<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
AZURIX CORP.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
common stock, $.01 par value per share
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(2) Aggregate number of securities to which transaction applies:
38,806,407 shares
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): The
filing fee of $65,957 was calculated pursuant to Exchange Act Rule
0-11(c)(1) by multiplying 1/50th of 1% by the proposed cash payment
for (1) 38,806,407 shares of common stock, par value $.01 per
share, of Azurix Corp., to be purchased by Enron from Azurix's
public shareholders at $8.375 per share plus (2) $4,777,530
anticipated to be paid to persons holding options to acquire shares
of common stock in consideration of cancellation of such options
(assuming an aggregate of 3,977,747 options are canceled in
exchange for cash in the transaction).
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(4) Proposed maximum aggregate value of transaction:
$329,781,190
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(5) Total fee paid:
$65,957
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
-------------------------------------------------------------------
(4) Date Filed:
<PAGE> 2
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 2000
AZURIX CORP.
333 CLAY STREET
SUITE 1000
HOUSTON, TEXAS 77002
(713) 646-6001
------------------------
To our Shareholders:
You are cordially invited to attend a special shareholders meeting of
Azurix Corp. to be held at 10:00 a.m., local time, on [ ], [ ], 2001, at
[ ] located at [ ].
At the special shareholders meeting, you will be asked to consider and vote
upon the approval and adoption of an Agreement and Plan of Merger, dated
December 15, 2000, providing for the merger of a wholly-owned subsidiary of
Enron Corp. into Azurix. In the merger:
- Each issued and outstanding share of Azurix common stock, other than
those shares held by Atlantic Water Trust, Enron, the merger subsidiary,
Azurix and any of their wholly-owned subsidiaries, will be canceled and
converted automatically into the right to receive $8.375 per share
(rounding up the aggregate cash to be paid to each such shareholder, to
the extent necessary, to the next $.01).
- The aggregate shares of Azurix common stock held by Atlantic Water Trust
will be canceled and converted automatically into two shares of common
stock of the surviving corporation in the merger.
- The shares of stock of the merger subsidiary, all of which are indirectly
held by Enron, will be canceled and converted automatically into one
share of common stock of the surviving corporation in the merger.
- Treasury shares and shares of Azurix common stock owned by Enron, the
merger subsidiary, any Azurix subsidiary or any of their subsidiaries
will be canceled.
- Shares of Azurix common stock held by shareholders who have perfected
their appraisal rights will be subject to appraisal in accordance with
Delaware law.
Atlantic Water Trust, of which Enron holds a 50% voting interest, currently owns
approximately 67% of Azurix's outstanding common stock. Upon completion of the
merger, Atlantic Water Trust will own two-thirds, and Enron through a
wholly-owned subsidiary will own one-third, of the surviving corporation's
stock. The accompanying proxy statement explains the proposed merger and
provides specific information concerning the special shareholders meeting.
The cash merger consideration and the merger agreement are the result of an
offer made by Enron in October 2000 and subsequent negotiations between Enron
and a special committee formed by Azurix's Board, consisting of three of its
directors, who are all the directors who are not officers or employees of Enron.
All members of Azurix's Board of Directors, including all of the members of the
Special Committee, are members of Enron's Board of Directors. The Special
Committee members are not officers or employees of Azurix. The Special Committee
was advised by financial advisors and lawyers selected by the Special Committee.
The Special Committee, together with its advisors, performed due diligence and
negotiated with Enron regarding its offer. The members of the Special Committee
did not participate in any meeting of Enron's board of directors held to
consider the merger proposal. The Special Committee has unanimously determined
that the merger is fair to, and in the best interests of, Azurix's public
shareholders and recommended that the Azurix Board consider approval of the
merger agreement and the merger. In this proxy statement, the term public
shareholders refers to the Azurix shareholders other than Atlantic Water Trust,
Enron, the merger subsidiary or any of their wholly-owned subsidiaries.
<PAGE> 3
The Board of Directors also unanimously determined that the merger is fair
to, and in the best interests of, Azurix's public shareholders. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE MERGER.
In reaching its decision, the Special Committee considered, among other
things, written opinions, dated as of December 15, 2000, from each of
Wasserstein Perella & Co., Inc. and Salomon Smith Barney Inc., the Special
Committee's financial advisors. These written opinions each stated that, as of
December 15, 2000, based on and subject to the limitations, assumptions and
qualifications stated in the opinion, the merger consideration to be received by
the public shareholders of Azurix is fair from a financial point of view.
The merger agreement may be terminated by Azurix's Board of Directors or
the Special Committee without any termination fee if they receive a proposal to
acquire Azurix or all or substantially all of its assets that in the judgment of
the Board or Special Committee is superior to the merger.
Under the terms of the merger agreement, Azurix can complete the merger
only if holders of a majority of the outstanding shares of Azurix's common stock
vote to approve and adopt the merger agreement and the merger, and a majority of
the votes cast by Azurix's public shareholders either for or against the merger
are cast in favor of approval and adoption of the merger agreement and the
merger. Atlantic Water Trust controls approximately 67% of the voting power of
all outstanding shares of Azurix common stock and has already agreed to vote its
shares to approve and adopt the merger agreement and the merger, and therefore
completion of the merger will depend on the vote of Azurix's public
shareholders. It is very important that your shares be represented at the
special shareholders meeting. Whether or not you plan to attend the special
shareholders meeting, we request that you complete, date, sign and return the
enclosed proxy card promptly in the enclosed pre-addressed, postage-paid
envelope.
Sincerely,
[SIGNATURE TO COME]
Herbert S. Winokur, Jr.
Chairman of the Board of Directors
and
Chairman of the Special Committee
Houston, Texas
[ ], 2001
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS PROXY STATEMENT IS DATED [ ], 2001
AND IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT [ ], 2001.
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AZURIX CORP.
333 CLAY STREET
SUITE 1000
HOUSTON, TEXAS 77002
(713) 646-6001
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ], 2001
------------------------
To our Shareholders:
Notice is hereby given that a special shareholders meeting of Azurix Corp.
will be held at 10:00 a.m., local time, on [ ], [ ], 2001, at [ ]
located at [ ], for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of December 15, 2000, by and among
Azurix, Enron Corp. and Enron BW Corp., an indirect wholly-owned subsidiary
of Enron, and the merger. Under the terms of the merger agreement, Enron BW
Corp., a newly-formed Delaware corporation, will be merged into Azurix. In
the merger:
- Each issued and outstanding share of Azurix common stock, other than
those shares held by Atlantic Water Trust, Enron, Enron BW Corp.,
Azurix and their wholly-owned subsidiaries, will be canceled and
converted automatically into the right to receive $8.375 per share
(rounding up the aggregate cash to be paid to each such shareholder,
to the extent necessary, to the next $.01).
- The aggregate shares of stock held by Atlantic Water Trust will be
canceled in the merger and converted automatically into two shares of
common stock of the surviving corporation.
- The shares of stock of Enron BW Corp., all of which are indirectly
held by Enron, will be canceled and converted automatically into one
share of common stock of the surviving corporation.
- Treasury shares and shares of Azurix common stock owned by Enron,
Enron BW Corp., any Azurix subsidiary or any of their subsidiaries
will be canceled.
- Shares held by shareholders who perfect their appraisal rights will
be subject to appraisal in accordance with Delaware law.
2. To transact any other business that may properly come before the
special shareholders meeting or any adjournment(s) or postponement(s) of
the special shareholders meeting.
Only those persons who were holders of record of our common stock at the
close of business on [ ], 2001 will be entitled to notice of, and to vote
at, the special shareholders meeting and any adjournment(s) or postponement(s)
of the special shareholders meeting. A list of these shareholders will be
available for review at Azurix's principal executive office during normal
business hours for a period of ten days before the special shareholders meeting.
EACH OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF AZURIX HAS
UNANIMOUSLY DETERMINED THAT THE TERMS OF THE MERGER ARE ADVISABLE, AND ARE FAIR
TO, AND IN THE BEST INTERESTS OF, AZURIX'S PUBLIC SHAREHOLDERS. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE MERGER.
Shareholders of Azurix who do not vote in favor of approval and adoption of
the merger agreement and the merger will have the right to seek appraisal of the
fair value of their shares if the merger is completed, but
<PAGE> 5
only if they submit a written demand for an appraisal before we take the vote on
the merger agreement and otherwise comply with Delaware law.
YOUR VOTE IS IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
SHAREHOLDERS MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES OF COMMON
STOCK THAT YOU OWN, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED, POSTAGE-PAID ENVELOPE.
The merger is described in the accompanying proxy statement, which you are
urged to read carefully. In addition, you may obtain information about Azurix
from documents that Azurix has filed with the Securities and Exchange
Commission, including the Schedule 13E-3 transaction statement filed in
connection with the merger. A copy of the merger agreement is attached as
Appendix A to the accompanying proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS,
Norma A. Tidrow
Secretary
Houston, Texas
, 2001
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET.......................................... 1
SUMMARY..................................................... 2
Questions and Answers About the Merger.................... 2
Opinions of Financial Advisors to the Special Committee... 4
Interests of Azurix Directors and Officers in the
Merger................................................. 5
Appraisal Rights.......................................... 5
The Merger Agreement...................................... 5
THE COMPANIES............................................... 7
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 8
SELECTED CONSOLIDATED FINANCIAL DATA........................ 10
THE SPECIAL SHAREHOLDERS MEETING............................ 12
Date; Time; Place and Record Date of the Special
Shareholders Meeting................................... 12
Purpose................................................... 12
Voting Information........................................ 12
Solicitation; Revocation and Use of Proxies............... 13
SPECIAL FACTORS............................................. 14
Background of the Merger.................................. 14
Determination of the Special Committee and Recommendation
of the Azurix Board of Directors; Fairness of the
Merger................................................. 21
Enron's, the Merger Subsidiary's and Atlantic Water
Trust's View of the Fairness of the Merger............. 24
Certain Forward-Looking Information....................... 25
Opinions of Financial Advisors to the Special Committee... 26
Purpose and Structure of the Merger....................... 38
Effects of the Merger; Plans for Azurix Following the
Merger................................................. 38
Financing of the Merger................................... 39
Risk that the Merger will not be Completed................ 39
Interests of Azurix Directors and Officers in the
Merger................................................. 40
Litigation Involving the Merger........................... 41
Accounting Treatment of the Merger........................ 41
Regulatory Matters........................................ 41
Material Federal Income Tax Consequences to
Shareholders........................................... 42
Dissenters' Rights of Appraisal........................... 43
Indenture................................................. 45
Certain Relationships and Related Transactions............ 46
THE MERGER AGREEMENT........................................ 47
The Merger................................................ 47
Effective Time of the Merger.............................. 47
Structure; Merger Consideration........................... 47
Treatment of Options...................................... 48
Payment for Shares........................................ 48
Transfer of Shares........................................ 48
Officers, Directors and Governing Documents............... 48
Representations and Warranties............................ 49
Conduct of Business Pending the Merger.................... 50
</TABLE>
i
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<TABLE>
<S> <C>
Shareholders Meeting; Recommendation of Board of
Directors.............................................. 51
Access to Information..................................... 51
Regulatory and Other Consents and Approvals............... 52
Conditions to the Merger.................................. 52
Indemnification and Insurance............................. 53
Indenture Issues.......................................... 53
Employee Benefits......................................... 54
Termination of the Merger Agreement....................... 54
Amendment and Waiver...................................... 55
No Termination Fee........................................ 55
SUPPORT AGREEMENT........................................... 56
Agreement to Vote for the Merger.......................... 56
No Inconsistent Agreements................................ 56
Termination............................................... 56
Representations and Warranties............................ 56
FEES AND EXPENSES........................................... 56
PRICE RANGE OF COMMON STOCK................................. 57
DIVIDENDS................................................... 57
COMMON STOCK PURCHASE INFORMATION........................... 58
DIRECTORS AND EXECUTIVE OFFICERS OF AZURIX.................. 58
STOCK OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT.... 60
DIRECTORS AND EXECUTIVE OFFICERS OF ENRON................... 61
DIRECTORS AND EXECUTIVE OFFICERS OF ATLANTIC WATER TRUST AND
ENRON BW CORP. ........................................... 65
OTHER MATTERS............................................... 65
FUTURE SHAREHOLDER PROPOSALS................................ 65
WHERE YOU CAN FIND MORE INFORMATION......................... 66
MISCELLANEOUS............................................... 66
</TABLE>
<TABLE>
<S> <C>
Appendix A Agreement and Plan of Merger, dated as of December 15, 2000,
by and among Azurix Corp., Enron Corp. and Enron BW Corp.
Appendix B Support Agreement, dated December 15, 2000, by and between
Azurix Corp. and Atlantic Water Trust
Appendix C Opinion of Wasserstein Perella & Co., Inc.
Appendix D Opinion of Salomon Smith Barney Inc.
Appendix E Section 262 of the Delaware General Corporation Law
Annex A Form of Proxy
</TABLE>
ii
<PAGE> 8
SUMMARY TERM SHEET
This Summary Term Sheet highlights selected information contained in this
proxy statement and may not contain all of the information that is important to
you. We urge you to read this entire proxy statement carefully, including the
appendices, and the other documents that are referred to in this proxy
statement. In this proxy statement, the term "public shareholders" refers to
Azurix shareholders other than Atlantic Water Trust, Enron, the merger
subsidiary or any of their wholly-owned subsidiaries.
- SHAREHOLDER VOTE -- You are being asked to approve and adopt the merger
agreement and the merger, by which an indirect wholly-owned subsidiary of
Enron will be merged into Azurix. Under the Delaware General Corporation
Law (as well as the merger agreement), the merger agreement and the
merger must be approved and adopted by the affirmative vote of the
holders of a majority of the outstanding shares of Azurix common stock,
which is referred to as the "statutory approval requirement." Azurix and
Enron also have agreed that the merger will not be completed unless, in
addition to satisfying the statutory approval requirement, at least a
majority of the votes cast either in favor of or against the merger
agreement and the merger at the special shareholders meeting by public
shareholders are cast in favor of the merger agreement and the merger,
which is referred to as the "majority of the minority approval
requirement." See "THE SPECIAL SHAREHOLDERS MEETING."
- PAYMENT -- In the merger, each share of Azurix common stock owned by
Azurix's public shareholders will be converted into the right to receive
$8.375 in cash (rounding up the aggregate cash to be paid to each such
shareholder, to the extent necessary, to the next $.01), without interest
or other payment. You will not own any Azurix common stock after
completion of the merger. See "THE MERGER AGREEMENT."
- AFTER THE MERGER -- Upon completion of the merger, a wholly-owned
subsidiary of Enron will own one-third, and Atlantic Water Trust will own
two-thirds, of Azurix common stock. Enron holds a 50% voting interest in
Atlantic Water Trust.
- ENRON CORP. -- Enron is an electricity, natural gas and communications
company headquartered in Houston, Texas. Enron owns 50% of the voting
interests in Atlantic Water Trust. As of December 15, 2000, Atlantic
Water Trust owned approximately 67% of the outstanding shares of Azurix
common stock. See "THE COMPANIES."
- ENRON BW CORP. -- Enron BW Corp., a newly-formed Delaware corporation,
was formed solely for purposes of completing the merger. It is a
wholly-owned indirect subsidiary of Enron and is sometimes referred to as
the merger subsidiary. See "THE COMPANIES."
- SUPPORT AGREEMENT -- Atlantic Water Trust has entered into a Support
Agreement under which it has agreed to vote all its shares of Azurix
common stock in favor of the merger agreement and the merger. If Atlantic
Water Trust votes as it has agreed in the support agreement, the
statutory approval requirement will be satisfied (but not the majority of
the minority approval requirement) regardless of how any other
shareholder votes on the merger agreement and the merger.
- TAX CONSEQUENCES -- Generally, the merger will be taxable for U.S.
federal income tax purposes. You will recognize taxable gain or loss
equal to the difference between $8.375 and your adjusted tax basis for
each share of Azurix common stock that you own. See "SPECIAL
FACTORS -- Material Federal Income Tax Consequences to Shareholders."
- CONDITIONS -- The merger agreement and the merger are subject to Azurix
shareholder approval, including the majority of the minority approval
requirement described above, as well as other conditions, including
obtaining the necessary consents and approvals. See "THE MERGER
AGREEMENT -- Conditions to the Merger."
- ABILITY TO TERMINATE FOR A BETTER OFFER -- The merger agreement may be
terminated by Azurix's Board of Directors or the Special Committee
without any termination fee if they receive a proposal to acquire Azurix
or all or substantially all of its assets that in the judgment of the
Azurix Board or the Special Committee is superior to the merger from a
financial point of view and is likely to be financed.
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SUMMARY
This summary highlights selected information contained elsewhere in this
proxy statement and may not contain all of the information that is important to
you. You should carefully read this entire proxy statement, including the
attached appendices, and the other documents to which Azurix refers in this
proxy statement. See "WHERE YOU CAN FIND MORE INFORMATION" on page 66.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to approve and adopt a merger agreement that provides
for Enron to acquire all of the publicly-held outstanding shares of Azurix
in exchange for $8.375 per share. The acquisition will be effected by the
merger of an indirect wholly-owned subsidiary of Enron into Azurix with
Azurix being the surviving corporation. If the merger agreement is approved
and adopted, and the merger is completed, Azurix will no longer be a
publicly-held corporation and you will no longer own Azurix common stock.
Q: HOW MUCH OF AZURIX DOES ENRON CURRENTLY OWN?
A: Enron currently does not directly hold any of the outstanding shares of
Azurix common stock. However, Atlantic Water Trust owns approximately
two-thirds of Azurix's outstanding common stock, and Enron holds a 50%
voting interest in Atlantic Water Trust.
Q: WHY IS THE MERGER BEING PROPOSED?
A: The Azurix Board of Directors believes that, as compared to Azurix's other
alternatives, the merger provides a number of benefits to Azurix. These
benefits include:
- offering a greater projected return to Azurix's public shareholders;
- the certainty of near-term cash payments to those shareholders at a
significant premium to recent trading prices;
- reducing general and administrative expenses associated with being a
public company;
- creating greater certainty for Azurix's customers and employees; and
- allowing increased flexibility for restructuring Azurix's business
without the pressures of meeting quarterly financial expectations.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Unless you seek appraisal rights, you will be entitled to receive $8.375 in
exchange for each share of Azurix common stock you own at the time of the
merger (rounding up the aggregate cash to be paid to each such shareholder,
to the extent necessary, to the next $.01). Shareholders who perfect their
appraisal rights will be entitled to have their shares appraised in
accordance with Delaware law.
Q: WHAT WILL ATLANTIC WATER TRUST AND THE MERGER SUBSIDIARY RECEIVE IN THE
MERGER?
A: Atlantic Water Trust will receive two shares of common stock of the
surviving corporation in exchange for its shares. The issued and
outstanding shares of common stock of the merger subsidiary will be
converted into one share of common stock of the surviving corporation. As a
result of the merger, Atlantic Water Trust will own two-thirds, and a
wholly-owned subsidiary of Enron will own one-third, of the common stock of
the surviving corporation. Enron owns a 50% voting interest in Atlantic
Water Trust.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE IN FAVOR OF THE
MERGER AGREEMENT?
A: The Special Committee, consisting solely of directors who are not officers
or employees of Azurix or Enron (but who, like all Azurix directors, are
directors of Enron), and the Board of Directors have unanimously determined
that the merger is fair to, and in the best interests of, Azurix's public
shareholders, and recommended that the Azurix Board consider approval of
the merger agreement and
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<PAGE> 10
the merger. The Board of Directors unanimously recommends that you vote FOR
the approval and adoption of the merger agreement and the merger.
Q: WHAT HAPPENS IF THE SPECIAL COMMITTEE OR THE BOARD OF DIRECTORS RECEIVES A
BETTER OFFER FOR AZURIX?
A: The merger agreement may be terminated by Azurix's Board of Directors or
the Special Committee without any termination fee if Azurix receives a
proposal to acquire Azurix or all or substantially all of its assets that
in the judgment of the Azurix Board or the Special Committee is superior to
the merger from a financial point of view and is likely to be financed.
Q: WHO CAN VOTE ON THE MERGER AGREEMENT?
A: Holders of Azurix common stock at the close of business on [ ], 2001,
the record date relating to the special shareholders meeting, may vote in
person or by proxy on the merger agreement and the merger at the special
shareholders meeting.
Q: WHAT VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
MERGER?
A: The merger agreement and the merger must be approved and adopted by the
affirmative vote of a majority of the outstanding shares of Azurix common
stock. Atlantic Water Trust owns, and as of the record date owned,
approximately 67% of the outstanding shares of Azurix common stock, and has
agreed to vote its shares to approve and adopt the merger agreement and the
merger. In addition, to complete the merger, at least a majority of the
votes cast by public shareholders either in favor of or against the
approval and adoption of the merger agreement and the merger at the special
shareholders meeting must be cast in favor of the approval and adoption of
the merger agreement and the merger.
Q: IS THE MERGER SUBJECT TO THE FULFILLMENT OF CERTAIN CONDITIONS?
A: Yes. Before completion of the merger, certain conditions must be satisfied,
including receipt of certain government regulatory approvals and the
approval by Azurix's shareholders as described in this proxy statement. If
these conditions are not satisfied or waived, the merger will not be
completed even if the shareholders vote to approve and adopt the merger
agreement. These conditions are described on pages 52 to 53 below.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Azurix is working toward completing the merger as quickly as possible. In
addition to shareholder approvals, Azurix also must obtain required
government regulatory approvals and other necessary approvals and consents.
If the conditions to the merger are satisfied or waived, Azurix hopes to
complete the merger promptly following the special shareholders meeting.
Q: WILL I OWE ANY U.S. FEDERAL INCOME TAX AS A RESULT OF THE MERGER?
A: The receipt of cash for shares of Azurix common stock in the merger will be
a taxable transaction for U.S. federal income tax purposes and may also be
taxable under applicable state, local, foreign or other tax laws.
Generally, you will recognize taxable gain or loss equal to the difference
between $8.375 per share and your tax basis for the shares of common stock
that you surrender in the merger. For U.S. federal income tax purposes,
this gain or loss generally will be capital gain or loss if you held your
common stock as a capital asset.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR
TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER
TO YOU.
Q: WHEN AND WHERE IS THE SPECIAL SHAREHOLDERS MEETING?
A: The special shareholders meeting of Azurix shareholders will be held at
10:00 a.m., local time, on [ ], 2001, at [ ] located at [ ].
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully reviewed this proxy statement, including the
attachments, please mark your vote on your proxy card and sign and mail it
in the enclosed return envelope as soon as possible. This will
3
<PAGE> 11
ensure that your shares will be represented at the special shareholders
meeting. If you sign and send in the proxy card and do not indicate how you
want to vote, your proxy will be voted FOR the approval and adoption of the
merger agreement and the merger.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide written instructions
as to how to vote your shares. You should follow the directions provided by
your broker regarding how to instruct your broker to vote your shares.
Q: WHAT RIGHTS DO I HAVE TO DISSENT FROM THE MERGER?
A: If you wish, you may dissent from the merger and seek an appraisal of the
fair value of your shares, but only if you comply with all requirements of
Delaware law summarized on pages 43 through 45 and in Appendix E of this
proxy statement. Based on the determination of the Delaware Court of
Chancery, the appraised fair value of your shares of Azurix common stock
may be more than, less than or equal to the $8.375 per share to be paid in
the merger. The appraised fair value of your shares of Azurix common stock
would be paid to you only if the merger is completed and an appraisal
proceeding follows.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before the vote is taken at the
special shareholders meeting. If you are the record holder of your shares,
you can change your vote in one of the following three ways:
- You can send a written notice dated later than your proxy card stating
that you would like to revoke your current proxy.
- You can complete and submit a new proxy card dated later than your
original proxy card.
- You can attend the special shareholders meeting and vote in person.
If you choose either of the first two methods, you must submit your notice
of revocation or your new proxy card to the Secretary of Azurix at 333 Clay
Street, Suite 1000, Houston, Texas 77002. Azurix must receive the notice or
new proxy card before the vote is taken at the special shareholders
meeting.
Simply attending the special shareholders meeting and not voting, however,
will not revoke your proxy. If you hold your shares in "street name" and
have instructed a broker to vote your shares, you must follow the
directions received from your broker as to how to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, Azurix will promptly send you written
instructions for sending in your stock certificates in exchange for the
$8.375 per share cash payment for your shares.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have more questions about the merger you should contact Azurix's
proxy solicitor:
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005
(212) 266-5550 or (800) 207-2872
OTHER INFORMATION ABOUT THE MERGER
OPINIONS OF FINANCIAL ADVISORS TO THE SPECIAL COMMITTEE
(See Pages 26 through 37)
The Special Committee received opinions from Wasserstein Perella & Co. and
Salomon Smith Barney Inc. dated December 15, 2000, that, based upon and subject
to the limitations, assumptions and qualifications set forth in their respective
opinions, as of December 15, 2000, the $8.375 per share cash consideration
(rounding up the aggregate cash to be paid to each such shareholder, to the
extent necessary, to the next $.01) to be received in the merger by the Azurix
public shareholders is fair from a financial point of view to such public
shareholders. The full text of these opinions are attached as Appendix C and
Appendix D to this proxy statement. Azurix urges you to read both of these
opinions carefully.
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<PAGE> 12
INTERESTS OF AZURIX DIRECTORS AND OFFICERS IN THE MERGER
(See Page 40)
When considering the recommendation of Azurix's Board of Directors with
respect to the merger, you should be aware that some of Azurix's directors and
officers may have interests that are different from, or in addition to, your
interests as a Azurix shareholder. Two of Azurix's directors are also officers
of Enron and all of Azurix's directors are also directors of Enron. However, the
Special Committee relied on the advice of financial advisors engaged by it, and
the members of the Special Committee did not participate in any meeting of
Enron's board of directors held to consider the merger proposal.
APPRAISAL RIGHTS
(See Pages 43 through 45 and Appendix E)
Azurix is a Delaware corporation. Under Delaware law, if you do not vote in
favor of the merger and you follow all of the procedures for demanding appraisal
rights described on pages 43 through 45 and in Appendix E, you will receive a
cash payment for the "fair value" of your shares of common stock, as determined
by the Delaware Court of Chancery, instead of the $8.375 cash payment to be
received by the public shareholders in the merger. The price determined by the
Delaware Court of Chancery may be more than, the same as or less than the $8.375
in cash you would have received for each of your shares in the merger if you had
not exercised your appraisal rights. Generally, to exercise appraisal rights,
among other things:
- You must NOT vote in favor of the merger agreement and the merger; and
- You must make a written demand for appraisal in compliance with Delaware
law BEFORE the vote on the merger agreement and the merger.
Merely voting against the merger agreement will not preserve your appraisal
rights under Delaware law. Appendix E to this proxy statement contains the
Delaware statute relating to your appraisal rights. IF YOU WANT TO EXERCISE YOUR
APPRAISAL RIGHTS, YOU ARE URGED TO READ AND FOLLOW CAREFULLY THE PROCEDURES ON
PAGES 43 THROUGH 45 AND IN APPENDIX E. FAILURE TO TAKE ALL OF THE STEPS REQUIRED
UNDER DELAWARE LAW WILL RESULT IN THE LOSS OF YOUR APPRAISAL RIGHTS.
THE MERGER AGREEMENT
(See Pages 47 through 55)
The merger agreement, including the significant conditions to the closing
of the merger, is described on pages 52 through 53 and is attached as Appendix A
to this proxy statement. Azurix encourages you to read carefully the entire
merger agreement, as it is the legal document that governs the merger.
Conditions to the Merger
(See Pages 52 and 53)
Azurix will complete the merger only if a number of conditions are
satisfied or waived, including, but not limited to, the following:
- the merger agreement and the merger are approved and adopted by holders
of a majority of the outstanding shares of Azurix common stock;
- the merger agreement and the merger are approved and adopted by at least
a majority of the votes cast by public shareholders either in favor or
against the merger at the special shareholders meeting;
- Azurix has obtained all necessary consents, permits and approvals;
- no law, injunction or order restrains or prohibits the completion of the
merger;
5
<PAGE> 13
- certain representations and warranties made by the parties in the merger
agreement must be true and correct in all material respects, and all
covenants must have been performed in all material respects; and
- the merger not resulting in a default or event of default under the terms
of Azurix's senior note indenture.
If these conditions are not satisfied or waived, the merger will not be
completed even if the majority of the minority approval requirement is met.
Termination of the Merger Agreement
(See Pages 54 through 55)
Azurix and Enron may agree to terminate the merger agreement at any time
before the effective time of the merger. In addition, either party may terminate
the merger agreement if, among other things:
- the merger has not been completed on or before May 31, 2001; or
- the other party materially breaches a representation, warranty or
covenant, and is not able to cure it; or
- any court or other governmental entity issues an order or takes any other
action permanently enjoining or otherwise prohibiting the merger, and
such order or other action is final and non-appealable; or
- the Azurix Board approves, or the Special Committee recommends, a
"superior proposal" to acquire Azurix with greater value to Azurix's
shareholders from a financial point of view than $8.375 per share and for
which financing is committed, or which the Azurix Board or the Special
Committee believes in good faith can be financed; or
- either the statutory approval requirement or the majority of the minority
approval requirement is not received at the special shareholders meeting.
The merger agreement may also be terminated by Enron if the Azurix Board of
Directors or the Special Committee withdraws, modifies or changes in a manner
adverse to Enron its recommendation of the merger, or if the Azurix Board of
Directors approves or recommends another acquisition proposal, or resolves to do
any of the foregoing.
No termination fee is payable by any party in the event of a termination.
What Happens if Azurix Receives a Better Offer
(See Page 51 and Pages 54 through 55)
The merger agreement does not prohibit Azurix from soliciting inquiries or
proposals, or from entering into any discussions or negotiations relating to the
sale or other disposition of all or substantially all of Azurix's capital stock
or assets. Enron has agreed to promptly notify Azurix of any offers or
indications of interest that Enron receives concerning a potential sale of
Azurix or any of its subsidiaries. Azurix may terminate the merger agreement if
the Azurix Board of Directors or the Special Committee approves or recommends a
"superior proposal" to acquire Azurix with greater value to Azurix's
shareholders from a financial point of view than $8.375 per share and for which
financing is committed or which the Azurix Board or the Special Committee
believes is capable of being financed.
In addition, the Azurix Board of Directors may withdraw, modify or change
or propose publicly to withdraw, modify or change, in a manner adverse to Enron
or the merger subsidiary, its recommendation of the merger or the merger
agreement if the Azurix Board of Directors determines in good faith, after
consultation with the Special Committee's financial advisors, that the merger or
the merger agreement are no longer in the best interests of Azurix's public
shareholders, which is referred to in this proxy statement as an "adverse board
determination."
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<PAGE> 14
The merger agreement also provides that the Special Committee may make or
publicly propose, in a manner adverse to Enron and the merger subsidiary, a
recommendation as to the merger or the merger agreement or withdraw, modify or
change or publicly propose to change, in a manner adverse to Enron or the merger
subsidiary, its determination that the merger and the merger agreement are fair
and in the best interests of Azurix's public shareholders, if the Special
Committee determines in good faith, after consultation with its financial
advisors, that the merger or merger agreement is no longer in the best interests
of Azurix's public shareholders, which is referred to in this proxy statement as
an "adverse Special Committee determination."
However, even if an adverse board determination or an adverse Special
Committee determination occurs, under the merger agreement, Enron may require
Azurix to convene and hold the special shareholders meeting. However, even in
this circumstance, the completion of the merger will still be subject to the
satisfaction of the majority of the minority approval requirement.
THE COMPANIES
AZURIX CORP.
333 Clay Street
Suite 1000
Houston, Texas 77002
Telephone: (713) 646-6001
Azurix is a global water company that owns, operates and manages water and
wastewater assets, provides water and wastewater related services, and develops
and manages water resources.
ENRON CORP.
1400 Smith Street
Houston, Texas 77002-7369
Telephone: (713) 853-6161
Enron is one of the world's leading international integrated natural gas,
electricity and communications companies. Enron's activities are conducted
through its subsidiaries and affiliates, which are principally engaged in:
- the marketing of natural gas, electricity and other commodities and
related risk management and finance services worldwide;
- the development, construction and operation of power plants, pipelines
and other energy related assets worldwide;
- the development of an intelligent networks platform to provide bandwidth
management services and to deliver high bandwidth applications;
- the transportation of natural gas through pipelines to markets throughout
the United States; and
- the generation and transmission of electricity to markets in the
northwestern United States.
ENRON BW CORP.
1400 Smith Street
Houston, Texas 77002-7369
Telephone: (713) 853-6161
The merger subsidiary was formed in December 2000 for the purposes of
engaging in the merger. The merger subsidiary is an indirect, wholly-owned
subsidiary of Enron. The merger subsidiary has not carried on any activities to
date other than those incident to its formation and the negotiation and
execution of the merger agreement.
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<PAGE> 15
ATLANTIC WATER TRUST
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Telephone: (302) 651-8681
Atlantic Water Trust was formed by Enron in November 1998. In December
1998, Enron contributed all outstanding stock of Azurix to Atlantic Water Trust.
The principal purpose of Atlantic Water Trust is to own equity interests in
Azurix and Atlantic Water Trust's primary asset is 78,536,532 shares of Azurix
common stock. In connection with Enron's contribution of Azurix to Atlantic
Water Trust, Marlin Water Trust, a Delaware business trust, acquired for $1.149
billion a 50% voting interest in Atlantic Water Trust, with Enron retaining a
50% voting interest in Atlantic Water Trust. Marlin Water Trust financed the
acquisition of its interest in Atlantic Water Trust by issuing senior notes for
$1.024 billion that mature December 15, 2001, and issuing trust certificates for
a total of $125 million. Currently, institutional investors and their affiliates
hold the trust certificates of Marlin Water Trust.
As long as Atlantic Water Trust owns a majority of Azurix's 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 Azurix's outstanding voting stock held by the public shareholders.
Furthermore, Marlin Water Trust, with the consent of the holders of a majority
of Azurix's outstanding voting stock held by the public shareholders, has the
right to direct Atlantic Water Trust to elect or replace half of Azurix's
directors. After the merger, Marlin Water Trust will have the right to direct
Atlantic Water Trust to elect or replace half of the Azurix directors.
In the event that Azurix were to issue a class of preferred stock, then,
Marlin Water Trust's right to designate directors would be reduced by the number
of directors that may be elected by the Azurix preferred shareholders 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 shares of common stock. Holders of trust
certificates of Marlin Water Trust are entitled to exercise Marlin Water Trust's
appointment rights. If Marlin Water Trust certificate holders defer exercising
their appointment rights, Enron has the right to appoint such members, but
Marlin Water Trust has the right, at any time, without cause, to remove any such
members. To date, Enron has appointed all of the directors of Atlantic Water
Trust and originally appointed all of the directors of Azurix.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Azurix has made "forward looking statements" in this proxy statement as
such term is defined in the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. 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 these forward-looking
statements. Important factors that could cause actual results to differ
materially from those described in the forward-looking statements include the
following:
- political developments in foreign countries;
- the ability to enter new water and wastewater markets in the United
States and in other jurisdictions;
- the timing and extent of deregulation of water resource markets in the
United States and in other countries;
- regulatory developments in the United States and in other countries,
including tax and environmental legislation and regulation;
- the timing and extent of efforts by governments to privatize water and
wastewater industries;
- the timing and extent of changes in non-U.S. currencies and interest
rates;
8
<PAGE> 16
- the extent of success in securing new service contracts, acquiring water
and wastewater assets and developing and managing water resources;
- Azurix's ability to access the debt and equity markets during periods
covered by the forward-looking statements;
- regulatory developments affecting the purchase and sale of water
resources;
- acceptance and utilization by buyers and sellers of an internet
marketplace for water transfers;
- Azurix's ability to enter into, and retain, strategic relationships with
governmental and quasi-governmental agencies;
- increased competition and technological changes in the internet-based
marketplace;
- restrictions in Azurix's debt agreements limiting its growth and ability
to respond to changing conditions;
- Azurix's ability to hire and train, in a highly competitive market,
individuals highly skilled in the internet and e-commerce;
- third parties may offer to acquire Azurix or its assets before the
proposed merger is approved; and
- other factors discussed elsewhere in Azurix's other filings with the
Securities and Exchange Commission including its Annual Report on Form
10-K for the period ended December 31, 1999.
Readers are cautioned not to place undue reliance on forward-looking
statements, which reflect management's view only as of the date of this proxy
statement. All forward-looking statements included in this proxy statement and
all subsequent forward-looking statements attributable to Azurix or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements. Azurix undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date of this proxy statement or to
reflect the occurrence of unanticipated events. Although Azurix believes that
its expectations are based on reasonable assumptions, it can give no assurance
that these expectations will prove to be correct. No assurance can be given that
the merger will occur.
9
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The tables below present selected historical consolidated financial data
for Azurix and for Wessex, the predecessor of Azurix, for the periods and dates
indicated.
The historical financial data for Azurix are derived from Azurix's audited
consolidated financial statements and unaudited interim financial statements,
incorporated by reference herein, and include the impact of the Wessex
acquisition from the date of acquisition. The historical financial data for the
nine months ended September 30, 1999 and 2000 are derived from financial
statements that are unaudited but include all adjustments, consisting of normal
recurring adjustments, that Azurix considers necessary for a fair presentation
of its financial position and results of operations for the period. The results
for the nine months ended September 30, 1999 and 2000 are not necessarily
indicative of the results for the full year. All of Azurix's 1998 results of
operations occurred in the fourth quarter of 1998, subsequent to the acquisition
of Wessex. The historical balance sheet data for Wessex as of March 31, 1997 and
1998 and for the six months ended October 2, 1998 are derived from Wessex's
audited consolidated financial statements. The historical income statement and
other financial data for the year ended March 31, 1996 and the historical
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.
This information should be read in conjunction with our consolidated
financial statements, related notes and other financial information we have
incorporated by reference in this proxy statement.
<TABLE>
<CAPTION>
WESSEX (PREDECESSOR COMPANY) AZURIX
------------------------------------- -----------------------------------------------------------
SIX MONTHS JANUARY 29, NINE MONTHS NINE MONTHS
YEAR ENDED MARCH 31, ENDED 1998 TO YEAR ENDED ENDED ENDED
------------------------ OCTOBER 2, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998 1998 1999 1999 2000
------ ------ ------ ---------- ------------ ------------ ------------- -------------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues........ $376.8 $403.1 $436.6 $233.8 $119.7 $618.0 $418.7 $567.5
Gross profit.............. 270.2 300.7 325.7 172.1 88.1 393.3 282.9 301.9
Income before
extraordinary item...... 140.4 153.0 16.7 71.8 10.2 44.5 55.1 10.8
Extraordinary loss, net of
tax..................... -- -- -- -- -- 6.8 6.8 --
Net income(1)............. 140.4 153.0 16.7 71.8 10.2 37.7 48.3 10.8
Net income available to
common shareholders..... 132.4 139.5 1.6 64.1 10.2 37.7 48.3 10.8
Basic earnings per common
share(1)(2)............. 0.62 0.65 0.01 0.30 0.10 0.34 0.45 0.09
Diluted earnings per
common share(1)(2)...... 0.51 0.55 0.01 0.30 0.10 0.34 0.45 0.09
Dividends declared per
common share(3)......... 0.25 0.26 0.31 0.23 -- -- -- --
OTHER FINANCIAL DATA:
Ratio of earnings to fixed
charges(4).............. 6.9x 6.0x 5.8x 4.6x 3.0x 1.5x 2.0x 1.0x
</TABLE>
<TABLE>
<CAPTION>
WESSEX (PREDECESSOR COMPANY) AZURIX
---------------------------------- ---------------------------------------
AT MARCH 31, AT DECEMBER 31, AT
---------------------------------- --------------------- SEPTEMBER 30,
1996 1997 1998 1998 1999 2000
-------- -------- -------- -------- -------- -------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................. $ 418.0 $ 172.9 $ 94.5 $ 131.8 $ 709.3 $ 401.5
Non-current assets............................. 1,834.7 2,085.1 2,277.8 3,226.5 4,141.1 4,093.9
Total assets................................... 2,252.7 2,258.0 2,372.3 3,358.3 4,850.4 4,495.4
Current liabilities............................ 189.7 268.4 401.5 261.4 948.9 636.3
Non-current liabilities........................ 473.3 483.4 482.3 1,451.4 1,956.4 2,042.3
Long-term debt (including affiliates)(5)....... 206.9 203.9 169.7 1,033.5 1,481.9 1,559.2
Minority interest.............................. -- -- -- -- 3.3 6.3
Redeemable preference shares................... 235.3 254.7 259.0 -- -- --
Book value per common share(2)................. 6.32 5.98 5.78 16.46 16.57 15.43
</TABLE>
10
<PAGE> 18
---------------
(1) 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.
(2) 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. Book value per common share
amounts for Wessex are based on the historical average ordinary shares of
Wessex.
(3) 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.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of the sum of pretax income from continuing operations before
minority interests in consolidated subsidiaries and income or loss from
equity investees, fixed charges, amortization of capitalized interest and
distributed income of equity investees, less interest capitalized and
preference security dividend requirements of consolidated subsidiaries.
Fixed charges consist of interest expense plus capitalized interest,
amortized expenses related to indebtedness and preference security dividend
requirements of consolidated subsidiaries.
(5) Long-term debt (including affiliates) is included in non-current
liabilities.
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<PAGE> 19
THE SPECIAL SHAREHOLDERS MEETING
DATE; TIME; PLACE AND RECORD DATE OF THE SPECIAL SHAREHOLDERS MEETING
The special shareholders meeting will be held on [ ], 2001, 10:00
a.m., local time, at [ ] located at [ ]. The accompanying
proxy is being solicited by Azurix's Board of Directors and is to be voted at
the special shareholders meeting or any adjournment(s) or postponement(s)
thereof. The holders of record of Azurix's common stock as of the close of
business on [ ], 2001 are entitled to receive notice of, and to vote
at, the special shareholders meeting. On the record date, there were
[ ] shares of Azurix common stock outstanding. No other voting
securities of Azurix are outstanding.
PURPOSE
At the special shareholders meeting, you will be asked to consider and vote
upon the approval and adoption of the merger agreement and the merger, which
provides for the merger of an indirect wholly-owned subsidiary of Enron into
Azurix. In the merger, each issued and outstanding share of Azurix common stock
held by Azurix's public shareholders will be canceled and converted
automatically into the right to receive $8.375 in cash per share (rounding up
the aggregate cash to be paid to each such shareholder, to the extent necessary,
to the next $.01). The 78,536,532 shares of Azurix common stock held by Atlantic
Water Trust will be canceled and converted automatically into two shares of
common stock of the surviving corporation in the merger. The shares of stock of
the merger subsidiary, all of which are held by a wholly-owned subsidiary of
Enron, will be canceled and converted automatically into one share of common
stock of the surviving corporation in the merger. Following the merger, Atlantic
Water Trust (in which Enron owns a 50% voting interest) will hold two-thirds,
and a wholly-owned subsidiary of Enron will hold one-third, of the outstanding
shares of stock in the surviving corporation. Treasury shares and shares of
Azurix common stock owned by Enron, the merger subsidiary or by any of their
wholly-owned subsidiaries will be canceled. Shares held by shareholders who
perfect their dissenters' rights will be subject to appraisal in accordance with
Delaware law.
Azurix does not expect to ask you to vote on any other matters at the
special shareholders meeting. However, if any other matters are properly
presented at the special shareholders meeting for consideration, the holder of
the proxies will have discretion to vote on these matters in accordance with
their best judgment. Proxies voting against a specific proposal may be used by
the holder to vote for adjournment of the meeting for the purpose of giving the
holder additional time to solicit votes in favor of that proposal.
VOTING INFORMATION
Each outstanding share of Azurix's common stock is entitled to one vote.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Azurix's common stock entitled to vote at the special
shareholders meeting is necessary to constitute a quorum for the transaction of
business at the special shareholders meeting. Abstentions are counted for
purposes of determining whether a quorum exists at the special shareholders
meeting for purposes of the statutory approval requirement. The affirmative vote
of the holders of a majority of the outstanding shares of Azurix's common stock
is required to approve and adopt the merger agreement and the merger. Atlantic
Water Trust owns, and as of the record date owned, approximately 67% of the
outstanding shares of Azurix common stock. Atlantic Water Trust has agreed to
vote its shares to approve and adopt the merger agreement and the merger
pursuant to a Support Agreement between Azurix and Atlantic Water Trust dated
December 15, 2000, a copy of which is attached to this proxy statement as
Appendix B. In addition, at least a majority of the votes cast either in favor
of or against approval and adoption of the merger at the special shareholders
meeting by public shareholders must be cast in favor of the merger and the
merger agreement to complete the merger. Accordingly, proxies that reflect
abstentions and proxies that are not returned will have no effect on determining
whether the majority of the minority approval requirement is met.
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<PAGE> 20
Brokers who hold shares in street name for customers have the authority to
vote on "routine" proposals when they have not received instructions from
beneficial owners. However, absent specific instructions from the beneficial
owner of the shares, brokers are not allowed to exercise their voting discretion
with respect to the approval and adoption of non-routine matters such as the
merger proposal. Abstentions and properly executed broker non-votes will be
treated as shares that are present and entitled to vote at the special
shareholders meeting for purposes of determining whether a quorum exists for
purposes of the statutory approval requirement, but will have no effect on
determining whether the majority of the minority approval requirement is met.
SOLICITATION; REVOCATION AND USE OF PROXIES
Proxies are being solicited by and on behalf of Azurix's Board of
Directors. Azurix will pay the costs of soliciting proxies from Azurix's
shareholders as well as all mailing and Securities and Exchange Commission
filing fees incurred in connection with this proxy statement. Azurix has engaged
the services of D.F. King & Co., Inc., 77 Water Street, New York, NY 10005, to
solicit proxies and to assist in the distribution of proxy materials. Azurix has
agreed to pay D.F. King a fee of $7,500 plus reasonable out-of-pocket expenses.
In addition to the solicitation of proxies by mail, some of Azurix's directors,
officers and employees may solicit proxies by telephone, facsimile and personal
contact, without separate compensation for those activities. Copies of
solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of common stock, and these
persons will be reimbursed for their reasonable out-of-pocket expenses.
The grant of a proxy on the enclosed form does not preclude you from
attending the special shareholders meeting and voting in person. You may revoke
your proxy at any time before it is voted at the special shareholders meeting.
If you are a record holder, you may revoke your proxy by:
- delivering to the Secretary of Azurix, before the vote is taken at the
special shareholders meeting, a written notice of revocation bearing a
later date than the proxy;
- duly executing a later dated proxy relating to the same shares of common
stock and delivering it to the Secretary of Azurix before the vote is
taken at the special shareholders meeting; or
- attending the special shareholders meeting and voting in person.
Attendance at the special shareholders meeting will not in and of itself
constitute a revocation of a proxy. Any written notice of revocation or
subsequent proxy should be sent to the Secretary of Azurix at 333 Clay Street,
Suite 1000, Houston, Texas 77002, or hand delivered to the Secretary of Azurix
before the vote is taken at the special shareholders meeting. All valid proxies
will be voted at the special shareholders meeting in accordance with the
instructions given. If no instructions are given, the shares represented by the
proxy will be voted at the special shareholders meeting for approval and
adoption of the merger agreement and the merger. If you hold your shares in
"street name" and have instructed a broker to vote your shares, you must follow
the directions received from your broker as to how to change your vote.
Shareholders who do not vote in favor of approval and adoption of the
merger agreement and the merger, and who otherwise comply with the applicable
statutory procedures of the Delaware General Corporation Law summarized
elsewhere in this proxy statement, will be entitled to seek appraisal of the
value of their common stock under Section 262 of the Delaware General
Corporation Law. See "SPECIAL FACTORS -- Dissenters' Rights of Appraisal."
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER
IS COMPLETED, AZURIX WILL SEND YOU INSTRUCTIONS REGARDING THE PROCEDURES FOR
EXCHANGING YOUR EXISTING STOCK CERTIFICATES FOR THE $8.375 PER SHARE CASH
PAYMENT.
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<PAGE> 21
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Background of the Formation and Business of Azurix
Azurix was incorporated as an indirect, wholly owned subsidiary of Enron on
January 29, 1998 to pursue opportunities in the global water industry, including
participating in the anticipated global privatization of the water and
wastewater industry. Azurix's first significant step was to acquire Wessex Water
Plc, a water and wastewater company based in southwestern England, for $2.4
billion on October 2, 1998. During 1998, Enron contributed to Azurix an indirect
32.1% ownership interest in Obras Sanitarias Mendoza S.A., which provides water
and wastewater treatment services in the Province of Mendoza, Argentina. In
December 1998, Enron contributed Azurix to Atlantic Water Trust, and Marlin
Water Trust acquired a 50% voting interest in Atlantic Water Trust. Enron
retained a 50% voting interest in Atlantic Water Trust.
Following its acquisition of Wessex, Azurix began implementing its global
business strategy by acquiring interests in long-term water concessions in the
Province of Mendoza, Argentina and in Cancun, Mexico. In addition, in May 1999,
Azurix acquired Philip Utilities, a water and wastewater services company with
operations in the United States and Canada for $106.3 million. In May 1999,
Azurix was also awarded an interest in a long-term water and wastewater
concession in two regions of the Province of Buenos Aires, Argentina, at an
aggregate price of $438.6 million.
In June 1999, Azurix consummated its initial public offering of its common
stock. In the initial public offering, Azurix sold 17,100,000 shares and
Atlantic Water Trust sold an additional 21,463,468 shares of Azurix common stock
at a price of $19.00 per share, which included the July 1999 exercise by
underwriters of their overallotment option. Proceeds received by Azurix from the
offering were used to fund a portion of the acquisition of the Buenos Aires
concession and to repay certain advances made by Enron to Azurix. The initial
public offering also provided Azurix access to the equity capital markets to
fund its anticipated growth through acquisitions and development projects around
the world. Subsequently, Azurix made several more acquisitions in the United
States, Canada, Europe, Latin America and South America.
On November 4, 1999, Azurix announced that, while the pipeline of private
transactions and announced public tenders remained strong, the timing of certain
transactions had become unpredictable. Azurix also announced that it planned to
focus more on privately negotiated opportunities and less on large public
privatizations, which Azurix stated it would consider only if its investment
could return significant value to Azurix's shareholders. Azurix further
announced that it would work to ensure that its operating and general and
administrative expenses were in line with its current investments. In its
November 4, 1999 press release, Azurix disclosed anticipated earnings from its
existing businesses for the fourth quarter that were lower than analysts'
expectations and stated that the completion of both public and private
transactions and subsequent earnings would be largely dependent on timing. The
closing price per share of Azurix common stock declined from $12 13/16 on
November 3, 1999 to $7 3/4 on November 4, 1999.
In public filings and press releases made or issued by Azurix during the
period from November 1999 through March 2000, Azurix announced a business
restructuring that commenced in the fourth quarter of 1999. During the fourth
quarter of 1998 and the first half of 1999, Azurix had initiated a business
development effort requiring increased personnel to pursue and support
acquisition and privatization activities worldwide. This 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. However,
during the latter part of 1999, several large privatization projects were
postponed or canceled. As a result, in the fourth quarter of 1999, Azurix
reevaluated its cost structure in relation to its business development efforts.
As part of this reevaluation, Azurix reduced its corporate personnel by
approximately one-third, reduced its leased office space and eliminated other
resulting costs primarily relating to the pursuit of concessions in certain
regions, resulting in a nonrecurring, pre-tax expense of $34.2 million for the
fourth quarter of 1999. Azurix also announced that it intended to focus more on
service contract opportunities and its existing assets in the near term and
focus less on asset acquisitions.
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During the period from November 4, 1999 through August 7, 2000, shares of
Azurix common stock traded within a range of prices between $6.00 and $11 1/16
per share.
On August 8, Azurix announced that earnings before interest, taxes,
depreciation and amortization, minority interest and nonrecurring items or
"EBITDA" for 2000 would likely be in the range of $270 million to $290 million
as compared to a previously announced target of $310 million to $340 million, in
each case after corporate general and administrative expenses, and earnings per
share would be below analysts' then current projections. Azurix announced that
these lower expectations resulted from an unfavorable dollar to sterling
exchange rate, water quality issues in Bahia Blanca, Argentina and slower than
targeted growth in Argentina and at Lurgi Bamag (a water and wastewater
engineering services company acquired by Azurix with offices in Germany, Brazil,
Egypt and the United Kingdom). Azurix also announced that it would not generate
additional material earnings per share for the remainder of the year. Following
this announcement, the closing price of Azurix common stock declined from
$8 5/16 per share on August 7 to $5 11/16 per share on August 9.
On August 25, Azurix announced that Rebecca P. Mark resigned as Azurix's
chairman and chief executive officer. Azurix also announced that it was going to
conduct a thorough review of all of its businesses, its cost structure and its
strategy to determine how best to improve its financial performance and to
maximize shareholder value.
On October 6, a lawsuit styled Irving Rosenzweig, on behalf of himself and
others similarly situated, v. Azurix Corp, et. al., was filed in the United
States District Court for the Southern District of Texas, Houston Division. The
suit is a purported class action filed on behalf of those persons who purchased
the common stock of Azurix during the period from June 9, 1999, the date of
Azurix's initial public offering, through and including August 8, 2000. The suit
generally alleges that the defendants violated Sections 11, 12(a) and 15 of the
Securities Act of 1933, Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 and Rule 10b-5 promulgated under the Exchange Act. The plaintiff
contends that the defendants issued and disseminated materially false and
misleading information to the plaintiff and the investing public in connection
with Azurix's initial public offering and during the class period. The plaintiff
seeks, among other remedies, rescissory and/or compensatory damages, interest
and costs, including attorneys and experts fees. Several similar actions have
been filed in the United States District Court for the Southern District of
Texas, all of which have been consolidated with the lawsuit named above. These
purported class actions are referred to collectively in this proxy statement as
the "disclosure litigation."
On November 14, Azurix announced that it expected that EBITDA for 2000
would be in the range of $255 million to $270 million, after corporate general
and administrative expenses, and that there would be a loss per share in the
fourth quarter. In the announcement, Azurix stated that the reductions in
expected EBITDA and earnings were primarily due to further deterioration in the
dollar-sterling exchange rate from the $1.50/L1.00 at the time of its August 8
announcement to a then-current range of $1.43/L1.00, coupled with the continued
underperformance of Azurix Buenos Aires.
Background of the Evaluation of Strategic Alternatives and the Merger
In late 1999, Azurix was approached by a large publicly traded European
utility regarding a possible joint venture with or possibly an acquisition of
Azurix. Azurix retained J. Henry Schroder & Co. Limited, an internationally
recognized investment banking firm that was subsequently acquired by Salomon
Smith Barney Inc., to advise it in this matter. Although preliminary discussions
occurred, the European utility halted discussions early in 2000 due to, among
other things, another large pending transaction involving that company.
In February 2000, Azurix retained an internationally recognized consulting
firm to evaluate the growth prospects of certain of Azurix's businesses given
Azurix's capital constraints. This consulting firm's report set forth discounted
cash flow analyses which valued Azurix at $4.27 per share using the consultant's
estimate of Azurix's weighted average cost of capital of 7.6% and at $10.08 per
share using an assumed weighted average cost of capital of 6.4% that would
theoretically be available to Azurix were it to be acquired and funded by a
parent company with a AA debt rating. These analyses were based on a number of
assumptions including in
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the case of the second analysis that a significant increase in Azurix's cash
flows would result from being owned and financed by such a parent company.
As a result of the developments described above, the approach from the
European utility and the analysis of the consulting firm, in March, Azurix
retained Merrill Lynch, Pierce, Fenner & Smith Incorporated, another
internationally recognized investment banking firm, to work with Schroders in
evaluating strategic alternatives, including a potential sale of Azurix to
unrelated third parties. During the period from March through October, Azurix
and its investment bankers contacted or were contacted by a number of third
parties to determine if they would be interested in acquiring Azurix. In
addition, during this time period, Enron was also contacted by certain third
parties to determine if Enron would be interested in selling its indirect
interest in Azurix.
During the period from July through October, management of Azurix and its
investment bankers analyzed other potential strategic alternatives. Management
focused on the liquidation of Azurix or the sale of selected assets, including
the projected performance of Azurix's assets and its available liquidity, in
particular the need to refinance various credit facilities and obtain further
financing by May 2002, which might require issuing additional equity or selling
assets. It was determined tentatively that the trading value of U.K. water
companies was cyclically lower than historical averages and, thus, Azurix would
not achieve as favorable a price for Wessex as it might at some point in the
future, and that difficulties in Azurix Buenos Aires would make it difficult to
sell at an acceptable price, but that it might be prudent to examine whether to
dispose of other assets if a buyer of the entire company were not to emerge and
offer a reasonable price. These matters were discussed extensively with Azurix's
Board of Directors at meetings during this period.
On August 11, certain senior executives of Enron met to discuss the effect
on Enron of potential restructuring alternatives for Azurix. These discussions
included Kenneth L. Lay, Enron's chairman and chief executive officer, and
Jeffrey K. Skilling, Enron's president and chief operating officer, both of whom
also are Azurix directors as well as Enron directors. Two alternatives were
discussed at the meeting. The first alternative discussed was the restructuring
of Azurix through the disposition of Azurix's existing services businesses and a
significant reduction in general and administrative expenses. The second
alternative discussed was taking Azurix private by buying out the public for
cash. For purposes of analyzing the going-private transaction, it was assumed
that each of the public shares would be acquired for $8.00 in cash, which was
based on the approximate market price of Azurix common stock at the time rather
than an analysis by Enron of the fair value of such shares and was not a price
that Enron was necessarily willing to pay.
After discussions with potential buyers, Enron and Azurix received four
preliminary indications of interest (one of which was from the large European
utility that had contacted Azurix in late 1999) regarding the purchase of Azurix
or significant assets of Azurix. These indications of interest were made by
three industry participants and a financial buyer. However, following additional
discussions with each of these potential buyers, three of the four potential
buyers indicated in September or October that they were unlikely to be willing
to pay more for Azurix or those assets than the price that was implied by the
current market price of the Azurix common stock at the time of the discussions,
which was approximately $4.00 per share.
On August 25, the European utility wrote to Azurix stating that it would
consider offering $7.00 per share for all of the outstanding shares of Azurix
common stock. However, this price was before giving effect to any dilution for
stock options and was subject to significant due diligence and other conditions.
In addition, the indication of interest, as elaborated upon by the European
utility, contemplated that Enron would indemnify the European utility for a
number of potential liabilities of Azurix. In light of Enron's ownership
position in Azurix, Azurix and Enron agreed that Enron would lead the discussion
with the European utility regarding pricing issues and Azurix would be primarily
responsible for due diligence. In response to the European utility's proposal,
Enron stated that it would not be prepared to engage in a sale of Azurix unless
the price was higher than $7.00 per share, but encouraged the potential buyer to
conduct a due diligence review of Azurix and make a final offer. During
September and October, the European utility conducted substantial due diligence
regarding Azurix. In addition, during such period, representatives of Enron met
with representatives of the European utility several times to discuss the
structure of the transaction and other non-monetary issues.
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On October 8, Azurix senior management reviewed with the Audit and Finance
Committee of the Azurix Board (the "Audit Committee") several analyses that had
been prepared by management as part of their review of strategic alternatives to
address, among other things, Azurix's projected liquidity constraints. The
members of the Audit Committee are Messrs. Herbert S. Winokur, Jr. and John H.
Duncan and Lord John Wakeham, each of whom is also an Enron director but not an
Enron officer or employee. The analyses focused on three scenarios, each of
which assumed that Wessex would be retained, that some or all of the remaining
businesses would be sold and that corporate general and administrative expenses
would be significantly reduced. Management stated their view that retention of
Wessex alone was the preferred alternative to maximize liquidity and cash flow
and avoid the liquidity and operating risks of the other businesses, although
that alternative offered less upside potential for the Azurix common stock
price. Management also presented a liquidation analysis that reflected a range
of values, all of which were less than $8.375 per share of Azurix common stock,
based on, among other assumptions, an immediate sale (rather than over a period
of time, which would be much more likely) of all of the businesses, including
Wessex. Management also presented stock price sensitivity analyses that
indicated that if Azurix remained a public company, it was unlikely that shares
of Azurix common stock would trade in excess of the cash merger consideration
during the next three years. The sensitivity analyses reflected probabilistic
analyses of different dollar to sterling exchange rates and market multiples for
U.K. water companies as a function of their regulated asset bases. These
analyses were also provided to Messrs. Lay and Skilling, who were present at
this Audit Committee meeting.
On October 25, after the European utility completed its due diligence,
representatives of the European utility informed Enron and Azurix that the
European utility was not interested in pursuing the transaction any further. The
reasons given by the European utility included pro forma cash flows, the
complexity of the Azurix capital structure, tax considerations and the
disclosure litigation that had been recently filed. The European utility
indicated that it might in the future consider acquiring individual assets of
Azurix but to date has made no offers.
On October 27, the Enron Board met to discuss strategic alternatives
regarding its investment in Azurix in light of the European utility's decision
not to pursue an acquisition of Azurix. All of the members of the Azurix Board
are also directors of the Enron Board. Messrs. Winokur and Duncan and Lord
Wakeham, who are the Azurix directors who are not also officers of Enron and who
were present at the Enron Board meeting, excused themselves from the meeting
before the Enron Board discussed the Enron proposal and determined that they
would exclude themselves from any further deliberations that the Enron Board
might have concerning the proposal or any revision to the proposal. At the
meeting, the Enron Board considered a number of factors, including:
- Azurix's closing stock price of $3.50 per share on October 25, 2000;
- Azurix's operational prospects and access to capital and the expected
continued departure of Azurix's employees;
- the lack of interest expressed by third parties in acquiring Azurix
following contacts with a number of potential buyers;
- the potential liquidation value of Azurix;
- a portion of the analyses reviewed with the Audit Committee on October 8
described above; and
- legal considerations involved in a going-private transaction.
At this meeting, the Enron Board approved the financing of a transaction in
which the outstanding publicly traded shares of Azurix common stock would be
acquired at a price of $7.00 per share.
On the same day, Enron sent a letter to the Azurix Board proposing on
behalf of Enron and its designees to provide cash of approximately $275 million
for the sole purpose of funding a transaction that would take Azurix private for
a buy-out price of $7.00 per share. The letter stated that Enron strongly
believed that there was no other buyer willing to pay the $7.00 per share
initially proposed (but later withdrawn) by the European
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utility and that it would be in the best interest of Azurix's shareholders and
employees if Azurix was no longer a publicly traded company.
Enron also issued a press release on October 27, announcing the proposal
made to the Azurix Board to finance the Azurix public share buy-out. In the
press release, Enron announced that in its view the proposed buy-out provides a
number of benefits to Azurix, including significant reductions in Azurix's
general and administrative expenses, greater certainty to Azurix's customers and
employees and increased flexibility for restructuring Azurix's assets and
business.
Later the same day, the first of several related purported class actions
was filed in the Court of Chancery in Delaware against Azurix, the members of
the Azurix Board and Enron as defendants alleging that the defendants had
breached their duties to Azurix's shareholders in connection with the Enron
proposal and seeking injunctive and other relief. These purported class actions,
which are collectively referred to in this proxy statement as the "Enron
proposal litigation," have been settled in principle, as discussed at
"-- Litigation Involving the Merger."
It was determined as an initial matter that the Audit Committee would
review the Enron proposal and possible alternatives to that proposal, as that
committee had already been delegated oversight of the approach by the European
utility and related efforts. On October 30, the Audit Committee held a special
meeting to discuss preliminarily the proposal received from Enron. The Audit
Committee determined to engage Skadden, Arps, Slate, Meagher & Flom LLP and
Morris, Nichols, Arsht & Tunnell as legal counsel to the Audit Committee in
connection with its review of the Enron proposal and possible alternatives to
that proposal. In doing so, the Audit Committee took note of the fact that
Skadden Arps has had a long-standing relationship with Enron as to various
matters unrelated to Azurix and that Morris Nichols had recently performed
unrelated work for Azurix but did not have any direct relationship with Enron.
Attorneys from both firms were invited to participate by telephone in the
meeting, and these attorneys explained the duties of the members of the Audit
Committee in evaluating a possible transaction with Enron. The Audit Committee
also determined that financial advisors should be engaged to advise the Audit
Committee with respect to Enron's proposal and possible alternatives to that
proposal. In that regard, the Audit Committee determined that it would be
appropriate for the Audit Committee to engage one of the two firms that had been
working with Azurix in exploring a possible sale of Azurix and a second firm
with, at most, a limited relationship with Enron. The Audit Committee also
requested that Azurix management meet with Enron to clarify various aspects of
the Enron proposal.
During the period from October 30 through November 7, members of Azurix's
senior management and the Audit Committee's counsel discussed with Enron and its
legal counsel certain aspects of Enron's proposal, including the structure of a
transaction, timing and certain legal and accounting issues. During the same
period, the Audit Committee and its counsel interviewed possible financial
advisors and reviewed the status of the discussions with Enron relating to its
proposal. During this period, the Audit Committee concluded that it would be
appropriate to create a new special committee (the "Special Committee"), which
would have the same members as the Audit Committee, to consider any proposal to
acquire Azurix or all or substantially all of its assets, or to finance a
repurchase of all or the public component of its shares, including the Enron
proposal.
On November 7, the Audit Committee authorized Azurix to engage Salomon
Smith Barney, which had acquired Schroders and thus had worked with Azurix in
connection with a possible sale of Azurix, and Wasserstein Perella to advise the
Special Committee that was expected to be formed. The Special Committee was
established by unanimous action of the full Azurix Board on November 9 and on
November 10 the Special Committee ratified the retention of Salomon Smith Barney
and Wasserstein Perella as its financial advisors and the engagement of Skadden
Arps and Morris Nichols as its legal advisors. In doing so, the Special
Committee took note of the fact that Salomon Smith Barney and certain of its
affiliates have had a long-standing relationship with Enron and that Wasserstein
Perella has had only a minor engagement with Enron, on a transaction that was
never consummated, during the last five years.
Throughout the month of November and in early December, representatives of
Salomon Smith Barney, Wasserstein Perella and Skadden Arps met with various
officers of Azurix, Wessex and Azurix Buenos Aires, two of Azurix's most
significant subsidiaries, to better understand Azurix's business and to gain the
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information necessary to adequately assess Enron's proposal as compared to
alternatives to that proposal, including Azurix continuing with publicly traded
shares. They also reviewed the contacts that had been made and the discussions
that had been held, either by or on behalf of Azurix or Enron, with other
companies that were believed to have a potential interest in acquiring Azurix or
material assets of Azurix. As part of this review, contacts were made with
representatives of the European utility to determine whether the European
utility had any renewed interest in an acquisition of Azurix or material assets
of Azurix. The representatives of the European utility reconfirmed their lack of
interest in an acquisition of Azurix and their possible interest in an
acquisition of certain assets in the future although not at valuation levels
that would be higher than the valuation levels implied by the $7.00 per share
Enron proposal. Inquiries were also made to the two other parties that had
contacted Azurix following its disclosure of the Enron proposal concerning a
possible interest in purchasing, in one case Wessex and in the other Azurix's
Mexican business, but neither of these parties expressed an interest in an asset
acquisition at a valuation that was competitive with the valuation of those
assets implied by the Enron $7.00 per share proposal.
On November 20, representatives of Salomon Smith Barney, Wasserstein
Perella and Skadden Arps met with Mr. J. Mark Metts, Enron's Executive Vice
President, Corporate Development, and other representatives of Enron and Enron's
financial and legal advisors to discuss, among other things, various matters
relating to the Enron proposal, the history of Enron's investment in Azurix and
Atlantic Water Trust and Enron's plans for Azurix in the event that the Enron
proposal or a revised proposal from Enron were to be consummated. In that
connection, Mr. Metts explained that, while Enron was prepared to make available
a transaction to permit Azurix's public shareholders to sell their shares at
$7.00 per share and believed that price to be fair to those shareholders, for
its own reasons it would not support a sale by Atlantic Water Trust of the
Azurix shares owned by it at that price. At this meeting, Enron's attorneys
provided to the Special Committee's advisors a draft merger agreement setting
forth, among other things, the proposed merger structure and conditions on which
Enron was proposing to proceed. Enron also asked to receive certain additional
information, including the latest Azurix management forecasts, that was
necessary for Enron to complete its internal analysis and to finalize any
proposal.
On November 21, the Special Committee met with Azurix's senior management
and the Special Committee's legal and financial advisors. At this meeting, the
advisors reported to the Special Committee on the various meetings with Azurix
and its subsidiaries' managements referred to above. The advisors also updated
the Special Committee on the meeting with representatives of Enron that had
taken place the prior day and the issues raised by their preliminary review of
the draft merger agreement provided by Enron. The Special Committee and its
advisors discussed alternatives to Enron's proposal that were available to
Azurix. The Special Committee authorized the delivery to Enron and its advisors
of the updated management forecasts and other information that it had requested
at the meeting on November 20 and any other information that Enron requested.
For a summary of these forecasts, see "-- Certain Forward-Looking Information."
On December 4, the Special Committee met with Azurix's senior management
and the Special Committee's financial and legal advisors. Representatives of
Wasserstein Perella and Salomon Smith Barney reported on their due diligence
investigation, and made detailed presentations concerning their analysis of
Enron's $7.00 per share proposal and Azurix's prospects given its existing
businesses and its capital constraints. The Special Committee discussed with its
advisors Azurix's alternatives to accepting Enron's proposal, including:
- the likelihood of receiving an offer to acquire Azurix at a price of more
than $7.00 per share from any third party;
- Azurix continuing as a publicly traded company with its existing
businesses;
- Azurix continuing as a publicly traded company but selling all of its
businesses, other than Wessex and Azurix Buenos Aires, to as yet
unidentified parties; and
- the basis on which the Special Committee might negotiate an increase in
the cash amount per share offered by Enron.
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After a full discussion among the members of the Special Committee, Azurix's
senior management and the Special Committee's advisors, the Special Committee
determined that pursuing a transaction with Enron would likely result in more
value to its public shareholders than Azurix's other alternatives. The Special
Committee then discussed with its financial and legal advisors the strategy for
moving forward with Enron. The Special Committee instructed its advisors to seek
additional cash consideration for Azurix's public shareholders and explore the
willingness of Enron issuing to Azurix's public shareholders contingent value
rights, which would result in an additional payment to shareholders in the event
that, during a specified period of time following consummation of a merger,
Azurix sold Wessex and/or Azurix Madera Corp. (a ground water storage project)
to third parties for consideration in excess of specified amounts.
On December 5, representatives of Wasserstein Perella, Salomon Smith Barney
and Skadden Arps met with Mr. Metts and Enron's legal advisors to discuss the
financial and various other aspects of Enron's $7.00 per share proposal. After
extended discussion, Mr. Metts indicated a willingness to recommend to senior
management of Enron that it consider improving its cash offer to the range of
$8.00 to $8.25 per share for Azurix's public shareholders but was disinclined to
recommend to include a contingent value right given the uncertain value and
complicated nature of such securities. The Special Committee's financial
advisors indicated that they were unprepared to support the price range
suggested by Mr. Metts but would be willing to review with the Special Committee
a cash price of $8.50 per share plus a contingent value right with terms to be
determined. However, the group reached agreement on a number of provisions of
the proposed merger agreement and related support agreement under which Atlantic
Water Trust would agree to vote in favor of the merger. A number of important
provisions of the proposed merger agreement remained unresolved, including among
other things the extent and nature of the parties' commitments related to
ensuring compliance with the applicable covenant contained in Azurix's senior
note indenture. For further information about this covenant, see "-- Indenture."
On December 6, the Special Committee held a meeting at which the Special
Committee's financial and legal advisors updated the Special Committee on the
advisors' negotiations with Enron and its legal advisors on the prior day. The
Special Committee was encouraged by the progress made at the meeting the day
before and concluded that the most appropriate way to bring the discussion of
the financial terms of a revised Enron proposal to a successful conclusion would
be for the members of the Special Committee to meet directly with senior
management of Enron once the non-financial aspects of the proposed agreements
had been resolved. To that end, the Special Committee authorized its legal
advisors to continue negotiations with Enron's legal advisors relating to the
merger agreement and the related support agreement. These negotiations continued
and by the morning of December 11 the forms of the merger agreement and the
support agreement had been substantially completed other than as to the amount
of merger consideration and other than certain issues relating to the senior
note indenture.
On December 11, the members of the Special Committee met with Messrs. Lay,
Skilling and Metts to discuss the proposed price per share to be paid to
Azurix's public shareholders. After some discussion, Mr. Lay indicated that he
would recommend that at its meeting scheduled for the following day the Enron
Board authorize an increase in Enron's proposed price to Azurix's public
shareholders to $8.375 per share and no contingent value rights if the Special
Committee would support that price and if the Enron proposal litigation could be
settled on terms that Enron found acceptable. The members of the Special
Committee indicated that they would be prepared to support that price if it were
offered by Enron, a satisfactory memorandum of understanding to settle in
principle the Enron proposal litigation was entered into and all other open
matters were resolved.
Following the meeting with Messrs. Lay, Skilling and Metts, the Special
Committee met with its financial and legal advisors to review the negotiations
that had taken place that morning and discussed the terms and conditions of the
proposed merger agreement and related documents. As part of that review, the
Special Committee and its advisors considered, as a whole, the various
provisions that would apply in the event that a superior transaction were to
become available to Azurix's shareholders or that the Special Committee or the
Board were to determine that it should no longer support the proposed merger.
The group also discussed the various proposed provisions requiring compliance
with the Azurix senior note indenture and setting forth the extent and nature of
the proposed commitments of Enron and Azurix to ensure compliance. At the
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meeting, Wasserstein Perella and Salomon Smith Barney updated their prior
presentations with respect to the financial aspects of the Enron proposal and
Skadden Arps and Morris Nichols reviewed the applicable fiduciary duty
standards.
On December 12, the Enron Board (excluding Messrs. Winokur and Duncan and
Lord Wakeham) met and authorized an ad hoc committee of that Board consisting of
Enron directors that were neither officers of Enron, nor directors or officers
of Azurix to improve the Enron proposal once they were satisfied that the Enron
proposal litigation would likely be settled in principle, subject to court
approval. Later that day, representatives of Wasserstein Perella, Salomon Smith
Barney and Skadden Arps reviewed with Messrs. Lay and Skilling, in their
capacities as the members of the Azurix Board who are not on the Special
Committee, the financial advisors' valuation analyses and summaries of the terms
of the proposed merger agreement and related documents.
On December 12 and 13, representatives and legal advisors of Enron and the
financial and legal advisors of the Special Committee held a series of meetings
with plaintiffs' lead counsel and plaintiffs' financial advisor in the Enron
proposal litigation concerning a possible settlement of the Enron proposal
litigation. These discussions resulted in a memorandum of understanding
concerning a proposed settlement that was executed on December 13 and is
described in more detail at "-- Litigation Involving the Merger."
On December 13, after execution of the memorandum of understanding
regarding the proposed settlement, the ad hoc committee of the Enron Board
authorized Mr. Metts to communicate to the Special Committee an increase in the
price proposed to be paid to Azurix's public shareholders to $8.375 per share
and approved the merger agreement on behalf of Enron. Following receipt of the
increased proposal, the Special Committee met with its legal and financial
advisors and determined to take action on the increased proposal on December 15,
assuming that all remaining issues concerning the merger agreement and related
documents were resolved by that time. The Special Committee also asked Mr.
Winokur to speak with Mr. Lay before the December 15 meeting to request Enron to
consider further increasing the proposed price per share offered. Messrs.
Winokur and Lay spoke on December 14 about this matter and Mr. Lay indicated
that Enron was not prepared to increase the proposed price per share.
On December 15, the Special Committee met with its financial and legal
advisors and Azurix senior management to review the final terms and conditions
of the proposed merger agreement and related documents. At this meeting, each of
Wasserstein Perella and Salomon Smith Barney advised the Special Committee that,
in its opinion, as of that date and based on and subject to the limitations,
assumptions and qualifications set forth in its written opinion, the proposed
merger consideration of $8.375 per share in cash to be received by the public
shareholders of Azurix was fair from a financial point of view. Following some
discussion, the Special Committee unanimously determined that the terms of the
proposed merger are advisable, and are fair to, and in the best interests of,
Azurix's public shareholders and determined that the Azurix Board should
consider approval and adoption of the merger agreement and the merger.
Immediately following the December 15 meeting of the Special Committee, the
entire Azurix Board met and Wasserstein Perella and Salomon Smith Barney
repeated their fairness opinions as delivered to the Special Committee. After
discussion, the Azurix Board unanimously resolved that the terms of the merger
are advisable, and are fair to, and in the bests interests of, Azurix's public
shareholders, and determined to approve the merger agreement and the support
agreement and to recommend to Azurix's public shareholders that the merger
agreement and the merger be approved and adopted.
Immediately following the Azurix Board's approval, Azurix, Enron and the
merger subsidiary entered into the merger agreement, Azurix and Atlantic Water
Trust entered into the support agreement and Azurix and Enron issued press
releases announcing execution of the merger agreement and support agreement.
DETERMINATION OF THE SPECIAL COMMITTEE AND RECOMMENDATION OF THE AZURIX BOARD OF
DIRECTORS; FAIRNESS OF THE MERGER
The Special Committee unanimously determined that the terms of the merger
are advisable, and are fair to, and in the best interests of, Azurix's public
shareholders and unanimously recommended to the Azurix
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<PAGE> 29
Board that the merger agreement and the merger be considered by the Azurix Board
for its approval and adoption. Following its receipt of the Special Committee
determination, the Azurix Board unanimously resolved that the terms of the
merger are advisable, and are fair to, and in the bests interests of, Azurix's
public shareholders, and determined to approve the merger agreement and the
support agreement and to recommend to Azurix's public shareholders that the
merger agreement and the merger be approved and adopted. The Special Committee
and the Azurix Board considered a number of factors, as more fully described
above under "-- Background of the Merger" and as described below under
"-- Reasons for the Special Committee's Determination and the Board's
Recommendation," in making its determination and recommendation, respectively.
The Azurix Board unanimously recommends that you vote FOR the approval and
adoption of the merger agreement and the merger.
Reasons for the Special Committee's Determination and the Board's
Recommendation. The Special Committee in reaching its determination, and the
Board in reaching its recommendation, considered a number of factors, both
positive and negative, including the following material factors:
- the significant decline in trading prices for the Azurix common stock in
the period since its initial public offering and the fact that $8.375 per
share in cash represents a 135.1% premium over the closing price per
share on October 26, 2000 (the last day of trading before Enron made its
$7.00 per share proposal to Azurix) and a 36.7% premium over the closing
price per share on December 14, 2000 (the last full day of trading before
the public announcement of the merger agreement);
- the presentations made by Wasserstein Perella and Salomon Smith Barney to
the Special Committee at various meetings and the opinions of each of
Wasserstein Perella and Salomon Smith Barney that, as of December 15,
2000, based on and subject to the limitations, assumptions and
qualifications set forth in its opinion, the merger consideration of
$8.375 per share in cash to be received by Azurix's public shareholders
was fair from a financial point of view;
- the current and prospective environment in which Azurix operates, and in
particular the competitive factors affecting the market for global water
services, which have worked to the detriment of a company with Azurix's
size, asset mix and capital constraints;
- the Special Committee's and the Board's consideration of Azurix's
strategic alternatives and determinations that such alternatives would
likely result in significantly less value for Azurix's public
shareholders than the cash merger consideration provided for in the
merger agreement;
- the Special Committee's and the Board's judgments, in view of Azurix's
prospects as well as discussions with a number of possible acquirors,
that it is unlikely that one or more strategic or financial acquirors
would be willing to pay a price for Azurix or its assets that in present
value terms would be as high as $8.375 per share in cash to Azurix's
public shareholders and that for their own reasons Atlantic Water Trust
and Enron might or might not be prepared to support as a direct or
indirect majority shareholder of Azurix whose approval would be essential
to a proposed sale of Azurix at prices per share higher than $8.375;
- the business reputation, financial resources and high rate of success of
Enron in structuring and completing transactions similar to the merger
and the belief that Enron has the ability and desire to complete the
merger in a timely manner;
- Enron's commitment in the merger agreement to convert up to the full $180
million principal amount of borrowings under its Azurix line of credit
into Azurix preferred stock to the extent needed to permit satisfaction
of Azurix's senior note indenture requirement that, on a pro forma basis
at the time of the merger, Azurix be able to satisfy certain debt
incurrence tests and the fact that, taken together with certain actions
that Azurix can take to facilitate such compliance, Azurix's management
believes that this requirement will likely be satisfied if the merger
occurs on or prior to March 31, 2001;
- Azurix management's belief that this debt incurrence test could also be
satisfied if the merger occurs by the "drop dead" date of May 31, 2001
and Azurix's cash flow performance through March 31, 2001 is generally in
line with current Azurix management forecasts, but that if cash flow is
insufficient
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<PAGE> 30
during this period, the merger agreement would be subject to termination
by either Enron or Azurix unless the parties were to agree to a proposed
course of action that would enable compliance with the indenture
requirement;
- Azurix's public shareholders' collective control of the decision whether
the merger will be approved by shareholders, given Atlantic Water Trust's
agreement in the support agreement to vote in favor of the merger as an
approximately 67% shareholder, thus assuring compliance with the
statutorily required vote, and the separate "majority of the minority"
approval requirement that at least a majority of the shares either cast
in favor of or against the merger at the special shareholders meeting by
public shareholders be cast in favor of the merger;
- the terms of the merger agreement, which do not preclude the Azurix Board
or the Special Committee, in the exercise of their fiduciary duties to
shareholders, from soliciting or considering competing acquisition
proposals, from terminating the merger agreement without the payment of
any termination fee if a "superior proposal" were to become available or
from withdrawing support of the merger agreement, although, in the case
of a withdrawal of support or other adverse change in the Board's
recommendation other than for a "superior proposal," Enron would be
entitled to require that the merger nonetheless be submitted to Azurix's
shareholders for their approval subject to the "majority of minority"
approval requirement noted above. See "THE MERGER
AGREEMENT -- Termination of the Merger Agreement" for additional
information regarding the Board's or the Special Committee's ability to
consider competing proposals;
- the interests of Enron and Atlantic Water Trust are different than the
interests of the public shareholders;
- the ability of shareholders who may not support the merger to obtain
"fair value" for their shares if they properly perfect and exercise their
appraisal rights under the Delaware General Corporation Law, which
provides shareholders with the opportunity to exercise appraisal rights
and to seek a determination of the Delaware Court of Chancery as to the
fair value of their shares of common stock. See "-- Dissenters' Rights of
Appraisal" for information on how to exercise your appraisal rights;
- if the merger is completed, Azurix's public shareholders will not
participate in any future growth of Azurix, although in view of the risks
and uncertainties associated with Azurix's future prospects, and in light
of the market price of its common stock, the Special Committee and the
Azurix Board concluded that the merger was preferable to maintaining the
publicly held status of Azurix with a speculative return to its public
shareholders; and
- the per share price to be received in the merger being payable in cash,
eliminating any uncertainties in valuing the merger consideration to be
received by Azurix shareholders, but subjecting most shareholders to
taxation on any gain.
The foregoing discussion addresses the material information and factors
considered by the Special Committee and the Azurix Board in their consideration
of the merger, including factors that support the merger as well as those that
may weigh against it. In view of the variety of factors and the amount of
information considered, neither the Special Committee nor the Azurix Board found
it practicable to, and did not specifically, make assessments of, quantify or
otherwise assign relative weights to the various factors and analyses considered
in reaching its determination. The determination to approve the merger agreement
and the merger was made after consideration of all the factors as a whole.
Fairness of the Merger to Public Shareholders and Procedural Fairness. The
members of the Special Committee and the Azurix Board also determined that the
merger is both fair to the public shareholders and procedurally fair because,
among other things:
- the Special Committee, consisting solely of directors who, while Enron
directors, are not officers or employees of Enron or Azurix, was given
exclusive authority to, among other things, consider, negotiate and
evaluate the terms of any proposed transaction, including the merger and,
consistent with
23
<PAGE> 31
that grant of authority, did not participate in meetings of the Enron
Board in which either the $7.00 per share Enron proposal or the merger
were considered or approved;
- the Special Committee retained and received advice from legal counsel and
financial advisors selected and engaged by it in negotiating and
evaluating the terms of the Enron proposal and the merger agreement;
- each of Wasserstein Perella and Salomon Smith Barney had been retained to
advise the Special Committee as to the fairness, from a financial point
of view, of the proposal received from Enron, and each rendered an
opinion that, as of December 15, 2000, based on and subject to the
limitations, assumptions and qualifications set forth in its opinion, the
merger consideration of $8.375 per share in cash to be received by
Azurix's public shareholders was fair from a financial point of view;
- the $8.375 per share cash consideration and the other terms and
conditions of the merger agreement resulted from arm's-length bargaining
between the Special Committee and its representatives, on one hand, and
Enron and its representatives, on the other hand;
- the Special Committee's and the Azurix Board's consideration of Azurix's
strategic alternatives and determinations that such alternatives would
likely result in significantly less value for Azurix's public
shareholders than the cash merger consideration provided for in the
merger agreement;
- $8.375 per share in cash represents a 135.1% premium over the closing
price per share on October 26, 2000 (the last day of trading before Enron
made its $7.00 per share proposal to Azurix) and a 36.7% premium over the
closing price per share on December 14, 2000 (the last full day of
trading before the public announcement of the merger agreement);
- neither during the course of Azurix's efforts to find a potential
acquiror throughout much of the year 2000 nor after public disclosure of
the Enron $7.00 per share proposal on October 27, 2000 did any other
party express a serious interest in acquiring either Azurix or material
assets of Azurix at a valuation exceeding $7.00; and
- there is a separate "majority of the minority" approval requirement that
at least a majority of the shares either cast in favor of or against the
merger at the special shareholders meeting by public shareholders be cast
in favor of the merger.
ENRON'S, THE MERGER SUBSIDIARY'S AND ATLANTIC WATER TRUST'S VIEW OF THE FAIRNESS
OF THE MERGER
Each of Enron, the merger subsidiary and Atlantic Water Trust have
considered the factors considered by the Special Committee and the Azurix Board
and believe that the consideration to be received by the public shareholders
pursuant to the merger is fair to the public shareholders. Enron, the merger
subsidiary and Atlantic Water Trust base their belief as to the fairness of the
merger on the following factors:
- the Special Committee and the Azurix Board, prior to the Azurix Board's
approval of the merger agreement, concluded that the merger is fair to,
and in the best interests of, Azurix's public shareholders; and
- the Special Committee, prior to the Azurix Board's approval of the merger
agreement, received opinions from each of Salomon Smith Barney and
Wasserstein Perella that, as of December 15, 2000 and based on and
subject to the limitations, assumptions and qualifications set forth in
its opinion, the merger consideration of $8.375 per share in cash to be
paid in the merger to Azurix's public shareholders is fair to the public
shareholders from a financial point of view.
Enron, the merger subsidiary and Atlantic Water Trust did not find it
practicable to assign, nor did they assign, relative weights to the individual
factors considered in reaching their conclusions as to fairness.
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<PAGE> 32
CERTAIN FORWARD-LOOKING INFORMATION
Azurix does not, as a matter of course, make public forecasts or
projections as to future financial results. However, in connection with the
review of Azurix's strategic alternatives, including its possible sale, Azurix
management prepared and provided to certain representatives of Enron, the
Special Committee, Wasserstein Perella and Salomon Smith Barney (i) several sets
of projections for the remainder of 2000 and the years 2001 through 2005,
including projections prepared in March 2000 in connection with Azurix's efforts
to find a possible buyer for Azurix (the "March 2000 Projections") and updated
projections prepared in November 2000 following Enron making its $7.00 per share
proposal (the "November 2000 Projections") and (ii) Azurix's 2001 Budget
approved by the Azurix Board on December 11, 2000 (the "2001 Budget").
Azurix did not prepare any of the projections summarized below with a view
to public disclosure or compliance with published guidelines of the Securities
and Exchange Commission or the guidelines established by the American Institute
of Certified Public Accountants regarding projections. Azurix's independent
accountants have not performed any procedures with respect to the projections
and assume no responsibility for them. Neither Azurix, the Azurix Board, the
Special Committee, Enron, the Enron Board nor any of their respective advisors,
agents or representatives assumes any responsibility for the accuracy of any of
the projections summarized below and each believes that, because projections of
this type are based on a number of significant uncertainties and contingencies,
all of which are difficult to predict and most of which are beyond our control,
it cannot assure you that any of these projections will be realized.
The projections summarized below are based upon a variety of assumptions,
including Azurix's ability to achieve strategic goals, objectives and targets
over the applicable period. These assumptions involve judgments with respect to
future economic, competitive and regulatory conditions, financial market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond Azurix's control.
You should understand that many important factors, in addition to those
discussed elsewhere in this proxy statement, could cause our results to differ
materially from those expressed in forward-looking statements. These factors
include our competitive environment, economic and other market conditions in
which we operate, cyclical and seasonal fluctuations in our operating results
and matters affecting business generally. See "CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS."
The 2001 Budget includes a liquidity analysis (treated as forecasted
permitted and committed borrowing capacity) which projects liquidity, exclusive
of Wessex borrowing capacity, at (i) January 1, 2001, (ii) December 31, 2001,
and (iii) May 31, 2002. In the case of the projected liquidity at December 31,
2001 and May 31, 2002, the amounts indicated have been prepared on the
assumption that there are no significant asset sales or additional general and
administrative expense reductions and that the Enron $180 million revolving line
of credit and the Azurix Europe L425 million credit facility will be extended
past their maturities of December 15, 2001 and May 10, 2002, respectively, with
the current availabilities, although neither Enron nor the banks that provide
the Azurix Europe credit facility have committed to so extend those maturities.
Projected liquidity is approximately (i) $273 million at January 1, 2001, (ii)
$40 million, $70 million and $90 million at December 31, 2001 under the "Risk
Case," "Budget Case" and "Opportunity Case," respectively, and (iii) $0, $12
million and $41 million at May 31, 2002 under the "Risk Case," "Budget Case" and
"Opportunity Case," respectively.
Set forth below are summaries of (i) the November 2000 Projections, as
updated for the years 2000 and 2001 for the information for those years included
in the 2001 Budget, and (ii) the March 2000 Projections. The decline in
projected performance between the March 2000 Projections and the November 2000
Projections is primarily attributable to a decline in the dollar to pound
exchange rate and to projected lowered results for Azurix Buenos Aires and Lurgi
Bamag based on the operating difficulties that they have been experiencing. The
November 2000 Projections assume that there will be a resolution in 2001 on a
going-forward basis of the pending dispute between Azurix Buenos Aires and the
Provincial Government of Buenos Aires so as to permit Azurix Buenos Aires to
bill and collect for the water it provides in accordance with the terms of the
concession agreement, although there is no assurance that this dispute will be
resolved on this time frame or as to the basis on which the dispute might be
resolved. The November 2000 Projections also
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<PAGE> 33
assume that Azurix is able to raise requisite additional capital to fund the
growth of its businesses in 2002 and beyond. Azurix management believes that
such additional capital may not necessarily be available at reasonable cost.
UNAUDITED NOVEMBER 2000 PROJECTIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
----------------------------------------------------
2000 2001(1) 2002 2003 2004 2005
------ ------- ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
EBITDA.................................... $258.7 $295.9 $346.1 $407.3 $481.9 $540.9
EBIT...................................... 127.1 158.8 192.8 235.5 293.0 338.8
Net Income (Loss)......................... (0.4) (5.5) 10.2 26.4 54.1 73.4
Earnings (Loss) per Share................. 0.00 (0.05) 0.09 0.23 0.46 0.63
</TABLE>
---------------
(1) Represents the "Budget Case." The comparable information for the "Risk Case"
is $248.9 million in EBITDA, $107.8 million in EBIT, $(52.5 million) in net
loss and $(0.45) in net loss per share. The comparable information for the
"Opportunity Case" is $328.3 million in EBITDA, $194.2 million in EBIT,
$29.5 million in net income and $0.25 in net income per share.
UNAUDITED MARCH 2000 PROJECTIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
-----------------------------------------------
2000 2001 2002 2003 2004
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
EBITDA............................................ $323.5 $364.6 $423.1 $472.7 $526.2
EBIT.............................................. 191.6 213.4 259.8 297.9 345.2
Net Income........................................ 40.9 35.3 48.0 64.3 79.7
Earnings per Share................................ 0.35 0.30 0.41 0.54 0.68
</TABLE>
OPINIONS OF FINANCIAL ADVISORS TO THE SPECIAL COMMITTEE
Wasserstein Perella & Co., Inc.
The Special Committee retained Wasserstein Perella to act as its financial
advisor in connection with the proposed merger. Wasserstein Perella has
delivered a written opinion to the Special Committee, dated December 15, 2000,
to the effect that, subject to the various assumptions and limitations set forth
therein, as of the date thereof, the $8.375 cash consideration to be received by
the Azurix public shareholders in the proposed merger is fair to such
shareholders from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF WASSERSTEIN PERELLA, DATED DECEMBER
15, 2000, WHICH SETS FORTH, AMONG OTHER THINGS, THE OPINIONS EXPRESSED, THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS OF THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX C AND
IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF THE SHARES OF AZURIX COMMON
STOCK ARE URGED TO READ IT IN ITS ENTIRETY. WASSERSTEIN PERELLA'S OPINION DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES AS TO HOW SUCH HOLDER
SHOULD VOTE WITH RESPECT TO THE MERGER, AND SHOULD NOT BE RELIED UPON BY ANY
HOLDER AS SUCH.
In connection with rendering its opinion, Wasserstein Perella reviewed the
merger agreement and the support agreement. Wasserstein Perella also reviewed
and analyzed certain publicly available business and financial information
relating to Azurix for recent years and interim periods to date, as well as
certain internal financial and operating information, including financial
forecasts, analyses and projections prepared by or on behalf of Azurix and
provided to Wasserstein Perella for purposes of its analysis, and Wasserstein
Perella met with management of Azurix and certain of its subsidiaries to review
and discuss such information and, among other matters, each of Azurix's and its
subsidiaries' business, operations, assets, financial condition, including its
liquidity and capital needs, and future prospects, as well as the regulatory
climate in which Azurix's subsidiaries operate.
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<PAGE> 34
Wasserstein Perella reviewed and considered certain financial and stock
market data relating to Azurix, and it compared that data with similar data for
certain other companies, the securities of which are publicly traded, that
Wasserstein Perella believed might be relevant or comparable in certain respects
to Azurix or one or more of its businesses or assets, and Wasserstein Perella
reviewed and considered the financial terms of certain recent acquisitions and
business combination transactions in the water utility industry specifically
that Wasserstein Perella believed to be reasonably comparable to the merger or
otherwise relevant to its inquiry. Wasserstein Perella also performed such other
financial studies, analyses, and investigations and reviewed such other
information as it considered appropriate for purposes of its opinion.
In its review and analysis and in formulating its opinion, Wasserstein
Perella assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to or discussed with it or publicly
available, and Wasserstein Perella did not assume any responsibility for
independent verification of any of such information. Wasserstein Perella also
assumed and relied upon the reasonableness and accuracy of the financial
projections, forecasts and analyses provided to it, and Wasserstein Perella
assumed that such projections, forecasts and analyses were reasonably prepared
in good faith and on bases reflecting the best currently available judgments and
estimates of Azurix's management. Wasserstein Perella expressed no opinion with
respect to such projections, forecasts and analyses or the assumptions upon
which they are based. In addition, Wasserstein Perella did not review any of the
books and records of Azurix, or assume any responsibility for conducting a
physical inspection of the properties or facilities of Azurix, or for making or
obtaining an independent valuation or appraisal of the assets or liabilities of
Azurix. Wasserstein Perella assumed that the transactions described in the
merger agreement would be consummated without waiver or modification of any of
the material terms or conditions contained therein by any party thereto.
Wasserstein Perella's opinion necessarily was based on economic and market
conditions and other circumstances as they existed and could be evaluated by
Wasserstein Perella as of December 15, 2000.
Wasserstein Perella was not authorized to, and did not solicit, third party
indications of interest in acquiring all or any part of Azurix and it was not
authorized to investigate any alternative transactions that may be available to
Azurix. Wasserstein Perella's opinion states that Azurix advised Wasserstein
Perella, and Wasserstein Perella relied on Azurix's advice, that J. Henry
Schroder and Co., a predecessor to Salomon Smith Barney, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, advisors to Azurix, solicited indications
of interest from potential acquirors of, or merger partners for, Azurix, as well
as responded to certain other potentially interested parties for Azurix or
certain of its significant assets.
The following is a summary of the reports presented by Wasserstein Perella
to the Special Committee in connection with the delivery of its opinion on
December 15, 2000. Copies of Wasserstein Perella's December 11, 2000
presentation to the Special Committee are available for inspection and copying
at Azurix's principal executive office during regular business hours by any
public shareholder or its representative who has been so designated in writing,
and will be provided to any public shareholder upon written request at the
expense of the requesting party. The presentation is also filed as an exhibit to
Azurix's, Enron's, Atlantic Water Trust's and the merger subsidiary's Schedule
13E-3, copies of which may be obtained from the Securities and Exchange
Commission. See "WHERE YOU CAN FIND MORE INFORMATION," beginning on page 66. The
summary set forth below does not purport to be a complete description of
Wasserstein Perella's report.
Wasserstein Perella's Analyses -- General. In performing the analyses
described below, Wasserstein Perella performed a sum-of-the-parts analysis of
Azurix's business based on its judgment that, due to the unique characteristics
of Azurix's business, a valuation of each business was appropriate. The
sum-of-the-parts analysis involved a separate valuation of each of Azurix's
businesses, with a deduction of the capitalized value of its corporate overhead
costs, to determine the aggregate enterprise value of Azurix, which value was
then adjusted by subtracting the debt net of cash and minority interests in the
businesses as of September 30, 2000 to yield an implied equity valuation of
Azurix. In valuing each of Azurix's businesses, Wasserstein Perella used
financial information and data provided by or discussed with the management of
Azurix and certain of its subsidiaries.
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<PAGE> 35
Discounted Cash Flow Analysis. Wasserstein Perella performed a discounted
cash flow analysis of Azurix's businesses based on operating projections
provided by the management of Azurix. In performing its discounted cash flow
analysis, Wasserstein Perella made various assumptions, including with respect
to the risks associated with each Azurix business, and applied valuation
parameters that it deemed appropriate.
DISCOUNTED CASH FLOW ANALYSIS -- SCENARIO 1. Using the projections
provided by Azurix's management, Wasserstein Perella calculated the theoretical
discounted value per share of Azurix common stock by adding together the
following data for each of Azurix's businesses: (a) the projected future stream
of unlevered free cash flows (unlevered net income, plus depreciation and
amortization, less capital expenditures and changes in working capital) through
the end of the fiscal year listed below, and (b) the projected continuing value
of the business, assuming Azurix remained a stand-alone entity, at the end of
the fiscal year listed below, defined as the terminal value. The cash flow
streams and terminal values were then discounted to present values. Three
discounted cash flow computations were created for each Azurix business using
the low, middle and high values of the discount rates and terminal multiples of
estimated EBITDA for the fiscal year listed below for the applicable business:
<TABLE>
<CAPTION>
TERMINAL MULTIPLE
AZURIX SUBSIDIARY FISCAL YEAR DISCOUNT RATE OF ESTIMATED EBITDA
----------------- ----------- ------------- -------------------
<S> <C> <C> <C>
Wessex Water Services Limited..... 2010 6.5%-7.5% 6.0x-8.0x
Azurix Buenos Aires S.A........... 2029 15.0%-17.0% No multiple (analysis reflects
entire useful life)
Azurix North America.............. 2005 10.0%-12.0% 6.0x-8.0x
Azurix Brazil RDM Ltda............ 2005 15.0%-17.0% 4.0x-6.0x
IASA Holdings, S.A.
de C.V.......................... 2020 12.0%-14.0% No multiple (analysis reflects
entire useful life)
Lurgi Bamag....................... 2005 12.0%-14.0% 4.0x-6.0x
Desarrollos Hidraulicos de Cancun,
S.A. de C.V..................... 2023 11.0%-13.0% No multiple (analysis reflects
entire useful life)
Obras Sanitarias Mendoza S.A...... 2015 14.0%-16.0% 5.0x-6.0x
RDM............................... 2005 12.0%-14.0% 5.0x-7.0x
Corporate......................... 2005 8.0%-10.0% No multiple (analysis used
perpetuity growth rate)
</TABLE>
With respect to its valuation of financial information stated in British
pounds, Wasserstein Perella's discounted cash flow analysis converted the
information into U.S. dollars, using Azurix management's projected forward
dollar to sterling exchange rates listed below:
<TABLE>
<S> <C>
2001:....................................................... 1.45
2002:....................................................... 1.50
2003:....................................................... 1.55
2004:....................................................... 1.60
2005-2010:.................................................. 1.65
</TABLE>
By adding the present value of the cash flow streams and terminal value of
each of the Azurix businesses and subtracting Azurix's net debt and minority
interests in the businesses at September 30, 2000, a range of implied equity
values for Azurix was determined. Based on the analysis above, Wasserstein
Perella arrived at implied equity values of $187.4 million to $882.9 million, or
a price per share valuation range of $1.60 to $7.52. Wasserstein Perella noted
that the proposed consideration to be received in the merger by the Azurix
public shareholders was above the foregoing range.
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<PAGE> 36
DISCOUNTED CASH FLOW ANALYSIS -- SCENARIO 2. Using the projections
provided by Azurix's management and other financial data reviewed by Wasserstein
Perella, Wasserstein Perella calculated the theoretical discounted value per
share of Azurix common stock by (a) computing the value of the Wessex subsidiary
based on the subsidiary's regulated asset base (RAB) multiplied by 1.22x, which
is the multiple of RAB paid in the recently announced acquisition of Thames
Water Plc, the largest water and wastewater company in the United Kingdom, by
RWE AG, a large German electric utility, and (b) adding the discounted cash flow
value for each of Azurix's other businesses as computed above, but using Enron
management's scenario of reducing corporate overhead expenses to $2 million
after fiscal year 2001. Three discounted cash flow computations were created for
each of the other Azurix businesses using the low, middle and high values of the
discount rates and terminal multiples listed above for the applicable business.
With respect to its valuation of financial information stated in British pounds,
Wasserstein Perella's discounted cash flow analysis converted the information
into U.S. dollars, using the forward dollar to sterling exchange rates listed
above.
By adding the value of the Wessex subsidiary calculated as described above
and the present value of the cash flow streams and terminal value of each of the
other Azurix businesses and subtracting Azurix's net debt and minority interests
in the businesses at September 30, 2000, a range of implied equity values for
Azurix was determined. Based on the analysis above, Wasserstein Perella arrived
at implied equity values of $763.4 million to $1,058.9 million, or a price per
share valuation range of $6.51 to $9.02. Wasserstein Perella noted that the
proposed consideration to be received in the merger by the Azurix public
shareholders was toward the higher end of the foregoing range.
Comparable Companies Analysis. Wasserstein Perella reviewed and compared
certain financial information of Azurix's Wessex subsidiary to corresponding
financial information for five publicly-traded United Kingdom companies in the
water utility industry: awg Plc, Kelda Group Plc, Severn Trent Plc, Pennon Group
Plc and United Utilities Plc. Using publicly available information, Wasserstein
Perella calculated and analyzed market valuation multiples based on, among other
things, RAB for fiscal year 2000; earnings before interest, taxes, depreciation
and amortization ("EBITDA") for fiscal year 2000 and estimated EBITDA for fiscal
years 2001 and 2002; earnings before interest and taxes ("EBIT") for fiscal year
2000 and estimated EBIT for fiscal years 2001 and 2002; and net income for
fiscal year 2000 and estimated net income for fiscal years 2001 and 2002. Fiscal
year 2000 for each of the comparable companies ended at March 31, 2000.
Wasserstein Perella derived the following selected reference range of multiples
from its review of the comparable companies:
- Enterprise Value to 2000 RAB of 0.90x to 0.94x
- Enterprise Value to actual 2000 EBITDA of 6.2x to 6.9x
- Enterprise Value to estimated 2001 EBITDA of 6.4x to 7.7x
- Enterprise Value to estimated 2002 EBITDA of 5.5x to 7.5x
- Enterprise Value to actual 2000 EBIT of 9.3x to 9.7x
- Enterprise Value to estimated 2001 EBIT of 10.7x to 12.3x
- Enterprise Value to estimated 2002 EBIT of 8.7x to 12.2x
- Equity Value to actual 2000 Net Income of 6.3x to 8.3x
- Equity Value to estimated 2001 Net Income of 10.6x to 12.2x
- Equity Value to estimated 2002 Net Income of 8.2x to 13.2x
29
<PAGE> 37
Based on these calculations, Wasserstein Perella calculated the following
enterprise valuation multiple ranges and derived a range of values for the
Wessex subsidiary:
<TABLE>
<CAPTION>
FINANCIAL DATA -- WESSEX SUBSIDIARY MULTIPLE RANGE
----------------------------------- --------------
<S> <C>
RAB......................................................... 0.90x-0.94x
EBITDA:
2000 FY................................................... 6.6x
2001 FY (estimated)....................................... 7.2x
2002 FY (estimated)....................................... 6.8x-7.1x
EBIT:
2000 FY................................................... 9.5x
2001 FY (estimated)....................................... 11.3x-11.4x
2002 FY (estimated)....................................... 10.8x-11.1x
</TABLE>
With respect to its valuation of financial information stated in British
pounds, Wasserstein Perella's comparable companies analysis converted the
information into U.S. dollars using the dollar to sterling market exchange rate
of 1.44 as of December 7, 2000.
Wasserstein Perella calculated a range of enterprise values for the Wessex
subsidiary based on the multiples listed above, added the range of values for
Azurix's other businesses based on the discounted cash flow analysis described
above and subtracted Azurix's net debt and minority interest in the businesses
at September 30, 2000, to compute a range of implied equity values for Azurix.
Based on the analysis above, Wasserstein Perella arrived at implied equity
values of $55 million to $679 million, or a price per share valuation range of
$0.47 to $5.79. Wasserstein Perella noted that the proposed consideration to be
received in the merger by the Azurix public shareholders was above the foregoing
range. Wasserstein Perella noted in its presentation that its comparable
companies analysis was based on market trading multiples and did not necessarily
reflect control premiums that may be available in acquisitions of comparable
companies. Wasserstein Perella was advised by counsel that, in this case, the
comparable companies analysis should not be understood to reflect a reference
range of values for assessing the fairness of an acquisition of Azurix.
Comparable Transactions Analysis. Wasserstein Perella reviewed publicly
available information to determine the purchase price and multiples paid in
certain transactions involving acquired businesses that Wasserstein Perella
considered comparable to Azurix's Wessex subsidiary. Wasserstein Perella
determined that the following transactions involved acquired businesses
comparable in certain respects to the Wessex subsidiary:
Lyonnaise des Eaux SA/Northumbrian Water Group Plc
Scottish Power Plc/Southern Water Plc
Enron/Wessex Water Plc
Western Power Distribution Ltd./Hyder Plc
RWE AG/Thames Water Plc
Wasserstein Perella calculated the enterprise value of the acquired
business in the comparable transactions and compared the enterprise value to
certain financial results of the acquired business for the fiscal year
immediately preceding the transaction, including EBITDA and EBIT, and compared
the equity value of the acquired business to the net income of the acquired
business. Wasserstein Perella derived the following selected reference range of
multiples from its review of the comparable transactions:
- Enterprise Value to EBITDA of 6.1x to 9.9x
- Enterprise Value to EBIT of 8.3x to 12.1x
- Equity Value to Net Income of 4.7x to 12.6x
30
<PAGE> 38
Based on these calculations, Wasserstein Perella calculated the following
enterprise valuation multiple ranges:
<TABLE>
<CAPTION>
FINANCIAL DATA MULTIPLE RANGE
-------------- --------------
<S> <C>
EBITDA...................................................... 8.4x-8.5x
EBIT........................................................ 10.3x-10.5x
Net Income.................................................. 9.9x-10.5x
</TABLE>
With respect to its valuation of financial information stated in British
pounds, Wasserstein Perella's comparable transactions analysis converted the
information into U.S. dollars, using the dollar to sterling market exchange rate
of 1.44 as of December 7, 2000.
Wasserstein Perella calculated a range of enterprise values for the Wessex
subsidiary based on the multiples listed above, added the range of values for
Azurix's other businesses based on the discounted cash flow analysis described
above and subtracted Azurix's net debt and minority interests in the businesses
at September 30, 2000, to compute a range of implied equity values for Azurix.
Based on the analysis above, Wasserstein Perella arrived at implied equity
values of $379 million to $896 million, or a price per share valuation range of
$3.23 to $7.64. Wasserstein Perella noted that the proposed consideration to be
received in the merger by the Azurix public shareholders was above the foregoing
range.
Exchange Rate Sensitivity Analysis. Wasserstein Perella performed an
exchange rate sensitivity analysis using the valuations of Azurix derived from
its analyses described above and applying projected forward dollar to sterling
exchange rates of five percent higher and five percent lower than the exchange
rates used in the corresponding analyses described above. Based on its analysis,
Wasserstein Perella arrived at the following per share valuation ranges for
Azurix:
<TABLE>
<CAPTION>
VALUATION RANGE VALUATION RANGE VALUATION RANGE
VALUATION METHODOLOGY (BASE RATE) (+5%) (-5%)
--------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Discounted Cash Flow..................... $1.60-$7.52 $2.19-$8.25 $ 1.00-$6.80
Discounted Cash Flow with Thames Water
Acquisition and Reduced Corporate
Overhead............................... $6.51-$9.02 $7.44-$9.96 $ 5.57-$8.09
Comparable Companies..................... $0.47-$5.79 $1.14-$6.61 $(0.21)-$4.98
Comparable Transactions.................. $3.23-$7.64 $4.05-$8.54 $ 2.42-$6.73
</TABLE>
No company or transaction used in the comparable companies analysis or
comparable transactions analysis is identical to Azurix or the proposed merger.
These analyses and the discounted cash flow analysis are based upon, and are
heavily dependent upon, assumptions as to future performance and other factors
and are subject to the limitations described in Wasserstein Perella's opinion.
Accordingly, Wasserstein Perella's analyses involve judgments concerning, among
other things, the financial and operating characteristics of the comparable
companies or acquired businesses as compared to the financial and operating
characteristics of Azurix. These characteristics could affect the acquisition
value or the public trading value of the companies that are being compared to
Azurix.
A fairness analysis is a complex process and is not necessarily susceptible
to a partial analysis or a summary description. Wasserstein Perella believes
that its analyses must be considered as a whole and that selecting portions of
its analyses, without considering the analyses taken as a whole, would create an
incomplete view of the process underlying the analyses performed in reaching its
opinion. In addition, Wasserstein Perella may have given various analyses and
factors more or less weight than other analyses and factors and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Wasserstein Perella's view of the actual value of
Azurix.
In performing its analyses, Wasserstein Perella made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Azurix. The analyses
performed by Wasserstein Perella are not necessarily indicative of actual
31
<PAGE> 39
values, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely in connection with Wasserstein
Perella's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which a company might actually be sold.
Pursuant to Wasserstein Perella's engagement letter, Azurix agreed to pay
Wasserstein Perella the following fees for its services rendered to the Special
Committee in connection with the proposed merger: a fee of $250,000 payable upon
execution of the engagement letter (which fee will be credited against the fee
payable upon consummation of the merger, if any), a fee of $1,000,000 payable
upon Wasserstein Perella's advice that it was prepared to deliver the fairness
opinion to the Special Committee or that it was unable to deliver such opinion
and a fee of $250,000 payable upon Wasserstein Perella's advice that it was
prepared to deliver an opinion to the Special Committee with respect to the
Indenture, dated as of February 18, 2000, between Azurix and The Chase Manhattan
Bank as successor to Chase Bank of Texas, National Association, as trustee, to
the Special Committee or that it was unable to deliver such opinion (which will
be credited against the fairness opinion fee). In addition, upon consummation of
the transaction, Wasserstein Perella will be entitled to a fee of $1,000,000.
Azurix has also agreed to reimburse Wasserstein Perella for its travel and other
out-of-pocket expenses incurred in connection with its engagement, including the
fees and disbursements of its counsel, and to indemnify Wasserstein Perella
against liabilities and expenses relating to or arising out of its engagement,
including liabilities under the federal securities laws. Prior to its
engagement, Wasserstein Perella informed the Special Committee that it had been
engaged by Enron Development Corp., an affiliate of Enron, in January 1996 to
provide financial advisory services with respect to a potential acquisition.
Wasserstein Perella received customary fees in connection with the engagement,
and the engagement was terminated in October 1997.
The Special Committee retained Wasserstein Perella based upon its
experience and expertise. Wasserstein Perella is an internationally recognized
investment banking and advisory firm. Wasserstein Perella, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the ordinary course of Wasserstein Perella's business, it
may actively trade the debt and equity securities of Azurix and Enron for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
Salomon Smith Barney Inc.
The Special Committee retained Salomon Smith Barney to act as financial
advisor in connection with the proposed merger. Pursuant to Salomon Smith
Barney's engagement letter with the Special Committee, dated November 10, 2000,
and at the request of the Special Committee, Salomon Smith Barney rendered to
the Special Committee an oral opinion on December 15, 2000, which was
subsequently confirmed by delivery of a written opinion dated December 15, 2000,
the date of the merger agreement, to the effect that, as of that date and based
upon and subject to the considerations and limitations set forth in the opinion,
the consideration to be received in the proposed merger was fair, from a
financial point of view, to the public shareholders of Azurix common stock.
THE FULL TEXT OF SALOMON SMITH BARNEY'S OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON
THE REVIEW UNDERTAKEN, IS INCLUDED AS APPENDIX D TO THIS PROXY STATEMENT AND IS
INCORPORATED BY REFERENCE IN THIS DOCUMENT. THE SUMMARY OF SALOMON SMITH
BARNEY'S OPINION IS SET FORTH BELOW AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION. YOU ARE URGED TO READ SALOMON SMITH
BARNEY'S OPINION CAREFULLY AND IN ITS ENTIRETY.
SALOMON SMITH BARNEY'S ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE
INFORMATION OF THE SPECIAL COMMITTEE IN ITS EVALUATION OF THE PROPOSED MERGER
AND DID NOT CONSTITUTE A RECOMMENDATION OF THE PROPOSED MERGER OR A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW THAT SHAREHOLDER SHOULD VOTE AT THE
SPECIAL SHAREHOLDERS MEETING.
Copies of Salomon Smith Barney's December 11, 2000 presentation to the
Special Committee are available for inspection and copying at Azurix's principal
executive office during regular business hours by any
32
<PAGE> 40
public shareholder or its representative who has been so designated in writing,
and will be provided to any public shareholder upon written request at the
expense of the requesting party. The presentation is also filed as an exhibit to
Azurix's, Enron's Atlantic Water Trust's and the merger subsidiary's Schedule
13E-3, copies of which may be obtained from the Securities and Exchange
Commission. See "WHERE YOU CAN FIND MORE INFORMATION," beginning on page 66.
In arriving at its opinion, Salomon Smith Barney
- reviewed the merger agreement and the support agreement;
- held discussions with certain senior officers, directors and other
representatives of Azurix and certain of its subsidiaries concerning the
business, operations and prospects of Azurix;
- examined certain publicly available business and financial information
relating to Azurix, as well as certain financial forecasts and other
information and data for Azurix which were provided to or otherwise
discussed with Salomon Smith Barney by the management of Azurix;
- reviewed the financial terms of the merger as set forth in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of the Azurix common stock, the
historical and projected earnings and other operating data of Azurix and
the capitalization and financial condition of Azurix, including its
liquidity and capital needs, as well as the regulatory climate in which
Azurix's subsidiaries operate;
- considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected that it considered
relevant in evaluating the merger and analyzed certain financial, stock
market and other publicly available information relating to the
businesses of other companies whose operations Salomon Smith Barney
considered relevant in evaluating those of Azurix; and
- conducted such other analyses and examinations and considered such other
information and financial, economic and market criteria as it deemed
appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney and further relied upon the
assurances of the management of Azurix that they were not aware of any facts
that would make any of such information inaccurate or misleading. With respect
to financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with it, Salomon Smith Barney was advised by the
management of Azurix that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of Azurix as to the future financial performance
of Azurix. Salomon Smith Barney expressed no view with respect to such forecasts
and other information and data or the assumptions on which they were based.
Salomon Smith Barney did not make and was not provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Azurix nor did Salomon Smith Barney make any physical inspection of the
properties or assets of Azurix. Salomon Smith Barney assumed that the merger
would be consummated in accordance with the terms of the merger agreement,
without waiver of any of the conditions precedent to the merger contained in the
merger agreement. Salomon Smith Barney expressed no view as to, and its opinion
did not address, the relative merits of the merger as compared to any
alternative business strategies that might exist for Azurix or the effect of any
other transaction in which Azurix might engage. Salomon Smith Barney's opinion
necessarily was based upon information available to it, and financial, stock
market and other conditions and circumstances existing and disclosed to Salomon
Smith Barney, as of the date of the opinion. Salomon Smith Barney's opinion did
not address the solvency of Azurix following consummation of the proposed merger
or at any time.
Salomon Smith Barney was not authorized to, and did not, solicit third
party indications of interest in acquiring all or any part of Azurix, and it was
not authorized to investigate any alternative transactions that may be available
to Azurix. However, Salomon Smith Barney noted in its opinion that J. Henry
Schroder and Co., which was acquired by Salomon Smith Barney Inc. in May, 2000,
was previously engaged by Azurix, as co-advisor with Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to solicit indications of interest from
33
<PAGE> 41
potential acquirors of, or merger partners for, Azurix, as well as respond to
certain other potentially interested parties for Azurix or certain of its
significant assets.
The following is a summary of the report presented by Salomon Smith Barney
to the Special Committee on December 11, 2000 in connection with the delivery of
its opinion on December 15, 2000. The summary of the presentation set forth
below does not purport to be a complete description of Salomon Smith Barney's
report. In addition, the summary includes information presented in tabular
format that, in order to understand fully the financial analyses used by Salomon
Smith Barney, must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial analyses. The
following quantitative information, to the extent it is based on market data,
is, except as otherwise indicated, based on market data as it existed at or
prior to the date of the opinion, and is not necessarily indicative of current
or future market conditions.
Comparable Companies Analysis. Salomon Smith Barney compared financial,
operating and stock market information, and forecasted financial information,
for Azurix and its businesses with publicly-available information for selected
publicly traded companies in the water utility industry. The selected comparable
companies that Salomon Smith Barney considered were:
awg Plc
Kelda Group Plc
Pennon Group Plc
Severn Trent Plc
Suez Lyonnaise Tractebel
United Utilities Plc
Vivendi Environment
For each of the comparable companies, Salomon Smith Barney reviewed, among
other things, each of the selected company's market capitalization, based upon
its December 6, 2000 share price (in local currency), its enterprise value
(defined as market capitalization plus debt and minority interest less cash and
equivalents), estimated 2000 and 2001 EBITDA and 2000 RAB. Salomon Smith Barney
derived the following selected reference range of multiples from its review of
the comparable companies:
<TABLE>
<CAPTION>
MULTIPLES LOW HIGH MEDIAN
--------- --- ---- ------
<S> <C> <C> <C>
Enterprise Value to estimated 2001 EBITDA................... 6.5 9.4 7.5
Enterprise Value % Premium (Discount) to estimated 2000
Regulatory Asset Base..................................... (15.9)% (9.4)% (10.3)%
</TABLE>
Based on its review of the comparable companies, Salomon Smith Barney
derived values for Azurix's businesses using the following range of multiples:
<TABLE>
<CAPTION>
BUSINESS SELECTED MULTIPLE RANGE
-------- -----------------------
<S> <C>
Wessex Water Services Limited
(regulated business)...................................... 91% to 97% of RAB
Other Assets*............................................... 6.5x-9.5x 2001 EBITDA
</TABLE>
---------------
* "Other Assets" is made up of the following Azurix subsidiaries: Wessex Water
Services Limited (unregulated business); Lurgi Bamag; Azurix North America;
Azurix Buenos Aires S.A., Obras Sanitarias Mendoza S.A.; Azurix Brazil RDM
Ltda.; Desarrollos Hidraulicos de Cancun S.A. de C.V.; and IASA Holdings, S.A.
de C.V.
Salomon Smith Barney also included in its analysis the cost of corporate
overhead. In evaluating corporate overhead, Salomon Smith Barney made the
assumption that for the years beyond 2001, such overhead could be reduced to $2
million per year. Additionally, due to the unique nature of the assets of the
Madera Water Bank, Salomon Smith Barney concluded that the appropriate valuation
range was the
34
<PAGE> 42
acquisition cost of the property to the estimated disposition proceeds (based on
management forecasts as provided to Salomon Smith Barney).
Based on all of these ranges, Salomon Smith Barney calculated a range of
enterprise values for Azurix's businesses and subtracted Azurix's net debt and
minority interest at September 30, 2000 , to derive an implied equity value of
$3.75 to $7.50 per share of Azurix common stock as compared to $8.375 per share
to be paid to Azurix public shareholders in connection with the proposed merger.
Upon advice of counsel, Salomon Smith Barney noted in its presentation that
its comparable company analysis was based on market trading multiples and did
not reflect control premiums that may be available in acquisitions of public
companies and, therefore, the comparable company analysis should not be
understood to reflect a reference range of values for assessing the fairness of
the proposed merger.
Discounted Cash Flow Analysis. Using a discounted cash flow methodology,
Salomon Smith Barney calculated a range of implied per share equity values of
Azurix based on financial projections provided by the management of Azurix for
each of Azurix's businesses, as updated based on certain individual operating
company models that were provided to Salomon Smith Barney. In order to value the
cash flows beyond 2005, Salomon Smith Barney calculated a terminal year value
for the business by applying an exit multiple to the appropriate financial
statistic at the end of a five-year period. However, with respect to businesses
where Azurix controls the business for a finite period, Salomon Smith Barney
evaluated the cash flows throughout the concession period and assumed no
terminal value. Based on its review of each of Azurix's businesses, Salomon
Smith Barney used the following discount rates and terminal value exit multiples
in performing its discounted cash flow analysis:
<TABLE>
<CAPTION>
AZURIX SUBSIDIARY DISCOUNT RATE EXIT MULTIPLE/ FINANCIAL STATISTIC
----------------- ------------- ----------------------------------
<S> <C> <C>
Wessex Water Services Limited
(Regulated)......................... 7.0%-7.5% 0.95x-1.05x RAB
(Unregulated)....................... 7.0%-7.5% 5.5x-6.5x EBITDA
Lurgi Bamag........................... 7.5%-8.5% 7.0x-8.5x EBITDA
Azurix North America.................. 9.5%-10.5% 7.0x-8.5x EBITDA
Azurix Buenos Aires S.A............... 14.5%-15.5% Not applicable
(analysis reflects entire useful life)
Obras Sanitarias Mendoza S.A.......... 14.5%-15.5% 4.75x-5.25x EBITDA
Azurix Brazil RDM Ltda................ 14.5%-15.5% 4.75x-5.25x EBITDA
Desarrollos Hidraulicos de Cancun S.A.
de C.V. ............................ 12.5%-13.5% Not applicable
(analysis reflects entire useful life)
IASA Holdings, S.A. de C.V. .......... 12.5%-13.5% Not applicable
(analysis reflects entire useful life)
</TABLE>
Salomon Smith Barney also included in its analysis the cost of corporate
overhead. In evaluating corporate overhead, Salomon Smith Barney made the
assumption that for the years beyond 2001, such overhead could be reduced to $2
million per year. Additionally, due to the unique nature of the assets of the
Madera Water Bank, Salomon Smith Barney concluded that the appropriate valuation
range was the acquisition cost of the property to the estimated disposition
proceeds (based on management forecasts as provided to Salomon Smith Barney).
Based on all of these ranges, Salomon Smith Barney calculated a range of
enterprise values for Azurix's businesses and subtracted Azurix's net debt and
minority interest at September 30, 2000 to derive an implied equity value of
$3.50 to $7.25 per share of Azurix common stock as compared to $8.375 per share
to be paid to Azurix public holders in connection with the proposed merger.
35
<PAGE> 43
Precedent Transactions Analysis. Using publicly-available information,
Salomon Smith Barney performed an analysis of the most recent comparable
transactions in the UK water utility industry:
- The acquisition of Hyder Plc by Western Power Distribution Ltd. in August
2000; and
- The acquisition of Thames Water Plc by RWE AG in September 2000.
For each of the comparable transactions, Salomon Smith Barney reviewed,
among other things, the market capitalization of the target company, the
aggregate purchase price and the implied aggregate enterprise value paid for the
target company, the implied multiples of aggregate enterprise value to the RAB
of the target company for the fiscal year immediately preceding the transaction
and the market price of the target company's shares as compared to the purchase
price per share one day and one month prior to announcement of the transaction.
Salomon Smith Barney determined the following selected reference range of
multiples:
<TABLE>
<CAPTION>
MULTIPLES LOW HIGH
--------- --- ----
<S> <C> <C>
Aggregate Enterprise Value to RAB........................... 95% 122%
</TABLE>
Based on its review, Salomon Smith Barney derived values for Azurix's
businesses using the following range of multiples or, where there were no
appropriate comparable transactions, Salomon Smith Barney substituted the values
derived from the discounted cash flow analysis described above:
<TABLE>
<CAPTION>
BUSINESS MULTIPLE RANGE OR DCF ANALYSIS
-------- ------------------------------
<S> <C>
Wessex Water Services Limited (regulated business)...... 1.0x-1.2x RAB
Other Assets*........................................... Discounted Cash Flow Value
</TABLE>
---------------
* "Other Assets" is made up of the following Azurix subsidiaries: Wessex Water
Services Limited (unregulated portion of business); Lurgi Bamag; Azurix North
America; Azurix Buenos Aires S.A.; Obras Sanitarias Mendoza S.A.; Azurix
Brazil RDM Ltda.; Desarrollos Hidraulicos de Cancun S.A. de C.V.; and IASA
Holdings, S.A. de C.V., Mexico.
Salomon Smith Barney also included in its analysis the cost of corporate
overhead. In evaluating corporate overhead, Salomon Smith Barney made the
assumption that for the years beyond 2001, such overhead could be reduced to $2
million per year. Additionally, due to the unique nature of the assets of the
Madera Water Bank, Salomon Smith Barney concluded that the appropriate valuation
range was the acquisition cost of the property to the estimated disposition
proceeds (based on management forecasts as provided to Salomon Smith Barney).
Based on all of these ranges, Salomon Smith Barney calculated a range of
enterprise values for Azurix's businesses and subtracted Azurix's net debt and
minority interest at September 30, 2000 to compute an implied equity value
reference range of $4.25 to $9.00 per share of Azurix common stock as compared
to the merger consideration of $8.375.
The preceding discussion is a summary of the material financial analyses
furnished by Salomon Smith Barney to the Special Committee, but it does not
purport to be a complete description of the analyses performed by Salomon Smith
Barney or of its presentation to the Special Committee. The preparation of
financial analyses and fairness opinions is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. Salomon Smith Barney made no attempt to assign specific
weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion as described
above.
Accordingly, Salomon Smith Barney believes that its analyses, and the
summary set forth above, must be considered as a whole, and that selecting
portions of the analyses and of the factors considered by Salomon Smith Barney,
without considering all of the analyses and factors, could create a misleading
or incomplete view of the processes underlying the analyses conducted by Salomon
Smith Barney and its opinion. With regard to the selected comparable companies
and precedent transactions analyses summarized above,
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<PAGE> 44
Salomon Smith Barney selected comparable public companies and precedent
transactions on the basis of various factors, including the size and similarity
of the business; however, no company utilized as a comparison in these analyses
is identical to Azurix or to any of its businesses and no precedent transaction
is identical to the proposed merger.
As a result, these analyses are not purely mathematical, but also take into
account differences in financial and operating characteristics of the subject
companies and other factors that could affect the public trading value of the
subject companies and transactions to which Salomon Smith Barney and the
proposed merger are being compared. In its analyses, Salomon Smith Barney made
numerous assumptions with respect to Azurix and its businesses, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Azurix. Any estimates
contained in Salomon Smith Barney's analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by these analyses.
Estimates of values of companies do not purport to be appraisals or necessarily
to reflect the prices at which companies may actually be sold. Because these
estimates are inherently subject to uncertainty, none of Azurix, the Special
Committee, the Azurix Board of Directors, Salomon Smith Barney or any other
person assumes responsibility if future results or actual values differ
materially from the estimates.
Salomon Smith Barney's analyses were prepared solely as part of Salomon
Smith Barney's analysis of the fairness of the consideration to be received in
the proposed merger by Azurix public holders, and were provided to the Special
Committee in that connection. The opinion of Salomon Smith Barney was only one
of the factors taken into consideration by the Special Committee in making its
determination to recommend the merger agreement and the proposed merger.
Pursuant to Salomon Smith Barney's engagement letter, Azurix agreed to pay
Salomon Smith Barney the following fees for its services rendered to the Special
Committee in connection with the proposed merger: a fee of $250,000 payable upon
execution of the engagement letter, a fee of $750,000 payable upon Salomon Smith
Barney's advice that it was prepared to deliver the fairness opinion to the
Special Committee or that it was unable to deliver such opinion and a fee of
$250,000 payable upon Salomon Smith Barney's advice that it was prepared to
deliver an opinion to the Special Committee with respect to the Indenture, dated
as of February 18, 2000, between Azurix and The Chase Manhattan Bank as
successor to Chase Bank of Texas, National Association, as trustee, or that it
was unable to deliver such opinion. In addition, upon consummation of the
transaction, Salomon Smith Barney will be entitled to a fee of $1,875,000.
Azurix has also agreed to reimburse Salomon Smith Barney for its reasonable
travel and other out-of-pocket expenses incurred in connection with its
engagement, including the reasonable fees and disbursements of its counsel, and
to indemnify Salomon Smith Barney against liabilities and expenses relating to
or arising out of its engagement, including liabilities under the federal
securities laws.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Special Committee
selected Salomon Smith Barney to act as its financial advisor on the basis of
Salomon Smith Barney's international reputation and Salomon Smith Barney's
familiarity with Azurix. Salomon Smith Barney and its predecessors or affiliates
have previously provided investment banking services to Azurix and Enron
unrelated to the merger and are currently providing investment banking services
to Enron unrelated to the merger, for which Salomon Smith Barney has received
and will receive customary fees.
In the ordinary course of its business, Salomon Smith Barney and its
affiliates may actively trade or hold the securities of Azurix, Enron and
affiliates for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in those securities.
Salomon Smith Barney and its affiliates (including Citigroup Inc. and its
affiliates) may maintain relationships with Azurix, Enron and their respective
affiliates.
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PURPOSE AND STRUCTURE OF THE MERGER
The purpose of the merger is to provide Azurix's shareholders cash for
their shares, to permit Enron to acquire the publicly held shares of Azurix, and
to terminate the status of Azurix as a company with publicly traded equity. The
transaction has been structured as a cash merger to provide the public
shareholders of Azurix with cash for all of their shares and to provide a prompt
and orderly transfer of ownership of Azurix with reduced transaction costs.
EFFECTS OF THE MERGER; PLANS FOR AZURIX FOLLOWING THE MERGER
After the effective time of the merger, Azurix's public shareholders will
cease to have ownership interests in Azurix or rights as Azurix shareholders.
Immediately before the effective time of the merger, each option to purchase
Azurix common stock granted under Azurix option plans will be extinguished by
virtue of the merger and converted into the right to receive a cash payment
equal to the excess (if any) of $8.375 over the exercise price of each option.
Upon completion of the merger, Atlantic Water Trust will own two-thirds, and a
wholly-owned indirect subsidiary of Enron will own one-third, of the common
stock of Azurix. If the merger is consummated, Enron and Atlantic Water Trust
collectively will have a 100% interest in the net book value and net earnings of
Azurix ($1.8 billion and $10.8 million, respectively, based on the unaudited
financial statements of Azurix as of and for the nine months ended September 30,
2000). Currently, Atlantic Water Trust has an approximate 67% interest in the
net book value and net earnings of Azurix ($1.2 billion and $7.2 million,
respectively, based on the unaudited financial statements of Azurix as of and
for the nine months ended September 30, 2000). Although Enron's equity
investment in Azurix involves substantial risk, if Azurix is able to grow
earnings and cash flow sufficient to retire its debt, after the merger Enron and
Atlantic Water Trust will be the sole beneficiaries of the future earnings and
growth of Azurix, if any.
As a result of the merger, Azurix will be a privately-held corporation with
no public market for its common stock. After the merger, the common stock will
cease to be quoted on the New York Stock Exchange and price quotations with
respect to sales of shares of common stock in the public market will no longer
be available. In addition, registration of the common stock under the Exchange
Act will be terminated. This termination will make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b) and the requirement of furnishing a proxy or information statement in
connection with shareholders meetings, no longer applicable to Azurix. After the
effective time of the merger, Azurix will no longer be required by law to file
periodic reports with the Securities and Exchange Commission, although the
indenture governing its senior notes requires it to continue doing so as long as
its senior notes are outstanding.
At the effective time of the merger, the certificate of incorporation and
by-laws of Azurix in effect immediately prior to the effective time will be the
certificate of incorporation and by-laws, of the surviving corporation. Subject
to applicable law, the directors of the merger subsidiary immediately prior to
the effective time of the merger will be the directors of the surviving
corporation immediately following the effective time and will hold office until
their respective successors are duly elected and qualified, or their earlier
death, resignation or removal. The officers of Azurix immediately prior to the
effective time of the merger will be the officers of the surviving corporation
immediately following the effective time and will hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal.
Following the merger, Enron and Atlantic Water Trust expect that Azurix
will manage its business and assets in a manner to appropriately address the
existing condition of Azurix's business and the global water industry in
general. In this regard, after the merger, Enron and Atlantic Water Trust expect
that Azurix will evaluate its business, practices, operations, properties,
corporate structure, management and personnel to determine what changes, if any,
are desirable. Enron does not view Azurix as a core strategic asset. As with
other non-strategic assets, Enron is likely to sell its interest in Azurix or to
encourage Azurix to sell its assets if favorable prices for Azurix or its assets
can be obtained. Enron and Atlantic Water Trust currently expect that Azurix
will take actions so that it will be in a position to sell any of its assets if
a favorable offer were made. In addition, while no definitive plans have been
made, Enron and Azurix expect that Azurix will dispose of certain of its assets
in order to reduce general and administrative expenses and to provide liquidity
for Azurix's
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<PAGE> 46
business. Azurix intends to engage one or more internationally recognized
investment banking firms to assist in any sale of assets. This engagement may
allow Azurix to dispose of assets more quickly if the merger is not completed
and Azurix needs to raise capital. The specific assets to be disposed of and the
timetable of any dispositions, however, have not been determined, and there
ultimately may be no dispositions.
Except as described above, neither Enron nor Atlantic Water Trust has any
current plans or proposals relating to any extraordinary corporate transactions,
such as a merger, reorganization, or liquidation involving Azurix or any of its
subsidiaries, any sale or transfer of a material amount of the assets of Azurix
or any of its subsidiaries or any other material change in Azurix's corporate
structure or business. However, Enron and Atlantic Water Trust will continue to
review and explore any opportunities to maximize shareholder value and will
evaluate any transactions involving its business, including a potential sale of
Azurix or some or all of its assets, as they arise.
FINANCING OF THE MERGER
Azurix estimates that approximately $330 million will be required to fund
the cash merger consideration, including the cash to be paid to holders of
options to purchase Azurix common stock in connection with the merger. Prior to
the consummation of the merger, Enron will contribute these necessary funds to
the merger subsidiary. As a result, at the time of the merger, the surviving
corporation in the merger will have sufficient funds to pay the cash merger
consideration. Enron expects to have sufficient cash resources available from
its working capital to fund the cash merger consideration. Enron does not have,
nor does it expect to obtain, commitments from one or more lending institutions
to specifically finance the cash merger consideration.
RISK THAT THE MERGER WILL NOT BE COMPLETED
Completion of the merger is subject to various conditions, including, but
not limited to, the following:
- the majority of the minority approval requirement that at least a
majority of the votes cast either in favor of or against the merger by
public shareholders be cast in favor of the merger;
- securing required third party consents to the merger;
- expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any
similar statues in other jurisdictions;
- performance in all material respects of the parties' obligations
contained in the merger agreement at or before the effective time of the
merger;
- consummation of the merger is not restrained, enjoined or prohibited by
any order, judgment or decree of any court or governmental authority;
- no law or regulation is enacted or applicable to the merger that prevents
the consummation of the merger or makes the consummation of the merger
illegal;
- certain representations and warranties made by the parties in the merger
agreement must be true and correct in all material respects; and
- the merger will not result in a default or event of default under the
terms of any senior notes issued under Azurix's indenture.
As a result of the various conditions to the completion of the merger, we
cannot assure you that the merger will be completed even if the requisite
shareholder approval is obtained.
It is expected that, if Azurix shareholders do not approve and adopt the
merger agreement and the merger, or if the merger is not completed for any other
reason, the current management of Azurix, under the direction of the Azurix
Board, will continue to manage Azurix as an on-going business but may commence
disposing of certain of Azurix's businesses, most likely excluding Wessex and
Azurix Buenos Aires.
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<PAGE> 47
INTERESTS OF AZURIX DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendations of the Azurix Board of Directors, you
should be aware that members of Azurix's management and the Azurix Board of
Directors have interests in the transaction that are or may be different from,
or in addition to, your interests as an Azurix shareholder. In particular, each
member of the Azurix Board of Directors is also a member of the Enron Board of
Directors and owes fiduciary duties to Enron and its shareholders. Following the
receipt of Enron's proposal to buy-out the public shareholders of Azurix, the
Azurix Board of Directors appointed the Special Committee, consisting solely of
directors who are not officers or employees of Azurix or Enron, to consider and
negotiate the merger agreement and to evaluate whether the merger is in the best
interests of Azurix shareholders. None of the members of the Special Committee
participated as members of the Enron Board of Directors in its deliberations
regarding the Enron proposal or the merger. The Special Committee was aware of
these differing interests and considered them, among other matters, in
determining that the merger is fair to and in the best interests of Azurix's
public shareholders and recommending that the Azurix Board consider approval of
the merger agreement and the merger. The Azurix Board of Directors was also
aware of these differing interests and considered them, among other matters in
approving the merger and recommending that Azurix shareholders approve and adopt
the merger agreement and the merger.
Stock Options
Pursuant to the merger agreement, all of the outstanding stock options that
Azurix has granted will be cancelled (without regard to whether these options
are then vested) to the extent that these options remain outstanding at the time
that the merger becomes effective. In exchange for the cancellation of the
options, each option holder including members of the Azurix Board and Azurix's
executive officers will receive a cash payment equal to the excess (if any) of
$8.375 over the exercise price of each option held by such person.
The following table sets forth, with respect to the following named
executive officers, all executive officers (as a group) and the non-employee
directors (as a group) of Azurix, (i) the number of Azurix shares subject to
options (whether vested or unvested) that are held by such persons and
exercisable at a price less than $8.375 per share, (ii) the weighted average
exercise price for such options held by such persons and exercisable at a price
less than $8.375 per share, and (iii) the cash payment to be received by such
individual in exchange for such options (i.e., the aggregate of the excess of
$8.375 less the exercise price of each option).
<TABLE>
<CAPTION>
OPTIONS WEIGHTED
HELD PRIOR AVERAGE
TO THE EXERCISE PRICE CANCELLATION
MERGER PER SHARE PAYMENT
------------ -------------- ------------
<S> <C> <C> <C>
John L. Garrison, Jr. .............................. 359,410 $7.2408 $ 407,643
Colin F. Skellett................................... 178,970 7.1260 223,534
John C. Ale......................................... 126,475 7.2907 137,136
Amanda K. Martin.................................... 234,370 7.1492 287,291
J. Michael Anderson................................. 308,256 7.4235 293,315
All Executive Officers as a Group (5 officers)...... 1,207,481 7.2579 1,348,919
Non-employee Directors as a Group (5 directors)..... 172,000 7.6250 129,000
</TABLE>
Employment Agreements
Messrs. Garrison, Skellett, Ale and Anderson and Ms. Martin each have
employment agreements that would provide for severance payments under certain
circumstances. Consummation of the merger alone will not trigger any severance
payments under those agreements. However, if any of these officers were
involuntarily terminated, they would receive severance payments under their
employment agreements.
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LITIGATION INVOLVING THE MERGER
On October 27, 2000, a lawsuit styled Thomas Turberg against Azurix Corp.,
Herbert S. Winokur, Jr., John H. Duncan, John Wakeham, Joseph W. Sutton, Kenneth
L. Lay, Jeffrey K. Skilling, and Enron Corp., was filed in the Court of Chancery
in the State of Delaware, New Castle County. The suit is a purported class
action filed on behalf of Azurix's public shareholders for the purpose of
enjoining the transaction proposed by Enron for taking Azurix private at a price
of $7.00 for each of Azurix's publicly traded shares. The suit generally alleges
that the buy-out price of $7.00 per share is unconscionable and unfair and
grossly inadequate and that the defendants have breached their duties of loyalty
and care with respect to Azurix's public shareholders. The plaintiff seeks a
judgment (i) enjoining the acquisition under the terms presently proposed; (ii)
to the extent the transaction is consummated prior to a final judgment,
rescinding the transaction or awarding rescissory damages to the class; (iii)
directing that the defendants account to the plaintiff and the class for all
damages caused to them and account for all profits and any special benefits
obtained by the defendants as a result of their alleged unlawful conduct; (iv)
awarding to the plaintiff the costs and disbursements of the lawsuit, including
a reasonable allowance for attorney fees and expenses; and (v) granting such
other and further relief as the court deems appropriate. Six similar actions
were subsequently filed in the Court of Chancery in the State of Delaware, New
Castle County and all Delaware actions have been consolidated into a single
action. In addition, a similar action, styled, Ruthy Parnes v. John H. Duncan,
Joseph W. Sutton, Jeffrey K. Skilling, John Wakeham, Kenneth L. Lay, Rebecca P.
Mark, Herbert S. Winokur, Azurix Corp. and Enron Corp., was filed in the 55th
Judicial District Court of Harris County, Texas.
On December 13, 2000, the parties executed a Memorandum of Understanding
that settled both the Delaware and Texas actions in principle. Under the
proposed settlement, the defendants acknowledged that the prosecution of the
litigation was a material factor in causing Enron to increase the merger
consideration. Plaintiffs' counsel also agreed to review the draft proxy
statement and provide comments in order to ensure that the proxy statement
fairly and accurately described matters required to be disclosed under federal
and Delaware law. The proposed settlement provides that the defendants will not
oppose plaintiffs' application for attorneys' fees and expenses up to $2.25
million. The proposed settlement is subject to the execution of definitive
settlement documents, confirmatory discovery, and court approval.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for as a "purchase" of the merger subsidiary
by Azurix in accordance with generally accepted accounting principles. The sole
asset of the merger subsidiary will be approximately $330 million of cash, which
will be used to fund the payment of the cash merger consideration. As part of
the merger, the number of shares of Azurix will be reduced from approximately
117 million shares to three shares. As a result, the merger will result in a
reallocation of approximately $1.2 million from "Capital Stock" to "Additional
Paid in Capital" on Azurix's balance sheet. As a result of the merger, Azurix
will record approximately $4.8 million in compensation expense related to the
cancellation and settlement of options to purchase Azurix common stock granted
under stock incentive plans.
REGULATORY MATTERS
The Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended and the
rules and regulations promulgated thereunder require that Azurix and Enron file
notification and report forms with respect to the merger and related
transactions with the Antitrust Division of the United States Department of
Justice and the United States Federal Trade Commission. After the filing, the
parties are required to observe a waiting period before completing the merger.
If deemed necessary, in compliance with the HSR Act, the necessary forms will be
filed on December [ ], 2000 with the Department of Justice and the Federal
Trade Commission. The Department of Justice and the Federal Trade Commission,
state antitrust authorities or a private person or entity could seek to enjoin
the merger under the antitrust laws at any time before its completion or to
compel rescission or divestiture at any time subsequent to the merger.
Completion of the merger is conditioned on the expiration or early termination
of the applicable waiting period under the HSR Act.
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Azurix is determining whether it or Enron must make a similar filing with
Mexican governmental authorities.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS
The following is a summary of the material U.S. federal income tax
consequences of the merger to holders of common stock (including holders
exercising appraisal rights). This summary is based on laws, regulations,
rulings and decisions now in effect, all of which are subject to change,
possibly with retroactive effect. This summary does not address all of the U.S.
federal income tax consequences that may be applicable to a particular holder of
common stock or to holders who are subject to special treatment under U.S.
federal income tax law (including, for example, banks, insurance companies,
tax-exempt investors, S corporations, dealers in securities, non-U.S. persons,
holders who hold their common stock as part of a hedge, straddle or conversion
transaction, and holders who acquired common stock through the exercise of
employee stock options or other compensation arrangements). In addition, this
summary does not address the tax consequences of the merger under applicable
state, local or foreign tax laws. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICATION OF
ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Tax Consequences of the Receipt of Cash
The exchange of common stock for cash pursuant to the merger will be a
taxable transaction for U.S. federal income tax purposes and possibly for state,
local and foreign income tax purposes as well. In general, a holder of common
stock will recognize gain or loss for U.S. federal income tax purposes equal to
the difference, if any, between (i) the amount of any cash received by the
holder in the merger and (ii) the holder's adjusted tax basis in the common
stock exchanged for such cash. The holder's gain or loss will be determined
separately for each block of common stock (i.e., common stock acquired at the
same cost in a single transaction). The amount of gain or loss will be long-term
capital gain or loss provided that a holder's holding period for the common
stock is more than one year at the time of the consummation of the merger.
Dissenters
A holder of common stock who perfects dissenters' rights will recognize
capital gain or loss at the effective time of the merger equal to the difference
between the "amount realized" by such holder and such holder's basis in such
holder's shares of common stock. For this purpose, the amount realized generally
will equal the trading value per share of common stock at the effective time of
the merger. Such gain or loss will be capital gain or loss and will be long-term
if such holder's holding period for the common stock at the effective time of
the merger exceeds one year. Additional capital gain or loss will be recognized
by such holder at the time the appraised fair value is received to the extent
such payment exceeds (or is less than) the amount realized by such holder at the
effective time of the merger. Also, a portion of such payment may be
characterized as interest income.
Backup Withholding
Unless a holder of common stock complies with certain reporting and/or
certification procedures or is an exempt recipient under applicable provisions
of the Internal Revenue Code of 1986, as amended (and the regulations
promulgated thereunder), the holder may be subject to a "backup" withholding tax
of 31% with respect to any payments received in the merger or as a result of the
exercise of the holder's dissenters' rights. Holders of common stock should
consult with their brokers to ensure compliance with such procedures.
THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS INCLUDED HEREIN
FOR GENERAL INFORMATION PURPOSES ONLY. ACCORDINGLY, EACH HOLDER OF COMMON STOCK
IS URGED TO CONSULT HIS OR HER TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE MERGER.
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DISSENTERS' RIGHTS OF APPRAISAL
Under Section 262 of the Delaware General Corporation Law, which is
referred to as the "DGCL "in this proxy statement, any holder of common stock
who does not wish to accept $8.375 per share in cash for the holder's shares of
common stock may dissent from the merger and elect to have the fair value of the
holder's shares of common stock (exclusive of any element of value arising from
the accomplishment or expectation of the merger) judicially determined and paid
to the holder in cash, together with a fair rate of interest, if any, provided
that the holder complies with the provisions of Section 262.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL, and is qualified in its entirety by the full
text of Section 262, which is provided in its entirety as Appendix E to this
proxy statement. All references in Section 262 and in this summary to a
"shareholder" are to the record holder of the shares of common stock as to which
appraisal rights are asserted. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES
OF COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER
OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY THE
STEPS SUMMARIZED BELOW AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
Under Section 262, where a proposed merger is to be submitted for approval
and adoption at a meeting of shareholders, as in the case of the special
shareholders meeting, the corporation, not less than 20 days before the meeting,
must notify each of its shareholders entitled to appraisal rights that appraisal
rights are available and include in that notice a copy of Section 262. This
proxy statement constitutes that notice to the holders of common stock and the
applicable statutory provisions of the DGCL are attached to this proxy statement
as Appendix E. Any shareholder who wishes to exercise appraisal rights or who
wishes to preserve the right to do so should review carefully the following
discussion and Appendix E to this proxy statement. FAILURE TO COMPLY WITH THE
PROCEDURES SPECIFIED IN SECTION 262 TIMELY AND PROPERLY WILL RESULT IN THE LOSS
OF APPRAISAL RIGHTS. Moreover, because of the complexity of the procedures for
exercising the right to seek appraisal of the common stock, Azurix believes that
shareholders who consider exercising such appraisal rights should seek the
advice of counsel.
Any holder of common stock wishing to exercise the right to demand
appraisal under Section 262 of the DGCL must satisfy each of the following
conditions:
- as more fully described below, the holder must deliver to Azurix a
written demand for appraisal of the holder's shares before the vote on
the merger agreement at the special shareholders meeting, which demand
will be sufficient if it reasonably informs Azurix of the identity of the
holder and that the holder intends to demand the appraisal of the
holder's shares;
- the holder must not vote the holder's shares of common stock in favor of
the merger agreement; a proxy which does not contain voting instructions
will, unless revoked, be voted in favor of the merger agreement,
therefore, a shareholder who votes by proxy and who wishes to exercise
appraisal rights must vote against the merger agreement or abstain from
voting on the merger agreement; and
- the holder must continuously hold the shares from the date of making the
demand through the effective time of the merger; a shareholder who is the
record holder of shares of common stock on the date the written demand
for appraisal is made but who thereafter transfers those shares before
the effective time of the merger will lose any right to appraisal in
respect of those shares.
Neither voting (in person or by proxy) against, abstaining from voting on
or failing to vote on the proposal to approve and adopt the merger agreement and
the merger will constitute a written demand for appraisal within the meaning of
Section 262. The written demand for appraisal must be in addition to and
separate from any such proxy or vote.
Only a holder of record of shares of common stock issued and outstanding
immediately before the effective time of the merger is entitled to assert
appraisal rights for the shares of common stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the
shareholder of record, fully and correctly, as the shareholder's name appears on
the stock certificates, should specify the shareholder's name and mailing
address, the number of shares of common stock owned and that the shareholder
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<PAGE> 51
intends to demand appraisal of the shareholder's common stock. If the shares are
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand should be made in that capacity. If the
shares are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or on behalf of all owners.
An authorized agent, including one or more joint owners, may execute a demand
for appraisal on behalf of a shareholder; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is acting as agent for such owner or owners. A record holder
such as a broker who holds shares as nominee for several beneficial owners may
exercise appraisal rights with respect to the shares held for one or more
beneficial owners while not exercising appraisal rights with respect to the
shares held for one or more beneficial owners; in such case, the written demand
should set forth the number of shares as to which appraisal is sought, and where
no number of shares is expressly mentioned the demand will be presumed to cover
all shares held in the name of the record owner. SHAREHOLDERS WHO HOLD THEIR
SHARES IN BROKERAGE ACCOUNTS OR OTHER NOMINEE FORMS AND WHO WISH TO EXERCISE
APPRAISAL RIGHTS ARE URGED TO CONSULT WITH THEIR BROKERS TO DETERMINE
APPROPRIATE PROCEDURES FOR THE MAKING OF A DEMAND FOR APPRAISAL BY THE NOMINEE.
A shareholder who elects to exercise appraisal rights under Section 262
should mail or deliver a written demand to: Azurix Corp., 333 Clay Street, Suite
1000, Houston, Texas 77002, Attn.: Norma A. Tidrow, Secretary.
Within ten days after the effective time of the merger, Azurix must send a
notice as to the effectiveness of the merger to each former shareholder of
Azurix who has made a written demand for appraisal in accordance with Section
262 and who has not voted to approve and adopt the merger agreement and the
merger. Within 120 days after the effective time of the merger, but not
thereafter, either Azurix or any dissenting shareholder who has complied with
the requirements of Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the value of the shares of common stock
held by all dissenting shareholders. Azurix is under no obligation to and has no
present intention to file a petition for appraisal, and shareholders seeking to
exercise appraisal rights should not assume that Azurix will file such a
petition or that Azurix will initiate any negotiations with respect to the fair
value of the shares. Accordingly, shareholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Inasmuch as Azurix has no obligation to file such a petition, the failure
of a shareholder to do so within the period specified could nullify the
shareholder's previous written demand for appraisal.
Under the merger agreement, Azurix has agreed to give Enron prompt written
notice of any demands for appraisal received by Azurix. Enron has the right to
participate in and approve all negotiations and proceedings with respect to
demands for appraisal under the DGCL. Azurix will not, except with the prior
written consent of Enron, make any payment with respect to any demands for
appraisal, or offer to settle, or settle, any such demands.
Within 120 days after the effective time of the merger, any shareholder who
has complied with the provisions of Section 262 to that point in time will be
entitled to receive from Azurix, upon written request, a statement setting forth
the aggregate number of shares not voted in favor of the merger agreement and
with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Azurix must mail that statement to the
shareholder within 10 days of receipt of the request or within 10 days after
expiration of the period for delivery of demands for appraisals under Section
262, whichever is later.
A shareholder timely filing a petition for appraisal with the Delaware
Court of Chancery must deliver a copy to Azurix, which will then be obligated
within 20 days to provide the Delaware Court of Chancery with a duly verified
list containing the names and addresses of all shareholders who have demanded
appraisal of their shares. After notice to those shareholders, the Delaware
Court of Chancery is empowered to conduct a hearing on the petition to determine
which shareholders are entitled to appraisal rights. The Delaware Court of
Chancery may require shareholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the
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pendency of the appraisal proceedings, and if any shareholder fails to comply
with the requirement, the Delaware Court of Chancery may dismiss the proceedings
as to that shareholder.
After determining the shareholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. The costs of the action may be
determined by the Delaware Court of Chancery and taxed upon the parties as the
Delaware Court of Chancery deems equitable. Upon application of a dissenting
shareholder, the Delaware Court of Chancery may also order that all or a portion
of the expenses incurred by any shareholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all of
the shares entitled to appraisal. SHAREHOLDERS CONSIDERING SEEKING APPRAISAL
SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION
262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE $8.375 PER SHARE THEY WOULD
RECEIVE UNDER THE MERGER AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR
SHARES. SHAREHOLDERS SHOULD ALSO BE AWARE THAT INVESTMENT BANKING OPINIONS ARE
NOT OPINIONS AS TO FAIR VALUE UNDER SECTION 262.
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Court of Chancery is to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods that are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair value,
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts that could be
ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger."
Any shareholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the shares subject to that demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares as of a record date
before the effective time of the merger).
Any shareholder may withdraw its demand for appraisal and accept $8.375 per
share by delivering to Azurix a written withdrawal of the shareholder's demand
for appraisal, except that (1) any such attempt to withdraw made more than 60
days after the effective time of the merger will require written approval of
Azurix and (2) no appraisal proceeding in the Delaware Court of Chancery will be
dismissed as to any shareholder without the approval of the Delaware Court of
Chancery, and such approval may be conditioned upon such terms as the Delaware
Court of Chancery deems just. If Azurix does not approve a shareholder's request
to withdraw a demand for appraisal when that approval is required or if the
Delaware Court of Chancery does not approve the dismissal of an appraisal
proceeding, the shareholder would be entitled to receive only the appraised
value determined in any such appraisal proceeding, which value could be more
than, the same or less than $8.375 per share.
FAILURE TO COMPLY STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN SECTION
262 OF THE DGCL MAY RESULT IN THE LOSS OF A SHAREHOLDER'S STATUTORY APPRAISAL
RIGHTS. CONSEQUENTLY, ANY SHAREHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS
URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE APPRAISAL RIGHTS.
INDENTURE
Azurix's senior note indenture requires that, in the event of a merger,
Azurix be able to incur at least $1.00 of additional debt while still meeting a
ratio of consolidated EBITDA to consolidated interest expense of at least 2:1,
calculated on a pro forma basis in accordance with the indenture to give effect
to the merger and other specified transactions. Based upon current management
forecasts, it is likely that Azurix will be able to
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meet this test if Enron exchanges all or a portion of the outstanding balance
under the $180 million credit agreement between Enron and Azurix for preferred
stock, and/or certain Azurix subsidiaries are deemed "unrestricted" for purposes
of the indenture. Pursuant to the merger agreement, Enron has agreed to exchange
such debt as necessary. See "THE MERGER AGREEMENT -- Indenture Issues."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since its inception, Azurix has entered into a variety of agreements and
transactions with Enron and certain of its subsidiaries. The following summaries
discuss the material provisions of the material agreements and transactions.
Enron paid approximately $71 million on behalf of Azurix to fund its
general, administrative and operating expenses from Azurix's inception on
January 29, 1998 through June 7, 1999, in addition to capital expenditures. This
included $28.5 million advanced to Azurix by Enron in connection with Azurix's
investment in a water and wastewater concession in Cancun, Mexico in December
1998, as well as advances relating to services provided to Azurix by Enron. The
amount paid by Enron was non-interest bearing and had no maturity date. Azurix
used a portion of the net proceeds received from its initial public offering to
repay this amount.
Effective May 1, 1999, Azurix entered into a credit agreement with Enron,
which was amended as of January 24, 2000. Under this agreement, Enron provides
funds to Azurix for general, administrative and operating expenses, including
interest expenses. The credit agreement matures on the earlier of December 15,
2001 or 90 days following the date that Enron and its affiliates do 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
Azurix's directors are officers, directors or employees of Enron or its
affiliates. The principal amount outstanding under the credit agreement is
limited to no more than $120 million at any time during calendar year 2000
(unless Enron otherwise agrees in its sole discretion) and $180 million at any
time during calendar year 2001. As of September 30, 2000, $109.9 million was
outstanding under this credit agreement. The credit agreement and the amendment
were filed with the Securities and Exchange Commission as exhibits 10.6 and 10.7
to Azurix's 1999 Annual Report on Form 10-K.
Enron made available letters of credit on behalf of Azurix's subsidiaries
in the aggregate amount of approximately $16 million and $7 million as of
December 31, 1999 and September 30, 2000, respectively. Azurix has paid, or
reimbursed Enron for, the fees associated with these letters of credit.
Enron guaranteed debt and letter of credit obligations of up to $25 million
of Azurix North America to Comerica Bank under the terms of September 29, 1999
credit facilities in exchange for, among other things, the elimination of
requirements for various assets to be pledged. As of December 31, 1999, $7.5
million of indebtedness and $16.4 million of letter of credit obligations were
outstanding under these facilities, and thus guaranteed by Enron. Azurix paid to
Enron an initial fee of approximately $63,000 in respect of this guarantee.
These credit facilities were terminated as of March 31, 2000.
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.
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THE MERGER AGREEMENT
The description of the merger agreement contained in this proxy statement
describes the material terms of the merger agreement. The actual legal terms of
the merger agreement may be found in Appendix A to this proxy statement and are
incorporated herein by reference. You are urged to read the entire merger
agreement as it is the legal document that governs the merger.
THE MERGER
The merger agreement provides that, subject to conditions summarized below,
the merger subsidiary, a Delaware corporation, will merge with and into Azurix.
Following the completion of the merger, the merger subsidiary will cease to
exist as a separate entity, and Azurix will continue as the surviving
corporation.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware in accordance with the DGCL
or at such later time as is specified in the certificate of merger. This time is
referred to as the "effective time" in this proxy statement. The filing is
expected to occur as soon as practicable after approval and adoption of the
merger agreement and the merger by Azurix's shareholders at the special
shareholders meeting and satisfaction or waiver of the other conditions to the
merger contained in the merger agreement. Azurix cannot assure you that all
conditions to the merger contained in the merger agreement will be satisfied or
waived. See "-- Conditions to the Merger."
STRUCTURE; MERGER CONSIDERATION
At the effective time of the merger, each share of Azurix common stock
outstanding immediately before the effective time of the merger will be
cancelled and automatically converted into the right to receive 1/39,268,266 of
a share of common stock of the surviving corporation in the merger, without any
other payment thereon, with the following exceptions:
- in lieu of receiving fractional shares of common stock of the surviving
corporation, each holder of shares of Azurix common stock that would
otherwise be entitled to receive a fractional share of the surviving
corporation common stock by virtue of the merger will be paid $8.375 in
cash, without any interest thereon, for each share of Azurix common stock
held by such shareholder at the effective time (rounding up the aggregate
cash to be paid to each such shareholder, to the extent necessary, to the
next $.01);
- treasury shares and shares of Azurix common stock owned by any wholly
owned subsidiary of Azurix will be canceled without any payment thereon;
- shares of Azurix common stock owned by Enron, the merger subsidiary or
any wholly owned subsidiary of Enron or the merger subsidiary will be
cancelled without any payment thereon; and
- shares held by shareholders who have perfected their dissenters' rights
will be subject to appraisal in accordance with Delaware law.
In order to be entitled to receive a share of the surviving corporation
common stock in connection with the merger, a holder of Azurix common stock
would have to be the holder of record of at least 39,268,266 shares of Azurix
common stock immediately prior to the effective time. Otherwise a holder is
entitled to receive in the merger $8.375 in cash, without any interest thereon,
for each of such holder's shares of Azurix common stock. Azurix does not believe
that any holder of record of Azurix common stock, other than Atlantic Water
Trust, will hold at the effective time at least 39,268,266 shares of Azurix
common stock. As a result, Azurix expects that each holder of Azurix common
stock, other than Atlantic Water Trust, will be entitled to receive in the
merger $8.375 in cash, without any interest thereon, for each of their shares of
Azurix common stock. Azurix believes that Atlantic Water Trust will be the
holder of record of 78,536,532 shares of Azurix common stock at the effective
time. As a result, Azurix expects Atlantic Water Trust to receive two shares of
the surviving corporation common stock at the effective time.
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At the effective time of the merger, each share of the merger subsidiary
common stock issued and outstanding immediately before the effective time will
be converted into the right to receive 1/1000 of a share of surviving
corporation common stock. As a result, the outstanding merger subsidiary common
stock is expected to be converted into one share of surviving corporation common
stock.
TREATMENT OF OPTIONS
At the effective time of the merger, each option to purchase shares of
Azurix common stock granted under any stock incentive plan of Azurix and
outstanding and unexercised (whether vested or unvested) will be canceled and
will entitle the holder of such option, in cancellation and settlement of such
option, to a payment, if any, in cash by Azurix (less any applicable withholding
tax), as soon as practicable after the effective time, equal to the product of
(x) the total number of shares of Azurix common stock subject to such option and
(y) the excess, if any, of $8.375 over the exercise price per share of Azurix
common stock subject to such option. At and after the effective time of the
merger, no holder of Azurix stock options will have any rights to acquire any
equity securities of Azurix, the surviving corporation or any of its
subsidiaries. The holders of options exercisable at prices of $8.375 or more
will receive nothing on account of those options.
As of December 15, 2000, there were options outstanding to purchase an
aggregate of 7,336,217 shares of Azurix common stock at a weighted average
exercise price of $11.6686 per share, of which there were options to purchase an
aggregate of 3,977,747 shares of Azurix common stock with an exercise price less
than $8.375.
PAYMENT FOR SHARES
At the effective time, Enron or the merger subsidiary will deliver the
consideration to be paid in the merger, which is referred to as the "merger
consideration" in this proxy statement, to a paying agent mutually acceptable to
Enron and Azurix. Promptly after the effective time, the paying agent will mail
to each record holder of Azurix common stock a letter of transmittal and
instructions to effect the surrender of the share certificates that, immediately
before the effective time, represented the record holder's shares of Azurix
common stock, in exchange for payment of the merger consideration. You should
not forward share certificates with the enclosed proxy card. You should
surrender certificates representing shares of Azurix common stock only after
receiving instructions from the paying agent or Azurix.
Each holder will be entitled to receive the merger consideration, after
giving effect to any required tax withholdings, only upon surrender to Azurix or
the paying agent of the relevant share certificates. No interest will accrue or
will be paid on the merger consideration upon the surrender of any certificate.
The paying agent will not make payments to any person who is not the registered
holder of the certificate surrendered unless the certificate is properly
endorsed and otherwise in proper form for transfer. Further, the person
requesting such payment will be required to pay any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of the certificate surrendered or establish to the satisfaction of Azurix or the
paying agent that such tax has been paid or is not payable.
TRANSFER OF SHARES
At and after the effective time, Azurix's transfer agent will not record on
the stock transfer books transfers of any shares of Azurix common stock that
were outstanding immediately prior to the effective time of the merger.
OFFICERS, DIRECTORS AND GOVERNING DOCUMENTS
From and after the effective time of the merger, the directors of the
merger subsidiary will become the directors of Azurix, and the current officers
of Azurix will remain the officers of Azurix, in each case until their
successors are duly elected or appointed and qualified. However, see "THE
COMPANIES -- Atlantic Water Trust" for a discussion of Marlin Water Trust's
right to remove half of the Azurix directors after the merger.
From and after the effective time of the merger, the certificate of
incorporation of Azurix in effect immediately prior to the effective time will
remain the certificate of incorporation of Azurix, and the by-laws
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of Azurix in effect immediately prior to the effective time will remain the
by-laws of Azurix, each until amended afterwards.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties made
by Azurix to Enron and the merger subsidiary, subject to identified exceptions,
including representations and warranties relating to:
- the due incorporation, valid existence, good standing, and necessary
corporate powers of Azurix and its subsidiaries;
- the capitalization of Azurix;
- the authorization, execution, delivery and enforceability of the merger
agreement;
- the absence of any conflicts between the merger agreement and Azurix's
certificate of incorporation or by-laws, any applicable laws and any
other material contracts or documents;
- the absence of consents, waivers, approvals or authorizations of
governmental authorities, except those specified in the merger agreement,
in order for Azurix to complete the merger;
- the adequacy and accuracy of filings made by Azurix with the Securities
and Exchange Commission;
- the accuracy of information concerning Azurix in this proxy statement and
other documents required to be filed with the Securities and Exchange
Commission in connection with the merger;
- the absence of material changes to Azurix's financial condition, results
of operations, business or assets between December 31, 1999 and the date
of the merger agreement except for changes disclosed in the merger
agreement, changes that are known to Enron and changes in general
economic or industry conditions or in the financial or capital markets;
- the approval of the merger by Azurix's Board of Directors; and
- the receipt by the Special Committee of the Board of Directors of an
opinion from financial advisors that the merger consideration to be
received by Azurix public shareholders in the merger is fair to Azurix's
public shareholders from a financial point of view.
The merger agreement contains various representations and warranties made
by Enron and the merger subsidiary to Azurix, subject to identified exceptions,
including representations and warranties relating to:
- the due incorporation, valid existence, good standing and necessary
corporate powers of Enron and the merger subsidiary;
- the authorization, execution, delivery and enforceability of the merger
agreement;
- the absence of any conflicts between the merger agreement and Enron's or
the merger subsidiary's certificate of incorporation or by-laws, any
applicable laws and any other material contracts or documents;
- the absence of consents, waivers, approvals or authorizations of
governmental authorities, except those specified in the merger agreement,
in order for Enron and the merger subsidiary to complete the merger;
- the accuracy of information supplied for inclusion in this proxy
statement and other documents required to be filed with the Securities
and Exchange Commission in connection with the merger; and
- the availability of sufficient funds to complete the merger.
None of the representations and warranties in the merger agreement will
survive after the completion of the merger.
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CONDUCT OF BUSINESS PENDING THE MERGER
In the merger agreement, Azurix has agreed, before completion of the
merger, to conduct its operations only in the ordinary and usual course of
business consistent with past practice and to use all reasonable efforts to
preserve intact its business organization and its current relations with
suppliers, customers and others having significant business relations with
Azurix. In addition, Azurix has agreed, subject to certain exceptions, not to
take, and to prevent its subsidiaries from taking, any of the following actions
without the prior consent of Enron (not to be unreasonably withheld or delayed):
- amend its certificate of incorporation or by-laws or adopt a plan of
merger, consolidation, reorganization, dissolution or liquidation;
- sell, pledge or encumber any stock owned by any of its subsidiaries;
- issue or sell additional shares of capital stock or securities
convertible into or exercisable for capital stock;
- make any changes in its capital structure;
- declare, set aside or pay any dividend or other distribution in respect
of any class or series of capital stock;
- split, combine, subdivide, reclassify or redeem or purchase any of its
capital stock;
- increase or accelerate the payment of the compensation or benefits
payable or to become payable to its directors, officers or, except in the
ordinary course of business consistent with past practice, employees;
- pay or award any benefit not required by any existing plan or arrangement
to any of its officers, directors or, except in the ordinary course of
business consistent with past practice, employees;
- grant any severance or termination pay to any of its officers, directors
or employees;
- establish, adopt, enter into, amend or waive any performance or vesting
criteria or amend the exercise or grant price for any equity-based award
under any plan for the benefit or welfare of any of its current or former
directors, officers or employees;
- enter into any employment or severance agreement with any of its
directors, officers or other employees;
- acquire, mortgage, encumber, sell, pledge, lease, license or dispose of
any assets, other than in the ordinary course of business consistent with
past practice;
- incur, assume or prepay any long-term debt or incur or assume any
short-term debt, other than in the ordinary course of business consistent
with past practice under existing lines of credit;
- assume or guarantee or otherwise become liable or responsible for the
obligations of any third party other than in the ordinary course of
business consistent with past practice;
- pay, discharge or satisfy any material claims, liabilities or obligations
other than in the ordinary course of business consistent with past
practice and in accordance with their terms;
- make any loans, advances or capital contributions to or investments in
any third party other than those made in the ordinary course of business
consistent with past practice;
- accelerate or delay the collection of notes or accounts receivable in
advance of or beyond their regular due dates or the dates when they would
have been collected in the ordinary course of business consistent with
past practice;
- change any method or principle of accounting in a manner that is
inconsistent with past practice;
- settle or compromise any suit or claim where the amount to be paid by
Azurix is greater than $25 million;
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- other than in the ordinary course of business consistent with past
practice or if the result would not reasonably be expected to have a
material adverse effect on Azurix, modify, amend or terminate any
material contract, waive, release or assign any material contract, right
or claim or cancel or forgive any debt;
- make any election concerning taxes not required by law or settle or
compromise any liability concerning taxes other than would not reasonably
be expected to have a material adverse effect on Azurix;
- acquire any material corporation, partnership or other business
organization or division or assets;
- enter into any material contract other than in the ordinary course of
business consistent with past practice;
- except as required by a change in law or GAAP, and except for reasonable
and usual changes in the ordinary course of business and consistent with
past practice, change its methods of accounting; or
- convene any regular or special shareholders meeting of the shareholders
of Azurix other than the special shareholders meeting contemplated in
connection with the merger.
SHAREHOLDERS MEETING; RECOMMENDATION OF BOARD OF DIRECTORS
In the merger agreement, Azurix has agreed to:
- duly call, give notice of, convene and hold a special shareholders
meeting of Azurix shareholders as soon as practicable after the date of
the merger agreement;
- use reasonable best efforts to obtain the necessary approvals of the
merger and adoption of the merger agreement by Azurix shareholders; and
- except as described below, include in the proxy statement sent to
shareholders in connection with the solicitation of proxies relating to
the merger the recommendation of Azurix's Board of Directors that
Azurix's shareholders vote in favor of approval of the merger and
adoption of the merger agreement.
The merger agreement provides that the Azurix Board of Directors may
withdraw, modify or change or propose publicly to withdraw, modify or change, in
a manner adverse to Enron or the merger subsidiary, its recommendation of the
merger or the merger agreement only if the Azurix Board of Directors determines
in good faith, after consultation with the Special Committee's financial
advisors, that the merger or the merger agreement are no longer in the best
interests of Azurix's public shareholders. In this proxy statement, such a
withdrawal, modification, or change is referred to as an "adverse board
determination."
The merger agreement also provides that the Special Committee may make or
publicly propose, in a manner adverse to Enron and the merger subsidiary, a
recommendation as to the merger or the merger agreement or withdraw, modify or
change or publicly propose to change, in a manner adverse to Enron or the merger
subsidiary, its determination that the merger and the merger agreement are fair
and in the best interests of Azurix's public shareholders, only if the Special
Committee determines in good faith, after consultation with its financial
advisors, that the merger or merger agreement is no longer in the best interests
of Azurix public shareholders. In this proxy statement, such a withdrawal,
modification or change is referred to as an "adverse Special Committee
determination."
However, unless the merger agreement is terminated in accordance with its
terms, even if an adverse board determination or an adverse Special Committee
determination occurs, Azurix is still required to convene and hold the special
shareholders meeting.
ACCESS TO INFORMATION
Azurix, has agreed to allow Enron and the merger subsidiary, and the
officers and employees, reasonable access during normal business hours to the
offices and other facilities and to the books and records and to furnish to each
of them to the extent available with such financial and operating data and such
other
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information regarding the business and operations, in each case of Azurix or its
subsidiaries, as Enron or the merger subsidiary may from time to time reasonably
request. Azurix further agreed to furnish promptly to Enron and the merger
subsidiary a copy of each document that has been filed on behalf of Azurix and
its subsidiaries under federal, state or foreign securities laws before the
effective time.
REGULATORY AND OTHER CONSENTS AND APPROVALS
Subject to the terms and conditions of the merger agreement, Azurix, Enron
and the merger subsidiary have agreed to cooperate and use their reasonable best
efforts to make all filings necessary, proper or advisable under applicable laws
to consummate the merger and to do all other things necessary, proper or
advisable under applicable laws to consummate the merger. Each of the parties
has also agreed to use its reasonable best efforts to obtain as promptly as
practicable all consents of any governmental entity or any other person required
in connection with the consummation of the merger.
CONDITIONS TO THE MERGER
The obligations of Azurix, Enron and the merger subsidiary to complete the
merger are subject to the satisfaction of each of the following conditions:
- shareholders who hold a majority of Azurix outstanding common stock must
approve and adopt the merger agreement and the merger;
- the consummation of the merger is not restrained, enjoined or prohibited
by any order, judgment or decree of a court of competent jurisdiction or
any governmental entity;
- no law or regulation is enacted or deemed applicable to the merger that
prevents the consummation of the merger or has the effect of making the
consummation of the merger illegal;
- any waiting period (and any extension thereof) under the HSR Act
applicable to the merger shall have expired or terminated and all
material governmental and regulatory approvals must be received;
- a majority of the votes of Azurix common stock cast by Azurix's public
shareholders either for or against the approval and adoption of the
merger agreement and the merger must be cast for the approval and
adoption of the merger agreement and the merger, which condition is
referred to in this proxy statement as the "majority of the minority
approval condition"; and
- consummation of the merger will not result in a default or event of
default under the terms of any senior notes issued under Azurix's senior
notes indenture. References in this proxy statement to "senior notes
indenture" refers to Azurix's indenture dated as of February 18, 2000
with The Chase Manhattan Bank as successor to Chase Bank of Texas,
National Association, as trustee.
Under the merger agreement, if an adverse board determination or an adverse
Special Committee determination occurs after the satisfaction of the majority of
the minority approval condition but before the closing of the merger, then the
majority of the minority approval condition will not be deemed to be satisfied
unless the majority of the minority approval condition is satisfied as well at a
subsequent meeting of the shareholders of Azurix with respect to which the
adverse board determination or the adverse Special Committee determination is
disclosed in the applicable proxy materials. Azurix has agreed that, if an
adverse board determination or an adverse Special Committee determination occurs
after the satisfaction of the majority of the minority approval condition,
Azurix will promptly call and hold a special shareholders meeting as promptly as
practicable after the adverse board determination or adverse Special Committee
determination.
The obligations of Enron and the merger subsidiary to complete the merger
are subject to the satisfaction of each of the following conditions:
- each of the representations and warranties made by Azurix in the merger
agreement that is qualified by a material adverse effect on Azurix must
be true and correct and each of the representations and warranties made
by Azurix in the merger agreement that is not so qualified must be true
and correct except where the failure to be so true and correct would not
reasonably be expected to have a material
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adverse effect on Azurix, in each case as of the date of the merger
agreement and with respect to certain representations and warranties as
of the closing (provided that if a representation or warranty was made
regarding a specific date, it need only be true as of that date);
- Azurix must have observed and performed in all material respects all of
its material covenants under the merger agreement; and
- all consents required to be filed or obtained by Azurix or any of its
subsidiaries in connection with the execution and delivery of the merger
agreement must be filed and obtained, except where the failure to do so
would not reasonably be expected to have a material adverse effect on
Azurix.
The obligation of Azurix to complete the merger is subject to the
satisfaction of each of the following conditions:
- each of the representations and warranties made by Enron and the merger
subsidiary in the merger agreement must be true and correct in all
material respects as of the date of the merger agreement and as of the
closing (provided that if a representation or warranty was made regarding
a specific date, it need only be true as of that date); and
- each of Enron and the merger subsidiary must have observed and performed
in all material respects all of its material covenants under the merger
agreement.
The merger agreement defines a material adverse effect on Azurix as an
effect, change, event, development or occurrence that has had or will have a
material adverse effect on the financial condition, results of operations,
business or assets of Azurix and its subsidiaries taken as a whole, excluding
matters, effects, changes, events, developments or occurrences that are known to
specified Enron employees as of the date of the merger agreement and any adverse
changes in general economic or industry conditions or in the financial or
capital markets. In this proxy statement, references to "a material adverse
effect on Azurix" are intended to refer to this definition.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Enron will indemnify each current
director and officer of Azurix and its subsidiaries who was or is a party or is
threatened to be a party to any action, suit or proceeding by reason of the fact
that such person is or was a director or officer of Azurix or its subsidiaries
to the fullest extent permitted by Delaware law. The merger agreement also
provides that all rights to indemnification and advancement of expenses existing
on the date of the merger agreement in favor of directors and officers of Azurix
and its subsidiaries and any other person who was a director or officer of
Azurix or its subsidiaries contained in their charters or by-laws will survive
the merger and continue for the longer of six years after the effective time of
the merger and any applicable statute of limitations. In addition, Azurix is
required to maintain its directors' and officers' liability insurance policies
in effect for six years after the effective time of the merger.
INDENTURE ISSUES
The merger agreement provides that, unless otherwise agreed to in writing
by Enron and Azurix, immediately prior to the closing of the merger,
- Enron will exchange with Azurix up to the aggregate principal amount of
borrowings outstanding at the closing under a credit agreement between
Enron and Azurix dated as of May 1, 1999 for preferred stock of Azurix
having terms as described in the merger agreement and having an initial
liquidation preference equal to the amount of the aggregate principal
amount of the borrowings under the credit agreement so exchanged; and
- Azurix will designate one or more of its subsidiaries as "unrestricted
subsidiaries" under its senior notes indenture,
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in each case, so that the consummation of the merger will not result in a
default or event of default under the terms of any notes issued under the senior
notes indenture. Azurix and Enron have agreed to consult with each other to
determine the amount to be exchanged and which subsidiaries of Azurix, if any,
should be so designated.
The preferred stock to be issued to Enron as described in the preceding
paragraph will have the following terms:
- the preferred stock will have a liquidation preference equal to the
aggregate principal amount of borrowings exchanged in accordance with the
preceding paragraph divided by the number of shares of preferred stock
issued, plus accrued and unpaid dividends, if any;
- the preferred stock will rank senior to all other classes and series of
Azurix's stock as to liquidation and preference and dividend rights;
- cumulative dividends will cumulate and accrue quarterly at an annual rate
of 11%;
- dividends that accrue prior to the optional redemption date (as defined
below) may be paid at any time after the optional redemption date and
dividends that accrue after the optional redemption date will be payable
on the dates they accrue;
- holders of the preferred stock will have no voting rights other than the
right to approve any amendment to the terms of the preferred stock and
any proposed issuance of Azurix capital stock that ranks senior or on par
with the preferred stock;
- the preferred stock will be redeemable by Azurix at a price equal to the
liquidation preference of the preferred stock on or after the first date
that the preferred stock may be redeemed or repurchased by Azurix and not
constitute "redeemable stock" as that term is defined in Azurix's senior
notes indenture, the date on which the preferred stock is first
redeemable being referred to as the "optional redemption date"; and
- Azurix will be obligated to redeem the preferred stock on the second
anniversary of the optional redemption date at a price equal to the
liquidation preference.
EMPLOYEE BENEFITS
In the merger agreement, Enron has acknowledged that, after the effective
time of the merger, the surviving corporation and its subsidiaries will continue
to be obligated under employee benefit plans in effect as of the effective time
of the merger in accordance with the terms of those plans. However, Enron and
Atlantic Water Trust may take action to cause the surviving corporation and its
subsidiaries to amend, modify, alter or terminate these plans in accordance with
the terms of those plans.
TERMINATION OF THE MERGER AGREEMENT
Termination By Enron or Azurix. At any time before the effective time of
the merger, Enron and Azurix may terminate the merger agreement and abandon the
merger by mutual written consent, regardless of whether the shareholders of
Azurix have adopted and approved the merger and the merger agreement. Either
party may also terminate the merger agreement if:
- either the statutory shareholder approval condition, requiring that the
merger agreement and the merger be approved and adopted by the
affirmative vote of the holders of a majority of the outstanding shares
of Azurix common stock, or the majority of the minority approval
condition, requiring that at least a majority of the votes cast by public
shareholders either in favor or against the merger agreement and the
merger at the special shareholders meeting are cast in favor of the
merger agreement and the merger, is not met.
- the effective time has not occurred on or before May 31, 2001;
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<PAGE> 62
- any court or other governmental entity has issued an order, decree,
judgment or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the merger and the order, decree or
ruling or other action has become final and nonappealable; or
- the Board of Directors of Azurix approves a superior proposal to acquire
Azurix or the Special Committee recommends a superior proposal.
Termination by Enron. Enron may terminate the merger agreement before the
effective time of the merger:
- upon a breach by Azurix of any of its representations, warranties,
covenants or agreements so that the conditions to consummation of the
merger would not be satisfied; provided that, if the breach is curable by
Azurix though the exercise of reasonable best efforts so long as Azurix
continues to exercise its reasonable best efforts, Enron may not
terminate the merger agreement; or
- if there is an adverse board determination or an adverse Special
Committee determination.
Termination by Azurix. Azurix may terminate the merger agreement before
the effective time of the merger upon a breach by Enron or the merger subsidiary
of any of their representations, warranties, covenants or agreements so that the
conditions to consummation of the merger would not be satisfied; provided that,
if the breach is curable by Enron though the exercise of reasonable best efforts
so long as Enron continues to exercise its reasonable best efforts, Azurix may
not terminate the merger agreement.
The merger agreement defines an "acquisition proposal" as any proposal or
offer relating to the acquisition or purchase of all of the outstanding equity
securities of Azurix, any tender offer or exchange offer that, if consummated,
would result in any person beneficially owning all of the equity securities of
Azurix, or any merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Azurix or any purchase or sale of a substantial portion of the
consolidated assets (including without limitation stock of subsidiaries owned
directly or indirectly by Azurix) of Azurix and its subsidiaries, taken as a
whole. The merger agreement defines a "superior proposal" as a bona fide written
acquisition proposal that the Board of Directors of Azurix or the Special
Committee concludes in good faith (after consultation with Azurix's or the
Special Committee's financial advisors) would, if consummated, provide greater
value to Azurix's shareholders from a financial point of view than $8.375 per
share and for which financing is committed or which, in the good faith judgment
of the Board of Directors of Azurix or the Special Committee (after consultation
with Azurix's or the Special Committee's financial advisors), is capable of
being financed by the person making the acquisition proposal.
AMENDMENT AND WAIVER
Any provision of the merger agreement may be amended before the effective
time of the merger. After the adoption of the merger agreement by Azurix's
shareholders, however, no amendment may be made that would by law require
further approval of Azurix's shareholders without further approval of Azurix's
shareholders, including the satisfaction of the majority of the minority
approval requirement. Further, at any time before the effective time, any party
to this agreement may extend, in writing, the time for the performance of any
obligation of any other party, waive any inaccuracy in the representations and
warranties of any other party in the merger agreement or in any other document
and waive compliance with any agreement or condition to its obligations.
NO TERMINATION FEE
Azurix is not required by the terms of the merger agreement to pay any
termination fees to Enron if the merger agreement is terminated in accordance
with its terms.
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<PAGE> 63
SUPPORT AGREEMENT
The description of the support agreement contained in this proxy statement
describes the material terms of the support agreement. The actual legal terms of
the support agreement may be found in Appendix B to this proxy statement and are
incorporated herein by reference. You are urged to read the entire support
agreement.
AGREEMENT TO VOTE FOR THE MERGER
As of December 15, 2000, Atlantic Water Trust owned 78,536,532 shares of
Azurix common stock. As an inducement to Azurix entering into the merger
agreement, Atlantic Water Trust has agreed, in the support agreement, that at
any meeting of Azurix's shareholders called for the purpose of considering the
approval and adoption of the merger agreement and the merger, unless Azurix
otherwise consents in writing, Atlantic Water Trust will vote all of the shares
that it owns, other than any shares that Atlantic Water Trust transfers as
permitted by the support agreement, in favor of approval and adoption of the
merger agreement and the merger. In addition, Atlantic Water Trust has agreed to
waive any rights of appraisal or rights to dissent from the merger that it might
have.
NO INCONSISTENT AGREEMENTS
Atlantic Water Trust has agreed that, except in connection with the merger
or as required by the trust agreement of Atlantic Water Trust, it will not:
- transfer, or consent to any transfer of, any of the shares of Azurix
common stock that it owns;
- enter into any agreement regarding the transfer of any of the shares of
Azurix common stock that it owns; or
- take any action that would in any way restrict or interfere with the
performance by Atlantic Water Trust of its obligations under the support
agreement or with the merger.
TERMINATION
The support agreement terminates on the termination of the merger agreement
in accordance with its terms or upon Atlantic Water Trust's election at any time
after May 31, 2001.
REPRESENTATIONS AND WARRANTIES
The support agreement contains various representations and warranties made
by Atlantic Water Trust to Azurix, including representations and warranties
relating to:
- ownership of Azurix common stock by Atlantic Water Trust;
- the capacity, power and authority of Atlantic Water Trust to enter into
the support agreement;
- the authorization, execution and delivery of the support agreement by
Atlantic Water Trust; and
- the absence of any conflicts between the support agreement and any
material contracts to which Atlantic Water Trust or Marlin Water Trust is
a party.
FEES AND EXPENSES
Whether or not the merger is completed and except as otherwise provided in
the merger agreement, all fees and expenses incurred in connection with the
merger will be paid by the party incurring those fees and
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<PAGE> 64
expenses. Estimated fees and expenses (rounded to the nearest thousand) to be
incurred in connection with the merger, the financing and related transactions
are as follows:
<TABLE>
<S> <C>
Filing fees (Securities and Exchange Commission and HSR).... $
Legal, accounting and financial advisors' fees and
expenses..................................................
Printing and solicitation fees and expenses.................
Miscellaneous...............................................
--------
Total.............................................
========
</TABLE>
The fees and expenses listed above include $[ ] million in estimated
fees and expenses to be paid by Enron.
PRICE RANGE OF COMMON STOCK
The common stock is currently traded on the New York Stock Exchange under
the ticker symbol, "AZX." Azurix's public trading of the common stock commenced
on June 9, 1999. The following table sets forth the high and low closing sale
prices for shares of the common stock, as reported on the New York Stock
Exchange for the periods listed.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Second quarter (beginning June 9, 1999)................... $20 1/4 $19
Third quarter............................................. 24 1/4 13 3/4
Fourth quarter............................................ 17 1/16 6 9/16
YEAR ENDED DECEMBER 31, 2000
First quarter............................................. $11 1/16 $ 6 13/16
Second quarter............................................ 9 3/8 6
Third quarter............................................. 9 1/16 3 1/2
Fourth quarter (through December 20, 2000)................ 8 3/16 3 3/8
</TABLE>
On October 26, 2000 the last full trading day before the announcement of
Enron's proposal, the high and low sales prices for the common stock as reported
on the New York Stock Exchange were $3 3/4 and $3 7/16 per share, respectively,
and the closing sale price on that day was $3 9/16 per share. On December 14,
2000, the last full trading day before the public announcement of the merger
agreement, the high and low sales prices for the common stock as reported on the
New York Stock Exchange were $6 1/4 and $6 1/8 per share, respectively, and the
closing sale price on that date was $6 1/8 per share. On [ ], 2001, the last
trading day before the date of this proxy statement, the closing price for
shares of the common stock, as reported on the New York Stock Exchange, was
$[ ]. You are urged to obtain current market quotations for Azurix common
stock before making any decision with respect to the merger.
DIVIDENDS
Azurix has never declared or paid any dividends with respect to its common
stock. Any determination to pay dividends in the future will be at the
discretion of the Board of Directors and will be dependent upon Azurix's results
of operations, financial condition, capital expenditures, working capital
requirements, any contractual restrictions and other factors deemed relevant by
Azurix's Board of Directors. Azurix does not anticipate that any cash dividends
will be paid on its common stock in the foreseeable future if, for any reason,
the merger is not completed. In addition, the Azurix credit facilities and
senior note indenture contain restrictions on its ability to pay dividends.
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<PAGE> 65
COMMON STOCK PURCHASE INFORMATION
None of Azurix, Atlantic Water Trust, Enron, the merger subsidiary, or, to
their knowledge, any of their executive officers or directors or any of their
affiliates has engaged in any transaction with respect to Azurix common stock
within 60 days of the date of this proxy statement. In addition, other than the
transfer of shares of Azurix common stock to Atlantic Water Trust in connection
with the formation of Azurix, neither Azurix, Enron or Atlantic Water Trust has
purchased securities of Azurix since its inception. It is anticipated that some
of these executive officers and directors may determine to dispose of some or
all of the shares of Azurix common stock held by them in order to recognize a
tax loss in 2000.
DIRECTORS AND EXECUTIVE OFFICERS OF AZURIX
Set forth below are biographies of the directors and executive officers of
Azurix. All of the individuals listed are U.S. citizens, other than Lord Wakeham
and Mr. Skellett who are citizens of the United Kingdom. The address for each of
the persons listed below is c/o Azurix Corp., 333 Clay Street, Houston, Texas
77002.
DIRECTORS
John H. Duncan Director since March 1999
Private Investor
Mr. Duncan's principal occupation has been investments since 1990. Mr.
Duncan is also a director of Enron, EOTT Energy Corp. (the general partner of
EOTT Energy Partners, L.P.) and Group 1 Automotive Inc.
Kenneth L. Lay Director since November 1998
Chairman of the Board and Chief Executive Officer, Enron Corp.
Mr. Lay has been Chairman of the Board and Chief Executive Officer of
Enron. for over 14 years. Mr. Lay is also a Director of Eli Lilly and Company,
Compaq Computer Corporation, EOTT Energy Corp. (the general partner of EOTT
Energy Partners, L.P.), i2 Technologies, Inc., and The New Power Company. Enron
recently announced that Mr. Lay will retire as Chief Executive Officer of Enron
in February 2001, but will continue as Chairman of the Board.
Jeffrey K. Skilling Director since November 1998
President and Chief Operating Officer, Enron Corp.
Mr. Skilling has served as President and Chief Operating Officer of Enron
since January 1997. From August 1990 until December 1996, he served as Chairman
and Chief Executive Officer of Enron North America Corp. and its predecessor
companies. Mr. Skilling is also a director of Enron and the Houston Branch of
the Federal Bank of Dallas. Enron recently announced that Mr. Skilling will
become its Chief Executive Officer in February 2001.
John Wakeham Director since March 1999
Former U.K. Secretary Of State for Energy
and Leader of The Houses Of Lords and Commons
Lord Wakeham is a retired former U.K. Secretary of State for Energy and
Leader of the Houses of Commons and Lords. He served as a Member of Parliament
from 1974 until his retirement from the House of Commons in April 1992. Prior to
his government service, Lord Wakeham managed a large private practice as a
chartered accountant. In the United Kingdom, he is currently Chairman of the
Press Complaints Commission and Chairman or Director of a number of publicly
traded U.K. companies. Lord Wakeham is also a director of Enron.
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<PAGE> 66
Herbert S. Winokur, Jr. Director since April 1999
Chairman Of The Board
Mr. Winokur has served as Chairman of the Board of Azurix since August 25,
2000. Mr. Winokur is also the Chairman and Chief Executive Officer of Capricorn
Holdings, Inc., a private investment company, and Managing General Partner of
Capricorn Investors, L.P., Capricorn Investors II, L.P. and Capricorn Investors
III, L.P., private investment partnerships concentrating on investments in
restructure situations, organized by Mr. Winokur in 1987, 1994 and 1999,
respectively. Prior to his current appointment, Mr. Winokur was Senior Executive
Vice President and a director of Penn Central Corporation. Mr. Winokur is also a
director of Enron, The WMF Group, Ltd., Mrs. Fields' Holding Company, Inc., CCC
Information Services Group, Inc. and DynCorp.
EXECUTIVE OFFICERS
John L. Garrison, Jr.
President and Chief Executive Officer
Mr. Garrison was elected President and Chief Executive Officer in August
2000. Mr. Garrison served as President and Chief Operating Officer from March
2000 to August 2000 and 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.
Colin F. Skellett
Vice Chairman, Operations
Mr. 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.
Amanda K. Martin
Executive Director and President, North America
Amanda K. Martin is President of North America for Azurix. 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
Executive Director and General Counsel
Mr. 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> 67
J. Michael Anderson
Managing Director and Chief Financial Officer
Mr. Anderson has served as Managing Director and Chief Financial Officer of
Azurix since May 2000. Mr. Anderson served as Senior Vice President, Corporate
Development from February 2000 until May 2000 and was Vice President, Corporate
Development from September 1999 until February 2000. Prior to joining Azurix,
Mr. Anderson spent 10 years with The Chase Manhattan Corporation, most recently
as Vice President in the Global Mergers and Acquisitions Group of Chase
Securities Inc. where he provided merger and acquisition advisory services to
clients in a broad range of industries.
STOCK OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership
of the shares of common stock as of December 15, 2000 by each of the executive
officers and directors of each of Azurix, Enron, the merger subsidiary and
Atlantic Water Trust, Azurix's executive officers and directors as a group and
all other shareholders known by Azurix to beneficially own more than 5% of the
common stock. Unless otherwise indicated, the address for each of the
shareholders listed below is c/o Azurix Corp., 333 Clay Street, Suite 1000,
Houston, Texas 77002. Other than those individuals listed below, the remaining
directors and executive officers of Azurix, Enron, the merger subsidiary and
Atlantic Water Trust do not own any shares of Azurix common stock. It is
anticipated that some of these executive officers and directors may determine to
dispose of some or all of the shares of Azurix common stock held by them in
order to recognize a tax loss in 2000.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL BENEFICIALLY
NAME OWNERSHIP(3)(4) OWNED
---- ----------------- ------------
<S> <C> <C>
Atlantic Water Trust(1)(2).................................. 78,536,532 66.9%
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Enron Corp.(2).............................................. 78,536,532 66.9
1400 Smith Street
Houston, Texas 77002
Marlin Water Trust(2)....................................... 78,536,532 66.9
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
John L. Garrison, Jr. ...................................... 362,100 *
Colin F. Skellett(5)........................................ 183,970 *
Amanda K. Martin............................................ 252,440 *
John C. Ale................................................. 131,085 *
J. Michael Anderson......................................... 309,791 *
John H. Duncan.............................................. 44,700 *
Kenneth L. Lay(6)........................................... 44,700 *
Jeffrey K. Skilling(6)...................................... 53,200 *
John Wakeham................................................ 35,700 *
Herbert S. Winokur, Jr. .................................... 57,200 *
All Azurix directors and executive officers as a group (10
persons).................................................. 1,474,886 1.2
Other Enron Executive Officer Shareholders:
Mark E. Koenig.............................................. 2,000 *
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
</TABLE>
---------------
* less than 1%
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<PAGE> 68
(1) Atlantic Water Trust is a Delaware business trust. Atlantic Water Trust
holds 66.9% of Azurix's Common Stock. See "THE COMPANIES -- Atlantic Water
Trust".
(2) Each of Enron and Marlin Water Trust has a 50% voting interest in Atlantic
Water Trust, and each may be deemed to beneficially own all of the Azurix
shares owned by Atlantic Water Trust because of certain shared voting and
dispositive powers. See "THE COMPANIES -- Atlantic Water Trust."
(3) Includes shares subject to vested and unvested stock options that will be
exercisable on consummation of the merger at an exercise price below $8.375,
as follows: Mr. Garrison, 359,410; Mr. Skellett, 178,970 shares; Ms. Martin,
234,370 shares; Mr. Ale, 126,475; Mr. Anderson, 308,256; Mr. Duncan, 34,700;
Mr. Lay, 34,700; Mr. Skilling, 33,200; Lord Wakeham, 34,700; Mr. Winokur,
34,700 and all directors and executive officers as a group, 1,379,481
shares.
(4) Does not include shares subject to stock options exercisable at an exercise
price above $8.375, as follows: Mr. Garrison, 400,000 shares, $19.00
exercise price; Mr. Skellett, 600,000 shares, $16.72 exercise price; Ms.
Martin, 1,000,000 shares, $16.72 exercise price; Mr. Ale, 250,000 shares,
$16.72 exercise price; Mr. Anderson, 31,560 shares, $14.25 exercise price;
Mr. Duncan, 13,500 shares, $19.00 exercise price; Mr. Lay, 13,500 shares,
$19.00 exercise price; Mr. Skilling, 12,000 shares, $19.00 exercise price;
Lord Wakeham, 13,500 shares, $19.00 exercise price; Mr. Winokur, 13,500
shares, $19.00 exercise price; and all directors and executive officers as a
group, 2,347,560 shares.
(5) Includes 2,500 shares held jointly with his spouse.
(6) Does not include 78,536,532 shares owned by Atlantic Water Trust with
respect to which Enron has shared voting and dispositive power. Messrs. Lay
and Skilling in their capacities as Chairman of the Board and Chief
Executive Officer and President and Chief Operating Officer, respectively,
of Enron may be deemed to beneficially own such shares as a result of their
positions with Enron.
DIRECTORS AND EXECUTIVE OFFICERS OF ENRON
Set forth below are biographies of the directors and executive officers of
Enron other than Messrs. Duncan, Lay, Skilling and Winokur and Lord Wakeham
whose biographies are listed above under "DIRECTORS AND EXECUTIVE OFFICERS OF
AZURIX." All of the individuals listed are U.S. citizens other than Mr. Pereira,
who is a citizen of Brazil. The address for each of the persons listed below is
c/o Enron Corp., 1400 Smith Street, Houston, Texas 77002.
DIRECTORS
Robert A. Belfer Director since 1983
Chairman and Chief Executive Officer,
Belco Oil & Gas Corp.
Mr. Belfer's principal occupation is Chairman and Chief Executive Officer
of Belco Oil & Gas Corp., a company formed in 1992. Prior to his resignation in
April, 1986 from Belco Petroleum Corporation ("BPC"), a wholly owned subsidiary
of Enron, Mr. Belfer served as President and then Chairman of BPC.
Norman P. Blake, Jr. Director since 1993
Former Chief Executive Officer and Secretary General,
United States Olympic Committee
Mr. Blake is the former Chief Executive Officer and Secretary General of
the United States Olympic Committee. Mr. Blake served as Chairman, President and
Chief Executive Officer of the Promus Hotel Corporation from December, 1998
until November, 1999 when it merged with the Hilton Hotels Corporation. From
November, 1990 until May, 1998, he served as Chairman, President and Chief
Executive Officer of USF&G Corporation until its merger with the St. Paul
Companies. He is also a director of Owens-Corning Corporation.
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<PAGE> 69
Ronnie C. Chan Director since 1996
Chairman, Hang Lung Development Limited
For over nine years, Mr. Chan has been Chairman of Hang Lung Development
Limited, a publicly traded Hong Kong based company involved in property
development and investment as well as hotel development and management. Mr. Chan
also co-founded and is a director of various companies within Morningside/
Springfield Group, which invests in private industrial companies internationally
and he is also a director of Standard Chartered Bank plc and Motorola, Inc.
Wendy L. Gramm Director since 1993
Director of the Regulatory Studies Program,
Mercatus Center at George Mason University
Dr. Gramm is an economist and Director of the Regulatory Studies Program of
the Mercatus Center at George Mason University. From February, 1988 until
January, 1993, Dr. Gramm served as Chairman of the Commodity Futures Trading
Commission in Washington, D.C. Dr. Gramm is also a director of IBP, inc., State
Farm Insurance Co. and Invesco Funds. Dr. Gramm was also a director of the
Chicago Mercantile Exchange until December 31, 1999.
Ken L. Harrison Director since 1997
Former Chairman of the Board and Chief Executive Officer
Portland General Electric Company
Prior to Mr. Harrison's retirement in March 2000, he served as Chairman of
the Board and Chief Executive Officer of Portland General Electric Company since
1988. Additionally, Mr. Harrison served as Chairman of Enron Communications,
Inc. from its inception in 1996 through November, 1999, and as a Vice Chairman
of Enron from July, 1997 to July, 1999.
Robert K. Jaedicke Director since 1985
Professor (Emeritus) of Accounting,
Stanford University Graduate School of Business
Dr. Jaedicke is Professor (Emeritus) of Accounting at the Stanford
University Graduate School of Business in Stanford, California. He has been on
the Stanford University faculty since 1961 and served as Dean from 1983 until
1990. Dr. Jaedicke is also a director of Boise Cascade Corporation, California
Water Service Company and GenCorp, Inc. Dr. Jaedicke was also a director of
State Farm Insurance Co. until June, 1999.
Charles A. LeMaistre Director since 1985
President (Emeritus),
University of Texas M. D. Anderson Cancer Center
For 18 years, Dr. LeMaistre served as President of the University of Texas
M. D. Anderson Cancer Center in Houston, Texas and now holds the position of
President Emeritus.
John Mendelsohn Director since 1999
President of the University of Texas M.D. Anderson Cancer Center
Since July, 1996, Dr. Mendelsohn has served as President of the University
of Texas M.D. Anderson Cancer Center. Prior to 1996, Dr. Mendelsohn was Chairman
of the Department of Medicine at Memorial Sloan-Kettering Cancer Center in New
York. Dr. Mendelsohn is a director of ImClone Systems, Inc.
Jerome J. Meyer Director since 1997
Chairman and Chief Executive Officer of Tektronix, Inc.
For over eight years, Mr. Meyer served as Chairman and Chief Executive
Officer of Tektronix, Inc., an electronics manufacturer located in Wilsonville,
Oregon. Currently, Mr. Meyer serves as Chairman and as a director of Tektronix,
Inc. He is also a director of Standard Insurance Corp. and Centerspan
Communications, Inc.
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Paulo V. Ferraz Pereira Director since 1999
President and Chief Operating Officer, Meridional Financial Group;
Managing Director, Group Bozano
For over five years, Mr. Pereira has served as President and Chief
Operating Officer of Meridional Financial Group and Managing Director of Group
Bozano. Mr. Pereira is the former President and Chief Executive Officer of the
State Bank of Rio de Janeiro.
Frank Savage Director since 1999
Chairman, Alliance Capital Management International
Since 1995, Mr. Savage has served as Chairman of Alliance Capital
Management International (a division of Alliance Capital Management L.P.). Mr.
Savage is also a director of Lockheed Martin Corporation, Alliance Capital
Management L. P., Lyondell Chemical Corp. and Qualcomm Corp.
John A. Urquhart Director since 1990
Senior Advisor to the Chairman, Enron Corp.
Mr. Urquhart serves as Senior Advisor to the Chairman of Enron. From 1991
to 1998, Mr. Urquhart was a Vice Chairman of Enron. Since August, 1991, Mr.
Urquhart has also been President of John A. Urquhart Associates, a management
consulting firm in Fairfield, Connecticut. He also serves as a director of TECO
Energy, Inc., Hubbell, Inc., The Weir Group, plc and Catalytica Inc.
EXECUTIVE OFFICERS
J. Clifford Baxter
Vice Chairman
Mr. Baxter has served as Vice Chairman of Enron since October 2000 and
Chief Strategy Officer since June 2000. He served as Chairman and Chief
Executive Officer, Enron North America Corp., from June 1999 until June 2000,
Senior Vice President, Corporate Development, Enron Corp., from January 1997
until June 1999 and Managing Director, Enron Capital and Trade ("ECT") in 1996
and as Vice President, Corporate Development, ECT in 1995 and 1996.
Mark A. Frevert
Chairman and Chief Executive Officer, Enron Europe
Mr. Frevert has served as Chairman and Chief Executive Officer of Enron
Europe since March 1997. From 1993 to March 1997, Mr. Frevert served ECT in a
variety of executive managerial positions.
Stanley C. Horton
Chairman and Chief Executive Officer, Enron Gas Pipeline Group
Mr. Horton has served as Chairman and Chief Executive Officer of Enron Gas
Pipeline Group since January 1997. He served as Co-Chairman and Chief Executive
Officer of Enron Operations Corp. from February 1996 to January 1997 and as
President and Chief Operating Officer of Enron Operations Corp. from June 1993
to February 1996.
Lou L. Pai
Chairman of the Board and Chief Executive Officer of Enron Energy Services, Inc.
Mr. Pai has served as Chairman of the Board and Chief Executive Officer of
Enron Energy Services, Inc. since March 1997. He served as President and Chief
Operating Officer of ECT from August 1995 to March 1997. From March 1993 to
August 1995, Mr. Pai served ECT in a variety of executive managerial positions.
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Kenneth D. Rice
Co-Chairman and Chief Executive Officer, Enron Broadband Services, Inc.
Mr. Rice has served as Co-Chairman and Chief Executive Officer of Enron
Broadband Services, Inc. since June 1999. He served as Chairman and Chief
Executive Officer of ECT -- North America from March 1997 until June 1999. From
1993 to March 1997, Mr. Rice served ECT in a variety of executive managerial
positions.
Richard B. Buy
Executive Vice President and Chief Risk Officer
Mr. Buy has served as Executive Vice President and Chief Risk Officer of
Enron since July 1999. He served as Senior Vice President and Chief Risk Officer
of Enron from March 1999 until July 1999, Managing Director and Chief Risk
Officer of ECT from January 1998 to March 1999 and as Vice President and Chief
Credit Officer of ECT from August 1995 to January 1998.
Richard A. Causey
Executive Vice President and Chief Accounting Officer
Mr. Causey has served as Executive Vice President and Chief Accounting
Officer of Enron since July 1999. He served as Senior Vice President and Chief
Accounting and Information Officer of Enron from January 1997 to July 1999,
Managing Director of ECT from June 1996 to January 1997 and as Vice President of
ECT from January 1992 to June 1996.
James V. Derrick, Jr.
Executive Vice President and General Counsel
Mr. Derrick has served as Executive Vice President and General Counsel of
Enron since July 1999. He served as Senior Vice President and General Counsel of
Enron from June 1991 to July 1999. He was a Partner of Vinson & Elkins L.L.P.
from January 1977 until June 1991.
Andrew S. Fastow
Executive Vice President and Chief Financial Officer
Mr. Fastow has served as Executive Vice President and Chief Financial
Officer of Enron since July 1999. He served as Senior Vice President and Chief
Financial Officer of Enron from March 1998 to July 1999, Senior Vice President,
Finance of Enron from January 1997 to March 1998, Managing Director, Retail and
Treasury of ECT from May 1995 to January 1997 and as Vice President of ECT from
January 1993 to May 1995.
Steven J. Kean
Executive Vice President and Chief of Staff
Mr. Kean has served as Executive Vice President and Chief of Staff of Enron
since July 1999. He served as Senior Vice President, Government Affairs of Enron
from 1997 to 1999. From 1989 to 1997, Mr. Kean held a variety of management
positions in Enron subsidiaries.
Mark E. Koenig
Executive Vice President, Investor Relations
Mr. Koenig has served as Executive Vice President, Investor Relations of
Enron since July 1999. He served as Senior Vice President, Investor Relations of
Enron from July 1997 until July 1999 and as Vice President, Investor Relations
of Enron from December 1992 until July 1997.
J. Mark Metts
Executive Vice President, Corporate Development
Mr. Metts has served as Executive Vice President, Corporate Development of
Enron since August 1999. He was a Partner of Vinson & Elkins L.L.P. from January
1991 until August 1999.
64
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Cindy K. Olson
Executive Vice President, Human Resources and Community Relations
Ms. Olson has served as Executive Vice President, Human Resources and
Community Relations of Enron since September 1999. She served as Senior Vice
President, Corporate Affairs of Enron from January 1999 until September 1999 and
as Vice President, Corporate Affairs of Enron from January 1995 until January
1999.
DIRECTORS AND EXECUTIVE OFFICERS OF ATLANTIC
WATER TRUST AND ENRON BW CORP.
Set forth below are the biographies of the directors of Atlantic Water
Trust, other than Messrs. Causey, Derrick and Fastow whose biographies are
listed above under "Directors and Executive Officers of Enron."
DIRECTORS OF ATLANTIC WATER TRUST
Ben F. Glisan, Jr.
Treasurer
Mr. Glisan has served as Treasurer of Enron since April 2000. He served in
a variety of managerial roles in the finance department of Enron from September
1996 until April 2000. He was a Manager at Arthur Andersen LLP from January 1995
until September 1996.
EXECUTIVE OFFICERS OF ATLANTIC WATER TRUST
Atlantic Water Trust has no executive officers. Wilmington Trust Company
serves as Atlantic Water Trust's trustee.
DIRECTORS AND EXECUTIVE OFFICERS OF ENRON BW CORP.
The directors and executive officers of Enron BW Corp. are Messrs. Baxter,
Derrick and Metts, whose biographies are listed above under "DIRECTORS AND
EXECUTIVE OFFICERS OF ENRON."
OTHER MATTERS
The Board of Directors does not presently know of any matters to be
presented for consideration at the special shareholders meeting other than
matters described in the notice of special shareholders meeting mailed together
with this proxy statement. If other matters are presented, the persons named in
the accompanying proxy to vote on such matters will have discretionary authority
to vote in accordance with their best judgment.
FUTURE SHAREHOLDER PROPOSALS
If the merger is completed there will be no public participation in any
future meetings of shareholders of Azurix. However, if the merger is not
completed, Azurix shareholders will continue to be entitled to attend and
participate in Azurix's shareholders meetings. If the merger is not completed,
you will be informed, by press release or other means determined reasonable by
us, of the date by which shareholder proposals must be received by us for
inclusion in the proxy materials relating to the annual meeting, which proposals
must comply with the rules and regulations of the Commission then in effect.
65
<PAGE> 73
WHERE YOU CAN FIND MORE INFORMATION
Azurix files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. In addition,
because the merger is a "going private" transaction, Azurix has filed a Rule
13e-3 Transaction Statement on Schedule 13E-3 with respect to the merger. The
Schedule 13E-3 and such reports, proxy statements and other information contain
additional information about Azurix. You may read and copy any reports,
statements or other information filed by Azurix at the Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Please call the Commission at 1-800-732-0330 for further
information on the operation of the public reference rooms. Azurix's filings
with the Commission are also available to the public from commercial document
retrieval services and at the website maintained by the Commission located at:
"http://www.sec.gov."
The Commission allows Azurix to "incorporate by reference" information into
this proxy statement. This means that Azurix can disclose important information
by referring to another document filed separately with the Commission. The
information incorporated by reference is considered to be part of this proxy
statement, and later information filed with the Commission will update and
supersede the information in this proxy statement.
Azurix incorporates by reference each document it files under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy
statement and before the special shareholders meeting. Azurix also incorporates
by reference into this proxy statement the following documents filed by it with
the Commission under the Exchange Act:
- Azurix's Annual Report on Form 10-K for the year ended December 31, 1999;
- Azurix's Quarterly Reports on Form 10-Q for the quarters ended March 31,
2000, June 30, 2000 and September 30, 2000; and
- Azurix's Current Reports on Form 8-K, dated January 26, 2000, February
11, 2000, October 27, 2000 and December 15, 2000.
Azurix undertakes to provide without charge to each person to whom a copy
of this proxy statement has been delivered, upon request, a copy of any or all
of the documents incorporated by reference herein, other than the exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into the information that this proxy statement incorporates. Requests for copies
should be directed to Azurix Corp., 333 Clay Street, Suite 1000, Houston, Texas
77002, Attention: Norma A. Tidrow, Secretary (Telephone number: (713) 646-7933).
If you would like to request documents from Azurix, please do so by
[ ], 2001 in order to receive them before the special shareholders
meeting.
MISCELLANEOUS
Azurix's Board of Directors does not intend to bring any other matters to
the shareholders for consideration at the special shareholders meeting.
The proxy statement does not constitute the solicitation of a proxy in any
jurisdiction to or from any person to whom it is not lawful to make any offer or
solicitation in such jurisdiction. The delivery of this proxy statement will not
create an implication that there has been no change in the affairs of Azurix
since the date of this proxy statement or that the information herein is correct
as of any later date.
You should rely on the information contained or incorporated by reference
in this proxy statement. Azurix has not authorized anyone to provide you with
information that is different from what is contained in this proxy statement.
This proxy statement is dated [ ], 2001. You should not assume that
the information contained in this proxy statement is accurate as of any date
other than such date, and the mailing of this proxy statement will not create
any implication to the contrary.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENRON CORP.
ENRON BW CORP.
AND
AZURIX CORP.
DATED AS OF
DECEMBER 15, 2000
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I................................................................. A-1
Section 1.1 The Merger.................................................. A-1
Section 1.2 Effective Time.............................................. A-1
Section 1.3 Effects of the Merger....................................... A-1
Section 1.4 Certificate of Incorporation and By-Laws of the Surviving
Corporation............................................... A-1
Section 1.5 Directors................................................... A-2
Section 1.6 Officers.................................................... A-2
Section 1.7 Conversion of Merger Sub Common Stock....................... A-2
Section 1.8 Conversion of Shares........................................ A-2
Section 1.9 Options; Stock Plans........................................ A-2
Section 1.10 No Fractional Shares........................................ A-2
Section 1.11 Stockholders' Meeting; SEC Filings.......................... A-3
Section 1.12 Closing..................................................... A-3
ARTICLE II................................................................ A-4
Section 2.1 Dissenting Shares........................................... A-4
Section 2.2 Payment for Shares.......................................... A-4
ARTICLE III............................................................... A-5
Section 3.1 Organization and Qualification; Subsidiaries................ A-5
Section 3.2 Capitalization; Subsidiaries................................ A-5
Section 3.3 Authority................................................... A-6
Section 3.4 No Conflict; Required Filings and Consents.................. A-6
Section 3.5 SEC Reports and Financial Statements........................ A-7
Section 3.6 Information................................................. A-8
Section 3.7 Absence of Certain Changes.................................. A-8
Section 3.8 Brokers..................................................... A-8
Section 3.9 Determination of Special Committee; Recommendation of
Company Board; Opinions of Financial Advisors............. A-8
ARTICLE IV................................................................ A-8
Section 4.1 Organization and Qualification.............................. A-8
Section 4.2 Authority................................................... A-9
Section 4.3 No Conflict; Required Filings and Consents.................. A-9
Section 4.4 Information................................................. A-9
Section 4.5 Financing; Ownership of Merger Sub Common Stock............. A-10
ARTICLE V................................................................. A-10
Section 5.1 Conduct of Business of the Company.......................... A-10
Section 5.2 Access to Information....................................... A-12
Section 5.3 Reasonable Best Efforts..................................... A-12
Section 5.4 Public Announcements........................................ A-12
Section 5.5 Indemnification............................................. A-13
Section 5.6 Notification of Certain Matters............................. A-13
Section 5.7 Company Board Recommendation................................ A-14
Section 5.8 Exchange of Credit Agreement Obligations; Indenture......... A-14
Section 5.9 Employee Benefits........................................... A-14
</TABLE>
A-i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VI................................................................ A-14
Section 6.1 Conditions to Obligations of Each Party under this
Agreement................................................. A-14
Section 6.2 Conditions to Obligations of Parent and Merger Sub under
this Agreement............................................ A-15
Section 6.3 Conditions to Obligation of the Company under this
Agreement................................................. A-15
ARTICLE VII............................................................... A-15
Section 7.1 Termination................................................. A-15
Section 7.2 Effect of Termination....................................... A-16
Section 7.3 Fees and Expenses........................................... A-16
Section 7.4 Amendment................................................... A-16
Section 7.5 Extension; Waiver........................................... A-16
ARTICLE VIII.............................................................. A-17
Section 8.1 Non-Survival of Representations and Warranties.............. A-17
Section 8.2 Entire Agreement; Assignment................................ A-17
Section 8.3 Validity.................................................... A-17
Section 8.4 Notices..................................................... A-17
Section 8.5 Governing Law............................................... A-18
Section 8.6 Descriptive Headings........................................ A-18
Section 8.7 Counterparts................................................ A-18
Section 8.8 Parties in Interest......................................... A-18
Section 8.9 Certain Definitions......................................... A-18
Section 8.10 Specific Performance........................................ A-19
Section 8.11 Causing Subsidiaries........................................ A-19
</TABLE>
A-ii
<PAGE> 77
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM LOCATION
------------ --------
<S> <C>
affiliate................................................... Section 8.9
Adverse Company Board Determination......................... Section 5.7
Adverse Special Company Determination....................... Section 5.7
Cash Payments............................................... Section 1.9
Certificates................................................ Section 2.2
Certificate of Designations................................. Section 3.4
Closing..................................................... Section 1.12
Closing Date................................................ Section 1.12
Code........................................................ Section 3.7
Company Board............................................... Introductory Paragraph
Company Disclosure Schedule................................. Section 1.9
Consent..................................................... Section 3.4
control..................................................... Section 8.9
Credit Agreement............................................ Section 5.8
Dissenting Shares........................................... Section 2.1
Effective Time.............................................. Section 1.2
Employee Benefit Arrangement................................ Section 5.1
ERISA....................................................... Section 3.7
Exchange Act................................................ Section 3.4
GAAP........................................................ Section 3.5
GCL......................................................... Introductory Paragraph
Governmental Entity......................................... Section 3.4
HSR Act..................................................... Section 3.4
Indemnified Parties......................................... Section 5.5
Indenture................................................... Section 5.8
Lien........................................................ Section 3.2
Listed Plan................................................. Section 3.7
Material Adverse Effect..................................... Section 3.1
Merger...................................................... Introductory Paragraph
Merger Consideration........................................ Section 1.8
Merger Sub Common Stock..................................... Section 4.5
Minority Approval Condition................................. Section 6.1
Options..................................................... Section 1.9
Other Filings............................................... Section 3.6
Parent Disclosure Schedule.................................. Article IV
Parent Knowledge Parties.................................... Section 8.9
Parent Representatives...................................... Section 5.2
Paying Agent................................................ Section 2.2
Person...................................................... Section 8.9
person...................................................... Section 8.9
Preferred Stock............................................. Section 3.2
proxy statement............................................. Section 1.11
Schedule 13E-3.............................................. Section 1.11
SEC......................................................... Section 1.11
SEC Reports................................................. Section 3.5
Securities Act.............................................. Section 3.5
September 30, 2000 Balance Sheet............................ Section 3.5
Share....................................................... Section 1.8
significant subsidiaries.................................... Section 3.1
</TABLE>
A-iii
<PAGE> 78
<TABLE>
<CAPTION>
DEFINED TERM LOCATION
------------ --------
<S> <C>
Special Committee........................................... Introductory Paragraph
Special Meeting............................................. Section 1.11
Stock Plans................................................. Section 1.9
subsidiaries................................................ Section 8.9
subsidiary.................................................. Section 8.9
Support Agreement........................................... Introductory Paragraph
Surviving Corporation....................................... Section 1.1
Surviving Corporation Common Stock.......................... Section 1.7
Terminating Company Breach.................................. Section 7.1
Terminating Parent Breach................................... Section 7.1
Violation................................................... Section 3.4
Voting Debt................................................. Section 3.2
</TABLE>
A-iv
<PAGE> 79
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of December 15,
2000, by and among Enron Corp., an Oregon corporation ("Parent"), Enron BW
Corp., a Delaware corporation and an indirect subsidiary of Parent ("Merger
Sub"), and Azurix Corp., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent and Merger Sub have
approved and adopted the merger of Merger Sub with and into the Company, as set
forth below (the "Merger"), in accordance with the General Corporation Law of
the State of Delaware (the "GCL") and upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, upon the execution and delivery of this Agreement, Atlantic Water
Trust, a Delaware business trust ("AWT"), is simultaneously entering into and
delivering a support agreement (the "Support Agreement");
WHEREAS, a special committee (the "Special Committee") of the Board of
Directors of the Company (the "Company Board") has unanimously determined that
the Merger and this Agreement are fair to and in the best interest of the
Company's stockholders (other than AWT and its affiliates);
WHEREAS, the Company Board at a meeting duly called and held has
unanimously determined that the Merger and this Agreement are fair to and in the
best interest of the Company's stockholders (other than AWT and its affiliates),
approved and adopted the Merger and resolved to recommend that the stockholders
of the Company approve and adopt this Agreement and the Merger; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Parent,
Merger Sub and the Company agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the GCL, at the Effective Time Merger Sub shall
be merged with and into the Company. Following the Merger, the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the surviving corporation (the "Surviving Corporation").
SECTION 1.2 Effective Time. At the Closing, the Company shall execute, in
the manner required by the GCL, and deliver to the Secretary of State of the
State of Delaware a duly executed certificate of merger, and the parties shall
take such other and further actions as may be required by law to make the Merger
effective. The time the Merger becomes effective in accordance with applicable
law is referred to as the "Effective Time."
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the GCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4 Certificate of Incorporation and By-Laws of the Surviving
Corporation.
(a) The Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the provisions thereof and hereof and applicable law.
A-1
<PAGE> 80
(b) Subject to the provisions of Section 5.5 of this Agreement, the By-Laws
of the Company in effect at the Effective Time shall be the By-Laws of the
Surviving Corporation until amended in accordance with the provisions thereof
and applicable law.
SECTION 1.5 Directors. Subject to applicable law, the directors of Merger
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation immediately following the Effective Time and shall hold
office until their respective successors are duly elected and qualified, or
their earlier death, resignation or removal.
SECTION 1.6 Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation
immediately following the Effective Time and shall hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal.
SECTION 1.7 Conversion of Merger Sub Common Stock. At the Effective Time,
each share of common stock, par value $1.00 per share, of Merger Sub ("Merger
Sub Common Stock") issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and become 1/1000 of a validly issued, fully
paid and non-assessable share of common stock, par value $.01 per share, of the
Surviving Corporation ("Surviving Corporation Common Stock").
SECTION 1.8 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof, each share of
common stock, par value $.01 per share, of the Company (each, a "Share") issued
and outstanding immediately prior to the Effective Time (other than (i) any
Shares held by Parent, Merger Sub, any wholly owned subsidiary of Parent or
Merger Sub, in the treasury of the Company or by any wholly owned subsidiary of
the Company, which Shares, by virtue of the Merger and without any action on the
part of the holder thereof, shall be cancelled and retired and shall cease to
exist with no payment being made with respect thereto and (ii) Dissenting
Shares), shall be cancelled and retired and, subject to Section 1.10 relating to
fractional shares, shall be converted into the right to receive 1/39,268,266 of
a share of the Surviving Corporation Common Stock (together with the cash paid
pursuant to Section 1.10 for fractional shares, the "Merger Consideration"),
payable to the holder thereof, without interest thereon, upon surrender of the
certificate formerly representing such Share.
SECTION 1.9 Options; Stock Plans. Prior to execution of this Agreement,
the Company Board (or, if appropriate, one or more committees thereof) has
adopted appropriate resolutions and has taken all other actions necessary or
desirable to provide for the cancellation, effective at the Effective Time, of
all of the outstanding stock options (the "Options") heretofore granted under
any stock option plan of the Company (the "Stock Plans") or under any agreement,
without any payment therefor except as otherwise provided in this Section 1.9.
As of the Effective Time, all Options (whether vested or unvested) shall be
cancelled, to the extent such Options remain outstanding as of immediately prior
to the Effective Time (and to the extent exercisable shall no longer be
exercisable) and shall entitle each holder thereof, in cancellation and
settlement therefor, to a payment, if any, in cash by the Company (less any
applicable withholding taxes), as soon as practicable following the Effective
Time, equal to the product of (i) the total number of Shares subject to such
Option (without regard to whether such Option was vested or unvested) and (ii)
the excess, if any, of $8.375 over the exercise price per Share subject to such
Option (the "Cash Payments"). All Options outstanding as of the date of this
Agreement are listed in Section 3.2 of the disclosure schedule delivered to
Parent by the Company prior to the date hereof (the "Company Disclosure
Schedule"). The Company and Parent agree that the Cash Payments are the sole
payments that will be made with respect to or in relation to the Options. The
Company may take all such steps as may be required to cause the transactions
contemplated by this Section 1.9 and any other dispositions of Company equity
securities (including derivative securities) in connection with this Agreement
by each individual who is a director or officer of the Company to be exempt
under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended, such steps to be taken in accordance with the No-Action Letter dated
January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP.
SECTION 1.10 No Fractional Shares. Notwithstanding anything herein to the
contrary, no certificates of scrip evidencing shares of Surviving Corporation
Common Stock shall be issued in connection with the
A-2
<PAGE> 81
Merger, and any such fractional share interests to which a holder of record of a
Share immediately prior to the Effective Time would otherwise be entitled shall
not entitle such holder to vote or to any rights of a stockholder of the
Surviving Corporation. In lieu of any such fractional shares, each holder of
record of Shares at the Effective Time who but for the provisions of this
Section 1.10 would be entitled to receive a fractional interest of a share of
Surviving Corporation Common Stock by virtue of the Merger (after aggregating
all such fractional interests attributable to such holder into whole shares and
fractional shares of Surviving Corporation Common Stock) shall be paid $8.375 in
cash without any interest thereon for each Share held of record by such holder
immediately prior to the Effective Time, as hereinafter provided (rounding up
the aggregate cash to be paid such holder, to the extent necessary, to the next
$.01).
SECTION 1.11 Stockholders' Meeting; SEC Filings.
(a) The Company, acting through the Company Board, shall, in accordance
with applicable law:
(i) duly call, give notice of, convene and hold a special meeting of
its stockholders (the "Special Meeting") as soon as practicable following
the date hereof, which obligation shall not be affected by a change in the
Company Board's or the Special Committee's recommendation of this Agreement
or the Merger pursuant to Section 5.7;
(ii) prepare and file with the Securities and Exchange Commission
("SEC") as promptly as practicable a preliminary proxy statement relating
to this Agreement, and use its reasonable best efforts (A) to obtain and
furnish the information required to be included by the SEC in the Proxy
Statement (as hereinafter defined) and, after consultation with Parent, to
respond promptly to any comments made by the SEC with respect to the
preliminary proxy statement and cause a definitive proxy statement (the
"Proxy Statement") to be mailed to its stockholders and (B) to obtain the
necessary approvals of the Merger and adoption of this Agreement by its
stockholders; and
(iii) except as provided otherwise in Section 5.7, include in the
Proxy Statement the recommendation of the Company Board that stockholders
of the Company vote in favor of the approval of the Merger and adoption of
this Agreement.
(b) Each of the parties shall use its reasonable best efforts to prepare
and file with the SEC as promptly as practicable a Schedule 13E-3 (the "Schedule
13E-3") in connection with the transactions contemplated by this Agreement and
use its reasonable best efforts to obtain and furnish the information required
to be included by the SEC in the Schedule 13E-3 and, after consultation with
each other, to respond promptly to any comments made by the SEC with respect to
the Schedule 13E-3.
(c) Notwithstanding anything to the contrary herein, if an Adverse Company
Board Determination or Adverse Special Committee Determination (as each such
term is defined in Section 5.7) occurs after the satisfaction of the Minority
Approval Condition (as defined in Section 6.1) but before the Closing, then the
Minority Approval Condition shall not be deemed satisfied unless the Minority
Approval Condition shall be satisfied as well at a subsequent special meeting of
stockholders with respect to which such Adverse Company Board Determination or
Adverse Special Committee Determination shall have been disclosed in the
applicable proxy materials. The Company agrees to promptly call, give notice of,
convene and hold such a special meeting of stockholders as soon as practicable
after such Adverse Company Board Determination or Adverse Special Committee
Determination, subject to compliance with the GCL and applicable securities
laws.
SECTION 1.12 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m., on a date to be specified by the parties, which shall
be as soon as practicable, but in no event later than the third business day,
after satisfaction or waiver of all of the conditions set forth in Article VI
hereof (the "Closing Date"), at the offices of Vinson & Elkins L.L.P., 2300
First City Tower, 1001 Fannin, Houston, Texas 77002, unless another date or
place is agreed to in writing by the parties hereto.
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ARTICLE II
DISSENTING SHARES; PAYMENT FOR SHARES
SECTION 2.1 Dissenting Shares. Notwithstanding Section 1.8, Shares
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such Shares in accordance with Section 262 of the GCL
("Dissenting Shares") shall not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect or withdraws or otherwise
loses such holder's right to appraisal. If after the Effective Time such holder
fails to perfect or withdraws or loses such holder's right to appraisal, such
Shares shall be treated as if they had been converted as of the Effective Time
into a right to receive the Merger Consideration. The Company shall give Parent
prompt notice of any demands received by the Company for appraisal of Shares,
and Parent shall have the right to conduct all negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Parent, make any payment with respect to, or settle or offer to
settle, or otherwise negotiate, any such demands.
SECTION 2.2 Payment for Shares.
(a) From and after the Effective Time, such bank or trust company as shall
be mutually acceptable to Parent and the Company shall act as paying agent (the
"Paying Agent") in effecting the payment of the Merger Consideration in respect
of certificates (the "Certificates") that, prior to the Effective Time,
represented Shares entitled to payment of the Merger Consideration pursuant to
Article I. At the Effective Time, Parent or Merger Sub shall deposit, or cause
to be deposited, in trust with the Paying Agent the aggregate Merger
Consideration to which holders of Shares shall be entitled at the Effective Time
pursuant to Article I.
(b) Promptly after the Effective Time, the Paying Agent shall mail to each
record holder of Certificates a form of letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Paying Agent and instructions for use in surrendering such Certificates and
receiving the Merger Consideration in respect thereof. Upon the surrender of
each such Certificate, the Paying Agent shall pay the holder of such Certificate
the Merger Consideration multiplied by the number of Shares formerly represented
by such Certificate, in consideration therefor, and such Certificate shall
forthwith be cancelled. Until so surrendered, each such Certificate (other than
Certificates representing Shares held by Parent or Merger Sub, any wholly owned
subsidiary of Parent or Merger Sub, in the treasury of the Company or by any
wholly owned subsidiary of the Company or Dissenting Shares) shall represent
solely the right to receive the aggregate Merger Consideration relating thereto.
No interest or dividends shall be paid or accrued on the Merger Consideration.
If the Merger Consideration (or any portion thereof) is to be delivered to any
person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition to such right to receive such Merger
Consideration that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person surrendering such
Shares shall pay to the Paying Agent any transfer or other taxes required by
reason of the payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Paying Agent that such taxes have been paid or are not
applicable.
(c) Promptly following the date that is 180 days after the Effective Time,
the Paying Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its possession relating to the transactions
described in this Agreement, and the Paying Agent's duties shall terminate.
Thereafter, each holder of a Certificate may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat and
similar laws) receive in consideration therefor the aggregate Merger
Consideration relating thereto, without any interest or dividends thereon.
Notwithstanding the foregoing, none of Parent, Merger Sub, the Company or the
Paying Agent shall be liable to any person in respect of any cash delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered immediately
prior to such date on which any payment pursuant to this Article II would
otherwise escheat to or become the property of any Governmental Entity (as
hereinafter defined), the cash payment in respect of such Certificate shall, to
the extent permitted by applicable law,
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become the property of the Surviving Corporation, free and clear of all claims
or interests of any person previously entitled thereto.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Shares that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Paying Agent,
they shall be surrendered and cancelled in return for the payment of the
aggregate Merger Consideration relating thereto, as provided in this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, except as set
forth by specific reference to the applicable Section of this Article III in the
Company Disclosure Schedule, as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries. The Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Each of the Company's "significant subsidiaries"
(as such term is defined in Rule 1-02 of Regulation S-X of the SEC) is a
corporation or company duly incorporated or organized, validly existing and
(where applicable) in good standing under the laws of the jurisdiction of its
incorporation or organization. The Company and each of its significant
subsidiaries has the requisite corporate power and authority to own, operate or
lease its properties and to carry on its business as it is now being conducted,
and is duly qualified or licensed to do business, and is in (where applicable)
good standing, in each jurisdiction in which the nature of its business or the
properties owned, operated or leased by it makes such qualification, licensing
or good standing necessary, except where the failure to have such power or
authority, or the failure to be so qualified, licensed or in good standing,
would not reasonably be expected to have a Material Adverse Effect on the
Company. The term "Material Adverse Effect," as used in this Agreement, means,
with respect to the Company, an effect, change, event, development or occurrence
that has had or will have a material adverse effect on the financial condition,
results of operations, business or assets of the Company and its subsidiaries
taken as a whole excluding (a) matters, effects, changes, events, developments
or occurrences that are known to any of the Parent Knowledge Parties as of the
date of this Agreement, and (b) adverse changes in general economic or industry
conditions or in the financial or capital markets.
SECTION 3.2 Capitalization; Subsidiaries. The authorized capital stock of
the Company consists of 500,000,000 Shares and 50,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). As of the close of
business on December 13, 2000, 117,342,939 Shares were issued and outstanding,
all of which are entitled to vote on this Agreement, and 35,660 Shares were held
in treasury. As of the date hereof, there are no shares of Preferred Stock
issued and outstanding. The Company has no shares reserved for issuance, except
that, as of December 13, 2000, there were 7,336,217 Shares reserved for issuance
pursuant to outstanding Options granted under the Stock Plans. Section 3.2 of
the Company Disclosure Schedule sets forth the number, exercise prices and
expiration dates of each grant of outstanding Options. All the outstanding
Shares are, and all Shares that may be issued pursuant to the exercise of
outstanding Options will be, when issued and paid for in accordance with the
respective terms thereof, duly authorized, validly issued, fully paid and
nonassessable and are not subject to, nor were they issued in violation of, any
preemptive rights. Except as set forth in Section 3.2 of the Company Disclosure
Schedule, there are no bonds, debentures, notes or other indebtedness having
general voting rights (or convertible into securities having such rights)
("Voting Debt") of the Company or any of its subsidiaries issued and
outstanding. Except as set forth above or in Section 3.2 of the Company
Disclosure Schedule and except for the transactions contemplated by this
Agreement, there are no existing options, warrants, calls, subscriptions or
other rights, agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock of the Company or any of its
subsidiaries, obligating the Company or any of its subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
of its subsidiaries or securities convertible into or exchangeable for such
shares or equity interests and neither the Company nor any of its subsidiaries
is obligated to grant, extend or enter into any
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such option, warrant, call, subscription or other right, agreement, arrangement
or commitment. Except as contemplated by this Agreement, there are no
outstanding contractual obligations of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any Shares or the capital stock of the
Company or any of its significant subsidiaries. Each of the outstanding shares
of capital stock of each of the Company's subsidiaries held directly or
indirectly by the Company is duly authorized, validly issued, fully paid and
nonassessable (except, in the case of non-United States subsidiaries, for
immaterial failures to be such), and, except as disclosed in the SEC Reports,
such shares of the Company's subsidiaries are owned by the Company or by a
subsidiary of the Company in each case free and clear of any lien, claim,
option, charge, security interest, limitation, encumbrance and restriction of
any kind (any of the foregoing being a "Lien"). Set forth in the SEC Reports is
a complete and correct list of each significant subsidiary of the Company.
SECTION 3.3 Authority. The Company has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized and approved by the
Company Board and no other corporate proceedings on the part of the Company are
necessary to authorize or approve this Agreement or to consummate the
transactions contemplated hereby (other than, with respect to the Merger, the
approval of this Agreement by the affirmative vote of the holders of a majority
of the then outstanding Shares entitled to vote thereon, to the extent required
by applicable law and the satisfaction of the Minority Approval Condition and,
with respect to compliance with Section 5.8, the approval by the Company Board
of the Certificate of Designations establishing the preferred stock referred to
in Section 5.8 (the "Certificate of Designations")). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due and
valid authorization, execution and delivery of this Agreement by Parent and
Merger Sub, constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, moratorium, reorganization,
receivership or similar laws affecting the rights of creditors generally.
SECTION 3.4 No Conflict; Required Filings and Consents.
(a) Assuming (i) the filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended and the rules and regulations thereunder
(the "HSR Act"), are made and the waiting periods thereunder have been
terminated or have expired, (ii) the requirements of the Securities Exchange Act
of 1934, as amended, including the rules and regulations of the SEC promulgated
thereunder (the "Exchange Act") and any applicable state securities, "blue sky"
or takeover law are met, (iii) the filing of the Certificate of Designations and
the certificate of merger and other appropriate merger documents, if any, as
required by the GCL, is made, (iv) approval of this Agreement by the holders of
a majority of the Shares is received and the Minority Approval Condition is
satisfied, and (v) the filings required under the competition and foreign
investment and other applicable laws, each as set forth on Section 3.4 of the
Company Disclosure Schedule, and the approvals and consents thereunder have been
obtained (or waiting periods thereunder have been terminated or have expired),
except as disclosed in Section 3.4 of the Company Disclosure Schedule, none of
the execution and delivery of this Agreement by the Company, the consummation by
the Company of the transactions contemplated hereby or compliance by the Company
with any of the provisions hereof will (i) conflict with or violate the
Certificate of Incorporation or By-Laws of the Company or the comparable
organizational documents of any of its significant subsidiaries, (ii) result in
a breach or violation of, a default under or the triggering of any payment or
the increase in any other obligations pursuant to, any of the Company's existing
Employee Benefit Arrangements (as hereinafter defined) or any grant or award
made under any of the foregoing, subject to compliance with Article I with
respect to Options and grants of restricted Shares, (iii) conflict with or
violate any statute, ordinance, rule, regulation, order, judgment, decree,
permit or license applicable to the Company or any of its subsidiaries, or by
which any of them or any of their respective properties or assets may be bound
or affected, or (iv) assuming satisfaction of the condition set forth in Section
6.1(e), require the consent from or the giving of notice to a third party
pursuant to, result in a violation or breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in any loss of any benefit, the triggering of any
payment by, or the increase in any other obligation
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of, the Company or any of its subsidiaries or the creation of any material Lien
on any of the property or assets of the Company or any of its subsidiaries (any
of the foregoing referred to in clause (ii), (iii) or this clause (iv) being a
"Violation") pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, or other instrument or obligation to which
the Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or any of their respective properties may be bound or
affected, except in the case of (ii), (iii) and (iv) for any of the foregoing
that would not reasonably be expected to have a Material Adverse Effect on the
Company or prevent or materially delay consummation of the transactions
contemplated hereby.
(b) None of the execution and delivery of this Agreement by the Company,
the consummation by the Company of the transactions contemplated hereby or
compliance by the Company with any of the provisions hereof will require any
consent, waiver, approval, authorization or permit of, or registration or filing
with or notification to (any of the foregoing with respect to any Governmental
Entity (as hereinafter defined) or any other third party being a "Consent"), any
government or subdivision thereof, domestic or foreign (including supranational)
or any administrative, governmental, legislative or regulatory authority,
agency, commission, tribunal, court or body, domestic or foreign (including
supranational) (a "Governmental Entity"), except for (i) compliance with any
applicable requirements of the Exchange Act, (ii) the filing of the Certificate
of Designations and a certificate of merger pursuant to the GCL, (iii)
compliance with the HSR Act, (iv) such filings, authorizations, orders and
approvals, if any, as set forth in Section 3.4 of the Company Disclosure
Schedule or (v) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not
reasonably be expected to have a Material Adverse Effect on the Company or
prevent or materially delay consummation of the transactions contemplated
hereby.
SECTION 3.5 SEC Reports and Financial Statements.
(a) The Company and its subsidiaries have filed with the SEC all forms,
reports, schedules, registration statements and definitive proxy statements
required to be filed by them with the SEC since December 31, 1999 (as amended
since the time of their filing and prior to the date hereof, collectively, the
"SEC Reports"). As of their respective dates, the SEC Reports (including, but
not limited to, any financial statements or schedules included or incorporated
by reference therein) complied in all material respects with the requirements of
the Exchange Act or the Securities Act of 1933, as amended, including the rules
and regulations of the SEC promulgated thereunder (the "Securities Act")
applicable, as the case may be, to such SEC Reports, and none of the SEC Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including, in each case,
any note thereto) contained in the SEC Reports filed after December 31, 1999
present fairly in all material respects the consolidated financial position and
the consolidated results of operations and cash flows of the Company and its
subsidiaries as of the dates or for the periods presented therein and were
prepared in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved (except as
set forth in the notes contained therein and subject, in the case of unaudited
statements, to recurring audit adjustments normal in nature and amount).
(c) Except as reflected in the SEC Reports or reserved against in the
balance sheet of the Company and its subsidiaries as of September 30, 2000
including the notes thereto (the "September 30, 2000 Balance Sheet") or as set
forth in Section 3.5(c) of the Company Disclosure Schedule, as of the date
hereof, neither the Company nor any of its subsidiaries have any material
liabilities of a nature that would be required to be reflected on a balance
sheet in accordance with GAAP, other than liabilities incurred in the ordinary
course of business consistent with past practice since the date of the September
30, 2000 Balance Sheet, including borrowings under credit agreements existing as
of September 30, 2000.
(d) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications existing as of the date hereof that have
not yet been filed with the SEC (but which it would or will be required to file
with the SEC) to agreements, documents or other instruments which previously had
been filed by the Company with the SEC pursuant to the Securities Act or the
Exchange Act.
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SECTION 3.6 Information. None of the information supplied by the Company
for inclusion or incorporation by reference in (i) the Proxy Statement (or any
amendment thereof), (ii) the Schedule 13E-3 or (iii) any other document required
to be filed with the SEC or any other Governmental Entity in connection with the
transactions contemplated by this Agreement (the "Other Filings") will, at the
respective times filed with the SEC or other Governmental Entity and, in
addition, in the case of the Proxy Statement, at the date it or any amendment or
supplement is mailed to stockholders, at the time of the Special Meeting and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading, except that no representation is made by the Company
with respect to statements made therein based on information supplied by Parent,
Merger Sub or AWT in writing specifically for inclusion in the Proxy Statement.
The Proxy Statement and the Schedule 13E-3 will comply as to form in all
material respects with the provisions of the Exchange Act, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by Parent, Merger Sub or AWT in writing
specifically for inclusion in the Proxy Statement or the Schedule 13E-3.
SECTION 3.7 Absence of Certain Changes. Except as disclosed in Section
3.7 of the Company Disclosure Schedule or the SEC Reports, since December 31,
1999 through the date hereof there has not been any Material Adverse Effect on
the Company.
SECTION 3.8 Brokers. Except for the engagement of Salomon Smith Barney
Inc. and Wasserstein Perella & Co., Inc. none of the Company, any of its
subsidiaries, or to the Company's knowledge any of their respective officers,
directors or employees has any liability for any brokerage fees, commissions or
finder's fees in connection with the transactions contemplated by this
Agreement. The Company has previously delivered to Parent a copy of the
Company's engagement letters with Salomon Smith Barney Inc. and Wasserstein
Perella & Co., Inc.
SECTION 3.9 Determination of Special Committee; Recommendation of Company
Board; Opinions of Financial Advisors. The Special Committee has unanimously
determined that the Merger and this Agreement are fair to and in the best
interest of the Company's stockholders (other than AWT and its affiliates). The
Company Board, at a meeting duly called and held, has unanimously (i) determined
that this Agreement and the Merger are fair to and in the best interests of the
Company's stockholders (other than AWT and its affiliates), (ii) approved this
Agreement and the Merger, which approval satisfies in full the requirements of
the GCL that the Agreement be approved by the Company Board, and (iii) resolved
to recommend approval and adoption of this Agreement and the Merger to the
Company's stockholders; provided that such recommendation may be withdrawn,
modified or amended to the extent the Company Board shall have determined in
good faith, after consultation with the Special Committee's financial advisors,
that the Merger and this Agreement are no longer in the best interests of the
Company's stockholders (other than AWT and its affiliates). The Company is
delivering to Parent the opinions of Salomon Smith Barney Inc. and Wasserstein
Perella & Co., Inc., the Special Committee's financial advisors, to the effect
that, as of the date hereof, the consideration to be received in the Merger by
the Company's stockholders (other than AWT and its affiliates) is fair to the
Company's stockholders (other than AWT and its affiliates) from a financial
point of view.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
SECTION 4.1 Organization and Qualification. Each of Parent and Merger Sub
is a corporation duly incorporated, validly existing and in good standing under
the laws of its state of incorporation. Each of Parent and Merger Sub has the
requisite corporate power and authority to own, operate or lease its properties
and to carry on its business as it is now being conducted, and is duly qualified
or licensed to do business, and is in good standing, in each jurisdiction in
which the nature of its business or the properties owned, operated or
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leased by it makes such qualification, licensing or good standing necessary,
except where the failure to have such power or authority, or the failure to be
so qualified, licensed or in good standing, would not reasonably be expected to
prevent or materially delay consummation of the transactions contemplated
hereby.
SECTION 4.2 Authority. Each of Parent and Merger Sub has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized and approved by all necessary corporate action on the part of Parent
and Merger Sub. This Agreement has been duly executed and delivered by each of
Parent and Merger Sub and, assuming the due and valid authorization, execution
and delivery by the Company, constitutes a valid and binding obligation of each
of Parent and Merger Sub enforceable against each of them in accordance with its
terms, except as enforceability may be limited by bankruptcy, moratorium,
reorganization, receivership or similar laws affecting the rights of creditors
generally.
SECTION 4.3 No Conflict; Required Filings and Consents.
(a) Assuming (i) the filings required under the HSR Act are made and the
waiting periods thereunder have terminated or have expired, (ii) the
requirements of the Exchange Act and any applicable state securities, "blue sky"
or takeover law are met, (iii) the filing of the Certificate of Designations and
the certificate of merger and appropriate merger documents, if any, as required
by the GCL, is made and (iv) the filings required under the competition and
foreign investment and other applicable laws, each as set forth in Section 3.4
of the Company Disclosure Schedule, and the approvals and consents thereunder
have been obtained (or waiting periods thereunder have been terminated or have
expired), none of the execution and delivery of this Agreement by Parent or
Merger Sub, the consummation by Parent or Merger Sub of the transactions
contemplated hereby or compliance by Parent or Merger Sub with any of the
provisions hereof will (i) conflict with or violate the organizational documents
of Parent or Merger Sub, (ii) conflict with or violate any statute, ordinance,
rule, regulation, order, judgment, decree, permit or license applicable to
Parent or Merger Sub or any of their subsidiaries, or by which any of them or
any of their respective properties or assets may be bound or affected, or (iii)
result in a violation pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Merger Sub or any of their subsidiaries is a party or by
which Parent or Merger Sub or any of their subsidiaries, AWT or Marlin Water
Trust or any of their respective properties or assets may be bound or affected,
except for any of the foregoing that would not reasonably be expected to prevent
or materially delay consummation of the transactions contemplated hereby.
(b) None of the execution and delivery of this Agreement by Parent and
Merger Sub, the consummation by Parent and Merger Sub of the transactions
contemplated hereby or compliance by Parent and Merger Sub with any of the
provisions hereof will require any Consent of any Governmental Entity, except
for (i) compliance with any applicable requirements of the Exchange Act and any
state securities, "blue sky" or takeover law, (ii) the filing of the Certificate
of Designations and a certificate of merger pursuant to the GCL, (iii)
compliance with the HSR Act, (iv) such filings, authorizations, orders and
approvals, if any, as set forth in Section 3.4 of the Company Disclosure
Schedule or (v) where the failure to obtain such Consent would not reasonably be
expected to prevent or materially delay consummation of the transactions
contemplated hereby.
SECTION 4.4 Information. None of the information supplied or to be
supplied by Parent or Merger Sub for inclusion or incorporation by reference in
(i) the Proxy Statement, (ii) the Schedule 13E-3 or (iii) the Other Filings
will, at the respective times filed with the SEC or such other Governmental
Entity and, in addition, in the case of the Proxy Statement, at the date it or
any amendment or supplement is mailed to stockholders, at the time of the
Special Meeting and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by Parent or Merger Sub with respect to statements made
therein based on information supplied by the Company in writing specifically for
inclusion in the Proxy Statement. The Proxy Statement and the Schedule 13E-3
will comply as to form in all material respects with the provisions of the
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Exchange Act, except that no representation is made by Parent or Merger Sub with
respect to statements made therein based on information supplied by the Company
in writing specifically for inclusion in the proxy statement or the Schedule
13E-3. Without limiting the foregoing, all of the information that has been
provided by Parent to the Company, the Special Committee or the financial or
legal advisors to the Special Committee as to (a) contacts that any Parent
Knowledge Parties has received from, or communications or discussions that
Parent has engaged in with, other parties concerning a possible acquisition of
the Company or its subsidiaries, any subsidiary of the Company or any of their
respective assets or (b) any plans that any Parent Knowledge Parties may have
with respect to the Company, any of its subsidiaries or any of their respective
assets has been complete and accurate in all material respects.
SECTION 4.5 Financing; Ownership of Merger Sub Common Stock. Parent and
Merger Sub collectively will have at the Effective Time and Parent will make
available to Merger Sub sufficient funds to enable the Surviving Corporation to
pay the aggregate Merger Consideration to the Paying Agent pursuant to Section
2.2. As of the date hereof there are, and as of immediately prior to the
Effective Time there shall be, 1,000 shares of Merger Sub Common Stock issued
and outstanding.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of the Company. Except as required by
this Agreement or otherwise with the prior written consent of Parent, during the
period from the date of this Agreement to the Effective Time, the Company will,
and will cause each of its subsidiaries to, conduct its operations only in the
ordinary and usual course of business consistent with past practice and will use
all reasonable efforts, and will cause each of its subsidiaries to use its
reasonable efforts, to preserve intact the business organization of the Company
and each of its subsidiaries and to preserve the current relationships of the
Company and its subsidiaries with suppliers, customers and others having
significant business relationships with the Company and its subsidiaries.
Without limiting the generality of the foregoing, and except as otherwise
required or expressly permitted by this Agreement or as set forth in Section 5.1
of the Company Disclosure Schedule, the Company will not, and will not permit
any of its subsidiaries to, prior to the Effective Time, without the prior
written consent of Parent, which consent shall not be unreasonably withheld or
delayed:
(a) adopt any amendment to its certificate of incorporation or by-laws or
comparable organizational documents or adopt a plan of merger, consolidation,
reorganization, dissolution or liquidation;
(b) sell, pledge or encumber any stock owned by it in any of its
subsidiaries;
(c) (i) issue, reissue or sell, or authorize the issuance, reissuance or
sale of (A) additional shares of capital stock of any class, or securities
convertible into capital stock of any class, or any rights, warrants or options
to acquire any convertible securities or capital stock, other than the issuance
of Shares, in accordance with the terms of the instruments governing such
issuance on the date hereof, pursuant to the exercise of Options outstanding on
the date hereof, or (B) any other securities in respect of, in lieu of, or in
substitution for, Shares or any other capital stock of any class outstanding on
the date hereof or (ii) make any other changes in its capital structure (other
than incurrence of indebtedness under existing credit facilities or otherwise in
the ordinary course of business);
(d) declare, set aside or pay any dividend or other distribution (whether
in cash, securities or property or any combination thereof) in respect of any
class or series of its capital stock other than between any of the Company and
any of its subsidiaries;
(e) in the case of the Company, split, combine, subdivide, reclassify or
redeem, purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities;
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(f) increase, or accelerate payment of, the compensation or benefits
payable or to become payable to its directors, officers or, except in the
ordinary course of business consistent with past practice in accordance with
regular review and promotion cycles, employees (whether from the Company or any
of its subsidiaries), or pay or award any benefit not required by any existing
plan or arrangement to any officer, director or, except in the ordinary course
of business consistent with past practice in accordance with regular review and
promotion cycles, employee (including, without limitation, the granting of stock
options, stock appreciation rights, shares of restricted stock or performance
units pursuant to the Stock Plans or otherwise), or grant any severance or
termination pay to any officer, director or other employee of the Company or any
of its subsidiaries (other than as required by existing agreements or policies),
or enter into any employment or severance agreement with, any director, officer
or other employee of the Company or any of its subsidiaries or establish, adopt,
enter into, amend, or waive any performance or vesting criteria or amend the
exercise or grant price for any equity-based awards under any Plan for the
benefit or welfare of any current or former directors, officers or employees of
the Company or its subsidiaries or their beneficiaries or dependents (any of the
foregoing being an "Employee Benefit Arrangement"), except, in each case, to the
extent required by applicable law or regulation;
(g) acquire, mortgage, encumber, sell, pledge, lease, license or dispose of
any assets, except in the ordinary course of business consistent with past
practice;
(h) (i) incur, assume or prepay any long-term debt or incur or assume any
short-term debt, except that the Company and its subsidiaries may incur or
prepay debt in the ordinary course of business in amounts and for purposes
consistent with past practice under existing lines of credit, (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any third party except in the
ordinary course of business consistent with past practice, (iii) pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued, contingent
or otherwise), except in the ordinary course of business consistent with past
practice and (except as would not be material) in accordance with their terms,
(iv) make any loans, advances or capital contributions to, or investments in,
any person or entity other than the Company, its subsidiaries or entities in
which the Company, directly or indirectly, has a significant equity interest,
except for loans, advances, capital contributions or investments in the ordinary
course, consistent with past practice, (v) accelerate or delay collection of
notes or accounts receivable in advance of or beyond their regular due dates or
the dates when the same would have been collected in the ordinary course of
business consistent with past practice, or (vi) change any method or principle
of accounting in a manner that is inconsistent with past practice except to the
extent required by GAAP as advised by the Company's regular independent
accountants;
(i) settle or compromise any suit or claim or threatened suit or claim
where the amount to be paid by the Company and its subsidiaries is greater than
$25 million;
(j) other than in the ordinary course of business consistent with past
practice or if the result would not reasonably be expected to have a Material
Adverse Effect on the Company, (i) modify, amend or terminate any material
contract, (ii) waive, release, relinquish or assign any material contract (or
any of the rights of the Company or any of its subsidiaries thereunder), right
or claim, or (iii) cancel or forgive any indebtedness owed to the Company or any
of its subsidiaries; provided, however, that neither the Company nor any of its
subsidiaries may under any circumstance waive or release any of its rights under
any confidentiality agreement to which it is a party;
(k) make any election concerning taxes not required by law (other than any
such elections consistent with past practice) or settle or compromise any
liability concerning taxes (other than as required by law or as would not
reasonably be expected to have a Material Adverse Effect on the Company);
(l) acquire (by merger, consolidation, acquisition of stock or assets,
combination or other similar transaction) any material corporation, partnership
or other business organization or division or assets thereof;
(m) enter into any material contract or agreement other than in the
ordinary course of business consistent with past practice;
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(n) except as may be required as a result of a change in law or in GAAP,
make any change in its methods of accounting, including accounting policies and
procedures concerning taxes, other than reasonable and usual changes in the
ordinary course of business and consistent with past practice;
(o) convene any regular or special meeting (or any adjournment thereof) of
the stockholders of the Company other than the meetings contemplated by Section
1.11 or as required by law; or
(p) agree in writing or otherwise to take any of the foregoing actions
prohibited under this Section 5.1.
SECTION 5.2 Access to Information. From the date of this Agreement until
the Effective Time, the Company will, and will cause its subsidiaries, and each
of their respective officers, directors and employees, to, give Parent and
Merger Sub and their respective officers and employees (collectively, the
"Parent Representatives") reasonable access during normal business hours, to the
offices and other facilities and to the books and records of the Company and its
subsidiaries and to furnish Parent, Merger Sub and the Parent Representatives to
the extent available with such financial and operating data and such other
information with respect to the business and operations of the Company and its
subsidiaries as Parent and Merger Sub may from time to time reasonably request.
The Company shall furnish promptly to Parent and Merger Sub a copy of each
report, schedule, registration statement and other document filed by it or its
subsidiaries pursuant to the requirements of federal or state or foreign
securities laws after the date of this Agreement until the Effective Time.
SECTION 5.3 Reasonable Best Efforts.
(a) Subject to the terms and conditions provided herein, each of the
Company, Parent and Merger Sub shall, and the Company shall cause each of its
subsidiaries to, cooperate and use its respective reasonable best efforts to
make, or cause to be made, all filings necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including but not limited to
cooperation in the preparation and filing of the Proxy Statement, the Schedule
13E-3, any required filings or requests for additional information under the HSR
Act or other laws, or other foreign filings and any amendments to any thereof.
In addition, if at any time prior to the Effective Time any event or
circumstance relating to either the Company or Parent or Merger Sub or any of
their respective subsidiaries should be discovered by the Company or Parent, as
the case may be, which should be set forth in an amendment to the Proxy
Statement or the Schedule 13E-3, the discovering party will promptly inform the
other party of such event or circumstance.
(b) Each of the parties will use its reasonable best efforts to obtain as
promptly as practicable all Consents of any Governmental Entity or any other
person required in connection with, and waivers of any Violations that may be
caused by, the consummation of the transactions contemplated by this Agreement;
provided, however, that the Company shall not be required to, and shall not,
seek a consent of the holders of notes issued under the Indenture (as defined in
Section 5.8) unless consented to in writing by Parent.
(c) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its respective reasonable best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the foregoing, Parent agrees that it will not take any action
that would cause AWT to be in breach of the Support Agreement and will not take
any action that would require AWT to transfer Shares under Section 9.01 or 9.03
of the Atlantic Water Trust Amended and Restated Trust Agreement. If at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the parties hereto shall take or cause to be
taken all such necessary action, including, without limitation, the execution
and delivery of such further instruments and documents as may be reasonably
requested by the other party for such purposes or otherwise to consummate and
make effective the transactions contemplated hereby.
SECTION 5.4 Public Announcements. The Company, on the one hand, and
Parent and Merger Sub, on the other hand, agree to consult promptly with each
other prior to issuing any press release or otherwise making any public
statement with respect to the Merger and the other transactions contemplated
hereby, agree to provide to the other party for review a copy of any such press
release or statement, and shall not issue
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any such press release or make any such public statement prior to such
consultation and review, unless required by applicable law or any rules or
regulations of any securities exchange.
SECTION 5.5 Indemnification.
(a) Parent shall indemnify each current director and officer of the Company
and its subsidiaries (the "Indemnified Parties") who was or is a party or is
threatened to be a party to any action, suit or proceeding by reason of the fact
that such person is or was a director or officer of the Company or its
subsidiaries to the fullest extent permitted by Delaware law.
(b) Parent agrees that all rights to indemnification and advancement of
expenses now existing in favor of any Indemnified Party and any other person who
was a director or officer of the Company and its subsidiaries as provided in
their respective charters or by-laws shall survive the Merger and shall continue
in full force and effect for a period of not less than the longer of six years
from the Effective Time and any applicable statute of limitations. After the
Effective Time, Parent agrees to cause the Surviving Corporation to honor all
rights to indemnification and advancement of expenses referred to in the
preceding sentence.
(c) Parent agrees that the Surviving Corporation shall cause to be
maintained in effect for not less than six years (except as provided in the last
sentence of this Section 5.5(c)) from the Effective Time the current policies of
the directors' and officers' liability insurance maintained by the Company;
provided that the Surviving Corporation may substitute therefor other policies
not less advantageous (other than to a de minimis extent) to the beneficiaries
of the current policies and provided that such substitution shall not result in
any gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time. The provisions of the immediately preceding sentence shall be
deemed to have been satisfied if prepaid policies have been obtained by the
Company prior to the Effective Time, which policies provide such directors and
officers with coverage for an aggregate period of six years with respect to
claims arising from facts or events that occurred on or before the Effective
Time, including, without limitation, in respect of the transactions contemplated
by this Agreement.
(d) From and after the Effective Time, any Indemnified Party wishing to
claim indemnification under paragraphs (a) or (b) of this Section 5.5, upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify Parent thereof. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) Parent or the Surviving Corporation shall have the right, from and
after the Effective Time, to assume the defense thereof and Parent shall not be
liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, (ii) the Indemnified Parties will cooperate
in the defense of any such matter and (iii) Parent shall not be liable for any
settlement effected without its prior written consent, provided that Parent
shall not have any obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that such person is not entitled to
indemnification under applicable law.
(e) The Indemnified Parties are intended to be beneficiaries of the
provisions of this Section 5.5 and are entitled to enforce its provisions.
SECTION 5.6 Notification of Certain Matters. Parent and the Company shall
promptly notify each other of (i) the occurrence or non-occurrence of any fact
or event that would be reasonably likely (A) to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (B) to cause
any covenant, condition or agreement under this Agreement not to be complied
with or satisfied in any material respect and (ii) any failure of the Company or
Parent, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall modify the
representations or warranties of any party or the conditions to the obligations
of any party hereunder. Without limiting the foregoing, from the date hereof
through the Effective Time or earlier termination of this Agreement, Parent
agrees to provide promptly to the Company to the attention of the Special
Committee written notice of any proposal received by Parent or any of its
subsidiaries from third parties and made known to any Parent Knowledge Parties
concerning a possible acquisition by a third party of
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the Company or its securities, any subsidiary of the Company or any of their
respective assets. Each such notice shall include copies of any written
correspondence and the material details of any discussions. Each of the Company,
Parent and Merger Sub shall give prompt notice to the other parties hereof of
any notice or other communication from any third party alleging that the consent
of such third party is or may be required in connection with the transactions
contemplated by this Agreement.
SECTION 5.7 Company Board Recommendation. The Company Board shall not
withdraw, modify or change or propose publicly to withdraw, modify or change, in
a manner adverse to Parent or Merger Sub, the recommendation by the Company
Board of the Merger or this Agreement unless the Company Board shall have
determined in good faith, after consultation with the Special Committee's
financial advisors, that the Merger or this Agreement are no longer in the best
interests of the Company's stockholders (other than AWT and its affiliates) (an
"Adverse Company Board Determination"). The Special Committee shall not make or
publicly propose to make, in a manner adverse to Parent or Merger Sub, a
recommendation as to the Merger or this Agreement or withdraw, modify or change
or propose publicly to withdraw, modify or change, in a manner adverse to Parent
or Merger Sub, its determination that the Merger and this Agreement are fair to
and in the best interest of the Company's stockholders (other than AWT and its
affiliates) unless the Special Committee shall have determined in good faith,
after consultation with the Special Committee's financial advisors, that the
Merger or this Agreement is no longer in the best interests of the Company's
stockholders (other than AWT and its affiliates) (an "Adverse Special Committee
Determination").
SECTION 5.8 Exchange of Credit Agreement Obligations; Indenture. Unless
otherwise agreed to in writing by Parent and the Company, immediately prior to
the Closing, (i) Parent will exchange with the Company up to the then aggregate
principal amount of the borrowings under the Credit Agreement dated as of May 1,
1999 between Parent and the Company, as amended (the "Credit Agreement"), for
preferred stock of the Company having the terms set forth on Exhibit A and
having an initial liquidation preference equal to the amount of the aggregate
principal amount of the borrowings under the Credit Agreement so exchanged by
Parent to the Company, and (ii) the Company agrees that at the Closing it will
designate one or more of its subsidiaries as an Unrestricted Subsidiary (as such
term is defined in the Indenture), in each case, so that the consummation of the
Merger will not result in a default or event of default under the terms of any
notes issued under the Indenture dated as of February 18, 2000 between the
Company and Chase Bank of Texas, National Association, as Trustee (the
"Indenture"), if such exchange and such designation would avoid such a default
and event of default. The Company and Parent agree to consult with each other to
determine the amount to be exchanged and which subsidiaries of the Company, if
any, should be so designated.
SECTION 5.9 Employee Benefits. Parent acknowledges that, after the
Effective Time, the Surviving Corporation and its subsidiaries will continue to
be obligated under employee benefit plans in effect as of the Effective Time in
accordance with the terms of those plans. Parent may take action to cause the
Surviving Corporation and its subsidiaries to amend, modify, alter or terminate
those plans only in accordance with their terms.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 Conditions to Obligations of Each Party under this
Agreement. The respective obligations of Parent, Merger Sub and the Company to
consummate the Merger are subject to the satisfaction of each of the following
conditions:
(a) Stockholder Approval. The stockholders of the Company shall have duly
approved the adoption of this Agreement in accordance with the GCL (the
"Statutory Approval Condition").
(b) Injunctions; Illegality. The consummation of the Merger shall not be
restrained, enjoined or prohibited by any order, judgment, decree, injunction or
ruling of a court of competent jurisdiction or any Governmental Entity; and
there shall not have been any statute, rule or regulation enacted, promulgated
or deemed applicable to the Merger by any Governmental Entity which prevents the
consummation of the Merger or has the effect of making the consummation of the
Merger illegal.
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(c) Governmental Approvals. Any waiting period (and any extension thereof)
under the HSR Act applicable to the Merger shall have expired or terminated and
all approvals or consents listed on Schedule 3.4 of the Company Disclosure
Schedule and Section 4.3 of the Parent Disclosure Schedule shall have been
received or obtained (or waiting periods thereunder have been terminated or
expired).
(d) Minority Approval. Subject to Section 1.11(c), a majority of the
Shares cast either for or against the adoption of this Agreement (excluding
Shares owned by Parent, Merger Sub, AWT or any subsidiary thereof) shall have
been cast for the adoption of this Agreement (the "Minority Approval
Condition").
(e) No Indenture Event of Default. Consummation of the Merger will not
result in a default or event of default under the terms of any senior notes
issued under the Indenture; provided, that Parent or the Company may assert this
condition only if such default or event of default would occur notwithstanding
compliance by such party with Section 5.8.
SECTION 6.2 Conditions to Obligations of Parent and Merger Sub under this
Agreement. The obligations of Parent and Merger Sub to consummate the Merger
are subject to the satisfaction of each of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company that is qualified by Material Adverse Effect on the
Company shall be true and correct and each of the representations and warranties
of the Company that is not so qualified shall be true and correct except where
the failure to be so true and correct would not reasonably be expected to have a
Material Adverse Effect on the Company, in each case, as of the date of this
Agreement and (except for the representations and warranties contained in
Sections 3.5 or 3.9) as of the Closing Date (except to the extent such
representations and warranties speak as of a specific date in which case such
representations and warranties shall not be so true and correct as of such
specific date).
(b) Covenants. The Company shall have observed and performed in all
material respects all of its material covenants under this Agreement.
(c) Consents. All Consents required to be filed or obtained by the Company
or any of its subsidiaries in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement shall have been filed and obtained, except where the failure to file
or obtain such Consent would not reasonably be expected to have a Material
Adverse Effect on the Company.
SECTION 6.3 Conditions to Obligation of the Company under this
Agreement. The obligations of the Company to consummate the Merger are subject
to the satisfaction of each of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date (except to
the extent such representations and warranties speak as of a specific date in
which case such representations and warranties shall be so true and correct as
of such specific date).
(b) Covenants. Parent and Merger Sub shall have observed and performed in
all material respects all of their material covenants under this Agreement.
ARTICLE VII
TERMINATION; AMENDMENTS; WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding any approval thereof by the stockholders of the Company (with
any termination by Parent also being an effective termination by Merger Sub):
(a) by the mutual written consent of the Company and Parent;
(b) by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement or if any
representation or warranty of the Company shall have become
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untrue, in either case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied (a "Terminating Company Breach"); provided
that, if such Terminating Company Breach is curable by the Company through the
exercise of its reasonable best efforts and for so long as the Company continues
to exercise such reasonable best efforts, Parent may not terminate this
Agreement under this Section 7.1(b);
(c) by the Company, upon a breach of any representation, warranty, covenant
or agreement on the part of Parent or Merger Sub set forth in this Agreement or
if any representation or warranty shall have become untrue, in either case, such
that the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be
satisfied (a "Terminating Parent Breach"); provided that if such Terminating
Parent Breach is curable by Parent or Merger Sub through the exercise of their
reasonable best efforts and for so long as Parent and Merger Sub continue to
exercise such reasonable best efforts, the Company may not terminate this
Agreement under this Section 7.1(c);
(d) by either Parent or the Company, if (i) the Special Meeting (or the
stockholders' meeting contemplated by Section 1.11(c)) shall have been held and
either the Statutory Approval Condition or the Minority Approval Condition shall
have not been satisfied or (ii) the Merger shall not have been consummated on or
before May 31, 2001;
(e) by Parent or the Company if any court or other Governmental Entity
shall have issued an order, decree, judgment or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger and such
order, decree or ruling or other action shall have become final and
nonappealable;
(f) by either the Company or Parent, if the Company Board approves a
Superior Proposal (as defined in Section 8.9) or the Special Committee
recommends a Superior Proposal; or
(g) by Parent, if there shall have been an Adverse Company Board
Determination or an Adverse Special Committee Determination.
SECTION 7.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party or its
directors, officers, employees, stockholders or affiliates, other than the
provisions of this Section 7.2 and Section 7.3 and Article VIII, which shall
survive any such termination. Nothing contained in this Article VII shall
relieve any party from liability for any willful breach of any covenant of this
Agreement or any knowing and intentional breach of any representation or
warranty of this Agreement occurring before termination.
SECTION 7.3 Fees and Expenses.
(a) Whether or not the Merger is consummated, except as otherwise
specifically provided herein, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such expenses.
(b) The prevailing party in any legal action undertaken to enforce this
Agreement or any provision hereof shall be entitled to recover from the other
party the reasonable costs and expenses (including reasonable attorneys' and
expert witness fees) incurred in connection with such action.
SECTION 7.4 Amendment. This Agreement may be amended by the Company,
Parent and Merger Sub at any time before or after any approval of this Agreement
by the stockholders of the Company but, after any such approval, no amendment
shall be made that by law requires further approval by such stockholders without
the further approval of such stockholders, including the satisfaction of the
Minority Approval Condition. Any amendment to this Agreement must be evidenced
by an instrument in writing signed on behalf of all the parties. Notwithstanding
the foregoing, this Agreement shall not be amended and the Company shall not
extend or waive any of the obligations of Parent or Merger Sub hereunder without
the approval of the Special Committee.
SECTION 7.5 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of any party hereto, (ii) waive
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any inaccuracies in the representations and warranties contained herein by any
party or in any document, certificate or writing delivered pursuant hereto by
any party or (iii) waive compliance with any of the agreements of any party or
with any conditions to its own obligations. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party; provided, however, that
the signature of Parent shall constitute approval by Merger Sub of any such
extension of waiver.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time. Notwithstanding the foregoing, the agreements set forth in
Section 2.1 and Section 5.5 shall survive the Effective Time indefinitely
(except to the extent a shorter period of time is explicitly specified therein).
SECTION 8.2 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments referred to
herein) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder will be assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of each other party. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 8.3 Validity. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement, each of which shall
remain in full force and effect or the validity or enforceability of such
provisions in any other jurisdiction.
SECTION 8.4 Notices. All notices, requests, claims, demands and other
communications hereunder must be in writing and shall be deemed to have been
duly given only when delivered in person, by overnight courier or facsimile to
the respective parties as follows:
If to Parent or Merger Sub:
J. Mark Metts
Executive Vice President, Corporate Development
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Facsimile: (713) 646-8512
with a copy to:
James V. Derrick
Executive Vice President and General Counsel
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Facsimile: (713) 853-3920
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and:
Scott N. Wulfe
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Facsimile: (713) 615-5637
If to the Company:
Herbert S. Winokur, Jr.
Chairman of the Special Committee
c/o Capricorn Management, G.P.
30 East Elm Street
Greenwich, CT 06830
Facsimile: (203) 861-6671
with a copy to:
John C. Ale
Executive Director and General Counsel
Azurix Corp.
333 Clay Street, Suite 1000
Houston, TX 77002-7361
Facsimile: 713-345-5330
and:
Randall H. Doud
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Facsimile: 212-735-2000
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
SECTION 8.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 8.6 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.7 Counterparts. This Agreement may be executed in two or more
counterparts, and by facsimile, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
SECTION 8.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except with respect to
Section 5.5, nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 8.9 Certain Definitions. As used in this Agreement:
(a) the term "Acquisition Proposal" shall mean any proposal or offer
relating to the acquisition or purchase of all of the outstanding equity
securities of the Company, any tender offer or exchange offer that, if
consummated, would result in any Person beneficially owning all of the equity
securities of the Company, or
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any merger, reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any purchase or sale of a substantial portion of the consolidated
assets (including without limitation stock of subsidiaries owned directly or
indirectly by the Company) of the Company and its subsidiaries, taken as a
whole;
(b) the term "affiliate," as applied to any Person, shall mean any other
person directly or indirectly controlling, controlled by, or under common
control with, that Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise;
(c) the term "Person" or "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act);
(d) the term "subsidiary" or "subsidiaries" means, with respect to the
Company or Parent, any corporation, partnership, joint venture or other legal
entity of which the Company or Parent, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
stock or other equity interests the holders of which are generally entitled to
50% or more of the vote for the election of the board of directors or other
governing body of such corporation or other entity and which is consolidated
with the Company or Parent, as applicable, for financial reporting purposes
under GAAP; and
(e) the term "Superior Proposal" shall mean a bona fide written Acquisition
Proposal that the Company Board or the Special Committee concludes in good faith
(after consultation with the Company's or the Special Committee's financial
advisors) would, if consummated, provide greater value to the Company's
stockholders from a financial point of view than $8.375 per Share and for which
financing is committed or which, in the good faith judgment of the Company Board
or the Special Committee (after consultation with its financial advisors), is
capable of being financed by the Person making the Acquisition Proposal.
(f) the term "Parent Knowledge Parties" shall be those individuals
identified on Section 8.9(f) of the Company Disclosure Schedule.
SECTION 8.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
SECTION 8.11 Causing Subsidiaries. Whenever this Agreement obligates the
Company to cause, or to use reasonable efforts or reasonable best efforts to
cause, any of its subsidiaries to undertake any action or to refrain from any
course of action, that obligation is subject to any duties owed to minority
shareholders or equity owners and (where required by applicable law) other
stakeholders, such as customers or employees, and to the presence on the boards
of directors of various subsidiaries of representatives of such persons and to
undertakings or legal requirements for the independent conduct of the business
of subsidiaries.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
ENRON CORP.
By: /s/ J. MARK METTS
----------------------------------
Name: J. Mark Metts
Title: Executive Vice President,
Corporate Development
ENRON BW CORP.
By: /s/ J. MARK METTS
----------------------------------
Name: J. Mark Metts
Title: President
AZURIX CORP.
By: /s/ JOHN L. GARRISON, JR.
----------------------------------
Name: John L. Garrison, Jr.
Title: President and Chief
Executive Officer
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APPENDIX B
SUPPORT AGREEMENT
SUPPORT AGREEMENT (this "Agreement"), dated as of December 15, 2000, by and
between Atlantic Water Trust, a Delaware business trust ("AWT"), and Azurix
Corp., a Delaware corporation (the "Company").
WHEREAS, concurrently herewith, Enron Corp., an Oregon corporation
("Parent"), the Company and Enron BW Corp., a Delaware corporation and an
indirect subsidiary of Parent ("Merger Sub"), are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement," which term for
purposes of this Agreement shall not include any amendment or waiver to such
Merger Agreement except for such amendments and waivers to which AWT shall have
consented in writing and such amendments and waivers not consented to by AWT
that do not adversely affect any rights or obligations of AWT), pursuant to
which Merger Sub shall be merged with and into the Company (the "Merger");
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement;
WHEREAS, as of the date hereof, AWT beneficially owns 78,536,532 Shares
(the "Owned Shares");
WHEREAS, as a condition and inducement to its willingness to enter into the
Merger Agreement, the Company has required that AWT agree, and AWT hereby
agrees, to enter into and deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
SECTION 1. Agreement to Vote.
SECTION 1.1 Voting. Subject to Sections 1.2 and 2, AWT hereby agrees
that, during the time this Agreement is in effect, at any meeting of the
stockholders of the Company called for the purpose of considering the approval
and adoption of the Merger Agreement and the Merger, unless the Company
otherwise consents in writing, AWT shall vote the Owned Shares (other than any
Owned Shares transferred by AWT as permitted by Section 1.2) in favor of
approval and adoption of the Merger Agreement and the Merger.
SECTION 1.2 No Inconsistent Arrangements. AWT hereby covenants and agrees
that, except as contemplated by this Agreement or the Merger Agreement or as
contemplated by Sections 9.01 or 9.03 of the Atlantic Water Trust Amended and
Restated Trust Agreement, it shall not (a) transfer (which term shall include
without limitation, any sale, gift, pledge or other disposition), or consent to
any transfer of, any or all of the Owned Shares or any interest therein, (b)
enter into any contract, option or other agreement or understanding with respect
to any transfer of any or all of the Owned Shares or interest therein, or (c)
take any action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated hereby
or by the Merger Agreement or which would make any representation or warranty of
AWT hereunder untrue or incorrect.
SECTION 1.3 Waiver of Appraisal Rights. AWT hereby waives any rights of
appraisal or rights to dissent from the Merger that it may have.
SECTION 2. Expiration. This Agreement shall terminate in its entirety on
the termination of the Merger Agreement in accordance with its terms or upon
AWT's election at any time after May 31, 2001. In the event of the termination
of this Agreement, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party or its directors,
officers, employees, stockholders or affiliates; provided, however, that such
termination shall not relieve any party from liability for any breach of any
covenant of this Agreement or any breach of any representation or warranty of
this Agreement occurring before termination.
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SECTION 3. Representation and Warranties of AWT. AWT hereby represents
and warrants to the Company as follows:
(a) Ownership of Shares. On the date hereof, the Owned Shares are owned by
AWT and, on the date hereof, the Owned Shares constitute all of the Shares owned
of record or beneficially by AWT.
(b) Power; Binding Agreement. AWT has the legal capacity, power and
authority to enter into and perform all of its obligations under this Agreement.
This Agreement has been duly authorized, executed and delivered by AWT.
(c) No Conflict; Required Filings and Consents. None of the execution and
delivery of this Agreement by AWT, the consummation by AWT of the transactions
contemplated hereby, the compliance by AWT with any of the provisions hereof,
the execution and delivery of the Merger Agreement, the consummation of the
transactions contemplated by the Merger Agreement or the compliance by any of
the parties to the Merger Agreement with any of the provisions thereof will
result in a violation or breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under any contract,
agreement, or other instrument or obligation to which AWT or Marlin Water Trust,
a Delaware business trust ("Marlin"), is a party or by which AWT or Marlin or
any of their respective properties may be bound or affected including the
respective trust agreements of AWT and Marlin, except for any of the foregoing
that would not reasonably be expected to prevent or materially delay
consummation of the transactions contemplated hereby.
(d) Information. None of the information supplied or to be supplied by AWT
for inclusion or incorporation by reference in (i) the proxy statement (the
"Proxy Statement") used in connection with the solicitation of proxies in
connection with the Merger and filed with the Securities and Exchange Commission
(the "SEC"), (ii) the Schedule 13E-3 (the "Schedule 13E-3") filed with the SEC
in connection with the Merger or (iii) any other document required to be filed
with the SEC or any other governmental entity in connection with the
transactions contemplated by the Merger Agreement will, at the respective times
filed with the SEC or such other governmental entity and, in addition, in the
case of the Proxy Statement, at the date it or any amendment or supplement is
mailed to stockholders, at the time of the Special Meeting (as defined in the
Merger Agreement) and at the effective time of the Merger (the "Effective
Time"), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, it being understood that no representation is made by AWT
with respect to statements made therein based on information supplied by Parent
or the Company in writing specifically for inclusion in the Proxy Statement.
SECTION 4. Miscellaneous.
SECTION 4.1 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the consummation of the Merger.
SECTION 4.2 Reasonable Best Efforts.
(a) AWT shall cooperate with the Company and use its reasonable best
efforts to make, or cause to be made, all filings necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including but not limited to
cooperation in the preparation and filing of the Proxy Statement, the Schedule
13E-3, any required filings or requests for additional information under
applicable law, or other foreign filings and any amendments to any thereof. In
addition, if at any time prior to the Effective Time any event or circumstance
relating to AWT should be discovered by AWT, which should be set forth in an
amendment to the Proxy Statement or the Schedule 13E-3, AWT will promptly inform
the Company of such event or circumstance.
(b) AWT will use its reasonable best efforts to obtain as promptly as
practicable all consents of any governmental entity or any other person required
in connection with the consummation of the transactions contemplated by this
Agreement.
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SECTION 4.3 Entire Agreement; Assignment. This Agreement (including the
documents and the instruments referred to herein) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and
thereof. Neither this Agreement nor any of the rights, interests or obligations
hereunder will be assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of each other party. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 4.4 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto. Notwithstanding the foregoing, this
Agreement shall not be amended and no extension or waiver of any of the
obligations of AWT hereunder shall be effective without the approval of the
Special Committee.
SECTION 4.5 Notices. All notices, requests, claims, demands and other
communications hereunder must be in writing and shall be deemed to have been
given only when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to the Company:
Herbert S. Winokur, Jr.
Chairman of the Special Committee
c/o Capricorn Management, G.P.
30 East Elm Street
Greenwich, Connecticut 06830
Facsimile: (203) 861-6671
copy to:
John C. Ale
Executive Director and General Counsel
Azurix Corp.
333 Clay Street
Suite 1000
Houston, Texas 77002
Facsimile: (713) 345-5330
Randall H. Doud
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Facsimile: (212) 735-2000
If to AWT:
Corporate Trust Department
Wilmington Trust Company
Rodney Square North
1100 North Market Square
Wilmington, Delaware 19890-0001
Facsimile: (302) 651-8882
copy to:
Ben F. Glisan, Jr.
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Facsimile: (713) 646-4990
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or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
SECTION 4.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 4.7 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
SECTION 4.8 Counterparts. This Agreement may be executed in two or more
counterparts, and by facsimile, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
SECTION 4.9 Descriptive Headings. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
SECTION 4.10 Severability. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
SECTION 4.11 Jurisdiction.
(a) Any legal action or proceeding with respect to this Agreement or any
matters arising out of or in connection with this Agreement, and any action for
enforcement of any judgment in respect thereof, shall be brought, if at all, in
the Court of Chancery of Delaware or the courts of the United States of America
for the District of Delaware or, if no such court has jurisdiction, then any
appropriate state court in the State of Delaware and, by execution and delivery
of this Agreement, the Company and AWT each hereby accepts for itself and in
respect of its property, generally and unconditionally, the exclusive
jurisdiction of the aforesaid courts and appellate courts thereof for purposes
of the foregoing matters. To the extent it does not have a registered agent in
the applicable jurisdiction, the Company and AWT irrevocably consent to service
of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, or by recognized international express carrier or delivery
service, to the Company or AWT at their respective addresses referred to in
Section 4.5 hereof and to the attention of their respective Corporate
Secretaries.
(b) The Company and AWT each hereby irrevocably waives any objection that
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Agreement
brought in the courts referred to above and hereby further irrevocably waives
and agrees, to the extent permitted by applicable law, not to plead or claim in
any such court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum. Nothing herein shall affect the right of
any party hereto to serve process in any other manner permitted by law.
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IN WITNESS WHEREOF, the Company and AWT have caused this Agreement to be
duly executed as of the day and year first above written.
AZURIX CORP.
By: /s/ JOHN L. GARRISON, JR.
----------------------------------
Name: John L. Garrison, Jr.
Title: President and Chief
Executive Officer
ATLANTIC WATER TRUST
By: /s/ BEN F. GLISAN, JR.
----------------------------------
Name: Ben F. Glisan, Jr.
Title: Director
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APPENDIX C
Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019-6118
Telephone 212-969-2700
Fax 212-969-7836
December 15, 2000
Special Committee of the Board of Directors
Azurix Corp.
333 Clay Street
Suite 1000
Houston, TX 77002
Members of the Special Committee:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the stockholders of Azurix Corp., a Delaware
corporation (the "Company"), other than Atlantic Water Trust, a Delaware
business trust ("AWT"), and its affiliates (such stockholders other than AWT and
its affiliates, the "Public Stockholders"), of the Merger Consideration (as
defined below) provided for pursuant to the terms of the Agreement and Plan of
Merger, dated as of December 15, 2000 (the "Merger Agreement"), by and among the
Company, Enron Corp., an Oregon corporation ("Parent"), and Enron BW Corp., an
indirect subsidiary of Parent ("Sub"). We note that Parent owns a 50% voting
interest in AWT, which, in turn, owns approximately 67% of the outstanding
shares of the common stock, par value $0.01 per share, of the Company (the
"Common Stock"), and the Public Stockholders own approximately 33% of the
outstanding Common Stock.
The Merger Agreement will provide for, among other things, a merger of Sub
with and into the Company (the "Merger"), which will be the surviving
corporation. In the Merger, each of the 1,000 outstanding shares of common
stock, par value $1.00 per share, of the Sub will be converted into 1/1000 of a
share of common stock, par value $0.01 per share, of the surviving corporation,
and each outstanding share of Common Stock (other than any such shares held in
the treasury of the Company or owned by Parent, Sub or their respective
subsidiaries (other than AWT)) will be converted into 1/39,268,266 of a share of
the surviving corporation (the "Exchange Ratio"), with cash being paid with
respect to any shares of Common Stock that would result in a fractional interest
in the surviving corporation. It is anticipated that all of the Public
Stockholders will receive such cash payment for all of their shares of Common
Stock held immediately prior to the effective time of the Merger at the rate of
$8.375 per share of Common Stock (rounding up the aggregate cash to be paid to
each Public Stockholder, to the extent necessary, to the next $.01) (the "Merger
Consideration"). We note that as a result of the Exchange Ratio, AWT will obtain
two whole shares of the surviving corporation. The Merger Agreement also
provides that a condition to the consummation of the Merger is that a majority
of the shares of the Common Stock cast either for or against the adoption of the
Merger Agreement (excluding shares of Common Stock owned by Parent, Sub, AWT or
their respective subsidiaries) must be cast for the adoption of the Merger
Agreement. The terms and conditions of the Merger are set forth in more detail
in the Merger Agreement.
In connection with rendering our opinion, we have reviewed the Merger
Agreement and the Support Agreement, dated as of December 15, 2000, by and
between the Company and AWT. We have also reviewed and analyzed certain publicly
available business and financial information relating to the Company for recent
years and interim periods to date, as well as certain internal financial and
operating information, including financial forecasts, analyses and projections
prepared by or on behalf of the Company and provided to us for purposes of our
analysis, and we have met with management of the Company and certain of its
subsidiaries to review and discuss such information and, among other matters,
each of the Company's and its subsidiaries'
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business, operations, assets, financial condition, including its liquidity and
capital needs, and future prospects, as well as the regulatory climates in which
the Company's subsidiaries operate.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its businesses or assets, and we have reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the water utility industry specifically that we believe to be
reasonably comparable to the Merger or otherwise relevant to our inquiry. We
have also performed such other financial studies, analyses, and investigations
and reviewed such other information as we considered appropriate for purposes of
this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us,
and have assumed that such projections, forecasts and analyses were reasonably
prepared in good faith and on bases reflecting the best currently available
judgments and estimates of the Company's management. We express no opinion with
respect to such projections, forecasts and analyses or the assumptions upon
which they are based. In addition, we have not reviewed any of the books and
records of the Company, or assumed any responsibility for conducting a physical
inspection of the properties or facilities of the Company, or for making or
obtaining an independent valuation or appraisal of the assets or liabilities of
the Company. We have assumed that the transactions described in the Merger
Agreement will be consummated without waiver or modification of any of the
material terms or conditions contained therein by any party thereto. Our opinion
is necessarily based on economic and market conditions and other circumstances
as they exist and can be evaluated by us as of the date hereof.
It should be noted that in the context of our engagement by the Special
Committee, we were not authorized to, and did not solicit, third party
indications of interest in acquiring all or any part of the Company and we were
not authorized to investigate any alternative transactions that may be available
to the Company. You have advised us, and we have relied on your advice, that J.
Henry Schroder and Co., a predecessor to Salomon Smith Barney Inc., and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, advisors to the Company, solicited
indications of interest from potential acquirors of, or merger partners for, the
Company, as well as responded to certain other potentially interested parties
for the Company or certain of its significant assets.
In the ordinary course of our business, we may actively trade the debt and
equity securities of the Company and Parent for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
We are acting as financial advisor to the Special Committee in connection
with the proposed Merger and will receive a fee for our services (including
rendering this opinion), a significant portion of which is contingent upon the
consummation of the Merger. We previously advised the Special Committee of an
engagement in 1996 to provide financial advice to an affiliate of Enron with
respect to a possible acquisition of another corporation and we received fees
for those services.
Our opinion addresses only the fairness from a financial point of view to
the Public Stockholders of the Merger Consideration provided for pursuant to the
Merger Agreement, and we do not express any views on any other term of the
Merger. Specifically, our opinion does not address the Company's underlying
business decision to effect the transactions contemplated by the Merger
Agreement. In addition, our opinion does not address the solvency of the Company
following consummation of the Merger or at any time.
It is understood that this letter is for the benefit and use of the Special
Committee in its consideration of the Merger and, except for inclusion in its
entirety in the Schedule 13E-3 statement or proxy statement required to be
circulated to stockholders of the Company relating to the Merger, may not be
quoted, referred to or reproduced at any time or in any manner without our prior
written consent. This opinion does not
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constitute a recommendation to any stockholder or as to how such holder should
vote with respect to the Merger, and should not be relied upon by any
stockholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the Merger Consideration provided for pursuant to the Merger Agreement is fair
to the Public Stockholders from a financial point of view.
Very truly yours,
/s/ Wasserstein Perella & Co., Inc.
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APPENDIX D
[Letterhead of Salomon Smith Barney Inc.]
December 15, 2000
The Special Committee of the Board of Directors
Azurix Corp.
333 Clay Street
Suite 1000
Houston, TX 77002
Members of the Special Committee of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the common stock, par value $0.01 per share (the
"Common Stock"), of Azurix Corp., a Delaware corporation (the "Company"), other
than Atlantic Water Trust, a Delaware business trust ("AWT"), and its affiliates
(such stockholders other than AWT and its affiliates, the "Public
Stockholders"), of the Merger Consideration (defined below) to be received by
the Public Stockholders pursuant to the terms of, and subject to the conditions
set forth in, the Agreement and Plan of Merger, dated as of December 15, 2000,
(the "Merger Agreement"), by and among the Company, Enron Corp., an Oregon
corporation ("Parent"), and Enron BW Corp., an indirect subsidiary of Parent
("Merger Sub"). We note that Parent owns a 50% voting interest in AWT, which, in
turn, owns approximately 67% of the outstanding shares of the Common Stock, and
the Public Stockholders own approximately 33% of the outstanding Common Stock.
As more specifically set forth in the Merger Agreement and subject to the
terms and conditions thereof, (i) Merger Sub will be merged with and into the
Company (the "Merger"), which will be the surviving corporation, (ii) each of
the 1,000 outstanding shares of common stock, par value $1.00 per share, of
Merger Sub will be converted into 1/1000 of a share of common stock, par value
$0.01 per share, of the surviving corporation, and (iii) each outstanding share
of Common Stock (other than any such shares held in the treasury of the Company
or owned by Parent, Merger Sub or their respective subsidiaries (other than
AWT)) will be converted into 1/39,268,266 of a share of the surviving
corporation (the "Exchange Ratio"), with cash being paid with respect to shares
of Common Stock that would result in a fractional interest in the surviving
corporation. It is anticipated that all of the Public Stockholders will receive
such cash payment for all of their shares of Common Stock held immediately prior
to the effective time of the Merger at the rate of $8.375 per share of Common
Stock (rounding up the aggregate cash to be paid to each Public Stockholder, to
the extent necessary, to the next $.01) (the "Merger Consideration"). We note
that as a result of the Exchange Ratio, AWT will obtain two whole shares of the
surviving corporation. The terms and conditions of the Merger are set forth in
more detail in the Merger Agreement.
In arriving at our opinion, we reviewed (i) the Merger Agreement and (ii)
the Support Agreement, dated as of December 15, 2000, by and between the Company
and AWT. We held discussions with certain senior officers, directors and other
representatives of the Company and certain of its subsidiaries concerning the
business, operations and prospects of the Company. We examined certain publicly
available business and financial information relating to the Company, as well as
certain financial forecasts and other information and data for the Company which
were provided to or otherwise discussed with us by the management of the
Company. We reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of the Common Stock; the historical and
projected earnings and other operating data of the Company; and the
capitalization and financial condition of the Company, including its liquidity
and capital needs, as well as the regulatory climate in which the Company's
subsidiaries operate. We considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected that we
considered relevant in evaluating the Merger and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations we considered relevant in evaluating those
of the Company. In addition to
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the foregoing, we conducted such other analyses and examinations and considered
such other information and financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us and have further relied upon the assurances of the
management of the Company that they are not aware of any facts that would make
any of such information inaccurate or misleading. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by or
discussed with us, we have been advised by the management of the Company that
such forecasts and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
We express no view with respect to such forecasts and other information and data
or the assumptions on which they were based. We have not made or been provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company nor have we made any physical
inspection of the properties or assets of the Company. We have further assumed
that the Merger will be consummated in accordance with the terms of the Merger
Agreement, without waiver of any of the conditions precedent to the Merger
contained in the Merger Agreement. We express no view as to, and our opinion
does not address, the relative merits of the Merger as compared to any
alternative business strategies that might exist for the Company or the effect
of any other transaction in which the Company might engage. Our opinion is
necessarily based upon information available to us, and financial, stock market
and other conditions and circumstances existing and disclosed to us, as of the
date hereof. In addition, our opinion does not address the solvency of the
Company following consummation of the Merger or at any time.
It should be noted that in the context of our engagement by the Special
Committee of the Board of Directors of the Company, we were not authorized to,
and did not, solicit third party indications of interest in acquiring all or any
part of the Company and we were not authorized to investigate any alternative
transactions that may be available to the Company. However, J. Henry Schroder
and Co., which was acquired by Salomon Smith Barney Inc. in May, 2000
("Schroders"), was previously engaged by the Company, as co-advisor with Merrill
Lynch, Pierce, Fenner & Smith Incorporated, to solicit indications of interest
from potential acquirors of, or merger partners for, the Company, as well as
respond to certain other potentially interested parties for the Company or
certain of its significant assets.
Salomon Smith Barney Inc. is acting as financial advisor to the Special
Committee in connection with the proposed Merger and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Merger. We will also receive a fee upon delivery of this opinion. We have in
the past provided and are currently providing investment banking services to
Parent, which are unrelated to the Merger and for which we have received and
will continue to receive compensation. As noted above, Schroders was previously
engaged by the Company. No compensation (other than a retainer payment) was to
be paid in connection with the services provided by Schroders. In the ordinary
course of our business, we and our affiliates may actively trade or hold the
securities of the Company and its affiliates for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates (including
Citigroup Inc. and its affiliates) may maintain relationships with the Company,
Parent, Merger Sub and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Special Committee in its evaluation of the proposed Merger,
and our opinion is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote on any matters
relating to the proposed Merger.
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Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to the Public Stockholders.
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
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APPENDIX E
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "Stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to
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<PAGE> 112
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest that the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's
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<PAGE> 113
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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<PAGE> 114
ANNEX A
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. Approval and Adoption of the 2. In the discretion of the Change of Address/
Agreement and Plan of Merger, proxies named herein, the Comments on Reverse
dated as of December 15, proxies are authorized to Side
2000, among Azurix Corp., vote upon other matters as
Enron Corp. and Enron BW are properly brought before
Corp. the meeting.
</TABLE>
All as more particular described in
the Proxy Statement relating to such
meeting, receipt of which is hereby
acknowledged.
Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
-------------------------------------
-------------------------------------
SIGNATURE(S) DATE
O FOLD AND DETACH HERE O
THIS IS YOUR PROXY.
LOGO YOUR VOTE IS IMPORTANT.
AZURIX CORP.
SHORTLY AFTER SHAREHOLDER APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, YOU WILL
RECEIVE INSTRUCTIONS ON THE PROCEDURE TO BE FOLLOWED TO RETURN YOUR AZURIX CORP.
COMMON STOCK AND RECEIVE YOUR FUNDS. PLEASE HOLD YOUR CERTIFICATES UNTIL YOU
RECEIVE YOUR INSTRUCTIONS.
TO CONTACT OUR TRANSFER AGENT PLEASE CALL
(800) 519-3111 OR (201) 324-1225
OR WRITE TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
A DIVISION OF EQUISERVE
P.O. BOX 2500
JERSEY CITY, NJ 07303-2500
HTTP:/WWW.EQUISERVE.COM
FOR EARNINGS INFORMATION, CALL (713) 646-9531
<PAGE> 115
LOGO AZURIX CORP.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AZURIX CORP.
FOR SPECIAL MEETING ON [ ], 2001
THE UNDERSIGNED hereby appoints John L. Garrison, Jr., John C. Ale
and Norma A. Tidrow, or any of them, and any substitute or
substitutes, to be the attorneys and proxies of the undersigned at the
Special Meeting of Shareholders of Azurix Corp. ("Azurix") to be held
at 10:00 a.m. Houston time on [ ], 2001,
[ ], Houston, Texas, or at any adjournment
thereof, and to vote at such meeting the shares of stock of Azurix
that the undersigned held of record on the books of Azurix on the
record date for the meeting.
(change of address/comments)
----------------------------------
----------------------------------
----------------------------------
----------------------------------
(If you have written in the above
space, please mark the
corresponding box on the reverse
side of this card)
<TABLE>
<S> <C>
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE
APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK
ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD
OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SEE REVERSE
SHARES UNLESS YOU SIGN AND RETURN THIS CARD. SIDE
</TABLE>
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