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                                                                     EXHIBIT 4.3


               STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT


     THIS STOCK RESTRICTION AND REGISTRATION RIGHTS AGREEMENT (the "Agreement")
dated as of June 9, 1999, but effective as set forth in Section 1 below, is
between AZURIX CORP., a Delaware corporation ("Azurix"), and Atlantic Water
Trust, a Delaware business trust (the "Holder").

                              W I T N E S S E T H:

     WHEREAS, the Holder is the owner of all the issued and outstanding shares
of common stock of Azurix (the "Common Stock");

     WHEREAS, following the initial public offering referred to below, the
Common Stock will be registered under Section 12 of the Securities Exchange Act
of 1934 (the "Exchange Act");

     WHEREAS, under the provisions of the Securities Act of 1933 (the
"Securities Act") and the General Rules and Regulations promulgated by the
Securities and Exchange Commission (the "SEC") thereunder, the Holder is or may
be limited in the manner of selling the shares of Common Stock owned by the
Holder, absent registration under the Securities Act of the sale of such Common
Stock or the availability of another exemption from the registration
requirements of the Securities Act; and

     WHEREAS, Azurix wishes to establish certain other restrictions on the sale
of Common Stock owned by the Holder, and Azurix and the Holder desire to set
forth certain registration rights as to such shares;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:

          1.   Agreement Not to Sell or Transfer Restricted Stock For a Period
               of Time. This Agreement shall become effective commencing on the
               date of the closing of the initial public offering of Common
               Stock pursuant to an effective registration statement. The Holder
               agrees that it will not offer, sell, contract to sell or
               otherwise dispose of any shares of Common Stock or any security
               convertible into or exchangeable for Common Stock except pursuant
               to a registration statement under the Securities Act or an
               applicable exemption therefrom.

          2.   Demand Registration.

               a.   Request for Registration. As used in this Agreement,
                    "Restricted Stock" shall mean all shares of Common Stock
                    owned by the Holder on the effective date of this agreement,
                    together with any securities issued or issuable with respect
                    to any such Common Stock by way of stock dividend or stock
                    split or in connection with a combination of shares,
                    recapitalization, merger, consolidation or other
                    reorganization or otherwise. As to any particular Restricted
                    Stock, once issued such securities shall cease to be
                    Restricted Stock when (i) a registration statement with
                    respect to the sale of such securities shall have become




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                    effective under the Securities Act and such securities shall
                    have been disposed of in accordance with such registration
                    statement, (ii) such securities shall have been distributed
                    to the public pursuant to Rule 144 (or any successor
                    provision) under the Securities Act, (iii) such securities
                    shall have been otherwise transferred, new certificates
                    representing such securities not bearing a legend
                    restricting further transfer shall have been delivered by
                    Azurix and the subsequent disposition of such securities
                    shall not require registration or qualification of such
                    securities under the Securities Act or any similar state law
                    then in force, (iv) such securities shall have ceased to be
                    outstanding or (v) the Holder or Holders thereof and Azurix
                    shall agree in writing that such Restricted Stock shall no
                    longer be Restricted Stock. The Holder and any permitted
                    assignee of the Holder's rights and duties hereunder,
                    including Enron Corp., an Oregon corporation ("Enron"), are
                    referred to herein as the "Holders." Subject to the
                    conditions and limitations set forth in Section 5 of this
                    Agreement, at any time after the limitation period referred
                    to in Section 1 hereof, the Holder or Holders of Restricted
                    Stock may make a written request for registration under the
                    Securities Act of all or part of its or their Restricted
                    Stock pursuant to this Section 2 ("Demand Registration"),
                    provided that the number of shares of Restricted Stock
                    proposed to be sold shall have an aggregate offering price
                    of at least $25,000,000. Such request will specify the
                    aggregate number of shares of Restricted Stock proposed to
                    be sold and will also specify the intended method of
                    disposition thereof. Within ten days after receipt of such
                    request, Azurix will give written notice of such
                    registration request to all other Holders of Restricted
                    Stock and include in such registration all Restricted Stock
                    with respect to which Azurix has received written requests
                    for inclusion therein within fifteen business days after the
                    receipt by the applicable Holder of Azurix's notice. Each
                    such request will also specify the aggregate number of
                    shares of Restricted Stock to be registered and the intended
                    method of disposition thereof. No other party, including
                    Azurix (but excluding another Holder of Restricted Stock),
                    shall be permitted to offer securities under any such Demand
                    Registration unless the Holder or Holders requesting the
                    Demand Registration shall consent in writing.

               b.   Priority on Demand Registrations. If the Holders of a
                    majority in number of shares of the Restricted Stock to be
                    registered in a Demand Registration so elect, the offering
                    of such Restricted Stock pursuant to such Demand
                    Registration shall be in the form of an underwritten
                    offering. In such event, if the managing underwriter or
                    underwriters of such offering advise Azurix and the Holders
                    in writing that in their opinion the aggregate amount of
                    Restricted Stock requested to be included in such offering
                    is so large that it will materially and adversely affect the
                    success of such offering or the then prevailing price of the
                    Common Stock, Azurix will include in such registration the
                    aggregate number of shares of Restricted Stock which in the
                    opinion of such managing underwriter or underwriters can be
                    sold without any such material adverse effect, and such
                    number of shares shall be allocated pro rata among the
                    Holders of Restricted Stock on the basis of the number of
                    shares of Restricted Stock requested to be





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                    included in such registration by their Holders. To the
                    extent shares of Restricted Stock so requested to be
                    registered are excluded from the offering, then the Holders
                    of such Restricted Stock shall have the right to one
                    additional Demand Registration under this Section with
                    respect to such Restricted Stock, provided that the failure
                    of such Restricted Stock to be registered is through no
                    fault of such Holder.

               c.   Selection of Underwriters and Counsel. If any Demand
                    Registration is in the form of an underwritten offering, the
                    Holders of a majority in number of shares of Restricted
                    Stock to be registered will select and obtain the services
                    of the investment banker or investment bankers and manager
                    or managers that will administer the offering and the
                    counsel to such investment bankers and managers; provided
                    that such investment bankers, managers and counsel must be
                    approved by Azurix, which approval shall not be unreasonably
                    withheld.

          3.   Piggyback Registration. If Azurix proposes to file a registration
               statement under the Securities Act with respect to an offering
               for its own account of any class of its equity securities (other
               than a registration statement on Form S-8 (or any successor form)
               or any other registration statement relating solely to employee
               benefit plans or filed in connection with an exchange offer, a
               transaction to which Rule 145 under the Securities Act applies or
               an offering of securities solely to Azurix's existing
               stockholders), then Azurix shall in each case give written notice
               of such proposed filing to the Holders of Restricted Stock as
               soon as practicable (but no later than five business days) before
               the anticipated filing date, and such notice shall offer such
               Holders the opportunity to register such number of shares of
               Restricted Stock as each such Holder may request. Each Holder of
               Restricted Stock desiring to have such Holder's Restricted Stock
               included in such registration statement shall so advise Azurix in
               writing within five business days after the date of Azurix's
               notice, setting forth the amount of such Holder's Restricted
               Stock for which registration is requested. If Azurix's offering
               is to be an underwritten offering, Azurix shall, subject to the
               further provisions of this Agreement, use its reasonable efforts
               to cause the managing underwriter or underwriters of a proposed
               underwritten offering to permit the Holders of the Restricted
               Stock, requested to be included in the registration for such
               offering, to include such securities in such offering on the same
               terms and conditions as any similar securities of Azurix included
               therein. Moreover, if the registration of which Azurix gives
               notice does involve an underwriting, the right of each Holder to
               registration pursuant to this Section 3 shall, unless Azurix
               otherwise assents, be conditioned upon such Holder's
               participation as a seller in such underwriting and its execution
               of an underwriting agreement with the managing underwriter or
               underwriters selected by Azurix. Notwithstanding the foregoing,
               if the managing underwriter or underwriters of such offering
               deliver a written opinion to the Holders of Restricted Stock that
               either because of (A) the kind of securities which the Holders,
               Azurix and any other person or entities intend to include in such
               offering or (B) the size of the offering which the Holders,
               Azurix and other persons intend to make, the success of the
               offering or the then prevailing price of the Common Stock would
               be materially and adversely affected by inclusion of the
               Restricted Stock requested to be included, then (i) in the event
               that the size of the





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               offering is the basis of such managing underwriter's opinion, the
               number of shares to be offered for the accounts of Holders of
               Restricted Stock shall be reduced pro rata or to the extent
               necessary to reduce the total amount of securities to be included
               in such offering to the amount recommended by such managing
               underwriter or underwriters; provided that if securities are
               being offered for the account of other persons or entities as
               well as Azurix, such reduction shall not represent a greater
               fraction of the number or kind of securities intended to be
               offered by Holders of Restricted Stock than the fraction of
               similar reductions imposed on such other persons or entities over
               the amount of securities of such kind they intended to offer; and
               (ii) in the event that the combination of securities to be
               offered is the basis of such managing under-writer's opinion, (x)
               the Restricted Stock to be included in such offering shall be
               reduced as described in clause (i) above (subject to the proviso
               in clause (i)) or, (y) if the actions described in clause (x)
               would, in the judgment of the managing underwriter, be
               insufficient to substantially eliminate the adverse effect that
               inclusion of the Restricted Stock requested to be included would
               have on such offering, such Restricted Stock will be excluded
               from such offering. Any Restricted Stock excluded from an
               underwriting shall be withdrawn from registration and shall not,
               without the consent of Azurix and the manager of the
               underwriting, be transferred in a public distribution prior to
               the earlier of 90 days (or such other shorter period of time as
               the manager of the underwriting may require) after the effective
               date of the registration statement or 150 days after the date the
               Holders of such Restricted Stock are notified of such exclusion.

          4.   Registration Procedures. Whenever, pursuant to Section 2 or 3,
               the Holders of Restricted Stock have requested that any
               Restricted Stock be registered, Azurix will, subject to the
               provisions of Section 5, use all reasonable efforts to effect the
               registration and the sale of such Restricted Stock in accordance
               with the intended method of disposition thereof as promptly as
               practicable, and in connection with any such request, Azurix
               will:

               a.   in connection with a request pursuant to Section 2, prepare
                    and file with the SEC, not later than 60 days after receipt
                    of a request to file a registration statement with respect
                    to Restricted Stock, a registration statement on any form
                    for which Azurix then qualifies and which counsel for Azurix
                    shall deem appropriate and which form shall be available for
                    the sale of such Restricted Stock in accordance with the
                    intended method of distribution thereof, and use its
                    reasonable efforts to cause such registration statement to
                    become effective; provided that if Azurix shall furnish to
                    the Holders making such a request a certificate signed by
                    either the chief financial officer or the chief accounting
                    officer of Azurix stating that in his good faith judgment it
                    would be significantly disadvantageous to Azurix for such a
                    registration statement to be filed on or before the date
                    filing would be required, Azurix shall have an additional
                    period of not more than 90 days within which to file such
                    registration statement; and provided further, (i) that
                    before filing a registration statement or prospectus or any
                    amendments or supplements thereto, Azurix will furnish to
                    one counsel selected by the Holders of a majority in number
                    of shares of the Restricted Stock covered by such
                    registration statement copies of all





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                    such documents proposed to be filed, which documents will be
                    subject to the review of such counsel, and (ii) that after
                    the filing of the registration statement, Azurix will
                    promptly notify each selling Holder of Restricted Stock of
                    any stop order issued or, to the knowledge of Azurix,
                    threatened by the SEC and take all reasonable actions to
                    prevent the entry of such stop order or to remove it if
                    entered;

               b.   in connection with a registration pursuant to Section 2,
                    prepare and file with the SEC such amendments and
                    supplements to such registration statement and the
                    prospectus used in connection therewith as may be necessary
                    to keep such registration statement effective for a period
                    of not less than 270 days or such shorter period as shall
                    terminate when all Restricted Stock covered by such
                    registration statement has been sold (but not before the
                    expiration of the 90-day period referred to in Section 4(3)
                    of the Securities Act and Rule 174 thereunder, if
                    applicable), and comply with the provisions of the
                    Securities Act with respect to the disposition of all
                    securities covered by such registration statement during
                    such period in accordance with the intended methods of
                    disposition by the Selling Holders thereof set forth in such
                    registration statement;

               c.   as soon as reasonably practicable, furnish to each selling
                    Holder, prior to filing a registration statement, copies of
                    such registration statement as proposed to be filed, and
                    thereafter furnish to such selling Holder such number of
                    copies of such registration statement, each amendment and
                    supplement thereto (in each case, if specified by such
                    Holder, including all exhibits thereto), the prospectus
                    included in such registration statement (including each
                    preliminary prospectus) and such other documents as such
                    selling Holder may reasonably request in order to facilitate
                    the disposition of the Restricted Stock owned by such
                    selling Holder;

               d.   with reasonable promptness, use its reasonable efforts to
                    register or qualify such Restricted Stock under such other
                    securities or blue sky laws of such jurisdictions within the
                    United States as any selling Holder reasonably (in light of
                    such selling Holder's intended plan of distribution)
                    requests and do any and all other acts and things which may
                    be reasonably necessary or advisable to enable such selling
                    Holder to consummate the disposition in such jurisdictions
                    of the Restricted Stock owned by such selling Holder;
                    provided that Azurix will not be required to (i) qualify
                    generally to do business in any jurisdiction where it would
                    not otherwise be required to qualify but for this subsection
                    d., (ii) subject itself to taxation in any such jurisdiction
                    or (iii) consent to general service of process in any such
                    jurisdiction;

               e.   with reasonable promptness, use reasonable efforts to cause
                    the Restricted Stock covered by such registration statement
                    to be registered with or approved by such other governmental
                    agencies or authorities as may be necessary by virtue of the
                    business and operations of Azurix to enable the selling
                    Holder or Holders thereof to consummate the disposition of
                    such Restricted Stock;




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               f.   promptly notify each selling Holder of such Restricted
                    Stock, at any time when a prospectus relating thereto is
                    required to be delivered under the Securities Act, of the
                    occurrence of any event known to Azurix requiring the
                    preparation of a supplement or amendment to such prospectus
                    so that, as thereafter delivered to the purchasers of such
                    Restricted Stock, such prospectus will not contain an untrue
                    statement of a material fact or omit to state any material
                    fact required to be stated therein or necessary to make the
                    statements therein not misleading and promptly make
                    available to each selling Holder any such supplement or
                    amendment;

               g.   in connection with a request pursuant to Section 2, enter
                    into an underwriting agreement in customary form, the form
                    and substance of such underwriting agreement being subject
                    to the reasonable satisfaction of Azurix;

               h.   with reasonable promptness make available for inspection by
                    any selling Holder, any underwriter participating in any
                    disposition pursuant to such registration statement, and any
                    attorney, accountant or other agent retained by any such
                    selling Holder or underwriter (collectively, the
                    "Inspectors"), all financial and other records, pertinent
                    corporate documents and properties of Azurix (collectively,
                    the "Records") as shall be reasonably necessary to enable
                    them to exercise their due diligence responsibility, and
                    cause Azurix's officers and employees to supply all
                    information reasonably requested for such purpose by any
                    such Inspector in connection with such registration
                    statement; provided, however, that the selection of any
                    Inspector other than a selling Holder shall be subject to
                    the consent of Azurix, which shall not be unreasonably
                    withheld. Each Inspector that actually reviews Records
                    supplied by Azurix that include information that Azurix
                    determines, in good faith, to be confidential ("Confidential
                    Information") shall be required, prior to any such review,
                    to execute an agreement with Azurix providing that such
                    Inspector shall not disclose any Confidential Information
                    unless such disclosure is required by applicable law or
                    legal process. Each selling Holder of Restricted Stock
                    agrees that Confidential Information obtained by it as a
                    result of such inspections shall not be used by it as the
                    basis for any transactions in securities of Azurix unless
                    and until such information is made generally available to
                    the public. Each selling Holder of Restricted Stock further
                    agrees that it will, upon learning that disclosure of
                    Confidential Information is sought in a court of competent
                    jurisdiction, give notice to Azurix and allow Azurix, at its
                    expense, to undertake appropriate action to prevent
                    disclosure of the Confidential Information. Each selling
                    Holder also agrees that the due diligence investigation made
                    by the Inspectors shall be conducted in a manner which shall
                    not disrupt to any significant extent the operations of
                    Azurix or the work performed by Azurix's officers and
                    employees;

               i.   in the event such sale is pursuant to an underwritten
                    offering, use its reasonable efforts to obtain a comfort
                    letter or letters from Azurix's independent public
                    accountants in customary form and covering such





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                    matters of the type customarily covered by comfort letters
                    as the managing underwriter reasonably requests;

               j.   otherwise use its reasonable efforts to comply with all
                    applicable rules and regulations of the SEC, and make
                    available to its security holders, as soon as reasonably
                    practicable, an earnings statement covering a period of
                    twelve months, beginning within three months after the
                    effective date of the registration statement, which earnings
                    statement shall satisfy the provisions of Section 11(a) of
                    the Securities Act; and

               k.   with reasonable promptness, use its reasonable efforts to
                    cause all such Restricted Stock to be listed on each
                    securities exchange on which the Common Stock of Azurix is
                    then listed, provided that the applicable listing
                    requirements are satisfied.

     Each selling Holder of Restricted Stock agrees that, upon receipt of any
notice from Azurix of the happening of any event of the kind described in
subsection f. hereof, such selling Holder will forthwith discontinue disposition
of Restricted Stock pursuant to the registration statement covering such
Restricted Stock until such selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subsection f. hereof, and, if
so directed by Azurix, such selling Holder will deliver to Azurix (at Azurix's
expense) all copies, other than permanent file copies then in such selling
Holder's possession, of the prospectus covering such Restricted Stock current at
the time of receipt of such notice. In the event Azurix shall give any such
notice, Azurix shall extend the period during which such registration statement
shall be maintained effective pursuant to this Agreement (including the period
referred to in subsection b.) by the number of days during the period from and
including the date of the giving of such notice pursuant to subsection f. hereof
to and including the date when each selling Holder of Restricted Stock covered
by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by subsection f. hereof. Each
selling Holder also agrees to notify Azurix if any event relating to such
selling Holder occurs which would require the preparation of a supplement or
amendment to the prospectus so that such prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.

          5.   Conditions and Limitations.

               a.   Azurix's obligations under Section 2 shall be subject to the
                    following limitations:

                    i.   Azurix need not file a registration statement either
                         (x) during the period starting with the date 60 days
                         prior to Azurix's estimated date of filing of, and
                         ending 90 days after the effective date of, any
                         registration statement pertaining to securities of
                         Azurix (other than a registration of securities in a
                         Rule 145 transaction or exchange offer or with respect
                         to an employee benefit plan or dividend reinvestment
                         plan), provided that if such Azurix registration
                         statement is not filed within 90 days after the first
                         date on which Azurix notifies a Holder of Restricted
                         Stock that it will delay a Demand Registration pursuant
                         to this clause (x), Azurix may not





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                         further postpone such Demand Registration pursuant to
                         this clause; or (y) during the period specified in the
                         first proviso of subparagraph a. of Section 4;

                    ii.  Azurix shall not be required to furnish any audited
                         financial statements other than those audited
                         statements customarily prepared at the end of its
                         fiscal year, or to furnish any unaudited financial
                         information with respect to any period other than its
                         regularly reported interim quarterly periods unless in
                         the absence of such other unaudited financial
                         information the registration statement would contain an
                         untrue statement of material fact or omit to state a
                         material fact required to be stated therein or
                         necessary to make the statements therein not
                         misleading;

                    iii. except as provided in Section 2.b., Azurix shall not be
                         required to file more than one Demand Registration
                         during any 12-month period commencing with the
                         effective date of this Agreement, plus one additional
                         such Demand Registration; provided, however, that a
                         registration statement will not count as a Demand
                         Registration until it has become effective; and

                    iv.  Azurix shall have received the information and
                         documents specified in Section 6 and each selling
                         Holder shall have observed or performed its other
                         covenants and conditions contained in such section and
                         Section 8.

               b.   Azurix's obligation under Section 3 shall be subject to the
                    limitations and conditions specified in such section and in
                    clauses (i), (ii) and (iv) of subsection a. of this Section
                    5, and to the condition that Azurix may at any time in its
                    sole discretion terminate its proposal to register its
                    shares and discontinue its efforts to cause a registration
                    statement to become or remain effective.

          6.   Information from and Certain Covenants of Holders of Restricted
               Stock. Notices and requests delivered to Azurix by Holders for
               whom Restricted Stock is to be registered pursuant to this
               Agreement shall contain such information regarding the Restricted
               Stock to be so registered, the Holder and the intended method of
               disposition of such Restricted Stock as shall reasonably be
               required in connection with the action to be taken. Any Holder
               whose Restricted Stock is included in a registration statement
               pursuant to this Agreement shall execute all consents, powers of
               attorney, registration statements and other documents reasonably
               required to be signed by it in order to cause such registration
               statement to become effective. Each selling Holder covenants
               that, in disposing of such Holder's shares, such Holder will
               comply with Regulation M of the SEC adopted pursuant to the
               Exchange Act.

          7.   Registration Expenses. All Registration Expenses (as defined
               herein) will be borne by Azurix. Underwriting discounts and
               commissions applicable to the sale of Restricted Stock shall be
               borne by the Holder of the Restricted Stock to which





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               such discount or commission relates, and each selling Holder
               shall be responsible for the fees and expenses of any legal
               counsel, accountants or other agents retained by such selling
               Holder and all other out-of-pocket expenses incurred by such
               selling Holder in connection with any registration under this
               Agreement.

                    As used herein, the term Registration Expenses means all
               out-of-pocket expenses incident to Azurix's performance of or
               compliance with this Agreement (whether or not the registration
               in connection with which such expenses are incurred ultimately
               becomes effective), including without limitation all registration
               and filing fees, fees and expenses of compliance with securities
               or blue sky laws (including reasonable fees and disbursements of
               counsel in connection with blue sky qualifications of the
               Restricted Stock), rating agency fees, printing expenses,
               messenger and delivery expenses incurred by Azurix, the fees and
               expenses incurred in connection with the listing of the
               securities to be registered on each securities exchange on which
               similar securities issued by Azurix are then listed, and fees and
               disbursements of counsel for Azurix and its independent certified
               public accountants (including the expenses of any special audit
               or comfort letters required by or incident to such performance),
               securities acts liability insurance (if Azurix elects to obtain
               such insurance), the reasonable fees and expenses of any special
               experts retained by Azurix in connection with such registration
               and the fees and expenses of other persons retained by Azurix.

          8.   Indemnification; Contribution.

               a.   Indemnification by Azurix. Azurix agrees to indemnify and
                    hold harmless each selling Holder of Restricted Stock, its
                    officers, directors and agents and each person, if any, who
                    controls such selling Holder within the meaning of either
                    Section 15 of the Securities Act or Section 20 of the
                    Exchange Act, from and against any and all losses, claims,
                    damages, liabilities and expenses (including reasonable
                    costs of investigation) arising out of or based upon any
                    untrue statement or alleged untrue statement of a material
                    fact contained in any registration statement or prospectus
                    relating to the Restricted Stock or in any amendment or
                    supplement thereto or in any preliminary prospectus relating
                    to the Restricted Stock, or arising out of or based upon any
                    omission or alleged omission to state therein a material
                    fact required to be stated therein or necessary to make the
                    statements therein not misleading, except insofar as such
                    losses, claims, damages, liabilities or expenses arise out
                    of, or are based upon, any such untrue statement or omission
                    or allegation thereof based upon information furnished in
                    writing to Azurix by such selling Holder or on such selling
                    Holder's behalf expressly for use therein (including,
                    without limitation, information with respect to the selling
                    Holder or its underwriters, managers or advisers) and
                    provided further, that with respect to any untrue statement
                    or omission or alleged untrue statement or omission made in
                    any preliminary prospectus, the indemnity agreement
                    contained in this subsection shall not apply to the extent
                    that any such loss, claim, damage, liability or expense
                    results from the fact that a copy of the final prospectus
                    was not sent or given to the person asserting any such
                    losses, claims, damages, liabilities or expenses at or prior
                    to the





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                    written confirmation of the sale of the Restricted Stock
                    concerned to such person. Azurix also agrees to include in
                    any underwriting agreement with any underwriters of the
                    Restricted Stock provisions indemnifying and providing for
                    contribution to such underwriters, their officers and
                    directors and each person who controls such under-writers on
                    substantially the same basis as the provisions of this
                    Section 8 indemnifying and providing for contribution to the
                    selling Holders.

               b.   Indemnification by Holders of Restricted Stock. Each selling
                    Holder agrees to indemnify and hold harmless Azurix, its
                    officers, directors and agents and each person, if any, who
                    controls Azurix within the meaning of either Section 15 of
                    the Securities Act or Section 20 of the Exchange Act, from
                    and against any and all losses, claims, damages, liabilities
                    and expenses (including reasonable costs of investigation)
                    arising out of or based upon any untrue statement or alleged
                    untrue statement of a material fact contained in any
                    registration statement or prospectus relating to the
                    Restricted Stock or in any amendment or supplement thereto
                    or in any preliminary prospectus relating to the Restricted
                    Stock, or arising out of or based upon any omission or
                    alleged omission to state therein a material fact required
                    to be stated therein or necessary to make the statements
                    therein not misleading, provided (i) that such losses,
                    claims, damages, liabilities or expenses arise out of, or
                    are based upon, any such untrue statement or omission or
                    allegation thereof based upon information furnished in
                    writing to Azurix by such selling Holder or on such selling
                    Holder's behalf expressly for use therein (including,
                    without limitation, information with respect to the selling
                    Holder or its underwriters, managers or advisers), (ii) that
                    with respect to any untrue statement or omission or alleged
                    untrue statement or omission made in any preliminary
                    prospectus, the indemnity agreement contained in this
                    subsection shall not apply to the extent that any such loss,
                    claim, damage, liability or expense results from the fact
                    that a copy of the final prospectus was not sent or given to
                    the person asserting any such losses, claims, damages,
                    liabilities or expenses at or prior to the written
                    confirmation of the sale of the Restricted Stock concerned
                    to such person, and (iii) that no selling Holder shall be
                    liable for any indemnification under this Section 8 in an
                    aggregate amount which exceeds the total net proceeds
                    (before deducting expenses) received by such selling Holder
                    from the offering. Each selling Holder also agrees to
                    include in any underwriting agreement with underwriters of
                    the Restricted Stock provisions indemnifying and providing
                    for contribution to such underwriters, their officers and
                    directors and each person who controls such underwriters on
                    substantially the same basis as the provisions of this
                    Section 8 indemnifying and providing for contribution to
                    Azurix. Azurix agrees that if Atlantic Water Trust is the
                    selling Holder, Enron may provide the indemnification and
                    contribution required to be provided by Atlantic Water Trust
                    under this Section 8 in lieu of Atlantic Water Trust.

               c.   Conduct of Indemnification Proceedings. If any action or
                    proceeding (including any governmental investigation) shall
                    be brought or asserted





<PAGE>   11

                    against any indemnified party in respect of which indemnity
                    may be sought from an indemnifying party, the indemnifying
                    party shall assume the defense thereof, including the
                    employment of counsel reasonably satisfactory to such
                    indemnified party, and shall assume the payment of all
                    expenses. Such indemnified party shall have the right to
                    employ separate counsel in any such action and to
                    participate in the defense thereof, but the fees and
                    expenses of such counsel shall be at the expense of such
                    indemnified party unless (i) the indemnifying party has
                    agreed to pay such fees and expenses, or (ii) the
                    indemnifying party shall have failed to assume the defense
                    of such action or proceeding and employ counsel reasonably
                    satisfactory to such indemnified party or (iii) the named
                    parties to any such action or proceeding (including any
                    impleaded parties) include both such indemnified party and
                    such indemnifying party, and such indemnified party shall
                    have been advised by counsel that there may be one or more
                    legal defenses available to such indemnified party which are
                    different from or additional to those available to the
                    indemnifying party (in which case, if such indemnified party
                    notifies the indemnifying party in writing that it elects to
                    employ separate counsel at the expense of the indemnifying
                    party, the indemnifying party shall not have the right to
                    assume the defense of such action or proceeding on behalf of
                    such indemnified party, it being understood, however, that
                    the indemnifying party shall not, in connection with any one
                    such action or proceeding or separate but substantially
                    similar or related actions or proceedings in the same
                    jurisdiction arising out of the same general allegations or
                    circumstances, be liable for the fees and expenses of more
                    than one separate firm of attorneys (together with
                    appropriate local counsel) at any time for such indemnified
                    party or parties, which firm shall be designated in writing
                    by such indemnified party or parties). The indemnifying
                    party shall not be liable for any settlement of any such
                    action or proceeding effected without its written consent,
                    but if settled with its written consent, or if there is a
                    final judgment for the plaintiff in any such action or
                    proceeding, the indemnifying party agrees to indemnify and
                    hold harmless such indemnified party from and against any
                    loss or liability (to the extent stated above) by reason of
                    such settlement or judgment.

               d.   Contribution. If the indemnification provided for in this
                    Section 8 is unavailable to Azurix or the selling Holders in
                    respect of any losses, claims, damages, liabilities or
                    judgments referred to therein, then each such indemnifying
                    party, in lieu of indemnifying such indemnified party, shall
                    contribute to the amount paid or payable by such indemnified
                    party as a result of such losses, claims, damages,
                    liabilities and judgments, in such proportion as is
                    appropriate to reflect the relative fault of each such party
                    in connection with such statements or omissions, as well as
                    any other relevant equitable considerations. The relative
                    fault of each such party shall be determined by reference
                    to, among other things, whether the untrue or alleged untrue
                    statement of a material fact or the omission or alleged
                    omission to state a material fact relates to information
                    supplied by such party, and the parties' relative intent,
                    knowledge, access to





<PAGE>   12

                    information and opportunity to correct or prevent such
                    statement or omission.

               Azurix and the selling Holders agree that it would not be just
          and equitable if contribution pursuant to this Section 8.d. were
          determined by pro rata allocation or by any other method of allocation
          which does not take account of the equitable considerations referred
          to in the immediately preceding paragraph. The amount paid or payable
          by an indemnified party as a result of the losses, claims, damages,
          liabilities or judgments referred to in the immediately preceding
          paragraph shall be deemed to include, subject to the limitations set
          forth above, any legal or other expenses reasonably incurred by such
          indemnified party in connection with investigation or defending any
          such action or claim. Notwithstanding the provisions of this Section
          8.d., no selling Holder shall be required to contribute any amount in
          excess of the amount by which the total price at which the Restricted
          Stock of such selling Holder were offered to the public exceeds the
          amount of any damages which such selling Holder has otherwise been
          required to pay by reason of such untrue or alleged untrue statement
          or omission or alleged omission. No person guilty of fraudulent
          misrepresentation (within the meaning of Section 11(f) of the
          Securities Act) shall be entitled to contribution from any person who
          was not guilty of such fraudulent misrepresentation.

          9.   Amendments. This Agreement may be amended or modified upon the
               written consent thereto of Azurix and the Holders of not less
               than 66-2/3% of Restricted Stock.

          10.  Assignments. This Agreement shall be binding on and inure to the
               benefit of the respective successors and assigns of the parties
               hereto.

          11.  Entire Agreement; Governing Law. This Agreement constitutes the
               entire agreement of the parties relating to the subject matter
               hereof; all prior or contemporaneous written or oral agreements
               are merged herein; this Agreement shall be governed by the laws
               of the State of Texas.

          12.  Notices. Any notice, request, instruction, correspondence or
               other document to be given hereunder by either party to the other
               (herein collectively called "Notice") shall be in writing and
               delivered personally or by telegram or telecopier, as follows:

         If to Azurix:

         Azurix Corp.
         333 Clay Street
         Suite 1000
         Houston, Texas 77002-7361

         Attention:  General Counsel
         Telecopier No.:  (713) 345-5330



<PAGE>   13

         If to the Holder:

         Atlantic Water Trust
         c/o Wilmington Trust Company
         Rodney Square North
         1100 Market Street
         Wilmington, Delaware  19890-0001

         Attention:  Corporate Trust Administration
         Telecopier No.:  (302) 651-8882

Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telegram or telecopier shall be effective upon actual
receipt if received during the recipient's normal business hours, or at the
beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. Any party may change any address
to which Notice is to be given to it by giving Notice as provided above of such
change of address.

     IN WITNESS WHEREOF, Azurix and the Holder have caused this Agreement to be
signed by their respective officers thereunto duly authorized.

                                    AZURIX CORP.



                                    By: /s/ EDWARD N. ROBINSON
                                       -----------------------
                                    Name: Edward N. Robinson
                                    Title: Executive Director



                                    ATLANTIC WATER TRUST



                                    By: /s/ JEFFREY MCMAHON
                                       -----------------------
                                    Name: Jeffrey McMahon
                                    Title: As Attorney-in-Fact