<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
REGISTRATION NO. 333-74379
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
----------------------
AZURIX CORP.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
4941
DELAWARE 4952 76-0589114
(State or Other Jurisdiction
of Incorporation or (Primary Standard Industrial (IRS Employer
Organization) Classification Code Number) Identification No.)
</TABLE>
RODNEY L. GRAY
VICE CHAIRMAN
AZURIX CORP.
333 CLAY STREET, SUITE 1000
HOUSTON, TEXAS 77002-7361
(713) 646-6001
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices and Agent for Service)
Copies to:
<TABLE>
<S> <C> <C>
JOHN C. ALE SHELLEY A. BARBER JAMES M. PRINCE
EXECUTIVE DIRECTOR VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
AND GENERAL COUNSEL 2300 FIRST CITY TOWER 4200 CHASE TOWER
AZURIX CORP. 1001 FANNIN 600 TRAVIS
34 PARK STREET HOUSTON, TEXAS 77002-6760 HOUSTON, TEXAS 77002
LONDON W1Y 3PF, ENGLAND (713) 758-3813 (713) 220-4486
(44) 171-970-7763 FAX: (713) 615-5511 FAX: (713) 238-7110
FAX: (44) 171-970-7791
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an underwritten offering in the United States and
Canada, and one to be used in a concurrent international offering, of common
stock, par value $0.01 per share, of Azurix Corp. The U.S. prospectus for the
offering in the United States and Canada follows immediately after this
explanatory note. After the U.S. prospectus are the alternate pages for the
international prospectus. A copy of the complete U.S. prospectus and
international prospectus in the exact forms in which they are to be used after
effectiveness will be filed with the Securities and Exchange Commission pursuant
to Rule 424(b) under the Securities Act.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 21, 1999
PROSPECTUS
- ----------------
36,600,000 SHARES
[AZURIX LOGO]
COMMON STOCK
----------------------
This is Azurix Corp.'s initial public offering of common stock. Azurix is
offering and selling 17,100,000 shares and Atlantic Water Trust, the selling
stockholder, is offering and selling 19,500,000 shares of common stock.
The U.S. underwriters will offer 29,280,000 shares in the United States and
Canada and the international managers will offer 7,320,000 shares outside the
United States and Canada.
We expect the public offering price to be between $19.00 and $22.00 per
share. Prior to the offering, there has been no public market for the common
stock. The common stock has been approved for listing on the New York Stock
Exchange under the trading symbol "AZX," subject to official notice of issuance.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to Azurix....................... $ $
Proceeds, before expenses, to the selling stockholder...... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 4,392,000
shares from the selling stockholder at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
aggregate of an additional 1,098,000 shares from the selling stockholder.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
----------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
PAINEWEBBER INCORPORATED
BT ALEX. BROWN BANC OF AMERICA SECURITIES LLC
----------------------
The date of this prospectus is , 1999.
<PAGE> 4
ART/DIAGRAMS
[EDGAR VERSION ONLY] Diagram showing Azurix's current asset portfolio.
In addition, a diagram will depict the three areas of the global water
industry in which we will pursue our business strategy. They include:
Asset ownership and management, which we will pursue through acquisitions
and concessions of water and wastewater assets and building, owning and
transferring water and wastewater assets.
Services, which include operating and managing water and wastewater assets
for municipal and industrial customers, providing residuals management services
(managing the residual byproducts from wastewater) and providing infrastructure
development and maintenance services for underground water and wastewater
assets.
Resource development and management, which includes extracting,
transporting and storing water and wastewater.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 9
Forward-Looking Statements.................................. 18
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Dilution.................................................... 20
Capitalization.............................................. 21
Selected Historical and Unaudited Pro Forma Consolidated
Financial Data............................................ 22
Currency Exchange Rates..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Government Outsourcing Through Privatization................ 42
Business.................................................... 46
Regulatory Matters.......................................... 73
Management.................................................. 85
Transactions with Enron, Atlantic Water Trust and Marlin
Water Trust............................................... 93
Principal and Selling Stockholders.......................... 98
Description of Capital Stock................................ 101
Description of Indebtedness................................. 104
Shares Eligible for Future Sale............................. 111
Material United States Federal Tax Consequences to
Non-United States Holders of
Common Stock.............................................. 113
Underwriting................................................ 116
Legal Matters............................................... 120
Experts..................................................... 120
Where You Can Find More Information......................... 121
Index to Financial Statements............................... F-1
</TABLE>
----------------------
You should rely only on the information contained in this prospectus. We
have not, and the selling stockholder and the underwriters have not, authorized
any person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We are
not, and the selling stockholder and the underwriters are not, making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
is accurate as of the date on the front cover of this prospectus only. Our
business, financial condition, results of operations and prospects may have
changed since that date.
i
<PAGE> 6
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including our financial data
and related notes, before making an investment decision. Unless we indicate
otherwise, the information contained in this prospectus gives effect to the
100,000-for-1 common stock split effective February 2, 1999.
AZURIX CORP.
Azurix Corp. is a global water company engaged in the business of
acquiring, owning, operating and managing water and wastewater assets, providing
water and wastewater related services and developing and managing water
resources. Enron Corp., one of the world's leading integrated natural gas and
electricity companies, formed Azurix on January 29, 1998 to pursue opportunities
in the global water industry. Azurix's first significant step was to acquire
Wessex, a water and wastewater company based in southwestern England, for $2.4
billion on October 2, 1998. Wessex was recognized in December 1998 by the Office
of Water Services, the industry regulator, as the most efficiently operated
water and wastewater company in England and Wales.
Our asset portfolio also includes interests in long-term water concessions
in the Province of Mendoza, Argentina and in Cancun, Mexico. In addition, we
acquired Philip Utilities Management Corporation, a water and wastewater
services company with operations in the United States and Canada on May 18, 1999
for $106.3 million. On May 18, 1999, we were notified that, subject to final
confirmation, we will be awarded an interest in long-term water and wastewater
concessions in two regions of the Province of Buenos Aires, Argentina, at an
aggregate price of $438.6 million. We have made each of these investments
through one or more subsidiaries, which will be our approach as we pursue our
worldwide growth strategy.
On a pro forma basis, as adjusted for the offering, assuming the Wessex
acquisition occurred on January 1, 1998, and including Mendoza from the date of
our investment, but excluding the Cancun, Philip Utilities and Buenos Aires
transactions, we had operating revenues of $464.2 million, EBITDA of $298.1
million and net income of $91.1 million for the year ended December 31, 1998. As
of March 31, 1999, on a pro forma basis as adjusted for the offering, Azurix had
total assets of $3,544.4 million. To date, all of our operating revenues have
come from Wessex, and substantially all of our operations have been conducted by
Wessex.
We are aggressively pursuing additional water and wastewater transactions
in Europe, North America, Latin America, the Caribbean, the Middle East, Africa,
Asia and the Pacific Rim. These include upcoming concessions in Berlin, Germany
and Santiago, Chile as well as other upcoming privatizations identified in this
prospectus and various privately negotiated transactions. We are also
continually evaluating potential acquisitions of companies owning water and
wastewater assets or providing water related services. The timing, size and
success of any of these potential acquisitions cannot be predicted.
Our experienced management team from Enron, Wessex and other multinational
companies competitively positions us to capture opportunities in the global
water industry. We are transferring to our water business the skills that Enron
has successfully applied in developing global energy infrastructure projects and
the skills that our executives from Wessex and other companies have successfully
used in operating and managing water and wastewater assets.
THE GLOBAL WATER INDUSTRY
The global water industry includes the collection, treatment, storage and
supply of drinking water, and the collection, treatment and disposal of
wastewater and its by-products. Public (municipal and other governmental) and
private (non-governmental) water companies serve industrial, commercial and
residential customers. Azurix estimates that the global water industry has total
annual revenues of approximately $300 billion. In addition, Azurix estimates
that over $600 billion will be spent on worldwide water and wastewater
infrastructure over the next decade.
1
<PAGE> 7
We believe that significant business opportunities exist for private sector
participation in the global water industry, including taking part in water and
wastewater privatizations, providing water and wastewater related services to
municipal and industrial water markets and developing and managing water
resources. Factors creating these business opportunities include:
- Governments and industrial companies are recognizing that transferring
ownership, operation or management of water and wastewater assets to
experienced private parties, called outsourcing, is often more efficient
and cost-effective than owning or operating these assets themselves.
- Major capital investment and efficiency improvements are necessary to
meet higher water quality and environmental standards, to connect growing
populations to water and wastewater systems and to replace aging
infrastructure.
- Increasing demand for water resources is focusing efforts on water
resource development and management, including efficient extraction,
management, storage and transport of water resources.
- Ownership of water and wastewater assets is highly concentrated in the
public sector, and governments often lack the budgetary capacity and
technical expertise needed to address efficiency, water quality and
infrastructure improvement issues effectively.
OUR COMPETITIVE STRENGTHS
We have several competitive strengths that should enable us to compete
successfully in the global water industry:
- EXPERIENCED MANAGEMENT AND BUSINESS DEVELOPMENT TEAMS. Although Azurix
was recently formed, we have a group of experienced managers from
long-established companies, including Enron, Wessex and other
multinational companies. Our management team has extensive experience in
competing for, developing and operating infrastructure projects worldwide
and in managing water and wastewater companies in the United Kingdom and
the United States. Our senior executives are complemented by a group of
experienced business developers who identify opportunities in the global
water industry. Since our formation, we have qualified for bidding on
privatizations in Europe, Latin America and the Middle East. Of the 14
privatizations in which we have actively participated, only one final
award has been made. In this bid for the concession in Valparaiso, Chile,
we were second to the winning bidder. We recently were notified that,
subject to formal confirmation, we will be awarded an interest in
long-term water and wastewater concessions in two regions of the Province
of Buenos Aires, Argentina. We are also currently one of three finalists
for the partial privatization of the Berlin, Germany water and wastewater
system. In addition, we successfully identified and closed the privately
negotiated Cancun and Philip Utilities transactions.
- WESSEX OPERATING EXPERIENCE AND TECHNICAL EXPERTISE. From Wessex, we have
obtained the operating experience, research skills and technical
expertise necessary to evaluate potential water projects, to qualify for
bidding on water projects throughout the world, to build transition and
operating teams for new acquisitions and to manage existing and new water
assets. We intend to transfer to our global water business the operating
efficiency, advanced technology, capital expenditure and operational cost
management and regulatory management skills used successfully by Wessex
in operating and managing its water and wastewater assets.
- REGULATORY AND GOVERNMENT AFFAIRS EXPERTISE. Our management team has
extensive experience in working with regulators and other governmental
agencies and has knowledge of the regulatory framework and privatization
processes in many of the countries in which we intend to pursue water and
wastewater opportunities. This experience and knowledge should allow us
to more accurately assess the regulatory risks and opportunities
presented by the projects we evaluate.
- FINANCING EXPERTISE. Members of our management team have experience using
sophisticated financing and capital raising techniques in both global and
local markets to lower the cost of capital for the financing of projects
and acquisitions. As our portfolio grows and matures, we intend to
2
<PAGE> 8
enhance our equity returns and reduce our overall risk exposure through
opportunistic sales of all or a portion of our individual assets or
investments that have appreciated in value.
OUR BUSINESS STRATEGY
Our business strategy is focused on three complementary areas in the global
water industry:
- ACQUIRING, OWNING, OPERATING AND MANAGING WATER AND WASTEWATER ASSETS. We
intend to build a diversified portfolio of water and wastewater assets,
including both established businesses with stable returns and concessions
and projects in emerging markets with significant development
requirements and potential for growth and enhanced returns. We intend to
acquire water and wastewater assets through participation in public
tenders and privately negotiated transactions throughout the world.
Following an acquisition of water or wastewater assets, we plan to
increase revenues by expanding customer bases and services and improving
the accuracy and timing of billing and collection procedures. In
addition, we intend to grow operating income by reducing operating costs,
prioritizing and managing capital expenditures, increasing efficiency and
applying sophisticated financing techniques.
- PROVIDING WATER AND WASTEWATER RELATED SERVICES. We intend to provide a
broad range of services to municipal and industrial customers around the
world, including:
-- Operations, management and engineering -- services to design, build,
operate or maintain water and wastewater assets
-- Residuals management -- services to dispose of wastewater and biosolids
that result from wastewater treatment
-- Underground infrastructure remediation and development -- services to
repair and replace water and wastewater distribution and collection
systems
- DEVELOPING AND MANAGING WATER RESOURCES. We intend to pursue
opportunities in water resource development and management and address
the capital, technical and operational needs in this area of the water
industry.
By pursuing our business strategy in these three areas, we plan to offer a
full spectrum of services to meet our customers' water and wastewater needs. We
are continually evaluating potential acquisitions of water and wastewater
assets, companies and water service providers. In evaluating potential
investments, we plan to follow a disciplined approach focused on identifying
potential for increased returns, analyzing the impact on tariffs and revenues of
the future regulatory regime and assessing the relevant risks related to each
transaction. We believe this approach will allow us to identify and compete
successfully for those water and wastewater projects offering attractive rates
of return.
3
<PAGE> 9
AZURIX'S CORPORATE STRUCTURE
The following chart illustrates our corporate structure after the offering
and assumes the underwriters' over-allotment option will not be exercised. This
chart does not show our complete corporate structure and should be read in
conjunction with the more detailed descriptions contained elsewhere in this
prospectus.
[CHART]
ATLANTIC WATER TRUST'S OWNERSHIP INTEREST IN AZURIX
Atlantic Water Trust currently owns all of Azurix's outstanding common
stock. Following completion of the offering, Atlantic Water Trust will own
approximately 68.7% of our outstanding common stock, 64.1% if the underwriters'
over-allotment option is exercised in full. Each of Enron and Marlin Water Trust
owns a 50% voting interest in Atlantic Water Trust. To date, Enron has appointed
all of the directors of Atlantic Water Trust and Azurix, although Marlin Water
Trust at any time has the right to elect or replace half of the directors of
Atlantic Water Trust and currently up to half of the Azurix directors. Following
the offering, as long as Atlantic Water Trust owns a majority of our outstanding
voting stock, Marlin Water Trust has the right to direct Atlantic Water Trust to
elect or replace a percentage of Azurix's directors equal to 50% minus the
percentage of outstanding voting stock held by persons other than Atlantic Water
Trust, Enron and its affiliates. Furthermore, Marlin Water Trust, with the
consent of the holders of a majority of our outstanding voting stock held by
persons other than Atlantic Water Trust, Enron and its affiliates, has the right
to direct Atlantic Water Trust to elect or replace half of Azurix's directors.
In each case, Marlin Water Trust's right to designate directors shall be reduced
by the number of directors that may be elected by preferred stock entitled to
elect directors as a class. Enron has the right to direct Atlantic Water Trust
to elect or replace the other half of Azurix's directors. As a result, following
the offering, Enron and Marlin Water Trust will continue to exert significant
influence over the policies, management and affairs of Azurix and the outcome of
most corporate actions requiring
4
<PAGE> 10
stockholder approval, including the approval of transactions involving a change
in control of Azurix. See "Transactions with Enron, Atlantic Water Trust and
Marlin Water Trust," "Principal and Selling Stockholders" and "Shares Eligible
for Future Sale."
TRANSACTIONS WITH ENRON
We have entered into agreements with Enron for purposes of governing
ongoing relationships following the offering, including a business opportunities
agreement, a services agreement and related sublease, a credit agreement and a
license agreement and related cost sharing agreement. The business opportunities
agreement limits the scope of our business to the businesses generally
identified in this prospectus and activities incidental to those businesses. The
agreement also provides that Enron and its affiliates may engage in
water-related businesses, even if those businesses have a competitive impact on
Azurix. Under the services agreement, Enron provides various corporate staff and
support services to us. We expect to incur costs for services used under the
services agreement of approximately $15 million annually. Under the credit
agreement, Enron provides funds to us for general, administrative and operating
expenditures. The credit agreement is a revolving facility which matures
December 15, 2001 or 90 days following the date that Enron or its affiliates do
not own or have the power to vote at least one-third of our capital stock
ordinarily entitled to vote for the election of directors and fewer than
one-third of our directors are officers, directors or employees of Enron or its
affiliates. The total commitment under the credit agreement is $180 million.
Advances under the credit agreement bear interest at the federal funds rate plus
1.50%. The license agreement permits Azurix to use the phrase "an Enron Company"
and the Enron logo in identifying Azurix as part of the Enron enterprise. The
cost sharing agreement provides for a sharing of Enron's trademark costs with
Azurix and Enron's other affiliates. See "Transactions with Enron, Atlantic
Water Trust and Marlin Water Trust" for a more detailed discussion of these
agreements.
Our principal executive offices are located at 333 Clay Street, Houston,
Texas 77002 (telephone number (713) 646-6001) and 34 Park Street, London W1Y
3PF, England (telephone number (44) 171-970-7763).
5
<PAGE> 11
THE OFFERING
The following information is based upon shares outstanding as of May 21,
1999 and excludes approximately 8.5 million shares that may be issued upon the
exercise of options. Unless otherwise indicated, all information in this
prospectus assumes that the over-allotment option will not be exercised.
<TABLE>
<S> <C> <C> <C>
Common stock offered by Azurix:
U.S. offering................................ 13,680,000 shares
International offering....................... 3,420,000 shares
-----------
Total................................ 17,100,000 shares
===========
Common stock offered by the selling
stockholder:
U.S. offering................................ 15,600,000 shares
International offering....................... 3,900,000 shares
-----------
Total................................ 19,500,000 shares
===========
Common stock outstanding after the U.S. and
international offerings...................... 117,100,000 shares
Common stock subject to over-allotment option
from the selling stockholder................. 5,490,000 shares
Use of proceeds................................ We expect the proceeds to Azurix from this sale of
common stock to be approximately $327.1 million, after
deducting underwriting discounts and commissions and
estimated expenses. Azurix will not receive any
proceeds from the sale of common stock by the selling
stockholder. We intend to use approximately $254.2
million of the net proceeds that we receive to repay
advances from Enron and other third party
indebtedness. We intend to use the remaining proceeds,
along with funds to be drawn under the senior credit
facility, to fund the acquisition of an interest in
concessions in the Province of Buenos Aires,
Argentina.
NYSE symbol.................................... "AZX"
</TABLE>
6
<PAGE> 12
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present summary historical and unaudited pro forma
consolidated financial data for Azurix and for Wessex, the predecessor of
Azurix, for the periods and dates indicated. The unaudited pro forma financial
data for Azurix is derived from the unaudited condensed consolidated pro forma
financial data included elsewhere in this prospectus. The unaudited pro forma
income statement and other financial data give effect to the acquisition of
Wessex, the redemption and elimination of Wessex's preference shares for an
aggregate price of $249.8 million, the sale by Wessex of its interest in Wessex
Waste Management Ltd., a joint venture with Waste Management International Plc
that does business as UK Waste, for $337.9 million and the offering, as though
each occurred on January 1, 1998. The unaudited pro forma balance sheet data
gives effect to the offering as though it occurred on March 31, 1999. The
unaudited pro forma income statement and other financial data presented below
are not necessarily indicative of the financial results that would have occurred
had the acquisition of Wessex, the redemption and elimination of Wessex's
preference shares, the sale by Wessex of its interest in UK Waste and the
offering occurred on January 1, 1998, or indicative of our financial position
had the offering occurred on March 31, 1999, and should not be viewed as
indicative of operations or financial position in future periods. See "Selected
Historical and Unaudited Pro Forma Consolidated Financial Data" for more
information regarding the historical, the unaudited pro forma consolidated and
the other financial data.
<TABLE>
<CAPTION>
AZURIX
PRO FORMA AS ADJUSTED(4)
------------------------
THREE
WESSEX (PREDECESSOR COMPANY) MONTHS
YEAR ENDED MARCH 31, YEAR ENDED ENDED
----------------------------------------------------- DECEMBER 31, MARCH 31,
1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------ ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues........... $ 356.3 $ 376.8 $ 403.1 $ 436.6 $464.2 $116.9
Operations and maintenance
expense.................... 106.7 106.6 102.4 110.9 120.9 31.8
General and administrative
expense.................... 33.3 27.4 32.2 29.1 44.4 22.6
Depreciation and
amortization............... 48.5 53.7 58.0 64.3 88.3 23.3
Operating income............. 167.8 189.1 210.5 232.3 210.6 39.2
Net income................... 123.7 140.4 153.0 16.7(3) 91.1 16.9
Basic earnings per common
share(1)................... 0.78 0.14
Diluted earnings per common
share(1)................... 0.78 0.14
OTHER FINANCIAL DATA:
EBITDA(2)(unaudited)......... $ 227.3 $ 256.9 $ 283.2 $ 309.9 $298.1 $ 62.7
Net cash provided by
operating activities....... 214.6 240.5 246.3 125.0
Net cash used in investing
activities................. (150.3) (159.4) (97.8) (195.0)
Net cash (used in) provided
by financing activities.... (45.7) (54.6) (373.0) 6.8
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-----------------------------
AZURIX AS ADJUSTED(4)
------------ --------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 13.1 $ 208.2
Working capital........................................... (134.5) 124.8
Total assets.............................................. 3,349.3 3,544.4
Note payable -- affiliate................................. 117.8 117.8
Long-term debt (excluding current maturities)............. 940.3 872.5
Other long-term liabilities (including deferred taxes).... 417.2 417.2
Stockholders' equity...................................... 1,614.7 1,941.8
</TABLE>
(footnotes on following page)
7
<PAGE> 13
- ---------------
(1) The basic and diluted earnings per common share amounts for Wessex are not
meaningful on a comparative basis to Azurix and, therefore, are not
presented.
(2) EBITDA for any relevant period presented above is defined as net income
before net interest (income) expense, income tax, utility tax, depreciation
and amortization. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating profit, as an indicator of liquidity or as a
substitute for net cash provided by operating activities. This method may
not be comparable to the EBITDA calculations of other entities.
(3) The year ended March 31, 1998 includes a windfall tax of $162.3 million,
which has been described by the U.K. Government as a one-time tax. Excluding
the effect of this tax, for the year ended March 31, 1998, Wessex's net
income would have been $179.0 million.
(4) As adjusted to reflect the application of the net proceeds to Azurix from
the offering. Azurix has drawn $182.9 million under its senior credit
facility as of May 21, 1999. Azurix intends to use $182.2 million of the net
proceeds from the offering along with available cash to repay this
indebtedness. Following the application of the net proceeds from the
offering, $387.4 million of borrowing capacity under the senior credit
facility will be available to fund future acquisitions. It is expected that
$365.7 million of this facility, along with $72.9 million of proceeds from
the offering, will be used to fund the $438.6 million acquisition of an
interest in concessions in two regions of the Province of Buenos Aires,
Argentina.
8
<PAGE> 14
RISK FACTORS
Investing in our common stock will provide you with an equity ownership
interest in Azurix. As an Azurix stockholder, you will be subject to risks
inherent in our business. The performance of your shares will reflect the
performance of our business relative to, among other things, competition, market
conditions and general economic and industry conditions. The value of your
investment may increase or decline and could result in a loss. You should
carefully consider the following factors as well as other information contained
in this prospectus before deciding to invest in shares of the common stock.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, OUR FUTURE OPERATING RESULTS ARE
DIFFICULT TO FORECAST AND OUR FUTURE FINANCIAL OR OPERATING RESULTS MAY BE
MATERIALLY DIFFERENT FROM THE RESULTS IN THIS PROSPECTUS. THESE DIFFERENCES
COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
We are a new company with a limited operating history. Our limited
operating history and the unpredictable results of our acquisition strategy make
it difficult to forecast our future operating results. The financial data
presented in this prospectus may not be indicative of our future financial or
operating results. We expect to experience significant competition in bidding
and negotiating for water projects worldwide. As a new company, we will face
competition from companies that have a longer operating history and have more
experience in bidding for water and wastewater projects. Our limited operating
history may make it difficult for us to qualify for, or be successful in,
bidding. For example, we may be at a disadvantage in bidding for some projects
when we do not have a history of operating in a country or region, or when we do
not have a history of operating a water or wastewater system or individual
treatment plant of a size comparable to the system or facility being privatized
or built.
We will derive our consolidated operating revenues almost exclusively from
the operations of Wessex until such time as our other investments begin to
generate revenue. Operating revenues from Wessex may not be available for
distribution to Azurix due to operating and financing requirements of Wessex,
financing requirements of intermediate companies, regulatory developments
affecting the rates Wessex may charge its customers and other regulatory or
other restrictions on its ability to pay dividends to its shareholders.
OUR PROFITABILITY AND PROSPECTS FOR GROWTH ARE HIGHLY DEPENDENT ON COMPLETING
ACQUISITIONS AND DEVELOPING PROJECTS, AND WE MAY NOT BE ABLE TO COMPLETE
ACQUISITIONS AND DEVELOP PROJECTS SUCCESSFULLY.
There is a risk that we may not be able to complete acquisitions of water
and wastewater assets and develop projects successfully because these
transactions involve many complexities. Such complexities include, among other
things, negotiation of satisfactory water supply and wastewater treatment
services agreements with local governments and receipt of required governmental
consents and permits. In addition, in evaluating and negotiating water projects,
water companies typically encounter difficulties in determining the status and
condition of existing systems or developing accurate forecasts of material
factors such as the rate of population growth, particularly in developing
countries. In privatization transactions, we may be unable to predict with
certainty the timing of a privatization or the commitment level of a government
to completing a privatization. In addition, most privatizations are
competitively bid, and there is no assurance as to what proportion of the
projects on which we bid we ultimately will acquire. Because part of our
business strategy is to grow through acquisitions and development projects, we
have recently put in place a business development effort with associated
general, administrative and operating expenses. To the extent we are not
successful in completing acquisitions and development projects, these expenses
will not be absorbed by revenues associated with those acquisitions and
development projects and will decrease our net income. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Outlook."
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WATER AND WASTEWATER COMPANIES FACE PRICE AND OTHER REGULATION THAT COULD REDUCE
OUR OPERATING REVENUES.
Governments generally regulate the prices that water and wastewater
companies may charge their customers and the competitive environment in which
they operate. Regulatory regimes vary from country to country and at times can
give great discretion to the regulatory authority. Moreover, the regulatory
authorities in countries where we currently operate, or may operate in the
future, could change without notice, as could the regulations they promulgate.
These changes could cause reductions in our operating revenues. For example, the
U.K. Director General of Water Services is currently conducting a periodic
review of the price limits for water and wastewater companies in England and
Wales that is expected to result in new price limits for the period from April
1, 2000 through 2005. In setting price limits, the Director must act in the
manner he considers best calculated to ensure that water companies are able to
finance the proper carrying out of their functions, in particular, by securing a
reasonable return on their capital.
In October 1998, the Director proposed an initial price cut for Wessex in
excess of 17.5% from 1999-2000 to 2000-2001, with prices gradually increasing
thereafter but remaining below the 1999-2000 levels in 2004-2005. Following this
proposal, the U.K. Government announced its decision to require greater capital
expenditures for water and wastewater companies for environmental improvements.
Subsequently, in its April 1999 business plan filed with the Director, Wessex
proposed stable prices from 1999-2000 to 2000-2001, with prices gradually
increasing to 18% higher than current levels in 2005, primarily to fund capital
expenditures mandated by the new environmental standards. The Director will
consider the business plan in his review. The Director has stated that he will
publish draft price limits in July 1999 with the final determination being made
in November 1999. These price limits may differ materially from the Director's
original proposal. Although we are unable to predict the precise outcome of the
current U.K. periodic review, if Wessex were required to cut its prices as
originally proposed by the Director, Wessex's regulated operating revenues,
which represent approximately 90% of our total operating revenues, would be
reduced by approximately 17.5% and its earnings would be reduced materially.
FAILURE TO IDENTIFY AND ASSESS ACCURATELY THE RISKS RELATED TO AN ACQUISITION OR
PROJECT COULD REDUCE OUR OPERATING RESULTS, INCLUDING EARNINGS.
In evaluating potential transactions, we make assumptions and projections
based on the potential for increased returns, future regulatory and rate case
changes and the engineering, operations, financing, economic structuring,
insurance, tax, environmental, legal and accounting risks relating to each
transaction. Forecasts, estimates and information provided by local governments
and other sources used to bid for public tenders can prove to be materially
inaccurate or incomplete, resulting in projections for capital expenditures to
improve or build water systems that are below what is ultimately required. If
the assumptions on which we base our decision to acquire assets or develop a
project prove to be incorrect in any material respect, either because of
inaccurate or incomplete information provided by the other party or parties to
the transaction or because of a failure by us to accurately identify or assess
the risks or capital requirements related to a proposed acquisition or project,
then our operating results, including earnings, could be materially adversely
affected. Although we attempt to identify all risks associated with any given
transaction, no assurance can be given that we will identify all risks related
to a transaction.
BECAUSE OUR BUSINESS REQUIRES SUBSTANTIAL CAPITAL EXPENDITURES, DIFFICULTY
FINANCING OUR OPERATIONS, ACQUISITIONS AND PROJECTS COULD LIMIT OUR GROWTH AND
REDUCE OUR EARNINGS.
The water assets and projects in which we plan to invest may require
substantial capital expenditures, especially early in the life of our
investments. We intend to finance our investments and projects using various
techniques and instruments such as debt financing, project financing and equity
investments. We expect to engage in leveraged transactions, and we may pledge
all or substantially all of our assets. For example, the capital stock of Wessex
is pledged as security for the senior credit facility of Azurix Europe Ltd,
Wessex's holding company. In addition, there is a risk that financing may not be
readily available to acquire water and wastewater assets or develop projects.
Our ability to arrange financing will be affected
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by general economic and capital market conditions, credit availability from
banks or other lenders and the risks inherent in particular concessions,
projects or countries. In particular projects, we may have a co-owner with
limited resources or that may default on its obligations to contribute capital
to the project. Enron is not obligated to provide additional financial support
to Azurix for any capital expenditures or investments.
IF WE DO NOT HAVE OPERATIONAL CONTROL IN A PROJECT, OUR OPERATING REVENUES AND
EARNINGS COULD BE REDUCED.
We may invest in water and wastewater projects and assets in which we do
not own a majority of the project or assets. In addition, we may invest in or
own projects and assets with partners, co-venturers and other parties, including
governmental entities. Some jurisdictions require participation of employees or
other stakeholders in company management. In these cases, major decisions may
require the consent of other equity owners or stakeholders.
We may also invest in projects and assets where we do not serve as
operator. For example, we do not have operational control in our Mendoza,
Argentina concession. In these cases, our ability to direct the outcome of
matters with respect to the operations of the project or assets could be
limited. A lack of operational control in a project could materially and
adversely affect our interest in the project and, as a result, our operating
revenues and earnings from the project.
IF WE ENCOUNTER PROBLEMS INTEGRATING ACQUISITIONS AND MANAGING OUR GROWTH, OUR
FINANCIAL RESULTS AND THE MARKET PRICE OF OUR COMMON STOCK COULD BE MATERIALLY
ADVERSELY AFFECTED.
We intend to grow in part through acquisitions of water and wastewater
assets. Because we are pursuing acquisitions around the world and because we are
actively pursuing a number of opportunities simultaneously, we may encounter
unforeseen expenses, difficulties, complications and delays, including
difficulties in staffing and providing operational and management oversight. As
we expand our operations through acquisitions, we may encounter difficulties
integrating such acquisitions and successfully managing the growth of a
portfolio of water and wastewater assets that is diverse both with respect to
types of assets and their location. We cannot assure you that our current
management, personnel and other corporate infrastructure will be adequate to
manage our growth or that our systems, procedures and controls will be adequate
to support our expanding operations. To the extent we encounter problems in
integrating acquisitions and managing our growth, our financial results and the
market price of our common stock could be materially adversely affected.
ENVIRONMENTAL FACTORS AND CHANGES IN REGULATIONS COULD INCREASE OUR COSTS OR OUR
LIABILITIES.
There is a risk that changes in regulations applying to the water supply or
wastewater treatment services industry or new, revised or inconsistent
interpretations of these regulations may adversely affect our financial
condition and results of operations. Water companies are subject to water
quality risks related to contamination of drinking water supplies or
environmental danger from effluent discharges. The occurrence of these or other
risks could have a material adverse effect on our financial position and results
of operations.
In addition, many countries in which we plan to do business have recently
developed, or are in the process of developing, new regulatory and legal
structures that regulate the delivery of drinking water and wastewater services
and accommodate private and foreign-owned water businesses. In some instances,
these regulatory and legal structures and their interpretation and application
by administrative agencies are relatively new and incomplete. The interpretation
of existing rules can be expected to evolve over time and may have an
unpredictable impact on our business. We anticipate 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 our financial position and results of operations.
In our industrial services business, we may handle hazardous substances in
addition to biological waste. Stringent environmental laws provide for serious
penalties and sometimes impose strict liability on those who handle these
substances or find them on their property. Accordingly, if we handle hazardous
substances in our industrial services business in the future, there is a risk
that we will incur liabilities and
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expenses related to the handling of hazardous substances. Although we maintain
insurance against many of these risks, we cannot be certain that insurance
proceeds received under our policies would adequately cover all liabilities we
might incur.
LIABILITY FOR WATER SUPPLY CONTAMINATION COULD RESULT IN MATERIAL LOSSES AND
COSTS.
Where we supply water to end-users, our business is subject to risks of
contamination of the water supply, which could result in disease or even death
or otherwise endanger the public health. As a result of contamination, we could
be subject to civil, criminal or regulatory enforcement actions, private suits
and cleanup obligations, which could have a material adverse effect on our
financial condition and results of operations. Drinking water contamination can
be caused by, among other things, wastewater effluent, stormwater runoff from
farms and industrial sites, materials used in the construction or rehabilitation
of water supply pipes, harmful nitrates attributable to modern farming practices
and various other pathogens from a variety of sources entering the drinking
water supply. Accordingly, there can be no assurance that our water supply will
remain at all times free of contaminants. Although we maintain insurance against
many of these risks, we cannot be certain that insurance proceeds received under
our policies would adequately cover all liabilities we might incur.
POLITICAL AND ECONOMIC CHANGES IN COUNTRIES IN WHICH WE OPERATE COULD ADVERSELY
AFFECT OUR OPERATING RESULTS.
The success of our strategy in many countries will depend on a political
and economic environment that will accommodate foreign investment and project
development. Our operations will be subject to political and economic risks,
including risks of war, terrorism, expropriation, nationalization, renegotiation
or nullification of existing contracts, changes in rates and methods of taxation
and foreign exchange controls or governmental restrictions on the repatriation
of hard currency. You should be aware that we will operate in countries whose
economies differ in many respects from the economies of the United States,
Canada and most Western European countries, including their structure, levels of
capital reinvestment, growth rate, government involvement, resource allocation,
self-sufficiency, rate of inflation and balance of payments position. In many of
these countries, the government retains significant control over the economy.
Thus, there is a risk that future government actions, especially with respect to
nationally important facilities such as water systems, could have a material
adverse effect on our financial condition and results of operations.
WORK STOPPAGES AND OTHER LABOR RELATIONS MATTERS COULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
We are subject to a risk of work stoppages and other labor relations
matters because we have invested and will invest in the future in assets and
projects utilizing a workforce that in many cases will be unionized. For
example, all or a portion of the work forces at Wessex, Mendoza, Cancun and
Philip Utilities are represented by unions. Workers at the Hamilton-Wentworth
facility operated by Philip Utilities have been working under the terms of a
collective bargaining agreement that expired on March 31, 1999. Although
negotiations for a new contract are continuing, there can be no assurance that a
new agreement will be entered into or, if entered into, will be on favorable
terms. In addition, our ability to obtain an adequate return on an investment
will often depend on our success in optimizing the labor force through voluntary
and sometimes involuntary staff reductions. There is a risk that layoffs, where
implemented, could trigger community or union problems. We cannot assure you
that issues with our labor forces will be resolved favorably to us in the future
or that we will not experience work stoppages in future years.
CHANGES IN CURRENCY EXCHANGE RATES, LIMITATIONS ON SENDING FUNDS OUT OF A
FOREIGN COUNTRY AND FOREIGN CURRENCY RESTRICTIONS OR SHORTAGES COULD ADVERSELY
AFFECT OUR OPERATING RESULTS.
Because we conduct operations outside the United States, limitations on the
right to convert currency or to take it out of a foreign country, changes in
exchange rates and the capacity of currency exchange markets may adversely
affect our ability to repatriate profits. As of December 31, 1998, 98.5% of our
total
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liabilities were non-U.S. dollar denominated. For the year ended December 31,
1998, 100% of our operating revenues were non-U.S. dollar denominated but were
in the same currencies as our non-U.S. dollar denominated liabilities. Legal
restrictions or shortages in currencies in countries outside the United States
may prevent us from converting sufficient local currency to enable us to comply
with our currency payment obligations not denominated in local currency or to
meet our operating needs and debt service requirements.
OPERATING IN COUNTRIES WITHOUT ADEQUATE REVENUE COLLECTION SYSTEMS COULD REDUCE
OUR OPERATING REVENUES.
There is a risk that we will operate in countries whose legal systems do
not have established or well-enforced collection mechanisms for water supply and
wastewater treatment services. Also, customers in such countries may not be able
or willing to pay for water services. This could have a material adverse effect
on our financial condition and results of operations. There can be no assurance
that government subsidies or taxes and other concessions will sufficiently
compensate private parties that provide these services for the economic
consequences of such conditions. Where initially available, there is a risk that
such subsidies and concessions could be reduced or eliminated before reliable
revenue sources and collection mechanisms can be established.
INTERACTION OF DIFFERENT COUNTRIES' TAX LAWS COULD LOWER OUR RETURNS.
Tax laws in various countries treat differently the taxability of various
aspects of income and gain and the deductibility of expenses and losses. Income
earned in one jurisdiction also may be taxable in another, including the United
States. Although in many instances U.S. tax laws will permit us to credit
amounts paid in taxes in other countries against our U.S. tax obligations, the
rules allowing credits are complex and do not allow credits in many
circumstances. Moreover, if we incur expenses in one jurisdiction that benefit a
project in another, they may not be deductible against income in the
jurisdiction where the expenses were incurred. This could occur, in particular,
in the United States, if our operating revenues from future U.S. operations do
not exceed the expenses we incur in the United States in supporting our
worldwide operations.
OPERATING IN COUNTRIES WITH UNDEVELOPED LEGAL SYSTEMS COULD ADVERSELY AFFECT OUR
BUSINESS BECAUSE WE MAY ENCOUNTER DIFFICULTIES ENFORCING OUR CONTRACTUAL RIGHTS.
Developing countries in which we may pursue opportunities may not have well
established legal systems and lack a well-developed, consolidated body of laws
governing foreign investment enterprises. The uncertainty of the legal
environment in these countries could make it difficult for us to enforce our
rights, or those of our operating companies, under agreements relating to our
operations. In addition, the administration of laws and regulations by
government agencies in such countries may be subject to considerable discretion
or prejudice against foreigners or private investors. As these legal systems
develop, foreign investors may be adversely affected by new laws and changes to
existing laws. In addition, in countries where adequate laws and well-developed
legal systems do exist, it may not be possible to obtain swift and equitable
enforcement of such laws.
RESTRICTIONS IN DEBT AGREEMENTS COULD LIMIT OUR GROWTH AND OUR ABILITY TO
RESPOND TO CHANGING CONDITIONS.
We conduct substantially all of our operations through subsidiaries, and
substantially all of our assets consist of equity in our subsidiaries. Some of
the debt financing arrangements to which our subsidiaries are a party impose
restrictions on their business operations, which may affect our business
operations. The covenants contained in the credit agreements to which Azurix
Europe and Wessex are parties will have several restrictive effects on our
future operations. For example, the covenants contained in the senior credit
facility for Azurix Europe require Wessex to meet financial tests and limit
Wessex's ability to borrow additional funds or dispose of assets. These
covenants could hinder our flexibility in planning for, and reacting to, changes
in our business. In addition, our ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate and other
purposes at the Azurix level may be limited by the fact that the capital stock
of Wessex is pledged as security for Azurix Europe's senior credit
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facility. Additionally, covenants contained in the senior credit facility
restrict Azurix Europe from paying dividends to Azurix. This could limit our
ability to pay dividends on our common stock. See "Description of Indebtedness."
FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE YEAR 2000 COULD HAVE AN ADVERSE EFFECT
ON OUR BUSINESS.
Year 2000 problems could result from computer hardware and software using
two digits rather than four digits to define the applicable year. These problems
include operational inefficiencies, systems failures, business disruptions and
lost revenues attributable to the inability of these two digit systems to
recognize the Year 2000. We intend to implement Enron's Year 2000 plan to
identify and remediate our Year 2000 problems. However, because we have not
completed our analysis of our Year 2000 readiness or the Year 2000 readiness of
parties on whom we rely, we cannot ensure that the identification and
remediation of our Year 2000 problems will be successful.
If our mission-critical information systems fail or if suppliers on which
we depend for essential goods and services experience mission-critical
information system failures, our business could be materially adversely
affected. We could face substantial claims by governments, governmental
authorities or customers, as well as loss of operating revenues, due to service
interruptions, violations of environmental regulations, inability to fulfill
contractual obligations, inability to account for obligations and increased
expenses associated with litigation, harm to persons or to property,
stabilization of operations following system failures and the execution of
contingency plans. In addition, we could face claims of damage to persons or
property as the result of improperly treated water or wastewater.
Our preliminary assessment of our Year 2000 issues has not demonstrated a
need to incur material Year 2000 costs. However, the following factors could
result in actual Year 2000 costs being higher than anticipated:
- We intend to engage in future acquisitions and could acquire a business
with significant Year 2000 problems.
- We depend on third parties, including customers, suppliers and service
providers, who may fail to address adequately their Year 2000 problems.
- We rely on automated plant systems, computerized billing procedures and
other embedded chip technologies that could necessitate expensive
corrective actions.
For a more detailed discussion of the state of our Year 2000 readiness, the
costs we anticipate incurring to become Year 2000 ready and our Year 2000
contingency plans, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."
OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT, THE LOSS OF WHOM COULD
DISRUPT OUR BUSINESS OPERATIONS.
We depend on the continued employment of key management personnel we have
brought in from Enron, Wessex and other multinational companies. We have entered
into employment agreements with these executives. If these officers resign or
become unable to continue in their present role and if they are not adequately
replaced, our business operations could be materially adversely affected. See
"Management."
CHANGES IN OUR RELATIONSHIP WITH ENRON COULD INCREASE OUR COSTS BECAUSE WE RELY
ON ENRON FOR CORPORATE STAFF AND SUPPORT SERVICES.
We have entered into an agreement with Enron pursuant to which Enron
provides various corporate staff and support services to us. These services
include information technology, office space, building maintenance, security and
other office services as well as employee development, training and maintenance
of compensation and other benefits programs. We also may utilize Enron's
regulatory affairs, marketing affairs, treasury and risk assessment and control
departments. In addition, Azurix may continue to
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participate in Enron's corporate insurance program. The agreement provides that
we may use the international offices of Enron and its affiliates for projects,
subject to our mutual agreement with Enron or its affiliates on a
project-by-project basis. Due to prior commitments that Enron or its affiliates
may have in a particular office or due to other reasons, there is a risk that
Enron or its affiliates may not permit Azurix to use a particular international
office for a particular project.
Our agreement with Enron is for an indefinite term, but may be terminated
on 180 days' notice. If the agreement is terminated, we expect that we would be
able to arrange alternate suppliers for all the services important to our
business. We expect that these services would be available from third parties at
costs similar to those we pay Enron. However, if we have to replicate
facilities, services or employees that we are not using full time, our costs
would increase. It is not possible to predict the specific areas where our costs
would increase, as that depends on the growth and needs of our business at the
time of any such termination.
OUR BUSINESS OPPORTUNITIES COULD BE LIMITED BECAUSE ENRON AND ITS AFFILIATES MAY
COMPETE WITH AZURIX IN WATER-RELATED ACTIVITIES AND BECAUSE AZURIX MAY ONLY
ENGAGE IN ACTIVITIES GENERALLY IDENTIFIED IN THIS PROSPECTUS, INCIDENTAL
ACTIVITIES AND OTHER ACTIVITIES AS ATLANTIC WATER TRUST OR ENRON MAY APPROVE.
Enron and Azurix have entered into an agreement that limits the scope of
Azurix's business and provides that Enron and its affiliates may engage in
water-related businesses, even if those businesses have a competitive impact on
Azurix. In general, Enron is permitted to engage in any business whatsoever,
including water, wastewater and other businesses competing with Azurix, and may
compete in public tenders against Azurix, provided the business is conducted and
opportunities are identified and developed through Enron's own personnel and not
through Azurix. If an opportunity in the water industry is presented to a person
who is an officer or director of both Enron and Azurix, the opportunity must
first be offered to Azurix, unless water constitutes a minority of the fair
market value of the opportunity, as determined by that officer or director in
good faith based on information available at the time. Azurix has agreed to
indemnify Enron and its officers, directors and employees against any claim that
Enron's pursuit of any water business was a breach of any duty owed by Enron to
Azurix, provided Enron has followed the rules described above. Were Enron to
decide to pursue activities in the water or wastewater industry, its size,
access to capital and experience in developing products and markets could make
it a strong competitor.
The agreement requires Azurix to limit its purpose, in its certificate of
incorporation, to the businesses generally identified in this prospectus,
activities incidental to those businesses, and such other businesses as Enron
may approve in its sole discretion. Azurix has agreed not to amend its
certificate of incorporation to expand its purpose clause without Enron's prior
written consent. The agreement thus limits our ability to pursue potentially
profitable activities that are not primarily in the water and wastewater sector,
even though those opportunities come to our attention on account of our
activities in water and wastewater. For example, some jurisdictions may choose
to privatize their water and other utility assets together. As a result of this
agreement, we would need Enron's consent to pursue the privatization if the
water and wastewater aspects were not expected to represent a majority of the
value.
The agreement restricts Enron and Azurix from taking action to restrict
each others' businesses, to cause either of them to violate any law or to
subject them to regulation under the U.S. Public Utility Holding Company Act of
1935. The agreement expires the first date on which Enron and its affiliates do
not individually or collectively, directly or indirectly, own or have the power
to vote at least one-third of the shares of Azurix ordinarily entitled to vote
for the election of directors, and fewer than one-third of the directors of
Azurix are persons who are employees, officers or directors of Enron or any
affiliate of Enron. See "Transactions with Enron, Atlantic Water Trust and
Marlin Water Trust -- Agreement Regarding Business Opportunities and Related
Matters."
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THROUGH ATLANTIC WATER TRUST, ENRON AND MARLIN WATER TRUST WILL CONTROL THE
OUTCOME OF STOCKHOLDER VOTING AND MAY EXERCISE THIS VOTING POWER IN A MANNER
ADVERSE TO THE INTERESTS OF OTHER STOCKHOLDERS.
Atlantic Water Trust currently owns all of Azurix's outstanding common
stock. Following completion of the offering, Atlantic Water Trust will own
approximately 68.7% of our outstanding common stock, 64.1% if the underwriters'
over-allotment option is exercised in full. Each of Enron and Marlin Water Trust
owns a 50% voting interest in Atlantic Water Trust. To date, Enron has appointed
all of the directors of Atlantic Water Trust and Azurix, although Marlin Water
Trust at any time has the right to elect or replace half of the directors of
Atlantic Water Trust and currently up to half of the Azurix directors. Following
the offering, as long as Atlantic Water Trust owns a majority of our outstanding
voting stock, Marlin Water Trust has the right to direct Atlantic Water Trust to
elect or replace a percentage of Azurix's directors equal to 50% minus the
percentage of outstanding voting stock held by persons other than Atlantic Water
Trust, Enron and its affiliates. Furthermore, Marlin Water Trust, with the
consent of the holders of a majority of our outstanding voting stock held by
persons other than Atlantic Water Trust, Enron and its affiliates, has the right
to direct Atlantic Water Trust to elect or replace half of Azurix's directors.
In each case, Marlin Water Trust's right to designate directors shall be reduced
by the number of directors that may be elected by preferred stock entitled to
elect directors as a class. Enron has the right to direct Atlantic Water Trust
to elect or replace the other half of Azurix's directors. In all other
circumstances, the board of directors of Atlantic Water Trust will direct the
voting of Atlantic Water Trust's Azurix shares. As a result, following the
offering, Enron and Marlin Water Trust will continue to exert significant
influence over the policies, management and affairs of Azurix and will control
the outcome of corporate actions requiring stockholder approval, including the
approval of transactions involving a change in control of Azurix. Enron and
Marlin Water Trust's interests may differ from those of Azurix's other
stockholders. As a result, Enron and Marlin Water Trust may vote Azurix stock in
a manner adverse to other stockholders. See "Transactions with Enron, Atlantic
Water Trust and Marlin Water Trust" and "Principal and Selling Stockholders."
A MAJORITY OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO
ENRON DIRECTORS OR OFFICERS.
Currently, a majority of our directors are also directors or officers of
Enron, a situation that may create conflicts of interest. The directors and
officers of Enron have fiduciary duties to manage Enron, including its
investments in subsidiaries and affiliates such as Azurix, in a manner
beneficial to Enron and its stockholders. Similarly, the directors and officers
of Azurix have fiduciary duties to manage Azurix in a manner beneficial to
Azurix and its stockholders. In some circumstances, the duties of these
directors and officers of Enron may conflict with their duties as directors of
Azurix. In addition, other conflicts of interest exist and may arise in the
future as a result of the extensive relationships between Enron and Azurix.
Enron and Azurix have agreed that conflicts of interest between Enron and Azurix
may be resolved through approval by a majority of the directors of Azurix not
associated with Enron. See "Transactions with Enron, Atlantic Water Trust and
Marlin Water Trust" and "Principal and Selling Stockholders."
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could drop due to sales of a large
number of shares of our common stock in the market after the offering or the
perception that such sales could occur. These factors could also make it more
difficult to raise funds through future offerings of common stock. See "Shares
Eligible for Future Sale."
After the offering, 117,100,000 shares of our common stock will be
outstanding. Of these shares, the 36,600,000 shares to be sold in the offering
will be freely transferable and may be sold without restriction or further
registration under the Securities Act, except for any shares acquired by an
"affiliate" of Azurix as defined in Rule 144 under the Securities Act. In
connection with the offering, Azurix, Enron and the selling stockholder, holding
80,500,000 shares of common stock post-offering, have agreed, with exceptions
specified in the lock-up agreements, not to sell any shares of common stock for
a period of 180 days after
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the date of this prospectus without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated. Upon expiration of the lock-up period, the
shares outstanding and owned by the selling stockholder may be sold in the
future without registration under the Securities Act to the extent permitted by
Rule 144 or any applicable exemption under the Securities Act. In addition, the
selling stockholder has registration rights for all of its shares of our common
stock. See "Transactions with Enron, Atlantic Water Trust and Marlin Water
Trust" and "Shares Eligible for Future Sale."
Options to purchase approximately 8.5 million shares of common stock will
also be outstanding after the offering. Such options generally provide for
vesting over a three to five year period. In addition, more options may be
granted in the future. After the offering, we intend to file a registration
statement covering the sale of approximately 8.5 million shares of common stock
reserved for issuance under our stock plan. See "Management -- Stock Plan."
Marlin Water Trust, or the trustee under its senior notes indenture, may be
required to cause Atlantic Water Trust to sell shares of our common stock owned
by Atlantic Water Trust if the senior notes of Marlin Water Trust have not been
repaid on or before December 15, 2001 or earlier if specified events occur.
These events include defaults under specified debt obligations of Azurix, Enron
or Marlin Water Trust or a downgrading of Enron senior debt to below "Baa3" by
Moody's Investors Service, Inc., "BBB-" by Standard & Poor's Ratings Services or
"BBB-" by Duff & Phelps Credit Rating Co. and a decline in Enron's common stock
price below $37.84. The last sale price of Enron common stock, as reported by
the New York Stock Exchange, on May 20, 1999 was $74.0625. Atlantic Water Trust
may also elect to sell shares of our common stock in advance of the December 15,
2001 maturity of the senior notes of Marlin Water Trust in order to fund the
prepayment of such debt. See "Principal and Selling Stockholders -- Atlantic
Water Trust."
OUR CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS THAT COULD DISCOURAGE A
TAKEOVER.
Our certificate of incorporation authorizes our Board of Directors to issue
preferred stock without stockholder approval. If our Board of Directors elects
to issue preferred stock, it could be more difficult for a third party to
acquire us. In addition, provisions of the certificate of incorporation, such as
a staggered board of directors and limitations on the removal of directors, no
stockholder action by written consent and limitations on stockholder proposals
at meetings of stockholders, could make it more difficult for a third party to
acquire control of us, even if such change of control would be beneficial to
stockholders. See "Description of Capital Stock."
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE
MAY FLUCTUATE.
There has not been a public market for our common stock. We will list the
common stock for trading on the New York Stock Exchange. We do not know the
extent to which investor interest in Azurix will lead to the development of a
trading market for the common stock or how the common stock will trade in the
future. The initial public offering price will be determined by negotiations
among us, Atlantic Water Trust, Enron and the underwriters. Investors may not be
able to resell their shares at or above the initial public offering price. See
"Underwriting."
The price at which the common stock will trade depends upon a number of
factors, including our historical and anticipated operating results and general
market and economic conditions, some of which are beyond our ability to control.
Factors such as quarterly fluctuations in our financial and operating results,
developments affecting us, our customers, the water markets in which we compete
or the water industry, including the factors listed under "Forward-Looking
Statements," also could cause the market price of the common stock to fluctuate
substantially. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations. These broad market fluctuations may
adversely affect the market price of the common stock.
17
<PAGE> 23
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements other
than statements of historical facts contained in this prospectus, including
statements regarding our future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. Although we believe our 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:
- Political developments in foreign countries
- The ability to enter new water and wastewater markets in the United
States and in other jurisdictions
- The timing and extent of deregulation of water and wastewater markets in
the United States and in other countries
- Regulatory developments in the United States and in other countries,
including tax legislation and regulations
- The extent of efforts by governments to privatize water and wastewater
industries
- The timing and extent of changes in non-U.S. currencies and interest
rates
- The 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 projects
- The timing and success of efforts to develop international water and
wastewater infrastructure projects
- The ability of counterparties to financial risk management instruments
and other contracts with us to meet their financial commitments to us
- Our success in implementing our Year 2000 plan, the effectiveness of our
Year 2000 plan and the Year 2000 readiness of third parties
- Our 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 our credit ratings for our debt obligations
We undertake no obligation to update or revise our 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 in this prospectus might not occur.
18
<PAGE> 24
USE OF PROCEEDS
We expect the proceeds to Azurix from this sale of common stock to be
approximately $327.1 million, after deducting underwriting discounts and
commissions and estimated expenses. Azurix will not receive any proceeds from
the sale of common stock by the selling stockholder.
We intend to use the net proceeds that we receive to repay approximately
$72 million that Enron advanced to us to fund our general, administrative and
operating expenses, from our inception through May 21, 1999, in addition to
capital expenditures. This includes $28.5 million advanced to us by Enron to
fund our acquisition of, and loan to, our investment in Cancun. The amount due
to Enron is non-interest bearing and has no maturity date.
We intend to use $182.2 million of the net proceeds to repay indebtedness
under the senior credit facility entered into on May 10, 1999 by Azurix Europe
Ltd, an indirect, wholly owned subsidiary of Azurix and the holding company for
Wessex. The amounts drawn under the senior credit facility bear interest at a
floating London interbank offered rate, plus a margin. If loans outstanding at
the time of a new loan are less than 50% of the total commitment of the
facility, then the margin applied to the new loan will equal 0.75% per annum. If
loans outstanding at the time of a new loan are greater than or equal to 50% of
the total commitment of the facility, then the margin applied to the new loan
will equal 1.00% per annum. Azurix Europe will pay a commitment fee on the
undrawn, uncancelled amount of the facility at the rate of 0.375% per annum. The
senior credit facility is for a period of three years. The indebtedness
outstanding under the senior credit facility has been incurred for the following
purposes:
- To repay $67.8 million under Azurix Europe's former senior credit
facility, which was entered into to finance the acquisition of Wessex
- To repay $8.1 million under the senior credit facility, which was used to
pay fees and expenses related to this facility
- To finance $106.3 million in connection with the acquisition of Philip
Utilities
We intend to use the remaining proceeds of $72.9 million, along with funds
to be drawn under the senior credit facility, to fund the acquisition of an
interest in concessions in two regions of the Province of Buenos Aires,
Argentina. See "Business -- Pending Acquisition." Pending such acquisition, we
intend to invest the remaining proceeds of the offering in short-term,
investment-grade, interest-bearing securities.
See "Description of Indebtedness -- Indebtedness of Azurix Europe" for a
description of the terms of the senior credit facility.
DIVIDEND POLICY
We have not paid any dividends on our common stock and we do not currently
anticipate paying any dividends on our common stock. We currently intend to
retain all future earnings to fund the development and growth of our business.
The payment of any future dividends will be at the discretion of our Board of
Directors and will depend on our results of operations, financial condition,
capital requirements and other factors deemed relevant by our Board of
Directors.
19
<PAGE> 25
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the net tangible book value per share of our common stock after
the offering. We calculate net book value per share by dividing the net assets
(total assets less liabilities) by the number of shares outstanding before the
offering. We calculate net tangible book value per share by dividing the net
tangible assets (total assets less liabilities and net intangible assets) by the
number of shares of common stock outstanding before the offering.
The net book value and net tangible book value of Azurix as of March 31,
1999 were approximately $16.15 and $7.58 per share, respectively. Without taking
into account any changes in net book value or net tangible book value after
March 31, 1999, other than to give effect to the offering and the application of
the estimated net proceeds from the offering, the pro forma net book value of
the common stock as of March 31, 1999 would have been approximately $1,941.8
million, or $16.58 per share, and the pro forma net tangible book value of the
common stock as of such date would have been approximately $1,085.0 million, or
$9.27 per share. Assuming the offering had occurred at March 31, 1999, an
immediate increase in net book value of $0.43 per share to the existing
stockholder and an immediate dilution of $3.92 per share to new investors would
have occurred. The following table shows the effect of the offering as if the
offering had occurred at March 31, 1999 and illustrates the immediate increase
in net tangible book value of $1.69 per share to the existing stockholder and an
immediate dilution of $11.23 per share to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $20.50
Net tangible book value per share as of March 31, 1999.... $ 7.58
Increase in net tangible book value per share attributable
to the offering........................................ 1.69
------
Pro forma net tangible book value per share as of March 31,
1999 after giving effect to the offering.................. 9.27
------
Dilution in net tangible book value per share to new
investors................................................. $11.23
======
</TABLE>
The foregoing table excludes outstanding employee stock options of Azurix
to purchase approximately 8.5 million shares of common stock. The terms of the
options provide for vesting over a period of time, generally three to five
years. Assuming all options are exercised, pro forma net tangible book value per
share would increase $0.52 per share to $9.79 per share.
The following table shows on a pro forma as adjusted basis at March 31,
1999, the number of shares of common stock purchased from us, the total
consideration (including subsequent capital contributions) paid to us and the
average price paid per share by the existing stockholder and by new investors
purchasing common stock from us in the offering:
<TABLE>
<CAPTION>
SHARES PURCHASED
----------------------- TOTAL AVERAGE PRICE
NUMBER PERCENT CONSIDERATION PER SHARE
------------- ------- ------------- -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Existing stockholder............................. 100.0 85.4% $1,672.0 $16.72
New investors.................................... 17.1 14.6 350.6 20.50
----- ----- --------
Total..................................... 117.1 100.0% $2,022.6
===== ===== ========
</TABLE>
Sales by the existing stockholder in this offering will reduce the number
of shares held by the existing stockholder to 80,500,000 shares, or 68.7% of the
total number of shares outstanding after the offering, and will increase the
number of shares held by new investors to 36,600,000 shares, or 31.3% of the
total number of shares outstanding after the offering. If the underwriters'
over-allotment option is exercised in full, the number of shares of common stock
held by the existing stockholder will be reduced to 75,010,000 shares, or 64.1%
of the total shares of common stock outstanding after the offering, and will
increase the number of shares held by new investors to 42,090,000 shares, or
35.9% of the total shares of common stock outstanding after the offering.
20
<PAGE> 26
CAPITALIZATION
The following table sets forth the cash and capitalization of Azurix as of
March 31, 1999, and as adjusted to give effect to the issuance of 17,100,000
shares of common stock offered by Azurix by this prospectus and the application
of our net proceeds from the offering, assuming the offering occurred on March
31, 1999. The table should be read in conjunction with the Consolidated
Financial Statements of Azurix and related notes thereto and other financial
data included elsewhere in this prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
AT MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 13.1 $ 208.2
======== ========
Current maturities of long-term debt........................ $ 27.9 $ 27.9
-------- --------
Note payable -- affiliate(1)................................ 117.8 117.8
-------- --------
Long-term debt:
Senior credit facilities(2)............................... 213.0 145.2
Senior unsecured bonds.................................... 478.4 478.4
Acquisition loan notes.................................... 113.8 113.8
European Investment Bank credit facilities................ 61.4 61.4
Capital lease obligation.................................. 73.7 73.7
-------- --------
Total long-term debt.............................. 940.3 872.5
-------- --------
Stockholders' equity(3):
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 issued and outstanding;
117,100,000 shares issued and outstanding, as
adjusted............................................... 1.0 1.2
Additional paid-in capital................................ 1,671.0 1,997.9
Retained earnings......................................... 26.3 26.3
Cumulative foreign currency translation adjustment........ (83.6) (83.6)
-------- --------
Total stockholders' equity........................ 1,614.7 1,941.8
-------- --------
Total capitalization.............................. $2,700.7 $2,960.0
======== ========
</TABLE>
- ---------------
(1) Amounts outstanding under the loan to Azurix Europe from Bristol Water
Trust, a wholly owned subsidiary of Atlantic Water Trust.
(2) Azurix has drawn $182.9 million under its senior credit facility as of May
21, 1999. Azurix intends to use $182.2 million of the net proceeds from the
offering along with available cash to repay this indebtedness. Following the
application of the net proceeds from the offering, $387.4 million of
borrowing capacity under the senior credit facility will be available to
fund future acquisitions. It is expected that $365.7 million of this
facility, along with $72.9 million of proceeds from the offering, will be
used to fund the $438.6 million acquisition of an interest in concessions in
two regions of the Province of Buenos Aires, Argentina.
(3) Outstanding shares do not include shares of common stock reserved for
issuance under our stock plan. As of May 21, 1999, there were outstanding
options to purchase approximately 8.5 million shares of common stock.
21
<PAGE> 27
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA
The following tables present selected historical consolidated financial
data for Azurix and for Wessex, the predecessor of Azurix, for the periods and
dates indicated. In addition, the tables present selected unaudited pro forma
consolidated financial data for Azurix for the periods and dates indicated.
The historical financial data for Azurix is derived from Azurix's audited
consolidated financial statements and unaudited interim financial statements
included elsewhere in this prospectus and includes the impact of the Wessex
acquisition from the date of acquisition. The historical financial data for the
three months ended March 31, 1999 is derived from financial statements that are
unaudited but include all adjustments, consisting of normal recurring
adjustments, that Azurix considers necessary for a fair presentation of its
financial position and results of operations for the period. The results for the
three months ended March 31, 1999 are not necessarily indicative of the results
for the full year. All of Azurix's 1998 results of operations occurred in the
fourth quarter of 1998, subsequent to the acquisition of Wessex. The historical
balance sheet data for Wessex as of March 31, 1998 and historical income
statement and other financial data for the years ended March 31, 1997 and 1998
and for the six months ended October 2, 1998 are derived from Wessex's audited
consolidated financial statements included elsewhere in this prospectus. The
historical income statement and other financial data for the years ended March
31, 1995 and 1996 and the historical balance sheet data for Wessex as of March
31, 1995, 1996 and 1997 are derived from unaudited financial statements prepared
in accordance with U.S. generally accepted accounting principles that were
derived from Wessex's audited financial statements prepared in accordance with
U.K. generally accepted accounting principles.
The unaudited pro forma financial data for Azurix is derived from the
unaudited condensed consolidated pro forma financial information included
elsewhere in this prospectus. The unaudited pro forma income statement and other
financial data give effect to the acquisition of Wessex, the redemption and
elimination of Wessex's preference shares for an aggregate price of $249.8
million, the sale by Wessex of its interest in UK Waste for $337.9 million and
the offering, as though each occurred on January 1, 1998. The unaudited pro
forma balance sheet data gives effect to the offering as though it occurred on
March 31, 1999. The unaudited pro forma income statement and other financial
data presented below are not necessarily indicative of the financial results
that would have occurred had the acquisition of Wessex, the redemption and
elimination of Wessex's preference shares, the sale by Wessex of its interest in
UK Waste and the offering occurred on January 1, 1998, or indicative of our
financial position had the offering occurred on March 31, 1999 and should not be
viewed as indicative of operations or financial position in future periods.
This information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Unaudited Condensed Consolidated Pro Forma Financial
Information and related notes thereto and the Consolidated Financial Statements
of Azurix and Wessex and related notes thereto included elsewhere in this
prospectus.
22
<PAGE> 28
<TABLE>
<CAPTION>
WESSEX (PREDECESSOR COMPANY) | AZURIX
-------------------------------------------------------- | ---------------------------
|
SIX MONTHS | JANUARY 29, THREE MONTHS
YEAR ENDED MARCH 31, ENDED | 1998 TO ENDED
------------------------------------------- OCTOBER 2, | DECEMBER 31, MARCH 31,
1995 1996 1997 1998 1998 | 1998 1999
----------- ----------- ------ ------ ---------- | ------------ ------------
(UNAUDITED) (UNAUDITED) | (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA: |
Operating revenues................... $356.3 $376.8 $403.1 $436.6 $233.8 | $119.7 $116.9
Operations and maintenance expense... 106.7 106.6 102.4 110.9 61.7 | 31.6 31.8
General and administrative expense... 33.3 27.4 32.2 29.1 36.4 | 20.3 22.6
Depreciation and amortization........ 48.5 53.7 58.0 64.3 35.2 | 22.2 23.3
Operating income..................... 167.8 189.1 210.5 232.3 100.5 | 45.6 39.2
Equity in earnings (loss) of |
affiliates(1)...................... 11.0 14.1 14.7 13.3 5.8 | (0.8) 0.2
Net interest (income) expense........ (13.8) (16.9) (10.2) 8.6 6.1 | 15.1 14.9
Other expense........................ -- -- -- -- -- | 1.2 --
Income before income tax and utility |
tax................................ 192.6 220.1 235.4 237.0 100.2 | 28.5 24.5
Income tax expense................... 68.9 79.7 82.4 58.0 28.4 | 18.3 8.4
Utility tax expense(2)............... -- -- -- 162.3 -- | -- --
Net income........................... 123.7 140.4 153.0 16.7 71.8 | 10.2 16.1
Preference share dividends........... -- 8.0 13.5 15.1 7.7 | -- --
Net income available to common |
stockholders....................... 123.7 132.4 139.5 1.6 64.1 | 10.2 16.1
Basic earnings per common share(3)... 0.49 0.62 0.65 0.01 0.30 | 0.10 0.16
Diluted earnings per common |
share(3)........................... 0.40 0.51 0.55 0.01 0.30 | 0.10 0.16
Dividends declared per common |
share(4)........................... 0.19 0.25 0.26 0.31 0.23 | -- --
OTHER FINANCIAL DATA: |
EBITDA(5) (unaudited)................ $227.3 $256.9 $283.2 $309.9 $141.5 | $ 65.8 $ 62.7
Net cash provided by operating |
activities......................... 214.6 240.5 246.3 125.0 132.2 | 4.4 12.5
Net cash used in investing |
activities......................... (150.3) (159.4) (97.8) (195.0) (108.4) | (1,982.6) (109.8)
Net cash (used in) provided by |
financing activities............... (45.7) (54.6) (373.0) 6.8 (23.6) | 1,977.5 105.1
<CAPTION>
AZURIX
-------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(6)
AS ADJUSTED(6) THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues................... $464.2 $116.9
Operations and maintenance expense... 120.9 31.8
General and administrative expense... 44.4 22.6
Depreciation and amortization........ 88.3 23.3
Operating income..................... 210.6 39.2
Equity in earnings (loss) of
affiliates(1)...................... (0.8) 0.2
Net interest (income) expense........ 60.5 13.8
Other expense........................ -- --
Income before income tax and utility
tax................................ 149.3 25.6
Income tax expense................... 58.2 8.7
Utility tax expense(2)............... -- --
Net income........................... 91.1 16.9
Preference share dividends........... -- --
Net income available to common
stockholders....................... 91.1 16.9
Basic earnings per common share(3)... 0.78 0.14
Diluted earnings per common
share(3)........................... 0.78 0.14
Dividends declared per common
share(4)........................... -- --
OTHER FINANCIAL DATA:
EBITDA(5) (unaudited)................ $298.1 $ 62.7
Net cash provided by operating
activities.........................
Net cash used in investing
activities.........................
Net cash (used in) provided by
financing activities...............
</TABLE>
<TABLE>
<CAPTION>
WESSEX (PREDECESSOR COMPANY) | AZURIX
----------------------------------------------------- | -------------------------------------------
| PRO FORMA
AT MARCH 31, | AT AT AS ADJUSTED(6)
----------------------------------------------------- | DECEMBER 31, MARCH 31, AT MARCH 31,
1995 1996 1997 1998 | 1998 1999 1999
----------- ----------- ----------- ----------- | ------------ ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) | (UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: |
Working capital........... $ 250.1 $ 228.3 $ (95.5) $ (307.0) | $ (129.6) $ (134.5) $ 124.8
Total assets.............. 2,239.9 2,252.7 2,258.0 2,372.3 | 3,358.3 3,349.3 3,544.4
Long-term liabilities..... 466.3 473.3 483.4 482.3 | 1,451.4 1,475.3 1,407.5
Redeemable preference
shares.................. -- 235.3 254.7 259.0 | -- -- --
Stockholders' equity...... 1,598.7 1,354.4 1,251.5 1,229.5 | 1,645.5 1,614.7 1,941.8
</TABLE>
- ---------------
(1) Equity in earnings of affiliates for all periods presented for Wessex is
related primarily to Wessex's interest in UK Waste.
(2) The year ended March 31, 1998 includes a windfall tax of $162.3 million,
which has been described by the U.K. Government as a one-time tax. Excluding
the effect of this tax, for the year ended March 31, 1998, Wessex's net
income, basic earnings per common share and diluted earnings per common
share would have been $179.0 million, $0.78 per common share and $0.77 per
common share, respectively.
(3) The basic and diluted earnings per common share amounts for Wessex are based
on the historical average ordinary shares of Wessex and average ordinary
shares of Wessex plus the share effect of the potential conversion to
ordinary shares of its dilutive securities, respectively.
(footnotes continued on following page)
23
<PAGE> 29
(4) Wessex stockholders were given the option to elect dividends declared to be
paid in cash or the issuance of additional ordinary shares. Of the dividends
declared per share for the years ended March 31, 1995, 1996, 1997 and 1998
and for the six months ended October 2, 1998, stockholders elected stock
dividends equal to $0.02, $0.01, $0.02, $0.05 and $0.18 per share,
respectively.
(5) EBITDA for any relevant period presented above is defined as net income
before net interest (income) expense, income tax, utility tax, depreciation
and amortization. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating profit, as an indicator of liquidity or as a
substitute for net cash provided by operating activities. This method may
not be comparable to the EBITDA calculations of other entities.
(6) As adjusted to reflect the application of the net proceeds to Azurix from
the offering. Azurix has drawn $182.9 million under its senior credit
facility as of May 21, 1999. Azurix intends to use $182.2 million of the net
proceeds from the offering along with available cash to repay this
indebtedness. Following the application of the net proceeds from the
offering, $387.4 million of borrowing capacity under the senior credit
facility will be available to fund future acquisitions. It is expected that
$365.7 million of this facility, along with $72.9 million of proceeds from
the offering, will be used to fund the $438.6 million acquisition of an
interest in concessions in two regions of the Province of Buenos Aires,
Argentina.
CURRENCY EXCHANGE RATES
In this prospectus, references to "U.S. dollars," "dollars," "U.S.$" and
"$" are to currency of the United States of America and references to "pounds
sterling," "L," "sterling," "pence" and "p" are to currency of the United
Kingdom. Balance sheet information included in this prospectus has been
translated from the applicable foreign currencies to U.S. dollars using the
current exchange rates in effect at the balance sheet date. Income statement
information included in this prospectus has been translated from the applicable
foreign currencies to U.S. dollars using the weighted average exchange rate
during the period or, where known or determinable, at the rate on the date of
the transaction for significant items. Except as described above, and unless
otherwise stated in this prospectus, some pounds sterling amounts have been
translated from the corresponding pounds sterling amounts, solely for the
convenience of the reader, at the noon buying rate in The City of New York for
cable transfers in pounds sterling as certified for customs purposes by the
Federal Reserve Bank of New York on March 31, 1999, which was $1.61 per L1.00.
Such translations should not be construed as representations that such U.S.
dollar amounts actually represent such pounds sterling amounts or vice versa, or
that such pounds sterling amounts could be or could have been converted into
U.S. dollars at the rate indicated or at any other rate.
24
<PAGE> 30
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
Wessex and related notes thereto and the Unaudited Condensed Consolidated Pro
Forma Financial Information of Azurix and related notes thereto included
elsewhere in this prospectus.
OVERVIEW
Azurix was incorporated on January 29, 1998. All of its operating results
and cash flows occurred during the fourth quarter of 1998 following the Wessex
acquisition. During 1998, Azurix indirectly acquired all of the outstanding
ordinary share capital of Wessex, and Enron contributed to Azurix the
outstanding common stock of a subsidiary that in June 1998 acquired an indirect
32.1% ownership interest in Obras Sanitarias Mendoza S.A. Wessex and Obras
Sanitarias Mendoza provide water and wastewater treatment services in
southwestern England and the Province of Mendoza, Argentina, respectively. In
December 1998, Enron contributed Azurix to Atlantic Water Trust and Marlin Water
Trust acquired a 50% voting interest in Atlantic Water Trust. Enron retained a
50% voting interest in Atlantic Water Trust.
BUSINESS ACQUISITION
On October 2, 1998, Azurix, through its indirect wholly owned subsidiary
Azurix Europe, acquired over 90% of the outstanding ordinary share capital of
Wessex. On that same date, Azurix Europe issued notices to the remaining Wessex
ordinary shareholders, informing them that it intended to exercise its rights
under the English Companies Act to acquire compulsorily all of the outstanding
ordinary shares not held by Azurix Europe. The compulsory share acquisition was
completed in November 1998. The per share price paid to Wessex shareholders was
L6.30. The total cost of the Wessex acquisition, including transaction costs,
was $2.4 billion, plus the assumption of $481.5 million of existing Wessex debt.
The cost included cash consideration paid to Wessex shareholders, net of $1.7
million cash acquired, and the issuance of loan notes to Wessex shareholders in
the face amount of $119.8 million. The acquisition was financed through capital
contributions from Azurix's parent company totaling $1.6 billion and the
issuance of $0.8 billion in debt by Azurix Europe. Wessex had cumulative
mandatorily redeemable preference shares outstanding when it was acquired.
Wessex redeemed these shares in December 1998 for a cash payment of $106.4
million.
SALE OF INVESTMENT IN UNCONSOLIDATED AFFILIATE
On November 30, 1998, Wessex sold its 50% interest in Wessex Waste
Management Ltd, a joint venture with Waste Management International Plc that
does business as UK Waste, for $337.9 million in cash. Azurix recorded no gain
or loss from the sale.
RECENT DEVELOPMENTS
Azurix entered into an agreement on December 19, 1998 to purchase 49.9% of
an entity whose principal asset is the water concession for the city of Cancun,
Mexico. This agreement was not binding until material conditions were met, which
included modification of the concession agreement by the local water and
wastewater regulatory agency, approvals from the local antitrust and foreign
investment agencies, as well as agreement on the terms of the credit agreement,
security arrangements and other associated documents. These conditions were
satisfied subsequent to December 31, 1998. The purchase price was $13.5 million
and the acquisition closed on March 24, 1999. In addition, Azurix has agreed to
provide up to $25.0 million in debt financing, $15.0 million of which was funded
on February 25, 1999.
On March 30, 1999, Azurix, through subsidiaries of Wessex, completed a U.K.
pounds sterling denominated bond offering in the amount of $484.2 million.
Wessex used $448.4 million of the proceeds from the sale of the 10-year bonds to
repay all outstanding amounts under its former bank credit facilities as well as
all outstanding amounts under uncommitted credit facilities. Any remaining
proceeds were
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<PAGE> 31
available for general corporate purposes. The bonds mature March 30, 2009 and
bear interest of 5.875% payable annually. See "Description of
Indebtedness -- Indebtedness of Wessex."
Effective May 1, 1999, Azurix signed an agreement with Enron pursuant to
which Enron provides various corporate staff and support services to Azurix.
These services include information technology, office space, building
maintenance, security and other office services as well as employee development,
training and maintenance of compensation and other benefits programs. Azurix may
utilize Enron's regulatory affairs, marketing affairs, treasury and risk
assessment and control departments. In addition, Azurix may continue to
participate in Enron's corporate insurance program. The agreement provides that
Azurix may use the international offices of Enron and its affiliates for
projects, subject to mutual agreement with Enron or its affiliates on a
project-by-project basis. The agreement provides that Azurix will reimburse
Enron for direct charges related to the Enron services and facilities that it
utilizes. Azurix will also be allocated an amount for overhead charges related
to Enron corporate staff and support services which it utilizes. This overhead
charge will be allocated based upon factors such as employee headcount, payroll
and square footage. Azurix management believes the allocation methods and costs
are reasonable. Costs for services used under the agreement are expected to be
approximately $15 million annually. The agreement is for an indefinite term, but
either party may terminate the agreement on 180 days' notice. Azurix intends to
enter into a related sublease with Enron providing for the use of office space
in Houston, Texas.
Effective May 1, 1999, Azurix entered into a credit agreement with Enron,
whereby Enron will provide funds to Azurix for general, administrative and
operating expenses. The total commitment under the credit agreement will be $180
million. Advances under the credit agreement will bear interest at the federal
funds rate plus 1.50%. Amounts borrowed under the credit agreement may be
prepaid, in full or in part, at any time during the term of the credit
agreement. The credit agreement matures December 15, 2001 or 90 days following
the date that Enron or its affiliates do not own or have the power to vote at
least one-third of our capital stock ordinarily entitled to vote for the
election of directors and fewer than one-third of our directors are officers,
directors or employees of Enron or its affiliates.
On May 10, 1999, Azurix Europe entered into a L425 ($686.0) million
revolving credit facility. On May 13, 1999, Azurix Europe borrowed approximately
$75.9 million, of which approximately $67.8 million was used to repay all of the
remaining indebtedness outstanding on its former senior credit facility and
approximately $8.1 million was primarily used to pay fees and expenses related
to this facility. On May 14, 1999, Azurix borrowed $107.0 million under this
revolving credit facility, primarily to fund the purchase of Philip Utilities. A
portion of the unused borrowing capacity under this facility secures outstanding
loan notes of $113.8 million. The facility bears interest at the London
interbank offered rate plus 0.75% to 1.0%, depending on the level of utilization
of the borrowing capacity. The facility terminates on May 10, 2002. See
"Description of Indebtedness -- Indebtedness of Azurix Europe."
On May 18, 1999, Azurix acquired 100% of the stock of Canadian-based Philip
Utilities Management Corporation for $106.3 million. Philip Utilities is a water
and wastewater services company in the United States and Canada that provides
operations and management, engineering, residuals management and underground
infrastructure development services for municipal water and wastewater
facilities.
On May 18, 1999, authorities in the Province of Buenos Aires, Argentina,
notified Azurix that, subject to final confirmation, Azurix will be awarded an
interest in 30-year water and wastewater concessions in two regions of the
province, at an aggregate price of $438.6 million. Assuming this award is
formally confirmed, Azurix will acquire a 90% interest in the concession
companies and take control of the systems on June 18, 1999.
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<PAGE> 32
RESULTS OF OPERATIONS
The following table sets forth condensed statements of income for the
periods indicated:
<TABLE>
<CAPTION>
AZURIX
-------------------------------------------------
WESSEX (PREDECESSOR COMPANY) PRO FORMA
------------------------------------------ JANUARY 29, 1998 THREE MONTHS AS ADJUSTED
YEAR ENDED YEAR ENDED SIX MONTHS ENDED (DATE OF INCEPTION) ENDED YEAR ENDED
MARCH 31, MARCH 31, OCTOBER 2, TO DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1998 1998 1998 1999 1998
---------- ---------- ---------------- ------------------- ------------ ------------
(IN MILLIONS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues....... $403.1 $436.6 $233.8 $119.7 $116.9 $464.2
------ ------ ------ ------ ------ ------
Operations and
maintenance expense.... 102.4 110.9 61.7 31.6 31.8 120.9
General and
administrative
expense................ 32.2 29.1 36.4 20.3 22.6 44.4
Depreciation and
amortization........... 58.0 64.3 35.2 22.2 23.3 88.3
------ ------ ------ ------ ------ ------
Operating income......... 210.5 232.3 100.5 45.6 39.2 210.6
Equity earnings (loss) of
affiliates............. 14.7 13.3 5.8 (0.8) 0.2 (0.8)
Net interest (income)
expense................ (10.2) 8.6 6.1 15.1 14.9 60.5
Other expense............ -- -- -- 1.2 -- --
------ ------ ------ ------ ------ ------
Income before income tax
and utility tax
expense................ 235.4 237.0 100.2 28.5 24.5 149.3
Income tax and utility
tax expense............ 82.4 220.3 28.4 18.3 8.4 58.2
------ ------ ------ ------ ------ ------
Net income............... $153.0 $ 16.7 $ 71.8 $ 10.2 $ 16.1 $ 91.1
====== ====== ====== ====== ====== ======
</TABLE>
Approximately 90% of operating revenues is derived from water supplied and
wastewater treated for residential, commercial and industrial customers. The
supply of water is either metered, known as measured, or unmeasured. The charge
for wastewater treated is based upon a percentage of the water supplied and
charged to that customer.
Wessex's subsidiary, SC Technology, sells and operates plants for drying
biosolids, the solid waste remaining after wastewater is treated. The majority
of SC Technology's operating revenues is derived from projects related to
selling and managing the construction of plants, and therefore each period's
operating revenues fluctuate according to the number of projects in progress.
Other unregulated activities include the sale of electricity and treatment of
organic waste.
Operations and maintenance expense consists of the costs of supplying water
and treating wastewater, including the costs of maintaining and operating the
plant and equipment used in these processes. The main categories of cost include
labor, power, rent, real estate taxes, chemicals, transport, equipment, grounds
maintenance, and tankering. SC Technology's costs relate to the construction and
delivery of the plant being installed, including the cost of equipment, civil
engineering, building and labor.
General and administrative expense includes personnel costs, transaction
expenses related to due diligence and overhead associated with Azurix's pursuit
of acquisitions and development projects, in addition to support functions such
as billing and customer services, quality and scientific services, regulation,
finance, human resources and public relations.
The functional currency of Wessex is U.K. pounds sterling. Accordingly, its
results of operations, translated into U.S. dollars, are affected by the change
in currency exchange rates when comparing periods. The actual average exchange
rate for each applicable period used in translating the U.K. pounds sterling
functional results to U.S. dollars, in accordance with U.S. GAAP, is $1.63 per
L1.00 for the three
27
<PAGE> 33
months ended March 31, 1999, $1.66 per L1.00 for the year ended December 31,
1998, $1.65 per L1.00 for the six months ended October 2, 1998, $1.64 per L1.00
for the year ended March 31, 1998 and $1.59 per L1.00 for the year ended March
31, 1997.
AZURIX -- UNAUDITED PRO FORMA FOR THE YEAR ENDED DECEMBER 31, 1998
The following discussion is derived from the Unaudited Condensed
Consolidated Pro Forma Financial Information included elsewhere in this
prospectus. The pro forma results discussed below include the 1998 results of
Wessex prior to its acquisition by Azurix.
Operating revenues of $464.2 million were all derived from Wessex.
Approximately 91% of these revenues were derived from the sale of measured and
unmeasured water and wastewater services. Operating revenues from SC Technology
and other unregulated activities, accounted for 5% and 4% of total operating
revenues, respectively.
Operations and maintenance expense was $120.9 million, of which 98% was
incurred by Wessex. Of this amount, $89.3 million relates to the costs of
supplying water and treating wastewater, including the costs of maintaining and
operating plant and equipment used in these processes, and $23.9 million relates
to the costs of the plants being installed by SC Technology.
AZURIX -- THREE MONTHS ENDED MARCH 31, 1999
Azurix had no operations as of March 31, 1998 and as a result, the
following discussion is limited to results of operations for the three months
ended March 31, 1999. All of its operating income occurred during the fourth
quarter of 1998 following the Wessex acquisition.
Operating revenues of $116.9 million for the three months ended March 31,
1999 were derived from Wessex. Approximately 90% of these revenues relate to the
sale of measured and unmeasured water and wastewater services. Operating
revenues from SC Technology and other unregulated activities each accounted for
5% of total operating revenues.
Operations and maintenance expense for the three months ended March 31,
1999, of which 98% was incurred by Wessex, was $31.8 million. Of this amount,
$22.1 million relates to the cost of supplying water and treating wastewater,
including the costs of maintaining and operating plant and equipment used in
these processes. In addition, $6.2 million relates to the cost of the plants
being installed by SC Technology.
General and administrative expenses of $22.6 million for the three months
ended March 31, 1999 include $9.5 million related to Wessex's operations and
$12.8 million related to the pursuit of acquisitions and development projects.
The expenses related to acquisitions and development projects resulted from a
business strategy initiated in the fourth quarter of 1998. See "-- Outlook."
Depreciation and amortization of $23.3 million for the three months ended
March 31, 1999 includes $5.4 million relating to amortization of goodwill
incurred by Azurix in its acquisition of Wessex. All of the depreciation expense
is derived from depreciation on the property, plant and equipment of Wessex. The
goodwill amortization and depreciation expense related to Wessex is based on a
preliminary purchase price allocation of Wessex.
Net interest expense of $14.9 million for the three months ended March 31,
1999 is related to the Wessex acquisition financing, existing Wessex debt and
funds borrowed in the fourth quarter of 1998 to redeem outstanding preference
shares.
Income tax expense of $8.4 million was incurred during the three months
ended March 31, 1999. The majority of Azurix's pre-tax operating income is
derived in the United Kingdom where the effective 1999 statutory tax rate is
30.25%. The primary reason for the difference between effective book tax rate of
34.3% and the effective statutory tax rate is the non-deductible amortization of
goodwill resulting from the acquisition of Wessex.
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<PAGE> 34
Income tax expense is net of a tax benefit of $4.8 million related to
losses generated in the United States. A valuation allowance is not necessary
for this tax benefit due to expected future income resulting from finalizing
U.S. water projects and available tax planning strategies.
AZURIX -- DATE OF INCEPTION TO DECEMBER 31, 1998
Operating revenues of $119.7 million were derived from Wessex.
Approximately 90% of these revenues relate to the sale of measured and
unmeasured water and wastewater services. Operating revenues from SC Technology
and other unregulated activities accounted for 6% and 4% of total operating
revenues, respectively.
Operations and maintenance expense totalled $31.6 million. Of this amount,
$21.8 million relates to the cost of supplying water and treating wastewater,
including the costs of maintaining and operating plant and equipment used in
these processes, and $7.1 million relates to the costs of the plants being
installed by SC Technology.
General and administrative expenses of $20.3 million include $7.7 million
related to Wessex's operations and $12.3 million related to the pursuit of
acquisitions and development projects. The expenses related to acquisitions and
development projects result from a business strategy initiated in the fourth
quarter of 1998. See "-- Outlook."
Depreciation and amortization of $22.2 million includes $5.5 million for
the amortization of goodwill incurred by Azurix in the acquisition of Wessex.
All of the depreciation expense is derived from depreciation on the property,
plant and equipment of Wessex. The goodwill amortization and depreciation
expense related to Wessex is based on a preliminary purchase price allocation of
Wessex.
Interest expense is related to the Wessex acquisition financing, existing
Wessex debt and funds borrowed in the fourth quarter to redeem the outstanding
preference shares.
The effective tax rate for the period was 64.2%. The difference between the
effective tax rate and the U.S. statutory rate of 35% (U.K. statutory rate of
31%) is primarily related to the following:
- A valuation allowance recognized on a U.S. deferred tax asset generated
from general and administrative expense incurred in the United States
- A valuation allowance recognized on a U.K. deferred tax asset relating to
non-deductible interest expense prior to achieving a consolidated tax
position
- Non-deductible amortization of goodwill resulting from the acquisition of
Wessex
WESSEX (PREDECESSOR COMPANY) -- SIX MONTHS ENDED OCTOBER 2, 1998
Operating revenues for the six months ended October 2, 1998 were $233.8
million. Approximately 91% of these revenues relate to the sale of measured and
unmeasured water and wastewater services. Operating revenues from SC Technology
and other unregulated activities accounted for 5% and 4%, respectively, of total
operating revenues.
Operations and maintenance expense for the six months ended October 2,
1998, was $61.7 million. Of this amount, $46.8 million relates to the cost of
supplying water and treating wastewater, including the costs of maintaining and
operating plant and equipment used in these processes. In addition, $10.9
million relates to the cost of the plants being installed by SC Technology.
General and administrative expenses of $36.4 million for the six months
ended October 2, 1998 include $20.7 million incurred by Wessex in connection
with its acquisition by Azurix.
Income tax expense for the six months ended October 2, 1998 was $28.4
million, which resulted in a 28% effective book tax rate compared to a statutory
tax rate of 31%. The primary reason for the variance from the statutory rate is
the effect of an enacted change in the statutory tax rate during the period from
29
<PAGE> 35
31% to 30%, effective April 1, 1999. This was partially offset by the effect of
non-tax deductible expenses that were incurred during the period.
WESSEX (PREDECESSOR COMPANY) -- YEAR ENDED MARCH 31, 1998 COMPARED TO THE YEAR
ENDED
MARCH 31, 1997
Operating revenues for the fiscal year ended March 31, 1998 increased by
$33.5 million, or 8.3%, when compared to the fiscal year ended March 31, 1997,
primarily as a result of a 4.6% increase in the pricing formula contained in the
Wessex license, effective April 1, 1997, which resulted in $17.9 million of
additional operating revenues. In addition, operating revenues from SC
Technology increased by $4.2 million due to a higher number of construction
projects in progress during the year ended March 31, 1998.
Operations and maintenance expense for the year ended March 31, 1998
increased by $8.5 million, or 8.3%, when compared to the year ended March 31,
1997, primarily due to higher operating expenses from SC Technology due to a
higher number of construction projects in progress in the year ended March 31,
1998.
General and administrative expense for the year ended March 31, 1998
decreased by $3.1 million, or 9.6%, when compared to the year ended March 31,
1997, primarily due to cost reduction measures implemented by Wessex, and costs
of $2.1 million incurred in the year ended March 31, 1997 related to an
unsuccessful attempt to acquire a third party.
Depreciation and amortization expense for the year ended March 31, 1998
increased by $6.3 million, or 10.9%, when compared to the year ended March 31,
1997. Substantially all of this increase is due to property additions resulting
from Wessex's capital expenditure program.
Equity earnings of affiliates for the year ended March 31, 1998 decreased
by $1.4 million, or 9.5%, when compared to the year ended March 31, 1997. This
decrease resulted from a lower sales margin due to increased competition, and
higher general and administrative expense related to the hiring of additional
sales staff.
Net interest expense was $8.6 million for the year ended March 31, 1998, as
compared to net interest income of $10.2 million for the year ended March 31,
1997, primarily due to a reduction in the cash and cash equivalent position in
the current period as a result of the buy-back of its "B" and "C" classes of
ordinary shares in February 1997.
Income tax and utility tax expense for the year ended March 31, 1998 as
compared to the year ended March 31, 1997, increased by $137.9 million primarily
as a result of a one-time tax levied in the year ended March 31, 1998 of $162.3
million. The effect of the utility tax was partially offset by a change in the
U.K. statutory tax rate from 33% to 31% during the year ended March 31, 1998,
which amounted to $22.6 million.
The utility tax, introduced in the Finance (No. 2) Act 1997 and referred to
in the legislation as the Windfall Tax, was levied on privatized utilities
including the water and electricity sectors. It is a one-time tax in that the
legislation only relates to this assessment and new legislation would have to be
enacted for any additional windfall tax. In addition, the U.K. Government has
stated that it was a one-time tax. The calculation of the utility tax was based
on the profit after tax of Wessex for the average of the four years ended March
31, 1994, multiplied by a price to earnings ratio of nine. The resulting amount
was compared to the value of Wessex at the date of initial trading of its stock
in 1989, and the difference was deemed to be windfall profits and was taxed at a
23% rate.
30
<PAGE> 36
OUTLOOK
Several developments may significantly affect Azurix's future results of
operations.
Azurix has a business strategy consisting of growth through acquisitions
and development projects. Azurix has recently put in place a business
development effort requiring an increase in personnel to pursue and support
acquisition and privatization activity on a global scale. As of May 21, 1999,
Azurix had hired approximately 165 employees. The associated general,
administrative and operating expenses are approximately $15 million pre-tax on a
quarterly basis.
Most of our operating revenues are subject to governmental regulation of
the rates that we may charge to our customers. The U.K. water regulator, the
Director General of Water Services, is currently conducting a periodic review of
the price limits for water and wastewater companies in England and Wales that is
expected to result in new price limits for the period from April 1, 2000 through
2005. In October 1998, the Director proposed an initial price cut for Wessex in
excess of 17.5% from 1999-2000 to 2000-2001, with prices gradually increasing
thereafter but remaining below the 1999-2000 levels in 2004-2005. Following this
proposal, the U.K. Government announced its decision to require greater capital
expenditures for water and wastewater companies for environmental improvements.
Subsequently, in its April 1999 business plan filed with the Director, Wessex
proposed stable prices from 1999-2000 to 2000-2001, with prices gradually
increasing to 18% higher than current levels in 2005, primarily to fund capital
expenditures mandated by the new environmental standards. The Director will
consider the business plan in his review. The Director has stated that he will
publish draft price limits in July 1999 with the final determination being made
in November 1999. These price limits may differ materially from the Director's
original proposal. Although we are unable to predict the precise outcome of the
current U.K. periodic review, if Wessex were required to cut its prices as
originally proposed by the Director, Wessex's regulated operating revenues,
which represent approximately 90% of Azurix's total operating revenues, would be
reduced by approximately 17.5% and its earnings would be reduced materially.
However, we would not expect that this would have a material adverse effect on
Azurix's financial position. At the time of the acquisition of Wessex, we took
into consideration the pending rate review in our valuation of Wessex.
On February 2, 1999, Azurix granted options to purchase approximately 7.8
million shares of its common stock through an employee stock option plan. The
Stock Plan Committee of Azurix's Board of Directors determined that the exercise
price of $16.72 per share was fair market value at the date of grant. In making
this determination, the Stock Plan Committee considered factors such as the
close proximity of the grant date and the Wessex acquisition date and the
absence of any material developments in Azurix prior to the grant date. The
Board of Directors has authorized additional grants, effective as of the closing
of the offering, of options to purchase 0.7 million shares of common stock to
employees who recently joined Azurix and to non-employee directors of Azurix.
The exercise price of these additional options will be equal to the initial
public offering price. All stock options generally vest over three to five years
and will be exercisable for ten years after the date of grant. The future
exercise of these options will have a dilutive effect on basic earnings per
share.
Azurix refinanced a portion of its existing debt in May 1999, which will
result in a one-time non-cash charge of $9.8 million ($6.9 million after-tax) in
the second quarter due to the write-off of deferred financing costs. We incurred
approximately $8.1 million in financing costs related to the new financing. See
"-- Recent Developments."
In addition to the pending acquisition in the Province of Buenos Aires,
Argentina, we are continually evaluating potential acquisition opportunities
involving other water and wastewater assets, companies and water services
providers. The timing, size and success of these potential acquisitions cannot
be predicted. The completion of any one of these potential acquisitions could
have a significant impact on our business.
LIQUIDITY AND CAPITAL RESOURCES
All of Azurix's cash flows for the period from inception to December 31,
1998 occurred in the fourth quarter following the Wessex acquisition. Cash flow
from operations totaled $4.4 million during the period
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<PAGE> 37
from January 29, 1998 to December 31, 1998. Related to its investment
activities, Azurix used $2,270.8 million, in addition to the issuance of $119.8
million of acquisition loan notes, to acquire ordinary shares of Wessex and
$63.2 million for capital expenditures incurred by Wessex. In addition, Azurix
received $337.9 million in proceeds from the sale of UK Waste. Cash provided by
financing activities during the period totaled $1,977.5 million, primarily
comprised of $1,600.2 million from the issuance of common stock and capital
contributions and a net increase in borrowings of $485.4 million, partially
offset by the redemption of the Wessex preference shares of $106.4 million. Cash
received from the issuance of common stock of $1.0 million and capital
contributions of $1,599.2 million are from Azurix's former parent company, Enron
Water (Holding) L.L.C.
Azurix's cash flows from operations totaled $12.5 million during the three
months ended March 31, 1999. Cash used in investing activities during this
period was primarily comprised of capital expenditures of $74.5 million, the
acquisition cost of Azurix's interest in the Cancun concession of $13.5 million
and a loan made to the Cancun concession for $15.0 million. Cash provided by
financing activities of $105.1 million was primarily comprised of net borrowings
of $57.1 million and an advance from Enron of $48.0 million which was used to
fund the Cancun acquisition and the related loan and to fund general and
administrative costs incurred by Azurix to pursue acquisition and development
projects.
At December 31, 1998, Azurix had a working capital deficit of $129.6
million. Approximately 60% of Azurix's operating revenues are derived from
customers whose billings are not based on the delivery of a measured volume of
service. These customers are billed semiannually in advance. Funds received in
advance as of December 31, 1998, where service has not been provided, totaled
$71.0 million and are reflected on the Consolidated Balance Sheet as deferred
income. This component of the working capital deficit does not require the
future use of cash but is recognized in income over the remaining service period
covered by the billings. The remaining working capital deficit is related to the
timing of cash payments. Excess cash, including funds received in advance, is
used to pay down 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 had available capacity, under its
existing credit facilities, to provide $91.5 million of working capital.
At March 31, 1999, Azurix had a working capital deficit of $134.5 million.
Of this amount, $64.2 million is an advance from Enron that will be repaid from
the net proceeds from the offering. An additional $21.8 million is deferred
income that does not require the future use of cash as discussed above.
Management believes that cash flows from operations and available capacity under
credit facilities are sufficient to fund the working capital deficit.
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 of $111.4
million was used at March 31, 1999 to secure a substantial portion of the
acquisition loan notes issued to Wessex shareholders in lieu of cash
consideration for their shares. On May 10, 1999, Azurix Europe entered into a
$686.0 million revolving credit facility. On May 13, 1999, Azurix Europe
borrowed approximately $75.9 million, of which approximately $67.8 million was
used to repay all of the remaining indebtedness outstanding on its former senior
credit facility and approximately $8.1 million was primarily used to pay fees
and expenses related to this facility. On May 14, 1999, Azurix borrowed $107.0
million under this revolving credit facility, primarily to fund the purchase of
Philip Utilities. Azurix intends to use a portion of the proceeds from the
offering, along with available cash, to repay all the indebtedness drawn under
the new senior credit facility. After the application of these proceeds, the
revolving credit facility has approximately $387.4 million of borrowing capacity
for acquisitions. It is expected that $365.7 million of this facility, along
with $72.9 million of proceeds from
32
<PAGE> 38
the offering, will be used to fund the $438.6 million acquisition of an interest
in concessions in two regions of the Province of Buenos Aires, Argentina.
The credit agreement with Enron will provide $180 million of liquidity to
fund general, administrative and operating expenses through December 2001. As of
May 21, 1999, no amounts were outstanding under this credit agreement. See
"-- Recent Developments." The principal amount outstanding under the credit
agreement will be limited to no more than:
- $60 million at any time during calendar year 1999
- $120 million at any time during calendar year 2000
- $180 million at any time during calendar year 2001
As of December 31, 1998, Azurix, through Wessex, was a borrower under
committed credit facilities that provided an aggregate $399.1 million for
general corporate purposes. As of December 31, 1998, these bank facilities were
completely drawn down. Wessex also had $24.9 million outstanding under
short-term uncommitted bank borrowings at December 31, 1998. On March 30, 1999,
Wessex issued $484.2 million principal amount of 10-year bonds. Wessex used
$448.4 million of the proceeds from the sale of the bonds to repay all
outstanding amounts under its former bank credit facilities as well as all
outstanding amounts under uncommitted credit facilities. Excess proceeds were
available for general corporate purposes. See "Description of
Indebtedness -- Indebtedness of Azurix Europe" for a detailed discussion of the
terms of the credit facilities and loan agreements.
Azurix, through Wessex, maintains an ongoing asset replacement program
throughout its customer service areas in the United Kingdom based on an
expenditure plan submitted to the U.K. industry regulator. Wessex expects that
its projected capital expenditures of approximately $230 million for 1999 will
be financed with internally generated funds and from proceeds under long-term
and short-term borrowing arrangements. Included in this amount are contractual
commitments for capital expenditures to be incurred after December 31, 1998 of
$130.2 million. The projected capital expenditures consist primarily of the
following:
- Approximately $135 million for wastewater projects, such as construction
of wastewater treatment facilities and improvements to existing
facilities
- Approximately $45 million for water supply projects, such as construction
of water treatment facilities and installation of water mains
- Approximately $25 million for office space construction in the United
Kingdom
- Approximately $20 million related to information technology investment
FINANCIAL RISK MANAGEMENT
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 we operate. The primary purpose of Azurix's
foreign currency hedging activities is to manage the volatility associated with
currency exchange rates. We manage 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.
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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. 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.
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 it is today. When computer systems
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 because of the
interdependence of computer and telecommunications systems in the United States
and throughout the world. This interdependence applies to Azurix and Azurix's
suppliers, trading partners and customers and to governments of countries where
Azurix does business. This interdependence also applies to Enron, on which
Azurix relies for services as described under "Transactions with Enron, Atlantic
Water Trust and Marlin Water Trust."
STATE OF READINESS
We intend to follow Enron's Year 2000 plan, which covers all of Enron's
business units. The aim of the Enron plan is to take reasonable steps to prevent
Enron's mission-critical business functions from being impaired due to the Year
2000 problem. As used in this prospectus, "mission-critical" functions refer to
the 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. Enron intends to modify its plan as
events warrant. In addition, we intend to adapt the Enron plan to our
operations. Among other things, we are conforming Wessex's Year 2000 efforts to
the Enron plan and are introducing this plan to our operations in Cancun.
Central information systems, such as large mainframes and midsize computer
systems at Wessex and desktop or personal computers and computer networks, can
be vulnerable to Year 2000 problems. In addition, devices with chips embedded in
them, such as flow controllers and controllers for automated pumps, are
vulnerable to Year 2000 problems. Devices with chips embedded in them may be
used for many purposes, and finding all of them may be difficult, even with a
careful inventory and remediation process. In addition, we are concerned with
the systems of external entities over which we do not have control. Examples of
these systems include central information systems and embedded devices of our
suppliers and contractors, financial institutions, governments in locations
where we operate, customers and co-venturers.
In general, the Enron Year 2000 plan adopted by Azurix includes phases of
awareness, inventory, remediation, verification and testing, and contingency
planning. These steps describe a process that continues to go in cycles. For
example, we will continue to refine our inventory of central information
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<PAGE> 40
systems and embedded devices until the early days and, if necessary, weeks of
January 2000, to identify Year 2000-related problems that require remediation.
WESSEX. Under the Enron plan, Wessex 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 may function
improperly before, on or after January 1, 2000
- Assess the effects of Year 2000 problems on its mission-critical
functions
- Remedy to the maximum extent practicable material disruptions or other
material adverse effects on its 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 effect of Year 2000 problems that cannot
reasonably be remediated by January 1, 2000, including developing
contingency plans to minimize Year 2000 problems that have not been
identified or fixed by January 1, 2000
Wessex has completed most of the stages of the Enron plan and should be
Year 2000 ready by July 31, 1999 as shown in the following table:
<TABLE>
<CAPTION>
Y2K PROJECT STAGE CURRENT STATUS TARGET COMPLETION DATE
----------------- -------------- ----------------------
<S> <C> <C>
Inventory................................. Completed N/A
Assessment................................ Completed N/A
Conversion................................ Near Completion July 1, 1999
Testing................................... Near Completion July 31, 1999
Implementation............................ Near Completion July 31, 1999
Contingency Planning...................... Near Completion June 30, 1999
</TABLE>
Wessex has substantially finished identifying and assessing its
mission-critical central information systems and devices with embedded chips.
All of Wessex's internal information systems are Year 2000 ready. Wessex is
continuing to analyze, convert and test its mission-critical central information
systems and devices with embedded chips. In addition, Wessex has contacted all
outside entities on which it relies for mission-critical functions.
The Enron plan recognizes that the computer, telecommunications and other
systems of outside entities have the potential to adversely affect the conduct
of our business. We do not have control of these outside entities or outside
systems. However, the Enron plan includes an ongoing process of contacting
outside entities whose systems have, or may have, a substantial effect on the
ability of each of the relevant businesses to continue to conduct its
mission-critical functions without disruption from Year 2000 problems. The Enron
plan envisions attempting to inventory and assess the extent to which these
outside systems may not be "Year 2000 ready" or "Year 2000 compatible." 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. In implementing the Enron
plan, we will attempt to coordinate our efforts to prepare for the Year 2000
problem with outside entities.
Our Year 2000 program requires external entities to be ranked as
mission-critical, important or ordinary. External entities ranked as
mission-critical are expected to receive site visits by senior personnel from
Azurix's Year 2000 teams. In addition, the Azurix teams are expected to maintain
contact and receive status updates from the mission-critical entities throughout
1999 and, if necessary, into 2000. Non-mission-critical entities are to be
addressed as time permits. The purpose of this program is to identify key
entities that may not have adequately addressed the Year 2000 problem and to
mitigate Azurix's exposure
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<PAGE> 41
by developing appropriate contingency plans. Azurix recognizes that
comprehensive Year 2000 programs may not fully remediate all Year 2000 issues.
Therefore, we do not categorize any mission-critical entities as "Year 2000
ready."
Wessex has received responses to its inquiries about Year 2000 readiness
and has contacted all outside entities on which it relies for mission-critical
functions. Among other things, Wessex asked each entity to demonstrate what the
entity did to support affirmations that the entity satisfied the British
Standards Institute protocol for Year 2000 readiness. Every entity with one
exception demonstrated that it satisfied this standard. The sole exception was a
communications common carrier that was not able to demonstrate that its
international connections satisfy or will satisfy Year 2000 readiness standards.
Wessex's contingency plans assume that its mission-critical external
entities will experience Year 2000-related failures and disruptions. For
example, Wessex's contingency plans assume loss of electrical power and require
the installation of Year 2000 ready emergency generators to deal with this
possibility. Wessex expects that its initial contingency planning will be
completed by the end of June 1999 and will be followed by at least two rounds of
testing before September 30, 1999.
MENDOZA. We do not have operational control of the Mendoza concession.
Therefore, we consulted with SAUR, the operator of the concession, to develop an
understanding of SAUR's Year 2000 efforts at Mendoza. SAUR is pursuing a Year
2000 plan for the concession with the following stages, which are shown with a
description of their current status and target completion dates:
<TABLE>
<CAPTION>
Y2K PROJECT STAGE CURRENT STATUS TARGET COMPLETION DATE
----------------- -------------- ----------------------
<S> <C> <C>
Inventory................................ Completed N/A
Assessment............................... Completed N/A
Conversion............................... Incomplete June 15, 1999
Testing.................................. To be initiated July 15, 1999
Implementation........................... To be initiated July 31, 1999
Contingency Planning..................... To be initiated July 31, 1999
</TABLE>
All internal information systems, both hardware and software, have been
assessed for Year 2000 readiness purposes. SAUR plans in 1999 to replace the
systems for accounting, budgeting and accounts payable and disbursements, for
measurement of water and wastewater flows and for supervisory control and data
acquisition. The customer billing, collection and customer support system
requires partial remediation to achieve Year 2000 readiness, and we understand
that SAUR expects to finish remediating the defective components by the end of
1999. All of the internal local area networks other than the servers have been
tested by SAUR and we understand they have been found to be completely Year 2000
ready. New servers for these networks have been installed but not yet tested to
ascertain Year 2000 readiness. SAUR will complete that testing before the end of
1999.
The mission-critical systems at the Mendoza concession include business
systems, such as a customer interface system and a payroll system, and devices
with embedded chips such as flow meters and a supervisory, control, and data
acquisition system. Mission-critical external entities include the local
electrical utility for power to supply water pumps, the local telephone company
and local banks that function as collection agents. SAUR has not yet started to
visit its mission-critical external entities to obtain representations as to
their Year 2000 readiness. Before the end of 1999, we understand that SAUR
expects to complete visits with all its mission-critical external entities, with
the objective of obtaining representations as to their Year 2000 readiness, for
the purpose of formulating contingency plans to deal with Year 2000 disruptions
or other problems that may result from Year 2000-related problems that the
external entities experience. Although employees of SAUR plan to visit
mission-critical external entities, we cannot assure that the systems of these
external entities will be free from disruptions due to Year 2000 problems, and
SAUR cannot ensure that the Mendoza facility will be free from mission-critical
disruptions as a result. We anticipate that SAUR will include these
mission-critical external dependencies in its contingency planning.
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<PAGE> 42
CANCUN. The Cancun concession is in the early stages of adopting and
implementing the Enron plan for Year 2000 readiness. The concessionaire will
inventory, assess, analyze, convert and test the Cancun systems for Year 2000
readiness and develop Year 2000 contingency plans to minimize Year 2000 problems
that have not manifested themselves or have not been corrected by January 1,
2000. The schedule for this implementation is as follows:
<TABLE>
<CAPTION>
Y2K PROJECT STAGE CURRENT STATUS TARGET COMPLETION DATE
----------------- -------------- ----------------------
<S> <C> <C>
Inventory................................ Completed N/A
Assessment............................... Near Completion May 31, 1999
Conversion............................... To be initiated June 15, 1999
Testing.................................. To be initiated July 31, 1999
Implementation........................... To be initiated August 15, 1999
Contingency Planning..................... To be initiated August 15, 1999
</TABLE>
With respect to internal information systems, 100% of our personal
computers have been tested and 56% of them will be replaced by July 1, 1999 to
achieve Year 2000 readiness. Two servers, which constitute all of the facility's
servers, will be replaced by July 1, 1999 with Year 2000 ready servers.
Internal accounting and administrative software has been tested for Year
2000 readiness by the vendor, and the vendor has stated that it will supply its
written certification of Year 2000 readiness by the end of May 1999. Invoicing
software is currently being upgraded by the vendor to achieve Year 2000
readiness, and we have been informed by the vendor that the upgraded Year 2000
ready software will be installed and functioning by the end of May 1999. Human
resources software is not mission-critical, and we expect to test it for Year
2000 readiness by the end of June 1999. This software will be upgraded or
replaced as necessary to achieve Year 2000 readiness by December 1, 1999.
We have identified the following as mission-critical external entities for
the Cancun facility: the electrical utility, Mexico's nationwide communications
common carrier, local banks, fuel suppliers for the facility's trucks and the
chlorine supplier for the facility. All these entities have been contacted.
Among these entities, we have visited two local banks to date and expect to
visit all other mission-critical entities by the end of August 1999. The
electrical utility has referred us to its Internet page for a description of the
utility's Year 2000 plan, which the utility expects to complete by July 30,
1999. The communications common carrier has informed us verbally that it is Year
2000 ready, and we have been told that it will confirm this advice in a letter
that we expect to receive by the end of July. We deal with 12 local banks, and
only one of these banks has advised us verbally that it is Year 2000 ready. The
other banks have asked us to inquire again later, with no definite time
specified, regarding their Year 2000 readiness, and we plan to contact them
again before the end of June 1999. The fuel suppliers for our trucks have
verbally stated that they are Year 2000 ready, and we expect written
confirmation from each of them by the end of June 1999. The chlorine supplier
verbally advises us that they are Year 2000 ready, but have not offered written
confirmation. Our contingency plan regarding chlorine is to stock three months'
supply. That supply will be ordered in May 1999, with a delivery date to be
determined, but that will probably be within 60 days of the order.
We believe that Wessex's and the Cancun concession's mission-critical
systems will be Year 2000 ready substantially before January 1, 2000. However,
unforeseen circumstances could arise during the implementation of the Enron plan
that could adversely affect Enron's, Wessex's or the Cancun concession's
mission-critical functions, thereby disrupting or materially adversely affecting
Azurix's business.
PHILIP UTILITIES. Although Philip Utilities was preparing for Year 2000 at
the time we acquired it, Azurix will require Philip Utilities to adopt Enron's
Year 2000 plan. At this stage in our management of Philip Utilities, it is too
early for us to predict when Philip Utilities will complete the inventory,
assessment, conversion, testing, implementation and contingency planning stages
as required by the Enron Year 2000 plan that we adopted. However, we expect that
Philip Utilities will commence work on all of these tasks in May or June 1999,
and will complete initial work on these tasks by the end of December
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<PAGE> 43
1999, if not earlier. Testing, implementation, and contingency planning will
continue in cycles through the end of 1999 and into 2000 as necessary.
Philip Utilities' internal information systems are not mission-critical
and, in any event, we anticipate that they will be remediated for Year 2000
purposes by the end of 1999. Other computer systems and systems using devices
with embedded chips are mission-critical because they are part of water or
wastewater systems operated by Philip Utilities. We anticipate that Philip
Utilities will inventory and remediate these systems and test them for Year 2000
purposes before the end of 1999. Further, Philip Utilities will develop
contingency plans to deal with Year 2000 problems that are not found and fixed
before the end of 1999.
Azurix's Year 2000 program requires that external entities be ranked as
mission-critical, important or ordinary. External entities ranked as
mission-critical are expected to receive site visits by senior personnel from
Philip Utilities' Year 2000 teams. In addition, the Philip Utilities teams are
expected to maintain contact and receive status updates from the
mission-critical entities throughout 1999 and, if necessary, into 2000.
Non-mission critical entities are to be addressed as time permits.
The purpose of this program is to identify key entities that may not have
adequately addressed the Year 2000 problem and to mitigate Philip Utilities'
exposure by developing appropriate contingency plans. Azurix recognizes that
comprehensive Year 2000 programs may not fully remediate all Year 2000 issues.
As such, Philip Utilities will not categorize any mission-critical entities as
"Year 2000 ready." In any case, Philip Utilities will develop contingency plans
for all mission-critical entities.
We have reviewed the most reasonably likely worst case scenarios that
Philip Utilities may face. Although unlikely, these possibilities conceivably
could include failure of computer systems or devices with embedded chips that
are used to control water or wastewater systems. In some cases, these systems
are operated by Philip Utilities. In other cases, Philip Utilities installed or
furnished consulting services with respect to these systems. In most, if not
all, cases, the computer controls for these systems can be overridden and the
systems can be operated manually. Therefore, the potential failure of the
computer control systems would be important only if the plant's operators failed
to observe that the computer systems failed. This is possible though unlikely.
Other possible worst case scenarios involve a failure of electrical
utilities or communications common carriers that furnish electricity and
communications services to these facilities. This kind of failure could disrupt
or interrupt the functioning of water or wastewater plants. Philip Utilities
will develop contingency plans for these possible failures. However, if
electrical power is unavailable to a water or wastewater facility for a period
greater than several hours, Philip Utilities might not be able to keep the
facility functioning. This could cause untreated or improperly treated water and
wastewater to be discharged into waterways. This in turn could create potential
legal liability for Philip Utilities and otherwise have a material adverse
effect on Philip Utilities' business, similar to the adverse effects described
for Azurix. We recognize that the widespread unavailability of electrical power
would cause disruptions that would not be unique to Philip Utilities.
Based on our initial review, Philip Utilities has not to date incurred
material Year 2000 costs, and we do not anticipate Philip Utilities' incurring
material costs in implementing the plan or preparing Year 2000 contingency
plans. However, there can be no assurance that the actual costs of implementing
the plan will not exceed our estimates or that Philip Utilities' business will
not be materially adversely affected by Year 2000 issues.
We are pursuing additional concessions, outsourcing contracts and other
water and wastewater projects. We expect that we will adapt the Enron plan to
cover our additional operations.
ENRON
Enron advises us that the internal information systems at Enron on which
Azurix will rely either are Year 2000 ready or are expected to be Year 2000
ready by June 30, 1999. Enron further advises us that it is in the process of
making contact with entities external to Enron, among them electrical utilities
and
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<PAGE> 44
telecommunications common carriers, that are critical to the operating mission
of these Enron internal information systems, and that this process will continue
throughout 1999. Enron is aware that, despite the belief of these
mission-critical external entities that they are Year 2000 ready, that readiness
may be compromised by hidden remediated computer code, embedded chips and the
possible Year 2000-related failures of other entities on which the external
entities in turn depend. Therefore, Enron is developing contingency plans to
deal in a reasonable way with these possible interrelated failures. These
contingency plans will continue to be refined in cycles throughout the remainder
of 1999.
OUTSIDE ENTITIES THAT ARE NOT YEAR 2000 READY
Azurix realizes that Year 2000-related disruptions and their consequent
adverse effects remain a possibility. We will not rely entirely on
mission-critical external entities' assurances of Year 2000 readiness because
these entities are subject to failures resulting from the problems of embedded
chips, re-coding errors in remediated code and the potential effects of attempts
at sabotage early in the new year. 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." Further, neither Azurix nor Enron
can ensure that an external entity is, or will be, Year 2000 ready. Instead,
Azurix and Enron will deal with the possibility that mission-critical external
entities will not be Year 2000 ready by developing reasonable contingency plans.
This contingency planning will continue in cycles throughout 1999. The
contingency plans will be designed to deal with the reasonably likely effects on
our operations that could result from material outages or other Year
2000-related disruptions to these external entities. Therefore, the plans will
be designed to facilitate identification and remediation of Year 2000 problems
that may manifest themselves after January 1, 2000.
COSTS TO ADDRESS YEAR 2000 ISSUES
As of May 20, 1999, we have not incurred material costs for Year 2000
issues, and we do not anticipate incurring material costs in implementing the
plan or preparing Year 2000 contingency plans. However, there can be no
assurance that the actual costs of implementing the plan will not exceed our
estimates or that our business will not be materially adversely affected by Year
2000 issues.
Year 2000 costs are difficult to estimate accurately because of
unanticipated vendor delays, technical difficulties, the impact of tests of
outside systems and similar events. For example, there can be no assurance that
all outside systems that are mission-critical to us, or are mission-critical to
the Enron systems on which we depend, will be adequately remediated so that they
are Year 2000 ready by January 1, 2000. If there are Year 2000 failures that
create substantial disruptions to our business or to Enron's business, the
adverse impact on our business could be material. Moreover, the estimated costs
of implementing the Enron plan do not take into account the costs, if any, that
might result from Year 2000 failures that occur despite our implementation of
the Enron plan.
YEAR 2000 RISK FACTORS
We plan to satisfy applicable regulatory requirements with respect to Year
2000 readiness. However, failure to comply with such requirements may cause a
regulatory authority to order the cessation of our operations, which could have
a material adverse affect on our business.
As the Year 2000 approaches, there will be increased competition for people
with the technical skills necessary to deal with Year 2000 problems. While we
intend to recruit and retain a sufficient number of people with those skills,
the shortages of skilled personnel could prevent us from doing so. In addition,
we may face shortages of other resources, such as Year 2000 ready computer chips
or components. These shortages might delay or otherwise impair our ability to
assure that our mission-critical systems are Year 2000 ready.
We will rely on Enron for services that involve computer processing. These
Enron systems are mainframe systems used for functions such as asset management,
accounting and human resources. Enron believes that its mission-critical systems
will be Year 2000 ready substantially before January 1, 2000. In
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<PAGE> 45
addition, we believe that Wessex's mission-critical systems will be Year 2000
ready substantially before January 1, 2000. However, unforeseen circumstances
could arise during the implementation of the Enron plan that could adversely
affect Enron's or Wessex's mission-critical functions, thereby disrupting or
materially adversely affecting Azurix's business.
We are taking reasonable steps to identify, assess and, where necessary,
replace devices containing embedded chips. Despite these efforts, we anticipate
that we will not be able to find and replace all the devices with embedded chips
or embedded chips in our systems. Further, we anticipate that outside entities
on which we depend will also not be able to find and replace all devices with
embedded chips or embedded chips in their systems. 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 failures may have
adverse effects upon our ability to maintain safe operations and may also have
adverse effects upon our ability to serve our customers, to comply with
environmental statutes and regulations, and to otherwise 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. Therefore, the possible
adverse impact of the embedded chip problem is not, and will not be, unique to
Azurix.
The external entities we are contacting include suppliers, customers,
financial institutions, and governmental entities. We intend to meet with many
external entities that are mission-critical to Azurix for Year 2000 purposes.
However, we cannot in any way ensure that these external entities will be Year
2000 ready, nor can we place complete reliance on any assurances, written or
oral, from these entities that they expect to be Year 2000 ready.
We cannot assure that suppliers upon which we depend for essential goods
and services will test their mission-critical systems in a timely manner.
Failure or delay by all or some of these entities, including U.S. and foreign
governments or governmental authorities, to assess their Year 2000 readiness
could create substantial disruptions having a material adverse effect on our
business.
We have reviewed the most reasonably likely worst case Year 2000 scenarios
we may face. Analysis of these scenarios has led us to contemplate the following
possibilities that, although unlikely, could conceivably occur:
- Widespread failure of electrical, gas and other utilities serving us
domestically and internationally
- Widespread disruption of communications
- Disruption of transportation services for us and our employees,
contractors, suppliers and customers
- Disruption to our ability to gain access to, and remain working in,
office buildings and other facilities
- The failure of substantial numbers of our mission-critical information
systems, including both hardware and software necessary to control
operational facilities such as water and wastewater treatment facilities
and distribution and collection systems
We could face substantial claims by governments, governmental authorities
or customers, as well as loss of revenues, due to service interruptions,
violations of environmental regulations, inability to fulfill contractual
obligations, inability to account for obligations and increased expenses
associated with litigation, harm to persons or to tangible property, violation
of environmental regulations, stabilization of operations following system
failures and the execution of contingency plans. We could also experience an
inability by customers and others to pay, on a timely basis or at all,
obligations owed to us. In addition, we could face claims of damage to persons
or property as the result of improperly treated water or wastewater. Under these
circumstances, there would be a material adverse effect on revenues and
operations. However, this effect can not be quantified at this time. Also, the
cumulative effect of Year 2000 failures in the United States and internationally
could have a substantial adverse effect on the domestic and worldwide economy.
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<PAGE> 46
We will continue to monitor business conditions in order to assess and
quantify any material adverse effects that may result from Year 2000 problems.
CONTINGENCY PLANS
As part of the Enron plan, we will develop contingency plans in case we
have not satisfactorily remediated all our internal mission-critical systems and
in case outside systems are not Year 2000 ready. Our contingency plans will be
designed to minimize the disruptions or other adverse effects resulting from
Year 2000 incompatibilities with respect to our mission-critical functions and
systems and to facilitate the early identification and remediation of Year 2000
problems that first manifest themselves after January 1, 2000.
Our contingency plans will include an assessment of our mission-critical
internal information technology systems and our internal operational systems
that use computer-based controls. The contingency planning will begin in 1999
and will continue as necessary. As we implement our contingency plans, we will
assess any mission-critical disruptions due to external Year 2000 failures.
These assessments will be conducted for both our U.S. and non-U.S. operations.
In assessing Year 2000 failures, we will monitor mission-critical services such
as electrical power and telecommunications services. The contingency plans will
also cover events such as failure of the delivery of chemicals for water and
wastewater treatment or events of sabotage.
Our contingency plans will include the creation of response teams that will
be standing by and prepared to respond rapidly to Year 2000 problems. The
composition of these teams will vary according to the nature, importance and
location of the problem. We will also station response teams at our non-U.S.
operations as necessary.
OUTLOOK
The extent and magnitude of the effects of Year 2000 on us, both before and
after January 1, 2000, are difficult to predict or quantify for a number of
reasons including:
- Difficulty of locating chips embedded in computer hardware and in devices
used in mission-critical systems such as process or flow control,
environmental, transportation, access and communications
- Difficulty in evaluating and testing outside systems connected to our
computer, telecommunications, plant or other mission-critical systems or
on which our mission-critical systems depend, such as electrical
utilities or telecommunications carriers
- Difficulty locating mission-critical internal software that is not Year
2000 compatible
- The possible unavailability of trained hardware and software engineers,
technicians, and other personnel to perform remediation, validation, and
testing of mission-critical systems
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GOVERNMENT OUTSOURCING THROUGH PRIVATIZATION
Governments around the world are increasingly outsourcing the ownership,
operation and management of their water and wastewater assets and services to
the private sector. For many projects, there is a lead-time of several years
while the government, with the help of its international financial and legal
advisors, works on the concept of privatization and gains consensus among
various interest groups. The decision to privatize is generally authorized by
legislation. Different approaches are used by various governments. Many
governments choose a public tender process to ensure that privatizations occur
at market rates. In some parts of the world, particularly Latin America, an
auction format has been used successfully. In other places, notably China,
private parties often negotiate directly with the government with no formal
invitation to bid.
If a tendering process is used, rules are published. These rules generally
require some form of qualification for bidders, where parties submit financial
and operational credentials and the government accepts only qualified parties as
bidders. Qualification for bidding has heavily emphasized prior experience in
operating water and wastewater systems or individual treatment plants that are
of a size at least comparable to the system or facility being privatized or
built. The potential bidders submit extensive documentation to qualify for
bidding and often must form entities within the country through which to submit
their bids. In addition, governments often consider the financial strength of
the potential bidders and may require substantial bid bonds or letters of credit
to be provided as part of the bid.
COMMON FORMS OF OUTSOURCING
- SALE OF WATER ASSETS. A government may incorporate a water and wastewater
system and sell all or part of it to private parties. The water company
is given a monopoly license to operate in a specified service territory.
The license may be subject to revocation for non-performance or another
breach of its terms and to renewal periodically, typically every 20 to 30
years. For example, the United Kingdom privatized the ten regional water
and wastewater authorities in England and Wales through public offerings
of shares in 1989, and Berlin, Germany is in the process of selling a
49.9% interest in its water and wastewater system.
- CONCESSIONS. As an alternative to a sale of water assets, a government
may grant a private party the right to operate a water and wastewater
system for a fixed term, retaining title to the underlying assets. The
holder of a concession takes on the financial risks of managing the
assets during the term of the concession, often 20 to 30 years but in
some cases extending much longer. The concession agreement often mandates
improvements to the water and wastewater system, sets standards of water
quality that must be achieved and establishes a timeframe for realizing
these objectives. At the end of the concession, control of the assets
reverts to the government, which may renew the concession with the
existing holder or another party. Many of the water and wastewater
opportunities around the world take the form of concessions. See
"Business -- The Global Water Industry -- Trend Toward Government
Outsourcing Through Private Sector Participation."
- CONSTRUCTION AND OPERATION OF A SINGLE ASSET. Sometimes a government will
ask a private sector participant to construct and operate a particular
facility that serves its water or wastewater system. Frequent examples
are water and wastewater treatment plants, pipelines and aqueducts. Two
typical transaction structures are build-own-operate and
build-own-transfer projects. In both a build-own-operate and a
build-own-transfer project, the private party builds, owns and operates
the asset. In the case of a build-own-transfer project, the private party
then transfers the asset back to the government after a fixed term,
usually 15 to 25 years but often longer. The build-own-operate or
build-own-transfer contract describes the project and its services, as
well as the revenues the private party will receive for the services the
asset provides.
- LEASES. Under a lease, a government turns over control of the system for
a fixed period but, unlike in a concession, the government retains much
of the economic risk. In France, most municipalities use a type of lease
called an affermage, which is also used in many former French colonies.
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<PAGE> 48
- OPERATIONS AND MANAGEMENT CONTRACTS. Sometimes a government will ask a
private party to operate its system on a day-to-day basis, but will keep
most of the economic risk relating to the system. The term of the typical
operations and management contract is five to ten years. These contracts
are common in the United States. See "Business -- The Global Water
Industry--Trend Toward Government Outsourcing Through Private Sector
Participation -- North America."
- OUTSOURCING PARTICULAR SERVICES. A government also may ask private
parties to provide specific services to a government-operated water or
wastewater system. Examples of these services include billing,
construction projects and residuals management. The service provider
typically takes no risk for the system as a whole, only for the
particular services it provides. See "Business -- The Global Water
Industry -- Outsourcing Opportunities in the Municipal and Industrial
Services Markets."
SELECTED AWARDED WATER AND WASTEWATER PRIVATIZATIONS
The following is a list of selected water and wastewater privatizations in
Europe, North America, Latin America, the Caribbean, Asia and the Pacific Rim
that have been awarded during the past several years. The majority of these
privatizations have been in the form of concessions, build-own-transfers or
leases, except in North America, where private parties have primarily entered
into operations and management contracts. Except as otherwise indicated in the
notes to the following table, the estimated size of these awarded privatizations
is taken from the October 1998 edition of Public Works Financing. The estimated
size for operations and management contracts represents aggregated fees over the
term of the contract. The estimated size for build-own-transfer projects
represents construction costs. The estimated size for concessions represents
total project costs.
SELECTED AWARDED WATER AND WASTEWATER PRIVATIZATIONS
<TABLE>
<CAPTION>
LOCATION YEAR PROJECT ESTIMATED SIZE
-------- ---- ------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
EUROPE:
Germany............... 1992 25-year concession for water supply and wastewater $ 528
treatment plant in Rostock
Germany............... 1997 Sale of 49% stake and 20-year management contract for water 139
and wastewater system for Potsdam
Hungary............... 1998 Sale of minority interest in water company serving Budapest 340
Turkey................ 1995 15-year build-own-transfer project for dam and wastewater 800
works near Izmit and pipeline supplying Istanbul
United Kingdom........ 1989 Stock offerings of 10 regional water and wastewater 8,640(1)
companies in England and Wales
NORTH AMERICA:
Georgia............... 1998 20-year operations and management contract for water system $ 400
in Atlanta
Indiana............... 1998 10-year operations and management contract for wastewater 225
treatment plants in Indianapolis
Michigan.............. 1998 7-year design, build and operate water treatment plant in 260
Detroit
New Jersey............ 1996 20-year operations and management contract for water and 200
wastewater collection in North Brunswick
Oklahoma.............. 1997 25-year contract to operate three wastewater plants in 250
Oklahoma City
Wisconsin............. 1998 10-year operations and management contract for wastewater 350
system in Milwaukee
</TABLE>
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<PAGE> 49
SELECTED AWARDED WATER AND WASTEWATER PRIVATIZATIONS (CONTINUED)
<TABLE>
<CAPTION>
LOCATION YEAR PROJECT ESTIMATED SIZE
-------- ---- ------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
LATIN AMERICA AND THE
CARIBBEAN:
Argentina............. 1993 30-year concession for water and wastewater system for $4,000
the capital city of Buenos Aires
Argentina............. 1995 30-year operations and management contract for water and 1,200
wastewater system for Santa Fe, Rosario and surrounding
area
Argentina............. 1997 30-year concession for water system in Cordoba 495
Argentina............. 1998 95-year concession and sale of shares for water and 150(2)
wastewater system for Province of Mendoza
Argentina............. 1999 Concession for water and reservoir in Misiones (final N/A
award pending)
Argentina............. 1999 Concession for water and wastewater system in the 439(3)
Province of Buenos Aires (final award pending)
Bolivia............... 1997 30-year concession for water and wastewater system in 360
both La Paz and El Alto
Chile................. 1998 35-year concession and sale of shares for water and 138(4)
wastewater system for Valparaiso and surrounding region
Colombia.............. 1997 30-year build-own-transfer contract for wastewater 130
treatment plant in Bogota
Mexico................ 1993 Four multi-year contracts to upgrade Mexico City's water 1,000
distribution program
Mexico................ 1993 25-year concession for water and wastewater system for 70
city of Cancun and surrounding area
Mexico................ 1996 12-year build-own-transfer concessions for treatment 200
facilities at five Pemex refineries
Puerto Rico........... 1995 6-year operations and management contract for water and 600
wastewater plants
</TABLE>
44
<PAGE> 50
SELECTED AWARDED WATER AND WASTEWATER PRIVATIZATIONS (CONTINUED)
<TABLE>
<CAPTION>
LOCATION YEAR PROJECT ESTIMATED SIZE
-------- ---- ------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
ASIA AND THE PACIFIC RIM:
Australia............. 1993 25-year build-own-transfer contract for wastewater $ 200
treatment plant in Sydney
Australia............. 1995 15-year operations and management contract for water and 1,100
wastewater services in Adelaide
China................. 1996 49% stake in 13 water plants in Jiangsu Province 162
China................. 1998 18-year build-own-transfer contract for water supply for 120
Chengdu
Indonesia............. 1997 Two 25-year concessions for water systems in Jakarta 1,750
Malaysia.............. 1992 20-year build-own-transfer contract for water treatment 290
facilities at Sungai Layang
Malaysia.............. 1995 25-year contracts to operate 26 water systems around 312
Kuala Lampur
Malaysia.............. 1995 26-year upgrade and operations and management concession 800
for water treatment facilities in Selangor
Philippines........... 1997 Privatization of the Metro Manila water and wastewater 5,700
system
</TABLE>
- ---------------
(1) Information is from HM Government Perspective.
(2) Azurix owns an interest in this concession.
(3) Azurix will own an interest in this concession.
(4) Information is from December 23, 1998 Financial Times.
45
<PAGE> 51
BUSINESS
Azurix is a global water company engaged in the business of acquiring,
owning, operating and managing water and wastewater assets, providing water and
wastewater related services and developing and managing water resources. Enron,
one of the world's leading integrated natural gas and electricity companies,
formed Azurix to pursue opportunities in the global water industry. Enron
incorporated the company now called Azurix as a shell company on January 29,
1998. Azurix's first significant step was to acquire Wessex, a water and
wastewater company based in southwestern England, for $2.4 billion on October 2,
1998. Wessex was recognized in December 1998 by the Office of Water Services,
the industry regulator for England and Wales, as the most efficiently operated
water and wastewater company in England and Wales. Following our acquisition of
Wessex, we began implementing our global business strategy.
Our asset portfolio also includes interests in long-term water concessions
in the Province of Mendoza, Argentina and in Cancun, Mexico. In addition, we
acquired Philip Utilities Management Corporation, a water and wastewater
services company with operations in the United States and Canada on May 18, 1999
for $106.3 million. Philip Utilities provides operations and management,
engineering, residuals management and underground infrastructure development
services for municipal water and wastewater facilities in North America. On May
18, 1999, we were notified that, subject to final confirmation, we will be
awarded an interest in long-term water and wastewater concessions in two regions
of the Province of Buenos Aires, Argentina, at an aggregate price of $438.6
million. We have made each of these investments through one or more
subsidiaries, which will be our approach as we pursue our worldwide growth
strategy.
On a pro forma basis, as adjusted for the offering, assuming the Wessex
acquisition occurred on January 1, 1998, and including our investment in the
Mendoza concession from the date of our investment, but excluding the Cancun,
Philip Utilities and Buenos Aires transactions, we had operating revenues of
$464.2 million, EBITDA of $298.1 million and net income of $91.1 million for the
year ended December 31, 1998. As of March 31, 1999, on a pro forma basis as
adjusted for the offering, Azurix had total assets of $3,544.4 million. To date,
all of our operating revenues have come from Wessex, and substantially all of
our operations have been conducted by Wessex.
The following table represents the operating revenues contributed by each
of the service categories of our business for the periods indicated, although
most of the contributions occurred after the date of the Wessex acquisition:
<TABLE>
<CAPTION>
JANUARY 29, 1998 THREE MONTHS ENDED
TO DECEMBER 31, 1998 MARCH 31, 1999
-------------------- ------------------
(IN MILLIONS)
-----------------------------------------
<S> <C> <C>
Water supply..................................... $ 35.0 $ 34.0
Wastewater services.............................. 73.1 71.6
Residuals management............................. 7.2 5.9
Other............................................ 4.4 5.4
------ ------
Total.................................. $119.7 $116.9
====== ======
</TABLE>
We are aggressively pursuing additional water and wastewater transactions
in Europe, North America, Latin America, the Caribbean, the Middle East, Africa,
Asia and the Pacific Rim. These include upcoming concessions in Berlin, Germany
and Santiago, Chile as well as other upcoming privatizations identified in this
prospectus and various privately negotiated transactions. We are also
continually evaluating potential acquisitions of companies owning water and
wastewater assets or providing water related services. The timing, size and
success of any of these potential acquisitions cannot be predicted. The
completion of any one of these acquisitions could have a significant impact on
our business.
Our experienced management team from Enron, Wessex and other water and
wastewater systems, and multinational companies provides us with the experience
necessary to compete successfully in the global water industry. We are
transferring the skills that Enron has successfully applied in developing,
financing,
46
<PAGE> 52
operating and managing the risks of energy infrastructure projects to our water
business around the world. In addition, we are applying to our water business
the operating, management and technical skills that our executives from Wessex
and other companies have successfully used in operating and managing water and
wastewater assets while providing high quality customer service. This management
team competitively positions us to identify, evaluate, acquire, develop, finance
and operate water and wastewater projects and services worldwide.
THE GLOBAL WATER INDUSTRY
The global water industry includes the businesses of collecting, treating,
storing and supplying drinking water, and of collecting, treating and disposing
of wastewater and wastewater by-products. Public and private water companies
serve industrial, commercial and residential customers. Azurix estimates that
the global water industry has total annual revenues of approximately $300
billion. In addition, Azurix estimates that over $600 billion will be spent on
worldwide water and wastewater infrastructure over the next decade.
The ownership of water assets and the provision of water and wastewater
services around the world remains highly concentrated in the public sector,
typically at the municipal or community level. Major capital investment and
increased efficiencies in the water sector are required by the following:
- Increasingly stringent standards for water quality, wastewater services
and environmental protection
- The need to provide growing urban populations with safe drinking water
supply and wastewater treatment systems
- The aging of existing water and wastewater infrastructure
Governments throughout the world frequently face budgetary constraints and
often lack the technical and operational skills of private sector participants
to address these issues efficiently. As a result, governments are increasingly
turning to the private sector to address their water and wastewater
infrastructure needs.
Industrial companies also must comply with increasingly stringent standards
for water quality, wastewater services and environmental protection. To meet the
additional expense of complying with these standards and to reduce uncertainty
in financing their operations, many industrial companies are beginning to
outsource their water supply and wastewater requirements to third parties with
the expertise to construct and operate their systems and provide services on a
more efficient and cost effective basis. The ability to manage water resources
and efficiently transport water to areas where water is scarce, including the
delivery of drinking water to growing urban centers, is becoming increasingly
important as well.
As a result, we believe that significant opportunities exist for private
sector participation in the water and wastewater industry. These opportunities
include taking part in water and wastewater privatizations, providing water and
wastewater related services to municipal and industrial water markets and
developing and managing water resources.
TREND TOWARD GOVERNMENT OUTSOURCING THROUGH PRIVATE SECTOR PARTICIPATION
Following the trend of private sector participation in the natural gas,
electricity and telecommunication industries, governments around the world are
increasingly turning to the private sector to own, operate and manage their
water and wastewater assets and services. According to World Bank statistics,
between 1984 and 1990, developing countries awarded contracts for only eight
water and wastewater projects to private companies, amounting to a total of $297
million. According to these same statistics, by the end of 1997, the cumulative
level of private sector investment had increased to $25 billion. As of October
1998, according to Public Works Financing statistics, there were approximately
380 planned, funded or completed water and wastewater projects with private
sector participation worldwide for a total estimated cost of approximately $74
billion.
The following discussion summarizes some of the water and wastewater
outsourcing arrangements that have been awarded to date and are expected to be
upcoming in various regions of the world. For a more detailed description of the
outsourcing arrangements that have been awarded to date, see "Government
Outsourcing Through Privatization."
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<PAGE> 53
EUROPE. The United Kingdom has privatized large portions of its water
sector. French municipalities have long turned to the private sector to operate
their water and wastewater systems. Several other European water and wastewater
service providers are scheduled to offer major concessions or build-own-
transfer or build-own-operate projects in 1999 and 2000. We believe that the
pace of privatization may increase once these additional privatizations have
occurred in Europe and the benefits of privatization are recognized. In
addition, European Union directives are imposing higher water and wastewater
standards on member countries and are requiring significant capital investment
for compliance throughout the region. We believe that these countries will rely
on the private sector to help fund these capital requirements. The following is
a list of selected upcoming water and wastewater privatizations expected in
Europe.
SELECTED UPCOMING WATER AND WASTEWATER PRIVATIZATIONS -- EUROPE
<TABLE>
<CAPTION>
COUNTRY PROJECT
- ------- -------
<S> <C>
Bulgaria............................. Sale of stock and concession for water and wastewater
for Sofia
Czech Republic....................... Sale of stock and concession for water and wastewater
for Prague
Estonia.............................. Sale of stock for municipal system in Tallinn
Germany.............................. Sale of stock in a holding company that holds an
interest in the water and wastewater company serving
Berlin
Greece............................... Concession for water and wastewater for Athens
Hungary.............................. Upgrade for water treatment and disposal plant in
Dunavarsany
Italy................................ Sale of stock for water and wastewater for Rome
Italy................................ Privatization of water and wastewater for Puglia
Region
Italy................................ Build-own-transfer project for wastewater facility at
Porto Marghera outside Venice
Lithuania............................ Operations and management contract and concession for
water for Vilnius
Poland............................... Concession for water and wastewater for Poznan
Portugal............................. Concession for water and wastewater for Cascais
Romania.............................. Sale of stock and concession for water and wastewater
for Bucharest
Spain................................ Design and build water treatment plant at Palma,
Majorca
Turkey............................... Operations and management contract for wastewater
services for Cesme-Alacaty
Turkey............................... Construction of wastewater treatment plants in Seyhan
and Yuregic
United Kingdom....................... Private sector participation in the Ministry of
Defence's water and wastewater assets
</TABLE>
48
<PAGE> 54
NORTH AMERICA. In the United States, approximately 80% of the population is
currently served by approximately 24,000 government owned and operated water
authorities. Although the U.S. market shows significant potential for
concessions or asset sales because so small a percentage of the population is
served by private water companies, few municipalities have used these
approaches. Municipalities are reluctant to give up ownership of their water and
wastewater systems and access to tax exempt financing. Thus, in the U.S. market,
governments typically enter into public/private partnerships in which private
parties make equity investments in partnership with local water and wastewater
companies or provide lower-cost outside capital sources to fund infrastructure
requirements and growth opportunities. Governments are also outsourcing the
operation of their water and wastewater assets to private parties.
The key factors contributing to these outsourcing decisions are:
- Increased regulatory and environmental requirements contained in the Safe
Drinking Water Act and the Clean Water Act
- Deteriorating water and wastewater infrastructures within the nation's
largest urban areas
- New technologies designed to improve water and wastewater solutions with
a minimal environmental impact
- Significant capital requirements to meet these needs, estimated by the
U.S. Environmental Protection Agency to be approximately $275 billion for
water and wastewater infrastructure over the next 20 years
The following is a list of selected upcoming water and wastewater
privatizations expected in North America.
SELECTED UPCOMING WATER AND WASTEWATER PRIVATIZATIONS -- NORTH AMERICA
<TABLE>
<CAPTION>
STATE PROJECT
- ----- -------
<S> <C>
California........................... Contract for construction project manager for water
capital improvements in San Francisco
Florida.............................. Design, build and operate water treatment plant for
Tampa Bay Water
Georgia.............................. Build-own-operate-transfer of wastewater system in
Atlanta
Illinois............................. Build-own-operate biosolids processing facility in
Chicago
New York............................. Privatization of wastewater system in Buffalo
New York............................. Privatization by Army Corps of Engineers of water and
wastewater at Ft. Hamilton
Tennessee............................ Contract for operation and maintenance of the water
system currently serving most of Chattanooga
Texas................................ Regionalization of water supply problem in El Paso
Texas................................ Design, build and operate water treatment plant for
Houston
Washington........................... Design, build and operate project for Cedar River
water treatment plant in Seattle
Washington D.C. ..................... Privatization of water treatment plants
</TABLE>
49
<PAGE> 55
LATIN AMERICA AND THE CARIBBEAN. The pace of infrastructure privatizations
in Latin America and the Caribbean has accelerated since the first electricity
privatizations took place in Chile during 1982. Since then, privatizations of
electricity, natural gas and telecommunications assets have occurred in parts of
Argentina, Brazil, Chile, Colombia, the Dominican Republic, El Salvador,
Guatemala, Panama and Peru, among other countries. To date, privatizations of
water and wastewater systems have occurred in Argentina, Brazil, Bolivia, Chile,
Colombia and Mexico and are scheduled in many other countries, including the
Dominican Republic, Ecuador, Panama and Venezuela. The following is a list of
selected upcoming water and wastewater privatizations expected in Latin America
and the Caribbean.
SELECTED UPCOMING WATER AND WASTEWATER PRIVATIZATIONS -- LATIN AMERICA AND THE
CARIBBEAN
<TABLE>
<CAPTION>
COUNTRY PROJECT
------- -------
<S> <C>
Argentina............ Concession for water and wastewater system for the Province
of Misiones
Argentina............ Construction of aqueduct in Cordoba
Argentina............ Concession for water and wastewater in Tucaman Province
Bolivia.............. Concession for water for Cochambamba
Brazil............... Privatizations of state water and wastewater systems in each
of the following states: Parana, Sao Paulo, Rio Grande do
Sul, Bahia, Mato Grosso do Sul, Amazonas, Rio de Janeiro,
Santa Catarina and Espirto Santo
Chile................ Sequential sale of controlling stakes in 12 remaining
regional water and wastewater systems including capital city
of Santiago, Concepcion, Puerto Montt and Rancagua
Colombia............. Concession for water and wastewater for Monteria
Dominican Republic... Institutional strengthening and rehabilitation for country's
three principal water and wastewater service providers
Ecuador.............. Concession for water and wastewater for city of Guayaquil
Guatemala............ Build-own-transfer project for water supply wells in
Guatemala City
Panama............... Concession for countrywide water and wastewater system
Peru................. Construction of wastewater treatment plant in Lima
Venezuela............ Rehabilitation of Caracas water system
Venezuela............ Privatization of Fajardo water system in Miranda State
Venezuela............ Concession for water and wastewater in Margarita Island
</TABLE>
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<PAGE> 56
MIDDLE EAST AND AFRICA. Many Middle Eastern and African countries are faced
with acute water shortages. As a result, several Middle Eastern countries are
seeking private development of major transportation or treatment projects which
may include build-own-transfer projects for pipelines, canals and treatment
plants. Although privatization is not widespread in Africa, there are
exceptions. Cote d'Ivoire, while still a French colony, granted a long-term
concession to a French-owned company. A majority of the concessionaire is now
owned by public stockholders. The following is a list of selected upcoming water
and wastewater privatizations expected in the Middle East and Africa.
SELECTED UPCOMING WATER AND WASTEWATER PRIVATIZATIONS -- MIDDLE EAST AND AFRICA
<TABLE>
<CAPTION>
COUNTRY PROJECT
- ------- -------
<S> <C>
Egypt................... Build-own-transfer project for water transmission and
treatment system for area of Suez Gulf and East Cairo
Israel.................. Tender for wastewater treatment plants in Beersheeva
Municipality
Jordan.................. Build-own-transfer project for water pipeline to Amman
Kuwait.................. Build-own-transfer project for wastewater treatment plant
for Sulaibiya
Lebanon................. Build-own-transfer project for water pipeline and water
treatment plant for Beirut as part of the national plan for
water privatization
Morocco................. Concession for water and wastewater system for Tangiers
Tunisia................. National plan for water privatization in advanced stages;
each city is able to independently arrange for privatization
and many are actively doing so
</TABLE>
ASIA AND THE PACIFIC RIM. In Asia, the recent financial crisis and ongoing
economic uncertainty may be limiting private investment in the water sector.
Prior to the economic downturn in Asia, water concessions had been granted in
Indonesia, Malaysia and the Philippines. In China, municipal water agencies have
entered into build-own-transfer arrangements with Western companies for water or
wastewater treatment plants through auctions and negotiation. The following is a
list of selected upcoming water and wastewater privatizations expected in Asia
and the Pacific Rim.
SELECTED UPCOMING WATER AND WASTEWATER PRIVATIZATIONS -- ASIA AND THE PACIFIC
RIM
<TABLE>
<CAPTION>
COUNTRY PROJECT
- ------- -------
<S> <C>
Armenia................. Operations and management contract for water and wastewater
for Yerevan
China................... Joint venture for Beijing No. 10 water treatment plant
China................... Build-own-transfer arrangement or joint venture for water
and wastewater system for Xunchang, Sichuan Province
Georgia................. Concession for water and wastewater for Tblisi
India................... Build-own-transfer project for water treatment plant in
Haldia
India................... Privatization of water treatment plant for Delhi
India................... Design and build water supply projects in large and medium
towns in state of Orissa
Nepal................... Operations and management contract for water supply and
wastewater collection services to Kathmandu Valley
</TABLE>
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<PAGE> 57
OUTSOURCING OPPORTUNITIES IN THE MUNICIPAL AND INDUSTRIAL SERVICES MARKETS
We believe that municipal governments and industrial companies in North
America and Western Europe, in particular, will increasingly seek to outsource
the management of their water and wastewater systems to private parties with the
operating experience and capital to provide reliable services, to comply with
more stringent regulatory requirements for water quality and environmental
protection and to reduce uncertainty in financing these operations. To comply
with stricter environmental and drinking water quality standards, municipalities
will incur increased labor costs for treatment, higher monitoring and equipment
maintenance costs and increased costs of disposing of biosolids. Federal funding
grants to help municipalities meet their financial needs have declined over
time, leaving municipal wastewater authorities facing serious budgetary
challenges. Private sector outsourcing can include any combination of design,
financing, construction, ownership or operation of a facility; administrative
services such as metering, billing, collection or maintenance; and applying
process engineering technologies such as biosolids filtration, clarification,
purification, separation, drying and disposal.
Industrial companies are also experiencing rising costs related to their
water and wastewater needs. The chemical, refining, pharmaceutical, high
technology, food and beverage, paper and pulp, steel, automobile and energy
industries have large water supply and wastewater treatment requirements. These
industries require pure water for their operations and produce effluents that
must be treated before being released into normal wastewater systems or being
discharged directly into the environment. Most industrial wastewater needs to be
pre-treated and environmental laws prohibit the direct discharge of wastewater
into the environment without a permit. Many industries treat and dispose of
their own wastewater because the relatively concentrated wastes from these
industries frequently cannot be discharged into the public sewer system and
on-site treatment is usually less expensive.
These industrial companies must invest large amounts of capital in their
water and wastewater treatment and distribution assets. By outsourcing the
management of these assets to third parties, these companies may reduce the
uncertainty associated with expenditures required by changes in water quality
standards and environmental regulations. Obtaining landfill, storage and
incineration capacity to dispose of the residue from the wastewater treatment
process is a major component of providing industrial wastewater services, and
may involve procuring long-term capacity of specially lined or hazardous waste
landfills.
The services to be provided to municipal and industrial customers generally
fall into three main categories:
OPERATIONS, MANAGEMENT AND ENGINEERING. Over the past few years, large
cities and industrial companies have reduced costs by outsourcing the design,
construction, operation or maintenance of their water and wastewater assets to
private sector service providers. Many of these service providers have
consolidated and the market is much less fragmented than either the residuals
management or the underground infrastructure markets. Consequently, competition
for major contracts for the largest cities in the United States has been
significant. Although some companies have focused on providing services to small
to medium sized municipalities and large industrial firms, many of these
companies lack the financial capacity or risk management capability to purchase
water and wastewater assets from their industrial customers or to qualify on
their own as the operators and managers of their customers' facilities.
According to the May/June 1998 issue of Environmental Business Journal, the fees
associated with providing contract operations and consulting, design engineering
and maintenance services to customers in the municipal and industrial markets in
the United States are estimated to have exceeded $5.5 billion for 1997, and are
expected to continue to grow.
RESIDUALS MANAGEMENT. Managing the biosolids that result from municipal and
industrial wastewater represents a large component of the cost of wastewater
treatment. Increasingly stringent effluent discharge standards are resulting in
a significant increase in the quantity of residuals. At the same time,
environmental regulations are limiting waste disposal options. For example,
ocean dumping of biosolids has been banned in the United States and the European
Economic Area, increasing costs for managing residuals in these regions. In
addition, environmental regulations are requiring firms to provide beneficial
reuse solutions. Incineration, landfilling, land application and producing
compost are becoming the only
52
<PAGE> 58
available disposal options in many countries and have inspired a number of new
disposal and reuse technologies. These options are themselves the subject of
increasingly stringent environmental regulation. Certain applications can turn
biosolids from waste into a substance that can be sold as soil conditioner or
that can be burned as fuel. These technologies create a product with market
value and provide an environmentally attractive alternative to the increasingly
expensive and scarce disposal options of incineration and landfilling.
Residuals management companies provide services to local and state
agencies, municipalities and private companies. Specific services include the
transportation, treatment, site monitoring, disposal and environmental
regulatory compliance services associated with biosolids and wastewater
disposal. These companies provide a variety of residuals management options to
prospective customers who seek alternative methods of biosolid treatment. Not
all methods can be profitably and practically applied in all geographic areas
due to the specific nature of the terrain and agriculture in the region and the
local biosolid content.
We estimate that 55% of biosolids produced in the United States are
recycled, and we anticipate that recycling of biosolids will continue to grow
over the next decade. As recycled uses of biosolids continue to increase, we
believe that larger and more sophisticated companies will have opportunities to
create value through economies of scale and scope by providing new solutions to
these problems.
UNDERGROUND INFRASTRUCTURE REMEDIATION AND DEVELOPMENT. We estimate that
over half of the approximately $275 billion of capital that the EPA estimates
will be spent in the United States during the next 20 years will be spent on
repairing, replacing and developing the nation's underground water and
wastewater infrastructure.
Much of the cost associated with the repair, replacement and development of
underground infrastructure is attributable to the lost revenues resulting from
the disruption of service associated with open cut excavation. During the past
decade, advances in the oil and natural gas industry have been used in the water
industry, enabling the repair of underground infrastructure without open cut
excavation. Trenchless technologies such as horizontal drilling, tunneling,
grouting and pipe lining enable the repair and replacement of water
infrastructure with a fraction of the disruption associated with traditional
open cut excavation.
Currently, small local civil engineering firms and contractors perform most
of the trenchless underground infrastructure work. As the size of these projects
grows and the capital requirements and sophistication of these newer
technologies increase, we believe larger, better capitalized and more
sophisticated firms who hold experience in the oil and gas industry will have a
competitive advantage in obtaining this business. We expect that the underground
water and wastewater infrastructure market for the municipal market in the
United States will grow during the next decade.
WATER RESOURCE DEVELOPMENT AND MANAGEMENT
We believe that the management of aquifers and other water resources and
the storage and transportation of water offer important opportunities for
business development. In many regions of the world, such as parts of North and
South America, the Middle East and many island nations, lack of abundant water
resources is a critical issue. Governments, which historically have been
responsible for developing and managing water resources, are now seeking private
sector assistance to address their water resource issues due to the operational,
technical and financial expertise required to operate, build and fund these
capital intensive projects.
In many countries, including the United States and China, water consumption
is mainly driven by patterns of population movements and industrial and urban
development. In parts of the United States, increases in water demand resulting
from large population shifts to the sunbelt, multi-year droughts and
irrigation-intensive agriculture have resulted in consumption that exceeds the
natural rate of replenishment. This has led to large scale diversions of surface
water through dams and reservoirs and to diminished groundwater supply. In
China, rapid economic growth in the Southern provinces (primarily the Guandong
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and the Shanghai areas) has significantly increased demand for water.
Drinking-quality water now used in agriculture may need to be diverted to
population centers.
In light of these factors, industry participants are focusing new efforts
on means of extracting, managing, storing and transporting water resources as
efficiently as possible. The large amount of capital required and the inability
of local governments to fund these needs compound the difficulties in developing
and managing water resources. Transporting water over long distances to urban
areas requires canals, aqueducts, underground pipelines and/or pumping stations.
These are typically large infrastructure projects requiring significant
development, construction, operational and financial expertise.
COMPETITION
Participants in the global water market face significant challenges,
including qualifying for the bidding process, obtaining and demonstrating
operating experience and management depth, accessing capital, obtaining and
demonstrating expertise in managing international infrastructure projects,
identifying and evaluating transactions and assessing and mitigating risks,
especially operational, political and regulatory risks. As a result, only a
small number of companies currently compete globally in the water and wastewater
privatization market.
Two French companies, Suez Lyonnaise des Eaux and Compagnie Generale des
Eaux, a subsidiary of Vivendi, currently are recognized as the leading
competitors in the international water and wastewater market. According to Suez
Lyonnaise des Eaux, it serves an aggregate population of approximately 77
million for water and 52 million for wastewater. According to Vivendi, Compagnie
Generale des Eaux serves an aggregate population of approximately 80 million for
water and 30 million for wastewater. These two companies are significantly
larger than the next group of international competitors, the largest of which
serves an aggregate population of approximately 32 million. These smaller
competitors include privatized water and wastewater companies from the United
Kingdom and some smaller French and Spanish companies. We are a new competitor
in the international water and wastewater market, and we currently serve an
aggregate population of approximately four million. Some construction companies
also bid on water and wastewater projects, more often on build-own-transfer
projects than on concessions.
In the United States, the water and wastewater industry is highly
fragmented, with over 55,000 public and private water entities serving
approximately 90% of the nation's population. Of this number, approximately
31,000 are investor owned and the rest are publicly owned, generally by local
municipalities. Most of these entities serve only a single community or region.
Only eight publicly traded water and wastewater companies have market
capitalizations over $200 million, and only three have market capitalizations
over $500 million. Several of these publicly traded companies have become active
consolidators by acquiring the small private and public investor owned utilities
that operate in markets contiguous to or near their own. Of the three largest
consolidators, none has more than a 3% market share in the United States, and
these three combined serve only 6% of the nation's customers. In addition,
several electric utilities have begun to acquire municipally owned water
distribution companies in the United States. Many companies compete in the
United States for municipal service contracts and industrial outsourcing
opportunities, including subsidiaries of the French and U.K. water companies.
In the United Kingdom, the water industry has achieved approximately 98%
population coverage. The 10 water and wastewater authorities in England and
Wales were privatized in 1989 to form 10 water and wastewater companies
operating in geographically discrete regions. Wessex has a virtual monopoly over
water supply and wastewater services in its licensed region, with the exception
of the cities of Bristol and Bournemouth and a small area of rural Wiltshire,
where three companies provide water and Wessex provides wastewater services.
There is some limited direct competition. For example, other companies may apply
to the industry regulator for a so-called "inset appointment" to serve
particular areas within Wessex's or any other licensee's service area. Inset
appointments may be granted for the supply of water and wastewater services to
Wessex's customers using in excess of 250 megaliters of water per year. Inset
appointments may also be granted for "greenfield sites," which are areas
previously not served by existing companies, or where an incumbent water company
consents to change its boundary to allow part of its
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area to be transferred to another company or potential company. Historically,
very few inset appointments have been granted in England and Wales. This may
change in the future as the U.K. Government and the Director General of Water
Services seek to increase competition. The Director has announced a future work
program that includes new initiatives to extend competition. These include
lowering the threshold for inset appointments, promoting competition in new
connections, facilitating common carriage and use of competition law powers.
Wessex does have one inset appointment within its territory resulting from the
privatization of water supply activities formerly provided by the Ministry of
Defence. Wessex chose not to pursue this project because of unacceptable
contract terms. The Chancellor of the Exchequer announced in March 1999 that the
Government intends to study ways to increase competition in the United Kingdom's
water sector. We cannot predict what changes, if any, the Government will adopt
to promote competition. See "-- Existing Azurix Assets -- Wessex" and
"Regulatory Matters -- U.K. Regulatory Matters -- Changes to Regulatory Regime."
OUR COMPETITIVE STRENGTHS
We have several competitive strengths that should enable us to compete
successfully in the global water industry.
EXPERIENCED MANAGEMENT AND BUSINESS DEVELOPMENT TEAMS
Although our company was recently formed, we have a group of experienced
managers from long-established companies, including Enron, other multinational
companies, Wessex and other water and wastewater companies. Our management team
has extensive experience in competing for, developing and operating
infrastructure projects worldwide and years of experience in managing water and
wastewater companies primarily in the United Kingdom and also in the United
States. Many of our executives were actively involved in developing and managing
natural gas and power projects for Enron in the United States and around the
world. Enron is one of the world's leading integrated natural gas and
electricity companies with a market capitalization of approximately $28 billion.
Rebecca Mark, chairman and chief executive officer of Azurix and a vice chairman
of Enron, leads the Azurix team in implementing its global water strategy.
During her tenure at Enron, Ms. Mark was responsible for the successful
development of natural gas and power projects worldwide. Beginning with Enron's
first international power project in Teesside, England in 1989, Ms. Mark led the
team that developed gas and power projects around the world with total estimated
capital costs exceeding $10 billion.
Our senior executives are complemented by a group of experienced business
developers who identify opportunities in the global water industry. We believe
that the collective experience of our management and business development teams
will enable us to compete successfully for public tenders. Since our formation,
we have qualified for bidding on numerous pending privatizations in Europe,
Latin America and the Middle East. Of the 14 privatizations in which we have
actively participated, only one final award has been made. In this bid for the
concession in Valparaiso, Chile, we were second to the winning bidder. We were
recently notified that, subject to final confirmation, we will be awarded
concessions for two regions of the Province of Buenos Aires, Argentina. We are
also currently one of the three finalists for the partial privatization of the
Berlin, Germany water and wastewater system. In addition, we have successfully
identified and closed the privately negotiated Cancun and Philip Utilities
transactions.
Our management team will build upon its extensive experience and knowledge
from Enron, Wessex, other water and wastewater systems and other multinational
companies to provide us with the necessary skills to compete effectively in the
global water industry. Although most of our management team's experience in the
water and wastewater industry has been primarily in the United Kingdom and the
United States, we believe that our management team has the requisite operating
experience and management depth to identify and evaluate potential water and
wastewater projects, to qualify for bidding on projects in
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many countries throughout the world, to access capital and to develop and manage
projects. Our management team has the ability to:
- Mobilize the array of resources needed to enter competitive bids for
concessions tendered in privatizations
- Develop projects requiring construction of new facilities in developed
and emerging countries
- Meet the challenges of "fast-track" projects to be brought on-line within
12 to 18 months
- Execute major acquisitions
- Operate regulated companies, including managing their tariff and other
regulatory issues
- Apply innovative financing and risk management strategies in markets
worldwide
We expect to apply many of the same disciplined techniques to analyze
projects and mitigate risks that Enron has developed in its own worldwide
activities. In identifying and quantifying the risks and value of a transaction,
these processes require an analysis of the engineering, operational, regulatory,
financial, economic, structural, legal, insurance, tax and accounting
implications of the transaction. These analytical skills will competitively
position us in the identification, evaluation, development, financing and
acquisition of worldwide water and wastewater projects and in the provision of
associated services.
WESSEX OPERATING EXPERIENCE AND TECHNICAL EXPERTISE
From Wessex, we have obtained the operating experience, research skills and
technical expertise necessary to evaluate potential water projects, to qualify
for bidding on water projects in many countries throughout the world, to build
transition and operating teams for new acquisitions and to manage existing and
new water assets. Wessex supplies approximately 400 million liters of water per
day to a population of approximately 1.1 million and treats on average 484
million liters of wastewater per day from a population of approximately 2.5
million. In December 1998, the water industry regulator for England and Wales
rated Wessex the most efficiently operated privatized water and wastewater
company. Wessex's management team has been in place since the privatization of
the U.K. water industry in 1989. For a discussion of Wessex, see "-- Existing
Azurix Assets -- Wessex."
Wessex uses advanced treatment techniques, increased automation of
operations and services and state-of-the-art control and monitoring systems that
are designed to ensure consistently high standards at low cost. Since its
privatization, Wessex has improved levels of quality and standards of service,
providing reliable water supplies without requiring any water usage
restrictions. It has delivered this high quality service while reducing
operating costs and delivering capital improvements below budgeted amounts. In
addition, Wessex has developed extensive performance data that will be used for
benchmarking purposes in Azurix's operations around the world.
We will also benefit from Wessex's experience with meeting mandated capital
expenditure targets through the use of standard designs, the cost-effective
management of major projects and in-house process and concept design. In
addition, the use of local contractors and detail designers as well as
appropriate technology and efficient procurement are key factors in capital
expenditure management that have benefited Wessex in the past. During the 1990s,
Wessex has successfully managed a $2.0 billion investment program on time and
below the price allowed by regulation. Current regulatory reports show Wessex as
having among the lowest unit costs and achieving the second highest return on
capital of the water and wastewater companies in the United Kingdom.
We will apply Wessex's operational and capital expenditure management
skills in our global water business. We believe many of these skills are
transferable to other water and wastewater assets or services we will acquire or
manage.
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REGULATORY AND GOVERNMENT AFFAIRS EXPERTISE
Our management team has extensive experience in working with regulators and
other governmental agencies. For example, our executives include:
- The executive and regulatory team from Wessex, which has operated for 10
years in the U.K.'s privatized water sector
- The former general manager of the Metropolitan Water District of Southern
California, which through its 27 member public agencies provides almost
60% of the water used by nearly 16 million people living in portions of
Los Angeles and southern California
- A director of the Azurix regulatory team, who has 25 years of regulatory
experience in electricity, gas and water, both in the United States and
internationally
- Executives and lawyers who have worked on private projects and
distribution systems in the gas and electric sectors in Argentina,
Brazil, China, Colombia, Croatia, Germany, India, Italy, Malaysia, the
Philippines, Poland, the United Kingdom and the United States, among
other countries
These members of our management team have extensive government affairs
experience and have often been involved in building relationships with local and
national governments and advising these governments on how to structure their
privatization process and regulatory regime to encourage foreign investment. In
some cases, they have direct experience in the countries and even the regions or
municipalities where we will pursue projects and operate assets, sometimes
working with the same governmental officials who may make decisions regarding
water and wastewater privatizations.
As governments around the world turn to the private sector to fill their
water needs, they will draw on examples of successful privatizations in the
water sector elsewhere and, if applicable, in gas and electric sectors in their
own country. For example, the United Kingdom's privatizations of its electric
and gas sectors already has served as a model for many countries' privatizations
of those sectors, specifically, Argentina, Brazil, Chile and Colombia. We
believe governments will look to the U.K. model in water as well, and through
Wessex we are very familiar with that regime. For example, the recent water
privatization in Chile follows a national regulatory regime like the United
Kingdom, which adheres to the principles of incentive-based regulations.
Although the methods of calculating rates of return are slightly different, the
core principles remain the same. As another example, highly successful
build-own-transfer projects and privatizations of gas and electric distribution
networks have occurred in Argentina, Brazil, China, Colombia, Germany, Eastern
Europe, India and the Philippines. As those countries look for precedents in
water and wastewater, they will turn to many of the projects and systems on
which our executives previously have worked.
Although we believe that the regulatory and government affairs expertise
demonstrated by our management team in electricity and gas is transferable to
water and wastewater privatizations, there are some differences between the
sectors. Because water is an essential good affected by health, safety and
environmental issues, regulation of water is more influenced by socioeconomic
and welfare pressures than electricity and gas regulation. In addition, water
and wastewater utilities are typically vertically integrated natural monopolies,
often owned by a public entity, and subject to greater regulation than electric
and gas utilities which are more often privately held and subject to greater
competition. Finally, water and wastewater businesses are more often regulated
at a local or regional level, as compared to national regulation, than
electricity and gas.
Despite these differences, we believe that the experience of our management
team in the fundamental aspects of regulation and privatization is transferable
to water and wastewater privatizations.
FINANCING EXPERTISE
Access to capital is essential in the global water business due to its
significant financial requirements. We plan to employ sophisticated financing
techniques and instruments similar to those successfully used by members of our
management team in other infrastructure-intensive businesses. Our executives
have
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experience in raising large amounts of capital through the capital markets and
through innovative financing structures. In addition, the team brings experience
in attracting private equity capital and using this capital to enhance the
borrowing capacity of our projects and to achieve greater returns for equity
holders. In financing a project through debt, we may enhance returns by placing
a portion of the debt at the level of the holding company created to own a
particular concession or facility. As our portfolio grows and matures, we also
intend to enhance our equity returns and reduce overall risk exposure through
opportunistic sales of all or a portion of individual assets or investments. In
addition, our management has experience in applying financing techniques
familiar to the domestic infrastructure market, such as leveraged leases, to
international markets.
Many of our executives have developed extensive contacts and experience in
the global financial market. We intend to work together with multilateral
agencies such as the World Bank, International Finance Corporation, the
Inter-American Development Bank, the European Bank for Reconstruction and
Development and the Overseas Private Investment Corporation.
We intend to apply our financial expertise and skills to the global water
industry to lower the cost of capital for our projects and acquisitions.
OUR BUSINESS STRATEGY
Our business strategy is focused on three complementary areas in the global
water industry:
- Acquiring, owning, operating and managing water and wastewater assets
- Providing water and wastewater related services, including operations,
management and engineering, residuals management, and underground
infrastructure development and remediation services
- Developing and managing water resources
Our participation in each of these areas should allow us to satisfy the
needs of a full spectrum of water and wastewater customers. The particular
characteristics of each market as well as customer needs that vary by region and
market will drive our approach to developing these business lines and providing
creative solutions to water and wastewater needs in those markets.
ACQUIRING, OWNING, OPERATING AND MANAGING WATER AND WASTEWATER ASSETS
ACQUIRING WATER AND WASTEWATER ASSETS. We intend to build a diversified
portfolio of water and wastewater assets, including both established businesses
with stable returns and concessions and projects in emerging markets with
significant development requirements and potential for growth and enhanced
returns. We intend to consider acquisitions of privately owned water and
wastewater assets throughout the world with predictable contractual or regulated
revenue streams that will complement our portfolio and strengthen our
competitive position in the global water industry.
We intend to acquire water and wastewater assets through participation in
public tenders and privately negotiated transactions throughout the world,
including Europe, North America, Latin America, the Caribbean, the Middle East,
Africa, Asia and the Pacific Rim. As the trend toward privatization continues,
we expect new opportunities to materialize around the world. See "-- The Global
Water Industry -- Trend Toward Government Outsourcing Through Private Sector
Privatization."
We intend to target opportunities where there is potential for increased
returns and where we can draw on the experience of our management team in
regulatory and rate case analysis, political risk assessment, country-specific
project development and water infrastructure operation. In some instances, we
may join with other parties, including local entities, in acquiring or bidding
on assets. We will evaluate potential projects and acquisitions based on a
variety of financial, strategic, regulatory and operational factors and utilize
our sophisticated financial, legal and tax analysis capabilities to determine
the appropriate acquisition and ownership structure designed to minimize risks.
From inception, the analysis of potential acquisitions will be staffed by our
employees with assistance from affiliated companies and
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external experts as needed. We expect to work with Enron's extensive network of
offices and businesses around the world in identifying and pursuing potential
water and wastewater and service opportunities.
We carefully evaluate each project to assess its value. First, we conduct a
due diligence review, identifying and quantifying the specific risks of the
transaction. We then measure and manage these risks by preparing a detailed
financial projection containing elements that we believe may affect the project
materially throughout its economic life. We forecast inflation rates and, where
applicable, changes in foreign exchange rates. We test projections for debt
capacity, terms and rates along with an evaluation of local and world financial
markets to assure the accuracy of our assumptions relating to capital costs. We
quantify all other assumptions from the internal and external team of experts to
forecast costs and revenues in the transaction. We then run multiple
simulations, testing for various sensitivities and producing an analysis of the
return on capital, adjusted for the risk of the specific project.
Each of Azurix Europe and Wessex is a party to various credit facilities
and loan agreements with restrictive covenants. We do not believe that these
existing credit facilities will impair our ability to carry out our business
strategy. Although the senior credit facility places restrictions on Azurix
Europe's ability to engage in mergers, acquisitions or asset sales, it does not
place any such restrictions on Azurix. This senior credit facility specifically
permits Azurix Europe to lend funds to other subsidiaries or affiliates of
Azurix for the purpose of making investments in, or acquisitions of, water or
wastewater related assets or businesses around the world. In addition, the other
existing credit facilities and loan agreements do not prohibit Azurix from
engaging in mergers, acquisitions or asset sales. In addition, these agreements
do not hinder Azurix's ability to incur indebtedness at the Azurix level or
incur project specific indebtedness with the borrowing capacity generated from
the cash flows of future acquisitions. See "Description of
Indebtedness -- Indebtedness of Azurix Europe."
Enron and Azurix have entered into a business opportunities agreement that
limits the businesses that we may pursue. The agreement allows us, only with
Enron's consent, to engage in businesses outside the water and wastewater
industries, or in which water and wastewater is not expected to generate the
major component of value. This agreement thus limits our ability to pursue
potentially profitable ventures that are not clearly in the water and wastewater
sector, even though those opportunities come to our attention on account of our
activities in water and wastewater. See "Transactions with Enron, Atlantic Water
Trust and Marlin Water Trust -- Agreement Regarding Business Opportunities and
Related Matters."
OWNING, OPERATING AND MANAGING WATER AND WASTEWATER ASSETS. To ensure a
smooth transition and to introduce more efficient working practices in the
concessions and businesses we acquire and the start-up of new facilities we
construct, we will send specialist transition teams of experienced staff with a
full range of skills. Existing employees of Wessex, including over 300
engineers, scientists and other specialists, will be made available to operate
our assets, especially during critical periods of takeover or start-up. We
intend to use the systems and working methods that Wessex successfully employed
to increase productivity and reduce costs.
Following an acquisition of a water or wastewater asset, we intend to:
- Enhance income by extending services and increasing operating revenues
- Reduce operating costs and capital expenditures through better management
and procurement strategy
- Increase efficiency through the use of technology and management
information systems
- Apply innovative financing techniques and sound financial and risk
management techniques
Revenue Enhancements. Water and wastewater systems offer many opportunities
to increase operating revenues. For example, we might expand the number of
customers connected, while more efficiently managing the capital expenditures
required to serve them. New customers could result from inherent population
growth or migration to urban areas in the service territory. Another operating
revenue enhancement is the effective use of water meters. Many water systems
around the world do not use water
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meters. By installing meters where appropriate, we could track water demand more
effectively and allocate water resources and service teams more efficiently.
Where permitted, we will shorten billing periods, which expedites receipt of
operating revenues and increases their collectibility. We will also apply more
sophisticated billing technology to assure that customers are being billed and
delinquent accounts are being pursued. Through improved service and better
community relations, we expect to reduce uncollectibles.
Cost Containment Strategies. Our experience at Wessex helps us identify
ways to control expenditures in operating our water and wastewater systems and
facilities worldwide. These techniques are highly transferable from one location
to another. In particular, we intend to:
- Use sophisticated tracking and monitoring equipment to reduce water
losses from leakage and theft
- Reorganize the workforce to improve productivity
- Procure equipment, chemicals and ancillary services more cost effectively
- Shorten construction periods
We expect that these value-added strategies will allow us to realize
attractive returns on our global water industry investments. Whether responding
to a tender or negotiating a contract directly, we expect to combine our
experience from the concessions and projects we already have with our financing
skills to offer a highly competitive price and, once we acquire an asset, to
serve our customers efficiently and effectively.
PROVIDING MUNICIPAL AND INDUSTRIAL SERVICES
We intend to provide a broad range of cost-effective services to owners of
water and wastewater systems in governmental, commercial, industrial and
agricultural markets around the world through innovative technological,
environmental and financial solutions.
Our water related services business will target municipal and industrial
customers, initially in the United States and Europe, that are seeking to
outsource the management of their systems. These customers generally desire a
service provider with the operating experience and capital to provide reliable
water supply and wastewater treatment services and the ability to comply with
more stringent regulatory requirements for water quality and environmental
protection. The current market has few operators that manage a large number of
diverse assets and thus have the skills to compete effectively. By consolidating
contracts for operation and management of treatment facilities and management of
biosolids disposal or reuse through acquisition and growth, we can achieve
economies of scale and operational efficiencies in this business that will allow
us to compete more effectively.
Furthermore, by offering operations, management and engineering, residuals
management and underground infrastructure remediation and development services,
we believe that we will position ourselves to capitalize on privatizations as
they occur. Providing a full range of services represents our primary method for
consolidating municipal outsourcing activities, promotes access to a full range
of governmental clients and allows municipalities to explore all their options
from outsourcing services to full privatization of their systems. Working with
municipal clients will also allow us to understand local markets and identify
attractive systems for acquisition.
DEVELOPING AND MANAGING WATER RESOURCES
We believe the growing demand for drinking water has generated a need for
better management of water resources. We believe that there are significant
capital, technical and operational needs for this area of the water industry and
that governments are increasingly turning to the private sector to manage and
meet these needs. Wessex has recently commenced a trial of aquifer storage and
recovery, which involves injecting drinking water into deep aquifers that act as
natural underground reservoirs. Water put into the aquifer at times of low
demand can be stored for months or years, to be used when demand is high. In
addition, we are pursuing build-own-transfer projects for long-distance
pipelines, aqueducts and reservoirs in the Middle East and other projects to
extract water in Latin America.
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EXISTING AZURIX ASSETS
The following table details operating revenues, operating income (loss) and
identifiable assets by geographic area for Azurix for the respective periods:
<TABLE>
<CAPTION>
JANUARY 29, 1998 AT
TO DECEMBER 31,
DECEMBER 31, 1998 1998
-------------------------- ------------
OPERATING OPERATING IDENTIFIABLE
REVENUES INCOME (LOSS) ASSETS
--------- ------------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
U.S. .......................................... $ -- $(14.7) $ 4.3(1)
England........................................ 112.5 60.5 2,393.5
Switzerland.................................... 7.2 -- 9.3
Argentina...................................... -- (0.2) 73.6
------ ------ --------
Total................................ $119.7 $ 45.6 $2,480.7
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
AT
THREE MONTHS ENDED MARCH 31,
MARCH 31, 1999 1999
-------------------------- ------------
OPERATING OPERATING IDENTIFIABLE
REVENUES INCOME (LOSS) ASSETS
--------- ------------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
U.S. .......................................... $ -- $(13.6) $ 32.3
England........................................ 111.0 53.5 2,373.7
Switzerland.................................... 5.9 (0.5) 8.9
Argentina...................................... -- (0.2) 73.9
Mexico......................................... -- -- 13.5
------ ------ --------
Total................................ $116.9 $ 39.2 $2,502.3
====== ====== ========
</TABLE>
- ---------------
(1) Amount represents leasehold costs and capitalized transaction costs on
active transactions.
WESSEX
Wessex's principal business is providing water supply and wastewater
services in southwestern England through Wessex Water Services Ltd., a wholly
owned subsidiary. In December 1998, the Office of Water Services, the industry
regulator for England and Wales commonly called Ofwat, published its assessment
of relative operating efficiency, which showed Wessex as the most efficiently
operated water and wastewater company under its supervision. Ofwat also has
recognized Wessex for providing among the highest overall standards of service
of water and wastewater companies in the industry. Independent research shows
that over 90% of Wessex's customers consistently rate its service as "excellent"
or "good." During the 1990s, Wessex has successfully managed a $2 billion
investment program on time and below the price allowed by regulation. Wessex's
other principal subsidiary is SC Technology, which conducts business as Swiss
Combi and designs, sells and operates biosolid drying plants.
Much of Wessex's success in delivering high standards efficiently is due to
the investment in and application of the latest technology. Sophisticated
control and planning systems have largely eliminated the need for Wessex's 2,500
installations to be permanently manned. Instead, water supply and wastewater
treatment collection and distribution systems can all be monitored from one
central base. Regular maintenance and response to customer requests or
emergencies are handled through an integrated planning and management system
that ensures rapid response in the most efficient manner.
WESSEX WATER SERVICES. Through Wessex Water Services, Wessex provides water
supply and wastewater services in southwestern England. Wessex has a virtual
monopoly over water supply and wastewater services in its region, with the
exception of the cities of Bristol and Bournemouth and a small area of rural
Wiltshire, where three companies provide only water and Wessex provides
wastewater services.
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The Wessex region covers approximately 10,000 square kilometers and is
predominantly rural. There are two major urban areas in the region, with Bristol
and Bath in the north and Bournemouth and Poole in the south. The largest town
for which Wessex provides water is Poole with a population of approximately
102,000, and the largest town for which Wessex provides wastewater services is
Bristol, with a population of approximately 400,000 (approximately 800,000
including the surrounding area). The region's economy, which is one of the
fastest growing in the United Kingdom, is based on agriculture, financial
services, aerospace, defense establishments and specialist manufacturing.
Water Supply Services. Wessex supplies approximately 400 million liters of
water per day to a population of approximately 1.1 million using its water
infrastructure. The system includes approximately 138 water sources, 128 water
treatment plants, 320 pumping stations, 360 storage reservoirs and 11,000
kilometers of water mains. Wessex serves approximately 510,000 domestic and
commercial locations. Wessex's customer base is approximately 56% residential
and 44% commercial by volume of supply.
Wessex withdraws 78% of its water from underground sources and the
remainder from reservoirs (19%) and rivers (3%). Wessex has a comprehensive
network of storage reservoirs (interlinked by a regional grid), which facilitate
water management during periods of low rainfall. As a result of its strong water
resources, internal grid network and water management, Wessex has not enforced
any restrictions on water usage in the past 22 years. Ofwat has ranked Wessex as
having fewer than average unplanned interruptions to water supply.
Wessex is strengthening its water resources through reductions in leakage
and trials in the use of aquifer storage and recovery. Wessex has reduced
leakage in terms of volume by 20% since 1993. Ofwat sets mandatory targets to
reduce leakage from both company and customer pipes. These targets are reviewed
annually and failure to meet the targets could result in enforcement action.
Wessex intends to reduce leakage by optimizing pressure in its pipes, improving
its response time for repairing leaks and replacing pipes and joints.
The flow in some rivers in Wessex's region is being affected by water being
withdrawn from underground aquifers by Wessex. This problem resulted from the
granting of water withdrawal rights to Wessex's predecessors prior to
privatization. Wessex has taken measures to reduce withdrawals of water and has
given a commitment, subject to available funding, to eliminate low river flows
caused by withdrawals of water by 2010. Wessex may need to develop additional
water resources.
By the end of 1999, Wessex will have invested approximately $700 million in
capital projects related to improvements in its water infrastructure since
privatization in 1989, of which over $400 million will have been invested since
1993. Wessex's water supply network continues to require further investment.
Wessex takes an integrated approach to water quality, based on effective
control and monitoring of treatment and distribution systems. All water
treatment works have continuous automated operation and quality monitors. Wessex
also monitors water quality through a program of regular sampling and analysis.
During the year ended December 31, 1997, Wessex tested approximately 160,000
drinking water samples and achieved 99.9% compliance with the strict U.K. and
European Union standards. Ofwat has ranked Wessex as above average for the
provision of water supplies overall.
Wastewater Services. Wessex treats on average 484 million liters of
wastewater per day from a population of approximately 2.5 million through its
infrastructure of approximately 350 wastewater treatment plants, 1,300 pumping
stations and 15,000 kilometers of sewers. Residential customers account for
approximately 76% of wastewater revenues and commercial customers account for
24%.
Wastewater is collected in the wastewater system and pumped or gravitated
to wastewater treatment plants where the wastewater passes through processes
designed to remove biosolids and purify the wastewater. Following further
processes, Wessex disposes of 83% of its biosolids to agricultural land, uses
12% in landscaping and land reclamation work and disposes of 5% in landfills.
Approximately 20% of biosolids are subjected to an advanced heated drying
treatment at Wessex's major wastewater treatment facility at Avonmouth, near
Bristol. Wessex is currently installing similar drying facilities, referred to
as
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biodriers, at Bournemouth and Weston-super-Mare. A second plant is also planned
for construction in 1999 at Avonmouth.
By the end of 1999, Wessex will have invested approximately $1.3 billion in
capital projects related to improvements in its wastewater infrastructure since
privatization, of which approximately $800 million will have been invested since
1993. Wessex has been upgrading many of its wastewater treatment plants to
comply with European Union legislation. At some of its treatment facilities,
Wessex has introduced advanced filtering technology using membranes, ultraviolet
disinfection and fully enclosed underground plants in connection with the
treatment of wastewater. Wessex's new wastewater treatment plant at Porlock is
the largest operational plant in Europe to use membrane filtering technology to
process wastewater to a state that is virtually bacteria and virus free. Wessex
is building a similar system at Swanage in Dorset.
Wessex's wastewater treatment plants perform well above industry standards.
During the year ended March 31, 1998, Wessex's wastewater treatment plants were
in substantial compliance with applicable discharge standards and 99% of these
plants were in 100% compliance with applicable discharge standards. Wessex is
committed to providing full treatment for all continuous coastal discharges
which impact on recreational waters. Full compliance with European Union bathing
water quality standards in the Wessex region during the period from April to
September 1998 was 91%, and the instances of noncompliance were due primarily to
agricultural runoff and industrial discharges, not Wessex's treatment
operations.
Properties. Wessex manages over 2,500 installations. These include
approximately 138 water sources, 128 water treatment plants, 320 clean water
pumping stations, 360 storage reservoirs, 1,300 wastewater pumping stations and
350 wastewater treatment plants. The following is a list of the five largest
water treatment plants operated by Wessex:
<TABLE>
<CAPTION>
LOCATION CAPACITY
- -------- ------------------------
(MILLION LITERS PER DAY)
<S> <C>
Maundown.................................................... 72
Upton Scudamore............................................. 36
Corfe Mullen................................................ 33
Sturminster Marshall........................................ 30
Durleigh.................................................... 30
</TABLE>
The following is a list of the five largest wastewater treatment plants
operated by Wessex:
<TABLE>
<CAPTION>
ESTIMATED EQUIVALENT
LOCATION POPULATION SERVED
- -------- --------------------
<S> <C>
Bristol (Avonmouth)......................................... 897,000
Holdenhurst................................................. 180,000
Poole....................................................... 159,000
Bath (Saltford)............................................. 109,000
Bridgwater.................................................. 107,000
</TABLE>
Customer Charges. The Director sets limits on the rates Wessex may charge
for its regulated water supply and wastewater treatment businesses, including
the extent of annual rate increases. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Outlook" and "Regulatory
Matters -- U.K. Regulatory Matters."
Charges for water supply and wastewater services are calculated separately
based on the average costs of providing each service for each class of
customers. Currently, approximately 82% of household bills are calculated in
part on the basis of the ratable value of the property, a valuation which was
used by local governments to set municipal charges until April 1, 1990, rather
than their usage. The remaining 18% of household customers pay based on metered
water usage. Where a customer receives a metered water supply, wastewater
services charges are based on the volume of water supplied. Wessex offers free
meter installation service to all its customers and, as a result, the level of
metering in Wessex's territory is above the industry average in the United
Kingdom. New properties will be subject to metering.
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Charges are generally set on a standard tariff basis. Charges for bulk
supplies of water are usually determined on an individual basis, as are charges
for some larger commercial water supplies and some industrial wastewater. The
charging basis for bulk supplies in some cases provides for annual recalculation
by reference to the expenditure associated with the supply. Wastewater from
industrial users is normally charged on a formula basis taking account of the
volume of wastewater, its strength and costs of removal and treatment.
In November 1998, following public consultation in April, the U.K.
Government announced new legislation to regulate water charging in England and
Wales. The proposed legislation is currently before the U.K. Parliament and
would grant domestic customers the right:
- To resist water metering in their current homes where they are not using
water for non-essential purposes
- To have a free meter installed if they wish to have one, where this is
practicable
- Where they have taken up the right to have a free meter installed, to
revert to an unmetered basis of charging within 12 months if they so
choose
Prior to this legislation, Wessex already had implemented a free metering
program with a right to revert. In addition, the proposed legislation would
enable the U.K. Government to:
- Protect vulnerable customers with high essential water use, who live in
homes with meters, from higher than average water bills
- Prevent water companies from disconnecting domestic customers for
non-payment
- Require companies to cease using rateable property values as a basis for
unmeasured charging
- Grant new powers for the Director to approve charging schemes, taking
account of guidance from the Secretary of State
A review of the customer charges of Wessex is in process and new price
limits will apply from April 1, 2000. See "Risk Factors -- Water and wastewater
companies face price and other regulation that could reduce our operating
revenues," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Outlook" and "Regulatory Matters -- U.K. Regulatory
Matters."
SC TECHNOLOGY. In 1996, Wessex acquired SC Technology, which does business
under the name of Swiss Combi. Based in Switzerland, SC Technology is one of the
leading biosolid drying companies in the world. SC Technology designs, sells and
operates environmentally sound biosolid drying processes and markets recycled
biosolids for agriculture and land reclamation. SC Technology currently has
approximately 40 plants completed or under construction, located in more than
ten countries, primarily in Western Europe.
Volumes of biosolids are increasing worldwide. Historically, these
biosolids were supplied to farmers or disposed of at sea. Wessex believes that
the ban imposed on disposal of biosolids at sea, together with concerns from
food retailers about the recycling of untreated biosolids over agricultural land
and air pollution problems resulting from the incineration of biosolids, make
the biosolid drying process an attractive method of biosolid disposal for the
future. The Swiss Combi process uses a contained drying system to produce
pasteurized dried granules that are odor free and easy to handle and transport.
The granules, known as biogran, have a much lower bacterial count than digested
biosolids and can be safely sold as a soil conditioner or fuel.
MENDOZA, ARGENTINA
In May 1998, Enron, in a consortium co-led by SAUR, a French water company,
successfully bid to acquire a controlling interest in Obras Sanitarias Mendoza
S.A., a privatized company that holds a 95-year exclusive concession to provide
water and wastewater services to the majority of the Province of Mendoza,
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Argentina. Enron has contributed to Azurix its 32.1% interest in Obras
Sanitarias Mendoza, the concession holder. SAUR also owns a 32.1% interest in
the concession holder, local private investors own a 3.3% interest, Italgas owns
a 2.5% interest, employees own a 10.0% interest and the Province of Mendoza owns
the remaining 20.0%. Obras Sanitarias Mendoza is currently operated by SAUR
under an operations agreement and is governed by a five-member board of
directors, two of which have been appointed by Azurix.
The concession is located in the desert bordering Chile at the base of the
Andes mountains. Its service territory covers six municipalities. The Mendoza
area has a strong economy and is one of Argentina's fastest growing provinces.
Per capita revenue is among the highest in Argentina due to the petroleum and
mining industry activity in the area, and per capita water usage is among the
highest in the hemisphere.
The concession holder is charged with operating, maintaining and upgrading
its 10 drinking water plants and 17 wastewater treatment plants as well as
associated distribution and collection networks to Mendoza. Obras Sanitarias
Mendoza serves over one million water customers and has 285,000 water
connections. Obras Sanitarias Mendoza provides wastewater services to 883,000
people and has 210,000 wastewater connections. The concession contract requires
Obras Sanitarias Mendoza to expand the water and wastewater connections in the
concession area over the next 10 to 15 years. Through 2015, approximately $180
million is expected to be spent on new connections, new water and wastewater
treatment facilities and system improvements. Obras Sanitarias Mendoza's assets
include raw water transportation pipelines and aqueducts, drinking water
treatment plants and other general assets.
Neither SAUR nor Azurix has any obligation to contribute further capital to
Obras Sanitarias Mendoza. However, in May 1999, each of SAUR and Azurix agreed
to loan $2.25 million to Obras Sanitarias Mendoza to fund working capital. The
loan to be made by Azurix bears interest at a rate of 6.98% per annum and
matures on July 20, 1999.
Water supply comes primarily from the regional river, Rio Mendoza. The
surface water feeds by gravity to treatment plants. The remaining groundwater
comes from approximately 160 wells. Obras Sanitarias Mendoza uses four large
lagoon systems to provide the majority of wastewater treatment within the
concession area. Average billing is approximately $30 bi-monthly for water and
wastewater.
Obras Sanitarias Mendoza is required to meet standards of service
established by the special purpose regulatory body known as Ente Provincial de
Agua y Saneamiento and to make appropriate arrangements for the improvement and
extension of service. The standards of service include quality and availability
requirements and were initially set by the concession contract. Each year, the
operator must submit an annual report that will specify, among other things,
Obras Sanitarias Mendoza's progress with respect to its plan of operation and
expansion.
Obras Sanitarias Mendoza must pay the Province a yearly royalty based on
net operating revenues collected. This royalty is equal to 3.85% of net
operating revenues collected in the first five years of the concession and 9.98%
thereafter.
The concession may be terminated for fault of the concession holder under
any of the following circumstances:
- Repeated failure to provide service as required by the concession
contract
- Repeated violation of applicable environmental regulations
- Unjustified delays in completion of the then-current plan of operation
and expansion
- Willful withholding of information from the environmental regulator
- Failure to maintain adequate performance bonds
- Any change in the corporate structure of the concession holder or the
operator without the prior approval of the Province
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The Province can undertake the partial or complete termination of the
concession for noncompliance with the terms of this contract or for public
interest reasons. In the event of a termination for public interest reasons, the
Province must compensate the concession holder for its lost investment. Obras
Sanitarias Mendoza believes it is in compliance with the concession contract in
all material respects. As the concession holder, Obras Sanitarias Mendoza would
be liable for any claims or damages, environmental or otherwise, relating to
this concession. As a shareholder, we believe that our potential liability is
limited to our investment in the concession holder.
CANCUN, MEXICO
On March 24, 1999, we acquired for $13.5 million a 49.9% economic interest
in and the right to manage and operate the water and wastewater treatment
concession for Cancun and Isla Mujeres, Mexico. Desarrollos Hidraulicos de
Cancun, S.A. de C.V. is the concessionaire that holds the concession. Affiliates
of one of the former shareholders, Grupo Mexicano de Desarrollo, S.A., own an
aggregate 50.1% economic interest in the concessionaire. On February 25, 1999,
we lent the concessionaire $15 million to permit it to retire a portion of its
indebtedness, and we may make additional loans of up to $10 million to initiate
improvements in the wastewater treatment system.
The concession was initially granted on the condition that the
concessionaire would invest capital in projects to provide services under the
concession. As a result of the devaluation of the Mexican peso in 1994, the
concessionaire was unable to meet some of its investment obligations and the
government of the State of Quintana Roo in August 1996 designated the state
regulatory authority, known as CAPA, to operate the concession. In February
1997, Grupo Mexicano and the concessionaire agreed with the state government
that, as a condition to reassuming operation of and retaining the concession,
the concessionaire would make the necessary investments and form an association
with an experienced operator of water concessions. In general, the parties
involved agreed on the following:
- The concessionaire would be responsible for adjusting its financial
statements and making pertinent payments in order to show financial
stability and sustainability
- The concessionaire and CAPA would review the capital expenditure program
for the period 1997-2000 and would implement it immediately after
approval
- The parties would reconstruct the concession agreement and develop a new
one with the National Water Commission (Comision Nacional de Agua) acting
as a mediator
The cost to the concessionaire for these investments is estimated at $44
million over the next five years. The concessionaire is required to pay to the
State of Quintana Roo an annual concession fee of 7.5 million pesos (in 1993
pesos), adjusted annually in accordance with changes in the Mexican consumer
price index. The concession extends to October 2023.
At the end of the concession term, and any extensions, the concessionaire
will be required to deliver to the government at no cost the facilities and
equipment used to provide services under the concession. The concession may be
revoked by the government in the event of a breach of the concession terms if
the concessionaire does not present a program to cure the breach within 30 days
of notice of default. The concession can be terminated if the concessionaire is
bankrupt, insolvent, liquidated or dissolved. The concession may also be revoked
upon the transfer of part or all of the concessionaire's rights under the
concession without government approval or if the concessionaire does not
maintain a performance bond in an amount equal to 10% of annual operating
revenues for the prior year.
Based on figures available at the date of acquisition, the concessionaire
serves a population of approximately 390,000 through 73,000 connections. An
estimated 65% of the concession's operating revenues are derived from the supply
of drinking water to tourist hotels, whose operating revenues are primarily U.S.
dollar based.
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The operations and tariffs for water and wastewater systems in the State of
Quintana Roo are regulated by CAPA. The water tariff paid by the hotels and
commercial and industrial customers is adjusted monthly according to the change
in Mexico's consumer price index as published by the Mexican government. In
addition, the concession provides that the rate paid by the hotels will be
increased in the event of a variation of the Mexican peso/U.S. dollar exchange
rate in excess of 15% due to a short-term event. The remainder of operating
revenues come from residential and public services drinking water supply and
from wastewater services. Residential drinking water rates are adjusted annually
with changes in the Mexican minimum wage established by the minimum wage
commission. Currently, less than 40% of the wastewater in the Cancun urban zone
that is collected is being treated.
The tariff rates, which vary according to the customer class, resulted in
an average billed consumption of 7.95 pesos per cubic meter of water consumed in
1998. Operating revenues and expenses of the concessionaire in 1998 were 205
million pesos ($22.0 million) and 164 million pesos ($17.7 million),
respectively. Operating income in 1998 was 40 million pesos ($4.4 million).
These figures are estimated by management and have not been audited. The U.S.
dollar amounts have been translated based on the April 30, 1999 exchange rate of
9.3 pesos to one U.S. dollar.
We have three seats on the board of directors of the concessionaire, while
the 50.1% shareholders have two. We have the right to appoint the chief
executive officer, the chief financial officer and the chief operating officer
of the concessionaire. The 50.1% shareholders have the right to appoint the
chairman of the concessionaire's board and the non-voting board secretary.
Resolutions concerning major corporate actions and governance issues require
supermajority approval.
As the concessionaire, Desarrollos Hidraulicos would be liable for any
claims or damages, environmental or otherwise, relating to this concession. We
believe that our potential liability is limited to our investment in the
concessionaire.
PHILIP UTILITIES MANAGEMENT CORPORATION
On May 18, 1999, we purchased all of the stock of Philip Utilities
Management Corporation, a water and wastewater services company headquartered in
Hamilton, Ontario, Canada. We paid an adjusted purchase price of $106.3 million
in cash, approximately 68% to Philip Services Corporation and approximately 32%
to Ontario Teachers' Pension Plan Board. Under the share purchase agreement,
Philip Services and Ontario Teachers have indemnified Azurix for the breach of
any of the sellers' or Philip Utilities' representations, warranties or
covenants made in respect of the purchase. These indemnities are limited to
claims in excess of $50,000, after the first $1,000,000 of such claims has been
absorbed by Azurix, up to an aggregate limit of $10,000,000. In addition, the
sellers prorated indemnification obligations with respect to breaches by Philip
Utilities based upon their respective share ownership of Philip Utilities.
Philip Utilities operates facilities in three of the ten provinces of
Canada, with a concentration of operations in Ontario, and in the United States
in the states of Arizona, Florida, Georgia, Louisiana, Maine, New Jersey, Texas
and Washington. In calendar year 1998, Philip Utilities had operating revenues
of approximately $100 million. The following is a discussion of Philip
Utilities' business operations.
OPERATIONS, MANAGEMENT AND ENGINEERING. Philip Utilities' operations,
management and engineering business is divided along two business lines,
including contract operations and engineering and automation.
Contract Operations. Philip Utilities' contract operations division
contributes approximately 30% of its operating revenues. Philip Utilities'
largest contract operation projects are in Hamilton-Wentworth, Ontario and
Seattle, Washington. In 1994, Philip Utilities won the contract to operate and
maintain the 192 million-gallon-per-day water treatment facility and the 110
million-gallon-per-day wastewater treatment facility of the regional
municipality of Hamilton-Wentworth. Under the operations agreement, Philip
Utilities receives an adjustable flat fee plus a portion of any cost savings
realized under the contract. Services provided under the operations agreement
include the day-to-day operation, maintenance, repair, and permitting and
compliance of the facility.
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Under the terms of the plant operations agreement between
Hamilton-Wentworth and Philip Utilities, Hamilton-Wentworth pays an annual fee
to Philip Utilities equal to an agreed upon base budget and adjusted for
inflation, salary and wage increases, insurance costs, ash, sludge and grit
disposal costs and increases in Philip Utilities' cost of corporate overhead. In
addition, Hamilton-Wentworth shares in approximately 40% of actual annual costs
savings over the base budget amount by reducing the annual fee due to Philip
Utilities. Under the first four years of the plant operations agreement,
Hamilton-Wentworth paid annual fees to Philip Utilities CN$15.4 million in 1995,
CN$15.6 million in 1996, CN$16.0 in 1997 and CN$15.8 million in 1998.
Philip Utilities' second largest contract operation project is the design,
build and operate contract for the 120 million-gallon-per-day Tolt River
Treatment Facility that is currently under construction in Seattle, Washington.
In 1996, Philip Utilities teamed with the engineering firm of Camp Dresser &
McKee, Inc. to win this 15-year contract, which is renewable by the City of
Seattle for two additional periods of five years each. CDM Philip, Inc., an
80%-owned subsidiary of Philip Utilities, receives approximately $74.8 million
in design and construction fees. CDM Philip subcontracted the design/build
portion of the contract to Dillingham Construction, N.A., Inc. for approximately
$63 million. Construction of the Tolt River plant is currently on schedule, with
the facility scheduled to commence operations in December 2000. Once operations
have commenced, CDM Philip is entitled to an annual service fee of approximately
$1.7 million, subject to modification for incentive bonuses, pass-through costs
and other adjustments.
Engineering and Automation. Philip Utilities' engineering and automation
activities are based in Ontario and Atlanta, Georgia. Philip Utilities provides
plant design, construction, project management, and process design and
engineering services primarily for municipal customers and other Philip
Utilities operations. Philip Utilities also provides process automation and
instrumentation services including design, assembly, testing and installation of
supervisory control and data acquisition systems and other computer control
technologies primarily for municipal customers. Philip Utilities' engineering
and automation activities contributed approximately 12% of its operating
revenues in 1998.
RESIDUALS MANAGEMENT. Residuals management accounted for approximately 16%
of Philip Utilities' operating revenues in 1998. Philip Utilities' residuals
management division is comprised of three complementary operations that apply
dewatering and land application methods to residuals management:
- Trimax Residuals Management, Inc. primarily serves the municipal water
and wastewater sector, with the majority of its operating revenues
derived from dredging and removing water from sewage lagoons and tanks.
Trimax is headquartered in Edmonton, Alberta and conducts operations in
the United States and Canada. Major contracts are held with the Greater
Vancouver Regional District and the cities of San Diego and Detroit, as
well as several pulp and paper companies. Trimax has built its business
around a mobile water removal technology that provides a great deal of
flexibility and versatility in the marketplace. The product of this
process is a manageable biosolid that is typically disposed of through
land application. Trimax accounted for approximately 63% of Philip
Utilities' residuals management operating revenues in 1998.
- Braemar Acres Limited processes industrial wastewater and municipal
biosolids for disposal through land application. Braemar Acres,
headquartered in Ontario, has existing operations that are principally
located within the province of Ontario and include disposal of lime
sludge for a sugar manufacturer, processing of paper sludge for five of
the six pulp and paper companies in eastern Ontario, waste food organics
recycling, and biosolids for the Hamilton-Wentworth facilities and the
city of Niagara, Ontario. Braemar Acres accounted for approximately 10%
of Philip Utilities' residuals management operating revenues in 1998.
- Enviroganics of Texas, Inc. is a Houston-based company that provides
wastewater biosolids management and residuals management services to over
165 wastewater treatment facilities in Texas. Enviroganics' services
include removal and processing of biosolids, on-site mobile water
removal, operation of customer's processing equipment and hauling and
disposal through land
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application of biosolids. Services are typically rendered under purchase
orders instead of long-term contracts. Enviroganics accounted for
approximately 25% of Philip Utilities' residuals management operating
revenues in 1998.
UNDERGROUND INFRASTRUCTURE REMEDIATION AND DEVELOPMENT. Philip Utilities
offers a wide range of underground asset management services to customers in the
United States and Canada. These services include closed circuit television
inspection and location mapping, as well as pipeline repair and rehabilitation.
Since 1996, Philip Utilities has focused on migrating from traditional pipe
rehabilitation to trenchless technologies. Philip Utilities employs a variety of
trenchless technologies for which it holds licenses in various geographic
territories. Among these licensed products are epoxy resins, polyurethane
fold-and-form pipe, a roll-down pipe product, two cured-in-place products and a
spot repair system. The underground infrastructure division contributed
approximately 40% of Philip Utilities' operating revenues in 1998.
OWNERSHIP OF WATER AND WASTEWATER ASSETS. In addition to its outsourcing
operations, Philip Utilities owns two utilities that serve approximately 3,000
end use customers in suburban areas around Houston, Texas: Southwest Utilities,
Inc. and Walker Water Works, Inc. These two utilities own and operate both water
and wastewater treatment services and are regulated by the Texas Natural
Resource Conservation Commission and the Environmental Protection Agency. This
is Philip Utilities' smallest division and contributed approximately 2% of its
operating revenues in 1998.
PENDING ACQUISITION
On May 14, 1999, we submitted bids for two of the three regions of the
water and wastewater system operated by Administracion General de Obras
Sanitarias Buenos Aires in the Province of Buenos Aires, Argentina. On May 18,
1999, the provincial government notified us that we were the prevailing bidder
on both of the regions for which we bid at a price of $438.6 million. Assuming
final confirmation by the province, the schedule calls for us to assume
operation of these systems on June 18, 1999.
Azurix initially will own 90% of the concessionaire, with employees owning
10%. A consortium of local electric cooperatives has agreed to acquire a 1.2%
interest for $5 million, with an option to increase its interest to up to 10%
within approximately six months following our assumption of operations.
The Province of Buenos Aires surrounds the Argentine capital city. It is
the country's largest province, with a total population of approximately 13.5
million. The provincial water and wastewater administration currently serves a
population of approximately 3.8 million, with municipalities serving the
remainder of the population having water or wastewater service. The two regions
we are to acquire have a total population of approximately 2.0 million and
approximately 450,000 water or wastewater customers. They include the provincial
capital of La Plata and the large industrial city of Bahia Blanca. We expect to
be able to expand operations to surrounding municipalities and to offer
industrial customers cost-effective alternatives.
These concessions last for 30 years and require the concessionaire to
complete a specified investment plan that we estimate will cost approximately $1
billion. The concessionaire must commit to increase water and wastewater
coverage over a 10-year period in percentages varying from region to region. It
also must increase metering, which is at low levels or nonexistent in some of
these regions. The concession agreement provides penalties for failure to
achieve the investment plan on time, although relief is available if the delay
is due to complications in obtaining work licenses through local municipalities.
The concessionaire is responsible for complying with all environmental and
water quality standards, with a grace period at the beginning of the concession
term. Serious or repeated violations of the concession contract, the regulatory
law or the supervisory agency's decisions could permit the provincial government
to terminate the concession. The concessionaire may use existing assets, which
remain the property of the province, but will own improvements made to the
system. We expect that approximately 1,200 employees of the provincial system
will be transferred to the concessionaire for these regions.
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The Organismo Regulador Bonarense de Aguas y Saneamiento, a newly formed
unit of the provincial Ministry of Public Works, will regulate the collection,
purification, transportation and distribution of potable water and the
collection, treatment, disposal and marketing of wastewater, including
industrial effluents. The agency's jurisdiction also includes setting tariffs
and regulating the extraction and use of common water sources.
Initially, the tariff will remain the same as was in effect prior to
privatization. The first tariff review is expected around the third year
following the privatization. The tariff then is to be reviewed every five years
in light of the five-year program of investment. The concessionaire or the
regulator may ask for an increase or reduction if consumer cost indices change
by more than 3% or if there are material changes in Argentine tax law, other
than value added tax or income tax, changes in water quality standards or
environmental regulations or substantial changes in the condition of the
concession. Both the concession contract and the governing law provide that
tariff modifications may not be used to penalize the concessionaire if it
operates more efficiently than expected. The concessionaire is required to
provide lower rates to specified users, including retired persons with low
income, care centers for the elderly and for physically challenged children,
public schools, public sports facilities and libraries.
UPCOMING PRIVATIZATION BIDS
We are currently pursuing two large upcoming privatizations, which are
expected to be awarded in the second quarter of 1999. There can be no assurance
that we will win these bids or that the timing, size and terms of these bids
will not change.
BERLIN, GERMANY
The government of the German State of Berlin, which includes the capital
plus some surrounding suburbs, received bids in March 1999 for a 49.9% interest
in its water and wastewater system. The Berlin system is the largest system
currently being privatized in the world, serving a population of approximately
3.4 million and having gross revenues of $1.04 billion and net revenues of $35
million in 1998, according to the audited financial statements that the
government has provided. The government originally announced that it hoped to
receive a minimum of 2.0 billion German deutsche marks ($1.1 billion) for this
49.9% interest.
The Berlin company has established a series of subsidiaries in recent
years. The main subsidiaries include a waste-to-energy facility that gasifies a
wide range of residual and waste materials, a local telecommunications operator
that operates a data network and targets users such as the media,
telecommunications companies, internet providers or power utilities and a
service company that plans, builds, operates and finances drinking water supply
systems and municipal and industrial wastewater treatment plants, as well as
wastewater systems.
A consortium led by Azurix is one of the three consortia that the
government has selected with which to negotiate a possible sale. If successful,
Azurix would obtain an interest of 25.0% and a financial institution 24.9%, with
Azurix controlling the major decisions of the consortium. The government has
stated that it intends to make the award no later than June 1999, although there
is no assurance this sale will be awarded at such time or that the Azurix led
consortium will win the bid.
SANTIAGO, CHILE
Azurix has qualified to bid on the proposed sale of an interest in Empresa
Metropolitana de Obras Sanitarias, S.A., the state-owned water and wastewater
concession company for Chile's capital city of Santiago and adjoining suburbs.
Bids currently are due June 11, 1999, and are expected to exceed $400 million.
Through a shareholders agreement, the winner of the bid will have effective
control of the concession company. In order to achieve the objectives of the
privatization law, the government cannot own more than 50% of the concession
company's shares after the closing. It is expected that the winning bidder
ultimately will own 35% to 52%, depending on whether and to what extent the
government, existing
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minority shareholders and other investors exercise rights to subscribe for new
shares during the first 14 months following closing.
The Santiago company is the largest water and wastewater company in Chile,
representing approximately 35% of the total market in the country. Total
population in the concession area is approximately 5.1 million. Virtually all
households in the concession area have water service and approximately 97% have
wastewater collection service.
The established regulatory system provides for a return based on a cost of
capital equal to the readjustable long-term instruments of Chile's Central Bank
plus a premium of 3.0% to 3.5%, but the total may never be less than 7%. The
tariff is revised every five years, but is calculated against a model company.
The concessionaire retains the benefits of more efficient operations. Publicly
available reports on the concession company show the company's operating margin
averaged 40% over the past five years with a collection rate of approximately
98%. However, only 3% of wastewater is treated, and environmental laws and the
mandated development plan will require investment in wastewater treatment.
Estimated capital expenditures of approximately $650 million will be needed
during the first five years after closing.
Each bidder must notify the privatization agency by June 1, 1999 whether it
is participating in a consortium and, if so, the members of that consortium. We
are in discussions regarding a possible consortium in which we would have at
least a 50% interest, though a definitive arrangement has not yet been agreed.
The bidding rules permit a member of a consortium that has also qualified on its
own to bid on its own or as a member of a consortium, although that may not be
permitted under its consortium agreement depending on its terms.
SUPPLIERS
We intend to achieve economies of scale in buying goods and services. In
addition, we expect to centralize purchasing arrangements to reduce costs and
improve quality. Wessex's only significant supplier of goods or services is
SEEBOARD plc, a subsidiary of CSW Corporation, which supplies electricity to
approximately 100 of Wessex's sites. Wessex pays approximately $6.4 million per
year, which represents approximately 5% of Wessex's annual operating costs. The
contract was effective October 1, 1997 and runs for two years. The price is
based upon a negotiated pence amount per kilowatt hour for each site. Wessex is
not dependent on any single supplier, including SEEBOARD, because its supplies
are readily available from alternative sources at market rates and on similar
terms. Except for SC Technology, which supplies biodriers to Wessex, and Enron,
which provides services under a services agreement with Azurix, none of Wessex's
suppliers is affiliated with it.
RESEARCH AND DEVELOPMENT
Since our formation, we have established a link with the Water Research
Centre, which is conducting a U.K. industry-wide research and development
program that currently invests approximately $6.6 million each year in research
programs. The Water Research Centre is internationally renowned as the market
leader in water and wastewater technology. We will have a research department
based within the Water Research Centre at Swindon in the United Kingdom. The
Water Research Centre will also provide us with a service to monitor the
development of water and wastewater technologies across the world and with the
opportunity to access, and, when appropriate, invest in new technologies. Wessex
contributes approximately $160,000 per year to this program.
Wessex carries out its own research and development to improve the
reliability and effectiveness of its treatment systems. In-house research and
development projects include development of a mobile filter for wastewater
treatment and disinfection and membrane filtering technology. Wessex has spent
approximately $1.6 million on these two project areas in the last three years. A
third major project area is pasteurization of wastewater biosolids using the
Swiss Combi heated drying technique. Wessex has spent approximately $640,000
over the last three years in this area.
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EMPLOYEES
As of May 21, 1999, we had approximately 165 employees, excluding employees
of Wessex. As of May 21, 1999, Wessex had approximately 1,440 employees, which
includes approximately 50 employees at SC Technology. As part of its efforts to
improve operating efficiencies, Wessex has reduced the number of its employees
by approximately 500 employees since March 31, 1993, primarily through attrition
and voluntary retirement packages.
INSURANCE
We believe that our insurance arrangements, including self-insurance, are
customary for the industry and are adequate. Wessex, Mendoza and Cancun have
separate locally underwritten insurance policies covering employers liability,
public and products liability, excess public and products liability and their
motor fleets. Enron's corporate insurance program covers the direct exposures of
Azurix and the indirect exposures to Azurix from its less than wholly owned
subsidiaries, to the extent not covered by the subsidiaries' policies. Following
the offering, Azurix will continue to participate in Enron's corporate insurance
program. In the future, Azurix may establish a separate program for Azurix and
Azurix's subsidiaries.
LEGAL PROCEEDINGS
There are no legal or arbitration proceedings, including any that are
pending or threatened, of which we are aware that if adversely determined would
have a material adverse effect on our financial position, liquidity or results
of operations.
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REGULATORY MATTERS
The following is a summary of regulatory matters relating to water and
wastewater operations in the United Kingdom, Argentina, Mexico, the United
States and Canada.
In general, most countries where we have invested, or intend to consider
investments, have drinking water quality and environmental laws and regulations.
We intend to invest in companies or projects that operate in material compliance
with drinking water quality and environmental laws and regulations. However, we
cannot guarantee that the due diligence we perform in advance of investing in an
entity will identify any or all noncompliance with environmental laws and
regulations by such entities.
Because the supply of clean drinking water and the treatment of wastewater
are essential societal needs, we anticipate that these activities will be
subject to at least some form of regulation wherever we do business. The nature
and extent of environmental laws and regulations vary from country to country,
and there may be wide disparities in the requirements from one part of the world
where we do business to another. Generally speaking, compliance with these laws
and regulations is mandatory and penalties, as well as injunctive and other
relief, are usually available in the event of noncompliance. Moreover, these
laws and regulations may require improvements to water and wastewater systems
that will require additional capital and operating costs for us to remain in
compliance.
Changes in the nature of these laws and regulations, or in the level of
their enforcement, also have the potential to impact adversely our financial
results during the relevant period. These adverse impacts could cause our actual
financial results to differ materially from those we project, forecast, estimate
or budget. Moreover, changes in these laws and regulations may require
improvements in order to remain in compliance that can result in additional
capital and operating costs.
Wessex has established a comprehensive environmental auditing program that
is designed to provide early identification of potential environmental problems
associated with its activities and to provide reasonable assurance that all
identified problems are properly and promptly addressed. We expect to use the
environmental auditing capabilities already established within Wessex to
evaluate potential environmental and other regulatory risks that may be
associated with water and wastewater systems, companies and concessions in which
we may invest. We will also use these capabilities to monitor environmental and
other regulatory compliance in all water and wastewater systems, companies and
concessions in which Azurix or one of its subsidiaries takes an active
management role. Despite the demonstrated effectiveness of this environmental
auditing program with respect to Wessex's operations, there can be no assurance
that this approach will be adequate to address and manage all such risks
associated with our business.
Where we operate water or wastewater companies serving end-users, we can
expect to be subject to regulation on the rates we may charge. The regulatory
regime will vary from jurisdiction to jurisdiction, but can be expected to
resemble in some respects the regime in place in the United Kingdom, Argentina,
Mexico, the United States and Canada.
U.K. REGULATORY MATTERS
The economic aspects of the water industry in England and Wales are
principally regulated under the provisions of the Water Industry Act 1991.
Following privatization of the U.K. water industry, each of the water and
wastewater companies became regulated through a license and the regulatory
provisions of the Water Industry Act 1991 and regulations and orders thereunder.
The license designates the relevant company as a water and/or wastewater
undertaker in its own area and provides for the monitoring of the company's
performance by the Director General for Water Services and the Secretary of
State for the Environment. The Water Industry Act 1991 imposes duties on the
Secretary of State and the Director as to how and when they should exercise
their functions under the Act. In particular, their primary duties are to
exercise their functions in the manner each considers best calculated to secure
that licensees properly carry out and are able to finance their functions,
including by securing reasonable returns on their capital. Subject to these
primary duties, the Secretary of State and the Director have other duties,
including
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protecting customers' interests, promoting efficiency and economy by licensees
and facilitating competition. Therefore, in setting limits on the prices that
water and wastewater companies may charge, the Director is currently required to
allow companies a projected rate of return sufficient to finance their
operations and attract the capital necessary for investments in infrastructures
required to meet environmental and other regulatory standards. The actual rates
of return achieved by individual companies can vary significantly from the
projected rates of return assumed by the Director in setting prices.
Each water company is under a general duty to develop and maintain an
efficient and economical system of water supply within its license area and is
subject to duties of water supply. Each wastewater company is under a general
duty to provide, improve and extend a system of public sewers and to maintain
those sewers to ensure that its sewerage region is effectively drained. In
addition, discharges from wastewater treatment plants must be licensed by the
Environment Agency, and wastewater companies are responsible for regulating
discharges of industrial wastewater into sewers. Contamination caused by
wastewater discharged from a treatment plant may subject the wastewater company
to liability, including clean-up costs.
Among his functions, the Director has powers to determine terms where
Wessex and the customer cannot agree. These include terms for, and requiring,
bulk supplies of water, the provisions of water for non-domestic purposes and
the connection of sewers and the reception, treatment and disposal of industrial
wastewater to public sewers. The Director is responsible for ensuring that water
and wastewater companies comply with their license conditions. Subject to a
power of veto by the Secretary of State for the Environment, conditions may be
modified by the Director with the consent of the licensee. Before making the
modifications, the Director must publish the proposed modifications as part of a
consultation process, giving third parties the opportunity to make
representations and objections that the Director must consider. In the absence
of consent, the only means by which the Director currently can secure a
modification is following a modification reference by him to the U.K.
Competition Commission. The Commission is required to investigate and report on
whether matters specified in the reference operate or may be expected to operate
against the public interest and, if so, whether the adverse public interest
effect of those matters could be remedied or prevented by modification of the
conditions of the license. If the Commission gives an adverse finding, it will
state in its report whether any adverse effects on the public interest could be
remedied or prevented by modification of the license. The Director must then
make such modifications as appear to him necessary for the purpose of preventing
the adverse effects specified in the report after giving due notice and
consideration to any representations or objections. The Secretary of State would
have the power, among others, to modify the conditions of the license if, on
investigation, under the Fair Trading Act 1973, the Commission concluded that
matters investigated by it in relation to water or wastewater services operated
against the public interest.
A license may also be revoked or transferred to another company in
circumstances specified under law or in the license. These circumstances include
the failure to comply with an enforcement order made by the Secretary of State
for the Environment or the Director or the inability of the relevant water and
wastewater company to pay its debts.
WESSEX WATER SERVICES' LICENSE
Wessex's license continues indefinitely, or until such time as the
Secretary of State revokes Wessex's license after ten years' advance notice. The
effective date of revocation, under the terms of Wessex's license, cannot occur
prior to 2014. If at any time Wessex becomes insolvent or it is determined that
Wessex has committed such a serious violation of its duties so as to make it
inappropriate for it to continue to hold the license, the Secretary of State or,
with his consent, the Director, may seek a special administration order, under
the terms of which Wessex's affairs, business and property may be transferred to
another company to ensure that Wessex's appointed functions can be carried out.
In either event, the legislation provides for Wessex's assets to be transferred
to the new replacement appointee on terms approved by the Director or the
Secretary of State, including the consideration to be paid by the new appointee.
The special administration provisions in effect subordinate members' and
creditors' rights to the achievement of the purposes of the special
administration order. The license sets out the charging formula
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imposed on Wessex, which is subject to review every five years. The formula is
tied to the retail price index plus an adjustment factor, which can be positive,
zero or negative. The adjustment factor is set by the Director on a case-by-case
basis for each company at the review to bring the companies in line with the
target rate of return set by the Director. The license also regulates the fees
that Wessex may charge new customers upon connecting them to the water or
wastewater network for the first time. Wessex must fix and publicize its rates
for the provision of water and wastewater services and for first-time provision
of water supply and wastewater services and must not discriminate against any
individual or class of customer with respect to charges.
Wessex is required to maintain sufficient financial and managerial
resources to carry out the appointed business and necessary investment. The
license requires it to publish separate accounts showing its regulated business
separately from all other businesses and activities and additional accounts
prepared on a current-cost basis with respect to the same period. Regulated
businesses, such as Wessex, are subject to business practices limitations, such
as restrictions on cross-subsidies, that restrict affiliate dealings and promote
competitive contracting. The license also requires Wessex to put in place
financial structures protecting a sufficient amount of its assets so that its
water and wastewater services could still be provided in the event of Wessex's
insolvency.
Wessex's license includes service targets that are monitored by the
industry regulator. The license also requires Wessex to pay annual fees, based
on Wessex's revenues, which are intended to cover the costs of the regulation of
the water industry. In 1998, Wessex paid approximately $665,000 in such fees.
The license has been modified as a condition of regulatory clearance of
Azurix's acquisition of Wessex to address regulatory concerns arising out of the
acquisition. In particular, the modification strengthens the financial
independence and independent management of Wessex Water Services' regulated
business, providing water supply and wastewater services, by imposing the
following:
- Restrictions on transfers of assets, guarantees, intercompany loans and
loans containing cross-default provisions
- A requirement that transactions with associated companies must be entered
into on an arm's length basis at market rates
- A requirement to maintain an investment grade rating for corporate debt
of Wessex Water Services
- A requirement that Wessex issue a variable-coupon bond by December 31,
2000 and use its reasonable efforts to list such bonds on the London
Stock Exchange
- A requirement that information be published similar to that of a public
company
The license as modified also requires a dividend policy to be agreed upon
with the Director that ensures that Wessex Water Services retains sufficient
funds to finance its core activities and which should be expected to reward
efficiency and the management of economic risk. The license also requires Wessex
Water Services to conduct its regulated business as if a separate public limited
company. In addition, Wessex is obligated to obtain undertakings from its
ultimate parent company. If those undertakings are not, at any time, in place or
if there is an unremedied breach of them, then, in addition to potential
enforcement action, Wessex may not, without the Director's consent, enter into
any contract with its parent. To comply with this obligation, Azurix Europe and
Atlantic Water Trust have given a holding company undertaking that requires,
among other things, that Azurix Europe and Atlantic Water Trust give Wessex
Water Services all information necessary for it to carry out its obligations and
refrain from action that would cause Wessex Water Services to breach its
obligations. This undertaking also provides that the board of Wessex Water
Services must include at least three independent non-executive directors of
standing and relevant experience.
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TARIFF RATES
The Director regulates prices and service levels. Price controls applicable
to each water and wastewater company are subject to reviews by the Director
every five years, known as periodic reviews, but both the Director and the
individual company may seek an interim determination to adjust price limits
between the periodic reviews in limited circumstances.
Unlike "rate of return" economic regulation, such as exists for many U.S.
industries, regulation in the United Kingdom generally uses forms of "price
limitation." This is intended to reward companies for efficiency and quality of
service to customers. The U.K. regulatory system generally allows companies to
retain for a period any savings attributable to efficiencies that they are able
to achieve. These are then passed on to customers in lower price limits in the
next periodic review. The main instrument of economic regulation is a price
limitation formula set out in each company's license. This formula limits
average charges made by water and wastewater companies for a basket of principal
regulated services. The limit is expressed as a percentage change by reference
to the retail price index. This adjustment can be positive, zero or negative and
is determined in light of past operational efficiencies, assumed future
operational efficiencies, investments to meet water quality standards,
expenditures to enhance security of supply and service levels and maintain
assets and an appropriate return on capital.
During the last periodic review, completed in July 1994, the Director
developed a structure for determining adjustment factors based on a matrix of
purpose and cost categories. The purpose categories are comprised of base
service provisions, the maintenance of existing levels of service, as well as
enhanced service levels, the water supply/demand balance and obligatory quality
enhancements. The limits on Wessex's real price changes, i.e., in addition to
the retail price index, resulting from the 1994 periodic review were +1.5% for
each year until March 31, 2000.
The Director is currently conducting a periodic review, to conclude in
November 1999, when he will set new price limits for the period from April 1,
2000 to March 31, 2005. As part of the current review process, on October 29,
1998, the Director published a consultation paper setting out proposed ranges
for bills for the period from 2000 to 2005. The Director has confirmed that, on
the basis of past efficiencies achieved by water companies and evolving views
about the cost of capital, he expects substantial price reductions in April
2000. However, the U.K. Government has recently proposed a five-year program of
mandatory capital expenditures by the water companies aimed at quality and
environmental improvements. This program is estimated to cost the industry L8
billion, or approximately $13.3 billion, in the aggregate over the five years.
In setting the new price adjustment factor, the Director will make an allowance
for the investment needed to meet new quality and environmental obligations.
The Director proposed, in the case of Wessex, that expected average
household bills, in real terms, could be over 17.5% lower in 2000-2001 than in
the previous year, but that bills overall would rise, by 2004-2005, to a level
exhibiting only a small reduction compared with the expected 1999-2000 bill.
This would constitute a material increase in prices following the one-time
reduction in 2000-2001. The Director's proposal preceded, and therefore did not
take into account, the recent capital expenditure proposals of the U.K.
Government. The Director has invited views on whether the one-time reduction is
appropriate or whether the initial reduction could be modified so that bills
could be broadly stable over the five-year period. The Director's estimates for
future bills assume that the scope for efficiency savings across the industry in
operating costs could vary between 2% and 4% a year, and that for capital
expenditures, the average overall scope for efficiency is between 10% and 15%
over the five-year period. They also assumed a post-tax cost of capital of 5.25%
for all but the smaller companies, although the Director more recently has
suggested a figure of around 4.75% may be more appropriate.
The Director held formal meetings with each of the water and wastewater
companies during January and February 1999 to discuss the issues raised by a
proposed price reduction including the responses of the public. In its April
1999 business plan filed with the Director, Wessex proposed stable prices from
1999-2000 to 2000-2001, with prices gradually increasing to 18% higher than
current levels in 2005, primarily to fund capital expenditures mandated by the
new environmental standards. The business plan will be considered by the
Director as part of the periodic review. The Director has stated that he will
publish his
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draft determination of new price limits to run from 2000 to 2005 in July 1999,
with his final decisions made in November 1999. These may differ materially from
his original proposal. If a company disagrees with the Director's price
determination, it may challenge his proposal by requesting a reference to the
Competition Commission. On such a reference the determination of the Commission
will be final. Although we are unable to predict the precise outcome of the
current U.K. periodic review, if Wessex were required to cut its prices as
originally proposed by the Director, Wessex's regulated operating revenues,
which represent approximately 90% of total operating revenues, would be reduced
by approximately 17.5% compared to 1999-2000 and its earnings would be reduced
materially. However, we would not expect that this would have a material adverse
effect on Azurix's financial position. At the time of the acquisition of Wessex,
we took into consideration the pending rate review in our valuation of Wessex.
CHANGES TO REGULATORY REGIME
On June 30, 1997, the U.K. Government launched a review of the framework
for the regulation of all utilities, and in March 1998 set out its proposals in
a consultation paper. In July 1998, following the consultation, the U.K.
Government published its response. Among other things, it suggested that:
- Consumer protection should be the Director's primary duty, achieved
wherever possible and appropriate through promoting effective
competition, but also taking into account the need to ensure that
regulated companies are able to finance the carrying out of their
functions.
- There should be consumer representative bodies to promote consumer
interests.
- A clearer link should be made between the prices utilities may charge and
the customer service standards they achieve.
- Full information should be available on companies' performance on
customer service standards and on the links between this performance and
the remuneration of directors.
- Ministers should issue statutory guidance on social and environmental
objectives.
On publishing the response, the Secretary of State for Trade and Industry
stated an intention to introduce legislation to implement the proposals as soon
as parliamentary time permits. In his March 1999 Budget Speech, the Chancellor
of the Exchequer announced that the Deputy Prime Minister will review
competition in the water industry.
Separately, the Competition Act 1998 will become effective in 2000. This
will, among other things, increase the ability of the UK regulatory authorities,
including the Director in relation to water and wastewater services, to
investigate and take action against anti-competitive agreements and conduct. In
particular, companies found to have violated the new prohibitions of
anti-competitive agreements and abuse of a dominant position may be fined up to
10% of their U.K. turnover. U.K. competition law, in the Fair Trading Act 1973,
also enables monopoly situations, as defined, to be investigated by the
Competition Commission. Where these are found to operate contrary to the public
interest, the Secretary of State has extensive powers to take action to remedy
or prevent those adverse effects, including the power to order businesses to be
divided.
DRINKING WATER QUALITY AND ENVIRONMENTAL REGULATION
The water and wastewater industries in England and Wales are subject to
numerous environmental regulatory requirements under the Water Industry Act
1991, the Water Resources Act 1991 and the Environment Act 1995. The Water
Industry Act 1991 established a new, more extensive and more stringent quality
regime for the water and wastewater industry through the creation of the
National Rivers Authority, since replaced by the Environment Agency, and the
Drinking Water Inspectorate.
Under the Water Industry Act 1991, water supplied for domestic or food
production must be wholesome at the time of supply. The Drinking Water
Inspectorate is responsible for ensuring that water supplies meet this standard
as well as the standards set out in the U.K. Water Quality Regulations. Breach
of these requirements can lead to regulatory or criminal liability if the water
supplied causes loss or
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damage. Water companies are required to carry out statutory sampling of water
supplied to customers and must provide public information on drinking water
quality. The licensed Inspectorate conducts technical audits to assess annually
the quality of the drinking water supplied by the licensed companies. If any
company fails to meet the relevant water quality standards, the Inspectorate may
require it to take any necessary remedial action.
Under the Water Resources Act, the Environment Agency may require persons
to take precautions against pollution, may prohibit or restrict activities
likely to cause pollution in areas designated by the Secretary of State for the
Environment and may issue consents to discharge matter from a drain or sewer.
When reviewing existing consents and issuing new ones, the stated practice of
the Environment Agency is to seek to set conditions at the level required to at
least maintain and, where appropriate, improve the quality of the receiving
waters.
The activities of the U.K. water and wastewater companies are also affected
by the requirements of European Union directives, including the Drinking Water
Directive, the Bathing Waters Directive and the Urban Wastewater Treatment
Directive, each of which has been brought into force in the United Kingdom. The
environmental systems that Wessex has in place are designed to comply with
European Union and U.K. requirements.
In May 1997, the Secretary of State for the Environment announced a review
to examine ways in which environmentally damaging abstractions can be equitably
curtailed. The review will consider arrangements to reduce abstractions under
existing licenses and for revoking licenses in areas where pumping causes
significant environmental damage. He has also announced that the Director will
be setting mandatory targets to reduce leaks from water supplies, which will be
reviewed annually. Failure to meet the targets would carry penalties and could
ultimately lead to a water and wastewater company being put into the hands of an
administrator appointed by the Director. In addition, in March 1999 the U.K.
Government announced that new water abstraction licenses will include time
limits and limits may be imposed on existing licenses.
In view of the age and history of many sites owned by Wessex, Wessex may
incur liability for sites that are found to be contaminated, resulting in
increased costs of managing or cleaning up such sites. Environmental legislation
requires the polluter (or if the polluter cannot be found, the owner or
occupant) of contaminated land to clean up any contamination which causes, or is
likely to cause, significant harm to the environment. Polluters are also
required to clean up any pollution of water sources. Other proposals that may
impose strict liability for environmental damage are also under consideration by
the European Union. Wessex expects that the direction of future changes will be
towards further tightening of controls. However, Wessex does not believe that
any liability that it may incur under environmental legislation or published
European Union directives will have a materially adverse effect on its results
of operations, financial position or liquidity.
ARGENTINE REGULATORY MATTERS
GENERAL REGULATION OF WATER
Argentina has a federal system of government that grants significant
regulatory powers to the provinces. Under the Argentine Constitution, each
province has jurisdiction over its own natural resources, including water, and
the legal power to create standards to protect such resources.
Federal laws apply to areas within national jurisdiction, such as the
federal capital, and to matters which affect the nation as a whole and not
merely one province. At the national level, the Secretariat of Natural Resources
and Sustainable Development is principally responsible for the protection of the
environment, and the Ministry of Health and Social Action is principally
responsible for the protection of public health. The Secretariat of Natural
Resources and Sustainable Development also is responsible for the development
and implementation of national water policy and for establishing priorities of
uses for multiple-use water resources.
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Under the Argentine Constitution, the provision of water services at the
local level generally is within the authority of the provinces and
municipalities. In the Province of Mendoza, for example, the Ministry of Public
Works and the Environment is granted general authority over all non-agricultural
water services, and environmental regulation. Concessions for the provision of
water services are granted by the provincial government by statute and decree,
with oversight vested in the Ministry of Public Works and in a special purpose
regulatory body known as EPAS. Decisions of EPAS may be reviewed by the Minister
of the Ministry of Public Works and the Governor of the Province of Mendoza. In
the Province of Buenos Aires, these duties are carried out by the Organismo
Regulador Bonarense de Aguas y Saneamiento, a unit of that province's Ministry
of Public Works.
REGULATION OF WATER SERVICE AND TARIFF RATES
In Argentina, provision of local water service and tariff rates are
generally controlled by provincial regulatory authorities, through a framework
established by statute and concession contracts. Governmental acts are subject
to judicial review in Argentine courts, but there is no right to appeal
provincial decisions setting tariffs to the Argentine federal government. Where
a water service concession is held by a company substantially owned by a U.S.
company, however, recourse eventually may be available through international
arbitration under the Bilateral Investment Treaty between the United States and
Argentina, which provides for fair and nondiscriminatory treatment of
investments. To date, however, this treaty has not been ratified by Argentina.
The Province of Mendoza provides an example of the process of granting
concessions and setting tariffs on a provincial level in Argentina. In Mendoza,
the basic regulatory framework is established by provincial statutes and
decrees. Within that framework, the local regulatory agency, known as EPAS, and
the Ministry of Public Works regulate the provision of services and the setting
of tariffs.
In Mendoza, tariffs are proposed by EPAS, and then submitted to the
Minister of the Ministry of Public Works, the provincial legislature and the
Governor for approval. EPAS must recommend rate regimes with an aim to reflect
efficient costs of operations, maintenance and expansion and renewal of the
water system, including debt service. EPAS also strives to promote rational and
efficient use of services and resources leading to a balance of supply and
demand, and to address sanitation and social objectives. EPAS is authorized to
establish tariff rates that require some users to pay rates that subsidize the
cost of providing service to other users. Argentine law provides that in setting
tariffs, EPAS must take into account costs of operations, maintenance,
amortization of services and a "reasonable" rate of return for the
concessionaire in the context of an efficient level of operation. The basic
tariff regime is to be reviewed every five years.
The current tariff schedule imposes a fixed monthly charge per customer,
based on a formula which takes into account the customer's land area, types and
size of structures and uses of the land, that normally will remain unchanged
until the new tariff regime is implemented. Changes in current tariffs are
allowed for several enumerated reasons, including if operating costs increase or
decrease by 4% as reflected in official national indices, if there is a change
in the national "convertibility law" which establishes a 1:1 exchange rate of
the peso with the dollar, if there are changes in the capital program due to
government or regulatory reasons or if there are changes in taxes, other than
income taxes.
A new tariff regime is to be implemented in Mendoza within the next several
years based on a metered charge per liter of water used. The concession contract
contains assurances that the concessionaire will receive the same level of
revenue as under the prior regime, thus allowing the concessionaire to retain
efficiency gains and pass through changes in costs. The contract contains no
provision for direct pass-through for inflation or revisions in tariffs for
capital expenditures. The concessionaire may request adjustments to the new
tariff if any of the following occurs:
- The new tariff lowers consumption significantly
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- The concessionaire shows that the new tariff does not promote rational
use of the assets and capital employed for the operations of the company
or does not allow it to carry out the obligations of the company
- The concessionaire shows that most of the benefits of cost reductions are
inuring to consumers
The Province of Buenos Aires employs a similar regime. There, both the
governing law and the concession contract provide that tariff modifications may
not be used to penalize a concessionaire if it operates more efficiently than
expected.
ENVIRONMENTAL MATTERS
Beginning in the early 1990s, Argentina began addressing environmental
matters systematically at the federal level. For instance, in 1991 the Argentine
government enacted a law establishing the Secretariat of the Environment and
calling for a balancing of economic development with the conservation of natural
resources, the improvement of the environment and the prevention and
amelioration of the effects of pollution. In August 1994, the Argentine
Constitution was amended to assure the right of all residents of Argentina to a
healthy environment and granted the Argentine government authority to establish
minimum standards of environmental protection which are to be implemented by the
provinces. The 1994 amendments to the Constitution also provide that damage to
the environment must be repaired immediately in accordance with applicable law,
and prohibit the importation of actually or potentially toxic or radioactive
waste. In 1995, the Argentine government initiated a program to protect the
environment by promulgating rules regarding water, land, air and noise pollution
and hazardous substances.
Throughout Argentina, the provinces take the lead in regulating discharges
of pollutants into waterways. These provinces typically set permissible
standards for pollutant levels in the discharges, issue permits and enforce
them. In Mendoza, wastewater discharges are regulated at the provincial level by
the Ministry of Public Works, which has adopted laws respecting water quality.
As in most provinces in Argentina, the Ministry of Public Works issues permits
and regulates discharges of pollutants into water bodies. In addition, the
concessionaire is required to comply with the drinking water quality standards
set by the concession contract and enforced by EPAS. The Argentine government
can enforce the provisions of the Argentine Civil and Criminal Codes against the
concessionaire.
Most provinces in Argentina have also adopted their own regulations for air
and waste as well. The various provincial laws establish different compliance
and enforcement requirements.
MEXICAN REGULATORY MATTERS
WATER PROVISION ISSUES
Article 27 of the Mexican Constitution reserves water resources to the
nation. Article 115 of the Mexican Constitution places responsibility for
providing public services, including water and wastewater treatment, on the
municipalities with the participation of the state when required by law. The
Ministry of Environment, Natural Resources and Fisheries, through the National
Water Commission, is responsible for:
- Assigning water rights and discharge rights to users and assessing the
relevant fees
- Enforcing water-related environmental regulations
- Planning the efficient development of water resources
- Developing regulatory, legal and financial structures for water
concessions at the municipal level with an emphasis on private
participation
- Providing technical assistance to local water authorities and advising on
project feasibility
- Providing financial support for priority water projects, particularly in
low-income areas
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The states and municipalities are responsible for setting conditions for
concessions and for establishing a tariff structure for all customer groups,
collecting payments from customers and paying the National Water Commission for
use of water rights. The Cancun concession is regulated by Concession Integral
de los Servicos de Agua Potable, Alcantarillado Sanitario y Saneamiento,
referred to as CAPA, an agency of the State of Quintana Roo. One of the
requirements of the concession is that the concessionaire achieve and maintain a
95% connection rate for water and wastewater for the population. Changes to the
connection rate requirement will be subject to the mutual consent of both CAPA
and the concessionaire.
The Governor of the State of Quintana Roo appoints the members of CAPA. If
the Governor is not supportive of the concessionaire, CAPA may be less inclined
to approve concessionaire initiatives and less understanding of problems it
encounters. Azurix believes Desarrollos Hidraulicos, the concessionaire, has
good relations with the state's new governor.
TARIFF RATES
The tariff rates are set by CAPA and are based on the principle of full
recovery of operations and maintenance costs and can be revised to maintain the
economic equilibrium of the concession. There is no provision that tariffs
should provide a return on equity or permit the concessionaire to earn a profit.
Initial tariffs were set when the concessionaire was first awarded the
concession in October 1993. At current levels, the tariffs are sufficient to
cover cost of operations, capital expenditures required under the concession and
return on investment. These expenditures should not necessitate a real tariff
increase over the term of the concession. However, should significant,
unexpected capital expenditures be required, the concessionaire can propose to
CAPA a tariff increase.
CAPA has indicated that it intends to change the tariff rate in the near
term to eliminate the cross-subsidy between water and wastewater. Currently,
wastewater service is charged a flat rate of 20% of the water bill, regardless
of actual usage. This would have the effect of increasing wastewater rates and
reducing water rates. If the concessionaire wants to increase rates in real
terms, it will be required to submit a rate case to CAPA, with supporting
economic and financial documents explaining the reason for the increase. In all
cases, the real rate for the residential and communal customer classes shall not
exceed the combined operation and maintenance costs of supplying those
customers. The concession will be evaluated every five years to determine
whether real tariff increases are justified. However, the concessionaire may
propose real increases at any time, though CAPA's consent must still be
obtained.
Under the terms of the concession amendments, the concessionaire is
permitted to disconnect a customer for non-payment.
ENVIRONMENTAL MATTERS
The concessionaire has represented to Azurix that it is and has been in
compliance with all state and federal environmental standards associated with
the operation of the concession and that there are no outstanding non-compliant
environmental issues with the state and federal agencies associated with the
concession's operation. If the representation made by the concessionaire is
incorrect, then any environmental liability will be a liability of the
concessionaire. In any event, the concessionaire and an affiliate of the former
shareholders must indemnify Azurix up to $300,000.
The wastewater plants operated by the concessionaire are designed to
discharge an effluent containing no more than 30 milligrams per liter of total
suspended solids and biochemical oxygen demand. The Mexican federal quality
criterion for the saltwater injection discharge that is operated by the
concessionaire is 70 milligrams per liter of total suspended solids and
biochemical oxygen demand. With the completion of the plant under construction,
the existing biosolid management system will need to be modified or expanded to
manage the disposal of the additional volume of biosolids that will be produced,
and other environmental systems will need to be reevaluated for ongoing
operations. The majority of the planned capital expenditures is dedicated to the
improvement of the wastewater collection and treatment system,
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and we believe that the amounts planned are sufficient to meet treatment goals
and environmental regulations.
U.S. REGULATORY MATTERS
Philip Utilities, which we acquired on May 18, 1999, has operations in the
United States. The business sectors in which we operate, or intend to operate,
in the United States are generally highly regulated by national, state and local
laws and regulations.
TARIFF RATES
In the United States, the rates for water and wastewater services are
generally subject to state and local laws and regulation. Although the system is
highly fragmented among jurisdictions, most jurisdictions in the United States
utilize "rate of return" economic regulation in setting water and wastewater
rates. Under rate of return economic regulation, the service provider is allowed
to recover its reasonable and necessary operations and maintenance expenses, and
a recovery of and a reasonable return on its invested capital. In most
jurisdictions, a water or wastewater service provider is required to keep a
current set of tariffs on file with the governing regulatory authority. A
service provider generally can charge less than the approved tariffs. Typically,
a service provider cannot change its rates without the approval of the governing
regulatory authority. We can give no assurance regarding our ability to obtain
approvals for rate changes, given the vast number of regulatory authorities with
jurisdiction over water and wastewater service in the United States, and the
fact that decisions regarding rate changes are often subject to political, as
well as economic, factors.
DRINKING WATER QUALITY
The Safe Drinking Water Act directs the EPA to set drinking water standards
for the approximately 55,000 community water supply systems in the United
States. The Safe Drinking Water Act Amendments of 1996 bring important changes
to the regulation and financing of water systems. The amendments have several
potentially significant regulatory initiatives, which include the following:
- Recent adoption of two rules that may require more sophisticated
treatment. First, the disinfectants and disinfection by-products rule,
establishes maximum residual disinfectant levels for chlorination and
maximum contaminant level goals for potentially harmful disinfection
by-products. Second, the enhanced surface water treatment rule focuses on
treatment requirements for waterborne pathogens, particularly
cryptosporidium.
- A requirement that the EPA list 30 previously unregulated contaminants
for monitoring, risk assessment and potential regulation at least once
every five years. The new Act also specifies that the EPA shall study
radon, arsenic and sulfates and propose rulemakings in 1999, 2000 and
2001, respectively, if the EPA determines that these chemicals threaten
the public health. Such a program poses the risk of additional
contaminants being regulated as the EPA implements this research, with
the attendant risks of potentially increased capital and operational
costs.
- Adoption of regulations to reduce lead and copper in drinking water.
Water providers that exceed specified levels of lead and copper in
drinking water may be required to perform additional monitoring and
develop measures to reduce the lead and copper content.
The EPA has other long-term plans to develop regulations governing the
treatment of drinking water, such as the recycling of filter backwash into
influent streams at public utilities and additional groundwater disinfection. It
is unclear what precise form these and other regulations will take, so potential
regulatory risks and costs of compliance cannot be evaluated at this time. As is
true for any drinking water provider, by operating water assets in the United
States, we face the risk that water we will provide could be contaminated,
including for reasons outside our control, and such contamination could expose
us to regulatory sanctions and potential liability for injury to persons and
property.
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ENVIRONMENTAL MATTERS
Among other things, environmental laws and regulations in the United States
generally set requirements for:
- The quality of the discharges from treatment facilities
- The handling and disposal of biosolids from treatment facilities
- The management of associated materials and wastes
- Good housekeeping practices for the management and monitoring of the
operations
We intend to invest in companies or projects that operate in material
compliance with environmental laws and regulations. It is impossible, however,
to predict how the precise regulatory framework governing companies in which we
will invest will operate.
Changes in environmental laws and regulations, or in the level of their
enforcement, may adversely impact our financial results. These adverse impacts
could cause our actual financial results to differ materially from those we
project, forecast, estimate or budget. Moreover, changes in these laws and
regulations may require improvements in order to remain in compliance that can
result in additional capital and operating costs. Environmental protection
statutes in the United States typically provide for the imposition of
substantial civil and criminal penalties, as well as the possibility of permit
revocation and corrective action orders, for violations of their requirements.
These laws may also provide for retroactive, strict liability without regard to
a party's negligence or fault.
The Federal Water Pollution Control Act, known as the "Clean Water Act,"
establishes a system of standards, permits and enforcement procedures for the
discharge of pollutants from industrial and municipal wastewater sources. The
law requires permits for discharges from water treatment facilities and sets
treatment standards for industries and wastewater treatment plants. Discharge
permits issued under the Clean Water Act are subject to renewal once every five
years. When discharge permits are renewed and reissued, it is customary for the
EPA or the state agency issuing the permit to impose more stringent discharge
limitations in the new permit. In addition, the EPA and the states have been
establishing new standards for bodies of water that receive wastewater treatment
plant discharges and these new standards may result in the imposition of more
stringent effluent limitations as discharge permits are renewed. Compliance with
these requirements is monitored closely and the Clean Water Act provides the EPA
with an array of enforcement mechanisms for companies that fail to comply,
including penalties and injunctive relief. Additionally, the EPA has recently
published regulations of the use and disposal of biosolids when they are applied
to land or incinerated. Although controls on biosolid disposal may be tightened,
we believe it unlikely that the EPA would take drastic measures such as banning
the land application of biosolids. Although we cannot predict the nature of
these and other regulations under the Clean Water Act, we do not believe that
such regulations will materially harm our business.
Other U.S. environmental laws and regulations may also impact Azurix. These
include the Clean Air Act, the Resource Conservation and Recovery Act and the
Comprehensive Environmental Response, Compensation and Liability Act. Generally
speaking, responsibility for implementing and enforcing the regulations
promulgated by the EPA under the Clean Air Act and the RCRA rests with
individual states, whereas the CERCLA is administered by the EPA itself. In some
instances, state regulations have established standards that are more demanding
than the federal standards. Although we anticipate that Azurix's industrial
wastewater treatment services business will focus primarily on the operation and
management of on-site wastewater treatment facilities, Azurix may also operate
and manage facilities that receive and treat third party industrial wastewater
that is generated at an off-site location. Biosolids and other residues
resulting from the treatment of industrial wastewater, particularly wastewater
from third party off-site generators, may be subject to classification as
"hazardous waste" under the RCRA and consequently become subject to more
stringent handling and disposal requirements imposed under the RCRA.
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We believe that Azurix possesses the expertise necessary to comply with all
U.S. environmental laws applicable to Azurix's operations. We also expect that
our U.S. operations will be subject to a comprehensive environmental auditing
program similar to the program that Wessex has implemented for operations in the
United Kingdom that is designed to provide early identification of potential
environmental problems and to provide reasonable assurance that identified
problems are properly and promptly addressed. Nevertheless, there can be no
assurance that our operations will comply with all environmental laws at all
times.
CANADIAN REGULATORY MATTERS
Philip Utilities has operations in Canada. Water and wastewater treatment
operations in Canada are subject to comprehensive federal, provincial and local
laws, regulations and guidelines pertaining to the provision of drinking water
and wastewater treatment services, as well as protection of the environment.
These laws and implementing regulations and guidelines establish standards for
the quality and quantity of effluent discharged from wastewater treatment
facilities, the handling and disposal of biosolids and other generated wastes
and materials, and the treatment and distribution of drinking water to
customers. Water and wastewater treatment facilities may only be constructed
after required environmental permits, certificates and approvals have been
obtained from appropriate governmental agencies. These facilities must then be
operated in compliance with the terms and conditions found in those permits,
certificates and approvals. Some Canadian provinces also regulate and control
the quality of drinking water, using standards relating to the design,
construction and operation of water facilities that may be more burdensome than
federal requirements. Moreover, there are extensive federal and provincial laws,
regulations and guidelines relating to the proper management and safe control of
biosolids and other wastes and materials that are accumulated at water or
wastewater treatment facilities and require proper disposal. The failure to
comply with these laws, regulations and guidelines or any applicable permits,
certificates and approvals may result in the assessment of fines, penalties or
administrative orders.
We believe that technical and operating personnel at Azurix possess the
expertise necessary to ensure that any water or wastewater treatment concessions
acquired in Canada will be operated in compliance with applicable Canadian laws,
regulations and guidelines, but there can be no guarantee that these operations
will comply with all environmental laws, regulations and guidelines at all
times. Any new environmental laws, regulations and guidelines, changes to
existing laws, regulations and guidelines, or more stringent terms and
conditions in permits, certificates or approvals relating to facilities we
operate may result in additional regulatory compliance costs that may or may not
be recoverable through rate increases. Nevertheless, we do not expect any new or
changed laws, regulations and guidelines or the modification of any permits,
certificates or approvals to be any more burdensome to the operations of Azurix
than any other water and wastewater treatment services company performing
similar operations in Canada.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information regarding our executive officers
and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rebecca P. Mark...................... 44 Director, Chairman and Chief Executive Officer
Rodney L. Gray....................... 46 Director and Vice Chairman, Finance, Risk
Management and Investments and Chief Financial
Officer
W. Nicholas Hood..................... 63 Director and Vice Chairman
John C. Ale.......................... 45 Executive Director and General Counsel
Alex Kulpecz......................... 45 Executive Director, Europe, Middle East, Asia,
Africa
Amanda K. Martin..................... 38 Executive Director, Americas
Edward N. Robinson................... 53 Executive Director, Strategy and Corporate
Development
Colin F. Skellett.................... 53 Executive Director, Technical and Operating,
Environmental and Safety Services
John H. Duncan....................... 71 Director
Kenneth L. Lay....................... 56 Director
Jeffrey K. Skilling.................. 45 Director
Joseph W. Sutton..................... 51 Director
John Wakeham......................... 66 Director
Herbert S. Winokur, Jr. ............. 55 Director
</TABLE>
Rebecca P. Mark has served as Director, Chairman and Chief Executive
Officer of Azurix since July 1998. Ms. Mark has served as Vice Chairman of Enron
since May 1998, and, until recently, was Chairman of Enron International Inc.
since January 1996 and Chairman and Chief Executive Officer of Enron Development
Corp. since July 1991. She was also Chief Executive Officer of Enron
International from January 1996 to May 1998 and Vice President and Chief
Development Officer of Enron Power Corp. from July 1990 to July 1991. Enron
International Inc., Enron Development Corp. and Enron Power Corp. are wholly
owned subsidiaries of Enron. Ms. Mark is also a Director of Brunswick Corp.
Rodney L. Gray has served as Director of Azurix since July 1998, as Vice
Chairman, Finance, Risk Management and Investments and Chief Financial Officer
of Azurix since November 1998 and Executive Director, Finance, Risk Management
and Investments of Azurix from October 1998 until November 1998. Mr. Gray was
Executive Vice President, Finance of Enron International from January 1997 until
he joined Azurix. In addition, Mr. Gray was Chairman and Chief Executive Officer
of Enron Global Power & Pipelines L.L.C. from June 1995 until November 1997 and
was also President of Enron Global Power & Pipelines L.L.C. from November 1995
to November 1997. Mr. Gray also served as a Managing Director of Enron
Development Corp. from August 1995 through December 1996, as Chairman and Chief
Executive Officer of Enron International from June 1993 to December 1995, and as
Senior Vice President, Finance & Treasurer of Enron from October 1992 through
June 1993. Mr. Gray is also a Director of Harmon Industries Inc.
W. Nicholas Hood has served as Director and Vice Chairman of Azurix since
October 1998 and as Chairman of Wessex since September 1989. From 1987 to 1989,
Mr. Hood served as Chairman of Wessex Water Authority, Wessex's predecessor. He
is Chairman of MHIT plc and is a Non-executive Director of Winterthur Life U.K.
Ltd. and Commercial Union Environment Trust plc, President of the International
Water Services Association and a Member of the Water Training Council. Mr. Hood
is Deputy Chairman
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of Business in the Community, a Member of The Prince's Council, Chairman of
@Bristol and a Director of the Harbourside Foundation and of the Harbourside
Center.
John C. Ale has served as Executive Director and General Counsel of Azurix
since December 1998. Prior to joining Azurix, Mr. Ale was with the law firm of
Vinson & Elkins L.L.P. for more than 17 years, and was a partner for more than
12 years. From December 1996 to October 1998, Mr. Ale served as managing partner
of the London office of Vinson & Elkins. From July 1993 to October 1998, he was
chairman of Vinson & Elkins' project finance and development practice. Prior to
joining Vinson & Elkins, Mr. Ale served as law clerk to the Honorable Warren E.
Burger, then Chief Justice of the United States.
Alex Kulpecz has served as Executive Director, Europe, Middle East, Asia,
Africa of Azurix since September 1998. From October 1995 to September 1998, Mr.
Kulpecz served as Director of Development for Russia, Central/Eastern Europe,
Latin America and Africa for Shell International Gas & Power. Prior to that
time, he led the reorganization teams for Shell International's exploration and
production business in The Hague, acted as Senior Management Liaison for Shell
International's oil and gas production business in Europe and the United Kingdom
and held management positions in the Middle East and the United Kingdom.
Amanda K. Martin has served as Executive Director, Americas of Azurix since
September 1998. Commencing in 1991, Ms. Martin served in various positions with
Enron Capital & Trade Resources Corp., including President of Energy and Finance
Services from January 1998 to September 1998, Managing Director and Vice
President of Business Ventures and Asset Management from September 1996 to
January 1998, Vice President of Business Ventures and Asset Management from
April 1994 to September 1996, and Senior Counsel from March 1993 to April 1994.
Edward N. Robinson has served as Executive Director, Strategy and Corporate
Development of Azurix since November 1998. Prior to joining Azurix, Mr. Robinson
served as Member of the Executive Committee from 1992 to 1998, Executive Vice
President and Manager, The Private Bank, from 1995 to 1998 and Executive Vice
President and Manager, Investment Banking from 1992 to 1994 of Chase Bank of
Texas, formerly Texas Commerce Bank. Mr. Robinson also served as Vice President
and then Director from 1983 to 1989 and Managing Director from 1989 to 1992 of
The First Boston Corporation.
Colin F. Skellett has served as Executive Director, Technical and
Operating, Environmental and Safety Services of Azurix since October 1998 and as
Chief Executive of Wessex since January 1995. Mr. Skellett served as Managing
Director of Wessex from September 1989 to January 1995. Mr. Skellett is also
Chairman of Wessex Water Services Ltd. and is the U.K. representative on the
European Union of National Associations of Water Suppliers and Waste Water
Services.
John H. Duncan has served as Director of Azurix since March 1999. Mr.
Duncan's principal occupation has been investments since 1990. Mr. Duncan is
also a Director of Enron, EOTT Energy Corp., the general partner of EOTT Energy
Partners, L.P., Enron Oil & Gas Company, Chase Bank of Texas, National
Association and Group 1 Automotive Inc.
Kenneth L. Lay has served as Director of Azurix since November 1998. Mr.
Lay has been a Director of Enron since 1985 and a Director of Enron Oil & Gas
Company since 1985. For over five years, Mr. Lay has been Chairman of the Board
and Chief Executive Officer of Enron. Mr. Lay is also a Director of Eli Lilly
and Company, Compaq Computer Corporation, EOTT Energy Corp. and Trust Company of
the West.
Jeffrey K. Skilling has served as Director of Azurix since November 1998.
Mr. Skilling has been a Director of Enron since 1997. Since January 1, 1997, Mr.
Skilling has served as President and Chief Operating Officer of Enron. From June
1995 until December 1996, he served as Chief Executive Officer and Managing
Director of Enron Capital & Trade Resources Corp. From August 1990 until June
1995, Mr. Skilling served Enron Capital & Trade Resources Corp. in a variety of
senior managerial positions.
Joseph W. Sutton has served as Director of Azurix since March 1999. Mr.
Sutton has served as President of Enron International, Inc. since January 1996
and its Chief Executive Officer since May 1998.
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From January 1996 to May 1998, he also served as Enron International's Chief
Operating Officer. From 1995 to January 1996, Mr. Sutton served as President and
Chief Operating Officer and from 1992 to 1995 was a Vice President of Enron
Development Corp. Before joining Enron Development Corp., Mr. Sutton served as a
career officer in the U.S. Army.
John Wakeham has served as a Director of Azurix since March 1999. Lord
Wakeham has been a Director of Enron since 1994. Lord Wakeham is a retired
former U.K. Secretary of State for Energy and Leader of the Houses of Commons
and Lords. He served as a Member of Parliament from 1974 until his retirement
from the House of Commons in April 1992. Prior to his government service, Lord
Wakeham managed a large private practice as a chartered accountant. In the U.K.,
he is currently Chairman of the Press Complaints Commission and Chairman or
Director of a number of publicly traded U.K. companies.
Herbert S. Winokur, Jr. has served as a Director of Azurix since April
1999. Mr. Winokur has been a Director of Enron since 1985. Mr. Winokur is
Chairman and Chief Executive Officer of Capricorn Holdings, Inc., a private
investment company, and Managing General Partner of Capricorn Investors, L.P.
and Capricorn Investors II, L.P., private investment partnerships concentrating
on investments in restructure situations, organized by Mr. Winokur in 1987 and
1994, respectively. Prior to his current appointment, Mr. Winokur was Senior
Executive Vice President and a director of Penn Central Corporation. Mr. Winokur
is also a director of NAC Re Corporation, The WMF Group, Ltd., Mrs. Fields
Holding Company, Inc., CCC Information Services Group, Inc. and DynCorp.
BOARD OF DIRECTORS
Our Board of Directors is divided into three classes serving staggered
terms. Directors in each class are elected to serve for three-year terms and
until their successors are elected and qualified. Each year, the directors of
one class stand for election as their terms of office expire. Mr. Hood, Mr.
Duncan and Mr. Sutton have been designated as Class I directors, with their
terms of office expiring in 2000; Mr. Gray, Mr. Skilling and Lord Wakeham have
been designated as Class II directors, with their terms of office expiring in
2001; and Ms. Mark, Mr. Lay and Mr. Winokur have been designated as Class III
directors, with their terms of office expiring in 2002.
Following the offering, we will appoint two individuals independent of
Azurix, Enron, Marlin Water Trust and Atlantic Water Trust to serve on our Board
of Directors.
COMMITTEES OF THE BOARD
Our Board of Directors has established an Executive Committee, an Audit and
Finance Committee, a Corporate Governance Committee, a Human Resources and
Compensation Committee and a Stock Plan Committee.
Executive Committee. Mr. Lay, Ms. Mark and Mr. Winokur will serve on the
Executive Committee. The Executive Committee is authorized to take all actions
within the authority of the Board of Directors between regular meetings of the
Board of Directors when it is not practicable, in the judgment of the Chairman
of the Board and the chairman of the Executive Committee, to convene a meeting
of the Board of Directors.
Audit and Finance Committee. Mr. Winokur and Mr. Duncan will serve on the
Audit and Finance Committee. This committee will review and report to the Board
of Directors with respect to the selection, retention, termination and terms of
engagement of our independent public accountants, and maintain communications
among the Board of Directors, the independent public accountants and our
internal accounting staff with respect to accounting and audit procedures. The
Audit and Finance Committee will also review, with management and our
independent auditors, our annual financial statements, the adequacy of our
internal accounting and control procedures and policies and related matters.
This committee periodically will review the results of capital proposals
previously approved by the Board of Directors to assess how they compare with
the plan as adopted by the Board of Directors. This committee may review other
financial matters when requested by the Board of Directors or by management.
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Corporate Governance Committee. Lord Wakeham, Mr. Hood, Mr. Lay and Mr.
Sutton will serve on the Corporate Governance Committee. This committee will
coordinate the functioning of the Board of Directors, including assessing the
membership of the Board of Directors and reviewing the processes and procedures
of the Board of Directors. This committee will review with the Chief Executive
Officer our organizational structure and corporate governance mechanisms.
Human Resources and Compensation Committee. Mr. Duncan and Mr. Winokur will
serve on the Human Resources and Compensation Committee. This committee will
determine the compensation to be paid to our top management and will establish
policies for, and administer, all compensation and benefit plans in which other
senior managers participate. Following the offering, this committee will
administer our stock plan. This committee also will review and report to the
Board of Directors on all other compensation and benefit plans.
Stock Plan Committee. Mr. Lay, Ms. Mark and Mr. Skilling currently serve on
the Stock Plan Committee. This committee was established to administer our stock
plan prior to completion of the offering.
BOARD COMPENSATION
Employee directors will not receive additional compensation for serving on
our board of directors. Non-employee directors will be compensated entirely in
options to purchase our common stock and will each receive an initial grant of
options to purchase 12,000 shares of common stock at the offering price.
Committee chairmen will each receive an additional grant to purchase 1,500
shares of common stock. Options will be granted at fair market value at the
grant date and be exercisable for ten years. These options will vest 50% on the
first anniversary of the grant date and 100% on the second anniversary of the
grant date.
EXECUTIVE COMPENSATION
The following table sets forth compensation information for the year ended
December 31, 1998 for the Chairman and Chief Executive Officer and each of the
four other most highly compensated executive officers of Azurix. These five
individuals are referred to in this prospectus as the "Named Executive
Officers." Because each of these individuals joined Azurix during 1998, the
amounts shown in the table below represent amounts attributable to and paid by
Azurix after each individual joined Azurix.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Rebecca P. Mark(1)..................... 1998 $145,306 -- $ 65,653(4) --
Chairman and Chief Executive Officer
Rodney L. Gray(1)...................... 1998 $156,269 $101,250 -- --
Vice Chairman, Finance, Risk
Management and Investments and Chief
Financial Officer
Amanda K. Martin(1).................... 1998 $106,999 $181,250 -- $350,000(6)
Executive Director, Americas
Alex Kulpecz(2)........................ 1998 $177,172 $200,000 $188,613(5) $250,000(7)
Executive Director, Europe, Middle
East, Asia, Africa
Colin F. Skellett(3)................... 1998 $105,825 $ 85,000 -- --
Executive Director, Technical and
Operating, Environmental and Safety
Services
</TABLE>
(footnotes on following page)
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- ---------------
(1) Rebecca P. Mark, Rodney L. Gray and Amanda K. Martin were paid by Enron
and/or its affiliates for the entire year. The salary and bonus amounts
shown in the table are the amounts of their total compensation received from
Enron that were allocated by Enron to Azurix and paid by Azurix to Enron for
services rendered to Azurix. Ms. Mark's bonus arrangement is described below
under "-- Employment Agreements." The bonus amounts allocated to Azurix by
Enron for Mr. Gray and Ms. Martin were based on qualitative criteria and
were awarded in relation to the formation of Azurix's strategic business
development and corporate financing organization, in the case of Mr. Gray,
and Azurix's business development effort for the Americas, in the case of
Ms. Martin.
(2) Alex Kulpecz joined Azurix during September 1998. Mr. Kulpecz's bonus was
based on qualitative criteria and was awarded in relation to the formation
of Azurix's London office and business development effort for Europe, the
Middle East, Africa, Asia and the Pacific Rim.
(3) Colin F. Skellett joined Azurix in October 1998 in conjunction with the
acquisition of Wessex. Mr. Skellet's bonus was based on qualitative criteria
and was awarded in relation to the formation of Azurix's technical and
operational organization.
(4) Includes $62,419 reported as income and paid by Azurix for Ms. Mark for
personal airplane usage.
(5) Includes $127,533 for payment of U.K. income taxes.
(6) Represents compensation paid to Ms. Martin for forgoing compensation from
her previous employer, Enron Capital & Trade Resources Corp.
(7) Represents a sign-on bonus for foregoing compensation from his previous
employer.
EMPLOYMENT AGREEMENTS
Rebecca P. Mark entered into an employment agreement, effective May 1998,
with Enron through December 31, 2001 as Chairman of Enron International and Vice
Chairman of Enron. The agreement was amended when it was assumed by both Enron
and Azurix effective February 1, 1999, in connection with Ms. Mark's assumption
of the role as Chairman and CEO of Azurix, in addition to her role as Vice
Chairman of Enron. The agreement provides for an annual salary of not less than
$710,000. Under the agreement, in May 1998, Ms. Mark was granted 100,000 Enron
stock options that have a ten-year term and vest one-third on each of January 1,
1999, January 1, 2000 and January 1, 2001, and 350,000 Enron stock options which
have a ten-year term and vest one-third on each of May 4, 1999, May 4, 2000 and
May 4, 2001. The agreement stipulated Ms. Mark's 1998 bonus target to be one
percent of Enron International's after-tax net income subject to adjustment in
the sole discretion of Enron's Chairman and CEO, taking into consideration
after-tax net income and funds flow targets set each year by the Board of
Directors, as well as other performance criteria. The agreement also stipulates
that bonus calculations for 1999 through 2001 will be determined prospectively.
The agreement provides that Ms. Mark is eligible to participate in either the
Enron executive compensation long-term incentive program or the Azurix stock
incentive plan. During the term of this agreement, Ms. Mark was granted
2,000,000 Azurix stock options from the Azurix stock incentive plan, effective
February 2, 1999, which will vest 25% per year over the next four-year period.
The agreement also provides for full vesting of specific grants and awards made
to Ms. Mark under long-term incentive plans maintained by Enron in the event of
involuntary termination, death or disability and, as recently amended, precludes
full vesting of long-term grants made under the Azurix stock incentive plan in
the event of termination. The agreement provides 100% of base pay and unpaid
bonuses through the contract term in the event of involuntary termination. The
employment agreement contains noncompetition provisions in the event of Ms.
Mark's termination of employment.
Rodney L. Gray entered into an employment agreement with Azurix effective
February 16, 1999. The agreement, which expires February 15, 2004 and entitles
Mr. Gray to an annual salary of $430,000, provides that Mr. Gray will
participate in an annual incentive plan with a bonus target of 100% of his
annual base salary. The agreement provides that Mr. Gray is eligible to
participate in the Azurix stock incentive plan. Under his agreement, Mr. Gray
was granted 1,000,000 Azurix stock options, effective February 2, 1999, which
will vest 20% per year over the next five-year period. If Mr. Gray is
involuntarily terminated, which includes a termination by Azurix without cause,
then he will receive a monthly
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severance payment equal to 100% of his monthly salary and annual bonus payments
until the end of the term of the agreement as if he had not been terminated. The
agreement prohibits Mr. Gray from competing with Azurix until February 15, 2004.
Amanda K. Martin entered into an employment agreement with Enron Capital &
Trade Resources, which subsequently was assigned to Azurix. The agreement runs
through August 31, 2003 and entitles Ms. Martin to an annual salary of $400,000.
In connection with the transfer of her agreement to Azurix, Ms. Martin received
a bonus of $350,000. The agreement provides that Ms. Martin will participate in
an annual incentive plan with a bonus target of between 100% and 200% of her
annual base salary and that Ms. Martin is eligible to participate in the Azurix
stock incentive plan. Under her agreement, Ms. Martin was granted 1,000,000
Azurix stock options, effective February 2, 1999, which will vest 25% per year
over the next four-year period. If Ms. Martin is involuntarily terminated, which
includes a termination by Azurix without cause, then she will receive a monthly
severance payment equal to 100% of her monthly salary and unpaid annual bonuses
until the end of the term of the agreement as if she had not been terminated. In
order to receive these payments, Ms. Martin may not compete with Azurix during
the term of the agreement following an involuntary termination. The agreement
also prohibits Ms. Martin from competing with Azurix until six months after the
termination of employment or the expiration of the agreement.
Alex Kulpecz entered into an employment agreement with Azurix which runs
through September 14, 2001 and entitles Mr. Kulpecz to an annual salary of
$492,000. In connection with his agreement, Mr. Kulpecz received a sign-on bonus
of $250,000. The agreement provides that Mr. Kulpecz will participate in an
annual incentive plan with a bonus target of 100% of his annual base salary.
Under the terms of the agreement, upon commencing employment, Mr. Kulpecz was
granted 100,000 Enron stock options that have a ten-year term and vest one-third
on each anniversary of the date of grant and 30,000 Enron stock options which
have a ten-year term and are 100% vested. If Mr. Kulpecz is involuntarily
terminated, which includes a termination by Azurix without cause, then he will
receive a monthly severance payment equal to 100% of his monthly salary until
the end of the term of the agreement as if he had not been terminated, plus a
pro rata portion of his bonus earned for the year of termination. In addition,
in the case of involuntary termination except if he has failed to meet
performance objectives, Mr. Kulpecz will be entitled to a payment so that the
value of the equity in Enron and Azurix which he has received pursuant to his
employment agreement plus the payment equals one million dollars. The agreement
prohibits Mr. Kulpecz from competing with Azurix until the later of September
14, 2001 or one year following termination of employment.
Colin F. Skellett entered into an employment agreement with Wessex which
entitles Mr. Skellett to an annual salary of $423,300. The agreement provides
that Mr. Skellett is eligible to participate in the Azurix stock incentive plan.
Under his agreement, Mr. Skellet was granted 600,000 Azurix stock options,
effective February 2, 1999, which will vest 33 1/3% per year over the next
three-year period. The employment agreement may be terminated by either Wessex
or Mr. Skellett upon 12 months' notice. The agreement otherwise terminates on
Mr. Skellett's 60th birthday. The agreement provides that Mr. Skellett will
participate in an annual bonus plan. The agreement prohibits Mr. Skellett from
competing with Wessex for one year following termination of employment.
STOCK PLAN
We have adopted a stock incentive plan. Grants of incentive stock options
and nonqualified stock options and awards of restricted stock may be made
pursuant to the stock plan. At any particular time, the number of shares of
common stock issued under the plan plus the number of shares of common stock
issuable upon the exercise of all outstanding stock options under the plan may
not exceed 15% of the total number of shares of common stock then outstanding,
assuming the exercise of all outstanding options. The stock plan will be
administered by the Stock Plan Committee, which consists of Rebecca P. Mark,
Kenneth L. Lay and Jeffrey K. Skilling. The exercise price for an option granted
under the stock plan will be determined by the Stock Plan Committee and will be
no less than the fair market value of the common stock on the date that the
option is granted. If our outstanding common stock is adjusted because of a
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recapitalization, stock split, combination of shares, reclassification, stock
dividend or other similar change, the Stock Plan Committee will make appropriate
adjustments to the total number of shares covered by the plan and the exercise
price and number of shares covered by each outstanding option or restricted
stock award.
As long as Enron owns 30% or more of our common stock, if there is a change
in control of Enron, then each outstanding restricted stock award or option,
regardless of vesting, will be surrendered and canceled and each grantee will
receive a cash payment from Azurix. If there is a change in control of Azurix,
then each outstanding restricted stock award or option, regardless of vesting,
will be surrendered and canceled and each grantee will receive a cash payment
from Azurix. In either case, the cash payment for restricted stock awards will
equal the fair market value of a share of our common stock on the date of
cancellation multiplied by the number of shares subject to the restricted stock
award. In either case, the cash payment for canceled options will equal the
difference between the fair market value of a share of our common stock on the
date of cancellation minus the exercise price of the canceled options multiplied
by the number of shares covered by the canceled options. In the case of a change
in control of Azurix by means of a merger, sale or other business combination or
a tender offer, the fair market value of our common stock for purposes of the
calculation set forth in the previous sentence will be the per share price
offered to our stockholders in such transaction.
STOCK OPTION GRANTS
During 1998, there were no options held, granted or exercised. On February
2, 1999, Azurix granted options to purchase a total of 7,800,150 shares of
common stock. The following table sets forth information regarding options
granted to the Named Executive Officers on February 2, 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF SHARES ASSUMED RATES OF STOCK PRICE
OF COMMON STOCK PERCENT OF TOTAL EXERCISE APPRECIATION FOR OPTION TERM
UNDERLYING OPTIONS OPTIONS GRANTED AT PRICE EXPIRATION ---------------------------------
NAME GRANTED(1) FEBRUARY 2, 1999 ($/SHARE)(2) DATE 0%(3) 5%(3) 10%(3)
---- ------------------ ------------------- ------------ ---------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rebecca P. Mark...... 2,000,000 25.6% $16.72 02/02/2009 $0 $21,040,000 $53,300,000
Rodney L. Gray....... 1,000,000 12.8 16.72 02/02/2009 0 10,520,000 26,650,000
Amanda K. Martin..... 1,000,000 12.8 16.72 02/02/2009 0 10,520,000 26,650,000
Alex Kulpecz......... 1,000,000 12.8 16.72 02/02/2009 0 10,520,000 26,650,000
Colin F. Skellett.... 600,000 7.7 16.72 02/02/2009 0 6,312,000 15,990,000
</TABLE>
- ---------------
(1) These options are subject to vesting based on the following schedule:
Rebecca P. Mark -- 25% per year over four years; Rodney L. Gray -- 20% per
year over five years; Amanda K. Martin -- 25% per year over four years; Alex
Kulpecz -- 20% per year over five years; and Colin F. Skellett -- 33 1/3%
per year over three years.
(2) Each of these options was granted pursuant to our stock incentive plan and
is subject to the terms of the stock incentive plan as described above.
These options were granted at an exercise price equal to the fair value of
our common stock as determined by our Board of Directors on the date of the
grant.
(3) The 0%, 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by the rules of the SEC. There can be no assurance
that the actual stock price appreciation over the ten-year option term will
be at the assumed 0%, 5% or 10% levels or at any other defined level. Unless
the market price of the common stock appreciates over the option term, no
value will be realized from the option grants. The potential realizable
value is calculated by assuming that the fair market value of the common
stock on the date of grant of the options appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
exercise price and sold on the last day at the appreciated price.
In addition to the option grants to the Named Executive Officers in the
table above, Azurix granted options to purchase a total of 2,200,150 shares of
common stock at an exercise price of $16.72 per share to other employees with
vesting schedules generally providing for vesting over three to five years. All
of these options expire ten years after the grant date of February 2, 1999.
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In approving the grants described above, the Stock Plan Committee sought to
provide incentives in addition to compensation to Azurix's employees to devote
their utmost effort and skill to the advancement and betterment of Azurix by
providing such employees with an opportunity to participate in the ownership of
Azurix and thereby have an interest in the success and increased value of Azurix
as well as to enhance Azurix's ability to retain the services of its key
employees. As a member of the Stock Plan Committee, Rebecca P. Mark participated
in approving these grants, except with respect to the grant of options to
herself.
In addition to the grants of stock options described above, our Board of
Directors has authorized additional grants, conditioned on the completion of the
offering and effective as of the closing of the offering, of options to purchase
an aggregate of 626,500 shares of common stock to employees who recently joined
Azurix. These options will have an exercise price equal to the initial public
offering price, will generally vest over three to five years and will be
exercisable for ten years after the date of grant.
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TRANSACTIONS WITH ENRON, ATLANTIC WATER TRUST AND MARLIN WATER TRUST
In 1998, there were significant transactions among us, Enron, Atlantic
Water Trust and Marlin Water Trust. For purposes of governing these ongoing
relationships, we will enter into, or continue in effect, various agreements and
relationships, including those described below. Some of the agreements
summarized below will be included as exhibits to the registration statement of
which this prospectus is a part. The following summaries of these agreements
discuss the material provisions of these agreements and are qualified completely
by reference to such exhibits which we incorporate in this prospectus by
reference.
During 1998, Azurix indirectly acquired all of the outstanding ordinary
share capital of Wessex, and Enron contributed to Azurix the outstanding common
stock of a subsidiary that in June 1998 acquired a 32.1% ownership interest in
Obras Sanitarias Mendoza. In December 1998, Enron contributed Azurix to Atlantic
Water Trust and Marlin Water Trust acquired a 50% voting interest in Atlantic
Water Trust. Enron retained a 50% voting interest in Atlantic Water Trust.
On February 25, 1999, in connection with the Cancun acquisition, Enron
advanced to Azurix $15.0 million, which was used by Azurix to fund a loan to
Cancun. On March 24, 1999, Enron advanced to Azurix $13.5 million to fund the
Cancun acquisition, which closed on that date.
Enron currently provides office space to Azurix and various services such
as computer hardware and software and support services such as risk management,
accounts payable, payroll and information technology services. Costs are
allocated to Azurix based upon usage, or where no direct method can be
efficiently applied due to administrative burden, upon factors such as
annualized payroll or employee headcount. Employees, other than Wessex
employees, are covered by various employee benefit plans of Enron such as
retirement, stock option, medical, dental, life insurance and other benefit
plans. These costs are allocated to Azurix based upon Enron's costs of
administering and providing the benefit plans.
Enron has paid on behalf of Azurix approximately $72 million to fund our
general, administrative and operating expenses, from our inception through May
21, 1999, in addition to capital expenditures. This includes $28.5 million
advanced to us by Enron in connection with our investment in Cancun, as well as
advances relating to the services described above. The amount paid by Enron is
non-interest bearing and has no maturity date. We intend to use a portion of the
net proceeds that we receive from the offering to repay this amount. See "Use of
Proceeds."
ACQUISITION OF WESSEX
On October 2, 1998, Azurix, through its Azurix Europe, acquired over 90% of
the outstanding ordinary share capital of Wessex. On that same date, Azurix
Europe issued notices to the remaining Wessex ordinary shareholders, informing
them that it intended to exercise its rights under the English Companies Act to
acquire compulsorily all of the outstanding ordinary shares not held by Azurix
Europe. The compulsory share acquisition was completed in November 1998. The per
share price paid to Wessex shareholders was L6.30. The total cost of the Wessex
acquisition, including transaction costs, was $2.4 billion, plus the assumption
of $481.5 million of existing Wessex debt. The cost included cash consideration
paid to Wessex shareholders, net of $1.7 million cash acquired, and the issuance
of loan notes to Wessex shareholders in the face amount of $119.8 million.
The acquisition was financed through capital contributions from Enron Water
(Holding) L.L.C., formerly Azurix's parent company and a wholly owned subsidiary
of Enron, totaling $1.6 billion and the issuance of $0.8 billion in debt by
Azurix Europe. The financing of the Wessex acquisition by Azurix, through Azurix
Europe, was as follows:
- Enron made a $500.2 million capital contribution to Enron Water (Holding)
L.L.C.
- Enron borrowed $1.1 billion under a revolving credit facility, which
Enron loaned to Enron Water (Holding) L.L.C.
- Enron Water (Holding) L.L.C. made a capital contribution of these funds
to Azurix, and Azurix, through a wholly owned subsidiary, made a capital
contribution of these funds to Azurix Europe
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- Enron lent L73 million ($124.4 million) to Azurix Europe under a senior
loan agreement
- Enron lent L72 million ($122.7 million) to Azurix Europe under a
short-term, senior, unsecured credit facility, which loan, together with
$2.1 million of accrued interest, was subsequently repaid with the
proceeds from the sale of UK Waste in December 1998
- Azurix Europe borrowed L252 million ($429.3 million) under the existing
senior credit facility
- Azurix Europe issued seven-year, senior, unsecured loan notes in the face
amount of L70.5 million ($119.8 million) to Wessex shareholders who
elected to take loan notes instead of cash
In connection with regulatory clearance of the acquisition of Wessex, Enron
and Wessex's immediate parent, Azurix Europe, agreed to make undertakings
regarding the modification of Wessex Water Services' license as a provider of
water and wastewater services. The objective of the modifications was to allow
Wessex to operate as if it is a stand-alone organization and to ensure that
Wessex has sufficient financial and managerial resources. See "Regulatory
Matters -- U.K. Regulatory Matters."
ACQUISITION OF INTEREST IN ATLANTIC WATER TRUST
In December 1998, Enron contributed Azurix to Atlantic Water Trust, a
Delaware business trust, by contributing Enron Water (Holding) L.L.C. and
merging it into Azurix. In connection with Enron's contribution, Marlin Water
Trust acquired for $1.149 billion a 50% voting interest in Atlantic Water Trust,
with Enron retaining a 50% voting interest. Of the $1.149 billion paid by Marlin
Water Trust, $900 million was used to repay a portion of the indebtedness
incurred by Enron and its affiliates in connection with the Wessex acquisition.
See "Principal and Selling Stockholders -- Atlantic Water Trust."
CONFLICTS OF INTEREST
Atlantic Water Trust currently owns all of Azurix's outstanding common
stock. Following completion of the offering, Atlantic Water Trust will own
approximately 68.7% of our outstanding common stock, 64.1% if the underwriters'
over-allotment option is exercised in full. Each of Enron and Marlin Water Trust
owns a 50% voting interest in Atlantic Water Trust. To date, Enron has appointed
all of the directors of Atlantic Water Trust and Azurix, although Marlin Water
Trust at any time has the right to elect or replace half of the directors of
Atlantic Water Trust and currently up to half of the Azurix directors. Following
the offering, as long as Atlantic Water Trust owns a majority of our outstanding
voting stock, Marlin Water Trust has the right to direct Atlantic Water Trust to
elect or replace a percentage of Azurix's directors equal to 50% minus the
percentage of outstanding voting stock held by persons other than Atlantic Water
Trust, Enron and its affiliates. Furthermore, Marlin Water Trust, with the
consent of the holders of a majority of our outstanding voting stock held by
persons other than Atlantic Water Trust, Enron and its affiliates, has the right
to direct Atlantic Water Trust to elect or replace half of Azurix's directors.
In each case, Marlin Water Trust's right to designate directors shall be reduced
by the number of directors that may be elected by preferred stock entitled to
elect directors as a class. Enron has the right to direct Atlantic Water Trust
to elect or replace the other half of Azurix's directors. In all other
circumstances, the board of directors of Atlantic Water Trust will direct the
voting of Atlantic Water Trust's Azurix shares. As a result, following the
offering, Enron and Marlin Water Trust will continue to exert significant
influence over the policies, management and affairs of Azurix and will control
the outcome of corporate actions requiring stockholder approval, including the
approval of transactions involving a change in control of Azurix.
Currently, a majority of our directors are also directors or officers of
Enron, a situation that may create conflicts of interest. The directors and
officers of Enron have fiduciary duties to manage Enron, including its
investments in subsidiaries and affiliates such as Azurix, in a manner
beneficial to Enron and its stockholders. Similarly, the directors and officers
of Azurix have fiduciary duties to manage Azurix in a manner beneficial to
Azurix and its stockholders. In some circumstances, the duties of these
directors and officers of Enron may conflict with their duties as directors of
Azurix. In addition, other conflicts of interest exist and may arise in the
future as a result of the extensive relationships between Enron and
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Azurix. Enron and Azurix have agreed that conflicts of interest between Enron
and Azurix may be resolved through approval by a majority of the directors of
Azurix not associated with Enron. See "Principal and Selling Stockholders."
AGREEMENT REGARDING BUSINESS OPPORTUNITIES AND RELATED MATTERS
Enron and Azurix have entered into an agreement that limits the scope of
Azurix's business and provides that Enron and its affiliates may engage in
water-related businesses, even if those businesses have a competitive impact on
Azurix. In general, Enron is permitted to engage in any business whatsoever,
including water, wastewater and other businesses competing with Azurix, and may
compete in public tenders against Azurix, provided the business is conducted and
opportunities are identified and developed through Enron's own personnel and not
through Azurix. If an opportunity in the water industry is presented to a person
who is an officer or director of both Enron and Azurix, the opportunity must
first be offered to Azurix, unless water constitutes a minority of the fair
market value of the opportunity, as determined by that officer or director in
good faith based on information available at the time.
In the agreement, Azurix acknowledges that Enron has fiduciary and
contractual obligations to other persons and entities under existing agreements
and relationships and has agreed that, in the event of a conflict between the
duties of Enron under the agreement and the duties of Enron to third parties
under agreements or relationships that exist on the date of execution of the
agreement, Enron will be entitled to perform its duties to such third parties
without any liability to Azurix.
The agreement provides that any standard of care, any duty of loyalty and
any other duty imposed by the agreement or under Delaware law or any other
applicable law, rule or regulation shall be modified, waived or limited as
required in order to permit Enron to act under the agreement and to make any
decision pursuant to the authority prescribed in the agreement so long as such
action is reasonably believed by Enron to be in, or not inconsistent with, the
agreement or the interests of Azurix. Azurix has agreed to indemnify Enron and
its officers, directors and employees against any claim that Enron's pursuit of
any water business was a breach of any duty owed by Enron to Azurix, provided
Enron has followed the rules described above.
Azurix's purpose clause permits it to engage in the businesses generally
identified in this prospectus, activities incidental to those businesses, and
such other businesses as Enron may approve in its sole discretion. Azurix has
agreed not to amend its certificate of incorporation to expand its purpose
clause without Enron's prior written consent.
The agreement restricts Enron and Azurix from taking action that might
cause either of them to violate any law or that would require either of them to
register as a public utility holding company under the Public Utility Holding
Company Act of 1935.
The agreement states that whenever a potential conflict of interest exists
or arises between Enron and Azurix, any resolution or course of action in
respect of such conflict of interest shall be permitted and deemed approved, and
will not constitute a breach of any duty stated or implied by law or equity, if
the resolution or course of action is authorized by the agreement or, by
operation of the agreement, is deemed to be fair and reasonable to Azurix. The
agreement states that any conflict of interest and any resolution of such
conflict of interest shall be conclusively deemed fair and reasonable to Azurix
if such conflict of interest or resolution is:
- Approved by special approval (the approval by a majority of the directors
of Azurix not associated with Enron)
- On terms no less favorable to Azurix than those generally being provided
to or available from unrelated third parties
- Fair to Azurix, taking into account the totality of the relationships
between the parties involved, including other transactions that may be
particularly favorable or advantageous to Azurix
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Enron may adopt a resolution or course of action that has not received
special approval. Enron and any person voting in connection with a special
approval will be authorized in connection with its determination of what is
"fair and reasonable" to Azurix and in connection with its resolution of any
conflict of interest to consider:
- The relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interest
- Any customary or accepted industry practices and any customary or
historical dealings with a particular person
- Any applicable generally accepted accounting or engineering practices or
principles
- Such additional factors as such person determines in its sole discretion
to be relevant, reasonable or appropriate under the circumstances
In the absence of bad faith by Enron, the resolution, action or terms so
made, taken or provided by Enron with respect to such matter shall not
constitute a breach of the agreement or a breach of any standard of care, any
duty of loyalty or any other duty imposed by the agreement or under Delaware law
or any other law, rule or regulation.
Disputes under the agreement are to be resolved through arbitration. The
agreement will continue indefinitely, except that it will expire on the first
date on which both of the following occur:
- Enron and its affiliates do not individually or collectively, directly or
indirectly, own or have the power to vote at least one-third of the
shares of Azurix ordinarily entitled to vote for the election of
directors, and
- Fewer than one-third of the directors of Azurix are persons who are
employees, officers or directors of Enron or of any affiliate of Enron.
The mutual covenants and agreements in the agreement will be the
consideration given by each party to the other in support of the agreement. In
addition, the agreement states that Enron's investment in Atlantic Water Trust
was predicated on the execution and delivery of an agreement containing
substantially the terms set forth in the agreement.
SERVICES AGREEMENT
Effective May 1, 1999, we entered into an agreement with Enron pursuant to
which Enron provides various corporate staff and support services to us. These
services include information technology, office space, building maintenance,
security and other office services as well as employee development, training and
maintenance of compensation and other benefits programs. We also may utilize
Enron's regulatory affairs, marketing affairs, treasury and risk assessment and
control departments. In addition, Azurix may continue to participate in Enron's
corporate insurance program. The agreement provides that we may use the
international offices of Enron and its affiliates for projects, subject to
mutual agreement with Enron or its affiliates on a project-by-project basis. We
intend to enter into a related sublease with Enron providing for the use of
office space in Houston, Texas. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Developments."
CREDIT AGREEMENT
Effective May 1, 1999, we entered into a credit agreement with Enron,
whereby Enron will provide funds to us for general, administrative and operating
expenses. The credit agreement matures December 15, 2001 or 90 days following
the date that Enron or its affiliates do not own or have the power to vote at
least one-third of our capital stock ordinarily entitled to vote for the
election of directors and fewer than one-third of our directors are officers,
directors or employees of Enron or its affiliates. The total commitment under
the credit agreement will be $180 million. Advances under the facility will bear
interest
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at the federal funds rate plus 1.50%. Amounts borrowed under the credit
agreement may be prepaid, in full or in part, at any time during the term of the
credit agreement. Amounts prepaid may be re-borrowed during the term of the
credit agreement. The principal amount outstanding under the credit agreement
will be limited to no more than:
- $60 million at any time during calendar year 1999
- $120 million at any time during calendar year 2000
- $180 million at any time during calendar year 2001
No further amounts may be borrowed, and all outstanding amounts must be
repaid within 90 days after the first date on which both of the following occur:
- Enron and its affiliates do not individually or collectively, directly or
indirectly, own or have the power to vote at least one-third of the
capital stock of Azurix ordinarily entitled to vote for the election of
directors, and
- Fewer than one-third of the directors of Azurix are persons who are
employees, officers or directors of Enron or of any affiliate of Enron.
As of May 21, 1999, no amounts were outstanding under this credit
agreement.
LICENSE AGREEMENT
Enron has licensed to Azurix the non-exclusive right to use the phrase "an
Enron Company" and its logo in identifying Azurix as part of the Enron
enterprise for use in its businesses permitted under the business opportunities
agreement described above, until the first date on which both of the following
occur:
- Enron and its affiliates do not individually or collectively, directly or
indirectly, own or have the power to vote at least one-third of the
shares of Azurix ordinarily entitled to vote for the election of
directors, and
- Fewer than one-third of the directors of Azurix are persons who are
employees, officers or directors of Enron or of any affiliate of Enron.
The license is royalty free, although Azurix bears costs associated with
its use under a related cost sharing agreement. The license agreement is for a
term of one year, and renews automatically and repetitively for similar terms,
unless terminated by either party upon 30 days' notice or earlier upon uncured
default. Following termination, Azurix must phase out use of existing materials
within 90 days. The cost sharing agreement provides for a sharing of Enron's
costs incurred to develop, maintain, enhance, promote or defend the licensed
trademarks. Our share of such costs will be pro rata based on our earnings
before interest and taxes. We do not anticipate that our share of such costs
will be material.
REGISTRATION RIGHTS AGREEMENT
We have entered into an agreement with Atlantic Water Trust, which allows
Atlantic Water Trust to request us to register 80,500,000 shares of our common
stock owned by Atlantic Water Trust following the offering. Atlantic Water Trust
has the right to request one such registration during each 12-month period
following the date of the offering, plus one additional such registration. The
number of shares requested to be registered shall have an aggregate offering
price of at least $50 million. In addition, Atlantic Water Trust has the right,
which it may exercise at any time, to include such shares in any registration of
common stock made by us in the future. We have agreed to cooperate fully in
connection with any such registration and with any offering made under the
registration rights agreement and to pay all costs and expenses, other than
underwriting discounts and commissions, related to shares sold by Atlantic Water
Trust in connection with any such registration. The rights of Atlantic Water
Trust under the registration rights agreement are transferable by Atlantic Water
Trust. The agreement is for an indefinite term. See "Risk Factors -- Future
sales of our common stock may depress our stock price" and "Shares Eligible for
Future Sale."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of May 21, 1999, and as adjusted to reflect the
sale of the common stock offered hereby, by (1) the selling stockholder, (2) all
persons known by Azurix to own beneficially more than 5% of the common stock,
(3) each director of Azurix, (4) the Chief Executive Officer and each of the
other Named Executive Officers and (5) all directors and executive officers as a
group. Unless otherwise stated in the notes to the table, each of the
stockholders has sole voting and investment power with respect to the shares of
common stock beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING NUMBER OF AFTER THE OFFERING
------------------------- SHARES BEING --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------- ------------- --------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Atlantic Water Trust(1)(2)................. )
c/o Wilmington Trust Company )
Rodney Square North )
1100 North Market Street )
Wilmington, Delaware 19890-0001 )
Enron Corp.(2)(3).......................... ) % %
1400 Smith Street ) 100,000,000 100 19,500,000 80,500,000 68.7
Houston, Texas 77002 )
Marlin Water Trust(2)(4)................... )
c/o Wilmington Trust Company )
Rodney Square North )
1100 North Market Street )
Wilmington, Delaware 19890-0001 )
Rebecca P. Mark(5)......................... -- -- -- -- --
Rodney L. Gray............................. -- -- -- -- --
W. Nicholas Hood........................... -- -- -- -- --
Alex Kulpecz............................... -- -- -- -- --
Amanda K. Martin........................... -- -- -- -- --
Colin F. Skellett.......................... -- -- -- -- --
John H. Duncan............................. -- -- -- -- --
Kenneth L. Lay(5).......................... -- -- -- -- --
Jeffrey K. Skilling(5)..................... -- -- -- -- --
Joseph W. Sutton........................... -- -- -- -- --
John Wakeham............................... -- -- -- -- --
Herbert S. Winokur, Jr. ................... -- -- -- -- --
All directors and executive officers
as a group (14 persons).................. -- -- -- -- --
</TABLE>
- ---------------
(1) Atlantic Water Trust is a Delaware business trust. Atlantic Water Trust
holds 100% of the common stock. Atlantic Water Trust is also the selling
stockholder.
(2) Each of Enron Corp. and Marlin Water Trust has a 50% voting interest in
Atlantic Water Trust, and each may be deemed to beneficially own all of the
Azurix shares owned by Atlantic Water Trust because of certain shared voting
and dispositive power. See " -- Atlantic Water Trust."
(3) Enron Corp. is an Oregon corporation.
(4) Marlin Water Trust is a Delaware business trust.
(5) Does not include 100,000,000 shares owned by Atlantic Water Trust with
respect to which Enron has shared voting and dispositive power. Messrs. Lay
and Skilling and Ms. Mark in their capacities as Chairman of the Board and
Chief Executive Officer, as President and Chief Operating Officer and as
Vice Chairman, respectively, of Enron may be deemed to beneficially own such
shares as a result of their positions with Enron.
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ATLANTIC WATER TRUST
In December 1998, Enron contributed Azurix to Atlantic Water Trust, a
Delaware business trust. The principal purpose of Atlantic Water Trust is to own
equity interests in Azurix and to own Bristol Water Trust, and to engage in
other transactions related to the sale of an interest in Atlantic Water Trust to
Marlin Water Trust. In connection with Enron's contribution of Azurix to
Atlantic Water Trust, Marlin Water Trust acquired for $1.149 billion a 50%
voting interest in Atlantic Water Trust, with Enron retaining a 50% voting
interest. Marlin Water Trust financed the acquisition of its interest in
Atlantic Water Trust by issuing senior notes for $1.024 billion that mature
December 15, 2001, and issuing trust certificates for a total of $125 million.
Currently, five institutional investors and their affiliates hold the trust
certificates of Marlin Water Trust.
Of the $1.149 billion paid by Marlin Water Trust, $900 million was used to
repay a portion of the indebtedness incurred by Enron affiliates in connection
with the acquisition of Wessex. The remaining $249 million was deposited in an
account established by Bristol Water Trust, a wholly owned subsidiary of
Atlantic Water Trust. The funds in this account should generate sufficient
liquidity to fund distributions from Atlantic Water Trust to Marlin Water Trust
that will provide Marlin Water Trust with sufficient funds to service interest
on the senior notes and provide a yield to the trust certificate holders at
least through 2001. Azurix is not required to make any distributions to Atlantic
Water Trust, including any of its proceeds from the offering. Additionally,
neither Azurix nor any of its subsidiaries has guaranteed any obligations of
Marlin Water Trust and no assets of Azurix nor any of its subsidiaries are
pledged as security for the senior notes of Marlin.
Enron is entitled, with respect to distributions resulting from the sale of
Azurix stock by Atlantic Water Trust, to receive the first $180 million of
distributions by Atlantic Water Trust. After the receipt of $180 million by
Enron, further distributions resulting from the sale of Azurix stock by Atlantic
Water Trust and other non-liquidating distributions are generally to be paid
first to Marlin Water Trust until Marlin Water Trust has received funds equal to
the amount then in its trust account, with the remainder to Enron. Liquidation
distributions by Atlantic Water Trust are generally to be paid to Enron and
Marlin Water Trust pro rata based on their then respective trust accounts.
If Atlantic Water Trust fails by December 15, 2001 to make aggregate
distributions to Marlin Water Trust of amounts sufficient to repay the senior
notes of Marlin Water Trust, then Marlin Water Trust has the right to cause
Atlantic Water Trust to liquidate and sell its remaining shares of Azurix. In
order to prevent the liquidation of Atlantic Water Trust by Marlin Water Trust,
Enron has the right to contribute funds generated from Enron equity offerings to
Atlantic Water Trust to fund distributions to Marlin. In such event, Enron's
beneficial interest, but not voting interest, in Atlantic Water Trust would
increase and Marlin Water Trust's beneficial interest, but not voting interest,
in Atlantic Water Trust would decrease. Other actions, such as the refinancing
of the senior notes of Marlin Water Trust, might also be taken which could
eliminate the necessity of Atlantic Water Trust selling additional shares of
Azurix. However, Atlantic Water Trust may elect to sell, or be required to sell,
some or all of its remaining shares of Azurix in order to fund Marlin Water
Trust's obligations. The proceeds to Atlantic Water Trust from this initial
public offering are expected to be approximately $373.0 million, after deducting
underwriting discounts and commissions and estimated expenses and assuming no
exercise of the over-allotment option. After payment of underwriting discounts
and commissions and expenses, $180 million of these proceeds will be distributed
to Enron and the remainder will be distributed to Marlin Water Trust. The
proceeds distributed to Marlin Water Trust are expected to be used to redeem a
portion of the senior notes.
Marlin Water Trust, or the trustee under its senior notes indenture, may
cause the liquidation of Atlantic Water Trust prior to December 15, 2001 if
specific events occur and the senior notes are not repaid from other sources.
These events include: (1) defaults under certain of Azurix's, Enron's or Marlin
Water Trust's debt obligations or (2) a downgrading of Enron senior debt to
below "Baa3" by Moody's Investors Service, Inc., "BBB-" by Standard & Poor's
Ratings Services or "BBB-" by Duff & Phelps Credit Rating Co. and a decline in
Enron's common stock price below $37.84. The last sale price of Enron common
stock, as reported by the New York Stock Exchange, on May 21, 1999 was $74.0625.
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Each of Marlin Water Trust and Enron has the right and power at all times
to appoint up to 50% of the members of the board of directors of Atlantic Water
Trust. Marlin Water Trust's certificateholders are entitled to exercise Marlin
Water Trust's appointment rights. If the Marlin Water Trust certificateholders
defer exercising their appointment rights, Enron has the right to appoint such
members, but Marlin Water Trust has the right, at any time, without cause, to
remove any such members. To date, Enron has appointed all of the directors of
Atlantic Water Trust.
Following the offering, as long as Atlantic Water Trust owns a majority of
our outstanding voting stock, Marlin Water Trust has the right to direct
Atlantic Water Trust to elect or replace a percentage of Azurix's directors
equal to 50% minus the percentage of outstanding voting stock held by persons
other than Atlantic Water Trust, Enron and its affiliates. Furthermore, Marlin
Water Trust, with the consent of the holders of a majority of our outstanding
voting stock held by persons other than Atlantic Water Trust, Enron and its
affiliates, has the right to direct Atlantic Water Trust to elect or replace
half of Azurix's directors. In each case, Marlin Water Trust's right to
designate directors shall be reduced by the number of directors that may be
elected by preferred stock entitled to elect directors as a class. Enron has the
right to direct Atlantic Water Trust to elect or replace the other half of
Azurix's directors. In all other circumstances, the board of directors of
Atlantic Water Trust will direct the voting of Atlantic Water Trust's Azurix
shares. Under the terms of the Atlantic Water Trust agreement, Enron can be
prevented from appointing more than half of Azurix's directors at any time.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Azurix consists of 500,000,000 shares of
common stock, par value $0.01 per share, and 50,000,000 shares of preferred
stock, par value $0.01 per share. Prior to the offering, 100,000,000 shares of
common stock were outstanding. No shares of preferred stock have been issued.
The following summarizes the material provisions of our capital stock and
important provisions of our certificate of incorporation and bylaws. This
summary is qualified by our certificate of incorporation and bylaws, copies of
which have been filed as exhibits to the registration statement of which this
prospectus is a part and by the provisions of applicable law.
COMMON STOCK
Following the offering, 117,100,000 shares of common stock will be issued
and outstanding. Holders of common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Because holders of common
stock do not have cumulative voting rights, the holders of a majority of the
shares of common stock can elect all of the members of the board of directors
standing for election. Subject to preferences of any preferred stock that may be
issued in the future, the holders of common stock are entitled to receive such
dividends as may be declared by the board of directors. The common stock is
entitled to receive pro rata all of the assets of Azurix available for
distribution to its stockholders. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and non-assessable.
PREFERRED STOCK
Subject to the provisions of the certificate of incorporation and
limitations prescribed by law, the board of directors has the authority to issue
up to 50,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, which may be superior to those of
the common stock, without further vote or action by the stockholders. There will
be no shares of preferred stock outstanding upon the closing of the offering and
Azurix has no present plans to issue any preferred stock.
One of the effects of undesignated preferred stock may be to enable the
board of directors to render more difficult or to discourage an attempt to
obtain control of Azurix by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of Azurix's management. The
issuance of shares of the preferred stock pursuant to the board of directors'
authority described above may adversely affect the rights of the holders of
common stock. For example, preferred stock issued by Azurix may rank prior to
the common stock as to dividend rights, liquidation preference or both, may have
full or limited voting rights and may be convertible into shares of common
stock. Accordingly, the issuance of shares of preferred stock may discourage
bids for the common stock or may otherwise adversely affect the market price of
the common stock.
DESCRIPTION OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
CLASSIFIED BOARD OF DIRECTORS AND LIMITATIONS ON REMOVAL OF DIRECTORS
Our Board of Directors is divided into three classes. The directors of each
class are elected for three-year terms, with the terms of the three classes
staggered so that directors from a single class are elected at each annual
meeting of the stockholders. Until such time, called the "Trigger Date," as
neither Atlantic Water Trust nor Enron together with its subsidiaries owns a
majority of the outstanding voting stock of Azurix, the holders of a majority of
our outstanding voting stock may remove a director with or without cause. On and
after the Trigger Date, stockholders may remove a director only for cause and to
do so, at least 66 2/3% of the voting power of the outstanding shares of common
stock must vote for removal. The
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Board of Directors, not the stockholders, will have the right to appoint persons
to fill vacancies on the Board of Directors.
WRITTEN CONSENT OF STOCKHOLDERS
Our certificate of incorporation provides that prior to the Trigger Date
any action required or permitted to be taken by our stockholders may be taken at
a duly called meeting of stockholders or by written consent of stockholders
owning the minimum number of shares required to approve such action. On and
after the Trigger Date, any action by our stockholders must be taken at an
annual or special meeting of stockholders. Special meetings of the stockholders
may be called only by the board of directors. This provision, which requires a
vote of at least 66 2/3% of the voting power of the outstanding shares of common
stock to be amended, could have the effect of deterring hostile takeovers or
delaying changes in control.
ADVANCE NOTICE PROCEDURE FOR STOCKHOLDER PROPOSALS
Our bylaws establish an advance notice procedure for the nomination of
candidates for election as directors as well as for stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director must be delivered to or mailed and received at our principal
executive offices as follows:
- With respect to an election to be held at the annual meeting of
stockholders, 120 days prior to the anniversary date of the proxy
statement for the immediately preceding annual meeting of stockholders.
- With respect to an election to be held at a special meeting of
stockholders for the election of directors, not later than the close of
business of 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, and must contain specified
information concerning the person to be nominated.
Notice of stockholders' intent to raise business at an annual meeting must
be delivered to or mailed and received at our principal executive offices not
less than 120 days prior to the anniversary date of the proxy statement for the
preceding annual meeting of stockholders. These procedures may operate to limit
the ability of stockholders to bring business before a stockholders meeting,
including with respect to the nomination of directors of considering any
transaction that could result in a change in control. These advance notice
procedures are not applicable prior to the Trigger Date.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our certificate of incorporation provides that no director shall be
personally liable to Azurix or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability as follows:
- For any breach of the director's duty of loyalty to Azurix or its
stockholders
- For acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of laws
- For unlawful payment of a dividend or unlawful stock purchase or stock
redemption
- For any transaction from which the director derived an improper personal
benefit
The effect of these provisions is to eliminate the rights of Azurix and its
stockholders, through stockholders' derivative suits on behalf of Azurix, to
recover monetary damages against a director for breach of fiduciary duty as a
director, including breaches resulting from grossly negligent behavior, except
in the situations described above. These provisions will not change after the
Trigger Date.
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BUSINESS COMBINATIONS UNDER DELAWARE LAW
Under the terms of our certificate of incorporation and as permitted under
Delaware law we have elected not to be subject to Delaware's anti-takeover law.
This law provides that specified persons who, together with affiliates and
associates, own, or within three years did own, 15% or more of the outstanding
voting stock of a corporation may not engage in certain business combinations
with the corporation for a period of three years after the date on which the
person became an interested stockholder. The law does not include interested
stockholders prior to the time our common stock is listed on the NYSE. This
includes Atlantic Water Trust and Enron. The law defines the term "business
combination" to encompass a wide variety of transactions with or caused by an
interested stockholder, including mergers, asset sales and other transactions in
which the interested stockholder receives or could receive a benefit on other
than a pro rata basis with other stockholders. With approval of our
stockholders, we could amend our Certificate of Incorporation in the future to
become subject to the anti-takeover law. This provision would then have an
anti-takeover effect with respect to transactions not approved in advance by our
Board of Directors, including discouraging takeover attempts that might result
in a premium over the market price for the shares of our common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is First Chicago
Trust Company of New York.
LISTING
The common stock has been approved for listing on the New York Stock
Exchange under the symbol "AZX," subject to official notice of issuance.
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DESCRIPTION OF INDEBTEDNESS
INDEBTEDNESS OF AZURIX
Enron has funded on behalf of Azurix approximately $72 million to fund our
general, administrative and operating expenses, from our inception through May
21, 1999, in addition to capital expenditures. This includes $28.5 million
advanced to us by Enron to fund our acquisition of and loan to our acquisition
in Cancun. The amount due to Enron is non-interest bearing and has no maturity
date. We intend to use a portion of the net proceeds that we receive from the
offering to repay these amounts. See "Use of Proceeds."
Effective May 1, 1999, we entered into a credit agreement with Enron,
whereby Enron will provide funds to us for general, administrative and operating
expenses. The credit agreement matures December 15, 2001 or 90 days following
the date that Enron or its affiliates do not own or have the power to vote at
least one-third of our capital stock ordinarily entitled to vote for the
election of directors and fewer than one-third of our directors are officers,
directors or employees of Enron or its affiliates. The total commitment under
the credit agreement will be $180 million. Advances under the facility will bear
interest at the federal funds rate plus 1.50%. Amounts borrowed under the
facility may be prepaid, in full or in part, at any time during the term of the
agreement. Amounts prepaid may be re-borrowed during the term of the facility.
The principal amount outstanding under the credit agreement will be limited to
no more than:
- $60 million at any time during calendar year 1999
- $120 million at any time during calendar year 2000
- $180 million at any time during calendar year 2001
No further amounts may be borrowed, and all outstanding amounts must be
repaid within 90 days after, the first date on which both of the following
occur:
- Enron and its affiliates do not individually or collectively, directly or
indirectly, own or have the power to vote at least one-third of our
capital stock ordinarily entitled to vote for the election of directors,
and
- Fewer than one-third of the directors of Azurix are persons who are
employees, officers or directors of Enron or of any affiliate of Enron.
As of May 21, 1999, no amounts were outstanding under this credit
agreement.
INDEBTEDNESS OF AZURIX EUROPE
SENIOR CREDIT FACILITY
Azurix Europe, an indirect, wholly owned subsidiary of Azurix and the
holding company for Wessex, has a senior credit facility with a group of banks.
The senior credit facility was entered into on May 10, 1999 with Chase Manhattan
Plc and Westdeutsche Landesbank Girozentrale, as arrangers, Westdeutsche
Landesbank Girozentrale, as facility agent, and Chase Manhattan Trustees
Limited, as security agent. The senior credit facility consists of a revolving
credit facility of L425 ($686.0) million. Amounts outstanding under the senior
credit facility bear interest at a rate based on the London interbank offered
rate, plus a margin. If loans outstanding at the time of a new loan are less
than 50% of the total commitment of the facility, then the margin applied to the
new loan will equal 0.75% per annum. If loans outstanding at the time of a new
loan are greater than or equal to 50% of the total commitment of the facility,
then the margin applied to the new loan will equal 1.00% per annum. Azurix
Europe will pay a commitment fee on the undrawn, uncancelled amount of the
facility at the rate of 0.375% per annum. As of May 21, 1999, L113.3 ($182.9)
million was outstanding under the facility. Of this amount, L66.3 ($107.0)
million was used primarily to fund the acquisition of Philip Utilities, L42.0
($67.8) million was used to refinance all of the amounts previously outstanding
under a former senior credit facility and approximately
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L5.0 ($8.1) million was used to pay fees and expenses related to this facility.
The interest rate on the loan used to refinance existing debt of Azurix Europe
is 6.10% per annum payable August 13, 1999. The outstanding loan relating to the
Philip Utilities acquisition bears an interest rate of 5.70% per annum payable
July 14, 1999. As of May 21, 1999, a portion of the unused borrowing capacity
under this facility secures outstanding loan notes of L70.5 ($113.8) million
described below. Of the remaining borrowing capacity as of May 21, 1999, L67.5
($108.9) million is available to refinance any outstanding debt of Azurix Europe
and L173.7 ($280.4) million is available to make loans to affiliates of Azurix
Europe for the purpose of financing acquisitions of and investments in water and
wastewater assets and businesses. Loans to affiliates made under the facility
will be senior obligations, maturing on or before the maturity date of the
facility, and, if practicable at interest rates at least equal to the interest
rates on the facility. The loans will be guaranteed by Azurix in favor of Azurix
Europe. The affiliates will be direct or indirect wholly owned subsidiaries of
Azurix that have been created as special purpose vehicles. The facility is a
secured facility, and Azurix Europe has pledged all its existing assets,
including all the ordinary shares of Wessex. The facility is for a period of
three years from May 10, 1999.
COVENANTS. Azurix Europe has agreed that it will not, and will ensure that
its subsidiaries will not, create or permit to exist any other security interest
on any of their assets, except in the ordinary course of business, to secure
project finance indebtedness or other security interests in an aggregate amount
not to exceed L35 ($56.5) million. Azurix Europe will not sell, transfer or
otherwise dispose of any of the ordinary shares of Wessex. Azurix Europe has
also agreed that it will not, and will ensure that its subsidiaries will not,
sell, transfer, grant or lease or otherwise dispose of all or any part of its
assets, except in the ordinary course of business or other disposals in an
aggregate amount not to exceed L35 ($56.5) million. Azurix Europe may not make
any substantial change to the general nature or scope of its business as a water
and wastewater company in the United Kingdom. Azurix Europe may conduct business
only as a holding company. Azurix Europe has agreed that it will not, and will
ensure that its subsidiaries will not, enter into any amalgamation, demerger,
merger or reconstruction. Azurix Europe has agreed that it will not, and will
ensure that its subsidiaries will not, acquire any assets or business or make
any investment if the assets, business or investment is substantial in relation
to Azurix Europe and its group, except in the ordinary course of business, as a
required capital expenditure or other acquisitions in an aggregate amount not to
exceed L10 ($16.1) million. Azurix Europe may not declare, recommend, make or
pay any dividend, distribution or payment to any of its shareholders and will
covenant to ensure that Wessex Water Services will dividend to Wessex the
maximum distribution permissible by the dividend policy, from time to time, of
Wessex Water Services and Wessex will dividend to Azurix Europe its maximum
distributable reserves from time to time. The facility also requires that the
aggregate borrowings plus liabilities for borrowings of Wessex that Azurix
Europe and its subsidiaries may have outstanding at any time do not exceed
L1,050 ($1,694.7) million. All excess cash flow of Azurix Europe (i.e., all cash
flow after deducting interest, taxes and operating expenses) will be paid into a
debt service reserve account. All excess cash flow will be applied to build up,
within six months of closing of the facility, an amount determined by the
security agent to be one year's gross interest payable under the facility. All
amounts credited to the debt service reserve account may be invested in cash and
cash equivalents with minimum credit ratings and, provided credit enhancement is
provided, may be lent by Azurix Europe to certain other entities, including
Azurix and Enron.
FINANCIAL COVENANTS. Azurix Europe must maintain, and ensure Wessex
maintains, the following financial ratios on a quarterly and annual basis:
- The ratio of consolidated EBITDA to consolidated net interest payable
will be no less than, in the case of Azurix Europe, 2.25:1 and, in the
case of Wessex, 2.5:1. At December 31, 1998, the ratios were 4.4:1 and
12.1:1, respectively. At March 31, 1999, the ratios were 4.2:1 and 8.3:1,
respectively.
- The ratio of debt to total capitalization will not, as of each date on
which it is tested, exceed, in the case of Azurix Europe, 50% and, in the
case of Wessex, 55%. At December 31, 1998, the ratios were 39.7% and
28.6%, respectively. At March 31, 1999, the ratios were 40.5% and 30.4%,
respectively.
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- The ratio of dividends received by Azurix Europe to net interest payable
by Azurix Europe will not be less than 1.5:1.
Azurix Europe currently is in compliance with these covenants.
DEFAULT. Each of the following events is an event of default under the
senior credit facility:
- Not paying any amount which is due and payable by it within three
business days after notice of non-payment
- Azurix Europe failing to comply with its covenants, or failing to comply
with any provision of a finance document or a representation, warranty or
statement made or repeated in any finance document being materially
incorrect and not remedied within 28 days
- A cross-default related to any financial indebtedness of Azurix Europe or
its subsidiaries occurring, except when the aggregate amount of financial
indebtedness involved in all cross-defaults is less than L15 ($24.2)
million
- Insolvency or bankruptcy of Azurix Europe or a material subsidiary
occurring
- Any attachment, or execution affecting any assets of Azurix Europe or a
material subsidiary having an aggregate value of L15 ($24.2) million that
is not discharged within 14 days or is not being contested in good faith
- At any time Azurix Europe ceases to be a wholly owned subsidiary of
Azurix
- Wessex's license as a water and wastewater company being revoked or
surrendered or ceasing to be held by Wessex Water Ltd or a wholly owned
subsidiary of Azurix Europe, except if the U.K. Water Industry Act 1991
is changed to permit Wessex or one of its subsidiaries to carry on the
water and wastewater business of Wessex Water Ltd to the same extent as
it is currently carried out without the license
- Wessex's license or the rights or obligations under the license being
materially modified in any manner that, in the reasonable opinion of a
majority-in-interest of the lenders, has a material adverse effect on
Azurix Europe
- Any event or series of events occurring that, in the reasonable opinion
of a majority-in-interest of the lenders, has a material adverse effect
on the ability of Azurix Europe to perform its payment obligations under
the finance documents
ACQUISITION LOAN NOTES
In connection with the acquisition of Wessex, Azurix Europe issued U.K.
pound denominated loan notes in a principal amount of L70.5 ($113.8) million to
Wessex shareholders in lieu of cash consideration for the ordinary shares of
Wessex. As of April 30, 1999, all L70.5 ($113.8) million principal amount of
acquisition loan notes were outstanding. The acquisition loan notes are
redeemable, at the option of the holder, semiannually beginning September 30,
1999 and ending on September 30, 2005 when the acquisition loan notes mature.
Interest on the acquisition loan notes accrues at the London interbank offered
rate and is payable semiannually. The interest rate for the period the
acquisition loan notes were outstanding during 1998 was 7.125%. At any time,
holders of acquisition loan notes can require a redemption of their notes at par
plus accrued interest in insolvency situations and if any principal or interest
payment is not paid within 30 days of its due date.
SENIOR LOAN AGREEMENT -- AFFILIATE NOTE
Bristol Water Trust entered into a L73 ($117.8) million senior loan
agreement with Azurix Europe in December 1998. As of April 30, 1999, all L73
($117.8) million was outstanding under this senior loan agreement. Bristol Water
Trust is a wholly owned subsidiary of Atlantic Water Trust. The interest rate on
this loan is 6.25% per annum payable semiannually. Repayment of this loan is
required by December 12, 2001.
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COVENANTS. In addition to agreeing to provide Bristol Water Trust with
quarterly financial information regarding its business and with notice of
defaults or changes in its accounting principles, Azurix Europe has agreed not
to:
- Sell, transfer or otherwise dispose of or cease to control the ordinary
shares of Wessex Water Ltd
- Make any substantial change to the general nature or scope of its
business as a water and wastewater company in the United Kingdom
- Declare, recommend, make or pay any dividend, distribution or payment to
any of its shareholders or make any payment in respect of any
subordinated debt unless no default is then outstanding or will result
from the relevant dividend, distribution or payment
- Amend or replace its articles of association or by-laws in any way which
would materially adversely affect the interests of Bristol Water Trust
FINANCIAL COVENANTS. Azurix Europe has agreed to maintain, on a quarterly
and annual basis, the following financial ratios:
- Consolidated EBITDA to consolidated net interest payable of at least
1.75:1; at December 31, 1998 and March 31, 1999, the ratio was 4.4:1 and
4.2:1, respectively
- A ratio of debt to total capitalization equal to or less than 60%; at
December 31, 1998 and March 31, 1999, the ratio was 39.7% and 40.5%,
respectively
Azurix Europe is currently in compliance with these covenants.
DEFAULT. Each of the following events is an event of default under this
loan agreement:
- Azurix Europe failing to pay any principal amount which is due and
payable by it within three business days after notice of non-payment
- Azurix Europe failing to comply with its covenants or a representation,
warranty or statement made by it being materially incorrect and not
remedied within 28 days
- The debt under the senior secured credit facility or any replacement
facility becoming prematurely due and payable as a result of an event of
default under the relevant credit agreement
- Insolvency of Azurix Europe or a material subsidiary of Azurix Europe
- Wessex's license being revoked or surrendered or ceasing to be held by
Wessex Water Ltd, a wholly owned subsidiary of Wessex Water Ltd or Azurix
Europe, except if the U.K. Water Industry Act 1991 is changed to permit
Wessex or one of its subsidiaries to carry on the water and wastewater
business of Wessex Water Ltd to the same extent as it is currently
carried out without the license
- Wessex's license or the rights or obligations under the license being
materially modified in any manner that, in the reasonable opinion of
Bristol Water Trust, has a material adverse effect on Azurix Europe
- Any person other than Wessex Water Ltd or one of its subsidiaries being
authorized to be a water or wastewater company in the area covered by
Wessex's license such that there would be a material adverse effect on
Azurix Europe
If a default occurs, Bristol Water Trust will have the right, by notice to
Azurix Europe at least three business days following the occurrence of the event
of default, to accelerate the payment of all outstanding principal and interest
under this loan agreement.
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INDEBTEDNESS OF WESSEX
BANK FACILITIES
Wessex Water Services is a borrower under credit facilities with three
major banks that provide an aggregate of L75 ($121.1) million of availability
for general corporate purposes. As of April 30, 1999, L75 ($121.1) million was
outstanding under these credit facilities. These credit facilities were entered
into on April 1, 1999 and mature on April 1, 2002. Loans under these credit
facilities accrue interest daily at the London interbank offered rate plus a
margin of 0.275% per annum. Each of these credit facilities requires Wessex
Water Services to pay an annual commitment fee equal to 0.15% of the available
amount of the facility.
Each of these facilities requires Wessex Water Services to maintain a ratio
in excess of 2:1 of earnings before interest received, interest costs,
exceptional charges and tax to interest costs less interest received. At
December 31, 1998 and March 31, 1999, the ratio was 5.1:1 and 5.1:1,
respectively. Wessex Water Services is currently in compliance with this
covenant.
Each of these facilities provides that each of the following will be an
event of default:
- Wessex Water Services failing to pay any amount due and payable under the
facility on its due date
- Wessex Water Services failing to comply with any other obligation under
the facility, unless remedied within 30 days of the breach
- Wessex Water Services providing the bank with materially inaccurate
factual information
- Wessex Water Services defaulting under any borrowing, where the
outstanding amount exceeds L15 ($24.2) million, such that prepayment of
such borrowing is required
- The Secretary of State or the Director making an application for an order
of the High Court directing that Wessex's business be managed by a person
appointed by the High Court because Wessex materially breaches any
principal duty or any enforcement order, Wessex is insolvent or the
Secretary of State determines that Wessex should be liquidated
- Wessex Water Services losing its license as the water and wastewater
services provider over a portion of its geographical region such that it
would lose 15% or more of its gross revenues
- Wessex Water Services ceasing to be a subsidiary of Azurix
In addition, as of April 30, 1999, L24 ($38.7) million was outstanding
under uncommitted credit facilities.
EUROPEAN INVESTMENT BANK LOANS
Wessex Water Services is a borrower under facilities provided by the
European Investment Bank for purposes of financing its capital investment
program. These facilities currently consist of two separate loans with an
aggregate principal balance outstanding as of April 30, 1999 of L41.3 ($66.6)
million, including the effect of currency swap contracts in place as follows:
- A U.S. dollar denominated floating rate loan of $48.4 million repayable
in full on October 1, 2001
- A 25.0 billion Italian lire ($18.2 million) fixed rate loan repayable in
ten semiannual installments through June 15, 2002
Wessex guarantees the obligations of Wessex Water Services under these
facilities.
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The U.S. dollar dominated loan bears interest at the London interbank
offered rate less 0.25% per annum. The Italian lire loan bears interest at 11.6%
per annum. Each of these facilities requires Wessex to maintain the following
financial covenants:
- Consolidated net borrowings will not exceed 150% of consolidated net
tangible worth; at December 31, 1998 and March 31, 1999, the ratio was
39.9% and 42.9%, respectively
- Operating profits will be at least 2.0x total interest expense on an
annual basis; at December 31, 1998 and March 31, 1999, the ratio was 9.8x
and 6.6x, respectively
- Consolidated net tangible worth will be at least L400 million; at
December 31, 1998 and March 31, 1999, consolidated net tangible worth was
L904.5 million and L908.2 million, respectively
In each of these facilities, Wessex Water Services has agreed that it will
not carry on any business other than the business of providing water and
wastewater services in the area covered by its license and any ancillary
activity. An event of default will occur under each facility, allowing the bank
to require immediate payment, in the following instances:
- If Wessex Water Services or Wessex is bankrupt or insolvent
- If Wessex Water Services ceases to be a subsidiary of Wessex
- If Wessex Water Services loses its license as the water and wastewater
services provider over a portion of its geographical region such that it
would lose 15% or more of its revenues
FINANCE LEASE AGREEMENT
Wessex Water Services is the lessee under a finance lease agreement with
Barclays Mercantile Business Finance Limited pursuant to which L59.7 ($96.4)
million of capital lease obligations (excluding interest on such obligations)
were outstanding as of April 30, 1999. Under the lease agreement, Wessex Water
Services is reimbursed by Barclays for the acquisition cost of machinery and
equipment acquired in connection with its capital expenditure program. Wessex
Water Services then makes periodic rental payments to Barclays. Payments are
made in installments payable semiannually through September 2002. Barclays has a
lien on the property that has been acquired in connection with the leases.
Wessex guarantees the obligations of Wessex Water Services under the lease
agreement. As guarantor, Wessex has agreed to maintain the same financial
covenants as required by the European Investment Bank facilities described
above.
The leasing of the equipment may be terminated at any time in the following
instances:
- Wessex Water Services defaults in making any rental payment
- Wessex Water Services or Wessex is bankrupt or insolvent
- Wessex Water Services sells or mortgages or agrees to sell or mortgage
any of the equipment or otherwise prejudices Barclays' ownership of, and
rights with respect to, the equipment
- Wessex Water Services fails to maintain adequate liability and property
insurance
- Wessex Water Services or Wessex defaults under any other debt agreement,
where the outstanding amount exceeds L5 ($8.05) million, such that
repayment of such debt is required
- Wessex ceases to own a majority of the capital stock of Wessex Water
Services
- A material adverse change occurs to Wessex Water Services which
substantially impairs its ability to perform its obligations under the
lease agreement
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SENIOR UNSECURED BONDS
On March 30, 1999, Wessex Water Services issued L300 ($484.2) million
principal amount of 10-year senior unsecured bonds bearing interest at 5.875%
per annum through its wholly owned subsidiary, Wessex Water Services Finance
Plc. Wessex Water Services has unconditionally and irrevocably guaranteed
payment of principal and interest of the bonds. All principal will be due on
March 30, 2009. Wessex Water Services used most of the proceeds from the sale of
the bonds to repay all outstanding amounts under its former bank credit
facilities as well as all outstanding amounts under uncommitted credit
facilities. The remaining proceeds will be used for general corporate purposes.
The bonds will be redeemed by Wessex Water Services as follows:
- On March 30, 2009 at their principal amount
- At the option of Wessex Water Services, if it becomes obligated to pay
additional amounts because of a change in law, at their principal amount
- At the option of Wessex Water Services, in whole or in part, at the
higher of the following:
-- their principal amount
-- a redemption price, which is calculated based on the published
redemption yield for a reasonably equivalent U.K. Government issued
security with similar maturity and coupon
Bondholders have the right to require Wessex to buy back their bonds prior
to maturity at a price equal to the principal amount of the bond plus all
accrued but unpaid interest in the following instances:
- Wessex's license as a water and wastewater company is terminated
- Wessex Water Services Finance Plc ceases to be a subsidiary of Wessex
Water Services
- Material changes occur to the rights or benefits of Wessex's license and
the rating on the bonds is downgraded below investment grade
- Legislation is enacted which materially changes the duties or powers of
the Secretary of State for the Environment or the Director General of
Water Services and the rating on the bonds is downgraded below investment
grade
In addition, the bonds could become immediately due and payable if an event
of default occurs. These events include a cross-default by Wessex Water Services
or its subsidiaries under other debt instruments and events of insolvency.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of our common stock in the
public market could adversely affect the market price of our common stock. After
this offering is completed, the number of shares available for future sale into
the public markets will be subject to legal and contractual restrictions, some
of which are described below. The lapsing of these restrictions will permit
sales of substantial amounts of our common stock in the public market or could
create the perception that such sales could occur, which could adversely affect
the market price for our common stock. These factors could also make it more
difficult to raise funds through future offerings of common stock.
After the offering, 117,100,000 shares of our common stock will be
outstanding. Of these shares, the 36,600,000 shares sold in the offering will be
freely transferable and may be sold without restriction or further registration
under the Securities Act, except for any shares acquired by an "affiliate" of
Azurix as defined in Rule 144 under the Securities Act. The remaining 80,500,000
shares of common stock outstanding and owned by Atlantic Water Trust will be
"restricted securities," as that term is defined in Rule 144, and may be sold in
the future without registration under the Securities Act to the extent permitted
by Rule 144, as described below, or any applicable exemption under the
Securities Act. In addition, shares owned by Atlantic Water Trust or its
transferee may be registered for sale under the Securities Act of 1933 under the
terms of its registration rights agreement with us. See "Transactions with
Enron, Atlantic Water Trust and Marlin Water Trust -- Registration Rights
Agreement" for more information regarding these registration rights.
RULE 144
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, including an affiliate, who has beneficially owned
"restricted securities" for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 1,171,000 shares immediately after the offering
- The average weekly trading volume of the common stock on the New York
Stock Exchange during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale with the SEC
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice and availability of current public
information about Azurix.
Since Atlantic Water Trust, the selling stockholder, is likely an
"affiliate" of us, subject to its exercise of registration rights described
under "Transactions with Enron, Atlantic Water Trust and Marlin Water Trust,"
the Rule 144 restrictions and requirements would be applicable to Atlantic Water
Trust's shares of Azurix for as long as the selling stockholder retains
affiliate status.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
LOCK-UP AGREEMENTS
In connection with the offering, we, Enron and the selling stockholder have
agreed, with exceptions specified in the lock-up agreements, not to directly or
indirectly engage in the following activities for a
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period of 180 days after the date of this prospectus without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated:
- Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of common stock or securities convertible into or
exchangeable or exercisable for or repayable with common stock, whether
now owned or thereafter acquired by the person executing the agreement or
with respect to which the person executing the agreement thereafter
acquires the power of disposition, or file a registration statement under
the Securities Act relating to any shares of common stock
- Enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of common stock whether any
such swap or transaction is to be settled by delivery of common stock or
other securities, in cash or otherwise, see "Underwriting -- No Sales of
Similar Securities"
As an exception to these restrictions, we may issue shares of our common
stock or securities convertible or exchangeable into our common stock as payment
of any part of the purchase price for businesses we acquire. However, shares
issued in this manner shall not be transferable during the 180-day lock-up
period. In addition, if Atlantic Water Trust is compelled to sell some or all of
its shares of our common stock in the event of a default under specified debt
obligations or a major decline in the price of Enron's common stock combined
with a downgrading of Enron's senior debt to below investment grade, then such
sale will be permitted. See "Risk Factors -- Future sales of our common stock
may depress our stock price."
STOCK PLAN
After the offering, we intend to file a registration statement covering the
sale of approximately 8.5 million shares of common stock reserved for issuance
under our stock plan.
Upon expiration of the lock-up period, these shares may be sold at any time
subject to compliance with the volume limitations and other restrictions of Rule
144. Options to purchase approximately 8.5 million shares of common stock will
also be outstanding after the offering. Such options generally provide for
incremental vesting over a three to five year period. In addition, more options
may be granted in the future. See "Management -- Stock Plan."
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a summary of material U.S. federal income and estate tax
consequences expected to result under current law from the purchase, ownership
and taxable disposition of common stock by non-U.S. holders of common stock. A
"non-U.S. holder" is any person or entity other than:
- A citizen or resident of the United States
- A corporation, partnership or other entity created or organized in or
under the laws of the United States or any state thereof
- An estate, the income of which is includable in gross income for U.S.
federal income tax purposes regardless of its source
- A trust whose administration is subject to the primary supervision of a
United States court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust
This summary does not address all of the U.S. federal income and estate tax
considerations that may be relevant to non-U.S. holders in light of their
particular circumstances or to non-U.S. holders that may be subject to special
treatment under United States federal income tax laws. This summary does not
discuss any aspect of state, local or foreign taxation. This summary is based on
current provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations, judicial opinions, published positions of the U.S. Internal Revenue
Service and other applicable authorities, all of which are subject to change,
possibly with retroactive effect. In this prospectus, the Internal Revenue Code
of 1986, as amended, is called the "Code." Prospective purchasers of common
stock are advised to consult their tax advisors regarding the U.S. federal,
state and local, and non-U.S. income and other tax consequences of acquiring,
holding and disposing of common stock.
DIVIDENDS
Azurix does not currently anticipate paying any dividends. Any dividends
paid to a non-U.S. holder on shares of common stock will be subject to
withholding of U.S. federal income tax at a rate of 30%, unless a lower rate is
prescribed under an applicable tax treaty. U.S. federal income tax withholding
will not be required, however, if the dividends are effectively connected with
the conduct of a trade or business of the non-U.S. holder within the United
States or, in the case of an applicable tax treaty, are attributable to a U.S.
permanent establishment maintained by the non-U.S. holder. Dividends that are
effectively connected with the conduct of a trade or business within the United
States, or are attributable to a U.S. permanent establishment will be subject to
U.S. federal income tax on a net income basis which is not collected by
withholding provided the non-U.S. holder files the appropriate certification
with Azurix or its agent. Any dividends received by a foreign corporation that
are effectively connected with the conduct of a trade or business within the
United States may also be subject to a "branch profits tax" at a rate of 30% or
such lower rate as may be specified by an applicable tax treaty.
For purposes of the withholding tax rules discussed above and for purposes
of determining the applicability of a tax treaty rate under current U.S.
Treasury Regulations, dividends paid to an address outside the United States
will be presumed to be paid to a resident of the country of address, unless the
payor has knowledge to the contrary. Under recently issued U.S. Treasury
Regulations (referred to as "final regulations") that are effective for payments
made after December 31, 1999, a non-U.S. holder of common stock who wishes to
claim the benefit of a tax treaty rate would be required to satisfy applicable
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certification and other requirements. In addition, under the final regulations,
in the case of common stock held by a foreign partnership:
- The certification requirement generally would be applied to the partners
of the partnership
- The partnership would be required to provide certain information,
including a U.S. taxpayer identification number
A non-U.S. holder of common stock that is eligible for a reduced rate of
U.S. federal income tax withholding pursuant to a tax treaty may obtain a refund
of any excess amounts currently withheld by filing an appropriate claim for
refund with the Internal Revenue Service.
SALE OR DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of any gain recognized on the sale or other taxable disposition of
common stock so long as:
- The gain is not effectively connected with the conduct of a trade or
business of the non-U.S. holder within the United States nor under an
applicable tax treaty, is attributable to a U.S. permanent establishment
maintained by the non-U.S. holder
- In the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, either:
-- Such holder is not present in the United States for 183 or more days
during the taxable year of the disposition
-- Such holder does not have a "tax home" in the United States for U.S.
federal income tax purposes nor does such holder maintain an office
or other fixed place of business in the United States to which such
gain is attributable
- Such non-U.S. holder is not subject to tax pursuant to the provisions of
U.S. federal income tax law applicable to certain U.S. expatriates
- The common stock continues to be "regularly traded on an established
securities market" for U.S. federal income tax purposes and the non-U.S.
holder has not held, directly or indirectly, at any time during the
five-year period ending on the date of disposition (or, if shorter, the
non-U.S. holder's holding period) more than five percent of the
outstanding common stock
INFORMATION REPORTING AND BACKUP WITHHOLDING
Azurix must report annually to the Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to, and the tax withheld with
respect to, each non-U.S. holder. These reporting requirements apply regardless
of whether withholding was reduced by an applicable tax treaty. Copies of these
information returns may also be made available under the provisions of a treaty
or information exchange agreement with the tax authorities in the country in
which the non-U.S. holder resides or is established. Under current law, U.S.
backup withholding tax, which is a withholding tax currently imposed at the rate
of 31% on certain payments to persons who fail to furnish the information
required under U.S. information reporting requirements, generally will not apply
to dividends paid on common stock to a non-U.S. holder at an address outside the
United States unless the payor has knowledge that the payee is a U.S. person.
However, under the final regulations, dividends paid on common stock after
December 31, 1999 may be subject to backup withholding unless applicable
certification requirements are satisfied.
Payment of the proceeds from a sale of common stock to or through a U.S.
office of a broker will be subject to information reporting and backup
withholding unless the owner certifies as to its status as a non-U.S. holder
under penalties of perjury or otherwise establishes an exemption. Payment of the
proceeds from a sale of common stock to or through a non-U.S. office of a broker
generally will not be subject to information reporting or backup withholding.
However, if such broker is a U.S. person, a "controlled foreign corporation" or
a foreign person that derives 50% or more of its gross income from the conduct
of
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a trade or business in the United States, such payment will be subject to
information reporting, but currently not backup withholding, unless such broker
has documentary evidence in its records that the owner is a non-U.S. holder and
certain other conditions are met or the owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be credited
against the non-U.S. holder's federal income tax liability, if any, or refunded,
provided the required information is furnished to the Internal Revenue Service.
ESTATE TAX
The fair market value of common stock owned, or treated as owned, by an
individual at the time of his death will be includable in his gross estate for
U.S. federal estate tax purposes and thus may be subject to U.S. estate tax,
even though the individual at the time of death is neither a citizen of nor
domiciled in the United States, unless an applicable estate tax treaty provides
otherwise.
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UNDERWRITING
GENERAL
We intend to offer our common stock in the United States and Canada through
a number of U.S. underwriters and elsewhere through international managers.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber
Incorporated, BT Alex. Brown Incorporated and Banc of America Securities LLC are
acting as U.S. representatives of each of the U.S. underwriters named below.
Under a U.S. purchase agreement among Azurix, the selling stockholder, Enron and
the U.S. underwriters, and concurrently with the sale of 7,320,000 shares of
common stock to the international managers, Azurix and the selling stockholder
have agreed to sell to the U.S. underwriters, and each of the U.S. underwriters
severally and not jointly has agreed to purchase from Azurix and the selling
stockholder, the number of shares of common stock set forth opposite its name
below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
- ----------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Credit Suisse First Boston Corporation......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
PaineWebber Incorporated....................................
BT Alex. Brown Incorporated.................................
Banc of America Securities LLC..............................
----------
Total.......................................... 29,280,000
==========
</TABLE>
Azurix, the selling stockholder and Enron have also entered into an
international purchase agreement with the international managers outside the
United States and Canada for whom Merrill Lynch International, Credit Suisse
First Boston (Europe) Limited, Donaldson, Lufkin & Jenrette International,
PaineWebber International (U.K.) Ltd., ABN AMRO Rothschild and HSBC Investment
Banking are acting as lead managers. Under the international purchase agreement,
and concurrently with the sale of 29,280,000 shares of common stock to the U.S.
underwriters under the U.S. purchase agreement, Azurix and the selling
stockholder have agreed to sell to the international managers, and the
international managers have agreed to purchase from Azurix and the selling
stockholder, an aggregate of 7,320,000 shares of common stock. The initial
public offering price per share and the total underwriting discount per share of
common stock are identical under the U.S. purchase agreement and the
international purchase agreement.
In the U.S. purchase agreement and the international purchase agreement,
the U.S. underwriters and the international managers, respectively, have agreed,
under the terms of those agreements, to purchase all of the shares of common
stock being sold under those agreements if any of the shares of our common stock
being sold under those agreements are purchased. In the event of a default by an
underwriter, the U.S. purchase agreement and the international purchase
agreement provide that, in some circumstances, the purchase commitments of
nondefaulting underwriters may be increased or the purchase agreements may be
terminated. The closings for the sale of shares of our common stock to the U.S.
underwriters and the international managers are conditioned upon one another.
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Azurix and Enron have agreed to indemnify the U.S. underwriters and the
international managers against some liabilities, including some liabilities
under the Securities Act, or to contribute to payments the U.S. underwriters and
the international managers may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of legal matters by counsel for the underwriters and other conditions.
The underwriters reserve the right to withdraw, cancel or modify offers and to
reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised Azurix and the selling stockholder
that the U.S. underwriters propose initially to offer the shares of our common
stock to the public at the initial public offering price set forth on the cover
page of this prospectus, and to certain dealers at such price less a concession
not in excess of $ per share of common stock. The U.S. underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
of common stock to certain other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
The following table shows the per share and total public offering price,
the underwriting discount to be paid by Azurix and the selling stockholder to
the U.S. underwriters and the international managers and the proceeds before
expenses to Azurix and the selling stockholder. This information is presented
assuming either no exercise or full exercise by the U.S. underwriters and the
international managers of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public offering price.................................... $ $ $
Underwriting discount.................................... $ $ $
Proceeds, before expenses, to Azurix..................... $ $ $
Proceeds, before expenses, to the selling stockholder.... $ $ $
</TABLE>
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $5,250,000 and are payable by Azurix and the selling stockholder.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of common stock to each
other for purposes of resale at the public offering price, less an amount not
greater than the selling concession. Under the terms of the intersyndicate
agreement, the U.S. underwriters and any dealer to whom they sell shares of our
common stock will not offer to sell or sell shares of common stock to persons
who are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, and the
international managers and any dealer to whom they sell shares of common stock
will not offer to sell or sell shares of common stock to U.S. persons or to
Canadian persons or to persons they believe intend to resell to U.S. persons or
Canadian persons, except in the case of transactions under the terms of the
intersyndicate agreement.
OVER-ALLOTMENT OPTION
The selling stockholder has granted an option to the U.S. underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 4,392,000 additional shares of our common stock at the initial
public offering price set forth on the cover page of this prospectus, less the
underwriting discount. The U.S. underwriters may exercise this option solely to
cover over-allotments, if any, made on the sale of our common stock offered
hereby. To the extent that the U.S. underwriters exercise this option,
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each U.S. underwriter will be obligated, subject to conditions specified in the
purchase agreement, to purchase a number of additional shares of our common
stock proportionate to such U.S. underwriter's initial amount reflected in the
foregoing table.
The selling stockholder also has granted an option to the international
managers, exercisable for 30 days after the date of this prospectus, to purchase
up to an aggregate of 1,098,000 additional shares of common stock to cover
over-allotments, if any, on terms similar to those granted to the U.S.
underwriters.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 3,660,000 of the shares offered hereby to be sold
to some of our directors, officers and employees who have expressed an interest
in purchasing our common stock. The number of shares of our common stock
available for sale to the general public will be reduced to the extent that
those persons purchase the reserved shares. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of the offering will
be offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
Azurix, Enron and the selling stockholder have agreed, with exceptions
specified in the lock-up agreements, not to directly or indirectly engage in the
following activities for a period of 180 days after the date of this prospectus
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated:
- Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file a registration statement under
the Securities Act relating to any shares of our common stock
- Enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise, see "Shares Eligible for
Future Sale"
As an exception to these restrictions, we may issue shares of our common
stock or securities convertible or exchangeable into our common stock as payment
of any part of the purchase price for businesses we acquire. However, shares
issued in this manner shall not be transferable during the 180-day lock-up
period. In addition, if Atlantic Water Trust is compelled to sell some or all of
its shares of our common stock in the event of a default under specified debt
obligations or a major decline in the price of Enron's common stock combined
with a downgrading of Enron's senior debt to below investment grade, then such
sale will be permitted. See "Risk Factors--Future sales of our common stock may
depress our stock price."
NEW YORK STOCK EXCHANGE LISTING
The common stock has been approved for listing on the New York Stock
Exchange under the symbol "AZX," subject to official notice of issuance. To meet
the requirements for listing of our common stock on that exchange, the
underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
Azurix, the selling stockholder, Enron, the
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<PAGE> 124
U.S. representatives and the lead managers. The factors considered in
determining the initial public offering price, in addition to prevailing market
conditions, are the valuation multiples of publicly traded companies that the
U.S. representatives and the lead managers believe to be comparable to us,
including adjusted market value to EBITDA multiples, price to book value
multiples and price to earnings multiples, certain of our financial information,
the history of, and the prospects for, our company and the industry in which we
compete, an assessment of our management, our past and present operations, the
prospects for and timing of our future revenues, the present state of our
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for our
common stock or that the common stock will trade in the public market subsequent
to this offering at or above the initial public offering price.
The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered in this offering.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of our common stock is completed, rules of the SEC
may limit the ability of the underwriters and selling group members to bid for
and purchase our common stock. As an exception to these rules, the U.S.
representatives and the lead managers are permitted to engage in certain
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with this offering, i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the U.S.
representatives and the lead managers may reduce that short position by
purchasing our common stock in the open market. The U.S. representatives and the
lead managers may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
PENALTY BIDS
The U.S. representatives and the lead managers may also impose a penalty
bid on underwriters and selling group members. This means that if the U.S.
representatives or the lead managers purchase shares of our common stock in the
open market to reduce the underwriters' short position or to stabilize the price
of our common stock, they may reclaim the amount of the selling concession from
the underwriters and selling group members who sold those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
None of Azurix, the selling stockholder or any of the underwriters makes
any representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of our common stock.
In addition, none of Azurix, the selling stockholder or any of the underwriters
makes any representation that the U.S. representatives or the lead managers will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates engage in transactions with,
and perform services for, our company, Enron and Enron's affiliates in the
ordinary course of business and have engaged, and may in the future engage, in
commercial banking and investment banking transactions and services with our
company, Enron and Enron's affiliates, for which they have received customary
compensation.
We have engaged Merrill Lynch & Co. to act as our financial advisor in
evaluating two potential acquisition opportunities for which we will pay an
ordinary and customary fee if we decide to pursue these
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<PAGE> 125
opportunities and they result in an acquisition. We have also agreed to
reimburse Merrill Lynch & Co. for all reasonable out-of-pocket expenses incurred
in connection with these engagements.
STAMP TAXES
Purchasers of the shares of common stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page hereof.
LEGAL MATTERS
Legal matters with respect to the validity of the issuance of the shares of
our common stock offered hereby will be passed upon for us by Vinson & Elkins
L.L.P., Houston, Texas. Legal matters relating to our common stock offered
hereby will be passed upon for the U.S. underwriters and the international
managers by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements and schedules for Azurix Corp. and
subsidiaries as of December 31, 1998 and for the period from January 29, 1998
(Date of Inception) to December 31, 1998, included in this prospectus and
elsewhere in the registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated statements of income, changes in stockholders' equity and
cash flows and schedule for Wessex Water Plc (now renamed Wessex Water Ltd)
(predecessor company) for the period from April 1, 1998 to October 2, 1998
included in this prospectus have been audited by Arthur Andersen, independent
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements and schedule for Wessex Water Plc
(now renamed Wessex Water Ltd) (predecessor company) as of March 31, 1998 and
for the years ended March 31, 1998 and 1997, included in this prospectus, have
been audited by PricewaterhouseCoopers, independent accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of that firm as experts in giving said reports.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, and the rules and regulations
promulgated thereunder, with respect to the common stock offered under this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement and the attached exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract or other document that is filed as
an exhibit to the registration statement are summaries of the material
provisions of those documents. These summaries are qualified in all respects by
reference to the full text of such contract or document.
The registration statement can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the registration statement can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Section by calling the SEC at (800) 732-0330. In addition, the
registration statement is publicly available through the SEC's site on the
internet, located at http://www.sec.gov.
Upon completion of this offering, we will be required to comply with the
informational requirements of the Securities and Exchange Act of 1934 and,
accordingly, will file current reports on Form 8-K, quarterly reports on Form
10-Q, annual reports on Form 10-K, proxy statements and other information with
the SEC. Those reports, proxy statements and other information will be available
for inspection and copying at the regional offices, public reference facilities
and internet site of the SEC referred to above. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AZURIX CORP. -- UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION:
Unaudited Condensed Consolidated Pro Forma Financial
Information............................................ F-2
Unaudited Condensed Consolidated Pro Forma Statement of
Income for the Year Ended December 31, 1998............ F-3
Unaudited Condensed Consolidated Pro Forma Statement of
Income for the Three Months Ended March 31, 1999....... F-4
Unaudited Condensed Consolidated Pro Forma Balance Sheet
at March 31, 1999...................................... F-5
Notes to Unaudited Condensed Consolidated Pro Forma
Financial Statements................................... F-6
AZURIX CORP. -- CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................. F-8
Consolidated Statements of Income for the period from
January 29, 1998 (Date of Inception) to December 31,
1998 and for the Three Months Ended March 31, 1999
(unaudited)............................................ F-9
Consolidated Statements of Comprehensive Income (Loss) for
the period from January 29, 1998 (Date of Inception) to
December 31, 1998 and for the Three Months Ended March
31, 1999 (unaudited)................................... F-10
Consolidated Balance Sheets at December 31, 1998 and at
March 31, 1999 (unaudited)............................. F-11
Consolidated Statements of Cash Flows for the period from
January 29, 1998 (Date of Inception) to December 31,
1998 and for the Three Months Ended March 31, 1999
(unaudited)............................................ F-12
Consolidated Statements of Changes in Stockholder's Equity
for the period from January 29, 1998 (Date of
Inception) to December 31, 1998 and for the Three
Months Ended March 31, 1999 (unaudited)................ F-13
Notes to Consolidated Financial Statements................ F-14
WESSEX WATER PLC (NOW RENAMED WESSEX WATER LTD) (PREDECESSOR
COMPANY) -- CONSOLIDATED FINANCIAL STATEMENTS:
Reports of Independent Accountants........................ F-31
Consolidated Statements of Income for the Six Months Ended
October 2, 1998 and the Years Ended March 31, 1998 and
1997................................................... F-33
Consolidated Balance Sheet at March 31, 1998.............. F-34
Consolidated Statements of Cash Flows for the Six Months
Ended October 2, 1998 and the Years Ended March 31,
1998 and 1997.......................................... F-35
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended October 2, 1998 and the Years
Ended March 31, 1998 and 1997.......................... F-36
Notes to the Consolidated Financial Statements............ F-37
</TABLE>
F-1
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AZURIX CORP.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma statements of
income for the year ended December 31, 1998, and the three months ended March
31, 1999, give effect to the October 2, 1998 acquisition of Wessex by Azurix,
the related redemption of the preference shares of Wessex and sale of its
interest in Wessex Waste Management Ltd, a joint venture with Waste Management
International Plc, and Azurix's initial public offering of its stock, as though
each occurred on January 1, 1998. The unaudited condensed consolidated pro forma
balance sheet at March 31, 1999 gives effect to the offering as though such
offering occurred on March 31, 1999. The unaudited condensed consolidated pro
forma statements of income do not include the results of operations from
Azurix's investment in Obras Sanitarias Mendoza S.A. prior to the date it was
acquired, and do not include any pro forma or historical effects from Azurix's
investment in a water concession for the city of Cancun, Mexico prior to the
date it was acquired in 1999 or the acquisition of Philip Utilities Management
Corporation in May 1999. The unaudited condensed consolidated pro forma balance
sheet does not include any pro forma effect from Azurix's acquisition of Philip
Utilities.
The unaudited condensed consolidated pro forma statements of income and
balance sheet have been prepared based upon the Azurix and Wessex consolidated
statements of income and balance sheet included elsewhere in this prospectus and
have been prepared based upon available information and assumptions that the
management of Azurix believes are reasonable. The unaudited condensed
consolidated pro forma statements of income are for informational purposes only,
and do not purport to represent what Azurix's actual results of operations would
have been had the Wessex acquisition, the related redemption of the preference
shares of Wessex and sale of its interest in Wessex Waste Management Ltd, a
joint venture with Waste Management International Plc, and the offering,
occurred on January 1, 1998. The unaudited pro forma balance sheet is for
informational purposes only, and does not purport to represent Azurix's actual
financial position had the offering occurred on March 31, 1999. In addition, the
unaudited condensed consolidated pro forma financial statements are not
necessarily indicative of future results of operations or financial position of
Azurix and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of Azurix and Wessex and the related notes thereto included
elsewhere in this prospectus.
F-2
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AZURIX CORP.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WESSEX PRO FORMA FOR WESSEX OFFERING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS ACQUISITION ADJUSTMENTS AS ADJUSTED
---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues........... $119.7 $344.5 $ -- $464.2 $ -- $464.2
Operating expenses:
Operations and
maintenance............. 31.6 89.3 -- 120.9 -- 120.9
General and
administrative.......... 20.3 44.8 (20.7)(a) 44.4 -- 44.4
Depreciation and
amortization............ 22.2 50.0 16.1(b) 88.3 -- 88.3
------ ------ ------ ------ ------ ------
Total operating
expenses......... 74.1 184.1 (4.6) 253.6 -- 253.6
------ ------ ------ ------ ------ ------
Operating income............. 45.6 160.4 4.6 210.6 -- 210.6
------ ------ ------ ------ ------ ------
Other income (expense):
Equity in earnings (loss)
of unconsolidated
affiliates.............. (0.8) 9.1 (9.1)(c) (0.8) -- (0.8)
Interest income............ 1.3 0.2 -- 1.5 -- 1.5
Interest expense, net...... (16.4) (9.7) (41.5)(d) (67.6) 5.6(g) (62.0)
Other expense.............. (1.2) -- 1.2(e) -- -- --
------ ------ ------ ------ ------ ------
Income before income taxes... 28.5 160.0 (44.8) 143.7 5.6 149.3
------ ------ ------ ------ ------ ------
Income tax expense........... 18.3 53.2 (15.0)(f) 56.5 1.7(f) 58.2
------ ------ ------ ------ ------ ------
Net income................... $ 10.2 $106.8 $(29.8) $ 87.2 $ 3.9 $ 91.1
====== ====== ====== ====== ====== ======
Earnings per share of common
stock -- basic and
diluted.................... $ 0.10 $ 0.87 $ 0.78
====== ====== ======
Weighted average shares
outstanding -- basic and
diluted.................... 100.0 100.0 17.1(h) 117.1
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated pro forma financial statements.
F-3
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AZURIX CORP.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Operating revenues........................................ $116.9 $ -- $116.9
Operating expenses:
Operations and maintenance.............................. 31.8 -- 31.8
General and administrative.............................. 22.6 -- 22.6
Depreciation and amortization........................... 23.3 -- 23.3
------ ----- ------
Total operating expenses........................ 77.7 -- 77.7
------ ----- ------
Operating income.......................................... 39.2 -- 39.2
------ ----- ------
Other income (expense):
Equity in earnings of unconsolidated affiliates......... 0.2 -- 0.2
Interest income......................................... 2.1 -- 2.1
Interest expense, net................................... (17.0) 1.1(g) (15.9)
------ ----- ------
Income before income taxes................................ 24.5 1.1 25.6
------ ----- ------
Income tax expense........................................ 8.4 0.3(f) 8.7
------ ----- ------
Net income................................................ $ 16.1 $ 0.8 $ 16.9
====== ===== ======
Earnings per share of common stock -- basic and diluted... $ 0.16 $ 0.14
====== ======
Weighted average shares outstanding -- basic and
diluted................................................. 100.0 17.1 117.1
====== ===== ======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated pro forma financial statements.
F-4
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AZURIX CORP.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AT MARCH 31, 1999
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 13.1 $ 195.1(i) $ 208.2
Trade receivables (net of allowance for doubtful accounts
of $6.9).............................................. 40.6 -- 40.6
Unbilled receivables..................................... 25.7 -- 25.7
Other.................................................... 45.4 -- 45.4
-------- -------- --------
Total current assets............................. 124.8 195.1 319.9
-------- -------- --------
Property, plant and equipment, at cost..................... 2,276.5 -- 2,276.5
Less accumulated depreciation.............................. (32.8) -- (32.8)
-------- -------- --------
Property, plant and equipment, net............... 2,243.7 -- 2,243.7
-------- -------- --------
Investments in and advances to unconsolidated affiliates... 103.0 -- 103.0
Goodwill, net.............................................. 847.0 -- 847.0
Other assets............................................... 30.8 -- 30.8
-------- -------- --------
Total Assets..................................... $3,349.3 $ 195.1 $3,544.4
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable -- affiliates........................... $ 67.9 $ (64.2)(j) $ 3.7
Accounts payable and accruals............................ 95.2 -- 95.2
Deferred income.......................................... 21.8 -- 21.8
Accrued taxes............................................ 37.9 -- 37.9
Accrued interest......................................... 8.6 -- 8.6
Current maturities of long-term debt..................... 27.9 -- 27.9
-------- -------- --------
Total current liabilities........................ 259.3 (64.2) 195.1
-------- -------- --------
Note payable -- affiliate.................................. 117.8 -- 117.8
Long-term debt............................................. 940.3 (67.8)(k) 872.5
Deferred taxes............................................. 402.5 -- 402.5
Other long-term liabilities................................ 14.7 -- 14.7
-------- -------- --------
Total liabilities................................ 1,734.6 (132.0) 1,602.6
-------- -------- --------
Commitments and contingencies
Stockholder's 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, historical and as adjusted,
respectively.......................................... 1.0 0.2(l) 1.2
Additional paid-in capital............................... 1,671.0 326.9(l) 1,997.9
Retained earnings........................................ 26.3 -- 26.3
Cumulative foreign currency translation adjustment....... (83.6) -- (83.6)
-------- -------- --------
Total stockholder's equity....................... 1,614.7 327.1 1,941.8
-------- -------- --------
Total Liabilities and Stockholder's Equity....... $3,349.3 $ 195.1 $3,544.4
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated pro forma financial statements.
F-5
<PAGE> 132
AZURIX CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
The following pro forma adjustments give effect to the Wessex acquisition,
and the related redemption of the preference shares of Wessex, sale of its
interest in Wessex Waste Management Ltd, a joint venture with Waste Management
International Plc, and the offering, as though each occurred on January 1, 1998
for income statement purposes, and give effect to the offering, as though it
occurred on March 31, 1999 for balance sheet purposes. The historical results of
Wessex for the period prior to the Wessex acquisition were derived by combining
the Wessex historical audited results for the period April 1, 1998 to October 2,
1998 and the Wessex historical audited results for the year ended March 31,
1998, less the historical unaudited results for the nine months ended December
31, 1997. The unaudited condensed consolidated pro forma statement of income
includes the results of operations from Azurix's investment in Obras Sanitarias
Mendoza S.A. from the date it was acquired, and does not include any pro forma
or historical effects from Azurix's $13.5 million investment in a water
concession for the city of Cancun, Mexico prior to the date it was acquired in
March 1999 or the acquisition of Philip Utilities in May 1999.
The cost of the Wessex acquisition, including transaction costs, was $2.4
billion. The pro forma adjustments are based on a preliminary purchase price
allocation because Azurix is in the process of finalizing its assessment of the
related fair values. This preliminary purchase price allocation includes
tangible assets of $2.7 billion, goodwill of $0.9 billion, liabilities assumed
of $1.1 billion and redeemable preferred stock of $0.1 billion. Azurix does not
believe the final evaluation of these assessments will materially affect the
allocation of the purchase price.
The historical results of operations for Azurix are for the period from
January 29, 1998 (date of inception) to December 31, 1998. However,
substantially all of Azurix's results of operations occurred during the fourth
quarter of 1998, subsequent to the Wessex acquisition.
(a) To adjust Wessex historical general and administrative expense for
costs incurred by Wessex prior to the Wessex acquisition, but directly related
to the Wessex acquisition.
(b) To adjust historical Wessex depreciation of tangible assets and
amortization of goodwill acquired in the Wessex acquisition for the period
during 1998 prior to the Wessex acquisition. The adjustment to depreciation and
amortization was based on a preliminary purchase price allocation. Goodwill is
being amortized over 40 years.
(c) To adjust historical equity earnings from Wessex's historical results
to reflect the sale of its interest in Wessex Waste Management Ltd for $337.9
million.
(d) To record the following:
(1) Interest expense for the period January 1, 1998 to October 2, 1998
on U.K. pounds sterling denominated loan notes issued to Wessex
shareholders to finance the Wessex acquisition. The average balance
outstanding was $116.4 million, adjusted for foreign currency exchange
rates, and an average interest rate of 7.8% was assumed;
(2) Interest expense for the period January 1, 1998 to October 2, 1998
on U.K. pounds sterling denominated affiliate note payable used to finance
the Wessex acquisition in the amount of $120.5 million, adjusted for
average foreign currency exchange rates, at an assumed interest rate of
6.25%;
(3) Interest expense for the period January 1, 1998 to October 2, 1998
on U.K. pounds sterling denominated funds borrowed under a five year bank
credit facility used to finance the Wessex acquisition less a portion of
the proceeds received from the sale of its interest in Wessex Waste
Management Ltd that were used to paydown such borrowings. The average
balance outstanding was $209.7 million, adjusted for foreign currency
exchange rates, and an average interest rate of 8.2% was assumed;
F-6
<PAGE> 133
(4) Interest expense for the period January 1, 1998 to December 9,
1998 on U.K. pounds sterling denominated funds borrowed to redeem Wessex's
preference shares. The weighted average funds borrowed was $215.5 million,
adjusted for foreign currency exchange rates, and an average interest rate
of 8.1% was assumed.
(e) To reflect the reduction in dividends related to the redemption of the
Wessex preference shares.
(f) To record the tax impact of the pro forma adjustments described above
at the U.K. statutory rate of 31%, excluding non-deductible goodwill
amortization.
(g) To reflect the reduction in interest expense due to the planned
repayment of a portion of the existing debt from the proceeds of the offering.
(h) To reflect shares issued by Azurix in the offering.
(i) To record the estimated net proceeds of $327.1 to Azurix from the
offering less $67.8 million of the proceeds used to paydown debt and $64.2
million of the proceeds used to repay funds advanced to Azurix by Enron as of
March 31, 1999. Azurix has drawn $182.9 million under its senior credit facility
as of May 21, 1999. Azurix intends to use $182.2 million of the net proceeds
from the offering along with available cash to repay this indebtedness.
Following the application of the net proceeds from the offering, $387.4 million
of borrowing capacity under the senior credit facility will be available to fund
future acquisitions. It is expected that $365.7 million of this facility, along
with $72.9 million of proceeds from the offering, will be used to fund the
$438.6 million acquisition of an interest in concessions in two regions of the
Province of Buenos Aires, Argentina.
(j) To record the partial use of proceeds to Azurix from the offering to
repay funds advanced to Azurix by Enron.
(k) To record the partial use of proceeds to Azurix from the offering to
paydown debt.
(l) To reflect the offering of Azurix's stock. The number of shares assumed
to be offered by Azurix is 17.1 million. The assumed offering price per share is
$20.50 and the assumed underwriting discounts and expenses related to the shares
offered by Azurix are $23.5 million.
F-7
<PAGE> 134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Azurix Corp.:
We have audited the accompanying consolidated balance sheet of Azurix Corp.
(a Delaware corporation) and subsidiaries as of December 31, 1998, and the
related consolidated statements of income, comprehensive income (loss), cash
flows and changes in stockholder's equity for the period from January 29, 1998
(Date of Inception) to December 31, 1998. These financial statements are the
responsibility of Azurix Corp.'s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Azurix Corp. and
subsidiaries as of December 31, 1998, and the results of their operations, cash
flows and changes in stockholder's equity for the period from January 29, 1998
(Date of Inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Houston, Texas
February 22, 1999
F-8
<PAGE> 135
AZURIX CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 29, 1998 THREE MONTHS
(DATE OF INCEPTION) ENDED
TO DECEMBER 31, MARCH 31,
1998 1999
------------------- ------------
(UNAUDITED)
<S> <C> <C>
Operating revenues.......................................... $119.7 $116.9
Operating expenses:
Operations and maintenance................................ 31.6 31.8
General and administrative................................ 20.3 22.6
Depreciation and amortization............................. 22.2 23.3
------ ------
Total operating expenses.......................... 74.1 77.7
------ ------
Operating income............................................ 45.6 39.2
------ ------
Other income (expense):
Equity in earnings (loss) of unconsolidated affiliates.... (0.8) 0.2
Interest income........................................... 1.3 2.1
Interest expense, net..................................... (16.4) (17.0)
Other expense............................................. (1.2) --
------ ------
Income before income taxes.................................. 28.5 24.5
------ ------
Income tax expense.......................................... 18.3 8.4
------ ------
Net income.................................................. $ 10.2 $ 16.1
====== ======
Earnings per share of common stock -- basic and diluted..... $ 0.10 $ 0.16
====== ======
Weighted average shares outstanding -- basic and diluted.... 100.0 100.0
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 136
AZURIX CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 29, 1998 THREE MONTHS
(DATE OF INCEPTION) ENDED
TO DECEMBER 31, MARCH 31,
1998 1999
------------------- ------------
(UNAUDITED)
<S> <C> <C>
Net income.................................................. $ 10.2 $ 16.1
Other comprehensive income:
Foreign currency translation adjustment................... (36.7) (46.9)
------ ------
Comprehensive income (loss)................................. $(26.5) $(30.8)
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 137
AZURIX CORP.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5.3 $ 13.1
Trade receivables (net of allowance for doubtful accounts
of $6.3 and $6.9, respectively)........................ 63.7 40.6
Unbilled receivables...................................... 24.3 25.7
Other..................................................... 38.5 45.4
-------- --------
Total current assets.............................. 131.8 124.8
-------- --------
Property, plant and equipment, at cost...................... 2,271.1 2,276.5
Less accumulated depreciation............................... (16.7) (32.8)
-------- --------
Property, plant and equipment, net................ 2,254.4 2,243.7
-------- --------
Investments in and advances to unconsolidated affiliates.... 74.3 103.0
Goodwill, net............................................... 877.6 847.0
Other assets................................................ 20.2 30.8
-------- --------
Total Assets...................................... $3,358.3 $3,349.3
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable -- affiliates............................ $ 20.0 $ 67.9
Accounts payable and accruals............................. 101.8 95.2
Deferred income........................................... 71.0 21.8
Accrued taxes............................................. 31.8 37.9
Accrued interest.......................................... 9.8 8.6
Current maturities of long-term debt...................... 27.0 27.9
-------- --------
Total current liabilities......................... 261.4 259.3
-------- --------
Note payable -- affiliate................................... 121.4 117.8
Long-term debt.............................................. 912.1 940.3
Deferred taxes.............................................. 404.4 402.5
Other long-term liabilities................................. 13.5 14.7
-------- --------
Total liabilities................................. 1,712.8 1,734.6
-------- --------
Commitments and contingencies (Note 15)
Stockholder's 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 issued and
outstanding............................................ 1.0 1.0
Additional paid-in capital................................ 1,671.0 1,671.0
Retained earnings......................................... 10.2 26.3
Cumulative foreign currency translation adjustment........ (36.7) (83.6)
-------- --------
Total stockholder's equity........................ 1,645.5 1,614.7
-------- --------
Total Liabilities and Stockholder's Equity........ $3,358.3 $3,349.3
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 138
AZURIX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
JANUARY 29, 1998 ENDED
(DATE OF INCEPTION) MARCH 31,
TO DECEMBER 31, ------------
1998 1999
------------------- ------------
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net income................................................ $ 10.2 $ 16.1
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization.......................... 22.2 23.3
Amortization of deferred financing cost................ 0.6 0.5
Deferred income taxes.................................. 13.4 5.3
Equity in (earnings) loss of unconsolidated
affiliates........................................... 0.8 (0.2)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables and other
current assets.................................... (17.1) 9.7
Decrease in accounts payable and accruals............ (25.7) (44.1)
(Increase) decrease in other assets.................. (2.5) 0.3
Increase in other long-term liabilities.............. 1.3 1.6
Other................................................ 1.2 --
--------- -------
Net cash provided by operating activities................... 4.4 12.5
--------- -------
Investing Activities:
Capital expenditures...................................... (63.2) (74.5)
Business acquisition, net of cash acquired................ (2,270.8) --
Proceeds from the sale of equity investment............... 337.9 --
Investment in and advances to unconsolidated affiliates... -- (28.5)
Other..................................................... 13.5 (6.8)
--------- -------
Net cash used in investing activities....................... (1,982.6) (109.8)
--------- -------
Financing Activities:
Net proceeds from (repayments of) revolving credit
facilities............................................. 160.8 (410.8)
Proceeds from long-term borrowings........................ 550.8 477.7
Repayments of long-term borrowings........................ (226.2) (9.8)
Issuance of common stock and capital contributed.......... 1,600.2 --
Redemption of subsidiary preference shares................ (106.4) --
Dividends paid on subsidiary preference shares............ (1.7) --
Advances from Enron....................................... -- 48.0
--------- -------
Net cash provided by financing activities................... 1,977.5 105.1
--------- -------
Effect of exchange rate changes on cash..................... 6.0 --
--------- -------
Change in cash and cash equivalents......................... 5.3 7.8
--------- -------
Cash and cash equivalents, beginning of period.............. -- 5.3
--------- -------
Cash and cash equivalents, end of period.................... $ 5.3 $ 13.1
========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 139
AZURIX CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL FOREIGN CURRENCY
PREFERRED COMMON PAID-IN RETAINED TRANSLATION
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
--------- ------ ---------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 29, 1998
(Date of Inception)......... $-- $ -- $ -- $ -- $ -- $ --
Issuance of 100,000,000
shares of common stock... -- 1.0 -- -- -- 1.0
Capital contributions....... -- -- 1,599.2 -- -- 1,599.2
Subsidiary stock
contributed.............. -- -- 71.8 -- -- 71.8
Foreign currency translation
adjustment............... -- -- -- -- (36.7) (36.7)
Net income.................. -- -- -- 10.2 -- 10.2
--- ---- -------- ----- ------ --------
Balance at December 31,
1998........................ -- 1.0 1,671.0 10.2 (36.7) 1,645.5
--- ---- -------- ----- ------ --------
Foreign currency translation
adjustment (unaudited)... -- -- -- -- (46.9) (46.9)
Net income (unaudited)...... -- -- -- 16.1 -- 16.1
--- ---- -------- ----- ------ --------
Balance at March 31, 1999
(unaudited)................. $-- $1.0 $1,671.0 $26.3 $(83.6) $1,614.7
=== ==== ======== ===== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 140
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Azurix Corp. was formed by Enron Corp. on January 29, 1998. Azurix is
engaged in the business of acquiring, owning, operating and managing water and
wastewater assets, providing water and wastewater related services and managing
and developing resources in the global water industry. Azurix is a wholly owned
subsidiary of Atlantic Water Trust, in which Enron and Marlin Water Trust each
hold a 50% voting interest. During 1998, Azurix indirectly acquired all of the
outstanding ordinary share capital of Wessex Water Plc (see Note 2) and Enron
contributed to Azurix the outstanding common stock of a subsidiary that in June
1998 acquired a 32.1% ownership interest in Obras Sanitarias Mendoza S.A. Wessex
and Obras Sanitarias Mendoza provide water and wastewater treatment services in
southwestern England and the Province of Mendoza, Argentina, respectively.
Azurix entered into an agreement on December 19, 1998 to purchase 49.9% of
an entity whose principal asset is the water concession for the city of Cancun,
Mexico. This agreement was not binding until specific material conditions were
met, and these conditions were met subsequent to December 31, 1998. As a result,
the Cancun concession is not reflected in Azurix's 1998 financial statements.
The purchase price was $13.5 million and Azurix agreed to provide up to $25.0
million in debt financing. On February 25, 1999, Azurix funded $15.0 million of
debt financing to the Cancun concession. The Cancun concession acquisition
closed on March 24, 1999. The results of the Cancun concession acquisition are
reflected in the financial statements as of the acquisition closing date.
Azurix was incorporated on January 29, 1998, and as a result, the
Consolidated Statement of Income, Consolidated Statement of Comprehensive Income
(Loss), Consolidated Statement of Cash Flows and Consolidated Statement of
Changes in Stockholder's Equity are from the date of inception to December 31,
1998. However, substantially all of Azurix's results of operations, cash flows
and equity transactions occurred during the fourth quarter of 1998, subsequent
to the Wessex acquisition.
INTERIM PRESENTATION (UNAUDITED)
The accompanying consolidated interim financial statements and disclosures
are unaudited and have been prepared by Azurix in accordance with generally
accepted accounting principles and reflect all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation in all material
respects of the results for the interim period. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of results
to be expected for the full year. Interim financial statements for the period
January 29, 1998 to March 31, 1998 are not presented because Azurix did not have
any results of operations or cash flows during the period.
CONSOLIDATION POLICY AND USE OF ESTIMATES
The consolidated financial statements include the accounts of all
majority-owned subsidiaries and are prepared in accordance with generally
accepted accounting principles in the United States. All significant
intercompany balances and transactions have been eliminated in consolidation.
Azurix uses the equity method of accounting for all investments where it owns
less than a majority of the voting stock but is able to exercise significant
influence over the operating and financial policies of the investee.
The preparation of the 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.
F-14
<PAGE> 141
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
REVENUE RECOGNITION
Operating revenue represents income earned in the ordinary course of
business, excluding value added tax. Revenue for metered customers is recognized
based on actual usage and accrued based on the estimated amount of water sold
but not billed as of the balance sheet date. Revenue for non-metered customers,
who pay an annual fixed charge based on the rateable value of their property, is
recognized uniformly over the year.
DERIVATIVE FINANCIAL INSTRUMENTS
Azurix utilizes derivative financial instrument contracts for non-trading
purposes to manage exposure to fluctuations in interest rates and foreign
currency exchange rates. Hedge accounting is utilized in non-trading activities
where there is a high correlation of price movements in the derivative and the
contract is designated as a hedge. In instances where the anticipated
correlation of price movements no longer exists, hedge accounting is terminated
and future changes in the value of the derivative financial instruments are
recognized as gains or losses to net income.
Interest rate swaps involve the exchange of amounts based on a fixed
interest rate for amounts based on variable interest rates over the life of the
contract without an exchange of the notional amount upon which payments are
based. The difference to be received or paid is recognized in income over the
life of the contracts as adjustments to interest expense.
Currency swap contracts are denominated in one foreign currency and are to
be repaid in another currency. These contracts are designated as hedges of firm
commitments to pay interest and principal on debt, which would otherwise expose
Azurix to foreign currency risk.
The fair values of the swap contracts are not recognized in the financial
statements. The income and cash flow impact of financial instruments is
reflected as an adjustment of the hedged item. Gains and losses on terminations
of interest rate and currency swap contracts are deferred as an adjustment to
the carrying amount of the outstanding obligation and amortized as an adjustment
to interest expense related to the obligation over the remaining term of the
original contract life of the terminated swap contract. In the event of early
extinguishment of the obligation, any realized or unrealized gain or loss from
the swap would be recognized in net income at the time of extinguishment.
INCOME TAXES
Azurix accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the
asset and liability method of Statement of Financial Accounting Standards No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. For U.S. tax purposes, Azurix is presently a member of Enron's
consolidated group and is included in Enron's consolidated federal income tax
return. Members of the consolidated group are charged with the amount of income
tax expense (benefit) determined as if they filed separate federal income tax
returns. There is no formal tax sharing arrangement between Enron and Azurix.
EARNINGS PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
requires dual presentation of earnings per common share and earnings per common
share assuming dilution on the face of the income statement. Basic earnings per
share is computed by dividing the net income available to common stockholders by
the weighted average number of common shares outstanding during the period.
F-15
<PAGE> 142
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
Diluted earnings per common share is computed by adjusting basic earnings per
share for the net income and share effect of the potential conversion to common
shares of all dilutive securities. For the year ending December 31, 1998, Azurix
did not have any securities outstanding that could have been potentially
converted into common shares, therefore, basic and diluted earnings per share
are the same. At March 31, 1999, Azurix had stock options outstanding to
purchase 7.8 million shares of its common stock (see Note 13). For the three
months ended March 31, 1999, these options were not dilutive to basic earnings
per share.
CASH EQUIVALENTS
Azurix considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Cost of acquired property,
plant and equipment includes an allocation of the purchase price based on the
asset's fair market value. Cost of property, plant and equipment placed in
service includes direct charges for material, labor and services and indirect
charges related to construction, such as engineering, supervision, payroll taxes
and employee benefits. The October 1998 acquisition of Wessex represents
substantially all of the property, plant and equipment as of December 31, 1998
(see Note 2). Additions, replacements, modifications and enhancements to units
of property are capitalized. Major improvements to leasehold properties are
amortized over the shorter of the asset life or the life of the respective
lease. Repairs, maintenance and minor replacements are charged to operations and
maintenance expense as incurred. Interest capitalized is based on the average
value of construction work in progress at Azurix's average borrowing rate during
the period. The amount of interest capitalized during 1998 was approximately
$2.3 million.
Azurix's infrastructure assets comprise a network of systems of mains and
sewers, impounding and pumped raw water storage reservoirs, dams, sludge
pipelines and infrastructure investigations and studies.
The cost of property, plant and equipment is charged to depreciation using
the straight-line method over the estimated useful lives of the assets.
Depreciation is computed based on estimated useful lives as follows:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Buildings and operational structures........................ 15 to 80
Infrastructure.............................................. 115
Plant machinery and vehicles................................ 3 to 30
Other assets................................................ 4 to 15
</TABLE>
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," long-lived assets held and used by Azurix are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For purposes of evaluating
the recoverability, a test is performed comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying
amount, including allocated goodwill, to determine if a write-down to market
value or discounted cash flow value is required.
F-16
<PAGE> 143
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
GOODWILL
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net assets of businesses acquired (see Note 2). Goodwill
is amortized on a straight-line basis over the estimated useful life, not to
exceed 40 years. Accumulated amortization of goodwill at December 31, 1998 was
$5.5 million.
OTHER ASSETS
Other assets consist primarily of deferred charges, such as financing costs
and external costs of acquisition activities. Deferred financing charges are
amortized to interest expense over the lives of the related debt issuances and
external acquisition costs are capitalized as a cost of successful acquisitions
or expensed during the period in which it is determined that the project is
unsuccessful or the pursuit is terminated.
DEFERRED INCOME
Azurix bills some customers in advance of providing water and wastewater
services and classifies these amounts as "Deferred income" on the Consolidated
Balance Sheet until earned.
PENSION BENEFITS
The pension plans maintained by Wessex (see Note 12) are of the defined
benefit type, and are valued by an independent actuary. Current service costs
for the plans are accrued in the period to which they relate. Prior service
costs and actuarial gains and losses, if any, relating to amendments to the
plans, are recognized on a basis designed to spread the costs over the remaining
average service lives of employees.
FOREIGN CURRENCY TRANSLATION
The functional currency for Azurix's foreign operations is the applicable
local currency. The translation from the applicable foreign currencies to U.S.
dollars is performed for balance sheet accounts using the current exchange rates
in effect at the balance sheet date and for revenue and expense accounts, using
the weighted average exchange rate during the period or, where known or
determinable, at the rate on the date of the transaction for significant items.
The resulting translation adjustments are recorded in comprehensive income as a
component of stockholder's equity and are included in income only upon the sale
or liquidation of the underlying investments.
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed
as incurred. Expenditures providing a future benefit are capitalized as
appropriate. Remediation costs that relate to an existing condition caused by
past operations are accrued when it is probable that these costs will be
incurred and can be reasonably estimated.
NEW ACCOUNTING PRONOUNCEMENTS
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 activities.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
F-17
<PAGE> 144
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
those instruments at fair value. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. 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.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," which requires that costs for start-up activities and organization
costs be expensed as incurred and not capitalized as had previously been
allowed. Statement of Position 98-5 is applicable to all financial statements
for fiscal years beginning after December 15, 1998 and initial adoption is
required to be reflected as a cumulative effect of accounting change. Azurix
adopted the treatment prescribed by Statement of Position 98-5 in 1998, the year
of Azurix's inception, and therefore there is no cumulative effect.
SEGMENT, GEOGRAPHIC AND QUARTERLY REPORTING
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which is effective for fiscal years beginning after
December 31, 1997, and establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports. Operating
segments are defined as components of an enterprise about which separate
financial information is available and evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The operating subsidiaries of Azurix in
1998 operated in one segment and were substantially located in one geographic
region. In addition, Azurix's operations began in the fourth quarter of 1998 and
therefore separate quarterly disclosures have been omitted.
NOTE 2 -- BUSINESS ACQUISITION
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. On that same date, Azurix Europe issued notices to the remaining
Wessex ordinary shareholders, informing them that it intended to exercise its
rights under the English Companies Act to acquire compulsorily all of the
outstanding ordinary shares. The compulsory share acquisition was completed in
November 1998. The cost of the Wessex acquisition, including transaction costs
was $2.4 billion. The cost included a combination of cash consideration paid to
Wessex shareholders, net of $1.7 million cash acquired, and the issuance of loan
notes to Wessex shareholders in the face amount of $119.8 million (see Note 7).
On October 2, 1998, Wessex had cumulative mandatorily redeemable preference
shares outstanding. These were redeemed by Wessex in December 1998.
The purchase method of accounting was utilized, and accordingly, the assets
and liabilities of Wessex 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 the straight-line basis over 40 years. The results of operations of Wessex
have been included in the consolidated financial statements since the date of
acquisition. Assets acquired, liabilities assumed, debt issued and consideration
paid (which includes proceeds from borrowings by Azurix Europe), as a result of
the Wessex acquisition are detailed below. 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
F-18
<PAGE> 145
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
does not believe the final evaluation of these assessments will materially
affect the allocation of the purchase price. The preliminary allocation of the
purchase price is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Fair value of assets acquired............................... $ 2,738.7
Goodwill.................................................... 903.9
Fair value of liabilities assumed........................... (1,141.0)
Mandatorily redeemable preferred stock assumed.............. (109.3)
---------
Total purchase price.............................. $ 2,392.3
=========
</TABLE>
The following unaudited pro forma information presents summarized
consolidated results of operations of Azurix as if the Wessex acquisition had
occurred on January 1, 1998:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1998
------------ ------------
(UNAUDITED)
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $464.2 $111.0
Net income.................................................. 87.2 20.7
Basic and diluted earnings per share........................ 0.87 0.21
</TABLE>
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 UK Waste (see Note 3). 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.
NOTE 3 -- SALE OF ACQUIRED EQUITY INVESTMENT
On November 30, 1998, Azurix, sold its interest in Wessex Waste Management
Ltd, a joint venture with Waste Management International Plc that does business
as UK Waste, to Waste Management International for $337.9 million. Azurix's
interest in UK Waste was acquired in the Wessex acquisition (see Note 2). UK
Waste provides solid waste collection, treatment and recycling services
throughout the United Kingdom.
The value allocated to the equity investment in purchase accounting was
based on the cash flows during the period UK Waste was owned by Azurix,
including incremental debt costs incurred during the holding period. Azurix's
results of operations do not reflect the equity earnings of UK Waste during the
ownership period of $2.5 million and no adjustments to the carrying amount of
the investment were necessary. Accordingly, Azurix recorded no gain or loss from
the sale.
F-19
<PAGE> 146
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
NOTE 4 -- OTHER CURRENT ASSETS
Other current assets at December 31, 1998 is comprised of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Prepayments................................................. $18.6
Other receivables........................................... 11.7
Other....................................................... 8.2
-----
$38.5
=====
</TABLE>
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 is comprised of the
following:
<TABLE>
<CAPTION>
PROPERTY, PLANT
ACCUMULATED AND EQUIPMENT,
HISTORICAL COST DEPRECIATION NET
--------------- ------------ ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Buildings and operational structures......... $ 494.2 $ (2.6) $ 491.6
Infrastructure............................... 1,184.9 (2.7) 1,182.2
Plant machinery and vehicles................. 412.3 (9.7) 402.6
Construction work-in-progress................ 154.7 -- 154.7
Other assets................................. 25.0 (1.7) 23.3
-------- ------ --------
Total.............................. $2,271.1 $(16.7) $2,254.4
======== ====== ========
</TABLE>
NOTE 6 -- SHORT-TERM DEBT
As of December 31, 1998, Azurix had $424.0 million outstanding from credit
facilities with major commercial banks. Of this amount, $399.1 million relates
to committed credit facilities and the remaining $24.9 million relates to credit
facilities that are on an uncommitted basis. Interest accrues on the committed
credit facilities and the uncommitted facilities based on the London interbank
offered rate plus 0.18% and the London interbank offered rate plus a negotiated
margin, respectively. The weighted average interest rate on short-term bank
borrowings outstanding as of December 31, 1998 was 6.66%. Azurix pays commitment
fees of 0.09% on the unused portion of committed lines of credit. The facilities
expire in April 1999. At December 31, 1998, Azurix intended to refinance the
$424.0 million of short-term bank borrowings with long-term debt. At December
31, 1998, Azurix had amounts available under the senior credit facility (see
Note 7) to refinance the short-term bank borrowings on a long-term basis and
accordingly, reclassified its short-term bank borrowings as long-term debt.
On March 30, 1999, Azurix repaid all of its short-term bank borrowings
outstanding on that date with the proceeds from a bond offering that matures in
2009 (see Note 7).
F-20
<PAGE> 147
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
NOTE 7 -- LONG-TERM DEBT AND AFFILIATE NOTE PAYABLE
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Amounts reclassified from short-term debt (see Note 6)...... $424.0 $ --
Senior credit facility...................................... 219.5 213.0
Senior unsecured bonds...................................... -- 478.4
Loan notes.................................................. 117.2 113.8
European Investment Bank credit facilities.................. 68.7 66.6
Capital lease obligation.................................... 109.7 96.4
------ ------
939.1 968.2
Less current maturities..................................... (27.0) (27.9)
------ ------
Total long-term debt.............................. $912.1 $940.3
====== ======
</TABLE>
Azurix entered into a U.K. pounds sterling denominated senior secured bank
credit facility in August 1998, as amended. At December 31, 1998, the senior
credit facility consisted of a term loan facility of $322.6 million and a
revolving credit facility of $575.3 million bearing interest at a rate of the
London interbank offered rate plus 0.625%, which was 6.9% at December 31, 1998.
The amounts outstanding at December 31, 1998 were $211.2 million and $8.3
million, under the term loan facility and the revolving credit facility,
respectively. The remaining term loan capacity of $111.4 million is used to
secure a substantial portion of the loan notes, described below. The term loan
facility requires repayment of $199.5 million by July 24, 2000, and repayment of
any remaining outstanding term loans in July 2003. The revolving credit facility
terminates in July 2003. Azurix may borrow up to $99.8 million of the revolving
credit facility balance available for general corporate purposes. Azurix has
pledged all of a subsidiary's existing assets, including all of the ordinary
shares of Wessex, under this facility. The unused borrowing capacity under the
revolving credit facility at December 31, 1998 was $567.0 million. Azurix incurs
commitment fees of 0.3125% on the unused portion of this facility, which are
recorded as interest expense.
Azurix issued U.K. pounds sterling denominated loan notes of $117.2 million
face value, as of December 31, 1998, to Wessex shareholders in lieu of cash
consideration for the ordinary shares purchased in the Wessex acquisition (see
Note 2). The loan notes are redeemable, at the option of the holder, semi-
annually beginning September 30, 1999, with final redemption occurring September
30, 2005. The loan notes may be redeemed at the holders' option within one year,
and therefore, are potential current obligations. If redeemed by the holders'
prior to maturity, Azurix will utilize available capacity on the senior credit
facility or a commitment from Enron to refinance the loan notes on a long-term
basis, and accordingly, the loan notes are classified as long-term debt.
Interest on the loan notes accrues at the London interbank offered rate and is
payable semi-annually. The London interbank offered rate for the period the loan
notes were outstanding during 1998 was 7.125%.
The European Investment Bank credit facilities consist of two separate
loans, one of which has a floating interest rate based on the London interbank
offered rate less 0.25%, and the other has a fixed interest rate of 11.6%. The
floating rate obligation, due October 2001, has an outstanding balance of $49.9
million at December 31, 1998 and is U.S. dollar denominated. The fixed rate
loan, denominated in Italian lire, has an outstanding balance of $18.8 million
at December 31, 1998 and is payable in semiannual installments through June
2002.
F-21
<PAGE> 148
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
Azurix issued U.K. pounds sterling denominated senior unsecured bonds on
March 30, 1999, with a face value of $484.2 million. The net proceeds were
primarily used to refinance the short-term bank borrowings that were outstanding
on that date. The senior unsecured bonds mature March 30, 2009 and bear interest
of 5.875% payable annually.
The U.K. pounds sterling denominated capital lease obligation provides for
semi-annual payments. At December 31, 1998, future minimum lease payments total
$129.1 million, including $19.4 million representing interest. Currently, $158.3
million of historical cost and $21.5 million of related accumulated amortization
is recorded under a capital lease and included in property, plant and equipment.
Each of these financing agreements 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 acts related to regulations of the industry. The
financing contracts include standard events of default, including non-payment,
cross-defaults and insolvency. Azurix is currently in compliance with these
covenants.
At December 31, 1998, long-term borrowing and capital lease obligation
maturities over the next five years are $27.0 million in 1999, $230.0 million in
2000, $84.6 million in 2001, $36.3 million in 2002 and $561.2 million in 2003.
At March 31, 1999, long-term borrowing and capital lease obligation
maturities over the next five years are $16.0 million during the remainder of
1999, $336.9 million in 2000, $82.1 million in 2001, $35.2 million in 2002 and
$19.6 million in 2003.
Azurix has executed interest rate and currency swap contracts related to
its outstanding debt (see Note 8).
Azurix has an affiliate note payable of $121.4 million outstanding at
December 31, 1998 (see Note 11).
NOTE 8 -- FINANCIAL INSTRUMENTS
Azurix uses derivative financial instruments in the normal course of its
business for purposes other than trading. These financial instruments include
interest rate and currency swap contracts. Azurix has U.K. pounds sterling
interest rate swap contracts having a total notional principal amount of $833.6
million. Interest rate swap contracts relating to notional principal amounts of
$665.1 million, $149.7 million and $18.8 million terminate in 2000, 2001 and
2002, respectively. Azurix also has cross-currency swap contracts to exchange
U.S. dollars of $49.9 million to U.K. pounds sterling of L30 million, which
expires in 2001, and Italian lire of 25.0 billion to U.K. pounds sterling of
L11.3 million, which expires in 2002.
The carrying amount of cash and cash equivalents, trade accounts receivable
(net of an allowance for doubtful accounts) and accounts payable and accruals
approximates their fair value due to their short-term nature. The fair value of
long-term debt and affiliate long-term debt is based on the quoted market prices
for the same or similar issues or on the current rates offered to Azurix for
debt of the same remaining maturities. The fair value of currency swap and
interest rate swap contracts was determined based on a model which estimates the
fair value of these swap contracts using market rates at December 31, 1998 or
was based on quoted market prices for similar instruments with similar
maturities. Judgment is necessarily required in interpreting market data and the
use of different market assumptions or estimation
F-22
<PAGE> 149
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
methodologies may affect the estimated fair value amounts. The comparison of
estimated fair value and carrying amount are as follows:
<TABLE>
<CAPTION>
ESTIMATED
FAIR CARRYING
VALUE AMOUNT
--------- --------
(IN MILLIONS)
<S> <C> <C>
Note payable -- affiliate................................... $121.9 $121.4
Long-term debt(1)........................................... 960.9 936.5
Derivatives:
Interest rate swaps....................................... (9.1) --
Currency swaps............................................ 7.2 2.6
</TABLE>
- ---------------
(1) The sum of the carrying amount for long-term debt and the currency swaps, as
indicated above, equals long-term debt including current maturities (see
Note 7).
Azurix is exposed to risks due to the nature of derivative financial
instruments. In the event of non-performance by third parties, the amounts of
interest rate and currency swap contracts are potentially subject to credit
risk. Third parties to these contracts are major commercial banks with
high-quality credit ratings. Accordingly, Azurix does not anticipate
non-performance by any of these counterparties on these financial instruments.
Azurix is exposed to market risk in the form of foreign exchange rate and
interest rate risks. Several variable and fixed rate loans in foreign currencies
are hedged through a combination of cross-currency swaps and interest rate
swaps.
NOTE 9 -- INCOME TAXES
The components of income before income taxes from date of inception through
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
United States............................................... $(14.7)
Foreign..................................................... 43.2
------
$ 28.5
======
</TABLE>
Total income tax expense (benefit) from date of inception through December
31, 1998 is summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Current tax expense (benefit):
Federal................................................... $ --
State..................................................... --
Foreign................................................... 4.9
-----
4.9
-----
Deferred tax expense (benefit):
Federal................................................... --
State..................................................... --
Foreign................................................... 13.4
-----
13.4
-----
Total income tax expense (benefit)................ $18.3
=====
</TABLE>
F-23
<PAGE> 150
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
The differences between taxes computed at the U.S. federal statutory tax
rate and Azurix's effective income tax rate from date of inception through
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------------- -------
(IN MILLIONS)
<S> <C> <C>
Statutory federal income tax provision...................... $10.0 35.0%
U.S. loss not benefited..................................... 5.1 17.9
U.K. subsidiary company loss not benefited.................. 2.4 8.4
Nondeductible goodwill amortization......................... 1.7 6.0
Consolidated foreign earnings taxed at other than the U.S.
rate...................................................... (1.8) (6.3)
Equity loss of foreign investment........................... 0.4 1.4
Other....................................................... 0.5 1.8
----- ----
$18.3 64.2%
===== ====
</TABLE>
The principal components of Azurix's net deferred income tax liability at
December 31, 1998 was as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Deferred income tax assets:
U.K. Advance Corporation Tax receivable................... $ 83.1
U.S. net operating loss carryforward...................... 5.1
U.K. net operating loss carryforward...................... 3.5
Other..................................................... 5.9
Valuation allowance....................................... (8.6)
-------
Total deferred tax assets......................... 89.0
-------
Deferred income tax liabilities:
Depreciation, depletion and amortization.................. (490.6)
Pension plan differences.................................. (1.8)
Other..................................................... (1.0)
-------
Total deferred tax liabilities.................... (493.4)
-------
Net deferred tax assets (liabilities)............. $(404.4)
=======
</TABLE>
Azurix has U.K. Advance Corporation Tax credit carryforwards at December
31, 1998 of approximately $83.1 million that can be used to offset U.K. taxes
payable in future years. At December 31, 1998, the U.K. Advance Corporation Tax
credit has an indefinite carryforward period. At December 31, 1998, Azurix has a
U.S. tax loss carryforward of approximately $14.7 million that will expire in
2018. Management believes that sufficient uncertainty exists regarding the
realizability of the U.S. loss carryforwards, such that a valuation allowance is
appropriate at December 31, 1998. At March 31, 1999, management believes that no
valuation allowance is necessary for U.S. losses generated in the first three
months of 1999 due to the expected future income resulting from finalizing water
projects and available tax planning strategies. All deferred tax assets will be
reassessed as future business activity occurs. At December 31, 1998, Azurix has
U.K. subsidiary company loss carryforwards of approximately $11.8 million that
can be carried forward for an indefinite period. However, due to restrictions on
the use of such loss carryforwards, the benefits have not been reflected in
Azurix's results of operations.
U.S. and foreign income taxes have been provided for earnings of foreign
subsidiary and affiliate companies that are expected to be remitted to the U.S.
Foreign subsidiaries' and affiliates' cumulative
F-24
<PAGE> 151
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
undistributed earnings of approximately $43.2 million are considered to be
indefinitely reinvested outside the U.S. and, accordingly, no U.S. income taxes
have been provided thereon. In the event of a distribution of those earnings in
the form of dividends, Azurix may be subject to both foreign withholding taxes
and U.S. income taxes net of allowable foreign tax credits.
NOTE 10 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for taxes and interest expense is as follows:
<TABLE>
<CAPTION>
JANUARY 29, 1998 THREE MONTHS
(DATE OF INCEPTION) ENDED
TO DECEMBER 31, MARCH 31,
1998 1999
------------------- ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Utility taxes(1)....................................... $81.7 $ --
Income taxes........................................... -- 12.6
Interest (net of amounts capitalized).................. 9.6 12.8
</TABLE>
- ---------------
(1) One-time tax levied on private utilities by the U.K. Government. This amount
was recorded to Wessex's net income in 1997.
NON-CASH TRANSACTIONS
During 1998, Azurix issued debt in the form of the loan notes in connection
with the Wessex acquisition (see Note 7). During 1998, Azurix received a capital
contribution from Enron of the outstanding stock of a subsidiary that holds an
interest in Obras Sanitarias Mendoza. The transfer was recorded at the book
value of Enron of $71.8 million.
NOTE 11 -- RELATED PARTY TRANSACTIONS
During 1998, Azurix entered into a U.K. pounds sterling denominated loan
with Enron for $119.7 million. Interest of $2.1 million accrued during the
period the loan was outstanding at the London interbank offered rate plus 0.8%.
The principal and accrued interest were repaid to Enron in 1998.
Enron will exert influence over the policies, management and affairs of
Azurix. Some individuals who serve as officers and directors of Enron also serve
as directors of Azurix. The directors and officers of Enron have fiduciary
duties to manage Enron, including its investments in subsidiaries and affiliates
in a manner beneficial to Enron and its stockholders. Similarly, the directors
and officers of Azurix have fiduciary duties to manage Azurix in a manner
beneficial to Azurix and its stockholders.
Enron and Azurix propose to enter into an agreement that addresses the
scope of Azurix's business and it is anticipated that it will provide that
certain activities in which Enron and its affiliates may engage are permitted,
even if those activities have a competitive impact on Azurix. In general, it is
anticipated that Enron will be permitted to engage in any business whatsoever,
including water, wastewater and other businesses competing with Azurix, and may
compete in public tenders against Azurix, provided the business is conducted and
opportunities are identified and developed through Enron's own personnel and not
through Azurix. The agreement is expected to contain other provisions regarding
the activities to be performed by Azurix and Enron's involvement in those
activities.
Enron provides office space (see Note 15) to Azurix and various services
such as computer hardware and software and support services such as risk
management, accounts payable, payroll and information technology services. Costs
are allocated to Azurix based upon usage, or where no direct method can be
F-25
<PAGE> 152
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
efficiently applied due to administrative burden, upon factors such as
annualized payroll or employee headcount.
Employees, other than Wessex employees, are covered by various employee
benefit plans of Enron such as retirement, stock option, medical, dental, life
insurance and other benefit plans. These costs are allocated to Azurix based
upon Enron's costs of administering and providing the benefit plans. During 1998
the expense recorded under the plan arrangements was approximately $1.4 million.
During 1998, Enron advanced to Azurix $17.7 million related to office space
and other services provided by Enron and costs of benefit plans for employees,
each described above. This amount is reported in the Consolidated Balance Sheet
as a component of "Accounts payable -- affiliates."
Management believes the above allocation methods and costs are reasonable.
A director of a subsidiary of Wessex owns assets utilized in the
subsidiary's operations. The subsidiary was charged $0.1 million for the use of
those assets during the period Azurix owned Wessex.
BRISTOL WATER TRUST
During 1998, Azurix entered into a U.K. pounds sterling denominated senior
loan agreement with Bristol Water Trust, as amended and restated, an affiliate
company wholly owned by Atlantic Water. The note accrues interest at 6.25% per
annum and is payable semi-annually, beginning June 1999. Under the note
agreement maturing December 2001, prepayment is allowed in whole or part at any
time. The principal balance outstanding at December 31, 1998 was $121.4 million.
Interest expense recorded for 1998 was $1.9 million.
NOTE 12 -- PENSION BENEFITS
Wessex maintains three defined benefit pension plans that cover
substantially all of its employees. The assets are held in separate trustee
administered funds. The pension cost charged to the consolidated statement of
income has been determined on the advice of independent qualified actuaries and
is accrued over the service lives of the employees expected to be eligible to
receive such benefits.
The following weighted average assumptions were used in determining the
funded status and pension charge for the period October 2, 1998 through December
31, 1998:
<TABLE>
<CAPTION>
PERCENT
-------
<S> <C>
Discount rate............................................... 5.8%
Expected return on plan assets.............................. 6.8%
Rate of compensation increase............................... 4.3%
Pension increases........................................... 2.5%
</TABLE>
The plan's funded status and related pension accrual as of December 31,
1998 are as follows:
F-26
<PAGE> 153
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Change in benefit obligation:
Benefit obligation at Wessex acquisition date............. $231.5
Service cost........................................... 1.5
Interest cost.......................................... 3.4
Plan participants' contributions....................... 0.5
Actuarial loss......................................... 16.7
Benefits paid.......................................... (2.2)
Exchange difference.................................... (5.2)
------
Benefit obligation at end of period............... $246.2
======
Change in plan assets:
Fair value of plan assets at Wessex acquisition date...... $237.3
Actual return on plan assets........................... 27.7
Employer contribution.................................. 1.3
Plan participants' contribution........................ 0.5
Benefits paid.......................................... (2.2)
Exchange difference.................................... (5.4)
------
Fair value of plan assets at end of period........ $259.2
======
Funded status:
Fair value of plan assets.............................. $259.2
Projected benefit obligation........................... 246.2
------
Funded status.......................................... 13.0
Unrecognized net actuarial loss........................ (6.9)
------
Prepaid benefit cost.............................. $ 6.1
======
</TABLE>
Net periodic benefit cost includes the following components:
<TABLE>
<S> <C>
Service cost.............................................. $ 1.5
Interest cost............................................. 3.4
Expected return on plan assets............................ (4.0)
------
Net periodic benefit cost................................. $ 0.9
======
</TABLE>
Two of the three pension plans have an aggregate prepaid benefit cost of
$7.6 million that is included in "Other assets" on the Consolidated Balance
Sheet and the remaining plan has an accrued benefit obligation of $1.5 million
that is included in "Other long-term liabilities" on the Consolidated Balance
Sheet.
NOTE 13 -- STOCKHOLDER'S EQUITY
COMMON STOCK
During 1998, Azurix issued 1,000 shares of $1.00 par value common stock. On
February 2, 1999, Azurix effected a 100,000-for-one stock split and restated the
par value to $0.01 that resulted in 100 million shares issued and outstanding.
Share and per share data for 1998 presented herein have been adjusted to give
effect to this split as if it had occurred on the date of inception of Azurix.
F-27
<PAGE> 154
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
ADDITIONAL PAID-IN CAPITAL
During 1998, Azurix received cash contributions of approximately $1.6
billion. In addition, Azurix received a capital contribution from Enron of the
outstanding stock of a subsidiary that holds a 32.1% ownership interest in Obras
Sanitarias Mendoza. The transfer was recorded at Enron's book value of $71.8
million.
STOCK INCENTIVE PLAN
In February 1999, Azurix established a stock incentive plan which provides
for the granting or awarding of stock options and restricted stock to directors,
officers and key employees of Azurix. At any particular time, the number of
shares of common stock issued under the stock incentive plan may not exceed 15%
of the total number of shares of common stock outstanding. Under the stock
incentive plan, Azurix granted options to purchase 7.8 million shares of its
common stock, at an exercise price per share of $16.72. The options vest from
three to five years after the grant date and expire ten years after the grant
date.
NOTE 14 -- RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain subsidiaries of Azurix have governmental and regulatory
restrictions or approvals required in order to pay dividends or make
intercompany loans and advances to it. The amount of restricted net assets of
Azurix's subsidiaries at December 31, 1998 is approximately $1.5 billion.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
Azurix leases office space from Enron under a lease obligating only Enron
and specific subsidiaries and affiliates (see Note 11). Azurix has no
contractual obligation under these office lease agreements but pays to Enron the
amount determined in the lease or the contract rate applied to square footage
occupied. Azurix accrued rent expense to Enron for office space totaling $0.3
million in 1998.
Azurix leases property under various operating leases. Future minimum
operating lease payments as of December 31, 1998, in the aggregate and for each
of the five succeeding fiscal years, are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1999........................................................ $0.7
2000........................................................ 0.5
2001........................................................ 0.5
2002........................................................ 0.3
2003........................................................ 0.8
----
Total minimum lease payments................................ $2.8
====
</TABLE>
Azurix has contractual commitments for capital expenditures to be incurred
after December 31, 1998 of $130.2 million.
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 effect on its results of
operations or financial position.
Azurix is subject to extensive federal, foreign, state and local
environmental laws and regulations. We anticipate future changes in, or
decisions affecting, regulatory regimes that will serve to expand or tighten
F-28
<PAGE> 155
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
regulatory controls. Some of these changes or decisions could have a material
adverse effect on our 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. The U.K. government
is currently conducting a periodic review of the price limits for water and
sewerage companies in England and Wales that is expected to result in new price
limits for the period from April 1, 2000 through 2005 that will be lower than
current price limits. Although we are unable to predict the precise outcome of
the current U.K. rate review, it is likely to significantly reduce Wessex's
revenues and earnings, but should not have a material adverse effect on Azurix's
financial position.
NOTE 16 -- EVENTS SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED)
In March 1999, Azurix filed a registration statement with the Securities
and Exchange Commission for an underwritten initial public offering of shares of
common stock.
Azurix entered into an agreement on March 25, 1999 to acquire 100% of the
stock of Canadian-based Philip Utilities Management Corporation for $106.3
million. Philip Utilities is a water and wastewater services company in the U.S.
and Canada that provides operations and management, engineering, residuals
management and underground infrastructure development services for municipal
water and wastewater facilities. The acquisition closed on May 18, 1999 and will
be reflected in Azurix's financial statements as of that date.
On May 10, 1999, Azurix entered into a $686.0 million revolving credit
facility. On May 13, 1999, Azurix borrowed approximately $75.9 million, of which
approximately $67.8 million was used to repay all of the remaining indebtedness
outstanding on the former senior credit facility (see Note 7) and approximately
$8.1 million was used to pay fees and expenses related to this facility. On May
14, 1999, Azurix borrowed $107.0 million under this revolving credit facility
primarily to fund the purchase of Philip Utilities. A portion of the unused
borrowing capacity under this facility secures outstanding loan notes of $113.8
million (see Note 7). The facility bears interest at the London interbank
offered rate plus 0.75% to 1.0%, depending on the level of utilization of the
borrowing capacity. After funding the Philip Utilities acquisition, the
revolving credit facility has approximately $280.4 million of borrowing capacity
for acquisitions.
Advances may be drawn in sterling, U.S. dollars and euros. The facility
bears interest at a rate of the London interbank offered rate plus 0.75% to
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. The facility terminates on May 10, 2002.
This facility contains restrictive covenants which include limitations on
borrowings, the 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 standard events of default, including non-payment,
cross-defaults and insolvency. Azurix is currently in compliance with these
covenants.
Effective May 1, 1999, Azurix signed an agreement with Enron pursuant to
which Enron will provide various corporate staff and support services to Azurix.
These services include information technology, office space, building
maintenance, security and other office services as well as employee development,
training and maintenance of compensation and other benefits programs. Azurix may
utilize Enron's regulatory affairs, marketing affairs, treasury and risk
assessment and control departments. In addition, Azurix may continue to
participate in Enron's corporate insurance program. The agreement provides that
Azurix may use the international offices of Enron and its affiliates for
projects, subject to mutual agreement with Enron
F-29
<PAGE> 156
AZURIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PRESENTED HEREIN FOR THE PERIOD SUBSEQUENT TO DECEMBER 31, 1998 IS
UNAUDITED)
or its affiliates on a project-by-project basis. The agreement provides that
Azurix will reimburse Enron for direct charges related to the Enron services and
facilities that it utilizes. Azurix will also be allocated an amount for
overhead charges related to Enron corporate staff and support services which it
utilizes. This overhead charge will be allocated based upon factors such as
employee headcount, payroll and square footage. Azurix management believes the
allocation methods and costs are reasonable. Costs for services used under the
agreement are expected to be approximately $15 million annually. The agreement
is for an indefinite term, but either party may terminate the agreement on 180
days' notice. Azurix intends to enter into a related sublease with Enron
providing for the use of office space in Houston, Texas.
Effective May 1, 1999, Azurix entered into a credit agreement with Enron,
whereby Enron will provide funds to Azurix for general, administrative and
operating expenses. The credit agreement terminates December 15, 2001 or 90 days
following the date that Enron or its affiliates do not own or have the power to
vote at least one-third of our capital stock ordinarily entitled to vote for the
election of directors and fewer than one-third of our directors are officers,
directors or employees of Enron or its affiliates. The total commitment under
the credit agreement will be $180 million. Advances under the credit agreement
will bear interest at the federal funds rate plus 1.50%. Amounts borrowed under
the credit agreement may be prepaid, in full or in part, at any time during the
term of the credit agreement.
On May 18, 1999, authorities in the Province of Buenos Aires, Argentina,
notified Azurix that, subject to final confirmation, Azurix will be awarded an
interest in 30-year water and wastewater concessions in two regions of the
province, at an aggregate price of $438.6 million. Assuming this award is
formally confirmed, Azurix will acquire a 90% interest in the concession
companies and take control of the systems on June 18, 1999.
F-30
<PAGE> 157
REPORT OF INDEPENDENT ACCOUNTANTS
To the stockholder of Wessex Water Ltd (formerly Wessex Water Plc):
We have audited the accompanying consolidated statements of income, changes
in stockholders' equity and cash flows of Wessex Water Plc (now renamed Wessex
Water Ltd) (predecessor company) (the "Company") and subsidiaries for the period
from April 1, 1998 to October 2, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, cash flows and changes in
stockholders' equity of Wessex Water Plc (now renamed Wessex Water Ltd)
(predecessor company) and subsidiaries for the period from April 1, 1998 to
October 2, 1998 in conformity with generally accepted accounting principles.
Arthur Andersen
London, England
March 12, 1999
F-31
<PAGE> 158
REPORT OF INDEPENDENT ACCOUNTANTS
To the stockholder of Wessex Water Ltd (formerly Wessex Water Plc)
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Wessex Water Plc
(now renamed Wessex Water Ltd) and its subsidiaries (the "Company") at March 31,
1998, and the results of their operations and their cash flows for each of the
two years in the period ended March 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS
CHARTERED ACCOUNTANTS
Bristol, England
March 12, 1999
F-32
<PAGE> 159
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 2, 1998 AND THE YEARS ENDED MARCH 31, 1998 AND
1997
(TRANSLATED INTO U.S. DOLLARS -- SEE NOTE 1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED MARCH 31,
OCTOBER 2, --------------------
1998 1998 1997
---------- ------- -------
IN MILLIONS U.S. DOLLARS
(EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Operating revenues.......................................... $233.8 $436.6 $403.1
Operating expenses:
Operations and maintenance................................ 61.7 110.9 102.4
General and administrative................................ 36.4 29.1 32.2
Depreciation and amortization............................. 35.2 64.3 58.0
------ ------ ------
Operating income............................................ 100.5 232.3 210.5
------ ------ ------
Other income (expense):
Interest income........................................... 0.2 4.4 23.0
Interest expense.......................................... (6.3) (13.0) (12.8)
Equity earnings........................................... 5.8 13.3 14.7
------ ------ ------
Income before taxes......................................... 100.2 237.0 235.4
------ ------ ------
Taxation on ordinary activities............................. 28.4 58.0 82.4
Utility tax................................................. -- 162.3 --
------ ------ ------
Net income.................................................. 71.8 16.7 153.0
Dividends on preference shares.............................. 7.7 15.1 13.5
------ ------ ------
Net income attributable to common stockholders.............. $ 64.1 $ 1.6 $139.5
====== ====== ======
Basic earnings per share.................................... $ 0.30 $ 0.01 $ 0.65
====== ====== ======
Diluted earnings per share.................................. $ 0.30 $ 0.01 $ 0.55
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 160
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1998
(TRANSLATED INTO U.S. DOLLARS -- SEE NOTE 1)
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
IN MILLIONS
U.S. DOLLARS,
EXCEPT
SHARE AMOUNTS
-------------
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 1.8
Trade receivables (net of allowance for doubtful accounts
of $5.9)................................................ 43.5
Unbilled receivables...................................... 29.7
Other current assets...................................... 19.5
--------
Total current assets............................... 94.5
--------
Property, Plant and Equipment
Cost...................................................... 2,487.4
Less-accumulated depreciation............................. (549.9)
--------
Property, plant and equipment, net........................ 1,937.5
--------
Investments and Other Assets
Investment in equity method investee...................... 311.2
Goodwill, net of accumulated amortization................. 21.6
Other..................................................... 7.5
--------
Total Assets....................................... $2,372.3
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Borrowings from banks..................................... $ 82.7
Current portion of long-term debt......................... 38.3
Accounts payable and accruals............................. 227.5
Amounts due to equity method investee..................... 6.2
Advances from customers................................... 23.7
Proposed dividend......................................... 23.1
--------
Total current liabilities.......................... 401.5
--------
Long-Term Debt.............................................. 169.7
Deferred Credits and Other Liabilities
Deferred income taxes..................................... 306.5
Other..................................................... 6.1
--------
Total long-term liabilities........................ 482.3
--------
Commitments and Contingent Liabilities (Note 18)
Redeemable Preference Shares (Authorized -- 310,000,000;
issued and paid 308,984,402 shares of 50p each, redeemable
at par)................................................... 259.0
--------
Stockholders' Equity:
Common stock (Authorized: 346,666,670; issued and paid:
212,677,552 shares of 60p).............................. 188.3
Additional paid-in capital................................ 80.6
Accumulated other comprehensive income.................... 182.0
Retained earnings......................................... 778.6
--------
Total stockholders' equity......................... 1,229.5
--------
Total Liabilities and Stockholders' Equity......... $2,372.3
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 161
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 2, 1998 AND THE YEARS ENDED MARCH 31, 1998 AND
1997
(TRANSLATED INTO U.S. DOLLARS -- SEE NOTE 1)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED MARCH 31,
OCTOBER 2, ---------------------
1998 1998 1997
---------- --------- --------
IN MILLIONS U.S. DOLLARS
----------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income.................................................. $ 71.8 $ 16.7 $153.0
Adjustments required to reflect cash flows from operating
activities:
Income and expense items not involving cash flows:
Share in profits of equity method investee, net of related
taxes.................................................. (3.1) (6.7) (9.5)
Depreciation and amortization............................. 35.2 64.3 58.0
Deferred taxes............................................ 23.2 24.9 (2.1)
Loss on disposal of fixed assets.......................... 0.8 2.5 1.3
Other..................................................... 0.1 0.5 (1.8)
------- ------- ------
128.0 102.2 198.9
------- ------- ------
Changes in operating asset and liability items:
(Increase) decrease in trade accounts receivable.......... 6.9 (4.8) 2.2
(Increase) in prepayments................................. (0.3) (0.8) (6.5)
(Increase) decrease in other current assets............... (8.3) 22.3 3.6
Increase (decrease) in advances from customers............ 2.5 1.1 (3.0)
Increase in accounts payable and accruals................. 3.4 5.0 51.1
------- ------- ------
4.2 22.8 47.4
------- ------- ------
Net cash provided by operating activities................... 132.2 125.0 246.3
------- ------- ------
Investing Activities:
Purchase of fixed assets.................................. (108.9) (198.6) (149.1)
Decrease in short-term investments........................ -- -- 49.6
Other..................................................... 0.5 3.6 1.7
------- ------- ------
Net cash used in investing activities....................... (108.4) (195.0) (97.8)
------- ------- ------
Financing Activities:
Repurchase of ordinary shares............................. -- -- (300.8)
Repurchase of preference shares........................... (143.4) -- --
Short-term loans received................................. 177.5 80.7 --
Repayment of lease obligations............................ (8.7) (15.6) (12.8)
Dividends paid............................................ (51.4) (65.7) (62.9)
Other..................................................... 2.4 7.4 3.5
------- ------- ------
Net cash (used in) provided by financing activities......... (23.6) 6.8 (373.0)
------- ------- ------
Effect of exchange rate changes on cash balances............ (0.3) (1.3) 19.1
------- ------- ------
Decrease in cash and cash equivalents....................... (0.1) (64.5) (205.4)
Balance of cash and cash equivalents at beginning of
period.................................................... 1.8 66.3 271.7
------- ------- ------
Balance of cash and cash equivalents at end of period....... $ 1.7 $ 1.8 $ 66.3
======= ======= ======
Supplemental Cash Flow Items:
Interest paid (net of amounts capitalized)................ $ 8.6 $ 12.3 $ 12.5
Income taxes paid......................................... 5.3 86.5 21.6
Utility tax paid.......................................... -- 83.1 --
Non-Cash Investing and Financing Activities:
Scrip dividends........................................... 37.4 9.8 4.4
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 162
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED OCTOBER 2, 1998 AND THE YEARS ENDED MARCH 31, 1998 AND
1997
(TRANSLATED INTO U.S. DOLLARS -- SEE NOTE 1)
(IN MILLIONS U.S. DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE
STOCK CAPITAL INCOME EARNINGS TOTAL INCOME
------ ---------- ------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996.................. $228.3 $ 13.8 $ 54.1 $1,058.2 $1,354.4
Net income............................... 153.0 153.0 $153.0
Other comprehensive income:
Translation differences............... 104.3 104.3 104.3
Unrealized gain on listed
investment.......................... (0.3) (0.3) (0.3)
------
Total comprehensive income....... $257.0
======
Shares issued............................ 2.4 6.8 9.2
Repurchase of shares..................... (45.5) (255.3) (300.8)
Amount transferred to capital reserve.... 45.5 (45.5) --
Dividends................................ (68.3) (68.3)
------ ------ ------ -------- --------
Balance at March 31, 1997.................. 185.2 66.1 158.1 842.1 1,251.5
Net income............................... 16.7 16.7 $ 16.7
Other comprehensive income:
Translation differences............... 22.8 22.8 22.8
Unrealized gain on listed
investment.......................... 1.1 1.1 1.1
------
Total comprehensive income....... $ 40.6
======
Shares issued............................ 3.1 14.5 17.6
Dividends................................ (80.2) (80.2)
------ ------ ------ -------- --------
Balance at March 31, 1998.................. 188.3 80.6 182.0 778.6 1,229.5
Net income............................... 71.8 71.8 $ 71.8
Other comprehensive income:
Translation differences............... 18.8 18.8 18.8
Unrealized gain on listed
investment.......................... (0.2) (0.2) (0.2)
------
Total comprehensive income....... $ 90.4
======
Shares issued............................ 5.1 33.8 38.9
Dividends................................ (57.1) (57.1)
Amount transferred to capital reserve.... 151.0 (151.0)
------ ------ ------ -------- --------
Balance at October 2, 1998................. $193.4 $265.4 $200.6 $ 642.3 $1,301.7
====== ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 163
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the operations
of Wessex Water Plc (now renamed Wessex Water Ltd) and its subsidiaries. On
October 2, 1998, Wessex was purchased by Azurix Europe Ltd, a wholly owned
subsidiary of Azurix Corp. The financial statements of Wessex have been prepared
for the purpose of presenting the financial statements of the predecessor
company of Azurix.
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States. The functional currency of
Wessex is pounds sterling. These accounts have been presented using U.S. dollars
as the reporting currency by translating the functional currency financial
statements using the current rate methodology described in the Statement of
Financial Accounting Standard 52, "Foreign Currency Translation."
The period from April 1 to October 2, 1998 will hereafter be referred to as
the "six months ended October 2, 1998."
NATURE OF OPERATIONS
Wessex Water Plc was incorporated on April 1, 1989. On September 1, 1989,
Wessex Water Plc acquired the entire issued share capital of Wessex Water
Services Ltd, a company formed to continue the business of Wessex Water
Authority, as a result of the privatization by the U.K. government of the water
industry in England and Wales. The acquisition was effected through the issue of
49,998 Wessex shares to the Secretary of State for the Environment which were
credited as fully paid. The assets and liabilities acquired by Wessex were
recorded at book value as Wessex was owned by the U.K. government at the date of
the transfer making the transaction an exchange between entities under common
control. Wessex's principal activity is the provision of water supply and
wastewater services in southwestern England through its wholly owned subsidiary,
Wessex Water Services Ltd. Wessex's other business activities include SC
Technology AG, which does business as Swiss Combi and sells and operates sludge
drying plants.
Wessex Water Services Ltd is licensed to operate as a water and sewerage
company in its region, subject to regulation of its water supply and wastewater
treatment services by government agencies including the Office of Water Services
and the Drinking Water Inspectorate. Wessex is subject to regulation of the
rates it may charge for its regulated water supply and wastewater treatment
businesses.
BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Wessex Water Plc and all its majority owned and controlled subsidiaries. All
inter-company transactions are eliminated as part of the consolidation process.
Investments in companies in which Wessex owns 20 percent to 50 percent of
the voting stock and has significant influence are accounted for using the
equity method with Wessex's share of profits and losses included in the
consolidated income statement. Wessex's share of post-acquisition retained
profits/losses is added to/deducted from the cost of the investee in the
consolidated balance sheet.
USE OF ESTIMATES
Preparation of the consolidated 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
F-37
<PAGE> 164
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCIES
On consolidation, assets and liabilities of subsidiaries denominated in
foreign currencies, where the local currency is the functional currency, have
been translated at year-end rates. Income and expense items are translated using
the annual weighted average rates of exchange or, where known or determinable,
at the rate on the date of the transaction for significant items. Adjustments
arising from the translation have been recorded in other comprehensive income
and are included in income only upon sale or liquidation of the underlying
investments.
Transactions in currencies other than the functional currency are recorded
at the rate of exchange at the date of the transaction. Assets and liabilities
in currencies other than the functional currency are translated at year-end
rates. Any resulting exchange differences are taken to the consolidated income
statement.
The exchange rates used to translate the pounds sterling functional
currency financial statements to U.S. dollars were:
<TABLE>
<CAPTION>
U.S. DOLLARS PER
POUNDS STERLING
-----------------
<S> <C> <C>
Period from April 1 to October 2, 1998..................... Average 1.6536
As of March 31, 1998....................................... Year end 1.6765
Year ended March 31, 1998.................................. Average 1.6413
Year ended March 31, 1997.................................. Average 1.5853
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and short-term highly liquid
investments with original maturities of three months or less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment assets are stated at historical cost, less
accumulated depreciation. Depreciation is charged on a straight-line basis over
the estimated useful lives of the respective assets, based on the following
useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and operational structures........................ 15 - 80
Infrastructure assets....................................... 85
Plant, machinery and vehicles............................... 3 - 30
Other assets................................................ 4 - 15
</TABLE>
Major improvements to leasehold properties are amortized over the shorter
of the asset life and the life of the respective lease.
Interest is capitalized on qualifying assets during the time required to
prepare the assets for their intended use using Wessex's weighted average
borrowing rate. The capitalized interest is amortized over the life of the
assets.
F-38
<PAGE> 165
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Goodwill is the excess of the purchase price over the fair value of the
identifiable assets acquired less the liabilities assumed of the acquired
company. Goodwill is capitalized and amortized over its estimated useful life
which ranges from twenty years (SC Technology) to forty years (Wessex Waste
Management Ltd.).
LEASES
Assets held under finance lease agreements are treated as tangible assets
and the present value of the related lease payments is recorded as a liability.
Costs for operating leases are charged to the income statement in the period
incurred.
LONG-LIVED ASSETS
Wessex evaluates the carrying value of long-lived assets to be held and
used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the estimated undiscounted cash flow from such an asset
is less than its carrying value. In that event, a loss is recognized based on
the amount by which the carrying value exceeds the estimated fair market value
of the long-lived asset. Fair market value is determined primarily using the
estimated cash flows discounted at a rate commensurate with the risk involved.
TAXATION
Provision is made for all taxes payable in respect of profit earned in the
year. Deferred income tax is provided using the liability method for all
temporary differences arising between the tax basis of assets and liabilities
and their carrying value for financial reporting purposes, using the enacted tax
rate. Deferred tax assets are reduced by a valuation allowance to the extent
that it is more likely than not that all or part of the asset will not be
realized. No deferred tax liability has been recognized for undistributed
earnings of domestic subsidiaries since such earnings can be transferred to the
parent company without tax consequences.
REVENUE RECOGNITION
For metered customers, Wessex recognizes revenue based on actual usage and
accrues revenue for the estimated amount of water sold but not billed as of the
balance sheet date. The revenue for non-metered customers, who pay an annual
fixed charge based on the rateable value of their property, is recognized
uniformly over the year.
PENSIONS
Current service costs for defined benefit plans are accrued in the period
to which they relate. Prior service costs, if any, relating to amendments of the
plans, are recognized over the remaining average service lives of those
employees. The pension schemes are of the defined benefit type, which are
externally funded and valued by an independent actuary.
INVESTMENTS IN EQUITY SECURITIES
Available-for-sale securities are reported at fair value and individual
securities are classified as a current or non-current asset, as appropriate.
Unrealized holding gains and losses for all available-for-sale
F-39
<PAGE> 166
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities are reported net, as a separate component of other comprehensive
income, a part of stockholders' equity, until the gains and losses are realized.
DERIVATIVE FINANCIAL INSTRUMENTS
Wessex uses cross-currency and interest rate swaps for the purpose of
hedging specific exposures as part of its risk management program and holds all
derivatives for purposes other than trading. Deferral (hedge) accounting is
applied only if the derivative reduces the risk of the underlying hedged item
and is designated at inception as a hedge with respect to the underlying hedged
item. Additionally, the derivative must result in cash flows that are expected
to be inversely correlated to those of the underlying hedged item. Under hedge
accounting, the changes in market value of the derivatives and the hedged assets
or liabilities are deferred and recognized in net income in the same period. If
Wessex's use of derivatives did not qualify for hedge accounting treatment, the
derivative would be recorded at fair value with changes in fair value recognized
in net income.
EARNINGS PER SHARE
Basic earnings per share is based on the earnings from continuing
operations available to common stockholders divided by the weighted average
number of shares outstanding during each period. Diluted earnings per share is
calculated in the same manner as basic earnings per share except that the
numerator is increased by the amount of dividends payable to the holders of
convertible securities and the denominator is increased, using the treasury
stock method, to include the number of additional ordinary shares that would
have been outstanding, assuming the exercise of all employee stock options and
the conversion of all convertible securities that would have had a dilutive
effect on basic earnings per share.
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are expensed.
Expenditures providing a future benefit are capitalized as appropriate.
Remediation costs that relate to an existing condition caused by past operations
are accrued when it is probable that these costs will be incurred and can be
reasonably estimated.
STOCK-BASED COMPENSATION
Wessex follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
employee stock options. Under Accounting Principles Board Opinion No. 25,
compensation expense is recorded when the exercise price of employee stock
options is less than the fair value of the underlying stock on the measurement
date.
ACCOUNTING STANDARDS ISSUED
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 133 "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. Statement of Financial Accounting
Standard 133 requires that an entity recognize all derivatives as either assets
or liabilities in the balance sheet at fair value. Statement of Financial
Accounting Standard 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Wessex is currently evaluating, and has not yet
determined, the effect that the adoption of Statement of Financial Accounting
Standard 133 will have on its financial statements.
F-40
<PAGE> 167
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," which requires that costs for start-up activities and organization
costs be expensed as incurred and not capitalized as had previously been
allowed. Statement of Position 98-5 is applicable to all financial statements
for fiscal years beginning after December 15, 1998 and initial adoption is
required to be reflected as a cumulative effect of an accounting change. The
adoption of Statement of Position 98-5 is not expected to have a material effect
on Wessex's financial position or results of operations.
NOTE 2 -- INTEREST EXPENSE
<TABLE>
<CAPTION>
SIX
MONTHS YEAR ENDED
ENDED MARCH 31,
OCTOBER 2, ---------------
1998 1998 1997
----------- ------ ------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C>
Gross interest expense...................................... $11.3 $21.4 $18.7
Interest capitalized........................................ (5.0) (8.4) (5.9)
----- ----- -----
Net interest expense........................................ $ 6.3 $13.0 $12.8
===== ===== =====
</TABLE>
NOTE 3 -- OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C>
Other receivables........................................... $ 8.0
Available-for-sale securities............................... 4.7
Prepayments................................................. 3.5
Other....................................................... 3.3
-----
$19.5
=====
</TABLE>
F-41
<PAGE> 168
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
BUILDINGS PLANT TOTAL
AND MACHINERY PROPERTY,
OPERATIONAL INFRASTRUCTURE AND OTHER CONSTRUCTION- PLANT &
STRUCTURES ASSETS VEHICLES ASSETS IN-PROGRESS EQUIPMENT
----------- -------------- --------- ------ ------------- ---------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cost:
March 31, 1997............. $573.5 $ 961.2 $ 594.1 $42.9 $ 87.7 $2,259.4
Additions.................. 25.6 61.0 39.4 3.8 82.9 212.7
Transfers.................. 0.7 26.9 12.8 6.9 (47.3) --
Disposals.................. (0.5) -- (26.3) (5.5) -- (32.3)
Translation differences.... 11.6 20.5 12.0 1.0 2.5 47.6
------ -------- ------- ----- ------ --------
March 31, 1998............... $610.9 $1,069.6 $ 632.0 $49.1 $125.8 $2,487.4
====== ======== ======= ===== ====== ========
Accumulated depreciation:
March 31, 1997............. $ 96.4 $ 169.4 $ 214.5 $24.7 $ -- $ 505.0
Additions.................. 10.5 11.8 34.6 6.1 -- 63.0
Disposals.................. (0.2) -- (22.8) (5.6) -- (28.6)
Translation differences.... 2.1 3.5 4.5 0.4 -- 10.5
------ -------- ------- ----- ------ --------
March 31, 1998............... $108.8 $ 184.7 $ 230.8 $25.6 $ -- $ 549.9
====== ======== ======= ===== ====== ========
Net book value:
March 31, 1998............. $502.1 $ 884.9 $ 401.2 $23.5 $125.8 $1,937.5
====== ======== ======= ===== ====== ========
</TABLE>
Included in property, plant and equipment are the following amounts
relating to capital leases:
<TABLE>
<CAPTION>
BUILDINGS PLANT TOTAL
AND MACHINERY PROPERTY,
OPERATIONAL INFRASTRUCTURE AND OTHER CONSTRUCTION- PLANT &
STRUCTURES ASSETS VEHICLES ASSETS IN-PROGRESS EQUIPMENT
----------- -------------- --------- ------ ------------- ---------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cost......................... $ 40.1 $ 73.1 $ 45.2 $ 1.2 $ -- $ 159.6
Accumulated depreciation..... (3.9) -- (14.6) (0.8) -- (19.3)
------ -------- ------- ----- ------ --------
Net.......................... $ 36.2 $ 73.1 $ 30.6 $ 0.4 $ -- $ 140.3
====== ======== ======= ===== ====== ========
</TABLE>
The net book value of property, plant and equipment as of March 31, 1998
includes interest capitalized of $62.5 million.
NOTE 5 -- GOODWILL
Goodwill arising on the acquisition of SC Technology on January 3, 1996 was
$24.3 million, with an annual amortization charge of $1.2 million. Accumulated
amortization as of March 31, 1998 is $2.7 million.
F-42
<PAGE> 169
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENT IN EQUITY METHOD INVESTEE
At March 31, 1998, Wessex had a 50.0% share of Wessex Waste Management Ltd,
holding Class B shares of L1 each. Wessex Waste Management Ltd trades as UK
Waste through its wholly owned subsidiaries. UK Waste collects, recycles and
disposes of waste from commercial and domestic customers.
<TABLE>
<CAPTION>
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C>
Investment at cost, April 1, 1997
Share in net identifiable assets acquired................... $ 48.3
Goodwill.................................................... 225.2
------
Cost........................................................ 273.5
Less: Accumulated amortization of goodwill.................. (30.9)
Share of retained profit.................................... 63.3
Translation difference...................................... 5.3
------
Book value at March 31, 1998................................ $311.2
======
</TABLE>
Summarized financial information for Wessex Waste Management Ltd is
presented below. At March 31, 1998, Wessex's share of earnings and of the net
assets of Wessex Waste Management Ltd was 50.0%.
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C>
Current assets.............................................. $ 89.9
Non-current assets.......................................... 643.3
------
Total assets...................................... $733.2
======
Current liabilities......................................... $ 74.3
Non-current liabilities..................................... 36.5
Stockholders' equity........................................ 622.4
------
Total liabilities and stockholders' equity........ $733.2
======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
OCTOBER 2, -----------------
1998 1998 1997
----------- ------- -------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C>
Revenues................................................. $145.2 $285.1 $237.8
Operating profit......................................... 10.6 25.1 28.7
Net income before tax.................................... 11.6 26.6 29.4
</TABLE>
F-43
<PAGE> 170
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- ACCOUNTS PAYABLE AND ACCRUALS
<TABLE>
<CAPTION>
MARCH 31,
1998
---------------
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C>
Trade accounts payable...................................... $ 8.4
Capital expenditure accruals................................ 56.0
Corporation tax............................................. 16.8
Advance corporation tax..................................... 19.3
Utility tax................................................. 83.0
Accruals.................................................... 42.7
Other....................................................... 1.3
------
Total............................................. $227.5
======
</TABLE>
NOTE 8 -- BORROWINGS FROM BANKS
<TABLE>
<CAPTION>
MARCH 31,
1998
---------------
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C>
Bank overnight credit facility.............................. $24.0
Revolving line of credit.................................... 58.7
-----
Total............................................. $82.7
=====
</TABLE>
Wessex has an overnight overdraft facility with two banks. In addition,
Wessex maintains a credit agreement with a syndicate of banks which provides
$402 million, denominated in pounds sterling, of committed lines of credit which
expire on April 21, 1999. The interest rate on draw-downs is the London
interbank offered rate plus 0.18%. Wessex pays commitment fees of 0.09% on the
unused portion of the lines of credit. The weighted average effective interest
rate at March 31, 1998 on short-term borrowings is 7.75%.
NOTE 9 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
1998
----------------
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C>
European Investment Bank loan #1 -- U.S. dollar, variable
interest rate of 6 month London interbank offered rate
minus 0.25% due October 2001.............................. $ 50.3
European Investment Bank loan #2 -- Italian lire, fixed
interest rate of 11.6% due June 2002...................... 24.5
European Investment Bank loan #3 -- European currency unit,
fixed interest rate of 5.7% due December 1998............. 12.7
Capital lease, fixed interest rate of 8.06% due September
2002...................................................... 120.0
Other long-term debt........................................ 0.5
------
208.0
Less: Current portion included in current liabilities....... (38.3)
------
Total............................................. $169.7
======
</TABLE>
F-44
<PAGE> 171
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum annual principal payments due on long-term debt are as follows:
<TABLE>
<S> <C>
Year ending March 31:
1999...................................................... $ 38.3
2000...................................................... 29.0
2001...................................................... 32.9
2002...................................................... 87.5
2003...................................................... 20.3
------
Total............................................. $208.0
======
</TABLE>
The three European Investment Bank currency term loans which are due and
payable from 1998 through June 2002 have both fixed and variable interest rates
in their respective currencies with semiannual interest payments. Using a
combination of interest rate swaps and currency swaps these rates are changed to
variable and fixed pounds sterling interest rates.
Wessex's term loans and credit facilities are subject to certain financial
covenants, including the maintenance of minimum interest cover, maximum gearing
levels and minimum net worth.
NOTE 10 -- FINANCIAL INSTRUMENTS
Wessex uses a variety of financial instruments denominated in foreign
currencies, at both floating and fixed interest rates, to finance its
operations. Wessex manages the risk arising on these instruments by entering
into cross-currency and interest rate swaps.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of short-term financial instruments including cash and
cash equivalents, accounts receivable, accounts payable, and all other
short-term financial assets and liabilities, including bank debt, approximates
fair value due to the short maturity of those instruments.
The fair value of preference shares with mandatory redemption requirements
and long-term debt are estimated using discounted cash flow analyses based on
Wessex's current incremental financing rates for similar types of securities.
The fair value of currency swaps and interest rate swaps was determined based on
a model which estimates the fair value of these swap contracts using market
rates at March 31, 1998 or was based on quoted market prices for similar
instruments with similar maturities. A comparison of the carrying value and fair
value of these instruments is included below:
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
ESTIMATED CARRYING
FAIR VALUE AMOUNT
---------- --------
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C> <C>
Long-term debt (including current portion).................. $ 79.2 $ 78.4
Preference shares with mandatory redemption................. 272.2 259.0
Derivatives:
Interest rate swaps....................................... (9.0) --
Currency swaps............................................ 14.2 9.6
</TABLE>
RISKS AND CONCENTRATIONS
Wessex's cash equivalents consist primarily of short-term money market
deposits. Wessex has deposited its cash equivalents with reputable financial
institutions and believes the risk of loss to be
F-45
<PAGE> 172
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remote. Wessex has accounts receivable from customers concentrated in
southwestern England with no single customer accounting for more than 10% of
sales.
Wessex is exposed to credit risk in the event of non-performance by
counterparties to interest rate and cross-currency swap contracts. However,
because Wessex deals only with major commercial banks with high-quality credit
ratings, it does not anticipate non-performance by any of these counterparties.
Wessex is exposed to market risk in the form of foreign exchange rate and
interest rate risks. Wessex has one consolidated foreign subsidiary, which has a
functional currency of Swiss francs. On consolidation the functional currency
accounts are translated to the reporting currency with translation gains and
losses recorded in other comprehensive income. Wessex has several variable and
fixed rate loans in foreign currencies which are fully hedged through a
combination of cross-currency swaps and interest rate swaps. In addition, Wessex
is subject to foreign currency risk on translation from its functional currency
(pounds sterling) to the reporting currency (U.S. dollar).
NOTE 11 -- STOCKHOLDERS' EQUITY
ORDINARY SHARES
As of March 31, 1996, there were 214,417,242 issued and paid ordinary
shares of 60p each. During fiscal 1997, Wessex repurchased 722,771 ordinary
shares at L3.55 per share and 6,675,068 shares at L3.80 per share. Also during
fiscal 1997, 783,967 shares were issued to existing stockholders in lieu of a
cash dividend, 1,510,118 shares were issued under the stock-based compensation
plans and 193,756 shares were issued under the profit-sharing scheme.
During fiscal 1998, 1,359,267 shares were issued to existing stockholders
in lieu of a cash dividend, 1,673,643 shares were issued under the stock-based
compensation plans and 137,398 shares were issued under the profit-sharing
scheme.
CLASS B AND C ORDINARY SHARES
As of March 31, 1996 there were 30,225,106 issued and paid B ordinary
shares of 60p each and 13,285,088 C ordinary shares of 60p each. During fiscal
1997 Wessex repurchased all issued B and C ordinary shares at L3.55 per share.
On September 10, 1997, the authorized but unissued B and C ordinary shares were
redesignated as authorized ordinary shares of 60p each.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Other comprehensive income at March 31, 1998 comprises the foreign currency
translation reserve of $178.8 million and unrealized gains on available-for-sale
securities of $3.2 million. The majority of the foreign currency translation
reserve is generated by the translation of the pounds sterling functional
currency financial statements into the U.S. dollar reporting currency.
PROFIT-SHARING STOCK PLAN
Wessex operates a profit-sharing stock plan whereby employees can apply for
free shares and also purchase shares. If the employee purchases shares, Wessex
matches the number of shares purchased up to a set limit. The fair market value
of the free and matching shares on the grant date is written off to the income
statement in the year of issue. Employees are entitled to all dividends on these
shares when issued. At March 31, 1998, 452,623 ordinary shares were held by
Wessex Water Trustee Company Ltd on behalf
F-46
<PAGE> 173
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of employees who were beneficially entitled to the shares under this plan. The
market value of these shares at March 31, 1998 was $3.9 million.
STOCK OPTIONS
Wessex applies Accounting Principles Board Opinion No. 25 in accounting for
its stock-based compensation plans. Accordingly, compensation expense of $0.2
million, $0.2 million and $0.3 million was recorded for the six months ended
October 2, 1998 and for the years ended March 31, 1998 and 1997, respectively.
Wessex has two share option plans. The first is a savings-related share
option plan, based on save-as-you-earn contracts, under which options were
granted between August 1991 and August 1997 at prices between L1.47 and L3.58
per share. At March 31, 1998, there were options outstanding in respect of
2,367,465 shares, exercisable between April 1, 1998 and February 28, 2005. The
second share option plan is an executive share option plan whereby options
outstanding in respect of 762,116 ordinary shares were granted at prices between
L1.85 and L3.16 per share. These options are exercisable between April 1, 1998
and August 1, 2004.
Details of the share option plans are summarized in the table below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
OPTIONS SHARES (IN POUNDS STERLING)
- ------- ---------- --------------------
<S> <C> <C>
Outstanding at March 31, 1996.......................... 5,678,630 2.20
Granted................................................ 509,463 2.80
Exercised.............................................. (1,531,156) 1.66
Forfeited.............................................. (126,011) 2.20
---------- ----
Outstanding at March 31, 1997.......................... 4,530,926 2.46
---------- ----
Granted................................................ 477,003 3.58
Exercised.............................................. (1,673,259) 2.36
Forfeited.............................................. (205,089) 2.49
---------- ----
Outstanding at March 31, 1998.......................... 3,129,581 2.68
---------- ----
Granted................................................ 371,597 3.64
Exercised.............................................. (320,197) 2.62
Forfeited.............................................. (24,688) 2.73
---------- ----
Outstanding at October 2, 1998......................... 3,156,293 2.80
---------- ----
Exercisable at March 31, 1997.......................... 1,061,306 2.46
Exercisable at March 31, 1998.......................... 762,116 3.11
Exercisable at October 2, 1998......................... 629,674 3.10
</TABLE>
The exercise price of the savings-related share options granted was 20%
below market price.
F-47
<PAGE> 174
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about options outstanding as at
March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
NUMBER LIFE NUMBER
RANGE OF EXERCISE PRICES (POUNDS STERLING) OUTSTANDING (YEARS) EXERCISABLE
- ------------------------------------------ ----------- ------------ -----------
<S> <C> <C> <C>
1.00 - 1.49......................................... 235,152 0.50 --
1.50 - 1.99......................................... 248,246 1.62 13,372
2.00 - 2.49......................................... 1,003,938 2.17 4,772
2.50 - 2.99......................................... 430,808 3.29 --
3.00 - 3.49......................................... 743,972 5.94 743,972
3.50 - 3.99......................................... 467,465 4.22 --
</TABLE>
If Wessex had elected to recognize compensation expense based on the fair
value of the stock options at the grant date in accordance with Statement of
Financial Accounting Standard 123, "Accounting for Stock Based Compensation,"
compensation expense of $0.3 million, $0.5 million, and $0.3 million would have
been recorded for the six months ended October 2, 1998 and for the years ended
March 31, 1998 and 1997, respectively. Net income would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
OCTOBER 2, ----------------
1998 1998 1997
----------- ------ -------
(IN MILLIONS OF U.S. DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income:
As reported............................................... $71.8 $16.7 $153.0
Pro forma................................................. 71.7 16.4 153.0
Basic earnings per share:
As reported............................................... $0.30 $0.01 $ 0.65
Pro forma................................................. 0.30 0.01 0.65
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants for the six months ended October 2, 1998 and for the years ended March
31, 1998 and 1997:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED MARCH 31,
OCTOBER 2, ---------------------
1998 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Dividend yield.............................................. 4.1% 3.3% 4.4%
Expected volatility......................................... 21% 22% 23%
Risk-free interest rate..................................... 6.3% 7.1% 7.2%
Expected lives.............................................. 4.9 years 4.8 years 4.8 years
Weighted average option price (pounds sterling)............. 3.64 3.58 2.80
Weighted average fair market value at date of grant (pounds
sterling)................................................. 1.24 1.42 1.03
</TABLE>
NOTE 12 -- REDEEMABLE PREFERENCE SHARES
On September 7, 1995, a bonus issue of 308,984,402 fully paid 50p
cumulative redeemable preference shares was made to holders of record as of
August 31, 1995 of B and C ordinary shares on a one-for-one
F-48
<PAGE> 175
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
'basis; 310,000,000 of these shares were authorized. The preference shares were
originally redeemable at par in four equal tranches on the dividend payment date
in each of the years 1998, 1999, 2000 and 2001. The preference dividend is paid
annually in arrears at a gross dividend rate, fixed in advance, of the 12 month
London interbank offered rate plus 0.5%. Preference shares have priority on
winding up, but are non-voting unless a resolution is passed to vary their
rights.
Beginning in September 1998, Wessex redeemed all of its 308,984,402
cumulative redeemable preference shares at the par value of 50p per share. This
was pursuant to resolutions passed by its stockholders on July 29, 1998 and
November 23, 1998 to cancel the preference shares by repaying capital to the
preference stockholders.
NOTE 13 -- EARNINGS PER SHARE
Reconciliation of the numerator and denominator as used in the calculation
of earnings per share:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
OCTOBER 2, ---------------
NUMERATOR (IN MILLIONS OF US DOLLARS) 1998 1998 1997
- ------------------------------------- ---------- ------ ------
<S> <C> <C> <C>
Basic
Net income attributable to ordinary stockholders....... $ 64.1 $ 1.6 $139.5
Dividends paid to convertible stockholders............. -- -- 0.6
------ ------ ------
Diluted
Net income available to ordinary and convertible
stockholders........................................ $ 64.1 $ 1.6 $140.1
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DENOMINATOR (IN MILLIONS)
- -------------------------
<S> <C> <C> <C>
Basic
Weighted average shares outstanding during year........ 213.0 211.3 214.7
Effect of dilutive securities:
Stock options....................................... 1.5 1.4 2.0
Convertible securities.............................. -- -- 38.0
------ ------ ------
Diluted.................................................. 214.5 212.7 254.7
====== ====== ======
</TABLE>
The UK Finance (No. 2) Act 1997 required the payment of utility tax, which
for Wessex Water Plc was $162.3 million, and was charged in full in the results
for the year ended March 31, 1998. The adjusted earnings per share adding back
this utility tax would have been:
<TABLE>
<CAPTION>
YEAR
ENDED
MARCH 31,
1998
---------
<S> <C>
Basic....................................................... $0.78
Diluted..................................................... 0.77
</TABLE>
F-49
<PAGE> 176
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- INCOME TAXES
Total income tax expense is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
OCTOBER 2, ----------------
1998 1998 1997
----------- ------- ------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C>
Current tax............................................... $ 3.0 $ 26.5 $79.3
Deferred tax.............................................. 23.2 24.9 (2.1)
Share of tax of equity method investee.................... 2.2 6.6 5.2
Utility tax............................................... -- 162.3 --
----- ------ -----
Total income tax expense........................ $28.4 $220.3 $82.4
===== ====== =====
</TABLE>
The differences between taxes computed at the statutory tax rate and
Wessex's effective income tax rate are as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
OCTOBER 2, ----------------
1998 1998 1997
----------- ------- ------
(IN MILLIONS OF U.S. DOLLARS
EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Tax at statutory tax rate 31% (1997: 33%)................ $ 31.1 $ 73.5 $77.7
Change in tax rate....................................... (12.7) (22.6) --
Non-deductible expenses.................................. 7.9 1.6 1.6
Equity investee.......................................... 0.5 2.5 0.4
Other.................................................... 1.6 3.0 2.7
------ ------ -----
Total before utility tax....................... 28.4 58.0 82.4
------ ------ -----
Utility tax.............................................. -- 162.3 --
------ ------ -----
Total.......................................... $ 28.4 $220.3 $82.4
====== ====== =====
Effective rate before utility tax........................ 28% 24% 35%
Effective rate after utility tax......................... 28% 93% 35%
</TABLE>
The change in tax rate from 33% to 31% effective from April 1, 1997 was
enacted on July 31, 1997. The subsequent reduction in the tax rate from 31% to
30% effective from April 1, 1999 was enacted on July 31, 1998.
F-50
<PAGE> 177
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal components of Wessex's net deferred liability are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
--------------
(IN MILLIONS
OF U.S.
DOLLARS)
<S> <C>
Deferred tax assets:
Advance corporation tax recoverable....................... $114.2
Other temporary differences............................... 7.7
------
Total deferred tax asset.......................... 121.9
------
Deferred tax liabilities:
Accelerated capital allowances............................ 371.5
Other temporary differences............................... 56.9
------
Total deferred tax liability...................... 428.4
------
Net deferred tax liability.................................. $306.5
======
</TABLE>
NOTE 15 -- PENSIONS
Wessex maintains three defined benefit pension plans that cover
substantially all of its employees. The assets are held in separate trustee
administered funds. The pension cost charged to the income statement has been
determined on the advice of independent qualified actuaries and is accrued over
the service lives of the employees expected to be eligible to receive such
benefits.
The following assumptions were used in determining the funded status and
pension charge for each period, and are determined as of the beginning of the
period:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
OCTOBER 2, -----------
1998 1998 1997
---------- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 6.5% 8.3% 9.0%
Yield on government bonds................................... 6.0 7.6 8.5
Expected return on plan assets.............................. 7.5 8.5 9.0
Rate of compensation increase............................... 5.0 6.0 6.5
Pension increases after April 5, 1997....................... 3.0 4.0 4.5
</TABLE>
F-51
<PAGE> 178
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plan's funded status and related pension accrual at March 31, 1998 are
as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
---------------
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C>
Change in benefit obligation
Benefit obligation at beginning of year................... $ 186.8
Service cost.............................................. 4.6
Interest cost............................................. 15.4
Plan participants' contributions.......................... 2.1
Termination costs......................................... 1.3
Actuarial losses.......................................... 25.9
Benefits paid............................................. (9.4)
Exchange movement......................................... 4.6
-------
Benefit obligation at end of year......................... $ 231.3
=======
Change in plan assets
Fair value of plan assets at beginning of year............ $ 211.6
Actual return on plan assets.............................. 44.8
Employer's contribution................................... 3.6
Plan participants' contribution........................... 2.1
Benefits paid............................................. (9.4)
Exchange difference....................................... 5.0
-------
Fair value of plan assets at end of year.................. $ 257.7
=======
Fair value of plan assets................................. $ 257.7
Projected benefit obligation.............................. (231.3)
-------
Funded status............................................. 26.4
Unrecognized transition asset............................. (6.2)
Unrecognized net actuarial gain........................... (16.6)
Unrecognized prior service cost........................... 7.8
-------
Prepaid benefit cost...................................... $ 11.4
=======
</TABLE>
Net periodic benefit cost includes the following components:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31,
OCTOBER 2, -----------------
1998 1998 1997
----------- ------- -------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C>
Service cost............................................. $ 3.1 $ 4.6 $ 4.4
Interest cost............................................ 7.4 15.4 14.3
Expected return on plan assets........................... (9.4) (17.9) (16.9)
Recognition of transition asset.......................... (0.5) (1.0) (1.0)
Amortization of prior service cost....................... 0.3 0.7 0.6
Recognized actuarial gain................................ -- -- (0.3)
Curtailments............................................. -- 1.3 1.6
----- ------ ------
Net periodic benefit cost................................ $ 0.9 $ 3.1 $ 2.7
===== ====== ======
</TABLE>
F-52
<PAGE> 179
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The prepaid benefit accrual is included within other non-current assets in
the balance sheet. The net periodic benefit cost is included within operating
expenses in the income statement.
NOTE 16 -- SEGMENT AND GEOGRAPHIC INFORMATION
Wessex's principal business is the provision of water supply and wastewater
services in southwestern England. For management reporting purposes the
operations are divided into three service categories: regulated water services,
unregulated water services and SC Technology. Regulated water services accounted
for approximately 91%, 93% and 93% of revenues for the six months ended October
2, 1998, and for the years ended March 31, 1998 and 1997, respectively. Wessex's
management regularly reviews financial information relating to these three
service categories. The financial information provided to and reviewed by the
chief operating decision maker does not include balance sheet information by
segment. The financial management information is prepared using U.K. generally
accepted accounting principles which differ in significant respects from U.S.
generally accepted accounting principles.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
OCTOBER 2, 1998 MARCH 31, 1998 MARCH 31, 1997
-------------------------- -------------------------- --------------------------
REGULATED REGULATED REGULATED
WATER WATER WATER
SERVICES OTHER TOTAL SERVICES OTHER TOTAL SERVICES OTHER TOTAL
--------- ----- ------ --------- ----- ------ --------- ----- ------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
External revenue................ $213.6 $20.2 $233.8 $404.3 $32.3 $436.6 $375.7 $27.4 $403.1
Intersegment revenue............ -- 2.1 2.1 -- -- -- -- -- --
------ ----- ------ ------ ----- ------ ------ ----- ------
Total revenue................... 213.6 22.3 235.9 404.3 32.3 436.6 375.7 27.4 403.1
Segment result.................. 95.2 5.3 100.5 221.1 10.3 231.4 204.5 8.7 213.2
Depreciation.................... 27.4 0.5 27.9 51.4 0.5 51.9 45.6 0.5 46.1
</TABLE>
Reconciliation of segment results to income before taxes:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED MARCH 31,
OCTOBER 2, ---------------------
1998 1998 1997
---------- -------- --------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C>
Total segment result for reportable segments........... $100.5 $231.4 $213.2
Intersegment profit.................................. (0.3) -- --
Head office charges.................................. (2.8) (5.1) (7.6)
U.S. GAAP adjustments:
Infrastructure renewals charge.................... 8.3 16.2 15.2
Depreciation on infrastructure assets............. (6.3) (11.8) (10.5)
Other............................................. 1.1 1.6 0.2
------ ------ ------
U.S. GAAP operating profit........................... 100.5 232.3 210.5
Share in results of equity method investee........... 5.8 13.3 14.7
Net interest income (expense)........................ (6.1) (8.6) 10.2
------ ------ ------
Income before tax.................................... $100.2 $237.0 $235.4
====== ====== ======
</TABLE>
F-53
<PAGE> 180
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- RELATED PARTY TRANSACTIONS
At March 31, 1998,Wessex had a 50.0% interest in Wessex Waste Management
Ltd. This investment is further described in Note 6. Waste Management (UK)
Holdings Ltd, a subsidiary of Waste Management International, is the other 50.0%
owner of Wessex Waste Management Ltd. Related party transactions with Wessex
Waste Management Ltd and Waste Management International group companies for the
six months ended October 2, 1998 and for the years ended March 31, 1998 and 1997
were as follows:
(a) In fiscal 1997, Wessex stock options granted to UK Waste
Management Holdings in respect of 10,605,303 ordinary shares were
cancelled.
(b) Also in fiscal 1997, Wessex repurchased 722,771 ordinary shares,
30,225,106 B ordinary shares and 13,285,088 C ordinary shares from UK Waste
Management Holdings at a total cost of $254.3 million.
(c) At March 31, 1998, a loan of $6.2 million had been received by
Wessex from Wessex Waste Management Ltd.
(d) Wessex provided guarantees on loans issued by Wessex Waste
Management Ltd. The maximum liability as of March 31, 1998 was $7.0
million.
Other related party transactions are as follows:
(e) A director of SC Technology owns some of the assets at the
company's operation in Biel, Switzerland, for which a charge was made to SC
Technology of $0.2 million, $0.3 million and $0.5 million for the six
months ended October 2, 1998 and for the years ended March 31, 1998 and
1997, respectively.
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
LEASES
Wessex leases property, plant and equipment. Commitments for minimum
rentals under non-cancelable leases as at March 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------------
(IN MILLIONS OF
U.S. DOLLARS)
<S> <C>
For the years ending March 31:
1999........................................................ $0.7
2000........................................................ 0.5
2001........................................................ 0.5
2002........................................................ 0.5
2003........................................................ 0.3
Thereafter.................................................. 0.9
----
Total minimum lease payments................................ $3.4
====
</TABLE>
Rent expense amounted to approximately $0.3 million, $0.5 million and $0.5
million for the six months ended October 2, 1998 and for the years ended March
31, 1998 and 1997, respectively.
F-54
<PAGE> 181
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CAPITAL EXPENDITURES
Capital expenditure contracted but not provided at March 31, 1998 was $79.1
million.
GUARANTEES
Wessex Water Plc has acted as guarantor for some borrowing facilities made
available to Wessex Water Services Ltd. As part of the banking arrangements,
Wessex Water Plc has entered into a cross-undertaking with Wessex Water Services
Ltd in relation to the latter's overdraft and related facilities.
At March 31, 1998, Wessex Water Plc had provided guarantees on loans issued
by Wessex Waste Management Ltd, the maximum liability at March 31, 1998 being
$7.0 million.
Wessex Water Plc has provided performance guarantees on behalf SC
Technology on the tendering of contracts. The maximum liability as of March 31,
1998 was $4.9 million.
NOTE 19 -- SUBSEQUENT EVENTS
On Friday July 24, 1998 Enron Corp. of Houston, Texas, United States, made
a cash offer of 630p per share for the shares of Wessex. This offer was
recommended to the stockholders by the Board of Directors of Wessex. The offer
ran to August 28, 1998, but was extended to September 18, 1998 to allow the
Secretary of State for Trade and Industry to consider if there should be an
investigation by the Monopolies and Mergers Commission. On September 10, 1998 it
was announced that there would be no reference to the Monopolies and Mergers
Commission. On September 21, 1998 Enron announced that the offer had become
unconditional, having received by September 18, 1998 acceptances representing
87.2 percent of all ordinary shares.
On October 2, 1998 Enron announced that it had received acceptances
representing more than 90 percent of all ordinary shares. On that same date
notices were issued to the remaining Wessex ordinary shareholders, informing
them that Enron intended to exercise its rights under Section 429 of the
Companies Act 1985 to acquire compulsorily all of the outstanding ordinary
shares. The compulsory share acquisition was completed in November 1998. Offer
documents were also sent to the stock option holders in the Savings-Related
Share Option Scheme. The options outstanding under this scheme and the Executive
Share Option Scheme were either exercised and the shares acquired by Enron, or
compensation was paid to settle the liabilities under the schemes. All stock
option schemes are now closed.
On November 30, 1998, Wessex sold its interest in Wessex Waste Management
Ltd to Waste Management International for $337.9 million.
In December 1998, all of the remaining 128,339,909 redeemable preference
shares were redeemed and Wessex Water Plc changed its name to Wessex Water Ltd.
F-55
<PAGE> 182
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE
OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
36,600,000 SHARES
[AZURIX LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
PAINEWEBBER INCORPORATED
BT ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 183
[ALTERNATE PAGES OF INTERNATIONAL PROSPECTUS]
<PAGE> 184
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE COVER FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 21, 1999
PROSPECTUS
- ----------------
36,600,000 SHARES
[AZURIX LOGO]
COMMON STOCK
----------------------
This is Azurix Corp.'s initial public offering of common stock. Azurix is
offering and selling 17,100,000 shares and Atlantic Water Trust, the selling
stockholder, is offering and selling 19,500,000 shares of common stock.
The international managers will offer 7,320,000 shares outside the United
States and Canada and the U.S. underwriters will offer 29,280,000 shares in the
United States and Canada.
We expect the public offering price to be between $19.00 and $22.00 per
share. Prior to the offering, there has been no public market for the common
stock. The common stock has been approved for listing on the New York Stock
Exchange under the trading symbol "AZX," subject to official notice of issuance.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to Azurix....................... $ $
Proceeds, before expenses, to the selling stockholder...... $ $
</TABLE>
The international managers may also purchase up to an additional 1,098,000
shares from the selling stockholder at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an aggregate
of an additional 4,392,000 shares from the selling stockholder.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
----------------------
MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
PAINEWEBBER INTERNATIONAL
ABN AMRO ROTHSCHILD HSBC INVESTMENT BANKING
----------------------
The date of this prospectus is , 1999.
<PAGE> 185
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
GENERAL
We intend to offer our common stock outside of the United States and Canada
through a number of international managers and elsewhere through U.S.
underwriters. Merrill Lynch International, Credit Suisse First Boston (Europe)
Limited, Donaldson, Lufkin & Jenrette International, PaineWebber International
(U.K.) Ltd., ABN AMRO Rothschild and HSBC Investment Banking are acting as lead
managers of each of the international managers named below. Under an
international purchase agreement among Azurix, the selling stockholder, Enron
and the international managers, and concurrently with the sale of 29,280,000
shares of common stock to the U.S. underwriters, Azurix and the selling
stockholder have agreed to sell to the international managers, and each of the
international managers severally and not jointly has agreed to purchase from
Azurix and the selling stockholder, the number of shares of common stock set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
<S> <C>
Merrill Lynch International.................................
Credit Suisse First Boston (Europe) Limited.................
Donaldson, Lufkin & Jenrette International..................
PaineWebber International (U.K.) Ltd........................
ABN AMRO Rothschild.........................................
HSBC Investment Banking.....................................
--------
Total.......................................... 7,320,000
========
</TABLE>
Azurix, the selling stockholder and Enron have also entered into a U.S.
purchase agreement with certain U.S. underwriters in the United States and
Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit
Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities
Corporation, PaineWebber Incorporated, BT Alex. Brown Incorporated and Banc of
America Securities LLC are acting as U.S. representatives. Under the U.S.
purchase agreement, and concurrently with the sale of 7,320,000 shares of common
stock to the international managers under the international purchase agreement,
Azurix and the selling stockholder have agreed to sell to the U.S. underwriters,
and each of the U.S. underwriters severally and not jointly has agreed to
purchase from Azurix and the selling stockholder, an aggregate of 29,280,000
shares of common stock. The initial public offering price per share and the
total underwriting discount per share of common stock are identical under the
international purchase agreement and the U.S. purchase agreement.
In the international purchase agreement and the U.S. purchase agreement,
the international managers and the U.S. underwriters, respectively, have agreed,
under the terms of those agreements, to purchase all of the shares of our common
stock being sold under those agreements if any of the shares of common stock
being sold under those agreements are purchased. In the event of a default by an
underwriter, the international purchase agreement and the U.S. purchase
agreement provide that, in some circumstances, the purchase commitments of
nondefaulting underwriters may be increased or the purchase agreements may be
terminated. The closings for the sale of shares of our common stock to the
international managers and the U.S. underwriters are conditioned upon one
another.
Azurix and Enron have agreed to indemnify the international managers and
the U.S. underwriters against some liabilities, including some liabilities under
the Securities Act, or to contribute to payments
116
<PAGE> 186
the international managers and the U.S. underwriters may be required to make in
respect of those liabilities.
The shares of common stock are being offered by the underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of legal matters by counsel for the underwriters and certain other
conditions. The underwriters reserve the right to withdraw, cancel or modify
offers and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The lead managers have advised Azurix and the selling stockholder that the
international managers propose initially to offer the shares of our common stock
to the public at the initial public offering price set forth on the cover page
of this prospectus, and to certain dealers at such price less a concession not
in excess of $ per share of common stock. The international managers may
allow, and such dealers may reallow, a discount not in excess of $ per share
of common stock to certain other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
The following table shows the per share and total public offering price,
the underwriting discount to be paid by Azurix and the selling stockholder to
the international managers and the U.S. underwriters and the proceeds before
expenses to Azurix and the selling stockholder. This information is presented
assuming either no exercise or full exercise by the international managers and
the U.S. underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public offering price.................................... $ $ $
Underwriting discount.................................... $ $ $
Proceeds, before expenses, to Azurix..................... $ $ $
Proceeds, before expenses, to the selling stockholder.... $ $ $
</TABLE>
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $5,250,000 and are payable by Azurix and the selling stockholder.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the international managers and
the U.S. underwriters are permitted to sell shares of common stock to each other
for purposes of resale at the public offering price, less an amount not greater
than the selling concession. Under the terms of the intersyndicate agreement,
the U.S. underwriters and any dealer to whom they sell shares of our common
stock will not offer to sell or sell shares of common stock to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, and the international managers
and any dealer to whom they sell shares of common stock will not offer to sell
or sell shares of common stock to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. persons or Canadian persons,
except in the case of transactions under the terms of the intersyndicate
agreement.
OVER-ALLOTMENT OPTION
The selling stockholder has granted an option to the international
managers, exercisable for 30 days after the date of this prospectus, to purchase
up to an aggregate of 1,098,000 additional shares of our common stock at the
public offering price set forth on the cover page of this prospectus, less the
underwriting discount. The international managers may exercise this option
solely to cover over-allotments, if any, made on the sale of our common stock
offered hereby. To the extent that the international managers exercise this
option, each international manager will be obligated, subject to conditions
specified in the purchase agreement, to purchase a number of additional shares
of our common stock proportionate to such international manager's initial amount
reflected in the foregoing table.
117
<PAGE> 187
The selling stockholder also has granted an option to the U.S.
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of 4,392,000 additional shares of common stock to
cover over-allotments, if any, on terms similar to those granted to the
international managers.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 3,660,000 of the shares offered hereby to be sold
to some of our directors, officers and employees who have expressed an interest
in purchasing our common stock. The number of shares of our common stock
available for sale to the general public will be reduced to the extent that
those persons purchase the reserved shares. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of the offering will
be offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
Azurix, Enron and the selling stockholder have agreed, with exceptions
specified in the lock-up agreements, not to directly or indirectly engage in the
following activities for a period of 180 days after the date of this prospectus
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated:
- Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file a registration statement under
the Securities Act relating to any shares of our common stock
- Enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise, see "Shares Eligible for
Future Sale"
As an exception to these restrictions we may issue shares of our common
stock or securities convertible or exchangeable into our common stock as payment
of any part of the purchase price for businesses we acquire. However, shares
issued in this manner shall not be transferable during the 180-day lock-up
period. In addition, if Atlantic Water Trust is compelled to sell some or all of
its shares of our common stock in the event of a default under specified debt
obligations or a major decline in the price of Enron's common stock combined
with a downgrading of Enron's senior debt to below investment grade, then such
sale will be permitted. See "Risk Factors -- Future sales of our common stock
may depress our stock price."
NEW YORK STOCK EXCHANGE LISTING
The common stock has been approved for listing on the New York Stock
Exchange under the symbol "AZX," subject to official notice of issuance. To meet
the requirements for listing of our common stock on that exchange, the
underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
Azurix, the selling stockholder, Enron, the lead managers and the U.S.
representatives. The factors to be considered in determining the initial public
offering price, in addition to prevailing market conditions, are the valuation
multiples of publicly traded companies that the lead managers and the U.S.
representatives believe to be comparable to us, including adjusted market value
to EBITDA multiples, price to book value multiples and price to earnings
multiples, certain of our financial information, the history of, and the
prospects for, our company and the industry in which we compete, an assessment
of our management, our past and present operations, the prospects for
118
<PAGE> 188
and timing of our future revenues, the present state of our development, and the
above factors in relation to market values and various valuation measures of
other companies engaged in activities similar to ours. There can be no assurance
that an active trading market will develop for the common stock or that the
common stock will trade in the public market subsequent to this offering at or
above the initial public offering price.
The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered in this offering.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of our common stock is completed, rules of the SEC
may limit the ability of the underwriters and selling group members to bid for
and purchase our common stock. As an exception to these rules, the lead managers
and the U.S. representatives are permitted to engage in certain transactions
that stabilize the price of our common stock. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of our
common stock.
If the underwriters create a short position in our common stock in
connection with this offering, i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the lead managers and
the U.S. representatives may reduce that short position by purchasing our common
stock in the open market. The lead managers and the U.S. representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above.
PENALTY BIDS
The lead managers and the U.S. representatives may also impose a penalty
bid on underwriters and selling group members. This means that if the lead
managers or the U.S. representatives purchase shares of our common stock in the
open market to reduce the underwriters' short position or to stabilize the price
of our common stock, they may reclaim the amount of the selling concession from
the underwriters and selling group members who sold those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
None of Azurix, the selling stockholder, or any of the underwriters makes
any representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of our common stock.
In addition, none of Azurix, the selling stockholder or any of the underwriters
makes any representation that the lead managers or the U.S. representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates engage in transactions with,
and perform services for, our company, Enron and Enron's affiliates in the
ordinary course of business and have engaged, and may in the future engage, in
commercial banking and investment banking transactions and services with our
company, Enron and Enron's affiliates, for which they have received customary
compensation.
We have engaged Merrill Lynch & Co. to act as our financial advisor in
evaluating two potential acquisition opportunities for which we will pay an
ordinary and customary fee if we decide to pursue these opportunities and they
result in an acquisition. We have also agreed to reimburse Merrill Lynch & Co.
for all reasonable out-of-pocket expenses incurred in connection with these
engagements.
STAMP TAXES
Purchasers of the shares of common stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page hereof.
119
<PAGE> 189
LIMITATIONS ON SALES IN THE UNITED KINGDOM
Each international manager has agreed that:
- It has not offered or sold and, prior to the expiration of the period of
six months from the closing date, will not offer or sell any shares of
our common stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which do not constitute an
offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995
- It has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to our common stock in, from or otherwise involving the United
Kingdom
- It has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of our common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to us or shares of our common stock in any jurisdiction
where action for that purpose is required. Accordingly, the shares of our common
stock may not be offered or sold, directly or indirectly, and neither this
prospectus nor any other offering material or advertisements in connection with
the shares of our common stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
LEGAL MATTERS
Legal matters with respect to the validity of the issuance of the shares of
our common stock offered hereby will be passed upon for us by Vinson & Elkins
L.L.P., Houston, Texas. Legal matters relating to our common stock offered
hereby will be passed upon for the international managers and the U.S.
underwriters by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements and schedules for Azurix Corp. and
subsidiaries as of December 31, 1998 and for the period from January 29, 1998
(Date of Inception) to December 31, 1998, included in this prospectus and
elsewhere in the registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated statements of income, changes in stockholders' equity and
cash flows and schedule for Wessex Water Plc (now renamed Wessex Water Ltd)
(predecessor company) for the period from April 1, 1998 to October 2, 1998
included in this prospectus have been audited by Arthur Andersen, independent
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements and schedule for Wessex Water Plc
(now renamed Wessex Water Ltd) (predecessor company) as of March 31, 1998 and
for the years ended March 31, 1998 and 1997, included in this prospectus, have
been audited by PricewaterhouseCoopers, independent accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of that firm as experts in giving said reports.
120
<PAGE> 190
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, and the rules and regulations
promulgated thereunder, with respect to the common stock offered under this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement and the attached exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract or other document that is filed as
an exhibit to the registration statement are summaries of the material
provisions of those documents. These summaries are qualified in all respects by
reference to the full text of such contract or document.
The registration statement can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the registration statement can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Section by calling the SEC at (800) 732-0330. In addition, the
registration statement is publicly available through the SEC's site on the
internet, located at http://www.sec.gov.
Upon completion of this offering, we will be required to comply with the
informational requirements of the Securities and Exchange Act of 1934 and,
accordingly, will file current reports on Form 8-K, quarterly reports on Form
10-Q, annual reports on Form 10-K, proxy statements and other information with
the SEC. Those reports, proxy statements and other information will be available
for inspection and copying at the regional offices, public reference facilities
and internet site of the SEC referred to above. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm.
121
<PAGE> 191
[ALTERNATE BACK COVER FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
36,600,000 SHARES
[AZURIX LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
PAINEWEBBER INTERNATIONAL
ABN AMRO ROTHSCHILD
HSBC INVESTMENT BANKING
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 192
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth fees payable to the Securities and Exchange
Commission and the New York Stock Exchange, and other estimated expenses
expected to be incurred in connection with issuance and distribution of
securities being registered. All such fees and expenses shall be paid by Azurix
and the selling stockholder.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 239,775
NYSE Fee.................................................... 476,600
NASD Fee.................................................... 30,500
Transfer Agent Fees and Expenses............................ 3,000
Printing Fees and Expenses.................................. 1,200,000
Legal Fees and Expenses..................................... 950,000
Accounting Fees and Expenses................................ 1,600,000
Miscellaneous............................................... 750,125
----------
Total............................................. $5,250,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Azurix's certificate of incorporation and bylaws provide that
indemnification shall be to the fullest extent permitted by the DGCL for all
current or former directors or officers of Azurix.
As permitted by the DGCL, the certificate of incorporation provides that
directors of Azurix shall have no personal liability to Azurix or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except (1) for any breach of the director's duty of loyalty to Azurix or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation
II-1
<PAGE> 193
of law, (3) under Section 174 of the DGCL or (4) for any transaction from which
a director derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On January 29, 1998, Azurix issued 1,000 shares to Enron in an exempt
transaction pursuant to Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See the Exhibit Index following the signature pages to this
Registration Statement.
(b) Financial Statement Schedules. See Reports of Independent Public
Accountants and Independent Accountants included herein on Pages S-1 to S-3,
Schedule I -- Condensed Financial Information of Registrant included herein
beginning on Page S-4 and Schedule II -- Valuation and Qualifying Accounts
included herein on Page S-8.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
in Item 14, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) To provide to the underwriter(s) at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter(s) to permit prompt delivery
to each purchaser.
(c) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, in the State of Texas, on May 21, 1999.
AZURIX CORP.
By: /s/ REBECCA P. MARK
----------------------------------
Name: Rebecca P. Mark
Title: Director, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Act, this Amendment No. 2 to
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ REBECCA P. MARK Director, Chairman and Chief May 21, 1999
- ----------------------------------------------------- Executive Officer
Rebecca P. Mark (Principal Executive Officer)
/s/ RODNEY L. GRAY Director and Vice Chairman, May 21, 1999
- ----------------------------------------------------- Finance, Risk Management
Rodney L. Gray and Investments and
Chief Financial Officer
(Principal Financial Officer)
/s/ RODNEY L. FALDYN Chief Accounting Officer May 21, 1999
- ----------------------------------------------------- (Principal Accounting Officer)
Rodney L. Faldyn
* Director May 21, 1999
- -----------------------------------------------------
John H. Duncan
* Director May 21, 1999
- -----------------------------------------------------
W. Nicholas Hood
* Director May 21, 1999
- -----------------------------------------------------
Kenneth L. Lay
* Director May 21, 1999
- -----------------------------------------------------
Jeffrey K. Skilling
* Director May 21, 1999
- -----------------------------------------------------
Joseph W. Sutton
* Director May 21, 1999
- -----------------------------------------------------
John Wakeham
* Director May 21, 1999
- -----------------------------------------------------
Herbert S. Winokur, Jr.
</TABLE>
* By: /s/ RODNEY L. GRAY
-------------------------------
Rodney L. Gray,
as attorney-in-fact
II-3
<PAGE> 195
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the stockholder of Azurix Corp.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Azurix Corp. and subsidiaries as of
December 31, 1998 and for the period from January 29, 1998 (Date of Inception)
to December 31, 1998 included in this registration statement and have issued our
report thereon dated February 22, 1999. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. Schedule
I and Schedule II (as related to Azurix Corp. for the period from January 29,
1998 (Date of Inception) to December 31, 1998) listed in Item 16(b) are the
responsibility of Azurix Corp.'s management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
------------------------------------
Arthur Andersen LLP
Houston, Texas
February 22, 1999
S-1
<PAGE> 196
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Wessex Water Ltd (formerly Wessex Water Plc):
We have audited in accordance with generally accepted auditing standards,
the consolidated statements of income, changes in stockholders' equity and cash
flows of Wessex Water Ltd (formerly Wessex Water Plc) and subsidiaries for the
period from April 1, 1998 to October 2, 1998 included in this registration
statement and have issued our report thereon dated March 12, 1999. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. Schedule II listed in Item 16(b) as related to Wessex Water
Ltd (formerly Wessex Water Plc) for the period from April 1, 1998 to October 2,
1998 is the responsibility of the company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN
----------------------------------------
Arthur Andersen
London, England
March 12, 1999
S-2
<PAGE> 197
REPORT OF INDEPENDENT ACCOUNTANTS
To the stockholder of Wessex Water Ltd (formerly Wessex Water Plc)
In connection with our audits on the consolidated financial statements of Wessex
Water Plc (now renamed Wessex Water Ltd) and its subsidiaries (the "Company") at
March 31, 1998 and for each of the two years in the period ended March 31, 1998,
which financial statements are included in this Registration Statement, we have
also audited Schedule II listed in Item 16(b) as it relates to Wessex Water Ltd
(formerly Wessex Water Plc) for each of the two years in the period ended March
31, 1998. In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
/s/ PRICEWATERHOUSECOOPERS
- ---------------------------------------------------------
PRICEWATERHOUSECOOPERS
CHARTERED ACCOUNTANTS
Bristol, England
March 12, 1999
S-3
<PAGE> 198
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AZURIX CORP.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
JANUARY 29, 1998 THREE MONTHS
(DATE OF INCEPTION) ENDED
TO DECEMBER 31, MARCH 31,
1998 1999
--------------------- ------------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Operating revenues.................................... $ -- $ --
--------- ------
Operating expenses:
Operations and maintenance.......................... 2.3 0.7
General and administrative.......................... 12.3 12.8
Depreciation and amortization....................... 0.1 0.1
--------- ------
Total operating expenses.................... 14.7 13.6
--------- ------
Equity in earnings of consolidated affiliates......... 26.0 24.9
Other................................................. (1.1) --
--------- ------
Income before income taxes............................ 10.2 11.3
--------- ------
Income tax benefit.................................... -- (4.8)
--------- ------
Net income............................................ $ 10.2 $ 16.1
========= ======
Earnings per share of common stock -- basic and
diluted............................................. $ 0.10 $ 0.16
========= ======
Weighted average shares outstanding -- basic and
diluted............................................. 100.0 100.0
========= ======
</TABLE>
The accompanying note is an integral part of these condensed financial
statements.
S-4
<PAGE> 199
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AZURIX CORP.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets.............................................. $ -- $ 1.0
Investments in and advances to subsidiaries................. 1,666.8 1,673.8
Other non-current assets.................................... 4.2 15.9
-------- --------
Total Assets...................................... $1,671.0 $1,690.7
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable -- affiliates.............................. $ 18.0 $ 65.5
Accounts payable and accruals............................... 7.5 10.5
Stockholder's equity:
Preferred stock........................................... -- --
Common stock.............................................. 1.0 1.0
Additional paid-in capital................................ 1,671.0 1,671.0
Retained earnings......................................... 10.2 26.3
Cumulative foreign currency translation adjustment........ (36.7) (83.6)
-------- --------
Total stockholder's equity............................. 1,645.5 1,614.7
-------- --------
Total Liabilities and Stockholder's Equity........ $1,671.0 $1,690.7
======== ========
</TABLE>
The accompanying note is an integral part of these condensed financial
statements.
S-5
<PAGE> 200
SCHEDULE I
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AZURIX CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION)
TO DECEMBER 31, THREE MONTHS ENDED
1998 MARCH 31, 1999
--------------------- ------------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Cash used in operating activities.......................... $ -- $(12.0)
Investing Activities:
Investments in and advances to subsidiaries.............. (1,600.2) (28.5)
Capital expenditures..................................... -- (0.7)
Other investing activities............................... -- (6.8)
--------- ------
Net cash used in investing activities...................... (1,600.2) (36.0)
--------- ------
Financing Activities:
Issuance of common stock and capital contributed......... 1,600.2 --
Advances from Enron...................................... -- 48.0
--------- ------
Net cash provided by financing activities.................. 1,600.2 48.0
--------- ------
Change in cash and cash equivalents........................ -- --
Cash and cash equivalents, beginning of period............. -- --
--------- ------
Cash and cash equivalents, end of period................... $ -- $ --
========= ======
</TABLE>
The accompanying note is an integral part of these condensed financial
statements.
S-6
<PAGE> 201
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO FINANCIAL STATEMENTS
These condensed financial statements of Azurix reflect parent company only
financial information and should be read in conjunction with the consolidated
financial statements of Azurix Corp. presented elsewhere in this document.
Azurix, as the parent company, has no material contingencies, long-term
obligations or guarantees and has not received any cash dividends from its
consolidated subsidiaries or unconsolidated affiliates since its date of
inception on January 29, 1998.
S-7
<PAGE> 202
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
AZURIX CORP.
<TABLE>
<CAPTION>
ADDITION
BALANCE AT RELATED TO ADDITIONS
JANUARY 29, 1998 ACQUISITION CHARGED TO CURRENCY
(DATE OF OF WESSEX COSTS AND EXCHANGE BALANCE AT
INCEPTION) WATER PLC EXPENSES WRITEOFFS DIFFERENCE DECEMBER 31, 1998
---------------- ----------- ---------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts................ $ -- 4.9 1.7 (0.2) (0.1) $6.3
</TABLE>
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO CURRENCY
BALANCE AT COSTS AND EXCHANGE BALANCE AT
MARCH 31, 1998 EXPENSES WRITEOFFS DIFFERENCE OCTOBER 2, 1998
---------------- ---------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts..... $5.9 1.7 (2.7) -- $4.9
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO CURRENCY
BALANCE AT COSTS AND EXCHANGE BALANCE AT
MARCH 31, 1997 EXPENSES WRITEOFFS DIFFERENCE MARCH 31, 1998
---------------- ---------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts..... $4.3 4.4 (3.0) 0.2 $5.9
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO CURRENCY
BALANCE AT COSTS AND EXCHANGE BALANCE AT
MARCH 31, 1996 EXPENSES WRITEOFFS DIFFERENCE MARCH 31, 1997
---------------- ---------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts..... $7.0 3.3 (6.5) 0.5 $4.3
</TABLE>
S-8
<PAGE> 203
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
*1.1 -- Form of U.S. Purchase Agreement
*1.2 -- Form of International Purchase Agreement
**3.1 -- Restated Certificate of Incorporation
**3.2 -- Restated ByLaws
*5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Instrument of Appointment as a Water and Sewerage
Undertaker, dated August 1989, as amended, of Wessex
Water Services Limited
**10.2 -- L425,000,000 Credit Facility, dated May 10, 1999, for
Azurix Europe Ltd. arranged by Chase Manhattan Plc and
Westdeutsche Landesbank Girozentrale
10.3 -- L73,000,000 Amended and Restated Credit Facility
Agreement, dated December 17, 1998, for Azurix Europe
Ltd. and Bristol Water Trust
10.4 -- Azurix Corp. 1999 Stock Plan, dated February 2, 1999
*10.5 -- Registration Rights Agreement
**10.6 -- Form of Business Opportunity Agreement
**10.7 -- Services Agreement
**10.8 -- Form of Non-Exclusive License Agreement
10.9 -- Employment Agreement of Rebecca P. Mark, effective May 4,
1998, with Enron Corp. and First Amendment, effective
February 1, 1999, with Enron Corp. and Azurix
10.10 -- Employment Agreement of Rodney L. Gray, effective
February 16, 1999, with Azurix
10.11 -- Employment Agreement of Amanda K. Martin, effective
January 1, 1998, with Enron Capital & Trade Resources
Corp., First Amendment, dated October 29, 1998, with
Enron Capital & Trade Resources Corp. and Azurix and
Second Amendment, dated March 15, 1999, with Azurix
10.12 -- Employment Agreement of Alex Kulpecz, effective September
15, 1998, and First Amendment, dated March 11, 1999, with
Azurix
10.13 -- Employment Agreement of Colin F. Skellett, dated February
24, 1995, and First Amendment, dated December 9, 1998,
with Wessex Water Plc
**10.14 -- Amended and Restated Trust Agreement of Atlantic Water
Trust, dated December 17, 1998
**10.15 -- Trust Deed, dated March 30, 1999, among Wessex Water
Services Finance Plc, Wessex Water Services Limited and
Midland Bank Plc
**10.16 -- Form of Credit Agreement, dated May 1, 1999, between
Azurix and Enron
**10.17 -- Definitive Trust Deed and Rules of Wessex Water Executive
Pension Scheme, dated August 19, 1998
**21 -- Subsidiaries of Azurix
**23.1 -- Consent of Arthur Andersen LLP (independent public
accountants)
**23.2 -- Consent of Arthur Andersen (independent accountants)
**23.3 -- Consent of PricewaterhouseCoopers (independent
accountants)
*23.4 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1)
24 -- Power of Attorney
**27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
All other exhibits have been previously filed.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
AZURIX CORP.
(Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware)
- --------------------------------------------------------------------------------
Azurix Corp., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify as follows:
1. The name of the Corporation is Azurix Corp., and the name
under which the Corporation was originally incorporated was Enron International
Water Development Corp. The date of filing of the Corporation's original
Certificate of Incorporation was January 29, 1998.
2. This Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation") restates and integrates and further amends the
Certificate of Incorporation of the Corporation.
ARTICLE I.
The name of the Corporation is Azurix Corp.
ARTICLE II.
The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III.
The purpose of the Corporation is to engage, directly or indirectly
(through affiliates or otherwise), in acquiring, owning, operating, and
managing water and wastewater assets, providing water- and wastewater- related
services, and developing and managing water resources, including without
limitation (i) the ownership, operation, and management of water supply and
wastewater systems and facilities, (ii) the ownership of interests entitling
the owner to supplies of water (including water supply agreements and water
rights and other interests in real property held primarily for use in
production, collection, or storage of water), (iii) the ownership and operation
of real and personal property used or useful in connection with exploration for
water, development of water reserves upon discovery thereof, production of
water from wells located on water properties, and storage and transportation of
water including, but not limited to, water wells, water pipelines, water
storage tanks, water treatment plants, water pressurization facilities, water
distribution systems, and rights of way, licenses and other rights associated
therewith, (iv) the ownership and operation of real and personal property used
or useful in connection with water and wastewater collection, treatment,
distribution, and disposal operations, including, but not limited to,
reservoirs,
<PAGE> 2
wells, abstraction devices, pipelines, aqueducts, desalination plants, water
treatment facilities, distribution networks, wastewater collection networks,
and wastewater treatment facilities, (v) service agreements that relate to the
management of water supply or water or wastewater facilities or systems,
including, but not limited to, water and wastewater system management contracts
and "back office" services agreements, (vi) the operation, management, and
provision of architectural, engineering, and construction services related to
the foregoing, (vii) services and assets to dispose of residual products from
wastewater treatment, (viii) remediation and development of underground
infrastructure related to water and wastewater systems and supply, (ix) risk
management services involving water supplies, (x) debt of or equity interests
in corporations, partnerships, or other entities engaged in businesses that the
Corporation is permitted hereby to engage in, (xi) any other lawful business or
activity that now or hereafter may be incidental to the foregoing purpose or
acquired as part of a larger acquisition transaction the majority of the value
of which (as determined by the Board of Directors of the Corporation or its
designee in good faith) relates to one or more of the foregoing purposes, but
excluding (in the case of each of items (i) through (xi)) supplying fuel,
supplying energy (other than sales of excess generation from facilities
principally serving assets or facilities described in items (i), (iii), (iv)
and (vii) above), or providing risk management services on a commodity other
than water (other than being a party to a risk management arrangement to
protect against risks facing the Corporation), and (xii) any other lawful
business or activity; provided that such other business or activity
contemplated by this clause (xii) is approved in writing by Enron Corp., an
Oregon corporation, which approval may be granted or withheld by Enron Corp. in
its sole discretion and which approval may be general in nature or may be
confined to a particular facility or a particularly described expanded business
purpose. Notwithstanding the foregoing, from and after the first date on which
both of the following tests are met: (a) Enron Corp. and affiliates of Enron
Corp. do not individually or collectively, directly or indirectly, own or have
the power to vote at least one-third of the capital stock of the Corporation
having ordinary voting power for the election of directors, and (b) fewer than
one-third of the directors of the Corporation are persons who are employees,
officers or directors of Enron Corp. or of any affiliate of Enron Corp., the
purpose of the Corporation shall be to engage in any lawful business or
activity in which a corporation organized under the laws of Delaware is
permitted to engage under Delaware law.
ARTICLE IV.
The total number of shares of stock that the Corporation shall have
authority to issue is, 550,000,000 shares of capital stock, consisting of (i)
500,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
and (ii) 50,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Common Stock and the Preferred Stock are
as follows:
1. Provisions Relating to the Common Stock.
(a) Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any class or series thereof,
each share of Common Stock shall entitle the holder of record thereof to
receive dividends and other distributions in cash, stock of any corporation or
property of the Corporation when, as and if declared thereon by the Board of
Directors of the Corporation out
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of assets or funds of the Corporation legally available therefor and shall
share equally on a per share basis in all such dividends and other
distributions.
(b) The holders of Common Stock shall be entitled to participate
in the net assets of the Corporation remaining after any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, and after payment or provision for the payment of the debts and
liabilities of the Corporation and payment of the liquidation preference of any
shares of capital stock of the Corporation having such a preference,
distributing such proceeds pro-rata among the holders of Common Stock. A
dissolution, liquidation or winding-up of the Corporation, as such terms are
used in this paragraph (b), shall not be deemed to be occasioned by or to
include any consolidation or merger of the Corporation with or into any other
corporation or corporations or other entity or a sale, lease, exchange, or
conveyance of all or a part of the assets of the Corporation.
(c) Each share of Common Stock shall entitle the registered holder
thereof to one vote on all matters brought before the common stockholders of
the Corporation for a vote.
2. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have any
designations and powers, privileges, preferences, and rights, and
qualifications, limitations, and restrictions thereof as are stated and
expressed in this Article IV and in the resolution or resolutions providing for
the issue of such class or series adopted by the Board of Directors of the
Corporation as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the
Board of Directors of the Corporation to authorize the issuance of the
Preferred Stock from time to time in one or more classes or series, and with
respect to each class or series of the Preferred Stock, to state by the
resolution or resolutions from time to time adopted providing for the issuance
thereof the following:
(i) whether or not the class or series is to have voting
rights, special, or limited, or is to be without voting rights, and whether or
not such class or series is to be entitled to vote as a separate class either
alone or together with the holders of one or more other classes or series of
stock;
(ii) the number of shares to constitute the class or
series and the designations thereof;
(iii) the preferences and relative, participating,
optional, or other special rights, if any, and the qualifications, limitations,
or restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or series
shall be redeemable at the option of the Corporation or the holders thereof or
upon the happening of any specified event, and, if redeemable, the redemption
price or prices (which may be payable in the form of cash, notes, securities,
or other property), and the time or times at which, and the terms and
conditions upon which, such shares shall be redeemable and the manner of
redemption;
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(v) whether or not the shares of a class or series shall
be subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and, if such retirement
or sinking fund or funds are to be established, the periodic amount thereof,
and the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in
cash, stock of the Corporation, or other property, the conditions upon which
and the times when such dividends are payable, the preference to or the
relation to the payment of dividends payable on any other class or classes or
series of stock, whether or not such dividends shall be cumulative or
noncumulative, and if cumulative, the date or dates from which such dividends
shall accumulate;
(vii) the preferences, if any, and the amounts thereof
which the holders of any class or series thereof shall be entitled to receive
upon the voluntary or involuntary dissolution, liquidation or winding up of, or
upon any distribution of the assets of, the Corporation;
(viii) whether or not the shares of any class or series, at
the option of the Corporation or the holder thereof or upon the happening of
any specified event, shall be convertible into or exchangeable for the shares
of any other class or classes or of any other series of the same or any other
class or classes of stock, securities, or other property of the Corporation and
the conversion price or prices or ratio or ratios or the rate or rates at which
such conversion or exchange may be made, with such adjustments, if any, as
shall be stated and expressed or provided for in such resolution or
resolutions; and
(ix) any other special rights and protective provisions
with respect to any class or series as may to the Board of Directors of the
Corporation seem advisable.
(c) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or all of the
foregoing respects and in any other manner. The Board of Directors of the
Corporation may increase the number of shares of the Preferred Stock designated
for any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The Board of Directors of the Corporation may decrease
the number of shares of the Preferred Stock designated for any existing class
or series by a resolution subtracting from such class or series authorized and
unissued shares of the Preferred Stock designated for such existing class or
series, and the shares so subtracted shall become authorized, unissued, and
undesignated shares of the Preferred Stock.
3. General.
(a) Subject to the foregoing provisions of this Restated
Certificate of Incorporation, the Corporation may issue shares of its Preferred
Stock and Common Stock from time to time for such consideration (not less than
the par value thereof) as may be fixed by the Board of Directors of the
Corporation, which is expressly authorized to fix the same in its absolute
discretion subject to the foregoing conditions. Shares so issued for which the
consideration shall have been paid or delivered to the Corporation shall be
deemed fully paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares.
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(b) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase shares of the
Corporation's capital stock of any class or series or other securities of the
Corporation, and such rights and options shall be evidenced by instrument(s)
approved by the Board of Directors of the Corporation. The Board of Directors
of the Corporation shall be empowered to set the exercise price, duration,
times for exercise, and other terms of such rights or options; provided,
however, that the consideration to be received for any shares of capital stock
subject thereto shall not be less than the par value thereof.
ARTICLE V.
The Corporation shall have perpetual existence.
ARTICLE VI.
No holder of any shares of the Corporation, whether now or hereinafter
authorized, shall have any preemptive right to subscribe for or to purchase any
shares or other securities of the Corporation, nor have any right to cumulate
his votes for the election of directors. Except as otherwise provided in this
Restated Certificate of Incorporation or the Bylaws or as otherwise required by
law, at all meetings of the stockholders of the Corporation, a quorum being
present, all matters shall be decided by a majority of the votes cast. The
private property of the stockholders shall not be subject to the payment of
corporate debts to any extent whatever, but shall be exempt from corporate
liability.
ARTICLE VII.
The number, classification, and terms of the Board of Directors of the
Corporation and the procedures to elect directors, to remove directors, and to
fill vacancies in the Board of Directors shall be as follows:
1. The number of directors that shall constitute the whole Board
of Directors shall from time to time be fixed exclusively by the Board of
Directors by a resolution adopted by a majority of the whole Board of Directors
serving at the time of that vote. In no event shall the number of directors
that constitute the whole Board of Directors be fewer than three. No decrease
in the number of directors shall have the effect of shortening the term of any
incumbent director. Directors of the Corporation need not be elected by
written ballot unless the Bylaws of the Corporation otherwise provide.
2. The Board of Directors of the Corporation shall be divided
into three classes designated Class I, Class II, and Class III, respectively,
all as nearly equal in number as possible, with each director then in office
receiving the classification that at least a majority of the Board of Directors
designates. The initial term of office of directors of Class I shall expire at
the annual meeting of stockholders of the Corporation in 2000, of Class II
shall expire at the annual meeting of stockholders of the Corporation in 2001,
and of Class III shall expire at the annual meeting of stockholders of the
Corporation in 2002, and in all cases as to each director until his successor
is elected and qualified or until his earlier death, resignation or removal.
At each annual meeting of stockholders beginning with the annual meeting of
stockholders in 2000, each director elected to succeed a director whose term is
then expiring shall hold his office until the third annual meeting
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of stockholders after his election and until his successor is elected and
qualified or until his earlier death, resignation or removal. If the number of
directors that constitutes the whole Board of Directors is changed as permitted
by this Article VII, the majority of the whole Board of Directors that adopts
the change shall also fix and determine the number of directors comprising each
class; provided, however, that any increase or decrease in the number of
directors shall be apportioned among the classes as equally as possible.
3. Vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office, or other cause
and newly-created directorships resulting from any increase in the authorized
number of directors may be filled by no less than a majority vote of the
remaining directors then in office, though less than a quorum, who are
designated to represent the same class or classes of stockholders that the
vacant position, when filled, is to represent or by the sole remaining director
(but not by the stockholders except as required by law), and each director so
chosen shall receive the classification of the vacant directorship to which he
has been appointed or, if it is a newly-created directorship, shall receive the
classification that at least a majority of the Board of Directors designates
and shall hold office until the first meeting of stockholders held after his
election for the purpose of electing directors of that classification and until
his successor is elected and qualified or until his earlier death, resignation,
or removal from office.
4. Prior to the first date (the "Trigger Date") upon which
neither Atlantic Water Trust nor Enron Corp. (together with its subsidiaries)
is the holder of record of a majority of the outstanding voting stock of the
Corporation entitled to vote generally in the election of directors calculated
on a per vote basis, a director of any class of directors of the Corporation
may be removed before the expiration date of that director's term of office,
with or without cause, by an affirmative vote of the holders of a majority of
the votes of the outstanding shares of the class or classes or series of stock
then entitled to be voted at an election of directors of that class or series,
voting together as a single class, cast at the annual meeting of stockholders
or at any special meeting of stockholders called by a majority of the whole
Board of Directors for this purpose. On and after the Trigger Date, a director
of any class of directors of the Corporation may be removed before the
expiration date of that director's term of office, only for cause, by an
affirmative vote of the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the votes of the outstanding shares of the class or
classes or series of stock then entitled to be voted at an election of
directors of that class or series, voting together as a single class, cast at
the annual meeting of stockholders or at any special meeting of stockholders
called by a majority of the whole Board of Directors for this purpose.
5. Notwithstanding any other provisions of this Restated
Certificate of Incorporation or any provision of law that might otherwise
permit a lesser or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the capital stock of the
Corporation required by law or by this Restated Certificate of Incorporation,
the affirmative vote of the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the votes of the outstanding shares of the Corporation
then entitled to be voted in an election of directors, voting together as a
single class, shall be required on and after the Trigger Date to amend or
repeal, or to adopt any provision inconsistent with, this Article VII.
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ARTICLE VIII.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized:
1. To make, alter, amend and rescind the Bylaws of the
Corporation.
2. To set apart out of any of the available funds of the
Corporation such reserves for proper purposes as the Board of Directors of the
Corporation may deem expedient, and to abolish any such reserves.
3. To determine the use and distribution of any surplus and net
profits.
4. To authorize and cause to be executed and delivered, without
limit as to amount, mortgages and instruments of pledge of, and other
instruments creating liens upon, the real and personal property of the
Corporation.
5. From time to time, to determine whether and to what extent and
at what times and places and under what conditions and regulations the accounts
and books of the Corporation (other than the stock ledger) or any of them,
shall be open to the inspection of the stockholders, and no stockholder shall
have any right to inspect any account or book or document of the Corporation,
except as conferred by statute, or authorized by the Board of Directors or by a
resolution of the stockholders.
6. By resolution or resolutions, passed by a majority of the
whole Board of Directors, to designate one or more committees to consist of one
or more of the directors of the Corporation, which, to the extent provided in
said resolution or resolutions or in the Bylaws of the Corporation, shall have
and may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and may have power to authorize the
seal of the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in the
Bylaws of the Corporation or as may be determined from time to time by
resolution adopted by the Board of Directors.
This Corporation may in its Bylaws confer powers and authority upon
its Board of Directors in addition to the foregoing and in addition to the
powers and authorities expressly conferred upon it by statute.
ARTICLE IX.
Prior to the Trigger Date, any action required or permitted to be
taken by the stockholders of the Corporation may be taken without a meeting if
a consent in writing, setting forth the action so taken, is 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. On and after the
Trigger Date, any action required or permitted to be taken by the stockholders
of the Corporation must be taken at a duly held annual or special meeting of
stockholders and may not be taken by any consent in writing of such
stockholders.
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ARTICLE X.
Special meetings of the stockholders of the Corporation, and any
proposals to be considered at such meetings, may be called and proposed
exclusively by the Board of Directors, pursuant to a resolution approved by a
majority of the members of the Board of Directors at the time in office, and no
stockholder of the Corporation shall require the Board of Directors to call a
special meeting of common stockholders or to propose business at a special
meeting of stockholders. Notwithstanding any other provisions of this Restated
Certificate of Incorporation or any provision of law that might otherwise
permit a lesser or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the capital stock of the
Corporation required by law or by this Restated Certificate of Incorporation,
the affirmative vote of the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the votes of the shares of the Corporation then entitled
to be voted in an election of directors, voting together as a single class,
shall be required on and after the Trigger Date to amend or repeal, or to adopt
any provision inconsistent with, this Article X.
ARTICLE XI.
1. Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in paragraph 2 of this Article XI, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. The
right to indemnification conferred in this Article XI shall be a contract right
and shall include the right to be paid by the Corporation the expenses incurred
by defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article XI or
otherwise. The Corporation may, by action of its Board of Directors, provide
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indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
2. If a claim under paragraph 1 of this Article XI is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it
permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
3. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Article XI shall not be exclusive of any other right which
any person may have or hereinafter acquire under any statute, provision of the
Restated Certificate of Incorporation, bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
4. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation,
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.
ARTICLE XII.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or amendment of this Article XIII by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Corporation is not personally liable as set forth in the foregoing
provisions of this Article XII, a director shall not be liable to the
Corporation or its stockholders to such further
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extent as permitted by any law hereafter enacted, including, without
limitation, any subsequent amendment to the Delaware General Corporation Law.
ARTICLE XIII.
The provisions of Section 203 of the Delaware General Corporation Law
shall not be applicable to the Corporation.
ARTICLE XIV.
The stockholders and Board of Directors of the Corporation shall have
the power, if the Bylaws so provide, to hold their meetings and to keep the
books of the Corporation (except such as are required by the laws of Delaware
to be kept in Delaware) and documents and papers of the Corporation outside the
State of Delaware and have one or more offices within or without the State of
Delaware at such places as may be designated from time to time by the Board of
Directors.
ARTICLE XV.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
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3. This Restated Certificate of Incorporation was duly adopted by
vote of the stockholders in accordance with Sections 228, 242 and 245 of the
General Corporation Law of the state of Delaware.
IN WITNESS WHEREOF, said Azurix Corp. has caused this Restated
Certificate of Incorporation to be signed by John C. Ale, its Executive
Director and General Counsel, this 21st day of May, 1999.
Azurix Corp.
By: /s/ JOHN C. ALE
------------------------------------
Name: John C. Ale
Title: Executive Director and
General Counsel
ATTEST:
/s/ NORMA A. TIDROW
- -----------------------------
Norma A. Tidrow
Assistant Secretary
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EXHIBIT 3.2
RESTATED BYLAWS
OF
AZURIX CORP.
A Delaware Corporation
Date of Adoption
November 19, 1998
As Amended
January 29, 1999
<PAGE> 2
RESTATED BYLAWS
Table of Contents
<TABLE>
<CAPTION>
Page
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<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
Section 6. Limitation on Power and Authority of Committees..................................11
</TABLE>
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<TABLE>
Article V Officers 12
<S> <C> <C>
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.........................................................14
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.......................................................................15
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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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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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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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 annual meeting of stockholders, the Board
of Directors shall elect the officers of the Corporation.
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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 from time to time by the Board of Directors,
except as provided in Section 6 of this Article IV.
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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
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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 and the
Vice Chairmen 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.
16
<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.
17
<PAGE> 21
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.
18
<PAGE> 1
EXHIBIT 10.2
CONFORMED COPY
AGREEMENT
DATED 10th May, 1999
L.425,000,000
CREDIT FACILITY
FOR
AZURIX EUROPE LTD.
ARRANGED BY
CHASE MANHATTAN PLC
and
WESTDEUTSCHE LANDESBANK GIROZENTRALE
with
WESTDEUTSCHE LANDESBANK GIROZENTRALE
AS FACILITY AGENT
CHASE MANHATTAN TRUSTEES LIMITED
AS SECURITY AGENT
[ALLEN & OVERY LOGO]
London
BK:515991.11
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
<S> <C>
CLAUSE PAGE
1. Interpretation.......................................................................................1
2. The Facility........................................................................................18
3. Purpose and availability............................................................................18
4. Conditions precedent................................................................................19
5. Loans...............................................................................................20
6. Repayment...........................................................................................21
7. Prepayment and Cancellation.........................................................................21
8. Interest Periods....................................................................................23
9. Interest............................................................................................24
10. Optional Currencies.................................................................................25
11. Debt Service Reserve Account........................................................................26
12. Payments............................................................................................28
13. Taxes...............................................................................................30
14. Market Disruption...................................................................................32
15. Increased Costs.....................................................................................33
16. Illegality..........................................................................................34
17. Representations and Warranties......................................................................35
18. Undertakings........................................................................................38
19. Default.............................................................................................52
20. The agents and the Arrangers........................................................................57
21. Fees................................................................................................61
22. Expenses............................................................................................62
23. Stamp duties........................................................................................62
24. Indemnities.........................................................................................63
25. Evidence and Calculations...........................................................................64
26. Amendments and Waivers..............................................................................64
27. Changes to the Parties..............................................................................65
28. Disclosure of Information...........................................................................68
29. Set-off.............................................................................................68
30. Pro rata sharing....................................................................................69
31. Severability........................................................................................70
32. Counterparts........................................................................................70
33. Notices.............................................................................................70
34. Governing law.......................................................................................71
</TABLE>
<PAGE> 3
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
1. Banks and Commitments...............................................................................72
2. Conditions Precedent Documents......................................................................74
3. Calculation of the Mandatory Costs..................................................................76
4. Form of Request.....................................................................................78
5. Novation Certificate................................................................................79
6. Form of Debenture...................................................................................80
7. Form of Legal Opinion of Allen & Overy..............................................................99
8. Form of Subordination Agreement....................................................................103
9. Form of Inter-Company Loan.........................................................................115
Signatories.................................................................................................124
</TABLE>
<PAGE> 4
THIS AGREEMENT is dated 10th May, 1999 between:-
(1) AZURIX EUROPE LTD. (Registered No. 3570749) (the "COMPANY");
(2) CHASE MANHATTAN PLC and WESTDEUTSCHE LANDESBANK GIROZENTRALE as
arrangers (in this capacity the "ARRANGERS");
(3) THE FINANCIAL INSTITUTIONS listed in Schedule 1 as banks (the "BANKS");
(4) WESTDEUTSCHE LANDESBANK GIROZENTRALE as facility agent (in this
capacity the "FACILITY AGENT"); and
(5) CHASE MANHATTAN TRUSTEES LIMITED as security agent (in this capacity
the "SECURITY AGENT").
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement:-
"ACCOUNTING DATE"
means the last day of each financial quarter of the Company and Wessex
Water.
"ACCOUNTING PERIOD"
means any period of approximately three months or one year ending on an
Accounting Date for which accounts are required to be prepared for the
purposes of this Agreement.
"ACQUISITIONS"
means investments in, or acquisitions of, water or wastewater related
assets or businesses (directly or indirectly) by or through an SPV.
"ACT"
means the Water Act 1989 as consolidated by the Water Industry Act 1991
and, unless the context otherwise requires, all subordinate legislation
made pursuant to it.
"ADJUSTED CAPITAL AND RESERVES"
has the meaning given to it in Clause 18.28 (Financial covenants).
"AEL GROUP"
means the Company and the Wessex Group.
<PAGE> 5
2
"AFFILIATE"
means a Subsidiary or a Holding Company of a person and any other
Subsidiary of that Holding Company.
"AGENT"
means the Facility Agent or the Security Agent.
"AGENT'S SPOT RATE OF EXCHANGE"
means the Facility Agent's spot rate of exchange for the purchase of
the relevant Optional Currency in the London foreign exchange market
with Sterling at or about 11.00 a.m. on a particular day.
"APPLICABLE ACCOUNTING PRINCIPLES"
means in relation to any member of the AEL Group accounting principles
and practices, which at the date of this Agreement are generally
accepted in the United Kingdom and approved by the Institute of
Chartered Accountants of England and Wales and which are consistent
with the accounting principles and practices applied in the preparation
of the audited consolidated accounts for the financial year ended 31st
December, 1998.
"APPOINTMENT"
means the appointment as a water and wastewater undertaker held by a
member of the AEL Group and issued pursuant to Sections 11 and 14 of
the Act, as modified or supplemented from time to time.
"APPOINTMENT HOLDER"
means at any time the member of the AEL Group which then holds the
Appointment.
"APPOINTMENT UNDERTAKING"
means any undertaking or assurance given by any member of the AEL Group
to the Director or the Secretary of State concerning the management
and/or ownership of and/or other matters concerning the Appointment
Holder.
"AUDITORS"
means any "Big Four" firm of accountants or any other firm (approved by
the Facility Agent) of independent public accountants of international
standing recognised and authorised by the Institute of Chartered
Accountants of England and Wales which is appointed by the Company to
audit the consolidated annual accounts of the Company and by Wessex
Water to audit the consolidated annual accounts of Wessex Water.
"AVAILABILITY PERIOD"
means the period from the date of this Agreement up to and including
the Final Repayment Date.
<PAGE> 6
3
"BORROWING"
means at any time the aggregate (without double counting) of the
following:
(a) the outstanding principal amount of any moneys borrowed and
any outstanding overdraft debit balance;
(b) the outstanding principal amount of any debenture, bond, note,
loan stock or other debt security;
(c) the outstanding principal amount of any acceptance under any
acceptance credit opened by a bank or other financial
institution;
(d) the outstanding principal amount of all moneys owing in
connection with the sale or discounting of receivables
(otherwise than on a non-recourse basis);
(e) the outstanding principal amount of any non-trade indebtedness
arising from any advance or deferred payment (where payment is
deferred for more than 180 days) agreements arranged primarily
as a method of raising finance or financing the acquisition of
an asset;
(f) the capitalised element of indebtedness (other than any
operating leases or rental arrangements not included on the
applicable balance sheet) in respect of a lease entered into
primarily as a method of raising finance or financing the
acquisition of the asset leased;
(g) any fixed or minimum premium payable as at any date on which
Borrowings are calculated on the repayment or redemption of
any instrument referred to in paragraph (b) above; and
(h) the outstanding principal amount of any indebtedness of any
person of a type referred to in paragraphs (a) - (g) above
which is the subject of a guarantee, indemnity or similar
assurance against financial loss,
but excluding, in the case of the Company, the Wessex Loan and any
other indebtedness owed between members of the AEL Group.
"BRISTOL WATER TRUST LOAN"
means the L.73,000,000 loan dated 29th September, 1998 between
Bristol Water Trust and the Company (formerly Enron Water (Europe)
PLC).
"BUSINESS DAY"
means a day (other than a Saturday or a Sunday) on which banks are open
for business in:
(a) London;
(b) in relation to a transaction involving Dollars, New York; and
<PAGE> 7
4
(c) in relation to a transaction involving euros, such principal
financial centre(s) of any Participating Member State(s) as
the Facility Agent may nominate for this purpose.
"CASH COLLATERAL ACCOUNT"
means an account of the Company held with the Security Agent (or an
Affiliate of the Security Agent) pursuant to Clause 7.5 (Mandatory
prepayment).
"CASH EQUIVALENTS"
means any debt security or banker's acceptance which is freely
transferable, or deposits with a bank (including the Debt Service
Reserve Account and any Cash Collateral Account), in each case with a
short term credit rating of at least A2 from Standard & Poor's and P2
from Moody's or a long term credit rating of at least A from Standard &
Poor's and A2 from Moody's. The value of Cash Equivalents shall be
determined by reference to, for debt securities and banker's
acceptances, the mark-to-market value of those Cash Equivalents on the
basis that those Cash Equivalents are sold, transferred or assigned on
that date and, for deposits with a bank, the principal and accrued
interest of that deposit.
"COMMITMENT"
means:
(a) in relation to a Bank which is a Bank on the date of this
Agreement, the amount in Sterling set out opposite its name in
Schedule 1; and
(b) in relation to a Bank which becomes a Bank after the date of
this Agreement, the amount of Commitment acquired by it under
Clause 27 (Changes to the Parties),
to the extent not transferred, cancelled or reduced.
"CONSOLIDATED EBITDA"
has the meaning given to it in Clause 18.28 (Financial covenants).
"CONSOLIDATED NET INTEREST PAYABLE"
has the meaning given to it in Clause 18.28 (Financial covenants).
"CONSOLIDATED TOTAL BORROWINGS"
has the meaning given to it in Clause 18.28 (Financial covenants).
"CONSOLIDATED TOTAL INTEREST PAYABLE"
has the meaning given to it in Clause 18.28 (Financial covenants).
"DANGEROUS SUBSTANCE"
means any radioactive emissions, noise, any natural or artificial
substance (whether in the form of a solid, liquid, gas or vapour) the
generation, transportation, storage, treatment, use or
<PAGE> 8
5
disposal of which (whether alone or in combination with any other
substance) including (without limitation) any controlled, special,
hazardous, toxic, radioactive or dangerous substance or waste, gives
rise to a risk of causing harm to man or any other living organism or
damaging the Environment or public health or welfare.
"DEBENTURE"
means a debenture executed by the Company in favour of the Security
Agent substantially in the form of Schedule 6.
"DEBT SERVICE RESERVE ACCOUNT"
has the meaning given to it in Clause 11 (Debt Service Reserve
Account).
"DEED OF RELEASE"
means the deed of release to be executed by National Westminster Bank
Plc in respect of the Security Interests relating to the Original
Facility Agreement.
"DEFAULT"
means an Event of Default or an event which, with the giving of notice,
expiry of any applicable grace period or determination of materiality
by the Majority Banks specified (in any such case) in Clause 19
(Default) (or any combination of the foregoing), would constitute an
Event of Default.
"DIRECTOR"
means the person appointed from time to time by the Secretary of State
to hold office as the Director General of Water Services for the
purpose of the Act.
"DOLLARS" or "U.S.$"
means the lawful currency for the time being of the United States of
America.
"DOUBLE TAXATION TREATY"
means any convention between the government of the United Kingdom and
any other government for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income and
capital gains.
"DRAWDOWN DATE"
means the date of the advance of a Loan.
"EMU"
means European Economic and Monetary Union as contemplated by the
Treaty establishing the European Community.
<PAGE> 9
6
"EMU LEGISLATION"
means legislative measures of the European Council in relation to EMU.
"ENVIRONMENT"
means any of the following media: the air (including, without
limitation, the air within buildings and the air within other natural
or man-made structures above or below ground), water (including,
without limitation, ground and surface water) and land (including,
without limitation, surface and sub-surface soil).
"ENVIRONMENTAL CLAIM"
means any claim by any person:
(a) in respect of any loss or liability suffered or incurred by
that person as a result of or in connection with any violation
of Environmental Law; or
(b) that arises as a result of or in connection with Environmental
Contamination and that could give rise to any remedy or
penalty (whether interim or final) that may be enforced or
assessed by private or public legal action or administrative
order or proceedings, including, without limitation, any such
claim arising from injury to persons, property or natural
resources.
"ENVIRONMENTAL CONTAMINATION"
means each of the following and their consequences:
(a) any release, emission, leakage or spillage of any Dangerous
Substance at or from any site owned, occupied or used by any
member of the AEL Group into any part of the Environment; or
(b) any accident, fire, explosion or sudden event at any site
owned, occupied or used by any member of the AEL Group which
is directly or indirectly caused by or attributable to any
Dangerous Substance; or
(c) any other pollution of the Environment.
"ENVIRONMENTAL LAW"
means all applicable laws (including, without limitation, common law),
regulations, directing codes of practice, circulars, guidance notices
and the like having legal effect (whether in the United Kingdom or
elsewhere) concerning pollution or the protection of human health, the
Environment, the conditions of the work place or the generation,
transportation, storage, treatment or disposal of Dangerous Substances.
"ENVIRONMENTAL LICENCE"
means any authorisation required by any Environmental Law.
<PAGE> 10
7
"EURO" or "[E$]"
means the single currency of the Participating Member States.
"EURO UNIT"
means a currency unit of the euro as defined in EMU Legislation.
"EVENT OF DEFAULT"
means an event specified as such in Clause 19.1 (Events of Default).
"EXCEPTIONAL ITEMS"
has the meaning given to it in Clause 18.28 (Financial Covenants).
"EXTRAORDINARY ITEMS"
has the meaning given to it in Clause 18.28 (Financial Covenants).
"FACILITY"
means the facility referred to in Clause 2.1 (Facility).
"FACILITY OFFICE"
means the office notified by a Bank to the Facility Agent:-
(a) on or before the date it becomes a Bank; or
(b) by not less than 5 Business Days' notice,
as the office through which it will perform all or any of its
obligations under this Agreement.
"FEE LETTERS"
means the letter dated 24th March, 1999 between the Arrangers and the
Company, or the letter dated 23rd March, 1999 between the Company and
the Facility Agent or the letter dated 29th March, 1999 between the
Company and the Security Agent, setting out the amount of various fees
referred to in Clause 21 (Fees).
"FINAL REPAYMENT DATE"
means the third anniversary of the date of this Agreement.
"FINANCE DOCUMENT"
means:-
(a) this Agreement;
<PAGE> 11
8
(b) a Fee Letter;
(c) the Debenture;
(d) a Novation Certificate;
(e) the Subordination Agreement; or
(f) any other document designated as such by the Facility Agent
and the Company.
"FINANCE PARTY"
means an Arranger, a Bank or an Agent.
"FINANCIAL INDEBTEDNESS"
means (without double counting) any indebtedness in respect of:
(a) moneys borrowed;
(b) any debenture, bond, note, loan stock or other debt security;
(c) any acceptance credit;
(d) receivables sold or discounted (otherwise than on a non-
recourse basis);
(e) the acquisition cost of any asset to the extent payable before
or more than 180 days after the time of acquisition or
possession by the party liable where the advance or deferred
payment is arranged primarily as a method of raising finance
or financing the acquisition of that asset;
(f) any lease entered into primarily as a method of raising
finance or financing the acquisition of the asset leased;
(g) any currency swap or interest swap, cap or collar arrangement
or any other derivative instrument;
(h) any amount raised under any other transaction having the
commercial effect of a borrowing or raising of money; or
(i) any guarantee, indemnity or similar assurance against
financial loss of any person.
"HOLDING COMPANY"
has the meaning given to it in the definition of "Subsidiary" in this
Clause 1.1.
"INFORMATION MEMORANDUM"
means the Information Memorandum dated March, 1999 prepared by the
Company in connection with the Syndication, as updated by the Company
by letters dated 28th April, 1999 and 6th May, 1999 addressed to the
Arrangers.
<PAGE> 12
9
"INTER-COMPANY LOAN"
means a loan from the Company to an SPV for the sole purpose of being
applied in or towards financing directly or indirectly an Acquisition
or Acquisitions, such loan being guaranteed by the Parent.
"INTEREST PERIOD"
means each period selected in accordance with Clause 8 (Interest
Periods).
"ISSUER CREDIT RATING"
means in relation to any person the credit rating of its unsecured and
unsubordinated long term debt.
"LIBOR"
means:
(a) the rate per annum which appears on Page 3750 on the Telerate
Screen; or
(b) if no such rate appears, the arithmetic mean (rounded upward to
four decimal places of one per cent.) of the relevant offered
rates which appear on the relevant page (if any) on the Reuters
Screen; or
(c) if no such rate appears on the Telerate Screen and one only or no
offered rate appears on the relevant page of the Reuters Screen
or there is no relevant page on the Reuters Screen, the
arithmetic mean (rounded upward to four decimal places) of the
rates, as supplied to the Facility Agent at its request, quoted
by the Reference Banks to leading banks in the London interbank
market,
in each case, at or about 11.00 a.m. on the applicable Rate Fixing Day
for the offering of deposits in the currency of the relevant Loan for a
period comparable to its Interest Period.
"LOAN"
means, subject to Clauses 8 (Interest Periods) and 10 (Optional
Currencies), the principal amount of each loan made or to be made by
the Banks under the Facility or the principal amount outstanding of
that loan.
"LOAN NOTES"
means the L.70,506,836 notes that have been issued by the Company
to former shareholders of Wessex Water.
<PAGE> 13
10
"MAJORITY BANKS"
means, at any time, Banks:-
(a) whose participations in all Loans then outstanding aggregate more
than 66 2/3 per cent. of all Loans then outstanding; or
(b) if there are no Loans then outstanding, whose Commitments then
aggregate more than 66 2/3 per cent. of the Total Commitments; or
(c) if there are no Loans then outstanding and the Total Commitments
have been reduced to zero, whose Commitments aggregated more than
66 2/3 per cent. of the Total Commitments immediately before the
reduction.
"MANDATORY COSTS"
means in relation to a Bank the cost imputed to that Bank of compliance
with:
(a) the cash ratio and special deposit requirements of the Bank of
England and/or the banking supervision or other costs imposed by
the Financial Services Authority, as determined in accordance with
Schedule 3; and
(b) any reserve asset requirements of the European Central Bank
incurred by that Bank.
"MARGIN"
means, in respect of a Loan:
(a) if the Loans outstanding at that time are less than 50 per cent.
of the Total Commitments as of the date of this Agreement, 0.75
per cent. per annum; and
(b) if the Loans outstanding at that time are greater than or equal to
50 per cent. of the Total Commitments as of the date of this
Agreement or if an Event of Default is outstanding, one per cent.
per annum,
in each case, as determined on the first day of the Interest Period for
that Loan.
"MATERIAL ADVERSE EFFECT"
means any event, occurrence or circumstance having, or being reasonably
likely to have, a material adverse effect on the ability of the Company
to perform and comply with:
(a) its payment obligations under any Finance Document; or
(b) its obligations under Clause 18.28 (Financial Covenants).
"MATERIAL SUBSIDIARY"
means:
(a) Wessex Water;
<PAGE> 14
11
(b) any member of the AEL Group (other than the Company and any
Project Finance Subsidiary):
(i) which is the Appointment Holder; or
(ii) whose pre-tax profits represent at least ten per
cent. of the consolidated pre-tax profits of the AEL
Group; or
(iii) the book value of whose gross assets represents at
least ten per cent. of the consolidated gross assets
of the AEL Group,
and for this purpose:
(A) in the case of a company which itself has
Subsidiaries, the calculation shall be made by using
the consolidated pre-tax profits or gross assets, as
the case may be, of it and its Subsidiaries;
(B) all calculations of consolidated pre-tax profits or
gross assets shall be made by reference to:
(1) the latest accounts of the relevant company
(or, as the case may be, a consolidation of
the accounts of it and its Subsidiaries)
used for the purpose of the then latest
unaudited quarterly or audited annual
consolidated accounts of the AEL Group
delivered to the Facility Agent under Clause
18.2 (Financial information); and
(2) those unaudited quarterly or, as the case
may be, audited annual consolidated accounts
of the AEL Group;
and shall be made in accordance with the Applicable
Accounting Principles; or
(c) any member of the AEL Group (other than the Company and any
Project Finance Subsidiary) which is not otherwise a Material
Subsidiary under this definition but to which any Material
Subsidiary transfers in any annual Accounting Period all or
substantially all of its assets; the Material Subsidiary from
which the assets were transferred shall cease to be a Material
Subsidiary unless and until it is shown to be a Material
Subsidiary under any other paragraph of this definition.
In the event of any dispute as to whether a Subsidiary is or is not at
any time a Material Subsidiary the question shall be referred to the
Auditors for determination according to the provisions of this
definition (acting as experts at the cost of the Company) and their
decision shall be conclusive and binding on the Parties in the absence
of manifest error.
"MINIMUM DEBT SERVICE AMOUNT"
means on any date specified in paragraph (c) below the amount
determined by the Security Agent as being the interest payable under
the Facility for the following 12 month period (or, if shorter, the
period until the Final Repayment Date) and calculated on the following
basis:
<PAGE> 15
12
(a) the Security Agent shall assume that the Loans are drawn in full;
(b) the Security Agent shall determine interest on the basis of LIBOR
(for a period of 6 months) plus the Margin plus Mandatory Costs;
(c) the calculation shall be made semi-annually, as at each
anniversary of the date of this Agreement and of the date falling
6 months from the date of this Agreement.
"MOODY'S"
means Moody's Investors Service, Inc.
"NOVATION CERTIFICATE"
has the meaning given to it in Clause 27.3 (Procedure for novations).
"OPTIONAL CURRENCY"
means Dollars or euros.
"ORIGINAL FACILITY AGREEMENT"
means the L.736,000,000 facility agreement (as amended) dated 18th
August, 1998 entered intO By, amongst others, the Company.
"ORIGINAL STERLING AMOUNT"
in relation to a Loan or part of a Loan means:
(a) if that Loan (or such part) is denominated in Sterling, the amount
of that Loan; or
(b) if that Loan (or such part) is denominated in an Optional
Currency, the equivalent in Sterling of the amount of that Loan
(or such part) if it had first been drawn down and had remained
denominated in Sterling, calculated in accordance with Clause 10.3
(Drawdowns).
"PARENT"
means Azurix Corp., a Delaware Corporation.
"PARTICIPATING MEMBER STATE"
means a member state of the European Union that adopts the euro as its
currency in accordance with EMU legislation.
"PARTY"
means a party to this Agreement.
<PAGE> 16
13
"PERMITTED TRANSACTION"
means:
(a) a reconstruction, amalgamation, reorganisation, merger or
consolidation of the Company or a Material Subsidiary on terms
approved by the Majority Banks;
(b) a disposal of assets permitted by the terms of this Agreement; or
(c) a solvent liquidation, dissolution or winding-up of a Material
Subsidiary (other than Wessex Water or the Appointment Holder)
which does not have a Material Adverse Effect.
"PROJECT FINANCE INDEBTEDNESS"
means any Borrowing which finances the acquisition, development,
ownership and/or operation of an asset:
(a) which is incurred by a Project Finance Subsidiary; or
(b) in respect of which the person or persons to whom the Borrowing is
or may be owed by the relevant debtor (whether or not a member of
the AEL Group) has or have no recourse whatsoever to any member of
the AEL Group (other than to a Project Finance Subsidiary) for its
repayment other than:
(i) recourse to the debtor for amounts limited to the
cash flow or net cash flow (other than historic cash
flow or historic net cash flow) from the asset;
and/or
(ii) recourse to the debtor for the purpose only of
enabling amounts to be claimed in respect of that
Borrowing in an enforcement of any Security Interest
given by the debtor over the asset or the income,
cash flow or other proceeds deriving from the asset
(or given by any shareholder or the like in the
debtor over its shares or like interest in the
capital of the debtor) to secure the Borrowing but
only if:
(A) the extent of the recourse to the debtor is
limited solely to the amount of any
recoveries made on any such enforcement; and
(B) that person or persons are not entitled, by
virtue of any right or claim arising out of
or in connection with that Borrowing, to
commence proceedings for the winding up or
dissolution of the debtor or to appoint or
procure the appointment of any receiver,
trustee or similar person or officer in
respect of the debtor or any of its assets
(other than the assets the subject of that
Security Interest); and/or
(iii) recourse to the debtor generally, or directly or indirectly
to a member of the AEL Group, under any form of assurance,
undertaking or support, which recourse is limited to a claim
for damages (other than liquidated damages and damages
required to be calculated in a specified way) for breach of
an obligation (other than a payment obligation or an
obligation to procure
<PAGE> 17
14
payment by another or an indemnity in respect thereof or any
obligation to comply or to procure compliance by another
with any financial ratios or other tests of financial
condition) by the person against whom such recourse is
available; and/or
(iv) recourse to any member of the AEL Group (being recourse
under a guarantee which is unsecured by that member) which
is only available until completion of the construction phase
of the relevant project.
"PROJECT FINANCE SUBSIDIARY"
means any Subsidiary of the Company (other than the Appointment
Holder):
(a) which is a company whose principal assets and business are
constituted by the ownership, acquisition, development and/or
operation of an asset whether directly or indirectly;
(b) none of whose Borrowings in respect of the financing of the
ownership, acquisition, development and/or operation of an asset
benefits from any recourse whatsoever to any member of the AEL
Group (other than the Subsidiary itself or another Project Finance
Subsidiary) in respect of its repayment, except as expressly
referred to in paragraph (b)(iii) of the definition of Project
Finance Indebtedness in this Clause 1.1 (Definitions); and
(c) which has been designated as such by the Company by notice to the
Facility Agent.
However, the Company may give notice to the Facility Agent at any time
that any Project Finance Subsidiary is no longer a Project Finance
Subsidiary, whereupon it shall cease to be a Project Finance
Subsidiary.
"QUALIFYING BANK"
means:-
(a) a bank as defined in Section 840A of the Income and Corporation
Taxes Act 1988 which, for the purposes of Sections 349 and 212 of
the Income and Corporation Taxes Act 1988, is within the charge to
United Kingdom corporation tax as regards, and beneficially
entitled to, any interest received by it under this Agreement,
except that, if that Section is repealed, modified, extended or
re-enacted, the Facility Agent may at any time and from time to
time (acting reasonably) amend this definition to reflect such
repeal, modification, extension or enactment by giving notice of
the amended definition to the Company; or
(b) a person carrying on a bona fide banking business who is resident
(as such term is defined in the appropriate Double Taxation
Treaty) in a country with which the United Kingdom has an
appropriate Double Taxation Treaty giving residents of that
country full exemption from United Kingdom taxation on interest
and does not carry on business in the United Kingdom through a
permanent establishment with which the indebtedness under this
Agreement in respect of which the interest is paid is effectively
connected.
<PAGE> 18
15
"RATE FIXING DAY"
means:
(a) the second Business Day before the first day of an Interest Period
for a Loan in an Optional Currency (or such other day as is
generally treated as the rate fixing day by market practice in the
London interbank market); or
(b) in the case of a Loan in Sterling, the first day of the Interest
Period for that Loan.
"REFERENCE BANKS"
means, subject to Clause 27.5 (Reference Banks), The Chase Manhattan
Bank, Westdeutsche Landesbank Girozentrale and [The Royal Bank of
Scotland plc].
"REPAYMENT DATE"
means the last day of the Interest Period of a Loan.
"REQUEST"
means a request made by the Company for a Loan, substantially in the
form of Schedule 4.
"ROLLOVER LOAN"
means a Loan, the principal amount of which is less than or equal to an
outstanding Loan and whose Drawdown Date coincides with the Repayment
Date of that outstanding Loan.
"SECRETARY OF STATE"
means the Secretary of State as referred to in the Act.
"SECURITY ACCOUNT"
means the Debt Service Reserve Account or a Cash Collateral Account.
"SECURITY INTEREST"
means any mortgage, pledge, lien, charge, assignment, hypothecation or
security interest or any other agreement or arrangement having the
effect of conferring security.
"SPV"
means a wholly-owned direct or indirect Subsidiary of the Parent (other
than a member of the AEL Group) incorporated in The Netherlands, the
Cayman Islands or any other jurisdiction acceptable to the Agents
(acting reasonably) where funds can be freely remitted and the Security
Interests in favour of the Security Agent over the relevant
Inter-Company Loans are not prejudiced and the purpose of that
Subsidiary is to invest in, own and/or finance directly or indirectly
the making of Acquisitions and borrow Inter-Company Loans.
<PAGE> 19
16
"STANDARD & POOR'S"
means Standard & Poor's Rating Group (or any of its successors).
"STERLING" or "L."
means the lawful currency for the time being of the United Kingdom.
"SUBORDINATION AGREEMENT"
means the subordination agreement entered into by the Facility Agent,
the Company and Wessex Water, in relation to the Wessex Loan,
substantially in the form of Schedule 8.
"SUBSIDIARY"
of a company or corporation (a "HOLDING COMPANY") means any company or
corporation:-
(a) which is controlled, directly or indirectly, by a Holding Company;
or
(b) more than half the issued share capital of which is beneficially
owned, directly or indirectly, by a Holding Company; or
(c) which is a Subsidiary of another Subsidiary of a Holding Company,
and, for these purposes, a company or corporation shall be treated as
being controlled by another if that Holding Company holds or controls
the majority of the voting rights relating to its shares or ownership
interests and/or controls the composition of its board of directors or
equivalent body. For the purpose of the use of the definition of
Subsidiary in the definition of SPV, a "company" includes any
association or partnership (whether or not having separate legal
personality).
"TOTAL COMMITMENTS"
means the aggregate of the Commitments, being L.425,000,000 at the date
of this Agreement.
"WESSEX GROUP"
means Wessex Water and its Subsidiaries.
"WESSEX INTER-COMPANY RECEIVABLE"
has the meaning given to it in the Subordination Agreement.
"WESSEX LOAN"
means the L.90,000,000 loan dated 15th April, 1999 to the Company from
Wessex Water.
"WESSEX WATER"
means Wessex Water Limited (Registered no. 2366633).
<PAGE> 20
17
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention appears, a reference to:
(i) an order for or petition for "ADMINISTRATION" of any person
includes an order or petition for the special administration of
that person for the purposes of section 24 of the Act;
"ASSETS" includes properties, revenues and rights of every
description;
an "AUTHORISATION" includes an authorisation, consent, approval,
resolution, licence, exemption, filing, registration and
notarisation;
a "MONTH" is a reference to a period starting on one day in a
calendar month and ending on the numerically corresponding day in
the next calendar month, except that:
(1) if there is no numerically corresponding day in the month in
which that period ends, that period shall end on the last
Business Day in that calendar month; or
(2) if an Interest Period commences on the last Business Day of a
calendar month, that Interest Period shall end on the last
Business Day in the calendar month in which it is to end; and
a "REGULATION" includes any regulation, rule, official directive,
request or guideline (whether or not having the force of law, but
if not having the force of law being of a type with which the
person concerned is accustomed to comply) of any governmental
body, agency, department or regulatory, self-regulatory or other
authority or organisation;
(ii) a provision of a law is a reference to that provision as amended
or re-enacted;
(iii) a Clause or a Schedule is a reference to a clause of or a
schedule to this Agreement;
(iv) a person includes its successors and permitted assigns;
(v) a Finance Document or another document is a reference to that
Finance Document or that other document as amended, novated,
supplemented, replaced or renewed; and
(vi) a time of day is a reference to London time.
(b) Unless the contrary intention appears, a term used in any other
Finance Document or in any notice given under or in connection
with any Finance Document has the same meaning in that Finance
Document or notice as in this Agreement.
(c) If either Standard & Poor's or Moody's cease to provide ratings of
the type contemplated by any Clause of this Agreement, the
relevant rating agency may be replaced by another rating agency
acceptable to the Company and the Facility Agent and references to
Standard & Poor's or Moody's, as the case may be, shall be
construed as references to that ratings agency.
<PAGE> 21
18
(d) The index to and the headings in this Agreement are for
convenience only and are to be ignored in construing this
Agreement.
2. THE FACILITY
2.1 FACILITY
Subject to the terms of this Agreement, the Banks irrevocably grant to
the Company a committed revolving credit facility under which, when
requested by the Company, the Banks shall make available to the Company
Loans up to an aggregate Original Sterling Amount not exceeding the
Total Commitments at that time. No Bank is obliged to lend if it would
cause the Original Sterling Amount of its participation in the Loan to
exceed its Commitment.
2.2 NATURE OF A FINANCE PARTY'S RIGHTS AND OBLIGATIONS
(a) The obligations of a Finance Party under the Finance Documents are
several. Failure of a Finance Party to carry out those obligations does
not relieve any other Party of its obligations under the Finance
Documents. No Finance Party is responsible for the obligations of any
other Finance Party under the Finance Documents.
(b) The rights of a Finance Party under the Finance Documents are divided
rights. A Finance Party may, except as otherwise stated in the Finance
Documents, separately enforce those rights.
2.3 CHANGE OF CURRENCY
If a change in any currency of a country occurs, this Agreement will be
amended to the extent the Facility Agent (acting reasonably) specifies
to be necessary to reflect the change in currency and to put the Banks
(and, if possible and practicable, the Company) in the same position,
so far as possible, that they would have been in if no change in
currency had occurred.
3. PURPOSE AND AVAILABILITY
(a) The Company shall apply each Loan made to it towards:-
(i) refinancing any outstanding Borrowings by the Company, including
any loan outstanding under the Original Facility Agreement;
and/or
(ii) refinancing the outstanding Loan Notes; and/or
(iii) making Inter-Company Loans up to a maximum aggregate amount of
L.240,000,000; and/or
(iv) fees and expenses in connection with the Finance Documents.
(b) Without affecting the obligations of the Company in any way, no Finance
Party is bound to monitor or verify the application of any Loan.
<PAGE> 22
19
4. CONDITIONS PRECEDENT
4.1 DOCUMENTARY CONDITIONS PRECEDENT
(a) The obligations of each Finance Party to the Company under this
Agreement are subject to the condition precedent that the Facility
Agent has notified the Company and the Banks that it has received all
of the documents set out in Schedule 2 and that the Arrangers and
Agents have received or are satisfied that they will receive all fees
which are then due and payable in connection with the Finance
Documents.
(b) The documents referred to in paragraph (a) above must be in a form
agreed by the Company and the Facility Agent prior to the date of this
Agreement or in form and substance satisfactory to the Facility Agent.
The Facility Agent shall promptly notify the Company and the Banks of
receipt of those documents.
4.2 FURTHER CONDITIONS PRECEDENT
The obligations of each Bank to participate in a Loan are subject to
the further conditions precedent that:-
(a) on both the date of the Request and the Drawdown Date:-
(i) the representations and warranties in Clause 17
(Representations and warranties) to be repeated on those
dates are correct in all material respects and will be
correct in all material respects immediately after the Loan
is made;
(ii) in the case of a Loan which is not a Rollover Loan, no
Default is outstanding or will result from the Loan; and
(iii) in the case of a Rollover Loan, no Event of Default is
outstanding or will result from the Loan provided that
(without prejudice to the rights of the Finance Parties
under Clause 19.20 (Acceleration)) if:
(A) an Event of Default is outstanding:
(B) a waiver of that Event of Default has been requested by
the Company; and
(C) as at the last day of the Interest Period of that
Rollover Loan, sufficient Banks required to approve or
refuse that waiver under Clause 26 (Amendments and
waivers) have not responded to that waiver request,
the Loan shall be readvanced on that day but with an Interest
Period of a duration agreed by the Facility Agent and the
Company. If the duration of that Interest Period cannot be
agreed by the latest time on which a Request can be delivered
for that Loan under Clause 5.1 (Receipt of Requests), the
Facility Agent shall stipulate the duration of that Interest
Period. In each case, the Facility Agent and the Company
shall act reasonably and have
<PAGE> 23
20
regard to the nature of the Event of Default, any cure period
and the likely time period needed for the Banks to respond to
the waiver request;
(b) it would not cause the Loans to exceed the Total Commitments;
(c) it would not result in there being more than 10 Loans outstanding
at any time; and
(d) if the Loan is to finance an Inter-Company Loan, that
Inter-Company Loan shall be on terms such that the Inter-Company
Loan shall:
(i) mature on or before the Final Repayment Date;
(ii) be senior to all other Borrowings by the relevant SPV
(including any funding from the Parent);
(iii) if practicable, bear interest at a rate equal to or in
excess of that Loan; and
(iv) be in substantially the form set out in Schedule 9, with
such amendments as the Facility Agent may agree,
provided that no Loan may be drawn to finance the initial making
of an Inter-Company Loan if the Issuer Credit Rating of the
Company is less than BBB from Standard & Poor's or Baa2 from
Moody's.
5. LOANS
5.1 RECEIPT OF REQUESTS
The Company may utilise the Facility if the Facility Agent receives:
(a) for a Loan in Sterling, not later than 10.00 a.m. on the Business
Day; or
(b) for a Loan in an Optional Currency, not later than 3.30 p.m. on
the third Business Day,
in each case, before the Drawdown Date of the relevant Loan, a duly
completed Request.
5.2 COMPLETION OF REQUESTS FOR LOANS
A Request for a Loan will not be regarded as having been duly completed
unless:-
(a) it specifies the purpose for which the Loan is to be used;
(b) it specifies the currency in which the Loan is to be made, in
accordance with Clause 10 (Optional Currency).
(c) the Drawdown Date is a Business Day falling within the
Availability Period;
(d) the Original Sterling Amount of the Loan is a minimum of
L.10,000,000 or (if less) The balance of the undrawn Total
Commitments or any other amount agreed by the Facility Agent;
<PAGE> 24
21
(e) the Interest Period specified complies with Clause 8 (Interest
Periods); and
(f) the payment instructions comply with Clause 12 (Payments).
Each Request is irrevocable.
5.3 AMOUNT OF EACH BANK'S PARTICIPATION IN A LOAN
The amount of a Bank's participation in a Loan will be the proportion
of the Loan which its Commitment bears to the Total Commitments on the
proposed Drawdown Date.
5.4 NOTIFICATION OF THE BANKS
The Facility Agent shall promptly notify each Bank of the details of
the requested Loan and the amount of its participation in the Loan.
5.5 PAYMENT OF PROCEEDS
Subject to the terms of this Agreement, each Bank shall make its
participation in a Loan available to the Facility Agent for the Company
on the relevant Drawdown Date.
6. REPAYMENT
(a) The Company shall repay each Loan in full on its Repayment Date to the
Facility Agent for the Banks.
(b) Subject to the terms of this Agreement, any amounts repaid under
paragraph (a) above may subsequently be re-borrowed.
7. PREPAYMENT AND CANCELLATION
7.1 AUTOMATIC CANCELLATION OF THE TOTAL COMMITMENTS
The Commitment of each Bank shall be automatically cancelled at close
of business on the last day of the Availability Period.
7.2 VOLUNTARY CANCELLATION AND PREPAYMENT
(a) The Company may, by giving not less than 5 Business Days' prior notice
to the Facility Agent, cancel the unutilised portion of the Total
Commitments in whole or in part (but, if in part, in a minimum amount
of L.10,000,000 and integral multiples of L.1,000,000). Any
cancellation in paRT shall be applied against the Commitment of each
Bank pro rata.
(b) The Company may, by giving not less than 5 Business Days' prior notice
to the Facility Agent, prepay any Loan in whole or in part (but, if in
part, in a minimum amount of L.10,000,000 and integral multiples
of L.1,000,000).
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22
7.3 ADDITIONAL RIGHT OF PREPAYMENT AND CANCELLATION
If the Company is required to pay any amount to a Bank under Clause 13
(Taxes) or Clause 15 (Increased costs), the Company may, whilst the
circumstances giving rise to the requirement continue, serve a notice
of prepayment and cancellation on that Bank through the Facility Agent.
In this event:-
(a) on the date falling 5 Business Days after the date of service of
the notice the Company shall prepay that Bank's participation in
any Loans made to it together with all other amounts payable by it
to that Bank under this Agreement; and
(b) that Bank's Commitment shall be cancelled on the date of service
of the notice.
7.4 MITIGATION
If circumstances arise which would, or would on the giving of notice,
result in:
(a) any additional amounts becoming payable under Clause 13.1
(Gross-up); or
(b) any amount becoming payable under Clause 15.1 (Increased costs);
or
(c) any prepayment or cancellation under Clause 16 (Illegality),
then, without limiting the obligations of the Company under this
Agreement and without prejudice to the terms of Clauses 13.1
(Gross-up), 15.1 (Increased costs) and 16 (Illegality), each Bank
shall, in consultation with the Company, take such reasonable steps as
may be open to it to mitigate or remove the relevant circumstance,
including (without limitation) the transfer as specified in Clause 27.2
(Transfers by Banks) of its rights and obligations under this Agreement
to another bank or financial institution, unless to do so might (in the
reasonable opinion of the Bank) have a material adverse effect on its
business, operations or financial condition or be contrary to its
banking policies or be otherwise prejudicial to it.
7.5 MANDATORY PREPAYMENT
(a) Any Loan borrowed for the purpose of making an Inter-Company Loan shall
be prepaid, subject to paragraph (b) below, by no later than the third
Business Day after repayment or prepayment by the relevant SPV of that
Inter-Company Loan in accordance with its terms , in an amount equal to
that repayment or prepayment.
(b) The Company's obligation to prepay any amount under paragraph (a) above
may be satisfied by payment of the amount expressed to be payable into
a Cash Collateral Account held by the Security Agent or one of its
Affiliates. On the Repayment Date for the relevant Loan or such earlier
date as notified by the Company to the Security Agent, the Company
shall pay the amount so credited to the Cash Collateral Account to the
Facility Agent in or towards repayment or prepayment of the relevant
Loan. The Company may not use that amount for any other purpose.
7.6 MISCELLANEOUS PROVISIONS
(a) Any notice of prepayment and/or cancellation under this Agreement is
irrevocable. The Facility Agent shall notify the Banks promptly of
receipt of any such notice.
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(b) All prepayments under this Agreement shall be made together with
accrued interest on the amount prepaid and with any amounts due under
Clauses 24.2 (a) (Other indemnities) and, in the case of prepayment of
all the Loans then outstanding, 24 (Indemnities).
(c) No prepayment or cancellation is permitted except in accordance with
the express terms of this Agreement.
(d) No amount of the Total Commitments cancelled under this Agreement may
subsequently be reinstated.
8. INTEREST PERIODS
8.1 INTEREST PERIODS
(a) Each Loan will have one Interest Period only.
(b) Interest Periods may, subject to the other provisions of this Clause 8,
be for an approved duration or an optional duration and:-
(i) "APPROVED DURATION" means a period of 1, 2, 3 or 6 months; and
(ii) "OPTIONAL DURATION" means any other period (other than an approved
duration) of up to 12 months.
8.2 SELECTION OF AN OPTIONAL DURATION
(a) Subject to Clause 4.2(a)(iii) (Further conditions precedent), if the
Company selects an Interest Period of an optional duration, it may also
select in the relevant Request an Interest Period of an approved
duration to apply if the selection of an Interest Period of an optional
duration becomes ineffective in accordance with paragraph (b) below.
(b) If:-
(i) the Company requests an Interest Period of an optional duration;
and
(ii) the Facility Agent receives notice from a Bank not later than 3.00
p.m. on the Business Day before the Rate Fixing Day that it does
not agree to the request,
the Interest Period for the proposed Loan shall be the alternative
period of an approved duration specified in the relevant Request or
notice or, in the absence of any alternative selection, 3 months.
(c) If the Facility Agent receives a notice from a Bank under paragraph (b)
above, it shall notify the Company and the Banks promptly of the new
Interest Period for the proposed Loan.
8.3 OVERRUNNING OF REPAYMENT DATES
If an Interest Period for a Loan would otherwise overrun the Final
Repayment Date, that Interest Period shall be shortened so that it ends
on the Final Repayment Date.
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8.4 NOTIFICATION
The Facility Agent shall notify the Company and the Banks of the
duration of each Interest Period promptly after ascertaining its
duration.
9. INTEREST
9.1 INTEREST RATE
The rate of interest on each Loan for each of its Interest Periods is
the rate per annum determined by the Facility Agent to be the aggregate
of the applicable:-
(a) Margin;
(b) LIBOR; and
(c) Mandatory Costs.
9.2 DUE DATES
Except as otherwise provided in this Agreement, accrued interest on
each Loan is payable by the Company on the last day of each Interest
Period and also, in the case of a Loan with an Interest Period longer
than six months, on the date falling six months after the commencement
of that Interest Period.
9.3 DEFAULT INTEREST
(a) (i) If the Company fails to pay any amount payable by it under the
Finance Documents, it shall forthwith on demand by the Facility
Agent pay interest on the overdue amount from the due date up to
the date of actual payment, as well after as before judgement, at
a rate (the "DEFAULT RATE") determined by the Facility Agent to be
1 per cent. per annum above, subject to sub-paragraph (ii) below,
the rate which would have been payable if the overdue amount had,
during the period of non-payment, constituted a Loan for such
successive Interest Periods of such duration as the Facility Agent
may reasonably determine having regard to the likely duration of
the default (each a "DESIGNATED INTEREST PERIOD").
(ii) If the overdue amount is a principal amount of a Loan and it
becomes due and payable prior to the last day of an Interest
Period for that Loan, then:-
(1) the first Designated Interest Period for that overdue
sum will be the unexpired portion of that Interest
Period; and
(2) the rate of interest on the overdue amount for that
first Designated Interest Period will be 1 per cent.
per annum above the rate on the overdue amount under
Clause 9.1 (Interest rate) immediately before the due
date.
After the expiry of the first Designated Interest Period for
that overdue amount, the rate on the overdue amount will be
calculated in accordance with sub-paragraph (i) above.
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(b) The default rate will be determined on each Business Day or the first
day of the relevant Designated Interest Period, as appropriate.
(c) If the Facility Agent determines that deposits are not at the relevant
time being made available by the Reference Banks to leading banks in
the London interbank market, the default rate will be determined by
reference to the cost of funds to the Banks from whatever sources the
Banks may reasonably select, having due regard to the likely duration
of the default.
(d) Default interest will be compounded at the end of each Designated
Interest
Period.
9.4 NOTIFICATION OF RATES OF INTEREST
The Facility Agent shall promptly notify each relevant Party of the
determination of a rate of interest under this Agreement.
10. OPTIONAL CURRENCIES
10.1 SELECTION
(a) The Company may select the currency of a Loan for an Interest Period in
the
relevant Request.
(b) The currency of each Loan must be Sterling or an Optional Currency.
(c) If the Company fails to give a notice in respect of an outstanding Loan
in accordance with paragraph (a) above, that Loan will be denominated
in Sterling.
10.2 REVOCATION OF CURRENCY
If before 9.30 a.m. on any Rate Fixing Day, the Facility Agent receives
notice from a Bank that:-
(a) it is impracticable for the Bank to fund its participation in the
Loan in the relevant Optional Currency during that Interest Period
in the ordinary course of business in the London interbank market;
and/or
(b) the use of the proposed Optional Currency could reasonably be
expected to contravene any law or regulation,
the Facility Agent shall give notice to the Company and to the Banks to
that effect before 11.00 a.m. on that day. In this event:-
(i) the Company and the Banks may agree that the drawdown will not be
made or will be made in Sterling; or
(ii) in the absence of agreement and in any other case:
(1) that Bank's participation in the Loan (or, if more than one
Bank is similarly affected, those Banks' participations in
the Loan) shall be treated as a separate Loan denominated in
Sterling during the relevant Interest Period;
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(2) in the definition of "LIBOR" (insofar as it applies to that
Loan) in Clause 1.1 (Definitions):
(A) there shall be substituted for the time "11.00 a.m." the
time "1.00 p.m."; and
(B) paragraph (c) shall apply.
10.3 DRAWDOWNS
If a Loan is to be drawn in an Optional Currency, the amount of each
Bank's participation in that Loan will be determined by converting into
that Optional Currency the Bank's participation in the Original
Sterling Amount of that Loan on the basis of the Agent's Spot Rate of
Exchange two Business Days before its Drawdown Date.
10.4 PREPAYMENTS AND REPAYMENTS
If a Loan is to be prepaid by reference to an Original Sterling Amount,
the Optional Currency amount to be repaid or prepaid shall be
determined by reference to the Agent's Spot Rate of Exchange used for
determining the Optional Currency amount of that Loan under this Clause
10 for the making of that Loan.
10.5 NOTIFICATION
The Facility Agent shall notify the Banks and the Company of Optional
Currency amounts (and the applicable Agent's Spot Rate of Exchange)
promptly after they are ascertained.
11. DEBT SERVICE RESERVE ACCOUNT
11.1 DESIGNATION OF ACCOUNTS
The Company shall maintain a deposit account in the name of the Company
designated the "DEBT SERVICE RESERVE ACCOUNT" at the Security Agent (or
an Affiliate of the Security Agent).
11.2 DEBT SERVICE RESERVE ACCOUNT
(a) The Company shall, for so long as any amount in respect of principal,
interest or fees payable under the Finance Documents is outstanding or
any Commitment is in force, deposit into the Debt Service Reserve
Account:
(i) on the date of this Agreement, an amount of not less than
L.20,000,000; and
(ii) promptly (and in any event within two Business Days) on receipt,
all amounts received by the Company other than any amount to be
applied in accordance with Clause 7.5 (Mandatory prepayment).
(b) The Company shall not withdraw any amount from the Debt Service Reserve
Account unless it is to be applied as follows:
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27
(i) if it comprises amounts standing to the credit of the Debt
Service Reserve Account equal to or below the Minimum Debt
Service Amount:
(A) provided no Default is outstanding, it may be applied only to
fund an advance to Enron Corp. or any of its Affiliates
(including the Parent), provided that the Company has the
benefit of a guarantee or an on demand letter of credit in
each case, in form and substance reasonably satisfactory to
the Facility Agent and the Security Agent (in each case from
a financial institution with an Issuer Credit Rating of at
least A from Standard & Poor's or A2 from Moody's) in respect
of the payment obligations under that advance; and
(B) in or towards prepayment of all of the Loans or repayment of
the Loans on the Final Repayment Date;
(ii) if it comprises amounts standing to the credit of the Debt
Service Reserve Account above the Minimum Debt Service Amount, it
may be applied:
(A) in or towards repayment or prepayment of the Loans in
accordance with Clauses 6 (Repayment) or 7.2(b) (Voluntary
cancellation and prepayment);
(B) making Inter-Company Loans, provided that the Company has the
benefit of a guarantee from Enron Corp. or a guarantee or an
on demand letter of credit (in each case from a financial
institution with an Issuer Credit Rating of at least A from
Standard & Poor's or A2 from Moody's) in respect of the
payment obligations under that Inter-Company Loan in each
case, in form and substance reasonably satisfactory to the
Facility Agent and the Security Agent (each such guarantee
(from Enron Corp. or otherwise) or letter of credit or other
credit enhancement being "SUITABLE CREDIT ENHANCEMENT"); and
(C) making advances to the Parent provided that, if the Issuer
Credit Rating of the Parent is less than BBB from Standard &
Poor's or Baa2 from Moody's, the Company shall have the
benefit of suitable credit enhancement; and
(iii) provided the Company is in compliance with Clause 18.20 (Minimum
Debt Service Amount) in or towards payment of interest, taxes and
operating expenses of the Company then due and payable.
11.3 MISCELLANEOUS ACCOUNTS PROVISIONS
(a) The Company shall ensure that the Debt Service Reserve Account is not
overdrawn at any time.
(b) On the Final Repayment Date or on the Loans becoming immediately due and
payable under this Agreement, the monies standing to the credit of the Debt
Service Reserve Account may be applied by the Security Agent in or towards
repayment of the Loans and all other amounts due to the Finance Parties
under the Finance Documents.
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(c) No Finance Party shall be responsible to the Company for any non-payment of
any liability of the Company which could be paid out of moneys standing to
the credit of the Debt Service Reserve Account.
(d) The Security Agent shall provide to the Facility Agent within five Business
Days of any request by the Facility Agent with the following information in
relation to any payment received in the Debt Service Reserve Account:-
(i) date of payment/receipt;
(ii) payer; and
(iii) purpose of/for payment/receipt.
11.4 CHANGE OF BANK ACCOUNTS
(a) If the Security Agent so requests and the Company consents (such consent
not to be unreasonably withheld or delayed) , the Debt Service Reserve
Account may be moved to another bank.
(b) A change of the Debt Service Reserve Account only becomes effective upon
the proposed new bank agreeing with the Security Agent and the Company, in
a manner satisfactory to the Security Agent, to fulfil the role of the bank
holding that account.
12. PAYMENTS
12.1 PLACE
All payments by the Company or a Bank under the Finance Documents shall
be made to the relevant Agent to its account at such office or bank:
(a) in the principal financial centre of the country of the relevant
currency; or
(b) in the case of euros, in the principal financial centre of a
Participating Member State or London,
as that Agent has from time to time notified the Company and the Banks.
12.2 FUNDS
Payments under the Finance Documents to the relevant Agent shall be
made for value on the due date at such times and in such funds as that
Agent may specify to the Party concerned as being customary at the time
for the settlement of transactions in the relevant currency in the
place for payment.
12.3 DISTRIBUTION
(a) Each payment received by the relevant Agent under the Finance Documents
for another Party shall, subject to the paragraphs below, be made
available by that Agent to that Party by payment to its account with
such office or bank: -
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(i) in the principal financial centre of the country of the relevant
currency; or
(ii) in the case of euros, in the principal financial centre of a
Participating Member State or London,
as that Party has from time to time notified the relevant Agent.
(b) An Agent may apply any amount received by it for the Company in respect
of the advance of a Loan in or towards payment (on the date and in the
currency and funds of receipt) of any amount due from the Company under
this Agreement in respect of the repayment of a Loan or in or towards
the purchase of any amount of any currency to be so applied.
(c) Where a sum is to be paid under the Finance Documents to an Agent for
the account of another Party, that Agent is not obliged to pay that sum
to that Party until it has established that it has actually received
that sum. That Agent may, however, assume that the sum has been paid to
it in accordance with this Agreement and, in reliance on that
assumption, make available to that Party a corresponding amount. If the
sum has not been made available but that Agent has paid a corresponding
amount to another Party, that Party shall forthwith on demand refund
the corresponding amount to that Agent together with interest on that
amount from the date of payment to the date of receipt, calculated at a
rate determined by that Agent to reflect its cost of funds.
12.4 CURRENCY
(a) A repayment or prepayment of a Loan or any part of a Loan is payable in
the currency in which the Loan is denominated.
(b) Interest is payable in the currency in which the relevant amount in
respect of which it is payable is denominated.
(c) Amounts payable in respect of costs, expenses and taxes and the like
are payable in the currency in which they are incurred.
(d) Any other amount payable under the Finance Document is, except as
otherwise provided in this Agreement, payable in Sterling.
12.5 SET-OFF AND COUNTERCLAIM
All payments made by the Company under the Finance Documents shall be
made without set-off or counterclaim.
12.6 NON-BUSINESS DAYS
(a) If a payment under the Finance Documents is due on a day which is not a
Business Day, the due date for that payment shall instead be the next
Business Day in the same calendar month (if there is one) or the
preceding Business Day (if there is not).
(b) During any extension of the due date for payment of any principal under
the Finance Documents interest is payable on the principal at the rate
payable on the original due date.
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12.7 PARTIAL PAYMENTS
(a) If the relevant Agent receives a payment insufficient to discharge all
the amounts then due and payable by the Company under the Finance
Documents, the relevant Agent shall apply that payment towards the
obligations of the Company under the Finance Documents in the following
order:-
(i) first, in or towards payment pro rata of any unpaid fees, costs
and expenses of the Agents under the Finance Documents;
(ii) secondly, in or towards payment pro rata of any accrued fees due
but unpaid under Clause 21.2 (Commitment fee);
(iii) thirdly, in or towards payment pro rata of any accrued interest
due but unpaid under this Agreement;
(iv) fourthly, in or towards payment pro rata of any principal due but
unpaid under this Agreement; and
(v) fifthly, in or towards payment pro rata of any other sum due but
unpaid under the Finance Documents.
(b) The Agents shall, if so directed by all the Banks, vary the order set
out in sub-paragraphs (a)(ii) to (v) above.
(c) Paragraphs (a) and (b) above shall override any appropriation made by
the Company.
13. TAXES
13.1 GROSS-UP
All payments by the Company under the Finance Documents shall be made
without any deduction and free and clear of and without deduction for
or on account of any taxes or other deductions, except to the extent
that the Company is required by law to make payment subject to any
taxes. If any tax or amounts in respect of tax must be deducted, or any
other deductions must be made, from any amounts payable or paid by the
Company, or paid or payable by an Agent to a Bank, under the Finance
Documents, the Company shall pay such additional amounts as may be
necessary to ensure that the relevant Bank receives a net amount equal
to the full amount which it would have received had payment not been
made subject to tax or other deduction.
13.2 TAX RECEIPTS
All taxes required by law to be deducted or withheld by the Company
from any amounts paid or payable under the Finance Documents shall be
paid by the Company when due and the Company shall, within 15 days of
the payment being made, deliver to the Facility Agent for the relevant
Bank evidence reasonably satisfactory to that Bank (including all
relevant tax receipts) that the payment has been duly remitted to the
appropriate authority.
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13.3 REFUND OF TAX CREDITS
If:-
(a) the Company makes a payment under Clause 13.1 (Gross-up) (a
"TAX PAYMENT") in respect of a payment to a Bank under the
Finance Documents; and
(b) that Bank determines in good faith that it has obtained a
refund of tax or obtained and used a credit against tax on its
overall net income (a "TAX CREDIT") which that Bank is able to
identify in good faith as attributable to that Tax Payment,
then, if it determines, acting in good faith, that it can do so without
any other adverse consequences for the Bank, that Bank shall forthwith
reimburse the Company such amount as that Bank in its absolute
discretion determines to be such proportion of that Tax Credit as will
leave that Bank (after that reimbursement) in no better or worse
position in respect of its worldwide tax liabilities than it would have
been in if no Tax Payment had been required. A Bank shall have an
absolute discretion as to whether to claim any Tax Credit (and, if it
does claim, the extent, order and manner in which it does so) and
whether any amount is due from it under this Clause 13.3 (and, if so,
what amount and when). No Bank shall be obliged to disclose any
information regarding its tax affairs and computations.
13.4 QUALIFYING BANK
(a) Each Bank party to this Agreement on the date of this Agreement
represents that it is a Qualifying Bank on the date of this Agreement.
Any bank or financial institution which becomes a Bank after the date
of this Agreement pursuant to Clause 27.2 (Transfers by Banks) or
otherwise represents to the Company on the date it becomes a Party
that, as at that date, it is a Qualifying Bank.
(b) If, otherwise than as a result of the introduction of, change in, or
any change in the interpretation, administration or application of, any
law or regulation, any Double Taxation Treaty or any practice or
concession of the United Kingdom Inland Revenue occurring after the
date a Bank becomes a Party, the Bank is not or ceases to be a
Qualifying Bank, the Company will not be liable to pay to that Bank
under Clause 13.1 (Gross-up) any amount in respect of taxes levied or
imposed by the U.K. or any taxing authority of or in the U.K. in excess
of the amount it would have been obliged to pay if that Bank had been
or had not ceased to be a Qualifying Bank.
(c) Any Bank which falls within paragraph (b) of the definition of
Qualifying Bank shall:
(i) promptly deliver to the Company a duly completed form from the
relevant tax authorities such that the Company may apply to the
Inland Revenue for a direction to the Company under the Double
Taxation Relief (Taxes on Income) (General) Regulations 1970 that
the Company should not, on account of the relevant Double Taxation
Treaty, pay any interest due to the Bank under the Finance
Documents under deduction of U.K. tax. The Bank concerned shall,
upon the request of the Company, promptly and duly (if it is able
to do so) execute and deliver any and all such further instruments
and documents which are required for the purpose of obtaining such
a direction; or
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(ii) use all reasonable endeavours to transfer its rights, obligations
and Commitments to a Qualifying Bank from which it is not illegal
for any member of the AEL Group or its Affiliates to borrow within
90 days of the date of becoming aware that the relevant Double Tax
Treaty has ceased to apply or no longer gives full exemption to
that Bank from United Kingdom taxation on interest, provided that
the consent of the Company shall not be required under Clause 27.2
(Transfers by Banks) for such a transfer.
(d) The Company will not be liable to pay to a Bank under Clause 13.1
(Gross-up) any amount in respect of taxes levied or imposed by the U.K.
or any taxing authority of or in the U. K. which it would not have been
obliged to pay if that Bank had performed its obligations under
paragraph (c) above (whether or not then requested to do so pursuant to
that paragraph (c)).
(e) Each Bank shall notify the Company through the Facility Agent as soon
as it is aware that it ceases to be a Qualifying Bank.
14. MARKET DISRUPTION
(a) If LIBOR is to be determined by reference to the Reference Banks but a
Reference Bank does not supply an offered rate by 11.30 a.m. on a Rate
Fixing Day, the applicable LIBOR shall, subject to paragraph (b) below,
be determined on the basis of the quotations of the remaining Reference
Banks.
(b) If, in relation to any proposed Loan:-
(i) LIBOR is to be determined by reference to the Reference Banks
but no, or only one, Reference Bank supplies a rate for the
purposes of determining the applicable LIBOR or the Facility
Agent otherwise determines that adequate and fair means do not
exist for ascertaining the applicable LIBOR; or
(ii) the Facility Agent receives notification from Banks whose
participations in a Loan exceed 50 per cent. of that Loan
that, in their opinion:-
(A) matching deposits may not be available to them in the
London interbank market in the ordinary course of
business to fund their participations in that Loan
for the relevant Interest Period; or
(B) the cost to them of matching deposits in the London
interbank market would be in excess of the relevant
LIBOR,
the Facility Agent shall promptly notify the Company and the relevant
Banks of the fact and that this Clause 14 is in operation.
(c) After any notification under paragraph (b) above:-
(i) unless the Company notifies the Facility Agent to the contrary
before close of business on the day it received the
notification under paragraph (b) above, the Loan shall still
be made but it shall have an Interest Period of one month and
the interest payable on that Loan shall be determined in
accordance with sub-paragraphs (ii) to (vi) below; and
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(ii) promptly after receipt of the notification, the Company and
the Facility Agent shall enter into negotiations in good faith
for a period of not more than one month with a view to
agreeing a substitute basis for determining the rate of
interest and/or funding applicable to the Loan affected by the
notification;
(iii) any substitute basis agreed under sub-paragraph (ii) above
shall be, with the prior consent of all the Banks, binding on
all the Parties;
(iv) if no substitute basis is agreed under sub-paragraph (ii)
above, each Bank (through the Facility Agent) shall certify on
or before the last day of the Interest Period to which the
notification relates an alternative basis for maintaining its
participation in that Loan;
(v) any alternative basis referred to in sub-paragraph (iv) above
may include an alternative method of fixing the interest rate,
alternative Interest Periods or alternative Optional
Currencies or, as the case may be, Sterling but it must
reflect the cost to the Banks of funding their participations
in that Loan from whatever sources each relevant Bank may
reasonably select (each Bank's cost of funding being certified
by that Bank with a copy to the Facility Agent) plus the
applicable Margin and (if applicable) any Mandatory Costs; and
(vi) each alternative basis so certified shall be binding on the
Company and the certifying Bank and treated as part of this
Agreement.
15. INCREASED COSTS
15.1 INCREASED COSTS
(a) Subject to Clause 15.2 (Exceptions), the Company shall forthwith on
demand by a Finance Party pay that Finance Party the amount of any
increased cost incurred by it or its Holding Company as a result of:
(i) the introduction of, or any change in, or any change in the
interpretation or application of, any law or regulation after the
date of this Agreement; or
(ii) compliance with any regulation made after the date of this
Agreement,
including any law or regulation relating to taxation, change in
currency of a country or reserve asset, special deposit, cash ratio,
liquidity or capital adequacy requirements or any other form of banking
or monetary control. Promptly after any Finance Party becomes aware of
any such increased cost, that Finance Party shall notify the Borrower
through the Facility Agent. Any demand shall give calculations in
reasonable detail of that increased cost and the basis for making the
demand, except that the Finance Party shall not be obliged to disclose
any information which it reasonably considers to be confidential.
(b) In this Agreement "INCREASED COST" means:-
(i) an additional cost incurred by a Finance Party or its Holding
Company as a result of the Finance Party having entered into, or
performing, maintaining or funding its obligations under, the
Finance Documents; or
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(ii) that portion of an additional cost incurred by a Finance Party or
its Holding Company in the Finance Party making, funding or
maintaining all or any advances comprised in a class of advances
formed by or including the participations in the Loans made or to
be made under this Agreement as is attributable to the Finance
Party making, funding or maintaining those participations; or
(iii) a reduction in any amount payable to a Finance Party or its
Holding Company or the effective return to a Finance Party under
this Agreement or on its capital or that of its Holding Company;
or
(iv) the amount of any payment made by a Finance Party or its Holding
Company, or the amount of interest or other return foregone by a
Finance Party or its Holding Company, calculated by reference to
any amount received or receivable by a Finance Party from any
other Party under the Finance Documents.
15.2 EXCEPTIONS
Clause 15.1 (Increased costs) does not apply to any increased cost:-
(a) compensated for by the payment of the Mandatory Costs;
(b) compensated for by the operation of Clause 13 (Taxes) or which
would have been compensated for but for the operation of Clause
13.4(b) or (d) (Qualifying Bank) or compensated for by the
operation of any other term of this Agreement;
(c) attributable to any change in the rate or the basis of
calculating tax on the overall net income of a Bank or its
Holding Company (or the overall net income of a division or
branch of the Bank or its Holding Company) imposed in the
jurisdiction in which its principal office or Facility Office is
situate;
(d) attributable to the negligence or wilful default of a Bank; or
(e) attributable to the period 90 days after the relevant Finance
Party becomes aware of the increased cost and prior to the
Company being notified of an increased cost, except to the extent
that the increased cost is applied retrospectively; this is
without prejudice to the right of a Finance Party to claim for
any subsequent increased cost.
16. ILLEGALITY
If it is or becomes unlawful or contrary to any regulation in any
applicable jurisdiction for a Bank to give effect to any of its
obligations as contemplated by this Agreement or to fund or maintain
its participation in any Loan, then:-
(a) the Bank shall promptly notify the Company through the Facility
Agent accordingly; and
(b) (i) the Company shall, by no later than the latest day permitted
by the relevant law or regulation, prepay that Bank's
participation in all Loans made to it together with all other
amounts payable by it to that Bank under this Agreement; and
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35
(ii) the Bank's Commitment shall be cancelled.
17. REPRESENTATIONS AND WARRANTIES
17.1 REPRESENTATIONS AND WARRANTIES
The Company makes the representations and warranties set out in this
Clause 17 (Representations and warranties) to each Finance Party.
17.2 STATUS
(a) It is a limited liability company, duly incorporated and validly
existing under the Companies Act 1985;
(b) it has the power to own its assets and carry on its business as it is
being conducted; and
(c) as at the date of this Agreement, the Parent is the beneficial owner of
all the issued shares in the Company.
17.3 POWERS AND AUTHORITY
It has the power to enter into and perform, and has taken all necessary
action to authorise the entry into, performance and delivery of, the
Finance Documents to which it is or will be a party and the
transactions contemplated by those Finance Documents.
17.4 LEGAL VALIDITY
Each Finance Document to which it is or will be a party constitutes, or
when executed in accordance with its terms will constitute, its legal,
valid, binding and enforceable obligation.
17.5 NON-CONFLICT
The entry into and performance by it of, and the transactions
contemplated by, the Finance Documents do not and will not:-
(a) conflict with any law or regulation, judicial or official
order or, to a material extent, the Appointment or Appointment
Undertaking; or
(b) conflict with its memorandum or articles of association; or
(c) conflict to a material extent with any document which is
binding upon any member of the AEL Group or any asset of any
member of the AEL Group.
17.6 NO DEFAULT
(a) No Default is outstanding or will result from any Loan; and
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36
(b) no other event is outstanding which constitutes a default under any
document which is binding on any member of the AEL Group or any asset
of any member of the AEL Group to an extent or in a manner which has a
Material Adverse Effect.
17.7 AUTHORISATIONS
Subject to due registration of the Debenture at Companies House under
section 395 of the Companies Act 1985 and the execution of the Deed of
Release, all authorisations required by the laws of England or the
terms of the Appointment or Appointment Undertaking in connection with
the entry into, performance, validity and enforceability of, and the
transactions contemplated by, the Finance Documents have been obtained
or effected (as appropriate) and are in full force and effect.
17.8 ACCOUNTS
The audited consolidated accounts of the AEL Group and the Wessex Group
most recently delivered to the Facility Agent under this Agreement:-
(a) have been prepared in accordance with relevant Applicable
Accounting Principles; and
(b) fairly represent the consolidated financial condition of the
AEL Group and the Wessex Group as at the date to which they
respectively were drawn up.
17.9 LITIGATION
No litigation, arbitration or administrative proceedings are current
or, to its knowledge, pending or threatened:-
(a) to restrain entering into the Finance Documents, or to
restrain the exercise of any of its rights under the Finance
Documents or to restrain the performance or enforcement of or
compliance with any of its obligations under the Finance
Documents which are (in the reasonable opinion of the Facility
Agent) material; or
(b) which have a Material Adverse Effect.
17.10 INFORMATION MEMORANDUM
(a) All material factual information contained in the Information
Memorandum was true (or, in the case of information provided by any
person other than the Company or its advisers, was true to the best of
its knowledge and belief) in all material respects at the date (if any)
ascribed to it in the Information Memorandum or (if none) at the date
of the Information Memorandum;
(b) any expressions of opinion or intention and any forecasts and
projections contained in the Information Memorandum were arrived at
after careful consideration and were based on reasonable assumptions;
and
(c) as at the date of this Agreement, the Information Memorandum, taken as
a whole, was not misleading in any material respect and did not omit to
disclose any matter failure to disclose
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37
which would result in any material information contained in the
Information Memorandum being misleading in any material respect in the
context of the Finance Documents.
17.11 ENVIRONMENTAL MATTERS
(a) Each member of the AEL Group has obtained all material Environmental
Licences required for the carrying on of its business as conducted and
is in compliance in all material respects with:
(i) the terms and conditions of those Environmental Licences; and
(ii) all other applicable Environmental Law,
which, in each case, if not obtained or complied with, has a Material
Adverse Effect and there are, to its knowledge, no circumstances which
may materially prevent or interfere with such compliance in the future;
(b) so far as the Company is aware after due enquiry, no Dangerous
Substance has been used, disposed of, generated, stored, transported,
dumped, released, deposited, buried or emitted at, on from or under any
site or premises (whether or not owned, leased, occupied or controlled
by any member of the AEL Group and including any offsite waste
management or disposal location utilised by any member of the AEL
Group) in circumstances where this has a Material Adverse Effect; and
(c) so far as the Company is aware after due enquiry, there is no
Environmental Claim (whether in respect of any site previously or
currently owned or occupied by any member of the AEL Group or
otherwise) pending or threatened, and there are no past or present
acts, omissions, events or circumstances that would be likely to form
the basis of any Environmental Claim (whether in respect of any site
previously or currently owned or occupied by any member of the AEL
Group or otherwise), against it which, in each case, is reasonably
likely to be determined against it and which, if so determined, has a
Material Adverse Effect.
17.12 ASSETS
The Company is, subject to the release of Security Interests granted in
relation to the Original Facility Agreement, the beneficial owner of
all its assets free from any Security Interests (other than any
Security Interests permitted under Clause 18.9(b) (Negative pledge)).
17.13 APPOINTMENT
(a) The Appointment is in full force and effect;
(b) there exist no material breaches of the terms of the Appointment or
Appointment Undertakings; and
(c) there are no circumstances in existence which would entitle the
Director or the Secretary of State to seek to revoke the Appointment.
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17.14 TIMES FOR MAKING REPRESENTATIONS AND WARRANTIES
The representations and warranties set out in this Clause 17
(Representations and warranties):-
(a) are made by the Company, unless it is expressly provided to the
contrary, on the date of this Agreement; and
(b) (with the exception of Clauses 17.2(c) (Status), 17.6(a) (No
default), 17.7 (Authorisations), 17.10 (Information Memorandum),
17.11 (Environmental matters), 17.12 (Assets) and 17.13
(Appointment)) are deemed to be made by the Company on the date of
each Request and each Drawdown Date with reference to the facts
and circumstances then existing.
17.15 QUALIFICATIONS TO REPRESENTATIONS
(a) The representations and warranties contained in Clauses 17.4 (Legal
validity) and 17.7 (Authorisations) shall (where applicable) be
subject, as to matters of law only, to the qualifications in the legal
opinion referred to in Schedule 2.
(b) The Company shall promptly disclose to the Agent if any representation
and warranty to be made under this Clause 17 ceases to be correct as at
the date it is to be made. Any misrepresentation which has arisen or
which may arise and which has been disclosed to the Facility Agent may
be waived in accordance with Clause 26 (Amendments and waivers).
18. UNDERTAKINGS
18.1 DURATION
The undertakings in this Clause 18 (Undertakings) remain in force from
the date of this Agreement for so long as any amount in respect of
principal, interest or fees payable under the Finance Documents is or
may be outstanding or any Commitment is in force.
18.2 FINANCIAL INFORMATION
The Company shall supply to the Facility Agent in sufficient copies for
all the Banks:-
(a) as soon as the same are available (and in any event within 120
days of the end of each of its financial years) the audited
consolidated accounts of the AEL Group and the Wessex Group
for that financial year;
(b) as soon as the same are available (and in any event within 60
days of the end of the first half-year of each of its
financial years and within 45 days of the end of each quarter
of each of its financial years) the unaudited consolidated
accounts of the AEL Group and the Wessex Group for that
half-year or that quarter, as the case may be;
(c) (i) together with the accounts of the AEL Group
specified in paragraph (a) above, a certificate
signed by its auditors setting out in reasonable
detail computations establishing compliance or
non-compliance with Clause 18.28 (Financial
covenants) as at the date to which those accounts
were drawn-up; and
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39
(ii) together with the accounts of the AEL Group specified
in paragraph (b) above, a certificate signed by two
of its senior authorised officers on its behalf
setting out in reasonable detail computations
establishing compliance or non-compliance with Clause
18.28 (Financial covenants) as at the date to which
those accounts were drawn-up; and
(d) within 5 Business Days of them being delivered to the Director
under Part F of Schedule 2 of the Appointment, the accounting
statements delivered to the Director by the Appointment
Holder.
18.3 INFORMATION - MISCELLANEOUS
The Company shall supply to the Facility Agent:-
(a) all documents despatched by it to its creditors (or any class of
them), at the same time as they are despatched;
(b) promptly upon becoming aware of them, details of any litigation,
arbitration or administrative proceedings against any member of
the AEL Group which are current, threatened or pending, and which:
(i) if adversely determined, have a Material Adverse Effect; or
(ii) would involve liability or potential liability of
L.10,000,000 (or its equivalent in other currencies) or more
on any member of the Group; or
(iii) involves the Director, the Secretary of State or the
Appointment or any Appointment Undertaking (other than
routine requests and enquiries or in connection with any
periodic or regular review);
(c) all notices and other information relating to the shares in Wessex
Water charged under the Debenture;
(d) any Appointment Undertaking after the date of this Agreement
promptly after it is given; and
(e) promptly, such further information in the possession or control of
any member of the AEL Group regarding its financial condition and
operations as any Finance Party may reasonably request and which
the Company is able to provide without breaching any legal
obligation or regulation,
in sufficient copies for all of the Banks, if the Facility Agent so
requests.
18.4 NOTIFICATION OF DEFAULT
The Company shall notify the Facility Agent of any outstanding Event of
Default (and the steps, if any, being taken to remedy it) forthwith
upon an executive officer of the Company becoming aware of its
occurrence.
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40
18.5 COMPLIANCE CERTIFICATES/ACCOUNTING MATTERS
(a) The Company shall supply to the Facility Agent:-
(i) together with the accounts of the AEL Group specified in Clause
18.2(a) and (b) (Financial information); and
(ii) promptly at any other time, if the Facility Agent has reasonable
cause to believe a Default may have occurred and so requests,
a certificate signed by two of its senior authorised officers on its
behalf certifying that no Event of Default is outstanding or, if an
Event of Default is outstanding, specifying the Event of Default and
the steps, if any, being taken to remedy it.
(b) If, at any time after the date of this Agreement, any material change
is made to the Applicable Accounting Principles, the Company shall
notify the Facility Agent of the change and, in the absence of any
agreement between the Company and the Facility Agent (acting on the
instructions of the Majority Banks) to the contrary, the Company shall
ensure that the Auditors provide a description of the change and the
adjustments which would be required to be made to the latest accounts
or financial statements of the AEL Group or the Wessex Group so that
those accounts or financial statements reflect the Applicable
Accounting Principles, and any reference to any financial statements or
accounts delivered under this Agreement shall be construed as a
reference to those accounts or financial statements as adjusted to
reflect the Applicable Accounting Principles.
18.6 AUTHORISATIONS
The Company shall promptly:-
(a) obtain, maintain and comply with the terms of; and
(b) supply certified copies to the Facility Agent of,
any authorisation required under any law or regulation to enable it to
perform its obligations under, or for the validity or enforceability
(subject to the qualifications as to matters of law in the legal
opinions referred to in Schedule 2) of, any Finance Document.
18.7 ENVIRONMENTAL MATTERS
The Company shall procure that each member of the AEL Group will:
(a) obtain all requisite Environmental Licences and comply in all
material respects with:
(i) the terms and conditions of all Environmental Licences
applicable to it; and
(ii) all other applicable Environmental Laws,
in each case where failure to do so has a Material Adverse Effect;
and
(b) promptly upon receipt of the same, notify the Facility Agent of
any claim or notice served on it in respect of any alleged breach
of or corrective or remedial obligation or
<PAGE> 44
41
liability under any Environmental Law which would, if
substantiated, have a Material Adverse Effect.
18.8 PARI PASSU RANKING
The Company shall procure that its payment obligations under the
Finance Documents do and will rank at least pari passu with all its
other present and future unsecured and unsubordinated obligations,
except for obligations which are mandatorily preferred by law applying
to companies generally, provided that the Wessex Loan shall be
subordinated to the Loans in accordance with the Subordination
Agreement.
18.9 NEGATIVE PLEDGE
(a) The Company shall not, and the Company shall procure that no other
member of the AEL Group will, create or permit to subsist any Security
Interest on any of its assets.
(b) Paragraph (a) does not apply to:
(i) any lien or right of set-off arising by operation of law (or by
an agreement having similar effect) in the ordinary course of
business; or
(ii) pledges of goods, the related documents of title and/or other
related documents arising or created in the ordinary course of
its business as security only for Financial Indebtedness to a
bank or financial institution directly relating to the goods or
documents on or over which that pledge exists; or
(iii) any Security Interest arising out of title retention or
conditional sale provisions in a supplier's standard conditions
of supply of goods acquired by any member of the AEL Group in the
ordinary course of its business;
(iv) any Security Interest existing on an asset at the time of the
acquisition of the asset by any member of the AEL Group after the
date of this Agreement, but only if:
(A) the Security Interest was not created in contemplation of
the acquisition;
(B) the principal amount secured by the Security Interest is not
increased after the acquisition; and
(C) the Security Interest is discharged within 180 days of the
acquisition; or
(v) any Security Interest existing on the assets of a company at the
time it becomes a member of the AEL Group after the date of this
Agreement, but only if:
(A) the Security Interest was not created in contemplation of
the relevant company becoming a member of the AEL Group;
(B) the principal amount secured by the Security Interest is not
increased after the relevant company becomes a member of the
AEL Group; and
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42
(C) the Security Interest is discharged within 180 days of the
relevant company becoming a member of the AEL Group; or
(vi) any Security Interest which:-
(A) constitutes a contractual right of any bank or financial
institution to apply any credit balance maintained by any
member of the AEL Group with that bank or financial
institution against any amount due and payable to such bank
or financial institution by that or any other member of the
AEL Group; and
(B) arises in connection with the relevant AEL Group member's
ordinary banking arrangements (including a cash management
scheme); or
(vii) any Security Interest created under the Debenture or with the
approval of the Majority Banks; or
(viii) any Security Interest created by a Project Finance Subsidiary,
or over the shares of a Project Finance Subsidiary, securing
Project Finance Indebtedness; or
(ix) any other Security Interest not falling within any of paragraphs
(i) to (viii) above so long as the aggregate principal amount of
outstanding indebtedness secured by all the Security Interests
permitted under this sub-paragraph (ix) at any time, together
with the aggregate principal amount of all outstanding
indebtedness permitted under Clause 18.10(b) (Transactions
similar to security) at that time, does not exceed L.35,000,000
(oR Its equivalent in other currencies).
18.10 TRANSACTIONS SIMILAR TO SECURITY
(a) Subject to paragraph (b) below, the Company shall not, and the Company
shall procure that no other member of the AEL Group will:-
(i) other than in relation to a finance lease, sell, transfer or
otherwise dispose of any of its assets on terms whereby it is or
may be leased to or re-acquired or acquired by a member of the
AEL Group or any of its related entities; or
(ii) sell, transfer or otherwise dispose of any of its receivables on
recourse terms, except for the discounting of bills or notes in
the ordinary course of trading,
in circumstances where the transaction is entered into primarily as a
method of raising or of financing the acquisition of an asset.
(b) Any member of the AEL Group may enter into transactions otherwise
prohibited by sub-paragraph (a)(i) above so long as the aggregate
principal amount of outstanding indebtedness of the AEL Group in
respect of all those transactions at any time, together with the
aggregate principal amount of all outstanding secured indebtedness
permitted under Clause 18.9(b)(ix) (Negative pledge) at that time, does
not exceed L.35,000,000 (or its equivalent in other currencies).
<PAGE> 46
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18.11 DISPOSALS
(a) The Company shall not, and the Company shall procure that no other
member of the AEL Group will, either in a single transaction or in a
series of transactions, whether related or not and whether voluntarily
or involuntarily, sell, transfer, grant or lease or otherwise dispose
of all or any part of its assets (all such transactions being
"DISPOSALS" for the purpose of this Clause 18.11).
(b) Paragraph (b) does not apply to the following disposals:-
(i) disposals made in the ordinary course of business of the
disposing entity or for the purposes of a finance lease; or
(ii) disposals of assets in exchange for other assets comparable or
superior as to type, value and quality; or
(iii) disposals of obsolete or surplus assets no longer required for
the purpose of the relevant person's business; or
(iv) the payment of cash as consideration for the acquisition of any
asset or services; or
(v) disposals by one member of the AEL Group to another member of
the AEL Group (other than a Project Finance Subsidiary), but
only if, in the case of a Subsidiary of the Company to whom the
assets are transferred, the Company owns directly or indirectly
at least a corresponding percentage of the ownership interest in
the transferee Subsidiary as in the transferor Subsidiary; or
(vi) disposals of assets not falling within any other sub-paragraph
of this paragraph (b) to the extent that the aggregate value of
those assets disposed of since the date of this Agreement is
less than L.35,000,000 (or its equivalent in other currencies);
or
(vii) disposals of receivables, subsidiaries incorporated outside the
U.K. and partly owned subsidiaries and associated undertakings
on arm's length terms for full cash consideration; or
(viii) any other disposal approved by the Majority Banks; or
(ix) subject to Clause 18.15 (Distributions), payment of any lawful
dividend.
18.12 CHANGE OF BUSINESS
The Company shall procure that no substantial change is made to the
general nature or scope of the business of the Company or the AEL Group
from that carried on at the date of this Agreement or those which are
usual for water and wastewater companies in the United Kingdom as at
the date of this Agreement. An extension into ancillary businesses or
the making of Inter-Company Loans does not constitute a change in the
general nature or scope of the business of the Company or the AEL Group
for the purposes of this Clause 18.12.
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44
18.13 HOLDING COMPANY AND SPVS
(a) The Company shall not carry on any business (other than the holding of
shares in, the making of loans to, and the provision of administrative
services to, members of the AEL Group and the making of Inter-Company
Loans) or acquire any assets other than cash, Cash Equivalents or
shares in (or loans to) members of the AEL Group or as otherwise
permitted by Clause 11.2 (Debt Service Reserve Account).
(b) The Company shall not make an Inter-Company Loan to an SPV if that SPV
carries on any business other than in connection with the relevant
Acquisitions.
(c) The Company shall not, and shall procure that each member of the AEL
Group shall not enter into any transaction or dealing with an SPV
(other than the making of Inter-Company Loans) except for any
transaction or dealing which is on arm's length terms and is in the
ordinary course of business.
18.14 MERGERS AND ACQUISITIONS
(a) The Company shall not, and the Company shall procure that no other
member of the AEL Group will, enter into any amalgamation, demerger,
merger or reconstruction, except for any amalgamation, merger or
reconstruction between a member of the AEL Group (other than the
Company or the Appointment Holder) and any other member of the AEL
Group (other than the Company or the Appointment Holder).
(b) The Company shall not, and the Company shall procure that no other
member of the AEL Group will, acquire any assets or business or make
any investment if the assets, business or investment is substantial in
relation to the AEL Group, except for:
(i) acquisitions or investments made in the ordinary course of
business;
(ii) capital expenditure and any other expenditure, in either case
required to be carried out under the Appointment, any
Appointment Undertaking or any other applicable law or
regulation or reasonably required in the ordinary course of
business; and
(iii) other acquisitions or investments, the consideration for which
does not exceed (on a cumulative basis) L.10,000,000 (or its
equivalent in other currencies) but only if, in either case, no
Default is then outstanding or will result from the acquisition
or investment,
provided that nothing in this Clause 18.14 shall prevent an Acquisition
or Permitted Transaction.
18.15 DISTRIBUTIONS
(a) The Company shall not declare, recommend, make or pay any dividend,
distribution or payment (including by way of redemption, repurchase,
defeasance, retirement, return or repayment) to any of its
shareholders.
(b) The Company shall procure that Wessex Water pays dividends in cash to
its shareholders in an amount equal to its maximum distributable
reserves when it has cash available to pay that dividend, provided that
the dividend to be declared for 1999 will be less than the maximum
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45
distributable reserves by the amount of L.15,000,000 in respect of
a loan repayment which is to be made during THat period and any
distributions made or to be made in respect of the Wessex Inter-Company
Receivable.
(c) The Company shall procure that the Appointment Holder pays to Wessex
Water the maximum dividends permissible by its then current dividend
policy.
18.16 LENDING AND BORROWING
(a) The Company will not incur any Borrowings other than:
(i) under the Facility;
(ii) the Loan Notes; and
(iii) the Bristol Water Trust Loan.
(b) The Company shall not, and will procure that no member of the AEL Group
will, be the creditor in respect of any Borrowings, other than:
(i) any Borrowing entered into with the prior consent of the
Majority Banks; or
(ii) any Borrowing under paragraph (b) of the definition of
"Borrowings" where trade credit is extended by any member of
the AEL Group on normal commercial terms and in the ordinary
course of its business on substantially the same terms (or
terms more favourable to it) and in similar circumstances as
for trade credit extended prior to the date of this Agreement
by the Wessex Group; or
(iii) loans contemplated by Clause 11 (Debt Service Reserve Account)
or made by one member of the AEL Group to another member of
the AEL Group; or
(iv) Cash Equivalents; or
(v) Inter-Company Loans; or
(vi) Borrowings not otherwise permitted under sub-paragraphs (i) to
(v) above in an aggregate amount for the AEL Group as a whole
at any time outstanding not exceeding L.10,000,000 (or
its equivalent in other currencies).
18.17 RATINGS
(a) The Company shall use reasonable endeavours to procure that it has, at
all times, an Issuer Credit Rating and the Appointment Holder has an
Issuer Credit Rating, in each case from Standard & Poor's and Moody's.
(b) The Company shall use reasonable endeavours to maintain an Issuer
Credit Rating of at least BBB and Baa2 from Standard & Poor's and
Moody's respectively.
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18.18 INSURANCE
The Company shall procure that each member of the AEL Group will
maintain with underwriters or insurance companies of repute the
policies of insurance in relation to its business and assets which a
prudent person carrying on a similar business would be expected to
maintain (including policies to cover public and third party liability
and insurance against business interruption) and any such other
insurance as may be required pursuant to the terms of any Finance
Document.
18.19 CONSTITUTIONAL DOCUMENTS
The Company shall not, and the Company will procure that no other
member of the AEL Group will, without the prior consent of the Majority
Banks or except as required by law, amend or seek or agree to amend or
replace the memorandum or articles of association or other
constitutional documents or by-laws of any member of the AEL Group in
any way which would be likely materially and adversely to affect the
interests of the Banks under the Finance Documents.
18.20 MINIMUM DEBT SERVICE AMOUNT
The Company shall at all times after the date falling 6 months from the
date of this Agreement ensure that an amount equal to the Minimum Debt
Service Amount is maintained in the Debt Service Reserve Account. The
amount standing to the credit of the Debt Service Reserve Account (for
the purpose of establishing compliance with this Clause 18.20) shall be
the aggregate of:
(a) all cash and Cash Equivalents standing to the credit of the
Debt Service Reserve Account; and
(b) any cash or Cash Equivalents that have been withdrawn from the
Debt Service Reserve Account in accordance with Clause 11.2(b)
(Debt Service Reserve Account), if the Company has the benefit
of a guarantee or an on demand letter of credit (in each case
from a financial institution with an Issuer Credit Rating of
at least A from Standard & Poor's or A2 from Moody's).
18.21 SHARE CAPITAL AND SUBSIDIARIES
(a) The Company shall ensure that Wessex Water shall not issue any further
shares or alter any rights attaching to its issued shares in existence
at the date of this Agreement unless those further shares are
contemporaneously charged, by way of fixed charge, to the Security
Agent on the terms of the Debenture.
(b) The Company shall not have any direct Subsidiaries other than Wessex
Water.
18.22 SECURITY PERFECTION
Subject to due registration under Section 395 of the Companies Act
1985, the Company shall take all action required by the Security Agent
to perfect the Security Interests created by the Debenture over the
Security Assets (as defined in the Debenture) as soon as reasonably
practicable after the date of the Debenture except to the extent the
Security Agent and the Company agree otherwise.
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18.23 COMPLIANCE WITH LAWS
Without prejudice to Clause 18.24 (Appointments and regulatory
matters), the Company shall, and the Company will procure that each
other member of the AEL Group will, comply in all material respects
with all applicable laws and regulations, whether domestic or foreign,
having jurisdiction over it or any of its assets, failure to comply
with which has a Material Adverse Effect.
18.24 APPOINTMENTS AND REGULATORY MATTERS
The Company shall:
(a) ensure that any Appointment Holder (or any other relevant
member of the AEL Group) complies in all material respects
with the terms of the Appointment and any Appointment
Undertaking where failure to comply has a Material Adverse
Effect;
(b) notify the Facility Agent promptly upon receipt by it or any
member of the AEL Group of any notice from the government, any
court or any regulatory authority or agency which is
reasonably likely to give rise to the revocation, termination,
material adverse amendment, suspension or withdrawal of the
Appointment unless, contemporaneously, that Appointment is to
be replaced, substituted or reissued on the same,
substantially the same or improved terms); and
(c) procure that each other member of the AEL Group will comply
with the requirements of all applicable rules, regulations,
orders and other requirements of the Secretary of State and
the Director under the Act or any other law applicable to the
conduct of the business of the supply of water and/or
wastewater services, where failure to comply has a Material
Adverse Effect.
18.25 APPOINTMENT UNDERTAKINGS
The Company will consult, where practicable, with the Banks with regard
to the terms of any Appointment Undertaking which it or any Appointment
Holder or any other member of the AEL Group may be required to give to
the Director or the Secretary of State and will not give and will
procure that such person will not give any such Appointment Undertaking
without, where practicable, prior consultation with the Banks.
18.26 BUSINESS CONSENTS
The Company will, and the Company will procure that each other member
of the Group will, obtain, promptly renew from time to time, and
maintain in full force and effect, and if so requested promptly furnish
certified copies to the Facility Agent of, all such material
authorisations as may be required under any applicable law or
regulation or under the Appointment or any Appointment Undertaking to
carry on its business as it is being conducted from time to time, where
failure to obtain, renew or maintain any such authorisation or
non-compliance with the terms of the same has a Material Adverse
Effect.
18.27 THE MILLENNIUM
The Company shall procure that:
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48
(a) the occurrence of the year 2000 will not affect the capacity
of any computer systems software or other equipment owned or
used by any member of the AEL Group to perform any function
capable of being performed by that computer system, software
or other equipment prior to the year 2000, correctly,
efficiently and without interruption, to the extent that
failure so to perform would have a Material Adverse Effect;
and
(b) any reprogramming or other action necessary to comply with
this Clause 18.27 is completed no later than is necessary to
ensure compliance with paragraph (a) above.
18.28 FINANCIAL COVENANTS
(a) In this Clause 18.28:-
"ADJUSTED CAPITAL AND RESERVES"
means, in the case of the AEL Group or the Wessex Group as the case may
be, at any time the amount (including any share premium) for the time
being paid up or credited as paid up on the issued share capital of the
Company or Wessex Water, as appropriate, adjusted as follows:
(i) PLUS, in the case of the Company or, as the case may be,
Wessex Water, the outstanding amount of any indebtedness which
is subordinated to the Loans on substantially the same terms
as the Subordination Deed (other than indebtedness between
members of the AEL Group);
(ii) PLUS the amount standing to the credit (or, as the case may
be, MINUS the amount standing to the debit) of the capital and
revenue reserves of the AEL Group or the Wessex Group (as
appropriate);
(iii) PLUS any amount standing to the credit or MINUS any amount
standing to the debit of the consolidated profit and loss
account of the AEL Group or the Wessex Group (as appropriate);
(iv) MINUS any distribution declared or made by the Company or any
of its Subsidiaries (other than to another member of the AEL
Group or the Wessex Group (as appropriate)) out of profits
included within reserves to the extent that those reserves
have not already been reduced on account of it;
(v) MINUS amounts attributable to the interests (if any) of
outside holders of issued share capital in any member of the
AEL Group (other than the Company) or in any member of the
Wessex Group (other than Wessex Water) (as appropriate),
and, for the purposes of the foregoing:
(A) no item shall be effectively deducted or added more than once,
all items shall be calculated on a consolidated basis and
(subject only as may be required in order to reflect the
express inclusion or exclusion of items as specified in this
definition) in accordance with the relevant Applicable
Accounting Principles; and
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49
(B) where the calculation is being made as at the end of any
Accounting Period it shall be determined from the balance
sheet forming part of the relevant quarterly or annual
accounts for that Accounting Period .
"CONSOLIDATED EBITDA"
for any period means the operating profit of the AEL Group or, as
appropriate, the Wessex Group for such period:
(i) BEFORE DEDUCTING all depreciation and other amortisation;
(ii) BEFORE TAKING INTO ACCOUNT all Extraordinary Items (whether
positive or negative) but AFTER TAKING INTO ACCOUNT all
Exceptional Items (whether positive or negative);
(iii) BEFORE DEDUCTING tax;
(iv) BEFORE TAKING INTO ACCOUNT Consolidated Net Interest Payable
of the AEL Group or the Wessex Group (as appropriate) for such
period;
(v) (without double counting) AFTER DEDUCTING any profit, or
adding any loss, to book value arising in favour of the AEL
Group or the Wessex Group (as appropriate) on the sale, lease
or other disposal of any asset (other than on the sale of
trading stock) during such period and deducting any profit, or
adding any loss, arising on revaluation of any asset during
such period,
and, for the purposes of the foregoing, no item shall be effectively
deducted or credited more than once in this calculation, all items
shall be determined on a consolidated basis and (subject only as may be
required in order to reflect the express inclusion or exclusion of
items as specified in this definition) in accordance with the
Applicable Accounting Principles and as determined from the
consolidated accounts of the AEL Group or the Wessex Group (as
appropriate) for that annual Accounting Period or for the relevant
Accounting Periods falling within that period.
"CONSOLIDATED NET INTEREST PAYABLE"
for any period and for either the AEL Group or the Wessex Group, as the
case may be, means Consolidated Total Interest Payable LESS any
interest or amounts in the nature of interest receivable during the
relevant period of the AEL Group or the Wessex Group (as appropriate)
determined on the same basis and manner as for Consolidated Total
Interest Payable (but excluding, in respect of the Company, any
interest earned or income receivable in respect of Inter-Company
Loans).
"CONSOLIDATED TOTAL BORROWINGS"
at any time means the aggregate at that time of the Borrowings of the
members of the AEL Group from sources external to the AEL Group or (as
applicable) Borrowings of the members of the Wessex Group from sources
external to the Wessex Group PLUS (to the extent not otherwise
included) the amount of any actual or contingent liability of any
member of the AEL Group or the Wessex Group (as appropriate):
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(i) for Borrowings at that time of any person in which any member
of the AEL Group or the Wessex Group (as appropriate) has an
ownership interest; or
(ii) to provide funds by loan, subscription for share capital or
otherwise to any person in which any member of the AEL Group
or the Wessex Group (as appropriate) has an ownership
interest;
calculated on a consolidated basis and (subject only as may be required
in order to reflect the express inclusion or exclusion of items as
specified herein and/or in the definition of Borrowings in this Clause)
in accordance with the Applicable Accounting Principles and, where the
calculation is being made as at the end of any Accounting Period for
which a consolidated balance sheet of the AEL Group or the Wessex Group
(as appropriate) has been delivered to the Facility Agent, as shown in
that balance sheet.
"CONSOLIDATED TOTAL INTEREST PAYABLE"
for any period means the interest (and all amounts required by the
Applicable Accounting Principles to be accounted for as interest)
accrued on Borrowings of the AEL Group or on Borrowings of the Wessex
Group, as the case may be, (whether or not paid or capitalised during
or deferred for payment after such period) adjusted to take account of
any amount constituting interest receivable by any members of the AEL
Group or the Wessex Group (as appropriate) under interest rate and/or
currency hedging agreements or instruments under which all parties are
in compliance with their payment and other material obligations, all
determined on a consolidated basis and (subject only as may be required
in order to reflect the express inclusion or exclusion of items as
specified in this definition) in accordance with the Applicable
Accounting Principles and as shown in the consolidated accounts of the
AEL Group or the Wessex Group (as appropriate) for such annual
Accounting Period or for the Accounting Periods falling within such
period.
"EXCEPTIONAL ITEMS"
has the meaning given to it in Financial Reporting Standard 3 issued by
the Accounting Standards Board (as in force at the date of this
Agreement), but shall exclude any items falling within the definition
of Extraordinary Items.
"EXTRAORDINARY ITEMS"
has the meaning given to it in Financial Reporting Standard 3 issued by
the Accounting Standards Board (as in force at the date of this
Agreement) but in addition shall include those items listed in
paragraph 20 thereof.
"NET ADVANCE INTEREST"
means, in respect of each period for which it is tested, the interest
payable on the Loans for that period LESS interest or amounts in the
nature of interest receivable during that period by the Company (but
excluding any interest earned or income receivable in respect of
Inter-Company Loans).
(b) (i) All the terms used in paragraph (a) above are to be
calculated in accordance with the Applicable Accounting
Principles of the AEL Group or the Wessex Group, as
appropriate.
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(ii) If there is a dispute as to any interpretation of or
computation for paragraph (a) above, the interpretation or
computation of the Auditors prevails.
(iii) For the avoidance of doubt, if a covenant under paragraph (c)
below is by reference to the AEL Group, the definitions used
in that covenant shall all refer to the AEL Group or if that
covenant is by reference to the Wessex Group, the definitions
used in that covenant shall refer to the Wessex Group.
(iv) For the purposes of calculating the ratio in sub-paragraph
(c)(iii) below, the effect of the Wessex Inter-Company
Receivable on the Adjusted Capital and Reserves of the Wessex
Group and the discharge of that Wessex Inter-Company
Receivable as a Permitted Payment in accordance with (and as
defined in) the Subordination Deed shall not be taken into
account.
(c) The Company shall procure that:-
(i) for the period and as of each date on which it is tested under
paragraph (f) below, the ratio of Consolidated EBITDA of the
Wessex Group to Consolidated Net Interest Payable of the
Wessex Group is no less than 2.5:1;
(ii) for the period and as of each date on which it is tested under
paragraph (f) below, the ratio of Consolidated EBITDA of the
AEL Group to Consolidated Net Interest Payable of the AEL
Group is no less than 2.25:1;
(iii) as of each date on which it is tested under paragraph (f)
below, the ratio of Consolidated Total Borrowings of the
Wessex Group shall not exceed 55 per cent. of Consolidated
Total Borrowings and Adjusted Capital and Reserves of the
Wessex Group;
(iv) as of each date on which it is tested under paragraph (f)
below, the ratio of Consolidated Total Borrowings of the AEL
Group shall not exceed 50 per cent. of Consolidated Total
Borrowings and Adjusted Capital and Reserves of the AEL Group.
(d) The Company shall procure that, for the period and as of each date on
which it is to be tested under paragraph (f) below, the ratio of
dividends received in cash by the Company from Wessex Water to Net
Advance Interest shall be not less than 1.5:1.
(e) The Company shall procure that, the Consolidated Total Borrowings of
the AEL Group shall not at any time exceed L.1,050,000,000.
(f) (i) The tests of the covenant set out in sub-paragraphs (c)(i)
and (ii) above shall be made on the following basis:
(A) the first test shall be made in respect of the first
quarterly Accounting Period, which commences on the
First Test Date;
(B) the second test shall be made on a cumulative basis
in respect of the two quarterly Accounting Periods
commencing on the First Test Date;
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(C) the third test shall be made on a cumulative basis in
respect of the three quarterly Accounting Periods
commencing on the First Test Date; and
(D) each test of the covenant thereafter shall be made on
a quarterly basis and in respect of the four
consecutive quarterly Accounting Periods ending on
the expiry of the relevant quarterly Accounting
Period,
and for this purpose, the "First Test Date" is the first day
of the first financial quarter of the Company and Wessex Water
which commences after the date of this Agreement;
(ii) the tests of the covenants set out in sub-paragraphs (c)(iii)
and (iv) above, shall be made on a quarterly basis; and
(iii) the tests of the covenant set out in paragraph (d) above shall
be made on the Accounting Date as at the financial year end
and the financial half year end of the Company, by reference
to the previous four consecutive quarterly Accounting Periods
ending on that Accounting Date.
19. DEFAULT
19.1 EVENTS OF DEFAULT
Each of the events set out in Clauses 19.2 (Non-payment) to 19.19
(Material adverse change) (inclusive) is an Event of Default (whether
or not caused by any reason whatsoever outside the control of the
Company or any other person).
19.2 NON-PAYMENT
The Company does not pay on the due date any amount payable by it under
the Finance Documents at the place at and in the currency in which it
is expressed to be payable and (if caused by technical or
administrative error) the non-payment continues unremedied for 3
Business Days from the receipt by it of notice of non-payment from the
relevant Agent.
19.3 BREACH OF OTHER OBLIGATIONS
(a) The Company fails to comply with any provision of Clauses 11 (Debt
Service Reserve Account), 18.8 (Pari passu ranking) to 18.12 (Change of
business) inclusive, 18.15 (Distributions) or Clause 18.28 (Financial
covenants); or
(b) the Company does not comply with any provision of the Finance Documents
(other than those referred to in Clause 19.2 (Non-payment) or paragraph
(a) above or Clause 18.17(b) (Ratings)) and, if that default is capable
of remedy, it is not remedied within 28 days of the earlier of a senior
officer of the Company becoming aware of the default and receipt by it
of a notice of default from the Facility Agent.
19.4 MISREPRESENTATION
A representation, warranty or statement made or repeated in or in
connection with any Finance Document or in any document delivered by or
on behalf of the Company under or in
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53
connection with any Finance Document is incorrect in any material
respect when made or deemed to be made or repeated by reference to the
facts and circumstances then subsisting and, if the circumstances
causing the misrepresentation are capable of remedy within that period,
that misrepresentation is not remedied within 28 days of the earlier of
the Company becoming aware of the misrepresentation and receipt by it
of notice from the Facility Agent requiring remedy.
19.5 CROSS-DEFAULT
(a) Any Financial Indebtedness of a member of the AEL Group is not paid
when due or within any applicable grace period; or
(b) an event of default howsoever described occurs under any document
relating to Financial Indebtedness of a member of the AEL Group and any
creditor in respect of that Financial Indebtedness takes any action
whatsoever in connection with that event of default which might have
the effect of prejudicing any Finance Party or member of the AEL Group,
including (without limitation) any negotiation or compromise relating
to that Financial Indebtedness but excluding a waiver of that event of
default by that creditor on terms which are not prejudicial to any
Finance Party or member of the AEL Group; or
(c) any Financial Indebtedness of a member of the AEL Group becomes
prematurely due and payable or is placed on demand as a result of an
event of default (howsoever described) under the document relating to
that Financial Indebtedness; or
(d) any commitment for, or underwriting of, any Financial Indebtedness of a
member of the AEL Group is cancelled or suspended as a result of an
event of default (howsoever described) under the document relating to
that Financial Indebtedness,
unless, in any such case or cases the aggregate amount of Financial
Indebtedness referred to in all or any of the above cases is less than
L.15,000,000 (or its equivalent in other currencies).
19.6 INSOLVENCY
(a) The Company or a Material Subsidiary is, or is deemed for the purposes
of any law (but for this purpose Section 123(1)(a) of the Insolvency
Act 1986 will take effect as if for "L.750" there Was substituted
"L.5,000,000" and the relevant statutory demand has not been
withdrawn, discharged or stayed within 21 days) to be, unable to pay
its debts as they fall due or to be insolvent, or admits inability to
pay its debts as they fall due; or
(b) the Company or a Material Subsidiary suspends making payments on all or
any class of its debts or announces an intention to do so, or a
moratorium is declared in respect of all or any class of its
indebtedness; or
(c) the Company or a Material Subsidiary by reason of financial
difficulties, begins negotiations with one or more of its creditors
with a view to the readjustment or rescheduling of all or any class of
its indebtedness.
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19.7 INSOLVENCY PROCEEDINGS
(a) Any step (including petition, proposal or convening a meeting) is taken
by the Company or a Material Subsidiary with a view to a composition,
assignment or arrangement with any creditors of the Company or a
Material Subsidiary; or
(b) a meeting of the Company or a Material Subsidiary is convened by the
Company or a Material Subsidiary for the purpose of considering any
resolution for (or to petition for) its winding-up or its
administration or any such resolution is passed; or
(c) any person presents a petition for the winding-up or for the
administration of the Company or a Material Subsidiary, and, in the
case of a petition for winding-up presented by a creditor, it is not
withdrawn, discharged or stayed within 21 days; or
(d) any order is made for the winding-up or administration of the Company
or a Material Subsidiary; or
(e) any other step (including petition, proposal or convening a meeting) is
taken with a view to the rehabilitation, administration, custodianship,
liquidation, winding-up or dissolution of the Company or a Material
Subsidiary or any other insolvency proceedings involving the Company or
a Material Subsidiary, and, in the case of any such step taken by a
creditor, it is not withdrawn, discharged or stayed within 21 days,
except for any which arises from a Permitted Transaction.
19.8 APPOINTMENT OF RECEIVERS AND MANAGERS
(a) Any liquidator, trustee in bankruptcy, judicial custodian, compulsory
manager, receiver, administrative receiver, administrator or the like
is appointed in respect of the Company or a Material Subsidiary or any
part of its assets, otherwise than in connection with a Permitted
Transaction; or
(b) the directors of the Company or a Material Subsidiary request the
appointment of a liquidator, trustee in bankruptcy, judicial custodian,
compulsory manager, receiver, administrative receiver, administrator or
the like, otherwise than in connection with a Permitted Transaction; or
(c) any other step is taken to enforce any Security Interest over any part
of the assets of the Company or a Material Subsidiary and is not
withdrawn, discharged or stayed within 21 days.
19.9 CREDITORS' PROCESS
Any attachment, sequestration, distress or execution affects any assets
of the Company or a Material Subsidiary having an aggregate value of
L.15,000,000 (or its equivalent in other currencies) aND is not
discharged within 14 days, unless:
(a) it is being contested in good faith with due diligence; and
(b) in the reasonable opinion of the Majority Banks, it does not
have a Material Adverse Effect.
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19.10 ANALOGOUS PROCEEDINGS
There occurs, in relation to the Company or Material Subsidiary, any
event anywhere which, in the opinion of the Majority Banks, appears to
correspond with any of those mentioned in Clauses 19.6 (Insolvency) to
19.9 (Creditors' process) (inclusive).
19.11 CESSATION OF BUSINESS
The Company or a Material Subsidiary ceases, or threatens to cease, to
carry on all or a substantial part of its business, other than in
connection with a Permitted Transaction.
19.12 UNLAWFULNESS
It is or becomes unlawful for the Company or the Parent to perform any
of its material obligations under the Finance Documents to which it is
a party.
19.13 OWNERSHIP
(a) The Company ceases to be a wholly-owned Subsidiary of the Parent.
(b) The Appointment Holder or Wessex Water ceases to be a wholly-owned
(directly or indirectly) Subsidiary of the Company.
19.14 APPOINTMENT
(a) The Appointment is revoked or surrendered or ceases to be held by the
Appointment Holder or a wholly-owned Subsidiary of the Company, other
than in circumstances which permit the Company or one of its
wholly-owned Subsidiaries to carry on the water and wastewater business
of the Appointment Holder substantially as envisaged at the date of
this Agreement without the Appointment as a result of any change in the
Act; or
(b) the Appointment or the rights and/or the obligations of the Appointment
Holder under the Appointment is materially modified in any manner
which, in the reasonable opinion of the Majority Banks, has a Material
Adverse Effect; or
(c) any person other than the Company or one of its wholly owned
Subsidiaries is authorised to be a water undertaker and/or wastewater
undertaker under the Act in the area covered by the Appointment at the
date of this Agreement in circumstances where this has a Material
Adverse Effect.
19.15 COMPLIANCE WITH THE ACT
(a) An order is made in respect of the Appointment Holder pursuant to
section 24 of the Act; or
(b) (i) any final enforcement order is made; or
(ii) any provisional enforcement order is confirmed with respect to
the Company or the Appointment Holder under the Act,
(other than where the Company demonstrates to the reasonable
satisfaction of the Majority Banks that the order is being contested in
good faith by the Appointment Holder pursuant to
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section 21 of the Act), and, in each case, in circumstances which have
a Material Adverse Effect.
19.16 AMENDMENTS TO THE ACT
Any step is taken to reduce or qualify the obligations of the Secretary
of State or the Director insofar as they affect the creditors of the
Appointment Holder and/or the creditworthiness of the Appointment
Holder in circumstances which have a Material Adverse Effect.
19.17 EXPROPRIATION
The authority or ability of the Company or Wessex Water or the
Appointment Holder to conduct its business is wholly or substantially
curtailed by any expropriation or renationalisation by or on behalf of
any governmental authority.
19.18 SECURITY
Subject to the registration of the Debenture at Companies House under
Section 395 of the Companies Act 1985 and the execution of the Deed of
Release and subject to the qualifications as to matters of law in the
legal opinion referred to in Schedule 2, the Debenture or any
Subordination Agreement does not create legal, valid and binding
obligations on, or is repudiated by, a party to it (other than a
Finance Party) or for any reason it is alleged by a party to it (other
than a Finance Party) that it does not create such legal, valid and
binding obligations of that party.
19.19 MATERIAL ADVERSE CHANGE
Any event or series of events occurs which, in the reasonable opinion
of the Majority Banks, has a material adverse effect on the ability of
the Company to perform its payment obligations under the Finance
Documents.
19.20 ACCELERATION
On and at any time after the occurrence of an Event of Default, whilst
it is continuing the Facility Agent may, and shall if so directed by
the Majority Banks, by notice to the Company:-
(a) cancel the Total Commitments; and/or
(b) demand that all or part of the Loans, together with accrued
interest, and all other amounts accrued under this Agreement
be immediately due and payable, whereupon they shall become
immediately due and payable; and/or
(c) demand that all or part of the Loans be payable on demand,
whereupon they shall immediately become payable on demand by
the Facility Agent (acting on the instructions of the Majority
Banks).
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20. THE AGENTS AND THE ARRANGERS
20.1 APPOINTMENT AND DUTIES OF THE AGENTS
Each Finance Party (other than the Agents) irrevocably appoints each
Agent to act as its agent under and in connection with the Finance
Documents, and irrevocably authorises each Agent on its behalf to
perform the duties and to exercise the rights, powers and discretions
that are specifically delegated to it under or in connection with the
Finance Documents, together with any other incidental rights, powers
and discretions. The Agents shall have only those duties which are
expressly specified in the relevant Finance Documents. Those duties are
solely of a mechanical and administrative nature.
20.2 ROLE OF THE ARRANGERS
Except as otherwise provided in this Agreement, neither Arranger has
any obligations of any kind to any other Party under or in connection
with any Finance Document.
20.3 RELATIONSHIP
The relationship between each Agent and the other Finance Parties is
that of agent and principal only. Nothing in this Agreement constitutes
an Agent as trustee or fiduciary for any other Party or any other
person and an Agent need not hold in trust any moneys paid to it for a
Party or be liable to account for interest on those moneys.
20.4 MAJORITY BANKS' DIRECTIONS
Each Agent will be fully protected if it acts in accordance with the
instructions of the Majority Banks in connection with the exercise of
any right, power or discretion or any matter not expressly provided for
in the Finance Documents. Any such instructions given by the Majority
Banks will be binding on all the Banks. In the absence of such
instructions an Agent may act as it considers to be in the best
interests of all the Banks.
20.5 DELEGATION
An Agent may act under the Finance Documents through its personnel and
agents.
20.6 RESPONSIBILITY FOR DOCUMENTATION
None of the Agents and the Arrangers is responsible to any other Party
for:-
(a) the execution, genuineness, validity, enforceability or
sufficiency of any Finance Document or any other document;
(b) the collectability of amounts payable under any Finance
Document; or
(c) the accuracy of any statements (whether written or oral) made
in or in connection with any Finance Document (including the
Information Memorandum).
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20.7 DEFAULT
(a) Neither Agent is obliged to monitor or enquire as to whether or not a
Default has occurred. Neither Agent will be deemed to have knowledge of
the occurrence of a Default. However, if the Facility Agent receives
notice from a Party referring to this Agreement, describing the Default
and stating that the event is a Default, it shall promptly notify the
Banks and the Security Agent.
(b) An Agent may require from the Banks the receipt of security
satisfactory to it whether by way of payment in advance or otherwise,
against any liability or loss which it will or may incur in taking any
proceedings or action arising out of or in connection with any Finance
Document before it commences those proceedings or takes that action.
20.8 EXONERATION
(a) Without limiting paragraph (b) below, neither Agent will be liable to
any other Party for any action taken or not taken by it under or in
connection with any Finance Document, unless directly caused by its
gross negligence or wilful misconduct.
(b) No Party may take any proceedings against any officer, employee or
agent of an Agent in respect of any claim it might have against that
Agent or in respect of any act or omission of any kind (including
negligence or wilful misconduct) by that officer, employee or agent in
relation to any Finance Document.
20.9 RELIANCE
Each Agent may:-
(a) rely on any notice or document believed by it to be genuine
and correct and to have been signed by, or with the authority
of, the proper person;
(b) rely on any statement made by a director or employee of any
person regarding any matters which may reasonably be assumed
to be within his knowledge or within his power to verify; and
(c) engage, pay for and rely on legal or other professional
advisers selected by it (including those in that Agent's
employment and those representing a Party other than that
Agent).
20.10 CREDIT APPROVAL AND APPRAISAL
Without affecting the responsibility of the Company for information
supplied by it or on its behalf in connection with any Finance
Document, each Bank confirms that it:-
(a) has made its own independent investigation and assessment of
the financial condition and affairs of the Company and its
related entities in connection with its participation in this
Agreement and has not relied exclusively on any information
provided to it by an Agent or an Arranger in connection with
any Finance Document; and
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(b) will continue to make its own independent appraisal of the
creditworthiness of the Company and its related entities while
any amount is or may be outstanding under the Finance
Documents or any Commitment is in force.
20.11 INFORMATION
(a) Each Agent shall promptly forward to the person concerned the original
or a copy of any document which is delivered to that Agent by a Party
for that person.
(b) Each Agent shall promptly supply a Bank with a copy of each document
received by that Agent under Clause 4 (Conditions precedent) (other
than documents relating to fees) upon the request and at the expense of
that Bank.
(c) Except where this Agreement specifically provides otherwise, neither
Agent is obliged to review or check the accuracy or completeness of any
document it forwards to another Party.
(d) Except as provided above, neither Agent has any duty:-
(i) either initially or on a continuing basis to provide any Bank
with any credit or other information concerning the financial
condition or affairs of the Company or any related entity of
the Company whether coming into its possession or that of any
of its related entities before, on or after the date of this
Agreement; or
(ii) unless specifically requested to do so by a Bank in accordance
with this Agreement, to request any certificates or other
documents from the Company.
20.12 THE AGENTS AND THE ARRANGERS INDIVIDUALLY
(a) If it is also a Bank, each of the Agents and the Arrangers has the same
rights and powers under the Finance Documents as any other Bank and may
exercise those rights and powers as though it were not an Agent or an
Arranger.
(b) Each of the Agents and the Arrangers may:-
(i) carry on any business with the Company or its related
entities;
(ii) act as agent or trustee for, or in relation to any financing
involving, the Company or its related entities; and
(iii) retain any profits or remuneration in connection with its
activities under this Agreement or in relation to any of the
foregoing.
(c) In acting as an Agent for the Banks, that Agent's agency division shall
be treated as a separate entity from any other of its divisions or
departments and, notwithstanding the foregoing provisions of this
Clause 20, if that Agent should act for any member of the AEL Group in
any capacity in relation to any other matter, any information given by
that member of the AEL Group to that Agent in such other capacity may
be treated as confidential by that Agent.
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20.13 INDEMNITIES
(a) Without limiting the liability of the Company under the Finance
Documents, each Bank shall forthwith on demand indemnify each Agent for
its proportion of any liability or loss incurred by that Agent in any
way relating to or arising out of its acting as Agent, except to the
extent that the liability or loss arises directly from the Agent's
gross negligence or wilful misconduct.
(b) A Bank's proportion of the liability or loss set out in paragraph (a)
above is the proportion which its participation in the Loans (if any)
bear to all the Loans on the date of the demand. If, however, there are
no Loans outstanding on the date of demand, then the proportion will be
the proportion which its Commitment bears to the Total Commitments at
the date of demand or, if the Total Commitments have been cancelled,
bore to the Total Commitments immediately before being cancelled.
20.14 COMPLIANCE
(a) An Agent may refrain from doing anything which might, in its opinion,
constitute a breach of any law or regulation or be otherwise actionable
at the suit of any person, and may do anything which, in its opinion,
is necessary or desirable to comply with any law or regulation of any
jurisdiction.
(b) Without limiting paragraph (a) above, an Agent need not disclose any
information relating to the Company or any of its related entities if
the disclosure might, in the opinion of that Agent, constitute a breach
of any law or regulation or any duty of secrecy or confidentiality or
be otherwise actionable at the suit of any person.
20.15 RESIGNATION OF AGENTS
(a) Notwithstanding its irrevocable appointment, an Agent may resign by
giving notice to the Banks and the Company, in which case that Agent
may forthwith appoint one of its Affiliates as successor Agent or,
failing that, the Majority Banks may (after consultation with the
Company) appoint a successor Agent.
(b) If the appointment of a successor Agent is to be made by the Majority
Banks but they have not, within 30 days after notice of resignation,
appointed a successor Agent which accepts the appointment, the retiring
Agent may appoint a successor Agent.
(c) The resignation of the retiring Agent and the appointment of any
successor Agent will both become effective only upon the successor
Agent notifying all the Parties that it accepts the appointment. On
giving the notification, the successor Agent will succeed to the
position of the retiring Agent and the term "FACILITY AGENT" or
"SECURITY AGENT" will mean the successor Agent (as appropriate).
(d) The retiring Agent shall, at its own cost, make available to the
successor Agent such documents and records and provide such assistance
as the successor Agent may reasonably request for the purposes of
performing its functions as the relevant Agent under this Agreement.
(e) Upon its resignation becoming effective, this Clause 20 (The Agents and
the Arrangers) shall continue to benefit the retiring Agent in respect
of any action taken or not taken by it under or
<PAGE> 64
61
in connection with the Finance Documents while it was the relevant
Agent, and, subject to paragraph (d) above, it shall have no further
obligation under any Finance Document.
(f) If so instructed by the Majority Banks, an Agent shall resign in
accordance with paragraph (a) above. However, in this event that Agent
may not appoint a successor Agent.
20.16 BANKS
Each Agent may treat each Bank as a Bank, entitled to payments under
the Finance Documents and as acting through its Facility Office(s)
until it has received notice from the Bank to the contrary not less
than 5 Business Days prior to the relevant payment.
20.17 SECURITY AGENT AS TRUSTEE
(a) The Security Agent in its capacity as trustee or otherwise under the
Debenture:-
(i) is not liable for any failure, omission or defect in
perfecting or registering the security constituted or created
by any Finance Document;
(ii) may accept without enquiry such title as the Company may have
to any asset secured by the Debenture; and
(iii) is not under any obligation to hold any Finance Document or
any other document in connection with the Finance Documents or
the assets secured by any Finance Document (including title
deeds) in its own possession or to take any steps to protect
or preserve the same. The Security Agent may permit any member
of the Group to retain any Finance Document or other document
in its possession.
(b) Save as otherwise provided in the Finance Documents, all moneys which
under the trusts contained in the Finance Documents are received by an
Agent in its capacity as trustee or otherwise may be invested in the
name of or under the control of that Agent in any investment authorised
by English law for the investment by trustees of trust money or in any
other investments which may be selected by that Agent. Additionally,
the same may be placed on deposit in the name of or under the control
of that Agent at such bank or institution (including that Agent) and
upon such terms as that Agent may think fit.
21. FEES
21.1 ARRANGEMENT AND UNDERWRITING FEE
The Company shall pay to each Arranger a fee in the amounts and on the
date agreed in the Fee Letters between the Company and the Arrangers.
21.2 COMMITMENT FEE
(a) The Company shall pay to the Agent for each Bank a commitment fee on
the undrawn, uncancelled amount of that Bank's Commitment during the
Availability Period at the rate of 0.375 per cent. per annum.
<PAGE> 65
62
(b) Accrued commitment fee is payable quarterly in arrear. Accrued
commitment fee is also payable to the Facility Agent for the relevant
Bank(s) on the cancelled amount of its Commitment at the time the
cancellation takes effect.
21.3 AGENTS' FEES
(a) The Company shall pay to the Facility Agent for its own account a
facility agency fee in the amount and on the dates agreed in the Fee
Letter between the Company and the Facility Agent.
(b) The Company shall pay to the Security Agent for its own account a
security agency fee in the amount and on the dates agreed in the Fee
Letter between the Company and the Security Agent.
21.4 VAT
Any fee referred to in this Clause 21 (Fees) is exclusive of any value
added tax or any other tax which might be chargeable in connection with
that fee. If any value added tax or other tax is so chargeable, it
shall be paid by the Company on receipt of a valid value added tax or
other appropriate invoice or (if later) at the same time as it pays the
relevant fee.
22. EXPENSES
22.1 INITIAL AND SPECIAL COSTS
The Company shall promptly on demand pay to the Agents and the
Arrangers the amount of all reasonable costs and expenses (including
legal fees and any related irrecoverable value added tax) reasonably
incurred and properly documented by them in connection with:-
(a) the syndication, negotiation, preparation, printing and
execution of the Finance Documents and any other documents
referred to in the Finance Documents;
(b) the negotiation, preparation, printing and execution of any
other Finance Document (other than a Novation Certificate)
executed after the date of this Agreement; and
(c) any amendment, waiver, consent or suspension of rights (or any
proposal for any of the foregoing) requested by or on behalf
of the Company or, in the case of Clause 2.3 (Change of
currency), the Facility Agent and relating to a Finance
Document or a document referred to in any Finance Document.
22.2 ENFORCEMENT COSTS
The Company shall forthwith on demand pay to each Finance Party the
amount of all costs and expenses (including, without limitation, legal
fees and any related irrecoverable value added tax) properly incurred
and properly documented by it in connection with the enforcement of, or
the preservation of any rights under, any Finance Document.
23. STAMP DUTIES
The Company shall pay and forthwith on demand indemnify each Finance
Party against any liability it incurs in respect of any stamp,
registration and similar tax which is or becomes
<PAGE> 66
63
payable in connection with the entry into, performance or enforcement
of any Finance Document (other than a Novation Certificate or any other
document executed under Clause 27.2 (Transfers by Banks)).
24. INDEMNITIES
24.1 CURRENCY INDEMNITY
(a) If a Finance Party receives an amount in respect of the Company's
liability under the Finance Documents or if that liability is converted
into a claim, proof, judgement or order in a currency other than the
currency (the "CONTRACTUAL CURRENCY") in which the amount is expressed
to be payable under the relevant Finance Document:-
(i) the Company shall indemnify that Finance Party as an
independent obligation against any loss or liability arising
out of or as a result of the conversion;
(ii) if the amount received by that Finance Party, when converted
into the contractual currency at a market rate in the usual
course of its business, is less than the amount owed in the
contractual currency, the Company shall forthwith on demand
pay to that Finance Party an amount in the contractual
currency equal to the deficit; and
(iii) the Company shall pay to the Finance Party concerned on demand
any exchange costs and taxes payable in connection with any
such conversion.
(b) The Company waives any right it may have in any jurisdiction to pay any
amount under the Finance Documents in a currency other than that in
which it is expressed to be payable.
24.2 OTHER INDEMNITIES
(a) If:-
(i) any payment of principal or an overdue amount is received from
any source otherwise than on the last day of a relevant
Interest Period or Designated Interest Period (as defined in
Clause 9.3 (Default interest)) relative to the amount so
received; or
(ii) a Loan (or part of a Loan) is not prepaid in accordance with a
notice of prepayment or (other than by reason of negligence or
default by that Finance Party) a Loan is not made after the
Company has delivered a Request,
the Company shall, upon demand by any Bank, pay to the Bank any amounts
required to compensate such Bank for any additional losses, costs or
expenses which it may reasonably incur as a result of sub-paragraph (i)
or (ii) above, 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 any amount payable under the Finance
Documents.
(b) The Company agrees, to the fullest extent permitted by law, to
indemnify and hold harmless each Finance Party and each of their
respective directors, officers, employees and agents from and against
any and all claims, damages, liabilities and expenses (including,
without limitation, reasonable fees and disbursements of counsel and
claims, damages, liabilities and
<PAGE> 67
64
expenses relating to environmental matters) for which any of them may
become liable or which may be incurred by or asserted against such
Finance Party or any such director, officer, employee or agent (other
than by an Agent or another Bank) in each case in connection with or
arising out of or by reason of any investigation, litigation, or
proceeding, arising out of, relating to or in connection with any
Finance Document or any transaction in which any proceeds of all or any
part of the Loans are applied (excluding any such claim, damage,
liability or expense attributable to the negligence or wilful
misconduct of such indemnified party).
25. EVIDENCE AND CALCULATIONS
25.1 ACCOUNTS
Accounts maintained by a Finance Party in connection with this
Agreement are prima facie evidence of the matters to which they relate.
25.2 CERTIFICATES AND DETERMINATIONS
Any certification or determination by a Finance Party of a rate or
amount under the Finance Documents is prima facie evidence of the
matters to which it relates. Any determination by a Finance Party of an
amount under a Finance Document shall contain a calculation of the
amount in reasonable detail.
25.3 CALCULATIONS
Interest (including any applicable Mandatory Costs) and the fee payable
under Clause 21.2 (Commitment fee) accrue from day to day and are
calculated on the basis of the actual number of days elapsed and a year
of 365 days or (for interest on Loans in euros or Dollars or if market
practice otherwise dictates) 360 days.
26. AMENDMENTS AND WAIVERS
26.1 PROCEDURE
(a) Subject to Clause 26.2 (Exceptions), any term of the Finance Documents
may be amended or waived with the agreement of the Company and the
Majority Banks. The Facility Agent may effect, on behalf of the Banks,
an amendment to which they or the Majority Banks have agreed.
(b) The Facility Agent shall promptly notify the other Parties of any
amendment or waiver effected under paragraph (a) above, and any such
amendment or waiver shall be binding on all the Parties.
26.2 EXCEPTIONS
(a) An amendment or waiver which relates to:-
(i) the definition of "Majority Banks" in Clause 1.1
(Definitions);
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65
(ii) an extension of the date for, or a decrease in an amount or a
change in the currency of, any payment (including the Margin
or any other amount of interest or any fee) under the Finance
Documents;
(iii) an increase in a Bank's Commitment;
(iv) a term of a Finance Document which expressly requires the
consent of each Bank; or
(v) Clause 30 (Pro rata sharing) or this Clause 26 (Amendments and
waivers),
may not be effected without the consent of each Bank.
(b) An amendment or waiver which relates to the rights and/or obligations
of an Agent may not be effected without the consent of that Agent.
26.3 WAIVERS AND REMEDIES CUMULATIVE
The rights of each Party under the Finance Documents:-
(a) may be exercised as often as necessary;
(b) are cumulative and not exclusive of its rights under the
general law; and
(c) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right is not a waiver
of that right.
27. CHANGES TO THE PARTIES
27.1 TRANSFERS BY THE COMPANY
The Company may not assign, transfer, novate or dispose of any of, or
any interest in, its rights and/or obligations under this Agreement.
27.2 TRANSFERS BY BANKS
(a) A Bank (the "EXISTING BANK") may at any time assign, transfer or novate
any of its Commitment and/or rights and/or obligations in whole or in
part under this Agreement to a Qualifying Bank (the "NEW BANK"). The
prior consent of the Company is required for any such assignment,
transfer or novation, unless an Event of Default is outstanding or the
New Bank is another Bank or an Affiliate of a Bank. However, the prior
consent of the Company must not be unreasonably withheld or delayed and
will be deemed to have been given if, within 10 Business Days of
receipt by the Company of an application for consent, it has not been
expressly refused.
(b) A transfer of obligations will be effective only if either:-
(i) the obligations are novated in accordance with Clause 27.3
(Procedure for novations); or
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66
(ii) the New Bank confirms to the Facility Agent and the Company
that it undertakes to be bound by the terms of the Finance
Documents as a Bank in form and substance satisfactory to the
Agent. On the transfer becoming effective in this manner the
Existing Bank shall be relieved of its obligations under the
Finance Documents to the extent that they are transferred to
the New Bank.
(c) Nothing in this Agreement restricts the ability of a Bank to
sub-contract an obligation if that Bank remains liable under this
Agreement for that obligation.
(d) On each occasion an Existing Bank assigns, transfers or novates any of
its rights and/or obligations under this Agreement, the New Bank shall,
on the date the assignment, transfer and/or novation takes effect, pay
to the Facility Agent for its own account a fee of L.1,000.
(e) An Existing Bank is not responsible to a New Bank for:-
(i) the execution, genuineness, validity, enforceability or
sufficiency of any Finance Document or any other document;
(ii) the collectability of amounts payable under any Finance
Document; or
(iii) the accuracy of any statements (whether written or oral) made
in or in connection with any Finance Document.
(f) Each New Bank confirms to the Existing Bank and the other Finance
Parties that it:-
(i) has made its own independent investigation and assessment of
the financial condition and affairs of the Company and its
related entities in connection with its participation in this
Agreement and has not relied exclusively on any information
provided to it by the Existing Bank in connection with any
Finance Document; and
(ii) will continue to make its own independent appraisal of the
creditworthiness of the Company and its related entities while
any amount is or may be outstanding under this Agreement or
any Commitment is in force.
(g) Nothing in any Finance Document obliges an Existing Bank to:-
(i) accept a re-transfer from a New Bank of any of the rights
and/or obligations assigned, transferred or novated under this
Clause 27; or
(ii) support any losses incurred by the New Bank by reason of the
non-performance by the Company of its obligations under the
Finance Documents or otherwise.
(h) Any reference in this Agreement to a Bank includes a New Bank, but
excludes a Bank if no amount is or may be owed to or by that Bank under
this Agreement and its Commitment has been cancelled or reduced to nil.
27.3 PROCEDURE FOR NOVATIONS
(a) A novation is effected if:-
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67
(i) the Existing Bank and the New Bank deliver to the Facility
Agent a duly completed certificate, substantially in the form
of Schedule 5 (a "NOVATION CERTIFICATE"); and
(ii) the Facility Agent executes it.
(b) Each Party (other than the Existing Bank and the New Bank) irrevocably
authorises the Facility Agent to execute any duly completed Novation
Certificate on its behalf.
(c) To the extent that they are expressed to be the subject of the novation
in the Novation Certificate:-
(i) the Existing Bank and the other Parties (the "EXISTING
PARTIES") will be released from their obligations to each
other (the "DISCHARGED OBLIGATIONS");
(ii) the New Bank and the existing Parties will assume obligations
towards each other which differ from the discharged
obligations only insofar as they are owed to or assumed by the
New Bank instead of the Existing Bank;
(iii) the rights of the Existing Bank against the existing Parties
and vice versa (the "DISCHARGED RIGHTS") will be cancelled;
and
(iv) the New Bank and the existing Parties will acquire rights
against each other which differ from the discharged rights
only insofar as they are exercisable by or against the New
Bank instead of the Existing Bank,
all on the date of execution of the Novation Certificate by the
Facility Agent or, if later, the date specified in the Novation
Certificate.
27.4 REFERENCE BANKS
If a Reference Bank (or, if a Reference Bank is not a Bank, the Bank of
which it is an Affiliate) ceases to be one of the Banks, the Facility
Agent shall (in consultation with the Company) appoint another Bank or
an Affiliate of a Bank to replace that Reference Bank.
27.5 INCREASED COSTS ETC.
If:-
(a) a Bank assigns, transfers or novates any of its Commitment
and/or rights and/or obligations under the Finance Documents
or changes its Facility Office; and
(b) as a result of circumstances existing at the date the
assignment, transfer, novation or change occurs, the Company
would be obliged to make a payment to the New Bank or Bank
acting through its new Facility Office under Clause 13 (Taxes)
or Clause 15 (Increased costs),
then, notwithstanding the provisions of Clause 13 (Taxes) or Clause 15
(Increased costs), the relevant New Bank or Bank acting through its new
Facility Office is only entitled to receive payment under those Clauses
from the Company to the same extent as the relevant Existing
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68
Bank or Bank acting through its previous Facility Office would have
been if the assignment, transfer, novation or change had not occurred.
27.6 REGISTER
The Facility Agent shall keep a register of all the Parties and shall
supply any other Party (at that Party's expense) with a copy of the
register on request.
28. DISCLOSURE OF INFORMATION
(a) A Finance Party may disclose to one of its Affiliates or any person (a
"PARTICIPANT") with whom it is proposing to enter, or has entered into,
any kind of transfer, participation or other agreement in relation to
this Agreement:-
(i) a copy of any Finance Document; and
(ii) any information which that Finance Party has acquired under or
in connection with any Finance Document,
so long as disclosure of confidential information under sub-paragraph
(ii) above may only be disclosed to a participant if the participant
has agreed in writing with the relevant Finance Party to keep the
information confidential on the same terms (with consequential changes)
as are set out in paragraph (b) below.
(b) Each Finance Party shall keep confidential and not, without the prior
consent of the Company, use any information (other than information
which is publicly available other than as a result of a breach of this
paragraph (b)) supplied by or on behalf of the Company under the
Finance Documents otherwise than in connection with the Finance
Documents. However, each Finance Party is entitled to disclose
information:
(i) in connection with any legal or arbitration proceedings
arising out of or in connection with a Finance Document; or
(ii) if required to do so by an order of a court of competent
jurisdiction whether under any procedure for discovering
documents or otherwise; or
(iii) pursuant to any law or regulation in accordance with which
that Bank is required or accustomed to act; or
(iv) to a governmental, banking, taxation or other regulatory
authority of any competent jurisdiction; or
(v) to its accountants or legal advisers or any other professional
advisers.
29. SET-OFF
If an Event of Default is outstanding, a Finance Party may set off any
matured obligation owed by the Company under the Finance Documents (to
the extent beneficially owned by that Finance Party) against any
obligation (whether or not matured) owed by that Finance Party to the
Company, regardless of the place of payment, booking branch or currency
of either obligation. If the obligations are in different currencies,
the Finance Party may convert either
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69
obligation at a market rate of exchange in its usual course of business
for the purpose of the set-off. If either obligation is unliquidated or
unascertained, the Finance Party may set off in an amount estimated by
it in good faith to be the amount of that obligation. Nothing in this
Clause 29 will be effective to create a charge.
30. PRO RATA SHARING
30.1 REDISTRIBUTION
If any amount owing by the Company under this Agreement to a Finance
Party (the "RECOVERING FINANCE PARTY") is discharged by payment,
set-off or any other manner other than through the relevant Agent in
accordance with Clause 12 (Payments) (a "RECOVERY"), then:-
(a) the recovering Finance Party shall, within 3 Business Days,
notify details of the recovery to the Facility Agent;
(b) the Facility Agent shall determine whether the recovery is in
excess of the amount which the recovering Finance Party would
have received had the recovery been received by the Facility
Agent and distributed in accordance with Clause 12 (Payments);
(c) subject to Clause 30.3 (Exceptions), the recovering Finance
Party shall, within 3 Business Days of demand by the Facility
Agent, pay to the Facility Agent an amount (the
"REDISTRIBUTION") equal to the excess;
(d) the Facility Agent shall treat the redistribution as if it
were a payment by the Company under Clause 12 (Payments) and
shall pay the redistribution to the Finance Parties (other
than the recovering Finance Party) in accordance with Clause
12.7 (Partial payments); and
(e) after payment of the full redistribution, the recovering
Finance Party will be subrogated to the portion of the claims
paid under paragraph (d) above, and the Company will owe the
recovering Finance Party a debt which is equal to the
redistribution, immediately payable and of the type originally
discharged.
30.2 REVERSAL OF REDISTRIBUTION
If under Clause 30.1 (Redistribution):-
(a) a recovering Finance Party must subsequently return a
recovery, or an amount measured by reference to a recovery, to
the Company; and
(b) the recovering Finance Party has paid a redistribution in
relation to that recovery,
each Finance Party shall, within 3 Business Days of demand by the
recovering Finance Party through the Facility Agent, reimburse the
recovering Finance Party all or the appropriate portion of the
redistribution paid to that Finance Party. Thereupon, the subrogation
in Clause 30.1(e) (Redistribution) will operate in reverse to the
extent of the reimbursement.
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70
30.3 EXCEPTIONS
(a) A recovering Finance Party need not pay a redistribution to the extent
that it would not, after the payment, have a valid claim against the
Company in the amount of the redistribution pursuant to Clause 30.1(e)
(Redistribution).
(b) A recovering Finance Party is not obliged to share with any other
Finance Party any amount which the recovering Finance Party has
received or recovered as a result of taking legal proceedings, if that
other Finance Party had an opportunity to participate in those legal
proceedings, but did not do so and did not take separate legal
proceedings.
31. SEVERABILITY
If a provision of any Finance Document is or becomes illegal, invalid
or unenforceable in any jurisdiction, that shall not affect:-
(a) the legality, validity or enforceability in that jurisdiction
of any other provision of the Finance Documents; or
(b) the legality, validity or enforceability in other
jurisdictions of that or any other provision of the Finance
Documents.
32. COUNTERPARTS
A Finance Document may be executed in any number of counterparts, and
this has the same effect as if the signatures on the counterparts were
on a single copy of the Finance Document.
33. NOTICES
33.1 GIVING OF NOTICES
All notices or other communications under or in connection with the
Finance Documents shall be given in writing or by facsimile. Any such
notice will be deemed to be given as follows:-
(a) if in writing, when delivered;
(b) if by facsimile, when received.
However, a notice given in accordance with the above but received on a
non-working day or after business hours in the place of receipt will
only be deemed to be given on the next working day in that place.
33.2 ADDRESSES FOR NOTICES
(a) The address and facsimile number of each Party (other than the Agents)
for all notices under or in connection with the Finance Documents are:-
(i) that notified by that Party for this purpose to the Facility
Agent on or before it becomes a Party; or
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(ii) any other notified by that Party for this purpose to the
Facility Agent by not less than five Business Days' notice.
(b) The address and facsimile number of the Facility Agent is:-
Westdeutsche Landesbank Girozentrale
51 Moorgate
London EC2R 6AE
Facsimile No: 0171 374 8546
Attention: Paul Lowder/Adrian Bland
The address and facsimile number of the Security Agent is:
CHASE MANHATTAN TRUSTEES LIMITED
Structured Finance
Trinity Tower
9 Thomas More Street
London E1 9YT
Facsimile No: 0171 777 5460
Attention: Manager, CMFS
or such other as that Agent may notify to the other Parties by not less
than 5 Business Days' notice.
(c) The Facility Agent shall, promptly upon request from any Party, give to
that Party the address or facsimile number of any other Party
applicable at the time for the purposes of this Clause.
33.3 FACSIMILE NOTICES
The Company shall indemnify each Agent against any loss or liability
which that Agent incurs as a result of that Agent accepting and/or
acting upon any instructions under the Finance Documents received by
that Agent from the Company by facsimile and which may not have been
incurred if, at the time of receipt, that Agent had been given the
instructions other than by facsimile.
33.4 MANDATE LETTER
This Agreement supersedes paragraphs 6, 8, 9, 13 and 14 of the Mandate
Letter dated 24th March, 1999 (and the term sheet attached to it)
between the Company and the Arrangers, and these paragraphs shall be of
no further effect from the date of this Agreement.
34. GOVERNING LAW
This Agreement is governed by English law.
This Agreement has been entered into on the date stated at the beginning of this
Agreement.
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SCHEDULE 1
BANKS AND COMMITMENTS
<TABLE>
<CAPTION>
BANKS COMMITMENT
L.
<S> <C>
The Chase Manhattan Bank 30,000,000
Westdeutsche Landesbank Girozentrale 30,000,000
The Governor and Company of Bank of Scotland 22,500,000
Bayerische Landesbank Girozentrale 22,500,000
Credit Lyonnais 22,500,000
Dresdner Bank AG, London Branch 22,500,000
First Union National Bank, London Branch 22,500,000
Landesbank Hessen-Thuringen Girozentrale 22,500,000
ING Bank N.V., London Branch 22,500,000
KBC Bank N.V., London Branch 22,500,000
National Australia Bank Limited
(A.C.N. 004 044 937) 22,500,000
Paribas 22,500,000
The Royal Bank of Scotland plc 22,500,000
San Paolo IMI SpA. 22,500,000
Arab Bank plc 13,750,000
Bank of Montreal 13,750,000
DG Bank, Deutsche Genossenschaftsbank, London Branch 13,750,000
The Toronto-Dominion Bank 13,750,000
Argentaria, Caja Postal y Banco Hipotecario, S.A. 10,000,000
Banco Totta & Acores S.A. 10,000,000
Banca Nazionale del Lavoro 10,000,000
UniCredito Italiano SpA 10,000,000
TOTAL COMMITMENTS L.425,000,000
</TABLE>
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SCHEDULE 2
CONDITIONS PRECEDENT DOCUMENTS
1. A copy of the memorandum and articles of association and certificate of
incorporation of the Company and Wessex Water.
2. A copy of a resolution of the board of directors of the Company:-
(a) approving the terms of, and the transactions contemplated by,
this Agreement and resolving that it execute this Agreement,
the Debenture, the Subordination Deed and the Fee Letters and
all related documents;
(b) authorising a specified person or persons to execute this
Agreement and the Fee Letters and all related documents on its
behalf and the Debenture and the Subordination Deed as a deed;
and
(c) authorising a specified person or persons, on its behalf, to
sign and/or despatch all other documents and notices to be
signed and/or despatched by it under or in connection with
this Agreement.
3. A copy of a resolution of the board of directors of Wessex Water:
(a) approving the terms of, and the transactions contemplated by,
the Subordination Deed and resolving that it execute the
Subordination Deed; and
(b) authorising specified persons to execute the Subordination
Deed as a deed.
4. A specimen of the signature of each person authorised by the
resolutions referred to in paragraphs 2 and 3 above.
5. Evidence that the Original Facility Agreement will be cancelled on or
before the first Drawdown Date, and that all amounts outstanding under
the Original Facility Agreement have been, or will on the first
Drawdown Date, be prepaid, together with the Deed of Release and an
escrow letter between Allen & Overy and Linklaters & Alliance relating
to the Debenture and Deed of Release.
6. The Debenture, duly executed by the Company and the duly executed
Subordination Deed.
7. A certificate of an authorised signatory of the Company certifying that
each copy document specified in paragraphs 1, 2 and 3 of this Schedule
2 is correct, complete and in full force and effect as at a date no
earlier than the date of this Agreement.
8. A certificate of a director of the Company confirming that the
borrowing of the Total Commitments in full would not cause any
borrowing limit on it to be exceeded.
9. A legal opinion of Allen & Overy, legal advisers to the Arrangers,
addressed to the Finance Parties, substantially in the form of Schedule
7.
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74
10. All share certificates and all other documents of title in relation to
the shares in Wessex Water together with share transfer forms executed
in blank or other documents required to enable the Security Agent or
its nominees to become registered as the owner of the same.
11. Duly executed notices of charge in the form of the relevant schedules
to the Debenture respectively in relation to the relevant agreements or
Security Accounts charged under the Debenture.
12. A copy, signed by two directors of Wessex Water, of the audited
consolidated accounts of Wessex Group as at 31st December, 1998.
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75
SCHEDULE 3
CALCULATION OF THE MANDATORY COSTS
(a) The Mandatory Costs for a Loan for its Interest Period(s) is the rate
calculated by the Facility Agent in accordance with the following
formula:
For a Loan in Sterling:
BY + S(Y-Z) + F x 0.01% per annum = Mandatory Costs
-----------------------
100-(B + S)
For a Loan in an Optional Currency:
F x 0.01% per annum = Mandatory Costs
---------
300
where on the day of application of the formula:
B is the percentage of the Facility Agent's eligible liabilities
(in excess of any stated minimum) which the Bank of England
requires the Facility Agent to hold on a non-interest-bearing
deposit account in accordance with its cash ratio
requirements;
Y is LIBOR for the relevant Interest Period of that Loan;
S is the percentage of the Facility Agent's eligible liabilities
which the Bank of England requires the Facility Agent to place
as a special deposit;
Z is the interest rate per annum allowed by the Bank of England
on special deposits; and
F is the charge payable by the Facility Agent to the Financial
Services Authority under the relevant paragraph of the Fees
Regulations expressed in pounds per L.1 million of the
Fee base of the Facility Agent.
(b) For the purposes of this Schedule 3:
(i) "ELIGIBLE LIABILITIES" and "SPECIAL DEPOSITS" have the
meanings given to them at the time of application of the
formula by the Bank of England;
(ii) "FEE BASE" has the meaning given to it in the Fees
Regulations; and
(iii) "FEES REGULATIONS" means the Banking Supervision (Fees)
Regulations 1998 or any regulations governing the payment of
fees for banking supervision.
(c) In the application of the formula, B, Y, S and Z are included in the
formula as figures and not as percentages, e.g. if B = 0.5% and Y =
15%, BY is calculated as 0.5 x 15.
(d) (i) The formula is applied on the first day of the relevant
Interest Period.
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(ii) Each rate calculated in accordance with the formula is, if
necessary, rounded upward to the nearest four decimal places.
(e) If the Facility Agent determines that a change in circumstances has
rendered, or will render, the formula inappropriate, the Facility Agent
(after consultation with the Company) shall notify the Company of the
manner in which the Mandatory Costs will subsequently be calculated.
The manner of calculation so notified by the Facility Agent shall, in
the absence of manifest error, be binding on all the Parties.
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SCHEDULE 4
FORM OF REQUEST
To: WESTDEUTSCHE LANDESBANK GIROZENTRALE
From: AZURIX EUROPE LTD.
Date: [ ]
AZURIX EUROPE LTD. - L.425,000,000 CREDIT AGREEMENT
DATED [ ], 1999
1. We wish to borrow a Loan as follows:-
(a) Drawdown Date: [ ]
(b) Purpose: [ ]
(c) Amount: [ ]
(d) Currency: [ ]
(e) Interest Period: [ ]
(f) Payment instructions: [ ].
2. We confirm that each condition specified in Clause 4.2 (Further
conditions precedent) is satisfied on the date of this Request.
By:
AZURIX EUROPE LTD.
Authorised Signatory
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SCHEDULE 5
NOVATION CERTIFICATE
To: WESTDEUTSCHE LANDESBANK GIROZENTRALE as Facility Agent
From: [THE EXISTING BANK] and [THE NEW BANK] Date: [ ]
AZURIX EUROPE LIMITED - L.425,000,000 CREDIT AGREEMENT
DATED [ ] , 1999
We refer to Clause 27.3 (Procedure for novations).
1. We [ ] (the "EXISTING BANK") and [ ] (the "NEW BANK") agree
to the Existing Bank and the New Bank novating all or part of the
Existing Bank's Commitment and/or rights and obligations referred to in
the Schedule in accordance with Clause 27.3 (Procedure for novations).
2. The specified date for the purposes of Clause 27.3(c) is [date of
novation].
3. The Facility Office and address for notices of the New Bank for the
purposes of Clause 33.2 (Addresses for notices) are set out in the
Schedule.
4. This Novation Certificate is governed by English law.
THE SCHEDULE
COMMITMENT/RIGHTS AND OBLIGATIONS TO BE NOVATED
[Details of the Commitment/rights and obligations of the Existing Bank to be
novated].
[NEW BANK]
[Facility Office Address for notices]
[Existing Bank] [New Bank] WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By: By: By:
Date: Date: Date:
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SCHEDULE 6
FORM OF DEBENTURE
DEBENTURE
DATED [ ], 1999
BETWEEN
AZURIX EUROPE LTD.
- and -
CHASE MANHATTAN TRUSTEES LIMITED
[ALLLEN & OVERY LOGO]
London
<PAGE> 83
80
THIS DEED is dated [ ], 1999 between:
(1) AZURIX EUROPE LTD. (Registered number 3570749) (the "CHARGOR"); and
(2) CHASE MANHATTAN TRUSTEES LIMITED (the "SECURITY AGENT") as agent and
trustee for the Finance Parties (as defined in the Credit Agreement
defined below).
BACKGROUND:
(A) The Chargor enters into this Deed in connection with the Credit
Agreement (as defined below).
(B) It is intended that this document takes effect as a deed
notwithstanding the fact that a party may only execute this document
under hand.
IT IS AGREED as follows:
1. INTERPRETATION
1.1 DEFINITIONS
In this Deed:
"ACCOUNT BANK"
means a person with whom a Security Account is maintained under Clause
6 (Security Accounts).
"CREDIT AGREEMENT"
means the L.425,000,000 credit agreement dated [ ], 1999 between
(among others) the parties to this Deed.
"CREDIT ENHANCEMENT"
has the meaning given to it in Clause 2(a)(iv) (Fixed Security).
"RECEIVER"
means a receiver and manager or (if the Security Agent so specifies in
the relevant appointment) a receiver, in either case, appointed under
this Deed.
"RELATED RIGHTS"
means:
(a) any dividend or interest paid or payable in relation to any
Shares;
(b) any stocks, shares, securities, rights, moneys or property
accruing or offered at any time in relation to any Shares by
way of redemption, substitution, exchange, bonus or
preference, under option rights or otherwise; and
<PAGE> 84
81
(c) all dividends, interest or other income in respect of any such
asset as is referred to in paragraph (b) above.
"SECURED LIABILITIES"
means all present and future obligations and liabilities (whether
actual or contingent and whether owed jointly or severally or in any
other capacity whatsoever) of the Company to any Finance Party under
the Finance Documents except for any obligation which, if it were so
included, would result in this Deed contravening Section 151 of the
Companies Act 1985. The term "Finance Document" includes all amendments
and supplements.
"SECURITY ACCOUNT"
means the Debt Service Reserve or a Cash Collateral Account.
"SECURITY ASSETS"
means all assets of the Chargor the subject of any security created
by this Deed.
"SECURITY PERIOD"
means the period beginning on the date of this Deed and ending on the
date on which the Security Agent is satisfied (acting reasonably) that
all the Secured Liabilities have been unconditionally and irrevocably
paid and discharged in full.
"SHARES"
means any shares in Wessex Water from time to time held by the Chargor
or a nominee on its behalf.
1.2 CONSTRUCTION
(a) Capitalised terms defined in the Credit Agreement have, unless
expressly defined in this Deed, the same meaning in this Deed.
(b) The provisions of Clause 1.2 of the Credit Agreement apply to this Deed
as though they were set out in full in this Deed except that references
to the Credit Agreement are to be construed as references to this Deed.
(c) If the Security Agent (acting reasonably) considers that an amount paid
by the Company to a Finance Party under a Finance Document is capable
of being avoided or otherwise set aside on the liquidation or
administration of the Company or otherwise, then that amount shall not
be considered to have been irrevocably paid for the purposes of this
Deed.
(d) A reference in this Deed to any assets includes, unless the context
otherwise requires, present and future assets.
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82
2. FIXED SECURITY
(a) The Chargor, as security for the payment of all the Secured
Liabilities, charges in favour of the Security Agent:-
by way of first fixed charge:-
(i) its interest in all the Shares and their Related
Rights;
(ii) to the fullest extent permitted by law, all moneys
standing to the credit of the Security Accounts;
(iii) all of the Chargor's book and other debts (including
all Inter-Company Loans), the proceeds of the same
and all other moneys due and owing to the Chargor;
and
(iv) to the extent it is not assigned as expressed under
paragraph (b) below the benefit of any guarantee,
letter of credit or other credit enhancement granted
to the Company in respect of an Inter-Company Loan in
accordance with Clause 11.2 (Debt Service Reserve
Account) of the Credit Agreement (in each case,
"CREDIT ENHANCEMENT").
(b) The Chargor, as security for the payment of all the Secured
Liabilities, assigns to the Security Agent by way of security all of
the Inter-Company Loans and the benefit of any Credit Enhancement or
the benefit of any guarantee from the Parent of the Inter-Company
Loans.
(c) The mortgages and charges and assignments created by this Clause 2 are
made with full title guarantee.
3. FLOATING CHARGE
3.1 CREATION OF FLOATING CHARGE
(a) The Chargor, as security for the payment of all of the Secured
Liabilities, charges in favour of the Security Agent by way of a first
floating charge all its assets not otherwise effectively mortgaged,
charged or assigned by way of fixed mortgage or charge or assignment by
Clause 2 (Fixed security).
(b) The charges created by this Clause 3.1 are made with full title
guarantee.
3.2 CONVERSION
The Security Agent may by notice to the Chargor convert the floating
charge created by this Deed into a fixed charge as regards all or any
of the Chargor's assets specified in the notice if:
(a) an Event of Default is outstanding; or
(b) the Security Agent (acting reasonably) considers those assets
to be in danger of being seized or sold under any form of
distress, attachment, execution or other legal process or to
be otherwise in jeopardy.
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83
4. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES
The Chargor makes the representations and warranties set out in this
Clause 4 to each Finance Party.
4.2 SECURITY
Subject to the registration of this Deed under Section 395 of the
Companies Act 1985 and to the qualifications as to the matters of law
in the legal opinions referred to in Schedule 2 to the Credit
Agreement, this Deed creates those Security Interests it purports to
create and is not liable to be avoided or otherwise set aside on the
liquidation or administration of the Chargor or otherwise.
4.3 SHARES
The Shares are fully paid and the Chargor is the sole beneficial owner
of them, free from any Security Interest (other than created under this
Deed) or option.
4.4 TIMES FOR MAKING REPRESENTATIONS AND WARRANTIES
The representations and warranties set out in this Clause 4 are made on
the date of this Deed and are deemed to be repeated by the Chargor on
each date during the Security Period with reference to the facts and
circumstances then existing.
5. UNDERTAKINGS
5.1 DURATION
The undertakings in this Clause 5 remain in force throughout the
Security Period.
5.2 RESTRICTIONS ON DEALING
The Chargor shall not (except as permitted under the Credit
Agreement):-
(a) create or permit to subsist any Security Interest on any
Security Asset expressed to be subject to fixed security
pursuant to Clause 2 (Fixed Security) other than any Security
Interest created by this Deed; or
(b) sell, transfer, grant, or lease or otherwise dispose of any
Security Asset expressed to be subject to fixed security
pursuant to Clause 2, except for the disposal in the ordinary
course of trade of any such Security Asset subject to the
floating charge created under Clause 3.1 (Creation of floating
charge).
5.3 NOTICE TO BANK OPERATING AN ACCOUNT
The Chargor will give notice to the Account Bank (other than the
Security Agent) operating an account of the Chargor on the date of this
Deed or (if later) the date the account is opened, substantially in the
form of Schedule 1, and shall use its reasonable endeavours to procure
that the relevant bank acknowledges the notice substantially in the
form of Schedule 2.
<PAGE> 87
84
5.4 NOTICE TO PARENT AND SPV
The Chargor will give notice to the Parent and each SPV on the date of
each Inter-Company Loan, substantially in the form of Schedule 3, and
shall procure that the Parent or relevant SPV acknowledges that notice
substantially in the form of Schedule 4.
5.5 NOTICE TO PROVIDERS OF CREDIT ENHANCEMENT
The Chargor will give notice to any provider of Credit Enhancement on
the date of that Credit Enhancement substantially in the form of
Schedule 3 and shall use reasonable endeavours to procure that the
provider of that Credit Enhancement acknowledges that notice
substantially in the form of Schedule 4.
5.6 DEPOSIT OF SHARES
The Chargor shall:-
(a) deposit with the Security Agent, or as the Security Agent may
direct, all certificates, bearer instruments, and other
documents of title or evidence of ownership in relation to the
Shares and their Related Rights; and
(c) execute and deliver to the Security Agent all share transfers
in blank and other documents which may be requested by the
Security Agent in order to enable the Security Agent or its
nominees to be registered as the owner or otherwise obtain a
legal title to the Shares and their Related Rights.
6. SECURITY ACCOUNTS
6.1 ACCOUNTS
All Security Accounts must be maintained at a branch of the Account
Bank approved by the Security Agent. The initial Account Bank is the
Security Agent or one of its Affiliates.
6.2 CHANGE OF ACCOUNT BANK
In the event of a change of Account Bank in accordance with the Credit
Agreement, the amount (if any) standing to the credit of the Security
Account maintained with the old Account Bank shall be transferred to
the corresponding Security Account maintained with the new Account Bank
forthwith upon the appointment taking effect. The Chargor shall take
any action which the Security Agent may reasonably require to
facilitate such change of Account Bank and any transfer of credit
balances (including the execution of bank mandate forms).
6.3 INTEREST
Amounts standing to the credit of each Security Account shall bear
interest at a fair market rate agreed between the Company and the
Account Bank.
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85
6.4 WITHDRAWALS
(a) The Chargor may only make withdrawals from a Security Account if that
withdrawal is expressly permitted by the Credit Agreement, unless the
security constituted by this Deed has become enforceable in which event
no withdrawals shall be made.
(b) The Security Agent (or a Receiver) may when an Event of Default is
continuing (subject to the payment of any claims having priority to
this security) withdraw amounts standing to the credit of a Security
Account to meet an amount due and payable under the Finance Documents
when it is due and payable.
7. WHEN SECURITY BECOMES ENFORCEABLE
The security constituted by this Deed shall become immediately
enforceable upon the occurrence of an Event of Default and the power of
sale shall be immediately exerciseable upon and at any time after the
occurrence of any Event of Default. After the security constituted by
this Deed has become enforceable, the Security Agent may in its
absolute discretion enforce all or any part of the security in any
manner it sees fit or as the Majority Banks direct.
8. ENFORCEMENT OF SECURITY
8.1 GENERAL
For the purposes of all powers implied by statute, the Secured
Liabilities are deemed to have become due and payable on the date of
this Deed and section 103 and section 93 of the Law of Property Act
1925 shall not apply to the security constituted by this Deed.
8.2 SHARES
After the security constituted by this Deed has become enforceable, the
Security Agent may on giving notice to the Chargor, exercise (in the
name of the Chargor and without any further consent or authority on the
part of the Chargor) any voting rights and any powers or rights which
may be exercised by the person or persons in whose name any Share and
its Related Rights are registered or who is the holder of any of them
or otherwise (including all the powers given to trustees by Section
10(3) and (4) of the Trustee Act, 1925 as amended by Section 9 of the
Trustee Investment Act, 1961 in respect of securities or property
subject to a trust). Until that time, the voting rights, powers and
other rights in respect of the Shares shall (if exercisable by the
Security Agent) be exercised in any manner which the Chargor may direct
in writing.
8.3 CONTINGENCIES
If the Security Agent enforces the security constituted by this Deed at
a time when no amounts are due under the Finance Documents but at a
time when amounts may or will become so due, the Security Agent (or the
Receiver) may pay the proceeds of any recoveries effected by it into a
Security Account.
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86
8.4 NO LIABILITY AS MORTGAGEE IN POSSESSION
Neither the Security Agent nor any Receiver will be liable, by reason
of entering into possession of a Security Asset, to account as
mortgagee in possession or for any loss on realisation or for any
default or omission for which a mortgagee in possession might be
liable.
8.5 SECURITY AGENT OF THE CHARGOR
Each Receiver is deemed to be the agent of the Chargor for all purposes
and accordingly is deemed to be in the same position as a Receiver duly
appointed by a mortgagee under the Law of Property Act 1925. The
Chargor alone shall be responsible for his contracts, engagements,
acts, omissions, defaults and losses and for liabilities incurred by
him and no Finance Party shall incur any liability (either to the
Chargor or to any other person) by reason of the Security Agent making
his appointment as a Receiver or for any other reason.
8.6 PROTECTION OF THIRD PARTIES
No person (including a purchaser) dealing with the Security Agent or a
Receiver or its or his agents will be concerned to enquire:-
(a) whether the Secured Liabilities have become payable; or
(b) whether any power which the Security Agent or the Receiver is
purporting to exercise has become exercisable; or
(c) whether any money remains due under the Finance Documents; or
(d) how any money paid to the Security Agent or to the Receiver is
to be applied.
8.7 REDEMPTION OF PRIOR MORTGAGES
At any time after the security constituted by this Deed has become
enforceable, the Security Agent may:-
(a) redeem any prior Security Interest against any Security Asset;
and/or
(b) procure the transfer of that Security Interest to itself;
and/or
(c) settle and pass the accounts of the prior mortgagee, chargee
or encumbrancer; any accounts so settled and passed shall be
conclusive and binding on the Chargor.
All principal moneys, interest, costs, charges and expenses of and
incidental to any such redemption and/or transfer properly incurred and
documented shall be paid by the Chargor to the Security Agent on
demand.
9. RECEIVER
9.1 APPOINTMENT OF RECEIVER
At any time after the security constituted by this Deed becomes
enforceable or, if the Chargor so requests the Security Agent in
writing, at any time, the Security Agent may without further
<PAGE> 90
87
notice appoint under seal or in writing under its hand any one or more
persons to be a Receiver of all or any part of the Security Assets in
like manner in every respect as if the Security Agent had become
entitled under the Law of Property Act 1925 to exercise the power of
sale conferred under the Law of Property Act 1925.
9.2 REMOVAL
The Security Agent may by writing under its hand (subject to any
requirement for an order of the court in the case of an administrative
receiver) remove any Receiver appointed by it and may, whenever it
deems it expedient, appoint a new Receiver in the place of any Receiver
whose appointment may for any reason have terminated.
9.3 REMUNERATION
The Security Agent may fix the remuneration of any Receiver appointed
by it.
9.4 RELATIONSHIP WITH SECURITY AGENT
To the fullest extent permitted by law, any right, power or discretion
conferred by this Deed (either expressly or impliedly) upon a Receiver
of the Security Assets may after the security created by this Deed
becomes enforceable be exercised by the Security Agent in relation to
any Security Asset without first appointing a Receiver or
notwithstanding the appointment of a Receiver.
10. POWERS OF RECEIVER
10.1 GENERAL
(a) Each Receiver has, and is entitled to exercise, all of the rights,
powers and discretions set out below in this Clause 10 in addition to
those conferred by the Law of Property Act 1925 on any receiver
appointed under the Law of Property Act 1925.
(b) If there is more than one Receiver holding office at the same time,
each Receiver may (unless the document appointing him states otherwise)
exercise all of the powers conferred on a Receiver under this Deed
individually and to the exclusion of any other Receivers.
(c) A Receiver who is an administrative receiver of the Chargor has all the
rights, powers and discretions of an administrative receiver under the
Insolvency Act 1986.
10.2 POSSESSION
A Receiver may take immediate possession of, get in and collect any
Security Assets.
10.3 CARRY ON BUSINESS
A Receiver may carry on the business of the Chargor as he thinks fit.
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10.4 PROTECTION OF ASSETS
A Receiver may do all acts as he may think fit which the Chargor might
do in the ordinary conduct of its business as well for the protection
as for the improvement of the Security Assets.
10.5 EMPLOYEES
A Receiver may appoint and discharge managers, officers, agents,
accountants, servants, workmen and others for the purposes of this Deed
upon such terms as to remuneration or otherwise as he may think proper
and discharge any such persons appointed by the Chargor.
10.6 BORROW MONEY
A Receiver may raise and borrow money either unsecured or on the
security of any Security Asset either in priority to the security
constituted by this Deed or otherwise and generally on any terms and
for whatever purpose which he thinks fit. No person lending that money
is concerned to enquire as to the propriety or purpose of the exercise
of that power or to check the application of any money so raised or
borrowed.
10.7 SALE OF ASSETS
A Receiver may sell, exchange, convert into money and realise any
Security Asset by public auction or private contract and generally in
any manner and on any terms which he thinks proper. The consideration
for any such transaction may consist of cash, debentures or other
obligations, shares, stock or other valuable consideration and any such
consideration may be payable in a lump sum or by instalments spread
over such period as he thinks fit.
10.8 COMPROMISE
A Receiver may settle, adjust, refer to arbitration, compromise and
arrange any claims, accounts, disputes, questions and demands with or
by any person who is or claims to be a creditor of the Chargor or
relating in any way to any Security Asset.
10.9 LEGAL ACTIONS
A Receiver may bring, prosecute, enforce, defend and abandon all
actions, suits and proceedings in relation to any Security Asset which
may seem to him to be expedient.
10.10 RECEIPTS
A Receiver may give valid receipts for all moneys and execute all
assurances and things which may be proper or desirable for realising
any Security Asset.
10.11 SUBSIDIARIES
A Receiver may form a Subsidiary of the Chargor and transfer to that
Subsidiary any Security Asset.
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10.12 DELEGATION
A Receiver may delegate his powers in accordance with Clause 14
(Delegation).
10.13 OTHER POWERS
A Receiver may:-
(a) do all other acts and things which he may consider desirable
or necessary for realising any Security Asset or incidental or
conducive to any of the rights, powers or discretions
conferred on a Receiver under or by virtue of this Deed; and
(b) exercise in relation to any Security Asset all the powers,
authorities and things which he would be capable of exercising
if he were the absolute beneficial owner of the same,
and may use the name of the Chargor for any of the above purposes.
11. SET OFF
The Security Agent may, at any time whilst an Event of Default is
continuing after this Deed has become enforceable, without notice to or
making demand on the Chargor and whether or not all or any of the
Secured Liabilities have matured:
(a) set off any of the Secured Liabilities against any liability
(whether or not matured) owed by the Security Agent to the
Chargor in respect of any moneys in the Security Accounts
regardless of the place of payment, booking branch or currency
of either obligation; and/or
(b) debit any account of the Chargor (whether sole or joint) with
the Security Agent at any of its offices anywhere (including
an account opened specially for that purpose) with all or any
part of the Secured Liabilities; and/or
(c) apply any moneys in a Security Account in or towards the
payment or discharge of the Secured Liabilities.
12. APPLICATION OF PROCEEDS
Any moneys received by the Security Agent or any Receiver after this
Deed has become enforceable shall be applied in the following order of
priority (but without prejudice to the right of any Finance Party to
recover any shortfall from the Chargor):
(a) in satisfaction of or provision for all costs and expenses
incurred by the Security Agent or any Receiver and of all
remuneration due to the Receiver under this Deed;
(b) in or towards payment of the Secured Liabilities or such part
of them as is then due and payable; and
(c) in payment of the surplus (if any) to the Chargor or other
person entitled to it.
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13. EXPENSES AND INDEMNITY
The Chargor shall forthwith on demand pay all costs and expenses
(including legal fees) properly and (before any enforcement of the
security constituted by this Deed) reasonably incurred and, in each
case, properly documented in connection with this Deed by any Finance
Party, Receiver, attorney, manager, agent or other person appointed by
the Security Agent under this Deed, and keep each of them indemnified
against any failure or delay in paying the same.
14. DELEGATION
The Security Agent and any Receiver may delegate by power of attorney
or in any other manner to any person any right, power or discretion
exercisable by them under this Deed. Any such delegation may be made
upon the terms (including power to sub-delegate) and subject to any
regulations which the Security Agent or that Receiver (as the case may
be) may think fit. Neither the Security Agent nor any Receiver will be
in any way liable or responsible to the Chargor for any loss or
liability arising from any act, default, omission or misconduct on the
part of any such delegate or sub-delegate.
15. FURTHER ASSURANCES
The Chargor shall, at its own expense, take whatever action the
Security Agent or a Receiver may reasonably require for:-
(a) perfecting or protecting the security intended to be created
by this Deed over any Security Asset;
(b) facilitating the realisation of any Security Asset, or the
exercise of any right, power or discretion exercisable, by the
Security Agent or any Receiver or any of its or their
delegates or sub-delegates in respect of any Security Asset,
including the execution of any transfer, conveyance, assignment or
assurance of any property whether to the Security Agent or to its
nominees, and the giving of any notice, order or direction and the
making of any registration, which, in any such case, the Security Agent
may think expedient but excluding, unless a notice under Clause 19.20
(Acceleration) of the Credit Agreement has been given, any action to
claim, demand or collect any book or other debts of the Chargor.
16. POWER OF ATTORNEY
The Chargor, by way of security, irrevocably and severally appoints the
Security Agent, each Receiver and any of their delegates or
sub-delegates to be its attorney to take any action which the Chargor
is obliged to take under this Deed, including under Clause 15 (Further
assurances). The Chargor ratifies and confirms whatever any attorney
does or purports to do pursuant to its appointment under this Clause.
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17. MISCELLANEOUS
17.1 COVENANT TO PAY
The Chargor shall pay or discharge the Secured Liabilities in the
manner provided for in the Finance Documents.
17.2 CONTINUING SECURITY
The security constituted by this Deed is continuing and will extend to
the ultimate balance of all the Secured Liabilities, regardless of any
intermediate payment or discharge in whole or in part.
17.3 ADDITIONAL SECURITY
The security constituted by this Deed is in addition to and is not in
any way prejudiced by any other security now or subsequently held by
any Finance Party for any Secured Liability.
17.4 TACKING
Each Bank shall perform its obligations under the Credit Agreement
(including any obligation to make available further advances).
17.5 NEW ACCOUNTS
If a Finance Party receives, or is deemed to be affected by, notice,
whether actual or constructive, of any subsequent charge or other
interest affecting any Security Asset and/or the proceeds of sale of
any Security Asset, the Finance Party may open a new account for the
Chargor. If the Finance Party does not open a new account, it shall
nevertheless be treated as if it had done so at the time when it
received or was deemed to have received notice. As from that time all
payments made to the Finance Party will be credited or be treated as
having been credited to the new account and will not operate to reduce
any amount for which this Deed is security.
17.6 TIME DEPOSITS
Without prejudice to any right of set-off any Finance Party may have
under any other Finance Document or otherwise, if any time deposit
matures on any account the Chargor has with any Finance Party at a time
within the Security Period when:
(a) this security has become enforceable; and
(b) no amount of the Secured Liabilities is due and payable,
that time deposit shall automatically be renewed for any further
maturity which that Finance Party considers appropriate.
<PAGE> 95
92
18. RELEASE AND CONFIRMATION
(a) Upon the expiry of the Security Period (but not otherwise), the Finance
Parties shall, at the request and cost of the Chargor, take whatever
action is necessary to release the Security Assets from the security
constituted by this Deed including any re-assignment of security.
(b) The Security Agent shall act in accordance with the terms of the Credit
Agreement in issuing instructions to the Account Bank in accordance
with the notice to that Account Bank and shall give an appropriate
notice to each Account Bank on repayment in full of the Secured
Liabilities.
19. GOVERNING LAW
This Deed is governed by English law.
This Deed has been entered into as a deed on the date stated at the beginning of
this Deed.
<PAGE> 96
93
SCHEDULE 1
FORM OF NOTICE OF THE ACCOUNT BANK
To: [ ]
[ ], 199[ ]
Dear Sirs,
We give you notice that, by a Debenture dated [ ], 1999, AZURIX EUROPE LTD. (the
"COMPANY") charged (by way of a first fixed and floating charge) to [Security
Agent] (as agent and trustee) (the " SECURITY AGENT") all moneys (including
interest) from time to time standing to the credit of certain bank accounts (the
"ACCOUNTS") and the debt or debts represented thereby.
We irrevocably instruct and authorise you to until the Security Agent notifies
you otherwise:
(a) (i) disclose to the Security Agent on request to you by the
Security Agent any information relating to any Account
maintained with you; and
(ii) comply with the terms of any written notice or instructions
relating to the Security Document or moneys standing to the
credit of any Accounts maintained with you and the debts
represented by them, received by you from the Security Agent
and the Company,
without any reference to or further authority from us and without any
enquiry by you as to the justification for the disclosure or, as the
case may be, validity of the notice or instructions;
(b) hold all sums from time to time standing to the credit of the Accounts
maintained with you in accordance with the written instructions of the
Security Agent and the Company; and
(c) pay or release all or any part of the moneys standing to the credit of
the Accounts maintained with you in accordance with the written
instructions of the Security Agent.
We are not permitted to withdraw any amount from any of the Accounts maintained
with you except in accordance with the written instructions of the Security
Agent and the Company.
The instructions in this letter may not be revoked or amended without the prior
written consent of the Security Agent.
Would you please confirm your agreement to the above by sending the enclosed
acknowledgement to the Security Agent with a copy to ourselves.
Yours faithfully,
- -----------------------------
(Authorised signatory)
AZURIX EUROPE LTD.
<PAGE> 97
94
SCHEDULE 2
FORM OF ACKNOWLEDGEMENT OF THE ACCOUNT BANK
To: CHASE MANHATTAN TRUSTEES LIMITED
For the attention of: [ ]
[relevant address applying under
Clause 33 (Notices) of the Credit Agreement]
[ ], 1999
Dear Sirs,
We confirm receipt from Azurix Europe Ltd. [the "COMPANY") of a notice dated [ ]
of a charge upon the terms of a Debenture dated [ ], 1999 of all moneys
(including interest) from time to time standing to the credit of certain bank
accounts of the Company (the "ACCOUNTS") and the debt or debts represented
thereby.
We confirm that we:
(a) accept the instructions contained in the notice and undertake to comply
with the notice;
(b) have not received notice of the interest of any third party in any of
the Accounts maintained with us;
(c) have neither claimed or exercised nor will claim or exercise any
security interest, set-off, counter-claim or other right in respect of
any of the Accounts maintained with us, the moneys in those Accounts or
the debts represented by them; and
(d) shall not permit any amount to be withdrawn from any of the Accounts
maintained with us without your prior written consent other than in
respect of payments which you have confirmed to us may be paid by the
Company from the Accounts until you notify us otherwise.
The Accounts maintained with use are:
[SPECIFY ACCOUNTS AND ACCOUNT NUMBERS]
This letter is governed by English law.
Yours faithfully,
- ----------------------------------
(Authorised Signatory)
[Account Bank]
<PAGE> 98
95
SCHEDULE 3
FORM OF NOTICE TO PARENT/SPV/CREDIT ENHANCEMENT PROVIDER
To: [ ]
Date: [ ]
Dear Sirs,
We hereby give you, [SPV/Azurix Corp./Credit Enhancement Provider] notice that,
by a Debenture dated [ , ], we assigned (by way of security) to CHASE
MANHATTAN TRUSTEES LIMITED (the "AGENT") all our rights under [Inter Company
Loan/guarantee/Credit Enhancement] between yourselves and ourselves (the
"AGREEMENT").
We irrevocably instruct and authorise you until the Agent notifies you
otherwise:
(a) to disclose to the Agent without any reference to or further authority
from us and without any inquiry by you as to the justification for such
disclosure, such information relating to the Agreement as the Agent
may, at any time and from time to time, request you to disclose to it;
(b) to pay any sum payable by you under the Agreement to our account with
the Agent at [ ], Sort Code [ ], Account No. [ ]; and
(c) to accept the instructions of the Agent in relation to our rights under
the Agreement.
Would you please confirm your agreement to the above by sending the enclosed
acknowledgement to the Agent with a copy to ourselves.
This letter is governed by English law.
Yours faithfully,
- ------------------------------
(Authorised signatory)
AZURIX EUROPE LTD.
<PAGE> 99
96
SCHEDULE 4
FORM OF ACKNOWLEDGEMENT FROM PARENT/SPV/CREDIT ENHANCEMENT PROVIDER
To: CHASE MANHATTAN TRUSTEES LIMITED
[ ]
Dear Sirs,
We confirm receipt from Azurix Europe Ltd. (the "COMPANY") of a notice dated
[ ] of an assignment upon the terms of a Debenture dated [ ]
of all the Company's rights under the Agreement (as defined in the Notice) and
agree to the terms of that assignment.
This letter is governed by English law.
Yours faithfully,
- ------------------------------
(Authorised signatory)
[ ]
<PAGE> 100
97
SIGNATORIES TO THE DEBENTURE
EXECUTED as a deed )
by AZURIX EUROPE LTD. )
acting by )
Director
Director/Secretary
THE SECURITY AGENT
CHASE MANHATTAN TRUSTEES LIMITED
By:
<PAGE> 101
98
SCHEDULE 7
FORM OF LEGAL OPINIONS OF ALLEN & OVERY
To: The Finance Parties
(as defined in the
Credit Agreement defined below).
Dear Sirs,
AZURIX EUROPE LTD. (THE "COMPANY") - L.425,000,000 CREDIT AGREEMENT
DATED [ ], 1999 (THE "CREDIT AGREEMENT")
We have received instructions from and participated in discussions with the
Arrangers in connection with the Credit Agreement.
Terms defined in the Credit Agreement have the same meaning in this opinion. The
Credit Agreement, the Subordination Deed and the Debenture (as defined below) is
each called an "AGREEMENT". "SECURITY ASSETS" has, in relation to the Debenture,
the meaning given to it in the Debenture
For the purposes of this opinion we have examined the following documents:-
(a) a signed copy of the Credit Agreement;
(b) an executed copy of the Debenture dated [ ], 1999 between the Company
and the Security Agent (the "DEBENTURE");
(c) a certified copy of the memorandum and articles of association and
certificate of incorporation of the Company;
(d) a certified copy of the minutes of a meeting of the board of directors
of the Company dated [ ], 1999; and
(e) an executed copy of the Subordination Deed between Wessex Water Limited
("WESSEX"), the Company and the Facility Agent dated [ ], 1999.
On [ ], 1999, we carried out a search of the Company and Wessex at the Companies
Registry. On [ ], 1999 we made a telephone search of the Company and Wessex at
the winding-up petitions at the Companies court.
The above are the only documents or records we have examined, and the only
searches and enquiries we have carried out, for the purposes of this opinion.
<PAGE> 102
99
We assume that:-
(i) each of Wessex and the Company is not unable to pay its debts within
the meaning of section 123 of the Insolvency Act, 1986 at the time it
enters into an Agreement and will not as a consequence of either
Agreement be unable to pay its debts within the meaning of that
section;
(ii) no step has been taken to wind up the Company or Wessex or appoint a
receiver in respect of it or any of its assets, although the searches
referred to above give no indication that any winding-up order or
appointment of a receiver has been made;
(iii) all signatures and documents are genuine;
(iv) all documents are and remain up-to-date;
(v) the correct procedure was carried out at the board meeting referred to
in paragraph (d) above; for example, there was a valid quorum, all
relevant interests of directors were declared and the resolutions were
duly passed at the meeting; and
(vi) each Agreement is a legally binding, valid and enforceable obligation
of each party to it other than the Company and Wessex.
Subject to the qualifications set out below and to any matters not disclosed to
us, it is our opinion that, so far as the present laws of England are
concerned:-
(1) STATUS: Each of Wessex and the Company is a company incorporated with
limited liability under the laws of England and is not in liquidation.
(2) POWERS AND AUTHORITY: Each of Wessex and the Company has the corporate
power to enter into and perform the Agreements to which it is a party
and has taken all necessary corporate action to authorise the
execution, delivery and performance of the Agreements to which it is a
party.
(3) LEGAL VALIDITY: Each Agreement to which it is a party constitutes the
Company's and/or Wessex's legally binding, valid and enforceable
obligation.
(4) NON-CONFLICT: The execution, delivery and performance by the Company
and Wessex of each Agreement to which it is a party will not violate
any provision of (i) any existing English law applicable to companies
generally, or (ii) the memorandum or articles of association of the
Company and Wessex.
(5) CONSENTS: No authorizations of governmental, judicial or public bodies
or authorities in England are required by the Company or Wessex in
connection with the performance, validity or enforceability of an
Agreement to which it is a party.
(6) TAXES: All payments due from the Company under the Credit Agreement may
be made without deduction of any United Kingdom taxes, if, in the case
of any interest:
(a) the person which made the part of the Loan to which the
interest relates was, at the time of the making of the Loan, a
"bank" as defined in section 840A of the Income
<PAGE> 103
100
and Corporation Taxes Act 1988 is beneficially entitled to
that interest and the recipient of the interest is within the
charge to United Kingdom corporation tax as regards that
interest; or
(b) (i) the person that made the part of the Loan to
which the interest relates is a resident (as defined
in the appropriate Double Taxation treaty) in a
country with which the United Kingdom has a Double
Taxation treaty giving residents of that country
exemption from United Kingdom taxation on interest
and does not carry on business in the United Kingdom
through a permanent establishment with which its
participation in the Loan is effectively connected;
and
(ii) the Company has received an appropriate exemption
notice (or similar document) from HM Inland Revenue.
(7) REGISTRATION REQUIREMENTS: Except for due registration of the Debenture
and the Subordination Deed, it is not necessary or advisable to file,
register or record either Agreement in any public place or elsewhere in
England.
(8) STAMP DUTIES: No stamp, registration or similar tax or charge is
payable in England in respect of either Agreement.
(9) SECURITY: Subject to due registration where required, the Debenture
creates security interests in the Security Assets concerned.
This opinion is subject to the following qualifications:-
(i) This opinion is subject to all insolvency and other laws affecting the
rights of creditors or secured creditors generally.
(ii) No opinion is expressed on matters of fact.
(iii) We assume that no foreign law affects the conclusions stated above.
(iv) No opinion is expressed as to:
(a) the title of the Company to any Security Asset; or
(b) the priority of any security created or to be created by the
Debenture; or
(c) the nature of the security created by the Debenture (whether
fixed or floating); or
(d) the marketability of, or rights of enforcement over, the
Security Assets.
These matters are too lengthy to cover in this letter.
(v) The term "enforceable" means that a document is of a type and form
enforced by the English courts. It does not mean that each obligation
will be enforced in accordance with its terms. Certain rights and
obligations may be qualified by the non-conclusivity of certificates,
<PAGE> 104
101
doctrines of good faith and fair conduct, the availability of equitable
remedies and other matters, but in our view these qualifications would
not defeat your legitimate expectations in any material respect.
This opinion is given for the sole benefit of the Finance Parties as at the date
of the Credit Agreement and may not be relied upon by or disclosed to any other
person.
Yours faithfully
<PAGE> 105
102
SCHEDULE 8
FORM OF SUBORDINATION AGREEMENT
DATED [ ]
BETWEEN
AZURIX EUROPE LTD.
-and-
THE JUNIOR CREDITOR
(as defined in this Deed)
-and-
WESTDEUTSCHE LANDESBANK GIROZENTRALE
as Facility Agent
--------------------------------------------
SUBORDINATION AGREEMENT
relating to a L.425,000,000
credit agreement dated [ ] , 1999
between Azurix Europe Ltd. and others
---------------------------------------------
[ALLEN & OVERY LOGO]
London
<PAGE> 106
103
THIS SUBORDINATION AGREEMENT is dated [ ] between:
(1) WESSEX WATER LIMITED (Registered No. 2366633) (the "JUNIOR CREDITOR");
(2) AZURIX EUROPE LTD. (Registered No. 3570749) (the "COMPANY"); and
(3) WESTDEUTSCHE LANDESBANK GIROZENTRALE (the "FACILITY AGENT") as agent
and trustee for the Finance Parties.
BACKGROUND:
(A) By the Credit Agreement the Banks have agreed to make available a
credit facility of up to L.425,000,000 to the Company.
(B) The Junior Creditor has agreed to subordinate all the Junior Debt on
the terms of this Deed.
(C) It is intended that this document takes effect as a deed
notwithstanding the fact that a party may only execute this document
under hand.
1. INTERPRETATION
1.1 DEFINITIONS
In this Deed:
"CREDIT AGREEMENT"
means the agreement dated [ ], 1999 between (among others) the Company
and the Facility Agent for a credit facility of up to
L.425,000,000.
"JUNIOR DEBT"
means all present and future liabilities (actual or contingent) payable
or owing to the Junior Creditor by the Company under or in connection
with the Junior Finance Document together with:
(a) any permitted novation, deferral or extension of any of those
liabilities;
(b) any further advances which may be made by the Junior Creditor
to the Company under any agreement expressed to be
supplemental to the Junior Finance Document plus all interest,
fees and costs in connection therewith;
(c) any claim for damages or restitution in the event of
rescission of any of those liabilities or otherwise in
connection with the Junior Finance Document;
(d) any claim against the Company flowing from any recovery by the
Company of a payment or discharge in respect of those
liabilities on grounds of preference or otherwise;
<PAGE> 107
104
(e) any amounts (such as post-insolvency interest) which would be
included in any of the above for any discharge,
non-provability, unenforceability or non-allowability of the
same in any insolvency or other proceedings; and
(f) all sums payable or owing by the Company to the Junior
Creditor in respect of the Wessex Inter-Company Receivable.
"JUNIOR FINANCE DOCUMENTS"
means the Wessex Loan and all variations, replacements, novations of
and supplements thereto.
"MAJORITY BANKS"
has the meaning given to it in the Credit Agreement.
"PERMITTED PAYMENTS"
means any distribution by the Junior Creditor out of, and to the extent
of the aggregate of:
(a) the amount shown in the balance sheet of the Relevant Accounts
as Profit and Loss Account less L.34,900,000; and
(b) after the English High Court has approved finally the use of
this amount to make a distribution, L.90,300,000
comprised in the amount shown in the Relevant Accounts as
Capital Redemption Reserve,
if applied in discharge by set off against the Wessex Inter-Company
Receivable provided that no distribution in cash by the Junior Creditor
shall be applied in discharge against the Wessex Inter-Company
Receivable.
"PARTY"
means a party to this Deed.
"RELEVANT ACCOUNTS"
means the audited consolidated accounts of the Junior Creditor for the
financial year ended 31st December, 1998 delivered to the Agent
pursuant to clause 4.1 (Documentary conditions precedent) of the Credit
Agreement.
"SENIOR DEBT"
means all present and future liabilities (actual or contingent) payable
or owing by the Company to the Finance Parties under or in connection
with the Finance Documents together with:
(a) any refinancing, novation, refunding, deferral or extension of
any of those liabilities;
<PAGE> 108
105
(b) any further advances which may be made by the Finance Parties
to the Company under any agreement expressed to be
supplemental to any Finance Document plus all interest, fees
and costs in connection therewith;
(c) any claim for damages or restitution in the event of
rescission of any of those liabilities or otherwise in
connection with the Finance Documents;
(d) any claim against the Company flowing from any recovery by the
Company of a payment or discharge in respect of those
liabilities on grounds of preference or otherwise; and
(e) any amounts (such as post-insolvency interest) which would be
included in any of the above for any discharge,
non-provability, unenforceability or non-allowability of the
same in any insolvency or other proceedings.
"SENIOR LIABILITIES"
means all present and future obligations and liabilities (whether
actual or contingent and whether owned jointly or severally or in any
capacity whatsoever) of the Company to any Finance Party under each
Finance Document to which the Company is a party.
"WESSEX INTER-COMPANY RECEIVABLE"
means a receivable due to the Junior Creditor by the Company in the
amount of L.198,300,000 shown as such in the Relevant Accounts.
1.2 CONSTRUCTION
(a) Capitalised terms defined in the Credit Agreement have, unless
expressly defined in this Deed, the same meaning in this Deed.
(b) The provisions of Clause 1.2 of the Credit Agreement apply to this Deed
as though they were set out in full in this Deed except that references
to the Credit Agreement are to be construed as references to this Deed.
2. THE COMPANY'S UNDERTAKINGS
So long as any Senior Debt is outstanding and until the Senior
Liabilities have been irrevocably paid in full, the Company will not,
except as the Facility Agent (acting on the instructions of the
Majority Banks) has previously consented:
(a) subject to Clause 5 (Subordination on Insolvency), pay or
repay or purchase or acquire, any of the Junior Debt; or
(b) except for Permitted Payments, discharge any of the Junior
Debt by set-off; or
(c) create or permit to subsist security over any of its assets
for any of the Junior Debt; or
(d) amend, vary, waive or release any term of the Junior Finance
Document (other than any procedural or administrative change
or any other change which can reasonably be expected not to
prejudice any Senior Debt or any Finance Party); or
<PAGE> 109
106
(e) take or omit to take any action whereby the subordination
achieved by this Deed will be impaired.
3. JUNIOR CREDITOR'S UNDERTAKINGS
So long as any Senior Debt is outstanding and until the Senior
Liabilities have been irrevocably paid in full, except as permitted
under the Finance Documents or except as the Facility Agent (acting on
the instructions of the Majority Banks) has previously consented, the
Junior Creditor will:
(a) subject to Clause 5 (Subordination on Insolvency), not demand
or receive payment of any of the Junior Debt from the Company
or any other source or apply any money or assets in discharge
of any Junior Debt;
(b) except for Permitted Payments, not discharge any of the Junior
Debt by set-off;
(c) not permit to subsist or receive any security for any of the
Junior Debt;
(d) not permit to subsist or receive any guarantee, indemnity or
other assurance against loss in respect of any of the Junior
Debt;
(e) not amend, vary, waive or release any term of the Junior
Finance Document (other than any procedural or administrative
change or any other change which can reasonably be expected
not to prejudice any Senior Debt or any Finance Party);
(f) promptly notify the Facility Agent of any default or event of
default in respect of the Junior Debt;
(g) unless Clause 5 (Subordination on Insolvency) applies, not:
(i) declare any of the Junior Debt prematurely due and
payable;
(ii) enforce the Junior Debt by execution or otherwise; or
(iii) initiate or take any steps with a view to any
insolvency, reorganisation or dissolution proceedings
in respect of the Company;
(h) not take or omit to take any action whereby the subordination
achieved by this Deed may be impaired; and
(i) not refuse to register any holder of the shares in the Junior
Creditor as a shareholder.
4. TURNOVER OF NON-PERMITTED RECOVERIES
4.1 NON-PERMITTED PAYMENT
If, other than as permitted under the Finance Documents (including
under Clauses 2(b) and 3(b) above):
<PAGE> 110
107
(a) the Junior Creditor receives a payment or distribution in
respect of any of the Junior Debt from the Company or any
other source; or
(b) the Junior Creditor receives the proceeds of any enforcement
of any security or any guarantee, indemnity or other assurance
against financial loss for any Junior Debt; or
(c) the Company makes any payment or distribution to the Junior
Creditor on account of the purchase or other acquisition of
any of the Junior Debt,
the Junior Creditor will hold the same in trust for the Finance Parties
and pay and distribute it to the Facility Agent for application towards
the Senior Debt until the Senior Debt is irrevocably paid in full.
4.2 NON-PERMITTED SET-OFFS
If, other than as permitted under the Finance Documents (including
under Clauses 2(b) and 3(b) above), for any reason, any of the Junior
Debt is discharged by set-off, the Junior Creditor will promptly pay an
amount equal to the discharge to the Facility Agent for application
towards the Senior Debt until the Senior Debt is irrevocably paid in
full.
4.3 FAILURE OF TRUST
If, for any reason, a trust in favour of, or a holding of property for,
the Finance Parties under this Deed is invalid or unenforceable, the
Junior Creditor will pay and deliver to the Facility Agent an amount
equal to the payment, receipt or recovery which the Junior Creditor
would otherwise have been bound to hold on trust for or as property of
the Finance Parties.
5. SUBORDINATION ON INSOLVENCY
If any of the events set out in Clauses 19.6 (Insolvency) to 19.10
(Analogous proceedings) (inclusive) of the Credit Agreement occurs THEN
(a) the Junior Debt will be subordinate in right of payment to the
Senior Debt;
(b) the Facility Agent may, and is irrevocably authorised on
behalf of the Junior Creditor to, (i) claim, enforce and prove
for the Junior Debt, (ii) file claims and proofs, give
receipts and take all such proceedings and do all such things
as the Facility Agent reasonably sees fit to recover the
Junior Debt and (iii) receive all distributions on the Junior
Debt for application towards the Senior Debt;
(c) if and to the extent that the Facility Agent is not entitled
to do any of the foregoing, the Junior Creditor will do so in
good time as reasonably directed by the Facility Agent;
(d) the Junior Creditor will hold all distributions in cash or in
kind received or receivable by it in respect of the Junior
Debt from the Company or from any other source in trust for
the Finance Parties and will (at the Junior Creditor's
expense) pay and transfer the same to the Facility Agent for
application towards the Senior Debt until the Senior Debt is
irrevocably paid in full; and
<PAGE> 111
108
(e) the trustee in bankruptcy, liquidator, assignee or other
person distributing the assets of the Company or their
proceeds is directed to pay distributions on the Junior Debt
direct to the Facility Agent for application towards the
Senior Debt until the Senior Debt is irrevocably paid in full.
The Junior Creditor will give all such notices and do all such
things as the Facility Agent may reasonably direct to give
effect to this provision.
6. CONSENTS
The Junior Creditor will not have any remedy against the Company, the
Facility Agent or the Finance Parties by reason of any transaction
entered into between the Facility Agent and/or the Finance Parties and
the Company which violates any Junior Finance Document and the Junior
Creditor may not object to any such transaction by reason of any
provisions of the Junior Finance Documents.
7. REPRESENTATIONS AND WARRANTIES
The Junior Creditor represents and warrants to the Facility Agent and
each other Finance Party that this Deed:
(a) is within its powers and has been duly authorised by it;
(b) subject to qualifications on to matters of law in the legal
opinions delivered under the Credit Agreement, constitutes its
legal, valid, binding and enforceable obligations; and
(c) does not conflict with any law or regulation or its
constitutional documents or, to any material extent, any
document binding on it and that it has obtained all necessary
consents for its performance of this Deed.
8. PROTECTION OF SUBORDINATION
8.1 CONTINUING SUBORDINATION
The subordination provisions in this Deed constitute a continuing
subordination and benefit the ultimate balance of the Senior Debt
regardless of any intermediate payment or discharge of the Senior Debt
in whole or in part.
8.2 WAIVER OF DEFENCES
The subordination in this Deed and the obligations of the Junior
Creditor under this Deed will not be affected by any act, omission,
matter or thing which, but for this provision, would reduce, release or
prejudice the subordination or any of those obligations in whole or in
part, including without limitation:
(a) any waiver granted to, or composition with, the Company or
other person;
(b) the taking, variation, compromise, exchange, renewal or
release of, or refusal or neglect to perfect, take up or
enforce, any rights against, or security over assets of, the
Company or other person in respect of the Senior Debt or
otherwise or any failure to realise the full value of any
security; or
<PAGE> 112
109
(c) any unenforceability, illegality or invalidity of any
obligation of the Company or security in respect of the Senior
Debt or any other document or security.
8.3 IMMEDIATE RECOURSE
The Junior Creditor waives any right it may have of first requiring any
Finance Party (or the Facility Agent or any trustee or other agent on
its behalf) to proceed against or enforce any other rights or security
or claim payment from any person before claiming the benefit of this
Deed. The Facility Agent may refrain from applying or enforcing any
money, rights or security unless and until instructed by the Majority
Banks. The Majority Banks may give or refrain from giving instructions
to the Facility Agent to enforce or refrain from enforcing any security
as long as they see fit.
8.4 APPROPRIATIONS
Until the Senior Liabilities have been irrevocably paid in full, the
Facility Agent may:
(a) apply any moneys or property received under this Deed or from
the Company or from any other person against the Senior Debt
in accordance with the terms of the Credit Agreement;
(b) hold in an interest-bearing suspense account any moneys or
distributions received from the Junior Creditor under Clause 4
(Turnover of non-permitted recoveries) or Clause 5
(Subordination on insolvency) or on account of the liability
of the Junior Creditor under this Deed.
8.5 NON-COMPETITION
Until the Senior Liabilities have been irrevocably paid in full, the
Junior Creditor will not by virtue of any payment or performance by it
under this Deed or by virtue of the operation of Clauses 4 (Turnover of
non-permitted recoveries) or 5 (Subordination on insolvency):-
(a) be subrogated to any rights, security or moneys held, received
or receivable by any Finance Party (or the Facility Agent or
any trustee or other agent on its behalf) or be entitled to
any right of contribution or indemnity in respect of any
payment made or moneys received on account of the Junior
Creditor's liability under this Deed; or
(b) claim, rank, prove or vote as a creditor of the Company or
other person or their respective estates in competition with
any Finance Party (or the Facility Agent or any trustee or
other agent on its behalf); or
(c) receive, claim or have the benefit of any payment,
distribution or security from or on account of the Company or
other person.
9. PRESERVATION OF JUNIOR DEBT
Notwithstanding any term of this Deed postponing, subordinating or
preventing the payment of any of the Junior Debt, the Junior Debt
concerned shall, solely as between the Company and the Junior Creditor,
remain owing or due and payable in accordance with the terms of the
<PAGE> 113
110
Junior Finance Documents, and interest and default interest will accrue
on missed payments accordingly.
10. CHANGES TO THE PARTIES
10.1 SUCCESSORS AND ASSIGNS
This Deed is binding on the successors and assigns of the Parties.
10.2 THE COMPANY AND THE JUNIOR CREDITOR
Neither the Company nor the Junior Creditor may assign or transfer any
of their rights or obligations under this Deed without the consent of
the Majority Banks.
10.3 THE FACILITY AGENT AND THE FINANCE PARTIES
The Facility Agent and the other Finance Parties may assign or
otherwise dispose of all or any of their rights under this Deed in
accordance with the Credit Agreement to which they are respectively a
party.
11. MISCELLANEOUS
11.1 PERPETUITY
The perpetuity period for the trusts in this Deed is 80 years.
11.2 POWER OF ATTORNEY
By way of security for the obligations of the Junior Creditor under
this Deed, the Junior Creditor irrevocably appoints the Facility Agent
as its attorney to do anything which the Junior Creditor is required to
do by this Deed but has failed to do, having been given 10 Business
Days notice to rectify such non-compliance. The Facility Agent may
delegate this power subject to the approval of the Majority Banks.
12. INDEMNITY
(a) The Company will indemnify the Facility Agent and every attorney
appointed by it in respect of all liabilities and expenses reasonably
incurred by it or him in good faith in connection with the enforcement
or preservation of any rights in accordance with this Deed.
(b) The Facility Agent shall not be liable for any losses arising in
connection with the exercise or purported exercise of any of its
rights, powers and discretions in good faith under this Deed, unless
that liability arises as a result of the Facility Agent's negligence or
wilful default and in particular (but without limitation) the Facility
Agent in possession shall not be liable to account as mortgagee in
possession.
13. WAIVERS, REMEDIES CUMULATIVE
The rights of the Facility Agent and the other Finance Parties under
this Deed:
(a) may be exercised as often as necessary;
<PAGE> 114
111
(b) are cumulative and are not exclusive of their rights under the
general law; and
(c) may be waived only in writing and specifically and may be on
such terms as the Facility Agent or the Finance Parties see
fit.
14. SEVERABILITY
If a provision of this Deed is or becomes illegal, invalid or
unenforceable in any jurisdiction, that shall not affect:
(a) the validity or enforceability in that jurisdiction of any
other provision of this Deed; or
(b) the validity or enforceability in other jurisdictions of that
or any other provision of this Deed.
15. COUNTERPARTS
This Deed may be executed in any number of counterparts, and this has
the same effect as if the signatures on the counterparts were on a
single copy of this Deed.
16. NOTICES
16.1 GIVING OF NOTICES
All notices or other communications under or in connection with this
Deed shall be given in writing and, unless otherwise stated, may be
made by letter or facsimile. Any such notice will be deemed to be given
as follows:
(a) if by letter, when delivered personally or on actual receipt;
and
(b) if by facsimile, when received in legible form.
However, a notice given in accordance with the above but received on a
non-working day or after business hours in the place of receipt will
only be deemed to be given on the next working day in that place.
16.2 ADDRESSES FOR NOTICES
(a) The address, and facsimile number of the Junior Creditor for all
notices under or in connection with this Deed are
Fax:
Attention: [ ]
or such other as the Junior Creditor may notify to the other Parties by
not less than five Business Days' notice.
<PAGE> 115
112
(b) The address, and facsimile number of the Company for all notices under
or in connection with this Deed are:
Fax:
Attention: [ ]
or such other as the Company may notify to the other Parties by not
less than five Business Days' notice.
(c) The address and facsimile number of the Facility Agent for all notices
under or in connection with this Deed are:
[
]
Facsimile No: [ ]
Attention: [ ]
or such other as the Facility Agent may notify to the other Parties by
not less than five Business Days' notice.
17.
17. GOVERNING LAW
This Deed is governed by English law.
This Deed has been entered into on the date stated at the beginning of this
Deed.
<PAGE> 116
113
SIGNATORIES TO THE SUBORDINATION AGREEMENT
JUNIOR CREDITOR
EXECUTED as a deed by )
WESSEX WATER LIMITED )
acting by )
and )
Director
Director/Secretary:
COMPANY
EXECUTED as a deed by )
AZURIX EUROPE LTD. )
acting by )
and )
Director
Director/Secretary
FACILITY AGENT
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By:
<PAGE> 117
114
SCHEDULE 9
FORM OF INTER-COMPANY LOAN
Dated [ ]
[SPV]
AS BORROWER
AZURIX CORP.
AS GUARANTOR
and
AZURIX EUROPE LTD
AS LENDER
[EURO]
LOAN AGREEMENT
<PAGE> 118
115
THIS LOAN AGREEMENT (this "AGREEMENT") is made on between:
(1) [SPV], a [company]/[limited partnership]/[other] organised under the
laws of [ ] (Registered No. ) (the "BORROWER");
(2) AZURIX CORP., a company organised under the laws of Delaware (the
"GUARANTOR"); and
(3) AZURIX EUROPE LTD, a company incorporated in England and Wales,
(Registered No 3570749) (the "LENDER").
1. DEFINITIONS AND INTERPRETATIONS
1.1 Capitalised terms used in this Agreement shall have the meanings
ascribed to them below, and, except to the extent defined otherwise
below, terms defined in the Credit Agreement shall have the same
meaning herein.
"BUSINESS DAY" means a day (other than a Saturday or a Sunday) on which
banks are open for business in [London].
"CLAUSE" means a clause of this Agreement.
"CREDIT AGREEMENT" means the agreement dated 1999 between (among
others) the Lender and Chase Manhattan PLC and Westdeutsche Landesbank
Girozentrale, for a credit facility of up to L.425,000,000.
"DRAWDOWN DATE" has the meaning ascribed to such term in Clause 2.2.
"INTEREST PERIODS" means the Interest Periods (as defined in the Credit
Agreement) applicable to the Advances made under the Credit Agreement
to fund the Loan by the Lender under this Agreement.
"INTEREST RATE" means, in relation to any Interest Period, the rate per
annum equal to the sum of (a) LIBOR for that Interest Period and (b) %
per annum.
"PRINCIPAL AMOUNT" has the meaning ascribed to such term in Clause 2.1.
"REPAYMENT DATE" has the meaning ascribed to such term in Clause 2.7.
["STERLING" AND "L."]/["DOLLARS" AND "$"]/["EURO" AND "E$"] means
the lawful currency for the time being of [the United Kingdom]/[the
United States of America]/[the participating member states in European
monetary union].
Headings of Clauses are for ease of reference only and shall not affect
the interpretation of this Agreement.
2. PRINCIPAL AND INTEREST
2.1 Subject to and in accordance with the terms of this Agreement, the
Lender shall lend to the Borrower the sum [$/E$/L.][ ] or such
lesser sum as shall be specified by the Borrower to the Lender by
notice in writing to be received by the Lender before the Drawdown
Date, (such
<PAGE> 119
116
amount as reduced in accordance with this agreement, the "PRINCIPAL
AMOUNT") and the Borrower shall accept such sum and shall repay to the
Lender such sum and interest thereon in accordance with the terms of
this Agreement.
2.2 The Principal Amount shall be paid by the Lender to the Borrower on
[date] or on such other date as shall be specified by the Borrower to
the Lender by notice in writing. The date on which the Principal Amount
is paid by the Lender to the Borrower is hereinafter referred to as the
"DRAWDOWN DATE".
2.3 Interest shall accrue from day to day on the outstanding Principal
Amount during each Interest Period from (and including) the Drawdown
Date until the Repayment Date at the Interest Rate applicable to that
Interest Period on the basis of the actual number of days elapsed and a
[365] day year. Interest shall accrue only on the outstanding Principal
Amount and shall not accrue on any outstanding interest.
2.4 Accrued interest shall be payable by the Borrower to the Lender on the
Repayment Date.
2.5 The Principal Amount shall be repaid by the Borrower to the Lender on
[ ] or on such earlier date(s) as the Borrower shall in its
absolute discretion elect. The Principal Amount will be repaid by the
Borrower by way of a single payment or several payments, as the
Borrower shall in its absolute discretion elect.
2.6 2.6.1 If any of the following occurs:
(i) the Borrower incurs further financial indebtedness or
issues further equity for cash consideration with a
view to repaying the Principal Amount or
(ii) any of the assets ultimately financed by the
Principal Amount are sold for cash consideration, or
the subsidiary of the Borrower which owns such assets
is sold for cash consideration,
the Borrower or the Guarantor shall notify the Lender promptly
after becoming aware of the relevant event.
2.6.2 During the period beginning on the occurrence of that event
and ending 30 days after the date on which the Lender receives
that notification from the Borrower or the Guarantor the
Lender may serve on the Borrower a notice declaring that a
portion of the Principal Amount equal to:
(i) in the case of Clause 2.6.1 (i), the financial
indebtedness incurred or amount of cash consideration
received and
(ii) in the case of Clause 2.6.1 (ii), such amount of the
cash consideration received as is practical in all
the circumstances to be transferred to the Borrower
shall become due and payable 5 Business Days after the date of
such notice, whereupon they shall become so due and payable
(together, in the case of repayment of the whole Principal
Amount, with all other amounts outstanding under this
Agreement).
<PAGE> 120
117
2.7 The date when the Principal Amount is fully repaid by the Borrower to
the Lender, pursuant to Clause 2.5, 2.6 or 6 or otherwise, is referred
to herein as the "REPAYMENT DATE".
3. PAYMENTS AND CURRENCY
3.1 All payments hereunder shall be made by wire transfer to such bank
account as shall be specified by the party to receive the relevant
payment by notice in writing to be received by the other party before
the date when the relevant payment is to be made.
3.2 The currency of the loan and the currency in which the Principal Amount
and interest are calculated and the currency in which all payments by
the Borrower to the Lender shall be made shall be
[Sterling]/[Dollars]/[Euro].
3.3 All payments to be made by the Borrower hereunder shall be made in full
without any deduction or withholding (whether in respect of set-off,
counterclaim, duties, taxes, charges or otherwise howsoever) provided
that if the Borrower is required by law to make any such deduction or
withholding, it shall:
3.3.1 ensure that the deduction or withholding does not exceed the
minimum amount legally required;
3.3.2 pay to the relevant taxation or other authorities, as
appropriate, the full amount of the deduction or withholding;
and
3.3.3 furnish to the Lender within 30 days of such payment an
official receipt from such authorities for all amounts
deducted or withheld if such is available, or otherwise a
certificate of deduction or withholding if such is available,
or otherwise a certificate of deduction or equivalent evidence
of the relevant deduction or withholding.
3.4 If a payment hereunder is due on a day which is not a Business Day, the
due date for that payment shall instead be the next Business Day in the
same calendar month (if there is one) or the preceding Business Day (if
there is not).
3.5 Payments received by the Lender from the Borrower shall be applied
firstly against outstanding amounts of interest, and then against the
outstanding Principal Amount and then against any other amount
outstanding under this Agreement.
4. GUARANTEE
4.1 The Guarantor unconditionally and irrevocably guarantees that, if for
any reason the Borrower does not pay any sum payable by it under this
Agreement by the time, on the date and otherwise in the manner
specified in this Agreement (whether on the normal due date, on
acceleration or otherwise), the Guarantor will pay that sum before
close of business in [London] on that date.
4.2 As between the Guarantor and the Lender but without affecting the
Borrower's obligations, the Guarantor shall be liable under this Clause
4 as if it were the sole principal debtor and not merely a surety.
Accordingly, the Guarantor shall not be discharged, nor shall its
liability be
<PAGE> 121
118
affected, by anything which would not discharge it or affect its
liability if it were the sole principal debtor (including:
4.2.1 any time, indulgence, concession, waiver or consent at any
time given to the Borrower or any other person
4.2.2 any amendment or supplement to any other Clause of this
Agreement or to any security or other guarantee
4.2.3 the making or absence of any demand on the Borrower or any
other person for payment
4.2.4 the enforcement or absence of enforcement of this Agreement or
of any security or other guarantee
4.2.5 the taking, existence or release of any security or other
guarantee
4.2.6 the bankruptcy or winding-up of the Borrower or any other
person, or any step being taken for any such bankruptcy or
winding-up or
4.2.7 the illegality, invalidity or unenforceability of, or any
defect in, any provision of this Agreement or any security or
other guarantee or any of the obligations of any of the
parties under or in connection with this Agreement or any
security or other guarantee).
4.3 The Guarantor's obligations under this Agreement are and will remain in
full force and effect by way of continuing security until no sum
remains to be lent under this Agreement and the Lender has irrevocably
received or recovered all sums payable under this Agreement.
Furthermore, those obligations of the Guarantor are additional to, and
not instead of, any security or other guarantee at any time existing in
favour of any person, whether from the Guarantor or otherwise, and may
be enforced without first having recourse to the Borrower, any other
person, any security or any other guarantee. The Guarantor irrevocably
waives all notices and demands of any kind.
4.4. So long as any sum remains to be lent or remains payable under this
Agreement:
4.4.1 any right of the Guarantor, by reason of the performance of
any of its obligations under this Clause 4, to be indemnified
by the Borrower, to prove in respect of any liability in the
bankruptcy or winding-up of the Borrower or to take the
benefit of or enforce any security or other Guarantee shall
(and shall only) be exercised and enforced in such manner and
on such terms as the Lender may require and
4.4.2 any amount received or recovered by the Guarantor (a) as a
result of any exercise of any such right or (b) in the
bankruptcy or winding-up of the Borrower shall be held in
trust for, and immediately paid to, the Lender.
4.5 The Guarantor shall on demand indemnify the Lender against any funding
or other cost, loss, expense or liability (including loss of margin)
sustained or incurred by the Lender as a result of it being required
for any reason (including any bankruptcy, insolvency, winding-up or
similar law of any jurisdiction) to refund all or part of any amount
received or recovered by it
<PAGE> 122
119
in respect of any sum payable by the Borrower under this Agreement and
shall in any event pay to the Lender on demand the amount so refunded
by it.
4.6 For the purpose of enabling the Lender to maximise its recoveries in
actual or potential insolvency, any amount received or recovered by the
Lender (otherwise than as a result of a payment by the Lender) in
respect of any sum payable by the Borrower under this Agreement may be
placed by the recipient in an interest bearing suspense account. That
amount may be kept there (with any interest earned being credited to
that account) unless and until the recipient is satisfied that it is
not obliged to pay any further sum under this Agreement and that it has
irrevocably received or recovered its share of the Advances, all
interest accrued thereon and any other sums payable to it under this
Agreement.
4.7 As separate, independent and alternative stipulations, the Guarantor
unconditionally and irrevocably agrees:
4.7.1 that any sum which, although expressed to be payable by the
Borrower under this Agreement, is for any reason (whether or
not now existing and whether or not now known or becoming
known to any party to this Agreement) not recoverable from the
Guarantor on the basis of a guarantee shall nevertheless be
recoverable from it as if it were the sole principal debtor
and shall be paid by it to the Lender on demand and
4.7.2 as a primary obligation to indemnify the Lender against any
loss suffered by it as a result of any sum expressed to be
payable by the Borrower under this Agreement not being paid by
the time, on the date and otherwise in the manner specified in
this Agreement or any payment obligation of the Borrower under
this Agreement being or becoming void, voidable or
unenforceable for any reason (whether or not now existing and
whether or not now known or becoming known to any party to
this Agreement), the amount of that loss being the amount
expressed to be payable by the Borrower in respect of the
relevant sum.
5. REPRESENTATIONS AND WARRANTIES
5.1 Each of the Borrower and the Guarantor severally represents and
warrants to and for the benefit of the Lender that this Agreement:
5.1.1 is within its powers and has been duly authorised by it;
5.1.2 constitutes its legal, valid, binding and enforceable
obligations; and
5.1.3 does not conflict in any material respect with any law or
regulation or its constitutional documents or any document
binding on it and that it has obtained all necessary consents
for its performance of this Agreement.
6. DEFAULT
6.1 If any of the following occurs
6.1.1 the Borrower does not pay or otherwise satisfy on the due date
any amount payable by it under this Agreement and the
non-payment continues unremedied for 5 Business Days from the
receipt of it by notice of non-payment from the Lender;
<PAGE> 123
120
6.1.2 the Borrower or the Guarantor is, or is deemed for the
purposes of any law (but for this purpose Section 123(l)(a) of
the Insolvency Act 1986 will take effect as if for L.750
THEre was substituted "L.5,000,000") to be, unable to pay
its debts as they fall due or TO be insolvent, or admits
inability to pay its debts as they fall due;
6.1.3 any step (including petition, proposal or convening a meeting)
is taken, as a result of financial difficulties, with a view
to a composition, assignment or arrangement with any creditors
of the Borrower or Guarantor;
6.1.4 any person presents a petition for the bankruptcy or
winding-up or for the administration of the Borrower or
Guarantor, and, in the case of a petition for bankruptcy or
winding-up presented by a creditor, it is not withdrawn,
discharged or stayed within 21 days;
6.1.5 any order is made for the bankruptcy or winding-up or
administration of the Borrower or Guarantor;
6.1.6 any liquidator, trustee in bankruptcy, judicial custodian,
compulsory manager, receiver, administrative receiver,
administrator or the like is appointed in respect of the
Borrower or Guarantor or any part of their respective assets;
6.1.7 there occurs, in relation to the Borrower or Guarantor, any
event anywhere which, in the opinion of the Lender, appears to
correspond with any of those mentioned in sub-Clauses 6.1.2 to
6.1.6 inclusive;
6.1.8 it is or becomes unlawful for the Borrower or Guarantor to
perform any of its material obligations under this Agreement;
6.1.9 the guarantee of the Guarantor in Clause 4 is not (or is
claimed by the Borrower or Guarantor not to be) in full force
and effect;
6.1.10 the Borrower incurs any [Financial Indebtedness] [other
than ] which is not effectively subordinated to its
payment obligations under this Agreement;
6.1.11 the Agent validly gives notice to the Company pursuant to
Clause [acceleration] of the Credit Agreement;
then the Lender may serve on the Borrower a notice declaring that any
and all of the obligations of the Lender hereunder shall be cancelled
whereupon the same shall be so cancelled forthwith and that all amounts
outstanding under this Agreement from the Borrower to the Lender shall
become immediately due and payable whereupon they shall become so due
and payable.
7. ILLEGALITY
7.1 If any change in or introduction of any applicable law, regulation or
treaty, or any change in the interpretation or application thereof,
shall make it unlawful hereunder for the Lender to make available or
fund or maintain the loan to be made under this Agreement, as the case
may require, the Lender shall give notice thereof to the Borrower,
whereupon the Borrower
<PAGE> 124
121
shall repay all amounts outstanding under this Agreement together with
accrued interest thereon and any other amounts payable to the Lender
hereunder within such period as may be permitted by such law,
regulation or treaty, or the change in the interpretation or
application thereof, or, if no such period is stated therein,
forthwith.
7.2 If any of the provisions of this Agreement become invalid, illegal or
unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not in
any way be affected or impaired.
8. ASSIGNMENT AND TRANSFER
Neither party may assign or transfer (including, without limitation, by
way of novation) all or any of its rights or obligations under this
Agreement to any person without the prior written consent of the other
party, except for the assignment by way of security by the Lender of
its rights under this Agreement pursuant to the [Debenture].
9. MISCELLANEOUS
9.1 No failure to exercise and no delay in exercising, on the part of
either party, any right, power or privilege under this Agreement or any
other documents ancillary hereto shall operate as a waiver thereof, nor
shall single or partial exercise of any right, power or privilege
preclude any other or further exercise thereof, or the exercise of any
other right, power or privilege. No waiver by the Lender shall be
effective unless it is in writing.
9.2 All notices or other communications under or in connection with this
Agreement shall be given in writing and, unless otherwise stated, may
be made by letter or facsimile. Any such notice will be deemed to be
given as follows:
9.2.1 if by letter, when delivered personally or on actual receipt;
9.2.2 if by facsimile, when received in legible form.
However, a notice given in accordance with the above but received on a
non-working day or after business hours in the place of receipt will
only be deemed to be given on the next working day in that place.
9.3 The address and facsimile number of each party for all notices under or
in connection with this Agreement are:
9.3.1 that notified by that party for this purpose to the other
party on or before it becomes a party; or
9.3.2 any other notified by that party for this purpose to the other
party by not less than 5 Business Days' notice.
9.4 This Agreement may be executed in any number of counterparts and by the
parties to it on separate counterparts, each of which shall be an
original but all of which together shall constitute one and the same
instrument.
<PAGE> 125
122
9.5 Any amendment or variation of this Agreement shall be in writing and
signed by each of the parties hereto.
9.6 This Agreement shall be governed by, and interpreted in accordance
with, English law.
9.7 Each of the parties agrees that the courts of England are (subject to
Clause 9.8 below) to have non-exclusive jurisdiction to settle any
dispute (including claims for set-off and counterclaims) which may
arise in connection with the creation, validity, effect, interpretation
or performance of, or the legal relationships established by, this
Agreement or otherwise arising in connection with this Agreement and
for such purposes irrevocably submits to the jurisdiction of the
English courts.
9.8 The agreement contained in Clause 9.7 above is included for the benefit
of the Lender. Accordingly, notwithstanding the exclusive agreement in
Clause 9.7 above the Lender shall retain the right to bring proceeding
in any other court which may have jurisdiction, and the Borrower
irrevocably submits to the jurisdiction of any such court in which the
Lender shall bring such proceedings.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on the
date first stated above.
[SPV]
By:
AZURIX CORPORATION
By:
AZURIX EUROPE LTD
By:
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123
SIGNATORIES
COMPANY
AZURIX EUROPE LTD.
By: /s/ J. ALE
ARRANGERS
CHASE MANHATTAN PLC
By: /s/ M. HOLLAND
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/ S. FROHMAIER /s/ A. MARTIN
FACILITY AGENT
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/ S. FROHMAIER /s/ A. MARTIN
SECURITY AGENT
CHASE MANHATTAN TRUSTEES LIMITED
By: /s/ A. MARTIN (POWER OF ATTORNEY)
<PAGE> 127
124
BANKS
THE CHASE MANHATTAN BANK
By: /s/ BRUCE BETTENCOURT
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/ NANCY G. TAFOYA
THE GOVERNOR AND COMPANY OF BANK OF SCOTLAND
By: /s/ KENNY HUGHES
BAYERISCHE LANDESBANK GIROZENTRALE
By: /s/ MARKUS SCHACHERL /s/ TIMOTHY R. HALL
CREDIT LYONNAIS
By: /s/ MARGARET STEWART
DRESDNER BANK AG, LONDON BRANCH
By: /s/ A. MARTIN (POWER OF ATTORNEY)
FIRST UNION NATIONAL BANK, LONDON BRANCH
By: /s/ T.F. QUIGLEY
LANDESBANK HESSEN-THURINGEN GIROZENTRALE
By: /s/ A. MARTIN (POWER OF ATTORNEY)
ING BANK N.V., LONDON BRANCH
By: /s/ FRANCIS BURKITT /s/ LINDSAY CORNELISSEN
KBC BANK N.V., LONDON BRANCH
By: /s/ A. MARTIN (POWER OF ATTORNEY)
NATIONAL AUSTRALIA BANK LIMITED
By: /s/ DAVID RAWSON
<PAGE> 128
125
PARIBAS
By: /s/ A. MARTIN (POWER OF ATTORNEY)
THE ROYAL BANK OF SCOTLAND PLC
By: /s/ RAJA S. HUSSAIN
SAN PAOLO IMI SPA.
By: /s/ RENATO CARDUCCI /s/ RORY FAR QUHAR-THOMSON
ARAB BANK PLC
By: /s/ FREDERICK STONEHOUSE /s/ S.C. DOWNER
BANK OF MONTREAL
By: /s/ ALEX HERBERT
DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK, LONDON BRANCH
By: /s/ A. MARTIN (POWER OF ATTORNEY)
THE TORONTO-DOMINION BANK
By: /s/ MARK CHERRY
ARGENTARIA, CAJA POSTAL Y BANCO HIPOTECARIO, S.A.
By: /s/ A. MARTIN (POWER OF ATTORNEY)
BANCO TOTTA & ACORES S.A.
By: /s/ A. MARTIN (POWER OF ATTORNEY)
BANCA NAZIONALE DEL LAVORO S.P.A., LONDON BRANCH
By: /s/ JOHN BARNETT /s/ FABIO DI VINCENZO
UNICREDITO ITALIANO SPA
By: /s/ ROBERT G.A. SANDERSON
<PAGE> 1
EXHIBIT 10.6
BUSINESS OPPORTUNITY AGREEMENT
THIS BUSINESS OPPORTUNITY AGREEMENT (this "AGREEMENT"), dated as of
May 1, 1999, is by and among Enron Corp., an Oregon corporation ("ENRON"),
Atlantic Water Trust, a Delaware statutory business trust ("ATLANTIC WATER
TRUST"), and Azurix Corp., a Delaware corporation ("AZURIX"). Atlantic Water
Trust and Azurix are referred to herein collectively as the "AZURIX PARTIES."
Unless the context otherwise requires, references herein to Enron shall be
deemed to be references to Enron and its Affiliates other than Atlantic Water
Trust, Azurix, and entities controlled by either of them.
W I T N E S S E T H:
WHEREAS, Azurix is a wholly owned Subsidiary of Atlantic Water Trust;
and
WHEREAS, Enron owns a significant beneficial interest in Atlantic Water
Trust; and Enron may owe certain duties to Atlantic Water Trust and Azurix
resulting from its ownership interest in Atlantic Water Trust; and
WHEREAS, Azurix and Enron are engaged in the Water Business; and
WHEREAS, Enron engages in, or may engage in the future in, activities
that may have an impact on Atlantic Water Trust and Azurix and their respective
businesses, including the Water Business; and
WHEREAS, the application of the law relating to duties that Enron may
owe to Atlantic Water Trust and Azurix is often difficult to predict; and if a
court were to hold that Enron breached any such duty, Enron could be held liable
for damages in a legal action brought on behalf of Atlantic Water Trust or
Azurix; and
WHEREAS, Enron, Atlantic Water Trust, and Azurix desire to enter into
this Agreement in order to (i) define duties that Enron will owe to Atlantic
Water Trust and Azurix with respect to business opportunities; (ii) define
rights that Enron will have with respect to business opportunities; and (iii)
specify certain circumstances which will not give rise to a breach of duty on
the part of Enron; and
WHEREAS, the Azurix Parties anticipate that they and their Affiliates
will benefit from their relationships with Enron, and Enron's investment in
Atlantic Water Trust was predicated on the execution and delivery of an
agreement containing substantially the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants, rights, and
obligations set forth in this Agreement and the benefits to be derived herefrom,
and for other good and valuable
<PAGE> 2
consideration, the receipt and the sufficiency of which each of the parties
hereto acknowledges and confesses, the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINED TERMS; EXHIBITS. As used in this Agreement,
capitalized terms have the meanings ascribed to such terms in this Agreement and
on Exhibit A attached hereto. Any and all references to "EXHIBITS" are to
Exhibits to this Agreement, each of which is made a part of this Agreement and
incorporated herein for all purposes.
SECTION 2. REPRESENTATIONS. Each of the parties hereto represents and
warrants to the other parties that it has the power and authority (corporate or
other) to enter into this Agreement and to perform its obligations hereunder and
that the execution, delivery and performance of this Agreement will not conflict
with or result in a violation of any law or any other agreement to which it is a
party or by which it is bound.
SECTION 3. AGREEMENT BY AZURIX REGARDING ENRON BUSINESS ACTIVITIES.
Azurix acknowledges and agrees that, so long as such activities are conducted in
compliance with this Agreement in all material respects, Enron is free to
conduct business activities that are within Enron's existing lines of business,
including, but not limited to, the Water Business, and any other lines of
business in which Enron chooses to engage in the future. Without limiting the
foregoing, Azurix acknowledges and agrees that, so long as such activities are
conducted in compliance with this Agreement in all material respects, Enron may
engage in any and all aspects of the Water Business. In connection with the
foregoing, Azurix acknowledges that such activities may result in the
acquisition by Enron of Water Business Assets, and in certain cases Enron or
entities in which Enron has an interest may engage in the Water Business or
acquire Water Business Assets pursuant to bidding or auction processes in which
Azurix is also a bidder. Azurix acknowledges and agrees that such activities may
have an impact on Azurix or the price it pays for properties or securities it
purchases from others. Azurix acknowledges and agrees that Enron or entities in
which it has an interest may engage in the Water Business or acquire direct or
indirect interests in Water Business Assets as a result of the activities
described above, may own, operate, and control any such assets in connection
therewith, and may acquire additional Water Business Assets or pursue
opportunities related thereto or in connection therewith, in each case without
any duty to offer all or any portion of such assets or opportunities to Azurix.
SECTION 4. AGREEMENT BY ENRON REGARDING SEPARATE CONDUCT OF BUSINESS.
Enron agrees that, except with respect to business opportunities pursued jointly
by Enron and Azurix and except as otherwise agreed to between Enron and Azurix,
Enron's business will be conducted through the use of its own personnel and
assets and not with the use of any personnel or assets of Azurix; provided that
nothing herein shall be deemed to prevent Enron from using personnel and
information of Azurix in connection with Enron's decisions regarding its
investment in Atlantic Water Trust, Azurix, or their Affiliates. Without
limiting the foregoing, Enron agrees that, without the consent of Azurix, the
Water Business conducted by Enron entities will only involve business
opportunities identified by or presented to Enron personnel and developed and
pursued solely through the use of the personnel and assets of Enron entities.
Enron agrees that it will not pursue any business opportunity that involves
Water Business Assets that is first presented to an officer or director of Enron
who is also an officer or director of Azurix at the time such opportunity is
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<PAGE> 3
presented (i.e. the first officer or director of Enron to receive notice of such
opportunity from a third party is also an officer or director of Azurix), or
that such officer or director identified on his or her own, unless Enron first
offers such opportunity to Azurix and within a reasonable period of time Azurix
notifies Enron in writing that Azurix elects not to pursue such opportunity. For
purposes of the foregoing, (a) a business opportunity that involves Water
Business Assets shall not include any opportunity where Water Business Assets
represent less than a majority of the fair market value of the opportunity, as
determined by the officer or director of Enron to whom such opportunity is first
presented, based on information available to such officer or director at the
time such opportunity is first presented (which determination shall be
conclusive if made in good faith), (b) senior officers of Azurix who are members
or ad hoc members of the Management Committee of Enron or any similar committee
shall not, by virtue of such membership or ad hoc membership, be deemed to be
Enron personnel, and (c) it will not be a breach of Enron's agreement to develop
and pursue business opportunities solely through the use of the personnel and
assets of ECT, EES, EII, or other Enron entities if one or more senior officers
of Enron who serve on the Board of Directors of Azurix participate, as officers
of Enron, in evaluating, developing or approving business opportunities that
were identified by other Enron personnel or first presented to other Enron
personnel (i.e. the first Enron person to receive notice of such opportunity
from a third party or who identified the opportunity on his or her own was not
also an officer or director of Azurix). The provisions of this Section 4 relate
exclusively to the duties that Enron owes Azurix, and nothing herein shall
affect the fiduciary or other duties owed to Azurix by any individual director
or officer of Azurix in his or her capacity as such. In this connection, Enron
agrees that its representatives on the Board of Directors of Azurix will not,
for the purpose of enabling Enron to pursue an opportunity in the Water
Business, vote in such a manner as to effectively prevent, prohibit, or restrict
Azurix from pursuing such opportunity.
SECTION 5. AGREEMENT, WAIVER, RELEASE AND INDEMNITY. In further
consideration of the benefits received and to be received by Azurix pursuant to
this Agreement, Azurix acknowledges and agrees that, if any business opportunity
is presented to or identified by Enron, except as otherwise provided in Section
4 of this Agreement, Enron may pursue such opportunity and conduct the business
related thereto without any obligation to offer it to Azurix. Azurix
acknowledges and agrees that in such case, to the extent that a court might hold
that the pursuit of such opportunity or the conduct of such activity is a breach
of any standard of care, any duty of loyalty, or any other duty to Azurix (and
without admitting that the pursuit of such opportunity or the conduct of such
activity is such a breach of any such standard or duty), Azurix hereby fully and
irrevocably releases and waives any and all Claims that Azurix or any Person
claiming by, through, or under Azurix may have to claim that the pursuit by
Enron of any such business opportunity or the conduct of the business related
thereto is a breach of any standard of care, any duty of loyalty, or any other
duty to Azurix (and including, without limitation, any and all Claims arising
either directly or derivatively, and whether brought by, through, or under
Azurix, or by any stockholder, creditor, or Subsidiary of Azurix). Further,
Azurix, for itself and its successors and assigns, hereby agrees to indemnify,
defend, and hold harmless Enron and its predecessors and successors in interest,
and all of Enron's and its respective predecessors and successors in interests'
respective Affiliates, stockholders, directors, officers, employees, agents,
attorneys, servants, invitees, contractors, licensees, legal representatives,
successors, and assigns, from any and all such Claims that may be asserted (a)
by any Person whomsoever claiming by, through, or under Azurix or (b) by any
successors or assigns of Azurix. It
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<PAGE> 4
is the express intention of Azurix that the indemnity to Enron herein provided
covers any such Claims asserted by, through, or under Azurix, notwithstanding
that such Persons are not signatories to this Agreement, and whether or not the
release provisions are directly enforceable against any Persons who are not
signatories to this Agreement. This indemnity applies for the benefit of Enron
(including its predecessors and successors in interest, and all of Enron's and
its respective predecessors and successors in interests' respective Affiliates,
stockholders, directors, officers, employees, agents, attorneys, servants,
invitees, contractors, licensees, legal representatives, successors, and
assigns) regardless of whether such claims are based in whole or in part upon
the alleged partial or sole negligence or strict liability of Enron (or its
predecessors or successors in interest, or Enron's or its respective
predecessors or successors in interests' respective Affiliates, stockholders,
directors, officers, employees, agents, attorneys, servants, invitees,
contractors, licensees, legal representatives, successors, and assigns). The
waivers and agreements herein apply equally to activities to be conducted in the
future and activities that have been conducted in the past.
SECTION 6. AGREEMENT TO SUPPLY INFORMATION. Enron agrees that, in
connection with any opportunity presented to Azurix pursuant to Section 4 of
this Agreement, Enron will furnish to Azurix all information in Enron's
possession or reasonably available to Enron regarding the opportunity in
question that is material to a decision by Azurix whether or not to pursue such
opportunity; provided, however, that as a condition to the furnishing of such
information, Enron may require Azurix to enter into a written confidentiality
agreement to protect any non-public, confidential, or proprietary information of
Enron or any third party.
SECTION 7. CONFIDENTIALITY AGREEMENTS, ETC. In the event any party
hereto, or any controlled Affiliate of that party, executes a confidentiality
agreement, an area of mutual interest agreement, a standstill agreement or any
other agreement which purports to bind another party hereto (or any Subsidiary
of such other party), and such other party (or any such Subsidiary of such other
party) is not a party to such agreement, (a) such agreement shall not be binding
on the other party or any of its Subsidiaries (each party acknowledging that
neither it nor any of its Controlled Subsidiaries has any authority to bind any
other party or any other party's Subsidiaries), (b) the other party and its
Subsidiaries shall have no liability for any breach of such agreement, and (c)
the party that executed, or whose controlled Affiliate executed, such agreement
will indemnify, defend, and hold harmless the other party and its Subsidiaries
against any claims arising from or relating to such agreement or any alleged
breach thereof. In the event any third party requires Azurix or Enron to execute
a confidentiality or standstill agreement in order that Enron can furnish to
Azurix, or Azurix can furnish to Enron, any information required by this
Agreement in order to permit Azurix or Enron to exercise any right granted by
this Agreement, Enron and Azurix's obligation in this Agreement to furnish such
information will be conditioned upon the execution of such agreement by Azurix
or Enron, as the case may be.
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<PAGE> 5
SECTION 8. ARBITRATION.
(a) Agreement to Arbitrate. Any and all Claims arising out of
or relating to any provision of this Agreement or the alleged breach hereof,
even though some or all of such Claims allegedly are extracontractual in nature,
whether such Claims sound in contract, tort, or otherwise, at law or in equity,
under domestic, or foreign law, whether provided by statute or the common law,
for damages or any other relief, shall be resolved and decided exclusively by
binding arbitration pursuant to the Federal Arbitration Act in accordance with
the Commercial Arbitration Rules then in effect with the American Arbitration
Association.
(b) Procedural Matters. The arbitration proceeding shall be
conducted in Houston, Texas. The arbitration shall be before a panel of three
arbitrators. Each party to such dispute (with the Azurix Parties being
considered one party of any dispute) shall select one arbitrator, and the two
arbitrators selected by the parties shall select the third arbitrator. The
arbitrators are authorized to issue subpoenas for depositions and other
discovery mechanisms, as well as trial subpoenas, in accordance with the Federal
Rules of Civil Procedure. Any party may initiate a proceeding in the appropriate
United States District Court to enforce this provision. This agreement to
arbitrate shall be enforceable in any and all courts (federal, state, or
otherwise). Judgment upon any award rendered in any such arbitration proceeding
may be entered by any court having jurisdiction. The enforcement of this
agreement to arbitrate and all procedural aspects of this agreement to
arbitrate, including the construction and interpretation of this agreement to
arbitrate, the scope of the arbitrable issues, allegations of waiver, delay, or
defenses to arbitrability and the rules governing the conduct of the
arbitration, shall be governed by and construed pursuant to the Federal
Arbitration Act.
(c) Amounts Awarded. The arbitrators may award such damages as
they deem appropriate, except that the arbitrators shall have no authority to
award punitive (including, without limitation, any exemplary damages, treble
damages, or any other penalty or punitive type of damages), consequential,
incidental, or indirect damages (in tort, contract, or otherwise), the parties
hereby waiving their right, if any, to recover such damages; provided, however,
that the arbitrators shall have the authority to award damages (including,
without limitation, any punitive damages, exemplary damages, treble damages, or
any other penalty or punitive type of damages or indirect damages, in tort,
contract, or otherwise) that were incurred by a party as a result of a third
party Claim against such party.
(d) Costs. The arbitrators shall be entitled to award costs of
the arbitration and attorneys' fees as they deem appropriate.
(e) Prior Notice. Prior to the institution of a Claim under
this Agreement by any Person, such Person shall provide to Enron and all other
parties to this Agreement a written notice specifying the nature and basis of
the Claim. The Persons who are the subject of any Claim shall be given thirty
(30) days to cure any breach before any arbitration proceeding is initiated.
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<PAGE> 6
SECTION 9. RESOLUTION OF CONFLICTS OF INTEREST
(a) Whenever a potential conflict of interest exists or arises between
Enron, on the one hand, and any of the Azurix Parties, on the other hand, any
resolution or course of action in respect of such conflict of interest shall be
permitted and deemed approved by all parties, and shall not constitute a breach
of any duty stated or implied by law or equity, if the resolution or course of
action is authorized by this Agreement or, by operation of this Agreement, is
deemed to be fair and reasonable to the Azurix Parties. Enron shall be
authorized but not required in connection with its resolution of such conflict
of interest to seek Special Approval of a resolution of such conflict or course
of action. The term "SPECIAL APPROVAL" shall mean the approval of a majority of
disinterested directors of Azurix. Any conflict of interest and any resolution
of such conflict of interest shall be conclusively deemed fair and reasonable to
the Azurix Parties if such conflict of interest or resolution is (i) approved by
Special Approval, or (ii) on terms no less favorable to the Azurix Parties than
those generally being provided to or available from unrelated third parties, or
(iii) fair to the Azurix Parties, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to one or more of the Azurix
Parties). Enron may also adopt a resolution or course of action that has not
received Special Approval. Enron and any Person voting in connection with
Special Approval shall be authorized in connection with its determination of
what is "fair and reasonable" to the Azurix Parties and in connection with its
resolution of any conflict of interest to consider (A) the relative interests of
any party to such conflict, agreement, transaction, or situation and the
benefits and burdens relating to such interest; (B) any customary or accepted
industry practices and any customary or historical dealings with a particular
Person; (C) any applicable generally accepted accounting or engineering
practices or principles; and (D) such additional factors as such Person
determines in its sole discretion to be relevant, reasonable, or appropriate
under the circumstances. In the absence of bad faith by Enron, the resolution,
action, or terms so made, taken, or provided by Enron with respect to such
matter shall not constitute a breach of this Agreement or any other agreement
contemplated herein or a breach of any standard of care, any duty of loyalty, or
any other duty imposed herein or therein or under Delaware law or any other law,
rule, or regulation.
(b) Any standard of care, any duty of loyalty, and any other duty
imposed by this Agreement or under Delaware law or any other applicable law,
rule, or regulation shall be modified, waived, or limited as required to permit
Enron to act under this Agreement and to make any decision pursuant to the
authority prescribed in this Agreement so long as such action is reasonably
believed by Enron to be in, or not inconsistent with, this Agreement or the
interests of the Azurix Parties.
SECTION 10. AMENDMENT OF AZURIX'S PURPOSE CLAUSE. Azurix, Atlantic
Water Trust, and Enron agree that, as soon as practicable following the
execution and delivery of this Agreement, they will take such action as is
necessary to cause the purpose clause of Azurix in its Certificate of
Incorporation to be amended to read as follows:
The purpose of the Corporation is to engage, directly or
indirectly (through affiliates or otherwise), in acquiring,
owning, operating, and managing water and wastewater assets,
providing water- and wastewater- related services, and
developing and managing water resources, including without
limitation (i) the ownership, operation, and management of
water supply and wastewater systems and facilities, (ii) the
ownership of interests entitling the owner to
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supplies of water (including water supply agreements and water
rights and other interests in real property held primarily for
use in production, collection, or storage of water), (iii) the
ownership and operation of real and personal property used or
useful in connection with exploration for water, development
of water reserves upon discovery thereof, production of water
from wells located on water properties, and storage and
transportation of water including, but not limited to, water
wells, water pipelines, water storage tanks, water treatment
plants, water pressurization facilities, water distribution
systems, and rights of way, licenses and other rights
associated therewith, (iv) the ownership and operation of real
and personal property used or useful in connection with water
and wastewater collection, treatment, distribution, and
disposal operations, including, but not limited to,
reservoirs, wells, abstraction devices, pipelines, aqueducts,
desalination plants, water treatment facilities, distribution
networks, wastewater collection networks, and wastewater
treatment facilities, (v) service agreements that relate to
the management of water supply or water or wastewater
facilities or systems, including, but not limited to, water
and wastewater system management contracts and "back office"
services agreements, (vi) the operation, management, and
provision of architectural, engineering, and construction
services related to the foregoing, (vii) services and assets
to dispose of residual products from wastewater treatment,
(viii) remediation and development of underground
infrastructure related to water and wastewater systems and
supply, (ix) risk management services involving water
supplies, (x) debt of or equity interests in corporations,
partnerships, or other entities engaged in businesses that the
Corporation is permitted hereby to engage in, (xi) any other
lawful business or activity that now or hereafter may be
incidental to the foregoing purpose or acquired as part of a
larger acquisition transaction the majority of the value of
which (as determined by the Board of Directors of the
Corporation or its designee in good faith) relates to one or
more of the foregoing purposes, but excluding (in the case of
each of items (i) through (xi)) supplying fuel, supplying
energy (other than sales of excess generation from facilities
principally serving assets or facilities described in items
(i), (iii), (iv) and (vii) above), or providing risk
management services on a commodity other than water (other
than being a party to a risk management arrangement to protect
against risks facing the Corporation), and (xii) any other
lawful business or activity; provided that such other business
or activity contemplated by this clause (xii) is approved in
writing by Enron Corp., an Oregon corporation, which approval
may be granted or withheld by Enron Corp. in its sole
discretion and which approval may be general in nature or may
be confined to a particular facility or a particularly
described expanded business purpose. Notwithstanding the
foregoing, from and after the first date on which both of the
following tests are met: (a) Enron Corp. and affiliates of
Enron Corp. do not individually or collectively, directly or
indirectly, own or have the power to vote at least one-third
of the capital stock of the Corporation having ordinary voting
power for the election of
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directors, and (b) fewer than one-third of the directors of
the Corporation are persons who are employees, officers or
directors of Enron Corp. or of any affiliate of Enron Corp.,
the purpose of the Corporation shall be to engage in any
lawful business or activity in which a corporation organized
under the laws of Delaware is permitted to engage under
Delaware law.
Azurix agrees that, until the first date on which both of the following tests
are met: (a) Enron and Affiliates of Enron do not individually or collectively,
directly or indirectly, own or have the power to vote at least one-third of the
capital stock of Azurix having ordinary voting power for the election of
directors, and (b) fewer than one-third of the directors of Azurix are persons
who are employees, officers or directors of Enron or of any Affiliate of Enron,
without the prior written consent of Enron (which consent Enron may grant or
withhold in its sole discretion), Azurix will not further amend the purpose
clause of its Certificate of Incorporation. Azurix also agrees that, to the
extent practicable, it will take such action as it deems appropriate to ensure
that its activities and the activities conducted by its Controlled Subsidiaries
are conducted in a manner that is consistent with the foregoing purpose clause.
SECTION 11. DUTIES OF INDIVIDUAL DIRECTORS. Nothing herein shall affect
the fiduciary or other duties owed to Atlantic Water Trust or Azurix by any
individual director or officer of Atlantic Water Trust or Azurix in his or her
capacity as such.
SECTION 12. DUTIES TO EXISTING ENTITIES. The Azurix Parties acknowledge
that Enron has fiduciary and contractual obligations to other Persons and
entities under existing agreements and relationships and agree that, in the
event of a conflict between the duties of Enron under this Agreement and the
duties of Enron to third parties under agreements or relationships that exist on
the date hereof, Enron shall be entitled to perform its duties to such third
parties without any liability to the Azurix Parties. Without limitation or
exclusion to any other agreements or relationships that Enron has in or
affecting the Water Business on the date hereof, the parties acknowledge that
Enron has furnished to Azurix a confidential list of transactions or
relationships that Enron currently has in or affecting the Water Business or
Water Business Assets and for which Azurix fully and irrevocably waives and
releases any and all Claims with respect thereto.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) Governing Law and Venue. This Agreement shall be governed
by and construed and enforced in accordance with the laws of Delaware without
regard to principles of conflicts of law.
(b) Third Party Beneficiaries. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their successors and permitted assigns. This Agreement is also
intended for the benefit of each member of the Board of Directors of Enron,
Atlantic Water Trust and Azurix, each of which will be considered a third party
beneficiary of this Agreement.
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(c) Amendment; Waivers. This Agreement may be altered,
supplemented, amended, or waived only by the written consent of each party
hereto.
(d) Assignment. No party hereto shall have the right to assign
this Agreement or any of its rights or obligations hereunder without the prior
written consent of the other parties hereto; and any purported assignment of
this Agreement or any of the rights or obligations of a party hereunder without
such consent shall be deemed to be null and void ab initio.
(e) Notices. Any and all notices, designations, consents,
offers, acceptances, or other communications provided for herein (each a
"NOTICE") shall be given in writing by personal delivery, telegram, or telecopy
which shall be addressed, or sent, to the respective addresses or telecopy
numbers as follows (or such other address or telecopy number as any party hereto
may specify for itself by Notice given in accordance with this Section 13(e)):
If to Enron:
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attn: President
Telecopy: 713/646-5801
with a copy to:
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attn: General Counsel
Telecopy: 713/853-3920
If to Atlantic Water Trust:
Atlantic Water Trust
C/o Wilmington Trust Company, Trustee
Rodney Square North
Wilmington, Delaware 19890-0001
Attn: Corporation Trust Administration
Telecopy: 302/651-8681
with a copy to Azurix at its address below.
If to Azurix:
Azurix Corp.
333 Clay Street, Suite 1000
Houston, Texas 77002
Attn: General Counsel
Telecopy: 713/345-5330
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All Notices shall be deemed effective, delivered, and received (i) if given by
personal delivery, when such Notice is personally delivered at the address
specified above; (ii) if given by telecopy, when such telecopy is transmitted to
the telecopy number specified above and receipt thereof is confirmed; or (iii)
if given by telegram, when such Notice is delivered at the address specified
above.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which counterparts shall be deemed to be an original
and which counterparts together shall constitute one and the same agreement of
the parties hereto.
(g) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto respecting the subject matter hereof and
supersedes all prior agreements, discussions, and understandings with respect
thereto.
(h) No Partnership. No term or provision of this Agreement
shall be construed to establish any partnership, agency, or joint venture
relationship among the parties hereto.
(i) Invalidity. In the event that any one or more of the
provisions contained in this Agreement is, for any reason, held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability will not affect any other provision of this Agreement.
(j) Outside Advisers. Each of the parties agrees that the
other may engage any investment banker or engineering, accounting, legal, or
other professional adviser to perform services for it, notwithstanding the fact
that the other party may also employ such Person, and each party waives the
right to claim that the other party breached any duty to it in connection with
such engagement. Nothing herein shall be deemed to grant any rights to any
Person performing investment banking or other professional services for Enron,
Atlantic Water Trust, or Azurix or to preclude any claim by either Enron,
Atlantic Water Trust, or Azurix against any such Person that violates any duty
owed by such Person to Enron, Atlantic Water Trust, or Azurix.
(k) Termination. This Agreement will not be applicable to
opportunities first presented on or after the first date on which both of the
following tests are met: (a) Enron and Affiliates of Enron do not individually
or collectively, directly or indirectly, own or have the power to vote at least
one-third of the capital stock of Azurix having ordinary voting power for the
election of directors, and (b) fewer than one-third of the directors of Azurix
are persons who are employees, officers or directors of Enron or of any
Affiliate of Enron.
(l) Holding Company. No party to this Agreement will, or will
permit any of its Controlled Subsidiaries to, take any action that will require
any other party to this Agreement to register as a "holding company" under the
United States Public Utility Holding Company Act of 1935, as amended, or to have
to qualify for an exemption or change any existing exemption available to a
party to avoid registration thereunder.
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(m) Violation of Law. Neither Azurix nor its Controlled
Subsidiaries shall take any action that will cause Enron or any of its
Subsidiaries to violate applicable law or that will otherwise cause Enron or any
of its Subsidiaries to be subjected to fines, penalties, or forfeiture of
property, and neither Enron nor its Controlled Subsidiaries shall take any
action that will cause Azurix, Atlantic Water Trust, or any of their
Subsidiaries to violate applicable law or that will otherwise cause Azurix,
Atlantic Water Trust, or any of their Subsidiaries to be subjected to fines,
penalties, or forfeiture of property.
(n) Agreements and Waivers of Azurix Binding on Atlantic Water
Trust. Any agreement or waiver by Azurix entered into or granted herein, or in
accordance with the provisions hereof, shall be binding on Atlantic Water Trust
to the same extent as if entered into or granted by Atlantic Water Trust.
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EXECUTED as of the date first set forth above.
ATLANTIC WATER TRUST
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
AZURIX CORP.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
ENRON CORP.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
12
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EXHIBIT A
CERTAIN DEFINITIONS
"AFFILIATE" of a Person means any other Person controlling, controlled
by, or under common control with such first Person, and "controlled Affiliate"
means any other Person controlled by such first Person; provided that Azurix and
its Subsidiaries shall never be considered to be Affiliates of Enron or its
Affiliates. For purposes of this Agreement, the term "control" and its
correlative terms means the possession, directly or indirectly, through one or
more intermediaries, through the ownership of voting securities, by contract, or
otherwise, of the power or authority to exercise a controlling influence over
the management of the Person (including, but not limited to, serving as manager,
managing partner, or general partner of a Person or performing similar functions
for a Person).
"CLAIMS" means any and all claims, demands, causes of action,
liabilities, losses, costs, damages, and expenses of any kind or nature
whatsoever, in law or in equity (including, without limitation, attorneys' fees
and costs), and irrespective of whether any such claims or matters arise out of
common law, contract, tort, strict liability, violation of statutory laws, or
regulations, or any other theory or basis.
"ECT" means Enron Capital & Trade Resources Corp., a Delaware
corporation and its successors and assigns.
"EES" means Enron Energy Services, LLC, a Delaware limited liability
company and its successors and assigns.
"EII" means Enron International Inc., a Delaware corporation and its
successors and assigns.
"PERSON" means any natural person, corporation, limited partnership,
limited liability company, general partnership, joint stock company, joint
venture, association, company, trust, bank, trust company, land trust, business
trust, or other organization, whether or not a legal entity.
"SUBSIDIARY" of any Person means any other Person in which the first
Person owns an interest, directly or indirectly.
"WATER BUSINESS" means any of the businesses permitted by the purpose
clause in Azurix's Certificate of Incorporation as mandated by Section 10 of
this Agreement.
"WATER BUSINESS ASSETS" means assets used in connection with the Water
Business.
A-1
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EXHIBIT 10.7
SERVICES AGREEMENT
This Services Agreement (this "Agreement") is made and entered into as
of May 1, 1999, between Enron Corp., an Oregon corporation ("Enron"), and
Azurix Corp., a Delaware corporation ("Azurix"). Azurix and Enron may
hereinafter be referred to individually as a "Party" or collectively as the
"Parties."
RECITALS:
WHEREAS, Enron and Azurix desire by their execution of this Agreement
to evidence their understanding concerning the provision of certain services by
Enron to Azurix and its subsidiaries;
NOW, THEREFORE, for and in consideration of the mutual promises and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereto
hereby agree as follows:
1. Services. In order to assist the continued and orderly conduct of
certain corporate functions currently performed by Enron and its affiliates for
the benefit of the Referenced Subsidiaries (defined below), Enron agrees to
provide and Azurix agrees to purchase, subject to the terms and conditions set
forth herein, certain corporate staff and support services, as identified in
Exhibit A attached hereto (collectively, the "Services"), in each case if and
only to the extent requested by Azurix. "Referenced Subsidiaries" shall mean
Azurix and its subsidiaries from time to time. Such subsidiaries shall
initially include, without limitation, those subsidiaries listed on Exhibit B.
2. Term. This Agreement shall become effective and Enron shall make
the Services available to the Referenced Subsidiaries pursuant to the terms of
this Agreement for the period commencing on May 1, 1999, and terminating on
the date 180 days following written notice by either party to the other (or
earlier by mutual written agreement); provided, however, (i) the Referenced
Subsidiaries shall remain responsible for all out-of-pocket costs and expenses
incurred by Enron pursuant to agreements entered into by Enron for the benefit
of the Referenced Subsidiaries that could not be terminated prior to the date
of termination of this Agreement, and (ii) upon the mutual agreement of Azurix
and Enron, services may be provided beyond the termination date set forth in
the notice in order to allow the Referenced Subsidiaries the opportunity to
make alternative arrangements for such services. In
<PAGE> 2
the event any of the Services being performed hereunder are no longer
available, Enron, any Enron subsidiary or affiliate, then Enron shall be
relieved of its obligations under this Agreement to provide that particular
Service to the Referenced Subsidiaries. The foregoing shall include any
cessation of or failure of Services due to Year 2000 problems. Enron will
advise the Referenced Subsidiaries of any cessation of Services and shall use
commercially reasonable judgement in assisting the Referenced Subsidiaries in
securing alternative services for the Referenced Subsidiaries.
3. Nature and Quality of Services. The Parties understand and agree
that the Services shall be substantially identical in nature and quality to the
Services provided by Enron to its wholly-owned subsidiaries.
4. Payment. Azurix, as compensation for the performance of the
Services, agrees to reimburse Enron for: (i) all expenses actually incurred by
Enron and readily identifiable to the Referenced Subsidiaries relating to the
Services ("Direct Charges"), which calculation shall be based on the cost of
such Services to Enron and charged to the Referenced Subsidiaries in the same
manner as costs charged to other Enron subsidiaries or affiliated companies and
in accordance with the charge bases identified on Exhibit A, if applicable;
(ii) the actual cost of any goods or services purchased specifically for the
Referenced Subsidiaries by Enron from third parties unaffiliated with Enron
("Operating Charges"); (iii) the actual cost or charge for outsourced services
provided by any third party unaffiliated with Enron specifically for the
Referenced Subsidiaries under an Enron or Enron affiliate agreement with such
third party ("Outsourced Charges"); and (iv) an overhead allocation to the
Referenced Subsidiaries of administrative and general expenses of Enron
corporate staff and support services reasonably related to the amount of such
services provided to the Referenced Subsidiaries for which Azurix does not
receive Direct Charges ("Allocated Charge"). Such Allocated Charge shall be
payable in monthly installments.
If the compensation for the Services does not include sales, use,
excise, value-added or similar taxes, and if any such taxes are imposed on the
Services after the effective date of this Agreement, then such taxes shall be
promptly paid by Azurix.
Any change in the methodology due to regulatory, accounting or legal
reasons, to be used for determining any Direct Charges, Operating Charges,
Outsourced Charges, Allocated Charges or any other charge for Services provided
by Enron, any Enron affiliate or third party, for the Referenced Subsidiaries
2
<PAGE> 3
from that being used on the effective date of this Agreement shall be deemed
agreed to by Azurix without the necessity of getting Azurix's consent so long
as such changes are in good faith and are charged or allocated to the
Referenced Subsidiaries in the same manner as to the other Enron subsidiaries
or affiliated companies.
5. Invoicing. Enron shall invoice Azurix by the 15th working day of
each month for all Direct Charges, Operating Charges, Outsourced Charges and
Allocated Charges, all with respect to the preceding month. All invoices shall
reflect in reasonable detail a description of the Services performed during the
preceding month, and shall be due and payable on the last day of the month of
the invoice. In the event of a dispute as to the propriety of invoiced amounts,
Azurix shall pay all undisputed amounts on each invoice, but shall be entitled
to withhold payment of any amount in dispute and shall promptly notify Enron of
such dispute. Enron or its applicable affiliate shall provide Azurix with
records relating to the disputed amount so as to enable the Parties to resolve
the dispute. Azurix shall pay interest at an annual rate of 18% on any disputed
amounts which it should have paid but withheld.
6. Confidentiality. Each party shall exert the same efforts and
maintain the same precautions that it exerts and maintains with respect to its
own confidential and proprietary information with respect to all information
received from the other party in connection with the performance of the
Services; provided, however, that a party may disclose such information (i) if
required to do so by applicable laws, rules, regulations, or orders (including
any laws, rules, regulations or orders to which either party voluntarily
subjects itself and any applicable securities exchange rules), or (ii) if such
information was or becomes generally available to such party on a
non-confidential basis, provided that the source of such information was not
known by such party to be bound by a confidentiality obligation.
7. Information from Azurix. Any information necessary for Enron or any
third party to perform any Services shall be submitted by Azurix in a manner
consistent with the practices utilized by the Referenced Subsidiaries during
the period immediately prior to the effective date of this Agreement, which
manner shall not be altered except by mutual written agreement of the Parties.
Should Azurix's failure to supply such input render Enron's or any third
party's performance of any Services unreasonably difficult, Enron or such third
party, upon reasonable notice to Azurix, may refuse to perform such Services
until such input is supplied.
3
<PAGE> 4
8. Sole Beneficiaries. Azurix acknowledges that the Services shall be
provided only with respect to the business of Azurix and its subsidiaries or
affiliates. Azurix will not request performance of any Services for the benefit
of any entity other than Azurix and its subsidiaries or affiliates. Azurix
represents and agrees that it will use the Services only in accordance with all
applicable federal, state and local laws and regulations and communications and
common carrier tariffs, and in accordance with the reasonable conditions,
rules, regulations and specifications which may be set forth in any manuals,
materials, documents or instructions in existence on the effective date of this
Agreement and furnished by Enron to Azurix. Enron reserves the right to take
all actions, including termination of any particular Services, that Enron
reasonably believes to be necessary to assure compliance with applicable laws,
regulations and tariffs.
9. User Codes and Passwords. Enron will assign to the Referenced
Subsidiaries all user codes, passwords or numbers, or other control or
identifying cards or numbers, necessary for Enron to perform the Services.
Azurix assumes full responsibility for selection and use of any such codes,
passwords, cards or numbers that may be permitted or required in connection
with the Services involved.
10. LIMITED WARRANTY; LIMITATION OF LIABILITY. ALL PRODUCTS OBTAINED
FOR THE REFERENCED SUBSIDIARIES ARE AS IS, WHERE IS, AS TO ENRON, WITH ALL
FAULTS, OTHER THAN FAULTS DUE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
ENRON. NEITHER ENRON NOR ANY ENRON AFFILIATE PERFORMING ANY SERVICES HEREUNDER
MAKE ANY WARRANTIES OR REPRESENTATIONS WHATSOEVER, EXPRESS OR IMPLIED,
INCLUDING THE WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE SERVICES RENDERED FOR OR PRODUCTS OBTAINED FOR THE
REFERENCED SUBSIDIARIES, INCLUDING WITHOUT LIMITATION THOSE RENDERED BY OR
OBTAINED FROM A THIRD PARTY. NOTWITHSTANDING THE FOREGOING, TO THE EXTENT A
WARRANTY PROVIDED BY A THIRD PARTY MANUFACTURER OR PROVIDER OF GOODS OR
SERVICES TO ENRON OR ITS AFFILIATES CAN BE PASSED-ON TO THE REFERENCED
SUBSIDIARIES, NOTHING HEREIN IS INTENDED TO LIMIT SAME AND THE REFERENCED
SUBSIDIARIES SHALL HAVE THE RIGHT TO THE
4
<PAGE> 5
BENEFITS (SUBJECT TO THE TERMS AND CONDITIONS THEREOF) OF ALL SUCH THIRD PARTY
WARRANTIES.
IN NO EVENT SHALL EITHER ENRON OR THE REFERENCED SUBSIDIARIES BE
LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM ANY ERROR IN THE PERFORMANCE OF SERVICES
OR FROM THE BREACH OF THIS AGREEMENT, REGARDLESS OF FAULT. TO THE EXTENT ANY
THIRD PARTY HAS LIMITED ITS LIABILITY TO ENRON FOR SERVICES UNDER AN
OUTSOURCING OR OTHER AGREEMENT, THE REFERENCED SUBSIDIARIES AGREE TO BE BOUND
BY SUCH LIMITATION OF LIABILITY FOR ANY PRODUCT OR SERVICE PROVIDED TO ENRON BY
SUCH THIRD PARTY UNDER SUCH AGREEMENT.
11. Force Majeure. Enron shall have no obligation to perform the
Services if its failure to do so is caused by or results from any act of God,
governmental action, natural disaster, strike, failure of essential equipment,
Y2K problem, or any other cause or circumstance beyond the control of Enron.
Enron agrees that upon restoring service following any failure of any equipment
necessary for Enron or its affiliates to provide any Services, Enron will allow
the Referenced Subsidiaries to have equal priority, in accordance with prior
practice, with respect to access to the restored service.
12. Severability. In the event any portion of this Agreement shall be
found by a court of competent jurisdiction to be unenforceable, that portion of
the Agreement will be null and void and the remainder of the Agreement will be
binding on the Parties as if the unenforceable provisions had never been
contained herein.
13. Assignment. This Agreement shall not be assignable by either of
the Parties hereto except by operation of law or with the written consent of
the non-assigning Party.
14. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the Parties relating to the performance of the Services and all
prior or contemporaneous written or oral agreements are merged herein. This
Agreement may not be amended or otherwise modified except by a writing signed
by both Parties.
15. Choice of Law. This Agreement shall be governed by the laws of the
State of Texas,
5
<PAGE> 6
without regard to any conflict-of-law rule or principle that might refer the
construction or interpretation of this Agreement to the laws of another state.
16. Notice. Any notice, request, instruction, correspondence or other
document to be given hereunder by either Party to the other (herein
collectively called "Notice") shall be in writing and delivered personally or
by facsimile, as follows:
If to Enron: Enron Corp.
1400 Smith Street
P.0. Box 1188
Houston, Texas 77251-1188
Attention: Senior Vice President, Chief Accounting
and Information Officer
Facsimile No.: 713-853-3920
With a copy to: Senior Vice President and General
Counsel
Facsimile No.: 713-853-3920
If to Azurix: Azurix Corp.
333 Clay Street 10th Floor
Houston, Texas 77002
Attention: Chief Accounting Officer
Facsimile No. 713-345-5154
With a copy to: General Counsel
Facsimile No. 713-345-5330
Notice given by personal delivery shall be effective upon actual receipt by the
Party to whom addressed. Notice given by facsimile or telegram shall be
effective upon actual receipt if received during the recipient's normal
business hours, or at the beginning of the recipient's next business day after
receipt if not received during the recipient's normal business hours. Any Party
may change any address to which Notice is to be given to it by giving Notice as
provided above of such change of address.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the Parties hereto have caused this Services
Agreement to be signed on their behalf by their duly authorized officers.
ENRON CORP.
By: /s/ RICHARD A. CAUSEY
---------------------------------------------
Name: Richard A. Causey
Title: Senior Vice President and Chief Accounting
and Information Officer
AZURIX CORP.
By: /s/ RODNEY L. GRAY
---------------------------------------------
Name: Rodney L. Gray
Title: Vice Chairman
7
<PAGE> 8
EXHIBIT A
<TABLE>
<CAPTION>
ENRON RC # COMPANY # 901 CHARGE BASES
-------------
<S> <C> <C>
581 Facility Maintenance Azurix's Floor Space - Square Feet*
629 Corporate Security Azurix's Floor Space - Square Feet*
898 Building Services Azurix's Floor Space - Square Feet*
2234 Facility Operations Azurix's Floor Space - Square Feet*
75 ECAS Administration Azurix's Usage of Services
566 Construction Azurix's Usage of Services
580 Facility Planning Azurix's Usage of Services
692 Churn/Relocation Azurix's Usage of Services
703 Audio Visual & Locks Azurix's Usage of Services
1829 International Security Azurix's Usage of Services
2334 Bus/Parking Subsidy Azurix's Usage of Services
2441 ABS Utility Azurix's Usage of Services
2455 Rent Azurix's Floor Space - Square Feet
746 Furniture Azurix's Usage of Services
0781/0782 Aviation Azurix's Usage of Services
103 Shipping/Receiving Azurix's Usage of Services
228 Copy Center Azurix's Usage of Services
492 Mail Center Azurix's Usage of Services
586 Concierge Services Azurix's Usage of Services
2255 Convenience Copiers Azurix's Usage of Services
2453 Cafeteria Axurix's Usage of Services
215 Records Azurix's Usage of Services
0508 Real Estate Azurix's Usage of Services
0502 Travel Azurix's Usage of Services
0752 Legal Azurix's Usage of Services or
occasioned by Azurix
*sublease or lease covered by separate agreement
COMPANY # 001 ENRON MANAGEMENT COMPANY
--------------------------------------
0208/0649 Compensation/Benefits % of Benefits
COMPANY # 011 ENRON CORP.
-------------------------
1140/1284 Enron Events % of Downtown HC
658/1946/1949 Development & Training Azurix's Usage of Services
2397 Employee Communications % of total employees
319 VP - Compensation/Benefits % of Headcount
2326 Stock Option Plan Grant Elections
0071/2242/0632-0246 Human Resources % of Headcount New Hires
2349 Audit Fees Direct
0647/2453/2454/2460 Wellness % of Downtown HC
610 Corp. Secretary # of Companies - Legal Entities
0866/1263/1264/1956 REGULATORY AFFAIRS Azurix's Usage of Services/Allocation
MARKETING AFFAIRS Azurix's Usage of Services/Allocation
COMPANY # 969 ECM
-----------------
2411 Insurance Prop. Val./Rev/HC
451 Treasurer
Bank Fees
1990 Vehicle Funding
RISK ASSESSMENT & CONTROL
0258/0826/1128/1129/1130/113
1/1281/1958 Azurix's Usage of Services
INFORMATION TECHNOLOGY % of Headcount
</TABLE>
8
<PAGE> 9
Other Services:
o From time to time, the Referenced Subsidiaries shall utilize the
international offices of Enron and its affiliates for certain projects, in
each case subject to the mutual agreement of Azurix and Enron or its
affiliates, as applicable.
o Such other services to be mutually agreed by Azurix and Enron.
9
<PAGE> 10
EXHIBIT B
Azurix Jose Holdings Ltd.
Azurix Jose Investment Ltd.
Azurix Jose Ltd.
Enron Argentina Holding Inc.
Azurix Misiones SRL
Azurix Cancun B.V.
Azurix Cancun SRL
Enron Water Israel Ltd.
Azurix Suez Ltd.
Azurix Colombia Holdings Ltd.
Azurix Colombia Investments Ltd.
Azurix Colombia Ltd.
Azurix Isla Mujeres B.V.
Operadora de Buenos Aires SRL
Operadora de Misiones SRL
Azurix Mendoza Water Investments Ltd.
Azurix Chengdu Holdings Ltd.
Azurix Chengdu Ltd.
Azurix Misiones Holdings Ltd.
Azurix Misiones Ltd.
Azurix U.K. Ltd.
Azurix Rio Holdings Ltd.
Azurix Rio Investments Ltd.
SPE-Sociedade PAULISTA de Energia Ltda.
SEC-Sociedade Carioca de Energia Ltda.
Azurix Kuwait Ltd.
Azurix AGOSBA Holdings Ltd.
Azurix AGOSBA Ltd.
Azurix AGOSBA SRL
Azurix Chaoyang Water Holdings Ltd.
Azurix Chile Holdings Ltd.
Azurix Chile Ltd.
Azurix Suzhou Water Holdings Ltd.
Azurix Vietnam Holdings Ltd.
Azurix Vietnam Investments Ltd.
Azurix Vietnam Ltd.
Azurix Jordan Ltd.
Azurix Lebanon Ltd.
Azurix Tangiers Ltd.
Azurix Philippines Holdings Ltd.
Azurix Philippines Investments Ltd.
Azurix Philippines Ltd.
Azurix Guam Corporation
Azurix Panama Holdings Ltd.
Azurix Panama Investments Ltd.
Azurix China Holdings Ltd.
Azurix China Investments Ltd.
Azurix Projects Holdings Ltd.
Azurix Projects Ltd.
Azurix Saigon Holding Co.
Azurix Saigon Ltd.
Azurix Ltd.
Azurix Europe Ltd.
Wessex Water Ltd.
Wessex Water Services Ltd.
10
<PAGE> 1
EXHIBIT 10.8
NON-EXCLUSIVE LICENSE AGREEMENT
This Non-Exclusive License Agreement ("Agreement") is entered into as
of May 1, 1999, by and between Enron Corp., a corporation organization and
existing under the laws of the State of Oregon with its headquarters at 1400
Smith Street, Houston, Texas 77002 ("Licensor"), and Azurix Corp., a
corporation organized and existing under the laws of the State of Delaware with
its headquarters at 1400 Smith, Houston, Texas 77002, on behalf of itself and
its subsidiaries, whether existing now or in the future (collectively referred
to as "Licensee").
WHEREAS, Licensor is the owner of the name and Mark "Enron" and its
Fanciful E Logo, as well as goodwill and business interest associated with such
name and Mark; and
WHEREAS, Licensee is desirous of using the Enron name and the Fanciful
E Logo in association with the name of Licensee in accordance with the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the receipt and sufficiency of which are hereby acknowledged,
Licensor and Licensee agree as follows:
1. Except as otherwise provided herein, Licensor hereby grants to
Licensee, and Licensee accepts, a non- exclusive, non-transferable,
royalty-free and worldwide right and license to use, in connection with
Licensee's name, logo and Web page(s), the Identifying Phrase "an Enron
company" (referred to herein as "the Identifying Phrase") and the Fanciful E
Logo for purposes of identifying Azurix as part of Enron's enterprise.
Licensee's use of such Identifying Phrase and the aforementioned Marks shall be
pursuant to the terms and conditions of this Agreement.
2. Notwithstanding anything to the contrary provided herein,
Licensee agrees that it shall not use the Identifying Phrase or the Fanciful E
Logo, or any terms confusingly similar thereto, in connection with any business
other than the water business as described in Exhibit 1 hereto.
3. Licensee shall use the Identifying Phrase only as authorized
herein by Licensor and in accordance with such standards of quality as Licensor
may establish. Licensor shall at all times remain the owner of the name and
Mark "Enron" and the Fanciful E Logo, and any variation or use of same;
Licensee shall obtain no right, title or interest in and to the name and Mark
"Enron" or the Fanciful E Logo, or any other word, words, terms, designs, names
or marks which contains that name or Mark or is confusingly similar thereto
other than the non-exclusive license granted herein.
<PAGE> 2
4. The term of this Agreement shall be one year from the date of
this Agreement. The non-exclusive license granted herein shall be renewed and
extended automatically and repetitively for similar terms unless otherwise
terminated in accordance with the provisions set forth herein.
5. This Agreement and the non-exclusive license granted herein
shall terminate as follows:
(a) This Agreement and the non-exclusive license granted herein
may be terminated by Licensor at any time for Cause, which is defined
as a material breach of this Agreement or the use of the Identifying
Phrase or the Fanciful E Logo in ways or circumstances detrimental to
Licensor, by the giving of a written notice of breach or detrimental
use to the defaulting party, and, if such breach or detrimental use is
not cured within thirty (30) days. Thereafter this Agreement and the
non-exclusive license granted herein shall terminate.
(b) This Agreement and the non-exclusive license granted herein may
be terminated by Licensor for any reason if both of the following
conditions have occurred:
(i) Licensor and affiliates of Licensor do not
individually or collectively, directly or indirectly,
own or have the power to vote at least one-third of
the capital stock of Licensee having ordinary voting
power for the election of directors, and
(ii) Fewer than one-third of the directors of Licensee are
persons who are employees, officers or directors of
Licensor or of any affiliate of Licensor.
(c) This Agreement and the non-exclusive license granted herein may
be terminated by Licensor or by Licensee as of any date on at least 90
days written notice.
6. Upon termination of this Agreement and the non-exclusive
license granted herein, Licensee shall immediately cease all use of the
Identifying Phrase and the Fanciful E Logo, and phase out the then-existing
supply of stationery or supplies containing the Identifying Phrase or the
Fanciful E Logo promptly (if termination is under "5(a)" or "5(b)" above, or as
promptly thereafter as reasonable if termination is pursuant to "5(c)" above.
<PAGE> 3
7. The relationship of Licensor and Licensee pursuant to this
Agreement shall be that of independent contractors. Licensor shall not by
virtue of this Agreement control or have the right to control the methods and
means by which Licensee offers its goods or services in association with the
use of the Identifying Phrase or the Fanciful E Logo although Licensor shall
have the right to require that the use of the Identifying Phrase or the
Fanciful E Logo be in conformance with this License Agreement.
8. The non-exclusive license granted by Licensor to Licensee is
personal to Licensee and may not be assigned, sub-licensed or transferred by
Licensee in any manner. To the extent that Licensee has subsidiary
corporations that utilize the Identifying Phrase or the Fanciful E Logo,
Licensee shall cause each such subsidiary corporation to be bound by and abide
by this Agreement.
9. This Agreement constitutes the entire agreement and
understanding between the parties with respect to the subject matter hereof and
merges all prior discussions, representations and negotiations with respect to
the subject matter hereof.
10. This Agreement shall be interpreted, construed and enforced
pursuant to the laws of the State of Texas.
IN WITNESS WHEREOF, Licensor and Licensee, appearing through their
duly authorized representatives, have executed this instrument to be effective
as of the date first set forth above.
ENRON CORP.
By:
------------------------------------
Name: Jeffrey McMahon
Title: Senior Vice President
Finance and Treasurer
AZURIX CORP.
By:
------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.14
EXECUTION COPY
ATLANTIC WATER TRUST
AMENDED AND RESTATED TRUST AGREEMENT
BY
WILMINGTON TRUST COMPANY,
as Trustee
MARLIN TRUST,
as Beneficial Owner
and
ENRON CORP.,
as Depositor and Beneficial Owner
Dated as of December 17, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I GENERAL................................................................................................1
Section 1.01. Appointment of Wilmington Trust Company...................................................1
Section 1.02. Formation of the Trust....................................................................1
Section 1.03. Name, Principal Office, and Name and Address of Trustee as Agent for Service of Process...2
Section 1.04. Purpose and Powers........................................................................2
Section 1.05. Claims Against the Trust..................................................................3
Section 1.06. Holding of the Trust Estate...............................................................3
Section 1.07. Certain Covenants Relating to the Separateness of the Trust...............................3
ARTICLE II DEFINITIONS...........................................................................................4
ARTICLE III BENEFICIAL INTERESTS AND CONTRIBUTIONS...............................................................7
Section 3.01. Initial Contributions.....................................................................7
Section 3.02. Contributions on the Closing Date.........................................................7
Section 3.03. Further Undertakings On the Closing Date..................................................8
Section 3.04. Classification of Beneficial Interests....................................................8
Section 3.05. Additional Classes of Beneficial Interests................................................8
Section 3.06. Additional Contribution by the Beneficial Owner of the Class B Interest...................9
ARTICLE IV DISTRIBUTIONS.........................................................................................9
Section 4.01. Payments From Trust Estate................................................................9
Section 4.02. Establishment of the Distribution Account.................................................9
Section 4.03. Distributions............................................................................10
Section 4.04. Distribution Date Statements.............................................................14
Section 4.05. Trust Accounts...........................................................................14
Section 4.06. Deferred Class A Distribution; Bristol Water Dividends; Azurix Europe Residual Proceeds
and Azurix Europe Residual Proceeds Account..............................................15
Section 4.07. Class A Priority Distribution............................................................16
Section 4.08. Certain Limitations on the Rights of Class A Interest....................................16
ARTICLE V LIMITATION ON THE LIABILITY OF THE BENEFICIAL OWNERS..................................................16
Section 5.01. Liability of Beneficial Owners...........................................................16
ARTICLE VI RIGHTS, OBLIGATIONS, POWERS AND STATUS OF THE BENEFICIAL OWNERS; BOARD OF DIRECTORS..................17
Section 6.01. Management of the Trust..................................................................17
Section 6.02. Management of Subsidiaries...............................................................18
Section 6.03. Bankruptcy, Dissolution or Termination of a Beneficial Owner.............................19
Section 6.04. Transfer of Beneficial Ownership.........................................................19
Section 6.05. Creditors of the Beneficial Owners.......................................................19
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VII CONCERNING THE TRUSTEE AND WILMINGTON TRUST
COMPANY..............................................................................................20
Section 7.01. General..................................................................................20
Section 7.02. Acceptance of the Trust..................................................................22
Section 7.03. Authority and Duties of the Trustee......................................................22
Section 7.04. Representations and Warranties of Wilmington Trust Company...............................23
Section 7.05. Resignation of the Trustee...............................................................24
Section 7.06. Liability................................................................................25
Section 7.07. Indemnification..........................................................................25
Section 7.08. Fees and Expenses........................................................................25
Section 7.09. Litigation, Action Outside Delaware......................................................25
ARTICLE VIII REPRESENTATIONS AND WARRANTIES.....................................................................26
Section 8.01. Representations and Warranties of Beneficial Owners......................................26
ARTICLE IX DISSOLUTION, BANKRUPTCY AND LIQUIDATION OF THE TRUST.................................................27
Section 9.01. Dissolution of the Trust.................................................................27
Section 9.02. Termination..............................................................................27
Section 9.03. Sale of Assets following a Marlin Note Trigger Event or Upon a Failure to
Pay the Marlin Certificate Price.........................................................27
ARTICLE X NOTICES...............................................................................................28
Section 10.01. Notices.................................................................................28
ARTICLE XI MISCELLANEOUS PROVISIONS.............................................................................28
Section 11.01. Entire Agreement.........................................................................28
Section 11.02. Governing Law...........................................................................28
Section 11.03. Effect..................................................................................28
Section 11.04. Pronouns and Number.....................................................................28
Section 11.05. Effect of Headings......................................................................28
Section 11.06. Severability of Provisions..............................................................28
Section 11.07. Pledge of the Class A Interest to the Indenture Trustee.................................29
Section 11.08. Tax Matters.............................................................................29
Section 11.09. Financial Statements....................................................................30
Section 11.10. Amendments, Waivers, Etc................................................................31
Section 11.11. Limitation of Liability..................................................................31
Section 11.12. Counterparts.............................................................................31
Exhibit A - Form of Certificate
</TABLE>
<PAGE> 4
ATLANTIC WATER TRUST
AMENDED AND RESTATED TRUST AGREEMENT
This AMENDED AND RESTATED TRUST AGREEMENT (this "Agreement")
of Atlantic Water Trust, a Delaware statutory business trust, is made and
entered into as of December 17, 1998 by WILMINGTON TRUST COMPANY, a Delaware
banking corporation, as trustee hereunder, MARLIN WATER TRUST, a Delaware
statutory business trust ("Marlin"), and ENRON CORP., a corporation organized
under the laws of Oregon ("Enron"). Capitalized terms used without definitions
have the meanings assigned to such terms in Article II. Capitalized terms used
herein that are not otherwise defined in Article II have the meanings assigned
to such terms in Appendix A to the Participation Agreement dated as of December
8, 1998 (the "Participation Agreement") among the Trust, Marlin, Enron, Enron
Water (Holding) L.L.C., Bristol Water Trust, Preferred Voting Trust, Azurix
Europe Ltd. and Bankers Trust Company as Indenture Trustee;
WHEREAS, as of November 30, 1998, Wilmington Trust Company and
Enron as depositor (the "Depositor") entered into a Trust Agreement (the "Trust
Agreement") pursuant to which the Trust was formed under the terms and
conditions set forth therein;
WHEREAS, Wilmington Trust Company, Marlin and Enron desire to
amend and restate the Trust Agreement in its entirety;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.01. Appointment of Wilmington Trust Company. The
Depositor has appointed Wilmington Trust Company as Trustee of the Trust
effective as of November 30, 1998, to have all the rights, powers and duties set
forth herein and in the Act and has authorized the Trustee to file the
Certificate of Trust with the Secretary of State pursuant to Section 3810 of the
Act.
Section 1.02. Formation of the Trust. The Trust was formed as
a statutory business trust under and pursuant to the Trust Agreement, the Act
and such other provisions of applicable law as shall pertain to statutory
business trusts organized pursuant to and in accordance with the Act. It is the
intention of the parties hereto that from and after the date hereof, this
Agreement constitute the sole governing instrument of the Trust. All Persons
owning or otherwise holding interests of beneficial ownership in the Trust shall
own or otherwise hold such interests of beneficial ownership pursuant to the
provisions of this Agreement.
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Section 1.03. Name, Principal Office, and Name and Address of
Trustee as Agent for Service of Process. The Trust shall be conducted under the
name "Atlantic Water Trust," in which name the Trust or the Trustee on behalf of
the Trust shall enter into contracts and agreements with respect to the
transactions contemplated hereby. The principal place of business and office of
the Trust shall be c/o Wilmington Trust Company, Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration. The Trustee, who is hereby designated to accept service of
process, is Wilmington Trust Company and its current office is located at the
address provided in the preceding sentence.
Section 1.04. Purpose and Powers. (a) The purpose of the Trust
shall be limited to engaging in the following activities:
(i) to enter into the Participation Agreement with Bristol
Water Trust, Enron Water L.L.C., Enron, Marlin, Voting Trust, Azurix Europe and
the Indenture Trustee, which agreement sets forth certain rights and obligations
of the parties thereto in respect of each other party thereto in connection with
the transactions contemplated by the Transaction Documents;
(ii) subject to dilution of its ownership interests upon,
among other things, any offering, either primary or secondary, of any
instruments representing an equity interest in Azurix Corp. ("Azurix"), to own
any instrument representing an equity interest in Azurix;
(iii) to establish a Delaware statutory trust ("Bristol Water
Trust") by making a capital contribution which shall consist of (x) a cash
contribution in an amount equal to the Overfund Amount and (y) a contribution of
its rights under the Azurix Europe Original Deed;
(iv) to cause Bristol Water Trust to enter into (x) the Azurix
Europe Deed with Azurix Europe, (y) the Swap Agreement pursuant to which certain
amounts paid by Azurix Europe under the Azurix Europe Deed for the benefit of
Bristol Water Trust shall be converted from pounds sterling into U.S. dollars in
accordance with the terms thereof, and (z) (1) the Bristol Water Security
Agreement with Marlin pursuant to which Bristol Water Trust shall pledge its
trust estate and (2) the Azurix Europe Deed of Assignment (I) with Azurix Europe
and Marlin pursuant to which Bristol Water Trust shall pledge its interests in
the Azurix Europe Deed, in each case, in order to secure its obligations under
Section 5.4(b) of the Participation Agreement;
(v) to establish and issue one or more additional classes of
Beneficial Interest in accordance with Section 3.05;
(vi) to enter into and perform its obligations under the
Transaction Documents to which it is a party;
(vii) to engage in those activities that are necessary to
accomplish the foregoing or are incidental thereto;
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(viii) subject to compliance with the Transaction Documents,
to engage in such other activities as may be required in connection with
conservation of the Trust Estate and making distributions to the Beneficial
Owners; and
(ix) to execute such undertakings as may be required by UK
regulatory authorities in connection with its indirect ownership of Wessex Water
Services.
(b) The Trust is hereby authorized to engage in the foregoing
activities. The Trust shall not engage in any activity other than as required or
expressly authorized by the terms of this Agreement or the other Transaction
Documents or, subject to the terms of this Agreement, as the Beneficial Owners
may time to time direct. Without limiting the generality of the foregoing, the
Trust shall not issue any debt or incur any other liability except as expressly
provided herein or in the other Transaction Documents.
Section 1.05. Claims Against the Trust. All Persons extending
credit to, contracting with or having any claim against the Trust shall look
only to the assets of the Trust for payment under such credit, contract or
claim. None of the Trustee (including in its individual capacity), and the
Beneficial Owners, or any of the Trust's officers, employees or agents, whether
past, present or future shall be personally liable therefor.
Section 1.06. Holding of the Trust Estate. The Trustee hereby
agrees to have and to hold the Trust Estate on behalf of the Trust, together
with all and singular revenues, issues, profits and proceeds thereof and
therefrom and appurtenances thereto until this Agreement terminates pursuant to
the terms of this Agreement, in trust under and subject to the conditions and
agreements hereinafter set forth, for the benefit of the Beneficial Owners.
Section 1.07. Certain Covenants Relating to the Separateness
of the Trust.
(a) The Trust shall not commingle or pool its funds or other
assets with those of any other Person.
(b) The Trust shall maintain its assets in such a manner that
it is not costly or difficult to segregate, ascertain or otherwise identify its
individual assets from those of any other Person.
(c) The Trust shall maintain its own records and books of
account.
(d) The Trust shall not incur any Indebtedness, except
pursuant to the Transaction Documents.
(e) The Trust shall not lend money to any Person, except
pursuant to the Transaction Documents, and will not become obligated to provide
funds for the purpose of supporting the obligations of any Person.
(f) The Trust shall not (i) hold itself out or permit itself
to be held out as having agreed to pay, or as being liable for, debts of another
Person; (ii) fail to correct any
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misrepresentation, of which the Trustee has actual knowledge, with respect to
the foregoing; or (iii) operate or purport to operate collectively as a single
or consolidated business entity with respect to any other Person, but the Trust
shall prepare consolidated financial statements consolidating the financial
results of Bristol Water Trust, Azurix, and the consolidated subsidiaries of
Azurix.
(g) The Trust shall abide by all statutory Delaware business
trust formalities, and shall cause its financial statements to be prepared in
accordance with U.S. GAAP and in a manner that indicates the separate existence
of the Trust and the Trust's assets and liabilities.
(h) Except for United States federal, state and local income
tax purposes, the issuance of the beneficial ownership interest in the Trust to
the Beneficial Owners was and is intended to be, and shall be accounted for on
the books, records, and financial statements of the Trust and the Beneficial
Owners as the issuance of equity capital and not as a loan by the Beneficial
Owners to the Trust.
(i) Any bank account of the Trust shall be separate from the
accounts of any other Person.
(j) The Trust shall make no transfer of its assets except in
accordance with or as contemplated by the Transaction Documents.
ARTICLE II
DEFINITIONS
"Additional Class B Director" has the meaning set forth in
Section 6.01(b).
"Atlantic Water Assets Proceeds Subaccount" means the
subaccount of the Distribution Account described under that name in Section
4.02(a)(iv).
"Atlantic Water Asset Sales Proceeds" has the meaning set
forth in Section 4.02(a)(iv).
"Atlantic Water Equity Proceeds Subaccount" means the
subaccount of the Distribution Account described under that name in Section
4.02(a)(iii).
"Atlantic Water Equity Sales Proceeds" has the meaning set
forth in Section 4.02(a)(iii).
"Atlantic Water Transaction Documents" shall mean this
Agreement and the Participation Agreement.
"Azurix Europe Residual Payments" has the meaning set forth in
Section 4.06(b).
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"Bankruptcy Action" has the meaning set forth in Section 9.01.
"Beneficial Interests" has the meaning set forth in Section
3.04(a).
"Beneficial Owners" means Marlin and Enron as owners of the
Class A Interest and Class B Interest, respectively, of the Trust, and their
respective successors and assigns.
"Board of Directors" shall mean the board of directors of the
Trust described in Section 6.01.
"Bristol Water Dividends" has the meaning set forth in Section
4.06(a).
"Certificate of Trust" means the Certificate of Trust of
Atlantic Water Trust filed under the Act with the Secretary of State on November
30, 1998, as such Certificate of Trust may be amended or restated from time to
time.
"Class A Allocated Gains" shall have the meaning set forth in
Section 4.05(a).
"Class A Allocated Losses" shall have the meaning set forth in
Section 4.05(a).
"Class A Designated Director" shall have the meaning set forth
in Section 6.01(b)(i).
"Class A Final Distribution Date" shall mean December 15,
2002.
"Class A Interest" shall have the meaning set forth in Section
3.04(a)(i).
"Class A Priority Distribution" has the meaning set forth in
Section 4.07.
"Class A Trust Account" means the account established on the
books of the Trustee in accordance with Section 4.05(a).
"Class B Designated Director" shall have the meaning set forth
in Section 6.01(b)(i).
"Class B Interest" shall have the meaning set forth in Section
3.04(a)(ii).
"Class B Trust Account" means the account established on the
books of the Trustee in accordance with Section 4.05(b).
"Collections" means all distributions, payments or proceeds on
or of any asset constituting the Trust Estate.
"Contributions" means the payments and contributions made and
to be made by the Beneficial Owners pursuant to Article III, any additional cash
contribution made after the Closing Date, and in the case of the Beneficial
Owner of the Class B Interest, any Enron Equity Sales Proceeds deposited in the
Enron Equity Proceeds Subaccount in accordance with Section 3.06.
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"Deferred Class A Distribution" has the meaning set forth in
Section 4.03(c).
"Distribution Account" has the meaning set forth in Section
4.02(a).
"Distribution Date" means, with respect to any distributions
made from the (i) Ordinary Distribution Subaccount, the second Business Day
immediately preceding each Payment Date as defined under the Indenture, (ii)
Enron Equity Proceeds Subaccount, the Business Day immediately following the
receipt of any Enron Equity Sales Proceeds, (iii) Atlantic Water Equity Proceeds
Subaccount or the Atlantic Water Asset Proceeds Subaccount, the Business Day
immediately following the receipt of any Atlantic Water Equity Sales Proceeds or
Atlantic Water Asset Sales Proceeds, as the case may be, and thereafter, the
second Business Day immediately preceding each Payment Date as defined under the
Indenture for so long as any amounts remain in such subaccounts, and (iv) Trust
Liquidation Proceeds Subaccount, each and every Business Day after the
liquidation of the Trust until all of the assets of the Trust are liquidated.
"Distribution Date Statement" has the meaning set forth in
Section 4.04.
"Enron Equity Proceeds Subaccount" means the subaccount of the
Distribution Account described under that name in Section 4.02(a)(ii).
"Enron Equity Sales Proceeds" has the meaning set forth in
Section 4.02(a)(ii).
"Indemnified Person" has the meaning set forth in Section 7.07
hereof.
"Initial Class A Contribution" means $1,149,000,000.
"Initial Class B Contribution" means the Contribution made by
Enron under Sections 3.01 and 3.02(b), which for purposes of Section 4.05 shall
be deemed to equal $846,000,000.
"Marlin Certificate Distribution Account" has the meaning set
forth in the Marlin Trust Agreement.
"Ordinary Distribution Subaccount" means the subaccount of the
Distribution Account described under that name in Section 4.02(a)(i).
"Partner" has the meaning set forth in Section 11.08.
"Partnership" has the meaning set forth in Section 11.08.
"Periodic Filings" means any tax filings or submissions that
the Trust is required to make with any federal, state or local taxing authority
or regulatory agency.
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"Secretary of State" means the office of the Secretary of
State of the State of Delaware.
"Subject Subsidiary" has the meaning set forth in Section
6.02.
"Tax Capital Account" has the meaning set forth in Section
11.08.
"Trust" means the Delaware statutory business trust known as
"Atlantic Water Trust" which was formed as of November 30, 1998, under the Act
pursuant to the Trust Agreement and the filing of the Certificate of Trust.
"Trust Account" shall have the meaning set forth in Section
4.05.
"Trust Estate" means all right, title and interest of the
Trust in and to the Contributions and any other property contributed to the
Trust by the Beneficial Owners or otherwise acquired by the Trust, including,
without limitation, all of the rights of the Trust under the Transaction
Documents to which it is a party, together with distributions, payments,
revenues, issues, profits or proceeds received by the Trust in respect thereof
and therefrom, and all appurtenances thereto.
"Trust Liquidation Proceeds" has the meaning set forth in
Section 4.02(a)(v).
"Trust Liquidation Proceeds Subaccount" means the subaccount
of the Distribution Account described under that name in Section 4.02(a)(v).
"Trustee" means Wilmington Trust Company, not in its
individual capacity but solely as a trustee hereunder, and any successor trustee
appointed in accordance with Section 3807 of the Act and Section 7.05.
ARTICLE III
BENEFICIAL INTERESTS AND CONTRIBUTIONS
Section 3.01. Initial Contributions. On November 30, 1998, the
Depositor assigned, transferred, conveyed and set over to the Trustee the sum of
one dollar as partial consideration for issuance to it of the Class B Beneficial
Interest set forth in Section 3.04, which initial payment constituted the
initial Trust Estate.
Section 3.02. Contributions on the Closing Date. Each of
Marlin and Enron hereby agrees to make, on the Closing Date, the following
payments and capital contributions:
(a) Marlin agrees to make a cash payment in an amount equal to
$1,149,000,000; and
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(b) Enron agrees to make a contribution of (i) all of its
ownership interests in Enron Water L.L.C., (ii) $200,000,000 in the
form of a release of indebtedness in such amount owed by Enron Water
L.L.C. to Enron under the Enron Loan Note and (iii) its rights under
the Azurix Europe Original Deed.
Section 3.03. Further Undertakings On the Closing Date. On the
Closing Date, the Trust shall:
(a) make a contribution in an amount equal to $249,000,000 to
Bristol Water Trust constituting the Overfund Amount;
(b) contribute $900,000,000 to Enron Water L.L.C. and cause
Enron Water L.L.C. to apply such amount as repayment under Enron Water
L.L.C.'s indebtedness owed to Enron under the Enron Loan Note; and
(c) merge Enron Water L.L.C. with and into Azurix with Azurix
being the surviving entity.
Section 3.04. Classification of Beneficial Interests. (a) The
beneficial ownership interests in the assets of the Trust (the "Beneficial
Interests") shall consist of the following:
(i) Class A Beneficial Interest (the "Class A
Interest") representing Marlin's Contributions; and
(ii) Class B Beneficial Interest (the "Class B
Interest") representing Enron's Contributions.
(b) Any Class A Interest purchased by the Beneficial Owner of
the Class B Interest pursuant to Section 8(h) of the Remarketing
Agreement shall be immediately converted into Class B Interest and the
balance of the Class B Trust Account shall be increased by the amount
applied to the payment of the principal of the Marlin Senior Notes in
accordance with Section 4.05(b).
(c) The Beneficial Interests shall be evidenced by trust
certificates substantially in the form of Exhibit A hereto.
Section 3.05. Additional Classes of Beneficial Interests. In
addition to the Class A Interest and the Class B Interest established on the
Closing Date, the Trust may establish one or more additional classes of
Beneficial Interest if directed by the majority of the Board of Directors upon
receipt of contributions in respect thereof; provided, that any such additional
class of beneficial interest and the rights of such additional class of
beneficial owners to the Trust's assets shall be subordinate and junior to the
Class A Interest in all respects; provided, further, that the right of the
Beneficial Owner of the Class A Interest to appoint members of the Board of
Directors of the Trust in accordance with Section 6.01 shall in no way be
diluted as a result of the establishment of such additional class of beneficial
interest. In the case of any distributions of amounts on deposit in the
Distribution Account in accordance with Section 4.03
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and any distribution of the Trust's assets following a termination of the Trust
in accordance with Section 9.02, any amounts owing to the Beneficial Owners of
the Class A Interest shall be paid in full in cash before any further payment or
distribution is made to such additional class of beneficial owners. In the event
that notwithstanding the provision of this Agreement any beneficial owner of
such additional class shall have received any payment or distribution in respect
of such Beneficial Interest contrary to the provisions of this Agreement, then,
unless and until the Class A Interest and all other amounts payable hereunder to
the Beneficial Owners thereof shall have been paid in full in cash, such payment
or distribution shall be received and held in trust for the benefit of, and
shall forthwith be paid over and delivered to, the Beneficial Owners of the
Class A Interest. Any holder of such additional class of Beneficial Interest
shall not be entitled to demand, accept or receive any payment or distribution
in respect of such Beneficial Interest in violation of the provisions of this
Agreement.
Section 3.06. Additional Contribution by the Beneficial Owner
of the Class B Interest. The Beneficial Owner of the Class B Interest shall have
the right, but not the obligation, to contribute Enron Equity Sales Proceeds to
the Trust upon the occurrence of a Marlin Note Trigger Event or on any date not
more than 150 days prior to the Maturity Date if (A) the Holders of the Marlin
Senior Notes, Marlin and the Co-Issuer have not unanimously agreed, with each
having the right not to agree in its sole, unfettered discretion, to reset the
interest rate and maturity on the Marlin Senior Notes, or (B) despite such
unanimous agreement by the Holders of the Marlin Senior Notes, Marlin and the
Co-Issuer, Enron and Marlin have not agreed, with each having the right not to
agree in its sole, unfettered discretion, to corresponding changes to the
distribution provisions set forth in Section 4.03 of this Agreement all within
two Business Days of Enron's request to reset such terms. The Beneficial Owner
of the Class B Interest agrees that any additional contribution made by such
Beneficial Owner after the Closing Date shall be in cash only.
ARTICLE IV
DISTRIBUTIONS
Section 4.01. Payments From Trust Estate. All payments to be
made by the Trust or the Trustee on behalf of the Trust under this Agreement or
any of the documents to which the Trust is a party shall be made only from the
Trust Estate and the income and proceeds thereon.
Section 4.02. Establishment of the Distribution Account. (a)
The Trustee, in the name, and on behalf, of the Trust, is hereby authorized and
shall establish and maintain in the name of the Trust an account with the
Trustee (the "Distribution Account"), bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the Trust. The
Trustee shall establish under the Distribution Account the following five
subaccounts:
(i) the "Ordinary Distribution Subaccount," into which shall be
deposited any payments received by the Trust other than any
Contribution, Enron Equity Sales Proceeds, Atlantic Water
Equity Sales Proceeds, Atlantic Water Asset
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Sales Proceeds, Trust Liquidation Proceeds, Bristol Water
Dividends or Azurix Europe Residual Payments;
(ii) the "Enron Equity Proceeds Subaccount," into which shall be
deposited any payments made to the Trust by Enron, at Enron's
option and in accordance with Section 3.06, an amount not
greater than the proceeds of offerings of Enron Common Stock
or Enron Mandatorily Convertible Preferred Securities after
the Closing Date (such proceeds, the "Enron Equity Sales
Proceeds");
(iii) the "Atlantic Water Equity Proceeds Subaccount," into which
shall be deposited an amount equal to the proceeds received by
Enron or its Affiliates or the Trust or, at the option of
Azurix, amounts received by any subsidiary directly or
indirectly held by the Trust, in connection with any offering
after the Closing Date, either primary or secondary, of any
instruments representing an equity interest in the Trust or
any subsidiary directly or indirectly held by the Trust (such
proceeds, the "Atlantic Water Equity Sales Proceeds");
(iv) the "Atlantic Water Asset Proceeds Subaccount," into which
shall be deposited any proceeds received by the Trust from the
sale of any assets of any subsidiary directly or indirectly
held by the Trust, including, without limitation, from the
liquidation of any such subsidiary, but excluding any proceeds
from the sale of assets in connection with the liquidation of
the Trust (such proceeds, the "Atlantic Water Asset Sales
Proceeds"); and
(v) the "Trust Liquidation Proceeds Subaccount," into which shall
be deposited any proceeds received upon sale of the assets of
the Trust pursuant to Sections 9.01 or 9.03 (such proceeds,
the "Trust Liquidation Proceeds").
(b) Only the Trustee, on behalf of and for the benefit of the
Trust, shall be entitled to withdraw funds from the Distribution
Account and only the Trustee shall be an authorized signatory on the
Distribution Account. The Trustee shall withdraw funds from the
Distribution Account only pursuant to and in accordance with this
Agreement and the Transaction Documents.
(c) The Trust shall possess all right, title and interest in
all amounts credited from time to time in the Distribution Account and
in all proceeds thereof (including all income thereon), and such funds
shall constitute part of the Trust Estate.
Section 4.03. Distributions. (a) On each Distribution Date on
or before 1:00 p.m., New York City time, the Trustee, on behalf of and for the
benefit of the Trust, shall distribute all amounts credited to the Distribution
Account pursuant to and in accordance with this Section 4.03(a).
(i) Ordinary Distribution Subaccount. The Trustee, to the
extent funds are received by 11:00 a.m., on behalf of and for the
benefit of the Trust, shall distribute all
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amounts credited to the Ordinary Distribution Subaccount in the
following order of priority:
first, to the extent that the sum of the amounts
credited to the Interest Account and the Certificate Yield
Account on such day (after giving effect to all deposits made
on such day) is less than the Class A Priority Distribution
then accrued and unpaid, as set forth in a Distribution
Shortfall Notice for deposit in (x) the Collection Account
established under the Indenture, if on or prior to the Senior
Note Final Payment Date, or (y) the Marlin Certificate
Distribution Account maintained with the Marlin Trustee, if
after the Senior Note Final Payment Date, in each case, for
the benefit of the Beneficial Owner of the Class A Interest,
in an amount equal to such shortfall;
second, to the extent, and only to the extent, that
the Beneficial Owner of the Class A Interest shall have
consented in writing, pro rata to (A) the Beneficial Owner of
the Class A Interest for deposit in (x) the Collection Account
established under the Indenture, if on or prior to the Senior
Note Final Payment Date, and (y) the Marlin Certificate
Distribution Account maintained with the Marlin Trustee, if
after the Senior Note Final Payment Date and (B) the
Beneficial Owner of the Class B Interest, in each case based
on the balances of their respective Trust Accounts, all
amounts, if any, remaining in the Ordinary Distribution
Subaccount; and
third, in the event the Beneficial Owner of the Class
A Interest shall not have consented to the distribution in
accordance with priority second of this clause (a)(i), such
amount to be retained in the Ordinary Distribution Subaccount
for reinvestment in Permitted Investments.
(ii) Enron Equity Proceeds Subaccount. The Trustee, on behalf
of and for the benefit of the Trust, shall distribute amounts credited
to the Enron Equity Proceeds Subaccount for deposit in the Remarketing
Account established under the Indenture, for the benefit of the
Beneficial Owner of the Class A Interest.
(iii) Atlantic Water Equity Proceeds Subaccount. The Trustee,
on behalf of and for the benefit of the Trust, shall distribute amounts
credited to the Atlantic Water Equity Proceeds Subaccount, pursuant to
and in accordance with the following order:
first, to the extent that the sum of the amounts
credited to the Interest Account and the Certificate Yield
Account on such day (after giving effect to all deposits made
on such day) is less than the Class A Priority Distribution
then accrued and unpaid, as set forth in a Distribution
Shortfall Notice, for deposit in (x) the Equity Proceeds
Account established under the Indenture, if on or prior to the
Senior Note Final Payment Date, or (y) the Marlin Certificate
Distribution Account maintained with the Marlin Trustee, if
after the Senior Note Final Payment Date, in each case, for
the benefit of the Beneficial Owner of the Class A Interest,
in an amount equal to such shortfall;
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second, in the event the Beneficial Owner of the
Class B Interest shall have consented in writing, in the
following order:
(A) to the Beneficial Owner of the Class B
Interest up to an amount equal to $180,000,000 (less
any amounts previously distributed to the Beneficial
Owner of the Class B Interest pursuant to this
Section 4.03(a)(iii) or Section 4.03(a)(iv));
provided, that, in the case of Atlantic Water Equity
Sales Proceeds resulting from one or more sales of a
portion of Enron's Class B Interest, the first
$180,000,000 (less any amounts previously distributed
or credited to the Beneficial Owner of the Class B
Interest pursuant to this Section 4.03(a)(iii) or
Section 4.03(a)(iv)) of such Atlantic Water Equity
Sales Proceeds to be distributed pursuant to this
clause second are not required to be deposited in,
but shall be credited to, the Atlantic Water Equity
Proceeds Subaccount;
(B) for deposit in (x) the Equity Proceeds
Account established under the Indenture, if on or
prior to the Senior Note Final Payment Date, or (y)
the Marlin Certificate Distribution Account
maintained with the Marlin Trustee, if after the
Senior Note Final Payment Date, in each case for the
benefit of the Beneficial Owner of the Class A
Interest, up to an amount equal to the greater of (1)
the balance of the Class A Trust Account as of such
date (after giving effect to any other distribution
or payment made with respect to any Marlin Security
on such day) and (2) the sum of (a) the Optional
Redemption Price or the Mandatory Redemption Price,
as applicable, (b) the Marlin Certificate Price and
(c) any Default Yield (after giving effect to any
Class A Priority Distribution made on such day);
(C) all amounts, if any, remaining on
deposit in the Atlantic Water Equity Proceeds
Subaccount to the Beneficial Owner of the Class B
Interest; and
third, in the event the Beneficial Owner of the Class
B Interest shall not have consented to the distributions in
accordance with priority second of this clause (a)(iii), such
amounts to be retained in the Atlantic Water Equity Proceeds
Subaccount for reinvestment in Permitted Investments.
(iv) Atlantic Water Asset Proceeds Subaccount. The Trustee, on
behalf of and for the benefit of the Trust, shall distribute amounts
credited to the Atlantic Water Asset Proceeds Subaccount, pursuant to
and in accordance with the following order:
first, to the extent that the sum of the amounts
credited to the Interest Account and the Certificate Yield
Account on such day (after giving effect to all deposits made
on such day) is less than the Class A Priority Distribution
then accrued and unpaid, as set forth in a Distribution
Shortfall Notice, for deposit in
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(x) the Collection Account established under the Indenture, if
on or prior to the Senior Note Final Payment Date, or (y) the
Marlin Certificate Distribution Account maintained with the
Marlin Trustee, if after the Senior Note Final Payment Date,
in each case, for the benefit of the Beneficial Owner of the
Class A Interest, in an amount equal to such shortfall;
second, in the event the Beneficial Owner of the
Class B Interest shall have consented in writing, in the
following order:
(A) to the Beneficial Owner of the Class B
Interest up to an amount equal to $180,000,000 (less
any amounts previously distributed or deemed
distributed to the Beneficial Owner of the Class B
Interest pursuant to Section 4.03(a)(iii) and this
Section 4.03(a)(iv));
(B) for deposit in (x) the Collection
Account established under the Indenture, if on or
prior to the Senior Note Final Payment Date, or (y)
the Marlin Certificate Distribution Account
maintained with the Marlin Trustee, if after the
Senior Note Final Payment Date, in each case for the
benefit of the Beneficial Owner of the Class A
Interest, up to an amount equal to the greater of (1)
the balance of the Class A Trust Account as of such
date (after giving effect to any other distribution
or payment made with respect to any Marlin Security
on such day) and (2) the sum of (a) the Optional
Redemption Price or the Mandatory Redemption Price,
as applicable, (b) the Marlin Certificate Price and
(c) any Default Yield (after giving effect to any
Class A Priority Distribution made on such day);
(C) all amounts, if any, remaining on
deposit in the Atlantic Water Asset Proceeds
Subaccount to the Beneficial Owner of the Class B
Interest; and
third, in the event the Beneficial Owner of the
Class B Interest shall not have consented to the distributions
in accordance with priority second of this clause (a)(iv),
such amounts to be retained in the Atlantic Water Asset
Proceeds Subaccount for reinvestment in Permitted Investments.
(v) Trust Liquidation Proceeds Subaccount. The Trustee, on
behalf of and for the benefit of the Trust, shall distribute amounts
credited to the Liquidation Proceeds Subaccount pursuant to and in
accordance with the following order:
first, to pay the costs and expenses of the winding
up, liquidation and termination of the Trust;
second, to the creditors of the Trust (other than
Enron or any Enron Affiliates), in the order of priority
provided by law;
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third, to establish reserves reasonably adequate to
meet any and all contingent liabilities or obligations of the
Trust (other than any liabilities or obligations owed to Enron
or any Enron Affiliates);
fourth, to the Beneficial Owner of the Class A
Interest, for deposit in (x) the Collection Account
established under the Indenture, if on or prior to the Senior
Note Final Payment Date or (y) the Marlin Certificate
Distribution Account maintained with the Marlin Trustee, if
after the Senior Note Final Payment Date, the sum of (A) any
Class A Priority Distribution due but not paid and (B) the
amount, if any, by which (I) the sum of the Mandatory
Redemption Price, the Marlin Certificate Price and any Default
Yield exceeds (II) the balance of the Class A Trust Account as
of such date; and
fifth, the remaining amounts, to (A) the Beneficial
Owner of the Class A Interest, for deposit in (x) the
Collection Account established under the Indenture, if on or
prior to the Senior Note Final Payment Date or (y) the Marlin
Certificate Distribution Account maintained with the Marlin
Trustee, if after the Senior Note Final Payment Date, and (B)
the Beneficial Owner of the Class B Interest, pro rata in
accordance with the balances of their respective Trust
Accounts.
(b) Any amount on deposit in any subaccount of the
Distribution Account on a date other than the applicable Distribution Date shall
be invested in Permitted Investments.
(c) Notwithstanding anything in clause (a) of this Section
4.03, (A) the Beneficial Owner of the Class A Interest acting at the direction
of the holders of the Marlin Certificates (exercising their rights under Section
5.04 or Section 6.02 of the Marlin Trust Agreement) shall have the right to
direct the Trustee to apply an amount equal to the Base Amount (the "Deferred
Class A Distribution") in accordance with Section 4.06 and (B) the Beneficial
Owner of the Class B Interest shall have the right to elect not to receive all
or any portion of the distributions it is otherwise entitled to receive in
accordance with Section 4.03 and to direct the Trust as to the application of
such amounts.
Section 4.04. Distribution Date Statements. On each
Distribution Date on which funds are being distributed pursuant to Section 4.03
hereof, the Trustee shall prepare and deliver to the Beneficial Owners and the
Indenture Trustee a statement (a "Distribution Date Statement") setting forth
for the period since the preceding Distribution Date (i) the amount, nature and
origin of all income, proceeds, payments and collections received in each
subaccount of the Distribution Account, (ii) the amounts to be paid or
distributed pursuant to Section 4.03 hereof and (iii) the balances of the Trust
Accounts after giving effect to the distributions made on such day.
Section 4.05. Trust Accounts. A separate account (a "Trust
Account") shall be established and maintained on the books of the Trustee for
each class of Beneficial Interest:
(a) Class A Trust Account. The Trust Account for the Class A
Interest shall be credited with the Initial Class A Contribution on the Closing
Date and throughout the
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existence of the Trust shall be (x) increased (i) by the amount of any
additional Contributions made by the Beneficial Owners of the Class A Interest
after the Closing Date and (ii) at any time the Class A Allocated Losses are
greater than zero, by the cash gains, if any, realized by the Trust on any of
the assets in the Trust Estate up to an amount equal to the Class A Allocated
Losses as of the date such gains are realized (such gains, the "Class A
Allocated Gains"), and (y) decreased (i) upon any reduction in the aggregate
outstanding principal amount of the Marlin Senior Notes, by an amount equal to
such reduction, regardless of whether as a result of distributions from the
Trust, (ii) upon any repayment of the Base Amount, by an amount equal to such
payment (it being understood, for the avoidance of doubt, that the Class A Trust
Account shall be unaffected by any Class A Priority Distribution made to the
Beneficial Owner of the Class A Interest, by any payment of Default Interest
Amount or Default Yield, by any payment in respect of the Optional Redemption
Price or any Mandatory Redemption Price in excess of the principal balance of
the Marlin Senior Notes and by any payment in respect of the Marlin Certificate
Price in excess of the Base Amount, and (iii) by the cash losses, if any,
realized by the Trust on any of the assets in the Trust Estate in excess of the
balance of the Class B Trust Account as of the date such losses are realized
(such losses, the "Class A Allocated Losses").
(b) Class B Trust Account. The Trust Account for the Class B
Interest shall be credited with the Initial Class B Contribution on the Closing
Date, and throughout the existence of the Trust shall be (a) increased by (i)
the amount of any additional Contributions made by the Beneficial Owners of the
Class B Interest after the Closing Date, (ii) the amount applied to the payment
of the principal of the Marlin Senior Notes in the case payment is made by Enron
to Marlin in accordance with Section 8(h) of the Remarketing Agreement, and
(iii) the cash gains, if any, realized by the Trust on any of the assets in the
Trust Estate in excess of the Class A Allocated Gains and (b) decreased by (i)
the cash losses, if any, realized by the Trust on any of the assets in the Trust
Estate (to the extent of the balance of the Class B Trust Account), and (ii) all
amounts distributed to the Beneficial Owner of the Class B Interest (it being
understood, for avoidance of doubt, that the Class B Trust Account shall be
unaffected by any distribution or deemed distribution to the Beneficial Owner of
the Class B Interest made from Atlantic Water Equity Sales Proceeds resulting
from one or more sales of a portion of Enron's Class B Interest).
Section 4.06. Deferred Class A Distribution; Bristol Water
Dividends; Azurix Europe Residual Proceeds and Azurix Europe Residual Proceeds
Account. (a) If the Beneficial Owner of the Class A Interest exercises its right
under Section 4.03(c), the Trust shall contribute, or at the direction of the
Board of Directors (if and to the extent such direction is delivered to the
Trustee within two (2) Business Days of the Base Amount Deferral Date), lend to
Azurix an amount equal to the Deferred Class A Distribution.
(b) Any amounts received by the Trust as the owner of the
beneficial interests of Bristol Water Trust (such amounts, "Bristol Water
Dividends"), if and when such amounts are received by the Trust shall be applied
by the Trust as an additional capital contribution to Azurix, or at the
direction of the Board of Directors (if and to the extent such direction is
delivered to the Trustee within two (2) Business Days after such amounts are
received by the Trust), loaned to Azurix.
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(c) The Trustee, in the name, and on behalf, of the Trust,
shall establish and maintain in the name of the Trust an account with Bankers
Trust International (the "Azurix Europe Residual Proceeds Account"), into which
shall be deposited any payments received by the Trust from the Azurix Europe
Interest Account (Sterling) and the Azurix Europe Note Proceeds Account
(Sterling), each established under the Indenture (such payments, the "Azurix
Europe Residual Payments"). Such account shall bear a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Trust. Any amounts on deposit in the Azurix Europe Residual Proceeds Account
shall be applied by the Trust as an additional capital contribution to Azurix,
or at the direction of the Beneficial Owner of the Class B Interest (if and to
the extent such direction is delivered to the Trustee within two (2) Business
Days after such amounts are deposited into the Azurix Europe Residual Proceeds
Account), loaned to Azurix.
Section 4.07. Class A Priority Distribution. The Beneficial
Owner of the Class A Interest shall be entitled to receive, on each Payment
Date, so long as the balance of the Class A Trust Account is greater than zero,
a distribution in an amount equal to the sum of (x) any Marlin Interest Amount
then due and payable and (y) Marlin Certificate Yield then due and payable or in
the case of a Base Amount Deferral by the Marlin Certificateholders pursuant to
Sections 5.04 or 6.02 of the Marlin Trust Agreement, the Treasury Yield due and
payable as described in Section 5.06 of the Marlin Trust Agreement (the "Class A
Priority Distribution"). The obligation of the Trust to make such distribution
shall be deemed satisfied to the extent payments are deposited by, or at the
direction of, Bristol Water Trust to the accounts established under the
Indenture in accordance with Section 5.4 of the Participation Agreement.
Section 4.08. Certain Limitations on the Rights of Class A
Interest. Notwithstanding anything else herein to the contrary, the Beneficial
Owner of Class A Interest shall be entitled to receive distributions in
accordance with this Article IV, only so long as the then current balance of the
Class A Trust Account is greater than zero. In the event the balance of the
Class A Trust Account is reduced to zero, the rights of the Beneficial Owner of
the Class A Interest hereunder, including, without limitation, its rights under
Article VI, shall be terminated.
ARTICLE V
LIMITATION ON THE LIABILITY OF THE BENEFICIAL OWNERS
Section 5.01. Liability of Beneficial Owners. None of the
Beneficial Owners shall be liable to any third party for any debt, claim,
demand, judgment or obligation of any kind of, against or with respect to the
Trust by reason of its status as a beneficial owner of the Trust, nor shall
either Beneficial Owner, solely by reason of its status as such, be subject to
any personal liability whatsoever, in tort, contract or otherwise, to any third
party in connection with the property, liabilities or affairs of the Trust. For
the avoidance of doubt, the foregoing sentence shall in no way limit the
obligations of the Depositor under Sections 7.07, 7.08 and 7.09.
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ARTICLE VI
RIGHTS, OBLIGATIONS, POWERS AND STATUS OF THE
BENEFICIAL OWNERS; BOARD OF DIRECTORS
Section 6.01. Management of the Trust. (a) General. It is the
intention of the parties hereto that, the Trustee's duties are to be ministerial
in nature only, except as otherwise expressly provided herein. Subject to
Section 9.01 hereof, the Beneficial Owners, directly or acting through the Board
of Directors, shall have the right and obligation to determine the matters
herein referenced to be determined by the Beneficial Owners and to direct the
Trustee to conduct such matters. Subject to the provisions of the Act, the
Beneficial Owners, directly or acting through the Board of Directors, shall
direct the management of the business and affairs of the Trust in order best to
carry out its purposes. In the event the direction or instruction given to the
Trustee by a Beneficial Owner in accordance with, and as provided by, the terms
hereof conflicts or is inconsistent with the direction or instruction given by
the Board of Directors, the direction or instruction given by such Beneficial
Owner(s) shall govern.
(b) Board of Directors. Unless otherwise set forth in this
Agreement, and subject to the provisions of the Transaction Documents, the Board
of Directors shall have the right to vote on all customary trust governance
matters, as would a board of directors for a corporation organized under the
laws of Delaware ; provided that (i) the expenditure by Azurix or Azurix Ltd. or
any of their subsidiaries (other than Azurix Europe's subsidiaries, as to which
no limit shall apply) of up to an aggregate of $2,400,000,000 on acquisitions
and other development activities, (ii) any contributions or loans made to Azurix
pursuant to Section 4.06(c) and (iii) equity offerings by Azurix or Azurix Ltd.
or any of their subsidiaries shall not require any vote or approval by the Board
of Directors, and in each case shall be at the direction of the Beneficial Owner
of the Class B Interest.
(i) Number of Board Members: The Board of Directors
shall initially consist of an even number of members not
greater than ten. The Beneficial Owners of each of the Class A
Interest and the Class B Interest shall have the power at all
times to appoint up to 50% of the Board of Directors (each
director so appointed by the Beneficial Owner of the Class A
Interest hereinafter referred to as the "Class A Designated
Director" and each director so appointed by the Beneficial
Owner of the Class B Interest hereinafter referred to as the
"Class B Designated Director"). The Beneficial Owners of each
of the Class A Interest and the Class B Interest shall have
the right, at any time without cause, to remove any of the
directors appointed by them upon prior written notice to the
Trustee and the Beneficial Owner of the other Class. If the
Beneficial Owner of the Class A Interest has not appointed all
the directors that it is entitled to appoint, the Beneficial
Owner of the Class B Interest shall have the right to appoint
such directors (each, an "Additional Class B Director");
provided, however, the Beneficial Owner of the Class A
Interest shall have the right, at any time without cause (upon
prior written notice), to remove any Additional Class B
Director, provided, further, that in no event shall the
Beneficial Owner of the Class A Interest have the right to
remove, at any time, more directors than such Beneficial
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Owner is entitled to appoint at such time. The Beneficial
Owner of the Class A Interest shall have the right to appoint
other members to the Board of Directors in place of any
directors removed by such Beneficial Owner.
(ii) Quorum. A majority of the members of the Board
of Directors at the time of any decision making, one of whom
shall be a Class B Designated Director (as to which fact there
shall be delivered to the Trustee a duly executed certificate
of a member of the Board of Directors), shall be present in
making any decision of the Board of Directors, and the
affirmative vote of a majority of the directors constituting
such quorum shall be necessary for any action or decision made
by the Board of Directors.
(iii) Delivery of Information to the Beneficial Owner
of the Class A Interest. During any period that the Beneficial
Owner of the Class A Interest has not appointed any Class A
Designated Director, the Beneficial Owner of the Class B
Interest shall deliver or cause to be delivered to the
Beneficial Owner of the Class A Interest, no later than 10
Business Days prior to any proposed meeting of the Board of
Directors, an agenda setting forth the matters to be addressed
at such meeting, and shall deliver or cause to be delivered to
the Beneficial Owner of the Class A Interest, concurrently
with the distribution thereof to any director, all reports and
any other information that is provided to such director.
(c) Standard of Care of the Members. No director shall be
personally liable to the Trust or the Trustee, the Depositor or any Beneficial
Owner for monetary damages for breach of fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the Trust
or the Beneficial Owners, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law or (iii) for any
transaction from which the director derived an improper personal benefit. No
amendment or repeal of this Section 6.01(c) shall adversely affect any right or
protection of a director existing hereunder in respect of any act or omission
occurring prior to such amendment or repeal.
Section 6.02. Management of Subsidiaries. (a) Appointment
Rights. Subject to Section 6.02(b), if, but only if, the Beneficial Owner of the
Class A Interest has appointed all of the directors that such Beneficial Owner
is entitled to appoint, such Beneficial Owner shall have the right to instruct
the Class A Designated Directors to cause the immediate appointment of one half
of the directors, or equivalent positions, of each subsidiary of the Trust other
than subsidiaries of Azurix Europe. In any subsidiary (the "Subject Subsidiary")
of the Trust where the Beneficial Owner of the Class A Interest has failed to
cause the appointment of all the directors (or equivalent positions) that such
Beneficial Owner has the right to appoint, the right of the directors of the
Subject Subsidiary who represent such Beneficial Owner to appoint directors in
any lower-tier subsidiary shall be suspended until the Beneficial Owner of the
Class A Interest causes the appointment of all of the directors of the Subject
Subsidiary that such Beneficial Owner is entitled to appoint.
(b) Dilution. If as a result of an offering of equity
interests by any subsidiary of the Trust, third parties have the right to
appoint and remove directors (or equivalent positions)
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of such subsidiary, such right shall correspondingly reduce the ability of the
representatives of the Beneficial Owner of the Class A Interest to cause the
appointment and removal of directors of such subsidiary, but not the ability of
the Beneficial Owner of the Class B Interest to cause the appointment of
directors. The foregoing dilution will be applied cumulatively if third party
equity investors in more than one subsidiary of the Trust have the right to
appoint and remove directors (or equivalent positions). By way of example, and
not by way of limitation, if (i) third party equity investors in Azurix are
given the right to appoint and remove ten percent (10%) of the board of
directors of Azurix and (ii) third party equity investors in Azurix Ltd. are
given the right to appoint and remove fifteen percent (15%) of the directors of
Azurix Ltd., then the Beneficial Owner of the Class A Interest would have the
right to appoint and remove forty percent (40%) of the board of directors of
Azurix and twenty-five percent (25%) of the directors of Azurix Ltd. The
Beneficial Owner of the Class A Interest, together with Persons who are not
Affiliates of the Beneficial Owner of the Class B Interest, shall at all times
have the right, by contract or statute, or both, to appoint and remove at least
one-half of the directors, or equivalent positions, of each subsidiary of the
Trust other than the subsidiaries of Azurix Europe.
(c) Delivery of Information. For each subsidiary of the Trust,
other than subsidiaries of Azurix Europe, that does not have a director (or
equivalent position) appointed by a representative of the Beneficial Owner of
the Class A Interest, such subsidiary shall deliver information to the
Beneficial Owner of the Class A Interest concurrently with delivery of such
information to the directors (or equivalent positions) of such subsidiary.
Section 6.03. Bankruptcy, Dissolution or Termination of a
Beneficial Owner. The incapacity, dissolution, termination or bankruptcy of a
Beneficial Owner shall not result in the termination or dissolution of the
Trust.
Section 6.04. Transfer of Beneficial Ownership. (a) To the
extent permitted by applicable law, and except as otherwise permitted in the
Transaction Documents, the Beneficial Owner of the Class A Interest shall not
have the right to transfer its Beneficial Interest in the Trust without the
prior written consent of the Beneficial Owner of the Class B Interest; provided,
however, the Beneficial Owner of the Class A Interest may transfer its
Beneficial Interest without such consent (i) following a Marlin Note Trigger
Event or (ii) to the extent contemplated by Section 11.07.
(b) Any transfers by the Beneficial Owner of the Class B
Interest shall be permitted only to the extent that such proposed transferor of
Class B Interest shall have delivered an opinion of Dewey Ballantine L.L.P.,
Vinson & Elkins L.L.P., Milbank, Tweed, Hadley & McCloy or any other nationally
recognized securities counsel to the effect that such transfer would not cause
the Trust or Marlin to be required to register as an investment company under
the Investment Company Act of 1940, as amended.
Section 6.05. Creditors of the Beneficial Owners. As is
provided in paragraph (b) of Section 3805 of the Act, no creditor of a
Beneficial Owner shall have any right to obtain possession of, or otherwise
exercise legal or equitable remedies with respect to, the Trust Estate.
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ARTICLE VII
CONCERNING THE TRUSTEE AND WILMINGTON TRUST COMPANY
Section 7.01. General. (a) In the exercise or administration
of the Trust hereunder (and, without limitation, with respect to taking any
action pursuant to the terms of paragraph (a) of Section 9.01 hereof), the
Trustee at the expense of the Trust (to be paid by the Depositor in accordance
with Section 7.08) (i) may act directly or through agents or attorneys pursuant
to agreements entered into with any of them, and the Trustee shall not be liable
for the default or misconduct of such agents or attorneys if such agents or
attorneys shall have been selected by the Trustee with reasonable care; and (ii)
may consult with counsel, accountants and other skilled Persons to be selected
with reasonable care and employed by the Trustee, and it shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
advice or opinion of any such counsel, accountants or other skilled Persons.
(b) Except as expressly provided herein, (i) in accepting the
Trust hereby created, Wilmington Trust Company acts solely as Trustee hereunder
and not in its individual capacity, and (ii) all Persons having any claim
against the Trust or the Trustee by reason of the transactions contemplated by
this Agreement shall look only to the Trust's property for payment or
satisfaction thereof.
(c) Except in accordance with the written instructions
furnished by the Beneficial Owners or the Board of Directors and except as
expressly provided herein, the Trustee shall have no duty to (i) see to any
recording or filing of any document, or (ii) see to the payment or discharge of
any tax, assessment or other governmental charge or any lien or encumbrance of
any kind owing with respect to, assessed or levied against any part of the
Trust.
(d) The Trustee shall manage the business and affairs of the
Trust in accordance with the terms of the Act and the Atlantic Water Transaction
Documents; provided, however, that the Trustee undertakes to perform only such
duties as are specifically set forth in this Agreement and as the Trustee may be
duly directed from time to time in writing by both Beneficial Owners or the
Board of Directors (acting within the scope of their authority as provided in
Section 6.01) and as the Trustee is required to in order to comply with the
other Atlantic Transaction Document. The Trustee shall not have any duty or
obligation to manage, control, use, sell, dispose of or otherwise deal with the
Trust or to otherwise take or refrain from taking any action under this
Agreement except as expressly required by the terms hereof (or of the other
Atlantic Water Transaction Document) or as expressly provided in written
instructions from the Beneficial Owners or the Board of Directors, and no
implied duties or obligations shall be read into this Agreement or the other
Atlantic Water Transaction Document against the Trustee. Wilmington Trust
Company nevertheless agrees that it will, at its own cost and expense (and not
at the expense of the Trust), promptly take all action as may be necessary to
discharge any Liens on any part of the Trust Estate which are attributable to
actions by or claims against Wilmington Trust Company that are not related to
the ownership of any part of the Trust Estate or the administration of the Trust
Estate or the transactions contemplated by this Agreement.
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(e) The Trustee shall not be required to take any action under
this Agreement if the Trustee shall reasonably determine or shall have been
advised by counsel that such action is contrary to the terms of this Agreement
or is otherwise contrary to law.
(f) Subject to paragraph (a) of Section 9.01, whenever the
Trustee is unable to decide between alternative courses of action permitted or
required by the terms of this Agreement, or is unsure as to the application,
intent, interpretation or meaning of any provision hereof, the Trustee may give
notice (in such form as shall be appropriate under the circumstances) to the
Beneficial Owners or the Board of Directors (acting within the scope of their
authority as provided in Section 6.01) requesting written instructions as to the
course of action to be adopted, and, to the extent the Trustee acts in good
faith in accordance with any such appropriate instruction received, the Trustee
shall not be liable on account of such action or inaction to any Person. If the
Trustee shall not have received appropriate instructions within ten days of such
notice (or within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances), it may, but shall be
under no duty to, take or refrain from taking such action which is consistent,
in its view, with this Agreement and as it shall deem to be in the best
interests of the Beneficial Owners, and the Trustee shall have no liability to
any Person for any such action or inaction.
(g) In no event whatsoever shall the Trustee be liable for any
representation, warranty, covenant, agreement, indebtedness or other obligation
of the Trust; provided, however, the foregoing shall, in no event whatsoever,
relieve the Trustee from any liability resulting from the Trustee's bad faith,
willful misconduct or gross negligence.
(h) The Trustee may rely upon and shall incur no liability to
anyone in acting upon any signature, instrument, notice, resolution, request,
consent, order, certificate, report, opinion, bond or other document or paper
reasonably believed by it to be genuine and reasonably believed by it to be
signed by the proper Persons. The Trustee may accept a certified copy of a
resolution of the board of directors or other governing body of any Person as
conclusive evidence that such resolution has been duly adopted by such body and
that the same is in full force and effect. As to any fact or matter the manner
of ascertainment of which is not specifically prescribed herein, the Trustee may
for all purposes hereof rely on a certificate, signed by the president or any
vice president or by the treasurer or any assistant treasurer or the secretary
or any assistant secretary (or equivalent position) of the relevant party, as to
such fact or matter, and such certificate shall constitute full protection to
the Trustee for any action taken or omitted to be taken by it in good faith
reliance thereon.
(i) The Trustee shall not be personally liable for any error
of judgment made in good faith.
(j) The Trustee shall not be required to take any action that
is inconsistent with the purposes of the Trust set forth in Section 1.04.
(k) No provision of this Agreement shall require the Trustee
to expend or risk its personal funds, or otherwise incur any financial liability
in the performance of its rights or powers hereunder, if the Trustee shall have
reasonable grounds for believing that repayment of
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such funds or adequate indemnity against such risk or liability is not
reasonably assured or provided to it.
(l) The Trustee may fully rely upon and shall have no
liability in connection with calculations or instructions forwarded to the
Trustee by both Beneficial Owners or the Board of Directors (acting within the
scope of their authority as provided in Section 6.01), unless the Trustee
determines that such calculations or instructions are in error; provided,
however, the Trustee shall have no obligation to make any such determination.
(m) The Trustee shall not have any responsibility or liability
for or with respect to the genuineness, value, sufficiency or validity of the
Trust Estate. The Trustee shall in no event assume or incur any liability, duty
or obligation to the Beneficial Owners or any other Person other than as
expressly provided for herein, and in no event shall the Trustee have any
implied duties or obligations hereunder.
(n) The Trustee shall incur no liability if, by reason of any
provision of any future law or regulation thereunder, the Trustee shall be
prevented or forbidden from doing or performing any act or thing which the terms
of this Agreement provide shall or may be done or performed.
Section 7.02. Acceptance of the Trust. Wilmington Trust
Company declares that it accepts the Trust hereby created and agrees to perform
its duties under this Agreement and the Act but only upon the terms of this
Agreement and as contemplated by the other Atlantic Water Transaction Document.
Section 7.03. Authority and Duties of the Trustee. (a) The
Trustee shall have the authority to act on behalf of the Trust to carry out the
purposes of the Trust and duties of the Trust under the Transaction Documents to
which the Trust or the Trustee is a party. The Trustee is authorized and
directed to execute and deliver this Agreement and the Participation Agreement
and each certificate or other document attached as an exhibit to or contemplated
by any such agreement, in such form as both Beneficial Owners shall approve
subject to the terms of the Transaction Documents, as evidenced conclusively by
the Trustee's execution thereof. The execution and delivery of, and performance
of the terms of, the Participation Agreement, and each certificate or other
document attached as an exhibit to or otherwise expressly contemplated by any
such agreement shall be deemed not to conflict with or constitute a breach or
default under this Agreement. The Trustee shall have only such authority and
duties as are expressly set forth in this Agreement. Upon the written
instruction of both Beneficial Owners, the Trustee shall amend the Certificate
of Trust or this Agreement, and shall execute, acknowledge, deliver, file or
record any document or instrument necessary or appropriate to carry out the
provisions of this Agreement, and the Participation Agreement in such form as is
provided to it; provided that such action does not alter the rights, powers and
duties of the Trustee as set forth in this Article VII.
(b) The Trustee shall have the power and authority to execute,
deliver, acknowledge and file all necessary documents and to maintain all
necessary records of the Trust as required by the Act.
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(c) The Trustee need not investigate any fact or matter stated
in any such document, but the Trustee, in its discretion, may make further
inquiry or investigation.
(d) The Trustee shall cause to be prepared and filed, such tax
returns and Periodic Filings relating to the Trust, and make such elections as
may from time to time be required or appropriate under any applicable Federal,
state or local statute or rule or regulation thereunder so as to maintain to the
extent possible the Trust's characterization for United States federal income
and any state or local tax purposes as provided in Section 11.08.
(e) The Trustee shall furnish to the Beneficial Owners,
promptly upon receipt thereof, duplicates or copies of all reports, notices,
requests, demands, certificates, financial statements and any other instruments
furnished to the Trustee hereunder, under the Participation Agreement, provided
that the Trustee shall not be required to furnish the Beneficial Owners with a
copy of any such materials if the Trustee determines that such party has
otherwise received such copies, unless such Beneficial Owner so requests.
(f) The Trustee shall cause to be kept, at its Corporate Trust
Office at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890-0001, Attention: Corporate Trust Administration, a register or registers
for the purpose of registering the Beneficial Interest. The Trustee shall be the
registrar and shall, subject to the limitations set forth in Section 6.04,
provide for the registration of transfer of the Beneficial Interest of a
Beneficial Owner at the written request of such Beneficial Owner.
Section 7.04. Representations and Warranties of Wilmington
Trust Company. Wilmington Trust Company, in its individual capacity, hereby
represents and warrants to the Beneficial Owners, that:
(a) it is duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation;
(b) is has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement, and this Agreement has
been duly authorized by it by all necessary corporate action;
(c) no authorization, consent or approval of any governmental
authority, regulatory body or other Person is required for the due
authorization, execution, delivery or performance by it of this Agreement (other
than the filing of the Certificate of Trust);
(d) this Agreement has been duly executed and delivered by it
and (subject to the due execution and delivery by the other parties hereto)
constitutes a legal and binding obligation of it, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect, relating to the enforcement of creditors' rights in
general and except as such enforceability may be limited by general principles
of equity (whether considered in a proceeding at law or in equity); and
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(e) it complies with all the requirements of the Act relating
to the qualification of a trustee of a Delaware business trust.
Section 7.05. Resignation of the Trustee. (a) The Trustee may
resign by giving 60 days' prior written notice to the Beneficial Owners. In the
case of the resignation of the Trustee, the Beneficial Owners shall appoint a
Person to serve as successor Trustee, provided, that such Person shall in all
respects satisfy the requirements of Section 3807 of the Act, or any successor
provision and shall be a bank or trust company incorporated and doing business
within the United States of America, whose business shall consist at least in
part as serving as trustee in asset securitization transactions and having a
combined capital and surplus of at least $250,000,000, if there be such an
institution willing, able and legally qualified to perform the duties of the
Trustee hereunder upon reasonable or customary terms. The appointment of the
successor Trustee shall take effect concurrently with (i) the resignation of the
former Trustee and (ii) the ratification of the Transaction Documents by the
successor trustee, and no resignation of a Trustee shall be effective absent the
concurrent appointment of a successor Trustee.
(b) If a successor Trustee shall not have been appointed
within 60 days after such notice of resignation, the Trustee or either
Beneficial Owner may apply to any court of competent jurisdiction to appoint a
successor Trustee to act until such time as a successor shall have been
appointed as above provided.
(c) Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation to which substantially all the corporate trust
business of the Trustee may be transferred, shall, subject to such corporation
satisfying in all respects the requirements set forth in Section 7.05(a), be the
Trustee hereunder without further action.
(d) Upon the substitution of the Person serving as Trustee,
the Beneficial Owners and the successor Trustee shall file an amendment to the
Certificate of Trust with the Secretary of State of the State of Delaware in
accordance with the provisions of Section 3810 of the Act, indicating the change
in the Trustee.
Section 7.06. Liability. Wilmington Trust Company shall not be
personally liable under any circumstances, except (a) for its own bad faith,
willful misconduct or gross negligence, (b) in the case of the inaccuracy of any
representation or warranty contained in Section 7.04, (c) for liabilities
arising from the failure by Wilmington Trust Company to perform obligations
expressly undertaken by it in the last sentence of Section 7.01(d) or (d) for
taxes, fees or other charges on, based on or measured by any fees, commissions
or compensation received by the Trustee in connection with any of the
transactions contemplated by this Agreement.
In particular, but not by way of limitation:
(i) the provisions of this Agreement, to the extent that they
restrict the duties and liabilities of Wilmington Trust Company
otherwise existing at law or in equity,
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<PAGE> 28
replace such other duties or liabilities of Wilmington Trust Company to
the extent permissible under law or in equity; and
(ii) Wilmington Trust Company shall not be personally liable
for the default or misconduct of the Beneficial Owners.
Section 7.07. Indemnification. The Depositor shall indemnify,
pay, protect, and hold harmless each of Wilmington Trust Company, its officers,
directors, employees, shareholders and agents (collectively the "Indemnified
Persons" or individually an "Indemnified Person") from and against any and all
liabilities, obligations, losses, damages, actions, judgments, suits,
proceedings, taxes, costs, expenses and disbursements of any kind or nature
whatsoever including, without limitation, all reasonable legal fees, third party
costs and expenses of defense, appeal and settlement of any and all suits,
actions, or proceedings instituted against such Indemnified Person or the Trust
and all reasonable third party costs of investigation in connection therewith
that may be imposed on, incurred by, or asserted against an Indemnified Person
relating to or arising out of any action or inaction on the part of the Trust or
an Indemnified Person in respect of the Trust. Notwithstanding the foregoing,
the Depositor shall not be liable to any such Indemnified Person for any of the
matters set forth in clauses (a) through (d) of the first sentence of Section
7.06. If any action, suit, or proceeding shall be pending against the Trust
and/or one or more Indemnified Person relating to or arising out of any action
or inaction of the Indemnified Person or Indemnified Persons, the Depositor
shall have the right to assume the defense of the Indemnified Person or
Indemnified Persons in which case such defense shall be conducted by counsel
chosen by the Depositor and reasonably satisfactory to the Indemnified Person or
Indemnified Persons; provided, however, that if an Indemnified Person is advised
by its counsel that due to actual or potential conflicting interests
representation by the same counsel would be inappropriate under applicable
standards of professional conduct, such Indemnified Person may, at the expense
of the Trust, employ separate counsel of its choice with respect to all matters
as to which such conflicting interest arise in any such action.
Section 7.08. Fees and Expenses. All reasonable out-of pocket
expenses, disbursements and advances incurred or made by Wilmington Trust
Company, in its capacity as Trustee hereunder, including without limitation,
costs and expenses of winding up, liquidation and termination of the Trust shall
be paid, first, from the Administrative Expenses (as defined in the Indenture)
distributed to the Trustee by the Indenture Trustee under Section 5.09 of the
Indenture (provided, that the Trustee shall give notice to the Indenture Trustee
and the Depositor of the amount of such expenses, disbursements and advances due
and owing to the Trustee no later than three Business Days prior to each
semi-annual Payment Date) and, to the extent such amounts are not sufficient
therefor, second, by the Depositor. Wilmington Trust Company shall receive as
compensation for its services as Trustee hereunder such ordinary fees as are
separately agreed upon between Wilmington Trust Company and the Depositor in a
separate fee agreement. Wilmington Trust Company, in its capacity as Trustee
hereunder, shall be compensated reasonably for any extraordinary services
rendered by it hereunder as agreed to separately by the Depositor and the
Trustee.
Section 7.09. Litigation, Action Outside Delaware. (a) The
Trustee shall not be under any obligation to appear in, prosecute or defend any
action which in its opinion may
25
<PAGE> 29
require it to incur any out-of-pocket expense or any liability, unless it shall
be furnished with such reasonable security and indemnity against such expense or
liability as it may require, and any reasonable out-of-pocket costs of the
Trustee as a result of such actions shall be paid, first, from the
Administrative Expenses (as defined in the Indenture) distributed to the Trustee
by the Indenture Trustee under Section 5.09 of the Indenture, and, to the extent
such amounts are not sufficient therefor, second, by the Depositor.
(b) Notwithstanding anything contained herein to the contrary,
Wilmington Trust Company shall not be required to take any action in any
jurisdiction other than in the State of Delaware if the taking of such action
will (i) require the consent or approval or authorization or order of or the
giving of notice to, or the registration with or the taking of any other action
in respect of, any state or other governmental authority or agency of any
jurisdiction other than the State of Delaware; (ii) result in any fee, tax or
other governmental charge under the laws of any jurisdiction or any political
subdivisions thereof in existence on the date hereof other than the State of
Delaware becoming payable by Wilmington Trust Company; or (iii) subject
Wilmington Trust Company to personal jurisdiction in any jurisdiction other than
the State of Delaware for causes of action arising from acts unrelated to the
consummation of the transactions by Wilmington Trust Company contemplated
hereby.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.01. Representations and Warranties of Beneficial
Owners. Each Beneficial Owner hereby represents and warrants to the Trustee
that:
(a) in the case of Enron, it is duly incorporated and in good
standing under the laws of Oregon; in the case of Marlin, it is a validly
existing Delaware statutory business trust;
(b) it has full power and authority to execute, deliver and
perform its obligations under this Agreement, and this Agreement has been duly
authorized by it by all necessary corporate or other action;
(c) no authorization, consent or approval of any governmental
authority, regulatory body or other Person is required for the due
authorization, execution, delivery or performance by it of this Agreement, other
than the authorizations, consents or approvals expressly contemplated by the
Participation Agreement; and
(d) this Agreement has been duly executed and delivered by it
and constitutes a legal and binding obligation of it, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, relating to the enforcement of creditors' rights in general
and except as such enforceability may be limited by general principles of equity
(whether considered in a proceeding at law or in equity).
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<PAGE> 30
ARTICLE IX
DISSOLUTION, BANKRUPTCY AND LIQUIDATION OF THE TRUST
Section 9.01. Dissolution of the Trust. (a) Subject to Section
9.03, the Trust shall be dissolved, wound up and terminated as provided herein
upon the Trustee's determination, in its sole discretion after consultation with
such counsel and other experts as it deems necessary, that the Trust is
insolvent. Upon any such determination, the Trustee shall have the right, in its
sole discretion, to (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee, examiner or liquidator
of the Trust or of all or a substantial part of the Trust Estate, (ii) make a
general assignment for the benefit of the Trust's creditors, (iii) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, arrangement or winding up,
or composition or readjustment of debts, (iv) take any action for the purpose of
effecting any of the foregoing or (v) do the equivalent of any of the foregoing
under the laws of the United States (each action described in (i) through (v), a
"Bankruptcy Action"), each with respect to the Trust upon 90 days' prior written
notice to the Beneficial Owners. The Beneficial Owners shall have no right to
direct the taking of a Bankruptcy Action with respect to the Trust. With respect
to any determination or exercise of discretion by the Trustee under this Section
9.01, the Trustee shall incur no personal liability to any Person for any
determination (action or inaction in connection therewith) made in good faith,
and in acting (or not acting as the case may be) under this Section, the Trustee
shall owe no fiduciary duties to any Person other than the Trust and the
Beneficial Owners. In connection with the Trustee's determination that the Trust
is insolvent, the Trustee shall not be obligated to follow the instructions of
the Beneficial Owners and shall have no liability to the Trust or any other
Person for its failure to do so.
(b) Upon liquidation of the Trust, the proceeds from the
liquidation of the Trust's assets shall be applied in accordance with Section
4.03(a)(v).
Section 9.02. Termination. The Trust shall terminate when all
of the Trust's assets shall have been disposed of and distributed as provided
herein. Upon the winding up of the Trust and its termination, the Trustee shall
cause the Certificate of Trust to be canceled by filing a certificate of
cancellation with the Secretary of State in accordance with the provisions of
Section 3810 of the Act.
Section 9.03. Sale of Assets following a Marlin Note Trigger
Event or Upon a Failure to Pay the Marlin Certificate Price. The Trustee shall,
at the direction of Marlin, cause the liquidation and sale of all or a portion
of the Trust's assets (a) following the occurrence of a Marlin Note Trigger
Event, as soon as practicable following the later of (i) the date of occurrence
of such Marlin Note Trigger Event and (ii) any applicable Standstill Expiration
Date, subject to the terms of Section 9.04 of the Indenture, (b) in the event
the amounts on deposit in the Marlin Certificate Distribution Account maintained
with the Marlin Trustee are insufficient to pay the Marlin Certificate Price to
the holders of the Marlin Certificates as and when required by Section 5.03 of
the Marlin Trust Agreement, as soon as practicable following such insufficiency,
or (c) in the event the Beneficial Owner of the Class B Interest fails to pay
the Beneficial Owner of the
27
<PAGE> 31
Class A Interest an amount equal to the Repayment Amount in accordance with
Section 8(h) of the Remarketing Agreement, as soon as practicable following such
failure. The proceeds of such liquidation and sale shall be applied in
accordance with Section 4.03(a)(v), but in no event later than the Class A Final
Distribution Date.
ARTICLE X
NOTICES
Section 10.01. Notices. All notices, demands, consents or
requests required or permitted under this Agreement must be in writing, and
shall be made at the addresses and in the manner set forth in Section 7.2 of the
Participation Agreement.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Entire Agreement. This Agreement and the Other
Transaction Documents constitute the entire agreement among the parties hereto
relating to the transactions contemplated hereby and thereby.
Section 11.02. Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE.
Section 11.03. Effect. Except as otherwise specified herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their respective legal representatives, successors and permitted assigns.
Section 11.04. Pronouns and Number. Wherever from the context
it appears appropriate, each term stated in either the singular or the plural
shall include the singular and the plural, and pronouns stated in either the
masculine, feminine or neuter shall include the masculine, feminine and neuter.
Section 11.05. Effect of Headings. The Table of Contents and
the headings of the Articles, Sections, subsections, clauses and paragraphs
hereof, and of Exhibits hereto, are for convenience of reference only, and shall
not affect the construction or interpretation of this Agreement.
Section 11.06. Severability of Provisions. If any provision
hereof shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof. To the extent permitted by Applicable Law, the parties
hereto hereby agree that any provision hereof that renders any other term or
provision hereof invalid or unenforceable in any respect shall be modified, but
only to the extent necessary
28
<PAGE> 32
to avoid rendering such other term or provision invalid or unenforceable, and
such modification shall be accomplished in the manner that most nearly preserves
the benefit of all the parties' bargain hereunder.
Section 11.07. Pledge of the Class A Interest to the Indenture
Trustee. The Beneficial Owner of the Class B Interest hereby expressly
acknowledges and consents to the pledge by the Beneficial Owner of the Class A
Interest of all such Beneficial Interest to the Indenture Trustee for the
benefit of the holders of the Marlin Senior Notes pursuant to the terms of the
Indenture and any subsequent transfers following foreclosure on such pledge in
accordance with the terms thereof. The Beneficial Owner of the Class B Interest
also expressly acknowledges and consents to any transfer by the Beneficial Owner
of the Class A Interest upon a failure by the Beneficial Owner of the Class B
Interest to make payment in accordance with Section 8(h) of the Remarketing
Agreement.
Section 11.08. Tax Matters. Each of the parties hereto
recognizes and intends that, for United States federal, state and local income
tax purposes,
(a) unless and until the Trust establishes additional classes
of Beneficial Interest or Enron transfers a portion or all of its Class B
Interest, the Trust will be disregarded as an entity separate from the Class B
Beneficial Owner pursuant to the United States Treasury Regulations
ss.ss.301.7701-1 through 301.7701-4 and comparable provisions of state and local
law, and all of the Trust's assets and income will be treated as owned by the
Class B Beneficial Owner whether or not pledged;
(b) if the Trust establishes additional classes of Beneficial
Interest or Enron transfers any of its Class B Interest, the Trust will
thereafter be treated as a partnership pursuant to the United States Treasury
Regulations ss.ss.301.7701-1 through 301.7701-3 and comparable provisions of
state and local law and all of the Trust's assets and income will be treated as
owned by such partnership whether or not pledged;
(c) the Class A Beneficial Interest will be treated as
indebtedness; and
(d) for such periods as the Trust is treated as a partnership
(and while so treated, in this Section 11.08, the Trust is referred to as the
"Partnership" and the Beneficial Owners of the Class B Interest are referred to
as ("Partners")), the following provisions shall apply:
(i) a tax capital account (the "Tax Capital Account")
shall be established and maintained for each Partner in
accordance with the provisions of Treasury Regulation
ss.1.704-1(b);
(ii) except as otherwise required by section 704 of
the Code and the Treasury Regulations thereunder, all items of
income, gain, loss, deduction and other tax items (as
determined for United States federal income tax purposes) for
each taxable year of the Partnership shall be allocated, to
the maximum extent possible, among the Partners in such shares
and proportions as will cause the
29
<PAGE> 33
positive balance in each Partner's Tax Capital Account as of
the end of such taxable year to be equal to the sum of the
amount of money and the fair market value of other property
that would be distributed to that Partner as of the end of
such taxable year if the Partnership were to dissolve and
liquidate as of the end of such taxable year;
(iii) Enron (or, if Enron is not then a Partner, such
Partner as the Partners may designate) shall serve as the tax
matters partner (as defined in section 6231 of the Code) of
the Partnership; and
(iv) the Partnership shall make an election to adjust
the basis of Partnership property pursuant to section 754 of
the Code and such other elections for United States federal
tax purposes as Enron may from time to time determine.
To the extent that any of the parties hereto is required to
report any item of income, gain, loss, deduction or credit relating to the Trust
for United States federal, state or local income tax purposes, such party shall
report such item in a manner consistent with the characterization intended by
this Section 11.08 and shall not take any contrary position on any tax return or
report relating to the United States federal, state or local income taxes or
take any other action which is inconsistent with such characterization.
Notwithstanding anything to the contrary herein, no party shall be obligated to
take a position subsequent to (A) a Final Determination to the contrary or (B) a
written opinion of independent, nationally-recognized tax counsel selected by
such party (such counsel and form of opinion to be reasonably satisfactory to
Enron) that no Reasonable Basis exists to take such position, which opinion
shall, solely in the case of a United States federal income Tax return, be based
on a Change in Law, provided, however, that a court decision described in clause
(IV) of the definition of "Change in Law" shall not constitute a Change in Law
if Enron provides to the relevant party a written opinion of independent,
nationally-recognized tax counsel selected by Enron (such counsel and form of
opinion to be reasonably satisfactory to such party) that, notwithstanding such
decision, such party's position is more likely than not to prevail if
challenged.
Section 11.09. Financial Statements. The Trust shall maintain
financial statements in accordance with GAAP and the Trustee shall deliver
copies thereof to each Beneficial Owner as follows:
(a) as soon as available and in any event within 45 days after
the end of the first, second and third fiscal quarters of Atlantic Water Trust,
an unaudited consolidated balance sheet of Atlantic Water Trust as of the end of
such quarter and the related consolidated statements of income and cash flows
for such quarter and for the portion of the fiscal year ending with the last day
of such quarter setting forth in comparative form corresponding unaudited
figures for the corresponding fiscal period of the preceding year, if any and
(b) as soon as available and in any event within 120 days
after the end of each fiscal year of Atlantic Water Trust, audited consolidated
financial statements of Atlantic Water Trust, prepared in accordance with U.S.
GAAP, together with an unqualified audit opinion of
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<PAGE> 34
Arthur Andersen LLP or another firm of independent certified public accountants
of recognized national standing.
Section 11.10. Amendments, Waivers, Etc. This Agreement may
not be amended, discharged or terminated nor may any provision hereof be waived
unless such amendment, discharge, termination or waiver is in writing and signed
by Enron, Marlin and the Trustee.
Section 11.11. Limitation of Liability. It is expressly
understood and agreed by the parties hereto with respect to Marlin that (a) this
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as trustee for Marlin, in the exercise of
the powers and authority conferred and vested in it under the Marlin Trust
Agreement, (b) each of the representations, undertakings and agreements herein
made on the part of Marlin is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust but is made and intended for the
purpose of binding only Marlin, and (c) under no circumstances shall Wilmington
Trust Company be personally liable for the payment of any indebtedness or
expenses of Marlin or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by Marlin under this
Agreement or other related documents; provided, however, this Section 11.11
shall not limit the liability expressly assumed by Wilmington Trust Company
under this Agreement or the Marlin Trust Agreement.
Section 11.12. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument
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<PAGE> 35
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date above first written.
WILMINGTON TRUST COMPANY
By: /s/ JAMES P. LAWLER
-------------------------------------------
Name: James P. Lawler
Title: Vice President
MARLIN TRUST,
as a Beneficial Owner
By: WILMINGTON TRUST COMPANY
Not in its individual capacity but solely
in its capacity as trustee
By: /s/ JAMES P. LAWLER
-------------------------------------------
Name: James P. Lawler
Title: Vice President
ENRON CORP.,
as Depositor and a Beneficial Owner
By: /s/ BARRY J. SCHNAPPER
-------------------------------------------
Name: Barry J. Schnapper
Title: Agent and Attorney-in-Fact
<PAGE> 36
EXHIBIT A-1
[Form of Trust Certificate - Class A Beneficial Interest]
ATLANTIC WATER TRUST
Trust Certificate
evidencing a beneficial ownership interest in the Trust Estate (as defined in
the Atlantic Water Trust Agreement).
THIS TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS TRUST CERTIFICATE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
THIS TRUST CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ENRON
CORP. OR THE TRUSTEE REFERRED TO BELOW, OR OF ANY OF THEIR AFFILIATES EXCEPT AS
SET FORTH HEREIN AND IN THE ATLANTIC WATER TRUST AGREEMENT. THIS TRUST
CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENT AGENCY OR
INSTRUMENTALITY.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT AS OTHERWISE PERMITTED IN
THE TRANSACTION DOCUMENTS, THIS TRUST CERTIFICATE SHALL NOT BE TRANSFERRED
WITHOUT THE PRIOR WRITTEN CONSENT OF THE BENEFICIAL OWNER OF THE CLASS B
INTEREST; PROVIDED, HOWEVER, THIS TRUST CERTIFICATE MAY BE TRANSFERRED WITHOUT
SUCH CONSENT (I) FOLLOWING A MARLIN CERTIFICATE TRIGGER EVENT OR (II) TO THE
EXTENT CONTEMPLATED BY SECTION 11.07 OF THE ATLANTIC WATER TRUST AGREEMENT.
THIS TRUST CERTIFICATE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE.
Certificate No.: 1
Initial Class A Trust Account Balance: $1,149,000,000
THIS CERTIFIES THAT Marlin Water Trust is the registered owner
of the Class A beneficial ownership interest (the "Class A Interest") in
Atlantic Water Trust, a Delaware business trust formed pursuant to a Trust
Agreement dated as of November 30, 1998, as amended and restated pursuant to an
Amended and Restated Trust Agreement dated as of December 17, 1998 (the
"Atlantic Water Trust Agreement") among Enron Corp., as Depositor and Beneficial
Owner, Marlin Water Trust, as Beneficial Owner and Wilmington Trust Company, as
Trustee (the "Trustee").
Atlantic Water Trust has also issued a trust certificate
evidencing the Class B beneficial ownership interests of Atlantic Water Trust
(such interest, the "Class B Interest" and the holder of such trust certificate
and the holders of this Trust Certificate, each, a "Beneficial Owner").
Reference is hereby
A-1-1
<PAGE> 37
made to the Atlantic Water Trust Agreement for the respective rights thereunder
of the Depositor, the Beneficial Owner of the Class A Interest and Class B
Interest and the Trustee. The Trust Certificates are subject to all such terms,
and the holder of this Trust Certificate is referred to the Atlantic Water Trust
Agreement for a statement of such terms. To the extent any provision of this
Trust Certificate conflicts with the express provisions of the Atlantic Water
Trust Agreement, the provisions of the Atlantic Water Trust Agreement shall
govern and be controlling. The holder of this Trust Certificate, by virtue of
the acceptance hereof, assents to the terms of the Atlantic Water Trust
Agreement and is bound by such terms. A summary of certain of the pertinent
provisions of the Atlantic Water Trust Agreement is set forth herein.
Capitalized terms used herein shall have the meanings assigned to them in the
Atlantic Water Trust Agreement unless otherwise indicated.
1. Distributions. Any holder of this Trust Certificate will
receive distributions in respect of this Trust Certificate on each Distribution
Date in accordance with Article IV of the Atlantic Water Trust Agreement,
including, without limitation, the Class A Priority Distribution described in
Paragraph 2.
2. Class A Priority Distribution. The Beneficial Owner of the
Class A Interest will be entitled to receive, on each Payment Date, so long as
the balance of the Class A Trust is greater than zero, a distribution in an
amount equal to the sum of (i) any Marlin Interest Amount then due and payable
and (ii) Marlin Certificate Yield then due and payable or in the case of a Base
Amount Deferral by the Marlin Certificateholders pursuant to Section 5.04 and
6.02 of the Marlin Trust Agreement, the Treasury Yield due and payable as
described in Section 5.06 of the Marlin Trust Agreement.
3. Certain Limitations on the Rights of the Class A Interest.
Notwithstanding anything else to the contrary in the Atlantic Water Trust
Agreement, the Beneficial Owner of the Class A Interest will be entitled to
receive distributions in accordance with Article IV thereof, only so long as the
then current balance of the Class A Trust Account is greater than zero. In the
event the balance of the Class A Trust Account is reduced to zero, the rights of
the Beneficial Owner of the Class A Interest under the Atlantic Water Trust
Agreement, including, without limitation, its rights under Article VI, will be
terminated.
4. Amendment, Supplement and Waiver. No provision of the
Atlantic Water Trust Agreement may be amended, discharged or terminated nor may
any provision thereof be waived unless such amendment, discharge, termination or
waiver is in writing and signed by Enron, Marlin and the Trustee.
5. Limitation on Liability. The Trustee will incur no
liability to any Person in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
documents or paper reasonably believed by it to be genuine and reasonably
believed by it to be signed by the proper party or parties. The Trustee will not
be personally liable for any error of judgment made in good faith.
6. Termination. The obligations and responsibilities of the
Trustee created hereby with respect to the Trust Estate will terminate upon the
distribution to the holders of Trust Certificates of all amounts required to be
distributed to them pursuant to the Atlantic Water Trust Agreement.
A-1-2
<PAGE> 38
Atlantic Water Trust will furnish to any holder of a Trust
Certificate upon written request and without charge a copy of the Atlantic Water
Trust Agreement. Requests may be made to:
Atlantic Water Trust
c/o Wilmington Trust Company
Rodney Square North
1100 Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telecopier No.: 302-651-8882
Telephone No.: 302-651-8681
A-1-3
<PAGE> 39
IN WITNESS WHEREOF, the Trustee has caused this Trust
Certificate to be duly executed.
Dated: December 17, 1998
ATLANTIC WATER TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely in its capacity as trustee
By:
--------------------------------------
Name:
Title:
A-1-4
<PAGE> 40
ASSIGNMENT FORM
To assign this Trust Certificate, fill in the form below: (I) or (we) assign and
transfer this Trust Certificate to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
to transfer this Trust Certificate on the books of Atlantic Water Trust. The
agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
----------------------
Your Signature:
-------------------------
(Sign exactly as your name appears on the
face of this Trust Certificate)
Signature Guarantee.
A-1-5
<PAGE> 41
EXHIBIT A-2
[Form of Trust Certificate - Class B Beneficial Interest]
ATLANTIC WATER TRUST
Trust Certificate
evidencing a beneficial ownership interest in the Trust Estate (as defined in
the Atlantic Water Trust Agreement).
THIS TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS TRUST CERTIFICATE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
THIS TRUST CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ENRON
CORP. OR THE TRUSTEE REFERRED TO BELOW, OR OF ANY OF THEIR AFFILIATES EXCEPT AS
SET FORTH HEREIN AND IN THE ATLANTIC WATER TRUST AGREEMENT. THIS TRUST
CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENT AGENCY OR
INSTRUMENTALITY.
NO TRANSFER OF THIS TRUST CERTIFICATE SHALL BE PERMITTED UNLESS THE PROPOSED
TRANSFEROR OF THIS TRUST CERTIFICATE HAS DELIVERED AN OPINION OF ANY
NATIONALLY-RECOGNIZED SECURITIES COUNSEL TO THE EFFECT THAT SUCH TRANSFER WOULD
NOT CAUSE THE TRUST OR MARLIN WATER TRUST TO BE REQUIRED TO REGISTER AS AN
INVESTMENT COMPANY UNDER THE UNITED STATES INVESTMENT COMPANY ACT OF 1940, AS
AMENDED.
THIS TRUST CERTIFICATE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE.
Certificate No.: 2
Initial Class B Trust Account Balance: $846,000,000
THIS CERTIFIES THAT Enron Corp. is the registered owner of the
Class B beneficial ownership interest (the "Class B Interest") in Atlantic Water
Trust, a Delaware business trust formed pursuant to a Trust Agreement dated as
of November 30, 1998, as amended and restated pursuant to an Amended and
Restated Trust Agreement dated as of December 17, 1998 (the "Atlantic Water
Trust Agreement") among Enron Corp., as Depositor and Beneficial Owner, Marlin
Water Trust, as Beneficial Owner and Wilmington Trust Company, as Trustee (the
"Trustee").
Atlantic Water Trust has also issued a trust certificate
evidencing the Class A beneficial ownership interests of Atlantic Water Trust
(such interest, the "Class A Interest" and the holder of such trust certificate
and the holders of this Trust Certificate, each, a "Beneficial Owner").
Reference is hereby made to the Atlantic Water Trust Agreement for the
respective rights thereunder of the Depositor, the
A-2-1
<PAGE> 42
Beneficial Owner of the Class A Interest and Class B Interest and the Trustee.
The Trust Certificates are subject to all such terms, and the holder of this
Trust Certificate is referred to the Atlantic Water Trust Agreement for a
statement of such terms. To the extent any provision of this Trust Certificate
conflicts with the express provisions of the Atlantic Water Trust Agreement, the
provisions of the Atlantic Water Trust Agreement shall govern and be
controlling. The holder of this Trust Certificate, by virtue of the acceptance
hereof, assents to the terms of the Atlantic Water Trust Agreement and is bound
by such terms. A summary of certain of the pertinent provisions of the Atlantic
Water Trust Agreement is set forth herein. Capitalized terms used herein shall
have the meanings assigned to them in the Atlantic Water Trust Agreement unless
otherwise indicated.
1. Distributions. Any holder of this Trust Certificate will
receive distributions in respect of this Trust Certificate on each Distribution
Date in accordance with Article IV of the Atlantic Water Trust Agreement.
2. Amendment, Supplement and Waiver. No provision of the
Atlantic Water Trust Agreement may be amended, discharged or terminated nor may
any provision thereof be waived unless such amendment, discharge, termination or
waiver is in writing and signed by Enron, Marlin and the Trustee.
3. Limitation on Liability. The Trustee will incur no
liability to any Person in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
documents or paper reasonably believed by it to be genuine and reasonably
believed by it to be signed by the proper party or parties. The Trustee will not
be personally liable for any error of judgment made in good faith.
4. Termination. The obligations and responsibilities of the
Trustee created hereby with respect to the Trust Estate will terminate upon the
distribution to the holders of Trust Certificates of all amounts required to be
distributed to them pursuant to the Atlantic Water Trust Agreement.
Atlantic Water Trust will furnish to any holder of a Trust
Certificate upon written request and without charge a copy of the Atlantic Water
Trust Agreement. Requests may be made to:
Atlantic Water Trust
c/o Wilmington Trust Company
Rodney Square North
1100 Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telecopier No.: 302-651-8882
Telephone No.: 302-651-8681
A-2-2
<PAGE> 43
IN WITNESS WHEREOF, the Trustee has caused this Trust
Certificate to be duly executed.
Dated: December 17, 1998
ATLANTIC WATER TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely in its capacity as trustee
By:
------------------------------------
Name:
Title:
A-2-3
<PAGE> 44
ASSIGNMENT FORM
To assign this Trust Certificate, fill in the form below: (I) or (we) assign and
transfer this Trust Certificate to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
to transfer this Trust Certificate on the books of Atlantic Water Trust. The
agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
----------------------
Your Signature:
-------------------------
(Sign exactly as your name appears on the
face of this Trust Certificate)
Signature Guarantee.
A-2-4
<PAGE> 1
EXHIBIT 10.15
CONFORMED COPY
DATED 30TH MARCH, 1999
WESSEX WATER SERVICES FINANCE PLC
- and -
WESSEX WATER SERVICES LIMITED
- and -
MIDLAND BANK PLC
-------------------------------------------
TRUST DEED
CONSTITUTING
L.300,000,000
5.875 PER CENT. GUARANTEED BONDS DUE 2009
UNCONDITIONALLY AND IRREVOCABLY GUARANTEED BY
WESSEX WATER SERVICES LIMITED
(WITH AUTHORITY TO ISSUE FURTHER BONDS OR NOTES)
-------------------------------------------
FOR THE ISSUER AND THE GUARANTOR:
LINKLATERS & PAINES
ONE SILK STREET
LONDON EC2Y 8HQ
FOR THE TRUSTEE:
ALLEN & OVERY
ONE NEW CHANGE
LONDON EC4M 9QQ
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C> <C>
1. DEFINITIONS..........................................................................................1
2. COVENANT TO REPAY AND TO PAY INTEREST ON
ORIGINAL BONDS.......................................................................................8
TRUSTEE'S REQUIREMENTS REGARDING PAYING AGENTS.......................................................9
FURTHER ISSUES......................................................................................10
3. FORM AND ISSUE OF ORIGINAL BONDS AND ORIGINAL COUPONS...............................................11
4. FEES, DUTIES AND TAXES..............................................................................12
5. COVENANT OF COMPLIANCE..............................................................................12
6. CANCELLATION OF SECURITIES AND RECORDS..............................................................12
7. GUARANTEE...........................................................................................14
8. ENFORCEMENT.........................................................................................15
9. ACTION, PROCEEDINGS AND INDEMNIFICATION.............................................................16
10. APPLICATION OF MONEYS...............................................................................16
11. NOTICE OF PAYMENTS..................................................................................17
12. INVESTMENT BY TRUSTEE...............................................................................17
13. PARTIAL PAYMENTS....................................................................................17
14. COVENANTS BY THE ISSUER AND THE GUARANTOR...........................................................18
15. REMUNERATION AND INDEMNIFICATION OF TRUSTEE.........................................................22
16. SUPPLEMENT TO TRUSTEE ACT 1925......................................................................24
17. TRUSTEE'S LIABILITY.................................................................................27
18. TRUSTEE CONTRACTING WITH THE ISSUER AND THE GUARANTOR...............................................27
19. WAIVER, AUTHORISATION AND DETERMINATION.............................................................28
MODIFICATION........................................................................................29
BREACH..............................................................................................29
20. HOLDER OF DEFINITIVE BEARER SECURITY ASSUMED TO BE
COUPONHOLDER........................................................................................29
NO NOTICE TO COUPONHOLDERS..........................................................................29
ENTITLEMENT TO TREAT HOLDER AS ABSOLUTE OWNER.......................................................29
21. SUBSTITUTION........................................................................................30
22. CURRENCY INDEMNITY..................................................................................31
23. NEW TRUSTEE.........................................................................................31
SEPARATE AND CO-TRUSTEES............................................................................32
24. TRUSTEE'S RETIREMENT AND REMOVAL....................................................................32
25. TRUSTEE'S POWERS TO BE ADDITIONAL...................................................................33
26. NOTICES.............................................................................................33
27. GOVERNING LAW.......................................................................................34
28. COUNTERPARTS........................................................................................34
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
THE FIRST SCHEDULE PART I FORM OF ORIGINAL TEMPORARY GLOBAL
BOND.............................................................35
PART II FORM OF ORIGINAL PERMANENT GLOBAL
BOND.............................................................46
THE SECOND SCHEDULE FORM OF DEFINITIVE ORIGINAL BOND............................................53
FORM OF ORIGINAL COUPON.....................................................55
CONDITIONS OF THE ORIGINAL BONDS............................................57
THE THIRD SCHEDULE REGISTER AND TRANSFER OF REGISTERED SECURITIES..............................59
THE FOURTH SCHEDULE PROVISIONS FOR MEETINGS OF HOLDERS..........................................61
</TABLE>
<PAGE> 4
THIS TRUST DEED is made on 30th March, 1999 BETWEEN:
(1) WESSEX WATER SERVICES FINANCE PLC, a company incorporated under the
laws of England and Wales with company number 3704265, whose registered
office is at Wessex House, Passage Street, Bristol BS2 0JQ (the
"ISSUER");
(2) WESSEX WATER SERVICES LIMITED, a company incorporated under the laws of
England and Wales with company number 2366648, whose registered office
is at Wessex House, Passage Street, Bristol BS2 0JQ (the "GUARANTOR");
and
(3) MIDLAND BANK PLC, a company incorporated under the laws of England and
Wales with company number 14259, whose registered office is at Poultry,
London EC2P 2BX (the "TRUSTEE", which expression shall, wherever the
context so admits, include such company and all other persons or
companies for the time being the trustee or trustees of these presents)
as trustee for the Holders and Couponholders (each as defined below).
WHEREAS:
(1) By resolutions of the Board of Directors of the Issuer passed on 17th
February, 1999 and 19th March, 1999 the Issuer has resolved to issue
L.300,000,000 5.875 per cent. Guaranteed Bonds due 2009 to be
constituted by this Trust Deed.
(2) By resolutions of the Board of Directors of the Guarantor passed on
17th February, 1999 and of a duly authorised Committee thereof passed
on 19th March, 1999 the Guarantor has agreed to guarantee the said
Bonds and to enter into certain covenants as set out in this Trust
Deed.
(3) The said Bonds in definitive form will be in bearer form with Coupons
attached.
(4) The Trustee has agreed to act as trustee of these presents for the
benefit of the Holders and Couponholders upon and subject to the terms
and conditions of these presents.
NOW THIS TRUST DEED WITNESSES AND IT IS AGREED AND DECLARED as follows:
1. DEFINITIONS
(A) IN these presents unless there is anything in the subject or context
inconsistent therewith the following expressions shall have the
following meanings:
"AGENT BANK" means, in relation to the Securities of any relevant
series, the bank initially appointed as agent bank in relation to such
Securities by the Issuer and the Guarantor pursuant to the relative
Agent Bank Agreement or, if applicable, any Successor agent bank in
relation to such Securities;
"AGENT BANK AGREEMENT" means, in relation to the Securities of any
relevant series, the agreement (which may, but need not, be the
relative Paying Agency Agreement) appointing the initial Agent Bank in
relation to such Securities and any other agreement for the time being
in force appointing any Successor agent bank in relation to such
Securities, or in connection with its duties, the terms of which have
previously been approved in writing by the Trustee, together with any
agreement for the time being in force amending or modifying
<PAGE> 5
with the prior written approval of the Trustee any of the aforesaid
agreements in relation to such Securities;
"APPOINTEE" means any attorney, manager, agent, delegate or other
person appointed by the Trustee under these presents;
"APPOINTMENT" has the meaning set out in Condition 18;
"AUDITORS" has the meaning set out in Condition 18;
"BEARER SECURITIES" means those of the Securities which are for the
time being in bearer form;
"CAPITAL AND RESERVES" has the meaning set out in Condition 18;
"CEDELBANK" means Cedelbank which is a limited liability company
(societe anonyme) organised under Luxembourg law;
"CONDITIONS" means:
(i) in relation to the Original Bonds, the Conditions which are to
be endorsed on the Original Bonds in definitive form (if
issued) in the form set out in the Second Schedule as the same
may from time to time be modified in accordance with these
presents and any reference in these presents to a particular
specified Condition or paragraph of a Condition shall in
relation to the Original Bonds be construed accordingly; and
(ii) in relation to the Further Securities of any series, the
Conditions which are to be endorsed on such Further Securities
in definitive form (if issued) in the form set out or referred
to in the supplemental trust deed relating thereto as the same
may from time to time be modified in accordance with these
presents and any reference in these presents to a particular
specified Condition or paragraph of a Condition shall in
relation to the Further Securities of any series, unless
either referring specifically to a particular specified
Condition or paragraph of a Condition of such Further
Securities or the context otherwise requires, be construed as
a reference to the provisions (if any) in the Conditions
thereof which correspond to the provisions of the particular
specified Condition or paragraph of a Condition of the
Original Bonds;
"COUPONHOLDERS" means the several persons who are for the time being
holders of the Coupons;
"COUPONS" means the bearer interest coupons appertaining to the Bearer
Securities in definitive form or, as the context may require, a
specific number thereof and includes any replacements for Coupons
issued pursuant to Condition 13 and, where the context so permits, the
Talons;
"EXCLUDED SUBSIDIARY" has the meaning set out in Condition 18;
"EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System;
2
<PAGE> 6
"EVENT OF DEFAULT" means any of the conditions, events or acts provided
in Condition 10 to be events upon the happening of which the Securities
of any series would, subject only to notice by the Trustee as therein
provided, become immediately due and repayable;
"EXTRAORDINARY RESOLUTION" has the meaning set out in paragraph 20 of
the Fourth Schedule;
"FURTHER SECURITIES" means bonds or notes (whether in bearer or
registered form) of the Issuer constituted by a trust deed supplemental
to this Trust Deed pursuant to Clause 2(D) or the principal amount
thereof for the time being outstanding or as the context may require a
specific number thereof and includes any replacements for Further
Securities issued pursuant to Condition 13 and, where applicable, any
Global Security issued in respect thereof;
"GLOBAL SECURITY" means the Original Temporary Global Bond and/or the
Original Permanent Global Bond and/or any other global bond or note
issued in respect of the Further Securities of any series and includes
any replacements for Global Securities issued pursuant to Condition 13;
"HOLDERS" means the several persons who are for the time being holders
of the Securities (being, in the case of Bearer Securities, the bearers
thereof and, in the case of Registered Securities, the several persons
whose names are entered in the register of holders of the Registered
Securities as the holders thereof) and the words "HOLDER" and "HOLDERS"
and related expressions shall (where appropriate) be construed
accordingly;
"LIABILITY" means any loss, damage, cost, charge, claim, demand,
expense, judgment, action, proceeding or other liability whatsoever
(including, without limitation, in respect of taxes, duties, levies,
imposts and other charges) and including any value added tax or similar
tax charged or chargeable in respect thereof and legal fees and
expenses on a full indemnity basis;
"ORIGINAL BONDHOLDERS" means the several persons who are for the time
being holders of the Original Bonds;
"ORIGINAL BONDS" means the bonds comprising the said L.300,000,000
5.875 per cent. Guaranteed Bonds due 2009 of the Issuer hereby
constituted or the principal amount thereof for the time being
outstanding or, as the context may require, a specific number thereof
and includes any replacements for Original Bonds issued pursuant to
Condition 13 and (except for the purposes of Clause 3) the Original
Temporary Global Bond and the Original Permanent Global Bond;
"ORIGINAL COUPONHOLDERS" means the several persons who are for the time
being holders of the Original Coupons;
"ORIGINAL COUPONS" means the Coupons appertaining to the Original Bonds
in definitive form;
"ORIGINAL PERMANENT GLOBAL BOND" means the permanent global bond in
respect of the Original Bonds to be issued pursuant to Clause 3(C) in
the form or substantially in the form set out in Part II of the First
Schedule;
3
<PAGE> 7
"ORIGINAL TEMPORARY GLOBAL BOND" means the temporary global bond in
respect of the Original Bonds to be issued pursuant to Clause 3(A) in
the form or substantially in the form set out in Part I of the First
Schedule;
"OUTSTANDING" means in relation to the Securities all the Securities
issued other than:
(a) those Securities which have been redeemed and cancelled
pursuant to these presents;
(b) those Securities in respect of which the date for redemption
in accordance with the Conditions has occurred and the
redemption moneys (including premium (if any) and all interest
payable thereon) have been duly paid to the Trustee or to the
Principal Paying Agent in the manner provided in the Paying
Agency Agreement (and where appropriate notice to that effect
has been given to the relative Holders in accordance with
Condition 13) and remain available for payment against
presentation of the relevant Securities and/or Coupons;
(c) those Securities which have been purchased and cancelled in
accordance with Condition 6;
(d) those Securities which have become void under Condition 9;
(e) those mutilated or defaced Securities which have been
surrendered and cancelled and in respect of which replacements
have been issued pursuant to Condition 13;
(f) (for the purpose only of ascertaining the principal amount of
the Securities outstanding and without prejudice to the status
for any other purpose of the relevant Securities) those
Securities which are alleged to have been lost, stolen or
destroyed and in respect of which replacements have been
issued pursuant to Condition 13;
(g) any Global Security to the extent that it shall have been
exchanged for another Global Security in respect of the
Securities of the relevant series or for the Securities of the
relevant series in definitive form pursuant to its provisions;
and
(h) those Bearer Securities which have been exchanged for
Registered Securities and, where applicable, vice versa and
which have been cancelled or, if permitted by the Conditions
of such Securities, are for the time being retained by or on
behalf of the Issuer, in each case pursuant to the provisions
of these presents;
PROVIDED THAT for each of the following purposes, namely:
(i) the right to attend and vote at any meeting of the Holders or
any of them;
(ii) the determination of how many and which Securities are for the
time being outstanding for the purposes of Clause 9(A),
Conditions 7(b), 10, 11 and 15(a) and paragraphs 2, 5, 6 and 9
of the Fourth Schedule;
(iii) any discretion, power or authority (whether contained in these
presents or vested by operation of law) which the Trustee is
required, expressly or impliedly, to exercise in or by
reference to the interests of the Holders or any of them; and
4
<PAGE> 8
(iv) the determination by the Trustee whether any event,
circumstance, matter or thing is, in its opinion, materially
prejudicial to the interests of the Holders or any of them,
those Securities (if any) which are for the time being held by or on
behalf of the Issuer, the Guarantor, any other Subsidiary of the
Guarantor, any holding company of the Guarantor or any other Subsidiary
of any such holding company, in each case as beneficial owner, shall
(unless and until ceasing to be so held) be deemed not to remain
outstanding;
"PAYING AGENCY AGREEMENT" means, in relation to the Securities of any
series, the agreement appointing the initial Paying Agents and, if
applicable, Registrar and/or Transfer Agents in relation to such
Securities and any other agreement for the time being in force
appointing Successor paying agents and, if applicable, registrars
and/or transfer agents in relation to such Securities, or in connection
with their duties, the terms of which have previously been approved in
writing by the Trustee, together with any agreement for the time being
in force amending or modifying with the prior written approval of the
Trustee (such approval not to be unreasonably withheld or delayed) any
of the aforesaid agreements in relation to such Securities;
"PAYING AGENTS" means, in relation to the Securities of any series, the
several institutions (including where the context permits the Principal
Paying Agent) at their respective specified offices initially appointed
as paying agents in relation to such Securities by the Issuer and the
Guarantor pursuant to the relative Paying Agency Agreement and/or, if
applicable, any Successor paying agents in relation to such Securities;
"POTENTIAL EVENT OF DEFAULT" means any condition, event or act which,
with the lapse of time and/or the issue, making or giving of any
notice, certification, declaration, demand, determination and/or
request and/or the taking of any similar action and/or the fulfilment
of any similar condition in each case as provided in Condition 10,
would constitute an Event of Default;
"PRINCIPAL PAYING AGENT" means, in relation to the Securities of any
series, the institution at its specified office initially appointed as
principal paying agent in relation to such Securities by the Issuer and
the Guarantor pursuant to the relative Paying Agency Agreement or, if
applicable, any Successor principal paying agent in relation to such
Securities;
"PRINCIPAL SUBSIDIARY" has the meaning set out in Condition 18;
"REFERENCE BANKS" means, in relation to the Securities of any relevant
series, the several banks initially appointed as reference banks in
relation to such Securities by the Issuer and the Guarantor and
referred to as such in the Conditions of such Securities and/or, if
applicable, any Successor reference banks in relation to such
Securities;
"REGISTERED SECURITIES" means those of the Securities which are for the
time being in registered form;
"REGISTRAR" means, in relation to the Securities of any relevant series
(being, or which are exchangeable for, Registered Securities), the
institution at its specified office initially appointed as registrar in
relation to such Securities by the Issuer and the Guarantor pursuant
5
<PAGE> 9
to the relative Paying Agency Agreement or, if applicable, any
Successor registrar in relation to such Securities;
"RELEVANT DATE" has the meaning set out in Condition 8;
"RELEVANT INDEBTEDNESS" has the meaning set out in Condition 18;
"REPAY", "REDEEM" and "PAY" shall each include both the others and
cognate expressions shall be construed accordingly;
"SECURITIES" means, as the context may require, the Original Bonds
and/or any Further Securities and/or any series thereof;
"SECURITY INTEREST" has the meaning set out in Condition 3;
"SUBSIDIARY" means any company which is for the time being a subsidiary
(within the meaning of section 736 of the Companies Act 1985 of Great
Britain);
"SUCCESSOR" means, in relation to the Agent Bank, the Principal Paying
Agent, the other Paying Agents, the Reference Banks, the Registrar and
the Transfer Agents, any successor to any one or more of them in
relation to the Securities of the relevant series which shall become
such pursuant to the provisions of these presents, the relative Agent
Bank Agreement and/or the relative Paying Agency Agreement (as the case
may be) and/or such other or further agent bank, principal paying
agent, paying agents, reference banks, registrar and/or transfer agents
(as the case may be) in relation to such Securities as may (with the
prior approval of, and on terms previously approved by, the Trustee in
writing) from time to time be appointed as such, and/or, if applicable,
such other or further specified offices (in the former case being
within the same city as those for which they are substituted) as may
from time to time be nominated, in each case by the Issuer and, if
applicable, the Guarantor, and (except in the case of the initial
appointments and specified offices made under and specified in the
Conditions, the relative Agent Bank Agreement and/or the relative
Paying Agency Agreement, as the case may be) notice of whose
appointment or, as the case may be, nomination has been given to the
relevant Holders pursuant to Clause 14(xiii) in accordance with
Condition 14;
"TALONS" means the talons appertaining to, and exchangeable in
accordance with the provisions therein contained for further Coupons
appertaining to, the Bearer Securities in definitive form of any
relevant series and includes any replacements for Talons issued
pursuant to Condition 13;
"THE STOCK EXCHANGE" means, in relation to the Securities of any
relevant series, the stock exchange or exchanges (if any) on which such
Securities are for the time being quoted or listed;
"THESE PRESENTS" means this Trust Deed and the Schedules and any trust
deed supplemental hereto and the Schedules (if any) thereto and the
Securities, the Coupons and the Conditions, all as from time to time
modified in accordance with the provisions herein or therein contained;
6
<PAGE> 10
"TRANSFER AGENTS" means, in relation to the Securities of any relevant
series (being, or which are exchangeable for, Registered Securities),
the institutions at their respective specified offices initially
appointed as transfer agents in relation to such Securities by the
Issuer and the Guarantor pursuant to the relative Paying Agency
Agreement and/or, if applicable, any Successor transfer agents in
relation to such Securities;
"TREATY" means the Treaty establishing the European Community as
amended by the Treaty on European Union;
"TRUST CORPORATION" means a corporation entitled by rules made under
the Public Trustee Act 1906 of Great Britain or entitled pursuant to
any other comparable legislation applicable to a trustee in any other
jurisdiction to carry out the functions of a custodian trustee;
words denoting the singular shall include the plural and vice versa;
words denoting one gender only shall include the other genders; and
words denoting persons only shall include firms and corporations and
vice versa.
(B) (i) All references in these presents to principal and/or
premium and/or interest in respect of the Securities or to any
moneys payable by the Issuer and/or the Guarantor under these
presents shall be deemed to include a reference to any
additional amounts which may be payable under Condition 8 or,
if applicable, under any undertaking or covenant given
pursuant to Clause 14(xv) or Clause 21(A)(2)(ii).
(ii) All references in these presents to principal or principal
amount shall, unless the context otherwise requires, be deemed
to include the Redemption Price (as defined in Condition
6(c)(ii)).
(iii) All references in these presents to "STERLING", "POUNDS
STERLING", "PENCE", "P" or the sign "L." shall be
construed as references to the lawful currency for the time
being of the United Kingdom and all references to "EURO" or
the sign "E$" shall be construed as references to the currency
introduced at the start of the third stage of European
economic and monetary union pursuant to the Treaty.
(iv) All references in these presents to any statute or any
provision of any statute shall be deemed also to refer to any
statutory modification or re-enactment thereof or any
statutory instrument, order or regulation made thereunder or
under any such modification or re-enactment.
(v) All references in these presents to guarantees or to an
obligation being guaranteed shall be deemed to include
respectively references to indemnities or to an indemnity
being given in respect thereof.
(vi) All references in these presents to any action, remedy or
method of proceeding for the enforcement of the rights of
creditors shall be deemed to include, in respect of any
jurisdiction other than England, references to such action,
remedy or method of proceeding for the enforcement of the
rights of creditors available or appropriate in such
jurisdiction as shall most nearly approximate to such action,
remedy or method of proceeding described or referred to in
these presents.
7
<PAGE> 11
(vii) All references in these presents to taking proceedings against
the Issuer and/or the Guarantor shall be deemed to include
references to proving in the winding up of the Issuer and/or
the Guarantor (as the case may be).
(viii) All references in these presents to Euroclear and/or Cedelbank
shall be deemed to include references to any other clearing
system approved by the Trustee.
(ix) Unless the context otherwise requires words or expressions
used in these presents shall bear the same meanings as in the
Companies Act 1985 of Great Britain.
(x) In this Trust Deed references to Schedules, Clauses,
sub-clauses, paragraphs and sub-paragraphs shall be construed
as references to the Schedules to this Trust Deed and to the
Clauses, sub-clauses, paragraphs and sub-paragraphs of this
Trust Deed respectively.
(xi) All references in these presents involving compliance by the
Trustee with a test of reasonableness shall be deemed to
include a reference to a requirement that such reasonableness
shall be determined by reference primarily to the interests of
the holders of the Securities of the relevant one or more
series as a class and in the event of any conflict between
such interests and the interests of any other person, the
former shall prevail.
(xii) In these presents tables of contents and Clause headings are
included for ease of reference and shall not affect the
construction of these presents.
2. COVENANT TO REPAY AND TO PAY INTEREST ON ORIGINAL BONDS
(A) THE aggregate principal amount of the Original Bonds is limited to
L.300,000,000.
(B) The Issuer covenants with the Trustee that it will, in accordance with
these presents, on the due date for the final maturity of the Original
Bonds provided for in the Conditions, or on such earlier date as the
same or any part thereof may become due and repayable thereunder, pay
or procure to be paid unconditionally to or to the order of the Trustee
in pounds sterling in London in immediately available funds the
principal amount of the Original Bonds repayable on that date and shall
in the meantime and until such date (both before and after any judgment
or other order of a court of competent jurisdiction) pay or procure to
be paid unconditionally to or to the order of the Trustee as aforesaid
interest (which shall accrue from day to day) on the principal amount
of the Original Bonds at the rate of 5.875 per cent. per annum payable
annually in arrear on 30th March, the first such payment (representing
a full year's interest) to be made on 30th March, 2000 PROVIDED THAT:
(i) every payment of principal or interest in respect of the
Original Bonds to or to the account of the Principal Paying
Agent in the manner provided in the Paying Agency Agreement
shall operate in satisfaction pro tanto of the relative
covenant by the Issuer in this Clause except to the extent
that there is default in the subsequent payment thereof in
accordance with the Conditions to the Original Bondholders or
Original Couponholders (as the case may be);
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(ii) in any case where payment of principal is not made to the
Trustee or the Principal Paying Agent on or before the due
date, interest shall continue to accrue on the principal
amount of the Original Bonds (both before and after any
judgment or other order of a court of competent jurisdiction)
at the rate aforesaid up to and including the date which the
Trustee properly determines to be the date on and after which
payment is to be made to the Original Bondholders in respect
thereof as stated in a notice given to the Original
Bondholders in accordance with Condition 14 (such date to be
not later than 30 days after the day on which the whole of
such principal amount, together with an amount equal to the
interest which has accrued and is to accrue pursuant to this
proviso up to and including that date, has been received by
the Trustee or the Principal Paying Agent); and
(iii) in any case where payment of the whole or any part of the
principal amount of any Original Bond is improperly withheld
or refused upon due presentation thereof (other than in
circumstances contemplated by proviso (ii) above) interest
shall accrue on that principal amount payment of which has
been so withheld or refused (both before and after any
judgment or other order of a court of competent jurisdiction)
at the rate aforesaid from and including the date of such
withholding or refusal up to and including the date on which,
upon further presentation of the relevant Original Bond,
payment of the full amount (including interest as aforesaid)
in pounds sterling payable in respect of such Original Bond is
made or (if earlier) the seventh day after notice is given to
the relevant Original Bondholder (either individually or in
accordance with Condition 14) that the full amount (including
interest as aforesaid) in pounds sterling payable in respect
of such Original Bond is available for payment, provided that,
upon further presentation thereof being duly made, such
payment is made.
The Trustee will hold the benefit of this covenant on trust for the
Original Bondholders and the Original Couponholders and itself in
accordance with these presents.
TRUSTEE'S REQUIREMENTS REGARDING PAYING AGENTS
(C) At any time after an Event of Default or a Potential Event of Default
shall have occurred or the Securities shall otherwise have become due
and repayable or the Trustee shall have received any money which it
proposes to pay under Clause 11 to the Holders and/or Couponholders,
the Trustee may:
(i) by notice in writing to the Issuer, the Guarantor, the
Principal Paying Agent, the other Paying Agents, the Registrar
and the Transfer Agents require the Principal Paying Agent,
the other Paying Agents, the Registrar and the Transfer Agents
pursuant to the Paying Agency Agreement:
(a) to act thereafter as Principal Paying Agent, Paying
Agents, Registrar and Transfer Agents respectively of
the Trustee in relation to payments to be made by or
on behalf of the Trustee under the provisions of
these presents mutatis mutandis on the terms provided
in the Paying Agency Agreement (save that the
Trustee's liability under any provisions thereof for
the indemnification, remuneration and payment of
out-of-pocket expenses of the Paying Agents, the
Registrar and the Transfer Agents shall be limited to
the amounts for the time being held by the Trustee on
the trusts of these presents
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relating to the relative Securities and available for
such purpose) and thereafter to hold all Securities
and Coupons and all sums, documents and records held
by them in respect of Securities and Coupons on
behalf of the Trustee; or
(b) to deliver up all Securities and Coupons and all
sums, documents and records held by them in respect
of Securities and Coupons to the Trustee or as the
Trustee shall direct in such notice provided that
such notice shall be deemed not to apply to any
documents or records which the relative Paying Agent,
the Registrar or the relative Transfer Agent, as the
case may be is obliged not to release by any law or
regulation; and/or
(ii) by notice in writing to the Issuer and the Guarantor require
each of them to make all subsequent payments in respect of the
Securities and Coupons to or to the order of the Trustee and
not to the Principal Paying Agent; with effect from the issue
of any such notice to the Issuer and the Guarantor and until
such notice is withdrawn proviso (i) to sub-clause (B) of this
Clause 2 relating to the Original Bonds and any similar
provisos relating to any Further Securities shall cease to
have effect.
FURTHER ISSUES
(D) (i) The Issuer shall be at liberty from time to time (but
subject always to the provisions of these presents) without
the consent of the Holders or Couponholders to create and
issue further bonds or notes (whether in bearer or registered
form) either (a) ranking pari passu in all respects (or in all
respects save for the first payment of interest thereon), and
so that the same shall be consolidated and form a single
series, with the Original Bonds and/or the Further Securities
of any series or (b) upon such terms as to ranking, interest,
conversion, redemption and otherwise as the Issuer may at the
time of issue thereof determine.
(ii) Any further bonds or notes which are to be created and issued
pursuant to the provisions of paragraph (i) above so as to
form a single series with the Original Bonds and/or the
Further Securities of any series shall be constituted by a
trust deed supplemental to this Trust Deed and any other
further bonds or notes which are to be created and issued
pursuant to the provisions of paragraph (i) above may (subject
to the consent of the Trustee) be constituted by a trust deed
supplemental to this Trust Deed. In any such case the Issuer
and the Guarantor shall prior to the issue of any further
bonds or notes to be so constituted (being Further Securities)
execute and deliver to the Trustee a trust deed supplemental
to this Trust Deed (in relation to which all applicable stamp
duties or other documentation fees, duties or taxes have been
paid and, if applicable, duly stamped or denoted accordingly)
and containing a covenant by the Issuer in the form mutatis
mutandis of Clause 2(B) in relation to the principal, premium
(if any) and interest in respect of such Further Securities
and such other provisions (whether or not corresponding to any
of the provisions contained in this Trust Deed) as the Trustee
shall require.
(iii) A memorandum of every such supplemental trust deed shall be
endorsed by the Trustee on this Trust Deed and by the Issuer
and the Guarantor on their duplicates of this Trust Deed.
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(iv) Whenever it is proposed to create and issue any further bonds
or notes to be constituted by a trust deed supplemental to
this Trust Deed the Issuer shall give to the Trustee not less
than 14 days' notice in writing of its intention so to do
stating the amount of further bonds or notes proposed to be
created and issued.
(E) Any Further Securities not forming a single series with the Original
Bonds or Further Securities of any series shall form a separate series
and accordingly, unless for any purpose the Trustee in its absolute
discretion shall otherwise determine, the provisions of sub-clause (C)
of this Clause and of Clauses 4 to 22 (both inclusive) and 23(B) and
the Third and Fourth Schedules shall apply mutatis mutandis separately
and independently to each series of the Securities and in such Clauses
and Schedules the expressions "SECURITIES", "HOLDERS", "COUPONS",
"COUPONHOLDERS" and "TALONS" shall be construed accordingly.
3. FORM AND ISSUE OF ORIGINAL BONDS AND ORIGINAL COUPONS
(A) THE Original Bonds shall be represented initially by the Original
Temporary Global Bond which the Issuer shall deliver to a bank
depositary common to both Euroclear and Cedelbank on terms that such
depositary shall hold the same for the account of the persons who would
otherwise be entitled to receive the Original Bonds in definitive form
("DEFINITIVE ORIGINAL BONDS") (as notified to such depositary by
Midland Bank plc on behalf of the Managers of the issue of the Original
Bonds) and the successors in title to such persons as appearing in the
records of Euroclear and Cedelbank for the time being.
(B) The Original Temporary Global Bond shall be printed or typed in the
form or substantially in the form set out in Part I of the First
Schedule and may be a facsimile. The Original Temporary Global Bond
shall be in the aggregate principal amount of L.300,000,000 and
shall be signed manually or in facsimile by a person duly authorised by
the Issuer on behalf of the Issuer and shall be authenticated by or on
behalf of the Principal Paying Agent. The Original Temporary Global
Bond so executed and authenticated shall be a binding and valid
obligation of the Issuer and title thereto shall pass by delivery.
(C) The Issuer shall issue the Original Permanent Global Bond in exchange
for the Original Temporary Global Bond in accordance with the
provisions thereof. The Original Permanent Global Bond shall be printed
or typed in the form or substantially in the form set out in Part II of
the First Schedule and may be a facsimile. The Original Permanent
Global Bond shall be in the aggregate principal amount of up to
L.300,000,000 and shall be signed manually or in facsimile by a person
duly authorised by the Issuer on behalf of the Issuer and shall be
authenticated by or on behalf of the Principal Paying Agent. The
Original Permanent Global Bond so executed and authenticated shall be a
binding and valid obligation of the Issuer and title thereto shall pass
by delivery.
(D) The Issuer shall issue the Definitive Original Bonds (together with the
unmatured Original Coupons attached) in exchange for the Original
Permanent Global Bond in accordance with the provisions thereof.
(E) The Definitive Original Bonds and the Original Coupons shall be to
bearer in the respective forms or substantially in the respective forms
set out in the Second Schedule and the Definitive Original Bonds shall
be issued in the denominations of L.1,000, L.10,000 and
L.100,000 each (serially numbered) and shall be endorsed with the
Conditions. Title to the Definitive Original Bonds and the Original
Coupons shall pass by delivery.
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(F) The Definitive Original Bonds shall be signed manually or in facsimile
by two of the Directors of the Issuer on behalf of the Issuer and shall
be authenticated by or on behalf of the Principal Paying Agent.
(G) The Issuer may use the facsimile signature of any person who at the
date such signature is affixed is a Director of the Issuer or is a
person duly authorised by the Issuer as referred to in sub-clauses (B)
and (C) above notwithstanding that at the time of issue of any of the
Definitive Original Bonds, the Original Temporary Global Bond or the
Original Permanent Global Bond, as the case may be, he may have ceased
for any reason to be the holder of such office or to be so authorised.
The Original Coupons shall not be signed. The Definitive Original
Bonds, the Original Temporary Global Bond and the Original Permanent
Global Bond so executed and authenticated, and the Original Coupons,
upon execution and authentication of the relevant Definitive Original
Bonds, shall be binding and valid obligations of the Issuer.
4. FEES, DUTIES AND TAXES
THE Issuer will pay any stamp, issue, registration, documentary and
other fees, duties and taxes, including interest and penalties, payable
(i) in the United Kingdom, Belgium or Luxembourg on or in connection
with the execution and delivery of these presents and the constitution
and original issue of the Securities and the Coupons and (ii) in any
jurisdiction on or in connection with any action taken by or on behalf
of the Trustee or (where permitted under these presents so to do) any
Holder or Couponholder to enforce, or to resolve any doubt concerning,
or for any other purpose in relation to, these presents.
5. COVENANT OF COMPLIANCE
EACH of the Issuer and the Guarantor severally covenants with the
Trustee that it will comply with and perform and observe all the
provisions of these presents which are expressed to be binding on it.
The Conditions shall be binding on the Issuer, the Guarantor, the
Holders and the Couponholders. The Trustee shall be entitled to enforce
the obligations of the Issuer and the Guarantor under the Securities
and the Coupons as if the same were set out and contained in the trust
deeds constituting the same, which shall be read and construed as one
document with the Securities and the Coupons. The Trustee shall hold
the benefit of this covenant upon trust for itself and the Holders and
the Couponholders according to its and their respective interests.
6. CANCELLATION OF SECURITIES AND RECORDS
(A) THE Issuer shall procure that all Securities (i) redeemed or (ii)
purchased and surrendered for cancellation by or on behalf of the
Issuer, the Guarantor or any other Subsidiary of the Guarantor or (iii)
which, being mutilated or defaced, have been surrendered and replaced
pursuant to Condition 13 or (iv) exchanged as provided in these
presents (together in each case with all unmatured Coupons attached
thereto or delivered therewith) and all Coupons paid in accordance with
the Conditions or which, being mutilated or defaced, have been
surrendered and replaced pursuant to Condition 13 and all Talons
exchanged in accordance with the Conditions for further Coupons shall
forthwith be cancelled by or on behalf of the Issuer and, if
applicable, destroyed in accordance with the Paying Agency Agreement
and a certificate stating:
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(a) the aggregate principal amount of Securities which have been
redeemed and the aggregate amounts in respect of Coupons which
have been paid;
(b) the serial numbers of such Securities in definitive form
distinguishing between Bearer Securities and Registered
Securities;
(c) the total numbers (where applicable, of each denomination) by
maturity date of such Coupons;
(d) the aggregate amount of interest paid (and the due dates of
such payments) on Global Securities and/or on Registered
Securities;
(e) the aggregate principal amount of Securities (if any) which
have been purchased by or on behalf of the Issuer, the
Guarantor or any other Subsidiary of the Guarantor,
surrendered for cancellation and cancelled and the serial
numbers of such Securities in definitive form and the total
number (where applicable, of each denomination) by maturity
date of the Coupons attached thereto or surrendered therewith;
(f) the aggregate principal amounts of Securities and the
aggregate amounts in respect of Coupons which have been so
exchanged or surrendered and replaced and the serial numbers
of such Securities in definitive form and the total number
(where applicable, of each denomination) by maturity date of
such Coupons;
(g) the total number (where applicable, of each denomination) by
maturity date of unmatured Coupons missing from Securities in
definitive form bearing interest at a fixed rate which have
been redeemed or exchanged or surrendered and replaced and the
serial numbers of the Securities in definitive form to which
such missing unmatured Coupons appertained; and
(h) the total number (where applicable, of each denomination) by
maturity date of Talons which have been exchanged for further
Coupons
shall be given to the Trustee by or on behalf of the Issuer as soon as
possible and in any event within four months after the date of such
redemption, purchase, cancellation, payment, exchange, replacement or
destruction (as the case may be). The Trustee may accept such
certificate as conclusive evidence of redemption, purchase, exchange or
replacement pro tanto of the Securities or payment of interest thereon
or exchange of the Talons respectively and of cancellation of the
relative Securities and Coupons.
(B) The Issuer shall procure (i) that the Principal Paying Agent shall keep
a full and complete record of all Securities and Coupons (other than
serial numbers of Coupons) and of their redemption, purchase and
surrender for cancellation by or on behalf of the Issuer, the Guarantor
or any other Subsidiary of the Guarantor, cancellation, payment or
exchange (as the case may be) and of all replacement securities or
coupons or talons issued in substitution for lost, stolen, mutilated,
defaced or destroyed Securities or Coupons (ii) that the Principal
Paying Agent shall in respect of the Coupons of each maturity retain
(in the case of Coupons other than Talons) until the expiry of 10 years
from the Relevant Date in respect of such Coupons and (in the case of
Talons) indefinitely either all paid or exchanged Coupons of that
maturity or a list of the serial numbers of Coupons of that maturity
still remaining unpaid or
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unexchanged and (iii) that such records and Coupons (if any) shall be
made available to the Trustee at all reasonable times.
7. GUARANTEE
(A) THE Guarantor hereby irrevocably and unconditionally guarantees to the
Trustee the due and punctual payment in accordance with the provisions
of these presents of the principal of and premium (if any) and interest
on the Securities and of any other amounts payable by the Issuer under
these presents.
(B) If the Issuer fails for any reason whatsoever punctually to pay any
such principal, premium, interest or other amount, the Guarantor shall
cause each and every such payment to be made as if the Guarantor
instead of the Issuer were expressed to be the primary obligor under
these presents and not merely a surety (but without affecting the
nature of the Issuer's obligations) to the intent that the holder of
the relevant Security or Coupon or the Trustee (as the case may be)
shall receive the same amounts in respect of principal, premium,
interest or such other amount as would have been receivable had such
payments been made by the Issuer.
(C) If any payment received by the Trustee or any Holder or Couponholder
under the provisions of these presents shall (whether on the subsequent
bankruptcy, insolvency or corporate reorganisation of the Issuer or,
without limitation, on any other event) be avoided or set aside for any
reason, such payment shall not be considered as discharging or
diminishing the liability of the Guarantor and this guarantee shall
continue to apply as if such payment had at all times remained owing by
the Issuer and the Guarantor shall indemnify the Trustee and the
Holders and/or Couponholders (as the case may be) in respect thereof
PROVIDED THAT the obligations of the Issuer and/or the Guarantor under
this sub-clause shall, as regards each payment made to the Trustee or
any Holder or Couponholder which is avoided or set aside, be contingent
upon such payment being reimbursed to the Issuer or other persons
entitled through the Issuer.
(D) The Guarantor hereby agrees that its obligations under this Clause
shall be unconditional and that the Guarantor shall be fully liable
irrespective of the validity, regularity, legality or enforceability
against the Issuer of, or of any defence or counter-claim whatsoever
available to the Issuer in relation to, its obligations under these
presents, whether or not any action has been taken to enforce the same
or any judgment obtained against the Issuer, whether or not any of the
other provisions of these presents have been modified, whether or not
any time, indulgence, waiver, authorisation or consent has been granted
to the Issuer by or on behalf of the Holders or the Couponholders or
the Trustee, whether or not any determination has been made by the
Trustee pursuant to Clause 19(A), whether or not there have been any
dealings or transactions between the Issuer, any of the Holders or
Couponholders or the Trustee, whether or not the Issuer has been
dissolved, liquidated, merged, consolidated, bankrupted or has changed
its status, functions, control or ownership, whether or not the Issuer
has been prevented from making payment by foreign exchange provisions
applicable at its place of registration or incorporation and whether or
not any other circumstances have occurred which might otherwise
constitute a legal or equitable discharge of or defence to a guarantor.
Accordingly the validity of this guarantee shall not be affected by
reason of any invalidity, irregularity, illegality or unenforceability
of all or any of the obligations of the Issuer under these presents and
this guarantee shall not be discharged nor shall the liability of the
Guarantor under these presents be affected by any act, thing or
omission or means whatever whereby its liability would not have been
discharged if it had been the principal debtor.
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(E) Without prejudice to the provisions of Clause 9(A) the Trustee may
determine from time to time whether or not it will enforce this
guarantee which it may do without making any demand of or taking any
proceedings against the Issuer and may from time to time make any
arrangement or compromise with the Guarantor in relation to this
guarantee which the Trustee may consider expedient in the interests of
the Holders.
(F) The Guarantor waives diligence, presentment, demand of payment, filing
of claims with a court in the event of dissolution, liquidation, merger
or bankruptcy of the Issuer, any right to require a proceeding first
against the Issuer, protest or notice with respect to these presents or
the indebtedness evidenced thereby and all demands whatsoever and
covenants that this guarantee shall be a continuing guarantee, shall
extend to the ultimate balance of all sums payable and obligations owed
by the Issuer under these presents, shall not be discharged except by
complete performance of the obligations in these presents and is
additional to, and not instead of, any security or other guarantee or
indemnity at any time existing in favour of any person, whether from
the Guarantor or otherwise.
(G) If any moneys shall become payable by the Guarantor under this
guarantee the Guarantor shall not, so long as the same remain unpaid,
without the prior written consent of the Trustee:
(i) in respect of any amounts paid by it under this guarantee,
exercise any rights of subrogation or contribution or, without
limitation, any other right or remedy which may accrue to it
in respect of or as a result of any such payment; or
(ii) in respect of any other moneys for the time being due to the
Guarantor by the Issuer, claim payment thereof or exercise any
other right or remedy;
(including in either case claiming the benefit of any security or right
of set-off or, on the liquidation of the Issuer, proving in competition
with the Trustee). If, notwithstanding the foregoing, upon the
bankruptcy, insolvency or liquidation of the Issuer, any payment or
distribution of assets of the Issuer of any kind or character, whether
in cash, property or securities, shall be received by the Guarantor
before payment in full of all amounts payable under these presents
shall have been made to the Holders, the Couponholders and the Trustee,
such payment or distribution shall be received by the Guarantor on
trust to pay the same over immediately to the Trustee for application
in or towards the payment of all sums due and unpaid under these
presents in accordance with Clause 10.
(H) The obligations of the Guarantor under these presents are direct,
unconditional and, subject to the provisions of Condition 3, unsecured
obligations of the Guarantor and, save for such exceptions as may be
provided by applicable laws and subject to Condition 3, at all times
rank at least equally with all its other outstanding unsecured and
unsubordinated obligations, present and future.
8. ENFORCEMENT
(A) THE Trustee may at any time, at its discretion and without notice, take
such proceedings and/or other action as it may think fit against or in
relation to each of the Issuer and the Guarantor to enforce their
respective obligations under these presents.
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(B) Proof that as regards any specified Security or Coupon the Issuer or
the Guarantor (as the case may be) has made default in paying any
amount due in respect of such Security or Coupon shall (unless the
contrary be proved) be sufficient evidence that the same default has
been made as regards all other Securities or Coupons (as the case may
be) in respect of which the relevant amount is due and payable.
(C) References in the provisions of any trust deed supplemental to this
Trust Deed corresponding to provisos (ii) and (iii) to Clause 2(B) to
"the rate aforesaid" shall, in respect of any Securities bearing
interest at a floating or variable rate, in the event of such
Securities having become due and repayable, with effect from the expiry
of the interest period during which such Securities become due and
repayable, be construed as references to a rate of interest calculated
mutatis mutandis in accordance with the Conditions except that no
notices need be published in respect thereof.
9. ACTION, PROCEEDINGS AND INDEMNIFICATION
(A) THE Trustee shall not be bound to take any action in relation to these
presents (including but not limited to the giving of any certification
or notice pursuant to Condition 10 or the taking of any proceedings
and/or other action mentioned in Clause 8(A)) unless respectively
directed or requested to do so (i) by an Extraordinary Resolution or
(ii) in writing by the holders of at least one-quarter in principal
amount of the Securities then outstanding and in either case then only
if it shall be indemnified to its satisfaction against all Liabilities
to which it may render itself liable or which it may incur by so doing.
(B) Only the Trustee may enforce the provisions of these presents. No
Holder or Couponholder shall be entitled to proceed directly against
the Issuer or the Guarantor to enforce the performance of any of the
provisions of these presents unless the Trustee having become bound as
aforesaid to take proceedings fails to do so within a reasonable period
and such failure shall be continuing.
10. APPLICATION OF MONEYS
ALL moneys received by the Trustee under these presents shall, unless
and to the extent attributable in the opinion of the Trustee to a
particular series of the Securities, be apportioned pari passu and
rateably between each series of the Securities, and all moneys received
by the Trustee under these presents to the extent attributable in the
opinion of the Trustee to a particular series of the Securities or
which are apportioned to such series as aforesaid (including any moneys
which represent principal, premium or interest in respect of Securities
or Coupons which have become void under Condition 9) shall be held by
the Trustee upon trust to apply them (subject to Clause 12):
FIRST in payment or satisfaction of all amounts then due and unpaid
under Clauses 15 and/or 16(J) to the Trustee and/or any Appointee;
SECONDLY in or towards payment pari passu and rateably of all
principal, premium (if any) and interest then due and unpaid in respect
of the Securities of that series;
THIRDLY in or towards payment pari passu and rateably of all principal,
premium (if any) and interest then due and unpaid in respect of the
Securities of each other series; and
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FOURTHLY in payment of the balance (if any) to the Issuer or, if moneys
were received from the Guarantor, the Guarantor (without prejudice to,
or liability in respect of, any question as to how such payment to the
Issuer shall be dealt with as between the Issuer, the Guarantor and any
other person).
Without prejudice to this Clause 10, if the Trustee holds any moneys
which represent principal, premium (if any) or interest in respect of
Securities which have become void or in respect of which claims have
been prescribed under Condition 9, the Trustee will hold such moneys on
the above trusts.
11. NOTICE OF PAYMENTS
THE Trustee shall give notice to the relevant Holders in accordance
with Condition 14 of the day fixed for any payment to them under Clause
10. Such payment may be made in accordance with Condition 5 and any
payment so made shall be a good discharge to the Trustee.
12. INVESTMENT BY TRUSTEE
(A) IF the amount of the moneys at any time available for the payment of
principal, premium (if any) and interest in respect of the Securities
under Clause 10 shall be less than 10 per cent. of the amount then due
in respect of the Securities then outstanding the Trustee may at its
discretion invest such moneys in some or one of the investments
authorised below. The Trustee at its discretion may vary such
investments and may accumulate such investments and the resulting
income until the accumulations, together with any other funds for the
time being under the control of the Trustee and available for such
purpose, amount to at least 10 per cent. of the amount then due in
respect of the Securities then outstanding and then such accumulations
and funds (after deduction of, or provision for, applicable taxes)
shall be applied under Clause 10.
(B) Any moneys which under the trusts of these presents ought to or may be
invested by the Trustee may be invested in the name or under the
control of the Trustee in any investments or other assets in any part
of the world whether or not they produce income or by placing the same
on deposit in the name or under the control of the Trustee at such bank
or other financial institution and in such currency as the Trustee may
think fit. If that bank or institution is the Trustee or a Subsidiary,
holding or associated company of the Trustee, it need only account for
an amount of interest equal to the amount of interest which would, at
then current rates, be payable by it on such a deposit to an
independent customer. The Trustee may at any time vary any such
investments for or into other investments or convert any moneys so
deposited into any other currency and shall not be responsible for any
loss resulting from any such investments or deposits, whether due to
depreciation in value, fluctuations in exchange rates or otherwise.
13. PARTIAL PAYMENTS
UPON any payment under Clause 10 (other than payment in full against
surrender of a Security or Coupon) the Security or Coupon in respect of
which such payment is made shall be produced to the Trustee or the
Paying Agent by or through whom such payment is made and the Trustee
shall or shall cause such Paying Agent to enface thereon a memorandum
of the amount and the date of payment but the Trustee may in any
particular case or generally in
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relation to Registered Securities dispense with such production and
enfacement upon such indemnity being given as it shall think
sufficient.
14. COVENANTS BY THE ISSUER AND THE GUARANTOR
SO long as any of the Securities remains outstanding (or, in the case
of paragraphs (viii), (ix), (xiii), (xiv), (xvi) and (xviii), so long
as any of the Securities or Coupons remains liable to prescription or,
in the case of paragraph (xv), until the expiry of a period of 30 days
after the Relevant Date in respect of the payment of principal in
respect of all such Securities remaining outstanding at such time) each
of the Issuer and the Guarantor severally covenants with the Trustee
that it shall:
(i) at all times carry on and conduct its affairs and procure its
Subsidiaries to carry on and conduct their respective affairs
in a proper manner;
(ii) give or procure to be given to the Trustee such opinions,
certificates, information and evidence as it shall reasonably
require and in such form as it shall require (including
without limitation the procurement by the Issuer or the
Guarantor (as the case may be) of all such certificates called
for by the Trustee pursuant to Clause 16(C)) for the purpose
of the discharge or exercise of the duties, trusts, powers,
authorities and discretions vested in it under these presents
or by operation of law;
(iii) cause to be prepared and certified by its Auditors in respect
of each financial accounting reference period accounts in such
form as will comply with all relevant legal and accounting
requirements and all requirements for the time being of The
Stock Exchange;
(iv) at all times keep and procure its Subsidiaries to keep proper
books of account and, at any time after the occurrence of an
Event of Default or a Potential Event of Default or it the
Trustee certifies in writing to the Issuer or the Guarantor
that it has reasonable grounds to believe that an Event of
Default or a Potential Event of Default has or may have
occurred and so far as permitted by applicable law allow and
procure its Subsidiaries to allow the Trustee and any person
appointed by the Trustee to whom the Issuer, the Guarantor or
the relevant Subsidiary (as the case may be) shall have no
reasonable objection, upon reasonable notice, free access to
such books of account at all times during normal business
hours for the purpose of the discharge or exercise of the
duties, trusts, powers, authorities and discretions vested in
it under these presents or by operation of law;
(v) send to the Trustee (in addition to any copies to which it may
be entitled as a holder of any securities of the Issuer or the
Guarantor) two copies in English of every balance sheet,
profit and loss account, report, circular and notice of
general meeting and every other document issued or sent to its
shareholders together with any of the foregoing, and every
document issued or sent to holders of securities other than
its shareholders (including the Holders) as soon as
practicable after the issue or publication thereof;
(vi) forthwith give notice in writing to the Trustee of the coming
into existence of any Security Interest which would require
any security to be given in respect of any
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series of the Securities pursuant to Condition 3 or of the
occurrence of any Event of Default or any Potential Event of
Default;
(vii) send to the Trustee (a) within 14 days after demand by the
Trustee therefor and (b) (without the necessity for any such
demand) promptly after the publication of its audited accounts
in respect of each financial period commencing with the
financial period ending 31st December, 1999 and in any event
not later than 180 days after the end of each such financial
period a certificate signed by two Directors of the Issuer and
two Directors of the Guarantor to the effect that as at a date
not more than seven days before delivering such certificate
(the "CERTIFICATION DATE") there did not exist and had not
existed since the certification date of the previous
certificate (or in the case of the first such certificate the
date hereof) any Event of Default or any Potential Event of
Default (or if such exists or existed specifying the same) and
that during the period from and including the certification
date of the last such certificate (or in the case of the first
such certificate the date hereof) to and including the
certification date of such certificate each of the Issuer and
the Guarantor has complied with all its obligations contained
in these presents or (if such is not the case) specifying the
respects in which it has not complied;
(viii) at all times execute all such further documents and carry out
all such further acts and things as may be necessary at any
time or times in the reasonable opinion of the Trustee to give
effect to these presents;
(ix) at all times maintain an Agent Bank, Reference Banks, Paying
Agents, a Registrar and Transfer Agents to the extent required
by and in accordance with the Conditions;
(x) use all reasonable endeavours to procure that the Principal
Paying Agent and the Registrar notify the Trustee forthwith in
the event that the Principal Paying Agent or, as the case may
be, the Registrar does not, on or before the due date for any
payment in respect of the Securities or any of them or any of
the Coupons, receive unconditionally pursuant to the Paying
Agency Agreement payment of the full amount in the requisite
currency of the moneys payable on such due date on all such
Securities or Coupons as the case may be;
(xi) in the event of the unconditional payment to the Principal
Paying Agent, the Registrar or the Trustee of any sum due in
respect of the Securities or any of them or any of the Coupons
being made after the due date for payment thereof forthwith
give or procure to be given notice to the relevant Holders in
accordance with Condition 14 that such payment has been made;
(xii) use all reasonable endeavours to maintain the listing of the
Securities on The Stock Exchange or, if it is unable to do so
having used all reasonable endeavours, use all reasonable
endeavours to obtain and maintain a quotation or listing of
the Securities on such other stock exchange or exchanges or
securities market or markets as the Issuer may (with the prior
written approval of the Trustee (such approval not to be
unreasonably withheld)) decide and shall also upon obtaining a
quotation or listing of the Securities on such other stock
exchange or exchanges or securities market or markets enter
into a trust deed supplemental to this Trust Deed to effect
such consequential amendments to these presents as the Trustee
may require or as shall be
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requisite to comply with the requirements of any such stock
exchange or securities market;
(xiii) give notice to the Holders in accordance with Condition 14 of
any appointment, resignation or removal of any Agent Bank,
Reference Bank, Paying Agent, Registrar or Transfer Agent
(other than the appointment of the initial Agent Bank,
Reference Banks, Paying Agents, Registrar and Transfer Agents)
after having obtained the prior written approval of the
Trustee thereto or any change of any Paying Agent's,
Registrar's or Transfer Agent's specified office and (except
as provided by the Agent Bank Agreement or the Paying Agency
Agreement or the Conditions) at least 30 days prior to such
event taking effect; PROVIDED ALWAYS THAT so long as any of
the Securities remains outstanding in the case of the
termination of the appointment of the Agent Bank, the
Registrar or a Transfer Agent or so long as any of the
Securities or Coupons remains liable to prescription in the
case of the termination of the appointment of the Principal
Paying Agent no such termination shall take effect until a new
Agent Bank, Registrar, Transfer Agent or Principal Paying
Agent (as the case may be) has been appointed on terms
previously approved in writing by the Trustee;
(xiv) obtain the prior written approval of the Trustee to, and
promptly give to the Trustee two copies of, the form of every
notice given to the Holders in accordance with Condition 14
(such approval, unless so expressed, not to constitute
approval for the purposes of Section 57 of the Financial
Services Act 1986 of the United Kingdom of any such notice
which is an investment advertisement (as therein defined));
(xv) if payments of principal, premium or interest in respect of
the Securities or the Coupons by the Issuer or the Guarantor
shall become subject generally to the taxing jurisdiction of
any territory or any political sub-division or any authority
therein or thereof having power to tax other than or in
addition to the United Kingdom or any such political
sub-division or any such authority therein or thereof,
immediately upon becoming aware thereof notify the Trustee of
such event and (unless the Trustee otherwise agrees) enter
forthwith into a trust deed supplemental to this Trust Deed,
giving to the Trustee an undertaking or covenant in form and
manner satisfactory to the Trustee in terms corresponding to
the terms of Condition 8 with the substitution for (or, as the
case may be, the addition to) the references therein to the
United Kingdom or any political sub-division or any authority
therein or thereof having power to tax of references to that
other or additional territory or any political sub-division or
any authority therein or thereof having power to tax to whose
taxing jurisdiction such payments shall have become subject as
aforesaid such Trust Deed also (where applicable) to modify
Condition 6(b) so that such Condition shall make reference to
the other or additional territory, any political sub-division
and any authority therein or thereof having power to tax;
(xvi) comply with and perform all its obligations under the Agent
Bank Agreement and the Paying Agency Agreement and use all
reasonable endeavours to procure that the Agent Bank, the
Paying Agents, the Registrar and the Transfer Agents comply
with and perform all their respective obligations thereunder
and (in the case of the Paying Agents and the Registrar) any
notice given by the Trustee pursuant to Clause 2(C)(i) and not
make any amendment or modification to either of such
Agreements without the prior written approval of the Trustee;
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(xvii) in order to enable the Trustee to ascertain the principal
amount of Securities of each series for the time being
outstanding for any of the purposes referred to in the proviso
to the definition of "OUTSTANDING" in Clause 1, deliver to the
Trustee forthwith upon being so requested in writing by the
Trustee a certificate in writing signed by two Directors of
the Issuer or two Directors of the Guarantor (as appropriate)
setting out the total number and aggregate principal amount of
Securities of each series which:
(a) up to and including the date of such certificate have
been purchased by the Issuer, the Guarantor or any
other Subsidiary of the Guarantor and cancelled; and
(b) are at the date of such certificate held by, for the
benefit of, or on behalf of, the Issuer, the
Guarantor, any other Subsidiary of the Guarantor, any
holding company of the Guarantor or any other
Subsidiary of such holding company;
(xviii) procure its Subsidiaries to comply with all (if any)
applicable provisions of Condition 6(d);
(xix) use all reasonable endeavours to procure that each of the
Paying Agents makes available for inspection by Holders and
Couponholders at its specified office copies of these
presents, the Paying Agency Agreement, the Agent Bank
Agreement and the then latest audited balance sheets and
profit and loss accounts (consolidated if applicable) of the
Issuer and the Guarantor;
(xx) if, in accordance with the provisions of the Conditions,
interest in respect of Bearer Securities denominated in U.S.
dollars becomes payable at the specified office of any Paying
Agent in the United States of America promptly give notice
thereof to the Holders in accordance with Condition 14;
(xxi) give to the Trustee at the same time as sending to it the
certificates referred to in paragraph (vii) above, a
certificate by the Auditors of the Issuer addressed to the
Issuer and/or the Trustee (with a form and content
satisfactory to the Trustee) listing those Subsidiaries of the
Issuer which as at the certification date (as defined in
paragraph (vii) above) of the relevant certificate given under
paragraph (vii) above or, as the case may be, as at the last
day of the most recently ended financial period of the Issuer
were Principal Subsidiaries for the purposes of Condition 10;
(xxii) give to the Trustee, as soon as reasonably practicable after
the acquisition or disposal of any company which thereby
becomes or ceases to be a Principal Subsidiary or after any
transfer is made to any Subsidiary of the Issuer which thereby
becomes a Principal Subsidiary a certificate by the Auditors
of the Issuer addressed to the Issuer and/or the Trustee (with
a form and content satisfactory to the Trustee) to such
effect;
(xxiii) if the Conditions permit purchase of Securities without all
unmatured Coupons, upon due surrender for payment in
accordance with the Conditions, pay the face value of all
Coupons (including Coupons issued in exchange for Talons)
appertaining to all
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Securities purchased by the Issuer, the Guarantor or any other
Subsidiary of the Guarantor;
(xxiv) where the Issuer, the Guarantor or any Principal Subsidiary
seeks to rely on the exception in Condition 3, use its best
endeavours to give to the Trustee a certificate of the
Auditors of the Issuer (whether or not addressed to the
Trustee) specifying the amount of the Capital and Reserves for
the purposes of Condition 3, such certificate to be provided
before the Issuer creates or has outstanding a Security
Interest in respect of any Relevant Indebtedness and/or
guarantee within Condition 3;
(xxv) give to the Trustee a certificate of two Directors of the
Issuer:
(a) specifying the aggregate amount of any Relevant
Indebtedness of the Issuer, the Guarantor or any
Principal Subsidiary or any Relevant Indebtedness
guaranteed by the Issuer, the Guarantor or any
Principal Subsidiary and in respect of which a
Security Interest or Security Interests has or have
been created or is or are outstanding, such
certificate to be provided before the Issuer, the
Guarantor or any Principal Subsidiary creates or has
outstanding any new Security Interest in respect of
Relevant Indebtedness;
(b) specifying that a Subsidiary of the Issuer is an
Excluded Subsidiary, such certificate to be provided
before or at the same time as any written notice
given to the Trustee by the Issuer that a Subsidiary
of the Issuer is an Excluded Subsidiary; and
(c) specifying details of any termination of, or any
modification to the terms and conditions of, the
Appointment, each such certificate to be provided
promptly upon any such termination or modification
being made; and
(xxvi) give prior notice to the Trustee of any proposed redemption
pursuant to Condition 6(b) or (c) and, if it has decided to
give notice to Bondholders of its intention to redeem some
only of the Bonds pursuant to Condition 6(c), make drawings
prior to giving such notice and following the giving of such
notice redeem the relevant Bonds accordingly.
15. REMUNERATION AND INDEMNIFICATION OF TRUSTEE
(A) THE Issuer shall pay to the Trustee remuneration for its services as
trustee as from the date of this Trust Deed, such remuneration to be at
such rate as may from time to time be agreed between the Issuer and the
Trustee. Such remuneration shall be payable in advance on 30th March in
each year, the first such payment to be made on the date hereof. The
rate of remuneration in force from time to time may upon the final
redemption of the whole of the Securities of any series be reduced by
such amount as shall be agreed between the Issuer and the Trustee, such
reduced remuneration to be calculated from such date as shall be agreed
as aforesaid. Such remuneration shall accrue from day to day and be
payable (in priority to payments to the Holders and Couponholders) up
to and including the date when, all the Securities having become due
for redemption, the redemption moneys and interest thereon to the date
of redemption have been paid to the Principal Paying Agent and, where
applicable, the Registrar or, as the case may be, the Trustee PROVIDED
THAT if upon due presentation
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of any Security or Coupon or any cheque payment of the moneys due in
respect thereof is improperly withheld or refused, remuneration will
commence again to accrue.
(B) In the event of the occurrence of an Event of Default or a Potential
Event of Default or the Trustee considering it expedient or necessary
or being requested by the Issuer or the Guarantor to undertake duties
which the Trustee and the Issuer agree to be of an exceptional nature
or otherwise outside the scope of the normal duties of the Trustee
under these presents the Issuer shall pay to the Trustee such
additional remuneration as shall be agreed between them.
(C) The Issuer shall in addition pay to the Trustee an amount equal to the
amount of any value added tax or similar tax chargeable in respect of
its remuneration under these presents.
(D) In the event of the Trustee and the Issuer failing to agree:
(1) (in a case to which sub-clause (A) above applies) upon the
amount of the remuneration; or
(2) (in a case to which sub-clause (B) above applies) upon whether
such duties shall be of an exceptional nature or otherwise
outside the scope of the normal duties of the Trustee under
these presents, or upon such additional remuneration,
such matters shall be determined by a merchant or investment bank
(acting as an expert and not as an arbitrator) selected by the Trustee
and approved by the Issuer or, failing such approval, nominated (on the
application of the Trustee) by the President for the time being of The
Law Society of England and Wales (the expenses involved in such
nomination and the fees of such merchant or investment bank being
payable by the Issuer) and the determination of any such merchant or
investment bank shall be final and binding upon the Trustee and the
Issuer.
(E) The Issuer shall also pay or discharge all Liabilities incurred by the
Trustee in relation to the preparation and execution of, the exercise
of its powers and the performance of its duties under, and in any other
manner in relation to, these presents, including but not limited to
travelling expenses and any stamp, issue, registration, documentary and
other taxes or duties paid or payable by the Trustee in connection with
any action taken or contemplated by or on behalf of the Trustee for
enforcing, or resolving any doubt concerning, or for any other purpose
in relation to, these presents.
(F) All amounts payable pursuant to sub-clause (E) above and/or Clause
16(J) shall be payable by the Issuer on the date specified in a demand
by the Trustee and in the case of payments actually made by the Trustee
prior to such demand shall (if not paid within 15 days after such
demand and the Trustee so requires) carry interest at the rate of two
per cent. per annum above the Base Rate from time to time of Midland
Bank plc from the date specified in such demand, and in all other cases
shall (if not paid on the date specified in such demand or, if later,
within 15 days after such demand and, in either case, the Trustee so
requires) carry interest at such rate from the date specified in such
demand. All remuneration payable to the Trustee shall carry interest at
such rate from the due date therefor.
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(G) Unless otherwise specifically stated in any discharge of these presents
the provisions of this Clause and Clause 16(J) shall continue in full
force and effect notwithstanding such discharge.
(H) The Trustee shall be entitled in its absolute discretion to determine
in respect of which series of Securities any Liabilities incurred under
these presents have been incurred or to allocate any such Liabilities
between the Original Bonds and any Further Securities of any series.
16. SUPPLEMENT TO TRUSTEE ACT 1925
THE Trustee shall have all the powers conferred upon trustees by the
Trustee Act 1925 of England and Wales and by way of supplement thereto
it is expressly declared as follows:
(A) The Trustee may in relation to these presents act on the
advice or opinion of or any information obtained from any
lawyer, valuer, accountant, surveyor, banker, broker,
auctioneer or other expert whether obtained by the Issuer, the
Guarantor, the Trustee or otherwise and shall not be
responsible for any Liability occasioned by so acting.
(B) Any such advice, opinion or information may be sent or
obtained by letter, telex, telegram, facsimile transmission or
cable and the Trustee shall not be liable for acting on any
advice, opinion or information purporting to be conveyed by
any such letter, telex, telegram, facsimile transmission or
cable although the same shall contain some error or shall not
be authentic.
(C) The Trustee may call for and shall be at liberty to accept as
sufficient evidence of any fact or matter or the expediency of
any transaction or thing a certificate signed by the Auditors
or any two Directors of the Issuer and/or by any two Directors
of the Guarantor and the Trustee shall not be bound in any
such case to call for further evidence or be responsible for
any Liability that may be occasioned by it or any other person
acting on such certificate.
(D) The Trustee shall be at liberty to hold these presents and any
other documents relating thereto or to deposit them in any
part of the world with any banker or banking company or
company whose business includes undertaking the safe custody
of documents or lawyer or firm of lawyers considered by the
Trustee to be of good repute and the Trustee shall not be
responsible for or required to insure against any Liability
incurred in connection with any such holding or deposit and
may pay all sums required to be paid on account of or in
respect of any such deposit.
(E) The Trustee shall not be responsible for the receipt or
application of the proceeds of the issue of any of the
Securities by the Issuer, the exchange of any Global Security
for another Global Security or definitive Securities, the
delivery of any Global Security or definitive Securities to
the person(s) entitled to it or them or the exchange of Bearer
Securities for Registered Securities or of Registered
Securities for Bearer Securities.
(F) The Trustee shall not be bound to give notice to any person of
the execution of any documents comprised or referred to in
these presents or to take any steps to ascertain whether any
Event of Default or any Potential Event of Default has
happened and, until it shall have actual knowledge or express
notice pursuant to these presents to
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the contrary, the Trustee shall be entitled to assume that no
Event of Default or Potential Event of Default has happened
and that each of the Issuer and the Guarantor is observing and
performing all its obligations under these presents.
(G) Save as expressly otherwise provided in these presents, the
Trustee shall have absolute and uncontrolled discretion as to
the exercise or non-exercise of its trusts, powers,
authorities and discretions under these presents (the exercise
or non-exercise of which as between the Trustee and the
Holders and Couponholders shall be conclusive and binding on
the Holders and Couponholders) and shall not be responsible
for any Liability which may result from their exercise or
non-exercise and in particular the Trustee shall not be bound
to act at the request or direction of the Holders or otherwise
under any provision of these presents or to take at such
request or direction or otherwise any other action under any
provision of these presents, without prejudice to the
generality of Clause 9(A), unless it shall first be
indemnified to its satisfaction against all Liabilities to
which it may render itself liable or which it may incur by so
doing.
(H) The Trustee shall not be liable to any person by reason of
having acted upon any Extraordinary Resolution in writing or
any Extraordinary Resolution or other resolution purporting to
have been passed at any meeting of the Holders of Securities
of all or any series in respect whereof minutes have been made
and signed even though subsequent to its acting it may be
found that there was some defect in the constitution of the
meeting or the passing of the resolution or (in the case of an
Extraordinary Resolution in writing) that not all Holders had
signed the Extraordinary Resolution or that for any reason the
resolution was not valid or binding upon such Holders and the
relative Couponholders.
(I) The Trustee shall not be liable to any person by reason of
having accepted as valid or not having rejected any Security
or Coupon purporting to be such and subsequently found to be
forged or not authentic.
(J) Subject to Clause 17 and without prejudice to the right of
indemnity by law given to trustees, the Issuer, failing whom
the Guarantor, shall indemnify the Trustee and every Appointee
and keep it or him indemnified against all Liabilities to
which it or he may be or become subject or which may be
incurred by it or him in the execution or purported execution
of any of its or his trusts, powers, authorities and
discretions under these presents or its or his functions under
any such appointment or in respect of any other matter or
thing done or omitted in any way relating to these presents or
any such appointment.
(K) Any consent or approval given by the Trustee for the purposes
of these presents may be given on such terms and subject to
such conditions (if any) as the Trustee thinks fit and
notwithstanding anything to the contrary in these presents may
be given retrospectively.
(L) The Trustee shall not (unless and to the extent ordered so to
do by a court of competent jurisdiction) be required to
disclose to any Holder or Couponholder any information
(including, without limitation, information of a confidential,
financial or price sensitive nature) made available to the
Trustee by the Issuer or the Guarantor or
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any other person in connection with these presents and no
Holder or Couponholder shall be entitled to take any action to
obtain from the Trustee any such information.
(M) Where it is necessary or desirable for any purpose in
connection with these presents to convert any sum from one
currency to another it shall (unless otherwise provided by
these presents or required by law) be converted at such rate
or rates, in accordance with such method and as at such date
for the determination of such rate of exchange, as may be
agreed by the Trustee in consultation with the Issuer or the
Guarantor as relevant and any rate, method and date so agreed
shall be binding on the Issuer, the Guarantor, the Holders and
the Couponholders.
(N) The Trustee may certify whether or not any of the conditions,
events and acts set out in sub-paragraphs (b), (c), (e), (f),
(g) and (h) of Condition 10 (each of which conditions, events
and acts shall, unless in any case the Trustee in its absolute
discretion shall otherwise determine, for all the purposes of
these presents be deemed to include the circumstances
resulting therein and the consequences resulting therefrom) is
in its opinion materially prejudicial to the interests of the
Holders and any such certificate shall be conclusive and
binding upon the Issuer, the Guarantor, the Holders and the
Couponholders.
(O) The Trustee as between itself and the Holders and
Couponholders may determine all questions and doubts arising
in relation to any of the provisions of these presents. Every
such determination, whether or not relating in whole or in
part to the acts or proceedings of the Trustee, shall be
conclusive and shall bind the Trustee and the Holders and
Couponholders.
(P) In connection with the exercise by it of any of its trusts,
powers, authorities and discretions under these presents
(including, without limitation, any modification, waiver,
authorisation, determination or substitution), the Trustee
shall have regard to the general interests of the Holders as a
class and shall not have regard to any interests arising from
circumstances particular to individual Holders or
Couponholders (whatever their number) and, in particular but
without limitation, shall not have regard to the consequences
of any such exercise for individual Holders or Couponholders
(whatever their number) resulting from their being for any
purpose domiciled or resident in, or otherwise connected with,
or subject to the jurisdiction of, any particular territory or
any political sub-division thereof and the Trustee shall not
be entitled to require, nor shall any Holder or Couponholder
be entitled to claim, from the Issuer, the Guarantor, the
Trustee or any other person any indemnification or payment in
respect of any tax consequence of any such exercise upon
individual Holders or Couponholders except to the extent
already provided for in Condition 8 and/or any undertaking
given in addition thereto or in substitution therefor under
these presents.
(Q) Any trustee of these presents being a lawyer, accountant,
broker or other person engaged in any profession or business
shall be entitled to charge and be paid all usual professional
and other charges for business transacted and acts done by him
or his firm in connection with the trusts of these presents
and also his reasonable charges in addition to disbursements
for all other work and business done and all time spent by him
or his firm in connection with matters arising in connection
with these presents.
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(R) The Trustee may whenever it thinks fit and, if appropriate,
after consultation with the Issuer and/or the Guarantor
delegate by power of attorney or otherwise to any person or
persons or fluctuating body of persons (whether being a joint
trustee of these presents or not) all or any of its trusts,
powers, authorities and discretions under these presents. Such
delegation may be made upon such terms (including power to
sub-delegate) and subject to such conditions and regulations
as the Trustee may in the interests of the Holders think fit.
Provided that the Trustee has exercised reasonable care in the
selection of such delegate, the Trustee shall not be under any
obligation to supervise the proceedings or acts of any such
delegate or sub-delegate or be in any way responsible for any
Liability incurred by reason of any misconduct or default on
the part of any such delegate or sub-delegate. The Trustee
shall within a reasonable time after any such delegation or
any renewal, extension or termination thereof give notice
thereof to the Issuer.
(S) The Trustee may in the conduct of the trusts of these presents
instead of acting personally employ and pay an agent (whether
being a lawyer or other professional person) to transact or
conduct, or concur in transacting or conducting, any business
and to do, or concur in doing, all acts required to be done in
connection with these presents (including the receipt and
payment of money). Provided that the Trustee has exercised
reasonable care in the selection of such agent, the Trustee
shall not be in any way responsible for any Liability incurred
by reason of any misconduct or default on the part of any such
agent or be bound to supervise the proceedings or acts of any
such agent.
(T) The Trustee shall not be responsible for the execution,
delivery, legality, effectiveness, adequacy, genuineness,
validity, performance, enforceability or admissibility in
evidence of these presents or any other document relating or
expressed to be supplemental thereto and shall not be liable
for any failure to obtain any licence, consent or other
authority for the execution, delivery, legality,
effectiveness, adequacy, genuineness, validity, performance,
enforceability or admissibility in evidence of these presents
or any other document relating or expressed to be supplemental
thereto.
(U) The Trustee shall not at any time be under any duty or
responsibility to any Holder to determine whether any Put
Event, Restructuring Event, Rating Downgrade or Negative
Rating Event (each as defined in the Conditions) has occurred.
17. TRUSTEE'S LIABILITY
NOTHING in these presents shall in any case in which the Trustee has
failed to show the degree of care and diligence required of it as
trustee having regard to the provisions of these presents conferring on
it any trusts, powers, authorities or discretions exempt the Trustee
from or indemnify it against any liability for breach of trust of which
it may be guilty in relation to its duties under these presents.
18. TRUSTEE CONTRACTING WITH THE ISSUER AND THE GUARANTOR
NEITHER the Trustee nor any director or officer or holding company,
Subsidiary or associated company of a corporation acting as a trustee
under these presents shall by reason of its or his fiduciary position
be in any way precluded from:
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(i) entering into or being interested in any contract or financial
or other transaction or arrangement with the Issuer or the
Guarantor or any person or body corporate associated with the
Issuer or the Guarantor (including without limitation any
contract, transaction or arrangement of a banking or insurance
nature or any contract, transaction or arrangement in relation
to the making of loans or the provision of financial
facilities or financial advice to, or the purchase, placing or
underwriting of or the subscribing or procuring subscriptions
for or otherwise acquiring, holding or dealing with, or acting
as paying agent in respect of, the Securities or any other
bonds, notes stocks, shares, debenture stock, debentures or
other securities of, the Issuer or the Guarantor or any person
or body corporate associated as aforesaid); or
(ii) accepting or holding the trusteeship of any other trust deed
constituting or securing any other securities issued by or
relating to the Issuer or the Guarantor or any such person or
body corporate so associated or any other office of profit
under the Issuer or the Guarantor or any such person or body
corporate so associated,
and shall be entitled to exercise and enforce its rights, comply with
its obligations and perform its duties under or in relation to any such
contract, transaction or arrangement as is referred to in (i) above or,
as the case may be, any such trusteeship or office of profit as is
referred to in (ii) above without regard to the interests of the
Holders and notwithstanding that the same may be contrary or
prejudicial to the interests of the Holders and shall not be
responsible for any Liability occasioned to the Holders thereby and
shall be entitled to retain and shall not be in any way liable to
account for any profit made or share of brokerage or commission or
remuneration or other amount or benefit received thereby or in
connection therewith.
Where any holding company, Subsidiary or associated company of the
Trustee or any director or officer of the Trustee acting other than in
his capacity as such a director or officer has any information, the
Trustee shall not thereby be deemed also to have knowledge of such
information and, unless it shall have actual knowledge of such
information, shall not be responsible for any loss suffered by Holders
resulting from the Trustee's failing to take such information into
account in acting or refraining from acting under or in relation to
these presents.
19. WAIVER, AUTHORISATION AND DETERMINATION
(A) THE Trustee may without the consent or sanction of the Holders and
without prejudice to its rights in respect of any subsequent breach,
Event of Default or Potential Event of Default from time to time and at
any time but only if and in so far as in its opinion the interests of
the Holders shall not be materially prejudiced thereby waive or
authorise any breach or proposed breach by the Issuer or the Guarantor
of any of the covenants or provisions contained in these presents or
determine that any Event of Default or Potential Event of Default shall
not be treated as such for the purposes of these presents PROVIDED
ALWAYS THAT the Trustee shall not exercise any powers conferred on it
by this Clause in contravention of any express direction given by
Extraordinary Resolution or by a request under Condition 10 but so that
no such direction or request shall affect any waiver, authorisation or
determination previously given or made. Any such waiver, authorisation
or determination may be given or made on such terms and subject to such
conditions (if any) as the Trustee may determine, shall be binding on
the Holders and the Couponholders and, if, but only if, the Trustee
shall
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<PAGE> 32
so require, shall be notified by the Issuer to the Holders in
accordance with Condition 14 as soon as practicable thereafter.
MODIFICATION
(B) The Trustee may without the consent or sanction of the Holders or
Couponholders at any time and from time to time concur with the Issuer
and the Guarantor in making any modification (i) to these presents
which in the opinion of the Trustee it may be proper to make PROVIDED
THAT the Trustee is of the opinion that such modification will not be
materially prejudicial to the interests of the Holders or (ii) to these
presents if in the opinion of the Trustee such modification is of a
formal, minor or technical nature or to correct a manifest error. Any
such modification may be made on such terms and subject to such
conditions (if any) as the Trustee may determine, shall be binding upon
the Holders and the Couponholders and, unless the Trustee agrees
otherwise, shall be notified by the Issuer to the Holders in accordance
with Condition 14 as soon as practicable thereafter.
BREACH
(C) Any breach of or failure to comply with any such terms and conditions
as are referred to in sub-clauses (A) and (B) of this Clause shall
constitute a default by the Issuer or the Guarantor (as the case may
be) in the performance or observance of a covenant or provision binding
on it under or pursuant to these presents.
20. HOLDER OF DEFINITIVE BEARER SECURITY ASSUMED TO BE COUPONHOLDER
(A) WHEREVER in these presents the Trustee is required or entitled to
exercise a power, trust, authority or discretion under these presents,
except as ordered by a court of competent jurisdiction or as required
by applicable law, the Trustee shall, notwithstanding that it may have
express notice to the contrary, assume that each Holder is the holder
of all Coupons appertaining to each Bearer Security in definitive form
of which he is the holder.
NO NOTICE TO COUPONHOLDERS
(B) Neither the Trustee nor the Issuer nor the Guarantor shall be required
to give any notice to the Couponholders for any purpose under these
presents and the Couponholders shall be deemed for all purposes to have
notice of the contents of any notice given to the Holders in accordance
with Condition 14.
ENTITLEMENT TO TREAT HOLDER AS ABSOLUTE OWNER
(C) The Issuer, the Guarantor, the Trustee, the Paying Agents, the
Registrar and the Transfer Agents may (to the fullest extent permitted
by applicable laws) deem and treat the holder of any Security or of a
particular principal amount of the Securities and the holder of any
Coupon as the absolute owner of such Security, principal amount or
Coupon, as the case may be, for all purposes (whether or not such
Security, principal amount or Coupon shall be overdue and
notwithstanding any notice of ownership thereof or of trust or other
interest with regard thereto, any notice of loss or theft thereof or
any writing thereon), and the Issuer, the Guarantor, the Trustee, the
Paying Agents, the Registrar and the Transfer Agents shall not be
affected by any notice to the contrary. All payments made to any such
holder of a Security in definitive form or a Coupon or to the bearer of
a Global Security shall be valid and, to
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<PAGE> 33
the extent of the sums so paid, effective to satisfy and discharge the
liability for the moneys payable in respect of such Security, principal
amount or Coupon, as the case may be.
21. SUBSTITUTION
(A) (1) The Trustee may without the consent of the Holders or
Couponholders at any time agree with the Issuer to the
substitution in place of the Issuer (or of any previous
substitute or substitutes under this Clause) as the principal
debtor under these presents of the Guarantor or any other
Subsidiary of the Issuer (other than an Excluded Subsidiary)
(such substituted company being hereinafter called the "NEW
COMPANY") provided that a trust deed is executed or some other
form of undertaking is given by the New Company in form and
manner satisfactory to the Trustee, agreeing to be bound by
the provisions of these presents with any consequential
amendments which the Trustee may deem appropriate as fully as
if the New Company had been named in these presents as the
principal debtor in place of the Issuer (or of any previous
substitute or substitutes under this Clause).
(2) The following further conditions shall apply to (1) above:
(i) the Issuer, the Guarantor and the New Company shall
comply with such other requirements as the Trustee
may direct in the interests of the Holders;
(ii) where the New Company is incorporated, domiciled or
resident in, or subject generally to the taxing
jurisdiction of, a territory other than or in
addition to the United Kingdom or any political
sub-division or any authority therein or thereof
having power to tax, undertakings or covenants shall
be given by the New Company in terms corresponding to
the provisions of Condition 8 with the substitution
for (or, as the case may be, the addition to) the
references to the United Kingdom of references to
that other or additional territory in which the New
Company is incorporated, domiciled or resident or to
whose taxing jurisdiction it is subject and (where
applicable) Condition 6(b) shall be modified
accordingly;
(iii) without prejudice to the rights of reliance of the
Trustee under the immediately following paragraph
(iv), the Trustee is satisfied that the relevant
transaction is not materially prejudicial to the
interests of the Holders; and
(iv) if two Directors of the New Company (or other
officers acceptable to the Trustee) shall certify
that the New Company is solvent at the time at which
the relevant transaction is proposed to be effected
(which certificate the Trustee may rely upon
absolutely) the Trustee shall not be under any duty
to have regard to the financial condition, profits or
prospects of the New Company or to compare the same
with those of the Issuer or the previous substitute
under this Clause as applicable.
(B) Any such trust deed or undertaking shall, if so expressed, operate to
release the Issuer or the previous substitute as aforesaid from all of
its obligations as principal debtor under these presents. Not later
than 14 days after the execution of such documents and compliance with
such requirements, the New Company shall give notice thereof in a form
previously
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<PAGE> 34
approved by the Trustee to the Holders in the manner provided in
Condition 14. Upon the execution of such documents and compliance with
such requirements, the New Company shall be deemed to be named in these
presents as the principal debtor in place of the Issuer (or in place of
the previous substitute under this Clause) under these presents and
these presents shall be deemed to be modified in such manner as shall
be necessary to give effect to the above provisions and, without
limitation, references in these presents to the Issuer shall, unless
the context otherwise requires, be deemed to be or include references
to the New Company.
22. CURRENCY INDEMNITY
EACH of the Issuer and the Guarantor shall severally indemnify the
Trustee, every Appointee, the Holders and the Couponholders and keep
them indemnified against:
(a) any Liability incurred by any of them arising from the
non-payment by the Issuer or the Guarantor of any amount due
to the Trustee or the Holders or Couponholders under these
presents by reason of any variation in the rates of exchange
between those used for the purposes of calculating the amount
due under a judgment or order in respect thereof and those
prevailing at the date of actual payment by the Issuer or the
Guarantor; and
(b) any deficiency arising or resulting from any variation in
rates of exchange between (i) the date as of which the local
currency equivalent of the amounts due or contingently due
under these presents (other than this Clause) is calculated
for the purposes of any bankruptcy, insolvency or liquidation
of the Issuer or the Guarantor and (ii) the final date for
ascertaining the amount of claims in such bankruptcy,
insolvency or liquidation. The amount of such deficiency shall
be deemed not to be reduced by any variation in rates of
exchange occurring between the said final date and the date of
any distribution of assets in connection with any such
bankruptcy, insolvency or liquidation.
The above indemnities shall constitute obligations of the Issuer and
the Guarantor separate and independent from their obligations under the
other provisions of these presents and shall apply irrespective of any
indulgence granted by the Trustee or the Holders or the Couponholders
from time to time and shall continue in full force and effect
notwithstanding the judgment or filing of any proof or proofs in any
bankruptcy, insolvency or liquidation of the Issuer or the Guarantor
for a liquidated sum or sums in respect of amounts due under these
presents (other than this Clause). Any such deficiency as aforesaid
shall be deemed to constitute a loss suffered by the Holders and
Couponholders and no proof or evidence of any actual loss shall be
required by the Issuer or the Guarantor or their liquidator or
liquidators.
23. NEW TRUSTEE
(A) THE power to appoint a new trustee of these presents shall be vested in
the Issuer but no person shall be appointed who shall not previously
have been approved by an Extraordinary Resolution. One or more persons
may hold office as trustee or trustees of these presents but such
trustee or trustees shall be or include a Trust Corporation. Whenever
there shall be more than two trustees of these presents the majority of
such trustees shall be competent to execute and exercise all the
duties, powers, trusts, authorities and discretions vested in the
Trustee by these presents provided that a Trust Corporation shall be
included in such majority. Any appointment of a new trustee of these
presents shall as soon as practicable thereafter be
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<PAGE> 35
notified by the Issuer to the Principal Paying Agent, the Registrar,
the Transfer Agents and the Holders.
SEPARATE AND CO-TRUSTEES
(B) Notwithstanding the provisions of sub-clause (A) above, the Trustee
may, upon giving prior notice to the Issuer and the Guarantor (but
without the consent of the Issuer, the Guarantor, the Holders or the
Couponholders), appoint any person established or resident in any
jurisdiction (whether a Trust Corporation or not) to act either as a
separate trustee or as a co-trustee jointly with the Trustee:
(i) if the Trustee considers such appointment to be in the
interests of the Holders;
(ii) for the purposes of conforming to any legal requirements,
restrictions or conditions in any jurisdiction in which any
particular act or acts is or are to be performed; or
(iii) for the purposes of obtaining a judgment in any jurisdiction
or the enforcement in any jurisdiction of either a judgment
already obtained or any of the provisions of these presents
against the Issuer and/or the Guarantor.
Each of the Issuer and the Guarantor irrevocably appoints the Trustee
to be its attorney in its name and on its behalf to execute any such
instrument of appointment. Such a person shall (subject always to the
provisions of these presents) have such trusts, powers, authorities and
discretions (not exceeding those conferred on the Trustee by these
presents) and such duties and obligations as shall be conferred or
imposed by the instrument of appointment. The Trustee shall have power
in like manner to remove any such person. Such reasonable remuneration
as the Trustee may pay to any such person, together with any
attributable Liabilities incurred by it in performing its function as
such separate trustee or co-trustee, shall for the purposes of these
presents be treated as Liabilities incurred by the Trustee.
24. TRUSTEE'S RETIREMENT AND REMOVAL
A trustee of these presents may retire at any time on giving not less
than three months' prior written notice to the Issuer and the Guarantor
without giving any reason and without being responsible for any
Liabilities incurred by reason of such retirement. The Holders may by
Extraordinary Resolution remove any trustee or trustees for the time
being of these presents. The Issuer, failing whom the Guarantor,
undertakes that in the event of the only trustee of these presents
which is a Trust Corporation (for the avoidance of doubt, disregarding
for this purpose any separate or co-trustee appointed under Clause
23(B)) giving notice under this Clause or being removed by
Extraordinary Resolution it will use its best endeavours to procure
that a new trustee of these presents being a Trust Corporation is
appointed as soon as reasonably practicable thereafter. The retirement
or removal of any such trustee shall not become effective until a
successor trustee being a Trust Corporation is appointed and, if in
such circumstances, no such appointment has become effective within two
months of the date of such notice or Extraordinary Resolution, the
Trustee shall be entitled to appoint a Trust Corporation as trustee of
these presents, but no such appointment shall take effect unless
previously approved by an Extraordinary Resolution.
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<PAGE> 36
25. TRUSTEE'S POWERS TO BE ADDITIONAL
THE powers conferred upon the Trustee by these presents shall be in
addition to any powers which may from time to time be vested in the
Trustee by the general law or as a holder of any of the Securities or
Coupons.
26. NOTICES
ANY notice or demand to the Issuer, the Guarantor or the Trustee to be
given, made or served for any purposes under these presents shall be
given, made or served by sending the same by pre-paid post (first class
if inland, first class airmail if overseas) or facsimile transmission
or by delivering it by hand as follows:
to the Issuer: c/o Wessex Water Services Limited
Wessex House
Passage Street
Bristol
BS2 0JQ
(Attention: the Treasurer)
Facsimile No. 0117 925 0643
to the Guarantor: Wessex House
Passage Street
Bristol BS2 0JQ
(Attention: the Treasurer)
Facsimile No. 0117 925 0643
to the Trustee: Mariner House
Pepys Street
London EC3N 4DA
(Attention: HSBC Issuer Services)
Telex No. 888401
Facsimile No. 0171 260 0428/3269
or to such other address or facsimile number as shall have been
notified (in accordance with this Clause) to the other parties hereto
and any notice or demand sent by post as aforesaid shall be deemed to
have been given, made or served three days in the case of inland post
or seven days in the case of overseas post after despatch and any
notice or demand sent by facsimile transmission as aforesaid shall be
deemed to have been given, made or served 24 hours after the time of
despatch provided that in the case of a notice or demand given by
facsimile transmission such notice or demand shall forthwith be
confirmed by post. The failure of the addressee to receive such
confirmation shall not invalidate the relevant notice or demand given
by facsimile transmission.
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<PAGE> 37
27. GOVERNING LAW
THESE presents are governed by, and shall be construed in accordance
with, English law.
28. COUNTERPARTS
THIS Trust Deed and any trust deed supplemental hereto may be executed
and delivered in any number of counterparts, all of which, taken
together, shall constitute one and the same deed and any party to this
Trust Deed or any trust deed supplemental hereto may enter into the
same by executing and delivering a counterpart.
IN WITNESS whereof this Trust Deed has been executed as a deed by the Issuer,
the Guarantor and the Trustee and delivered on the date first stated on page 1.
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<PAGE> 38
THE FIRST SCHEDULE
PART I
- FORM OF ORIGINAL TEMPORARY GLOBAL BOND -
WESSEX WATER SERVICES FINANCE PLC
(Incorporated in England and Wales under the Companies Act 1985
with limited liability under registered number 3704265)
TEMPORARY GLOBAL BOND
representing
L.300,000,000 5.875 PER CENT. GUARANTEED BONDS DUE 2009
unconditionally and irrevocably guaranteed
as to payment of principal and interest by
WESSEX WATER SERVICES LIMITED
(Incorporated in England and Wales under the Companies Act 1985
with limited liability under registered number 2366648)
This Bond is a temporary Global Bond without interest coupons in respect of a
duly authorised issue of Bonds of Wessex Water Services Finance Plc (the
"ISSUER"), designated as specified in the title hereof (the "BONDS"), limited to
the aggregate principal amount of three hundred million pounds sterling
(L.300,000,000) and constituted by a Trust Deed dated 30th March, 1999 (the
"TRUST DEED") between the Issuer, Wessex Water Services Limited as guarantor
(the "GUARANTOR") and Midland Bank plc as trustee (the trustee for the time
being thereof being herein called the "TRUSTEE"). References herein to the
Conditions (or to any particular numbered Condition) shall be to the Conditions
(or that particular one of them) set out in the Second Schedule to the Trust
Deed. Any references herein to principal or principal amount shall, unless the
context otherwise requires, be deemed to include the Redemption Price (as
defined in Condition 6(c)(ii)). The aggregate principal amount from time to time
of this temporary Global Bond shall be three hundred million pounds sterling
(L.300,000,000) or, if less, that amount as shall be shown by the latest
entry duly made in the Schedule hereto.
1. PROMISE TO PAY
Subject as provided in this temporary Global Bond, the Issuer promises
to pay to the bearer the principal amount of this temporary Global Bond
(being at the date hereof three hundred million pounds sterling
(L.300,000,000)) on 30th March, 2009 (or on such earlier date as
the said principal amount may become repayable in accordance with the
Conditions or the Trust Deed) and to pay interest annually in arrear on
30th March on the principal amount from time to time of this temporary
Global Bond at the rate of 5.875 per cent. per annum together with such
other amounts (if any) as may be payable, all subject to and in
accordance with the Conditions and the provisions of the Trust Deed.
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<PAGE> 39
2. EXCHANGE FOR PERMANENT GLOBAL BOND AND PURCHASES
This temporary Global Bond is exchangeable in whole or in part upon the
request of the bearer for a further global bond in respect of up to
L.300,000,000 aggregate principal amount of the Bonds (the
"PERMANENT GLOBAL BOND") only on and subject to the terms and
conditions set out below.
On and after 10th May, 1999 (the "EXCHANGE DATE") this temporary Global
Bond may be exchanged in whole or in part at the specified office of
the Principal Paying Agent (or such other place as the Trustee may
agree) for the Permanent Global Bond and the Issuer shall procure that
the Principal Paying Agent shall issue and deliver, in full or partial
exchange for this temporary Global Bond, the Permanent Global Bond (or,
as the case may be, endorse the Permanent Global Bond) in an aggregate
principal amount equal to the principal amount of this temporary Global
Bond submitted for exchange PROVIDED THAT if definitive Bonds (together
with the Coupons appertaining thereto) have already been issued in
exchange for all the Bonds represented for the time being by the
Permanent Global Bond, then this temporary Global Bond may thereafter
be exchanged only for definitive Bonds (together with the Coupons
appertaining thereto) and in such circumstances references herein to
the Permanent Global Bond shall be construed accordingly and PROVIDED
FURTHER THAT the Permanent Global Bond shall be issued and delivered
(or, as the case may be, endorsed) only if and to the extent that there
shall have been presented to the Issuer a certificate from Morgan
Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System ("EUROCLEAR") or from Cedelbank substantially in the
form of the certificate attached as Exhibit A.
Any person who would, but for the provisions of this temporary Global
Bond, the Permanent Global Bond and the Trust Deed, otherwise be
entitled to receive a definitive Bond or definitive Bonds shall not be
entitled to require the exchange of an appropriate part of this
temporary Global Bond for a like part of the Permanent Global Bond
unless and until he shall have delivered or caused to be delivered to
Euroclear or Cedelbank a certificate substantially in the form of the
certificate attached as Exhibit B (copies of which form of certificate
will be available at the offices of Euroclear in Brussels and Cedelbank
in Luxembourg and the specified office of each of the Paying Agents).
Upon (i) any exchange of a part of this temporary Global Bond for a
like part of the Permanent Global Bond or (ii) the purchase for
cancellation by or on behalf of the Issuer, the Guarantor or any other
Subsidiary of the Guarantor and cancellation of a part of this
temporary Global Bond in accordance with the Conditions, the portion of
the principal amount hereof so exchanged or so purchased and cancelled
shall be endorsed by or on behalf of the Principal Paying Agent on
behalf of the Issuer on Part II of the Schedule hereto, whereupon the
principal amount hereof shall be reduced for all purposes by the amount
so exchanged or so purchased and cancelled and, in each case, endorsed.
3. PAYMENTS
Until the entire principal amount of this temporary Global Bond has
been extinguished, this temporary Global Bond shall in all respects be
entitled to the same benefits as the definitive Bonds for the time
being represented hereby and shall be entitled to the benefit of and be
bound by the Trust Deed, except that the holder of this temporary
Global Bond shall not (unless upon due presentation of this temporary
Global Bond for exchange, issue and
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<PAGE> 40
delivery (or, as the case may be, endorsement) of the Permanent Global
Bond is improperly withheld or refused and such withholding or refusal
is continuing at the relevant payment date) be entitled (i) to receive
any payment of interest on this temporary Global Bond except (subject
to (ii) below) upon certification as hereinafter provided or (ii) on
and after the Exchange Date, to receive any payment on this temporary
Global Bond. Upon any payment of principal or interest on this
temporary Global Bond the amount so paid shall be endorsed by or on
behalf of the Principal Paying Agent on behalf of the Issuer on Part I
of the Schedule hereto.
Payments of interest in respect of Bonds for the time being represented
by this temporary Global Bond shall be made to the bearer only upon
presentation to the Issuer of a certificate from Euroclear or from
Cedelbank substantially in the form of the certificate attached as
Exhibit A. Any person who would, but for the provisions of this
temporary Global Bond and of the Trust Deed, otherwise be beneficially
entitled to a payment of interest on this temporary Global Bond shall
not be entitled to require such payment unless and until he shall have
delivered or caused to be delivered to Euroclear or Cedelbank a
certificate substantially in the form of the certificate attached as
Exhibit B (copies of which form of certificate will be available at the
offices of Euroclear in Brussels and Cedelbank in Luxembourg and the
specified office of each of the Paying Agents).
Upon any payment of principal and endorsement of such payment on Part I
of the Schedule hereto, the principal amount of this temporary Global
Bond shall be reduced for all purposes by the principal amount so paid
and endorsed.
All payments of any amounts payable and paid to the bearer of this
temporary Global Bond shall be valid and, to the extent of the sums so
paid, effectual to satisfy and discharge the liability for the moneys
payable hereon, on the Permanent Global Bond and on the relevant
definitive Bonds and Coupons.
4. MEETINGS
The holder hereof shall, at any meeting of Bondholders, be treated as
having one vote in respect of each L.1.00 principal amount of
Bonds for which this temporary Global Bond may be exchanged.
5. TRUSTEE'S POWERS
In considering the interests of Bondholders in circumstances where all
of the Bonds are represented by one or both of the Permanent Global
Bond and this temporary Global Bond and such Global Bond(s) is/are held
on behalf of Euroclear and/or Cedelbank, the Trustee may have regard to
any information provided to it by such clearing system or its operator
as to the identity (either individually or by way of category) of its
accountholders with entitlements to the Permanent Global Bond or this
temporary Global Bond (as the case may be) and may consider such
interests as if such accountholders were the holder(s) of the Permanent
Global Bond or this temporary Global Bond (as the case may be).
6. NOTICES
For so long as all of the Bonds are represented by one or both of the
Permanent Global Bond and this temporary Global Bond and such Global
Bond(s) is/are held on behalf of Euroclear
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<PAGE> 41
and/or Cedelbank, notices to Bondholders may be given by delivery of
the relevant notice to Euroclear and/or Cedelbank (as the case may be)
for communication by it to entitled accountholders in substitution for
publication as required by Condition 14 provided that, so long as the
Bonds are listed on the London Stock Exchange Limited, the requirements
of the London Stock Exchange Limited have been complied with. Any such
notice shall be deemed to have been given to the Bondholders on the
seventh day after the day on which such notice is delivered to
Euroclear and/or Cedelbank (as the case may be) as aforesaid.
7. PRESCRIPTION
Claims against the Issuer and the Guarantor in respect of principal and
interest on the Bonds while the Bonds are represented by the Permanent
Global Bond or this temporary Global Bond shall be prescribed and
become void unless it is presented for payment within a period of 10
years (in the case of principal) and five years (in the case of
interest) from the Relevant Date (as defined in Condition 8).
8. CALL OPTION
For so long as all of the Bonds are represented by one or both of the
Permanent Global Bond and/or this temporary Global Bond and such Global
Bond(s) is/are held on behalf of Euroclear and/or Cedelbank, no drawing
of Bonds will be required under Condition 6(c) in the event that the
Issuer exercises its call in Condition 6(c) in respect of less than the
aggregate principal amount of the Bonds outstanding. In such event, the
standard procedures of Euroclear and/or Cedelbank shall operate to
determine which interests in the Global Bond(s) are to be subject to
such option.
9. PUT OPTION
For so long as all of the Bonds are represented by one or both of the
Permanent Global Bond and/or this temporary Global Bond and such Global
Bond(s) is/are held on behalf of Euroclear and/or Cedelbank, the option
of the Bondholders provided for in Condition 7 may be exercised by the
holder of this temporary Global Bond giving notice to the Principal
Paying Agent of the principal amount of the Bonds in respect of which
such option is exercised and at the same time presenting or procuring
the presentation of this temporary Global Bond to the Principal Paying
Agent for notation accordingly within the time limits set forth in that
Condition.
10. EUROCLEAR AND CEDELBANK
References herein to Euroclear and/or Cedelbank shall be deemed to
include references to any other clearing system approved by the
Trustee.
11. REDENOMINATION
Following redenomination of the Bonds pursuant to Condition 15(e), the
amount of interest due in respect of Bonds represented by this
temporary Global Bond will be calculated on such basis as the Trustee
may agree.
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<PAGE> 42
12. AUTHENTICATION
This temporary Global Bond shall not be or become valid or obligatory
for any purpose unless and until authenticated by or on behalf of the
Principal Paying Agent.
13. GOVERNING LAW
This temporary Global Bond is governed by, and shall be construed in
accordance with, the laws of England.
IN WITNESS whereof the Issuer has caused this temporary Global Bond to be signed
manually or in facsimile by a person duly authorised on its behalf.
WESSEX WATER SERVICES FINANCE PLC
By:
-------------------------------
Duly authorised
Issued in London, England on 30th March, 1999.
CERTIFICATE OF AUTHENTICATION
This temporary Global Bond is duly authenticated
without recourse, warranty or liability.
- -------------------------------
Duly authorised
for and on behalf of
Midland Bank plc
as Principal Paying Agent
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<PAGE> 43
THE SCHEDULE
PART I
PAYMENTS OF PRINCIPAL AND INTEREST
The following payments on this temporary Global Bond have been made:
<TABLE>
<CAPTION>
Remaining principal amount of
this temporary Global Bond Notation made on
Date made Interest paid Principal paid following such payment behalf of the Issuer
L. L. L.
<S> <C> <C> <C> <C>
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
- -------- ------------- -------------- ----------------------------- ---------------------
</TABLE>
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<PAGE> 44
PART II
EXCHANGES FOR PERMANENT GLOBAL BOND AND
PURCHASES AND CANCELLATIONS
The following exchanges of a part of this temporary Global Bond for a like part
of the Permanent Global Bond and/or purchases and cancellations of a part of
this temporary Global Bond have been made:
<TABLE>
<CAPTION>
Part of principal Aggregate principal
amount of this Part of principal amount of this
temporary Global Bond amount of this temporary Global
exchanged for a like temporary Global Bond following such Notation made
part of the Permanent Bond purchased exchange or purchase on behalf of
Date made Global Bond and cancelled and cancellation the Issuer
L. L. L.
<S> <C> <C> <C> <C>
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
</TABLE>
41
<PAGE> 45
EXHIBIT A
WESSEX WATER SERVICES FINANCE PLC
L.300,000,000
5.875 PER CENT. GUARANTEED BONDS DUE 2009
(the "SECURITIES")
UNCONDITIONALLY AND IRREVOCABLY GUARANTEED BY
WESSEX WATER SERVICES LIMITED
COMMON CODE 9582029 ISIN XS0095820295
This is to certify that, based solely on certifications we have received in
writing, by tested telex or by electronic transmission from member organisations
appearing in our records as persons being entitled to a portion of the principal
amount set forth below (our "MEMBER ORGANISATIONS") substantially to the effect
set forth in the Trust Deed, as of the date hereof L.[ ] principal amount
of the above-captioned Securities (i) is owned by persons that are not citizens
or residents of the United States, domestic partnerships, domestic corporations
or any estate or trust the income of which is subject to United States Federal
income taxation regardless of its source ("UNITED STATES PERSONS"), (ii) is
owned by United States persons that (a) are foreign branches of United States
financial institutions (as defined in U.S. Treasury Regulations Section
1.165-12(c)(1)(v)) ("FINANCIAL INSTITUTIONS") purchasing for their own account
or for resale, or (b) acquired the Securities through foreign branches of United
States financial institutions and who hold the Securities through such United
States financial institutions on the date hereof (and in either case (a) or (b),
each such United States financial institution has agreed, on its own behalf or
through its agent, that we may advise the Issuer or the Issuer's agent that it
will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder), or
(iii) is owned by United States or foreign financial institutions for purposes
of resale during the restricted period (as defined in U.S. Treasury Regulations
Section 1.163-5(c)(2)(i)(D)(7)), and to the further effect that United States or
foreign financial institutions described in clause (iii) above (whether or not
also described in clause (i) or (ii)) have certified that they have not acquired
the Securities for purposes of resale directly or indirectly to a United States
person or to a person within the United States or its possessions.
If the Securities are of the category contemplated in Section 230.903(c)(3) of
Regulation S under the Securities Act of 1933, as amended, then this is also to
certify with respect to such principal amount of Securities set forth above
that, except as set forth below, we have received in writing, by tested telex or
by electronic transmission, from our Member Organisations entitled to a portion
of such principal amount, certifications with respect to such portion,
substantially to the effect set forth in the Trust Deed.
We further certify (i) that we are not making available herewith for exchange
(or, if relevant, exercise of any rights or collection of any interest) any
portion of the temporary global Security excepted in such certifications and
(ii) that as of the date hereof we have not received any notification from any
of our Member Organisations to the effect that the statements made by such
Member Organisations with respect to any portion of the part submitted herewith
for exchange (or, if relevant, exercise of any rights or collection of any
interest) are no longer true and cannot be relied upon as of the date hereof.
42
<PAGE> 46
We understand that this certification is required in connection with certain tax
laws and, if applicable, certain securities laws of the United States. In
connection therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certification is or would be relevant,
we irrevocably authorise you to produce this certification to any interested
party in such proceedings.
*Dated
[MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
BRUSSELS OFFICE, AS OPERATOR OF THE
EUROCLEAR SYSTEM] [CEDELBANK]
By:
-------------------------------
Authorised Signatory
* To be dated no earlier than the date to which this certification
relates, namely (a) the payment date or (b) the date set for the
exchange of the temporary Global Bond for the Permanent Global Bond.
43
<PAGE> 47
EXHIBIT B
WESSEX WATER SERVICES FINANCE PLC
L.300,000,000
5.875 PER CENT. GUARANTEED BONDS DUE 2009
(the "SECURITIES")
UNCONDITIONALLY AND IRREVOCABLY GUARANTEED BY
WESSEX WATER SERVICES LIMITED
COMMON CODE 9582029 ISIN XS0095820295
This is to certify that as of the date hereof, and except as set forth below,
the above-captioned Securities held by you for our account (i) are owned by
person(s) that are not citizens or residents of the United States, domestic
partnerships, domestic corporations or any estate or trust the income of which
is subject to United States Federal income taxation regardless of its source
("UNITED STATES PERSON(S)"), (ii) are owned by United States person(s) that (a)
are foreign branches of United States financial institutions (as defined in U.S.
Treasury Regulations Section 1.165-12(c)(1)(v)) ("FINANCIAL INSTITUTIONS")
purchasing for their own account or for resale, or (b) acquired the Securities
through foreign branches of United States financial institutions and who hold
the Securities through such United States financial institutions on the date
hereof (and in either case (a) or (b), each such United States financial
institution hereby agrees, on its own behalf or through its agent, that you may
advise the Issuer or the Issuer's agent that it will comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of
1986, as amended, and the regulations thereunder), or (iii) are owned by United
States or foreign financial institution(s) for purposes of resale during the
restricted period (as defined in U.S. Treasury Regulations Section
1.163-5(c)(2)(i)(D)(7)), and in addition if the owner of the Securities is a
United States or foreign financial institution described in clause (iii) above
(whether or not also described in clause (i) or (ii)) this is further to certify
that such financial institution has not acquired the Securities for the purposes
of resale directly or indirectly to a United States person or to a person within
the United States or its possessions.
If the Securities are of the category contemplated in Section 230.903(c)(3) of
Regulation S under the Securities Act of 1933, as amended, (the "ACT"), then
this is also to certify that, except as set forth below (i) in the case of debt
securities, the Securities are beneficially owned by (a) non-U.S. person(s) or
(b) U.S. person(s) who purchased the Securities in transactions which did not
require registration under the Act; or (ii) in the case of equity securities,
the Securities are owned by (x) non-U.S. person(s) (and such person(s) are not
acquiring the Securities for the account or benefit of U.S. person(s)) or (y)
U.S. person(s) who purchased the Securities in a transaction which did not
require registration under the Act. If this certification is being delivered in
connection with the exercise of warrants pursuant to Section 230.902(m) of
Regulation S under the Act, then this is further to certify that, except as set
forth below, the Securities are being exercised by and on behalf of non-U.S.
person(s). As used in this paragraph the term "U.S. PERSON" has the meaning
given to it by Regulation S under the Act.
As used herein, "UNITED STATES" means the United States of America (including
the States and the District of Columbia); and its "possessions" include Puerto
Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the
Northern Mariana Islands.
44
<PAGE> 48
We undertake to advise you promptly by tested telex on or prior to the date on
which you intend to submit your certification relating to the Securities held by
you for our account in accordance with your operating procedures if any
applicable statement herein is not correct on such date, and in the absence of
any such notification it may be assumed that this certification applies as of
such date.
This certification excepts and does not relate to L.[ ] of such interest in
the above Securities in respect of which we are not able to certify and as to
which we understand exchange and delivery of definitive Securities (or, if
relevant, exercise of any rights or collection of any interest) cannot be made
until we do so certify.
We understand that this certification is required in connection with certain tax
laws and, if applicable, certain securities laws of the United States. In
connection therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certification is or would be relevant,
we irrevocably authorise you to produce this certification to any interested
party in such proceedings.
* Dated
By:
------------------------
[Name of person giving certification] (As, or as agent for, the
beneficial owner(s) of the Securities to which this certification
relates)
* To be dated no earlier than the date to which this certification
relates, namely (a) the payment date or (b) the date set for the
exchange of the temporary Global Bond for the Permanent Global Bond.
45
<PAGE> 49
PART II
- FORM OF ORIGINAL PERMANENT GLOBAL BOND -
ANY UNITED STATES PERSON (AS DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE)
WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES
INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND
1287(a) OF THE UNITED STATES INTERNAL REVENUE CODE.
WESSEX WATER SERVICES FINANCE PLC
(Incorporated in England and Wales under the Companies Act 1985
with limited liability under registered number 3704265)
PERMANENT GLOBAL BOND
representing up to
L.300,000,000 5.875 PER CENT. GUARANTEED BONDS DUE 2009
unconditionally and irrevocably guaranteed
as to payment of principal and interest by
WESSEX WATER SERVICES LIMITED
(Incorporated in England and Wales under the Companies Act 1985
with limited liability under registered number 2366648)
This Bond is a permanent Global Bond without interest coupons in respect of a
duly authorised issue of Bonds of Wessex Water Services Finance Plc (the
"ISSUER"), designated as specified in the title hereof (the "BONDS"), limited to
the aggregate principal amount of up to three hundred million pounds sterling
(L.300,000,000) and constituted by a Trust Deed dated 30th March, 1999 (the
"TRUST DEED") between the Issuer, Wessex Water Services Limited as guarantor
(the "GUARANTOR") and Midland Bank plc as trustee (the trustee for the time
being thereof being herein called the "TRUSTEE"). References herein to the
Conditions (or to any particular numbered Condition) shall be to the Conditions
(or that particular one of them) set out in the Second Schedule to the Trust
Deed. Any references herein to principal or principal amount shall, unless the
context otherwise requires, be deemed to include the Redemption Price (as
defined in Condition 6(c)(ii)). The aggregate principal amount from time to time
of this permanent Global Bond shall be that amount not exceeding
L.300,000,000 as shall be shown by the latest entry duly made in the
Schedule hereto.
1. PROMISE TO PAY
Subject as provided in this permanent Global Bond the Issuer promises
to pay to the bearer the principal amount of this permanent Global Bond
on 30th March, 2009 (or on such earlier date as the said principal
amount may become repayable in accordance with the Conditions or the
Trust Deed) and to pay interest annually in arrear on 30th March on the
principal amount from time to time of this permanent Global Bond at the
rate of 5.875 per cent. per annum together with such other amounts (if
any) as may be payable, all subject to and in accordance with the
Conditions and the provisions of the Trust Deed.
46
<PAGE> 50
2. EXCHANGE FOR DEFINITIVE BONDS AND PURCHASES
This permanent Global Bond will be exchangeable in whole but not in
part (free of charge to the holder) for definitive Bonds only (i) if
either Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("EUROCLEAR") or Cedelbank is closed
for business for a continuous period of 14 days (other than by reason
of holidays, statutory or otherwise) or announces an intention
permanently to cease business or does in fact do so and no alternative
clearing system satisfactory to the Trustee is available, or (ii) if
the Issuer would suffer a material disadvantage in respect of the Bonds
as a result of a change in the laws or regulations (taxation or
otherwise) of the United Kingdom which would not be suffered were the
Bonds in definitive form and a certificate to such effect signed by two
Directors of the Issuer is delivered to the Trustee. Thereupon (in the
case of (i) above) the holder of this permanent Global Bond (acting on
the instructions of a person having a beneficial interest in this
permanent Global Bond) or the Trustee may give notice to the Issuer,
and (in the case of (ii) above) the Issuer may give notice to the
Trustee and the Bondholders, of its intention to exchange this
permanent Global Bond for definitive Bonds on or after the Exchange
Date (as defined below).
On or after the Exchange Date the holder of this permanent Global Bond
may surrender this permanent Global Bond to or to the order of the
Principal Paying Agent. In exchange for the whole of this permanent
Global Bond the Issuer will deliver, or procure the delivery of, an
equal aggregate principal amount of duly executed and authenticated
definitive Bonds in bearer form, serially numbered, in the
denominations of L.1,000, L.10,000 and L.100,000 each with interest
coupons ("COUPONS") attached on issue in respect of interest which has
not already been paid on this permanent Global Bond.
"EXCHANGE DATE" means a day specified in the notice requiring exchange
falling not less than 60 days after that on which the notice requiring
exchange is given and on which banks are open for business in the city
in which the specified office of the Principal Paying Agent is located
and in the cities in which the relevant clearing systems are located.
Upon (i) any exchange of a part of the Temporary Global Bond for a part
of this permanent Global Bond or (ii) the purchase for cancellation by
or on behalf of the Issuer, the Guarantor or any other Subsidiary of
the Guarantor and cancellation of a part of this permanent Global Bond
in accordance with the Conditions, the portion of the principal amount
hereof so exchanged or so purchased and cancelled shall be endorsed by
or on behalf of the Principal Paying Agent on behalf of the Issuer on
Part II of the Schedule hereto, whereupon the principal amount hereof
shall be increased or, as the case may be, reduced for all purposes by
the amount so exchanged or so purchased and cancelled and endorsed.
Upon the exchange of the whole of this permanent Global Bond for
definitive Bonds this permanent Global Bond shall be surrendered to or
to the order of the Principal Paying Agent and cancelled and, if the
holder of this permanent Global Bond requests, returned to it together
with any relevant definitive Bonds.
3. MEETINGS
The holder hereof shall, at any meeting of Bondholders, be treated as
having one vote in respect of each L.1 principal amount of Bonds
for which this permanent Global Bond may be exchanged.
47
<PAGE> 51
4. TRUSTEE'S POWERS
In considering the interests of Bondholders in circumstances where all
of the Bonds are represented by one or both of the Temporary Global
Bond and this permanent Global Bond and such Global Bond(s) is/are held
on behalf of Euroclear and/or Cedelbank, the Trustee may have regard to
any information provided to it by such clearing system or its operator
as to the identity (either individually or by way of category) of its
accountholders with entitlements to the Temporary Global Bond or this
permanent Global Bond (as the case may be) and may consider such
interests as if such accountholders were the holder(s) of the Temporary
Global Bond or this permanent Global Bond (as the case may be).
5. PAYMENTS
Until the entire principal amount of this permanent Global Bond has
been extinguished, this permanent Global Bond shall (subject as
hereinafter and in the Trust Deed provided) in all respects be entitled
to the same benefits as the definitive Bonds and shall be entitled to
the benefit of and be bound by the Trust Deed. Payments of principal
and interest in respect of Bonds represented by this permanent Global
Bond will be made against presentation for endorsement and, if no
further payment falls to be made in respect of the Bonds, surrender of
this permanent Global Bond to the order of the Principal Paying Agent
or such other Paying Agent as shall have been notified to the
Bondholders for such purposes. Upon any payment of principal or
interest on this permanent Global Bond the amount so paid shall be
endorsed by or on behalf of the Principal Paying Agent on behalf of the
Issuer on Part I of the Schedule hereto.
Upon any payment of principal and endorsement of such payment on Part I
of the Schedule hereto, the principal amount of this permanent Global
Bond shall be reduced for all purposes by the principal amount so paid
and endorsed.
All payments of any amounts payable and paid to the bearer of this
permanent Global Bond shall be valid and, to the extent of the sums so
paid, effectual to satisfy and discharge the liability for the moneys
payable hereon and on the relevant definitive Bonds and Coupons.
6. NOTICES
For so long as all of the Bonds are represented by one or both of the
Temporary Global Bond and this permanent Global Bond and such Global
Bond(s) is/are held on behalf of Euroclear and/or Cedelbank, notices to
Bondholders may be given by delivery of the relevant notice to
Euroclear and/or Cedelbank (as the case may be) for communication by it
to entitled accountholders in substitution for publication as required
by Condition 14 provided that, so long as the Bonds are listed on the
London Stock Exchange Limited, the requirements of the London Stock
Exchange Limited have been complied with. Any such notice shall be
deemed to have been given to the Bondholders on the seventh day after
the day on which such notice is delivered to Euroclear and/or Cedelbank
(as the case may be) as aforesaid.
7. PRESCRIPTION
Claims against the Issuer and the Guarantor in respect of principal and
interest on the Bonds while the Bonds are represented by the Temporary
Global Bond or this permanent Global Bond shall be prescribed and
become void unless it is presented for payment within a period
48
<PAGE> 52
of 10 years (in the case of principal) and five years (in the case of
interest) from the Relevant Date (as defined in Condition 8).
8. CALL OPTION
For so long as all of the Bonds are represented by one or both of the
Temporary Global Bond and/or this permanent Global Bond and such Global
Bond(s) is/are held on behalf of Euroclear and/or Cedelbank, no drawing
of Bonds will be required under Condition 6(c) in the event that the
Issuer exercises its call option in Condition 6(c) in respect of less
than the aggregate principal amount of the Bonds outstanding. In such
event, the standard procedures of Euroclear and/or Cedelbank shall
operate to determine which interests in the Global Bond(s) are to be
subject to such option.
9. PUT OPTION
For so long as all of the Bonds are represented by one or both of the
Temporary Global Bond and this permanent Global Bond and such Global
Bond(s) is/are held on behalf of Euroclear and/or Cedelbank, the option
of the Bondholders provided for in Condition 7 may be exercised by the
holder of this permanent Global Bond giving notice to the Principal
Paying Agent of the principal amount of the Bonds in respect of which
such option is exercised and at the same time presenting or procuring
the presentation of this permanent Global Bond to the Principal Paying
Agent for notation accordingly within the time limits set forth in that
Condition.
10. EUROCLEAR AND CEDELBANK
References herein to Euroclear and/or Cedelbank shall be deemed to
include references to any other clearing system approved by the
Trustee.
11. REDENOMINATION
Following redenomination of the Bonds pursuant to Condition 15(e), the
amount of interest due in respect of Bonds represented by this
permanent Global Bond will be calculated on such basis as the Trustee
may agree. If, after such redenomination, definitive Bonds are required
to be issued, they shall be issued at the expense of the Issuer and in
such denominations as the Trustee and the Principal Paying Agent may
determine and as shall be notified to the Bondholders in accordance
with Condition 14.
12. AUTHENTICATION
This permanent Global Bond shall not be or become valid or obligatory
for any purpose unless and until authenticated by or on behalf of the
Principal Paying Agent.
13. GOVERNING LAW
This permanent Global Bond is governed by, and shall be construed in
accordance with, the laws of England.
IN WITNESS whereof the Issuer has caused this permanent Global Bond to be signed
manually or in facsimile by a person duly authorised on its behalf.
49
<PAGE> 53
WESSEX WATER SERVICES FINANCE PLC
By:
----------------------------------------
Duly authorised
Issued in London, England on 30th March, 1999.
CERTIFICATE OF AUTHENTICATION
This permanent Global Bond is duly authenticated
without recourse, warranty or liability.
- -----------------------------
Duly authorised
for and on behalf of
Midland Bank plc
as Principal Paying Agent
50
<PAGE> 54
THE SCHEDULE
PART I
PAYMENTS OF PRINCIPAL AND INTEREST
The following payments on this permanent Global Bond have been made:
<TABLE>
<CAPTION>
Remaining principal amount of
this permanent Global Bond Notation made on
Date made Interest paid Principal paid following such payment behalf of the Issuer
L. L. L.
<S> <C> <C> <C> <C>
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
- --------- ------------- -------------- ------------------------------ --------------------
</TABLE>
51
<PAGE> 55
PART II
EXCHANGES OF THE TEMPORARY GLOBAL BOND FOR THIS PERMANENT
GLOBAL BOND AND PURCHASES AND CANCELLATIONS
The following exchanges of a part of the Temporary Global Bond for a like part
of this permanent Global Bond and purchases and cancellations of a part of this
permanent Global Bond have been made:
<TABLE>
<CAPTION>
Part of principal Aggregate principal
amount of this Part of principal amount of this
temporary Global Bond amount of this temporary Global
exchanged for a like temporary Global Bond following such Notation made
part of the Permanent Bond purchased exchange or purchase on behalf of
Date made Global Bond and cancelled and cancellation the Issuer
L. L. L.
<S> <C> <C> <C> <C>
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
- -------- ---------------------- ----------------- --------------------- ---------------
</TABLE>
52
<PAGE> 56
THE SECOND SCHEDULE
PART I
- FORM OF DEFINITIVE ORIGINAL BOND -
ANY UNITED STATES PERSON (AS DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE)
WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES
INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND
1287(a) OF THE UNITED STATES INTERNAL REVENUE CODE.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
[1,000/10,000/100,000] XS0095820295 [SERIES] [Serial No.]
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
WESSEX WATER SERVICES FINANCE PLC
(Incorporated in England and Wales under the Companies Act 1985
with limited liability under registered number 3704265)
L.300,000,000 5.875 PER CENT. GUARANTEED BONDS DUE 2009
unconditionally and irrevocably guaranteed as to
payment of principal, premium (if any) and interest by
WESSEX WATER SERVICES LIMITED
(Incorporated in England and Wales under the Companies Act 1985
with limited liability under registered number 2366648)
The issue of the Bonds was authorised by resolutions of the Board of Directors
of Wessex Water Services Finance Plc (the "ISSUER") passed on 17th February,
1999 and 19th March, 1999 and the giving of the guarantee in respect of the
Bonds was authorised by resolutions of the Board of Directors of Wessex Water
Services Limited (the "GUARANTOR") passed on 17th February, 1999 and of a duly
authorised Committee thereof passed on 19th March, 1999.
This Bond forms one of a series of Bonds constituted by a Trust Deed (the "TRUST
DEED") dated 30th March, 1999 made between the Issuer, the Guarantor and Midland
Bank plc as trustee for the holders of the Bonds and issued as bearer Bonds in
the denominations of L.1,000, L.10,000 and L.100,000 each with
Coupons attached, in an aggregate principal amount of L.300,000,000.
The Issuer for value received and subject to and in accordance with the
Conditions endorsed hereon hereby promises to pay to the bearer on 30th March,
2009 (or on such earlier date as the principal sum hereunder mentioned may
become repayable in accordance with the said Conditions) the principal sum of:
L.[1,000][10,000][100,000] ([One][Ten][One Hundred] Thousand pounds sterling)
together with interest on the said principal sum at the rate of 5.875 per cent.
per annum payable annually in arrear on 30th March in each year commencing on
30th March, 2000 and together with
53
<PAGE> 57
such premium and other amounts (if any) as may be payable, all subject to and in
accordance with the said Conditions and the provisions of the Trust Deed.
Neither this Bond nor the Coupons appertaining hereto shall be or become valid
or obligatory for any purpose unless and until this Bond has been authenticated
by or on behalf of the Principal Paying Agent.
IN WITNESS whereof this Bond has been executed on behalf of the Issuer.
WESSEX WATER SERVICES FINANCE PLC
By:
------------------------------
Director
By:
------------------------------
Director
Dated as of 30th March, 1999.
Issued in London, England.
CERTIFICATE OF AUTHENTICATION
This Bond is duly authenticated without recourse, warranty or liability.
- ------------------------------
Duly authorised
for and on behalf of
Midland Bank plc
as Principal Paying Agent
54
<PAGE> 58
- FORM OF ORIGINAL COUPON -
On the front:
ANY UNITED STATES PERSON (AS DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE)
WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES
INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND
1287(a) OF THE UNITED STATES INTERNAL REVENUE CODE.
WESSEX WATER SERVICES FINANCE PLC
(Incorporated in England and Wales under the Companies Act 1985
with limited liability under registered number 3704265)
L.300,000,000 5.875 PER CENT. GUARANTEED BONDS DUE 2009
Coupon appertaining to a Bond in the denomination of L.[1][10][100],000
<TABLE>
<S> <C> <C> <C> <C> <C>
This Coupon is separately Coupon for L.[58.75][587.50][5,875.00]
negotiable, payable to bearer, due on 30th March, [2000/1/2/3/4/5/6/7/8/9]
and subject to the
Conditions of the said Bonds.
- -------------------------------------------------------------------------------------------------------------------
[No.] [1,000/10,000/100,000] XS0095820295 [Series] [Serial No.]
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 59
On the back:
PRINCIPAL PAYING AGENT
Midland Bank plc
Mariner House
Pepys Street
London EC3N 4DA
PAYING AGENT
UBS AG
45 Bahnhofstrasse
CH-8098 Zurich
56
<PAGE> 60
PART II
- CONDITIONS OF THE ORIGINAL BONDS -
57
<PAGE> 61
PRINCIPAL PAYING AGENT
Midland Bank plc
Mariner House
Pepys Street
London EC3N 4DA
PAYING AGENT
UBS AG
45 Bahnhofstrasse
CH-8098 Zurich
and/or such other or further Principal Paying Agent and other Paying Agents
and/or specified offices as may from time to time be appointed by the Issuer and
the Guarantor with the approval of the Trustee and notice of which has been
given to the Bondholders.
58
<PAGE> 62
THE THIRD SCHEDULE
REGISTER AND TRANSFER OF REGISTERED SECURITIES
1. The Issuer shall at all times ensure that the Registrar maintains in
London, or at such other place in the United Kingdom as the Trustee may
agree, a register showing the amount of the Registered Securities from
time to time outstanding and the dates of issue and all subsequent
transfers and changes of ownership thereof and the names and addresses
of the holders of the Registered Securities. The Trustee and the
holders of the Registered Securities or any of them and any person
authorised by it or any of them may at all reasonable times during
office hours inspect the register and take copies of or extracts from
it. The register may be closed by the Issuer for such periods at such
times (not exceeding in total 30 days in any one year) as it may think
fit.
2. Each Registered Security shall have an identifying serial number which
shall be entered on the register.
3. The Registered Securities are transferable by execution of the form of
transfer endorsed thereon under the hand of the transferor or, where
the transferor is a corporation, under its common seal or under the
hand of two of its officers duly authorised in writing.
4. The Registered Securities to be transferred must be delivered for
registration to the specified office of the Registrar or any Transfer
Agent with the form of transfer endorsed thereon duly completed and
executed and must be accompanied by such documents, evidence and
information as may be required pursuant to the Conditions and such
other evidence as the Issuer may reasonably require to prove the title
of the transferor or his right to transfer the Registered Securities
and, if the form of transfer is executed by some other person on his
behalf or in the case of the execution of a form of transfer on behalf
of a corporation by its officers, the authority of that person or those
persons to do so.
5. The executors or administrators of a deceased holder of Registered
Securities (not being one of several joint holders) and in the case of
the death of one or more of several joint holders the survivor or
survivors of such joint holders shall be the only person or persons
recognised by the Issuer as having any title to such Registered
Securities.
6. Any person becoming entitled to Registered Securities in consequence of
the death or bankruptcy of the holder of such Registered Securities may
upon producing such evidence that he holds the position in respect of
which he proposes to act under this paragraph or of his title as the
Issuer shall require be registered himself as the holder of such
Registered Securities or, subject to the preceding paragraphs as to
transfer, may transfer such Registered Securities. The Issuer shall be
at liberty to retain any amount payable upon the Registered Securities
to which any person is so entitled until such person shall be
registered as aforesaid or shall duly transfer the Registered
Securities.
7. Unless otherwise requested by him, the holder of Registered Securities
of any series shall be entitled to receive only one Registered Security
in respect of his entire holding of such series.
8. The joint holders of Registered Securities of any series shall be
entitled to one Registered Security only in respect of their joint
holding of such series which shall, except where they
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otherwise direct, be delivered to the joint holder whose name appears
first in the register of the holders of Registered Securities in
respect of such joint holding.
9. Where a holder of Registered Securities has transferred part only of
his holding of any series there shall be delivered to him without
charge a Registered Security in respect of the balance of such holding.
10. The Issuer shall make no charge to the Holders for the registration of
any holding of Registered Securities or any transfer thereof or for the
issue thereof or for the delivery thereof at the specified office of
the Registrar or of any Transfer Agent or by post to the address
specified by the Holder. If any Holder entitled to receive a Registered
Security wishes to have the same delivered to him otherwise than at the
specified office of the Registrar or of any Transfer Agent, such
delivery shall be made, upon his written request to the Registrar or
such Transfer Agent, at his risk and (except where sent by post to the
address specified by the Holder) at his expense.
11. The holder of a Registered Security may (to the fullest extent
permitted by applicable laws) be treated at all times, by all persons
and for all purposes as the absolute owner of such Registered Security
notwithstanding any notice any person may have of the right, title,
interest or claim of any other person thereto. The Issuer, the
Guarantor and the Trustee shall not be bound to see to the execution of
any trust to which any Registered Security may be subject and no notice
of any trust shall be entered on the register. The holder of a
Registered Security will be recognised by the Issuer and the Guarantor
as entitled to his Registered Security free from any equity, set-off or
counterclaim on the part of the Issuer or the Guarantor against the
original or any intermediate holder of such Registered Security.
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THE FOURTH SCHEDULE
PROVISIONS FOR MEETINGS OF HOLDERS
1. (A) As used in this Schedule the following expressions shall
have the following meanings unless the context otherwise
requires:
(i) "VOTING CERTIFICATE" shall mean an English language
certificate issued by a Paying Agent and dated in
which it is stated:
(a) that on the date thereof Bearer Securities
(whether in definitive form or represented
by a Global Security and not being Bearer
Securities in respect of which a block
voting instruction has been issued and is
outstanding in respect of the meeting
specified in such voting certificate or any
adjourned such meeting) were deposited with
such Paying Agent or (to the satisfaction of
such Paying Agent) were held to its order or
under its control and that no such Bearer
Securities will cease to be so deposited or
held until the first to occur of:
(1) the conclusion of the meeting
specified in such certificate or, if
applicable, of any adjourned such
meeting; and
(2) the surrender of the certificate to
the Paying Agent who issued the
same; and
(b) that the bearer thereof is entitled to
attend and vote at such meeting and any
adjourned such meeting in respect of the
Bearer Securities represented by such
certificate;
(ii) "BLOCK VOTING INSTRUCTION" shall mean an English
language document issued by a Paying Agent and dated
in which:
(a) it is certified that Bearer Securities
(whether in definitive form or represented
by a Global Security and not being Bearer
Securities in respect of which a voting
certificate has been issued and is
outstanding in respect of the meeting
specified in such block voting instruction
and any adjourned such meeting) have been
deposited with such Paying Agent or (to the
satisfaction of such Paying Agent) were held
to its order or under its control and that
no such Bearer Securities will cease to be
so deposited or held until the first to
occur of:
(1) the conclusion of the meeting
specified in such document or, if
applicable, of any adjourned such
meeting; and
(2) the surrender to the Paying Agent
not less than 48 hours before the
time for which such meeting or any
adjourned such meeting is convened
of the receipt issued by such Paying
Agent in respect of each such
deposited Bearer Security which is
to be released or (as the case may
require)
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the Bearer Security or Bearer
Securities ceasing with the
agreement of the Paying Agent to be
held to its order or under its
control and the giving of notice by
the Paying Agent to the Issuer in
accordance with paragraph 17 hereof
of the necessary amendment to the
block voting instruction;
(b) it is certified that each holder of such
Bearer Securities has instructed such Paying
Agent that the vote(s) attributable to the
Bearer Security or Bearer Securities so
deposited or held should be cast in a
particular way in relation to the resolution
or resolutions to be put to such meeting or
any adjourned such meeting and that all such
instructions are during the period
commencing 48 hours prior to the time for
which such meeting or any adjourned such
meeting is convened and ending at the
conclusion or adjournment thereof neither
revocable nor capable of amendment;
(c) the aggregate principal amount of the Bearer
Securities so deposited or held are listed
distinguishing with regard to each such
resolution between those in respect of which
instructions have been given as aforesaid
that the votes attributable thereto should
be cast in favour of the resolution and
those in respect of which instructions have
been so given that the votes attributable
thereto should be cast against the
resolution; and
(d) one or more persons named in such document
(each hereinafter called a "PROXY") is or
are authorised and instructed by such Paying
Agent to cast the votes attributable to the
Bearer Securities so listed in accordance
with the instructions referred to in (c)
above as set out in such document;
(iii) "24 HOURS" shall mean a period of 24 hours including
all or part of a day upon which banks are open for
business in both the place where the relevant meeting
is to be held and in each of the places where the
Paying Agents have their specified offices
(disregarding for this purpose the day upon which
such meeting is to be held) and such period shall be
extended by one period or, to the extent necessary,
more periods of 24 hours until there is included as
aforesaid all or part of a day upon which banks are
open for business in all of the places as aforesaid;
and
(iv) "48 HOURS" shall mean a period of 48 hours including
all or part of two days upon which banks are open for
business both in the place where the relevant meeting
is to be held and in each of the places where the
Paying Agents have their specified offices
(disregarding for this purpose the day upon which
such meeting is to be held) and such period shall be
extended by one period or, to the extent necessary,
more periods of 24 hours until there is included as
aforesaid all or part of two days upon which banks
are open for business in all of the places as
aforesaid.
(B) A holder of a Bearer Security (whether in definitive form or
represented by a Global Security) may obtain a voting
certificate in respect of such Bearer Security from a
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Paying Agent or require a Paying Agent to issue a block voting
instruction in respect of such Bearer Security by depositing
such Bearer Security with such Paying Agent or (to the
satisfaction of such Paying Agent) by such Bearer Security
being held to its order or under its control, in each case not
less than 48 hours before the time fixed for the relevant
meeting and on the terms set out in sub-paragraph (A)(i)(a) or
(A)(ii)(a) above (as the case may be), and (in the case of a
block voting instruction) instructing such Paying Agent to the
effect set out in sub-paragraph (A)(ii)(b) above. The holder
of any voting certificate or the proxies named in any block
voting instruction shall for all purposes in connection with
the relevant meeting or adjourned meeting of Holders be deemed
to be the holder of the Bearer Securities to which such voting
certificate or block voting instruction relates and the Paying
Agent with which such Bearer Securities have been deposited or
the person holding the same to the order or under the control
of such Paying Agent shall be deemed for such purposes not to
be the holder of those Bearer Securities.
(C) (i) A holder of Registered Securities (whether in
definitive form or represented by a Global Security)
may, by an instrument in writing in the English
language (a "FORM OF PROXY") signed by the holder or,
in the case of a corporation, executed under its
common seal or signed on its behalf by an attorney or
a duly authorised officer of the corporation and
delivered to the specified office of the Registrar or
any Transfer Agent not less than 48 hours before the
time fixed for the relevant meeting, appoint any
person (a "PROXY") to act on his or its behalf in
connection with any meeting of the Holders and any
adjourned such meeting.
(ii) Any holder of Registered Securities which is a
corporation may by resolution of its directors or
other governing body authorise any person to act as
its representative (a "REPRESENTATIVE") in connection
with any meeting of the Holders and any adjourned
such meeting.
(iii) Any proxy appointed pursuant to sub-paragraph (i)
above or representative appointed pursuant to
sub-paragraph (ii) above shall so long as such
appointment remains in force be deemed, for all
purposes in connection with the relevant meeting or
adjourned meeting of the Holders, to be the holder of
the Registered Securities to which such appointment
relates and the holder of the Registered Securities
shall be deemed for such purposes not to be the
holder.
2. The Issuer, the Guarantor or the Trustee may at any time and the Issuer
shall upon a requisition in writing signed by the holders of not less
than one-tenth in principal amount of the Securities of any series for
the time being outstanding convene a meeting of the Holders and if the
Issuer makes default for a period of seven days in convening such a
meeting the same may be convened by the Trustee or the requisitionists.
Every such meeting shall be held at such time and place as the Trustee
may appoint or approve.
3. At least 21 days' notice (exclusive of the day on which the notice is
given and the day on which the meeting is to be held) specifying the
place, day and hour of meeting shall be given to the Holders prior to
any meeting of the Holders in the manner provided by Condition 14. Such
notice, which shall be in the English language, shall state generally
the nature of the business to be transacted at the meeting thereby
convened but (except for an Extraordinary
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Resolution) it shall not be necessary to specify in such notice the
terms of any resolution to be proposed. Such notice shall include
statements, if applicable, to the effect that (i) Bearer Securities
may, not less than 48 hours before the time fixed for the meeting, be
deposited with Paying Agents or (to their satisfaction) held to their
order or under their control for the purpose of obtaining voting
certificates or appointing proxies and (ii) the holders of Registered
Securities may appoint proxies by executing and delivering a form of
proxy in the English language to the specified office of the Registrar
or any Transfer Agent not less than 48 hours before the time fixed for
the meeting or, in the case of corporations, may appoint
representatives by resolution of their directors or other governing
body. A copy of the notice shall be sent by post to the Trustee (unless
the meeting is convened by the Trustee), to the Issuer (unless the
meeting is convened by the Issuer) and to the Guarantor (unless the
meeting is convened by the Guarantor).
4. A person (who may but need not be a Holder) nominated in writing by the
Trustee shall be entitled to take the chair at the relevant meeting or
adjourned meeting but if no such nomination is made or if at any
meeting or adjourned meeting the person nominated shall not be present
within 15 minutes after the time appointed for holding the meeting or
adjourned meeting the Holders present shall choose one of their number
to be Chairman, failing which the Issuer may appoint a Chairman. The
Chairman of an adjourned meeting need not be the same person as was
Chairman of the meeting from which the adjournment took place.
5. At any such meeting one or more persons present holding Securities in
definitive form or voting certificates or being proxies or
representatives and holding or representing in the aggregate not less
than one-twentieth of the principal amount of the Securities for the
time being outstanding shall (except for the purpose of passing an
Extraordinary Resolution) form a quorum for the transaction of business
and no business (other than the choosing of a Chairman) shall be
transacted at any meeting unless the requisite quorum be present at the
commencement of the relevant business. The quorum at any such meeting
for passing an Extraordinary Resolution shall (subject as provided
below) be one or more persons present holding Securities in definitive
form or voting certificates or being proxies or representatives and
holding or representing in the aggregate a clear majority in principal
amount of the Securities for the time being outstanding PROVIDED THAT
at any meeting the business of which includes any of the following
matters (each of which shall, subject only to Clause 19(B)(ii), only be
capable of being effected after having been approved by Extraordinary
Resolution) namely:
(i) reduction or cancellation of the amount payable or, where
applicable, modification, except where such modification is in
the opinion of the Trustee bound to result in an increase, of
the method of calculating the amount payable or modification
of the date of payment or, where applicable, of the method of
calculating the date of payment in respect of any principal,
premium or interest in respect of the Securities;
(ii) alteration of the currency in which payments under the
Securities and Coupons are to be made;
(iii) alteration of the majority required to pass an Extraordinary
Resolution;
(iv) the sanctioning of any such scheme or proposal as is described
in paragraph 18(I) below; and
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(v) alteration of this proviso or the proviso to paragraph 6
below;
the quorum for passing the requisite Extraordinary Resolution shall be
one or more persons present holding Securities in definitive form or
voting certificates or being proxies or representatives and holding or
representing in the aggregate not less than two-thirds of the principal
amount of the Securities for the time being outstanding.
6. If within 15 minutes (or such longer period not exceeding 30 minutes as
the Chairman may decide) after the time appointed for any such meeting
a quorum is not present for the transaction of any particular business,
then, subject and without prejudice to the transaction of the business
(if any) for which a quorum is present, the meeting shall if convened
upon the requisition of Holders be dissolved. In any other case it
shall stand adjourned to the same day in the next week (or if such day
is a public holiday the next succeeding business day) at the same time
and place (except in the case of a meeting at which an Extraordinary
Resolution is to be proposed in which case it shall stand adjourned for
such period, being not less than 13 clear days nor more than 42 clear
days, and to such place as may be appointed by the Chairman either at
or subsequent to such meeting and approved by the Trustee). If within
15 minutes (or such longer period not exceeding 30 minutes as the
Chairman may decide) after the time appointed for any adjourned meeting
a quorum is not present for the transaction of any particular business,
then, subject and without prejudice to the transaction of the business
(if any) for which a quorum is present, the Chairman may either (with
the approval of the Trustee) dissolve such meeting or adjourn the same
for such period, being not less than 13 clear days (but without any
maximum number of clear days), and to such place as may be appointed by
the Chairman either at or subsequent to such adjourned meeting and
approved by the Trustee, and the provisions of this sentence shall
apply to all further adjourned such meetings. At any adjourned meeting
one or more persons present holding Securities in definitive form or
voting certificates or being proxies or representatives (whatever the
principal amount of the Securities so held or represented by them)
shall (subject as provided below) form a quorum and shall (subject as
provided below) have power to pass any Extraordinary Resolution or
other resolution and to decide upon all matters which could properly
have been dealt with at the meeting from which the adjournment took
place had the requisite quorum been present PROVIDED THAT at any
adjourned meeting the quorum for the transaction of business comprising
any of the matters specified in the proviso to paragraph 5 above shall
be one or more persons present holding Securities in definitive form or
voting certificates or being proxies or representatives and holding or
representing in the aggregate not less than one-third of the principal
amount of the Securities for the time being outstanding.
7. Notice of any adjourned meeting at which an Extraordinary Resolution is
to be submitted shall be given in the same manner as notice of an
original meeting but as if 10 were substituted for 21 in paragraph 3
above and such notice shall state the relevant quorum. Subject as
aforesaid it shall not be necessary to give any notice of an adjourned
meeting.
8. Every question submitted to a meeting shall be decided in the first
instance by a show of hands and in case of equality of votes the
Chairman shall both on a show of hands and on a poll have a casting
vote in addition to the vote or votes (if any) to which he may be
entitled as a Holder or as a holder of a voting certificate or as a
proxy or as a representative.
9. At any meeting unless a poll is (before or on the declaration of the
result of the show of hands) demanded by the Chairman, the Issuer, the
Guarantor, the Trustee or any person
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present holding a Security in definitive form or a voting certificate
or being a proxy or representative (whatever the principal amount of
the Securities so held or represented by him) a declaration by the
Chairman that a resolution has been carried or carried by a particular
majority or lost or not carried by a particular majority shall be
conclusive evidence of the fact without proof of the number or
proportion of the votes recorded in favour of or against such
resolution.
10. Subject to paragraph 12 below, if at any such meeting a poll is so
demanded it shall be taken in such manner and subject as hereinafter
provided either at once or after an adjournment as the Chairman directs
and the result of such poll shall be deemed to be the resolution of the
meeting at which the poll was demanded as at the date of the taking of
the poll. The demand for a poll shall not prevent the continuance of
the meeting for the transaction of any business other than the motion
on which the poll has been demanded.
11. The Chairman may with the consent of (and shall if directed by) any
such meeting adjourn the same from time to time and from place to place
but no business shall be transacted at any adjourned meeting except
business which might lawfully (but for lack of required quorum) have
been transacted at the meeting from which the adjournment took place.
12. Any poll demanded at any such meeting on the election of a Chairman or
on any question of adjournment shall be taken at the meeting without
adjournment.
13. The Trustee and its lawyers and any director, officer or employee of a
corporation being a trustee of these presents and any director or
officer of the Issuer or the Guarantor and the lawyers of either of
them and any other person authorised so to do by the Trustee may attend
and speak at any meeting. Save as aforesaid, but without prejudice to
the proviso to the definition of "outstanding" in Clause 1, no person
shall be entitled to attend and speak nor shall any person be entitled
to vote at any meeting of the Holders or join with others in requesting
the convening of such a meeting or to exercise the rights conferred on
the Holders by Conditions 10 and 11 unless he either produces the
Bearer Security or Bearer Securities in definitive form of which he is
the holder or a voting certificate or is a proxy or a representative or
is the holder of a Registered Security or Registered Securities in
definitive form. No person shall be entitled to vote at any meeting in
respect of Securities held by, for the benefit of, or on behalf of, the
Issuer, the Guarantor, any other Subsidiary of the Guarantor, any
holding company of the Guarantor or any other Subsidiary of such
holding company. Nothing herein shall prevent any of the proxies named
in any block voting instruction or form of proxy or any representative
from being a director, officer or representative of or otherwise
connected with the Issuer or the Guarantor.
14. Subject as provided in paragraph 13 hereof at any meeting:
(A) on a show of hands every person who is present in person and
produces a Bearer Security in definitive form or voting
certificate or is a holder of Registered Securities in
definitive form or is a proxy or representative shall have one
vote; and
(B) on a poll every person who is so present shall have one vote
in respect of each L.1.00 or such other amount as the
Trustee may in its absolute discretion stipulate (or, in the
case of meetings of holders of Securities denominated in
another currency, such amount in such other currency as the
Trustee in its absolute discretion may stipulate) in principal
amount of the Securities so produced in definitive form or
represented by
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the voting certificate so produced or in respect of which he
is a proxy or representative or in respect of which (being in
definitive form) he is the holder.
Without prejudice to the obligations of the proxies named in any block
voting instruction or form of proxy any person entitled to more than
one vote need not use all his votes or cast all the votes to which he
is entitled in the same way.
15. The proxies named in any block voting instruction or form of proxy and
representatives need not be Holders.
16. Each block voting instruction together (if so requested by the Trustee)
with proof satisfactory to the Trustee of its due execution on behalf
of the relevant Paying Agent and each form of proxy shall be deposited
by the relevant Paying Agent or (as the case may be) by the Registrar
or the relevant Transfer Agent at such place as the Trustee shall
approve not less than 24 hours before the time appointed for holding
the meeting or adjourned meeting at which the proxies named in the
block voting instruction or form of proxy propose to vote and in
default the block voting instruction or form of proxy shall not be
treated as valid unless the Chairman of the meeting decides otherwise
before such meeting or adjourned meeting proceeds to business. A
notarially certified copy of each block voting instruction and form of
proxy shall be deposited with the Trustee before the commencement of
the meeting or adjourned meeting but the Trustee shall not thereby be
obliged to investigate or be concerned with the validity of or the
authority of the proxies named in any such block voting instruction or
form of proxy.
17. Any vote given in accordance with the terms of a block voting
instruction or form of proxy shall be valid notwithstanding the
previous revocation or amendment of the block voting instruction or
form of proxy or of any of the Holders' instructions pursuant to which
it was executed provided that no intimation in writing of such
revocation or amendment shall have been received from the relevant
Paying Agent or in the case of a Registered Security from the holder
thereof by the Issuer at its registered office (or such other place as
may have been required or approved by the Trustee for the purpose) by
the time being 24 hours and 48 hours respectively before the time
appointed for holding the meeting or adjourned meeting at which the
block voting instruction or form of proxy is to be used.
18. A meeting of the Holders shall in addition to the powers hereinbefore
given have the following powers exercisable only by Extraordinary
Resolution (subject to the provisions relating to quorum contained in
paragraphs 5 and 6 above) namely:
(A) Power to sanction any compromise or arrangement proposed to be
made between the Issuer, the Guarantor, the Trustee, any
Appointee and the Holders and Couponholders or any of them.
(B) Power to sanction any abrogation, modification, compromise or
arrangement in respect of the rights of the Trustee, any
Appointee, the Holders, the Couponholders, the Issuer or the
Guarantor against any other or others of them or against any
of their property whether such rights shall arise under these
presents or otherwise.
(C) Power to assent to any modification of the provisions of these
presents which shall be proposed by the Issuer, the Guarantor,
the Trustee or any Holder.
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(D) Power to give any authority or sanction which under the
provisions of these presents is required to be given by
Extraordinary Resolution.
(E) Power to appoint any persons (whether Holders or not) as a
committee or committees to represent the interests of the
Holders and to confer upon such committee or committees any
powers or discretions which the Holders could themselves
exercise by Extraordinary Resolution.
(F) Power to approve of a person to be appointed a trustee and
power to remove any trustee or trustees for the time being of
these presents.
(G) Power to discharge or exonerate the Trustee and/or any
Appointee from all liability in respect of any act or omission
for which the Trustee and/or such Appointee may have become
responsible under these presents.
(H) Power to authorise the Trustee and/or any Appointee to concur
in and execute and do all such deeds, instruments, acts and
things as may be necessary to carry out and give effect to any
Extraordinary Resolution.
(I) Power to sanction any scheme or proposal for the exchange or
sale of the Securities for or the conversion of the Securities
into or the cancellation of the Securities in consideration of
shares, stock, bonds, notes, debentures, debenture stock
and/or other obligations and/or securities of the Issuer or
any other company formed or to be formed, or for or into or in
consideration of cash, or partly for or into or in
consideration of such shares, stock, bonds, notes, debentures,
debenture stock and/or other obligations and/or securities as
aforesaid and partly for or into or in consideration of cash
and for the appointment of some person with power on behalf of
the Holders to execute an instrument of transfer of the
Registered Securities held by them in favour of the persons
with or to whom the Securities are to be exchanged or sold
respectively.
19. Any resolution passed at a meeting of the Holders duly convened and
held in accordance with these presents shall be binding upon all the
Holders whether present or not present at such meeting and whether or
not voting and upon all Couponholders and each of them shall be bound
to give effect thereto accordingly and the passing of any such
resolution shall be conclusive evidence that the circumstances justify
the passing thereof. A resolution in writing signed by or on behalf of
all the Holders, which resolution in writing may be contained in one
document or in several documents in or substantially in like form each
signed by or on behalf of one or more of the Holders, shall be as
valid, binding and effective as a resolution duly passed at such a
meeting. Notice of the result of the voting on, or signing of, any
resolution duly considered by the Holders shall be published in
accordance with Condition 14 by the Issuer within 14 days of such
result being known PROVIDED THAT the non-publication of such notice
shall not invalidate such result.
20. The expression "EXTRAORDINARY RESOLUTION" when used in these presents
means (a) a resolution passed at a meeting of the Holders duly convened
and held in accordance with these presents by a majority consisting of
not less than three-fourths of the persons voting thereat upon a show
of hands or if a poll is duly demanded by a majority consisting of not
less than three-fourths of the votes cast on such poll or (b) a
resolution in writing signed by or on behalf of all the Holders.
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21. Minutes of all resolutions and proceedings at every meeting of the
Holders shall be made and entered in books to be from time to time
provided for that purpose by the Issuer and any such Minutes as
aforesaid if purporting to be signed by the Chairman of the meeting at
which such resolutions were passed or proceedings transacted shall be
conclusive evidence of the matters therein contained and until the
contrary is proved every such meeting in respect of the proceedings of
which Minutes have been made shall be deemed to have been duly held and
convened and all resolutions passed or proceedings transacted thereat
to have been duly passed or transacted.
22. (A) If and whenever the Issuer shall have issued and have
outstanding Securities of more than one series the foregoing
provisions of this Schedule shall have effect subject to the
following modifications:
(i) a resolution which in the opinion of the Trustee
affects the Securities of only one series shall be
deemed to have been duly passed if passed at a
separate meeting of the holders of the Securities of
that series;
(ii) a resolution which in the opinion of the Trustee
affects the Securities of more than one series but
does not give rise to a conflict of interest between
the holders of Securities of any of the series so
affected shall be deemed to have been duly passed if
passed at a single meeting of the holders of the
Securities of all the series so affected;
(iii) a resolution which in the opinion of the Trustee
affects the Securities of more than one series and
gives or may give rise to a conflict of interest
between the holders of the Securities of one series
or group of series so affected and the holders of the
Securities of another series or group of series so
affected shall be deemed to have been duly passed
only if passed at separate meetings of the holders of
the Securities of each series or group of series so
affected; and
(iv) to all such meetings all the preceding provisions of
this Schedule shall mutatis mutandis apply as though
references therein to Securities, Holders and holders
were references to the Securities of the series or
group of series in question or to the holders of such
Securities, as the case may be.
(B) If the Issuer shall have issued and have outstanding
Securities which are not denominated in pounds sterling, in
the case of any meeting of holders of Securities of more than
one currency the principal amount of such Securities shall (i)
for the purposes of paragraph 2 above be the equivalent in
pounds sterling at the spot rate of a bank nominated by the
Trustee for the conversion of the relevant currency or
currencies into pounds sterling on the seventh dealing day
prior to the day on which the requisition in writing is
received by the Issuer and (ii) for the purposes of paragraphs
5, 6 and 14 above (whether in respect of the meeting or any
adjourned such meeting or any poll resulting therefrom) be the
equivalent at such spot rate on the seventh dealing day prior
to the day of such meeting. In such circumstances, on any poll
each person present shall have one vote for each L.1.00 (or
such other pounds sterling amount as the Trustee may in its
absolute discretion stipulate) in principal amount of the
Securities (converted as above) which he holds or represents.
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23. Subject to all other provisions of these presents the Trustee may
without the consent of the Issuer, the Guarantor, the Holders or the
Couponholders prescribe such further regulations regarding the
requisitioning and/or the holding of meetings of Holders and attendance
and voting thereat as the Trustee may in its sole discretion think fit.
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EXECUTED as a deed by ) NICK WHEATLEY
WESSEX WATER SERVICES ) ------------------------------------
FINANCE PLC ) Director
acting by NICK WHEATLEY )
and N. G. WOOLLER ) N. G. WOOLLER
------------------------------------
Director/Secretary
EXECUTED as a deed by ) NICK WHEATLEY
WESSEX WATER SERVICES ) ------------------------------------
LIMITED ) Director
acting by NICK WHEATLEY )
and N. G. WOOLLER ) N. G. WOOLLER
------------------------------------
Director/Secretary
EXECUTED as a deed by ) CARL BALDRY
MIDLAND BANK PLC ) ------------------------------------
acting by CARL BALDRY ) Attorney
in the presence of: )
ODD-HARALD WASENDEN
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TERMS AND CONDITIONS OF THE BONDS
The following is the text of the Terms and Conditions of the Bonds which
(subject to amendment) will be endorsed on each Bond in definitive form if
issued:
The L300,000,000 5.875 per cent. Guaranteed Bonds due 2009 (the "Bonds",
which expression shall in these Terms and Conditions, unless the context
otherwise requires, include any further bonds issued pursuant to Condition 17
and forming a single series with the Bonds) are constituted by a trust deed (the
"Trust Deed") dated 30th March, 1999 between Wessex Water Services Finance Plc
(the "Issuer"), Wessex Water Services Limited (the "Guarantor") as guarantor and
Midland Bank plc (the "Trustee", which expression shall include all persons for
the time being the trustee or trustees under the Trust Deed) as trustee for the
holders of the Bonds (the "Bondholders"). The issue of the Bonds was authorised
by resolutions of the board of directors the Issuer passed on 17th February,
1999 and 19th March, 1999 and the guarantee of the Bonds was authorised by a
resolution of the board of directors of the Guarantor passed on 17th February,
1999 and by a resolution of a duly authorised committee of the board of
directors of the Guarantor passed on 19th March, 1999. The Bonds are, on issue,
listed on the London Stock Exchange Limited (the "London Stock Exchange"). The
statements in these Terms and Conditions include summaries of, and are subject
to, the detailed provisions of and definitions in the Trust Deed. Copies of the
Trust Deed and of an agency agreement (the "Paying Agency Agreement") dated 30th
March, 1999 between the Issuer, the Guarantor, Midland Bank plc as principal
paying agent (the "Principal Paying Agent", which expression shall include any
successor in such capacity), the other paying agents named therein (together
with the Principal Paying Agent, the "Paying Agents", which expression shall
include any additional or successor paying agents) and the Trustee are available
for inspection during normal business hours by the Bondholders and the holders
of the interest coupons appertaining to the Bonds (the "Couponholders" and the
"Coupons" respectively) at the principal office for the time being of the
Trustee, being at the date of issue of the Bonds at Mariner House, Pepys Street,
London EC3N 4DA, and at the specified office of each of the Paying Agents. The
Bondholders and the Couponholders are entitled to the benefit of, are bound by,
and are deemed to have notice of, all the provisions of the Trust Deed and the
Paying Agency Agreement.
Unless defined elsewhere in these Terms and Conditions, words and
expressions used in these Terms and Conditions shall have the meanings given to
them in Condition 18.
1. FORM, DENOMINATIONS AND TITLE
The Bonds are in bearer form, serially numbered, in the denominations of
L1,000, L10,000 and L100,000 each with Coupons attached on issue. Title to the
Bonds and the Coupons will pass by delivery. Bonds of one denomination may not
be exchanged for Bonds of another denomination.
The Issuer, the Guarantor, any Paying Agent and the Trustee may (to the
fullest extent permitted by applicable laws) deem and treat the holder of any
Bond or Coupon as the absolute owner for all purposes (whether or not the Bond
or Coupon shall be overdue and notwithstanding any notice of ownership, trust or
any interest in it or writing on the Bond or Coupon or any notice of previous
loss or theft of the Bond or Coupon).
2. GUARANTEE AND STATUS
(a) The Guarantor has unconditionally and irrevocably guaranteed the due
payment of all sums expressed to be payable by the Issuer under the
Trust Deed, the Bonds and the Coupons. Its obligations in that respect
(the "Guarantee") are contained in the Trust Deed.
(b) The Bonds and the Coupons are direct, unconditional and, subject to the
provisions of Condition 3, unsecured obligations of the Issuer and,
subject as aforesaid, rank and will rank pari passu without any
preference among themselves. The payment obligations of the Issuer under
the Bonds and the Coupons and of the Guarantor under the Guarantee
shall, save for such exceptions as may be provided by applicable laws
and subject to Condition 3, at all times
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rank at least equally with all their respective other outstanding
unsecured and unsubordinated obligations, present and future.
3. NEGATIVE PLEDGE
So long as any of the Bonds remains outstanding (as defined in the Trust
Deed) each of the Issuer and the Guarantor will ensure that no Relevant
Indebtedness of the Issuer, the Guarantor, any Principal Subsidiary or any other
person and no guarantee by the Issuer, the Guarantor or any Principal Subsidiary
of any Relevant Indebtedness of any person will be secured by a mortgage,
charge, lien, pledge or other security interest (each a "Security Interest")
upon, or with the respect to, any of the present or future business,
undertaking, assets or revenues (including any uncalled capital) of the Issuer,
the Guarantor or any Principal Subsidiary unless, before or at the same time as
the creation of the Security Interest, the Issuer and/or the Guarantor shall
take any and all action necessary to ensure that:
(a) all amounts payable by the Issuer under the Bonds, the Coupons and the
Trust Deed or, as the case may be, the Guarantor's obligations under the
Trust Deed are secured equally and rateably with the Relevant
Indebtedness or guarantee, as the case may be, by the same Security
Interest, in each case to the satisfaction of the Trustee; or
(b) such other Security Interest or guarantee or other arrangement (whether
or not including the giving of a Security Interest) is provided in
respect of all amounts payable by the Issuer under the Bonds, the
Coupons and the Trust Deed or, as the case may be, the Guarantor's
obligations under the Trust Deed either (i) as the Trustee shall in its
absolute discretion deem not materially less beneficial to the interests
of the Bondholders or (ii) as shall be approved by an Extraordinary
Resolution (as defined in the Trust Deed) of the Bondholders,
save that the Issuer, the Guarantor or any Principal Subsidiary may create or
have outstanding a Security Interest in respect of any Relevant Indebtedness
and/or any guarantees given by the Issuer, the Guarantor or any Principal
Subsidiary in respect of any Relevant Indebtedness of any person (without the
obligation to provide a Security Interest or guarantee or other arrangement in
respect of the Bonds, the Coupons and the Trust Deed as aforesaid) where (1)
such Relevant Indebtedness is of a maximum aggregate amount outstanding at any
time not exceeding the greater of L150,000,000 and 15 per cent. of the Capital
and Reserves or (2) such Security Interest is provided by or in respect of a
company becoming a Subsidiary of the Guarantor after 10th March, 1999 and where
such Security Interest exists at the time that company becomes a Subsidiary of
the Guarantor (provided that such Security Interest was not created in
contemplation of that company becoming a Subsidiary of the Guarantor and the
principal amount secured at the time of that company becoming a Subsidiary of
the Guarantor is not subsequently increased).
4. INTEREST
Each Bond bears interest from (and including) 30th March, 1999 (the
"Closing Date") at the rate of 5.87 per cent. per annum payable annually in
arrear on 30th March in each year (each an "Interest Payment Date"), the first
such payment to be made on 30th March, 2000. All amounts of interest due on each
Bond will be rounded upwards, if necessary, to the nearest penny.
Each Bond will cease to hear interest from its due date for redemption
unless, upon due presentation, payment of the principal in respect of such Bond
is improperly withheld or refused or unless default is otherwise made in respect
of such payment, in which event interest shall continue to accrue as provided in
the Trust Deed.
If interest is required to be calculated for a period of less than one
year, it will be calculated on the basis of a 360 day year consisting of 12
months of 30 days each and, in the case of an incomplete month, the number of
days elapsed.
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5. PAYMENTS
Payments of principal in respect of the Bonds will be made against
presentation and surrender (or, in the case of part payment only, endorsement)
of the Bonds and payments of interest due on an Interest Payment Date will be
made against presentation and surrender (or, in the case of part payment only,
endorsement) of the relevant Coupons, in each case at the specified office of
any of the Paying Agents. Payments of interest due other than on an Interest
Payment Date will be made only upon presentation and surrender of the relevant
Bond as aforesaid.
Payments will be made at the specified office of any Paying Agent, at the
option of the holder, by sterling cheque drawn on, or by transfer to a sterling
account maintained by the payee with, a bank in London subject in all cases to
any applicable fiscal or other laws and regulations, but without prejudice to
the provisions of Condition 8. No commissions or expenses shall be charged to
the Bondholders or the Couponholders in respect of such payments.
Each Bond should be presented for redemption (including exercise of the
Bondholders' option pursuant to Condition 7) together with all relative
unmatured Coupons (being Coupons which would otherwise fall due for payment
after the relevant due date for redemption or, as the case may be, the Put Date
(as defined in Condition 7(c)), failing which amount equal to the aggregate
amount of any missing unmatured Coupons will be deducted from the amount of
principal due for payment (or, in the case of payments not being made in full,
that proportion of the full amount of such missing unmatured Coupons which the
amount so paid bears to the total amount due). Each amount so deducted will be
paid in the manner mentioned above against presentation and surrender (or, in
the case of part payment only, endorsement) of the relative missing Coupon at
any time before the expiry of 10 years after the Relevant Date (as defined in
Condition 8) in respect of the relevant Bond (whether or not such Coupon would
otherwise have become void pursuant to Condition 9) or, if later, five years
after the date on which such Coupon would have become due, but not thereafter.
A holder shall be entitled to present a Bond or Coupon for payment only on
a Presentation Date and shall not be entitled to any further interest or other
payment if a Presentation Date falls after the due date.
The names of the initial Paying Agents and their initial specified offices
are set out at the end of these Terms and Conditions. The Issuer and the
Guarantor reserve the right, subject to the prior written approval of the
Trustee, at any time to vary or terminate the appointment of any Paying Agent
and to appoint additional or other Paying Agents provided that they will at all
times maintain at least two Paying Agents having specified offices in separate
European cities approved by the Trustee, one of which, so long as the Bonds are
listed on the London Stock Exchange, shall be London or such other place as the
London Stock Exchange may approve and one of which shall be in a country outside
the European Community. Notice of any termination or appointment and of any
chances in specified offices will be given to the Bondholders promptly by the
Issuer in accordance with Condition 14.
6. REDEMPTION AND PURCHASE
(a) Unless previously redeemed or purchased and cancelled as provided below,
each Bond will be redeemed by the Issuer at its principal amount on 30th
March, 2009.
(b) If, as a result of any change in, or amendment to, the laws or
regulations of the United Kingdom or any political sub-division of, or
any authority in, or of, the United Kingdom having power to tax, or any
change in the application or official interpretation of such laws or
regulations, which change or amendment becomes effective after 24th
March, 1999, the Issuer (or if the Guarantee were called, the Guarantor)
has or will become obliged to pay additional amounts as provided or
referred to in Condition 8 (and such amendment or change has been
evidenced by the delivery by the Issuer or, as the case may be, the
Guarantor to the Trustee (who shall, in the absence of manifest error,
accept such certificate as sufficient evidence thereof) of a certificate
signed by two directors of the Issuer or, as the case may be, the
Guarantor on behalf of the Issuer or, as the case may be, the Guarantor
stating that such
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amendment or change has occurred (irrespective of whether such amendment
or change is then effective), describing the facts leading thereto and
stating that such obligation cannot be avoided by the Issuer or, as the
case may be, the Guarantor taking reasonable measures available to it,
the Issuer may at its option, having given not less than 30 nor more
than 60 days' notice to the Bondholders in accordance with Condition 14
(which notice shall be irrevocable), redeem all, but not some only, of
the Bonds at their principal amount together with interest accrued to
but excluding the date of redemption, provided that no notice of
redemption shall be given earlier than 90 days before the earliest date
on which the Issuer or, as the case may be, the Guarantor would be
required to pay such additional amounts were a payment in respect of the
Bonds or, as the case may be, the Guarantee then due.
Upon the expiry of any such notice as is referred to above (and subject
as provided above), the Issuer shall be bound to redeem the Bonds at
their principal amount together with interest accrued to but excluding
the date of redemption.
(c) The Issuer may at its option, having given not less than 30 nor more
than 90 days' notice to the Bondholders in accordance with Condition 14
(which notice shall be irrevocable), redeem the Bonds in whole or in
part (but, if in part, in a principal amount of L5,000,000 or integral
multiples thereof) at the price which shall be the higher of the
following:
(i) their principal amount; and
(ii) that price (the "Redemption Price"), expressed as a percentage
rounded to three decimal places (0.0005 being rounded upwards), at
which the Gross Redemption Yield on the Bonds, if they were to be
purchased at such price on the second dealing day prior to the
publication of the notice of redemption, would be equal to the
Gross Redemption Yield on such dealing day of the 5 3/4 per cent.
Treasury Stock 2009 or, if such stock is no longer in issue, of
such other United Kingdom Government Stock as the Trustee, with the
advice of three leading brokers operating in the gilt-edged market
and/or gilt-edged market makers, shall determine to be appropriate
(the "Reference Stock") on the basis of the middle market price of
the Reference Stock prevailing at or about 3:00 p.m. (London time)
on such dealing day, as determined by Barclays Bank PLC (or such
other person(s) as the Trustee may approve). Any reference in these
Terms and Conditions to principal shall, where applicable, be
deemed to be a reference to the Redemption Price. The "Gross
Redemption Yield" on the Bonds and the Reference Stock will be
expressed as a percentage and will be calculated on the basis
indicated by the Joint Index and Classification Committee of the
Institute and Faculty of Actuaries as reported in the Journal of
the Institute of Actuaries, Vol. 105, Part 1, 1978, pate 18 or on
such other basis as the Trustee may approve.
together with interest (if any) accrued to but excluding the date of
redemption.
Notices of redemption will specify the date fixed for redemption, the
applicable redemption price and, in the case of partial redemption, the
serial numbers of the Bonds called for redemption, the serial numbers of
any Bonds previously called for redemption and not presented for payment
and the aggregate principal amount of the Bonds to remain outstanding
after redemption. Upon the expiry of any notice of redemption delivered
in accordance with this Condition 6(c) the Issuer shall be bound to
redeem the Bonds called for redemption in accordance with this Condition
6(c). Any partial redemption of the Bonds shall be on the basis of
selection by drawings (the method of such drawings to be approved by the
Trustee).
(d) The Issuer, the Guarantor or any other Subsidiary of the Guarantor may
at any time purchase Bonds (together with unmatured Coupons appertaining
thereto) in any manner and at any price. If purchases are made by
tender, tenders must be available to all Bondholders alike. The Bonds so
purchased, while held by or on behalf of the Issuer, the Guarantor or
any other Subsidiary of the Guarantor, shall not entitle the holder to
vote at any meetings of the Bondholders and shall
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be deemed not to be outstanding for the purposes of Conditions 7(b), 10,
11 or 15(a) or otherwise as provided in the Trust Deed.
(e) All Bonds which are redeemed by the Issuer will forthwith be cancelled
(together with all relative unmatured Coupons attached to the Bonds or
surrendered with the Bonds) and may not be reissued or resold. Bonds
purchased by the Issuer, the Guarantor or any other Subsidiary of the
Guarantor may be held or reissued or resold or surrendered for
cancellation, unless purchased pursuant to Condition 7, in which case
such Bonds (together with all relative unmatured Coupons attached to the
Bonds or surrendered with the Bonds) will forthwith be cancelled as
aforesaid.
7. REDEMPTION AT THE OPTION OF BONDHOLDERS
(a) If, at any time while any of the Bonds remains outstanding:
(i) the Appointment is terminated except in respect of such part of its
area as is the subject of an appointment or variation by virtue of
section 7(4)(b) or (bb) of the Water Industry Act; or
(ii) the Issuer ceases to be a Subsidiary of the Guarantor; or
(iii) a Restructuring Event occurs and (subject as provided below):
(A) within the Restructuring Period, either:
(i) if at the time such Restructuring Event occurs there are
Rated Securities, a Rating Downgrade in respect of such
Restructuring Event also occurs; or
(ii) if at such time there are no Rated Securities, a Negative
Rating Event in respect of such Restructuring Event also
occurs; and
(B) an Independent Financial Adviser shall have certified in
writing to the Issuer, the Guarantor and the Trustee that such
Restructuring Event is, in its opinion, materially prejudicial
to the interests of the Bondholders (a "Negative
Certification").
then, unless at any time the Issuer shall have given a notice under
Condition 6(b) or under Condition 6(c) in respect of the Bond, the
holder of each Bond will, upon the giving of a Put Event Notice (as
defined below), have the option (the "Put Option") to require the Issuer
to redeem or, at the option of the Issuer, purchase (or procure the
purchase of) that Bond on the Put Date (as defined below), at its
principal amount together with (or, where purchased, together with an
amount equal to) interest accrued to (but excluding) the Put Date.
If, at any time while any of the Bonds remains outstanding, a
Restructuring Event occurs and prior to the commencement of or during
the Restructuring Period an Independent Financial Adviser shall have
certified in writing to the Trustee that such Restructuring Event will
not be or is not, in its opinion, materially prejudicial to the
interests of the Bondholders, the foregoing provisions shall cease to
have any further effect in relation to such Restructuring Event.
A Restructuring Event shall be deemed not to be materially prejudicial
to the interests of the Bondholders if, notwithstanding the occurrence
of a Rating Downgrade or a Negative Rating Event, the rating assigned to
the Rated Securities by any Rating Agency is subsequently increased to,
or, as the case may be, there is assigned to the Bonds or other
unsecured and unsubordinated debt of the Guarantor (or of the Issuer or
any other Subsidiary of the Guarantor which, in any such case, is
guaranteed on an unsecured and unsubordinated basis by the Guarantor)
having an initial maturity of five years or more by any Rating Agency,
an investment grade rating (BBB-/Baa3 or their respective equivalents
for the time being) or better prior to any Negative Certification being
issued.
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Any certification by an Independent Financial Adviser as aforesaid as to
whether or not, in its opinion, any Restructuring Event is materially
prejudicial to the interests of the Bondholders shall, in the absence of
manifest error, be conclusive and binding on the Trustee, the Issuer,
the Guarantor and the Bondholders.
(b) Promptly upon, and in any event within 14 days after, the Issuer or the
Guarantor becoming aware that a Put Event has occurred, the Issuer, or,
as the case may be, the Guarantor shall, and at any time upon the
Trustee becoming similarly so aware the Trustee may, and if so requested
by the holders of at least one-quarter in principal amount of the Bonds
then outstanding shall, give notice (a "Put Event Notice") to the
Bondholders in accordance with Condition 14 specifying the nature of the
Put Event and the procedure for exercising the Put Option.
(c) To exercise the Put Option, the holder of a Bond must deliver such Bond
to the specified office of any Paying Agent, on a day which is a
Business Day in London and in the place of such specified office falling
within the period (the "Put Period") of 45 days after that on which a
Put Event Notice is given, accompanied by a duly completed and signed
notice of exercise in the form (for the time being current) obtainable
from any specified office of any Paying Agent (a "Put Notice") and in
which the holder may specify a bank account complying with the
requirements of Condition 5 to which payment is to be made under this
Condition 7. Each Bond should be delivered together with all Coupons
appertaining thereto maturing after the day (the "Put Date") being the
fifteenth day after the date of expiry of the Put Period, failing which
an amount equal to the aggregate amount of any missing unmatured Coupon
will be deducted from the amount of principal due for payment (or, in
the case of payment not being made in full, that proportion of the full
amount of such missing unmatured Coupons which the amount so paid bears
to the total amount due). Each amount so deducted will be paid in the
manner provided in Condition 5 against presentation and surrender (or,
in the case of part payment only, endorsement) of the relevant missing
Coupon at any time before the expiry of 10 years after the Relevant Date
in respect of the relevant Bond (whether or not the Coupon would
otherwise have become void pursuant to Condition 9) or, if later, five
years after the date on which such Coupon would have become due, but not
thereafter. The Paying Agent to which such Bond and Put Notice are
delivered shall issue to the Bondholder concerned a non-transferable
receipt in respect of the Bond so delivered. Payment in respect of any
Bond so delivered shall be made, if the holder duly specifies an account
with a bank in London in the Put Notice to which payment is to be made,
on the Put Date by transfer to that bank account and, in every other
case, on or after the Put Date in each cash against presentation and
surrender or (as the case may be) endorsement of such receipt at any
specified office of any Paying Agent, subject in any such case as
provided in Condition 5. A Put Notice, once given, shall be irrevocable.
For the purposes of these Terms and Conditions and the Trust Deed,
receipts issued pursuant to this Condition 7 shall be treated as if they
were Bonds. The Issuer shall redeem or, at the option of the Issuer,
purchase (or procure the purchase of) the relevant Bond on the
applicable Put Date unless previously redeemed or purchased.
(d) A Rating Downgrade or a Negative Rating Event or a non-investment grade
rating shall be deemed not to have occurred as a result or in respect of
a Restructuring Event if the Rating Agency making the relevant reduction
in rating or, where applicable, declining to assign a rating of at least
investment grade as provided in this Condition 7 does not announce or
publicly confirm or inform the Trustee in writing at its request that
the reduction or, where applicable, declining to assign a rating of at
least investment grade was the result, in whole or in part, of any event
or circumstance comprised in or arising as a result of the applicable
Restructuring Event.
(e) The Trust Deed provides that the Trustee is under no obligation to
ascertain whether a Restructuring Event, a Negative Rating Event or any
event which could lead to the occurrence of or could constitute a
Restructuring Event has occurred and until it shall have actual
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knowledge or express notice pursuant to the Trust Deed to the contrary
the Trustee may assume that no Restructuring Event, Negative Rating
Event or such other event has occurred. The Trust Deed also provides
that in determining whether or not a Restructuring Event has occurred,
the Trustee may rely solely on an opinion given in a certificate signed
by two directors of the Issuer or the Guarantor.
8. TAXATION
All payments in respect of the Bonds and the Coupons or under the Guarantee
shall be made free and clear of, and without withholding or deduction for, or on
account of, any present or future taxes, duties, assessments or governmental
charges of whatever nature ("Taxes") imposed or levied by or on behalf of the
United Kingdom, or any political sub-division of, or any authority in, or of,
the United Kingdom having power to tax, unless the withholding or deduction of
such Taxes is required by law. In that event, the Issuer or, as the case may be,
the Guarantor will pay such additional amounts as may be necessary in order that
the net amounts received by the Bondholders and Couponholders after the
withholding or deduction shall equal the respective amounts which would have
been receivable in respect of the Bonds or, as the case may be, Coupons in the
absence of the withholding or deduction, except that no additional amounts shall
be payable in relation to any payment in respect of any Bond or Coupon:
(a) to, or to a third party on behalf of, a holder who is liable to such
Taxes in respect of the Bond or Coupon by reason of his having some
connection with the United Kingdom other than the more holding of the
Bond or Coupon; or
(b) presented for payment in the United Kingdom; or
(c) presented for payment more than 30 days after the Relevant Date except
to the extent that a holder would have been entitled to additional
amounts on presenting the same for payment on the last day of such
period of 30 days, assuming, whether or not such is in fact the case,
such last day to be a Presentation Date; or
(d) to, or to a third party on behalf of, a holder who would not be liable
or subject to the withholding or deduction by making a declaration of
beneficial ownership of the Bond or Coupon or of non-residence or other
similar claim for exemption to the relevant tax authority or paying
agent or any other relevant person.
As used herein, "Relevant Date" means the date on which the payment first
becomes due but, if the full amount of the money payable has not been received
in London by the Principal Paying Agent or the Trustee on or before the due
date, it means the date on which, the full amount of the money having been so
received, notice to that effect shall have been duly given to the Bondholders by
the Issuer in accordance with Condition 14.
Any reference in these Terms and Conditions to any amounts in respect of
the Bonds shall be deemed also to refer to any additional amounts which may be
payable under this Condition or under any undertakings given in addition to, or
in substitution for, this Condition pursuant to the Trust Deed.
9. PRESCRIPTION
Claims against the Issuer and the Guarantor in respect of principal and
interest shall be prescribed and become void unless the relevant Bond or Coupon
is presented for payment within periods of 10 years (in the case of principal)
and five years (in the case of interest) from the relevant Date in respect
thereof.
10. EVENTS OF DEFAULT
The Trustee at its discretion may, and if so requested in writing by the
holders of at least one-quarter in principal amount of the Bonds then
outstanding or if so directed by an Extraordinary Resolution of the Bondholders
shall subject to being indemnified to its satisfaction (but, in the case of the
happening of any of the events mentioned in sub-paragraphs (b), (c), (c), (f),
(g) and (h) below, only if the Trustee shall
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have certified in writing to the Issuer that such event is, in its opinion,
materially prejudicial to the interests of the Bondholders), give notice to the
Issuer that the Bonds are, and they shall accordingly thereby forthwith become,
immediately due and repayable at their principal amount together with accrued
interest (as provided in the Trust Deed) if any of the following events (each an
"Event of Default") shall have occurred (unless such Event of Default has been
remedied to the satisfaction of the Trustee):
(a) if default is made for a period of 15 days or more in the payment of any
principal of or interest on the Bonds or in the payment of the purchase
price due in respect of any Bond pursuant to Condition 7; or
(b) if the Issuer or the Guarantor fails to perform or observe any of its
other obligations under the Bonds or the Trust Deed and (except where
the Trustee shall have certified to the Issuer or the Guarantor, as the
case may be, in writing that it considers such failure to be incapable
of remedy in which case no such notice or continuation as is hereinafter
mentioned will be required) such failure continues for the period of 60
days (or such longer period as the Trustee may in its absolute
discretion permit) next following the service by the Trustee of notice
on the Issuer or the Guarantor, as the case may be, specifying such
failure and requiring the same to be remedied; or
(c) if (i) any other indebtedness for borrowed money of the Issuer, the
Guarantor or any Principal Subsidiary becomes due and repayable prior to
its stated maturity by reason of an event of default howsoever described
or (ii) any such indebtedness for borrowed money is not paid when due
(or, as the case may be, within any originally applicable grace period)
or (iii) the Issuer, the Guarantor or any Principal Subsidiary fails to
pay when due (or, as the case may be, within any originally applicable
grace period) any amount payable by it under any present or future
guarantee for, or indemnity in respect of, any indebtedness for borrowed
money of any person or (iv) any security given by the Issuer, the
Guarantor or any Principal Subsidiary for any indebtedness for borrowed
money of any person or for any guarantee or indemnity of indebtedness
for borrowed money of any person becomes enforceable by reason of
default in relation thereto and steps are taken to enforce such
security, save in any such case where there is a bona fide dispute as to
whether the relevant indebtedness for borrowed money in respect of which
any one or more of the events mentioned above in this sub-paragraph (c)
has or have occurred equals or exceeds L15,000,000 (or its equivalent in
other currencies (as determined by the Trustee)) or, if greater, 1.5 per
cent of the Capital and Reserves, and for the purposes of this
sub-paragraph (c), "indebtedness for borrowed money" shall exclude
Project Finance Indebtedness; or
(d) if any order shall be made by any competent court or any resolution
shall be passed for the winding up or dissolution of the Issuer or the
Guarantor, save for the purposes of amalgamation, merger, consolidation,
reorganisation, reconstruction or other similar arrangement on terms
previously approved in writing by the Trustee or by an Extraordinary
Resolution of the Bondholders; or
(e) if (i) any order shall be made by any competent court or any resolution
shall be passed for the winding up or dissolution of a Principal
Subsidiary (other than the Issuer), save for the purposes of
amalgamation, merger, consolidation, reorganisation, reconstruction or
other similar arrangement (A) not involving or arising out of the
insolvency of such Principal Subsidiary and under which all the surplus
assets of such Principal Subsidiary are transferred to the Issuer or the
Guarantor or any other of their respective Subsidiaries (other than an
Excluded Subsidiary) or (B) the terms of which have previously been
approved in writing by the Trustee or by an Extraordinary Resolution of
the Bondholders or (ii) a petition is presented under section 24 of the
Water Industry Act (and is not dismissed within 60 days) or a special
order is made under section 24 or section 25 of the Water Industry Act
in respect of the Guarantor; or
(f) if the Issuer, the Guarantor or any Principal Subsidiary shall cease to
carry on the whole or, in the opinion of the Trustee, substantially the
whole of its business, save in each case for the
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purposes of amalgamation, merger, consolidation, reorganisation,
reconstruction or other similar arrangement (i) in respect of a
Principal Subsidiary, not involving or arising out of the insolvency of
such Principal Subsidiary and under which all or, in the opinion of the
Trustee, substantially all of its assets are transferred to another
member or members of the Group (other than an Excluded Subsidiary) or to
a transferee or transferees which is or are, or immediately upon such
transfer become(s), a Principal Subsidiary or Principal Subsidiaries or
(ii) in respect of a Principal Subsidiary, under which all or
substantially all of its assets are transferred to a third party or
parties (whether associates or not) for full consideration by such
Principal Subsidiary on an arm's length basis or (iii) in respect of the
Issuer, the Guarantor or any Principal Subsidiary, the terms of which
have previously been approved in writing by the Trustee or by an
Extraordinary Resolution of the Bondholders; or
(g) if the Issuer, the Guarantor or any Principal Subsidiary shall suspend
or announce its intention to suspend payment of its debts generally or
shall be declared or adjudicated by a competent court to be unable, or
shall admit in writing its inability, to pay its debts generally (within
the meaning of section 123(1) or (2) of the Insolvency Act 1986) as they
fall due, or shall be adjudicated or found insolvent by a competent
court or shall enter into any composition or other similar arrangement
with its creditors generally under section 1 of the Insolvency Act 1986;
or
(h) if a receiver, administrative receiver, administrator or other similar
official shall be appointed in relation to the Issuer, the Guarantor or
any Principal Subsidiary or in relation to the whole or, in the opinion
of the Trustee, a substantial part of the undertaking or assets of any
of them or a distress, execution or other process shall be levied or
enforced upon or sued out against, or any encumbrance shall take
possession of, the whole or, in the opinion of the Trustee, a
substantial part of the assets of any of them and in any of the
foregoing cases it or he shall not be paid out or discharged within 60
days (or such longer period as the Trustee may in its absolute
discretion permit); or
(i) the Guarantee is not (or is claimed by the Guarantor not to be) in full
force and effect.
For the purposes of sub-paragraph (g) above, section 123(1)(a) of the
Insolvency Act 1986 shall have effect as if for "L750" there was substituted
"L250,000". Neither the Issuer, the Guarantor nor any Principal Subsidiary shall
be deemed to be unable to pay its debts for the purposes of sub-paragraph (g)
above if any such demand as mentioned in section 123(1)(a) of the Insolvency Act
1986 is being contested in good faith by the Issuer, the Guarantor or the
relevant Principal Subsidiary with recourse to all appropriate measures and
procedures or if any such demand is satisfied before the expiration of such
period as may be stated in any notice given by the Trustee under this Condition.
11. ENFORCEMENT
The Trustee may at any time, at its discretion and without notice, take
such proceedings against the Issuer and/or the Guarantor as it may think fit to
enforce the provisions of the Trust Deed, the Bonds and the Coupons but it shall
not be bound to take any proceedings or any other action in relation to the
Trust Deed, the Bonds or the Coupons unless (a) it shall have been so directed
by an Extraordinary Resolution of the Bondholders or so requested in writing by
the holders of at least one-quarter in principal amount of the Bonds then
outstanding, and (b) it shall have been indemnified to its satisfaction. No
Bondholder or Couponholder shall be entitled to proceed directly against the
Issuer or the Guarantor unless the Trustee, having become bound so to proceed,
fails so to do within a reasonable period and such failure shall be continuing.
12. SUBSTITUTION
The Trustee may, without the consent of the Bondholders or Couponholders,
agree with the Issuer to the substitution in place of the Issuer (or of any
previous substitute or substitutes under this Condition) as the principal debtor
under the Bonds, the Coupons and the Trust Deed of the Guarantor or any other
Subsidiary of the Guarantor (other than an Excluded Subsidiary) subject to (a)
the Trustee being
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satisfied that the interests of the Bondholders will not be materially
prejudiced by the substitution and (b) certain other conditions set out in the
Trust Deed being complied with.
13. REPLACEMENT OF BONDS AND COUPONS
If any Bond or Coupon be lost, stolen, mutilated, defaced or destroyed, it
may be replaced at the specified office of the Principal Paying Agent subject to
all applicable laws and stock exchange requirements, upon payment by the
claimant of the expenses incurred in connection with the replacement and on such
terms as to evidence and indemnity as the Issuer and the Guarantor may
reasonably require. Mutilated or defaced Bonds or Coupons must be surrendered
before replacements will be issued.
14. NOTICES
All notices to the Bondholders will be valid if published in a leading
English language daily newspaper published in London (which is expected to be
the Financial Times) or, if in the opinion of the Trustee such publication shall
not be practicable, in an English language daily newspaper with general
circulation in Europe. Any notice shall be deemed to have been given on the date
of publication or, if so published more than once, on the date of the first
publication. If publication as provided above is not practicable, notice will be
given in such other manner, and shall be deemed to have been given on such date,
as the Trustee may approve.
Couponholders will be deemed for all purposes to have notice of the
contents of any notice given to the Bondholders in accordance with this
Condition.
15. MEETINGS OF BONDHOLDERS, MODIFICATION, WAIVER AND AUTHORISATION
(a) The Trust Deed contains provisions for convening meetings of the
Bondholders to consider any matter affecting their interests, including
the modification by Extraordinary Resolution of any of these Terms and
Conditions or any of the provisions of the Trust Deed. The quorum at any
meeting for passing an Extraordinary Resolution will be one or more
persons present holding or representing a clear majority in principal
amount of the Bonds for the time being outstanding, or at any adjourned
such meeting one or more persons present whatever the principal amount
of the Bonds held or represented by him or them, except that at any
meeting, the business of which includes modification of certain of the
provisions of these Terms and Conditions and certain of the provisions
of the Trust Deed, the necessary quorum for passing an Extraordinary
Resolution will be one or more persons present holding or representing
not less than two-thirds, or at any adjourned such meeting not less than
one-third, of the principal amount of the Bonds for the time being
outstanding. An Extraordinary Resolution passed at any meeting of the
Bondholders will be binding on all Bondholders, whether or not they are
present at the meeting, and on all Couponholders.
(b) The Trustee may agree, without the consent of the Bondholders or
Couponholders, to any modification (subject to certain exceptions) of,
or to the waiver or authorisation of any breach or proposed breach of,
any of these Terms and Conditions or any of the provisions of the Trust
Deed which is not, in the opinion of the Trustee, materially prejudicial
to the interests of the Bondholders or to any modification which is of a
formal, minor or technical nature or to correct a manifest error.
(c) In connection with the exercise by it of any of its trusts, powers,
authorities and discretions (including, without limitation, any
modification, waiver, authorisation, determination or substitution), the
Trustee shall have regard to the interests of the Bondholders as a class
but shall not have regard to any interests arising from circumstances
particular to individual Bondholders or Couponholders and, in particular
but without limitation, shall not have regard to the consequences of any
such exercise for individual Bondholders and Couponholders resulting
from their being for any purpose domiciled or resident in, or otherwise
connected with, or subject to the jurisdiction of, any particular
territory or any political sub-division thereof and the
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trustee shall not be entitled to require, nor shall any Bondholder or
Couponholder be entitled to claim, from the Issuer, the Guarantor, the
Trustee or any other person, any indemnification or payment in respect
of any tax consequences of any such exercise upon individual Bondholders
or Couponholders except to the extent already provided for in Condition
8 and/or any undertaking given in addition to, or in substitution for,
Condition 8 pursuant to the Trust Deed.
(d) Any modification, waiver or authorisation referred to in paragraph (b)
above and any substitution under Condition 12 shall be binding on the
Bondholders and the Couponholders and, unless the Trustee agrees
otherwise, any such modification or substitution shall be notified by
the Issuer to the Bondholders as soon as practicable thereafter in
accordance with Condition 14.
(e) The Trustee may, without the consent of the Bondholders or
Couponholders, on or after the date (if any) on which the United Kingdom
becomes one of the countries participating in the third stage of
European economic and monetary union pursuant to the Treaty establishing
the European Community as amended by the Treaty on European Union or
otherwise participates in European economic and monetary union in a
manner with similar effect to such third stage, agree to such
modifications to the Bonds, the Coupons and the Trust Deed in order to
facilitate payment of interest in euro and redemption at the euro
equivalent of the sterling principal amount of the Bonds and associated
reconventioning, renominalisation and related matters as may be proposed
by the Issuer (and confirmed by an independent financial institution
approved by the Trustee to be in conformity with the then applicable
market conventions).
16. INDEMNIFICATION OF THE TRUSTEE
The Trust Deed contains provisions for the indemnification of the Trustee
and for its relief from responsibility, including provisions relieving it from
taking action unless indemnified to its satisfaction. The Trustee is entitled to
enter into business transactions with the Issuer or the Guarantor and any entity
related to the Issuer or the Guarantor without accounting for any profit. The
Trustee may relay without liability to Bondholders on a report of the Auditors,
whether or not addressed to it and whether or not the Auditors have any
liability to it in respect of the same.
17. FURTHER ISSUES
The Issuer is at liberty from time to time without the consent of the
Bondholders or Couponholders to create and issue further bonds or notes either
(a) ranking pari passu in all respects (or in all respects save for the first
payment of interest thereon) and so that the same shall be consolidated and form
a single series with the outstanding bonds or notes of any series (including the
Bonds) constituted by the Trust Deed or any deed supplemental to it or (b) upon
such terms as to ranking, interest, conversion, redemption and otherwise as the
Issuer may determine at the time of the issue. Any further bonds or notes which
are to form a single series with the outstanding bonds or notes of any series
(including the Bonds) constituted by the Trust Deed or any deed supplemental to
it shall, and any other further bonds or notes may (with the consent of the
Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust
Deed contains provisions for convening a single meeting of the Bondholders and
the holders of bonds or notes of other series in certain circumstances where the
Trustee so decides.
18. DEFINITIONS
For the purposes of these Terms and Conditions:
"Appointment" means the Instrument of Appointment dated 1st September, 1989
under section 11 of the Water Act 1989 (now section 6 of the Water Industry Act)
as in effect on 24th March, 1999 appointing the Guarantor as a water undertaker
and sewerage undertaker for the areas described therein.
"Auditors" means the auditors for the time being of the Issuer or, as the
case may be, the Guarantor or, in the event of their being unable or unwilling
promptly to carry out any action requested of them
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pursuant to the provisions of these Terms and Conditions or the Trust Deed, such
other firm of accountants as may be nominated or approved by the Trustee for the
purpose.
"Business Day" means, in relation to any place, a day on which commercial
banks and foreign exchange markets generally settle payments in that place.
"Capital and Reserves" means the aggregate of:
(i) the amount paid up or credited as paid up on the share capital of the
Guarantor; and
(ii) the total of the capital, revaluation and revenue reserves of the Group,
including any share premium account, capital redemption reserve and
credit balance on the profit and loss account, but excluding sums set
aside for taxation and amounts attributable to minority interests and
deducting any debit balance on the profit and loss account,
all as shown in the then latest audited consolidated balance sheet and
profit and loss account of the Group prepared in accordance with generally
accepted accounting principles in the United Kingdom, but adjusted as may be
necessary in respect of any variation in the paid up share capital or share
premium account of the Group since the date of that balance sheet and further
adjusted as may be necessary to reflect any change since the date of that
balance sheet in the Subsidiary Undertakings comprising the Group and/or as the
Auditors may consider appropriate. A report by the Auditors as to the amount of
the Capital and Reserves at any given time shall, in the absence of manifest
error, be conclusive and binding on all parties whether or not addressed to each
such party.
"Excluded Subsidiary" means any Subsidiary of the Guarantor:
(i) which is a single purpose company whose principal assets and business
are constituted by the ownership, acquisition, development and/or
operation of an asset;
(ii) none of whose indebtedness for borrowed money in respect of the
financing of such ownership, acquisition, development and/or operation
of such asset is subject to any recourse whatsoever to any member of the
Group (other than such Subsidiary or another Excluded Subsidiary) in
respect of the repayment thereof, except as expressly referred to in
sub-paragraph (ii) of the definition of Project Finance Indebtedness;
and
(iii)which has been designated as such by the Guarantor by written notice to
the Trustee, provided that the Guarantor may give written notice to the
Trustee at any time that any Excluded subsidiary is no longer an
Excluded Subsidiary, whereupon it shall cease to be an Excluded
Subsidiary.
"euro" or the symbol "E$" refer to the currency introduced at the start of
the third stage of European economic and monetary union pursuant to the Treaty.
"Group" means the Guarantor and its Subsidiary Undertakings and "member of
the Group" shall be construed accordingly.
"indebtedness for borrowed money" means any present or future indebtedness
(whether being principal, premium, interest or other amounts) for or in respect
of (i) money borrowed, (ii) liabilities under or in respect of any acceptance or
acceptance credit, or (iii) any notes, bonds, debentures, debenture stock, loan
stock or other securities offered, issued or distributed whether by way of
public offer, private placing, acquisition consideration or otherwise and
whether issued for cash or in whole or in part for a consideration other than
cash.
"Independent Financial Adviser" means an independent financial adviser
appointed by the Issuer and approved by the Trustee (such approval not to be
unreasonably withheld or delayed) or, if the Issuer shall not have appointed
such an adviser within 21 days after becoming aware of the occurrence of a
Restructuring Event and the Trustee is indemnified to its satisfaction against
the costs of such adviser, appointed by the Trustee following consultation with
the Issuer.
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"K" has the meaning provided in the Appointment.
A "Negative Rating Event" shall be deemed to have occurred if (i) the
Issuer does not, either prior to or not later than 14 days after the date of a
Negative Certification in respect of the relevant Restructuring Event, seek, and
thereupon use all reasonable endeavours to obtain, a rating of the Bonds or any
other unsecured and unsubordinated debt of the Guarantor (or of the Issuer or of
any Subsidiary of the Guarantor which, in any such case, is guaranteed on an
unsecured and unsubordinated basis by the Guarantor) having an initial maturity
of five years or more from a Rating Agency or (ii) if it does so seek and use
such endeavours, it is unable, as a result of such Restructuring Event, to
obtain such a rating of at least investment grade (BBB-/Baa3, or their
respective equivalents for the time being).
"P(o)" means the proposed initial reduction in expected average household
bills in 2000-01 referred to as "P(o)" in "Prospects for Prices" published by
OFWAT on 29th October, 1998.
"Presentation Date" means a day which:
(i) is or falls after the relevant due date, but, if the due date is not or
was not a Business Day in London, is or falls after the next following
such Business Day; and
(ii) is a Business Day in the place of the specified office of the Paying
Agent at which the Bond or Coupon is presented for payment and, in the
case of payment by transfer to a sterling account with a bank in London
as referred to in these Terms and Conditions, in London.
"Principal Subsidiary" at any time shall mean any Subsidiary of the
Guarantor (not being an Excluded Subsidiary or any other Subsidiary of the
Guarantor the whole of whose indebtedness for borrowed money (other than
indebtedness for borrowed money owed to another member of the Group) is Project
Finance Indebtedness):
(i) whose (a) profits on ordinary activities before tax or (b) net assets
(in each case consolidated in respect of a Subsidiary which itself has
Subsidiaries and in each case attributable to the Guarantor) represent
15 per cent or more of the consolidated profits on ordinary activities
before tax of the Group or consolidated net assets of the Group
respectively (in each case attributable to the Guarantor), in each case
as calculated by reference to the then latest audited consolidated or,
if none, unconsolidated financial statements of such Subsidiary and the
then latest audited consolidated financial statements of the Group; or
(ii) to which is transferred all or substantially all of the business,
undertaking and assets of a Subsidiary of the Guarantor which
immediately prior to such transfer is a Principal Subsidiary, whereupon
the transferor Subsidiary shall immediately cease to be a Principal
Subsidiary (and the transferee Subsidiary shall cease to be a Principal
Subsidiary under the provisions of this sub-paragraph (ii) (but without
prejudice to the provisions of sub-paragraph (i) above), upon
publication of its next audited financial statements).
A report by the Auditors that, in their opinion, a Subsidiary of the
Guarantor is or is not or was or was not at any particular time or throughout
any specified period a Principal Subsidiary shall, in the absence of manifest
error, be conclusive and binding on the Issuer, the Guarantor, the Trustee, the
Bondholders and the Couponholders whether or not addressed to each such party.
"Project Finance Indebtedness" means any present or future indebtedness
incurred to finance the ownership, acquisition, development and/or operation of
an asset, whether or not an asset of a member of the Group:
(i) which is incurred by an Excluded Subsidiary; or
(ii) in respect of which the person or persons to whom any such indebtedness
is or may be owed by the relevant borrower (whether or not a member of
the Group) has or have no recourse whatsoever to any member of the Group
(other than an Excluded Subsidiary) for the repayment thereof other
than:
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(A) recourse for amounts limited to the cash flow or net cash flow
(other than historic cash flow or historic net cash flow) from such
asset; and/or
(B) recourse for the purpose only of enabling amounts to be claimed in
respect of such indebtedness in an enforcement of any encumbrance
given by such borrower over such asset or the income, cash flow or
other proceeds deriving therefrom (or given by any shareholder or
the like in the borrower over its shares or the like in the capital
of the borrower) to secure such indebtedness, provided that (aa)
the extent of such recourse is limited solely to the amount of any
recoveries made on any such enforcement, and (bb) such person or
persons is/are not entitled, by virtue of any right or claim
arising out of or in connection with such indebtedness, to commence
proceedings for the winding up or dissolution of any member of the
Group (other than an Excluded Subsidiary) or to appoint or procure
the appointment of any receiver, trustee or similar person or
officer in respect of any member of the Group (other than an
Excluded Subsidiary) or any of its assets (save for the assets the
subject of such encumbrance); and/or
(C) recourse under any form of assurance, undertaking or support, which
recourse is limited to a claim for damages (other than liquidated
damages and damages required to be calculated in a specified way)
for breach of an obligation (not being a payment obligation or an
obligation to procure payment by another or an indemnity in respect
thereof or any obligation to comply or to procure compliance by
another with any financial ratios or other tests of financial
condition) by any member of the Group (other than an Excluded
Subsidiary).
A "Put Event" occurs:
(i) if the Appointment is terminated except in respect of such part of its
area as is the subject of an appointment or variation by virtue of
section 7(4)(b) or (bb) of the Water Industry Act; or
(ii) in the case of the occurrence of a Restructuring Event, on the date of
the last to occur of (aa) such Restructuring Event, (bb) either a Rating
Downgrade or, as the case may be, a Negative Rating Event and (cc) the
relevant Negative Certification.
"Rated Securities" means the Bonds, if at any time and for so long as they
have a rating from a Rating Agency, and otherwise any other unsecured and
unsubordinated debt of the Guarantor (or of the Issuer or any Subsidiary of the
Guarantor which, in any such case, is guaranteed on an unsecured and
unsubordinated basis by the Guarantor) having an initial maturity of five years
or more which is rated by a Rating Agency.
"Rating Agency" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc or any of its Subsidiaries and their successors or
Moody's Investors Service, Inc or any of its Subsidiaries and their successors
or any rating agency substituted for either of them (or any permitted substitute
of them) by the Issuer from time to time with the prior written approval of the
Trustee (such approval not to be unreasonably withheld or delayed).
A "Rating Downgrade" shall be deemed to have occurred in respect of a
Restructuring Event if the then current rating assigned to the Rated Securities
by any Rating Agency (whether provided by a Rating Agency at the invitation of
the Issuer or by its own volition) is withhdrawn or reduced from an investment
grade rating (BBB-/Baa3, or their respective equivalents for the time being, or
better) to a non-investment grade rating (BB+/Ba1, or their respective
equivalents for the time being, or worse) or, if the Rating Agency shall then
have already rated the Rated Securities below investment grade (as described
above), the rating is lowered one full rating category (from BB+/Ba1 to BB/Ba2
or such similar lowering).
"Relevant Indebtedness" means any present or future indebtedness (whether
being principal, premium, interest or other amounts) in the form of or
represented by notes, bonds, debentures, debenture stock, loan stock or other
securities, whether issued for cash or in whole or in part for a consideration
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other than cash, and which (with the agreement of the person issuing the same)
are quoted, listed or ordinarily dealt in on any stock exchange or recognised
over-the-counter or other securities market other than such notes, bonds,
debentures, debenture stock, loan stock or other securities which, on issue, had
a maturity of not less than 30 years, but shall in any event not include Project
Finance Indebtedness.
"Restructuring Event" means the occurrence of one or both of the following
events:
(i) any material rights, benefits or obligations of the Guarantor as a water
undertaker or sewerage undertaker arising under the Appointment or the
Water Industry Act as in force on 24th March, 1999 or any material terms
of the Appointment are modified (whether or not with the consent of the
Guarantor and whether pursuant to the Water Industry Act or otherwise)
unless two directors of the Guarantor have certified in good faith to
the Trustee that such modified rights, benefits, obligations or terms
are not materially less favourable to the business of the Group and to
the business of the Guarantor (provided that (a) an adjustment to K or
(b) P shall not fall within this paragraph (i)); or
(ii) any legislation (whether primary or subordinate) is enacted removing,
reducing or qualifying the duties or powers of the Secretary of State
for the Environment (or any successor) and/or the Director General of
Water Services (or any successor) (including, without limitation, any
such legislation removing, reducing or qualifying such duties or powers
under or pursuant to sections 2, 9 or 24 of the Water Industry Act) in
each case as compared to those in force on 24th March, 1999 unless two
directors of the Guarantor have certified in good faith to the Trustee
that such removal, reduction or qualification is unlikely to have a
material adverse effect on the financial condition of the Group and the
Guarantor.
"Restructuring Period" means:
(i) if at any time a Restructuring Event occurs there are Rated Securities,
the period of 60 days starting from and including the day on which that
Restructuring Event occurs; or
(ii) if at the time a Restructuring Event occurs there are no Rated
Securities, the period starting from and including the day on which that
Restructuring Event occurs and ending on the day 60 days following the
later of (aa) the date on which the Issuer or the Guarantor shall seek
to obtain a rating as contemplated in the definition of Negative Rating
Event prior to the expiry of the 14 days referred to in that definition
and (bb) the date on which a Negative Certification shall have been
given to the Issuer, the Guarantor and the Trustee in respect of that
Restructuring Event.
"Subsidiary" means a subsidiary within the meaning of section 736 of the
Companies Act 1985.
"Subsidiary Undertaking" shall have the meaning given to it by section 258
of the Companies Act 1985) whose accounts are not included in the then latest
published audited consolidated accounts of the Guarantor or (in the case of an
undertaking which has first become a subsidiary undertaking of a member of the
Group since the date as at which any such audited accounts were prepared) would
not have been so included or consolidated if it had become so on or before that
date).
"Treaty" means the Treaty establishing the European Community as amended by
the Treaty on European Union.
"Water Industry Act" means the Water Industry Act 1991 as amended or
re-enacted from time to time and all subordinate legislation made pursuant
thereto.
Any reference to an obligation being guaranteed shall include a reference
to an indemnity being given in respect of the obligation.
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18. Governing Law
The Trust Deed, the Bonds and the Coupons are governed by, and will be construed
in accordance with, English law.
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EXHIBIT 10.16
CREDIT AGREEMENT
CREDIT AGREEMENT (this "Agreement") dated as of May 1, 1999 between
Enron Corp., an Oregon corporation ("Lender"), and Azurix Corp., a Delaware
corporation ("Borrower"). The parties hereby agree as follows:
1. Advances. Subject to the terms and conditions of this Agreement,
Lender will make advances ("Advances"), including Advances for the payment of
interest under this Agreement, from its available funds to Borrower from time to
time during the period from the date of this Agreement up to but not including
the Termination Date, as defined in Section 11, in an aggregate principal amount
up to but not exceeding the sum of One Hundred Eighty Million Dollars
(U.S.$180,000,000) at any one time outstanding. The aggregate principal amount
outstanding is further limited by the provisions in Section 2. Within the limits
of this Agreement, Borrower may borrow, prepay pursuant to Section 5, and
reborrow under this Section 1. The parties hereto agree that any Advances by the
Lender will be made in reliance on the agreements of the Lender and the Borrower
contained herein and on the terms and conditions and in the manner provided
herein.
2. Limits on the Principal Amount Outstanding. The principal amount
outstanding under this Agreement will be further limited to no more than:
a) U.S.$ 60,000,000 at any time during the calendar year 1999.
b) U.S.$120,000,000 at any time during the calendar year 2000.
c) U.S.$180,000,000 at any time during the calendar year 2001.
In addition, no additional amounts shall be advanced after, and all principal
and interest outstanding under the Note, all interest thereon and all other
amounts payable under this Agreement shall be due and payable 90 days after, the
first date on which both of the following occur:
i) Lender and affiliates of Lender do not individually or
collectively, directly or indirectly, own or have the power to
vote at least one-third of the capital stock of Borrower having
ordinary voting power for the election of directors, and
ii) Fewer than one-third of the directors of Borrower are persons who
are employees, officers or directors of Lender or of any
affiliate of Lender.
3. Interest. Interest shall accrue on a daily basis on the
outstanding and unpaid principal amount of the Advances at a rate per annum
equal to the Fed Funds Rate (as defined below) plus 1.50%. For the purposes of
this Agreement, the "Fed Funds Rate" shall be defined as the rate published in
Federal Reserve Statistical Release H.15 as the Federal funds (effective) rate
for that day. In the event that the Fed Funds Rate is not available for a
particular day, employees of Lender's Treasury group shall use the last
published Fed Funds Rate as the Fed Funds Rate for that day.
<PAGE> 2
Interest shall be calculated on the basis of a year of 360 days for
the actual number of days elapsed. Interest shall be paid at the offices of
Lender at 1400 Smith Street, Houston, Texas 77002, or each other addresses that
the Lender may specify by notice to the Borrower, in funds immediately available
to Lender on the first Business Day of each quarter.
4. Priority of Indebtedness/Note. The indebtedness of Borrower owing
to Lender resulting from Advances made under the provisions of this Credit
Agreement and the Note shall not be subordinate or subordinated to any other
borrowings made by Borrower. All Advances made by Lender under this Agreement
shall be evidenced by, and repaid with interest in accordance with, a single
promissory note of Borrower in substantially the form annexed hereto as Exhibit
A (the "Note"), with appropriate insertions therein. The Note shall be used to
evidence each borrowing, repayment and reborrowing hereunder. The Note shall (i)
be dated the date of the first Advance evidenced thereby and (ii) be stated to
mature as to principal on the Termination Date. Lender is hereby authorized by
Borrower to endorse on the schedule attached to the Note the amount of each
Advance and of each payment of principal received by Lender on account of the
Advances, which endorsement shall, in the absence of manifest error, be
conclusive as to the outstanding balance of the Advances made by Lender,
provided, however, that the failure to make such notation with respect to any
Advance or payment shall not limit or otherwise affect the obligations of
Borrower under this Agreement or the Note.
5. Prepayments. Borrower may prepay the Note in whole or in part on
any Business Day.
6. Use of Proceeds. The proceeds of the Advances hereunder shall be
used by Borrower to pay for general, administrative and operating expenses.
7. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Borrower shall breach any of the material provisions of
any written Agreement with Lender, including but not limited to this
Credit Agreement; or
(b) The Borrower 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 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
shall take any corporate action to authorize any of the actions set
forth above in this subsection (b); or
2
<PAGE> 3
(c) Any event or events having a material adverse effect on (i)
the ability of the Borrower to meet its obligations under this
Agreement or (ii) the business, operations, assets or financial
condition of the Borrower.
then, and in any such event, Lender may by notice to the Borrower, declare the
Note, all interest thereon and all other amounts payable under this Agreement to
be forthwith due and payable, whereupon the Note, 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 Borrower under the Bankruptcy Code, the Note, 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.
8. Notices, Etc. All notices and other communications provided for
under this Agreement shall be in writing (including telegraphic communication)
and telecopied, telegraphed, or delivered, if to Lender, at its address at 1400
Smith Street, Houston, Texas 77002, Attention: Senior Vice President, Finance
and Treasurer, telecopy number (713) 646-5930 and if to Borrower, at its address
at 333 Clay Street, Houston, Texas 77002, Attention: Vice Chairman and Chief
Financial Officer, telecopy number (713) 646-6367; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other party complying as to delivery with the terms of this Section 8.
9. No Waiver; Remedies. No failure on the part of Lender to
exercise, and no delay in exercising, any right, power, or remedy under this
Agreement or the Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement or the Note preclude any
other or further exercise thereof or the exercise of any other right. The
remedies provided in this Agreement or the Note are cumulative and not exclusive
of any remedies provided by law.
10. Governing Law. This instrument shall be construed under the laws
of the State of Texas, and the obligation of Borrower to make payments of
interest as provided for herein is expressly limited so that the aggregate
amount of all the interest paid by Borrower on the Note shall never exceed the
highest contract rate allowed by the laws of the State of Texas as construed by
the highest court or courts having jurisdiction thereof (the "Highest Lawful
Rate"); and if, at the time any such payment of interest is due or is paid, the
payment of such sum would make the total interest exceed interest calculated at
the Highest Lawful Rate, the amount so payable by Borrower shall be reduced to
an amount which does not exceed the Highest Lawful Rate; and, similarly, if the
maturity of the Note is accelerated for any reason before the due date stated,
earned interest may never include more than interest calculated at the Highest
Lawful Rate, it being the intention of the parties to conform strictly to the
laws of the State of Texas now in force, and in the event it should be held that
the interest payable under the Note or otherwise is in excess of interest
calculated at the Highest Lawful Rate, the interest payable hereunder (whether
included in the face amount or otherwise) shall be reduced to the Highest Lawful
Rate, and any amount in excess of interest
3
<PAGE> 4
calculated at the Highest Lawful Rate shall be cancelled automatically and shall
be either refunded (if theretofore paid) or credited to the principal amount due
on the Note.
11. Termination Date. The "Termination Date" means December 15, 2001.
This Agreement may be terminated early upon mutual consent of the Lender and
Borrower; provided, however, that the provisions of this Agreement shall survive
as to any Advances maturing after the effective termination date. Upon
cancellation of the last such Advance, this Agreement shall be of no further
force and effect.
12. Captions. The captions of the various sections of this Agreement
have been inserted only for the purposes of convenience, and shall not be deemed
in any manner to modify, explain, enlarge or restrict any provisions of this
Agreement.
13. Business Day. As used herein, Business Day means any day other
than a Saturday, a Sunday or a state or federal bank holiday in Houston, Texas
or New York, New York.
14. Entire Agreement. THIS AGREEMENT AND THE NOTE TOGETHER CONSTITUTE
A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AZURIX CORP.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
ENRON CORP.
By:
-----------------------------------
Jeffery McMahon
Senior Vice President, Finance and
Treasurer
4
<PAGE> 5
EXHIBIT A
PROMISSORY NOTE
Houston, Texas
$180,000,000 May 1, 1999
FOR VALUE RECEIVED, the undersigned, Azurix Corp., a Delaware
corporation ("Borrower"), DOES HEREBY PROMISE to pay to the order of Enron Corp.
("Lender") at its office at 1400 Smith Street, Houston, Texas 77002, in lawful
money of the United States and in funds immediately available to Lender, the
principal amount of One Hundred Eighty Million and No/100 Dollars
(U.S.$180,000,000) or the aggregate unpaid principal amount of all Advances (the
"Advances") made to Borrower by Lender pursuant to Section 1 of the Agreement
hereinafter referred to, whichever is less, on or before December 15, 2001.
Borrower further promises to pay interest in like money, at said office, from
the date hereof on the unpaid principal amount hereof until such principal
amount shall become due and payable, at the rates per annum and on the dates
provided in Sections 2 and 3 of the Agreement, on or before December 15, 2001.
Each Advance made by the Lender to the Borrower pursuant to the
Agreement, and all payments made on account of principal thereof, shall be
recorded by the Lender and endorsed on the Schedule attached hereto which is
part of this Promissory Note or in such other records as the Lender may
designate.
This Promissory Note is the Note described in and issued pursuant to
the Agreement dated as of May 1, 1999, between Borrower and Lender (the
"Agreement"), and is entitled to the benefits thereof. The Agreement, among
other things, (i) provides for the making of Advances by the Lender to the
Borrower from time to time in an aggregate amount not to exceed the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
each such Advance being evidenced by this Promissory Note, and (ii) contains
provisions for prepayments on account of the principal of this Promissory Note
upon the terms and conditions specified in the Agreement. The indebtedness of
Borrower owing to Lender resulting from Advances made under the provisions of
the Agreement and this Note shall be senior to and not subordinate to any other
borrowings made by Borrower. Terms used herein which are defined in the
Agreement shall have their defined meanings when used herein.
This Note shall be governed by and construed in accordance with the
laws of the State of Texas. If this Note shall be collected by any legal
proceedings or shall be placed in the hands of an attorney for collection after
maturity, the undersigned promises to pay to the owner and holder hereof all
reasonable attorney's fees and costs of collection.
THIS AGREEMENT AND THE CREDIT AGREEMENT TOGETHER CONSTITUTE A WRITTEN LOAN
AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF
<PAGE> 6
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
AZURIX CORP.
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
2
<PAGE> 7
SCHEDULE TO PROMISSORY NOTE
This Grid is attached to and made part of the Promissory Note dated May
1, 1999 executed by Azurix Corp. to Enron Corp., and records advances, payments
and other information required therein.
<TABLE>
<CAPTION>
UNPAID NAME OF
AMOUNT OF PRINCIPAL PERSON
AMOUNT OF PRINCIPAL BALANCE OF MAKING
DATE ADVANCE REPAID NOTE NOTATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBT 10.17
DATED 19 AUGUST 1998
WESSEX WATER PLC (1)
A.F. CROFTS ESQ. & ORS. (2)
------------------------------------
DEFINITIVE TRUST DEED
AND RULES
------------------------------------
WESSEX WATER EXECUTIVE PENSION SCHEME
<PAGE> 2
INDEX
CLAUSE NO. DESCRIPTION PAGE NO
PART I: ESTABLISHMENT OF SCHEME AND FUND.......................................2
1.00 OPERATION OF DEFINITIVE DEED.................................2
1.01 Alteration..............................................2
1.02 Previous Acts...........................................2
1.03 Previous Exits..........................................2
1.04 Alterations Conditional.................................3
1.05 Changes in Principal Employer...........................3
2.00 INTERPRETATION...............................................3
3.00 OBJECT OF SCHEME.............................................3
3.01 Object of Scheme........................................3
4.00 CONSTITUTION OF SCHEME.......................................4
4.01 Governing documents.....................................4
4.02 Scheme to be administered by the Trustees...............4
5.00 CONSTITUTION OF FUND.........................................4
5.01 Fund to be vested in the Trustees.......................4
5.02 Voluntary Contributions.................................4
5.03 Gifts donations and bequests............................4
5.04 Surplus.................................................4
PART II: THE TRUSTEES..........................................................6
6.00 THE TRUSTEES: APPOINTMENT, REMOVAL
AND REMUNERATION.............................................6
6.01 Power of appointment and removal
vested in Principal Employer............................6
6.02 Power of appointment and removal vested
in Trustees in certain circumstances....................6
6.03 Member Trustees.........................................6
6.04 Resignation of a trustee................................6
6.05 Remuneration............................................7
6.06 Professional charges....................................7
6.07 Trustee may retain benefits.............................7
7.00 THE TRUSTEES: POWERS AND DUTIES..............................7
7.01 General powers for carrying out
the purposes of the Scheme..............................7
7.02 Administrative powers...................................8
7.03 Investment powers.......................................9
7.04 Power to effect insurance policies.....................11
7.05 Borrowing powers.......................................12
7.06 Power to insure Fund...................................12
7.07 Power to effect indemnity insurance....................12
7.08 Fund may be held in name of nominee....................13
8.00 THE TRUSTEES: MANNER IN WHICH THEY SHALL
EXERCISE THEIR POWERS AND DUTIES
AND DISCRETIONS.............................................13
8.01 Meetings; decisions may also be taken
without meetings.......................................13
i
<PAGE> 3
9.00 TRUSTEES' DUTY TO KEEP RECORDS.............................15
9.01 Records of benefit entitlement........................15
9.02 Annual report.........................................15
9.03 Audit of accounts.....................................15
9.04 General Disclosure....................................16
10.00 TRUSTEES' DUTY TO OBTAIN ACTUARIAL VALUATION...............16
10.01 Mandatory valuations.................................16
10.02 Discretionary valuations.............................16
11.00 LIMITATION OF LIABILITY AND INDEMNITY OF TRUSTEES..........16
11.01 Exoneration..........................................16
11.02 Indemnity............................................17
11.03 Legal proceedings....................................17
11.04 Payment in error.....................................17
PART III: SCHEME CHANGES.....................................................18
12.00 AMENDMENT OF SCHEME........................................18
12.01 Scope and manner of amendment........................18
13.00 ADMISSION OF ASSOCIATED EMPLOYER...........................18
PART IV: MISCELLANEOUS.......................................................19
14.00 DISPUTES...................................................19
14.01 Reserved matters.....................................19
14.02 Disputes.............................................19
14.03 Internal dispute resolution..........................19
15.00 COSTS OF SCHEME............................................19
15.01 Apportionment and reimbursement of costs.............19
16.00 GOVERNING LAW..............................................20
PART V: WINDING UP...........................................................21
17.00 WINDING UP AND DISSOLUTION.................................21
ii
<PAGE> 4
THE RULES OF THE WESSEX WATER
EXECUTIVE PENSION SCHEME...................................22
SECTION I GENERAL ...........................................................22
1.00 NAME OF SCHEME.............................................22
2.00 COMMENCEMENT...............................................22
3.00 INTERPRETATION.............................................22
SECTION II MEMBERSHIP........................................................23
4.00 ELIGIBILITY FOR MEMBERSHIP.................................23
5.00 ADMISSION TO AND DURATION OF EMBERSHIP.....................23
5.01 Admission.............................................23
5.02 Membership conditions.................................23
5.03 Continuation of Active Membership during
breaks in Service and during
Overseas Service......................................24
5.04 Cessation of Active Membership while
remaining in Service..................................25
5.05 Resumption of Active Membership.......................26
6.00 [AVAILABLE]................................................26
SECTION III CONTRIBUTIONS....................................................27
7.00 MEMBERS' ORDINARY CONTRIBUTIONS - NONE.....................27
8.00 MEMBERS' VOLUNTARY CONTRIBUTIONS...........................27
9.00 MEMBERS' VOLUNTARY CONTRIBUTIONS: BENEFITS.................29
10.00 EMPLOYER'S CONTRIBUTIONS...................................30
10.01 Ordinary annual contributions........................30
10.02 Additional special contributions.....................30
SECTION IV RETIREMENT BENEFITS...............................................31
11.00 BENEFITS ON RETIREMENT AT NORMAL PENSION DATE..............31
11.01 Entitlement to pension...............................31
11.02 Amount of pension....................................31
12.00 BENEFITS ON EARLY RETIREMENT...............................32
12.01 Early retirement on reduced pension..................32
12.02 Enhanced early retirement pension where
retirement is due to Incapacity......................32
13.00 [AVAILABLE]................................................33
14.00 BENEFITS ON LATE RETIREMENT................................33
14.01 Option to draw benefits from Normal
Pension Date.........................................33
iii
<PAGE> 5
14.02 Amount of late retirement pension....................33
15.00 BENEFITS ON CEASING TO BE AN
ACTIVE MEMBER..............................................34
15.01 Application of Rule..................................34
15.02 Member with less than 2 years'
Qualifying Service at the date of
ceasing to be an Active Member:
Refund of Member's Voluntary
Contributions (if any)...............................34
15.03 Member with 2 or more years'
Qualifying Service: options available................34
15.04 Preservation of benefits within
the Scheme...........................................35
15.05 Transfers from the Scheme............................38
15.06 Buy-out under Section 95 of the 1993 Act.............40
15.07 Discharge of Scheme from liability...................41
15.08 Right to Cash Equivalent.............................42
15.09 Adjustment of Cash Equivalent........................44
15.10 Statutory Requirements...............................44
16.00 TRANSFERS INTO THE SCHEME..................................44
17.00 [AVAILABLE]................................................45
SECTION V BENEFITS INCREASES.................................................46
18.00 AUGMENTATION OF BENEFITS...................................46
18.01 Extension of existing benefits and
grant of new benefits................................46
19.00 INDEXATION.................................................46
19.01 ..................................................46
19.02 Pensions in payment..................................46
19.03 Amount of Increase...................................47
19.04 Preserved pensions not yet in payment................47
19.05 Discretionary increases..............................47
19.06 Proportionate increase where Active
Membership ceases....................................47
SECTION VI OPTIONS FOR ALTERNATIVE BENEFITS..................................48
20.00 EXCHANGING PENSION FOR LUMP SUM............................48
20.01 How option is exercised..............................48
20.02 Calculation of lump sum..............................48
20.03 Lump sum available in special
circumstances: exceptional ill-health................48
20.04 Lump sum available in special
circumstances: pension of Trivial Amount.............48
20.05 Limit on lump sum: Revenue restriction...............49
21.00 SURRENDERING PENSION TO PROVIDE A SPOUSE'S OR
DEPENDANT'S PENSION........................................49
SECTION VII DEATH BENEFITS...................................................51
22.00 DEATH OF MEMBER IN SERVICE.................................51
22.01 Lump sum death benefit...............................51
22.02 Spouse's pension.....................................52
22.03 Children's pensions..................................52
23.00 DEATH OF MEMBER IN RECEIPT OF PENSION......................53
iv
<PAGE> 6
23.01 Lump sum............................................53
23.02 Spouse's pension....................................54
23.03 Children's pensions.................................54
SECTION VIII PAYMENT OF BENEFITS.............................................56
24.00 PAYMENT OF PENSIONS........................................56
24.01 Member's pension....................................56
24.02 Spouse's and Dependant's pensions...................56
24.03 Children's pensions.................................56
24.04 Method of payment...................................57
24A.00 DISCRETION TO PAY SPOUSE'S PENSIONS TO COMMON LAW
SPOUSE OR DEPENDANT........................................57
24A.01 Trustees' general discretion........................57
24A.02 Discretion where no Spouse's pension payable........57
24A.03 Discretion where Spouse's pension is payable........57
25.00 MINORITY OR INCAPACITY OF BENEFICIARY......................58
26.00 UNCLAIMED BENEFITS.........................................58
SECTION IX MISCELLANEOUS.....................................................59
27.00 TRUSTEES' DISCRETION ON NOTICES AND TIME LIMITS............59
28.00 TAX........................................................59
29.00 INHERITANCE TAX............................................59
30.00 PROHIBITION OF ASSIGNMENT AND FORFEITURE
OF BENEFITS................................................59
30.01 Prohibition of assignment of benefits...............59
30.02 Forfeiture of benefits..............................60
31.00 DISMISSAL OF EMPLOYEES: DEDUCTIONS FROM BENEFIT............60
32.00 RIGHT TO INFORMATION.......................................61
SECTION X WINDING-UP.........................................................62
33.01 Terminating Events..................................62
33.02 Trustees' powers if a terminating
event occurs........................................62
33.03 Withdrawal of an Employer...........................63
33.04 Benefits of Members in Service......................63
33.05 Application of the Fund on Winding-up...............63
33.06 Method of calculating proportion of
Fund on withdrawal or disposal of an
Employer or undertaking.............................66
33.07 Methods of securing benefits.........................67
v
<PAGE> 7
APPENDIX A - DEFINITIONS.....................................................68
APPENDIX B - LUMP SUM COMMUTATION FACTORS....................................80
APPENDIX C - REVENUE LIMITATIONS.............................................81
APPENDIX D - EARLIER GOVERNING DOCUMENTS.....................................96
vi
<PAGE> 8
DEFINITIVE TRUST DEED
MADE 19 AUGUST 1998
BETWEEN:-
(1) WESSEX WATER PLC of Wessex House, Passage Street, Bristol BS2 OJQ
(the "Principal Employer") and
(2) ALAN FRANCIS CROFTS of 26 Rock Lane, Stoke Gifford, Bristol BS12
6PF RODERICK DAVID KENT of Wolverton Cottage, Wolverton,
Basingstoke, Hampshire RG26 5SX and NICHOLAS ANTHONY WILLIAM
WHEATLEY of The Old Rectory, Stubbs Lane, Kingston St. Michael,
Wiltshire SN14 6NZ (the "Trustees").
RECITALS:
(A) This deed (the "Definitive Deed") is supplemental to the deeds set
out in Appendix D of the Schedule which together constitute the
governing provisions of the WESSEX WATER EXECUTIVE PENSION SCHEME
(the "Scheme").
(B) Under and subject to the provisions of Clause 12.01 of the
Definitive Deed and Rules dated 5 August 1992 (the "Previous Deed")
the Principal Employer may, with the Trustees' consent, at any time
by deed executed by the Principal Employer and the Trustees alter
or modify all or any of the trusts, powers and provisions of the
Scheme and make new provisions in place of or in addition to the
same with effect from such retrospective, coincident or future date
as is specified in such deed.
(C) The Principal Employer and the Trustees wish to exercise the powers
referred to in Recital (B) above in order to alter the provisions
of the Scheme so that, inter alia, they reflect the requirements of
the Pensions Act 1995.
<PAGE> 9
(D) The Principal Employer and the Trustees are respectively the
present principal employer and trustees for the purposes of the
Scheme.
OPERATIVE PROVISIONS
PART I : ESTABLISHMENT OF SCHEME AND FUND
1.00 OPERATION OF DEFINITIVE DEED
1.01 ALTERATION
Subject to Clauses 1.03 and 1.04, the Principal Employer, with the
consent of the Trustees, in exercise of the powers conferred on it
by the Previous Deed, with effect as of and from the date hereof
("the Alteration Date") (except where any other date is required by
any statutory provision or for the purposes of Revenue Approval)
HEREBY ALTERS the provisions of the Previous Deed and the Rules
scheduled to it by deleting them in their entirety and substituting
for them the following provisions of this Definitive Deed
(including the Schedule to it).
1.02 PREVIOUS ACTS
Nothing in this Definitive Deed shall operate so as to invalidate
or affect any act or the exercise of any power, discretion or right
before the date of this Definitive Deed by the Trustees or any of
the Employers.
1.03 PREVIOUS EXITS
If a person:-
(a) ceased to be an Active Member before the Alteration
Date, or
(b) had become entitled or contingently entitled to a
pension or other benefit under the Scheme on the death
of an individual to whom (a) above applies,
the benefits of that person under the Scheme shall be determined by
reference to the applicable deeds listed in Appendix D as modified
by any relevant notices in writing and by any requirements of the
1993 Act, the 1995 Act and any other relevant
2
<PAGE> 10
statutory provision, and any requirements of the Board of the
Inland Revenue and any other Regulatory Authority, but subject to
that, the provisions of the Definitive Deed shall apply.
1.04 ALTERATIONS CONDITIONAL
The alterations made by the Definitive Deed are conditional upon
receipt of confirmation from the Board of the Inland Revenue that
Revenue Approval would not be affected by the alterations.
1.05 CHANGES IN PRINCIPAL EMPLOYER
Any company, body undertaking or person which satisfies the
requirements set out in (i) or (ii) of paragraph 1.32 of Appendix A
may with the consent of the Trustees become the Principal Employer
under the Scheme in succession to the relevant Principal Employer
if Revenue Approval would not be prejudiced as a result. Such a
change of Principal Employer shall be effected by a deed executed
by the new Principal Employer and the Trustees in which the new
Principal Employer agrees with the Trustees to assume and undertake
the liabilities, rights and position of the previous Principal
Employer.
2.00 INTERPRETATION
The words and expressions defined in Appendix A to the Rules shall
bear those meanings where they are used in the Definitive Deed. The
interpretation provisions contained in Rule 3.00 shall also apply.
3.00 OBJECT OF SCHEME
3.01 OBJECT OF SCHEME
The object of the Scheme is to provide Relevant Benefits for and in
respect of eligible employees and directors and former employees
and directors of the Employers.
3
<PAGE> 11
4.00 CONSTITUTION OF SCHEME
4.01 GOVERNING DOCUMENTS
The Scheme shall be governed by the provisions contained in the
Definitive Deed and the Rules.
4.02 SCHEME TO BE ADMINISTERED BY THE TRUSTEES
The administration and management of the Scheme shall be vested in
the Trustees. The Trustees shall (unless they resolve otherwise) be
the administrator of the Scheme as defined in Section 611AA of the
Taxes Act, and shall duly discharge or procure the discharge of all
duties imposed by the Taxes Act upon the administrator of the
Scheme. As the administrator, they may from time to time give
undertakings for the purpose of obtaining or maintaining Revenue
Approval.
5.00 CONSTITUTION OF FUND
5.01 FUND TO BE VESTED IN THE TRUSTEES
The Fund shall be vested in the Trustees who shall hold it upon
trust for application in accordance with the provisions of the
Definitive Deed and Rules.
5.02 VOLUNTARY CONTRIBUTIONS
The Trustees shall invest any Voluntary Contributions separately
from all other assets of the Fund and hold them and any return
arising from the investment or application of them upon trust for
the Member making or who has made Voluntary Contributions.
5.03 GIFTS DONATIONS AND BEQUESTS
The Trustees may accept or renounce any gifts, donations and
bequests which may be made by any person or persons or body for the
purposes of the Scheme.
5.04 SURPLUS
(i) For the avoidance of doubt it is hereby declared that
the whole of the Fund from time to time including any
actuarial surplus howsoever arising shall be held on
the trusts declared by Clause 5.01 and no Member or
other
4
<PAGE> 12
person shall have any interest in any such surplus save
in accordance with the express provisions of the
Definitive Deed or Rules;
(ii) If at any time the Actuary shall certify that the value
of the assets of the Scheme exceeds the value of the
liabilities by a percentage which is more than the
prescribed maximum (as defined in Regulation 10(4) of
the Pension Scheme Surpluses (Valuation) Regulations
1987), or if the Board of Inland Revenue shall notify
the Trustees that there is such an excess, the Trustees
having taken the advice of the Actuary and with the
consent of the Principal Employer (except that where an
unconditional offer for the issued share capital
conferring a majority of the voting rights in respect
of the Principal Employer or any company controlling
the Principal Employer has been made and where that
offer has not been withdrawn at the date a decision
under this Clause 5.04(ii) is made the consent of the
Principal Employer shall not be required) shall subject
to the 1995 Act reduce or eliminate the excess in one
or more of the following ways:-
(1) By making payments to the Employers but
subject always to the consent of the Board
of Inland Revenue;
(2) By suspending an Employer's obligations to
pay contributions under the Scheme or by
reducing the amount of an Employer's
contribution under the Scheme;
(3) By suspending the obligation of employees
to pay contributions under the Scheme or by
reducing the amount of employees'
contributions under the Scheme;
(4) By improving existing benefits under the
Scheme;
(5) By providing new benefits under the Scheme;
and
(6) In such other ways as may be prescribed.
In taking any such action the Trustees shall ensure that Revenue
Approval is not prejudiced.
5
<PAGE> 13
PART II : THE TRUSTEES
6.00 THE TRUSTEES: APPOINTMENT, REMOVAL AND REMUNERATION
6.01 POWER OF APPOINTMENT AND REMOVAL VESTED IN PRINCIPAL EMPLOYER
Subject to Clause 6.02 the Principal Employer shall have power by
deed to appoint new or additional trustees of the Scheme and to
remove a trustee or trustees from office. The Principal Employer
may at any time appoint a corporate trustee (whether or not a trust
corporation) either to act as sole trustee or to act jointly with
another trustee or trustees. If the Principal Employer does not
appoint a corporate trustee, the number of trustees of the Scheme
shall not be less than 3. Unless otherwise agreed between the
Principal Employer and the Trustees a trustee shall retire from
office on the second anniversary of his appointment following which
he may be re-appointed.
6.02 POWER OF APPOINTMENT AND REMOVAL VESTED IN TRUSTEES IN CERTAIN
CIRCUMSTANCES
Where there has been an unconditional offer for the issued share
capital conferring a majority of the voting rights in respect of
the Principal Employer or any company controlling the Principal
Employer the power of appointment and removal of trustees shall
vest in the Trustees rather than the Principal Employer until such
time as the offer has been withdrawn or otherwise as the Trustees
determine.
6.03 MEMBER TRUSTEES
The power to appoint and remove the Trustees shall be exercised in
accordance with sections 16 to 21 of the 1995 Act and any
arrangements made from time to time under those sections.
6.04 RESIGNATION OF A TRUSTEE
A trustee may at any time give reasonable notice to the Principal
Employer that he or it wishes to resign from office. At the expiry
of the notice period, the Principal Employer and the Trustees shall
take the necessary action to give effect to the discharge of the
retiring trustee and the vesting of the Fund in any new trustee or
trustees who may be appointed, or in the continuing trustee or
trustees as the case may be.
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<PAGE> 14
6.05 REMUNERATION
A trustee or where the trustee is a corporate body any officer of
that corporate body shall (subject to the approval of the Principal
Employer) be entitled to receive remuneration for acting as trustee
and for services performed by him or it in connection with the
Scheme. A trustee shall also be reimbursed all reasonable costs,
charges and expenses incurred by him or it in relation to the
Scheme.
6.06 PROFESSIONAL CHARGES
Any of the Trustees or, where a corporate body is appointed as a
trustee, any of its officers, who is a person engaged in any
profession or business, may charge and be paid all usual
professional or other charges for business done by him or his firm
in connection with the Scheme.
6.07 TRUSTEE MAY RETAIN BENEFITS
A Trustee who is a Member of the Scheme may retain any benefits to
which he is entitled under the Rules.
7.00 THE TRUSTEES: POWERS AND DUTIES
7.01 GENERAL POWERS FOR CARRYING OUT THE PURPOSES OF THE SCHEME
The Trustees are hereby granted all the powers and discretions
which they may from time to time require to carry out the purposes
of the Scheme. They may delegate or sub-delegate subject to any
restrictions they think fit any of the powers and duties conferred
on them by the Definitive Deed or by the Rules either:-
(i) to a committee of the Trustees; or
(ii) to any other person, persons or body (which may include
any one or more of the Employers) on which the Trustees
may at any time decide.
Any committee of the Trustees shall consist of at least 2 of their
number.
7
<PAGE> 15
7.02 ADMINISTRATIVE POWERS
Without affecting their general powers as trustees of the Scheme,
the Trustees shall have power:-
(i) to employ an agent or agents to carry out the purposes
of the Scheme. The agent or agents the Trustees select
may include one or more of the Employers;
(ii) to appoint, to remove and to obtain advice from an
Actuary and any legal adviser, accountant or other
adviser, on terms which the Trustees think fit
regarding duties and remuneration provided that any
appointment of a professional adviser as defined in
section 47 of the 1995 Act shall be in accordance with
that section and the Occupational Pension Schemes
(Scheme Administration) Regulations 1996. The Trustees
shall not be chargeable or accountable in respect of
any calculation, decision, payment or other matter
made, done or omitted by the Trustees in the
administration of the Scheme upon the advice of an
Actuary or of any other person so consulted;
(iii) to appoint and to remove any clerical or executive
officers or staff which they consider desirable for the
management of the Scheme, and to use the services of
any officers or staff which any of the Employers may
make available for this purpose;
(iv) to open and operate one or more bank accounts in the
name of the Scheme and to delegate in writing their
powers in this respect, including the power to draw
cheques on any bank account or to endorse any cheque or
to give receipts and discharges and every such receipt
and discharge shall be as valid as if it were given by
the Trustees; and
(v) to authorise any 2 or more of their number to sign
documents on behalf of the Trustees.
8
<PAGE> 16
7.03 INVESTMENT POWERS
(1) The Trustees may invest or apply all or any part of the
Fund and vary and transpose any investments or moneys
applied which form part of the Fund in any form of
investment (whether or not involving liability, whether
or not upon security, whether or not producing income,
and whether or not authorised by law for the investment
of trust moneys) which the Trustees could make if they
were absolutely and beneficially entitled to the Fund,
or in any form of investment which would be unavailable
other than as a trustee of a retirement benefits scheme
or only available to them on less favourable terms.
(2) Without prejudice to the generality of this Clause
7.03, the Trustees may:-
(i) make deposits with any bank or banks on current or
deposit account, or make deposits at interest with any
building society, joint stock company or mutual or
other society or body of repute and standing which
carries on the business of banking or insurance or bill
discounting; or
(ii) apply trust moneys by way of participation in any
scheme of deposit administration or any managed funds
administered by any Approved Insurer; or
(iii) apply or invest trust moneys in the acquisition by
purchase, subscription or otherwise of such stocks,
funds, shares, securities, mortgages or other
investments or property rights and interests (real or
personal) of whatsoever nature and wheresoever situate
(including shares or units of any investment trust,
unit trust or common investment fund, or other company,
association or body designed to provide a spread of
investments); or
(iv) underwrite, sub-underwrite or guarantee the
subscription of any stocks, funds, shares, securities
or other investments; or
9
<PAGE> 17
(v) apply the moneys or other assets of the Fund by way of
participation in any investment (whether income
producing or not) or in the acquisition or development,
or acquisition and development of any interest in land
or property jointly with any party or parties, whether
the interest of the Trustees so acquired is that of
partners or of trustees holding the same upon trust for
sale or otherwise, notwithstanding that the interest so
acquired in any such investment or venture may be a
minority interest; or
(vi) make secured or unsecured loans to persons or bodies
corporate on such terms as the Trustees may determine;
or
(vii) deal in financial futures and traded options within the
scope of Section 659A of the Taxes Act; or
(viii) apply trust moneys in or towards the acquisition of any
article or commodity which the Trustees believe is
likely to realise a capital profit.
(3) The Trustees shall secure that there is prepared,
maintained and from time to time revised a written
Statement of Investment Principles and in so doing
shall take appropriate advice and consult the Employers
in accordance with section 35 of the 1995 Act.
(4) The Trustees shall comply with the requirements of
section 36 of the 1995 Act in the exercise of their
powers of investment. They shall have due regard inter
alia to the Statement of Investment Principles, the
need for diversification of investments, the
suitability of all current and proposed investments and
the need to receive proper written advice.
(5) The Trustees shall comply with the restriction on
employer-related investments set out in section 40 of
the 1995 Act and regulations made thereunder.
10
<PAGE> 18
(6) The Trustees shall where required by section 47 of the
1995 Act and may in all other circumstances appoint one
or more Fund Managers for all or part of the Fund. The
Trustees may delegate to those Fund Managers the
exercise of the power of investment conferred upon the
Trustees. The Trustees may appoint a Fund Manager to
act jointly with any other person or body. The Trustees
may authorise a Fund Manager to open and operate any
capital accounts, income accounts and deposit accounts
which a Fund Manager shall consider proper and to which
the Trustees have agreed. The Trustees may enter into
arrangements with any Fund Manager which they may
consider proper for this purpose, including any
customer agreement for the purposes of the Financial
Services Act 1986, and negotiate with and pay to any
Fund Manager fees, commission and other remuneration
for his or their services.
7.04 POWER TO EFFECT INSURANCE POLICIES
The Trustees may in their own name or that of any nominee or
nominees effect deferred or immediate annuity policies, life
assurance policies, retirement, endowment or sinking fund contracts
or policies, or make other suitable arrangements with any one or
more Approved Insurers for the provision of the pensions or other
benefits for which the Rules provide. They may enter into any
arrangements with any Approved Insurer or with any other
appropriate insurance society, company or institution to re-insure
the whole or any part of the risks undertaken and in particular to
re-insure against any excess of claims that might fall upon the
Scheme. The Trustees may pay all premiums and other moneys (if any)
from time to time required for effecting and maintaining any such
policies or arrangements from the Fund. The Trustees shall be
entitled to deal with any such policies or contracts by way of
surrender, exchange, mortgage or otherwise, or to make such other
arrangements in connection therewith as they shall think fit, and
no Approved Insurer or other society, company or institution as
aforesaid shall in any case be concerned to ensure as to the object
of any such dealing or arrangement.
11
<PAGE> 19
7.05 BORROWING POWERS
Subject to the consent of the Principal Employer, the Trustees or
with their consent any investment manager or managers they may have
appointed shall have power to borrow or raise any money from time
to time. They may exercise this power upon any terms and conditions
and secure the repayment of the amount borrowed and the payment of
interest on it upon the whole or any part or parts of the Fund and
apply moneys so borrowed in any manner which the Trustees may in
their absolute discretion (or in the case of such power being
exercised by an investment manager which that investment manager
may subject to the consent of the Trustees) think fit for the
purposes of the Scheme or the relevant part or parts of it. All
moneys borrowed or raised in this way shall be treated as moneys
forming part of the Fund. The Trustees or investment manager may
from time to time if the Trustees consider it to the advantage of
the Fund to do so, exercise the power given to them by borrowing or
raising money in any part of the world for the purpose of making
additional investments to be held as part of the Fund.
7.06 POWER TO INSURE FUND
The Trustees may insure or procure the insurance of any assets of
the Fund as they think appropriate, against such risks and for such
amounts as the Trustees shall in their absolute discretion
determine (whether as owners of an interest in such assets or as
occupier or otherwise) and may apply an appropriate part of the
Fund, whether income or capital, in effecting and maintaining any
such insurance. The Trustees shall hold the proceeds of this
insurance upon the trusts of the Scheme with power to pay or apply
the proceeds, in whole or in part, in or towards the repair,
replacement, reinstatement or preservation of the asset insured or
(as the case may be) in indemnifying the Trustees or the Fund
against any claim made against the Trustees in relation to it, to
the intent that the powers hereby conferred shall be exercisable by
the Trustees as if they were the absolute owner of the Fund
beneficially. Any exercise of such powers shall be unrestricted by
law.
7.07 POWER TO EFFECT INDEMNITY INSURANCE
Subject to section 31 of the 1995 Act, the Trustees may at any time
effect and maintain professional indemnity insurance or other types
of insurance which they think appropriate in the course of
administering the Scheme or protecting the Fund, and may pay all
premiums due in respect of such insurance from the Fund.
12
<PAGE> 20
7.08 FUND MAY BE HELD IN NAME OF NOMINEE
In the exercise of their powers the Trustees shall ensure that the
Fund (or any part or parts thereof as appropriate) is at all times
held in the name of the Trustees, or of any investment manager that
they may have appointed, or in the name of any nominee or nominees
which the Trustees shall direct, or jointly in the names of any of
these parties.
8.00 THE TRUSTEES: MANNER IN WHICH THEY SHALL EXERCISE THEIR POWERS
AND DUTIES AND DISCRETIONS
8.01 MEETINGS; DECISIONS MAY ALSO BE TAKEN WITHOUT MEETINGS
(a) The Trustees shall subject to paragraph (b) of this
Clause 8.01 exercise their duties and their powers and
discretions under the Scheme at meetings to be held at
such intervals as they think fit PROVIDED that the
proceedings at any such meeting shall not be valid
unless either:-
(i) 7 days' notice of that meeting shall have
been given to each Trustee who was within
the United Kingdom on the date such notice
was served; or
(ii) each of the Trustees who has not been
served with notice as aforesaid agrees to
accept a shorter period of notice or to
waive the requirement for notice.
For this purpose notice of a meeting shall be deemed to have been
sufficiently served if in writing and either delivered by hand or
sent by telex or by facsimile or by pre-paid first class post to
the Trustee in question at his last known address. Any notice
served by post as aforesaid shall be deemed to have been served 72
hours after the same was posted.
The quorum for any meeting of the Trustees shall be two of the
Trustees present in person or by proxy. Each of the Trustees shall
be entitled to cast one vote on any question which may arise at any
such meeting. Any of the Trustees who is unable to attend such a
meeting may in writing appoint another of the Trustees or the
Secretary
13
<PAGE> 21
to the Trustees as his proxy and such appointee may exercise in
addition (if a Trustee) to his own vote the vote of the other
Trustee whom he represents. At every meeting all questions shall be
decided by a simple majority of votes cast. If there is an equality
of votes the question shall be decided on the casting vote of the
Chairman of the meeting. Decisions taken in accordance with this
Clause 8.01 shall be binding on all the Trustees.
(b) A resolution in writing which is signed by all the
Trustees shall be binding although no formal meeting of
the Trustees was held. Such a resolution may be
contained in one document or in several documents in
like form each signed by one or more of the Trustees.
(c) The Chairman from time to time of the Trustees shall be
nominated by the Principal Employer and if such
Chairman is not present at any meeting he shall
nominate which Trustee shall take the chair at the
meeting.
(d) The Trustees shall appoint a Secretary who may also be
one of the Trustees to assist them in the performance
of their duties and the exercise of their powers and
discretions. The Secretary shall keep minutes of the
meetings and decisions of the Trustees and shall
furnish copies thereof to all the Trustees. The
Secretary shall also advise the Trustees in relation to
the exercise of their duties, powers and discretions in
such terms as to ensure so far as possible that their
decisions are consistent in similar sets of
circumstances although such advice and prior decisions
of the Trustees shall not be binding upon them.
(e) Save as aforesaid the Trustees shall make their own
regulations for the conduct of their business and
meetings.
(f) No decision of or exercise of a duty, power or
discretion by the Trustees or any of them, or by any
delegate of the Trustees or by the Secretary shall be
invalidated or questioned on the ground that any
trustee for the time being of the Scheme or other
person aforesaid had a direct or other personal
14
<PAGE> 22
interest in the manner or result of such decision or of
exercising such power, duty or discretion.
9.00 TRUSTEES' DUTY TO KEEP RECORDS
9.01 RECORDS OF BENEFIT ENTITLEMENT
The Trustees shall keep or cause to be kept a complete record of
all persons entitled or potentially entitled to benefit under the
Scheme, and all deaths, withdrawals and other matters necessary to
be recorded for the proper administration and management of the
Scheme and the Fund and compliance with law and in particular the
requirements of section 49 of the 1995 Act.
9.02 ANNUAL REPORT
The Trustees shall each year prepare a report in the form and
containing the information then required by law. The report shall
be available to all Scheme Members and beneficiaries, prospective
Members and beneficiaries and independent trades unions recognised
for collective bargaining purposes in relation to Scheme Members
and prospective Scheme Members or any other persons from time to
time stipulated by law.
9.03 AUDIT OF ACCOUNTS
In accordance with section 47 of the 1995 Act, the Trustees shall
appoint an auditor who shall be an appropriately qualified
accountant who may not himself be a Scheme Member, a trustee of the
Scheme or a director, officer or employee of a corporate Trustee or
of any Employer or any other person disqualified by law from so
acting.
The Trustees shall in accordance with the 1995 Act and the
Occupational Pension Schemes (Requirement to obtain Audited
Accounts and a Statement from the Auditor) Regulations 1996 obtain
audited accounts and an auditor's statement in relation to the Fund
in respect of each Scheme year not more than seven months after the
end of the Scheme year. The auditor shall have access to all books,
papers, vouchers, records and documents connected with the Scheme
and shall state in writing the result of each audit. The fees and
remuneration of the auditor shall be part of the expenses incurred
in or about the execution and carrying out of the trusts of
the Scheme.
15
<PAGE> 23
9.04 GENERAL DISCLOSURE
In addition to the requirements of this Clause 9.00 the Trustees
shall provide such information and make such statements, documents
and reports available as are necessary to comply with the 1995 Act
and the Disclosure Regulations.
10.00 TRUSTEES' DUTY TO OBTAIN ACTUARIAL VALUATION
10.01 MANDATORY VALUATIONS
In accordance with section 47 of the 1995 Act, the Trustees shall
appoint an Actuary and shall obtain from the Actuary all necessary
valuations, statements and certificates in relation to the Scheme
required by the 1995 Act. In addition, the Trustees shall obtain
actuarial valuations of the Scheme and the effective date of each
actuarial valuation shall not be later than 3 years after the
effective date of the last preceding one or such shorter interval
as may be required by statute.
The Actuary shall have access to and shall be supplied with all the
information he may require relating to the Fund and the Scheme
whether held by the Trustees or any Employer. The Actuary shall
report to the Trustees in writing on the results of his
investigation. The valuation shall comply in all respects with the
Disclosure Regulations.
10.02 DISCRETIONARY VALUATIONS
The Trustees may at any time decide that an actuarial valuation of
the whole or one or more parts of the Scheme shall be conducted by
the Actuary at a time when no such valuation would otherwise be
mandatory. The Principal Employer may similarly decide that a
valuation should be made and direct the Trustees accordingly.
11.00 LIMITATION OF LIABILITY AND INDEMNITY OF TRUSTEES
11.01 EXONERATION
Neither the Trustees nor any of them shall be liable for any
actions, claims or demands arising out of anything done or caused
to be done or omitted by them or by him in connection with the
Scheme or costs arising therefrom except an act or omission which
they or he knew to be a breach of trust and which they or he
knowingly and wilfully committed or omitted as the case may be.
16
<PAGE> 24
11.02 INDEMNITY
In addition to the right to indemnity by law given to trustees, the
Trustees shall be indemnified by the Employers in respect of all
liabilities and expenses properly incurred in the execution or
purported execution of the trusts of the Scheme or of any duties,
powers or discretions vested in the Trustees under the Scheme, and
against all actions, proceedings, costs, expenses, claims and
demands in respect of any matter or thing made, done or omitted in
any way relating to the Scheme, unless the same shall be
attributable to the fraud or wilful default of the Trustee who is
sought to be made liable. This indemnity shall not extend to a
claim for value added tax made against a corporate trustee.
11.03 LEGAL PROCEEDINGS
The Trustees shall not be under any liability to take, institute,
maintain or defend any legal proceedings against an Employer or
otherwise in relation to the Scheme.
11.04 PAYMENT IN ERROR
The Trustees shall not be liable in respect of any payment to any
person made in the mistaken belief that the person was entitled to
it. A receipt issued to the Trustees by that person shall discharge
their obligations under the Scheme.
17
<PAGE> 25
PART III : SCHEME CHANGES
12.00 AMENDMENT OF SCHEME
12.01 SCOPE AND MANNER OF AMENDMENT
Subject to section 67 of the 1995 Act, the Principal Employer may
with the Trustees' consent at any time by deed executed by the
Principal Employer and the Trustees alter or modify all or any of
the trusts, powers and provisions of the Scheme and make new
provisions in place of or in addition to the same with effect from
such retrospective, coincident or future date as is specified in
such deed.
13.00 ADMISSION OF ASSOCIATED EMPLOYER
Subject to the following provisions of this Clause, the Principal
Employer may with the prior approval of the Board of Inland Revenue
extend the Scheme benefits to the employees of any Associated
Employer who are eligible for membership of the Scheme, PROVIDED
that:-
(i) the Associated Employer enters into a deed by which it
covenants with the Trustees to comply with and observe
the provisions of the Definitive Deed and the Rules so
far as they are applicable to it as one of the
Associated Employers; and
(ii) the participation of the Associated Employer will not
prejudice Revenue Approval.
18
<PAGE> 26
PART IV : MISCELLANEOUS
14.00 DISPUTES
14.01 RESERVED MATTERS
The provisions of Clause 14.02 shall have effect subject to the
powers expressed to be exercisable by the Employers or any one or
more of them under the Definitive Deed and the Rules, and save
insofar as any determination under Clause 14.02 may be set aside or
varied by any court of competent jurisdiction.
14.02 DISPUTES
The Trustees shall have power to determine whether or not any
person is entitled to any benefit from time to time under the
Scheme and the amount of any such benefit and to determine all
questions and matters of doubt arising under or in connection with
the Scheme and the Fund. Any such determination shall be binding on
all interested parties.
14.03 INTERNAL DISPUTE RESOLUTION
If any dispute arises in connection with the Scheme between:
(i) the Trustees on the one part, and
(ii) a complainant (such person being prescribed under the
1995 Act) on the other part,
the dispute shall be resolved in accordance with the Scheme's
internal dispute resolution procedure which the Trustees shall
ensure is created and operated so as to comply with the
requirements of section 50 of the 1995 Act.
15.00 COSTS OF SCHEME
15.01 APPORTIONMENT AND REIMBURSEMENT OF COSTS
All costs, charges and expenses of or incidental to the
administration and management of the Scheme and Fund which have
properly been incurred or
19
<PAGE> 27
otherwise borne by the Trustees shall be borne by the Fund unless
the Principal Employer otherwise determines.
16.00 GOVERNING LAW
The Definitive Deed and the Rules shall be interpreted according to
English Law.
20
<PAGE> 28
PART V : WINDING UP
17.00 WINDING UP AND DISSOLUTION
The Scheme shall be wound up, the Fund dissolved and the trusts
terminated, in the events and in the manner specified in Rule
33.00.
IN WITNESS whereof the Principal Employer and the Trustees have caused this deed
to be executed the day and year first before written
21
<PAGE> 29
THE SCHEDULE
THE RULES
SECTION I GENERAL
1.00 NAME OF SCHEME
1.01 The Scheme shall be called the "WESSEX WATER EXECUTIVE PENSION
SCHEME".
2.00 COMMENCEMENT
2.01 The Scheme came into operation on the Commencement Date.
3.00 INTERPRETATION
3.01 In the Scheme, certain defined words and expressions are used. The
definitions and their meanings are set out in Appendix A.
3.02 Words which imply the masculine include the feminine, and words
which imply the singular include the plural and vice versa.
Reference to any enactment or regulations includes any statutory
amendment or re-enactment for the time being in force, and where
appropriate any subsequent related legislation.
3.03 For the purposes of the Scheme, any period of 365 consecutive days
(or of 366 consecutive days if the period includes 29th February)
constitutes a year. No day shall be counted more than once.
3.04 The index and the headings contained in the Definitive Deed and
Rules are for convenience only. They shall not affect the
interpretation of the Definitive Deed and Rules.
22
<PAGE> 30
SECTION II MEMBERSHIP
4.00 ELIGIBILITY FOR MEMBERSHIP
An Employee shall be eligible for Membership of the Scheme if:-
(i) he is a Basic Scheme 6% Level Member;
(ii) he has not attained Normal Pension Date;
(iii) he is invited by the Principal Employer to join the
Scheme; and
(iv) (in the case of an Employee who becomes a Member after
the Commencement Date) he is permanently employed under
an employment contract of at least 12 months' duration.
5.00 ADMISSION TO AND DURATION OF MEMBERSHIP
5.01 ADMISSION
An Employee who is invited to join the Scheme under Rule 4.00 shall
become a Member with effect from the effective date of the
invitation, unless before or within 30 days of that effective date
he notifies the Trustees in writing that he does not wish to become
or remain a Member of the Scheme. His Membership shall be on the
terms set out in these Rules, or on such special terms as the
Principal Employer may notify to him in writing, subject to the
requirements for Revenue Approval, any relevant legal requirements,
and the payment of any additional contributions by the Employer
which the Actuary advises are required.
5.02 MEMBERSHIP CONDITIONS
(i) The Trustees have power at any time to call upon a
Member, beneficiary or prospective Member or
beneficiary to supply evidence of age or other
information which they may reasonably think necessary
for the purposes
23
<PAGE> 31
of the Scheme. The Trustees may withhold payment of
benefits due until this information is supplied.
(ii) The Principal Employer may at its discretion require a
prospective Member (including any person who has not
elected to become a Member when first eligible to do
so) and any Member resuming Active Membership to
complete a medical questionnaire or to undergo a
medical examination. If the Principal Employer is not
satisfied with the results, it may (subject to the
requirements of the Disability Discrimination Act 1995
and any regulations made thereunder) either direct the
Trustees to refuse the Employee Membership or the
resumption of his Active Membership, or direct them to
impose conditions in respect of some or all of the
benefits normally payable.
5.03 CONTINUATION OF ACTIVE MEMBERSHIP DURING BREAKS IN SERVICE AND
DURING OVERSEAS SERVICE
ABSENCE BECAUSE OF ILL-HEALTH OR UK SECONDMENT
(i) This paragraph of Rule 5.03 applies if a Member is on
leave of absence from Service because of ill-health or
because he has been seconded to a United Kingdom
government department or is engaged on similar work of
national importance, and is receiving no Pensionable
Salary or a reduced rate of Pensionable Salary. Where
contributions to the Basic Scheme are being paid by the
Member, the Employer shall continue to pay Employer's
contributions under Rule 10.00.
ABSENCE FOR OTHER REASONS INCLUDING MATERNITY LEAVE EXCEPT
OVERSEAS SERVICE
(ii) This paragraph of Rule 5.03 applies if a Member is on
leave of absence from Service with the Employer's
consent for any reason other than that under paragraph
(i) and is receiving no Pensionable Salary or a reduced
rate of Pensionable Salary. Where contributions to the
Basic Scheme are being paid by the Member, the Employer
shall continue to pay Employer's contributions under
Rule 10.00 and the provisions of the Basic Scheme
24
<PAGE> 32
relating to benefits during maternity leave shall apply
mutatis mutandis to the Scheme.
MEMBER ON OVERSEAS SERVICE
(iii) This paragraph of Rule 5.03 applies if a Member is on
Overseas Service. Such a Member shall remain an Active
Member so long as Revenue Approval is not prejudiced as
a result. Contributions shall be paid in respect of him
and benefits calculated on the basis of the amount
certified by the Principal Employer as his Pensionable
Salary.
PERIOD OF ABSENCE ONLY PENSIONABLE IF CONTRIBUTIONS PAID
(iv) If contributions to the Basic Scheme are maintained by
the Member or paid on his behalf by the Employer during
periods of leave of absence for the reasons specified
in Rules 5.03(i), (ii) or (iii), the Member will
continue to be an Active Member and those periods will
form part of his Pensionable Service. No other absences
from Service will count as Pensionable Service although
the periods of Pensionable Service before and after the
break will be treated as continuous subject always to
compliance with the provisions of Appendix C.
5.04 CESSATION OF ACTIVE MEMBERSHIP WHILE REMAINING IN SERVICE
(i) A Member who ceases to work full-time while remaining
in Service shall thereupon cease to be an Active
Member.
LEAVING THE SCHEME VOLUNTARILY
(ii) A Member may at any time elect to cease Active
Membership on giving the Trustees at least 30 days'
notice. His Active Membership shall cease on the first
day of the pay period following the expiry of the
notice period, and his benefits under the Scheme shall
be calculated as at that date and dealt with under Rule
15.00 (Benefits on ceasing to be an Active Member).
However, where the Member gives notice under Rule 5.01,
he shall be treated as never having become an Active
Member.
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<PAGE> 33
MEMBER ON OVERSEAS SERVICE
(iii) Where a Member on Overseas Service is required to cease
being an Active Member, either in order that Revenue
Approval will not be prejudiced or because the period
that the Board of Inland Revenue permitted him to
remain an Active Member has expired his benefits shall
be calculated as at that date and dealt with under Rule
15.00 (Benefits on ceasing to be an Active Member).
Where he returns to Active Membership after his
Overseas Service ends, the Member's previous period of
Pensionable Service shall be reinstated in place of the
preserved Top-Up Pension to which the Member would
otherwise be entitled.
5.05 RESUMPTION OF ACTIVE MEMBERSHIP
If a Member who remains in Service elects to withdraw from Active
Membership under Rule 5.04(ii), he will be permitted to resume
Active Membership only if the Principal Employer so determines. In
that event the Principal Employer may at its discretion allow the
Member's previous period of Pensionable Service to be reinstated as
an alternative to the preserved Top-Up Pension to which the Member
would otherwise be entitled.
6.00 [AVAILABLE]
26
<PAGE> 34
SECTION III CONTRIBUTIONS
7.00 MEMBERS' ORDINARY CONTRIBUTIONS - NONE
A Member shall not be required to pay contributions to the Fund.
8.00 MEMBERS' VOLUNTARY CONTRIBUTIONS
8.01 Subject to such requirements as the Trustees may set, an Active
Member may elect to pay Voluntary Contributions in order to secure
additional Scheme benefits. The Member shall agree with the
Trustees the initial rate at which he will pay Voluntary
Contributions, being not less than 0.5% of the Member's
Remuneration (as defined in Appendix C) in that tax year or such
greater amount as may from time to time be prescribed by law.
8.02 Voluntary Contributions may be discontinued, reduced or increased
on 12 months' notice to the Trustees or such shorter period as they
shall at their discretion allow.
8.03 The following provisions shall apply to the payment of Voluntary
Contributions:-
(i) No further contributions shall be payable after
cessation of Active Membership;
(ii) Voluntary Contributions shall not be of such an amount
that:-
(a) the total of the Member's Voluntary
Contributions and his contributions to the
Basic Scheme would in any Scheme Year
exceed the percentage of his Remuneration
from time to time allowed by the Board of
Inland Revenue, or
(b) the additional benefits derived from the
Voluntary Contributions would in the
Actuary's opinion be likely to cause
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<PAGE> 35
his prospective entitlement to exceed the
Maximum Approvable Benefit.
In any such case the Trustees shall arrange for Voluntary
Contributions to be discontinued, suspended or reduced.
(iii) Contributions will be deducted by the Employer from the
remuneration payable to the Member or in such other
manner as the Principal Employer may decide and the
Trustees approve. The Employer shall account to the
Trustees at such intervals and by such methods as
comply with the requirements of section 49 of the 1995
Act as the Trustees in their sole discretion decide.
(iv) Where benefits in respect of a Member's Voluntary
Contributions cannot be provided without prejudicing
Revenue Approval the Voluntary Contributions which
would otherwise have had to remain unapplied shall be
returned to the Member or his personal representatives
subject to any tax charge for which the Trustees or the
Member may be liable.
8.04 The Trustees or other administrator of the Scheme shall comply with
the requirements of regulation 5 of The Retirement Benefits Schemes
(Restriction on Discretion to Approve) (Additional Voluntary
Contributions) Regulations 1993 and where the Scheme is the Leading
Scheme in relation to a Member, with the requirements of regulation
6 of those Regulations so far as they concern Main Schemes. LEADING
and MAIN SCHEME have the same respective meanings as in regulation
2(1) of those Regulations. If those Regulations are amended or
replaced by any other Regulations, this Rule will have effect as if
it had been amended or replaced accordingly.
8.05 Where a Member is on leave of absence from Service, but is being
treated as an Active Member, (Rule 5.03) the Member may continue to
pay Voluntary Contributions while he is absent provided he
continues to pay his ordinary contributions to the Basic Scheme.
28
<PAGE> 36
9.00 MEMBERS' VOLUNTARY CONTRIBUTIONS: BENEFITS
9.01 The Member's Voluntary Contributions will at his direction be
invested in a separately designated account or applied to provide
life cover. The annual return on the Voluntary Contributions
invested will be added back to the Member's account. At retirement
or, if earlier, on the Member's death, the accumulated amount in
the Member's account will subject to the consent of the Board of
Inland Revenue be available to provide one or more of the following
benefits selected by the Member:-
(a) additional lump sum on death;
(b) retirement pension;
(c) Spouse's and/or Dependant's pension;
(d) indexation.
and shall where appropriate include a refund of any surplus
Voluntary Contributions arising under Part III of Schedule 6 to the
Finance Act 1989.
9.02 Where the Member's Voluntary Contributions are under arrangements
entered into on or after 8 April 1987, any retirement benefits
secured thereby must be in the form of a non-commutable pension
except to the extent to which the provisions of the Scheme allow
commutation of trivial pensions or on the grounds of serious
ill-health.
9.03 The Trustees shall ensure that the value of the additional benefits
provided for and in respect of a Member making Voluntary
Contributions is reasonable having regard to the amount of a
Member's Voluntary Contributions, whether those additional benefits
and the value of the other benefits under the Scheme take the form
of additional years' Pensionable Service or are calculated on a
money purchase basis.
9.04 If a Member ceases to be an Active Member and a transfer is made to
another retirement benefits scheme or arrangement or to a Policy in
respect of all or part of
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<PAGE> 37
his other benefits under the Scheme a like transfer shall be made
in respect of his Voluntary Contributions.
10.00 EMPLOYER'S CONTRIBUTIONS
10.01 ORDINARY ANNUAL CONTRIBUTIONS
Each Employer shall contribute to the Fund at the rate specified in
the Schedule of Contributions (where applicable) together with any
additional contributions which, acting on the advice of the Actuary
and after consultation with the Trustees, the Principal Employer
shall determine appropriate to secure the benefits payable under
the Scheme in respect of those Members in or formerly in its
Service. Unless the Trustees direct otherwise the Employer's
contributions shall be paid to the Trustees.
10.02 ADDITIONAL SPECIAL CONTRIBUTIONS
An Employer may at any time pay a special contribution to the Fund.
The Trustees, having obtained the advice of the Actuary, shall
apply the sum in accordance with the purpose stated by the Employer
paying the contribution, provided this does not prejudice Revenue
Approval.
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<PAGE> 38
SECTION IV RETIREMENT BENEFITS
11.00 BENEFITS ON RETIREMENT AT NORMAL PENSION DATE
11.01 ENTITLEMENT TO PENSION
On retirement from Service at Normal Pension Date a Member shall be
entitled to an immediate Top-Up Pension.
11.02 AMOUNT OF PENSION
Top-Up Pension means the amount (if any) by which the appropriate
amount under (A) of this Rule 11.02 exceeds the appropriate amount
under (B) of this Rule 11.02, subject to the requirements of
Appendix C:-
(A) (i) In the case of an Employee who became a
Member on the Commencement Date, an amount
calculated in accordance with the following
formula:-
1/30 x Final Pensionable Salary x
Pensionable Service.
(ii) In the case of an Employee who becomes a
Member after the Commencement Date, an
amount calculated in accordance with the
following formula:-
1/45 x Final Pensionable Salary x
Pensionable Service.
The maximum periods to rank as Pensionable Service for the purpose
of this Rule 11.02 shall be 20 years under paragraph (A)(i) and 30
years under paragraph (A)(ii).
(B) (i) In the case of a WWPS Member, his pension
under Rule 11.00 of the WWPS Deed.
(ii) In the case of a WWMIS Member, the total
of:-
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<PAGE> 39
(a) his retirement pension, and
(b) one-twelfth of his Retiring
Allowance,
under Rule 16.01 of the WWMIS Deed.
12.00 BENEFITS ON EARLY RETIREMENT
12.01 EARLY RETIREMENT ON REDUCED PENSION
(i) ENTITLEMENT TO PENSION
A Member may retire from Service before Normal Pension
Date and receive an immediate reduced pension if he is
to receive an immediate reduced pension from the Basic
Scheme and (on the first day of his retirement) he is
aged 50 or more and the Principal Employer consents.
(ii) AMOUNT OF PENSION
The Member's pension shall be an amount calculated in
accordance with Rule 15.04(i), reduced (before the
exercise of any commutation option (under Rule 20.00)
or surrender option (under Rule 21.00)) by 3% for each
complete year (with a proportionate reduction for any
number of days exceeding a complete year) by which the
date of retirement precedes Normal Pension Date.The
Employer may at its discretion in exceptional
circumstances agree to waive or modify the reduction
and shall pay the associated cost in the way and at the
intervals which the Trustees may decide acting on the
advice of the Actuary.
12.02 ENHANCED EARLY RETIREMENT PENSION WHERE RETIREMENT IS DUE TO
INCAPACITY
(i) ENTITLEMENT TO PENSION
A Member may retire at any time and receive an
immediate pension if he is leaving Service due to
Incapacity and no alternative employment which in the
Employer's reasonable opinion is suitable for him is
available with one of the Employers and if he is to
receive an immediate Incapacity pension from the Basic
Scheme.
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<PAGE> 40
(ii) AMOUNT OF PENSION
The Member's pension shall be calculated in accordance
with Rule 11.02 by reference to his Final Pensionable
Salary at the date of retirement and his total
prospective Pensionable Service to Normal Pension Date.
(iii) REDUCTION OR SUSPENSION OF INCAPACITY PENSION
Where a Member has retired on grounds of Incapacity,
and is later found to have recovered to the extent that
either he is no longer prevented from engaging in
employment broadly comparable to that in which he
mainly worked while he was in Service or his earning
capacity is no longer seriously impaired, the Trustees
may at their discretion reduce or withdraw his pension
on such conditions as they feel are appropriate. The
Trustees shall consult the Employer before arriving at
any decision.
13.00 [AVAILABLE]
14.00 BENEFITS ON LATE RETIREMENT
14.01 OPTION TO DRAW BENEFITS FROM NORMAL PENSION DATE
If a Member remains in Service at the Employer's request after
Normal Pension Date he may give the Trustees written notice that he
wishes to draw his pension with effect from Normal Pension Date as
if he had retired at that date. The Member may exercise his option
to commute part of his pension for a lump sum at Normal Pension
Date and to defer drawing the balance of his pension until the date
of his actual retirement. In such a case, only the balance of
pension then remaining shall be increased under Rule 14.02. Notice
for the purposes of this Rule must be given to the Trustees prior
to Normal Pension Date. No notice may be given under this Rule
unless a similar notice is given in relation to the Basic Scheme.
14.02 AMOUNT OF LATE RETIREMENT PENSION
If the Member does not draw his benefits until he retires, he shall
receive the amount to which he would have been entitled had he
retired at Normal Pension Date
33
<PAGE> 41
increased as the Trustees on the advice of the Actuary shall decide
having regard to the period by which the commencement of benefits
has been deferred.
15.00 BENEFITS ON CEASING TO BE AN ACTIVE MEMBER
15.01 APPLICATION OF RULE
This Rule applies if a Member ceases to be an Active Member while
in employment in the United Kingdom (other than by death), and no
immediate pension becomes payable. (If an Active Member dies, the
benefits payable in respect of him are set out in Rule 22.00).
15.02 MEMBER WITH LESS THAN 2 YEARS' QUALIFYING SERVICE AT THE DATE OF
CEASING TO BE AN ACTIVE MEMBER: REFUND OF MEMBER'S VOLUNTARY
CONTRIBUTIONS (IF ANY)
A Member who has completed less than 2 years' Qualifying Service
and in respect of whom a transfer payment in respect of his rights
under a Personal Pension has not been made to the Scheme and who
has not resumed Active Membership within 1 month and 1 day shall be
entitled to a refund of his Voluntary Contributions (if any) with
interest. The rate of interest shall be determined by the Trustees,
who shall review it from time to time. The Member shall receive no
other benefit under the Scheme and the refund shall only become
payable to the Member when the Trustees receive his written claim.
The Trustees may dispense with a written claim as they consider
appropriate. The receipt of any person to whom payment is made
shall be a complete discharge to the Trustees. The Trustees shall
withhold from the refund any tax due under Rule 28.00.
15.03 MEMBER WITH 2 OR MORE YEARS' QUALIFYING SERVICE: OPTIONS AVAILABLE
Where the Member has completed 2 or more years' Qualifying Service
or where a transfer payment in respect of his rights under a
Personal Pension has been made to the Scheme he shall be entitled
to either:-
(a) preserved benefits under the Scheme (Rule 15.04); or
34
<PAGE> 42
(b) at the Member's option (under Rule 15.08) the
application of his Cash Equivalent as a transfer
payment (Rule 15.05) or as the purchase price of an
annuity under Section 95 of the 1993 Act (under Rule
15.06) or both.
Where a Member has completed at least 2 years' but not more than 5
years' Qualifying Service the Trustees may at their discretion and
without the Member's consent after a period of 12 months has
elapsed since the Member ceased to be an Active Member secure his
benefits by buying an insurance policy or annuity contract from an
Approved Insurer. Before doing so, the Trustees must give the
Member at least 30 days' prior notice and comply in all other
respects with the provisions of Regulations 9(4) and (5) of the
Occupational Pension Schemes (Preservation of Benefits) Regulations
1991.
15.04 PRESERVATION OF BENEFITS WITHIN THE SCHEME
(i) PENSION AT NORMAL PENSION DATE
The Member shall be entitled to a pension payable from
the day following Normal Pension Date. The pension
shall be the sum of:-
(i) an amount calculated in accordance with the following
formula:-
N x P
-
NS
where N is the period of Active Membership
NS is the period of total prospective Active Membership
to Normal Pension Date
P is the prospective Top-Up Pension at Normal Pension
Date calculated by reference to total prospective
Pensionable Service to Normal Pension Date and Final
Pensionable Salary at the date of cessation of Active
Membership; and
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<PAGE> 43
(ii) increases in the pension calculated in accordance with
paragraph (i) of this Rule 15.04(i) as set out in Rule
19.00 or as required by Chapter II of Part IV of and
Schedule 3 to the 1993 Act if the latter would produce
a higher figure.
(ii) EARLY PAYMENT OF PRESERVED PENSION
A Member may elect to have his pension paid early if he
suffers Incapacity, and elects a similar option under
the Basic Scheme.
The pension shall be the amount calculated in
accordance with Rule 15.04(i).
(iii) DEATH BEFORE PRESERVED PENSION COMES INTO PAYMENT
(a) SPOUSE'S PENSION
(1) ENTITLEMENT AND AMOUNT OF PENSION
Subject to (2) and (3) below,
where a Member dies before he
has begun to receive his
Top-Up Pension an annual
pension shall be paid to his
Spouse. The pension shall be
two-thirds of:-
(i) the Member's total preserved
pension under the Scheme and
the Basic Scheme, increased by
(ii) any increases awarded under
Rule 19.00.
This amount shall then be reduced by the
amount of the Spouse's pension under the
Basic Scheme.
In the case of a WWMIS Member the Spouse's
pension under this Rule shall not come into
payment until the Spouse's long-term
pension under Rule 19.05(3) of the WWMIS
Deed does.
(2) ADJUSTMENT OF PENSION BECAUSE
OF DISPARITY IN AGE
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<PAGE> 44
Where the Member's Spouse was
born 10 or more years earlier
or later than the Member, the
pension shall be reduced or
increased respectively by 2.5
per cent for every complete
year (and proportionately for
any period of less than a
complete year) in excess of
10.
(b) CHILDREN'S PENSION
(1) Subject to paragraph (3) where a Member
dies before he has begun to receive his
Top-Up Pension survived by a Child a
pension shall be payable to or for the
benefit of that Child and any one other
Child. In the case of a WWMIS Member a
Child's pension under this Rule shall not
come into payment until the Child's
long-term pension under Rule 19.05(3) of
the WWMIS Deed does.
(2) Where a Spouse's pension iS
payable, the annual rate of
pension payable to or for the
benefit of each Child under
this Rule shall be one-sixth
of:-
(i) the Member's total
preserved pension
under the Scheme and
the Basic Scheme,
increased by
(ii) any increases awarded
under Rule 19.00.
This amount shall then be reduced by the
amount of the Child's pension under the
Basic Scheme.
If no pension is payable to a Member's
Spouse, the annual rate of each Child's
pension shall be one-half of:-
37
<PAGE> 45
(i) the Member's total preserved
pension under the Scheme and
the Basic Scheme, increased by
(ii) any increases awarded under
Rule 19.00.
This amount shall then be reduced by the amount of the
Child's pension under the Basic Scheme.
(3) Where there are more than 2
eligible Children, the total
available pension under this
Rule shall be shared equally
between them or for their
benefit or in such other
proportions as the Trustees
decide.
(c) REFUND OF VOLUNTARY CONTRIBUTIONS WHERE NO SPOUSE'S OR
CHILDREN'S PENSION OR LUMP SUM PAYABLE UNDER RULE 22.01
Where a Member dies before payment of his Top-Up
Pension has begun, and no Spouse's or Children's
pension nor any lump sum under Rule 22.01 is payable, a
refund of Voluntary Contributions with interest will be
paid calculated in the manner prescribed in Rule 15.02.
The total amount will be held by the Trustees on the
discretionary trusts set out in Rule 22.00.
(iv) DEATH OF A MEMBER WHILE RECEIVING PENSION
Benefits will be paid as in Rule 23.00.
15.05 TRANSFERS FROM THE SCHEME
(i) If the Member becomes a member of another retirement
benefits scheme or arrangement approved under the Taxes
Act or any other scheme specifically approved for this
purpose by the Board of Inland Revenue, the Member may
ask that a transfer payment is made to the trustees of
that scheme or arrangement. The amount of the transfer
payment shall be established by the Trustees, upon the
advice of the Actuary, as that which is equivalent to
the benefits which would otherwise be payable to and in
38
<PAGE> 46
respect of the Member under the Scheme. If it exceeds
that amount any excess shall be payable only with the
Employer's consent. The transfer payment shall not be
less than the part of the Member's Cash Equivalent
which the Member shall ask to be transferred subject to
reduction in the manner prescribed by the Occupational
Pension Schemes (Transfer Values) Regulations 1996. The
transfer payment shall be subject to the following
conditions:-
(a) any undertaking given by the Trustees to
the Board of Inland Revenue must be
observed;
(b) the Member's request or consent shall be
required unless the requirements of the
Occupational Pension Schemes (Preservation
of Benefit) Regulations 1991 are satisfied;
(c) the Trustees shall, if appropriate,
ascertain from the trustees of the new
scheme the Act and Section under which it
is approved by the Board of Inland Revenue;
(d) the Trustees shall certify to the trustees
of the new scheme the amount of the
transfer payment which is derived or deemed
to be derived from contributions paid by
the Member to the Scheme and shall notify
the new scheme of any restriction placed on
the refund of that amount;
(e) the Trustees shall certify to the new
scheme the period of statutory Qualifying
Service to which the transfer relates and
the maximum permitted lump sum which can be
taken in exchange for pension in respect of
the transfer payment;
(f) where the transfer is made to a personal
pension scheme and is in respect of a
Member to whom the Personal Pension Schemes
(Transfer Payments) Regulations 1988 (as
amended) apply, the
39
<PAGE> 47
Trustees shall issue to the Member a signed
certificate showing the information
specified in those Regulations;
(g) to the extent of the benefits or the Cash
Equivalent to which the transfer relates,
the receipt of the new scheme shall be a
complete discharge to the Trustees and the
Fund of all liability in respect of the
Member under the Scheme and the Trustees
shall be under no liability to see to the
application of the amount transferred; and
(h) unless the transfer is made in consequence
of a valid request for a Cash Equivalent
(under Rule 15.08), the Trustees shall
ensure that the transfer payment is not
less than the value of the benefits (or the
relevant part of the benefits) payable to
and in respect of the Member under the
Scheme.
(ii) The Trustees shall not be obliged to transfer a
Member's Cash Equivalent to a new scheme unless the new
scheme is one which satisfies the requirements of
section 95 of the 1993 Act.
15.06 BUY-OUT UNDER SECTION 95 OF THE 1993 ACT
(i) As an alternative to preserved benefits or to a
transfer to a new scheme, a Member may ask the Trustees
in writing to apply the amount established by the
Trustees, on the advice of the Actuary, to be
equivalent to the Member's benefits under the Scheme in
buying a policy ("the Policy") from an Approved Insurer
providing benefits for and in respect of him in
substitution for the benefits otherwise payable to and
in respect of him under the Scheme. The sum shall not
be less than the part of the Member's Cash Equivalent
which the Member shall ask to be transferred subject to
reduction in the manner prescribed by the Occupational
Pension Schemes (Transfer Values) Regulations 1996. If
it exceeds that amount any excess shall be payable only
with the Employer's consent. The Policy shall be bought
with an Approved Insurer in the name of the Member or
40
<PAGE> 48
his nominee, and the Member or any other person
deriving rights to benefit in respect of the Member
shall have an absolute right to the benefits derived
from it. At the Member's option, the Policy may,
subject to the Revenue Approval not being prejudiced,
confer benefits or options which are alternative to the
benefits otherwise payable under the Scheme. Provision
may also be made either under the Policy or otherwise
for any lump sum payable on the death of the Member to
be held upon discretionary trusts for the benefit of
any one or more of the Beneficiaries (as defined in
Rule 22.00).
(ii) The Policy may include a provision which enables a
transfer payment to be made with the Member's written
consent from the Policy to a new scheme of which the
Member becomes a member (except that the transfer
payment from the Policy to a new scheme need not
include the guaranteed minimum pensions of a Member or
his Spouse) and a provision enabling benefits to be
provided by the purchase of another annuity, assurance
contract or policy from another Approved Insurer which
satisfies the requirements of this Rule 15.06.
(iii) The Trustees shall procure the issue of the Policy only
on terms which shall:-
(a) satisfy the requirements of the Board of
Inland Revenue for the purposes of
section 591(2)(g) of the Taxes Act; and
(b) satisfy the requirements of section 95 of
the 1993 Act.
15.07 DISCHARGE OF SCHEME FROM LIABILITY
The Member and any other person who, but for the payment of a
transfer value or the issue of a Policy under Rules 15.05 or 15.06
would derive rights to benefit in respect of the Member, shall have
no claim under the Scheme to or in respect of those benefits and
the Trustees and the Fund shall be discharged of all liability for
payment of such benefits to the Member and any such person.
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<PAGE> 49
15.08 RIGHT TO CASH EQUIVALENT
(i) HOW TO EXERCISE THAT RIGHT
A Member shall exercise his right to a Cash Equivalent
by asking the Trustees in writing.
(ii) WHEN THE RIGHT IS INEFFECTIVE
A request is ineffective unless it, or it and another
valid request given to the Trustees at the same time,
relates to the whole of the Member's Cash Equivalent.
(iii) WITHDRAWAL OF REQUEST
A request may be withdrawn by written notice to the
Trustees delivered to them personally or sent by
registered or recorded delivery post. The notice shall
be ineffective if, at the time it is given, the
Trustees have already entered into an agreement with a
third party to use the whole or part of the Member's
Cash Equivalent to comply with the Member's request. If
the request is effectively withdrawn, the Member may
serve another request provided his right has not lapsed
in one of the following ways.
(iv) LAPSE OF RIGHT TO CASH EQUIVALENT
A Member's right to make a binding request lapses on
the earliest of:-
(i) the date upon which any benefit becomes
payable to him under the Scheme;
(ii) the later of 1 year before the Member's
Normal Pension Date and 6 months after the
Member's Pensionable Service terminates;
and
(iii) the conclusion of the winding-up of the
Scheme.
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<PAGE> 50
(v) TRUSTEES' DUTIES WHEN REQUEST FOR CASH EQUIVALENT
RECEIVED
The Trustees shall provide to the Member within three
months of his valid application under section 93A of
the 1993 Act, a guaranteed statement of entitlement and
shall implement any request for a Cash Equivalent
within the period required by section 99 of the 1993
Act.
43
<PAGE> 51
15.09 ADJUSTMENT OF CASH EQUIVALENT
(i) The Cash Equivalent may be increased or reduced in
accordance with the provisions of the 1993 Act and the
Occupational Pension Schemes (Transfer Values)
Regulations 1996.
(ii) If at any time it is the usual practice of the Scheme
to provide additional relevant benefits under Rule
19.05, then the Member's Cash Equivalent shall be
increased to take account of the additional benefits
which would accrue to the Member if the practice
continued unaltered, unless the Trustees, having taken
the advice of the Actuary, direct otherwise.
15.10 STATUTORY REQUIREMENTS
The provisions of this Rule 15.00 shall be subject to any relevant
statutory requirements for transfers, and in particular to:-
(a) the 1995 Act;
(b) the 1993 Act;
(c) any requirements of the Board of the Inland Revenue or
other Regulatory Authority.
16.00 TRANSFERS INTO THE SCHEME
16.01 The Trustees may with the consent of the Principal Employer accept
for inclusion in the Fund any transfer of:-
(i) all or any of the cash or other assets of any other
retirement benefits or personal pension scheme or
arrangement to which the Member previously belonged;
and
44
<PAGE> 52
(ii) any cash or other assets representing the value of an
annuity, assurance contract or policy secured with an
Approved Insurer under section 591(2)(g) of the Taxes
Act.
16.02 The Trustees may give any relevant undertakings in respect of the
cash or other assets and shall confer on the Member such rights and
benefits under the Scheme as are determined by the Trustees on the
advice of the Actuary
PROVIDED THAT:-
(i) the acceptance of any transfer under this Rule shall be
subject to any undertaking given by the Member or the
Trustees to the Board of Inland Revenue and to any
restriction of benefits required to ensure that the
Member's total benefits do not exceed the limits
imposed by Appendix C (Inland Revenue limits);
(ii) no part of the cash or other assets received (other
than any part which the transferor shall certify to be
derived from or deemed to be derived from contributions
made by the Member) shall be treated as if it had been
derived from contributions paid by the Member;
(iii) the Trustees shall have the same power to deduct tax
from any payment made to the Member as had the
transferor; and
(iv) the Trustees shall ascertain the period of statutory
Qualifying Service to which the transfer relates and
the maximum permitted lump sum commutation in respect
of the transferred amount consistent with Revenue
Approval.
17.00 [AVAILABLE]
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<PAGE> 53
SECTION V BENEFITS INCREASES
18.00 AUGMENTATION OF BENEFITS
18.01 EXTENSION OF EXISTING BENEFITS AND GRANT OF NEW BENEFITS
The Principal Employer may direct the Trustees to increase or
extend any benefit or benefits under the Scheme, or to grant new or
additional benefits to or in respect of any Member, employee,
director or former employee or director, or any group of such
persons, or to increase or extend such benefits. The Trustees shall
implement the Principal Employer's direction if:-
(i) the Principal Employer pays any sum or sums which the
Trustees, acting on the advice of the Actuary, shall
require in addition to the Employer's ordinary
contributions under Rule 10.01, or if the Actuary
certifies that the Fund is sufficient without any
additional payment, and
(ii) if the increase, extension or grant would not prejudice
Revenue Approval.
The Principal Employer may agree with the Member that it will make
such a direction to the Trustees provided that the cost of so doing
is shared with the Member concerned.
19.00 INDEXATION
19.01 Any increase in the pension payable to or in respect of a Member
under this Rule shall apply to the whole of it.
19.02 PENSIONS IN PAYMENT
Where a Member or his Spouse or Dependant is receiving a pension
under the Scheme, his pension shall be increased on the first day
of any Scheme Year by the percentage (if any) determined under Rule
19.03.
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19.03 AMOUNT OF INCREASE
The annual rate of increase (if any) shall be the lesser of:-
(a) the percentage increase in the Price Index during the
previous calendar year, or
(b) 5%.
19.04 PRESERVED PENSIONS NOT YET IN PAYMENT
A preserved pension shall be increased in respect of the period
after Active Membership ceases up to its payment date or the
earlier date of the Member's death by the same percentage increase
which applied in the relevant Scheme Year to pensions in payment.
19.05 DISCRETIONARY INCREASES
The Principal Employer shall regularly review pensions in payment
and may direct the Trustees that the pensions of Members formerly
in its employment shall be increased to a greater extent than set
out above. The Principal Employer may make a similar direction in
respect of preserved pensions and may apply different rates of
increase to each category. The Trustees shall implement the
Principal Employer's direction if:-
(i) the Principal Employer pays any sum or sums which the
Trustees, acting on the advice of the Actuary, shall
require in addition to the Employer's ordinary
contributions under Rule 10.01, or if the Actuary
certifies that the Fund is sufficient without any
additional payment, and
(ii) if the increase, extension or grant would not prejudice
Revenue Approval.
19.06 PROPORTIONATE INCREASE WHERE ACTIVE MEMBERSHIP CEASES
When Active Membership has ceased during the previous Scheme Year,
any increase awarded shall be adjusted proportionately.
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SECTION VI OPTIONS FOR ALTERNATIVE BENEFITS
20.00 EXCHANGING PENSION FOR LUMP SUM
20.01 HOW OPTION IS EXERCISED
A Member whose pension becomes payable may, subject to the
provisions of this Rule 20.00, elect to give up part of his pension
in exchange for a lump sum. This option shall be exercisable by
written notice to the Trustees and shall take effect on the date
the Member's pension is due to begin.
20.02 CALCULATION OF LUMP SUM
The factors to be employed in converting pension into lump sum
benefit under this Rule are set out in Appendix B.
20.03 LUMP SUM AVAILABLE IN SPECIAL CIRCUMSTANCES: EXCEPTIONAL ILL-HEALTH
Upon the application of or on behalf of any Member entitled to the
payment of a pension under the Scheme who is in exceptionally
serious ill-health (as to which the decision of the Trustees shall
be final) the Trustees may decide to grant to that Member a lump
sum payment instead of his pension and any contingent death
benefits. The amount of the lump sum shall be certified as
reasonable by the Actuary. An appropriate deduction shall be made
for tax (Rule 28.00).
20.04 LUMP SUM AVAILABLE IN SPECIAL CIRCUMSTANCES: PENSION OF
TRIVIAL AMOUNT
Where a pension payable to or in respect of a Member is of a
Trivial Amount, the Trustees may decide to grant to the Member or
other person a lump sum payment payable on the date the Member's
pension is due to commence instead of the Member's pension and any
contingent death benefits. This shall not apply to any pension
remaining after a Member exercises his option to take a lump sum
under this Rule. The factors to be employed in converting pension
into lump sum benefit under this Rule are set out in Appendix B. An
appropriate deduction shall be made for tax (Rule 28.00).
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20.05 LIMIT ON LUMP SUM: REVENUE RESTRICTION
The amount of the lump sum which a Member may take in exchange for
pension shall not exceed the Maximum Approvable Benefit except
where the Member is in exceptionally serious ill-health.
21.00 SURRENDERING PENSION TO PROVIDE A SPOUSE'S OR DEPENDANT'S PENSION
21.01 A Member whose pension becomes payable may, subject to the
provisions of this Rule 21.00, elect in writing to the Trustees to
surrender part of his pension to provide a pension arising after
his death for the benefit of his Spouse and/or one or more
Dependants. That pension shall be payable for life.
21.02 The following conditions apply to the surrender:-
(i) the amount of the pension that may be surrendered (when
aggregated with any pension surrendered under the Basic
Scheme) shall not be more than the total pension
remaining payable to the Member under the Scheme and
under the Basic Scheme (together with the annuity value
of any pension given up for a lump sum), nor shall it
result in the Member's own pension being of a Trivial
Amount;
(ii) arrangements satisfactory to the Trustees shall have
been made in respect of any liability for inheritance
tax or any similar tax;
(iii) in the case of a Dependant, the consent of the Trustees
to that person's nomination shall be necessary. Their
consent shall not be given unless they are satisfied
that the nominee is a person to whose maintenance or
support the Member is contributing or has contributed;
and
(iv) the Trustees may ask the Member to produce a
certificate of good health regard being taken of his
age from a medical practitioner nominated by
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the Trustees, and the surrender shall not take effect
unless they are satisfied on this point.
21.03 The pension resulting from the surrender shall take effect only if
the Member's Spouse or nominated Dependant survives the Member.
Should the Spouse or Dependant die after the Member's own pension
has started to be paid, the Member's pension shall not on this
account be increased.
21.04 The amount of the pension shall be established by the Trustees on
the advice of the Actuary having regard to the amount of the
pension surrendered under the Scheme and the respective ages of the
Member and the Spouse or Dependant at the date on which the
Member's own pension begins to be paid.
21.05 The option shall be exercisable by written notice to the Trustees
specifying the amount of pension to be surrendered. Notice must be
served not earlier than 2 months before nor later than 1 month
after the Member's pension is due to begin, although the Trustees
may at their discretion accept a later notice. Once the option has
been exercised it may not be revoked without the consent of the
Trustees, unless before the date on which the Member's pension is
due to begin either:-
(i) the Member or his Spouse or nominated Dependant should
die; or
(ii) the nominee is the Member's Spouse and the marriage
between them is dissolved;
If this happens, the notice shall be automatically cancelled.
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SECTION VII DEATH BENEFITS
22.00 DEATH OF MEMBER IN SERVICE
22.01 LUMP SUM DEATH BENEFIT
(i) ENTITLEMENT
On the death of:-
- an Active Member; or
- a Member who is on leave of absence or on Overseas
Service under Rule 5.03;
any lump sum death benefit under this Rule 22.01 shall become
payable.
(ii) AMOUNT
The lump sum death benefit shall be the amount (if any) by which 4
times Final Pensionable Salary exceeds (i) the Member's lump sum
death benefit under Rule 22.01 of the WWPS Deed or (ii) the total
of (a) his death grant under Rule 17.01 of the WWMIS Deed and (b)
the amount payable in respect of him under Rule 22.01 of the WWPS
Deed (as appropriate).
(iii) TRUSTS ON WHICH LUMP SUM DEATH BENEFIT TO BE HELD
The lump sum calculated under Rule 22.01 and any other lump sum
specified by the Trustees and arising in respect of a Member's
Voluntary Contributions shall be held by the Trustees upon trust
with power to pay or apply it within 2 years from the date of the
Member's death to or for the benefit of all or one or more of the
Member's Beneficiaries in such shares and proportions (if more than
one) as the Trustees in their discretion shall think fit. Any
balance of the benefit not distributed in this way within the 2
year period shall be paid to the Member's legal representatives,
but in any case where the residue of the Member's estate passes as
bona vacantia, and would, as a result, vest in the Crown, the Duchy
of Lancaster or the Duke of
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Cornwall, no benefit shall be payable under the Scheme. The amount
which would otherwise have become payable shall be held by the
Trustees for the general purposes of the Scheme.
22.02 SPOUSE'S PENSION
(i) ENTITLEMENT AND AMOUNT OF PENSION
Subject to the following paragraphs of this Rule, where
an Active Member dies an annual pension shall be
payable to the Member's Spouse. The amount of the
pension payable to the Member's Spouse shall be equal
to the amount (if any) by which 40% of Final
Pensionable Salary exceeds (i) the Spouse's pension
under Rule 22.02 of the WWPS Deed or (ii) the Spouse's
long-term pension under Rules 17.04 or 17.05 of the
WWMIS Deed as appropriate, subject to the requirements
for Revenue Approval. In the case of a WWMIS Member the
Spouse's pension under this Rule shall not come into
payment until the Spouse's said long-term pension does.
(ii) ADJUSTMENT OF PENSION BECAUSE OF DISPARITY IN AGE
Where the Member's Spouse was born 10 or more years
earlier or later than the Member, the pension shall be
reduced or increased respectively by 2.5 per cent for
every complete year (and proportionately for any period
of less than a complete year) in excess of 10.
22.03 CHILDREN'S PENSIONS
(i) ENTITLEMENT TO PENSION
Subject to paragraph (ii), where an Active Member dies
in Service and is survived by a Child a pension shall
be payable to or for the benefit of that Child and one
other Child.
(ii) AMOUNT OF PENSION
(a) Where a Spouse's pension is payable, the
annual rate of pension payable to or for
the benefit of each Child under this Rule
shall be equal to the amount (if any) by
which 10% of Final
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Pensionable Salary exceeds (i) the Child's
pension under Rule 22.03 of the WWPS Deed
or (ii) the Eligible Child's long-term
pension under Rule 17.08 of the WWMIS Deed
as appropriate, subject to the requirements
for Revenue Approval. In the case of a
WWMIS Member, the Eligible Child's pension
under this Rule shall not come into payment
until the Eligible Child's said long-term
pension does.
(b) Where no Spouse's pension is payable, the
annual rate of pension payable to or for
the benefit of each Child calculated in
accordance with paragraph (a) of this Rule
22.03(ii) shall be doubled, subject to the
requirements for Revenue Approval.
(iii) ALLOCATION WHERE THERE ARE MORE THAN 2 ELIGIBLE CHILDREN
Where there are more than 2 eligible Children, the
total available pension shall be shared equally between
them or for their benefit or in such other proportions
as the Trustees decide.
23.00 DEATH OF MEMBER IN RECEIPT OF PENSION
23.01 LUMP SUM
If a Member who is receiving a pension under the Scheme dies within
5 years of the date payment began, a lump sum equal in value to any
further instalments of pension which would have been payable to the
Member under the Scheme and the Basic Scheme had he survived until
that 5th anniversary, reduced by any lump sum payable in that event
under the Basic Scheme, shall become payable. The Trustees shall
hold the lump sum under the Scheme on discretionary trusts, as
described in Rule 22.01 (iii). In calculating the amount of the
lump sum, any increase in the rate of the Member's pension
applicable before he died shall be included.
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23.02 SPOUSE'S PENSION
(i) ENTITLEMENT TO AND AMOUNT OF PENSION
Subject to the following paragraphs of this Rule, if a
Member dies while he is receiving a pension under the
Scheme an annual pension shall be paid to his Spouse.
The pension shall equal two-thirds of the Member's
total pension he was receiving under the Scheme and the
Basic Scheme at the date of his death (having taken
account of any actuarial reduction or increase and the
exercise of any lump sum or surrender option) reduced
by the Spouse's pension under the Basic Scheme. In the
case of a WWMIS Member the Spouse's pension shall not
come into payment until the Spouse's long-term pension
under Rule 18.03 of the WWMIS Deed does.
(ii) ADJUSTMENT OF SPOUSE'S PENSION
Where the Member's Spouse was born 10 or more years
earlier or later than the Member, the pension under the
Scheme shall be reduced or increased respectively by
2.5 per cent for every complete year (and
proportionately for any period for less than a complete
year) in excess of 10.
23.03 CHILDREN'S PENSIONS
(i) ENTITLEMENT AND AMOUNT
If a Member who is receiving a pension under the Scheme
dies and is survived by a Child a pension shall be
payable to or for the benefit of a Child and any one
other Child. Where a Spouse's pension is payable the
annual rate of the pension payable to or for the
benefit of each Child shall be one-sixth of:-
(i) the Member's total pension under the Scheme
and the Basic Scheme, increased by
(ii) any increases awarded under Rule 19.00.
This amount shall then be reduced by the amount of the Child's
pension under the Basic Scheme.
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If no pension is payable to a surviving Spouse, the annual rate of
each Child's pension shall be one-half of:-
(i) the Member's total pension under the Scheme and the
Basic Scheme, increased by
(ii) any increases awarded under Rule 19.00.
This amount shall then be reduced by the amount of the Child's
pension under the Basic Scheme.
In the case of a WWMIS Member a Child's pension under this Rule
shall not come into payment until his Eligible Child's long-term
pension under Rule 18.05 of the WWMIS Deed does.
(ii) ALLOCATION WHERE THERE ARE MORE THAN 2 ELIGIBLE
CHILDREN
Where there are more than 2 eligible Children, the
total available pension shall be shared equally between
them or for their benefit, or in such other proportions
as the Trustees decide.
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SECTION VIII PAYMENT OF BENEFITS
24.00 PAYMENT OF PENSIONS
24.01 MEMBER'S PENSION
Subject to Rule 12.02(iii) any pension payable under the Scheme
shall be payable to the Member for life by monthly instalments in
arrear or at such other intervals as the Trustees may decide and
notify to him. The last instalment shall be that payable on the
normal payment date coinciding with or immediately following the
date of the Member's death. No apportionment shall be made to the
date of death.
24.02 SPOUSE'S AND DEPENDANT'S PENSIONS
Any Spouse's pension payable under the Scheme (Rules 15.04, 22.00
and 23.00) shall be payable for life (unless he or she remarries)
by monthly instalments in arrear or at such other intervals as the
Trustees may decide and notify to the recipient. The first
instalment shall be payable from (i) the day following the date of
the Member's death (in the case of a WWPS Member) or (ii) the day
on which the Spouse's long-term pension comes into payment under
the appropriate Rule of the WWMIS Deed (in the case of a WWMIS
Member). The last instalment shall be that payable on the normal
payment date coinciding with or immediately following the date of
the recipient's death or remarriage. No apportionment shall be made
to the date of death or remarriage. If the Spouse remarries the
Trustees may at their discretion adjust the amount of or continue
to pay the Spouse's pension. If the Spouse's remarriage comes to an
end, the Trustees may at their discretion reinstate the Spouse's
pension in whole or in part.
24.03 CHILDREN'S PENSIONS
Any pension payable under the Scheme to or for the benefit of a
Child shall be payable from (i) the day following the date of the
Member's death (in the case of a WWPS Member) or (ii) the day on
which the Eligible Child's long-term pension comes into payment
under the appropriate Rule of the WWMIS Deed (in the case of a
WWMIS Member). The last instalment of a Child's pension shall be
that payable on the normal payment date coinciding with or
immediately following the date the
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Child ceases to qualify as such. If when the Member died there were
3 or more Children who shared the aggregate sum available for only
2 Children and 1 or more ceases to be a Child, the Trustees shall
reallocate the total sum amongst those still eligible.
Where pensions are payable to or for the benefit of 2 Children,
there shall be no reallocation of the benefit payable to the other
Child when the pension payable to the other ceases.
24.04 METHOD OF PAYMENT
All pensions payable under the Scheme shall be paid by bank
transfer or in any other way which the Trustees may agree with the
recipient.
24A.00 DISCRETION TO PAY SPOUSE'S PENSIONS TO COMMON LAW SPOUSE OR
DEPENDANT
24A.01 TRUSTEES' GENERAL DISCRETION
In the event of the death of a Member (while in Service or
retirement, or otherwise having ceased to be an Active Member) the
Trustees shall have the following discretions in relation to any
Spouse's pension which is payable under the Rules of the Scheme.
24A.02 DISCRETION WHERE NO SPOUSE'S PENSION PAYABLE
Where a Member dies without leaving a Spouse but leaving a Common
Law Spouse and/or one or more Dependants, the Trustees may, in
their absolute discretion, award in such proportions as they shall
decide all or part of the pension which would otherwise have been
payable to the Member's Spouse to his Common Law Spouse and/or
Dependant or Dependants.
24A.03 DISCRETION WHERE SPOUSE'S PENSION IS PAYABLE
Where the Member was separate from his Spouse at the date of his
death, but was then living with a Common Law Spouse or leaves one
or more Dependants the Trustees may, in their absolute discretion,
award in such proportions as they shall
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decide some or all of the Spouse's pension to the Member's Common
Law Spouse and/or Dependant or Dependants instead of the Member's
Spouse.
25.00 MINORITY OR INCAPACITY OF BENEFICIARY
25.01 If a person entitled to benefit under the Scheme is a minor, or is
in the Trustees' opinion suffering from any physical or other
incapacity which means that he cannot manage his affairs or give a
proper receipt, the Trustees may pay that benefit to the person's
Spouse or to any one or more of his Dependants, or to any bank or
institution or other person or persons to be applied for his
benefit. Payment duly made in good faith in this way shall operate
as a complete discharge to the Trustees or body making payment for
the money so paid, and the Trustees or other body shall not be
under any liability to enquire into the application of the money
paid.
25.02 The Trustees shall also have power to declare in respect of any
benefit payable under the Scheme or any part of those benefits,
such trusts, terms and limitations including such provisions for
maintenance, education or advancement or for accumulation of any
income during a minority and including such discretionary trusts
and powers as the Trustees shall from time to time by deed
revocable or irrevocable appoint. In exercise of their powers, the
Trustees shall not infringe the rule against perpetuities, and any
trusts, terms or limitations so declared shall be constituted and
administered separately from the trusts of the Scheme. The Trustees
shall have power to appoint as trustees of those benefits or part
of those benefits any 2 persons or a corporate trustee (whether or
not being a trust corporation) and to remove any such trustees and
appoint any other trustees in place of any one so removed.
26.00 UNCLAIMED BENEFITS
26.01 Provided the Trustees have taken all reasonable steps to pay or
procure the payment of any pension or other benefit payable under
the Scheme (including a refund of the Member's contributions) or
any instalment of it to the person entitled to that pension or
benefit, if it remains unpaid, and is not claimed by the person
entitled to it for a period of 6 years from the date it became
payable, then the Trustees shall return any moneys forming the
whole or part of that pension or other benefit or instalment to the
Fund and the pension or benefit shall immediately cease to be
payable.
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SECTION IX MISCELLANEOUS
27.00 TRUSTEES' DISCRETION ON NOTICES AND TIME LIMITS
27.01 Any notice required by statute shall be given to the appropriate
person in the prescribed form and the prescribed manner. Subject to
this, where the Rules provide for notices to be given to the
Trustees, the Trustees shall decide the manner in which any such
notice should be given. They shall also have power to vary any time
limit specified in the Rules.
28.00 TAX
28.01 Tax shall be deducted from benefits and any other payments in all
cases where the Trustees have a liability to account for it.
29.00 INHERITANCE TAX
29.01 Where liability to inheritance tax or other similar tax or duty
arises in respect of any Scheme benefit, the Trustees may either
apply the benefit or part of it in payment of such tax or duty
(including any interest due on it) and deduct the amount paid from
the benefit, or postpone paying the benefit until any question
regarding the incidence of the tax or duty has been resolved.
30.00 PROHIBITION OF ASSIGNMENT AND FORFEITURE OF BENEFITS
30.01 PROHIBITION OF ASSIGNMENT OF BENEFITS
No person may in any way assign or charge his beneficial interest
under the Scheme. If he attempts to do so, or becomes bankrupt or
does or allows any act which would result in that person's benefit
being payable wholly or partly to some other person, his benefit
shall be forfeited. This shall not apply where the person is
exercising a Scheme option. The Trustees may apply the benefit in a
case of hardship for the maintenance and personal support of the
person whose benefits are liable to forfeiture and his Spouse or
Dependants or one or more of them. The Trustees may do so in
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any way they think fit, except that they shall not make any payment
to or for the benefit of a person in whose favour the attempted
assignment or charge was to have been made.
30.02 FORFEITURE OF BENEFITS
Any benefit payable or prospectively payable under the Scheme to or
in respect of a Member may at the Trustees' discretion be forfeited
or cease to be payable (as the case may be) where the person
entitled has been convicted of one or more offences:-
(a) which are committed before the benefit becomes payable,
and
(b) which are:
(i) offences of treason;
(ii) offences under the Official Secrets Act
1911 to 1989 for which the person has been
sentenced on the same occasion to a term of
imprisonment of, or to 2 or more
consecutive terms amounting in aggregate
to, at least 10 years; or
(iii) where a pension is payable to a Member's
widow or widower, Dependant or any other
person who is nominated under the Scheme
Rules by the Member and that person is
convicted of the offence of murder or
manslaughter of that Member or any other
offence of which unlawful killing of that
Member is an element.
31.00 DISMISSAL OF EMPLOYEES: DEDUCTIONS FROM BENEFIT
31.01 Nothing in the Scheme shall in any way restrict or fetter the
right of the Employers to dismiss any employee.
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31.02 No Member or other person shall have any claim, right or interest
upon, to or in respect of the Fund or any interest in it, except in
accordance with the provisions of the Scheme.
31.03 In the event of a Member ceasing to be in Service because of his
dismissal (including constructive dismissal) for any reason, the
resulting cessation of his Active Membership shall not be a ground
for any damages or any increase in damages in any action brought
against the Employer or otherwise in respect of the Member's
dismissal.
31.04 Subject to the requirements of section 93 of the 1995 Act, in a
case where a Member is under some monetary obligation to an
Employer arising out of a criminal, negligent or fraudulent act or
omission on his part, the Employer shall be entitled to claim from
the Trustees an amount equal to the amount of the obligation not
exceeding the Member's interest in the Scheme. On proof of the
amount being due, the Trustees shall so far as possible procure the
payment of the claim to the Employer out of any moneys due under
the Scheme to the Member as determined by the Actuary. Any rights
of the Member under the Scheme shall accordingly be reduced except
that the Employers shall have no such right in respect of a
transfer payment to the Fund.
31.05 The Trustees shall certify to the Member the amount recovered and
its effect upon his Scheme benefits. It shall be open to the Member
to agree in writing with the Trustees some alternative method of
recovery. If there is a dispute as to the amount due, the Employer
shall not be entitled to exercise its right of recovery until the
debt in question has become enforceable under a court order, the
award of an arbitrator or (in Scotland) an arbiter. In any such
instance, payment of benefits under the Scheme may be postponed
until it has become clear whether the debt is enforceable or not.
32.00 RIGHT TO INFORMATION
32.01 Members and other beneficiaries shall be entitled to the
information in the form and in the manner prescribed from time to
time by law.
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SECTION X WINDING-UP
33.00 WINDING-UP
33.01 TERMINATING EVENTS
The Scheme shall be wound up in any of the following events:
(a) if the Principal Employer gives written notice of
termination to the Trustees; or
(b) if the Principal Employer is liquidated and is not
replaced as Principal Employer; or
(c) if the Trustees are of the opinion that the objects for
which the Scheme was established no longer exist or
that its administration cannot conveniently be carried
on; or
(d) on attainment of the Final Dissolution Date
33.02 TRUSTEES' POWERS IF A TERMINATING EVENT OCCURS
If the Scheme is to be terminated following one of the events
referred to in Rule 33.01 the Trustees may (with the consent of the
Principal Employer if the Scheme is to be terminated following
written notice by the Principal Employer) postpone the termination
of the Scheme and in the meantime either:
(a) continue it as a closed arrangement under which no
further individual shall be admitted to Membership but
contributions shall continue to be payable except by
any Employer who has given notice of withdrawal under
Rule 33.03, and benefits shall continue to accrue under
the Rules; or
(b) continue it as a paid-up arrangement with frozen
benefits under which no further individual shall be
admitted to Membership, no further
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contributions shall be payable and no further benefits
shall accrue under the Rules.
33.03 WITHDRAWAL OF AN EMPLOYER
An Employer shall cease to participate in the Scheme in any of the
following events:
(a) if the Employer gives written notice to the Trustees
that it wishes to cease to participate in the Scheme;
or
(b) if the Employer is liquidated; or
(c) if the continued participation of the Employer in the
Scheme prejudices Revenue Approval.
The method of determining the proportion of the Fund available to provide
benefits for and in respect of the Members employed or formerly employed by the
Employer is set out in Rule 33.06.
33.04 BENEFITS OF MEMBERS IN SERVICE
On the winding up of the Scheme, Members in the Service of an
Employer in respect of whom the Scheme is wound-up who have not
retired shall be treated as if their Service had then terminated,
except that no Member shall be entitled to a refund of his
contributions.
33.05 APPLICATION OF THE FUND ON WINDING-UP
(1) Upon the winding-up of the Scheme under Rule 33.01 the
Trustees shall, after paying all costs, charges and
expenses, apply the Fund so far as it permits in
securing:
(a) any liability for pensions or other
benefits which, in the opinion of the
Trustees, are derived from the payment by
any Member of Voluntary Contributions;
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(b) where:-
(i) the Trustees or managers of the Scheme are
entitled to benefits under a contract of
insurance which was entered into before
6th April 1997 with a view to securing the
whole or part of the Scheme's liability
for any pension or other benefit payable
in respect of one particular person whose
entitlement to payment of a pension or
other benefit has arisen and for any
benefit which will be payable in respect
of that person on his death, and
(ii) either that contract may not be
surrendered or the amount payable on
surrender does not exceed the liability
secured by the contract (but excluding
liability for increases to pensions),
the liability so secured.
(c) in a case not falling within paragraph (b) where a
person's entitlement to payment of pension or other
benefit has arisen, liability for that pension or
benefit and for any pension or other benefit which will
be payable in respect of that person on his death (but
excluding increases to pensions)
(d) any liability:-
(i) for equivalent pension benefits (within
the meaning of section 57(1) of the
National Insurance Act 1965), guaranteed
minimum pensions, protected rights or
section 9(2B) rights (within the meaning
of regulation 1(2) of the Contracting-out
(Transfer and Transfer Payments)
Regulations 1996) (but excluding increases
to pensions), or
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(ii) in respect of Members with less
than two years' pensionable
service (as defined in the 1995
Act) (who are not entitled to
accrued rights under the Scheme,
for the return of contributions,
(e) any liability for increases to pensions
referred to in paragraphs (b) and (c);
(f) any liability for increases to pensions
referred to in paragraph (d);
(g) so far as not included in paragraph (d) or
(f), any liability for pensions or other
benefits which have accrued to or in
respect of any Members (including increases
to pensions).
(2) If the assets of the Scheme exceed the liabilities
specified above, the Trustees may, with the consent of
the Principal Employer (except that where an
unconditional offer for the issued share capital
conferring majority voting rights in respect of the
Principal Employer or any company controlling the
Principal Employer has been made and has not been
withdrawn the consent of the Principal Employer shall
not be required):-
(a) apply all or any part of the balance in
increasing the pensions or other benefits
specified above subject to the Maximum
Approvable Benefit not being exceeded, and
(b) provide benefits in a different form from
those specified in the Rules.
(3) After applying the assets of the Scheme in order to
meet the liabilities specified in Rule 33.05(1) and
after any increase of benefits under Rule 33.05(2) the
Trustees shall subject to section 76 of the 1995 Act
pay or
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transfer any balance of the assets to one or more of
the Employers in such proportions as the Trustees shall
determine.
(4) The order of priority in Rule 33.05(1) shall be varied
to the extent (if any) necessary to comply with the
1995 Act.
33.06 METHOD OF CALCULATING PROPORTION OF FUND ON WITHDRAWAL OR DISPOSAL
OF AN EMPLOYER OR UNDERTAKING
As at the date an Employer withdraws from the Scheme under Rule
33.03 the Principal Employer shall determine on the advice of the
Actuary the proportion of the Fund (the "Segregated Fund")
attributable to those Members employed or formerly employed by the
Employer. The Segregated Fund shall not without the consent of the
Principal Employer exceed the lesser of:-
(a) the Members' Cash Equivalents (less the value of the
liabilities for guaranteed minimum pensions where these
are retained by the Scheme) and
(b) the amount found by relating the total Fund assets to
total Fund liabilities and applying that proportion to
the accrued liabilities of the Members concerned
as at that date.
For the purpose of this Rule "Employer" includes any undertaking or
business carried on by any of the Employers.
The costs, charges and expenses relating to this Rule shall be
borne by the Segregated Fund and the Fund in the proportion
determined by the Principal Employer.
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33.07 METHODS OF SECURING BENEFITS
The benefits specified in Rule 33.05 shall be secured or the
proportion of the Fund determined under Rule 33.06 applied:
(a) by a transfer of assets in accordance with Rule 15.05;
or
(b) by the purchase of annuities or other assurance
policies from an Approved Insurer; or
(c) in some other manner permitted under section 74 of the
1995 Act.
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APPENDIX A - DEFINITIONS
1.01 "ACTIVE MEMBER" means a Member in Service, who has not attained
Normal Pension Date and who is by reason of contributions made by
or in respect of him earning benefits under the Scheme by reference
to Service after the Commencement Date. References to "Active
Membership" are references to the status of being an Active Member.
1.02 "ACTUARY" means a Fellow or a firm of Fellows of the Institute or
Faculty of Actuaries except that in relation to services which
under the 1995 Act must be provided by the Scheme Actuary as
defined in the 1995 Act, the Actuary shall be the individual
appointed by the Trustees as the Scheme Actuary.
1.03 "APPROVED INSURER" means an insurance company which is carrying on
ordinary long-term insurance business in the United Kingdom or any
other member State of the European Community (and which is
authorised by the competent authority of the relevant member State)
or an authorised friendly society as defined in regulation 6(4) of
the Occupational Pension Schemes (Preservation of Benefits)
Regulations 1991.
1.04 "ASSOCIATED EMPLOYER" means any company or undertaking which is
controlled by or associated in business with the Principal
Employer, or whose participation in the Scheme will not prejudice
Revenue Approval.
1.05 "BASIC SCHEME" means the WWMIS or WWPS (as appropriate).
1.06 "BASIC SCHEME 6% LEVEL MEMBER" means an Employee who is currently
paying ordinary contributions to the Basic Scheme at the rate of 6%
of pensionable earnings or pensionable salary (as appropriate)
thereunder.
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1.07 "BENEFICIARIES" means:-
(i) the Member's spouse, or any ancestor or descendant
(however remote) of the Member or of his spouse, and
the spouse of any such ancestor or descendant;
(ii) the Member's step-children, brothers or sisters
(whether of the whole or of the half-blood) and any
descendant of any such brothers or sisters, and the
spouse of any such brother or sister or of any
descendant of a brother or sister;
(iii) the Member's step-brother or step-sister, whether the
Member was or was not liable for or to contribute to
their maintenance or support;
(iv) the Member's Common Law Spouse;
(v) any other person who, in the Trustees' opinion has been
dependent or partly dependent upon the Member for
maintenance or support or who had a moral claim on that
Member;
(vi) any person or body (whether or not charitable) of whom
the Member has notified the Trustees as being a person
or body he wishes to be considered as a recipient of
benefit in the event of his death;
(vii) any person or body beneficially interested under any
testamentary disposition of the Member; and
(viii) the Member's personal representatives.
For the purposes of this definition:-
(a) "SPOUSE" includes wife, husband, widow, widower, and
any former wife or husband, and a person with whom the
Member has gone through any ceremony of marriage;
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(b) "DESCENDANT" includes persons who are illegitimate,
persons claiming by reason of adoption, or by reason of
having been treated as children of the family;
(c) the class of Beneficiaries shall be closed at the date
of the Member's death, except that it shall include
persons then conceived who, if they had been born,
would have fallen within the class set out above.
1.08 "CASH EQUIVALENT" means the value of the benefits which have
accrued to and in respect of a Member who ceases to be an Active
Member (including any benefits arising in respect of a Member's
Voluntary Contributions) calculated in accordance with methods and
assumptions approved and certified by the Actuary to the Trustees:-
(i) as being consistent with the requirements of Chapter IV
of Part IV of the 1993 Act;
(ii) as being consistent with the edition of "Retirement
Benefit Schemes - Transfer Values (GN11)" published by
the Institute of Actuaries and the Faculty of Actuaries
current at the Guarantee Date, or if the Cash
Equivalent is of money purchase benefits, at the
Relevant Date;
(iii) as being consistent with the methods adopted and
assumptions made, at the time the Actuary's certificate
is issued, in calculating the benefits to which
entitlement arises under the Rules of the Scheme for a
person who is acquiring transfer credits thereunder;
and
(iv) (for as long as the minimum funding requirement
referred to in section 56 of the 1995 Act applies to
the Scheme) as providing as a minimum an amount
consistent with the methods and assumptions adopted in
calculating, for the purposes of section 57 of that Act
(valuation and certification of assets and
liabilities), the liabilities mentioned in paragraphs
(a), (c)(i) and (d) of section 73(3) of that Act
(preferential
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liabilities on winding up), subject, in any case where
the Cash Equivalent calculation is made on an
individual and not a collective basis, to any
adjustments which are appropriate to take account of
that fact.
Where a Cash Equivalent or any proportion of a Cash Equivalent
relates to money purchase benefits which do not fall to be valued
in a manner which involves making estimates of the value of
benefits, then that Cash Equivalent or that portion shall be
calculated and verified in such manner as may be approved in
particular cases by the Trustees and in accordance with methods
consistent with the requirements of Chapter IV of Part IV of the
1993 Act.
1.9 "CHILD" or "CHILDREN" means a Member's child or children including
an unborn child and an adopted child. An illegitimate child,
step-child or child accepted as a child of the family is not
included unless the child was dependent on the Member at the time
of the Member's death. For the purposes of the Scheme a person
remains a Child until:-
(i) he attains age 17 or
(ii) until age 21
(a) if he continued in full-time education or
professional or vocational training which
will continue for at least 2 years unless
the Trustees at their discretion accept a
shorter period, or
(b) for so long as he is unable to support
himself financially by reason of physical
or mental incapacity which arose before the
Member's death
The Trustees may at their discretion continue to treat a person as
a Child after he has attained age 21 while he continues in
full-time education or professional or vocational training or is
suffering from mental or physical incapacity and is unable to
support himself financially.
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1.10 "COMMENCEMENT DATE" means 6 April 1990.
1.11 "COMMON LAW SPOUSE" means the person (if any) with whom a deceased
Member lived as if he was married (but without having entered into
any legally recognised marriage ceremony) at the date of his death.
Where the Trustees decide that there are 2 or more persons who
qualify under this definition the Trustees may divide the benefit
between the persons in such proportions as they think fit and may
exclude one or more persons from benefit if they likewise think
fit.
1.12 "DEFINITIVE DEED" means the definitive trust deed to which this
Schedule is attached, and all amendments and modifications to it
made from time to time.
1.13 "DEPENDANT" means the Member's Child, common law spouse or any
other person who, in the opinion of the Trustees, falls into this
category being at the date of the Member's death financially
dependent or partly dependent upon him for maintenance or support.
"Dependants" means all such persons.
1.14 "DISCLOSURE REGULATIONS" means the Occupational Pension Schemes
(Disclosure of Information) Regulations 1996.
1.15 "EMPLOYEE" means an employee or director of an Employer.
1.16 "EMPLOYERS" means the Principal Employer and those Associated
Employers admitted to participation in the Scheme, or such one or
more of any of them as the context shall determine or the
circumstances require. "Employer" in relation to any person means
whichever it is of the Employers in whose employment that person is
or was at the relevant time, or those Employers (if more than one)
in whose employment he has been during the relevant period. In the
event of any dispute as to whether a person is an eligible employee
the decision of the Principal Employer shall be final.
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1.17 "EMPLOYER'S OTHER SCHEMES" means all United Kingdom retirement
benefits schemes (other than the Scheme) of the Employers or any of
them, or to which the Employers or any of them contributes or has
contributed.
1.18 "FINAL DISSOLUTION DATE" means the day before the 80th anniversary
of the Commencement Date, or such later date as may then be lawful
in relation to the continuation of the trusts of the Scheme.
1.19 "FINAL PENSIONABLE SALARY" means the greater of:-
(a) the Pensionable Salary payable to the Member in the 12
months ending on the last day of a Member's Active
Membership
and
(b) the highest average Pensionable Salary payable to the
Member in 3 consecutive tax years ending not earlier
than 10 years before Normal Pension Date or the earlier
date of cessation of Active Membership. In making this
calculation each year's Pensionable Salary shall be
separately increased in proportion to the increase in
the Price Index during the period between the end of
that year and the Member's Normal Pension Date or
earlier cessation of Active Membership.
1.20 "FUND" means the assets of the Scheme from time to time, including
the contributions, transfer payments, capital and income receipts
held by or on behalf of the Trustees upon the trusts of the Scheme.
1.21 "FUND MANAGER" has the same meaning as in section 124 of the 1995
Act.
1.22 "GUARANTEE DATE" has the same meaning as in section 93A(2) of the
1993 Act.
1.23 "INCAPACITY" means physical or mental ill-health or infirmity which
in the Principal Employer's opinion:-
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(i) is permanent;
(ii) prevents the individual from following his normal
employment; and
(iii) seriously impairs his earning capacity.
1.24 "MAXIMUM APPROVABLE BENEFIT" means the relevant maximum benefit
which may be provided under the Scheme whilst complying with
Appendix C to the Rules.
1.25 "MEMBER" means a person who has been admitted to Membership and
remains entitled to benefit under the Scheme. In relation to each
of the Employers, any reference to Members means those Members in
or formerly in its Service. References to "Membership" are
references to the status of being a Member.
1.26 "NORMAL PENSION DATE" means the day before a Member attains age 60.
1.27 "OVERSEAS SERVICE" in respect of a Member means:-
(i) service in the employment of the Employers outside the
United Kingdom, or
(ii) secondment by the Employers to service outside the
United Kingdom either with one of the Employers or
otherwise on its behalf PROVIDED that either:-
(a) such service is specified to be for a
period not exceeding 36 months, or
(b) the Trustees obtain the agreement of the
Board of Inland Revenue to the continued
participation of the Member in the Scheme.
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1.28 "PENSIONABLE SALARY" means:-
(a) in respect of an Active Member who participates in a
profit-related pay scheme registered under Chapter III of Part
V of the Income and Corporation Taxes Act 1988, the annual
notional rate of salary and wages payable to the Member in
respect of contractual hours of employment (as determined by
the Employer) such notional amount being the salary and wages
which would have been payable had the profit-related pay
scheme not been introduced; and
(b) in respect of any other Active Member, the annual rate of
salary and wages payable to the Member in respect of
contractual hours of employment
together in each case with:-
(i) local weighting;
(ii) all bonus payments (inclusive of contractual and conditional
overtime and interim productivity payments but excluding
casual overtime payments);
(iii) lead-in payments;
(iv) stand-by payments; and
(v) "protected" payments corresponding to any of the above items
of pay.
Benefits in kind, payments in lieu, payments under a profit-related pay
scheme registered as aforesaid, or any other payments made to an
employee which are not set out above shall not be pensionable.
Subject to the agreement of the Trustees, the Principal Employer shall
from time to time be entitled to classify as Pensionable Salary any
payments excluded or not mentioned above.
1.29 "PENSIONABLE SERVICE" means in relation to a Member, the total
period of complete years (and pro rata for any period of complete
months):-
(a) of Active Membership; and
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(b) which was reckonable as pensionable under the Basic
Scheme, ending on the day next preceding the day on
which he became a Member
Any period under (a) or (b) which is less than a complete month
shall be treated as a complete month. No period shall be reckoned
twice. Any period of Pensionable Service in respect of which a
pension is being or has already been paid under the Scheme shall be
excluded.
1.30 "PERSONAL PENSION" means a personal pension scheme approved under
Chapter IV of Part XIV of the Taxes Act.
1.31 "PRICE INDEX" means the Index of Retail Prices published by the
Department of Employment, or such other index as may from time to
time be approved for use for this purpose by the Board of Inland
Revenue.
1.32 "PRINCIPAL EMPLOYER" means Wessex Water Plc and shall unless
inconsistent with the context include any other company, body,
undertaking or person which or who:-
(i) succeeds to the business or a substantial part of the
business of the Principal Employer in any way; or
(ii) is the holding company of the Principal Company or of a
company body or undertaking falling within (i) above
and which pursuant to Clause 1.05 shall with the consent of the
Trustees by deed have assumed the obligations of the Principal
Employer under the Scheme.
1.33 "QUALIFYING SERVICE" means the aggregate of:-
(i) periods of Active Membership whether or not continuous;
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(ii) every period of membership of another retirement
benefits fund scheme or arrangement in respect of which
the Trustees have received a transfer payment; and
(iii) periods of absence from Service by a Member of the
Scheme for the reasons specified in Rule 5.03 excluding
any periods of unauthorised absence.
PROVIDED that:-
(a) no account shall be taken of any period which does not
qualify the Member for those benefits under the Scheme
which would be payable to or in respect of him if he
remained in Service until Normal Pension Date;
(b) no period shall be reckoned twice;
(c) interruptions of an interval not exceeding 1 month and
1 day in continuous Service, employment or membership
as aforesaid shall be disregarded; and
(d) interruptions in continuous Service, employment or
membership as aforesaid which are attributable to
maternity absences arising from the exercise of a right
granted by the Employment Rights Act 1996 shall be
disregarded.
1.34 "REGULATORY AUTHORITY" means the Occupational Pensions Regulatory
Authority or the Department of Social Security or any other
statutory body which has supervisory powers in relation to the
Scheme.
1.35 "RELEVANT BENEFITS" has the meaning given in Section 612(1) of the
Taxes Act.
1.36 "RELEVANT DATE" has the meaning given in section 94(2) of the 1993
Act.
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1.37 "REVENUE APPROVAL" means approval of the Scheme by the Board of
Inland Revenue as an exempt approved scheme for the purposes of the
Taxes Act.
1.38 "RULES" means the rules set out in the Schedule to the Definitive
Deed and any amendments or modifications to them from time to time
made.
1.39 "SCHEDULE OF CONTRIBUTIONS" means the schedule required by
section 58 of the 1995 Act.
1.40 "SCHEME" means the retirement benefits scheme set out in the
Definitive Deed and the Rules.
1.41 "SCHEME YEAR" means the twelve calendar months commencing on 1st
April in each year.
1.42 "SERVICE" means employment as a permanent employee or a director
with an Employer whether in Great Britain, Northern Ireland or such
other territory or territories as the Employers may with the
approval of the Board of Inland Revenue from time to time agree.
For the purpose of the Rules transfer from one to another of the
Employers shall not be construed as termination or interruption of
Service.
1.43 "SPOUSE" means the person (if any) to whom a deceased Member was
married at the date of his death. Where any benefit is expressed
under the Rules as being payable to a Spouse, it shall be payable
as of right only to the person who qualifies as above. In the event
of the Trustee deciding that there are in consequence 2 or more
persons eligible for benefit it may divide the benefit between them
in such proportions as it thinks fit and may exclude one or more
persons from benefit if it likewise thinks fit.
1.44 "STATEMENT OF INVESTMENT PRINCIPLES" means the written statement
required by section 35(1) of the 1995 Act.
1.45 "TAXES ACT" means the Income and Corporation Taxes Act 1988 and any
regulations made from time to time under the Act.
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1.46 "TOP-UP PENSION" means an annual pension at Normal Pension Date
calculated as set out in Rule 11.02.
1.47 "TRIVIAL AMOUNT" in relation to the amount of a pension means an
annual rate not exceeding(pound)260 or such higher rate as may be
prescribed from time to time by regulations made under the 1993 Act
and as is consistent with Revenue Approval.
1.48 "TRUSTEES" means the trustee or trustees for the time being of the
Scheme.
1.49 "VOLUNTARY CONTRIBUTIONS" means the contributions a Member makes
voluntarily in order to secure additional benefits under the
Scheme.
1.50 "WASF" means the statutory scheme administered in accordance with
the Local Government Superannuation Regulations 1986 as amended
from time to time.
1.51 "WWMIS" means the Wessex Water Mirror Image Pension Scheme which
was established by a trust deed dated 31 August 1989.
1.52 "WWMIS DEED" means the Definitive Trust Deed and Rules of the WWMIS
dated 15 June1992 as amended from time to time.
1.53 "WWMIS MEMBER" means a member of the WWMIS.
1.54 "WWPS" means the Wessex Water Pension Scheme which was established
by a trust deed dated 28 June 1988.
1.55 "WWPS DEED" means the Definitive Trust Deed and Rules of the WWPS
dated 31 August 1989 as amended from time to time.
1.56 "WWPS MEMBER" means a member of the WWPS.
1.57 "1993 ACT" means the Pension Schemes Act 1993.
1.58 "1995 ACT" means the Pensions Act 1995.
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APPENDIX B - LUMP SUM COMMUTATION FACTORS
LUMP SUM FOR EACH
AGE AT THE PAYMENT (POUND)1 PER ANNUM OF
DATE OF PENSION RETIREMENT PENSION
65 10.80
64 11.04
63 11.28
62 11.52
61 11.76
60 12.00
59 12.24
58 12.48
57 12.72
56 12.96
55 13.20
54 13.44
53 13.68
52 13.92
51 14.16
50 14.40
49 14.64
48 14.88
47 15.12
46 15.36
45 15.60
44 15.84
43 16.08
42 16.32
41 16.56
40 16.80
NOTE:
1. The factors are appropriate to the exact age. They may be
calculated by interpolation in respect of the actual age at the
payment date.
2. The rate appropriate to age 40 will be used for Members retiring
under age 40.
3. If the Trustees consider that the foregoing factors are
insufficient or inappropriate for a particular purpose they may
determine the use of other factors on the advice of the Actuary.
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APPENDIX C - REVENUE LIMITATIONS
In addition to the definitions in Appendix A, the following definitions apply to
this Appendix:-
"AGGREGATE RETIREMENT BENEFIT" means the total of
(i) a Member's pension arising from the Scheme and any Associated Scheme.
For a Special Director who is a 1989 Member, Aggregate Retirement
Benefit also includes any benefits from either a retirement annuity
contract approved under the Taxes Act or a Personal Pension insofar as
those benefits are secured in respect of Service; and
(ii) the pension value of a Member's Lump Sum Retirement Benefit. In
calculating the amount of the Aggregate Retirement Benefit of a 1989
Member who ceases to be in Active Membership on or after 31st August
1991 the pension equivalent of the Member's Lump Sum Retirement Benefit
is one twelfth of its total cash value.
"ASSOCIATED EMPLOYMENT" shall mean two or more concurrent employments held by
the Member which are associated, i.e. where
(i) there is a period where the Member has held all of them,
(ii) the period counts under the Scheme in the case of all of them as a
period in respect of which benefits are payable, and
(iii) during the period all the Employers in question are associated.
"ASSOCIATED SCHEME" means
(i) for a 1989 Member any Relevant Scheme which is a Connected Scheme or
which provides benefits in respect of Service, or
(ii) for a pre-1989 Member any Relevant Scheme providing benefits in respect
of Service.
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"CONNECTED SCHEME" means any Relevant Scheme which is connected to the Scheme in
relation to a Member, i.e if
(i) there is a period during which the Member has been employed by two of
the Employers
(ii) the period counts under both schemes as a period in respect of which
benefits are payable and
(iii) the period counts under one scheme for Service with one Employer and
under the other scheme for Service with the other Employer.
"FINAL REMUNERATION" is the greater of
(i) the Member's fixed remuneration from the Employer for any one of the
five years before Active Membership ends, plus the yearly average of
fluctuating earnings for the three years (or other period decided by
the Trustees as would not affect Revenue Approval) before the end of
that year and
(ii) the average of the Member's total earnings from the Employers for any
three or more consecutive years in the ten years before Active
Membership ends
subject to the following:-
(a) for a Member in Service whose remuneration has been substantially
reduced due to Incapacity for a period of more than ten years before
Active Membership ends, Final Remuneration may be calculated at the
date when the Member's remuneration was first reduced, and then
increased in accordance with the Price Index
(b) where Final Remuneration is calculated using a year other than the
twelve months before Active Membership ends, the Member's actual
remuneration for that year may be increased in proportion to any rise
in the Price Index from the last day of that year up to the end of
Active Membership.
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For a pre-1987 Member, this method may only apply to the calculation of
the maximum amount of the cash payment for the purposes of Revenue
Limitations if it is also used to increase the Member's pension
benefits in the same proportions.
(c) an early retirement pension from the Employers may not be included in
Final Remuneration
(d) No account will be taken of any earnings connected with shares or the
right to acquire shares or anything where tax is chargeable under
section 148 of the Taxes Act except where the shares or rights had been
acquired before 17th March 1987
(e) for a Special Director, or any other Member whose remuneration in any
tax year after 5th April 1987 has exceeded (pound)100,000 (or other
figure prescribed in a Treasury order), Final Remuneration is
calculated as in (ii) above
(f) for a Pre-1989 Member in calculating the maximum amount of the Lump Sum
Retirement Benefit the maximum Final Remuneration is (pound)100,000 (or
other figure prescribed in a Treasury order). This restriction shall
not apply to a pre-1987 Member.
(g) For a 1989 Member the maximum Final Remuneration shall not exceed the
Permitted Maximum and
(h) the total amount of any profit-related pay (whether relieved from
income tax or not), and benefits in kind assessed for tax under
Schedule E (or in other circumstances agreed with the Inland Revenue),
may be included under (i) and (ii) above and treated as fluctuating
earnings.
"FSAVCS" means a freestanding additional voluntary contribution arrangement
outside the terms of the Scheme to which the Member has contributed.
"LUMP SUM RETIREMENT BENEFIT" means the total value of all retirement benefits
payable in any form other than non-commutable pension arising from the Scheme
and any Associated
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Scheme. For a Special Director who is a 1989 Member, Lump Sum Retirement Benefit
also includes any benefits from either a retirement annuity contract approved
under Chapter III of Part XIV of the Taxes Act or a Personal Pension insofar as
those benefits are secured in respect of Service.
"NORMAL RETIREMENT DATE" means the date of attainment by a Member of the age
specified in the Scheme Rules as the age at which a Member should normally
retire.
"PERMITTED MAXIMUM" has the same meaning as in section 590C of the Taxes Act.
"RELEVANT SCHEME" means any other scheme approved or seeking approval under the
Taxes Act.
"REMUNERATION" in relation to any year means
(i) for a 1989 Member the aggregate of the total earnings for the year in
question
(a) from the Employer and
(b) in respect of any Associated Employment or any Connected
Scheme
which are assessable to income tax under Schedule E but excluding any
earnings connected with shares or the right to acquire shares or
anything where tax is chargeable under Section 148 of the Taxes Act. No
earnings in excess of the Permitted Maximum are included.
(ii) for a pre-1989 Member total earnings from the Employers in the year in
question which are assessable to income tax under Schedule E but
excluding any earnings connected with shares or the right to acquire
shares or anything where tax is chargeable under section 148 of the
Taxes Act.
"SERVICE" for the purposes only of this Appendix C of the Rules means:-
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(i) for a 1989 Member the aggregate of
(a) all periods of service with the Employer; and
(b) all other periods which count in respect of any Associated
Employment or any Connected Scheme
For a Special Director who is a 1989 Member, this definition shall not
include a period of service for an employer who is associated with the
Principal Employer by virtue of a permanent community of interest
rather than because one employer is controlled by the other or both are
controlled by a third party. Where both such employers are
participating in the Scheme separate calculations of maximum benefits
are required in respect of the separate periods of Service. For the
purpose of this paragraph, "control" has the meaning in section 840 of
the Taxes Act or, in the case of a close company, section 416 of the
Taxes Act.
(ii) for a pre-1989 Member service with the Employer.
"SPECIAL DIRECTOR" means a Member who, at any time on or after 17 March 1987 and
in the last ten years before retirement or otherwise ceasing to be in
Pensionable Service, has been a director of the Employer within the definition
of sections 417(5)(b) and 612(1) of the Taxes Act.
"1989 MEMBER" means a Member who is not a pre-1989 Member.
"PRE-1989 MEMBER" means a Member who joined the Scheme before 1 June 1989 or who
the Board of Inland Revenue have agreed in writing to be a pre-1989 Member by
virtue of previous membership of WASF or another retirement benefits scheme and
who has not opted to become a 1989 Member. A pre-1989 Member may opt to be
treated as a 1989 Member at any time before benefits commence, are bought out or
otherwise transferred from the Scheme or the attainment of age 75, whichever
first occurs.
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"PRE-1987 MEMBER" means a pre-1989 Member who the Board of Inland Revenue have
agreed in writing to be a pre-1987 Member by virtue of previous membership of
WASF or another retirement benefits scheme and who has not opted to become a
1989 Member.
A. BENEFITS OF 1989 MEMBERS
1. The 1989 Member's Aggregate Retirement Benefit shall not exceed:-
(a) on retirement at any time between age 50 and age 75,
except before Normal Retirement Date on grounds of Incapacity,
a pension of l/60th of Final Remuneration for each year of
Service (not exceeding 40 years) or such greater amount as
will not prejudice Revenue Approval; or
(b) on retirement at any time before Normal Retirement Date on
grounds of Incapacity, a pension of the amount which could
have been provided at Normal Retirement Date in accordance
with l(a) above; Final Remuneration being computed as at the
actual date of retirement; or
(c) on leaving Active Membership before attaining age 75, a
pension of l/60th of Final Remuneration for each year of
Service (not exceeding 40 years) or such greater amount as
will not prejudice Revenue Approval. The amount computed as
aforesaid may be increased by 5% for each complete year or, if
greater, in proportion to any increase in the Price Index
which has occurred between the date of termination of Active
Membership and the date on which the pension begins to be
payable. Any further increase necessary to comply with DSS
requirements is also allowable.
2. Subject always to the provisions of Rule 9.02 (relating to the
provision of non-commutable pensions by Members' voluntary
contributions) the 1989 Member's Lump Sum Retirement Benefit shall not
exceed:-
(a) on retirement at any time between attaining age 50 and
attaining age 75, except before Normal Retirement Date
on grounds of Incapacity, 3/80ths of
86
<PAGE> 94
Final Remuneration for each year of Service (not
exceeding 40 years) or such greater amount as will not
prejudice Revenue Approval; or
(b) on retirement at any time before Normal Retirement Date
on grounds of Incapacity, the amount which could have
been provided at Normal Retirement Date in accordance
with 2(a) above; Final Remuneration being computed as
at the actual date of retirement; or
(c) on leaving Active Membership before attaining age 75, a
lump sum of 3/80ths of Final Remuneration for each year
of Service (not exceeding 40 years) or such greater
amount as will not prejudice Revenue Approval. The
amount computed as aforesaid may be increased in
proportion to any increase in the Price Index which has
occurred between the date of termination of Active
Membership and the date on which the pension begins to
be payable but only if and to the same extent as the
total benefits have been increased under l(c) above.
Provided always that the provisions of this paragraph
2. shall not apply to a pension commuted on the grounds
of triviality.
3. The lump sum benefit (exclusive of any refund of a Member's own
contributions and any interest thereon), payable on the death of a
Member while in Service or who having left Active Membership dies
before the commencement of pension shall not, when aggregated with all
like benefits under Associated Schemes, exceed 4 times Final
Remuneration (excluding anything under paragraph (d) of the definition
of Final Remuneration) or, if greater, (pound)5,000, less
(i) any lump sum (other than a refund of a Member's own
contributions) payable on the death of the Member under all
Relevant Schemes in respect of service with previous
employers, and
(ii) any lump sum life assurance benefit payable (other than a
refund of contributions or premiums paid by the Member) on the
death of the Member under a retirement annuity contract or
trust scheme approved under Chapter III of Part XIV of the
Taxes Act or a Personal Pension
87
<PAGE> 95
if the aggregate of such lump sums exceeds (pound)2,500.
4. Any pension for a spouse or a Dependant of the 1989 Member, when
aggregated with the pensions, other than those provided by surrender of
a Member's own pension, payable to that spouse or Dependant under or
arising from all Associated Schemes, shall not exceed an amount equal
to 2/3rds of the Aggregate Retirement Benefit -
(a) being paid to the Member at the date of death (including any
pension increases), or
(b) being a deferred benefit payable to the Member at any time
between attaining age 50 and attaining age 75, or
(c) prospectively payable to a Member, if the Member dies in
Service, if the Member remained in Service up to Normal
Retirement Date at the rate of pay in force immediately before
the Member's death, or
(d) prospectively payable to the Member on death in Service after
Normal Retirement Date on the basis that retirement took place
on the day before the date of death,
or such greater amount as will not prejudice Revenue Approval.
If pensions are payable to more than one Dependant of a Member, the
aggregate of all spouse's pensions and Dependants' pensions so payable
under or arising from this and all Associated Schemes shall not exceed
the full amount of whichever is the appropriate Aggregate Retirement
Benefit under (a), (b), (c) or (d) above or such greater sum as will
not prejudice Revenue Approval.
5. The maximum amount of a pension ascertained in accordance with this
section A, less any pension which has been commuted for a lump sum or
given up in order to provide an annuity for a Dependant, may be
increased by 3% for each complete year or, if
88
<PAGE> 96
greater, in proportion to the increase in the Price Index which has
occurred, since the pension commenced to be paid.
6. The preceding provisions of this section A shall be modified in their
application to a Member who is or has been during membership of the
Scheme a Special Director so that the amount of the maximum Aggregate
Retirement Benefit in 1. and of the maximum Lump Sum Retirement Benefit
in 2. shall be reduced, where necessary for continuance of Revenue
Approval, so as to take account of any corresponding benefits under
either a retirement annuity contract or trust scheme approved under
Chapter III of Part XIV of the Taxes Act or a Personal Pension.
7. Where, in addition to being a Member, the 1989 Member is also a member
of a FSAVCS, the provisions of the following sentence shall apply in
relation to any augmentation of the benefits provided for the Member by
the Scheme after withdrawal from the Scheme. Any provisions in the
Scheme imposing a limit on the amount of a benefit provided for the
Member shall have effect (notwithstanding anything in them to the
contrary) as if they provided for the limit to be reduced by the amount
of any like benefit provided for the Member by the FSAVCS.
8. For a 1989 Member, the Scheme provisions shall have effect
(notwithstanding anything in them to the contrary) as if they provided
that a Member's retirement benefit shall be paid no later than the date
on which he attains age 75.
9. If the 1989 Member elects to take any part of the benefits under the
Scheme in advance of actual retirement, the limits set out in 1. and 2.
above shall apply as if the Member had retired at the effective date of
the election as aforesaid, no account being taken of subsequent
Service, except that the maximum amount of any uncommuted pension not
commencing immediately may be increased either actuarially in respect
of the period of deferment or in proportion to any increase in the
Price Index during that period.
89
<PAGE> 97
B. BENEFITS OF PRE-1989 MEMBERS
(1) The pre-1989 Member's Aggregate Retirement Benefit shall not exceed:-
(a) on retirement from Active Membership at (or on retirement
before) Normal Retirement Date, a pension of l/60th of Final
Remuneration for each year of Service (not exceeding 40 years)
or such greater amount as will not prejudice Revenue Approval;
or
(b) on retirement (or, when applicable, deemed retirement in
accordance with (6) below) after Normal Retirement Date, a
pension of the greatest of: -
(i) the amount calculated in accordance with whichever is
applicable of (l)(a) above and (l)(c) below on the
basis that the actual date of retirement (or, when
applicable, deemed retirement as aforesaid) was the
Member's Normal Retirement Date; or
(ii) the amount which could have been provided at Normal
Retirement Date in accordance with whichever is
applicable of (l)(a) above and (l)(c) below increased
either actuarially in respect of the period of
deferment or in proportion to any increase in the Price
Index during that period; or
(iii) where the Member's total Service has exceeded 40 years,
the aggregate of l/60th of Final Remuneration for each
year of Service before Normal Retirement Date (not
exceeding 40 such years) and of a further l/60th of
Final Remuneration for each year of Service after
Normal Retirement Date, with an overall maximum of 45
reckonable years,
Final Remuneration being computed, in the case of (i) and
(iii) above, as at the actual date of retirement, but subject
always to (6) below; or
90
<PAGE> 98
(c) on leaving Active Membership before Normal Retirement Date, a
pension of l/60th of Final Remuneration for each year of
Service (not exceeding 40 years) or such greater amount as
will not prejudice Revenue Approval. The amount computed as
aforesaid may be increased by 5% for each complete year or, if
greater, in proportion to any increase in the Price Index
which has occurred, between the date of termination of Active
Membership and the Member's Normal Retirement Date or (if
earlier) the date on which the pension begins to be payable.
Any further increase necessary to comply with DSS requirements
is also allowable.
(2) Subject always to the provisions of Rule 9.02 (relating to the
provision of non-commutable pensions by Members' voluntary
contributions) the pre-1989 Member's Lump Sum Retirement Benefit shall
not exceed: -
(a) on retirement from Active Membership at (or on retirement
before) Normal Retirement Date, 3/80ths of Final Remuneration
for each year of Service (not exceeding 40 years) or such
greater amount as will not prejudice Revenue Approval; or
(b) on retirement (or, when applicable, deemed retirement in
accordance with (6) below) after Normal Retirement Date, the
greatest of: -
(i) the amount calculated in accordance with whichever is
applicable of (2)(a) above and (2)(c) below on the
basis that the actual date of retirement (or, when
applicable, deemed retirement as aforesaid) was the
Member's Normal Retirement Date, or
(ii) the amount which could have been provided at Normal
Retirement Date in accordance with whichever is
applicable of (2)(a) above and (2)(c) below together
with an amount representing interest thereon, or
(iii) where the Member's total Service has exceeded 40 years,
the aggregate of 3/80ths of Final Remuneration for each
year of Service before
91
<PAGE> 99
Normal Retirement Date (not exceeding 40 such years)
and of a further 3/80ths of Final Remuneration for each
year of Service after Normal Retirement Date, with an
overall maximum of 45 reckonable years,
Final Remuneration being computed, in the case of (i) and
(iii) above, as at the actual date of retirement, but subject
always to (6) below; or
(c) on leaving Active Membership before Normal Retirement Date, a
lump sum of 3/80ths of Final Remuneration for each year of
Service (not exceeding 40 years) or such greater amount as
will not prejudice Revenue Approval.
The amount computed as aforesaid may be increased in
proportion to any increase in the Price Index which has
occurred between the date of termination of Active Membership
and the Member's Normal Retirement Date or (if earlier) the
date on which the Member's pension begins to be payable, but
only if and to the same extent as the total benefits have been
increased under (l)(c) above. Provided always that the
provisions of this paragraph (2) shall not apply to a pension
commuted on the grounds of triviality.
(3) The lump sum benefit (exclusive of any refund of a Member's own
contributions and any interest thereon), payable on the death of a
Member while in Active Membership or having withdrawn from Active
Membership before the commencement of the Member's pension, shall not,
when aggregated with all like benefits under Associated Schemes exceed
4 times the Member's Final Remuneration (excluding any amounts under
(d) of that definition), or, if greater, (pound)5,000, less
(a) any lump sum (other than a refund of the Member's own
contributions) payable on the death of the Member under all
Relevant Schemes in respect of service with previous
employers, and
(b) any lump sum life assurance benefit (other than a refund of
contributions or premiums paid by the Member) payable on the
death of the Member under a
92
<PAGE> 100
retirement annuity contract or trust scheme approved under
Chapter III of Part XIV of the Taxes Act or a Personal
Pension,
if the aggregate of such lump sum exceeds (pound)2,500.
(4) Any pension for a spouse or a Dependant of the pre-1989 Member, when
aggregated with the pensions, other than those provided by surrender of
the Member's own pension, payable to a spouse or Dependant under or
arising from all Associated Schemes, shall not exceed an amount equal
to 2/3rds of the Aggregate Retirement Benefit -
(a) being paid to the Member at the date of death
(including any pension increases), or
(b) being a deferred benefit payable to the Member at
Normal Retirement Date, or
(c) prospectively payable to the Member, on death in
Service, if the Member had remained in Service up to
Normal Retirement Date at the rate of pay in force
immediately before the Member's death (and assuming
that contributions by and in respect of the Member to
the Scheme, and if applicable to any Associated Scheme,
had continued up to Normal Retirement Date at the same
rate as they were being paid on the date of death), or
(d) prospectively payable to the Member on death in Service
after Normal Retirement Date on the basis that
retirement took place on the day before the date of
death, or such greater amount as will not prejudice
Revenue Approval.
If pensions are payable to more than one spouse and Dependant
aforesaid, the aggregate of all spouse's pensions and Dependants'
pensions so payable under or arising from this and all Associated
Schemes shall not exceed the full amount of whichever is the
appropriate Aggregate Retirement Benefit under (a), (b), (c) or (d)
above or such greater sum as will not prejudice Revenue Approval.
93
<PAGE> 101
(5) The maximum amount of a pension ascertained in accordance with this
section, less any pension which has been commuted for a lump sum
(except where Inland Revenue practice otherwise permits) or given up in
order to provide an annuity for a Dependant, may be increased by 3% for
each complete year or, if greater, in proportion to the increase in the
Price Index which has occurred since the pension commenced to be paid.
(6) If the pre-1989 Member elects to take any part of the benefits under
the Scheme in advance of actual retirement, the limits set out in (1)
and (2) above shall apply as if the Member had retired at the effective
date of the election as aforesaid, no account being taken of subsequent
Service, except that the maximum amount of any uncommuted pension not
commencing immediately may be increased either actuarially in respect
of the period of deferment or in proportion to any increase in the
Price Index during that period.
(7) The preceding provisions of this section shall be modified in their
application to a Member who is or has been during membership of the
Scheme a Special Director so that the amount of the maximum Aggregate
Retirement Benefit in (1) above and of the maximum Lump Sum Retirement
Benefit in (2) above shall be reduced, where necessary for continuance
of Revenue Approval, so as to take account of any corresponding
benefits under either a retirement annuity contract or trust scheme
approved under Chapter III of Part XIV of the Taxes Act or a Personal
Pension and in relation to a Member who is a Special Director at the
Normal Retirement Date, as follows:-
(a) where the Member's pension commences after Normal
Retirement Date but not later than the 70th birthday,
(l)(b)(ii), (l)(b)(iii), (2)(b)(ii) and (2)(b)(iii)
shall not apply, and if it commences later than the
attainment of that age, the said paragraphs shall apply
as if the 70th birthday had been specified in the Rules
as the Member's Normal Retirement Date, so as not to
treat as Service after Normal Retirement Date any
Service before the Member reaches age 70
94
<PAGE> 102
(b) where (6) above applies to the Member, the rate of the
actuarial increase, referred to therein in relation to
any period of deferment prior to the Member reaching
age 70, shall not exceed the percentage increase in the
Price Index during that period.
C. CONTRIBUTIONS
The total contributions to be paid by the Member in a year of
assessment to this and any Relevant Scheme providing benefits in
respect of Service shall not exceed 15% of the Member's
Remuneration for that year in respect of that Service.
95
<PAGE> 103
APPENDIX D
EARLIER GOVERNING DOCUMENTS
<TABLE>
<CAPTION>
NO DATE INSTRUMENT PARTIES
<C> <C> <C> <C>
1. 18 March 1991 Interim Trust The Principal Employer (1)
Deed Wessex Water Services Limited & Ors (2)
Dr A.K. Barbour & Anor (3)
2. 23 August 1991 Deed of Appointment The Principal Employer (1)
of Trustee Dr A.K. Barbour & Anor (2)
D.N.A. McLure (3)
3. 5 August 1992 Definitive Trust The Principal Employer (1)
and Rules Dr A.K. Barbour & Ors (2)
</TABLE>
96
<PAGE> 104
EXECUTED AS A DEED, but not delivered
until the date hereof, by WESSEX WATER PLC
acting by:
............................................. Director
............................................. Secretary/Director
SIGNED and DELIVERED as a deed )
by the said )
ALAN FRANCIS CROFTS )
in the presence of:- )
Witness
Occupation
Address
97
<PAGE> 105
SIGNED and DELIVERED as a deed )
by the said )
RODERICK DAVID KENT )
in the presence of:- )
Witness
Occupation
Address
SIGNED and DELIVERED as a deed )
by the said )
NICHOLAS ANTHONY WILLIAM )
WHEATLEY in the presence of:- )
Witness
Occupation
Address
98
<PAGE> 1
EXHIBIT 21
AZURIX CORP. SUBSIDIARIES
-------------------------
Azurix Ltd.
Azurix Europe Ltd.
Wessex Water Ltd
Wessex Water Services Ltd
Wessex Water Services Finance Plc
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement (Registration No. 333-74379).
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Arthur Andersen LLP
Houston, Texas
May 21, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent accountants we hereby consent to the use of our reports (and to
all references to our Firm) included in or made a part of this registration
statement (Registration No. 333-74379).
/s/ ARTHUR ANDERSEN
--------------------------------------
Arthur Andersen
London, England
May 21, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1
(Registration No. 333-74379) of our report dated March 12, 1999 on our audit of
the consolidated financial statements of Wessex Water Ltd (formerly Wessex Water
Plc) as at March 31, 1998 and for the years ended March 31, 1998 and 1997 and
our report dated March 12, 1999 on our audit of Schedule II as it relates to
Wessex Water Ltd (formerly Wessex Water Plc) for the years ended March 31, 1998
and 1997. We also consent to the reference to our firm under the caption
"Experts".
/s/ PRICEWATERHOUSECOOPERS
- --------------------------------------
PRICEWATERHOUSECOOPERS
CHARTERED ACCOUNTANTS
Bristol, England
May 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS OF AZURIX CORP. AS OF AND FOR THE PERIOD ENDED DECEMBER 31,
1998 AND AS OF AND FOR THE PERIOD ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS CONTAINED IN THIS
REGISTRATION STATEMENT ON FORM S-1 DATED MARCH 15, 1999.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-29-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 13 5
<SECURITIES> 0 0
<RECEIVABLES> 48 70
<ALLOWANCES> 7 6
<INVENTORY> 0 0
<CURRENT-ASSETS> 125 132
<PP&E> 2,277 2,271
<DEPRECIATION> 33 17
<TOTAL-ASSETS> 3,349 3,358
<CURRENT-LIABILITIES> 259 261
<BONDS> 1,058 1,034
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 1,614 1,645
<TOTAL-LIABILITY-AND-EQUITY> 3,349 3,358
<SALES> 117 120
<TOTAL-REVENUES> 117 120
<CGS> 32 32
<TOTAL-COSTS> 78 74
<OTHER-EXPENSES> 0 1
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17 16
<INCOME-PRETAX> 24 29
<INCOME-TAX> 8 18
<INCOME-CONTINUING> 16 10
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16 10
<EPS-PRIMARY> .16 0.10
<EPS-DILUTED> .16 0.10
</TABLE>
