Philip Services Enters into Definitive Agreement
to Sell its Interest in Philip Utilities Management Corporation

(Last updated 9:03 AM ET March 26)

HAMILTON, ONTARIO (BUSINESS WIRE) -  Philip Services Corp. today announced that it has entered into a definitive agreement to sell its 68 percent interest in Philip Utilities Management Corporation ("Philip Utilities") to Azurix Corp. ("Azurix"), an affiliate of Enron Corp. of Houston, Texas.

The net proceeds to Philip Services from the sale are expected to be approximately US$67 million in cash. Philip Services anticipates the transaction to close within 60 days subject to typical closing conditions, including Hart-Scott-Rodino and Competition Act regulatory filings and lender and third-party approvals. Net proceeds from the sale will be used to pay down the Company's existing secured syndicated debt.

"This transaction will benefit Philip Services and Philip Utilities and its clients throughout North America" said Allen Fracassi, CEO of Philip Services. "It will allow Philip Services to further reduce its debt and focus our resources on our core metals and industrial outsourcing operations. It will support Philip Utilities continued growth in the water and wastewater and infrastructure repair markets, while its clients will benefit from the combined strength of Philip Utilities and Azurix, two leading corporations in the global utilities management industry."

"This transaction supports our global strategy of owning and operating water and wastewater assets and providing related services," said Rebecca P. Mark, Chairman and CEO of Azurix. "We look forward to building upon Philip Utilities' expertise in a number of areas, particularly its ability to provide outsourcing services to municipal and industrial customers and investor owned utilities. This transaction will provide a platform for the expansion of our North American activities."

Philip Services established Philip Utilities in 1994 as the first Canadian company to participate in the North American market for water and wastewater utilities management services. Since 1994, Philip Utilities has developed into an integrated provider of water and wastewater services with 18 municipal and industrial utilities management contracts throughout North America. Philip Utilities provides long-term operating and facilities management services for the operation and maintenance of water and wastewater facilities and also specializes in engineering and contract operations, residuals management and underground infrastructure development.

Upon completion of the transaction, Azurix will become the primary participant in the largest design-build-operate water project in North America, the 120 million gallon per day Tolt River Treatment Plant in Seattle, WA. It will also operate the 192 million gallon per day water treatment plant and the 110 million gallon per day wastewater facility in Hamilton, Ontario, as well as 16 facilities in 11 other municipalities in the U.S. and Canada. The head office of Philip Utilities will continue to be based in Hamilton, Ontario.

As previously announced, Philip Services has reached an agreement on the terms of a lock-up agreement with the Steering Committee of its lenders. Members of the Steering Committee, who hold in excess of 65 percent of the outstanding secured syndicated debt, including representatives of the senior bank lenders, as well as Carl Icahn of High River Limited Partnership and Foothill Partners III, L.P. have agreed to the form of the lock-up agreement. The lock-up agreement outlines a capital structure for a restructured Philip Services and sets forth the principal conditions that would govern the repayment of the Company's US$1.070 billion in secured syndicated debt. To become effective, the lock-up agreement requires approval by lenders holding two-thirds of the outstanding secured syndicated debt. Execution of the lock-up agreement is expected to occur shortly. Under the terms of the lock-up agreement, the lenders will convert approximately US$1.070 billion of secured debt into US$300 million of senior secured debt, and US$100 million in convertible secured payment-in-kind notes. The balance of the syndicated debt will be exchanged for 90 percent of the common shares of the restructured company, with existing shareholders retaining up to 10 percent of the equity of the restructured company. The lock-up agreement provides that if Philip Services completes the sale of Philip Utilities, it will repay US$70 million of the existing syndicate debt and the senior secured debt of the restructured company will be reduced from US$300 million to US$250 million.

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. Azurix maintains headquarters in Houston, Texas and London, England. Azurix is an affiliate of Enron Corp.

Philip Services is an integrated metals recovery and industrial services company with operations throughout the United States, Canada and Europe. Philip provides ferrous and non-ferrous processing, together with diversified industrial outsourcing services, to all major industry sectors.