AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 2003
REGISTRATION NO. 333-85568
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE WILLIAMS COMPANIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 4922 73-0569878
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
ONE WILLIAMS CENTER JAMES J. BENDER, ESQ.
TULSA, OKLAHOMA 74172 ONE WILLIAMS CENTER
(918) 573-2000 TULSA, OKLAHOMA 74172
(Address, Including Zip Code, and (918) 573-2000
Telephone Number, Including Area (Name, Address, Including Zip Code, and
Code, of Registrant's Principal Telephone Number, Including Area Code,
Executive Offices) of Agent for Service)
COPIES TO:
KEVIN KEOGH, ESQ. MARLENE ALVA, ESQ.
WHITE & CASE LLP DAVIS POLK & WARDWELL
1155 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10017
(212) 819-8200 (212) 450-4000
(212) 354-8113 (FAX) (212) 450-3800 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable following the effectiveness of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED NOTE(1) PRICE(1) REGISTRATION FEE(2)
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8.125% Notes due March 15,
2012.......................... $650,000,000 100% $650,000,000 $59,800
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8.750% Notes due March 15,
2032.......................... $850,000,000 100% $850,000,000 $78,200
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Total........................... $1,500,000,000 $1,500,000,000 $138,000
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of 1933, as
amended.
(2) Fee previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT EXCHANGE THE OUTSTANDING SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THE NEW SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THE NEW SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 1, 2003
THE WILLIAMS COMPANIES, INC.
OFFER TO EXCHANGE
UP TO $650,000,000
OF
8.125% NOTES DUE MARCH 15, 2012,
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OUTSTANDING
8.125% NOTES DUE MARCH 15, 2012
AND
UP TO $850,000,000
OF
8.750% NOTES DUE MARCH 15, 2032,
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OUTSTANDING
8.750% NOTES DUE MARCH 15, 2032
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THE NEW SECURITIES ISSUED BY WILLIAMS:
- The terms of the new 8.125% notes and the new 8.750% notes are substantially
the same in all material respects as the terms of the outstanding 8.125% notes
and the outstanding 8.750% notes, respectively, except that the transfer
restrictions, registration rights and additional interest provisions relating
to the outstanding 8.125% notes and the outstanding 8.750% notes do not apply
to the new 8.125% notes and the new 8.750% notes. We will issue up to $650.0
million aggregate principal amount of new 8.125% notes and up to $850.0
million aggregate principal amount of new 8.750% notes.
THE EXCHANGE OFFER:
- Expiration: 5:00 p.m., New York City time, on June -- , 2003, unless we
extend the expiration date.
- Conditions: The exchange offer is not conditioned upon any aggregate
principal amount of outstanding 8.125% notes or outstanding 8.750% notes being
tendered.
- Tendered Securities: All outstanding 8.125% notes and outstanding 8.750%
notes that are validly tendered and not validly withdrawn will be exchanged
for an equal principal amount of new 8.125% notes or new 8.750% notes that are
registered under the Securities Act of 1933. If you fail to tender your
outstanding 8.125% notes and outstanding 8.750% notes, you will continue to
hold unregistered securities, and your ability to transfer them could be
adversely affected. The outstanding 8.125% notes and the outstanding 8.750%
notes currently bear interest at a rate equal to 8.625% and 9.250%,
respectively, pursuant to the terms of the Registration Rights Agreement,
which provides for such increase in the interest rate payable on the
outstanding notes until the completion of the exchange offer. Upon the
completion of the exchange offer, outstanding notes eligible for tender in the
exchange offer and not validly tendered for exchange and the new 8.125% notes
and the new 8.750% notes to be issued in the exchange offer will bear interest
at a rate equal to 8.125% and 8.750%, respectively.
- Withdrawal: Tenders of outstanding 8.125% notes and outstanding 8.750% notes
may be withdrawn at any time prior to the expiration of the exchange offer.
- Tax Consequences: The exchange of outstanding 8.125% notes or outstanding
8.750% notes for new 8.125% notes or new 8.750% notes, respectively, will not
be a taxable event for U.S. federal income tax purposes.
- Trading: Neither the new 8.125% notes nor the new 8.750% notes will be listed
on any securities exchange.
SEE THE SECTION ENTITLED "RISK FACTORS" THAT BEGINS ON PAGE 14 FOR A DISCUSSION
OF THE RISKS THAT YOU SHOULD CONSIDER PRIOR TO TENDERING YOUR OUTSTANDING 8.125%
NOTES OR 8.750% NOTES FOR EXCHANGE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is May -- , 2003
The information contained in this prospectus was obtained from us and other
sources believed by us to be reliable. This prospectus also incorporates
important business and financial information about us that is not included in or
delivered with this prospectus. The documents containing this information are
listed under the section entitled "Where You Can Find More Information." We will
provide a copy of any and all of these documents to you by first-class mail,
without charge, upon written or oral request. ANY REQUEST FOR DOCUMENTS SHOULD
BE MADE BY MAY -- , 2003 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE
EXPIRATION DATE OF THE EXCHANGE OFFER. Requests for documents should be directed
to:
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Corporate Secretary
Telephone: (918) 573-2000
You should rely only on the information contained in this prospectus or any
supplement and any information incorporated by reference in this prospectus or
any supplement. We have not authorized anyone to provide you with any
information that is different. If you receive any unauthorized information, you
must not rely on it. You should disregard anything we said in an earlier
document that is inconsistent with what is in or incorporated by reference in
this prospectus.
You should not assume that the information in this prospectus or any
supplement is current as of any date other than the date on the front page of
this prospectus. This prospectus is not an offer to sell nor is it seeking an
offer to buy these securities in any state or jurisdiction where the offer or
sale is not permitted.
None of Williams, the trustee under the indenture or the exchange agent is
making any recommendation to you as to whether or not you should tender your
outstanding 8.125% notes or your outstanding 8.750% notes in connection with
this exchange offer, and no one has been authorized by any of them to make any
such recommendation. You must make your own decision as to whether to tender
your outstanding 8.125% notes or your outstanding 8.750% notes and, if so, the
principal amount of securities to tender.
You should read this document and the letter of transmittal carefully
before making a decision to tender your outstanding 8.125% notes or your
outstanding 8.750% notes.
We include cross references in the prospectus to captions in these
materials where you can find further related discussions. The following table of
contents tells you where to find these captions.
TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 14
Use of Proceeds............................................. 24
The Exchange Offer.......................................... 25
Description of the New Securities........................... 34
Material United States Federal Income Tax Considerations.... 42
Plan of Distribution........................................ 45
Forward-Looking Statements.................................. 46
Legal Matters............................................... 47
Experts..................................................... 47
Where You Can Find More Information......................... 47
Incorporation of Documents by Reference..................... 47
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus to help
you understand our business, the new 8.125% notes and the new 8.750% notes. It
likely does not contain all the information that is important to you or that you
should consider in making an investment decision. To understand all of the terms
of the exchange offer and to attain a more complete understanding of our
business and financial situation, you should read carefully this entire
prospectus and should consider consulting with your own legal and tax advisors.
References in this prospectus to "Williams," "we," "us" or "our" refer to The
Williams Companies, Inc.
GENERAL
We are an energy company originally incorporated under the laws of the
state of Nevada in 1949 and reincorporated under the laws of the state of
Delaware in 1987. We were founded in 1908 when two Williams brothers began a
construction company in Fort Smith, Arkansas. Today, we primarily find, produce,
gather, process and transport natural gas. Our operations serve the Northwest,
California, Rocky Mountains, Gulf Coast and Eastern Seaboard markets.
In 2002, we faced many challenges including credit issues following the
deterioration of our energy industry sector in the wake of the Enron bankruptcy
and the assumption of payment obligations and performance on guarantees
associated with our former telecommunications subsidiary, Williams
Communications Group, Inc. (WCG). With the deterioration of the energy industry,
the credit rating agencies' requirements for investment grade companies became
more stringent. In response to those requirements, we announced plans on
December 19, 2001, to strengthen our balance sheet in an effort to maintain our
investment grade ratings. Those plans, including revisions throughout the year
due to changing market conditions, included reducing capital expenditures,
eliminating certain credit ratings triggers from our loan agreements, cost
reductions including a reduction of quarterly dividends paid on our common
stock, and asset sales to generate proceeds to be used to reduce outstanding
debt. Despite our balance sheet strengthening efforts, we lost our investment
grade ratings in July 2002. With the loss of our investment grade ratings our
business changed significantly, especially our Energy Marketing & Trading
business. Some counterparties were unwilling to extend credit and required cash,
letters of credit, or other collateral. By mid-year we faced a liquidity crisis.
Concurrently, our credit facility banks were unwilling to extend our $2.2
billion 364 day unsecured credit facility. We quickly worked with our banks and
other parties to obtain secured credit facilities. In 2002, we also sold a
significant amount of assets to meet our liquidity gap. Following this liquidity
crisis, we continued to pursue cost reducing measures including a downsizing of
our work force. We also settled substantially all issues between us and WCG
through WCG's chapter 11 reorganization.
To meet future debt obligations and liquidity needs and focus on creating
future shareholder value, on February 20, 2003, we reiterated our strategy to
become a smaller integrated natural gas company focusing on key growth markets
within our Gas Pipeline, Exploration & Production, and Midstream Gas & Liquids
segments. In conjunction with the strategy announcement and to help meet future
debt obligations and future liquidity needs, we also announced plans to sell
more assets including Texas Gas Transmission Corporation, our general and
limited partner interest in Williams Energy Partners L.P., and certain assets
within our Midstream Gas & Liquids and Exploration & Production business
segments, and explained that we are attempting to further limit our exposure to
losses in the Energy Marketing & Trading segment. We also expect further work
force reductions in 2003.
We will need to complete further cost reductions and asset sales and the
realization of our strategy in order to meet our liquidity needs and to satisfy
our loan covenants regarding minimum levels of liquidity. See the Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Condition and Liquidity section of our annual report on Form 10-K for
the fiscal year ending December 31, 2002 filed on March 19, 2003 incorporated
herein by reference for further details regarding the liquidity issues we are
facing. See also the Risk Factors on page 14 of this prospectus for a discussion
1
of factors that could adversely affect our business, operating results, and
financial condition as well as adversely affect the value of an investment in
our securities.
Our ongoing business segments include Gas Pipeline, Exploration &
Production, Midstream Gas & Liquids, and Energy Marketing & Trading. At year-end
2002, our business segments also included Williams Energy Partners L.P. and
Petroleum Services. Subject to completion of asset sales, those business
segments will likely be eliminated in the future. See Part I -- Item 1.
Business -- Business Segments of our annual report on Form 10-K for the fiscal
year ending December 31, 2002 for a more detailed description of assets owned
and services provided by each our business segments.
RECENT DEVELOPMENTS
ASSET SALES AND COST REDUCTIONS
Since December 2001, we have continued to work on strengthening our balance
sheet through a number of efforts including asset sales and cost reductions. We
have completed the sale of, or announced our intention to sell, the following:
Gas Pipeline
- March 27, 2002 -- We sold our Kern River interstate natural gas pipeline
business to a unit of Mid-American Energy Holdings Company for $450
million in cash and the assumption of $510 million in debt. In
conjunction with the sale, MEHC Investment, Inc., a wholly-owned
subsidiary of Mid-American Energy Holdings Company, and a member of the
Berkshire Hathaway family of companies, agreed to acquire 1,466,667
shares of our 9 7/8 percent cumulative convertible preferred stock at
$187.50 per share for a total of $275 million. Each share of convertible
preferred stock is convertible into ten shares of our common stock.
- August 16, 2002 -- We completed the sale of our general partner interest
in Northern Border Partners, L.P. for $12 million to a unit of
Calgary-based TransCanada.
- September 5, 2002 -- We sold our Cove Point liquefied natural gas
facility and 87 mile pipeline for $217 million in cash before certain
adjustments to a subsidiary of Dominion Resources.
- October 29, 2002 -- We sold our ownership interest in the Canadian and
United States segments of the Alliance pipeline to Enbridge Inc. and Fort
Chicago Energy Partners L.P. for approximately $173 million cash.
- November 15, 2002 -- We sold our Central interstate natural gas pipeline
to Southern Star Central Corp for $380 million in cash and the assumption
of $175 million in debt.
- April 14, 2003 -- We announced the sale of Texas Gas Transmission
Corporation to Loews Pipeline Holding Corp., a unit of Loews Corporation,
for $1.045 billion, which includes $795 million in cash to be paid to us
and $250 million in debt that will remain at Texas Gas.
Exploration & Production
- March 29, 2002 -- We completed a $73 million sale of selected exploration
and production properties in the Wind River basin.
- July 31, 2002 -- We sold our Jonah Field natural gas production
properties in Wyoming for $350 million to EnCana Oil & Gas (USA) Inc. In
addition, we completed the sale of the vast majority of our natural gas
production properties in the Anadarko Basin to Chesapeake Exploration
Limited Partnership for approximately $37.5 million. These sales of
exploration and production properties generated $326 million in net cash
proceeds.
- April 9, 2003 -- We announced the sale of certain natural gas exploration
and production properties in Kansas, Colorado and New Mexico for $400
million to XTO Energy Inc. of Fort Worth Texas.
2
The sale is expected to close in June 2003 and will result in an
estimated pre-tax gain to us of between $80 million and $100 million.
Midstream Gas & Liquids
- July 22, 2002 -- We announced our intention to sell our natural gas
processing and liquids extraction operations in western Canada.
- July 29, 2002 -- We sold our Kansas Hugoton natural gas gathering system
to FrontStreet Hugoton LLC, an affiliate of FrontStreet Partners, LLC and
GE Structured Finance Group for $77 million in cash.
- August 1, 2002 -- We announced a series of transactions including the
sale for approximately $1.2 billion of 98 percent of Mapletree LLC and 98
percent of E-Oaktree, LLC to Enterprise Products Partners, L.P. Mapletree
owns the Mid-America Pipeline, a 7,226-mile natural gas liquids pipeline
system. E-Oaktree owns 80 percent of the Seminole Pipeline, a 1,281-mile
natural gas liquids pipeline system. The sale generated $1.15 billion in
net cash proceeds.
- August 20, 2002 -- We announced our intention to sell our ownership
interest in an olefins plant in Geismar, Louisiana and an associated
ethylene pipeline system in Louisiana.
- February 20, 2003 -- We announced our intention to sell selected assets
within the Midstream Gas & Liquids segment.
Energy Marketing & Trading
- February 4, 2003 -- We announced the sale of our 170-megawatt power
facility in Worthington, Indiana, to Hoosier Energy and terminated our
power load serving full-requirements contract with Hoosier Energy for cash
totaling $67 million.
- March 20, 2003 -- We announced the sale of a full-requirements power
agreement with Jackson Electric Membership Corporation to Progress Energy
for cash totaling $188 million. The sale is expected to close on May 30,
2003.
Petroleum Services
- April 11, 2002 -- We transferred the Williams Pipe Line System to
Williams Energy Partners in exchange for $674 million cash and 7,830,924
Class B units of limited partnership interests in Williams Energy
Partners.
- June 18, 2002 -- We announced plans to sell our Memphis and Alaska
refineries and related petroleum assets. On March 4, 2003, we sold our
Memphis, Tennessee refinery and other related operations to Premcor Inc.
for approximately $455 million in cash.
- February 20, 2003 -- We announced a definitive agreement to sell our
equity interest in Williams Bio-Energy L.L.C. for approximately $75
million to a new company formed by Morgan Stanley Capital Partners.
Williams Bio-Energy owns and operates an ethanol production plant in
Pekin, Illinois, holds 78.4 percent interest in another ethanol plant in
Aurora, Nebraska, and has various agreements to market ethanol from
third-party plants.
- February 27, 2003 -- We sold our retail travel center operations for
approximately $190 million in cash before debt repayments to Pilot Travel
Centers LLC.
Williams Energy Partners
- April 21, 2003 -- We announced the sale of our 54.6 percent ownership
interest in Williams Energy Partners L.P. in a $1.1 billion transaction.
The buyer, a newly formed entity owned equally by Madison Dearborn
Partners, LLC and Carlyle/Riverstone Global Energy and Power Fund II,
L.P., has agreed to pay approximately $512 million in cash to us. The sale
also will have the effect of
3
removing $570 million of the partnership's debt from our consolidated
balance sheet. The sale is scheduled to close in May 2003, subject to
standard closing conditions. We expect to recognize a pre-tax gain of at
least $285 million to $300 million, which will be reported in discontinued
operations.
Other
- March 22, 2002 -- We announced our intention to sell our interest in a
soda ash and sodium bicarbonate mining operation.
- September 19, 2002 -- We sold our 26.85 percent equity interest in AB
Mazeikiu Nafta, the Lithuania oil refining and transportation complex, to
YUKOS Oil Company for $85 million.
- In an effort to further reduce costs, we have reduced the total number of
employees from approximately 12,400 at the end of 2001 to approximately
6,500 in April, 2003. The reduction in work force was carried out in part
through an enhanced-benefit early retirement program that concluded during
the second quarter of 2002 and reductions associated with asset sales.
- Going forward, we intend to focus on our natural gas businesses including
natural gas transportation through our interstate natural gas pipelines,
natural gas exploration and production, and natural gas gathering and
processing in key growth markets.
IMPROVING OUR FINANCIAL POSITION
In addition to asset sales, we have taken other steps to improve our
financial position. On January 14, 2002, we completed the sale of $1.1 billion
of publicly traded units, known as FELINE PACS initially consisting of Income
PACS, which include a senior debt security and an equity purchase contract.
These units trade on the New York Stock Exchange under the ticker symbol WMB
PrI. The net proceeds of the offering were used to fund our capital program,
repay commercial paper and other short-term debt and for general corporate
purposes.
On March 19, 2002, we closed a two-part debt transaction totaling $1.5
billion that included $850 million of 30-year notes with an interest rate of
8.75 percent and $650 million of 10-year notes with an interest rate of 8.125
percent. Proceeds were used to repay outstanding short-term debt, provide
working capital and for general corporate purposes. These are the notes to which
the exchange offer made by this prospectus relates.
On August 1, 2002, we announced a series of transactions that resolved
then-current liquidity issues and strengthened our finances. We entered into
agreements for $1.1 billion of credit through an amended $700 million secured
revolving credit facility and a new $400 million secured letter of credit
facility. We also entered into a $900 million senior secured credit agreement
with a group of investors led by Lehman Brothers Inc. and a Berkshire Hathaway
affiliate. The execution of these new credit facilities in conjunction with the
asset sales announced on August 1, 2002, addressed our mid-year liquidity
crisis. See Note 11 to our Notes to Consolidated Financial Statements in our
annual report on Form 10-K for the fiscal year ending December 31, 2002 for more
information on the credit facilities.
On March 4, 2003, Northwest Pipeline Corporation completed a $175 million
debt offering of senior notes due 2010. Northwest Pipeline Corporation intends
to use the proceeds for general corporate purposes, including the funding of
capital expenditures.
ADDRESSING ENERGY MARKETING AND TRADING ISSUES
We have also spent considerable effort addressing concerns of the Federal
Energy Regulatory Commission (FERC), the Commodity Futures Trading Commission
(CFTC), the Securities and Exchange Commission (SEC), the Department of Justice
(DOJ), and state regulatory bodies and attorneys general regarding energy
trading practices. On July 26, 2002, we announced an agreement in principle with
the state of California and other parties, including the states of Washington
and Oregon, on
4
a settlement regarding certain outstanding litigation and claims against us,
including the state's claims for refunds at issue before the FERC. On November
11, 2002, we announced that we had agreed to restructure our long-term energy
contracts with the state of California as part of the settlement. All necessary
approvals were obtained, and the settlement was closed on December 31, 2002,
although court approvals are still pending with respect to certain private
plaintiffs. The settlement resolved most of the outstanding litigation and civil
claims filed against us related to our participation in the natural gas and
power markets in the western United States during 2000 and 2001. The FERC ruled
on March 26, 2003 that refunds are due to the State of California utilities, but
that such refunds will be offset by amounts that remain due to sellers. The
March 26, 2003 order also established the formula for deriving the refund, which
amended the formula from the FERC's previous pronouncements to account for a
change in the gas price determination. While the effect of the changes remains
uncertain, due to the settlement, it only relates to the refunds to the
utilities.
Due to continuing market declines and the overall energy marketing and
trading environment in the post-Enron world, we announced on June 10, 2002, that
we were reducing our financial commitment to that part of our business as a
realistic response to industry upheavals. Consistent with the effort in 2002,
Energy Marketing & Trading reduced its number of employees from approximately
1,000 at December 31, 2001 to approximately 410 at December 31, 2002. As of
February 25, 2003, the number of Energy Marketing & Trading employees was
approximately 330.
RESOLUTION OF WILLIAMS COMMUNICATIONS GROUP ISSUES
In 2002, we settled substantially all claims and disputes between us and
our former telecommunications subsidiary, WCG as part of WCG's chapter 11
reorganization. Prior to the commencement of WCG's chapter 11 on April 22, 2002,
we held various claims against WCG and its subsidiaries in an aggregate amount
of approximately $2.3 billion as a consequence of certain guarantees, services
provided, and other financial accommodations, including the following:
- Prior to the 2001 spinoff of WCG, we had provided various administrative
services to WCG for which we were owed approximately $106 million.
- Prior to the 2001 spinoff of WCG, we also provided indirect credit
support for $1.4 billion of WCG's structured notes through a commitment to
make available proceeds of an equity issuance in the event any one of the
following were to occur: (1) a WCG default; (2) downgrading of our senior
unsecured debt by any of our credit rating agencies to below investment
grade if our common stock closing price remained below $30.22 for ten
consecutive trading days while such downgrade is in effect; or (3)
proceeds from WCG's refinancing or remarketing of the structured notes
prior to March 2004 produced proceeds of less than $1.4 billion. On March
5, 2002, we received the requisite approvals on our consent solicitation
to amend the terms of the WCG structured notes. The amendment, among other
things, eliminated acceleration of the notes due to a WCG bankruptcy or
our credit rating downgrade. The amendment also affirmed our obligations
for all payments related to the WCG structured notes, which are due March
2004, and allows us to fund such payments from any available sources. In
July 2002, we concluded an exchange offer pursuant to which we exchanged
substantially all of the WCG structured notes for a series of our notes
due March 2004. With the exception of the March and September 2002
interest payments, totaling $115 million, WCG remained indirectly
obligated to reimburse us for any payments we are required to make in
connection with the WCG structured notes.
- In September 2001, we provided additional financing to WCG through a
sale/leaseback transaction pursuant to which WCG sold to us the Williams
Technology Center (Technology Center), related real estate and certain
ancillary assets including corporate aircraft for $276 million in cash and
WCG leased the foregoing property back from us for periods ranging from
three to ten years. The Technology Center is a 15-story office building
located in Tulsa, Oklahoma that WCG utilizes as its headquarters.
5
- On March 8, 2002, we received a lease obligation notice letter from WCG
relating to the asset defeasance program (ADP) that was entered into
while WCG was still one of our subsidiaries. Under the ADP, we were
obligated to pay $754 million related to WCG's purchase of certain
telecommunications facilities that WCG had been leasing. We paid the $754
million on March 29, 2002, and in return received an unsecured claim
against WCG for the amount paid.
- On April 22, 2002, WCG filed for chapter 11 bankruptcy protection.
Through a negotiated settlement, we sold our claims against WCG including
the $754 million claim associated with the ADP, the $1.4 billion claim
associated with the WCG structured notes and a $106 million administrative
services claim to Leucadia National Corporation (Leucadia) for $180
million in cash and received releases from WCG and its affiliates and
insiders. In addition, the order confirming WCG's chapter 11 plan
permanently enjoins all of WCG's creditors from asserting direct or
derivative claims against us. As part of the settlement, we also sold the
Technology Center to WCG in exchange for two promissory notes with face
amounts totaling $174.4 million secured by a mortgage on the Technology
Center. We no longer own any interest in WCG or its post-bankruptcy
successor, WilTel Communications Group, Inc. (WilTel) and all prior WCG
obligations to us have been extinguished as a result of the chapter 11
bankruptcy. We remain committed on certain pre-spinoff parental guarantees
with a carrying value at December 31, 2002 of $48 million. Further, the
September 2001 sale leaseback transaction involving the Technology Center
was terminated as part of the bankruptcy process. The sale leaseback
transaction involving WilTel's two corporate aircraft continues in effect
until WilTel refinances that transaction. At that time, the proceeds of
the refinancing are to be paid to us in partial satisfaction of one of the
notes mentioned above. The settlement was closed into escrow on October
15, 2002, and finalized on December 2, 2002, and we received $180 million.
See Note 2 of the Notes to Consolidated Financial Statements in our annual
report on Form 10-K for the year ended December 31, 2002 for more
information on our settlement with WCG.
6
SUMMARY OF THE EXCHANGE OFFER
You are entitled to exchange in the exchange offer your outstanding 8.125%
notes for new 8.125% notes with substantially identical terms, and your
outstanding 8.750% notes for new 8.750% notes with substantially identical
terms. You should read the discussion under the heading "Description of the New
Securities" beginning on page 33 for further information regarding the new
8.125% notes and the new 8.750% notes.
We summarize the terms of the exchange offer below. You should read the
discussion under the heading "The Exchange Offer" beginning on page 24 for
further information regarding the exchange offer and resale of the new 8.125%
notes and the new 8.750% notes.
Securities to be Exchanged.... On March 19, 2002, we issued $650.0 million
aggregate principal amount of outstanding
8.125% Notes due March 15, 2012 and $850.0
million aggregate principal amount of
outstanding 8.750% Notes due March 15, 2032 to
initial purchasers in transactions exempt from
the registration requirements of the Securities
Act of 1933.
The outstanding 8.125% notes and the
outstanding 8.750% notes currently bear
interest at a rate equal to 8.625% and 9.250%,
respectively, pursuant to the terms of the
Registration Rights Agreement, which provides
for such increase in the interest rate payable
on the outstanding notes until the completion
of the exchange offer. Upon the completion of
the exchange offer, outstanding notes eligible
for tender in the exchange offer and not
validly tendered for exchange and the new
8.125% notes and the new 8.750% notes to be
issued in the exchange offer will bear interest
at a rate equal to 8.125% and 8.750%,
respectively.
The terms of the new 8.125% notes and the new
8.750% notes are substantially the same in all
material respects as the terms of the
outstanding 8.125% notes and the outstanding
8.750% notes, except that (1) the new 8.125%
notes and the new 8.750% notes will be freely
transferable by the holders except as otherwise
provided in this prospectus; (2) holders of the
new 8.125% notes and the new 8.750% notes will
have no registration rights; and (3) neither
the new 8.125% notes nor the new 8.750% notes
will contain provisions for an increase in
their stated interest rate.
The Exchange Offer............ We are offering to exchange up to $650.0
million aggregate principal amount of new
8.125% notes for up to $650.0 million aggregate
principal amount of outstanding 8.125% notes.
We are offering to exchange up to $850.0
million aggregate principal amount of new
8.750% notes for up to $850.0 million aggregate
principal amount of outstanding 8.750% notes.
Outstanding 8.125% notes and outstanding 8.750%
notes may be exchanged only in integral
multiples of $1,000. The new 8.125% notes and
the new 8.750% notes will evidence the same
debt as the outstanding 8.125% notes and the
outstanding 8.750% notes, respectively, and the
new 8.125% notes and the new 8.750% notes will
be governed by the same indenture as the
outstanding 8.125% notes and the outstanding
8.750% notes, respectively.
Resale........................ We believe that the new 8.125% notes and the
new 8.750% notes issued in the exchange offer
may be offered for resale, resold and
7
otherwise transferred by you without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided
that:
- the new 8.125% notes and the new 8.750% notes
are being acquired in the ordinary course of
your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the new 8.125% notes
and the new 8.750% notes issued to you in the
exchange offer; and
- you are not an "affiliate" of ours.
If any of these conditions is not satisfied and
you transfer any new 8.125% notes or new 8.750%
notes issued to you in the exchange offer
without delivering a prospectus meeting the
requirements of the Securities Act or without
an exemption from registration for your new
8.125% notes and new 8.750% notes, you may
incur liability under the Securities Act. We do
not assume or indemnify you against any of
those liabilities.
Each broker-dealer that is issued new 8.125%
notes or new 8.750% notes in the exchange offer
for its own account in exchange for outstanding
8.125% notes or outstanding 8.750% notes which
were acquired by that broker-dealer as a result
of market-making or other trading activities
must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
the new 8.125% notes or the new 8.750% notes. A
broker-dealer may use this prospectus for an
offer to resell, resale or other transfer of
the new 8.125% notes or the new 8.750% notes
issued to it in the exchange offer.
Record Date................... The record date for the exchange offer is May
-- , 2003. Only registered holders of
outstanding 8.125% notes and outstanding 8.750%
notes on the record date will receive materials
relating to the exchange offer.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on June -- , 2003, or such
later date and time to which we extend it.
Withdrawal of Tenders......... You may withdraw your tender of outstanding
8.125% notes or outstanding 8.750% notes at any
time prior to 5:00 p.m., New York City time, on
the expiration date. To withdraw, the exchange
agent must receive a notice of withdrawal at
its address indicated under "The Exchange
Offer -- Exchange Agent" before 5:00 p.m., New
York City time, on the expiration date. We will
return to you, without charge, promptly after
the expiration or termination of the exchange
offer any outstanding 8.125% notes or
outstanding 8.750% notes that you tendered but
that were not accepted for exchange.
Conditions to the Exchange
Offer......................... We will not be required to accept outstanding
8.125% notes or outstanding 8.750% notes for
exchange if various conditions are not
satisfied or waived by us. The exchange offer
is not
8
conditioned upon any minimum aggregate
principal amount of outstanding 8.125% notes or
outstanding 8.750% notes being tendered. Please
read the section "The Exchange
Offer -- Conditions to the Exchange Offer" on
page 32 for more information regarding the
conditions to the exchange offer.
Procedures for Tendering
Outstanding Securities........ If your outstanding 8.125% notes or outstanding
8.750% notes are held through The Depository
Trust Company and you wish to participate in
the exchange offer, you may do so through the
automated tender offer program of DTC. By
participating in the exchange offer, you will
agree to be bound by the letter of transmittal
that we are providing with this prospectus as
though you had signed the letter of
transmittal. By signing or agreeing to be bound
by the letter of transmittal, you will
represent to us that, among other things:
- any new 8.125% notes or new 8.750% notes that
you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with
any person or entity to participate in the
distribution of the new 8.125% notes or the
new 8.750% notes;
- if you are not a broker-dealer, you are not
engaged in and do not intend to engage in the
distribution of the new 8.125% notes or the
new 8.750% notes;
- if you are a broker-dealer that will receive
new 8.125% notes or new 8.750% notes for your
own account in exchange for outstanding
8.125% notes or outstanding 8.750% notes that
were acquired as a result of market-making
activities, you will deliver a prospectus, as
required by law, in connection with any
resale of the new 8.125% notes or new 8.750%
notes; and
- you are not our "affiliate," as defined in
Rule 405 of the Securities Act, or, if you
are our affiliate, you will comply with any
applicable registration and prospectus
delivery requirements of the Securities Act.
We will accept for exchange any and all
outstanding 8.125% notes or outstanding 8.750%
notes which are properly tendered (and not
withdrawn) in the exchange offer prior to the
expiration date. The new 8.125% notes and the
new 8.750% notes issued pursuant to the
exchange offer will be delivered promptly
following the expiration date. See "The
Exchange Offer -- Acceptance of Outstanding
Securities for Exchange."
Effect of Not Tendering....... Outstanding 8.125% notes and outstanding 8.750%
notes that are not tendered or that are
tendered but not accepted will, following the
completion of the exchange offer, remain
outstanding and will continue to be subject to
the currently applicable transfer restrictions.
Following the completion of the exchange offer,
we will have no obligation to exchange new
8.125% notes and new 8.750% notes for
outstanding 8.125% notes and outstanding 8.750%
notes or to provide for the registration of
those outstanding securities under the
Securities Act.
9
Upon the completion of the exchange offer,
outstanding notes eligible for tender in the
exchange offer and not validly tendered for
exchange will bear interest at a rate equal to
8.125% and 8.750%, respectively.
The trading market for outstanding 8.125% notes
and outstanding 8.750% notes not exchanged in
the exchange offer may be significantly more
limited than it is at present. Therefore, if
your outstanding 8.125% notes or outstanding
8.750% notes are not tendered and accepted in
the exchange offer, it may become more
difficult for you to sell or transfer your
unexchanged securities.
Special Procedures for
Beneficial Owners............. If you are the beneficial owner of book-entry
interests and your name does not appear on a
security position listing of DTC as the holder
of those book-entry interests or you own a
beneficial interest in outstanding 8.125% notes
or outstanding 8.750% notes that are registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee, and you
wish to tender that book-entry interest of
outstanding 8.125% notes or outstanding 8.750%
notes in the exchange offer, you should contact
the registered holder promptly and instruct the
registered holder to tender on your behalf.
Guaranteed Delivery
Procedures.................... If you wish to tender your outstanding 8.125%
notes or outstanding 8.750% notes and cannot
comply, prior to the expiration date, with the
applicable procedures under the automated
tender offer program of DTC, you must tender
your outstanding 8.125% notes or outstanding
8.750% notes according to the guaranteed
delivery procedures described in "The Exchange
Offer -- Procedures for Tendering Outstanding
Securities -- Guaranteed Delivery" beginning on
page 29.
Registration Rights
Agreement..................... We sold the outstanding 8.125% notes and the
outstanding 8.750% notes on March 19, 2002 in
transactions exempt from the registration
requirements of the Securities Act. In
connection with these sales, we entered into a
registration rights agreement with the initial
purchasers which grants the holders of the
outstanding 8.125% notes and the outstanding
8.750% notes exchange registration rights. This
exchange offer satisfies those rights, which
terminate upon consummation of this exchange
offer. You will not be entitled to any exchange
or registration rights with respect to the new
8.125% notes or the new 8.750% notes.
U.S. Federal Income Tax
Considerations................ The exchange of outstanding 8.125% notes for
new 8.125% notes or of outstanding 8.750% notes
for new 8.750% notes in the exchange offer will
not be a taxable event for U.S. federal income
tax purposes. See "Material United States
Federal Income Tax Considerations."
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of the new 8.125% notes or the new
8.750% notes.
10
Exchange Agent................ We have appointed JPMorgan Chase Bank as the
exchange agent for the exchange offer. The
mailing address and telephone number of the
exchange agent are Corporate Trust Services,
2001 Bryan Street, 9th floor, Dallas, Texas
75201, Attention: Frank Ivins, phone: (214)
468-6464. See "The Exchange Offer -- Exchange
Agent."
SUMMARY OF THE TERMS OF THE NEW SECURITIES
NEW 8.125% NOTES:
New 8.125% Notes Offered...... Up to $650.0 million principal amount of our
8.125% notes due March 15, 2012.
Interest Rate................. 8.125% per year.
Interest Payment Dates........ March 15 and September 15 of each year,
beginning September 15, 2003. Holders of new
8.125% notes will receive interest from March
15, 2003.
Use of Proceeds............... We will not receive any cash proceeds from the
exchange offer.
Ranking....................... The new 8.125% notes will be senior unsecured
obligations of Williams that will rank equally
with all of our other outstanding senior
unsecured and unsubordinated indebtedness.
Optional Redemption........... We may redeem some or all of the new 8.125%
notes at any time at the redemption price
described in this prospectus, plus accrued and
unpaid interest, if any, to the redemption
date, as described in "Description of the New
Securities -- Terms and Conditions."
Optional Exchange............. Holders of outstanding 8.125% notes may opt not
to tender their outstanding 8.125% notes in the
exchange offer. Therefore, it is possible that
not all new 8.125% notes offered by this
prospectus will be issued.
Covenants..................... We will issue the new 8.125% notes under an
indenture between us and JPMorgan Chase Bank
(successor trustee to Bank One Trust Company,
N.A.), as trustee. The indenture contains
covenants that, among other things, limit our
ability to:
- create liens; and
- consolidate, merge or sell material assets.
These covenants, which are identical to the
covenants applicable to the outstanding 8.125%
notes, are subject to a number of important
limitations and exceptions. See "Description of
the New Securities -- Covenants" for a more
comprehensive description of the covenants
contained in the indenture.
NEW 8.750% NOTES:
New 8.750% Notes Offered...... Up to $850.0 million principal amount of our
8.750% notes due March 15, 2032.
Interest Rate................. 8.750% per year.
11
Interest Payment Dates........ March 15 and September 15 of each year,
beginning September 15, 2003. Holders of new
8.750% notes will receive interest from March
15, 2003.
Use of Proceeds............... We will not receive any cash proceeds from the
exchange offer.
Ranking....................... The new 8.750% notes will be senior unsecured
obligations of Williams that will rank equally
with all of our other outstanding senior
unsecured and unsubordinated indebtedness.
Optional Redemption........... We may redeem some or all of the new 8.750%
notes at any time at the redemption price
described in this prospectus, plus accrued and
unpaid interest, if any, to the redemption
date, as described in "Description of the New
Securities -- Terms and Conditions."
Optional Exchange............. Holders of outstanding 8.750% notes may opt not
to tender their outstanding 8.750% notes in the
exchange offer. Therefore, it is possible that
not all new 8.750% notes offered by this
prospectus will be issued.
Covenants..................... We will issue the new 8.750% notes under an
indenture between us and JPMorgan Chase Bank
(successor trustee to Bank One Trust Company,
N.A.), as trustee. The indenture contains
covenants that, among other things, limit our
ability to:
- create liens; and
- consolidate, merge or sell material assets.
These covenants, which are identical to the
covenants applicable to the outstanding 8.750%
notes, are subject to a number of important
limitations and exceptions. See "Description of
the New Securities -- Covenants" for a more
comprehensive description of the covenants
contained in the indenture.
RISK FACTORS
See "Risk Factors" beginning on page 14 for a discussion of factors that
should be considered by holders of outstanding 8.125% notes and outstanding
8.750% notes before tendering their securities in the exchange offer.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND
REQUIREMENTS
The following table presents our consolidated ratio of earnings to combined
fixed charges and preferred stock dividend requirements for the periods shown.
YEAR ENDED DECEMBER 31,
------------------------------------
2002 2001* 2000* 1999* 1998*
---- ----- ----- ----- -----
(a) 2.76 2.88 1.64 1.41
---------------
* Certain amounts within the calculation of the ratio of earnings to fixed
charges and preferred dividend requirements have been restated or
reclassified due to certain activities of Williams which are now reported as
discontinued operations as described in Note 1 of Notes to Consolidated
Financial Statements included in Item 8 of Williams' Annual Report on Form
10-K incorporated herein by reference.
(a) Earnings were inadequate to cover combined fixed charges and preferred stock
dividend requirements by $656.3 million for the year ended December 31,
2002.
12
For purposes of computing these ratios, earnings means income (loss) from
continuing operations before:
- income taxes;
- extraordinary gain (loss);
- minority interest in income (loss) and preferred returns of consolidated
subsidiaries;
- interest expense, net of interest capitalized;
- interest expense of 50-percent-owned companies;
- that portion of rental expense that we believe to represent an interest
factor;
- pretax effect of dividends on preferred stock of Williams;
- adjustment to equity earnings to exclude equity investments with losses;
and
- adjustment to equity earnings to reflect actual distributions from equity
investments.
Fixed charges means the sum of the following:
- interest expense;
- that portion of rental expense that we believe to represent an interest
factor;
- pretax effect of dividends on preferred stock of Williams;
- pretax effect of dividends on preferred stock and other preferred returns
of consolidated subsidiaries; and
- interest expense of 50-percent-owned companies.
13
RISK FACTORS
In addition to the other information contained in or incorporated by
reference into this prospectus, you should carefully consider the following risk
factors in deciding whether to exchange your outstanding 8.125% notes or
outstanding 8.750% notes in the exchange offer.
RISKS AFFECTING OUR STRATEGY AND FINANCING NEEDS
OUR STRATEGY TO STRENGTHEN OUR BALANCE SHEET AND IMPROVE LIQUIDITY DEPENDS ON
OUR ABILITY TO DIVEST SUCCESSFULLY CERTAIN ASSETS.
On February 20, 2003, we announced our intention to sell an additional
$2.25 billion in assets, properties and investments. At December 31, 2002, we
had debt obligations of $3.8 billion (including certain contractual fees and
deferred interest related to underlying debt) that will mature between now and
March 2004. Because our cash flow from operations will be insufficient alone to
repay all such debt and our access to capital markets is limited, in part as a
result of the loss of our investment grade ratings, we will depend on our sales
of assets to generate sufficient net cash proceeds to enable the payment of our
maturing obligations.
Our secured credit facilities limit our ability to sell certain assets and
require generally that one-half of all net proceeds from asset sales be applied
(a) to repayment of certain long-term debt, (b) to cash collateralization of
designated letters of credit, and (c) to reduction of the lender commitments
under the secured facilities. The timing of and the net cash proceeds realized
from such sales are dependent on locating and successfully negotiating sales
with prospective buyers, regulatory approvals, industry conditions, and lender
consents. If the realized cash proceeds are insufficient or are materially
delayed, we might not have sufficient funds on hand to pay maturing indebtedness
or to implement our strategy.
RECENT DEVELOPMENTS AFFECTING THE WHOLESALE POWER AND ENERGY TRADING INDUSTRY
SECTOR HAVE REDUCED MARKET ACTIVITY AND LIQUIDITY AND MIGHT CONTINUE TO
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
As a result of the 2000-2001 energy crisis in California, the resulting
collapse in energy merchant credit, the recent volatility in natural gas prices,
the Enron Corporation bankruptcy filing, and investigations by governmental
authorities into energy trading activities and increased litigation related to
such inquiries, companies generally in the regulated and so-called unregulated
utility businesses have been adversely affected.
These market factors have led to industry-wide downturns that have resulted
in some companies being forced to exit from the energy trading markets, leading
to a reduction in the number of trading partners and in market liquidity and
announcements by us, other energy suppliers and gas pipeline companies of plans
to sell large numbers of assets in order to boost liquidity and strengthen their
balance sheets. Proposed and completed sales by other energy suppliers and gas
pipeline companies could increase the supply of the type of assets we are
attempting to sell and potentially lead either to our failing to execute such
asset sales or our obtaining lower prices on completed asset sales. If either of
these developments were to occur, our ability to realize our strategy of
improving our liquidity and reducing our indebtedness through asset sales could
be significantly hampered.
BECAUSE WE NO LONGER MAINTAIN INVESTMENT GRADE CREDIT RATINGS, OUR
COUNTERPARTIES MIGHT REQUIRE US TO PROVIDE INCREASING AMOUNTS OF CREDIT
SUPPORT WHICH WOULD RAISE OUR COST OF DOING BUSINESS.
Our transactions in each of our businesses, especially in our Energy
Marketing & Trading business, will require greater credit assurances, both to be
given from, and received by, us to satisfy credit support requirements.
Additionally, certain market disruptions or a further downgrade of our credit
rating might
14
further increase our cost of borrowing or further impair our ability to access
one or any of the capital markets. Such disruptions could include:
- further economic downturns;
- capital market conditions generally;
- market prices for electricity and natural gas;
- terrorist attacks or threatened attacks on our facilities or those of
other energy companies; or
- the overall health of the energy industry, including the bankruptcy of
energy companies.
RISKS RELATED TO OUR BUSINESS
ELECTRICITY, NATURAL GAS LIQUIDS AND GAS PRICES ARE VOLATILE AND THIS
VOLATILITY COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS, CASH FLOWS, ACCESS TO
CAPITAL AND ABILITY TO MAINTAIN EXISTING BUSINESSES.
Our revenues, operating results, profitability, future rate of growth and
the carrying value of our electricity and gas businesses depend primarily upon
the prices we receive for natural gas and other commodities. Prices also affect
the amount of cash flow available for capital expenditures and our ability to
borrow money or raise additional capital.
Historically, the markets for these commodities have been volatile and they
are likely to continue to be volatile. Wide fluctuations in prices might result
from relatively minor changes in the supply of and demand for these commodities,
market uncertainty and other factors that are beyond our control, including:
- worldwide and domestic supplies of electricity, natural gas, petroleum
and related commodities;
- weather conditions;
- the level of consumer demand;
- the price and availability of alternative fuels;
- the availability of pipeline capacity;
- the price and level of foreign imports;
- domestic and foreign governmental regulations and taxes;
- the overall economic environment; and
- the credit in the markets where products are bought and sold.
These factors and the volatility of the energy markets make it extremely
difficult to predict future electricity and gas price movements with any
certainty. Further, electricity and gas prices do not necessarily move in
tandem.
WE MIGHT NOT BE ABLE TO SUCCESSFULLY MANAGE THE RISKS ASSOCIATED WITH SELLING
AND MARKETING PRODUCTS IN THE WHOLESALE ENERGY MARKETS.
Our trading portfolios consist of wholesale contracts to buy and sell
commodities, including contracts for electricity, natural gas, natural gas
liquids and other commodities that are settled by the delivery of the commodity
or cash throughout the United States. If the values of these contracts change in
a direction or manner that we do not anticipate or cannot manage, we could
realize material losses from our trading activities. In the past, certain
marketing and trading companies have experienced severe financial problems due
to price volatility in the energy commodity markets. In certain instances this
volatility has caused companies to be unable to deliver energy commodities that
they had guaranteed under contract. In such event, we might incur additional
losses to the extent of amounts, if any, already paid to, or received from,
counterparties. In addition, in our businesses, we often extend credit to our
counterparties. Despite
15
performing credit analysis prior to extending credit, we are exposed to the risk
that we might not be able to collect amounts owed to us. If the counterparty to
such a financing transaction fails to perform and any collateral we have secured
is inadequate, we will lose money.
If we are unable to perform under our energy agreements, we could be
required to pay damages. These damages generally would be based on the
difference between the market price to acquire replacement energy or energy
services and the relevant contract price. Depending on price volatility in the
wholesale energy markets, such damages could be significant.
OUR RISK MEASUREMENT AND HEDGING ACTIVITIES MIGHT NOT PREVENT LOSSES.
Although we have risk management systems in place that use various
methodologies to quantify risk, these systems might not always be followed or
might not always work as planned. Further, such risk measurement systems do not
in themselves manage risk, and adverse changes in energy commodity market
prices, volatility, adverse correlation of commodity prices, the liquidity of
markets, and changes in interest rates might still adversely affect our earnings
and cash flows and our balance sheet under applicable accounting rules, even if
risks have been identified.
To lower our financial exposure related to commodity price and market
fluctuations, we have entered into contracts to hedge certain risks associated
with our assets and operations, including our long-term tolling agreements. In
these hedging activities, we have used fixed-price, forward, physical purchase
and sales contracts, futures, financial swaps and option contracts traded in the
over-the-counter markets or on exchanges, as well as long-term structured
transactions when feasible. Substantial declines in market liquidity, however,
as well as deterioration of our credit and termination of existing positions
(due for example to credit concerns) have greatly limited our ability to hedge
identified risks and have caused previously hedged positions to become unhedged.
To the extent we have unhedged positions, fluctuating commodity prices could
cause our net revenues and net income to be volatile.
OUR OPERATING RESULTS MIGHT FLUCTUATE ON A SEASONAL AND QUARTERLY BASIS.
Revenues from our businesses, including gas transmission and the sale of
electric power, can have seasonal characteristics. In many parts of the country,
demand for power peaks during the hot summer months, with market prices also
peaking at that time. In other areas, demand for power peaks during the winter.
In addition, demand for gas and other fuels peaks during the winter. As a
result, our overall operating results in the future might fluctuate
substantially on a seasonal basis. The pattern of this fluctuation might change
depending on the nature and location of our facilities and pipeline systems and
the terms of our power sale agreements and gas transmission arrangements.
OUR INVESTMENTS AND PROJECTS LOCATED OUTSIDE OF THE UNITED STATES EXPOSE US TO
RISKS RELATED TO LAWS OF OTHER COUNTRIES, TAXES, ECONOMIC CONDITIONS,
FLUCTUATIONS IN CURRENCY RATES, POLITICAL CONDITIONS AND POLICIES OF FOREIGN
GOVERNMENTS. THESE RISKS MIGHT DELAY OR REDUCE OUR REALIZATION OF VALUE FROM
OUR INTERNATIONAL PROJECTS.
We currently own and might acquire and/or dispose of material
energy-related investments and projects outside the United States. The economic
and political conditions in certain countries where we have interests or in
which we might explore development, acquisition or investment opportunities
present risks of delays in construction and interruption of business, as well as
risks of war, expropriation, nationalization, renegotiation, trade sanctions or
nullification of existing contracts and changes in law or tax policy, that are
greater than in the United States. The uncertainty of the legal environment in
certain foreign countries in which we develop or acquire projects or make
investments could make it more difficult to obtain non-recourse project or other
financing on suitable terms, could adversely affect the ability of certain
customers to honor their obligations with respect to such projects or
investments and could impair our ability to enforce our rights under agreements
relating to such projects or investments.
Operations in foreign countries also can present currency exchange rate and
convertibility, inflation and repatriation risk. In certain conditions under
which we develop or acquire projects, or make
16
investments, economic and monetary conditions and other factors could affect our
ability to convert our earnings denominated in foreign currencies. In addition,
risk from fluctuations in currency exchange rates can arise when our foreign
subsidiaries expend or borrow funds in one type of currency but receive revenue
in another. In such cases, an adverse change in exchange rates can reduce our
ability to meet expenses, including debt service obligations. Foreign currency
risk can also arise when the revenues received by our foreign subsidiaries are
not in U.S. dollars. In such cases, a strengthening of the U.S. dollar could
reduce the amount of cash and income we receive from these foreign subsidiaries.
While we believe we have hedges and contracts in place to mitigate our most
significant foreign currency exchange risks, our hedges might not be sufficient
or we might have some exposures that are not hedged which could result in losses
or volatility in our revenues.
RISKS RELATED TO LEGAL PROCEEDINGS AND GOVERNMENTAL INVESTIGATIONS
WE MIGHT BE ADVERSELY AFFECTED BY GOVERNMENTAL INVESTIGATIONS RELATED TO
PRICING INFORMATION THAT WE PROVIDED TO MARKET PUBLICATIONS.
On October 25, 2002, we disclosed that inaccurate pricing information had
been provided to energy industry trade publications. This disclosure came as a
result of an internal review conducted in conjunction with requests for
information made by the FERC and the CFTC on energy trading practices. We had
separately commenced a review of our historical survey publication data after
another market participant announced in September 2002 that certain of its
employees had provided inaccurate pricing data to publications. Later we
received a subpoena from the San Francisco office of the U.S. Attorney relating
to a federal grand jury inquiry regarding the same matters. We cannot predict
the outcome of this investigation or whether this investigation will lead to
additional legal proceedings against us, civil or criminal fines or penalties,
or other regulatory action, including legislation, which might be materially
adverse to the operation of our trading business and our trading revenues and
net income or increase our operating costs in other ways.
WE MIGHT BE ADVERSELY AFFECTED BY GOVERNMENTAL INVESTIGATIONS AND ANY RELATED
LEGAL PROCEEDINGS RELATED TO THE ALLEGED CONDUCTING OF "ROUNDTRIP" TRADES BY
OUR ENERGY TRADING BUSINESS.
Public and regulatory scrutiny of the energy industry and of the capital
markets has resulted in increased regulation being either proposed or
implemented. In particular, the activities of Enron Corporation and other energy
traders in allegedly using "roundtrip" trades which involve the prearrangement
of simultaneously executed and offsetting buy and sell trades for the purpose of
increasing reported revenues or trading volumes, or influencing prices and which
lack a legitimate business purpose, have resulted in increased public and
regulatory scrutiny. To date, we have responded to requests for information from
the FERC and the SEC, related to an investigation of "roundtrip" energy
transactions from January 2000 through 2002. We also have received and are
responding to subpoenas and supplemental requests for information regarding gas
and power trading activities, which involve the same issues and time period
covered by the requests from the Commodity Futures Trading Commission (CFTC).
Such inquiries are ongoing and continue to adversely affect the energy
trading business as a whole. We might see these adverse effects continue as a
result of the uncertainty of these ongoing inquiries or additional inquiries by
other federal or state regulatory agencies. In addition, we cannot predict the
outcome of any of these inquiries, including the grand jury inquiry, or whether
these inquiries will lead to additional legal proceedings against us, civil or
criminal fines or penalties, or other regulatory action, including legislation,
which might be materially adverse to the operation of our trading business and
our trading revenues and net income or increase our operating costs in other
ways.
17
WE MIGHT BE ADVERSELY AFFECTED BY OTHER LEGAL PROCEEDINGS AND GOVERNMENTAL
INVESTIGATIONS RELATED TO THE ENERGY MARKETING AND TRADING BUSINESS.
Electricity and natural gas markets in California and elsewhere will
continue to be subject to numerous and far-reaching federal and state
proceedings and investigations because of allegations that wholesale price
increases resulted from the exercise of market power and collusion of the power
generators and sellers such as Energy Marketing & Trading. Discussions by
governmental authorities and representatives in California and other states have
ranged from threats of re-regulation to suspension of plans to move forward
towards deregulation. The outcomes of these proceedings and investigations might
create corporate liability for Williams, directly or indirectly affect our
creditworthiness and ability to perform our contractual obligations as well as
other market participants' creditworthiness and their ability to perform their
contractual obligations.
RISKS RELATED TO THE REGULATION OF OUR BUSINESSES
OUR BUSINESSES ARE SUBJECT TO COMPLEX GOVERNMENT REGULATIONS. THE OPERATION OF
OUR BUSINESSES MIGHT BE ADVERSELY AFFECTED BY CHANGES IN THESE REGULATIONS OR
IN THEIR INTERPRETATION OR IMPLEMENTATION.
Existing regulations might be revised or reinterpreted, new laws and
regulations might be adopted or become applicable to us or our facilities, and
future changes in laws and regulations might have a detrimental effect on our
business. Certain restructured markets have recently experienced supply problems
and price volatility. These supply problems and volatility have been the subject
of a significant amount of press coverage, much of which has been critical of
the restructuring initiatives. In some of these markets, including California,
proposals have been made by governmental agencies and other interested parties
to re-regulate areas of these markets which have previously been deregulated. We
cannot assure you that other proposals to re-regulate will not be made or that
legislative or other attention to the electric power restructuring process will
not cause the deregulation process to be delayed or reversed. If the current
trend towards competitive restructuring of the wholesale and retail power
markets is reversed, discontinued or delayed, our business models might be
inaccurate and we might face difficulty in accessing capital to refinance our
debt and funding for operating and generating revenues in accordance with our
current business plans.
For example, in 2000, the FERC issued Order 637, which sets forth revisions
to its policies governing the regulation of interstate natural gas pipelines
that it finds necessary to adjust its current regulatory model to the needs of
evolving markets. The FERC, however, determined that any fundamental changes to
its regulatory policy will be considered after further study and evaluation of
the evolving marketplace. Order 637 revised the FERC's pricing policy to waive
through September 30, 2002 the maximum price ceilings for short-term releases of
capacity of less than one year and to permit pipelines to file proposals to
implement seasonal rates for short-term services and term-differentiated rates.
Certain parties requested rehearing of Order 637 and eventually appealed certain
issues to the District of Columbia Circuit Court of Appeals. The D.C. Circuit
remanded as to certain issues, and on October 31, 2002, the FERC issued its
order on remand. Rehearing requests for that order are now pending with the
FERC. Given the extent of the FERC's regulatory power, we cannot give any
assurance regarding the likely regulations under which we will operate our
natural gas transmission and storage business in the future or the effect of
regulation on our financial position and results of operations.
The FERC has proposed to broaden its regulations that restrict relations
between our jurisdictional natural gas companies, or "jurisdictional companies,"
and our marketing affiliates. In addition, the proposed rules would limit
communications between each of our jurisdictional companies and all of our other
companies engaged in energy activities. The rulemaking is pending at the FERC
and the precise scope and effect of the rule is unclear. If adopted as proposed,
the rule could adversely affect our ability to coordinate and manage our energy
activities.
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OUR REVENUES MIGHT DECREASE IF WE ARE UNABLE TO GAIN ADEQUATE, RELIABLE AND
AFFORDABLE ACCESS TO TRANSMISSION AND DISTRIBUTION ASSETS DUE TO THE FERC AND
REGIONAL REGULATION OF WHOLESALE MARKET TRANSACTIONS FOR ELECTRICITY AND GAS.
We depend on transmission and distribution facilities owned and operated by
utilities and other energy companies to deliver the electricity and natural gas
we buy and sell in the wholesale market. If transmission is disrupted, if
capacity is inadequate, or if credit requirements or rates of such utilities or
energy companies are increased, our ability to sell and deliver products might
be hindered. The FERC has issued power transmission regulations that require
wholesale electric transmission services to be offered on an open-access,
non-discriminatory basis. Although these regulations are designed to encourage
competition in wholesale market transactions for electricity, some companies
have failed to provide fair and equal access to their transmission systems or
have not provided sufficient transmission capacity to enable other companies to
transmit electric power. We cannot predict whether and to what extent the
industry will comply with these initiatives, or whether the regulations will
fully accomplish the FERC'S objectives.
In addition, the independent system operators who oversee the transmission
systems in regional power markets, such as California, have in the past been
authorized to impose, and might continue to impose, price limitations and other
mechanisms to address volatility in the power markets. These types of price
limitations and other mechanisms might adversely impact the profitability of our
wholesale power marketing and trading. Given the extreme volatility and lack of
meaningful long-term price history in many of these markets and the imposition
of price limitations by regulators, independent system operators or other marker
operators, we can offer no assurance that we will be able to operate profitably
in all wholesale power markets.
THE DIFFERENT REGIONAL POWER MARKETS IN WHICH WE COMPETE OR WILL COMPETE IN
THE FUTURE HAVE CHANGING REGULATORY STRUCTURES, WHICH COULD AFFECT OUR GROWTH
AND PERFORMANCE IN THESE REGIONS.
Our results are likely to be affected by differences in the market and
transmission regulatory structures in various regional power markets. Problems
or delays that might arise in the formation and operation of new regional
transmission organizations (RTOs) might restrict our ability to sell power
produced by our generating capacity to certain markets if there is insufficient
transmission capacity otherwise available. The rules governing the various
regional power markets might also change from time to time which could affect
our costs or revenues. Because it remains unclear which companies will be
participating in the various regional power markets, or how RTOs will develop or
what regions they will cover, we are unable to assess fully the impact that
these power markets might have on our business.
Problems that might arise in the formation and operation of new RTOs might
result in delayed or disputed collection of revenues. The rules governing the
various regional power markets might also change from time to time which could
affect our costs or revenues. Because it remains unclear which companies will be
participating in the various regional power markets, or how RTOs will develop or
what regions they will cover, we are unable to assess fully the impact that
these power markets might have on our business.
OUR GAS SALES, TRANSMISSION, AND STORAGE OPERATIONS ARE SUBJECT TO GOVERNMENT
REGULATIONS AND RATE PROCEEDINGS THAT COULD HAVE AN ADVERSE IMPACT ON OUR
ABILITY TO RECOVER THE COSTS OF OPERATING OUR PIPELINE FACILITIES.
Our interstate gas sales, transmission, and storage operations conducted
through our Gas Pipelines business are subject to the FERC's rules and
regulations in accordance with the Natural Gas Act of 1938 and the Natural Gas
Policy Act of 1978. The FERC's regulatory authority extends to:
- transportation and sale for resale of natural gas in interstate commerce;
- rates and charges;
- construction;
19
- acquisition, extension or abandonment of services or facilities;
- accounts and records;
- depreciation and amortization policies; and
- operating terms and conditions of service.
The FERC has taken certain actions to strengthen market forces in the
natural gas pipeline industry that has led to increased competition throughout
the industry. In a number of key markets, interstate pipelines are now facing
competitive pressure from other major pipeline systems, enabling local
distribution companies and end users to choose a transmission provider based on
economic and other considerations.
RISKS RELATED TO ENVIRONMENTAL MATTERS
WE COULD INCUR MATERIAL LOSSES IF WE ARE HELD LIABLE FOR THE ENVIRONMENTAL
CONDITION OF ANY OF OUR ASSETS.
We are generally responsible for all on-site liabilities associated with
the environmental condition of our facilities and assets, which we have acquired
or developed, regardless of when the liabilities arose and whether they are
known or unknown. In addition, in connection with certain acquisitions and sales
of assets, we might obtain, or be required to provide, indemnification against
certain environmental liabilities. If we incur a material liability, or the
other party to a transaction fails to meet its indemnification obligations to
us, we could suffer material losses.
ENVIRONMENTAL REGULATION AND LIABILITY RELATING TO OUR BUSINESS WILL BE
SUBJECT TO ENVIRONMENTAL LEGISLATION IN ALL JURISDICTIONS IN WHICH IT
OPERATES, AND ANY CHANGES IN SUCH LEGISLATION COULD NEGATIVELY AFFECT OUR
RESULTS OF OPERATIONS.
Our operations are subject to extensive environmental regulation pursuant
to a variety of federal, provincial, state and municipal laws and regulations.
Such environmental legislation imposes, among other things, restrictions,
liabilities and obligations in connection with the generation, handling, use,
storage, transportation, treatment and disposal of hazardous substances and
waste and in connection with spills, releases and emissions of various
substances into the environment. Environmental legislation also requires that
our facilities, sites and other properties associated with our operations be
operated, maintained, abandoned and reclaimed to the satisfaction of applicable
regulatory authorities. Existing environmental regulations could also be revised
or reinterpreted, new laws and regulations could be adopted or become applicable
to us or our facilities, and future changes in environmental laws and
regulations could occur. The federal government and several states recently have
proposed increased environmental regulation of many industrial activities,
including increased regulation of air quality, water quality and solid waste
management.
Compliance with environmental legislation will require significant
expenditures, including expenditures for compliance with the Clean Air Act and
similar legislation, for clean up costs and damages arising out of contaminated
properties, and for failure to comply with environmental legislation and
regulations which might result in the imposition of fines and penalties. The
steps we take to bring certain of our facilities into compliance could be
prohibitively expensive, and we might be required to shut down or alter the
operation of those facilities, which might cause us to incur losses.
Further, our regulatory rate structure and our contracts with clients might
not necessarily allow us to recover capital costs we incur to comply with new
environmental regulations. Also, we might not be able to obtain or maintain from
time to time all required environmental regulatory approvals for certain
development projects. If there is a delay in obtaining any required
environmental regulatory approvals or if we fail to obtain and comply with them,
the operation of our facilities could be prevented or become subject to
additional costs. Should we fail to comply with all applicable environmental
laws, we might be subject to penalties and fines imposed against us by
regulatory authorities. Although we do not expect that the costs of complying
with current environmental legislation will have a material adverse effect on
our
20
financial condition or results of operations, no assurance can be made that the
costs of complying with environmental legislation in the future will not have
such an effect.
Our wholly-owned subsidiary, Williams Energy Services, LLC, also retained
some potential environmental exposure from its sale, in April of 2002, of
Williams Pipe Line Company, LLC to Williams Energy Partners L.P. Included in the
terms of this transaction were various indemnities given by Williams Energy
Services, LLC to Williams Energy Partners L.P. The indemnities serve to protect
Williams Energy Partners from "Damages" that it sustains or incurs from the
pre-closing matters (including environmental liabilities and obligations
pursuant to the standards established by applicable environmental laws in effect
on April 11, 2002) specified in the sales agreement (the Contribution Agreement)
and from breaches of Williams Energy Services, LLC's representations, warranties
or covenants. The term "Damages" includes losses, costs, expenses, fines,
penalties, fees, liabilities and obligations. The parties agreed that Williams
Energy Services, LLC's indemnity obligations under the Contribution Agreement
would be limited to a maximum aggregate amount of $125 million. The indemnities
would survive the sale of Williams Pipe Line Company, LLC to another entity.
RISKS RELATING TO ACCOUNTING POLICY
POTENTIAL CHANGES IN ACCOUNTING STANDARDS MIGHT CAUSE US TO REVISE OUR
FINANCIAL DISCLOSURE IN THE FUTURE, WHICH MIGHT CHANGE THE WAY ANALYSTS
MEASURE OUR BUSINESS OR FINANCIAL PERFORMANCE.
Recently discovered accounting irregularities in various industries have
forced regulators and legislators to take a renewed look at accounting
practices, financial disclosures, companies' relationships with their
independent auditors and retirement plan practices. Because it is still unclear
what laws or regulations will develop, we cannot predict the ultimate impact of
any future changes in accounting regulations or practices in general with
respect to public companies or the energy industry or in our operations
specifically.
In addition, the Financial Accounting Standards Board (FASB) or the SEC
could enact new accounting standards that might impact how we are required to
record revenues, expenses, assets and liabilities. For instance, Statement of
Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations," implemented on January 1, 2003, requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate can be made. See Note 1 to our
Consolidated Financial Statements in our annual report on Form 10-K for the
fiscal year ending December 31, 2002 for further details.
In October 2002, the FASB's Emerging Issues Task Force (EITF) reached
consensus on Issue No. 02-03 deliberations and rescinded Issue No. 98-10. As a
result, all energy trading contracts that do not meet the definition of a
derivative under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," will be reported on an accrual basis.
We will initially apply the consensus effective January 1, 2003, and expect
to record a reduction to net income of approximately $750 million to $800
million on an after-tax basis which will be reported as a cumulative effect of a
change in accounting principle.
The accounting for Energy Marketing & Trading's energy-related contracts,
which include contracts such as transportation, storage, load serving and
tolling agreements, requires us to assess whether certain of these contracts are
executory service arrangements or leases pursuant to SFAS No. 13, "Accounting
for Leases." On March 20, 2003, the EITF continued discussion on Issue No. 01-8,
"Determining Whether an Arrangement Contains a Lease," and directed the working
group considering this issue to further address certain matters, including
transition. The most current report of the working group indicates the working
group supports a prospective transition of this issue, where the consensus would
be applied to arrangements consummated or substantively modified after the date
of the final consensus.
Our preliminary review indicates that certain of our tolling agreements
could be considered to be leases under the model currently being discussed by
the EITF. Accordingly, if the EITF did not adopt a
21
prospective transition and applied the consensus to existing arrangements there
would be a significant negative impact to Williams' financial position and
results of operations.
RISKS RELATING TO OUR INDUSTRY
THE LONG-TERM FINANCIAL CONDITION OF OUR U.S. AND CANADIAN NATURAL GAS
TRANSMISSION AND MIDSTREAM BUSINESSES ARE DEPENDENT ON THE CONTINUED
AVAILABILITY OF NATURAL GAS RESERVES.
The development of additional natural gas reserves requires significant
capital expenditures by others for exploration and development drilling and the
installation of production, gathering, storage, transportation and other
facilities that permit natural gas to be produced and delivered to our pipeline
systems. Low prices for natural gas, regulatory limitations, or the lack of
available capital for these projects could adversely affect the development of
additional reserves and production, gathering, storage and pipeline transmission
and import and export of natural gas supplies. Additional natural gas reserves
might not be developed in commercial quantities and in sufficient amounts to
fill the capacities of our gathering and processing pipeline facilities.
OUR GATHERING, PROCESSING AND TRANSPORTING ACTIVITIES INVOLVE NUMEROUS RISKS
THAT MIGHT RESULT IN ACCIDENTS AND OTHER OPERATING RISKS AND COSTS.
There are inherent in our gas gathering, processing and transporting
properties a variety of hazards and operating risks, such as leaks, explosions
and mechanical problems that could cause substantial financial losses. In
addition, these risks could result in loss of human life, significant damage to
property, environmental pollution, impairment of our operations and substantial
losses to us. In accordance with customary industry practice, we maintain
insurance against some, but not all, of these risks and losses. The occurrence
of any of these events not fully covered by insurance could have a material
adverse effect on our financial position and results of operations. The location
of pipelines near populated areas, including residential areas, commercial
business centers and industrial sites, could increase the level of damages
resulting from these risks.
RISKS ARISING FROM THE EXCHANGE OFFER
THE TRADING MARKET FOR OUTSTANDING 8.125% NOTES AND OUTSTANDING 8.750% NOTES
NOT EXCHANGED IN THE EXCHANGE OFFER MAY BE SIGNIFICANTLY MORE LIMITED THAN IT
IS AT PRESENT.
To the extent that outstanding 8.125% notes and outstanding 8.750% notes
are tendered and accepted for exchange pursuant to the exchange offer, the
trading market for outstanding 8.125% notes and outstanding 8.750% notes that
remain outstanding may be significantly more limited than it is at present. The
outstanding 8.125% notes and the outstanding 8.750% notes have not been
registered under the Securities Act and are subject to customary transfer
restrictions. In addition, a debt security with a smaller outstanding principal
amount available for trading (a smaller "float") may command a lower price than
would a comparable debt security with a larger float. Therefore, the market
price for outstanding 8.125% notes and outstanding 8.750% notes that are not
tendered and accepted for exchange pursuant to the exchange offer may be
affected adversely to the extent that the principal amount of the outstanding
8.125% notes and outstanding 8.750% notes exchanged pursuant to the exchange
offer reduces the float. A reduced float may also make the trading prices of
outstanding 8.125% notes and outstanding 8.750% notes that are not exchanged in
the exchange offer more volatile.
RISK RELATING TO THE NEW SECURITIES AND THE OUTSTANDING SECURITIES
WE DEPEND ON PAYMENTS FROM OUR SUBSIDIARIES, AND CLAIMS OF NOTE HOLDERS RANK
JUNIOR TO THOSE OF CREDITORS OF OUR SUBSIDIARIES.
We are a holding company and we conduct substantially all of our operations
through our subsidiaries. We perform management, legal, financial, tax,
consulting, administrative and other services for our subsidiaries. Our
principal sources of cash are from external financings by our subsidiaries,
dividends and
22
advances from our subsidiaries, investments, payments by our subsidiaries for
services rendered, and interest payments from our subsidiaries on cash advances.
The amount of dividends available to us from our subsidiaries largely depends
upon each subsidiary's earnings and operating capital requirements. The terms of
some of our subsidiaries' borrowing arrangements limit the transfer of funds to
us. In addition, the ability of our subsidiaries to make any payments to us will
depend on our subsidiaries' earnings, business and tax considerations and legal
restrictions.
As a result of our holding company structure, the outstanding and the new
8.125% notes and the outstanding and the new 8.750% notes will effectively rank
junior to all existing and future debt, trade payables and other liabilities of
our subsidiaries. Any right of Williams and our creditors to participate in the
assets of any of our subsidiaries upon any liquidation or reorganization of any
such subsidiary will be subject to the prior claims of that subsidiary's
creditors, including trade creditors, except to the extent that we may ourselves
be a creditor of such a subsidiary.
THE COVENANTS CONTAINED IN OUR INDENTURE GENERALLY DO NOT LIMIT OUR ABILITY TO
ENGAGE IN TRANSACTIONS THAT COULD ADVERSELY AFFECT OUR OPERATIONS.
Except for the covenant limiting liens contained in our indenture, neither
our indenture nor the outstanding or the new notes contains any covenants or
other provisions designed to afford holders of the outstanding or the new 8.125%
notes and the outstanding or the new 8.750% notes protection in the event of a
highly leveraged transaction involving us or any restrictions on the amount of
additional indebtedness that we may issue. If we were to engage in a highly
leveraged transaction or substantially increase our outstanding indebtedness, it
could negatively affect our operations in a number of ways, including:
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow for other general corporate purposes;
- limit our ability to fund future working capital, capital expenditures,
acquisitions, investments, restructurings and other general corporate
requirements;
- limit our ability to obtain additional financing; and
- limit our flexibility in responding to changes in our business and the
energy industry.
In addition, we would be required to repay any additional indebtedness as
it matured. We might not have sufficient funds or might be unable to arrange for
additional financing to repay any additional debt as it became due.
OTHER RISKS
RECENT TERRORIST ACTIVITIES AND THE POTENTIAL FOR MILITARY AND OTHER ACTIONS
COULD ADVERSELY AFFECT OUR BUSINESS.
The continued threat of terrorism and the impact of retaliatory military
and other action by the United States and its allies might lead to increased
political, economic and financial market instability and volatility in prices
for natural gas, which could affect the market for our gas operations. In
addition, future acts of terrorism could be directed against companies operating
in the United States, and it has been reported that terrorists might be
targeting domestic energy facilities. While we are taking steps that we believe
are appropriate to increase the security of our energy assets, there is no
assurance that we can completely secure our assets or to completely protect them
against a terrorist attack. These developments have subjected our operations to
increased risks and, depending on their ultimate magnitude, could have a
material adverse effect on our business. In particular, we might experience
increased capital or operating costs to implement increased security for our
energy assets.
The insurance industry has also been disrupted by these events. As a
result, the availability of insurance covering risks that we and our competitors
typically insure against might decrease. In addition, the insurance that we are
able to obtain might have higher deductibles, higher premiums and more
restrictive policy terms.
23
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new 8.125%
notes or the new 8.750% notes in exchange for the outstanding 8.125% notes or
the outstanding 8.750% notes, respectively. We are making this exchange solely
to satisfy our obligations under a registration rights agreement. In
consideration for issuing the new 8.125% notes and the new 8.750% notes, we will
receive outstanding 8.125% notes and outstanding 8.750% notes in aggregate
principal amounts equal to the aggregate principal amounts of the new 8.125%
notes and the new 8.750% notes, respectively.
24
THE EXCHANGE OFFER
EXCHANGE TERMS
An aggregate of $650.0 million principal amount of outstanding 8.125% notes
and an aggregate of $850.0 million principal amount of outstanding 8.750% notes
are currently issued and outstanding. The maximum principal amount of new 8.125%
notes that will be issued in exchange for outstanding 8.125% notes is $650.0
million, and the maximum principal amount of new 8.750% notes that will be
issued in exchange for outstanding 8.750% notes is $850.0 million. The terms of
the new 8.125% notes and the new 8.750% notes and the outstanding 8.125% notes
and the outstanding 8.750% notes, respectively, are substantially the same in
all material respects, except that the transfer restrictions, registration
rights and additional interest provisions relating to the outstanding 8.125%
notes and the outstanding 8.750% notes do not apply to the new 8.125% notes and
the new 8.750% notes.
The new 8.125% notes will bear interest at a rate of 8.125% per year,
payable semiannually on March 15 and September 15 of each year, beginning
September 15, 2003. The new 8.750% notes will bear interest at the rate of
8.750% per year, payable semiannually on March 15 and September 15 of each year,
beginning September 15, 2003. Holders of new 8.125% notes and new 8.750% notes
will receive interest accrued from March 15, 2003, the date of the last payment
of interest on the outstanding 8.125% notes and the outstanding 8.750% notes. In
order to exchange your outstanding 8.125% notes or outstanding 8.750% notes for
new 8.125% notes or new 8.750% notes in the exchange offer, you will be required
to make the following representations:
- any new 8.125% notes or new 8.750% notes will be acquired in the ordinary
course of your business;
- you have no arrangement with any person to participate in the
distribution of the new 8.125% notes or new 8.750% notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act, or if you are our affiliate, you will comply with the applicable
registration and prospectus delivery requirements of the Securities Act.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any outstanding
8.125% notes and outstanding 8.750% notes properly tendered in the exchange
offer, and the exchange agent will deliver the new 8.125% notes and new 8.750%
notes promptly after the expiration date (as defined below) of the exchange
offer. We expressly reserve the right to delay acceptance of any of the tendered
outstanding 8.125% notes or outstanding 8.750% notes not already accepted if any
condition set forth below under "-- Conditions to the Exchange Offer" has not
been satisfied or waived by us.
If you tender your outstanding 8.125% notes or outstanding 8.750% notes,
you will not be required to pay brokerage commissions or fees or, subject to the
instructions in the letter of transmittal, transfer taxes with respect to the
exchange of the outstanding 8.125% notes and outstanding 8.750% notes. We will
pay all charges, expenses and transfer taxes in connection with the exchange
offer, other than certain taxes described below under "-- Transfer Taxes."
You may tender some or all of your outstanding 8.125% notes or outstanding
8.750% notes in connection with this exchange offer. However, outstanding 8.125%
notes and outstanding 8.750% notes may only be tendered in integral multiples of
$1,000.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on
June -- , 2003, the "expiration date," unless extended by us. We expressly
reserve the right to extend the exchange offer on a daily basis or for such
period or periods as we may determine in our sole discretion from time to time
by giving oral, confirmed in writing, or written notice to the exchange agent
and by making a public announcement by press release to the Dow Jones News
Service prior to 9:00 a.m., New York City time, on the first business
25
day following the previously scheduled expiration date. During any extension of
the exchange offer, all outstanding 8.125% notes and outstanding 8.750% notes
previously tendered, not validly withdrawn and not accepted for exchange will
remain subject to the exchange offer and may be accepted for exchange by us.
To the extent we are legally permitted to do so, we expressly reserve the
absolute right, in our sole discretion, to:
- waive any condition to the exchange offer; and
- amend any of the terms of the exchange offer.
Any waiver or amendment to the exchange offer will apply to all outstanding
8.125% notes and outstanding 8.750% notes tendered, regardless of when or in
what order the outstanding 8.125% notes and outstanding 8.750% notes were
tendered. If we make a material change in the terms of the exchange offer or if
we waive a material condition of the exchange offer, we will disseminate
additional exchange offer materials. If the amendment or waiver is made less
than ten business days before the expiration of the exchange offer, we will
extend the exchange offer so that holders of outstanding 8.125% notes and
outstanding 8.750% notes have at least ten business days to tender or withdraw.
We expressly reserve the right, in our sole discretion, to terminate the
exchange offer if any of the conditions set forth under "-- Conditions to the
Exchange Offer" exists. Any such termination will be followed promptly by a
public announcement. In the event we terminate the exchange offer, we will give
immediate notice to the exchange agent, and all outstanding 8.125% notes and
outstanding 8.750% notes previously tendered and not accepted for payment will
be returned promptly to the tendering holders.
In the event that the exchange offer is withdrawn or otherwise not
completed, new 8.125% notes and new 8.750% notes will not be given to holders of
outstanding 8.125% notes and outstanding 8.750% notes who have tendered their
outstanding 8.125% notes and outstanding 8.750% notes.
RESALE OF NEW SECURITIES
Based on interpretations of the SEC staff set forth in no action letters
issued to third parties, we believe that new 8.125% notes and new 8.750% notes
issued under the exchange offer in exchange for outstanding 8.125% notes and
outstanding 8.750% notes, respectively, may be offered for resale, resold and
otherwise transferred by you without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- you are acquiring new 8.125% notes or new 8.750% notes in the ordinary
course of your business; and
- you do not intend to participate in the distribution of the new 8.125%
notes or new 8.750% notes.
If you tender outstanding 8.125% notes or outstanding 8.750% notes in the
exchange offer with the intention of participating in any manner in a
distribution of the new 8.125% notes or new 8.750% notes:
- you cannot rely on those interpretations by the SEC staff; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new 8.125% notes and new 8.750% notes will need
to rely on an effective registration statement under the Securities Act
containing the selling security holder's information required by Item 507 of
Regulation S-K under the Securities Act. This prospectus may be used for an
offer to resell, a resale or other transfer of new 8.125% notes and new 8.750%
notes only as specifically set forth in this prospectus. Broker-dealers may
participate in the exchange offer only if they acquired their outstanding 8.125%
notes
26
or outstanding 8.750% notes as a result of market-making activities or other
trading activities. Each broker-dealer that receives new 8.125% notes or new
8.750% notes for its own account in exchange for outstanding 8.125% notes or
outstanding 8.750% notes, where such outstanding 8.125% notes or outstanding
8.750% notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the new 8.125% notes or new 8.750%
notes. We have agreed to allow such broker-dealers and other persons, if any,
subject to similar prospectus delivery requirements, to use this prospectus in
connection with the resale of new 8.125% notes and new 8.750% notes. Please read
the section captioned "Plan of Distribution" for more details regarding the
transfer of new 8.125% notes and new 8.750% notes.
ACCEPTANCE OF OUTSTANDING SECURITIES FOR EXCHANGE
If the conditions specified below under "-- Conditions to the Exchange
Offer" have been satisfied or waived on or prior to the expiration date of the
exchange offer, we will accept for exchange outstanding 8.125% notes and
outstanding 8.750% notes validly tendered pursuant to the exchange offer, or
defectively tendered, if such defect has been waived by us, and not withdrawn
prior to the expiration date of the exchange offer. We will not accept
outstanding 8.125% notes or outstanding 8.750% notes for exchange subsequent to
the expiration date of the exchange offer. Tenders of outstanding 8.125% notes
and outstanding 8.750% notes will be accepted only in principal amounts equal to
$1,000 or integral multiples thereof.
We expressly reserve the right, in our sole discretion, to:
- delay acceptance for exchange of outstanding 8.125% notes and outstanding
8.750% notes tendered under the exchange offer, subject to Rule 14e-1
under the Exchange Act, which requires that an offeror pay the
consideration offered or return the securities deposited by or on behalf
of the holders promptly after the termination or withdrawal of a tender
offer; or
- terminate the exchange offer and not accept for exchange any outstanding
8.125% notes or outstanding 8.750% notes not theretofore accepted for
exchange, in whole or in part, if any of the conditions set forth below
under "-- Conditions to the Exchange Offer" has not been satisfied or
waived by us or in order to comply with any applicable law. In all cases,
new 8.125% notes and new 8.750% notes will be issued only after timely
receipt by the exchange agent of certificates representing outstanding
8.125% notes or outstanding 8.750% notes, or confirmation of book-entry
transfer, a properly completed and duly executed letter of transmittal,
or a manually signed facsimile thereof, or an agent's message in lieu
thereof, and any other required documents. For purposes of the exchange
offer, we will be deemed to have accepted for exchange validly tendered
outstanding 8.125% notes and outstanding 8.750% notes, or defectively
tendered outstanding 8.125% notes and outstanding 8.750% notes with
respect to which we have waived such defect, if, as and when we give
oral, confirmed in writing, or written notice to the exchange agent.
Promptly after the expiration date, we will deposit the new 8.125% notes
and the new 8.750% notes with the exchange agent, who will act as agent
for the tendering holders for the purpose of receiving the new 8.125%
notes and new 8.750% notes and transmitting them to the holders. The
exchange agent will deliver the new 8.125% notes and new 8.750% notes to
holders of outstanding 8.125% notes and outstanding 8.750% notes accepted
for exchange after the exchange agent receives the new 8.125% notes and
new 8.750% notes.
If for any reason, we delay acceptance for exchange of validly tendered
outstanding 8.125% notes or outstanding 8.750% notes or we are unable to accept
for exchange validly tendered outstanding 8.125% notes or outstanding 8.750%
notes, then the exchange agent may, nevertheless, on our behalf, retain tendered
outstanding 8.125% notes and outstanding 8.750% notes, without prejudice to our
rights described under "-- Expiration Date; Extensions; Termination;
Amendments," "-- Withdrawal of Tenders" and "-- Conditions to the Exchange
Offer," subject to Rule 14e-1 under the Exchange Act, which requires that an
offeror pay the consideration offered or return the securities deposited by or
on behalf of the holders thereof promptly after the termination or withdrawal of
a tender offer.
27
If any tendered outstanding 8.125% notes or outstanding 8.750% notes are
not accepted for exchange for any reason, including if certificates are
submitted evidencing more tendered outstanding 8.125% notes or outstanding
8.750% notes than those that are outstanding, certificates evidencing
outstanding 8.125% notes or outstanding 8.750% notes that are not accepted for
exchange will be returned, without expense, to the tendering holder, or, in the
case of outstanding 8.125% notes or outstanding 8.750% notes tendered by
book-entry transfer into the exchange agent's account at a book-entry transfer
facility under the procedure set forth under "-- Procedures for Tendering
Outstanding Securities -- Book-Entry Transfer," such outstanding 8.125% notes
and outstanding 8.750% notes will be credited to the account maintained at such
book-entry transfer facility from which such outstanding 8.125% notes or
outstanding 8.750% notes were delivered, unless otherwise required by such
holder under "Special Delivery Instructions" in the letter of transmittal,
promptly following the expiration date or the termination or withdrawal of the
exchange offer.
Tendering holders of outstanding 8.125% notes and outstanding 8.750% notes
exchanged in the exchange offer will not be obligated to pay brokerage
commissions or transfer taxes with respect to the exchange of their outstanding
8.125% notes or outstanding 8.750% notes other than as described in "-- Transfer
Taxes" or in Instruction 9 to the letter of transmittal. We will pay all other
charges and expenses in connection with the exchange offer.
PROCEDURES FOR TENDERING OUTSTANDING SECURITIES
Any beneficial owner whose outstanding 8.125% notes or outstanding 8.750%
notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee or held through a book-entry transfer facility and who
wishes to tender outstanding 8.125% notes or outstanding 8.750% notes should
contact such registered holder promptly and instruct such registered holder to
tender outstanding 8.125% notes or outstanding 8.750% notes on such beneficial
owner's behalf.
Tender of Outstanding Securities Held Through DTC. The exchange agent and
DTC have confirmed that the exchange offer is eligible for the DTC automated
tender offer program. Accordingly, DTC participants may electronically transmit
their acceptance of the exchange offer by causing DTC to transfer outstanding
8.125% notes or outstanding 8.750% notes to the exchange agent in accordance
with DTC's automated tender offer program procedures for transfer. DTC will then
send an agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, which states
that DTC has received an express acknowledgment from the participant in DTC
tendering outstanding 8.125% notes or outstanding 8.750% notes that are the
subject of that book-entry confirmation that the participant has received and
agrees to be bound by the terms of the letter of transmittal, and that we may
enforce such agreement against such participant. In the case of an agent's
message relating to guaranteed delivery, the term means a message transmitted by
DTC and received by the exchange agent, which states that DTC has received an
express acknowledgment from the participant in DTC tendering outstanding 8.125%
notes or outstanding 8.750% notes that they have received and agree to be bound
by the notice of guaranteed delivery.
Tender of Outstanding Securities Held in Physical Form. For a holder to
validly tender outstanding 8.125% notes or outstanding 8.750% notes held in
physical form:
- the exchange agent must receive at its address set forth in this
prospectus a properly completed and validly executed letter of
transmittal, or a manually signed facsimile thereof, together with any
signature guarantees and any other documents required by the instructions
to the letter of transmittal; and
- the exchange agent must receive certificates for tendered outstanding
8.125% notes or outstanding 8.750% notes at such address.
LETTERS OF TRANSMITTAL AND OUTSTANDING 8.125% NOTES AND OUTSTANDING 8.750%
NOTES SHOULD BE SENT ONLY TO THE EXCHANGE AGENT AND NOT TO US OR TO ANY
BOOK-ENTRY TRANSFER FACILITY.
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THE METHOD OF DELIVERY OF OUTSTANDING 8.125% NOTES, OUTSTANDING 8.750%
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE
AGENT IS AT THE ELECTION AND RISK OF THE HOLDER TENDERING OUTSTANDING 8.125%
NOTES AND OUTSTANDING 8.750% NOTES. DELIVERY OF SUCH DOCUMENTS WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY
MAIL, WE SUGGEST THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE
OF THE EXPIRATION DATE OF THE EXCHANGE OFFER TO PERMIT DELIVERY TO THE EXCHANGE
AGENT PRIOR TO SUCH DATE. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF
OUTSTANDING 8.125% NOTES OR OUTSTANDING 8.750% NOTES WILL BE ACCEPTED.
Signature Guarantees. Signatures on the letter of transmittal must be
guaranteed by an eligible institution unless:
- the letter of transmittal is signed by the registered holder of the
outstanding 8.125% notes or outstanding 8.750% notes tendered therewith,
or by a participant in one of the book-entry transfer facilities whose
name appears on a security position listing it as the owner of those
outstanding 8.125% notes or outstanding 8.750% notes, or if any
outstanding 8.125% notes or outstanding 8.750% notes for principal
amounts not tendered are to be issued directly to the holder, or, if
tendered by a participant in one of the book-entry transfer facilities,
any outstanding 8.125% notes or outstanding 8.750% notes for principal
amounts not tendered or not accepted for exchange are to be credited to
the participant's account at the book-entry transfer facility, and
neither the "Special Issuance Instructions" nor the "Special Delivery
Instructions" box on the letter of transmittal has been completed, or
- the outstanding 8.125% notes or outstanding 8.750% notes are tendered for
the account of an eligible institution.
An eligible institution is a firm that is a participant in the Security
Transfer Agents Medallion Program or the Stock Exchanges Medallion Program,
which is generally a member of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office in the United States.
Book-Entry Transfer. The exchange agent will seek to establish a new
account or utilize an outstanding account with respect to the outstanding 8.125%
notes and outstanding 8.750% notes at DTC promptly after the date of this
prospectus. Any financial institution that is a participant in the book-entry
transfer facility system and whose name appears on a security position listing
it as the owner of the outstanding 8.125% notes or outstanding 8.750% notes may
make book-entry delivery of outstanding 8.125% notes or outstanding 8.750% notes
by causing the book-entry transfer facility to transfer such outstanding 8.125%
notes or outstanding 8.750% notes into the exchange agent's account. HOWEVER,
ALTHOUGH DELIVERY OF OUTSTANDING 8.125% NOTES AND OUTSTANDING 8.750% NOTES MAY
BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT A
BOOK-ENTRY TRANSFER FACILITY, A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER
OF TRANSMITTAL, OR A MANUALLY SIGNED FACSIMILE THEREOF, OR AN AGENT'S MESSAGE IN
LIEU THEREOF, MUST BE RECEIVED BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH IN
THIS PROSPECTUS ON OR PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER, OR
ELSE THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW MUST BE COMPLIED WITH.
The confirmation of a book-entry transfer of outstanding 8.125% notes or
outstanding 8.750% notes into the exchange agent's account at a book-entry
transfer facility is referred to in this prospectus as a "book-entry
confirmation." DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH THAT BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Guaranteed Delivery. If you wish to tender your outstanding 8.125% notes
or outstanding 8.750% notes and:
- certificates representing your outstanding 8.125% notes or outstanding
8.750% notes are not lost but are not immediately available;
29
- time will not permit your letter of transmittal, certificates
representing your outstanding 8.125% notes or outstanding 8.750% notes
and all other required documents to reach the exchange agent on or prior
to the expiration date of the exchange offer; or
- the procedures for book-entry transfer cannot be completed on or prior to
the expiration date of the exchange offer,
then, you may tender if both of the following are complied with:
- your tender is made by or through an eligible institution; and
- on or prior to the expiration date of the exchange offer, the exchange
agent has received from the eligible institution a properly completed and
validly executed notice of guaranteed delivery, by manually signed
facsimile transmission, mail or hand delivery, in substantially the form
provided with this prospectus or an agent's message relating thereto.
The notice of guaranteed delivery must:
- set forth your name and address, the registered number(s) of your
outstanding 8.125% notes or outstanding 8.750% notes and the principal
amount of outstanding 8.125% notes or outstanding 8.750% notes tendered;
- state that the tender is being made thereby; and
- guarantee that, within three New York Stock Exchange trading days after
the expiration date of the exchange offer, the letter of transmittal or
facsimile thereof properly completed and validly executed, together with
certificates representing the outstanding 8.125% notes or outstanding
8.750% notes, or a book-entry confirmation, and any other documents
required by the letter of transmittal and the instructions thereto, will
be deposited by the eligible institution with the exchange agent.
The exchange agent must receive the properly completed and validly executed
letter of transmittal or facsimile thereof with any required signature
guarantees, together with certificates for all outstanding 8.125% notes or
outstanding 8.750% notes in proper form for transfer, or a book-entry
confirmation, and any other required documents, within three New York Stock
Exchange trading days after the date of the notice of guaranteed delivery.
Other Matters. New 8.125% notes and new 8.750% notes will be issued in
exchange for outstanding 8.125% notes and outstanding 8.750% notes accepted for
exchange only after timely receipt by the exchange agent of:
- certificates for (or a timely book-entry confirmation with respect to)
your outstanding 8.125% notes or outstanding 8.750% notes, a properly
completed and duly executed letter of transmittal or facsimile thereof
with any required signature guarantees, or, in the case of a book-entry
transfer, an agent's message; and
- any other documents required by the letter of transmittal.
All questions as to the form of all documents and the validity, including
time of receipt, and acceptance of all tenders of outstanding 8.125% notes or
outstanding 8.750% notes will be determined by us, in our sole discretion, the
determination of which shall be final and binding. ALTERNATIVE, CONDITIONAL OR
CONTINGENT TENDERS OF OUTSTANDING 8.125% NOTES OR OUTSTANDING 8.750% NOTES WILL
NOT BE CONSIDERED VALID. We reserve the absolute right to reject any or all
tenders of outstanding 8.125% notes and outstanding 8.750% notes that are not in
proper form or the acceptance of which, in our opinion, would be unlawful. We
also reserve the right to waive any defects, irregularities or conditions of
tender as to particular outstanding 8.125% notes or outstanding 8.750% notes.
Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding.
30
Any defect or irregularity in connection with tenders of outstanding 8.125%
notes or outstanding 8.750% notes must be cured within the time we determine,
unless waived by us. Tenders of outstanding 8.125% notes and outstanding 8.750%
notes will not be deemed to have been made until all defects and irregularities
have been waived by us or cured. Neither we, the exchange agent nor any other
person will be under any duty to give notice of any defects or irregularities in
tenders of outstanding 8.125% notes or outstanding 8.750% notes, or will incur
any liability to holders for failure to give any such notice.
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any new 8.125% notes or new 8.750% notes that you receive will be
acquired in the ordinary course of your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the new 8.125% notes or new 8.750%
notes;
- if you are not a broker-dealer, you are not engaged in and do not intend
to engage in the distribution of the new 8.125% notes or new 8.750%
notes;
- if you are a broker-dealer that will receive new 8.125% notes or new
8.750% notes for your own account in exchange for outstanding 8.125%
notes or outstanding 8.750% notes that were acquired as a result of
market-making activities, you will deliver a prospectus, as required by
law, in connection with any resale of those new 8.125% notes or new
8.750% notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act, or, if you are an affiliate, you will comply with any applicable
registration and prospectus delivery requirements of the Securities Act.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender of outstanding 8.125% notes or outstanding 8.750% notes at any time prior
to 5:00 p.m., New York City time, on the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at its
address set forth below under "-- Exchange Agent," or
- you must comply with the appropriate procedures of DTC's automated tender
offer program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding 8.125% notes
or outstanding 8.750% notes to be withdrawn; and
- identify the outstanding 8.125% notes or outstanding 8.750% notes to be
withdrawn, including the principal amount of the outstanding 8.125% notes
or outstanding 8.750% notes.
If outstanding 8.125% notes or outstanding 8.750% notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn outstanding 8.125% notes or outstanding 8.750% notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal, and our determination shall be final
and binding on all parties. We will deem any outstanding 8.125% notes or
outstanding 8.750% notes so withdrawn not to have been validly tendered for
exchange for purposes of the exchange offer.
Any outstanding 8.125% notes or outstanding 8.750% notes that have been
tendered for exchange but that are not exchanged for any reason will be returned
to their holder without cost to the holder or, in the
31
case of outstanding 8.125% notes or outstanding 8.750% notes tendered by
book-entry transfer into the exchange agent's account at DTC according to the
procedures described above, such outstanding 8.125% notes or outstanding 8.750%
notes will be credited to an account maintained with DTC for the outstanding
8.125% notes or outstanding 8.750% notes. This return or crediting will take
place as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. You may retender properly withdrawn
outstanding 8.125% notes or outstanding 8.750% notes by following one of the
procedures described under "-- Procedures for Tendering Outstanding Securities"
at any time on or prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any new 8.125%
notes for, any outstanding 8.125% notes tendered, nor will we be required to
accept for exchange, or exchange any new 8.750% notes for, any outstanding
8.750% notes tendered, and we may terminate, extend or amend the exchange offer
and may, subject to Rule 14e-1 under the Exchange Act, which requires that an
offeror pay the consideration offered or return the securities deposited by or
on behalf of the holders thereof promptly after the termination or withdrawal of
a tender offer, postpone the acceptance for exchange of outstanding 8.125% notes
and outstanding 8.750% notes so tendered if, on or prior to the expiration date
of the exchange offer, the following shall have occurred:
- we have determined that the offering and sales under the registration
statement, the filing of such registration statement or the maintenance
of its effectiveness would require disclosure of or would interfere in
any material respect with any material financing, merger, offering or
other transaction involving us or would otherwise require disclosure of
nonpublic information that could materially and adversely affect us;
- we have determined that the exchange offer would violate any applicable
law or interpretation of the staff of the SEC; or
- any legal action has been instituted or threatened that would impair our
ability to proceed with the exchange offer.
The conditions to the exchange offer are for our sole benefit and may be
asserted by us in our sole discretion or may be waived by us, in whole or in
part, in our sole discretion, whether or not any other condition of the exchange
offer also is waived. We have not made a decision as to what circumstances would
lead us to waive any condition, and any waiver would depend on circumstances
prevailing at the time of that waiver. Any determination by us concerning the
events described in this section shall be final and binding upon all persons.
ALTHOUGH WE HAVE NO PRESENT PLANS OR ARRANGEMENTS TO DO SO, WE RESERVE THE
RIGHT TO AMEND, AT ANY TIME, THE TERMS OF THE EXCHANGE OFFER. WE WILL GIVE
HOLDERS NOTICE OF ANY AMENDMENTS IF REQUIRED BY APPLICABLE LAW.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your outstanding 8.125% notes for new 8.125% notes
or exchange your outstanding 8.750% notes for new 8.750% notes in the exchange
offer, your outstanding 8.125% notes and outstanding 8.750% notes will remain
outstanding and will continue to be subject to the currently applicable
restrictions on transfer:
- as set forth in the legend printed on the outstanding 8.125% notes and
the outstanding 8.750% notes as a consequence of the issuance of the
outstanding 8.125% notes or outstanding 8.750% notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws;
and
- otherwise set forth in the offering memorandum distributed in connection
with the private offerings of the outstanding 8.125% notes and
outstanding 8.750% notes.
32
In general, you may not offer or sell the outstanding 8.125% notes or
outstanding 8.750% notes unless they are registered under the Securities Act, or
unless the offer or sale is exempt from registration under the Securities Act
and applicable state securities laws. Except as required by the registration
rights agreement, we do not intend to register resales of the outstanding 8.125%
notes or outstanding 8.750% notes under the Securities Act. Based on
interpretations of the SEC staff, you may offer for resale, resell or otherwise
transfer new 8.125% notes and new 8.750% notes issued in the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that (1) you are not our "affiliate" within the
meaning of Rule 405 under the Securities Act, (2) you acquired the new 8.125%
notes or new 8.750% notes in the ordinary course of your business and (3) you
have no arrangement or understanding with respect to the distribution of the new
8.125% notes or new 8.750% notes to be acquired in the exchange offer. If you
tender outstanding 8.125% notes or outstanding 8.750% notes in the exchange
offer for the purpose of participating in a distribution of the new 8.125% notes
or new 8.750% notes:
- you cannot rely on the applicable interpretations of the SEC; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K.
The trading market for outstanding 8.125% notes and outstanding 8.750%
notes not exchanged in the exchange offer may be significantly more limited than
it is at present. Therefore, if your outstanding 8.125% notes and outstanding
8.750% notes are not tendered and accepted in the exchange offer, it may become
more difficult for you to sell or transfer your unexchanged securities. See
"Risk Factors -- Risks Arising from the Exchange Offer."
EXCHANGE AGENT
JPMorgan Chase Bank has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus, the letter of transmittal or any other
documents to the exchange agent. You should send certificates for outstanding
8.125% notes, outstanding 8.750% notes, letters of transmittal and any other
required documents to the exchange agent addressed as follows:
JPMorgan Chase Bank
Corporate Trust Services
2001 Bryan Street
9th floor
Dallas, Texas 75201
Attention: Frank Ivins
TRANSFER TAXES
We will pay all transfer taxes applicable to the transfer and exchange of
outstanding 8.125% notes and outstanding 8.750% notes pursuant to the exchange
offer. If, however:
- delivery of the new 8.125% notes or new 8.750% notes and/or certificates
for outstanding 8.125% notes or outstanding 8.750% notes for principal
amounts not exchanged, are to be made to any person other than the record
holder of the outstanding 8.125% notes or outstanding 8.750% notes
tendered;
- tendered certificates for outstanding 8.125% notes or outstanding 8.750%
notes are recorded in the name of any person other than the person
signing any letter of transmittal; or
- a transfer tax is imposed for any reason other than the transfer and
exchange of outstanding 8.125% notes or outstanding 8.750% notes to us or
our order,
33
then the amount of any such transfer taxes, whether imposed on the record holder
or any other person, will be payable by the tendering holder prior to the
issuance of the new 8.125% notes or new 8.750% notes.
DESCRIPTION OF THE NEW SECURITIES
We will issue the new 8.125% notes and the new 8.750% notes under an
indenture dated as of November 10, 1997, as amended by a seventh supplemental
indenture between us and JPMorgan Chase Bank (successor trustee to Bank One
Trust Company, N.A.), as trustee. The outstanding 8.125% notes and the
outstanding 8.750% notes were also issued under this indenture and supplemental
indenture. The terms of the outstanding 8.125% notes and the outstanding 8.750%
notes are identical in all material respects to the terms of the new 8.125%
notes and the new 8.750% notes, respectively, except that the outstanding 8.125%
notes and the outstanding 8.750% notes contain terms with respect to transfer
restrictions (and therefore are not freely tradeable).
The terms of the new 8.125% notes and the new 8.750% notes include those
set forth in the indenture and those made a part of the indenture by reference
to the Trust Indenture Act of 1939. The following description is a summary of
the material provisions of the new 8.125% notes, the new 8.750% notes and the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture and the seventh supplemental indenture because those
documents, and not this description, define your rights as holders of the new
8.125% notes and the new 8.750% notes. Copies of the indenture and the seventh
supplemental indenture are available at the offices of the trustee and have been
filed or incorporated by reference as exhibits to the registration statement of
which this prospectus is a part.
TERMS AND CONDITIONS
The new 8.125% notes will mature on March 15, 2012.
The new 8.750% notes will mature on March 15, 2032.
Interest will be payable semi-annually on March 15 and September 15 of each
year, beginning September 15, 2003, to the person in whose names the new 8.125%
notes or the new 8.750% notes are registered at the close of business on the
preceding March 1 and September 1, respectively, subject to certain exceptions.
Holders of new 8.125% notes and new 8.750% notes will receive interest from
March 15, 2003, the date of the last payment of interest on the outstanding
8.125% notes and the outstanding 8.750% notes. Interest on the new 8.125% notes
and the new 8.750% notes will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
The new 8.125% notes and the new 8.750% notes will be our unsecured and
unsubordinated obligations ranking equally with our other outstanding unsecured
and unsubordinated indebtedness.
The new 8.125% notes and the new 8.750% notes will be redeemable, in whole
or in part, at any time, at our option, at a redemption price equal to the
greater of:
- 100% of the principal amount of the new 8.125% notes or the new 8.750%
notes then outstanding to be redeemed, or
- the sum of the present values of the remaining scheduled payments of
principal and interest thereon discounted to the redemption date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Rate, as defined below, plus 37.5 basis points,
plus accrued interest thereon to the date of redemption.
We will mail notice of redemption at least 30 days but not more than 60
days before the applicable redemption date to each holder of the new 8.125%
notes or new 8.750% notes to be redeemed.
Upon the payment of the redemption price, plus accrued and unpaid interest,
if any, to the date of redemption, interest will cease to accrue on and after
the applicable redemption date on the new 8.125% notes and the new 8.750% notes
or portions thereof called for redemption.
34
There is no provision for a sinking fund applicable to the notes.
We may, from time to time, without the consent of the existing holders of
the relevant series of notes, issue additional notes under the indenture having
the same ranking and the same interest rate, maturity and other terms as the
notes of such series in all respects except the issue date, the issue price and
the initial interest payment date. Any additional notes will, together with the
applicable notes, constitute a single series of notes under the indenture.
COVENANTS
Liens. The indenture refers to any of our instruments securing
indebtedness, such as a mortgage, pledge, lien, security interest or encumbrance
on any of our property, as a "mortgage." The indenture further provides that,
subject to certain exceptions, we will not, nor will we permit any subsidiary
to, issue, assume or guarantee any indebtedness secured by a mortgage unless we
provide equal and proportionate security for the senior debt securities,
including the new 8.125% notes and the new 8.750% notes, we issue under the
indenture. Among these exceptions are:
- certain purchase money mortgages;
- certain preexisting mortgages on any property acquired or constructed by
us or a subsidiary;
- certain mortgages created within one year after completion of such
acquisition or construction;
- certain mortgages created on any contract for the sale of products or
services related to the operation or use of any property acquired or
constructed within one year after completion of such acquisition or
construction;
- mortgages on property of a subsidiary existing at the time it became our
subsidiary; and
- mortgages, other than as specifically excepted, in an aggregate amount
which, at the time of, and after giving effect to, the incurrence does
not exceed five percent of Consolidated Net Tangible Assets, as defined
below.
Consolidation, Merger, Conveyance of Assets. The indenture provides, in
general, that we will not consolidate with or merge into any other entity or
convey, transfer or lease our properties and assets substantially as an entirety
to any person, unless:
- the corporation, limited liability company, limited partnership, joint
stock company or trust formed by such consolidation or into which we are
merged or the person which acquires such assets expressly assumes our
obligations under the indenture and the debt securities issued under the
indenture; and
- immediately after giving effect to such transaction, no event of default,
and no event which, after notice or lapse of time or both, would become
an event of default, shall have happened and be continuing.
MODIFICATION OF THE INDENTURE
The indenture provides that we and the trustee may enter into supplemental
indentures which conform to the provisions of the Trust Indenture Act of 1939
without the consent of the holders to, in general:
- secure any debt securities;
- evidence the assumption by a successor person of our obligations;
- add further covenants for the protection of the holders;
- cure any ambiguity or correct any inconsistency in the indenture, so long
as such action will not adversely affect the interests of the holders;
35
- establish the form or terms of debt securities of any series; and
- evidence the acceptance of appointment by a successor trustee.
The indenture also permits us and the trustee to:
- add any provisions to the indenture;
- change in any manner the indenture;
- eliminate any of the provisions of the indenture; and
- modify in any way the rights of the holders of debt securities of each
series affected.
The above actions require the consent of the holders of at least a majority
in principal amount of debt securities of each series issued under the indenture
then outstanding and affected. These holders will vote as one class to approve
such changes. The 8.125% notes and the 8.750% notes will constitute two
different series under the indenture.
Such changes must, however, conform to the Trust Indenture Act of 1939 and
we and the trustee may not, without the consent of each holder of outstanding
debt securities affected thereby:
- extend the final maturity of the principal of any debt securities;
- reduce the principal amount of any debt securities;
- reduce the rate or extend the time of payment of interest on any debt
securities;
- reduce any amount payable on redemption of any debt securities;
- change the currency in which the principal, including any amount in
respect of original issue discount, or interest on any debt securities is
payable;
- reduce the amount of any original issue discount security payable upon
acceleration or provable in bankruptcy;
- alter certain provisions of the indenture relating to debt securities not
denominated in U.S. dollars or for which conversion to another currency
is required to satisfy the judgment of any court;
- impair the right to institute suit for the enforcement of any payment on
any debt securities when due; or
- reduce the percentage in principal amount of debt securities of any
series issued under the indenture, the consent of the holders of which is
required for any such modification.
EVENTS OF DEFAULT
In general, the indenture defines an event of default with respect to debt
securities of any series issued under the indenture as being:
(a) default in payment of any principal of the debt securities of such
series, either at maturity, upon any redemption, by declaration or
otherwise;
(b) default for 30 days in payment of any interest on any debt
securities of such series unless otherwise provided;
(c) default for 90 days after written notice in the observance or
performance of any covenant or warranty in the debt securities of such
series or the indenture other than
- default in or breach of a covenant which is dealt with otherwise
below, or
- if certain conditions are met, if the events of default described in
this clause (c) are the result of changes in generally accepted
accounting principles; or
(d) certain events of bankruptcy, insolvency or reorganization of us.
36
In general, the indenture provides that if an event of default described in
clauses (a), (b) or (c) above occurs and does not affect all series of debt
securities then outstanding, the trustee or the holders of debt securities may
then declare the following amounts to be due and payable immediately:
- the entire principal of all debt securities of each series affected by
the event of default; and
- the interest accrued on such principal.
Such a declaration by the holders requires the approval of at least 25
percent in principal amount of the debt securities of each series issued under
the indenture and then outstanding, treated as one class, which are affected by
the event of default.
The indenture also generally provides that if a default described in clause
(c) above which is applicable to all series of debt securities then outstanding
or certain events of bankruptcy, insolvency and reorganization of us occur and
are continuing, the trustee or the holders of debt securities may declare the
entire principal of all such debt securities and interest accrued thereon to be
due and payable immediately. This declaration by the holders requires the
approval of at least 25 percent in principal amount of all debt securities
issued under the indenture and then outstanding, treated as one class. Upon
certain conditions, the holders of a majority in aggregate principal amount of
the debt securities of all such affected series then outstanding may annul such
declarations and waive the past defaults. However, the majority holders may not
annul or waive a continuing default in payment of principal of, premium, if any,
or interest on such debt securities.
The indenture provides that the holders of debt securities issued under the
indenture, treated as one class, will indemnify the trustee before the trustee
exercises any of its rights or powers under the indenture. This indemnification
is subject to the trustee's duty to act with the required standard of care
during a default. The holders of a majority in aggregate principal amount of the
outstanding debt securities of each series affected, treated as one class,
issued under the indenture may direct the time, method and place of:
- conducting any proceeding for any remedy available to the trustee, or
- exercising any trust or power conferred on the trustee.
This right of the holders of debt securities is, however, subject to the
provisions in the indenture providing for the indemnification of the trustee and
other specified limitations.
In general, the indenture provides that holders of debt securities issued
under the indenture may only institute an action against us under the indenture
if the following four conditions are fulfilled:
- the holder previously has given to the trustee written notice of default
and the default continues;
- the holders of at least 25 percent in principal amount of the debt
securities of each affected series (treated as one class) issued under
the indenture and then outstanding have both (1) requested the trustee to
institute such action and (2) offered the trustee reasonable indemnity;
- the trustee has not instituted such action within 60 days of receipt of
such request; and
- the trustee has not received direction inconsistent with such written
request by the holders of a majority in principal amount of the debt
securities of each affected series (treated as one class) issued under
the indenture and then outstanding.
The above four conditions do not apply to actions by holders of the debt
securities under the indenture against us for payment of principal or interest
on or after the due date provided. The indenture contains a covenant that we
will file annually with the trustee a certificate of no default or a certificate
specifying any default that exists.
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
We can discharge or defease our obligations under the indenture as set
forth below.
Under terms satisfactory to the trustee, we may discharge certain
obligations to holders of any series of debt securities issued under the
indenture which have not already been delivered to the trustee for cancellation.
Such debt securities must also:
- have become due and payable;
- be due and payable by their terms within one year; or
- be scheduled for redemption by their terms within one year.
We may discharge any series of debt securities by irrevocably depositing an
amount certified to be sufficient to pay at maturity or upon redemption the
principal of and interest on such debt securities. We may make such deposit in
cash or, in the case of debt securities payable only in U.S. dollars, U.S.
government obligations, as defined in the indenture.
We may also, upon satisfaction of the conditions listed below, discharge
certain obligations to holders of any series of debt securities issued under the
indenture at any time ("Defeasance"). Under terms satisfactory to the trustee,
we may be released with respect to any outstanding series of debt securities
issued under the indenture from the obligations imposed by sections 3.6 and 9.1
of the indenture. These sections contain the covenants described above limiting
liens and consolidations, mergers and conveyances of assets. Also, under terms
satisfactory to the trustee, we may avoid compliance with these sections without
creating an event of default ("Covenant Defeasance"). Defeasance or Covenant
Defeasance may be effected only if, among other things:
- we irrevocably deposit with the trustee cash or, in the case of debt
securities payable only in U.S. dollars, U.S. government obligations as
trust funds in an amount certified to be sufficient to pay at maturity or
upon redemption the principal of and interest on all outstanding debt
securities of such series issued under the indenture; and
- we deliver to the trustee an opinion of counsel to the effect that the
holders of this series of debt securities will not recognize income, gain
or loss for United States federal income tax purposes as a result of such
Defeasance or Covenant Defeasance. Such opinion must further state that
these holders will be subject to United States federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if Defeasance or Covenant Defeasance had not occurred. In the
case of a Defeasance, this opinion must be based on a ruling of the
Internal Revenue Service or a change in United States federal income tax
law occurring after the date of the indenture, since this result would
not occur under current tax law.
CONCERNING THE TRUSTEE
The trustee is one of a number of banks with which we and our subsidiaries
maintain ordinary banking relationships and with which we and our subsidiaries
maintain credit facilities.
GOVERNING LAW
The indenture, the new 8.125% notes and the new 8.750% notes are governed
by, and construed in accordance with, the laws of the State of New York.
DEFINED TERMS
Set forth below are some of the definitions of the defined terms used in
this prospectus in describing the new 8.125% notes and the new 8.750% notes.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes to be redeemed
38
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of such notes.
"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (2) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if we obtain fewer than four such Reference Treasury Dealer Quotations, the
average of all such Reference Treasury Dealer Quotations.
"Consolidated Funded Indebtedness" means the aggregate of all outstanding
Funded Indebtedness of Williams and its consolidated subsidiaries, determined on
a consolidated basis in accordance with generally accepted accounting
principles.
"Consolidated Net Tangible Assets" means the total assets appearing on a
consolidated balance sheet of Williams and its consolidated subsidiaries less,
in general:
- intangible assets;
- current and accrued liabilities (other than Consolidated Funded
Indebtedness and capitalized rentals or leases), deferred credits,
deferred gains and deferred income;
- reserves;
- advances to finance oil or natural gas exploration and development to the
extent that the indebtedness related thereto is excluded from Funded
Indebtedness;
- an amount equal to the amount excluded from Funded Indebtedness
representing the "production payment" financing of oil and gas
exploration and development; and
- minority stockholder interests.
"Funded Indebtedness" means any indebtedness which matures more than one
year after the date the amount of Funded Indebtedness is being determined, less
any such indebtedness as will be retired by any deposit or payment required to
be made within one year from such date under any prepayment provision, sinking
fund, purchase fund or otherwise. Funded Indebtedness does not, however, include
indebtedness of Williams or any of its subsidiaries incurred to finance
outstanding advances to others to finance oil or natural gas exploration and
development, to the extent that the latter are not in default in their
obligations to Williams or such subsidiary. Funded Indebtedness also does not
include indebtedness of Williams or any of its subsidiaries incurred to finance
oil or natural gas exploration and development through what is commonly referred
to as a "production payment" to the extent that Williams or any of its
subsidiaries have not guaranteed the repayment of the production payment.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by us.
"Reference Treasury Dealers" means Lehman Brothers Inc. and J.P. Morgan
Securities Inc. and their respective successors and, at our option, additional
primary U.S. Government securities dealers ("Primary Treasury Dealers");
provided, however, that if any of the foregoing shall cease to be a Primary
Treasury Dealer, we shall substitute another nationally recognized investment
banking firm that is a Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
us, of the bid and asked prices for the Comparable Treasury Issue (expressed in
each case as a percentage of its principal amount) quoted in writing to us by
such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third
business day preceding such redemption date.
39
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to a maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount equal to the Comparable Treasury Price for
such redemption date).
Investors should note that the term "subsidiary," as used in this section
describing the notes, refers only to a corporation of which Williams, or another
subsidiary or subsidiaries of Williams, own at least a majority of the
outstanding securities which have voting power.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The new 8.125% notes and new 8.750% notes will be evidenced by one or more
certificates in registered global form, which will be deposited with, or on
behalf of, The Depository Trust Company (DTC) in New York, New York and
registered in the name of Cede & Co., DTC's nominee. Except as set forth below,
a global note may be transferred, in whole or in part, only to another nominee
of DTC or to a successor to DTC or its nominee.
DEPOSITARY PROCEDURES
DTC has advised us that it is a:
- limited-purpose trust company organized under the laws of the State of
New York;
- banking organization within the meaning of the laws of the State of New
York;
- member of the Federal Reserve System;
- clearing corporation within the meaning of the New York Uniform
Commercial Code; and
- clearing agency registered pursuant to the provisions of Section 17A of
the Exchange Act.
DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its participants
through electronic book-entry changes in their accounts, thereby eliminating the
need for physical movement of securities certificates. DTC's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations. Banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant also have access to DTC's book-entry system.
Holders of new 8.125% notes and new 8.750% notes may hold their beneficial
interests in the securities directly as a participant in DTC or indirectly
through organizations that are participants in DTC.
Upon deposit of the global notes with DTC, DTC will credit, on its
book-entry registration and transfer system, the accounts of those participants
designated by the Exchange Agent with the principal amounts of the global notes
held by or through the participants. The records of DTC will show ownership and
effect the transfer of ownership of the global notes by its participants. The
records of the participants will show ownership and effect the transfer of
ownership of the global notes by persons holding beneficial interests in the
global notes through them. In the case of beneficial interests held by or though
participants in Euroclear Bank S.A./N.V., as operator of the Euroclear System
and Clearstream Banking S.A., DTC will credit the accounts of their respective
depositaries with the principal amounts of the global notes beneficially owned
by or through Euroclear and Clearstream, respectively. These records of DTC will
show ownership and effect the transfer of ownership of the global notes by the
respective depositaries for Euroclear and Clearstream. The records of these
depositaries will show ownership and effect the transfer of ownership of the
global notes by Euroclear and Clearstream, respectively. The records of
Euroclear and Clearstream will show ownership and effect the transfer of
ownership of the global notes by their participants. The records of the
participants will show ownership or transfer of ownership of the global notes by
persons holding through them.
40
So long as DTC or its nominee is the registered owner of the global notes,
it will be considered the sole owner and holder of the securities for all
purposes under the indenture. Except as set forth below, if you own a beneficial
interest in global notes, you will not:
- be entitled to have the securities registered in your name;
- receive or be entitled to receive physical delivery of a certificate in
definitive form representing the securities; or
- be considered the owner or holder of the securities under the indenture
for any purpose, including with respect to the giving of any directions,
approvals or instructions to the trustee.
Therefore, if you are required by state law to take physical delivery of
the securities in definitive form, you may not be able to own, transfer or
pledge beneficial interests in the global notes. In addition, the lack of a
physical certificate evidencing your beneficial interests in the global notes
may limit your ability to pledge the interests to a person or entity that is not
a participant in DTC.
If you own beneficial interests in a global note, you will have to rely on
the procedures of DTC and, if you are not a participant in DTC, the procedures
of the participant through which you hold your beneficial interests, to exercise
your rights as a holder under the indenture. DTC has advised us that it will
take any action permitted to be taken by a holder of beneficial interests in the
global notes only at the direction of one or more of the participants to whose
accounts the interests are credited. We understand that, under existing industry
practice, when a beneficial owner of a global note wants to give any notice or
take any action that a registered holder is entitled to take, at our request or
under the indenture, DTC will authorize the participant to give the notice or
take the action, and the participant will authorize its beneficial owners to
give the notice or take the action. Accordingly, we and the trustee will treat
as a holder anyone designated as such in writing by DTC for purposes of
obtaining any consents or directions required under the indenture.
We will pay the principal of, and interest on, the global notes through the
trustee or paying agent to DTC or its nominee, as the registered holder of the
global notes, in immediately available funds. We expect DTC or its nominee, upon
receipt of any payments, to immediately credit each participant's account with
payments in amounts proportionate to that participant's beneficial interest as
shown on the records of DTC or its nominee. We also expect each participant to
pay each owner of beneficial interests in the global notes held through that
participant in accordance with standing customer instructions and customary
practices. These payments will be the sole responsibility of the participants.
We will not, and the trustee and paying agent will not, assume any
responsibility or liability for any aspect of the records relating to payments
made on account of or actions taken with respect to the beneficial ownership
interests in global notes, or for any other aspect of the relationship between
DTC and its participants, Euroclear or Clearstream and their participants, or
between the participants and the owners of beneficial interests. We, the trustee
and the paying agent may conclusively rely on instructions from DTC for all
purposes. We obtained the above information about DTC, Euroclear and Clearstream
and their book-entry systems from sources we believe are reliable, but we take
no responsibility for the accuracy of the information.
SETTLEMENT PROCEDURES
Secondary market trading between DTC participants will occur in the
ordinary way in accordance with DTC's rules and procedures and will be settled
in immediately available funds using DTC's Same-Day Funds Settlement System.
Secondary market trading between participants of Euroclear and/or
Clearstream will occur in the ordinary way in accordance with each of its rules
and procedures and will be settled using the procedures applicable to
conventional Eurobonds in immediately available funds. The respective
depositaries for Euroclear and Clearstream will effect transfers in global notes
between DTC participants, on the one hand, and Euroclear or Clearstream
participants, on the other hand, in accordance with DTC's procedures and
41
will settle them in same-day funds. These depositaries must deliver instructions
to Euroclear or Clearstream in accordance with Euroclear's or Clearstream's
procedures. If the transfer meets its settlement requirements, Euroclear or
Clearstream will instruct its respective depositary to effect final settlement
on its behalf by delivering or receiving interests in the global notes in its
accounts with DTC and making or receiving payment in accordance with normal
procedures of same-day funds settlement applicable to DTC. Participants in
Euroclear and Clearstream may not deliver instructions directly to the
depositaries for Euroclear and Clearstream.
Because of time zone differences, the accounts of Euroclear and Clearstream
participants purchasing beneficial interests in the global notes from DTC
participants will be credited with the securities purchased, and the crediting
will be reported to the Euroclear and Clearstream participants, on the
securities settlement processing day immediately following the DTC settlement
processing day. Likewise, the accounts of Euroclear and Clearstream participants
selling beneficial interests in the global notes to DTC participants will be
credited with the cash received on the DTC settlement processing day, but the
cash will not be available until the settlement processing day immediately
following the DTC settlement processing day.
Although DTC, Euroclear and Clearstream have agreed to the procedures to
facilitate transfers of interests in the global notes among participants in DTC,
Euroclear and Clearstream, they are under no obligation to perform or to
continue to perform these procedures. These procedures may be changed or
discontinued at any time. We take no responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants of their respective
obligations under the rules and procedures governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
We will exchange beneficial interests in global notes for certificated
notes only if:
- DTC notifies us that it is unwilling or unable to continue as depositary
for the global notes;
- DTC ceases to be a clearing agency registered under the Exchange Act; or
- we decide at any time not to have the securities represented by global
notes and so notify the trustee.
If there is an exchange, we will issue certificated notes in authorized
denominations and registered in the names which DTC directs.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of White & Case LLP, special tax counsel to Williams, the
following statements discuss the material U.S. federal income tax consequences
of the exchange of outstanding securities for the new securities in the exchange
offer and constitute the opinion of White & Case LLP regarding such matters. The
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, judicial authorities, published positions of the
Internal Revenue Service (the "IRS") and other applicable authorities, all as in
effect on the date hereof and all of which are subject to change or differing
interpretations (possibly with retroactive effect). The discussion does not
address all of the tax consequences that may be relevant to a particular holder
or to certain holders subject to special treatment under U.S. federal income tax
laws. This discussion is limited to persons that hold their outstanding
securities and new securities as "capital assets" within the meaning of section
1221 of the Code. Williams has not sought, and does not intend to seek, a ruling
from the IRS regarding the matters discussed herein. No assurance can be given
that the IRS would not assert, or that a court would not sustain, a position
contrary to any of the tax aspects set forth below. PROSPECTIVE INVESTORS MUST
CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF NEW SECURITIES, AS WELL AS THE EFFECTS OF
STATE, LOCAL AND NON-U.S. TAX LAWS.
42
For purposes of this discussion, the term "U.S. holder" means any one of
the following:
- a citizen or resident of the United States;
- a corporation (or other entity treated as a corporation for U.S. federal
income tax purposes) created or organized in the United States or under
the laws of the United States or of any political subdivision thereof;
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source;
- a trust, the administration of which is subject to the primary
supervision of the U.S. courts and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust, or
that was in existence on August 20, 1996 and properly elected to continue
to be treated as a U.S. person; or
- any individual or entity described above that is otherwise subject to
U.S. federal income tax on a net income basis with respect to the new
securities.
The term "non-U.S. holder" means a holder that is not a U.S. holder.
The term "new securities" means the new 8.125% notes and the new 8.750%
notes.
The term "outstanding securities" means the outstanding 8.125% notes and
the outstanding 8.750% notes.
EXCHANGE OF OUTSTANDING SECURITIES FOR NEW SECURITIES
The exchange of the outstanding securities for the new securities issued in
the exchange offer will not be treated as an "exchange" for U.S. federal income
tax purposes because the new securities issued in the exchange offer will not be
considered to differ materially in kind or extent from the outstanding
securities. Rather, the new securities issued in the exchange offer received by
a holder will be treated as a continuation of the outstanding securities in the
hands of such holder. As a result, no gain or loss will be recognized by a
holder who exchanges outstanding securities for new securities in the exchange
offer and any exchanging holder of outstanding securities will have the same tax
basis and holding period in, and income in respect of, the new securities as
such holder had in the outstanding securities immediately prior to the exchange.
U.S. HOLDERS
Payments of Interest. Payments of interest on new securities generally
will be taxable to a U.S. holder as ordinary interest income at the time such
payments are accrued or received (in accordance with the U.S. holder's method of
accounting for U.S. federal income tax purposes).
Disposition of New Securities. Upon the sale or other disposition of a new
security, a U.S. holder will generally recognize capital gain or loss equal to
the difference between the amount realized on the sale or other disposition and
the holder's adjusted tax basis in the new security. For these purposes, the
amount realized on the sale or other disposition of a new security does not
include any amount received attributable to accrued but unpaid interest, which
will be taxable as ordinary income unless previously taken into account. Capital
gain or loss on the sale or other disposition of a new security will be
long-term capital gain or loss if the holder's cumulative holding period with
respect to the new security and the outstanding securities exchanged therefor is
more than one year at the time of the sale or other disposition.
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NON-U.S. HOLDERS
Payments of Interest. Subject to the discussion below concerning
information reporting and backup withholding, payments of interest on a new
security to any non-U.S. holder will generally not be subject to U.S. federal
income tax or withholding tax, provided that all of the following are true:
- the interest on the new security is not effectively connected with the
non-U.S. holder's conduct of a trade or business within the United
States;
- the non-U.S. holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of Williams stock;
- the non-U.S. holder is not a "controlled foreign corporation" with
respect to which Williams is a "related person" for U.S. federal income
tax purposes; and
- the non-U.S. holder either (A) certifies, on IRS Form W-8BEN (or a
permissible substitute or successor form) under penalties of perjury,
that it is a non-U.S. holder and provides its name and address, or (B) is
a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") and holds the new securities,
certifies under penalties of perjury that it has received an IRS Form
W-8BEN (or a permissible substitute or successor form) from the
beneficial owner of the new securities or that another financial
institution has received such Form from the beneficial owner, and
furnishes the payor with a copy thereof.
Interest paid to a non-U.S. holder that does not qualify for exemption from
withholding tax generally will be subject to withholding of U.S. federal income
tax unless the non-U.S. holder of the new securities provides to Williams a
properly executed:
(i) IRS Form W-8BEN (or a permissible substitute or successor form)
claiming an exemption from (or reduction in) withholding under the benefit
of an applicable income tax treaty; or
(ii) IRS Form W-8ECI (or a permissible substitute or successor form)
stating that the interest paid on new securities is not subject to
withholding tax because it is effectively connected with the non-U.S.
holder's conduct of a trade or business in the United States.
Non-U.S. holders should consult any applicable income tax treaties, which
may provide for exemption from (or reduction in) U.S. withholding for other
rules different from those described above.
Disposition of New Securities. Subject to the discussion below concerning
information reporting and backup withholding, any gain realized by a non-U.S.
holder on the sale or other disposition of new securities generally will not be
subject to U.S. federal income tax, unless (i) such gain is effectively
connected with the conduct by such non-U.S. holder of a trade or business within
the U.S. or (ii) the non-U.S. holder is an individual who is present in the
United States for 183 days or more in the taxable year of the disposition and
certain other conditions are satisfied.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, Williams must report annually to the IRS and to each holder the
amounts of interest paid to that holder, and the amount of tax, if any, that was
withheld on the interest. This information may also be made available to the tax
authorities of a country in which a non-U.S. holder resides.
Backup withholding will generally apply to interest payments made to
persons that fail to furnish certain required information. A U.S. holder may be
subject to backup withholding on interest payments with respect to new
securities unless such U.S. holder (i) is a corporation or comes within certain
other exempt categories and demonstrates this fact, or (ii) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements. Backup
withholding generally will not apply to interest payments made in respect of new
securities held by a non-U.S. holder, if the holder properly certifies as to its
non-U.S. status or otherwise establishes an exemption.
44
Backup withholding is not an additional tax. Any amounts we withhold under
the backup withholding rules will be allowed as a refund or credit against such
non-U.S. holder's federal income tax liability, provided that the requisite
procedures are followed and certain information is provided to the IRS.
In the case of the payment of proceeds from the disposition of new
securities to or through a non-U.S. office of a U.S. broker, or foreign brokers
with certain types of relationships to the United States, information reporting,
but not backup withholding, will be required on the payment, unless the broker
has documentary evidence in its files that the owner is a non-U.S. holder and
certain other conditions are met, or the holder otherwise establishes an
exemption.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC in no-action letters
issued to third parties, we believe that you may transfer new 8.125% notes and
new 8.750% notes issued under the exchange offer in exchange for the outstanding
8.125% notes and outstanding 8.750% notes if:
- you acquire the new 8.125% notes or new 8.750% notes in the ordinary
course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the new 8.125% notes or new 8.750% notes.
Broker-dealers receiving new 8.125% notes or new 8.750% notes in the
exchange offer will be subject to a prospectus delivery requirement with respect
to resales of the new 8.125% notes and new 8.750% notes.
We believe that you may not transfer new 8.125% notes or new 8.750% notes
issued under the exchange offer in exchange for the outstanding 8.125% notes or
outstanding 8.750% notes without compliance with the registration and prospectus
delivery provisions of the Securities Act if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act;
- a broker-dealer that acquired outstanding 8.125% notes or outstanding
8.750% notes directly from us; or
- a broker-dealer that acquired outstanding 8.125% notes or outstanding
8.750% notes as a result of market-making or other trading activities.
To date, the staff of the SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as this exchange offer,
other than a resale of an unsold allotment from the original sale of the
outstanding 8.125% notes or outstanding 8.750% notes, with the prospectus
contained in the exchange offer registration statement. We have agreed to permit
participating broker-dealers to use this prospectus in connection with the
resale of new 8.125% notes and new 8.750% notes.
If you wish to exchange your outstanding 8.125% notes for new 8.125% notes
or your outstanding 8.750% notes for new 8.750% notes in the exchange offer, you
will be required to make representations to us as described in "The Exchange
Offer -- Exchange Terms" and "-- Procedures for Tendering Outstanding
Securities -- Other Matters" in this prospectus and in the letter of
transmittal. In addition, if you are a broker-dealer who receives new 8.125%
notes or new 8.750% notes for your own account in exchange for outstanding
8.125% notes or outstanding 8.750% notes that were acquired by you as a result
of market-making activities or other trading activities, you will be required to
acknowledge that you will deliver a prospectus in connection with any resale by
you of such new 8.125% notes or new 8.750% notes. See "The Exchange
Offer -- Resale of New Securities."
45
We will not receive any proceeds from any sale of new 8.125% notes or new
8.750% notes by broker-dealers or from any other person. Broker-dealers who
receive new 8.125% notes or new 8.750% notes for their own account in the
exchange offer may sell them from time to time in one or more transactions:
- in the over-the-counter market;
- in negotiated transactions;
- through the writing of options on the new 8.125% notes or new 8.750%
notes or a combination of such methods of resale;
- at market prices prevailing at the time of resale; and
- at prices related to such prevailing market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any new 8.125% notes or new 8.750%
notes. Any broker-dealer that resells new 8.125% notes or new 8.750% notes it
received for its own account in the exchange offer and any broker or dealer that
participates in a distribution of such new 8.125% notes or new 8.750% notes may
be deemed to be an "underwriter" within the meaning of the Securities Act. Any
profit on any resale of new 8.125% notes or new 8.750% notes and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers. We will indemnify
holders of the outstanding 8.125% notes and outstanding 8.750% notes, including
any broker-dealers, against certain liabilities, including liabilities under the
Securities Act, as provided in the registration rights agreement.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus, excluding historical
information, include forward-looking statements -- statements that discuss our
expected future results based on current and pending business operations.
Forward-looking statements can be identified by words such as "anticipates,"
"believes," "could," "continues," "estimates," "expects," "forecasts," "might,"
"planned," "potential," "projects," "scheduled" or similar expressions. Although
we believe these forward-looking statements are based on reasonable assumptions,
statements made regarding future results are subject to a number of assumptions,
uncertainties and risks that could cause future results to be materially
different from the results stated or implied in this prospectus. Events in 2002
significantly impacted the risk environment all businesses face and raised a
level of uncertainty in the capital markets that has approached that which led
to the general market collapse of 1929. Beliefs and assumptions as to what
constitutes appropriate levels of capitalization and fundamental value have
changed abruptly. The deterioration of our energy industry sector in the wake of
the collapse of Enron combined with the meltdown of the telecommunications
industry are both new realities that have had and will likely continue to have
specific impacts on all companies, including us. Although we believe these
forward-looking statements are based on reasonable assumptions, statements made
regarding future results are subject to a number of assumptions, uncertainties
and risks that could cause future results to be materially different from the
results stated or implied in this prospectus.
Additional information about issues that could lead to material changes in
performance is contained in our annual report on Form 10-K for the year ended
December 31, 2002 which is incorporated by reference in this prospectus.
46
LEGAL MATTERS
The validity of the new 8.125% notes and the new 8.750% notes has been
passed upon by William G. von Glahn, Esq., who, prior to his retirement from
Williams in December 2002, served as Senior Vice President and General Counsel
of Williams. As of December 31, 2002, Mr. von Glahn was the beneficial holder of
75,000 shares of Williams common stock (including shares subject to stock
options, deferred stock awards and Williams' 401(k) retirement plan). Mr. von
Glahn was a participant in Williams' stock option plan and various other
employee benefit plans offered to employees of Williams. White & Case LLP,
special tax counsel for Williams, will pass upon the discussion set forth under
the heading "Material United States Federal Income Tax Considerations" on page
42.
EXPERTS
The consolidated financial statements and schedule of Williams appearing in
Williams' Annual Report on Form 10-K for the year ended December 31, 2002, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Exchange Act. The registration statement of
which this prospectus forms a part and these reports, proxy statements and other
information can be inspected and copied at the public reference room maintained
by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the SEC's regional offices at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and at 233 Broadway, New York, New York 10005.
Copies of these materials may also be obtained from the SEC at prescribed rates
by writing to the public reference room maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to this offering. This prospectus, which forms a
part of the registration statement, does not contain all the information
included in the registration statement and the attached exhibits.
The SEC maintains a World Wide Web site on the internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding us. The reports, proxy and information statements
and other information about us can be downloaded from the SEC's website and can
also be inspected and copied at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made with the SEC under section 13(a), 13(c), 14 or 15(d) of the
Exchange Act until the exchange offer is completed:
- our annual report on Form 10-K for the year ended December 31, 2002;
- our current reports on Form 8-K filed January 2, 2003, January 9, 2003,
January 17, 2003, January 24, 2003, February 19, 2003, February 21, 2003,
March 6, 2003, March 12, 2003,
47
March 19, 2003, March 21, 2003, April 10, 2003, April 15, 2003, April 16, 2003,
April 21, 2003 and April 22, 2003; and
- our definitive proxy statement on Schedule 14A filed April 7, 2003.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address:
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Corporate Secretary
Telephone: (918) 573-2000
ANY REQUEST FOR THESE FILINGS SHOULD BE MADE BY MAY --, 2003 TO ENSURE
TIMELY DELIVERY OF THE FILINGS PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE
OFFER.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with any information. You should not assume that the information in this
document is current as of any date other than the date on the front page of this
prospectus.
48
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Williams, a Delaware corporation, is empowered by Section 145 of the
General Corporation Law of the State of Delaware, subject to the procedures and
limitations stated therein, to indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by them in connection with any threatened, pending, or
completed action, suit, or proceeding in which such person is made party by
reason of their being or having been a director, officer, employee, or agent of
Williams. The statute provides that indemnification pursuant to its provisions
is not exclusive of other rights of indemnification to which a person may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise. The By-laws of Williams provide for indemnification by
Williams of its directors and officers to the fullest extent permitted by the
General Corporation Law of the State of Delaware. In addition, Williams has
entered into indemnity agreements with its directors and certain officers
providing for, among other things, the indemnification of and the advancing of
expenses to such individuals to the fullest extent permitted by law, and to the
extent insurance is maintained, for the continued coverage of such individuals.
Policies of insurance are maintained by Williams under which the directors
and officers of Williams are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of actions, suits, or proceedings, and certain liabilities which might
be imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such directors or officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following instruments and documents are included as Exhibits to this
Registration Statement.
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 Restated Certificate of Incorporation, as supplemented
(filed as Exhibit 3.1 to the Registration Statement on Form
S-3 filed April 4, 2002, file number 333-85540).*
3.2 Restated Bylaws (filed as Exhibit 99.1 to Form 8-K filed
January 19, 2000).*
4.1 Form of Senior Debt Indenture between the registrant and
Bank One Trust Company, N.A. (formerly The First National
Bank of Chicago), as trustee (filed as Exhibit 4.1 to the
Registration Statement on Form S-3 filed September 8, 1997,
file number 333-35099).*
4.2 Seventh Supplemental Indenture, dated March 19, 2002,
between the registrant and Bank One Trust Company, N.A., as
trustee.**
4.3 Registration Rights Agreement, dated March 19, 2002, among
the registrant and the initial purchasers named therein.**
4.4 Instrument of Resignation, Appointment and Acceptance, dated
January 16, 2003, by and among The Williams Companies, Inc.,
Bank One Trust Company, N.A., as the resigning trustee, and
JPMorgan Chase Bank, as successor trustee.**
5.1 Opinion of William G. von Glahn, Esq., as to the validity of
the new 8.125% notes and the new 8.750% notes.**
8.1 Opinion of White & Case LLP, as to certain tax matters.
10.1 Purchase Agreement, dated March 14, 2002, among the
registrant and the initial purchasers named therein.**
12.1 Statement regarding Computation of Ratios of Earnings to
Combined Fixed Charges and Preferred Stock Dividend
Requirements (filed as Exhibit 12 to the Annual Report on
Form 10-K for the year ending December 31, 2002 and filed
March 19, 2003).*
II-1
EXHIBIT
NUMBER EXHIBIT
------- -------
21 Subsidiaries of the registrant (filed as Exhibit 21 to the
Annual Report on Form 10-K for the year ended December 31,
2002).*
23.1 Consent of Ernst & Young LLP.**
23.2 Consent of William G. von Glahn, Esq. (contained in Exhibit
5.1).
23.3 Consent of White & Case LLP (contained in Exhibit 8.1).
24.1 Power of Attorney.**
24.2 Certified copy of resolutions authorizing signatures
pursuant to Power of Attorney.**
25.1 Statement of Eligibility of Bank One Trust Company, N.A., as
trustee, on Form T-1 with respect to the issuance of 8.125%
Notes due March 15, 2012 and 8.750% Notes due March 15,
2032, by the registrant pursuant to the Indenture between
the registrant and Bank One Trust Company, N.A., as
trustee.**
25.2 Statement of Eligibility of JPMorgan Chase Bank, as trustee,
on Form T-1 with respect to the issuance of 8.125% Notes due
March 15, 2012 and 8.750% Notes due March 15, 2032, by the
registrant pursuant to the Indenture between the registrant
and JPMorgan Chase Bank, as trustee.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Letter to Registered Holders and DTC Participants.**
99.4 Form of Letter to Clients.**
99.5 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.**
---------------
* Indicates exhibits incorporated by reference as indicated.
** Previously filed.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
3. To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Tulsa and State of Oklahoma on the 1st day of May, 2003.
THE WILLIAMS COMPANIES, INC.
BY: /s/ BRIAN K. SHORE
------------------------------------
Name: Brian K. Shore
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STEVEN J. MALCOLM* President, Chief Executive Officer May 1, 2003
------------------------------------------------ and Chairman of the Board (Principal
Steven J. Malcolm Executive Officer)
/s/ DONALD R. CHAPPEL* Senior Vice President and Chief May 1, 2003
------------------------------------------------ Financial Officer
Donald R. Chappel (Principal Financial Officer)
/s/ GARY R. BELITZ* Controller May 1, 2003
------------------------------------------------ (Principal Accounting Officer)
Gary R. Belitz
/s/ HUGH M. CHAPMAN* Director May 1, 2003
------------------------------------------------
Hugh M. Chapman
/s/ THOMAS H. CRUIKSHANK* Director May 1, 2003
------------------------------------------------
Thomas H. Cruikshank
/s/ WILLIAM E. GREEN* Director May 1, 2003
------------------------------------------------
William E. Green
/s/ W. R. HOWELL* Director May 1, 2003
------------------------------------------------
W. R. Howell
/s/ JAMES C. LEWIS* Director May 1, 2003
------------------------------------------------
James C. Lewis
/s/ CHARLES M. LILLIS* Director May 1, 2003
------------------------------------------------
Charles M. Lillis
/s/ GEORGE A. LORCH* Director May 1, 2003
------------------------------------------------
George A. Lorch
II-4
SIGNATURE TITLE DATE
--------- ----- ----
/s/ FRANK T. MACINNIS* Director May 1, 2003
------------------------------------------------
Frank T. MacInnis
/s/ GORDON R. PARKER* Director May 1, 2003
------------------------------------------------
Gordon R. Parker
/s/ JANICE D. STONEY* Director May 1, 2003
------------------------------------------------
Janice D. Stoney
/s/ JOSEPH H. WILLIAMS* Director May 1, 2003
------------------------------------------------
Joseph H. Williams
*By: /s/ BRIAN K. SHORE
------------------------------------------
Brian K. Shore
Attorney-in-Fact
II-5
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 Restated Certificate of Incorporation, as supplemented
(filed as Exhibit 3.1 to the Registration Statement on Form
S-3 filed April 4, 2002, file number 333-85540).*
3.2 Restated Bylaws (filed as Exhibit 99.1 to Form 8-K filed
January 19, 2000).*
4.1 Form of Senior Debt Indenture between the registrant and
Bank One Trust Company, N.A. (formerly The First National
Bank of Chicago), as trustee (filed as Exhibit 4.1 to the
Registration Statement on Form S-3 filed September 8, 1997,
file number 333-35099).*
4.2 Seventh Supplemental Indenture, dated March 19, 2002,
between the registrant and Bank One Trust Company, N.A., as
trustee.**
4.3 Registration Rights Agreement, dated March 19, 2002, among
the registrant and the initial purchasers named therein.**
4.4 Instrument of Resignation, Appointment and Acceptance, dated
January 16, 2003, by and among The Williams Companies, Inc.,
Bank One Trust Company, N.A., as the resigning trustee, and
JPMorgan Chase Bank, as successor trustee.**
5.1 Opinion of William G. von Glahn, Esq., as to the validity of
the new 8.125% notes and the new 8.750% notes.**
8.1 Opinion of White & Case LLP, as to certain tax matters.
10.1 Purchase Agreement, dated March 14, 2002, among the
registrant and the initial purchasers named therein.**
12.1 Statement regarding Computation of Ratios of Earnings to
Combined Fixed Charges and Preferred Stock Dividend
Requirements (filed as Exhibit 12 to the Annual Report on
Form 10-K for the year ending December 31, 2002 and filed
March 19, 2003).*
21 Subsidiaries of the registrant (filed as Exhibit 21 to the
Annual Report on Form 10-K for the year ended December 31,
2002).*
23.1 Consent of Ernst & Young LLP.**
23.2 Consent of William G. von Glahn, Esq. (contained in Exhibit
5.1).
23.3 Consent of White & Case LLP (contained in Exhibit 8.1).
24.1 Power of Attorney.**
24.2 Certified copy of resolutions authorizing signatures
pursuant to Power of Attorney.**
25.1 Statement of Eligibility of Bank One Trust Company, N.A., as
trustee, on Form T-1 with respect to the issuance of 8.125%
Notes due March 15, 2012 and 8.750% Notes due March 15,
2032, by the registrant pursuant to the Indenture between
the registrant and Bank One Trust Company, N.A., as
trustee.**
25.2 Statement of Eligibility of JPMorgan Chase Bank, as trustee,
on Form T-1 with respect to the issuance of 8.125% Notes due
March 15, 2012 and 8.750% Notes due March 15, 2032, by the
registrant pursuant to the Indenture between the registrant
and JPMorgan Chase Bank, as trustee.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Letter to Registered Holders and DTC Participants.**
99.4 Form of Letter to Clients.**
99.5 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.**
---------------
* Indicates exhibits incorporated by reference as indicated.
** Previously filed.