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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 001-15065
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AZURIX CORP.
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0589114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 CLAY STREET
SUITE 1000
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (713) 646-6001
Securities Registered Pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $0.01 New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common stock held by non-affiliates of the
registrant, based on the closing sales price for the registrant's common stock,
as reported on the New York Stock Exchange on March 27, 2000, was approximately
$291,242,319. As of March 27, 2000, there were 117,221,895 shares of
registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set
forth herein, is incorporated by reference from the registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held in
2000, which definitive proxy statement shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which
this report relates.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
General................................................... 1
Business Strategy......................................... 2
Recent Developments....................................... 3
Existing Azurix Assets.................................... 4
Regulatory Matters........................................ 15
Executive Officers of the Company......................... 30
Factors that may Affect Future Results and Accuracy of
Forward-Looking Statements.............................. 32
Item 2. Properties.................................................. 38
Item 3. Legal Proceedings........................................... 38
Item 4. Submission of Matters to a Vote of Security Holders......... 39
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 40
Item 6. Selected Financial Data..................................... 40
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 42
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 50
Item 8. Financial Statements and Supplementary Data................. 51
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 108
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 108
Item 11. Executive Compensation...................................... 108
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 108
Item 13. Certain Relationships and Related Transactions.............. 108
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 109
SIGNATURES............................................................... 112
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PART I
ITEM 1. BUSINESS
GENERAL
Azurix is a global water company engaged in the business of owning,
operating and managing water and wastewater assets, providing water and
wastewater related services and developing and managing water resources. We are
a holding company and conduct substantially all of our operations through our
subsidiaries.
Azurix was formed by Enron Corp., one of the world's leading electricity,
natural gas and communications companies, in 1998. In December 1998, Enron
contributed our company to Atlantic Water Trust, a Delaware business trust. In
connection with Enron's contribution, Marlin Water Trust acquired a 50% voting
interest in Atlantic Water Trust. In June 1999, we completed our initial public
offering of 36,600,000 shares of common stock at the offer price of $19.00 per
share. In connection with the offering, we sold 17,100,000 shares of Azurix
common stock and Atlantic Water Trust sold 21,463,468 shares of Azurix common
stock, including additional shares sold pursuant to the over-allotment option
granted to the underwriters. Enron and Marlin Water Trust each continue to own a
50% voting interest in Atlantic Water Trust, which currently owns approximately
67% of our common stock. The remainder of our common stock is owned by public
stockholders.
Our largest asset is Wessex Water Ltd, a water and wastewater company based
in southwestern England, which we acquired in October 1998 for $2.4 billion. Our
second largest asset is a 30-year water and wastewater concession in the
Province of Buenos Aires, Argentina, which we acquired as of July 1, 1999 for
$438.6 million. Our asset portfolio also includes the following:
- interests in long-term water and wastewater concessions in the Province
of Mendoza, Argentina and in Cancun, Mexico
- Azurix North America, a water and wastewater services company with
operations in nine U.S. states and five Canadian provinces
- a 49% interest in Industrias del Agua, S.A. de C.V., a company that
provides water and wastewater related services in a portion of Mexico
City, Mexico, and participates in water and wastewater projects elsewhere
in Mexico
- Azurix Brasil RDM Ltda., a water and wastewater services company that
provides water drilling, water supply and water and wastewater treatment
services in Brazil
- Lurgi Bamag GmbH, a water and wastewater engineering services company
with offices in Germany, Brazil, Egypt and the United Kingdom
- property in Madera County, California, on which we expect to develop the
Madera Water Bank, a ground water storage project
As of December 31, 1999, concessions in which we own an interest and water
and wastewater systems that we operate served an aggregate population of
approximately 8.3 million for water and approximately 7.6 million for
wastewater. The businesses in our asset portfolio employ approximately 5,700
individuals worldwide.
We are selectively pursuing additional water and wastewater opportunities
throughout the world, primarily in those areas where we have existing
operations, including North America, Europe and Latin America. These
opportunities may include both contracts for services and acquisitions of
assets. In the near term, we intend to focus more on service contract
opportunities and expansion of our existing assets. The timing and success of
any of these potential transactions cannot be predicted. The completion of any
one of these transactions could have a significant impact on our business. We
are also investing in innovative ways to provide new services, reduce costs and
increase efficiencies in the global water industry, including by utilizing
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information technology to deliver e-business solutions in the areas of
procurement, engineering and design, water supply and storage and billing and
collections.
Azurix was incorporated in Delaware on January 29, 1998. Our principal
executive offices are located at 333 Clay Street, Suite 1000, Houston, Texas
77002 and our telephone number is (713) 646-6001. Azurix maintains an internet
site at http://www.azurix.com. Unless the context otherwise requires, when we
refer to "we" or "Azurix" in this Annual Report, we mean Azurix Corp. and all of
our consolidated subsidiaries.
BUSINESS STRATEGY
Our business strategy is focused on the following complementary areas in
the global water industry:
- owning, operating and managing water and wastewater assets
- providing water and wastewater related services, including resource,
operational and residuals services
OWNING, OPERATING AND MANAGING WATER AND WASTEWATER ASSETS
We have built a diversified portfolio of water and wastewater assets,
including both established businesses with stable returns and concessions and
projects in markets with significant development opportunities and potential for
growth and enhanced returns. We intend to build our business through expansion
of our existing assets and selective acquisitions of water and wastewater
systems and service companies. We currently are concentrating our efforts in
areas where we already own assets or have service contracts and are placing
greater emphasis on services and expansion of existing businesses than on asset
acquisitions.
PROVIDING WATER AND WASTEWATER RELATED SERVICES
We provide a broad range of cost-effective services to owners of water and
wastewater systems and to municipal and industrial customers, including services
in each principal area of the water value chain: resource services, operational
services and residuals services.
Resource Services. 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. This "upstream" end of the water value
chain includes the following services to water distribution systems and
industrial and agricultural customers:
- Raw water resources -- Locating, drilling and extracting water supply,
developing reservoir management projects and using desalinization and
other techniques to develop new supplies
- Conveyance and storage systems -- Developing transportation and storage
projects, including pipelines, aqueducts and underground storage
Further, we expect risk management techniques now employed in other
industries to be transferred to the water sector. These include trading of firm
and non-firm water delivery and storage capacity and the management of risks of
time, location, quality, price and weather. We bring from Enron broad experience
in these techniques from the gas and power industries.
Operational Services. Services for the operation of a water and wastewater
system or industrial or agricultural business can involve:
- water treatment processes
- distribution of water
- retail services, including billing, metering, collection and customer
care
- wastewater collection
- wastewater treatment
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Our water related services business is initially targeting municipal and
industrial customers, especially in North America, that are seeking to outsource
the management of their systems or particular services. These customers
generally desire a service provider with the operating experience 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.
Residuals Services. We provide residuals management and disposal services
in various parts of the United States and Canada through land application and
dewatering. Wessex's subsidiary, SC Technology, designs, sells and operates
biosolid drying processes and markets recycled biosolids for agriculture and
land reclamation.
Detail of our operating revenues, income (loss) before interest, minority
interest, income taxes and extraordinary loss and long-lived assets by
geographic area is included in Notes to Consolidated Financial Statements (see
Note 19).
The following table represents the operating revenues contributed by each
of the service categories of our business for the periods indicated, although
all of the operating revenues occurred after the date of the Wessex acquisition:
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JANUARY 29,
1998 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
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(IN MILLIONS)
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Water supply................................................ $ 35.0 $186.0
Wastewater services......................................... 73.1 320.3
Residuals management........................................ 7.2 27.1
Other....................................................... 4.4 84.6
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Total............................................. $119.7 $618.0
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RECENT DEVELOPMENTS
In 1998, we adopted a business strategy focused on growth through
acquisitions and development projects around the world. During the fourth
quarter of 1998 and the first half of 1999, we initiated a business development
effort requiring increased personnel to pursue and support acquisition and
privatization activities worldwide. This initiative was based on our
expectations as to the size, number, location and timing of privatization
projects that would be awarded in 1999, 2000 and beyond. During the second half
of 1999, several large privatization projects were postponed or cancelled. In
the fourth quarter of 1999, we reevaluated our cost structure in relation to our
business development efforts. As a result, we reduced our corporate personnel by
approximately one-third, reduced our leased office space and eliminated other
costs primarily relating to the pursuit of concessions in certain regions,
resulting in a non-recurring, pretax expense of $34.2 million for the fourth
quarter of 1999. Azurix intends to focus more on service contract opportunities
and its existing assets in the near term.
On November 25, 1999, the U.K. Director General of Water Services announced
the following price limits for Wessex: a 12.0% price cut effective April 2000,
level prices through March 2003 and price increases of 3.8% effective April 2003
and 4.7% effective April 2004, all before adjustment for inflation. The Director
has estimated that the cost of the capital expenditures that Wessex will be
required to make over the next five years will be approximately L764 ($1,233.9)
million. Please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Recent Developments."
On February 18, 2000, Azurix issued U.S. dollar and U.K. pounds sterling
senior notes with a U.S. dollar equivalent face value of $599.8 million. The
senior notes consisted of $240.0 million and L100.0 million, each due in 2007
and bearing an interest rate of 10 3/8%, and $200.0 million due in 2010 and
bearing an interest rate of 10 3/4%. Estimated net proceeds after underwriter's
discount and other estimated offering costs were $583.8 million. Of this amount,
$150.0 million was used to pay off our $150 million revolving credit facility,
$386.0 million was used to pay down the revolving credit facility of one of our
subsidiaries, Azurix Europe Ltd,
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and $18.1 million was used to pay down amounts outstanding under our credit
agreement with Enron. In addition, $11.5 million was used to pay accrued
interest on these three credit facilities. The remaining proceeds will be
available for general corporate purposes.
During February 2000, we announced plans to launch internet-based
marketplaces for buyers and sellers of water and water-related equipment.
Water2Water.com(TM) will enable customers to transact business relating to the
transfer and physical delivery of water and the purchase or sale of water
storage and water quality credits. WaterDesk.com(TM) will enable water industry
customers to more efficiently purchase and sell water-related equipment,
services and chemicals and will also provide users with access to interactive
decision support tools as well as industry information from trade publications.
Please see "E-business Initiatives."
EXISTING AZURIX ASSETS
EUROPE
Wessex. Wessex's principal business is providing water supply and
wastewater services in parts of southwestern England through Wessex Water
Services Limited, a wholly owned subsidiary. 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 other companies provide only water services and Wessex provides wastewater
services.
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). For the year ended December 31, 1999, Wessex
had operating revenues of approximately $465.4 million and EBITDA, defined as
net income before interest, income tax, depreciation and amortization, minority
interest, extraordinary loss and restructuring charge, of approximately $323.8
million.
- Water Supply Services. Wessex supplies approximately 385 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 11,104 kilometers of water mains. Wessex serves
approximately 513,900 domestic and commercial locations. Wessex's
customer base is approximately 55% residential and 45% commercial by
volume of supply.
Wessex withdraws 78% of its water from underground sources and the
remainder from reservoirs (21%) and rivers (1%). Wessex has a
comprehensive network of storage reservoirs (interlinked by a regional
grid), which facilitates 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 23 years.
During the year ended December 31, 1999, Wessex tested approximately
174,000 drinking water samples and achieved 99.9% compliance with the
strict U.K. and European Union standards. The Office of Water Service, the
industry regulator for England and Wales commonly called Ofwat, has ranked
Wessex as above average for the provision of water supplies overall.
As of December 31, 1999, Wessex had invested approximately $650 million in
capital projects related to improvements in its water infrastructure since
its privatization in 1989, of which over $400 million had been invested
since 1993. Wessex's water supply network continues to require further
investment.
- Wastewater Services. Wessex treats on average 480 million liters of
wastewater per day from a population of approximately 2.5 million through
its infrastructure of approximately 356 wastewater treatment plants,
1,300 pumping stations and 15,256 kilometers of sewers. Residential
customers account for approximately 86% of the volume of wastewater
retrieved and commercial customers account for approximately 14%.
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Wessex's wastewater treatment plants perform above industry standards.
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 76% of its biosolids to
agricultural land, uses 17% in landscaping and land reclamation work and
disposes of 7% 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
commissioning similar drying facilities, referred to as biodriers, at
Bournemouth and Weston-super-Mare.
During the fiscal year ended March 31, 1999, Wessex's wastewater treatment
plants were in substantial compliance with applicable discharge standards
and 99% of these plants were in 100% compliance with applicable U.K. and
European Union discharge standards.
As of December 31, 1999, Wessex had invested approximately $1.2 billion in
capital projects related to improvements in its wastewater infrastructure
since its privatization in 1989, of which approximately $710 million had
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 wastewater
treatment plant at Porlock is the largest operational plant in Europe to
use membrane filtering technology to process domestic wastewater to a
state that is virtually bacteria and virus free. Wessex is building a
similar system at Swanage in Dorset, which upon completion will be the
largest such facility in the world.
- 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 356 wastewater treatment plants. The following is a list of
the five largest water treatment plants operated by Wessex:
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CAPACITY
LOCATION (MILLION LITERS PER DAY)
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Maundown.......................................... 72
Upton Scudamore................................... 36
Corfe Mullen...................................... 33
Sturminster Marshall.............................. 30
Durleigh.......................................... 30
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The following is a list of the five largest wastewater treatment plants
operated by Wessex:
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ESTIMATED EQUIVALENT
LOCATION POPULATION SERVED
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Bristol (Avonmouth)................................ 897,000
Holdenhurst........................................ 180,000
Poole.............................................. 159,000
Bath (Saltford).................................... 109,000
Bridgwater......................................... 107,000
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- Customer Charges. The U.K. Director General of Water Services sets limits
on the rates Wessex may charge for its regulated water supply and
wastewater treatment businesses, including the extent of annual rate
increases.
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 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.
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Wessex offers a 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.
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.
The Director has issued new price limits for Wessex and other U.K. water
and wastewater companies that will apply from April 1, 2000. As a result,
Wessex's prices will be reduced by 12.0% for 2000-2001, before adjustment
for inflation. Prices will remain level through March 2003 with price
increases in 2003-2004 of 3.8% and in 2004-2005 of 4.7%, before adjustment
for inflation. Companies are required to implement certain policies in
their charging schemes for 2000-2001 that must, for example, deal with
tariffs for vulnerable groups, cost-reflective charging, the balance
between water and wastewater charges, measured and unmeasured tariff
differentials, large user tariffs, timing and methods of payment and
optional metering. Please read "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Developments" and
"Regulatory Matters -- U.K. Regulatory Matters."
The recently enacted Water Industry Act 1999 will become effective on
April 1, 2000. It grants household customers the right:
- to resist water metering in their current homes if 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 to unmetered service. In addition, two new
regulations under the Water Industry Act 1991, as amended by the Water
Industry Act 1999, will become effective on April 1, 2000. These
regulations:
- 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 and other
protected premises for non-payment
- grant new powers for the Director to approve charging schemes annually,
taking account of guidance from the Secretary of State
In the meantime, the U.K. government will continue to review the
provisions dealing with vulnerable customers and will consider whether it
is necessary to introduce amendments to meet the needs of customers facing
severe hardship over their water bills. The Director will also consult on
whether to impose widespread metering in areas where water resources are
under stress. The structure for setting water companies' charges under the
Water Industry Acts 1991 and 1999 and regulations thereunder provides for
adjustments to the charges from the entirety of Wessex's customers so that
the total amount of income to Wessex is not affected by reductions in
charges to vulnerable customers.
Following the introduction of the new legislation, the Secretary of State
has given guidance to the Director that highlighted a number of key
objectives, including providing a fair distribution of costs between
customers, affordability, taking into account environmental
considerations, ensuring stability and predictability of charges and
providing transparent and customer-focused services.
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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, primarily in countries
located in Western Europe.
Lurgi Bamag. On October 18, 1999, we acquired Lurgi Bamag GmbH, a water and
wastewater engineering services company, for $30.2 million, excluding
transaction costs. Lurgi Bamag and its subsidiaries have offices in Germany,
Brazil, Egypt and the United Kingdom. Lurgi Bamag serves industrial customers in
the refining, pulp and paper, petrochemicals and iron and steel industries that
require cost-efficient, high quality water and wastewater treatment.
NORTH AMERICA
Azurix North America. On May 18, 1999, we acquired Philip Utilities
Management Corporation, a water and wastewater services company headquartered in
Hamilton, Ontario, Canada, for $107.4 million, including transaction costs.
Following our acquisition of Philip Utilities, now called Azurix North America,
we have expanded this business through the acquisition of three water and
wastewater companies in the United States and Canada for an aggregate purchase
price of $11.3 million. Azurix North America conducts operations in five of the
ten provinces of Canada, with a concentration of operations in Ontario, and in
the United States in the states of Alabama, Arizona, Florida, Georgia,
Louisiana, Maine, New Jersey, Texas and Washington. Azurix North America had
operating revenues of approximately $87.8 million and EBITDA of approximately
$10.0 million from May 18, 1999, the date of acquisition, through December 31,
1999. The following is a discussion of Azurix North America's business
operations.
Operations, Management and Engineering. Azurix North America's operations,
management and engineering business is divided into two business lines: (1)
contract operations and (2) engineering and automation.
- Contract Operations. Azurix North America's contract operations division
comprised approximately 38% of Azurix North America's operating revenues
in 1999. Azurix North America's largest contract operation projects are
in Hamilton-Wentworth, Ontario and Seattle, Washington.
In 1994, Philip Utilities was awarded 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, we
receive 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 water and wastewater treatment facilities, as well as
several remote plants and pumping stations. Under the terms of the plant
operations agreement, Hamilton-Wentworth pays an annual fee to us equal to
an agreed upon base budget, adjusted for inflation, salary and wage
increases, insurance costs, ash, sludge and grit disposal costs and
increases in 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 us.
Azurix North America's second largest contract operation project is the
design-build-operate contract with Seattle Public Utilities for the 120
million gallon per day Tolt Treatment Facility that is currently under
construction outside of Seattle, Washington. In 1996, Philip Utilities
teamed with the engineering firm of Camp Dresser & McKee, Inc. to win this
20-year contract, which is renewable by the City of Seattle for two
additional periods of five years each. Azurix CDM, Inc., an 80%-owned
subsidiary of Azurix North America, will receive approximately $74.7
million in design and construction fees, of which it has received
approximately $55.8 million at the end of February 2000. Azurix CDM
subcontracted the design-build portion of the contract for approximately
$63 million. Construction of the Tolt plant is currently on schedule, with
the facility scheduled to commence operations in December 2000. Once
operations have commenced, Azurix CDM is entitled to an annual service fee
of
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approximately $1.7 million, subject to modification for incentive bonuses,
pass-through costs and other adjustments.
- Engineering and Automation. Azurix North America's engineering and
automation activities are based in Burlington, Ontario. Azurix North
America provides plant design, construction, project management and
process design and engineering services primarily for municipal customers
and other Azurix North America operations. Azurix North America also
provides process automation and instrumentation services including
design, testing and installation of supervisory control and data
acquisition systems and other computer control technologies primarily for
municipal customers. Azurix North America's engineering and automation
activities comprised approximately 16% of its operating revenues in 1999.
Residuals Management. Residuals management accounted for approximately 17%
of Azurix North America's operating revenues in 1999. The residuals management
division is comprised of three operations that apply dewatering and land
application methods to residuals management in Ontario, Florida and Texas.
Underground Infrastructure Remediation and Development. Azurix North
America 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, Azurix North America and its predecessor, Philip
Utilities, have been migrating from traditional pipe rehabilitation to
trenchless technologies. Azurix North America 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 27% of Azurix
North America's operating revenues in 1999.
Ownership of Water and Wastewater Assets. In addition to its outsourcing
operations, Azurix North America 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 Azurix North America's smallest division and accounted for
approximately 2% of its operating revenues in 1999.
Madera Water Bank Project. On October 4, 1999, we purchased approximately
13,600 acres of land in Madera County, California for $31.5 million, excluding
transaction costs. We plan to develop, own and operate the Madera Water Bank
Project, a 400,000 acre-foot ground water storage project in the aquifer beneath
the land for use by municipal, industrial and agricultural customers. The
aquifer on the property will be used to store surplus water from local, state
and federal water customers during wet years in an effort to make this water
available for use throughout the region and state during drier years or as the
market dictates. The property is located 25 miles northwest of Fresno and is
strategically located near existing state and federal canals and aqueducts and
the San Joaquin River, all of which could provide a number of alternative
conveyance systems to move water to and from the site. We are required to make
additional payments to the seller, contingent upon our ability to successfully
obtain the required water bank permits and our commencement of operations of the
water bank.
Completion of the Madera Water Bank Project will require various
governmental permits and construction expenditures that we currently estimate to
be in the range of $35 to $40 million during 2000 and 2001. We will also need to
satisfy local property owner and county concerns regarding the impact the
project will have on local water resources prior to starting construction. We
have embarked on an effort to sell a majority of the storage capacity of the
proposed water bank on a long-term basis. Although we expect to obtain the
necessary permits and satisfy local community concerns in a timely manner and
pre-sell sufficient capacity at prices that will make this project profitable,
the project is in its early stages, and thus we cannot yet be assured these
efforts will be successful.
E-business Initiatives. During February 2000, we announced plans to launch
internet-based marketplaces for buyers and sellers of water and water-related
equipment, services and chemicals. One site we are
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developing, Water2Water.com(TM), will enable customers to transact business
relating to the transfer and physical delivery of water and the purchase or sale
of water storage and water quality credits. We anticipate Water2Water.com's(TM)
initial customers will be in the western United States. Our second site,
WaterDesk.com(TM), will enable water industry customers to more efficiently
purchase and sell water-related equipment, services and chemicals.
WaterDesk.com(TM) will also provide users with access to interactive decision
support tools as well as industry information from trade publications.
We expect these sites to charge fees in connection with each transaction
occurring on the sites and from advertisements displayed on the sites. The
success of our e-business marketplaces will be largely dependent on acceptance
by large industrial, agricultural and municipal users of water and water-related
equipment, services and chemicals and the government agencies that regulate
them.
We incurred capital expenditures of approximately $1.7 million through
December 31, 1999 in connection with the development of Water2Water.com(TM) and
WaterDesk.com(TM), and we anticipate these sites will require development
capital expenditures of approximately $13.6 million during 2000. We are
currently seeking third party investors for WaterDesk.com(TM), which we believe
will benefit the site by increasing industry exposure and acceptance of the site
as well as assist us in defraying development costs and, in certain cases,
provide additional tools and features that may be incorporated into the site.
LATIN AMERICA
Azurix Buenos Aires. On May 18, 1999, we were notified that we were the
prevailing bidder in a tender for a 30-year concession to operate the water and
wastewater systems in two regions of the Province of Buenos Aires, Argentina,
previously operated by Administracion General de Obras Sanitarias de la
Provincia Buenos Aires. On June 30, 1999, Azurix, through Azurix Buenos Aires
S.A., an indirect wholly owned subsidiary of Azurix, entered into a concession
contract with the provincial government covering the two regions and paid the
government $438.6 million. On July 1, 1999, Azurix Buenos Aires assumed
operation of the water and wastewater systems. Azurix currently owns 100% of
Azurix Buenos Aires, but is required under the concession contract to transfer a
10% interest in Azurix Buenos Aires to former employees of the provincial
company that transferred to Azurix Buenos Aires. Azurix Buenos Aires had
operating revenues of approximately $39.5 million and EBITDA of approximately
$0.4 million from July 1, 1999, the date of acquisition, through December 31,
1999.
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 two regions included in our concession have a total population of
approximately 2.1 million. They include the provincial capital of La Plata and
the large industrial city of Bahia Blanca. We anticipate expanding operations to
surrounding municipalities and offering industrial customers cost-effective
water and wastewater alternatives.
Azurix Buenos Aires supplies approximately 976 million liters of water per
day through a system that includes approximately 504 extraction wells, 16 water
treatment plants, 63 storage tanks, 30 cisterns and 7,301 kilometers of water
mains. Azurix Buenos Aires treats approximately 205 million liters of wastewater
through its infrastructure of approximately 43 wastewater treatment plants, 48
pumping stations and 4,280 kilometers of sewers. The aggregate capacity of its
water treatment plants is approximately 616 million liters per day and the
aggregate capacity of its wastewater treatment plants is approximately 250
million liters per day.
The concession contract requires Azurix Buenos Aires to develop and
complete a specified investment plan to improve water quality, recondition the
distribution and collection network, expand customer metering and water and
wastewater connections and reduce water losses. Additionally, the concession
contract requires Azurix Buenos Aires to provide for the expansion,
reconditioning and construction of wastewater treatment plants. We anticipate
incurring capital expenditures of approximately $350 million during the next
five years. The concession also obligates Azurix Buenos Aires to maintain
minimum stated capital requirements, contract guarantee requirements, operating
guarantee requirements and insurance requirements. We anticipate funding capital
expenditures through operating cash flows and long-term debt and equity of
Azurix Buenos Aires and, to the extent necessary, funds from Azurix.
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Administracion General de Obras Sanitarias de la Provincia de Buenos Aires
transferred 1,098 employees to Azurix Buenos Aires. The employees transferred to
Azurix Buenos Aires were mostly hourly operational personnel, requiring us to
hire most of our managerial level staff. Although Azurix Buenos Aires has
entered into negotiations for a collective bargaining agreement with the union
since taking over the concession, no such agreement is currently in effect.
Labor expenses accounted for approximately 70% of the operational expenses of
the provincial operator prior to the take over by Azurix Buenos Aires, and this
level is not expected to change during the term of the concession. The board of
directors of Azurix Buenos Aires has the authority to appoint the key technical
and managerial positions at the company.
Initially, the tariff remains the same as was in effect prior to
privatization. The first tariff review is expected around 2002. The tariff then
is to be reviewed every five years in light of changes to the five-year program
of investment. Azurix Buenos Aires or the regulator may at any time ask for an
increase or reduction in the tariff 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 Azurix Buenos Aires if it operates more efficiently than
expected. Azurix Buenos Aires 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.
We did not receive complete billing and customer records when we took over
the concession, which has impeded collection efforts and adversely affected our
operating revenues derived from this concession to date. We have embarked on a
program to improve billing and debt collection procedures and increase the
number of accounts billed, which we believe will improve collections. In
addition, the province did not transfer some of the assets that the concession
agreement required it to transfer, including some accounts receivable; has not
completed some work projects that the concession agreement obligates it to
perform; and has not paid some pre-takeover costs that we now have paid. We are
pursuing reimbursement from the province for these added costs to our
operations, although we cannot predict what amount, if any, we will actually
recover.
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, Argentina. In December 1998, Enron contributed to
Azurix its 32.1% interest in Obras Sanitarias Mendoza. 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 whom have been appointed by Azurix.
Obras Sanitarias Mendoza 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. Its service
territory covers 17 municipalities. Obras Sanitarias Mendoza serves over one
million water customers and has approximately 295,000 water connections. Obras
Sanitarias Mendoza provides wastewater services to approximately 900,000 people
and has approximately 236,000 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.
The concession is located in western Argentina in the desert bordering
Chile at the base of the Andes mountains. Water supply comes primarily from the
regional river, Rio Mendoza. The surface water feeds by gravity to treatment
plants. The remaining ground water comes from approximately 160 wells. Obras
Sanitarias Mendoza uses four large lagoon systems to provide the majority of
wastewater treatment within the concession area.
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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.
Azurix Brasil. On September 24, 1999, we acquired from an affiliate of
AMX-Acqua Management Inc. 100% of three Brazilian companies, Geoplan-Assessoria,
Planejamento e Perfuracoes Ltda., Aguacerta-Sistemas de Abastecimento Ltda. and
Aguacerta Saneamento Ltda., which provide water drilling, water supply and water
and wastewater treatment services in Brazil, for $55.6 million, excluding
transaction costs. We may be required to make additional payments to an
affiliate of AMX-Acqua Management that are contingent on the future performance
of the business. These payments are to be used solely to purchase Azurix common
stock from us.
These companies, now owned by Azurix Brazil RDM Ltda., primarily provide
resource development and management services, including the exploration,
sourcing and storage of water. Azurix Brasil also provides water and wastewater
treatment services and serves a broad base of Brazilian customers ranging from
large industrial companies and small commercial companies to municipalities.
Azurix Brasil has a portfolio of more than 80 risk contracts. Under a risk
contract, Azurix Brasil takes on the responsibility for obtaining water for the
owner or occupant of land and is paid only if water is delivered. For example,
under one risk contract, Azurix Brasil has drilled a well on privately owned
property to replace other sources of water, such as municipal water systems, and
provides wastewater treatment services for the owner, including recycling of
wastewater for irrigation. Azurix Brasil expends the capital to drill the well
and bears all drilling risk, construction costs and operating costs and receives
a fee for water and other services provided over a fixed contract term, often 10
years.
Azurix Brasil currently operates principally in the States of Rio de
Janeiro and Sao Paulo, but we plan to expand the business to other parts of
Brazil. Although competitors may enter this business in the future, the market
appears large enough, and aquifers appear to have sufficient water, to permit
substantial growth. Prices for risk contracts currently are not regulated.
Mexico. During 1999, we acquired several interests in Mexico, including the
following:
- Cancun. 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. The concessionaire serves a population of approximately
400,000 through approximately 78,000 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.
The concession was initially granted on the condition that the
concessionaire would invest capital in projects to provide services under
the concession. The cost to the concessionaire for these investments is
estimated at $44 million over the next five years. On February 25, 1999,
we lent the concessionaire $15.0 million to permit it to retire a portion
of its indebtedness. We also agreed to make additional loans of up to $10
million. The balance of the loans outstanding to the Cancun concession at
December 31, 1999 was $17 million. 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 operations and tariffs for water and wastewater systems in the State
of Quintana Roo are regulated by Comision de Agua Potable y
Alcantarillado, referred to as 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
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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. However, the concessionaire is
currently constructing a new wastewater treatment plant, expected to be
completed by April 2000, and a drainage infrastructure project, expected
to be completed by end of 2000, that together should increase the
treatment rate to approximately 85%.
The concession expires in October 2023, unless extended. At the end of the
concession term, and any extensions, the concessionaire will be required
to deliver to the government at their residual equity value the facilities
and equipment used to provide services under the concession.
We have three seats on the board of directors of the concessionaire, while
the 50.1% shareholder has two. We have the right to appoint, and have
appointed, the chief executive officer, the chief financial officer and
the chief operating officer of the concessionaire. The 50.1% shareholder
has 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.
- Industrias del Agua, S.A. de C.V. On September 24, 1999, we acquired 49%
of the capital stock of IASA Holdings, S.A. de C.V. for $22.5 million,
excluding transaction costs. IASA Holdings owns 100% of Industrias del
Agua, S.A. de C.V., a water and wastewater services company that provides
water and wastewater services within Mexico City, Mexico. In addition, a
consortium in which Industrias del Agua participated recently won a bid
for the concession of a wastewater treatment plant in Torreon, Coahuila,
Mexico.
The remaining 51% of the capital stock of IASA Holdings is owned by a
privately-held Mexican company. We have the right to appoint two members
of the board of directors, and the 51% shareholder has the right to
appoint three members. Contemporaneous with our purchase of the capital
stock of IASA Holdings, we entered into separate agreements that result in
our having effective control over IASA Holdings.
Under a contract with the Water Commission of the Federal District of
Mexico, Industrias del Agua provides metering, billing, collections,
operations and maintenance services for an area covering approximately one
quarter of the Federal District within Mexico City, a service area with a
population of approximately two million people. Industrias del Agua has
provided these services since 1993, when it signed a 10-year contract with
the Water Commission of the Federal District. All recourse by the Water
Commission of the Federal District of Mexico is to the company that is a
party to the contract, a subsidiary of Industrias del Agua.
The volume of work Industrias del Agua is required to perform every year
is not fixed under the contract and depends on the requests made by the
Water Commission of the Federal District. Industrias del Agua's revenues
for providing services under the contract are based on unit prices
adjusted for inflation. Only minor ongoing capital commitments remain
related to increased activities under the contract.
In August 1999, a consortium in which Industrias del Agua participated
with FYPASA Construcciones, S.A. de C.V. was awarded a public bid by the
Sistema Municipal de Aguas y Saneamiento de Torreon, Coahuila, known as
SIMAS, for a services contract to construct and operate an approximately
$20 million wastewater treatment plant in Torreon. The contract requires
that the plant be built and certain start-up tests be successfully
completed within 18 months after initial conditions to construction are
met, and then provides for an operating period of 18 and a half years.
Financing arrangements for the funding of the project are currently being
negotiated. Construction of the plant is expected to be completed during
the summer of 2001. Industrias del Agua owns 90% of the consortium
company.
Through a joint venture, Azurix will hold a 40% interest in an
approximately $25 million municipal wastewater treatment plant for Leon.
Construction of the plant is expected to be completed during the summer of 2000.
We also are participating in a smaller wastewater treatment plant in Matamoros.
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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. We face significant competition from companies larger than
we are, companies with longer operating histories and greater experience in
securing water and wastewater projects than we have and other new entrants to
the global water industry.
Two French companies, Compagnie Generale des Eaux, a subsidiary of Vivendi,
and Suez-Lyonnaise des Eaux, currently are recognized as the leading competitors
in the international water and wastewater market. According to their published
data, Compagnie Generale des Eaux serves an aggregate population of
approximately 80 million for water and 30 million for wastewater, and
Suez-Lyonnaise des Eaux serves an aggregate population of approximately 77
million for water and 52 million for wastewater. These two companies are
significantly larger than the next group of international competitors. These
smaller competitors include privatized water and wastewater companies from the
United Kingdom and some smaller French and Spanish companies. Some construction
companies also bid on water and wastewater projects, more often on
build-own-transfer projects than on concessions.
We are a new competitor in the international water and wastewater market,
and concessions in which we own interests and systems that we operate currently
serve an aggregate population of approximately 8.3 million for water and
approximately 7.6 million for wastewater. The larger companies, due to their
longer operating histories and financial strength from stable concessions and
contracts, may be better able to demonstrate their expertise. Further, our
competitors may be able to obtain capital at a lower cost and be willing to bid
more aggressively than we can, which would give them an advantage in bidding on
projects and other competitive situations.
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.
Several of these publicly traded companies, and others that have been acquired
by foreign entities, 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
5% market share in the United States, and together they serve only 8% 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.
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 services and Wessex provides wastewater
services.
Although water and wastewater concessions, once awarded, historically are
virtual monopolies for their terms, some forms of competition are arising. For
example, in the United Kingdom other suppliers may apply to the industry
regulator for an "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 area to be transferred to another company. Historically, very few
inset appointments have been granted in England and Wales, although a number of
applications are currently being considered. This may change in the future as
the U.K. Government
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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,
or allowing premises to be combined to meet the consumption limit for a large
user inset; promoting competition in new connections; extending the obligation
on companies to allow connections to their water mains from outside their areas
in response to requests by non-residential customers as well as residential
customers (currently, water and wastewater companies are only obliged to make
such supplies outside their areas when requested by residential customers);
facilitating common carriage, for example, by developing access codes to set out
fair terms for common carriage using others' networks; liberalizing trade in
abstraction licenses; and using the new competition law powers under the
Competition Act 1998 to prevent abuses of a dominant position and
anti-competitive behavior. The Director's objective is to encourage competition
by giving competitors access to the monopoly inherent in water and wastewater
services. In particular, the Director requested that each company be ready by
March 1, 2000 to respond positively and substantively to inquiries and requests
to share the use of its infrastructure, including a statement of principles that
would govern this shared use. Wessex responded to the request. The Director
recognizes that competition is currently focused on large users and considers
that measures such as the development of common carriage and the right to
optional metering as well as the installation of meters on new properties will
open up competition to household customers. It is considered unlikely that these
changes will have a material adverse impact on the profitability of existing
water companies, particularly if entrants continue to use the incumbent's asset
network. One inset appointment was granted within Wessex's 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. Wessex was awarded another appointment to operate
water and wastewater services formerly provided by the Ministry of Defence.
The Chancellor of the Exchequer announced in March 1999 that the U.K.
Government intends to study ways to increase competition in the United Kingdom's
water sector and a consultation paper will be published in March 2000. However,
until market competition has developed, comparative competition will still be
used in the regulation of the water industry, in particular in the periodic
review process and in assessing the effects of mergers between water companies.
Furthermore, in evaluating the competitive position of the U.K. water companies
in the future, the Director intends to extend the comparisons to comparable
suppliers in Scotland and Northern Ireland, as well as in other countries,
including France, Australia and the United States. We cannot predict what
changes, if any, the U.K. Government will adopt to promote competition.
Competition may open up profitable opportunities to efficient operators. As of
the date of this filing, the paper had not been published.
SUPPLIERS
Our operating subsidiaries depend upon electricity, chemical and
telecommunication suppliers for their operations. Wessex's only significant
supplier of goods or services is Yorkshire Electricity plc, a subsidiary of
American Electric Power Corporation, which supplies electricity to approximately
1,100 of Wessex's sites. Wessex pays Yorkshire Electricity plc approximately
$9.55 million per year, which represents approximately 5.5% of Wessex's annual
operating costs. The contract was effective October 1, 1999 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 Yorkshire
Electricity, 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 agreements with
Azurix, none of Azurix's suppliers is affiliated with it.
EMPLOYEES
As of December 31, 1999, we had approximately 200 employees, excluding
employees of our operating subsidiaries. As of December 31, 1999, Wessex had
approximately 1,450 employees, which included approximately 60 employees at SC
Technology worldwide. Wessex has announced that it expects to reduce the number
of its employees by approximately 90 employees by July 2000. As of December 31,
1999, Azurix
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Buenos Aires had approximately 1,200 employees, Azurix North America had
approximately 890 employees, Azurix Brasil had approximately 150 employees and
Lurgi Bamag had approximately 215 employees.
In addition, the Mendoza concession employed approximately 690 people, the
Cancun concession employed approximately 565 people and Industrias del Agua
employed approximately 370 people, as of December 31, 1999. All, or a portion,
of the work forces at Wessex, Azurix Buenos Aires, Mendoza, Azurix North
America, Cancun, Industrias del Agua and Azurix Brasil are represented by
unions.
INSURANCE
We believe that our insurance arrangements, including self-insurance, are
customary for the industry and are adequate. We have established a global
insurance program covering our property, employers liability, public and
products liability, excess public and products liability and our motor fleets
worldwide.
REGULATORY MATTERS
The following is a summary of regulatory matters relating to water and
wastewater operations in the United Kingdom, the United States, Canada,
Argentina, Brazil and Mexico.
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, we cannot assure you that
this approach will be adequate to address and manage all such risks associated
with our business.
Particularly in jurisdictions 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, the United States, Canada, Argentina, Brazil and
Mexico.
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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 water industry in England and Wales, 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 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 wastewater 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 if Wessex
and the customer cannot agree. These include terms for, and requiring, bulk
supplies of water, the provision 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 and has
enforcement powers under the Water Industry Act to secure compliance. 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.
Ian Byatt, the U.K. Director General of Water Services, who has served
since the privatization of the water industry in England and Wales, has
announced that he intends to retire in July 2000. His successor has not yet been
appointed. The appointment of a new Director may result in changes to the
regulation of the water and wastewater industry in the United Kingdom.
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Wessex Water Services' License
Wessex's license continues indefinitely, or until such time as the
Secretary of State revokes Wessex's license after 10 years' advance notice. The
effective date of revocation, under the terms of Wessex's license, cannot occur
prior to 2014 without Wessex's consent. 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
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 1999, Wessex paid approximately L454,000 ($747,000) in
such fees.
The license was 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 modifications strengthened 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 that 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
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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.
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, in limited circumstances, both
the Director and the individual company may seek an interim determination to
adjust price limits between the periodic reviews. The Director has requested
comments on a change in water and wastewater companies' licenses to lower the
threshold for interim determinations to compensate for greater uncertainty due
to the recent changes under the Water Industry Act 1999. The change will apply
to the calculation of the materiality of operating expenditures, resulting in an
interim determination being triggered if specified changes affecting operating
expenditures reduce a company's total revenue by more than 1%.
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 or
additional investment 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.
On November 25, 1999, the Director announced the results of his latest
periodic review to establish price limits for the period April 1, 2000 through
March 31, 2005. Customers that use over 250 megaliters per year are excluded
from the tariff basket with the effect, among others, that companies will not be
able to recover from other customers lost revenue arising from reduced charges
to their large users. The Director imposed a 12.0% price cut for Wessex for
2000-2001, before adjustment for inflation. The announcement included level
prices through March 2003 with annual price increases in 2003-2004 of 3.8% and
in 2004-2005 of 4.7%, before adjustment for inflation.
The new price limits make allowances for the investments the Director
considers necessary to meet obligations to improve service and drinking water
quality and to ensure higher environmental standards under the proposed
five-year program of mandatory capital expenditures by the water companies. This
program is expected to cost the industry L15.6 ($25.7) billion in aggregate over
the next five years. In Wessex's case, the Director did not include L109.0
($179.4) million in capital expenditure requirements initially proposed in
connection with the periodic review process under the company quality
improvement program. If the Director determines to require these capital
expenditures in the future, this requirement could trigger an interim
determination to adjust Wessex's price limits.
In the final determinations, the Director assumed that the scope for
efficiency savings across the industry in operating costs could vary between
1.4% and 4.9% a year for water service and between 1.4% and 4.3% a year for
wastewater service. For capital maintenance expenditure, the Director assumed
that the scope for efficiency savings across the industry could vary between 3%
and 14% for water service and between 4% and 16% for wastewater service. The
Director considers there to be opportunities for even greater efficiency in
capital enhancement expenditure and has, therefore, assumed an average cost
reduction of 13% for water service and 13% for wastewater service; and for
operating expenditure arising from capital enhancements an
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average cost reduction of 10.6% for water service and 13.2% for wastewater
service. The determinations assumed an after-tax cost of capital in the range of
4.25% to 5.25% in real terms. For all but the smaller companies, the Director
has assessed the cost of capital on a forward-looking basis assuming that
companies have efficient capital structures. This forward-looking cost of
capital is combined with an allowance for embedded fixed-rate debt that the
Director considers provides a more focused assessment of required returns than
can be given by historical averages.
In the final determinations, the Director assumed the following cost
reductions by 2004-2005 for Wessex: a reduction in operating expenditures of 11%
for water service and 7% for wastewater service; a reduction in capital
maintenance of 11% for both water and wastewater service; and a reduction in
capital enhancement of 9% for water service and 7% for wastewater service. In
connection with Wessex's recent periodic review of price limits, the Director
has estimated that the cost of the capital expenditures that Wessex will be
required to make over the next five years will be approximately L764 ($1,233.9)
million. The determination assumed an after-tax cost of capital for Wessex of
4.75%. Because Wessex has been recognized as one of the most efficiently
operated water and wastewater companies, it has been given efficiency targets at
the lower end of the range. Following acceptance of the price review final
determination, water and wastewater companies must then publish monitoring plans
setting out their commitments to delivering the required levels of drinking
water and environmental quality outputs and standards of service consistent with
the price levels set. By March 2000, a timetable for delivery of the quality
program projects must be agreed with the environmental regulators.
Changes to Regulatory Regime
Since 1997 the U.K. Government has been carrying out a review of the
regulation of all utilities. This resulted in the publication of the Utilities
Bill on January 21, 2000. However, on March 2, 2000, the Secretary of State for
Trade and Industry announced his decision to remove the provision relating to
water from the Utilities Bill. Instead the Department of the Environment,
Transport, and the Regions will introduce measures in a draft Water Bill, which
it intends to publish later in 2000. The new Water Bill will enable Parliament
to consider proposed changes to the water regime alongside other proposals
resulting from the review of competition in the water sector. It is likely that
the new Water Bill may also include the following provisions, which were to have
been covered in the section dealing with the water industry in the Utilities
Bill:
- Consumer protection would 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.
- Consumer representative bodies would be set up to promote consumer
interests.
- A clearer link would be made between the prices charged and the customer
service standards achieved.
- Full information would be available on companies' performance on customer
service standards and on the links between this performance and the
remuneration of directors.
- Ministers would issue statutory guidance on social and environmental
objectives.
- A committee would be set up to advise the Director on the exercise of his
functions.
- Financial penalties would be imposed for breach of license conditions,
statutory requirements or service standards.
- When there has been a license modification reference made to the
Competition Commission, the Commission will have the power to veto the
proposed modifications if they are not sufficient to address the adverse
effects identified in the Competition Commission report.
In his March 1999 Budget Speech, the Chancellor of the Exchequer announced
that the Deputy Prime Minister will review competition in the water industry,
and a consultation paper is expected to be published in March 2000.
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Separately, the Competition Act 1998 became effective in March 2000. This
will, among other things, increase the ability of the U.K. 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. The Director has announced that he intends to
actively pursue potential breaches of the Competition Act by identifying areas
where companies may be restricting competition. U.K. competition law, in the
Fair Trading Act 1973, also enables monopoly situations, as defined in the Act,
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 divested.
The Director has indicated that he intends to seek public comment before
the end of 2002 on the rules and policies that should be developed in relation
to license renewal and termination. The Director has suggested that in
considering license termination after 2004, the Secretary of State should not
regard the present structure of the industry as sacrosanct and that a less
vertically integrated industry would be more conducive to the development of
competition. The Director has stated that continuity of services to customers
would be the industry regulator's primary concern in developing any rules or
policies with respect to termination of licenses.
In August 1999, the U.K. Government announced proposals for radical reform
of U.K. merger control under the Fair Trading Act that would give responsibility
to the independent competition authorities for decisions on most mergers and
would focus more clearly on competition and the consumer. A special merger
regime operates in relation to the water industry in England and Wales. The
Secretary of State has a duty to refer to the Competition Commission mergers or
proposed mergers between two or more water enterprises where the value of the
gross assets taken over and those of the acquirer each exceed L30 ($49.4)
million. There are also specific appraisal criteria for mergers between water
enterprises. These require the Competition Commission to determine whether the
merger will operate against the public interest. In determining whether this is
the case the Competition Commission must have regard to the risk that the number
of water enterprises under independent control should not be reduced so as to
prejudice the ability of the Director to make comparisons between different
water enterprises in order to determine their efficiency. The Director announced
in January 2000 that, in the case of water-to-water mergers, the detriment of
the loss of a comparator in the industry might be offset if the merger were to
bring about the development of market competition, especially if companies were
prepared to see a loss in market share in their own areas. As far as the special
merger regime for the water industry in England and Wales is concerned, the U.K.
Government will consider that regime in light of the review it is conducting of
competition in the water industry, but does not anticipate at this stage that
major changes will be necessary to that regime. However, the Director has stated
that, until market competition has developed, he has no intention of abandoning
comparative competition. Furthermore, in evaluating the competitive position of
U.K. water companies in the future, he intends to extend the comparisons to
include comparable suppliers in Scotland and Northern Ireland, as well as in
other countries, including France, Australia and the United States, as well as
the suppliers in England and Wales.
Drinking Water Quality and Environmental Regulation
The water and wastewater industries in England and Wales are subject to
numerous U.K. environmental regulatory requirements principally under the Water
Industry Act 1991, the Water Resources Act 1991, the Environmental Protection
Act 1990, the Environment Act 1995 and the Pollution Prevention and Control Act
1999.
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
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liability, and if the water supplied causes loss or damage, the breach may lead
to civil liability. Water companies are required to carry out statutory sampling
of water supplied to customers and must provide public information on drinking
water quality. The Inspectorate conducts technical audits to assess annually the
quality of the drinking water supplied by the licensed companies. If a 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 require persons to hold a consent 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 Water Resources Act 1991 makes it an offense to
abstract water without a license.
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, or will be, 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.
The Pollution Prevention and Control Act 1999 implements the European Union
Directive on Integrated Pollution Prevention and Control. Future regulations
under the Act will set out permitting obligations for certain plants and
activities. The regulations could impose additional requirements under an
integrated pollution prevention and control license on Wessex's operations.
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 it will propose legislation to introduce changes to
the current system for water abstraction licensing. New water abstraction
licenses will include time limits and limits may be imposed on existing
licenses. It also intends to strengthen the Environment Agency's powers to deal
with breaches of abstraction licenses and to impose a legally enforceable duty
on water companies to conserve water in carrying out their functions and to use
water abstracted under license in an efficient and effective manner. The U.K.
Government is also considering the use of economic instruments, such as
incentive charging and trading in abstraction licenses, as part of the system to
control abstractions.
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 that 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.
The Drinking Water Inspectorate has issued guidance on the water quality
aspects of common carriage. The guidance, although not legally binding, covers
drinking water quality aspects and suggested contractual arrangements for all
parties considering common carriage operations. A new entrant will not be
regulated by the Inspectorate, unless it is already a statutory undertaker.
Rather, a new entrant will be treated as a contractor to the existing
undertaker. The existing undertaker will have total responsibility for itself
and the new entrant complying with the Water Supply (Water Quality) Regulations
1989, and other legal require-
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ments. The guidance also provides that both the undertaker and the new entrant
must carry out a prior assessment of the likely impact of the proposed
arrangement for common carriage on water quality and the distribution system
before entering into such an arrangement.
U.S. REGULATORY MATTERS
Azurix North America 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 retail 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.
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 ground water 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
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.
Other U.S. environmental laws and regulations may also impact Azurix. These
include the Clean Air Act, the Resource Conservation and Recovery Act, referred
to as RCRA, the Emergency Planning and Community Right-to-Know Act, referred to
as EPCRA, and the Comprehensive Environmental Response, Compensation and
Liability Act, referred to as CERCLA. 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 EPCRA and
CERCLA are 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 our industrial wastewater treatment services
business will focus primarily on the operation and management of on-site
wastewater treatment facilities, we 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.
CANADIAN REGULATORY MATTERS
Azurix North America 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
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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.
ARGENTINE REGULATORY MATTERS
General Regulation of Water
Argentina has a federal system of government that delegates 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 those resources.
Federal laws apply to areas within national jurisdiction, such as the
federal capital, and to matters that affect the nation as a whole and not merely
one province. At the national level, the recently organized Ministry of Social
Development and Environment is principally responsible for the protection of the
environment, including water supply, wastewater and sanitation service, and the
Ministry of Health and Social Action is principally responsible for the
protection of public health. The recently organized Ministry of Infrastructure
and Housing is responsible for the development and implementation of national
water policy and for establishing priorities of uses for multiple-use water
resources.
Under the Argentine Constitution, the provision of water services at the
local level generally is within either provincial or municipal authority. 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 being carried out by the
Organismo Regulador de Aguas Bonaerenses, a unit of that province's Ministry of
Public Works and Services, and by the Water Authority, created by the provincial
Water Code.
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 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.
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.
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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 Obras Sanitarias Mendoza will receive the same level of
revenue as under the prior regime, thus allowing Obras Sanitarias Mendoza 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. Obras Sanitarias Mendoza may request adjustments to the
new tariff if any of the following occurs:
- the new tariff lowers consumption significantly
- Obras Sanitarias Mendoza 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
- Obras Sanitarias Mendoza shows that most of the benefits of cost
reductions are inuring to consumers
The Province of Buenos Aires employs a similar regime. Initially, the
tariff will remain the same as was in effect prior to privatization. The first
tariff review is expected around 2002. The tariff then is to be reviewed every
five years in light of changes to the five-year program of investment. Azurix
Buenos Aires or the regulator may ask at any time for an increase or reduction
in the tariff 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
Azurix Buenos Aires if it operates more efficiently than expected. Azurix Buenos
Aires 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.
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. The 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. In the Province of Buenos
Aires, Organismo Regulador de Aguas Bonarense regulates wastewater disposal,
including industrial wastewater discharges, while the Secretariat of Environ-
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mental Policy is in charge of environmental issues. In both provinces, 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 water. The various provincial laws establish different compliance and
enforcement requirements.
BRAZILIAN REGULATORY MATTERS
Azurix Brasil provides water well drilling, water supply and water and
wastewater treatment services in Brazil. Water well drilling and water supply
services are most commonly provided under a "risk contract," pursuant to which
Azurix Brasil drills a water well or provides a source of water supply to a
private property owner and receives a fee based on the amount of water delivered
to the customer. The contract is called a risk contract because Azurix Brasil
does not receive any payment unless it is able to deliver water to the customer.
Azurix Brasil will also be seeking to provide water supply and water and
wastewater treatment services to the public, which requires the granting of a
concession from the state or local government. Under Brazilian law, no one can
render public services, such as water supply and water and wastewater treatment
services, without first obtaining a concession from the appropriate governmental
entity.
Regulation of Water Rights and Risk Contracts
Federal law 9.433/97, the Federal Water Rights Law, establishes a
permitting system for the right to extract water from underground aquifers or to
divert and remove surface water from streams, rivers or lakes. A permit must be
obtained from either the federal government or the state government before a
water well is drilled or a diversion of surface water occurs. A federal permit
is required if the affected body of water is located in more than one state,
such as a river passing through multiple states or a lake or aquifer that is on
the border of two states, and a state permit is required if the affected body of
water is located wholly within a single state. The decision on whether to issue
a permit is usually based on technical factors since water is plentiful in most
areas of Brazil.
For a typical risk contract project, a permit must be obtained from the
state government before a water well is drilled. Although the owner of the
property on which the well is to be drilled is responsible under law for
obtaining the permit, Azurix Brasil will frequently agree to obtain the
necessary permit on behalf of the customer. Although permits can be granted for
a term of up to 30 years, most states limit the duration of ground water well
permits to five years. If a permit expires and is not renewed, the owner of the
property might loose the right to withdraw ground water through the well and
Azurix might then loose its right to receive payment under the risk contract.
Regulation of Concessions
Article 175 of the Federal Constitution of Brazil provides that it is the
responsibility of the government to render all public services, including water
supply and water and wastewater treatment. State and local governments may
fulfill this responsibility directly or by granting concessions to private
companies to provide public services on behalf of the state or local government.
Federal law 8.987/95, the Federal Concessions Law, authorizes state and local
governments to award concessions to private entities through a public bidding
process. The Federal Concessions Law establishes a variety of requirements
relating to the terms of any concession that may be granted by a state or local
governmental entity. Azurix Brasil anticipates seeking concessions to provide
water supply and water and wastewater treatment services in Brazil and expects
to be able to comply with the Federal Concessions Law and any state or local
governmental requirements thereunder.
Health and Environmental Regulation
A variety of federal, state and local laws establish standards for the
quality of water supplied for public consumption and the quality of wastewater
discharged into public bodies of water. When Azurix Brasil provides water supply
services, sampling is performed at least monthly during the life of the contract
to ensure that the water complies with applicable standards. Since the quality
of water supplied depends heavily on the
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<PAGE> 29
quality of the source of water, Azurix Brasil typically does not provide water
quality guarantees in its risk contracts. However, if Azurix Brasil is
successful in obtaining public water supply concessions, the water supplied
pursuant to the concession will have to meet all applicable standards.
Wastewater discharge quality standards are based on the quality and
designated use of the body of water into which the wastewater is discharged. The
federal government has established minimum water quality standards for all major
bodies of water in Brazil. In addition, some Brazilian states have established
supplemental water quality standards that exceed the federal minimum standards.
In the event of a conflict, the more restrictive standards apply. Permits issued
for wastewater discharges establish minimum standards for a variety of
pollutants and substances, such as oil, solids, fecal coliform,
ammonia-nitrogen, and various toxic substances, all of which are based on the
quality and designated use of the body of water receiving the discharge. Permits
for discharges into bodies of water that are already highly polluted or that
have a special designated use, such as public recreation or drinking water
supply, will contain more stringent limitations than other wastewater discharge
permits.
Under Brazilian law, the permit is issued to the wastewater generator or
treatment plant owner, and the permit holder is responsible for complying with
wastewater discharge permit limits. Fines and penalties can be imposed for
noncompliance with permit limits. Azurix Brasil provides operational services
for some wastewater treatment plants and may seek concessions to operate
wastewater treatment plants that provide service to the general public. Under
operational service contracts or concessions, Azurix Brasil may agree to be
responsible for compliance with permit limits provided that the customer (for an
operational contract) or the governmental entity (for a concession) does not act
negligently or in a manner that would cause the wastewater treatment plant to be
incapable of complying with applicable permit limits.
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 corresponding state at the request
of the municipality. 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
The Water Commission of the Federal District of Mexico is responsible for
the provision of water and wastewater services within the Federal District of
Mexico. The Water Commission has contracted with Industrias del Agua to provide
services relating to the water and wastewater system. These services are to be
provided in accordance with the terms of the contract and reimbursed according
to the rate schedule set forth in the contract.
For areas outside the Federal District, 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 Comision de Agua Potable y Alcantarillado, referred to as CAPA, an
agency of the State of Quintana Roo. The Governor of the State of Quintana Roo
appoints the members of CAPA. One of the
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<PAGE> 30
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.
Tariff Rates for the Cancun Concession
The tariff rates for the Cancun concession 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 at the present time, but over the term of the concession a tariff
increase will be necessary due to growth in the domestic sector, which does not
pay for its costs. In addition, should significant, unexpected capital
expenditures be required, the concessionaire can propose to CAPA a tariff
increase.
The concessionaire and CAPA are currently negotiating to change the tariff
rate 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. 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.
Environmental Matters
A variety of federal, state and local laws establish standards for the
quality of water supplied for public consumption and the quality of wastewater
discharged into public bodies of water. The Constitution of Mexico provides that
all navigable bodies of water are subject to federal jurisdiction and
regulation. The federal government has adopted the General Law of Ecological
Balance and Environmental Protection, also known as the Federal Environmental
Law, to establish uniform standards for protection of all bodies of water
subject to federal jurisdiction and regulation. The Federal Environmental Law
authorizes individual state governments to adopt and enforce environmental
protection standards that meet or exceed minimum requirements established by the
federal government. The State of Quintana Roo, in which the Cancun concession is
located, has adopted its own state environmental laws and regulations. Both
state and federal governmental agencies possess the authority to impose fines
and penalties for violations of applicable environmental requirements.
Industrias del Agua, which operates primarily in the Federal District of
Mexico, is subject primarily to federal environmental quality standards, whereas
the Cancun concession is subject to environmental rules and regulations
established by the State of Quintana Roo.
CAPA is the agency responsible for enforcing environmental regulations
relating to water quality and wastewater discharges within the State of Quintana
Roo. The environmental laws adopted by the State of Quintana Roo also authorize
local governments, such as the municipal county governments of Benito Juarez and
Isla Mujeres, to adopt and enforce regulations pertaining to the operation of
potable water systems and the discharge of treated wastewater. These local
governmental entities monitor water consumption and regulate effluent quality
for the Cancun area, in cooperation with CAPA.
The federal wastewater discharge standard for effluent from sewage
treatment plants in coastal areas is 70 milligrams per liter of total suspended
solids and biochemical oxygen demand. Although the State of Quintana Roo, CAPA,
and the municipal county governments of Benito Juarez and Isla Mujeres have not
established more stringent discharge requirements, the wastewater treatment
plants for the Cancun concession are designed to discharge an effluent
containing no more than 30 milligrams per liter of total suspended solids
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<PAGE> 31
and biochemical oxygen demand. The new facilities being constructed to serve the
Cancun concession will generate an increased volume of biosolids that will
require additional on-site management and off-site disposal, but we expect that
the Cancun concession will be able to handle the increase in compliance with all
environmental requirements. Azurix believes that the Cancun concession and
Industrias del Agua are conducting their operations in substantial compliance
with all applicable environmental laws.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table provides information regarding each of the persons who were
serving as executive officers of Azurix as of March 28, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rebecca P. Mark...................... 45 Director, Chairman and Chief Executive Officer
Colin F. Skellett.................... 54 Vice Chairman, Operations
John L. Garrison, Jr. ............... 39 President and Chief Operating Officer
Amanda K. Martin..................... 39 Executive Director and President, North America
John C. Ale.......................... 45 Executive Director and General Counsel
Rodney L. Faldyn(1).................. 34 Managing Director and Chief Accounting Officer
Andrea L. Mainelli................... 37 Managing Director, Finance and
Acting Chief Financial Officer
</TABLE>
- ---------------
(1) Mr. Faldyn has resigned and his employment with Azurix will terminate as of
March 31, 2000.
Rebecca P. Mark has served as Director, Chairman and Chief Executive
Officer of Azurix since July 1998. Ms. Mark has served as a Director of Enron
since July 1999. Ms. Mark served as Vice Chairman of Enron from May 1998 to July
1999, as Chairman of Enron International Inc. from January 1996 to July 1998, as
Chairman and Chief Executive Officer of Enron Development Corp. from July 1991
to July 1998 and Chairman of Enron Development Corp. from July 1991 to January
1999. 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.
Colin F. Skellett has served as Vice Chairman, Operations of Azurix since
November 1999. Mr. Skellett served as Executive Director, Technical and
Operating, Environmental and Safety Services of Azurix from October 1998 to
October 1999. Mr. Skellett has served 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 Limited and
is the U.K. representative on the European Union of National Associations of
Water Suppliers and Waste Water Services.
John L. Garrison, Jr. was elected President and Chief Operating Officer in
March 2000. Mr. Garrison served as President, Europe/South America from December
1999 to March 2000. Mr. Garrison has served as an Executive Director of Azurix
since November 1999 and was a Managing Director from April 1999 to November
1999. Prior to joining Azurix, Mr. Garrison served as Vice President and General
Manager of the North American Agricultural Group of Case Corp. from August 1995
to April 1999. Before joining Case Corp., Mr. Garrison served as a principal
with Enron Development Corp. from July 1992 to July 1995 and was responsible for
gas and power infrastructure development for the United States, Colombia and
Mexico.
Amanda K. Martin has served as Executive Director and President, North
America, since December 1999. From September 1998 to December 1999, Ms. Martin
was Executive Director, Americas for Azurix. 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.
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.
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<PAGE> 33
Rodney L. Faldyn was elected Managing Director effective January 2000. Mr.
Faldyn has served as Chief Accounting Officer for Azurix from November 1998 to
present. From 1997 until he joined Azurix, Mr. Faldyn served as Vice President,
Merchant Services of Enron International Inc. From 1995 until 1997, Mr. Faldyn
served as a Director of Enron Capital & Trade Resources Corp. Prior to joining
Enron, Mr. Faldyn was a senior manager with the accounting firm of Deloitte &
Touche LLP.
Andrea L. Mainelli was elected Acting Chief Financial Officer in March
2000. Ms. Mainelli has served as Managing Director, Finance from November 1998
to present. From 1991 until she joined Azurix, Ms. Mainelli served in various
positions with Enron International Inc., most recently as Principal, responsible
for gas and power infrastructure development in Central and Eastern Europe.
Prior to joining Enron, Ms. Mainelli was employed by Morgan Stanley in its asset
and real estate finance groups in New York and London.
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<PAGE> 34
FACTORS THAT MAY AFFECT FUTURE RESULTS AND ACCURACY OF FORWARD-LOOKING
STATEMENTS
Certain statements contained in this Annual Report may constitute
"forward-looking statements" as such term is defined in the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. We may also
make forward-looking statements in other reports filed with the Securities and
Exchange Commission, in materials delivered to stockholders and in press
releases. In addition, our executive officers may from time to time make oral
forward-looking statements. The forward-looking statements are based on
management's current expectations and beliefs and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. Words such as
"anticipates," "believes," "expects," "estimates," "intends," "plans,"
"projects" and similar expressions, may identify such forward-looking
statements.
The following factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements. Readers
should carefully review these factors, in addition to other factors discussed
elsewhere in this Annual Report and in our filings with the Securities and
Exchange Commission, as they identify certain important factors that could cause
actual results to differ materially from those in the forward-looking
statements.
WE HAVE A SHORT OPERATING HISTORY. OUR FUTURE FINANCIAL OR OPERATING RESULTS
ARE DIFFICULT TO FORECAST AND MAY BE MATERIALLY DIFFERENT FROM THOSE PRESENTED
IN THIS REPORT.
We were formed in January 1998 and, therefore, have a short operating
history. We acquired Wessex and our interest in Mendoza in late 1998 and our
other assets in 1999. As a consequence, there is limited historical information
available regarding our businesses. Our limited operating history and the
unpredictable results of our business strategy make it difficult to forecast our
future operating results.
WATER AND WASTEWATER COMPANIES FACE PRICE, COMPETITION AND OTHER REGULATIONS
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, as could the regulations they promulgate. These changes
could cause reductions in our operating revenues.
WE FACE SIGNIFICANT COMPETITION.
Participants in the global water industry must compete with each other when
bidding or negotiating for concessions, contracts and other projects. We face
significant competition from companies larger than we are, companies with longer
operating histories and greater experience in securing water and wastewater
projects than we have and other new entrants to the global water industry. Our
limited operating history may make it difficult for us to qualify for, or be
successful in, bidding against these more experienced competitors. We may be at
a disadvantage in competing for concessions, contracts and other projects when
we have no history operating in a particular country or region, or when we have
no history operating a water or wastewater facility or system comparable in size
to the facility or system being privatized or built. Further, our competitors
may be able to obtain capital at a lower cost and be willing to bid more
aggressively than we can, which would give them an advantage in bidding on
projects and other competitive situations.
OUR PROFITABILITY AND PROSPECTS FOR GROWTH ARE HIGHLY DEPENDENT ON OUR
SUCCESSFULLY OBTAINING CONTRACTS, COMPLETING ACQUISITIONS AND DEVELOPING
PROJECTS, AND WE MAY NOT BE ABLE TO OBTAIN CONTRACTS, COMPLETE ACQUISITIONS
AND DEVELOP PROJECTS SUCCESSFULLY.
We may not be able to obtain contracts, complete acquisitions of water and
wastewater assets and develop projects successfully because these transactions
involve many complexities. These complexities include, among other things,
negotiation of satisfactory water supply and wastewater treatment services
agreements
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with local governments and industrial customers, receipt of required
governmental consents and permits and obtaining financing for our operations,
acquisitions and projects. In addition, in evaluating and negotiating water
service projects and contracts, we may 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 are unable to predict
with certainty the timing of a privatization or the commitment level of a
government to completing a privatization. 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. To the extent we are unsuccessful in completing
acquisitions and development projects, expenses we incur in pursuing these
transactions will not be absorbed by income associated with those acquisitions
and development projects and will decrease our net income.
RESTRICTIONS IN OUR DEBT AGREEMENTS COULD LIMIT OUR GROWTH AND OUR ABILITY TO
RESPOND TO CHANGING CONDITIONS.
Some of the debt agreements to which we or our subsidiaries are a party,
including the indenture governing our senior notes and the Azurix Europe and the
Wessex credit facilities, contain covenants that could restrict our future
business operations. These operating and financial covenants could hinder our
flexibility in planning for, and reacting to, changes in our business. Our
ability to satisfy these covenants and the other requirements imposed by our
credit facilities and the indenture could be adversely affected by events beyond
our control. An event of default under our credit agreements or the occurrence
of a change of control or an event of default under the indenture, if not cured
or waived, could permit acceleration of the relevant debt and acceleration of
debt and other obligations under other instruments. We are not certain whether
we would have, or be able to obtain, sufficient funds to make these accelerated
payments.
FAILURE TO IDENTIFY AND ASSESS ACCURATELY THE RISKS RELATED TO AN ACQUISITION
OR TRANSACTION COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
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, develop a
project or provide a service prove to be incorrect in any material respect, then
our operating results, including earnings, could be materially adversely
affected.
BECAUSE OUR BUSINESS REQUIRES SUBSTANTIAL CAPITAL, DIFFICULTY FINANCING OUR
OPERATIONS, ACQUISITIONS AND PROJECTS COULD LIMIT OUR GROWTH AND OUR
PROFITABILITY.
With respect to commitments under our existing businesses, we expect to
incur capital expenditures of approximately $1.7 billion over the next five
years, approximately $300 million of which we expect to incur in 2000. We intend
to finance our projected capital expenditures for our existing businesses
principally with internally generated funds and proceeds under existing
long-term and short-term borrowing arrangements and future financing
arrangements. The water and wastewater assets and projects in which we may
invest may also 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.
There is a risk that financing may not be readily available to finance our
operations, acquire water and wastewater assets or develop projects. Our ability
to arrange financing will be affected 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 a project.
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<PAGE> 36
IF WE DO NOT HAVE OPERATIONAL CONTROL, 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 of the concession in
Mendoza, Argentina in which we own a 32.1% interest. 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 COULD BE MATERIALLY ADVERSELY AFFECTED.
We intend to grow in part through acquisitions of water and wastewater
assets. Since our inception in 1998, we have completed acquisitions aggregating
over $3 billion. 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. To the extent we encounter
problems in integrating acquisitions and managing our growth, our financial
results could be materially adversely affected.
ENVIRONMENTAL AND HEALTH FACTORS AND CHANGES IN REGULATIONS COULD INCREASE OUR
COSTS OR OUR LIABILITIES.
Changes in environmental, health and other 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 significant liabilities and expenses. 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
may incur.
LIABILITY FOR WATER SUPPLY CONTAMINATION COULD RESULT IN MATERIAL LOSSES AND
COSTS.
Our business, in particular the supply of water to end-users, 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,
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<PAGE> 37
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, we cannot
assure you 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 may 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, implementation of subsidies or other protections for disadvantaged
groups and foreign exchange controls or governmental restrictions on the
repatriation of hard currency. We 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, governmental 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. All or a
portion of the work forces at almost all of our operating subsidiaries are
represented by unions. 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, or that we
will not experience work stoppages. Work stoppages could lead not only to
reduced revenues, but also, in some cases, to defaults under concession,
operating or other contracts.
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 and the
capacity of currency exchange markets may adversely affect our ability to
repatriate profits, and changes in exchange rates may adversely affect the U.S.
dollar equivalent of the profits to be repatriated. For the year ended December
31, 1999, 83.4% of our operating revenues were non-U.S. dollar denominated.
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.
We may operate in countries without established or well-enforced revenue
collection mechanisms for water supply and wastewater treatment services or
encounter other difficulties in the collection process. For example, we did not
receive complete billing and customer records when we took over our concession
in Buenos Aires, which has impeded collection efforts and adversely affected our
operating revenues derived from this concession to date. Also, customers in some
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.
We cannot assure you 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
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<PAGE> 38
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 TAX JURISDICTIONS COULD LOWER OUR RETURNS AND
DIRECTLY AFFECT OUR BUSINESS STRATEGY.
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, the potential tax benefits associated with these expenses
may not be realizable. If these amounts were determined to not be realizable
within specified expiration periods in accordance with applicable U.S.
accounting and tax regulations, the impact could materially reduce future
consolidated net earnings. The future realization of these tax benefits in the
U.S. could therefore have a direct impact on our strategic emphasis in expanding
our U.S. operating base.
In addition, 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.
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 may 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
discrimination 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.
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. Our
Vice Chairman and Chief Financial Officer, our Executive Director, Europe,
Middle East, Asia and Africa and our Executive Director, Strategy and Corporate
Development recently resigned and our Chief Accounting Officer is resigning
effective March 31, 2000; however, we believe that our current management will
be able to manage our business.
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. Our services agreement with Enron is for an indefinite term, but
may be terminated on 180 days' notice. If our agreement is terminated we expect
that we would be able to arrange
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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.
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 REPORT, 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 report, 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 wastewater 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 assets were not expected to represent a majority of the
value.
The agreement expires on 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.
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 approximately 67% of our outstanding
common stock. 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. 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, Enron and Marlin Water Trust have the
ability to exert significant influence over the policies, management and affairs
of Azurix and control the outcome of corporate actions requiring stockholder
approval, including the approval of transactions involving a change in control
of Azurix. Enron and
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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.
OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO ENRON
DIRECTORS OR OFFICERS.
Currently, all 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.
ITEM 2. PROPERTIES
Information regarding our properties is set forth in "Item 1 -- Business."
ITEM 3. LEGAL PROCEEDINGS
On October 29, 1999, we filed an action in the Court of Chancery of the
State of Delaware against Synagro Technologies, Inc. Prior to this filing, we
had been in discussions with Synagro regarding possible transactions. In
connection with these discussions, the parties entered into agreements
containing standstill provisions restricting our ability to acquire or engage in
negotiations with a number of companies for several months. In September 1999,
Synagro orally agreed to waive these standstill provisions with regard to two
subsidiaries of Waste Management, Inc., commonly called BioGro, engaged in the
residuals business. This oral waiver was made to representatives of Waste
Management, as well as to us. We also agreed to purchase up to $23 million of
Synagro convertible preferred stock, subject to certain conditions. Following
the waiver, we discussed with Waste Management our possible acquisition of
BioGro. Our complaint sought to enforce the waiver of the standstill provisions
and an injunction against Synagro's interference with our potential acquisition
of BioGro, and a declaration that, because the specified conditions had not been
met, we have no further obligations to purchase stock of Synagro or pay it any
other sums. On November 1, 1999, Synagro filed suit against us in the District
Court of Harris County, Texas, seeking both a temporary restraining order and
permanent injunction to enjoin us from using confidential information that we
had obtained from Synagro and unspecified damages. In particular, Synagro's
petition alleges that our negotiating or closing the acquisition that is the
subject of the Delaware case would violate the standstill agreement between the
parties.
On November 2, 1999, the court in the Texas action entered a temporary
restraining order preventing us from using any confidential or proprietary
information that we received from Synagro, including with respect to BioGro, and
preventing both us and Synagro from acquiring, or entering into an agreement to
acquire, BioGro for a 14-day period. On November 3, 1999, we filed a motion
asking the Texas court to stay the action in Texas until the Delaware Chancery
Court had heard the earlier-filed Delaware case. The Texas court granted this
motion on November 16, 1999, terminating the restraining order. Synagro
subsequently asked the Delaware court to dismiss the action there either for
lack of jurisdiction or under the doctrine of forum non conveniens. On February
3, 2000, the Delaware court rejected Synagro's motion to dismiss the case but
stayed the proceedings there on the basis that the Texas and the Delaware
actions were filed essentially contemporaneously and that, on balance, Texas was
a more appropriate forum. We subsequently filed an interlocutory appeal to the
Supreme Court of the State of Delaware, but the court exercised its discretion
to refuse to hear the appeal.
We have determined not to proceed with the acquisition of BioGro. We
therefore no longer are seeking to enjoin Synagro's interference with the Waste
Management transaction but intend to seek damages for that interference, as well
as a declaration that we were not obligated to purchase Synagro preferred stock.
Synagro has not alleged an amount of damages, and so it is not possible in this
early stage of the litigation to predict what, if any, damages might result if
the cases were determined adversely to us. In January and February 2000, Synagro
announced that it had arranged significant new funds and that it had closed
several of the acquisitions, including the largest one, that were to have been
funded in part through the preferred stock we
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were to purchase. We intend to defend these actions vigorously and to pursue our
claims for damages for Synagro's interference with the Waste Management
transaction. Although no assurances can be given, we believe that the ultimate
resolution of this litigation will not have a material adverse effect on our
results of operations or financial position.
Azurix's subsidiaries are parties to other legal proceedings as part of
their operations. We do not believe that any of these other legal proceedings
would, if adversely determined, have a material adverse effect on our financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal year
1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock has been traded on the New York Stock Exchange under the
symbol "AZX" since its initial public offering in June 1999. The initial public
offering price was $19.00 per share. The table below sets forth the range of
high and low closing sales prices per share for the common stock for the period
June 9, 1999, the first day of trading of our common stock, through June 30,
1999, and for the third and fourth quarters for the fiscal year ended December
31, 1999.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
June 9, 1999 through June 30, 1999.......................... $20.00 $19.00
Third Quarter............................................... 23.88 15.00
Fourth Quarter.............................................. 16.94 6.81
</TABLE>
HOLDERS
As of March 27, 2000, there were 335 holders of record of our common stock.
DIVIDENDS
We have never declared or paid cash dividends. We do not anticipate paying
any dividends in the foreseeable future because we intend to retain all earnings
for use in the operation and expansion of our business. Furthermore, the payment
of dividends or other distributions on, or with respect to, the common stock is
limited by provisions of the indenture covering the senior notes we issued in
February 2000, which contains certain covenants that restrict our ability to pay
dividends. Further, Azurix Europe's revolving credit facility prohibits the
payment of dividends or other distributions of capital from Azurix Europe to us,
which restricts our ability to fund dividends. See "Management's Discussion and
Analysis of Financial Condition an Results of Operations -- Liquidity and
Capital Resources" and Notes 6 and 7 of the Notes to the Consolidated Financial
Statements.
ITEM 6. SELECTED FINANCIAL DATA
The tables on the following page present selected historical consolidated
financial data for Azurix and for Wessex, the predecessor of Azurix, for the
periods and dates indicated.
The financial data for Azurix are derived from Azurix's audited
consolidated financial statements included elsewhere in this report and include
the impact of the Wessex acquisition from the date of acquisition. All of
Azurix's 1998 results of operations occurred in the fourth quarter of 1998,
subsequent to the acquisition of Wessex. The balance sheet data for Wessex as of
March 31, 1998 and the income statement and other financial data for the year
ended March 31, 1998 and for the six months ended October 2, 1998 are derived
from Wessex's audited consolidated financial statements included elsewhere in
this report. Wessex's income statement and other financial data for the year
ended March 31, 1997 are derived from Wessex's audited consolidated financial
statements included in Azurix's Form S-1, filed with the Securities and Exchange
Commission on June 9, 1999. The income statement and other financial data for
the year ended March 31, 1996 and the balance sheet data for Wessex as of March
31, 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.
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<TABLE>
<CAPTION>
WESSEX (PREDECESSOR COMPANY) AZURIX
---------------------------------------- ---------------------------
SIX MONTHS JANUARY 29,
YEAR ENDED MARCH 31, ENDED 1998 TO YEAR ENDED
--------------------------- OCTOBER 2, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1998 1998 1999
------- ------- ------- ---------- ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues....................... $ 376.8 $ 403.1 $ 436.6 $ 233.8 $ 119.7 $ 618.0
Operations and maintenance expense....... 106.6 102.4 110.9 61.7 31.6 224.7
General and administrative expense....... 27.4 32.2 29.1 36.4 20.3 117.8
Depreciation and amortization............ 53.7 58.0 64.3 35.2 22.2 104.8
Restructuring charge..................... -- -- -- -- -- 34.2
Operating income......................... 189.1 210.5 232.3 100.5 45.6 136.5
Equity in earnings (loss) of
affiliates(1).......................... 14.1 14.7 13.3 5.8 (0.8) 2.0
Interest expense (income), net........... (16.9) (10.2) 8.6 6.1 15.1 73.6
Other expense............................ -- -- -- -- 1.2 --
Income before minority interest, income
tax and utility tax and extraordinary
loss................................... 220.1 235.4 237.0 100.2 28.5 64.9
Minority interest........................ -- -- -- -- -- (1.1)
Income tax expense....................... 79.7 82.4 58.0 28.4 18.3 21.5
Utility tax expense(2)................... -- -- 162.3 -- -- --
Income before extraordinary loss......... 140.4 153.0 16.7 71.8 10.2 44.5
Extraordinary loss, net of tax........... -- -- -- -- -- 6.8
Net income............................... 140.4 153.0 16.7 71.8 10.2 37.7
Preference share dividends............... 8.0 13.5 15.1 7.7 -- --
Net income available to common
stockholders........................... 132.4 139.5 1.6 64.1 10.2 37.7
Basic earnings per common share before
extraordinary loss(3).................. 0.62 0.65 0.01 0.30 0.10 0.41
Basic earnings per common share(3)....... 0.62 0.65 0.01 0.30 0.10 0.34
Diluted earnings per common share before
extraordinary loss(3).................. 0.51 0.55 0.01 0.30 0.10 0.41
Diluted earnings per common share(3)..... 0.51 0.55 0.01 0.30 0.10 0.34
Dividends declared per common share(4)... 0.25 0.26 0.31 0.23 -- --
OTHER FINANCIAL DATA:
EBITDA(5)................................ $ 256.9 $ 283.2 $ 309.9 $ 141.5 $ 65.8 $ 277.5
Net cash provided by operating
activities............................. 240.5 246.3 125.0 132.2 4.4 158.3
Net cash used in investing activities.... (159.4) (97.8) (195.0) (108.4) (1,982.6) (1,076.8)
Net cash (used in) provided by financing
activities............................. (54.6) (373.0) 6.8 (23.6) 1,977.5 940.0
</TABLE>
<TABLE>
<CAPTION>
WESSEX (PREDECESSOR COMPANY) AZURIX
------------------------------ -------------------
AT MARCH 31, AT DECEMBER 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $ 228.3 $ (95.5) $ (307.0) $ (129.6) $ (239.6)
Total assets................................... 2,252.7 2,258.0 2,372.3 3,358.3 4,850.4
Long-term debt (including affiliates).......... 206.9 203.9 169.7 1,033.5 1,481.9
Redeemable preference shares................... 235.3 254.7 259.0 -- --
Stockholders' equity........................... 1,354.4 1,251.5 1,229.5 1,645.5 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, which was sold in
November 1998.
(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.
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(3) 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.
(4) Wessex shareholders 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, 1996, 1997 and 1998 and for
the six months ended October 2, 1998, shareholders elected stock dividends
equal to $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 expense (income), income tax, utility tax, depreciation
and amortization, minority interest, extraordinary loss and restructuring
charge. 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.
ITEM 7. 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 contained herein.
BUSINESS ACQUISITIONS
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.
On March 24, 1999, Azurix acquired, for $13.5 million, a 49% economic
interest in the company holding the water and wastewater treatment concession
for Cancun and Isla Mujeres, Mexico, along with the right to manage and operate
its business. On February 25, 1999, Azurix lent the concession company $15.0
million to permit it to retire a portion of its indebtedness. Azurix also agreed
to make additional loans of up to $10.0 million. The balance of the loans
outstanding to the Cancun concession at December 31, 1999 was $17.0 million.
On May 18, 1999, Azurix acquired 100% of the stock of Canadian-incorporated
Philip Utilities Management Corporation for $107.4 million, including
transaction costs. Philip Utilities is a water and wastewater services company
that provides operations and management, engineering, residuals management and
underground infrastructure development services for municipal water and
wastewater facilities in the United States and Canada. This business
subsequently was renamed Azurix North America, and has expanded through the
acquisition of three water and wastewater service companies for an aggregate of
$11.3 million.
During the second quarter of 1999, Azurix was the successful bidder in a
tender for a 30-year concession to operate the water and wastewater systems in
two regions of the Province of Buenos Aires, Argentina, previously operated by
Administracion General de Obras Sanitarias Buenos Aires. On June 30, 1999,
Azurix, through Azurix Buenos Aires S.A., an indirect wholly owned subsidiary,
entered into a concession contract
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with the provincial government covering the two regions and paid the government
$438.6 million. On July 1, 1999, Azurix assumed operation of the water and
wastewater systems.
In connection with the funding of the Buenos Aires concession acquisition,
Azurix made an equity investment in Azurix Buenos Aires of $45.0 million, and
Azurix Buenos Aires borrowed $394.0 million under a new credit agreement. This
loan is secured by cash and other short-term liquid investments, which Azurix
deposited into a cash collateral account and pledged as security for the loan.
Azurix used $230.6 million of the proceeds from its initial public offering,
$208.0 million in funds drawn under the senior credit facility of its indirect
wholly owned subsidiary, Azurix Europe Ltd, and interest on those funds and
other funds of Azurix, to fund the equity investment in Azurix Buenos Aires and
the deposit into the cash collateral account. Under the concession contract, a
10% interest in Azurix Buenos Aires is required to be transferred to the
employees of Administracion General de Obras Sanitarias Buenos Aires who became
employees of Azurix Buenos Aires. On a consolidated basis, the funding of the
acquisition resulted in an increase in the short-term debt of Azurix of $602.0
million, representing $394.0 million drawn by Azurix Buenos Aires under the
credit agreement and $208.0 million drawn by Azurix Europe under the senior
credit facility, and a corresponding increase in the current assets of Azurix of
$395.7 million (representing the amount deposited into the cash collateral
account, excluding interest earned thereon).
On September 24, 1999, Azurix acquired 49% of the capital stock of IASA
Holdings, S.A. de C.V. for $22.5 million, excluding transaction costs. IASA
Holdings owns 100% of Industrias del Agua, S.A. de C.V., a water and wastewater
services company based in Monterrey, Mexico that provides metering, billing,
collections, operations and maintenance services for one quarter of the Federal
District within Mexico City, a service area with a population of approximately
two million people. Industrias del Agua has provided these services since 1993,
when it signed a 10-year contract with the Water Commission of the Federal
District. In addition to holding an interest in Industrias del Agua, Azurix
provides technical services and ultimately expects to serve as a technical
participant under the Federal District contract. Contemporaneous with its
purchase of the common stock of IASA Holdings, Azurix entered into separate
agreements that result in Azurix having effective control over IASA Holdings.
Accordingly, IASA Holdings is consolidated for financial statement purposes.
On September 24, 1999, Azurix acquired from an affiliate of AMX-Acqua
Management Inc. 100% of three Brazilian companies, Geoplan-Assessoria,
Planejamento e Perfuracoes Ltda., Aguacerta-Sistemas de Abastecimento Ltda. and
Aguacerta Saneamento Ltda., which provide water drilling, water supply and
wastewater treatment services in Brazil, for $55.6 million in cash, excluding
transaction costs. The companies currently have offices in the States of Rio de
Janeiro and Sao Paulo, Brazil. Azurix has contingent payment obligations to a
former owner under certain negotiated formulas that depend on the future
performance of the business and has retained a former affiliate as a consultant
to its Brazilian operations. Contingent payments made to the former owner, if
any, must be used by that owner to purchase shares of Azurix common stock from
Azurix.
On October 4, 1999, Azurix purchased 13,600 acres of property in Madera
County, California, for $31.5 million, excluding transaction costs, with plans
of developing, owning and operating the Madera Water Bank Project, a ground
water storage project in the aquifer beneath it. The aquifer on the property
will be used to store surplus water from local, state and federal water
customers during wet years in an effort to make this water available for use
throughout the region and state during drier years or as the market dictates.
The Madera property is strategically located near existing state and federal
canals and aqueducts and the San Joaquin River, all of which could provide a
number of alternative conveyance systems to move water to and from the site.
Azurix is required to make additional payments to the seller contingent upon its
ability to successfully obtain the required water bank permits and commencement
of operations of the water bank.
On October 18, 1999, Azurix acquired Lurgi Bamag GmbH, a water and
wastewater engineering services company, for $30.2 million, excluding
transaction costs. Lurgi Bamag and its subsidiaries have offices in Germany,
Brazil, Egypt and the United Kingdom.
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RECENT DEVELOPMENTS
In 1998, Azurix adopted a business strategy focused on growth through
acquisitions and development projects around the world. During the fourth
quarter of 1998 and the first half of 1999, Azurix initiated a business
development effort requiring increased personnel to pursue and support
acquisition and privatization activities worldwide. The initiative was based on
Azurix's expectations as to the size, number, location and timing of
privatization projects that would be awarded in 1999, 2000 and beyond. During
the second half of 1999, several large privatization projects were postponed or
cancelled. In the fourth quarter of 1999, Azurix reevaluated its cost structure
in relation to its business development efforts. As a result, Azurix announced a
plan to restructure its operations, which resulted in Azurix recording a
non-recurring, pretax expense totaling $34.2 million in the fourth quarter of
1999. The restructuring plan includes reducing personnel, reducing its leased
office space and eliminating other costs relating to the pursuit of concessions
in certain regions. The associated general, administrative and operating
expenses averaged approximately $16 million pretax on a quarterly basis during
1999 but are expected to be lower in 2000 due to the reduction in personnel
related functions and costs. The restructuring liability is being funded through
cash provided by operating activities and borrowings under credit agreements.
See Note 15 of the Notes to the Consolidated Financial Statements.
Most of Azurix's revenues are subject to governmental regulation of the
rates that it charges to its customers. On November 25, 1999, the U.K. water
regulator, the Director General of Water Services, announced price limits for
U.K. water companies for the period April 1, 2000 through March 31, 2005. Wessex
was notified of a determination of a 12.0% price cut for 2000-2001, before
adjustment for inflation. The announcement included level prices through March
2003 with annual price increases in 2003-2004 of 3.8% and 2004-2005 of 4.7%,
before adjustment for inflation. Wessex's regulated operating revenues
represented approximately 70% of Azurix's total operating revenues for the year
ended December 31, 1999. The outcome of the periodic review is expected to
reduce Wessex's regulated operating revenues from 1999-2000 to 2000-2001 by
12.0%, before adjustment for inflation (or by approximately 10% after
adjustments for inflation and other factors), and thus materially reduce
Azurix's cash flow and earnings. However, Azurix does not expect this will have
a material adverse effect on its financial position. In the final
determinations, the Director assumed the following cost reductions by 2004-2005
for Wessex: a reduction in operating expenditures of 11% for water service and
7% for wastewater service; a reduction in capital maintenance of 11% for both
water and wastewater service; and a reduction in capital enhancement of 9% for
water service and 7% for wastewater service. In connection with Wessex's recent
periodic review of price limits, the Director has estimated that the cost of the
capital expenditures that Wessex will be required to make over the next five
years will be approximately L764 ($1,233.9) million. The determination assumed
an after-tax cost of capital for Wessex of 4.75%. In addition, companies are
required to implement certain policies in their charging schemes for 2000-2001
that must, for example, deal with tariffs for vulnerable groups, cost-reflective
charging, the balance between water and wastewater charges, measured and
unmeasured tariff differentials, large user tariffs, timing and methods of
payment and optional metering. Azurix does not believe that these policies will
have a material adverse effect on Azurix's financial position or results of
operations.
Wessex currently has a virtual monopoly over water supply and wastewater
services within its service region, with the exception of the cities of Bristol
and Bournemouth and a small area of rural Wiltshire, where three other companies
provide only water and Wessex provides wastewater services. This may change in
the future, however, as the U.K. Government and the Director seek to increase
competition in the water sector. The Director has announced a future work
program that includes new initiatives to extend competition. These include
lowering the threshold for inset appointments, or allowing premises to be
combined to meet the consumption limit for a large user inset; promoting
competition in new connections; extending the obligation on companies to allow
connections to their water mains from outside their areas in response to
requests by non-residential customers as well as residential customers
(currently, water and wastewater companies are only obliged to make such
supplies outside their areas when requested by residential customers);
facilitating common carriage, for example by developing access codes to set out
fair terms for common carriage using others' networks; liberalizing trade in
abstraction licenses; and using the new competition law powers under the
Competition Act 1998 to prevent abuses of a dominant position and
anti-competitive behavior. Increased
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competition could affect Wessex's monopoly within its own service region, but
would enable it to compete for customers in other regions, taking advantage of
its historically efficient operating levels.
On December 15, 1999, Wessex entered into two new European Investment Bank
credit facilities. Both obligations are denominated in U.K. pounds sterling. One
obligation had an outstanding balance at December 31, 1999 of $126.6 million,
has a floating interest rate based on the London interbank offered rate less
0.13% and is payable in full in December 2005. The other obligation had an
outstanding balance at December 31, 1999 of $34.9 million, has a floating
interest rate based on the London interbank offered rate less 0.10% and is
payable in full in December 2009. The proceeds from these loans were used to pay
down the entire amount of the then outstanding borrowings under the Wessex
committed and uncommitted credit facilities.
During February 2000, Azurix announced plans to launch internet-based
marketplaces for buyers and sellers of water and water-related equipment,
services and chemicals. One site being developed, Water2Water.com(TM), will
enable customers to transact business relating to the transfer and physical
delivery of water and the purchase or sale of water storage and water quality
credits. Azurix anticipates Water2Water.com's(TM) initial customers will be in
the western United States. The second site, WaterDesk.com(TM), will enable water
industry customers to more efficiently purchase and sell water-related
equipment, services and chemicals. WaterDesk.com(TM) will also provide users
with access to interactive decision support tools as well as industry
information from trade publications.
Azurix expects these sites to charge fees in connection with each
transaction occurring on the sites and from advertisements displayed on the
sites. The success of Azurix's e-business marketplaces will be largely dependent
on acceptance by large industrial, agricultural and municipal users of water and
water-related equipment, services and chemicals and the government agencies that
regulate them.
Azurix has incurred capital expenditures of approximately $1.7 million
through December 31, 1999 in connection with the development of
Water2Water.com(TM) and WaterDesk.com(TM) and anticipates these sites will
require development capital expenditures of approximately $13.6 million during
2000. Azurix is currently seeking third party investors for WaterDesk.com(TM)
which it believes will benefit the site by increasing industry exposure and
acceptance of the site as well as assist in defraying development costs and, in
certain cases, provide additional tools and features that may be incorporated
into the site.
In February 2000, Azurix issued U.S. dollar and U.K. pounds sterling senior
notes with a U.S. dollar equivalent face value of $599.8 million. The senior
notes consisted of $240.0 million and L100.0 million, each due in 2007 and
bearing an interest rate of 10 3/8% and $200.0 million due in 2010 and bearing
an interest rate of 10 3/4%. Estimated net proceeds after underwriter's discount
and other estimated offering costs were $583.8 million. Of this amount, $150.0
million was used to pay down the Azurix revolving credit facility, $386.0
million was used to pay down the Azurix Europe revolving credit facility and
$18.1 million was used to pay down amounts outstanding under the credit
agreement with Enron. In addition, $11.5 million was used to pay accrued
interest on the three credit facilities. The remaining proceeds are available
for general corporate purposes.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging contracts.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137 which deferred the effective
date of Statement of Financial Accounting Standards No. 133 to fiscal years
beginning after June 15, 2000. Statement of Financial Accounting Standards No.
133 may be implemented, as of the beginning of any fiscal quarter after
issuance, however, the statement cannot be applied retroactively. Azurix is
currently evaluating and has not yet
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determined the effect that the adoption of Statement of Financial Accounting
Standards No. 133 will have on its financial statements. Azurix will adopt the
statement beginning fiscal year 2001.
RESULTS OF OPERATIONS
Over 80% of Azurix's operating revenues is derived from water supplied and
wastewater treated for residential, commercial and industrial customers.
Services can be charged on a metered, known as measured, or unmeasured basis.
Azurix also has operating revenues derived from outsourced services,
including operating and maintaining water and wastewater treatment facilities
and related services, such as metering, billing and collections for municipal
and industrial customers, providing residuals management and biosolid dewatering
and disposal services and owning and operating private utilities. In connection
with these outsourced services, additional revenues result from plant design and
construction project management, process design and engineering services as well
as installation of automated control systems. Azurix also provides services
relating to the construction, repair and maintenance of collection and
distribution systems both to water and wastewater treatment facilities owned and
operated by Azurix and to third parties. Other unregulated activities include
the sale of electricity and treatment of organic waste.
Azurix sells and operates plants for drying biosolids, the solid waste
remaining after wastewater is treated. The majority of its operating revenues
relating to these activities is derived from projects relating to selling and
managing the construction of plants, and therefore each period's operating
revenues fluctuate according to the number of projects in progress.
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, and the cost of purchasing bulk
potable water. The main categories of cost include labor, power, rent, real
estate taxes, chemicals, transport, equipment, grounds maintenance and
tankering. Costs of projects relating to selling and managing the construction
of plants consist of 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 relating 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, public relations and marketing and sales activities.
Azurix was incorporated on January 29, 1998 (date of inception), but had no
operations prior to September 30, 1998. As a result, the 1999 and 1998 results
of operations are not presented on a comparative basis. Wessex, the predecessor
company of Azurix, had a March 31 year-end prior to its acquisition by Azurix on
October 2, 1998. Results of operations for Wessex for the six months ended
October 2, 1998 and the year ended March 31, 1998 are presented below. They are
not presented on a comparative basis due to the varying length of time in each
period.
AZURIX -- YEAR ENDED DECEMBER 31, 1999
Operating revenues of $618.0 million for the year ended December 31, 1999
included $465.4 million derived from Wessex, $87.8 million derived from Azurix
North America and $39.5 million derived from Azurix Buenos Aires. Approximately
93% of the revenues from Wessex related to the sale of measured and unmeasured
water and wastewater services. SC Technology's operating revenues and operating
revenues from Wessex's unregulated activities accounted for 3% and 4%,
respectively, of Wessex's operating revenues.
Operations and maintenance expense for the year ended December 31, 1999
were $224.7 million. Of this amount, $83.0 million related to Wessex's cost of
supplying water and treating wastewater, including the costs of maintaining and
operating plant and equipment used in these processes, and $16.4 million related
to the costs of the plants being installed by SC Technology. Of the remaining
amount, Azurix North America and Azurix Buenos Aires incurred $68.3 million and
$31.6 million, respectively.
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General and administrative expense of $117.8 million for the year ended
December 31, 1999 included $63.5 million primarily related to the pursuit of
acquisitions and development projects, $34.0 million related to Wessex's
operations and the remainder related primarily to Azurix North America and
Azurix Buenos Aires.
Depreciation and amortization expense of $104.8 million for the year ended
December 31, 1999 included $71.7 million derived from depreciation on the
property, plant and equipment of Wessex, $21.5 million derived from goodwill
amortization expense at Wessex and the remainder related primarily to Azurix
North America and Azurix Buenos Aires.
In 1998, Azurix adopted a business strategy focused on growth through
acquisitions and development projects around the world. During the fourth
quarter of 1998 and the first half of 1999, Azurix initiated a business
development effort requiring increased personnel to pursue and support
acquisition and privatization activities worldwide. The initiative was based on
Azurix's expectations as to the size, number, location and timing of
privatization projects that would be awarded in 1999, 2000 and beyond. During
the second half of 1999, several large privatization projects were postponed or
cancelled. In the fourth quarter of 1999, Azurix reevaluated its cost structure
in relation to its business development efforts. As a result, Azurix reduced its
corporate personnel by approximately one-third, reduced its leased office space
and eliminated other costs relating to the pursuit of concessions in certain
regions, resulting in a non-recurring, pretax expense of $34.2 million in the
fourth quarter.
The effective tax rate before extraordinary item for the period was 32.6%.
The difference between the effective tax rate and the U.S. statutory rate of 35%
is primarily related to the reversal of a $5.1 million deferred tax valuation
allowance that was recorded during 1998 relating to losses incurred in the
United States. During the second quarter of 1999, Azurix determined that the
available evidence attributable to the increased level of 1999 business
activities (including consideration of the proceeds generated from the initial
public offering and available U.S. tax planning strategies) indicated that it is
more likely than not that the deferred tax asset associated with the 1998 U.S.
losses will be realized. Accordingly, the valuation allowance was reversed in
the second quarter of 1999.
In May 1999, Azurix retired borrowings under its former senior credit
facility and terminated the facility prior to its maturity. Unamortized deferred
financing fees related to this facility of $9.8 million ($6.8 million net of tax
benefit) were charged to income as an extraordinary loss.
AZURIX -- DATE OF INCEPTION TO DECEMBER 31, 1998
Operating revenues of $119.7 million were derived from Wessex.
Approximately 90% 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 6% and 4%, respectively, of total
operating revenues, respectively.
Operations and maintenance expense totaled $31.6 million. Of this amount,
$21.8 million related 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 related to the costs of the plants being
installed by SC Technology.
General and administrative expense of $20.3 million included $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
developments projects resulted from a business strategy initiated in the fourth
quarter of 1998. Please read "Recent Developments."
Depreciation and amortization expense of $22.2 million included $5.5
million for the amortization of goodwill incurred by Azurix in the acquisition
of Wessex. All of the depreciation expense was derived from depreciation on the
property, plant and equipment of Wessex. The goodwill amortization and
depreciation expense related to Wessex was based on a preliminary purchase price
allocation of Wessex.
Interest expense was related to the Wessex acquisition financing, existing
Wessex debt and funds borrowed in the fourth quarter to redeem the outstanding
preference shares.
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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%) was primarily related to a valuation allowance recognized on a U.S.
deferred tax asset generated from general and administrative expenses 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 and 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 related 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 related 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 related 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 included $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 was
the effect of an enacted change in the statutory tax rate during the period from
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
Operating revenues for the year ended March 31, 1998 were $436.6 million.
Approximately 93% of these revenues related to the sale of measured and
unmeasured water and wastewater services. Operating revenues from SC Technology
and other unregulated activities accounted for 3% and 4%, respectively, of total
operating revenues.
Operations and maintenance expense for the year ended March 31, 1998 was
$110.9 million. Of this amount $84.0 million related 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, $14.4 million related
to the cost of the plants being installed by SC Technology.
General and administrative expense of $29.1 million for the year ended
March 31, 1998 represented the cost of billing, scientific services, environment
and quality, finance, human resources and other corporate activities.
Depreciation and amortization expense of $64.3 million represented the
depreciation charge on operational sites, infrastructure assets, plant,
equipment, vehicles and buildings.
Income tax expense of $220.3 million for the year ended March 31, 1998 was
comprised primarily of the one-time utility tax of $162.3 million levied during
the year.
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 those in 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.
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LIQUIDITY AND CAPITAL RESOURCES
Azurix's cash provided by operating activities for the twelve months ended
December 31, 1999 was $158.3 million. Cash used in investing activities for the
period was $1,076.8 million and consisted primarily of business acquisitions of
$698.5 million and capital expenditures of $287.3 million. Cash provided by
financing activities for the period was $940.0 million and consisted of a net
increase in borrowings of $639.5 million and net proceeds from the initial
public offering of Azurix's common stock of $300.5 million.
As of December 31, 1999, Azurix had a working capital deficit of $239.6
million. Of this amount, $190.1 million is related to borrowings outstanding or
secured by the Azurix Europe revolving credit facility which terminates in 2002.
The proceeds were primarily used to fund the Wessex acquisition and refinance
existing long-term debt. The Azurix Europe revolving credit facility contains a
provision permitting banks, with two-thirds or more of the commitments, to
terminate at an earlier time if, in their reasonable opinion, changes have
occurred resulting in a material adverse effect on the borrower's ability to
repay the outstanding debt. Azurix has no knowledge of the lenders' intent to
exercise this right; however, the existence of this provision requires amounts
outstanding under the facility to be classified as short-term debt under
generally accepted accounting principles.
In addition, at December 31, 1999, $54.6 million of the working capital
deficit related to funds received from customers in advance of providing
services that are reflected on the Consolidated Balance Sheet as deferred
income. This component of the working capital deficit does not require the use
of cash, but is recognized in income over the period in which the services are
provided. Azurix, and Wessex, its predecessor company, have during the past
several years operated with a working capital deficit as part of its normal
business practice. As discussed above, the working capital deficit at December
31, 1999 consisted primarily of debt that matures beyond one-year, but is
classified as short-term due to a subjective acceleration clause contained in
the credit facility agreement, the exercise of which Azurix believes is remote,
and amounts that do not require the future use of cash.
Azurix's credit agreement with Enron provides $180 million of liquidity to
fund general, administrative and operating expenses through December 2001. As of
December 31, 1999, $53.3 million was outstanding under this credit agreement.
The principal amount outstanding under the credit agreement is limited to no
more than $60 million, $120 million and $180 million at any time during calendar
years 1999, 2000 and 2001, respectively.
Wessex has committed and uncommitted credit facilities which are available
for general corporate purposes. The Wessex committed and uncommitted credit
facilities at December 31, 1999 have available balances of $121.1 million and
$89.1 million, respectively.
In February 2000, Azurix issued U.S. dollar and U.K. pounds sterling senior
subordinated notes with a U.S. dollar equivalent face value of $599.8 million
(see "Recent Developments"). Estimated net proceeds after underwriter's discount
and other estimated offering costs were $583.8 million. Of this amount, $150.0
million was used to pay down the Azurix revolving credit facility, $386.0
million was used to pay down the Azurix Europe revolving credit facility and
$18.1 million was used to pay down amounts outstanding under the credit
agreement with Enron. In addition, $11.5 million was used to pay accrued
interest on the three credit facilities. The remaining proceeds are available
for general corporate purposes.
Under the terms of the Azurix Europe revolving credit facility, Azurix
Europe is restricted from paying dividends. Azurix does not anticipate that this
will have an impact on the liquidity of the remainder of the Azurix consolidated
group. In February 2000, the Azurix Europe revolving credit facility was amended
so that Azurix Europe may borrow $386.0 million of the facility capacity in a
manner allowing for its use by Azurix for general corporate purposes. That
portion of the facility capacity was repaid in its entirety with a portion of
the proceeds from long-term notes issued in February 2000 and is therefore
currently available. See Note 21 of the Notes to the Consolidated Financial
Statements.
Azurix estimates that required capital expenditures, primarily related to
its ownership of water and wastewater concessions, will be approximately $300
million in 2000 and $1.4 billion for the period 2001 through 2004. Azurix
intends to finance its projected capital expenditures for its existing
businesses principally
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with internally generated funds and proceeds under existing long-term and
short-term borrowing arrangements and future financing arrangements.
Azurix is continually evaluating selective acquisition opportunities
involving other water and wastewater assets and service 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 its business.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report includes forward looking statements. See "Factors That
May Affect Future Results and Accuracy of Forward-Looking Statements" in Item 1.
Business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Azurix is exposed to market risks, particularly changes in U.S. and
international interest rates and changes in currency exchange rates as measured
against the functional currencies in which it operates. Azurix engages in
hedging programs aimed at limiting the impact of significant and sudden
fluctuations, but there can be no assurance that such an approach will be
successful. Factors that could impact the effectiveness of its hedging programs
include the accuracy of revenue forecasts, volatility of the currency and
interest rate markets and the availability of hedging instruments. Azurix
utilizes swap contracts to manage interest rate risk. Currency exchange rate
risk is the result of transactions that are denominated in a currency other than
the functional currencies in which Azurix operates. The primary purpose of
Azurix's foreign currency hedging activities is to manage the volatility
associated with currency exchange rates. Azurix manages these risks by utilizing
derivative financial instruments for non-trading purposes. Azurix enters into
foreign currency contracts, forward contracts 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.
Azurix uses J.P. Morgan's RiskMetrics(TM) system to estimate the
value-at-risk of its financial instruments. Value-at-risk is a statistical
estimate of the loss that would result from changes in market prices.
Value-at-risk is based on volatility and correlation data provided by J.P.
Morgan, a statistical confidence level and an estimate of the time period
required to liquidate the positions in the various financial instruments. The
value-at-risk estimate was based on normal market conditions, a 95% confidence
level and a liquidation period between 30 days and 60 months, depending on the
type of financial instrument. At December 31, 1998, the value-at-risk estimate
for foreign currency and interest rate exposure was $0.7 million and $0.9
million, respectively. At December 31, 1999, the value-at-risk estimate for
foreign currency and interest rate exposure was $0.1 million and approximately
$19,000, 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.
50
<PAGE> 53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AZURIX CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AZURIX CORP. -- CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................. 52
Consolidated Statements of Income for the period from
January 29, 1998 (Date of Inception) to December 31,
1998 and for the year ended December 31, 1999.......... 53
Consolidated Statements of Comprehensive Loss for the
period from January 29, 1998 (Date of Inception) to
December 31, 1998 and for the year ended December 31,
1999................................................... 54
Consolidated Balance Sheets at December 31, 1998 and
1999................................................... 55
Consolidated Statements of Cash Flows for the period from
January 29, 1998 (Date of Inception) to December 31,
1998 and for the year ended December 31, 1999.......... 56
Consolidated Statements of Changes in Stockholders' Equity
for the period from January 29, 1998 (Date of
Inception) to December 31, 1998 and for the year ended
December 31, 1999...................................... 57
Notes to the Consolidated Financial Statements............ 58
WESSEX WATER PLC (NOW RENAMED WESSEX WATER LTD) (PREDECESSOR
COMPANY) -- CONSOLIDATED FINANCIAL STATEMENTS:
Reports of Independent Accountants........................ 83
Consolidated Statements of Income for the six months ended
October 2, 1998 and the year ended March 31, 1998...... 85
Consolidated Balance Sheet at March 31, 1998.............. 86
Consolidated Statements of Cash Flows for the six months
ended October 2, 1998 and the year ended March 31,
1998................................................... 87
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended October 2, 1998 and the year
ended March 31, 1998................................... 88
Notes to the Consolidated Financial Statements............ 89
</TABLE>
51
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Azurix Corp.:
We have audited the accompanying consolidated balance sheets of Azurix
Corp. (a Delaware corporation) and subsidiaries as of December 31, 1998 and
1999, and the related consolidated statements of income, comprehensive loss,
cash flows and changes in stockholders' equity for the period from January 29,
1998 (Date of Inception) to December 31, 1998 and for the year ended December
31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 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 1999, and the results of their
operations and cash flows for the period from January 29, 1998 (Date of
Inception) to December 31, 1998 and for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 17, 2000
52
<PAGE> 55
AZURIX CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
<S> <C> <C>
Operating revenues.......................................... $119.7 $618.0
Operating expenses:
Operations and maintenance................................ 31.6 224.7
General and administrative................................ 20.3 117.8
Depreciation and amortization............................. 22.2 104.8
Restructuring charge...................................... -- 34.2
------ ------
Total operating expenses.......................... 74.1 481.5
------ ------
Operating income............................................ 45.6 136.5
------ ------
Other income (expense):
Equity in earnings (loss) of unconsolidated affiliates.... (0.8) 2.0
Interest expense, net..................................... (15.1) (73.6)
Other expense............................................. (1.2) --
------ ------
Income before minority interest, income taxes and
extraordinary loss........................................ 28.5 64.9
------ ------
Minority interest........................................... -- (1.1)
Income tax expense.......................................... 18.3 21.5
------ ------
Income before extraordinary loss............................ 10.2 44.5
------ ------
Extraordinary loss, net of income tax benefit............... -- 6.8
------ ------
Net income.................................................. $ 10.2 $ 37.7
====== ======
Earnings per share of common stock:
Basic and diluted:
Income before extraordinary loss....................... $ 0.10 $ 0.41
====== ======
Net income............................................. $ 0.10 $ 0.34
====== ======
Weighted average shares outstanding:
Basic.................................................. 100.0 109.7
====== ======
Diluted................................................ 100.0 109.7
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
53
<PAGE> 56
AZURIX CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
<S> <C> <C>
Net income.................................................. $ 10.2 $ 37.7
Other comprehensive loss, net of tax:
Foreign currency translation adjustment................... (36.7) (41.4)
Unrealized loss on available for sale securities.......... -- (0.8)
------ ------
Comprehensive loss.......................................... $(26.5) $ (4.5)
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE> 57
AZURIX CORP.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5.3 $ 27.2
Restricted cash and cash equivalents (Note 3)............. -- 464.2
Trade receivables (net of allowance for doubtful accounts
of $6.3 and $40.7, respectively)........................ 63.7 115.7
Unbilled receivables...................................... 24.3 32.5
Other..................................................... 38.5 69.7
-------- --------
Total current assets............................... 131.8 709.3
-------- --------
Property, plant and equipment, at cost...................... 2,271.1 2,559.1
Less accumulated depreciation............................... (16.7) (90.4)
-------- --------
Property, plant and equipment, net................. 2,254.4 2,468.7
-------- --------
Investments in and advances to unconsolidated affiliates.... 74.3 110.4
Concession intangibles, net................................. -- 451.3
Goodwill, net............................................... 877.6 1,029.6
Other assets................................................ 20.2 81.1
-------- --------
Total Assets....................................... $3,358.3 $4,850.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals............................. $ 111.6 $ 236.0
Accounts payable -- affiliates............................ 20.0 --
Deferred income........................................... 71.0 54.6
Accrued taxes............................................. 31.8 21.1
Short-term debt........................................... -- 602.2
Current maturities of long-term debt...................... 27.0 35.0
-------- --------
Total current liabilities.......................... 261.4 948.9
-------- --------
Long-term debt.............................................. 912.1 1,301.9
Long-term debt -- affiliates................................ 121.4 180.0
Deferred income taxes....................................... 404.4 443.3
Other long-term liabilities................................. 13.5 31.2
-------- --------
Total liabilities.................................. 1,712.8 2,905.3
-------- --------
Commitments and contingencies (Note 18)
Minority interest........................................... -- 3.3
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares
authorized at December 31, 1999......................... -- --
Common stock, $0.01 par value, 500,000,000 shares
authorized, 100,000,000 shares and 117,221,895 shares
issued and outstanding, respectively.................... 1.0 1.2
Additional paid-in capital................................ 1,671.0 1,972.2
Retained earnings......................................... 10.2 47.9
Unearned compensation..................................... -- (0.6)
Accumulated other comprehensive loss...................... (36.7) (78.9)
-------- --------
Total stockholders' equity......................... 1,645.5 1,941.8
-------- --------
Total Liabilities and Stockholders' Equity......... $3,358.3 $4,850.4
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE> 58
AZURIX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
<S> <C> <C>
Operating Activities:
Net income................................................ $ 10.2 $ 37.7
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization.......................... 22.2 104.8
Accretion and amortization of debt expenses and
write-off of deferred financing costs................ 0.6 12.2
Deferred income taxes.................................. 13.4 6.2
Equity in (earnings) loss of unconsolidated
affiliates........................................... 0.8 (2.0)
Minority interest...................................... -- (1.1)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables and other
current assets.................................... (17.1) 7.9
Increase (decrease) in accounts payable and
accruals.......................................... (25.7) 6.1
Increase in other assets............................. (2.5) (6.1)
Increase (decrease) in other long-term liabilities... 1.3 (7.4)
Other................................................ 1.2 --
--------- ---------
Net cash provided by operating activities................... 4.4 158.3
--------- ---------
Investing Activities:
Capital expenditures...................................... (63.2) (287.3)
Investments in and advances to unconsolidated
affiliates............................................. -- (34.5)
Business acquisitions, net of cash acquired............... (2,270.8) (698.5)
Proceeds from sale of equity investment................... 337.9 --
Other..................................................... 13.5 (56.5)
--------- ---------
Net cash used in investing activities....................... (1,982.6) (1,076.8)
--------- ---------
Financing Activities:
Proceeds from long-term borrowings........................ 550.8 1,176.7
Repayments of long-term borrowings........................ (226.2) (254.6)
Net proceeds from short-term borrowings................... 160.8 80.7
Deposit to restricted cash and cash equivalents collateral
account................................................ -- (407.7)
Issuance of common stock and capital contributed.......... 1,600.2 300.5
Redemption of subsidiary preference shares................ (106.4) --
Dividends paid on subsidiary preference shares............ (1.7) --
Advances from affiliates, net of repayments............... -- 44.4
--------- ---------
Net cash provided by financing activities................... 1,977.5 940.0
--------- ---------
Effect of exchange rate changes on cash..................... 6.0 0.4
--------- ---------
Change in cash and cash equivalents......................... 5.3 21.9
--------- ---------
Cash and cash equivalents, beginning of period.............. -- 5.3
--------- ---------
Cash and cash equivalents, end of period.................... $ 5.3 $ 27.2
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE> 59
AZURIX CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN RETAINED UNEARNED COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS COMPENSATION LOSS TOTAL
--------- ------ ---------- -------- ------------ ------------- --------
<S> <C> <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
---- ---- -------- ----- ----- ------ --------
Issuance of 17,100,000 shares
of common stock............ -- 0.2 300.3 -- -- -- 300.5
Issuance of 121,895 shares of
restricted common stock to
employees.................. -- -- 0.9 -- (0.6) -- 0.3
Unrealized loss on available
for sale securities........ -- -- -- -- -- (0.8) (0.8)
Foreign currency translation
adjustment................. -- -- -- -- -- (41.4) (41.4)
Net income................... -- -- -- 37.7 -- -- 37.7
---- ---- -------- ----- ----- ------ --------
Balance at December 31, 1999... $ -- $1.2 $1,972.2 $47.9 $(0.6) $(78.9) $1,941.8
==== ==== ======== ===== ===== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
57
<PAGE> 60
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
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 Corp. was incorporated on January 29, 1998, and as a result, the
Consolidated Statements of Income, Consolidated Statements of Comprehensive
Loss, Consolidated Statements of Cash Flows and Consolidated Statements of
Changes in Stockholders' Equity reflect the year ended December 31, 1999 and the
period from Date of Inception to December 31, 1998. Substantially all of
Azurix's 1998 results of operations, cash flows and equity transactions occurred
during the fourth quarter of 1998, subsequent to the Wessex acquisition.
CONSOLIDATION POLICY AND USE OF ESTIMATES
The consolidated financial statements include the accounts of all majority
owned subsidiaries and those affiliates over which it has the ability to control
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, and
cannot control, 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 U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Operating revenues represent income earned in the ordinary course of
business, excluding value added tax. Water and wastewater 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. Water and
wastewater revenue for non-metered customers, who pay an annual fixed charge
based on the ratable value of their property, is recognized uniformly over the
year. Revenue for water and wastewater related services is recognized as
services are provided. Revenues derived from services provided under fixed-price
contracts are recognized on the percentage-of-completion basis.
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.
58
<PAGE> 61
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 using the effective interest
method 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 was a member of Enron's consolidated group
through June 8, 1999 and accordingly is included in Enron's consolidated federal
income tax return through that date. 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. For the period June 9, 1999 through
December 31, 1999, Azurix will file its own consolidated tax return.
EARNINGS PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
requires 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. 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 ended 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
December 31, 1999, Azurix had stock options outstanding to purchase 10.3 million
shares of its common stock and 0.1 million non-vested restricted common shares
outstanding. These outstanding securities were not dilutive to basic earnings
per share at December 31, 1999, therefore, basic and diluted earnings per share
are the same. For the year ended December 31, 1999, extraordinary loss per share
and restructuring charge per share were $0.06 and $0.21, respectively, net of
tax.
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. 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,
59
<PAGE> 62
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and 1999 was
approximately $2.3 million and $8.6 million, respectively.
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, excluding land, 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........................ 5 to 80
Infrastructure.............................................. 10 to 115
Plant machinery and vehicles................................ 3 to 30
Other assets................................................ 3 to 15
</TABLE>
Azurix's accounting policy for the costs of computer software (all of which
is for internal use only) is to capitalize direct costs of materials and
services consumed in developing or obtaining software, including payroll and
payroll-related costs for employees who are directly associated with and who
devote time to the software project. Costs begin to be capitalized once the
application development stage has begun. All other costs are expensed as
incurred. Azurix amortizes the costs on a straight-line basis over the useful
life of the software. Impairment is evaluated based on changes in the expected
usefulness of the software.
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 fair value
is required.
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) and is
presented on the Consolidated Balance Sheets net of accumulated amortization.
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 and 1999 was $5.5 million and $28.8 million, respectively.
CONCESSION INTANGIBLES
Concession intangible assets represent prepaid amounts for the rights as
the concession holder and operator of public water and wastewater facilities to
provide service and charge a tariff in the service area subject to the
concession and is presented on the Consolidated Balance Sheets net of
accumulated amortization.
The total costs associated with retaining concession rights, including
prepaid amounts and amounts payable in the future, are allocated among the
service areas awarded by the concession agreement and amortized on a
straight-line basis over the life of the concession for each service area
commencing when
60
<PAGE> 63
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
access is attained. Accumulated amortization of concession intangibles at
December 31, 1999 was $5.4 million. There were no concession intangibles at
December 31, 1998.
OTHER ASSETS
Other assets consist primarily of deferred tax assets and 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 using the effective interest method 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 certain customers in advance of providing water and wastewater
services and classifies these amounts as "Deferred income" on the Consolidated
Balance Sheets until earned.
PENSION BENEFITS
The pension plans maintained by Wessex, Azurix Buenos Aires and Lurgi Bamag
(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.
Azurix North America has defined contribution plans for a number of its
employees and makes contributions to a multi-employer pension plan for certain
employees. Azurix's contributions to these plans are based on various
percentages of compensation, years of service and, in some instances, are based
upon the amount of the employees' contributions to the plans (see Note 12).
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 other comprehensive loss
as a component of stockholders' 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 contracts.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
61
<PAGE> 64
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
instruments at fair value. In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137 which deferred
the effective date of Statement of Financial Accounting Standards No. 133 to
fiscal years beginning after June 15, 2000. Statement of Financial Accounting
Standards No. 133 may be implemented, as of the beginning of any fiscal quarter
after issuance, however, the statement cannot be applied retroactively. Azurix
is currently evaluating and has not yet determined the effect that the adoption
of Statement of Financial Accounting Standards No. 133 will have on its
financial statements. Azurix will adopt the statement beginning fiscal year
2001.
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 REPORTING
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 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 and 1999 operated in one segment and therefore such disclosures are not
applicable.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 amounts to conform
with the 1999 presentation.
NOTE 2 -- BUSINESS ACQUISITIONS
On October 2, 1998, Azurix, through its indirect wholly owned subsidiary
Azurix Europe Ltd, acquired over 90% of the outstanding ordinary share capital
of Wessex Water Plc. Azurix completed the acquisition of the ordinary share
capital of Wessex in November 1998. The cost of the Wessex acquisition,
including transaction costs, was $2.4 billion. The purchase method of accounting
was utilized and the results of operations of Wessex have been included in the
consolidated financial statements since the date of acquisition.
The following unaudited pro forma information summarizes consolidated
results of operations of Azurix as if the Wessex acquisition had occurred as of
January 1, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
--------------------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C>
Operating revenues.................................. $464.2
Net income.......................................... 87.2
Basic and diluted earnings per share................ 0.87
</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
62
<PAGE> 65
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortization expense as a result of goodwill, increased depreciation expense
resulting from allocation of fair market value to fixed assets acquired,
increased interest expense on acquisition debt and preference share redemption
and the sale of Wessex's interest in Wessex Waste Management Ltd. The unaudited
pro forma financial information is not necessarily indicative of the results of
operations that would have occurred had the Wessex acquisition occurred on the
date indicated, and should not be viewed as indicative of operations in future
periods.
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. The balance of the loans outstanding to the Cancun
concession at December 31, 1999 was $17.0 million. 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 utilizing the equity method of accounting.
On May 18, 1999, Azurix acquired 100% of the stock of Canadian-incorporated
Philip Utilities Management Corporation for $107.4 million, including
transaction costs. Philip Utilities is a water and wastewater services company
that provides operations and management, engineering, residuals management and
underground infrastructure development services for municipal water and
wastewater facilities in the U.S. and Canada. This business subsequently was
renamed Azurix North America and has expanded during 1999 through the
acquisition of three water and wastewater service companies for an aggregate of
$11.3 million.
During the second quarter of 1999, Azurix was the successful bidder in a
tender for a 30-year concession to operate the water and wastewater systems in
two regions of the Province of Buenos Aires, Argentina, previously operated by
Administracion General de Obras Sanitarias Buenos Aires. On June 30, 1999,
Azurix, through Azurix Buenos Aires S.A., an indirect wholly owned subsidiary,
entered into a concession contract with the provincial government covering the
two regions and paid the government $438.6 million. On July 1, 1999, Azurix
assumed operation of the water and wastewater systems and risk of ownership of
the concession.
In connection with the funding of this acquisition, Azurix made an equity
investment in Azurix Buenos Aires of $45.0 million, and Azurix Buenos Aires
borrowed $394.0 million under a new credit agreement. This loan is secured by
cash and other short-term liquid investments which Azurix deposited into a cash
collateral account and pledged as security for the loan (see Note 3). Azurix
used $230.6 million of the proceeds from its initial public offering, $208.0
million in funds drawn under the senior credit facility of its indirect wholly
owned subsidiary, Azurix Europe Ltd, and interest on those funds and other funds
of Azurix, to fund the equity investment in Azurix Buenos Aires and the deposit
into the cash collateral account. Under the concession contract, a 10% interest
in Azurix Buenos Aires is required to be transferred to the employees of
Administracion General de Obras Sanitarias Buenos Aires who became employees of
Azurix Buenos Aires.
On September 24, 1999, Azurix acquired 49% of the capital stock of IASA
Holdings, S.A. de C.V. for $22.5 million, excluding transaction costs. IASA
Holdings owns 100% of Industrias del Agua, S.A. de C.V., a water and wastewater
services company based in Monterrey, Mexico that provides metering, billing,
collections, operations and maintenance services for one quarter of the Federal
District within Mexico City, a service area with a population of approximately
two million people. Industrias del Agua has provided these services since 1993,
when it signed a 10-year contract with the Water Commission of the Federal
District. In addition to holding an interest in Industrias del Agua, Azurix
provides technical services and ultimately expects to serve as a technical
participant under the Federal District contract. Contemporaneous with its
purchase of the common stock of IASA Holdings, Azurix entered into separate
agreements that result in Azurix having effective control over IASA Holdings.
Accordingly, IASA Holdings is consolidated for financial statement purposes.
63
<PAGE> 66
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 24, 1999, Azurix acquired from an affiliate of AMX-Acqua
Management Inc., 100% of three Brazilian companies, Geoplan-Assessoria,
Planejamento e Perfuracoes Ltda., Aguacerta-Sistemas de Abastecimento Ltda. and
Aguacerta Saneamento Ltda. for $55.6 million, excluding transaction costs. The
acquired companies have offices in the states of Rio de Janeiro and Sao Paulo,
Brazil and provide water drilling, water supply and wastewater treatment
services in Brazil. Azurix has contingent payment obligations to a former owner
under certain negotiated formulas and has retained a former affiliate as a
consultant to its Brazilian operations. Contingent payments made to the former
owner, if any, must be used by that owner to purchase shares of Azurix common
stock from Azurix.
On October 4, 1999, Azurix purchased 13,600 acres of property in Madera
County, California, for $31.5 million, excluding transaction costs, with plans
of developing, owning and operating a ground water storage project in the
aquifer beneath it.
On October 18, 1999, Azurix acquired Lurgi Bamag GmbH, a water and
wastewater engineering services company, for $30.2 million, excluding
transaction costs. Lurgi Bamag and its subsidiaries have offices in Germany,
Brazil, Egypt and the United Kingdom.
For each 1999 acquisition that is consolidated in Azurix's financial
statements, the purchase method of accounting was utilized, and accordingly, the
assets and liabilities have been recorded at their estimated fair values on the
date of each acquisition. The excess of the purchase price over the fair values
of the net assets acquired for each acquisition has been recorded as goodwill,
and is being amortized on a straight-line basis over 40 years. The results of
operations of the acquisitions have been included in the consolidated financial
statements since the date of each acquisition. For each of the 1999
acquisitions, the allocation of the purchase price to the net assets acquired is
preliminary because Azurix is in the process of finalizing its assessments of
the related fair values. Azurix does not believe the final evaluation of these
assessments will materially affect the allocation of the respective purchase
price.
NOTE 3 -- RESTRICTED CASH AND CASH EQUIVALENTS
At December 31, 1999, Azurix had restricted cash and cash equivalents of
$407.7 million, on deposit in a cash collateral account that secures a $394.0
million bank loan to an Azurix subsidiary that was used to fund the Buenos Aires
concession acquisition (see Note 2). The amount payable under the loan at
December 31, 1999 is included in "Short-term debt" on the Consolidated Balance
Sheet (see Note 6). In addition, at December 31, 1999, Azurix had $56.5 million
of restricted cash on deposit in a cash account that partially secures
borrowings under the Azurix Europe revolving credit facility (see Note 6).
NOTE 4 -- OTHER CURRENT ASSETS
Other current assets is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1998 1999
----- -----
(IN MILLIONS)
<S> <C> <C>
Prepayments................................................. $18.6 $39.2
Other receivables........................................... 11.7 15.2
Other....................................................... 8.2 15.3
----- -----
$38.5 $69.7
===== =====
</TABLE>
64
<PAGE> 67
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN MILLIONS)
<S> <C> <C>
Land..................................................... $ 10.5 $ 42.7
Buildings and operational structures..................... 483.7 500.4
Infrastructure........................................... 1,184.9 1,269.7
Plant machinery and vehicles............................. 412.3 489.2
Construction work-in-progress............................ 154.7 216.0
Other assets............................................. 25.0 41.1
-------- --------
2,271.1 2,559.1
Less accumulated depreciation............................ (16.7) (90.4)
-------- --------
Property, plant and equipment, net..................... $2,254.4 $2,468.7
======== ========
</TABLE>
NOTE 6 -- SHORT-TERM DEBT
As of December 31, 1998, Azurix, through Wessex, had $424.0 million
outstanding from credit facilities with major commercial banks. Of this amount,
$399.1 million related to committed credit facilities and the remaining $24.9
million related to credit facilities on an uncommitted basis. The weighted
average interest rate on short-term bank borrowings outstanding as of December
31, 1998 was 6.7%. 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 Azurix Europe 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 proceeds from a bond offering that matures in 2009 (see Note
7).
As of December 31, 1999, Azurix through Wessex, had committed credit
facilities with major commercial banks providing for an aggregate of $121.1
million of availability for general corporate purposes. As of December 31, 1999,
no amounts were outstanding under these credit facilities. The facilities accrue
interest based on the London interbank offered rate plus 0.275% per annum.
Wessex pays an annual commitment fee equal to 0.15% of the unused portion of
committed lines of credit. The facilities expire in April 2002.
On May 10, 1999, Azurix Europe entered into a revolving credit facility. At
December 31, 1999, the maximum capacity of the facility was $686.4 million. At
December 31, 1999, $298.8 million of the facility capacity could be used to
refinance indebtedness of Azurix Europe, $101.3 million of which is reserved to
provide for the refinancing of outstanding loan notes. The remaining $387.6
million could be used for acquisitions of water and wastewater related assets or
businesses. In February 2000, the facility was amended so that Azurix Europe may
borrow $386.0 million of the facility capacity in a manner allowing for its use
by Azurix for general corporate purposes. Borrowings outstanding at December 31,
1999 consisted of approximately $75.9 million used to repay all of the remaining
indebtedness outstanding on its former senior credit facility and fees and
expenses related to this facility, $386.0 million primarily used to fund
acquisitions and $12.9 million used to redeem Wessex acquisition loan notes. In
February 2000, Azurix issued long-term notes (see Note 21) and used a portion of
the proceeds to repay $386.0 million outstanding under the portion of this
facility that had been borrowed for acquisitions. Accordingly, this amount has
been reclassified as long-term at December 31, 1999.
65
<PAGE> 68
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Azurix Europe revolving credit facility bears interest at the London
interbank offered rate plus 0.75% or 1.0%, depending on the level of utilization
of the borrowing capacity. The weighted average interest rates on the U.S.
dollar and U.K. pounds sterling borrowings outstanding at December 31, 1999 were
6.9% and 6.8%, respectively. Azurix incurs commitment fees of 0.375% on the
unused borrowing capacity of this facility. Amounts outstanding at December 31,
1999 have been borrowed under the revolving credit facility for a period of less
than 12 months. The facility terminates on May 10, 2002, but contains a clause
permitting banks, with two-thirds or more of the commitments, to terminate at an
earlier time if, in their reasonable opinion, changes have occurred resulting in
a material adverse effect on the borrower's ability to repay the outstanding
debt. Therefore, amounts outstanding under this facility have been classified as
short-term debt. The facility contains restrictive covenants that include
limitations on borrowings, maintenance of financial ratios such as interest
coverage and debt to equity and contracts to perform or refrain from undertaking
certain acts. The facility includes customary events of default, including
non-payment, cross-defaults and insolvency and prohibits Azurix Europe from
paying dividends.
As of December 31, 1999, Azurix, through Wessex, had $15.8 million
outstanding under credit facilities with major commercial banks on an
uncommitted basis. Interest accrues on the uncommitted facilities based on the
market rate plus a negotiated margin. The interest rate on the uncommitted bank
borrowings outstanding as of December 31, 1999 was 5.2%.
In connection with the funding of the Buenos Aires concession acquisition
(see Note 2), Azurix, through its indirect wholly owned subsidiary, Azurix
Buenos Aires S.A., entered into a credit agreement on June 24, 1999, and
borrowed $394.0 million on June 29, 1999. The agreement is between Azurix Buenos
Aires and Westdeutsche Landesbank Girozentrale, a German bank, as the agent and
lender. The loan is secured by cash and other short-term liquid investments in
the aggregate amount of $407.7 million as of December 31, 1999, which Azurix
deposited into a cash collateral account, including interest earned on amounts
deposited, and pledged as security for the loan (see Note 3). The loan matures
on June 22, 2000, or at an earlier time if the direct or indirect ownership by
Enron Corp. of the outstanding voting stock of Azurix falls below 25%, and
Azurix Buenos Aires does not arrange for the assignment of the lender's rights
and obligations under the credit agreement to a new lender. The interest rate on
amounts outstanding under this credit agreement as of December 31, 1999 was
6.6%. For base rate advances, interest accrues at a rate per annum equal to the
higher of the bank's base rate and one-half of one percent above the federal
funds rate. For eurodollar rate advances, interest accrues at a rate per annum
equal to London interbank offered rate divided by 100% minus the Eurodollar
Reserve percentage.
On September 29, 1999, Azurix Corp. entered into a 364-day $150.0 million
unsecured revolving credit facility with a group of banks. The facility, as
subsequently amended, matures in September 2000. As of December 31, 1999, $150.0
million was outstanding under the facility and the borrowings were primarily
used to reduce other debt obligations and finance acquisitions. The weighted
average interest rate on borrowings outstanding under this facility at December
31, 1999 was 7.7%. Azurix used a portion of the proceeds from the long-term
notes issued in February 2000 to repay all amounts outstanding under this
facility (see Note 21). Accordingly, the borrowings under this facility at
December 31, 1999 have been reclassified as long-term. Azurix terminated the
facility in March 2000.
Azurix, through Azurix Europe, had outstanding U.K. pounds sterling
denominated loan notes as of December 31, 1998 and 1999 of $117.2 million and
$101.3 million, respectively. The loan notes were issued 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, semiannually 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 intended to utilize available
capacity under its Azurix Europe senior credit facility to refinance the loan
notes on a long-term basis, and accordingly, the loan notes were classified as
long-term debt
66
<PAGE> 69
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at December 31, 1998 (see Note 7). At December 31, 1999, the loan notes are
secured by the Azurix Europe revolving credit facility. As a result of a
subjective acceleration clause contained in that facility as discussed above,
the loan notes are classified as short-term at December 31, 1999. Interest on
the loan notes accrues at the London interbank offered rate and is payable
semiannually. The interest rate for the period the loan notes were outstanding
during 1998 and 1999 was 7.1% and 5.9%, respectively.
At December 31, 1999, Azurix, through various subsidiaries, had other
short-term borrowings outstanding of $2.3 million.
NOTE 7 -- LONG-TERM DEBT AND LONG-TERM DEBT -- AFFILIATES
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN MILLIONS)
<S> <C> <C>
Amounts reclassified from short-term debt (see Note 6)...... $ 424.0 $ 536.0
Azurix Europe senior credit facility........................ 219.5 --
Senior unsecured bonds...................................... -- 479.2
Loan notes (see Note 6)..................................... 117.2 --
European Investment Bank credit facilities.................. 68.7 223.1
Capital lease obligations................................... 109.7 86.3
Other....................................................... -- 12.3
-------- --------
939.1 1,336.9
Less current maturities..................................... (27.0) (35.0)
-------- --------
Total long-term debt.............................. $ 912.1 $1,301.9
======== ========
</TABLE>
At December 31, 1998, Azurix had borrowings outstanding under its Azurix
Europe senior credit facility of $219.5 million bearing interest at 6.9%. During
the second quarter of 1999, Azurix used proceeds from credit facilities and its
Azurix Europe revolving credit facility entered into in May 1999 (see Note 6),
to retire the outstanding borrowings under its Azurix Europe senior credit
facility. The Azurix Europe senior credit facility was subsequently terminated.
On March 30, 1999, Azurix, through a wholly owned subsidiary of Wessex,
issued U.K. pounds sterling denominated senior unsecured bonds with a face value
of $484.5 million as of December 31, 1999. The net proceeds were primarily used
to refinance the short-term bank borrowings that were outstanding on that date.
The bonds mature on March 30, 2009 and bear interest at a rate of 5.875% payable
annually.
The European Investment Bank credit facilities consist of four separate
loans. The U.S. dollar denominated loan has a floating interest rate based on
London interbank offered rate less 0.25%, is due October 2001 and had an
outstanding balance of $49.9 million and $48.5 million at December 31, 1998 and
1999, respectively. The weighted average interest rate on the U.S. dollar loan
was 5.4% and 5.1% for the years ended December 31, 1998 and 1999, respectively.
The Italian lire denominated loan bears interest at 11.6% per annum, is payable
in semiannual installments through June 2002 and had an outstanding balance of
$18.8 million and $13.1 million at December 31, 1998 and 1999, respectively. The
other two obligations are U.K. pounds sterling denominated and were entered into
in 1999. Interest on one of the U.K. pounds sterling denominated obligations is
based on the London interbank offered rate less 0.13%, is payable in full in
December 2005 and had an outstanding balance of $126.6 million at December 31,
1999. The other U.K. pounds sterling denominated obligation bears interest based
on the London interbank offered rate less 0.10%, is payable in full in December
2009 and had an outstanding balance of $34.9 million at December 31,
67
<PAGE> 70
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999. The interest rate on both U.K. pounds sterling denominated obligations was
5.9% for the period outstanding in 1999.
At December 31, 1999, future minimum lease payments under capital leases
total $97.7 million, including $11.4 million representing interest. At December
31, 1999, $154.1 million of historical cost and $23.9 million of related
accumulated amortization is recorded under a capital lease and included in
property, plant and equipment.
At December 31, 1999, Azurix, through various subsidiaries, had other
long-term debt outstanding of $12.3 million.
Each of these financing agreements contains certain restrictive covenants,
including among other things, limitations on borrowings, the maintenance of
certain financial ratios such as interest coverage, net worth and debt to equity
and contracts to perform or refrain from undertaking certain acts. 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, 1999, long-term debt and capital lease obligation
maturities over the next five years were $35.0 million in 2000, $85.2 million in
2001, $37.5 million in 2002, $1.6 million in 2003 and $0.9 million in 2004.
Azurix has entered into interest rate and currency swap contracts related
to certain outstanding debt instruments (see Note 8).
Effective May 1, 1999, Azurix entered into a credit agreement with Enron,
which was amended as of January 24, 2000. Under this agreement, Enron will loan
funds to Azurix for general, administrative and operating expenses. As of
December 31, 1999, $53.3 million was outstanding under this credit agreement.
The credit agreement terminates on the earlier of December 15, 2001 or 90 days
following the date that Enron does not own or have the power to vote at least
one-third of Azurix's 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. The total commitment under the credit agreement will not
exceed $60 million, $120 million and $180 million at any time during calendars
years 1999, 2000 and 2001, respectively. Advances under the credit agreement
bear interest at the federal funds rate plus 1.50%. The effective interest rate
on these borrowings in 1999 was 6.8%. Amounts borrowed under the credit
agreement may be prepaid, in full or in part, at any time during the term of the
credit agreement.
During 1998, Azurix entered into a U.K. pounds sterling denominated senior
loan agreement with a subsidiary of a shareholder. The note accrues interest at
6.25% per annum and is payable semiannually beginning June 1999. Under the note
agreement maturing December 2001, prepayment is allowed in whole or in part at
any time. The principal balance outstanding at December 31, 1999 was $117.9
million. Interest expense recorded for 1998 and 1999 was $1.9 million and $7.4
million, respectively.
In June 1999, a loan agreement was entered into with a shareholder. The
principal amount is limited to $25.0 million and the balance outstanding at
December 31, 1999 was $8.8 million. Individual loans made under the agreement
mature in 2009 and are non-interest bearing.
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, currency swap and forward foreign exchange contracts. Azurix has
U.K. pounds sterling interest rate swap contracts having a total notional
principal amount of $206.9 million. Interest rate swap contracts relating to
notional principal amounts of $193.8 million and $13.1 million terminate in 2001
and 2002, respectively. At December 31, 1999, Azurix also had cross-currency
swap contracts to exchange U.S. dollars of $51.1 million to U.K. pounds sterling
of L30.0 million,
68
<PAGE> 71
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which expires in 2001, and Italian lire of 17.9 billion to U.K. pounds sterling
of L8.1 million, which expires in 2002. At December 31, 1999, Azurix had forward
foreign exchange contracts to exchange U.S. dollars totaling $8.7 million to
German marks at a fixed rate. Forward foreign exchange contracts relating to
$6.6 million and $2.1 million terminate in 2000 and 2001, respectively.
The carrying amount of cash and cash equivalents, trade accounts receivable
(net of an allowance for doubtful accounts), accounts payable and accruals and
short-term debt 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, forward exchange and interest rate swap contracts shown below was
determined based on a model which estimates the fair value of these swap
contracts using market rates in effect at each respective date 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 methodologies may affect the estimated fair
value amounts. The comparison of estimated fair value and carrying amount are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------ --------
(IN MILLIONS)
<S> <C> <C>
Long-term debt (1)
Estimated fair value................................... $960.9 $1,219.8
Carrying amount........................................ 936.5 1,338.1
Long-term debt -- affiliates
Estimated fair value................................... 121.9 168.5
Carrying amount........................................ 121.4 180.0
Derivatives:
Interest rate swap contracts
Estimated fair value................................... (9.1) 7.2
Carrying amount........................................ -- --
Currency swap contracts (1)
Estimated fair value................................... 7.2 (2.8)
Carrying amount........................................ 2.6 (1.2)
Forward exchange contracts
Estimated fair value................................... -- (0.8)
Carrying amount........................................ -- --
</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 certain risks due to the nature of derivative
financial instruments. In the event of non-performance by third parties, the
amounts of interest rate, forward exchange 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, forward
exchange contracts and interest rate swaps.
69
<PAGE> 72
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
(IN MILLIONS)
<S> <C> <C>
United States................................... $(14.7) $(86.5)
Foreign......................................... 43.2 152.5
------ ------
$ 28.5 $ 66.0
====== ======
</TABLE>
Total income tax expense is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
(IN MILLIONS)
<S> <C> <C>
Current tax expense:
Federal....................................... $ -- $ 0.9
State......................................... -- 0.3
Foreign....................................... 4.9 14.1
------ ------
4.9 15.3
------ ------
Deferred tax expense (benefit):
Federal....................................... -- (33.1)
State......................................... -- 0.1
Foreign....................................... 13.4 39.2
------ ------
13.4 6.2
------ ------
Total income tax expense.............. $ 18.3 $ 21.5
====== ======
</TABLE>
Income tax benefit for the components of other comprehensive loss was $0.6
million for the year ended December 31, 1999.
70
<PAGE> 73
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between taxes computed at the U.S. federal statutory tax
rate and Azurix's effective income tax rate are as follows:
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Statutory federal income tax provision........... $10.0 35.0% $23.1 35.0%
U.S. loss not benefited (valuation allowance
reversal)...................................... 5.1 17.9 (5.1) (7.7)
U.K. subsidiary company loss not benefited....... 2.4 8.4 -- --
Nondeductible goodwill amortization.............. 1.7 6.0 6.3 9.5
Consolidated foreign earnings taxed at other than
the U.S. rate.................................. (1.8) (6.3) (2.5) (3.8)
Equity income (loss) of foreign investment....... 0.4 1.4 (0.5) (0.8)
Minority interest................................ -- -- (0.3) (0.4)
Other............................................ 0.5 1.8 0.5 0.8
----- ---- ----- ----
Total income tax expense............... $18.3 64.2% $21.5 32.6%
===== ==== ===== ====
</TABLE>
The principal components of Azurix's net deferred income tax liability are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------- -------
(IN MILLIONS)
<S> <C> <C>
Deferred income tax assets:
U.K. Advance Corporation Tax (ACT) carryforward........... $ 83.1 $ 67.8
U.S. tax loss and start-up expenditure carryforwards...... 5.1 36.3
Foreign net operating loss carryforwards.................. 3.5 13.0
Tax credits in foreign jurisdictions...................... -- 2.8
Basis differences in assets other than property, plant and
equipment and Other.................................... 5.9 7.9
Valuation allowance....................................... (8.6) (4.8)
------- -------
Total deferred tax assets......................... 89.0 123.0
------- -------
Deferred income tax liabilities:
Basis differences in property, plant and equipment........ (490.6) (515.1)
Liabilities not recognized for tax purposes and Other..... (2.8) (1.6)
------- -------
Total deferred tax liabilities.................... (493.4) (516.7)
------- -------
Net deferred tax liabilities...................... $(404.4) $(393.7)
======= =======
</TABLE>
Azurix had U.K. Advance Corporation Tax credit carryforwards at December
31, 1999 of approximately $67.8 million that can be used to offset U.K. taxes
payable in future years. At December 31, 1999, the U.K. ACT credit had an
indefinite carryforward period. At December 31, 1999, Azurix had foreign
subsidiary company loss carryforwards of approximately $38.1 million. However,
due to restrictions on the use of such loss carryforwards, $14.8 million of the
foreign subsidiary company loss carryforwards have not been reflected in
Azurix's results of operations.
At December 31, 1999, Azurix had carryforwards of U.S. tax losses and
start-up expenditures of approximately $103.8 million that will begin to expire
in 2019. During 1998, Azurix recorded a valuation allowance on a deferred tax
asset of approximately $5.1 million related to losses incurred in the United
States.
71
<PAGE> 74
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the second quarter of 1999, Azurix determined that the available evidence
attributable to the increased level of 1999 business activities (including
consideration of the proceeds generated from the initial public offering and
available United States tax planning strategies) indicated that it is more
likely than not that the deferred tax asset associated with the 1998 U.S. losses
will be realized. Accordingly, the valuation allowance of approximately $5.1
million was reversed in the second quarter of 1999. At December 31, 1999,
management determined that no valuation allowance was necessary for U.S. losses
generated in 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.
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 undistributed earnings of
approximately $194.6 million are considered to be indefinitely reinvested
outside the United States 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 income taxes and interest expense is as follows:
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
(IN MILLIONS)
<S> <C> <C>
Utility taxes(1)........................................ $81.7 $ --
Income taxes............................................ -- 29.6
Interest expense (net of amounts capitalized)........... 9.6 47.7
</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 loan notes in connection
with the Wessex acquisition (see Note 6). 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 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, provided
the business is conducted and opportunities are identified and developed through
Enron's own personnel and not through those of 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
72
<PAGE> 75
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value of the opportunity, as determined by that officer or director in good
faith based on information available at the time.
During 1998 and 1999, Enron provided various services to Azurix. In 1999,
Azurix signed agreements with Enron pursuant to which Enron will continue to
provide such services which include among other things, information technology,
office space, building maintenance, security and other office services as well
as employee development, training, maintenance of compensation and other
benefits programs and the use of Enron-owned aircraft. 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 Enron services and facilities that it utilizes. Azurix is also allocated an
amount for overhead charges related to Enron corporate staff and support
services which it utilizes. This overhead charge is allocated based upon factors
such as employee headcount, payroll and square footage. 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. During 1998 and 1999, the expense
recorded for these services was approximately $1.5 million and $6.6 million,
respectively.
Employees of Azurix Corp. are covered by various employee benefit plans of
Enron such as retirement, stock options, 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 and 1999,
the expense recorded under the plan arrangements was approximately $1.4 million
and $2.3 million, respectively.
Management believes the above allocation methods and costs are reasonable.
During 1998 and 1999, Enron advanced to Azurix $17.7 million and $53.4
million, respectively, related to office space and other services provided by
Enron, cost of various benefit plans for certain employees, each described
above, and to fund Azurix's investment in and advances to its Cancun affiliate.
The entire amount of the advances were repaid in June 1999 with the proceeds
from Azurix's initial public offering of its common stock.
A former director of a subsidiary of Wessex owns certain assets utilized in
the subsidiary's operations. The subsidiary was charged $0.1 million and $0.2
million for the use of those assets during 1998 and the period in 1999 while
serving as a director, respectively.
Enron has made available letters of credit on behalf of our subsidiaries in
the aggregate amount of approximately $16 million as of December 31, 1999. We
have paid, or reimbursed Enron for, the fees associated with these letters of
credit.
Enron has guaranteed debt and letter of credit obligations of up to $25
million on behalf of Azurix North America to a bank under terms of the bank
credit facilities in exchange for, among other things, the elimination of
requirements for various assets to be pledged. As of December 31, 1999, $16.4
million of letter of credit obligations were outstanding under this credit
facility, and thus guaranteed by Enron. For so long as this guarantee remains
outstanding, Azurix is required to pay to Enron a fee of $0.3 million per annum.
Azurix has long-term debt with affiliates (see Note 7).
NOTE 12 -- PENSION AND OTHER POSTRETIREMENT BENEFITS
Azurix has various pension plans through its subsidiaries which include
both defined benefit and defined contribution plans.
73
<PAGE> 76
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Wessex maintains three defined benefit pension plans that cover
substantially all of its employees. The plan assets are held in separate trustee
administered funds and consist primarily of equity and debt securities. Wessex's
funding policy is to contribute to the plans sufficient to satisfy legal funding
requirements. Azurix Buenos Aires maintains a defined benefit plan and Lurgi
Bamag maintains a defined benefit plan and a postretirement benefit plan. These
plans have no assets because Azurix Buenos Aires and Lurgi Bamag have not
previously provided funding. The pension costs for these plans charged to the
Consolidated Statements of Income have been determined on the advice of
independent qualified actuaries and are accrued over the service lives of the
employees expected to be eligible to receive such benefits.
The weighted average assumptions used in the actuarial computations for the
defined benefit plans of Wessex, Aurix Buenos Aires and Lurgi Bamag and the
postretirement plan of Lurgi Bamag are shown below:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT
---------------------------------- BENEFITS
JANUARY 29, 1998 ----------------
(DATE OF INCEPTION) YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------------- ------------ ----------------
<S> <C> <C> <C>
Discount rate............................ 5.8% 5.8% 6.0%
Expected long-term rate of return on plan
assets................................. 6.8 6.5 --
Rate of compensation increase............ 4.3 3.9 3.0
</TABLE>
For the measurement purposes of postretirement benefits, a 4.0% annual rate
of increase in healthcare costs was assumed for 2000.
74
<PAGE> 77
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents the obligations, plan assets and funded status for
the defined benefit pension plans and postretirement plan:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT
---------------------------------- BENEFITS
JANUARY 29, 1998 ----------------
(DATE OF INCEPTION) YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------------- ------------ ----------------
(IN MILLIONS)
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
period.............................. $ -- $246.2 $ --
Obligation acquired from business
acquisitions...................... 231.5 11.9 0.7
Service cost........................ 1.5 7.8 --
Past service cost................... -- 13.9 --
Interest cost....................... 3.4 13.2 --
Plan participants' contributions.... 0.5 3.5 --
Actuarial loss (gain)............... 16.7 8.4 --
Benefits paid....................... (2.2) (7.7) --
Exchange difference................. (5.2) (7.9) --
------ ------ -----
Benefit obligation at end of
period....................... $246.2 $289.3 $ 0.7
====== ====== =====
Change in plan assets:
Fair value of plan assets at beginning
of period........................... $ -- $259.2 $ --
Fair value of plan assets acquired
from business acquisition......... 237.3 -- --
Actual return on plan assets........ 27.7 40.4 --
Employer contribution............... 1.3 1.9 --
Plan participants' contributions.... 0.5 3.6 --
Benefits paid....................... (2.2) (7.6) --
Exchange difference................. (5.4) (7.3) --
------ ------ -----
Fair value of plan assets at
end of period................ $259.2 $290.2 $ --
====== ====== =====
Funded Status:
Fair value of plan assets.............. $259.2 $290.2 $ --
Projected benefit obligation........... 246.2 289.3 0.7
------ ------ -----
Funded status.......................... 13.0 0.9 (0.7)
Unrecognized past service cost......... -- 13.8 --
Unrecognized net actuarial loss........ (6.9) (22.5) --
------ ------ -----
Prepaid benefit cost (Accrued
pension liability)........... $ 6.1 $ (7.8) $(0.7)
====== ====== =====
</TABLE>
Two of the three pension plans at Wessex have an aggregate prepaid benefit
cost of $5.2 million that is included in "Other assets" on the Consolidated
Balance Sheets and the remaining plan has an accrued benefit obligation of $1.8
million that is included in "Other long-term liabilities" on the Consolidated
Balance Sheets.
75
<PAGE> 78
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic benefit cost includes the following components:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT
---------------------------------- BENEFITS
JANUARY 29, 1998 ----------------
(DATE OF INCEPTION) YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------------- ------------ ----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost............................ $ 1.5 $ 7.8 $ --
Interest cost........................... 3.4 13.2 --
Expected return on plan assets.......... (4.0) (16.3) --
----- ------ ----
Net periodic benefit cost............... $ 0.9 $ 4.7 $ --
===== ====== ====
</TABLE>
A 1% change in assumed healthcare cost trend rates would have the following
effects for the year ended December 31, 1999:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Effect on total service and interest cost components........ $ -- $ --
Effect on postretirement benefit obligation................. 0.1 0.1
</TABLE>
Azurix North America contributes to defined contribution plans for a number
of its employees in the U.S. and Canada. Contributions to these plans totaled
$0.4 million during the period in 1999 that Azurix owned Azurix North America.
Contributions to the defined contribution plans are based on percentages of
compensation varying from 1% to 15% of compensation, and in some instances are
based upon the amount of the employees' contributions to the plans. In any
event, contributions are limited to $3,000 per employee per annum.
Azurix North America also contributes to a multi-employer union pension
plan for certain union employees. These contributions are based on amounts
negotiated between the union and the participating employers. There were no
contributions related to the multi-employer plan during 1999 because the plan is
currently over funded.
NOTE 13 -- STOCK PLANS
In February 1999, Azurix established a stock plan that provides for the
granting or awarding of stock options and restricted stock to directors,
officers and key employees of Azurix and members of the Azurix Board of
Directors. Options granted may be either incentive stock options or
non-qualified stock options and are granted at not less than the fair market
value of the stock on the date of grant. At any particular time, the number of
shares of common stock issued under the plan may not exceed 15% of the total
number of shares of common stock outstanding. These stock options generally vest
over three to five years and will be exercisable for 10 years after the date of
grant.
Azurix applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock options issued under the plan.
Accordingly, no compensation expense has been recognized for the stock options
granted. Had compensation cost been recognized based on the fair value of
options granted at the grant dates for awards under the plan, Azurix's net
income, basic and diluted earnings per share before extraordinary loss and basic
and diluted earnings per share for the year ended 1999 would have been $21.9
million, $0.26 per common share and $0.20 per common share, respectively.
76
<PAGE> 79
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of options granted in 1999 was estimated on the date of
grant using the Black-Scholes option pricing model assuming no expected dividend
yield, weighted-average expected life of 3.8 years, expected volatility of 82.6%
and a weighted-average risk-free interest rate of 5.4%.
Summarized information for Azurix's stock option plan is as follows:
<TABLE>
<CAPTION>
1999
------------------------
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
(OPTIONS IN THOUSANDS) ------- --------------
<S> <C> <C>
Options outstanding, beginning of year...................... -- --
Granted..................................................... 12,374 $14.31
Forfeited................................................... (2,121) 16.81
------ ------
Options outstanding, end of year............................ 10,253 13.79
====== ======
Weighted average fair value of options granted.............. $ 8.58
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999 (options in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF EXERCISE OPTIONS CONTRACTUAL EXERCISE
PRICES OUTSTANDING LIFE PRICE
----------------- ----------- ----------- --------
<S> <C> <C> <C>
$6.94 to $14.25 3,690 10.0 years $ 7.98
16.72 to 21.56 6,563 9.1 years 17.07
</TABLE>
At December 31, 1999, there were 0.5 million options that were exercisable
and there were 7.2 million shares available for grant.
NOTE 14 -- EXTRAORDINARY LOSS
In May 1999, Azurix Europe retired borrowings under its former senior
credit facility and terminated the facility prior to its maturity (see Note 7).
Unamortized deferred financing fees related to this facility of $9.8 million
($6.8 million net of tax benefit) were charged to income as an extraordinary
loss.
NOTE 15 -- RESTRUCTURING CHARGE
In 1998, Azurix adopted a business strategy focused on growth through
acquisitions and development projects around the world. During the fourth
quarter of 1998 and the first half of 1999, Azurix initiated a business
development effort requiring increased personnel to pursue and support
acquisition and privatization activities worldwide. The initiative was based on
Azurix's expectations as to the size, number, location and timing of
privatization projects that would be awarded in 1999, 2000 and beyond. During
the second half of 1999, several large privatization projects were postponed or
cancelled. In the fourth quarter of 1999, Azurix reevaluated its cost structure
in relation to its business development efforts. As a result, Azurix announced a
plan to restructure its operations, which resulted in the Company recording a
non-recurring, pretax expense totaling $34.2 million in the fourth quarter of
1999. The restructuring plan includes reducing personnel, reducing its leased
office space and eliminating other costs relating to the pursuit of concessions
in certain regions.
The restructuring plan involves the elimination of 206 employee positions
working in the concession acquisition effort. As of December 31, 1999, 113
employees had been terminated pursuant to the restructuring
77
<PAGE> 80
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plan. Azurix expects that the restructuring actions will be completed by the
second quarter of 2000. The restructuring liability has been classified in
"Accounts payable and accruals" on the Consolidated Balance Sheet and is being
funded through cash provided by operating activities and borrowings under credit
agreements.
Amounts related to the restructuring plan are shown in the following table:
<TABLE>
<CAPTION>
FOURTH
1999 QUARTER CHARGED TO BALANCE AT
RESTRUCTURING 1999 ASSET DECEMBER 31,
CHARGE PAYMENTS ACCOUNTS 1999
------------- -------- ---------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Severance and related payroll burden.... $18.8 $(2.3) $ -- $16.5
Asset impairments....................... 15.4 -- (15.4) --
----- ----- ------ -----
$34.2 $(2.3) $(15.4) $16.5
===== ===== ====== =====
</TABLE>
NOTE 16 -- STOCKHOLDERS' EQUITY
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 has been adjusted to give
effect to this split as if it had occurred on the date of inception.
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
Mendoza. The transfer was recorded at Enron's book value of $71.8 million.
On June 9, 1999, Azurix's Registration Statement on Form S-1 relating to
its initial public offering was declared effective. The offering of 36.6 million
shares of common stock was priced at $19.00 per share. Azurix sold 17.1 million
shares and Atlantic Water Trust, the former 100% parent of Azurix, sold 19.5
million shares. The proceeds to Azurix, after deducting expenses associated with
the offering, were $300.5 million. The proceeds were used to repay an advance
from Enron, which holds a 50% voting interest in Atlantic Water Trust, and to
partially fund the Buenos Aires concession acquisition (see Note 2).
Approximately 68.7% of Azurix's common stock was held by Atlantic Water Trust
and the remaining 31.3% was held by the public until July 8, 1999, on which date
the underwriters exercised their over-allotment option in connection with the
initial public offering of Azurix's common stock. As a result, Atlantic Water
Trust sold an additional 1,963,468 shares of Azurix's common stock, reducing its
ownership percentage in Azurix to approximately 67.1%.
NOTE 17 -- RESTRICTED NET ASSETS OF SUBSIDIARIES
Certain subsidiaries of Azurix Corp. have governmental and regulatory
restrictions or approvals required in order to pay dividends or to make
intercompany loans and advances to it. The amount of restricted net assets of
Azurix Corp. subsidiaries at December 31, 1998 and 1999 is approximately $1.5
billion and $1.6 billion, respectively.
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Azurix leases office space from Enron (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 and $1.7 million in 1998 and 1999, respectively.
78
<PAGE> 81
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Azurix leases property under various operating leases. Rental expense
related to these leases for the years ended December 31, 1998 and 1999 were $0.2
million and $2.1 million, respectively. Future minimum operating lease payments
as of December 31, 1999, in the aggregate and for each of the five succeeding
fiscal years, are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
2000..................................................... $ 3.9
2001..................................................... 3.7
2002..................................................... 2.6
2003..................................................... 2.0
2004..................................................... 1.7
2005 and beyond.......................................... 0.8
-----
Total minimum lease payments................... $14.7
=====
</TABLE>
Azurix, through Wessex and Azurix Buenos Aires, as owner of government
regulated water and wastewater concessions, is required to undertake a
significant capital investment program to meet statutory water quality and
environmental standards. It is currently estimated that the capital expenditure
programs at Wessex and Azurix Buenos Aires, along with the capital expenditure
commitments of other Azurix subsidiaries, will require expenditures over the
next five years of approximately $1.7 billion. Azurix has contractual
commitments in place for capital expenditures to be incurred after December 31,
1999 of $140.2 million.
The former parent of Lurgi Bamag had guaranteed reimbursement obligations
for approximately $27 million of letters of credit issued on behalf of Lurgi
Bamag. We have agreed to indemnify the former parent of any payments under that
guarantee.
Azurix has contingent payment obligations to former owners of acquired
entities under certain negotiated formulas, including a contingent payment
obligation that would require a former owner to use the proceeds to purchase
shares of Azurix common stock from Azurix. Currently, Azurix cannot assess the
likelihood that payment under these obligations will occur.
LITIGATION
On October 29, 1999, Azurix Corp. filed an action in the Chancery Court of
the State of Delaware against Synagro Technologies, Inc. Prior to this filing,
Azurix and Synagro had been in discussions regarding possible transactions. In
connection with these discussions, the parties entered into agreements
containing standstill provisions restricting Azurix's ability to acquire or
engage in negotiations with a number of companies for several months. In
September 1999, Synagro orally agreed to waive these standstill provisions with
regard to two subsidiaries of Waste Management, Inc., commonly called BioGro,
engaged in the residuals business. This oral waiver was made to representatives
of Waste Management, as well as to Azurix. Azurix also agreed to purchase up to
$23 million of Synagro convertible preferred stock, subject to certain
conditions. Following the waiver, Azurix discussed with Waste Management the
possible acquisition by Azurix of BioGro. Azurix's complaint sought to enforce
the waiver of the standstill provisions and an injunction against Synagro's
interference with the potential acquisition of BioGro, and a declaration that,
because the specified conditions had not been met, Azurix has no further
obligations to purchase stock of Synagro or pay it any other sums. On November
1, 1999, Synagro filed suit against Azurix Corp. in the District Court of Harris
County, Texas, seeking both a temporary restraining order and permanent
injunction to enjoin Azurix from using confidential information that Azurix had
obtained from Synagro and unspecified damages. In particular, Synagro's petition
alleges that Azurix's negotiating or closing the acquisition that is the subject
of the Delaware case would violate the standstill agreement between the parties.
79
<PAGE> 82
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 2, 1999, the court in the Texas action entered a temporary
restraining order preventing Azurix from using any confidential or proprietary
information that it received from Synagro, including with respect to BioGro, and
preventing both Azurix and Synagro from acquiring, or entering into an agreement
to acquire, BioGro for a 14-day period. On November 3, 1999, Azurix filed a
motion asking the Texas court to stay the action in Texas until the Delaware
Chancery Court had heard the earlier-filed Delaware case. The Texas court
granted this motion on November 16, 1999, terminating the restraining order.
Synagro subsequently asked the Delaware court to dismiss the action there either
for lack of jurisdiction or under the doctrine of forum non conveniens. On
February 3, 2000, Delaware court rejected Synagro's motion to dismiss the case
but stayed the proceeding there on the basis that the Texas and the Delaware
actions were filed essentially contemporaneously and that, on balance, Texas was
a more appropriate forum. Azurix subsequently filed an interlocutory appeal to
the Supreme Court of the State of Delaware, but the court exercised its
discretion to refuse to hear the appeal.
Azurix has determined not to proceed with the acquisition of BioGro. Azurix
therefore no longer is seeking to enjoin Synagro's interference with the Waste
Management transaction but intends to seek damages for that interference, as
well as a declaration that Azurix was not obligated to purchase Synagro
preferred stock. Synagro has not alleged an amount of damages, and so it is not
possible in this early stage of the litigation to predict what, if any damages
might result if the cases were determined adversely to Azurix. In January and
February 2000, Synagro announced that it had arranged significant new funds and
that it had closed several of the acquisitions, including the largest one, that
was to have been funded in part through the preferred stock we were to purchase.
Azurix intends to defend these actions vigorously and to pursue our claims for
damages for Synagro's interference with the Waste Management transaction.
Although no assurances can be given, Azurix believes that the ultimate
resolution of this litigation will not have a material adverse effect on its
results of operations or financial position.
Azurix is involved in other various claims and lawsuits incidental to its
business. Although no assurances can be given, Azurix believes that the ultimate
resolution of such items will not have a material adverse effect on its results
of operations or financial position.
REGULATION
Azurix is subject to extensive federal, foreign, state and local
environmental laws and regulations. Azurix anticipates future changes in, or
decisions affecting, regulatory regimes that will serve to expand or tighten
regulatory controls. Some of these changes or decisions could have a material
adverse effect on its financial position and results of operations.
Most of Azurix's revenues are subject to governmental regulation of the
rates that it charges to its customers. On November 25, 1999, the U.K. water
regulator, the Director General of Water Services, announced price limits for
U.K. water companies for the period April 1, 2000 through March 31, 2005. Wessex
was notified of a determination of a 12.0% price cut for 2000-2001, before
adjustment for inflation. The announcement included level prices through March
2003 with annual price increases in 2003-2004 of 3.8% and 2004-2005 of 4.7%,
before adjustment for inflation. Wessex's regulated operating revenues
represented approximately 70% of Azurix's total operating revenues for the year
ended December 31, 1999. The outcome of the periodic review is expected to
reduce Wessex's regulated operating revenues from 1999-2000 to 2000-2001 by
12.0%, before adjustment for inflation (or by approximately 10% after
adjustments for inflation and other factors), and thus materially reduce
Azurix's cash flow and earnings. However, Azurix does not expect this will have
a material adverse effect on its financial position.
Wessex currently has a virtual monopoly over water supply and wastewater
services within its service region, with the exception of the cities of Bristol
and Bournemouth and a small area of rural Wiltshire, where three other companies
provide only water and Wessex provides wastewater services. This may change in
the future, however, as the U.K. Government and the Director are seeking to
increase competition in the water
80
<PAGE> 83
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sector. The Director has announced various steps he may take, such as reducing
the threshold level of service required before a large customer may contract
with someone other than the licensed service provider, promoting competition in
new connections, and facilitating common carriage of water through existing
water service companies. Further, the Director has stated that he will use his
powers under the Competition Act 1998 to pursue companies that are abusing
dominant market positions. Increased competition could affect Wessex's monopoly
within its own service region, but would enable it to compete for customers in
other regions, taking advantage of its historically efficient operating levels.
In connection with Wessex's recent periodic review of price limits, the
Director has estimated that the cost of the capital expenditures that Wessex
will be required to make over the next five years will be approximately L764
($1,233.9) million. The determination assumed an after-tax cost of capital for
Wessex of 4.75%. In addition, companies are required to implement certain
policies in their charging schemes for 2000-2001 that must, for example, deal
with tariffs for vulnerable groups, cost-reflective charging, the balance
between water and wastewater charges, measured and unmeasured tariff
differentials, large user tariffs, timing and methods of payment and optional
metering. Azurix does not believe that these policies will have a material
adverse effect on Azurix's financial position or results of operations.
NOTE 19 -- GEOGRAPHIC INFORMATION
Financial information by geographic area is as follows:
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) DECEMBER 31,
TO DECEMBER 31, 1998 1998
------------------------------ ------------
INCOME (LOSS)
BEFORE INTEREST,
MINORITY INTEREST,
OPERATING INCOME TAXES AND LONG-LIVED
REVENUES EXTRAORDINARY LOSS ASSETS(1)
--------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
United States...................................... $ -- $(14.7) $ 2.3
United Kingdom..................................... 112.5 59.3 2,249.9
Switzerland........................................ 7.2 -- 2.9
Argentina.......................................... -- (1.0) 73.6
------ ------ --------
Total..................................... $119.7 $ 43.6 $2,328.7
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1999 1999
------------------------------ ------------
INCOME (LOSS)
BEFORE INTEREST,
MINORITY INTEREST,
OPERATING INCOME TAXES AND LONG-LIVED
REVENUES EXTRAORDINARY LOSS ASSETS(1)
--------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
United States...................................... $ 57.9 $(87.6) $ 84.6
United Kingdom..................................... 453.9 228.2 2,363.7
Switzerland........................................ 12.9 (3.8) 5.2
Canada............................................. 30.6 0.8 13.4
Argentina.......................................... 39.5 (5.6) 529.4
Mexico............................................. 8.3 5.2 26.2
Other.............................................. 14.9 1.3 7.9
------ ------ --------
Total..................................... $618.0 $138.5 $3,030.4
====== ====== ========
</TABLE>
- ---------------
(1) Long-lived assets represents property, plant and equipment, net of
accumulated depreciation, concession intangibles, net of accumulated
amortization and investments in and advances to unconsolidated affiliates.
81
<PAGE> 84
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1998 is not presented because all of Azurix's
1998 results of operations occurred during the fourth quarter of 1998,
subsequent to the Wessex acquisition. Summarized 1999 quarterly financial data
is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues........................................... $116.9 $131.3 $170.5 $199.3
Income before interest, minority interest, income
taxes and extraordinary loss(1).................. 39.4 38.0 47.7 13.4
Income (Loss) before extraordinary loss(1)......... 16.1 20.2 18.8 (10.6)
Net income (loss)(1)............................... 16.1 13.4 18.8 (10.6)
Earnings (Loss) per share(1):
Before extraordinary loss (see Note 14).......... 0.16 0.19 0.16 (0.09)
Extraordinary loss............................... -- (0.06) -- --
------ ------ ------ ------
Basic and diluted earnings (loss) per share...... $ 0.16 $ 0.13 $ 0.16 $(0.09)
====== ====== ====== ======
</TABLE>
- ---------------
(1) The fourth quarter of 1999 includes a restructuring charge of $34.2 million
pre-tax (see Note 15).
NOTE 21 -- SUBSEQUENT EVENT
In February 2000, Azurix issued U.S. dollar and U.K. pounds sterling senior
subordinated notes with a U.S. dollar equivalent face value of $599.8 million.
The senior notes consisted of $240.0 million and L100.0 million, each due in
2007 and bearing an interest rate of 10 3/8% and $200.0 million due in 2010 and
bearing an interest rate of 10 3/4%. Estimated net proceeds after underwriter's
discount and other estimated offering costs were $583.8 million. Of this amount,
$150.0 million was used to pay down the Azurix revolving credit facility, $386.0
million was used to pay down the Azurix Europe revolving credit facility and
$18.1 million was used to pay down amounts outstanding under the credit
agreement with Enron. In addition, $11.5 million was used to pay accrued
interest on the three credit facilities. The remaining proceeds are available
for general corporate purposes.
82
<PAGE> 85
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
83
<PAGE> 86
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 the year
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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS
Chartered Accountants
Bristol, England
March 12, 1999
84
<PAGE> 87
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 2, 1998 AND THE YEAR ENDED MARCH 31, 1998
(TRANSLATED INTO USD -- SEE NOTE 1)
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 2, MARCH 31,
1998 1998
------------ -----------
IN MILLIONS USD
(EXCEPT FOR PER SHARE DATA)
<S> <C> <C>
Operating revenues.......................................... $233.8 $436.6
Operating expenses:
Operations and maintenance................................ 61.7 110.9
General and administrative................................ 36.4 29.1
Depreciation and amortization............................. 35.2 64.3
------ ------
Operating income............................................ 100.5 232.3
------ ------
Other income (expense):
Interest income........................................... 0.2 4.4
Interest expense.......................................... (6.3) (13.0)
Equity earnings........................................... 5.8 13.3
------ ------
Income before taxes......................................... 100.2 237.0
------ ------
Taxation on ordinary activities............................. 28.4 58.0
Utility tax................................................. -- 162.3
------ ------
Net income.................................................. 71.8 16.7
Dividends on preference shares.............................. 7.7 15.1
------ ------
Net income attributable to common stockholders.............. $ 64.1 $ 1.6
====== ======
Basic earnings per share.................................... $ 0.30 $ 0.01
====== ======
Diluted earnings per share.................................. $ 0.30 $ 0.01
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
85
<PAGE> 88
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1998
(TRANSLATED INTO USD -- SEE NOTE 1)
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
IN MILLIONS USD
(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.
86
<PAGE> 89
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 YEAR ENDED MARCH 31, 1998
(TRANSLATED INTO USD -- SEE NOTE 1)
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 2, MARCH 31,
1998 1998
---------- ---------
IN MILLIONS USD
<S> <C> <C>
Operating Activities:
Net income.................................................. $ 71.8 $ 16.7
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)
Depreciation and amortization............................. 35.2 64.3
Deferred taxes............................................ 23.2 24.9
Loss on disposal of fixed assets.......................... 0.8 2.5
Other..................................................... 0.1 0.5
------- -------
128.0 102.2
------- -------
Changes in operating asset and liability items:
(Increase) decrease in trade accounts receivable.......... 6.9 (4.8)
(Increase) in prepayments................................. (0.3) (0.8)
(Increase) decrease in other current assets............... (8.3) 22.3
Increase (decrease) in advances from customers............ 2.5 1.1
Increase in accounts payable and accruals................. 3.4 5.0
------- -------
4.2 22.8
------- -------
Net cash provided by operating activities................... 132.2 125.0
------- -------
Investing Activities:
Purchase of fixed assets.................................. (108.9) (198.6)
Decrease in short-term investments........................ -- --
Other..................................................... 0.5 3.6
------- -------
Net cash used in investing activities....................... (108.4) (195.0)
------- -------
Financing Activities:
Repurchase of ordinary shares............................. -- --
Repurchase of preference shares........................... (143.4) --
Short-term loans received................................. 177.5 80.7
Repayment of lease obligations............................ (8.7) (15.6)
Dividends paid............................................ (51.4) (65.7)
Other..................................................... 2.4 7.4
------- -------
Net cash (used in) provided by financing activities......... (23.6) 6.8
------- -------
Effect of exchange rate changes on cash balances............ (0.3) (1.3)
------- -------
Decrease in cash and cash equivalents....................... (0.1) (64.5)
Balance of cash and cash equivalents at beginning of
period.................................................... 1.8 66.3
------- -------
Balance of cash and cash equivalents at end of period....... $ 1.7 $ 1.8
======= =======
Supplemental Cash Flow Items:
Interest paid (net of amounts capitalized)................ $ 8.6 $ 12.3
Income taxes paid......................................... 5.3 86.5
Utility tax paid.......................................... -- 83.1
Non-Cash Investing and Financing Activities:
Scrip dividends........................................... 37.4 9.8
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
87
<PAGE> 90
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 YEAR ENDED MARCH 31, 1998
(TRANSLATED INTO USD -- SEE NOTE 1)
(IN MILLIONS USD)
<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, 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)
------ ------ ------ ------ --------
Balance at October 2, 1998............ $193.4 $114.4 $200.6 $793.3 $1,301.7
====== ====== ====== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
88
<PAGE> 91
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
("Wessex"). On October 2, 1998, Wessex was purchased by Azurix Europe Ltd, a
wholly owned subsidiary of Azurix Corp. ("Azurix"). 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 ("US GAAP"). The functional
currency of Wessex is pounds sterling ("GBP"). These accounts have been
presented using US dollars ("USD") as the reporting currency by translating the
functional currency financial statements using the current rate methodology
described in the Statement of Financial Accounting Standard ("SFAS") 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 UK 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 UK 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 ("SC Technology"), 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
89
<PAGE> 92
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 GBP functional currency financial
statements to USD were:
<TABLE>
<CAPTION>
USD PER GBP
-----------
<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
</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.
90
<PAGE> 93
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 securities are
reported net, as a separate component of other comprehensive income, a part of
stockholders' equity, until the gains and losses are realized.
91
<PAGE> 94
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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" ("APB 25"), and related interpretations in accounting
for its employee stock options. Under APB 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 FASB issued SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. SFAS 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 SFAS 133 will have on
its financial statements.
In April 1998, the AICPA issued SOP 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. SOP 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
92
<PAGE> 95
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
change. The adoption of SOP 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
OCTOBER 2, MARCH 31,
1998 1998
------------ -----------
(IN MILLIONS OF US DOLLARS)
<S> <C> <C>
Gross interest expense................................ $11.3 $21.4
Interest capitalized.................................. (5.0) (8.4)
----- -----
Net interest expense.................................. $ 6.3 $13.0
===== =====
</TABLE>
NOTE 3 -- OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1998
---------------
(IN MILLIONS OF
US DOLLARS)
<S> <C>
Other receivables....................................... $ 8.0
Available-for-sale securities........................... 4.7
Prepayments............................................. 3.5
Other................................................... 3.3
-----
$19.5
=====
</TABLE>
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 US 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>
93
<PAGE> 96
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 US 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.
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
US 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>
94
<PAGE> 97
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
US 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
OCTOBER 2, MARCH 31,
1998 1998
------------ -----------
(IN MILLIONS OF US DOLLARS)
<S> <C> <C>
Revenues............................................... $145.2 $285.1
Operating profit....................................... 10.6 25.1
Net income before tax.................................. 11.6 26.6
</TABLE>
NOTE 7 -- ACCOUNTS PAYABLE AND ACCRUALS
<TABLE>
<CAPTION>
MARCH 31,
1998
---------------
(IN MILLIONS OF
US 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
US DOLLARS)
<S> <C>
Bank overnight credit facility.......................... $24.0
Revolving line of credit................................ 58.7
-----
Total......................................... $82.7
=====
</TABLE>
95
<PAGE> 98
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 GBP, of committed lines of credit which expire on
April 21, 1999. The interest rate on draw-downs is LIBOR 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
US DOLLARS)
<S> <C>
European Investment Bank ("EIB") loan #1 -- USD,
variable interest rate of 6 month LIBOR minus 0.25%
due October 2001...................................... $ 50.3
EIB loan #2 -- Italian lire, fixed interest rate of
11.6% due June 2002................................... 24.5
EIB loan #3 -- Ecu, 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>
Minimum annual principal payments due on long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31:
- ---------------------
<S> <C>
1999........................................................ $ 38.3
2000........................................................ 29.0
2001........................................................ 32.9
2002........................................................ 87.5
2003........................................................ 20.3
------
Total............................................. $208.0
======
</TABLE>
The three EIB 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 semi-annual interest payments. Using a combination of
interest rate swaps and currency swaps these rates are changed to variable and
fixed GBP 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.
96
<PAGE> 99
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 US 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>
CERTAIN 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 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
(GBP) to the reporting currency (USD).
97
<PAGE> 100
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- STOCKHOLDERS' EQUITY
ORDINARY SHARES
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
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 GBP functional currency financial
statements into the USD 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 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 APB 25 in accounting for its stock-based compensation plans
("share option plans"). Accordingly, compensation expense of $0.2 million and
$0.2 million was recorded for the six months ended October 2, 1998 and for the
year ended March 31, 1998, 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.
98
<PAGE> 101
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details of the share option plans are summarized in the table below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
OPTIONS SHARES (IN GBP)
- ------- ---------- --------------
<S> <C> <C>
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, 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.
The following table summarizes information about options outstanding as at
March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
NUMBER CONTRACTUAL NUMBER
RANGE OF EXERCISE PRICES (GBP) OUTSTANDING LIFE (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 SFAS 123,
"Accounting for Stock Based Compensation," compensation expense of $0.3 million
and $0.5 million would have been recorded for the six months ended October 2,
1998 and for the year ended March 31, 1998, respectively. Net income would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 2, MARCH 31,
1998 1998
------------ -----------
(IN MILLIONS OF US DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net income:
As reported............................................... $71.8 $16.7
Pro forma................................................. 71.7 16.4
Basic earnings per share:
As reported............................................... $0.30 $0.01
Pro forma................................................. 0.30 0.01
</TABLE>
99
<PAGE> 102
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 year ended March 31,
1998:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 2, MARCH 31,
1998 1998
---------- ---------
<S> <C> <C>
Dividend yield.............................................. 4.1% 3.3%
Expected volatility......................................... 21% 22%
Risk-free interest rate..................................... 6.3% 7.1%
Expected lives.............................................. 4.9 years 4.8 years
Weighted average option price (GBP)......................... 3.64 3.58
Weighted average fair market value at date of grant (GBP)... 1.24 1.42
</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 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 12 month LIBOR 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
OCTOBER 2, MARCH 31,
NUMERATOR (IN MILLIONS OF US DOLLARS) 1998 1998
- ------------------------------------- ---------- ---------
<S> <C> <C>
Basic
Net income attributable to ordinary stockholders...... $ 64.1 $ 1.6
Dividends paid to convertible stockholders............ -- --
------ ------
Diluted
Net income available to ordinary and convertible
Stockholders....................................... $ 64.1 $ 1.6
====== ======
</TABLE>
100
<PAGE> 103
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 2, MARCH 31,
DENOMINATOR (IN MILLIONS) 1998 1998
- ------------------------- ---------- ---------
<S> <C> <C>
Basic
Weighted average shares outstanding during year....... 213.0 211.3
Effect of dilutive securities:
Stock options...................................... 1.5 1.4
Convertible securities............................. -- --
------ ------
Diluted................................................. 214.5 212.7
====== ======
</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>
NOTE 14 -- INCOME TAXES
Total income tax expense is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 2, MARCH 31,
1998 1998
------------ -----------
(IN MILLIONS OF US DOLLARS)
<S> <C> <C>
Current tax........................................... $ 3.0 $ 26.5
Deferred tax.......................................... 23.2 24.9
Share of tax of equity method investee................ 2.2 6.6
Utility tax........................................... -- 162.3
----- ------
Total income tax expense.................... $28.4 $220.3
===== ======
</TABLE>
101
<PAGE> 104
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
OCTOBER 2, MARCH 31,
1998 1998
------------ -----------
(IN MILLIONS OF US DOLLARS
EXCEPT PERCENTAGES)
<S> <C> <C>
Tax at statutory tax rate 31% (1997: 33%)............ $31.1 $ 73.5
Change in tax rate................................... (12.7) (22.6)
Non-deductible expenses.............................. 7.9 1.6
Equity investee...................................... 0.5 2.5
Other................................................ 1.6 3.0
----- ------
Total before utility tax................... 28.4 58.0
----- ------
Utility tax.......................................... -- 162.3
----- ------
Total...................................... $28.4 $220.3
===== ======
Effective rate before utility tax.................... 28% 24%
Effective rate after utility tax..................... 28% 93%
</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.
The principal components of Wessex's net deferred liability are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
--------------
(IN MILLIONS
OF US 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
The defined benefit schemes which cover the majority of staff are the
Wessex Water Pension Scheme ("WWPS"), the Wessex Water Mirror Image Pension
Scheme ("WWMIS") and the Wessex Water Executive Pension Scheme ("WWEPS"). 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.
102
<PAGE> 105
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
OCTOBER 2, MARCH 31,
1998 1998
---------- ---------
<S> <C> <C>
Discount rate........................................... 6.5% 8.3%
Yield on government bonds............................... 6.0 7.6
Expected return on plan assets.......................... 7.5 8.5
Rate of compensation increase........................... 5.0 6.0
Pension increases after April 5, 1997................... 3.0 4.0
</TABLE>
The plan's funded status and related pension accrual at March 31, 1998 are
as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
---------------
(IN MILLIONS OF
US 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>
103
<PAGE> 106
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic benefit cost includes the following components:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 2, MARCH 31,
1998 1998
---------- ---------
(IN MILLIONS OF US
DOLLARS)
<S> <C> <C>
Service cost............................................ $3.1 $ 4.6
Interest cost........................................... 7.4 15.4
Expected return on plan assets.......................... (9.4) (17.9)
Recognition of transition asset......................... (0.5) (1.0)
Amortization of prior service cost...................... 0.3 0.7
Recognized actuarial gain............................... -- --
Curtailments............................................ -- 1.3
---- ------
Net periodic benefit cost............................... $0.9 $ 3.1
==== ======
</TABLE>
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% and 93% of revenues for the six months ended October 2,
1998 and for the year ended March 31, 1998 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 UK generally accepted
accounting principles which differ in certain significant respects from US
generally accepted accounting principles.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 2, 1998 MARCH 31, 1998
-------------------------- --------------------------
REGULATED REGULATED
WATER WATER
SERVICES OTHER TOTAL SERVICES OTHER TOTAL
--------- ----- ------ --------- ----- ------
(IN MILLIONS OF US DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
External revenue............................... $213.6 $20.2 $233.8 $404.3 $32.3 $436.6
Intersegment revenue........................... -- 2.1 2.1 -- -- --
------ ----- ------ ------ ----- ------
Total revenue.................................. 213.6 22.3 235.9 404.3 32.3 436.6
Segment result................................. 95.2 5.3 100.5 221.1 10.3 231.4
Depreciation................................... 27.4 0.5 27.9 51.4 0.5 51.9
</TABLE>
104
<PAGE> 107
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of segment results to income before taxes:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 2, MARCH 31,
1998 1998
------------ -----------
(IN MILLIONS OF US DOLLARS)
<S> <C> <C>
Total segment result for reportable segments................ $100.5 $231.4
Intersegment profit....................................... (0.3) --
Head office charges....................................... (2.8) (5.1)
US GAAP adjustments:
Infrastructure renewals charge......................... 8.3 16.2
Depreciation on infrastructure assets.................. (6.3) (11.8)
Other.................................................. 1.1 1.6
------ ------
US GAAP operating profit.................................. 100.5 232.3
Share in results of equity method investee................ 5.8 13.3
Net interest income (expense)............................. (6.1) (8.6)
------ ------
Income before tax......................................... $100.2 $237.0
====== ======
</TABLE>
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 year ended March 31, 1998 were as
follows:
(a) At March 31, 1998, a loan of $6.2 million had been received by
Wessex from Wessex Waste Management Ltd.
(b) 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:
(c) A director of SC Technology owns certain of the assets at the
company's operation in Biel, Switzerland, for which a charge was made to SC
Technology of $0.2 million and $0.3 million for the six months ended
October 2, 1998 and for the year ended March 31, 1998 respectively.
105
<PAGE> 108
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
LEASES
Wessex leases certain property, plant and equipment. Commitments for
minimum rentals under non-cancelable leases at March 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------------
(IN MILLIONS OF
US 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 and $0.5 million for
the six months ended October 2, 1998 and for the year ended March 31, 1998
respectively.
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 certain 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. ("Enron") 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 ("MMC"). On September 10,
1998 it was announced that there would be no reference to the MMC. 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
106
<PAGE> 109
WESSEX WATER PLC
(NOW RENAMED WESSEX WATER LTD)
(PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
107
<PAGE> 110
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Items 10, 11, 12 and 13 of Part III (except
for information required with respect to identification of our executive
officers, which is set forth under "Business -- Executive Officers of the
Company" in Part I of this report) is incorporated by reference from Azurix's
definitive proxy statement which will be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year to which this report
relates.
108
<PAGE> 111
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules. See
"Index to Consolidated Financial Statements" set forth on page 51 and "Index to
Financial Statement Schedules" set forth on page 113.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: EXHIBIT
------- -------
<C> <S>
3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Registrant's Amendment No. 2
to Registration Statement on Form S-1 (File No. 333-74739))
3.2 Restated Bylaws, as amended on December 13, 1999
(incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 (File No.
333-92709))
4.1 Indenture, dated February 18, 2000, between the Registrant
and Chase Bank of Texas, National Association, as Trustee
4.2 Registration Rights Agreement, dated February 18, 2000, by
and among the Registrant and the Initial Purchasers for the
Dollar-Denominated Senior Notes and the Initial Purchases
for the Sterling-Denominated Senior Notes
4.3 Stock Restriction and Registration Rights Agreement, dated
June 9, 1999, between the Registrant and Atlantic Water
Trust
10.1 Instrument of Appointment as a Water and Sewerage
Undertaker, dated August 1989, as amended, of Wessex Water
Services Limited (incorporated by reference to Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 (File
No. 333-74739))
10.2 L425,000,000 Supplemental Agreement, dated February 25,
2000, for Azurix Europe Ltd arranged by Chase Manhattan Plc
and Westdeutsche Landesbank Griozentrale
10.3 L73,000,000 Amended and Restated Credit Facility Agreement,
dated December 17, 1998, for Azurix Europe Ltd and Bristol
Water Trust (incorporated by reference to Exhibit 10.3 to
the Registrant's Registration Statement on Form S-1 (File
No. 333-74739))
10.4 Amended and Restated Trust Agreement of Atlantic Water
Trust, dated December 17, 1998 (incorporated by reference to
Exhibit 10.14 to the Registrant's Amendment No. 2 to
Registration Statement on Form S-1 (File No. 333-74739))
10.5 Trust Deed, dated March 30, 1999, among Wessex Water
Services Finance Plc, Wessex Water Services Limited and
Midland Bank Plc (incorporated by reference to Exhibit 10.15
to the Registrant's Amendment No. 2 to Registration
Statement on Form S-1 (File No. 333-74739))
10.6 Credit Agreement, dated May 1, 1999, between the Registrant
and Enron
10.7 First Amendment to Credit Agreement, dated January 4, 2000,
between the Registrant and Enron
10.8 Definitive Trust Deed and Rules of Wessex Water Executive
Pension Scheme, dated August 19, 1998 (incorporated by
reference to Exhibit 10.17 to the Registrant's Amendment No.
2 to Registration Statement on Form S-1 (File No.
333-74739))
</TABLE>
109
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: EXHIBIT
------- -------
<C> <S>
10.9 Concession Contract dated June 30, 1999, between the
Executive Authorities of the Province of Buenos Aires and
Azurix Buenos Aires S.A. (incorporated by reference to
Exhibit 2 to the Registrant's Amendment No. 1 to Current
Report on Form 8-K/A dated June 30, 1999)
10.10 U.S.$394,000,000 Credit Agreement, dated as of June 24,
1999, among Azurix Buenos Aires S.A., as Borrower, and the
Initial Lenders named therein, as Initial Lenders, and
Westdentsche Landestand Girozentrale, as Agent (incorporated
by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999)
10.11 Cash Collateral Agreement, dated as of June 25, 1999, among
the Registrant, as Pledgor, and The Chase Manhattan Bank, as
Collateral Agent and Collateral Securities Intermediary and
the other parties named therein (incorporated by reference
to Exhibit 10.2 to the Registrant's Quarterly Report on From
10-Q for the quarter ended June 30, 1999)
10.12 *Azurix Corp. 1999 Stock Plan, dated February 2, 1999
(incorporated by reference to Exhibit 10.4 to the
Registrant's Amendment No. 1 to Registration Statement on
Form S-1 (File No. 333-74739))
10.13 *First Amendment to Azurix Corp. 1999 Stock Plan, dated
October 11, 1999 (incorporated by reference to Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999)
10.14 *Second Amendment to Azurix Corp. 1999 Stock Plan, dated
December 13, 1999 (incorporated by reference to Exhibit 4.5
to the Registrant's Registration Statement on Form S-8 (File
No. 333-92709))
10.15 *Employment Agreement of Rebecca P. Mark, effective May 4,
1998, with Enron and First Amendment, effective February 1,
1999, with the Registrant and Enron (incorporated by
reference to Exhibit 10.9 to the Registrant's Amendment No.
1 to Registration Statement on Form S-1 (File No.
333-74739))
10.16 *Employment Agreement of Colin F. Skellett, dated February
24, 1995, and First Amendment, dated December 9, 1998, with
Wessex Water Plc (incorporated by reference to Exhibit 10.13
to the Registrant's Amendment No. 1 to Registration
Statement on Form S-1 (File No. 333-74739))
10.17 *Executive Employment Agreement of John L. Garrison, Jr.,
dated April 26, 1999, with the Registrant
10.18 *Employment Agreement of Amanda K. Martin, effective January
1, 1998, with the Registrant and Enron Capital & Trade
Resources Corp. and Second Amendment, dated March 15, 1999,
with the Registrant (incorporated by reference to Exhibit
10.11 to the Registrant's Amendment No. 1 to Registration
Statement on Form S-1 (File No. 333-74739))
10.19 *Executive Employment Agreement of John C. Ale, effective
December 10, 1998, with the Registrant
10.20 *Severance Agreement of Rodney L. Gray, effective November
30, 1999
10.21 *Severance Agreement of Alex Kulpecz, dated November 30,
1999
10.22 *Severance Agreement of Edward N. Robinson, dated February
15, 2000
10.23 Cost Sharing Agreement, effective January 1, 1999, between
the Registrant and Enron
10.24 Services Agreement, dated May 1, 1999, between the
Registrant and Enron
</TABLE>
110
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: EXHIBIT
------- -------
<C> <S>
10.25 Non-Exclusive License Agreement, dated May 1, 1999, between
the Registrant and Enron
10.26 Business Opportunity Agreement, dated June 9, 1999, among
the Registrant, Atlantic Water Trust and Enron
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PricewaterhouseCoopers (independent accountants)
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(d) of Form 10-K.
(b) Reports on Form 8-K:
A Report on Form 8-K was filed on November 12, 1999, with respect to the
Registrant's financial results for the period ended September 30, 1999, and
includes a discussion of its financial outlook for the fourth quarter of 1999
and the fiscal year 2000.
111
<PAGE> 114
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, on March 28, 2000.
AZURIX CORP.
By: /s/ REBECCA P. MARK
----------------------------------
Rebecca P. Mark
Name: Rebecca P. Mark
Title: Director, Chairman and
Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March 28, 2000 by the following persons on
behalf of the Registrant and in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ REBECCA P. MARK Director, Chairman and Chief March 28, 2000
- ----------------------------------------------------- Executive Officer (Principal
Rebecca P. Mark Executive Officer)
/s/ RODNEY L. FALDYN Managing Director and Chief March 28, 2000
- ----------------------------------------------------- Accounting Officer
Rodney L. Faldyn (Principal Accounting
Officer)
/s/ ANDREA L. MAINELLI Managing Director, Finance and March 28, 2000
- ----------------------------------------------------- Acting Chief Financial
Andrea L. Mainelli Officer (Principal Financial
Officer)
/s/ JOHN H. DUNCAN Director March 28, 2000
- -----------------------------------------------------
John H. Duncan*
/s/ KENNETH L. LAY Director March 28, 2000
- -----------------------------------------------------
Kenneth L. Lay*
/s/ JEFFREY K. SKILLING Director March 28, 2000
- -----------------------------------------------------
Jeffrey K. Skilling*
/s/ JOSEPH W. SUTTON Director March 28, 2000
- -----------------------------------------------------
Joseph W. Sutton*
/s/ JOHN L. WAKEHAM Director March 28, 2000
- -----------------------------------------------------
John L. Wakeham*
/s/ HERBERT S. WINOKUR, JR. Director March 28, 2000
- -----------------------------------------------------
Herbert S. Winokur, Jr.*
*By: /s/ REBECCA P. MARK
-------------------------------------------------
Rebecca P. Mark
(Attorney-in-fact for persons indicated)
</TABLE>
112
<PAGE> 115
AZURIX CORP.
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule I -- Condensed Financial Information of Registrant
Reports of Independent Public Accountants................... 114
Statements of Income for the period from January 29, 1998
(Date of Inception) to December 31, 1998 and for the year
ended December 31, 1999................................... 117
Statements of Comprehensive Loss for the period from January
29, 1998 (Date of Inception) to December 31, 1998 and for
the year ended December 31, 1999.......................... 118
Balance Sheets at December 31, 1998 and 1999................ 119
Statements of Cash Flows for the period from January 29,
1998 (Date of Inception) to December 31, 1998 and for the
year ended December 31, 1999.............................. 120
Notes to the Financial Statements........................... 121
Schedule II -- Valuation and Qualifying Accounts............ 122
</TABLE>
113
<PAGE> 116
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To Azurix Corp.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Azurix Corp. and
subsidiaries included in this Form 10-K filing and have issued our report
thereon dated March 17, 2000. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedules listed
in Item 14(a) 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.
ARTHUR ANDERSEN LLP
Houston, Texas
March 17, 2000
114
<PAGE> 117
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 Annual Report 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 14(a) 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
115
<PAGE> 118
REPORT OF INDEPENDENT ACCOUNTANTS
To the stockholder of Wessex Water Ltd (formerly Wessex Water Plc)
In connection with our audit of the consolidated financial statements of
Wessex Water Plc (now renamed Wessex Water Ltd) and its subsidiaries (the
"Company") as at and for the year ended March 31, 1998, which financial
statements are included in this Form 10-K filing, we have also audited Schedule
II listed in Item 14(a) as it relates to Wessex Water Ltd (formerly Wessex Water
Plc) as at and for the year 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 in respect of Wessex Water Ltd as at and for the year ended March
31, 1998 required to be included therein.
/s/ PRICEWATERHOUSECOOPERS
------------------------------------
PricewaterhouseCoopers
Chartered Accountants
Bristol, England
March 12, 1999
116
<PAGE> 119
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AZURIX CORP.
STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
<S> <C> <C>
Operating revenues.......................................... $ -- $ --
------ ------
Operating expenses:
Operations and maintenance................................ 2.3 --
General and administrative................................ 12.3 63.5
Depreciation and amortization............................. 0.1 1.2
Restructuring charge...................................... -- 29.1
------ ------
Total operating expenses.......................... 14.7 93.8
------ ------
Equity in earnings of subsidiaries and affiliates........... 26.0 103.4
Other expense............................................... (1.1) --
Interest expense, net....................................... -- (0.2)
------ ------
Income before income taxes and extraordinary loss........... 10.2 9.4
------ ------
Income tax benefit.......................................... -- (35.1)
------ ------
Income before extraordinary loss............................ 10.2 44.5
------ ------
Extraordinary loss of subsidiary, net of tax................ -- 6.8
------ ------
Net income.................................................. $ 10.2 $ 37.7
====== ======
Earnings per share of common stock before extraordinary
loss -- basic and diluted................................. $ 0.10 $ 0.41
------ ------
Earnings per share of common stock -- basic and diluted..... $ 0.10 $ 0.34
====== ======
Weighted average shares outstanding -- basic and diluted.... 100.0 109.7
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
117
<PAGE> 120
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AZURIX CORP.
STATEMENTS OF COMPREHENSIVE LOSS
(IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
<S> <C> <C>
Net income.................................................. $ 10.2 $ 37.7
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... (36.7) (41.4)
Unrealized loss on available for sale securities held by
subsidiary............................................. -- (0.8)
------ ------
Comprehensive loss.......................................... $(26.5) $ (4.5)
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
118
<PAGE> 121
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AZURIX CORP.
BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Restricted cash and cash equivalents...................... $ -- $ 83.6
Other..................................................... -- 4.3
-------- --------
Total current assets.............................. -- 87.9
-------- --------
Property, plant and equipment, net.......................... 2.3 17.1
Investment in and advances to subsidiaries.................. 1,666.8 2,033.4
Other assets................................................ 1.9 54.1
-------- --------
Total Assets...................................... $1,671.0 $2,192.5
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable -- affiliates............................ $ 18.0 $ 9.7
Accounts payable and accruals............................. 7.5 28.3
-------- --------
Total current liabilities......................... 25.5 38.0
-------- --------
Long-term debt.............................................. -- 150.0
Long-term debt -- affiliates................................ -- 62.7
Stockholder's equity:
Preferred stock........................................... -- --
Common stock.............................................. 1.0 1.2
Additional paid-in capital................................ 1,671.0 1,972.2
Retained earnings......................................... 10.2 47.9
Unearned compensation..................................... -- (0.6)
Accumulated other comprehensive loss...................... (36.7) (78.9)
-------- --------
Total stockholder's equity........................ 1,645.5 1,941.8
-------- --------
Total Liabilities and Stockholder's Equity........ $1,671.0 $2,192.5
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
119
<PAGE> 122
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AZURIX CORP.
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 29, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
<S> <C> <C>
Cash used in operating activities........................... $ -- $ (82.6)
Investing Activities:
Investments in and advances to subsidiaries............... (1,600.2) (312.1)
Capital expenditures...................................... -- (16.7)
--------- -------
Net cash used in investing activities....................... (1,600.2) (328.8)
--------- -------
Financing Activities:
Proceeds from long-term borrowings........................ -- 149.4
Deposit to restricted cash and cash equivalents collateral
accounts............................................... -- (83.6)
Issuance of common stock and capital contributed.......... 1,600.2 300.5
Advances from Enron....................................... -- 45.1
--------- -------
Net cash provided by financing activities................... 1,600.2 411.4
--------- -------
Change in cash and cash equivalents......................... -- --
--------- -------
Cash and cash equivalents, beginning of period.............. -- --
--------- -------
Cash and cash equivalents, end of period.................... $ -- $ --
========= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
120
<PAGE> 123
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AZURIX CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 -- GENERAL
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.
NOTE 2 -- LONG-TERM DEBT AND LONG-TERM DEBT -- AFFILIATES
On September 29, 1999, Azurix Corp. entered into a 364-day $150.0 million
unsecured revolving credit facility with a group of banks. The facility, as
subsequently amended, matures in September 2000. As of December 31, 1999, $150.0
million was outstanding under the facility and the borrowings were primarily
used to reduce other debt obligations and finance acquisitions. The weighted
average interest rate on borrowings outstanding under this facility at December
31, 1999 was 7.7%. Azurix used a portion of the proceeds from the long-term
notes issued in February 2000 to repay all amounts outstanding under this
facility (see Note 3). Accordingly, the borrowings under this facility at
December 31, 1999 have been reclassified as long-term. Azurix terminated the
facility in March 2000.
Effective May 1, 1999, Azurix entered into a credit agreement with Enron,
which was amended as of January 24, 2000. Under this agreement Enron, will loan
funds to Azurix for general, administrative and operating expenses. As of
December 31, 1999, $53.3 million was outstanding under this credit agreement.
The credit agreement terminates on the earlier of December 15, 2001 or 90 days
following the date that Enron does not own or have the power to vote at least
one-third of Azurix's 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. The total commitment under the credit agreement will not
exceed $60 million, $120 million and $180 million at any time during calendars
years 1999, 2000 and 2001, respectively. Advances under the credit agreement
bear interest at the federal funds rate plus 1.50%. The effective interest rate
on these borrowings in 1999 was 6.8%. Amounts borrowed under the credit
agreement may be prepaid, in full or in part, at any time during the term of the
credit agreement.
In June 1999, a loan agreement was entered into with a shareholder. The
principal amount is limited to $25.0 million and the balance outstanding at
December 31, 1999 was $8.8 million. Individual loans made under the agreement
mature in 2009 and are non-interest bearing.
NOTE 3 -- SUBSEQUENT EVENT
In February 2000, Azurix issued U.S. dollar and U.K. pounds sterling senior
subordinated notes with a U.S. dollar equivalent face value of $599.8 million.
The senior notes consisted of $240.0 million and L100.0 million, each due in
2007 and bearing an interest rate of 10 3/8% and $200.0 million due in 2010 and
bearing an interest rate of 10 3/4%. Estimated net proceeds after underwriter's
discount and other estimated offering costs were $583.8 million. Of this amount,
$150.0 million was used to pay down the Azurix revolving credit facility, $386.0
million was used to pay down the Azurix Europe revolving credit facility and
$18.1 million was used to pay down amounts outstanding under the credit
agreement with Enron. In addition, $11.5 million was used to pay accrued
interest on the three credit facilities. The remaining proceeds are available
for general corporate purposes.
121
<PAGE> 124
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
AZURIX CORP.
<TABLE>
<CAPTION>
ADDITION
RELATED TO ADDITIONS
BALANCE AT ACQUISITION CHARGED TO CURRENCY BALANCE AT
JANUARY 29, 1998 OF WESSEX COSTS AND EXCHANGE DECEMBER 31,
(DATE OF INCEPTION) WATER PLC EXPENSES WRITEOFFS DIFFERENCE 1998
------------------- ----------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts.................. $-- 4.9 1.7 (0.2) (0.1) $6.3
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS
RELATED TO ADDITIONS
ACQUISITIONS CHARGED TO CURRENCY BALANCE AT
BALANCE AT DURING COSTS AND EXCHANGE DECEMBER 31,
DECEMBER 31, 1998 1999 EXPENSES WRITEOFFS DIFFERENCE 1999
----------------- ------------ ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts.................. $6.3 25.0 13.3 (3.7) (0.2) $40.7
</TABLE>
<TABLE>
<CAPTION>
1999 CHARGED TO BALANCE AT
RESTRUCTURING ASSET DECEMBER 31,
CHARGE PAYMENTS ACCOUNTS 1999
------------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Restructuring Liability:
Severance and related
payroll burden............ $18.8 $(2.3) $ -- $16.5
Asset impairments........... 15.4 -- (15.4) --
----- ----- ------ -----
$34.2 $(2.3) $(15.4) $16.5
===== ===== ====== =====
</TABLE>
WESSEX WATER PLC (NOW RENAMED WESSEX WATER LTD.)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO CURRENCY BALANCE AT
BALANCE AT COSTS AND EXCHANGE OCTOBER 2,
MARCH 31, 1998 EXPENSES WRITEOFFS DIFFERENCE 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>
122
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: EXHIBIT
------- -------
<C> <S>
3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Registrant's Amendment No. 2
to Registration Statement on Form S-1 (File No. 333-74739))
3.2 Restated Bylaws, as amended on December 13, 1999
(incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 (File No.
333-92709))
4.1 Indenture, dated February 18, 2000, between the Registrant
and Chase Bank of Texas, National Association, as Trustee
4.2 Registration Rights Agreement, dated February 18, 2000, by
and among the Registrant and the Initial Purchasers for the
Dollar-Denominated Senior Notes and the Initial Purchases
for the Sterling-Denominated Senior Notes
4.3 Stock Restriction and Registration Rights Agreement, dated
June 9, 1999, between the Registrant and Atlantic Water
Trust
10.1 Instrument of Appointment as a Water and Sewerage
Undertaker, dated August 1989, as amended, of Wessex Water
Services Limited (incorporated by reference to Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 (File
No. 333-74739))
10.2 L425,000,000 Supplemental Agreement, dated February 25,
2000, for Azurix Europe Ltd arranged by Chase Manhattan Plc
and Westdeutsche Landesbank Griozentrale
10.3 L73,000,000 Amended and Restated Credit Facility Agreement,
dated December 17, 1998, for Azurix Europe Ltd and Bristol
Water Trust (incorporated by reference to Exhibit 10.3 to
the Registrant's Registration Statement on Form S-1 (File
No. 333-74739))
10.4 Amended and Restated Trust Agreement of Atlantic Water
Trust, dated December 17, 1998 (incorporated by reference to
Exhibit 10.14 to the Registrant's Amendment No. 2 to
Registration Statement on Form S-1 (File No. 333-74739))
10.5 Trust Deed, dated March 30, 1999, among Wessex Water
Services Finance Plc, Wessex Water Services Limited and
Midland Bank Plc (incorporated by reference to Exhibit 10.15
to the Registrant's Amendment No. 2 to Registration
Statement on Form S-1 (File No. 333-74739))
10.6 Credit Agreement, dated May 1, 1999, between the Registrant
and Enron
10.7 First Amendment to Credit Agreement, dated January 4, 2000,
between the Registrant and Enron
10.8 Definitive Trust Deed and Rules of Wessex Water Executive
Pension Scheme, dated August 19, 1998 (incorporated by
reference to Exhibit 10.17 to the Registrant's Amendment No.
2 to Registration Statement on Form S-1 (File No.
333-74739))
10.9 Concession Contract dated June 30, 1999, between the
Executive Authorities of the Province of Buenos Aires and
Azurix Buenos Aires S.A. (incorporated by reference to
Exhibit 2 to the Registrant's Amendment No. 1 to Current
Report on Form 8-K/A dated June 30, 1999)
10.10 U.S.$394,000,000 Credit Agreement, dated as of June 24,
1999, among Azurix Buenos Aires S.A., as Borrower, and the
Initial Lenders named therein, as Initial Lenders, and
Westdentsche Landestand Girozentrale, as Agent (incorporated
by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999)
10.11 Cash Collateral Agreement, dated as of June 25, 1999, among
the Registrant, as Pledgor, and The Chase Manhattan Bank, as
Collateral Agent and Collateral Securities Intermediary and
the other parties named therein (incorporated by reference
to Exhibit 10.2 to the Registrant's Quarterly Report on From
10-Q for the quarter ended June 30, 1999)
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NUMBER: EXHIBIT
------- -------
<C> <S>
10.12 *Azurix Corp. 1999 Stock Plan, dated February 2, 1999
(incorporated by reference to Exhibit 10.4 to the
Registrant's Amendment No. 1 to Registration Statement on
Form S-1 (File No. 333-74739))
10.13 *First Amendment to Azurix Corp. 1999 Stock Plan, dated
October 11, 1999 (incorporated by reference to Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999)
10.14 *Second Amendment to Azurix Corp. 1999 Stock Plan, dated
December 13, 1999 (incorporated by reference to Exhibit 4.5
to the Registrant's Registration Statement on Form S-8 (File
No. 333-92709))
10.15 *Employment Agreement of Rebecca P. Mark, effective May 4,
1998, with Enron and First Amendment, effective February 1,
1999, with the Registrant and Enron (incorporated by
reference to Exhibit 10.9 to the Registrant's Amendment No.
1 to Registration Statement on Form S-1 (File No.
333-74739))
10.16 *Employment Agreement of Colin F. Skellett, dated February
24, 1995, and First Amendment, dated December 9, 1998, with
Wessex Water Plc (incorporated by reference to Exhibit 10.13
to the Registrant's Amendment No. 1 to Registration
Statement on Form S-1 (File No. 333-74739))
10.17 *Executive Employment Agreement of John L. Garrison, Jr.,
dated April 26, 1999, with the Registrant
10.18 *Employment Agreement of Amanda K. Martin, effective January
1, 1998, with the Registrant and Enron Capital & Trade
Resources Corp. and Second Amendment, dated March 15, 1999,
with the Registrant (incorporated by reference to Exhibit
10.11 to the Registrant's Amendment No. 1 to Registration
Statement on Form S-1 (File No. 333-74739))
10.19 *Executive Employment Agreement of John C. Ale, effective
December 10, 1998, with the Registrant
10.20 *Severance Agreement of Rodney L. Gray, effective November
30, 1999
10.21 *Severance Agreement of Alex Kulpecz, dated November 30,
1999
10.22 *Severance Agreement of Edward N. Robinson, dated February
15, 2000
10.23 Cost Sharing Agreement, effective January 1, 1999, between
the Registrant and Enron
10.24 Services Agreement, dated May 1, 1999, between the
Registrant and Enron
10.25 Non-Exclusive License Agreement, dated May 1, 1999, between
the Registrant and Enron
10.26 Business Opportunity Agreement, dated June 9, 1999, among
the Registrant, Atlantic Water Trust and Enron
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PricewaterhouseCoopers (independent accountants)
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.1
[EXECUTION COPY]
================================================================================
AZURIX CORP.
------------------
DOLLAR-DENOMINATED 10 3/8% SENIOR NOTES DUE 2007
STERLING-DENOMINATED 10 3/8% SENIOR NOTES DUE 2007
DOLLAR-DENOMINATED 10 3/4% SENIOR NOTES DUE 2010
------------------
INDENTURE
DATED AS OF FEBRUARY 18, 2000
------------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS TRUSTEE
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE ACT SECTION INDENTURE SECTION
- --------------------------- -----------------
<S> <C> <C>
310 (a)(1)...................................................................................................7.10
(a)(2)...................................................................................................7.10
(a)(3)...................................................................................................N.A.
(a)(4)...................................................................................................N.A.
(a)(5)...................................................................................................7.10
(b)................................................................................................7.08; 7.10
(c)......................................................................................................N.A.
311 (a)......................................................................................................7.11
(b)......................................................................................................7.11
(c)......................................................................................................N.A.
312 (a)......................................................................................................2.05
(b).....................................................................................................12.03
(c).....................................................................................................12.03
313 (a)......................................................................................................7.06
(b)(1)...................................................................................................N.A.
(b)(2)...................................................................................................7.06
(c)...............................................................................................7.06; 12.02
(d)......................................................................................................7.06
314 (a).........................................................................................4.03; 4.15; 12.02
(b)......................................................................................................N.A.
(c)(1)..................................................................................................12.04
(c)(2)..................................................................................................12.04
(c)(3)...................................................................................................N.A.
(d)......................................................................................................N.A.
(e).....................................................................................................12.05
(f)......................................................................................................N.A.
315 (a)......................................................................................................7.01
(b)...............................................................................................7.05, 12.02
(c)......................................................................................................7.01
(d)................................................................................................7.01; 6.05
(e)......................................................................................................6.11
316 (a) (last sentence)......................................................................................2.09
(a)(1)(A)................................................................................................6.05
(a)(1)(B)................................................................................................6.04
(a)(2)...................................................................................................N.A.
(b)......................................................................................................6.07
(c)......................................................................................................2.12
317 (a)(1)...................................................................................................6.08
(a)(2)...................................................................................................6.09
(b)......................................................................................................2.04
318 (a).....................................................................................................13.01
(b)......................................................................................................N.A.
(c).....................................................................................................13.01
</TABLE>
- ---------------------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01 Definitions..................................................................................2
SECTION 1.02 Other Definitions...........................................................................27
SECTION 1.03 Incorporation by Reference of Trust Indenture Act...........................................27
SECTION 1.04 Rules of Construction.......................................................................28
ARTICLE II
THE NOTES
SECTION 2.01 Form and Dating.............................................................................29
SECTION 2.02 Execution and Authentication................................................................31
SECTION 2.03 Registrar and Paying Agent..................................................................32
SECTION 2.04 Paying Agent to Hold Money in Trust.........................................................33
SECTION 2.05 Holder Lists................................................................................33
SECTION 2.06 Persons Deemed Owners.......................................................................33
SECTION 2.07 Transfer and Exchange.......................................................................34
SECTION 2.08 Replacement Notes...........................................................................47
SECTION 2.09 Outstanding Notes...........................................................................48
SECTION 2.10 Treasury Notes..............................................................................48
SECTION 2.11 Temporary Notes.............................................................................49
SECTION 2.12 Cancellation................................................................................49
SECTION 2.13 Defaulted Interest..........................................................................49
SECTION 2.14 CUSIP and ISIN Numbers; Common Code.........................................................50
SECTION 2.15 Substitution of Currency....................................................................50
ARTICLE III
REDEMPTION AND PREPAYMENT
SECTION 3.01 Notices to Trustee..........................................................................51
SECTION 3.02 Selection of Notes to Be Redeemed...........................................................51
SECTION 3.03 Notice of Redemption........................................................................51
SECTION 3.04 Effect of Notice of Redemption..............................................................52
SECTION 3.05 Deposit of Redemption Price.................................................................52
SECTION 3.06 Notes Redeemed in Part......................................................................53
SECTION 3.07 Optional Redemption.........................................................................53
SECTION 3.08 Mandatory Redemption........................................................................54
SECTION 3.09 Offer to Purchase by Application of Net Proceeds............................................55
SECTION 3.10 Notices Upon Partial Redemption or Repurchase of Sterling Notes.............................57
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE IV
COVENANTS
SECTION 4.01 Payment of Notes............................................................................57
SECTION 4.02 Maintenance of Office or Agency.............................................................58
SECTION 4.03 Compliance Certificate......................................................................58
SECTION 4.04 Payment of Taxes and Other Claims...........................................................59
SECTION 4.05 Stay, Extension and Usury Laws..............................................................59
SECTION 4.06 Change of Control...........................................................................59
SECTION 4.07 Limitations on Asset Sales..................................................................62
SECTION 4.08 Restricted Payments.........................................................................64
SECTION 4.09 Limitations on Debt.........................................................................65
SECTION 4.10 Limitations on Liens........................................................................68
SECTION 4.11 Dividend and Other Payment Restrictions Affecting Subsidiaries..............................69
SECTION 4.12 Transactions with Affiliates................................................................71
SECTION 4.13 Limitations on Issuances of Guarantees by Restricted Subsidiaries...........................72
SECTION 4.14 Limitations on Sale/Leaseback Transactions..................................................72
SECTION 4.15 Reports.....................................................................................73
SECTION 4.16 Limitation on Investment Company Status.....................................................74
SECTION 4.17 Corporate Existence.........................................................................75
SECTION 4.18 Maintenance of Properties; Insurance; Books and Records.....................................75
ARTICLE V
SUCCESSORS
SECTION 5.01 Merger, Consolidation, or Sale of Assets....................................................75
SECTION 5.02 Successor Entity Substituted................................................................76
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default...........................................................................77
SECTION 6.02 Acceleration................................................................................79
SECTION 6.03 Other Remedies..............................................................................80
SECTION 6.04 Waiver of Past Defaults.....................................................................80
SECTION 6.05 Control by Majority.........................................................................80
SECTION 6.06 Limitation on Suits.........................................................................80
SECTION 6.07 Rights of Holders of Notes to Receive Payment...............................................81
SECTION 6.08 Collection Suit by Trustee..................................................................81
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 6.09 Trustee May File Proofs of Claim............................................................81
SECTION 6.10 Priorities..................................................................................82
SECTION 6.11 Undertaking for Costs.......................................................................82
ARTICLE VII
TRUSTEE
SECTION 7.01 Duties of Trustee...........................................................................83
SECTION 7.02 Rights of Trustee...........................................................................84
SECTION 7.03 Individual Rights of Trustee................................................................85
SECTION 7.04 Trustee's Disclaimer........................................................................86
SECTION 7.05 Notice of Defaults..........................................................................86
SECTION 7.06 Reports by Trustee to Holders of the Notes..................................................86
SECTION 7.07 Compensation and Indemnity..................................................................86
SECTION 7.08 Replacement of Trustee......................................................................87
SECTION 7.09 Successor Trustee by Merger, etc............................................................88
SECTION 7.10 Eligibility; Disqualification...............................................................89
SECTION 7.11 Preferential Collection of Claims Against Company...........................................89
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01 Option to Effect Legal Defeasance or Covenant Defeasance....................................89
SECTION 8.02 Legal Defeasance and Discharge..............................................................89
SECTION 8.03 Covenant Defeasance.........................................................................90
SECTION 8.04 Conditions to Legal or Covenant Defeasance..................................................91
SECTION 8.05 Deposited Money and Government Securities to be Held in Trust; Other
Miscellaneous Provisions....................................................................93
SECTION 8.06 Repayment to Company........................................................................93
SECTION 8.07 Reinstatement...............................................................................94
ARTICLE IX
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 Without Consent of Holders of Notes.........................................................94
SECTION 9.02 With Consent of Holders of Notes............................................................95
SECTION 9.03 Compliance with Trust Indenture Act.........................................................97
SECTION 9.04 Revocation and Effect of Consents...........................................................97
SECTION 9.05 Notation on or Exchange of Notes............................................................97
SECTION 9.06 Trustee to Sign Amendments, etc.............................................................98
SECTION 9.07 Effect of Supplemental Indentures...........................................................98
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE X
SUBSIDIARY GUARANTEES
SECTION 10.01 Subsidiary Guarantees.......................................................................98
SECTION 10.02 Additional Amounts..........................................................................99
SECTION 10.03 Limitation of Subsidiary Guarantor's Liability.............................................101
SECTION 10.04 Execution and Delivery of Subsidiary Guarantees............................................102
SECTION 10.05 Subsidiary Guarantors May Consolidate, etc., on Certain Terms..............................102
SECTION 10.06 Releases of Subsidiary Guarantee...........................................................103
SECTION 10.07 "Trustee" to Include Paying Agent..........................................................104
SECTION 10.08 Addition of Subsidiary Guarantors..........................................................104
SECTION 10.09 Consent to Jurisdiction and Service of Process.............................................104
SECTION 10.10 Waiver of Immunity.........................................................................105
SECTION 10.11 Judgment Currency..........................................................................105
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01 Satisfaction and Discharge.................................................................106
SECTION 11.02 Application of Trust.......................................................................107
SECTION 11.03 Repayment to the Company...................................................................108
SECTION 11.04 Reinstatement..............................................................................108
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 Trust Indenture Act Controls...............................................................108
SECTION 12.02 Notices....................................................................................108
SECTION 12.03 Communication by Holders of Notes with Other Holders of Notes..............................110
SECTION 12.04 Certificate and Opinion as to Conditions Precedent.........................................110
SECTION 12.05 Statements Required in Certificate or Opinion..............................................111
SECTION 12.06 Rules by Trustee and Agents................................................................111
SECTION 12.07 No Personal Liability of Directors, Officers, Partners, Employees,
Incorporators, Stockholders and Members....................................................112
SECTION 12.08 Governing Law..............................................................................112
SECTION 12.09 No Adverse Interpretation of Other Agreements..............................................112
SECTION 12.10 Successors.................................................................................112
SECTION 12.11 Severability...............................................................................112
SECTION 12.12 Counterpart Originals......................................................................112
SECTION 12.13 Table of Contents, Headings, etc...........................................................112
</TABLE>
iv
<PAGE> 7
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A FORM OF 7-YEAR DOLLAR NOTE ...................................................................A-1
Exhibit B FORM OF 7-YEAR STERLING NOTE..................................................................B-1
Exhibit C FORM OF 10-YEAR DOLLAR NOTE ..................................................................C-1
Exhibit D FORM OF CERTIFICATE OF TRANSFER ..............................................................D-1
Exhibit E FORM OF CERTIFICATE OF EXCHANGE...............................................................E-1
Exhibit F FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR ..........................................................................F-1
Exhibit G FORM OF SUBSIDIARY GUARANTEE NOTATION ........................................................G-1
Exhibit H FORM OF SUPPLEMENTAL INDENTURE................................................................H-1
</TABLE>
v
<PAGE> 8
INDENTURE dated as of February 18, 2000 between AZURIX CORP., a
Delaware corporation (the "Company"), and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking association, as trustee (the "Trustee").
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its dollar-denominated 10 3/8% Senior
Notes due 2007 (the "7-Year Dollar Notes"), its sterling-denominated 10 3/8%
Senior Notes due 2007 (the "7-Year Sterling Notes" or "Sterling Notes") and its
dollar-denominated 10 3/4% Senior Notes due 2010 (the "10-Year Dollar Notes"),
to be issued as provided for in this Indenture.
On the date of this Indenture, the Company is issuing $240 million
aggregate principal amount of 7-Year Dollar Notes, (pound)100 million aggregate
principal amount of its Sterling Notes and $200 million aggregate principal
amount of its 10-Year Dollar Notes. This Indenture provides for the issuance
thereafter of Subsequent Notes (as defined herein), subject to the terms,
covenants and conditions set forth herein.
The 7-Year Dollar Notes and the 10-Year Dollar Notes are referred to
herein as the "Dollar Notes." The Sterling Notes and the Dollar Notes are
referred to collectively as the "Notes." The Notes may consist of any or all of
the Global Notes issued on the date of this Indenture (the "Initial Notes"),
Definitive Registered Notes (as defined herein), Subsequent Notes or Exchange
Notes (as defined herein).
All things necessary to make this Indenture a valid agreement of the
Company, enforceable against the Company in accordance with its terms, have been
done, and the Company has done all things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee hereunder
and duly issued by the Company, the valid obligations of the Company as
hereinafter provided.
From and after the first to occur of the effectiveness of the
Exchange Offer Registration Statement (as defined herein) or the Shelf
Registration Statement (as defined herein), this Indenture will be subject to,
and shall be governed by, the provisions of the Trust Indenture Act of 1939, as
amended, that are required to be a part of and to govern indentures qualified
under the Trust Indenture Act of 1939, as amended.
The parties hereto agree as follows for the benefit of each other and
for the equal and ratable benefit of the Holders (as defined below) of the
Notes:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<PAGE> 9
SECTION 1.01 Definitions.
"Acquisition Debt" means Debt of any Person existing at the time such
Person became a Restricted Subsidiary -- or such Person is merged into the
Company or one of its Restricted Subsidiaries -- or assumed in connection with
the acquisition of assets from any such Person, other than assets acquired in
the ordinary course of business, including Debt Incurred in connection with, or
in contemplation of, such Person becoming a Restricted Subsidiary -- but
excluding Debt of such Person which is extinguished, retired or repaid in
connection with such Person becoming a Restricted Subsidiary.
"Adjusted Consolidated Net Income" means for any period, for the
Company, the aggregate Net Income of the Company and its Restricted Subsidiaries
for such period determined on a consolidated basis in conformity with GAAP;
provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income without duplication:
(1) the Net Income of any Unrestricted Subsidiary, or any
other Person, other than a Restricted Subsidiary, in which any third Person has
a joint interest, except to the extent of the amount of dividends or other
distributions actually paid in cash to the Company or any of its Restricted
Subsidiaries during such period by such Unrestricted Subsidiary or other Person
which dividends and distributions shall be included in such computation;
(2) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to Sections 4.08(c)(i) and (ii) --
and in such case, except to the extent includable pursuant to clause (1) above
- -- Net Income, if positive, of a Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with the Company or any
of its Restricted Subsidiaries or all or substantially all of the Properties of
such Person are acquired by the Company or any of its Restricted Subsidiaries;
(3) any gains or losses on an after-tax basis attributable to
the sale or other disposition of assets (including the sale or disposition of
the Capital Stock of any Person) which are not sold or disposed of in the
ordinary course of business; and
(4) the cumulative effect of a change in accounting
principles.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control," including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with," when used with respect to any Person means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise. For purposes of Section 4.12 only,
"Affiliate" shall also mean any beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act) of Capital Stock representing 10% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of the Company
or of rights or
2
<PAGE> 10
warrants to purchase such Capital Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Agent" means any Registrar or Paying Agent.
"Applicable Procedures" means, with respect to any transfer, exchange
or other transaction of or for beneficial interests in any Global Note, the
rules and procedures of DTC with respect to the Dollar Global Notes and the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" of Euroclear and, at such time as Clearstream may
act as a Sterling Book-Entry Depositary with respect to the Sterling Global
Notes, "General Terms and Conditions of Clearstream" and "Customer Handbook" of
Clearstream with respect to the Sterling Global Notes, in each case, to the
extent applicable to such transaction and as in effect at the time of such
transaction.
"Asset Acquisition" means:
(1) an investment by the Company or any of its Subsidiaries in
any other Person pursuant to which such Person shall become a Subsidiary of the
Company or any of its Subsidiaries or shall be merged into or consolidated with
the Company or any of its Subsidiaries or
(2) an acquisition by the Company or any of its Subsidiaries
of the Property of any Person other than the Company or any of its Subsidiaries
that constitutes substantially all of an operating unit or business of such
Person.
"Asset Disposition" means the sale or other disposition by the Company
or any of its Subsidiaries, other than to the Company or another Subsidiary of
the Company, of (1) all or substantially all of the Capital Stock of any
Subsidiary of the Company or (2) all or substantially all of the Property that
constitutes an operating unit or business of the Company or any of its
Subsidiaries.
"Asset Sale" means:
(1) the sale, lease, conveyance or transfer (which has the
effect of a disposition and is not for the purpose of creating a Lien),
including, without limitation, by way of merger, consolidation or combination,
of any assets or rights, other than leases of assets or sales of inventory in
the ordinary course of business; provided, however, that the transfer of all or
substantially all of the assets of the Company, in one transaction or a series
of related transactions, shall be governed by Section 4.06 and/or Section 5.01
and not by Section 4.07; and
(2) the issuance of Capital Stock by any of the Restricted
Subsidiaries or the sale by the Company or any Restricted Subsidiary including,
without limitation, by way of merger, consolidation or combination, of Capital
Stock in any of its Subsidiaries; provided, however, that any such sale that
constitutes the transfer of all or substantially all of the assets of the
Company, in
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one transaction or a series of related transactions, will be governed by the
provisions of the indenture described in the proviso to the preceding clause
(1).
Notwithstanding the preceding, the following items shall not be deemed
to be Asset Sales:
(1) a transfer of cash or cash equivalents;
(2) any single transaction or series of related transactions
that: (a) involves assets having a fair market value of less than or equal to
$10 million; or (b) results in net proceeds to the Company and its Restricted
Subsidiaries of less than or equal to $10 million;
(3) a transfer of assets between or among the Company and its
Restricted Subsidiaries;
(4) an issuance of Capital Stock by a Restricted Subsidiary to
the Company or to another Restricted Subsidiary; and
(5) any exchange by the Company or any Restricted Subsidiary
of any assets for similar assets used or useful in any Permitted Business held
by another Person; provided that the fair market value of the assets exchanged
by the Company or such Restricted Subsidiary is reasonably equivalent to the
fair market value of the assets to be received by the Company or such Restricted
Subsidiary.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
as of the time of determination, the present value discounted at the interest
rate assumed in making calculations in accordance with GAAP of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction, including any period for
which such lease has been extended.
"Attributable Value" means, as to a Capitalized Lease Obligation under
which any Person is at the time liable and at any date as of which the amount
thereof is to be determined, the capitalized amount thereof that would appear on
the face of a balance sheet of such Person in accordance with GAAP.
"Average Life" means, at any date of determination with respect to any
Debt security or Preferred Stock, the quotient obtained by dividing (1) the sum
of the product of (A) the number of years from such date of determination to the
dates of each successive scheduled principal or involuntary liquidation value
payment of such Debt security or Preferred Stock, respectively, multiplied by
(B) the amount of such principal or involuntary liquidation value payment by (2)
the sum of all such principal or involuntary liquidation value payments.
"Azurix Europe" means Azurix Europe Limited, a company incorporated in
England and Wales and a wholly owned subsidiary of the Company, and its
successors.
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"Azurix Europe Credit Facility" means the revolving credit facility,
dated as of May 10, 1999, among Azurix Europe and Chase Manhattan Plc and
Westdeutsche Landesbank Girozentrale, as arrangers, Westdeutsche Landesbank
Girozentrale, as facility agent, and Chase Manhattan Trustees Limited, as
security agent, as the same may be amended, modified, supplemented, extended,
restated, replaced, renewed or refinanced from time to time.
"Bankruptcy Law" means (i) Title 11 of the US Code, (ii) the Insolvency
Act 1986 or (iii) any other law of the United States, the United Kingdom, any
political subdivision thereof or any other jurisdiction relating to bankruptcy,
insolvency, winding up, liquidation, reorganization or relief of debtors.
"Board of Directors" means either the board of directors of the Company
or any committee of such board duly authorized to act on behalf of such board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant or Deputy Secretary of the Company to have been duly
adopted by the Board of Directors of the Company, and to be in full force and
effect on the date of such certification.
"Book-Entry Interest" means a Dollar Book-Entry Interest and a Sterling
Book Entry Interest.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement in relation to the Notes originally issued on the Issue Date.
"Business Day" means a day which in the city, or in any of the cities,
if more than one, where amounts are payable in respect of the Notes is neither a
Legal Holiday nor a day on which banking institutions are authorized or required
by law or regulation to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents however designated, whether
voting or non-voting, of, or interests in, the equity of such Person which are
outstanding or issued on or after the date of this Indenture, including, without
limitation, all Common Stock and Preferred Stock and partnership and joint
venture interests of such Person.
"Capitalized Lease" means, as applied to any Person, any lease of any
Property of which the discounted present value of the rental obligations of such
Person as lessee, in conformity with GAAP, is required to be capitalized on the
balance sheet of such Person.
"Capitalized Lease Obligation" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Debt represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
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<PAGE> 13
"Change of Control" means the occurrence of one or more of the
following events:
(1) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act, other than one or more Permitted Holders, is or
becomes the "beneficial owner," as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time,
directly or indirectly, of more than 50% of the total voting power of the Voting
Stock of the Company;
(2) there shall be consummated any consolidation or merger of
the Company in which the Company is not the continuing or surviving Person or
pursuant to which the Common Stock of the Company would be converted into cash,
securities or other property, other than a merger or consolidation of the
Company with or into a Permitted Holder or in which the holders of the Capital
Stock of the Company outstanding immediately prior to the consolidation or
merger hold, directly or indirectly, at least a majority of the Capital Stock of
the surviving Person immediately after such consolidation or merger;
(3) during any two-year period, individuals who at the
beginning of such period constituted the Board of Directors -- together with any
new directors elected by such Board of Directors or nominated for election by
the stockholders of the Company by a vote of at least a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved -- cease for any reason to constitute a majority of the
Board of Directors then in office; or
(4) the approval by the holders of Capital Stock of the
Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with this Indenture).
"Clearstream" means Clearstream Banking and its successors and assigns.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations thereunder.
"Commission" or "SEC" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to such term under the TIA, then the body
performing such duties at such time.
"Common Depositary" means The Chase Manhattan Bank, London branch, and
its successors and assigns, in its capacity as common depositary of the Sterling
Global Notes on behalf of the Sterling Depositaries.
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<PAGE> 14
"Common Stock" means with respect to any Person, Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Company" means Azurix Corp., a corporation incorporated under the laws
of Delaware, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Consolidated EBITDA" of the Company for any period means Adjusted
Consolidated Net Income plus:
(1) income taxes, excluding income taxes -- either positive or
negative -- attributable to extraordinary and non-recurring gains or losses but
including state franchise taxes accounted for as income taxes in accordance with
GAAP, all determined on a consolidated basis for the Company and its Restricted
Subsidiaries in accordance with GAAP,
(2) Consolidated Interest Expense,
(3) depreciation and amortization expense, all determined on a
consolidated basis for the Company and its Restricted Subsidiaries in accordance
with GAAP, and
(4) all other non-cash items reducing Adjusted Consolidated
Net Income (except accruals for or reserves against future cash expenses) for
such period, all determined on a consolidated basis for the Company and its
Restricted Subsidiaries in accordance with GAAP,
minus all non-cash items increasing Adjusted Consolidated Net Income during such
period; provided, however, that income tax expense, depreciation and
amortization expense and any other non-cash item of any Restricted Subsidiary
shall be included in computing Consolidated EBITDA only to the extent (and in
the same proportion) that the Net Income of the Restricted Subsidiary was
included in Adjusted Consolidated Net Income.
"Consolidated Fixed Charges" means, for any period, the aggregate of:
(1) Consolidated Interest Expense,
(2) to the extent not included in clause (1), the interest
component of Capitalized Leases, determined on a consolidated basis for the
Company and its Restricted Subsidiaries in accordance with GAAP and
(3) cash dividends due whether or not declared on the
Preferred Stock of any Restricted Subsidiary and any Redeemable Stock of the
Company.
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<PAGE> 15
"Consolidated Interest Expense" of the Company means, for any period,
(A) the sum of (x) aggregate interest expense in respect of Debt of the Company
and its Restricted Subsidiaries determined on a consolidated basis in accordance
with GAAP, including, without limitation, amortization of original issue
discount and non-cash interest payments or accruals, imputed interest related to
Sale/Leaseback Transactions, and all commissions, discounts, other fees and
charges owed with respect to letters of credit and bankers' acceptance
financings and net costs associated with Interest Rate Protection Agreements,
(y) to the extent not included in clause (x) or clause (2) of the definition of
Consolidated Fixed Charges, any amounts paid during such period in respect of
such interest expense, commissions, discounts, other fees and charges that have
been capitalized, and (z) any interest expense on Debt of another Person that is
Guaranteed by the Company or one of its Restricted Subsidiaries or secured by a
Lien on assets of the Company or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon), provided that Consolidated Interest
Expense in respect of a Guarantee by the Company or any of its Restricted
Subsidiaries of Debt of another Person shall be equal to the commissions,
discounts, other fees and charges that would be due with respect to a
hypothetical letter of credit issued under a bank credit agreement that can be
drawn by the beneficiary thereof in the amount of the Debt so Guaranteed if (i)
neither the Company nor any Restricted Subsidiary is actually making directly or
indirectly interest payments on such Debt and (ii) GAAP does not require the
Company on an unconsolidated basis to record such Debt as a liability of the
Company, less (B) the interest income of the Company and its Restricted
Subsidiaries determined on a consolidated basis in accordance with GAAP to the
extent such income is attributable to cash or cash equivalents that are subject
to a Lien securing Debt of the Company or any Restricted Subsidiary.
"Consolidated Total Assets" of the Company means, as of any date the
aggregate of total assets of the Company and its Restricted Subsidiaries as
would be shown on a consolidated balance sheet of the Company and its Restricted
Subsidiaries prepared as of such date in accordance with GAAP.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Currency Protection Agreement" means with respect to any Person any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such Person or any of its Subsidiaries against
fluctuations in currency values to or under which such Person or any of its
Subsidiaries is a party or a beneficiary on the date of this Indenture or
becomes a party or a beneficiary thereafter.
"Debt" means, with respect to any Person at any date of determination
without duplication:
(1) all indebtedness of such Person for borrowed money,
(2) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
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<PAGE> 16
(3) all obligations of such Person in respect of letters of
credit or bankers' acceptances or other similar instruments or reimbursement
obligations with respect thereto, other than standby and documentary letters of
credit, bankers' acceptances and performance or surety bonds issued in the
ordinary course of business and not in support of indebtedness for borrowed
money, to the extent not drawn,
(4) all obligations of such Person to pay the deferred
purchase price of property or services, except Trade Payables,
(5) the Attributable Value of all obligations of such Person
as lessee under Capitalized Leases,
(6) all Debt of others secured by a Lien on any asset of such
Person, whether or not such Debt is assumed by such Person; provided that, for
purposes of determining the amount of any Debt of the type described in this
clause, if recourse with respect to such Debt is limited to such asset, the
amount of such Debt shall be limited to the lesser of the fair market value of
such asset or the amount of such Debt,
(7) all Debt of others Guaranteed by such Person to the extent
such Debt is Guaranteed by such Person,
(8) all Redeemable Stock valued at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends and
(9) to the extent not otherwise included in this definition,
all obligations of such Person under Currency Protection Agreements and Interest
Rate Protection Agreements.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Registered Note" means any Note issued in accordance with
Section 2.07(c) or (e), not bearing the Global Note Legend, substantially in the
form of (i) Exhibit A attached hereto with respect to the 7-Year Dollar Notes,
(ii) Exhibit B attached hereto with respect to the 7-Year Sterling Notes and
(iii) Exhibit C attached hereto with respect to the 10-Year Dollar Notes.
"Depositary" means each of the Dollar Depositary and the Sterling
Depositaries.
"Dollar Book-Entry Interest" means an indirect beneficial interest in a
Dollar Global Note held on, and transferred only through, records maintained in
book-entry form by a Dollar Depositary.
"Dollar Definitive Registered Notes" means the Dollar Restricted
Definitive Registered Notes and the Dollar Unrestricted Definitive Registered
Notes.
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<PAGE> 17
"Dollar Depositary" means DTC or any successor depositary with respect
to the Dollar Notes.
"Dollar Global Notes" means the Dollar U.S. Global Notes, the Dollar
International Global Notes and, if applicable, the Dollar Unrestricted Global
Notes.
"Dollar International Global Notes" means one or more Global Notes
bearing the Global Note Legend and the Restricted Note Legend in registered form
without coupons that shall be issued on the Issue Date (or, in the case of any
Subsequent Notes, thereafter) in an original principal amount equal to the
aggregate principal amount of the Dollar Notes of the applicable series sold in
reliance on Regulation S and deposited with the Dollar Depositary.
"Dollar Notes" means the 7-Year Dollar Notes and the 10-Year Dollar
Notes.
"Dollar Restricted Definitive Registered Note" means a Definitive
Registered Note bearing the Restricted Note Legend issued in registered form
without coupons in a principal amount of $1,000 or integral multiples thereof.
"Dollar Restricted Global Notes" means the Dollar U.S. Global Notes and
the Dollar International Global Notes.
"Dollar U.S. Global Notes" means one or more Global Notes bearing the
Global Note Legend and the Restricted Note Legend in registered form without
coupons that shall be issued on the Issue Date (or, in the case of any
Subsequent Notes, thereafter), in an original principal amount equal to the
aggregate principal amount of the Dollar Notes of the applicable series sold in
reliance on Rule 144A or another applicable exemption (other than Regulation S)
and deposited with the Dollar Depositary.
"Dollar Unrestricted Definitive Registered Note" means a Dollar
Definitive Registered Note not bearing the Restricted Note Legend issued in
registered form without coupons in a principal amount of $1,000 or integral
multiples thereof.
"Dollar Unrestricted Global Notes" means one or more Global Notes not
bearing the Restricted Note Legend issued in registered form without coupons in
a principal amount of $1,000 or integral multiples thereof, and deposited with
the Dollar Depositary.
"Dollar Unrestricted Notes" means the Dollar Unrestricted Definitive
Registered Notes and the Dollar Unrestricted Global Notes.
"DTC" means The Depository Trust Company.
"Enron" means Enron Corp., an Oregon corporation, and its successors.
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<PAGE> 18
"Euro" means the single currency of participating member states of the
European Economic and Monetary Union.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system, and its successors and assigns.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"Exchange Notes" means any Notes issued pursuant to an Exchange Offer,
including any such Notes issued in exchange for any Subsequent Notes.
"Exchange Offer" has the meaning set forth in the initial Registration
Rights Agreement in relation to the Initial Notes and has a correlative meaning
in relation to any Subsequent Notes.
"Exchange Offer Registration Statement" has the meaning set forth in
the initial Registration Rights Agreement in relation to the Initial Notes and
has a correlative meaning in relation to any Subsequent Notes.
"Fixed Charge Ratio" means the ratio, on a pro forma basis, of (1) the
aggregate amount of Consolidated EBITDA for the Reference Period immediately
prior to the date of the transaction giving rise to the need to calculate the
Fixed Charge Ratio (the "Transaction Date") to (2) the aggregate Consolidated
Fixed Charges during such Reference Period; provided that for purposes of such
computation, in calculating Consolidated EBITDA and Consolidated Fixed Charges:
(A) the Incurrence of the Debt giving rise to the
need to calculate the Fixed Charge Ratio and the application of the
proceeds therefrom shall be assumed to have occurred on the first day
of the Reference Period,
(B) Asset Dispositions and Asset Acquisitions which
occur during the Reference Period or subsequent to the Reference Period
and prior to the Transaction Date -- but including any Asset
Acquisition to be made with the Debt Incurred pursuant to (1) above --
shall be assumed to have occurred on the first day of the Reference
Period,
(C) the Incurrence of any Debt during the Reference
Period or subsequent to the Reference Period and prior to the
Transaction Date and the application of the proceeds therefrom shall be
assumed to have occurred on the first day of such Reference Period,
(D) Consolidated Interest Expense attributable to any
Debt, whether existing or being Incurred, computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for
the entire period unless the Company or any of its Restricted
Subsidiaries is a party to an Interest Rate Protection Agreement, which
shall remain in effect for the twelve month
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<PAGE> 19
period after the Transaction Date, which has the effect of fixing the
interest rate on the date of computation, in which case such rate
whether higher or lower shall be used, and
(E) there shall be excluded from Consolidated Fixed
Charges any Consolidated Fixed Charges related to any amount of Debt
which was outstanding during or subsequent to the Reference Period but
is not outstanding on the Transaction Date, except for Consolidated
Fixed Charges actually incurred with respect to Debt borrowed, as
adjusted pursuant to clause (D), (x) under a revolving credit or
similar arrangement to the extent the commitment thereunder remains in
effect on the Transaction Date or (y) pursuant to Section 4.09(b)(i).
For the purpose of making this computation, Asset Dispositions and Asset
Acquisitions which have been made by any Person which has become a Restricted
Subsidiary or been merged with or into the Company or any Restricted Subsidiary
during the Reference Period, or subsequent to the Reference Period and prior to
the Transaction Date, shall be calculated on a pro forma basis, including all of
the calculations referred to in clauses (A) through (E) above assuming such
Asset Dispositions or Asset Acquisitions occurred on the first day of the
Reference Period.
"Foreign Asset Sale" means an Asset Sale in respect of the Capital
Stock or assets of a Foreign Subsidiary or a Foreign Joint Venture to the extent
that the proceeds of such Asset Sale are received by a Person subject in respect
of such proceeds to the tax laws of a jurisdiction other than the United States
of America or any State thereof or the District of Columbia.
"Foreign Joint Venture" means a Joint Venture organized under the laws
of a jurisdiction other than the United States of America or a State thereof or
the District of Columbia with significant operations or assets outside the
United States of America or a State thereof or the District of Columbia.
"Foreign Sale/Leaseback Transaction" means a Sale/Leaseback Transaction
in respect of the Capital Stock or assets of a Foreign Subsidiary or a Foreign
Joint Venture to the extent that the proceeds of such Sale/Leaseback Transaction
are received by a Person subject in respect of such proceeds to the tax laws of
a jurisdiction other than the United States of America or any State thereof or
the District of Columbia.
"Foreign Subsidiary" means a Subsidiary that is organized under the
laws of a jurisdiction other than the United States of America or a State
thereof or the District of Columbia with significant operations or assets
outside the United States of America or a State thereof or the District of
Columbia.
"GAAP" means generally accepted accounting principles in the United
States applied on a basis consistent with the principles, methods, procedures
and practices employed in the preparation of the Company's audited financial
statements, including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting
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<PAGE> 20
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession.
"Gilt Rate" means the yield to maturity at the time of computation of
United Kingdom government securities with a constant maturity as compiled by the
Office for National Statistics and published in the most recent financial
statistics that have become publicly available at least two business days in
London prior to the date fixed for redemption, most nearly equal to then
remaining years to the Stated Maturity of the Sterling Notes; provided that if
the number of years to the Stated Maturity of the Sterling Notes is not equal to
the constant maturity of a United Kingdom government security for which a weekly
average yield is given, the Gilt Rate shall be obtained by linear interpolation,
calculated to the nearest one-twelfth of a year, from the weekly average yields
of United Kingdom government securities for which such yields are given except
that if the number of years to the Stated Maturity of the Sterling Notes is less
than one year, the weekly average yield on actually traded United Kingdom
government securities adjusted to a constant maturity of one year shall be used.
"Global Notes" means, in relation to the Notes issued on the Issue Date
and in relation to any issue of Subsequent Notes, one or more registered
definitive global securities without coupons, substantially in the form of (i)
Exhibit A attached hereto with respect to the 7-Year Dollar Notes, (ii) Exhibit
B attached hereto with respect to the 7-Year Sterling Notes or (iii) Exhibit C
attached hereto with respect to the 10-Year Dollar Notes, in each case bearing
the Global Note Legend, which global securities shall represent all of such
Notes outstanding of the applicable series at any time unless or until
Definitive Registered Notes of such series are issued in respect of all or any
Notes of such series, in which case the Global Notes at any time shall represent
all those Notes of the applicable series which are not at such time evidenced by
Definitive Registered Notes.
"Global Note Legend" means any of the legends identifying any Global
Note as such initially set forth on the forms of Notes attached hereto as
Exhibits A, B and C, respectively.
"Government Securities" means, collectively, the U.S. Government
Obligations and the U.K. Government Obligations.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay or advance or supply funds for the
purchase or payment of such Debt or other obligation of such other Person,
whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, or to take-or-pay,
or to maintain financial statement conditions or otherwise, or
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<PAGE> 21
(2) entered into for purposes of assuring in any other manner
the obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Incur" means with respect to any Debt, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Debt; provided
that neither the accrual of interest, whether such interest is payable in cash
or kind, nor the accretion of original issue discount shall be considered an
Incurrence of Debt.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a Book-Entry Interest
through a Participant.
"Initial Notes" has the meaning set forth in the Preamble to this
Indenture.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation, Donaldson, Lufkin & Jenrette International, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Merrill Lynch International, Chase Securities Inc.,
Chase Manhattan International Limited, Credit Suisse First Boston Corporation
and Credit Suisse First Boston (Europe) Limited.
"Interest Rate Protection Agreement" means, with respect to any Person,
any interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement designed to protect such Person or any of
its Subsidiaries against fluctuations in interest rates to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of
this Indenture or becomes a party or a beneficiary thereafter.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"International Global Notes" means the Dollar International Global
Notes and the Sterling International Global Notes.
"Issue Date" means the first date on which the Notes are issued under
this Indenture.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate
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<PAGE> 22
form, such corporation shall not, as to any Person of which such corporation is
a Subsidiary, be considered to be a Joint Venture to which such Person is a
party.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, New York, USA or London, United Kingdom or
at a place of payment are authorized by law, regulation or executive order to
remain closed. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"Legends" means the Restricted Note Legend and the Global Note Legend.
"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property; provided, however, that the term "Lien" shall not mean any easements,
rights-of-way, restrictions and other similar encumbrances and encumbrances
consisting of zoning restrictions, leases, subleases, licenses, sublicenses,
restrictions on the use of property or defects in the title thereto. For
purposes of this Indenture, the Company shall be deemed to own subject to a Lien
any Property which it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, Capitalized Lease or other title
retention agreement relating to such Property.
"Liquidated Damages" means all liquidated damages then owing to any
Holders pursuant to a Registration Rights Agreement.
"Net Cash Proceeds" from a Sale/Leaseback Transaction means cash
payments received -- including any cash payments received by way of a payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, including any cash received upon sale or disposition of such
note or receivable, excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property disposed of in such Sale/Leaseback Transaction, as the case may be, or
received in any other noncash form -- therefrom, in each case, net of all legal,
title and recording tax expenses, commissions and other fees and expenses
incurred or payable, and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability under GAAP:
(1) as a consequence of such Sale/Leaseback Transaction,
(2) as a result of the repayment of any Debt in any
jurisdiction other than the jurisdiction where the Property disposed of was
located or
(3) as a result of any repatriation to the United States of
any proceeds of such Sale/Leaseback Transaction, as the case may be,
and in each case net of a reasonable reserve for the after-tax cost of any
indemnification payments, whether fixed or contingent, attributable to seller's
indemnities to the purchaser undertaken by the Company or any of its Restricted
Subsidiaries in connection with such Sale/Leaseback Transaction,
15
<PAGE> 23
as the case may be, but excluding any payments, which by the terms of the
indemnities shall not, under any circumstances, be made prior to the latest
Stated Maturity of the outstanding Notes, and net of all payments made on any
Debt which is secured by such Property, in accordance with the terms of any Lien
upon or with respect to such Property or which must by its terms or by
applicable law be repaid out of the proceeds from such Sale/Leaseback
Transaction, as the case may be, and net of all distributions and other payments
made to holders of minority interests in Restricted Subsidiaries or Joint
Ventures as a result of such Sale/Leaseback Transaction, as the case may be.
"Net Income" of any Person for any period means the net income (loss)
of such Person for such period, determined in accordance with GAAP, except that
both extraordinary gains and losses and non-recurring gains and losses shall be
excluded.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, including all federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP as a result of any
repatriation to the United States of any proceeds of such Asset Sale, as the
case may be, and in each case net of a reasonable reserve for the after-tax cost
of any indemnification payments, whether fixed or contingent, attributable to
seller's indemnities to the purchaser undertaken by the Company or any of its
Restricted Subsidiaries in connection with such Asset Sale, as the case may be,
but excluding any payments, which by the terms of the indemnities shall not,
under any circumstances, be made prior to the latest Stated Maturity of the
outstanding Notes, and net of all payments made on any Debt which is secured by
any Property included in such Asset Sale, in accordance with the terms of any
Lien upon or with respect to such Property or which must by its terms or by
applicable law be repaid out of the proceeds from such Asset Sale, as the case
may be, and net of all distributions and other payments made to holders of
minority interests in Restricted Subsidiaries or Joint Ventures as a result of
such Asset Sale, as the case may be, in each case after taking into account any
available tax credits or deductions and any tax sharing arrangements.
"Non-Recourse" to a Person as applied to any Debt or portion thereof
means that such Person is not, directly or indirectly, liable to make any
payments with respect to such Debt or portion thereof, that no Guarantee of such
Debt or portion thereof has been made by such Person other than a Guarantee
limited in recourse to the Capital Stock of the Person incurring such Debt -- or
any shareholder, partner, member or participant of such Person -- and that such
Debt or portion thereof is not secured by a Lien on any asset of such Person
other than the Capital Stock of the Person incurring such Debt -- or any
shareholder, partner, member or participant of such Person -- or of the Person
whose obligations were Guaranteed, provided that for purposes of this definition
the status of a Subsidiary as a general partner of a partnership or Joint
Venture shall not, without more, cause such Person to be, directly or
indirectly, liable to make payments with respect to such Debt or constitute a
Guarantee of such Debt for purposes of determining whether Debt is Non-Recourse.
16
<PAGE> 24
"Non-U.S. Person" means a person who is not a "U.S. Person" as defined
in Regulation S under the Securities Act.
"Notes" has the meaning assigned to such term in the preamble to this
Indenture.
"Obligations" means any principal, premium, interest, Liquidated
Damages, penalties, fees, indemnifications, reimbursement obligations, damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Offering" means the offering of the Initial Notes by the Company
pursuant to the Offering Memorandum.
"Offering Memorandum" means the offering memorandum, dated February 11,
2000, of the Company relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of the Board,
any Vice Chairman, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, the Chief Accounting Officer,
the Managing Director--Finance, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President or Executive Director of such
Person.
"Officers' Certificate" means a certificate signed by
(1) the Chairman of the Board of Directors or any Vice
Chairman, any Executive Director, the Managing Director--Finance or the
Treasurer of the Company or any other officer designated as either the
"principal financial officer" or the "principal accounting officer" in the most
recent periodic report filed by the Company pursuant to Section 13 of the
Exchange Act or any other financial officer or accounting officer of the Company
that the Board of Directors may designate for purposes of signing such
certificate, and
(2) the Secretary or any Deputy or Assistant Secretary of the
Company and delivered to the Trustee.
Each such certificate shall comply with Section 314 of the TIA and
include the statements provided for in Section 12.05 of this Indenture if and to
the extent required thereby.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel satisfactory to the Trustee, who may be an employee of or counsel to the
Company. Each such opinion shall comply with Section 314 of the TIA and include
the statements provided for in Section 12.05 of this Indenture, if and to the
extent required thereby.
"Participant" means, with respect to DTC, Euroclear or Clearstream, a
Person who has an account with DTC, Euroclear or Clearstream, respectively (and,
with respect to DTC, shall include Euroclear and Clearstream acting through
their agents).
17
<PAGE> 25
"Permitted Business" means any business of the Company and its
Restricted Subsidiaries conducted on the Issue Date, or proposed to be conducted
as described in the Offering Memorandum, and any business related, ancillary or
complementary thereto.
"Permitted Holders" means (1) Enron, and any Affiliate of Enron that is
controlled by, or under common control with, Enron, and (2) Atlantic Water
Trust, a Delaware business trust, and its successors and assigns, but only so
long as Enron is the beneficial owner, as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, of at least 50% of the Voting Stock of the successors and
assigns of Atlantic Water Trust.
"Permitted Payments" means with respect to the Company or any of its
Restricted Subsidiaries:
(1) any dividend on shares of Capital Stock paid solely in
shares of Capital Stock, other than Redeemable Stock, or in options, warrants or
other rights to purchase Capital Stock, other than Redeemable Stock;
(2) any dividend or other distribution payable to the Company
by any of its Restricted Subsidiaries or by a Restricted Subsidiary to another
Restricted Subsidiary or by a Restricted Subsidiary to the holders of its
Capital Stock on a pro rata basis;
(3) the purchase, redemption or other acquisition or
retirement for value of any shares of Capital Stock of the Company or any
Restricted Subsidiary, or any option, warrant or other right to purchase shares
of Capital Stock of the Company or any Restricted Subsidiary, with additional
shares of, or out of the proceeds of a substantially contemporaneous issuance
of, Capital Stock other than Redeemable Stock, unless the redemption provisions
of such Redeemable Stock prohibit the redemption thereof prior to the date on
which the Capital Stock to be acquired or retired was by its terms required to
be redeemed; and
(4) any defeasance, redemption, repurchase or other
acquisition or retirement for value of any Debt which by its terms ranks
subordinate in right of payment to the Notes with the proceeds from the issuance
of:
(A) Debt which is also subordinate to the Notes at
least to the extent and in the manner as the Debt to be defeased,
redeemed, repurchased or otherwise acquired or retired is subordinate
in right of payment to the Notes; provided that such subordinated Debt
provides for no payments of principal by way of sinking fund, mandatory
redemption or otherwise including defeasance by the Company --
including, without limitation, at the option of the holder thereof
other than an option given to a holder pursuant to a "change of
control" covenant which is no more favorable to the holders of such
Debt than the provisions contained in Section 4.06 and such Debt
provides that the Company shall not repurchase such Debt pursuant to
such provisions prior to the Company's repurchase of the Notes required
to be repurchased by the Company pursuant to Section 4.06--prior to, or
in an
18
<PAGE> 26
amount greater than, any Stated Maturity of the Debt being replaced and
the proceeds of such subordinated Debt are utilized for such purpose
within 45 days of issuance or
(B) Capital Stock, other than Redeemable Stock of the
Company or any Restricted Subsidiary.
"Permitted Working Capital Facilities" means one or more credit
agreements providing for the extension of credit to the Company and/or its
Restricted Subsidiaries for working capital or general corporate purposes,
including the financing of the costs and expenses of acquisitions and any
amendment, supplement, refinancing, renewal, repayment or extension thereof.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents however designated,
whether voting or non-voting, of preferred or preference stock of such Person
which is outstanding or issued on or after the Issue Date.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under GAAP.
"Public Equity Offering" means any underwritten public offering of
Common Stock of the Company pursuant to a registration statement that has been
declared effective by the SEC under the Securities Act, other than a
registration statement on Form S-4 or Form S-8.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that is:
(1) redeemable, whether by its terms or upon the occurrence of
any event, prior to the latest Stated Maturity of the outstanding Notes,
(2) redeemable or repurchaseable by the issuer at the option
of the holder of such class or series of Capital Stock, whether by its terms or
upon the occurrence of any event, at any time prior to the latest Stated
Maturity of the outstanding Notes or
(3) convertible into or exchangeable for Capital Stock
referred to in clause (1) or (2) above or Debt having a scheduled maturity prior
to the latest Stated Maturity of the outstanding Notes;
provided that any Capital Stock that would not constitute Redeemable Stock but
for provisions thereof giving holders thereof the right to require the Company
to repurchase or redeem such Capital
19
<PAGE> 27
Stock upon the occurrence of a "change of control" occurring prior to the latest
Stated Maturity of the outstanding Notes shall not constitute Redeemable Stock
if the "change of control" provision applicable to such Capital Stock is no more
favorable to the holders of such Capital Stock than the provisions contained in
Section 4.06 and such Capital Stock specifically provides that the Company shall
not repurchase or redeem any such Capital Stock pursuant to such provisions
prior to the Company's repurchase of the Notes required to be repurchased by the
Company under Section 4.06.
"Reference Period" means the most recent four complete fiscal quarters
for which financial information is available preceding the date of a transaction
giving rise to the need to make a financial calculation.
"Registration Rights Agreement" means (i) that certain agreement, dated
as of the Issue Date, among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Donaldson, Lufkin & Jenrette International, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch International, Chase
Securities Inc., Chase Manhattan International Limited, Credit Suisse First
Boston Corporation and Credit Suisse First Boston (Europe) Limited requiring the
Company to make an Exchange Offer for the Initial Notes and (ii) any similar
agreement that the Company may enter into with the initial purchasers of any
Subsequent Notes requiring the Company to make an Exchange Offer for such
Subsequent Notes.
"Regular Record Date" for interest payable on any Interest Payment Date
means the February 1 or August 1 (whether or not a Business Day) next preceding
such Interest Payment Date.
"Regulation S" means Regulation S promulgated by the SEC under the
Securities Act.
"Responsible Officer," when used with respect to the Trustee, means any
officer with direct responsibility for the administration of this Indenture
within the corporate trust department of the Trustee (or any successor group of
the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Definitive Registered Note" means a Dollar Restricted
Definitive Registered Note or a Sterling Restricted Definitive Registered Note.
"Restricted Global Notes" means the U.S. Global Notes and the
International Global Notes.
"Restricted Notes" means the Restricted Global Notes and the Restricted
Definitive Registered Notes.
"Restricted Note Legend" means any of the restrictive legends referred
to as applicable to Restricted Notes as set forth on the forms of Notes attached
hereto as Exhibits A, B and C, respectively.
20
<PAGE> 28
"Restricted Payment" means, with respect to any Person:
(1) any dividend or other distribution on any shares of such
Person's Capital Stock;
(2) any payment on account of the purchase, redemption,
acquisition or retirement for value of such Person's Capital Stock; and
(3) any defeasance, redemption, repurchase or other
acquisition or retirement for value prior to the Stated Maturity of any Debt
ranking subordinate in right of payment to the Notes.
Notwithstanding the foregoing, "Restricted Payment" shall not include any
Permitted Payment.
"Restricted Subsidiary" means any Subsidiary of the Company that is not
an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated by the SEC under the Securities
Act.
"Rule 144A" means Rule 144A promulgated by the SEC under the Securities
Act.
"Rule 903" means Rule 903 of Regulation S promulgated by the SEC under
the Securities Act.
"Rule 904" means Rule 904 of Regulation S promulgated by the SEC under
the Securities Act.
"Sale/Leaseback Transaction" means any arrangement with any Person
pursuant to which the Company or any of its Restricted Subsidiaries leases any
Property that has been or is to be sold or transferred by the Company or its
Restricted Subsidiaries to such Person, other than any such transaction executed
by the time of, or within 12 months after the latest of, the acquisition, the
completion of construction, development or improvement, or the commencement of
commercial operation of the Property subject to such leasing transaction.
"SEC" has the same meaning as "Commission".
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Senior Debt" means any Debt of a Person other than Subordinated Debt.
"7-Year Dollar Notes" has the meaning set forth in the preamble of this
Indenture.
"7-Year Sterling Notes" or "Sterling Notes" has the meaning set forth
in the preamble of this Indenture.
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<PAGE> 29
"Shelf Registration Statement" has the meaning set forth in the initial
Registration Rights Agreement in relation to the Notes issued on the Issue Date
and has a correlative meaning in relation to any Subsequent Notes.
"Significant Subsidiary" of a Person means, as of any date, any
Subsidiary, or two or more Subsidiaries taken together, which constitute a
"significant subsidiary" of such Person as that term is defined in the
regulations promulgated under the Exchange Act, as in effect as of the date of
this Indenture.
"Special Payment Date" for the payment of any defaulted interest or
defaulted Liquidated Damages means a payment date fixed in the manner set forth
in Section 2.13.
"Special Record Date" for the payment of any defaulted interest or
defaulted Liquidated Damages means a record date fixed in the manner set forth
in Section 2.13.
"Stated Maturity" means, with respect to any debt security or any
installment of interest thereon, the date specified in such debt security as the
fixed date on which any principal of such debt security or any such installment
of interest is due and payable.
"Sterling Book-Entry Interest" means an indirect beneficial interest in
a Sterling Global Note held on, and transferred only through, records maintained
in book-entry form by a Sterling Depositary.
"Sterling Definitive Registered Notes" means the Sterling Restricted
Definitive Registered Notes and the Sterling Unrestricted Definitive Registered
Notes.
"Sterling Depositaries" means Euroclear and, at such time as
Clearstream may act in such capacity with respect to the Sterling Global Notes,
Clearstream, or any successor Depositaries with respect to the Sterling Global
Notes.
"Sterling Equivalent" means, with respect to any monetary amount in a
currency other than the Pounds Sterling, at or as of any time for the
determination thereof, the amount of Pounds Sterling obtained by converting such
foreign currency involved in such computation into Pounds Sterling at the spot
rate for the purchase of Pounds Sterling with the applicable foreign currency as
quoted by Reuters (or, if Reuters ceases to provide such spot quotations, by any
other reputable service as is providing such spot quotations, as selected by the
Company) at approximately 11:00 a.m. (London time) on the date not more than two
Business Days prior to such determination.
"Sterling Global Notes" means the Sterling U.S. Global Notes, the
Sterling International Global Notes and, if applicable, the Sterling
Unrestricted Global Note.
"Sterling International Global Notes" means one or more Global Notes
bearing the Global Note Legend and the Restricted Note Legend in registered form
without coupons that shall be issued on the Issue Date (or, in the case of any
Subsequent Notes, thereafter) in an original principal amount
22
<PAGE> 30
equal to the aggregate principal amount of the Sterling Notes sold in reliance
on Regulation S and deposited with the Sterling Depositary.
"Sterling Notes." See "7-Year Sterling Notes".
"Sterling Restricted Definitive Registered Note" means a Sterling
Definitive Registered Note bearing the Restricted Note Legend issued in
registered form without coupons in a principal amount of (pound)1,000 or
integral multiples thereof.
"Sterling Restricted Global Notes" means the Sterling U.S. Global Notes
and the Sterling International Global Notes.
"Sterling Unrestricted Definitive Registered Note" means a Sterling
Definitive Registered Note not bearing the Restricted Note Legend issued in
registered form without coupons in a principal amount of (pound)1,000 or
integral multiples thereof.
"Sterling Unrestricted Global Notes" means one or more Global Notes not
bearing the Restricted Note Legend issued in registered form without coupons in
a principal amount of (pound)1,000 or integral multiples thereof, and deposited
with the Sterling Depositary.
"Sterling Unrestricted Notes" means the Sterling Unrestricted
Definitive Registered Notes and the Sterling Unrestricted Global Notes.
"Sterling U.S. Global Notes" means one or more Global Notes bearing the
Global Note Legend and the Restricted Note Legend in registered form without
coupons that shall be issued on the Issue Date (or, in the case of any
Subsequent Notes, thereafter) in an original principal amount equal to the
aggregate principal amount of the Sterling Notes sold in reliance on Rule 144A
or another applicable exemption (other than Regulation S) and deposited with the
Sterling Depositaries.
"Subordinated Debt" means Debt of the Company that is expressly
subordinated to the Notes in contractual right of payment.
"Subsequent Notes" means up to (i) $50 million aggregate principal
amount of additional 7-Year Dollar Notes, (ii) the Sterling Equivalent of $50
million aggregate principal amount of additional 7-Year Sterling Notes, and
(iii) $50 million principal amount of additional 10-Year Dollar Notes, which, in
any case, may be offered subsequent to the Issue Date, subject to certain
conditions and the terms of this Indenture.
"Subsidiary" means, with respect to any Person, any corporation or
other entity (i) of which a majority of the Voting Stock is at the time directly
or indirectly owned by such Person or (ii) the accounts of which are
consolidated with those of such other Person in accordance with GAAP.
"Subsidiary Guarantees" means the joint and several Guarantees of the
Notes issuable by the Subsidiary Guarantors in accordance with the requirements
of this Indenture.
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<PAGE> 31
"Subsidiary Guarantor" means, unless released from their Subsidiary
Guarantees of the Notes as permitted by this Indenture, any Restricted
Subsidiary that becomes a guarantor of the Notes in compliance with the
provisions of this Indenture and executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of this Indenture.
"10-Year Dollar Notes" has the meaning set forth in the preamble of
this Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 hereof.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Transfer Restricted Securities" has the meaning set forth in the
Registration Rights Agreement in relation to the Notes originally issued on the
Issue Date.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity -- as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) that
has become publicly available at least two Business Days prior to the date fixed
for redemption, or if such Statistical Release is no longer published, any
publicly available source of similar market data -- most nearly equal to the
then remaining years to (1) Stated Maturity, in the case of the 7-Year Dollar
Notes, or (2) February 15, 2005, in the case of the 10-Year Dollar Notes;
provided that if the number of years to (1) Stated Maturity, in the case of the
7-Year Dollar Notes, or (2) February 15, 2005, in the case of the 10-Year Dollar
Notes, is not equal to the constant maturity of a United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation, calculated to the nearest one-twelfth of a
year, from the weekly average yields of United States Treasury securities for
which such yields are given except that if the number of years to (1) Stated
Maturity, in the case of the 7-Year Dollar Notes, or (2) February 15, 2005, in
the case of the 10-Year Dollar Notes, is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"U.K. Government Obligations" means securities which are (1) direct
obligations of the United Kingdom for the payment of which its full faith and
credit is pledged or (2) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United Kingdom, the payment of
which is unconditionally guaranteed as a full faith and credit obligation
24
<PAGE> 32
by the United Kingdom, which, in either case are not callable or redeemable at
the option of the issuer thereof.
"Unrestricted Subsidiary" means (1) each Subsidiary of the Company that
has been designated as such by written action of the Board of Directors as
provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary of the Company) to be an Unrestricted
Subsidiary provided that:
(A) the Subsidiary to be so designated or any of its
Subsidiaries does not own any Capital Stock or Debt of, or own or hold
any Lien on any Property of, the Company or any Restricted Subsidiary
of the Company that is not a Subsidiary of the Subsidiary to be so
designated;
(B) no Event of Default or event that, after the
giving of notice or lapse of time or both, would become an Event of
Default shall have occurred and be continuing at the time of or after
giving effect to the designation; and
(C) the Company could Incur at least $1 of Debt under
Section 4.09(a) after giving effect to the designation.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided, however, that (x) immediately after giving
effect to such designation no Event of Default or Default shall have occurred
and be continuing and (y) all Debt of such Unrestricted Subsidiary outstanding
immediately following such designation, as if such Debt had been Incurred at
such time, would have been permitted to be Incurred under Section 4.09(a). Any
such designation by the Board of Directors shall be evidenced to the Holders of
the Notes by promptly delivering to the Trustee a copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complies with the foregoing provisions.
"Unrestricted Definitive Registered Note" means one or more Definitive
Registered Notes that do not and are not required to bear the Restricted Note
Legend.
"Unrestricted Global Note" means one or more Global Notes that do not
and are not required to bear the Restricted Note Legend.
"Unrestricted Notes" means one or more Notes that do not and are not
required to bear the Restricted Note Legend.
"U.S. Dollar Equivalent" means, with respect to any monetary amount in
a currency other than the Dollar, at or as of any time for the determination
thereof, the amount of Dollars obtained by converting such foreign currency
involved in such computation into Dollars at the spot rate for the purchase of
Dollars with the applicable foreign currency as quoted by Reuters (or, if
Reuters ceases to provide such spot
25
<PAGE> 33
quotations, by any other reputable service as is providing such spot quotations,
as selected by the Company) at approximately 11:00 a.m. (New York City time) on
the date not more than two Business Days prior to such determination.
"U.S. Global Notes" means the Dollar U.S. Global Notes and the Sterling
U.S. Global Notes.
"U.S. Government Obligations" means securities that are (1) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (2) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (1) or (2) above, are not callable or redeemable at the option of the
issuer thereof, and shall include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligations or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that, except as required by law, such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
"U.S. Person" means a U.S. person as defined in Rule 902(k) of
Regulation S promulgated by the SEC under the Securities Act.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
or persons fulfilling similar responsibilities, of such Person.
SECTION 1.02 Other Definitions.
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
- ------------------------------------------------------------ ----------------------------
<S> <C>
"Additional Amounts" ....................................... 10.02
"Affiliate Transaction" .................................... 4.12
"Asset Sale Offer" ......................................... 4.07
"Bankruptcy Order .......................................... 6.01
"Change of Control Offer" .................................. 4.06
"Change of Control Purchase" ............................... 4.06
"Change of Control Repurchase Date" ........................ 4.06
"Covenant Defeasance" ...................................... 8.03
"Custodian" ................................................ 6.01
"Event of Default" ......................................... 6.01
"Excess Proceeds" .......................................... 4.07
"Excluded Holder" .......................................... 10.02
"Legal Defeasance" ......................................... 8.02
"Offer Amount" ............................................. 3.09
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
- ------------------------------------------------------------ ----------------------------
<S> <C>
"Offer Period" ............................................. 3.09
"Paying Agent" ............................................. 2.03
"Principal Paying Agent" ................................... 2.03
"Principal Registrar" ...................................... 2.03
"Purchase Date" ............................................ 3.09
"Register" ................................................. 2.03
"Registrar" ................................................ 2.03
"Specified Date" ........................................... 2.15
"Taxes" .................................................... 10.02
"Taxing Jurisdiction" ...................................... 10.02
"Transaction Date" ......................................... 1.01 (definition of Fixed
Charge Ratio)
</TABLE>
SECTION 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes and the Subsidiary Guarantees;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor upon
the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04 Rules of Construction.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
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(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and in the
plural include the singular;
(v) provisions apply to successive events and transactions;
and
(vi) all references to (i) "$," "US$," "dollars," "Dollars,"
"U.S. Dollars" or "United States dollars" shall refer to the lawful currency of
the United States of America and (ii) "(pound)," "pound," "Pound," "sterling" or
"Sterling" shall refer to the lawful currency of the United Kingdom that is
legal tender for the payment of public and private debts, as in effect from time
to time;
(vii) "pro rata" means, a determination made on the basis of
the relative proportion of the outstanding aggregate principal amount
represented by the outstanding principal amounts of the Dollar Notes and the
U.S. Dollar Equivalent of the Sterling Notes as of the time of such
determination, calculated in accordance with clause (ix) below;
(viii) whenever the definitions in this Article I or the
provisions in Articles IV or VI of this Indenture refer to an amount in U.S.
dollars, that amount shall be deemed to refer to the U.S. Dollar Equivalent of
the amount of any obligation denominated in any other currency or currencies,
including composite currencies;
(ix) the U.S. Dollar Equivalent of Sterling or any other
determination of a U.S. Dollar Equivalent for any purpose shall be determined as
of a date of determination as otherwise described in the definition of "U.S.
Dollar Equivalent" herein and, in any case, no subsequent change in the U.S.
Dollar Equivalent after the applicable date of determination shall cause such
determination to be modified;
(x) the Sterling Equivalent of U.S. Dollars or any other
determination of a Sterling Equivalent for any purpose shall be determined as of
a date of determination as otherwise described in the definition of "Sterling
Equivalent" herein and, in any case, no subsequent change in the Sterling
Equivalent after the applicable date of determination shall cause such
determination to be modified; and
(xi) references to sections of or rules under the Securities
Act or the Exchange Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
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ARTICLE II
THE NOTES
SECTION 2.01 Form and Dating.
(a) Global Notes. The 7-Year Dollar Notes and the 10-Year
Dollar Notes offered and sold to QIBs in reliance on Rule 144A shall be issued
initially in the form of one or more Dollar U.S. Global Notes, which shall be
deposited with the Dollar Depositary on behalf of the purchasers of the Dollar
Notes represented thereby, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. Dollar Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of one or more Dollar
International Global Notes of the same series, which shall be deposited with the
Dollar Depositary on behalf of the purchasers of the Dollar Notes represented
thereby, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. If and when permitted under the Securities Act, one or
more Dollar Unrestricted Global Notes shall be issued from time to time in
exchange for Dollar Restricted Global Notes of the same series representing a
corresponding aggregate principal amount of Dollar Notes in accordance with the
provisions of this Article II and shall be deposited with the Dollar Depositary
on behalf of the Holders of the Dollar Notes represented thereby, duly executed
by the Company and authenticated by the Trustee as hereinafter provided.
Sterling Notes offered and sold to QIBs in reliance on Rule 144A shall
be issued initially in the form of one Sterling U.S. Global Note, which shall be
deposited with the Common Depositary on behalf of the purchasers of Sterling
Notes represented thereby, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. Sterling Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of one Sterling International
Global Note, which shall be deposited with the Common Depositary on behalf of
the purchasers of the Sterling Notes represented thereby, duly executed by the
Company and authenticated by the Trustee as hereinafter provided. If and when
permitted under the Securities Act, one or more Sterling Unrestricted Global
Notes may be issued from time to time in exchange for Sterling Restricted Global
Notes representing a corresponding aggregate principal amount of Sterling Notes
in accordance with the provisions of this Article II and shall be deposited with
the Common Depositary on behalf of the Holders of the Sterling Notes represented
thereby, duly executed by the Company and authenticated by the Trustee as
hereinafter provided.
Except as set forth in Section 2.07(a) hereof, the Dollar Global Notes
may be transferred, in whole and not in part, only to a successor of the Dollar
Depositary or its nominee and the Sterling Global Notes may be transferred, in
whole and not in part, only to a successor of the Sterling Depositaries, the
Common Depositary or their respective nominees.
(b) Definitive Registered Notes. Definitive Registered Notes
issued upon transfer of a Book-Entry Interest or a Definitive Registered Note,
or in exchange for a Book-Entry Interest or a Definitive Registered Note, shall
be issued in accordance with this Indenture, duly executed by the Company and
authenticated by the Trustee as hereinafter provided.
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(c) Book-Entry Provisions. None of the Depositaries nor the
Participants shall have any rights either under this Indenture or under any
Global Note with respect to such Global Note held on their behalf by the Dollar
Depositary's nominee, in the case of the Dollar Global Notes, or by the Common
Depositary, in the case of the Sterling Global Notes. Notwithstanding the
foregoing, nothing herein shall prevent the Company, any Subsidiary Guarantor,
the Trustee or any agent of the Company, any Subsidiary Guarantor or the Trustee
from giving effect to any written certification, proxy, consent, authorization,
approval, or other writing furnished by a Depositary or impair, as between the
Depositaries and their respective Participants, the operation of customary
practices of such Depositaries governing the exercise of the rights of an owner
of a Book-Entry Interest in any Global Note.
(d) Note Forms. The 7-Year Dollar Notes, 7-Year Sterling Notes
and the 10-Year Dollar Notes and the Trustee's respective certificates of
authentication shall be substantially in the forms of Exhibit A, Exhibit B and
Exhibit C hereto, respectively, with appropriate inclusions and exclusions set
forth therein depending on whether such Note is (i) a Restricted Note or an
Unrestricted Note and (ii) a Global Note or a Definitive Registered Note, and
shall be issued in the forms hereinafter provided. The Exchange Notes of any
series may be designated as "Series B" to distinguish them from the Initial
Notes of such series. The Notes may have notations, legends or endorsements
required by law, stock exchange rule or usage. The Notes shall be issued only in
registered form. The Notes shall be in denominations of $1,000 principal amount,
in the case of the Dollar Notes, and (pound)1,000 principal amount, in the case
of the Sterling Notes, and in each case, any integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Trustee, by its
execution and delivery of this Indenture, expressly agrees to such terms and
provisions and to be bound thereby. However, to the extent any provision of any
Note conflicts with the express provisions of this Indenture, the provisions of
this Indenture shall govern and be controlling.
(e) Dating. Each Note shall be dated the date of its
authentication.
SECTION 2.02 Execution and Authentication.
An Officer of the Company shall sign the Notes for the Company by
manual or facsimile signature. The seal of the Company may be reproduced on the
Notes and, if it is, may be in facsimile form.
If the Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of an authorized signatory of the Trustee. The signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
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<PAGE> 38
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture for original issue (except for Notes
authenticated and delivered pursuant to an Exchange Offer), shall be limited to:
(a) on the Issue Date, (i) $240 million in aggregate principal amount of 7-Year
Dollar Notes, (ii) (pound)100 million in aggregate principal amount of 7-Year
Sterling Notes and (iii) $200 million in aggregate principal amount of 10-Year
Dollar Notes, plus (b) from time to time or at any time subsequent to the Issue
Date, an additional (i) $50 million aggregate principal amount of Subsequent
7-Year Dollar Notes, (ii) Sterling Equivalent of $50 million aggregate principal
amount of Subsequent 7-Year Sterling Notes and (iii) $50 million aggregate
principal amount of Subsequent 10-Year Dollar Notes, provided, however, that
Subsequent Notes of any series under clause (b) may be issued only if the
Company is able to Incur such Debt under Section 4.09. In addition, Exchange
Notes of any series may be authenticated and delivered under this Indenture from
time to time after the Issue Date, in each case pursuant to an Exchange Offer or
as provided in Section 2.07(j), in an aggregate principal amount equal to the
aggregate principal amount of the outstanding Notes of the same series for which
they are exchanged.
The Trustee shall authenticate Notes of the applicable series for
original issue up to the aggregate principal amount permitted by the preceding
paragraph upon receipt of a written order signed by an Officer directing the
Trustee to authenticate the Notes of such series and certifying that all
conditions precedent to the issuance of the Notes of such series contained in
this Indenture have been complied with. The aggregate principal amount of Notes
outstanding of any series at any time may not exceed such applicable amount set
forth in clauses (a) and (b) above except as provided in Section 2.08 hereof.
In the event that the Company shall issue and the Trustee shall
authenticate any Subsequent Notes of any series pursuant to an Exchange Offer,
the Company shall use its best efforts to obtain the same CUSIP number or ISIN
number and common code for such Subsequent Notes of such series as is printed on
the Exchange Notes of such series outstanding at such time; provided, however,
that if any such series of Subsequent Notes is determined, pursuant to an
Opinion of Counsel, to be a different class of security than the Exchange Notes
of such series outstanding at such time for federal income tax purposes, the
Company may obtain a CUSIP number or ISIN number and common code for such series
of Subsequent Notes that is different from the CUSIP number or ISIN number and
common code printed on the Exchange Notes of the corresponding series then
outstanding.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03 Registrar and Paying Agent.
The Company shall maintain (i) an office or agency ("Principal
Registrar" and "Transfer Agent") in the City of New York where Notes of all
series may be presented for registration of
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transfer or for exchange (subject to Section 2.07) and (ii) an office or agency
in Luxembourg, for so long as required by the Luxembourg Stock Exchange, where
the Sterling Notes may be presented for registration of transfer or for exchange
(subject of Section 2.07). The Company shall also maintain (i) an office or
agency in the City of New York where Notes of all series may be presented for
payment (the "Principal Paying Agent") and (ii) an office or agency in
Luxembourg, for so long as required by the Luxembourg Stock Exchange, where the
Sterling Notes may be presented for payment. Further, the Company shall maintain
an office or agency in the City of New York where notices and demands in
connection with the Notes and this Indenture may be served on the Company. The
Company may appoint one or more additional co-registrars and one or more
additional paying agents. The term "Registrar" includes the Principal Registrar
and any co-registrar and the term "Paying Agent" includes the Principal Paying
Agent and any additional paying agent. The Company may change any Paying Agent
or Registrar without notice to any Holder. The Company shall notify the Trustee
in writing of the name and address of any Agent not named in this Indenture. If
the Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company may act as Paying Agent or
Registrar.
The Company hereby appoints (i) the corporate trust office of the
Trustee, located at 600 Travis, Houston, Texas 77002, USA, as agent for service
of notice and demands in connection with the Notes and this Indenture; (ii) the
corporate trust office of the Trustee in the City of New York, located at 55
Water Street, North Building, Room 234, Windows 20 and 21, New York, New York
10041, USA, as Principal Registrar and Principal Paying Agent; and (iii) the
corporate trust office of Chase Manhattan Bank Luxembourg S.A., located at 5,
rue Plaitis, L-2338, Luxembourg, Luxembourg, as a Registrar and a Paying Agent.
Each of the Registrars shall keep a register (the "Register") of the
Notes of each series for which it is a Registrar and of their transfer and
exchange.
SECTION 2.04 Paying Agent to Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of Holders or the
Trustee all money held by the Paying Agent for the payment of principal,
premium, if any, interest, or Liquidated Damages, if any, on the Notes, and the
Company and the Paying Agent shall notify the Trustee of any default by the
Company (or any other obligor on the Notes) in making any such payment. Money
held in trust by any Paying Agent need not be segregated except as required by
law and in no event shall any Paying Agent be liable for any interest on any
money received by it hereunder. The Company at any time may require the Paying
Agents to pay all money held by them to the Trustee and the Trustee may at any
time during the continuance of any Event of Default specified in Section 6.01(a)
or 6.01(b), upon written request to such Paying Agents, require such Paying
Agents to pay forthwith all money so held by it to the Trustee and to account
for any funds disbursed. Upon payment over to the Trustee, the Paying Agent (if
other than the Company) shall have no further liability for the money. Upon any
bankruptcy or reorganization proceedings relating to the Company, the Trustee
shall serve as Paying Agent for the Notes.
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If the Company acts as its own Paying Agent for the Notes, it shall, on
or before each due date of the principal amount of, premium, if any, or interest
on the Notes, set aside and segregate and hold in trust for the benefit of the
Holders of the Notes, a sum sufficient to pay such principal of, premium, if
any, or interest on the Notes and shall notify the Trustee of such action or any
failure to take such action.
SECTION 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it from the Registrar of the names
and addresses of all Holders of Notes, if any. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee and each Paying Agent at
least five Business Days before each Interest Payment Date and at such other
times as they may request in writing, a list in such form and as of such date as
they may reasonably require of the names and addresses of the Holders of Notes,
if any.
SECTION 2.06 Persons Deemed Owners.
(a) The Company, any Subsidiary Guarantor, the Paying Agents,
the Registrar, the Trustee and any agent of the Company, any Subsidiary
Guarantor, the Paying Agents, the Registrar or the Trustee may deem and treat
the Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of or on account of the principal of
and, subject to the provisions of this Indenture, interest, Liquidated Damages
and any other amounts due on such Note and for all other purposes; and neither
the Company, any Subsidiary Guarantor, any Paying Agent, the Registrar, the
Trustee nor any agent of the Company, any Subsidiary Guarantor, any Paying
Agent, the Registrar or the Trustee shall be affected by any notice to the
contrary. All such payments so made to any such Person, or upon his order, shall
be valid, and, to the extent of the sum or sums so paid, effectual to satisfy
and discharge the liability for moneys payable upon any Note.
(b) The Person in whose name any Note is registered at the
close of business on any Regular Record Date with respect to any Interest
Payment Date shall be entitled to receive the interest, and Liquidated Damages,
if any, payable on such Interest Payment Date notwithstanding any transfer or
exchange of such Note subsequent to the record date and prior to such Interest
Payment Date, except if and to the extent the Company shall default in the
payment of the interest or Liquidated Damages due on such interest payment date,
in which case such defaulted interest or Liquidated Damages shall be paid in
accordance with Section 2.13. All payments of principal, interest and Liquidated
Damages, if any, by the Company on the Notes shall be made without withholding
or deductions for, or on account of, any present or future taxes, duties,
assessments or governmental charges of whatever nature imposed or levied by or
on behalf of the United States or any political subdivision thereof or any
authority therein or thereof having power to tax unless the withholding or
deduction of such taxes, duties, assessments or governmental charges is required
by applicable law, rule or regulation (and if such withholding or deduction is
required, the Company shall not be obligated to pay any additional amounts in
respect of such withholding or deduction).
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<PAGE> 41
SECTION 2.07 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes.
All Dollar Global Notes shall be exchanged by the Company for Dollar
Definitive Registered Notes of the same series if (i) DTC notifies the Company
that it is unwilling or unable to continue to act as a Depositary or ceases to
be a clearing agency registered under the Exchange Act and, in either case, a
successor Depositary registered as a clearing agency under the Exchange Act is
not appointed by the Company within 120 days; (ii) DTC so requests following an
Event of Default hereunder; or (iii) the Company in its sole discretion
determines that the Dollar Global Notes should be exchanged (in whole but not in
part) for Dollar Definitive Registered Notes. Upon the occurrence of any of the
preceding events, Dollar Definitive Registered Notes shall be issued in such
names as the Dollar Book-Entry Depositary shall instruct the Registrar based on
the instructions of DTC.
All Sterling Global Notes shall be exchanged by the Company for
Sterling Definitive Registered Notes if (i) either Euroclear or, at such time as
Clearstream may act as a Sterling Depositary, Clearstream notifies the Company
that it is unwilling or unable to continue to act as a Depositary and a
successor Depositary is not appointed by the Company, within 120 days; (ii)
Euroclear or, at such time as it may act as a Sterling Depositary, Clearstream,
so requests following an Event of Default hereunder; or (iii) the Company in its
sole discretion determines that the Sterling Global Notes should be exchanged
(in whole but not in part) for Sterling Definitive Registered Notes. Upon the
occurrence of any of the preceding events, Sterling Definitive Registered Notes
shall be issued in such names as the Sterling Depositary shall instruct the
Registrar based on the instructions of Euroclear and, at such time as
Clearstream may act as a Sterling Depositary, Clearstream.
Global Notes of the same series may also be exchanged or replaced, in
whole or in part, as provided in Sections 2.08 and 2.11. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to Section 2.08 or 2.11 hereof, shall be authenticated
and delivered in the form of, and shall be, a Global Note. A Global Note may not
be exchanged for another Note other than as provided in this Section 2.07(a).
A Global Note may be transferred only as provided in Section 2.01 and
this Section 2.07(a).
(b) Transfer and Exchange of Book-Entry Interests between
Global Notes. A Book-Entry Interest in a Global Note may only be exchanged for,
or transferred to a Person who takes delivery thereof in the form of, a
Book-Entry Interest in a Global Note of the same series. Transfers of Book-Entry
Interests between Global Notes of the same series shall require compliance with
subparagraph (i) below, as well as one or more of the other following
subparagraphs, as applicable:
(i) General Provisions Applicable to All Transfers
and Exchanges of Book-Entry Interests between Global Notes. In
connection with all transfers and exchanges of Book-Entry Interests
(other than transfers of Book-Entry Interests in connection with
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<PAGE> 42
which the transferor takes delivery thereof in the form of a Book-Entry
Interest in the same Global Note or transfers or exchanges resulting in
the delivery of one or more Definitive Registered Notes), the
transferor of such Book-Entry Interest must deliver to the Principal
Paying Agent (1) a written and/or electronic order from a Participant
or an Indirect Participant given to the Depositary in accordance with
the Applicable Procedures directing the Depositary to debit or cause to
be debited a Book-Entry Interest in a Global Note in an amount equal to
the Book-Entry Interest to be transferred or exchanged, (2) a written
and/or electronic order from a Participant or an Indirect Participant
given to the Depositary in accordance with the Applicable Procedures
directing the Depositary to credit or cause to be credited a Book-Entry
Interest in another Global Note of the same series in an amount equal
to the Book-Entry Interest to be transferred or exchanged and (3)
written and/or electronic instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase.
Prior to 40 days after the later of the commencement of the offering
and the date of original issuance of the Notes, International
Book-Entry Interests may only be transferred to Persons that have
accounts with Euroclear or, in the case of Dollar Book-Entry Interests,
Clearstream or Persons who hold interests through Euroclear or, in the
case of Dollar Book-Entry Interests, Clearstream.
The requirements of this Section 2.07(b)(i) shall be deemed to have
been satisfied in connection with an Exchange Offer upon receipt by the
Principal Paying Agent of instructions contained in a letter of
transmittal delivered by any Participant tendering Book-Entry Interests
in a Restricted Global Note in such Exchange Offer.
(ii) Transfer of Book-Entry Interests to Another
Restricted Global Note. A Book-Entry Interest in any Restricted Global
Note may be transferred to a Person who takes delivery thereof in the
form of a Book-Entry Interest in a Restricted Global Note of the same
series if the transfer complies with the requirements of Section
2.07(b)(i) above and the Principal Paying Agent receives the following:
(A) if the transferee will take delivery in
the form of a Book-Entry Interest in a U.S. Global Note, then
the transferor must deliver a certificate in the form of
Exhibit D hereto, including the certifications in item (1) or
(3) thereof; and
(B) if the transferee will take delivery in
the form of a Book-Entry Interest in an International Global
Note, then the transferor must deliver a certificate in the
form of Exhibit D hereto, including the certifications in item
(2) thereof.
Upon satisfaction of the conditions set forth in this Section
2.07(b)(ii), the Principal Paying Agent shall (i) instruct, in
the case of the Dollar Global Notes, the Dollar Depositary,
and, in the case the of the Sterling Global Notes, the Common
Depositary to deliver each relevant Global Note to it, (ii)
endorse Schedule A to each relevant Global Note to reflect the
relevant increase or decrease in the principal amount of
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<PAGE> 43
each such Global Note resulting from the applicable transfer,
and (iii) thereafter, return each Dollar Global Note to the
Dollar Depositary and each Sterling Global Note to the Common
Depositary, together with all information regarding the
Participant accounts to be credited and debited in connection
with such transfer.
(iii) Transfer and Exchange of Book-Entry Interests
in a Restricted Global Note for Book-Entry Interests in an Unrestricted
Global Note. A Book-Entry Interest in any Restricted Global Note may be
exchanged by any holder thereof for a Book-Entry Interest in an
Unrestricted Global Note of the same series or transferred to a Person
who takes delivery thereof in the form of a Book-Entry Interest in an
Unrestricted Global Note of the same series if the exchange or transfer
complies with the requirements of Section 2.07(b)(i) above and:
(A) such exchange or transfer is effected
pursuant to an Exchange Offer in accordance with the
applicable Registration Rights Agreement and the holder of the
Book-Entry Interest to be transferred, in the case of an
exchange, or the transferee, in the case of a transfer,
certifies in the applicable letter of transmittal that it is
not (1) a Broker-Dealer that acquired the Book-Entry Interests
tendered in such Exchange Offer directly from the Company or
an Affiliate of the Company, (2) a Person participating in the
distribution of Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company; or
(B) such transfer is effected pursuant to a
Shelf Registration Statement in accordance with the applicable
Registration Rights Agreement or pursuant to another effective
registration statement under the Securities Act and in
compliance with the prospectus delivery requirements of the
Securities Act and the transferor delivers a certificate in
the form of Exhibit D hereto including the certifications
contained in item (4) thereof; or
(C) such transfer is effected by a
Broker-Dealer pursuant to an Exchange Offer Registration
Statement in accordance with the applicable Registration
Rights Agreement.
Upon satisfaction of the conditions set forth in this Section
2.07(b)(iii), the Principal Paying Agent shall (i) instruct,
in the case of the Dollar Global Notes, the Dollar Depositary
and, in the case the of the Sterling Global Notes, the Common
Depositary to deliver each relevant Global Note to it, (ii)
endorse Schedule A to each relevant Global Note to reflect the
relevant increase or decrease in the principal amount of each
Global Note resulting from the applicable transfer, and (iii)
thereafter, return each Dollar Global Note to the Dollar
Depositary and each Sterling Global Note to the Common
Depositary, together with all information regarding the
Participant accounts to be credited and debited in connection
with such exchange or transfer.
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<PAGE> 44
If any such transfer or exchange is effected pursuant to this
Section 2.07(b)(iii) at a time when an Unrestricted Global
Note has not yet been issued, the Company shall issue and,
upon receipt of an authentication order from the Company in
accordance with Section 2.02 hereof, the Trustee shall
authenticate, one or more Unrestricted Global Notes in an
aggregate principal amount equal to the aggregate principal
amount of Book-Entry Interests to be transferred or exchanged.
Book-Entry Interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery
thereof in the form of, a Book-Entry Interest in a Restricted
Global Note.
(c) Transfer or Exchange of Book-Entry Interests for
Definitive Registered Notes. A Book-Entry Interest in a Global Note may only be
exchanged for, or transferred to a Person who takes delivery thereof in the form
of, a Definitive Registered Note of the same series. In connection with a
transfer or exchange of a Book-Entry Interest for a Definitive Registered Note
of the same series, the Principal Paying Agent and the Registrar must receive
(1) a written and/or electronic order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable Procedures
directing the Depositary to debit or cause to be debited a Book-Entry Interest
in an amount equal to the Book-Entry Interest to be transferred or exchanged,
(2) a written order directing the Registrar to issue or cause to be issued a
Definitive Registered Note in an amount equal to the Book-Entry Interest to be
transferred or exchanged and (3) instructions containing information regarding
the Person in whose name such Definitive Registered Note shall be registered to
effect the transfer or exchange referred to above.
(i) Book-Entry Interests in Restricted Global Notes
to Restricted Definitive Registered Notes. A holder of a Book-Entry
Interest in a Restricted Global Note may exchange such Book-Entry
Interest for a Restricted Definitive Registered Note of the same series
or transfer such Book-Entry Interest to a Person who takes delivery
thereof in the form of a Restricted Definitive Registered Note of the
same series, if the exchange or transfer complies with the first
paragraph of this Section 2.07(c) and:
(A) if the holder of such Book-Entry
Interest in a Restricted Global Note proposes to exchange such
Book-Entry Interest for a Restricted Definitive Registered
Note, a certificate from such holder in the form of Exhibit E
hereto, including the certifications in item (1)(a) thereof;
(B) if such Book-Entry Interest is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit D hereto, including the certifications in item (1)
thereof;
(C) if such Book-Entry Interest is being
transferred in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit D hereto, including the
certifications in item (2) thereof;
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(D) if such Book-Entry Interest is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit D hereto, including the certifications in
item (3)(a) thereof;
(E) if such Book-Entry Interest is being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit D hereto,
including the certifications in item (3)(b) thereof; or
(F) if such Book-Entry Interest is being
transferred in reliance on an exemption from the registration
requirements of the Securities Act other than those listed in
subparagraphs (B) through (E) above, a certificate to the
effect set forth in Exhibit D hereto, including the
certifications, certificates and Opinion of Counsel required
by item (3)(c) thereof, if applicable.
Upon satisfaction of the conditions set forth in this Section
2.07(c)(i), the Principal Paying Agent shall (i) instruct, in
the case of the Dollar Global Notes, the Dollar Depositary,
and, in the case the of the Sterling Global Notes, the Common
Depositary to deliver each relevant Global Note to it, (ii)
endorse Schedule A to each relevant Global Note to reflect the
relevant decrease in the principal amount of each such Global
Note resulting from the applicable transfer or exchange, (iii)
thereafter, return each Dollar Global Note to the Dollar
Depositary and each Sterling Global Note to the Common
Depositary, together with all information regarding the
Participant accounts to be debited in connection with such
exchange or transfer and (iv) deliver to the Registrar
instructions received by it that contain information regarding
the Person in whose name Definitive Registered Notes shall be
registered to effect such transfer or exchange.
The Company shall issue and, upon receipt of an Authentication
Order from the Company in accordance with Section 2.02 hereof,
the Trustee shall authenticate, one or more Definitive
Registered Notes in an aggregate principal amount equal to the
aggregate principal amount of Book-Entry Interests so
transferred or exchanged and in the names set forth in the
instructions received by the Registrar.
(ii) Book-Entry Interests in Restricted Global Notes
to Unrestricted Definitive Registered Notes. A holder of a Book-Entry
Interest in a Restricted Global Note may exchange such Book-Entry
Interest for an Unrestricted Definitive Registered Note of the same
series or may transfer such Book-Entry Interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Registered
Note of the same series if the exchange or transfer complies with the
first paragraph of this Section 2.07(c) and:
(A) such exchange or transfer is effected
pursuant to an Exchange Offer in accordance with the
applicable Registration Rights Agreement and the holder of
such Book-Entry Interest, in the case of an exchange, or the
transferee, in
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the case of a transfer, certifies in the applicable letter of
transmittal that it is not (1) a Broker-Dealer that acquired
the Book-Entry Interests tendered in such Exchange Offer
directly from the Company or an Affiliate of the Company, (2)
a Person participating in the distribution of the Exchange
Notes or (3) a Person who is an affiliate (as defined in Rule
144) of the Company;
(B) such transfer is effected pursuant to a
Shelf Registration Statement in accordance with the applicable
Registration Rights Agreement or pursuant to another effective
registration statement under the Securities Act and in
compliance with the prospectus delivery requirements of the
Securities Act and the transferor delivers a certificate in
the form of Exhibit D hereto including the certifications
contained in item (4) thereof; or
(C) such transfer is effected by a
Broker-Dealer pursuant to an Exchange Offer Registration
Statement in accordance with the applicable Registration
Rights Agreement.
Upon satisfaction of the conditions set forth in this Section
2.07(c)(ii), the Principal Paying Agent shall (i) instruct, in
the case of the Dollar Global Notes, the Dollar Depositary,
and, in the case the of the Sterling Global Notes, the Common
Depositary, to deliver each relevant Global Note to it, (ii)
endorse Schedule A to each relevant Global Note to reflect the
relevant decrease in the principal amount of each such Global
Note resulting from the applicable exchange or transfer, (iii)
thereafter, return each Dollar Global Note to the Dollar
Depositary and each Sterling Global Note to the Common
Depositary, together with all information regarding the
Participant accounts to be debited in connection with such
exchange or transfer and (iv) deliver to the Registrar
instructions received by it that contain information regarding
the Person in whose name Definitive Registered Notes shall be
registered to effect such transfer or exchange.
The Company shall issue and, upon receipt of an Authentication
Order from the Company in accordance with Section 2.02 hereof,
the Trustee shall authenticate, one or more Definitive
Registered Notes in an aggregate principal amount equal to the
aggregate principal amount of Book-Entry Interests so
transferred or exchanged and in the names set forth in the
instructions received by the Registrar.
(iii) Book-Entry Interests in Unrestricted Global
Notes to Unrestricted Definitive Registered Notes. A holder of a
Book-Entry Interest in an Unrestricted Global Note may exchange such
Book-Entry Interest for an Unrestricted Definitive Registered Note of
the same series or transfer such Book-Entry Interest to a Person who
takes delivery thereof in the form of an Unrestricted Definitive
Registered Note upon the satisfaction of the conditions set forth in
the first paragraph of this Section 2.07(c). Upon satisfaction of such
conditions the Principal Paying Agent shall (i) instruct, in the case
of the Dollar Global Notes, the Dollar Depositary and, in the case of
the Sterling Global Notes, the Common
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Depositary to deliver each relevant Global Note to it, (ii) endorse
Schedule A to each relevant Global Note to reflect the relevant
decrease in the principal amount of each such Global Note resulting
from the applicable transfer or exchange, (iii) thereafter, return each
Dollar Global Note to the Dollar Depositary and each Sterling Global
Note to the Common Depositary, together with all information regarding
the Participant accounts to be debited in connection with such exchange
or transfer and (iv) deliver to the Registrar instructions received by
it that contain information regarding the Person in whose name
Definitive Registered Notes shall be registered to effect such transfer
or exchange.
The Company shall issue and, upon receipt of an Authentication Order
from the Company in accordance with Section 2.02 hereof, the Trustee
shall authenticate, one or more Definitive Registered Notes in an
aggregate principal amount equal to the aggregate principal amount of
Book-Entry Interests so transferred or exchanged and in the names set
forth in the instructions received by the Registrar.
(d) Transfer and Exchange of Definitive Registered Notes for
Book-Entry Interests. A Definitive Registered Note may only be exchanged for, or
transferred to a Person who takes delivery thereof in the form of, a Book-Entry
Interest in a Global Note of the same series. In connection with any transfer or
exchange of Definitive Registered Notes for Book-Entry Interests of the same
series, the Holder of such Notes shall surrender to the Registrar such
Definitive Registered Notes duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed by
such Holder or by its attorney, duly authorized in writing. In addition, the
Holder of such Definitive Registered Notes must deliver written and/or
electronic orders directing the Depositary to credit the account of the
transferee Participant in an amount equal to the Book-Entry Interest to be
created and identifying the Participant account to be credited.
(i) Restricted Definitive Registered Notes to
Book-Entry Interests in Restricted Global Notes. A Holder of a
Restricted Definitive Registered Note may exchange such Note for a
Book-Entry Interest in a Restricted Global Note of the same series or
transfer such Restricted Definitive Registered Note to a Person who
takes delivery thereof in the form of a Book-Entry Interest in a
Restricted Global Note of the same series, if the exchange or transfer
complies with the first paragraph of this Section 2.07(d) and:
(A) if the Holder of such Restricted
Definitive Registered Note proposes to exchange such Note for
a Book-Entry Interest in a Restricted Global Note, a
certificate from such Holder in the form of Exhibit E hereto,
including the certifications in item (1)(b) thereof;
(B) if such Restricted Definitive Registered
Note is being transferred to a QIB in accordance with Rule
144A under the Securities Act, a certificate to the effect set
forth in Exhibit D hereto, including the certifications in
item (1) thereof;
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(C) if such Restricted Definitive Registered
Note is being transferred in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit D hereto,
including the certifications in item (2) thereof;
(D) if such Restricted Definitive Registered
Note is being transferred pursuant to an exemption from the
registration requirements of the Securities Act in accordance
with Rule 144 under the Securities Act, a certificate to the
effect set forth in Exhibit D hereto, including the
certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Registered
Note is being transferred to the Company or any of its
Subsidiaries, a certificate to the effect set forth in Exhibit
D hereto, including the certifications in item (3)(b) thereof;
or
(F) if such Restricted Definitive Registered
Note is being transferred in reliance on an exemption from the
registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (E) above, a
certificate to the effect set forth in Exhibit D hereto,
including the certifications, certificates and Opinion of
Counsel required by item (3)(c) thereof, if applicable.
Upon satisfaction of all the requirements set forth in this
Section 2.07(d)(i), the Registrar shall (i) deliver the
Definitive Registered Notes surrendered for exchange or
transfer to the Trustee for cancellation pursuant to Section
2.12 hereof, (ii) record such transfer or exchange on the
Register, (iii) instruct, in the case of the Dollar Global
Notes, the Dollar Depositary and, in the case of the Sterling
Global Notes, the Common Depositary, to deliver to it (x) in
the case of clause (C) above, the relevant International
Global Note and (y) in all other cases, the relevant U.S.
Global Note, (iv) endorse Schedule A to each such Global Note
to reflect the increase in principal amount resulting from
such transfer or exchange, and (v) thereafter, return each
Dollar Global Note to the Dollar Depositary and each Sterling
Global Note to the Common Depositary, together with all
information regarding the Participant accounts to be credited
in connection with such exchange or transfer.
(ii) Restricted Definitive Registered Notes to
Book-Entry Interests in Unrestricted Global Notes. A Holder of a
Restricted Definitive Registered Note may exchange such Note for a
Book-Entry Interest in an Unrestricted Global Note of the same series
or transfer such Restricted Definitive Registered Note to a Person who
takes delivery thereof in the form of a Book-Entry Interest in an
Unrestricted Global Note of the same series if the exchange or transfer
complies with the first paragraph of this Section 2.07(d) and:
(A) such exchange or transfer is effected
pursuant to an Exchange Offer in accordance with the
applicable Registration Rights Agreement and the Holder, in
the case of an exchange, or the transferee, in the case of a
transfer, certifies
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in the applicable letter of transmittal that it is not (1) a
Broker-Dealer that acquired the Book-Entry Interests tendered
in the Exchange Offer directly from the Company or an
Affiliate of the Company, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to a
Shelf Registration Statement in accordance with the applicable
Registration Rights Agreement or pursuant to another effective
registration statement under the Securities Act and in
compliance with the prospectus delivery requirements of the
Securities Act and the transferor delivers a certificate in
the form of Exhibit D hereto including the certifications
contained in item (4) thereof; or
(C) such transfer is effected by a
Broker-Dealer pursuant to an Exchange Offer Registration
Statement in accordance with the applicable Registration
Rights Agreement.
Upon satisfaction of all the requirements set forth in this
Section 2.07(d)(ii), the Registrar shall (i) deliver the
Definitive Registered Notes surrendered for exchange or
transfer to the Trustee for cancellation pursuant to Section
2.12 hereof, (ii) record such transfer or exchange on the
Register, (iii) instruct, in the case of the Dollar Global
Notes, the Dollar Depositary, and, in the case of the Sterling
Global Notes, the Common Depositary, to deliver each relevant
Global Notes to it, (iv) endorse Schedule A to each such
Global Note to reflect the increase in principal amount
resulting from such transfer or exchange, and (v) thereafter,
return each Dollar Global Note to the Dollar Depositary, and
each Sterling Global Note to the Common Depositary, together
with all information regarding the Participant accounts to be
credited in connection with such exchange or transfer.
If any such transfer is effected pursuant to this Section
2.07(d)(ii) at a time when an Unrestricted Global Note has not
yet been issued, the Company shall issue and, upon receipt of
an authentication order from the Company in accordance with
Section 2.02 hereof, the Trustee shall authenticate, one or
more Unrestricted Global Notes in an aggregate principal
amount equal to the aggregate principal amount of Book-Entry
Interests to be transferred or exchanged.
(iii) Unrestricted Definitive Registered Notes to
Book-Entry Interests in Unrestricted Global Notes. A Holder of an
Unrestricted Definitive Registered Note may exchange such Note for a
Book-Entry Interest in an Unrestricted Global Note of the same series
or transfer such Note to a Person who takes delivery thereof in the
form of a Book- Entry Interest in an Unrestricted Global Note of the
same series if the exchange or transfer complies with the requirements
of the first paragraph of this Section 2.07(d). Upon compliance with
such requirements, the Registrar shall (i) deliver the Definitive
Registered Notes surrendered for exchange or transfer to the Trustee
for cancellation pursuant to Section
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2.12 hereof, (ii) record such transfer or exchange on the Register,
(iii) instruct, in the case of the Dollar Global Notes, the Dollar
Depositary and, in the case of the Sterling Global Notes, the Common
Depositary, to deliver each relevant Global Note to it, (iv) endorse
Schedule A to each such Global Note to reflect the increase in
principal amount resulting from such transfer or exchange, and (v)
thereafter, return each Dollar Global Note to the Dollar Depositary and
each Sterling Global Note to the Common Depositary, together with all
information regarding the Participant accounts to be credited in
connection with such exchange or transfer.
If any such transfer is effected pursuant to this Section 2.07(d)(iii)
at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an authentication order from
the Company in accordance with Section 2.02 hereof, the Trustee shall
authenticate, one or more Unrestricted Global Notes in an aggregate
principal amount equal to the aggregate principal amount of Book-Entry
Interests to be transferred or exchanged.
(e) Transfer and Exchange of Definitive Registered Notes for
Definitive Registered Notes. A Definitive Registered Note may only be exchanged
for, or transferred to a Person who takes delivery thereof in the form of, a
Definitive Registered Note of the same series. In connection with any such
transfer or exchange of Definitive Registered Notes, the Holder of such Notes
shall surrender to the Registrar the Definitive Registered Notes for transfer or
exchange duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar duly executed by such Holder or by its
attorney, duly authorized in writing. In addition, the requesting Holder shall
provide any additional certifications, documents and information, as applicable,
required pursuant to the following provisions of this Section 2.07(e). Upon
request by a Holder of Definitive Registered Notes and such Holder's compliance
with the provisions of this Section 2.07(e), the Registrar shall register the
transfer or exchange of Definitive Registered Notes.
(i) Restricted Definitive Registered Notes to
Restricted Definitive Registered Notes. Any Restricted Definitive
Registered Note may be transferred to and registered in the name of a
Person who takes delivery thereof in the form of a Restricted
Definitive Registered Note of the same series if the Registrar receives
the following:
(A) if the transfer will be made pursuant to
Rule 144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit D hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to
Rule 903 or Rule 904, then the transferor must deliver a
certificate in the form of Exhibit D hereto, including the
certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to
any other exemption from the registration requirements of the
Securities Act, then the transferor must
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deliver a certificate in the form of Exhibit D hereto,
including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Registered Notes to
Unrestricted Definitive Registered Notes. Any Restricted Definitive
Registered Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Registered Note of the same series or
transferred to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Registered Note of the same series if:
(A) such exchange or transfer is effected
pursuant to an Exchange Offer in accordance with the
applicable Registration Rights Agreement and the Holder, in
the case of an exchange, or the transferee, in the case of a
transfer, certifies in the applicable letter of transmittal
that it is not (1) a Broker-Dealer that acquired the
Restricted Definitive Registered Note tendered in the Exchange
Offer directly from the Company or an Affiliate of the
Company, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined
in Rule 144) of the Company;
(B) any such transfer is effected pursuant
to a Shelf Registration Statement in accordance with the
applicable Registration Rights Agreement or pursuant to
another effective registration statement under the Securities
Act and in compliance with the prospectus delivery
requirements of the Securities Act and the transferor delivers
a certificate in the form of Exhibit D hereto including the
certifications contained in item (4) thereof; or
(C) any such transfer is effected by a
Broker-Dealer pursuant to an Exchange Offer Registration
Statement in accordance with the applicable Registration
Rights Agreement.
(iii) Unrestricted Definitive Registered Notes to
Unrestricted Definitive Registered Notes. A Holder of Unrestricted
Definitive Registered Notes may only transfer such Notes to a Person
who takes delivery thereof in the form of Unrestricted Definitive
Registered Notes of the same series. Upon receipt of a request to
register such a transfer, the Registrar shall register the Unrestricted
Definitive Registered Notes pursuant to the instructions from the
Holder thereof.
(f) Exchange Offer. Upon the occurrence of an Exchange Offer
in accordance with the applicable Registration Rights Agreement, the Company
shall issue and, upon receipt of an authentication order in accordance with
Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global
Notes in an aggregate principal amount equal to the corresponding principal
amount of the Book-Entry Interests in the Restricted Global Notes of the same
series tendered for acceptance by Persons that certify in the applicable letters
of transmittal that (x) they are not Broker- Dealers that acquired the
Book-Entry Interests tendered in such Exchange Offer directly from the Company
or an Affiliate of the Company, (y) they are not participating in a distribution
of the
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Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the
Company, and accepted for exchange in the Exchange Offer and (ii) Unrestricted
Definitive Registered Notes in an aggregate principal amount equal to the
corresponding principal amount of the Restricted Definitive Registered Notes
tendered for acceptance by Persons who certify to the effect set forth in (i)
and accepted for exchange in the Exchange Offer.
In addition, the Principal Paying Agent shall (i) endorse Schedule A to each
Unrestricted Global Note issued pursuant to the preceding paragraph to reflect
the principal amount of Restricted Global Notes of the same series tendered in
the Exchange Offer, (ii) deliver each such Unrestricted Global Note to the
relevant Depositary, (iii) instruct, in the case of the Dollar Restricted Global
Notes, the Dollar Depositary, and, in the case of the Sterling Restricted Global
Notes, the Common Depositary, to deliver each relevant Restricted Global Note to
it, (iv) endorse Schedule A to each such Restricted Global Note to reflect the
decrease in principal amount resulting from the Exchange Offer, and (v)
thereafter, return each Dollar Restricted Global Note to the Dollar Depositary
and each Sterling Restricted Global Note to the Common Depositary, together with
all information regarding the Participant accounts to be debited in connection
with the Exchange Offer.
(g) Legends. The following legends shall appear on the face of
all Global Notes and Definitive Registered Notes issued under this Indenture
unless specifically stated otherwise in the applicable provisions of this
Indenture.
(i) Restricted Notes Legend.
(A) Except as permitted by subparagraph (B)
below, each Global Note and each Definitive Registered Note
(and all Notes issued in exchange therefor or substitution
thereof) shall bear the Restricted Note Legend.
(B) Notwithstanding the foregoing, any
Global Note or Definitive Registered Note issued pursuant to
subparagraphs (b)(iii), (c)(ii), (c)(iii), (d)(ii), (d)(iii),
(e)(ii), (e)(iii) or (f) to this Section 2.07 (and all Notes
issued in exchange therefor or substitution thereof) shall not
bear the Restricted Note Legend.
(ii) Global Note Legend. Each Global Note may, if the
Company so elects, bear the applicable Global Note Legend in
substantially the form set forth in the forms of Note attached hereto
as Exhibits A, B and C.
(h) Cancellation of Global Notes. At such time as all
Book-Entry Interests therein have been exchanged for Definitive Registered
Notes, a Global Note shall be returned to or retained and canceled by the
Trustee in accordance with Section 2.12 hereof.
(i) General Provisions Relating to All Transfers and
Exchanges.
(i) To permit regulations of transfers and exchanges,
the Company shall execute and, upon the Company's order, the Trustee
shall authenticate Global Notes at the
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request of the Principal Paying Agent and the Registrar, and Definitive
Registered Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for
any registration of transfer of exchange, but the Company may require
payment of a sum sufficient to cover any stamp or transfer tax, duty or
governmental charge payable in connection therewith (other than any
such stamp or transfer taxes, duties or similar governmental charge
payable upon exchange or transfer pursuant to Sections 2.11, 3.06,
4.06, 4.07 and 9.05 hereof). The Company shall not impose any fees or
other charges in respect of the Notes; however, holders of the
Book-Entry Interests may incur fees normally payable in respect of the
maintenance and operation of accounts in DTC, Euroclear and
Clearstream.
(iii) All Global Notes and Definitive Registered
Notes issued upon any registration of transfer or exchange of Global
Notes or Definitive Registered Notes shall be the valid obligations of
the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Global Notes or Definitive
Registered Notes surrendered upon such registration of transfer or
exchange.
(iv) The Company shall not be required (A) to issue,
to register the transfer of or to exchange Notes during a period
beginning at the opening of business 15 calendar days before (1) any
date fixed for the redemption of any Notes or (2) the day of any
selection of Notes for redemption under Section 3.03 hereof and ending
at the close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed in
part, (C) to register the transfer of or to exchange a Note between a
Regular Record Date or Special Record Date, as the case may be, and the
next succeeding Interest Payment Date or Special Payment Date, as the
case may be or (D) to register the transfer of or exchange any Note
which the Holder has tendered (and not withdrawn) for repurchase in
connection with a Change of Control Offer or an Asset Sale Offer.
(v) The Trustee shall authenticate Global Notes and
Definitive Registered Notes in accordance with the provisions of
Section 2.02 hereof.
(j) If at any time after the consummation of an Exchange Offer
for any Initial Notes or Subsequent Notes, such Initial Notes or Subsequent
Notes would no longer constitute Transfer Restricted Securities, then the Holder
thereof (or the owner of a Book-Entry Interest therein) may, at its option,
exchange such Note (or Book-Entry Interest therein) for an Exchange Note of the
same series (or a Book-Entry Interest therein) in an equal principal amount by
compliance with the procedures set forth in this Section 2.07 applicable to an
exchange of Restricted Notes (or Book-Entry Interests therein) for Unrestricted
Notes (or Book-Entry Interests therein) of the same series.
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SECTION 2.08 Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Company and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Note, and there is delivered to the Company, any Subsidiary
Guarantor or the Trustee, such security or indemnity, in each case, as may be
required by it to hold it harmless, then, in the absence of notice to the
Company, any Subsidiary Guarantor or the Trustee that such Note has been
acquired by a bona fide purchaser, the Company shall issue and the Trustee, upon
the written order of the Company signed by two Officers of the Company, shall
authenticate a replacement Note of the same series if the Trustee's requirements
are met. An indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, any
Subsidiary Guarantor, the Trustee, any Agent and any authenticating agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge for its expenses in replacing a Note. If, after the delivery of such
replacement Note, a bona fide purchaser of the original Note in lieu of which
such replacement Note was issued presents for payment or registration such
original Note, the Trustee shall be entitled to recover such replacement Note
from the Person to whom it was delivered or any Person taking therefrom, except
a bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Company, the Trustee, any Agent and any authenticating agent in
connection therewith.
Every replacement Note is an additional obligation of the Company and
any Subsidiary Guarantor and shall be entitled to all of the benefits of this
Indenture equally and proportionately with all other Notes duly issued
hereunder. The provisions of this Section 2.08 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement of mutilated, destroyed, lost or stolen Notes.
SECTION 2.09 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee or the Principal Paying Agent in accordance with the provisions hereof,
and those described in this Section as not outstanding. Except as set forth in
Section 2.10 hereof, a Note does not cease to be outstanding because the Company
or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.08 hereof, it ceases to be
outstanding unless the Company, any Subsidiary Guarantor or the Trustee receives
proof satisfactory to it that the replaced Note is held by a bona fide
purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company or a Subsidiary or an
Affiliate of the Company) holds, on a redemption date, repurchase date or
maturity date, money sufficient to pay Notes payable
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on that date, then on and after that date such Notes shall be deemed to be no
longer outstanding and shall cease to accrue interest (and Liquidated Damages,
if any).
SECTION 2.10 Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes of each series have concurred in any direction, waiver or consent, Notes
owned by the Company or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee actually knows are so owned shall be so disregarded.
SECTION 2.11 Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of Definitive Registered Notes but may have variations
that the Company considers appropriate for temporary Notes and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate, upon the written order of the
Company and an Officers' Certificate, definitive Notes in exchange for temporary
Notes. Until so exchanged, temporary Notes shall be entitled to the same rights,
benefits and privileges as definitive Notes.
SECTION 2.12 Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and each Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange, payment,
replacement, redemption or purchase. The Trustee and no one else shall cancel
all Notes surrendered for registration of transfer, exchange, payment,
replacement, redemption, purchase or cancellation and shall return such canceled
Notes to the Company. The Company may not issue new Notes to replace Notes that
it has paid or that have been delivered to the Trustee for cancellation.
SECTION 2.13 Defaulted Interest.
If the Company defaults in a payment of interest or Liquidated Damages
on the Notes, it shall pay the defaulted interest or Liquidated Damages in any
lawful manner plus, to the extent lawful, interest payable on the defaulted
interest or Liquidated Damages, in accordance with the terms hereof, to (a) the
Persons who are Holders of Definitive Registered Notes, if any, on a subsequent
Special Record Date, and (b) if a Global Note is still outstanding, to the
Holder of such Global Note or such payment note, in each case at the rate
provided in the Notes and in Section 4.01 hereof. The Company shall notify the
Trustee in writing of the amount of defaulted interest or Liquidated Damages
proposed to be paid on each Note and the date of the proposed payment. The
Company shall fix or cause to be fixed each such Special Record Date and payment
date in a manner
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satisfactory to the Trustee, provided that no such Special Record Date shall be
less than 10 days prior to the related Special Payment Date for such defaulted
interest or Liquidated Damages. At least 15 days before the Special Record Date,
the Company (or, upon the written request of the Company, the Trustee in the
name and at the expense of the Company) shall give, in the manner provided in
Section 12.02 hereof, to Holders of Definitive Registered Notes, if any, and if
any Global Note is still outstanding, to the applicable Depositary, a notice
that states the Special Record Date, if any, the related payment date and the
amount of such interest or Liquidated Damages to be paid.
SECTION 2.14 CUSIP and ISIN Numbers; Common Code.
The Company in issuing Dollar Notes shall use "CUSIP" numbers and, in
issuing Sterling Notes, shall use "ISIN" numbers and common codes, and if so,
such CUSIP or ISIN numbers and common codes shall be included in notices of
redemption, repurchase or exchange as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP numbers, or ISIN numbers or common codes
printed in the notice or on the Notes, and that reliance may be placed only on
any other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee, each Paying Agent and the Registrar of any change
in a CUSIP number, ISIN number or common code.
SECTION 2.15 Substitution of Currency.
If the United Kingdom adopts the Euro to replace Sterling as the legal
tender in the United Kingdom, such adoption shall, as provided below, result in
the effective redenomination of the Sterling Notes into Euros, and the
regulations of the European Commission relating to the Euro shall apply to the
Sterling Notes. The circumstances and consequences described in this Section
2.15 entitle none of the Company, any Subsidiary Guarantors or any Holder to
early redemption, rescission, notice or repudiation of the terms and conditions
of the Sterling Notes or this Indenture or to raise other defenses or to request
any compensation claim, nor shall they affect any of the other obligations of
the Company or any Subsidiary Guarantors under the Sterling Notes and under this
Indenture.
The Company, any Subsidiary Guarantors and the Trustee shall, without
the consent of the Holders, on or after the Specified Date (as defined below)
make such modifications to the Sterling Notes and this Indenture as may be
necessary in order to facilitate payment of interest in Euros, redemption of the
Sterling Notes at the Euro-equivalent of the Sterling principal amount of the
Sterling Notes and associated reconventioning, renominalisation and related
matters as may be proposed by the Company (and confirmed by an independent
financial institution approved by the Trustee to be in conformity with then
applicable market conventions). For this purpose, "Specified Date" means the
date on which the United Kingdom participates in the third stage of European
Economic and Monetary Union pursuant to the treaty establishing the European
Community or otherwise participates in European Economic and Monetary Union in a
manner with an effect similar to such third stage.
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The Company shall give notice to Holders of the Sterling Notes of any
modifications referred to in the previous paragraph and, if the Sterling Notes
are listed on the Luxembourg Stock Exchange, and the rules of such stock
exchange shall so require, provide a copy of such notice to the Luxembourg Stock
Exchange and cause such notice to be published in a leading daily newspaper of
general circulation in Luxembourg (which may be the Luxemburger Wort).
ARTICLE III
REDEMPTION AND PREPAYMENT
SECTION 3.01 Notices to Trustee.
If the Company elects to redeem Notes of any series pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 45 days (unless a shorter period is acceptable to the Trustee)
but not more than 60 days before a redemption date, an Officers' Certificate
setting forth (i) the clause of this Indenture pursuant to which the redemption
shall occur, (ii) the redemption date, (iii) the principal amount of such Notes
to be redeemed and (iv) the redemption price.
SECTION 3.02 Selection of Notes to Be Redeemed.
If less than all of the Notes of any series are to be redeemed at any
time, the Trustee shall select Notes of such series for redemption not more than
60 days prior to the redemption date from the outstanding Notes of such series
not previously called for redemption, with respect to the Sterling Notes, in
compliance with the requirements of the Luxembourg Stock Exchange or, if the
Sterling Notes are not then listed on the Luxembourg Stock Exchange, and with
respect to the Dollar Notes, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate (subject to the procedures of DTC,
Euroclear or Clearstream, as the case may be), provided, that redemption of
portions of the principal amount of Notes is made in denominations in integral
multiples of $1,000 (in the case of the Dollar Notes) and (pound)1,000 (in the
case of the Sterling Notes).
SECTION 3.03 Notice of Redemption.
The Notes shall be redeemable in whole or in part upon not less than 30
nor more than 60 days' prior written notice given in accordance with the
requirements of Section 12.02 hereof.
The notice shall identify the Notes of such series to be redeemed
(including the applicable CUSIP/ISIN numbers/common codes) and shall state:
(a) the redemption date;
(b) the redemption price and the amount of accrued and unpaid
interest and Liquidated Damages, if any, to be paid;
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(c) if any Definitive Registered Note is being redeemed in
part, the portion of the principal amount of such Note to be redeemed and that,
after the redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name, address and telephone number of the Paying
Agent;
(e) that Notes called for redemption (other than a Global
Note) must be surrendered to the Paying Agent at the address specified to
collect the redemption price plus accrued and unpaid interest and Liquidated
Damages, if any;
(f) that, unless the Company defaults in making such
redemption payment, interest and Liquidated Damages, if applicable, on Notes of
such series called for redemption cease to accrue on and after the redemption
date;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes of such series called for redemption are
being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP/ISIN/Common Code number, if any, listed in such notice or
printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date (unless a shorter period is otherwise acceptable to the
Trustee), an Officers' Certificate requesting that the Trustee give such notice
and setting forth the information to be stated in such notice as provided in the
preceding paragraph.
SECTION 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
On and after the redemption date, interest and Liquidated Damages, if
applicable, shall cease to accrue on Notes or portions of them called for
redemption unless the Company shall default in making such redemption payment.
SECTION 3.05 Deposit of Redemption Price.
Not later than 12:00 noon, New York City time, with respect to the
Dollar Notes, and no later than 10:00 a.m., London time, with respect to the
Sterling Notes, on the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent U.S. Dollars, with respect to the Dollar Notes,
and Pounds Sterling, with respect to the Sterling Notes, sufficient to pay the
redemption price of and accrued interest and Liquidated Damages, if applicable,
on all Notes to be
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redeemed on that date. The Trustee or the Paying Agent shall promptly return to
the Company any money deposited with the Trustee or the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued and unpaid interest and Liquidated Damages, if applicable, on, all Notes
to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest and Liquidated Damages, if
applicable, shall cease to accrue on the Notes or the portions of Notes called
for redemption. If a Note is redeemed on or after an interest record date but on
or prior to the related Interest Payment Date, then any accrued and unpaid
interest (and Liquidated Damages, if any) shall be paid to the Person in whose
name such Note was registered at the close of business on such record date. If
any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest (and Liquidated Damages, if any) shall be paid on the unpaid
principal, from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case at
the respective rate provided in the Notes of the applicable series and in
Section 4.01 hereof.
SECTION 3.06 Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note of the same series equal
in principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07 Optional Redemption.
(a) (i) The 10-Year Dollar Notes may be redeemed in whole or
in part at the Company's option at any time on or after February 15,
2005 upon not less than 30 nor more than 60 days' prior notice, at the
redemption prices (expressed as percentages of the principal amount
thereof) set forth below plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the applicable redemption date, if
redeemed during the 12-month period beginning on February 15 of the
years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005.......................................................105.375%
2006.......................................................103.583%
2007.......................................................101.792%
2008 and thereafter........................................100.000%
</TABLE>
(ii) The 10-Year Dollar Notes may be redeemed in
whole or in part at the Company's option at any time prior to February
15, 2005, upon not less than 30 nor more than 60 days' prior notice, at
a redemption price equal to the then outstanding principal amount of
the Notes being redeemed plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption plus a premium
equal to the excess of (i) the
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present value, at the time of redemption, of the principal amount of
the 10-Year Dollar Notes begin redeemed, plus premium thereon
applicable to 10-Year Dollar Notes redeemable at the option of the
Company on February 15, 2005, and any required interest payments due on
the 10-Year Dollar Notes being redeemed through February 15, 2005,
computed using a discount rate equal to the applicable Treasury Rate
plus 50 basis points over (ii) the then outstanding principal amount of
the 10-Year Dollar Notes being redeemed.
(b) The 7-Year Dollar Notes may be redeemed in whole or in
part at the Company's option at any time prior to maturity, upon not less than
30 nor more than 60 days' prior notice, at a redemption price equal to the then
outstanding principal amount of 7-Year Dollar Notes being redeemed plus accrued
and unpaid interest thereon and Liquidated Damages, if any, to the date of
redemption plus a premium equal to the excess of (i) the present value at the
time of redemption of the principal amount of the 7-Year Dollar Notes being
redeemed and any required interest payments due on the 7-Year Dollar Notes being
redeemed through Stated Maturity, computed using a discount rate equal to the
Treasury Rate plus 50 basis points over (ii) the then outstanding principal
amount of the 7-Year Dollar Notes being redeemed.
(c) The 7-Year Sterling Notes may be redeemed in whole or in
part at the Company's option at any time prior to maturity, upon not less than
30 nor more than 60 days' prior notice, at a redemption price equal to the then
outstanding principal amount of the 7-Year Sterling Notes being redeemed plus
accrued and unpaid interest thereon and Liquidated Damages, if any, to the date
of redemption plus a premium equal to the excess of (x) the present value at the
time of redemption of the principal amount of the 7-Year Sterling Notes being
redeemed and any required interest payments due on the 7-Year Sterling Notes
being redeemed through Stated Maturity, computed using a discount rate equal to
the Gilt Rate plus 50 basis points over (y) the then outstanding principal
amount of the 7-Year Sterling Notes being redeemed.
(d) In addition, prior to February 15, 2003, the Company may
on any one or more occasions redeem up to 35% of the aggregate principal amount
of the Notes of each series originally issued under this Indenture (except
pursuant to an Exchange Offer) at a redemption price of (x) in the case of the
7-Year Dollar Notes, 110.375% of the principal amount thereof, (y) in the case
of the 10-Year Dollar Notes, 110.75% of the principal amount thereof, and (z) in
the case of the 7-Year Sterling Notes, 110.375% of the principal amount thereof,
in each case plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the redemption date, with all or part of the net cash proceeds of one or
more Public Equity Offerings; provided, however, that (1) at least 65% in
aggregate principal amount of the Notes of the applicable series originally
issued under the Indenture (except pursuant to an Exchange Offer) remains
outstanding immediately after the occurrence of such redemption (excluding Notes
of such series held by the Company and its Subsidiaries); and (2) the redemption
must occur within 60 days of the closing of such Public Equity Offering.
(e) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
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SECTION 3.08 Mandatory Redemption.
Except as set forth under Sections 4.06 and 4.07 hereof, the Company
shall not be required to make mandatory redemption payments with respect to any
series of the Notes.
SECTION 3.09 Offer to Purchase by Application of Net Proceeds.
In the event that, pursuant to Section 4.07 hereof, the Company shall
be required to commence an Asset Sale Offer to all Holders and all holders of
other Senior Debt of the Company that is pari passu with the Notes containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the Net Proceeds of sales of assets to purchase the
maximum principal amount of Notes and such other Senior Debt and that may be
purchased out of Excess Proceeds, it shall follow the procedures specified
below.
The Asset Sale Offer shall remain open for a period of at least 30 days
following its commencement but no longer than 60 days, except to the extent that
a longer period is required by applicable law (the "Offer Period"). Promptly
after the termination of the Offer Period (the "Purchase Date"), the Company
shall purchase the principal amount of Notes required to be purchased pursuant
to Section 4.07 hereof (the "Offer Amount") or, if less than the Offer Amount
has been tendered, all Notes tendered and not withdrawn in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related Interest Payment Date, accrued and unpaid interest, if any,
and Liquidated Damages (to the extent involving interest that is due and payable
on such Interest Payment Date), if any, shall be paid to the Person in whose
name a Note is registered at the close of business on such record date, and no
additional interest (or Liquidated Damages, if any) shall be payable to Holders
who validly tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall give,
in accordance with Section 12.02 hereof, a notice to each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.07 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
(c) that any Note not validly tendered or accepted for payment
shall continue to accrue interest and Liquidated Damages, if applicable;
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(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest and Liquidated Damages, if applicable, after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, or Depositary, if
appointed by the Company, or a Paying Agent at the address specified in the
notice at least three days before the Purchase Date;
(f) that Holders shall be entitled to withdraw their election
if the Company, the Depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes and such
other Senior Debt tendered into such Asset Sale Offer exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and such other Senior Debt
to be purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000 or
(pound)1,000, as the case may be, or integral multiples thereof, shall be
purchased); and
(h) that Holders whose Notes were purchased only in part shall
be issued new Notes (accompanied by a notation of the Subsidiary Guarantees, if
any, duly endorsed by the Subsidiary Guarantors) equal in principal amount to
the unpurchased portion of the Notes surrendered (or transferred by book-entry
transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof validly tendered and not properly
withdrawn pursuant to the Asset Sale Offer, or if less than the Offer Amount has
been validly tendered and not properly withdrawn, all Notes so tendered and not
withdrawn, and shall deliver to the Trustee an Officers' Certificate stating
that such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. Upon surrender and cancellation
of a Definitive Registered Note that is purchased in part, the Company shall
promptly issue and the Trustee shall authenticate and deliver to the
surrendering Holder of such Definitive Registered Note a new Definitive
Registered Note equal in principal amount to the unpurchased portion of such
surrendered Definitive Registered Note; provided that each such new Definitive
Registered Note shall be in a principal amount of $1,000 or (pound)1,000, as the
case may be, or an integral multiple thereof. Upon surrender of a Global Note
that is purchased in part pursuant to an Asset Sale Offer, the Paying Agent
shall forward such Global Note to the Trustee who shall make an endorsement
thereon to reduce the principal amount of such Global Note to an amount equal to
the unpurchased portion of such Global Note, as provided in Section 2.07 hereof.
The Company, the Depositary or the Paying Agent, as the case may be, shall
promptly mail or deliver to each tendering Holder an amount equal to the
purchase price of the Notes
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tendered by such Holder and accepted by the Company for purchase, plus accrued
and unpaid interest and Liquidated Damages, if any, to the Purchase Date, and
the Company shall promptly issue a new Note (in each case, accompanied by a
notation of the Subsidiary Guarantees, if any, duly endorsed by the Subsidiary
Guarantors), and the Trustee, upon written request from the Company shall
authenticate and mail (or caused to be transferred by book entry) such new Note
to such Holder, in a principal amount equal to any unpurchased portion of the
Note tendered. Any Note not so accepted shall be promptly mailed (or caused to
be transferred by book entry) by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on or as soon as
practicable after the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
SECTION 3.10 Notices Upon Partial Redemption or Repurchase of Sterling Notes.
If the Sterling Notes are listed on the Luxembourg Stock Exchange and
the rules and regulations of the Luxembourg Stock Exchange so require, the
Company shall, once in each year in which there has been a partial redemption of
Sterling Notes under this Article III or a partial repurchase of Sterling Notes
pursuant to an Asset Sale Offer under Section 4.07 or a Change of Control Offer
under Section 4.06, cause to be published in a leading daily newspaper of
general circulation in Luxembourg (which may be the Luxemburger Wort) a notice
specifying the aggregate principal amount of Sterling Notes outstanding and a
list of the Sterling Notes redeemed pursuant to this Article III or repurchased
pursuant to such Asset Sale Offer or Change of Control Offer.
ARTICLE IV
COVENANTS
SECTION 4.01 Payment of Notes.
(a) The Company shall pay or cause to be paid the principal
of, premium, if any, interest, and Liquidated Damages, if any, on the Dollar
Notes on the dates and in the manner provided in the Dollar Notes and in this
Indenture. The Company shall pay such amount in money of the United States that
at the time of payment is legal tender for payment of public and private debts.
(b) The Company shall pay or cause to be paid the principal
of, premium, if any, and Liquidated Damages, if any, on the Sterling Notes on
the dates and in the manner provided in the Sterling Notes and in this
Indenture. The Company shall pay such amounts in money of the United Kingdom
that at the time of payment is legal tender for payment of public and private
debts.
(c) Principal, premium, if any, interest and Liquidated
Damages shall be considered paid on the date due if a Paying Agent, if other
than the Company, holds no later than
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12:00 noon, New York City time (with respect to the Dollar Notes), and no later
than 10:00 a.m., London time (with respect to the Sterling Notes), on the due
date U.S. dollars (with respect to the Dollar Notes) and Pounds Sterling (with
respect to the Sterling Notes) deposited by the Company by check or transfer of
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, interest and Liquidated Damages then due. The
Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the applicable Registration Rights
Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal of Notes of any series
at the interest rate provided for in the Notes of such series to the extent
lawful. The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) of Notes of
any series at the same rate to the extent lawful.
SECTION 4.02 Maintenance of Office or Agency.
The Company shall maintain an office or agency (which may be an office
of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where
Notes may be surrendered for payment or presented for registration of transfer
or for exchange and where notices and demands to or upon the Company in respect
of the Notes and this Indenture may be served in accordance with the terms and
conditions set forth in Section 2.03 hereof.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the City of New York and Luxembourg) where
the Notes may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in location of any such other office or agency.
SECTION 4.03 Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, beginning with the fiscal year ending
December 31, 2000, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company and each Subsidiary Guarantor, if any, have
kept, observed, performed and fulfilled their respective obligations under this
Indenture and further stating, as to each such Officer signing such certificate,
that to the best of his or her knowledge the Company and each Subsidiary
Guarantor, if any, have kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture (or,
if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company or such Subsidiary Guarantor, as the case may be, is taking
or proposes to take with respect thereto).
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(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements referred to in Section 4.15(a) shall be
accompanied by a written statement of the Company's independent public
accountants that in making the examination necessary for certification of such
financial statements, nothing has come to their attention that would lead them
to believe that the Company has violated any provisions of Article IV or Article
V hereof as to which such accountants have professional competence or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer of the Company
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
SECTION 4.04 Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon its or its Subsidiaries' income,
profits or property and (b) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon its property; provided that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate negotiations or
proceedings and for which disputed amounts any reserves required in accordance
with GAAP have been made.
SECTION 4.05 Stay, Extension and Usury Laws.
The Company and each Subsidiary Guarantor, if any, covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such
power as though no such law has been enacted.
SECTION 4.06 Change of Control.
(a) If a Change of Control occurs with respect to Notes of any
series, each Holder of Notes of such series shall have the right to require the
Company to repurchase all or any part (equal to $1,000 or (pound)1,000, as the
case may be, or an integral multiple thereof) of that Holder's Notes pursuant to
the offer described below (the "Change of Control Offer"). In the Change of
Control Offer, the Company shall offer a "Change of Control Purchase Price" in
cash equal to 101% of the
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aggregate principal amount of Notes repurchased plus accrued and unpaid interest
thereon and Liquidated Damages, if any, to the Change of Control Repurchase Date
(as defined below).
(b) Within 30 days following any Change of Control, the
Company shall give a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the Change of Control Repurchase Date specified in such notice,
pursuant to the procedures required by this Indenture and described in such
notice. If the Change of Control Repurchase Date is on or after a record date
and on or before the related Interest Payment Date, any accrued and unpaid
interest and Liquidated Damages (to the extent involving interest that is due
and payable on such Interest Payment Date), if any, shall be paid to the Person
in whose name a Note is registered at the close of business on such record date,
and no additional interest (or Liquidated Damages, if any) (to the extent
involving interest that is due and payable on such Interest Payment Date) shall
be payable to Holders who validly tender Notes pursuant to the Change of Control
Offer. The Company shall comply with the requirements of Rule 14e-l under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
(c) Within 30 days following any Change of Control, the
Company shall give, in accordance with Section 12.02, a notice to each Holder,
with a copy of such notice to the Trustee. The notice, which shall govern the
terms of the Change of Control Offer, shall state, among other things:
(i) that a Change of Control has occurred and that
such Holder has the right to require the Company to repurchase such
Holder's Notes at the Change of Control Purchase Price plus accrued and
unpaid interest thereon and Liquidated Damages, if any, to the Change
of Control Repurchase Date;
(ii) the "Change of Control Repurchase Date," which
shall be no earlier than 30 days and no later than 60 days after the
date such notice is mailed;
(iii) the circumstances and relevant fact regarding
such Change of Control, including information with respect to pro forma
historical income, cash flow and capitalization after giving effect to
such Change of Control;
(iv) that any Notes (or portions thereof) not validly
tendered shall continue to accrue interest and Liquidated Damages, if
applicable;
(v) that any Note accepted for payment pursuant to
the Change of Control Offer (and duly paid for on the Change of Control
Repurchase Date) shall cease to accrue interest and Liquidated Damages,
if applicable, after the Change of Control Repurchase Date;
(vi) that Holders electing to have a Note purchased
pursuant to any Change of Control Offer shall be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, or transfer by book-entry
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transfer, to a Paying Agent at the address specified in the notice
prior to the close of business on the Change of Control Repurchase
Date;
(vii) that Holders shall be entitled to withdraw
their election if the Paying Agent receives, not later than the close
of business of the third Business Day, or such shorter periods as may
be required by applicable law, preceding the Change of Control
Repurchase Date, a telegram, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Notes the
Holder delivered for repurchase and a statement that such Holder is
withdrawing his election to have such Note repurchased; and
(viii) that Holders which elect to have their Notes
repurchased only in part shall be issued new Notes in a principal
amount equal to the unpurchased portion of the Notes surrendered.
Such notice also shall contain any other instructions and any other
information necessary to enable Holders to tender their Notes (or portions
thereof) and have such Notes (or portions thereof) purchased pursuant to the
Change of Control Offer.
(d) Subject to Section 4.06(i), on the Change of Control
Repurchase Date, the Company shall, to the extent lawful:
(i) accept for payment all Notes or portions thereof
properly tendered and not withdrawn pursuant to the Change of Control
Offer;
(ii) deposit by 12:00 noon, New York time with
respect to the Dollar Notes and 10:00 a.m., London time, with respect
to the Sterling Notes with a Paying Agent an amount equal to the Change
of Control Repurchase Price, plus accrued and unpaid interest thereon
and Liquidated Damages, if any, to the Change of Control Repurchase
Date, in respect of all Notes or portions thereof so tendered; and
(iii) deliver or cause to be delivered to a Paying
Agent the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company.
(e) A Paying Agent shall promptly mail to each Holder of Notes
so tendered the Change of Control Purchase Price for such Notes, plus accrued
and unpaid interest thereon and Liquidated Damages, if any, to the Change of
Control Repurchase Date.
(f) Upon surrender and cancellation of a Note that is
purchased in part pursuant to the Change of Control Offer, the Company shall
promptly issue and the Trustee shall authenticate and mail (or cause to be
transferred by book entry) to the surrendering Holder of such Note a new Note
equal in principal amount to the unpurchased portion of such surrendered Note;
provided that each such new Note shall be in principal amount of $1,000 or
(pound)1,000, as the case may be, or an integral multiple thereof.
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(g) The Company shall publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Repurchase Date.
(h) The provisions described in this Section 4.06 require the
Company to make a Change of Control Offer following a Change of Control shall be
applicable regardless of whether or not any other provisions of this Indenture
are applicable.
(i) Notwithstanding the other provisions of this Section 4.06,
the Company shall not be required to make a Change of Control Offer upon a
Change of Control, and a Holder shall not have the right to require that the
Company repurchase any Notes pursuant to a Change of Control Offer, if a third
party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in this Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
SECTION 4.07 Limitations on Asset Sales.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless:
(i) the Company (or the Restricted Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets or Capital Stock
issued or sold or otherwise disposed of;
(ii) such fair market value is determined in good
faith by the Board of Directors, whose determination shall be
conclusive, and evidenced by a Board Resolution; and
(iii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of
cash.
For purposes of this provision, each of the following shall be deemed
to be cash:
(A) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms
subordinated to the Notes or any Subsidiary Guarantee) that
are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability; and
(B) any securities, notes or other
obligations received by the Company or any such Restricted
Subsidiary from such transferee that are converted within 90
days by the Company or such Restricted Subsidiary into cash
(to the extent of the cash received in that conversion); and
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(C) Voting Stock of another Person engaged
in a Permitted Business, provided that, after giving effect to
the receipt of such Voting Stock, the aggregate book value, as
determined in accordance with GAAP, of all such Voting Stock
owned by the Company and its Restricted Subsidiaries,
excluding the Voting Stock of any Restricted Subsidiary,
represents less than 15% of Consolidated Total Assets of the
Company.
(b) Within 365 days after the Asset Sale, the Company or any
Restricted Subsidiary may apply such Net Proceeds at its option:
(i) to repay Senior Debt of the Company or any
Restricted Subsidiaries (and to correspondingly permanently reduce
commitments with respect thereto in the case of revolving borrowings),
including to repurchase any Notes;
(ii) to acquire all or substantially all of the
assets of, or any Voting Stock of, another Person engaged in a
Permitted Business, provided that, after giving effect to the
acquisition of such Voting Stock, the aggregate book value, as
determined in accordance with GAAP, of all such Voting Stock owned by
the Company and its Restricted Subsidiaries, excluding the Voting Stock
of any Restricted Subsidiary, represents less than 15% of Consolidated
Total Assets of the Company;
(iii) to make a capital expenditure; or
(iv) to acquire other long-term assets that are used
or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, the Company or any
Restricted Subsidiary may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited by this
Indenture.
(c) Any Net Proceeds from Asset Sales that are not applied or
invested as provided in Section 4.07(b) above shall constitute excess proceeds
("Excess Proceeds"). When the aggregate amount of Excess Proceeds exceeds $25.0
million, the Company shall make a pro rata offer (an "Asset Sale Offer") to all
Holders of Notes and all holders of other Senior Debt of the Company that is
pari passu with the Notes containing provisions similar to those set forth in
this Indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum principal amount of Notes and such other
Senior Debt that may be purchased out of the Excess Proceeds. The offer price in
any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase, and
shall be payable in cash. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by this Indenture. If the aggregate principal amount of
Notes and such other Senior Debt tendered into such Asset Sale Offer exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes and such other
Senior Debt to be purchased on a pro rata basis. Upon completion of each
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Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. The
Company shall comply with all applicable tender offer rules, including, without
limitation, Rule 14e-1 under the Exchange Act, in connection with any
repurchased Notes upon an Asset Sale Offer.
(d) To the extent that any or all of the Net Proceeds of any
Foreign Asset Sale is prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Proceeds so affected
shall not be required to be applied at the time provided above, but may be
retained by the applicable Restricted Subsidiary so long, but only so long, as
the applicable local law shall not permit repatriation to the United States. The
Company shall agree promptly to take or cause the applicable Subsidiary to
promptly take all commercially reasonable actions required by the applicable
local law to permit such repatriation. Once such repatriation of any of such
affected Net Proceeds is permitted under the applicable local law, such
repatriation shall be promptly effected and such repatriated Net Proceeds shall
be applied in the manner set forth in this provision as if such Foreign Asset
Sale had occurred on the date of such repatriation.
To the extent that the Board of Directors determines, in good faith,
that repatriation of any or all of the Net Proceeds of any Foreign Asset Sale
would have a material adverse tax consequence to the Company, the Net Proceeds
so affected need not be repatriated to the United States by the applicable
Restricted Subsidiary for so long as such material adverse tax consequence would
continue.
SECTION 4.08 Restricted Payments.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, make any Restricted Payment after the Issue Date of
the Notes if at the time of such Restricted Payment and after giving effect
thereto:
(a) an Event of Default or a Default shall have occurred and
be continuing;
(b) the Company could not Incur at least $1 of Debt under
Section 4.09(a);
(c) the aggregate amount of all Restricted Payments made by
the Company and its Restricted Subsidiaries--the amount so made, if other than
in cash, to be determined in good faith by the Board of Directors, as evidenced
by a Board Resolution--after the Issue Date of the Notes shall exceed the sum,
without duplication, of:
(i) $10 million plus 50% of the Net Income of the
Company and its consolidated Restricted Subsidiaries for the period,
taken as one accounting period, beginning on the first day of the
fiscal quarter during which the Issue Date occurs and ending on the
last day of the fiscal quarter immediately prior to the date of such
calculation; provided that if Net Income for such period is less than
zero, then minus 100% of the amount of such net loss; plus
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(ii) the aggregate net proceeds, including the fair
market value of proceeds other than cash, as determined in good faith
by the Board of Directors, received by the Company from and after the
Issue Date of the Notes from (A) the contribution to the common equity
capital of the Company or (B) the issuance and sale other than to a
Restricted Subsidiary of its Capital Stock--excluding Redeemable Stock,
but including Capital Stock other than Redeemable Stock issued upon
conversion of, or in exchange for, Redeemable Stock or securities other
than its Capital Stock--and warrants, options and rights to purchase
its Capital Stock other than Redeemable Stock, but excluding (1) the
net proceeds from the issuance, sale, exchange, conversion or other
disposition of its Capital Stock convertible --whether at the option of
the Company or the holder thereof or upon the happening of any
event--into (x) any security other than its Capital Stock or (y) its
Redeemable Stock or (2) net proceeds consisting of evidences of Debt or
securities other than Capital Stock; plus
(iii) any amount previously included as a Restricted
Payment on account of an obligation by the Company or any Restricted
Subsidiary to make a Restricted Payment which has not actually been
made by the Company or any Restricted Subsidiary and which is no longer
required to be made by the Company or any Restricted Subsidiary;
provided that the foregoing clause (c) shall not prevent the payment of any
dividend within 60 days after the date of its declaration if such dividend could
have been paid on the date of its declaration without violation of the
provisions of this Section 4.08.
SECTION 4.09 Limitations on Debt.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur any Debt, including Acquisition
Debt; provided, however, that the Company may Incur Debt, and any Restricted
Subsidiary may Incur Acquisition Debt, if, after giving effect to the Incurrence
of such Debt and the receipt and application of the proceeds therefrom, the
Fixed Charge Ratio of the Company would be equal to or greater than 2.0 to 1.0.
(b) Notwithstanding Section 4.09(a), the Company and, to the
extent set forth below, the Restricted Subsidiaries, may Incur each and all of
the following:
(i) Debt of the Company Incurred under Permitted
Working Capital Facilities in an aggregate principal amount (together
with the maximum amount of letter of credit reimbursement obligations
thereunder) at any one time outstanding not to exceed (A) the greater
of (1) $200 million and (2) 5% of Consolidated Total Assets of the
Company, plus (B) Debt of the Company, the proceeds of which are used
to refinance Debt Incurred pursuant to clause (iii) of this covenant,
less (C) the aggregate amount of all Net Proceeds of Asset Sales
applied by the Company to repay any such Debt pursuant to Section 4.07;
(ii) Debt of any Restricted Subsidiary Incurred under
Permitted Working Capital Facilities in an aggregate principal amount
(together with the maximum amount of letter of credit reimbursement
obligations thereunder) at any one time outstanding for all
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Restricted Subsidiaries under this clause (ii) not to exceed (A) the
greater of (1) $100 million and (2) 50% of the amount determined
pursuant to sub-clause (A) of the preceding clause (i), less (B) the
aggregate amount of all Net Proceeds of Asset Sales applied by such
Restricted Subsidiary to repay any such Debt pursuant to Section 4.07;
(iii) Debt of any Restricted Subsidiary Incurred
under the Azurix Europe Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed (A) the U.S. Dollar
Equivalent of (pound)425.0 million less (B) Debt of the Company or any
Restricted Subsidiary, the proceeds of which are used to refinance Debt
Incurred under the Azurix Europe Credit Facility, less (C) the
aggregate amount of all Net Proceeds of Asset Sales applied by such
Restricted Subsidiary to repay any such Debt pursuant to Section 4.07;
(iv) Debt issued in exchange for, or the proceeds of
which are used to refinance, outstanding Notes in the amount originally
issued under this Indenture, or other Debt of the Company or any
Restricted Subsidiary Incurred other than pursuant to clauses (i),
(ii), (iii), (v), (vii) and (xi) hereof, in each case in an amount--or,
if such new Debt provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration
thereof, with an original issue price--not to exceed the amount so
exchanged or refinanced (plus accrued interest, prepayment premiums,
and fees and expenses related to such exchange or refinancing), the
amount so exchanged or refinanced being equal to the lesser of:
(A) the principal amount or involuntary
liquidation preference of the Debt so exchanged or refinanced;
and
(B) if the Debt being exchanged or
refinanced was issued with an original issue discount, the
accreted value thereof, as determined in accordance with GAAP,
at the time of such refinancing;
provided that (x) if the Debt being exchanged or refinanced was issued
by the Company and is Subordinated Debt, such new Debt of the Company
shall be subordinated to the Notes at least to the same extent as the
Debt being refinanced, (y) if the Debt being exchanged or refinanced
was issued by a Restricted Subsidiary, the new Debt shall be
Non-Recourse to the Company to no lesser extent than the Debt to be
exchanged or refinanced and shall be Non-Recourse to any other
Restricted Subsidiary to no lesser extent than the Debt to be exchanged
or refinanced, and (z) the Average Life of the new Debt shall be equal
to or greater than the Average Life of the Debt to be exchanged or
refinanced;
(v) Debt of the Company owing to and held by any of
its Restricted Subsidiaries, or Debt of a Restricted Subsidiary owing
to and held by the Company or any other Restricted Subsidiary, provided
that in each case:
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(A) any transfer of the Debt Incurred under
this clause (v) by a Restricted Subsidiary other than to the
Company or another Restricted Subsidiary; and
(B) the occurrence of any transaction that
results in a Restricted Subsidiary holding Debt Incurred under
this clause (v) ceasing to be a Restricted Subsidiary,
shall be deemed to be an Incurrence of such Debt not in compliance with
this clause (v);
(vi) Debt Incurred by any Restricted Subsidiary which
is Non-Recourse to the Company and is Non-Recourse to any other
Restricted Subsidiary, provided that any event that causes such Debt to
cease to be Non-Recourse to the Company or any other Restricted
Subsidiary shall be deemed to be an Incurrence of such Debt not in
compliance with this clause (vi);
(vii) Debt of the Company or any Restricted
Subsidiary in an aggregate principal amount not to exceed $100 million
at any one time outstanding;
(viii) Debt of the Company or any Restricted
Subsidiary in respect of Currency Protection Agreements or Interest
Rate Protection Agreements;
(ix) Debt of the Company or any Restricted Subsidiary
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of
the Company or any Restricted Subsidiaries pursuant to such agreements,
in each case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary;
(x) Debt of the Company or any Restricted Subsidiary
outstanding as of the Issue Date of the Notes;
(xi) Debt of the Company or any Restricted Subsidiary
to the extent its principal is secured by a Lien on cash or cash
equivalents in an equivalent amount, provided that any event that
causes such cash or cash equivalents to be released from such Lien
(other than to repay such Debt) shall be deemed to be an Incurrence of
such Debt not in compliance with this clause (xi) to the extent of the
principal amount of the Debt previously so secured;
(xii) Debt of a Restricted Subsidiary that does not
own any Capital Stock of any other Restricted Subsidiary or any other
material assets and that engages only in the business of Incurring Debt
and lending the proceeds thereof to other Restricted Subsidiaries or
other Persons in which the Company beneficially owns Capital Stock, and
any Guarantee by any other Restricted Subsidiary of any such Debt (but
only to the extent such other Restricted Subsidiary has obtained the
proceeds of that Debt), provided that any such
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Restricted Subsidiary that receives such proceeds could Incur such Debt
pursuant to the provisions of this Section 4.09 other than pursuant to
clause (v); and
(xiii) Debt of the Company pursuant to the Notes
issued on the Issue Date, together with any Exchange Notes issued
pursuant to a Registration Rights Agreement in exchange for Notes of
such series issued on the Issue Date or Subsequent Notes of such series
issued after the Issue Date in compliance with this Indenture.
For purposes of determining compliance with this Section 4.09, in the
event that an item of Debt meets the criteria of more than one of the types of
Debt described in the above clauses, the Company, in its sole discretion, shall
classify such item of Debt and only be required to include the amount and type
of such Debt in one of such clauses.
SECTION 4.10 Limitations on Liens.
The Company may not Incur any Debt which is secured, directly or
indirectly, with, nor shall the Company grant or cause or suffer to exist, a
Lien on the Property of the Company now owned or hereafter acquired to secure
any Debt of the Company unless contemporaneous therewith or prior thereto the
Notes are equally and ratably secured.
Notwithstanding the foregoing, the Company may grant or cause or suffer
to exist, each and all of the following Liens on its Property, whether now owned
or hereafter acquired:
(a) Liens securing Debt, which Liens were existing on the
Property of any entity at the time such Property is acquired by the Company,
whether by merger, consolidation, purchase of assets or otherwise; provided that
such Liens:
(x) are not created, incurred or assumed in
contemplation of such Property being acquired by the Company,
and
(y) do not extend to any other Property of the
Company;
(b) Liens securing any other Debt to be equally and ratably
secured as a result of the Incurrence of such Debt;
(c) Liens on the Capital Stock held by the Company in any
Subsidiary or in any Joint Venture in which the Company is or becomes a partner,
shareholder, member or other participant, which Liens are (x) granted in respect
of the Capital Stock of a Restricted Subsidiary to secure Debt Incurred in
compliance with Section 4.09, (y) granted in respect of the Capital Stock of an
Unrestricted Subsidiary, or (y) granted in good faith in connection with the
financing of the acquisition of such Capital Stock, provided that in the case of
this clause (y) the management of the Company determines in good faith, as
evidenced by an Officers' Certificate, that such Liens are required in order to
effect such financing and are not materially more restrictive, taken as a whole,
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than Liens, taken as a whole, customarily accepted -- or in the absence of any
industry custom, reasonably acceptable -- in substantially Non-Recourse project
financing;
(d) Liens existing on the Issue Date of the Notes;
(e) purchase money Liens incurred to secure Debt Incurred by
the Company as permitted by Section 4.09, which Debt finances the purchase price
of Property acquired in the ordinary course of business or the cost of any
improvements or construction with respect to such Property, and which Liens
shall not cover any Property other than that being purchased, improved or
constructed;
(f) Liens on any Property of the Company securing obligations
pursuant to Permitted Working Capital Facilities of the Company Incurred in
compliance with Section 4.09;
(g) Liens incurred in connection with Capitalized Lease
Obligations, Currency Protection Agreements or Interest Rate Protection
Agreements Incurred by the Company as permitted by Section 4.09; and
(h) Liens in respect of extensions, renewals, refunding or
refinancing of any Debt secured by any of the Liens referred to in clauses (a)
through (g) above, provided that the Liens in connection with such renewal,
extension, refunding or refinancing shall be limited to all or part of the
specific Property which was subject to the original Lien.
SECTION 4.11 Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to:
(a) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company directly or indirectly,
(b) make payments in respect of any Debt owed to the Company
or any other Restricted Subsidiary,
(c) make loans or advances to the Company or any other
Restricted Subsidiary, or
(d) transfer any of its Property to the Company or any other
Restricted Subsidiary, other than, in case of clauses (a) through (d), those
encumbrances and restrictions created or existing:
(i) on the Issue Date of the Notes,
(ii) pursuant to this Indenture,
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(iii) in connection with the creation of any
Permitted Working Capital Facility or the Incurrence of any Debt
permitted under Section 4.09(b)(iii), (iv), (v) and (vi),
(iv) in connection with the execution and delivery of
contracts to which such Restricted Subsidiary is a party in connection
with, or as a condition to, the negotiation, procurement or award of a
concession from a governmental body,
(v) pursuant to applicable law, rules or regulations
or orders or ruling of governmental authorities,
(vi) customary provisions in Joint Venture
agreements,
(vii) pursuant to customary non-assignment provisions
in leases or other contracts entered into in the ordinary course of
business of the Company or any Subsidiary,
(viii) pursuant to an agreement entered into for the
sale or disposition of all or substantially all of the Capital Stock or
assets of any Subsidiary or Joint Venture that apply pending the
closing of such sale or disposition,
(ix) in the form of Liens which are not prohibited by
the Section 4.10 and that contain customary limitations on the transfer
of collateral,
(x) any agreement or other instrument of a Person
acquired by the Company or any Restricted Subsidiary in existence at
the time of such acquisition which was not created in contemplation of
the acquisition, which encumbrance or restriction is not applicable to
any other Person, or the Properties of any other Person, other than the
Person, or the Property of the Person, so acquired, and
(xi) any agreement that extends, renews, refinances
or replaces an agreement containing encumbrances or restrictions in
compliance with the foregoing limitations, if the terms and conditions
of those encumbrances or restrictions are not, taken as a whole,
materially less favorable to the Holders of the Notes than those under
or pursuant to the agreement so extended, renewed, refinanced or
replaced.
SECTION 4.12 Transactions with Affiliates.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make any contract, agreement,
understanding, loan, advance or Guarantee with, or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless:
(i) the Affiliate Transaction is on terms that are no
less favorable to the Company or its Restricted Subsidiary than those
that would have been obtained in a
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comparable transaction by the Company or its Restricted Subsidiary with
an unrelated Person and
(ii) the Company delivers to the Trustee with respect
to any Affiliate Transaction or any series of related Affiliate
Transactions involving aggregate consideration in excess of $25
million:
(A) a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that the
Affiliate Transaction complies with this Section 4.12 and that
the Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors or, in the
absence of any disinterested members of the Board of
Directors, by all members of the Board of Directors; or
(B) an opinion as to the fairness to the
Company or the relevant Restricted Subsidiary, as the case may
be, of the Affiliate Transaction from a financial point of
view issued by a nationally recognized expert in evaluating
the fairness of such transactions.
(b) The following items shall not be deemed to be Affiliate
Transactions and, therefore, shall not be subject to the provisions of Section
4.12(a):
(i) any employment or indemnification agreement, or
employee or director loan, compensation or benefit arrangements entered
into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business;
(ii) transactions between or among the Company or its
Restricted Subsidiaries on the one hand, and Enron and its Affiliates
on the other hand under agreements described in the Offering
Memorandum, and any extension, renewal or modification thereof,
provided that the extension, renewal or modification is not materially
less favorable to Holders of Notes than under the agreement so
described;
(iii) transactions permitted by Section 4.08;
(iv) payments of reasonable directors' fees to
Persons who are not otherwise Affiliates of the Company or its
Restricted Subsidiaries; and
(v) any transaction between the Company and a
Restricted Subsidiary or Joint Venture or between a Restricted
Subsidiary and another Restricted Subsidiary or Joint Venture.
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SECTION 4.13 Limitations on Issuances of Guarantees by Restricted Subsidiaries.
The Company shall not cause or permit any of its Restricted
Subsidiaries, directly or indirectly, to Guarantee the payment of any Debt of
the Company unless such Restricted Subsidiary shall become a Subsidiary
Guarantor by simultaneously executing and delivering a supplemental indenture to
this Indenture, in substantially the form of Exhibit H hereto, pursuant to
Section 10.08, providing for the Guarantee of the payment of the Notes by such
Restricted Subsidiary. If the other Debt of the Company so Guaranteed is pari
passu with the Notes, then the Guarantee of that Debt shall be pari passu with
or subordinated to the Subsidiary Guarantee. If the other Debt of the Company so
Guaranteed is subordinated to the Notes, then the Guarantee of that Debt shall
be subordinated to the Subsidiary Guarantee at least to the same extent that the
other Debt of the Company so Guaranteed is subordinated to the Notes.
Before any Restricted Subsidiary provides any Subsidiary Guarantee of
the Notes under this covenant, the Company shall perform, or cause its
Subsidiaries to perform, all procedures under the English Companies Act
necessary to ensure that such Subsidiary Guarantee complies with the applicable
restrictions on providing financial assistance under the English Companies Act.
SECTION 4.14 Limitations on Sale/Leaseback Transactions.
For so long as any of the Notes remain outstanding, the Company shall
not, nor shall it permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction unless:
(a) such transaction involves a lease for a term, including
renewals, of not more than three years; or
(b) such transaction is between the Company or a Restricted
Subsidiary, on the one hand, and another Restricted Subsidiary on the other
hand; or
(c) (i) the Company would be entitled to Incur Debt
secured by a Lien on the Property involved in such transaction at least
equal in amount to the Attributable Debt with respect to such
Sale/Leaseback Transaction, without equally and ratably securing the
Notes, pursuant to Section 4.10;
(ii) the Company or a Restricted Subsidiary receives
consideration at the time of such Sale/Leaseback Transaction at least
equal to the fair market value of the Property sold or otherwise
disposed of, as determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board
Resolution; and
(iii) the Company or a Restricted Subsidiary within
365 days following the date of such Sale/Leaseback Transaction,
regardless of whether such sale or transfer may have been made by the
Company or such Restricted Subsidiary, as the case may be, applies, in
the case of a sale or transfer for cash, an amount equal to the Net
Cash Proceeds thereof
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and, in the case of a sale or transfer otherwise than for cash, an
amount equal to the fair value of the Property so leased at the time of
entering into such arrangement, as determined in good faith by the
Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution, to a use permitted by Section 4.07.
To the extent that any or all of the Net Cash Proceeds of any Foreign
Sale/Leaseback Transaction is prohibited or delayed by applicable local law from
being repatriated to the United States, the portion of such Net Cash Proceeds so
affected shall not be required to be applied at the time provided above, but may
be retained by the applicable Restricted Subsidiary so long, but only so long,
as the applicable local law shall not permit repatriation to the United States.
The Company shall agree to promptly take or cause the applicable Subsidiary to
promptly take all commercially reasonable actions required by the applicable
local law to permit such repatriation. Once such repatriation of any of such
affected Net Cash Proceeds is permitted under the applicable local law, such
repatriation shall be promptly effected and such repatriated Net Cash Proceeds
shall be applied in the manner set forth in this provision as if such Foreign
Sale/Leaseback Transaction had occurred on the date of such repatriation.
To the extent that the Board of Directors determines, in good faith,
that repatriation of any or all of the Net Cash Proceeds of any Foreign
Sale/Leaseback Transaction would have a material adverse tax consequence to the
Company, the Net Cash Proceeds so affected need not be repatriated to the United
States by the applicable Restricted Subsidiary for so long as such material
adverse tax consequence would continue.
SECTION 4.15 Reports.
(a) Whether or not required by the SEC, so long as any Notes
are outstanding, the Company shall file with the SEC (unless the SEC shall not
accept such a filing) within the time periods specified in the SEC's rules and
regulations and the Company shall furnish the Trustee within such time periods,
for delivery to Holders upon request:
(i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if the Company were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by the
Company's certified independent accountants; and
(ii) all current reports that would be required to be
filed with the SEC on Form 8-K if the Company were required to file
such reports.
(b) If at the end of any such quarterly or annual period
referred to in Section 4.15(a), the Company has designated any of its
Subsidiaries as Unrestricted Subsidiaries, then the Company shall deliver
(promptly after such SEC filing referred to in Section 4.15(a)) to the Trustee
for delivery to the Holders of the Notes quarterly and annual financial
information required
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by Section 4.15(a) as revised to include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
(c) In addition, whether or not required by the SEC, the
Company shall make such information available to securities analysts, investors
and prospective investors upon request. In addition, upon request, the Company
shall furnish the Trustee such other non-confidential information, documents and
other reports which the Company is required to file with the SEC pursuant to
Section 13 or Section 15(d) of the Exchange Act.
(d) For so long as any Restricted Notes remain outstanding
(unless the Company is subject to the reporting requirements of the Exchange
Act), the Company shall furnish to the Holders thereof, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act to the extent such information is not provided pursuant to
Sections 4.15(a) and 4.15(b).
(e) Delivery of reports, information and documents to the
Trustee pursuant to this Section 4.15 is for informational purposes only and the
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 4.16 Limitation on Investment Company Status.
The Company shall not, directly or indirectly, take any action or
engage in any transaction that would result in the Company's being required to
register as an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
SECTION 4.17 Corporate Existence.
Subject to Article V, the Company shall do or cause to be done, at its
own cost and expense, all things necessary to, and will cause each of its
Restricted Subsidiaries to, preserve and keep in full force and effect the
corporate, partnership or other entity existence and rights (charter and
statutory), licenses and/or franchises of the Company and each of its Restricted
Subsidiaries; provided that neither the Company nor any of its Restricted
Subsidiaries shall be required to preserve any such rights, licenses or
franchises if such rights, licenses or franchises will be replaced or if the
Company shall reasonably determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company or such Restricted
Subsidiary, as the case may be, and the loss thereof is not adverse in any
material respect to the Holders; provided, further, that any Restricted
Subsidiary may be merged into, or consolidated or combined with, another Person,
or wound up on and liquidated, subject to any other applicable provisions of
this Indenture.
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SECTION 4.18 Maintenance of Properties; Insurance; Books and Records.
(a) The Company shall, and shall cause each of its Restricted
Subsidiaries to, at all time cause all properties used or useful in the conduct
of its business to be maintained and kept in good condition, repair and working
order (reasonable wear and tear excepted) and supplied with all necessary
equipment, and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto.
(b) The Company shall, and shall cause each of its Restricted
Subsidiaries to, maintain insurance (which may include self-insurance) with
respect to its material facilities in such amounts and covering such risks as
are usually and customarily carried with respect to similar facilities according
to their respective locations.
(c) The Company shall, and shall cause each of its
Subsidiaries to, keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and each Subsidiary of the Company, in accordance with
GAAP consistently applied to the Company and its Subsidiaries taken as a whole.
ARTICLE V
SUCCESSORS
SECTION 5.01 Merger, Consolidation, or Sale of Assets.
(a) The Company shall not: (i) consolidate or merge with or
into another Person (whether or not the Company is the survivor); or (ii) sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its assets, in one transaction or a series of related transactions, or permit
any of its Restricted Subsidiaries to enter into one transaction or a series of
related transactions that, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of Azurix and its Restricted Subsidiaries on a consolidated basis, to
any Person unless:
(i) either: (A) the Company shall be the continuing
Person; or (B) the Person formed by or surviving any such consolidation
or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition of assets
of the Company or its Restricted Subsidiaries shall have been made is a
Person organized and existing under the laws of the United States, any
State thereof or the District of Columbia, provided that such Person
shall be a corporation formed under such laws unless, at or prior to
the time of such consolidation, merger, or sale, assignment, transfer,
lease, conveyance or other disposition, such a corporation shall, by
execution and delivery to the Trustee of a supplemental indenture in
compliance with this Indenture become a co-obligor in respect of the
Notes and the Indenture; and
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(ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made, expressly assumes in writing by
execution and delivery to the Trustee of a supplemental indenture in
compliance with this Indenture all the obligations of the Company under
the Notes and this Indenture;
(iii) immediately after giving effect to such
transaction, no Event of Default or Default shall have occurred and be
continuing;
(iv) immediately after giving effect to such
transaction on a pro forma basis, the Company or the continuing Person
or transferee would be able to Incur at least $1 of Debt under Section
4.09(a); and
(v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation or merger or sale, assignment, transfer, lease,
conveyance or other disposition and such supplemental indenture comply
with this Indenture and all conditions precedent therein relating to
such transaction have been satisfied.
If a transaction does not have as one of its purposes the evasion of
the limitations imposed in this Section 5.01, then clause (iv) of this Section
5.01 shall not prohibit a transaction, the principal purpose of which is, as
determined in good faith by the Board of Directors and evidenced by a Board
Resolution, to change the state of incorporation of the Company.
SECTION 5.02 Successor Entity Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the surviving entity
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the surviving entity and not to the Company), and may exercise every right and
power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and the predecessor shall
be relieved from all its obligations under the Notes and this Indenture, except
in the case of a lease of all or substantially all of the Company's assets.
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ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default.
Each of the following is an Event of Default with respect to Notes of
any series:
(a) default in payment when due of the principal, the Change
of Control or Asset Sale Offer purchase price or premium, if any, on the Notes
of such series;
(b) default for 30 days in the payment when due of interest
on, or Liquidated Damages with respect to, the Notes of such series;
(c) default on any other Debt of the Company or any
Significant Subsidiary if either:
(i) such default results from failure to pay
principal of such Debt in excess of $25 million at Stated Maturity of
such Debt, or
(ii) as a result of such default, the maturity of
such Debt has been accelerated, so that the same shall be or becomes
due and payable prior to the date on which the same would otherwise
have become due and payable and such acceleration shall not be
rescinded or annulled within 30 days, and the principal amount of such
Debt, together with the principal amount of any other Debt of the
Company or any Significant Subsidiary in default, or the maturity of
which has been accelerated, aggregates $25 million or more;
provided that the Trustee shall not be charged with knowledge of any such
default unless written notice thereof shall have been given to the Trustee by
the Company, by the holder or an agent of the holder of any such defaulted Debt,
by the trustee then acting under any indenture or other instrument under which
such default shall have occurred, or by the Holders of at least 25% in aggregate
principal amount of the Notes of such series at the time outstanding; and
provided further that if such default shall be remedied or cured by the Company
or the Significant Subsidiary or waived by the holder of such indebtedness, then
the Event of Default under this Indenture shall be deemed likewise to have been
remedied, cured or waived without further action on the part of the Trustee, any
Holder of Notes or any other Person;
(d) default in the performance, or breach, of any other of the
covenants or agreements applicable to Notes of such series contained in this
Indenture and the Notes of such series and such failure continues for 30 days
after written notice is given to the Company by the Trustee or the Holders of at
least 25% in aggregate principal amount of the outstanding Notes of such series,
as provided in this Indenture, provided that notice need not be given, and an
Event of Default shall occur, 30 days after breach of the covenants in Sections
4.06, 4.07, 4.08 and 5.01;
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(e) the entry by a court of one or more judgments or orders
against the Company or any Significant Subsidiary for the payment of money which
in the aggregate exceeds $25 million, excluding the amount thereof covered by
insurance or by a bond written by third parties, and which judgments or orders
have not been vacated, discharged or satisfied or stayed pending appeal within
30 days from the entry thereof;
(f) except as permitted by this Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and
(g) a court of competent jurisdiction enters a Bankruptcy
Order under any Bankruptcy Law that:
(i) is for relief against the Company or any
Restricted Subsidiary that is a Significant Subsidiary in an
involuntary case or proceeding,
(ii) appoints a Custodian of the Company or any
Restricted Subsidiary that is a Significant Subsidiary in an
involuntary case or proceeding for all or substantially all of its
Property, or
(iii) orders the liquidation of the Company or any
Restricted Subsidiary that is a Significant Subsidiary in an
involuntary case or proceeding,
(iv) and in each case such order or decree remains
unstayed and in effect for 60 days;
(h) The holder of any Debt with a principal amount of $25
million or more appoints a receiver or similar official with respect to all or
substantially all of the assets of the Company or any Restricted Subsidiary that
is a Significant Subsidiary in an involuntary case or proceeding under any
Bankruptcy Law and such receiver is not removed for 15 days; and
(i) the Company or any Restricted Subsidiary that is a
Significant Subsidiary:
(i) commences a voluntary case or proceeding under
any Bankruptcy Law,
(ii) consents to the entry of a Bankruptcy Order for
relief against it in an involuntary case or proceeding under any
Bankruptcy Law,
(iii) consents to the appointment of a Custodian of
it or for all or substantially all of its Property,
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(iv) makes a general assignment for the benefit of
its creditors or files a proposal or scheme of arrangement involving
the rescheduling or composition of its Debt,
(v) consents to the filing against it of a petition
in bankruptcy, or
(vi) shall generally not pay its debts when such
debts become due or shall admit in writing its inability to pay its
debts generally.
For purposes of this Article VI, the term "Custodian" is defined to
mean any custodian, receiver, interim receiver, receiver and manager, trustee,
assignee, liquidator, sequestrator or similar official charged with maintaining
possession or control over property for one or more creditors, whether under any
Bankruptcy Law or otherwise. The term "Bankruptcy Order" is defined to mean any
court order made in a proceeding pursuant to or within the meaning of any
Bankruptcy Law, containing an adjudication of bankruptcy or insolvency, or
providing for liquidation, winding up, dissolution or reorganization, or
appointing a Custodian of a debtor or of all or any substantial part of a
debtor's property, or providing for the staying, arrangement, adjustment or
composition of indebtedness or other relief of a debtor.
SECTION 6.02 Acceleration.
If any Event of Default (other than an Event of Default specified in
clauses (g), (h) or (i) of Section 6.01 hereof) occurs and is continuing with
respect to any series of Notes, either the Trustee or the Holders of at least
25% in aggregate principal amount of the then outstanding Notes of such series
may declare the aggregate principal of all Notes of such series to be due and
payable immediately. Upon any such declaration, the Notes shall become due and
payable immediately. Notwithstanding the foregoing, if an Event of Default
specified in clause (g), (h) or (i) of Section 6.01 hereof occurs, all
outstanding Notes of each series shall be due and payable immediately without
further action or notice. The Holders of a majority in aggregate principal
amount of the then outstanding Notes of such series by written notice to the
Trustee may on behalf of all of the Holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal, Change of
Control or Asset Sale Offer purchase price, interest, Liquidated Damages, if
any, or premium, if any, with respect to Notes outstanding that has become due
solely because of the acceleration) have been cured or waived.
SECTION 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest (and Liquidated Damages, if any) on the relevant Notes or to enforce
the performance of any provision of such Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right
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or remedy or constitute a waiver of or acquiescence in the Event of Default.
All remedies are cumulative to the extent permitted by law.
SECTION 6.04 Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes of any series by notice to the Trustee may on behalf
of the Holders of all of the Notes of any such series waive an existing Default
or Event of Default and its consequences hereunder with respect to such series,
except a continuing Default or Event of Default in the payment of the principal
of, premium and/or interest, if any, or Liquidated Damages, if any, on, the
Notes of such series (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes of such series may rescind an acceleration and its
consequences, including any related payment default that resulted from such
acceleration, in accordance with Section 6.02). Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture, but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.05 Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
of any series may direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee or exercising any trust or
power conferred on it with respect to the Notes of such series, if the Holders
of the Notes of such series shall have offered to the Trustee reasonable
indemnity against expenses and liabilities. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Notes or
that may involve the Trustee in personal liability.
SECTION 6.06 Limitation on Suits.
A Holder of a Note of any series may pursue a remedy with respect to
this Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default with respect to such series;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes of such series make a written request to the Trustee to
pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the provision
of indemnity; and
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(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes of such series do not give the
Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07 Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and interest and
Liquidated Damages, if any, on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing with respect to the Notes of any series, the Trustee is authorized
to recover a judgment in its own name and as trustee of an express trust against
the Company for the whole amount of principal of, premium and interest and
Liquidated Damages, if any, remaining unpaid on the Notes of such series and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
or any of the Subsidiary Guarantors (or any other obligor upon the Notes), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein
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contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Third: to the Company or the Subsidiary Guarantors or to such other
party as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in aggregate principal amount of the then outstanding Notes.
ARTICLE VII
TRUSTEE
SECTION 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care
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and skill in its exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined
solely by the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to any provision of this Indenture
relating to the time, method and place of conducting any proceeding or
remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee under this Indenture.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability.
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(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02 Rights of Trustee.
(a) Subject to the provisions of Section 7.01(a) hereof, the
Trustee may conclusively rely upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting in the
administration of this Indenture, it may require an Officers' Certificate or an
Opinion of Counsel or both. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers' Certificate
or Opinion of Counsel. The Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may execute any of its trusts or powers or
perform any duties under this Indenture either directly by or through agents or
attorneys, and may in all cases pay, subject to reimbursement as provided
herein, such reasonable compensation as it deems proper to all such agents and
attorneys employed or retained by it, and the Trustee shall not be responsible
for any misconduct or negligence of any agent or attorney appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company or any Subsidiary
Guarantor shall be sufficient if signed by an Officer of the Company or such
Subsidiary Guarantor.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the claims, costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) The Trustee shall not be deemed to have notice of any
Default or Event of Default unless a Responsible Officer of the Trustee has
actual knowledge thereof or unless written notice of any event which is in fact
such a default is received by a Responsible Officer at the Corporate Trust
Office of the Trustee, and such notice references the Notes and this Indenture.
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(h) The Trustee is not required to make any inquiry or
investigation into facts or matters stated in any document but the Trustee, in
its discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit and, if the Trustee determines to make such further
inquiry or investigation, it shall be entitled to examine the books, records and
premises of the Company.
(i) The Trustee is not required to give any bond or surety
with respect to the performance of its duties or the exercise of its powers
under this Indenture.
(j) The Trustee's immunities and protections from liability
and its right to indemnification in connection with the performance of its
duties under this Indenture shall extend to the Trustee's officers, directors,
agents, attorneys and employees. Such immunities and protections and right to
indemnification, together with the Trustee's right to compensation, shall
survive the Trustee's resignation of removal, the discharge of this Indenture
and final payments of the Notes.
(k) The permissive right of the Trustee to take actions
permitted by this Indenture shall not be construed as an obligation or duty to
do so.
SECTION 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, any
Subsidiary Guarantors or any Affiliate of the Company with the same rights it
would have if it were not Trustee. However, in the event that the Trustee
acquires any conflicting interest (as defined in the TIA) it must eliminate such
conflict within 90 days, apply to the SEC for permission to continue as trustee
or resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture, the Notes or the Subsidiary
Guarantees, it shall not be accountable for the Company's use of the proceeds
from the Notes or any money paid to the Company or upon the Company's direction
under any provision of this Indenture, it shall not be responsible for the use
or application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05 Notice of Defaults.
If a Default or Event of Default occurs, the Trustee shall give to
Holders of Notes a notice in accordance with Section 12.02 of the Default or
Event of Default within 90 days after it occurs. Except in the case of a Default
or Event of Default in payment of principal of, premium, if
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any, or interest or Liquidated Damages, if any, on any Note, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of the
Holders of the Notes.
SECTION 7.06 Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports
as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07 Compensation and Indemnity.
The Company and the Subsidiary Guarantors, if any, shall pay to the
Trustee from time to time such compensation as shall be agreed upon in writing
between the Company and the Trustee for its acceptance of this Indenture and
services hereunder. The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Company and the Subsidiary
Guarantors, if any, shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Company and the Subsidiary Guarantors, if any, shall indemnify each
of the Trustee or any successor Trustee against any and all losses, damages,
claims, liabilities or expenses (including reasonable attorneys' fees and
expenses) incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against either of the Company or any
Subsidiary Guarantor, if any (including this Section 7.07), and defending itself
against any claim (whether asserted by the Company, any Subsidiary Guarantor, or
any Holder or any other Person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company and the Subsidiary Guarantors of their obligations
hereunder. The Company and the Subsidiary Guarantors shall defend the claim and
the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company and the Subsidiary Guarantors shall pay the reasonable
fees and expenses of such separate counsel. The
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Company and the Subsidiary Guarantors need not pay for any settlement made
without their consent, which consent shall not be unreasonably withheld.
The obligations of the Company and the Subsidiary Guarantors under this
Section 7.07 shall survive the satisfaction and discharge of this Indenture.
To secure the Company's and the Subsidiary Guarantors' payment
obligations in this Section, the Trustee shall have a Lien (which it may
exercise through right of set-off) prior to the Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal,
premium, if any, and interest or Liquidated Damages, if any, on particular
Notes. Such Lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g), (h) or (i) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in aggregate principal amount of the then outstanding Notes may remove
the Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
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If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, any
Subsidiary Guarantor or the Holders of Notes of at least 10% in aggregate
principal amount of the then outstanding Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall give a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's and the Subsidiary Guarantors' obligations
under Section 7.07 hereof shall continue for the benefit of the retiring
Trustee.
SECTION 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee. As soon as practicable, the successor Trustee shall give notice of its
succession to the Company.
SECTION 7.10 Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trust powers, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b), provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(l) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements of such exclusion set forth in
TIA Section 310(b)(l) are met. For purposes of the preceding sentence, the
optional provision permitted by the second sentence of Section 310(b)(9) of the
Trust Indenture Act shall be applicable.
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SECTION 7.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of the Board of Directors of the Company
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article VIII.
SECTION 8.02 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Subsidiary Guarantors, if
any, shall, subject to the satisfaction of the conditions set forth in Section
8.04 hereof, be deemed to have been discharged from their respective Obligations
and certain other obligations with respect to all outstanding Notes of all
series on the date the conditions set forth below are satisfied (hereinafter,
"Legal Defeasance"). For this purpose, Legal Defeasance means that the Company
and the Subsidiary Guarantors, if any, shall be deemed to have paid and
discharged the entire Debt represented by the outstanding Notes of all series,
which shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.05 hereof and the other Sections of this Indenture referred to in
clauses (a) and (b) of this sentence below, and to have satisfied all their
other obligations under such Notes of each series and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of Holders of outstanding Notes to receive solely from the trust fund described
in Section 8.04 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest and Liquidated
Damages on such Notes when such payments are due, (b) the Company's obligations
with respect to such Notes under Article II and Section 4.02 hereof, (c) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and the
Company's and the Subsidiary Guarantors' obligations in connection therewith and
(d) this Article VIII. Subject to compliance with this Article VIII, the Company
may exercise the option under this Section 8.02 notwithstanding the prior
exercise of its option under Section 8.03 hereof.
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SECTION 8.03 Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and the Subsidiary Guarantors, if
any, shall, subject to the satisfaction of the conditions set forth in Section
8.04, be released from their obligations under the covenants contained in
Sections 3.09, 4.03(b), 4.04, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15,4.16, 4.17, 4.18 and 5.01(a)(iv) (hereinafter, "Covenant
Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent or declaration or act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes of all series, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(c) through 6.01(f) hereof shall not
constitute Events of Default.
SECTION 8.04 Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company shall irrevocably deposit or cause to be
deposited with the Trustee, in trust, for the benefit of the Holders, (i) in the
case of the Dollar Notes, cash in U.S. Dollars or non-callable U.S. Government
Obligations, and (ii) in the case of the Sterling Notes, cash in Pounds Sterling
or non-callable U.K. Government Obligations, or, in each case, a combination
thereof, in such amounts as shall be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, accrued and unpaid interest and Liquidated Damages, if any, on
the outstanding Notes of such series on the Stated Maturity thereof or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date;
(b) In the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee:
(i) either (1) an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has
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been published by, the Internal Revenue Service a ruling or (B) since
the date of this Indenture, there has been a change in the applicable
federal income tax law or related treasury regulations, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Notes shall not recognize
income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and shall be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred or (2) a ruling
directed to the Trustee from the Internal Revenue Service to the same
effect as the Opinion of Counsel described in the previous clause (1);
(ii) with respect to the Sterling Notes, an Opinion
of Counsel in the United Kingdom or a ruling of the Inland Revenue of
the United Kingdom to the effect that the Holders of Notes shall not
recognize income, gain or loss for United Kingdom income tax or other
tax purposes as a result of such termination and shall be subject to
United Kingdom income tax and other tax on the same amounts, in the
same manner and at the same times as would have been the case had such
Legal Defeasance not occurred (and for purposes of such Opinion, such
United Kingdom counsel shall assume that Holders of Notes include
Holders who are not resident in the United Kingdom); and
(iii) an Opinion of Counsel to the effect that the
creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the 123rd day following the deposit, the
trust fund shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and
(c) In the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee:
(i) an Opinion of Counsel in the United States and,
in the case of the Sterling Notes, in the United Kingdom, reasonably
acceptable to the Trustee to the effect that the Holders of the
outstanding Notes shall not recognize income, gain or loss for United
States federal income tax purposes and, in the case of the Sterling
Notes, for United Kingdom income tax purposes, as a result of such
deposit and defeasance of the covenants included in the definition of
Covenant Defeasance and Events of Default and shall be subject to
United States federal income tax and, in the case of the Sterling
Notes, United Kingdom income tax, on the same amounts, in the same
manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred; and
(ii) an Opinion of Counsel to the effect that the
creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the 123rd day following the deposit, the
trust fund shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(d) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default, shall have occurred and be
continuing on the date of such deposit or during the
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period ending on the 123rd day after the date of such deposit, and such deposit
shall not result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which the Company is a party or by which the
Company is bound;
(e) with respect to the Sterling Notes for so long as the
Sterling Notes are listed on the Luxembourg Stock Exchange and otherwise if at
such time the Notes are listed on a national securities exchange, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Notes shall not be delisted as a result of such deposit, defeasance and
discharge;
(f) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
the Subsidiary Guarantors or with the intent of defeating, hindering, delaying
or defrauding other creditors of the Company; and
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
SECTION 8.05 Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all U.S. Dollars and U.K. Pounds
Sterling, as the case may be, and non-callable U.S. Government Obligations and
non-callable U.K. Government Obligations, as the case may be (including the
proceeds thereof), deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 8.05, the "Trustee") pursuant to
Section 8.04 hereof in respect of the outstanding Notes shall be held in trust
and applied by the Trustee, in accordance with the provisions of such Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as a Paying Agent) as the Trustee may determine,
to the Holders of such Notes of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, and Liquidated Damages, if
any, but such money need not be segregated from other funds except to the extent
required by law.
The Company and the Subsidiary Guarantors shall pay and indemnify the
Trustee against any tax, fee or other charge imposed on or assessed against the
cash or non-callable U.S. Government Obligations or non-callable U.K. Government
Obligations, as the case may be, deposited pursuant to Section 8.04 hereof or
the principal and interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article VIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money, non-callable U.S. Government Obligations or
non-callable U.K. Government Obligations, as the case may be, held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount
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thereof that would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.
SECTION 8.06 Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
interest or Liquidated Damages, if any, on any Note and remaining unclaimed for
two years after such principal, premium, if any, interest or Liquidated Damages,
if any, has become due and payable shall, subject to applicable escheat law, be
paid to the Company on the request of the Company or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as a creditor, look only to the Company or to the Subsidiary
Guarantors for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in The New York Times and The
Wall Street Journal (national edition) and, in the case of the 7-Year Sterling
Notes, a leading daily newspaper with general circulation in Luxembourg (which
may be the Luxemburger Wort) or, if the 7-Year Sterling Notes are not listed on
the Luxembourg Stock Exchange and it is not practicable to so publish, a leading
daily English language newspaper having general circulation in Europe previously
approved by the Trustee) notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining shall be repaid to the Company.
Nothing contained in this Section 8.06 shall be deemed to affect any
obligation of the Trustee or any Paying Agent to search for lost Holders
pursuant to Rule 17Ad-17 under the Exchange Act.
SECTION 8.07 Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. dollars or
U.S. Government Obligations, in the case of the Dollar Notes, or Pounds Sterling
or U.K. Government Obligations, in the case of the Sterling Notes, in accordance
with Section 8.05, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Subsidiary Guarantors' Obligations under
this Indenture, the Notes and the Subsidiary Guarantees, as applicable, shall be
revived and reinstated as though no deposit had occurred pursuant to Section
8.05 until such time as the Trustee or Paying Agent is permitted to apply all
such money, U.S. Government Obligations or U.K. Government Obligations, as the
case may be, in accordance with Section 8.05; provided, however, that, if the
Company or the Subsidiary Guarantors make any payment of principal of, premium,
if any, interest or Liquidated Damages, if any, on any Note following the
reinstatement of such Obligations, the Company and the Subsidiary Guarantors
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money, U.S. Government Obligations or U.K. Government
Obligations, as the case may be, held by the Trustee or Paying Agent.
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ARTICLE IX
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Subsidiary Guarantors, if any, and the Trustee may amend or supplement this
Indenture, the Subsidiary Guarantees, if any, or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated registered Notes in addition
to or in place of Definitive Registered Notes or to alter the provisions of
Article II hereof (including the related definitions) in a manner that does not
materially adversely affect any Holder;
(c) to provide for the assumption of the Company's or a
Subsidiary Guarantor's obligations to the Holders of the Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's or
the Subsidiary Guarantors' assets pursuant to Article V or Article X hereof;
(d) to add or release Subsidiary Guarantors pursuant to the
terms of this Indenture;
(e) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or surrender any right or power
conferred upon the Company or the Subsidiary Guarantors by the Indenture that
does not adversely affect the legal rights hereunder of any Holder of the Notes;
or
(f) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA;
(g) to evidence or provide for the appointment under this
Indenture of a successor Trustee;
(h) to add additional Events of Default;
(i) to secure the Notes and/or the Subsidiary Guarantees, if
any; or
(j) to give effect to the provisions of Section 2.15.
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company and of the board of directors, board of
trustees or managing partners of each Subsidiary Guarantor, if any, authorizing
the execution of any such amended or supplemental indenture, and upon receipt by
the Trustee of the documents described in Section 9.06 hereof, the Trustee shall
join
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with the Company and each of the Subsidiary Guarantors, if any, in the execution
of any amended or supplemental indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to enter
into such amended or supplemental indenture that affects its own rights, duties
or immunities under this Indenture or otherwise.
SECTION 9.02 With Consent of Holders of Notes.
Except as provided below in this Section 9.02 and subject to Section
6.07 hereof, the Company, the Subsidiary Guarantors, if any, and the Trustee may
amend or supplement this Indenture (including Sections 3.09, 4.06 and 4.07
hereof), the Subsidiary Guarantees, if any, and the Notes of any series with the
consent of the Holders of at least a majority in aggregate principal amount of
the outstanding Notes of each series affected thereby (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, the Notes of such series), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default or compliance with any
provision of this Indenture, the Subsidiary Guarantees, if any, or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the Notes of each series affected thereby then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes of
such series).
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company and of the board of directors, board of
trustees or managing partners of each Subsidiary Guarantor, if any, authorizing
the execution of any such amended or supplemental indenture, and upon the filing
with the Trustee of evidence satisfactory to the Trustee of the consent of the
Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company and
each of the Subsidiary Guarantors, if any, in the execution of such amended or
supplemental indenture unless such amended or supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall give to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to give such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes of each series affected
thereby then outstanding may waive compliance in a particular instance by the
Company with any provision of this Indenture or the Notes. However, without the
consent of the Holder of each of the Notes of any series so
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affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting Holder):
(a) extend the final maturity of any of the Notes of such
series;
(b) reduce the principal amount of any of the Notes of such
series;
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(d) change the currency of payment, except as described in
Section 2.15;
(e) alter or waive any of the provisions with respect to the
redemption of the Notes, except as provided above with respect to Sections 3.09,
4.06 and 4.07;
(f) waive a Default or Event of Default in the payment of
principal of or premium, if any, interest or Liquidated Damages, if any, on the
Notes (except a rescission of acceleration of the Notes of any series by the
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes of such series and a waiver of the payment default that
resulted from such acceleration);
(g) except as otherwise permitted by this Indenture, release
any Subsidiary Guarantor from any of its obligations under its Subsidiary
Guarantee or this Indenture, or change any Subsidiary Guarantee in any manner
that would adversely affect the right of Holders;
(h) impair or affect the right of any Holder of Notes to
institute suit for the payment of Notes; or
(i) make any change in Section 6.04 or 6.07 or in the
foregoing amendment and waiver provisions.
Additionally, without the consent of the Holders of all outstanding
Notes of any series, an amendment or waiver may not (with respect to any Notes
held by a non-consenting Holder) reduce the percentage of outstanding Notes of
such series which is required for any such amendment or waiver.
SECTION 9.03 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture, the Subsidiary
Guarantees, or the Notes of any series shall be set forth in an amended or
supplemental indenture that complies with the TIA as then in effect.
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SECTION 9.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note of any series is a continuing consent by the Holder
of a Note and every subsequent Holder of a Note or portion of a Note of such
series that evidences the same debt as the consenting Holder's Note, even if
notation of the consent is not made on any Note. However, any such Holder of a
Note or subsequent Holder of a Note may revoke the consent as to its Note if the
Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.
SECTION 9.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
(accompanied by a notation of the Subsidiary Guarantees, if any, duly endorsed
by the Subsidiary Guarantors) that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06 Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article IX if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
and the Subsidiary Guarantors may not sign an amendment or supplemental
indenture until the Board of Directors of the Company approves it. In executing
any amended or supplemental indenture, the Trustee shall be entitled to receive
and (subject to Section 7.01) shall be fully protected in relying upon, an
Officers' Certificate of the Board of Directors of the Company and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
SECTION 9.07 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article IX,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
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ARTICLE X
SUBSIDIARY GUARANTEES
SECTION 10.01 Subsidiary Guarantees.
Subject to the provisions of this Article X, each of the Subsidiary
Guarantors, jointly and severally, fully and unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
of this Indenture, the Notes or the Obligations of the Company hereunder or
thereunder, that: (a) the principal of, premium, interest and Liquidated
Damages, if any, on the Notes shall be promptly paid in full when due, whether
at the maturity or interest payment or redemption date, by acceleration,
redemption or otherwise, and interest on the overdue principal of, premium,
interest and Liquidated Damages, if any, on the Notes, if any, if lawful, and
all other Obligations of the Company to the Holders or the Trustee under this
Indenture and the Notes shall be promptly paid in full or performed, all in
accordance with the terms of this Indenture and the Notes; and (b) in case of
any extension of time of payment or renewal of any Notes or any of such other
Obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Subsidiary Guarantors shall be jointly and severally obligated to pay the same
immediately. The Subsidiary Guarantors hereby agree that their obligations
hereunder shall be unconditional and absolute, irrespective of the validity,
regularity or enforceability of the Notes, the Subsidiary Guarantees or this
Indenture, the absence of any action to enforce the same, any waiver or consent
by any Holder of the Notes with respect to any provisions of this Indenture, the
Subsidiary Guarantees and the Notes, any release of any other Subsidiary
Guarantor, the recovery of any judgment against the Company, any action to
enforce the same or any other circumstance (other than complete performance)
which might otherwise constitute a legal or equitable discharge or defense of a
Subsidiary Guarantor. Each Subsidiary Guarantor further, to the extent permitted
by law, hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest, notice and all
demands whatsoever and covenant that the Subsidiary Guarantees shall not be
discharged except by complete performance of the obligations contained in the
Notes and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company or the Subsidiary Guarantors, or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Subsidiary Guarantors, any amount paid by either to the Trustee or such
Holder, these Subsidiary Guarantees, to the extent theretofore discharged, shall
be reinstated in full force and effect. Each Subsidiary Guarantor agrees that it
shall not be entitled to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby.
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Each Subsidiary Guarantor further agrees that, as between the
Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the Obligations guaranteed hereby may be
accelerated as provided in Article VI hereof for the purposes of these
Subsidiary Guarantees, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations guaranteed hereby,
and (y) in the event of any declaration of acceleration of such Obligations as
provided in Article VI hereof, such Obligations (whether or not due and payable)
shall forthwith become due and payable by the Subsidiary Guarantors for the
purpose of these Subsidiary Guarantees. The Subsidiary Guarantors shall have the
right to seek contribution from any non-paying Subsidiary Guarantor so long as
the exercise of such right does not impair the rights of the Holders under these
Subsidiary Guarantees.
SECTION 10.02 Additional Amounts.
All payments made by any Subsidiary Guarantor, if any, under or with
respect to its Subsidiary Guarantee, if any, shall be made free and clear of and
without withholding or deduction for or on account of any present or future tax,
duty, levy, impost, assessment or other governmental charge (including
penalties, interest and other liabilities related thereto) imposed or levied by
or on behalf of the government of the United Kingdom or any other jurisdiction
in which a Subsidiary Guarantor, if any, is incorporated or of any prefecture or
territory thereof or by any authority or agency therein or thereof having power
to tax (hereinafter, "Taxes"), unless such Subsidiary Guarantor, if any, is
required to withhold or deduct Taxes by law, regulation or governmental policy
or by the interpretation or administration thereof. If any Subsidiary Guarantor
is required to withhold or deduct any amount for or on account of Taxes from any
payment made under or with respect to any Subsidiary Guarantee, such Subsidiary
Guarantor shall pay such additional amounts ("Additional Amounts") as may be
necessary so that the net amount received by each Holder (including Additional
Amounts) after such withholding or deduction shall not be less than the amount
the Holder would have received if such Taxes had not been withheld or deducted;
provided, however, that no Additional Amounts shall be payable with respect to a
payment made to a Holder and no reimbursement shall be made to a Holder for
Taxes paid by such Holder (each such Holder, an "Excluded Holder") with respect
to any Tax imposed, levied, payable or due (1) by reason of the Holder's or
beneficial owner's present or former connection with the United Kingdom or any
other jurisdiction in which a Subsidiary Guarantor is incorporated or any
prefecture or territory thereof, other than through the mere receipt or holding
of Notes or by reason of the receipt of payments thereunder; (2) by reason of
the failure of the Holder or beneficial owner of Notes to satisfy any
certification, identification, information or other reporting requirements which
the Holder or such beneficial owner is legally required to satisfy, whether
imposed by statute, treaty, regulation, administrative practice or otherwise, as
a precondition to exemption from, or reduction in the rate of deduction or
withholding of, Taxes; or (3) by reason of the presentation (where presentation
is required in order to receive payment) of such notes for payment more than 30
days after the date such payment became due and payable or was duly provided for
under the terms of the Notes, whichever is later.
The obligation of any Subsidiary Guarantor to pay Additional Amounts or
to reimburse a Holder for Taxes paid by such Holder in respect of Taxes shall
not apply with respect to: (x) any
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estate, inheritance, gift, sales, transfer, personal property or similar Taxes;
(y) any Tax which is payable otherwise than by deduction or withholding from
payments made under or with respect to any Subsidiary Guarantee; or (z) Taxes
imposed on or with respect to any payment by any Subsidiary Guarantor to the
Holder or beneficial owner if such Holder or beneficial owner is a fiduciary or
partnership or person other than the sole beneficial owner of such payment to
the extent that such Taxes would not have been imposed on a beneficiary or
settlor with respect to such fiduciary, a member of such partnership or the
beneficial owner of such payment had such beneficiary, settlor, member or
beneficial owner been the Holder of such Note.
Such Subsidiary Guarantor shall also (1) make such withholding or
deduction compelled by applicable law and (2) remit the full amount deducted or
withheld to the relevant authority in accordance with applicable law. Such
Subsidiary Guarantor shall, upon written request of a Holder, furnish to each
such Holder certified copies of tax receipts evidencing the payment of any Taxes
by such Subsidiary Guarantor in such form as provided in the normal course by
the taxing authority imposing such Taxes and as is reasonably available to such
Subsidiary Guarantor, within 60 days after the later of the date of receipt of
such written request and the date of receipt of such evidence. If
notwithstanding such Subsidiary Guarantor's efforts to obtain such receipts, the
same are not obtainable, such Subsidiary Guarantor shall promptly provide such
Holder with other evidence reasonably satisfactory to such Holder of such
payments by such Subsidiary Guarantor. If any Subsidiary Guarantor conducts
business in any jurisdiction (the "Taxing Jurisdiction") other than the
jurisdiction under which such Subsidiary Guarantor is incorporated, in a manner
which causes Holders to be liable for taxes on payments under any Subsidiary
Guarantee for which they would not have been so liable but for such conduct of
business in the Taxing Jurisdiction, the provision of the Notes described above
shall be considered to apply to such Holders as if references in such provision
to "Taxes" included taxes imposed by way of deduction or withholding by such
Taxing Jurisdiction and references to Excluded Holder shall be deemed to include
Holders or beneficial owners having a present or former connection with such
Taxing Jurisdiction or any state, prefecture or territory thereof. Such
Subsidiary Guarantor shall, upon written request of any Holder (other than an
Excluded Holder), reimburse each such Holder for the amount of (1) any Taxes so
levied or imposed and paid by such Holder as a result of payments made under or
with respect to the Notes and (2) any Taxes so levied or imposed with respect to
any reimbursement under the foregoing clause (1) and paid by such Holder so that
the net amount received by such Holder (net of payments made under or with
respect to the Notes) after such reimbursement shall not be less than the net
amount the Holder would have received if Taxes on such reimbursement had not
been imposed.
At least 30 days prior to each date on which any payment under or with
respect to any Subsidiary Guarantee is due and payable, if any Subsidiary
Guarantor shall pay Additional Amounts with respect to such payment (unless such
obligation to pay Additional Amounts arises after the 30th day prior to the date
on which payment under or with respect to the Notes is due and payable, in which
case it shall be promptly thereafter), such Subsidiary Guarantor shall deliver
to the Trustee an Officers' Certificate stating the fact that such Additional
Amounts shall be payable and the amounts so payable and shall set forth such
other information necessary to enable the Trustee to pay such Additional Amounts
to Holders on the payment date. Whenever in this Indenture there is mentioned,
in any context, the payment of principal, interest, if any, or any other amount
payable
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under or with respect to any Note, such mention shall be deemed to include
mention of the payment of Additional Amounts to the extent that, in such
context, Additional Amounts are, were or would be payable in respect thereof.
SECTION 10.03 Limitation of Subsidiary Guarantor's Liability.
Each U.S. Subsidiary Guarantor and, by its acceptance hereof, each
Holder hereof, hereby confirms that it is their intention that the Subsidiary
Guarantee by such Subsidiary Guarantor not constitute a fraudulent transfer or
conveyance for purposes of the Title 11 of the U.S. Code, the U.S. Uniform
Fraudulent Conveyance Act, the U.S. Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to the Subsidiary
Guarantees. To effectuate the foregoing intention, each such Person hereby
irrevocably agrees that the Obligation of such Subsidiary Guarantor under its
Subsidiary Guarantee under this Article X shall be limited to the maximum amount
as shall, after giving effect to such maximum amount and all other (contingent
or otherwise) liabilities of such Subsidiary Guarantor that are relevant under
such laws, and after giving effect to any rights to contribution of such
Subsidiary Guarantor pursuant to any agreement providing for an equitable
contribution among such Subsidiary Guarantor and other Affiliates of the Company
of payments made by guarantees by such parties, result in the Obligations of
such Subsidiary Guarantor in respect of such maximum amount not constituting a
fraudulent conveyance. Each Holder, by accepting the benefits hereof, confirms
its intention that, in the event of bankruptcy, reorganization or other similar
proceeding of the Company or any Subsidiary Guarantor in which concurrent claims
are made upon such Subsidiary Guarantor hereunder, to the extent such claims
shall not be fully satisfied, each such claimant with a valid claim against the
Company shall be entitled to a ratable share of all payments by such Subsidiary
Guarantor in respect of such concurrent claims.
Each Subsidiary Guarantor shall also comply with whitewash procedures,
and/or any similar enactments or procedures in any applicable jurisdiction
required to (i) validly authorize, execute or deliver a Subsidiary Guarantee or
(ii) have a Subsidiary Guarantee be enforceable, including in relation to the
execution of the notation of Subsidiary Guarantee and the payment of amounts due
under the Subsidiary Guarantee.
SECTION 10.04 Execution and Delivery of Subsidiary Guarantees.
To evidence the Subsidiary Guarantees set forth in Section 10.01
hereof, each Subsidiary Guarantor hereby agrees that a notation of the
Subsidiary Guarantees substantially in the form of Exhibit G shall be endorsed
by manual or facsimile signature by an Officer of such Subsidiary Guarantor on
each Note authenticated and delivered by the Trustee.
Each Subsidiary Guarantor hereby agrees that the Subsidiary Guarantees
set forth in Section 10.01 shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of the Subsidiary Guarantees.
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If an Officer or Officer whose signature is on the Subsidiary
Guarantees no longer holds that office at the time the Trustee authenticates the
Note on which the Subsidiary Guarantees are endorsed, the Subsidiary Guarantees
shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantees
set forth in this Indenture on behalf of the Subsidiary Guarantors.
SECTION 10.05 Subsidiary Guarantors May Consolidate, etc., on Certain Terms.
(a) Except as set forth in Articles IV and V hereof, nothing
contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into the Company or
another Subsidiary Guarantor or shall prevent any sale or other disposition of
all or substantially all of the Properties of a Subsidiary Guarantor, to the
Company or another Subsidiary Guarantor.
(b) Except as set forth in Articles IV and V hereof, nothing
contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into another Person
other than the Company or another Subsidiary Guarantor (whether or not
affiliated with the Subsidiary Guarantor), or successive consolidations or
mergers in which a Subsidiary Guarantor or its successor or successors shall be
a party or parties, or shall prevent any sale or other disposition of all or
substantially all of the Properties to a Person other than the Company or
another Subsidiary Guarantor (whether or not affiliated with the Subsidiary
Guarantor) authorized to acquire and operate the same; provided, however, that
such transaction meets all of the following requirements: (i) each Subsidiary
Guarantor hereby covenants and agrees that, upon any such consolidation, merger,
sale or other disposition, subject to the provisions of Section 10.06 hereof,
the Subsidiary Guarantee endorsed on the Notes, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in the merger or consolidation), by supplemental indenture
substantially in the form of Exhibit H hereto, executed and delivered to the
Trustee, by the Person formed by such consolidation, or into which the
Subsidiary Guarantor shall have been merged, or by the Person which shall have
acquired such property, (ii) such transaction does not violate any of the
covenants set forth in Article IV and (iii) no Default or Event of Default has
occurred and is continuing, nor shall such transaction result in a Default or an
Event of Default, immediately after giving effect to such transaction, that is
continuing.
In case of any such consolidation, merger, sale or other disposition
and upon the assumption by the successor Person by supplemental indenture,
executed and delivered to the Trustee and substantially in the form of Exhibit H
hereto, of the Subsidiary Guarantees and the due and punctual performance of all
of the covenants of this Indenture to be performed by the Subsidiary Guarantor,
such successor shall succeed to and be substituted for the Subsidiary Guarantor
with the same effect as if it had been named herein as a Subsidiary Guarantor.
Such successor thereupon may cause to be signed any or all of the notations of
Subsidiary Guarantees to be endorsed upon all of the Notes
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issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
SECTION 10.06 Releases of Subsidiary Guarantee.
(a) The Subsidiary Guarantee and all other obligations under
this Indenture of a Subsidiary Guarantor shall be released (i) in connection
with any sale or other disposition of all or substantially all of the Properties
of such Subsidiary Guarantor (including by way of merger or consolidation), if
the Company applies the Net Proceeds of that sale or other disposition in
accordance with Section 4.07 hereof; or (ii) in connection with the sale or
other disposition of all of the Capital Stock of a Subsidiary Guarantor, if the
Company applies the Net Proceeds of that sale in accordance with Section 4.07
hereof; or (iii) if the Company designates any Restricted Subsidiary that is a
Subsidiary Guarantor as an Unrestricted Subsidiary in compliance with this
Indenture; or (iv) at such time as such Subsidiary Guarantor ceases to Guarantee
any other Debt of the Company. Upon delivery by the Company to the Trustee of an
Officers' Certificate to the effect that such transaction was in accordance with
the provisions of this Indenture, including without limitation Section 4.07
hereof, or such Subsidiary Guarantee is to be released pursuant to the other
provisions of the immediately preceding sentence, the Trustee shall execute any
documents reasonably required in order to evidence the release of any Subsidiary
Guarantor from its obligations under its Subsidiary Guarantee. Any Subsidiary
Guarantor not released from its obligations under its Subsidiary Guarantee shall
remain liable for the full amount of principal of and interest on the Notes and
for the other obligations of any Subsidiary Guarantor under this Indenture as
provided in this Article X.
SECTION 10.07 "Trustee" to Include Paying Agent.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article X shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully and for all intents and purposes as if such Paying Agent were
named in this Article X in place of the Trustee.
SECTION 10.08 Addition of Subsidiary Guarantors.
To become a Subsidiary Guarantor hereunder, a Person shall execute and
deliver to the Trustee (i) a supplemental indenture substantially in the form of
Exhibit H hereto, which subjects such Person to the provisions of this Indenture
as a Subsidiary Guarantor and (ii) an Opinion of Counsel and Officers'
Certificate required under Section 9.06 hereof. Such Opinion of Counsel shall
also include an opinion to the effect that such supplemental indenture has been
duly authorized and executed by such Person and constitutes the legal, valid,
binding and enforceable obligation of such Person (subject to such customary
exceptions concerning creditors' rights and equitable principles
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as may be acceptable to the Trustee in its discretion and provided that no
opinion need be rendered concerning the enforceability of the Subsidiary
Guarantee).
SECTION 10.09 Consent to Jurisdiction and Service of Process.
Each Subsidiary Guarantor that is not organized under the laws of the
United States (including the States and the District of Columbia) (each a
"Non-U.S. Subsidiary Guarantor") hereby appoints the principal office of CT
Corporation System in The City of New York which, on the date hereof, is located
at 1633 Broadway, New York, New York 10019, as the authorized agent thereof (the
"Authorized Agent") upon whom process may be served in any action, suit or
proceeding arising out of or based on this Indenture or the Notes which may be
instituted in the Supreme Court of the State of New York or the United States
District Court for the Southern District of New York, in either case in The
Borough of Manhattan, The City of New York, by the Holder of any Note, and each
Non-U.S. Subsidiary Guarantor hereby waives any objection which it may now or
hereafter have to the laying of venue of any such proceeding and expressly and
irrevocably accepts and submits, for the benefit of the Holders from time to
time of the Notes, to the nonexclusive jurisdiction of any such court in respect
of any such action, suit or proceeding, for itself and with respect to its
properties, revenues and assets. Such appointment shall be irrevocable unless
and until the appointment of a successor Authorized Agent for such purpose, and
such successor's acceptance of such appointment, shall have occurred. Each
Non-U.S. Subsidiary Guarantor agrees to take any and all actions, including the
filing of any and all documents and instruments, that may be necessary to
continue such appointment in full force and effect as aforesaid. Service of
process upon the Authorized Agent with respect to any such action shall be
deemed, in every respect, effective service of process upon any such Non-U.S.
Subsidiary Guarantor. Notwithstanding the foregoing, any action against any
Non-U.S. Subsidiary Guarantor arising out of or based on any Note may also be
instituted by the Holder of such Note in any competent court in the jurisdiction
of organization of such Non-U.S. Subsidiary Guarantor, and such Non-U.S.
Subsidiary Guarantor expressly accepts the jurisdiction of any such court in any
such action. The Company shall require the Authorized Agent to agree in writing
to accept the foregoing appointment as agent for service of process.
SECTION 10.10 Waiver of Immunity.
To the extent that any Non-U.S. Subsidiary Guarantor or any of its
properties, assets or revenues may have or may hereafter become entitled to, or
have attributed to it, any right of immunity, on the grounds of sovereignty or
otherwise, from any legal action, suit or proceeding, from the giving of any
relief in any thereof, from set-off or counterclaim, from the jurisdiction of
any court, from service of process, from attachment upon or prior to judgment,
from attachment in aid of execution of judgment, or from execution of judgment,
or other legal process or proceeding for the giving of any relief or for the
enforcement of any judgment, in any jurisdiction in which proceedings may at any
time be commenced, with respect to its obligations, liabilities or any other
matter under or arising out of or in connection with this Indenture or the
Notes, such Non-U.S. Subsidiary Guarantor, to the maximum extent permitted by
law, hereby irrevocably and unconditionally waives, and agrees not to plead or
claim, any such immunity and consents to such relief and enforcement.
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SECTION 10.11 Judgment Currency.
Each Non-U.S. Subsidiary Guarantor (or, in the case of the Sterling
Notes, each non-U.K. Subsidiary Guarantor) and the Company agree to indemnify
the Trustee and each Holder against any loss incurred by it as a result of any
judgment or order being given or made and expressed and paid in a currency (the
"Judgment Currency") other than United States dollars (or, in the case of the
Sterling Notes, Pounds Sterling) and as a result of any variation as between (i)
the rate of exchange at which the United States dollar amount (or, in the case
of the Sterling Notes, the Pounds Sterling amount) is converted into the
Judgment Currency for the purpose of such judgment or order and (ii) the spot
rate of exchange in The City of New York (or, in the case of the Sterling Notes,
the City of London) at which the Trustee or such Holder on the date of payment
of such judgment or order is able to purchase United States dollars (or, in the
case of the Sterling Notes, Pounds Sterling) with the amount of the Judgment
Currency actually received by the Trustee or such Holder. The foregoing
indemnity shall constitute a separate and independent obligation of each
Non-U.S. Subsidiary Guarantor and the Company and shall continue in full force
and effect notwithstanding any such judgment or order as aforesaid. The term
"spot rate of exchange" shall include any premiums and costs of exchange payable
in connection with the purchase of, or conversion into, United States dollars
(or, in the case of the Sterling Notes, Pounds Sterling).
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01 Satisfaction and Discharge.
This Indenture shall upon the request of the Company cease to be of
further effect with respect to outstanding Notes of a series (except as to
surviving rights of registration of transfer or exchange of Notes herein
expressly provided for, the Company's and any Subsidiary Guarantors' obligations
under Section 7.07, and the Trustee's and each Paying Agent's obligations under
Sections 11.02 and 11.03) and the Trustee, on demand and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to such series, when:
(a) either
(i) all outstanding Notes of such series therefore
authenticated and delivered (other than (A) Notes which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in Section 2.08 and (B) Notes for whose payment money has been
deposited in trust with the Trustee or any Paying Agent and thereafter
paid to the Company or discharged from such trust) have been delivered
to the Trustee for cancellation; or
(ii) all outstanding Notes of such series not
theretofore delivered to the Trustee for cancellation
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(A) have become due and payable; or
(B) shall become due and payable at their
Stated Maturity within one year, or
(C) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company,
and the Company, in the case of clause (A), (B) or (C) above,
has irrevocably deposited or caused to be irrevocably
deposited with the Trustee as trust funds in trust for such
purpose (1) in the case of the Dollar Notes, U.S. Dollars and
U.S. Government Obligations, and (2) in the case of the
Sterling Notes, U.K. Pounds Sterling and U.K. Government
Obligations, or a combination thereof, in an amount sufficient
(as certified by an independent public accountant designated
by the Company expressed in a written certification thereof
delivered to the Trustee) to pay and discharge the entire
indebtedness of such Notes not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any),
accrued and unpaid interest and Liquidated Damages, if any, to
the date of such deposit (in the case of Notes which have
become due and payable) or the Stated Maturity or redemption
date, as the case may be;
(b) the Company has paid or caused to be paid all other sums
then due and payable hereunder by the Company with respect to such series;
(c) no Default or Event of Default with respect to the Notes
of such series shall have occurred and be continuing on the date of such deposit
and after giving effect to such deposit; and
(d) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
Company's obligations in Sections 2.03, 2.04, 2.06, 2.07, 2.08, 7.07, 7.08, 8.06
11.02, 11.03 and 12.04, and the Trustee's and each Paying Agent's obligations in
Sections 8.06 and 11.03 shall survive until the Notes of such series are no
longer outstanding. Thereafter, only the Company's obligations in Sections 8.06
and 11.03 shall survive.
In order to have money available on a payment date to pay principal
(and premium, if any, on), interest or Liquidated Damages, if any, on the Notes
of such series, the U.S. Government Obligations and the U.K. Government
Obligations shall be payable as to principal (and premium, if any) or interest
at least one Business Day before such payment date in such amounts as shall
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provide the necessary money. The U.S. Government Obligations and the U.K.
Government Obligations shall not be callable at the issuer's option.
SECTION 11.02 Application of Trust.
All U.S. Dollars, U.K. Pounds Sterling, U.S. Government Obligations or
U.K. Government Obligations deposited with the Trustee pursuant to Section 11.01
shall be held in trust and, at the written direction of the Company, be invested
prior to maturity, in the case of the Dollar Notes, in non-callable U.S.
Government Obligations, and, in the case of the Sterling Notes, in non-callable
U.K. Government Obligations, and applied by the Trustee in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or
through any Paying Agent as the Trustee may determine, to the Persons entitled
thereto, of the principal (and premium, if any), interest, and Liquidated
Damages, if any, for the payment of which money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
SECTION 11.03 Repayment to the Company.
The provisions of Section 8.06 hereof shall be applicable in all
respects to any money deposited under this Article XI with the Trustee or any
Paying Agent, or then held by the Company, in trust for the payment of the
principal of, premium, if any, interest or Liquidated Damages, if any, on any
Note and remaining unclaimed for two years after such principal, premium, if
any, interest or Liquidated Damages, if any, has become due and payable.
SECTION 11.04 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money, U.S.
Government Obligations or U.K. Government Obligations, as the case may be, in
accordance with Section 11.01 by reason of any legal proceeding or by reason of
any order or judgement of any court of governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's and the
Subsidiary Guarantors' Obligations under this Indenture, the Notes and the
Subsidiary Guarantees, as applicable, shall be revived and reinstated as though
no deposit has occurred pursuant to Section 11.01 until such time as the Trustee
or Paying Agent is permitted to apply all such money, U.S. Government
Obligations or U.K. Government Obligations, as the case may be, in accordance
with Section 11.02, provided, however, that if the Company or any Subsidiary
Guarantor has made any payment of principal (and, premium, if any), interest and
Liquidated Damages, if any, on any Notes because of the reinstatement of their
Obligations, the Company or such Subsidiary Guarantors shall be subrogated to
the rights of the Holders of such Notes to receive such payment from the money,
U.S. Government Obligations or U.K. Government Obligations, as the case may be,
held by the Trustee or Paying Agent.
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ARTICLE XII
MISCELLANEOUS
SECTION 12.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control,
irrespective of whether or not this Indenture has yet been qualified under the
TIA.
SECTION 12.02 Notices.
Any notice or communication by the Company, the Subsidiary Guarantors,
if any, or the Trustee to the others is duly given if in writing and delivered
in Person or mailed by first class mail (registered or certified, return receipt
requested), telecopier or overnight air courier guaranteeing next day delivery,
to the others' address:
If to the Company or the Subsidiary Guarantors:
Azurix Corp.
333 Clay Street
Houston, Texas 77002
Telecopier No.: (713) 345-5330
Telephone No.: (713) 646-6001
Attention: General Counsel
If to the Trustee:
Chase Bank of Texas, National
Association
600 Travis Street, Suite 1150
Houston, Texas 77002
Telecopier No.: (713) 577-5200
Telephone No.: (713) 216-4808
Attention: Ms. Ronda L. Parman
The Company, the Subsidiary Guarantors or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, to its address shown on
the register kept by the Registrar. In addition, if the Sterling Notes are
listed on the Luxembourg Stock Exchange, and the rules of such stock exchange
shall so require, any such notice or communication to Holders shall be published
in a leading daily newspaper with general circulation in Luxembourg (which may
be the Luxemburger Wort) or, if the Sterling Notes are not listed on the
Luxembourg Stock Exchange and such
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publication is not practicable, in a leading daily English-language newspaper
having general circulation in Europe previously approved by the Trustee. For so
long as any of the Notes are represented by Global Notes, notice to Holders
shall (in addition to publication as described above) also be given by
substantially concurrent delivery of the relevant notice to the applicable
Depositary (as the case may be) for communication to the holders of the
Book-Entry Interests. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to provide a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
All notices and communications shall be deemed to have been duly given:
at the time delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if sent by facsimile transmission; and the next Business Day after
timely delivery to the courier, if sent by overnight air courier guaranteeing
next day delivery. Notwithstanding the foregoing, notices to the Trustee shall
be effective only upon receipt. Any notice or communication given by newspaper
publication shall be deemed to have been given on the date of publication or, if
published more than once or on different dates, on the first date on which
publication is made in the manner required in the newspaper or in one of the
newspapers referred to above.
If the Company or any Subsidiary Guarantor gives a notice or
communication to Holders, it shall give a copy to the Trustee and each Agent at
the same time.
All notices or communications, including without limitation notices to
the Trustee or the Company or any Subsidiary Guarantor by Holders, shall be in
writing, except as set forth below, and in the English language.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice required by
this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
SECTION 12.03 Communication by Holders of Notes with Other Holders of Notes.
The Trustee is subject to TIA Section 312(b), and Holders may
communicate pursuant thereto with other Holders with respect to their rights
under this Indenture or the Notes. The Company, the Subsidiary Guarantors, the
Trustee, the Registrar and anyone else shall have the protection of TIA Section
312(c).
SECTION 12.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any Subsidiary
Guarantor to the Trustee to take any action under this Indenture, the Company or
such Subsidiary Guarantor shall, if requested by the Trustee, furnish to the
Trustee:
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(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more such Persons as to other matters, and any such Person may certify or
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Company or any
Subsidiary Guarantor may be based, insofar as it relates to legal matters, upon
a certificate or opinion of, or representations by, counsel, unless such Officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any Opinion of Counsel may be
based, and may state that it is so based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an Officer or
Officers of the Company or such Subsidiary Guarantor stating that the
information with respect to such factual matters is in possession of the Company
or such Subsidiary Guarantor, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 12.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
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(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 12.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. Each Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.07 No Personal Liability of Directors, Officers, Partners,
Employees, Incorporators, Stockholders and Members.
No past, present or future director, officer, partner, employee,
incorporator, stockholder or member of the Company or any Subsidiary Guarantor,
as such, shall have any liability for any obligations of the Company or any
Subsidiary Guarantor under the Notes, any Subsidiary Guarantee or this Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. This waiver may not be effective to waive liabilities under the
federal securities laws. The waiver and release are part of the consideration
for issuance of the Notes.
SECTION 12.08 Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES.
SECTION 12.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or any Subsidiary of the Company or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 12.10 Successors.
All agreements of the Company and the Subsidiary Guarantors in this
Indenture and the Notes shall bind their respective successors. All agreements
of the Trustee in this Indenture shall bind its successors.
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SECTION 12.11 Severability.
In case any provision in this Indenture or the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties have executed this Indenture as of the
date first written above.
AZURIX CORP.
By: /s/ ANDREA L. MAINELLI
------------------------------------
Name: Andrea L. Mainelli
Title: Managing Director--Finance
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION, as
Trustee
By: /s/ RONDA L. PARMAN
------------------------------------
Name: Ronda L. Parman
Title: Assistant Vice President and
Trust Officer
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EXHIBIT A
FORM OF 7-YEAR DOLLAR NOTE
[Face of Note]
[FOR GLOBAL NOTES ONLY:] [THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL
NOTE SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF THE DEPOSITORY TRUST COMPANY
OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC") TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[FOR RESTRICTED NOTES ONLY:] [THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. ACCORDINGLY, NEITHER THIS NOTE 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. BY ITS ACQUISITION HEREOF OR OF
A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S.
PERSON WHO IS ACQUIRING THE SECURITY IN AN "OFFSHORE TRANSACTION"
PURSUANT TO RULE 903 OR RULE 904 OF REGULATION S,
(2) AGREES THAT IT WILL NOT, PRIOR TO THE DATE THAT IS TWO YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF
THIS NOTE) AND THE LAST DATE ON WHICH AZURIX CORP.
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(THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
NOTE OR ANY PREDECESSOR OF THIS NOTE, OFFER, SELL, OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND
(3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED BY IT A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND;
PROVIDED THAT THE COMPANY AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION
OF TRANSFER IN THE FORM APPEARING IN THE INDENTURE IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE.]
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CUSIP No. [05501M AA 2](1)
[U05517 AA 2](2)
AZURIX CORP.
10 3/8% SENIOR NOTE DUE 2007
No. ___ $__________
Azurix Corp., a Delaware corporation (the "Company"), promises to pay
to _____________________________ or registered assigns, the principal sum of
Dollars [FOR GLOBAL NOTES ONLY:] [or such greater or lesser amount as may from
time to time be endorsed on the Schedule of Exchanges of Interests in the Global
Note] on February 15, 2007.
Interest Payment Dates: February 15 and August 15 of each year
Record Dates: February 1 and August 1 of each year
Reference is hereby made to the further provisions of this 7-Year
Dollar Note set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authorization hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
7-Year Dollar Note shall not be entitled to any benefit of the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this 7-Year Dollar Note to
be signed manually or by facsimile by a duly authorized officer.
AZURIX CORP.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
- --------
(1) For 7-Year Dollar Notes sold in reliance on Rule 144A
(2) For 7-Year Dollar Notes sold in reliance on Regulation S
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the dollar-denominated 10 3/8% Senior Notes due 2007 referred to
in the within- mentioned Indenture.
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
as Trustee
By:
-----------------------------------
Authorized Signatory
Date of authentication:
---------------
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[BACK OF NOTE]
10 3/8% SENIOR NOTE DUE 2007
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. The Company promises to pay interest on the principal
amount of this 7-Year Dollar Note at 10 3/8% per annum and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company shall pay interest and Liquidated
Damages, if any, semi-annually on February 15 and August 15 of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each,
an "Interest Payment Date"). Interest on the 7-Year Dollar Notes shall accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from February 18, 2000(3); provided that if there is no existing
Default in the payment of interest, and if this 7-Year Dollar Note is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further that if the Exchange Offer
is consummated [FOR INITIAL NOTES ONLY:] [and Exchange Notes are issued in
exchange for this 7-Year Dollar Note in connection therewith, any accrued and
unpaid interest on this 7-Year Dollar Note shall be deemed to have accrued with
respect to, and shall be paid with respect to, such Exchange Notes] [FOR
EXCHANGE NOTES ONLY:] [and this 7-Year Dollar Note is issued in exchange for
Initial Notes in connection therewith, interest will accrue on this 7-Year
Dollar Note from the last day on which interest was paid on such Initial Notes
prior to the issuance of this 7-Year Dollar Note or, if no such interest has
been paid, from February 18, 2000(3)]; provided, further, that the first
Interest Payment Date shall be August 15, 2000(3). The Company shall pay
interest (including post- petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at the rate of 10 3/8% per annum. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace periods) from time to time on demand at the same rate to
the extent lawful. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the 7-Year
Dollar Notes (except defaulted interest) and Liquidated Damages to the Persons
who are registered Holders of 7-Year Dollar Notes at the close of business on
the February 1 or August 1 next preceding the Interest Payment Date, even if
such 7-Year Dollar Notes are cancelled after such record date and on or before
such Interest Payment Date, except as provided in Section 2.13 of the Indenture
with respect to defaulted interest. The 7-Year Dollar Notes shall be payable as
to principal, premium, interest and Liquidated Damages, if any, at the office
or agency of the Company maintained for such purpose in the City of New York,
or, at the option of the Company, payment of interest and Liquidated Damages,
if any, may be made by check mailed to the Holders at their addresses set forth
in the
- --------
(3) For Subsequent Notes and related Exchange Notes, substitute applicable
corresponding dates.
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register of Holders, and provided that payment by wire transfer of immediately
available funds shall be required with respect to principal of and interest,
premium and Liquidated Damages, if any, on, all 7-Year Dollar Notes in the form
of Global Notes and all other 7-Year Dollar Notes the Holders of which shall
have provided wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. PAYING AGENT AND REGISTRAR. Initially, Chase Bank of Texas, National
Association shall act as Paying Agent and Registrar with respect to the 7-Year
Dollar Notes. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or a Subsidiary Guarantor, if any, may act in
any such capacity.
4. INDENTURE. The Company issued the 7-Year Dollar Notes under an
Indenture dated as of February 18, 2000 (the "Indenture") between the Company
and the Trustee. The terms of the 7-Year Dollar Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
7-Year Dollar Notes are subject to all such terms, and Holders are referred to
the Indenture and such Act for a statement of such terms. To the extent any
provision of this 7-Year Dollar Note conflicts with the express provisions of
the Indenture, the provisions of the Indenture shall govern and be controlling.
The 7-Year Dollar Notes are obligations of the Company limited to $240 million
in aggregate principal amount, plus, under certain circumstances an additional
$50 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) The 7-Year Dollar Notes may be redeemed in whole or in
part at the Company's option at any time prior to maturity upon not less than 30
nor more than 60 days' prior notice, at a redemption price equal to the then
outstanding principal amount of the 7-Year Dollar Notes being redeemed plus
accrued and unpaid interest thereon and Liquidated Damages, if any, to the date
of redemption plus a premium equal to the excess of (i) the present value at the
time of redemption of the principal amount of the 7-Year Dollar Notes being
redeemed and any required interest payments due of the 7-Year Dollar Notes being
redeemed through Stated Maturity, computed using a discount rate equal to the
applicable Treasury Rate plus 50 basis points over (ii) the then outstanding
principal amount of the 7-Year Dollar Notes being redeemed.
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to February 15, 2003, the Company may (but shall
not have the obligation to) redeem on any one or more occasions, up to 35% of
the aggregate principal amount of 7-Year Dollar Notes originally issued under
the Indenture at a redemption price equal to 110.375% of the principal amount
thereof, plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the redemption date, with all or part of the net cash proceeds of one or
more Public Equity Offerings; provided, however, that at least 65% in aggregate
principal amount of 7-Year Dollar Notes originally issued under the Indenture
remains outstanding immediately after the occurrence of such redemption
(excluding for purposes of determining the 7-Year Dollar Notes that remain
outstanding any 7-Year
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Dollar Notes held by the Company or any Subsidiary); and provided further, that
such redemption shall occur within 60 days of the date of the closing of such
Public Equity Offering.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with respect
to the 7-Year Dollar Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, subject to the terms of
the Indenture, each Holder of 7-Year Dollar Notes shall have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of each Holder's 7-Year Dollar Notes at a purchase
price equal to 101% of the aggregate principal amount of the 7-Year Dollar Notes
repurchased plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the date of repurchase pursuant to a Change of Control Offer in
accordance with the provisions of the Indenture.
(b) When the aggregate amount of Excess Proceeds from any
Asset Sale exceeds $25.0 million, the Company shall make a pro rata offer to all
holders of Notes and all holders of other Senior Debt of the Company that is
pari passu with the Notes as set forth in the Indenture to purchase the maximum
principal amount of Notes and such other Senior Debt that may be purchased out
of the Excess Proceeds. The Company or such Restricted Subsidiary shall be
required to apply such Excess Proceeds to offer to repurchase Notes at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, thereon and Liquidated Damages, if any,
thereon to the date of purchase in accordance with the procedures set forth in
the Indenture.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose 7-Year Dollar Notes are to be redeemed at its registered address as
recorded in the Register. 7-Year Dollar Notes in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000, unless all
of the 7-Year Dollar Notes held by a Holder are to be redeemed. On and after the
redemption date interest and Liquidated Damages, if any, cease to accrue on
7-Year Dollar Notes or portions thereof called for redemption unless the Company
defaults in making such redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The 7-Year Dollar Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of 7-Year Dollar Notes may be registered and
7-Year Dollar Notes may be exchanged as provided in the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company
need not exchange or register the transfer of any 7-Year Dollar Note or portion
of a 7-Year Dollar Note selected for
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redemption, except for the unredeemed portion of any 7-Year Dollar Note being
redeemed in part. Also, it need not exchange or register the transfer of any
7-Year Dollar Note for a period of 15 days before (i) any date fixed for the
redemption of any Notes or (ii) the day of any selection of Notes for redemption
or during the period between a record date and the corresponding Interest
Payment Date, or of any 7-Year Dollar Note tendered (and not withdrawn) for
repurchase in connection with a Change of Control Offer or an Asset Sale Offer.
10. PERSONS DEEMED OWNERS. The registered Holder of a 7-Year Dollar
Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture, the Subsidiary Guarantees, if any, or the 7-Year Dollar Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding 7-Year Dollar
Notes and of each other series of Notes affected thereby, and any existing
default or compliance with any provision of the Indenture, the Subsidiary
Guarantees, if any, or the 7-Year Dollar Notes may be waived with the consent of
the Holders of a majority in aggregate principal amount of the then outstanding
7-Year Dollar Notes and of each other series of Notes affected thereby. Without
the consent of any Holder of a 7-Year Dollar Note or any Holder of any other
series of Notes, the Indenture, the Subsidiary Guarantees, if any, or the 7-Year
Dollar Notes may be amended or supplemented for certain specified purposes,
including, among other things, to cure any ambiguity, defect or inconsistency,
to make any change that would provide any additional rights or benefits to the
Holders of the 7-Year Dollar Notes or surrender any right or power conferred
upon the Company or the Subsidiary Guarantors by the Indenture that does not
adversely affect the legal rights under the Indenture of any such Holder and to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include in summary form:
(i) default in payment when due of the principal, the Change of Control or Asset
Sale Offer purchase price or premium, if any, on the 7-Year Dollar Notes; (ii)
default for 30 days in the payment when due of interest on or Liquidated
Damages, if any, with respect to the 7-Year Dollar Notes; (iii) default on any
other Debt of the Company or any Significant Subsidiary if either (a) such
default results from failure to pay principal of such Debt in excess of $25
million at Stated Maturity of such Debt, or (b) as a result of such default, the
maturity of such Debt has been accelerated, so that the same shall be or becomes
due and payable prior to the date on which the same would otherwise have become
due and payable and such acceleration shall not be rescinded or annulled within
30 days, and the principal amount of such Debt, together with the principal
amount of any other Debt of the Company or any Significant Subsidiary in
default, or the maturity of which has been accelerated, aggregates $25 million
or more; (iv) failure by the Company for 30 days after notice to the Company by
the Trustee or the Holders of at least 25% in aggregate principal amount of the
7-Year Dollar Notes then outstanding to comply with certain other covenants or
agreements in the Indenture or the 7-Year Dollar Notes (provided that no such
notice need be given, and an Event of Default shall occur 30 days after breach
of the covenants in Sections 4.06, 4.07, 4.08 or 5.01 of the Indenture); (v) the
failure by the Company or any Significant Subsidiary to pay final judgments by
courts of competent jurisdiction aggregating in excess of $25 million, which
judgments are not paid, discharged or stayed
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for a period of 30 days; (vi) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in force and effect
or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (vii) certain events of bankruptcy or insolvency with respect to
the Company or certain Restricted Subsidiaries. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Restricted Subsidiary constituting
a Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding 7-Year
Dollar Notes shall become due and payable without further action or notice.
Holders may not enforce the Indenture or the 7-Year Dollar Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
7-Year Dollar Notes notice of any continuing Default or Event of Default (except
a Default or Event of Default relating to a payment on the 7-Year Dollar Notes)
if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the 7-Year
Dollar Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the 7-Year Dollar Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of principal of, or premium, interest or
Liquidated Damages, if any, on, the 7-Year Dollar Notes. The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required, upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, initially Chase
Bank of Texas, National Association, under the Indenture, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A past, present or future director,
officer, partner, employee, incorporator, stockholder or member of the Company
or any Subsidiary Guarantor, as such, shall not have any liability for any
obligations of the Company or any Subsidiary Guarantor under the 7-Year Dollar
Notes, the Indenture or the Subsidiary Guarantees, or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a 7-Year Dollar Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the 7-Year
Dollar Notes.
15. AUTHENTICATION. This 7-Year Dollar Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT
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TEN (= joint tenants with right of survivorship and not as tenants in common),
CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of February 18, 2000, among the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the 7-Year Dollar Notes and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the 7-Year Dollar Notes or as contained in any notice of redemption or
repurchase and reliance may be placed only on the other identification numbers
placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Azurix Corp.
333 Clay Street
Houston, TX 77002
U.S.A.
Attention: Chief Financial Officer
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FORM OF ASSIGNMENT
To assign this 7-Year Dollar Note, fill in the form below: (I) or (we) assign
and transfer this 7-Year Dollar Note 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 7-Year Dollar Note on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
--------------------------
Your Signature:
------------------------------
(Sign exactly as your name appears on the
face of this 7-Year Dollar Note)
Signature Guarantee:
-------------------------
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<PAGE> 131
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this 7-Year Dollar Note purchased by the
Company pursuant to Sections 3.09 and 4.07 or Section 4.06 of the Indenture,
check the box below:
[ ] Sections 3.09 and 4.07 [ ] Section 4.06
If you want to elect to have only part of the 7-Year Dollar Note
purchased by the Company pursuant to Sections 3.09 and 4.07 or Section 4.06 of
the Indenture, state the amount you elect to have purchased (must be an integral
multiple of $1,000):
$
-----------------------
Date: Your Signature:
------------------------ ---------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No.:
-------------------------
Signature Guarantee:
----------------------------
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<PAGE> 132
SCHEDULE A
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note of the same series or for a Definitive Registered Note of
the same series, or exchanges of a part of another Global Note of the same
series or Definitive Registered Note of the same series for an interest in this
Global Note, have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SIGNATURE OF
AMOUNT OF AMOUNT OF OF THIS GLOBAL NOTE AUTHORIZED
DECREASE IN INCREASE IN FOLLOWING SUCH SIGNATORY OF
PRINCIPAL AMOUNT PRINCIPAL AMOUNT DECREASE (OR TRUSTEE OR
DATE OF EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE INCREASE) DEPOSITARY
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE> 133
EXHIBIT B
FORM OF 7-YEAR STERLING NOTE
[Face of Note]
[FOR GLOBAL NOTES ONLY:] [THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A COMMON
DEPOSITARY OR A NOMINEE OF A COMMON DEPOSITARY, IN EACH CASE, AS AGENT FOR A
DEPOSITARY. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS TO
NOMINEES OF THE COMMON DEPOSITARY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
EUROCLEAR SYSTEM ("EUROCLEAR") [OR CLEARSTREAM BANKING ("CLEARSTREAM")] TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF THE COMMON DEPOSITARY OR SUCH
OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR [OR
CLEARSTREAM] (AND ANY PAYMENT IS MADE TO THE COMMON DEPOSITARY OR SUCH OTHER
ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF EUROCLEAR [OR
CLEARSTREAM], ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, THE COMMON
DEPOSITARY, HAS AN INTEREST HEREIN.]
[FOR RESTRICTED NOTES ONLY:] [THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. ACCORDINGLY, NEITHER THIS NOTE 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. BY ITS ACQUISITION HEREOF OR OF
A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S.
PERSON WHO IS ACQUIRING THE SECURITY IN AN "OFFSHORE TRANSACTION"
PURSUANT TO RULE 903 OR RULE 904 OF REGULATION S,
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<PAGE> 134
(2) AGREES THAT IT WILL NOT, PRIOR TO THE DATE THAT IS TWO YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF
THIS NOTE) AND THE LAST DATE ON WHICH AZURIX CORP. (THE "COMPANY") OR
ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE OR ANY
PREDECESSOR OF THIS NOTE, OFFER, SELL, OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
(3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED BY IT A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND;
PROVIDED THAT THE COMPANY AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION
OF TRANSFER IN THE FORM APPEARING IN THE INDENTURE IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE.]
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<PAGE> 135
ISIN No. [XS0108064709](1)
[XS0108064618](2)
Common Code [010806470](1)
[010806461](2)
AZURIX CORP.
10 3/8% SENIOR NOTE DUE 2007
No. ___ (pound)__________
Azurix Corp., a Delaware corporation (the "Company"), promises to pay
to ___________________________ or registered assigns, the principal sum of
_______________________________ Pounds Sterling [FOR GLOBAL NOTES ONLY:] [or
such greater or lesser amount as may from time to time be endorsed on the
Schedule of Exchanges of Interests in the Global Note] on February 15, 2007.
Interest Payment Dates: February 15 and August 15 of each year
Record Dates: February 1 and August 1 of each year
Reference is hereby made to the further provisions of this 7-Year
Sterling Note set forth on the reverse hereof, which further provisions shall
for all purposes have the same effect as if set forth at this place.
Unless the certificate of authorization hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
7-Year Sterling Note shall not be entitled to any benefit of the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this 7-Year Sterling Note to
be signed manually or by facsimile by a duly authorized officer.
AZURIX CORP.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
- --------
(1) For 7-Year Sterling Notes sold in reliance on Rule 144A
(2) For 7-Year Sterling Notes sold in reliance on Regulation S
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<PAGE> 136
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the sterling-denominated 10 3/8% Senior Notes due 2007 referred
to in the within- mentioned Indenture.
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
as Trustee
By:
--------------------------------------
Authorized Signatory
Date of authentication:
------------------
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<PAGE> 137
[BACK OF NOTE]
10 3/8% SENIOR NOTE DUE 2007
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. The Company promises to pay interest on the principal
amount of this 7-Year Sterling Note at 10 3/8% per annum and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company shall pay interest and Liquidated
Damages, if any, semi-annually on February 15 and August 15 of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each,
an "Interest Payment Date"). Interest on the 7-Year Sterling Notes shall accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from February 18, 2000(3); provided, that if there is no
existing Default in the payment of interest, and if this 7-Year Sterling Note
is authenticated between a record date referred to on the face hereof and the
next succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided further that if the Exchange Offer
is consummated [FOR INITIAL NOTES ONLY:] [and Exchange Notes are issued in
exchange for this 7-Year Sterling Note in connection therewith, any accrued and
unpaid interest on this 7-Year Sterling Note shall be deemed to have accrued
with respect to, and shall be paid with respect to, such Exchange Notes] [FOR
EXCHANGE NOTES ONLY:] [and this 7-Year Sterling Note is issued in exchange for
Initial Notes in connection therewith, interest will accrue on this 7-Year
Sterling Note from the last day on which interest was paid on such Initial
Notes prior to the issuance of this 7-Year Sterling Note or, if no such
interest has been paid, from February 18, 2000(3)]; provided, further, that the
first Interest Payment Date shall be August 15, 2000(3). The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at the rate of 10 3/8% per annum. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace periods) from time to time on demand at the same rate to
the extent lawful. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the 7-Year
Sterling Notes (except defaulted interest) and Liquidated Damages to the Persons
who are registered Holders of 7-Year Sterling Notes at the close of business on
the February 1 or August 1 next preceding the Interest Payment Date, even if
such 7-Year Sterling Notes are cancelled after such record date and on or before
such Interest Payment Date, except as provided in Section 2.13 of the Indenture
with respect to defaulted interest. The 7-Year Sterling Notes shall be payable
as to principal, premium, interest and Liquidated Damages, if any, at the office
or agency of the Company maintained for such purpose in the City of New York,
or, within Luxembourg, for so long as required by the Luxembourg Stock Exchange,
or, at the option of the Company, payment of interest and Liquidated Damages, if
any,
- --------
(3) For Subsequent Notes and related Exchange Notes, substitute applicable
corresponding dates.
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<PAGE> 138
may be made by check mailed to the Holders at their addresses set forth on the
Register of Holders, and provided that payment by wire transfer of immediately
available funds shall be required with respect to principal of and interest,
premium and Liquidated Damages, if any, on, all 7-Year Sterling Notes in the
form of Global Notes and all other 7-Year Sterling Notes the Holders of which
shall have provided wire transfer instructions to the Company or the Paying
Agent. Such payment shall be in such coin or currency of the United Kingdom as
at the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Chase Bank of Texas, National
Association shall act as Principal Paying Agent and Registrar and Chase
Manhattan Bank Luxembourg S.A. shall act as Registrar and Paying Agent, for so
long as required by the Luxembourg Stock Exchange. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company or a
Subsidiary Guarantor, if any, may act in any such capacity.
4. INDENTURE. The Company issued the 7-Year Sterling Notes under an
Indenture dated as of February 18, 2000 (the "Indenture") between the Company
and the Trustee. The terms of the 7-Year Sterling Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
7-Year Sterling Notes are subject to all such terms, and Holders are referred to
the Indenture and such Act for a statement of such terms. To the extent any
provision of this 7-Year Sterling Note conflicts with the express provisions of
the Indenture, the provisions of the Indenture shall govern and be controlling.
The 7-Year Sterling Notes are obligations of the Company limited to (pound)100
million in aggregate principal amount, plus, under certain circumstances the
Sterling Equivalent of an additional $50 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) The 7-Year Sterling Notes may be redeemed in whole or in
part at the Company's option at any time prior to maturity, upon not less than
30 nor more than 60 days' prior notice, at a redemption price equal to the then
outstanding principal amount of the 7-Year Sterling Notes being redeemed plus
accrued and unpaid interest thereon and Liquidated Damages, if any, to the date
of redemption plus a premium equal to the excess of (i) the present value at the
time of redemption of the principal amount of the 7-Year Sterling Notes being
redeemed and any required interest payments due of the 7-Year Sterling Notes
being redeemed through Stated Maturity, computed using a discount rate equal to
the Gilt Rate plus 50 basis points over (ii) the then outstanding principal
amount of the 7-Year Sterling Notes being redeemed.
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to February 15, 2003, the Company may (but shall
not have the obligation to) redeem on any one or more occasions, up to 35% of
the aggregate principal amount of 7-Year Sterling Notes originally issued under
the Indenture at a redemption price equal to 110.375% of the principal amount
thereof, plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the redemption date, with all or part of the net cash proceeds of one or
more Public Equity Offerings; provided, however, that at least 65% in aggregate
principal amount of 7-Year Sterling Notes
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<PAGE> 139
originally issued under the Indenture remains outstanding immediately after the
occurrence of such redemption (excluding for purposes of determining the 7-Year
Sterling Notes that remain outstanding any 7-Year Sterling Notes held by the
Company or any Subsidiary); and provided further, that such redemption shall
occur within 60 days of the date of the closing of such Public Equity Offering.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with respect
to the 7-Year Sterling Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, subject to the terms of
the Indenture, each Holder of 7-Year Sterling Notes shall have the right to
require the Company to repurchase all or any part (equal to (pound)1,000 or an
integral multiple thereof) of each Holder's 7-Year Sterling Notes at a purchase
price equal to 101% of the aggregate principal amount of the 7-Year Sterling
Notes repurchased plus accrued and unpaid interest thereon and Liquidated
Damages, if any, to the date of repurchase pursuant to a Change of Control Offer
in accordance with the provisions of the Indenture.
(b) When the aggregate amount of Excess Proceeds from any
Asset Sale exceeds $25.0 million, the Company shall make a pro rata offer to all
holders of Notes and all holders of other Senior Debt of the Company that is
pari passu with the Notes as set forth in the Indenture to purchase the maximum
principal amount of Notes and such other Senior Debt that may be purchased out
of the Excess Proceeds. The Company or such Restricted Subsidiary shall be
required to apply such Excess Proceeds to offer to repurchase Notes at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, thereon and Liquidated Damages, if any,
thereon to the date of purchase in accordance with the procedures set forth in
the Indenture.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose 7-Year Sterling Notes are to be redeemed at its registered address as
recorded in the Register. 7-Year Sterling Notes in denominations larger than
(pound)1,000 may be redeemed in part but only in whole multiples of
(pound)1,000, unless all of the 7-Year Sterling Notes held by a Holder are to be
redeemed. On and after the redemption date interest and Liquidated Damages, if
any, cease to accrue on 7-Year Sterling Notes or portions thereof called for
redemption unless the Company defaults in making such redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The 7-Year Sterling Notes are in
registered form without coupons in denominations of (pound)1,000 and integral
multiples of (pound)1,000. The transfer of 7-Year Sterling Notes may be
registered and 7-Year Sterling Notes may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish
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<PAGE> 140
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any 7-Year Sterling
Note or portion of a 7-Year Sterling Note selected for redemption, except for
the unredeemed portion of any 7-Year Sterling Note being redeemed in part. Also,
it need not exchange or register the transfer of any 7-Year Sterling Note for a
period of 15 days before (i) any date fixed for the redemption of any Notes or
(ii) the day of any selection of Notes for redemption or during the period
between a record date and the corresponding Interest Payment Date, or of any
7-Year Sterling Note tendered (and not withdrawn) for repurchase in connection
with a Change of Control Offer or an Asset Sale Offer.
10. PERSONS DEEMED OWNERS. The registered Holder of a 7-Year Sterling
Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture, the Subsidiary Guarantees, if any, or the 7-Year Sterling Notes
may be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding 7-Year Sterling
Notes and of each other series of Notes affected thereby, and any existing
default or compliance with any provision of the Indenture, the Subsidiary
Guarantees, if any, or the 7-Year Sterling Notes may be waived with the consent
of the Holders of a majority in aggregate principal amount of the then
outstanding 7-Year Sterling Notes and of each other series of Notes affected
thereby. Without the consent of any Holder of a 7-Year Sterling Note or any
Holder of any other series of Notes, the Indenture, the Subsidiary Guarantees,
if any, or the 7-Year Sterling Notes may be amended or supplemented for certain
specified purposes, including, among other things, to cure any ambiguity, defect
or inconsistency, to make any change that would provide any additional rights or
benefits to the Holders of the 7-Year Sterling Notes or surrender any right or
power conferred upon the Company or the Subsidiary Guarantors by the Indenture
that does not adversely affect the legal rights under the Indenture of any such
Holder and to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include in summary form:
(i) default in payment when due of the principal, the Change of Control or Asset
Sale Offer Purchase Price or premium, if any, on the 7-Year Sterling Notes; (ii)
default for 30 days in the payment when due of interest on or Liquidated
Damages, if any, with respect to the 7-Year Sterling Notes; (iii) default on any
other Debt of the Company or any Significant Subsidiary if either (a) such
default results from failure to pay principal of such Debt in excess of $25
million at Stated Maturity of such Debt, or (b) as a result of such default, the
maturity of such Debt has been accelerated, so that the same shall be or becomes
due and payable prior to the date on which the same would otherwise have become
due and payable and such acceleration shall not be rescinded or annulled within
30 days, and the principal amount of such Debt, together with the principal
amount of any other Debt of the Company or any Significant Subsidiary in
default, or the maturity of which has been accelerated, aggregates $25 million
or more; (iv) failure by the Company for 30 days after notice to the Company by
the Trustee or the Holders of at least 25% in aggregate principal amount of the
7-Year Sterling Notes
B-8
<PAGE> 141
then outstanding to comply with certain other covenants or agreements in the
Indenture or the 7-Year Sterling Notes (provided that no such notice need be
given, and an Event of Default shall occur 30 days after breach of the covenants
in Sections 4.06, 4.07, 4.08 or 5.01 of the Indenture); (v) the failure by the
Company or any Significant Subsidiary to pay final judgments by courts of
competent jurisdiction aggregating in excess of $25 million, which judgments are
not paid, discharged or stayed for a period of 30 days; (vi) except as permitted
by the Indenture, any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
force and effect or any Subsidiary Guarantor, or any Person acting on behalf of
any Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and (vii) certain events of bankruptcy or insolvency with
respect to the Company or certain Restricted Subsidiaries. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Restricted Subsidiary
constituting a Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
7-Year Sterling Notes shall become due and payable without further action or
notice. Holders may not enforce the Indenture or the 7-Year Sterling Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the 7-Year Sterling Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to a payment on the
7-Year Sterling Notes) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the 7-Year
Sterling Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the 7-Year Sterling Notes waive any existing Default or Event
of Default and its consequences under the Indenture except a continuing Default
or Event of Default in the payment of principal of, or premium, interest or
Liquidated Damages, if any, on, the 7-Year Sterling Notes. The Company is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, initially Chase
Bank of Texas, National Association, under the Indenture, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A past, present or future director,
officer, partner, employee, incorporator, stockholder or member of the Company
or any Subsidiary Guarantor, as such, shall not have any liability for any
obligations of the Company or any Subsidiary Guarantor under the 7-Year Sterling
Notes, the Indenture or the Subsidiary Guarantees, or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a 7-Year Sterling Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the 7-Year
Sterling Notes.
B-9
<PAGE> 142
15. AUTHENTICATION. This 7-Year Sterling Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of February 18, 2000, among the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. ISIN NUMBERS/COMMON CODE NUMBERS. The Company has caused ISIN
numbers/ Common Code numbers to be printed on the 7-Year Sterling Notes and the
Trustee may use ISIN numbers/Common Code numbers in notices of redemption as a
convenience to Holders. No representation is made as to the accuracy of such
numbers either as printed on the 7-Year Sterling Notes or as contained in any
notice of redemption or repurchase and reliance may be placed only on the other
identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Azurix Corp.
333 Clay Street
Houston, TX 77002
U.S.A.
Attention: Chief Financial Officer
B-10
<PAGE> 143
FORM OF ASSIGNMENT
To assign this 7-Year Sterling Note, fill in the form below: (I) or
(we) assign and transfer this 7-Year Sterling Note 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 7-Year Sterling Note on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
------------------
Your Signature:
-------------------------------
(Sign exactly as your name appears on the face
of this 7-Year Sterling Note)
Signature Guarantee:
-------------------------
B-11
<PAGE> 144
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this 7-Year Sterling Note purchased by the
Company pursuant to Sections 3.09 and 4.07 or Section 4.06 of the Indenture,
check the box below:
[ ] Section 3.09 and 4.07 [ ] Section 4.06
If you want to elect to have only part of the 7-Year Sterling Note
purchased by the Company pursuant to Sections 3.09 and 4.07 or Section 4.06 of
the Indenture, state the amount you elect to have purchased (must be an integral
multiple of (pound)1,000):
(pound)
-------------------
Date: Your Signature:
------------------------- --------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No.:
-------------------------
Signature Guarantee:
----------------------------
B-12
<PAGE> 145
SCHEDULE A
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note of the same series or for a Definitive Registered Note of
the same series, or exchanges of a part of another Global Note of the same
series or Definitive Registered Note of the same series for an interest in this
Global Note, have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SIGNATURE OF
AMOUNT OF AMOUNT OF OF THIS GLOBAL NOTE AUTHORIZED
DECREASE IN INCREASE IN FOLLOWING SUCH SIGNATORY OF
PRINCIPAL AMOUNT PRINCIPAL AMOUNT DECREASE (OR TRUSTEE OR
DATE OF EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE INCREASE) DEPOSITARY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
B-13
<PAGE> 146
EXHIBIT C
FORM OF 10-YEAR DOLLAR NOTE
[Face of Note]
[FOR GLOBAL NOTES ONLY:] [THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL
NOTE SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF THE DEPOSITORY TRUST COMPANY
OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC") TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[FOR RESTRICTED NOTES ONLY:] [THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. ACCORDINGLY, NEITHER THIS NOTE 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. BY ITS ACQUISITION HEREOF OR OF
A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S.
PERSON WHO IS ACQUIRING THE SECURITY IN AN "OFFSHORE TRANSACTION"
PURSUANT TO RULE 903 OR RULE 904 OF REGULATION S,
C-1
<PAGE> 147
(2) AGREES THAT IT WILL NOT, PRIOR TO THE DATE THAT IS TWO YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF
THIS NOTE) AND THE LAST DATE ON WHICH AZURIX CORP. (THE "COMPANY") OR
ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE OR ANY
PREDECESSOR OF THIS NOTE, OFFER, SELL, OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
(3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED BY IT A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND;
PROVIDED THAT THE COMPANY AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION
OF TRANSFER IN THE FORM APPEARING IN THE INDENTURE IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE.]
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<PAGE> 148
CUSIP No. [05501M AC 8](1)
[U05517 AC 8](2)
AZURIX CORP.
10 3/4% SENIOR NOTE DUE 2010
No. ___ $__________
Azurix Corp., a Delaware corporation (the "Company"), promises to pay
to or registered assigns, the principal sum of Dollars [FOR GLOBAL NOTES ONLY:]
[or such greater or lesser amount as may from time to time be endorsed on the
Schedule of Exchanges of Interests in the Global Note] on February 15, 2010.
Interest Payment Dates: February 15 and August 15 of each year
Record Dates: February 1 and August 1 of each year
Reference is hereby made to the further provisions of this 10-Year
Dollar Note set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authorization hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
10-Year Dollar Note shall not be entitled to any benefit of the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this 10-Year Dollar Note to
be signed manually or by facsimile by a duly authorized officer.
AZURIX CORP.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
- --------
(1) For 10-Year Dollar Notes sold in reliance on Rule 144A
(2) For 10-Year Dollar Notes sold in reliance on Regulation
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<PAGE> 149
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 10 3/4% Senior Notes due 2010 referred to in the
within-mentioned Indenture.
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
as Trustee
By:
------------------------------------
Authorized Signatory
Date of authentication:
-----------------
C-4
<PAGE> 150
[BACK OF NOTE]
10 3/4% SENIOR NOTE DUE 2010
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. The Company promises to pay interest on the principal
amount of this 10-Year Dollar Note at 10 3/4% per annum and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company shall pay interest and Liquidated
Damages, if any, semi-annually on February 15 and August 15 of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each,
an "Interest Payment Date"). Interest on the 10-Year Dollar Notes shall accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from February 18, 2000(3); provided that if there is no existing
Default in the payment of interest, and if this 10-Year Dollar Note is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that if the Exchange Offer
is consummated [FOR INITIAL NOTES ONLY:] [and Exchange Notes are issued in
exchange for this 10-Year Dollar Note in connection therewith, any accrued and
unpaid interest on this 10-Year Dollar Note shall be deemed to have accrued
with respect to, and shall be paid with respect to, such Exchange Notes] [FOR
EXCHANGE NOTES ONLY:] [and this 10-Year Dollar Note is issued in exchange for
Initial Notes in connection therewith, interest will accrue on this 10-Year
Dollar Note from the last day on which interest was paid on such Initial Notes
prior to the issuance of this 10-Year Dollar Note or, if no such interest has
been paid, from February 18, 2000(3)]; provided, further, that the first
Interest Payment Date shall be August 15, 2000(3). The Company shall pay
interest (including post- petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at the rate of 10 3/4% per annum. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace periods) from time to time on demand at the same rate to
the extent lawful. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the 10-Year
Dollar Notes (except defaulted interest) and Liquidated Damages to the Persons
who are registered Holders of 10-Year Dollar Notes at the close of business on
the February 1 or August 1 next preceding the Interest Payment Date, even if
such 10-Year Dollar Notes are cancelled after such record date and on or before
such Interest Payment Date, except as provided in Section 2.13 of the Indenture
with respect to defaulted interest. The 10-Year Dollar Notes shall be payable as
to principal, premium, interest and Liquidated Damages, if any, at the office or
agency of the Company maintained for such purpose in the City of New York, or,
at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders at their addresses set forth on
the
- --------
(3) For Subsequent Notes and related Exchange Notes, substitute applicable
corresponding dates.
C-5
<PAGE> 151
Register of Holders, and provided that payment by wire transfer of immediately
available funds shall be required with respect to principal of and interest,
premium and Liquidated Damages, if any, on, all 10-Year Dollar Notes in the form
of Global Notes and all other 10-Year Dollar Notes the Holders of which shall
have provided wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. PAYING AGENT AND REGISTRAR. Initially, Chase Bank of Texas, National
Association shall act as Principal Paying Agent and Registrar with respect to
the 10-Year Dollar Notes. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company or a Subsidiary Guarantor, if any, may
act in any such capacity.
4. INDENTURE. The Company issued the 10-Year Dollar Notes under an
Indenture dated as of February 18, 2000 (the "Indenture") between the Company
and the Trustee. The terms of the 10-Year Dollar Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
10-Year Dollar Notes are subject to all such terms, and Holders are referred to
the Indenture and such Act for a statement of such terms. To the extent any
provision of this 10-Year Dollar Note conflicts with the express provisions of
the Indenture, the provisions of the Indenture shall govern and be controlling.
The 10-Year Dollar Notes are obligations of the Company limited to $200 million
in aggregate principal amount, plus, under certain circumstances an additional
$50 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) (i) The 10-Year Dollar Notes may be redeemed in whole or
in part at the Company's option at any time on or after February 15,
2005 upon not less than 30 nor more than 60 days' prior notice, at the
redemption prices (expressed as percentages of the principal amount
thereof) set forth below plus accrued and unpaid interest thereon and
Liquidated Damages, if any, up to the applicable redemption date, if
redeemed during the 12-month period beginning on February 15, of the
years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005........................................................105.375%
2006........................................................103.583%
2007........................................................101.792%
2008 and thereafter.........................................100.000%
</TABLE>
(ii) The 10-Year Dollar Notes may be redeemed in
whole or in part at the Company's option at any time prior to February
15, 2005, upon not less than 30 nor more than 60 days' prior notice, at
a redemption price equal to the then outstanding principal amount of
the Notes being redeemed plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption plus a premium
equal to the excess of (i) the
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<PAGE> 152
present value at the time of redemption of the Company, the principal
amount of the 10-Year Dollar Notes begin redeemed, plus premium thereon
applicable to 10-Year Dollar Notes redeemable at the option of the
Company on February 15, 2005, and any required interest payments due on
the 10-Year Dollar Notes being redeemed through February 15, 2005,
computed using a discount rate equal to the applicable Treasury Rate
plus 50 basis points over (ii) the then outstanding principal amount of
the 10-Year Dollar Notes being redeemed.
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to February 15, 2003, the Company may (but shall
not have the obligation to) redeem on any one or more occasions, up to 35% of
the aggregate principal amount of 10-Year Dollar Notes originally issued under
the Indenture at a redemption price equal to 110.75% of the principal amount
thereof, plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the redemption date, with all or part of the net cash proceeds of one or
more Public Equity Offerings; provided, however, that at least 65% in aggregate
principal amount of 10-Year Dollar Notes originally issued under the Indenture
remains outstanding immediately after the occurrence of such redemption
(excluding for purposes of determining the 10-Year Dollar Notes that remain
outstanding any 10-Year Dollar Notes held by the Company or any Subsidiary);
and provided further, that such redemption shall occur within 60 days of the
date of the closing of such Public Equity Offering.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with respect
to the 10-Year Dollar Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, subject to the terms of
the Indenture, each Holder of 10-Year Dollar Notes shall have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of each Holder's 10-Year Dollar Notes at a purchase
price equal to 101% of the aggregate principal amount of the 10-Year Dollar
Notes repurchased plus accrued and unpaid interest thereon and Liquidated
Damages, if any, to the date of repurchase pursuant to a Change of Control Offer
in accordance with the provisions of the Indenture.
(b) When the aggregate amount of Excess Proceeds from any
Asset Sale exceeds $25.0 million, the Company shall make a pro rata offer to all
holders of Notes and all holders of other Senior Debt of the Company that is
pari passu with the Notes as set forth in the Indenture to purchase the maximum
principal amount of Notes and such other Senior Debt that may be purchased out
of the Excess Proceeds. The Company or such Restricted Subsidiary shall be
required to apply such Excess Proceeds to offer to repurchase Notes at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, thereon and Liquidated Damages, if any,
thereon to the date of purchase in accordance with the procedures set forth in
the Indenture.
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<PAGE> 153
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose 10-Year Dollar Notes are to be redeemed at its registered address as
recorded in the Register. 10-Year Dollar Notes in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000, unless all
of the 10-Year Dollar Notes held by a Holder are to be redeemed. On and after
the redemption date interest and Liquidated Damages, if any, cease to accrue on
10-Year Dollar Notes or portions thereof called for redemption unless the
Company defaults in making such redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The 10-Year Dollar Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of 10-Year Dollar Notes may be registered and
10-Year Dollar Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any 10-Year Dollar
Note or portion of a 10-Year Dollar Note selected for redemption, except for the
unredeemed portion of any 10-Year Dollar Note being redeemed in part. Also, it
need not exchange or register the transfer of any 10-Year Dollar Note for a
period of 15 days before (i) any date fixed for the redemption of any Notes or
(ii) the day of any selection of Notes for redemption or during the period
between a record date and the corresponding Interest Payment Date, or of any
10-Year Dollar Note tendered (and not withdrawn) for repurchase in connection
with a Change of Control Offer or an Asset Sale Offer.
10. PERSONS DEEMED OWNERS. The registered Holder of a 10-Year Dollar
Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture, the Subsidiary Guarantees, if any, or the 10-Year Dollar Notes
may be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding 10-Year Dollar
Notes and each other series of Notes affected thereby, and any existing default
or compliance with any provision of the Indenture, the Subsidiary Guarantees, if
any, or the 10-Year Dollar Notes may be waived with the consent of the Holders
of a majority in aggregate principal amount of the then outstanding 10-Year
Dollar Notes and each other series of Notes affected thereby. Without the
consent of any Holder of a 10-Year Dollar Note or any Holder of any other series
of Notes, the Indenture, the Subsidiary Guarantees, if any, or the 10-Year
Dollar Notes may be amended or supplemented for certain specified purposes,
including, among other things, to cure any ambiguity, defect or inconsistency,
to make any change that would provide any additional rights or benefits to the
Holders of the 10-Year Dollar Notes or surrender any right or power conferred
upon the Company or the Subsidiary Guarantors by the Indenture that does not
adversely affect the legal rights under the Indenture of any such Holder and to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
C-8
<PAGE> 154
12. DEFAULTS AND REMEDIES. Events of Default include in summary form:
(i) default in payment when due of the principal, the Change of Control or Asset
Sale Offer purchase price or premium, if any, on the 10-Year Dollar Notes; (ii)
default for 30 days in the payment when due of interest on or Liquidated
Damages, if any, with respect to the 10-Year Dollar Notes; (iii) default on any
other Debt of the Company or any Significant Subsidiary if either (a) such
default results from failure to pay principal of such Debt in excess of $25
million at Stated Maturity of such Debt, or (b) as a result of such default, the
maturity of such Debt has been accelerated, so that the same shall be or becomes
due and payable prior to the date on which the same would otherwise have become
due and payable and such acceleration shall not be rescinded or annulled within
30 days, and the principal amount of such Debt, together with the principal
amount of any other Debt of the Company or any Significant Subsidiary in
default, or the maturity of which has been accelerated, aggregates $25 million
or more; (iv) failure by the Company for 30 days after notice to the Company by
the Trustee or the Holders of at least 25% in aggregate principal amount of the
10-Year Dollar Notes then outstanding to comply with certain other covenants or
agreements in the Indenture or the 10-Year Dollar Notes (provided that no such
notice need be given, and an Event of Default shall occur 30 days after breach
of the covenants in Sections 4.06, 4.07, 4.08 or 5.01 of the Indenture); (v) the
failure by the Company or any Significant Subsidiary to pay final judgments by
courts of competent jurisdiction aggregating in excess of $25 million, which
judgments are not paid, discharged or stayed for a period of 30 days; (vi)
except as permitted by the Indenture, any Subsidiary Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in force and effect or any Subsidiary Guarantor, or any Person
acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and (vii) certain events of
bankruptcy or insolvency with respect to the Company or certain Restricted
Subsidiaries. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company, certain Restricted Subsidiaries constituting a Significant Subsidiary
or any group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding 10-Year Dollar Notes shall become due
and payable without further action or notice. Holders may not enforce the
Indenture or the 10-Year Dollar Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the 10-Year Dollar Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to a payment) if it determines that withholding notice is in
their interest.
The Holders of a majority in aggregate principal amount of the 10-Year
Dollar Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the 10-Year Dollar Notes waive any existing Default or Event
of Default and its consequences under the Indenture except a continuing Default
or Event of Default in the payment of principal of, or premium, interest or
Liquidated Damages, if any, on the 10-Year Dollar Notes. The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
C-9
<PAGE> 155
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, initially Chase
Bank of Texas, National Association under the Indenture, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A past, present or future director,
officer, partner, employee, incorporator, stockholder or member of the Company
or any Subsidiary Guarantor, as such, shall not have any liability for any
obligations of the Company or any Subsidiary Guarantor under the 10-Year Dollar
Notes, the Indenture or the Subsidiary Guarantees, or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a 10-Year Dollar Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the 10-Year
Dollar Notes.
15. AUTHENTICATION. This 10-Year Dollar Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of February 18, 2000, among the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the 10-Year Dollar Notes and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the 10-Year Dollar Notes or as contained in any notice of redemption or
repurchase and reliance may be placed only on the other identification numbers
placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Azurix Corp.
333 Clay Street
Houston, TX 77002
U.S.A.
Attention: Chief Financial Officer
C-10
<PAGE> 156
FORM OF ASSIGNMENT
To assign this 10-Year Dollar Note, fill in the form below: (I) or (we)
assign and transfer this 10-Year Dollar Note 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 10-Year Dollar Note on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
-----------------------
Your Signature:
-------------------------------
(Sign exactly as your name appears on the face
of this 10-Year Dollar Note)
Signature Guarantee:
--------------------------
C-11
<PAGE> 157
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this 10-Year Dollar Note purchased by the
Company pursuant to Sections 3.09 and 4.07 or Section 4.06 of the Indenture,
check the box below:
[ ] Section 3.09 and 4.07 [ ] Section 4.06
If you want to elect to have only part of the 10-Year Dollar Note
purchased by the Company pursuant to Sections 3.09 and 4.07 or Section 4.06 of
the Indenture, state the amount you elect to have purchased (must be an integral
multiple of $1,000):
$
----------------
Date: Your Signature:
----------------------- ---------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No.:
-------------------------
Signature Guarantee:
----------------------------
C-12
<PAGE> 158
SCHEDULE A
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note of the same series or for a Definitive Registered Note of
the same series, or exchanges of a part of another Global Note of the same
series or Definitive Registered Note of the same series for an interest in this
Global Note, have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SIGNATURE OF
AMOUNT OF AMOUNT OF OF THIS GLOBAL NOTE AUTHORIZED
DECREASE IN INCREASE IN FOLLOWING SUCH SIGNATORY OF
PRINCIPAL AMOUNT PRINCIPAL AMOUNT DECREASE (OR TRUSTEE OR
DATE OF EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE INCREASE) DEPOSITARY
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
C-13
<PAGE> 159
EXHIBIT D
FORM OF CERTIFICATE OF TRANSFER
Azurix Corp.
333 Clay Street, 10th Floor
Houston, Texas 77002
United States
Chase Bank of Texas, National Association
55 Water Street, North Building
Room 234, Windows 20 and 21
15th Floor
New York, New York 10041
United States
Re: [10 3/8] [10 3/4]% Senior Notes due [2007] [2010] of Azurix Corp.
Reference is hereby made to the Indenture, dated as of February 18,
2000 (the "Indenture"), between Azurix Corp., as issuer (the "Company"), and
Chase Bank of Texas, National Association, as trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
___________________, (the "Transferor") owns and proposes to transfer
the Notes [or interest in such Notes] specified in Annex A hereto, in a
principal amount of[$] [(pound)] ___________ (the "Transfer"), to
___________________________ (the "Transferee"), as further specified in Annex A
hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST
IN THE U.S. GLOBAL NOTE OR A DEFINITIVE REGISTERED NOTE PURSUANT TO RULE 144A.
The Transfer is being effected pursuant to and in accordance with Rule 144A
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, the Transferor hereby further certifies that the
Book-Entry Interest or Definitive Registered Note is being transferred to a
Person that the Transferor reasonably believed and believes is purchasing the
Book-Entry Interest or Definitive Registered Note for its own account, or for
one or more accounts with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified institutional
buyer" within the meaning of Rule 144A in a transaction meeting the requirements
of Rule 144A and such Transfer is in compliance with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
Book-Entry Interest or Definitive Registered Note will be
D-1
<PAGE> 160
subject to the restrictions on transfer enumerated in the Restricted Note Legend
printed on the U.S. Global Note and/or the Definitive Registered Note and in the
Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BOOK-ENTRY INTEREST
IN THE INTERNATIONAL GLOBAL NOTE OR A DEFINITIVE REGISTERED NOTE PURSUANT TO
REGULATION S. The Transfer is being effected pursuant to and in accordance with
Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor
hereby further certifies that (i) the Transfer is not being made to a person in
the United States and (x) at the time the buy order was originated, the
Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believe that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market, and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act and (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred Book-Entry Interest or Definitive
Registered Note will be subject to the restrictions on Transfer enumerated in
the Restricted Note Legend printed on the International Global Note and/or the
Definitive Registered Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A
BOOK-ENTRY INTEREST IN THE U.S. GLOBAL NOTE OR A DEFINITIVE REGISTERED NOTE
PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR
REGULATION S. The Transfer is being effected in compliance with the transfer
restrictions applicable to Book-Entry Interests in Restricted Global Notes and
Restricted Definitive Registered Notes and pursuant to and in accordance with
the Securities Act and any applicable blue sky securities laws of any state of
the United States, and accordingly the Transferor hereby further certifies that
(check one):
(a) [ ] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act; or
(b) [ ] such Transfer is being effected to the Company or a
subsidiary thereof; or
(c) [ ] such Transfer is being effected to an institutional
"Accredited Investor," as defined in Rule 501(A)(1), (2), (3) or (7) of
Regulation D under the Securities Act, and pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A, Rule 144,
Rule 903 or Rule 904, and the Transferor hereby further certifies that it has
not engaged in any general solicitation within the meaning of Regulation D under
the Securities Act and the Transfer complies with the transfer restrictions
applicable to Book-Entry Interests in a Restricted Global Note or Restricted
Definitive Registered Notes and the requirements of the exemption claimed, which
certification is supported by (1) a certificate executed by the Transferee in
the form
D-2
<PAGE> 161
of Exhibit F to the Indenture and (2) if such Transfer is in respect of a
principal amount of Notes at the time of transfer of less than $250,000 or
(pound)250,000, as applicable, an Opinion of Counsel provided by the Transferor
or the Transferee (a copy of which the Transferor has attached to this
certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred Book-Entry Interest or Definitive
Registered Note will be subject to the restrictions on transfer enumerated in
the Restricted Note Legend printed on the Restricted Global Note and/or the
Restricted Definitive Registered Notes and in the Indenture and the Securities
Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BOOK-ENTRY INTEREST
IN AN UNRESTRICTED GLOBAL NOTE OR AN UNRESTRICTED DEFINITIVE REGISTERED NOTE.
The Transfer is being effected pursuant to an effective registration statement
under the Securities Act and in compliance with the prospectus delivery
requirements of the Securities Act. Upon consummation of the proposed transfer
in accordance with the terms of the Indenture, the transferred Book-Entry
Interest or Definitive Registered Note will not be subject to the restrictions
on transfer enumerated in the Restricted Note Legend.
This certificate and the statements contained herein are made for your
benefit.
----------------------------------------
[Insert Name of Transferor]
By:
------------------------------------
Name:
Title:
Dated:
------------------------------
D-3
<PAGE> 162
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a), (b) or (c)]
(a) [ ] a Book-Entry Interest in the:
(i) [ ] Sterling U.S. Global Note (ISIN ________;
Common Code ________), held through Participant Account __________, or
(ii) [ ] Dollar U.S. Global Note (CUSIP________),
held through Participant Account __________, or
(iii) [ ] Sterling International Global Note (ISIN
________; Common Code ________), held through Participant Account
__________, or
(iv) [ ] Dollar International Global Note (CUSIP
________), held through Participant Account __________, or
(b) [ ] a Sterling Restricted Definitive Registered Note; or
(c) [ ] a Dollar Restricted Definitive Registered Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a Book-Entry Interest in the:*
(i) [ ] Sterling U.S. Global Note (ISIN ________;
Common Code ________), held through Participant Account __________, or
- -------------------
* A Definitive Registered Note or an interest in a Global Note may only be
transferred to a person that takes delivery thereof in the form of a Definitive
Registered Note or an interest in a Global Note of the same series.
D-4
<PAGE> 163
(ii) [ ] Dollar U.S. Global Note (CUSIP________),
held through Participant Account __________, or
(iii) [ ] Sterling International Global Note (ISIN
________; Common Code ________), held through Participant Account
__________, or
(iv) [ ] Dollar International Global Note (CUSIP
________), held through Participant Account __________, or
(v) [ ] Sterling Unrestricted Global Note (ISIN
________; Common Code ________), held through Participant Account
__________, or
(vi) [ ] Dollar Unrestricted Global Note (CUSIP
________) held through Participant Account __________; or
(b) [ ] a Sterling Restricted Definitive Registered Note; or
(c) [ ] a Dollar Restricted Definitive Registered Note; or
(d) [ ] a Sterling Unrestricted Definitive Registered Note; or
(e) [ ] a Dollar Unrestricted Definitive Registered Note.
D-5
<PAGE> 164
EXHIBIT E
FORM OF CERTIFICATE OF EXCHANGE
Azurix Corp.
333 Clay Street, 10th Floor
Houston, Texas 77002
United States
Chase Bank of Texas, National Association
55 Water Street, North Building
Room 234, Windows 20 and 21
15th Floor
New York, New York 10041
United States
Re: [10 3/8] [10 3/4]% Senior Notes due [2007] [2010] of Azurix Corp.
(CUSIP ________; ISIN ________; Common Code ________)
Reference is hereby made to the Indenture, dated as of February 18,
2000 (the "Indenture"), between Azurix Corp., as issuer (the "Company"), and
Chase Bank of Texas, National Association, as trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
__________________________, (the "Owner") owns and proposes to exchange
the Notes [or interest in such Notes] specified on Annex A hereto, in a
principal amount of [$] [(pound)] ____________ (the "Exchange"). In connection
with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE REGISTERED NOTES OR BOOK-ENTRY
INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE REGISTERED NOTES
OR BOOK-ENTRY INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BOOK-ENTRY INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE REGISTERED NOTE. In connection
with the Exchange of the Owner's Book-Entry Interest in a Restricted Global Note
for a Restricted Definitive Registered Note with an equal principal amount, the
Owner hereby certifies that the Restricted Definitive Registered Note is being
acquired for the Owner's own account without transfer. Upon consummation of the
proposed Exchange in accordance with the terms of the Indenture, the Restricted
Definitive Registered Note issued will continue to be subject to the
restrictions on transfer enumerated in the Restricted Note Legend printed on the
Restricted Definitive Registered Note and in the Indenture and the Securities
Act.
E-1
<PAGE> 165
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED
DEFINITIVE REGISTERED NOTE TO BOOK-ENTRY INTEREST IN A RESTRICTED GLOBAL NOTE.
In connection with the Exchange of the Owner's Restricted Definitive Registered
Note for a Book-Entry Interest in a Restricted Global Note with an equal
principal amount, the Owner hereby certifies that the Book-Entry Interest is
being acquired for the Owner's own account without transfer. Upon consummation
of the proposed Exchange in accordance with the terms of the Indenture, the
Book-Entry Interest will continue to be subject to the restrictions on transfer
enumerated in the Restricted Note Legend printed on the Restricted Global Note
and in the Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit.
[Insert Name of Owner]
By:
------------------------------------
Name:
Title:
Dated:
-------------------------------
E-2
<PAGE> 166
ANNEX A TO CERTIFICATE OF EXCHANGE
1. The Owner currently owns and proposes to Exchange the following:
[CHECK ONE OF (a), (b) or (c)]
(a) [ ] a Book-Entry Interest in the:
(i) [ ] Sterling U.S. Global Note (ISIN ________;
Common Code ________), held through Participant Account __________, or
(ii) [ ] Dollar U.S. Global Note (CUSIP________),
held through Participant Account __________, or
(iii) [ ] Sterling International Global Note (ISIN
________; Common Code ________), held through Participant Account
__________, or
(iv) [ ] Dollar International Global Note (CUSIP
________), held through Participant Account __________, or
(b) [ ] a Sterling Restricted Definitive Registered Note, or
(c) [ ] a Dollar Restricted Definitive Registered Note.
2. After the Exchange the Owner will hold:
[CHECK ONE]
(a) [ ] a Book-Entry Interest in the:*
(i) [ ] Sterling U.S. Global Note (ISIN ________;
Common Code ________), through Participant Account __________, or
(ii) [ ] Dollar U.S. Global Note (CUSIP________),
through Participant Account __________, or
- ---------------
* A Definitive Registered Note or an interest in a Global Note may only be
exchanged for a Definitive Registered Note or an interest in a Global Note of
the same series.
E-3
<PAGE> 167
(iii) [ ] Sterling International Global Note (ISIN
________; Common Code ________), through Participant Account
__________, or
(iv) [ ] Dollar International Global Note (CUSIP
________), through Participant Account __________, or
(b) [ ] a Sterling Restricted Definitive Registered Note; or
(c) [ ] a Dollar Restricted Definitive Registered Note.
3. The Owner requests that Definitive Registered Notes be registered in
the following name:
--------------------------------------------
--------------------------------------------
--------------------------------------------
and sent to the Owner at the following address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
E-4
<PAGE> 168
EXHIBIT F
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Azurix Corp.
333 Clay Street, 10th Floor
Houston, Texas 77002
United States
Chase Bank of Texas, National Association
55 Water Street, North Building
Room 234, Windows 20 and 21
15th Floor
New York, New York 10041
United States
Re: [10 3/8] [10 3/4]% Senior Notes due [2007] [2010] of Azurix Corp.
Reference is hereby made to the Indenture, dated as of February 18,
2000 (the "Indenture"), between Azurix Corp., as issuer (the "Company"), and
Chase Bank of Texas National Association, as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of [$] [(pound)] ____________
aggregate principal amount of:
(a) [ ] a Book-Entry Interest in a Global Note, or
(b) [ ] a Definitive Registered Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A
F-1
<PAGE> 169
under the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) to an institutional "accredited investor" (as defined below) that,
prior to such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to you a signed letter substantially in the form of this letter
and, if such transfer is in respect of a principal amount of Notes, at the time
of transfer of less than $250,000 or (pound)250,000, as applicable, an Opinion
of Counsel in form reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act, (D) in accordance with Rule
903 or 904 of Regulation S under the Securities Act, (E) pursuant to the
provisions of Rule 144 under the Securities Act, (F) in accordance with another
exemption from the registration requirements of the Securities Act (and based
upon an Opinion of Counsel acceptable to the Company) or (G) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing the Definitive Registered Note or Book-Entry
Interest in a Global Note from us in a transaction meeting the requirements of
clauses (A) through (F) of this paragraph a notice advising such purchaser that
resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
Book-Entry Interest therein, we will be required to furnish to you such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or Book-Entry Interest therein purchased
by us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion without a view to distribution thereof and without any
present intention of selling such Notes or Book-Entry Interests in a transaction
that would violate the Securities Act.
You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
[Insert Name of Accredited Investor]
By:
-----------------------------------------
Name:
Title:
Dated:
--------------------------------------
F-2
<PAGE> 170
EXHIBIT G
FORM OF GUARANTEE NOTATION
Subject to the limitations set forth in the Indenture (the "Indenture")
referred to in the Note upon which this notation is endorsed, each of the
entities listed on Schedule A hereto (hereinafter referred to as the "Subsidiary
Guarantors", which term includes any successor or additional Subsidiary
Guarantor under the Indenture (i) has unconditionally guaranteed (a) the due and
punctual payment of the principal of and interest on the Notes, whether at
maturity or interest payment date, by acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on the overdue principal
of and (if lawful) interest on the Notes, (c) the due and punctual performance
of all other Obligations of the Company to the Holders or the Trustee, all in
accordance with the terms set forth in the Indenture, and (d) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise and (ii) has agreed to pay any and all
costs and expenses (including reasonable attorneys' fees) incurred by the
Trustee or any Holder in enforcing any rights under this Guarantee. This
Guarantee Notation is subject to the limitations set forth in the Indenture,
including Article X thereof.
No member, stockholder, partner, officer, employee, director or
incorporator, as such, past, present or future, of the Subsidiary Guarantors
shall have any personal liability under this Subsidiary Guarantee by reason of
his or its status as such member, manager, partner, stockholder, officer,
employee, director or incorporator.
The Subsidiary Guarantee shall be binding upon each Subsidiary
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof.
Each Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which this
notation of Subsidiary Guarantee is noted shall have been executed by the
Trustee under the Indenture by the manual signature of one of its authorized
officers.
Certain of the Subsidiary Guarantors may be released from their
Subsidiary Guarantees upon the terms and subject to the conditions provided in
the Indenture.
EACH ENTITY LISTED ON SCHEDULE A HERETO
By:
-----------------------------------------
Name:
Title:
G-1
<PAGE> 171
EXHIBIT H
SUPPLEMENTAL INDENTURE
This SUPPLEMENTAL INDENTURE, dated as of __________ ___, ____, is among
Azurix Corp., a Delaware corporation (the "Company"), each of the parties
identified under the caption "Subsidiary Guarantors" on the signature page
hereto (the "Subsidiary Guarantors") and Chase Bank of Texas, National
Association, as Trustee.
RECITALS
WHEREAS, the Company, the Subsidiary Guarantors and the Trustee entered
into an Indenture, dated as of February 18, 2000 (the "Indenture"), pursuant to
which the Company has originally issued $______________ in principal amount of
dollar-denominated 10 3/8% Senior Notes due 2007, (pound)______ in principal
amount of sterling-denominated 10 3/8% Senior Notes due 2007 and $_______ in
principal amount of dollar-denominated 10 3/4% Senior Notes due 2010 (
collectively, the "Notes"); and
WHEREAS, Section 9.01(d) of the Indenture provides that the Company,
the Subsidiary Guarantors, if any, and the Trustee may amend or supplement the
Indenture in order to execute and deliver a guarantee (a "Subsidiary Guarantee")
to comply with Sections 4.13 and 10.09 thereof without the consent of the
Holders of the Notes; and
WHEREAS, all acts and things prescribed by the Indenture, by law and by
the charter and the bylaws (or comparable constituent documents) of the Company,
of the Subsidiary Guarantors and of the Trustee necessary to make this
Supplemental Indenture a valid instrument legally binding on the Company, the
Subsidiary Guarantors and the Trustee, in accordance with its terms, have been
duly done and performed;
NOW, THEREFORE, to comply with the provisions of the Indenture and in
consideration of the above premises, the Company, the Subsidiary Guarantors and
the Trustee covenant and agree for the equal and proportionate benefit of the
respective Holders of the Notes of each series as follows:
ARTICLE 1
SECTION 1.01. This Supplemental Indenture is supplemental to the
Indenture and does and shall be deemed to form a part of, and shall be construed
in connection with and as part of, the Indenture for any and all purposes.
SECTION 1.02. This Supplemental Indenture shall become effective
immediately upon its execution and delivery by each of the Company, the
Subsidiary Guarantors and the Trustee.
H-1
<PAGE> 172
ARTICLE 2
From this date, in accordance with Section 10.09 and by executing this
Supplemental Indenture and the accompanying notation of Subsidiary Guarantee (a
copy of which is attached hereto), the Subsidiary Guarantors whose signatures
appear below are subject to the provisions of the Indenture to the extent
provided for in Article X thereunder.
ARTICLE 3
SECTION 3.01. Except as specifically modified herein, the Indenture and
the Notes are in all respects ratified and confirmed (mutatis mutandis) and
shall remain in full force and effect in accordance with their terms with all
capitalized terms used herein without definition having the same respective
meanings ascribed to them as in the Indenture.
SECTION 3.02. Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed, or shall be construed to be
assumed, by the Trustee by reason of this Supplemental Indenture. This
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
SECTION 3.03. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN
AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
SECTION 3.04. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of such
executed copies together shall represent the same agreement.
[NEXT PAGE IS SIGNATURE PAGE]
H-2
<PAGE> 173
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
AZURIX CORP.
By
---------------------------------
Name:
Title:
SUBSIDIARY GUARANTORS
[_____________________]
By
---------------------------------
Name:
Title:
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Trustee
By
---------------------------------
Name:
Title:
H-3
<PAGE> 1
EXHIBIT 4.2
===============================================================================
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
DATED AS OF FEBRUARY 18, 2000
BY AND AMONG
AZURIX CORP.
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
CHASE SECURITIES INC. AND
CREDIT SUISSE FIRST BOSTON CORPORATION
AS INITIAL PURCHASERS FOR THE DOLLAR-DENOMINATED SENIOR NOTES
AND
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL,
MERRILL LYNCH INTERNATIONAL,
CHASE MANHATTAN INTERNATIONAL LIMITED AND
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
AS INITIAL PURCHASERS FOR THE STERLING-DENOMINATED SENIOR NOTES
===============================================================================
<PAGE> 2
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of February 18, 2000 by and among Azurix Corp., a Delaware
corporation (the "Company"), and Donaldson, Lufkin & Jenrette Securities
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase
Securities Inc. and Credit Suisse First Boston Corporation (the "Dollar Notes
Initial Purchasers") and Donaldson, Lufkin & Jenrette International, Merrill
Lynch International, Chase Manhattan International Limited and Credit Suisse
First Boston (Europe) Limited (the"Sterling Notes Initial Purchasers" and,
together with the "Dollar Notes Initial Purchasers," the "Initial Purchasers").
The Dollar Notes Initial Purchasers have agreed to purchase the Company's (i)
dollar-denominated 10 3/8% Senior Notes due 2007 (the "7-Year Dollar Notes") and
(ii) dollar-denominated 10 3/4% Senior Notes due 2010 (the "10-Year Dollar
Notes" and, together with the "7-Year Dollar Notes," the "Dollar Notes"), and
the Sterling Notes Initial Purchasers have agreed to purchase the Company's
sterling-denominated 10 3/8% Senior Notes due 2007 (the "Sterling Notes," and,
together with the "Dollar Notes," the "Initial Notes") pursuant to the Purchase
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
February 11, 2000 (the "Purchase Agreement"), by and among the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Initial Notes, the Company has agreed to provide the registration rights set
forth in this Agreement. The execution and delivery of this Agreement by the
Company is a condition to the obligations of the Initial Purchasers set forth
in Section 5 of the Purchase Agreement.
The parties hereby agree as follows:
Section 1. Definitions.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Indenture, dated as of February 18, 2000,
between the Company and Chase Bank of Texas, National Association, as Trustee,
relating to the Initial Notes and the Exchange Notes (the "Indenture"). As used
in this Agreement, the following capitalized terms shall have the following
meanings:
"Act" The Securities Act of 1933, as amended.
"Affiliates" As defined in Rule 144 of the Act.
"Broker-Dealer" Any broker or dealer registered under the Exchange
Act.
"Broker-Dealer Transfer Restricted Securities" Exchange Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Initial Notes
that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Initial Notes
acquired directly from the Company or its Affiliates).
"Closing Date" The date hereof.
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<PAGE> 3
"Commission" The Securities and Exchange Commission.
"Consummate" An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less than
the period required pursuant to Section 3(b) hereof and (c) the delivery by the
Company to the Registrar under the Indenture of Exchange Notes of each series
in the same aggregate principal amount as the aggregate principal amount of
Initial Notes of the same series tendered by Holders thereof pursuant to the
Exchange Offer. The term "Consummation" shall have a correlative meaning.
"Consummation Deadline" As defined in Section 3(b) hereof.
"Effectiveness Deadline" As defined in Sections 3(a) and 4(a) hereof.
"Exchange Act" The Securities Exchange Act of 1934, as amended.
"Exchange Notes" The Company's (i) 7-Year Dollar Notes, (ii) Sterling
Notes and (iii) 10-Year Dollar Notes, to be issued pursuant to the Indenture in
the Exchange Offer.
"Exchange Offer" The exchange and issuance by the Company of an
aggregate principal amount of Exchange Notes of each series (which shall be
registered pursuant to the Exchange Offer Registration Statement) equal to the
outstanding aggregate principal amount of Initial Notes of the same series that
are tendered by such Holders in connection with such exchange and issuance.
"Exchange Offer Registration Statement" The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
"Euroclear" Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system, and its successors and assigns.
"Filing Deadline " As defined in Sections 3(a) and 4(a) hereof.
"Holders " As defined in Section 2 hereof.
"Person" Any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Prospectus " The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
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<PAGE> 4
"Recommencement Date" As defined in Section 6(d) hereof.
"Registration Default" As defined in Section 5 hereof.
"Registration Statement " Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) that is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
"Regulation S" Regulation S promulgated under the Act.
"Restricted Broker-Dealers" Any Broker-Dealer which holds
Broker-Dealer Transfer Restricted Securities.
"Rule 144" Rule 144 promulgated under the Act.
"Shelf Registration Statement" As defined in Section 4 hereof.
"Suspension Notice" As defined in Section 6(d) hereof.
"TIA" The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
"Transfer Restricted Securities" (1) Each Initial Note, until the
earliest to occur of (a) the date on which such Initial Note is exchanged in
the Exchange Offer for an Exchange Note of the same series which is entitled to
be resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Act, (b) the date on which such Initial
Note has been effectively registered under the Act and disposed of in
accordance with a Shelf Registration Statement or (c) the date on which such
Initial Note has been sold pursuant to Rule 144 under the Act and (2) each
Exchange Note owned by a Restricted Broker-Dealer until the date on which such
Exchange Note is disposed of by such Restricted Broker-Dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including the delivery of the Prospectus contained therein), unless,
in the case of clause (1) or (2), the Company and a Holder of an Initial Note
or Exchange Note that may be sold pursuant to paragraph (k) of Rule 144 shall
agree earlier that such Note shall no longer constitute a "Transfer Restricted
Security."
Section 2. Holders.
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns of record Transfer Restricted
Securities.
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<PAGE> 5
Section 3. Registered Exchange Offer.
(a) Unless the Exchange Offer shall not be permitted by applicable
US federal law (after the procedures set forth in Section 6(a)(i) below have
been complied with), the Company shall (i) cause the Exchange Offer
Registration Statement to be filed with the Commission no later than 180 days
after the Closing Date (such 180th day being the "Filing Deadline"), (ii) use
its best efforts to cause such Exchange Offer Registration Statement to become
effective at the earliest practicable time after filing, but in no event later
than 240 days after the Closing Date (such 240th day being the "Effectiveness
Deadline"), (iii) in connection with the foregoing, (A) file all pre-effective
amendments to such Exchange Offer Registration Statement as may be necessary in
order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Exchange Notes to be
made under the securities or Blue Sky laws of such states of the United States
as are necessary to permit Consummation of the Exchange Offer, and (iv) upon
the effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting (i) registration of the Exchange Notes to be offered in
exchange for the Initial Notes of the same series that are Transfer Restricted
Securities and (ii) resales of Exchange Notes by Broker-Dealers that tendered
into the Exchange Offer Initial Notes that such Broker-Dealers acquired for
their own accounts as a result of market-making activities or other trading
activities (other than Initial Notes acquired directly from the Company or any
of its Affiliates) as contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously, and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable US federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply
with all applicable US federal and state securities laws, and, if applicable,
the rules and regulations of the Luxembourg Stock Exchange. No securities other
than the Exchange Notes shall be included in the Exchange Offer Registration
Statement. The Company shall use its best efforts to cause the Exchange Offer
to be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
business days thereafter (such 30th day being the "Consummation Deadline").
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted
Securities that were acquired for the account of such Broker-Dealer as a result
of market-making activities or other trading activities (other than Initial
Notes acquired directly from the Company or any Affiliate of the Company) may
exchange such Transfer Restricted Securities pursuant to the Exchange Offer;
however, such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with any resales of the Exchange Notes
received by such Broker-Dealer in the Exchange Offer, which prospectus delivery
requirements may be satisfied by
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<PAGE> 6
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such sales by such Broker-Dealers
that the Commission may require in order to permit such sales pursuant thereto,
but such "Plan of Distribution" shall not name any such Broker-Dealer or
disclose the amount of Transfer Restricted Securities held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy, rules or regulations after the date of this Agreement. See
the Shearman & Sterling no-action letter (available July 2, 1993). The letter
of transmittal or similar documentation to be executed by a Holder in order to
participate in the Exchange Offer will include, among other things, a provision
to the effect that, if the Holder is a Broker-Dealer holding Initial Notes
acquired for its own account as a result of market-making activities or other
trading activities, such Holder acknowledges that it will deliver a prospectus
meeting the requirements of the Act in connection with any resale of Exchange
Notes received in respect of Notes pursuant to the Exchange Offer.
Because such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any Exchange
Notes received by such Broker-Dealer in the Exchange Offer, the Company shall
permit the use of the Prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such prospectus delivery
requirement. To the extent necessary to ensure that the prospectus contained in
the Exchange Offer Registration Statement is available for sales of Exchange
Notes by Broker-Dealers, the Company agrees to use its best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented,
amended and current as required by and subject to the provisions of Sections
6(a) and (c) hereof and in conformity with the requirements of this Agreement,
the Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period of one year from the Consummation Deadline or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold pursuant thereto. The
Company shall provide sufficient copies of the latest version of such
Prospectus to such Broker-Dealers, promptly upon request, and in no event later
than one Business Day after such request, at any time during such period.
Section 4. Shelf Registration.
(a) Shelf Registration. If (i) the Exchange Offer is not permitted
by applicable law (after the Company has complied with the procedures set forth
in Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted
Securities shall notify the Company within 20 days following the consummation
of the Exchange Offer that (A) such Holder was prohibited by law or Commission
policy from participating in the Exchange Offer or (B) such Holder may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the Prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales
by such Holder or (C) such Holder is a Broker-Dealer and holds Initial Notes
acquired directly from the Company or any of its Affiliates, then the Company
shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i) the
date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of
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<PAGE> 7
clause (a)(i) above and (ii) the date on which the Company receives the notice
specified in clause (a)(ii) above (such earlier date, the "Filing Deadline"), a
shelf registration statement pursuant to Rule 415 under the Act (which may be
an amendment to the Exchange Offer Registration Statement (the "Shelf
Registration Statement")), relating to all Transfer Restricted Securities, the
Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and
(y) use its best efforts to cause such Shelf Registration Statement to
become effective on or prior to 120 days after the Filing Deadline for the
Shelf Registration Statement (such 120th day the "Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable US federal law
(i.e., clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), the Company shall
use its best efforts to keep any Shelf Registration Statement required by this
Section 4(a) continuously effective, supplemented, amended and current as
required by and subject to the provisions of Sections 6(b) and (c) hereof and
in conformity with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to Section 6(d))
following the Closing Date, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Shelf Registration Statement
have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
Section 5. Liquidated Damages.
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation
Deadline or (iv) any
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<PAGE> 8
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective immediately (each such event referred to in clauses
(i) through (iv), a "Registration Default"), then the Company hereby agrees to
pay to each Holder of Transfer Restricted Securities affected thereby
liquidated damages in an amount equal to, with respect to the Dollar Notes,
$0.05 per week per $1,000 in principal amount of Transfer Restricted Securities
and, with respect to the Sterling Notes, (pound)0.05 per week per (pound)1,000
in principal amount of Transfer Restricted Securities held by such Holder, in
each case, for each week or portion thereof that the Registration Default
continues for the first 90-day period immediately following the occurrence of
such Registration Default. The amount of the liquidated damages shall increase,
with respect to the Dollar Notes, by an additional $0.05 per week per $1,000 in
principal amount of Transfer Restricted Securities and, with respect to the
Sterling Notes, (pound)0.05 per week per (pound)1,000 in principal amount of
Transfer Restricted Securities, in each case with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of liquidated damages of, with respect to the Dollar Notes, $0.20 per
week per $1,000 in principal amount of Transfer Restricted Securities and, with
respect to the Sterling Notes, (pound)0.20 per week per (pound)1,000 principal
amount of Transfer Restricted Securities; provided that the Company shall in no
event be required to pay liquidated damages for more than one Registration
Default with respect to a particular series of Notes at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness
of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of
the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, the liquidated damages
payable with respect to the Transfer Restricted Securities as a result of such
clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture,
on each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated
damages are due cease to be Transfer Restricted Securities, all obligations of
the Company to pay liquidated damages with respect to securities shall survive
until such time as such obligations with respect to such securities shall have
been satisfied in full.
In the event that the Sterling Notes are listed on the Luxembourg
Stock Exchange, the Company shall notify the Luxembourg Stock Exchange of the
amount of any liquidated damages payable in accordance with this Section 5, and
arrange to have notice of such amount published in a leading daily newspaper
with general circulation in Luxembourg (which is expected to be the Luxemburger
Wort).
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<PAGE> 9
Section 6. Registration Procedures.
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall (x) comply with all applicable provisions of
Section 6(c) below, (y) use its best efforts to effect such exchange and to
permit the resale of Exchange Notes by each of the Broker-Dealers that tendered
in the Exchange Offer Initial Notes that such Broker-Dealer acquired for its
own account as a result of its market-making activities or other trading
activities (other than Initial Notes acquired directly from the Company or any
of its Affiliates) being sold in accordance with the intended method or methods
of distribution thereof, and (z) comply with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as
the Exchange Offer, that in the reasonable opinion of counsel to the
Company raises a substantial question as to whether the Exchange Offer
is permitted by applicable federal law, the Company hereby agrees to
seek a no-action letter or other favorable decision from the
Commission allowing the Company to Consummate an Exchange Offer for
such Transfer Restricted Securities. The Company hereby agrees to
pursue the issuance of such a decision to the Commission staff level.
In connection with and subject to the foregoing, the Company hereby
agrees to take all such other actions as may be requested by the
Commission or otherwise required in connection with the issuance of
such decision, including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company
setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the Exchange
Offer, each Holder of Transfer Restricted Securities (including,
without limitation, any Holder who is a Broker Dealer) shall furnish,
upon the request of the Company, prior to the Consummation of the
Exchange Offer, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that (A) it is not an
Affiliate of the Company, (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any
Person to participate in, a distribution of the Exchange Notes to be
issued in the Exchange Offer and (C) it is acquiring the Exchange
Notes in its ordinary course of business. As a condition to its
participation in the Exchange Offer, each Holder using the Exchange
Offer to participate in a distribution of the Exchange Notes shall
acknowledge and agree that, if the resales are of Exchange Notes
obtained by such Holder in exchange for Initial Notes acquired
directly from the Company or an Affiliate thereof, it (1) could not,
under Commission policy as in effect on the date of this Agreement,
rely on the position of the Commission enunciated in Morgan Stanley
and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus
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<PAGE> 10
delivery requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as
applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a supplemental
letter to the Commission (A) stating that the Company is registering
the Exchange Offer in reliance on the position of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13,
1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as
interpreted in the Commission's letter to Shearman & Sterling dated
July 2, 1993, and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation that the
Company has not entered into any arrangement or understanding with any
Person to distribute the Exchange Notes to be received in the Exchange
Offer and that, to the best of the Company's information and belief,
each Holder participating in the Exchange Offer is acquiring the
Exchange Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes received in the Exchange Offer and
(C) any other undertaking or representation required by the Commission
as set forth in any no-action letter obtained pursuant to clause (i)
above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated in
the information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement (including,
without limitation, any Registration Statement and the related Prospectus
required to permit sales of Broker-Dealer Transfer Restricted Securities), the
Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to
contain an untrue statement of material fact or omit to state any
material fact necessary to make the statements therein not misleading
or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement,
the Company shall file promptly an appropriate amendment to such
Registration Statement curing such defect, and, if
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Commission review is required, use its best efforts to cause such
amendment to be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) in the case of (x) a Shelf Registration Statement
pursuant to Section 4 or (y) an Exchange Offer Registration Statement
pursuant to Section 3 used in connection with sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers, advise
each selling Holder or Restricted Broker-Dealer, as the case may be,
promptly and, if requested by such Persons, confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments
or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement under
the Act or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any
of the preceding purposes, and (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact
made in the Registration Statement, the Prospectus, any amendment or
supplement thereto or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in
the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes
in the Prospectus in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption from qualification of
the Transfer Restricted Securities under state securities or Blue Sky
laws, the Company shall use its best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the
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<PAGE> 12
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(v) in the case of a Shelf Registration Statement pursuant to
Section 4, furnish to each of the selling Holders before filing with
the Commission, copies of such Shelf Registration Statement or any
Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review
and comment of such Holders in connection with such sale, if any, for
a period of at least five Business Days, and the Company will not file
any such Registration Statement or Prospectus or any amendment or
supplement to any such Registration Statement or Prospectus (including
all such documents incorporated by reference) to which such Holders
shall reasonably object within five Business Days after the receipt
thereof. A Holder shall be deemed to have reasonably objected to such
filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an untrue
statement of a material fact or omits to state any material fact
necessary to make the statements therein not misleading or fails to
comply with the applicable requirements of the Act;
(vi) in the case of a Shelf Registration Statement pursuant
to Section 4, promptly prior to the filing of any document that is to
be incorporated by reference into such Shelf Registration Statement or
Prospectus included therein, provide copies of such document to each
Holder in connection with such sale, if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such Holders may reasonably
request;
(vii) make available, at reasonable times, for inspection by
each selling Holder and any attorney or accountant retained by such
Holder, all financial and other records, pertinent corporate documents
of the Company and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
Holder, attorney or accountant in connection with such Shelf
Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(viii) in the case of (x) a Shelf Registration Statement
pursuant to Section 4 or (y) an Exchange Offer Registration Statement
pursuant to Section 3 used in connection with sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers, if
requested by any Holders in connection with such exchange or sale,
promptly include in any Registration Statement or Prospectus included
therein, pursuant to a supplement or post-effective amendment if
necessary, such information as such Holders may reasonably request to
have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted
Securities, and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after
the Company
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<PAGE> 13
is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(ix) furnish to (x) each Restricted Broker-Dealer selling
Broker-Dealer Transfer Restricted Securities pursuant to an Exchange
Offer Registration Statement and (y) each Holder selling pursuant to a
Shelf Registration Statement, without charge, at least one copy of the
applicable Registration Statement, as first filed with the Commission,
and of each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(x) deliver to (x) each Restricted Broker-Dealer selling
Broker-Dealer Transfer Restricted Securities pursuant to an Exchange
Offer Registration Statement and (y) each Holder selling pursuant to a
Shelf Registration Statement, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; the
Company hereby consents to the use (in accordance with law) of the
Prospectus and any amendment or supplement thereto by each of the
Restricted Broker-Dealers or selling Holders, as the case may be, in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(xi) in the case of (x) a Shelf Registration Statement
pursuant to Section 4 or (y) an Exchange Offer Registration Statement
pursuant to Section 3 used in connection with sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers, upon the
request of any such Person, enter into such agreements (including
underwriting agreements) and make such representations and warranties
and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement
contemplated by this Agreement as may be reasonably requested by any
selling Holder or any Restricted Broker-Dealer, as the case may be, in
connection with any sale or resale pursuant to any applicable
Registration Statement. In such connection, the Company shall:
(A) upon request of any selling Holder or Restricted
Broker-Dealer, as the case may be, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be furnished)
to each Holder, upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the case may be:
(i) a certificate, dated such date, signed on behalf of the
Company by (x) the President or any Vice President and (y)
a principal financial or accounting officer of the
Company, confirming, as of the date thereof, the matters
set forth in Sections 5(b) and 5(h) of the Purchase
Agreement and such other similar matters as such Holders
may reasonably request;
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<PAGE> 14
(ii) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel
for the Company covering matters similar to those set
forth in paragraph (a)(i) of Section 5 of the Purchase
Agreement and of other counsel to the Company covering
matters similar to those set forth in paragraph (a)(ii)
of Section 5 of the Purchase Agreement and such other
matter as such Holder may reasonably request, and in any
event in each case including a statement to the effect
that such counsel has participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants
for the Company and has considered the matters required
to be stated therein and the statements contained
therein, although such counsel has not independently
verified the accuracy, completeness or fairness of such
statements; and that such counsel advises that, on the
basis of the foregoing (relying as to materiality to the
extent such counsel deems appropriate upon the
statements of officers and other representatives of the
Company and without independent check or verification),
no facts came to such counsel's attention that caused
such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or
any post-effective amendment thereto became effective
and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation of the
Exchange Offer, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or that the
Prospectus contained in such Registration Statement as
of its date and, in the case of the opinion dated the
date of Consummation of the Exchange Offer, as of the
date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact
necessary in order to make the statements therein, in
the light of the circumstances under which they were
made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes
no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the
financial statements, notes and schedules and other
financial data included in any Registration Statement
contemplated by this Agreement or the related
Prospectus; and
(iii) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as
the case may be, from the Company's independent
accountants, in the customary form and covering matters
of the type customarily covered in comfort letters to
underwriters in connection with underwritten offerings,
and affirming the matters set
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<PAGE> 15
forth in the comfort letters delivered pursuant to
Section 5(d) of the Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by such Persons to evidence compliance with the
matters covered in clause (A) above and with any customary conditions
contained in any agreement entered into by the Company pursuant to
this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in connection
with the registration and qualification of the Transfer Restricted Securities
under the securities or Blue Sky laws of such states of the United States as the
selling Holders may request and do any and all other acts or things necessary or
advisable to enable the disposition in such states of the Transfer Restricted
Securities covered by the applicable Registration Statement; provided, however,
that the Company shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that would
subject it to the service of process in suits or to taxation, other than as to
matters and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the timely
preparation and delivery of Global Notes not bearing any Restricted Note Legend;
and to register such Global Notes in the names of the Depositaries or their
nominees as requested in accordance with the terms of the Indenture;
(xiv) provide a CUSIP number with respect to each series of
dollar-denominated Exchange Notes, and an ISIN number/Common Code with respect
to the sterling-denominated Exchange Notes, not later than the effective date of
the Exchange Offer Registration Statement and provide the Trustee under the
Indenture with certificates for the Exchange Notes which are in a form eligible
for deposit with The Depository Trust Company, with respect to each series of
dollar-denominated Exchange Notes, and a common depositary for Euroclear with
respect to the sterling-denominated Exchange Notes;
(xv) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders with regard to any applicable Registration Statement, as
soon as practicable, a consolidated earnings statement meeting the requirements
of Rule 158 (which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is defined
in paragraph (c) of Rule 158 under the Act);
(xvi) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the
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<PAGE> 16
terms of the TIA; and execute and use its best efforts to cause the Trustee
to execute, all documents that may be required to effect such changes and
all other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner; and
(xvii) in the event the Sterling Notes are listed on the
Luxembourg Stock Exchange (A) make an application for an equal principal
amount of sterling-denominated Exchange Notes to be listed on the
Luxembourg Stock Exchange and (B) use its reasonable efforts to make
available for inspection all documents prepared in connection with the
Exchange Offer at the office of The Chase Manhattan Bank, London branch, as
common depositary, to the extent required by the rules of such exchange.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any
fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration
Statement until (i) such Holder has received copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder
is advised in writing by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings that
are incorporated by reference in the Prospectus (in each case, the
"Recommencement Date"). Each Holder receiving a Suspension Notice hereby agrees
that it will either (i) destroy any Prospectuses, other than permanent file
copies, then in such Holder's possession which have been replaced by the
Company with more recently dated Prospectuses or (ii) deliver to the Company
(at the Company's expense) all copies, other than permanent file copies, then
in such Holder's possession of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of the Suspension Notice.
The time period regarding the effectiveness of such Registration Statement set
forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of
days equal to the number of days in the period from and including the date of
delivery of the Suspension Notice to the date of delivery of the Recommencement
Date.
Section 7. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all fees
and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing of
Prospectuses, messenger and delivery services and telephone); (iv) all fees and
disbursements of counsel for the Company and the Holders of Transfer Restricted
Securities, in the latter case to the extent incurred by the Holders in
connection with the registration and sale of such securities; (v) all
application and filing fees in connection with listing the sterling-denominated
Exchange Notes on the Luxembourg Stock Exchange; and (vi) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance); provided,
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<PAGE> 17
however, the Company shall not be required to bear any underwriting discount or
brokerage fees or taxes incidental to any resale of securities by any Holder.
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities who are
tendering Initial Notes in the Exchange Offer and/or selling or reselling
Initial Notes or Exchange Notes pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or the Shelf
Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Andrews & Kurth
L.L.P., Houston, Texas, unless another firm shall be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.
Section 8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Holder,
its directors, officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act), from and against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to such Holder or any prospective purchaser of
its Exchange Notes or registered Initial Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except insofar as such losses,
liabilities, claims, damages or expenses arise out of (i) an untrue statement
or omission or alleged untrue statement or omission that is based upon
information relating to such Holder furnished in writing to the Company by such
Holder or (ii) an untrue statement or alleged untrue statement or omission or
alleged omission in any preliminary prospectus that was corrected by the
Prospectus and such Holder failed to comply with such Prospectus delivery
requirements as are applicable to it and such loss, liability, claim, damage or
expense would not have arisen if such Prospectus had been so delivered.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and its directors
and officers, and each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the
same extent as the foregoing indemnity from the Company set forth in Section
8(a) above, but only with reference to information relating to such Holder
furnished in writing to the Company by such Holder expressly for use in any
Registration Statement. In no event shall any Holder, its directors, officers
or any Person who controls such Holder be liable or responsible for any
17
<PAGE> 18
amount in excess of the amount by which the total amount received by such
Holder with respect to its sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages that such
Holder, its directors, officers or any Person who controls such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be one or more legal defenses available to
it and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, the indemnifying party shall not
have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by a majority of the
Holders in the case of paragraph (a) of this Section 8, representing the
indemnified parties under such paragraph (a) who are parties to such action or
actions) or (ii) the indemnifying party does not promptly retain counsel
satisfactory to the indemnified party or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense
of the indemnifying party. After such notice from the indemnifying party to
such indemnified party, the indemnifying party will not be liable for the costs
and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party. No indemnifying party
shall, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 8 (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such
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<PAGE> 19
litigation, investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, liabilities, claims, damages or expenses referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, liabilities, claims, damages or
expenses, in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by the
Holder, on the other hand, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
The Company and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or expenses referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action that
could have given rise to such losses, claims, damages, liabilities or expenses.
Notwithstanding the provisions of this Section 8, no Holder, its directors, its
officers or any Person, if any, who controls such Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each Holder hereunder
and not joint.
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<PAGE> 20
Section 9. Rule 144A and Rule 144.
The Company agrees with each Holder, for so long as any Transfer Restricted
Securities remain outstanding and during any period in which the Company (i) is
not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder, to such Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
Section 10. Miscellaneous.
(a) Remedies. The Company acknowledges and agrees that any failure
by the Company to comply with its obligations under Sections 3 and 4 hereof may
result in material irreparable injury to the Initial Purchasers or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Sections 3 and
4 hereof. The Company further agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has
not previously entered into any agreement granting any registration rights with
respect to its securities to any Person, other than the Stock Registration and
Registration Rights Agreement dated as of June 9, 1999, between the Company and
Atlantic Water Trust, a Delaware business trust. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 10(c)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
affected thereby and (ii) in the case of all other provisions hereof, the
Company has obtained the written consent of Holders of a majority of the
outstanding principal amount of each series of Transfer Restricted Securities
(excluding Transfer Restricted Securities held by the Company or its
Affiliates). Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders
whose Transfer Restricted Securities are being tendered pursuant to the
Exchange Offer, and that does not affect directly or indirectly the rights of
other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer,
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<PAGE> 21
may be given by the Holders of a majority of the outstanding principal amount
of Transfer Restricted Securities of each series subject to such Exchange
Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right
to enforce such agreements directly to the extent they may deem such
enforcement necessary or advisable to protect their rights hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records
of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company:
Azurix Corp.
333 Clay Street
Houston, Texas 77002
Telecopier No.: (713) 646-6001
Attention: General Counsel
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Telecopier No.: (713) 758-2346
Attention: Shelley Barber
(iii) If the Sterling Notes are listed on the Luxembourg Stock
Exchange, to the Luxembourg Stock Exchange:
Luxembourg Stock Exchange
c/o Banque Generale du Luxembourg
50, av. J.F. Kennedy
L-2951 Luxembourg
Luxembourg
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail,
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postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice (in the form attached hereto as Exhibit
A) shall be delivered to (1) on behalf of the Dollar Notes Initial Purchasers
(A) Donaldson, Lufkin & Jenrette Securities Corporation and shall be addressed
to: Attention: Louise Guarneri (Compliance Department), 277 Park Avenue, New
York, New York 10172, and (B) Merrill Lynch & Co./ Merrill Lynch, Pierce,
Fenner & Smith Incorporated, 1221 McKinney, Suite 2700, Houston, Texas 77010
and shall be addressed to: Attention: Investment Banking, and (2) on behalf of
the Sterling Notes Initial Purchasers (A) Donaldson, Lufkin & Jenrette
Securities Corporation and shall be addressed to: Attention: (Compliance
Department), 277 Park Avenue, New York, New York 10172, and (B) Merrill Lynch
International and shall be addressed to: attention: Compliance Officer,
Ropemaker Place, 25 Ropemaker Street, London, EC2Y 9LY, UK.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed
to permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of
this Agreement, and by taking and holding such Transfer Restricted Securities
such Person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement, including the
restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such Person shall be entitled to receive the benefits
hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF. EACH OF THE PARTIES HERETO AGREES TO
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COMPETENT COURTS OF THE STATE
OF NEW YORK SITTING IN THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT.
22
<PAGE> 23
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
(l) Judgment Currency. The Company hereby agrees to indemnify each
Holder against any loss incurred by such Person as a result of any judgment or
order being given or made against the Company for any U.K. pounds sterling
amount due under this Agreement and such judgment or order being expressed and
paid in a currency (the "Judgment Currency") other than U.K. pounds sterling as
a result of any variation between (i) the rate of exchange at which the U.K.
pounds sterling amount is converted into the Judgment Currency for the purpose
of such judgment or order and (ii) the spot rate of exchange in London at which
such party on the date of payment of such judgment or order is able to purchase
U.K. pounds sterling with the amount of the Judgement Currency actually
received by such party. The foregoing indemnity shall continue in full force
and effect notwithstanding any such judgment or order as aforesaid. The term
"spot rate of exchange" shall include any premiums and costs of exchange
payable in connection with the purchase of, or conversion into, U.K. pounds
sterling.
23
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AZURIX CORP.
By: /s/ REBECCA MARK-JUSBASCHE
-------------------------------------
Rebecca Mark-Jusbasche
Chairman and Chief Executive Officer
--Signature Page to Registration Rights Agreement dated February 18, 2000--
<PAGE> 25
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
CHASE SECURITIES INC.,
CREDIT SUISSE FIRST BOSTON CORPORATION,
BY: DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION,
By: /s/ D. DWIGHT SCOTT
----------------------------------------------------------
D. Dwight Scott
Managing Director
--Signature Page to Registration Rights Agreement dated February 18, 2000--
<PAGE> 26
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
CHASE SECURITIES INC.,
CREDIT SUISSE FIRST BOSTON CORPORATION,
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ CHRISTOPHER MIZE
----------------------------------------------------------
Christopher Mize
Managing Director
--Signature Page to Registration Rights Agreement dated February 18, 2000--
<PAGE> 27
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL,
MERRILL LYNCH INTERNATIONAL,
CHASE MANHATTAN INTERNATIONAL LIMITED,
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED,
BY: DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
By: /s/ JONATHAN EZROW
-----------------------------------------------------
Jonathan Ezrow
Managing Director
High Yield Capital Markets, Europe
--Signature Page to Registration Rights Agreement dated February 18, 2000--
<PAGE> 28
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL,
MERRILL LYNCH INTERNATIONAL,
CHASE MANHATTAN INTERNATIONAL LIMITED,
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED,
BY: MERRILL LYNCH INTERNATIONAL
By: /s/ TIM GRELL
-----------------------------------------------
Tim Grell
Managing Director
--Signature Page to Registration Rights Agreement dated February 18, 2000
<PAGE> 29
EXHIBIT A
NOTICE OF FILING OF
[EXCHANGE OFFER/SHELF] REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Azurix Corp.
Dollar-denominated 10 3/8% Senior Notes due 2007
Sterling-denominated 10 3/8% Senior Notes due 2007 and
Dollar-denominated 10 3/4% Senior Notes due 2010
Date: ___________, 2000
For your information only (NO ACTION REQUIRED):
Today, ______________, 2000, we filed [an Exchange Registration
Statement/ a Shelf Registration Statement] with the Securities and Exchange
Commission.
29
<PAGE> 1
EXHIBIT 4.3
STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT
THIS STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT (the "Agreement")
dated as of June 9, 1999, but effective as set forth in Section 1 below, is
between AZURIX CORP., a Delaware corporation ("Azurix"), and Atlantic Water
Trust, a Delaware business trust (the "Holder").
W I T N E S S E T H:
WHEREAS, the Holder is the owner of all the issued and outstanding shares
of common stock of Azurix (the "Common Stock");
WHEREAS, following the initial public offering referred to below, the
Common Stock will be registered under Section 12 of the Securities Exchange Act
of 1934 (the "Exchange Act");
WHEREAS, under the provisions of the Securities Act of 1933 (the
"Securities Act") and the General Rules and Regulations promulgated by the
Securities and Exchange Commission (the "SEC") thereunder, the Holder is or may
be limited in the manner of selling the shares of Common Stock owned by the
Holder, absent registration under the Securities Act of the sale of such Common
Stock or the availability of another exemption from the registration
requirements of the Securities Act; and
WHEREAS, Azurix wishes to establish certain other restrictions on the sale
of Common Stock owned by the Holder, and Azurix and the Holder desire to set
forth certain registration rights as to such shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
1. Agreement Not to Sell or Transfer Restricted Stock For a Period
of Time. This Agreement shall become effective commencing on the
date of the closing of the initial public offering of Common
Stock pursuant to an effective registration statement. The Holder
agrees that it will not offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any security
convertible into or exchangeable for Common Stock except pursuant
to a registration statement under the Securities Act or an
applicable exemption therefrom.
2. Demand Registration.
a. Request for Registration. As used in this Agreement,
"Restricted Stock" shall mean all shares of Common Stock
owned by the Holder on the effective date of this agreement,
together with any securities issued or issuable with respect
to any such Common Stock by way of stock dividend or stock
split or in connection with a combination of shares,
recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Restricted
Stock, once issued such securities shall cease to be
Restricted Stock when (i) a registration statement with
respect to the sale of such securities shall have become
<PAGE> 2
effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration
statement, (ii) such securities shall have been distributed
to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) such securities
shall have been otherwise transferred, new certificates
representing such securities not bearing a legend
restricting further transfer shall have been delivered by
Azurix and the subsequent disposition of such securities
shall not require registration or qualification of such
securities under the Securities Act or any similar state law
then in force, (iv) such securities shall have ceased to be
outstanding or (v) the Holder or Holders thereof and Azurix
shall agree in writing that such Restricted Stock shall no
longer be Restricted Stock. The Holder and any permitted
assignee of the Holder's rights and duties hereunder,
including Enron Corp., an Oregon corporation ("Enron"), are
referred to herein as the "Holders." Subject to the
conditions and limitations set forth in Section 5 of this
Agreement, at any time after the limitation period referred
to in Section 1 hereof, the Holder or Holders of Restricted
Stock may make a written request for registration under the
Securities Act of all or part of its or their Restricted
Stock pursuant to this Section 2 ("Demand Registration"),
provided that the number of shares of Restricted Stock
proposed to be sold shall have an aggregate offering price
of at least $25,000,000. Such request will specify the
aggregate number of shares of Restricted Stock proposed to
be sold and will also specify the intended method of
disposition thereof. Within ten days after receipt of such
request, Azurix will give written notice of such
registration request to all other Holders of Restricted
Stock and include in such registration all Restricted Stock
with respect to which Azurix has received written requests
for inclusion therein within fifteen business days after the
receipt by the applicable Holder of Azurix's notice. Each
such request will also specify the aggregate number of
shares of Restricted Stock to be registered and the intended
method of disposition thereof. No other party, including
Azurix (but excluding another Holder of Restricted Stock),
shall be permitted to offer securities under any such Demand
Registration unless the Holder or Holders requesting the
Demand Registration shall consent in writing.
b. Priority on Demand Registrations. If the Holders of a
majority in number of shares of the Restricted Stock to be
registered in a Demand Registration so elect, the offering
of such Restricted Stock pursuant to such Demand
Registration shall be in the form of an underwritten
offering. In such event, if the managing underwriter or
underwriters of such offering advise Azurix and the Holders
in writing that in their opinion the aggregate amount of
Restricted Stock requested to be included in such offering
is so large that it will materially and adversely affect the
success of such offering or the then prevailing price of the
Common Stock, Azurix will include in such registration the
aggregate number of shares of Restricted Stock which in the
opinion of such managing underwriter or underwriters can be
sold without any such material adverse effect, and such
number of shares shall be allocated pro rata among the
Holders of Restricted Stock on the basis of the number of
shares of Restricted Stock requested to be
<PAGE> 3
included in such registration by their Holders. To the
extent shares of Restricted Stock so requested to be
registered are excluded from the offering, then the Holders
of such Restricted Stock shall have the right to one
additional Demand Registration under this Section with
respect to such Restricted Stock, provided that the failure
of such Restricted Stock to be registered is through no
fault of such Holder.
c. Selection of Underwriters and Counsel. If any Demand
Registration is in the form of an underwritten offering, the
Holders of a majority in number of shares of Restricted
Stock to be registered will select and obtain the services
of the investment banker or investment bankers and manager
or managers that will administer the offering and the
counsel to such investment bankers and managers; provided
that such investment bankers, managers and counsel must be
approved by Azurix, which approval shall not be unreasonably
withheld.
3. Piggyback Registration. If Azurix proposes to file a registration
statement under the Securities Act with respect to an offering
for its own account of any class of its equity securities (other
than a registration statement on Form S-8 (or any successor form)
or any other registration statement relating solely to employee
benefit plans or filed in connection with an exchange offer, a
transaction to which Rule 145 under the Securities Act applies or
an offering of securities solely to Azurix's existing
stockholders), then Azurix shall in each case give written notice
of such proposed filing to the Holders of Restricted Stock as
soon as practicable (but no later than five business days) before
the anticipated filing date, and such notice shall offer such
Holders the opportunity to register such number of shares of
Restricted Stock as each such Holder may request. Each Holder of
Restricted Stock desiring to have such Holder's Restricted Stock
included in such registration statement shall so advise Azurix in
writing within five business days after the date of Azurix's
notice, setting forth the amount of such Holder's Restricted
Stock for which registration is requested. If Azurix's offering
is to be an underwritten offering, Azurix shall, subject to the
further provisions of this Agreement, use its reasonable efforts
to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit the Holders of the Restricted
Stock, requested to be included in the registration for such
offering, to include such securities in such offering on the same
terms and conditions as any similar securities of Azurix included
therein. Moreover, if the registration of which Azurix gives
notice does involve an underwriting, the right of each Holder to
registration pursuant to this Section 3 shall, unless Azurix
otherwise assents, be conditioned upon such Holder's
participation as a seller in such underwriting and its execution
of an underwriting agreement with the managing underwriter or
underwriters selected by Azurix. Notwithstanding the foregoing,
if the managing underwriter or underwriters of such offering
deliver a written opinion to the Holders of Restricted Stock that
either because of (A) the kind of securities which the Holders,
Azurix and any other person or entities intend to include in such
offering or (B) the size of the offering which the Holders,
Azurix and other persons intend to make, the success of the
offering or the then prevailing price of the Common Stock would
be materially and adversely affected by inclusion of the
Restricted Stock requested to be included, then (i) in the event
that the size of the
<PAGE> 4
offering is the basis of such managing underwriter's opinion, the
number of shares to be offered for the accounts of Holders of
Restricted Stock shall be reduced pro rata or to the extent
necessary to reduce the total amount of securities to be included
in such offering to the amount recommended by such managing
underwriter or underwriters; provided that if securities are
being offered for the account of other persons or entities as
well as Azurix, such reduction shall not represent a greater
fraction of the number or kind of securities intended to be
offered by Holders of Restricted Stock than the fraction of
similar reductions imposed on such other persons or entities over
the amount of securities of such kind they intended to offer; and
(ii) in the event that the combination of securities to be
offered is the basis of such managing under-writer's opinion, (x)
the Restricted Stock to be included in such offering shall be
reduced as described in clause (i) above (subject to the proviso
in clause (i)) or, (y) if the actions described in clause (x)
would, in the judgment of the managing underwriter, be
insufficient to substantially eliminate the adverse effect that
inclusion of the Restricted Stock requested to be included would
have on such offering, such Restricted Stock will be excluded
from such offering. Any Restricted Stock excluded from an
underwriting shall be withdrawn from registration and shall not,
without the consent of Azurix and the manager of the
underwriting, be transferred in a public distribution prior to
the earlier of 90 days (or such other shorter period of time as
the manager of the underwriting may require) after the effective
date of the registration statement or 150 days after the date the
Holders of such Restricted Stock are notified of such exclusion.
4. Registration Procedures. Whenever, pursuant to Section 2 or 3,
the Holders of Restricted Stock have requested that any
Restricted Stock be registered, Azurix will, subject to the
provisions of Section 5, use all reasonable efforts to effect the
registration and the sale of such Restricted Stock in accordance
with the intended method of disposition thereof as promptly as
practicable, and in connection with any such request, Azurix
will:
a. in connection with a request pursuant to Section 2, prepare
and file with the SEC, not later than 60 days after receipt
of a request to file a registration statement with respect
to Restricted Stock, a registration statement on any form
for which Azurix then qualifies and which counsel for Azurix
shall deem appropriate and which form shall be available for
the sale of such Restricted Stock in accordance with the
intended method of distribution thereof, and use its
reasonable efforts to cause such registration statement to
become effective; provided that if Azurix shall furnish to
the Holders making such a request a certificate signed by
either the chief financial officer or the chief accounting
officer of Azurix stating that in his good faith judgment it
would be significantly disadvantageous to Azurix for such a
registration statement to be filed on or before the date
filing would be required, Azurix shall have an additional
period of not more than 90 days within which to file such
registration statement; and provided further, (i) that
before filing a registration statement or prospectus or any
amendments or supplements thereto, Azurix will furnish to
one counsel selected by the Holders of a majority in number
of shares of the Restricted Stock covered by such
registration statement copies of all
<PAGE> 5
such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) that after
the filing of the registration statement, Azurix will
promptly notify each selling Holder of Restricted Stock of
any stop order issued or, to the knowledge of Azurix,
threatened by the SEC and take all reasonable actions to
prevent the entry of such stop order or to remove it if
entered;
b. in connection with a registration pursuant to Section 2,
prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement effective for a period
of not less than 270 days or such shorter period as shall
terminate when all Restricted Stock covered by such
registration statement has been sold (but not before the
expiration of the 90-day period referred to in Section 4(3)
of the Securities Act and Rule 174 thereunder, if
applicable), and comply with the provisions of the
Securities Act with respect to the disposition of all
securities covered by such registration statement during
such period in accordance with the intended methods of
disposition by the Selling Holders thereof set forth in such
registration statement;
c. as soon as reasonably practicable, furnish to each selling
Holder, prior to filing a registration statement, copies of
such registration statement as proposed to be filed, and
thereafter furnish to such selling Holder such number of
copies of such registration statement, each amendment and
supplement thereto (in each case, if specified by such
Holder, including all exhibits thereto), the prospectus
included in such registration statement (including each
preliminary prospectus) and such other documents as such
selling Holder may reasonably request in order to facilitate
the disposition of the Restricted Stock owned by such
selling Holder;
d. with reasonable promptness, use its reasonable efforts to
register or qualify such Restricted Stock under such other
securities or blue sky laws of such jurisdictions within the
United States as any selling Holder reasonably (in light of
such selling Holder's intended plan of distribution)
requests and do any and all other acts and things which may
be reasonably necessary or advisable to enable such selling
Holder to consummate the disposition in such jurisdictions
of the Restricted Stock owned by such selling Holder;
provided that Azurix will not be required to (i) qualify
generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this subsection
d., (ii) subject itself to taxation in any such jurisdiction
or (iii) consent to general service of process in any such
jurisdiction;
e. with reasonable promptness, use reasonable efforts to cause
the Restricted Stock covered by such registration statement
to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the
business and operations of Azurix to enable the selling
Holder or Holders thereof to consummate the disposition of
such Restricted Stock;
<PAGE> 6
f. promptly notify each selling Holder of such Restricted
Stock, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the
occurrence of any event known to Azurix requiring the
preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such
Restricted Stock, such prospectus will not contain an untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading and promptly make
available to each selling Holder any such supplement or
amendment;
g. in connection with a request pursuant to Section 2, enter
into an underwriting agreement in customary form, the form
and substance of such underwriting agreement being subject
to the reasonable satisfaction of Azurix;
h. with reasonable promptness make available for inspection by
any selling Holder, any underwriter participating in any
disposition pursuant to such registration statement, and any
attorney, accountant or other agent retained by any such
selling Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent
corporate documents and properties of Azurix (collectively,
the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and
cause Azurix's officers and employees to supply all
information reasonably requested for such purpose by any
such Inspector in connection with such registration
statement; provided, however, that the selection of any
Inspector other than a selling Holder shall be subject to
the consent of Azurix, which shall not be unreasonably
withheld. Each Inspector that actually reviews Records
supplied by Azurix that include information that Azurix
determines, in good faith, to be confidential ("Confidential
Information") shall be required, prior to any such review,
to execute an agreement with Azurix providing that such
Inspector shall not disclose any Confidential Information
unless such disclosure is required by applicable law or
legal process. Each selling Holder of Restricted Stock
agrees that Confidential Information obtained by it as a
result of such inspections shall not be used by it as the
basis for any transactions in securities of Azurix unless
and until such information is made generally available to
the public. Each selling Holder of Restricted Stock further
agrees that it will, upon learning that disclosure of
Confidential Information is sought in a court of competent
jurisdiction, give notice to Azurix and allow Azurix, at its
expense, to undertake appropriate action to prevent
disclosure of the Confidential Information. Each selling
Holder also agrees that the due diligence investigation made
by the Inspectors shall be conducted in a manner which shall
not disrupt to any significant extent the operations of
Azurix or the work performed by Azurix's officers and
employees;
i. in the event such sale is pursuant to an underwritten
offering, use its reasonable efforts to obtain a comfort
letter or letters from Azurix's independent public
accountants in customary form and covering such
<PAGE> 7
matters of the type customarily covered by comfort letters
as the managing underwriter reasonably requests;
j. otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of
twelve months, beginning within three months after the
effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of
the Securities Act; and
k. with reasonable promptness, use its reasonable efforts to
cause all such Restricted Stock to be listed on each
securities exchange on which the Common Stock of Azurix is
then listed, provided that the applicable listing
requirements are satisfied.
Each selling Holder of Restricted Stock agrees that, upon receipt of any
notice from Azurix of the happening of any event of the kind described in
subsection f. hereof, such selling Holder will forthwith discontinue disposition
of Restricted Stock pursuant to the registration statement covering such
Restricted Stock until such selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subsection f. hereof, and, if
so directed by Azurix, such selling Holder will deliver to Azurix (at Azurix's
expense) all copies, other than permanent file copies then in such selling
Holder's possession, of the prospectus covering such Restricted Stock current at
the time of receipt of such notice. In the event Azurix shall give any such
notice, Azurix shall extend the period during which such registration statement
shall be maintained effective pursuant to this Agreement (including the period
referred to in subsection b.) by the number of days during the period from and
including the date of the giving of such notice pursuant to subsection f. hereof
to and including the date when each selling Holder of Restricted Stock covered
by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by subsection f. hereof. Each
selling Holder also agrees to notify Azurix if any event relating to such
selling Holder occurs which would require the preparation of a supplement or
amendment to the prospectus so that such prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
5. Conditions and Limitations.
a. Azurix's obligations under Section 2 shall be subject to the
following limitations:
i. Azurix need not file a registration statement either
(x) during the period starting with the date 60 days
prior to Azurix's estimated date of filing of, and
ending 90 days after the effective date of, any
registration statement pertaining to securities of
Azurix (other than a registration of securities in a
Rule 145 transaction or exchange offer or with respect
to an employee benefit plan or dividend reinvestment
plan), provided that if such Azurix registration
statement is not filed within 90 days after the first
date on which Azurix notifies a Holder of Restricted
Stock that it will delay a Demand Registration pursuant
to this clause (x), Azurix may not
<PAGE> 8
further postpone such Demand Registration pursuant to
this clause; or (y) during the period specified in the
first proviso of subparagraph a. of Section 4;
ii. Azurix shall not be required to furnish any audited
financial statements other than those audited
statements customarily prepared at the end of its
fiscal year, or to furnish any unaudited financial
information with respect to any period other than its
regularly reported interim quarterly periods unless in
the absence of such other unaudited financial
information the registration statement would contain an
untrue statement of material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading;
iii. except as provided in Section 2.b., Azurix shall not be
required to file more than one Demand Registration
during any 12-month period commencing with the
effective date of this Agreement, plus one additional
such Demand Registration; provided, however, that a
registration statement will not count as a Demand
Registration until it has become effective; and
iv. Azurix shall have received the information and
documents specified in Section 6 and each selling
Holder shall have observed or performed its other
covenants and conditions contained in such section and
Section 8.
b. Azurix's obligation under Section 3 shall be subject to the
limitations and conditions specified in such section and in
clauses (i), (ii) and (iv) of subsection a. of this Section
5, and to the condition that Azurix may at any time in its
sole discretion terminate its proposal to register its
shares and discontinue its efforts to cause a registration
statement to become or remain effective.
6. Information from and Certain Covenants of Holders of Restricted
Stock. Notices and requests delivered to Azurix by Holders for
whom Restricted Stock is to be registered pursuant to this
Agreement shall contain such information regarding the Restricted
Stock to be so registered, the Holder and the intended method of
disposition of such Restricted Stock as shall reasonably be
required in connection with the action to be taken. Any Holder
whose Restricted Stock is included in a registration statement
pursuant to this Agreement shall execute all consents, powers of
attorney, registration statements and other documents reasonably
required to be signed by it in order to cause such registration
statement to become effective. Each selling Holder covenants
that, in disposing of such Holder's shares, such Holder will
comply with Regulation M of the SEC adopted pursuant to the
Exchange Act.
7. Registration Expenses. All Registration Expenses (as defined
herein) will be borne by Azurix. Underwriting discounts and
commissions applicable to the sale of Restricted Stock shall be
borne by the Holder of the Restricted Stock to which
<PAGE> 9
such discount or commission relates, and each selling Holder
shall be responsible for the fees and expenses of any legal
counsel, accountants or other agents retained by such selling
Holder and all other out-of-pocket expenses incurred by such
selling Holder in connection with any registration under this
Agreement.
As used herein, the term Registration Expenses means all
out-of-pocket expenses incident to Azurix's performance of or
compliance with this Agreement (whether or not the registration
in connection with which such expenses are incurred ultimately
becomes effective), including without limitation all registration
and filing fees, fees and expenses of compliance with securities
or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the
Restricted Stock), rating agency fees, printing expenses,
messenger and delivery expenses incurred by Azurix, the fees and
expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which
similar securities issued by Azurix are then listed, and fees and
disbursements of counsel for Azurix and its independent certified
public accountants (including the expenses of any special audit
or comfort letters required by or incident to such performance),
securities acts liability insurance (if Azurix elects to obtain
such insurance), the reasonable fees and expenses of any special
experts retained by Azurix in connection with such registration
and the fees and expenses of other persons retained by Azurix.
8. Indemnification; Contribution.
a. Indemnification by Azurix. Azurix agrees to indemnify and
hold harmless each selling Holder of Restricted Stock, its
officers, directors and agents and each person, if any, who
controls such selling Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable
costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus
relating to the Restricted Stock or in any amendment or
supplement thereto or in any preliminary prospectus relating
to the Restricted Stock, or arising out of or based upon any
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out
of, or are based upon, any such untrue statement or omission
or allegation thereof based upon information furnished in
writing to Azurix by such selling Holder or on such selling
Holder's behalf expressly for use therein (including,
without limitation, information with respect to the selling
Holder or its underwriters, managers or advisers) and
provided further, that with respect to any untrue statement
or omission or alleged untrue statement or omission made in
any preliminary prospectus, the indemnity agreement
contained in this subsection shall not apply to the extent
that any such loss, claim, damage, liability or expense
results from the fact that a copy of the final prospectus
was not sent or given to the person asserting any such
losses, claims, damages, liabilities or expenses at or prior
to the
<PAGE> 10
written confirmation of the sale of the Restricted Stock
concerned to such person. Azurix also agrees to include in
any underwriting agreement with any underwriters of the
Restricted Stock provisions indemnifying and providing for
contribution to such underwriters, their officers and
directors and each person who controls such under-writers on
substantially the same basis as the provisions of this
Section 8 indemnifying and providing for contribution to the
selling Holders.
b. Indemnification by Holders of Restricted Stock. Each selling
Holder agrees to indemnify and hold harmless Azurix, its
officers, directors and agents and each person, if any, who
controls Azurix within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any
registration statement or prospectus relating to the
Restricted Stock or in any amendment or supplement thereto
or in any preliminary prospectus relating to the Restricted
Stock, or arising out of or based upon any omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided (i) that such losses,
claims, damages, liabilities or expenses arise out of, or
are based upon, any such untrue statement or omission or
allegation thereof based upon information furnished in
writing to Azurix by such selling Holder or on such selling
Holder's behalf expressly for use therein (including,
without limitation, information with respect to the selling
Holder or its underwriters, managers or advisers), (ii) that
with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this
subsection shall not apply to the extent that any such loss,
claim, damage, liability or expense results from the fact
that a copy of the final prospectus was not sent or given to
the person asserting any such losses, claims, damages,
liabilities or expenses at or prior to the written
confirmation of the sale of the Restricted Stock concerned
to such person, and (iii) that no selling Holder shall be
liable for any indemnification under this Section 8 in an
aggregate amount which exceeds the total net proceeds
(before deducting expenses) received by such selling Holder
from the offering. Each selling Holder also agrees to
include in any underwriting agreement with underwriters of
the Restricted Stock provisions indemnifying and providing
for contribution to such underwriters, their officers and
directors and each person who controls such underwriters on
substantially the same basis as the provisions of this
Section 8 indemnifying and providing for contribution to
Azurix. Azurix agrees that if Atlantic Water Trust is the
selling Holder, Enron may provide the indemnification and
contribution required to be provided by Atlantic Water Trust
under this Section 8 in lieu of Atlantic Water Trust.
c. Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall
be brought or asserted
<PAGE> 11
against any indemnified party in respect of which indemnity
may be sought from an indemnifying party, the indemnifying
party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such
indemnified party, and shall assume the payment of all
expenses. Such indemnified party shall have the right to
employ separate counsel in any such action and to
participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party has
agreed to pay such fees and expenses, or (ii) the
indemnifying party shall have failed to assume the defense
of such action or proceeding and employ counsel reasonably
satisfactory to such indemnified party or (iii) the named
parties to any such action or proceeding (including any
impleaded parties) include both such indemnified party and
such indemnifying party, and such indemnified party shall
have been advised by counsel that there may be one or more
legal defenses available to such indemnified party which are
different from or additional to those available to the
indemnifying party (in which case, if such indemnified party
notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to
assume the defense of such action or proceeding on behalf of
such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one
such action or proceeding or separate but substantially
similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys (together with
appropriate local counsel) at any time for such indemnified
party or parties, which firm shall be designated in writing
by such indemnified party or parties). The indemnifying
party shall not be liable for any settlement of any such
action or proceeding effected without its written consent,
but if settled with its written consent, or if there is a
final judgment for the plaintiff in any such action or
proceeding, the indemnifying party agrees to indemnify and
hold harmless such indemnified party from and against any
loss or liability (to the extent stated above) by reason of
such settlement or judgment.
d. Contribution. If the indemnification provided for in this
Section 8 is unavailable to Azurix or the selling Holders in
respect of any losses, claims, damages, liabilities or
judgments referred to therein, then each such indemnifying
party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages,
liabilities and judgments, in such proportion as is
appropriate to reflect the relative fault of each such party
in connection with such statements or omissions, as well as
any other relevant equitable considerations. The relative
fault of each such party shall be determined by reference
to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged
omission to state a material fact relates to information
supplied by such party, and the parties' relative intent,
knowledge, access to
<PAGE> 12
information and opportunity to correct or prevent such
statement or omission.
Azurix and the selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 8.d. were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages,
liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigation or defending any
such action or claim. Notwithstanding the provisions of this Section
8.d., no selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Restricted
Stock of such selling Holder were offered to the public exceeds the
amount of any damages which such selling Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
9. Amendments. This Agreement may be amended or modified upon the
written consent thereto of Azurix and the Holders of not less
than 66-2/3% of Restricted Stock.
10. Assignments. This Agreement shall be binding on and inure to the
benefit of the respective successors and assigns of the parties
hereto.
11. Entire Agreement; Governing Law. This Agreement constitutes the
entire agreement of the parties relating to the subject matter
hereof; all prior or contemporaneous written or oral agreements
are merged herein; this Agreement shall be governed by the laws
of the State of Texas.
12. Notices. 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 telegram or telecopier, as follows:
If to Azurix:
Azurix Corp.
333 Clay Street
Suite 1000
Houston, Texas 77002-7361
Attention: General Counsel
Telecopier No.: (713) 345-5330
<PAGE> 13
If to the Holder:
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
Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telegram or telecopier 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.
IN WITNESS WHEREOF, Azurix and the Holder have caused this Agreement to be
signed by their respective officers thereunto duly authorized.
AZURIX CORP.
By: /s/ EDWARD N. ROBINSON
-----------------------
Name: Edward N. Robinson
Title: Executive Director
ATLANTIC WATER TRUST
By: /s/ JEFFREY MCMAHON
-----------------------
Name: Jeffrey McMahon
Title: As Attorney-in-Fact
<PAGE> 1
EXHIBIT 10.2
SUPPLEMENTAL AGREEMENT
DATED 25th February, 2000
(pound)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
--------------------------------------
relating to a credit agreement dated 10th May, 1999
[ALLEN & OVERY LOGO]
London
<PAGE> 2
THIS SUPPLEMENTAL AGREEMENT is dated 25th February, 2000 and made 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) WESTDEUTSCHE LANDESBANK GIROZENTRALE as facility agent (in this capacity the
"FACILITY AGENT"); and
(4) CHASE MANHATTAN TRUSTEES LIMITED as security agent (in this capacity the
"SECURITY AGENT").
BACKGROUND:
(1) Pursuant to a credit agreement dated 10th May, 1999 (the "CREDIT AGREEMENT")
made between the Company and the Finance Parties, the Banks agreed to make
available to the Company a loan facility of up to an aggregate principal
amount of (pound)425,000,000 on the terms of the Credit Agreement.
(2) By this Supplemental Agreement the parties hereto wish to amend the terms of
the Credit Agreement.
(3) The Facility Agent confirms that, in accordance with Clause 26.1 of the
Credit Agreement, it has received the agreement of the Majority Banks to
effect the amendments in this Supplemental Agreement on behalf of the Banks.
NOW IT IS AGREED as follows:
1. DEFINITIONS
1.1 TERMS DEFINED
In this Supplemental Agreement:
"EFFECTIVE DATE"
has the meaning ascribed to such term in Clause 2 (Conditions precedent).
"RESTATED CREDIT AGREEMENT"
means the Credit Agreement as restated and amended in the form set out in
Schedule 2 to this Supplemental Agreement.
1.2 INTERPRETATION
(a) Unless the contrary intention appears, terms defined in the Restated Credit
Agreement shall have the same meanings when used in this Supplemental
Agreement.
<PAGE> 3
2
(b) The provisions of clause 1.2 (Construction) of the Restated Credit Agreement
shall also apply to this Supplemental Agreement as if set out in this
Supplemental Agreement but with all necessary modifications.
2. CONDITIONS PRECEDENT
The obligations of the Finance Parties under the Restated Credit Agreement
shall take effect on and after the date (the "EFFECTIVE DATE") on which the
Facility Agent notifies the Company that the Facility Agent has received all
of the documents set out in Schedule 1 in form and substance satisfactory to
the Facility Agent. The Facility Agent shall notify the Company promptly
upon receipt of such documents.
3. RESTATEMENT
The Credit Agreement will be amended and restated in the form set out in
Schedule 2 to this Supplemental Agreement on the Effective Date.
4. REPRESENTATIONS AND WARRANTIES
The Borrower makes the representations and warranties set out in clauses
17.2 (Status) to 17.9 (Litigation) inclusive (other than Clauses 17.2(c)
(Status), 17.6(a) (No default) and 17.7 (Authorisations)) of the Restated
Credit Agreement to each Finance Party as at the Effective Date, by
reference to the facts and circumstances then existing.
5. FEES AND EXPENSES
(a) The Company shall immediately on demand pay the Agents the amount of all
costs and expenses (together with value added tax or any similar tax
thereon) and including, without limitation, the fees and expenses of the
Agents' legal advisers, incurred by the Agents in connection with the
negotiation, preparation, printing and execution of this Supplemental
Agreement and the documents referred to in this Supplemental Agreement.
(b) The Company shall pay to the Facility Agent and to the Arrangers the fees in
the amounts and on the dates agreed in the supplementary fee letters.
6. MISCELLANEOUS
The provisions of clauses 12 (Payments), 23 (Stamp Duties), 26 (Amendments
and Waivers), 31 (Severability), 32 (Counterparts) and 33 (Notices) of the
Restated Credit Agreement shall apply to this Supplemental Agreement as if
set out in this Supplemental Agreement, but as if references in those
clauses to the Restated Credit Agreement were references to this
Supplemental Agreement.
7. CONTINUATION
(a) This Supplemental Agreement is supplemental to the Credit Agreement and,
except insofar as amended or supplemented hereby, the Credit Agreement will
remain in full force and effect.
(b) References in the Credit Agreement to "this Agreement", "hereof",
"hereunder" and expressions of similar import shall be deemed to be
references to the Credit Agreement as amended and restated by this
Supplemental Agreement.
<PAGE> 4
3
(c) The Facility Agent and the Company hereby designate this Supplemental
Agreement and each of the supplementary fee letters referred to in Clause
5(b) (Fees and expenses) as a Finance Document for the purposes of the
Credit Agreement.
8. GOVERNING LAW
This Supplemental Agreement shall be governed by and construed in accordance
with English law.
This Supplemental Agreement has been entered into on the date stated at the
beginning of this Supplemental Agreement.
<PAGE> 5
4
SCHEDULE 1
(TO THE SUPPLEMENTAL AGREEMENT)
CONDITIONS PRECEDENT DOCUMENTS
AUTHORISATIONS
(a) A copy of the memorandum and articles of association, certificate of
incorporation and certificate of incorporation on change of name (if any) of
the Company or a certificate of a director of the Company certifying that
there have been no changes to those constitutional documents supplied
pursuant to the Credit Agreement and that they remain up-to-date and in full
force and effect.
(b) A certificate of a director of the Company (including specimen signature
list).
(c) A copy of a resolution of the board of directors of the Company.
(d) A legal opinion of Allen & Overy, legal advisers to the Banks, addressed to
the Banks.
<PAGE> 6
5
SCHEDULE 2
AGREEMENT
DATED 10th May, 1999
(as amended and restated on 25th February, 2000)
(pound)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]
London
<PAGE> 7
6
<TABLE>
<CAPTION>
INDEX
CLAUSE PAGE
- ------ ----
<S> <C>
1. Interpretation.......................................................................................8
2. The Facility........................................................................................25
3. Purpose and availability............................................................................25
4. Conditions precedent................................................................................26
5. Loans...............................................................................................27
6. Repayment...........................................................................................28
7. Prepayment and Cancellation.........................................................................29
8. Interest Periods....................................................................................30
9. Interest............................................................................................31
10. Optional Currencies.................................................................................32
11. Debt Service Reserve Account........................................................................34
12. Payments............................................................................................35
13. Taxes...............................................................................................38
14. Market Disruption...................................................................................39
15. Increased Costs.....................................................................................41
16. Illegality..........................................................................................42
17. Representations and Warranties......................................................................42
18. Undertakings........................................................................................45
19. Default.............................................................................................59
20. The agents and the Arrangers........................................................................64
21. Fees................................................................................................69
22. Expenses............................................................................................69
23. Stamp duties........................................................................................70
24. Indemnities.........................................................................................70
25. Evidence and Calculations...........................................................................71
26. Amendments and Waivers..............................................................................71
27. Changes to the Parties..............................................................................72
28. Disclosure of Information...........................................................................75
29. Set-off.............................................................................................76
30. Pro rata sharing....................................................................................76
31. Severability........................................................................................77
32. Counterparts........................................................................................77
33. Notices.............................................................................................77
34. Governing law.......................................................................................79
</TABLE>
<PAGE> 8
7
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
1. Banks and Commitments...............................................................................80
2. Conditions Precedent Documents......................................................................82
3. Calculation of the Mandatory Costs..................................................................84
4. Form of Request 86
5. Novation Certificate................................................................................87
6. Form of Debenture 88
7. Form of Legal Opinion of Allen & Overy.............................................................106
8. Form of Subordination Agreement for Wessex Loan....................................................110
9. Form of Inter-Company Loan.........................................................................122
Signatories.................................................................................................143
</TABLE>
<PAGE> 9
THIS AGREEMENT is dated 10th May, 1999 (as amended and restated on 25th
February, 2000) 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> 10
9
"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> 11
10
"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, including without
limitation any Parent Loan;
(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 (pound)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
(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.
<PAGE> 12
11
"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 disposal of
which (whether alone or in combination with any other substance)
including (without limitation) any controlled, special, hazardous,
toxic, radioactive or dangerous
<PAGE> 13
12
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.
"EMU LEGISLATION"
means legislative measures of the European Council in relation to EMU.
<PAGE> 14
13
"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.
"EURO" or "EURO SYMBOL"
means the single currency of the Participating Member States.
<PAGE> 15
14
"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;
(b) a Fee Letter;
(c) the Debenture;
(d) a Novation Certificate;
<PAGE> 16
15
(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> 17
16
"INTER-COMPANY LOAN"
means a loan from the Company to an SPV for the purpose of being
applied in or towards financing directly or indirectly:
(a) an Acquisition or Acquisitions; or
(b) the general corporate purposes of any water or wastewater
related assets or businesses that are part of the Acquisition
or Acquisitions funded in whole or in part through that SPV;
or
(c) the repayment of Borrowings from the Parent or a Subsidiary of
the Parent incurred by that SPV, the proceeds of which were
used to repay a prior Inter-Company Loan by that SPV,
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.
<PAGE> 18
17
"Loan Notes"
means the(pound)70,506,836 notes that have been issued by the Company
to former shareholders of Wessex Water.
"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).
<PAGE> 19
18
"MATERIAL SUBSIDIARY"
means:
(a) Wessex Water;
(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.
<PAGE> 20
19
"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:
(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 (pound)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.
"PARENT LOAN"
means a loan from the Parent or any of its Subsidiaries to the Company.
<PAGE> 21
20
"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.
"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
<PAGE> 22
21
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 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
<PAGE> 23
22
(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.
"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 27.4 (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.
<PAGE> 24
23
"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, to fund the general corporate purposes of
any water or wastewater related assets or businesses that are part of
the Acquisition or Acquisitions funded in whole or in part through that
SPVand to borrow Inter-Company Loans.
"STANDARD & POOR'S"
means Standard & Poor's Rating Group (or any of its successors).
"STERLING" or "(POUND)"
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(pound)425,000,000 at the
date of this Agreement.
"WESSEX GROUP"
means Wessex Water and its Subsidiaries.
<PAGE> 25
24
"WESSEX INTER-COMPANY RECEIVABLE"
has the meaning given to it in the Subordination Agreement.
"WESSEX LOAN"
means the (pound)90,000,000 loan dated 15th April, 1999 to the Company
from Wessex Water.
"WESSEX WATER"
means Wessex Water Limited (Registered no. 2366633).
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
<PAGE> 26
25
(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.
(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 or any Parent Loan; and/or
(ii) refinancing the outstanding Loan Notes; and/or
(iii) making Inter-Company Loans up to a maximum aggregate amount
of(pound)240,000,000; and/or
<PAGE> 27
26
(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.
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,
<PAGE> 28
27
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 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 20 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 or any of its
Subsidiaries) with any such other Borrowings being
subordinated to the Inter-Company Loan on
substantially the terms set out in Schedule 10
provided that (subject to those subordination
arrangements) the relevant SPV may repay a loan to it
from the Parent or one of its Subsidiaries to the
extent that the proceeds of that loan were used to
repay one or more prior Inter-Company Loans to that
SPV;
(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 (other than an Inter-Company
Loan the proceeds of which would be used to repay a loan from
the Parent or one of its Subsidiaries to the extent that the
proceeds of that loan were used to repay one or more prior
Inter-Company Loans to the relevant SPV) if:
(a) the Issuer Credit Rating of the Company is less than
BBB - from Standard & Poor's and is less than Baa3
from Moody's: and
(b) the credit rating attributable to the Facility is
less than BBB - from Standard & Poor's and is less
than Baa3 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
<PAGE> 29
28
(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(pound)10,000,000 or (if less) the balance of the undrawn
Total Commitments or any other amount agreed by the Facility
Agent;
(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.
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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 (pound)10,000,000 and integral multiples of (pound)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 (pound)10,000,000 and integral multiples
of (pound)1,000,000).
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.
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7.5 MANDATORY PREPAYMENT
(a) Any Loan borrowed for the purpose of making an Inter-Company Loan shall
be prepaid, subject to paragraph (c) 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 shall prepay the Loans in the amount of any Parent Loan it
receives, subject to paragraph (c) below, by no later than the third
Business Day following that receipt.
(c) The Company's obligation to prepay any amount under paragraph (a) or
(b) 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.
(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
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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.
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
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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.
(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.
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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;
(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.
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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(pound)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:
(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
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(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.
(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:
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(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: -
(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.
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(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.
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.
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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.
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.
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(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
(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
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(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
(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.
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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
(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;
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42
(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
(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.
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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
(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:-
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44
(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 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
<PAGE> 46
45
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.
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.
<PAGE> 47
46
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
(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 specifying the
amounts of the Loans drawn for the purpose of making
Inter-Company Loans and repaying Parent Loans and the
amount of the Parent Loans then outstanding;
(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(pound)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);
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47
(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.
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,
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48
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 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:
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49
(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
(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 (pound)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:-
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(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 (pound)35,000,000 (or its equivalent in other currencies).
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 (pound)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
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(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.
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 or funding the general corporate purposes of any water or
wastewater related assets or businesses that are part of the
Acquisition or Acquisitions funded in whole or in part through that
SPV.
(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) (pound)10,000,000 (or
its equivalent in other currencies) but only if, in
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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
distributable reserves by the amount of (pound)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;
(iii) the Bristol Water Trust Loan; and
(iv) any Parent Loan, provided that such Parent Loan bears interest
at a rate no higher than the rate prevailing under this
Agreement.
(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
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(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 (pound)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.
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).
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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.
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
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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:
(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);
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(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
(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.
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"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):
(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.
"CONSOLIDATED TOTAL NET BORROWINGS"
means at any time Consolidated Total Borrowings of the AEL Group less
the value of Cash Equivalents of the AEL Group at that time.
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"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 Borrowings of the Company 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.
(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 dishcarge 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;
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(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 Net Borrowings of
the AEL Group shall not at any time exceed (pound)1,050,000,000.
(f) The Company shall ensure its Borrowings shall not at any time
exceed(pound)425,000,000.
(g) (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;
(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).
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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 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,
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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
(pound)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 "(pound)750" there was substituted
"(pound)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.
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
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(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
(pound)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.
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
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(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 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.
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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).
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.
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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).
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
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(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
(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;
<PAGE> 68
67
(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.
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.
<PAGE> 69
68
(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 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.
<PAGE> 70
69
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.
(b) Accrued commitment fee is payable quarterly in arrears. 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.
<PAGE> 71
70
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 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,
<PAGE> 72
71
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 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.
<PAGE> 73
72
(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);
(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
<PAGE> 74
73
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
(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 (pound)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.
<PAGE> 75
74
(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:-
(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
<PAGE> 76
75
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 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.
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76
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 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,
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77
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.
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.
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78
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
(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.
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79
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
- ----- ----------
(POUND)
<S> <C>
Westdeutsche Landesbank Girozentrale 30,000,000
The Chase Manhattan Bank 10,000,000
The Governor and Company of Bank of Scotland 22,500,000
Bayerische Landesbank Girozentrale 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
The Norinchukin Bank, London Branch 15,000,000
----------
Bank of Montreal 13,750,000
DG Bank, Deutsche Genossenschaftsbank, London Branch 13,750,000
The Toronto-Dominion Bank 13,750,000
Credit Lyonnais 12,500,000
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
</TABLE>
<PAGE> 82
81
<TABLE>
<S> <C>
UniCredito Italiano SpA 10,000,000
Arab Bank plc 8,750,000
Artesia Banking Corporation N.V./S.A. 5,000,000
Banco Portugues do Atlantico 5,000,000
Brown Shipley 5,000,000
SBI European Bank 5,000,000
TOTAL COMMITMENTS (pound)425,000,000
</TABLE>
<PAGE> 83
82
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.
<PAGE> 84
83
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.
<PAGE> 85
84
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 (pound)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.
<PAGE> 86
85
(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.
<PAGE> 87
86
SCHEDULE 4
FORM OF REQUEST
To: WESTDEUTSCHE LANDESBANK GIROZENTRALE
From: AZURIX EUROPE LTD.
Date: [ ]
AZURIX EUROPE LTD. - (POUND)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
<PAGE> 88
87
SCHEDULE 5
NOVATION CERTIFICATE
To: WESTDEUTSCHE LANDESBANK GIROZENTRALE as Facility Agent
From: [THE EXISTING BANK] and [THE NEW BANK] Date: [ ]
AZURIX EUROPE LIMITED - (POUND)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:
<PAGE> 89
88
SCHEDULE 6
FORM OF DEBENTURE
DEBENTURE
DATED [ ], 1999
BETWEEN
AZURIX EUROPE LTD.
- and -
CHASE MANHATTAN TRUSTEES LIMITED
[ALLEN & OVERY LOGO]
<PAGE> 90
89
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 (pound)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> 91
90
(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.
2. FIXED SECURITY
(a) The Chargor, as security for the payment of all the Secured
Liabilities, charges in favour of the Security Agent:-
<PAGE> 92
91
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.
<PAGE> 93
92
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> 94
93
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
(b) 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.
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.
<PAGE> 95
94
(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.
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
<PAGE> 96
95
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 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
<PAGE> 97
96
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.
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.
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97
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.
10.12 DELEGATION
A Receiver may delegate his powers in accordance with Clause 14
(Delegation).
10.13 OTHER POWERS
A Receiver may:-
<PAGE> 99
98
(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.
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.
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99
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.
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.
<PAGE> 101
100
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.
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> 102
101
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> 103
102
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> 104
103
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> 105
104
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> 106
105
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> 107
106
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") -(POUND)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.
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
<PAGE> 108
107
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 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
<PAGE> 109
108
(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,
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.
<PAGE> 110
109
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> 111
110
SCHEDULE 8
FORM OF SUBORDINATION AGREEMENT
FOR WESSEX LOAN
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(pound)425,000,000
credit agreement dated [ ] , 1999
between Azurix Europe Ltd. and others
---------------------------------------------
[ALLEN & OVERY LOGO]
London
<PAGE> 112
111
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 (pound)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
(pound)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> 113
112
(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(pound)34,900,000; and
(b) after the English High Court has approved finally the use of
this amount to make a distribution, (pound)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;
(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;
<PAGE> 114
113
(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 (pound)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
<PAGE> 115
114
(b) 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
(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.
<PAGE> 116
115
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):
(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;
<PAGE> 117
116
(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
(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:
<PAGE> 118
117
(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
(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.
<PAGE> 119
118
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
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.
<PAGE> 120
119
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;
(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
<PAGE> 121
120
Fax:
Attention: [ ]
or such other as the Junior Creditor may notify to the other Parties by
not less than five Business Days' notice.
(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. 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> 122
121
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> 123
122
SCHEDULE 9
FORM OF INTER-COMPANY LOAN
Dated [o]
[SPV]
AS BORROWER
AZURIX CORP.
AS GUARANTOR
and
AZURIX EUROPE LTD
AS LENDER
[EURO o]
LOAN AGREEMENT
<PAGE> 124
123
THIS LOAN AGREEMENT (this "AGREEMENT") is made on o between:
(1) [SPV], a [company]/[limited partnership]/[other] organised under the
laws of [ ] (Registered No.o) (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 o 1999 between (among
others) the Lender and Chase Manhattan PLC and Westdeutsche Landesbank
Girozentrale, for a credit facility of up to (pound)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) o%
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 "(POUND)"]/["DOLLARS" AND "$"]/["EURO" AND "EURO
SYMBOL"] means the lawful currency for the time being of [the United
Kingdom]/[the United States of America]/[the participating member
states in European monetary union].
Headings of Clauses are for ease of reference only and shall not affect
the interpretation of this Agreement.
2. PRINCIPAL AND INTEREST
2.1 Subject to and in accordance with the terms of this Agreement, the
Lender shall lend to the Borrower the sum [$/EURO SYMBOL/(pound)][o] 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> 125
124
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> 126
125
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 affected, by anything which would not discharge it or
affect its liability if it were the sole principal debtor (including:
<PAGE> 127
126
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 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.
<PAGE> 128
127
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;
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
<PAGE> 129
128
(pound)750 there was substituted "(pound)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 o
] 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 o [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 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.
<PAGE> 130
129
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.
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.
<PAGE> 131
130
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:
<PAGE> 132
131
SCHEDULE 10
FORM OF SUBORDINATION AGREEMENT
FOR PARENT LOANS TO SPVS
DATED [ ]
BETWEEN
AZURIX EUROPE LTD.
-and-
THE JUNIOR CREDITOR
(as defined in this Deed)
-and-
[SPV]
as Senior Creditor
--------------------------------------------
SUBORDINATION AGREEMENT
---------------------------------------------
[ALLEN & OVERY LOGO]
London
<PAGE> 133
132
THIS SUBORDINATION AGREEMENT is dated [ ] between:
(1) [AZURIX CORP./[ ]] (the "JUNIOR CREDITOR");
(2) AZURIX EUROPE LTD. (Registered No. 3570749) ("THE SENIOR CREDITOR");
and
(3) [ ] ("SPV")
BACKGROUND:
(A) The Junior Creditor has agreed to subordinate all the Junior Debt on
the terms of this Deed.
(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.
1. INTERPRETATION
1.1 DEFINITIONS
In this Deed:
"CREDIT AGREEMENT"
means the agreement dated [ ] between (among others)
SPV and the Senior Creditor for a credit facility of up to [(pound)].
"DEFAULT"
means any of the events under clause 6.1 of the Credit Agreement.
"JUNIOR DEBT"
means all present and future liabilities (actual or contingent) payable
or owing to the Junior Creditor by SPV 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 SPV under any agreement expressed to be supplemental to the
Junior Finance Documents 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 Documents;
(d) any claim against SPV flowing from any recovery by SPV 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.
<PAGE> 134
133
"JUNIOR FINANCE DOCUMENTS"
means document evidencing any Junior Debt and all variations,
replacements, novations of and supplements thereto.
"PERMITTED PAYMENTS"
means any payment of interest or repayment of principal (if financed by
way of a loan under the Credit Agreement) in respect of the Junior
Debt, provided no Default is outstanding.
"PARTY"
means a party to this Deed.
"SENIOR DEBT"
means all present and future liabilities (actual or contingent) payable
or owing by SPV to the Senior Creditor under or in connection with the
Credit Agreement together with:
(a) any refinancing, novation, refunding, deferral or extension of
any of those liabilities;
(b) any further advances which may be made by the Senior Creditor
to SPV under any agreement expressed to be supplemental to the
Credit Agreement 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 Credit Agreement;
(d) any claim against SPV flowing from any recovery by SPV 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 SPV to the Senior Creditor under the Senior
Credit Agreement.
1.2 CONSTRUCTION
(a) In this Deed, unless the contrary intention appears, a reference to:
"ASSETS" includes properties, revenues and rights of every description;
an "AUTHORISATION" includes an authorisation, consent, approval,
resolution, licence, exemption, filing, registration and notarisation;
<PAGE> 135
134
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 Deed;
(iv) a person includes its successors and permitted assigns; and
(v) a document is a reference to that document as amended,
novated, supplemented, replaced or renewed.
(b) The index to and the headings in this Deed are for convenience only and
are to be ignored in construing this Deed.
2. SPV'S UNDERTAKINGS
So long as any Senior Debt is outstanding and until the Senior
Liabilities have been irrevocably paid in full, SPV will not, except as
the Senior Creditor has previously consented:
(a) subject to Clause 5 (Subordination on Insolvency) and except
for Permitted Payments, 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) 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 Credit Agreement or except as the Senior Creditor has
previously consented, the Junior Creditor will:
(a) subject to Clause 5 (Subordination on Insolvency) and except
for Permitted Payments, not demand or receive payment of any
of the Junior Debt from SPV 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) promptly notify the Senior Creditor of any default or event of
default (howsoever described) in respect of the Junior Debt;
<PAGE> 136
135
(f) 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 SPV;
(g) not take or omit to take any action whereby the subordination
achieved by this Deed may be impaired;
4. TURNOVER OF NON-PERMITTED RECOVERIES
4.1 NON-PERMITTED PAYMENT
If, other than as permitted under the Credit Agreement (including under
Clauses 2(a) and (b) and 3(a) and (b) above):
(a) the Junior Creditor receives a payment or distribution in
respect of any of the Junior Debt from SPV 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) SPV 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 Senior Creditor
and pay and distribute it to the Senior Creditor 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 Credit Agreement (including under
Clauses 2(a) and (b) and 3(a) and (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 Senior Creditor
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 Senior Creditor under this Deed is invalid or unenforceable, the
Junior Creditor will pay and deliver to the Senior Creditor 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 Senior Creditor.
<PAGE> 137
136
5. SUBORDINATION ON INSOLVENCY
If a Default is outstanding THEN
(a) the Junior Debt will be subordinate in right of payment to the
Senior Debt;
(b) the Senior Creditor 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 Senior Creditor 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 Senior Creditor is not entitled
to do any of the foregoing, the Junior Creditor will do so in
good time as reasonably directed by the Senior Creditor;
(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 SPV or from any other source in trust for the Senior
Creditor and will (at the Junior Creditor's expense) pay and
transfer the same to the Senior Creditor for application
towards the Senior Debt until the Senior Debt is irrevocably
paid in full; and
(e) the trustee in bankruptcy, liquidator, assignee or other
person distributing the assets of SPV or their proceeds is
directed to pay distributions on the Junior Debt direct to the
Senior Creditor 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 Senior Creditor may reasonably direct to give effect to
this provision.
6. CONSENTS
The Junior Creditor will not have any remedy against SPV or the Senior
Creditor by reason of any transaction entered into between the Senior
Creditor and SPV 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 Senior Creditor that
this Deed:
(a) is within its powers and has been duly authorised by it;
(b) 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.
<PAGE> 138
137
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, SPV 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, SPV
or other person in respect of the Senior Debt or otherwise or
any failure to realise the full value of any security; or
(c) any unenforceability, illegality or invalidity of any
obligation of SPV 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 the
Senior Creditor 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 Senior
Creditor may refrain from applying or enforcing any money, rights or
security as long as it sees fit.
8.4 APPROPRIATIONS
Until the Senior Liabilities have been irrevocably paid in full, the
Senior Creditor may:
(a) apply any moneys or property received under this Deed or from
SPV 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):-
<PAGE> 139
138
(a) be subrogated to any rights, security or moneys held, received
or receivable by the Senior Creditor 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 SPV or other
person or their respective estates in competition with the
Senior Creditor 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 SPV 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 SPV and the Junior Creditor, remain
owing or due and payable in accordance with the terms of the 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 SPV AND THE JUNIOR CREDITOR
Neither SPV nor the Junior Creditor may assign or transfer any of their
rights or obligations under this Deed without the consent of the Senior
Creditor.
10.3 THE SENIOR CREDITOR
The Senior Creditor may assign or otherwise dispose of all or any of
their rights under this Deed in accordance with the Credit Agreement.
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 Senior Creditor
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 Senior Creditor may
delegate this power.
<PAGE> 140
139
12. INDEMNITY
(a) SPV will indemnify the Senior Creditor 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 Senior Creditor 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 Senior Creditor's negligence
or wilful default and in particular (but without limitation) the Senior
Creditor in possession shall not be liable to account as mortgagee in
possession.
13. WAIVERS, REMEDIES CUMULATIVE
The rights of the Senior Creditor under this Deed:
(a) may be exercised as often as necessary;
(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 Senior Creditor sees 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.
<PAGE> 141
140
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.
(b) The address and facsimile number of SPV for all notices under or in
connection with this Deed are:
Fax:
Attention: [ ]
or such other as SPV may notify to the other parties by not less than
five Business Days' notice.
(c) The address and facsimile number of the Senior Creditor for all notices
under or in connection with this Deed are:
[
]
Facsimile No: [ ]
Attention: [ ]
or such other as the Senior Creditor may notify to the other parties by
not less than five Business Days' notice.
17. GOVERNING LAW
This Deed is governed by English law.
<PAGE> 142
141
18. JURISDICTION
(a) Each of the parties agrees that the courts of England are (subject to
paragraph (b) 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 Deed
or otherwise arising in connection with this Deed and for such purposes
irrevocably submits to the jurisdiction of the English courts.
(b) The agreement contained in paragraph (a) above is included for the
benefit of the Senior Creditor. Accordingly, notwithstanding the
exclusive agreement in paragraph (a) above the Senior Creditor 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 Senior Creditor shall bring such
proceedings.
This Deed has been entered into on the date stated at the beginning of this
Deed.
<PAGE> 143
142
SIGNATORIES TO THE SUBORDINATION AGREEMENT
JUNIOR CREDITOR
EXECUTED as a deed by )
AZURIX CORP. )
acting by )
and )
Director
Director/Secretary:
SPV
EXECUTED as a deed by )
[ ] )
acting by )
and )
Director
Director/Secretary
SENIOR CREDITOR
AZURIX EUROPE LTD
By:
<PAGE> 144
143
SIGNATORIES TO SUPPLEMENTAL AGREEMENT
COMPANY
AZURIX EUROPE LTD.
By: /s/Christopher Wood
ARRANGERS
CHASE MANHATTAN PLC
By: /s/
------------------------------
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/
------------------------------
FACILITY AGENT (FOR ITSELF AND ON BEHALF OF THE BANKS)
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/
------------------------------
SECURITY AGENT
CHASE MANHATTAN TRUSTEES LIMITED
By: /s/Charles E. Dooley
<PAGE> 1
EXHIBIT 10.6
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.$180,000,000) at any one time outstanding. The aggregate principal amount
outstanding is further limited by the provisions in Section 2. Within the limits
of this Agreement, Borrower may borrow, prepay pursuant to Section 5, and
reborrow under this Section 1. The parties hereto agree that any Advances by the
Lender will be made in reliance on the agreements of the Lender and the Borrower
contained herein and on the terms and conditions and in the manner provided
herein. Advances shall be made on notice given to Lender by Borrower prior to
10:00 a.m. New York time not later than one business day before the Advance.
2. Limits on the Principal Amount Outstanding. The principal amount
outstanding under this Agreement will be further limited to no
more than:
a) U.S.$ 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 (demand and any further notices
are expressly waived by the Borrower):
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%: provided however, that upon the
occurrence and during the continuation of any Event of Default (as hereinafter
defined), interest on the unpaid principal sum shall accrue at a rate per annum
equal to the Fed Funds Rate (as hereinafter defined) plus 3.5% . For the
purposes of this Agreement, the "Fed Funds Rate" shall be defined as the rate
published in Federal Reserve
<PAGE> 2
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.
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 fail to pay principal or interest on the
Note when it shall become due and payable or shall breach any of the
material provisions of any written Agreement with Lender, including
but not limited to this Credit Agreement and the Note; 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,
2
<PAGE> 3
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
(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
3
<PAGE> 4
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 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.
4
<PAGE> 5
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: /s/ EDWARD N. ROBINSON
-------------------------------
Name: Edward N. Robinson
------------------------
Title: Executive Director
------------------------
ENRON CORP.
By: /s/ JEFFREY MCMAHON
--------------------------------
Jeffery McMahon
Senior Vice President,
Finance and Treasurer
5
<PAGE> 6
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> 7
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
AZURIX CORP.
By:
-------------------------------
Name:
-------------------------
Title:
------------------------
<PAGE> 8
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
EXHIBIT 10.7
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment") dated as of
January 4, 2000, between Enron Corp., an Oregon corporation (the "Lender"), and
Azurix Corp., a Delaware corporation (the "Borrower").
The Lender and the Borrower are parties to a Credit Agreement dated as of
May 1, 1999 (the "Agreement"). Capitalized terms used in this Amendment and not
otherwise defined have the meanings given to them in the Agreement. The Lender
and the Borrower now desire to amend the Agreement in certain respects.
Accordingly, the Lender and the Borrower hereby agree as follows:
1. Amendment to Section 1. Section 1 of the Agreement is hereby amended
by replacing the last sentence thereof with the following:
"The Borrower shall request that the Lender make an Advance hereunder by
delivering a notice to such effect on or before 9:00 a.m. Houston time at
least one Business Day prior to the date requested for the funding of such
Advance. Such notice shall further state the specific purposes for which
such Advances will be used and (a) whether and to what extent such Advance
will be used to pay general, administrative and operating expenses,
including interest (a "GAO Advance"), and (b) whether and to what extent
such Advance will be used to pay expenses other than general,
administrative and operating expenses (a "Non-GAO Advance"). Subject to the
maximum aggregate principal amount of GAO Advances permitted to be
outstanding pursuant to Section 2 hereof and compliance with the other
terms and conditions of the Agreement, the Lender shall make any GAO
Advance properly requested by the Borrower pursuant to this Section 1. The
Lender shall not be obligated to make any Non-GAO Advance requested by the
Borrower pursuant to this Section 1. Any determination to make a Non-GAO
Advance shall be in the sole discretion of the Lender."
2. Amendment to Section 2. Section 2 of the Agreement is amended by
deleting the period after clause c) thereof and adding the following proviso
after such clause c):
"; provided, however, that, until the earlier of (i) the date on which the
Borrower issues and sells debt securities or enters into credit facilities
usable for general corporate purposes, and (ii) March 31, 2000 (the date
which is the earlier of the dates referred to in (i) and (ii) shall
hereinafter be referred to as the "Non-GAO Advance Availability Termination
Date"), the Lender may in its sole discretion make and permit the aggregate
outstanding principal amount of Advances to be equal to an amount of up to
One Hundred Eighty Million Dollars (U.S. $180,000,000); provided, further,
however, that in no event shall the aggregate outstanding principal amount
of either the GAO Advances or the Non-GAO Advances exceed One Hundred
Twenty Million Dollars (U.S. $120,000,000), respectively."
3. Amendment to Section 3. The first sentence of Section 3 of the
Agreement is amended and restated in its entirety to read as follows:
<PAGE> 2
"Interest shall accrue on the outstanding and unpaid principal amount of
the Advances on a daily basis at a rate per annum equal to the Fed Funds
Rate (as defined below) plus (a) in respect of GAO Advances, 1.5%, and (b)
in respect of Non-GAO Advances, 3.75%; provided, however, that upon the
occurrence and during the continuation of any Event of Default (as
hereinafter defined), interest on the unpaid principal amount of any
Advance shall accrue at the rate set forth above plus an additional 2% per
annum."
4. Amendment to Section 5. Section 5 of the Agreement is amended by
adding the following sentence at the end of that Section:
"The Borrower shall repay all Non-GAO Advances (a) upon and to the extent
that the Borrower receives proceeds (i) from the issuance and sale of any
debt securities, or (ii) under any credit facilities usable for general
corporate purposes, and (b) to the extent not repaid pursuant to clause (a)
hereof, on or before March 31, 2000."
5. Amendment to Section 6. Section 6 of the Agreement is amended by
adding the following proviso to the end thereof:
", including interest; provided, however that the Borrower may use the
proceeds of any Non-GAO Advance made hereunder before the Non-GAO Advance
Termination Date to pay the expenses specified in the applicable notice
pursuant to which such Advance was requested."
6. Amendment to Section 7. Section 7 of the Agreement is hereby amended
by replacing the period at the end of clause c) thereof with "; or" and adding
the following clause (d) thereto:
"(d)(i) Any principal, interest, fees or other amounts due in respect of
any indebtedness of the Borrower is not paid when due, whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise, and such
failure is not cured within the applicable grace period, if any, and the
aggregate amount of all such indebtedness of the Borrower so in default
exceeds Ten Million Dollars (US$10,000,000); (ii) any other event shall
occur or condition shall exist under any agreement or instrument relating
to any Indebtedness of the Borrower the effect of which is to accelerate or
to permit the acceleration of the maturity of any such indebtedness,
whether or not any such indebtedness is actually accelerated and the
aggregate amount of all indebtedness of the Borrower so in default exceeds
Ten Million Dollars (US$10,000,000); or (iii) any indebtedness of the
Borrower shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled prepayment) prior to the stated
maturity thereof, and the aggregate amount of all indebtedness of the
Borrower so accelerated exceeds Ten Million Dollars (US$10,000,000)."
7. Amendment to Section 8. Section 8 of the Agreement is amended and
restated in its entirety to read as follows:
2
<PAGE> 3
"8. Notices, Etc. All notices and other communications provided for
under this Agreement shall be in writing (including facsimile transmission)
and telecopied or delivered, if to the Lender, at its address at 1400 Smith
Street, Houston, Texas 77002, Attention: Jeffrey McMahon telecopy number
(713) 646-5930 and if to the Borrower, at its address at 333 Clay Street,
Houston, Texas 77002, Attention: General Counsel, telecopy number (713)
345-5330; 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."
8. Continuation. The Agreement, as modified by this Amendment, is continued in
full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
ENRON CORP. AZURIX CORP.
By: /s/ JEFFREY MCMAHON By: /s/ ANDREA L. MAINELLI
-------------------------------- ------------------------------
Name: Jeffrey McMahon Name: Andrea L. Mainelli
Title: Executive Vice President, Title: Managing Director, Finance
Finance and Treasurer
3
<PAGE> 1
EXHIBIT 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between AZURIX CORP., a Delaware corporation ("Employer")
and subsidiary of ENRON CORP., an Oregon corporation, having offices at 1400
Smith Street, Houston, Texas 77002 ("Enron"), and JOHN L. GARRISON, an
individual currently residing at 237 Buckminster Court, Lake Bluff, Illinois
60044 ("Employee"), to be effective as of April 26, 1999 (the "Effective Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement.
1.2 Employee initially shall be employed in the position set forth on
Exhibit A. Employer may subsequently assign Employee to a different position or
modify Employee's duties and responsibilities. Moreover, Employer may assign
this Agreement and Employee's employment to Enron or any affiliates of Enron.
Employee agrees to serve in the assigned position and to perform diligently and
to the best of Employee's abilities the duties and services appertaining to such
position as determined by Employer, as well as such additional or different
duties and services appropriate to such position which Employee from time to
time may be reasonably directed to perform by Employer. Employee shall at all
times comply with and be subject to such policies and procedures as Employer may
establish from time to time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or Enron, or requires any significant portion of
Employee's business time.
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall endeavor to provide
to Employee the opportunity to develop business relationships with those of
Employer's clients and potential clients that are appropriate for Employee's
employment responsibilities.
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<PAGE> 2
1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which would injure Employer's business, its
interests, or its reputation, and to refrain from using for Employee's own
benefit or for the benefit of others any information or opportunities pertaining
to Employer's business or interests that are entrusted to Employee or that he
learned while employed by Employer. Employee acknowledges and agrees that upon
termination of the employment relationship, Employee shall continue to refrain
from using for his own benefit or the benefit of others any information or
opportunities pertaining to Employer's business or interests that were entrusted
to Employee during the employment relationship or that he learned while employed
by Employer. Employee agrees that while employed by Employer and thereafter he
shall not knowingly take any action, which interferes with the internal
relationships between Employer and its employees or representatives or
interferes with the external relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Employee agrees that Employee shall
disclose to Employer's President any facts, which might involve such a conflict
of interest that has not been approved by Employer's President. Employer and
Employee recognize that it is impossible to provide an exhaustive list of
actions or interests, which constitute a "conflict of interest." Moreover,
Employer and Employee recognize there are many borderline situations. In some
instances, full disclosure of facts by the Employee to Employer's President may
be all that is necessary to enable Employer or its affiliates to protect its
interests. In others, if no improper motivation appears to exist and the
interests of Employer or its affiliates have not suffered, prompt elimination of
the outside interest will suffice. In still others, it may be necessary for
Employer to terminate the employment relationship. Employer and Employee agree
that Employer's determination as to whether a conflict of interest exists shall
be conclusive. Employer reserves the right to take such action as, in its
judgment, will end the conflict.
1.7 Employee understands and acknowledges that the terms and conditions
of this Agreement constitute confidential information. Employee shall keep
confidential the terms of this Agreement and shall not disclose this
confidential information to anyone other than Employee's attorneys, tax
advisors, or as required by law. Employee acknowledges and understands that
disclosure of the terms of this Agreement constitutes a material breach of this
Agreement and could subject Employee to disciplinary action, including without
limitation, termination of employment.
ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, which shall be paid
in semimonthly installments in accordance with Employer's standard payroll
practice. Any calculation to be made under this Agreement with respect to
Employee's Monthly Base Salary shall be made using the then current Monthly Base
Salary in effect at the time of the event for which such calculation is made.
2
<PAGE> 3
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective date
or thereafter are made available by Employer to all or substantially all of
Employer's employees. Such benefits, plans, and programs may include, without
limitation, medical, health, and dental care, life insurance, disability
protection, and pension plans. Nothing in this Agreement is to be construed or
interpreted to provide greater rights, participation, coverage, or benefits
under such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans and
programs.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of either Employer or Enron, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1. Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors or Enron's management committee (or, if there is no
Enron management committee, the highest applicable level of Enron
management) that "cause" exists for the termination of the
employment relationship. As used in this Section 3.1(i), the term
"cause" shall mean [a] Employee's gross negligence or willful
misconduct in the performance of the duties and services required
of Employee pursuant to this Agreement; [b] Employee has been
convicted of a felony; [c] Employee has willfully refused without
proper legal reason to perform the duties and responsibilities
required of Employee under this Agreement which remains
uncorrected for thirty (30) days following written notice to
Employee by Employer of such breach; [d] Employee's involvement
in a conflict of interest as referenced in Section 1.6 for which
Employer makes a determination to terminate the employment of
Employee which remains uncorrected for thirty (30) days following
written notice to Employee by Employer of such breach; [e]
Employee has willfully engaged in conduct that Employee knows or
should know is materially injurious to Employer, Enron, or any of
their respective subsidiaries; [f] Employee's material breach of
any material provision of this Agreement or corporate code or
policy which remains uncorrected for thirty (30) days following
written notice to Employee by Employer of such breach; or [g]
Employee violates the Foreign Corrupt Practices Act or other
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<PAGE> 4
applicable United States law as proscribed by Section 5.1. It is
expressly acknowledged and agreed that the decision as to whether
"cause" exists for termination of the employment relationship by
Employer is delegated to the Employer's management committee (or,
if there is no management committee, the highest applicable level
of Employer's management) for determination. If Employee
disagrees with the decision reached by Employer's management
committee (or, if there is no management committee, the highest
applicable level of Employer's management), the dispute will be
limited to whether Employer's management committee (or, if there
is no Enron management committee, the highest applicable level of
Employer's management) reached its decision in good faith;
(ii) for any other reason whatsoever, with or without cause, in the
sole discretion of the management committee (or, if there is no
management committee, the highest applicable level of management)
of Employer;
(iii) upon Employee's death; or
(iv) upon Employee's becoming disabled so as to entitle Employee to
benefits under Enron's long-term disability plan or, if Employee
is not eligible to participate in such plan, then Employee is
permanently and totally unable to perform Employee's duties for
Employer as a result of any medically determinable physical or
mental impairment as supported by a written medical opinion to
the foregoing effect by a physician selected by Employer.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the expiration of the
Term shall constitute an "Involuntary Termination" if made pursuant to Section
3.1(ii); the effect of such termination is specified in Section 3.5. The effect
of the employment relationship being terminated pursuant to Section 3.1(iii) as
a result of Employee's death is specified in Section 3.6. The effect of the
employment relationship being terminated pursuant to Section 3.1(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.7.
3.2 Notwithstanding any other provisions of this Agreement except
Section 8.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
(i) a material breach by Employer of any material provision of this
Agreement which remains uncorrected for 30 days following written
notice of such breach by Employee to Employer; or
(ii) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Section 3.2(i); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee prior to the expiration of the
Term shall constitute a "Voluntary Termination" if made pursuant to Section
3.2(ii); the effect of such termination is specified in Section 3.3.
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<PAGE> 5
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination, but Employee
shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by Employer
for Cause prior to expiration of the Term, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination, but Employee
shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to the expiration of the Term, Employee shall
be entitled, in consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation, Employee's
non-competition obligations), to receive one hundred twenty-five percent (125%)
of the then current Monthly Base Salary as if Employee's employment (which shall
cease on the date of such Involuntary Termination) had continued for the full
Term of this Agreement and a bonus provided in Exhibit "A" for the year of
termination only prorated for the actual number of months worked in the calendar
year in which such termination occurs. Employee shall not be under any duty or
obligation to seek or accept other employment following Involuntary Termination
and the amounts due Employee hereunder shall not be reduced or suspended if
Employee accepts subsequent employment. Employee's rights under this Section 3.5
are Employee's sole and exclusive rights against Employer, Enron, or their
affiliates, and Employer's sole and exclusive liability to Employee under this
Agreement, in contract, tort, or otherwise, for any Involuntary Termination of
the employment relationship. Employee covenants not to sue or lodge any claim,
demand or cause of action against Employer for any sums for Involuntary
Termination other than those sums specified in this Section 3.5. If Employee
breaches this covenant, Employer shall be entitled to recover from Employee all
sums expended by Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action.
3.6 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.7 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his or her pro rata salary
through the date of such termination, but Employee shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.8 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under any
and all severance plans, and policies of Employer, Enron, or its affiliates.
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<PAGE> 6
3.9 Termination of the employment relationship does not terminate those
obligations imposed by this Agreement, which are continuing obligations,
including, without limitation, Employee's obligations under Articles 6 and 7.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF
TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a
month-to-month relationship terminable at any time by either Employer or
Employee for any reason whatsoever, with or without cause. Upon such termination
of the employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all future
benefits for which Employee is eligible shall cease and terminate. Employee
shall be entitled to pro rata salary through the date of such termination, but
Employee shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND
OTHER LAWS:
5.1. Employee shall at all times comply with United States laws
applicable to Employee's actions on behalf of Employer, including specifically,
without limitation, the United States Foreign Corrupt Practices Act, generally
codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo contendere or admits
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee has personal civil or criminal liability
under the FCPA or other applicable United States law, or if a court finds that
Employee committed an action resulting in any Enron entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were likely to occur, such
action or finding shall constitute "cause" for termination under this Agreement
unless Employer's management committee (or, if there is no management committee,
the highest applicable level of Employer's management) determines that the
actions found to be in violation of the FCPA or other applicable United States
law were taken in good faith and in compliance with all applicable policies of
Employer and Enron.
ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
6.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and are
and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps
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<PAGE> 7
and all other writings or materials of any type embodying any of such
information, ideas, concepts, improvements, discoveries, and inventions are and
shall be the sole and exclusive property of Employer.
6.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Employer, Enron, or their affiliates use in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to Employer, Enron, and their affiliates in maintaining their
competitive position. Employee hereby agrees that Employee will not, at any time
during or after his or her employment by Employer, make any unauthorized
disclosure of any confidential business information or trade secrets of
Employer, Enron, or their affiliates, or make any use thereof, except in the
carrying out of his or her employment responsibilities hereunder. Enron and its
affiliates shall be third party beneficiaries of Employee's obligations under
this Section. As a result of Employee's employment by Employer, Employee may
also from time to time have access to, or knowledge of, confidential business
information or trade secrets of third parties, such as customers, suppliers,
partners, joint venturers, and the like, of Employer, Enron, and their
affiliates. Employee also agrees to preserve and protect the confidentiality of
such third party confidential information and trade secrets to the same extent,
and on the same basis, as Employer's confidential business information and trade
secrets. Employee acknowledges that money damages would not be sufficient remedy
for any breach of this Article 6 by Employee, and Employer shall be entitled to
enforce the provisions of this Article 6 by terminating any payments then owing
to Employee under this Agreement and/or to specific performance and injunctive
relief as remedies for such breach or any threatened breach. Such remedies shall
not be deemed the exclusive remedies for a breach of this Article 6, but shall
be in addition to all remedies available at law or in equity to Employer,
including the recovery of damages from Employee and his or her agents involved
in such breach.
6.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case may
be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
6.4 If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Employer's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Employer's premises or otherwise), Employee shall disclose such work to
Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as a translation,
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<PAGE> 8
as a supplementary work, as a compilation, or as an instructional text, then the
work shall be considered to be work made for hire and Employer shall be the
author of the work. If such work is neither prepared by the Employee within the
scope of his or her employment nor a work specially ordered and is deemed to be
a work made for hire, then Employee hereby agrees to assign, and by these
presents does assign, to Employer all of Employee's worldwide right, title, and
interest in and to such work and all rights of copyright therein.
6.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Employer or its nominee and the execution of
all lawful oaths and applications for applications for patents and registration
of copyright in the United States and foreign countries.
ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
7.1 As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary
and in order to protect Employer's interests in the confidential information of
Employer and the business relationships developed by Employee with the clients
and potential clients of Employer, and as an additional incentive for Employer
to enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 7. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any geographic area or market where
Employer or Enron or any of their affiliated companies related to the water
business, are conducting any business as of the date of termination of the
employment relationship or have during the previous twelve months conducted any
business:
(i) engage in any business competitive with the water business
conducted by Employer;
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or indirectly, in any
business competitive with the water business conducted by Employer;
(iii) induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer, Enron, or their
affiliates, or hire or assist in the hiring of any such employee by person,
association, or entity not affiliated with Enron.
These non-competition obligations shall extend until the latter of (a)
expiration of the Term or (b) one year after termination of the employment
relationship.
7.2 Employee understands that the foregoing restrictions may limit his
or her ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 7 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 7 by terminating any payments then owing to
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Employee under this Agreement and/or to specific performance and injunctive
relief as remedies for such breach or any threatened breach. Such remedies shall
not be deemed the exclusive remedies for a breach of this Article 7, but shall
be in addition to all remedies available at law or in equity to Employer,
including, without limitation, the recovery of damages from Employee and his or
her agents involved in such breach.
7.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 7 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
ARTICLE 8: MISCELLANEOUS:
8.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
8.2 Employee shall refrain, both during the employment relationship and
after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about Employer, Enron, any of their
respective subsidiaries or affiliates, or any of such entities' business
affairs, officers, employees, agents, or representatives; or that constitute an
intrusion into the seclusion or private lives of Employer, Enron, any of their
respective subsidiaries or affiliates, or such entities' officers, employees,
agents, or representatives; or that give rise to unreasonable publicity about
the private lives of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' officers, employees, agents, or
representatives; or that place Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' or its officers, employees,
agents, or representatives in a false light before the public; or that
constitute a misappropriation of the name or likeness of Employer, Enron, any of
their respective subsidiaries or affiliates, or any of such entities' or its
officers, employees, agents, or representatives. A violation or threatened
violation of this prohibition may be enjoined by the courts. The rights afforded
the Enron entities and affiliates under this provision are in addition to any
and all rights and remedies otherwise afforded by law.
8.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer:
Azurix Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
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If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
8.5 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6 If a dispute arises out of or related to this Agreement, other than
a dispute regarding Employee's obligations under Article 6, or Article 7, and if
the dispute cannot be settled through direct discussions, then Employer and
Employee agree to first endeavor to settle the dispute in an amicable manner by
mediation, before having recourse to any other proceeding or forum.
8.7 Each of Employer and Employee is a citizen of the State of Texas.
Employer's principal place of business is in Houston, Harris County, Texas.
Employee resides in Harris County, Texas. This Agreement was negotiated and
signed in Houston, Texas. This Agreement shall be performed in Houston, Texas.
Any litigation that may be brought by either Employer or Employee involving the
enforcement of this Agreement or the rights, duties, or obligations of this
Agreement, shall be brought exclusively in the State or federal courts sitting
in Houston, Harris County, Texas. In the event that service of process cannot be
effected upon a party, each party hereby irrevocably appoints the Secretary of
State for the State of Texas as its or his agent for service of process to
receive the summons and other pleadings in connection with any such litigation.
8.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the application
thereof to any person, association, or entity or circumstances other than those
to which they have been held invalid or unenforceable, shall remain in full
force and effect.
8.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee shall
not be voluntarily or involuntarily assigned, alienated, or transferred, whether
by operation of law or otherwise, without the prior written consent of Employer.
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8.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to benefit plans. This Agreement replaces
and merges previous agreements and discussions pertaining to the following
subject matters covered herein: the nature of Employee's employment relationship
with Employer and the term and termination of such relationship. This Agreement
constitutes the entire agreement of the parties with regard to such subject
matters, and contains all of the covenants, promises, representations,
warranties, and agreements between the parties with respect such subject
matters. Each party to this Agreement acknowledges that no representation,
inducement, promise, or agreement, oral or written, has been made by either
party with respect to such subject matters, which is not embodied herein, and
that no agreement, statement, or promise relating to the employment of Employee
by Employer that is not contained in this Agreement shall be valid or binding.
Any modification of this Agreement will be effective only if it is in writing
and signed by each party whose rights hereunder are affected thereby, provided
that any such modification must be authorized or approved by the Board of
Directors of Employer.
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
AZURIX CORP.
By: /s/ Philip J. Bazelides
Name: Philip J. Bazelides
Title: Managing Director Human Resources and
Administration
This 26th day of April, 1999
JOHN L. GARRISON
/s/ John L. Garrison
This 26th day of April, 1999
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EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN AZURIX CORP. AND JOHN L. GARRISON
Employee Name: John L. Garrison
Term: Five years from the Effective Date of this Agreement
Position: Managing Director, Global Operations and Asset
Management
Location: Houston, Texas
Reporting Relationship: Reports to Colin Skellett
Monthly Base Salary: From the Effective Date through January 31, 2000,
Employee's Monthly Base Salary shall be Twenty Nine
Thousand One Hundred Sixty Six Dollars and Sixty-Six
Cents ($29,166.66). For the period beginning
February 1, 2000, Employee's Monthly Base Salary
shall be Thirty One Thousand Two Hundred Fifty
Dollars and No Cents ($31,250.00).
Bonus: Employee shall be eligible to participate in the Enron
Corp. Annual Incentive Plan ("Plan") or any
replacement plan of Employer. All bonuses shall be
paid in accordance with the terms and provisions of
the Plan, a portion of which may be paid in cash and a
portion of which may be paid in stock options and/or
restricted stock. Employee's annual bonus target is
100% of Employee's annual base salary, subject to
both Employer's performance and Employee's
performance.
Signing Bonus: Employer shall pay Employee a sign on bonus in the
amount of Two Hundred Thousand Dollars and No Cents
($200,000.00) within thirty (30) days of your hire
date. This amount will be due in full to Azurix should
you voluntarily terminate your employment prior to
the completion of one (1) year of service.
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Long-Term Incentive: Employee shall receive a grant of 400,000 stock
options from the 1999 Azurix Stock Plan at the Initial
Public Offering price. If an IPO does not occur in
1999, you will receive the grant by February 2000
based upon the market valuation of Azurix at that
time. The grant shall vest 25% on each grant date
anniversary (four-year vesting).
AZURIX CORP.
By: /s/ Philip J. Bazelides
Name: Philip J. Bazelides
Title:Managing Director Human Resources
and Administration
This 26th day of April, 1999
JOHN L. GARRISON
/s/ John L. Garrison
This 26th day of April, 1999
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<PAGE> 1
EXHIBIT 10.19
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between AZURIX Corp. a Delaware corporation ("Employer")
and subsidiary of ENRON CORP., an Oregon corporation, having offices at 1400
Smith Street, Houston, Texas 77002 ("Enron"), and JOHN C. ALE, an individual
currently residing at 33 Eaton Terrace, London, England UNITED KINGDOM
SWIW-8TP("Employee"), to be effective as of December 10, 1998 (the "Effective
Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement.
1.2 Employee shall be employed in the position set forth on Exhibit A.
Employee agrees to serve in the assigned position and to perform diligently and
to the best of Employee's abilities the duties and services appertaining to such
position as determined by Employer, as well as such additional or different
duties and services appropriate to such position which Employee from time to
time may be reasonably directed to perform by Employer. Employee shall at all
times comply with and be subject to such policies and procedures as Employer may
establish from time to time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or Enron, or requires any significant portion of
Employee's business time.
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall endeavor to provide
to Employee the opportunity to develop business relationships with those of
Employer's clients and potential clients that are appropriate for Employee's
employment responsibilities.
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1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which would injure Employer's business, its
interests, or its reputation, and to refrain from using for Employee's own
benefit or for the benefit of others any information or opportunities pertaining
to Employer's business or interests that are entrusted to Employee or that he
learned while employed by Employer. Employee acknowledges and agrees that upon
termination of the employment relationship, Employee shall continue to refrain
from using for his own benefit or the benefit of others any information or
opportunities pertaining to Employer's business or interests that were entrusted
to Employee during the employment relationship or that he learned while employed
by Employer. Employee agrees that while employed by Employer and thereafter he
shall not knowingly take any action which interferes with the internal
relationships between Employer and its employees or representatives or
interferes with the external relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Employee agrees that Employee shall
disclose to Employer's President any facts which might involve such a conflict
of interest that has not been approved by Employer's President. Employer and
Employee recognize that it is impossible to provide an exhaustive list of
actions or interests which constitute a "conflict of interest." Moreover,
Employer and Employee recognize there are many borderline situations. In some
instances, full disclosure of facts by the Employee to Employer's President may
be all that is necessary to enable Employer or its affiliates to protect its
interests. In others, if no improper motivation appears to exist and the
interests of Employer or its affiliates have not suffered, prompt elimination of
the outside interest will suffice. In still others, it may be necessary for
Employer to terminate the employment relationship. Employer and Employee agree
that Employer's determination as to whether a conflict of interest exists shall
be conclusive. Employer reserves the right to take such action as, in its
judgment, will end the conflict.
1.7 Employee understands and acknowledges that the terms and conditions
of this Agreement constitute confidential information. Employee shall keep
confidential the terms of this Agreement and shall not disclose this
confidential information to anyone other than Employee's attorneys, tax
advisors, or as required by law. Employee acknowledges and understands that
disclosure of the terms of this Agreement constitutes a material breach of this
Agreement and could subject Employee to disciplinary action, including without
limitation, termination of employment.
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ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, which shall be paid
in semimonthly installments in accordance with Employer's standard payroll
practice. Any calculation to be made under this Agreement with respect to
Employee's Monthly Base Salary shall be made using the then current Monthly Base
Salary in effect at the time of the event for which such calculation is made.
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective date
or thereafter are made available by Employer to all or substantially all of
Employer's employees. Such benefits, plans, and programs may include, without
limitation, medical, health, and dental care, life insurance, disability
protection, and pension plans. Nothing in this Agreement is to be construed or
interpreted to provide greater rights, participation, coverage, or benefits
under such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans and
programs.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of either Employer or Enron, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1. Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors or Enron's management committee (or, if there is
no Enron management committee, the highest applicable level
of Enron management) that "cause" exists for the termination
of the employment relationship. As used in this Section
3.1(i), the term "cause" shall mean [a] Employee's gross
negligence or willful misconduct in the performance of the
duties and services required of Employee pursuant to this
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Agreement; [b] Employee has been convicted of a felony; [c]
Employee has willfully refused without proper legal reason
to perform the duties and responsibilities required of
Employee under this Agreement which remains uncorrected for
thirty (30) days following written notice to Employee by
Employer of such breach; [d] Employee's involvement in a
conflict of interest as referenced in Section 1.6 for which
Employer makes a determination to terminate the employment
of Employee which remains uncorrected for thirty (30) days
following written notice to Employee by Employer of such
breach; [e] Employee has willfully engaged in conduct that
Employee knows or should know is materially injurious to
Employer, Enron, or any of their respective subsidiaries;
[f] Employee's material breach of any material provision of
this Agreement or corporate code or policy which remains
uncorrected for thirty (30) days following written notice to
Employee by Employer of such breach; or [g] Employee
violates the Foreign Corrupt Practices Act or other
applicable United States law as proscribed by Section 5.1.
It is expressly acknowledged and agreed that the decision as
to whether "cause" exists for termination of the employment
relationship by Employer is delegated to the Employer's
management committee (or, if there is no management
committee, the highest applicable level of Employer's
management) for determination. If Employee disagrees with
the decision reached by Employer's management committee (or,
if there is no management committee, the highest applicable
level of Employer's management), the dispute will be limited
to whether Employer's management committee (or, if there is
no Enron management committee, the highest applicable level
of Employer's management) reached its decision in good
faith;
(ii) for any other reason whatsoever, with or without cause, in the
sole discretion of the management committee (or, if there is
no management committee, the highest applicable level of
management) of Employer;
(iii) upon Employee's death; or
(iv) upon Employee's becoming disabled so as to entitle Employee to
benefits under Enron's long-term disability plan or, if
Employee is not eligible to participate in such plan, then
Employee is permanently and totally unable to perform
Employee's duties for Employer as a result of any medically
determinable physical or mental impairment as supported by a
written medical opinion to the foregoing effect by a physician
selected by Employer.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the expiration of the
Term shall constitute an "Involuntary Termination" if made pursuant to Section
3.1(ii); the effect of such termination is specified in Section 3.5. The effect
of the employment relationship being terminated pursuant to Section 3.1(iii) as
a result of Employee's death is specified in Section 3.6. The effect of the
employment relationship being terminated
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pursuant to Section 3.1(iv) as a result of the Employee becoming incapacitated
is specified in Section 3.7.
3.2 Notwithstanding any other provisions of this Agreement except
Section 8.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
(i) a material breach by Employer of any material provision of
this Agreement which remains uncorrected for 30 days following
written notice of such breach by Employee to Employer;
(ii) within sixty (60) days of and in connection with or based
upon a sale or other disposition of Employer by Enron Corp. or
the sale or other disposition of a material amount of
Employer's assets, such that Employer is no longer affiliated
with Enron Corp., except when Employer becomes a separate
publicly traded company; or
(iii) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Sections 3.2(i) and 3.2(ii); the effect of such termination is specified in
Section 3.5. The termination of Employee's employment by Employee prior to the
expiration of the Term shall constitute a "Voluntary Termination" if made
pursuant to Section 3.2(iii); the effect of such termination is specified in
Section 3.3.
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination, but Employee
shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by Employer
for Cause prior to expiration of the Term, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination, but Employee
shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to the expiration of the Term, Employee shall
be entitled, in consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation, Employee's
non-competition obligations), to receive the then current Monthly Base Salary
and the full target Bonuses described on Exhibit "A" as if Employee's employment
(which shall cease on the date of such Involuntary Termination) had continued
for the full Term of this Agreement. Employee shall not be under any duty or
obligation to seek or accept other employment following Involuntary Termination
and the amounts due Employee hereunder shall
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not be reduced or suspended if Employee accepts subsequent employment.
Employee's rights under this Section 3.5 are Employee's sole and exclusive
rights against Employer, Enron, or their affiliates, and Employer's sole and
exclusive liability to Employee under this Agreement, in contract, tort, or
otherwise, for any Involuntary Termination of the employment relationship.
Employee covenants not to sue or lodge any claim, demand or cause of action
against Employer for any sums for Involuntary Termination other than those sums
specified in this Section 3.5. If Employee breaches this covenant, Employer
shall be entitled to recover from Employee all sums expended by Employer
(including costs and attorneys fees) in connection with such suit, claim, demand
or cause of action.
3.6 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.7 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to the Monthly Base Salary and
the full target Bonuses described at Exhibit "A" as if Employee's employment
(which shall cease on the date of Employee's incapacity) had continued for the
full Term of this Agreement; provided however, all monies paid hereunder shall
be offset by all payments received by Employee under Employer's disability plans
or programs during the Term of this Agreement
3.8 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under any
and all severance plans, and policies of Employer, Enron, or its affiliates.
3.9 Termination of the employment relationship does not terminate those
obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Articles 6 and 7.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF
TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a
month-to-month relationship terminable at any time by either Employer or
Employee for any reason whatsoever, with or without cause. Upon such termination
of the employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all future
benefits for which Employee is eligible shall cease and terminate. Employee
shall be entitled to pro rata salary through the date of such termination, but
Employee shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
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ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND
OTHER LAWS:
5.1. Employee shall at all times comply with United States laws
applicable to Employee's actions on behalf of Employer, including specifically,
without limitation, the United States Foreign Corrupt Practices Act, generally
codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo contendere or admits
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee has personal civil or criminal liability
under the FCPA or other applicable United States law, or if a court finds that
Employee committed an action resulting in any Enron entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were likely to occur, such
action or finding shall constitute "cause" for termination under this Agreement
unless Employer's management committee (or, if there is no management committee,
the highest applicable level of Employer's management) determines that the
actions found to be in violation of the FCPA or other applicable United States
law were taken in good faith and in compliance with all applicable policies of
Employer and Enron.
ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
6.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and are
and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
6.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which employer, Enron, or their affiliates use in their
business to obtain a competitive advantage over
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their competitors. Employee further acknowledges that protection of such
confidential business information and trade secrets against unauthorized
disclosure and use is of critical importance to Employer, Enron, and their
affiliates in maintaining their competitive position. Employee hereby agrees
that Employee will not, at any time during or after his or her employment by
Employer, make any unauthorized disclosure of any confidential business
information or trade secrets of Employer, Enron, or their affiliates, or make
any use thereof, except in the carrying out of his or her employment
responsibilities hereunder. Enron and its affiliates shall be third party
beneficiaries of Employee's obligations under this Section. As a result of
Employee's employment by Employer, Employee may also from time to time have
access to, or knowledge of, confidential business information or trade secrets
of third parties, such as customers, suppliers, partners, joint venturers, and
the like, of Employer, Enron, and their affiliates. Employee also agrees to
preserve and protect the confidentiality of such third party confidential
information and trade secrets to the same extent, and on the same basis, as
Employer's confidential business information and trade secrets. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 6 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 6 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 6, but shall be in
addition to all remedies available at law or in equity to Employer, including
the recovery of damages from Employee and his or her agents involved in such
breach.
6.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case may
be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
6.4 If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Employer's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Employer's premises or otherwise), Employee shall disclose such work to
Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the work
shall be considered to be work made for hire and Employer shall be the author of
the work. If such work is neither prepared by the Employee within the scope of
his or her employment nor a work specially ordered and is deemed to be a work
made for hire, then Employee hereby agrees to assign, and by these presents does
assign, to Employer all of Employee's worldwide right, title, and interest in
and to such work and all rights of copyright therein.
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6.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Employer or its nominee and the execution of
all lawful oaths and applications for applications for patents and registration
of copyright in the United States and foreign countries.
ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
7.1 As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary
and in order to protect Employer's interests in the confidential information of
Employer and the business relationships developed by Employee with the clients
and potential clients of Employer, and as an additional incentive for Employer
to enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 7. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any geographic area or market where
Employer or Enron or any of their affiliated companies related to the water
business, are conducting any business as of the date of termination of the
employment relationship or have during the previous twelve months conducted any
business:
(i) engage in any business competitive with the water business
conducted by Employer;
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or indirectly, in any
business competitive with the water business conducted by Employer;
(iii) induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer, Enron, or their
affiliates, or hire or assist in the hiring of any such employee by person,
association, or entity not affiliated with Enron.
These non-competition obligations shall extend until the latter of (a)
expiration of the Term or (b) one year after termination of the employment
relationship.
7.2 Employee understands that the foregoing restrictions may limit his
or her ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 7 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 7 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall
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not be deemed the exclusive remedies for a breach of this Article 7, but shall
be in addition to all remedies available at law or in equity to Employer,
including, without limitation, the recovery of damages from Employee and his or
her agents involved in such breach.
7.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 7 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
ARTICLE 8: MISCELLANEOUS:
8.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
8.2 Employee shall refrain, both during the employment relationship and
after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about Employer, Enron, any of their
respective subsidiaries or affiliates, or any of such entities' business
affairs, officers, employees, agents, or representatives; or that constitute an
intrusion into the seclusion or private lives of Employer, Enron, any of their
respective subsidiaries or affiliates, or such entities' officers, employees,
agents, or representatives; or that give rise to unreasonable publicity about
the private lives of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' officers, employees, agents, or
representatives; or that place Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' or its officers, employees,
agents, or representatives in a false light before the public; or that
constitute a misappropriation of the name or likeness of Employer, Enron, any of
their respective subsidiaries or affiliates, or any of such entities' or its
officers, employees, agents, or representatives. A violation or threatened
violation of this prohibition may be enjoined by the courts. The rights afforded
the Enron entities and affiliates under this provision are in addition to any
and all rights and remedies otherwise afforded by law.
8.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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If to Employer:
Azurix Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
8.5 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6 If a dispute arises out of or related to this Agreement, other than
a dispute regarding Employee's obligations under Article 6, or Article 7, and if
the dispute cannot be settled through direct discussions, then Employer and
Employee agree to first endeavor to settle the dispute in an amicable manner by
mediation, before having recourse to any other proceeding or forum.
8.7 Each of Employer and Employee is a citizen of the State of Texas.
Employer's principal place of business is in Houston, Harris County, Texas.
Employee resides in the England, UNITED KINGDOM. This Agreement was negotiated
and signed in Houston, Texas. This Agreement shall be partially performed in
Houston, Texas. Any litigation that may be brought by either Employer or
Employee involving the enforcement of this Agreement or the rights, duties, or
obligations of this Agreement, shall be brought exclusively in the State or
federal courts sitting in Houston, Harris County, Texas. In the event that
service of process cannot be effected upon a party, each party hereby
irrevocably appoints the Secretary of State for the State of Texas as its or his
agent for service of process to receive the summons and other pleadings in
connection with any such litigation.
8.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the
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application thereof to any person, association, or entity or circumstances other
than those to which they have been held invalid or unenforceable, shall remain
in full force and effect.
8.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee shall
not be voluntarily or involuntarily assigned, alienated, or transferred, whether
by operation of law or otherwise, without the prior written consent of Employer.
8.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to benefit plans. This Agreement replaces
and merges previous agreements and discussions pertaining to the following
subject matters covered herein: the nature of Employee's employment relationship
with Employer and the term and termination of such relationship. This Agreement
constitutes the entire agreement of the parties with regard to such subject
matters, and contains all of the covenants, promises, representations,
warranties, and agreements between the parties with respect such subject
matters. Each party to this Agreement acknowledges that no representation,
inducement, promise, or agreement, oral or written, has been made by either
party with respect to such subject matters, which is not embodied herein, and
that no agreement, statement, or promise relating to the employment of Employee
by Employer that is not contained in this Agreement shall be valid or binding.
Any modification of this Agreement will be effective only if it is in writing
and signed by each party whose rights hereunder are affected thereby, provided
that any such modification must be authorized or approved by the Board of
Directors of Employer.
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IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
AZURIX CORP.
By: /s/ Rebecca P. Mark
Name: Rebecca P. Mark
Title: Chairman and CEO
This 16th day of December, 1998
JOHN C. ALE
/s/ John C. Ale
This 16th day of December, 1998
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EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN AZURIX CORP. AND JOHN C. ALE
Employee Name: John C. Ale
Term: Three years from the Effective Date of this
Agreement
Position: Executive Director and General Counsel
reporting to the Office of the Chairman.
Employee shall also be a member of the
Executive Committee.
Location: For the period beginning December 10, 1998
and ending June 30, 1999, Employee shall be
located in London, United Kingdom. For the
period beginning on July 1, 1999, Employee
shall be located in Houston, Texas.
Reporting Relationship: Reports to Office of the Chairman of
Employer and James V. Derrick, Jr., Senior
Vice President and General Counsel of Enron
Corp.
Monthly Base Salary: Twenty Eight Thousand Three Hundred Thirty
Three Dollars and Thirty Three Cents
($28,333.33) per month
Bonus: Employee shall be eligible to participate in
the Enron Corp. Annual Incentive Plan
("Plan") or any replacement bonus plan of
Employer. All bonuses shall be paid in
accordance with the terms and provisions of
the Plan, a portion of which may be paid in
cash and a portion of which may be paid in
stock options and/or restricted stock.
Employee's annual bonus target is 100% of
Employee's annual base salary, subject to
performance. For Calendar year 1998,
Employee shall receive a sum equal to the
difference between total compensation paid
to Employee by Employee's former employer,
Vinson & Elkins L.L.P. and $680,000.00.
Employer shall pay this amount to Employee
on January 31, 1999.
Vacation: In 1998 Employee shall be entitled to
receive one (1) week of vacation. Effective
January 1, 1999, Employee shall be entitled
to receive four (4) weeks of vacation per
year. Additional vacation will be earned in
accordance with Enron's vacation policy.
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Expatriate Benefits: Employer shall match the expatriate benefits
package provided to Employee by Vinson &
Elkins L.L.P., Employee's former employer,
as described in the letter of September 24,
1998 from Enron to Employee, which shall be
attached hereto and made a part hereof as
Exhibit "B". In addition, any top up
payments related to the letter of September
24, 1998 will be net amounts after
expatriate payments.
Long Term Incentive: Employee shall be eligible to participate
in the Azurix Corp. stock plan. The annual
amount granted to Employee shall be in the
range equal to a value of $250,000.00 -
$300,000.00.
Travel: Employee shall be eligible to fly first
class.
AZURIX CORP.
By:/s/ Rebecca P. Mark
Name: Rebecca P. Mark
Title: Chairman and CEO
This 16th day of December, 1998
JOHN C. ALE
/s/ John C. Ale
This 16th day of December, 1998
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EXHIBIT "B"
September 24, 1998
Mr. John C. Ale
33 Eaton Terrace
London SW1W 8TP England
Dear John:
In response to your fax of today, we have reviewed your summary of provisions in
comparison with Enron's expatriate policy and have determined we can match your
current expatriate compensation provisions. I have commented on several items as
appropriate.
Payments You will be employed by Enron Expat Services, Inc., a US company, and
will be paid in US dollars. The payroll is paid semi-monthly and direct
deposited into a US bank account of your choosing. An amount, determined by you,
may be wire transferred to a UK bank account each payday in US dollars or
converted into pound sterling.
Goods and Services Allowance Enron currently uses Organization Resources
Counselors, Inc. (ORC) to calculate this allowance, therefore, we will provide
this allowance for the 1999 partial year of assignment.
Housing Allowance The same provisions apply under current Enron policy as you
have indicated in your fax, therefore, we will be able to match this
arrangement.
Home Leave The same provisions apply under current Enron policy as you have
indicated in your fax, therefore, we will be able to match this arrangement.
Tax Equalization The Company utilizes tax equalization for all U.S. employees on
international assignments. The intent of this process is to ensure that
international assignments are tax neutral; that you pay no more and no less
income tax on your base salary and bonus compensation had you remained in the
U.S.; and that any assignment related premiums and allowances are tax-protected.
The Company will pay all foreign taxes, including national, local and social
insurance taxes related to Company-source income.
The Company has contracted with an international certified public accounting
firm (currently PricewaterhouseCoopers) to prepare your US and UK tax returns
each year. In your transition year (1998), the tax equalization calculation will
be prepared for the entire tax year, assuming your pre-Enron employment wages
are personal income and allow you foreign earned income exclusion and non-Enron
foreign tax credits against that portion of the US stay-at-home liability that
relates to the pre-Enron employment wages. For 1998, you may still be covered
under the tax equalization policy of your current employer as well. If so,
PricewaterhouseCoopers will coordinate the
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preparation of the tax equalization with Arthur Andersen to ensure equitable
treatment of all income and deductions.
Foreign Service Premium Enron will match this arrangement.
Automobile Enron will match this arrangement.
Schooling Enron will match this arrangement.
Relocation Enron will match this arrangement.
As evidenced by the comments above, it is Enron's intent to match your current
policy provisions. To the extent your current employer does not compensate you
for amounts due from January of 1998 to your date of transfer to Enron (i.e.,
foreign service premium to be paid in January 1999 for the 1998 year), we will
assume payments of these amounts.
I trust this answers all of your questions. However, should you need further
clarification, please feel free to call Jane Allen, Manager, International
Services, at 713/853-7860 or me at 713/853-5872. We look forward to hearing from
you.
Sincerely,
Philip J. Bazelides
Vice President
Compensation and Benefits
cc: Jane J. Allen, Manager, International Services
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EXHIBIT 10.20
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement"), made and entered into the 1st
day of March, 2000 ("Date of Execution") and effective as of November 30, 1999,
is between AZURIX CORP. ("Company"), a Delaware corporation, having its offices
in Houston, Texas, and RODNEY L. GRAY ("Mr. Gray"), an individual, residing in
Houston, Texas.
WITNESSETH:
WHEREAS, Mr. Gray and the Company are parties to that certain Executive
Employment Agreement dated as of February 16, 1999 (the "Employment Agreement");
WHEREAS, the Company and Mr. Gray have agreed that Mr. Gray's
employment with the Company will terminate;
WHEREAS, the Company and Mr. Gray have agreed upon the terms and
conditions under which Mr. Gray's employment with the Company will terminate,
the consideration payable to Mr. Gray as consideration for cancellation of the
Employment Agreement, and the surrender by Mr. Gray of all rights he had under
the Employment Agreement; and
NOW, THEREFORE, for and in consideration of the recitals and covenants
herein set forth, the parties agree as follows:
1. Employment. Mr. Gray's termination of employment with the Company shall be
effective on December 31, 1999 ("Termination Date"). Mr. Gray shall resign as an
officer and director of the various subsidiaries and affiliated companies of the
Company in which he holds office on November 30, 1999.
2. Consideration. Mr. Gray shall be paid by Company the following:
a. The monthly amount of $71,666.66, in semi-monthly payments of
$35,833.33 for the period beginning January 1, 2000 and ending
January 31, 2004, and the amount of $35,833.33 for the period
beginning February 1, 2004 and ending February 15, 2004; and
b. 200,000 (20%) of Mr. Gray's Azurix Corp. Stock options shall
vest on November 30, 1999 and Mr. Gray shall have until
November 30, 2002 to exercise.
3. Severance Pay. Mr. Gray waives and the Company shall not be required to pay,
any severance pay or severance benefits, that otherwise would be payable under
the Company's Severance Pay Plan, except as provided for in this Agreement, in
connection with the termination of Mr. Gray's employment. The consideration and
remuneration provided for under Section 2(a) of this Agreement are in lieu of
and take the place of any severance pay or severance benefit that otherwise
would be payable under the Company's Severance Pay Plan, which Mr. Gray
forfeits.
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4. Employee Benefits. Except as otherwise provided in Section 3, Mr. Gray shall
be entitled to receive benefits earned by and payable to him under all employee
benefit plans and compensation plans in which he participated or was covered by
during his employment with Company, according to the terms and provisions
thereof. Specifically, and without limiting the generality of the foregoing, Mr.
Gray shall continue his rights under any stock option agreements and the Enron
Corp. Deferral Plan as if he were involuntarily terminated on the Termination
Date as provided by each of the plan documents and said rights shall be governed
by the terms and provisions of each of the plan documents. Further, Mr. Gray's
rights under the Enron Corp. Executive Compensation Program with respect to
Performance Units granted to him shall be governed by the terms and provisions
of the Program.
5 Post-Employment Non-Competition Obligations.
5.1 As part of the consideration for the compensation and benefits to be paid to
Mr. Gray hereunder, in keeping with Mr. Gray's duties as a fiduciary and in
order to protect the Company's interests in the confidential information of the
Company and the business relationships developed by Mr. Gray with the clients
and potential clients of the Company; and as an additional incentive for Company
to enter into this Agreement, Company and Mr. Gray agree to the non-competition
provisions of this Article 5. Mr. Gray agrees that during the period of Mr.
Gray's non-competition obligations hereunder, Mr. Gray will not, directly or
indirectly for Mr. Gray or for others, in any geographic area or market where
Company or any of its affiliated companies are conducting any business as of the
date of termination of the employment relationship or have during the previous
twelve months conducted any business:
(i) engage in any business competitive with the water business
conducted by Company;
(ii) render advice or services to, or otherwise assist, any other
person, associations, or entity who is engaged, directly or
indirectly , in any business competitively with the water
business conducted by the Company; or
(iii) induce any employee of Company or Enron Corp. or their
affiliates to terminate his or her employment with Company, or
their affiliates, or hire or assist in the hiring of any such
employee by person, association, or entity not affiliated with
Enron Corp.
These non-competition obligations shall extend until February 15, 2004.
5.2 Remedy for Breach of Contract. The parties agree that in the event there is
any breach or asserted breach of the terms, covenants or conditions of this
Agreement, the remedy of the parties hereto shall be in law and in equity and
injunctive relief shall lie for the enforcement of or relief from any provisions
of this Agreement. If any remedy or relief is sought and obtained by any party
against one of the other parties pursuant to this Section 5.2, the other party
shall, in addition to the
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remedy of relief so obtained, be liable to the party seeking such remedy or
relief for the expenses incurred by such party in successfully obtaining such
remedy or relief, including the fees and expenses of such successful party's
counsel.
5.3 It is expressly understood and agreed that Company and Mr. Gray consider the
restrictions contained in this Article 5 to be reasonable and necessary to
protect the proprietary information of Company. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
6. Confidential Information.
6.1 Confidential Information.
A. Mr. Gray acknowledges that Company's business is highly competitive
and that Company's methods, strategies, books, records and documents, Company's
technical information concerning its products, equipment, services and
processes, procurement procedures and pricing and marketing techniques,
including but not limited to the names of and other information (such as credit
and financial data) concerning Company's customers and business affiliates, all
comprise confidential business information and trade secrets of Company which
are valuable, special, and unique assets of Company, which Company uses in its
business to obtain a competitive advantage over Company's competitors which do
not know or use this information. Mr. Gray further acknowledges that protection
of Company's confidential business information and trade secrets against
unauthorized disclosure and use, is of critical importance to Company in
maintaining its competitive position. Accordingly, Mr. Gray hereby agrees that
notwithstanding any other provision of this Agreement other than contained in
the following paragraph "B", he will not, at any time, make any unauthorized
disclosure of any of the information referred to in the first sentence of this
Section 6.1A ("Confidential Information") or make any unauthorized use thereof
which, in any manner, would have, or is likely to have, an adverse effect upon
the Company or any affiliate.
B. However, Mr. Gray obligations under this Section 6 shall not extend
to:
1) Confidential Information which is or becomes part of the
public domain or is available to the public by publication or
otherwise without disclosure by Mr. Gray; or
2) Confidential Information which was within Mr. Gray's knowledge
or in his possession prior to his employment by the Company;
or
3) Confidential Information which, either prior to or subsequent
to the Company's disclosure to Mr. Gray with an obligation of
confidentiality, was disclosed to Mr. Gray, without obligation
of confidentiality, by a third party who did not acquire such
information, directly or indirectly, from Mr. Gray, or from
any third party who is under an obligation of confidentiality;
or
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4) any disclosure of Confidential Information by Mr. Gray which
is required by law, including deposition or trial testimony by
Mr. Gray pursuant to subpoena. If Mr. Gray is requested or
required (by oral question, interrogatories, request for
information or documents, subpoena, civil investigative demand
or similar process) to disclose any Confidential Information,
if reasonably possible under the circumstances as determined
in good faith by Mr. Gray, Mr. Gray will promptly notify the
Company of such request or requirement so that the Company may
seek an appropriate protective order or waive compliance with
provisions of this Agreement. In the absence of a protective
order or the receipt of a waiver hereunder, or in the good
faith determination of Mr. Gray that time is of the essence,
Mr. Gray may obtain legal counsel, and if Mr. Gray and/or his
counsel in good faith believe that Mr. Gray is compelled to
disclose the Confidential Information or be exposed to
liability for contempt or suffer other censure or penalty, Mr.
Gray may disclose only such Confidential Information to the
party compelling disclosure as is required by law, as
determined by Mr. Gray on advice of counsel. Mr. Gray further
agrees that he will cooperate with the Company in its efforts
to obtain a protective order or other reliable assurance that
confidential treatment will be accorded the Confidential
Information. All legal fees, costs and expenses incurred by
Mr. Gray in obtaining legal representation pursuant to his
obligations under this Section 6.1B shall be paid by the
Company. The Company further agrees that it will indemnify Mr.
Gray for any other costs and expenses incurred by Mr. Gray in
connection with his obligations under this Section 6.1B,
including but not limited to legal damages and penalties
assessed against Mr. Gray for compliance with his obligations
hereunder.
6.2 Definition of Company. For purposes of this Agreement, "Company" shall
include Azurix Corp., and all of its subsidiaries and affiliated companies.
6.3 Non-Disparagement. Mr. Gray and Company agree that they will not knowingly
make any comments with the intent to impugn, castigate or otherwise damage the
reputation of the other, including Company's subsidiaries and affiliated
companies, and the executives and managers thereof, unless legally compelled to
do so in any legal or administrative proceeding.
7. Miscellaneous.
7.1 Notices. For purposes of this Agreement, notices and all other
communications shall be in writing and shall have been duly given when
personally delivered or when mailed by United States certified or registered
mail, addressed as follows:
If to Company:
Azurix Corp.
333 Clay Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Mr. Gray:
Mr. Rodney L. Gray
4146 Marquette
Houston, Texas 77005
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or to any other address which either party may furnish to the other in writing.
Any such notice shall be effective when so delivered or three business days
after it is so mailed, except that notices of changes of address shall be
effective only upon receipt.
7.2 Applicable Law. THIS CONTRACT IS ENTERED INTO UNDER, AND SHALL BE GOVERNED
FOR ALL PURPOSES BY, THE LAWS OF THE STATE OF TEXAS.
7.3 No Waiver. No failure by either party hereto at any time to give notice of
any breach by the other party of, or to require compliance with, any condition
or provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
7.4 Remedy for Breach of Contract.
A. The parties agree that in the event there is any breach or asserted
breach of the terms, covenants or conditions of this Agreement, the
remedies of the parties hereto shall be in both law and in equity,
including injunctive relief for the enforcement of or relief from any
provisions of this Agreement.
B. In the event either party has a reasonable basis for claiming that
the other party has violated the provisions of Section 5 of this
Agreement and that such violation is material, the aggrieved party
shall give the other party written notice of the specific facts of such
violation. If such violation is material and has not been cured within
three (03) days after such notice is given, the aggrieved party may
seek any relief provided in this Agreement.
C. Of Sections 5, 6.1, or 6.3: In the event either party has a
reasonable basis for claiming that the other party has violated the
provisions of Sections 5, 6.1, or 6.3 and such violation is material,
such party shall give written notice of specific facts of such
violation to the other party. If, after three (03) days of giving such
notice, the alleged violation has occurred, has not ceased, or
reasonably may be expected to be repeated again, the aggrieved party
shall have the right to bring an action at law or in equity. In any
action brought for an alleged breach of Sections 5, 6.1, or 6.3, the
complaining party may seek whatever damages and redress it deems
appropriate, including but not limited to injunctive relief pertaining
to the alleged violation complained of.
D. Money damages would not be sufficient remedy for any breach of 6.1
or 6.3 by either party, and either party shall be entitled to seek
specific performance and injunctive relief as
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remedies for such breach or threatened breach, subsequent to the three
(03) day period after the notice provided for in Section 7.4C. Such
remedies shall not be deemed the exclusive remedies for a breach of
Section 6.1 or 6.3 by either party, but shall be in addition to all
remedies available at law or in equity to the non-breaching party
including the recovery of damages from the breaching party, as provided
for in Section 7.4C.
7.5 Severability. It is a desire and intent of the parties that the terms,
provisions, covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any person or
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect. It is further the desire
and intent of the parties that in the event of any breach of any portion of this
Agreement, the remainder of this Agreement shall remain in effect as written and
enforceable to the fullest extent permitted by law.
7.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
7.7 Withholding of Taxes. Company may withhold from any benefits or remuneration
payable under this Agreement all federal, state, city or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
7.8 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
7.9 Assignability.
A. By the Company:
The Company's obligations under this Agreement are not
transferable or assignable by the Company and shall be
considered a liability of the Company in any sale or transfer
of substantially all of the business or assets of the Company
by any means whether direct or indirect, by purchase, merger,
consolidation or otherwise.
B. By Mr. Gray:
With respect to Mr. Gray's rights and obligations, his rights
and obligations hereunder are personal and neither this
Agreement, nor any right, benefit or obligation of Mr. Gray,
shall be subject to voluntary or involuntary assignment,
alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of Company except
as authorized in Section 2; provided, the
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Company agrees that it will not withhold its consent to an
assignment by Mr. Gray to a financial institution of his
rights to receive payments under this Agreement. In the event
of Mr. Gray's breach of any of the terms, covenants, or
conditions of this Agreement, any such assignment shall be
subject to the provisions of Section 7.4 of this Agreement.
This Agreement and all payments hereunder, shall inure to the
benefit of and be enforceable by and against Mr. Gray's
personal or legal representatives, executors, administrators,
heirs, distributees, devisees and legatees. In the event of
Mr. Gray's death prior to receipt of all payments and benefits
to which he is entitled under Section 2 of this Agreement, the
remaining semi-monthly payments provided in subsection 2.a.
shall be payable to Mr. Gray's estate, and the options
described in subsection 2.b. shall remain exercisable by Mr.
Gray's beneficiary, or if no beneficiary has been designated
for that purpose, by his estate in accordance with the terms
and provisions of the 1999 Azurix Corp. Stock Plan and Mr.
Gray's related grant agreement.
7.10 Release.
A. By execution of this Agreement, Mr. Gray for himself, his legal and
other representatives, claimants, heirs and beneficiaries, forever
waives and releases Company and its affiliated companies from all
rights, benefits, payments and claims (including but not limited to
statutory, tort or contractual claims) of any kind and nature to which
Mr. Gray is now or in the future may be entitled, and arising out of or
in connection with Mr. Gray's employment with Company or any affiliated
company, and Mr. Gray's termination of employment, including but not
limited to claims pursuant to the Age Discrimination In Employment Act
("ADEA"), except as may be specifically provided for under this
Agreement or contained in the plan documents or grants of benefits to
which Mr. Gray is entitled according to the provisions hereof. It is
specifically agreed that this Agreement and the consideration Mr. Gray
will receive hereunder, constitute a complete settlement and release,
and an absolute bar to any and all claims Mr. Gray has or may have
against the Company, its subsidiaries, divisions, any affiliated
company, or its directors, officers, and employees, whether or not the
same be presently known or suspected to be arising out of or in any
manner connected with Mr. Gray's employment thereby or termination of
employment with Company, except as may be specifically provided for
under this Agreement or contained in the plan documents or grants of
benefits to which Mr. Gray is entitled according to the provisions
hereof. This Section of the Agreement applies to rights or claims
pursuant to the ADEA only in existence on or before the date of payment
of consideration and remuneration provided for herein. MR. GRAY
ACKNOWLEDGES AND AGREES, AND REPRESENTS TO COMPANY THAT (I) HE
UNDERSTANDS THE EFFECT OF THE PROVISIONS OF THIS PARAGRAPH, (II) HE HAS
HAD A REASONABLE TIME OF NOT LESS THAN 21 DAYS IN WHICH TO CONSIDER THE
EFFECT OF THE PROVISIONS OF THIS PARAGRAPH, AND (III) HE WAS ADVISED
AND ENCOURAGED TO CONSULT AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT
WITH RESPECT TO THE EFFECT OF THE PROVISIONS OF THIS PARAGRAPH AND HIS
EXECUTION OF THIS AGREEMENT. MR. GRAY MAY REVOKE THIS AGREEMENT DURING
THE SEVEN DAY PERIOD FOLLOWING THE DATE OF EXECUTION, WHEREUPON THIS
AGREEMENT SHALL BE RESCINDED IN ITS ENTIRETY AND BECOME NULL AND VOID.
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B. Mr. Gray's execution of the negotiable instruments tendered to him
by the Company in payment of the consideration provided for in Section
2 of this Agreement shall be considered ratification and a separate
execution of this Agreement by Mr. Gray.
7.11 Entire Agreement: Modification. This Agreement constitutes the entire
agreement of the parties with regard to the termination of employment of Mr.
Gray, supersedes any and all prior written agreements between the parties, (with
the exception of those plans, agreements and other documents identified or
referred to in Section 4), and this Agreement contains all of the covenants,
promises, representations and agreements between the parties with respect to the
termination of employment of Mr. Gray with Company. Each party to this Agreement
acknowledges that no representation, inducement, promise or agreement, oral or
written, has been made by either party, which is not embodied herein, or
referred to hereby and that no agreement, statement or promise relating to the
employment or termination of employment of Mr. Gray with Company, which is not
contained or provided for, identified or referred to in this Agreement, shall be
valid or binding. Any modification of this Agreement will be effective only if
it is in writing and signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
AZURIX CORP.
By: /s/ Philip J. Bazelides
Name: Philip J. Bazelides
Title: Managing Director Human Resources
and Administration
RODNEY L. GRAY
/s/ Rodney L. Gray
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<PAGE> 1
EXHIBIT 10.21
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement"), made and entered into the 30th
day of November, 1999 ("Date of Execution"), is between AZURIX CORP.
("Company"), a Delaware corporation, having its offices in Houston, Texas, and
ALEX KULPECZ ("Mr. Kulpecz"), an individual, residing in the United Kingdom.
WITNESSETH:
WHEREAS, the Company and Mr. Kulpecz have entered into an Executive
Employment Agreement effective as of September 15, 1998 (the "Employment
Agreement");
WHEREAS, the Company and Mr. Kulpecz have agreed that Mr. Kulpecz's
employment with the Company will terminate;
WHEREAS, the Company and Mr. Kulpecz have agreed upon the terms and
conditions under which Mr. Kulpecz's employment with the Company will terminate;
and
NOW, THEREFORE, for and in consideration of the recitals and covenants
herein set forth, the parties agree as follows:
1. Employment. Mr. Kulpecz termination of employment with the Company shall be
effective on November 30, 1999 ("Termination Date"). Upon the execution of this
Agreement, Mr. Kulpecz shall resign as an officer of the various subsidiaries
and affiliated companies of the Company in which he holds office; however, until
the Termination Date, Mr. Kulpecz will continue to perform the duties reasonably
assigned to him by the Company in connection with the Company's business and
such other matters as the Company may reasonably request. Unless otherwise
requested by the Company, Mr. Kulpecz will perform such services from his
residence or such other location or locations (other than offices of the
Company) as he selects.
2. Consideration. Mr. Kulpecz shall be paid by Company the following:
a. a monthly payment in the amount of $41,000.00 beginning December
31, 1999 and ending August 31, 2001 and a payment of $20,500.00
to be paid on September 14, 2001 (for the period beginning
September 1, 2001 and ending September 14, 2001), for a total of
$881,500.00;
b. a monthly housing payment in the amount of $8,456.59 beginning
December 1, 1999 and ending August 31,2001 and a payment of
$4,228.61 to be paid on September 14, 2001 (for the period
beginning September 1, 2001 and ending September 14, 2001), for a
total of $181,817.00;
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c. an additional monthly payment in the amount of $39,534.51
beginning December 31, 1999 and ending August 31, 2001 and a
payment of $19,767.29 to be paid on September 14, 2001 (for the
period beginning September 1, 2001 and ending September 14,
2001), for a total of $849,992.00;
d. schooling and bus expenses reimbursement in an amount not to
exceed $83,787.00, to be paid by Company as billed by the school
for Mr. Kulpecz' children in elementary or secondary school; and
e. Company agrees to pack and ship a twenty-ft. container of
household goods from London, United Kingdom to a location in the
United States of America within the next six (6) months the cost
of which shall not exceed $10,000.00; and
f. Company agrees to sell to Mr. Kulpecz the leased vehicle which he
used during this employment at the December 31, 1999 Lease Buyout
Value provided Mr. Kulpecz makes a payment to Azurix Corp. equal
to the Lease Buyout Value no later than January 15, 2000.
3. Severance Pay. Mr. Kulpecz waives and the Company shall not be required to
pay, any severance pay or severance benefits, that otherwise would be payable
under the Company's Severance Pay Plan, except as provided for in this
Agreement, in connection with the termination of Mr. Kulpecz's employment. The
consideration and remuneration provided for under this Agreement are in lieu of
and take the place of any severance pay or severance benefit that otherwise
would be payable under the Company's Severance Pay Plan, which Mr. Kulpecz
forfeits.
4. Employee Benefits.
a. Except as otherwise provided in Section 3, Mr. Kulpecz shall be
entitled to receive benefits earned by and payable to him under
all employee benefit plans and compensation plans in which he
participated or was covered by during his employment with
Company, according to the terms and provisions thereof.
Specifically, and without limiting the generality of the
foregoing, Mr. Kulpecz shall continue his rights under any stock
option agreements as if he were involuntarily terminated on the
Termination Date as provided by each of the plan documents.
Further, Mr. Kulpecz shall receive a payment of all of his
accrued and unused vacation for the calendar year 1999, which
totals 15 days for a total payment of $20,500.00;
b. Company agrees to tax equalize the Consideration, including stock
option income up to 100,000.00, pursuant to the Company's tax
equalization policy provided Mr. Kulpecz remains in the United
Kingdom. Payment of United Kingdom and United States of America
taxes shall be in the same manner as during the term of the
Employment Agreement. Inherent in the tax equalization is Mr.
Kulpecz' payment
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of Hypothetical Tax on the Consideration noted in Sections 2.a.
and 2.c. Company's responsibility through tax equalization is for
the payment of United Kingdom and United States of America income
taxes owed in excess of Mr. Kulpecz's Hypothetical Tax as
described in Section 2a and 2c. In the event of any revisions of
Mr. Kulpecz' tax return(s) by the governments of the United
States or the United Kingdom, the tax equalization calculation
will be updated, and payments made to Mr. Kulpecz or Company (by
Company of Mr. Kulpecz, respectively), depending on revisions to
the return(s).
c. Company shall provide tax assistance to Mr. Kulpecz for the
Consideration and other compensation related to Mr. Kulpecz's
employment and this Agreement through Price Waterhouse Coopers,
LLP, or any other firm at Company's discretion. Further, Company
agrees to pay any interest and/or late payment penalties, if
applicable.
5 Post-Employment Non-Competition Obligations.
5.1 As part of the consideration for the compensation and benefits to be paid to
Mr. Kulpecz hereunder, in keeping with Mr. Kulpecz's duties as a fiduciary and
in order to protect the Company's interests in the confidential information of
the Company and the business relationships developed by Mr. Kulpecz with the
clients and potential clients of the Company; and as an additional incentive for
Company to enter into this Agreement, Company and Mr. Kulpecz agree to the
non-competition provisions of this Article 5. Mr. Kulpecz agrees that during the
period of Mr. Kulpecz's non-competition obligations hereunder, Mr. Kulpecz will
not, directly or indirectly for Mr. Kulpecz or for others, in any geographic
area or market where Company or Enron or any of their affiliated companies are
conducting any business as of the date of termination of the employment
relationship or have during the previous twelve months conducted any business:
(i) engage in any business competitive with the water business
conducted by Company;
(ii) render advice or services to, or otherwise assist, any other
person, associations, or entity who is engaged, directly or
indirectly , in any business competitively with the water
business conducted by the Company; or
(iii) induce any employee of Company or Enron or their affiliates to
terminate his or her employment with Company, or their
affiliates, or hire or assist in the hiring of any such employee
by person, association, or entity not affiliated with Enron.
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These non-competition obligations shall extend until September 14, 2001.
Notwithstanding the foregoing, Mr. Kulpecz may assist or participate in the
currently proposed sale of Azurix International's portfolio of projects to an
entity in which Nigel Robinson, or others at the discretion of the Company, acts
as a lead investor or manager.
5.2 Remedy for Breach of Contract. The parties agree that in the event there is
any breach or asserted breach of the terms, covenants or conditions of this
Agreement, the remedy of the parties hereto shall be in law and in equity and
injunctive relief shall lie for the enforcement of or relief from any provisions
of this Agreement. If any remedy or relief is sought and obtained by any party
against one of the other parties pursuant to this Section 5.2, the other party
shall, in addition to the remedy of relief so obtained, be liable to the party
seeking such remedy or relief for the expenses incurred by such party in
successfully obtaining such remedy or relief, including the fees and expenses of
such successful party's counsel.
5.3 It is expressly understood and agreed that Company and Mr. Kulpecz consider
the restrictions contained in this Article 5 to be reasonable and necessary to
protect the proprietary information of Company. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
6. Confidential Information.
6.1 Confidential Information.
A. Mr. Kulpecz acknowledges that Company's business is highly
competitive and that Company's methods, strategies, books, records and
documents, Company's technical information concerning its products,
equipment, services and processes, procurement procedures and pricing
and marketing techniques, including but not limited to the names of
and other information (such as credit and financial data) concerning
Company's customers and business affiliates, all comprise confidential
business information and trade secrets of Company which are valuable,
special, and unique assets of Company, which Company uses in its
business to obtain a competitive advantage over Company's competitors
which do not know or use this information. Mr. Kulpecz further
acknowledges that protection of Company's confidential business
information and trade secrets against unauthorized disclosure and use,
is of critical importance to Company in maintaining its competitive
position. Accordingly, Mr. Kulpecz hereby agrees that notwithstanding
any other provision of this Agreement other than contained in the
following paragraph "B", he will not, at any time, make any
unauthorized disclosure of any of the information referred to in the
first sentence of this Section 6.1A ("Confidential Information") or
make any unauthorized use thereof which, in any manner, would have, or
is likely to have, an adverse effect upon the Company or any
affiliate.
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B. However, Mr. Kulpecz obligations under this Section 6 shall not
extend to:
1) Confidential Information which is or becomes part of the public
domain or is available to the public by publication or otherwise
without disclosure by Mr. Kulpecz; or
2) Confidential Information which was within Mr. Kulpecz's knowledge
or in his possession prior to his employment by the Company; or
3) Confidential Information which, either prior to or subsequent to
the Company's disclosure to Mr. Kulpecz with an obligation of
confidentiality, was disclosed to Mr. Kulpecz, without obligation
of confidentiality, by a third party who did not acquire such
information, directly or indirectly, from Mr. Kulpecz, or from
any third party who is under an obligation of confidentiality; or
4) any disclosure of Confidential Information by Mr. Kulpecz which
is required by law, including deposition or trial testimony by
Mr. Kulpecz pursuant to subpoena. If Mr. Kulpecz is requested or
required (by oral question, interrogatories, request for
information or documents, subpoena, civil investigative demand or
similar process) to disclose any Confidential Information, if
reasonably possible under the circumstances as determined in good
faith by Mr. Kulpecz, Mr. Kulpecz will promptly notify the
Company of such request or requirement so that the Company may
seek an appropriate protective order or waive compliance with
provisions of this Agreement. In the absence of a protective
order or the receipt of a waiver hereunder, or in the good faith
determination of Mr. Kulpecz that time is of the essence, Mr.
Kulpecz may obtain legal counsel, and if Mr. Kulpecz and/or his
counsel in good faith believe that Mr. Kulpecz is compelled to
disclose the Confidential Information or be exposed to liability
for contempt or suffer other censure or penalty, Mr. Kulpecz may
disclose only such Confidential Information to the party
compelling disclosure as is required by law, as determined by Mr.
Kulpecz on advice of counsel. Mr. Kulpecz further agrees that he
will cooperate with the Company in its efforts to obtain a
protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information. All
legal fees, costs and expenses incurred by Mr. Kulpecz in
obtaining legal representation pursuant to his obligations under
this Section 6.1B shall be paid by the Company. The Company
further agrees that it will indemnify Mr. Kulpecz for any other
costs and expenses incurred by Mr. Kulpecz in connection with his
obligations under this Section 6.1B, including but not limited to
legal damages and penalties assessed against Mr. Kulpecz for
compliance with his obligations hereunder.
6.2 Definition of Company. For purposes of this Agreement, "Company" shall
include Enron Corp., Azurix Corp., and all of their subsidiaries and affiliated
companies.
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6.3 Non-Disparagement. Mr. Kulpecz and Company agree that they will not
knowingly make any comments with the intent to impugn, castigate or otherwise
damage the reputation of the other, including Company's subsidiaries and
affiliated companies, and the executives and managers thereof, unless legally
compelled to do so in any legal or administrative proceeding.
7. Miscellaneous.
7.1 Notices. For purposes of this Agreement, notices and all other
communications shall be in writing and shall have been duly given when
personally delivered or when mailed by United States certified or registered
mail, addressed as follows:
If to Company:
Azurix Corp.
333 Clay Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Mr. Kulpecz:
2 Midgarth Close
Oxshott, Surrey
United Kingdom
KT22 OJY
or to any other address which either party may furnish to the other in writing.
Any such notice shall be effective when so delivered or three business days
after it is so mailed, except that notices of changes of address shall be
effective only upon receipt.
7.2 Applicable Law. THIS CONTRACT IS ENTERED INTO UNDER, AND SHALL BE GOVERNED
FOR ALL PURPOSES BY, THE LAWS OF THE STATE OF TEXAS.
7.3 No Waiver. No failure by either party hereto at any time to give notice of
any breach by the other party of, or to require compliance with, any condition
or provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
7.4 Remedy for Breach of Contract.
A. The parties agree that in the event there is any breach or asserted
breach of the terms, covenants or conditions of this Agreement, the
remedies of the parties hereto shall be in both law and in equity,
including injunctive relief for the enforcement of or relief from any
provisions of this Agreement.
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B. In the event either party has a reasonable basis for claiming that
the other party has violated the provisions of Section 5 of this
Agreement and that such violation is material, the aggrieved party
shall give the other party written notice of the specific facts of
such violation. If such violation is material and has not been cured
within three (03) days after such notice is given, the aggrieved party
may seek any relief provided in this Agreement, provided, the Company
may seek termination of the Consulting Arrangement, in addition to any
other relief that may be appropriate.
C. Of Sections 5 or 6.1: In the event either party has a reasonable
basis for claiming that the other party has violated the provisions of
Sections 5 or 6.1, and such violation is material, such party shall
give written notice of specific facts of such violation to the other
party. If, after three (03) days of giving such notice, the alleged
violation has occurred, has not ceased, or reasonably may be expected
to be repeated again, the aggrieved party shall have the right to
bring an action at law or in equity. In any action brought for an
alleged breach of Sections 5or 6.1, the complaining party may seek
whatever damages and redress it deems appropriate, including but not
limited to injunctive relief pertaining to the alleged violation
complained of.
D. Money damages would not be sufficient remedy for any breach of
Section 6.1 by either party, and either party shall be entitled to
seek specific performance and injunctive relief as remedies for such
breach or threatened breach, subsequent to the three (03) day period
after the notice provided for in Section 7.4C. Such remedies shall not
be deemed the exclusive remedies for a breach of Section 6.1 by either
party, but shall be in addition to all remedies available at law or in
equity to the non-breaching party including the recovery of damages
from the breaching party, as provided for in Section 7.4C.
7.5 Severability. It is a desire and intent of the parties that the terms,
provisions, covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any person or
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect. It is further the desire
and intent of the parties that in the event of any breach of any portion of this
Agreement, the remainder of this Agreement shall remain in effect as written and
enforceable to the fullest extent permitted by law.
7.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
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7.7 Withholding of Taxes. Company may withhold from any benefits or remuneration
payable under this Agreement all United Kingdom and United States of America
taxes arising out of payments to Mr. Kulpecz under this Agreement, including by
way of illustration but not limitation, federal, state, city, or other taxes as
may be required pursuant to this Agreement, any law, or governmental regulation
or ruling. The Company will timely pay over to the appropriate taxing authority
any amounts withheld under the preceding sentence. Nothing contained in the
Section may affect the Company's obligation to tax equalize any payments under
this Agreement.
7.8 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
7.9 Assignability.
A. By the Company:
The Company's obligations under this Agreement are not
transferable or assignable by the Company and shall be considered
a liability of the Company in any sale or transfer of
substantially all of the business or assets of the Company by any
means whether direct or indirect, by purchase, merger,
consolidation or otherwise.
B. By Mr. Kulpecz:
With respect to Mr. Kulpecz's rights and obligations, his
rights and obligations hereunder are personal and neither this
Agreement, nor any right, benefit or obligation of Mr. Kulpecz,
shall be subject to voluntary or involuntary assignment,
alienation or transfer, whether by operation of law or otherwise,
without the prior written consent of Company; provided, the
Company agrees that it will not withhold its consent to an
assignment by Mr. Kulpecz to a financial institution of his
rights to receive payments under this Agreement. In the event of
Mr. Kulpecz's breach of any of the terms, covenants, or
conditions of this Agreement, any such assignment shall be
subject to the provisions of Section 7.4 of this Agreement. This
Agreement and all payments hereunder, including Consulting
Payments, shall inure to the benefit of and be enforceable by and
against Mr. Kulpecz's personal or legal representatives,
executors, administrators, heirs, distributees, devisees and
legatees.
7.10 Release.
A. By execution of this Agreement, Mr. Kulpecz for himself, his legal
and other representatives, claimants, heirs and beneficiaries, forever
waives and releases Company and its affiliated companies from all
rights, benefits, payments and claims (including but not limited to
statutory, tort or contractual claims) of any kind and nature to which
Mr. Kulpecz
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is now or in the future may be entitled, and arising out of or in
connection with Mr. Kulpecz's employment with Company or any
affiliated company, and Mr. Kulpecz's termination of employment,
including but not limited to claims pursuant to the Age Discrimination
In Employment Act ("ADEA"), except as may be specifically provided for
under this Agreement or contained in the plan documents or grants of
benefits to which Mr. Kulpecz is entitled according to the provisions
hereof. It is specifically agreed that this Agreement and the
consideration Mr. Kulpecz will receive hereunder, constitute a
complete settlement and release, and an absolute bar to any and all
claims Mr. Kulpecz has or may have against the Company, its
subsidiaries, divisions, any affiliated company, or its directors,
officers, and employees, whether or not the same be presently known or
suspected to be arising out of or in any manner connected with Mr.
Kulpecz' employment thereby or termination of employment with Company,
except as may be specifically provided for under this Agreement or
contained in the plan documents or grants of benefits to which Mr.
Kulpecz is entitled according to the provisions hereof. This Section
of the Agreement applies to rights or claims pursuant to the ADEA only
in existence on or before the date of payment of consideration and
remuneration provided for herein. MR. KULPECZ ACKNOWLEDGES AND AGREES,
AND REPRESENTS TO COMPANY THAT (I) HE UNDERSTANDS THE EFFECT OF THE
PROVISIONS OF THIS PARAGRAPH, (II) HE HAS HAD A REASONABLE TIME OF NOT
LESS THAN 21 DAYS IN WHICH TO CONSIDER THE EFFECT OF THE PROVISIONS OF
THIS PARAGRAPH, AND (III) HE WAS ADVISED AND ENCOURAGED TO CONSULT AN
ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT WITH RESPECT TO THE EFFECT
OF THE PROVISIONS OF THIS PARAGRAPH AND HIS EXECUTION OF THIS
AGREEMENT. MR. KULPECZ MAY REVOKE THIS AGREEMENT DURING THE SEVEN-DAY
PERIOD FOLLOWING THE DATE OF EXECUTION, WHEREUPON THIS AGREEMENT SHALL
BE RESCINDED IN ITS ENTIRETY AND BECOME NULL AND VOID.
B. Mr. Kulpecz's execution of the negotiable instrument tendered to
him by the Company in payment of the Consideration provided for in
Section 2 of this Agreement shall be considered ratification and a
separate execution of this Agreement by Mr. Kulpecz.
7.11 Entire Agreement: Modification. This Agreement constitutes the entire
agreement of the parties with regard to the termination of employment of Mr.
Kulpecz, supersedes any and all prior written agreements between the parties,
(with the exception of those plans, agreements and other documents identified or
referred to in Section 4), and this Agreement contains all of the covenants,
promises, representations and agreements between the parties with respect to the
termination of employment of Mr. Kulpecz with Company. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, which is not embodied herein, or
referred to hereby and that no agreement, statement or promise relating to the
employment or termination of employment of Mr. Kulpecz with Company, which is
not contained or provided for, identified or referred to in this Agreement,
shall be valid or binding. Any modification of this Agreement will be effective
only if it is in writing and signed by both parties.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
AZURIX CORP.
By: /s/ Rebecca P. Mark
Name: Rebecca P. Mark
Title: Chairman and CEO
ALEX KULPECZ
/s/ Alex Kulpecz
<PAGE> 1
EXHIBIT 10.22
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement"), made, entered into, and executed
and is between AZURIX CORP. ("Company"), a Delaware corporation, having its
offices in Houston, Texas, and EDWARD N. ROBINSON ("Mr. Robinson"), an
individual, residing at 5629 Holly Springs, Houston, Texas 77056, with respect
to the termination of Mr. Robinson's employment as of the Termination Date (as
defined below).
WITNESSETH:
WHEREAS, the Company and Mr. Robinson have entered into an Executive
Employment Agreement effective as of November 9, 1998, as amended (the
"Employment Agreement");
WHEREAS, because of changes in the Company's business strategies in
November 19999, the Company and Mr. Robinson concluded that Mr. Robinson's
services are no longer required for the Company's benefit;
WHEREAS, Mr. Robinson agreed to continue in the employment of the Company
until February 15, 2000 (the "Termination Date"), but on that date his
employment would terminate; and
WHEREAS, the Company and Mr. Robinson have agreed upon the terms and
conditions under which Mr. Robinson's employment with the Company will
terminate;
NOW, THEREFORE, for and in consideration of the recitals and covenants
herein set forth, the parties agree as follows:
1. Employment. Mr. Robinson's termination of employment with the Company shall
be effective on the Termination Date. Mr. Robinson shall resign as an officer of
the various subsidiaries and affiliated companies of the Company in which he
holds office however, until the Termination Date, Mr. Robinson will continue to
perform the duties reasonably assigned to him by the Company in connection with
the Company's business and such other matters as the Company may reasonably
request. The Company shall provide to Mr. Robinson one personal computer and
peripherals, including one palm pilot. The Company will not provide a printer
for the computer.
2 Consideration. Mr. Robinson shall be paid by Company the amount of Two
Million Seventy-Six Thousand Seven Hundred Twelve Dollars ($2,076,712.00) on
February 29, 2000. Further, Mr. Robinson agrees that any amounts due Company for
personal items charged by Mr. Robinson to the Company's American Express Card
shall be deducted by Company from the Consideration.
3. Severance Pay. Mr. Robinson waives and the Company shall not be required to
pay, any severance pay or severance benefits, that otherwise would be payable
under the Company's Severance Pay Plan, except as provided for in this
Agreement, in connection with the termination of Mr. Robinson's employment. The
consideration and remuneration provided for under this Agreement are in lieu of
and take the place of any severance or the Employment Agreement pay or
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<PAGE> 2
severance benefit that otherwise would be payable under the Company's
Severance Pay Plan, which Mr. Robinson forfeits.
4. Employee Benefits. Mr. Robinson shall be entitled to receive benefits
earned by and payable to him under all employee benefit plans in which he
participated or was covered by during his employment with Company, according to
the terms and provisions thereof. Specifically, and without limiting the
generality of the foregoing, Mr. Robinson shall continue his rights under any
stock option agreement(s) as if he were involuntarily terminated on the
Termination Date as provided by each of the plan documents and said rights shall
be governed by the terms and provisions of each of the plan documents. Further,
Mr. Robinson shall be entitled to receive payment for all accrued and unused
vacation through the Termination Date with payment scheduled on February 29,
2000.
5 Post-Employment Non-Competition Obligations.
5.1 As part of the consideration for the compensation and benefits to be paid
to Mr. Robinson hereunder, in keeping with Mr. Robinson's duties as a fiduciary
and in order to protect the Company's interests in the confidential information
of the Company and the business relationships developed by Mr. Robinson with the
clients and potential clients of the Company; and as an additional incentive for
Company to enter into this Agreement, Company and Mr. Robinson agree to the
non-competition provisions of this Article 5. Mr. Robinson agrees that during
the period of Mr. Robinson's non-competition obligations hereunder, Mr. Robinson
will not, directly or indirectly for Mr. Robinson or for others, in any
geographic area or market where Company or Enron or any of their affiliated
companies are conducting the water business as of the date of termination of the
employment relationship or have during the previous twelve months conducted any
business:
(i) engage in any business competitive with the water business
conducted by Company;
(ii) render advice or services to, or otherwise assist, any other
person, associations, or entity who is engaged, directly or
indirectly , in any business competitively with the water
business conducted by the Company; or
(iii) induce any employee of Company or Enron or their affiliates to
terminate his or her employment with Company, or their
affiliates, or hire or assist in the hiring of any such employee
by person, association, or entity not affiliated with Enron or
Company.
These non-competition obligations shall extend until November 9, 2004.
5.2 Remedy for Breach of Contract. The parties agree that in the event there is
any breach or asserted breach of the terms, covenants or conditions of this
Agreement, the remedy of the parties hereto shall be in law and in equity and
injunctive relief shall lie for the enforcement of or relief
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<PAGE> 3
from any provisions of this Agreement. If any remedy or relief is sought and
obtained by any party against one of the other parties pursuant to this Section
5.2, the other party shall, in addition to the remedy of relief so obtained, be
liable to the party seeking such remedy or relief for the expenses incurred by
such party in successfully obtaining such remedy or relief, including the fees
and expenses of such successful party's counsel.
5.3 It is expressly understood and agreed that Company and Mr. Robinson consider
the restrictions contained in this Article 5 to be reasonable and necessary to
protect the proprietary information of Company. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
6. Confidential Information.
6.1 Confidential Information.
A. Mr. Robinson acknowledges that Company's business is highly competitive
and that Company's methods, strategies, books, records and documents,
Company's technical information concerning its products, equipment,
services and processes, procurement procedures and pricing and marketing
techniques, including but not limited to the names of and other information
(such as credit and financial data) concerning Company's customers and
business affiliates, all comprise confidential business information and
trade secrets of Company which are valuable, special, and unique assets of
Company, which Company uses in its business to obtain a competitive
advantage over Company's competitors which do not know or use this
information. Mr. Robinson further acknowledges that protection of Company's
confidential business information and trade secrets against unauthorized
disclosure and use, is of critical importance to Company in maintaining its
competitive position. Accordingly, Mr. Robinson hereby agrees that
notwithstanding any other provision of this Agreement other than contained
in the following paragraph "B", he will not, at any time, make any
unauthorized disclosure of any of the information referred to in the first
sentence of this Section 6.1A ("Confidential Information") or make any
unauthorized use thereof which, in any manner, would have, or is likely to
have, an adverse effect upon the Company or any affiliate.
B. However, Mr. Robinson obligations under this Section 6 shall not extend
to:
1) Confidential Information which is or becomes part of the public domain
or is available to the public by publication or otherwise without
disclosure by Mr. Robinson; or
2) Confidential Information which was within Mr. Robinson's knowledge or
in his possession prior to his employment by the Company; or
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<PAGE> 4
3) Confidential Information which, either prior to or subsequent to the
Company's disclosure to Mr. Robinson with an obligation of
confidentiality, was disclosed to Mr. Robinson, without obligation of
confidentiality, by a third party who did not acquire such
information, directly or indirectly, from Mr. Robinson, or from any
third party who is under an obligation of confidentiality; or
4) any disclosure of Confidential Information by Mr. Robinson which is
required by law, including deposition or trial testimony by Mr.
Robinson pursuant to subpoena. If Mr. Robinson is requested or
required (by oral question, interrogatories, request for information
or documents, subpoena, civil investigative demand or similar process)
to disclose any Confidential Information, if reasonably possible under
the circumstances as determined in good faith by Mr. Robinson, Mr.
Robinson will promptly notify the Company of such request or
requirement so that the Company may seek an appropriate protective
order or waive compliance with provisions of this Agreement. In the
absence of a protective order or the receipt of a waiver hereunder, or
in the good faith determination of Mr. Robinson that time is of the
essence, Mr. Robinson may obtain legal counsel, and if Mr. Robinson
and/or his counsel in good faith believe that Mr. Robinson is
compelled to disclose the Confidential Information or be exposed to
liability for contempt or suffer other censure or penalty, Mr.
Robinson may disclose only such Confidential Information to the party
compelling disclosure as is required by law, as determined by Mr.
Robinson on advice of counsel. Mr. Robinson further agrees that he
will cooperate with the Company in its efforts to obtain a protective
order or other reliable assurance that confidential treatment will be
accorded the Confidential Information. All legal fees, costs and
expenses incurred by Mr. Robinson in obtaining legal representation
pursuant to his obligations under this Section 6.1B shall be paid by
the Company. The Company further agrees that it will indemnify Mr.
Robinson for any other costs and expenses incurred by Mr. Robinson in
connection with his obligations under this Section 6.1B, including but
not limited to legal damages and penalties assessed against Mr.
Robinson for compliance with his obligations hereunder.
6.2 Definition of Company. For purposes of this Agreement, "Company" shall
include Enron Corp. ("Enron"), Azurix Corp., and all of their subsidiaries and
affiliated companies.
6.3 Non-Disparagement. Mr. Robinson and Company agree that they will not
knowingly make any comments with the intent to impugn, castigate or otherwise
damage the reputation of the other, including Company's subsidiaries and
affiliated companies, and the executives and managers thereof, unless legally
compelled to do so in any legal or administrative proceeding.
7. Miscellaneous.
7.1 Notices. For purposes of this Agreement, notices and all other
communications shall be in writing and shall have been duly given when
personally delivered or when mailed by United States certified or registered
mail, addressed as follows:
4
<PAGE> 5
If to Company:
Azurix Corp.
333 Clay Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Mr. Robinson:
5629 Holly Springs
Houston, Texas 77056
or to any other address which either party may furnish to the other in writing.
Any such notice shall be effective when so delivered or three business days
after it is so mailed, except that notices of changes of address shall be
effective only upon receipt.
7.2 Applicable Law. THIS CONTRACT IS ENTERED INTO UNDER, AND SHALL BE GOVERNED
FOR ALL PURPOSES BY, THE LAWS OF THE STATE OF TEXAS.
7.3 No Waiver. No failure by either party hereto at any time to give notice of
any breach by the other party of, or to require compliance with, any condition
or provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
7.4 Remedy for Breach of Contract.
A. The parties agree that in the event there is any breach or asserted
breach of the terms, covenants or conditions of this Agreement, the
remedies of the parties hereto shall be in both law and in equity,
including injunctive relief for the enforcement of or relief from any
provisions of this Agreement.
B. In the event either party has a reasonable basis for claiming that the
other party has violated the provisions of Section 5 of this Agreement and
that such violation is material, the aggrieved party shall give the other
party written notice of the specific facts of such violation. If such
violation is material and has not been cured within ten (10) days after
such notice is given, the aggrieved party may seek any relief provided in
this Agreement.
C. Of Sections 5 or 6.1: In the event either party has a reasonable basis
for claiming that the other party has violated the provisions of Sections 5
or 6.1, and such violation is material, such party shall give written
notice of specific facts of such violation to the other party. If, after
ten (10) days of giving such notice, the alleged violation has occurred,
has not ceased, or reasonably may be expected to be repeated again, the
aggrieved party shall have the right to bring an action at law or in
equity. In any action brought for an alleged breach of Section 5 or 6.1,
the complaining party may seek whatever damages and redress it
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<PAGE> 6
deems appropriate, including but not limited to injunctive relief
pertaining to the alleged violation complained of.
D. Money damages would not be sufficient remedy for any breach of Section
6.1 by either party, and either party shall be entitled to seek specific
performance and injunctive relief as remedies for such breach or threatened
breach, subsequent to the ten (10) day period after the notice provided for
in Section 7.4C. Such remedies shall not be deemed the exclusive remedies
for a breach of Section 6.1 by either party, but shall be in addition to
all remedies available at law or in equity to the non-breaching party
including the recovery of damages from the breaching party, as provided for
in Section 7.4C.
7.5 Severability. It is a desire and intent of the parties that the terms,
provisions, covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any person or
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect. It is further the desire
and intent of the parties that in the event of any breach of any portion of this
Agreement, the remainder of this Agreement shall remain in effect as written and
enforceable to the fullest extent permitted by law.
7.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
7.7 Withholding of Taxes. Company may withhold from any benefits or
remuneration payable under this Agreement all federal, state, city, or other
taxes as may be required pursuant to this Agreement, any law, or governmental
regulation or ruling.
7.8 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
7.9 Assignability.
A. By the Company:
The Company's obligations under this Agreement are not
transferable or assignable by the Company and shall be considered a
liability of the Company in any sale or transfer of substantially all
of the business or assets of the Company by any means whether direct
or indirect, by purchase, merger, consolidation or otherwise.
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<PAGE> 7
B. By Mr. Robinson:
With respect to Mr. Robinson's rights and obligations, his rights
and obligations hereunder are personal and neither this Agreement, nor
any right, benefit or obligation of Mr. Robinson, shall be subject to
voluntary or involuntary assignment, alienation or transfer, whether
by operation of law or otherwise, without the prior written consent of
Company; provided, the Company agrees that it will not withhold its
consent to an assignment by Mr. Robinson to a financial institution of
his rights to receive payments under this Agreement. In the event of
Mr. Robinson's breach of any of the terms, covenants, or conditions of
this Agreement, any such assignment shall be subject to the provisions
of Section 7.4 of this Agreement. This Agreement and all payments
hereunder, including Consulting Payments, shall inure to the benefit
of and be enforceable by and against Mr. Robinson's personal or legal
representatives, executors, administrators, heirs, distributees,
devisees and legatees.
7.10 Release.
A. By execution of this Agreement, Mr. Robinson for himself, his legal and
other representatives, claimants, heirs and beneficiaries, forever waives
and releases Company and its affiliated companies from all rights,
benefits, payments and claims (including but not limited to statutory, tort
or contractual claims) of any kind and nature to which Mr. Robinson is now
or in the future may be entitled, and arising out of or in connection with
Mr. Robinson's employment with Company or any affiliated company, and Mr.
Robinson's termination of employment, including but not limited to claims
pursuant to the Age Discrimination In Employment Act ("ADEA"), except as
may be specifically provided for under this Agreement or contained in the
plan documents or grants of benefits to which Mr. Robinson is entitled
according to the provisions hereof. It is specifically agreed that this
Agreement and the consideration Mr. Robinson will receive hereunder,
constitute a complete settlement and release, and an absolute bar to any
and all claims Mr. Robinson has or may have against the Company, its
subsidiaries, divisions, any affiliated company, or its directors,
officers, and employees, whether or not the same be presently known or
suspected to be arising out of or in any manner connected with Mr.
Robinson' employment thereby or termination of employment with Company,
except as may be specifically provided for under this Agreement or
contained in the plan documents or grants of benefits to which Mr. Robinson
is entitled according to the provisions hereof. This Section of the
Agreement applies to rights or claims pursuant to the ADEA only in
existence on or before the date of payment of consideration and
remuneration provided for herein. MR. ROBINSON ACKNOWLEDGES AND AGREES, AND
REPRESENTS TO COMPANY THAT (I) HE UNDERSTANDS THE EFFECT OF THE PROVISIONS
OF THIS PARAGRAPH, (II) HE HAS HAD A REASONABLE TIME OF NOT LESS THAN 21
DAYS IN WHICH TO CONSIDER THE EFFECT OF THE PROVISIONS OF THIS PARAGRAPH,
AND (III) HE WAS ADVISED AND ENCOURAGED TO CONSULT AN ATTORNEY PRIOR TO
EXECUTING THIS AGREEMENT WITH RESPECT TO THE EFFECT OF THE PROVISIONS OF
THIS PARAGRAPH AND HIS EXECUTION OF THIS AGREEMENT. MR. ROBINSON MAY REVOKE
THIS AGREEMENT DURING THE SEVEN-DAY PERIOD FOLLOWING THE DATE OF EXECUTION,
WHEREUPON THIS AGREEMENT SHALL BE RESCINDED IN ITS ENTIRETY AND BECOME NULL
AND VOID.
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<PAGE> 8
B. Mr. Robinson's execution of the negotiable instrument tendered to him by
the Company in payment of the Consideration provided for in Section 2 of
this Agreement shall be considered ratification and a separate execution of
this Agreement by Mr. Robinson.
7.11 Entire Agreement: Modification. This Agreement constitutes the entire
agreement of the parties with regard to the termination of employment of Mr.
Robinson, supersedes any and all prior written agreements between the parties,
(with the exception of those plans, agreements and other documents identified or
referred to in Section 4), and this Agreement contains all of the covenants,
promises, representations and agreements between the parties with respect to the
termination of employment of Mr. Robinson with Company. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, which is not embodied herein, or
referred to hereby and that no agreement, statement or promise relating to the
employment or termination of employment of Mr. Robinson with Company, which is
not contained or provided for, identified or referred to in this Agreement,
shall be valid or binding. Any modification of this Agreement will be effective
only if it is in writing and signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
AZURIX CORP.
By: /s/ Philip J. Bazelides
Name: Philip J. Bazelides
Title: Managing Director Human Resources
And Administration
EDWARD N. ROBINSON
/s/ Edward N. Robinson
8
<PAGE> 1
EXHIBIT 10.23
COST SHARING AGREEMENT
ENRON CORP. TRADEMARKS
THIS COST SHARING AGREEMENT ("Agreement") is made and entered into
between Enron Corp. ("Enron"), an Oregon corporation having its principal place
of business in Houston, Texas and the entities (collectively, the "Subsidiaries"
and individually, a "Subsidiary")) listed on the signature page of this
Agreement (together, Enron and the Subsidiaries shall be referred to hereinafter
as the "Participants"), to be effective the first day of January, 1999.
WHEREAS, Enron and the Subsidiaries constitute an integrated natural
gas and electricity company that produces electricity and natural gas, develops,
constructs and operates energy and water facilities worldwide and delivers
physical commodities and risk management and financial services to customers
around the world; and
WHEREAS, Enron and the Subsidiaries conduct their operations under
corporate names that include the name ENRON, and utilize logos and other
trademarks and service marks which either include or are associated with the
name and mark ENRON that are listed on Schedule A to this Agreement (All of the
names and marks which either include or are associated with the name and mark
ENRON are cumulatively referred to herein as the "Trademarks"); and
WHEREAS, Enron is the legal owner of the Trademarks; and
WHEREAS, Enron has granted to each of the Subsidiaries a non-exclusive,
non- transferable license to use some or all of the Trademarks in such
Subsidiary's respective area of interest and Territory (each such agreement
being referred to herein as the "Licenses" and the term "Territory" herein
having the same meaning as in each License); and
WHEREAS, pursuant to the terms of the Licenses, each
Subsidiary-Licensee agrees to undertake certain obligations with respect to use
of the Trademarks licensed to it, including assumption of certain financial
obligations, in consideration for the grant of the license to use the
Trademarks; and
WHEREAS, the Participants wish to enter into an agreement to share
certain costs and risks of developing, enhancing, maintaining and defending the
licensed Trademarks in their areas of interest and Territories, all as set forth
more specifically below (hereinafter, the "Cost Sharing Arrangement"); an
WHEREAS, the Participants intend for this Agreement to constitute a
"qualified cost sharing arrangement" within the meaning of U.S. Treas.
Reg. Section 1.482-7 as well as under applicable OECD guidelines.
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Enron Trademark Cost Sharing Agreement
<PAGE> 2
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, the receipt and sufficiency of such consideration
being hereby acknowledged, Enron and the Subsidiaries do hereby agree as
follows:
1. AGREEMENT TO SHARE COSTS
1.1 Subject to the terms and conditions set forth herein, and to the
extent that the Participants may lawfully do so, the Participants hereby agree
to share the General Benefit Trademark Costs, ad defined in section 1.3, in the
Cost Shares determined in accordance with section 1.4 below, [AND TO MAKE THE
BUY-IN AND BUY-OUT PAYMENTS DESCRIBED IN ARTICLE 2.]
1.2 Trademark Costs
(a) For purposes of this Agreement, the term Trademark Costs means
costs incurred to develop, maintain, enhance, promote, or
defend the licensed Trademarks. For purposes of illustration
but not limitation, Trademark Costs may include the cost of
developing advertising content, publishing, broadcasting or
displaying advertising, agency fees, cost of developing or
producing print materials, brochures, promotional materials,
signs and logos, costs of registration, prosecution or defense
of claims of infringement or ownership.
(b) Trademark Costs shall include, but are not limited to, the
following items:
(i) Operating Expenses. All expenses directly related to
the Trademarks not included in cost of goods sold
except for interest expense, foreign income taxes (as
defined in U.S. Treas. Reg. Section 1.901-2(a),
domestic income taxes, depreciation or amortization
expense; plus
(ii) Leased Property. A reasonable charge for the use of
any tangible property made available to the Cost
Sharing Arrangement. If any such property is
furnished by an entity under common ownership or
control with a Participant within the meaning of
IRC Section 482, then the charge for the use of such
tangible property shall be an arm's- length amount as
determined under U.S. Treas. Reg. Section 1.482-2(c).
(c) Trademark Costs shall be considered "intangible development
costs" within the meaning of U.S. Treas. Reg. Section
1.482-7(d)(l).
1.3 Specific Benefit versus General Benefit Trademark costs.
(a) Specific Benefit Trademark Expenses. Trademark Costs that
primarily benefit particular Participants and that produce
only incidental or ancillary benefit to other Participants
constitutes Specific Benefit Trademark Costs.
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Enron Trademark Cost Sharing Agreement
<PAGE> 3
The Participants that are likely to receive the primary
benefit of Specific Benefit Trademark Costs shall bear the
full amount of such costs.
(b) General Benefit Trademark Expense. All Trademark Costs other
than Specified Benefit Trademark Costs constitute General
Benefit Trademark Costs. Such costs shall be shared by the
Participants as provided in section l.4 of this Agreement.
1.4 Determination of Cost Shares.
(a) In general. The Share of the General Benefit Trademark
Costs to be paid by each Subsidiary for any taxable year (a
"Subsidiary Share") shall equal the total General Benefit
Trademark Costs multiplied by a fraction, the numerator of
which shall be projected Subsidiary Earnings Before Interest
and Tax ("EBIT"), computed in accordance with generally
accepted accounting principles ("GAAP"), as set forth in the
annual operating budget and the denominator of which shall be
projected total Worldwide EBIT of Enron and affiliates,
computed in accordance with GAAP, as set forth in such budget.
For purposes of this Agreement, the term Subsidiary EBIT shall
mean, in the case of each Subsidiary that is a Participant,
the total EBIT of such Subsidiary in its Territory for the
taxable year. Negative EBIT of any Participant shall be
treated as zero EBIT, except that if Enron's total Worldwide
EBIT is zero, the fractions described in this paragraph shall
be computed by substituting the word "Revenue" for the word
"EBIT". The Share of the General Benefit Trademark Costs to be
paid by Enron and any of its affiliates (other than the
Subsidiaries) for any taxable year (the "Enron Share") shall
equal total General Benefit Trademark Costs minus the total of
all Subsidiary Shares.
(b) Periodic Adjustment. Notwithstanding anything to the
contrary provided in section 1.4(a) hereof, the Participants
shall evaluate the Cost Shares, no less frequently than
annually, to determine whether the General Benefit Trademark
Costs are shared in a manner that is proportionate to the
benefits reasonably anticipated to be derived by each
participant from the Agreement, taking into account changes in
economic conditions, the business operations and practices of
the Participants, the terms of each License, and the ongoing
development of the licensed Trademarks. If the Participants
determine that the General Benefit Trademark Costs are shared
in a manner that is not likely to reflect the relative
benefits reasonably expected to be received by each, then the
Participants shall make adjustments to the Cost Shares, on a
prospective basis, or terminate the Agreement in accordance
with Article 4 hereof, as appropriate.
(c) Further Cost Sharing by Participant. Nothing in this
Agreement shall prevent any Participant from charging any
affiliate a share of such
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Enron Trademark Cost Sharing Agreement
<PAGE> 4
Participant's Cost Share based on the benefits such affiliate
may reasonably expect to derive from use of the licensed
Trademarks.
(d) Time and Method of Payment. Enron shall charge each
Subsidiary annually for its annual Cost Share determined in
accordance with this section 1.4. The Subsidiaries shall pay
such invoiced amount to Enron by any reasonable means
including, without limitation, wire transfer, offset of
intercompany account, or by furnishing evidence of a
Subsidiary's having directly paid for authorized General
Benefit Trademark Costs. All invoices from and payments to
Enron under this Agreement shall be in U.S. dollars unless
otherwise agreed. Except at otherwise agreed by the
Participants, all payments made pursuant to this Agreement
shall be net of any federal, state or local tax, levy, duty,
impost, withholding or similar assessment of any kind. Amounts
not paid within 90 days shall bear interest at [LIBOR OR] the
Applicable Federal rate as defined in IRC Section 1274(d),
whichever is greater.
(e) Accounting. Enron shall maintain adequate books and
records to establish, with reasonable completeness and detail,
the nature and amount of each General Benefit Trademark Cost.
Enron shall afford the Subsidiaries reasonable access to
inspect, verify, copy and audit such records for any
legitimate purpose. Nothing in this subparagraph shall be
construed to create rights in any third party. Any
disagreement shall be resolved by [members of senior
management for the affected Participants].
2. BUY-IN AND BUY-OUT
2.1 Buy-In.
(a) In General. If any Participant ("Buy-in Transferor") makes
available to any other Participant ("Buy-in Transferee") the
ownership or use of any trademark created or acquired outside
the scope of this Agreement in which it has an interest
("Non-Cost Shared Mark"), then the Transferee shall pay to the
Transferor a Buy-In Payment. The Buy-In Payment, if any, shall
be equal to the arm's-length price for the applicable rights
in the applicable Territory in the Non-Cost Shared Mark
determined under the rules of U.S. Texas Reg. Section 1.482-1
and Section 1.482-4 through Section 1.482.6.
(b) Payment Mechanics. The Buy-In Payment shall be made on the
same terms as are set forth in the applicable License.
2.2 Buy-Out.
(a) In General. If a Participant "("Buy-Out Transferor")
transfers, abandons or relinquishes an interest in any
licensed Trademark in favor of any other Participant ("Buy-Out
Transferee"), then each Buy-Out Transferee shall
-Page 4-
Enron Trademark Cost Sharing Agreement
<PAGE> 5
make a Buy-Out Payment to the Transferor. The Buy-Out Payment,
if any, shall be equal to the arm's-length price for the
transferred rights in the Trademark determined under the rules
of Treas. Reg. Section 1.482-1 and Section 1.482-4 through
Section 1.482.6.
(b) Payment Mechanics. The Buy-Out Payment shall be made on such
terms as the Buy-Out Transferor and the Buy-Out Transferee
agree including cross licenses, lump sum, installment or
royalty payments.
3. USE OF TRADEMARKS
3.1 Each Subsidiary's rights with respect to the Trademarks shall be
governed by the License to which Enron and such Subsidiary are parties. Nothing
in this Agreement shall be deemed to affect such rights.
4. TERM AND TERMINATION
4.1 This Agreement shall become effective on the effective date hereof
and shall remain in full force and effect for one (1) year thereafter, unless
earlier terminated in accordance with Section 4.2 hereof; provided, however,
this Agreement shall be renewed for additional terms of one (1) year each unless
the Participants mutually agree in writing at least thirty (30) days prior to
the expiration of the initial or any renewal term hereof, to allow the term of
this Agreement to expire on the date of the expiration of the then current term.
Any renewal term of this Agreement shall also be subject to early termination
from any Event of Default as set forth in Section 4.2 hereof.
4.2 Events of Default. Notwithstanding any other right of termination
to which a Participant may be entitled pursuant to this Agreement or an
applicable License, upon the occurrence of one or more of the following Events
of Default, the Participant hereto not in default shall have the right to
terminate this Agreement as it applies to such defaulting Participant, in
writing, effective immediately upon the occurrence of the event indicated or the
running of any prescribed period:
(a) If a Subsidiary fails to pay any amount payable to Enron
hereunder when due and such default continues for more than
fifteen (15) days after dispatch of notice thereof to such
Subsidiary;
(b) If a Participant materially breaches any of the terms of this
Agreement or the License and does not cure such breach to the
satisfaction of the other party hereto within fifteen (15)
days after notice of the same;
(c) If a Participant makes application for relief as a debtor
under any bankruptcy or similar act, is involuntarily placed
in bankruptcy and does not within one hundred and twenty (120)
days thereafter have the bankruptcy proceeding dismissed, it
is adjudicated bankrupt or insolvent, or enters into a
composition with its creditors;
-Page 5-
Enron Trademark Cost Sharing Agreement
<PAGE> 6
(d) If a Participant pledges or encumbers any of its rights or
interests granted under this Agreement to any creditor or
other third party without the consent of Enron or assigns any
of its rights under this Agreement except as specifically
authorized hereunder; or
(e) If a Participant during the term of this Agreement (i)
dissolves, voluntarily liquidates or winds up its business,
(ii) merges or consolidates with or into any corporation or
corporations other than Enron or Enron's wholly-owned
subsidiaries or affiliates, (iii) otherwise directly or
indirectly sells or disposes of all or substantially all of
its business or assets, or (iv) effects and reorganization or
debt restructuring without the permission of Enron.
4.3. Upon the expiration of this Agreement, all rights and
privileges granted to Participants under this Agreement shall immediately
terminate. Upon termination of this Agreement as it applies to a particular
Participant (other than on expiration), all rights and privileges granted
to such Participant under this Agreement shall immediately terminate.
Termination or expiration of this Agreement shall not release any
Participant from any continuing or accrued obligations imposed by this
Agreement, e.g., continuing obligations relating to the treatment of
confidential or proprietary information.
5. MISCELLANEOUS
5.1 The validity, construction and performance of this Agreement shall
be governed by and construed in accordance with the laws of the State of Texas
and the United States in all respects.
5.2 The waiver, express or implied, by any Participant of any right
arising hereunder or of any failure to perform or breach hereof by another
Participant hereto shall not constitute or be deemed a waiver of any other right
hereunder or of any other failure to perform or breach hereof by such other
Participant, whether of a similar or dissimilar nature thereto.
5.3 This Agreement may be amended at any time by mutual agreement of
the Participants.
5.4 A Participant shall not be liable to another Participant for any
loss, injury, delay, damages, or other casualty suffered or incurred by the
latter due to strikes, riots, storms, fires, explosions, acts of God, war,
action of any government or any other cause similar thereto which is beyond the
reasonable control of the former, and any failure or delay by either party
hereto in performance of any of its obligations under this Agreement due to one
or more of the foregoing causes shall not be considered a breach of this
Agreement.
5.5 Except as otherwise provided in this Agreement all notices required
or permitted to be given hereunder shall be in writing and shall be valid and
sufficient if
-Page 6-
Enron Trademark Cost Sharing Agreement
<PAGE> 7
dispatched by registered mail or airmail (where appropriate),
postage prepaid, in any post office in the United States of America or in such
Subsidiary's respective Territory, as the case may be, or by facsimile (if
confirmed by registered mail or airmail (where appropriate), postage prepaid),
as follows:
If to Licensor: Enron Corp
1400 Smith Street
Houston, TX 77002
Facsimile: (713) 646-2532
If to a Subsidiary: See Signature Page
Any Participant may change its address by a written notice to the other
Participants in the manner set forth above. Notices given as herein provided
shall be considered to have been given ten (10) days after the mailing thereof
or if by facsimile, on the next business day of the receiver form the date sent.
5.6 This Agreement embodies the entire agreement of the Participants
with respect to the subject matter hereof and supersedes and cancels any and all
prior understandings or agreements, verbal or otherwise, in relation hereto,
which may exist between the Participants. No oral explanation or oral
information by either of the Participants hereto shall alter the meaning or
interpretation of this Agreement. No amendment or change hereof or addition
hereto shall be effective or binding on either of the Participants hereto unless
reduced to writing and executed by the respective duly authorized
representatives of each of the Participants hereto.
5.7 This Agreement may be executed in one or more counterparts, each of
which shall be considered an original, but all of which together shall
constitute one the same instrument.
IN WITNESS WHEREOF, the Participants hereto have executed this
agreement by and through their respective duly authorized representatives to be
effective as of the 1st day of January, 1999.
ENRON CORP. AND CONSOLIDATED U.S. SUBSIDIARIES
By: /s/ RICHARD A. CAUSEY
---------------------------------------------------------
Richard A. Causey
Senior Vice President, Chief Accounting, Information
and Administrative Officer
Executed this 8th day of June, 1999
-Page 7-
Enron Trademark Cost Sharing Agreement
<PAGE> 8
SUBSIDIARIES PARTICIPATING IN COST SHARING AGREEMENT
AZURIX CORP.
By: /s/ EDWARD N. ROBINSON
------------------------------------
Name: Edward N. Robinson
Title: Executive Director
Executed this 9th day of June, 1999
-Page 8-
Enron Trademark Cost Sharing Agreement
<PAGE> 9
SCHEDULE A
TRADEMARKS AND TRADEMARK APPLICATIONS
EXHIBIT A TO TRADEMARK COST SHARING AGREEMENT
BETWEEN ENRON AND SUBSIDIARIES
<PAGE> 1
EXHIBIT 10.24
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 except as to services relating to office
space which shall be substantially identical in nature and quality to the
Services provided by Enron to its wholly-owned subsidiaries.
"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 (directly or through its other subsidiaries) pursuant to agreements
entered into 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 the event any of the Services being performed hereunder are no longer
available, Enron, any Enron
<PAGE> 2
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"); (iv) an allocation of services related to
office space similar to that charged by Enron to its wholly-owned subsidiaries
("Space-Related Charges") and (v) 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, Space-Related Charges, Allocated Charges or any other charge
for Services provided by Enron, any Enron affiliate or third party,
2
<PAGE> 3
for the Referenced Subsidiaries 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,
Space-Related 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.
8. Sole Beneficiaries. Azurix acknowledges that the Services shall be
provided only with
3
<PAGE> 4
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. Waiver by Enron of any of the provisions of this Agreement shall not be
construed as a waiver of such provision generally or of the right of Enron
thereafter to enforce each and every such provision.
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 BENEFITS
4
<PAGE> 5
(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, without regard to any conflict-of-law rule or principle that
might refer the construction or interpretation of
5
<PAGE> 6
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/ EDWARD N. ROBINSON
------------------------------------------
Name: Edward N. Robinson
Title: Executive Director
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 Azurix'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
Azurix's Usage of Services or occasioned by
0752 Legal Azurix
*sublease or lease covered by separate agreement;
space-related charges as per Sections 1, 4, and 5.
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/
1130/1131/1281/1958 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 Philipppines 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 10.25
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: /s/ JEFFREY MCMAHON
--------------------------
Name: Jeffrey McMahon
Title: Senior Vice President
Finance and Treasurer
AZURIX CORP.
By: /s/ EDWARD N. ROBINSON
--------------------------
Name: Edward N. Robinson
Title: Executive Director
<PAGE> 1
EXHIBIT 10.26
EXECUTION COPY
BUSINESS OPPORTUNITY AGREEMENT
THIS BUSINESS OPPORTUNITY AGREEMENT (this "AGREEMENT"), dated as of
June 9, 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;
<PAGE> 2
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 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
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<PAGE> 3
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 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
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<PAGE> 4
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, Subsidiary or
Affiliate 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
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 Affiliates 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
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<PAGE> 5
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.
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.
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<PAGE> 6
(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.
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.
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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 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
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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.
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 Affiliates
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
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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.
(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
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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
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.
10
<PAGE> 11
(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 Affiliates to, take any action that will require
any other party to this Agreement or any Affiliate of such party 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.
(m) Violation of Law. Neither Azurix nor its controlled
Affiliates 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 Affiliates 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.
11
<PAGE> 12
EXECUTED as of the date first set forth above.
ATLANTIC WATER TRUST
By: /s/
Name:
----------------------
Title:
---------------------
AZURIX CORP.
By: /s/ EDWARD N. ROBINSON
Name: Edward N. Robinson
----------------------
Title: Executive Director
---------------------
ENRON CORP.
By: /s/ CLIFFORD BAXTER
Name: Clifford Baxter
----------------------
Title: Senior Vice President
---------------------
12
<PAGE> 13
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
<PAGE> 1
EXHIBIT 21
AZURIX CORP. SUBSIDIARIES
Azurix Ltd.
Azurix Europe Ltd.
Wessex Water Ltd
Wessex Water Services Ltd.
Wessex Water Services Finance Plc
Azurix Argentina Holding, Inc.
Azurix Agosba S.R.L.
Azurix Buenos Aires S.A.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated March 17, 2000 included in this Form 10-K, into Azurix
Corp.'s previously filed Registration Statement File No. 333-92709 on Form S-8
(Azurix Corp. 1999 Stock Plan).
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 2000
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in Azurix Corp.'s Form 10-K of its Annual
Report for the year ended December 31, 1999 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, and for the year ended, March 31, 1998.
PricewaterhouseCoopers
Chartered Accountants
Bristol, England
29 March 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Azurix Corp., a Delaware corporation (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 with the Securities and Exchange
Commission, the undersigned officer or director of the Company hereby
constitutes and appoints Rebecca Mark-Jusbasche, John C. Ale and Norma A.
Tidrow, and each of them (with full power to each of them to act alone), his
true and lawful attorney-in-fact and agent, for him and on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and file such
Annual Report on Form 10-K, together with all amendments thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all
that the said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of March, 2000.
/s/ HERBERT S. WINOKUR, JR.
------------------------------------
Herbert S. Winokur, Jr.
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Azurix Corp., a Delaware corporation (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 with the Securities and Exchange
Commission, the undersigned officer or director of the Company hereby
constitutes and appoints Rebecca Mark-Jusbasche, John C. Ale and Norma A.
Tidrow, and each of them (with full power to each of them to act alone), his
true and lawful attorney-in-fact and agent, for him and on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and file such
Annual Report on Form 10-K, together with all amendments thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all
that the said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of March, 2000.
/s/ JOHN L. WAKEHAM
------------------------------------
John L. Wakeham
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Azurix Corp., a Delaware corporation (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 with the Securities and Exchange
Commission, the undersigned officer or director of the Company hereby
constitutes and appoints Rebecca Mark-Jusbasche, John C. Ale and Norma A.
Tidrow, and each of them (with full power to each of them to act alone), his
true and lawful attorney-in-fact and agent, for him and on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and file such
Annual Report on Form 10-K, together with all amendments thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all
that the said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of March, 2000.
/s/ JOSEPH W. SUTTON
------------------------------------
Joseph W. Sutton
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Azurix Corp., a Delaware corporation (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 with the Securities and Exchange
Commission, the undersigned officer or director of the Company hereby
constitutes and appoints Rebecca Mark-Jusbasche, John C. Ale and Norma A.
Tidrow, and each of them (with full power to each of them to act alone), his
true and lawful attorney-in-fact and agent, for him and on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and file such
Annual Report on Form 10-K, together with all amendments thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all
that the said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of March, 2000.
/s/ JEFFREY K. SKILLING
------------------------------------
Jeffrey K. Skilling
<PAGE> 5
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Azurix Corp., a Delaware corporation (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 with the Securities and Exchange
Commission, the undersigned officer or director of the Company hereby
constitutes and appoints Rebecca Mark-Jusbasche, John C. Ale and Norma A.
Tidrow, and each of them (with full power to each of them to act alone), his
true and lawful attorney-in-fact and agent, for him and on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and file such
Annual Report on Form 10-K, together with all amendments thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all
that the said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of March, 2000.
/s/ KENNETH L. LAY
------------------------------------
Kenneth L. Lay
<PAGE> 6
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Azurix Corp., a Delaware corporation (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 with the Securities and Exchange
Commission, the undersigned officer or director of the Company hereby
constitutes and appoints Rebecca Mark-Jusbasche, John C. Ale and Norma A.
Tidrow, and each of them (with full power to each of them to act alone), his
true and lawful attorney-in-fact and agent, for him and on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and file such
Annual Report on Form 10-K, together with all amendments thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all
that the said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of March, 2000.
/s/ JOHN H. DUNCAN
------------------------------------
John H. Duncan
<PAGE> 7
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that in connection with the filing by
Azurix Corp., a Delaware corporation (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 with the Securities and Exchange
Commission, the undersigned officer or director of the Company hereby
constitutes and appoints Rebecca Mark-Jusbasche, John C. Ale and Norma A.
Tidrow, and each of them (with full power to each of them to act alone), his
true and lawful attorney-in-fact and agent, for him and on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and file such
Annual Report on Form 10-K, together with all amendments thereto, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, granting unto said attorneys, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, hereby ratifying and confirming all
that the said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 24th
day of March, 2000.
/s/ HERBERT S. WINOKUR, JR.
------------------------------------
Herbert S. Winokur, Jr.
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 4,850
<SALES> 618
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