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SECTION 4

 

CONDITIONS PRECEDENT TO ANY ADVANCES

 

4.1                                Conditions Precedent to the Initial Advance .  The obligation of the Lenders to provide the initial Advance is subject to the Administrative Agent’s satisfaction (including satisfaction as to form and content) with each of the following conditions precedent:

 

(a)                                  There has been no Material Adverse Effect or Event of Default that has occurred and is continuing since the Effective Date;

 

(b)                                  All Financial Documents and Project Documents shall have been executed;

 

(c)                                   The Borrower has provided to the Administrative Agent copies of the Insurance Policies in compliance with the requirements of Section 6.2;

 

(d)                                  All Fees and expenses payable to the Lenders and the Administrative Agent hereunder have been paid and the Borrower shall have provided the following to the Administrative Agent:

 

(i)                                      The Borrower’s December 31, 2011 audited and its September 30, 2012 unaudited financial statements in form and substance acceptable to the Administrative Agent;

 

(ii)                                   A duly completed Environmental Questionnaire to the Administrative Agent’s satisfaction;

 

(iii)                                Letter from a senior officer of WAPA confirming that at the time of execution of the Water Purchase Agreement, WAPA had all requisite power to execute and deliver, and perform its obligations under the Water Purchase Agreement and the execution, delivery and performance by WAPA of the Water Purchase Agreement have been validly authorized by the Board of Directors of WAPA;

 

(iv)                               The IE Report and the IE Certificate;

 

(v)                                  Evidence satisfactory to the Administrative Agent confirming payment of at least twenty-five percent (25%) of Project Costs by means of internally generated cash flow and/or Shareholder’s capital injections into the Borrower, plus the Hold Back; and

 

(vi)                               A written statement signed by an officer of the Borrower stating:  (i) the Borrower is in possession of all relevant and material agreements, government approvals, licenses and permits necessary to enable it to conduct its business as conducted on the date of the Initial Advance and to conduct the work under the Project Budget together with a list of such agreements, government approvals, licences and permits; (ii) all property taxes and insurance premiums have been paid and respective

 

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accounts are current; and, (iii) all applicable local environmental codes and requirements have been met.

 

(vii)                            The Assignment of Water Agreements in a form acceptable to Administrative Agent, together with an executed acknowledgement from WAPA in a form acceptable to Administrative Agent.

 

(e)                                   Delivery to the Administrative Agent and each Lender of the following documents in respect of the Borrower and Guarantor:

 

(i)                                      Certificates of incumbency listing the names of the corporate officers and their respective positions within the Borrower and the Guarantor;

 

(ii)                                   Certificates of the authorized signatories of the Borrower and the Guarantor under seal, if required, to the effect that the requisite resolutions have been duly and properly passed at duly convened and constituted meetings of the shareholders or directors of the Borrower and the Guarantor, confirming that such resolutions are still in effect and have not been varied or rescinded, authorizing (A) the execution, delivery and performance of this Agreement, the Financial Documents and any ancillary documents to which the Borrower and/or the Guarantor is a party and (B) a named person or persons specified therein and whose specimen signatures appears thereon to sign, on behalf of the Borrower and the Guarantor, as applicable, this Agreement, Borrowing Notices and the Guarantee and any and all Promissory Notes and ancillary documentation, to which the Borrower and/or the Guarantor is a party, and to give any notices or certificates required and confirming that such resolutions are still in effect and have not been varied or rescinded;

 

(iii)                                A legal opinion addressed to the Administrative Agent and to each Lender, provided by the Borrower’s external New York counsel and external USVI counsel, which shall include, among other things, an opinion: (i) on the corporate status of the Borrower and the Guarantor; (ii) that the Borrower and the Guarantor are in possession of all relevant and material agreements, licenses and permits necessary to enable it to enter into and perform its obligations under the Financial Documents; and (iii) that the Financial Documents are valid and enforceable against the Borrower and the Guarantor; and

 

(f)                                    The Guarantor shall have provided to the Administrative Agent evidence, in a form acceptable to the Administrative Agent, confirming that its preference shareholders have waived the right of redemption of all preference shares.

 

4.2                                Conditions Precedent to the Initial Advance and Every subsequent Advance .  The Borrower shall provide the Administrative Agent with;

 

(a)                                  A Borrowing Notice in compliance with Section 2.4 of the Agreement; and

 

(b)                                  The IE Certificate in respect of the applicable Borrowing Notice

 

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4.3                                Conditions Precedent to the Advance of the Hold Back .  Prior to disbursement of the Hold Back, the IE shall provide the Project Completion Certificate and prior to or simultaneously with the disbursement of the Holdback, the DSR shall be fully funded.

 

4.4                                Failure to Satisfy Conditions Precedent to the Initial Advance .  In the event the Conditions Precedent to the Initial Advance have not been satisfied within three (3) months from the Effective Date (as determined by the Administrative Agent), the Lenders reserve the right to amend terms and conditions herein or to cancel or reduce the Loan.

 

SECTION 5

 

NEGATIVE COVENANTS

 

5.1                                Until the Loan Amount is repaid in full, the Borrower shall not during the tenure of the Agreement (and the Guarantor shall not, with respect to Section 5.1(f) and (1)) without the prior consent in writing of each Lender, (such consent not to be unreasonably withheld):

 

(a)                                  Purpose :  Permit any breach of Section 2.1 of the Agreement respecting the purpose of the Loan;

 

(b)                                  Change of Control :  Permit a Change in Control to occur;

 

(c)                                   Limitation on Asset Sales :  Sell or otherwise dispose of, by one or more transactions or series of transactions (whether related or not), assets of the Borrower for cumulative net proceeds greater than seven hundred and fifty thousand Dollars ( $750,000 ) Dollars other than dispositions of obsolete, surplus or worn-out equipment .  Notwithstanding the foregoing and for avoidance of doubt, the six “temporary” 0.250MGD containerized desalination units at the Harley Plant may be sold provided the proceeds from the sale are used to retire all outstanding liabilities incurred pursuant to their acquisition and operation;

 

(d)                                  Limitation on Acquisitions :  Enter into or make any Acquisition;

 

(e)                                   Negative Pledge :  Other than Permitted Liens, permit any Liens against the assets or the property of the Borrower as security in favor of any creditor until the Loan Amount is repaid in full;

 

(f)                                    Negative Pledge Guarantor and its subsidiaries :  Other than Permitted Liens, permit any Liens against the assets or property of the Seven Seas Group (except Seven Seas Water (Trinidad) Unlimited) in existence as of the Effective Date in respect of assets existing from the Effective Date until two (2) years after the Effective Date, provided the Borrower is compliant with all financial and non-financial covenants under this Agreement;

 

(g)                                   Limitation on Distributions :  Except as permitted pursuant Section 2.1, permit any Distributions to its Shareholder or to any other person in respect of its capital stock or any ownership interest in the Borrower unless (i) the projected and historical DSCR on a rolling four ( 4 ) quarter basis, is equal to at least 1.40X , (ii) the DSR is fully funded, and (iii) all other covenants have been, and are, met;

 

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(h)                                  Limitation on Indebtedness :  Permit any future Indebtedness in an amount in excess of three million Dollars ( $3,000,000 ), individually or in the aggregate;

 

(i)                                      Limitation on Capital Expenditures :  Permit any future capital expenditures in an amount greater than one million Dollars ( $1,000,000 ) per annum exclusive of Borrower’s self-funded expenditures made in connection with Intake Structure No. 2, as required pursuant to Section 6.7;

 

(j)                                     Limitation on Change Orders :  Permit any Change Orders (including any changes to categories within the Project Budget) so that no single Change Order, the sum of which individually or in aggregate, exceeds one million Dollars ( $1,000,000 );

 

(k)                                  Amendment to WPA or Lease :  Amend, vary, replace or amend and restate, in any material respect adverse to the Borrower, WPA or the leases dated May 12, 2011 between WAPA and the Borrower with respect to the Harley Plant and April 5, 2012 between WAPA and the Borrower with respect to the Richmond Plant), without the Administrative Agent’s prior written consent (such consent not to be unreasonably withheld or delayed).

 

(l)                                      Sanctionable Practices.  Guarantor and its Subsidiaries :  Engage in, or authorize or permit any member of the Seven Seas Group or any other Person acting on its behalf to engage in, with respect to its operations or any transaction contemplated by this Agreement, any Sanctionable Practices.  The Borrower further covenants that should the Lender notify the Borrower or the Guarantor of its concerns that there has been a violation of the provisions of this Section or of Section 8 ( Representations and Warranties ) of this Agreement, the Borrower and the Guarantor shall cooperate in good faith with the Lender and its representatives in determining whether such a violation has occurred, and shall respond promptly and in reasonable detail to any notice from the Lender and shall furnish documentary support for such response upon the Lender’s request.

 

SECTION 6

 

AFFIRMATIVE AND FINANCIAL COVENANTS

 

6.1                                The Borrower and, in respect of Sections 6.1(a) and (b), 6.8, 6.13 and 6.16 (a) and (b) below, the Guarantor, hereby covenants and agrees with the Lender that until the Loan Amount is repaid in full, they shall at all times observe the following covenants:

 

(a)                                  Comply in all respects with all laws and regulations applicable to each of them, including United States of America laws relating to the payment of Taxes and corruption and bribery;

 

(b)                                  Maintain its existence, remain in good standing and remain duly qualified to carry on its business and own property in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except in each case, to the extent such failure could not reasonably be expected to have a Material Adverse Effect; and

 

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(c)                                   Use and operate all of its facilities and properties in material compliance with all applicable Environmental Laws, keep all material and necessary permits, approvals, certificates, licences and other authorizations relating to environmental matters in effect and remain in material compliance therewith and to engage in any and all legally required environmental reporting, as required, in a thorough and appropriate manner, except in each case, to the extent such failure could not reasonably be expected to have a Material Adverse Effect.

 

6.2                                The Borrower hereby covenants that it shall, on an annual basis, provide the Administrative Agent with copies of Insurance Policies covering the Project in an amount equal to replacement cost for at least twenty-five million Dollars ( $25,000,000 ) and such Insurance Policies shall name the Administrative Agent as lender loss payee.

 

6.3                                The Borrower hereby covenants that with regard to Section 6.2, it shall ensure (i) that all premiums due to any insurer in connection with the Project are paid in full on a timely basis; and (ii) that it will notify the Administrative Agent in writing promptly after acquiring knowledge of (a) any cancellation or alteration of insurance or (b) any expiry of insurance where the Borrower has determined or been advised the insurance will not be renewed, in each case of (a) and (b) not less than twenty (20) days prior to such cancellation of alteration of such insurance.  The Borrower agrees to request its insurer(s) to provide a certificate(s) to the Administrative Agent whereby the insurer(s) endeavor(s) to notify the Administrative Agent of any cancellation or alteration of insurance.

 

6.4                                The Borrower hereby covenants that it shall use the Advances exclusively for the purposes described in Section 2.1 of the Agreement.

 

6.5                                The Borrower shall ensure that the DSR is fully funded on the Final Drawdown Date.  For the avoidance of doubt, the proceeds from Advances may be used to fund the DSR.

 

6.6                                The Borrower covenants that the Project Completion Date shall occur no later than August 31, 2013.  In connection therewith, Borrower further covenants to deliver, or cause to be delivered, to the Administrative Agent, on or before September 30, 2013, a Project Completion Certificate, confirming, among other things, a Project Completion Date of August 31, 2013.

 

6.7                                The Borrower hereby covenants to (i) present to the Administrative Agent a letter or other documentation issued by WAPA confirming completion of work on Intake Structure No. 2, as defined in the Harley Plant Water Purchase Agreement, no later than December 31, 2014 and (ii) use its cash flow or additional shareholder equity to fund all costs associated with the work on Intake Structure No. 2.

 

6.8                                The Borrower and the Guarantor shall assume responsibility for all cost overruns with respect to the Project and any such overruns shall be funded when due.

 

6.9                                The Borrower shall permit the Lenders to inspect the Project during normal business hours, with reasonable advance notice to the Borrower and subject to reasonable conditions as to safety and other operating matters.

 

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6.10                         The Borrower shall, no later than the end of each month and continuing until the Project Completion Date, provide the Administrative Agent with a progress report, in the form substantially similar to the forms of report customary for projects similar to the Project, with variance and explanations for each item in the Project Budget as of the end of the previous month.

 

6.11                         Notices .  The Borrower shall promptly, but in any event no later than seven (7) Business Days after any officer of the Borrower obtains knowledge thereof, give the Administrative Agent notice of:

 

(a)                                  The occurrence of an Event of Default or any event, circumstance or matter which may be reasonably expected to have a Material Adverse Effect;

 

(b)                                  Any proceedings relating to the Project where the amounts claimed individually or in the aggregate are in excess of one million Dollars

 

($1,000,000);

 

(c)                                   Any notice or claim of a material default or breach under the WPA; and

 

(d)                                  Promptly, following the Borrower’s receipt thereof from the IE, a Project Completion Certificate confirming the Project Completion Date has occurred.

 

6.12                         Financial Covenant - Debt Service Coverage Ratio .  The Borrower shall, at the end of each Fiscal Quarter, maintain a DSCR greater than or equal to 1.25X which shall be calculated and tested quarterly on a rolling four quarter basis, commencing June 30, 2014, using the Borrower’s unaudited quarterly financial statements.

 

6.13                         Financial Covenant - Guarantor’s Minimum Tangible Net Worth .  The Guarantor shall, at the end of each Fiscal Quarter, maintain a Minimum Tangible Net Worth greater than or equal to sixty-five million Dollars ( $65,000,000 ), such Minimum Tangible Net Worth to be calculated using the Guarantor’s unaudited consolidated quarterly financial statements.

 

6.14                         Debt Service Reserve Drawing and Replenishment .  The Administrative Agent shall debit the DSR (each debit a “ DSR Drawing ”) to satisfy any payment obligations of Borrower not satisfied by Borrower as required under Section 2.5.  The Borrower shall replenish the DSR in an equal amount no later than thirty (30) days after each DSR Drawing.

 

6.15                         The Borrower shall maintain adequate records and books of accounts.

 

6.16                         Reporting Requirements .  The Borrower and the Guarantor shall provide the Administrative Agent with the following:

 

(a)                                  No later than one hundred and twenty ( 120 ) days after the end of the Fiscal Year of the Borrower, annual, unconsolidated, audited, financial statements of the Borrower and annual, consolidated, audited financial statements for the Guarantor;

 

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(b)                                  No later than forty-five ( 45 ) days after the end of the Fiscal Quarter of each of the Borrower and Guarantor, quarterly, unaudited, unconsolidated, financial statements from the Borrower, and quarterly, unaudited, financial statements from the Guarantor on a consolidated basis with the Seven Seas Group together with a certificate in the form of a letter addressed to the Administrative Agent, signed by the president, chief financial officer or other appropriate officers, of the Borrower or Guarantor, as applicable, confirming the information in Sections 6.12 and 6.13;

 

(c)                                   A copy of the annual operating and capita! expenditure budgets and cash flow projections for the next Fiscal Year, for the Project within thirty ( 30 ) days prior to the Borrower’s Fiscal Year- end with the first such report due no later than sixty ( 60 ) days after the Project Completion Date;

 

(d)                                  A copy of a receipt issued by the Virgin Islands Bureau of Internal Revenue to the Borrower in respect of withholding tax paid pursuant to interest on the Loan Amount, each Fiscal Quarter; and

 

(e)                                   The Borrower’s duly completed Environmental Questionnaire within one hundred and twenty (120) days of each Fiscal Year-end.

 

SECTION 7

 

CHANGE OF CIRCUMSTANCES

 

7.1                                Change in Circumstances .  If at any time it shall become unlawful or contrary to any regulation (whether or not having the force of law) for any Lender to maintain the Advances or any part thereof, the Lender shall so certify to the Borrower by way of a written notice through the Administrative Agent.  Upon receipt of such written notice, the Borrower and the Lender shall negotiate in good faith for a period up to, but not exceeding thirty (30) days, with a view to the Lender making available the Advances in a manner free of such sanctions.  If upon the expiration of such a period, the Lender remains unable to continue the Advances on the agreed upon revised terms, the Lender may, by written notice, to the Borrower through the Administrative Agent, declare its obligations to be terminated on a date specified in the notice whereupon the Lender’s commitments shall cease and the Borrower shall forthwith (or as specified by the Lender) prepay all Advances with accrued interest and all other reasonable amounts payable to the Lender under this Agreement and the transactions it contemplates (such reasonable amounts with any reasonable costs incurred by Lender for the termination of the funding arrangements, (e.g. “break-funding” costs related to the Lender’s cancellation or prepayment of existing funding arrangements)), any reasonable documented, and out-of-pocket legal or business costs incurred by the Lender in order to investigate, assess, attempt to maintain or terminate the Loan, as mandated by competent authorities or reasonably determined by the Lender to be necessary and desirable and any other reasonable documented out-of-pocket costs, unforeseen by the Lender as of the Effective Date hereof, directly related to the purpose of this Section.

 

7.2                                Increased Costs .  If due to any Change in Law issued or made after the Effective Date by any Governmental Authority there shall be: (a) any increase in the cost to any Lender of

 

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making or maintaining the Loan; (b) any increase in the amount of capital required or maintained, or expected to be maintained, by the Lender and the amount of such capital is increased by or based upon the existence of the Loan outstanding hereunder; or (c) any decrease in the effective rate of return on the capital of the Lender of making or maintaining the Loan to a level below that which the Lender would have attained but for the Change in Law (all of the preceding excluding any such increased costs, increased capital requirements or decreased rate of return (each an “ Event ”, together the “ Events ”), resulting from (A) Taxes or (B) changes in the basis of taxation of overall net income or overall gross income affecting the Lender), (the determination of any or all of the preceding Event or Events being at the Lender’s sole and absolute discretion with respect to the Loan), then the Lender shall provide the Borrower with a notice through the Administrative Agent, (hereinafter, the “ Notice ”) that shall (1) describe in reasonable detail the Event together with the approximate date of the effectiveness thereof, (2) set forth the cost to the Lender of such Event, and (3) calculate such amount as the Lender determines in its sole and absolute discretion is necessary to be compensated for the cost of such Event.  Such Notices (or Notices) may be sent by the Lender in respect of an Event (or Events) from time to time.  The Borrower shall promptly, following receipt of such Notice, pay directly to the Lender the amount sufficient to compensate the Lender for the cost of such Event.  The Notice, including the certifications made therein, shall, in the absence of demonstrable error, be conclusive and binding on the Borrower.

 

SECTION 8

 

BORROWER’S REPRESENTATIONS AND WARRANTIES

 

In order to induce the Lenders to enter into this Agreement, the Borrower (and, in respect of Sections 8.12 and 8.15, the Guarantor) hereby REPRESENT AND WARRANT to the Administrative Agent and each Lender that, as of the Effective Date and at each Drawdown Date (except where specifically stated to be given as of another date):

 

8.1                                The Borrower has the power, authority, and capacity to enter into, exercise its rights under, and to perform and comply with its obligations under this Agreement, and that the execution and delivery of this Agreement and the other Financial Documents have been duly authorised by all necessary actions;

 

8.2                                The obligations expressed as being assumed by the Borrower under this Agreement and the other Financial Documents constitute the Borrower’s legal, valid and binding obligations, enforceable against the Borrower in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors generally and general principles of equity;

 

8.3                                As of the Effective Date, under the laws of the USVI in force on the Effective Date, it is not necessary that this Agreement be filed, recorded or enrolled with any court or other authority in the USVI or that any registration or similar Taxes be paid on or in relation to this Agreement;

 

8.4                                There is no pending and, to the Borrower’s knowledge, no threatened material litigation against the Borrower;

 

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8.5                                There are no pending and, to the Borrower’s knowledge, there are no threatened (i) written claims, complaints, notices or requests for information received by the Borrower with respect to any alleged violation of any Environmental Laws by the Borrower, or (ii) written complaints notices or inquiries received by the Borrower regarding potential material liability of the Borrower under any Environmental Laws;

 

8.6                                Each Advance shall be used in a manner consistent with the purposes set out in Section 2.1 of this Agreement;

 

8.7                                No Event of Default has occurred or is continuing;

 

8.8                                No Material Adverse Effect has occurred and is continuing;

 

8.9                                Neither:

 

(a)                                  The execution and delivery of this Agreement by the Borrower;

 

(b)                                  nor the entry into and performance of all terms of this Agreement by the Borrower, any Promissory Notes or any transactions contemplated by this Agreement:

 

(i)                                      will conflict with, or result in any breach of any of the terms, conditions or provisions of, or constitute a default or require any authorization under any applicable law or regulation by which the Borrower is bound or will violate any order, license, permit or consent applicable to the Borrower or by which the Borrower is bound; or

 

(ii)                                   will cause any limitation on any of the powers of the Borrower whatsoever and howsoever imposed, to be exceeded; or

 

(iii)                                will require any consent or approval of any officer of the Borrower or any other person which has not been obtained.

 

8.10                         The claims of the Lenders regarding the Loan Amount shall rank at least pari passu in respect of the priority of payment of all other claims regarding all present and future Indebtedness of the Borrower;

 

8.11                         The Borrower is in compliance with all applicable USVI laws and regulations, including USVI law relating to the payment of Taxes and to corruption and bribery;

 

8.12                         No member of the Seven Seas Group, nor any Person acting on its or any of their behalf, has committed or engaged in, with respect to any of their respective operations or any transaction contemplated by this Agreement, any Sanctionable Practice;

 

8.13                         All written information heretofore furnished by the Borrower to the Lenders for purposes of or in connection with this Agreement is, and all such information hereunder furnished by the Borrower to the Lenders will be, true and accurate in all material respects on the date as of which such information is stated or certified.  Such information, when taken as a whole, does not contain any material misstatement of a material fact and does not omit to state

 

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any material fact necessary to make the statements therein not misleading.  The Borrower has disclosed to the Lenders in writing any and all facts known to Borrower which would reasonably be expected to have a Material Adverse Effect.

 

8.14                         Each Plan sponsored by Borrower is in compliance in all material respects with all applicable provisions of ERISA and the Code.  No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, would result in a Material Adverse Effect.  Borrower has made or accrued all contributions due under the terms of any Plan, Welfare Plan or under ERISA with respect to all of its Plans and, with respect to all Plans sponsored by the Borrower, as of the Effective Date, the present fair market value of all Plan assets exceeds the present value of all vested benefits under each Plan on a plan termination basis (using PBGC actuarial assumptions), as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA.  Neither Borrower nor any of its ERISA Affiliates, sponsors, maintains or contributes to any Plan that is subject to Title IV of ERISA.  None of Borrower’s ERISA Affiliates has incurred any liability to the PBGC under ERISA that could reasonably be expected to result in a Material Adverse Effect, and with respect to any Plan that has been terminated, all Plan obligations have been settled and there exists no unfunded liability of any kind.  As of the Effective Date, Borrower does not maintain any Welfare Plan providing coverage for any period of time beyond termination of employment (except to the extent required by Section 4980B of the Code).

 

8.15                         To the extent applicable, each of the Borrower, the Guarantor and their respective Subsidiaries is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) the Patriot Act.  No part of the proceeds of the Loan will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

 

8.16                         Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” Margin Stock within the respective meanings of each of the quoted terms in the Regulations of the Board of Governors of the Federal Reserve System of the United States of America (the “ Board ”).  No part of the proceeds of any Loan have been or will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for the purpose of “purchasing” or “carrying” Margin Stock under Regulation U or for any other purpose that would reasonably be expected to cause any of the Loans to be considered a “purpose credit” within the meaning of Regulation T, Regulation U or Regulation X.  Borrower will not take, nor direct any agent acting on its behalf to take, any action which would reasonably be expected to cause any transaction or obligation, or right created by this Agreement, or any document or instrument delivered pursuant hereto, to violate any Regulation of the Board.

 

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SECTION 9

 

DEFAULT

 

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

 

(a)                                  The Borrower fails to pay any Loan Amount when due and continues not to pay for five ( 5 ) Business Days thereafter;

 

(b)                                  Any material representation or warranty made by the Borrower or the Guarantor hereunder or any documentation furnished by it in connection herewith shall prove to have been incorrect in any material respect when made and if capable of remedy, such default continues for fifteen (15) Business Days;

 

(c)                                   The Borrower or the Guarantor fails to perform or observe any material term, covenant, (either affirmative, negative or financial), or condition in this Agreement or any other Financial Document and such default is not remedied within thirty (30) Business Days;

 

(d)                                  The validity or enforceability of this Agreement, the Security Documents, the Promissory Note(s) or any Borrowing Notice shall be successfully contested in a court of competent jurisdiction, following the expiry or adjudication of any appeals, by any Governmental Authority, the Borrower or the Guarantor;

 

(e)                                   The Borrower or the Guarantor, individually or in aggregate, is in default, or shall fail to pay any Indebtedness that is outstanding, in a principal amount of at least two hundred and fifty thousand Dollars ( $250,000 ), when such Indebtedness becomes due and payable, and such default or failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, without waiver by the holder of the Indebtedness;

 

(f)                                    An event of default has occurred and is continuing pursuant to or under any agreement between any Lender and the Borrower, Guarantor or any member of the Seven Seas Group;

 

(g)                                   Borrower or the Guarantor shall: (a) generally not, or shall admit in writing its inability to, pay its Indebtedness as it becomes due; (b) make an assignment for the benefit of creditors; (c) apply for or consent to the appointment of a custodian, receiver, trustee, sequestrator, conservator or similar official for it or substantially all of its assets; (d) voluntarily commence any proceeding or file any petition seeking relief under any federal, state or foreign bankruptcy, insolvency, receivership, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar law or statute, whether now or hereafter in effect; (e) take any action for the purpose of effecting any of the foregoing; or (f) fail to dismiss: (A) an involuntary proceeding commenced against it, or (B) an involuntary petition filed in a court of competent jurisdiction against it in respect of either (c) or (d) above, in either case within sixty (60) days of the commencement of such a proceeding;

 

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(h)                                  A moratorium is declared by a court of competent jurisdiction on the payment of any Indebtedness with a principal amount of at least Two Hundred and Fifty Thousand ( $250,000 ) Dollars of the Borrower or the Guarantor;

 

(i)                                      The Borrower or Guarantor repudiates this Agreement;

 

(j)                                     If a final judgment, executive writ of seizure and sale or decree for the payment of money due in an amount of at least Two Hundred and Fifty Thousand ( $250,000 ) Dollars has been obtained against the Borrower or the Guarantor;

 

(k)                                  The failure of WAPA to remain a statutory body of the Government of the USVI during the term of the Loan;

 

(l)                                      Any breach by the Borrower of the terms and conditions of the WPA;

 

(m)                              Any termination or abandonment of the Project by the Borrower;

 

(n)                                  The assets of the Borrower or Guarantor are expropriated or condemned and such expropriation or condemnation could reasonably be expected to result in a Material Adverse Effect; or

 

(o)                                  Any invalidity of any Lien created by the Security Documents.

 

9.2                                Acceleration and Suspension of Advances .  If any Event of Default occurs and is continuing (excluding an Event of Default under Section 9.1(g) above), the Lenders by written notice from the Administrative Agent to the Borrower may do one or all of the following:

 

(a)                                  Declare the Loan to be immediately due and payable and thereafter proceed to exercise any rights and remedies available to it under applicable law; and

 

(b)                                  By notice to the Borrower, suspend the Lender’s obligation to make Advances, which suspension will continue until such Event of Default has been cured or the Lender otherwise notifies the Borrower that the suspension is removed and such Event of Default has been waived by the Lenders;

 

provided , however , that, notwithstanding the above, upon the occurrence of an Event of Default under Section 9.1(g) above, the full outstanding Loan Amount shall become immediately due and payable.

 

9.3                                Default Indemnity .

 

(a)                                  The Borrower shall indemnify the Lenders against any loss, damage or expense which it may sustain or incur as a consequence of the occurrence of any Event of Default, and all actions, proceedings, costs, damages, expenses, claims and demands howsoever arising in connection therewith (excluding special, indirect and consequential losses or damages), except to the extent such loss, damage or expense is due or results from the Lender’s gross negligence or willful misconduct.

 

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(b)                                  Such indemnity shall include all reasonable documented, out-of pocket legal costs and reasonable expenses (including reasonable attorney’s fees on a full indemnity basis) incurred by the Lenders in connection with any of the foregoing matters including without limitation, the enforcement by the Lenders of its legal rights under this Agreement (except to the extent such cost or expense is due or results from the Lender’s gross negligence, bad faith or willful misconduct).

 

SECTION 10

 

EXPENSES

 

10.1                         The Borrower shall pay the following reasonable, documented and out-of-pocket costs and expenses on demand to the Lenders and the Administrative Agent, regardless of whether or not the transaction is consummated and, where applicable, the choice of Lender’s counsel shall be at the Lender’s sole discretion.

 

10.2                         The Administrative Agent’s cost of: (i) one (1) external New York counsel plus, (ii) the Lender’s cost of external USVI counsel plus, if applicable the cost of British Virgin Islands external counsel and (iii) the Lender’s reasonable, documented, out-of-pocket expenses, including reasonable travel expenses.

 

10.3                         All fees and expenses payable to the IE.

 

10.4                         [Reserved]

 

10.5                         The Lender’s cost to terminate funding arrangements, in accordance with Section 2.6 and 3.2, save and except where such termination arises as a consequence of an act or omission or default of the Lender, independent of any act or omission or default on the part of the Borrower.

 

10.6                         All reasonable costs and expenses (including legal fees) incurred by the Administrative Agent and the Lenders in protecting or enforcing their rights under this Agreement.

 

10.7                         All costs and expenses incurred by the Lenders following an Event of Default, in connection with all site visits and inspections deemed necessary by the Lenders.

 

SECTION 11

 

THE ADMINISTRATIVE AGENT

 

11.1                         Authorization .

 

(a)                                  Subject to the provisions of Section 12.5 , Administrative Agent is authorized to take such action on behalf of each Lender, as directed by the Required Lenders or, if required hereunder, all of the Lenders, as the case may be, and to exercise all such powers as are hereunder and under any of the other Financial Documents and any related documents delegated to Administrative Agent, together with such powers as are reasonably incident thereto,

 

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including the authority from time to time to take any action with respect to any collateral or the Financial Documents which may be necessary to perfect, maintain perfected or insure the priority of the security interest in and liens upon the collateral granted pursuant to the Financial Documents, provided that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by Administrative Agent.  Each Lender (a) authorizes Administrative Agent to execute, deliver and, as necessary, amend all Financial Documents upon its direction to the Administrative Agent on its behalf, and (b) agrees that, upon and after such execution and delivery, such Lender shall be bound by such Financial Documents.

 

(b)                                  Lenders irrevocably authorize Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by Administrative Agent under any Security Document: (i) upon the satisfaction of all Obligations, or (ii) constituting property sold or disposed of as part of or in connection with any disposition permitted (including pursuant to a valid waiver or consent) under any Financial Document (it being understood and agreed that Administrative Agent may conclusively rely without further inquiry on a certificate of an authorized officer of Borrower as to the sale or other disposition of property being made in full compliance with the provisions of the Financial Documents).

 

(c)                                   The relationship between Administrative Agent and each of the Lenders is that of an independent contractor.  The use of the term “Administrative Agent” is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between Administrative Agent and each of the Lenders.  Nothing contained in this Agreement or the other Financial Documents shall be construed to create an agency, trust or other fiduciary relationship between Administrative Agent and any of the Lenders.

 

(d)                                  As an independent contractor empowered by Lenders to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Financial Documents, Administrative Agent is nevertheless a “representative” of the Lenders, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of Lenders and Administrative Agent with respect to all collateral security and guarantees contemplated by the Financial Documents.  Such actions include the designation of Administrative Agent as “secured party”, “mortgagee” or the like on all financing statements and other documents and instruments, whether recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any security interests, mortgages or deeds of trust in collateral security intended to secure the payment or performance of any of the Obligations, all for the benefit of Lenders and Administrative Agent.

 

11.2                         Employees and Agents .  Administrative Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Agreement and the other Financial Documents.  Administrative Agent may utilize the services of such Persons as agents in its sole discretion and may pay any and all reasonable fees and out-of-pocket expenses of any such Persons.

 

11.3                         No Liability .  Neither Administrative Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any Administrative Agent or employee thereof, shall be liable for any waiver, consent or approval given or any

 

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action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the Financial Documents or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever.

 

11.4                         No Representations .  Administrative Agent shall not be responsible for the execution or validity or enforceability of this Agreement, or any of the other Financial Documents or any instrument at any time constituting, or intended to constitute, collateral security for the Promissory Note, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Promissory Note, or for any recitals or statements, warranties or representations made herein or in any of the Financial Documents or in any certificate or instrument hereafter furnished to it by or on behalf of Borrower or Guarantor, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Promissory Note or to inspect any of the properties, books or records of Borrower or Guarantor.  Administrative Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by Borrower, Guarantor or any holder of the Promissory Note shall have been duly authorized or is true, accurate and complete.  Administrative Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Lenders, with respect to the credit worthiness or financial conditions of Borrower or Guarantor.  Each Lender acknowledges that it has, independently and without reliance upon Administrative Agent or any other Lender, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Administrative Agent agrees to provide the Lenders with notice of (a) the acceleration of the Obligations and (b) the commencement of the exercise of remedies under the Financial Documents.

 

11.5                         Payments .

 

(a)                                  A payment by Borrower to Administrative Agent hereunder or any of the other Financial Documents for the account of any Lender shall constitute a payment to such Lender.  Administrative Agent agrees promptly to distribute to each Lender such Lender’s Commitment Percentage of payments received by Administrative Agent for the account of the Lenders except as otherwise expressly provided herein or in any of the other Financial Documents.

 

(b)                                  If in the sole and absolute opinion of Administrative Agent the distribution of any amount received by it in such capacity hereunder, under the Promissory Note or under any of the other Financial Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction.  If a court of competent jurisdiction shall adjudge that any amount received and distributed by Administrative Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to Administrative Agent its Lender’s Commitment Percentage of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court.

 

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(c)                                   Notwithstanding anything to the contrary contained in this Agreement or any of the other Financial Documents, any Lender that fails to make available to Administrative Agent its Lender’s Commitment Percentage of any Loan Amount shall be deemed a delinquent lender (a “ Delinquent Lender ”) until such time as such delinquency is satisfied.  A Delinquent Lender shall be deemed to have assigned any and all payments due to it, whether on account of outstanding Loan Amounts, interest, fees or otherwise, to the remaining nondelinquent Lenders for application to, and reduction of, their respective Lender’s Commitment Percentages of all outstanding Loan Amounts.  The Delinquent Lender hereby authorizes Administrative Agent to distribute such payments to the nondelinquent Lenders in proportion to their Lender’s Commitment Percentages of all outstanding Loan Amounts.  A Delinquent Lender shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loan Amounts of the nondelinquent Lenders, the Lenders’ respective pro rata shares of all outstanding Loan Amounts have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency.

 

(d)                                  Lenders ratably agree hereby to indemnify and hold harmless Administrative Agent, its Affiliates and their respective officers, directors, employees and agents from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which Administrative Agent or such Affiliate or such officer, director, employee or agent has not been reimbursed by the Borrower as required herein or under any other Financial Documents, and liabilities of every nature and character arising out of or related to this Agreement, or any of the other Financial Documents or the transactions contemplated or evidenced hereby or thereby, or Administrative Agent’s actions taken hereunder or thereunder.

 

(e)                                   In its individual capacity, Administrative Agent shall have the same obligations and the same rights, powers and privileges in respect to its Lenders Commitment Percentage and the portion of the Loan Amount made by it, as it would have were it not also Administrative Agent.

 

11.6                         Resignation .  The Administrative Agent may resign at any time by giving thirty (30) days prior written notice thereof to the Lenders and Borrower.  Upon any such resignation, the Lenders shall have the right to appoint a successor Administrative Agent.  If no successor Administrative Agent shall have been so appointed by the Lenders or accepted such appointment within thirty (30) days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent.  Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder.  After any retiring Administrative Agent’s resignation, the provisions of this Agreement and the other Financial Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

 

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11.7                         Administrative Agent May File Proofs of Claim .

 

(a)                                  In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial, administrative or like proceeding or any assignment for the benefit of creditors relative to: the Borrower or the Guarantor, the Administrative Agent (irrespective of whether the principal of any Loan Amount shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Administrative Agent shall have made any demand on Borrower) shall be entitled and empowered, by intervention in such proceeding, under any such assignment or otherwise:

 

(i)                                      to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loan Amount and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due to the Lenders and the Administrative Agent) allowed in such proceeding or under any such assignment; and

 

(ii)                                   to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same.

 

(b)                                  Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such proceeding or under any such assignment is hereby authorized by each Lender to make such payments to Administrative Agent and, in the event that Administrative Agent shall consent to the making of such payments directly to the Lenders, nevertheless to pay to Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due to the Administrative Agent hereunder.

 

(c)                                   Nothing contained herein shall authorize Administrative Agent to consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations owed to such Lender or the rights of any Lender or to authorize Administrative Agent to vote in respect of the claim of any Lender in any such proceeding or under any such assignment.

 

SECTION 12

 

GENERAL

 

12.1                         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 parties or in any other jurisdiction and to this end, the provisions of this Agreement are declared to be severable.

 

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

 

12.3                         Conclusive Evidence .  A certificate signed by an officer of the Lender shall be conclusive evidence as to any rates or amounts to be calculated or owing under or in respect of this Agreement (save for demonstrable error).

 

12.4                         Entire Agreement .  This Agreement contains 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 Agreement are merged herein.

 

12.5                         Modification, Amendment .  No provision of this Agreement or any other Financial Document may be amended, supplemented, modified or waived, except by a written instrument signed by the Administrative Agent (at the direction of the Required Lenders), the Borrower and the Guarantor, as applicable; provided that , notwithstanding the foregoing provisions, no such waiver and no such amendment, supplement or modification shall: (i) increase a Lender’s Commitment Percentage (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Loan Amount, shall not constitute an increase of the Lender’s Commitment Percentage), without the prior written consent of such affected Lender, (ii) postpone or delay the scheduled final maturity date of any Loan, without the prior written consent of each affected Lender, or postpone or delay any date fixed by this Agreement or any other Financial Document for any payment of principal, interest or fees due to any Lender hereunder or under any other Financial Document, without the prior written consent of such affected Lender, (iii) reduce the principal of, or the rate of interest specified in any Financial Document on, any Loan Amount of any Lender, without the prior written consent of such affected Lender, (iv) release all or substantially all of any collateral except as shall be otherwise provided in any Security Document or other Financial Document, or consent to the assignment or transfer by the Borrower of or the Guarantor any of their respective obligations under this Credit Agreement or any other Financial Document without the prior written, unanimous consent of the Lenders, or (v) amend, modify or waive any provision of this Section 12.5 without the prior written, unanimous consent of the Lenders.  Any waiver and any amendment, supplement or modification made or entered into in accordance with this Section 12.5 shall be binding upon the Borrower and the Lenders (including the Administrative Agent).  Any amendment or waiver of any provision of any document which relates to the rights or obligations of the Administrative Agent shall require the written agreement of the Administrative Agent in addition to satisfying any other requirement under this Agreement.

 

12.6                         Assignment .  The Borrower and the Guarantor may not assign, without the prior written consent of the Required Lenders (such consent not to be unreasonably withheld or delayed) whether in whole or in part, the benefits of this Agreement.  Prior to the Final

 

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Drawdown Date and in the absence of an Event of Default, the rights and obligations of the Lenders hereunder may be assigned with the prior written consent of the Borrower, the Guarantor and the Required Lenders (such consent not to be unreasonably withheld or delayed, and such consent of the Borrower and the Guarantor not to be required after the occurrence and during the continuance of an Event of Default).  After the Final Drawdown Date or following the occurrence and during the continuance of an Event of Default, the rights and obligations of the Lenders may be assigned without notice to the Borrower or Guarantor.

 

12.7                         Disclosure of Information — Confidentiality .  The Lenders, the Borrower and the Guarantor (each a “ Confidential Information Holder ” as the context may require) agree to maintain the confidentiality of all non-public information disclosed by the Lenders, the Borrower or the Guarantor in connection with the Financial Documents (“ Confidential Information ”); provided, however, that a Confidential Information Holder may disclose the Confidential Information: (i) if the Confidential Information Holder obtains such Confidential Information from a third party who is not bound by the obligation of confidentiality; (ii) if the Confidential Information is a matter of public knowledge through no fault of the Confidential Information Holder; (iii) to any assignee or to any Person who may otherwise enter into contractual relations with the Confidential Information Holder in relation to this Agreement, provided, that, prior to any such disclosure, such assignee or Person shall agree to preserve the confidentiality, pursuant to this Section 12.7, of any Confidential Information received by it from the Confidential Information Holder; (iv) if the Confidential Information is disclosed under a requirement of law or by the Confidential Information Holder in the course of enforcing its rights hereunder or defending itself against any action, suit claim or similar dispute or (v) any disclosures of Confidential Information required by US GAAP.

 

Notwithstanding the foregoing, the Borrower and the Guarantor agree that the Lenders may disclose the following information in their respective annual report or in advertising (in the form of a tombstone): the name of the Lender, the name of the Borrower and Guarantor, the date of this Agreement, a general description of the transaction (including the country) relating to this Agreement and the amount of the Loan.

 

12.8                         Withholding Taxes .  All payments due hereunder (including without limitation under any Promissory Notes contemplated by this Agreement) shall be made without set off and free from all Taxes imposed on the Lender unless deduction of said Taxes cannot be avoided or waived by operation of law.  In the event that the Borrower is required by law to deduct Taxes from such payment then (a) provided that the Lender would continue to be entitled to treat any such deductions by the Borrower as evidence that it has already paid Taxes on payments to it from the Borrower hereunder, the Borrower shall provide the Lender with evidence that it has paid the Taxes deducted from payments to the relevant authorities; (b) regardless of whether the circumstances in clause (a) are or are not applicable, the payments due by the Borrower must still be increased insofar as necessary in order to ensure that the amount which remains following such deductions shall equal the amount which would have been made payable in the absence of such requirement.

 

In the event that a Lender located in the USVI funds its pro rata share of the Loan from outside of the USVI, the Margin shall be adjusted to reflect withholding tax on the Lender’s funding.

 

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12.9                         Business Day Interest Extension .  Whenever a Payment Date occurs on a day other than a Business Day, such Payment Date shall be the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest.

 

12.10                  Judgment Currency .  It is of the essence of this Agreement that the respective parties make the various payments hereunder in the currency expressed for such payments (the currency expressed with respect to each payment therein called the “ Required Currency ” of such payment).  The obligation of each party to make each payment in the Required Currency shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any other currency (including the payment of damages for the breach of this Agreement), until and except to the extent that such tender or recovery shall result in the actual receipt by the receiving party in the Required Currency of the amount expressed to be payable in that currency.  The obligation of each party to make such payment in the Required Currency shall be enforceable as an alternative or additional cause of action for the purpose of recovery in the Required Currency of the amount, (if any), by which such actual receipt shall fall short of the full amount of the Required Currency and shall not be affected by judgment being obtained for any other sums due under this Agreement.

 

12.11                  Notices .  All notices, requests, demands, directions, consents and other communications under this Agreement shall, unless otherwise stated herein, he in writing, and mailed or hand-delivered or sent by facsimile or e-mail transmission as to each party hereto, at the address for such party set forth below, or at stich address as shall be designated by the party in a written notice to the other party hereto (and, for ease of reference, facsimile or e-mail transmissions sent from the Borrower to the Administrative Agent and/or Lenders shall be governed by the terms and conditions of the Electronic Communication Agreement, save to the extent that any of its provisions are in conflict with the terms of this Agreement, and, in such cases, the terms of this Agreement shall have priority):

 

If to the Borrower:                                            Seven Seas Water Corporation (USVI)
c/o Marjorie Rawls Roberts, PC
One Hibiscus Alley
5093 Dronningens Gade, Ste. 1
St. Thomas, VI 00802
Attention:  Secretary
Facsimile:  +1 (340) 776-7951

 

With a copy to:                                                             AquaVenture Holdings LLC
14400 Carlson Circle
Tampa, FL 33626
Attention:  John Curtis
Facsimile:  +1 (813) 855-8631

 

If to the Administrative Agent:

 

The Bank of Nova Scotia
720 King Street West, 2nd Floor
Toronto, Ontario M5V 2T3

 

38


 

Attention:  Director Agency

Department:  Global Wholesale Services

Reference:  Seven Seas Water Corporation (USVI)

Facsimile:  +1 (416) 866-5991

 

If to The Bank of Nova Scotia as Lender:

 

The Bank of Nova Scotia

720 King Street West, 2nd Floor

Toronto, Ontario M5V 2T3

Attention:  Director Agency

Department:  Global Wholesale Services

Reference:  Seven Seas Water Corporation (USVI)

Facsimile:  +1 (416) 866-5991

 

If to FirstBank Puerto Rico as Lender:

 

FirstBank Puerto Rico

P.O. Box 309600

St. Thomas, U.S. Virgin Islands 00803

Attention:  Maria B. Conor

Department:  Commercial Lending

Reference:  Seven Seas USVI Term Loan

Facsimile:  +1 (340) 776-5434

Phone:  +1 (340) 775-8809

 

If to Guarantor:                                                          AquaVenture Holdings LLC

14400 Carlson Circle

Tampa, FL 33626

Attention:  Jeff Lentz

Facsimile:  +1 (813) 855-8631

 

All such notices, requests, demands, directions and other communications shall, in the case of hand delivery, overnight or international courier, and facsimile or e-mail transmission, be effective when received, if received between the hours of 8.30 am and 4.30 pm on a Business Day, and if not so received on a Business Day, shall be effective from the next day which is a Business Day; and in the case of mail, (other than overnight or international courier) on the third ( 3 rd ) Business Day following the posting thereof, postage prepaid.

 

12.12                  Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same instrument.  Delivery of an executed signature page to this Agreement by any party by electronic transmission will be effective as delivery of a manually executed copy of this Agreement by such party.

 

12.13                  General Indemnity .  The Borrower shall indemnify, exonerate and hold each of the Lenders, the Administrative Agent and each of its respective Affiliates, officers, directors, employees and agents (collectively the “ Indemnified Parties ”), free and harmless from and

 

39



 

against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith, (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable documented, out-of-pocket legal fees and disbursements, but excluding indirect, special or consequential losses or damages (collectively the “ Indemnified Liabilities ”), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to:

 

(a)                                  any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of this Loan;

 

(b)                                  the entering into and performance of this Agreement, the Financial Documents and the documents set out in Appendices I to V thereto, by the Borrower, (including any action brought by or on behalf of the Borrower as a result of any determination by the Lenders to suspend the Lender’s obligations to make Advances pursuant to Section 9.2 of the Agreement or to terminate an Advance pursuant to Section 7 of the Agreement but not including any breach of this Agreement and any breach of the documents set out in Appendices I to V thereto by the Lender); and

 

(c)                                   any investigation, litigation or proceeding which relates directly to the Borrower or the Guarantor related to any aspect of this Agreement, the Financial Documents and the documents set out in Appendices 1 to V thereto,

 

except (in relation to (a), (b) and (c) above), for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Parties’ gross negligence, bad faith, or wilful misconduct.

 

12.14                  Right of Set-off .  If an Event of Default shall have occurred and be continuing, the Administrative Agent and each Lender, and any Affiliate of the Administrative Agent and each Lender, is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held, and any other obligations (in whatever currency) at any time owing, by the Administrative Agent and such Lender or any such Affiliate, to or for the credit or the account of the Borrower or the Guarantor, against any and all of the Obligations of the Borrower and any Guaranteed Obligations (as defined in the Guarantee) of the Guarantor then due and owing under this Agreement, this Guarantee, or any other Financial Document (as applicable) to such Lender, the Administrative Agent or their Affiliates, irrespective of whether or not such Lender or Affiliate shall have made any demand under this Agreement, the Guarantee, or any other Financial Document and although such obligations of the Administrative Agent and Lender may be contingent or unmatured or are owed to a branch, office or Affiliate of such Lender or Administrative Agent different from the branch, office or Affiliate holding such deposit or obligated on such Indebtedness; provided , that in the event that any Delinquent Lender shall exercise any such right of set-off, (a) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 11.5 (c) and, pending such payment, shall be segregated by such Delinquent Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the other Lender, and (b) the Delinquent Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the

 

40



 

Obligations owing to such Delinquent Lender as to which it exercised such right of set-off.  The rights of the Administrative Agent and each Lender and each of their respective Affiliates under this Section 12.14 are in addition to other rights and remedies (including other rights of setoff) that such Lender, the Administrative Agent or their respective Affiliates may have.  Each Lender agrees to notify each other Lender and the Administrative Agent promptly after any such setoff and application; provided , that the failure to give such notice shall not affect the validity of such setoff and application.

 

SECTION 13

 

APPLICABLE LAW AND JURISDICTION

 

13.1                         This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, United States of America, without reference to its principles of conflicts of laws (other than Section 5-1401 of the New York General Obligations Law).

 

13.2                         The parties hereby irrevocably submit, on a non-exclusive basis, to the jurisdiction of any State or United States Federal Court sitting in the State of New York, United States of America and any appellate court thereof, in any action or proceeding arising out of or relating to this Agreement, the Guarantee, or any Promissory Notes or for the recognition or enforcement of any judgment.  The Borrower and the Guarantor irrevocably appoints CT Corp., an agent for service of process to accept service from the courts of the State of New York, United States of America, in any action.

 

13.3                         THE PARTIES HERETO EACH HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

13.4                         All indemnification and expense reimbursement provisions set forth herein, including, without limitation, those set forth in Section 12.13, shall survive the execution and delivery of this Credit Agreement and the Promissory Notes and the making and repayment of the Loan Amounts.  In addition, each representation and warranty made or deemed to be made pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any extension of credit, any Default or Event of Default which may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made.

 

13.5                         Each Lender hereby notifies the Borrower and the Guarantor that, pursuant to the requirements of the U.S.A. Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), such Lender is required to obtain, verify and record information that identifies the Borrower and Guarantor, which information includes the name, address, tax identification number and other information regarding the Borrower and Guarantor that will allow such Lender to identify the Borrower and Guarantor in accordance with such act.  This notice is given in accordance with the requirements of the U.S.A. Patriot Act and is effective as to each Lender.

 

41



 

[the signature pages follow this page]

 

42



 

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed on the date above written.

 

SIGNED, SEALED, AND DELIVERED

 

 

 

 

 

The Bank of Nova Scotia , as Lender

 

 

 

 

 

 

 

 

By:

/s/ Sharmane A. Brookes

 

By:

/s/ Lawrence Aqui

 

Name: Sharmane A. Brookes

 

 

Name: Lawrence Aqui

 

Title: Commercial Banking Manager

 

 

Title: Vice President

 

 

 

 

 

 

FirstBank Puerto Rico, as Lender

 

 

 

 

 

 

 

 

By:

/s/ Maria B. Conor

 

By:

/s/ Joseph E. Hosie

 

Name: Maria B. Conor

 

 

Name: Joseph E. Hosie

 

Title: Vice President

 

 

Title: Senior Vice President

 

 

 

 

 

 

Seven Seas Water Corporation (USVI) , as Borrower

 

 

 

 

 

 

 

 

By:

/s/ John. F Curtis

 

 

 

Name: Vice President Finance, Treasurer and Secretary

 

 

 

Title: John F. Curtis

 

 

 

 

 

 

 

 

AquaVenture Holdings LLC , as Guarantor

 

 

 

 

 

Executing this Agreement specifically and exclusively in respect of sub-Sections 1.55, 1.56, 1.78, 4.1(e), 4.1(f), 5.1(f), 5.1(l), 6.1(a), 6.1(b), 6.8, 6.13, 6.16(a), 6.16(b), 8.12, 8.15, 9.1(b), 9.1(c), 9.1(d), 9.1(e), 9.1(f), 9.1(g), 9.1(h), 9.1(i), 9.1(j), 9.1(n), 11.4, 11.7, 12.5, 12.6, 12.7, 12.13(c), 12.14, 13.2, 13.3 and 13.5.

 

 

 

 

 

By:

/s/ John. F Curtis

 

By:

 

 

Name: John F. Curtis

 

 

Name:

 

Title: President and Secretary

 

 

Title:

 



 

The Bank of Nova Scotia , as Administrative Agent

 

 

 

 

 

 

 

 

By:

/s/ Sharmane A. Brookes

 

By:

/s/ Lawrence Aqui

 

Name: Sharmane A. Brookes

 

 

Name: Lawrence Aqui

 

Title: Commercial Banking Manager

 

 

Title: Vice President

 



 

FIRST AMENDMENT TO THE CREDIT AGREEMENT

 

This First Amendment to the Credit Agreement (the “ Amendment ”) is made on the 9th day of September, 2013.

 

BETWEEN:

 

The Bank of Nova Scotia, as Administrative Agent {the “ Agent ”)

 

AND

 

The Bank of Nova Scotia, as Lender (“ Scotiabank ”)

 

AND

 

FirstBank Puerto Rico, as Lender (“ FirstBank ” and together with Scotiabank, the “ Lenders ”)

 

AND

 

Seven Seas Water Corporation (USVI) (the “ Borrower ”)

 

AND

 

Aqua Venture Holdings LLC (the “ Guarantor ”)

 

WHEREAS

 

A)                                    The Borrower, the Lenders and the Agent entered into a credit agreement dated as of March 27, 2013, whereby the Lenders made available to the Borrower a credit facility of up to US$25,000,000 (the “ Credit Agreement ”); and

 

B)                                    The Borrower, the Guarantor, the Lenders and the Agent have now agreed to make certain amendments to the Credit Agreement as set forth herein.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties to this Amendment, that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

 

ARTICLE 1
DEFINITIONS AND INTERPRETATION

 

1.1                                Wherever used in this Amendment, unless the context shall otherwise require, terms defined in the Credit Agreement shall have the same meaning herein.

 

1.2                                In this Amendment, the singular includes the plural and vice versa, and references to any gender include any other gender.

 



 

1.3                                The clause headings and the titles of the paragraphs and sections of this Amendment are inserted for convenience only and shall be ignored in construing this Amendment.

 

1.4                                This Amendment is an amendment to the Credit Agreement.  Unless the context of this Amendment otherwise requires, the Credit Agreement and this Amendment shall be read together and shall have effect as if the provisions of the Credit Agreement and this Amendment were contained in one agreement.  The term “ Agreement ” or “ Credit Agreement ” when used in the Credit Agreement means the Credit Agreement as amended, supplemented or modified from time to time (including as amended by this Amendment).

 

ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT

 

2.1                                Section 1.44 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“1.44 “ Final Drawdown Date ” means the last date upon which Advances may be provided to the Borrower, which shall be October 15, 2013.”

 

2.2                                Section 1.94 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“1. 94 “ Project Completion Date ” means, in respect of both of the Harley Plant and the Richmond Plant, September 30, 2013.”

 

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

 

3.1                                The Borrower represents and warrants that the representations and warranties contained in Section 8 of the Credit Agreement continue to be true and correct as if made on and as of the date hereof.

 

ARTICLE 4
MISCELLANEOUS PROVISIONS

 

4.1                                The Borrower acknowledges and confirms that, except as amended hereby, the Credit Agreement shall remain in full force and effect, without further amendment, and is hereby ratified and confirmed, and the Guarantor acknowledges and confirms that the Guarantee remains in full force and effect and is hereby ratified and confirmed.

 

4.2                                This Amendment shall be construed and enforced in accordance with, the laws of the State of New York, United States of America, without reference to its principles of conflicts of laws, (other than Section 5-1401 of the New York General Obligations Law).

 

4.3                                This Amendment relates only to the specific matters expressly covered herein, and except for the amendments under the Credit Agreement expressly provided for herein, this Amendment shall not be considered to be a waiver of any other rights or remedies the Lenders or

 

2



 

the Agent may have under the Credit Agreement, and shall not be considered to create a course of dealing or to otherwise obligate in any respect the Lenders or the Agent to execute similar or other amendments under the same or similar or other circumstances in the future.

 

4.4                                This Amendment may be executed by the 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 facsimile or electronic communication shall be effective as delivery of a manually executed counterpart of this Amendment.

 

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

 

3



 

IN WITNESS WHEREOF the parties hereto have caused this Amendment to be duly executed as of the date set out above.

 

 

THE BANK OF NOVA SCOTIA, as Administrative Agent

 

 

 

 

 

By:

/s/ Richard B. McCorkindale

 

 

Name: Richard B. McCorkindale

 

 

Title: Director

 

 

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

 

Name: Luis Pablo Bautista

 

 

Title: Senior Manager

 

 

 

 

 

THE BANK OF NOVA SCOTIA, as Lender

 

 

 

 

 

By:

/s/ Richard B. Corkindale

 

 

Name: Richard McCorkindale

 

 

Title: Director, ICCB

 

 

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

 

Name: Luis Pablo Bautista

 

 

Title: Sr. Manager, ICCB

 


 

 

 

FIRSTBANK PUERTO RICO, as Lender

 

 

 

 

 

By:

/s/ Maria Conor-Freeman

 

 

Name: Maria Conor-Freeman

 

 

Title: Vice President

 

 

 

 

 

 

 

By:

/s/ Joseph E. Hosie

 

 

Name: Joseph E. Hosie

 

 

Title: Senior Vice President

 



 

 

SEVEN SEAS WATER CORPORATION (USVI), as Borrower

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

Name:  John F. Curtis

 

 

Title:  VP Finance + Director

 

 

 

 

 

AQUA VENTURE HOLDINGS LLC, as Guarantor

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

Name:  John F. Curtis

 

 

Title:  Director + President

 



 

Execution Copy

 

SECOND AMENDMENT TO THE CREDIT AGREEMENT

 

This Second Amendment to the Credit Agreement (the “ Second Amendment ”) is made on the 20 day of May 2014.

 

BETWEEN:

 

The Bank of Nova Scotia, as Administrative Agent (the “ Agent ”)

 

AND

 

The Bank of Nova Scotia, as Lender (“ Scotiabank ”)

 

AND

 

Seven Seas Water Corporation (USVI) (the “ Borrower ”)

 

AND

 

Aqua Venture Holdings LLC (the “ Guarantor ”)

 

WHEREAS

 

A)                                    The Borrower, the Guarantor, the Lenders and the Agent entered into a credit agreement dated as of March 27. 2013, whereby the Lenders made available to the Borrower a credit facility of up to US$25,000,000 (the “ Original Credit Agreement ”); and

 

B)                                    The Borrower, the Guarantor, the Lenders and the Agent agreed to make certain amendments to the Original Credit Agreement pursuant to a First Amendment to the Credit Agreement dated September 9, 2013 (the Original Credit Agreement as so amended, the “ Credit Agreement ”); and

 

C)                                    The Borrower has breached certain covenants of the Credit Agreement as described herein and has requested the Lenders waive such breaches of covenant, and the Required Lender has so agreed on the terms and conditions set forth herein; and

 

D)                                    The Borrower, the Guarantor, the Required Lender and the Agent have now agreed to make further amendments to the Credit Agreement as set forth herein.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties to this Second Amendment, that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

 



 

Execution Copy

 

ARTICLE 1
DEFINITIONS AND INTERPRETATION

 

1.1                                Wherever used in this Second Amendment, unless the context shall otherwise require, terms defined in the Credit Agreement shall have the same meaning herein.

 

1.2                                In this Second Amendment, the singular includes the plural and vice versa, and references to any gender include any other gender.

 

1.3                                The clause headings and the titles of the paragraphs and sections of this Second Amendment are inserted for convenience only and shall be ignored in construing this Second Amendment.

 

1.4                                This Second Amendment is an amendment to the Credit Agreement.  Unless the context of this Second Amendment otherwise requires, the Credit Agreement and this Second Amendment shall be read together and shall have effect as if the provisions of the Credit Agreement and this Second Amendment were contained in one agreement.  The term “ Agreement ” or “ Credit Agreement ” when used in the Credit Agreement means the Credit Agreement as amended, supplemented or modified from time to time (including as amended by this Second Amendment).

 

ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT

 

2.1                                Negative Pledge by Guarantor .  Section 5.1(f) of the Credit Agreement is hereby deleted in its entirety.

 

2.2                                Limitation on Distributions .

 

(a)                                  The definition of “Distributions” is hereby deleted in its entirety and replaced with the following:

 

Distributions ” means payments by the Borrower (i) to its shareholders in respect of its capital stock or other ownership interests, including, without limitation, payment of dividends, (ii) to its shareholders or affiliates of its shareholders in respect of principal or interest on Related Party Debt and (iii) of any management, consulting or similar fees to any affiliate of the Borrower or to any director or officer of an affiliate of the Borrower or to any person not dealing at arm’s length with the Borrower, in each case, in cash or other property except for payments payable solely in stock or other ownership interests.

 

(b)                                  Section 5.1(g) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“(g)  Limitation on Distributions :  Except as permitted pursuant to Section 2.1, make any Distribution unless (i) the projected and historical DSCR on a rolling four calendar quarter basis is equal to at least 1.40X, (ii) the DSR is fully funded, and (iii) all other covenants have been, and are, met;”

 

2



 

2.3                                Limitation on Indebtedness .

 

(a)                                  The following new definition of “Related Party Debt” is hereby added to Section 1 ( Definitions ) in the correct alphabetical order:

 

Related Party Debt ” means Indebtedness owing by (i) the Borrower to a shareholder of the Borrower or (ii) the Borrower to an affiliate of a shareholder of the Borrower.”

 

(b)                                  Section 5.1(h) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“(h)  Limitation on Indebtedness :  At any time, incur, assume or permit any Indebtedness in an amount in excess of three million Dollars ($3,000,000), provided that, for the purposes of this Section 5.1(h) “Indebtedness” shall not include the Loan and any Related Party Debt.”

 

(c)                                   For avoidance of doubt, accounts payable by the Borrower to a shareholder of the Borrower or an affiliate of a shareholder of the Borrower arising from the delivery of goods or the provision of trade services to the Borrower and payable within 180 days of the delivery of such goods or the provision of such trade services are not “Indebtedness” or “Related Party Debt” as defined in the Credit Agreement.

 

2.4                                Maintenance of Insurance .  Section 6.2 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

 

“6.2 The Borrower hereby covenants that it shall (i) prior to the Project Completion Date, on an annual basis, provide the Administrative Agent with copies of a builder’s all-risk insurance policy (including hurricane and earthquake risk) insuring the Project until the Project Completion Date and covering the Project in an amount equal to a replacement cost of at least twenty-five million Dollars ($25,000,000) and (ii) following the Project Completion Date, in each year that any amount of the Loan is outstanding, provide the Administrative Agent with copies of an all-risk insurance policy (including hurricane risk, earthquake risk and business interruption) with a minimum term of twelve (12) months and covering the Project in an amount equal to 105% of the principal amount of the Loan outstanding on the date on which such insurance policy is obtained or renewed, and, in each case, the applicable insurance policy shall name the Administrative Agent as lender loss payee.”

 

ARTICLE 3
WAIVERS

 

3.1                                Subject to the satisfaction of the conditions set forth in Section 4.1, the Required Lender hereby agrees to waive any breach, occurring prior to the date of this Fourth Amendment, by the Borrower of Section 5.1(h) ( Limitation on Indebtedness ).

 

3.2                                Subject to the satisfaction of the conditions set forth in Section 4.1, the Required Lender hereby agrees to waive the breach by the Borrower of its obligation pursuant to Section

 

3



 

6.16(a) of the Credit Agreement to deliver the unconsolidated, audited, financial statements of the Borrower for its fiscal year ended December 31, 2013 and the consolidated, audited, financial statements for the Guarantor for its fiscal year ended December 31, 2013 not later than 120 days after the end of the Fiscal Year of the Borrower, provided that such waiver shall automatically terminate and be of no further force or effect if such financial statements are not received by the Agent by May 31, 2014.  Failure by the Borrower to deliver such financial statements by May 31, 2014 shall constitute an Event of Default under the Credit Agreement.

 

ARTICLE 4
CONDITIONS PRECEDENT

 

4.1                                The amendments and waivers set forth in this Second Amendment shall become effective and binding on the Lenders only upon satisfaction of the following conditions precedent:

 

(a)                                  Receipt by the Agent of a fully executed copy of this Second Amendment;

 

(b)                                  No event shall have occurred, and no Lender shall become aware of, any facts not previously disclosed to it which such Lender determines is reasonably likely to have a Material Adverse Effect; and

 

(c)                                   Payment by the Borrower to the Agent of an administrative amendment fee in the amount of $5,000.

 

ARTICLE 5
REPRESENTATIONS AND WARRANTIES

 

5.1                                The Borrower represents and warrants that the representations and warranties contained in Section 8 of the Credit Agreement continue to be true and correct as if made on and as of the date hereof.

 

ARTICLE 6
MISCELLANEOUS PROVISIONS

 

6.1                                Confirmation of Agreements .  The Borrower and the Guarantor acknowledge and confirm that, except as amended hereby, the Credit Agreement shall remain in full force and effect, without further amendment, and is hereby ratified and confirmed, and the Guarantor acknowledges and confirms that the Guarantee remains in full force and effect and is hereby ratified and confirmed.

 

6.2                                Governing Law .  This Second Amendment shall be construed and enforced in accordance with, the laws of the State of New York, United States of America.

 

6.3                                Limited Effect .  This Second Amendment relates only to the specific matters expressly covered herein, and except for the amendments and waivers under the Credit Agreement expressly provided for herein, this Second Amendment shall not be considered to be a waiver of any other rights or remedies the Lenders and the Agent may have under the Credit Agreement, and shall not be considered to create a course of dealing or to otherwise obligate in

 

4



 

any respect the Lenders or the Agent to execute similar or other amendments or waivers under the same or similar or other circumstances in the future.

 

6.4                                Counterparts .  This Second Amendment may be executed by the 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 facsimile or electronic communication shall be effective as delivery of a manually executed counterpart of this Second Amendment.

 

[ The remainder of this page intentionally left blank.]

 

5



 

Execution Copy

 

IN WITNESS WHEREOF the parties hereto have caused this Second Amendment to be duly executed as of the date set out above.

 

 

THE BANK OF NOVA SCOTIA, as Administrative Agent

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

Name:  Luis Pablo Bautista

 

Title:  Sr. Manager, ICCB

 

 

 

 

 

By:

/s/ Mazie MacDonald

 

Name:  Mazie MacDonald

 

Title:  Vice President - ICCB

 

 

 

 

 

THE BANK OF NOVA SCOTIA, as Lender

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

Name:  Luis Pablo Bautista

 

Title:  Sr. Manager, ICCB

 

 

 

 

 

By:

/s/ Mazie MacDonald

 

Name:  Mazie MacDonald

 

Title:  Vice President - ICCB

 

 

 

 

 

SEVEN SEAS WATER CORPORATION (USVI), as Borrower

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

Name: John F. Curtis

 

 

Title: Director

 

 

 

 

 

AQUA VENTURE HOLDINGS LLC, as Guarantor

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

Name: John F. Curtis

 

 

Title: President and Director

 

6



 

THIRD AMENDMENT TO THE CREDIT AGREEMENT

 

This Third Amendment to the Credit Agreement (the “ Third Amendment ”) is made on the 20 th  day of  Oct. 2014.

 

BETWEEN:

 

The Bank of Nova Scotia, as Administrative Agent (the “ Agent ”)

 

AND

 

The Bank of Nova Scotia, as Lender (“ Scotiabank ”)

 

AND

 

Seven Seas Water Corporation (USVI) (the “ Borrower ”)

 

AND

 

Aqua Venture Holdings LLC (the “ Guarantor ”)

 

WHEREAS

 

A)                                    The Borrower, the Guarantor, the Lenders and the Agent entered into a credit agreement dated as of March 27, 2013, (as amended from time to time, the “ Credit Agreement ”) whereby the Lenders made available to the Borrower a credit facility of up to $25,000,000.

 

B)                                    Pursuant to Section 6.13 of the Credit Agreement, the Guarantor is required to maintain a Tangible Net Worth of not less than sixty-five million dollars ($65,000,000).  In connection with a recent merger involving the Guarantor, the Borrower has requested, and the Lender has agreed, that this Tangible Net Worth covenant be reduced to fifty million U.S. dollars ($50,000,000).

 

C)                                    Accordingly, the Borrower, the Guarantor, the Lenders and the Agent have now agreed to make the amendments to the Credit Agreement as set forth herein.

 

NOW THEREFORE IT IS HEREBY AGREED by and between the parties to this Third Amendment, that, in consideration of the mutual covenants and agreements contained herein, the parties covenant and agree as follows:

 



 

ARTICLE 1
DEFINITIONS AND INTERPRETATION

 

1.1                                Wherever used in this Third Amendment, unless the context shall otherwise require, terms defined in the Credit Agreement shall have the same meaning herein.

 

1.2                                In this Third Amendment, the singular includes the plural and vice versa, and references to any gender include any other gender.

 

1.3                                The clause headings and the titles of the paragraphs and sections of this Third Amendment are inserted for convenience only and shall be ignored in construing this Third Amendment.

 

1.4                                This Third Amendment is an amendment to the Credit Agreement.  Unless the context of this Third Amendment otherwise requires, the Credit Agreement and this Third Amendment shall be read together and shall have effect as if the provisions of the Credit Agreement and this Third Amendment were contained in one agreement.  The term “ Agreement ” or “ Credit Agreement ” when used in the Credit Agreement means the Credit Agreement as amended, supplemented or modified from time to time (including as amended by this Third Amendment).

 

ARTICLE 2
AMENDMENTS TO THE CREDIT AGREEMENT

 

2.1                                Guarantor’s Minimum Tangible Net Worth .  Section 6.13 of the Credit Agreement is hereby amended by replacing the phrase “sixty-five million Dollars ($65,000,000)” with the phrase “fifty million Dollars ($50,000,000)”.

 

ARTICLE 3
CONDITIONS PRECEDENT

 

3.1                                The amendment set forth in this Third Amendment shall become effective only upon satisfaction of the following conditions precedent:

 

(a)                                  Receipt by the Agent of a fully executed copy of this Third Amendment;

 

(b)                                  No event shall have occurred, and no Lender shall become aware of, any facts not previously disclosed to it which such Lender determines is reasonably likely to have a Material Adverse Effect; and

 

(c)                                   Payment by the Borrower to the Agent of an administrative amendment fee in the amount of $5,000.

 

2



 

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

 

4.1                                The Borrower represents and warrants that the representations and warranties contained in Section 8 of the Credit Agreement continue to be true and correct as if made on and as of the date hereof.

 

ARTICLE 5
MISCELLANEOUS PROVISIONS

 

5.1                                Confirmation of Agreements .  The Borrower and the Guarantor acknowledge and confirm that, except as amended hereby, the Credit Agreement shall remain in full force and effect, without further amendment, and is hereby ratified and confirmed, and the Guarantor acknowledges and confirms that the Guarantee remains in full force and effect and is hereby ratified and confirmed.

 

5.2                                Governing Law .  This Third Amendment shall be construed and enforced in accordance with, the laws of the State of New York, United States of America.

 

5.3                                Limited Effect .  This Third Amendment relates only to the specific matters expressly covered herein, and except for the amendments and waivers under the Credit Agreement expressly provided for herein, this Third Amendment shall not be considered to be a waiver of any other rights or remedies the Lenders and the Agent may have under the Credit Agreement, and shall not be considered to create a course of dealing or to otherwise obligate in any respect the Lenders or the Agent to execute similar or other amendments or waivers under the same or similar or other circumstances in the future.

 

5.4                                Counterparts .  This Third Amendment may be executed by the 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 facsimile or electronic communication shall be effective as delivery of a manually executed counterpart of this Third Amendment.

 

[The remainder of this page intentionally left blank.]

 

3



 

IN WITNESS WHEREOF the parties hereto have caused this Third Amendment to be duly executed as of the date set out above.

 

 

THE BANK OF NOVA SCOTIA, as Administrative Agent

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

 

Name:  Luis Pablo Bautista

 

 

Title:  Director, International Corporate and Commercial Banking

 

 

 

 

 

By:

/s/ Mazie MacDonald

 

 

Name:  Mazie MacDoland

 

 

Title:  Vice-President, International Corporate and Commercial Banking

 

 

 

 

 

THE BANK OF NOVA SCOTIA, as Lender

 

 

 

 

 

By:

/s/ Luis Pablo Bautista

 

 

Name:  Luis Pablo Bautista

 

 

Title:  Director, International Corporate and Commercial Banking

 

 

 

 

 

By:

/s/ Mazie MacDonald

 

 

Name:  Mazie MacDonald

 

 

Title:  Vice-President, International Corporate and Commercial Banking

 

 

 

 

 

SEVEN SEAS WATER CORPORATION (USVI), as Borrower

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

Name: John F. Curtis

 

 

Title: Director

 

 

 

 

 

AQUA VENTURE HOLDINGS LLC, as Guarantor

 

 

 

 

 

By:

/s/ John F. Curtis

 

 

Name: John F. Curtis

 

 

Title: President and Director

 

4


 



Exhibit 10.11

 

EXECUTION VERSION

 

 

 

AQUA VENTURES HOLDINGS CURAÇAO N.V.

 


 

$35,000,000

 

CREDIT AGREEMENT

 

Dated as of June 18, 2015

 


 

CITIBANK, N.A. ,

as Administrative Agent

 

 

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

ARTICLE I

DEFINITIONS

1

 

 

 

Section 1.01

Certain Defined Terms

1

Section 1.02

Accounting Principles

26

Section 1.03

Interpretation

28

 

 

 

ARTICLE II

THE LOANS

29

 

 

 

Section 2.01

The Loans

29

Section 2.02

Procedures for Borrowings

29

Section 2.03

Non-Receipt of Funds

30

Section 2.04

Lending Offices

30

Section 2.05

Evidence of Indebtedness

30

 

 

 

ARTICLE III

INTEREST AND FEES

31

 

 

 

Section 3.01

Interest

31

Section 3.02

Default Rate of Interest

32

Section 3.03

Fees

32

Section 3.04

Computations

33

Section 3.05

Highest Lawful Rate

33

 

 

 

ARTICLE IV

REDUCTION OF COMMITMENTS; REPAYMENT; PREPAYMENT

33

 

 

 

Section 4.01

Reduction or Termination of the Commitments

33

Section 4.02

Repayment of the Loans

33

Section 4.03

Prepayments

33

 

 

 

ARTICLE V

YIELD PROTECTION AND ILLEGALITY

34

 

 

 

Section 5.01

Inability to Determine Rates

34

Section 5.02

Compensation for Losses

34

Section 5.03

Increased Costs

35

Section 5.04

Illegality

36

Section 5.05

Funding Assumptions

36

Section 5.06

Obligation to Mitigate

36

Section 5.07

Reserves on Eurodollar Rate Loans

37

Section 5.08

Substitution of Lenders

37

 

 

 

ARTICLE VI

PAYMENTS

38

 

 

 

Section 6.01

Pro Rata Treatment

38

Section 6.02

Payments

38

Section 6.03

Taxes

39

Section 6.04

Non-Receipt of Funds

42

 

i



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

Section 6.05

Sharing of Payments

43

Section 6.06

Defaulting Lenders

43

 

 

 

ARTICLE VII

CONDITIONS PRECEDENT

44

 

 

 

Section 7.01

Conditions Precedent to the Initial Loans

44

Section 7.02

Continuing Conditions

46

 

 

 

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

47

 

 

 

Section 8.01

Representations and Warranties

47

 

 

 

ARTICLE IX

AFFIRMATIVE COVENANTS

53

 

 

 

Section 9.01

Financial Statements and Other Reports

53

Section 9.02

Additional Information

55

Section 9.03

Preservation of Existence, Etc.

56

Section 9.04

Payment of Obligations

56

Section 9.05

Maintenance of Insurance

57

Section 9.06

Keeping of Records and Books of Account

57

Section 9.07

Inspection Rights

57

Section 9.08

Compliance with Laws, Etc.

57

Section 9.09

Maintenance of Properties, Etc.

57

Section 9.10

Licenses

57

Section 9.11

Action Under Environmental Laws

57

Section 9.12

Use of Proceeds

58

Section 9.13

Further Assurances and Additional Acts

58

Section 9.14

New Guarantors

58

 

 

 

ARTICLE X

NEGATIVE COVENANTS

59

 

 

 

Section 10.01

Indebtedness

59

Section 10.02

Liens; Burdensome Agreements

61

Section 10.03

Change in Nature of Business

61

Section 10.04

Restrictions on Fundamental Changes

62

Section 10.05

Sales of Assets

62

Section 10.06

Loans and Investments

63

Section 10.07

Restricted Payments

64

Section 10.08

Amendments of Certain Documents

64

Section 10.09

Payment of Indebtedness

65

Section 10.10

Transactions with Affiliates

65

Section 10.11

Accounting Changes

65

Section 10.12

Sanctions

65

Section 10.13

Financial Covenants

65

 

ii



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

ARTICLE XI

EVENTS OF DEFAULT

67

 

 

 

Section 11.01

Events of Default

67

Section 11.02

Effect of Event of Default

69

 

 

 

ARTICLE XII

THE AGENT

70

 

 

 

Section 12.01

Appointment and Authority

70

Section 12.02

Rights as a Lender

70

Section 12.03

Exculpatory Provisions

70

Section 12.04

Reliance by Agent

71

Section 12.05

Delegation of Duties

71

Section 12.06

Resignation of Agent

72

Section 12.07

Non-Reliance on Agent and Other Lenders

73

Section 12.08

Agent May File Proofs of Claim

73

Section 12.09

Collateral and Guaranty Matters

74

 

 

 

ARTICLE XIII

MISCELLANEOUS

74

 

 

 

Section 13.01

Amendments and Waivers

74

Section 13.02

Notices; Effectiveness; Electronic Communication

76

Section 13.03

No Waiver; Cumulative Remedies

77

Section 13.04

Costs and Expenses; Indemnification

78

Section 13.05

Right of Set-Off

79

Section 13.06

Survival

80

Section 13.07

Obligations Several

80

Section 13.08

Benefits of Agreement

80

Section 13.09

Binding Effect; Assignment

81

Section 13.10

Governing Law

84

Section 13.11

Submission to Jurisdiction

84

Section 13.12

Waiver of Jury Trial

85

Section 13.13

Confidentiality

85

Section 13.14

Entire Agreement

86

Section 13.15

Payments Set Aside

86

Section 13.16

No Advisory or Fiduciary Responsibility

86

Section 13.17

Severability

87

Section 13.18

Appointment of Process Agent

87

Section 13.19

Waiver of Immunity

88

Section 13.20

Translation

88

Section 13.21

Payment in Dollars

88

Section 13.22

Counterparts

88

Section 13.23

USA PATRIOT Act Notice

89

 

iii



 

SCHEDULES

 

 

 

 

 

Schedule 1

Agent’s Account; Lending Offices; Notices

 

Schedule 2

Commitments

 

Schedule 3

Liens

 

Schedule 4

Unrestricted Subsidiaries

 

Schedule 5

Litigation

 

Schedule 6

Capital Structure

 

Schedule 7

Liabilities

 

Schedule 8

Indebtedness

 

Schedule 9

Burdensome Agreements

 

Schedule 10

Equity Holders

 

 

 

 

EXHIBITS

 

 

 

 

 

Exhibit A

Form of Assignment and Assumption

 

Exhibit B

Form of Compliance Certificate

 

Exhibit C

Form of Guaranty

 

Exhibit D

Form of Notice of Borrowing

 

Exhibit E-1

U.S. Tax Compliance Certificate of Foreign Lender

 

Exhibit E-2

U.S. Tax Compliance Certificate of Foreign Lender

 

Exhibit E-3

U.S. Tax Compliance Certificate of Foreign Lender

 

Exhibit E-4

U.S. Tax Compliance Certificate of Foreign Lender

 

 

iv


 

CREDIT AGREEMENT

 

This CREDIT AGREEMENT (this “ Agreement ”), dated as of June 18, 2015, is made among Aqua Ventures Holdings Curaçao N.V., a Curaçao limited liability company having its corporate seat in Curaçao and its registered office at Emancipatie Boulevard 31, and registered in the Commercial Register of the Chamber of Commerce of Curaçao under number 131676 (the “ Borrower ”), the Guarantors listed on the signature pages of this Agreement, the financial institutions listed on the signature pages of this Agreement under the heading “LENDERS” (each a “ Lender ” and, collectively, the “ Lenders ”) and Citibank, N.A. as administrative agent for the Lenders hereunder (in such capacity, the “ Agent ”).

 

The Borrower has requested the Lenders to make term loans to the Borrower in an aggregate principal amount of up to $35,000,000.  The Lenders are severally willing to make such loans to the Borrower upon the terms and subject to the conditions set forth in this Agreement.

 

Accordingly, the parties hereto agree as follows:

 

ARTICLE I
DEFINITIONS

 

Section 1.01          Certain Defined Terms .  As used in this Agreement, the following terms shall have the following meanings:

 

Acquisition ” means the acquisition by the Buyer of the Target pursuant to the Acquisition Documents.

 

Acquisition Documents ” means the Purchase Agreement and each related document executed in connection therewith, including any related financing documents or amendments to financing documents (whether entered into on the date of the Purchase Agreement or thereafter in accordance with the Purchase Agreement).

 

Act ” has the meaning set forth in Section 13.23.

 

Administrative Questionnaire ” means an Administrative Questionnaire in a form supplied by the Agent.

 

Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

 

Agent ” has the meaning set forth in the recital of parties to this Agreement.

 

Agent Parties ” has the meaning set forth in Section 13.02(d)(ii).

 

Agent’s Account ” means the account of the Agent set forth on Schedule 1 or such other account as the Agent from time to time shall designate in a written notice to the Borrower and the Lenders.

 

1



 

Agreement ” has the meaning set forth in the recitals to this Agreement.

 

Applicable Amount ” means the sum (such sum and each of the following components to be calculated in each quarterly Compliance Certificate) of (A) $47,300,000 as set forth in the Compliance Certificate delivered pursuant to Section 7.01(d)(iv), plus (B) the proceeds of equity investments in the Parent Guarantor after the Closing Date (excluding proceeds of equity investments that are included in a Cure Amount), plus (C) the Applicable Percentage of the difference (if positive) for each fiscal year after the Closing Date between (x) Holdco Cash Flow for such fiscal year and (y) total interest expense and fees of the Borrower under the Facility for such fiscal year, minus (D) the amount of any payments made under performance guarantees permitted by Section 10.01(i) of the obligations of any Unrestricted Subsidiary, minus (E) the amount of any Investments made under clause (h) of Section 10.06 with the Applicable Amount; provided that (i) to the extent that any Unrestricted Subsidiary is designated as a Restricted Subsidiary after the Closing Date, any amounts previously invested in such Subsidiary in reliance on clause (h) of Section 10.06 shall be added back to the above as applicable, without duplication, and (ii) if any Event of Default exists at the time of such Investment or would result from any such Investment, the Applicable Amount shall not include amounts under sub-clause (C) and only 50% of amounts under sub-clause (A).

 

Applicable Margin ” means, as of any date, a percentage per annum determined by reference to the applicable Consolidated Leverage Ratio applicable on such date as set forth below:

 

Level

 

Consolidated Leverage
Ratio

 

Applicable Margin for
Eurodollar Rate Loans

 

Applicable Margin
for Base Rate Loans

 

I

 

< 3.75

 

7.50

%

6.50

%

II

 

>= 3.75 but < 4.25

 

8.00

%

7.00

%

III

 

> =4.25

 

8.50

%

7.50

%

 

The Applicable Margin for each (i) Base Rate Loan shall be determined by reference to the Consolidated Leverage Ratio in effect from time to time (based on the most recent financial statements (and the related Compliance Certificate) received by the Administrative Agent in accordance with Section 9.01(a) or (b)), and (ii) Eurodollar Rate Loan shall be determined by reference to the Consolidated Leverage Ratio in effect on the first day of each Interest Period for such Loan (based on the most recent financial statements (and the related Compliance Certificate) received by the Administrative Agent in accordance with Section 9.01(a) or (b)); provided , however , that no adjustment in the Applicable Margin shall be effective until three Business Days after the date on which the Administrative Agent receives the financial statements required to be delivered pursuant to Section 9.01(a) or (b) and the related Compliance Certificate demonstrating such Consolidated Leverage Ratio; provided , further that if the required financial statements or the Compliance Certificate are not delivered within the time periods specified in Section 9.01, then until the date that is three Business Days after the date on which such financial statements are delivered, the Applicable Margin shall be the highest percentage set forth in the applicable column of the grid.  The Applicable Margin on the Closing Date until the date on which the financial statements and Compliance Certificate for the first fiscal quarter following the Closing Date are required to be delivered by Section 9.01 shall be Level II.

 

2



 

Applicable Percentage ” means 50% (provided that with respect to each fiscal year ending after the Closing Date for which the Borrower has delivered financial statements pursuant to Section 9.01(a) or (b), the Applicable Percentage shall be 75% if the Consolidated Leverage Ratio as of the last day of such fiscal year is less than 3.5 to 1.00 but greater than or equal to 2.5 to 1.00, and be 100% if the Consolidated Leverage Ratio as of the last day of such fiscal year is less than 2.5 to 1.00).

 

Approved Fund ” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

 

Assignment and Assumption ” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required hereby), and accepted by the Agent, in substantially the form of Exhibit A or any other form approved by the Agent.

 

Attributable Indebtedness ” means, on any date, (a) in respect of any Capital Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a Capital Lease.

 

AVH ” means AquaVenture Holdings LLC, a Delaware limited liability company.

 

AVH Note ” means the Intercompany Note dated June 4, 2015 issued by the Borrower to AVH.

 

Bankruptcy Code ” means Title 11 of the United States Code entitled “Bankruptcy.”

 

Base Rate ” means, for any day, a rate per annum equal to the greatest of (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank’s base rate for such day (the “ Citibank Base Rate ”) and (b) the Federal Funds Rate in effect on such day plus ½ of 1%.  Any change in the Base Rate due to a change in the Citibank Base Rate or the Federal Funds Rate shall be effective from and including the effective date of such change in the Citibank Base Rate or the Federal Funds Rate, respectively.  Each change in the Citibank Base Rate shall be effective from and including the date such change is publicly announced as being effective.

 

Base Rate Loan ” means a Loan bearing interest at a rate determined by reference to the definition of “Base Rate”.

 

Borrower ” has the meaning set forth in the recital of parties to this Agreement.

 

Borrowing ” means a borrowing consisting of simultaneous Loans, made at any one time by the Borrower from the Lenders pursuant to Article II.

 

Business Day ” means a day (i) other than Saturday or Sunday, and (ii) on which commercial banks are open for business in New York, New York and, if such day relates to any Loan, means any such day that is also a London Banking Day.

 

3



 

Buyer ” means AquaVenture Water Corporation, a British Virgin Islands business company with registration number 1449524.

 

BVI Holdco ” means AquaVenture Capital Limited, a British Virgin Island limited liability company.

 

Capital Lease ” means, for any Person, any lease of property (whether real, personal or mixed) which, in accordance with GAAP, would, at the time a determination is made, be required to be recorded as a capital lease in respect of which such Person is liable as lessee.

 

Change in Law ” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty; (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority; or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.

 

Change of Control ” means the occurrence of any of the following that occurs after the date hereof:

 

(a)           (i) before an IPO and if no Restructuring Parent is organized, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), other than the Permitted Holders or a “group” that includes only Permitted Holders, shall become the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934) of more than 50% of the equity securities of the Parent Guarantor entitled to vote for members of the board of directors or equivalent governing body of the Parent Guarantor on a fully-diluted basis (and taking into account all such securities that such “person” or “group” has the right to acquire pursuant to any option right) (collectively, “ Voting Stock ”) or (ii) before an IPO and if a Restructuring Parent is organized, (x) any “person” or “group”, other than the Permitted Holders or a “group” that includes only Permitted Holders, shall become the “beneficial owner” of more than 50% of the Voting Stock of the Restructuring Parent or (y) the Restructuring Parent shall cease to own, directly or indirectly, 100% of the equity securities of the Parent Guarantor; or

 

(b)           (i) after an IPO and if no Restructuring Parent is organized, any “person” or “group”, other than the Permitted Holders or a “group” that includes only Permitted Holders, shall become the “beneficial owner” of more than 35% of the Voting Stock of the Parent Guarantor or (ii) after an IPO and if a Restructuring Parent is organized, (x) any “person” or “group”, other than the Permitted Holders or a “group” that includes only Permitted Holders, shall become the “beneficial owner” of more than 35% of the Voting Stock of the Restructuring Parent or (y) the Restructuring Parent shall cease to own, directly or indirectly, 100% of the equity securities of the Parent Guarantor; or

 

4



 

(c)           during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Parent Guarantor cease to be individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; or

 

(d)           the Parent Guarantor shall cease to own, directly or indirectly, 100% of the equity securities of any other Holdco Guarantor or the Borrower.

 

For the avoidance of doubt, a “Change of Control” under clause (a) or (b) shall not be deemed to have occurred upon consummation of a Permitted Restructuring Change that results in the Parent Guarantor becoming a direct or indirect wholly owned Subsidiary of one or more Restructuring Parents so long as the ownership of the topmost Restructuring Parent does not result in a “Change of Control” under clause (a) or (b).  For the purposes of the definition of “Change of Control”, no Person who is a director, manager or officer of a Permitted Holder shall be, or shall be deemed to be, the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934) of the Voting Stock of the Parent Guarantor or Restructuring Parent (as applicable) held by any Permitted Holder of which such Person is a director, manager or officer.

 

Closing Date ” means the date on which all conditions precedent set forth in Section 7.01 are satisfied or waived in accordance with Section 13.01.

 

Collateral ” means the property described in the Collateral Documents, and all other property now existing or hereafter acquired which may at any time be or become subject to a Lien in favor of the Agent or the Lenders pursuant to the Collateral Documents or otherwise, securing the payment and performance of the Obligations.

 

Collateral Documents ” means each agreement pursuant to which any Credit Party or any other Person provides a Lien on any of its assets in favor of the Lenders or the Agent for the benefit of the Lenders to secure the Obligations and all financing statements, assignments, acknowledgments and other filings, documents and agreements made or delivered pursuant thereto.

 

Commitment ” means the Term A Loan Commitment and the Delayed Draw Term Loan Commitment.

 

Commodity Exchange Act ” means the Commodity Exchange Act (7 U.S.C. Section 1 et seq.)

 

Competitor ” means any Person that is primarily engaged in business operations that are substantially similar to the Permitted Business or having the primary business of supplying or leasing water coolers.

 

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Compliance Certificate ” means a certificate of a Responsible Officer of the Borrower, in substantially the form of Exhibit B, with such changes thereto as the Agent or any Lender may from time to time reasonably request.

 

Connection Income Taxes ” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.

 

Consolidated EBITDA ” means, for any period, for the Parent Guarantor on a consolidated basis but excluding Unrestricted Subsidiaries and Joint Ventures, an amount equal to Consolidated Net Income for such period plus (a) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Expense for such period, (ii) the provision for Federal, state, local and foreign income taxes payable by the Parent Guarantor and the Restricted Subsidiaries for such period, (iii) depreciation and amortization expense, (iv) reasonable fees and expenses of the Parent Guarantor and the Restricted Subsidiaries incurred in connection with this Agreement, each of the other Loan Documents and the Acquisition, (v) reasonable fees and expenses of the Parent Guarantor and the Restricted Subsidiaries incurred in connection with consummated Permitted Acquisitions and unconsummated acquisitions ( provided that no more than $5,000,000 shall be added back in any fiscal year), (vi) employee severance costs and recruiting expenses of the Parent Guarantor and the Restricted Subsidiaries in an aggregate amount not to exceed $1,000,000 in any fiscal year, (vii) expenses of the Parent Guarantor and the Restricted Subsidiaries to the extent such expenses are paid by insurance policies or third parties (and such expenses would otherwise be included as expenses in the calculation of Consolidated Net Income and not otherwise added back to Consolidated EBITDA), (viii) proceeds of business interruption insurance (to the extent not otherwise included in Consolidated EBITDA), (ix) reasonable costs and expenses of the Parent Guarantor and the Restricted Subsidiaries in connection with an IPO, in an aggregate amount not to exceed $3,000,000, (x) non-cash charges or expenses in connection with stock or equity compensation or deferred compensation, (xi) non-cash charges or expenses in connection with asset retirement obligations or the write off of inventory or fixed assets (provided that to the extent such Person elects to add back such non-cash charge, the cash payment in respect thereof in such future period shall be subtracted from Consolidated EBITDA to such extent), (xii) all non-cash losses, charges or expenditures due to the application of FASB ASC 350 regarding impairment of good will and other general intangibles, (xiii) other non-recurring expenses of the Parent Guarantor and the Restricted Subsidiaries reducing such Consolidated Net Income which do not represent a cash item in such period or any future period, (xiv) cash amounts actually received by the Borrower, a Holdco Guarantor or a Restricted Subsidiary from, or amounts reimbursed by, any Unrestricted Subsidiary or Joint Venture (including, without duplication, cash amounts actually received within fifteen (15) days following the end of such period), and (xv) the aggregate amount invoiced during such period in accordance with water sale agreements to the extent that such invoiced amounts are treated as deferred revenue under GAAP and are not otherwise included in calculating Consolidated Net Income for such period and minus (b) the following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and foreign income tax credits of the Parent Guarantor and the Restricted Subsidiaries for such period, (ii) all non-cash gains increasing Consolidated Net Income for such period, and (iii) the aggregate amount that was recognized in prior periods in accordance with (a)(xv) above.

 

Consolidated Interest Expense ” means, for any period, interest expense (including that attributable to Capital Leases) of the Parent Guarantor on a consolidated basis but excluding

 

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Unrestricted Subsidiaries and Joint Ventures, including all commissions, discounts and other fees and charges owed with respect to standby letters of credit, as determined in accordance with GAAP.

 

Consolidated Net Income ” means, for any period, the net income of the Parent Guarantor on a consolidated basis but excluding Unrestricted Subsidiaries and Joint Ventures for such period (excluding extraordinary gains and extraordinary losses), as determined in accordance with GAAP.

 

Consolidated Leverage Ratio ” means, at any date of determination, with respect to the Parent Guarantor on a consolidated basis but excluding Unrestricted Subsidiaries and Joint Ventures, the ratio of (a) the difference of (i) the aggregate principal amount of all Indebtedness of the Parent Guarantor and the Restricted Subsidiaries outstanding at such date, in the amount that would be reflected on a balance sheet prepared at such date determined in accordance with GAAP minus (ii) the amount of cash of the Parent Guarantor and the Restricted Subsidiaries on deposit in debt service reserve accounts or similar accounts on such date which is dedicated to payment of such Indebtedness and which is subject to restrictions against access by the Parent Guarantor and the Restricted Subsidiaries minus (iii) Net Cash Proceeds at such date which have not yet been reinvested but for which the Borrower has notified the Lenders will be reinvested as permitted pursuant to Section 4.03(b), or which are not Net Cash Proceeds pursuant to the last sentence of Section 4.03(b) to (b) Consolidated EBITDA for the most recently completed Reference Period prior to such date.

 

Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  “ Controlling ” and “ Controlled ” have meanings correlative thereto.

 

Credit Parties ” means the Borrower and the Guarantors.

 

Cure Amount ” has the meaning set forth in Section 10.13(c).

 

Cure Event ” has the meaning set forth in Section 10.13(c).

 

Debtor Relief Laws ” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.

 

Default ” means an Event of Default or an event or condition which with notice or lapse of time or both would constitute an Event of Default.

 

Defaulting Lender ” means, subject to Section 6.06(b), any Lender that (a) has failed to (i) fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Agent or any Lender any other amount required to be paid by it hereunder within two Business Days of the date when

 

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due, (b) has notified the Borrower or the Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Agent or the Borrower, to confirm in writing to the Agent and the Borrower that it will comply with its prospective funding obligations hereunder ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.  Any determination by the Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent demonstrable error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 6.06(b)) upon delivery of written notice of such determination to the Borrower and each Lender.

 

Delayed Draw Term Loan Commitment ” means, when used with reference to any Lender at the time any determination thereof is to be made, the amount set forth opposite the name of such Lender on Schedule 2 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto under the column “Delayed Draw Term Loan Commitment,” as from time to time reduced pursuant to Section 4.01.

 

Delayed Draw Term Loan Commitment Expiration Date ” means March 18, 2016.

 

Delayed Draw Term Loans ” has the meaning set forth in Section 2.01(b).

 

Disqualified Institution ” means (a) persons identified in writing by the Borrower to the Agent prior to the Closing Date as a disqualified institution or (b) a Competitor.

 

Disqualified Stock ” means any equity interest that, by its terms (or by the terms of any security or other equity interest into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition, (a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (b) is redeemable at the option of the holder thereof, in whole or in part, (c) provides for the scheduled payments of dividends or distributions in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other equity interests that would constitute Disqualified Stock, in each case, prior to the date that is six months after the Maturity Date.

 

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Dollars ” and the sign “ $ ” each means lawful money of the United States.

 

Eligible Assignee ” means any Person that meets the requirements to be an assignee under Section 13.09(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 13.09(b)(iii)).

 

Environmental Laws ” means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

 

ERISA ” means the Employee Retirement Income Security Act of 1974.

 

ERISA Affiliate ” means any trade or business (whether or not incorporated) under common control with the Parent Guarantor within the meaning of Section 414(b) or (c) of the Internal Revenue Code (and Sections 414(m) and (o) of the Internal Revenue Code for purposes of provisions relating to Section 412 of the Internal Revenue Code).

 

ERISA Event ” means (a) a “reportable event” as defined in Section 4043(c) of ERISA or the regulations issued thereunder with respect to a Pension Plan; (b) the withdrawal of the Parent Guarantor or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Parent Guarantor or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Internal Revenue Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon  the Parent Guarantor or any ERISA Affiliate.

 

ERISA Funding Rules ” means the rules regarding minimum required contributions (including any installment payment thereof) to Pension Plans, as set forth in Section 412 of the Internal Revenue Code and Section 302 of ERISA, with respect to Plan Years ending prior to the effective date of the Pension Protection Act of 2006, and thereafter, as set forth in Sections 412, 430, 431, 432 and 436 of the Internal Revenue Code and Sections 302, 303, 304 and 305 of ERISA.

 

Eurodollar Rate ” means, for each Interest Period, the higher of (a) one percent per annum and (b) an interest rate per annum equal to the ICE Benchmark Administration LIBOR Rate (“ ICE LIBOR ”) appearing on the Reuters Screen LIBOR01 Page (or on any successor or substitute page of such Screen, or any successor to or substitute for such Screen, providing rate quotations comparable to those currently provided on such page of such Screen, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in the

 

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London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for deposits in Dollars with a maturity comparable to such Interest Period; provided that in the event that such rate is not available at such time for any reason, then “ICE LIBOR” for such Interest Period shall be the rate at which deposits in Dollars for a maturity comparable to such Interest Period are offered by the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

 

Eurodollar Rate Loan ” means a Loan bearing interest at a rate determined by reference to the definition of “Eurodollar Rate”.

 

Event of Default ” has the meaning set forth in Section 11.01.

 

Excluded Swap Obligations ” means with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guaranty Obligation of such Guarantor with respect to, or the grant by such Guarantor of a Lien to secure, such Swap Obligation (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act (determined after giving effect to any “keepwell, support or other agreement” for the benefit of such Guarantor and any and all guarantees of such Guarantor’s Swap Obligations by other Credit Parties) at the time such Guaranty Obligation of such Guarantor, or the grant by such Guarantor of such Lien, becomes effective with respect to such Swap Obligation.  If such a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guaranty Obligation or Lien is or becomes illegal.

 

Excluded Taxes ” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 5.08) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 6.03, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 6.03(f) and (d) any U.S. federal withholding Taxes imposed under FATCA.

 

Expense and Indemnity Letter ” means the Expense and Indemnity Letter between the Borrower and Citigroup Global Markets Inc. dated as of April 14, 2015.

 

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Facility ” means the Commitments and the Loans made thereunder.

 

FATCA ” means Sections 1471 through 1474 of the Internal Revenue Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code.

 

Federal Funds Rate ” means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%), as determined by the Agent, equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for any day of determination (or if such day of determination is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it.

 

Fee Letter ” means the fee letter between the Borrower and the Agent dated as of the date hereof.

 

Foreign Lender ” means (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.  For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

 

FRB ” means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions.

 

Fund ” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

 

GAAP ” means generally accepted accounting principles in the U.S. as in effect from time to time.

 

Governmental Authority ” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

 

Guarantor ” means (a) each of the Holdco Guarantors, (b) the Subsidiary Guarantors and (c) any other Person at any time providing a Guaranty in favor of the Agent and the Lenders with respect to the Obligations.

 

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Guarantor Documents ” means each Guaranty and all other documents, agreements and instruments delivered to the Agent and the Lenders under or in connection with such Guaranty.

 

Guaranty ” means (a) a Guaranty in substantially the form of Exhibit C, executed by the Holdco Guarantors and the Subsidiary Guarantors in favor of the Agent and the Lenders with respect to the Obligations, and (b) any other guaranty at any time made by any other Guarantor in favor of the Agent and the Lenders with respect to the Obligations, whether by execution of a joinder to any Guaranty described in the foregoing clause (a) or otherwise.

 

Guaranty Obligation ” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person guaranteeing or having the economic effect of guaranteeing any Indebtedness, lease, dividend, letter of credit or other obligation (the “ primary obligations ”) of another Person (the “ primary obligor ”), including any (a) obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (ii) to advance or provide funds (A) for the payment or discharge of any such primary obligation, or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, (iv) in connection with any synthetic lease or other similar off balance sheet lease transaction, or (v) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof, and (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien).  The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guaranty Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.

 

Hazardous Substances ” means any explosive or radioactive substances or wastes and any toxic or hazardous substances, materials, wastes, contaminants or pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances defined or listed as “hazardous substances,” “hazardous materials,” “hazardous wastes” or “toxic substances” (or similarly identified), regulated under or forming the basis for liability under any applicable Environmental Law.

 

Holdco Cash Flow ” means, for any period, the sum of (a) cash flow from operations of the Parent Guarantor on a consolidated basis but excluding Unrestricted Subsidiaries and Joint Ventures other than for cash amounts actually received by the Borrower, a Holdco Guarantor or a Restricted Subsidiary from any Unrestricted Subsidiary or Joint Venture, as determined in accordance with GAAP less (b) any portion of such consolidated cash flow not able to be distributed to the Borrower or a Holdco Guarantor (with any such restrictions on distributions to be noted in the Compliance Certificate for such period), less (c) any portion of such consolidated cash flow not generated in the ordinary course of business, less (d) any payment or repayment by the Parent Guarantor or any Restricted Subsidiary of Indebtedness other than the Facility during such period, less (e) all distributions made by the Parent Guarantor during such period, less (f)

 

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capitalized interest of the Parent Guarantor or any Restricted Subsidiary during such period (to the extent paid in cash and not otherwise included in the calculation of consolidated cash flow from operations), plus (g) interest and fees payable under the Facility during such period (to the extent included in consolidated cash flow from operations), less (h) capital expenditures of the Parent Guarantor or any Restricted Subsidiary to the extent used to maintain existing properties.  The calculation of Holdco Cash Flow shall be made in accordance with Exhibit B .

 

Holdco Interest Coverage Ratio ” means, for any Reference Period, the ratio of (a) Holdco Cash Flow for such Reference Period to (b) the total interest expense and fees of the Borrower under the Facility for such Reference Period.

 

Holdco Guarantors ” means each of the Parent Guarantor, Seven Seas and BVI Holdco.

 

Indebtedness ” means, for any Person:  (a) all indebtedness or other obligations of such Person for borrowed money; (b) all obligations of such Person for the deferred purchase price of property or services other than (i) trade payables incurred in the ordinary course of business and not past due for more than 91 days after the date on which each such trade payable was created and (ii) any earn-out, purchase price adjustment or similar obligation until such obligation appears in the liabilities section of the balance sheet of such Person in accordance with GAAP; (c) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (e) all obligations under Capital Leases and Synthetic Lease Obligations other than water purchase agreements and other similar contractual agreements that are treated as Capital Leases on the balance sheet of such Person in accordance with GAAP; (f) all reimbursement or other obligations of such Person under or in respect of letters of credit and bankers acceptances, and all net obligations in respect of Swap Contracts in an amount equal to the Swap Termination Values thereof; (g) all reimbursement or other obligations of such Person in respect of any bank guaranties, shipside bonds, surety bonds and similar instruments issued for the account of such Person or as to which such Person is otherwise liable for reimbursement of drawings or payments; (h) all Guaranty Obligations; (i) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Disqualified Stock; and (j) all indebtedness of another Person secured by any Lien upon or in property owned by the Person for whom Indebtedness is being determined, whether or not such Person has assumed or become liable for the payment of such indebtedness of such other Person; provided that if such Person has not assumed or become liable for the payment of such obligation, the amount of such Indebtedness shall be limited to the lesser of (i) the principal amount of the obligations being secured and (ii) the fair market value of the encumbered property.  For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.  The amount of any Capital Lease or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.

 

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Indemnified Taxes ” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Credit Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.

 

Indemnitee ” has the meaning set forth in Section 13.04(b)

 

Insolvency Proceeding ” means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of any Person’s creditors generally or any substantial portion of such Person’s creditors, in each case undertaken under Debtor Relief Laws.

 

Intercompany Subordination Agreement ” means the Intercompany Subordination Agreement dated as of June 18, 2015 among the Credit Parties, certain Restricted Subsidiaries and the Agent.

 

Interest Payment Date ” has the meaning set forth in Section 3.01(c).

 

Interest Period ” means the period determined in accordance with Section 3.01(b) applicable thereto.

 

Intermediate Parent ” means an entity that is wholly owned, directly or indirectly, by the Parent Guarantor that owns, directly or indirectly, 100% of the Borrower.

 

Internal Revenue Code ” means the Internal Revenue Code of 1986.

 

IPO ” means an initial public offering of the Parent Guarantor or Restructuring Parent.

 

IRS ” means the Internal Revenue Service, or any successor thereto.

 

Investments ” has the meaning set forth in Section 10.06.

 

Joint Venture ” means a Person in which the Parent Guarantor or any of the Restricted Subsidiaries has made an Investment permitted by Section 10.06 and such Person is not a Subsidiary of the Parent Guarantor.

 

Lender ” and “ Lenders ” each has the meaning set forth in the recital of parties to this Agreement.

 

Lending Office ” has the meaning set forth in Section 2.04.

 

Lien ” means any mortgage, deed of trust, pledge, security interest, assignment, deposit arrangement, charge or encumbrance, lien (statutory or other), or other preferential arrangement in the nature of a security interest (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing or any agreement to give any security interest).

 

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Loan Documents ” means this Agreement, the Notes, the Collateral Documents, the Fee Letter, the Intercompany Subordination Agreement, any Guaranty, any Guarantor Documents, any Subordination Agreement and all other certificates, documents, agreements and instruments delivered to the Agent and the Lenders under or in connection with this Agreement and the Facility.

 

Loans ” means Term A Loans, Delayed Draw Term Loans or any combination of the foregoing, as the context may require.

 

London Banking Day ” means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

 

Loss Event ” means with respect to any asset of the Parent Guarantor or its Restricted Subsidiaries any of the following:  (i) any loss, destruction or damage of such asset; (ii) any pending or threatened institution of any proceedings for the condemnation or seizure of such asset or of any right of eminent domain; or (iii) any actual condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such asset, or confiscation of such asset or requisition of the use of such asset.

 

Majority Lenders ” means, at any time, Lenders holding greater than 50% of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, Lenders having at least 50% of the aggregate Commitments; provided that the Commitments of, and the portion of the Loans held or deemed held by, any Defaulting Lender shall be disregarded in determining Majority Lenders at any time .

 

Material Adverse Effect ” means any event, matter, condition or circumstance which (a) has or would reasonably be expected to have a material adverse effect on the business, properties, results of operations or financial condition of the Credit Party and their Restricted Subsidiaries taken as a whole, (b) would materially impair the ability of the Credit Parties, taken as a whole, to perform or observe their obligations under or in respect of the Loan Documents, or (c) adversely affects the legality, validity, binding effect or enforceability of any of the Loan Documents or the perfection or priority of any Lien granted to the Lenders or the Agent for the benefit of the Lenders under any of the Collateral Documents.

 

Material Contract ” with respect to any Person, means each contract to which such Person is a party that is material to the business, condition (financial or otherwise), operations, performance or properties of such Person.

 

Maturity Date ” means June 18, 2019.

 

Maximum Delayed Draw Term Loan Amount ” has the meaning set forth in Section 2.01(b).

 

Maximum Rate ” has the meaning set forth in Section 3.05.

 

Multiemployer Plan ” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Parent Guarantor or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions .

 

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Multiple Employer Plan ” means a Plan which has two or more contributing sponsors (including the Parent Guarantor or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.

 

Moody’s ” means Moody’s Investors Service, Inc. and any successor thereto.

 

Net Cash Proceeds ” means, when used in respect of any sale of assets of a Person or any Loss Event, the cash proceeds (including any such proceeds actually received from deferred payments), net of attorneys’ fees, accountants’ fees, investment banking fees, amounts required to be reserved for indemnification, adjustment of purchase price or similar obligations pursuant to the agreements governing such asset sale, amounts required to be applied to the repayment of indebtedness secured by a Lien permitted under the Loan Documents on any asset that is the subject of such asset sale or Loss Event and other customary fees and expenses actually incurred in connection therewith and net of taxes paid (after taking into account any available tax credits or deductions and any tax sharing arrangements) and any tax distributions payable by the Parent Guarantor pursuant to Section 3.4 of the Operating Agreement in connection with income attributable to such sale of assets.

 

New Topco ” means a new entity that is organized under the laws of a Permitted Jurisdiction, which after giving effect to the relevant Permitted Restructuring Changes owns, directly or indirectly (through one or more of its wholly owned Subsidiaries), all of the assets of AVH immediately prior to giving effect to the Permitted Restructuring Changes (including 100% of the equity securities of the Borrower) ( provided that cash may be retained by AVH to pay for taxes, fees and expenses of AVH in amounts permitted pursuant to the definition of Permitted Restructuring Changes).

 

Non-Consenting Lender ” means any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all affected Lenders in accordance with the terms of Section 13.01 and (b) has been approved by the Majority Lenders.

 

Non-Defaulting Lender ” means, at any time, each Lender that is not a Defaulting Lender at such time.

 

Non-U.S. Credit Party ” means a Credit Party who is not organization under the laws of the jurisdiction of the United States or any State thereof.

 

Notes ” has the meaning set forth in Section 2.05(a).

 

Notice of Borrowing ” has the meaning set forth in Section 2.02(a).

 

Obligations ” means the indebtedness, liabilities and other obligations of the Credit Parties to the Agent or any Lender under or in connection with the Loan Documents, including all Loans, all interest accrued thereon, all fees due under this Agreement and all other amounts payable by the Borrower to the Agent or any Lender hereunder or in connection herewith, whether now or hereafter existing or arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined; provided , however , that the definition of “Obligations” shall not create any guarantee by any Guarantor of (or grant of Lien by any

 

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Guarantor to support, as applicable) any Excluded Swap Obligations of such Guarantor for purposes of determining any obligations of any Guarantor.

 

O&M Agreements ” means the O&M Novation and the O&M Direct Novation (each, as defined in the Purchase Agreement as in effect on the date hereof).

 

Operating Agreement ” means the Parent Guarantor’s Fourth Amended and Restated Limited Liability Company Agreement (as amended, restated, amended and restated, or modified or supplemented from time to time, in accordance with this Agreement).

 

Organization Documents ” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutional documents with respect to any non-U.S. jurisdiction), (b) with respect to any limited liability company, the articles of formation and operating agreement, and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation with the applicable Governmental Authority in the jurisdiction of its formation, in each case as amended from time to time.

 

Other Connection Taxes ” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

 

Other Taxes ” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 5.08).

 

Parent Guarantor ” means AVH, except that from and after the occurrence of any Permitted Restructuring Changes described in either clause (c) or (d) of the definition thereof, the “Parent Guarantor” shall instead be New Topco.

 

Participant ” has the meaning set forth in Section 13.09(d).

 

Participant Register ” has the meaning set forth in Section 13.09(d).

 

PBGC ” means the Pension Benefit Guaranty Corporation, or any successor thereto.

 

Pension Plan ” means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by the Parent Guarantor and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code.

 

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Permitted Acquisition means the purchase or acquisition (whether in one or a series of related transactions) by any Person of (a) more than 50% of the equity interests with ordinary voting power of another Person or (b) all or substantially all of the property of another Person or division or line of business or business unit of another Person, whether or not involving a merger or consolidation with such Person; provided that (i) at the time thereof and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result from such purchase or acquisition, (ii) at the time thereof and after giving effect thereto, the Borrower is in compliance with Section 10.13 on a pro forma basis, (iii) not less than five Business Days prior to the consummation of such proposed acquisition, the Borrower shall deliver to the Agent, a certificate of a Responsible Officer of the Borrower setting forth in reasonable detail calculations demonstrating compliance with the conditions set forth in clause (ii) above and (iv) such acquisition or purchase is consummated on a non-hostile basis.

 

Permitted Business ” means the development, construction, operation, maintenance, ownership and marketing of desalination, waste water treatment and water reuse projects.

 

Permitted Cash Equivalent Investments ” means (i) securities issued by, or directly, unconditionally and fully guaranteed or insured by, the United States or any agency or instrumentality thereof ( provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition by such Person, (ii) securities issued by, or directly, unconditionally and fully guaranteed or insured by, any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof or any foreign government in which a Credit Party or any Restricted Subsidiary operates maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s, (iii) time deposits, certificates of deposit or bankers’ acceptances of any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any state thereof or the District of Columbia or any United States branch of a foreign bank having, capital and surplus aggregating in excess of $500,000,000 and a rating of “A” (or such other similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act of 1933) or, in the case of any Person that is not organized under the laws of the United States or any State thereof, a local branch of a foreign bank meeting these qualifications in the jurisdiction in which such Person operates, with maturities of not more than one year from the date of acquisition by such Person, (iv) commercial paper issued by any Person rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody’s, and in each case maturing not more than one year after the date of acquisition by such Person, (v) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (iv), and (vi) demand deposit accounts maintained in the ordinary course of business.

 

Permitted Holders ” means (i) Element Partners and its Affiliates, and investment partnerships or funds affiliated with, or managed by, Element Partners and its Affiliates (including, as of the date hereof, Element Partners II, L.P., Element Partners II Intrafund, L.P., Element Partners II-A, L.P., DFJ Element, L.P. and DFJ Element Intrafund, L.P.), (ii) Virgin Green Fund and its Affiliates, and investment partnerships or funds affiliated with, or managed by, Virgin Green Fund and its Affiliates (including, as of the date hereof, Virgin Green Fund I, L.P.), (iii) Virgin Group Holdings Limited and its Affiliates, (iv) Douglas R. Brown and investment partnerships or funds affiliated with, or managed by, Douglas R. Brown (including, as of the date

 

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hereof, DRB Pure Water Solutions LLC, DRB Pure Water Solutions II LLC, DRB Pure Water Solutions III LLC and DRB Pure Water Solutions IV LLC), (v) whenever the Permitted Holders described in clauses (i) through (iv), inclusive, of this definition of Permitted Holders own, directly or indirectly, more than 50% of the Voting Stock of Quench USA Holdings LLC, Quench USA Holdings LLC, and (vi) whenever the Permitted Holders described in clauses (i) through (v), inclusive, of this definition of Permitted Holders own, directly or indirectly, more than 50% of the Voting Stock of AVH, AVH.

 

Permitted Jurisdiction ” means any of the United States of America or any State thereof, the District of Columbia, the Netherlands, Ireland, Switzerland, Curaçao, the Cayman Islands or any other jurisdiction reasonably acceptable to the Agent (such acceptance not to be unreasonably withheld, delayed or conditioned).

 

Permitted Liens ” means:

 

(a)                                   Liens in favor of the Lenders or the Agent to secure the Obligations;

 

(b)                                  Liens on assets of the Restricted Subsidiaries (other than Collateral) securing Indebtedness permitted pursuant to Section 10.01.

 

(c)                                   the existing Liens listed in Schedule 3 or incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by such existing Liens; provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase unless permitted by Section 10.01;

 

(d)                                  Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and which are adequately reserved for in accordance with GAAP;

 

(e)                                   Liens of materialmen, mechanics, warehousemen, carriers or employees or other like Liens arising in the ordinary course of business and securing obligations either not delinquent or being contested in good faith by appropriate proceedings which are adequately reserved for in accordance with GAAP and which do not in the aggregate materially impair the use or value of the property or risk the loss or forfeiture of title thereto;

 

(f)                                     Liens consisting of deposits or pledges to secure the payment of worker’s compensation, unemployment insurance or other social security benefits or obligations, or to secure the performance of bids, trade contracts, leases (other than Capital Leases), public or statutory obligations, surety or appeal bonds or other obligations of a like nature incurred in the ordinary course of business (other than for indebtedness or any Liens arising under ERISA);

 

(g)                                  easements, rights of way, servitudes or zoning or building restrictions and other minor encumbrances on real property and irregularities in the title to such property which do not in the aggregate materially impair the use or value of such property or risk the loss or forfeiture of title thereto;

 

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(h)                                  statutory landlord’s Liens under leases to which the Borrower or any of its Restricted Subsidiaries is a party;

 

(i)                                      Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access, and (ii) such deposit account is not intended to provide collateral to the depository institution;

 

(j)                                     Liens (including judgment Liens) arising in connection with legal proceedings not constituting an Event of Default under Section 11.01(h);

 

(k)                                  Liens securing liability for reimbursement or indemnification obligations of insurance carriers providing property, casualty or liability insurance to the Parent Guarantor or a Restricted Subsidiary;

 

(l)                                      the filing of precautionary UCC financing statements;

 

(m)                                grants of technology licenses in the ordinary course of business; and

 

(n)                                  Liens on the equity interests in an Unrestricted Subsidiary, Joint Venture or a Project Subsidiary securing Indebtedness of such Unrestricted Subsidiary, Joint Venture or Project Subsidiary permitted hereby.

 

Permitted Restructuring Changes ” means any of the following: (a) the redomiciliation of AVH under the laws of any Permitted Jurisdiction, (b) the merger of AVH with a direct or indirect wholly owned Subsidiary of AVH organized in a Permitted Jurisdiction, with AVH being the surviving entity of such merger, (c) the merger of AVH with New Topco or a direct or indirect wholly owned Subsidiary of New Topco organized in a Permitted Jurisdiction, with New Topco or such wholly owned Subsidiary of New Topco being the surviving entity of such merger, or (d) the transfer of all of the assets of AVH to New Topco or a direct or indirect wholly owned Subsidiary of New Topco organized in a Permitted Jurisdiction ( provided that (i) up to $5,000,000 of cash may be retained by AVH to pay for taxes, fees and expenses of AVH incurred and (ii) if the aggregate amount retained exceeds $3,000,000, the Borrower shall provide the Agent a good faith estimate of taxes, fees and expenses to be paid with such excess, such estimate to be acceptable to the Agent in its reasonable judgment); provided that the following conditions have been satisfied to the satisfaction of the Agent:

 

(i) at least fifteen (15) Business Days’ prior written notice thereof shall have been provided to the Agent (or such shorter period as the Agent shall determine in its sole discretion), together with such information with respect thereto as the Agent shall reasonably request;

 

(ii) the Agent shall have received copies of all approvals and consents (including from shareholders, governmental authorities and third parties) as shall be necessary to consummate such transaction;

 

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(iii) the Agent shall have received copies of all documents necessary to effectuate such transaction;

 

(iv) the Agent shall have received evidence of the consummation of such transaction;

 

(v) the Agent shall have received such corporate authority documents, certificates and legal opinions as the Agent shall reasonably request in connection with such transaction and the Loan Documents entered into in connection with such transaction;

 

(vi) in the case of a transaction described in clause (a) or (b), the Agent shall have received evidence that the assets and liabilities of AVH have not been transferred as part of the redomiciliation or merger, as applicable;

 

(vii) in the case of a transaction described in clause (c), the Agent shall have received evidence that the surviving entity of such merger shall have assumed the obligations of AVH (including its obligations under the Loan Documents) pursuant to an agreement in form and substance satisfactory to the Agent;

 

(viii) in the case of a transaction described in clause (d), the Agent shall have received evidence that the transferee shall have assumed the obligations of AVH (including its obligations under the Loan Documents) pursuant to an agreement in form and substance satisfactory to the Agent and, automatically upon such assumption, the obligations of AVH under the Loan Documents shall be hereby released without any further action on the part of any Person; and

 

(ix) the Agent shall have received evidence that it has a first priority perfected security interest in the Collateral of the Parent Guarantor (including, as applicable in the case of a transaction described in clauses (c) and (d), the surviving entity or transferee as successor to AVH).

 

For the avoidance of doubt, Permitted Restructuring Changes may not involve any merger of the Borrower, Seven Seas, Quench or any of their respective Subsidiaries with another entity or the transfer of assets of the Borrower, Seven Seas, Quench or any of their respective Subsidiaries.

 

Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

Plan ” means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of the Parent Guarantor or any ERISA Affiliate or any such Plan to which the Parent Guarantor rower or any ERISA Affiliate is required to contribute on behalf of any of its employees.

 

Platform ” has the meaning set forth in Section 13.02(d)(i).

 

Project Holding Company ” means a Restricted Subsidiary that is not a Project Subsidiary.

 

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Project Subsidiary ” means a Restricted Subsidiary that directly (and not through a subsidiary) develops, constructs, operates, maintains, owns or markets a desalination, waste water treatment or water reuse project.

 

Pro Rata Share ” means with respect to any Lender, the sum of (a) the percentage (expressed as a decimal and carried out to the ninth decimal place) obtained by dividing (i) the Delayed Draw Term Loan Commitment of such Lender by (ii) the aggregate Delayed Draw Term Loan Commitments of all Lenders plus (b) the percentage (expressed as a decimal and carried out to the ninth decimal place) obtained by dividing (i) the principal amount of such Lender’s Loans by (ii) the aggregate Loans of all Lenders; provided that for purposes of Borrowing Delayed Draw Term Loans and mandatory reductions and termination of Delayed Draw Term Loan Commitments, “Pro Rata Share” shall be calculated pursuant to clause (a) only.

 

Purchase Agreement ” means the Stock Purchase and Sale Agreement dated as of June 11, 2015 by and between the Buyer, the Seller and Biwater Holdings Limited (solely with respect to Section 6.10 thereof).

 

Quench ” means Quench USA, Inc., a Delaware corporation.

 

Recipient ” means the Agent or any Lender, as applicable.

 

Reference Period ” means, at any date of determination, the most recently completed four consecutive fiscal quarters of the Parent Guarantor on or immediately prior to such date, or, if less than four consecutive fiscal quarters have been completed since the Closing Date, the fiscal quarters that have been completed since such date; provided that for purposes of computing the amount of Consolidated EBITDA, Consolidated Interest Expense, Holdco Cash Flow and interest expense included in the calculation of Consolidated Leverage Ratio and Holdco Interest Coverage Ratio covenant for the Reference Periods ending June 30, 2015, September 30, 2015 and December 31, 2015, such amounts shall be deemed to be (a) for the Reference Period ending June 30, 2015, actual results for the period beginning April 1, 2015 and ending on June 30, 2015 (calculated on a pro forma basis in accordance with Section 1.02(d)) multiplied by four, (b) for the Reference Period ending September 30, 2015, actual results for the period beginning April 1, 2015 and ending on September 30, 2015 (calculated on a pro forma basis in accordance with Section 1.02(d)) multiplied by two and (c) for the Reference Period ending December 31, 2015, actual results for the period beginning April 1, 2015 and ending on December 31, 2015 (calculated on a pro forma basis in accordance with Section 1.02(d)) multiplied by 1.33.

 

Register ” has the meaning set forth in Section 13.09(c).

 

Related Party ” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.

 

Removal Effective Date ” has the meaning set forth in Section 12.06(b).

 

Resignation Effective Date ” has the meaning set forth in Section 12.06(a).

 

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Responsible Officer ” means, with respect to any Person, the chief executive officer, the president, the chief financial officer, the vice president of finance, or the treasurer of such Person, or any other senior officer of such Person having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of any such Person, or any other senior officer of such Person involved principally in the financial administration or controllership function of such Person and having substantially the same authority and responsibility; and solely for purposes of delivery of incumbency certificates pursuant to Section 7.01, the secretary or any assistant secretary of any such Person.  Any document delivered hereunder that is signed by a Responsible Officer of a Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Person and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Person.

 

Restricted Payment ” has the meaning set forth in Section 10.07.

 

Restricted Subsidiary ” means any Subsidiary of the Parent Guarantor other than Unrestricted Subsidiaries.

 

Restructuring Parent ” means a Person organized under the laws of a Permitted Jurisdiction that owns, directly or indirectly, 100% of the equity securities of the Parent Guarantor, which may be New Topco.

 

Sanctions ” means the economic sanctions laws, regulations, embargoes or restrictive measures administered, enacted or enforced by:  (a) the United States; (b) the United Nations; (c) the European Union (d) the United Kingdom; or (e) the respective governmental institutions and agencies of any of the foregoing, including, without limitation, the Office of Foreign Assets Control of the United States Department of Treasury, the United States Department of State, and Her Majesty’s Treasury.

 

S&P ” means Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto.

 

Seller ” means Biwater International Limited, a company incorporated in England and Wales.

 

Seller Note ” means the Subordinated Promissory Note dated as of June 11, 2015 issued by the Borrower to the Seller.

 

Seven Seas ” means Seven Seas Water Corporation, a Delaware corporation.

 

Solvent ” means, as to any Person at any time, that (a) the fair value of the property of such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code, (b) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business, (d) such Person does not intend to, and

 

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does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital.

 

Specified Equity Holders ” means (i) Element Partners and its Affiliates, and investment partnerships or funds affiliated with, or managed by, Element Partners and its Affiliates (including, as of the date hereof, Element Partners II, L.P., Element Partners II Intrafund, L.P., Element Partners II-A, L.P.,  DFJ Element, L.P. and DFJ Element Intrafund, L.P.), (ii) Virgin Green Fund and its Affiliates, and investment partnerships or funds affiliated with, or managed by, Virgin Green Fund and its Affiliates (including, as of the date hereof, Virgin Green Fund I, L.P.), (iii) Virgin Group Holdings Limited and its Affiliates, (iv) Douglas R. Brown and investment partnerships or funds affiliated with, or managed by, Douglas R. Brown (including, as of the date hereof, DRB Pure Water Solutions LLC, DRB Pure Water Solutions II LLC, DRB Pure Water Solutions III LLC and DRB Pure Water Solutions IV LLC), (v) investment partnerships or funds affiliated with, or managed by, Advent Morro and its Affiliates (including Guayacan Private Equity Fund Limited Partnership II, Guayacan Private Equity Fund Limited Partnership II-A and Venture Capital Fund, Inc.) and their Affiliates and (vi) investment partnerships or funds affiliated with, or managed by, T. Rowe Price Associates and its Affiliates (including T. Rowe Price Small-Cap Fund, Inc., T. Rowe Price U.S. Equities Trust and T. Rowe Price U.S. Small-Cap Value Equity Trust) and their Affiliates.

 

Subordination Agreement ” means a subordination agreement with respect to any Subordinated Indebtedness, in form and substance satisfactory to the Agent, including the Intercompany Subordination Agreement.

 

Subordinated Indebtedness ” means any Indebtedness at any time contractually subordinated to the Obligations in right of payment pursuant to a Subordination Agreement, which Indebtedness shall be in form and substance satisfactory to the Agent.

 

Subsidiary ” means any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting stock or other equity interest is owned directly or indirectly by any Person or one or more of the other Subsidiaries of such Person or a combination thereof.

 

Subsidiary Guarantor ” means any Subsidiary of the Borrower that executes a Guaranty.

 

Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc.,

 

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any International Foreign Exchange Master Agreement, or any other master agreement, including any such obligations or liabilities under any master agreement.

 

Swap Obligation ” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.

 

Swap Termination Value ” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Lender or any Affiliate of any Lender).

 

Synthetic Lease Obligation ” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

 

Target ” means Biwater (BVI) Holdings Limited, (registered number 7890599) a company incorporated in England and Wales whose registered office is at Biwater House, Station Approach, Dorking, Surrey RH4 1TZ, England.

 

Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

Term A Loan ” has the meaning set forth in Section 2.01(a).

 

Term A Loan Commitment ” means, when used with reference to any Lender at the time any determination thereof is to be made, the amount set forth opposite the name of such Lender on Schedule 2 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto under the column “Term A Loan Commitment.”

 

Term A Loan Commitment Percentage ” means, as to any Lender, the percentage, if any, set forth opposite such Lender’s name on Schedule 2.

 

Threshold Amount ” means $5,000,000 (or its equivalent in another currency or other currencies).

 

UCC ” means the Uniform Commercial Code of the jurisdiction the law of which governs the Loan Document in which such term is used or the attachment, perfection or priority of the Lien on any Collateral.

 

Undertaking ” means the Undertaking to be entered into by the Borrower in favor of Biwater (BVI) Ltd. in connection with the Borrower entering into the O&M Agreements.

 

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United States ” and “ U.S. ” each means the United States of America.

 

Unrestricted Subsidiary ” means (a) any Subsidiary of the Parent Guarantor listed on Schedule 4 or (b) any Subsidiary of the Parent Guarantor that is designated as an Unrestricted Subsidiary by the Parent Guarantor after the Closing Date in a written notice to the Agent and (c) any Subsidiary of any Subsidiary described in clause (a) or (b) above; provided that (i) none of the Borrower, Seven Seas or BVI Holdco may be designated as an Unrestricted Subsidiary, (ii) at the time thereof and after giving effect thereto, the Borrower is in compliance with Section 10.13 on a pro forma basis, (iii) at the time of such designation, no Default or Event of Default shall have occurred and be continuing or would result therefrom, (iv) no Investments may be made in any such Subsidiary by the Parent Guarantor or any Restricted Subsidiary except to the extent permitted under Section 10.06(h) (it being understood that, if a Subsidiary is designated as an Unrestricted Subsidiary after the Closing Date, the aggregate fair market value of all outstanding Investments owned by the Parent Guarantor and the Restricted Subsidiaries in the Subsidiary so designated shall be deemed to be an Investment made as of the time of such designation and shall be subject to the limits set forth in Section 10.06(h), as applicable), (v) at no time shall any creditor of any such Subsidiary have any claim (whether pursuant to a Guaranty or otherwise) against the Parent Guarantor or any of the Restricted Subsidiaries in respect of any Indebtedness or other obligation (except for obligations arising by operation of law, including joint and several liability for taxes, ERISA and similar items) of any such Subsidiary, except (x) pursuant to Indebtedness permitted by Section 10.01(i) or (y) for pledges of equity interests of an Unrestricted Subsidiary as described in clause (n) of the definition of Permitted Liens, and (vi) no such Subsidiary shall own any capital stock or other equity interests of, or own or hold any Lien on any property of, the Parent Guarantor or any Restricted Subsidiary.  The Parent Guarantor may revoke the designation of a Subsidiary as an Unrestricted Subsidiary pursuant to a written notice to the Agent so long as, after giving pro forma effect to such revocation, no Default or Event of Default shall have occurred and be continuing or result therefrom.

 

U.S. Person ” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Internal Revenue Code.

 

U.S. Tax Compliance Certificate ” has the meaning set forth in Section 6.03(f).

 

Withholding Agent ” means any Credit Party and the Agent.

 

Section 1.02                              Accounting Principles .

 

(a)                                  Accounting Terms .  Unless otherwise defined or the context otherwise requires, all accounting terms not expressly defined herein shall be construed, and all accounting determinations and computations required under the Loan Documents shall be made, in accordance with GAAP, consistently applied.

 

(b)                                  GAAP Changes .  If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Majority Lenders shall so request, the Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Majority Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with

 

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GAAP prior to such change therein and (ii) to the extent a change in GAAP would materially affect the computation of any financial ratio or requirement set forth in any Loan Document (including if such change would cause the Borrower or any other Credit Party to be in default of any such financial ratio or requirement) the Borrower shall provide to the Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

 

(c)                                   Fiscal Year” and “Fiscal Quarter” .  References herein to “fiscal year” and “fiscal quarter” refer to such fiscal periods of the Parent Guarantor.

 

(d)                                  Pro Forma Calculations .  Whenever pro forma effect or a determination of pro forma compliance with a financial ratio or test is to be given to a specified transaction (i) the pro forma calculations shall be made in good faith by a Responsible Officer of the Borrower and (ii) such financial ratio or test shall be calculated for the most recently ended Reference Period, as specified for the applicable financial ratio or test, for which financials have been delivered pursuant to Section 9.01(a) or (b) as if such specified transaction was consummated on the first day of such Reference Period. Prior to March 31, 2016, the financial covenant levels for March 31, 2016 set forth in Section 10.13 shall be deemed to apply for purposes of all pro forma calculations required by this Agreement.

 

For the purposes of calculating Consolidated EBITDA and Holdco Cash Flow for any period, (a) if at any time during such period the Parent or any Restricted Subsidiary shall have made any Material Disposition of property, the Consolidated EBITDA attributable to such property shall be deducted from Consolidated EBITDA (if positive) or added to Consolidated EBITDA (if negative) for such period as if such Material Disposition occurred on the first day of such period, (b) if at any time during such period the Parent or any Restricted Subsidiary shall have made a Material Acquisition, Consolidated EBITDA and Holdco Cash Flow for such period shall be calculated after giving pro forma effect thereto as if such Material Acquisition occurred on the first day of such period and (c) if at any time during such period any New Project Subsidiary shall either begin operations on a new project within the Permitted Business or expand the operations of an existing project within the Permitted Business, Consolidated EBITDA and Holdco Cash Flow for such period shall be calculated after giving pro forma effect thereto as if such new project began operations or the operations of such existing project were expanded, as the case may be, on the first day of such period.  As used in this definition, “ Material Acquisition ” means any acquisition (or series of related acquisitions) of property that (a) constitutes assets comprising all or substantially all of an operating unit of a business or common stock of a Person and (b) involves consideration paid by the Parent and its Restricted Subsidiaries in excess of $5,000,000; “ Material Disposition ” means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or other dispositions) of property for which the Parent or any of its Restricted Subsidiaries received gross proceeds in excess of $5,000,000; and “ New Project Subsidiary ” shall mean any Project Subsidiary that (i) has either a new project within the Permitted Business or an existing project within the Permitted Business that has expanded operations and such new project or expansion, as the case may be, has been operational for at least one full fiscal quarter, (ii) will earn revenue under a water supply agreement that is for a term of no less than three years and has minimum take or pay volume purchases required at a price denominated in Dollars and (iii) such supply contracts have customary fuel cost pass through and inflation adjustment mechanisms.  All pro forma calculations shall be reasonably acceptable to the Agent and shall include the calculation of revenues for New

 

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Project Subsidiaries at minimum take or pay levels during periods prior to the start of their operation.

 

Section 1.03                              Interpretation .  In the Loan Documents, except to the extent the context otherwise requires:

 

(a)                                  Any reference to an Article, a Section, a Schedule or an Exhibit is a reference to an article or section thereof, or a schedule or an exhibit thereto, respectively, and to a subsection or a clause is, unless otherwise stated, a reference to a subsection or a clause of the Section or subsection in which the reference appears.

 

(b)                                  The words “hereof,” “herein,” “hereto,” “hereunder” and the like mean and refer to this Agreement or any other Loan Document as a whole and not merely to the specific Article, Section, subsection, paragraph or clause in which the respective word appears.

 

(c)                                   The meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined.

 

(d)                                  The words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation.”

 

(e)                                   The word “will” shall be construed to have the same meaning and effect as the word “shall.”

 

(f)                                    The words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

 

(g)                                   References to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of the Loan Documents.

 

(h)                                  Any reference herein to any Person shall be construed to include such Person’s successors and assigns.

 

(i)                                      References to statutes or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending, supplementing, interpreting or replacing the statute or regulation referred to.

 

(j)                                     Any table of contents, captions and headings are for convenience of reference only and shall not affect the construction of this Agreement or any other Loan Document.

 

(k)                                  In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including.”

 

(l)                                      The use of a word of any gender shall include each of the masculine, feminine and neuter genders.

 

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ARTICLE II
THE LOANS

 

Section 2.01                              The Loans .

 

(a)                                  Term A Loan .  On the terms and subject to the conditions set forth herein, the Lenders severally agree to make a term loan in an original principal amount equal to its Pro Rata Share of $20,000,000 (each, a “ Term A Loan ”) to Borrower on the Closing Date.  No Lender shall have any obligation to fund any portion of Term A Loan required to be funded by any other Lender, but not so funded.  Amounts repaid or prepaid on the Term A Loan may not be reborrowed.

 

(b)                                  Delayed Draw Term Loan Commitments .  The Borrower may, by written notice to the Agent, request up to two term loans (each, a “ Delayed Draw Term Loan ”) on or after the Closing Date until the Delayed Draw Term Loan Commitment Expiration Date.  On the terms and subject to the conditions set forth herein, the Lenders with a Delayed Draw Term Loan Commitment severally agree to make Delayed Draw Term Loans subject to the following conditions:

 

(i)                                      the maximum aggregate principal amount of the Delayed Draw Term Loans is $15,000,000 (the “ Maximum Delayed Draw Term Loan Amount ”);

 

(ii)                                   the aggregate principal amount of each Borrowing of Delayed Draw Term Loans shall be $5,000,000 or a greater amount which is an integral multiple of $1,000,000;

 

(iii)                                the terms of each Delayed Draw Term Loan shall be identical to the terms applicable to the Term A Loan;

 

(iv)                               no Lender shall have any obligation to fund any portion of a Delayed Draw Term Loan required to be funded by any other Lender, but not so funded; and

 

(v)                                  amounts repaid or prepaid on the Delayed Draw Term Loan may not be reborrowed.

 

Section 2.02                              Procedures for Borrowings .

 

(a)                                  Notice to the Agent .  Each Borrowing of Loans shall be made on a Business Day upon written notice from the Borrower to the Agent, which notice shall be received by the Agent not later than 11:00 A.M. New York time at least three Business Days prior to the date of such proposed Borrowing. Each such notice, except as provided in Sections 5.01 and 5.04, shall be irrevocable and binding on the Borrower, shall be in substantially the form of Exhibit D (a “ Notice of Borrowing ”).

 

(b)                                  Notice to the Lenders .  The Agent shall give each Lender prompt notice in writing of each Borrowing, specifying the information contained in the Notice of Borrowing and such Lender’s Pro Rata Share of the Borrowing.  On the date of each Borrowing, each Lender shall make available such Lender’s Pro Rata Share of such Borrowing, in same day or immediately available funds, to the Agent for the Agent’s Account, not later than 11:00 A.M. New York time.  Upon fulfillment of the applicable conditions set forth in Article VII and after receipt by the Agent

 

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of any such funds, the Agent shall make such funds available to the Borrower pursuant to payment instructions agreed to by the Borrower and the Agent with same day or immediately available funds on such Borrowing date. If any Lender makes available to the Agent funds for any Borrowing as provided in this Article II, and such funds are not made available to the Borrower by the Agent because the applicable conditions set forth in Article VII are not satisfied or waived in accordance with the terms hereof, the Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

 

Section 2.03                              Non-Receipt of Funds .  Unless the Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Agent such Lender’s Pro Rata Share of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on such date in accordance with Section 2.02(b) and the Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount.  In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Agent, then the applicable Lender and the Borrower severally agree to pay to the Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Agent, at (a) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Agent in connection with the foregoing, and (b) in the case of a payment to be made by the Borrower, the interest rate applicable to Loans.  If the Borrower and such Lender shall pay such interest to the Agent for the same or an overlapping period, the Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period.  If such Lender pays its share of the applicable Borrowing to the Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing.  Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Agent.

 

Section 2.04                              Lending Offices .  The Loans made by each Lender may be made from and maintained at such offices of such Lender (each a “ Lending Office ”) as such Lender may from time to time designate (whether or not such office is specified on Schedule 1). Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

 

Section 2.05                              Evidence of Indebtedness .

 

(a)                                  Notes .  As additional evidence of the Indebtedness of the Borrower to each Lender resulting from the Loans made by such Lender, the Borrower shall, if requested by any Lender, execute and deliver for account of each Lender a promissory note in form and substance satisfactory to the Agent, dated the Closing Date, setting forth such Lender’s Term A Loan Commitment or Delayed Draw Term Loan Commitment, respectively, as the maximum principal amount thereof (collectively, the “ Notes ”).

 

(b)                                  Recordkeeping .  Each Lender and the Agent shall record in its internal records the date and amount of each Loan made, each relevant Interest Period, the amount of principal and interest due and payable from time to time hereunder, each payment thereof and the

 

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resulting unpaid principal balance of such Loan.  The accounts or records maintained by the Agent and each Lender shall be conclusive absent demonstrable error of the amount of Loans made by the Lenders to the Borrower and the interest and payments thereon.  Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Loans. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Agent in respect of such matters, the accounts and records of the Agent shall control in the absence of demonstrable error.

 

ARTICLE III
INTEREST AND FEES

 

Section 3.01                              Interest .

 

(a)                                  Interest Rate .  The Borrower shall pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount shall be paid in full at the following rates:

 

(i)                                      during such periods as such Loan is a Eurodollar Rate Loan, at a rate per annum equal at all times during each Interest Period for such Loan to the Eurodollar Rate for such Interest Period plus the Applicable Margin; and

 

(ii)                                   During such periods as such Loan is a Base Rate Loan, at a rate per annum equal at all times to the Base Rate plus the Applicable Margin.

 

(b)                                  Interest Periods .  The initial and each subsequent Interest Period for the Eurodollar Rate Loans, shall be a period of one, two, three or six months.  The determination of Interest Periods shall be subject to the following provisions:

 

(i)                                      The Borrower shall select the initial Interest Period for a Eurodollar Rate Loan in the related Notice of Borrowing and thereafter the Borrower shall specify, by written notice received by the Agent not later than 11:00 A.M.  (New York time) three Business Days prior to the end of the then current Interest Period, the duration of the succeeding Interest Period(s) for such Loan ( provided that if no such notice is received, the succeeding Interest Period for the applicable Loans shall be one month);

 

(ii)                                   in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires;

 

(iii)                                if any Interest Period would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day;

 

(iv)                               no Interest Period shall extend beyond the Maturity Date;

 

(v)                                  any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the ending calendar

 

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month of such Interest Period) shall end on the last Business Day of the ending calendar month of such Interest Period;

 

(vi)                               there shall be no more than six Interest Periods in effect at any one time.

 

(c)                                   Interest Payment Dates .  Subject to Section 3.02, interest on the Loans shall be payable in arrears at the following times:   (i) interest on each Eurodollar Rate Loan shall be payable on the last day of each Interest Period for such Loan and at maturity (each, an “ Interest Payment Date ”); provided that (A) in the case of any such Interest Period which is greater than three months, interest on such Loan shall be payable on each date that is three months, or any integral multiple thereof, after the beginning of such Interest Period, and on the last day of such Interest Period, and (B) if any prepayment is effected other than on the last day of such Interest Period, accrued interest on such Loan shall be due on such prepayment date as to the principal amount of such Loan prepaid, and (ii) interest on each Base Rate Loan shall be payable monthly on the last Business Day in each month, on the date of any prepayment of any such Base Rate Loan, and at maturity.

 

(d)                                  Notice to the Borrower and the Lenders .  Each determination by the Agent hereunder of a rate of interest and of any change therein in the absence of demonstrable error shall be conclusive and binding on the parties hereto.

 

Section 3.02                              Default Rate of Interest .  Notwithstanding Section 3.01, during the existence of any Event of Default pursuant to Sections 11.01(a), (e) or (f), the Borrower shall pay interest on the outstanding Obligations at a rate per annum equal to the Eurodollar Rate plus the Applicable Margin plus 2%.  Additionally, during the existence of any other Event of Default (upon the request of the Majority Lenders), the Borrower shall pay interest on the outstanding Obligations at a rate per annum equal to the applicable Eurodollar Rate, as the case may be, plus the Applicable Margin, plus 2% per annum.  Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

 

Section 3.03                              Fees .

 

(a)                                  Unused Delay Draw Commitment Fee .  The Borrower agrees to pay to the Agent for the account of each Lender with a Delayed Draw Term Loan Commitment a commitment fee on the actual daily unused portion of such Lender’s Delayed Draw Term Loan Commitment as in effect from time to time from the Closing Date until the Delayed Draw Term Loan Commitment Expiration Date at the rate of 1.50% per annum, payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing on the first such date after the Closing Date, and on the earlier of the date such Delayed Draw Term Loan Commitment is terminated hereunder (payable only with respect to the portion terminated) or the Delayed Draw Term Loan Commitment Expiration Date, subject to adjustment as provided in Section 6.06.

 

(b)                                  Additional Fees .  The Borrower agrees to pay to the Agent such additional fees as set forth in the Fee Letter.

 

(c)                                   Fees Nonrefundable .  All fees payable under this Section 3.03 shall be nonrefundable.

 

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Section 3.04                              Computations .  All computations of fees and interest hereunder shall be made on the basis of a year of 360 days for the actual number of days occurring in the period for which such interest is payable (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day or 366-day year).  Notwithstanding the foregoing, if any Loan is repaid on the same day on which it is made, such day shall be included in computing interest on such Loan.

 

Section 3.05                              Highest Lawful Rate .  Anything herein to the contrary notwithstanding, if during any period for which interest is computed hereunder, the applicable interest rate, together with all fees, charges and other payments which are treated as interest under applicable law, as provided for herein or in any other Loan Document, would exceed the maximum rate of interest which may be charged, contracted for, reserved, received or collected by any Lender in connection with this Agreement under applicable law (the “ Maximum Rate ”), the Borrower shall not be obligated to pay, and such Lender shall not be entitled to charge, collect, receive, reserve or take, interest in excess of the Maximum Rate, and during any such period the interest payable hereunder shall be limited to the Maximum Rate.

 

ARTICLE IV
REDUCTION OF COMMITMENTS;
REPAYMENT; PREPAYMENT

 

Section 4.01                              Reduction or Termination of the Commitments .

 

(a)                                  Optional Reduction or Termination .  The Borrower may, upon prior notice to the Agent, terminate in whole or reduce ratably in part, as of the date, and in the amount, specified by the Borrower in such notice, any then unused portion of the Delayed Draw Term Loan Commitment; provided that each partial reduction shall be in a minimum amount of $1,000,000 or a greater amount which is an integral multiple of $1,000,000.

 

(b)                                  Adjustment of Commitment Fee; No Reinstatement .  From the effective date of any reduction or termination prior to the Maturity Date, the commitment fee payable under Section 3.03(a) shall be computed on the basis of the Delayed Draw Term Loan Commitments as so reduced or terminated.  Once reduced or terminated, the Delayed Draw Term Loan Commitments may not be increased or otherwise reinstated.

 

Section 4.02                              Repayment of the Loans .  The Borrower shall repay to the Lenders the aggregate principal amount of the Term Loans on the Maturity Date.

 

Section 4.03                              Prepayments .

 

(a)                                  Optional Prepayments .  Subject to Section 5.02, the Borrower may, upon prior notice to the Agent not later than the date three Business Days prior to the proposed day of prepayment, prepay the outstanding amount of the Loans in whole or ratably in part, without premium or penalty; provided that the Borrower may not prepay the Loans at any time that a Delayed Draw Term Loan Commitment is outstanding.  Partial prepayments shall be a minimum amount of $1,000,000 or a greater amount which is an integral multiple of $1,000,000 (or, if less, the entire principal amount of the Loans then outstanding).  Each such notice given of any prepayment shall specify the date and amount of the prepayment.  If any such notice is given, the

 

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Borrower shall make such prepayment and the prepayment amount specified in such notice shall be due and payable on the date specified therein, with accrued interest to such date on the amount prepaid.

 

(b)                                  Mandatory Prepayments .  Within five Business Days of the date of receipt by the Parent Guarantor, the Borrower or a Restricted Subsidiary of Net Cash Proceeds, the Loans shall be prepaid in an amount equal to the amount of such Net Cash Proceeds; provided that, notwithstanding the foregoing, so long as no Event of Default shall have occurred and be continuing, the Parent Guarantor and the Restricted Subsidiaries may reinvest all or any portion of such Net Cash Proceeds in assets that are used or useful in its business so long as (i) within five Business Days of receipt of Net Cash Proceeds a Responsible Officer of the Borrower shall have delivered written notice to the Agent of the intent to reinvest such Net Cash Proceeds in an amount specified in such notice, (ii) such reinvestment is permitted by Section 10.06 other than Section 10.06(h) and (iii) within 364 days after the receipt of such Net Cash Proceeds, such reinvestment shall have been consummated (as certified by a Responsible Officer of the Borrower in writing to the Agent); provided further , however, that any Net Cash Proceeds not so reinvested shall be immediately applied to the prepayment of the Loans.  For the purpose of this Section 4.03(b), “Net Cash Proceeds” shall not include the first $15,000,000 of such amounts received after the Closing Date.

 

ARTICLE V
YIELD PROTECTION AND ILLEGALITY

 

Section 5.01                              Inability to Determine Rates .  If (a) the Agent determines that (i) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of any Loan, or (ii) adequate and reasonable means do not exist for determining the Eurodollar Rate for any Interest Period with respect to a Loan, or (b) the Majority Lenders determine that for any reason that the Eurodollar Rate for any Interest Period with respect to a proposed Loan does not adequately and fairly reflect the cost to such Lenders of making, funding or maintaining such Loan, the Agent will promptly so notify the Borrower and each Lender.  Such notice shall specify the basis for such determination and shall, in the absence of demonstrable error, be conclusive and binding for all purposes.  Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans hereunder shall be suspended (to the extent of the affected Loans or Interest Periods) until the Agent (upon the instructions of the Majority Lenders) revokes such notice.  Upon receipt of such notice, the Borrower may revoke any Notice of Borrowing then submitted by it (to the extent of the affected Loans or Interest Periods).  If the Borrower does not revoke such Notice of Borrowing, the Lenders shall make or convert Loans, as proposed by the Borrower, in the amount specified in the Notice of Borrowing submitted by the Borrower, but such Loans shall be made or converted as Base Rate Loans instead of Eurodollar Rate Loans (to the extent of the affected Eurodollar Rate Loans or Interest Periods).

 

Section 5.02                              Compensation for Losses .  In addition to such amounts as are required to be paid by the Borrower pursuant to Section 5.03, the Borrower shall compensate each Lender, promptly upon receipt of such Lender’s written request made to the Borrower (with a copy to the Agent), for all losses, costs and expenses (including any loss or expense incurred by such Lender in obtaining, liquidating or re-employing deposits or other funds to fund or maintain its Loans), if any, which such Lender sustains: (a) if the Borrower repays or prepays any Loan on a date other than the last day of an Interest Period for such Loan (whether as a result of an optional prepayment,

 

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mandatory prepayment, a payment as a result of acceleration or otherwise); (b) if the Borrower fails to borrow any Loan after giving its Notice of Borrowing (other than as a result of the operation of Section 5.01 or 5.04); (c) if the Borrower fails to prepay any Loan after giving its notice of prepayment thereof; or (d) if any Loan is assigned pursuant to Section 5.08 other than on the last day of an Interest Period for such Loan; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for losses incurred more than nine months prior to the date that such Lender notifies the Borrower of such loss.  The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.  Any such request for compensation shall set forth the basis for requesting such compensation and shall, in the absence of demonstrable error, be conclusive and binding for all purposes.

 

Section 5.03                              Increased Costs .

 

(a)                                  Increased Costs Generally .  If any Change in Law shall:

 

(i)                                      impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender;

 

(ii)                                   subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or

 

(iii)                                impose on any Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making or maintaining any Loan or of maintaining its obligation to make any such Loan, or to reduce the amount of any sum received or receivable by such Lender or other Recipient hereunder (whether of principal, interest or any other amount), then, upon request of such Lender or other Recipient, the Borrower will pay to such Lender or other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or other Recipient, as the case may be, for such additional costs incurred or reduction suffered.

 

(b)                                  Capital Requirements .  If any Lender determines that any Change in Law affecting such Lender or any lending office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by such Lender, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

 

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(c)                                   Certificates for Reimbursement .  A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower, shall be conclusive absent demonstrable error.  The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

 

(d)                                  Delay in Requests .  Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions, and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).  Notwithstanding any other provisions of this Section 5.03, no Lender shall demand compensation pursuant to this Section 5.03, and the Borrower shall not be required to compensate any such Lender if it shall not at the time be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements to which it is a party.

 

Section 5.04                              Illegality .  If any Lender shall determine that the operation of any applicable law has made it unlawful for such Lender or its Lending Office to make, fund or maintain Loans whose interest is determined by reference to the Eurodollar Rate as contemplated by this Agreement, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then such Lender shall promptly give notice of such determination to the Borrower (through the Agent), and (i) the obligation of such Lender to make Loans shall be suspended and (ii) each of such Lender’s outstanding Eurodollar Rate Loans shall, if requested by such Lender, be converted into a Base Rate Loan not later than upon expiration of the Interest Period related to such Eurodollar Rate Loan, or, if earlier, on such date as may be specified in such request. Any such determination shall, in the absence of demonstrable error, be conclusive and binding for all purposes.

 

Section 5.05                              Funding Assumptions .  Solely for purposes of calculating amounts payable by the Borrower to the Lenders under this Article V, each Loan made by a Lender whose interest is determined by reference to the Eurodollar Rate (and any related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Eurodollar Rate by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Loan is in fact so funded.

 

Section 5.06                              Obligation to Mitigate .  If any Lender requests compensation under Section 5.03, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 6.03, then such Lender shall (at the request of the Borrower) use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 5.03 or 6.03 or eliminate the illegality referenced in Section 5.04, as the case may be, in the

 

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future, and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender.  The Borrower hereby agrees to pay all reasonable and documented costs and expenses incurred by any Lender in connection with any such designation or assignment.

 

Section 5.07                              Reserves on Eurodollar Rate Loans .  The Borrower shall pay to each Lender, as long as such Lender shall be required under regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan, equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), payable on each date on which interest is payable on such Loan; provided the Borrower shall have received at least 10 days’ prior written notice (with a copy to the Agent) of such additional interest from such Lender.  If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be payable 10 days from receipt of such notice.  Notwithstanding any other provision of this Section 5.07, no Lender shall demand compensation pursuant to this Section 5.07, and the Borrower shall not be required to compensate any such Lender, if it shall not at the time be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements to which it is a party.

 

Section 5.08                              Substitution of Lenders .  If any Lender requests compensation under Section 5.03 or Section 5.07, if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 6.03 and, in each case, such Lender has declined or is unable to designate a different Lending Office in accordance with Section 5.06, or if any Lender is a Defaulting Lender or a Non-Consenting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 13.09), all of its interests, rights (other than its existing rights to payments pursuant to Section 5.03 or Section 6.03) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:

 

(a)                                  the Borrower shall have paid to the Agent the assignment fee (if any) specified in Section 13.09;

 

(b)                                  such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 5.02) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

 

(c)                                   in the case of any such assignment resulting from a claim for compensation under Section 5.03 or payments required to be made pursuant to Section 6.03, such assignment will result in a reduction in such compensation or payments thereafter;

 

(d)                                  such assignment does not conflict with applicable law; and

 

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(e)                                   in the case of any assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.

 

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

 

ARTICLE VI
PAYMENTS

 

Section 6.01                              Pro Rata Treatment .  Except as otherwise provided in this Agreement, each Borrowing hereunder, each Commitment reduction, each payment (including each prepayment) by the Borrower on account of the principal and interest on the Loans, commitment fee and other amounts required hereunder shall be made ratably in accordance with the Pro Rata Shares of the Lenders.

 

Section 6.02                              Payments .

 

(a)                                  Payments to Agent .  The Borrower shall make each payment under the Loan Documents, unconditionally in full without set-off, counterclaim or other defense, not later than 1:00 P.M. New York time on the day when due to the Agent in Dollars and in same day or immediately available funds, to the Agent’s Account.  The Agent shall promptly thereafter distribute like funds relating to any payment on account of principal and interest on any Loans, commitment fee or any other amounts payable to the Lenders or to the Issuing Bank, as the case may be, ratably (except as a result of the operation of Articles II or V or this Article VII) to the Lenders in accordance with their Pro Rata Shares, or to the Issuing Bank, as the case may be.

 

(b)                                  Authorization to Agent .  The Agent may (but shall not be obligated to), and the Borrower hereby authorizes the Agent to, charge any deposit account of the Borrower with the Agent for the amount of such payment which is not made by the time specified in subsection (a).  The Agent shall promptly notify the Borrower after charging any such account.

 

(c)                                   Payments to Lenders .  The Agent shall promptly thereafter distribute like funds relating to any payment on account of principal and interest on any Loans, commitment fee or any other amounts payable to the Lenders or to the Issuing Bank, as the case may be, ratably (except as a result of the operation of Articles II or V or this Article VII) to the Lenders in accordance with their Pro Rata Shares, or to the Issuing Bank, as the case may be.

 

(d)                                  Application of Funds Prior to the Exercise of Remedies .  If at any time insufficient funds are received by and available to the Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (a) first, towards payment of interest and fees then due hereunder, ratably (to the extent provided herein) among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (b) second, towards payment of principal then due hereunder, ratably (to the extent provided herein) among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

 

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(e)                                   Application of Funds After the Exercise of Remedies .  Notwithstanding any other provisions of this Agreement to the contrary, after the exercise of remedies provided for in Section 11.02 (or after the Loans have automatically become immediately due and payable as set forth in Section 11.02), any amounts received on account of the Obligations shall, unless a specific determination is made by the Agent and the Majority Lenders with respect thereto, and subject to Section 6.06, be applied in the following order: (i) first, to any fees, indemnities, costs, expenses and other amounts due the Agent (including interest thereon); (ii) second, to any fees, indemnities, costs, expenses and other amounts due the Lenders (excluding principal and interest); (iii) third, to accrued and unpaid interest on any principal and other Obligations due the Lenders; (iv) fourth, to principal due the Lenders; and (v) fifth, the balance, if any, after all of the Obligations have been paid in full, to the Borrower or as otherwise required by applicable law; provided , however , that Excluded Swap Obligations with respect to any Guarantor shall not be paid with amounts received from such Guarantor or its assets, but appropriate adjustments shall be made with respect to payments from other Credit Parties to preserve the allocation to of such payments to the satisfaction of the Obligations in the order otherwise contemplated in this Subsection.

 

(f)                                    Extension .  Whenever any payment hereunder shall be stated to be due, or whenever any Interest Payment Date or any other date specified hereunder would otherwise occur, on a day other than a Business Day, then, except as otherwise provided herein, such payment shall be made, and such Interest Payment Date or other date 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 or commitment fee hereunder.

 

Section 6.03                              Taxes .

 

(a)                                  Payments Free of Taxes .  Any and all payments by or on account of any obligation of any Credit Party under any Loan Document shall be made free and clear of and without deduction or withholding for any Taxes, except as required by applicable law.  If any applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay, and in the case of the Borrower shall cause any other applicable Credit Party to pay, the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Credit Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

 

(b)                                  Payment of Other Taxes by the Borrower .  The Borrower shall, and shall cause each other Credit Party to, timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Agent timely reimburse it for the payment of, any Other Taxes.

 

(c)                                   Indemnification by the Credit Parties .  The Borrower shall, and shall cause each other Credit Party to, indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to

 

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be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Agent), or by the Agent on its own behalf or on behalf of a Lender, shall be conclusive absent demonstrable error.

 

(d)                                  Indemnification by the Lenders .  Each Lender shall severally indemnify the Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Credit Party has not already indemnified the Agent for such Indemnified Taxes and without limiting the obligation of the Credit Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 13.09 relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to any Lender by the Agent shall be conclusive absent demonstrable error.  Each Lender hereby authorizes the Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Agent to the Lender from any other source against any amount due to the Agent under this subsection (d).

 

(e)                                   Evidence of Payments .  As soon as practicable after any payment of Taxes by any Credit Party to a Governmental Authority pursuant to this Section 6.03, the Borrower shall, or shall cause such other Credit Party to, deliver to the Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Agent.

 

(f)                                    Status of Lenders .

 

(i)                                      Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Agent, at the time or times reasonably requested by the Borrower or the Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Agent as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if reasonably requested by the Borrower or the Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Agent as will enable the Borrower or the Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.  Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 6.03(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

 

(ii)                                   Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,

 

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(A)                                any Lender that is a U.S. Person shall deliver to the Borrower and the Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

 

(B)                                any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Agent), whichever of the following is applicable:

 

(1)                                  in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

 

(2)                                  executed originals of IRS Form W-8ECI;

 

(3)                                  in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Internal Revenue Code, (x) a certificate substantially in the form of Exhibit E-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Internal Revenue Code (a “ U.S. Tax Compliance Certificate ”) and (y) executed originals of IRS Form W-8BEN; or

 

(4)                                  to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit E-2 or Exhibit E-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit E-4 on behalf of each such direct and indirect partner;

 

(C)                                any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Agent to determine the withholding or deduction required to be made; and

 

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(D)                                if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Internal Revenue Code, as applicable), such Lender shall deliver to the Borrower and the Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by the Borrower or the Agent as may be necessary for the Borrower and the Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment.  Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

 

Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Agent in writing of its legal inability to do so.

 

(g)                                   Treatment of Certain Refunds .  If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 6.03 (including by the payment of additional amounts pursuant to this Section 6.03), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund).  Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this subsection (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority.  Notwithstanding anything to the contrary in this subsection (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this subsection (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid.  This subsection (g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

 

(h)                                  Defined Terms .  For purposes of this Section 6.03, the term “applicable law” includes FATCA.

 

Section 6.04                              Non-Receipt of Funds .  Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Agent for the account of any of the Lenders hereunder that the Borrower will not make such payment, the Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due.  In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Agent forthwith on demand the amount so distributed to such Lender, with interest thereon, for each day

 

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from and including the date such amount is distributed to it to but excluding the date of payment to the Agent, at the greater of the Federal Funds Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Agent in connection with the foregoing.

 

Section 6.05                              Sharing of Payments .  If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or other obligations hereunder resulting in such Lender receiving payment of a proportion of the aggregate amount of its Loans and accrued interest thereon or other such obligations greater than its Pro Rata Share thereof as provided herein, then the Lender receiving such greater proportion shall (x) notify the Agent of such fact and (y) purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them; provided that:

 

(a)                                  if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

 

(b)                                  the provisions of this Section shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this subsection shall apply).

 

The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower and each other Credit Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower and such other Credit Party in the amount of such participation.

 

Section 6.06                              Defaulting Lenders .

 

(a)                                  Adjustments .  Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:

 

(i)                                      Waivers and Amendments .  Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definitions of “Majority Lenders,” and in Section 13.01.

 

(ii)                                   Defaulting Lender Waterfall .  Any payment of principal, interest, fees or other amounts received by the Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article XI or otherwise or received by the Agent from a Defaulting Lender pursuant to Section 13.05), shall be applied at such time or times as may be determined by the Agent as follows: first, to the payment of any amounts owing by such

 

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Defaulting Lender to the Agent hereunder; second, as the Borrower may request (so long as no Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Agent; third, if so determined by the Agent and the Borrower, to be held in a deposit account and released in order to satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement; fourth, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; fifth, so long as no Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and sixth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (A) such payment is a payment of the principal amount of any Loans in respect of which such Defaulting Lender has not fully funded its appropriate share and (B) such Loans were made at a time when the conditions set forth in Section 7.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of such Defaulting Lender until such time as all Loans are held by the Lenders pro rata in accordance with their Pro Rata Shares.  Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender pursuant to this Section 6.06(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

 

(iii)                                Certain Fees .  No Defaulting Lender shall be entitled to receive any commitment fee pursuant to Section 3.03(a) for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to such Defaulting Lender).

 

(b)                                  Defaulting Lender Cure .  If the Borrower and the Agent agree in writing that a Lender is no longer a Defaulting Lender, the Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Agent may determine to be necessary to cause the Loans to be held on a pro rata basis by the Lenders in accordance with their Pro Rata Shares, whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender.

 

ARTICLE VII
CONDITIONS PRECEDENT

 

Section 7.01                              Conditions Precedent to the Initial Loans .  The obligation of each Lender to make its initial Loan shall be subject to the satisfaction of each of the following conditions precedent on or before the Closing Date:

 

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(a)                                  Fees and Expenses .  The Borrower shall have paid (i) all fees then due in accordance with Section 3.03 and (ii)  all invoiced costs and expenses then due in accordance with Section 13.04(a).

 

(b)                                  Loan Documents .  The Agent shall have received the following Loan Documents:  (i)  counterparts of this Agreement executed by the parties hereto; (ii) the Notes, executed by the Borrower, if requested; (iii) the Collateral Documents, executed by the parties thereof; (iv) the Guaranties, executed by the parties thereto; (v) the Subordination Agreement with respect to the Seller Note, executed by the parties thereto; and (vi) the Intercompany Subordination Agreement, executed by the parties thereto.

 

(c)                                   Documents and Actions Relating to Collateral .  The Agent shall have received the following, in form and substance reasonably satisfactory to it:

 

(i)                                      evidence that all filings, registrations and recordings have been made in the appropriate governmental offices, and all other action has been taken, which shall be necessary to create, in favor of the Agent on behalf of the Lenders, a perfected first priority Lien on the Collateral, including the filing of completed UCC-1 financing statements in the appropriate governmental offices;

 

(ii)                                   the results, dated as of a recent date prior to the Closing Date, of searches conducted in the collateral filing records in each of the governmental offices in each jurisdiction in which personal property Collateral is located which shall have revealed no Liens with respect to any of the Collateral except Permitted Liens; and

 

(iii)                                the certificates or instruments representing any pledged Collateral under any Collateral Document, together with undated stock powers or indorsements, as the case may be, executed in blank, with respect thereto.

 

(d)                                  Additional Closing Documents and Actions .  The Agent shall have received the following, in form and substance satisfactory to it:

 

(i)                                      evidence of the consummation of the Acquisition on terms and conditions reasonably acceptable to the Lenders, including receipt of the Acquisition Documents that have been entered into before the Closing Date and forms of the Acquisition Documents to be entered into after the Closing Date;

 

(ii)                                   evidence of a new $30,000,000 cash common equity issuance by the Parent Guarantor;

 

(iii)                                a certified copy of the AVH Note and the Seller Note;

 

(iv)                               a completed Compliance Certificate, dated the Closing Date, giving pro forma effect to the Acquisition and the Borrowing of the Term A Loan;

 

(v)                                  a certificate of a Responsible Officer of the Borrower, dated the Closing Date, stating that (A) the representations and warranties contained in Section 8.01 and in the other Loan Documents are true and correct in all material respects (or in the case of any representation and warranty subject to a materiality qualifier, true and correct) on and as of the date

 

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of such certificate as though made on and as of such date and (B) on and as of the Closing Date, no Default shall have occurred and be continuing or shall result from the initial Borrowing.

 

(e)                                   Organization Documents .  The Agent shall have received the following, in form and substance reasonably satisfactory to it:

 

(i)                                      certified copies of the Organization Documents of each Credit Party, together with certificates as to good standing (or, for non-US entities, the foreign equivalent thereof unless no such foreign equivalent exists) (A) from the Secretary of State or other Governmental Authority, as applicable, of such Credit Party’s jurisdiction of organization and (B) certificates from the Secretary of State or other Governmental Authority, as applicable, of (1) the jurisdiction in which such Credit Party’s chief executive office or principal place of business is situated (if different from its jurisdiction of organization), and (2) each other jurisdiction in which its failure to be in good standing (or, for non-US entities, the foreign equivalent thereof unless no such foreign equivalent exists) would result in a Material Adverse Effect, each dated as of a recent date prior to the Closing Date; and

 

(ii)                                   a certificate of the Secretary or Assistant Secretary of each Credit Party, dated the Closing Date, certifying (A) the resolutions of the Board of Directors of such Credit Party authorizing the execution, delivery and performance of the Loan Documents and (B) the incumbency, authority and signatures of each officer of such Credit Party authorized to execute and deliver the Loan Documents and act with respect thereto.

 

(f)                                    Legal Opinions .  The Agent shall have received the following legal opinions, in each case dated the Closing Date and covering such other matters concerning the Credit Parties and the Loan Documents as the Agent and the Lenders may request:  (i) the opinion of Goodwin Procter, New York counsel to the Credit Parties; and (ii) the opinion of Spigt Dutch Caribbean, Curaçao counsel to the Credit Parties.

 

Without limiting the generality of the provisions of Section 12.03(c), for purposes of determining compliance with the conditions specified in this Section 7.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

 

Section 7.02                              Continuing Conditions .  The obligation of each Lender to make each Loan shall be subject to the satisfaction of each of the following conditions precedent:

 

(a)                                  Notice .  The Borrower shall have given the Notice of Borrowing as provided in Section 2.02 in accordance with the requirements hereof.

 

(b)                                  Representations and Warranties; No Default .  On the date of such Loan, both before and after giving effect thereto and to the application of proceeds therefrom:  (i) the representations and warranties contained in Section 8.01 and in the other Loan Documents shall be true and correct in all material respects (or in the case of any representation and warranty subject to a materiality qualifier, true and correct) on and as of the date of such date as though made on and as of such date; and (ii) no Default shall have occurred and be continuing or shall result therefrom.

 

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Clause (i) shall not be deemed to refer to any other representations and warranties which relate solely to an earlier date ( provided that such other representations and warranties shall be true and correct in all material respects (or in the case of any representation and warranty subject to a materiality qualifier, true and correct) as of such earlier date), and clause (i) shall take into account any amendments to the Schedules and other disclosures made in writing by the Credit Parties to the Agent and the Lenders after the Closing Date and approved by the Agent and the Majority Lenders.

 

The giving of any Notice of Borrowing and the acceptance by the Borrower of the proceeds of each Loan made following the Closing Date shall each be deemed a certification to the Agent and the Lenders that on and as of the date of such Loan the applicable conditions specified in Sections 7.02(a) and (b) have been satisfied on and as of such date.

 

ARTICLE VIII
REPRESENTATIONS AND WARRANTIES

 

Section 8.01                              Representations and Warranties .  Each Credit Party represents and warrants to each Lender and the Agent that:

 

(a)                                  Organization and Powers .  Each of the Parent Guarantor and the Restricted Subsidiaries is duly organized or formed, as the case may be, validly existing and in good standing (or, if applicable, the foreign equivalent thereof unless no such foreign equivalent exists) under the laws of the jurisdiction of its incorporation or organization, is qualified to do business and is in good standing in each jurisdiction in which the failure so to qualify or be in good standing (or, if applicable, the foreign equivalent thereof unless no such foreign equivalent exists) would result in a Material Adverse Effect and has all requisite power and authority to own its assets and carry on its business and to execute, deliver and perform its obligations under the Loan Documents to which it is a party.

 

(b)                                  Authorization; No Conflict .  The execution, delivery and performance by each Credit Party of the Loan Documents to which such Credit Party is a party have been duly authorized by all necessary action of such Credit Party and do not and will not: (i) contravene the terms of the Organization Documents of such Credit Party; (ii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which such Credit Party is a party or by which it or its properties may be bound or affected; (iii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or the like binding on or affecting such Credit Party; or (iv) except as contemplated by this Agreement, result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties of such Credit Party (other than Permitted Liens).

 

(c)                                   Binding Obligation .  This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Credit Party that is party thereto.  This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Credit Party, enforceable against each Credit Party that is party thereto in accordance with its terms, subject in each case to the effect of any applicable bankruptcy, insolvency, reorganization, receivership, examinership, moratorium or similar law affecting creditors’ rights generally, and subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law).

 

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(d)                                  Consents .  No authorization, consent, approval, license, exemption of, or filing or registration with, any Governmental Authority, or approval or consent of any other Person, is required for the due execution, delivery or performance by any Credit Party of any of the Loan Documents, except for recordings or filings in connection with the perfection of the Liens on the Collateral in favor of the Agent on behalf of the Lenders.

 

(e)                                   No Defaults .  None of the Parent Guarantor or any Restricted Subsidiary is in default under any contract, lease, agreement, judgment, decree or order to which it is a party or by which it or its properties may be bound, except to the extent that such default would not result in a Material Adverse Effect.  No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

 

(f)                                    Title to Properties; Liens .  The Parent Guarantor and the Restricted Subsidiaries have good and marketable title to, or valid and subsisting leasehold interests in, their properties and assets, including all property forming a part of the Collateral, and there is no Lien upon or with respect to any of such properties or assets, including any of the Collateral, except for Permitted Liens.

 

(g)                                   Litigation .  Except as set forth in Schedule 5, there are no actions, suits, investigations or proceedings pending or, to the best of the Parent Guarantor’s and the Restricted Subsidiaries’ knowledge, threatened in writing against or affecting the Parent Guarantor or any Restricted Subsidiary or the properties of the Parent or any Restricted Subsidiary before any Governmental Authority or arbitrator, except for actions, suits, investigations or proceedings that if adversely determined would not result in a Material Adverse Effect.

 

(h)                                  Compliance with Environmental Laws .  Each of the Parent Guarantor and the Restricted Subsidiaries is in compliance with all applicable Environmental Laws, whether in connection with the ownership, use, maintenance or operation of their respective properties or the conduct of any business thereon, or otherwise, except to the extent that such failure to comply would not have a Material Adverse Effect.  Neither the Parent Guarantor nor the Restricted Subsidiaries nor, to the Parent Guarantor’s and the Restricted Subsidiaries’ knowledge, any present tenant or other present occupant, user or operator of their respective businesses, operations or properties has used, generated, manufactured, installed, treated, released, stored or disposed of any Hazardous Substances on, under, or at their respective properties, except in compliance with all applicable Environmental Laws (except to the extent that a failure to comply with such Environmental Laws would not have a Material Adverse Effect).  There are no actions, suits, claims, notices of violation, hearings, investigations or proceedings pending or, to the Parent Guarantor’s and the Restricted Subsidiaries’ knowledge, threatened in writing against or affecting any of the Parent Guarantor or the Restricted Subsidiaries or with respect to the ownership, use, maintenance and operation of their respective properties, relating to Environmental Laws or Hazardous Substances, except for actions, suits, claims, notices of violation, hearings, investigations or proceedings that if adversely determined would not have a Material Adverse Effect.

 

(i)                                      Governmental Regulation .  None of the Parent Guarantor or the Restricted Subsidiaries is an “investment company,” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940.

 

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(j)                                     ERISA .

 

(i)                                      Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other Federal or state laws.  Each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the IRS to the effect that the form of such Plan is qualified under Section 401(a) of the Internal Revenue Code and the trust related thereto has been determined by the IRS to be exempt from federal income tax under Section 501(a) of the Internal Revenue Code, or an application for such a letter is currently being processed by the IRS.  To the best knowledge of the Parent Guarantor and the Restricted Subsidiaries, nothing has occurred that would prevent or cause the loss of such tax-qualified status.

 

(ii)                                   There are no pending or, to the knowledge of the Parent Guarantor and the Restricted Subsidiaries, threatened in writing, claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that would result in a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or would result in a Material Adverse Effect.

 

(iii)                                (A) No ERISA Event has occurred, and none of the Parent, the Restricted Subsidiaries or the ERISA Affiliates are aware of any fact, event or circumstance that would result in an ERISA Event with respect to any Pension Plan; (B) the Parent Guarantor, the Restricted Subsidiaries and each ERISA Affiliate have met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (C) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Internal Revenue Code) is 60% or higher and none of the Parent Guarantor, the Restricted Subsidiaries or the ERISA Affiliates knows of any facts or circumstances that would reasonably be expected to cause the funding target attainment percentage for any such plan to drop below 60% as of the most recent valuation date; (D) none of the Parent Guarantor, the Restricted Subsidiaries or the ERISA Affiliates has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid; (E) none of the Parent Guarantor, the Restricted Subsidiaries or the ERISA Affiliates has engaged in a transaction that would be subject to Section 4069 or Section 4212(c) of ERISA; and (F) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that would reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan.

 

(iv)                               Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other United States federal and state laws; (ii) no ERISA Event has occurred, and none of the Parent Guarantor, the Restricted Subsidiaries or the ERISA Affiliates is aware of any fact, event or circumstance that would reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan; (iii) there are no pending or, to the best knowledge of any of the Parent Guarantor or the Restricted Subsidiaries, threatened claims, actions or lawsuits, or action by or before any Governmental Authority with respect to any Plan that would result in a Material Adverse Effect; (iv) there has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or would result in a Material Adverse Effect; (v) the Parent Guarantor, the Restricted Subsidiaries and the ERISA Affiliates have met the minimum funding requirements of ERISA with

 

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respect to each Pension Plan; and (vi) no other event has occurred resulting from the failure of any of the Parent Guarantor, the Restricted Subsidiaries or the ERISA Affiliates to comply with ERISA that that would result in a Material Adverse Effect.

 

(k)                                  Subsidiaries and Other Equity Investments .  (i) Each Subsidiary of the Parent Guarantor on the date of this Agreement is listed in Schedule 6.  Except as set forth in such Schedule, on the date of this Agreement the Parent Guarantor has no equity interest in any Person. (ii) Schedule 6 sets forth as of the date hereof (A) the jurisdiction of organization of the Parent Guarantor and each Subsidiary of the Parent Guarantor, (B) the nature of the legal organization of the Parent Guarantor and each such Subsidiary, (C) the number and percentage of the capital stock or other equity interests of each such Subsidiary that the Parent Guarantor directly or indirectly owns, and (D) any other Persons directly or indirectly owning any interest in the Parent Guarantor and any such Subsidiary and the number and percentage of the capital stock or other equity interests of the Parent Guarantor and such Subsidiary owned by such other Persons.  All of the issued and outstanding capital stock or other equity interests of the Parent Guarantor and each such Subsidiary have been duly authorized and are validly issued and are fully paid and non-assessable.  No securities convertible into or exchangeable for any shares of capital stock or other ownership interests of the Parent Guarantor or such Subsidiaries, or any options, warrants or other commitments entitling any Person to purchase or otherwise acquire any shares of capital stock or other ownership interests of such Subsidiaries, are issued and outstanding.

 

(l)                                      Margin Regulations .  None of the Parent Guarantor and the Restricted Subsidiaries are engaged in the business of extending credit for the purpose of purchasing or carrying “margin stock” (within the meaning of Regulation U of the FRB).  No part of the proceeds of the Loans will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

 

(m)                              Taxes .  Each of the Parent Guarantor and the Restricted Subsidiaries has duly filed all tax and information returns required to be filed, and has paid all income and other material taxes, fees, assessments and other governmental charges or levies that have become due and payable, except to the extent such taxes or other charges are being contested in good faith and are adequately reserved against in accordance with GAAP.  There is no proposed tax assessment against any of the Parent Guarantor and the Restricted Subsidiaries that would, if made, result in a Material Adverse Effect.

 

(n)                                  Permits and Other Rights .  Each of the Parent Guarantor and the Restricted Subsidiaries possesses all material permits, franchises, licenses, patents, trademarks, trade names, service marks, copyrights and all rights with respect thereto, free from burdensome restrictions, that are necessary for the ownership, maintenance and operation of its business and none of the Parent Guarantor or the Restricted Subsidiaries is in violation of any rights of others with respect to the foregoing.

 

(o)                                  Insurance .  The properties of the Parent Guarantor and the Restricted Subsidiaries are insured, with financially sound and reputable insurance companies (not Affiliates of the Borrower), in such amounts, with such deductibles and covering such risks as is consistent with the historical practice of the Credit Parties or as is customarily carried by companies engaged in similar businesses and owning similar properties in the localities where the Parent Guarantor and the Restricted Subsidiaries.

 

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(p)                                  Financial Statements and Projections .  (i) The audited consolidated balance sheets of the Parent Guarantor and its consolidated Subsidiaries and of Quench as at December 31, 2013, and the related consolidated statements of income, shareholders’ equity and cash flows for the fiscal year then ended, and the unaudited consolidated and consolidating (i.e., separately prepared for (1) the Parent Guarantor and the Restricted Subsidiaries and (2) the Unrestricted Subsidiaries) balance sheets of the Parent Guarantor and its Subsidiaries as at December 31, 2014 and March 31, 2015, and the related consolidated and consolidating (i.e., separately prepared for (1) the Parent Guarantor and the Restricted Subsidiaries and (2) the Unrestricted Subsidiaries) statements of income, shareholders’ equity and cash flows, for the fiscal year then ended, are complete and correct and fairly present in all material respects the financial condition of the Parent Guarantor and its Subsidiaries as at such dates and the results of operations of the Parent Guarantor and its Subsidiaries for the periods covered by such statements, in each case in accordance with GAAP consistently applied, subject, in the case of the December 31, 2014 financial statements, to normal year-end adjustments, income tax provision related entries and the absence of notes.  (ii) Since December 31, 2013 (or, following the date of delivery of audited financial statements in compliance with Section 9.01(b), the fiscal year end of such most recently provided financial statements), there has been no Material Adverse Effect.  All financial projections and forecasts delivered to the Agent and the Lenders pursuant hereto represent the Parent Guarantor’s estimates and assumptions as to future performance, which the Parent Guarantor believes to be fair and reasonable as of the time made in the light of current and reasonably foreseeable business conditions, it being acknowledged and agreed by Agent and Lenders that uncertainty is inherent in any forecasts or projections, projections as to future events or conditions are not to be viewed as facts and that the actual results during the period or periods covered by such projections may differ from the projected results and such differences may be material.

 

(q)                                  Liabilities .  Neither the Parent Guarantor nor any of its consolidated Subsidiaries has any material liabilities, fixed or contingent, that are not reflected in the financial statements referred to in subsection (p), in the notes thereto or otherwise disclosed in Schedule 7, other than liabilities arising in the ordinary course of business.

 

(r)                                     Labor Disputes, Etc .  There are no strikes, lockouts or other labor disputes against the Parent Guarantor or the Restricted Subsidiaries, or, to the Parent Guarantor’s and the Restricted Subsidiaries’ knowledge, threatened in writing against or affecting the Parent Guarantor or the Restricted Subsidiaries.

 

(s)                                    Compliance with Laws, Etc .  Each of the Parent Guarantor and the Restricted Subsidiaries is in compliance with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, and all orders, writs, injunctions and decrees applicable to it or to its properties, except to the extent that such violation would not result in a Material Adverse Effect.

 

(t)                                     Solvency .  (i) The Parent Guarantor and the Restricted Subsidiaries, on a consolidated basis, are Solvent and (ii) the Borrower and the Restricted Subsidiaries, on a consolidated basis, are Solvent.

 

(u)                                  Disclosure .  No report, financial statement, certificate or other information furnished (in writing) by or on behalf of any Credit Party or any of their Subsidiaries to the Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this

 

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Agreement and the other Loan Documents or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, when taken as a whole and in the light of the circumstances under which they were made, not materially misleading; provided that, with respect to projected financial information, the Credit Parties represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time, it being acknowledged and agreed by the Agent and the Lenders that uncertainty is inherent in any forecasts or projections, projections as to future events or conditions are not to be viewed as facts and that the actual results during the period or periods covered by such projections may differ from the projected results and such differences may be material.

 

(v)                                  Sanctions .  None of the Parent Guarantor or its Subsidiaries, nor, to the knowledge of the Parent Guarantor, any of its Subsidiaries, any of their respective directors, officers, employees or agents or, to the knowledge of the Parent Guarantor, any of their respective affiliates is the subject of any Sanctions or is located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions.  None of the Parent Guarantor or its Subsidiaries is in breach of any Sanctions.

 

(w)                                Non-U.S. Credit Parties .

 

(i)                                      Each Non-U.S. Credit Party is subject to civil and commercial law with respect to its obligations under the Loan Documents, and the execution, delivery and performance by each Non-U.S. Credit Party of the Loan Documents to which it is a party constitute and will constitute private and commercial acts and not public or governmental acts.  No Non-U.S. Credit Party nor any of its property has any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) under the laws of its organization in respect of its obligations under the Loan Documents.

 

(ii)                                   Each Loan Document executed by each Non-U.S. Credit Party is in proper legal form under the laws of its organization for the enforcement thereof against it under such laws.  It is not necessary to ensure the legality, validity, enforceability, priority or admissibility in evidence of any Loan Document executed by a Non-U.S. Credit Party that such Loan Document be filed, registered or recorded with, or executed or notarized before, any court or other authority in the jurisdiction of organization of such Non-U.S. Credit Party or that any registration charge or stamp or similar tax be paid on or in respect of such Loan Document, except for (i) the registration (date stamping) by the Inspector of Taxes in Curaçao of the Loan Documents if and when the Loan Documents are to be used as evidence in the courts of Curaçao, (ii) a nominal stamp tax amounting to ANG 20 (USD 11.20) per sheet which will be due in respect of the Loan Documents if and when those Loan Documents are executed in Curaçao and, if they are not executed in Curaçao, if and when those Documents are to be used as evidence in the Curaçao courts or registered in Curaçao and (iii) a registration tax of ANG 5 (USD 2.80) per document which will be due for each Loan Document, respectively, when the Loan Documents are to be used as evidence in the Curaçao courts or are to be registered with (date stamped by) the Inspector of Taxes in Curaçao.

 

(iii)                                The execution, delivery or performance by each Non-U.S. Credit Party of the Loan Documents to which it is party will not require the payment of any tax, levy,

 

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impost, duty, fee, assessment or other governmental charge, or any deduction or withholding, imposed by any governmental agency or authority in or of such Non-U.S. Credit Party’s jurisdiction of organization.

 

(iv)                               The execution, delivery and performance of the Loan Documents executed by each Non-U.S. Credit Party are, under applicable foreign exchange control regulations of its jurisdiction of organization, not subject to any notification or authorization except (A) such as have been made or obtained or (B) such as cannot be made or obtained until a later date (provided that any notification or authorization described in the immediately preceding clause (B) shall be made or obtained as soon as is reasonably practicable).

 

(v)                                  The obligations of each Non-U.S. Credit Party under each of the Loan Documents executed by it will constitute direct, general and unconditional obligations of Company, ranking at least pari passu in priority of payment with the highest ranking Indebtedness of such Non-U.S. Credit Party, with the exception of any indebtedness ranking senior by operation of law (and not by agreement).

 

(x)                                  Equity Holders .  Schedule 10 sets forth, as of April 30, 2015, a complete list of the equity holders of AVH, and their ownership percentages, and during the period from April 30, 2015 to the Closing Date, no material change in equity holders or the ownership percentages as set forth on Schedule 10 has occurred.

 

ARTICLE IX
AFFIRMATIVE COVENANTS

 

So long as any of the Obligations shall remain unpaid or any Lender shall have any Commitment, each Credit Party agrees that:

 

Section 9.01                              Financial Statements and Other Reports .  Such Credit Party shall furnish to the Agent in sufficient copies for distribution to the Lenders:

 

(a)                                  as soon as available and in any event within 45 days after the end of each fiscal quarter, the separate consolidated balance sheets of each of (i) the Parent Guarantor and its Subsidiaries, (ii) the Parent Guarantor and the Restricted Subsidiaries and (iii) the Unrestricted Subsidiaries, in each case as of the end of such quarter, and the related separate consolidated statements of income, shareholders’ or members’ equity and cash flows of each of (i) the Parent Guarantor and its Subsidiaries, (ii) the Parent Guarantor and the Restricted Subsidiaries and (iii) the Unrestricted Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, prepared in accordance with GAAP consistently applied, all in reasonable detail (including sufficient information to calculate the Consolidated Leverage Ratio and Holdco Interest Coverage Ratio) and setting forth in comparative form the figures for the corresponding period in the preceding fiscal year, together with a certificate of a Responsible Officer of the Parent Guarantor stating that such financial statements fairly present the financial condition of the Parent Guarantor and its Subsidiaries as at such date and the results of operations of the Parent Guarantor and its Subsidiaries for the period ended on such date and have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal, year-end audit adjustments and except for income tax provision related entries and the absence of notes;

 

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(b)                                  as soon as available and in any event within 120 days after the end of each fiscal year, (i) the consolidated balance sheets of the Parent Guarantor and its Subsidiaries as of the end of such fiscal year, and the related consolidated statements of income, shareholders’ or members’ equity and cash flows of the Parent Guarantor and its Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail (including sufficient information to calculate the Consolidated Leverage Ratio and Holdco Interest Coverage Ratio) and setting forth in comparative form the figures for the previous fiscal year, accompanied by a report and opinion thereon of KPMG or another firm of independent certified public accountants of recognized national standing acceptable to the Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit, and (ii) the separate consolidated balance sheets of each of (x) the Parent Guarantor and the Restricted Subsidiaries and (y) the Unrestricted Subsidiaries, as of the end of such fiscal year, and the related separate consolidated statements of income and cash flows of each of (x) the Parent Guarantor and the Restricted Subsidiaries and (y) the Unrestricted Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail (including sufficient information to calculate the Consolidated Leverage Ratio and Holdco Interest Coverage Ratio) and setting forth in comparative form the figures for the previous fiscal year and certified by a Responsible Officer of the Parent Guarantor stating that such financial statements fairly present the financial condition of the Parent Guarantor and its Subsidiaries as at such date and the results of operations of the Parent Guarantor and its Subsidiaries for the period ended on such date and have been prepared in accordance with GAAP consistently applied, provided that within 90 days of the receipt of such financial statements the Agent may request that such Credit Party shall provide such consolidated balance sheets and related separate consolidated statements of income and cash flows of each of (x) the Parent Guarantor and the Restricted Subsidiaries and (y) the Unrestricted Subsidiaries for such fiscal year, accompanied by a supplementary report from KPMG or another firm of independent certified public accountants of recognized nation standing acceptable to the Agent that the financial statements referred to in clause (ii) above have been subject to the auditing procedures applied in the audit of the consolidated financial statements referred to in clause (i) above within 45 days of such request;

 

(c)                                   as soon as available and in any event by no later than June 30, 2015, the (i) consolidated balance sheets of the Parent Guarantor and its Subsidiaries as of the end of 2014, and the related consolidated statements of income, shareholders’ or members’ equity and cash flows of the Parent Guarantor and its Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail, accompanied by a report and opinion thereon of KPMG or another firm of independent certified public accountants of recognized national standing acceptable to the Agent, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit and (ii) the separate consolidated balance sheets of each of (x) the Parent Guarantor and the Restricted Subsidiaries and (y) the Unrestricted Subsidiaries, as of the end of such fiscal year, and the related separate consolidated statements of income

 

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and cash flows of each of (x) the Parent Guarantor and the Restricted Subsidiaries and (y) the Unrestricted Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail, provided that within 90 days of the receipt of such financial statements the Agent may request that such Credit Party shall provide such consolidated balance sheets and related separate consolidated statements of income and cash flows of each of (x) the Parent Guarantor and the Restricted Subsidiaries and (y) the Unrestricted Subsidiaries for such fiscal year, accompanied by a supplementary report from KPMG or another firm of independent certified public accountants of recognized nation standing acceptable to the Agent that the financial statements referred to in clause (ii) above have been subject to the auditing procedures applied in the audit of the consolidated financial statements referred to in clause (i) above within 45 days of such request;

 

(d)                                  together with the financial statements required pursuant to Section 9.01(a) and (b), a Compliance Certificate of a Responsible Officer of the Borrower as of the end of the applicable accounting period;

 

(e)                                   together with the financial statements required pursuant to this Section 9.01(a) and (b), a report detailing the operating statistics for each Project Subsidiary as at the end of the applicable accounting period, which report shall contain categories of information consistent with those set forth on Exhibit B hereto;

 

(f)                                    within 60 days after the beginning of each fiscal year of the Parent Guarantor, a detailed unaudited consolidated budget for such fiscal year (including projected annual and quarterly consolidated balance sheets and related statements of projected operations and cash flows as of the end of and for such fiscal year and for each applicable fiscal quarter and setting forth the assumptions used for purposes of preparing such budget), in each case separately prepared for (i) the Parent Guarantor and its Subsidiaries, (ii) the Parent Guarantor and the Restricted Subsidiaries and (iii) the Unrestricted Subsidiaries and, promptly when available, any significant revisions of such budget;

 

(g)                                   promptly after the giving, sending or filing thereof, copies of all reports or filings, if any, by the Parent Guarantor or any of its Subsidiaries with any national securities exchange, in each case without the exhibits thereto unless specifically requested by the Agent or any Lender;

 

(h)                                  promptly, and in any event within five Business Days after receipt thereof by the Parent Guarantor or any Subsidiary thereof, copies of each notice or other correspondence received from any national securities exchange concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of the Borrower or any Subsidiary thereof; and

 

(i)                                      annually on September 30, a certificate of a Responsible Officer of the Parent Guarantor identifying the insurance coverage maintained by the Parent Guarantor and the Restricted Subsidiaries and certifying that such coverage is in compliance with the requirements of Section 9.05.

 

Section 9.02                              Additional Information .  Such Credit Party shall furnish to the Agent:

 

(a)                                  promptly after it has knowledge or becomes aware thereof, notice of the occurrence or existence of any Default;

 

(b)                                  prompt written notice of all actions, suits and proceedings before any Governmental Authority or arbitrator pending, or to the best of its knowledge, threatened against or

 

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affecting any of the Borrower, the Holdco Guarantors or the Restricted Subsidiaries which (A) if adversely determined would involve an aggregate liability equal to the Threshold Amount or more, or (B) otherwise would result in a Material Adverse Effect;

 

(c)                                   prompt written notice of the occurrence of any ERISA Event;

 

(d)                                  within 30 days of the date thereof, or, if earlier, on the date of delivery of any financial statements pursuant to Section 9.01, notice of any material change in accounting policies or financial reporting practices by any of the Parent Guarantor or the Restricted Subsidiaries;

 

(e)                                   promptly after the occurrence thereof, notice of any labor controversy resulting in or threatening to result in any strike, work stoppage, boycott, shutdown or other material labor disruption against or involving the Borrower, the Holdco Guarantors or the Restricted Subsidiaries;

 

(f)                                    prompt written notice of any other condition or event which has resulted, or that would result, in a Material Adverse Effect;

 

(g)                                   promptly, notice of an Loss Event relating to assets of more than $5,000,000;

 

(h)                                  promptly after the Borrower, any Holdco Guarantor or any Restricted Subsidiary enters into any Material Contract, provide a copy of such Material Contract, including such information as the Agent or any Lender (through the Agent) may reasonably request with respect thereto; and

 

(i)                                      such other information respecting the operations, properties, business or condition (financial or otherwise) of any of the Parent Guarantor or the Subsidiaries (including with respect to the Collateral) as the Agent or any Lender (through the Agent) may from time to time reasonably request.

 

Each notice pursuant to Section 9.02(a) - (g) shall be accompanied by a written statement by a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein, and stating what action the Borrower proposes to take with respect thereto.

 

Section 9.03                              Preservation of Existence, Etc.   Such Credit Party shall and shall cause each of its Restricted Subsidiaries to maintain and preserve its legal existence, its rights to transact business and all other rights, franchises and privileges necessary or desirable in the normal course of its business and operations and the ownership of its properties, except in connection with transactions permitted by Section 10.04.

 

Section 9.04                              Payment of Obligations .  Such Credit Party shall and shall cause each of its Restricted Subsidiaries to pay and discharge: (i) all taxes, fees, assessments and governmental charges or levies imposed upon it or upon its properties or assets prior to the date on which penalties attach thereto, and all lawful claims for labor, materials and supplies which, if unpaid, might become a Lien upon any properties or assets of such Credit Party or any Restricted Subsidiary, except to the extent such taxes, fees, assessments or governmental charges or levies, or such claims, are being contested in good faith by appropriate proceedings and are adequately

 

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reserved against in accordance with GAAP; and (ii) all lawful claims which, if unpaid, would by law become a Lien upon its property not constituting a Permitted Lien.

 

Section 9.05                              Maintenance of Insurance .  Such Credit Party shall and shall cause each of its Restricted Subsidiaries to carry and maintain in full force and effect, at its own expense and with financially sound and reputable insurance companies (not Affiliates of any Credit Party), insurance in such amounts, with such deductibles and covering such risks as is consistent with the historical practice of the Credit Parties or as is customarily carried by companies engaged in the same or similar businesses and owning similar properties in the localities where such Credit Party or such Restricted Subsidiary operates.

 

Section 9.06                              Keeping of Records and Books of Account .  Such Credit Party shall and shall cause each of its Subsidiaries to, keep adequate records and books of account, in which complete entries shall be made in accordance with GAAP, reflecting all financial transactions of such Credit Party and its Subsidiaries.

 

Section 9.07                              Inspection Rights .  Such Credit Party shall during normal business hours and from time to time permit the Agent and the Lenders or any of their respective agents or representatives to visit and inspect any of the properties of such Credit Party and its Subsidiaries and to examine and make copies of and abstracts from the records and books of account of such Credit Party and its Subsidiaries, and to discuss the business affairs, finances and accounts of such Credit Party and its Subsidiaries with any of the officers, employees or accountants of such Credit Party or its Subsidiaries, all at the expense of the Borrower; provided that if no Default or Event of Default shall have occurred and be continuing, only one such inspection per year shall be permitted.

 

Section 9.08                              Compliance with Laws, Etc .  Such Credit Party shall and shall cause each of its Restricted Subsidiaries to comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all applicable Environmental Laws and ERISA) and the terms of any indenture, contract or other instrument to which it may be a party or under which it or its properties may be bound, except to the extent that a failure to comply would not have a Material Adverse Effect.

 

Section 9.09                              Maintenance of Properties, Etc .  Such Credit Party shall and shall cause each of its Restricted Subsidiaries to maintain and preserve all of its properties necessary or useful in the proper conduct of its business in good working order and condition in accordance with the general practice of other Persons of similar character and size, ordinary wear and tear excepted.

 

Section 9.10                              Licenses .  Such Credit Party shall and shall cause each of its Restricted Subsidiaries to obtain and maintain all licenses, authorizations, consents, filings, exemptions, registrations and other governmental approvals necessary in connection with the execution, delivery and performance of the Loan Documents, the consummation of the transactions therein contemplated or the operation and conduct of its business and ownership of its properties.

 

Section 9.11                              Action Under Environmental Laws .  Such Credit Party shall and shall cause each of its Restricted Subsidiaries to upon becoming aware of the presence of any Hazardous Substance or the existence of any environmental liability under applicable Environmental Laws with respect to their respective businesses, operations or properties, take all actions, at their cost

 

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and expense, as shall be necessary or advisable to investigate and clean up the condition of their respective businesses, operations or properties, including all removal, containment and remedial actions, and restore their respective businesses, operations or properties to a condition in compliance with applicable Environmental Laws.

 

Section 9.12                              Use of Proceeds .  The Borrower shall use the proceeds of the Loans solely to fund the Acquisition, to repay the AVH Note, to fund Permitted Acquisitions and for general corporate purposes and working capital requirements.

 

Section 9.13                              Further Assurances and Additional Acts .  Such Credit Party shall and shall cause each of its Restricted Subsidiaries to execute, acknowledge, deliver, file, notarize and register at its own expense all such further agreements, instruments, certificates, documents and assurances and perform such acts as the Agent or the Majority Lenders shall deem necessary or appropriate to effectuate the purposes of the Loan Documents, and promptly provide the Agent with evidence of the foregoing satisfactory in form and substance to the Agent or the Majority Lenders.

 

Section 9.14                              New Guarantors .  Within 60 Business Days after the date any Restricted Subsidiary (together with the Subsidiaries of such Subsidiary) accounts for 10% or more of the Consolidated EBITDA for the most recently ended Reference Period (but calculating Consolidated EBITDA for these purposes for only the Borrower and its Restricted Subsidiaries) or any entity becomes an Intermediate Parent, the Borrower shall (i) cause the capital stock or other equity interests of such Person to be pledged to the Agent pursuant to Collateral Documents required by the Agent, (ii) cause such Person to execute and deliver a Guaranty and Collateral Documents required by the Agent, (iii) cause such Person to execute, deliver and file any UCC-1 financing statements and other recordation furnished by the Agent in each jurisdiction in which such filing is necessary to perfect the security interest of the Agent in the Collateral of such Person and in which the Agent requests that such filing be made, and (iv) cause such Person to execute and deliver to the Agent such other items as reasonably requested by the Agent or the Lenders in connection with the foregoing, including resolutions, incumbency and officers’ certificates, opinions of counsel, control agreements, search reports and other certificates and documents, unless in each case the definitive documentation for Indebtedness of such Person which is permitted by Section 11.06 prohibit the actions in the foregoing clauses (i) - (iv).

 

Section 9.15                              Post-Closing Items .

 

(a)                                  Within 10 days of the Closing Date, the Borrower shall cause Seven Seas Water (Barbados) SRL to execute and deliver a Guaranty or joinder thereto.

 

(b)                                  Within 60 days of the Closing Date, the Borrower shall cause the capital stock or other equity interests of the following Guarantors to be pledged to the Agent pursuant to Collateral Documents required by the Agent:  (i) BVI Holdco, (ii) Air-Fin Holding N.V., (iii) Air-Fin Holding Sint Maartin N.V., and (iv) Seven Seas Water (Barbados) SRL.

 

(c)                                   Within 60 days of the Closing Date, the Agent shall be provided with the following legal opinions covering such matters concerning the Credit Parties and the Loan Documents as the Agent and the Lenders may request:  (i) the opinion of Chancery Chambers, Barbados counsel to the Credit Parties; (ii) the opinion of BZSE, St. Maarten counsel to the Credit

 

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Parties; (iii) the opinion of Conyers Dill & Pearman, British Virgin Islands counsel to the Credit Parties; and (iv) the opinion of Spigt Dutch Caribbean, Curaçao counsel to the Credit Parties (with respect to Air-Fin Holding N.V.).

 

(d)                                  Within 60 days of the Closing Date, the Agent shall be provided with certified copies of the Organization Documents of each of (i) BVI Holdco, (ii) Air-Fin Holding N.V., (iii) Air-Fin Holding Sint Maartin N.V., and (iv) Seven Seas Water (Barbados) SRL, together with certificates as to good standing (or, for non-US entities, the foreign equivalent thereof unless no such foreign equivalent exists) (A) from the Secretary of State or other Governmental Authority, as applicable, of such Credit Party’s jurisdiction of organization and (B) certificates from the Secretary of State or other Governmental Authority, as applicable, of (1) the jurisdiction in which such Credit Party’s chief executive office or principal place of business is situated (if different from its jurisdiction of organization), and (2) each other jurisdiction in which its failure to be in good standing (or, for non-US entities, the foreign equivalent thereof unless no such foreign equivalent exists) would result in a Material Adverse Effect, each dated as of a recent date.

 

(e)                                   Within 60 days of the Closing Date, the Agent shall be provided with a certificate of the Secretary or Assistant Secretary of each of (i) BVI Holdco, (ii) Air-Fin Holding N.V., (iii) Air-Fin Holding Sint Maartin N.V., and (iv) Seven Seas Water (Barbados) SRL, certifying (A) the resolutions of the Board of Directors of such Credit Party authorizing the execution, delivery and performance of the Loan Documents and (B) the incumbency, authority and signatures of each officer of such Credit Party authorized to execute and deliver the Loan Documents and act with respect thereto.

 

ARTICLE X
NEGATIVE COVENANTS

 

So long as any of the Obligations shall remain unpaid or any Lender shall have any Commitment, each Credit Party agrees that:

 

Section 10.01                       Indebtedness .  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to create, incur, assume or otherwise become liable for or suffer to exist any Indebtedness, except:

 

(a)                                  Indebtedness under the Loan Documents;

 

(b)                                  Indebtedness under the Seller Note in an aggregate outstanding principal amount not exceeding $5,625,000; provided that such Indebtedness is unsecured and subordinated to the Obligations pursuant to a Subordination Agreement;

 

(c)                                   Indebtedness under the AVH Note; provided that such Indebtedness is unsecured and subordinated to the Obligations pursuant to the Intercompany Subordination Agreement;

 

(d)                                  Indebtedness existing on the Closing Date and set forth in Schedule 8 or extensions, renewals and refinancings of such Indebtedness; provided that (i) the amount of such Indebtedness is not increased at the time of such extension, renewal or refinancing unless permitted by Section 10.01(g) and (ii) the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such

 

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refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Borrower and the Restricted Subsidiaries or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;

 

(e)                                   Indebtedness under non-speculative Swap Contracts entered into in the ordinary course of business;

 

(f)                                    Indebtedness permitted by Section 10.06(c) or (d);

 

(g)                                   Indebtedness of any Project Subsidiary so long as, prior to and after giving effect to such Indebtedness, (i) the Borrower is in compliance with Section 10.13 on a pro forma basis, and (ii) no Default or Event of Default shall have occurred and be continuing or would result therefrom;

 

(h)                                  guarantees by the Parent Guarantor, any Intermediate Parent, Seven Seas or the Borrower of Indebtedness permitted by Section 10.01(g) so long as (i) such guarantee is unsecured, (ii) in the case of a guarantee by the Parent Guarantor, an Intermediate Parent or Seven Seas, such guarantee is no greater than pari passu with the Guaranty of the Parent Guarantor, such Intermediate Parent or Seven Seas, (iii) in the case of a guarantee by the Borrower, such guarantee is subordinated to the Obligations pursuant to a Subordination Agreement and (iv) no Default or Event of Default shall have occurred and be continuing or would result therefrom;

 

(i)                                      (i) the Undertaking and (ii) other customary performance guarantees entered into by the Parent Guarantor, any Intermediate Parent, Seven Seas or the Borrower in the ordinary course of business which support the obligations of a Subsidiary in the Permitted Business or having the primary business of supplying or leasing water coolers, including water purchase agreements, construction management agreements, construction agreements, operation and maintenance agreements, concession agreements or other similar arrangements relating to the business of such Subsidiary consistent with the then current market requirements, provided that in the case of a performance guarantee entered into by the Borrower, such guarantee (other than, for the avoidance of doubt, the Undertaking) is subordinated to the Obligations pursuant to a Subordination Agreement, and provided further that no Default or Event of Default shall have occurred and be continuing or would result therefrom;

 

(j)                                     Subordinated Indebtedness of the Parent Guarantor extended by a Specified Equity Holder that (i) is unsecured, (ii) does not require payment of any cash amounts during its term, (iii) has a maturity at least six months outside of the maturity of the Facility, and (iv) is subordinated on terms acceptable to the Lenders pursuant to a Subordination Agreement, including Subordinated Indebtedness of the Parent Guarantor issued in connection with a Cure Event and permitted by Section 10.13(c);

 

(k)                                  Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is extinguished promptly upon its incurrence;

 

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(l)                                      Indebtedness in respect of netting services, overdraft protections and similar arrangements in connection with deposit accounts; and

 

(m)                              earn-outs, purchase price adjustments or similar obligations permitted by Section 10.02(c).

 

Section 10.02                       Liens; Burdensome Agreements .

 

(a)                                  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to create, incur, assume or suffer to exist any Lien upon or with respect to any of its properties, revenues or assets, whether now owned or hereafter acquired, other than Permitted Liens.

 

(b)                                  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to enter into or suffer to exist any agreement (i) limiting or restricting the ability of any Restricted Subsidiary to make Restricted Payments to the Borrower or to otherwise transfer property to the Borrower, or to provide guarantees of the obligations of the Borrower, (ii) requiring the grant of a Lien to secure an obligation of any such Person if a Lien is granted to secure another obligation of such Person, or (iii) prohibiting or conditioning the creation or assumption by the Borrower, any Holdco Guarantor or any Restricted Subsidiary of any Lien upon any of its properties, revenues or assets, whether now owned or hereafter acquired other than those set forth in (x) any provision in the definitive documentation for Indebtedness permitted by Section 10.01(d) which provision is described on Schedule 9 (or any similar provision contained in the definitive documentation for any extension, renewal or refinancing of such Indebtedness to the extent permitted under Section 10.01(d)), (y) the definitive documentation for Indebtedness permitted by Section 10.01(g) which bind the applicable Project Company and its Subsidiaries or (z) this Agreement or any other Loan Document.

 

(c)                                   Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to agree to any earn-out, purchase price adjustment or similar obligations except in connection with (i) the Acquisition and (ii) a Permitted Acquisition so long as, in the case of this clause (ii), only the acquired Person and the Parent Guarantor, any Intermediate Parent, Seven Seas or the Borrower are obligated with respect thereto, provided that in the case of such obligation of the Borrower such obligation is subordinated to the Obligations pursuant to a Subordination Agreement and provided further that no Default or Event of Default shall have occurred and be continuing or would result therefrom.

 

Section 10.03                       Change in Nature of Business .

 

(a)                                  Such Credit Party shall not permit any Project Subsidiary to engage in any business other than the Permitted Business.

 

(b)                                  Such Credit Party shall not and shall not permit any Project Holding Company to engage in any business other than directly or indirectly owning equity of Project Subsidiaries, except that (i) the Parent Guarantor may, through its ownership of Quench, engage in the business of supplying and leasing water coolers and businesses incidental thereto and (ii) the Project Holding Companies may engage in any transaction expressly permitted by this Agreement and the Project Holdings Companies (including the Borrower) may enter into the Acquisition

 

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Documents, the O&M Agreements and the Undertaking and comply with their obligations thereunder ( provided that any agreements which are Acquisition Documents entered into after the Closing Date shall be in form and substance materially consistent with the forms of such agreements delivered to the Agent on or prior to the Closing Date).

 

Section 10.04                       Restrictions on Fundamental Changes .  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to merge with or consolidate into, or acquire all or substantially all of the assets of, any Person, or sell, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets, except that:

 

(a)                                  any Subsidiary of a Project Subsidiary may merge with such Project Subsidiary (so long as such Project Subsidiary is the survivor) or any other Subsidiary of such Project Subsidiary (so long as if a Guarantor is a party thereto, the Guarantor shall be the survivor);

 

(b)                                  sales and disposals of assets in accordance with the provisions of Section 10.05;

 

(c)                                   the Acquisition may be consummated;

 

(d)                                  Permitted Acquisitions may be consummated

 

(e)                                   creation of an Intermediate Parent; and

 

(f)                                    so long as no Default or Event of Default exists, or would result therefrom, the creation of New Topco, the creation of Restructuring Parent and/or Permitted Restructuring Changes may be consummated.

 

Section 10.05                       Sales of Assets .  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to sell, lease, transfer, or otherwise dispose of, or part with control of (whether in one transaction or a series of transactions) any assets (including any shares of stock in any Subsidiary or other Person), except:

 

(a)                                  non-Collateral assets may be sold if:

 

(i)                                      the purchase price paid is for fair market value;

 

(ii)                                   at least seventy percent (70%) of the purchase price is paid in cash;

 

(iii)                                at the time thereof no Default or Event of Default shall have occurred and be continuing or would result therefrom;

 

(iv)                               at the time thereof and after giving effect thereto, the Borrower is in compliance with Section 10.13 on a pro forma basis; and

 

(v)                                  such sale is not for all or substantially all of the assets of the Borrower;

 

(b)                                  any inventory may be sold or otherwise disposed of in the ordinary course of business;

 

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(c)                                   any Permitted Cash Equivalent Investments may be sold or otherwise disposed of;

 

(d)                                  any assets which have become worn out or obsolete or which are promptly being replaced, may be sold or otherwise disposed of in the ordinary course of business;

 

(e)                                   accounts receivable which are written off, discounted or forgiven in connection with the compromise or collection thereof may be sold or otherwise disposed of;

 

(f)                                    assets may be transferred by a Project Subsidiary to any other Project Subsidiary that is a Restricted Subsidiary; provided that such assets are not material to the operations of the transferring Project Subsidiary or necessary for the transferring Project Subsidiary to comply with its water sales agreements; and

 

(g)                                   so long as no Default or Event of Default exists, or would result therefrom, assets may be transferred in connection with the consummation of Permitted Restructuring Changes.

 

Section 10.06                       Loans and Investments .  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to purchase or otherwise acquire the capital stock or other equity interests, assets (constituting a business unit), obligations or other securities of or any interest in any Person, or otherwise extend any credit to, guarantee the obligations of or make any additional investments in any Person (collectively, “ Investments ”), except:

 

(a)                                  guarantees of the Obligations;

 

(b)                                  Permitted Acquisitions;

 

(c)                                   the Borrower, the Holdco Guarantors, and Project Holding Companies that are Guarantors may make Investments in the Borrower and their respective Restricted Subsidiaries that are Guarantors so long as, in the case of Investments in the form of Indebtedness, such Indebtedness is unsecured Subordinated Indebtedness;

 

(d)                                  the Borrower, the Holdco Guarantors, and Project Holding Companies that are Guarantors may make Investments in their respective Restricted Subsidiaries that are not Guarantors; provided that (i) if an Event of Default exists at the time thereof, an Investment in such amount is otherwise permitted to be made pursuant to Section 10.06(h) (and the amount of such Investment made in under this subclause (i) shall reduce the amount available for other Investments pursuant to Section 10.06(h) only for so long as such Event of Default exists) and (ii) in the case of Investments in the form of Indebtedness, such Indebtedness is unsecured Subordinated Indebtedness;

 

(e)                                   investments in Permitted Cash Equivalent Investments;

 

(f)                                    extensions of credit by the Project Subsidiaries in the nature of accounts receivable or notes receivable arising from the sales of goods or services in the ordinary course of business;

 

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(g)                                   Investments received by the Project Subsidiaries in connection with any Insolvency Proceeding in respect of any customers, suppliers or clients and in settlement of delinquent obligations of, and other disputes with, customers, suppliers or clients;

 

(h)                                  the Borrower and the Holdco Guarantors may make Investments in Unrestricted Subsidiaries and Joint Ventures in an amount not to exceed the Applicable Amount at such time; provided that if any Event of Default under Sections 11.01(a), (e) or (f) exists at the time of such Investment or would result from any such Investment, no Investment under this clause (h) shall be permitted; and

 

(i)                                      Indebtedness permitted by Section 10.01(i).

 

Section 10.07                       Restricted Payments .  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to declare or pay any dividends in respect of its respective capital stock or other equity interests, or purchase, redeem, retire or otherwise acquire for value any of its capital stock or other equity interests now or hereafter outstanding, return any capital to its shareholders as such, or make any distribution of assets to its shareholders as such (collectively, “ Restricted Payments ”), except:

 

(a)                                  Restricted Payments paid directly or indirectly to the Borrower or a Holdco Guarantor;

 

(b)                                  Restricted Payments paid directly or indirectly to a Project Subsidiary by its Subsidiaries;

 

(c)                                   Restricted Payments paid to the Parent Guarantor by the Borrower;

 

(d)                                  so long as no Default or Event of Default has occurred and is continuing or would result therefrom and at the time thereof and after giving effect thereto, the Borrower is in compliance with Section 10.13 on a pro forma basis, the Parent Guarantor may make Restricted Payments to repurchase shares of its common stock from directors, officers and employees for an aggregate consideration of not more than $2,000,000 per annum;

 

(e)                                   the Parent Guarantor may make Restricted Payments to its members to pay any income taxes that are due and payable by the members pursuant to Section 3.4 of the Operating Agreement; and

 

(f)                                    payments permitted by Section 10.09.

 

Section 10.08                       Amendments of Certain Documents .  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to agree to or permit any amendment, modification or waiver of (a) any provision of any agreement related to any Subordinated Indebtedness (including any amendment, modification or waiver pursuant to an exchange of other securities or instruments for outstanding Subordinated Indebtedness), except to the extent permitted by the relevant Subordination Agreement, (b) any provision of the Organization Documents of the Borrower or any Restricted Subsidiary that would adversely affect the Lenders or the Collateral or (c) any provision of an O&M Agreement, the Purchase Agreement or the Undertaking that would reasonably be expected to materially increase the obligations of the Borrower thereunder.

 

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Section 10.09                       Payment of Indebtedness .  Such Credit Party shall not make any voluntary or optional payment or repayment on, redemption, exchange or acquisition for value of, or any sinking fund or similar payment with respect to (i) the Seller Note unless at the time thereof no Default or Event of Default under Section 11.01(a), (e) or (f) exists or would result therefrom, (ii) other Subordinated Indebtedness unless permitted by the Subordination Agreement with respect thereto and (iii) payments under performance guarantees of Unrestricted Subsidiaries unless permitted by Section 10.06(h).

 

Section 10.10                       Transactions with Affiliates .  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to enter into any transaction, including the purchase, sale or exchange of property or the rendering of any services, with any Related Party, or enter into, assume or suffer to exist, or permit any Restricted Subsidiary to enter into, assume or suffer to exist, any employment or consulting contract with any Related Party, except a transaction or contract which is in the ordinary course of the Borrower’s or such Restricted Subsidiary’s business and which is upon fair and reasonable terms not less favorable to the Borrower or such Restricted Subsidiary than it would obtain in a comparable arm’s length transaction with a Person not a Related Party.

 

Section 10.11                       Accounting Changes .  Such Credit Party shall not and shall not permit any of its Restricted Subsidiaries to make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP, or change its fiscal year or that of any of its consolidated Subsidiaries, except to change the fiscal year of a Subsidiary acquired in connection with a Permitted Acquisition to conform its fiscal year to the Borrower’s.

 

Section 10.12                       Sanctions .  Such Credit Party shall not and shall not permit any Subsidiary to directly or indirectly, use the proceeds of the Loans, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other Person, (a) to fund any activities or business of or with any Person, or in any country or territory, that, at the time of such funding, is, or whose government is, the subject of Sanctions, or (b) in any other manner that would result in a violation of Sanctions by any Person (including any Person participating in the Loans, whether as underwriter, advisor, investor, or otherwise).

 

Section 10.13                       Financial Covenants .

 

(a)                                  Consolidated Leverage Ratio .  The Parent Guarantor shall maintain a Consolidated Leverage Ratio as at the last day of each Reference Period set forth below of not more than the amount set forth below for such Reference Period set forth below:

 

Period Ended

 

Level

 

 

 

March 31, 2016

 

5.50

 

 

 

June 30, 2016

 

5.50

 

 

 

Each September 30, December 31, March 31 and June 30 thereafter

 

5.00

 

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(b)                                  Holdco Interest Coverage Ratio .  If the Borrower, the Restricted Subsidiaries, and the Holdco Guarantors do not have at least $5,000,000 in the aggregate in unrestricted cash and Permitted Cash Equivalent Investments on their balance sheets on the last day of a Reference Period (excluding such amounts of the Restricted Subsidiaries that are not available to be distributed to the Borrower or a Holdco Guarantor), the Parent Guarantor shall maintain a Holdco Interest Coverage Ratio as at the last day of such Reference Period of at least the amount set forth below for such Reference Period:

 

March 31, 2016 and June 30, 2016

 

1.25

 

 

 

Each September 30, December 31, March 31 and June 30 thereafter

 

1.50

 

(c)                                   Cures .  For purposes of determining compliance with the Consolidated Leverage Ratio and the Holdco Interest Coverage Ratio, at the election of the Parent Guarantor, the proceeds of equity investments in the Parent Guarantor or the proceeds of Subordinated Indebtedness permitted by Section 10.01(j) received by the Parent Guarantor from Specified Equity Holders within 10 Business Days of the date the Borrower is required to deliver a Compliance Certificate for the applicable Reference Period pursuant to Section 9.01(c) (the amount of each such cash contribution, a “ Cure Amount ”) shall be deemed to increase Consolidated EBITDA and Holdco Cash Flow for such financial covenant test period (each such increase by a Cure Amount, a “ Cure Event ”); provided that:

 

(i)                                      The Parent Guarantor shall not elect to have a Cure Event more than twice per calendar year (and in no event in two consecutive fiscal quarters) up to a maximum of four Cure Events in total;

 

(ii)                                   The Cure Amount shall be no greater than the amount required to cause the Parent Guarantor to be in compliance with the respective covenant and in any event may not exceed 20% of Consolidated EBITDA or Holdco Cash Flow as calculated for the applicable Reference Period;

 

(iii)                                To the extent the Parent Guarantor applies any Cure Amounts to reduce debt, such reduction shall be disregarded for the purposes of determining compliance with the financial covenant tests for the applicable Reference Period; and

 

(iv)                               Cure Amounts shall be added to Consolidated EBITDA or Holdco Cash Flow as the case may be solely for the purpose of determining the existence of an Event of Default resulting from the breach of a financial covenant and will be disregarded for all other purposes.

 

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ARTICLE XI
EVENTS OF DEFAULT

 

Section 11.01                       Events of Default .  Any of the following events which shall occur shall constitute an “ Event of Default ”:

 

(a)                                  Payments .  The Borrower or any other Credit Party shall fail to pay (i) when and as required to be paid herein any amount of principal of any Loan, or (ii) within three days after the same becomes due, any interest on any Loan, or any fee or other amount payable hereunder or under any of the Loan Documents.

 

(b)                                  Representations and Warranties .  Any representation or warranty by any Credit Party under or in connection with the Loan Documents shall prove to have been incorrect in any material respect when made or deemed made (or in the case of any representation or warranty subject to a materiality qualifier, incorrect when made or deemed made).

 

(c)                                   Failure by Borrower to Perform Certain Covenants .  The Borrower, any Holdco Guarantor or any Restricted Subsidiary shall fail to perform or observe any term, covenant or agreement contained in any of Sections 9.01(a), 9.01(b), 9.01(c), 9.02(a), 9.03 or 9.14 or in Article X.

 

(d)                                  Failure by any Credit Party to Perform Other Covenants .  The Borrower, any Holdco Guarantor or any Restricted Subsidiary shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or in any other Loan Document on its part to be performed or observed, and any such failure shall remain unremedied for a period of 30 days from the occurrence thereof (unless the Majority Lenders determine that any such failure is not capable of remedy).

 

(e)                                   Insolvency; Voluntary Proceedings .  Any Credit Party or any Restricted Subsidiary thereof (i) ceases or fails to be Solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing.

 

(f)                                    Involuntary Proceedings .  (i) Any involuntary Insolvency Proceeding is commenced or filed against any Credit Party or any Restricted Subsidiary thereof, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of such Person’s properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) any Credit Party or any Restricted Subsidiary thereof admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) any Credit Party or any Restricted Subsidiary thereof acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business.

 

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(g)                                   Default Under Other Indebtedness .  (i) Any Credit Party or any of its Restricted Subsidiaries shall fail to make any payment of any principal of, or interest or premium on, any Indebtedness (other than in respect of the Loans or any Swap Contract) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable notice or grace period, if any, specified in the agreement or instrument relating to such Indebtedness as of the date of such failure; or (ii) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof.

 

(h)                                  Judgments .  One or more final and non-appealable judgments or decrees is entered against any Credit Party or any of the Restricted Subsidiaries by a court of competent jurisdiction involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has been notified and has not denied coverage or for which such Credit Party or such Restricted Subsidiary has not set aside adequate reserves on its balance sheet) in an amount in excess of the Threshold Amount and all such judgments or decrees has not been vacated, discharged, stayed or bonded pending appeal within 45 days from the entry thereof.

 

(i)                                      ERISA .  (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or would reasonably be expected to result in liability of the any Credit Party or Restricted Subsidiary under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) any Credit Party or Restricted Subsidiary or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount.

 

(j)                                     Dissolution, Etc .  Any Credit Party or any of its Restricted Subsidiaries shall (i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or dissolution), except to the extent expressly permitted by Section 10.04, (ii) suspend its operations other than in the ordinary course of business, or (iii) take any action to authorize any of the actions or events set forth above in this subsection (j).

 

(k)                                  Change in Ownership or Control.   There occurs any Change of Control.

 

(l)                                      Failure by Guarantor to Perform Covenants; Invalidity of Guaranty .  Any Guarantor shall fail to perform or observe any term, covenant or agreement contained in its Guaranty or any other Guarantor Document to which it is a party on its part to be performed or observed and any such failure shall remain unremedied beyond the grace period, if any, specified therein (unless the Majority Lenders determine that such failure is not capable of remedy), or any “Event of Default” as defined in any Guaranty shall have occurred; or any Guaranty or any other Guarantor Document shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, or any Guarantor or any other Person shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder.

 

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(m)                              Subordination Provisions .  Any Subordination Agreement shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, any Person shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Indebtedness hereunder shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or any Subordination Agreement.

 

(n)                                  Collateral Documents .  Any Credit Party or any other Person shall fail to perform or observe any term, covenant or agreement contained in the Collateral Documents on its part to be performed or observed and any such failure shall remain unremedied beyond the grace period, if any, specified therein (unless the Majority Lenders determine that such failure is not capable of remedy), or any “Event of Default” as defined in any Collateral Document shall have occurred; or any of the Collateral Documents after delivery thereof shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, or the Borrower or any other Person shall contest in any manner the validity or enforceability thereof, or the Borrower or any other Person shall deny that it has any further liability or obligation thereunder; or any of the Collateral Documents for any reason, except to the extent permitted by the terms thereof, shall cease to create a valid and perfected first priority Lien subject only to Permitted Liens in any of the Collateral purported to be covered thereby.

 

(o)                                  Foreign Exchange .  Any restriction or requirement shall have been imposed, whether by legislative enactment, decree, regulation, order or otherwise, which limits the availability or the transfer of foreign exchange by Non-U.S. Credit Party, as the case may be, for the purpose of performing any obligation under the Loan Documents and such action would result in a Material Adverse Effect.

 

(p)                                  Seizure .  A substantial portion of the assets of any Non-U.S. Credit Party is compulsorily acquired, appropriated, condemned, nationalized or seized by any Governmental Authority or otherwise nationalized and, such action would result in a Material Adverse Effect.

 

Section 11.02                       Effect of Event of Default .  If any Event of Default shall occur and be continuing, the Agent shall, at the request of, or may, with the consent of, the Majority Lenders, (a) by notice to the Borrower, (i) declare the Commitments of the Lenders to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the entire unpaid principal amount of the Loans and the Notes, all interest accrued and unpaid thereon and all other Obligations to be forthwith due and payable, whereupon the Loans and the Notes, all such accrued interest and all such other Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided that upon the occurrence of an actual or deemed entry of an order for relief with respect to any Credit Party under the Bankruptcy Code, or any other Event of Default specified in Section 11.01(e) or (f) which has the effect of staying actions against any Credit Party, the result which would otherwise occur only upon giving of notice by the Agent to the Borrower as specified in this clause (a) shall occur automatically, without the giving of any such notice; and (b) whether or not the actions referred to in clause (a) have been taken, (i) exercise any or all of the Agent’s rights and remedies under the Collateral Documents, and (ii) proceed to enforce all other rights and remedies available to the Agent and the Lenders under the Loan Documents and applicable law.

 

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ARTICLE XII
THE AGENT

 

Section 12.01                       Appointment and Authority .  Each of the Lenders hereby irrevocably appoints Citibank, N.A. to act on its behalf as the Agent hereunder and under the other Loan Documents and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.  The provisions of this Article XII are solely for the benefit of the Agent and the Lenders, and neither the Borrower nor any other Credit Party shall have rights as a third-party beneficiary of any of such provisions.  It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law.  Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.

 

Section 12.02                       Rights as a Lender .  The Person serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent, and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for, and generally engage in any kind of business with, the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Agent hereunder and without any duty to account therefor to the Lenders.

 

Section 12.03                       Exculpatory Provisions .

 

(a)                                  The Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature.  Without limiting the generality of the foregoing, the Agent:

 

(i)                                      shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

 

(ii)                                   shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Agent is required to exercise as directed in writing by the Majority Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and

 

(iii)                                shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any

 

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information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Agent or any of its Affiliates in any capacity.

 

(b)                                  The Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Majority Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 11.02 and 13.01), or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and nonappealable judgment.  The Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Agent in writing by the Borrower or a Lender.

 

(c)                                   The Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article VII or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent.

 

(d)                                  The Agent shall not be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or enforce, compliance with the provisions hereof relating to Disqualified Institutions.  Without limiting the generality of the foregoing, the Agent shall not (x) be obligated to ascertain, monitor or inquire as to whether any Lender or Participant or prospective Lender or Participant is a Disqualified Institution or (y) have any liability with respect to or arising out of any assignment or participation of Loans, or disclosure of confidential information, to any Disqualified Institution.

 

Section 12.04                       Reliance by Agent .  The Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person.  The Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon.  In determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Agent may presume that such condition is satisfactory to such Lender unless the Agent shall have received notice to the contrary from such Lender prior to the making of such Loan.  The Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

 

Section 12.05                       Delegation of Duties .  The Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Agent.  The Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. 

 

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The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the Facility as well as activities as Agent.  The Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.

 

Section 12.06                       Resignation of Agent .

 

(a)                                  The Agent may at any time give notice of its resignation to the Lenders and the Borrower.  Upon receipt of any such notice of resignation, the Majority Lenders shall have the right, with the consent of the Borrower so long as no Event of Default has occurred and is continuing at the time thereof (such consent not to be unreasonably withheld or delayed), to appoint a successor, which shall be a bank with an office in New York, NY, or an Affiliate of any such bank with an office in New York, NY.  If no such successor shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation (or such earlier day as shall be agreed by the Majority Lenders) (the “ Resignation Effective Date ”), then the retiring Agent may (but shall not be obligated to), on behalf of the Lenders, appoint a successor Agent meeting the qualifications set forth above.  Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.

 

(b)                                  If the Person serving as Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Majority Lenders may, to the extent permitted by applicable law, by notice in writing to the Borrower and such Person remove such Person as Agent and, in consultation with the Borrower and with the consent of the Borrower so long as no Event of Default has occurred and is continuing at the time thereof (such consent not to be unreasonably withheld or delayed), appoint a successor. If no such successor shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Majority Lenders) (the “ Removal Effective Date ”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.

 

(c)                                   With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (i) the retiring or removed Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any Collateral held by the Agent on behalf of the Lenders under any of the Loan Documents, the retiring or removed Agent shall continue to hold such Collateral until such time as a successor Agent is appointed) and (ii) except for any indemnity payments owed to the retiring or removed Agent, all payments, communications and determinations provided to be made by, to or through the Agent shall instead be made by or to each Lender directly, until such time, if any, as the Majority Lenders appoint a successor Agent as provided for above.  Upon the acceptance of a successor’s appointment as Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Agent (other than any rights to indemnity payments owed to the retiring or removed Agent), and the retiring or removed Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan

 

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Documents.  The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor.  After the retiring or removed Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 13.04 shall continue in effect for the benefit of such retiring or removed Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Agent was acting as Agent.

 

Section 12.07                       Non-Reliance on Agent and Other Lenders .  Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

 

Section 12.08                       Agent May File Proofs of Claim .  In case of the pendency of any Insolvency Proceeding or any other judicial proceeding relative to any Credit Party, the Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Agent shall have made any demand on the Borrower) shall be entitled and empowered (but not obligated), by intervention in such proceeding or otherwise:

 

(a)                                  to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Agent and their respective agents and counsel and all other amounts due the Lenders and the Agent under Sections 3.03 and 13.04) allowed in such judicial proceeding; and

 

(b)                                  to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

 

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Agent and, in the event that the Agent shall consent to the making of such payments directly to the Lenders, to pay to the Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Agent and its agents and counsel, and any other amounts due the Agent under Sections 3.03 and 13.04.

 

Nothing contained herein shall be deemed to authorize the Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender to authorize the Agent to vote in respect of the claim of any Lender in any such proceeding.

 

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Section 12.09                       Collateral and Guaranty Matters .

 

(a)                                  Without limiting the provisions of Section 12.09, the Lenders irrevocably authorize the Agent, at its option and in its discretion:

 

(i)                                      to release any Lien on any property granted to or held by the Agent under any Loan Document (A) upon termination of all Commitments and payment in full of all Obligations; (B) that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in connection with any sale or other disposition permitted under the Loan Documents; or (C) subject to Section 13.01, if approved, authorized or ratified in writing by the Majority Lenders;

 

(ii)                                   to release any Guarantor from its obligations under its Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted under the Loan Documents.

 

Upon request by the Agent at any time, the Majority Lenders will confirm in writing the Agent’s authority to release or subordinate its interest in particular types or items of Collateral, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 12.10.

 

(b)                                  The Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Agent’s Lien thereon, or any certificate prepared by any Credit Party in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.

 

(c)                                   The Agent is authorized on behalf of all the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time to take any action with respect to any Collateral or the Collateral Documents which may be necessary to perfect and maintain perfected the Liens on the Collateral granted pursuant to the Collateral Documents or protect and preserve the Agent’s ability to enforce the Liens or realize upon the Collateral.

 

ARTICLE XIII
MISCELLANEOUS

 

Section 13.01                       Amendments and Waivers .  Except as otherwise provided herein or in any other Loan Document, (a) no amendment to any provision of this Agreement or any of the other Loan Documents shall in any event be effective unless the same shall be in writing and signed by the Borrower (and/or any Guarantor or other party thereto, as applicable), the Agent and the Majority Lenders (or the Agent with the written consent of the Majority Lenders) and (b) no waiver of any provision of this Agreement or any other Loan Document, or consent to any departure by any Credit Party or other party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent and the Majority Lenders (or the Agent with the consent of the Majority Lenders).  Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that, notwithstanding the foregoing provisions of this Section 13.01, any term or provision of any such other Loan Document may be amended without the agreement or consent of, or prior notice to, any Credit Party or other party thereto, to the extent such Loan Document provides for amendments without the agreement or consent of, or notice to, any Credit Party or such other party, and any term or provision of

 

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Article XII (other than the provisions of Section 12.06 pertaining to Borrower consent) may be amended without the agreement or consent of, or prior notice to, the Borrower; and provided further , however , that no such amendment, waiver or consent shall do any of the following:

 

(a)                                  increase the amount, or extend the stated expiration or termination date, of the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 11.02), without the written consent of such Lender;

 

(b)                                  reduce the principal of, or interest on, the Loans or any fee or other amount payable to the Lenders hereunder without the written consent of each Lender directly affected thereby; provided , however , that only the consent of the Majority Lenders shall be necessary to amend the default rate of interest as determined under Section 4.02 or to waive any obligation of the Borrower to pay interest at the default rate of interest;

 

(c)                                   postpone any date fixed by this Agreement or any other Loan Document for any payment in respect of principal of, or interest on, the Loans or any fee or other amount payable to the Lenders hereunder (including the date of any mandatory prepayment hereunder)] without the written consent of each Lender directly affected thereby;

 

(d)                                  change the definition of “Majority Lenders” or any definition or provision of this Agreement requiring the approval of Majority Lenders or some other specified amount of Lenders without the written consent of each Lender (other than the definitions specified in clause (ii) of this Section 13.01(d));

 

(e)                                   consent to the assignment or transfer by any Credit Party of any of its rights and obligations under the Loan Documents, without the written consent of each Lender;

 

(f)                                    release all or substantially all of the value of any Guaranty, or all or substantially all of the Collateral, except as contemplated herein, in any Guaranty and in the Collateral Documents relating thereto, without the written consent of each Lender;

 

(g)                                   contractually subordinate any Lien on any property granted to or held by the Agent under any Loan Document, without the written consent of each Lender, except as contemplated herein and in the Collateral Documents relating thereto;

 

(h)                                  waive any of the conditions specified in Section 7.01 (other than Section 7.01(a)(ii)), or, in the case of the initial Borrowing, Section 7.02, without the written consent of each Lender, or, in the case of any Borrower subsequent to the Closing Date, without the written consent of each Lender with a Delayed Draw Term Loan Commitment;

 

(i)                                      amend, modify or waive the provisions of Section 13.07 in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender;

 

(j)                                     impose any greater restriction on the ability of any Lender to assign any of its rights or obligations hereunder other than as contemplated herein without the written consent of the Majority Lenders; or

 

(k)                                  amend, modify or waive the provisions of this Section 13.01; and

 

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provided further , however , that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required hereinabove to take such action, affect the rights, obligations or duties of the Agent under any Loan Document, and (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.  Notwithstanding anything to the contrary herein, a Defaulting Lender shall not have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender.

 

Section 13.02                       Notices; Effectiveness; Electronic Communication .

 

(a)                                  Notices Generally .  Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile or (subject to subsection (b) below) by email at or to the respective addresses, facsimile numbers or email addresses of the parties as set forth in Schedule 1 or in any Administrative Questionnaire.  Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient).  Notices and other communications delivered through electronic communications, to the extent provided in subsection (b) below, shall be effective as provided in said subsection (b).

 

(b)                                  Electronic Communications .  Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including email and Internet or intranet websites) pursuant to procedures approved by the Agent; provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Agent that it is incapable of receiving notices under such Article by electronic communication.  The Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

 

Unless the Agent otherwise prescribes, (i) notices and other communications sent to an email address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return email or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its email address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.

 

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(c)                                   Change of Address .  Any party hereto may change its address, facsimile number or email address for notices and other communications hereunder by notice to the other parties hereto.

 

(d)                                  Platform .

 

(i)                                      The Borrower agrees that the Agent may, but shall not be obligated to, make the Communications (as defined below) available to the Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system (the “ Platform ”).

 

(ii)                                   The Platform is provided “as is” and “as available.”  The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications.  No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform.  In no event shall the Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to the Borrower, the other Credit Parties, any Lender or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s, any other Credit Party’s or the Agent’s transmission of communications through the Platform.  “ Communications ” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Credit Party pursuant to any Loan Document or the transactions contemplated therein which is distributed to the Agent or any Lender by means of electronic communications pursuant to this Section, including through the Platform.

 

(e)                                   Reliance by Agent and Lenders .  The Agent and the Lenders shall be entitled to rely and act upon any notices (including any telephonic or electronic Notice of Borrowing) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof.  The Borrower shall indemnify the Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower.

 

Section 13.03                       No Waiver; Cumulative Remedies .  No failure on the part of the Agent or any Lender to exercise, and no delay in exercising, any right, remedy, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights and remedies under the Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges that may otherwise be available to the Agent or any Lender.  Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Credit Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Agent in accordance with Section 11.02 for the benefit of all the Lenders; provided , however , that the foregoing shall not prohibit (i) the Agent from exercising on

 

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its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Agent) hereunder and under the other Loan Documents, (ii) any Lender from exercising setoff rights in accordance with Section 13.05 (subject to the terms of Section 6.05), or (iii) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of any Insolvency Proceeding relative to any Credit Party; and provided , further , that if at any time there is no Person acting as Agent hereunder and under the other Loan Documents, then (A) the Majority Lenders shall have the rights otherwise ascribed to the Agent pursuant to Section 11.02 and (B) in addition to the matters set forth in clauses (ii) and (iii) of the preceding proviso and subject to Section 6.05, any Lender may, with the consent of the Majority Lenders, enforce any rights and remedies available to it and as authorized by the Majority Lenders.

 

Section 13.04                       Costs and Expenses; Indemnification .

 

(a)                                  Costs and Expenses .  The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Agent) (but limited to one counsel to the Agent and the Lenders, taken as a whole, one local counsel in any relevant jurisdiction, taken as a whole, and solely in the event of a conflict of interest, one additional counsel (and if necessary, one local counsel in each relevant jurisdiction) to each group of similarly situated affected Lenders), in connection with the syndication of the Facility, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents, or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) ( provided that U.S. legal expenses in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents shall be subject to the dollar cap set forth in the Expense and Indemnity Letter), (ii) all out-of-pocket expenses incurred by the Agent or any Lender (including the fees, charges and disbursements of any counsel for the Agent or any Lender), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, (B) in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans, and including in or in connection with any Insolvency Proceeding, and (C)  in connection with the preservation of and realization upon any of the Collateral, and (iii) all title, appraisal, survey, audit, environmental inspection, consulting, search, recording, filing and similar costs, fees and expenses incurred or sustained by the Agent or any of its Affiliates in connection with the Loan Documents or the Collateral.

 

(b)                                  Indemnification by the Borrower .  The Borrower shall indemnify the Agent (and any sub-agent thereof), each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “ Indemnitee ”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower, any Holdco Guarantor or any Restricted Subsidiary or any of their respective affiliates or shareholders), other than such Indemnitee and its Related Parties, arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) actual or alleged presence or release of

 

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Hazardous Substances on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any liability under any Environmental Law related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Credit Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Credit Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Credit Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.  This Section 13.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

 

(c)                                   Reimbursement by Lenders .  To the extent that the Borrower for any reason fails to pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Agent (or any sub-agent thereof) or any Related Party thereof, each Lender severally agrees to pay to the Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lender’s Pro Rata Share at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender); provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Agent (or any such sub-agent), or such Related Party acting for the Agent (or any such sub-agent) in connection with such capacity.  The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 13.07.

 

(d)                                  Waiver of Consequential Damages, Etc.   To the fullest extent permitted by applicable law, each party hereto shall not assert, and hereby waives, and acknowledges that no other Person shall have, any claim against any other party hereto (and, in the case of the Credit Parties, any Indemnitee), on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof.  No Person referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

 

(e)                                   Payments .  All amounts due under this Section shall be payable upon demand therefor.

 

Section 13.05                       Right of Set-Off .  Upon the occurrence and during the continuance of any Event of Default each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such

 

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Affiliate to or for the credit or the account of the Borrower or any other Credit Party against any and all of the obligations of the Borrower or such other Credit Party now or hereafter existing under this Agreement or any other Loan Document to such Lender or its Affiliates, irrespective of whether or not such Lender or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such other Credit Party may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or obligations or are owed to a branch, office or Affiliate of such Lender different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Agent for further application in accordance with the provisions of Section 6.06 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Agent and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff.  The rights of each Lender and its respective Affiliates under this Section 13.05 are in addition to other rights and remedies (including other rights of set-off) which such Lender or Affiliate may have.  Each Lender agrees to notify the Borrower and the Agent promptly after any such set-off and application; provided that the failure to give such notice shall not affect the validity of such set-off and application.

 

Section 13.06                       Survival .  All covenants, agreements, representations and warranties made in any Loan Documents shall, except to the extent otherwise provided therein, survive the execution and delivery of this Agreement, the making of the Loans and the execution and delivery of the Notes, and shall continue in full force and effect so long as the Lenders have any Commitments, any Loans remain outstanding or any other Obligations remain unpaid or any obligation to perform any other act under any Loan Document remains unsatisfied.  Without limiting the generality of the foregoing, the obligations of the Borrower under Sections 5.02, 5.03, 6.03 and 13.04, and of the Lenders under Sections 6.03 and 13.04, and all similar obligations under the other Loan Documents (including all obligations to pay costs and expenses and all indemnity obligations), shall survive the repayment of the Loans and the termination of the Commitments.

 

Section 13.07                       Obligations Several .  The obligations of the Lenders under the Loan Documents are several.  The failure of any Lender or the Agent to carry out its obligations thereunder shall not relieve any other Lender or the Agent of any obligation thereunder, nor shall any Lender or the Agent be responsible for the obligations of, or any action taken or omitted by, any other Person hereunder or thereunder.  Nothing contained in any Loan Document shall be deemed to cause any Lender or the Agent to be considered a partner of or joint venturer with any other Lender or Lenders, the Agent, any Credit Party.

 

Section 13.08                       Benefits of Agreement .  The Loan Documents are entered into for the sole protection and benefit of the parties hereto and their successors and assigns.  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 13.09(d)  and, to the extent expressly contemplated hereby, the Related Parties of each of the Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

 

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Section 13.09                       Binding Effect; Assignment .

 

(a)                                  Successors and Assigns Generally .  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Credit Party may assign or otherwise transfer any of its rights or obligations under any Loan Document without the prior written consent of the Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void).

 

(b)                                  Assignments by Lenders .  Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (in each case with respect to any Facility) any such assignment shall be subject to the following conditions:

 

(i)                                      Minimum Amounts .

 

(A)                                in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and/or the Loans at the time owing to it (in each case with respect to any Facility) or contemporaneous assignments to related Approved Funds that equal at least the amount specified in subsection (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

 

(B)                                in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $1,000,000, in the case of any assignment in respect of the Term Loan Facility, unless the Agent otherwise consents (such consent not to be unreasonably withheld or delayed).

 

(ii)                                   Proportionate Amounts .  Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, except that this clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations with respect to Delayed Draw Term Loan Commitment on a non-pro rata basis from the Loans.

 

(iii)                                Required Consents .  No consent shall be required for any assignment by a Lender except to the extent required by subsection (b)(i)(B) of this Section and, in addition:

 

(A)                                the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default pursuant to

 

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Sections 11.01(a), (e) or (f) has occurred and is continuing or any other Event of Default has occurred and is continuing for more than 30 days at the time of such assignment, or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Agent within 5 Business Days after having received notice thereof; and

 

(B)                                the consent of the Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of (i)  any unfunded Commitments with respect to the Term Loan Facility if such assignment is to a Person that is not a Lender with a Commitment in respect of such Facility, an Affiliate of such Lender or an Approved Fund with respect to such Lender, or (ii) any Term Loans to a Person who is not a Lender, an Affiliate of a Lender or an Approved Fund.

 

(iv)                               Assignment and Assumption .  The parties to each assignment shall execute and deliver to the Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; provided that the Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment.  The assignee, if it is not a Lender, shall deliver to the Agent an Administrative Questionnaire.

 

(v)                                  No Assignment to Certain Persons .  No such assignment shall be made to (A) the Borrower or any of the Borrower’s Affiliates or Subsidiaries or (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B).  Prior to an Event of Default pursuant to Sections 11.01(a), (e) or (f), no assignment may be made to a Disqualified Institution.

 

(vi)                               No Assignment to Natural Persons .  No such assignment shall be made to a natural person.

 

(vii)                            Certain Additional Payments .  In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Agent, the applicable pro rata portion of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Agent and each Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata portion of all Loans in accordance with its Pro Rata Share.  Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this subsection, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.

 

Subject to acceptance and recording thereof by the Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption,

 

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the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 5.02, 5.03, 6.03 and 13.04 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.

 

(c)                                   Register .  The Agent, acting solely for this purpose as an agent of the Borrower (and such agency being solely for tax purposes), shall maintain at one of its offices in United States a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”).  The entries in the Register shall be conclusive absent demonstrable error, and the Borrower, the Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement.  The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

 

(d)                                  Participations .  Any Lender may at any time, without the consent of, or notice to, the Borrower or the Agent, sell participations to any Person (other than a natural person, a Defaulting Lender or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “ Participant ”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 13.04(c) with respect to any payments made by such Lender to its Participant(s).

 

Prior to an Event of Default pursuant to Sections 11.01(a), (e) or (f), no participation may be sold to a Disqualified Institution.

 

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver which would require unanimous consent as described in the second proviso to Section 13.01 that directly affects such Participant.  The Borrower agrees that each Participant shall be entitled to the benefits of Sections 5.02, 5.03

 

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and 6.03 (subject to the requirements and limitations therein, including the requirements under Section 6.03(f) (it being understood that the documentation required under Section 6.03(f) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Sections 5.06 and 5.08 as if it were an assignee under subsection (b) of this Section; and (B) shall not be entitled to receive any greater payment under Sections 5.03 or 6.03, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment is consented to by the Borrower.  Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 5.08 with respect to any Participant.  To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 13.05 as though it were a Lender; provided that such Participant agrees to be subject to Section 6.05 as though it were a Lender.

 

Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations.  The entries in the Participant Register shall be conclusive absent demonstrable error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.  For the avoidance of doubt, the Agent (in its capacity as Agent) shall have no responsibility for maintaining a Participant Register.

 

(e)                                   Certain Pledges .  Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

 

Section 13.10                       Governing Law .  This Agreement and the other Loan Documents and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other Loan Document (except, as to any other Loan Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of New York.

 

Section 13.11                       Submission to Jurisdiction .

 

(a)                                  Submission to Jurisdiction .  Each party hereto irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against any other party hereto of the foregoing in any way relating to this Agreement or any other Loan Document or

 

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the transactions relating hereto or thereto, in any forum other than the courts of the State of New York sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, and each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court.  Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement or in any other Loan Document shall affect any right that the Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or any other Credit Party or its properties in the courts of any jurisdiction.

 

(b)                                  Waiver of Venue .  Each party hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in subsection (a) of this Section.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

(c)                                   Service of Process .  Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 13.02(a) (or with respect to the Borrower’s agent, the address specified in Section 13.18).  Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable law.

 

Section 13.12                       Waiver of Jury Trial .   EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

Section 13.13                       Confidentiality .  Each of the Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to

 

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any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i)  any rating agency in connection with rating the Borrower or its Subsidiaries or the Facility or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the Facility, (h) with the consent of the Borrower or (i) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.  For purposes of this Section, “ Information ” means all information received from, or on behalf of, the Borrower or any of its Subsidiaries relating to the Borrower or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

 

Section 13.14                       Entire Agreement .  This Agreement and the other Loan Documents reflect the entire agreement among the Borrower, the Lenders and the Agent with respect to the matters set forth herein and therein and supersede any prior agreements, commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto.

 

Section 13.15                       Payments Set Aside .  To the extent that any payment by or on behalf of any Credit Party under any Loan Document is made to the Agent or any Lender, or the Agent or any Lender exercises its right of set-off as to any Credit Party, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding, or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Agent upon demand its applicable share of any amount so recovered from or repaid by the Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Agent in connection with the foregoing.

 

Section 13.16                       No Advisory or Fiduciary Responsibility .  In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (i) (A) the arranging and other services

 

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regarding this Agreement provided by the Agent (including in its capacity as arranger) and the Lenders, are arm’s-length commercial transactions between the Borrower, each other Credit Party and their respective Affiliates, on the one hand, and the Agent and the Lenders, on the other hand, (B) each of the Borrower and the other Credit Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower and each other Credit Party is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) the Agent and each Lender are and have been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, have not been, are not, and will not be acting as an advisor, agent or fiduciary for the Borrower, any other Credit Party or any of their respective Affiliates, or any other Person and (B) neither the Agent nor any Lender has any obligation to the Borrower, any other Credit Party or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Agent, the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, the other Credit Parties and their respective Affiliates, and neither the Agent nor any Lender has any obligation to disclose any of such interests to the Borrower, any other Credit Party or any of their respective Affiliates.  To the fullest extent permitted by law, the Borrower (for itself and on behalf of the other Credit Parties) hereby waives and releases any claims that it may have against the Agent or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

 

Section 13.17                       Severability .  Whenever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations.  If, however, any provision of any of the Loan Documents shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of such Loan Document, or the validity or effectiveness of such provision in any other jurisdiction.  Without limiting the foregoing provisions of this Section 13.17, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited under or in connection with any Insolvency Proceeding, as determined in good faith by the Agent, then such provisions shall be deemed to be in effect only to the extent not so limited.

 

Section 13.18                       Appointment of Process Agent .  The Borrower hereby irrevocably appoints CCS Global Solutions, Inc. (the “ Process Agent ”), with an office on the date hereof at 54 West 39 th  Street, 5 th  Floor, New York, New York 10018, as its authorized agent with all powers necessary to receive on its behalf service of copies of the summons and complaint and any other process which may be served in any action or proceeding arising out of or relating to the Loan Documents in any of the courts in and of the State of New York.  Such service may be made by mailing or delivering a copy of such process to the Borrower in care of the Process Agent at the Process Agent’s above address and the Borrower hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf and agrees that the failure of the Process Agent to give any notice of any such service to the Borrower shall not impair or affect the validity of such service or of any judgment rendered in any action or proceeding based thereon.  As an alternative method of service, the Borrower also irrevocably consents to the service of any and all process in any such action or

 

87



 

proceeding by the mailing of copies of such process to the Borrower at its address specified in Section 13.02(a).  If for any reason CCS Global Solutions, Inc. shall cease to act as Process Agent, the Borrower shall appoint forthwith, in the manner provided for herein, a successor Process Agent qualified to act as an agent for service of process with respect to all courts in and of the State of New York and acceptable to Agent.

 

Section 13.19                       Waiver of Immunity .  To the extent that the Borrower has or hereafter may acquire any right of immunity from jurisdiction of any court on the grounds of sovereignty or otherwise with respect to itself or its property, the Borrower hereby irrevocably waives such immunity for itself and for its property in respect of all of its obligations under the Loan Documents.

 

Section 13.20                       Translation .  Each notice, communication or other document delivered under the Loan Documents by the Borrower unless submitted in the English language, shall be accompanied by an English translation thereof and the English version shall govern in the event of any conflict with the non-English version thereof; provided that if any such conflict should arise with respect to any authorizations or approvals of any governmental agency or authority, any constitutional, statutory or other official document, or any Loan Document not originally executed in English, then the non-English language version thereof shall govern.

 

Section 13.21                       Payment in Dollars .  Payment in Dollars of all amounts due under the Loan Documents is of the essence, and Dollars shall be the currency of account in all events.  The payment obligations of the Borrower under any Loan Document shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to Dollars and transfer to the Lenders and the Agent under normal banking procedures (after premium and costs of exchange) does not yield the amount of Dollars due under such Loan Document.  If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in Dollars into another currency (the “ Other Currency ”), the rate of exchange used shall be that at which in accordance with normal banking procedures the Lenders and the Agent could purchase Dollars with the Other Currency on the Business Day preceding the date on which the final judgment is given.  The obligation of the Borrower in respect of any such sum due from it to Agent or any Lender (an “ Entitled Person ”) under such Loan Document shall, notwithstanding any judgment in such Other Currency, be discharged only to the extent that on the business day following receipt by Entitled Person of any sum adjudged to be so due in the Other Currency, such Entitled Person may in accordance with normal banking procedures purchase Dollars with the Other Currency.  If the Dollars so purchased are less than the sum originally due to such Entitled Person in Dollars, the Borrower agrees, as a separate and independent obligation and notwithstanding any such judgment, to indemnify such Entitled Person against such loss.

 

Section 13.22                       Counterparts .

 

(a)                                  Counterparts; Effectiveness .  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  Except as provided in Section 7.01, this Agreement shall become effective when it shall have been executed by the Agent and when the Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed

 

88



 

counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.

 

(b)                                  Electronic Execution of Documents .  The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including any state law based on the Uniform Electronic Transactions Act.

 

Section 13.23                       USA PATRIOT Act Notice .  Each Lender that is subject to the Act (as defined below) and the Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Agent, as applicable, to identify the Borrower in accordance with the Act.  The Borrower shall, promptly following a request by the Agent or any Lender, provide all documentation and other information that the Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Act.

 

[Remainder of page intentionally left blank; signature page(s) follow]

 

89



 

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the date first above written.

 

 

 

AQUA VENTURES HOLDINGS CURAÇAO N.V.

 

 

 

 

 

By:

/s/ Lee Muller

 

 

Name: Lee Muller

 

 

Title: Chief Financial Officer

 

 

 

AQUAVENTURE HOLDINGS LLC

 

 

 

 

 

By:

/s/ Lee Muller

 

 

Name: Lee Muller

 

 

Title: Chief Financial Officer

 

 

 

SEVEN SEAS WATER CORPORATION

 

 

 

 

 

By:

/s/ Lee Muller

 

 

Name: Lee Muller

 

 

Title: Chief Financial Officer

 

 

 

AQUAVENTURE CAPITAL LIMITED

 

 

 

 

 

By:

/s/ Lee Muller

 

 

Name: Lee Muller

 

 

Title: Chief Financial Officer

 

 

 

CITIBANK, N.A., as Agent and Lender

 

 

 

 

 

By:

/s/ David Salpeter

 

 

Name: David Salpeter

 

 

Title: Vice President

 

90


 

EXHIBIT A

to the Credit Agreement

 

FORM OF ASSIGNMENT AND ASSUMPTION

 

This Assignment and Assumption (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [the][each]( 1) Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each] Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees] hereunder are several and not joint.] Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by [the][each] Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

 

For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.

 

 

1.     Assignor[s]:

 

 

 

 

 

 

 

 

 

       [Assignor [is] [is not] a Defaulting Lender]

 


(1) For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language. (The same goes for single vs. multiple Assignees.)

 

91



 

 

2.               Assignee[s]:

 

 

 

 

 

 

 

 

 

[for each Assignee, indicate [Affiliate][Approved Fund] of [ identify Lender ]( 2) ]

 

 

 

 

 

3.               Borrower(s):

Aqua Ventures Holdings Curacao N.V.

 

 

 

 

 

 

4.               Agent:

Citibank, N.A., as the administrative agent under the Credit Agreement

 

 

 

 

 

 

5.               Credit Agreement:

The $35,000,000 Credit Agreement dated as of June       , 2015 among Aqua Ventures Holdings Curacao N.V., the Lenders parties thereto and Citibank, N.A., as Administrative Agent

 

 

 

 

 

 

6.               Assigned Interest[s]:

 

 

 

 

Assignor[s]

 

Assignee[s]

 

Facility Assigned( 3)

 

Aggregate Amount
of
Commitment/Loans
for all Lenders
*

 

Amount of
Commitment/Loans
Assigned
*

 

Percentage
Assigned of
Commitment/Loans(
4)

 

 

 

 

 

 

 

$

 

 

$

 

 

 

%

 

 

 

 

 

 

$

 

 

$

 

 

 

%

 

 

 

 

 

 

$

 

 

$

 

 

 

%

 

[7. Trade Date:

](5)

 

 

[Remainder of page intentionally left blank; signature page(s) follow]

 


(2) Select as applicable.

(3) Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. “Term Loan A Commitment,” “Delayed Draw Term Loan Commitment,” etc.)

* Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.

(4) Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

(5) To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.

 

92



 

Effective Date:                                           , 20       [TO BE INSERTED BY ADMINISTRATIVE  AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

 

The terms set forth in this Assignment and Assumption are hereby agreed to:

 

 

ASSIGNOR[S]

 

 

 

[NAME OF ASSIGNOR]

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

.

 

 

 

[NAME OF ASSIGNOR]

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

 

ASSIGNEE[S]

 

 

 

[NAME OF ASSIGNEE]

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

[NAME OF ASSIGNEE]

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

S- 1



 

Consented to and Accepted:

 

 

 

CITIBANK, N.A., as

 

Agent

 

 

 

By:

 

 

Title:

 

 

 

 

 

Consented to:

 

 

 

AQUA VENTURES HOLDINGS CURAÇAO N.V.

 

 

 

By:

 

 

Title:

 

 

 

S- 2



 

ANNEX 1

 

[                                         ]( 6)

 

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

 

1.                                       Representations and Warranties.

 

1.1                                Assignor[s]. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is [not] a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

 

1.2                                Assignee[s]. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement (subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section          thereof, as applicable, and such other  documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) [if it is a Foreign Lender,] attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance on the Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and

 


(6) Describe Credit Agreement at option of Administrative Agent.

 

Annex 1 - 1



 

(ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

 

2.                                       Payments. From and after the Effective Date, the Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date. Notwithstanding the foregoing, the Agent shall make all payments of interest, fees or other amounts paid or payable in kind from and after the Effective Date to [the][the relevant] Assignee.

 

3.                                       General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

 

Annex 1 - 2



 

EXHIBIT B

 

FORM OF COMPLIANCE CERTIFICATE

 

To:                              Citibank, N.A., as Administrative Agent

 

This Compliance Certificate is furnished pursuant to that certain Credit Agreement, dated as of June 18, 2015 (as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement” ) among AQUA VENTURES HOLDINGS CURACAO N.V., the other Credit Parties party thereto, the several financial institutions from time to time parties thereto (the “ Lenders” ), and Citibank, N.A., as Administrative Agent for the Lenders. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.

 

THE UNDERSIGNED HEREBY CERTIFIES THAT:

 

1.                                       I am a duly elected Responsible Officer of the Borrower;

 

2.                                       I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Parent Guarantor and its Restricted Subsidiaries during the accounting period covered by the attached financial statements;

 

3.                                       Attached hereto as Annex 1 are the financial statements required by Section [9.01(a)][9.01(b)] of the Credit Agreement for the [fiscal quarter][fiscal year] of the Borrower ended as of [ ] (the “ Test Date” ). Such financial statements fairly present the financial condition, results of operations and cash flows of the Parent Guarantor and its Restricted Subsidiaries in accordance with GAAP as at the Test Date and for such period.

 

4.                                       The examinations described in paragraph 2 did not disclose, except as set forth below, and I have no knowledge of (i) the existence of any Event of Default has occurred during or at the end of the accounting period covered by the attached financial statements or as of the date of this Compliance Certificate or (ii) any change in GAAP or in the application thereof that has occurred since the date of the most recently delivered prior audited financial statements referred;

 

5.                                       Annex 2 attached hereto sets forth financial data and computations evidencing the Borrower’s compliance with certain specified covenants of the Credit Agreement, all of which data and computations are true, complete and correct(1);

 


(1)Include calculations pursuant to Section 10.06(h) and Section 10.13 and calculations in form of attached Schedule 1. Calculation of Holdco Interest Coverage Ratio is not required if the Borrower, the Restricted Subsidiaries, and the Holdco Guarantors have at least $5,000,000 in the aggregate in unrestricted cash and Permitted Cash Equivalent Investments on their balance sheets on the last day of a Reference Period (excluding such amounts of the Restricted Subsidiaries that are not available to be distributed to the Borrower or a Holdco Guarantor).

 



 

6.                                       An nex 3 attached hereto sets forth a report detailing the operating statistics for each Project Subsidiary in the form of the attached Schedule 2, and such report is true, complete and correct; and

 

7.                                       The financial covenant analyses and information set forth in this Compliance Certificate is true and accurate on and as of the date of this Compliance Certificate.

 

Described below are the exceptions, if any, to paragraph 4 by listing, in detail, the (i) nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event or (i) the change in GAAP or the application thereof and the effect of such change on the attached financial statements:

 

 

The foregoing certifications, together with the computations set forth in Annex 2 hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this day                                           of , 20        .

 

 

AQUA VENTURES HOLDINGS CURACAO N.V.

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 



 

Annex 1

 

[To be attached]

 



 

Annex 2

 

[To be attached]

 


 

Annex 3

 

[To be attached]

 



 

Schedule 1

 

Form of Holdco Cash Flow Calculation

 

 

 

Total

Consolidated Cash Flow from Operations of Parent Guarantor
(Excluding Unrestricted Subsidiaries and Joint Ventures other than for cash actually received from these entities by the Parent Guarantor or a Restricted Subsidiary)

 

 

Less:

 

 

Portions of Cash Flow from Operations of Parent Guarantor not able to be distributed to the Borrower or a Holdco Guarantor

 

 

Portions of Cash Flow from Operations of Parent Guarantor not generated in the ordinary course of business

 

 

Payments or Repayments of Indebtedness other than the Facility

 

 

Distributions by Parent Guarantor

 

 

Capitalized Interest
(Solely to the extent paid in cash, not financed, and not otherwise included in Cash Flow from Operations above)

 

 

Consolidated maintenance capital expenditures of the Parent Guarantor
(Excluding Unrestricted Subsidiaries and Joint Ventures, and solely capital expenditures that are maintenance in nature rather than growth)

 

 

Plus:

 

 

Interest and Fees paid under the Facility
(To the extent included in Cash Flow from Operations above)

 

 

Total Holdco Cash Flow

 

 

 


 

Schedule 2

 

Quarterly Operating Statistics Information Form

 

 

 

BVI

 

Curacao

 

St. Maarten

 

Trinidad

 

USVI

 

[Add Column for
Other Material New
Projects]

 

Other
Projects (aggregate
without buildup)

 

Total

Capacity during Period
(millions of gallons per day)

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

N/A

Availability during Period
(%, with explanation of any material changes from historical levels)

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

N/A

Utilization during Period (millions of gallons per day, with explanation of any material changes from historical levels)

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

N/A

Project Level Revenue during Period ($mm; include buildup of major cash flows, i.e. volume * price)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Level EBITDA during Period
($mm)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Level Interest Payments during Period
($mm)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Level Principal Repayments or Draws during Period
($mm)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Level Tax Payments during Period
($mm)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Level Changes in Net Working Capital during Period
($mm)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Level Maintenance Capex during Period ($mm)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Level Free Cash Flow during Period
($mm; describe any items incorporated that are not otherwise included in this table)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Seven Seas overhead and G&A expenses during period: Breakdown of capex by project:

 

Details of projects under construction (provide updates on project completion %, spend %

 

relative to capex budget, and timing of expected completion):

 

Confirm if any material breaches under water sale agreements or other material contracts occurred during period, and if so, provide details:

 

Confirm if any material breaches or restrictions on dividend payments under other debt contracts occurred during period, and if so, provide details:

 


 

EXHIBIT C FORM OF
GUARANTY

 

THIS GUARANTY (this “ Guaranty” ), dated as of June 18, 2015, is made by each Guarantor named in the signature pages hereof (each a “ Guarantor ” and, collectively, the “ Guarantors” ), in favor of the Lenders party to the Credit Agreement referred to below and Citibank, N.A., as administrative agent for the Lenders referred to below (in such capacity, the “ Agent” ).

 

Aqua Ventures Holdings Curacao N.V., a Curacao limited liability company (the “ Borrower” ), the Holdco Guarantors, the financial institutions from time to time party thereto (each a “Lender” and, collectively, the “ Lenders” ) and the Agent are parties to a Credit Agreement dated as of June 18, 2015 (as amended, restated, amended and restated, supplemented, modified, renewed or extended from time to time, the “ Credit Agreement” ).

 

It is a condition precedent to the Borrowings under the Credit Agreement that each Guarantor guarantees the indebtedness and other obligations of the Borrower to the Guaranteed Parties under or in connection with the Credit Agreement as set forth herein. Each Guarantor will derive substantial direct and indirect benefits from the making of the Loans to the Borrower pursuant to the Credit Agreement (which benefits are hereby acknowledged by each Guarantor).

 

Accordingly, to induce the Agent and the Lenders to enter into the Credit Agreement, and in consideration thereof, each Guarantor hereby agrees as follows:

 

SECTION 1                                Definitions; Interpretation.

 

(a)  Terms Defined in Credit Agreement. All capitalized terms used in this Guaranty (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.

 

(b)  Certain Defined Terms. As used in this Guaranty (including in the recitals hereof), the following terms shall have the following meanings:

 

Acceding Subsidiary” has the meaning set forth in Section 28.

 

Accession Agreement” has the meaning set forth in Section 28.

 

Act” has the meaning set forth in Section 30.

 

Agent” has the meaning set forth in the recitals.

 

Agreement Currency” has the meaning set forth in Section 27.

 

Borrower” shall have the meaning set forth in the recitals.

 

Credit Agreement” has the meaning set forth in the recitals.

 



 

Guaranteed Obligations” has the meaning set forth in Section 2(a) and Section 2(b)(ii).

 

Guaranteed Parties” means the Agent and the Lenders.

 

Guarantor ” shall have the meaning set forth in the recitals.

 

Guarantor Documents” means this Guaranty and all other certificates, documents, agreements and instruments delivered to any Guaranteed Party under or in connection with this Guaranty and the Loan Documents.

 

Indemnitee” has the meaning set forth in Section 15(b).

 

Judgment Currency” has the meaning set forth in Section 27.

 

Lender” has the meaning set forth in the recitals.

 

Obligor” has the meaning set forth in Section 7(a).

 

Process Agent” has the meaning set forth in Section 20(d).

 

Subordinated Debt” has the meaning set forth in Section 7(a).

 

Subordinated Debt Payments” means any payment or distribution by or on behalf of any Obligor, directly or indirectly, of assets of such Obligor of any kind or character, whether in cash, property or securities, including on account of the purchase, redemption or other acquisition of Subordinated Debt, as a result of any collection, sale or other disposition of collateral, or by setoff, exchange or in any other manner, for or on account of the Subordinated Debt.

 

(c)  Interpretation. The rules of interpretation set forth in Section 1.03 of the Credit Agreement shall be applicable to this Guaranty and are incorporated herein by this reference.

 

SECTION 2                                Guaranty.

 

(a)                                  Guaranty. Each Guarantor with due observation of Section 2(b)(ii) hereby unconditionally and irrevocably guarantees to the Guaranteed Parties, and their respective successors, endorsees, transferees and assigns, the full and prompt payment when due (whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise) and performance of the indebtedness, liabilities and other obligations of the Borrower to the Guaranteed Parties under or in connection with the Credit Agreement, the Notes and the other Loan Documents, including all unpaid principal of the Loans, all interest accrued thereon, all fees due under the Credit Agreement and all other amounts payable by the Borrower to the Guaranteed Parties thereunder or in connection therewith. The terms “indebtedness,” “liabilities” and “obligations” are used herein in their most comprehensive sense and include any and all advances, debts, obligations and liabilities, now existing or hereafter arising, whether voluntary or involuntary and whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether recovery upon such indebtedness,

 

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liabilities and obligations may be or hereafter become unenforceable or shall be an allowed or disallowed claim in any Insolvency Proceeding, and including interest that accrues after the commencement by or against any Credit Party of any Insolvency Proceeding naming such Person as the debtor in such Insolvency Proceeding. The foregoing indebtedness, liabilities and other obligations of the Borrower, and all other indebtedness, liabilities and obligations to be paid or performed by the Guarantors in connection with this Guaranty (including any and all amounts due under Section 15), shall hereinafter be collectively referred to as the “ Guaranteed Obligations. ” Notwithstanding the foregoing, (i) Guaranteed Obligations with respect to any Guarantor shall exclude all Excluded Swap Obligations with respect to such Guarantor; and (ii) with respect to the grant of any Lien by such Guarantor under any Collateral Documents, the “Secured Obligations” thereunder shall exclude all Excluded Swap Obligations with respect to such Guarantor.

 

(b)                                  Limitation of Guaranty. (i) To the extent that any court of competent jurisdiction shall impose by final judgment under applicable law (including applicable state law and §§544 and 548 of the Bankruptcy Code) any limitations on the amount of a Guarantor’s liability with respect to the Guaranteed Obligations which any Guaranteed Party can enforce under this Guaranty, the Guaranteed Parties by their acceptance hereof accept such limitation on the amount of such Guarantor’s liability hereunder to the extent needed to make this Guaranty and the Guarantor Documents fully enforceable and nonavoidable.

 

(ii)                                           The guaranty of Air-Fin Holding N.V. and Air-Fin Holding Sint Maarten N.V. under this Section 2 and their respective liability under this Guaranty to guaranty the Guaranteed Obligations is limited to the fair market value of the equity of Air-Fin Holding N.V. and Air-Fin Holding Sint Maarten N.V., respectively at the time the Guaranteed Parties should enforce their rights under this Guaranty against Air-Fin Holding N.V. and Air-Fin Holding Sint Maarten N.V., respectively. The Guaranteed Parties, by their acceptance hereof, accept such limitations. Nothing in this sub-clause (ii) shall limit the obligation under this Guaranty or any other Guarantor Document of any other Guarantor.

 

SECTION 3                                Liability of Guarantors. The liability of the Guarantors under this Guaranty shall be irrevocable, absolute, independent and unconditional, and shall not be affected by any circumstance which might constitute a discharge of a surety or guarantor other than the indefeasible payment and performance in full of all Guaranteed Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:

 

(i)                                      such Guarantor’s liability hereunder shall be the immediate, direct, and primary obligation of such Guarantor and shall not be contingent upon any Guaranteed Party’s exercise or enforcement of any remedy it may have against the Borrower or any other Person, or against any Collateral;

 

(ii)                                   this Guaranty is a guaranty of payment when due and not merely of collectability;

 

(iii)                                the Guaranteed Parties may enforce this Guaranty solely upon the occurrence and during the continuance of an Event of Default notwithstanding the existence of

 

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any dispute between any of the Guaranteed Parties and the Borrower with respect to the existence of such Event of Default;

 

(iv)                               such Guarantor’s payment of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge such Guarantor’s liability for any portion of the Guaranteed Obligations remaining unsatisfied; and

 

(v)                                  such Guarantor’s liability with respect to the Guaranteed Obligations shall remain in full force and effect without regard to, and shall not be impaired or affected by, nor shall such Guarantor be exonerated or discharged by, any of the following events:

 

(A)                                       any Insolvency Proceeding with respect to the Borrower, such Guarantor, any other Credit Party or any other Person;

 

(B)                                any limitation, discharge, or cessation of the liability of the Borrower, such Guarantor, any other Credit Party or any other Person for any Guaranteed Obligations due to any statute, regulation or rule of law, or any invalidity or unenforceability in whole or in part of any of the Guaranteed Obligations or the Loan Documents;

 

(C)                                any merger, acquisition, consolidation or change in structure of the Borrower, such Guarantor or any other Credit Party or Person, or any sale, lease, transfer or other disposition of any or all of the assets or shares of the Borrower, such Guarantor, any other Credit Party or other Person;

 

(D)                                any assignment or other transfer, in whole or in part, of any Guaranteed Party’s interests in and rights under this Guaranty or the other Loan Documents, including any Guaranteed Party’s right to receive payment of the Guaranteed Obligations, or any assignment or other transfer, in whole or in part, of any Guaranteed Party’s interests in and to any of the Collateral;

 

(E)                                 any claim, defense, counterclaim or setoff, other than that of prior performance, that the Borrower, such Guarantor, any other Credit Party or other Person may have or assert, including any defense of incapacity or lack of corporate or other authority to execute any of the Loan Documents;

 

(F)                                  any Guaranteed Party’s amendment, modification, renewal, extension, cancellation or surrender of any Loan Document, any Guaranteed Obligations, or any Collateral, or any Guaranteed Party’s exchange, release, or waiver of any Collateral;

 

(G)                                any Guaranteed Party’s exercise or nonexercise of any power, right or remedy with respect to any of the Collateral, including any Guaranteed Party’s compromise, release, settlement or waiver with or of the Borrower, any other Credit Party or any other Person;

 

(H)                               any Guaranteed Party’s vote, claim, distribution, election, acceptance, action or inaction in any Insolvency Proceeding related to the Guaranteed Obligations;

 

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(I)                                    any impairment or invalidity of any of the Collateral securing any of the Guaranteed Obligations or any failure to perfect any of the Liens of the Guaranteed Parties thereon or therein; and

 

(J)                                    any other guaranty, whether by such Guarantor or any other Person, of all or any part of the Guaranteed Obligations or any other indebtedness, obligations or liabilities of the Borrower to any Guaranteed Party.

 

SECTION 4                                        Consents of Guarantors. Each Guarantor hereby unconditionally consents and agrees that, without notice to or further assent from such Guarantor:

 

(i)                                      the principal amount of the Guaranteed Obligations may be increased or decreased and additional indebtedness or obligations of the Credit Parties under the Loan Documents may be incurred, by one or more amendments, modifications, renewals or extensions of any Loan Document or otherwise;

 

(ii)                                   the time, manner, place or terms of any payment under any Loan Document may be extended or changed, including by an increase or decrease in the interest rate on any Guaranteed Obligation or any fee or other amount payable under such Loan Document, by an amendment, modification or renewal of any Loan Document or otherwise;

 

(iii)                                the time for the Borrower’s (or any other Person’s) performance of or compliance with any term, covenant or agreement on its part to be performed or observed under any Loan Document may be extended, or such performance or compliance waived, or failure in or departure from such performance or compliance consented to, all in such manner and upon such terms as the Guaranteed Parties may deem proper;

 

(iv)                               any Guaranteed Party may discharge or release, in whole or in part, any other Credit Party or any other Person liable for the payment and performance of all or any part of the Guaranteed Obligations, and may permit or consent to any such action or any result of such action, and shall not be obligated to demand or enforce payment upon any of the Collateral, nor shall any Guaranteed Party be liable to the Guarantors for any failure to collect or enforce payment or performance of the Guaranteed Obligations from any Person or to realize the Collateral;

 

(v)                                  in addition to the Collateral, the Guaranteed Parties may take and hold other security (legal or equitable) of any kind, at any time, as collateral for the Guaranteed Obligations, and may, from time to time, in whole or in part, exchange, sell, surrender, release, subordinate, modify, waive, rescind, compromise or extend such security and may permit or consent to any such action or the result of any such action, and may apply such security and direct the order or manner of sale thereof;

 

(vi)                               the Guaranteed Parties may request and accept other guaranties of the Guaranteed Obligations and any other indebtedness, obligations or liabilities of the Borrower to any Guaranteed Party and may, from time to time, in whole or in part, surrender, release, subordinate, modify, waive, rescind, compromise or extend any such guaranty and may permit or consent to any such action or the result of any such action; and

 

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(vii)                            the Guaranteed Parties may exercise, or waive or otherwise refrain from exercising, any other right, remedy, power or privilege (including the right to accelerate the maturity of any Loan and any power of sale) granted by any Loan Document or other security document or agreement, or otherwise available to any Guaranteed Party, with respect to the Guaranteed Obligations or any of the Collateral, even if the exercise of such right, remedy, power or privilege affects or eliminates any right of subrogation or any other right of the Guarantors against the Borrower;

 

all as the Guaranteed Parties may deem advisable, and all without impairing, abridging, releasing or affecting this Guaranty.

 

SECTION 5                                Guarantor Waivers.

 

(a)  Certain Waivers. Each Guarantor waives and agrees not to assert:

 

(i)                                      any right to require any Guaranteed Party to marshal assets in favor of the Borrower, such Guarantor, any other Credit Party or any other Person, to proceed against the Borrower, any other Credit Party or any other Person, to proceed against or exhaust any of the Collateral, to give notice of the terms, time and place of any public or private sale of personal property security constituting the Collateral or other collateral for the Guaranteed Obligations or comply with any other provisions of §9611 of the New York UCC (or any equivalent provision of any other applicable law) or to pursue any other right, remedy, power or privilege of any Guaranteed Party whatsoever;

 

(ii)                                   the defense of the statute of limitations in any action hereunder or for the collection or performance of the Guaranteed Obligations;

 

(iii)                                any defense arising by reason of any lack of corporate or other authority or any other defense of the Borrower, such Guarantor or any other Person;

 

(iv)                               any defense based upon any Guaranteed Party’s errors or omissions in the administration of the Guaranteed Obligations;

 

(v)                                  any rights to set-offs and counterclaims;

 

(vi)                               any defense based upon an election of remedies (including, if available, an election to proceed by nonjudicial foreclosure) which destroys or impairs the subrogation rights of such Guarantor or the right of such Guarantor to proceed against the Borrower or any other obligor of the Guaranteed Obligations for reimbursement; and

 

(vii)                            without limiting the generality of the foregoing, to the fullest extent permitted by law, any defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties, or which may conflict with the terms of this Guaranty.

 

(b)  Additional Waivers. Each Guarantor waives any and all notice of the acceptance of this Guaranty, and any and all notice of the creation, renewal, modification, extension or accrual of the Guaranteed Obligations, or the reliance by the Guaranteed Parties

 

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upon this Guaranty, or the exercise of any right, power or privilege hereunder. The Guaranteed Obligations shall conclusively be deemed to have been created, contracted, incurred and permitted to exist in reliance upon this Guaranty. Each Guarantor waives promptness, diligence, presentment, protest, demand for payment, notice of default, dishonor or nonpayment and all other notices to or upon the Borrower, such Guarantor or any other Person with respect to the Guaranteed Obligations.

 

(c)  Independent Obligations. The obligations of each Guarantor hereunder are independent of and separate from the obligations of the Borrower and any other Credit Party and upon the occurrence and during the continuance of any Event of Default, a separate action or actions may be brought against such Guarantor, whether or not the Borrower or any such other Credit Party is joined therein or a separate action or actions are brought against the Borrower or any such other Credit Party.

 

(d)  Financial Condition of Borrower. No Guarantor shall have any right to require any Guaranteed Party to obtain or disclose any information with respect to: (i) the financial condition or character of any Credit Party or the ability of any Credit Party to pay and perform the Guaranteed Obligations; (ii) the Guaranteed Obligations; (iii) the Collateral; (iv) the existence or nonexistence of any other guarantees of all or any part of the Guaranteed Obligations; (v) any action or inaction on the part of any Guaranteed Party or any other Person; or (vi) any other matter, fact or occurrence whatsoever.

 

SECTION 6 Subrogation . Until the Guaranteed Obligations shall be satisfied in full and the Commitments shall be terminated, no Guarantor shall have, and no Guarantor shall directly or indirectly exercise, (i) any rights that it may acquire by way of subrogation under this Guaranty, by any payment hereunder or otherwise, (ii) any rights of contribution, indemnification, reimbursement or similar suretyship claims arising out of this Guaranty or (iii) any other right which it might otherwise have or acquire (in any way whatsoever) which could entitle it at any time to share or participate in any right, remedy or security of any Guaranteed Party as against the Borrower or other Credit Parties, whether in connection with this Guaranty, any of the other Loan Documents or otherwise. If any amount shall be paid to any Guarantor on account of the foregoing rights at any time when all the Guaranteed Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of the Guaranteed Parties and shall forthwith be paid to the Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents.

 

SECTION 7                                Subordination.

 

(a)  Subordination to Payment of Guaranteed Obligations. All payments on account of all indebtedness, liabilities and other obligations of the Borrower or any Guarantor (each an “ Obligor” and collectively the “ Obligors” ) to any Guarantor, whether created under, arising out of or in connection with any documents or instruments evidencing any credit extensions to any Obligor or otherwise, including all principal on any such credit extensions, all interest accrued thereon, all fees and all other amounts payable by any Obligor to such Guarantor in connection therewith, whether now existing or hereafter arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined (the “ Subordinated Debt” ) shall be subject, subordinate and junior in right of payment and exercise of

 

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remedies, to the extent and in the manner set forth herein, to the prior payment in full in cash or cash equivalents of the Guaranteed Obligations.

 

(b)  No Payments . Other than during the continuance of an Event of Default, a Guarantor shall be entitled to accept and receive regularly scheduled payments and other payments in the ordinary course on the Subordinated Debt, in accordance with the terms of the documents and instruments governing the Subordinated Debt and other Subordinated Debt Payments in respect of Subordinated Debt not evidenced by documents or instruments, in each case to the extent permitted under Article X of the Credit Agreement. During the continuance of an Event of Default (or if any Event of Default would exist immediately after the making of a Subordinated Debt Payment), and until such Event of Default is cured or waived, such Guarantor shall not make, accept or receive any Subordinated Debt Payment. In the event that, notwithstanding the provisions of this Section 7, any Subordinated Debt Payments shall be received in contravention of this Section 7 by any Guarantor before all Guaranteed Obligations are paid in full in cash or cash equivalents, such Subordinated Debt Payments shall be held in trust for the benefit of the Guaranteed Parties and shall be paid over or delivered to the Agent for application to the payment in full in cash or cash equivalents of all Guaranteed Obligations remaining unpaid to the extent necessary to give effect to this Section 7, after giving effect to any concurrent payments or distributions to any Guaranteed Party in respect of the Guaranteed Obligations.

 

(c)  Subordination of Remedies. As long as any Guaranteed Obligations shall remain outstanding and unpaid, no Guarantor shall, without the prior written consent of the Agent:

 

(i)                                      accelerate, make demand or otherwise make due and payable prior to the original stated maturity thereof any Subordinated Debt or bring suit or institute any other actions or proceedings to enforce its rights or interests under or in respect of the Subordinated Debt;

 

(ii)                                   exercise any rights under or with respect to (A) any guaranties of the Subordinated Debt, or (B) any collateral held by it, including causing or compelling the pledge or delivery of any collateral, any attachment of, levy upon, execution against, foreclosure upon or the taking of other action against or institution of other proceedings with respect to any collateral held by it, notifying any account debtors of an Obligor or asserting any claim or interest in any insurance with respect to any collateral, or attempt to do any of the foregoing;

 

(iii)                                exercise any rights to set-offs and counterclaims in respect of any indebtedness, liabilities or obligations of such Guarantor to any Obligor against any of the Subordinated Debt; or

 

(iv)                               commence, or cause to be commenced, or join with any creditor other than any Guaranteed Party in commencing, any Insolvency Proceeding.

 

(d)  Subordination Upon Any Distribution of Assets of any Obligor. In the event of any payment or distribution of assets of any Obligor of any kind or character, whether in cash, property or securities, upon any Insolvency Proceeding with respect to or involving any Obligor, (i) all amounts owing on account of the Guaranteed Obligations, including all interest accrued

 

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thereon at the contract rate both before and after the initiation of any such proceeding, whether or not an allowed claim in any such proceeding, shall first be paid in full in cash, or payment provided for in cash or in cash equivalents, before any Subordinated Debt Payment is made; and (ii) to the extent permitted by applicable law, any Subordinated Debt Payment to which such Guarantor would be entitled except for the provisions hereof, shall be paid or delivered by the trustee in bankruptcy, receiver, assignee for the benefit of creditors or other liquidating agent making such payment or distribution directly to the Agent (on behalf of the Guaranteed Parties) for application to the payment of the Guaranteed Obligations in accordance with clause (i), after giving effect to any concurrent payment or distribution or provision therefor to any Guaranteed Party in respect of such Guaranteed Obligations.

 

(e)  Authorization to Agent. If, while any Subordinated Debt is outstanding, any Insolvency Proceeding is commenced by or against any Obligor or its property:

 

(i)                                      the Agent, when so instructed by the Majority Lenders, is hereby irrevocably authorized and empowered (in the name of the Guaranteed Parties or in the name of any Guarantor or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution in respect of the Subordinated Debt and give acquittance therefor and to file claims and proofs of claim and take such other action (including voting the Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Guaranteed Parties; and

 

(ii)                                   each Guarantor shall promptly take such action as the Agent (on instruction from the Majority Lenders) may reasonably request (A) to collect the Subordinated Debt for the account of the Guaranteed Parties and to file appropriate claims or proofs of claim in respect of the Subordinated Debt, (B) to execute and deliver to the Agent, such powers of attorney, assignments and other instruments as it may request to enable it to enforce any and all claims with respect to the Subordinated Debt, and (C) to collect and receive any and all Subordinated Debt Payments.

 

SECTION 8                                Continuing Guaranty. This Guaranty is a continuing guaranty and agreement of subordination relating to any Guaranteed Obligations, including Guaranteed Obligations which may exist continuously or which may arise from time to time under successive transactions, and the Guarantors expressly acknowledge that this Guaranty shall remain in full force and effect notwithstanding that there may be periods in which no Guaranteed Obligations exist. This Guaranty shall continue in effect and be binding upon the Guarantors until termination of the Commitments and payment and performance in full of the Guaranteed Obligations.

 

SECTION 9                                Payments.

 

(a)  Payments. Each Guarantor hereby agrees, in furtherance of the foregoing provisions of this Guaranty and not in limitation of any other right which any Guaranteed Party or any other Person may have against such Guarantor by virtue hereof, upon the failure of the Borrower to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under §362(a) of the Bankruptcy Code), such Guarantor shall forthwith pay, or cause to be paid,

 

9



 

in cash, to the Agent an amount equal to the amount of the Guaranteed Obligations then due as aforesaid (including interest which, but for the filing of a petition in any Insolvency Proceeding with respect to the Borrower, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against the Borrower for such interest in any such Insolvency Proceeding). Each Guarantor shall make each payment hereunder, unconditionally in full without set-off, counterclaim or other defense, on the day when due in Dollars and in same day or immediately available funds, to the Agent at such office of the Agent and to such account as are specified in the Credit Agreement.

 

(b)  Taxes. Any and all payments by or on account of any Guaranteed Obligation hereunder or under any other Guarantor Document shall be made in accordance with Section 6.03 of the Credit Agreement. Each Guarantor agrees that the provisions of Section 6.03 of the Credit Agreement are hereby incorporated herein by reference and agrees to be bound thereunder as though it were the Borrower, mutatis mutandis , and by their acceptance hereof, the Guaranteed Parties also agree thereto.

 

SECTION 10                         Representations and Warranties. Each Guarantor represents and warrants to each Guaranteed Party that:

 

(a)  Organization and Powers. Each of the Guarantors and its Restricted Subsidiaries is duly organized or formed, as the case may be, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation (where such consent is legally relevant), is qualified to do business and is in good standing in each jurisdiction in which the failure so to qualify or be in good standing would have a Material Adverse Effect and has all requisite power and authority to own its assets and carry on its business and, with respect to the Guarantors, to execute, deliver and perform its obligations under the Guarantor Documents to which it is a party.

 

(b)  Authorization; No Conflict. The execution, delivery and performance by each Guarantor of this Guaranty and any other Guarantor Documents to which such Guarantor is a party have been duly authorized by all necessary action of such Guarantor, and do not and will not: (i) contravene the terms of the Organization Documents of such Guarantor; (ii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which such Guarantor is a party or by which it or its properties may be bound or affected; or (iii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or the like binding on or affecting such Guarantor.

 

(c)  Binding Obligation. This Guaranty constitutes, and each other Guarantor Document when executed and delivered by the Guarantor party thereto will constitute, a legal, valid and binding obligation of such Guarantor party thereto, enforceable against each Guarantor that is party thereto in accordance with its terms, subject in each case to the effect of any applicable bankruptcy, insolvency, reorganization, receivership, examinership, moratorium or similar law affecting creditors’ rights generally, and subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law).

 

(d)  Governmental Consents. No authorization, consent, approval, license, exemption of, or filing or registration with, any Governmental Authority, or approval or consent

 

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of any other Person, is required for the due execution, delivery or performance by any Guarantor of the Guarantor Documents, except for recordings or filings in connection with the perfection of the Liens on the Collateral in favor of the Agent on behalf of the Lenders and consents and licenses that have been received and are in full force and effect.

 

(e)  No Prior Assignment. No Guarantor has previously assigned any interest in the Subordinated Debt or any collateral relating thereto, no Person other than a Guarantor owns an interest in any of the Subordinated Debt or any such collateral (whether as joint holders of the Subordinated Debt, participants or otherwise), and the entire Subordinated Debt is owing only to the Guarantors.

 

(f)  Consideration. Each Guarantor has received at least “reasonably equivalent value” (as such phrase is used in §548 of the Bankruptcy Code and in comparable provisions of other applicable law) and more than sufficient consideration to support its obligations hereunder in respect of the Guaranteed Obligations and under any of the Collateral Documents to which it is a party.

 

(g)  Independent Investigation. Each Guarantor hereby acknowledges that it has undertaken its own independent investigation of the financial condition of the Borrower and all other matters pertaining to this Guaranty and further acknowledges that it is not relying in any manner upon any representation or statement of any Guaranteed Party with respect thereto. Each Guarantor represents and warrants that it has received and reviewed copies of the Loan Documents and that it is in a position to obtain, and it hereby assumes full responsibility for obtaining, any additional information concerning the financial condition of the Borrower and any other matters pertinent hereto that any Guarantor may desire. No Guarantor is relying upon or expecting any Guaranteed Party to furnish to such Guarantor any information now or hereafter in any Guaranteed Party’s possession concerning the financial condition of the Borrower or any other matter.

 

(h)  Pari Passu Obligations. Notwithstanding anything to the contrary herein, the payment obligations of each Guarantor under this Guaranty and each other Guarantor Document are and will at all times be unsubordinated general obligations of such Guarantor, and rank and will at all times rank at least pari passu with all other present and future unsubordinated, unsecured general obligations of such Guarantor.

 

(i)  Credit Agreement Representations. Each Guarantor hereby represents and warrants that each representation and warranty set forth in Article VIII of the Credit Agreement with respect to such Guarantor is true and correct in all material respects.

 

SECTION 11                         Reporting Covenant. So long as any Guaranteed Obligations (other than contingent indemnification obligations) shall remain unsatisfied or any Lender shall have any Commitment, each Guarantor agrees that it shall furnish to the Agent: (a) prompt written notice of any condition or event which has resulted, or that would reasonably be expected to result, in a Material Adverse Effect; and (b) such other information respecting the operations, properties, business or condition (financial or otherwise) of such Guarantor or its Subsidiaries as any Lender (through the Agent) may from time to time reasonably request.

 

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SECTION 12                         Additional Affirmative Covenants. So long as any Guaranteed Obligations (other than contingent indemnification obligations) shall remain unsatisfied or any Lender shall have any Commitment, each Guarantor agrees that:

 

(a)                                  Preservation of Existence, Etc. Except as otherwise permitted pursuant to Section 10.04 of the Credit Agreement, each Guarantor shall, and shall cause each of its Restricted Subsidiaries to, maintain and preserve its legal existence, its rights to transact business and all other rights, franchises and privileges necessary or desirable in the normal course of its business and operations and the ownership of its properties.

 

(b)                                  Further Assurances and Additional Acts. Each Guarantor shall execute, acknowledge, deliver, file, notarize and register at its own expense all such further agreements, instruments, certificates, documents and assurances and perform such acts as the Agent or the Majority Lenders shall deem necessary or appropriate to effectuate the purposes of this Guaranty and the other Guarantor Documents, and promptly provide the Agent with evidence of the foregoing reasonably satisfactory in form and substance to the Agent or the Majority Lenders.

 

(c)                                   Credit Agreement Covenants. Each Guarantor shall observe, perform and comply with all covenants applicable to such Guarantor set forth in Articles IX and X of the Credit Agreement, which by their terms the Parent Guarantor is required to cause such Guarantor to observe, perform and comply with, as if such covenants were set forth in full herein.

 

(d)                                  Governmental Consents . Each Guarantor shall maintain all authorizations, consents, approvals, licenses, exemptions of, or filings or registrations with, any Governmental Authority, or approvals or consents of any other Person, required in connection with this Guaranty or any other Guarantor Documents.

 

SECTION 13                         Notices. All notices and other communications provided for hereunder and under the other Guarantor Documents shall, unless otherwise stated herein or therein, be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile or by email (i) if to the Agent or any Lender, at or to its address, email address or facsimile number set forth in Schedule 2 to the Credit Agreement, and (ii) if to any Guarantor, at or to its address, email address or facsimile number set forth below its name on the signature page hereof, or at or to such other address, email address or facsimile number as such party shall have designated in a written notice to the other party. Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received. Notices and other communications (A) sent by facsimile or by email shall be deemed to have been given when sent, and (B) posted to an internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its email address as described herein, of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (A) and (B) above, if a notice or other communication is not given during normal business hours for the recipient, it shall be deemed to have been given at the opening of business on the next business day for the recipient.

 

SECTION 14                         No Waiver; Cumulative Remedies. No failure by any Guaranteed Party to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege

 

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hereunder or under any other Guarantor Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein or therein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

 

SECTION 15                         Costs and Expenses; Indemnification.

 

(a)  Costs and Expenses. Each Guarantor agrees to pay (i) all reasonable and documented out-of-pocket expenses incurred by the Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Agent) (but limited to one counsel to the Agent and the Lenders, taken as a whole, one local counsel in any relevant jurisdiction, taken as a whole, and solely in the event of a conflict of interest, one additional counsel (and if necessary, one local counsel in each relevant jurisdiction) to each group of similarly situated affected Lenders), in connection with the preparation, negotiation, execution, delivery and administration of this Guaranty, or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) (provided that U.S. legal expenses in connection with the preparation, negotiation, execution and delivery of this Guaranty and the other Loan Documents shall be subject to the dollar cap set forth in the Expense and Indemnity Letter), (ii) all out-of-pocket expenses incurred by the Agent or any Lender (including the fees, charges and disbursements of any counsel for the Agent or any Lender), in connection with the enforcement or protection of its rights (A) in connection with this Guaranty, including its rights under this Section, (B) in connection with the Guaranteed Obligations made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Guaranteed Obligations, and including in or in connection with any Insolvency Proceeding, and (C) in connection with the preservation of and realization upon any of the Collateral, and (iii) all title, appraisal, survey, audit, environmental inspection, consulting, search, recording, filing and similar costs, fees and expenses incurred or sustained by the Agent or any of its Affiliates in connection with this Guaranty or the Collateral.

 

(b)  Indemnification. Each Guarantor shall indemnify each Guaranteed Party (and any agent thereof) and each Related Party of any of the foregoing Persons (each such Person being called an “ Indemnitee” ) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including any Guarantor, the Borrower or any other Credit Party), other than such Indemnitee and its Related Parties, arising out of, in connection with, or as a result of (i) the execution or delivery of this Guaranty, any other Guarantor Document or other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) the Guaranteed Obligations or the use or proposed use of the proceeds therefrom, (iii) actual or alleged presence or release of Hazardous Substances on or from any property owned or operated by any Credit Party or any of its Subsidiaries, or any liability under any Environmental Law related in any way to any Credit Party or any of its Subsidiaries, or (iv) any actual or prospective

 

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claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by any Guarantor, the Borrower or any other Credit Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by any Guarantor, the Borrower or any other Credit Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower, such Guarantor or such Credit Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. This Section shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

 

(c)  Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, each party hereto shall not assert, and hereby waives, and acknowledges that no other Person shall have, any claim against any other party hereto (and in the case of the Guarantors, any Indemnitee), on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Guaranty or any other Guarantor Document or any agreement or instrument contemplated hereby or thereby, the transactions contemplated hereby or thereby, the Guaranteed Obligations or the use of the proceeds thereof. No Person referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Guaranty or the other Guarantor Documents or the transactions contemplated hereby or thereby.

 

(d)  Payment. All amounts due under this Section 15 shall be payable upon demand therefor.

 

(e)  Interest. Any amounts payable to any Guaranteed Party under this Section 15 if not paid upon demand shall bear interest from the date of such demand until paid in full, at the rate of interest set forth in Section 3.02 of the Credit Agreement.

 

(e)  Survival .  The agreements in this Section 15 shall survive the termination of the Commitments and repayment of all Guaranteed Obligations.

 

SECTION 16                         Right of Set-Off. In addition to any rights and remedies of the Lenders provided by law, upon the occurrence and during the continuance of any Event of Default, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held by, and other obligations (in whatever currency) at any time owing by, such Lender or any such Affiliate to or for the credit or the account of any Guarantor or any other Credit Party against any and all Guaranteed Obligations owing to such Lender or any such Affiliate, now or hereafter existing, irrespective of whether or not the Agent or such Lender or any such Affiliate shall have made any demand under this Guaranty or any other Guarantor Document and although such

 

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Guaranteed Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or obligations or are owed to a branch, office or Affiliate of such Person different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided, that by its acceptance hereof, each Lender shall agree that in the event that any Defaulting Lender shall exercise any such right of set-off, (x) all amounts so set- off shall be paid over immediately to the Agent for further application in accordance with the provisions of Section 6.06 of the Credit Agreement and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Agent and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Agent a statement describing in reasonable detail the Guaranteed Obligations owing to such Defaulting Lender as to which it exercised such right of set-off. The rights of the Lenders and their Affiliates under this Section 16 are in addition to other rights and remedies (including other rights of set-off) which the Lenders and their Affiliates may have. By its acceptance hereof, each of the Lenders agrees promptly to notify the applicable Guarantor and the Agent after any such set-off and application made by such Lender or its Affiliate; provided, however that the failure to give such notice shall not affect the validity of such set-off and application.

 

SECTION 17                         Marshalling; Payments Set Aside. Neither the Agent nor any Guaranteed Party shall be under any obligation to marshal any assets in favor of any Guarantor or any other Person or against or in payment of any or all of the Guaranteed Obligations. If any payment of the Guaranteed Obligations by or on behalf of any Credit Party (or receipt of any proceeds of any set-off or any Collateral) shall be rescinded, invalidated, declared to be fraudulent or preferential, set aside, voided or otherwise required to be repaid to any Credit Party, its estate, trustee, receiver or any other Person, in connection with any Insolvency Proceeding or otherwise, then to the extent any payment is so rescinded, set aside, voided or otherwise repaid or restored, the Guaranteed Obligations shall be revived and continued in full force and effect as if such payment had not been made or such set-off or Collateral application had not occurred.

 

SECTION 18                         Benefits of Guaranty. This Guaranty is entered into for the sole protection and benefit of the Agent and each other Guaranteed Party and their respective successors and assigns, and no other Person (other than any Related Party specified herein) shall be a direct or indirect beneficiary of, or shall have any direct or indirect cause of action or claim in connection with, this Guaranty. The Guaranteed Parties, by their acceptance of this Guaranty, shall not have any obligations under this Guaranty to any Person other than the Guarantors, and such obligations shall be limited to those expressly stated herein.

 

SECTION 19                         Binding Effect; Assignment.

 

(a)  Binding Effect. This Guaranty shall be binding upon each Guarantor and its successors and assigns, and inure to the benefit of and be enforceable by the Agent and each other Guaranteed Party and their respective successors, endorsees, transferees and assigns. Delivery by any Guarantor of an executed counterpart of a signature page of this Guaranty by facsimile or in electronic ( i.e ., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Guaranty.

 

(b)  Assignment.   Except to the extent otherwise provided in the Credit Agreement, no Guarantor shall have the right to assign or transfer its rights and obligations

 

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hereunder or under any other Guarantor Documents without the prior written consent of the Majority Lenders. Each Lender may, without notice to or consent by any Guarantor, sell, assign, transfer or grant participations in all or any portion of such Lender’s rights and obligations hereunder and under the other Guarantor Documents in connection with any sale, assignment, transfer or grant of a participation by such Lender in accordance with Section 13.09 of the Credit Agreement of or in its rights and obligations thereunder and under the other Loan Documents. Each Guarantor agrees that in connection with any such sale, assignment, transfer or grant by any Guaranteed Party, a Guaranteed Party may deliver to the prospective participant or assignee financial statements and other relevant information relating to such Guarantor and its Subsidiaries. In the event of any grant of a participation, the participant (A) shall be deemed to have a right of setoff under Section 16 in respect of its participation to the same extent as if it were such “Guaranteed Party;” and (B) shall also be entitled to the benefits of Section 15.

 

SECTION 20                         Governing Law and Jurisdiction.

 

(a)  Governing Law. This Guaranty and the other Guarantor Documents and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Guaranty or any other Guarantor Document (except, as to any other Guarantor Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of New York.

 

(b)  Submission to Jurisdiction. Each party hereto irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against any other party hereto in any way relating to this Guaranty or any other Guarantor Document or the transactions relating hereto or thereto, in any forum other than the courts of the State of New York sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, and each of the parties hereto (by its acceptance hereof) irrevocably and unconditionally submits to the exclusive jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each party hereto (by its acceptance hereof) agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guaranty or in any other Guarantor Document shall affect any right that any party hereto may otherwise have to bring any action or proceeding relating to this Guaranty or any other Guarantor Document against any other party hereto or its properties in the courts of any jurisdiction.

 

(c)  Waiver of Venue. Each party hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Guaranty or any other Guarantor Document in any court referred to in subsection (b) of this Section. Each of the parties hereto (by its acceptance hereof) hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

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(d)  Appointment of Process Agent. Each Guarantor hereby irrevocably appoints CCS Global Solutions, Inc. (the “ Process Agent” ), with an office on the date hereof at 54 West 39 th Street, 5 th Floor, New York, New York 10018, as its authorized agent with all powers necessary to receive on its behalf service of copies of the summons and complaint and any other process which may be served in any action or proceeding arising out of or relating to the Loan Documents in any of the courts in and of the State of New York. Such service may be made by mailing or delivering a copy of such process to such Guarantor in care of the Process Agent at the Process Agent’s above address and such Guarantor hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf and agrees that the failure of the Process Agent to give any notice of any such service to such Guarantor shall not impair or affect the validity of such service or of any judgment rendered in any action or proceeding based thereon. As an alternative method of service, each Guarantor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Borrower at its address specified in Section 13. If for any reason CCS Global Solutions, Inc. shall cease to act as Process Agent, each Guarantor shall appoint forthwith, in the manner provided for herein, a successor Process Agent qualified to act as an agent for service of process with respect to all courts in and of the State of New York and acceptable to Agent.

 

(e)  Service of Process. Each Guarantor and each Guaranteed Party (by its acceptance hereof) irrevocably consents to service of process in the manner provided for notices in Section 13 or, if applicable, to the Process Agent specified in Section 20(d). Nothing in this Guaranty will affect the right of any party hereto to serve process in any other manner permitted by applicable law.

 

SECTION 21                         Waiver of Jury Trial . EACH PARTY HERETO (BY ITS ACCEPTANCE HEREOF) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE OTHER GUARANTOR DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (BY ITS ACCEPTANCE HEREOF) (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS GUARANTY AND THE OTHER GUARANTOR DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

SECTION 22                         Entire Agreement; Amendments and Waivers.

 

(a) Entire Agreement. This Guaranty and the other Guarantor Documents constitute the entire agreement of among the Guarantors, the Lenders and the Agent with respect to the matters set forth herein and therein and supersede any prior agreements, commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. There are no conditions to the full effectiveness of this Guaranty.

 

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(b) Amendments and Waivers. Except to the extent otherwise provided herein or in any other Guarantor Documents, this Guaranty and the other Guarantor Documents may not be amended except by a writing signed by the Guarantors (or other party thereto, as applicable), the Agent and the Majority Lenders, or the Guarantors and the Agent (with the written consent of the Majority Lenders). No waiver of any provision of this Guaranty or any other Guarantor Document or consent to any departure by any Guarantor therefrom shall be effective unless in writing and signed by the Agent and the Majority Lenders, or the Agent (with the consent of the Majority Lenders). Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

SECTION 23                         Survival. All covenants, agreements, representations and warranties made in this Guaranty and in any other Guarantor Document shall, except to the extent otherwise provided therein, survive the execution and delivery of this Guaranty, and shall continue in full force and effect so long as any Lender has any Commitment or any Guaranteed Obligations remain unsatisfied.

 

SECTION 24                         Guaranteed Parties Not Fiduciaries to any Guarantor. The relationship between each Guarantor and its Affiliates, on the one hand, and each Guaranteed Party and its Affiliates, on the other hand, is solely that of debtor and creditor, and neither such Guaranteed Party nor any Affiliate thereof shall have any fiduciary or other special relationship with any Guarantor or any of its Affiliates, and no term or provision of any Loan Document, no course of dealing, no written or oral communication, or other action, shall be construed so as to deem such relationship to be other than that of debtor and creditor.

 

SECTION 25                         Knowing and Explicit Waivers. EACH GUARANTOR ACKNOWLEDGES THAT IT HAS EITHER OBTAINED THE ADVICE OF LEGAL COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF THIS GUARANTY. EACH GUARANTOR ACKNOWLEDGES AND AGREES THAT EACH OF THE WAIVERS AND CONSENTS SET FORTH HEREIN, INCLUDING THOSE CONTAINED IN SECTIONS 3 THROUGH 5, ARE MADE WITH FULL KNOWLEDGE OF THEIR SIGNIFICANCE AND CONSEQUENCES. ADDITIONALLY, EACH GUARANTOR ACKNOWLEDGES AND AGREES THAT BY EXECUTING THIS GUARANTY, IT IS WAIVING CERTAIN RIGHTS, BENEFITS, PROTECTIONS AND DEFENSES TO WHICH IT MAY OTHERWISE BE ENTITLED UNDER APPLICABLE LAW, AND THAT ALL SUCH WAIVERS HEREIN ARE EXPLICIT, KNOWING WAIVERS. EACH GUARANTOR FURTHER ACKNOWLEDGES AND AGREES THAT THE GUARANTEED PARTIES ARE RELYING ON SUCH WAIVERS IN CREATING THE GUARANTEED OBLIGATIONS, AND THAT SUCH WAIVERS ARE A MATERIAL PART OF THE CONSIDERATION WHICH THE GUARANTEED PARTIES ARE RECEIVING FOR CREATING THE GUARANTEED OBLIGATIONS.

 

SECTION 26                         Severability. Whenever possible, each provision of this Guaranty and the other Guarantor Documents shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Guaranty or any other Guarantor Document shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall

 

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be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Guaranty or such Guarantor Document, as the case may be, or the validity or effectiveness of such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section 26, if and to the extent that the enforceability of any provisions in this Guaranty relating to Defaulting Lenders shall be limited under or in connection with any Insolvency Proceeding, as determined in good faith by the Agent then such provisions shall be deemed to be in effect only to the extent not so limited.

 

SECTION 27                         Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Guarantor Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of each Guarantor in respect of any such sum due from it to any Guaranteed Party hereunder or under the other Guarantor Documents shall, notwithstanding any judgment in a currency (the “ Judgment Currency” ) other than that in which such sum is denominated in accordance with the applicable provisions of the Credit Agreement (the “ Agreement Currency” ), be discharged only to the extent that on the Business Day following receipt by the Agent of any sum adjudged to be so due in the Judgment Currency, the Agent may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Agent from such Guarantor in the Agreement Currency, such Guarantor agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Agent or the Person to whom such obligation was owing against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Agent in such currency, the Agent (by its acceptance hereof) agrees to return the amount of any excess to such Guarantor (or to any other Person who may be entitled thereto under applicable law). The agreements in this Section 27 shall survive the termination of the Commitments and repayment of all Guaranteed Obligations.

 

SECTION 28                         Future Guarantors. At such time following the date hereof as any Subsidiary of the Parent Guarantor (an “ Acceding Subsidiary” ) is required to accede hereto pursuant to the terms of Section 9.14 of the Credit Agreement, such Acceding Subsidiary shall execute and deliver to the Agent an accession agreement substantially in the form of Annex 1 (the “ Accession Agreement” ), signifying its agreement to be bound by the provisions of this Guaranty as a Guarantor to the same extent as if such Acceding Subsidiary had originally executed this Guaranty as of the date hereof.

 

SECTION 29                         Joint and Several Liability. All references to Guarantor herein shall include each and every Guarantor and each and every Guaranteed Obligation of a Guarantor hereunder shall be the joint and several obligation of each Guarantor.

 

SECTION 30                         Counterparts. This Guaranty may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery by any Guarantor of an executed counterpart of a signature page of this Guaranty by facsimile or in electronic ( i.e ., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Guaranty.

 

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SECTION 31                         USA PATRIOT Act Notice. Each Guaranteed Party that is subject to the Act (as defined below) hereby notifies the Guarantors that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Act” ), that it is required to obtain, verify and record information that identifies each Guarantor, which information includes the name and address of each Guarantor and other information that will allow the Guaranteed Parties to identify each Guarantor in accordance with the Act. Each Guarantor shall, promptly following a request by any Guaranteed Party, provide all documentation and other information that such Guaranteed Party requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Act.

 

[Remainder of page intentionally left blank; signature page(s) follow]

 

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IN WITNESS WHEREOF, each Guarantor has executed this Guaranty, as of the date first above written.

 

 

AQUAVENTURE HOLDINGS LLC

 

 

 

By

 

 

 

Title:

 

Address:

 

c/o

 

 

 

 

 

 

Attn.:

 

 

Fax No.

 

 

 

 

SEVEN SEAS WATER CORPORATION

 

 

 

By

 

 

 

Title:

 

Address:

 

c/o

 

 

 

 

 

 

Attn.:

 

 

Fax No.

 

 

 

 

AQUAVENTURE CAPITAL LIMITED

 

 

 

By

 

 

 

Title:

 

Address:

 

c/o

 

 

 

 

 

 

Attn.:

 

 

Fax No.

 

 



 

 

AIR-FIN HOLDING N.V.

 

 

 

By

 

 

 

Title:

 

Address:

 

c/o

 

 

 

 

 

 

Attn.:

 

 

Fax No.

 

 

 

 

 

 

AIR-FIN HOLDING SINT MAARTEN N.V.

 

 

 

By

 

 

 

Title:

 

Address:

 

c/o

 

 

 

 

 

 

Attn.:

 

 

Fax No.

 

 

Email:

 

 



 

Annex 1
to the Guaranty

 

FORM OF ACCESSION AGREEMENT

 

To:                              Citibank, N.A., as Agent

 

Re:                              Aqua Ventures Holdings Curacao N.V.

 

Ladies and Gentlemen:

 

This Accession Agreement is made and delivered pursuant to Section 28 of that certain Guaranty dated as of June 18, 2015 (as amended, modified, renewed or extended from time to time, the “ Guaranty” ), made by each Guarantor named in the signature pages thereof (each a “ Guarantor” ), in favor of the Lenders party to the Credit Agreement referred to below and Citibank, N.A., as Administrative Agent (in such capacity, the “ Agent” ). All capitalized terms used in this Accession Agreement and not otherwise defined herein shall have the meanings assigned to them in either the Guaranty or the Credit Agreement.

 

Aqua Ventures Holdings Curacao N.V., a Curacao limited liability company (the “ Borrower” ), the Holdco Guarantors, the financial institutions from time to time party thereto (each a “ Lender” and, collectively, the “ Lenders” ) and the Agent are parties to a Credit Agreement dated as of June 18, 2015 (as amended, restated, amended and restated, supplemented, modified, renewed or extended from time to time, the “Credit Agreement”).

 

The undersigned,                                                [insert name of acceding Guarantor] , a                                               [corporation, partnership, limited liability company, etc.] , is a Subsidiary of the Borrower and hereby acknowledges for the benefit of the Guaranteed Parties that it shall be a “Guarantor” for all purposes of the Guaranty effective from the date hereof.  The undersigned confirms that the representations and warranties set forth in Section 10 of the Guaranty are true and correct as to the undersigned as of the date hereof.

 

Without limiting the foregoing, the undersigned hereby agrees to perform all of the obligations of a Guarantor under, and to be bound in all respects by the terms of, the Guaranty, including Section 11 and Section 12 thereof, to the same extent and with the same force and effect as if the undersigned were an original signatory thereto.

 

This Accession Agreement shall constitute a Loan Document under the Credit Agreement.

 

THIS ACCESSION AGREEMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS ACCESSION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 



 

IN WITNESS WHEREOF, the undersigned has executed this Accession Agreement, as of the date first above written.

 

 

 

[GUARANTOR]

 

 

 

By

 

 

Title

 

 

 

 

Address for Notices:

 

c/o

 

 

 

 

 

 

Attn.:

 

 

Fax No.:

 

 

Email:

 

 

2



 

EXHIBIT D

 

Form of Notice of Borrowing

 

[DATE]

 

Citibank, N.A.

as Administrative Agent

 

Ladies and Gentlemen:

 

This Notice of Borrowing is executed and delivered by AQUA VENTURES HOLDINGS CURAÇAO N.V. , (the “ Borrower ”) to CITIBANK, N.A. , as administrative agent (in such capacity, the “ Administrative Agent ”), pursuant to Section 2.02 of the Credit Agreement dated as of June 18, 2015 (as the same may be amended, restated, amended and restated, or modified from time to time, the “ Credit Agreement ”) among the Borrower, the Lenders from time to time party thereto, and the Administrative Agent. Capitalized terms not defined herein shall have the meanings assigned to such terms in the Credit Agreement.

 

The Borrower hereby requests that the Lenders make a Borrowing pursuant to the Credit Agreement as follows:

 

1.                                       Principal Amount of the Proposed Borrowing: $                                  .

 

2.                                       Type of Loan: (check one box only)

 

o                                     Base Rate Loan

 

o                                     Eurodollar Rate Loan with the following Interest Period: (check one box only)

 

o                                     One month

 

o                                     Two month

 

o                                     Three months

 

o                                     Six months

 

3.                                               Business Day of the Proposed Borrowing:

 

4.                                               Wire Instructions for Proposed Borrowing:

 

In connection with the proposed Borrowing requested hereby, the undersigned Responsible Officer on behalf of the Borrower hereby certifies to the Administrative Agent, for the benefit of the Lenders, that:

 



 

(a)                                  As of the date of the proposed Borrowing and after giving effect thereto, all of the representations and warranties set forth in the Loan Documents are and will be true and correct in all material respects (or in the case of any representation and warranty subject to a materiality qualifier, true and correct) on and as of the date of such date as though made on and as of such date (after taking into account any amendments to the Schedules and other disclosures made in writing by the Credit Parties to the Administrative Agent and the Lenders and approved by the Administrative Agent and the Majority Lenders);

 

(b)                                  Both immediately before and after giving effect to the proposed Borrowing and the application of proceeds thereof, no Event of Default or Default has occurred and is continuing;

 

In the event that any of the certifications provided herein, including the information on the attachment hereto, changes between the date hereof and the date of the proposed Borrowing, the Borrowers shall promptly after becoming aware of such change notify the Administrative Agent in writing.

 

[signature on next page]

 

2



 

 

AQUA VENTURES HOLDINGS CURAÇAO N.V.

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

3



 

EXHIBIT E-1

 

FORM OF

 

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)

 

Reference is hereby made to the Credit Agreement dated as of June 18, 2015 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement” ), among Aqua Ventures Holdings Curaçao N.V. (the “ Borrower” ), AquaVenture Holdings LLC, Seven Seas Water Corporation, AquaVenture Capital Limited, each lender from time to time party thereto, and Citibank, N.A. (the “ Administrative Agent” ).

 

Pursuant to the provisions of Section 6.03 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

 

The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

 

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

 

[NAME OF LENDER]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

Date:                      , 20[ ]

 

 

1



 

EXHIBIT E-2

 

FORM OF

 

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)

 

Reference is hereby made to the Credit Agreement dated as of June 18, 2015 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement” ), among Aqua Ventures Holdings Curaçao N.V. (the “ Borrower” ), AquaVenture Holdings LLC, Seven Seas Water Corporation, AquaVenture Capital Limited, each lender from time to time party thereto, and Citibank, N.A. (the “ Administrative Agent” ).

 

Pursuant to the provisions of Section 6.03 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv)  it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code].

 

The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

 

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

 

[NAME OF PARTICIPANT]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

Date:                         , 20[ ]

 

 

2



 

EXHIBIT E-3

 

FORM OF

 

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)

 

Reference is hereby made to the Credit Agreement dated as of June 18, 2015 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement” ), among Aqua Ventures Holdings Curaçao N.V. (the “ Borrower” ), AquaVenture Holdings LLC, Seven Seas Water Corporation, AquaVenture Capital Limited, each lender from time to time party thereto, and Citibank, N.A. (the “ Administrative Agent” ).

 

Pursuant to the provisions of Section 6.03 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

 

The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

 

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

 

[NAME OF PARTICIPANT]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

Date:                         , 20[ ]

 

 

3


 

EXHIBIT E-4

 

FORM OF

 

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)

 

Reference is hereby made to the Credit Agreement dated as of June 18, 2015 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement” ), among Aqua Ventures Holdings Curaçao N.V. (the “ Borrower” ), AquaVenture Holdings LLC, Seven Seas Water Corporation, AquaVenture Capital Limited, each lender from time to time party thereto, and Citibank, N.A. (the “ Administrative Agent” ).

 

Pursuant to the provisions of Section 6.03 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section

 

881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

 

The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

 

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

 

 

[NAME OF LENDER]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

Date:                         , 20[ ]

 

 

4



 

SCHEDULE 1

Agent’s Account; Lending Offices; Notices

 

ADMINISTRATIVE AGENT DETAILS

 

CITIBANK, N.A.

Operations Contact:

Name: Jerome Cuthbertson

Address:  CITIBANK NA

1615 Brett Road, Building III

NEW CASTLE, DE 19720

Telephone: 302-894-6120

E-mail Address: Origbilateral@citi.com

 

W-9 Tax id: 13-5266470

 

MEI: US1L027740

 

WIRING INSTRUCTIONS:

 

Bank Name: CITIBANK NA

ABA/Routing No: 021000089

Account Name: SSB

Account No.: 4078-4524

Reference: (Aquaventure Holdings)

 

LENDING OFFICES

 

Citibank, N.A.

 

LENDER NOTICE INFORMATION

 

CITIBANK, N.A.

 

Name: David Salpeter

Address:  Citi Credit Opportunities

390 Greenwich Street, 7th Floor

New York, NY 10013

Telephone: 212-723-9577

E-mail Address:  david.salpeter@citi.com

 

With copies to:

 

Name : Geoffrey Peck

 



 

Address : Morrison & Foerster LLP

250 West 55th Street

New York, NY 10019-9601

Phone : (212) 336-4183

E-mail Address : GPeck@mofo.com

 

NOTICE INFORMATION FOR THE CREDIT PARTIES

 

Name : Lee Muller

Address :  Aqua Ventures Holdings Curaçao N.V.

14400 Carlson Circle, Tampa, FL 33626

Phone : (813) 818-4035

Fax :     (813) 855-8631

E-mail Address : LMuller@7seaswater.com

 

With a copy to:

 

Name : Mark Burnett

Address : Goodwin Procter LLP

Exchange Place, 53 State Street, Boston, MA 02109

Phone : (617) 570-1031

Fax : (617) 321-4399

E-mail Address : mburnett@goodwinprocter.com

 



 

SCHEDULE 2

Commitments

 

Lender

 

Delayed Draw Term
Loan Commitment

 

Term A Loan
Commitment

 

Citibank, N.A.

 

$

15,000,000

 

$

20,000,000

 

 



 

SCHEDULE 3

Liens

 

Liens in favor of The Bank of Nova Scotia on the equity interests of Seven Seas Water (Trinidad) Unlimited and all or substantially all of the assets of Seven Seas Water (Trinidad) Unlimited to secure the obligations under the Credit Agreement, dated as of April 9, 2012 (as amended, restated, amended and restated, or modified or supplemented from time to time), by and among Seven Seas Water (Trinidad) Unlimited, as borrower, AquaVenture Holdings LLC, as guarantor, and The Bank of Nova Scotia, as lender, and all loan documentation related thereto (including, without limitation, the Guarantee of AquaVenture Holdings LLC).

 

Liens in favor of The Bank of Nova Scotia on the equity interests of Seven Seas Water Corporation (USVI) and all or substantially all of the assets of Seven Seas Water Corporation (USVI) to secure the obligations under the Credit Agreement, dated as of March 27, 2013 (as amended, restated, amended and restated, or modified or supplemented from time to time), by and among Seven Seas Water Corporation (USVI), as borrower, AquaVenture Holdings LLC, as guarantor, Firstbank Puerto Rico, as a lender and The Bank of Nova Scotia, as a lender and as administrative agent for the lenders, and all loan documentation related thereto (including, without limitation, the Guarantee of AquaVenture Holdings LLC).

 

Liens in favor of Barclays Bank PLC on the equity interests of Biwater (BVI) Holdings Limited and Biwater (BVI) Ltd. and all or substantially all of the assets of Biwater (BVI) Ltd. to secure the obligations under the Facility Agreement, dated as of November 14, 2013 (as amended and restated by the Amendment, Waiver and Consent, dated as of June 11, 2015, and as further amended, restated, amended and restated, or modified or supplemented from time to time), by and among Biwater (BVI) Ltd., as borrower, and Barclays Bank PLC, as lender, arranger, facility agent and security trustee, and all loan documentation related thereto (including, without limitation, the Undertaking).

 

License with respect to certain intellectual property of AquaVenture Water Corporation to be granted to The Government of the British Virgin Islands pursuant to the Collateral Warranty to be entered into by and among AquaVenture Water Corporation, Biwater (BVI) Ltd. and The Government of the British Virgin Islands.

 



 

SCHEDULE 4

Unrestricted Subsidiaries

 

Quench USA, Inc.

 



 

SCHEDULE 5

Litigation

 

None.

 


 

SCHEDULE 6

Capital Structure

 

Issuer

 

Holder

 

Legal Organization

 

Jurisdiction
of

Organization

 

Number of
Capital
Stock or
Membership
Interest
Owned

 

% of Capital
Stock or
Membership

Interest

owned

AquaVenture Holdings LLC

 

See LLC Agreement

 

Limited liability company

 

Delaware

 

See LLC Agreement

 

Parent

Aqua Ventures Holdings Curaçao N.V.

 

AquaVenture Holdings LLC

 

Limited liability company

 

Curaçao

 

5,000 shares

 

100%

Seven Seas Water Corporation

 

AquaVenture Holdings LLC

 

Corporation

 

Delaware

 

100 shares

 

100%

Quench USA, Inc.

 

AquaVenture Holdings LLC

 

Corporation

 

Delaware

 

1 share

 

100%

AquaVenture Capital Limited

 

Aqua Ventures Holdings Curaçao N.V.

 

Corporation

 

British Virgin Islands

 

1,290,423 shares

 

100%

AquaVenture Holdings (NL) B.V.

 

Aqua Ventures Holdings Curaçao N.V.

 

Limited Liability Company

 

Netherlands

 

5,000 shares

 

100%

Seven Seas Water Spain SLU

 

Aqua Ventures Holdings Curaçao N.V.

 

Sociedad Limitada
Unipersonal

 

Spain

 

1,141,000 shares

 

100%

AquaVenture Cyprus Holdings Limited

 

Aqua Ventures Holdings Curaçao N.V.

 

Limited Liability Company

 

Cyprus

 

45,733 shares

 

100%

Seven Seas Water Corporation (USVI)

 

AquaVenture Capital Limited

 

Corporation

 

US Virgin Islands

 

10,000 shares

 

100%

Air-Fin Holding N.V.

 

AquaVenture Capital Limited

 

Limited liability company

 

Curaçao

 

20,000

 

100%

Seven Seas Water (Barbados) SRL

 

AquaVenture Capital Limited

 

Societies with Restricted Liability

 

Barbados

 

25,000

 

100%

Leeward Water Services Ltd.

 

AquaVenture Capital Limited

 

Limited Liability Company

 

Turks and Caicos

 

50,000 shares

 

100%

TCLAG Ltd

 

AquaVenture Capital Limited

 

Limited Liability Company

 

Turks and Caicos

 

5 Shares

 

80%

 

 

 

 

 

 

 

 

 

 

 

 

 

Rodney Propps

 

 

 

 

 

1 Share

 

20%

 



 

AquaVenture Water Corporation

 

AquaVenture Capital Limited

 

Business Company

 

British Virgin Islands

 

50,000 shares

 

100%

Seven Seas Water Bahamas Ltd

 

AquaVenture Capital Limited

 

Limited Liability company

 

The Bahamas

 

1 share

 

100%

Air-Fin Holding Sint Maarten N.V.

 

Air-Fin Holding N.V.

 

Limited liability company

 

Sint Maarten

 

20,000 shares

 

100%

Seven Seas Water (Trinidad) Unlimited

 

Seven Seas Water (Barbados) SRL

 

Unlimited Corporation

 

Trinidad and Tobago

 

1001 shares

 

100%

5 th   Avenue Holdings Ltd

 

TCLAG Ltd

 

Limited company

 

Turks and Caicos

 

50,000 shares

 

100%

Presidential Holdings Ltd

 

TCLAG Ltd

 

Limited Liability Company

 

Turks and Caicos

 

50,000 shares

 

100%

Biwater (BVI) Holdings Limited

 

AquaVenture Water Corporation

 

Corporation

 

England and Wales

 

1,620 shares

 

100%

Biwater (BVI) Ltd.

 

Biwater (BVI) Holdings Limited

 

Company incorporated under the BVI Business Companies Act, 2014

 

British Virgin Islands

 

1,120

 

100%

Matrix EB Limited

 

Seven Seas Water Bahamas Ltd

 

Corporation

 

The Bahamas

 

1 share

 

100%

Seven Seas Water Chile SpA

 

Inversiones de Aguas Chile Limitada

 

Corporation

 

Chile

 

5,700,000 Series A Preferred shares

 

95%

 

 

 

 

 

 

 

 

 

 

 

 

 

Hydro Quality Tratamiento de Aguas Limitada

 

 

 

 

 

300,000 Common shares

 

5%

IDA Chile Limitada

 

Seven Seas Water Spain SLU

 

Limited Liability Company

 

Chile

 

4,995,000 pesos

 

99.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

Felipe Bahamondez

 

 

 

 

 

5,000 pesos

 

0.1%

Seven Seas Water Peru S.A.C.

 

Seven Seas Water Spain SLU

 

Closely Held Corporation

 

Peru

 

1,000

 

100%

Seven Seas Water Mexico S. de RL de CV

 

Seven Seas Water Spain SLU

 

Limited Liability Company

 

Mexico

 

2,990 pesos

 

99.67%

 

 

Air-Fin Holding NV

 

 

 

 

 

10 pesos

 

0.33%

 



 

SCHEDULE 7

Liabilities

 

Fees and expenses of the Parent Guarantor and the Restricted Subsidiaries incurred in connection with the Acquisition.

Costs and expenses of the Parent Guarantor and the Restricted Subsidiaries in connection with an IPO.

 



 

SCHEDULE 8

Indebtedness

 

Obligations of Seven Seas Water (Trinidad) Unlimited and AquaVenture Holdings LLC under the Credit Agreement, dated as of April 9, 2012 (as amended, restated, amended and restated, or modified or supplemented from time to time), by and among Seven Seas Water (Trinidad) Unlimited, as borrower, AquaVenture Holdings LLC, as guarantor, and The Bank of Nova Scotia, as lender, and all loan documentation related thereto (including, without limitation, the Guarantee of the AquaVenture Holdings, LLC). As of May 31 st , 2015, the outstanding loan amount is $22,857.

 

Obligations of Seven Seas Water Corporation (USVI) and AquaVenture Holdings LLC under the Credit Agreement, dated as of March 27, 2013 (as amended, restated, amended and restated, or modified or supplemented from time to time), by and among Seven Seas Water Corporation (USVI), as borrower, AquaVenture Holdings LLC, as guarantor, Firstbank Puerto Rico, as a lender and The Bank of Nova Scotia, as a lender and as administrative agent for the lenders, and all loan documentation related thereto (including, without limitation, the Guarantee of the AquaVenture Holdings, LLC).  As of May 31 st , 2015, the outstanding loan amount is $19,523.

 

Obligations of Biwater (BVI) Ltd. under the Facility Agreement, dated as of November 14, 2013 (as amended and restated by the Amendment, Waiver and Consent, dated as of June 11, 2015 and as further amended, restated, amended and restated, or modified or supplemented from time to time), by and among Biwater (BVI) Ltd., as borrower, and Barclays Bank PLC, as lender, arranger, facility agent and security trustee, and all loan documentation related thereto (including, without limitation, the Undertaking by Aqua Venture Holdings Curaçao N.V.). As of May 31 st , 2015, the outstanding loan amount is $40,831.

 



 

SCHEDULE 9

Burdensome Agreements

 

Customary provisions restricting the creation of Liens on assets of, and certain distributions by, Seven Seas Water (Trinidad) Unlimited as specified in Sections 5.1(e) and 5.1(g) of the Credit Agreement, dated as of April 9, 2012 (as amended, restated, amended and restated, or modified or supplemented from time to time), by and among Seven Seas Water (Trinidad) Unlimited, as borrower, AquaVenture Holdings LLC, as guarantor, and The Bank of Nova Scotia, as lender.

 

Customary provisions restricting the creation of Liens on assets of, and certain distributions by, Seven Seas Water Corporation (USVI) as specified in Sections 5.1(e) and 5.1(g) of the Credit Agreement, dated as of March 27, 2013 (as amended, restated, amended and restated, or modified or supplemented from time to time), by and among Seven Seas Water Corporation (USVI), as borrower, AquaVenture Holdings LLC, as guarantor, Firstbank Puerto Rico, as a lender and The Bank of Nova Scotia, as a lender and as administrative agent for the lenders.

 

Customary provisions restricting the creation of Liens on assets of, and certain distributions by, Biwater (BVI) Ltd. as specified in Sections 17.4 and 18.2 of the Facility Agreement, dated as of November 14, 2013 (as amended by the Amendment, Waiver and Consent, dated as of June 11, 2015 and as further amended, restated, amended and restated, or modified or supplemented from time to time), by and among Biwater (BVI) Ltd., as borrower, and Barclays Bank PLC, as lender, arranger, facility agent and security trustee.

 



 

SCHEDULE 10

Equity Holders

 

See attached.

 


 

GRAPHIC

Incentive available under available under Ordinary 400,000 AVH LLC Cap Table: April 30, 2015 DRAFT COMPANY CONFIDENTIAL StockholderOutstanding Outstanding Outstanding Outstanding Outstanding OutstandingClass BOrdinaryIncentive Class A-1 Class A-2Class A-3Class A-4Class BProfitsClass QCommonCommon SharesSharesSharesSharesSharesinterestsSharesSharesShares Total Outstanding Shares Options forCommon OrdinarySharesClass B Shares Warrants for CommonAVH Equity AVH EquityCommon Shares*Incentive Plan Incentive Plan Shares* % Ownership Total SharesTotal Shares Fully DilutedFully Diluted w MIP Shares (non voting) Quench Holdings LLC 2,829,598 29,036,947 Element, L.P. (DFJ Element, LP) 3,080,000 2,310,000 3,721,956 400,000 1,399,456 616,000 - Element Intrafund, L.P. (DFJ Element Intrafund, LP) 83,417 62,563 100,802 10,834 37,902 16,683 - JABE, LLC 44,917 33,687 54,279 5,833 20,409 8,983 - Element Partners II L.P. 3,095,805 2,321,853 773,951 5,658,623 3,729,830 619,161 Element Partners II Intrafund, L.P. 47,144 35,358 11,786 86,172 56,799 9,429 Element Partners II-A 707,399 Douglas R. Brown 1 1,555,000 1,137,750 131,250 923,000 1,500,000 242,500 530,000 Douglas Brown 2012 Irrevocable Trust 300,000 300,000 1,200,000 DRB Pure Water Solutions LLC - - - 800,000 DRB Pure Water Solutions II LLC 102,500 76,875 25,625 20,500 DRB Pure Water Solutions IV 153,607 Frances S. Brown 357,500 261,000 100,000 170,000 270,000 Virgin Green Fund I, L.P.514,218 1,885,6641,109,3131,579,861102,844-Virgin Group Holdings Limited2,021,141 Cyril L. Meduna (Advent Morrow) 41,738 31,304 10,435 20,690 13,882 8,348 David Ashe (Advent Morrow) 683 Guayacán Private Equity Fund Limited Partnership II 253,714 1,050,067 667,323 911,809 441,618 50,743 - Guayacán Private Equity Fund Limited Partnership II-A Blocker LL 3,677 17,975 11,609 16,139 7,123 735 - Venture Capital Fund, Inc. (Advent Morrow) 236,458 177,344 59,115 47,291 - Brooke Private Equity Advisors Fund I-A, L.P.-100,00028,38079,976--Brooke Private Equity Advisors Fund I (D), L.P.-25,0007,09519,993--T. Rowe Price Small-Cap Value Fund, Inc. 248,079 186,060 62,020 1,250,000 954,022 49,616 T. Rowe Price US Equities Trust 2,796 T. Rowe Price Small-Cap Value Equity Trust 53,753 North Sky Direct Fund IV (formerly Piper Jaffray) 83,333 62,500 20,833 - - Core Alpha Private Equity Partners III, LP 1,414,799 WP Global Food Water & Agriculture Fund (Cayman) LP 1,515,856 WP Natural Resources Co-Investment Fund 606,342 Evergreen Investors 5,053 Simon P. O'Leary (Atlas) 505,285 Hugh Evans (BOD) 202,114 Paul Hanrahan (BOD) 15,000 50,000 Brian O'Neill (BOD) 20,000 35,000 Richard Riley (BOD) 35,000 Jeffrey Lentz 5 - 25,000 15,000 30,000 156,000 - 455,000 Chad Schafer 25,777 Lee Muller 720,000 260,000 John Curtis 2 200,000 125,000 100,000 42,000 40,000 950,000 Brian Hernon - 15,000 15,000 41,000 - 600,000 Mario Mondo 12,500 12,500 12,500 2,100 - 670,000 Thomas O'Brien - - - 30,000 - 400,000 Ark Pang 200,000 Santiago Arcila 30,000 Claudio Baldovino 200,000 Frederick Hung 4 - 14,000 - 51,553 31,690 200,000 Brad Lewis 25,777 Allan Pott - 12,500 12,500 50,000 - 200,000 Richard Whiting 50,000 Richard Lewis-----Herman Behr-----Tony Ibarguen 1,500,000 Thomas Breslin 360,000 Todd Peterson 360,000 Chris Turano 210,000 John Whalen 210,000 Frank DiGiambattista 102,000 Robert A. Bergstrom, Jr. 3 - - - 2,774 523,424 232,500 Robert A. Bergstrom, Sr. Trust - - - 8,000 - John Bly - - - 20,000 - Waukesha State Bank as Trustee of the Lloyd J. Dickinson IRA 15,000 50,988 58,478 70,989 38,182 - David A. Ericson - - - 20,000 - Ted Fuller - - 200,000 124,592 - - David S. Hellerman - 24,978 4,000 5,000 24,000 - David Jackson - - - 20,000 - Lee M. Jacobsohn - 62,445 10,000 82,507 2,000 60,000 - 31,866,545 11,527,412 312,201 168,108 16,199,223 246,688 707,399 6,019,500 1,800,000 800,000 225,500 153,607 1,158,500 5,191,900 2,021,141 126,397 683 3,375,274 57,258 520,208 208,356 52,088 2,749,797 2,796 53,753 166,666 1,414,799 1,515,856 606,342 5,053 505,285 202,114 65,000 55,000 35,000 681,000 25,777 980,000 1,457,000 671,000 709,600 430,000 200,000 30,000 200,000 297,243 25,777 275,000 50,000 - - 1,500,000 360,000 360,000 210,000 210,000 102,000 758,698 8,000 20,000 233,637 20,000 324,592 57,978 20,000 216,952 - - - - - - - - - - - - - - - - - - - --- - - --- - 100,000 - 50,000 24,000 - - - --- - - - - 31,866,545 11,527,412 312,201 168,108 16,199,223 246,688 707,399 6,019,500 1,800,000 800,000 225,500 153,607 1,158,500 5,191,900 2,021,141 126,397 683 3,375,274 57,258 520,208 208,356 52,088 2,749,797 2,796 53,753 166,666 1,414,799 1,515,856 606,342 5,053 505,285 202,114 65,000 55,000 35,000 681,000 25,777 980,000 1,457,000 671,000 709,600 430,000 200,000 30,000 200,000 297,243 125,777 275,000 50,000 50,000 24,000 1,500,000 360,000 360,000 210,000 210,000 102,000 758,698 8,000 20,000 233,637 20,000 324,592 57,978 20,000 216,952 29.94% 10.83% 0.29% 0.16% 15.22% 0.23% 0.66% 5.66% 1.69% 0.75% 0.21% 0.14% 1.09% 4.88% 1.90% 0.12% 0.00% 3.17% 0.05% 0.49% 0.20% 0.05% 2.58% 0.00% 0.05% 0.16% 1.33% 1.42% 0.57% 0.00% 0.47% 0.19% 0.06% 0.05% 0.03% 0.64% 0.02% 0.92% 1.37% 0.63% 0.67% 0.40% 0.19% 0.03% 0.19% 0.28% 0.12% 0.26% 0.05% 0.05% 0.02% 1.41% 0.34% 0.34% 0.20% 0.20% 0.10% 0.71% 0.01% 0.02% 0.22% 0.02% 0.31% 0.05% 0.02% 0.20% 2,000,000 60,000 40,000 520,000 300,000 1,100,000 700,000 760,000 300,000 35,000 230,000 226,000 125,000 226,000 50,000

 


GRAPHIC

Incentive available under available under Ordinary 50,000 75,000 100,000 50,000 50,000 200,000 150,000 18,750 AVH LLC Cap Table: April 30, 2015 DRAFT COMPANY CONFIDENTIAL StockholderOutstanding Outstanding Outstanding Outstanding Outstanding OutstandingClass BOrdinaryIncentive Class A-1 Class A-2Class A-3Class A-4Class BProfitsClass QCommonCommon SharesSharesSharesSharesSharesinterestsSharesSharesShares Total Outstanding Shares Options forCommon OrdinarySharesClass B Shares Warrants for CommonAVH Equity AVH EquityCommon Shares*Incentive Plan Incentive Plan Shares* % Ownership Total SharesTotal Shares Fully DilutedFully Diluted w MIP Shares (non voting) Don S. Morrow - - - 2,774 8,000 - Neil Prior - 353,839 - 339,984 - Michael J. Thorton - 5,000 - 20,000 - Sharlon Baily - - - - - Armando Ballado - - - - - Elroy Baltimore - - - - - Andrew Baraban - - - - - Gloria Berendse Eric Borgdorff 20,833 15,625 5,208 4,167 - Shawn Brown Lester Bryan Paul Campanile - - - - - Jorge Castillo Roger Darville - - - - - Kenda Day - - - - - Keith Downer - - - - - Shauna Emerton Magdelina Enei Jeffrey Goldsmith Kelly Grieves - - - - - David Hamilton - - - - - Andre Riley Headrick - - - - - Thomas Hughes Nancy Hunka Runjain Jain Maged Kasem 10,311 Dale Karvitz Kim Leasure - - - - - Amber Mullins Iris Nunn Jose Ortiz - - - - - John Peterson John Puig Denise Quigley 20,621 Tammi Reinhardt - - - - - Franklyn Richards - - - 20,211 - - Connie Ridgway - - - - - Irent Rigby - - - - - Sam Roe - - - - - Jon Russell - - - - - Judy Santos Say Sengsouvanna Bill Sheahan - - - - - Roger Stapleton - - - - - David Starman - - - - - Dann Stembridge - - - - - Robert Stroz - - - - - Brian Stuart - - - - - David Matt Tanguay - - - - - Lauren Thomas - - - - - Stephen Twait Marci Wasserman - - - - - Tom Williams 4,167 3,125 1,042 833 - Catherine Wilson Peter Wrench Miles Beamguard - - - 41,667 84,688 - Bryan Brister - 5,000 - - 165,625 Larry Brock - - - 11,625 - Robert Dixon6 956,250 Kevin Eggan - - - 12,625 - Barbara Falkenrath - - - - - Ian Fox - - - - 93,750 Jose Luna - - - 50,000 - Shawn Meyer-Steele - - 70,500 41,667 - 368,750 Scott O'Connor - - - 40,625 - Kristina Pinkerton (Vickers) - - - 4,688 - Tim Switzer - - - 2,500 - John Stauffer 31,250 Michael Van Buskirk - - - - - Trent Weber - - - - 245,313 Orix - - - - - Equity Plans (unallocated pool) - - - - - 10,774 693,823 25,000 - - - - - - 45,833 - - - - - - - - - - - - - - - - 10,311 - - - - - - - 20,621 - 20,211 - - - - - - - - - - - - - - - - 9,167 - - 126,355 170,625 11,625 956,250 12,625 - 93,750 50,000 480,917 40,625 4,688 2,500 31,250 - 245,313 - - - - - 18,000 33,000 12,000 30,000 3,000 30,000 20,000 15,000 60,000 17,500 20,000 8,000 12,500 3,000 10,000 15,000 45,000 20,000 7,500 22,500 1,500 20,000 5,000 60,000 6,000 2,000 37,500 1,500 10,000 5,000 50,000 20,000 5,000 20,000 33,000 12,500 14,000 130,000 20,000 45,000 33,000 17,500 12,000 20,000 28,000 3,000 11,000 100,000 13,000 10,000 - - - - - 13,500 - - - - - 25,000 - 60,635 708,625677,961 10,774 693,823 25,000 18,000 33,000 12,000 30,000 3,000 75,833 20,000 15,000 60,000 17,500 20,000 8,000 12,500 3,000 10,000 15,000 45,000 20,000 7,500 22,500 1,500 20,000 10,311 5,000 60,000 6,000 2,000 37,500 1,500 10,000 20,621 5,000 70,211 20,000 5,000 20,000 33,000 12,500 14,000 130,000 20,000 45,000 33,000 17,500 12,000 20,000 28,000 3,000 11,000 109,167 13,000 10,000 126,355 170,625 11,625 956,250 12,625 13,500 93,750 50,000 480,917 40,625 4,688 2,500 31,250 25,000 245,313 60,635 1,386,586 0.01% 0.65% 0.02% 0.02% 0.03% 0.01% 0.03% 0.00% 0.07% 0.02% 0.01% 0.06% 0.02% 0.02% 0.01% 0.01% 0.00% 0.01% 0.01% 0.04% 0.02% 0.01% 0.02% 0.00% 0.02% 0.01% 0.00% 0.06% 0.01% 0.00% 0.04% 0.00% 0.01% 0.02% 0.00% 0.07% 0.02% 0.00% 0.02% 0.03% 0.01% 0.01% 0.12% 0.02% 0.04% 0.03% 0.02% 0.01% 0.02% 0.03% 0.00% 0.01% 0.10% 0.01% 0.01% 0.12% 0.16% 0.01% 0.90% 0.01% 0.01% 0.09% 0.05% 0.45% 0.04% 0.00% 0.00% 0.03% 0.02% 0.23% 0.06% 1.30% Total COMPANY10,000,000 10,500,0007,700,00012,500,000 16,701,6785,322,039 29,036,9473,457,8648,393,438 103,611,9661,360,000708,625677,96160,635 106,419,187100.00%

 


GRAPHIC

 134,250 7,900,000 Notes: Various classes of shares have different rights to distributions or proceeds in a Sale Event, an IPO or a dissolution (See LLC Agreement). Excludes 75,000 Class B Profits interests Shares and 175,000 Options to purchase Class B shares approved on May 5, 2015 and Excludes issuance of 278,415 Class B shares in May 18, 2015 pursuant to preemptive rights election.

 



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Exhibit 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
AquaVenture Holdings LLC:

        We consent to the use of our report dated August 11, 2015, with respect to the consolidated balance sheets of AquaVenture Holdings LLC as of December 31, 2013 and 2014, and the related consolidated statements of operations, members' equity and cash flows for the years then ended, and the related consolidated financial statement schedule, included herein and to the reference to our firm under the heading "Experts" in the prospectus.

                                                                                        /s/ KPMG LLP

Providence, Rhode Island
September 24, 2015




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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Exhibit 23.2


CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
AquaVenture Holdings LLC:

        We consent to the use of our report dated August 11, 2015, with respect to the balance sheets of Quench USA, Inc. as of June 6, 2014 and December 31, 2013, and the related statements of operations, stockholder's equity and cash flows for the period January 1, 2014 through June 6, 2014 and for the year ended December 31, 2013 included herein and to the reference to our firm under the heading "Experts" in the prospectus.

                                                                                        /s/ KPMG LLP

Providence, Rhode Island
September 24, 2015




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CONSENT OF INDEPENDENT AUDITORS

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Exhibit 23.3


CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
AquaVenture Holdings LLC:

        We consent to the use of our report dated August 5, 2015, with respect to the balance sheets of Atlas Watersystems, Inc. as of June 16, 2014 and December 31, 2013, and the related statements of operations, stockholders' equity and cash flows for the period from January 1, 2014 through June 16, 2014 and for the year ended December 31, 2013 included herein and to the reference to our firm under the heading "Experts" in the prospectus.

                                                                                        /s/ KPMG LLP

Providence, Rhode Island
September 24, 2015




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CONSENT OF INDEPENDENT AUDITORS

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Exhibit 23.4


CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
AquaVenture Holdings LLC:

        We consent to the use of our report dated August 5, 2015, with respect to the balance sheets of Macke Water Systems, Inc. as of April 18, 2014 and December 31, 2013, and the related statements of operations, stockholders' equity and cash flows for the period from January 1, 2014 through April 18, 2014 and for the year ended December 31, 2013 included herein and to the reference to our firm under the heading "Experts" in the prospectus.

                                                                                        /s/ KPMG LLP

Providence, Rhode Island
September 24, 2015




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CONSENT OF INDEPENDENT AUDITORS