AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 2003
FILE NO. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
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 73-0569878
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(Address, including zip code, and telephone
number, including area code, of registrant's principal executive offices)
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JAMES BENDER, ESQ.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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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) 450-3000 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED AMOUNT TO BE REGISTERED PER UNIT(1)(2) PRICE(1)(2) REGISTRATION FEE
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5.50% Junior Subordinated Convertible
Debentures due 2033................... $300,000,000 100% $300,000,000 $24,270(1)
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Common Stock, $1.00 par value per
share(3).............................. 27,544,200(2) -- -- (4)
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(1) The registration fee of $24,270 was calculated in accordance with Rule
457(i) of the Securities Act of 1933 as follows: 0.00008090 multiplied by
the maximum offering price.
(2) There are being registered hereunder 27,544,200 shares of The Williams
Companies, Inc. common stock at the initial conversion price for conversion
of the convertible debentures being registered hereunder, together with such
indeterminate number of shares as may become issuable upon conversion by
reason of adjustments in the conversion price.
(3) The Williams Companies, Inc. common stock being registered hereby includes
associated rights to acquire Series A Junior Participating Preferred Stock
Rights pursuant to a Rights Agreement dated as of February 6, 1996, between
The Williams Companies, Inc. and First Chicago Trust Company of New York.
(4) Pursuant to Rule 457(i), no registration fee is payable with respect to The
Williams Companies, Inc. common stock underlying the convertible debentures
since such common stock will be issued for no separate consideration, but
will be issued only upon the conversion of the convertible debentures at the
initial conversion price of approximately $10.89 per share, subject to
adjustment in certain cases.
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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 IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 25, 2003
PROSPECTUS
$300,000,000
THE WILLIAMS COMPANIES, INC.
5.50% JUNIOR SUBORDINATED CONVERTIBLE DEBENTURES DUE 2033
AND THE COMMON SHARES ISSUABLE UPON CONVERSION
OF THE CONVERTIBLE DEBENTURES
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We issued $300,000,000 aggregate principal amount of our 5.50% Junior
Subordinated Convertible Debentures due 2033, which we refer to as the
"convertible debentures" in May 2003. This prospectus will be used by selling
securityholders named in this prospectus or a prospectus supplement to resell
their convertible debentures and the common stock issuable upon conversion of
their debentures.
The convertible debentures bear interest at the rate of 5.50% per annum. We
will pay interest on the convertible debentures on March 1, June 1, September 1
and December 1 of each year, commencing on September 1, 2003, subject to
deferral during any extension period as described in this prospectus. The
convertible debentures will mature on June 1, 2033. The convertible debentures
are issued in minimum denominations of $50 and integral multiples thereof.
Holders may convert their convertible debentures into shares of our common
stock at a conversion rate of 4.5907 shares per $50 principal amount of the
convertible debentures, subject to adjustment, at any time before the close of
business on June 1, 2033 (or, in the case of convertible debentures called for
redemption, before the close of business on the business day prior to the
applicable redemption date). The initial conversion rate is equivalent to an
initial conversion price of approximately $10.89 per share of common stock. Our
common stock is traded on the New York Stock Exchange under the symbol "WMB."
The last reported sales price of our common stock on June [ ], 2003 was
$[ ] per share.
On or after June 1, 2010, we may redeem the convertible debentures, in
whole or in part, for cash, at a redemption price equal to 100% of the principal
amount to be redeemed plus accrued and unpaid interest to, but not including,
the date of redemption if the closing price of our common stock on the New York
Stock Exchange has exceeded 130% of the conversion price for at least 20 trading
days in the preceding period of 30 consecutive trading days, including on the
last day in the period.
You may require us to repurchase any or all of your convertible debentures
following a change of control as described in this prospectus at a purchase
price equal to 100% of the principal amount to be repurchased, plus accrued and
unpaid interest to, but not including, the date of repurchase.
The payment of principal and interest on the convertible debentures will
rank junior to all of our present and future senior and senior subordinated
debt. In addition, payment of principal and interest on the convertible
debentures will be structurally subordinated to the liabilities of our
subsidiaries, including subsidiary debt. As of March 31, 2003, we had
approximately $13.8 billion of senior and senior subordinated debt, including
approximately $4.2 billion of subsidiary debt other than intercompany
indebtedness, trade payables and other liabilities of our subsidiaries. As of
March 31, 2003, we also had approximately $383 million in letters of credit
outstanding.
INVESTING IN THE CONVERTIBLE DEBENTURES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
We will not receive any of the proceeds from the sale of the convertible
debentures or the shares of common stock by any of the selling securityholders.
The convertible debentures and the shares of common stock may be offered in
negotiated transactions or otherwise, at market prices prevailing at the time of
sale or at negotiated prices. The timing and amount of any sale are within the
sole discretion of the selling securityholders. In addition, the shares of
common stock may be offered from time to time through ordinary brokerage
transactions on the New York Stock Exchange. See "Plan of Distribution." The
selling securityholders may be deemed to be "underwriters" as defined in the
Securities Act of 1933, as amended. Any profits realized by the selling
securityholders may be deemed to be underwriting commissions. If the selling
securityholders use any broker-dealers and, if broker-dealers purchase any
convertible debentures or shares of common stock as principals, any profits
received by such broker-dealers on the resale of the convertible debentures or
shares of common stock may be deemed to be underwriting discounts or commissions
under the Securities Act.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 2003
TABLE OF CONTENTS
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PAGE
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Notice to Investors......................................... ii
Forward-Looking Statements.................................. ii
Where You Can Find More Information......................... iii
Incorporation of Certain Documents by Reference............. iii
The Williams Companies, Inc. ............................... 1
Summary of the Offering..................................... 2
Risk Factors................................................ 4
Use of Proceeds............................................. 17
Ratio of Earnings to Fixed Charges.......................... 17
Price Range of Common Stock and Dividends................... 18
Description of Convertible Debentures....................... 18
Description of Capital Stock................................ 34
Selling Securityholders..................................... 37
Material U.S. Federal Income Tax Considerations............. 38
Certain ERISA Considerations................................ 41
Plan of Distribution........................................ 42
Validity of the Securities.................................. 44
Experts..................................................... 44
NOTICE TO INVESTORS
As used in this prospectus, the terms "Williams," "Company," "we," "our"
and "us" refer to The Williams Companies, Inc., except where the context
otherwise requires or as otherwise indicated.
We have not authorized any dealer, salesperson or other person to give any
information or to make any representation other than those contained or
incorporated by reference in this prospectus and any accompanying prospectus
supplement. You must not rely upon any information or representation not
contained or incorporated by reference in this prospectus or any accompanying
prospectus supplement as if we had authorized it.
This prospectus and any accompanying prospectus supplement do not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the registered securities to which they relate, nor does
this prospectus and any accompanying prospectus supplement constitute an offer
to sell or the solicitation of an offer to buy any securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
You should not assume that the information contained in this prospectus and
any accompanying prospectus supplement is correct on any date after their
respective dates, even though this prospectus or any prospectus supplement is
delivered or securities are sold on a later date.
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. 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
ii
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 and our quarterly report on Form 10-Q for the quarter ended
March 31, 2003, which are incorporated by reference in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934, as amended.
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-3 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 CERTAIN DOCUMENTS BY REFERENCE
Williams is "incorporating by reference" information which it files with
the SEC which means that it can disclose important information to investors by
referring investors to those documents. The information incorporated by
reference or deemed incorporated by reference is an important part of this
prospectus and information that Williams files later with the SEC will be deemed
to automatically update and supersede this incorporated information. Williams
incorporates by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934, as amended, prior to the completion of this offering.
- Our annual report on Form 10-K for the year ended December 31, 2002.
- Our quarterly report on Form 10-Q for the quarter ended March 31, 2003.
- 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, March 19, 2003, March 21, 2003, April 10,
2003, April 15, 2003, April 16, 2003, April 21, 2003, April 22, 2003,
April 25, 2003, May 13, 2003, May 19, 2003, May 21, 2003, May 23, 2003,
May 29, 2003, May 30, 2003, June 2, 2003, June 5, 2003, June 9, 2003,
June 10, 2003, June 13, 2003 and June 19, 2003.
- Our definitive proxy statement on Schedule 14A filed April 7, 2003.
iii
Investors can get a free copy of any of the documents incorporated by
reference by making an oral or written request directed to:
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Corporate Secretary
Telephone: (918) 573-2000
Investors should rely only on the information contained or incorporated in
this prospectus. Williams has not authorized anyone else to provide investors
with different information. Investors should not rely on any other
representations. Williams' affairs may change after this prospectus is
distributed. Investors should not assume that the information in this prospectus
is accurate as of any date other than the date on the front of this document.
Investors should read all information supplementing this prospectus.
iv
THE WILLIAMS COMPANIES, INC.
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
in late 2001 and our 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 in this
sector 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, as revised due to changing
market conditions, included reducing capital expenditures, eliminating certain
credit ratings triggers from our loan agreements, reducing costs and reducing
quarterly dividends paid on our common stock, and selling assets to generate
proceeds 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.
Concurrently, our credit facility banks were unwilling to extend our $2.2
billion 364-day unsecured credit facility. As a result, we faced a liquidity
crisis. We quickly worked with our banks and other parties to obtain secured
credit facilities, and also sold a significant amount of assets to meet our
liquidity gap. Following this short-term 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.
On February 20, 2003, we outlined our planned business strategy for the
next few years which we believe to be a comprehensive response to the events
that impacted the energy sector and Williams during 2002. The business strategy
focuses on retaining a strong, but smaller, portfolio of natural gas businesses
and bolstering our liquidity through more asset sales, strategic financing at
the Williams and subsidiary levels and additional reductions in our operating
costs. This strategy is designed to address near-term and medium-term liquidity
issues and to further reduce our leverage with the objective of returning to
investment grade and to retain businesses with favorable returns and
opportunities for growth in the future.
We will need to complete further cost reductions and asset sales and
realize our business strategy in order to meet our liquidity needs. 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
and our quarterly report for the fiscal quarter ending March 31, 2003 filed on
May 13, 2003 incorporated herein by reference for further details regarding the
liquidity issues we are facing. See also the Risk Factors beginning on page 4 of
this prospectus for a discussion 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. See "Part
I -- Item 1. Business -- Business Segments" in 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 of our business segments.
1
SUMMARY OF THE OFFERING
This summary contains basic information about this offering. Because it is
a summary, it does not contain all of the information that you should consider
before investing. You should read this entire prospectus carefully, including
the section entitled "Risk Factors," and our financial statements and the notes
thereto before making an investment decision.
Securities Offered............ $300,000,000 aggregate principal amount of
5.50% Junior Subordinated Convertible
Debentures due 2033.
Maturity Date................. June 1, 2033.
Minimum Denominations......... $50 principal amount and integral multiples
thereof.
Interest...................... 5.50% per annum on the principal amount, from
May 28, 2003 and payable quarterly in arrears
on March 1, June 1, September 1 and December 1
of each year, beginning September 1, 2003,
subject to the deferral provisions described
below.
Deferral of Interest.......... As long as we do not default in the payment of
interest on the convertible debentures, we have
the right to defer payments of interest on the
convertible debentures by extending the
interest payment period from time to time for
periods not exceeding 20 consecutive quarterly
interest periods, which we refer to as
"extension periods;" provided that no extension
period may extend beyond the stated maturity of
the convertible debentures or end on a date
other than an interest payment date.
During any period in which interest payments on
the convertible debentures are deferred,
interest will continue to accrue on the
convertible debentures at the applicable
interest rate compounded quarterly. Upon the
termination of an extension period, payment of
all accrued and unpaid amounts on the
convertible debentures is due. If we pay all
accrued and unpaid interest at the end of an
extension period, we may elect to begin a new
extension period. If a deferral of an interest
payment occurs, the holders of the convertible
debentures will continue to accrue income for
U.S. federal income tax purposes in advance of
the corresponding interest payment. See
"Material U.S. Federal Income Tax
Considerations -- Accrual of Original Issue
Discount."
Subject to certain exceptions, we have agreed
and have agreed to cause our subsidiaries not
to declare or pay any dividend on, or redeem,
purchase, acquire or make a distribution or
liquidation payment with respect to our common
stock or preferred stock or make any guarantee
payments with respect thereto during any
extension period. The foregoing does not apply
to dividends on our common stock payable in our
common stock.
Conversion Rights............. The convertible debentures are convertible at
any time prior to the close of business on June
1, 2033, or, in the case of convertible
debentures called for redemption, prior to the
close of business on the business day prior to
the applicable redemption date, at the option
of the holder, into shares of our common stock,
at the rate of 4.5907 shares of our common
stock per $50 principal amount of convertible
debenture, subject to adjustment in certain
circumstances. This is equivalent to a
conversion price of approximately
2
$10.89 per share of our common stock. The last
reported sales price of our common stock on the
New York Stock Exchange composite tape on June
[ ], 2003 was $[ ] per share.
No fractional shares of our common stock will
be issued as a result of a conversion. Instead,
we will pay cash in lieu of fractional shares.
You will not receive cash or additional shares
to compensate you for any accrued but unpaid
interest on the convertible debentures through
the time of conversion. This accrued interest
will be forfeited, except in limited
circumstances.
Redemption.................... On or after June 1, 2010, we may redeem the
convertible debentures for cash, at our option
in whole or in part from time to time, at a
redemption price equal to 100% of the principal
amount to be redeemed plus any accrued and
unpaid interest thereon, including compounded
interest, to but not including the date of
redemption, if for at least 20 trading days
within the preceding period of 30 consecutive
trading days, including on the last day in the
30-day period, the closing price of our common
stock exceeds 130% of the conversion price.
Repurchase upon Change of
Control....................... Following a change of control, as defined in
this prospectus, each holder of convertible
debentures will have the right to require us to
purchase any or all of the convertible
debentures held by that holder at a purchase
price equal to 100% of the principal amount to
be repurchased, plus accrued and unpaid
interest thereon, including compounded
interest, to, but not including, the date of
purchase.
Subordination................. The payment of principal and interest on the
convertible debentures will rank junior to all
of our present and future senior and senior
subordinated debt. In addition, payment of
principal and interest on the convertible
debentures will be structurally subordinated to
the liabilities of our subsidiaries, including
subsidiary debt. As of March 31, 2003, Williams
had approximately $13.8 billion of senior and
senior subordinated debt, including
approximately $4.2 billion of subsidiary debt
other than intercompany indebtedness, trade
payables and other liabilities of our
subsidiaries. As of March 31, 2003, we also had
approximately $383 million of letters of credit
outstanding. The indenture under which the
convertible debentures have been issued does
not limit the aggregate amount of senior and
senior subordinated debt that may be incurred
by us and does not limit the liabilities of our
subsidiaries.
Use of Proceeds............... We will not receive any of the proceeds of the
resale of the convertible debentures or the
common stock issuable upon conversion by the
selling securityholders.
3
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 purchase the convertible debentures or the common
stock into which the convertible debentures may convert.
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.
As part of our business strategy announced in February 2003, we expect to
generate net proceeds from asset sales of approximately $4 billion during 2003
and the first quarter of 2004. The timing of and the net cash proceeds realized
from such sales are dependent on locating and successfully negotiating and
closing 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. During the first quarter of
2003, we received $679.8 million in net proceeds from the sales of assets and
businesses, including our retail travel centers and the Midsouth refinery. In
April 2003, we announced that we had signed definitive agreements for the sales
of Texas Gas Transmission Corporation, Williams' general partnership interest
and limited partner investment in Williams Energy Partners L.P., and certain
natural gas exploration and production properties in Kansas, Colorado, New
Mexico and Utah. The sale of the Texas Gas Transmission Corporation, which
closed on May 16, 2003, the sale of oil and gas properties to XTO Energy, which
closed on May 30, 2003, the sale of Williams Bio-Energy L.L.C. together with two
ethanol production plants, which closed on May 30, 2003, the sale of our
investments in Williams Energy Partners L.P., which closed on June 17, 2003 and
the other sales announced in April 2003 that are expected to close later in the
second quarter are expected to generate net proceeds of approximately $2.0
billion.
At March 31, 2003, we had debt obligations with maturities through March
2004 of approximately $3.5 billion (including certain contractual fees and
deferred interest related to underlying debt). 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.
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.
4
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
ratings might further increase our cost of borrowing or further impair our
ability to access one or any of the capital markets. Such disruptions could
include:
- economic downturns;
- deteriorating 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 availability of credit in the markets where energy 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
5
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 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 MANAGEMENT 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 management systems only
provide information, but do not in themselves manage risk. 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
6
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 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 Commodity Futures Trading Commission
("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 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, 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.
7
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, and 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.
WE MIGHT BE ADVERSELY AFFECTED BY SECURITIES CLASS ACTION LITIGATION.
Since January 2002, numerous class action lawsuits have been filed against
us. The majority of these suits allege that we and our co-defendants
fraudulently disclosed or failed to disclose material facts regarding our
relationship with Williams Communications and our operation of our energy
marketing and trading subsidiary. In addition, some of the suits contain
allegations that we and our co-defendants acted jointly and severally to inflate
our stock price and, for short periods of times, the stock price of Williams
Communications. See "Legal Proceedings" in our annual report on Form 10-K for
the year ended December 31, 2002 and our quarterly report on Form 10-Q for the
quarter ended March 31, 2003. As a result of these, and any future securities
class action litigation, we may face substantial costs and our management's
attention and resources may be diverted, which could harm our business.
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
8
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.
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.
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 Pipeline 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;
9
- construction;
- 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. We can also be held liable for the cleanup of sites that we
formerly owned or operated, as well as third party disposal sites where wastes
from our current or former operations have been sent. 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, municipal and foreign 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 he 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 financial condition or results of
10
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 subsidiaries, Williams Energy Services, LLC, Williams
Natural Gas Liquids, Inc. and Williams, GP LLC (collectively, the "Selling
Parties") retained potential environmental exposure in connection with the June
17, 2003 sale of the assets of Williams Energy Services, LLC and Williams
Natural Gas Liquids, Inc., the membership interests in WEG GP LLC and the
partnership interests in Williams Energy Partners, L.P. to WEG Acquisitions,
L.P. Furthermore, we, as the parent company of the Selling Parties, entered into
an agreement in favor of WEG Acquisitions, L.P., guaranteeing payment and
performance of the Selling Parties' obligations to WEG Acquisitions, L.P.
Included in the terms of the transaction were various indemnities given by the
Selling Parties to WEG Acquisitions, L.P. The indemnities serve to protect WEG
Acquisitions, L.P. from "Losses" that it sustains or incurs from certain
environmental matters included on certain schedules to the purchase agreement
that governs the sale and from breaches of the Selling Parties' representations,
warranties or covenants under the agreement. The term "Losses" includes any
damage, judgment, fine, penalty, demand, settlement, liability, cost, tax,
expense, claim or cause of action. Under the purchase agreement, WEG
Acquisitions, L.P. agreed to assume costs associated with certain scheduled
environmental matters and other indemnity obligations of Selling Parties to a
maximum amount of approximately $22 million. The parties also agreed that the
Selling Parties' indemnity obligations under the agreement would be limited,
under various circumstances, to a maximum aggregate amount of $175 million, with
indemnity obligations limited to a maximum aggregate amount of $125 million for
certain environmental indemnity obligations related to the assets of Williams
Pipe Line Company, LLC and limited to a maximum aggregate amount of up to $15
million for certain environmental obligations related to assets of Williams
Natural Gas Liquids, Inc.
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 3
to our Consolidated Financial Statements in our quarterly report on Form 10-Q
for the quarterly period ended March 31, 2003 for further details.
In October 2002, the FASB's Emerging Issues Task Force ("EITF") reached
consensus on Issue No. 02-3 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 have applied the consensus effective January 1, 2003, and recorded a
reduction to net income of $762.5 million in the first quarter of 2003 on an
after-tax basis which was 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." In May 2003, the EITF reached a consensus on Issue No. 01-8,
"Determining Whether an Arrangement
11
Contains a Lease," that must be applied to arrangements consummated or
substantively modified after the date of the consensus.
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 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.
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 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.
RISKS RELATING TO THE CONVERTIBLE DEBENTURES
WE CANNOT PAY YOU UNDER THE CONVERTIBLE DEBENTURES UNLESS WE FIRST MAKE OTHER
REQUIRED PAYMENTS.
Our obligations under the convertible debentures will rank junior to all of
our current and future senior and senior subordinated indebtedness. This means
that we cannot make any payments on the convertible debentures if we are in
default on a payment of certain senior indebtedness or senior subordinated
indebtedness, including upon acceleration thereof, and do not cure the default
within the applicable grace period or, subject to certain time limits, if other
defaults exist with respect to such senior or senior
12
subordinated indebtedness that give rise to a right to accelerate such
indebtedness or if the senior indebtedness or senior subordinated indebtedness
becomes immediately due because of a default and has not yet been paid in full.
As of March 31, 2003, we had approximately $13.8 billion of senior and senior
subordinated debt, including approximately $4.2 billion of subsidiary debt other
than intercompany indebtedness, trade payables and other liabilities of our
subsidiaries. In addition, we had approximately $383 million of letters of
credit outstanding.
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, dividends and 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 depends largely 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. Our subsidiaries are separate and distinct legal entities and have
no obligation, contingent or otherwise, to pay any amounts due pursuant to the
convertible debentures or to make any funds available therefor, whether by
dividends, loans or other payments.
As a result of our holding company structure, the convertible debentures
will effectively rank junior to all existing and future debt, trade payables and
other liabilities of our subsidiaries. Our right to receive any assets of any of
our subsidiaries upon their liquidation or reorganization, and therefore the
right of holders of convertible debentures to participate in those assets, will
be subject to the prior claims of that subsidiary's creditors, including trade
creditors, except to the extent that we ourselves may be a creditor of such
subsidiary.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or in any
bankruptcy, insolvency, or similar proceedings, the holders of senior and senior
subordinated debt will be entitled to receive payment in full of all amounts due
under all senior and senior subordinated debt before the holders of the
convertible debentures will be entitled to receive any payment on the
convertible debentures.
There are no terms in the convertible debentures that limit our or our
subsidiaries' ability to incur additional indebtedness.
OUR OTHER DEBT AGREEMENTS IMPOSE RESTRICTIONS ON US THAT MAY ADVERSELY AFFECT
OUR ABILITY TO OPERATE OUR BUSINESS.
Our other debt agreements contain covenants that restrict, among other
things, our ability to:
- incur additional indebtedness and issue preferred stock;
- enter into asset sales;
- pay dividends and distributions and make certain investments;
- enter into transactions with affiliates;
- incur liens on assets to secure certain debt;
- engage in certain business activities; and
- engage in certain mergers or consolidations and transfers of assets.
In addition, our other debt agreements contain, and other debt agreements
we enter into in the future may contain, financial covenants and other
limitations that we will need to comply with. Our ability to comply with these
covenants may be affected by many events beyond our control, and we cannot
assure you that our future operating results will be sufficient to comply with
the covenants, or in the event of a default under any of our debt agreements, to
remedy that default.
13
Our failure to comply with any of our financial or other covenants in our
other debt agreements could result in an event of default. Upon the occurrence
of an event of default under our credit facilities, the lenders could elect to
declare all amounts outstanding under the facility to be immediately due and
payable and terminate all commitments to extend further credit. By reason of
cross-default provisions in our other debt instruments and in the indenture for
the convertible debentures, much of our other indebtedness could also become
immediately due and payable at that time as well. If the lenders under any of
our credit facilities or other debt agreements, including the convertible
debentures, accelerate the maturity of any loans or other debt outstanding to
us, we may not have sufficient assets to repay amounts outstanding under our
credit facilities and our other indebtedness, including the convertible
debentures.
WE MAY NOT BE ABLE TO SERVICE OUR DEBT.
Our ability to pay or to refinance our indebtedness, including the
convertible debentures, will depend upon our future operating performance, which
will be affected by general economic, financial, competitive, legislative,
regulatory, business and other factors beyond our control.
We anticipate that our operating cash flow, together with money we
anticipate being available to us to borrow under our credit facility and through
other sources including further issuances, if needed, in the capital markets and
from asset sales, will be sufficient to meet anticipated future operating
expenses, to fund capital expenditures and to service our debt as it becomes
due. However, we cannot assure you that our business will generate sufficient
cash flow from operations, or that we will be able to borrow additional funds or
generate proceeds from asset sales in amounts sufficient to enable us to pay our
indebtedness, including the convertible debentures, or to fund our other
liquidity needs. We and certain of our subsidiaries are parties to a secured
credit facility. Our ability to borrow under that facility depends not only on
our financial performance but also on the ability of those other parties to
comply with their obligations under the facility. The amount of funds available
to us under that facility will be diminished at any time at which other
borrowers under the facility are borrowing under it or if the commitments under
it are reduced due to future asset sales by us or our subsidiaries.
WE MAY BE UNABLE TO REPURCHASE THE CONVERTIBLE DEBENTURES UPON A CHANGE OF
CONTROL.
Upon a change of control, (as described under "Description of the
Convertible Debentures -- Repurchase at Option of the Holder upon Change of
Control", you may require us to repurchase all or a portion of your convertible
debentures. If a change of control were to occur, the terms of our debt
agreements would currently limit our ability to repurchase your convertible
debentures. Our future debt agreements may contain similar restrictions and
provisions. The convertible debentures require that, upon the occurrence of a
change of control, we must offer to repurchase all of the outstanding
convertible debentures after first obtaining necessary waivers or causing the
relevant borrowers to obtain waivers or prepaying our debt agreements and other
debt of Williams or such borrower that might otherwise prohibit such repurchase.
Accordingly, we may not be able to satisfy our obligations to repurchase your
convertible debentures unless we are able to refinance, or waivers are obtained
under, all of our debt agreements with similar restrictions. Any failure to
obtain these necessary waivers and make this offer to repurchase, or to repay
holders tendering convertible debentures, upon a change of control will result
in an event of default under the convertible debentures. In addition, if a
change of control would constitute an event of default under our senior and
senior subordinated indebtedness, the subordination provisions of the indenture
would restrict our ability to make payments on the convertible debentures. We
cannot assure you that we will have the financial resources to repurchase your
convertible debentures, particularly if that change of control event triggers a
similar repurchase requirement for other indebtedness, or results in the
acceleration of other indebtedness through a cross-default or similar clause.
The term "change of control" is limited to certain specified transactions and
may not include other events that might adversely affect our financial
condition. Our obligation to offer to repurchase the convertible debentures upon
a change of control would not necessarily afford you protection in the event of
a highly leveraged transaction, reorganization, merger or similar transaction.
See "Description of the Convertible Debentures -- Repurchase at Option of the
Holder upon Change of Control."
14
OPTION TO EXTEND INTEREST PAYMENT PERIOD.
So long as we are not in default in the payment of interest on the
convertible debentures, we have the right under the indenture to defer payments
of interest on the convertible debentures by extending the interest payment
period from time to time on the convertible debentures for an extension period
not exceeding 20 consecutive quarterly interest periods, which we refer to as an
extension period, during which no interest shall be due and payable.
Prior to the termination of any extension period, we may further extend
that extension period; provided that such extension period together with all
such previous and further extensions thereof may not exceed 20 consecutive
quarterly interest periods. Upon the termination of any extension period and the
payment of all amounts then due, we may commence a new extension period, subject
to the above requirements. Consequently, there could be multiple extension
periods of varying lengths throughout the term of the convertible debentures.
DEFERRAL OF INTEREST MAY ADVERSELY AFFECT THE TRADING PRICE OF THE CONVERTIBLE
DEBENTURES.
If we elect to extend the interest payment period for the convertible
debentures, you will not receive accrued interest on the convertible debentures
if you sell the convertible debentures before the end of any extension period.
If we exercise our right to extend any interest payment period, the convertible
debentures may trade at a price that does not fully reflect the value of accrued
but unpaid interest. If you sell the convertible debentures during an extension
period, you may not receive the same return on investment as someone else who
continues to hold the convertible debentures. In addition, the existence of our
right to defer payments of interest on the convertible debentures may mean that
the market price for the convertible debentures may be more volatile than other
securities that do not have these rights.
DEFERRAL OF INTEREST WOULD HAVE ADVERSE TAX CONSEQUENCES FOR YOU.
Because we have the right to extend the interest payment period for an
extension period of up to 20 consecutive quarterly interest periods, the
convertible debentures will be treated as issued with "original issue discount"
for U.S. federal income tax purposes. As a result, holders of convertible
debentures will be required to include original issue discount in gross income
as it accrues for U.S. federal income tax purposes in advance of the receipt of
cash. Generally, all of the interest income of a holder of convertible
debentures with respect to the convertible debentures will be accounted for as
"original issue discount" and actual payments of stated interest will not be
separately reported as taxable income. See "Material U.S. Federal Income Tax
Considerations -- Accrual of Original Issue Discount."
THE CONVERTIBLE DEBENTURES IMPOSE ONLY LIMITED RESTRICTIVE COVENANTS.
The covenants in the governing documents relating to the convertible
debentures are extremely limited. In particular, the convertible debentures do
not contain covenants that limit our ability to incur additional senior
indebtedness or senior subordinated indebtedness or repurchase our capital
stock. The indenture does generally prohibit us and our subsidiaries from paying
dividends or making certain other distributions or payments with respect to our
capital stock during any extension period or if an event of default or a
potential event of default as defined in this prospectus has occurred and is
continuing with respect to the convertible debentures. See "Description of
Convertible Debentures -- Restrictions on Certain Payments."
THE CONVERTIBLE DEBENTURES MAY BE REDEEMABLE FOR CASH, AT OUR OPTION, ON OR
AFTER JUNE 1, 2010 IF, FOR A CERTAIN PERIOD OF TIME, THE CLOSING PRICE OF OUR
COMMON STOCK EXCEEDS 130% OF THE CONVERSION PRICE.
The convertible debentures may be redeemed, in whole or in part from time
to time, on or after June 1, 2010 at a redemption price equal to 100% of the
principal amount of the convertible debentures to be redeemed plus any accrued
and unpaid interest to but not including the redemption date if for 20 trading
days within the preceding period of 30 consecutive trading days (including the
last day of the period), the closing price of our common stock exceeds 130% of
the conversion price. You should assume that this redemption option will be
exercised if we are able to refinance at a lower interest rate or it is
otherwise in our interest to
15
redeem the convertible debentures. You may exercise your conversion right at any
time until the close of business on the business day prior to the redemption
date.
THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE FOR THE CONVERTIBLE
DEBENTURES; THEREFORE, YOU MAY SUFFER A LOSS.
We cannot give you any assurance as to the market price for the convertible
debentures. If you resell your convertible debentures, the price you receive
will depend on many other factors that may vary over time, including:
- the number of potential buyers;
- the level of liquidity of the convertible debentures;
- ratings published by major credit ratings agencies;
- our financial performance;
- the amount of indebtedness we have outstanding;
- the level, direction and volatility of market interest rates generally;
- the market for similar securities;
- the redemption and repayment features of the convertible debentures to be
sold; and
- the time remaining to the maturity of your convertible debentures.
As a result of these factors, you may only be able to sell your convertible
debentures at prices below those you believe to be appropriate, including prices
below the price you paid for them.
THERE MAY BE ADVERSE TAX CONSEQUENCES TO YOU IF YOU DISPOSE OF YOUR
CONVERTIBLE DEBENTURES BETWEEN A RECORD DATE AND THE RELATED INTEREST PAYMENT
DATE.
The convertible debentures may trade at a price that does not fully reflect
the value of accrued but unpaid interest. A holder who disposes of his
convertible debentures between a record date and the related interest payment
date will be required to include accrued original issue discount on the
convertible debentures through the date of disposition, and to add such amount
to his adjusted tax basis in the convertible debentures disposed of.
Accordingly, such a holder will recognize a capital loss to the extent the
selling price, which may not fully reflect the value of accrued original issue
discount, is less than the holder's adjusted tax basis, which will include
accrued original issue discount. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for U.S. federal income tax
purposes. See "Material U.S. Federal Income Tax Considerations -- Disposition of
the Convertible Debentures."
THERE IS NO EXISTING MARKET FOR THE CONVERTIBLE DEBENTURES AND THERE MAY BE
RESTRICTIONS ON RESALE OF THE CONVERTIBLE DEBENTURES.
The convertible debentures are a new issue of securities with no
established trading market. Lehman Brother has advised us that it intends to
make a market in the convertible debentures, but it is not obligated to do so
and may discontinue its market making at any time without notice. Accordingly,
we cannot assure you that a market for the convertible debentures will develop.
THE POSSIBLE VOLATILITY OF OUR COMMON STOCK PRICE COULD ADVERSELY AFFECT YOUR
ABILITY TO RESELL THE CONVERTIBLE DEBENTURES OR COMMON STOCK ISSUABLE UPON
CONVERSION OF THE CONVERTIBLE DEBENTURES.
Securities markets worldwide have in the recent past experienced
significant price and volume fluctuations. This market volatility, as well as
general economic, market or political conditions, could reduce the market price
of our common stock in spite of our operating performance. In addition, our
operating results could be below the expectations of public market analysts and
investors, and in response, the market price of our common stock could decrease
significantly. Investors may be unable to resell their shares of our common
stock received upon conversion of the convertible debentures at or above the
offering price.
16
USE OF PROCEEDS
We will not receive any proceeds from the sale by any selling
securityholder of the convertible debentures or the underlying shares of our
common stock.
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents our consolidated ratio of earnings to fixed
charges for the periods shown. Some of the amounts within the calculation of the
ratio of earnings to fixed charges have been reclassified due to certain of our
activities which are now reported as discontinued operations as described in
Note 1 of Notes to Consolidated Financial Statements included in Item 8 of our
Annual Report on Form 10-K for the year ended December 31, 2002 incorporated
herein by reference. However, the figures in this table are not adjusted to
reflect the operations of Williams Energy Partners L.P. and Texas Gas
Transmission Corporation as discontinued operations as described in our reports
on Form 8-K filed on April 22, 2003 and May 22, 2003.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------------------- ------------------------------------
2003 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ----
(a) (b) 2.76 2.88 1.66 1.45
---------------
(a) Earnings were inadequate to cover fixed charges by $83.5 million for the
three months ended March 31, 2003.
(b) Earnings were inadequate to cover fixed charges by $622.7 million for the
year ended December 31, 2002.
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%-owned companies;
- that portion of rental expense that we believe to represent an interest
factor;
- 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 preferred returns of consolidated subsidiaries; and
- interest expense of 50%-owned companies.
17
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock, $1.00 par value, is listed and traded on the New York
Stock Exchange under the ticker symbol "WMB". The following table sets forth the
high and low sales prices for transactions involving our common stock for each
calendar quarter, as reported on the New York Stock Exchange Composite Tape, and
related cash dividends paid per common share during such periods.
CASH
HIGH LOW DIVIDENDS
------- ------- ---------
2003:
Second Quarter (through June [ ]).............. $[8.30] $[2.60] $.01
First Quarter......................................... 4.74 2.60 .01
2002:
Fourth Quarter........................................ $ 3.06 $ 1.35 $.01
Third Quarter......................................... 6.32 .88 .01
Second Quarter........................................ 24.17 5.47 .20
First Quarter......................................... 25.97 14.53 .20
2001:
Fourth Quarter........................................ $ 30.43 $ 22.10 $.15
Third Quarter......................................... 33.97 24.99 .18
Second Quarter........................................ 43.45 32.40 .15(1)
First Quarter......................................... 42.14 31.73 .15
---------------
(1) On April 23, 2001, Williams distributed 398.5 million shares of common stock
of Williams Communications Group, Inc. to Williams' shareholders, or
0.822399 of a share of Williams Communications common stock for each share
of Williams' common stock, to complete the tax-free spin-off of Williams'
communications business.
As of June 6, 2003, there were 517,791,518 shares of our common stock
outstanding held by approximately 14,505 shareholders of record. On June
[ ], 2003 the last reported sale price of our common stock on the New York
Stock Exchange was $[ ] per share.
DESCRIPTION OF CONVERTIBLE DEBENTURES
We have issued the 5.50% junior subordinated convertible debentures due
June 1, 2033 under an indenture as of May 28, 2003 between Williams, as issuer,
and JPMorgan Chase Bank, as trustee. The convertible debentures and the shares
of our common stock issuable upon conversion of the convertible debentures are
covered by a registration rights agreement. This prospectus and registration
statement have been filed to meet our obligations under the registration rights
agreement. You may request a copy of the indenture and the registration rights
agreement at our address shown under the caption "Where You Can Find More
Information."
The following description is a summary of the material provisions of the
convertible debentures, the indenture and the registration rights agreement. It
does not purport to be complete. This summary is subject to and is qualified by
reference to all the provisions of the indenture, including the definitions of
certain terms used in the indenture, and to all provisions of the registration
rights agreement. Wherever particular provisions or defined terms of the
indenture or form of convertible debenture are referred to, these provisions or
defined terms are incorporated in this prospectus by reference. We urge you to
read the indenture because it, and not this description, defines your rights as
a holder of the convertible debentures.
Unless otherwise specified, when we refer to "Williams," "we," "us" or
"ours" in the following description, we mean only The Williams Companies, Inc.
and not its subsidiaries.
18
GENERAL
The convertible debentures will be general unsecured obligations of
Williams. Our payment obligations under the convertible debentures are
subordinated to all of our current and future senior and senior subordinated
indebtedness to the extent and in the manner set forth in the indenture and
effectively subordinated to all debts and other liabilities of our subsidiaries
as described under "-- Subordination of Convertible Debentures." The convertible
debentures will be convertible into our common stock as described under
"-- Conversion Rights."
The convertible debentures will be limited to $300,000,000 in aggregate
principal amount. The convertible debentures will be issued in minimum
denominations of $50 and integral multiples of $50. The convertible debentures
will mature on June 1, 2033 unless converted, redeemed or repurchased earlier
and are not subject to any sinking fund.
The convertible debentures bear interest at a rate of 5.50% per annum.
Interest will accrue from May 28, 2003, or from the most recent date to which
interest has been paid or duly provided for, and the amount of interest payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months.
We will pay interest on March 1, June 1, September 1 and December 1 of each
year, beginning September 1, 2003, to record holders at the close of business on
the preceding February 15, May 15, August 15 or November 15, as the case may be.
Interest payable upon redemption or repurchase will be paid to the person to
whom principal is payable.
Interest payments payable on any convertible debentures that are not
punctually paid on any interest payment date will cease to be payable to the
person in whose name such convertible debentures are registered on the original
record date, and such defaulted payment will instead be made to the person in
whose name such convertible debentures are registered on the special record date
or other specified date determined in accordance with the indenture. Interest on
the convertible debentures not paid on the scheduled payment date will accrue
and compound quarterly, to the extent permitted by law, at the applicable
interest rate.
If any interest payment date is not a business day, then such interest
payment will be made on the next day which is a business day, and without any
interest or other payment accruing as a result of such delay, except that if
such business day falls in the next calendar year, such interest payment will be
made on the immediately preceding business day, in each case with the same force
and effect as if made on the date such interest payment was originally payable.
We will maintain an office in the Borough of Manhattan, The City of New
York, where we will pay the principal and premium, if any, on the convertible
debentures and you may present the convertible debentures for conversion,
registration of transfer or exchange for other denominations, which shall
initially be an office or agency of the trustee. We may pay interest by check
mailed to your address as it appears in the convertible debenture register,
provided that if you are a holder with an aggregate principal amount in excess
of $2.0 million, you shall be paid, at your written election, by wire transfer
in immediately available funds. However, payments to The Depository Trust
Company, New York, New York, which we refer to as DTC, will be made by wire
transfer of immediately available funds to the account of DTC or its nominee.
Registration of transfers or exchanges of convertible debentures will be
effected without charge, but payment of a sum sufficient to cover any tax or any
other governmental charges that may be imposed in connection with any transfer
or exchange may be required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as we are not in default in the payment of interest on the
convertible debentures, we will have the right under the indenture to defer
payments of interest on the convertible debentures by extending the interest
payment period at any time, and from time to time, on the convertible
debentures. During any such extension period, interest on the convertible
debentures will continue to accrue at the then-applicable annual interest rate,
compounded quarterly, to the extent permitted by law.
19
We may not extend any interest payment period for the convertible
debentures to more than 20 consecutive quarters, and no extension may extend
beyond the stated maturity of the convertible debentures or end on a date other
than an interest payment date. If we exercise our right to defer payments of
interest, then under the terms of the convertible debentures we may not, and may
not permit any subsidiary to, make any of the payments described under
"-- Restrictions on Certain Payments."
Prior to the termination of any extension period, we may further defer
payments of interest by extending the interest payment period, subject to the
limitations described above. Upon the termination of any extension period and
the payment of all amounts then due, we may commence a new extension period,
subject to the above requirements. We have no current intention of exercising
our right to defer payments of interest on the convertible debentures.
We will be required to give, or to cause the trustee to give, the holders
of convertible debentures notice of our election of such extension period at
least five business days before the earlier of (1) the record date for the
scheduled interest payment date for the first quarter of such extension period
or (2) the date upon which we are required to give notice of the record or
payment date for such related interest payment for the first quarter to any
national stock exchange or other organization on which the convertible
debentures are listed or quoted, if any, or to holders of the convertible
debentures.
As used in this prospectus, a "business day" means any day, other than a
Saturday or Sunday, that is not a day on which banking institutions in The City
of New York, New York are authorized or obligated by law or executive order to
remain closed or on which the principal corporate trust office of the trustee
under the indenture is closed for business.
CONVERSION RIGHTS
GENERAL
You may convert any of your convertible debentures, in whole or in part,
into shares of our common stock at any time prior to the close of business on
the final maturity date of the convertible debentures or, in the case of
convertible debentures called for redemption, prior to the close of business on
the business day prior to the redemption date, subject to prior redemption or
repurchase of the convertible debentures.
The number of shares of common stock you will receive upon conversion of
the convertible debentures will be determined by multiplying the number of $50
principal amount of convertible debentures you convert by the conversion rate on
the date of conversion. The initial conversion rate for the convertible
debentures is 4.5907 shares of common stock per $50 principal amount of
convertible debentures, subject to adjustment as described below, which
represents an initial conversion price of approximately $10.89 per share. If we
call convertible debentures for redemption, you may convert the convertible
debentures only until the close of business on the business day prior to the
redemption date unless we fail to pay the redemption price. If you have
submitted your convertible debentures for repurchase upon a change of control,
you may not convert your convertible debentures unless you withdraw your
repurchase election as described under "-- Repurchase at Option of the Holder
upon Change of Control." You may convert your convertible debentures in part so
long as the principal amount of such part is $50 or an integral multiple of $50.
Upon conversion, a holder will not be entitled to receive any accrued and
unpaid interest, whether or not in arrears, on the convertible debentures and no
interest will be payable on convertible debentures with respect to any interest
payment date occurring subsequent to the date of conversion, except in the
limited circumstance described below. However, if convertible debentures are
surrendered for conversion after 5:00 p.m., New York City time, on any record
date but on or prior to the next succeeding interest payment date, holders of
such convertible debentures at the close of business on the record date will
receive the interest payable on the corresponding interest payment date
notwithstanding the conversion. Therefore, such convertible debentures, upon
surrender for conversion, must be accompanied by payment in next day funds equal
to the amount of interest that the registered holder of such convertible
debentures on such record date is entitled to receive. Notwithstanding the
foregoing, no such payment need be made (1) if we have specified a redemption
date that is after a record date and on or prior to the next interest payment
date, (2) if we have
20
specified a repurchase date following a change of control that is during such
period or (3) to the extent of any overdue interest, if overdue interest exists
at the time of conversion with respect to such convertible debenture.
We will not issue fractional common shares upon conversion of convertible
debentures. Instead, we will pay cash in lieu of fractional shares based on the
last reported sale price of the common stock on the conversion date. As used in
this prospectus, a "trading day" means any day on which the New York Stock
Exchange is open for business.
Our delivery to the holder of the full number of shares of our common stock
into which a convertible debenture is convertible, together with any cash
payment for such holder's fractional shares, will be deemed to satisfy our
obligation to pay:
- the principal amount of the convertible debenture; and
- accrued but unpaid interest attributable to the period from the most
recent interest payment date to the conversion date, subject to the
fourth preceding sentence above.
As a result, accrued but unpaid interest to the conversion date is deemed
to be paid in full rather than cancelled, extinguished or forfeited. For a
discussion of your tax treatment upon receipt of our common stock upon
conversion, see "Material U.S. Federal Income Tax Considerations -- Conversion
of Convertible Debentures to Williams Common Stock."
Williams has authorized and will reserve for issuance the maximum number of
shares of its common stock that it may be required to issue upon the conversion
of convertible debentures. Shares of Williams common stock issued upon
conversion will be validly issued, fully paid and nonassessable.
CONVERSION PROCEDURES
To convert your convertible debenture into common stock you must do the
following:
- complete and manually sign the irrevocable conversion notice on the back
of the convertible debenture or facsimile of the conversion notice and
deliver this notice to the conversion agent;
- surrender the convertible debenture to the conversion agent;
- if required, furnish appropriate endorsements and transfer documents;
- if required, pay all transfer or similar taxes; and
- if required, pay funds equal to interest payable on the next interest
payment date.
The date you comply with these requirements is the conversion date under
the indenture. If your interest is a beneficial interest in a global debenture,
to convert you must comply with the last three requirements listed above and
comply with the DTC's procedures for converting a beneficial interest in a
global debenture.
CONVERSION RATE ADJUSTMENTS
We will adjust the conversion rate if any of the following events occurs:
- we issue common stock as a dividend or distribution on our common stock;
- we issue to all holders of our common stock certain rights or warrants to
purchase our common stock at less than the then current market value;
- we subdivide or combine our common stock;
- we distribute to all holders of our common stock, shares of our capital
stock, evidences of indebtedness or assets, including securities but
excluding:
- rights or warrants specified above;
- any dividends or distributions in connection with the liquidation or
winding up of Williams;
21
- dividends or distributions specified above; and
- cash distributions.
If we distribute capital stock of, or similar equity interests in, a
subsidiary or other business unit of ours, then the conversion rate will be
adjusted based on the market value of the securities so distributed relative to
the market value of our common stock, in each case based on the average closing
sale prices of those securities (where such closing sale prices are available)
for the 10 trading days commencing on and including the fifth trading day after
the date on which "ex-dividend trading" commences for such distribution on the
New York Stock Exchange or such other national or regional exchange or market on
which the securities are then listed or quoted;
- we distribute cash, excluding any dividend or distribution in connection
with our liquidation, dissolution or winding up or any quarterly cash
dividend on our common stock to the extent that the aggregate cash
dividend per share of common stock in any quarter does not exceed the
greater of:
- the amount per share of common stock of the next preceding quarterly cash
dividend on the common stock to the extent that the preceding quarterly
dividend did not require an adjustment of the conversion rate pursuant to
this clause, as adjusted to reflect subdivisions or combinations of the
common stock; and
- 10% of the average of the last reported sale price of the common stock
during the ten trading days immediately prior to the declaration date of
the dividend, calculated at the time of each distribution.
If an adjustment is required to be made under this clause as a result of a
distribution that is a quarterly dividend, the adjustment would be based upon
the amount by which the distribution exceeds the amount of the quarterly cash
dividend permitted to be excluded pursuant to this clause. If an adjustment is
required to be made under this clause as a result of a distribution that is not
a quarterly dividend, the adjustment would be based upon the full amount of the
distribution;
- we or one of our subsidiaries makes a payment in respect of a tender
offer or exchange offer for our common stock to the extent that the cash
and value of any other consideration included in the payment per share of
common stock exceeds the closing sale price per share of common stock on
the trading day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer; and
- someone other than us or one of our subsidiaries makes a payment in
respect of a tender offer or exchange offer in which, as of the closing
date of the offer, our board of directors is not recommending rejection
of the offer. The adjustment referred to in this clause will only be made
if:
- the tender offer or exchange offer is for an amount that increases the
offeror's ownership of common stock to more than 25% of the total shares
of common stock outstanding; and
- the cash and value of any other consideration included in the payment per
share of common stock exceeds the closing sale price per share of common
stock on the business day next succeeding the last date on which tenders
or exchanges may be made pursuant to the tender or exchange offer.
However, the adjustment referred to in this clause will generally not be
made if as of the closing of the offer, the offering documents disclose a plan
or an intention to cause us to engage in a consolidation or merger or a sale of
all or substantially all of our assets.
If the rights provided for in our rights agreement dated February 6, 1996
or in any future stockholder rights plan adopted by us have separated from our
common stock in accordance with the provisions of the applicable stockholder
rights agreement so that the holders of the debentures would not be entitled to
receive any rights in respect of the common stock issuable upon conversion of
the debentures, the conversion rate will be adjusted as if we distributed to all
holders of our common stock, evidences of indebtedness or assets as described
under the fourth bullet point above, subject to readjustment in the event of the
expiration, termination or redemption of the rights. In lieu of any such
adjustment, we may amend such applicable stockholder rights agreement to provide
that upon conversion of the debentures the holders will receive, in
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addition to the common stock issuable upon such conversion, the rights which
would have attached to such shares of common stock if the rights had not become
separated from the common stock under such applicable stockholder rights
agreement. See "Description of Capital Stock -- Preferred Stock Purchase
Rights."
In the event of:
- any reclassification of our common stock;
- a consolidation, merger or combination involving us; or
- a sale or conveyance to another person or entity of all or substantially
all of our property and assets;
in which holders of our common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, upon
conversion of your convertible debentures you will be entitled to receive the
same type of consideration which you would have been entitled to receive if you
had converted the convertible debentures into our common stock immediately prior
to any of these events. If the transaction also constitutes a change of control,
you can require us to repurchase all or a portion of your convertible debentures
as described under "-- Repurchase at Option of the Holder upon Change of
Control."
You may in certain situations be deemed to have received a distribution
subject to U.S. federal income tax as a dividend in the event of any taxable
distribution to holders of our common stock or in certain other situations
requiring a conversion rate adjustment. See "Material U.S. Federal Income Tax
Considerations -- Adjustment of Conversion Price."
We may from time to time, to the extent permitted by law, increase the
conversion rate by any amount for any period of at least 20 days. In that case,
we will give at least 15 days' notice of such increase. In addition, we may make
such increases in the conversion rate as we deem advisable to avoid or diminish
any income tax to holders of our common stock resulting from any dividend or
distribution of stock, or rights to acquire stock, or from any event treated as
such for income tax purposes.
We will not be required to make an adjustment in the conversion rate unless
the adjustment would require a change of at least 1% in the conversion rate.
However, we will carry forward any adjustments that are less than 1% of the
conversion rate. Except as described above in this section, we will not adjust
the conversion rate for any issuance of our common stock or convertible or
exchangeable securities or rights to purchase our common stock or convertible or
exchangeable securities.
The "closing sale price" of our common stock on any date means the closing
per share sale price, or if no closing sale price is reported, the average of
the bid and ask prices or, if more than one in either case, the average of the
average closing bid and the average closing ask prices, on such date as reported
in composite transactions for the principal United States securities exchange on
which our common stock is traded or, if our common stock is not listed on a
United States national or regional securities exchange, as reported by the
Nasdaq System or by the National Quotation Bureau Incorporated. In the absence
of such a quotation, we will determine the closing sale price on the basis we
consider appropriate.
OPTIONAL REDEMPTION BY WILLIAMS
We may redeem the convertible debentures prior to maturity, in whole or in
part, at any time on or after June 1, 2010 if the closing sale price of our
common stock for at least 20 trading days in the period of 30 consecutive
trading days ending on the trading day prior to the mailing of the notice of
redemption, including the last day in such period, exceeds 130% of the
then-prevailing conversion price. The redemption price will be equal to 100% of
the principal amount to be redeemed, plus accrued and unpaid interest, including
deferred interest, and other amounts to but excluding the date of redemption,
payable in cash.
We will mail any notice of redemption at least 30 and no more than 60 days
before the redemption date to each holder of convertible debentures to be
redeemed at its registered address. Unless we default in payment of the
redemption price, on the redemption date interest shall cease to accrue on the
convertible debentures called for redemption.
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Subject to applicable law, we or our affiliates may at any time and from
time to time purchase outstanding convertible debentures by tender, in the open
market or by private agreement.
If less than all of the outstanding convertible debentures are to be
redeemed, the trustee will select the convertible debentures to be redeemed in
principal amounts of $50 or multiples of $50 by lot, pro rata or by another
method the trustee considers fair and appropriate. If a portion of your
convertible debentures is selected for partial redemption and you convert a
portion of your convertible debentures, the converted portion will be deemed to
be of the portion selected for redemption.
We may redeem the convertible debentures only in whole, and not in part, if
we have failed to pay any interest on the convertible debentures when due and
such failure to pay is continuing, including during an extension period. We will
notify the holders if we redeem the convertible debentures.
REPURCHASE AT OPTION OF THE HOLDER UPON CHANGE OF CONTROL
If a change of control, as defined below, occurs at any time prior to the
maturity of the convertible debentures, you may require us to repurchase your
convertible debentures, in whole or in part, on the repurchase date specified as
described below. The convertible debentures may be repurchased in principal
amounts of $50 or integral multiples of $50.
We will repurchase the convertible debentures at a price equal to 100% of
the principal amount to be repurchased, plus accrued and unpaid interest,
including deferred interest, to, but excluding, the repurchase date.
Within 30 days after the occurrence of a change of control, we must give
notice of the change of control and the applicable repurchase date to registered
holders of convertible debentures at their addresses shown in the register of
the registrar. We will also give notice to beneficial owners as required by
applicable law. This notice will state, among other things, the repurchase date,
which must be no less than 20 and no more than 45 days after the date of our
change of control notice, the repurchase price and the procedures that holders
must follow to require us to repurchase their convertible debentures.
If you elect to require us to repurchase your convertible debentures, you
must deliver to us or our designated agent, on or before the repurchase date
specified in our change of control notice, your repurchase notice and any
convertible debentures to be repurchased by book-entry transfer or delivery of
the convertible debenture, duly endorsed for transfer, to the paying agent at
its corporate trust office in the Borough of Manhattan, The City of New York, or
any other office of the paying agent. We will promptly pay the repurchase price
for convertible debentures surrendered for repurchase following the later of the
repurchase date and the time of book-entry transfer or delivery of the
convertible debenture.
You may withdraw your repurchase notice by delivering a written notice of
withdrawal to the paying agent at any time prior to the close of business on the
business day preceding the repurchase date. If a repurchase notice is given and
withdrawn prior to the close of business on such day, we will not be obligated
to repurchase the convertible debentures listed in the notice. The withdrawal
notice must state:
- the principal amount of the withdrawn convertible debentures;
- if certificated debentures have been issued, the certificate numbers of
the withdrawn convertible debentures, or, if your convertible debentures
are not certificated, your withdrawal notice must comply with appropriate
DTC procedures; and
- the principal amount, if any, which remains subject to the repurchase
notice.
If the paying agent holds money sufficient to pay the repurchase price of
your convertible debentures on the business day following the repurchase date,
then, on and after such date:
- those convertible debentures will cease to be outstanding;
- interest will cease to accrue; and
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- all your other rights as a holder will terminate, other than the right to
receive the repurchase price upon delivery of the convertible debentures.
This will be the case whether or not book-entry transfer of the convertible
debentures has been made or the convertible debentures have been delivered to
the paying agent.
Williams will comply with the requirements of the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the convertible
debentures as a result of a change of control.
A "change of control" will be deemed to have occurred when any of the
following has occurred:
- the acquisition by any person of beneficial ownership, directly or
indirectly, through a purchase, merger, other acquisition transaction or
a series of such transactions, of shares of Williams' capital stock
entitling that person to exercise 50% or more of the total voting power
of all shares of Williams' capital stock entitled to vote generally in
elections of directors, other than any acquisition by Williams, any of
Williams' subsidiaries or future subsidiaries or any of Williams'
employee benefit plans;
- the first day on which a majority of the members of the board of
directors of Williams are not "continuing directors," which means, as of
any date of determination, any member of the board of directors of
Williams who:
- was a member of the board of directors throughout the 24 consecutive
months preceding the date of determination; or
- was nominated for election or elected to the board of directors with the
approval of a majority of the continuing directors who were members of
the board at the time of such director's nomination or election; or
- the consolidation, combination or merger of Williams with or into any
other person, any merger of another person into Williams, or any
conveyance, transfer, sale, lease or other disposition of all or
substantially all of Williams' properties and assets to another person,
other than:
- any transaction:
(a) that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Williams' capital stock; and
(b) pursuant to which holders of Williams' capital stock immediately prior
to such transaction are entitled to exercise, directly or indirectly,
50% or more of the total voting power of all shares of Williams'
capital stock entitled to vote generally in elections of directors of
the continuing or surviving person immediately after giving effect to
such transaction; or
- any merger solely for the purpose of changing Williams' jurisdiction of
incorporation and resulting in a reclassification, conversion or exchange
of outstanding shares of common stock solely into shares of common stock
of the surviving entity.
Beneficial ownership will be determined in accordance with Rule 13d-3
promulgated by the SEC under the Securities Exchange Act of 1934 referred to
herein as the "Exchange Act". The term "person" includes any syndicate or group
which would be deemed to be a "person" under Section 13(d)(3) of the Exchange
Act.
However, a change of control will not be deemed to have occurred if:
- the closing sale price per share of Williams common stock for any five
full trading days, not including extended hours trading, within the
period of ten consecutive trading days ending immediately after the later
of the change of control or the public announcement of the change of
control, in the case of a change of control under the first bullet point
above, or the period of ten consecutive full trading days, not including
extended hours trading, ending immediately before the change of control,
in the case of a
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change of control under the third bullet point above, equals or exceeds
110% of the conversion price per share of Williams common stock in effect
on each of those trading days, as adjusted; or
- at least 90% of the consideration in the transaction or transactions
constituting a change of control consists of shares of common stock
traded or to be traded immediately following such change of control on a
national securities exchange or the Nasdaq National Market and, as a
result of such transaction or transactions, the convertible debentures
become convertible into such common stock and any rights attached
thereto.
Except as described above with respect to a change of control and below
under "-- Merger and Sale of Assets by Williams," neither the convertible
debentures nor the indenture will contain provisions that permit holders of
convertible debentures to require that we repurchase the convertible debentures
in the event of, or otherwise prohibit us from undertaking, a merger, takeover,
recapitalization or similar business combination or restructuring transaction.
The term "change of control" is limited to specified transactions and may not
include other events that might adversely affect our financial condition or
business operations. We may enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that could affect our
capital structure or the value of our common stock, but that would not
constitute a change of control. Our obligation to offer to redeem the
convertible debentures upon a change of control would not necessarily afford you
protection in the event of a highly leveraged transaction, reorganization,
merger or similar transaction involving us.
Our ability to repurchase convertible debentures upon the occurrence of a
change of control is subject to important limitations. The occurrence of a
change of control could cause an event of default under, or be prohibited or
limited by, the terms of our senior or senior subordinated debt. As a result,
any repurchase of the convertible debentures would, absent a waiver, be
prohibited under the indentures governing such senior or senior subordinated
debt until the debt is paid in full. Further, there can be no assurance that we
would have the financial resources, or would be able to arrange financing, to
pay the repurchase price for all the convertible debentures that might be
delivered by holders of convertible debentures seeking to exercise their
repurchase right. Any failure by us to repurchase the convertible debentures
when required following a change of control would result in an event of default
under the indenture, whether or not such repurchase is permitted by the
indentures governing our senior or senior subordinated debt. Any such default
may, in turn, cause a default under our other indebtedness.
SUBORDINATION OF CONVERTIBLE DEBENTURES
The payment of principal of and interest on the convertible debentures
will, to the extent provided in the indenture, be subordinated to the prior
payment in full of all present and future senior and senior subordinated
indebtedness, as defined below. The convertible debentures also are effectively
subordinated to all debt and other liabilities, including trade payables and
lease obligations, if any, of our subsidiaries.
Upon any payment or distribution of our assets upon any dissolution,
winding up, liquidation or reorganization, or in a bankruptcy, insolvency or
other proceeding, the payment of the principal of, or premium, if any, interest
and liquidated damages, if any, on the convertible debentures will be
subordinated in right of payment to the prior payment in full of all senior and
senior subordinated indebtedness in cash, including interest after the
commencement of any such proceeding at the rate specified in the applicable debt
agreement or other document, whether or not allowed as a claim in such
proceeding. In the event of any acceleration of the convertible debentures
because of an event of default, the holders of any outstanding senior or senior
subordinated indebtedness would be entitled to payment in full in cash,
including interest after the commencement of any such proceeding at the rate
specified in the applicable debt agreement or other document, whether or not
allowed as a claim in such proceeding, of all senior and senior subordinated
indebtedness obligations before the holders of the convertible debentures are
entitled to receive any payment or distribution. We are required under the
indenture to promptly notify holders of senior and senior subordinated
indebtedness if payment of the convertible debentures is accelerated because of
an event of default.
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Neither we nor any of our subsidiaries may make any payment on the
convertible debentures if:
- a default in the payment of designated senior indebtedness occurs and is
continuing beyond any applicable period of grace which we refer to herein
as a "payment default"; or
- a default, other than a payment default, on any designated senior
indebtedness occurs and is continuing that permits holders of any of the
designated senior indebtedness to accelerate its maturity, or in the case
of a lease that is designated senior indebtedness, a default occurs and
is continuing that permits the lessor either to terminate the lease or to
require us to make an irrevocable offer to terminate the lease following
an event of default under the lease, and the trustee receives a notice of
such default which we refer to herein as a "payment blockage notice" from
any person permitted to give such notice under the indenture which we
refer to herein as a "non-payment default".
We may resume payments and distributions on the convertible debentures:
- in case of a payment default, on the date on which such default is cured
or waived or ceases to exist; and
- in case of a non-payment default, on the earlier of the date on which
such non-payment default is cured or waived or ceases to exist and 179
days after the date on which the payment blockage notice is received, if
the maturity of any of the designated senior indebtedness has not been
accelerated or in the case of any lease, 179 days after notice is
received if we have not received notice that the lessor under such lease
has exercised its right to terminate the lease or require us to make an
irrevocable offer to terminate the lease following an event of default
under the lease.
Not more than one payment blockage may be commenced pursuant to a payment
blockage notice during any 360 consecutive days. No non-payment default that
existed or was continuing on the date of delivery of any payment blockage
notice, to the extent the holder of designated senior debt or the trustee or
agent giving such notice had knowledge of the same, shall be the basis for any
later payment blockage notice.
If the trustee or any holder of the convertible debentures receives any
payment or distribution of our assets with respect to the convertible debentures
in contravention of the subordination provisions, then such payment or
distribution will be held in trust for the benefit of holders of senior and
senior subordinated indebtedness or their representatives to the extent
necessary to make payment in full of all unpaid senior and senior subordinated
indebtedness in cash.
Because of the subordination provisions discussed above, in the event of
our bankruptcy, dissolution or reorganization, holders of senior and senior
subordinated indebtedness may receive more, ratably, and holders of the
convertible debentures may receive less, ratably, than our other creditors. This
subordination will not prevent the occurrence of any event of default under the
indenture that would otherwise occur upon any nonpayment of the convertible
debentures.
The convertible debentures are exclusively our obligations and not
obligations of any of our subsidiaries. Substantially all of our operations are
conducted through our subsidiaries. As a result, our cash flow and our ability
to service our debt, including the convertible debentures, is dependent upon the
earnings of our subsidiaries. In addition, we are dependent on the distribution
of earnings, loans or other payments from our subsidiaries. In addition, any
payment of dividends, distributions, loans or advances by our subsidiaries to us
could be subject to statutory or contractual restrictions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries' earnings and
business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors, except to the extent
that we ourselves may be a creditor of such subsidiary. In addition, even if we
were a creditor to any of our subsidiaries, our rights as a creditor would be
subordinate to any security interest in the assets of our subsidiaries and any
indebtedness of our subsidiaries senior to that held by us.
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Subject to the qualifications described below, the term "senior and senior
subordinated indebtedness" includes principal and premium, if any, and interest,
including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law, on, and
all other amounts owing in respect of (including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities thereunder) all of our
indebtedness, whether outstanding on the date of the issuance of the convertible
debentures or thereafter created, incurred or assumed. Notwithstanding the
foregoing, senior and senior subordinated indebtedness will not include (1) any
indebtedness which by its terms is expressly made equal in rank and payment with
or subordinated to the convertible debentures, (2) obligations of Williams owed
to its subsidiaries or (3) our redeemable stock. Senior and senior subordinated
indebtedness will continue to be senior and senior subordinated indebtedness and
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of the senior and senior
subordinated indebtedness or extension, renewal or refunding of the senior and
senior subordinated indebtedness.
The term "indebtedness" is defined in the indenture and includes, in
general terms, our liabilities in respect of borrowed money, notes, bonds,
debentures, letters of credit, bank guarantees, bankers' acceptances,
obligations for the deferred purchase price of property, other than trade
accounts payable in the ordinary course of business, all of our obligations
under leases required or permitted to be capitalized under generally accepted
accounting principles, interest rate and foreign currency derivative contracts
or similar arrangements, guarantees and certain other obligations described in
the indenture, subject to certain exceptions. The term does not include, for
example, any account payable or other accrued current liability or obligation
incurred in the ordinary course of business in connection with the obtaining of
materials or services.
The term "designated senior indebtedness" is defined in the indenture and
includes, in general terms, any senior or senior subordinated indebtedness that
by its terms expressly provides that it is "designated senior indebtedness" for
purposes of the indenture.
As of March 31, 2003, we had approximately $13.8 billion of senior and
senior subordinated debt, including approximately $4.2 billion of subsidiary
debt other than intercompany indebtedness, trade payables and other liabilities
of our subsidiaries. As of March 31, 2003, we also had approximately $383
million in letters of credit outstanding. Neither we nor our subsidiaries are
prohibited from incurring debt, including senior indebtedness, under the
indenture. We may from time to time incur additional debt, including senior
indebtedness. Our subsidiaries may also from time to time incur additional debt
and liabilities.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the convertible
debentures. The trustee's claims for these payments will generally be senior to
those of convertible debenture holders in respect of all funds collected or held
by the trustee.
RESTRICTIONS ON CERTAIN PAYMENTS
We have agreed that if:
- an event has occurred that with the giving of notice or the lapse of
time, or both, would constitute an event of default and we have not taken
commercially reasonable steps to cure the event, referred to herein as a
"potential event of default"; or
- we have given notice of our intention to begin an interest deferral
period, as described under "-- Option to Extend Interest Payment Period"
and have not rescinded the notice, or any deferral period is continuing;
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then we will not and will not permit any of our subsidiaries to do any of the
following each referred to herein as a "Restricted Payment":
- declare or pay any dividends on, make distributions regarding, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of
the capital stock of Williams, other than:
(1) purchases of the capital stock of Williams in connection with employee
or agent benefit plans or under any dividend reinvestment plan;
(2) in connection with the reclassifications of any class or series of
Williams' capital stock, or the exchange or conversion of one class or
series of Williams' capital stock for or into another class or series
of its capital stock;
(3) the purchase of fractional interests in shares of Williams' capital
stock in connection with the conversion or exchange provisions of that
capital stock or the security being converted or exchanged;
(4) dividends or distributions in Williams' capital stock, or options,
warrants or rights to acquire capital stock, or repurchases or
redemptions of capital stock solely from the issuance or exchange of
capital stock;
(5) any declaration of a dividend in connection with the implementation of
a shareholders' rights plan, or issuances of stock under any such plan
in the future, or redemptions or repurchases of any such rights
pursuant to any such shareholders' rights plan; or
(6) repurchases of Williams common stock in connection with acquisitions
of businesses made by Williams or any of its subsidiaries, which
repurchases are made in connection with the satisfaction of
indemnification obligations of the sellers of such businesses;
- make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities, including other convertible
debentures, issued by Williams that rank equally with or junior to the
convertible debentures; and
- make any guarantee payments with respect to any guarantee by Williams of
the debt securities, including other guarantees, of any of its
subsidiaries, if such guarantee ranks equally with or junior in interest
to the convertible debentures.
Notwithstanding the foregoing, Restricted Payments shall not include
payments or distributions of any kind made by Williams, directly or indirectly,
to Williams Gas Pipeline Company, LLC, or any of its direct or indirect
subsidiaries, or to any successor company established by Williams to own or
manage its natural gas pipelines and related assets, or any of such successor
company's direct or indirect subsidiaries.
See "Risk Factors -- The convertible debentures impose only limited
restrictive covenants."
MERGER AND SALE OF ASSETS BY WILLIAMS
The indenture provides that we may not consolidate with or merge with or
into any other person or sell, convey, transfer or lease its properties and
assets substantially as an entirety to another person, unless among other items:
- we are the surviving person, or the resulting, surviving or transferee
person, if other than us, is organized and existing under the laws of the
United States, any state thereof or the District of Columbia;
- the resulting, surviving or transferee person assumes all of our
obligations under the convertible debentures and the indenture;
- after giving effect to such transaction, there is no event of default,
and no event which, after notice or passage of time or both, would become
an event of default; and
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- we have delivered to the trustee an officers' certificate and an opinion
of counsel each stating that such consolidation, merger, sale,
conveyance, transfer or lease complies with these requirements.
When such a person assumes our obligations in such circumstances, subject
to certain exceptions, we shall be discharged from all obligations under the
convertible debentures and the indenture.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the convertible debentures:
- failure for 30 days to pay interest or liquidated damages on the
convertible debentures when due, whether or not the payment is prohibited
by subordination provisions, provided that a valid extension of the
interest payment period by Williams shall not constitute a default in the
payment of interest for this purpose;
- failure to pay principal of or premium, if any, on the convertible
debentures when due whether at maturity, by declaration or otherwise,
whether or not the payment is prohibited by subordination provisions;
- default in Williams' obligation to convert the convertible debentures
into shares of its common stock upon exercise of a holder's conversion
right;
- default in Williams' obligation to repurchase the convertible debentures
at the option of a holder upon a change of control, whether or not the
payment is prohibited by subordination provisions;
- default in Williams' obligation to redeem the convertible debentures
after it has exercised its option to redeem, whether or not the payment
is prohibited by subordination provisions;
- failure to observe or perform any other covenant contained in the
indenture for 90 days after written notice to Williams from the trustee
or the holders of at least 25% in principal amount of the outstanding
convertible debentures;
- failure to pay at final stated maturity, giving effect to any applicable
grace periods and any extensions thereof, the principal amount of any
other junior subordinated indebtedness of Williams or the acceleration of
the final stated maturity of any such other junior subordinated
indebtedness, which acceleration is not rescinded, annulled or otherwise
cured within 90 days of receipt by Williams of notice from the holders
thereof of any such acceleration, if the aggregate principal amount of
such indebtedness, together with the principal amount of any other such
junior subordinated indebtedness in default for failure to pay principal
at final stated maturity or which has been accelerated (in each case with
respect to which the 90-day period described above has elapsed),
aggregates $250 million or more at any time; or
- certain events involving our bankruptcy, insolvency or reorganization.
If an event of default occurs and continues, the trustee or the holders of
at least 25% in principal amount of the outstanding convertible debentures may
declare the principal, premium, if any, and accrued and unpaid interest,
including liquidated damages, if any, on the outstanding convertible debentures
to be immediately due and payable. In case of certain events of bankruptcy or
insolvency involving us, the principal, premium, if any, and accrued and unpaid
interest, including liquidated damages, if any, on the convertible debentures
will automatically become due and payable. However, if we cure all defaults,
except the nonpayment of principal, premium, if any, interest, including
liquidated damages, if any, that became due as a result of the acceleration, and
meet certain other conditions, with certain exceptions, this declaration may be
cancelled and the holders of a majority of the principal amount of outstanding
convertible debentures may waive these past defaults.
The holders of a majority of outstanding convertible debentures will have
the right to direct the time, method and place of any proceedings for any remedy
available to the trustee, subject to limitations specified in the indenture.
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No holder of the convertible debentures may pursue any remedy under the
indenture, except in the case of a default in the payment of principal, premium,
if any, or interest, including liquidated damages, if any, on the convertible
debentures, unless:
- the holder has given the trustee written notice of an event of default;
- the holders of at least 25% in principal amount of outstanding
convertible debentures make a written request, and offer reasonable
indemnity, to the trustee to pursue the remedy;
- the trustee does not receive an inconsistent direction from the holders
of a majority in principal amount of the convertible debentures;
- the holder or holders have offered reasonable security or indemnity to
the trustee against any costs, liability or expense of the trustee; and
- the trustee fails to comply with the request within 60 days after receipt
of the request and offer of indemnity.
Williams is required to file annually with the trustee a certificate as to
whether or not Williams is in compliance with all the conditions and covenants
under the indenture.
MODIFICATION AND AMENDMENT
The consent of the holders of a majority in principal amount of the
outstanding convertible debentures is required to modify or amend the indenture.
However, a modification or amendment requires the consent of the holder of each
outstanding convertible debenture if it would:
- extend the fixed maturity of any convertible debenture;
- reduce the rate or extend the time for payment of interest, including
liquidated damages, if any, of any convertible debenture;
- reduce the principal amount or premium of any convertible debenture;
- reduce any amount payable upon redemption or repurchase of any
convertible debenture;
- adversely change our obligation to redeem any convertible debenture on a
redemption date;
- adversely change our obligation to repurchase any convertible debenture
upon a change of control;
- impair the right of a holder to institute suit for payment on any
convertible debenture;
- change the currency in which any convertible debenture is payable;
- impair the right of a holder to convert any convertible debenture or
reduce the number of common shares or any other property receivable upon
conversion;
- reduce the quorum or voting requirements under the indenture;
- subject to specified exceptions, modify certain of the provisions of the
indenture relating to modification or waiver of provisions of the
indenture; or
- reduce the percentage of convertible debentures required for consent to
any modification of the indenture.
We are permitted to modify certain provisions of the indenture without the
consent of the holders of the convertible debentures, including to:
- secure any convertible debentures;
- evidence the assumption of Williams' obligations by a successor person;
- add covenants for the protection of the holders of convertible
debentures;
- cure any ambiguity or correct any inconsistency in the indenture, so long
as such action will not adversely affect the interests of holders;
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- establish the forms or terms of the convertible debentures;
- evidence the acceptance of appointment by a successor trustee; and
- make other changes to the indenture or forms or terms of the convertible
debentures, provided no such change individually or in the aggregate with
all other such changes has or will have a material adverse effect on the
interests of the holders of the convertible debentures.
FORM, DENOMINATION AND REGISTRATION
The convertible debentures will be issued:
- in fully registered form;
- without interest coupons; and
- in denominations of $50 principal amount and integral multiples of $50.
GLOBAL DEBENTURE, BOOK-ENTRY FORM
Convertible debentures will be evidenced by one or more global debentures
deposited with the trustee as custodian for The Depository Trust Company which
we refer to herein as the "DTC", and registered in the name of Cede & Co. as
DTC's nominee. Record ownership of the global debentures may be transferred, in
whole or in part, only to another nominee of DTC or to a successor of DTC or its
nominee, except as set forth below. A holder may hold its interests in the
global debentures directly through DTC if such holder is a participant in DTC,
or indirectly through organizations which are direct DTC participants if such
holder is not a participant in DTC. Transfers between direct DTC participants
will be effected in the ordinary way in accordance with DTC's rules and will be
settled in same-day funds. Holders may also beneficially own interests in the
global debentures held by DTC through certain banks, brokers, dealers, trust
companies and other parties that clear through or maintain a custodial
relationship with a direct DTC participant, either directly or indirectly.
So long as Cede & Co., as nominee of DTC, is the registered owner of the
global debentures, Cede & Co. for all purposes will be considered the sole
holder of the global debentures. Except as provided below, owners of beneficial
interests in the global debentures:
- will not be entitled to have certificates registered in their names;
- will not receive or be entitled to receive physical delivery of
certificates in definitive form; and
- will not be considered holders of the global debentures.
The laws of some states require that certain persons take physical delivery
of securities in definitive form. Consequently, the ability of an owner of a
beneficial interest in a global security to transfer the beneficial interest in
the global security to such persons may be limited.
We will wire, through the facilities of the trustee, payments of principal,
interest, liquidated damages, the redemption price or change of control purchase
price on the global debentures to Cede & Co., the nominee of DTC, as the
registered owner of the global debentures. None of Williams, the trustee or any
paying agent will have any responsibility or be liable for paying amounts due on
the global debentures to owners of beneficial interests in the global
debentures.
It is DTC's current practice, upon receipt of any payment on the global
debentures, to credit participants' accounts on the payment date in amounts
proportionate to their respective beneficial interests in the convertible
debentures represented by the global debentures, as shown on the records of DTC,
unless DTC believes that it will not receive payment on the payment date.
Payments by DTC participants to owners of beneficial interests in convertible
debentures represented by the global debentures held through DTC participants
will be the responsibility of DTC participants, as is now the case with
securities held for the accounts of customers registered in "street name."
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If you would like to convert your convertible debentures into common stock
pursuant to the terms of the convertible debentures, you should contact your
broker or other direct or indirect DTC participant to obtain information on
procedures, including proper forms and cut-off times, for submitting those
requests.
Because DTC can only act on behalf of DTC participants, who in turn act on
behalf of indirect DTC participants and other banks, your ability to pledge your
interest in the convertible debentures represented by global debentures to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be affected by the lack of a physical
certificate.
Neither Williams nor the trustee, nor any registrar, paying agent or
conversion agent under the indenture, will have any responsibility for the
performance by DTC or direct or indirect DTC participants of their obligations
under the rules and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder of convertible
debentures, including, without limitation, the presentation of convertible
debentures for conversion or repurchase as described below, only at the
direction of one or more direct DTC participants to whose account with DTC
interests in the global debentures are credited and only for the principal
amount of the convertible debentures for which directions have been given.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act, as amended. DTC was created to hold securities
for DTC participants and to facilitate the clearance and settlement of
securities transactions between DTC participants through electronic book-entry
changes to the accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations, such as the initial purchaser of the convertible
debentures.
Certain DTC participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global debentures among DTC participants, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will cause convertible debentures to be issued in
definitive form in exchange for the global debentures. None of Williams, the
trustee or any of their respective agents will have any responsibility for the
performance by DTC or direct or indirect DTC participants of their obligations
under the rules and procedures governing their operations, including
maintaining, supervising or reviewing the records relating to or payments made
on account of beneficial ownership interests in global debentures.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
information purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
INFORMATION CONCERNING THE TRUSTEE
We have appointed JPMorgan Chase Bank, the trustee under the indenture, as
paying agent, conversion agent, convertible debenture registrar and custodian
for the convertible debentures. The trustee or its affiliates may also provide
banking and other services to us in the ordinary course of their business.
The indenture contains certain limitations on the rights of the trustee, if
it or any of its affiliates is then our creditor, to obtain payment of claims in
certain cases or to realize on certain property received on any claim as
security or otherwise. The trustee and its affiliates will be permitted to
engage in other transactions with us. However, if the trustee or any affiliate
continues to have any conflicting interest and a default occurs with respect to
the convertible debentures, the trustee must eliminate such conflict or resign.
GOVERNING LAW
The convertible debentures and the indenture shall be governed by, and
construed in accordance with, the laws of the State of New York.
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DESCRIPTION OF CAPITAL STOCK
Under Williams' certificate of incorporation, as amended, Williams is
authorized to issue up to 30,000,000 shares of preferred stock, par value $1.00
per share, in one or more series. See "Outstanding Preferred Stock" below. As of
the date of this prospectus, Williams is authorized to issue up to 960,000,000
shares of common stock. As of March 31, 2003, Williams had 539,026,590 issued
and outstanding shares of common stock. In addition, at March 31, 2003, options
to purchase 37,756,368 shares of common stock were outstanding under various
stock and compensation incentive plans. On May 15, 2003, our shareholders
approved an amendment to our 2002 Incentive Plan that allows us to commence a
one-time only stock option exchange program in which any eligible employee will
be given an opportunity to exchange certain outstanding options for a
proportionately lesser number of options at a lower exercise price. The program
excludes our directors, executive officers, and non-U.S. citizen employees
working outside the U.S. We have the authority, in our sole discretion, to
determine whether and when the exchange program will commence, and to postpone
the exchange program for any reason. Additionally, at March 31, 2003, purchase
contracts obligating the holders of the purchase contacts to purchase up to
44,000,000 shares of common stock on February 16, 2005 were outstanding. The
number of shares of common stock which the holders of these purchase contracts
are required to purchase is subject to adjustment based on the market value of
Williams' common stock. The outstanding shares of Williams' common stock are
fully paid and nonassessable. The holders of Williams' common stock are not
entitled to preemptive or redemption rights. Shares of Williams' common stock
are not convertible into shares of any other class of capital stock. EquiServe
Trust Company, N.A., is the transfer agent and registrar for our common stock.
Williams currently has the following provisions in its charter or bylaws
which could be considered to be "anti-takeover" provisions:
- an article in its charter providing for a classified board of directors
divided into three classes, one of which is elected for a three-year term
at each annual meeting of stockholders;
- an article in its charter providing that directors cannot be removed
except for cause and by the affirmative vote of three-fourths of the
outstanding shares of common stock;
- an article in its charter requiring the affirmative vote of three-fourths
of the outstanding shares of common stock for certain merger and asset
sale transactions with holders of more than five percent of the voting
power of Williams; and
- a bylaw requiring stockholders to provide prior notice for nominations
for election to the board of directors or for proposing matters which can
be acted upon at stockholders meetings.
Williams is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an interested
stockholder, which is defined generally as a person owning 15% or more of
Williams' outstanding voting stock from engaging in a business combination with
Williams for three years following the date that person became an interested
stockholder unless:
- before that person became an interested stockholder, the board of
directors of Williams approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination;
- upon completion of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of Williams
outstanding at the time the transaction commenced (excluding stock held
by persons who are both directors and officers of Williams or by certain
employee stock plans); or
34
- on or following the date on which that person became an interested
stockholder, the business combination is approved by Williams' board of
directors and authorized at a meeting of stockholders by the affirmative
vote of the holders of a least 66 2/3% of the outstanding voting stock of
Williams (excluding shares held by the interested stockholder).
A business combination includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder.
DIVIDENDS
The holders of Williams' common stock are entitled to receive dividends
when, as, and if declared by the board of directors of Williams, out of funds
legally available for their payment subject to the rights of holders of any
outstanding preferred stock.
VOTING RIGHTS
The holders of Williams' common stock are entitled to one vote per share on
all matters submitted to a vote of stockholders.
RIGHTS UPON LIQUIDATION
In the event of Williams' voluntary or involuntary liquidation,
dissolution, or winding up. the holders of Williams' common stock will be
entitled to share equally in any assets available for distribution after the
payment in full of all debts and distributions and after the holders of all
series of outstanding preferred stock have received their liquidation
preferences in full.
PREFERRED STOCK PURCHASE RIGHTS
On February 6, 1996, Williams entered into a rights agreement with The
First Chicago Trust Company of New York, as rights agent, which currently
provides for a dividend of one-third preferred stock purchase right for each
outstanding share of Williams' common stock. The rights trade automatically with
shares of common stock and become exercisable only under the circumstances
described below. The rights are designed to protect the interests of Williams
and its stockholders against coercive takeover tactics. The purpose of the
rights is to encourage potential acquirers to negotiate with the board of
directors of Williams prior to attempting a takeover and to provide the board
with leverage in negotiating on behalf of all stockholders the terms of any
proposed takeover. The rights may have anti-takeover effects. The rights should
not, however, interfere with an merger or other business combination approved by
the board of directors of Williams.
Until a right is exercised, the right does not entitle the holder to
additional rights as a Williams' stockholder, including, without limitation, the
right to vote or to receive dividends. Upon becoming exercisable, each right
entitles its holder to purchase from Williams one two-hundredth of a share of
Series A Junior Participating Preferred Stock at an exercise or purchase price
of $140.00 per right, subject to adjustment. Each one two-hundredth of a share
of Series A Junior Participating Preferred Stock entitles the holder to receive
quarterly dividends payable in cash of an amount per share equal to:
- the greater of (a) $120, or (b) 1,200 times the aggregate per share
amount of all cash dividends; plus
- 1,200 times the aggregate per share amount payable in kind of all
non-cash dividends or other distributions other than dividends payable in
common stock, since the immediately preceding quarterly dividend payment
date.
The dividends on the Junior Participating Preferred Stock are cumulative.
Holders of Junior Participating Preferred Stock have voting rights entitling
them to 1,200 votes per share on all matters submitted to a vote of the
stockholders of Williams.
In general, the rights will not be exercisable until the distribution date,
which is the earlier of (a) the close of business on the 10th business day after
Williams learns that a person or group has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of our outstanding common stock,
(b) the
35
close of business on the 10th business day after the commencement of a tender or
exchange offer for 15% or more of Williams' outstanding common stock, or (c) the
close of business on the 10th business day after the board of directors of
Williams determines that any adverse person or group has become the beneficial
owner of an amount of common stock which the board of directors determines to be
substantial. Below we refer to the person or group acquiring at least 15% of our
common stock as an acquiring person.
In the event that a person or group acquires beneficial ownership of 15% or
more of Williams' outstanding common stock or the board of directors of Williams
determines that any adverse person or group has become the beneficial owner of a
substantial amount of common stock, each holder of a right will have the right
to exercise and receive common stock having a value equal to two times the
exercise price of the right. The exercise price is the purchase price times the
number of shares of common stock associated with each right. Any rights that are
at any time beneficially owned by an acquiring person will be null and void and
any holder of such right will be unable to exercise or transfer the right.
In the event that someone becomes an acquiring person and either (a)
Williams is involved in a merger or other business combination in which Williams
is not the surviving corporation, (b) Williams is involved in a merger or other
business combination in which Williams is the surviving corporation but all or a
part of its common stock is changed or exchanged, or (c) 50% or more of
Williams' assets, cash flow or earning power is sold or transferred, each right
becomes exercisable and each right will entitle its holder to receive common
stock of the acquiring person having a value equal to two times the exercise
price of the right.
The rights will expire at the close of business on February 6, 2006, unless
redeemed before that time. At any time prior to the earlier of (a) 10 days
following the stock acquisition date, as defined in the rights agreement, and
(b) the expiration date, the board of directors of Williams may redeem the
rights in whole, but not in part, at a price of $.01 per right. Prior to the
distribution date, Williams may amend the rights agreement in any respect
without the approval of the rights holders. However, after the distribution
date, the rights agreement may not be amended in any way that would adversely
affect the holders of rights (other than any acquiring person or group) or cause
the rights to again become redeemable. The Junior Participating Preferred Stock
ranks junior to all other series of Williams' preferred stock as to the payment
of dividends and the distribution of assets unless the terms of the series
specify otherwise.
You should refer to the applicable provisions of the rights agreement,
which we filed with the SEC as Exhibit 4 to our Form 8-K filed January 24, 1996.
OUTSTANDING PREFERRED STOCK
On March 28, 2001, Williams issued 14,000 shares of its March 2001
Mandatorily Convertible Single Reset Preferred Stock (the "March 2001 Preferred
Stock") to a wholly owned subsidiary as part of a transaction to provide
indirect credit support for $1.4 billion of structured notes issued by entities
controlled by Williams Communications Group, Inc. through a commitment to issue
Williams' equity upon the occurrence of certain trigger events. On March 5,
2002, Williams received the requisite approvals for its consent solicitation to
amend the terms of these structured notes. The amendment, among other things,
eliminates a bankruptcy by Williams Communications and a Williams credit ratings
downgrade from the enumerated list of events that could cause an acceleration of
the notes. For a full description of the March 2001 Preferred Stock, please
refer to Williams' certificate of incorporation and the certificate of
designation of the March 2001 Preferred Stock, which have been filed as exhibits
to the 10-Q filed May 15, 2001 with the SEC.
On December 28, 2000, in connection with the purchase of various
energy-related assets in Canada and formation of Snow Goose Associates, L.L.C.
and Arctic Fox Assets, L.L.C., Williams issued 342,000 shares of Williams'
December 2000 cumulative convertible preferred stock which we refer to as the
"December 2000 Preferred Stock" to Arctic Fox Assets, L.L.C., a wholly owned
subsidiary of Williams. For a full description of the December 2000 Preferred
Stock, please refer to Williams' certificate of incorporation and the
certificate of designation of the December 2000 Preferred Stock, which have been
filed as exhibits to the 10-K filed March 12, 2001 with the SEC.
36
SELLING SECURITYHOLDERS
The convertible debentures were originally issued by us and sold by Lehman
Brothers Inc., in transactions exempt from the registration requirements of the
Securities Act. Selling securityholders may from time to time offer and sell the
convertible debentures and the underlying shares of common stock pursuant to
this prospectus. When we refer to the "selling securityholders" in this
prospectus, we mean those persons listed in the table below, as well as the
pledgees, donees, assignees, transferees, successors and others who later hold
any of the selling securityholders' interests.
The following table contains information as of [ ], 2003, with
respect to the selling securityholders and the principal amount of convertible
debentures and the underlying shares of common stock beneficially owned by each
selling securityholders that may be offered using this prospectus.
We have prepared this table based on the information supplied to us by the
selling securityholders named in the table.
The selling securityholders listed in the table below may have sold or
transferred, in transactions exempt from the registration requirements of the
securities Act, some or all of their convertible debentures since the date on
which the information in the table is presented. Information about the selling
securityholders may change over time. Any changed information will be set forth
in prospectus supplements.
Because the selling securityholders may offer all or some of their
convertible debentures or the underlying shares of common stock from time to
time, we cannot estimate the amount of the convertible debentures or underlying
shares of common stock that will be held by the selling securityholders upon the
termination of any particular offering. See "Plan of Distribution".
Unless set forth below, to our knowledge, none of the selling
securityholders has, or within the past three years has had, any material
relationship with us or any of our predecessors or affiliates or beneficially
owns in excess 1% of our outstanding common stock.
PERCENT OF SHARES
OF COMMON
PRINCIPAL AMOUNT OF NUMBER OF SHARES STOCK
NAME CONVERTIBLE DEBENTURES OF COMMON STOCK OUTSTANDING
---- ---------------------- ---------------- -----------------
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of White & Case LLP, the following is a summary of the
material U.S. federal income tax consequences of the purchase, ownership and
disposition of the convertible debentures and any Williams common stock received
pursuant to the conversion feature of the convertible debentures. This summary
is based on the Internal Revenue Code of 1986, as amended, (the "Code"),
Treasury Regulations thereunder, and administrative and judicial interpretations
thereof as of the date hereof, all of which are subject to change (possibly on a
retroactive basis). Unless otherwise stated, this summary deals only with
convertible debentures held as capital assets by U.S. Holders (as defined below)
who acquire the convertible debentures upon original issuance at the initial
offering price. This summary does not address any of the tax consequences to
holders that are not U.S. Holders or to holders that may be subject to special
tax treatment such as banks, insurance companies, thrift institutions, real
estate investment trusts, regulated investment companies, brokers and dealers in
securities or currencies, tax-exempt investors or persons that will hold the
convertible debentures as a position in a "straddle," as part of a "hedge," or
as part of a "conversion transaction" or other integrated investment, or persons
having a functional currency other than the U.S. dollar. Further, this summary
does not address:
- the U.S. federal income tax consequences to shareholders in, or partners,
members or beneficiaries of, a holder of the convertible debentures;
- the U.S. federal alternative minimum tax consequences material to the
purchase, ownership or disposition of the convertible debentures; or
- any state, local or foreign tax consequences material to the purchase,
ownership or disposition of the convertible debentures.
A "U.S. Holder" is a beneficial owner of convertible debentures who or
which is for U.S. federal income tax purposes:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof;
- an estate, the income of which is includible in its gross income for U.S.
federal income tax purposes without regard to its source, or trust if:
(i) a court within the United States is able to exercise primary
supervision over the administration of the trust; and
(ii) one or more U.S. trustees have the authority to control all
substantial decisions of the trust; or
- a person whose worldwide income or gain is subject to U.S. federal income
taxation on a net income basis.
Investors are advised to consult their tax advisers as to the U.S. federal
income tax consequences of the purchase, ownership and disposition of the
convertible debentures in light of their particular circumstances, as well as
the ownership of Williams common stock, including the tax consequences under
state, local, foreign and other tax laws and possible effects of changes in such
tax laws.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
The convertible debentures are intended to be and in the opinion of White &
Case LLP the convertible debentures should be classified for U.S. federal income
tax purposes as Williams' indebtedness. No assurance can be given, however, that
this position will not be challenged by the Internal Revenue Service (the
"IRS"). Each U.S. Holder, by purchasing the convertible debentures, will
covenant to treat the convertible debentures as indebtedness for U.S. federal
income tax purposes. The remainder of this discussion assumes that the
convertible debentures will be classified for U.S. federal income tax purposes
as Williams' indebtedness.
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ACCRUAL OF ORIGINAL ISSUE DISCOUNT
Because we have the right to extend the interest payment period on the
convertible debentures, all of the stated interest payments on the convertible
debentures will be treated as "original issue discount" ("OID"). Accordingly,
each U.S. Holder of convertible debentures will be required to include OID on
the convertible debentures in income as it accrues, in accordance with a
constant yield method based on a compounding of interest, before the receipt of
cash payments on the convertible debentures. All of a U.S. Holder's interest
income with respect to the convertible debentures will be accounted for as OID
and actual distributions of stated interest will not be separately reported as
taxable income. So long as the interest payment period is not extended, cash
payments received by a U.S. Holder for any quarterly interest period (assuming
no disposition prior to the record date for such payment) will equal the sum of
the daily accruals of income for such quarterly interest period.
The total amount of OID on a convertible debenture will equal the
difference between the "issue price" of the convertible debenture and its
"stated redemption price at maturity." All of the stated interest payments on a
convertible debenture will be includible in determining its "stated redemption
price at maturity." The "issue price" of each $50 principal amount of
convertible debentures will be equal to the first price at which a substantial
amount of the convertible debentures is sold to the public for cash.
A U.S. Holder's initial tax basis in the convertible debentures will be
equal to their "issue price," as defined above, and will be increased by OID
accrued with respect to the convertible debentures, and reduced by the amount of
cash payments with respect thereto.
U.S. Holders will continue to accrue OID with respect to the convertible
debentures during an extension period. A U.S. Holder who sells the convertible
debentures during the extension period will generally not receive from Williams
any cash related to the OID income the U.S. Holder accrued and included in its
taxable income under the OID rules (because that cash will be paid to the holder
of record at the end of the extension period).
DISPOSITION OF THE CONVERTIBLE DEBENTURES
Upon a sale, exchange or other disposition of a convertible debenture, a
U.S. Holder will recognize gain or loss equal to the difference between the
amount realized and the U.S. Holder's adjusted tax basis in the convertible
debenture disposed of. The gain or loss generally will be capital gain or loss
and generally will be considered long-term capital gain or loss if the U.S.
Holder held the convertible debenture for more than one year immediately prior
to such sale or disposition.
Convertible debentures may trade at a price that does not fully reflect the
value of accrued but unpaid interest. A U.S. Holder that disposes of its
convertible debentures between record dates for payments of stated interest
thereon will nevertheless be required to include accrued but unpaid OID on the
convertible debentures through the date of disposition in income, and to add
such amount to its adjusted tax basis in the convertible debentures disposed of.
Accordingly, such a U.S. Holder will recognize a capital loss to the extent the
selling price (which may not fully reflect the value of accrued but unpaid OID)
is less than the U.S. Holder's adjusted tax basis (which will include accrued
but unpaid OID). Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for U.S. federal income tax purposes.
U.S. Holders are advised to consult their tax advisers regarding the
taxation of capital gains and losses.
CONVERSION OF CONVERTIBLE DEBENTURES TO WILLIAMS COMMON STOCK
A U.S. Holder of convertible debentures will not recognize income, gain or
loss upon the conversion of convertible debentures into common stock. A U.S.
Holder of convertible debentures will recognize gain, however, upon the receipt
of cash in lieu of a fractional share of common stock equal to the amount of
cash received less such U.S. Holder's tax basis attributable to such fractional
share. Such U.S. Holder's tax basis in the common stock received upon conversion
will generally be equal to such U.S. Holder's tax basis in the convertible
debentures delivered for conversion, less the basis allocated to any fractional
share for which cash is received. Such U.S. Holder's holding period in the
common stock received upon conversion will generally
39
include the U.S. Holder's holding period of the convertible debentures delivered
for conversion, except with respect to common stock received in respect of any
accrued but unpaid OID.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under section 305 of the Code would treat
U.S. Holders of convertible debentures as having received a constructive
distribution from Williams in certain events pursuant to which the conversion
ratio of the convertible debentures were adjusted. Thus, under certain
circumstances, an increase in the conversion ratio for the convertible
debentures may result in deemed distributions to U.S. Holders of convertible
debentures. Such deemed distributions will be taxed in the same manner as actual
distributions. See "Ownership of Williams Common Stock" below. In certain
circumstances, the failure to make an adjustment of the conversion ratio on the
convertible debentures may result in a taxable distribution to holders of
Williams common stock. U.S. Holders of convertible debentures are advised to
consult their tax advisers as to the income tax consequences of adjustments in
the conversion ratio of the convertible debentures.
OWNERSHIP OF WILLIAMS COMMON STOCK
Distributions received by U.S. Holders of Williams common stock in respect
of such common stock will be treated as ordinary dividend income to such U.S.
Holders to the extent that such distributions are considered to be paid by
Williams out of its current or accumulated earnings and profits, as determined
under U.S. federal income tax principles. U.S. Holders of Williams common stock
that are corporations may be entitled to a "dividends received deduction" with
respect to such dividends.
To the extent that any distributions exceed the current or accumulated
earnings and profits of Williams, such distributions will be treated first, as a
tax-free return of capital to a holder of Williams common stock to the extent of
such U.S. Holder's adjusted tax basis in the Williams common stock, and
thereafter, as capital gain.
Additional shares of Williams common stock, or rights to acquire additional
shares of Williams common stock, that are received as part of a pro-rata
distribution of such shares, or rights to acquire such shares, to all Williams
shareholders generally should not be subject to U.S. federal income tax. The tax
basis of such new shares or rights generally will be determined by allocating
the U.S. Holder's adjusted tax basis in the "old" shares of Williams common
stock between such "old" shares and the new shares or rights, based upon their
relative fair market values on the date of distribution.
A U.S. Holder of Williams common stock generally will recognize gain or
loss on a sale or other taxable disposition of Williams common stock equal to
the difference between the amount realized by the U.S. Holder on such sale or
disposition and the U.S. Holder's basis in such Williams common stock. The gain
or loss generally will be capital gain or loss and generally will be considered
long-term capital gain or loss if the holder held the Williams common stock for
more than one year immediately prior to such sale or disposition.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of OID accrued on convertible debentures held of record by U.S.
Holders (other than corporations and other exempt holders) will be reported to
the IRS. Backup withholding will apply to payments to non-exempt U.S. Holders
unless the U.S. Holder furnishes its taxpayer identification number in the
manner prescribed in applicable Treasury Regulations, certifies that the number
is correct, certifies as to no loss of exemption from backup withholding and
meets certain other conditions. The current backup withholding rate is 30%.
Payment of the proceeds from the disposition of the convertible debentures
to or through the U.S. office of a broker is subject to information reporting
and backup withholding unless the holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
40
Any amount withheld from a U.S. Holder under the backup withholding rules
will be allowed as a refund or credit against such U.S. Holder's U.S. federal
income tax liability, provided the required information is furnished to the IRS.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The following is a summary of certain considerations associated with the
purchase of the convertible debentures by employee benefit plans that are
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended, "ERISA", a plan described in section 4975 of the Code, including an
individual retirement arrangement under section 408 of the Code or a "Keogh"
plan, a plan, such as a governmental, church or non-U.S. plan, subject to
provisions under applicable federal, state, local, non-U.S. or other laws or
regulations that are similar to the provisions of Title I of ERISA or section
4975 of the Code ("Similar Laws"), and any entity of which the underlying assets
are considered to include "plan assets" of such plans, accounts and arrangements
each referred to herein as a "Plan".
ERISA and the Code impose certain duties on persons who are fiduciaries of
a Plan subject to Title I of ERISA or section 4975 of the Code referred to
herein as an "ERISA Plan" and prohibit certain transactions involving the assets
of an ERISA Plan and its fiduciaries or other parties in interest or
disqualified persons. Generally, a person who exercises discretionary authority
or control with respect to the assets of an ERISA Plan will be considered a
fiduciary of the ERISA Plan.
In evaluating the purchase of convertible debentures with assets of a Plan,
a fiduciary should consider, among other matters:
- whether the acquisition and holding of convertible debentures is in
accordance with the documents and instruments governing such Plan; and
- whether the acquisition and holding of convertible debentures is solely
in the interest of Plan participants and beneficiaries and otherwise
consistent with the fiduciary's responsibilities and in compliance with
the applicable requirements of ERISA, the Code or any Similar Laws
including, in particular, any diversification, prudence and liquidity
requirements.
PROHIBITED TRANSACTIONS
Section 406 of ERISA and section 4975 of the Code prohibit ERISA Plans from
engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest," within the meaning of ERISA, or
"disqualified persons" within the meaning of section 4975 of the Code, unless an
exemption is available. A party in interest or disqualified person who engages
in a non-exempt prohibited transaction may be subject to excise taxes and other
penalties and liabilities under ERISA and the Code. In addition, the fiduciary
of the ERISA Plan that engaged in such non-exempt prohibited transactions may be
subject to penalties and liabilities under ERISA and the Code.
The acquisition and/or holding of the convertible debentures by an ERISA
Plan with respect to which Williams or the initial purchaser or their affiliates
may be a party in interest or a disqualified person, may give rise to a
prohibited transaction. Consequently, before investing in the convertible
debentures, any person who is acquiring such securities for, or on behalf of, an
ERISA Plan should determine that either a statutory or administrative exemption
from the prohibited transaction rules is applicable to such investment in the
convertible debentures, or that such acquisition and holding of such securities
will not result in a non-exempt prohibited transaction.
Because of the foregoing, the convertible debentures should not be
purchased or held by any person investing plan assets of any Plan unless such
purchase and holding will not constitute a non-exempt prohibited transaction
under ERISA and the Code or a violation under any applicable Similar Laws.
41
Accordingly, by its acquisition of convertible debentures, each purchaser
and subsequent transferee of the convertible debentures shall be deemed to be
making a representation to Williams and the initial purchaser either that: (i)
it is not a Plan and no part of the assets to be used by it to acquire and hold
such convertible debentures or any interest therein directly or indirectly
constitutes assets of any Plan or (ii) such acquisition and holding will not
result in a prohibited transaction under Title I of ERISA or section 4975 of the
Code, or a violation under Similar Laws, for which there is no applicable
statutory or administrative exemption.
The discussion of ERISA in this prospectus is general in nature and is not
intended to be all inclusive. Any person considering an investment in the
convertible debentures on behalf of a Plan should consult with its legal
advisers regarding the consequences of such investment and consider whether the
Plan can make the representations noted above.
Further, the sale of investments to Plans is in no respect a representation
by Williams, the initial purchaser or any other person associated with the sale
of the convertible debentures that such securities meet all relevant legal
requirements with respect to investments by Plans generally or by any particular
Plan, or that such securities are otherwise appropriate for Plans generally or
any particular Plan.
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the convertible
debentures and the underlying shares of common stock offered by this prospectus.
The convertible debentures and the underlying shares of common stock may be sold
from time to time to purchasers:
- directly by the selling securityholders; or
- through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions from
the selling securityholders or the purchasers of the convertible
debentures and the underlying shares of common stock.
If the convertible debentures and the underlying shares of common stock are
sold through underwriters or broker-dealers, the selling securityholders will be
responsible for underwriting discounts or commissions or agent's commissions.
The convertible debentures and underlying shares of common stock may be
sold in one or more transactions at:
- fixed prices;
- prevailing market prices at the time of sale;
- varying prices determined at the time of sale; or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on which the
convertible debentures and underlying shares of common stock may be
listed or quoted at the time of the sale, including the New York Stock
Exchange in the case of our common stock;
- in the over-the-counter market;
- in transactions otherwise than on such exchange or services or in the
over-the-counter market;
- through the writing of options; or
- through the distribution by a selling securityholder to its partners,
members or shareholders.
The transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
42
In connection with sales of the convertible debentures and underlying
shares of common stock or otherwise, the selling securityholders may enter into
hedging transactions with broker-dealers. These broker-deals may in turn engage
in short sales of the convertible debentures and underlying shares of common
stock in the course of hedging their positions. The selling securityholders may
also sell the convertible debentures and underlying shares of common stock short
and deliver convertible debentures and underlying shares of common stock to
close out short positions, or loans or pledge convertible debentures and
underlying shares of common stock to broker-dealers that in turn may sell the
convertible debentures and underlying shares of common stock.
To our knowledge, there are currently no plans, arrangement or undertakings
between any selling securityholders and any underwriter, broker-dealer or agent
regarding the sale of the convertible debentures and the underlying shares of
common stock by the selling securityholders. In addition, we cannot assure you
that any selling securityholder will not transfer, devise or gift the
convertible debentures and the underlying shares of common stock by other means
not described in this prospectus.
Pursuant to the registration rights agreement filed as an exhibit to this
registration statement, we and the selling securityholders will be indemnified
by the other against certain liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection with these
liabilities.
Our common stock trades on the NYSE under the symbol "WMB". We do not
intend to apply for listing of the convertible debentures on any securities
exchange or for quotation through NYSE. Accordingly, no assurance can be given
as to the development of liquidity or any trading market for the convertible
debentures.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the convertible debentures and underlying
shares of common stock to the public other than commissions, fees and discounts
of underwriters, brokers, and agents.
The selling securityholders and any broker-dealers or agents who
participate in the distribution of the convertible debentures and the underlying
shares of common stock may be deemed to be "underwriters." As a result, any
profits on the sale of the convertible debentures and underlying shares of
common stock by selling securityholders and any discounts, commissions or
concessions received by any broker-dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. If the selling
securityholders were to be deemed underwriters, the selling securityholders may
be subject to statutory liabilities of, including, but not limited to, Sections
11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.
Because the selling securityholders may be deemed to be underwriters within
the meaning of Section 2(11) of the Securities Act, they will be subject to the
prospectus delivery requirements of the Securities Act. At anytime a particular
offer of the securities is made, a revised prospectus or prospectus supplement,
if required, will be distributed which will disclose:
- the name of the selling securityholders and any participating
underwriters, broker-dealers or agents;
- the aggregate amount and type of securities being offered;
- the price at which the securities were sold and other material terms of
the offering;
- any discounts commissions, concessions or other items constituting
compensation from the selling security holders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers; and
- that the participating broker-dealers did not conduct any investigation
to verify the information in this prospectus or incorporated in this
prospectus by reference.
There can be no assurance that any selling securityholder will sell any or
all of the convertible debentures or underlying shares of common stock pursuant
to this prospectus. In addition, any convertible debentures or underlying shares
of common stock covered by this prospectus that qualify for sale pursuant to
Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule
144A rather than pursuant to this prospectus.
43
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The rules under that Act
include, without limitation, Regulation M, which may limit the timing of
purchases and sale of any of the convertible debentures and the underlying
shares of common stock by the selling securityholders and any other such person.
In addition, Regulation M may restrict the ability of any person engaged in the
distribution of the convertible debentures and the underlying shares of common
stock to engage in market-making activities with respect to the particular
convertible debentures and the underlying shares of common stock being
distributed for a period of up to five business days prior to the commencement
of such distribution. This may affect the marketability of the convertible
debentures and the underlying shares of common stock.
VALIDITY OF THE SECURITIES
Certain legal matters with respect to the convertible debentures and the
common stock issuable upon conversion of the convertible debentures and certain
U.S. federal income taxation matters will be passed upon for us by White & Case
LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedule of The Williams
Companies, Inc. appearing in its 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 included therein and incorporated by reference
herein. 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.
44
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, other than
underwriting discounts and commission, payable by the Registrant in connection
with the sale of common stock being registered:
NATURE OF EXPENSE AMOUNT
----------------- --------
SEC registration fee........................................ $ 24,270
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 200,000
Accounting fees and expenses................................ 100,000
Miscellaneous fees and expenses............................. 50,000
--------
Total..................................................... $474,270
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Williams Companies, Inc., 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.
II-1
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Purchase Agreement, dated May 20, 2003 between the
Registrant and the Initial Purchaser named therein.*
4.1 Indenture, dated May 28, 2003, between the Registrant and
JPMorgan Chase Bank, as trustee.*
4.3 Registration Rights Agreement, dated May 28, 2003, between
the Registrant and the Initial Purchaser named therein.*
4.4 Form of Convertible Debenture (contained in Exhibit 4.1)
5.1 Opinion of White & Case LLP as to the legality of the
convertible debentures and the common stock issuable upon
conversion of the convertible debentures (contained in
Exhibit 8.1).
8.1 Opinion of White & Case LLP as to certain tax matters.*
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of White & Case LLP (contained in Exhibit 8.1).
24.1 Power of Attorney.*
25.1 Statement of Eligibility of JPMorgan Chase Bank, as trustee,
on Form T-1 with respect to the issuance of the Convertible
Debentures due June 1, 2033 by the Registrant pursuant to
the Indenture between the Registrant and JPMorgan Chase
Bank, as trustee.*
---------------
* Filed herewith.
ITEM 17. UNDERTAKINGS
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 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 a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(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;
provided, however, that paragraphs (i) and (ii) do not apply if the
registration statement is on Form S-3 or Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference 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 which remain unsold at the
termination of the offering.
(4) 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 Section 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.
(5) 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 Act and
will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tulsa, State of Oklahoma, on the June 25, 2003.
THE WILLIAMS COMPANIES, INC.
By: /s/ TONY GEHRES
------------------------------------
Name: Tony Gehres
Title: Associate General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President, Chief Executive Officer June 25, 2003
-------------------------------------- and Chairman of the Board
Steven J. Malcolm (Principal Executive Officer)
* Chief Financial Officer (Principal June 25, 2003
-------------------------------------- Financial Officer)
Donald R. Chappel
* Controller (Principal Accounting June 25, 2003
-------------------------------------- Officer)
Gary R. Belitz
* Director June 25, 2003
--------------------------------------
Hugh M. Chapman
* Director June 25, 2003
--------------------------------------
Thomas H. Cruikshank
* Director June 25, 2003
--------------------------------------
William E. Green
Director June , 2003
--------------------------------------
W. R. Howell
* Director June 25, 2003
--------------------------------------
Charles M. Lillis
* Director June 25, 2003
--------------------------------------
George A. Lorch
II-4
SIGNATURE TITLE DATE
--------- ----- ----
* Director June 25, 2003
--------------------------------------
Frank T. MacInnis
* Director June 25, 2003
--------------------------------------
Janice D. Stoney
* Director June 25, 2003
--------------------------------------
Joseph H. Williams
By: /s/ TONY GEHRES
------------------------------
Name: Tony Gehres
As Attorney-In-Fact
II-5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Purchase Agreement, dated May 20, 2003 between the
Registrant and the Initial Purchaser named therein.*
4.1 Indenture, dated May 28, 2003, between the Registrant and
JPMorgan Chase Bank, as trustee.*
4.3 Registration Rights Agreement, dated May 28, 2003, between
the Registrant and the Initial Purchaser named therein.*
4.4 Form of Convertible Debenture (contained in Exhibit 4.1)
5.1 Opinion of White & Case LLP as to the legality of the
convertible debentures and the common stock issuable upon
conversion of the convertible debentures (contained in
Exhibit 8.1).
8.1 Opinion of White & Case LLP as to certain tax matters.*
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of White & Case LLP (contained in Exhibit 8.1).
24.1 Power of Attorney.*
25.1 Statement of Eligibility of JPMorgan Chase Bank, as trustee,
on Form T-1 with respect to the issuance of the Convertible
Debentures due June 1, 2033 by the Registrant pursuant to
the Indenture between the Registrant and JPMorgan Chase
Bank, as trustee.*
---------------
* Filed herewith.