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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999 COMMISSION FILE NO. 001-15065
AZURIX CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 76-0589114
<S> <C>
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
333 CLAY STREET
SUITE 1000
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (713) 646-6001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
TITLE OF CLASS OUTSTANDING AT NOVEMBER 15, 1999
<S> <C>
Common Stock 117,100,000
</TABLE>
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AZURIX CORP.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months and nine months ended
September 30, 1999 (unaudited)......................................................................... 2
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999 (unaudited)................... 3
Consolidated Statement of Cash Flows for the nine months ended September 30, 1999 (unaudited)............ 4
Notes to Consolidated Financial Statements (unaudited)................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................... 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 27
Item 6. Exhibits and Reports on Form 8-K................................................................... 28
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AZURIX CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1999
------------- -------------
<S> <C> <C>
Operating revenues ................................................. $ 170.5 $ 418.7
Operating expenses:
Operations and maintenance ....................................... 67.1 135.8
General and administrative ....................................... 27.6 82.8
Depreciation and amortization .................................... 28.5 75.9
------------- -------------
Total operating expenses ................................. 123.2 294.5
------------- -------------
Operating income ................................................... 47.3 124.2
------------- -------------
Other income (expense):
Equity in earnings of unconsolidated affiliates .................. 0.4 0.9
Interest expense, net ............................................ (20.2) (50.5)
------------- -------------
Income before minority interest, income taxes and extraordinary
loss ............................................................. 27.5 74.6
------------- -------------
Minority interest .................................................. (0.5) (0.5)
Income tax expense ................................................. 9.2 20.0
------------- -------------
Income before extraordinary loss ................................... 18.8 55.1
------------- -------------
Extraordinary loss, net of income tax benefit ...................... -- 6.8
------------- -------------
Net income ......................................................... $ 18.8 $ 48.3
============= =============
Earnings per share of common stock:
Basic and diluted:
Before extraordinary loss ................................... $ 0.16 $ 0.51
Extraordinary loss .......................................... -- (0.06)
------------- -------------
Basic and diluted earnings per share ........................ $ 0.16 $ 0.45
============= =============
Weighted-average shares outstanding:
Basic ....................................................... 117.1 107.1
============= =============
Diluted ..................................................... 118.0 107.6
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 4
AZURIX CORP.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................ $ 5.3 $ 13.9
Restricted cash and cash equivalents (Note 3) .................................... -- 401.2
Trade receivables (net of allowance for doubtful accounts
of $6.3 and $9.7, respectively) ............................................... 63.7 101.0
Unbilled receivables ............................................................. 24.3 29.0
Other ............................................................................ 38.5 58.3
------------- -------------
Total current assets ..................................................... 131.8 603.4
------------- -------------
Property, plant and equipment, at cost ............................................. 2,271.1 2,479.2
Less accumulated depreciation ...................................................... (16.7) (71.6)
------------- -------------
Property, plant and equipment, net ....................................... 2,254.4 2,407.6
------------- -------------
Investments in and advances to unconsolidated affiliates ........................... 74.3 103.8
Concession rights, net ............................................................. -- 449.7
Goodwill, net ...................................................................... 877.6 1,010.4
Other assets ....................................................................... 20.2 149.1
------------- -------------
Total Assets ............................................................. $ 3,358.3 $ 4,724.0
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals .................................................... $ 143.4 $ 219.2
Accounts payable - affiliates .................................................... 20.0 5.0
Deferred income .................................................................. 71.0 27.8
Short-term debt .................................................................. -- 951.0
Current maturities of long-term debt ............................................. 27.0 36.1
------------- -------------
Total current liabilities ................................................ 261.4 1,239.1
------------- -------------
Long-term debt ..................................................................... 912.1 840.5
Long-term debt - affiliates ........................................................ 121.4 165.9
Deferred income taxes .............................................................. 404.4 449.3
Other long-term liabilities ........................................................ 13.5 46.6
------------- -------------
Total liabilities ........................................................ 1,712.8 2,741.4
------------- -------------
Commitments and contingencies (Note 7)
Minority interest .................................................................. -- 4.0
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized ................... -- --
Common stock, $0.01 par value, 500,000,000 shares authorized, 100,000,000
shares and 117,100,000 shares issued and outstanding, respectively ........... 1.0 1.2
Additional paid-in capital ....................................................... 1,671.0 1,971.3
Retained earnings ................................................................ 10.2 58.5
Cumulative foreign currency translation adjustment ............................... (36.7) (52.4)
------------- -------------
Total stockholders' equity ............................................... 1,645.5 1,978.6
------------- -------------
Total Liabilities and Stockholders' Equity ............................... $ 3,358.3 $ 4,724.0
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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AZURIX CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1999
------------
<S> <C>
Operating Activities:
Net income .............................................................................. $ 48.3
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization ....................................................... 75.9
Accretion and amortization of debt expenses and write-off of deferred
financing costs ................................................................... 10.9
Deferred income taxes ............................................................... 10.0
Equity in earnings of unconsolidated affiliates ..................................... (0.9)
Minority interest ................................................................... (0.5)
Changes in operating assets and liabilities:
Increase in trade receivables and other current assets ........................ (18.1)
Decrease in accounts payable and accruals ..................................... (3.8)
Increase in other assets ...................................................... (67.3)
Increase in other long-term liabilities ....................................... 2.4
-----------
Net cash provided by operating activities .................................................... 56.9
-----------
Investing Activities:
Capital expenditures .................................................................... (202.5)
Investments in and advances to unconsolidated affiliates ................................ (27.9)
Business acquisitions, net of cash acquired ............................................. (630.2)
Other ................................................................................... (0.7)
-----------
Net cash used by investing activities ........................................................ (861.3)
-----------
Financing Activities:
Proceeds from long-term borrowings ...................................................... 474.1
Repayments of long-term borrowings ...................................................... (249.0)
Proceeds from short-term borrowings ..................................................... 418.5
Net proceeds from revolving credit facilities ........................................... 232.2
Deposit to restricted cash and cash equivalents collateral account ...................... (395.7)
Issuance of common stock ................................................................ 300.5
Advances from affiliates, net of repayments ............................................. 33.1
-----------
Net cash provided by financing activities .................................................... 813.7
-----------
Effect of exchange rate changes on cash ...................................................... (0.7)
-----------
Change in cash and cash equivalents .......................................................... 8.6
-----------
Cash and cash equivalents, beginning of period ............................................... 5.3
-----------
Cash and cash equivalents, end of period ..................................................... $ 13.9
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated interim financial statements and disclosures
are unaudited and have been prepared by Azurix Corp. pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, these
statements reflect all normal recurring adjustments necessary for a fair
presentation, in all material respects, of the results for the interim periods.
The results of operations for the periods ended September 30, 1999 are not
necessarily indicative of results to be expected for the full year. Certain
information and notes normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to such rules and regulations, although Azurix believes that
the disclosures are adequate to make the information presented not misleading.
These consolidated interim financial statements should be read in conjunction
with the financial statements and the notes thereto included in Azurix's
Registration Statement on Form S-1, which was declared effective on June 9,
1999.
The preparation of financial statements in conformity with 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.
Certain reclassifications have been made in the 1998 amounts to conform
with the 1999 presentation. "Azurix" is used from time to time herein as a
collective reference to Azurix Corp. and its subsidiaries and affiliates.
Azurix was incorporated on January 29, 1998, however, substantially all of
Azurix's 1998 results of operations, cash flows and equity transactions occurred
during the fourth quarter of 1998, subsequent to the Wessex Water Plc
acquisition (see Note 2). Interim financial statements for the periods ended
September 30, 1998 are not presented because Azurix did not have results of
operations or cash flows during those periods.
NOTE 2 - BUSINESS ACQUISITIONS
On October 2, 1998, Azurix, through its indirect wholly owned subsidiary,
Azurix Europe Ltd, acquired over 90% of the outstanding ordinary share capital
of Wessex. Azurix completed the acquisition of the ordinary share capital of
Wessex in November 1998. The cost of the Wessex acquisition, including
transaction costs, was $2.4 billion. The purchase method of accounting was
utilized and the results of operations of Wessex have been included in the
consolidated financial statements since the date of acquisition.
The following unaudited pro forma information summarizes consolidated
results of operations of Azurix as if the Wessex acquisition had occurred as of
the beginning of the earliest period presented:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1998
---------------- ----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Operating revenues ................. $ 117.6 $ 344.5
Net income ......................... 30.5 75.8
Basic and diluted earnings
per share ......................... 0.30 0.76
</TABLE>
5
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AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
These unaudited pro forma results of operations have been prepared for
illustrative purposes only and include adjustments in addition to the
pre-acquisition historical results of Wessex, such as additional amortization
expense as a result of goodwill, increased depreciation expense resulting from
allocation of fair market value to fixed assets acquired, increased interest
expense on acquisition debt and preference share redemption and the sale of
Wessex's interest in Wessex Waste Management Ltd. The unaudited pro forma
financial information is not necessarily indicative of the results of operations
that would have occurred had the Wessex acquisition occurred on the date
indicated, and should not be viewed as indicative of operations in future
periods.
On May 18, 1999, Azurix acquired 100% of the stock of Canadian-incorporated
Philip Utilities Management Corporation for $107.4 million, including
transaction costs. Philip Utilities is a water and wastewater services company
that provides operations and management, engineering, residuals management and
underground infrastructure development services for municipal water and
wastewater facilities in the U.S. and Canada. This business subsequently was
renamed Azurix North America.
The purchase method of accounting was utilized, and accordingly, the assets
and liabilities of Azurix North America have been recorded at their estimated
fair values on the date of acquisition. The excess of the purchase price over
the fair values of the net assets acquired has been recorded as goodwill, and is
being amortized on a straight-line basis over 40 years. The results of
operations of Azurix North America have been included in the consolidated
financial statements since the date of acquisition. The allocation of the
purchase price to the net assets acquired is preliminary because Azurix is in
the process of finalizing its assessment of the related fair values. Azurix does
not believe the final evaluation of these assessments will materially affect the
allocation of the purchase price.
During the second quarter of 1999, Azurix was the successful bidder in a
tender for a 30-year concession to operate the water and wastewater systems in
two regions of the Province of Buenos Aires, Argentina, previously operated by
Administracion General de Obras Sanitarias Buenos Aires. On June 30, 1999,
Azurix, through Azurix Buenos Aires S.A., an indirect wholly owned subsidiary,
entered into a concession contract with the provincial government covering the
two regions and paid the government $438.6 million. On July 1, 1999, Azurix
assumed operation of the water and wastewater systems and risk of ownership of
the concession.
In connection with the funding of this acquisition, Azurix made an equity
investment in Azurix Buenos Aires of $45.0 million, and Azurix Buenos Aires
borrowed $394.0 million under a new credit agreement. This loan is secured by
cash and other short-term liquid investments which Azurix deposited into a cash
collateral account and pledged as security for the loan (see Note 3). Azurix
used $230.6 million of the proceeds from its initial public offering, $208.0
million in funds drawn under the senior credit facility of its indirect wholly
owned subsidiary, Azurix Europe Ltd, and interest on those funds and other funds
of Azurix, to fund the equity investment in Azurix Buenos Aires and the deposit
into the cash collateral account. Under the concession contract, a 10% interest
in Azurix Buenos Aires is required to be transferred to the employees of
Administracion General de Obras Sanitarias Buenos Aires who became employees of
Azurix Buenos Aires.
On September 24, 1999, Azurix acquired 49% of the capital stock of IASA
Holdings, S.A. de C.V. for $22.5 million, excluding transaction costs. IASA
Holdings owns 100% of Industrias del Agua, S.A. de C.V., a water and wastewater
services company based in Monterrey, Mexico that provides metering, billing,
collections, operations and maintenance services for one quarter of the Federal
District within Mexico City, a service area with a population of approximately
two million people. Industrias del Agua has provided these services since 1993,
when it signed a 10-year contract with the Water Commission of the Federal
District. In addition to holding an interest in Industrias del Agua, Azurix
provides technical services and ultimately expects to serve as a technical
participant under the Federal District contract.
6
<PAGE> 8
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On September 24, 1999, Azurix acquired from an affiliate of AMX - Acqua
Management Inc., 100% of three Brazilian companies, Geoplan - Assessoria,
Planejamento e Perfuracoes Ltda., Aguacerta - Sistemas de Abastecimento Ltda.
and Aguacerta Saneamento Ltda. for $55.6 million, excluding transaction costs.
The acquired companies have offices in the states of Rio de Janeiro and Sao
Paulo, Brazil and provide water drilling, water supply and wastewater treatment
services in Brazil. Azurix has contingent payment obligations to a former owner
under certain negotiated formulas and has retained a former affiliate as a
consultant to its Brazilian operations.
NOTE 3 - RESTRICTED CASH AND CASH EQUIVALENTS
At September 30, 1999, Azurix had restricted cash and cash equivalents of
$401.2 million which is on deposit in a cash collateral account that secures the
$394.0 million loan to an Azurix subsidiary that was used to fund the Buenos
Aires concession acquisition (see Note 2). The amount payable under the loan is
included in "Short-term debt" on the consolidated balance sheet (see Note 4).
NOTE 4 - SHORT-TERM DEBT
On May 10, 1999, Azurix Europe entered into a revolving credit facility. At
September 30, 1999, the maximum capacity of the facility was $699.4 million. Of
this amount, $395.0 million may be used to fund acquisitions and the remaining
amount may be used to refinance existing Azurix indebtedness. A portion of the
unused borrowing capacity is reserved to provide for the refinancing of
outstanding loan notes of $103.2 million (see Note 5). Borrowings outstanding at
September 30, 1999 consisted of approximately $77.3 million used to repay all of
the remaining indebtedness outstanding on its former senior credit facility and
fees and expenses related to this facility, $386.0 million primarily used to
fund acquisitions and $13.2 million used to redeem Wessex acquisition loan
notes.
The Azurix Europe revolving credit facility bears interest at the London
interbank offered rate plus 0.75% or 1.0%, depending on the level of utilization
of the borrowing capacity. Azurix incurs commitment fees of 0.375% on the unused
borrowing capacity of this facility. Outstanding borrowings at September 30,
1999 have been borrowed under the revolving credit facility for a period of less
than 12 months. The facility terminates on May 10, 2002, but contains a clause
permitting banks, with two-thirds or more of the commitments, to terminate at an
earlier time if, in their reasonable opinion, changes have occurred resulting in
a material adverse effect on the borrower's ability to repay the outstanding
debt. Therefore, amounts outstanding under this facility have been classified as
short-term debt. Azurix is evaluating alternatives to replace some or all of the
outstanding borrowings under this facility with long-term debt, making this
facility available for future acquisitions and other purposes. The facility
contains restrictive covenants that include limitations on borrowings,
maintenance of financial ratios such as interest coverage and debt to equity and
contracts to perform or refrain from undertaking certain acts. The facility
includes customary events of default, including non-payment, cross-defaults and
insolvency.
As of September 30, 1999, Azurix, through a wholly owned subsidiary of
Wessex, had $123.4 million outstanding under committed credit facilities with
major commercial banks. Interest accrues on the committed credit facilities
based on the London interbank offered rate plus 0.275%. The interest rate as of
September 30, 1999 was 5.37%. Azurix pays commitment fees of 0.15% on the unused
portion of committed lines of credit. The facilities expire in April 2002. The
borrowings under these facilities have been reclassified as long-term debt based
on the ability to re-borrow these funds under the facilities beyond one year and
Azurix's intent to maintain such borrowings in excess of one year (see Note 5).
In connection with the funding of the Buenos Aires concession acquisition
(see Note 2), Azurix, through its subsidiary Azurix Buenos Aires S.A., entered
into a credit agreement on June 24, 1999, and borrowed $394.0 million on June
29, 1999. The agreement is between Azurix Buenos Aires and Westdeutsche
Landesbank Girozentrale, a German bank, as the agent and lender. The loan is
secured by cash and other short-term
7
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AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
liquid investments in the aggregate amount of $401.2 million as of September 30,
1999, which Azurix deposited into a cash collateral account, including interest
earned on amounts deposited, and pledged as security for the loan (see Note 3).
The loan matures on June 22, 2000, or at an earlier time prior to such date if
the direct or indirect ownership by Enron Corp. of the outstanding voting stock
of Azurix falls below 25%, and Azurix Buenos Aires does not arrange for the
assignment of the lender's rights and obligations under the credit agreement to
a new lender. The interest rate on amounts outstanding under this credit
agreement as of September 30, 1999 was 5.53%.
On September 29, 1999, Azurix Corp. entered into a 364-day $150.0 million
unsecured revolving credit facility with a group of banks. As of September 30,
1999, $28.0 million was outstanding under the facility and the borrowings were
primarily used to reduce other debt obligations. Borrowings under the revolver
can be used to satisfy working capital requirements, make acquisitions or loans
and for any other purpose consistent with Azurix's objective of owning,
operating and investing in water and wastewater assets. This financing agreement
contains restrictive covenants which include limitations on borrowings, the
maintenance of financial ratios such as interest coverage, net worth and debt to
equity and contracts to perform or refrain from undertaking certain acts. In
addition, Azurix is required, by March 31, 2000, to amend the Azurix Europe
revolving credit facility to eliminate the clause that specifically prohibits
the payment of dividends to Azurix Europe shareholders. The financing agreement
includes standard events of default, including non-payment, cross-defaults and
insolvency.
NOTE 5 - LONG-TERM DEBT
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ ------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Amounts reclassified from short-term debt.... $ 424.0 $ 123.4
Senior credit facility ...................... 219.5 --
Senior unsecured bonds ...................... -- 488.1
Loan notes .................................. 117.2 103.2
European Investment Bank credit facilities... 68.7 65.3
Capital lease obligations ................... 109.7 87.9
Other ....................................... -- 8.7
---------- ----------
939.1 876.6
Less current maturities ..................... (27.0) (36.1)
---------- ----------
Total long-term debt .............. $ 912.1 $ 840.5
========== ==========
</TABLE>
At December 31, 1998, Azurix had borrowings outstanding under its former
senior credit facility of $219.5 million. During the second quarter of 1999,
Azurix used proceeds from credit facilities and its Azurix Europe revolving
credit facility entered into in May 1999, to retire the outstanding borrowings
under its former senior credit facility. The former senior credit facility was
subsequently terminated.
On March 30, 1999, Azurix, through a wholly owned subsidiary of Wessex,
issued U.K. pounds sterling denominated senior unsecured bonds with a face value
of $493.7 million as of September 30, 1999. The net proceeds were primarily used
to refinance the short-term bank borrowings that were outstanding on that date.
The bonds mature on March 30, 2009 and bear interest at a rate of 5.875% payable
annually.
8
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AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest expense is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1999
--------------
(IN MILLIONS)
(UNAUDITED)
<S> <C>
Income taxes ..................................... $ 14.5
Interest expense (net of amounts capitalized)..... 47.2
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Azurix is involved in various claims and lawsuits incidental to its
business. Although no assurances can be given, Azurix believes that the ultimate
resolution of such items will not have a material adverse effect on its results
of operations or financial position (see Note 13).
Azurix is subject to extensive federal, foreign, state and local
environmental laws and regulations. Azurix anticipates future changes in, or
decisions affecting, regulatory regimes that will serve to expand or tighten
regulatory controls. Some of these changes or decisions could have a material
adverse effect on its financial position and results of operations.
A substantial portion of Azurix's revenues are subject to governmental
regulation of the rates that it may charge to its customers. On July 27, 1999,
the U.K. water regulator, the Director General of Water Services, announced
proposed price limits for U.K. water companies for the period April 1, 2000
through 2005. Wessex was notified of a preliminary determination of a 13.5%
price cut from 1999-2000 to 2000-2001. The announcement included level prices
for the following two years with annual price increases in 2003-2004 and
2004-2005 of 2.0% and 3.1%, respectively. The Director General and Wessex have
consulted and a final determination is expected in late November 1999. Wessex's
regulated operating revenues represented over 75% of Azurix's total operating
revenues for the nine months ended September 30, 1999, and the preliminary price
cut, if implemented, would be expected to materially reduce earnings. However,
Azurix does not expect this would have a material adverse effect on its
financial position. In addition, the U.K. Government, in October 1999, proposed
regulations to protect vulnerable groups, such as low income and large families,
from high charges for metered water. Azurix does not believe that these
regulations, if they take effect, would have a material adverse effect on
Azurix's financial position and results of operations.
Wessex currently has a virtual monopoly over water supply and wastewater
services within its service region, with the exception of the cities of Bristol
and Bournemouth and a small area of rural Wiltshire, where three other companies
provide only water and Wessex provides wastewater services. This may change in
the future, however, as the U.K. Government and the Director General are seeking
to increase competition in the water sector. The Director General has announced
various steps he may take, such as reducing the threshold level of service
required before a large customer may contract with someone other than the
licensed service provider, promoting competition in new connections, and
facilitating common carriage of water through existing water service companies.
Further, the Director General has stated that he will use his powers under the
Competition Act 1998 to pursue companies that are abusing dominant market
positions. Increased competition could affect Wessex's monopoly within its own
service region, but would enable it to compete for customers in other regions,
taking advantage of its historically efficient operating levels.
9
<PAGE> 11
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8 - EARNINGS PER SHARE
The numerators in the basic and diluted earnings per share calculations are
equal. A reconciliation of the denominators is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1999
------------ -----------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Denominator:
Weighted-average shares - basic ..... 117.1 107.1
Effect of dilutive securities:
Stock options .................... 0.9 0.5
--------- ---------
Weighted-average shares - diluted ... 118.0 107.6
========= =========
</TABLE>
NOTE 9 - STOCKHOLDERS' EQUITY
On June 9, 1999, Azurix's Registration Statement on Form S-1 relating to
its initial public offering was declared effective. The offering of 36.6 million
shares of common stock was priced at $19.00 per share. Azurix sold 17.1 million
shares and Atlantic Water Trust, the former 100% parent of Azurix, sold 19.5
million shares. The proceeds to Azurix, after deducting expenses associated with
the offering, were $300.5 million. The proceeds were used to repay an advance
from Enron, which holds a 50% voting interest in Atlantic Water Trust, and to
partially fund the Buenos Aires concession acquisition (see Note 2).
Approximately 68.7% of Azurix's common stock was held by Atlantic Water Trust
and the remaining 31.3% was held by the public until July 8, 1999, on which date
the underwriters exercised their over-allotment option in connection with the
initial public offering of Azurix's common stock. As a result, Atlantic Water
Trust sold an additional 1,963,468 shares of Azurix's common stock, reducing its
ownership percentage in Azurix to approximately 67.1%.
Azurix has issued stock options during the nine months ended September 30,
1999 to certain employees to purchase 8.7 million shares of common stock at a
weighted-average exercise price of $17.00 per share. These stock options
generally vest over three to five years and will be exercisable for 10 years
after the date of grant. The future exercise of these options will have a
dilutive effect on basic earnings per share.
NOTE 10 - INCOME TAXES
During 1998, Azurix recorded a valuation allowance on a deferred tax asset
of approximately $5.1 million related to losses incurred in the U.S. During the
second quarter of 1999, Azurix determined that the available evidence
attributable to the increased level of 1999 business activities (including
consideration of the proceeds generated from the initial public offering and
available U.S. tax planning strategies) indicated that it is more likely than
not that the deferred tax asset associated with the 1998 U.S. losses will be
realized. Accordingly, the valuation allowance of approximately $5.1 million was
reversed in the second quarter of 1999.
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<PAGE> 12
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 11 - COMPREHENSIVE INCOME
Comprehensive income includes the following for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1999
------------- -------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Net income............................................... $ 18.8 $ 48.3
Other comprehensive income (loss):
Foreign currency translation adjustment.............. 68.1 (15.7)
------ ------
Comprehensive income..................................... $ 86.9 $ 32.6
====== ======
</TABLE>
NOTE 12 - EXTRAORDINARY LOSS
In May 1999, Azurix retired borrowings under its former senior credit
facility and terminated the facility prior to its maturity (see Note 5).
Unamortized deferred financing fees related to this facility of $9.8 million
($6.8 million net of tax benefit) were charged to income as an extraordinary
loss.
NOTE 13 - SUBSEQUENT EVENTS
On October 4, 1999, Azurix purchased 13,600 acres of property in Madera
County, California, for $31.4 million, excluding transaction costs, with plans
of developing, owning and operating a ground water storage project in the
aquifer beneath it.
On October 18, 1999, Azurix acquired Lurgi Bamag GmbH, a process
engineering company specializing in the water sector, for $30.2 million,
excluding transaction costs. Lurgi Bamag and its subsidiaries have offices in
Germany, Brazil and the U.K.
On October 29, 1999, Azurix Corp. filed a complaint in the Chancery Court
of the State of Delaware against Synagro Technologies, Inc. Prior to this
filing, Azurix and Synagro had been in discussions regarding possible
collaborative efforts and/or strategic transactions for several months. In
connection with these discussions, the parties entered into a confidentiality
agreement and related letter agreements containing standstill provisions
restricting Azurix's ability to acquire or engage in negotiations with a number
of companies for several months. In September 1999, Synagro orally agreed to
waive these standstill provisions with regard to two subsidiaries of Waste
Management, Inc. This oral waiver was made to representatives of Waste
Management, as well as to Azurix. Azurix also agreed to purchase up to $23
million of Synagro convertible preferred stock, subject to certain conditions,
and negotiated with Synagro over other arrangements, although no written
agreement regarding those other arrangements has been signed by both parties.
Since the waiver, Azurix and Waste Management have been negotiating a possible
acquisition by Azurix of the target companies. Azurix has not entered into an
acquisition agreement for the target companies, nor has any commitment or final
determination been made by the parties to proceed with an acquisition. Azurix's
complaint seeks to enforce the waiver of the standstill provisions and an
injunction against Synagro's interfering with the potential acquisition of the
target companies by Azurix, along with money damages and a declaration that
Azurix has no further obligations to purchase stock of Synagro or pay it any
other sums. On November 1, 1999, Synagro filed suit against Azurix Corp. in the
District Court of Harris County, Texas, seeking both a temporary restraining
order and permanent injunction to enjoin Azurix from using confidential
information that Azurix had obtained from Synagro and, in particular, alleging
that Azurix's negotiating or closing the acquisition that is the subject of the
Delaware case would violate the standstill agreement between the parties.
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<PAGE> 13
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On November 2, 1999, the court in the Texas action entered a temporary
restraining order preventing Azurix from using any confidential or proprietary
information that it received from Synagro, including with respect to the target
companies, and preventing both Azurix and Synagro from acquiring, or entering
into an agreement to acquire, the target companies for a 14-day period. On
November 3, 1999, Azurix filed a motion asking the Texas court to postpone the
action in Texas until the Delaware Chancery Court had heard the earlier-filed
Delaware case. The hearing on this motion was held on November 12, 1999,
although the court has not yet issued its ruling. If the Texas court does not
defer its proceedings in favor of those in Delaware, a hearing on whether Azurix
should be preliminarily enjoined from proceeding with the proposed acquisition
will be held on November 19, 1999. Azurix and Synagro have agreed to extend the
temporary restraining order through November 19, 1999. Azurix is also seeking an
early hearing date in the Delaware proceeding. During the week of November 8,
1999, certain subsidiaries of Waste Management filed a motion to intervene in
both the Texas and Delaware cases alleging that Synagro has interfered with
their negotiations with Azurix.
Azurix denies that it has breached, or that the acquisition of the target
companies would breach, any of its obligations to Synagro. Synagro has not
alleged an amount of damages, and so it is not possible in this early stage of
the litigation to predict what, if any, damages might result if the cases were
determined adversely to Azurix. Although no assurances can be given, Azurix
believes that the ultimate resolution of this litigation will not have a
material adverse effect on its results of operations or financial position.
Azurix is currently evaluating its existing cost structure with respect to
its business development activities. Azurix estimates a non-recurring, pretax
charge in the fourth quarter of 1999 related to reductions in corporate
personnel, leased office space and other restructuring charges of approximately
$30 million to $35 million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
information contained in the Consolidated Financial Statements of Azurix and
related notes thereto, contained herein, as well as the Consolidated Financial
Statements of Azurix and related notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in Azurix's
Registration Statement on Form S-1, which was declared effective on June 9,
1999.
BUSINESS ACQUISITIONS
On May 18, 1999, Azurix acquired 100% of the stock of Canadian-incorporated
Philip Utilities Management Corporation for $107.4 million, including
transaction costs. Philip Utilities is a water and wastewater services company
that provides operations and management, engineering, residuals management and
underground infrastructure development services for municipal water and
wastewater facilities in the U.S. and Canada. This business subsequently was
renamed Azurix North America.
During the second quarter of 1999, Azurix was the successful bidder in a
tender for a 30-year concession to operate the water and wastewater systems in
two regions of the Province of Buenos Aires, Argentina, previously operated by
Administracion General de Obras Sanitarias Buenos Aires. On June 30, 1999,
Azurix, through Azurix Buenos Aires S.A., an indirect wholly owned subsidiary,
entered into a concession contract with the provincial government covering the
two regions and paid the government $438.6 million. On July 1, 1999, Azurix
assumed operation of the water and wastewater systems and risk of ownership of
the concession.
In connection with the funding of this acquisition, Azurix made an equity
investment in Azurix Buenos Aires of $45.0 million, and Azurix Buenos Aires
borrowed $394.0 million under a new credit agreement. This loan is secured by
cash and other short-term liquid investments, which Azurix deposited into a cash
collateral account and pledged as security for the loan. Azurix used $230.6
million of the proceeds from its initial public offering, $208.0 million in
funds drawn under the senior credit facility of its indirect wholly owned
subsidiary, Azurix Europe Ltd, and interest on those funds and other funds of
Azurix, to fund the equity investment in Azurix Buenos Aires and the deposit
into the cash collateral account. Under the concession contract, a 10% interest
in Azurix Buenos Aires is required to be transferred to the employees of
Administracion General de Obras Sanitarias Buenos Aires who became employees of
Azurix Buenos Aires. On a consolidated basis, the funding of the acquisition
resulted in an increase in the short-term debt of Azurix of $602.0 million
(representing $394.0 million drawn by Azurix Buenos Aires under the credit
agreement and $208.0 million drawn by Azurix Europe under the senior credit
facility) and a corresponding increase in the current assets of Azurix of $395.7
million (representing the amount deposited into the cash collateral account,
excluding interest earned thereon).
On September 24, 1999, Azurix acquired 49% of the capital stock of IASA
Holdings, S.A. de C.V. for $22.5 million, excluding transaction costs. IASA
Holdings owns 100% of Industrias del Agua, S.A. de C.V., a water and wastewater
services company based in Monterrey, Mexico that provides metering, billing,
collections, operations and maintenance services for one quarter of the Federal
District within Mexico City, a service area with a population of approximately
two million people. Industrias del Agua has provided these services since 1993,
when it signed a 10-year contract with the Water Commission of the Federal
District. In addition to holding an interest in Industrias del Agua, Azurix
provides technical services and ultimately expects to serve as a technical
participant under the Federal District contract.
On September 24, 1999, Azurix acquired from an affiliate of AMX - Acqua
Management Inc., 100% of three Brazilian companies, Geoplan - Assessoria,
Planejamento e Perfuracoes Ltda., Aguacerta - Sistemas de Abastecimento Ltda.
and Aguacerta Saneamento Ltda. for $55.6 million, excluding transaction costs.
The acquired companies have offices in the states of Rio de Janeiro and Sao
Paulo, Brazil and provide water drilling, water supply and wastewater treatment
services in Brazil. Azurix has contingent payment obligations to a former owner
under
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<PAGE> 15
certain negotiated formulas and has retained a former affiliate as a consultant
to its Brazilian operations.
RECENT DEVELOPMENTS
On July 27, 1999, the U.K. water regulator, the Director General of Water
Services, announced proposed price limits for U.K. water companies for the
period April 1, 2000 through 2005. Wessex was notified of a preliminary
determination of a 13.5% price cut from 1999-2000 to 2000-2001. The announcement
included level prices for the following two years with annual price increases in
2003-2004 and 2004-2005 of 2.0% and 3.1%, respectively. The Director General and
Wessex have consulted and a final determination is expected in late November
1999. Wessex's regulated operating revenues represented over 75% of Azurix's
total operating revenues for the nine months ended September 30, 1999, and the
preliminary price cut, if implemented, would be expected to materially reduce
earnings. However, Azurix does not expect this would have a material adverse
effect on its financial position. The pending rate review was considered by
Azurix in its valuation of Wessex at the time of acquisition. In addition, the
U.K. Government, in October 1999, proposed regulations to protect vulnerable
groups, such as low income and large families, from high charges for metered
water. Azurix does not believe that these regulations, if they take effect,
would have a material adverse effect on Azurix's financial position and results
of operations.
Wessex currently has a virtual monopoly over water supply and wastewater
services within its service region, with the exception of the cities of Bristol
and Bournemouth and a small area of rural Wiltshire, where three other companies
provide only water and Wessex provides wastewater services. This may change in
the future, however, as the U.K. Government and the Director General are seeking
to increase competition in the water sector. The Director General has announced
various steps he may take, such as reducing the threshold level of service
required before a large customer may contract with someone other than the
licensed service provider, promoting competition in new connections, and
facilitating common carriage of water through existing water service companies.
Further, the Director General has stated that he will use his powers under the
Competition Act 1998 to pursue companies that are abusing dominant market
positions. Increased competition could affect Wessex's monopoly within its own
service region, but would enable it to compete for customers in other regions,
taking advantage of its historically efficient operating levels.
On September 29, 1999, Azurix Corp. entered into a 364-day $150.0 million
unsecured revolving credit facility with a group of banks. Borrowings under the
revolver can be used to satisfy working capital requirements, make acquisitions
or loans and for any other purpose consistent with Azurix's objective of owning,
operating and investing in water and wastewater assets.
On October 4, 1999, Azurix purchased 13,600 acres of property in Madera
County, California, for $31.4 million with plans of developing, owning and
operating a ground water storage project in the aquifer beneath it. The aquifer
on the property will be used to store surplus water from local, state and
federal water customers during wet years in an effort to make this water
available for use throughout the region and state during drier years or as the
market dictates. The Madera property is strategically located near existing
state and federal canals and aqueducts and the San Joaquin River, all of which
may provide a number of alternative conveyance systems to move water to and from
the site.
On October 18, 1999, Azurix acquired Lurgi Bamag GmbH, a process
engineering company specializing in the water sector, for $30.2 million,
excluding transaction costs. Lurgi Bamag and its subsidiaries have offices in
Germany, Brazil and the U.K.
See Note 13 in the Notes to Consolidated Financial Statements found
elsewhere in this quarterly report regarding recent litigation involving Azurix.
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<PAGE> 16
Azurix is currently evaluating its existing cost structure with respect to
its business development activities. Azurix estimates a non-recurring, pretax
charge in the fourth quarter of 1999 related to reductions in corporate
personnel, leased office space and other restructuring charges of approximately
$30 million to $35 million.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging contracts.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137 which deferred the effective
date of Statement of Financial Accounting Standards No. 133 to fiscal years
beginning after June 15, 2000. Statement of Financial Accounting Standards No.
133 may be implemented, as of the beginning of any fiscal quarter after
issuance, however, the statement cannot be applied retroactively. Azurix is
currently evaluating and has not yet determined the effect that the adoption of
Statement of Financial Accounting Standards No. 133 will have on its financial
statements.
RESULTS OF OPERATIONS
Azurix had no operations as of September 30, 1998 and as a result, the
following discussion is limited to results of operations for the three months
and nine months ended September 30, 1999. All of its 1998 operating income
occurred during the fourth quarter of 1998 following the Wessex acquisition.
THREE MONTHS ENDED SEPTEMBER 30, 1999
Operating revenues of $170.5 million for the three months ended September
30, 1999 included $115.4 million derived from Wessex, $35.4 million derived from
Azurix North America and $19.1 million derived from Azurix Buenos Aires.
Approximately 94% of the revenues from Wessex related to the sale of measured
and unmeasured water and wastewater services. Wessex's remaining revenues were
derived from SC Technology and its unregulated activities, which accounted for
2% and 4% of operating revenues from Wessex, respectively.
Operations and maintenance expenses for the three months ended September
30, 1999 were $67.1 million. Of this amount, $22.0 million related to Wessex's
cost of supplying water and treating wastewater, including the costs of
maintaining and operating plant and equipment used in these processes, and $3.2
million related to the costs of the plants being installed by SC Technology. Of
the remaining amount, Azurix North America and Azurix Buenos Aires incurred
$28.8 million and $13.1 million, respectively.
General and administrative expenses of $27.6 million for the three months
ended September 30, 1999 included $12.7 million primarily related to the pursuit
of acquisitions and development projects, $9.0 million related to Wessex's
operations and the remainder related to Azurix North America and Azurix Buenos
Aires.
Depreciation and amortization expenses of $28.5 million for the three
months ended September 30, 1999 included $17.3 million derived from depreciation
on the property, plant and equipment of Wessex, $5.4 million derived from
goodwill amortization expense at Wessex and the remainder related to Azurix
North America and Azurix Buenos Aires.
The effective tax rate for the period was 32.9%. The difference between the
effective tax rate and the U.S. statutory rate of 35% is primarily related to a
30% statutory tax rate in the U.K., where a majority of Azurix's results of
operations are derived, partially offset by non-deductible goodwill
amortization.
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NINE MONTHS ENDED SEPTEMBER 30, 1999
Operating revenues of $418.7 million for the nine months ended September
30, 1999 included $348.1 million derived from Wessex, $50.1 million derived from
Azurix North America and $19.1 million derived from Azurix Buenos Aires.
Approximately 93% of the revenues from Wessex related to the sale of measured
and unmeasured water and wastewater services. SC Technology's operating
revenues, and operating revenues from Wessex's unregulated activities, accounted
for 3% and 4%, respectively, of Wessex's operating revenues.
Operations and maintenance expenses for the nine months ended September 30,
1999 were $135.8 million. Of this amount, $69.5 million related to Wessex's cost
of supplying water and treating wastewater, including the costs of maintaining
and operating plant and equipment used in these processes, and $12.9 million
related to the costs of the plants being installed by SC Technology. Of the
remaining amount, Azurix North America and Azurix Buenos Aires incurred $40.3
million and $13.1 million, respectively.
General and administrative expenses of $82.8 million for the nine months
ended September 30, 1999 included $47.7 million primarily related to the pursuit
of acquisitions and development projects, $26.8 million related to Wessex's
operations and the remainder related to Azurix North America and Azurix Buenos
Aires.
Depreciation and amortization expenses of $75.9 million for the nine months
ended September 30, 1999 included $52.9 million derived from depreciation on the
property, plant and equipment of Wessex, $16.1 million derived from goodwill
amortization expense at Wessex and the remainder related to Azurix North America
and Azurix Buenos Aires.
The effective tax rate before extraordinary item for the period was 26.6%.
The difference between the effective tax rate and the U.S. statutory rate of 35%
is primarily related to the reversal of a $5.1 million deferred tax valuation
allowance that was recorded during 1998 relating to losses incurred in the U.S.
During the second quarter of 1999, Azurix determined that the available evidence
attributable to the increased level of 1999 business activities (including
consideration of the proceeds generated from the initial public offering and
available U.S. tax planning strategies) indicated that it is more likely than
not that the deferred tax asset associated with the 1998 U.S. losses will be
realized. Accordingly, the valuation allowance was reversed in the second
quarter of 1999.
In May 1999, Azurix retired borrowings under its former senior credit
facility and terminated the facility prior to its maturity. Unamortized deferred
financing fees related to this facility of $9.8 million ($6.8 million net of tax
benefit) were charged to income as an extraordinary loss.
LIQUIDITY AND CAPITAL RESOURCES
Azurix's cash provided by operating activities for the nine months ended
September 30, 1999 was $56.9 million. Cash used by investing activities for the
period was $861.3 million and was comprised primarily of business acquisitions
of $630.2 million and capital expenditures of $202.5 million. Cash provided by
financing activities for the period was $813.7 million and was comprised
primarily of a net increase in borrowings of $908.9 million and net proceeds
from the initial public offering of Azurix's common stock of $300.5 million.
As of September 30, 1999, Azurix had a working capital deficit of $635.7
million, compared to a working capital deficit of $129.6 million at December 31,
1998. The increase in the working capital deficit is primarily related to $476.5
million of funds borrowed under a revolving credit facility. The proceeds were
primarily used to fund acquisitions and refinance existing long-term debt. The
funds were borrowed under the Azurix Europe revolving credit facility for a
period of less than 12 months. Amounts currently borrowed under the facility may
be re-borrowed through the facility's termination date in 2002. Borrowings under
this facility are classified as short-term as a result of accounting rules
issued by the Financial Accounting Standards Board that restrict a company from
reclassifying short-term debt as long-term utilizing existing borrowing capacity
under a long-term loan agreement, if that
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agreement contains a subjectively determinable or measurable clause that could
result in the lender's right not to loan funds. The Azurix Europe revolving
credit facility contains a clause permitting banks, with two-thirds or more of
the commitments, to terminate at an earlier time if, in their reasonable
opinion, changes have occurred resulting in a material adverse effect on the
borrower's ability to repay the outstanding debt. Therefore, amounts outstanding
under this facility have been classified as short-term debt. Azurix is
evaluating alternatives to replace some or all of the outstanding borrowings
under this facility with long-term debt, making this facility available for
future acquisitions and other purposes.
In addition, at September 30, 1999, $27.8 million of the working capital
deficit related to funds received from customers in advance of providing
services that are reflected on the Consolidated Balance Sheet as deferred
income. This component of the working capital deficit does not require the use
of cash, but is recognized in income over the period in which the services are
provided. The remaining working capital deficit is related to the timing of cash
payments. Excess cash, including funds received in advance of providing
services, is used to repay short-term revolving bank credit facilities. The
funds are re-borrowed under these credit facilities when needed to pay current
obligations.
At December 31, 1998, Azurix, through Azurix Europe, had in place a senior
credit facility consisting of a term loan facility of $322.6 million and a
revolving credit facility of $575.3 million. The amounts outstanding at December
31, 1998 were $211.2 million under the term loan facility and $8.3 million under
the revolving credit facility. As a result, at December 31, 1998, Azurix had
total availability under the senior credit facility of $678.4 million,
consisting of $567.0 million under the revolving credit facility and $111.4
million under the term loan facility. Of the $567.0 million under the revolving
credit facility, $91.5 million was permitted, if required, to fund the working
capital deficit that existed at year end. The term loan capacity was used to
secure a substantial portion of acquisition loan notes issued to Wessex
shareholders in lieu of cash consideration for their shares. During the second
quarter of 1999, Azurix used proceeds from bank credit facilities and the Azurix
Europe revolving credit facility entered into in May 1999, to retire the
outstanding borrowings under its former senior credit facility. The former
senior credit facility was subsequently terminated.
Azurix's credit agreement with Enron provides $180 million of liquidity to
fund general, administrative and operating expenses through December 2001. As of
September 30, 1999, $45.8 million was outstanding under this credit agreement.
The principal amount outstanding under the credit agreement is limited to no
more than $60 million, $120 million and $180 million at any time during calendar
years 1999, 2000 and 2001, respectively.
On September 29, 1999, Azurix entered into a 364-day $150.0 million
unsecured revolving credit facility with a group of banks. Borrowings under the
revolver can be used to satisfy working capital requirements, make acquisitions
or loans and for any other purpose consistent with Azurix's objective of owning,
operating and investing in water and wastewater assets. The amount outstanding
at September 30, 1999 was $28.0 million. During October 1999, $71.4 million was
borrowed under this facility and used primarily to fund two acquisitions.
As discussed above, Azurix is currently evaluating various financing
strategies to raise additional capital to support further its business strategy
of growth through acquisitions and development projects. Funds raised combined
with cash flows from assets acquired will be used by Azurix to fund potential
future acquisitions and privatizations. There can be no assurance that Azurix
will be successful in securing any financing arrangements.
Azurix's liquidity could be impacted by the potential interruption of the
capital markets due to the Year 2000 problem. See "Year 2000" for a discussion
of potential problems and Azurix's Year 2000 plan.
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YEAR 2000
The Year 2000 problem results from the use in computer hardware and
software of two digits rather than four digits to define the applicable year.
The use of two digits was a common practice for decades when computer storage
and processing was much more expensive than today. When computer systems must
process dates both before and after January 1, 2000, two-digit year "fields" may
create processing ambiguities that can cause errors and system failures. For
example, computer programs that have date-sensitive features may recognize a
date represented by "00" as the year 1900, instead of 2000, or may not recognize
the date February 29, 2000, as there was no February 29 in 1900. These errors or
failures may have limited effects, or the effects may be widespread, depending
on the computer chip, system or software, and its location and function.
The effects of the Year 2000 problem are exacerbated by the interdependence
of computer and telecommunications systems in the U.S. and throughout the world.
This interdependence applies to Azurix and Azurix's suppliers, trading partners
and customers, as well as for governments of countries around the world where
Azurix does business. This interdependence also applies to Enron, on which
Azurix relies in part for services that involve computer processing.
STATE OF READINESS
Azurix's Board of Directors has been briefed about the Year 2000 problems
generally and as they may affect Azurix. The Board has adopted Enron's Year 2000
plan to cover all of Azurix's operating subsidiaries. The aim of the plan is to
take reasonable steps to prevent Azurix's mission-critical functions from being
impaired due to the Year 2000 problem. "Mission-critical" functions are those
critical functions whose loss would cause significant injury to persons or
tangible property or an immediate stoppage of, or significant impairment to,
business areas of material importance to Azurix.
Azurix is implementing the plan under the supervision of a Year 2000
project director. The project director coordinates the implementation of the
plan among Azurix's operating subsidiaries. As part of the overall plan, each
operating subsidiary in turn has developed, and is implementing, a Year 2000
plan specific to it. Azurix also has engaged outside consultants, technicians
and other external resources to aid in formulating and implementing the plan.
Azurix will modify the plan as events warrant. Under the plan, Azurix will
continue to inventory its mission-critical computer hardware and software
systems and embedded chips, i.e., computer chips with date-related functions,
contained in a wide variety of devices, that in turn are installed in a wide
variety of equipment and that may fail to function or that may function
improperly before, on or after January 1, 2000; assess the effects of Year 2000
problems on the mission-critical functions of Azurix's operating subsidiaries;
remedy, to the extent practicable, systems software and embedded chips in an
effort to avoid material disruptions or other material adverse effects on
mission-critical functions, processes and systems; verify and test the
mission-critical systems to which remediation efforts have been applied; attempt
to limit the adverse effects of Year 2000 problems that may not be remediated by
January 1, 2000, including the development and implementation of contingency
plans to cope with the mission-critical consequences of Year 2000 problems that
have not been identified or remediated by that date.
The plan recognizes that central information systems, such as large
mainframes and mid-size computer systems and desktop or personal computers and
computer networks, can be vulnerable to Year 2000 problems. In addition, devices
with embedded chips, such as flow controllers and controllers for automated
pumps, are vulnerable to Year 2000 problems. Devices with embedded chips may be
used for many purposes, and finding all of them may be difficult, even with a
careful inventory and remediation process.
The plan recognizes that the computer, telecommunications and other systems
of outside entities have the potential for major, mission-critical, adverse
effects on the conduct of Azurix's business. Azurix does not have
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control of these outside entities or outside systems. In some cases, outside
entities are foreign governments or businesses located in foreign countries.
However, Azurix's plan includes an ongoing process of identifying and contacting
outside entities whose systems, in Azurix's judgment, have or may have a
substantial effect on Azurix's ability to continue to conduct the
mission-critical aspects of its business without disruption from Year 2000
problems. The plan envisions Azurix attempting to inventory and assess the
extent to which these outside systems may not be "Year 2000 ready." This refers
to the ability of a system to process data reliably, both before and after
January 1, 2000, without disruption due to an inability to process date
information reliably. This is distinguished from "Year 2000 compliant," which
implies that a system will work properly, both before and after January 1, 2000,
even if outside systems fail to operate properly. Azurix is coordinating as is
reasonable with these outside entities in an ongoing effort to obtain assurance
that the outside systems that are mission-critical to Azurix will be Year 2000
ready before January 1, 2000. Consequently, Azurix is working prudently with
outside entities in a reasonable attempt to inventory, assess, analyze, convert
where necessary, test and develop contingency plans for Azurix's connections to
these mission-critical outside systems and to ascertain the extent to which they
are, or can be made to be, Year 2000 ready to work with Azurix's
mission-critical systems.
The plan requires outside entities to be ranked as mission-critical,
important or ordinary. The Azurix teams are expected to maintain contact and
receive status updates from the mission-critical outside entities throughout
1999 and, if necessary, into 2000. Non-mission-critical outside entities are
being addressed as time permits.
It is important to recognize that inventorying, assessing, analyzing,
converting, where necessary, testing and developing contingency plans for
mission-critical items in anticipation of the Year 2000 are necessarily
iterative processes. That is, the steps are repeated as Azurix learns more about
the Year 2000 problem and its effects on Azurix's internal systems and on
outside systems, and about the effects that embedded chips may have on Azurix's
systems and outside systems. As the steps are repeated, it is likely that new
problems will be identified and addressed. Azurix anticipates that it will
continue with these processes through January 1, 2000 and, if necessary based on
experience, into the Year 2000 in order to assess and remediate problems that
reasonably can be identified only after the start of the new century.
The plan called for most operating subsidiaries to have completed initial
rounds of inventory, assessment, remediation and validation testing by June 30,
1999. Azurix met that deadline for most of its operations under its control.
Many systems were found to be Year 2000 ready. However, Azurix cannot guarantee
that these systems do not continue to contain hidden Year 2000 defects in
computer code or in embedded devices.
As of October 31, 1999, Azurix and all of its operating subsidiaries were
at various stages in implementation of the plan, as shown in the following
tables. The first table deals with the Azurix operating subsidiaries'
mission-critical internal systems, including embedded chips, and the second
deals with the operating subsidiaries' mission-critical outside systems of
outside entities. Any notation of "complete" conveys the fact only that the
initial iteration of this phase has been substantially completed. Azurix does
not have operational control of the Mendoza concession. The information included
in the following tables relating to the Mendoza concession is based on
information provided to Azurix by SAUR, the operator of the concession.
19
<PAGE> 21
<TABLE>
<CAPTION>
YEAR 2000 PLAN READINESS BY AZURIX OPERATING SUBSIDIARY AS OF OCTOBER 31, 1999
(Mission-Critical Internal Items)
--------- ---------- -------- ---------- ------- --------- -----------
INVENTORY ASSESSMENT ANALYSIS CONVERSION TESTING Y2K-READY CONTINGENCY
PLAN
<S> <C> <C> <C> <C> <C> <C> <C>
Azurix Buenos Aires.......... C IP IP IP IP IP IP
Cancun....................... C C C IP IP IP C
Obras Sanitarias Mendoza..... C C C IP IP IP C
Azurix North America......... C C C C IP IP IP
Wessex....................... C C C C C C C
Industrias del Agua.......... C C C C C C C
Azurix Brasil................ C C C IP IP IP C
Legend: C = Complete IP= In Process
</TABLE>
<TABLE>
<CAPTION>
YEAR 2000 PLAN READINESS BY AZURIX OPERATING SUBSIDIARY AS OF OCTOBER 31, 1999
(Mission-Critical Outside Entities)
--------- ---------- -------- ---------- ------- --------- -----------
INVENTORY ASSESSMENT ANALYSIS CONVERSION TESTING Y2K-READY CONTINGENCY
PLAN
<S> <C> <C> <C> <C> <C> <C> <C>
Azurix Buenos Aires.......... C C IP IP IP IP IP
Cancun....................... C C C C C C C
Obras Sanitarias Mendoza..... C C C C IP IP IP
Azurix North America......... C C C C IP IP IP
Wessex....................... C C C C C C C
Industrias del Agua.......... C C C C C C C
Azurix Brasil................ C C C C C C C
</TABLE>
Legend: C = Complete IP= In Process
The following tables show, by operating subsidiary, historical and
estimated completion dates, as applicable, for the initial iteration of various
stages of the plan. The first table deals with the Azurix operating
subsidiaries' mission-critical internal systems, including embedded chips, and
the second deals with the operating subsidiaries' mission-critical outside
systems of outside entities.
20
<PAGE> 22
<TABLE>
<CAPTION>
YEAR 2000 COMPLETION DATES BY AZURIX OPERATING SUBSIDIARY AS OF OCTOBER 31, 1999
(Mission-Critical Outside Entities)
--------- ---------- -------- ---------- ------- --------- -----------
INVENTORY ASSESSMENT ANALYSIS CONVERSION TESTING Y2K-READY CONTINGENCY
PLAN
<S> <C> <C> <C> <C> <C> <C> <C>
Azurix Buenos Aires.......... 8/99 11/99 11/99 11/99 11/99 12/99 11/99
Cancun....................... n/a n/a n/a 11/99 11/99 12/99 9/99
Obras Sanitarias Mendoza..... n/a n/a n/a 12/99 12/99 12/99 9/99
Azurix North America......... 8/99 8/99 9/99 10/99 11/99 11/99 11/99
Wessex....................... n/a n/a n/a 6/99 6/99 6/99 6/99
Industrias del Agua.......... n/a n/a n/a n/a n/a 10/99 10/99
Azurix Brasil................ n/a n/a n/a 11/99 11/99 11/99 8/99
</TABLE>
n/a = Not applicable (work completed before Azurix's ownership or investment)
<TABLE>
<CAPTION>
YEAR 2000 COMPLETION DATES BY AZURIX OPERATING SUBSIDIARY AS OF OCTOBER 31, 1999
(Mission-Critical Outside Entities)
--------- ---------- -------- ---------- ------- --------- -----------
INVENTORY ASSESSMENT ANALYSIS CONVERSION TESTING Y2K-READY CONTINGENCY
PLAN
<S> <C> <C> <C> <C> <C> <C> <C>
Azurix Buenos Aires.......... 8/99 10/99 11/99 11/99 11/99 12/99 11/99
Cancun....................... n/a n/a n/a 7/99 7/99 8/99 8/99
Obras Sanitarias Mendoza..... n/a n/a n/a n/a 11/99 11/99 11/99
Azurix North America......... 6/99 10/99 10/99 10/99 11/99 11/99 11/99
Wessex....................... n/a n/a n/a 5/99 5/99 6/99 6/99
Industrias del Agua.......... n/a n/a n/a n/a n/a n/a 10/99
Azurix Brasil................ n/a n/a n/a n/a n/a 8/99 8/99
</TABLE>
n/a = Not applicable (work completed before Azurix's ownership or investment)
Azurix will continue closely to monitor work under the plan. Because the
plan treats Year 2000 efforts as an iterative process, Azurix may commence
additional cycles of inventory, assessment, remediation and validation testing,
which will be conducted in parallel, and in coordination, with Azurix's Year
2000 contingency planning.
21
<PAGE> 23
RECENT ACQUISITION
Azurix has made initial inquiries and made some preliminary examinations
regarding the Year 2000 readiness of the mission-critical internal information
systems, devices with embedded chips and external dependencies at Lurgi Bamag.
Azurix has concluded that there are unlikely to be significant Year 2000
problems with mission-critical internal information systems with embedded
devices and external dependencies. Azurix will incorporate Lurgi Bamag into its
overall Year 2000 plan.
Azurix is pursuing additional concessions, outsourcing contracts and other
water and wastewater projects. If Azurix completes any new acquisitions before
January 1, 2000, Azurix will seek to deal with potential Year 2000 problems
through the contingency planning process, as it is likely that the short time
available will not reasonably permit a different approach. Consequently, Year
2000 disruptions may have a higher likelihood of occurring in these situations,
and material adverse consequences might result.
COSTS TO ADDRESS YEAR 2000 ISSUES
Under the plan and otherwise, Azurix has not incurred material historical
costs for Year 2000 awareness, inventory, assessment, analysis, conversion,
testing or contingency planning. Further, Azurix anticipates that its future
costs for these purposes, including those for implementing its Year 2000
contingency plans, will not be material.
Azurix continues to be concerned with hidden defects in computer code,
including recoding errors in remediated code, sabotage of remediated code,
embedded devices with Year 2000 defects and the potential failure of
mission-critical outside entities, both domestic and international, including
foreign governments. Azurix has developed reasonable contingency plans to
prepare to the extent practicable to avoid substantial Year 2000-related
disruptions that may have a material adverse effect on Azurix and its business.
Because of the nature of potential Year 2000 deficiencies, their impact cannot
be quantified. None of these problems is unique to Azurix.
Although Azurix believes that its estimates are reasonable, there is no
assurance, for the reasons stated under "Summary" below, that the actual costs
of implementing the plan will not differ materially from the estimated costs or
that Azurix will not be materially adversely affected by Year 2000 issues.
YEAR 2000 RISK FACTORS
REGULATORY REQUIREMENTS. Most of Azurix's operating subsidiaries are
regulated by governmental authorities, some of which have Year 2000
requirements. Azurix expects to satisfy these regulatory authorities'
requirements for achieving Year 2000 readiness. If Azurix's reasonable
expectations in this regard are in error, and if a regulatory authority should
order the temporary cessation of Azurix's operations in one or more of these
areas, the adverse effect on Azurix could be material. Outside entities could
face similar problems that materially adversely affect Azurix.
SHORTAGE OF RESOURCES. Between now and January 1, 2000, there will be
increased competition for people with the technical and managerial skills
necessary to deal with the Year 2000 problem. These shortages might delay or
otherwise impair Azurix's progress towards making its mission-critical systems
Year 2000 ready. Outside entities could face similar problems that materially
adversely affect Azurix. Azurix believes that the possible impact of the
shortage of skilled people is not, and will not be, unique to Azurix.
POTENTIAL SHORTCOMING. Azurix anticipates that most of its mission-critical
systems, domestic and international, will be Year 2000 ready before January 1,
2000. However, there is no assurance that the plan will succeed in accomplishing
its purposes or that unforeseen circumstances will not arise during
implementation of the plan that would materially and adversely affect Azurix.
22
<PAGE> 24
CASCADING EFFECT. Azurix and its operating subsidiaries are taking
reasonable steps to identify, assess and, where appropriate, replace devices
that contain embedded chips. Despite these reasonable efforts, Azurix
anticipates that it may not be able to find and replace all devices with
embedded chips in Azurix's systems. Further, Azurix anticipates that outside
entities on which Azurix depends also may not be able to find and remediate all
devices with embedded chips. Some of the embedded chips that fail to operate or
that produce improper results may create system disruptions or failures. Some of
these disruptions or failures may spread from the systems in which they are
located to other systems. These cascading failures may have adverse effects upon
Azurix's ability to maintain safe operations and may also have adverse effects
upon Azurix's ability to serve its customers, to comply with environmental
statutes and regulations and otherwise to fulfill contractual and other legal
obligations. The embedded chip problem is widely recognized as one of the more
difficult aspects of the Year 2000 problem across industries and throughout the
world. Azurix believes that the possible adverse impact of the embedded chip
problem is not, and will not be, unique to Azurix.
OUTSIDE ENTITIES. Azurix has been meeting and continues to meet with some
of the outside entities that are mission-critical to Azurix for Year 2000
purposes. The outside entities that Azurix is contacting include suppliers,
customers, financial institutions and governmental entities. However, Azurix
cannot in any way ensure that these outside entities will be Year 2000 ready,
nor can Azurix place complete reliance on assurances, written or oral, from
these outside entities that they expect to be Year 2000 ready. These outside
entities are subject to failure resulting from the problems of embedded chips,
re-coding errors in remediated code and the effects of possible sabotage, as
well as the failure of entities external to them. Because of this potential for
disruption and material adverse consequences, Azurix never considers an external
entity to be "Year 2000 compliant" or "Year 2000 ready." Instead, Azurix will
deal with the possibility that mission-critical outside entities will not be
Year 2000 ready by developing reasonable contingency plans.
Azurix cannot assure that suppliers upon which it depends for essential
goods and services will convert and test their mission-critical systems and
processes in a timely and effective manner. Failure or delay to do so by all or
some of these outside entities, including U.S. federal, state or local
governments and foreign governments, could create substantial disruptions having
a material adverse affect on Azurix's business.
Although Azurix relies in part on Enron for computer processing services at
its offices in Houston and London, Azurix's systems at its operating
subsidiaries function independently of Enron's systems. Azurix relies on Enron's
mainframe system used for functions such as accounting and human resources.
Enron has advised Azurix that it believes that its mission-critical systems will
be Year 2000 ready substantially before January 1, 2000. However, unforeseen
circumstances could arise during the implementation of the plan that could
adversely effect Enron's mission-critical functions, thereby disrupting Azurix's
business. Azurix does not believe that such disruptions would have a material
adverse effect on Azurix.
U.S. Y2K ACT. Azurix may face additional risk as a result of the
uncertainties and probable additional litigation, resulting from the enactment
of the U.S. federal "Y2K Act." Because experience with this recently enacted
legislation is very limited, Azurix cannot at this time quantify the financial
impact or potential business disruption that may result from this legislation.
However, the adverse impact on Azurix's business may be material.
CONTINGENCY PLANS
As part of the plan, Azurix has developed and continues to revise,
contingency plans that deal with two aspects of the Year 2000 problem: (1) that
Azurix, despite its good-faith, reasonable efforts, may not have satisfactorily
remediated all of its internal mission-critical systems and (2) that outside
systems may not be Year 2000 ready, despite Azurix's good-faith, reasonable
efforts to work with outside entities.
23
<PAGE> 25
Azurix's contingency plans are designed to minimize the disruptions or
other adverse effects resulting from Year 2000 problems or failures with these
mission-critical functions or systems, and to facilitate the early
identification and remediation of mission-critical Year 2000 problems that first
manifest themselves after January 1, 2000.
Azurix's contingency plans will include an assessment of all its
mission-critical internal information technology systems and its internal
operational systems that use computer-based controls. This process will commence
in the early minutes of January 1, 2000, and continue for hours, days or weeks
as circumstances require. Further, Azurix will in that time frame assess any
mission-critical disruptions due to Year 2000-related failures that are external
to Azurix. The assessment process will cover, for example, loss of electrical
power from utilities, telecommunications services from carriers or building
access, security or elevator service in facilities occupied by Azurix. The
contingency plans will also include events such as failure of the delivery of
chemicals for water and wastewater treatment or events of sabotage.
Azurix's contingency plans include the creation of teams that will be
standing by on the evening of December 31, 1999 and the morning of January 1,
2000, prepared to respond rapidly and otherwise as necessary (including
reverting to certain manual or other alternative methods of operation) to
mission-critical Year 2000-related problems when they become known. The
composition of teams that are assigned to deal with Year 2000 problems will vary
according to the nature, mission-criticality and location of the problem.
Because Azurix operates internationally, some of its Year 2000 contingency teams
will be stationed at Azurix's mission-critical facilities overseas.
WORST CASE SCENARIO
Azurix has reviewed the most reasonably likely worst case Year 2000
scenarios that Azurix may face. Analysis of these scenarios has led Azurix to
contemplate the following possibilities which, although unlikely, could
conceivably occur: (1) widespread or localized failure of electrical, gas and
similar supplies by utilities serving Azurix domestically and internationally,
(2) widespread or localized disruption of the services of communications common
carriers domestically and internationally, (3) widespread or localized
disruption to transportation services for Azurix and its employees, contractors,
suppliers and customers, (4) disruption to Azurix's ability to gain access to,
and remain working in, office buildings and other facilities, (5) the failure of
substantial numbers of Azurix's mission-critical information systems, including
both internal business systems and systems controlling operational facilities
such as water and wastewater treatment plants, domestically and internationally,
and (6) the failure, domestically and internationally, of outside systems, the
effects of which would have a cumulative material adverse impact on Azurix's
mission-critical systems.
If electrical power is unavailable to a water or wastewater facility for a
period greater than several hours, Azurix might not be able to keep the facility
functioning and, as a result, water might be discharged into the distribution
system and untreated or improperly treated wastewater might be discharged into
waterways. Azurix could face substantial claims by governments, governmental
authorities or customers, or loss of revenues, due to service interruptions,
inability to fulfill contractual obligations, inability to account for certain
revenues or obligations or to bill customers accurately and on a timely basis,
and increased expenses associated with litigation, harm to persons or to
tangible property, stabilization of operations following mission-critical
failures and the execution of contingency plans. Azurix could also experience an
inability by customers and others to pay, on a timely basis or at all,
obligations owed to Azurix. Under these circumstances, the adverse effect on
Azurix and the diminution of Azurix's revenues could be material, although not
quantifiable at this time. Further, in this scenario, the cumulative effect of
these failures could have a substantial adverse effect on the economy,
domestically and internationally. The adverse effect on Azurix and the
diminution of Azurix's revenues from a domestic or global recession or
depression, also are likely to be material, although not quantifiable at this
time.
Azurix will continue to monitor business conditions with the aim of
assessing and minimizing adverse effects, if any, that result or may result from
the Year 2000 problem.
24
<PAGE> 26
SUMMARY
Azurix has a plan to deal with the Year 2000 challenge and believes that it
will be able to achieve substantial Year 2000 readiness with respect to the
mission-critical systems that it controls. However, from a forward-looking
perspective, the extent and magnitude of the Year 2000 problem as it will affect
Azurix, both before and for some period after January 1, 2000, are difficult to
predict or quantify for a number of reasons, including the difficulty of
locating "embedded" chips that may be in a great variety of mission-critical
hardware used for process or flow control, environmental, transportation,
access, communications and other systems; the difficulty of inventorying,
assessing, remediating, verifying and testing outside systems; the difficulty in
locating all mission-critical internal software that is not Year 2000 ready, or
that may be subject to re-coding errors or sabotage; the unavailability of
certain necessary internal or external resources, including but not limited to
trained hardware and software engineers, technicians and other personnel to
perform adequate remediation, verification and testing of mission-critical
internal or outside systems. Accordingly, there can be no assurance that all of
Azurix's systems and all outside systems will be adequately remediated so that
they are Year 2000 ready by January 1, 2000, or by some earlier date, so as not
to create a material disruption to Azurix's business. If, despite Azurix's
reasonable efforts under the plan, there are mission-critical Year 2000-related
failures that create substantial disruptions to Azurix's business, the adverse
impact on Azurix's business could be material. Additionally, while Azurix's Year
2000 costs are not expected to be material, such costs are difficult to estimate
accurately because of unanticipated vendor delays, technical difficulties, the
impact of tests of outside systems and similar events. Moreover, the estimated
costs of implementing the plan do not take into account the costs, if any, that
might be incurred as a result of Year 2000-related failures that occur despite
Azurix's implementation of the plan.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Azurix is exposed to market risks, particularly changes in U.S. and
international interest rates and changes in currency exchange rates as measured
against the functional currencies in which it operates. Azurix engages in
hedging programs aimed at limiting the impact of significant and sudden
fluctuations, but there can be no assurance that such an approach will be
successful. Factors that could impact the effectiveness of its hedging programs
include the accuracy of revenue forecasts, volatility of the currency and
interest rate markets and the availability of hedging instruments. Azurix
utilizes swap contracts to manage interest rate risk. Currency exchange rate
risk is the result of transactions that are denominated in a currency other than
the functional currencies in which Azurix operates. The primary purpose of
Azurix's foreign currency hedging activities is to manage the volatility
associated with currency exchange rates. Azurix manages these risks by utilizing
derivative financial instruments for non-trading purposes. Azurix enters into
currency or interest rate contracts for the sole purpose of hedging an existing
or anticipated exposure, not for speculation. Azurix's accounting policies for,
and the significant terms of, derivative financial instruments are described in
Note 1 and Note 8, respectively, to the Consolidated Financial Statements
included in Azurix's Registration Statement on Form S-1.
Azurix uses J.P. Morgan's RiskMetrics(TM) system to estimate the
value-at-risk of its financial instruments. Value-at-risk is a statistical
estimate of the loss that would result from changes in market prices.
Value-at-risk is based on volatility and correlation data provided by J.P.
Morgan, a statistical confidence level and an estimate of the time period
required to liquidate the positions in the various financial instruments. The
value-at-risk estimate was based on normal market conditions, a 95% confidence
level and a liquidation period between 30 days and 60 months, depending on the
type of financial instrument. At December 31, 1998, the value-at-risk estimate
for foreign currency and interest rate exposure was $0.7 million and $0.9
million, respectively. At September 30, 1999, the value-at-risk estimate was
$0.2 million for both foreign currency and interest rate exposure. The
value-at-risk estimate includes only the risk related to the financial
instruments that serve as hedges and does not include the related underlying
hedged item. Judgment is required in interpreting market data and the use of
different market assumptions or estimation methodologies that will affect the
estimated value-at-risk amount.
25
<PAGE> 27
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Although Azurix believes its
expectations reflected in these forward-looking statements are based on
reasonable assumptions, no assurance can be given that these expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements include, among other things:
o Political developments in foreign countries
o The ability to enter new water and wastewater markets in the U.S. and
in other jurisdictions
o The timing and extent of deregulation of water and wastewater markets
in the U.S. and in other countries
o Regulatory developments in the U.S. and in other countries, including
tax legislation and regulations
o The timing and extent of efforts by governments to privatize water and
wastewater industries
o The timing and extent of changes in non-U.S. currencies and interest
rates
o The timing and extent of success in acquiring water and wastewater
assets and developing and managing water resources, including the
ability to qualify for and win bids for water and wastewater
infrastructure projects
o The ability of counterparties to financial risk management instruments
and other contracts with Azurix to meet their financial commitments to
Azurix
o The effectiveness of Azurix's Year 2000 plan and the Year 2000
readiness of outside entities, including foreign governments
o Azurix's ability to access the debt and equity markets during the
periods covered by the forward-looking statements, which will depend
on general market conditions and its credit ratings for its debt
obligations
Azurix undertakes no obligation to update or revise these forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed herein might not occur.
26
<PAGE> 28
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 29, 1999, Azurix Corp. filed a complaint in the Chancery Court
of the State of Delaware against Synagro Technologies, Inc. Prior to this
filing, Azurix and Synagro had been in discussions regarding possible
collaborative efforts and/or strategic transactions for several months. In
connection with these discussions, the parties entered into a confidentiality
agreement and related letter agreements containing standstill provisions
restricting Azurix's ability to acquire or engage in negotiations with a number
of companies for several months. In September 1999, Synagro orally agreed to
waive these standstill provisions with regard to two subsidiaries of Waste
Management, Inc. This oral waiver was made to representatives of Waste
Management, as well as to Azurix. Azurix also agreed to purchase up to $23
million of Synagro convertible preferred stock, subject to certain conditions,
and negotiated with Synagro over other arrangements, although no written
agreement regarding those other arrangements has been signed by both parties.
Since the waiver, Azurix and Waste Management have been negotiating a possible
acquisition by Azurix of the target companies. Azurix has not entered into an
acquisition agreement for the target companies, nor has any commitment or final
determination been made by the parties to proceed with an acquisition. Azurix's
complaint seeks to enforce the waiver of the standstill provisions and an
injunction against Synagro's interfering with the potential acquisition of the
target companies by Azurix, along with money damages and a declaration that
Azurix has no further obligations to purchase stock of Synagro or pay it any
other sums. On November 1, 1999, Synagro filed suit against Azurix Corp. in the
District Court of Harris County, Texas, seeking both a temporary restraining
order and permanent injunction to enjoin Azurix from using confidential
information that Azurix had obtained from Synagro and, in particular, alleging
that Azurix's negotiating or closing the acquisition that is the subject of the
Delaware case would violate the standstill agreement between the parties.
On November 2, 1999, the court in the Texas action entered a temporary
restraining order preventing Azurix from using any confidential or proprietary
information that it received from Synagro, including with respect to the target
companies, and preventing both Azurix and Synagro from acquiring, or entering
into an agreement to acquire, the target companies for a 14-day period. On
November 3, 1999, Azurix filed a motion asking the Texas court to postpone the
action in Texas until the Delaware Chancery Court had heard the earlier-filed
Delaware case. The hearing on this motion was held on November 12, 1999,
although the court has not yet issued its ruling. If the Texas court does not
defer its proceedings in favor of those in Delaware, a hearing on whether Azurix
should be preliminarily enjoined from proceeding with the proposed acquisitions
will be held on November 19, 1999. Azurix and Synagro have agreed to extend the
temporary restraining order through November 19, 1999. Azurix is also seeking an
early hearing date in the Delaware proceeding. During the week of November 8,
1999, certain subsidiaries of Waste Management have filed a motion to intervene
in both the Texas and Delaware cases alleging that Synagro has interfered with
their negotiations with Azurix.
Azurix denies that it has breached, or that the acquisition of the target
companies would breach, any of its obligations to Synagro. Synagro has not
alleged an amount of damages, and so it is not possible in this early stage of
the litigation to predict what, if any, damages might result if the cases were
determined adversely to Azurix. Although no assurances can be given, Azurix
believes that the ultimate resolution of this litigation will not have a
material adverse effect on its results of operations or financial position.
27
<PAGE> 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits:
---------
Exhibit
Number: Exhibit
------- -------
<S> <C>
3 Restated Bylaws of Azurix Corp., as amended on
November 2, 1999.
10.1 U.S. $150,000,000 Revolving Credit Agreement, dated
as of September 29, 1999, among the Registrant, as
Borrower, the Banks named therein, as Banks, Chase
Bank of Texas, N.A., as Administrative Agent, and
Credit Suisse First Boston, as Documentation Agent.
10.2 First Amendment to Azurix Corp. 1999 Stock Plan, dated
October 11, 1999.
27 Financial Data Schedule (included only in the
electronic filing of this document).
</TABLE>
(b) Reports on Form 8-K:
A Report on Form 8-K/A was filed on August 25, 1999, whereby the Registrant
amended "Item 7. Financial Statements and Exhibits" of its Form 8-K dated June
30, 1999, to include as an exhibit, the Concession Contract dated June 30, 1999,
between the Executive Authorities of the Province of Buenos Aires and Azurix
Buenos Aires S.A.
A Report on Form 8-K was filed on November 10, 1999, with respect to the
Registrant's financial results for the period ended September 30, 1999, and
includes a discussion of its financial outlook for the fourth quarter of 1999
and the fiscal year 2000.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AZURIX CORP.
Date: November 15, 1999 By: /s/ Rodney L. Faldyn
------------------------------
Rodney L. Faldyn
Chief Accounting Officer
(Duly Authorized Officer)
(Principal Accounting Officer)
29
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number: Description
------- -----------
<S> <C>
3 Restated Bylaws of Azurix Corp., as amended on
November 2, 1999.
10.1 U.S. $150,000,000 Revolving Credit Agreement, dated
as of September 29, 1999, among the Registrant, as
Borrower, the Banks named therein, as Banks, Chase
Bank of Texas, N.A., as Administrative Agent, and
Credit Suisse First Boston, as Documentation Agent.
10.2 First Amendment to Azurix Corp. 1999 Stock Plan, dated
October 11, 1999.
27 Financial Data Schedule (included only in the
electronic filing of this document).
</TABLE>
<PAGE> 1
EXHIBIT 3
RESTATED BYLAWS
OF
AZURIX CORP.
A Delaware Corporation
Date of Adoption
November 19, 1998
As Amended
January 29, 1999
November 2, 1999
<PAGE> 2
RESTATED BYLAWS
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article I Offices.......................................................................................1
Section 1. Registered Office.................................................................1
Section 2. Other Offices.....................................................................1
Article II Stockholders.................................................................................1
Section 1. Place of Meetings.................................................................1
Section 2. Quorum; Adjournment of Meetings...................................................1
Section 3. Annual Meetings...................................................................2
Section 4. Special Meetings..................................................................2
Section 5. Record Date.......................................................................2
Section 6. Notice of Meetings................................................................3
Section 7. Stockholder List..................................................................3
Section 8. Proxies...........................................................................3
Section 9. Voting; Elections; Inspectors.....................................................4
Section 10. Conduct of Meetings...............................................................5
Section 11. Treasury Stock....................................................................5
Section 12. Action Without Meeting............................................................5
Section 13. Business to be Brought Before the Annual Meeting..................................6
Article III Board of Directors..........................................................................7
Section 1. Power; Number; Term of Office.....................................................7
Section 2. Quorum; Voting....................................................................7
Section 3. Place of Meetings; Order of Business..............................................7
Section 4. First Meeting.....................................................................7
Section 5. Regular Meetings..................................................................8
Section 6. Special Meetings..................................................................8
Section 7. Nomination of Directors...........................................................8
Section 8. Removal...........................................................................9
Section 9. Vacancies; Increases in the Number of Directors...................................9
Section 10. Compensation......................................................................9
Section 11. Action Without a Meeting; Telephone Conference Meetings...........................9
Section 12. Approval or Ratification of Acts or Contracts by Stockholders....................10
Article IV Committees..................................................................................10
Section 1. Executive Committee..............................................................10
Section 2. Audit Committee..................................................................10
Section 3. Other Committees.................................................................11
Section 4. Procedure; Meetings; Quorum......................................................11
Section 5. Substitution and Removal of Members; Vacancies...................................11
</TABLE>
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<TABLE>
<S> <C> <C>
Section 6. Limitation on Power and Authority of Committees..................................11
Article V Officers.....................................................................................12
Section 1. Number, Titles and Term of Office................................................12
Section 2. Powers and Duties of the Chairman of the Board...................................12
Section 3. Powers and Duties of the Chief Executive Officer.................................12
Section 4. Powers and Duties of the President...............................................12
Section 5. Powers and Duties of the Executive Directors.....................................13
Section 6. Powers and Duties of the Vice Chairmen of the Board..............................13
Section 7. Powers and Duties of the Managing or Regional Directors..........................13
Section 8. Vice Presidents..................................................................13
Section 9. General Counsel..................................................................14
Section 10. Secretary........................................................................14
Section 11. Deputy Corporate Secretary and Assistant Secretaries.............................14
Section 12. Chief Financial Officer..........................................................14
Section 13. Chief Accounting Officer.........................................................15
Section 14. Controller.......................................................................15
Section 12. Treasurer........................................................................15
Section 13. Assistant Treasurers.............................................................15
Section 14. Action with Respect to Securities of Other Corporations..........................15
Section 15. Delegation.......................................................................16
Article VI Capital Stock...............................................................................16
Section 1. Certificates of Stock............................................................16
Section 2. Transfer of Shares...............................................................16
Section 3. Ownership of Shares..............................................................16
Section 4. Regulations Regarding Certificates...............................................17
Section 5. Lost or Destroyed Certificates...................................................17
Article VII Miscellaneous Provisions...................................................................17
Section 1. Fiscal Year......................................................................17
Section 2. Corporate Seal...................................................................17
Section 3. Notice and Waiver of Notice......................................................17
Section 4. Facsimile Signatures.............................................................18
Section 5. Reliance upon Books, Reports and Records.........................................18
Section 6. Application of Bylaws............................................................18
Article VIII Amendments................................................................................18
</TABLE>
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<PAGE> 4
RESTATED BYLAWS
OF
AZURIX CORP.
Article I
Offices
Section 1. Registered Office. The registered office of the Corporation required
by the state of incorporation of the Corporation to be maintained in the state
of incorporation of the Corporation shall be the registered office named in the
original charter documents of the Corporation, or such other office as may be
designated from time to time by the Board of Directors in the manner provided by
law.
Section 2. Other Offices. The Corporation may also have offices at such other
places both within and without the state of incorporation of the Corporation as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
Article II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders shall be held at
the principal office of the Corporation, or at such other place within or
without the state of incorporation of the Corporation as shall be specified or
fixed in the notices or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise required by law or
provided in the charter documents of the Corporation or these Bylaws, (i) the
holders of a majority of the voting power attributable to the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at any meeting of stockholders for the
transaction of business, (ii) in all matters other than election of directors,
the affirmative vote of the holders of a majority of the voting power
attributable to such stock so present or represented at any meeting of
stockholders at which a quorum is present shall constitute the act of the
stockholders, and (iii) where a separate vote by a class or classes is required,
a majority of the voting power attributable to the outstanding shares of such
class or classes, present in person or represented by proxy shall constitute a
quorum entitled to take action with respect to that vote on that matter and the
affirmative vote of the majority of the voting power attributable to the shares
of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
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Notwithstanding the other provisions of the charter documents of the Corporation
or these Bylaws, the chairman of the meeting or the holders of a majority of the
voting power attributable to the issued and outstanding stock, present in person
or represented by proxy and entitled to vote thereat, at any meeting of
stockholders, whether or not a quorum is present, shall have the power to
adjourn such meeting from time to time, without any notice other than
announcement at the meeting of the time and place of the holding of the
adjourned meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at such meeting. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally called.
Section 3. Annual Meetings. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the state of incorporation of the
Corporation), on such date, and at such time as the Board of Directors shall fix
and set forth in the notice of the meeting, which date shall be within thirteen
(13) months subsequent to the last annual meeting of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the charter documents
of the Corporation, special meetings of the stockholders for any purpose or
purposes may be called at any time by the Chairman of the Board, by any Vice
Chairman of the Board, by the President, by any Executive Director, by a
majority of the Board of Directors, or by a majority of the Executive Committee
(if any), at such time and at such place as may be stated in the notice of the
meeting. Business transacted at a special meeting shall be confined to the
purpose(s) stated in the notice of such meeting.
Section 5. Record Date. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders, or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors of the Corporation may fix a date as the record
date for any such determination of stockholders, which record date shall not
precede the date on which the resolutions fixing the record date are adopted and
which record date, in the case of a meeting of stockholders, shall not be more
than sixty (60) days nor less than ten (10) days before the date of such meeting
of stockholders, nor, in the case of any other action, more than sixty (60) days
prior to any such action.
If the Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice of
or to vote at such meeting shall be at the close of business on the third
business day next preceding the day on which notice is given. If the Board of
Directors does not fix the record date for determining stockholders for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
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meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
For the purpose of determining the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If the Board of
Directors does not fix the record date, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation at its registered office
in the state of incorporation of the Corporation, at its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If the Board of Directors does not fix the
record date, and prior action by the Board of Directors is necessary, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action.
Section 6. Notice of Meetings. Written notice of the place, date and hour of all
meetings, and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be given by or at the direction of the Chairman of
the Board, a Vice Chairman of the Board, the President, an Executive Director,
the Secretary or other person(s) calling the meeting to each stockholder
entitled to vote thereat not less than ten (10) nor more than sixty (60) days
before the date of the meeting. Such notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation.
Section 7. Stockholder List. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in the name of such stockholder, shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The stockholder list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy.
Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be
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<PAGE> 7
received and canvassed by the secretary of the meeting, who shall decide all
questions touching upon the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall have been duly appointed as provided in Section 9 of Article II
hereof, in which event such inspector or inspectors shall decide all such
questions.
No proxy shall be valid after three (3) years from its date, unless the proxy
provides for a longer period. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and coupled with an interest sufficient in
law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, each
person designated to act as proxy and so attending shall be entitled to exercise
such powers in respect of such portion of the shares as is equal to the
reciprocal of the fraction equal to the number of persons designated to act as
proxies and in attendance divided by the total number of shares represented by
such proxies.
Section 9. Voting; Elections; Inspectors. Unless otherwise required by law or
provided in the charter documents of the Corporation, each stockholder shall on
each matter submitted to a vote at a meeting of stockholders have one vote for
each shares of stock entitled to vote which is registered in his name on the
record date for the meeting. For the purposes hereof, each election to fill a
directorship shall constitute a separate matter. Shares registered in the name
of another corporation, domestic or foreign, or other legal entity may be voted
by such officer, agent or proxy as the bylaws (or comparable instrument) of such
corporation or other legal entity may prescribe, or in the absence of such
provisions, as the Board of Directors (or comparable body) of such corporation
or other legal entity may determine. Shares registered in the name of a deceased
person may be voted by the executor or administrator of such person's estate,
either in person or by proxy.
All voting, except as required by the charter documents of the Corporation or
where otherwise required by law, may be by a voice vote; provided, however, upon
request of the chairman of the meeting or upon demand therefor by stockholders
holding a majority of the issued and outstanding stock present in person or by
proxy at any meeting a stock vote shall be taken. Every stock vote shall be
taken by written ballots, each of which shall state the name of the stockholder
or proxy voting and such other information as may be required under the
procedure established for the meeting. All elections of directors shall be by
written ballots, unless otherwise provided in the charter documents of the
Corporation.
In advance of any meeting of stockholders, the Chairman of the Board, any Vice
Chairman of the Board, the President, any Executive Director or the Board of
Directors shall appoint one or more inspectors, each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. Such inspector(s) shall receive the
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<PAGE> 8
written ballots, count the votes, make and sign a certificate of the result
thereof and take such further action as may be required of the inspector(s)
under the laws of the state of incorporation of the Corporation. The Chairman of
the Board, any Vice Chairman of the Board, the President, any Executive Director
or the Board of Directors may appoint any person to serve as inspector, except
no candidate for the office of director shall be appointed as an inspector
Unless otherwise provided in the charter documents of the Corporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders shall be
presided over by the Chairman of the Board, or if the Chairman of the Board is
not present, by any Vice Chairman of the Board, or if no Vice Chairman is
present, by the President, if the President is not present, by any Executive
Director, or if none of the Chairman of the Board, Vice Chairmen of the Board,
the President and Executive Directors is present, by a chairman elected at the
meeting. The Secretary of the Corporation, if present, shall act as secretary of
such meetings, or if the Secretary is not present, the Deputy Corporate
Secretary or an Assistant Secretary shall so act; if none of the Secretary, the
Deputy Corporate Secretary and an Assistant Secretary is present, then a
secretary shall be appointed by the chairman of the meeting. The chairman of any
meeting of stockholders shall determine the order of business and, subject to
the requirements of the laws of the state of incorporation of the Corporation,
the procedure at the meeting, including such regulation of the manner of voting
and the conduct of discussion as seem to the chairman in order.
Section 11. Treasury Stock. The Corporation shall not vote, directly or
indirectly, shares of its own stock owned by it, and such shares shall not be
counted for quorum purposes. No other corporation of which the Corporation owns
a majority of the shares entitled to vote in the election of directors of such
other corporation shall vote, directly or indirectly, shares of the
Corporation's stock owned by such other corporation, and such shares shall not
be counted for quorum purposes. Nothing in this Section 11 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
Section 12. Action Without Meeting. Unless otherwise provided in the charter
documents of the Corporation, any action permitted or required by law, the
charter documents of the Corporation or these Bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
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Every written consent shall bear the date of signature of each stockholder who
signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of corporation action without a meeting by less than
a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Section 13. Business to be Brought Before the Annual Meeting. To be properly
brought before the annual meeting of stockholders, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 13 of Article II, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 13 of Article II.
In addition to any other applicable requirements, for business to be brought
before an annual meeting by a stockholder of the Corporation, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
120 days prior to the anniversary date of the proxy statement for the preceding
annual meeting of stockholders of the Corporation. A stockholder's notice to the
Secretary shall set forth as to each matter (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the acquisition date, the class and the number of shares of
voting stock of the Corporation which are owned beneficially by the stockholder,
(iv) any material interest of the stockholder in such business, and (v) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to bring the proposed business before the meeting.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at the annual meeting except in accordance with the procedures set
forth in this Section 13 of Article II.
The chairman of the annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 13 of Article II, and if the
chairman should so determine, the chairman shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted.
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Notwithstanding the foregoing provisions of this Section 13 of Article II, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 13.
Article III
Board of Directors
Section 1. Power; Number; Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the charter
documents of the Corporation, the Board of Directors may exercise all the powers
of the Corporation.
The number of directors that shall constitute the whole Board of Directors shall
be determined from time to time by the Board of Directors (provided that no
decrease in the number of directors which would have the effect of shortening
the term of an incumbent director may be made by the Board of Directors). If the
Board of Directors makes no such determination, the number of directors shall be
not less than four and not more than seven. Each director shall hold office
until such director's successor shall have been elected and qualified or until
such director's earlier death, resignation or removal.
Unless otherwise provided in the charter documents of the Corporation, directors
need not be stockholders nor residents of the state of incorporation of the
Corporation.
Section 2. Quorum; Voting. Unless otherwise provided in the charter documents of
the Corporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business of the Board of Directors and the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may hold their
meetings and may have an office and keep the books of the Corporation, except as
otherwise provided by law, in such place or places, within or without the state
of incorporation of the Corporation, as the Board of Directors may from time to
time determine. At all meetings of the Board of Directors business shall be
transacted in such order as shall from time to time be determined by the
Chairman of the Board, or in the absence of the Chairman of the Board, by any
Vice Chairman of the Board, or in the absence of a Vice Chairman, the President
(should the President be a director), or in the President's absence, by an
Executive Director (should that Executive Director be a director) or by the
Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of the stockholders. Notice of such meeting shall not be required. At
the first meeting of the Board of Directors in each year at which a quorum shall
be present, held next after the
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annual meeting of stockholders, the Board of Directors shall elect the officers
of the Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be
held at such times and places as shall be designated from time to time by the
Chairman of the Board or, in the absence of the Chairman of the Board, by any
Vice Chairman of the Board, or in the absence of a Vice Chairman, the President
(should the President be a director), or in the President's absence, by an
Executive Director (should that Executive Director be a director), or by the
Board of Directors. Notice of such regular meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board, any Vice Chairman of the Board, the
President (should the President be a director), an Executive Director (should
that Executive Director be a director) or, on the written request of any two
directors, by the Secretary, in each case on at least twenty-four (24) hours
personal, written, telegraphic, cable or wireless notice to each director. Such
notice, or any waiver thereof pursuant to Article VII, Section 3 hereof, need
not state the purpose or purposes of such meeting, except as may otherwise be
required by law or provided for in the charter documents of the Corporation or
these Bylaws. Meetings may be held at any time without notice if all the
directors are present or if those not present waive notice of the meeting in
writing.
Section 7. Nomination of Directors. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors,
except as otherwise provided in Section 9 of this Article III. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of stockholders (a) by or at the direction of the Board of Directors
or (b) by any stockholder of the Corporation who is a stockholder of record at
the time of giving of notice provided for in this Section 7 of Article III, who
shall be entitled to vote for the election of directors at the meeting and who
complies with the notice procedures set forth in this Section 7 of Article III.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation (i)
with respect to an election to be held at the annual meeting of the stockholders
of the Corporation, 120 days prior to the anniversary date of the proxy
statement for the immediately preceding annual meeting of stockholders of the
Corporation, and (ii) with respect to an election to be held at a special
meeting of stockholders of the Corporation for the election of directors, not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or public disclosure of the date of
the meeting was made, whichever first occurs. Such stockholder's notice to the
Secretary shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, all information relating to
the person that is required to be disclosed in solicitations for proxies for
election of directors, or is otherwise required, pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including the written
consent of such person to be named in the proxy statement as a nominee and to
serve as a director if elected); and (b) as to the stockholder giving the notice
(i) the name and address, as they appear on the Corporation's books, of such
stockholder, and (ii) the
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class and number of shares of capital stock of the Corporation which are
beneficially owned by the stockholder. At the request of any officer of the
Corporation, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
In the event that a person is validly designated as nominee to the Board and
shall thereafter become unable or unwilling to stand for election to the Board
of Directors, the Board of Directors or the stockholder who proposed such
nominee, as the case may be, may designate a substitute nominee.
Except as otherwise provided in Section 9 of this Article III, no person shall
be eligible to serve as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 7 of Article III. The
chairman of the meeting of stockholders shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the Bylaws, and if the chairman should so determine,
the chairman shall so declare to the meeting and the defective nomination shall
be disregarded.
Notwithstanding the foregoing provisions of this Section 7 of Article III, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 7 of Article III.
Section 8. Removal. Any director or the entire Board of Directors may be
removed, with or without cause by the holders of a majority of the shares then
entitled to vote at an election of directors; provided that, with respect to the
removal without cause of a director or directors elected by the holders of any
class or series entitled to elect one or more directors, only the holders of
outstanding shares of that class or series shall be entitled to vote on such
removal.
Section 9. Vacancies; Increases in the Number of Directors. Unless otherwise
provided in the charter documents of the Corporation, vacancies existing on the
Board of Directors for any reason and newly created directorships resulting from
any increase in the authorized number of directors to be elected by all of the
stockholders having the right to vote as a single class may be filled by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director; and any director so chosen shall
hold office until the next annual election and until such Director's successor
shall have been elected and qualified, or until such Director's earlier death,
resignation or removal.
Section 10. Compensation. Directors and members of standing committees may
receive such compensation as the Board of Directors from time to time shall
determine to be appropriate, and shall be reimbursed for all reasonable expenses
incurred in attending and returning from meetings of the Board of Directors.
Section 11. Action Without a Meeting; Telephone Conference Meetings. Unless
otherwise restricted by the charter documents of the Corporation, any action
required or
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permitted to be taken at any meeting of the Board of Directors, or any committee
designated by the Board of Directors, may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee. Such consent shall have the
same force and effect as a unanimous vote at a meeting and may be stated as such
in any document or instrument filed with the Secretary of State of the state of
incorporation of the Corporation.
Unless otherwise restricted by the charter documents of the Corporation, subject
to the requirement for notice of meetings, members of the Board of Directors or
members of any committee designated by the Board of Directors may participate in
a meeting of such Board of Directors or committee, as the case may be, by means
of a conference telephone connection or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 12. Approval or Ratification of Acts or Contracts by Stockholders. The
Board of Directors in its discretion may submit any act or contract for approval
or ratification at any annual meeting of the stockholders, or at any special
meeting of the stockholders called for the purpose of considering any such act
or contract, and any act or contract that shall be approved or be ratified by
the vote of the stockholders holding a majority of the voting power attributable
to the issued and outstanding shares of stock of the Corporation entitled to
vote and present in person or by proxy at such meeting (provided that a quorum
is present) shall be as valid and as binding upon the Corporation and upon all
the stockholders as if it has been approved or ratified by every stockholder of
the Corporation.
Article IV
Committees
Section 1. Executive Committee. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, designate an Executive Committee
consisting of one or more of the directors of the Corporation, one of whom shall
be designated chairman of the Executive Committee. During the intervals between
the meetings of the Board of Directors, the Executive Committee shall possess
and may exercise all the powers of the Board of Directors, except as provided in
Section 6 of this Article IV. The Executive Committee shall also have, and may
exercise, all the powers of the Board of Directors, except as aforesaid,
whenever a quorum of the Board of Directors shall fail to be present at any
meeting of the Board.
Section 2. Audit Committee. The Board of Directors may, by resolution passed by
a majority of the whole Board of Directors, designate an Audit Committee
consisting of one or more of the directors of the Corporation, one of whom shall
be designated chairman of the Audit Committee. The Audit Committee shall have
and may exercise such powers and authority as provided in the resolution
creating it and as determined
10
<PAGE> 14
from time to time by the Board of Directors, except as provided in Section 6 of
this Article IV.
Section 3. Other Committees. The Board of Directors may, by resolution passed
from time to time by a majority of the whole Board of Directors, designate such
other committees as it shall see fit consisting of one or more of the directors
of the Corporation, one of whom shall be designated chairman of each such
committee. Any such committee shall have and may exercise such powers and
authority as provided in the resolution creating it and as determined from time
to time by the Board of Directors, except as provided in Section 6 of this
Article IV.
Section 4. Procedure; Meetings; Quorum. Any committee designated pursuant to
this Article IV shall keep regular minutes of its actions and proceedings in a
book provided for that purpose and report the same to the Board of Directors at
its meeting next succeeding such action, shall fix its own rules or procedures,
and shall meet at such times and at such place or places as may be provided by
such rules, or by such committee or the Board of Directors. Should a committee
fail to fix its own rules, the provisions of these Bylaws, pertaining to the
calling of meetings and conduct of business by the Board of Directors, shall
apply as nearly as practicable. At every meeting of any such committee, the
presence of a majority of all the members thereof shall constitute a quorum,
except as provided in Section 5 of this Article IV, and the affirmative vote of
a majority of the members present shall be necessary for the adoption by it of
any resolution.
Section 5. Substitution and Removal of Members; Vacancies. The Board of
Directors may designate one or more directors as alternate members of any
committee who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
Section 6. Limitation on Power and Authority of Committees. No committee of the
Board of Directors shall have the power or authority of the Board of Directors
in reference to amending the charter documents of the Corporation (except that a
committee may, to the extent and in the manner authorized by the laws of the
state of incorporation of the Corporation, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series) or adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, amending, altering or repealing
these Bylaws or adopting new bylaws for
11
<PAGE> 15
the Corporation, and, unless a resolution passed by a majority of the whole
Board of Directors so provides, no such committee shall have the power and
authority to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger pursuant to the laws of the state of
incorporation of the Corporation.
Article V
Officers
Section 1. Number, Titles and Term of Office. The officers of the Corporation
shall be a Chairman of the Board, a Treasurer, a Secretary, and such other
officers as the Board of Directors may from time to time elect or appoint
(including, but not limited to, one or more Vice Chairmen of the Board, a
President, one or more Executive Directors, one or more Managing or Regional
Directors, one or more Vice Presidents (any one or more of whom may be
designated Executive Vice President or Senior Vice President), a Chief Financial
Officer, a Chief Accounting Officer, a Controller, a General Counsel, a Deputy
Corporate Secretary, one or more Assistant Secretaries and one or more Assistant
Treasurers). Each officer shall hold office until such officer's successor shall
be duly elected and shall qualify or until such officer's death or until such
officer shall resign or shall have been removed. Any number of offices may be
held by the same person, unless the charter documents of the Corporation provide
otherwise. Except for the Chairman of the Board, no officer need be a director.
Section 2. Powers and Duties of the Chairman of the Board. The Chairman of the
Board shall preside at all meetings of the stockholders and of the Board of
Directors; and he shall have such other powers and duties as designated in these
Bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 3. Powers and Duties of the Chief Executive Officer. The Chairman of the
Board shall be the chief executive officer of the Corporation unless the Board
of Directors designates any Executive Director or the President as chief
executive officer. Subject to the control of the Board of Directors and the
executive committee (if any), the chief executive officer shall have general
executive charge, management and control of the properties, business and
operations of the Corporation with all such powers as may be reasonably incident
to such responsibilities; may agree upon and execute all leases, contracts,
evidences of indebtedness and other obligations in the name of the Corporation
and may sign all certificates for shares of capital stock of the Corporation;
and shall have such other powers and duties as designated in accordance with
these Bylaws and as from time to time may be assigned to the chief executive
officer by the Board of Directors.
Section 4. Powers and Duties of the President. Unless the Board of Directors
otherwise determines, the President shall have the authority to agree upon and
execute all leases, contracts, evidences of indebtedness and other obligations
in the name of the Corporation; and, unless the Board of Directors, otherwise
determines, the President shall, in the absence of the Chairman of the Board,
any Vice Chairman of the Board or any Executive Director or if there be no
Chairman of the Board or Vice Chairman of the Board and in the absence of all
Executive Directors, preside at all meetings of the stockholders and (should the
President be a director) of the Board of Directors; and the
12
<PAGE> 16
President shall have such other powers and duties as designated in accordance
with these Bylaws and as from time to time may be assigned to the President by
the Board of Directors or the Chairman of the Board.
Section 5. Powers and Duties of the Executive Directors. The Executive Directors
shall be the executive officers of the Corporation next in authority to the
Chairman of the Board, whom the Executive Directors shall assist in the
management of the business of the Corporation and the implementation of orders
and resolutions of the Board of Directors. Unless the Board of Directors
otherwise determines, each Executive Director shall have the authority to agree
upon and execute all leases, contracts, evidence of indebtedness and other
obligations in the name of the Corporation. Each Executive Director shall have
such other powers and duties as designated in accordance with these Bylaws and
as from time to time may be assigned to such Executive Director by the Board of
Directors or the Chairman of the Board.
Section 6. Powers and Duties of the Vice Chairmen of the Board. The Board of
Directors may assign areas of responsibility to the Vice Chairmen of the Board,
and, in such event, and subject to the overall direction of the Chairman of the
Board and the Board of Directors, the Vice Chairmen of the Board shall be
responsible for supervising the management of the affairs of the Corporation and
its subsidiaries within the area or areas assigned and shall monitor and review
on behalf of the Board of Directors all functions within the corresponding area
or areas of the Corporation and each such subsidiary of the Corporation. In the
absence of the President, or in the event of the President's inability or
refusal to act, a Vice Chairman of the Board shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Further, the Vice Chairmen of the Board
shall have such other powers and duties as designated in accordance with these
Bylaws and as from time to time may be assigned to the Vice Chairmen of the
Board by the Board of Directors or the Chairman of the Board.
Section 7. Powers and Duties of the Managing or Regional Directors. The Managing
or Regional Directors shall be the executive officers of the Corporation next in
authority to the Chairman of the Board, the Vice Chairmen, the President and the
Executive Directors, all of whom the Managing or Regional Directors shall assist
in the management of the business of the Corporation and the implementation of
orders and resolutions of the Board of Directors. Unless the Board of Directors
otherwise determines, each Managing or Regional Director shall have the
authority to agree upon and execute all leases, contracts, evidence of
indebtedness and other obligations in the name of the Corporation. Each Managing
or Regional Director shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to such
Managing or Regional Director by the Board of Directors, the Chairman of the
Board, the Vice Chairmen of the Board, the Executive Directors or the President.
Section 8. Vice Presidents. Subject to any restrictions that may be imposed by
the Board of Directors, each Vice President shall at all times possess power to
sign all certificates, contracts and other instruments of the Corporation,
except as otherwise limited in writing by the Chairman of the Board, any
Executive Director, the President, any Vice Chairman
13
<PAGE> 17
of the Board or any Managing or Regional Director of the Corporation. Each Vice
President shall have such other powers and duties as from time to time may be
assigned to such Vice President by the Board of Directors, the Chairman of the
Board, any Executive Director, the President, any Vice Chairman of the Board, or
any Managing or Regional Director.
Section 9. General Counsel. The General Counsel shall act as chief legal advisor
to the Corporation. The General Counsel may have one or more staff attorneys and
assistants, and may retain other attorneys to conduct the legal affairs and
litigation of the Corporation under the General Counsel's supervision.
Section 10. Secretary. The Secretary shall keep the minutes of all meetings of
the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation affix the seal of the
Corporation to any contract of the Corporation and attest the affixation of the
seal of the Corporation thereto; may sign with the other appointed officers all
certificates for shares of capital stock of the Corporation; shall have charge
of the certificate books, transfer books and stock ledgers, and such other books
and papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection of any director upon application at the
office of the Corporation during business hours; shall have such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to the Secretary by the Board of Directors, the Chairman of the Board,
any Executive Director, the President, any Vice Chairman of the Board or any
Managing or Regional Director; and shall in general perform all acts incident to
the office of Secretary, subject to the control of the Board of Directors, the
Chairman of the Board, any Executive Director, the President, any Vice Chairman
of the Board or any Managing or Regional Director.
Section 11. Deputy Corporate Secretary and Assistant Secretaries. The Deputy
Corporate Secretary and each Assistant Secretary shall have the usual powers and
duties pertaining to such offices, together with such other powers and duties as
designated in these Bylaws and as from time to time may be assigned to the
Deputy Corporate Secretary or an Assistant Secretary by the Board of Directors,
the Chairman of the Board, any Executive Director, the President, any Vice
Chairman of the Board, any Managing or Regional Director or the Secretary. The
Deputy Corporate Secretary shall exercise the powers of the Secretary during
that officer's absence or inability or refusal to act.
Section 12. Chief Financial Officer. The Chief Financial Officer shall be the
officer of the Corporation who shall have the responsibility to oversee
financial matters relating to the business of the Corporation. Unless the Board
of Directors otherwise determines, the Chief Financial Officer shall have the
authority to agree upon and execute all leases, contracts, evidence of
indebtedness and other obligations in the name of the Corporation. The Chief
Financial Officer shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
Chief Financial Officer by the Board of Directors, the Chairman of the Board,
any Executive Director, the President, or any Vice Chairman of the Board.
14
<PAGE> 18
Section 13. Chief Accounting Officer. The Chief Accounting Officer shall be the
officer of the Corporation who shall have the responsibility to oversee
accounting, tax, cash management and treasury matters relating to the business
of the Corporation. The Chief Accounting Officer may have one or more staff
accountants and assistants, and may retain other accountants to assist with the
matters relating to the business of the Corporation under the Chief Accounting
Officer's supervision. Unless the Board of Directors otherwise determines, the
Chief Accounting Officer shall have the authority to agree upon and execute all
leases, contracts, evidence of indebtedness and other obligations in the name of
the Corporation. The Chief Accounting Officer shall have such other powers and
duties as designated in accordance with these Bylaws and as from time to time
may be assigned to the Chief Accounting Officer by the Board of Directors, the
Chairman of the Board, any Executive Director, the President, or any Vice
Chairman of the Board.
Section 14. Controller. The Controller shall report to the Chief Accounting
Officer and may issue any financial statements or reports of the Company, or on
behalf of the Company for any interest it owns in other entities.
Section 15. Treasurer. Subject to any restrictions that may be imposed by the
Board of Directors, the Treasurer shall have responsibility for the custody and
control of all the funds and securities of the Corporation, and shall have such
other powers and duties as designated in these Bylaws and as from time to time
may be assigned to the Treasurer by the Board of Directors, the Chairman of the
Board, any Executive Director, the President, any Vice Chairman of the Board or
any Managing or Regional Director. The Treasurer shall perform all acts incident
to the position of Treasurer, subject to the control of the Board of Directors,
the Chairman of the Board, any Executive Director, the President, any Vice
Chairman of the Board, or any Managing or Regional Director; and the Treasurer
shall, if required by the Board of Directors, give such bond for the faithful
discharge of the Treasurer's duties in such form as the Board of Directors may
require.
Section 16. Assistant Treasurers. Each Assistant Treasurer shall have the usual
powers and duties pertaining to such office, together with such other powers and
duties as designated in these Bylaws and as from time to time may be assigned to
each Assistant Treasurer by the Board of Directors, the Chairman of the Board,
any Executive Director, the President, any Vice Chairman of the Board, any
Managing or Regional Director, or the Treasurer. Any Assistant Treasurer may
exercise the powers of the Treasurer during that officer's absence or inability
or refusal to act.
Section 17. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the Chairman of the Board,
any Executive Director, the President or any Vice Chairman of the Board,
together with the Secretary, the Deputy Corporate Secretary or any Assistant
Secretary shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of security holders of or
with respect to any action of security holders of any other corporation in which
this Corporation may hold securities and otherwise to exercise any and all
rights and powers which this Corporation may possess by reason of its ownership
of securities in such other corporation.
15
<PAGE> 19
Section 18. Delegation. For any reason that the Board of Directors may deem
sufficient, the Board of Directors may, except where otherwise provided by
statute, delegate the powers or duties of any officer to any other person, and
may authorize any officer to delegate specified duties of such officer to any
other person. Any such delegation or authorization by the Board shall be
effected from time to time by resolution of the Board of Directors.
Article VI
Capital Stock
Section 1. Certificates of Stock. The certificates for shares of the capital
stock of the Corporation shall be in such form, not inconsistent with that
required by law and the charter documents of the Corporation, as shall be
approved by the Board of Directors. Every holder of stock represented by
certificates shall be entitled to have a certificate signed by or in the name of
the Corporation by the Chairman of the Board, an Executive Director, President,
a Vice Chairman of the Board or a Vice President and the Secretary, Deputy
Corporate Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer of the Corporation representing the number of shares (and, if the
stock of the Corporation shall be divided into classes or series, certifying the
class and series of such shares) owned by such stockholder which are registered
in certified form; provided, however, that any of or all the signatures on the
certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary, or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon
any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued and shall
exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives upon
surrender and cancellation of certificates for a like number of shares. Upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to treat the
holder of record of any share or shares of capital stock of the Corporation as
the holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the state of incorporation of the
Corporation.
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<PAGE> 20
Section 4. Regulations Regarding Certificates. The Board of Directors shall have
the power and authority to make all such rules and regulations as they may deem
expedient concerning the issue, transfer and registration or the replacement of
certificates for shares of capital stock of the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors may determine
the conditions upon which the Corporation may issue a new certificate of stock
in place of a certificate theretofore issued by it which is alleged to have been
lost, stolen or destroyed and may require the owner of such certificate or such
owner's legal representative to give bond, with surety sufficient to indemnify
the Corporation and each transfer agent and registrar against any and all losses
or claims which may arise by reason of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate in the place of the
one so lost, stolen or destroyed.
Article VII
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall end on the last
day of December of each year.
Section 2. Corporate Seal. The corporate seal shall be circular in form and
shall have inscribed thereon the name of the Corporation and the state of its
incorporation, which seal shall be in the charge of the Secretary and shall be
affixed to certificates of stock, debentures, bonds, and other documents, in
accordance with the direction of the Board of Directors, and as may be required
by law; however, the Secretary may, if the Secretary deems it expedient, have a
facsimile of the corporate seal inscribed on any such certificates of stock,
debentures, bonds, contracts or other documents. Duplicates of the seal may be
kept for use by the Deputy Corporate Secretary or any Assistant Secretary.
Section 3. Notice and Waiver of Notice. Whenever any notice is required to be
given by law, the charter documents of the Corporation or under the provisions
of these Bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, cable or wireless transmission (including by telecopy or facsimile
transmission) or (ii) by deposit of the same in a post office box or by delivery
to an overnight courier service company in a sealed prepaid wrapper addressed to
the person entitled thereto at such person's post office address, as it appears
on the records of the Corporation, and such notice shall be deemed to have been
given on the day of such transmission or mailing or delivery to courier, as the
case may be.
Whenever notice is required to be given by law, the charter documents of the
Corporation or under any of the provisions of these Bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person, including without limitation a director, at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders, directors, or members of a committee of
directors need be specified in any written waiver of notice unless so required
by the charter documents of the Corporation or these Bylaws.
Section 4. Facsimile Signatures. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 5. Reliance upon Books, Reports and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors,
shall, in the performance of such person's duties, be fully protected in relying
in good faith upon the records of the Corporation and upon such information,
opinion, reports or statements presented to the Corporation by any of the
Corporation's officers or employees, or committees of the Board of Directors, or
by any other person as to matters the member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 6. Application of Bylaws. In the event that any provisions of these
Bylaws is or may be in conflict with any law of the United States, of the state
of incorporation of the Corporation or of any other governmental body or power
having jurisdiction over this Corporation, or over the subject matter to which
such provision of these Bylaws applies, or may apply, such provision of these
Bylaws shall be inoperative to the extent only that the operation thereof
unavoidably conflicts with such law and shall in all other respects be in full
force and effect.
Article VIII
Amendments
The Board of Directors shall have the power to adopt, amend and repeal from time
to time Bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal such Bylaws as adopted
or amended by the Board of Directors.
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<PAGE> 1
EXHIBIT 10.1
U.S.$150,000,000
REVOLVING CREDIT AGREEMENT
Dated as of September 29, 1999
Among
AZURIX CORP.
as Borrower
and
THE BANKS NAMED HEREIN
as Banks
and
CHASE BANK OF TEXAS, N.A.
as Administrative Agent
and
CREDIT SUISSE FIRST BOSTON
as Documentation Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS................................... 1
SECTION 1.01. Certain Defined Terms................................. 1
SECTION 1.02. Computation of Time Periods........................... 10
SECTION 1.03. Accounting Terms...................................... 10
SECTION 1.04. Miscellaneous......................................... 10
SECTION 1.05. Ratings............................................... 10
ARTICLE II AMOUNT AND TERMS OF THE ADVANCES.................................. 10
SECTION 2.01. The Advances.......................................... 10
SECTION 2.02. Making the Advances................................... 10
SECTION 2.03. Fees.................................................. 11
SECTION 2.04. Repayment............................................. 12
SECTION 2.05. Interest.............................................. 12
SECTION 2.06. Additional Interest on LIBOR Advances................. 12
SECTION 2.07. Interest Rate Determination and Protection............ 12
SECTION 2.08. Voluntary Conversion of Advances...................... 13
SECTION 2.09. Prepayments........................................... 14
SECTION 2.10. Increased Costs; Capital Adequacy, Etc................ 14
SECTION 2.11. Illegality............................................ 15
SECTION 2.12. Payments and Computations............................. 16
SECTION 2.13. Taxes................................................. 16
SECTION 2.14. Sharing of Payments, Etc.............................. 18
SECTION 2.15. Ratable Reduction or Termination of the Commitments;
Effect of Termination................................. 18
SECTION 2.16. Replacement of Bank................................... 18
SECTION 2.17. Renewal of Commitments................................ 19
SECTION 2.18. Replacement of Commitments............................ 20
SECTION 2.19. Non-Ratable Reduction or Termination of Commitment.... 20
ARTICLE III CONDITIONS TO ADVANCES........................................... 21
SECTION 3.01. Initial Condition Precedent........................... 21
SECTION 3.02. Additional Conditions Precedent to Each Advance....... 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................... 22
SECTION 4.01. Representations and Warranties of the Borrower........ 22
SECTION 4.02. Year 2000............................................. 23
ARTICLE V COVENANTS OF THE BORROWER.......................................... 23
SECTION 5.01. Affirmative Covenants................................. 23
SECTION 5.02. Negative Covenants.................................... 25
ARTICLE VI EVENTS OF DEFAULT................................................. 26
SECTION 6.01. Events of Default..................................... 26
ARTICLE VII THE ADMINISTRATIVE AGENT......................................... 28
SECTION 7.01. Authorization and Action.............................. 28
SECTION 7.02. Administrative Agent's Reliance, Etc.................. 28
SECTION 7.03. Administrative Agent and Its Affiliates............... 29
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 7.04. Bank Credit Decision.................................. 29
SECTION 7.05. Certain Rights of the Administrative Agent............ 29
SECTION 7.06. Holders............................................... 29
SECTION 7.07. Indemnification....................................... 30
SECTION 7.08. Resignation by the Administrative Agent............... 30
ARTICLE VIII MISCELLANEOUS................................................... 31
SECTION 8.01. Amendments, Etc....................................... 31
SECTION 8.02. Notices, Etc.......................................... 31
SECTION 8.03. No Waiver; Remedies................................... 32
SECTION 8.04. Costs, Expenses and Taxes............................. 32
SECTION 8.05. Right of Set-Off...................................... 33
SECTION 8.06. Assignments and Participations........................ 33
SECTION 8.07. Governing Law; Entire Agreement....................... 35
SECTION 8.08. Interest.............................................. 35
SECTION 8.09. Confidentiality....................................... 36
SECTION 8.10. Execution in Counterparts............................. 36
SECTION 8.11. Domicile of Loans..................................... 36
SECTION 8.12. Binding Effect........................................ 36
SECTION 8.13. Return of Notes....................................... 36
</TABLE>
-iii-
<PAGE> 4
Schedule I - Facility and Utilization Fees and Applicable Margins
Schedule II - Applicable Lending Offices
Exhibit A - Form of Promissory Note
Exhibit B - Notice of Borrowing
Exhibit C - Opinion of Vinson & Elkins L.L.P., Counsel to Borrower
Exhibit D - Opinion of Executive Director and General Counsel of Borrower
Exhibit E - Assignment and Acceptance
Exhibit F-1 - New Bank Agreement
Exhibit F-2 - Commitment Increase Agreement
-iv-
<PAGE> 5
REVOLVING CREDIT AGREEMENT
Dated as of September 29, 1999
AZURIX CORP., a Delaware corporation, (the "Borrower"), the lenders
party hereto, CHASE BANK OF TEXAS, N.A., as Administrative Agent hereunder, and
CREDIT SUISSE FIRST BOSTON, as Documentation Agent hereunder, agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and the plural forms of the terms
defined):
"Advance" means an advance by a Bank to the Borrower pursuant
to Article II, and refers to a Base Rate Advance or a LIBOR Advance (each of
which shall be a "Type" of Advance).
"Administrative Agent" means Chase Bank of Texas, National
Association, in its capacity as Administrative Agent pursuant to Article VII and
any successor in such capacity pursuant to Section 7.08.
"AEL" means Azurix Europe Ltd., a corporation organized under
the laws of England and Wales (Registered No. 3570749) and an indirect
wholly-owned subsidiary of Borrower.
"AEL Credit Facility" means the Agreement dated 10th May 1999
Pound Sterling425,000,000 Credit Facility for Azurix Europe Ltd. arranged by
Chase Manhattan Plc and Westdeutsche Landesbank Girozentrale.
"Agreement" means this Revolving Credit Agreement, as same may
be amended, extended, supplemented or modified from time to time in the future.
"Applicable Lending Office" means, with respect to each Bank,
such Bank's Domestic Lending Office in the case of a Base Rate Advance and such
Bank's Eurodollar Lending Office in the case of a LIBOR Advance.
"Applicable Margin" means, for any Base Rate Advance and for
any Interest Period for each LIBOR Advance comprising part of the same
Borrowing, the percentage per annum applicable to such Base Rate Advance or such
LIBOR Advance, as the case may be, as shown in Schedule I and being based on (a)
the Type of Advance (i.e., Base Rate Advance or LIBOR Advance), and (b) the
Rating Level, which for the purposes of determining the Applicable Margin for
any Interest Period for any LIBOR Advance shall be the Rating Level in effect on
the first day of such Interest Period and for the purposes of determining the
Applicable Margin for any Base Rate Advance shall be the Rating Level in effect
from time to time.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Bank and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit F.
"Bankruptcy Code" means Title 11 of the United States Code, as
now or hereafter in effect, or any successor thereto.
<PAGE> 6
"Banks" means the lender listed on the signature pages hereof
and each Eligible Assignee that becomes a Bank party hereto pursuant to Section
2.16, Section 2.18 or Section 8.06(a), (b) and (d).
"Base Rate" means, for any period, a fluctuating interest rate
per annum as shall be in effect from time to time which rate per annum shall at
all times be equal to the highest of:
(a) the rate of interest announced publicly by Chase Manhattan
Bank in New York, New York from time to time, as its prime rate; and
(b) the sum (adjusted to the nearest 1/4 of 1% or, if there is
no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of one percent
per annum plus (ii) the rate obtained by dividing (A) the latest three-week
moving average of secondary market morning offering rates in the United States
for three-month certificates of deposit of major United States money market
banks, such three-week moving average (adjusted to the basis of a year of 360
days) being determined weekly on each Monday (or, if such day is not a Business
Day, on the next succeeding Business Day) for the three-week period ending on
the previous Friday by Chase Manhattan Bank on the basis of such rates reported
by certificate of deposit dealers to and published by the Federal Reserve Bank
of New York or, if such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Chase Manhattan Bank from three
New York certificate of deposit dealers of recognized standing selected by Chase
Manhattan Bank, by (B) a percentage equal to 100% minus the average of the daily
percentages specified during such three-week period by the Federal Reserve Board
for determining the maximum reserve requirement (including, but not limited to,
any emergency, supplemental or other marginal reserve requirement) for Chase
Manhattan Bank with respect to liabilities consisting of or including (among
other liabilities) three-month Dollar non-personal time deposits in the United
States, plus (iii) the average during such three-week period of the annual
assessment rates estimated by Chase Manhattan Bank for determining the then
current annual assessment payable by Chase Manhattan Bank to the Federal Deposit
Insurance Corporation (or any successor) for insuring Dollar deposits of Chase
Manhattan Bank in the United States; and
(c) the sum of 1/2 of one percent per annum plus the Federal
Funds Rate in effect from time to time.
"Base Rate Advance" means an Advance which bears interest as
provided in Section 2.05(a).
"Borrower" means Azurix Corp., a Delaware corporation, and any
successor thereto pursuant to Section 5.02(d)(ii).
"Borrowing" means a borrowing hereunder consisting of Advances
of the same Type made on the same day by the Banks.
"Business Day" means (i) any day of the year except Saturday,
Sunday and any day on which banks are required or authorized to close in New
York City or Houston, Texas and (ii) if the applicable Business Day relates to
any LIBOR Advances, any day which is a "Business Day" described in clause (i)
and which is also a day for trading by and between banks in the London interbank
Eurodollar market.
"Capitalized Lease Obligation" means an obligation that is
required to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Debt represented
by such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP, and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date such lease may be terminated without penalty.
"Chase Manhattan Bank" means The Chase Manhattan Bank in New
York, New York.
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<PAGE> 7
"Code" means the Internal Revenue Code of 1986 as amended from
time to time, or any successor Federal tax code, and any reference to any
statutory provision of the Code shall be deemed to be a reference to any
successor provision or provisions.
"Commitment" has the meaning specified in Section 2.01.
"Commitment Increase Agreement" means an agreement entered
into by a Bank, the Borrower and the Administrative Agent substantially in the
form of Exhibit F-2.
"Consolidated" refers to the consolidation of the accounts of
the Borrower and its Subsidiaries in accordance with GAAP.
"Consolidated Capital" means, at any date, an amount equal to
the Consolidated stockholders' equity of the Borrower and its Subsidiaries, plus
minority interests in Consolidated Subsidiaries, all determined in accordance
with GAAP as of such date.
"Consolidated Debt" means as to the Borrower and its
Consolidated Subsidiaries, for any period, Debt of such Persons on a
Consolidated basis less cash and cash equivalents that are subject to a lien
securing Debt of the Borrower or any of its Consolidated Subsidiaries.
"Consolidated Debt to Consolidated EBITDA Ratio" means as to
the Borrower and its Consolidated Subsidiaries, for any day, the ratio of (a)
the average of, Consolidated Debt on the last day of each of the fiscal quarters
of the Reference Period to (b) Consolidated EBITDA for the Reference Period; and
in the case of (a) and (b) the Reference Period ending on the last day of the
most recent calendar quarter.
"Consolidated EBITDA" means as to the Borrower and its
Consolidated Subsidiaries, for any period, without duplication, the amount equal
to net income plus or minus all non-working capital adjustments to net income
used to reconcile net income to cash flow from operating activities excluding
gains or losses from asset dispositions incurred in the ordinary course of
business; plus interest expense; plus current income tax expense; plus or minus
extraordinary losses or gains, respectively; plus the cumulative effect of a
change in accounting principles if a loss; minus the cumulative effect of a
change in accounting principles if a gain.
"Consolidated Fixed Charge Coverage Ratio" means, as to the
Borrower and its Consolidated Subsidiaries, for any day, the ratio of (a)
Consolidated EBITDA for the Reference Period ending on the last day of the most
recent calendar quarter, less cash income taxes actually paid during the
Reference Period ending on the last day of the most recent calendar quarter net
of cash income tax refunds actually received during such Reference Period to (b)
Interest Expense during the Reference Period ending on the last day of the most
recent calendar quarter.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of another Type pursuant to
Section 2.07, Section 2.08, Section 2.10(b) or Section 2.11.
"Currency Protection Agreement" is defined to mean with
respect to any Person any foreign exchange contract, currency swap agreement or
other similar agreement or arrangement designed to protect such Person or any of
its Subsidiaries against fluctuations in currency values to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of the
indenture or becomes a party or a beneficiary thereafter.
"Debt" of any Person means, at any date, without duplication,
(i) obligations for the repayment of money borrowed which are or should be shown
on a balance sheet as debt in accordance with GAAP, (ii) obligations as lessee
under leases which, in accordance with GAAP, are capital leases, and (iii)
guaranties of payment or collection of any obligations described in clauses (i)
and (ii) of other Persons, or obligations to support future equity contributions
to another Person calculated in accordance with GAAP, provided, that clauses (i)
and (ii) include, in the case of
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<PAGE> 8
obligations of the Borrower or any Subsidiary, only such obligations as are or
should be shown as debt or capital lease liabilities on a Consolidated balance
sheet in accordance with GAAP; provided, further, that the following shall not
constitute Debt: (A) transfers of Permitted Receivables pursuant to a Permitted
Receivables Purchase Facility (and indemnification, recourse or repurchase
obligations thereunder) and (B) the liability of any Person as a general partner
of a partnership for Debt of such partnership, if the partnership is not a
Subsidiary of such Person.
"Documentation Agent " means Credit Suisse First Boston.
"Dollars" and "$" means lawful money of the United States of
America.
"Domestic Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office" opposite its name
on Schedule II hereto or in the Assignment and Acceptance or New Bank Agreement
pursuant to which it became a Bank or such other office of such Bank as such
Bank may from time to time specify to the Borrower and the Administrative Agent.
"Eligible Assignee" means (i) any Bank, and (ii) with the
consent of the Administrative Agent and the Borrower (which consent will not be
unreasonably withheld), any other commercial bank or financial institution not
covered by clause (i) of this definition; provided, however, that neither the
Borrower nor any Subsidiary of the Borrower shall be an Eligible Assignee.
"Enron Credit Facility" means that certain Credit Agreement,
dated as of May 1, 1999, between Borrower and Enron Corp., a Delaware
corporation and all related documents.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute of similar import,
together with the regulations thereunder, as in effect from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a group of which the Borrower is a member and
which is under common control within the meaning of the regulations under
Section 414 of the Code.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Federal Reserve Board, as in effect from time to
time.
"Eurodollar Lending Office" means, with respect to any Bank,
the office of such Bank specified as its "Eurodollar Lending Office" opposite
its name on Schedule II hereto or in the Assignment and Acceptance or New Bank
Agreement pursuant to which it became a Bank (or, if no such office is
specified, its Domestic Lending Office) or such other office of such Bank as
such Bank may from time to time specify to the Borrower and the Administrative
Agent.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Commitments" has the meaning given such term in
Section 2.17 hereof.
"Existing Termination Date" has the meaning given such term in
Section 2.17 hereof.
"FDIC" means the Federal Deposit Insurance Corporation, or any
federal agency or authority of the United States from time to time succeeding to
its function.
"Federal Funds Rate" means, for any day, a fluctuating
interest rate per annum equal for such day 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 such day (or, if such
day 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
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<PAGE> 9
which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System, or any federal agency or authority of the United States
from time to time succeeding to its function.
"GAAP" means United States generally accepted accounting
principles and policies consistent with those applied in the preparation of the
audited consolidated financial statements referred to in Section 4.01(d).
"Granting Bank" has the meaning specified in Section 8.06(h).
"Hostile Acquisition" means an acquisition by the Borrower or
any Subsidiary of ownership or voting control of 10% or more of any class of
equity securities or interests of any Person, in any case without the prior
concurrence of a majority (or any higher proportion required by such Person's
organizational documents) of the directors, trustees, members or individuals
performing similar functions with respect to such Person.
"Insufficiency" means, with respect to any Plan, the amount,
if any, by which the present value of the accrued benefits under such Plan
exceeds the fair market value of the assets of such Plan allocable to such
benefits.
"Interest Expense" means, with respect to the Borrower and its
Subsidiaries determined on a Consolidated basis, for any period the total
interest expense for such period determined in conformity with GAAP, including
any interest expense attributable to Capitalized Lease Obligations, less
interest income of Borrower and its Consolidated Subsidiaries determined on a
Consolidated basis in accordance with GAAP to the extent such income is
attributable to cash and cash equivalents that are subject to a lien securing
Debt of the Borrower or any Consolidated Subsidiary.
"Interest Period" means, with respect to each LIBOR Advance,
in each case comprising part of the same Borrowing, the period commencing on the
date of such Advance or the date of the Conversion of any Advance into such an
Advance and ending on the last day of the period selected by the Borrower
pursuant to the provisions below and, thereafter, each subsequent period
commencing on the last day of the immediately preceding Interest Period and
ending on the last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be one, two,
three or six months (or, as to any Interest Period, such other period as the
Borrower and the Banks may agree to for such Interest Period), in each case as
the Borrower may, upon notice received by the Administrative Agent not later
than 11:00 A.M. on the third Business Day prior to the first day of such
Interest Period (or, as to any Interest Period, at such other time as the
Borrower and the Banks may agree to for such Interest Period), select; provided,
however, that:
(i) Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same duration;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, in the case of any Interest Period for a LIBOR
Advance, that if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding Business
Day; and
(iii) no Interest Period may end after the Termination Date.
"Interest Rate Protection Agreement" is defined to mean, with
respect to any Person, any interest rate protection agreement, interest rate
future agreement, interest rate option agreement, interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate hedge
agreement or other similar agreement or arrangement designed to protect such
Person or any of its Subsidiaries against fluctuations in interest rates to or
under
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<PAGE> 10
which such Person or any of its Subsidiaries is a party or a beneficiary on the
date of the indenture or becomes a party or a beneficiary thereafter.
"LIBO Rate" means, for any Interest Period for each LIBOR
Advance comprising part of the same Borrowing, the rate per annum (rounded to
the nearest 1/100 of 1% per annum) appearing on Telerate Page 3750 (or any
successor page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days before the first day of
the relevant Interest Period for a term comparable to such Interest Period; (ii)
if for any reason such rate is not available, the rate per annum (rounded upward
to the nearest 1/100 of 1% per annum) appearing on Reuters Screen LIBO page as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days before the first day of such Interest
Period for a term comparable to such Interest Period; provided, however, if more
than one rate is specified on Reuters Screen LIBO page, the applicable rate
shall be the arithmetic mean of all such rates; and (iii) if neither the
Telerate Page 3750 nor the Reuters Screen LIBO page rate is available, the
arithmetic mean (rounded upward to four decimal places) of the rates, as
supplied to the Administrative Agent at its request, quoted by the Reference
Bank for deposits offered to leading banks in the London interbank market, at
11:00 A.M. (London time) two Business Days before the first day of such Interest
Period in an amount substantially equal to the amount of the LIBOR Advance of
the Reference Bank comprising part of such Borrowing and for a period equal to
such Interest Period. If the LIBO Rate is determined pursuant to clause (iii) of
this definition, such determination shall be made by the Administrative Agent on
the basis of the applicable rate furnished to and received by the Administrative
Agent from the Reference Bank two Business Days before the first day of such
Interest Period, subject, however, to the provisions of Section 2.07.
"LIBOR Advance" means an Advance which bears interest as
provided in Section 2.05(b).
"Lien" means, when used with respect to any Person, any
voluntary mortgage, lien, charge, or security interest upon, or pledge of, an
asset, or any lease intended as security, any capital lease in the nature of the
foregoing, any conditional sale agreement or other title retention agreement, in
each case, for the purpose, or having the effect, of protecting a creditor
against loss or securing the payment or performance of an obligation.
"Loan Document" means this Agreement, each Note, each Notice
of Borrowing and each other document or instrument executed and delivered in
connection with this Agreement.
"Majority Banks" means at any time Banks holding more than 50%
of the then aggregate unpaid principal amount of the Notes held by Banks, or, if
no such principal amount is then outstanding, Banks having at least 51% of the
Commitments.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit plan, other
than a Multiemployer Plan, subject to Title IV of ERISA to which the Borrower or
any ERISA Affiliate, and more than one employer other than the Borrower or an
ERISA Affiliate, is making or accruing an obligation to make contributions or,
in the event that any such plan has been terminated, to which the Borrower or
any ERISA Affiliate made or accrued an obligation to make contributions during
any of the five plan years preceding the date of termination of such plan.
"New Bank Agreement" means an agreement entered into by a bank
or other financial institution, the Borrower and the Administrative Agent,
substantially in the form of Exhibit G-1.
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<PAGE> 11
"Note" means a promissory note of the Borrower payable to the
order of any Bank, in substantially the form of Exhibit A hereto, evidencing the
aggregate indebtedness of the Borrower to such Bank resulting from the Advances
owed to such Bank.
"Notice of Borrowing" has the meaning specified in Section
2.02.
"Other Taxes" has the meaning specified in Section 2.13(c).
"Payment Office" means the office of the Administrative Agent
located at 600 Travis Street, Houston, Texas 77002, or such other office as the
Administrative Agent may designate by written notice to the other parties
hereto.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
federal agency or authority of the United States from time to time succeeding to
its function.
"Permitted Liens" shall mean:
(a) Liens existing on the date of this Agreement;
(b) purchase money Liens incurred to secure Debt that finances
the purchase price of Property acquired in the ordinary course of business of
the Borrower and its Subsidiaries or the cost of any improvements or
construction with respect to such Property, and which Liens will not cover any
Property other than that being purchased, improved or constructed;
(c) Liens on any Property of the Borrower and its Subsidiaries
securing obligations incurred pursuant to Permitted Working Capital Facilities,
so long as the credit extended under such facilities and secured by Liens does
not exceed $300,000,000;
(d) Liens incurred in connection with Capitalized Lease
Obligations, Currency Protection Agreements or Interest Rate Protection
Agreements;
(e) Liens created by a Subsidiary to secure Debt incurred to
fund capital expenditures that are required under existing licenses or contracts
for the ownership or operation of water or wastewater systems or assets; and
(f) Liens in respect of extensions, renewals, refunding or
refinancing of any Debt secured by any of the Liens referred to in clauses (a)
through (e) above, provided that the Liens in connection with such renewal,
extension, refunding or refinancing shall be limited to all or part of the
specific Property which was subject to the original Lien.
"Permitted Receivables" means (a) any receivables, rights and
indebtedness (whether now existing or hereafter arising) resulting from the sale
or lease of goods or services by the Borrower or its Subsidiaries, including
indebtedness to pay amounts for future goods or services to be delivered within
90 days of the date invoiced, in the ordinary course of business, and (b) all
guarantees, insurance, letters of credit and other agreements or arrangements of
whatever character from time to time supporting or securing payment of any such
receivables or indebtedness.
"Permitted Receivables Purchase Facility" means any agreement
of the Borrower or any of its Subsidiaries providing for transfers of Permitted
Receivables purporting to be sales by such Person (and considered sales under
GAAP) that do not provide, directly or indirectly, for recourse against the
seller of such Permitted Receivables (or against any of such seller's
affiliates), by way of a guaranty or any other support arrangement, for the
collectibility of such Permitted Receivables (based on the financial condition
or circumstances of the obligor thereunder), other than
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<PAGE> 12
such limited recourse as is reasonable given market standards for transactions
of a similar type, taking into account such factors as historical bad debt loss
experience and obligor concentration levels.
"Permitted Working Capital Facilities" is defined to mean one
or more credit agreements providing for the extension of credit to the Borrower
and/or its Subsidiaries for working capital or general corporate purposes,
including the financing of the costs and expenses of acquisitions and any
amendment, supplement, refinancing, renewal, repayment or extension thereof.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, firm or other entity, or a government
or any political subdivision or agency, department or instrumentality thereof.
"Plan" means an employee benefit plan (other than a
Multiemployer Plan) which is (or, in the event that any such plan has been
terminated within five years after a transaction described in Section 4069 of
ERISA, was) maintained for employees of the Borrower or any ERISA Affiliate and
covered by Title IV of ERISA.
"Prescribed Forms" shall mean such duly executed form(s) or
statement(s), and in such number of copies, which may, from time to time, be
prescribed by law and which, pursuant to applicable provisions of (a) an income
tax treaty between the United States and the country of residence of the Bank
providing the form(s) or statement(s), (b) the Code, or (c) any applicable rule
or regulation under the Code, permit the Borrower to make payments hereunder for
the account of such Bank free of deduction or withholding of income or similar
taxes (except for any deduction or withholding of income or similar taxes as a
result of any change in or in the interpretation of any such treaty, the Code or
any such rule or regulation).
"Principal Subsidiary" means, at any time, any Subsidiary of
the Borrower meeting the definition of a "significant subsidiary" with respect
to the Borrower contained as of the date hereof in Regulation S-X of the United
States Securities and Exchange Commission or any successor entity.
"Prohibited Acquisition" means an acquisition by Borrower or
any Subsidiary of any interest in, or any right of control over voting equity
interests in, or over the management of, any Person engaged in any way in
production of electric power by nuclear generation, or any Person engaged in
production of electric power for which a material part of such Person's
operations, revenues or assets involve solar or wind generation.
"Property" of any Person is defined to mean all types of real,
personal, tangible, intangible or mixed property owned by such Person whether or
not included in the most recent consolidated balance sheet of such Person under
GAAP.
"Rating Level" means (i) until the earlier of (A) the date
that both Moody's and S&P have issued ratings for the Borrower's senior
unsecured long-term debt and (B) October 31, 1999, Rating Level III, as set
forth in Schedule I, and (ii) all times thereafter, the applicable category of
rating level contained in Schedule I which is based on the rating of the
Borrower's senior unsecured long-term debt as classified by Moody's and/or
Standard & Poor's and which shall be the highest (subject, however, to the first
footnote on Schedule I) applicable Rating Level I, Rating Level II, Rating Level
III, Rating Level IV or Rating Level V, as the case may be, as set forth in
Schedule I; provided, that (w) if (but only if) subsequent to October 31, 1999,
either Moody's or S&P no longer assigns a rating to the Borrower's senior
unsecured long-term debt, for purposes of determining the applicable Rating
Level in accordance with Schedule I, the Borrower may substitute an equivalent
rating by either Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc.; (x) no
more than two agencies' ratings, one of which must be by either Moody's or S&P,
will be taken into account at any time for purposes of Schedule I; (y) if
subsequent to October 31, 1999, only one rating agency assigns a rating to the
Borrower's senior unsecured long-term debt, for purposes of determining the
applicable Rating Level in accordance with the first footnote on Schedule I, the
absence of a second rating will be deemed to be the equivalent of a rating of
BB-/Ba3; and (z) if subsequent to October 31, 1999, at all times that neither
Moody's nor S&P assigns a rating to the Borrower's senior unsecured long-term
debt, the applicable Rating Level will be Level V.
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"Reference Bank" means Chase Manhattan Bank.
"Reference Period" means the four (4) complete fiscal quarters
for which financial information is available preceding the date of a requirement
to make a financial calculation.
"Register" has the meaning specified in Section 8.06(c).
"SPC" has the meaning specified in Section 8.06(h).
"Standard & Poor's" and "S&P" each means Standard & Poor's
Rating Services, a division of The McGraw-Hill Companies, Inc. on the date
hereof.
"Stated Termination Date" means September 27, 2000 or such
later date, if any, as may be in effect pursuant to Section 2.17.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, or other entity of which more than 50% of the outstanding capital
stock or other equity interests having ordinary voting power (irrespective of
whether or not at the time capital stock or other equity interest of any other
class or classes of such corporation, partnership, joint venture, or other
entity shall or might have voting power upon the occurrence of any contingency)
is at the time owned directly or indirectly by such Person; provided, however,
that no such corporation, partnership, joint venture or other entity shall (a)
constitute a Subsidiary of the Borrower, unless such entity is a Consolidated
Subsidiary of the Borrower, or (b) constitute a Subsidiary of any other Person,
unless such entity would appear as a Consolidated Subsidiary of such Person on a
consolidated balance sheet of such Person prepared in accordance with GAAP;
provided further, that a corporation, partnership, joint venture or other entity
shall constitute a Subsidiary of the Borrower if such entity appears as a
Consolidated Subsidiary of such Person on a consolidated balance sheet of such
Person prepared in accordance with GAAP. Unless otherwise provided or the
context otherwise requires, the term "Subsidiary" when used herein shall refer
to a Subsidiary of the Borrower.
"Taxes" has the meaning specified in Section 2.13(a).
"Terminating Bank" has the meaning specified in Section 2.17.
"Termination Date" means the earlier of (i) the Stated
Termination Date and (ii) the earlier date of termination in whole of the
Commitments pursuant to Section 2.15 or 6.01.
"Termination Event" means (i) a "reportable event", as such
term is described in Section 4043 of ERISA (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC), or an event described
in Section 4062(e) of ERISA, or (ii) the withdrawal of the Borrower or any ERISA
Affiliate from a Multiple Employer Plan during a plan year in which it was a
"substantial employer", as such term is defined in Section 4001(a)(2) of ERISA,
or the incurrence of liability by the Borrower or any ERISA Affiliate under
Section 4064 of ERISA upon the termination of a Multiple Employer Plan, or (iii)
the distribution of a notice of intent to terminate a Plan pursuant to Section
4041(a)(2) of ERISA or the treatment of a Plan amendment as a termination under
Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a
Plan by the PBGC under Section 4042 of ERISA, or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"Total Capitalization Ratio" means as to the Borrower and its
Consolidated Subsidiaries, for any day, the ratio of Consolidated Debt to the
sum of (i) Consolidated Capital and (ii) Consolidated Debt.
"Withdrawal Liability" shall have the meaning given such term
under Part I of Subtitle E of Title IV of ERISA.
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SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding". Unless otherwise indicated, all references to a
particular time are references to New York City time.
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with, and
certificates of compliance with financial covenants shall be based on, GAAP;
provided, however, the financial statements and reports required pursuant to
Sections 5.01(a)(i) and (viii) shall be prepared in accordance with generally
accepted accounting principles consistently applied except to the extent stated
therein.
SECTION 1.04. Miscellaneous. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to Articles
and Sections of and Schedules and Exhibits to this Agreement, unless otherwise
specified. The term "including" shall mean "including, without limitation,".
SECTION 1.05. Ratings. A rating, whether public or private, by
Standard & Poor's or Moody's shall be deemed to be in effect on the date of
announcement or publication by Standard & Poor's or Moody's, as the case may be,
of such rating or, in the absence of such announcement or publication, on the
effective date of such rating and will remain in effect until the date when any
change in such rating is deemed to be in effect. In the event any of the rating
categories used by Moody's or Standard & Poor's is revised or designated
differently (such as by changing letter designations to different letter
designations or to numerical designations), then the references herein to such
rating shall be changed to the revised or redesignated rating for which the
standards are closest to, but not lower than, the standards at the date hereof
for the rating which has been revised or redesignated. Long-term debt supported
by a letter of credit, guaranty, insurance or other similar credit enhancement
mechanism shall not be considered as senior unsecured long-term debt.
ARTICLE II
AMOUNT AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. Each Bank severally agrees, on the
terms and conditions hereinafter set forth, to make one or more Advances to the
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate amount not to exceed at any
time outstanding the amount set opposite such Bank's name on the signature pages
hereof or, if such Bank has entered into any Assignment and Acceptance, New Bank
Agreement or Commitment Increase Agreement, set forth for such Bank in the
Register maintained by the Administrative Agent pursuant to Section 8.06(c), as
such amount may be adjusted pursuant to Section 2.10(e), Section 2.15, Section
2.16, Section 2.17, Section 2.18, Section 2.19 or Section 6.01 (such Bank's
"Commitment"). Each Borrowing shall be in an aggregate amount not less than (x)
in the case of a Borrowing comprised of LIBOR Advances, $2,000,000 and (y) in
the case of a Borrowing comprised of Base Rate Advances, $1,000,000, and shall
consist of Advances of the same Type having (in the case of a Borrowing
comprised of LIBOR Advances) the same Interest Period, made on the same day by
the Banks ratably according to their respective Commitments. Within the limits
of each Bank's Commitment, the Borrower may borrow, prepay pursuant to Section
2.09 and reborrow under this Section 2.01.
SECTION 2.02. Making the Advances. (a) Each Borrowing shall be
made on notice, given not later than 11:00 A.M. (x) in the case of a proposed
Borrowing comprised of LIBOR Advances, at least three Business Days prior to the
date of the proposed Borrowing (or, as to any proposed Borrowing comprised of
LIBOR Advances, at such other time as the Borrower and the Banks may agree to
for such proposed Borrowing) and (y) in the case of a proposed Borrowing
comprised of Base Rate Advances, on the day of the proposed Borrowing, by the
Borrower to the Administrative Agent, which shall give to each Bank prompt
notice thereof by telex, telecopy or cable. Each such notice
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of a Borrowing (a "Notice of Borrowing") shall be by telex, telecopy or cable,
confirmed immediately in writing, in substantially the form of Exhibit B hereto,
specifying therein the requested (i) date of such Borrowing, (ii) Type of
Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing,
and (iv) in the case of a Borrowing comprised of LIBOR Advances, initial
Interest Period for each such Advance, provided that the Borrower may not
specify LIBOR Advances for any Borrowing if, after giving effect to such
Borrowing, LIBOR Advances having more than five (5) different Interest Periods
shall be outstanding. In the case of a proposed Borrowing comprised of LIBOR
Advances, the Administrative Agent shall promptly notify each Bank of the
applicable interest rate under Section 2.05(b). Each Bank shall, before 11:00
A.M. (2:00 P.M. in the case of a Borrowing comprised of Base Rate Advances) on
the date of such Borrowing, make available for the account of its Applicable
Lending Office to the Administrative Agent at its Payment Office, in same day
funds, such Bank's ratable portion of such Borrowing. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Administrative Agent will make such funds
available to the Borrower at the Administrative Agent's aforesaid address.
(b) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Borrowing which the related Notice of Borrowing
specifies is to be comprised of LIBOR Advances, the Borrower shall indemnify
each Bank against any loss, cost or expense incurred by such Bank as a result of
any failure to fulfill on or before the date specified in such Notice of
Borrowing for such Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss (excluding loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Bank to fund the Advance to be made by
such Bank as part of such Borrowing when such Advance, as a result of such
failure, is not made on such date.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's ratable portion of such Borrowing, the
Administrative Agent may assume that such Bank has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) of this Section 2.02 and the Administrative Agent may, in
reliance upon such assumption, but shall not be required to, make available to
the Borrower on such date a corresponding amount. If and to the extent that such
Bank shall not have so made such ratable portion available to the Administrative
Agent, such Bank and the Borrower severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Administrative Agent, at
(i) in the case of the Borrower, the interest rate applicable at the time to
Advances comprising such Borrowing and (ii) in the case of such Bank, the
Federal Funds Rate. If such Bank shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Bank's Advance
as part of such Borrowing for purposes of this Agreement.
(d) The failure of any Bank to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Bank of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Bank
shall be responsible for the failure of any other Bank to make the Advance to be
made by such other Bank on the date of any Borrowing.
SECTION 2.03. Fees. (a) Facility Fee. The Borrower agrees to
pay to the Administrative Agent for the account of each Bank a facility fee on
the average daily unused amount of such Bank's Commitment from the date hereof
in the case of each Bank listed on the signature pages hereof and from the
effective date specified in the Assignment and Acceptance or New Bank Agreement
pursuant to which it became a Bank in the case of each other Bank until the
Termination Date. The facility fee is payable quarterly in arrears on the last
day of each March, June, September and December, commencing September 30, 1999,
and on the Termination Date. The rate per annum of the facility fee for each
calendar quarter shall be determined as provided in Schedule I based on the
Rating Level in effect on the first day of such quarter.
(b) Utilization Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Bank a utilization fee on the aggregate
outstanding principal amount of all Advances. The utilization fee shall accrue
on such outstanding principal amount for the number of days during which the
aggregate outstanding principal amount of all
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Advances exceeds 50% of the aggregate Commitments. The utilization fee is
payable quarterly in arrears on the last day of each March, June, September and
December, commencing September 30, 1999, and on the date the Advances are paid
in full. The rate per annum of the utilization fee for each calendar quarter
shall be determined as provided in Schedule I based on the Rating Level in
effect on the first day of such quarter.
(c) Additional Fees. The Borrower shall pay to the Administrative Agent
such fees as may be separately agreed to by it and the Administrative Agent.
SECTION 2.04. Repayment. The Borrower shall repay the unpaid
principal amount of each Advance owed to each Bank in accordance with the Note
to the order of such Bank. With respect to each Bank, all Advances owed to such
Bank shall be due and payable on the Stated Termination Date applicable to such
Bank or such earlier date such Advances are due and payable to such Bank
pursuant to any other provision of this Agreement.
SECTION 2.05. Interest. The Borrower shall pay interest on the
unpaid principal amount of each Advance owed to each Bank from the date of such
Advance until such principal amount shall be paid in full, at the following
rates per annum:
(a) Base Rate Advances. During such periods as such Advance is a Base
Rate Advance, a rate per annum equal at all times to the sum of the Base Rate in
effect from time to time plus the Applicable Margin for Base Rate Advances in
effect from time to time, payable quarterly on the last day of each March, June,
September and December (beginning December 31, 1999) during such periods and on
the date such Base Rate Advance shall be Converted or paid in full; provided
that any amount of principal (other than principal of LIBOR Advances bearing
interest pursuant to the proviso to Section 2.05(b)) which is not paid when due
(whether at stated maturity, by acceleration or otherwise) shall bear interest,
from the date on which such amount is due until such amount is paid in full,
payable on demand, at a rate per annum equal at all times to the sum of 2% per
annum plus the Base Rate in effect from time to time plus the Applicable Margin
for Base Rate Advances in effect from time to time.
(b) LIBOR Advances. During such periods as such Advance is a LIBOR
Advance, a rate per annum equal at all times during each Interest Period for
such Advance to the sum of the LIBO Rate for such Interest Period for such
Advance plus the Applicable Margin per annum for such Interest Period, payable
on the last day of such Interest Period and, if such Interest Period has a
duration of more than three months, on the day which occurs during such Interest
Period three months from the first day of such Interest Period; provided that
any amount of principal of any LIBOR Advance which is not paid when due (whether
at stated maturity, by acceleration or otherwise) shall bear interest, from the
date on which such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the greater of (x) the sum of
2% per annum plus the Base Rate in effect from time to time plus the Applicable
Margin for Base Rate Advances in effect from time to time and (y) the sum of 2%
per annum plus the rate per annum required to be paid on such Advance
immediately prior to the date on which such amount became due.
SECTION 2.06. Additional Interest on LIBOR Advances. If any
Bank is required under regulations of the Federal Reserve Board to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, and if as a result thereof there is an increase in the
cost to such Bank of agreeing to make or making, funding or maintaining LIBOR
Advances, then the Borrower shall from time to time, upon demand by such Bank
(with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Bank additional amounts, as
additional interest hereunder, sufficient to compensate such Bank for such
increased cost. A certificate in reasonable detail as to the basis for and the
amount of such increased cost, submitted to the Borrower and the Administrative
Agent by such Bank, shall be conclusive and binding for all purposes, absent
manifest error.
SECTION 2.07. Interest Rate Determination and Protection. (a)
If at any time the LIBO Rate is determined pursuant to clause (iii) of the
definition herein of LIBO Rate, the Reference Bank agrees to furnish to the
Administrative Agent timely information for the purpose of determining such LIBO
Rate.
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(b) The Administrative Agent shall give prompt notice to the Borrower
and the Banks of the applicable interest rate determined by the Administrative
Agent for purposes of Section 2.05(a) or (b), and the applicable rate, if any,
furnished by the Reference Bank pursuant to clause (iii) of the definition
herein of LIBO Rate for the purpose of determining the applicable interest rate
under Section 2.05(b).
(c) If the Administrative Agent is unable to obtain timely information
for determining the LIBO Rate for any LIBOR Advances,
(i) the Administrative Agent shall forthwith notify the Borrower and
the Banks that the interest rate cannot be determined for such LIBOR
Advances,
(ii) each such Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance (or
if such Advance is then a Base Rate Advance, will continue as a Base
Rate Advance), and
(iii) the obligation of the Banks to make, or to Convert Advances into,
LIBOR Advances shall be suspended until the Administrative Agent shall
notify the Borrower and the Banks that the circumstances causing such
suspension no longer exist.
(d) If, with respect to any LIBOR Advances, the Majority Banks notify
the Administrative Agent that the applicable interest rate for any Interest
Period for such Advances will not adequately reflect the cost to such Majority
Banks of making, funding or maintaining their respective LIBOR Advances for such
Interest Period, the Administrative Agent shall forthwith so notify the Borrower
and the Banks, whereupon
(i) each such Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance
(or, if such Advance is then a Base Rate Advance, will continue as a
Base Rate Advance), and
(ii) the obligation of the Banks to make, or to Convert Advances into,
LIBOR Advances shall be suspended until the Administrative Agent shall
notify the Borrower and the Banks that the circumstances causing such
suspension no longer exist.
(e) If the Borrower shall fail to select the duration of any Interest
Period for any LIBOR Advances in accordance with the provisions contained in the
definition of "Interest Period" in Section 1.01, the Administrative Agent will
forthwith so notify the Borrower and the Banks and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances.
(f) On the date on which the aggregate unpaid principal amount of
Advances comprising any Borrowing of LIBOR Advances shall be reduced, by payment
or prepayment or otherwise, to less than $2,000,000, such Advances shall
automatically Convert into Base Rate Advances, and on and after such date the
right of the Borrower to Convert such Advances into LIBOR Advances shall
terminate; provided, however, that if and so long as each such Advance shall be
of the same Type and have an Interest Period ending on the same date as Advances
comprising another Borrowing or other Borrowings, and the aggregate unpaid
principal amount of all such Advances of all such Borrowings shall equal or
exceed $2,000,000, the Borrower shall have the right to continue all such
Advances as, or to Convert all such Advances into, Advances of such Type having
an Interest Period ending on such date.
SECTION 2.08. Voluntary Conversion of Advances. The Borrower
may on any Business Day, upon notice given to the Administrative Agent not later
than 11:00 A.M. (x) in the case of a proposed Conversion into LIBOR Advances, on
the third Business Day prior to the date of the proposed Conversion and (y) in
the case of a proposed Conversion into Base Rate Advances, on the date of the
proposed Conversion and subject to the limitations in Section 2.02(a) as to the
number of permitted Interest Periods and subject to the provisions of Sections
2.07 and 2.11, Convert all Advances of one Type comprising the same Borrowing
into Advances of another Type; provided, however,
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that any Conversion of any LIBOR Advances shall be made on, and only on, the
last day of an Interest Period for such LIBOR Advances. Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Advances to be Converted and the Type into which
they are to be Converted, and (iii) if such Conversion is into LIBOR Advances,
the duration of the Interest Period for each such Advance.
SECTION 2.09. Prepayments. The Borrower may (x) in respect of
LIBOR Advances, upon at least three Business Days' notice, and (y) in respect of
Base Rate Advances, upon notice by 11:00 A.M. on the day of the proposed
prepayment, give notice of prepayment to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment and the Types of
Advances to be prepaid, and in the case of LIBOR Advances, the specific
Borrowing or Borrowings pursuant to which made, and if such notice is given the
Borrower shall, prepay the outstanding principal amounts of the Advances
comprising part of the same Borrowing in whole or ratably in part, together with
accrued interest to the date of such prepayment on the principal amount prepaid
without premium or penalty; provided, however, that each partial prepayment
shall be in an aggregate principal amount not less than $1,000,000, and provided
further, that if the Borrower prepays any LIBOR Advance on any day other than
the last day of an Interest Period therefor, the Borrower shall compensate the
Banks pursuant to Section 8.04(b).
SECTION 2.10. Increased Costs; Capital Adequacy, Etc. (a) If,
due to either (i) the introduction of or any change in or in the interpretation
of any law or regulation by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof or
(ii) the compliance with any guideline or request from any governmental
authority, central bank or comparable agency (whether or not having the force of
law), there shall be any increase in the cost to any Bank of agreeing to make or
making, funding or maintaining LIBOR Advances (other than increased costs
described in Section 2.06 or in clause (c) below), then the Borrower shall from
time to time, upon demand by such Bank (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Bank additional amounts sufficient to compensate such Bank for such increased
cost. A certificate in reasonable detail as to the basis for and the amount of
such increased cost, submitted to the Borrower and the Administrative Agent by
such Bank, shall be conclusive and binding for all purposes, absent manifest
error. Promptly after any Bank becomes aware of any such introduction, change or
proposed compliance, such Bank shall notify the Borrower thereof. No Bank shall
be permitted to recover increased costs incurred or accrued more than 90 days
prior to such notice to the Borrower.
(b) If the Borrower so notifies the Administrative Agent within five
Business Days after any Bank notifies the Borrower of any increased cost
pursuant to the provisions of Section 2.10(a), the Borrower shall Convert all
Advances of the Type affected by such increased cost of all Banks then
outstanding into Advances of another Type in accordance with Section 2.08 and,
additionally, reimburse such Bank for such increased cost in accordance with
Section 2.10(a).
(c) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its lending office) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency (except to the extent such request or directive arises as a
result of the individual creditworthiness of such Bank), has the effect of
increasing the amount of capital required or expected to be maintained as a
result of its Commitment or its making or maintaining any Advances hereunder,
such Bank shall have the right to give prompt written notice thereof to the
Borrower with a copy to the Administrative Agent, which notice shall show in
reasonable detail the calculation of such additional amounts as shall be
required to compensate such Bank for the increased cost to such Bank as a result
of such increase in capital and shall certify that such costs are generally
being charged by such Bank to other similarly situated borrowers under similar
credit facilities, which notice shall be conclusive and binding for all
purposes, absent manifest error, although the failure to give any such notice
shall not, unless such notice fails to set forth the information required above
or except as otherwise expressly provided in Section 2.10(d), release or
diminish any of the Borrower's obligations to pay additional amounts pursuant to
Section 2.10(d).
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(d) Each Bank agrees that, upon giving notice specified in Section
2.10(c), at the request of the Borrower, it will promptly enter into good faith
negotiations with the Borrower with respect to the method of reimbursement for
the additional costs specified in such notice. No later than 15 days after the
date of the giving of any such notice, and assuming the Bank giving same has
made itself available for the aforesaid good faith negotiations, the Borrower
shall have the option, to be exercised in writing, to (i) compensate such Bank
for the specified additional costs on the basis, if any, negotiated between such
Bank and the Borrower or (ii) terminate such Bank's Commitment to the extent,
and on the terms and conditions, specified in Section 2.10(e). In addition, no
later than 15 days after the date of the giving of any notice specified in
Section 2.10(a), the Borrower shall have the option, to be exercised in writing,
to (i) compensate such Bank for the additional costs as specified in such
notice, or (ii) terminate such Bank's Commitment to the extent, and on the terms
and conditions, specified in Section 2.10(e). If the Borrower fails in any such
case to so exercise such option, it shall be deemed to have agreed to reimburse
such Bank from time to time on demand the additional costs specified in the
Bank's notice delivered pursuant to Section 2.10(a) or 2.10(c). Notwithstanding
the foregoing, the Borrower shall not be obligated to reimburse any Bank
pursuant to this Section 2.10(d) or Section 2.10(e) or Section 2.16 for any
additional costs under Section 2.10(c) incurred or accruing more than 90 days
prior to the date on which such Bank gave the written notice specified in
Section 2.10(c).
(e) In the event that the Borrower has given notice to a Bank pursuant
to Section 2.10(d) that it elects to terminate such Bank's Commitment (a copy of
which notice shall be sent to the Administrative Agent), such termination shall
become effective 15 days thereafter unless such Bank withdraws its request for
additional compensation. On the date of the termination of the Commitment of any
Bank pursuant to this Section 2.10(e), (x) the Borrower shall deliver notice of
the effectiveness of such termination to such Bank and to the Administrative
Agent, (y) the Borrower shall pay all amounts owed by the Borrower to such Bank
under this Agreement or under the Note payable to such Bank (including principal
of and interest on the Advances owed to such Bank, accrued facility and
utilization fees and amounts specified in such Bank's notice delivered pursuant
to Sections 2.10(a) or 2.10(c) with respect to the period prior to such
termination) and (z) upon the occurrence of the events set forth in (x) and (y),
such Bank shall cease to be a "Bank" hereunder for all purposes except for
rights under Sections 2.06, 2.10, 2.13 and 8.04 arising out of events and
occurrences before or concurrently with its ceasing to be a "Bank" hereunder.
The Borrower may elect to terminate a Bank's Commitment pursuant to Section
2.10(d) only if at such time:
(i) no Event of Default is then in existence or would be in existence
but for the requirement that notice be given or time elapse or both;
(ii) the Borrower has elected, or is then electing, to terminate the
Commitments of all Banks which have made similar requests for increased
compensation under this Section 2.10, which requests have not been
withdrawn, provided, that requests may be determined by the Borrower to
be dissimilar based on the negotiation of materially dissimilar rates
of compensation under clause (i) of Section 2.10(d); and
(f) Each Bank shall use its best efforts (consistent with its internal
policies and legal and regulatory restrictions) to select a jurisdiction for its
Applicable Lending Office or change the jurisdiction of its Applicable Lending
Office, as the case may be, so as to avoid the imposition of any increased costs
under this Section 2.10 or to eliminate the amount of any such increased cost
which may thereafter accrue; provided that no such selection or change of the
jurisdiction for its Applicable Lending Office shall be made if, in the
reasonable judgment of such Bank, such selection or change would be
disadvantageous to such Bank.
SECTION 2.11. Illegality. Notwithstanding any other provision
of this Agreement, if the introduction of or any change in or in the
interpretation of any law or regulation shall make it unlawful, or any
governmental authority, central bank or comparable agency shall assert that it
is unlawful, for any Bank or its Eurodollar Lending Office to perform its
obligations hereunder to make LIBOR Advances or to continue to fund or maintain
LIBOR Advances hereunder, then, on notice thereof and demand therefor by such
Bank to the Borrower through the Administrative Agent, (i) the obligation of the
Banks to make LIBOR Advances and to Convert Advances into LIBOR Advances shall
terminate and (ii) the Borrower shall forthwith Convert all LIBOR Advances of
all Banks then outstanding into Advances of another Type in accordance with
Section 2.08.
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SECTION 2.12. Payments and Computations. (a) The Borrower
shall make each payment under any Loan Document not later than 11:00 A.M. on the
day when due in Dollars to the Administrative Agent at its Payment Office in
same day funds. The Administrative Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or interest or
facility or utilization fees ratably (other than amounts payable pursuant to
Section 2.06, 2.10, 2.13, 2.16, 2.17 or 8.04(b)) to the Banks (decreased, as to
any Bank, for any taxes withheld in respect of such Bank as contemplated by
Section 2.13(b)) for the account of their respective Applicable Lending Offices,
and like funds relating to the payment of any other amount payable to any Bank
to such Bank for the account of its Applicable Lending Office, in each case to
be applied in accordance with the terms of this Agreement. Upon its acceptance
of an Assignment and Acceptance and recording of the information contained
therein in the Register pursuant to Section 8.06(d), from and after the
effective date specified in such Assignment and Acceptance, the Administrative
Agent shall make all payments hereunder and under the Notes in respect of the
interest assigned thereby to the Bank assignee thereunder, and the parties to
such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.
At the time of each payment of any principal of or interest on any Borrowing to
the Administrative Agent, the Borrower shall notify the Administrative Agent of
the Borrowing to which such payment shall apply. In the absence of such notice
the Administrative Agent may specify the Borrowing to which such payment shall
apply.
(b) All computations of interest based on the Base Rate (except during
such times as the Base Rate is determined pursuant to clause (c) of the
definition thereof) and of facility and utilization fees shall be made by the
Administrative Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the LIBO Rate, the Federal Funds
Rate or, during such times as the Base Rate is determined pursuant to clause (c)
of the definition thereof, the Base Rate shall be made by the Administrative
Agent, and all computations of interest pursuant to Section 2.06 shall be made
by a Bank, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest or facility or utilization fees are payable.
Each determination by the Administrative Agent (or, in the case of Section 2.06,
by a Bank) of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made 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 facility or utilization
fee, as the case may be; provided, however, if such extension would cause
payment of interest on or principal of LIBOR Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, but shall not be obligated to (except to the extent of funds
actually received from the Borrower) cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each Bank shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Bank together with interest
thereon, for each day from the date such amount is distributed to such Bank
until the date such Bank repays such amount to the Administrative Agent, at the
Federal Funds Rate.
SECTION 2.13. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.12,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges, fees, duties or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Administrative Agent, (1) taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which (or by a jurisdiction
under the laws of a political subdivision of which) such Bank or Administrative
Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Bank, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or
any political subdivision thereof and (2) any taxes imposed by the United States
of
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<PAGE> 21
America by means of withholding at the source if and to the extent that such
taxes shall be in effect and shall be applicable, on the date hereof (or, with
respect to any entity that becomes a Bank after the date hereof, on the date
such entity becomes a Bank), to payments to be made to such Bank or the
Administrative Agent (all such non-excluded taxes, levies, imposts, deductions,
charges, fees, duties, withholdings and liabilities being hereinafter referred
to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder or under any Note to any Bank or
the Administrative Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.13) such Bank or the
Administrative Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(b) Notwithstanding anything to the contrary contained in this
Agreement, each of the Borrower and the Administrative Agent shall be entitled,
to the extent it is required to do so by law, to deduct or withhold income or
other similar taxes imposed by the United States of America from interest, fees
or other amounts payable hereunder for the account of any Bank (without the
payment by the Borrower of increased amounts to such Bank pursuant to clause (a)
above) other than a Bank (i) which is a domestic corporation (as such term is
defined in Section 7701 of the Code) for federal income tax purposes or (ii)
which has the Prescribed Forms on file with the Borrower and the Administrative
Agent for the applicable year to the extent deduction or withholding of such
taxes is not required as a result of the filing of such Prescribed Forms,
provided that if the Borrower shall so deduct or withhold any such taxes, it
shall provide a statement to the Administrative Agent and such Bank, setting
forth the amount of such taxes so deducted or withheld, the applicable rate and
any other information or documentation which such Bank or the Administrative
Agent may reasonably request for assisting such Bank or the Administrative Agent
to obtain any allowable credits or deductions for the taxes so deducted or
withheld in the jurisdiction or jurisdictions in which such Bank is subject to
tax.
(c) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Notes or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Notes (hereinafter referred to as "Other Taxes").
(d) The Borrower, to the fullest extent permitted by law, will
indemnify each Bank and the Administrative Agent for the full amount of Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 2.13) paid by such Bank
or the Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto
except as a result of the gross negligence or willful misconduct of such Bank or
Administrative Agent, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date such Bank or the Administrative Agent (as the case may be) makes written
demand therefor. No Bank nor the Administrative Agent shall be indemnified for
Taxes incurred or accrued more than 90 days prior to the date that such Bank or
the Administrative Agent notifies the Borrower thereof.
(e) Within 30 days after the date of any payment of Taxes by or at the
direction of the Borrower, the Borrower will furnish to the Administrative
Agent, at its address referred to in Section 8.02, (i) the original or a
certified copy of a receipt evidencing payment thereof, if the relevant taxing
authority provides a receipt, or (ii) if the relevant taxing authority does not
provide a receipt, other reasonable evidence of the payment thereof. Should any
Bank or the Administrative Agent ever receive any refund, credit or deduction
from any taxing authority to which such Bank or the Administrative Agent would
not be entitled but for the payment by the Borrower of Taxes as required by
Section 2.13 (it being understood that the decision as to whether or not to
claim, and if claimed, as to the amount of any such refund, credit or deduction
shall be made by such Bank or the Administrative Agent in its sole discretion),
such Bank or the Administrative Agent, as the case may be, thereupon shall repay
to the Borrower an amount with respect to such refund, credit or deduction equal
to any net reduction in taxes actually obtained by such Bank or the
Administrative Agent, as the case may be, and determined by such Bank or the
Administrative Agent, as the case may be, to be attributable to such refund,
credit or deduction.
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<PAGE> 22
(f) Each Bank shall use its best efforts (consistent with its internal
policies and legal and regulatory restrictions) to select a jurisdiction for its
Applicable Lending Office or change the jurisdiction of its Applicable Lending
Office, as the case may be, so as to avoid the imposition of any Taxes or Other
Taxes or to eliminate the amount of any such additional amounts which may
thereafter accrue; provided that no such selection or change of the jurisdiction
for its Applicable Lending Office shall be made if, in the reasonable judgment
of such Bank, such selection or change would be disadvantageous to such Bank.
(g) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.13 shall survive the payment in full of principal and interest
hereunder and under the Notes.
SECTION 2.14. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Advances made by it (other
than pursuant to Section 2.06, 2.10, 2.13, 2.16, 2.17 or 8.04(b)) in excess of
its ratable share of payments on account of the Advances obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in the Advances made by them as shall be necessary to cause such
purchasing Bank to share the excess payment ratably with each of them, provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Bank, such purchase from each Bank shall be
rescinded and such Bank shall repay to the purchasing Bank the purchase price to
the extent of its ratable share (according to the proportion of (i) the amount
of the participation purchased from such Bank as a result of such excess payment
to (ii) the total amount of such excess payment) of such recovery together with
an amount equal to such Bank's ratable share (according to the proportion of (i)
the amount of such Bank's required repayment to (ii) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrower agrees that any Bank so purchasing a participation from another Bank
pursuant to this Section may, to the fullest extent permitted by law, exercise
all its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Bank were the direct creditor of the Borrower
in the amount of such participation.
SECTION 2.15. Ratable Reduction or Termination of the
Commitments; Effect of Termination. The Borrower shall have the right, upon at
least three Business Days' notice to the Administrative Agent, to terminate in
whole or reduce ratably in part the unused portions of the respective
Commitments of the Banks (with the signature pages hereto deemed amended to
reflect same), provided that each partial reduction shall be in the aggregate
amount of at least $2,000,000. Upon and at all times after any Commitment of any
Bank is terminated pursuant to any provision of this Agreement, such Commitment
shall be zero and such Bank shall have no further obligation to make any
Advances.
SECTION 2.16. Replacement of Bank. In the event that any Bank
shall claim payment of any increased costs pursuant to Section 2.10 or any
additional amounts pursuant to Section 2.13, the Borrower shall have the right,
if no Event of Default then exists or would exist but for the requirement that
notice be given or time elapse or both, to replace such Bank with an Eligible
Assignee in accordance with Section 8.06(a), (b) and (d) (including execution of
an appropriate Assignment and Acceptance); provided that such Eligible Assignee
(i) shall unconditionally offer in writing (with a copy to the Administrative
Agent) to purchase on a date therein specified all of such Bank's rights
hereunder and interest in the Advances owing to such Bank and the Note held by
such Bank without recourse at the principal amount of such Note plus interest
accrued thereon, and any accrued facility and utilization fees, to the date of
such purchase, and (ii) shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, as assignee, pursuant to which such Eligible Assignee
becomes a party hereto with a Commitment equal to that of the Bank being
replaced (plus, if such Eligible Assignee is already a Bank, the amount of its
Commitment prior to such replacement), provided, further, that no Bank or other
Person shall have any obligation to increase its Commitment or otherwise to
replace, in whole or in part, any Bank. Upon satisfaction of the requirements
set forth in the first sentence of this Section 2.16, acceptance of such offer
to purchase by the Bank to be replaced, payment to such Bank of the purchase
price in immediately available funds by the Eligible Assignee replacing such
Bank, execution of such Assignment and Acceptance by such Bank, such Eligible
Assignee and the Administrative Agent, the payment by the
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<PAGE> 23
Borrower of all requested costs accruing to the date of purchase which the
Borrower is obligated to pay under Section 8.04 and all other amounts owed by
the Borrower to such Bank (other than facility and any utilization fees accrued
for the account of such Bank and the principal of and interest on the Advances
of such Bank purchased by such Eligible Assignee) and notice by the Borrower to
the Administrative Agent that such payment has been made, such Eligible Assignee
shall constitute a "Bank" hereunder with a Commitment as so specified and the
Bank being so replaced shall no longer constitute a "Bank" hereunder and its
Commitment shall be deemed terminated, except that the rights under Sections
2.06, 2.10, 2.13 and 8.04 of the Bank being so replaced shall continue with
respect to events and occurrences before or concurrently with its ceasing to a
"Bank" hereunder. If, however, (x) a Bank accepts such an offer and such
Eligible Assignee fails to purchase such rights and interest on such specified
date in accordance with the terms of such offer or such Eligible Assignee or the
Administrative Agent fails to execute the relevant Assignment and Acceptance,
the Borrower shall continue to be obligated to pay the increased costs to such
Bank pursuant to Section 2.10 or the additional amounts pursuant to Section
2.13, as the case may be, or (y) the Bank proposed to be replaced fails to
accept such purchase offer or to execute the relevant Assignment and Acceptance,
the Borrower shall not be obligated to pay to such Bank such increased costs or
additional amounts incurred or accrued from and after the date of such purchase
offer.
SECTION 2.17. Renewal of Commitments.
(a) If no Event of Default has occurred and is continuing, the
Borrower may request by notice to the Administrative Agent and each Bank, given
no earlier than 45 days prior to, and no later than 30 days prior to, any Stated
Termination Date applicable on the date of such notice to all Banks ("Existing
Termination Date"), that the Banks renew their respective Commitments for an
additional 364 days. If a Bank agrees, in its sole and absolute discretion, to
so renew its Commitment, it will give notice to the Administrative Agent of its
decision to do so no earlier than 30 days prior to, and no later than 20 days
prior to, such Existing Termination Date. No later than 19 days prior to such
Existing Termination Date (or the next Business Day, if the day 19 days prior to
the Existing Termination Date is not a Business Day), the Administrative Agent
will notify the Borrower and each Bank of the Banks from which it has received
such a notice agreeing to so renew ("Renewing Banks"). Any failure by a Bank to
so notify the Administrative Agent shall be deemed to be a decision by such Bank
to not so renew its Commitment.
(b) If all Banks elect to so renew their respective
Commitments, the Stated Termination Date shall automatically become the date
that is 364 days following the Existing Termination Date.
(c) If, at the time the Administrative Agent gives the notice
contemplated by Section 2.17(a) to the Borrower and the Banks, the Commitments
of the Renewing Banks aggregate more than 50% of, but less than 100% of, the
Commitments of all of the Banks at such time ("Existing Commitments"), (i)
effective as of the Existing Termination Date, except as to the Banks described
in clause (ii) of this subsection (c), the Stated Termination Date shall
automatically become the date that is 364 days following the Existing
Termination Date as to each Renewing Bank, (ii) the Stated Termination Date
shall remain unchanged as to each Bank that is not a Renewing Bank (each a
"Terminating Bank"), (iii) each Terminating Bank's Commitment shall terminate on
the Existing Termination Date, and (iv) the Borrower shall pay on the Existing
Termination Date the outstanding Advances owed to each Terminating Bank and all
other amounts owed to each Terminating Bank. If, at the time the Administrative
Agent gives the notice contemplated by Section 2.17(a) to the Borrower and the
Banks, the Commitments of the Renewing Banks aggregate 50% or less of the
Existing Commitments, none of the Commitments (including the Commitment of any
Renewing Bank) will be extended and the Stated Termination Date shall remain
unchanged.
(d) If, at the time the Administrative Agent gives the notice
contemplated by Section 2.17(a) to the Borrower and the Banks, the Commitments
of the Renewing Banks aggregate at least 51% of, but less than 100% of, the
Existing Commitments, then the Borrower may request one or more Renewing Banks
to increase their respective Commitments pursuant to Section 2.18 (but no Bank
shall be obligated to do so), and may attempt to add one or more commercial
banks or financial institutions to this Agreement pursuant to Section 2.18, but
the aggregate amount of the Commitments of the Renewing Banks (after giving
effect to any such increase) and such added financial institutions shall not
exceed 100% of the Existing Commitments.
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<PAGE> 24
(e) The Borrower may repeat the process contemplated by this
Section 2.17 once each year (commencing in 2000) but the election by any Bank to
become a Renewing Bank at any time shall not obligate such Bank to become a
Renewing Bank at any other time, it being agreed that each election of any Bank
to renew or not renew shall be made by such Bank in its sole and absolute
discretion and that such discretion shall not be limited by any prior election
to become a Renewing Bank.
SECTION 2.18. Replacement of Commitments. If at any time that
the Administrative Agent gives a notice contemplated by Section 2.17(a) to the
Borrower and the Banks, the Commitments of the then Renewing Banks aggregate at
least 51% but less than 100% of the then Existing Commitments, and if no Event
of Default then exists, the Borrower shall have the right, without the consent
of the Banks but subject to the approval of the Administrative Agent (which
consent shall not be unreasonably withheld), to replace the Commitments of the
then Terminating Banks by adding to this Agreement one or more commercial banks
or financial institutions that are Eligible Assignees (who shall, upon
completion of the requirements stated in this Section 2.18, constitute Banks
hereunder), or by allowing one or more Banks to increase their Commitments
hereunder, provided that (a) such added and increased Commitments shall not be
greater than the Commitments of such Terminating Banks, so that in no event will
the total aggregate amount of the Existing Commitments be increased (after
giving effect to the contemporaneous termination of the Commitments of such
Terminating Banks), (b) no Bank's Commitment shall be increased without the
consent of such Bank, (c) no Person shall be added to this Agreement without its
consent and (d) on the effective date of any such increase or addition, there
shall be no Advances outstanding. The Borrower shall give the Administrative
Agent three Business Days' notice of the Borrower's intention to increase any
Commitment or add a new commercial bank or financial institution pursuant to
this Section 2.18. Such notice shall specify each new commercial bank or
financial institution, if any, the changes in amounts of Commitments that will
result, and such other information as is reasonably requested by the
Administrative Agent. Each new commercial bank or financial institution agreeing
to be added to this Agreement, and each Bank agreeing to increase its
Commitment, shall execute and deliver to the Administrative Agent a New Bank
Agreement or a Commitment Increase Agreement, substantially in the form of
Exhibit G-1 or Exhibit G-2, as the case may be, pursuant to which it becomes a
party hereto or increases its Commitment, as the case may be. In addition, the
Borrower shall execute and deliver a Note in the principal amount of the
Commitment of each new commercial bank or financial institution, or a
replacement Note in the principal amount of the increased Commitment of each
Bank agreeing to increase its Commitment, as the case may be. Such Notes and
other documents of the nature referred to in Section 3.01 shall be furnished to
the Administrative Agent in form and substance as may be reasonably required by
it. Upon execution and delivery to the Administrative Agent of such documents
and execution by the Administrative Agent of the relevant New Bank Agreement or
Commitment Increase Agreement, as the case may be, such new commercial bank or
financial institution shall constitute a "Bank" hereunder with a Commitment as
specified therein, or such Bank's Commitment shall increase as specified
therein, as the case may be.
SECTION 2.19. Non-Ratable Reduction or Termination of
Commitment. The Borrower shall have the right, without the consent of any Bank,
but subject to the approval of the Administrative Agent (which consent shall not
be unreasonably withheld), to reduce in part or to terminate in whole the
Commitment of one or more Banks non-ratably, provided that (i) on the effective
date of any such reduction or termination (w) there are no amounts outstanding
under any of the Notes, (x) no Event of Default or event which would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both, shall have occurred and be continuing, and (y) the Borrower shall pay
to any Bank whose Commitment is terminated all amounts owed by the Borrower to
such Bank under this Agreement (including accrued facility and utilization
fees), (ii) the aggregate amount of each non-ratable reduction shall be at least
$5,000,000, and (iii) the aggregate amount of all such non-ratable reductions
and terminations of Commitments since the date of this Agreement shall not
exceed $50,000,000. The Borrower shall give the Administrative Agent three
Business Days' notice of the Borrower's intention to reduce or terminate any
Commitment pursuant to this Section 2.19.
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<PAGE> 25
ARTICLE III
CONDITIONS TO ADVANCES
SECTION 3.01. Initial Condition Precedent. The obligation of
each Bank to make Advances pursuant to the terms and conditions of this
Agreement is subject to the condition precedent that the Administrative Agent
shall have received on or before the day of the initial Advance the following,
each dated on or before such day, in form and substance satisfactory to the
Administrative Agent:
(a) The Notes to the order of the Banks, respectively.
(b) Certified copies of (i) the resolutions of the Board of Directors
of the Borrower establishing the Executive Committee and (ii) resolutions of the
Executive Committee approving this Agreement, each Note and each Notice of
Borrowing, and of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to each such Loan Document and
certified copies of the restated certificate of incorporation, as amended, and
bylaws, as amended, of the Borrower.
(c) A certificate of the Secretary, Deputy Corporate Secretary or an
Assistant Secretary of the Borrower certifying the names and true signatures of
the officers of the Borrower authorized to sign each Loan Document to which it
is a party and the other documents to be delivered hereunder.
(d) A favorable opinion of Vinson & Elkins L.L.P., counsel for the
Borrower, to be delivered to, and for the benefit of, the Banks and the
Administrative Agent, at the express instruction of the Borrower, substantially
in the form of Exhibit C hereto and as to such other matters as any Bank through
the Administrative Agent may reasonably request.
(e) A favorable opinion of John C. Ale, Executive Director and General
Counsel of the Borrower, to be delivered to, and for the benefit of, the Banks
and the Administrative Agent, at the express instruction of the Borrower, in
substantially the form of Exhibit D hereto and as to such other matters as any
Bank through the Administrative Agent may reasonably request.
(f) The letter referred to in Section 4.01(a) hereof.
SECTION 3.02. Additional Conditions Precedent to Each Advance.
The obligation of each Bank to make any Advance shall be subject to the
additional conditions precedent that on the date of such Advance (a) the
following statements shall be true (and each of the giving of the applicable
Notice of Borrowing and the acceptance by the Borrower of the proceeds of such
Advance shall constitute a representation and warranty by the Borrower that on
the date of such Advance such statements are true):
(i) The representations and warranties contained in Section 4.01 of
this Agreement are correct in all material respects on and as of the
date of such Advance (other than those representations and warranties
that expressly relate solely to a specific earlier date, which shall
remain correct as of such earlier date), before and after giving effect
to such Advance and the Borrowing of which such Advance is a part and
to the application of the proceeds therefrom, as though made on and as
of such date, and
(ii) No event has occurred and is continuing, or would result from such
Advance or the Borrowing of which such Advance is a part or from the
application of the proceeds therefrom, which constitutes an Event of
Default or would constitute an Event of Default but for the requirement
that notice be given or time elapse or both; and
(b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Bank through the Administrative Agent may
reasonably request.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower and each Principal Subsidiary are duly organized or
validly formed, validly existing and (if applicable) in good standing in each
case under the laws of its jurisdiction of incorporation or formation. The
Borrower and each Principal Subsidiary have all requisite powers and all
material governmental licenses, authorizations, consents and approvals required
in each case to carry on its business as now conducted. Each Subsidiary that is
a Principal Subsidiary as of the date hereof (based on December 31, 1998
financial statements) is listed in that certain letter dated the date hereof
from the Borrower to the Banks and the Administrative Agent.
(b) The execution, delivery and performance by the Borrower of each
Loan Document to which it is or will be a party are within the Borrower's
corporate powers, have been duly authorized by all necessary corporate action of
the Borrower, require, in respect of the Borrower, no action by or in respect
of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of law or regulation
(including, without limitation, Regulation X issued by the Federal Reserve
Board) applicable to the Borrower or Regulation U issued by the Federal Reserve
Board or the restated certificate of incorporation, as amended, or by-laws, as
amended, of the Borrower or any judgment, injunction, order, decree or material
("material" for the purposes of this representation meaning creating a liability
of $25,000,000 or more) agreement binding upon the Borrower or result in the
creation or imposition of any lien, security interest or other charge or
encumbrance on any asset of the Borrower or any of its Subsidiaries.
(c) This Agreement and each Note are, and each other Loan Document to
which the Borrower is or will be a party, when executed and delivered in
accordance with this Agreement will be legal, valid and binding obligations of
the Borrower enforceable against the Borrower in accordance with their
respective terms, except as the enforceability thereof may be limited by the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and by general principles of
equity.
(d) The audited consolidated balance sheet of the Borrower and its
Subsidiaries as of December 31, 1998 and the related audited consolidated
statements of income, cash flows and changes in stockholders' equity accounts
for the fiscal year then ended and the unaudited consolidated balance sheet of
the Borrower and its Subsidiaries as of June 30, 1999 and the related unaudited
consolidated statements of income, cash flows and changes in stockholders'
equity accounts for the three months then ended, certified by the chief
financial or accounting officer of the Borrower, copies of which have been
delivered to each of the Banks, fairly present, in conformity with GAAP except
as otherwise expressly noted therein, the consolidated financial position of the
Borrower and its Subsidiaries as of such dates and their consolidated results of
operations and changes in financial position for such fiscal periods, subject
(in the case of the unaudited balance sheet and statements) to changes resulting
from audit and normal year-end adjustments.
(e) Since December 31, 1998, there has been no material adverse change
in the business, consolidated financial position or consolidated results of
operations of the Borrower and its Subsidiaries, considered as a whole.
(f) There is no action, suit or proceeding pending against the Borrower
or any of its Subsidiaries, or to the knowledge of the Borrower threatened
against the Borrower or any of its Subsidiaries, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Subsidiaries taken as a whole or which in any manner
draws into question the validity of this Agreement or any other Loan Document to
which the Borrower is or will be a party.
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<PAGE> 27
(g) No Termination Event has occurred or is reasonably expected to
occur with respect to any Plan for which an Insufficiency in excess of
$75,000,000 exists. Neither the Borrower nor any ERISA Affiliate has received
any notification (or has knowledge of any reason to expect) that any
Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA, for which a Withdrawal Liability in excess of
$75,000,000 exists.
(h) The Borrower and its Subsidiaries have filed or caused to be filed
all United States federal income tax returns and all other material domestic tax
returns which to the knowledge of the Borrower are required to be filed by them
and have paid or provided for the payment, before the same become delinquent, of
all taxes due pursuant to such returns or pursuant to any assessment received by
the Borrower or any Subsidiary, other than those taxes contested in good faith
by appropriate proceedings. The charges, accruals and reserves on the books of
the Borrower and its Subsidiaries in respect of taxes are, in the opinion of the
Borrower, adequate to the extent required by GAAP.
(i) Neither the Borrower nor any of its Subsidiaries is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(j) Each of the Borrower and the Principal Subsidiaries is not subject
to, or is exempt from, regulation as a "holding company" or a "subsidiary
company" of a "holding company", in each case as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
SECTION 4.02. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of Borrower's
Mission-critical functions, including (i) computer systems and (ii) equipment
containing embedded microchips (including systems and equipment supplied by
others or with which Borrower's systems interface) and the testing of all such
systems and equipment, as so reprogrammed, will be completed by December 31,
1999. The cost to the Borrower of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 to the Borrower (including,
without limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in an Event of Default or a material adverse effect.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the
Borrower and its Principal Subsidiaries are and, with ordinary course upgrading
and maintenance, will continue to be, sufficient to permit the Borrower to
conduct its business without material adverse effect. Mission-critical functions
are those critical functions whose loss would cause significant injury to
persons or tangible property or an immediate stoppage of, or significant
impairment to, business areas of material importance to Borrower.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. The Borrower covenants
and agrees that so long as any Note shall remain unpaid or any Bank shall have
any Commitment hereunder, the Borrower will, unless the Majority Banks shall
otherwise consent in writing:
(a) Reporting Requirements. Furnish to each Bank:
(i) by making available either on "EDGAR" or Borrower's home page on
the World Wide Web at www.azurix.com, or otherwise transmitting to the
Banks (1) promptly after the sending or filing thereof, a copy of each
of the Borrower's reports on Form 8-K (or any comparable form), (2)
promptly after the filing or sending thereof, and in any event within
50 days after the end of each of the first three fiscal quarters of
each fiscal year of the Borrower, a copy of the Borrower's report on
Form 10-Q (or any comparable form) for such quarter, which report will
include the Borrower's quarterly unaudited consolidated financial
statements as of the end of and for such quarter, and (3) promptly
after the filing or sending thereof, and in any event within 120 days
after the end of each fiscal year of the Borrower, a copy of the
Borrower's annual report which it sends to its public security holders,
and within 95 days a copy of the Borrower's report on Form 10-K (or any
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<PAGE> 28
comparable form) for such year, which report will include the
Borrower's annual audited consolidated financial statements as of the
end of and for such year;
(ii) commencing with the fiscal quarter ended December 31, 1999,
simultaneously with the furnishing of each of the annual or quarterly
reports referred to in clause (i) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower in a
form acceptable to the Administrative Agent (x) setting forth in
reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Sections 5.02(a),
5.02(b) and 5.02(c) on the date of the financial statements contained
in such report, and (y) stating whether there exists on the date of
such certificate any Event of Default or event which, with the giving
of notice or lapse of time, or both, would constitute an Event of
Default, and, if so, setting forth the details thereof and the action
which the Borrower has taken and proposes to take with respect thereto;
(iii) as soon as is possible and in any event within five days after a
change in, or issuance of, any rating of any of the Borrower's senior
unsecured long-term debt by Standard & Poor's or Moody's which causes a
change in the applicable Rating Level, notice to the Administrative
Agent of such change;
(iv) as soon as possible and in any event within five days after an
executive officer of the Borrower having obtained knowledge thereof,
notice of the occurrence of any Event of Default or any event which,
with the giving of notice or lapse of time, or both, would constitute
an Event of Default, continuing on the date of such notice, and a
statement of the chief financial officer of the Borrower setting forth
details of such Event of Default or event and the action which the
Borrower has taken and proposes to take with respect thereto;
(v) as soon as possible and in any event (A) within 30 Business Days
after the Borrower or any ERISA Affiliate knows or has reason to know
that any Termination Event described in clause (i) of the definition of
Termination Event with respect to any Plan for which an Insufficiency
in excess of $25,000,000 exists, has occurred and (B) within 10
Business Days after the Borrower or any ERISA Affiliate knows or has
reason to know that any other Termination Event with respect to any
Plan for which an Insufficiency in excess of $25,000,000 exists, has
occurred or is reasonably expected to occur, a statement of the chief
financial officer or chief accounting officer of the Borrower
describing such Termination Event and the action, if any, which the
Borrower or such ERISA Affiliate proposes to take with respect thereto;
(vi) promptly and in any event within five Business Days after receipt
thereof by the Borrower or any ERISA Affiliate, copies of each notice
received by the Borrower or any ERISA Affiliate from the PBGC stating
its intention to terminate any Plan for which an Insufficiency in
excess of $25,000,000 exists or to have a trustee appointed to
administer any Plan for which an Insufficiency in excess of $25,000,000
exists;
(vii) promptly and in any event within five Business Days after receipt
thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by the Borrower or
any ERISA Affiliate indicating liability in excess of $25,000,000
incurred or expected to be incurred by the Borrower or any ERISA
Affiliate in connection with (A) the imposition of a Withdrawal
Liability by a Multiemployer Plan, (B) the determination that a
Multiemployer Plan is, or is expected to be, in reorganization within
the meaning of Title IV of ERISA, or (C) the termination of a
Multiemployer Plan within the meaning of Title IV of ERISA; and
(viii) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries as
any Bank through the Administrative Agent may from time to time
reasonably request.
(b) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, with all applicable laws, rules, regulations and orders
to the extent noncompliance therewith would have a material adverse effect on
the Borrower and its Subsidiaries taken as a whole, such compliance to include,
without limitation, compliance with
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environmental laws and the paying before the same become delinquent of all
taxes, assessments and governmental charges imposed upon it or upon its property
except to the extent contested in good faith and for which appropriate reserves
have been established in accordance with GAAP.
(c) Use of Proceeds. Use the proceeds of the Advances only for purposes
of the Borrower not in violation of Section 5.02(h).
(d) Maintenance of Insurance. Maintain, and cause each of the Principal
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
as the Borrower or such Principal Subsidiary, provided, that self-insurance by
the Borrower or any such Principal Subsidiary shall not be deemed a violation of
this covenant to the extent that companies engaged in similar businesses and
owning similar properties as the Borrower or such Principal Subsidiary
self-insure. The Borrower may maintain its Principal Subsidiaries' insurance on
behalf of them.
(e) Preservation of Corporate Existence, Etc. Preserve and maintain,
and cause each of the Principal Subsidiaries to preserve and maintain, its legal
existence, rights (charter, if applicable, and statutory) and franchises;
provided, however, that this Section 5.01(e) shall not apply to any transactions
or matters permitted by Section 5.02(f) and shall not prevent the termination of
existence, rights and franchises of any Principal Subsidiary pursuant to any
merger or consolidation, otherwise permitted hereunder, to which such Principal
Subsidiary is a party or pursuant to lease, sale, transfer or other disposition
of assets, otherwise permitted hereunder, by a Principal Subsidiary, and
provided, further, that the Borrower or any Principal Subsidiary shall not be
required to preserve any right or franchise if the Borrower or such Principal
Subsidiary shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Borrower or such Principal Subsidiary, as
the case may be, and that the loss thereof is not disadvantageous in any
material respect to the Banks.
(f) Visitation Rights. At any reasonable time and from time to time,
after reasonable notice, permit the Administrative Agent or any of the Banks or
any agents or representatives thereof, to examine the records and books of
account of, and visit the properties of, the Borrower and any of its Principal
Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower
and any of its Principal Subsidiaries with any of their respective officers or
directors.
SECTION 5.02. Negative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment hereunder, the Borrower will
not at any time, without the written consent of the Majority Banks:
(a) Fixed Charge Coverage Ratio. Commencing with the fiscal quarter
ended December 31, 1999, have a Consolidated Fixed Charge Coverage Ratio of less
than 2.00 to 1.00.
(b) Consolidated Debt to Consolidated EBITDA Ratio. Commencing with the
fiscal quarter ended December 31, 1999, have a Consolidated Debt to Consolidated
EBITDA Ratio of greater than 5.75 to 1.00.
(c) Total Capitalization Ratio. Commencing with the fiscal quarter
ended December 31, 1999, have a Total Capitalization Ratio of greater than 0.60
to 1.00.
(d) Maintenance of Enron Credit Facility. Take any action, or omit to
take any action, that can be reasonably expected to cause termination of the
Enron Credit Facility, or agree to any amendment thereof that would have the
effect of reducing the amount available for borrowing thereunder or would cause
the Enron Credit Facility to terminate or mature prior to the expiration of 30
days following the Stated Termination Date.
(e) Disposition of Assets. Lease, sell, transfer or otherwise dispose
of, or permit any Principal Subsidiary to lease, sell, transfer or otherwise
dispose of, voluntarily or involuntarily, all or substantially all of any such
Person's assets, except for such sales, transfers or dispositions of assets
solely among the Borrower and one or more of its
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Subsidiaries or among only Subsidiaries, provided, in each case that immediately
after giving effect thereto, no Event of Default or event which, with the giving
of notice or the lapse of time, or both, would constitute an Event of Default
would exist or result..
(f) Mergers, Etc. Merge or consolidate with or into, or permit any
Principal Subsidiary to merge or consolidate with or into, any Person, unless
(i) the Borrower or such Principal Subsidiary, as the case may be, is the
survivor or the survivor is a Principal Subsidiary or (ii) in the case of
transactions to which the Borrower is a party, the surviving Person, if not the
Borrower, is organized under the laws of the United States or a state thereof
and assumes all obligations of the Borrower under this Agreement or (iii) the
parties such transaction include only the Borrower and one or more Subsidiaries,
or include only Subsidiaries, provided, in each case that immediately after
giving effect to such transaction, no Event of Default or event which, with the
giving of notice or the lapse of time, or both, would constitute an Event of
Default would exist or result.
(g) Compliance with ERISA. (i) Terminate, or permit any ERISA Affiliate
to terminate, any Plan so as to result in any liability in excess of $75,000,000
of the Borrower or any ERISA Affiliate to the PBGC, or (ii) permit circumstances
which give rise to a Termination Event described in clause (ii), (iv) or (v) of
the definition of Termination Event with respect to a Plan so as to result in
any liability in excess of $75,000,000 of the Borrower or any ERISA Affiliate to
the PBGC.
(h) Use of Proceeds. Use the proceeds of any Advance for any purpose
other than (i) to provide working capital for the Borrower, (ii) to fund general
and administrative expenses, (iii) to pay interest, (iv) to repay other senior
indebtedness of the Borrower, (v) to fund capital expenditures or (vi) to make
acquisitions of stock (consistent with Azurix's objective of owning, operating
and investing in water and wastewater assets and service providers), real estate
or other tangible property other than Hostile Acquisitions or Prohibited
Acquisitions, or use any such proceeds (x) in a manner which violates or results
in a violation of any law or regulation, or (y) to purchase or carry any margin
stock (as defined in Regulation U issued by the Federal Reserve Board), or to
extend credit to others for that purpose.
(i) Amendments to AEL Credit Facility. Fail to amend, or cause to be
amended, no later March 31, 2000, the AEL Credit Facility to eliminate clause
18.15(a) thereof, and thereafter, permit the amendment or modification of the
AEL Credit Facility to include any provision comprising a substantially similar
prohibition of dividends, distributions or payments to any of AEL's shareholders
as contained in said clause 18.15(a).
(j) Negative Pledge. Until the Borrower has amended, or caused to be
amended, the AEL Credit Facility to (i) eliminate clause 18.15(a) as provided in
Section 5.02(i) above, and (ii) release the pledge of the shares of Wessex
Water, Ltd. by AEL to its lenders under the AEL Credit Facility, permit the
imposition or continuance of any Lien, except for Permitted Liens, upon any
assets of the Borrower owned as of the date hereof (including without limitation
the Borrower's interest in any Subsidiary) or upon any assets of any Principal
Subsidiary, in each case owned as of the date hereof.
(k) Pledge of Wessex Shares. Except for the pledge existing on the date
hereof under the AEL Credit Facility, pledge to any Person, or grant to any
Person a security interest on, the stock or other equity interest in each of the
following: (i) Azurix Cayman, Ltd.; (ii) AEL; (iii) Wessex Water, Ltd.; and (iv)
Wessex Water Services, Ltd.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
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(a) The Borrower shall fail to pay (i) any principal on any Note when
due and payable or (ii) any interest on any Note for more than five days after
such interest becomes due and payable or (iii) any fee set forth or referred to
in Section 2.03 for more than 15 days after such fee becomes due and payable; or
(b) Any representation or warranty made by the Borrower (or any of its
officers) (including representations and warranties deemed made pursuant to
Section 3.02) under or in connection with any Loan Document shall prove to have
been incorrect in any material respect when made or deemed made and such
materiality is continuing; or
(c) The Borrower shall fail to perform or observe any term, covenant or
agreement contained in Section 5.02 or shall fail to perform or observe any
other term, covenant or agreement contained in any Loan Document on its part to
be performed or observed if, in the case of such other term, covenant or
agreement, such failure shall remain unremedied for 30 days after written notice
thereof shall have been given to the Borrower by the Administrative Agent at the
request of any Bank; or
(d) The Borrower or any of its Principal Subsidiaries shall (1) fail to
pay any principal of or premium or interest on any Debt (other than Debt
described in clause (iii) of the definition of Debt) which is outstanding in the
principal amount of at least $25,000,000 in the aggregate, of the Borrower or
such Principal Subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt;
or any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, or any such
Debt shall be declared to be due and payable, or required to be prepaid (other
than by a regularly scheduled required prepayment or as a result of the giving
of notice of a voluntary prepayment), prior to the stated maturity thereof, or
(2) with respect to Debt described in clause (iii) of the definition of Debt,
fail to pay any such Debt which is outstanding in the principal amount of at
least $25,000,000 in the aggregate, of the Borrower or such Principal Subsidiary
(as the case may be), when the same becomes due and payable and such failure
shall continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or
(e) The Borrower or any of its Principal Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against the
Borrower or any of its Principal Subsidiaries seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it), shall remain undismissed or unstayed for a period of
60 days; or the Borrower or any of its Principal Subsidiaries shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e); or
(f) Any judgment, decree or order for the payment of money in excess of
$25,000,000 shall be rendered against the Borrower or any of its Principal
Subsidiaries and remains unsatisfied and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment, decree or order or
(ii) there shall be any period of 60 consecutive days during which a stay of
enforcement of such judgment, decree or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(g) Any Termination Event as defined in clause (ii), (iv) or (v) of the
definition thereof with respect to a Plan shall have occurred and, 30 days after
notice thereof shall have been given to the Borrower by the Administrative
Agent, (i) such Termination Event shall still exist and (ii) the sum (determined
as of the date of occurrence of such Termination Event) of the liabilities to
the PBGC resulting from all such Termination Events is equal to or greater than
$75,000,000; or
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(h) The Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to
such Multiemployer Plan in an amount which, when aggregated with all other
amounts required to be paid to Multiemployer Plans in connection with Withdrawal
Liabilities (determined as of the date of such notification), exceeds
$75,000,000 or requires payments exceeding $75,000,000 in any year; or
(i) The Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans which are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the
respective plan years which include the date hereof by an amount exceeding
$75,000,000 in the aggregate; then, and in any such event, the Administrative
Agent (i) shall at the request, or may with the consent, of the Majority Banks,
by notice to the Borrower, declare the obligation of each Bank to make Advances
to be terminated, whereupon each such obligation and all of the Commitments
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Majority Banks, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest, notice of intent to accelerate or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, however,
that in the event of an actual or deemed entry of an order for relief with
respect to the Borrower under the Bankruptcy Code, (A) the obligation of each
Bank to make its Advances shall automatically be terminated and (B) the Notes,
all such interest and all such amounts shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrower.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Bank hereby
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Loan Documents as are delegated
to the Administrative Agent, by the terms hereof and thereof, together with such
powers and discretion as are reasonably incidental thereto. As to any matters
not expressly provided for by the Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of holders of the Majority Banks,
and such instructions shall be binding upon all Banks and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to personal liability or which
is contrary to any Loan Document or applicable law and shall not be required to
initiate or conduct any litigation or other proceedings. The Administrative
Agent agrees to give to each Bank prompt notice of each notice given to it by
the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither
the Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with any Loan Document, except for its or their own gross
negligence or willful misconduct. The duties of the Administrative Agent shall
be mechanical and administrative in nature; the Administrative Agent shall not
have, by reason of this Agreement or any other Loan Document a fiduciary
relationship in respect of the Borrower, any Bank or the holder of any Note; and
nothing in this Agreement or any other Loan Document, expressed or implied, is
intended or shall be so construed as to impose upon the Administrative Agent any
obligations in respect of this Agreement or any other Loan Document except as
expressly set forth herein. Without limitation of the generality of the
foregoing, the Administrative Agent: (i) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives and accepts an Assignment
and Acceptance entered into by the Bank that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 8.06;
(ii) may consult with legal
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<PAGE> 33
counsel (including counsel for the Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (iii) makes no warranty or representation to
any Bank and shall not be responsible to any Bank for any statements, warranties
or representations (whether written or oral) made in or in connection with any
Loan Document or any other instrument or document furnished pursuant hereto or
in connection herewith; (iv) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or conditions
of any Loan Document or any other instrument or document furnished pursuant
hereto or in connection herewith on the part of the Borrower or to inspect the
property (including the books and records) of the Borrower; (v) shall not be
responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document or any
other instrument or document furnished pursuant hereto or in connection
herewith; and (vi) shall incur no liability under or in respect of any Loan
Document, except for its own gross negligence or willful misconduct, by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telecopier, telegram, cable or telex) believed by it to be genuine and
signed, given or sent by the proper party or parties.
SECTION 7.03. Administrative Agent and Its Affiliates. With
respect to its Commitment, the Advances made by it and the Note issued to it,
each Bank which is also the Administrative Agent shall have the same rights and
powers under the Loan Documents as any other Bank and may exercise the same as
though it were not the Administrative Agent; and the term "Bank" or "Banks"
shall, unless otherwise expressly indicated, include any Bank serving as the
Administrative Agent in its individual capacity. Any Bank serving as the
Administrative Agent and its affiliates may accept deposits from, lend money to,
act as trustee under indentures of, accept investment banking engagements from
and generally engage in any kind of business with, the Borrower, any of the
Subsidiaries and any Person who may do business with or own securities of the
Borrower or any Subsidiary, all as if such Bank were not the Administrative
Agent and without any duty to account therefor to the Banks.
SECTION 7.04. Bank Credit Decision. Each Bank acknowledges
that it has, independently and without reliance upon the Administrative Agent or
any other Bank and based on the financial statements referred to in Section
4.01(d) and such other documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank 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 this Agreement and the
other Loan Documents. The Administrative Agent shall not have any duty or
responsibility, either initially or on a continuing basis, to provide any Bank
or the holder of any Note with any credit or other information with respect
thereto, whether coming into its possession before the making of the Advances or
at any time or times thereafter.
SECTION 7.05. Certain Rights of the Administrative Agent. If
the Administrative Agent shall request instructions from the Majority Banks with
respect to any act or action (including failure to act) in connection with this
Agreement or any other Loan Document, the Administrative Agent shall be entitled
to refrain from such act or taking such action unless and until the
Administrative Agent shall have received instructions from Majority Banks; and
it shall not incur liability to any Person by reason of so refraining. Without
limiting the foregoing, no Bank or the holder of any Note shall have any right
of action whatsoever against the Administrative Agent as a result of its acting
or refraining from acting hereunder or under any other Loan Document in
accordance with the instructions of the Majority Banks or all of the Banks, as
the case may be. Furthermore, except for action expressly required of the
Administrative Agent hereunder, the Administrative Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it shall be
specifically indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
SECTION 7.06. Holders. Any request, authority or consent of
any Person who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of such
Note or of any Note or Notes issued in exchange therefor.
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SECTION 7.07. Indemnification. The Banks agree to indemnify
the Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to the respective principal amounts of the Notes then held by each of
them (or if no principal of the Notes is at the time outstanding or if any
principal of the Notes is held by Persons which are not Banks, ratably according
to the respective amounts of their Commitments then existing, or, if no such
principal amounts are then outstanding and no Commitments are then existing,
ratably according to the respective amounts of the Commitments existing
immediately prior to the termination thereof), from and against any and all
claims, damages, losses, liabilities and expenses (including without limitation,
reasonable fees and disbursements of counsel) of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against the Administrative
Agent in any way relating to or arising out of any of the Loan Documents or any
action taken or omitted by the Administrative Agent under the Loan Documents
(EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR EXPENSE
ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH
INDEMNIFIED PARTY, BUT EXCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR
EXPENSE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
ADMINISTRATIVE AGENT). IT IS THE INTENT OF THE PARTIES HERETO THAT THE
ADMINISTRATIVE AGENT SHALL, TO THE EXTENT PROVIDED IN THIS SECTION 7.07, BE
INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. Without
limitation of the foregoing, each Bank agrees to reimburse the Administrative
Agent promptly upon demand for such Bank's ratable share of any reasonable
out-of-pocket expenses (including reasonable counsel fees) incurred by the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, the Loan Documents, or any of them, to the
extent that the Administrative Agent is not reimbursed for such expenses by the
Borrower.
SECTION 7.08. Resignation by the Administrative Agent. (a) The
Administrative Agent may resign from the performance of all its functions and
duties hereunder and under the other Loan Documents at any time by giving 15
Business Days' prior written notice to the Borrower and the Banks. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Majority Banks shall have
the right to appoint a successor Administrative Agent which shall be a
commercial bank or trust company reasonably acceptable to the Borrower.
(c) If a successor to a resigning Administrative Agent shall not have
been so appointed within such 15 Business Day period, the resigning
Administrative Agent, with the consent of the Borrower (which consent will not
be unreasonably withheld), shall have the right to then appoint a successor
Administrative Agent who shall serve as Administrative Agent until such time, if
any, as the Majority Banks appoint a successor Administrative Agent as provided
above.
(d) If no successor Administrative Agent has been appointed pursuant to
clause (b) or (c) above and shall have accepted such appointment by the 20th
Business Day after the date such notice of resignation was given by the
resigning Administrative Agent, the resigning Administrative Agent's resignation
shall become effective and the Banks shall thereafter perform all the duties of
the resigning Administrative Agent hereunder and under any other Loan Document
until such time, if any, as the Majority Banks appoint a successor
Administrative Agent as provided above.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Loan Document, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall (a) waive
any of the conditions specified in Article III without the consent of all Banks,
(b) increase the Commitments of any Bank or subject any Bank to any additional
obligations without the consent of such Bank, (c) forgive or reduce the
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder without the consent of each Bank affected thereby, (d) postpone any
date fixed for any payment of principal of, or interest on, the Notes or any
fees or other amounts payable hereunder without the consent of each Bank
affected thereby, (e) take any action which requires the signing of all the
Banks pursuant to the terms of any Loan Document without the consent of all
Banks, (f) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes which shall be required for the Banks or any of
them to take any action under any Loan Document without the consent of all
Banks, or (g) amend this Section 8.01 without the consent of all Banks; and
provided, further, that no amendment, waiver or consent shall, unless in writing
and signed by the Administrative Agent in addition to the Banks required above
to take such action, affect the rights or duties of the Administrative Agent
under any Loan Document.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier
communication) telecopied, or delivered, if to the Borrower, at its address or
telecopier number set forth below:
Azurix Corp.
333 Clay
Houston, Texas 77002
Attention: Chief Financial Officer
Telecopier No.: (713) 646-6367
with a copy to:
Azurix Corp.
333 Clay
Houston, Texas 77002
Attention: General Counsel
Telecopier No.: (713) 345-5330
if to any Bank, at its Domestic Lending Office; if to the Administrative Agent,
at its address or telecopier number set forth below:
Chase Bank of Texas, N.A.
600 Travis Street, 20th Floor
Houston, Texas 77002
Attention: Peter Licalzi
Telephone No.: (713) 216-8869
Telecopier No.: (713) 216-8870
-31-
<PAGE> 36
with a copy to the Documentation Agent:
Credit Suisse First Boston
11 Madison Avenue, 20th Floor
New York, New York 10010
Attention: James Moran
Telephone No.: (212) 325-9176
Telecopier No.: (212) 325-8615
or, as to the Borrower or the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties and,
as to each other party, at such other address as shall be designated by such
party in a written notice to the Borrower and the Administrative Agent. All such
notices and communications shall be effective, if sent by overnight courier,
when personally delivered; and if sent by telecopier, when received by the
receiving telecopier equipment, respectively; provided, however, that (i)
notices and communications to the Administrative Agent shall not be effective
until received by the Administrative Agent and (ii) telexed or telecopied
notices received by any party after its normal business hours (or on a day other
than a Business Day) shall be effective on the next Business Day.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Bank or the Administrative Agent to exercise, and no delay in exercising,
any right under any Loan Document shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law.
SECTION 8.04. Costs, Expenses and Taxes. (a) The Borrower
agrees to pay on demand, (i) all reasonable costs and expenses in connection
with the preparation, execution, delivery, administration, modification and
amendment of the Loan Documents and the other documents to be delivered under
the Loan Documents, including, without limitation, the reasonable fees and
out-of-pocket expenses of one law firm as counsel for the Administrative Agent
with respect to preparation, execution and delivery of the Loan Documents and
the satisfaction of the matters referred to in Section 3.01, and (ii) all
reasonable legal and other costs and expenses, if any, of the Administrative
Agent and each Bank in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of the Loan Documents and the
other documents to be delivered under the Loan Documents or incurred in
connection with any workout, restructuring or bankruptcy.
(b) If any payment or purchase of principal of, or Conversion of, any
LIBOR Advance is made other than on the last day of an Interest Period relating
to such Advance, as a result of a payment, purchase or Conversion pursuant to
Section 2.07(f), 2.08, 2.09, 2.10, 2.11, 2.13, 2.16 or 2.17 or acceleration of
the maturity of the Notes pursuant to Section 6.01 or for any other reason, the
Borrower shall, upon demand by any Bank (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Bank any amounts required to compensate such Bank for any additional losses,
costs or expenses which it may reasonably incur as a result of such payment,
purchase or Conversion, including, without limitation, any loss (excluding loss
of anticipated profits), cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Bank to fund or
maintain such Advance.
(c) The Borrower agrees, to the fullest extent permitted by law, to
indemnify and hold harmless the Administrative Agent and each Bank and each of
their respective directors, officers, employees and agents from and against any
and all claims, damages, losses, liabilities and expenses (including, without
limitation, reasonable fees and disbursements of counsel and claims, damages,
losses, liabilities and expenses relating to environmental matters) for which
any of them may become liable or which may be incurred by or asserted against
the Administrative Agent or such Bank or any such director, officer, employee or
agent (other than by the Administrative Agent or another Bank or any of their
respective successors or assigns), in each case in connection with or arising
out of or by reason of any investigation, litigation, or proceeding, whether or
not the Administrative Agent or such Bank or any such director, officer,
employee or agent is a party thereto, arising out of, related to or in
connection with this Agreement or any other
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<PAGE> 37
Loan Document or any transaction in which any proceeds of all or any part of the
Advances are applied (EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LOSS,
LIABILITY OR EXPENSE ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH INDEMNIFIED PARTY, BUT EXCLUDING ANY SUCH CLAIM, DAMAGE,
LOSS, LIABILITY OR EXPENSE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH INDEMNIFIED PARTY). IT IS THE INTENT OF THE PARTIES HERETO
THAT THE ADMINISTRATIVE AGENT, EACH BANK, AND THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS, SHALL, TO THE EXTENT PROVIDED IN THIS SECTION
8.04(C), BE INDEMNIFIED FOR THEIR OWN ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE.
SECTION 8.05. Right of Set-Off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Bank is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Bank to or for
the credit or the account of the Borrower against any and all of the obligations
of the Borrower now or hereafter existing under this Agreement and the Note held
by such Bank, irrespective of whether or not such Bank shall have made any
demand under this Agreement or such Note and although such obligations may be
unmatured. Each Bank agrees promptly to notify the Borrower after any such
set-off and application made by such Bank, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Bank under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which such
Bank may have.
SECTION 8.06. Assignments and Participations. (a) Each Bank
may, in accordance with applicable law, assign to one or more banks or other
entities all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment, the Advances owing to it and the
Notes held by it); provided, however, that (i) each such assignment shall be of
a constant, and not a varying, percentage of all rights and obligations under
this Agreement, (ii) except in the case of an assignment of all of a Bank's
rights and obligations under this Agreement, the amount of the Commitment of the
assigning Bank being assigned pursuant to each such assignment (determined as of
the date of the Assignment and Acceptance with respect to such assignment) shall
in no event be less than $5,000,000, (iii) each such assignment shall be to an
Eligible Assignee, and (iv) the parties to each such assignment shall execute
and deliver to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with the Notes subject to such
assignment and a processing and recordation fee of $3,000. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, (x) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder and (y) the Bank assignor thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of an assigning Bank's rights and
obligations under this Agreement, such Bank shall cease to be a party hereto
except that the rights under Sections 2.06, 2.10, 2.13 and 8.04 of such Bank
shall continue with respect to events and occurrences before or concurrently
with its ceasing to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with any Loan Document or
any other instrument or document furnished pursuant hereto or in connection
herewith or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any other instrument or document
furnished pursuant hereto or in connection herewith; (ii) such assigning Bank
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or any other Person or the
performance or observance by the Borrower or any other Person of any of its
respective obligations under any Loan Document or any other instrument or
document furnished pursuant hereto or in connection herewith; (iii) such
assignee confirms that it has received a copy of this Agreement, together with
copies of the financial statements referred to in
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<PAGE> 38
Section 4.01(d) and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Bank or any other Bank
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 this Agreement, any of the other Loan Documents or any other instrument or
document; (v) such assignee confirms that it is an Eligible Assignee; (vi) such
assignee appoints and authorizes the Administrative Agent to take such action as
Administrative Agent on its behalf and to exercise such powers and discretion
under the Loan Documents as are delegated to the Administrative Agent by the
terms hereof or thereof, together with such powers and discretion as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Bank.
(c) The Administrative Agent shall maintain at its address referred to
in Section 8.02 a copy of each Assignment and Acceptance, New Bank Agreement and
Commitment Increase Agreement delivered to and accepted by it and a register for
the recordation of the names and addresses of the Banks and the Commitment of,
and the principal amount of the Advances owing to, each Bank from time to time
(the "Register"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Borrower, the Administrative
Agent and the Banks may treat each Person whose name is recorded in the Register
as a Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Bank at any reasonable time and
from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee representing that it is an Eligible Assignee,
together with the Notes subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit E, (i) accept such Assignment and Acceptance,
(ii) record the information contained therein in the Register and (iii) give
prompt notice thereof to the Borrower. Within five Business Days after its
receipt of such notice, the Borrower shall execute and deliver to the
Administrative Agent in exchange for the surrendered Notes a new Note payable to
the order of such Eligible Assignee in an amount equal to the Commitment assumed
by it pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained a Commitment hereunder, a new Note payable to the order of the
assigning Bank in an amount equal to the Commitment retained by it hereunder
(such new Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of Exhibit A). The Administrative Agent shall also record in the Register
appropriate information from each New Bank Agreement and Commitment Increase
Agreement executed by it.
(e) Each Bank, in accordance with applicable law, may sell
participations to one or more banks or other entities (other than the Borrower
or any of its Affiliates) in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Advances owing to it and the Notes held by it);
provided, however, that (i) such Bank's obligations under this Agreement
(including, without limitation, its Commitment to the Borrower hereunder) shall
remain unchanged, (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Bank shall
remain the holder of any such Notes for all purposes of this Agreement, (iv) the
Borrower, the Administrative Agent and the other Banks shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement, (v) the terms of any such participation shall
not restrict such Bank's ability to make any amendment or waiver of this
Agreement or any Note or such Bank's ability to consent to any departure by the
Borrower therefrom without the approval of the participant, except that the
approval of the participant may be required to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Notes or
any fees or other amounts payable hereunder, in each case to the extent subject
to such participation, or postpone any date fixed for any payment of principal
of, or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, and (vi) no such
participant shall be entitled to receive any greater payment pursuant to
Sections 2.06, 2.10 and 2.13 than such Bank would have been entitled to receive
with respect to the rights assigned to such participant by such Bank except as a
result of circumstances arising after the date of such participation to the
extent that such circumstances affect other Banks and participants generally.
-34-
<PAGE> 39
(f) Any Bank may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 8.06, disclose to
the assignee or participant or proposed assignee or participant any information
relating to the Borrower or any of its Affiliates furnished to such Bank by or
on behalf of the Borrower or any of its Affiliates; provided, that, prior to any
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to comply with Section 8.09.
(g) Notwithstanding any other provision set forth in this Agreement,
any Bank may at any time create a security interest in all or any portion of its
rights under this Agreement (including the Advances owing to it and the Note or
Notes held by it) in favor of any Federal Reserve Bank in accordance with
Regulation A of the Federal Reserve Board.
(h) Notwithstanding anything to the contrary contained herein, any Bank
( a "Granting Bank") may grant to a special purpose funding vehicle (a "SPC"),
identified as such in writing from time to time by the Granting Bank to the
Administrative Agent and the Borrower, the option to provide to the Borrower all
or any part of any Advance that such Granting Bank would otherwise be obligated
to make to the Borrower pursuant to this Agreement; provided that (i) nothing
herein shall constitute a commitment by any SPC to make any Advance, and (ii) if
an SPC elects not to exercise such option or otherwise fails to provide all or
any part of such Advance, the Granting Bank shall be obligated to make such
Advance pursuant to the terms hereof. The making of an Advance by an SPC
hereunder shall utilize the Commitment of the Granting Bank to the same extent,
and as if, such Advance were made by such Granting Bank. Each party hereto
hereby agrees that no SPC shall be liable for any indemnity or similar payment
obligation under this Agreement (all liability for which shall remain with the
Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees
(which agreement shall survive the termination of this Agreement) that, prior to
the date that is one year and one day after the payment in full of all
outstanding commercial paper or other senior indebtedness of any such SPC, it
will not institute against, or join any other person in instituting against,
such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings under the laws of the United States or any State thereof. In
addition, notwithstanding anything to the contrary contained in this section,
any SPC may (i) with notice to, but without the prior written consent of, the
Borrower and the Administrative Agent and without paying any processing fee
therefore, assign all or a portion of its interests in any Advances to the
related Granting Bank or to any financial institutions (consented to by the
Borrower and Administrative Agent) providing liquidity and/or credit support to
or for the account of such SPC to support the funding or maintenance of Advances
and (ii) disclose on a confidential basis any non-public information relating to
its Advances to any rating agency, commercial paper dealer or provider or any
surety, guarantee or credit or liquidity enhancement to such SPC. An SPC shall
not be entitled to receive any greater payment under Section 2.10 or 2.13 than
the applicable Bank would have been entitled to receive if such assignment to
such SPC had not been made, unless the assignment to such SPC is made with the
Borrower's prior written consent. This section may not be amended without the
written consent of the SPC.
SECTION 8.07. Governing Law; Entire Agreement. This Agreement
and the Notes shall be governed by, and construed in accordance with, the laws
of the State of New York. This Agreement, the Notes, the other Loan Documents
and any fee letter to the Administrative Agent signed by the Borrower constitute
the entire understanding among the parties hereto with respect to the subject
matter hereof and supersede any prior agreements, written or oral, with respect
thereto.
SECTION 8.08. Interest. It is the intention of the parties
hereto that the Administrative Agent and each Bank shall conform strictly to
usury laws applicable to it, if any. Accordingly, if the transactions with the
Administrative Agent or any Bank contemplated hereby would be usurious under
applicable law, if any, then, in that event, notwithstanding anything to the
contrary in the Notes, this Agreement or any other agreement entered into in
connection with this Agreement or the Notes, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is contracted for, taken, reserved, charged or received by the
Administrative Agent or such Bank, as the case may be, under the Notes, this
Agreement or under any other agreement entered into in connection with this
Agreement or the Notes shall under no circumstances exceed the maximum amount
allowed by such applicable law and any excess shall be cancelled automatically
and, if theretofore paid, shall at the option of the Administrative Agent or
such Bank, as the case may be, be applied on the principal amount of the
obligations owed to
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<PAGE> 40
the Administrative Agent or such Bank, as the case may be, by the Borrower or
refunded by the Administrative Agent or such Bank, as the case may be, to the
Borrower, and (ii) in the event that the maturity of any Note or other
obligation payable to the Administrative Agent or such Bank, as the case may be,
is accelerated or in the event of any permitted prepayment, then such
consideration that constitutes interest under law applicable to the
Administrative Agent or such Bank, as the case may be, may never include more
than the maximum amount allowed by such applicable law and excess interest, if
any, to the Administrative Agent or such Bank, as the case may be, provided for
in this Agreement or otherwise shall be cancelled automatically as of the date
of such acceleration or prepayment and, if theretofore paid, shall, at the
option of the Administrative Agent or such Bank, as the case may be, be credited
by the Administrative Agent or such Bank, as the case may be, on the principal
amount of the obligations owed to the Administrative Agent or such Bank, as the
case may be, by the Borrower or refunded by the Administrative Agent or such
Bank, as the case may be, to the Borrower.
SECTION 8.09. Confidentiality. Each Bank agrees that it will
use reasonable efforts not to disclose without the prior consent of the Borrower
(other than to its affiliates in the ordinary course of business in connection
with any Loan Document, the administration thereof or any transaction
contemplated hereby, employees, auditors or counsel or to another Bank if the
disclosing Bank or the disclosing Bank's holding or parent company in its sole
discretion determines that any such party should have access to such
information) any information with respect to the Borrower or its Subsidiaries
which is furnished pursuant to this Agreement or any other Loan Document and
which is designated by the Borrower to the Banks in writing as confidential,
provided that any Bank may disclose any such information (a) as has become
generally available to the public, (b) as may be required or appropriate in any
report, statement or testimony submitted to any municipal, state or federal
regulatory body having or claiming to have jurisdiction over such Bank or to the
Federal Reserve Board or the FDIC or similar organizations (whether in the
United States or elsewhere), (c) as may be required or appropriate in response
to any summons or subpoena or in connection with any litigation, (d) in order to
comply with any law, order, regulation or ruling applicable to such Bank, and
(e) to the prospective transferee in connection with any contemplated transfer
of any of the Notes or any interest therein by such Bank, provided, that such
prospective transferee executes an agreement with the Borrower containing
provisions substantially identical to those contained in this Section.
SECTION 8.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 8.11. Domicile of Loans. Each Bank may transfer and
carry its loans at, to or for the account of any office, subsidiary or affiliate
of such Bank provided that no Bank shall be relieved of its Commitment as a
result thereof.
SECTION 8.12. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the
Administrative Agent and when the Administrative Agent shall have, as to each
Bank, either received a copy of a signature page hereof executed by such Bank or
been notified by such Bank that such Bank has executed it and thereafter shall
be binding upon and inure to the benefit of and be enforceable by the Borrower,
the Administrative Agent and each Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the Banks
(other than an assignment effectuated by a merger or consolidation permitted by
Section 5.02(d) to the surviving Person referred to therein).
SECTION 8.13. Return of Notes. With respect to each Bank, upon
the full and final payment by the Borrower to such Bank of all amounts due under
the Note payable to the order of such Bank, and termination of the Commitment of
such Bank, such Bank will, with reasonable promptness, return such Note to the
Borrower.
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<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
BORROWER:
AZURIX CORP.
By: /s/ Richard G. Jigarjian
-------------------------------
Name: Richard G. Jigarjian
Title: Vice President
<PAGE> 42
ADMINISTRATIVE AGENT:
CHASE BANK OF TEXAS, N.A.
By: /s/
-------------------------------
Authorized Officer
<PAGE> 43
DOCUMENTATION AGENT:
CREDIT SUISSE FIRST BOSTON
By: /s/ James P. Moran
-------------------------------
James P. Moran
Director
By: /s/ Douglas Maher
-------------------------------
Douglas Maher
Vice President
<PAGE> 44
BANKS:
CHASE BANK OF TEXAS, N.A.
By: /s/
---------------------------
Authorized Officer
$50,000,000 Commitment
<PAGE> 45
CREDIT SUISSE FIRST BOSTON
By: /s/ James P. Moran
---------------------------
Director
By: /s/ Douglas Maher
---------------------------
Vice President
$50,000,000 Commitment
<PAGE> 46
D L J CAPITAL FUNDING, INC.
By: /s/ Harold J. Philipps
---------------------------
Authorized Officer
$25,000,000 Commitment
<PAGE> 47
MERRILL LYNCH CAPITAL CORPORATION
By: /s/
---------------------------
Authorized Officer
$25,000,000 Commitment
<PAGE> 48
EXHIBIT A
PROMISSORY NOTE
U.S. $___________ Dated: __________
FOR VALUE RECEIVED, the undersigned, Azurix Corp., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
_______________ (the "Bank") for the account of its Applicable Lending Office
(as defined in the Credit Agreement referred to below) on the Stated Termination
Date (as defined in the Credit Agreement referred to below), or on such earlier
date payment is required to be made pursuant to such Credit Agreement, the
principal sum of ____________ U.S. dollars (U.S. $___________) or, if less, the
aggregate unpaid principal amount of the Advances (as defined in the Revolving
Credit Agreement dated as of September ___, 1999 among the Borrower, the Bank,
certain other lenders parties thereto and ______________, as Administrative
Agent for the Bank and such other lenders, as amended from time to time; such
Credit Agreement, as amended from time to time, being herein referred to as the
("Credit Agreement") owing to the Bank outstanding on such date.
The Borrower promises to pay interest on the unpaid principal amount of
each Advance owing to the Bank from the date of such Advance until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Chase Bank of Texas, N.A., as Administrative Agent, 600
Travis Street, Houston, Texas 77002, in same day funds. Each Advance owed to the
Bank by the Borrower pursuant to the Credit Agreement, and all payments made on
account of principal thereof, shall be recorded by the Bank and, prior to any
transfer hereof, endorsed on the grid attached hereto which is part of this
Promissory Note; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This Promissory Note is one of the Notes referred to in, and is subject
to and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of advances by the
Bank to the Borrower from time to time in an aggregate amount not to exceed the
U.S. dollar amount first above mentioned, the indebted-ness of the Borrower
resulting from each Advance owing to the Bank being evidenced by this Promissory
Note, and (ii) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
This Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of New York.
AZURIX CORP.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Exhibit A - Page 1
<PAGE> 49
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount Principal Unpaid
of Type of Paid or Principal Notation
Date Advance Advance Prepaid Balance Made By
- -------- ------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
Exhibit A - Page 2
<PAGE> 50
EXHIBIT B
NOTICE OF BORROWING
- ----------------
as Administrative Agent
399 Park Avenue
New York, New York 10043 [Date]
Attention: Energy Department, North American Banking Group
Ladies and Gentlemen:
The undersigned, Azurix Corp., refers to the Revolving Credit
Agreement, dated as of September___, 1999 (such Revolving Credit Agreement, as
amended from time to time, being herein referred to as the "Credit Agreement",
the terms defined therein being used herein as therein defined), among the
undersigned, certain Banks parties thereto and _____________, as Administrative
Agent for said Banks, and hereby gives you notice, irrevocably, pursuant to
[Section 2.02] of the Credit Agreement that the undersigned hereby requests a
Borrowing under the Credit Agreement, and in that connection sets forth below
the information relating to such Borrowing (the "Proposed Borrowing") as
required by [Section 2.02(a)] of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is ____________, ____.
(ii) The Type of Advances comprising the Proposed Borrowing is [Base
Rate Advances] [LIBOR Advances].
(iii) The aggregate amount of the Proposed Borrowing is
$______________.
*[(iv) The initial Interest Period for each Advance made as part of
the Proposed Borrowing is ______ (days) (months).]
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in [Section
4.01] of the Credit Agreement are correct (other than those
representations and warranties that expressly relate solely to a
specific earlier date, which shall remain correct as of such earlier
date), before and after giving effect to the Proposed Borrowing and to
the application of the proceeds therefrom, as though made on and as of
such date; and
- ----------
* To be included for a Proposed Borrowing comprised of LIBOR Advances.
Exhibit B - Page 1
<PAGE> 51
(B) no event has occurred and is continuing, or would result
from such Proposed Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or would constitute an
Event of Default but for the requirement that notice be given or time
elapse or both.
Very truly yours,
AZURIX CORP.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Exhibit B - Page 2
<PAGE> 52
Exhibit C
Form of Opinion of Vinson & Elkins L.L.P., Counsel to Borrower
[Date]
To each of the Banks parties to
the Revolving Credit Agreement
dated as of September 29, 1999 among
Azurix Corp., said Banks and Chase Bank of Texas,
National Association, as Administrative Agent for
Said Banks Credit Suisse First Boston, as Documentation Agent,
And to such Administrative Agent and Documentation Agent
Re: Azurix Corp.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Section 3.01(d) of the
Revolving Credit Agreement, dated as of September 29, 1999 (the "Credit
Agreement"), among Azurix Corp. (the "Borrower"), the Banks parties thereto and
Chase Bank of Texas, National Association, as Administrative Agent for said
Banks, and Credit Suisse First Boston, as Documentation Agent. Except as
otherwise defined herein, terms defined in the Credit Agreement are used herein
as therein defined.
We have acted as counsel for the Borrower in connection with the
preparation, execution, delivery and effectiveness of the Credit Agreement.
In that connection, we have examined:
(1) The Credit Agreement; and
(2) The other documents furnished by the Borrower pursuant to the
conditions precedent set forth in Section 3.01 of the Credit
Agreement.
In addition, we have (i) investigated such questions of law and (ii)
relied on such certificates from officers and representatives of the Borrower
and from public officials, as we have deemed necessary or appropriate for the
purposes of this opinion.
In rendering the opinions herein set forth, we have assumed (i) the due
authorization, execution and delivery of each document referred to in clauses
(1) and (2) of the third paragraph of this opinion by all parties to such
documents and that each such document is valid, binding and enforceable (subject
to limitations on enforceability of the types referred to in paragraphs (a) and
(b) below) against the parties thereto other than the Borrower, (ii) the legal
capacity of natural persons, (iii) the genuineness of all signatures, (iv) the
authenticity of all documents submitted to us as originals and (v) the
conformity to original documents of all documents submitted to us as copies.
Exhibit C - Page 1
<PAGE> 53
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the following opinion.
1. No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required to be
made or obtained by the Borrower for the execution, delivery and performance by
the Borrower of each Loan Document.
2. The execution, delivery and performance by the Borrower of each Loan
Document does not contravene any provision of law or regulation (including,
without limitation, Regulation X issued by the Federal Reserve Board) applicable
to the Borrower or of Regulation U issued by the Federal Reserve Board.
3. The Credit Agreement and the Notes constitute the legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their terms.
The opinions set forth above are subject to the following qualifications:
(a) Our opinion in paragraph 3 above is subject, as to
enforceability, to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally.
(b) Our opinion in paragraph 3 above is subject, as to
enforceability, to the effect of general principles of equity
(regardless of whether considered in a proceeding in equity or
at law), including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and
also to the possible unavailability of specific performance or
injunctive relief. Such principles of equity are of general
application, and in applying such principles a court, among
other things, might not allow a creditor to accelerate
maturity of a debt upon the occurrence of a default deemed
immaterial or might decline to order the Borrower to perform
covenants.
In rendering the opinions expressed in paragraphs 1, 2 and 3 above, we
have relied upon the opinions stated in paragraphs 1, 2 (so far as such
paragraph 2 relates to the corporate powers of, and due authorization of the
Loan Documents by, the Borrower, and noncontravention of the Restated
Certificate of Incorporation, as amended, and Bylaws, as amended, of the
Borrower), 4 and 5 of the opinion, dated today, of the Executive Director and
General Counsel of the Borrower which is being delivered to you pursuant to
Section 3.01(e) of the Credit Agreement.
We have not been called upon to, and accordingly do not, express any
opinion as to the various state and Federal laws regulating banks or the conduct
of their business (except Regulation U issued by the Federal Reserve Board) that
may related to the Loan Documents or the transactions contemplated thereby.
Without limiting the generality of the foregoing, we express no opinion as to
the effect of the law of any jurisdiction other than the State of Texas and the
State of New York wherein any Bank may be located or where any enforcement of
the Loan Documents may be sought which limits the rates of interest legally
chargeable or collectible.
The opinion is limited to the laws of the State of Texas and the State
of New York, the General Corporation Law of the State of Delaware and the
Federal law of the United States.
Exhibit C - Page 2
<PAGE> 54
The opinions herein have been furnished at your request and are solely
for your benefit and the benefit of your respective successors, assigns,
participants, and other transferees and the Administrative Agent's special
counsel in connection with the subject transaction and may not be relied upon by
any other person or by you or any other person in any other context without the
prior written consent of the undersigned.
Very truly yours,
Vinson & Elkins L.L.P.
Exhibit C - Page 3
<PAGE> 55
Exhibit D
Form of Opinion of General Counsel of Borrower
[Date]
To each of the Banks parties
to the Revolving Credit Agreement
dated as of September 28, 1999 among
Azurix Corp., said Banks and Chase Bank of Texas, N.A.,
as administrative Agent for said
Banks, and to such Administrative Agent
Re: $150,000,000 Revolving Credit Agreement of even date herewith
among Azurix Corp., as Borrower, the Banks named therein and
Chase Bank of Texas, N. A., as Administrative Agent
Ladies and Gentlemen:
As Director and General Counsel of Azurix Corp., a Delaware
corporation (the "Borrower"), I, either personally or through attorneys under my
supervision, have examined the Revolving Credit Agreement (the "Credit
Agreement") dated as of September 29, 1999 among the Borrower, the Banks listed
on the signature pages thereto and Chase Bank of Texas, N. A. as Administrative
Agent for said Banks. In such capacities, I have also examined the Restated
Certificate of Incorporation and By-laws of the Borrower. This opinion is being
furnished to you pursuant to Section 3.01(e) of the Credit Agreement. Terms
defined in the Credit Agreement and not otherwise defined herein are used herein
as therein defined.
Before rendering the opinion hereinafter set forth, I (or
other attorneys with the Borrower's legal department acting under my direction)
have examined the Loan Documents, and have examined and relied upon originals or
photostatic or certified copies of such corporate records, certificates of
officers of the Borrower and of public officials, and such agreements, documents
and instruments, and made such investigations of law, as I or such other
attorneys have deemed relevant and necessary as the basis for the opinion
hereinafter expressed. In such examination, I or such other attorneys assumed
the genuineness of all signatures (other than signatures of officers of the
Borrower on the Loan Documents) and the authenticity of all documents submitted
to us as originals, and the conformity to original documents of all documents
submitted to us as photostatic or certified copies.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware,
and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its
business as now conducted, except to the extent failure to obtain such
licenses, authorizations, consents or approvals would not materially
adversely affect the Borrower and its Subsidiaries taken as a whole.
Exhibit D - Page 1
<PAGE> 56
2. The execution, delivery and performance by the Borrower of
each Loan Document are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action on the part of
the Borrower, and do not contravene, or constitute a default under, (a)
the Restated Certificate of Incorporation or By-laws of the Borrower,
(b) any contractual or legal restriction contained in any material
(meaning for the purposes of this opinion those creating a monetary
liability of $ 25,000,000 or more) indenture, loan or credit agreement,
receivables sale or financing agreement, lease financing agreement,
capital lease, mortgage, security agreement, bond or note, or any
guaranty of any of such obligations to which the Borrower is a party,
or (c) any judgment, injunction, order or decree known to me (or other
attorneys with the Borrower's legal department acting under my
supervision) binding upon the Borrower. The execution, delivery and
performance by the Borrower of each of the Loan Documents will not
result in the creation or imposition of any lien, security interest or
other charge or encumbrance on any asset of the Borrower or any
Subsidiary. The Credit Agreement and the Notes have been duly executed
and delivered by the Borrower.
3. There is no action, suit or proceeding pending or, to my
knowledge, threatened against the Borrower before any court or
arbitrator or any governmental agency, in which there is a reasonable
possibility of an adverse decision which could materially adversely
affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Subsidiaries taken as a
whole or which in any manner draws into question the validity of the
Credit Agreement or any other Loan Document.
4. Neither the Borrower nor any Subsidiary is an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
5. Each of the Borrower and the Principal Subsidiaries is not
subject to, or is exempt from, regulation as a "holding company" under
the Public Utility Holding Company Act of 1935, as amended, or pursuant
to such Act or the rules and regulations promulgated thereunder or any
order or interpretation of the Securities and Exchange Commission or
its staff issued pursuant thereto.
The opinions set forth above are subject to the following
qualifications:
1. In rendering the opinions expressed in paragraph 2 above,
neither I nor any other attorney acting under my direction have made any
examination of any accounting or financial matters related to certain of the
covenants contained in certain documents to which the Borrower may be subject,
and I express no opinion with respect thereto.
2. This opinion is limited in all respects to the laws of the
State of Texas, the Delaware Business Corporation Act and Federal law.
3. In rendering the opinion expressed in paragraph 3 above, I
(or the other attorneys acting under my direction) have only reviewed the files
and records of the Borrower and the Subsidiaries, and we have consulted with
such senior officers of the Borrower and the Subsidiaries as we have deemed
necessary.
Exhibit D - Page 2
<PAGE> 57
This opinion is solely for the benefit of the Banks, the
Administrative Agent, the Documentation Agent, their respective successors,
assigns, participants and other transferees and may not be relied upon in
connection with any other transaction or by any other person; provided, however,
that Vinson & Elkins L.L.P. may rely on certain provisions of this opinion to
the extent stated in its opinion for the purposes of rendering its opinion
pursuant to Section 3.01(d) of the Credit Agreement.
Very truly yours,
Exhibit D - Page 3
<PAGE> 58
EXHIBIT E
ASSIGNMENT AND ACCEPTANCE
Dated __________, ____
Reference is made to the Credit Agreement dated as of September ___,
1999 (such Credit Agreement, as it may be amended or otherwise modified from
time to time, being referred to herein as the "Credit Agreement") among Azurix
Corp., a Delaware corporation (the "Borrower"), the Banks (as defined in the
Credit Agreement), Chase Bank of Texas, N.A., as Administrative Agent and Credit
Suisse First Boston, as Documentation Agent. Terms defined in the Credit
Agreement are used herein with the same meaning.
_________________________ (the "Assignor") and __________________ (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to all of the Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents as of the date hereof equal to the
percentage interest specified on Schedule 1 hereto of all outstanding rights and
obligations under the Credit Agreement. After giving effect to such sale and
assignment, the Assignee's and Assignor's respective Commitments and the
respective amounts of the Advances owing to the Assignee and Assignor will be as
set forth in Section 2 of Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit
Agreement, the other Loan Documents or any other instrument or document
furnished pursuant thereto or in connection therewith, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Credit Agreement, any of the other Loan Documents or any other instrument or
document furnished pursuant thereto or in connection therewith; (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any other Person or the performance or
observance by the Borrower or any other Person of any of its respective
obligations under the Credit Agreement, any of the other Loan Documents or any
other instrument or document furnished pursuant thereto or in connection
therewith; and (iv) attaches the Note held by the Assignor and requests that the
Administrative Agent exchange such Note for a new Note payable to the order of
the Assignee in an amount equal to the Commitment assumed by the Assignee
pursuant hereto or new Notes payable to the order of the Assignee in an amount
equal to the Commitment assumed by the Assignee pursuant hereto and the Assignor
in an amount equal to the Commitment retained by the Assignor under the Credit
Agreement, respectively, as specified on Schedule 1 hereto. 3. The Assignee (i)
confirms that it has received a copy of the Credit Agreement, together with
copies of the financial statements referred to in Section 4.01(d) of the Credit
Agreement 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
Acceptance; (ii) agrees that it will, independently and without reliance upon
the Administrative Agent, the Assignor or any other Bank 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 Credit
Agreement, any of the other Loan Documents or any other instrument or document;
(iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers and
discretion under the Loan Documents as are delegated to the Administrative Agent
by the terms thereof, together with such powers and discretion as are reasonably
incidental thereto; (v) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Credit Agreement are
required to be performed by it as a Bank; and (vi) specifies as its Domestic
Lending Office (and address for notices) and Eurodollar Lending Office the
offices set forth beneath its name on the signature pages hereof.
Exhibit E - Page 1
<PAGE> 59
4. Following the execution of this Assignment and Acceptance by the
Assignor and the Assignee, this Assignment and Acceptance will be delivered to
the Administrative Agent for acceptance and recording by the Administrative
Agent. The effective date of this Assignment and Acceptance (the "Effective
Date") shall be the date of acceptance thereof by the Administrative Agent,
unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Bank thereunder and under the other Loan Documents and (ii)
the Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement and under the other Loan Documents.
6. Upon such acceptance and recording by the Administrative Agent, from
and after the Effective Date, the Administrative Agent shall make all payments
under the Credit Agreement and the other Loan Documents in respect of the
interest assigned hereby (including, without limitation, all payments of
principal, interest and facility and utilization fees with respect thereto) to
the Assignee. The Assignor and Assignee shall make all appropriate adjustments
in payments under the Credit Agreement and the other Loan Documents for periods
prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be as effective as delivery of a manually executed counterpart of this
Assignment and Acceptance.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.
Exhibit E - Page 2
<PAGE> 60
Schedule 1
to
Assignment and Acceptance
<TABLE>
<S> <C>
Section 1.
Percentage interest assigned: %
--------
Section 2.
Assignee's Commitment before giving effect to this
Assignment and Acceptance: $
-------
Aggregate outstanding principal of Advances
assigned to the Assignee: $
-------
Assignee's Commitment after giving effect to this
Assignment and Acceptance: $
-------
Assignee's outstanding principal of Advances after
giving effect to this Assignment and Acceptance: $
-------
Assignor's remaining Commitment after
giving effect to this Assignment and Acceptance: $
-------
Aggregate outstanding principal remaining of Advances
owing to the Assignor after giving effect to
this Assignment and Acceptance $
-------
Principal amount of Note payable to the Assignee: $
-------
Principal amount of Note payable to the Assignor: $
-------
Section 3.
Effective Date**:
</TABLE>
[NAME OF ASSIGNOR], as Assignor
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Dated: ,
----------- -------
- ----------
** This date should be no earlier than the date five Business
Days after the delivery of this Assignment and Acceptance to
the Agent.
Schedule I - Page 1
<PAGE> 61
[NAME OF ASSIGNEE], as Assignee
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Dated: ,
----------- -------
Domestic Lending Office (and
Address for Notices):
[ADDRESS]
Eurodollar Lending Office:
[ADDRESS]
[Approved this ____ day of ___________, _____
AZURIX CORP.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Accepted [and Approved]*** this ____ day of
________________, _____
CHASE BANK OF TEXAS, N.A., AS
Administrative Agent
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
- ----------
*** Required if the Assignee is an Eligible Assignee solely by
reason of clause (ii) of the definition of Eligible Assignee
in the Credit Agreement.
Schedule I - Page 2
<PAGE> 62
EXHIBIT F-1
NEW BANK AGREEMENT
This New Bank Agreement dated as of ________ , (this "Agreement") is by
and among (i) Azurix Corp., a Delaware corporation ("Borrower"), (ii)
______________, in its capacity as Administrative Agent under the Revolving
Credit Agreement dated as of September ___, 1999 (as it may be amended or
modified from time to time, the "Credit Agreement", capitalized terms that are
defined in the Credit Agreement and not defined herein are used herein as
therein defined) among the Borrower, __________________ in such capacity and the
Banks party thereto, and (iii) _______ ("New Bank").
Preliminary Statements
i. Pursuant to [Section 2.18] of the Credit Agreement, the Borrower has
the right, subject to the terms and conditions thereof, to add to the
Credit Agreement one or more banks or other financial institutions to
replace the Commitments of Terminating Banks.
ii. The Borrower has given notice to the Administrative Agent pursuant to
[Section 2.18] of the Credit Agreement of its intention to add the New
Bank to the Credit Agreement as a Bank with a Commitment of $ ____, and
the Administrative Agent is willing to consent thereto.
Accordingly, the parties hereto agree as follows:
Section 1. Addition of New Bank. Pursuant to [Section 2.18] of the
Credit Agreement, the New Bank is hereby added to the Credit Agreement as a Bank
with a Commitment of $____. The New Bank specifies as its Domestic Lending
Office and Eurodollar Lending Office the following:
Domestic Lending Address:
Office:
Attention:
Telephone:
Telecopy:
Eurodollar Lending Address:
Office:
Attention:
Telephone:
Telecopy:
CD Lending Office Address:
Attention:
Telephone:
Telecopy:
Section 2. New Note. The Borrower agrees to promptly execute and
deliver to the New Bank a Note in the amount of its Commitment set forth in
Section 1 above ("New Note").
Section 3. Consent. The Administrative Agent and the Borrower hereby
consent to the addition of the New Bank effectuated hereby.
Exhibit F-1 - Page 1
<PAGE> 63
Section 4. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
Section 5. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Section 6. Bank Credit Decision. The New Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank and based on the financial statements referred to in [Section 4.01] and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and to agree to the
various matters set forth herein. The New Bank also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other
Bank 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 Credit Agreement.
Section 7. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The execution, delivery and performance by the Borrower of
this Agreement and the New Note are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action of
the Borrower, require, in respect of the Borrower, no action by or in
respect of, or filing with, any governmental body, agency or official
and do not contravene, or constitute a default under, any provision of
law or regulation (including, without limitation, Regulation X issued
by the Federal Reserve Board) applicable to the Borrower or Regulation
U issued by the Federal Reserve Board or the restated certificate of
incorporation, as amended, or by-laws, as amended, of the Borrower or
any judgment, injunction, order, decree or material ("material" for the
purposes of this representation meaning creating a liability of
$25,000,000 or more) agreement binding upon the Borrower or result in
the creation or imposition of any lien, security interest or other
charge or encumbrance on any asset of the Borrower or any of its
Subsidiaries.
(b) This Agreement and the New Note are, when executed and
delivered in accordance with this Agreement will be legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms, except as the enforceability
thereof may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and by general principles of equity.
(c) After giving effect to this Agreement and any other New
Bank Agreements and Commitment Increase Agreements, the Borrower will
be in compliance with the limitation set forth in clause (a) of the
proviso to the first sentence of [Section 2.18] of the Credit
Agreement.
(d) No event has occurred and is continuing which constitutes
an Event of Default.
(e) No Advances are outstanding.
(f) Attached hereto are resolutions duly adopted by the Board
of Directors or the Executive Committee of the Borrower sufficient to
authorize this Agreement and the New Note, and such resolutions are in
full force and effect.
Section 8. Default. Without limiting any other event that may
constitute an Event of Default, in the event any representation or warranty set
forth herein shall prove to have been incorrect in any material respect when
made and such materiality is continuing, such event shall constitute an "Event
of Default" under the Credit Agreement.
Exhibit F-1 - Page 2
<PAGE> 64
Section 9. Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Administrative Agent in connection with the preparation,
negotiation, execution and delivery of this Agreement and the New Note,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Administrative Agent with respect thereto.
Section 10. Effectiveness. When, and only when, the Administrative
Agent shall have received counterparts of, or telecopied signature pages of,
this Agreement executed by the Borrower, the Administrative Agent and the New
Bank, this Agreement shall become effective as of the date first written above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
AZURIX CORP.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
ADMINISTRATIVE AGENT:
________________, as Administrative Agent
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
NEW BANK:
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Exhibit F-1 - Page 3
<PAGE> 65
EXHIBIT F-2
COMMITMENT INCREASE AGREEMENT
This Commitment Increase Agreement dated as of __________, _____ (this
"Agreement") is by and among (i) Azurix Corp., a Delaware corporation
("Borrower"), (ii) Chase Bank of Texas, N.A. in its capacity as Administrative
Agent under the Revolving Credit Agreement dated as of September ___, 1999 (as
it may be amended or modified from time to time, the "Credit Agreement",
capitalized terms that are defined in the Credit Agreement and not defined
herein are used herein as therein defined) among the Borrower, the
Administrative Agent, the Documentation Agent and the Banks party thereto, and
(iii) _________________ ("Increasing Bank").
Preliminary Statements
1. Pursuant to Section 2.18 of the Credit Agreement, the Borrower
has the right, subject to the terms and conditions thereof, to
agree with a Bank to increase that Bank's Commitment to
replace the Commitments of Terminating Banks.
2. The Borrower has given notice to the Administrative Agent of
its intention, pursuant to such Section 2.18 and with the
consent of the Increasing Bank, to increase the Commitment of
the Increasing Bank from $__________ to $__________, and the
Administrative Agent is willing to consent thereto.
Accordingly, the parties hereto agree as follows
Section 1. Increase of Commitment. Pursuant to Section 2.18 of the
Credit Agreement, the Commitment of the Increasing Bank is hereby increased from
$______ to $______.
Section 2. New Note. The Borrower agrees to promptly execute and
deliver to the Increasing Bank a Note in the amount of its increased Commitment
set forth in Section 1 above (the "New Note"), and the Increasing Bank agrees to
return to the Borrower, with reasonable promptness, the Note previously
delivered to the Increasing Bank by the Borrower.
Section 3. Consent. The Administrative Agent hereby consents to the
increase in the Commitment of the Increasing Bank effectuated hereby.
Section 4. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
Section 5. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Section 6. Bank Credit Decision. The Increasing Bank acknowledges that
it has, independently and without reliance upon the Administrative Agent or any
other Bank and based on the financial statements referred to in Section 4.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and to agree to the
various matters set forth herein. The Increasing Bank also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any
other Bank 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 Credit Agreement.
Exhibit F-2 - Page 1
<PAGE> 66
Section 7. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The execution, delivery and performance by the Borrower of
this Agreement and the New Note are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action of
the Borrower, require, in respect of the Borrower, no action by or in
respect of, or filing with, any governmental body, agency or official
and do not contravene, or constitute a default under, any provision of
law or regulation (including, without limitation, Regulation X issued
by the Federal Reserve Board) applicable to the Borrower or Regulation
U issued by the Federal Reserve Board or the restated certificate of
incorporation, as amended, or by-laws, as amended, of the Borrower or
any judgment, injunction, order, decree or material ("material" for the
purposes of this representation meaning creating a liability of
$25,000,000 or more) agreement binding upon the Borrower or result in
the creation or imposition of any lien, security interest or other
charge or encumbrance on any asset of the Borrower or any of its
Subsidiaries.
(b) This Agreement and the New Note are, when executed and
delivered in accordance with this Agreement will be legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms, except as the enforceability
thereof may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and by general principles of equity.
(c) After giving effect to this Agreement and any other New
Bank Agreements and Commitment Increase Agreements, the Borrower will
be in compliance with the limitation set forth in clause (a) of the
proviso to the first sentence of Section 2.18 of the Credit Agreement.
(d) No event has occurred and is continuing which constitutes
an Event of Default.
(e) Attached hereto are resolutions duly adopted by the Board
of Directors or Executive Committee of the Borrower sufficient to
authorize this Agreement and the New Note, and such resolutions are in
full force and effect.
Section 8. Default. Without limiting any other event that may
constitute an Event of Default, in the event any representation or warranty set
forth herein shall prove to have been incorrect in any material respect when
made, and such materiality is continuing, such event shall constitute an "Event
of Default" under the Credit Agreement.
Section 9. Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Administrative Agent in connection with the preparation,
negotiation, execution and delivery of this Agreement and the New Note,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Administrative Agent with respect thereto.
Section 10. Effectiveness. When, and only when, the Administrative
Agent shall have received counterparts of, or telecopied signature pages of,
this Agreement executed by the Borrower, the Administrative Agent and the
Increasing Bank, this Agreement shall become effective as of the date first
written above.
Exhibit F-2 - Page 2
<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
AZURIX CORP.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
ADMINISTRATIVE AGENT:
CHASE BANK OF TEXAS, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
INCREASING BANK:
-----------------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Exhibit F-2 - Page 3
<PAGE> 68
CONFIDENTIAL AZURIX CORP.
SCHEDULE I
FACILITY AND UTILIZATION FEES AND APPLICABLE MARGINS
<TABLE>
<CAPTION>
*RATING LEVELS Rating Level Rating Level Rating Level
Level I Level II Level III
------- -------- ---------
If Borrower's senior unsecured If Borrower's senior If Borrower's senior
long-term debt is rated BBB or unsecured long-term debt is unsecured long-term debt
better by S&P or Baa2 or better rated BBB- by S&P or Baa3 is rated BB+ by S&P or
by Moody's.**** by Moody's.**** Ba1 by Moody's.****
<S> <C> <C> <C>
**Facility Fees 0.15% 0.20% 0.25%
(per annum):
***Applicable Margin
(per annum):
LIBOR Advance: 0.22% .75% 1.00%
LIBO Rate plus
Base Rate Advance: 0% 0% 0.25%
Base Rate plus
**Utilization Fee (if 0.10% 0.15% 0.25%
Advances exceed 50% of
aggregate Commitments)
<CAPTION>
*RATING LEVELS Rating Level Rating Level
Level IV Level V
-------- -------
If Borrower's senior If Borrower's senior unsecured
unsecured long-term debt is long-term debt is rated BB- or
rated BB by S&P or Ba2 by lower (or not rated) by S&P and
Moody's.**** Ba3 or lower (or not rated) by
Moody's.****
<S> <C> <C>
**Facility Fees 0.375% 0.50%
(per annum):
***Applicable Margin
(per annum):
LIBOR Advance: 1.25% 1.50%
LIBO Rate plus
Base Rate Advance: 0.50% 0.75%
Base Rate plus
**Utilization Fee (if 0.30% 0.35%
Advances exceed 50% of
aggregate Commitments)
</TABLE>
* The relevant Rating Level is determined by the higher of S&P or Moody's
rating (or substitute rating as described below). However, if one
rating is two or more levels below the higher such rating, the Rating
Level that is one level below the Rating Level otherwise applicable
shall apply. For example, if S&P rates the Borrower's senior unsecured
long-term debt A- and Moody's rates such debt Ba1, then Rating Level II
would apply.
** For purposes of determining facility and utilization fees, the Rating
Level for each calendar quarter shall be determined as of the first day
of such quarter.
*** For purposes of determining Applicable Margin for LIBOR Advances, the
Rating Level shall be determined as of the first day of the Interest
Period for such Advances.
**** Or the equivalent rating of either Fitch IBCA, Inc. or Duff & Phelps
Credit Rating Co. to the extent such rating is given.
Schedule I - Page 1
<PAGE> 69
SCHEDULE II
APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Name of Bank Domestic Lending Office Eurodollar Lending Office
------------ ----------------------- -------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
</TABLE>
[TO COME FROM BANKS]
Schedule II - Page 1
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO
AZURIX CORP. 1999 STOCK PLAN
WHEREAS, AZURIX CORP. (the "Company") has heretofore adopted and
maintains the Azurix Corp. 1999 Stock Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is amended as follows:
1. The following new Section 5.10 is added to Article 5:
"5.10 Grants to Residents and Citizens of Foreign Countries. Notwithstanding
anything to the contrary in this Article 5, the Committee may, in its
discretion, grant Options to residents and to citizens of countries other than
the United States of America with the requirement that the exercise thereof be
required to be made through a broker financed or broker arranged exercise as
referenced in subparts (g) and/or (h) in Section 5.3 above."
AS AMENDED HEREBY, the Plan is specifically ratified and reaffirmed.
Date: October 11, 1999.
AZURIX CORP.
By: /s/ REBECCA P. MARK
------------------------------------
Name: Rebecca P. Mark
Title: Chairman and Chief Executive
Officer
ATTEST:
/s/ NORMA A. TIDROW
- ---------------------------
Norma A. Tidrow
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14
<SECURITIES> 401
<RECEIVABLES> 111
<ALLOWANCES> 10
<INVENTORY> 0
<CURRENT-ASSETS> 603
<PP&E> 2,479
<DEPRECIATION> 72
<TOTAL-ASSETS> 4,724
<CURRENT-LIABILITIES> 1,239
<BONDS> 1,006
0
0
<COMMON> 1
<OTHER-SE> 1,977
<TOTAL-LIABILITY-AND-EQUITY> 4,724
<SALES> 419
<TOTAL-REVENUES> 419
<CGS> 136
<TOTAL-COSTS> 295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> 75
<INCOME-TAX> 20
<INCOME-CONTINUING> 55
<DISCONTINUED> 0
<EXTRAORDINARY> 7
<CHANGES> 0
<NET-INCOME> 48
<EPS-BASIC> .45
<EPS-DILUTED> .45
</TABLE>
