<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 1995
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE WILLIAMS COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4813 73-0569878
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 588-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<TABLE>
<S> <C> <C>
J. FURMAN LEWIS
SENIOR VICE PRESIDENT AND GENERAL COUNSEL RANDALL H. DOUD, ESQ.
THE WILLIAMS COMPANIES, INC. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE WILLIAMS CENTER WITH A COPY TO: 919 THIRD AVENUE
TULSA, OKLAHOMA 74172 NEW YORK, NEW YORK 10022
(918) 588-2000 (212) 735-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective, the Merger Agreement is approved and adopted by the shareholders of
Transco Energy Company and certain other conditions are satisfied.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. / /
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock (par value $1.00 per
share)................................. 10,174,538 shares(1) $26.70(2) $271,660,164.60(2) (3)
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative Convertible Preferred Stock,
$3.50 Series (par value $1.00 per
share)................................. 2,500,000 shares $48.40(4) $121,000,000.00 (3)
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock (par value $1.00 per share),
reserved for issuance upon conversion
of Cumulative Convertible Preferred
Stock $3.50 Series (par value $1.00
per share)............................. 3,906,250 shares(5) (6) (6) (6)
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Purchase Rights.......... 7,040,394 rights(5) (7) (7) (6)(7)
- ------------------------------------------------------------------------------------------------------------------------------
Total.................................... $56,664.54(3)
==============================================================================================================================
</TABLE>
(1) Represents the number of shares of Common Stock, par value $1.00, of the
Registrant ("Williams Common Shares") issuable upon consummation of the
merger (the "Merger") of Transco Energy Company ("Transco") with WC
Acquisition Corp. ("Sub"), a wholly-owned subsidiary of the Registrant,
pursuant to which each of the 41,431,419 shares of Common Stock of Transco
Energy Company, par value $0.50 per share (the"Transco Common Shares"), that
were issued and outstanding as of February 1, 1995 other than 24,600,000
Transco Common Shares owned by Williams and 552,158 Transco Common Shares
held in the treasury of Transco, will be converted into 0.625 Williams
Common Shares.
(2) Pursuant to Rule 457(f)(1) and 457(c) promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), and solely for purposes of
calculating the registration fee, the proposed maximum offering price per
unit is $26.70, which equals (x) the average of the high and low price of
the Transco Common Shares, of $16.6875, as reported on the New York Stock
Exchange Composite Tape on February 1, 1995, divided by (y) 0.625, the
fraction of a Williams Common Share into which each Transco Common Share
will be converted pursuant to the Merger. The proposed maximum aggregate
offering price is equal to the product of such average price and the number
of Williams Common Shares to be issued in the Merger.
(3) A fee of $78,735.52 was paid on February 6, 1995 pursuant to Rule 14c-5 and
Rule 0-11 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in respect of the Merger upon the filing by Transco of
preliminary information statement materials relating thereto. Pursuant to
Rule 457(b) promulgated under the Securities Act, and Rule 0-11 and Section
14(g)(1)(B) of the Exchange Act, the amount of such previously paid fee may
be credited against the registration fee payable in connection with this
filing. Accordingly, only $56,664.54 of the total registration fee of
$135,400.06 ($93,675.92 in respect of the Williams Common Shares and
$41,724.14 in respect of the Cumulative Convertible Preferred Stock, $3.50
Series (par value, $1.00 per share (the "Williams $3.50 Preferred Stock"))
is required to be paid with this Registration Statement.
(4) Pursuant to Rule 457(f)(2) promulgated under the Securities Act, and solely
for purposes of calculating the registration fee, the proposed maximum
offering price per share of the Williams $3.50 Preferred Stock is $48.40,
the book value per share of Transco's $3.50 series Cumulative Convertible
Preferred Stock, each share of which is being exchanged in the Merger for
one share of Williams $3.50 Preferred Stock.
(5) If as a result of stock splits, stock dividends or similar transactions, the
number of securities purported to be registered on this registration
statement changes, this registration statement shall be deemed to cover the
additional securities to be issued in connection with any such transaction.
(6) No separate fee is payable in connection with the registration of the
Williams Common Shares (and the attached Williams Rights) underlying the
Williams $3.50 Preferred Stock, since no additional consideration is payable
upon such conversion.
(7) Preferred Stock Purchase Rights ("Williams Rights") are evidenced by
certificates for shares of Williams Common Shares and automatically trade
with Williams Common Shares. Value attributable to such Williams Rights, if
any, is reflected in the market price of the Williams Common Shares.
------------------------
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.
================================================================================
<PAGE> 2
THE WILLIAMS COMPANIES, INC.
Cross Reference Sheet Pursuant to Rule 404(a) of the Securities Act of 1933
and Item 501(b) of Regulation S-K, showing the Location or Heading in the
Prospectus and Information Statement of the Information Required by Part I of
Form S-4.
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS AND
FORM S-4 ITEM NUMBER AND CAPTION INFORMATION STATEMENT
-------------------------------- --------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page; Facing Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............. Outside Front Cover Page; Facing Page;
Summary
4. Terms of the Transaction.................. Summary; The Merger; Description of
Williams Capital Stock; Description of
Transco Capital Stock; Comparison of the
Rights of Holders of Williams Capital
Stock and Transco Capital Stock; Annexes
A, B-1 and B-2
5. Pro Forma Financial Information........... Summary; Historical and Unaudited Pro
Forma Combined Capitalization; Unaudited
Pro Forma Financial Statements
6. Material Contacts with the Company Being
Acquired.................................. Summary; The Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters........................ *
8. Interests of Named Experts and Counsel.... Validity of Common Stock and Preferred
Stock
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants............................... Incorporation of Certain Documents by
Reference; Summary; Unaudited Pro Forma
Financial Statements; Business of Williams
and Sub
11. Incorporation of Certain Information by
Reference................................. Incorporation of Certain Documents by
Reference; Description of Williams Capital
Stock
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS AND
FORM S-4 ITEM NUMBER AND CAPTION INFORMATION STATEMENT
-------------------------------- --------------------------
<S> <C> <C>
12. Information with Respect to S-2 or S-3
Registrants............................... *
13. Incorporation of Certain Information by
Reference................................. *
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants......... *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies................................. Incorporation of Certain Documents by
Reference; Summary; Unaudited Pro Forma
Financial Statements; Business of Transco;
Description of Transco Capital Stock
16. Information with Respect to S-2 or S-3
Companies................................. *
17. Information with respect to Companies
Other Than S-2 or S-3 Companies........... *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited........ *
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer...................... Outside Front Cover Page; Summary; The
Merger; Incorporation of Certain Documents
by Reference: Ownership of Voting
Securities
</TABLE>
- ---------------
* Inapplicable or answer is negative.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 8, 1995
<TABLE>
<CAPTION>
PROSPECTUS AND INFORMATION STATEMENT
--------------------------- -----------------------
PROSPECTUS INFORMATION STATEMENT
--------------------------- -----------------------
<S> <C>
THE WILLIAMS COMPANIES, INC TRANSCO ENERGY COMPANY
One Williams Center 2800 Post Oak Boulevard
Tulsa, Oklahoma 74172 Houston, Texas 77056
(918) 588-2000 (713) 439-2000
</TABLE>
------------------------
This Prospectus and Information Statement relates to the proposed merger
(the "Merger") of WC Acquisition Corp. ("Sub"), a Delaware corporation and a
wholly-owned subsidiary of The Williams Companies, Inc., a Delaware corporation
("Williams"), with and into Transco Energy Company, a Delaware corporation
("Transco"), pursuant to the Agreement and Plan of Merger, dated December 12,
1994, by and among Williams, Sub and Transco, as amended (the "Merger
Agreement"). Pursuant to the Merger Agreement, on January 18, 1995, Williams
accepted for payment 24,600,000 shares of common stock of Transco, par value
$0.50 per share ("Transco Common Shares"), for $17.50 per Transco Common Share
in cash in a tender offer (the "Offer") as the first step in acquiring the
entire equity interest in Transco. The Merger will be consummated on the terms
and subject to the conditions set forth in the Merger Agreement, as a result of
which (a) Transco will become a wholly-owned subsidiary of Williams and (b) each
Transco Common Share then outstanding (other than Transco Common Shares held in
the treasury of Transco and Transco Common Shares owned by Williams or any
direct or indirect wholly-owned subsidiary of Williams ("Retired Transco Common
Shares")), will be converted into the right to receive 0.625 of a share of
common stock, par value $1.00 per share, of Williams ("Williams Common Shares")
and 0.3125 attached preferred stock purchase rights (the "Williams Rights" and,
unless the context otherwise requires, deemed to be included in all references
to "Williams Common Shares"); provided, however, that no fractional Williams
Common Shares will be issued and shareholders who would otherwise be entitled to
receive fractional Williams Common Shares will instead be entitled to receive
cash settlements therefor. The Retired Transco Common Shares will be cancelled
in the Merger. See "THE MERGER -- The Merger Agreement." The consideration per
Transco Common Share to be received by the holders of Transco Common Shares as a
result of the Merger is hereinafter sometimes referred to as the "Merger
Consideration." Shareholders are urged to obtain current quotations for the
Williams Common Shares and the Transco Common Shares. See "MARKET PRICES OF AND
DIVIDENDS ON WILLIAMS COMMON SHARES AND TRANSCO COMMON SHARES."
In addition, also at the effective date of the Merger (the "Merger Date"),
each issued and outstanding share of Transco $3.50 series Cumulative Convertible
Preferred Stock, stated value $50 per share (the "Transco $3.50 Preferred
Stock") (other than shares that are owned by Transco as treasury stock, or owned
by Williams or any wholly-owned subsidiary of Williams, all of which will be
cancelled in the Merger, and by holders of Transco's $3.50 Preferred Stock who
demand and perfect appraisal rights), will be converted into the right to
receive one share of preferred stock of Williams which will be designated the
Williams $3.50 Series Cumulative Convertible Preferred Stock (the "Williams
$3.50 Preferred Stock"). Each share of Williams $3.50 Preferred Stock will
initially be convertible into 1.5625 Williams Common Shares and will have the
designation, preferences and rights set forth for it in the Merger Agreement.
Any shares of Transco's Cumulative Preferred Stock (the "Transco New Preferred
Stock") which may be issued to Williams and remain outstanding on the Merger
Date under the circumstances described in this Prospectus and Information
Statement will remain outstanding as preferred stock of Transco immediately
following the Merger. See "THE MERGER -- Background of the Merger" and "-- The
Merger Agreement."
Pursuant to the Merger Agreement, all of the common share purchase rights
attached to the Transco Common Shares (the "Transco Rights") were redeemed on
January 17, 1995 for $0.05 per Transco Right. See "THE MERGER -- Background of
the Merger."
At a Special Meeting of the Shareholders of Transco to be held on April ,
1995, and at any adjournment or postponement thereof (the "Transco Special
Meeting"), the holders of the Transco Common Shares will consider and vote upon
a proposal to approve and adopt the Merger Agreement and the Merger. As a result
of the Offer, Williams owns a sufficient number of Transco Common Shares to
approve and adopt the Merger Agreement and the Merger without the vote of any
other shareholder. ACCORDINGLY, TRANSCO SHAREHOLDERS ARE NOT BEING ASKED FOR,
AND ARE REQUESTED NOT TO SEND, PROXIES TO VOTE AT THE TRANSCO SPECIAL MEETING,
AND FOR THAT REASON NO PROXY CARD HAS BEEN ENCLOSED FOR SHAREHOLDERS.
This Prospectus and Information Statement constitutes the prospectus of
Williams with respect to the Williams Common Shares and the Williams $3.50
Preferred Stock to be issued in the Merger or upon conversion of the Williams
$3.50 Preferred Stock and the information statement of Transco furnished to
holders of Transco Common Shares in connection with the Transco Special Meeting.
This Prospectus and Information Statement is first being mailed to Transco
shareholders on or about March , 1995.
------------------------
THE WILLIAMS COMMON SHARES AND THE WILLIAMS $3.50 PREFERRED STOCK ISSUABLE IN
THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND
INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS AND INFORMATION STATEMENT IS MARCH , 1995.
<PAGE> 5
No person is authorized to give any information or make any representation
not contained in this Prospectus and Information Statement and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Prospectus and Information Statement does not constitute
an offer to sell, or a solicitation of an offer to purchase, any securities or
the solicitation of a proxy, in any jurisdiction in which, or from any person to
whom, it is unlawful to make such offer, solicitation of an offer or proxy
solicitation. Neither the delivery of this Prospectus and Information Statement
nor any distribution of the securities to which this Prospectus and Information
Statement relates shall, under any circumstances, create an implication that
there have been no changes in the information set forth herein since the date of
such information or that the information set forth or incorporated by reference
herein is correct as of any time subsequent to its date. All information about
Williams contained or incorporated by reference herein has been supplied by
Williams, and all information about Transco contained or incorporated by
reference herein has been supplied by Transco.
AVAILABLE INFORMATION
Williams and Transco are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, are required to file periodic reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information should be
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Commission at prescribed rates by
addressing written requests for such copies to the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, reports, proxy statements and other
information concerning Williams and Transco should also be available for
inspection at the offices of the New York Stock Exchange, Inc. (the "NYSE"), 20
Broad Street, New York, New York 10005 and the Pacific Stock Exchange,
Incorporated (the "PSE"), 301 Pine Street, San Francisco, California 94104.
Williams has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") with respect to the securities to
be issued pursuant to the Merger Agreement. This Prospectus and Information
Statement does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. Such additional information may be
obtained from the Commission's principal office in Washington, D.C. Statements
contained in this Prospectus and Information Statement or in any document
incorporated by reference in this Prospectus and Information Statement as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
ii
<PAGE> 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS AND INFORMATION STATEMENT INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE
DOCUMENTS (EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED BY REFERENCE
THEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST FROM THE
WILLIAMS COMPANIES, INC., ONE WILLIAMS CENTER, TULSA, OKLAHOMA 74172, ATTENTION:
MR. DAVID M. HIGBEE, CORPORATE SECRETARY, TELEPHONE: (918) 588-2000, OR FROM
TRANSCO ENERGY COMPANY, P.O. BOX 1396, 2800 POST OAK BOULEVARD, HOUSTON, TEXAS
77251, ATTENTION: MR. DAVID E. VARNER, SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY, TELEPHONE: (713) 439-2000. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY APRIL , 1995.
The following documents filed by Williams or Transco with the Commission
are hereby incorporated by reference herein:
(1) Williams' Annual Report on Form 10-K for the year ended December
31, 1993 (the "Williams Annual Report");
(2) Williams' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994, June 30, 1994 and September 30, 1994 (the "Williams
Quarterly Reports");
(3) Williams' Current Reports on Form 8-K dated August 26, 1994,
January 5, 1995 and January 31, 1995 (the "Williams Current Reports");
(4) Williams' Registration Statement on Form 8-A dated February 6,
1986 and Williams' Registration Statement on Form 8-B dated August 20,
1987;
(5) Transco's Annual Report on Form 10-K for the year ended December
31, 1993 (the "Transco Annual Report");
(6) Transco's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994, June 30, 1994 and September 30, 1994 (the "Transco
Quarterly Reports"); and
(7) Transco's Current Reports on Form 8-K dated April 7, 1994,
December 12, 1994, December 15, 1994 and January 18, 1995 (the "Transco
Current Reports").
The information relating to Williams and Transco contained herein does not
purport to be comprehensive and should be read together with the information in
the documents incorporated by reference herein.
All documents filed by Williams or Transco pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
Transco Special Meeting shall be deemed to be incorporated by reference herein
and to be a part hereof from the respective dates of the filing of such
documents.
Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
which also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
iii
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... iii
SUMMARY............................................................................... vi
Introduction........................................................................ vi
Williams and Sub.................................................................... vi
Transco............................................................................. vii
The Transco Special Meeting......................................................... vii
The Merger.......................................................................... viii
Background of the Merger............................................................ viii
Transco Board Recommendations....................................................... ix
Opinions of Transco's Financial Advisor............................................. ix
Williams' Reasons for the Acquisition............................................... ix
Plans for Williams and Transco after the Merger..................................... ix
Interests of Certain Persons in the Merger.......................................... x
Conditions to the Merger; Consummation of the Merger................................ x
Certain Federal Income Tax Consequences............................................. x
Regulatory Approvals................................................................ x
Appraisal Rights.................................................................... xi
Financing the Acquisition........................................................... xi
Recent Market Prices of Williams Common Shares and Transco Common Shares............ xi
Selected Historical and Unaudited Pro Forma Data.................................... xii
INTRODUCTION.......................................................................... 1
BUSINESS OF WILLIAMS AND SUB.......................................................... 1
Williams............................................................................ 1
Sub................................................................................. 2
BUSINESS OF TRANSCO................................................................... 2
THE TRANSCO SPECIAL MEETING........................................................... 3
Place, Time and Date................................................................ 3
Purpose of the Transco Special Meeting.............................................. 3
Transco Record Date; Stock Entitled to Vote; Quorum................................. 3
Vote Required; Transco Proxies Not Being Solicited.................................. 3
THE MERGER............................................................................ 4
Background of the Merger............................................................ 4
Transco Board Recommendations and Reasons for the Acquisition....................... 6
Opinions of Transco's Financial Advisor............................................. 8
Williams' Reasons for the Acquisition............................................... 13
Plans for Williams and Transco after the Merger..................................... 13
Interests of Certain Persons in the Merger.......................................... 14
The Merger Agreement................................................................ 16
The Stock Option Agreement.......................................................... 20
</TABLE>
iv
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Stock Exchange Listings............................................................. 21
Certain Effects of the Merger....................................................... 22
Certain Federal Income Tax Consequences............................................. 22
Regulatory Approvals................................................................ 23
Appraisal Rights.................................................................... 23
Accounting Treatment of the Merger.................................................. 26
FINANCING THE ACQUISITION............................................................. 26
MARKET PRICES OF AND DIVIDENDS ON WILLIAMS CAPITAL STOCK
AND TRANSCO CAPITAL STOCK........................................................... 27
HISTORICAL AND UNAUDITED PRO FORMA COMBINED CAPITALIZATION............................ 28
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.............................................. 29
Williams' Unaudited Pro Forma Combined Financial Statements......................... 29
Transco's Unaudited Pro Forma Consolidated Financial Statements..................... 37
OWNERSHIP OF VOTING SECURITIES........................................................ 42
DESCRIPTION OF WILLIAMS CAPITAL STOCK................................................. 42
Williams Common Shares.............................................................. 42
Williams Rights..................................................................... 43
Williams $3.50 Preferred Stock...................................................... 43
DESCRIPTION OF TRANSCO CAPITAL STOCK.................................................. 45
Transco Common Shares............................................................... 45
Transco $3.50 Preferred Stock....................................................... 45
Transco New Preferred Stock......................................................... 46
COMPARISON OF THE RIGHTS OF HOLDERS OF WILLIAMS CAPITAL STOCK
AND TRANSCO CAPITAL STOCK........................................................... 46
Comparison of Williams Common Shares and Transco Common Shares...................... 46
Comparison of Williams $3.50 Preferred Stock and Transco $3.50 Preferred Stock...... 49
VALIDITY OF COMMON STOCK AND PREFERRED STOCK.......................................... 49
EXPERTS............................................................................... 49
</TABLE>
ANNEXES:
A -- Agreement and Plan of Merger, dated as of December 12, 1994, by and among
The Williams Companies, Inc., WC Acquisition Corp. and Transco Energy
Company, as amended
B-1 -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated
December 11, 1994
B-2 -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated
January 9, 1995
C -- Section 262 of the Delaware General Corporation Law
v
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and Information Statement. This summary does not purport to be
complete and is qualified in its entirety by the more detailed information
contained elsewhere in this Prospectus and Information Statement, the Annexes
hereto and the documents incorporated herein by reference. Shareholders are
urged to read this Prospectus and Information Statement and the Annexes hereto
in their entirety.
INTRODUCTION
This Prospectus and Information Statement relates to the proposed Merger of
Sub, a wholly-owned subsidiary of Williams, with and into Transco pursuant to
the Merger Agreement. Pursuant to the Merger Agreement, on January 18, 1995,
Williams accepted for payment 24,600,000 Transco Common Shares for $17.50 per
share in cash in the Offer as the first step in acquiring the entire equity
interest in Transco. The Merger will be consummated on the terms and subject to
the conditions set forth in the Merger Agreement, as a result of which (a)
Transco will become a wholly-owned subsidiary of Williams and (b) each Transco
Common Share outstanding (other than Retired Transco Common Shares) will be
converted into the right to receive 0.625 Williams Common Shares and 0.3125
Williams Rights. The Retired Transco Common Shares will be cancelled in the
Merger. See "THE MERGER -- The Merger Agreement." Holders of Transco Common
Shares are urged to obtain current quotations for the Williams Common Shares and
the Transco Common Shares. See "MARKET PRICES OF AND DIVIDENDS ON WILLIAMS
CAPITAL STOCK AND TRANSCO CAPITAL STOCK."
In addition, also at the Merger Date, each issued and outstanding share of
Transco $3.50 Preferred Stock (other than shares that are owned by Transco as
treasury stock, or owned by Williams or any wholly-owned subsidiary of Williams,
all of which will be cancelled in the Merger, and by holders of Transco $3.50
Preferred Stock who demand and perfect appraisal rights) will be converted into
the right to receive one share of Williams $3.50 Preferred Stock. Each share of
Williams $3.50 Preferred Stock will initially be convertible into 1.5625
Williams Common Shares and will have the designation, preferences and rights set
forth for it in the Merger Agreement. Any shares of Transco New Preferred Stock
which may be issued to Williams and remain outstanding on the Merger Date will
remain outstanding as preferred stock of Transco immediately following the
Merger. See "THE MERGER -- The Merger Agreement."
Pursuant to the Merger Agreement, all of the Transco Rights were redeemed
on January 17, 1995 for $0.05 per Transco Right. See "THE MERGER -- Background
of the Merger."
This Prospectus and Information Statement is being furnished to Transco
shareholders for their information in connection with the Transco Special
Meeting, at which the holders of the Transco Common Shares will consider and
vote upon a proposal to approve and adopt the Merger Agreement and the Merger.
As a result of the Offer, Williams now owns a sufficient number of Transco
Common Shares to approve and adopt the Merger Agreement and the Merger without
the vote of any other shareholders. ACCORDINGLY, TRANSCO SHAREHOLDERS ARE NOT
BEING ASKED FOR, AND ARE REQUESTED NOT TO SEND, PROXIES TO VOTE AT THE TRANSCO
SPECIAL MEETING, AND FOR THAT REASON NO PROXY CARD HAS BEEN ENCLOSED FOR
SHAREHOLDERS. See "THE TRANSCO SPECIAL MEETING."
WILLIAMS AND SUB
Williams, through subsidiaries, is engaged in the transportation and sale
of natural gas and related activities, natural gas gathering and processing
operations, the transportation of petroleum products and the telecommunications
business. Williams' natural gas subsidiaries own and operate: (i) two interstate
natural gas pipeline systems and have a 50 percent interest in a third; (ii) a
common carrier petroleum products pipeline system; and (iii) natural gas
gathering and processing facilities. Williams' telecommunications subsidiaries
operate a national video network specializing in broadcast television
applications and are involved in national telecommunications equipment sales and
service. On January 5, 1995, Williams closed the sale of the network services
portion of its telecommunications business (the "WNS Sale") to LDDS
Communications, Inc. for $2.5 billion in cash. Williams also has equity
investments in certain other companies.
vi
<PAGE> 10
Sub is a newly incorporated Delaware corporation organized in connection
with the Merger and has not carried on any activities other than in connection
with the Merger. Sub is wholly-owned by Williams.
See "BUSINESS OF WILLIAMS AND SUB."
The principal executive offices of Williams and Sub are located at One
Williams Center, Tulsa, Oklahoma 74172, and the telephone number for Williams
and Sub is (918) 588-2000.
TRANSCO
Transco is engaged primarily in the natural gas pipeline and the natural
gas marketing businesses. Transco also has investments in coal mining and
marketing operations, natural gas liquids processing, natural gas gathering and
a nonoperating interest in a coalbed methane project in Alabama. See "BUSINESS
OF TRANSCO."
The principal executive offices of Transco are located at 2800 Post Oak
Boulevard, Houston, Texas 77056, and the telephone number for Transco is (713)
439-2000.
THE TRANSCO SPECIAL MEETING
Place, Time and Date. The Transco Special Meeting will be held at 10:00
a.m. (local time) on April , 1995, at the principal executive offices of
Transco, 2800 Post Oak Boulevard, Houston, Texas 77056.
Purpose of the Transco Special Meeting. At the Transco Special Meeting,
the holders of Transco Common Shares will consider and vote upon a proposal to
approve and adopt the Merger Agreement and the Merger and such other matters as
may properly be brought before the meeting.
Transco Record Date; Stock Entitled to Vote; Quorum. Only holders of
record of Transco Common Shares at the close of business on March , 1995 (the
"Transco Record Date") are entitled to receive notice of and are entitled to
vote at the Transco Special Meeting. As of this record date, Transco had issued
and outstanding Transco Common Shares exclusive of shares held in its
treasury which are not entitled to vote. Holders of issued and outstanding
shares of Transco preferred stock, including the Transco $3.50 Preferred Stock,
are not entitled to receive notice of and are not entitled to vote such shares
at the Transco Special Meeting.
The presence, in person or by proxy, of a majority of the outstanding
Transco Common Shares entitled to vote at the Transco Special Meeting shall
constitute a quorum for the transaction of business at such meeting. Since
Williams owns 60% of the outstanding Transco Common Shares, its presence at the
Transco Special Meeting will constitute a quorum even if no other Transco Common
Share is represented at the Transco Special Meeting.
Vote Required; Transco Proxies Not Being Solicited. The affirmative vote
of the holders of a majority of the issued and outstanding Transco Common Shares
entitled to vote thereon is required to approve and adopt the Merger Agreement
and the Merger. Each Transco Common Share is entitled to one vote. Because
approval of the Merger Agreement and the Merger requires the vote of a majority
of the issued and outstanding Transco Common Shares, abstentions and broker
non-votes will have the same effect as votes against the Merger Agreement and
the Merger. A vote of the holders of the issued and outstanding shares of
Transco preferred stock, including the Transco $3.50 Preferred Stock, is not
required to approve and adopt the Merger Agreement and the Merger. As a result
of the Offer, Williams owns a sufficient number of Transco Common Shares to
approve and adopt the Merger Agreement and the Merger without the vote of any
other shareholder. Pursuant to the Merger Agreement, Williams will vote all of
its Transco Common Shares in favor of such approval and adoption. ACCORDINGLY,
SHAREHOLDERS ARE NOT BEING ASKED FOR, AND ARE REQUESTED NOT TO SEND, PROXIES TO
VOTE AT THE TRANSCO SPECIAL MEETING, AND FOR THAT REASON NO PROXY CARD HAS BEEN
ENCLOSED FOR SHAREHOLDERS.
At March , 1995, Transco's current directors and executive officers may
be deemed to be beneficial owners of approximately Transco Common
Shares, or approximately % of the then issued and outstanding Transco
Common Shares. See "OWNERSHIP OF VOTING SECURITIES."
vii
<PAGE> 11
THE MERGER
Once the Merger Agreement and the Merger are approved and adopted by the
holders of Transco Common Shares, the Merger will, on the terms and subject to
the conditions set forth in the Merger Agreement, be consummated, as a result of
which (i) Sub will be merged with and into Transco and the separate existence of
Sub will cease, (ii) Transco will continue as the surviving corporation in the
Merger (the "Surviving Corporation") and will be a wholly-owned subsidiary of
Williams and (iii) each then outstanding Transco Common Share, other than
Retired Transco Common Shares, will be converted into the right to receive 0.625
Williams Common Shares and 0.3125 Williams Rights; provided, however, that no
fractional Williams Common Shares will be issued and holders of Transco Common
Shares who would otherwise be entitled to receive fractional Williams Common
Shares will instead be entitled to receive cash settlements therefor. The
Retired Transco Common Shares will be cancelled in the Merger. Transco
shareholders are urged to obtain current quotations for the Williams Common
Shares and the Transco Common Shares. See "MARKET PRICES OF AND DIVIDENDS ON
WILLIAMS CAPITAL STOCK AND TRANSCO CAPITAL STOCK."
In addition, also at the Merger Date, each issued and outstanding share of
Transco $3.50 Preferred Stock (other than shares that are owned by Transco as
treasury stock, or owned by Williams or any wholly-owned subsidiary of Williams,
all of which will be cancelled in the Merger, and by holders of Transco $3.50
Preferred Stock who demand and perfect appraisal rights) will be converted into
the right to receive one share of Williams $3.50 Preferred Stock. Each share of
Williams $3.50 Preferred Stock will initially be convertible into 1.5625
Williams Common Shares and will have the designation, preferences and rights set
forth for it in the Merger Agreement. Any shares of Transco New Preferred Stock
which may be issued to Willliams and remain outstanding on the Merger Date will
remain outstanding as preferred stock of Transco immediately following the
Merger. See "THE MERGER -- The Merger Agreement."
The Merger will be accounted for under the "purchase" method of accounting
whereby the purchase price for Transco will be allocated to the identifiable
assets and liabilities of Transco and its subsidiaries based on their respective
fair values. See " UNAUDITED PRO FORMA FINANCIAL STATEMENTS."
As promptly as practicable after the Merger Date, Williams will send
instructions to Transco shareholders with regard to the procedure for
surrendering certificates for Transco Common Shares, together with a letter of
transmittal and other appropriate documents, in order to receive the Merger
Consideration. TRANSCO SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT
THE PRESENT TIME.
BACKGROUND OF THE MERGER
In July 1992, Williams was contacted by representatives of Transco to
explore Williams' interest in a potential acquisition of Transco. Following
preliminary discussions, Williams determined not to pursue a transaction with
Transco at that time.
On September 9 and 30, 1994, Keith E. Bailey, Chairman, President and Chief
Executive Officer of Williams, approached John P. DesBarres, Chairman, President
and Chief Executive Officer of Transco, about the possibility of a business
combination of their respective companies. Shortly thereafter, the two companies
re-opened discussions concerning a possible business combination.
On December 12, 1994, the Merger Agreement was executed, and on December
16, 1994, Williams commenced the Offer. The Offer expired at midnight on January
17, 1995 pursuant to which Williams accepted for payment 24,600,000 Transco
Common Shares (approximately 60% of the outstanding Transco Common Shares on a
fully diluted basis) for $17.50 per share in cash.
In connection with the Offer and the Merger, Williams and Transco also
entered into a Stock Option Agreement, dated as of December 12, 1994 (the "Stock
Option Agreement"), pursuant to which Williams has the right, under certain
circumstances, to acquire up to 7,500,000 additional Transco Common Shares (or
approximately 15% of the outstanding Transco Common Shares after giving effect
to such issuance) for $17.50 per share in cash. Williams does not expect that it
will acquire any Transco Common Shares pursuant to the Stock Option Agreement.
viii
<PAGE> 12
For more detailed information concerning the background of the Merger, see
"THE MERGER -- Background of the Merger."
TRANSCO BOARD RECOMMENDATIONS
The Transco Board of Directors (the "Transco Board"), by a unanimous vote
of those directors present (with one director absent), approved the Merger
Agreement and has determined that the Offer and the Merger, taken together, are
fair to and in the best interests of Transco's shareholders. In arriving at its
decision, the Transco Board gave careful consideration to a number of factors
including, among other things, the opinion of Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), its financial advisor, that, as of the
date of the opinion, the consideration to be received by the shareholders of
Transco (other than Williams and its affiliates) pursuant to the Offer and the
Merger, taken as a whole, is fair to such shareholders from a financial point of
view. See "THE MERGER -- Transco Board Recommendations and Reasons for the
Acquisition."
OPINIONS OF TRANSCO'S FINANCIAL ADVISOR
Merrill Lynch has delivered to the Transco Board its written opinions,
dated December 11, 1994 and January 9, 1995, that as of each date the
consideration to be received by the shareholders of Transco (other than Williams
and its affiliates) pursuant to the Offer and the Merger, taken as a whole, is
fair to such shareholders from a financial point of view. The full text of such
opinions, setting forth the assumptions made, the matters considered and the
limitations on the review undertaken by Merrill Lynch, are attached hereto as
Annexes B-1 and B-2, respectively, and are incorporated herein by reference and
should be read in their entirety. See "THE MERGER -- Opinions of Transco's
Financial Advisor."
WILLIAMS' REASONS FOR THE ACQUISITION
With the WNS Sale, Williams has undertaken a strategy to focus on its core
businesses. Williams believes that the acquisition of Transco will lead to the
creation of the premier interstate transporter of natural gas, a dynamic gas
marketing and trading company, and a range of other new investment
opportunities. The acquisition of Transco will provide Williams with access to
the major natural gas markets of the northeastern United States. In addition,
Williams will also gain access to the only major U.S. natural gas supply basins
to which it does not currently have access. The combination of Williams and
Transco would result in the second largest gas transmission company in the
United States, but the combined companies would rank first in terms of gas
volumes delivered. See "THE MERGER -- Williams' Reasons for the Acquisition."
PLANS FOR WILLIAMS AND TRANSCO AFTER THE MERGER
Williams presently intends to maintain and expand the existing core
businesses of Transco and to promptly pursue new business opportunities made
available as a result of the Merger. Due to its highly leveraged capital
structure, Transco has been unable to take full advantage of numerous growth
opportunities in its fast-growing markets which would enable it to maintain and
enhance its competitive edge. Williams expects to be able to finance, on
reasonable terms, the capital investment necessary to exploit these
opportunities, as well as additional opportunities to access the abundant and
long-lived natural gas supplies connected to some of Williams' existing natural
gas pipeline assets. In order to prepare for these opportunities, Williams has
already initiated a plan to recapitalize Transco (the "Recapitalization").
Williams also anticipates that Transco or Williams or both, through their
respective subsidiaries, will promptly expand non-regulated activities in the
geographical areas served by Transco's pipeline subsidiaries. In order to
facilitate this process, Williams intends to cause Transco, as promptly as
practicable following the Merger and subject to receipt of any necessary
consents, to declare and pay as dividends to Williams (the "Operating Company
Dividends") all of Transco's interests in its principal operating subsidiaries,
Transcontinental Gas Pipe Line Corporation ("TGPL"), Texas Gas Transmission
Corporation ("TXG") and Transco Gas Marketing Company ("TGMC"). In addition,
Williams' intends to aggressively continue Transco's program of disposing of
non-core assets. Williams is also considering various alternatives for
exchanging the Williams $3.50 Preferred Stock after the Merger for a security
intended to be structured so as to minimize Williams tax
ix
<PAGE> 13
expense. See "THE MERGER -- Plans for Williams and Transco after the Merger,"
"-- Background of the Merger" and "UNAUDITED PRO FORMA FINANCIAL STATEMENTS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Transco Board with respect to the
Merger, shareholders should be aware that certain members of Transco's
management and the Transco Board have certain interests that may present them
with actual or potential conflicts of interest. The Merger Agreement provides
that, for a period of six years after the Merger Date, Transco shall maintain
its current, or an equivalent, directors' and officers' insurance and
indemnification policy and that Williams and Transco will indemnify Transco's
directors, officers, employees and agents for acts and omissions occurring prior
to and including the Merger Date. In addition, pursuant to the Merger Agreement,
Williams has agreed to provide employees and retirees of Transco and its
subsidiaries with certain employee benefit plans.
Transco currently has in effect termination agreements covering certain
executive officers of Transco. These agreements provide certain benefits to such
executive officers upon termination after a "change in control" of Transco
(which term, as defined, would include the acquisition by Williams of Transco
Common Shares pursuant to the Offer).
On January 25, 1995, pursuant to the Merger Agreement, Williams designated
two directors to the Transco Board. In such connection, Williams has agreed that
(i) its designees will abstain from any action taken by Transco to amend or
terminate the Merger Agreement or waive any action by Williams, which actions
will be effective with the approval of a majority of the remaining directors,
and (ii) it will not effect any other changes to the Transco Board prior to the
Merger Date.
For further information regarding these matters, see "THE
MERGER -- Background of the Merger," "-- The Merger Agreement -- Indemnification
and Directors' and Officers' Insurance," " -- The Merger Agreement -- Transco
Benefit Plans" and " -- Interests of Certain Persons in the Merger."
CONDITIONS TO THE MERGER; CONSUMMATION OF THE MERGER
The obligation of each of Williams, Sub and Transco to effect the Merger
pursuant to the Merger Agreement is subject to certain conditions, including the
condition that the consummation of the Merger shall not be precluded by any
injunction or other order, statute, decree, ruling or regulation issued,
enacted, enforced or entered by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission or other
authority.
The Merger Agreement requires Williams, Sub and Transco to cause the Merger
to be consummated by the filing with the Secretary of State of the State of
Delaware of a certificate of merger within two days after the Merger Agreement
is approved and adopted by the Transco shareholders, subject to the fulfillment
(or waiver) of the conditions set forth in the Merger Agreement.
See "THE MERGER -- The Merger Agreement -- Conditions to the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchanges of Transco Common Shares for Williams Common Shares and
Transco $3.50 Preferred Stock for Williams $3.50 Preferred Stock pursuant to the
Merger will be a taxable transaction for the holders of Transco Common Shares
and Transco $3.50 Preferred Stock for federal income tax purposes and may also
be taxable under applicable state, local and other tax laws. For a more complete
description of certain Federal income tax consequences in connection with the
Merger, see "THE MERGER -- Certain Federal Income Tax Consequences."
REGULATORY APPROVALS
The waiting period applicable to consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") expired on
January 3, 1995. Williams and Transco are aware of
x
<PAGE> 14
no other material regulatory requirements or approvals which have not been
complied with or obtained or which are not expected to be complied with or
obtained prior to consummation of the Merger. See "THE MERGER -- Regulatory
Approvals."
APPRAISAL RIGHTS
Record holders of Transco $3.50 Preferred Stock will be entitled to
appraisal rights under Section 262 of the Delaware General Corporation Law (the
"DGCL") in connection with the Merger. Such holders will have the right to
obtain a cash payment for the "fair value" of their shares (excluding any
element of value arising from the accomplishment or expectation of the Merger).
Such "fair value" would be determined in judicial proceedings, the result of
which cannot be predicted. In order to exercise appraisal rights, dissenting
shareholders must comply with the procedural requirements of Section 262 of the
DGCL, a description of which is provided herein under the caption, "THE
MERGER -- Appraisal Rights," and the full text of which is attached to this
Prospectus and Information Statement as Annex C.
Holders of Transco Common Shares will not be entitled to appraisal rights
in connection with the Merger.
FINANCING THE ACQUISITION
A portion of the cash proceeds of the WNS Sale was used to acquire all of
the Transco Common Shares purchased pursuant to the Offer. Another portion of
such proceeds will be used to pay all related fees and expenses of the Offer and
the Merger. See "FINANCING THE ACQUISITION."
RECENT MARKET PRICES OF WILLIAMS COMMON SHARES AND TRANSCO COMMON SHARES
The following table sets forth the market prices per Williams Common Share
and Transco Common Share and the equivalent market price of the Merger
Consideration per Transco Common Share on December 9, 1994, the last trading day
prior to the public announcement of the Merger Agreement, and on March , 1995,
in each case based on the closing prices per share on such dates as reported on
the NYSE Composite Tape. For information relating to market prices of and
dividends on the Williams Common Shares and Transco Common Shares during the
current year and the past two years, see "MARKET PRICES OF AND DIVIDENDS ON
WILLIAMS CAPITAL STOCK AND TRANSCO CAPITAL STOCK." Shareholders are urged to
obtain current quotations for the Williams Common Shares and the Transco Common
Shares.
<TABLE>
<CAPTION>
WILLIAMS
COMMON SHARES TRANSCO COMMON SHARES
------------- ------------------------------
<S> <C> <C> <C>
MERGER
CONSIDERATION
HISTORICAL HISTORICAL EQUIVALENT*
---------- ---------- -------------
December 9, 1994.................................... $26.875 $ 12.625 $ 16.80
March , 1995...................................... $ $ $
</TABLE>
- ---------------
* Closing price of 0.625 Williams Common Shares.
xi
<PAGE> 15
SELECTED HISTORICAL AND UNAUDITED PRO FORMA DATA
Williams Selected Historical Consolidated Financial Data
The following selected income statement data for the years 1993, 1992, and
1991 and balance sheet data for 1993 and 1992 have been derived from Williams'
audited consolidated financial statements included in the Williams Annual Report
for the year ended December 31, 1993, incorporated herein by reference. The
selected income statement data for the years 1990 and 1989 and balance sheet
data for 1991, 1990 and 1989 have been derived from Williams' audited
consolidated financial statements previously filed with the Commission, but not
incorporated herein by reference. The income statement data for each of the
years in the five year period ended December 31, 1993, have been restated to
reflect the operations sold in the WNS Sale as discontinued operations. The
selected unaudited income statement data for the nine month periods ended
September 30, 1994 and 1993, and the selected unaudited balance sheet data at
September 30, 1994, have been derived from Williams' unaudited condensed
consolidated financial statements included in Williams' Quarterly Report for the
quarter ended September 30, 1994, incorporated herein by reference. The selected
unaudited balance sheet data at September 30, 1993, have been derived from
Williams unaudited condensed consolidated financial statements previously filed
with the Commission, but not incorporated herein by reference. The selected
historical consolidated financial data shown below should be read in conjunction
with the consolidated financial statements and related notes and the audit
report included in the documents incorporated herein by reference.
On January 22, 1995, the Williams Board approved an increase in the
quarterly dividend on the Williams Common Shares from 21 cents to 27 cents per
share. On an annual basis, the new dividend would be $1.08 per share. On January
25, 1995, Williams reported unaudited 1994 net income of $246.7 million, or
$2.32 per share on a fully diluted basis. Income from continuing operations of
$164.9 million, or $1.52 per share, for 1994 includes a pretax gain on sales of
assets of $22.7 million. Income from discontinued operations for 1994 was $94
million, or $.92 per share.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,(1)
(DOLLARS IN MILLIONS, --------------------- ------------------------------------------------------------
EXCEPT PER SHARE AMOUNTS) 1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues......................... $1,273.8 $1,373.0 $1,793.4 $1,983.5 $1,704.5 $1,445.9 $1,417.7
Income from continuing operations...... 130.7 150.2 185.4(2) 103.1 69.7 36.0 20.8
Income from discontinued operations.... 51.7 29.5 46.4 25.2 40.3 41.0 31.7
Net income............................. 171.3 179.7 231.8 138.2 110.0 77.0 52.5
Income applicable to common stock...... 164.7 170.2 220.0 123.7 98.4 65.4 44.8
EARNINGS PER COMMON SHARE INFORMATION
(FULLY DILUTED):
Income from continuing operations...... 1.19 1.39 1.71 0.97 0.69 0.29 0.17
Income from discontinued operations.... 0.49 0.29 0.45 0.28 0.48 0.50 0.41
Extraordinary credit (loss)............ (0.11) -- -- 0.11 -- -- --
Net income............................. 1.57 1.68 2.16 1.36 1.17 0.79 0.58
Average shares used in per share
calculations (thousands)............. 104,639 102,894 103,171 90,816 83,780 82,728 76,764
CASH DIVIDENDS PER COMMON SHARE........ 0.63 0.57 0.78 0.76 0.70 0.70 0.70
BALANCE SHEET DATA:
Property, plant and equipment -- net... 3,049 3,579 3,679 3,527 3,120 2,994 2,927
Total assets........................... 4,907 4,937 5,020 4,982 4,247 4,034 3,900
Long-term debt......................... 1,544 1,628 1,605 1,683 1,540 1,368 1,285
Shareholders' equity................... 1,748 1,687 1,724 1,518 1,220 1,167 1,148
Net book value per common share........ 16.33 15.45 15.76 13.74 12.81 12.29 12.16
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK
DIVIDENDS(3)......................... 2.26 2.51 2.30 1.59 1.43 1.15 1.12
</TABLE>
xii
<PAGE> 16
- ---------------
(1) In the third quarter of 1994, Williams signed a definitive agreement to
enter into the WNS Sale. On January 5, 1995, Williams consummated the
transaction and the gain from the sale will be reported as discontinued
operations in the 1995 first quarter consolidated financial statements. The
selected consolidated financial data have been prepared to present operating
results of the operations sold in the WNS Sale as discontinued operations.
Prior period balance sheets have not been restated. For additional
information, see Note 2 of the Notes to Consolidated Financial Statements in
Williams' Quarterly Report on Form 10-Q for the quarter ended September 30,
1994, incorporated herein by reference.
(2) Includes pretax gain on sales of assets of $97.5 million. See Note 3 of the
Notes to Consolidated Financial Statements included in the Williams Annual
Report, incorporated herein by reference.
(3) For the purpose of this ratio (i) earnings consist of income from continuing
operations before fixed charges and income taxes for Williams, its majority
owned subsidiaries and its proportionate share of 50 percent owned
companies, less undistributed earnings of less than 50 percent-owned
companies and (ii) fixed charges consist of interest and debt expense on all
indebtedness (without reduction for interest capitalized), that portion of
rental payments on operating leases estimated to represent an interest
factor, plus the pre-tax effect of preferred dividends of Williams and of
its subsidiaries.
xiii
<PAGE> 17
Transco Selected Historical Consolidated Financial Data
The following selected income statement data for the years 1993, 1992, and
1991 and balance sheet data for 1993 and 1992 have been derived from Transco's
audited consolidated financial statements included in the Transco Annual Report
for the year ended December 31, 1993, incorporated herein by reference. The
selected income statement data for the years 1990 and 1989 and balance sheet
data for 1991, 1990 and 1989 have been derived from Transco's audited
consolidated financial statements previously filed with the Commission, but not
incorporated herein by reference. The selected unaudited income statement data
for the nine month periods ended September 30, 1994 and 1993, and the selected
unaudited balance sheet data at September 30, 1994 have been derived from
Transco's unaudited condensed consolidated financial statements included in
Transco's Quarterly Report for the quarter ended September 30, 1994,
incorporated herein by reference. The selected unaudited balance sheet data at
September 30, 1993, have been derived from Transco's unaudited condensed
consolidated financial statements previously filed with the Commission, but not
incorporated herein by reference. The Power Generation segment has been
classified in the income statement data as discontinued operations; and, as
such, revenues and expenses have been excluded from continuing operations (see
note below). Prior year results have been restated to conform with this
presentation. The selected historical consolidated financial data shown below
should be read in conjunction with the consolidated financial statements, the
related notes and the audit report included in the documents incorporated herein
by reference.
On February 8, 1995, Transco reported an unaudited net loss of $17.0
million, or $0.42 per share, for the year ended December 31, 1994. The net loss
includes after-tax charges totaling $63.8 million, or $1.57 per share, related
to Transco's non-operating interest in coalbed methane properties, a provision
for impairments of certain assets, a provision for regulatory issues and the
settlement of litigation.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
(DOLLARS IN MILLIONS, ------------------- -----------------------------------------------------------------
EXCEPT PER SHARE AMOUNTS) 1994 1993 1993 1992 1991 1990(1) 1989(1)(2)
-------- -------- -------- -------- -------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues...................... $2,134.7 $2,134.6 $2,921.9 $2,692.3 $2,714.8 $3,057.5 $2,969.9
Income (loss) from continuing
operations........................ 38.8 (12.1) (35.4)(3) (52.0)(4) (162.7)(5) 40.1(6) 100.8(7)
Income (loss) from discontinued
operations........................ -- 31.5 31.5(1) 2.6 (4.7) 1.0 11.6
Net income (loss)................... 38.8 19.4 (3.9) (49.3) (167.4) 41.1 112.4
Common stock equity in net income
(loss)............................ 21.6 0.1 (29.0) (75.1) (193.1) 15.4 88.7
EARNINGS PER COMMON SHARE
INFORMATION:
Income (loss) from continuing
operations........................ 0.53 (0.80) (1.54) (2.43) (6.42) 0.49 2.69
Income (loss) from discontinued
operations........................ -- 0.80 0.80 0.08 (0.16) 0.04 0.41
Net income (loss)................... 0.53 (0.74) (2.35) (6.58) 0.53 3.10
Average shares used in per share
calculations (thousands).......... 40,707 39,282 39,202 31,946 29,335 29,023 28,638
CASH DIVIDENDS PER COMMON SHARE:.... 0.45 0.45 0.60 0.60 1.17 1.36 1.36
BALANCE SHEET DATA:
Property, plant and
equipment -- net.................. 2,832 2,864 2,880 2,858 3,376 3,219 2,665
Total assets........................ 3,825 4,187 4,081 4,259 4,609 4,549 4,110
Long-term debt...................... 1,935 1,939 1,787 1,820 1,722 1,447 1,043
Preferred stock..................... 337 359 341 363 368 373 378
Common shareholders' equity......... 404 423 391 430 387 601 606
Net book value per common share..... 9.98 10.72 9.60 10.98 13.32 21.08 21.71
</TABLE>
xiv
<PAGE> 18
- ---------------
(1) On June 30, 1993, Transco entered into a definitive agreement to sell the
common stock of Transco Energy Ventures Company to National Power America,
Inc., a subsidiary of National Power PLC, for $160 million in cash. The sale
closed on September 13, 1993. Transco received adjusted cash proceeds of
$150 million and recorded an after-tax gain on the sale of $31.6 million in
the third quarter of 1993. The Power Generation segment has been classified
as discontinued operations in the selected income statement data. Operating
results for 1990 and 1989 have been restated to classify these operations as
discontinued. The balance sheets have not been restated.
(2) Excludes the results of Texas Gas Transmission Corporation prior to its
April 3, 1989 acquisition date.
(3) Includes $141 million of pretax charges against income, including a
write-off of costs in excess of ceiling limitation, a certain legal
settlement and a note receivable write-off. See the Notes to Consolidated
Financial Statements included in the Transco Annual Report, incorporated by
reference herein.
(4) Includes $133 million of net pretax charges against income, including losses
on asset sales, write-off of capitalized costs in excess of ceiling
limitation and provisions for producer settlements, legal and regulatory
issues, partially offset by a gain on the final liquidating distribution
from Transco Exploration Partners ("TXP"). See the Notes to Consolidated
Financial Statements included in the Transco Annual Report, incorporated by
reference herein.
(5) Includes $330 million of pretax charges against income, including provisions
for asset impairments, producer settlements, legal and regulatory issues and
restructuring charges. See the Notes to Consolidated Financial Statements
included in the Transco Annual Report, incorporated by reference herein.
(6) Includes net provisions of $35 million for producer settlements, legal and
regulatory issues.
(7) Includes a pretax gain of $112 million on the initial liquidating
distribution from TXP following the sale of substantially all of TXP's
offshore producing properties and a $22 million pretax charge against income
for producer settlements, legal and regulatory issues.
xv
<PAGE> 19
Unaudited Pro Forma Selected Combined Financial Data
The following unaudited pro forma selected combined financial data present
the combined financial data of Williams and Transco for the year ended December
31, 1993, and the nine months ended September 30, 1994. The unaudited pro forma
combined financial data assume (i) the Offer and the Merger (together, the
"Acquisition") occurred at the beginning of the earliest period presented and
was accounted for by Williams using the purchase method and (ii) the WNS Sale
and certain elements of the Recapitalization had occurred at the beginning of
the earliest period presented. The unaudited pro forma selected combined
financial data have been derived from the unaudited pro forma combined financial
statements included herein and should be read in conjunction with those
statements, the related notes thereto and with the separate historical financial
statements of Williams and Transco included in the documents incorporated by
reference into this Prospectus and Information Statement. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." The pro forma data are not necessarily
indicative of the results of operations or of the financial condition that would
have been reported had the Acquisition, the WNS Sale and the Recapitalization
been in effect during those periods, or as of those dates, or that may be
reported in the future.
<TABLE>
<CAPTION>
NINE
MONTHS YEAR
ENDED ENDED
SEPTEMBER DECEMBER
30, 31,
(UNAUDITED -- DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1994 1993
--------- --------
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues.............................................. $3,240 $4,477
Income from continuing operations........................... 178 242
Income applicable to common stock........................... 165 221
EARNINGS PER WILLIAMS COMMON SHARE INFORMATION (FULLY
DILUTED):
Income from continuing operations........................... 1.41 1.93
CASH DIVIDENDS PER WILLIAMS COMMON SHARE.................... 0.63 0.78
BALANCE SHEET DATA:
Property, plant and equipment -- net........................ 6,811
Total assets................................................ 9,654
Long-term debt.............................................. 3,232
Preferred stock............................................. 225
Common stockholders' equity................................. 2,934
Net book value per common share............................. 26.40
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS: 1.90 1.89
</TABLE>
xvi
<PAGE> 20
Comparative Per Share Data
The following table sets forth for Williams Common Shares and Transco
Common Shares for the periods indicated selected historical per share data and
the corresponding pro forma per share amounts, giving effect to the Acquisition,
the WNS Sale and certain elements of the Recapitalization. The data presented
are based upon the consolidated financial statements and related notes of each
of Williams and Transco incorporated by reference into this Prospectus and
Information Statement and the unaudited pro forma combined balance sheet and
income statements, including the notes thereto, appearing elsewhere herein. This
information should be read in conjunction with and is qualified in its entirety
by the historical and unaudited pro forma combined financial statements and
related notes thereto. The assumptions used in the preparation of this table
appear elsewhere in this Prospectus and Information Statement. See "UNAUDITED
PRO FORMA FINANCIAL STATEMENTS." The comparative per share data are not
necessarily indicative of the results of the future operations of the
consolidated organization or the actual results that would have occurred if the
Acquisition, the WNS Sale and the Recapitalization had been consummated at the
beginning of the periods indicated.
<TABLE>
<CAPTION>
WILLIAMS/TRANSCO
PRO
WILLIAMS TRANSCO FORMA
HISTORICAL HISTORICAL COMBINED(1)
---------- ---------- ----------------
<S> <C> <C> <C>
Book value per common share:
December 31, 1993................................... $15.76 $ 9.60
September 30, 1994.................................. 16.33 9.98 $26.40
Cash dividends per common share:
Year ended December 31, 1993........................ 0.78 0.60 0.78
Year ended December 31, 1992........................ 0.76 0.60
Year ended December 31, 1991........................ 0.70 1.17
Nine months ended September 30, 1994................ 0.63 0.45 0.63
Nine months ended September 30, 1993................ 0.57 0.45
Income (loss) per common share from continuing
operations:
Primary:
Year ended December 31, 1993................... 1.74 (1.54) 1.96
Year ended December 31, 1992................... 0.97 (2.43)
Year ended December 31, 1991................... 0.69 (6.42)
Nine months ended September 30, 1994........... 1.19 0.53 1.41
Nine months ended September 30, 1993........... 1.43 (0.80)
Fully diluted:
Year ended December 31, 1993................... 1.71 (1.54) 1.93
Year ended December 31, 1992................... 0.97 (2.43)
Year ended December 31, 1991................... 0.69 (6.42)
Nine months ended September 30, 1994........... 1.19 0.53 1.41
Nine months ended September 30, 1993........... 1.39 (0.80)
</TABLE>
- ---------------
(1) See "UNAUDITED PRO FORMA FINANCIAL STATEMENTS."
xvii
<PAGE> 21
INTRODUCTION
This Prospectus and Information Statement relates to the Merger of
Williams' wholly-owned subsidiary, Sub, with and into Transco pursuant to the
Merger Agreement. Pursuant to the Merger Agreement, on January 18, 1995,
Williams accepted for payment 24,600,000 Transco Common Shares (approximately
60% of the total number of Transco Common Shares then outstanding on a fully
diluted basis) for $17.50 per Transco Common Share in cash in the Offer as the
first step in acquiring the entire equity interest in Transco. See "THE
MERGER -- Background of the Merger." The Merger will be consummated on the terms
and subject to the conditions set forth in the Merger Agreement, as a result of
which (a) Transco will become a wholly-owned subsidiary of Williams, (b) each
then outstanding Transco Common Share other than Retired Transco Common Shares
will be converted into the right to receive the Merger Consideration and (c)
each then outstanding share of Transco $3.50 Preferred Stock (other than shares
that are owned by Transco as treasury stock, or owned by Williams or any
wholly-owned subsidiary of Williams, all of which will be cancelled in the
Merger, and by holders of Transco $3.50 Preferred Stock who demand and perfect
appraisal rights) will be converted into the right to receive one share of
Williams $3.50 Preferred Stock. Any shares of Transco New Preferred Stock which
may be issued to Williams and remains outstanding on the Merger Date will remain
outstanding as preferred stock of Transco immediately following the Merger. See
"THE MERGER -- The Merger Agreement."
This Prospectus and Information Statement is being furnished to Transco
shareholders for their information in connection with the Transco Special
Meeting, at which shareholders will consider and vote upon a proposal to approve
and adopt the Merger Agreement and the Merger. As a result of the Offer,
Williams now owns a sufficient number of Transco Common Shares to approve and
adopt the Merger Agreement and the Merger without the vote of any other
shareholders. ACCORDINGLY, TRANSCO SHAREHOLDERS ARE NOT BEING ASKED FOR, AND ARE
REQUESTED NOT TO SEND, PROXIES TO VOTE AT THE TRANSCO SPECIAL MEETING, AND FOR
THAT REASON NO PROXY CARD HAS BEEN ENCLOSED FOR SHAREHOLDERS.
BUSINESS OF WILLIAMS AND SUB
Williams. Williams, through subsidiaries, is engaged in the transportation
and sale of natural gas and related activities, natural gas gathering and
processing operations, the transportation of petroleum products and the
telecommunications business. Williams' natural gas subsidiaries own and operate
(i) two interstate natural gas pipeline systems and have a 50 percent interest
in a third; (ii) a common carrier petroleum products pipeline system; and (iii)
natural gas gathering and processing facilities. Williams' telecommunications
subsidiaries operate a national video network specializing in broadcast
television applications and are involved in national telecommunications
equipment sales and service. On January 5, 1995, Williams consummated the WNS
Sale and received $2.5 billion in cash. Williams also has investments in the
equity of certain other companies.
Williams' interstate natural gas pipeline group consists of Northwest
Pipeline Corporation ("Northwest Pipeline") and Williams Natural Gas Company
("Williams Natural Gas"), owners and operators of interstate natural gas
pipeline systems, and Williams' 50 percent interest in Kern River Gas
Transmission Company ("Kern River"). Northwest Pipeline owns and operates an
interstate natural gas pipeline system, including facilities for mainline
transmission and gas storage. The system extends from the San Juan Basin in
northwestern New Mexico and southwestern Colorado through Colorado, Utah,
Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near
Sumas, Washington. At December 31, 1994, Northwest Pipeline's system, having
aggregate mainline deliverability of approximately 2.5 Bcf (billion cubic feet)
of gas per day, was composed of approximately 3,900 miles of mainline and branch
transmission pipelines, and 43 mainline compressor stations with a combined
capacity of approximately 291,000 horsepower.
Williams Natural Gas is an interstate natural gas transmission company
which owns and operates a natural gas pipeline system located in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. The system serves
customers in seven states, including major metropolitan areas of Kansas and
Missouri, its chief market areas. At December 31, 1994, the Williams Natural Gas
system, having a mainline
<PAGE> 22
delivery capacity of approximately 2.2 Bcf of gas per day, was composed of
approximately 6,200 miles of mainline and branch transmission and storage
pipeline and 48 compressor stations having rated capacity totaling approximately
259,000 horsepower.
Kern River is an interstate natural gas transmission company which owns and
operates a natural gas pipeline system extending from Wyoming through Utah and
Nevada to California. Kern River is jointly owned and operated by Williams
Western Pipeline Company, a subsidiary of Williams, and a subsidiary of an
unaffiliated company. The Kern River transmission system, which commenced
operations in February 1992, delivers natural gas primarily to enhanced
oil-recovery fields in southern California. The system also transports natural
gas for utilities, municipalities and industries in California, Nevada and Utah.
Williams Field Services Group, Inc., through subsidiaries, owns and/or
operates both regulated and nonregulated natural gas gathering and processing
facilities located in the San Juan Basin, southwest Wyoming, the Rocky Mountains
of Utah and Colorado, the Texas Panhandle and the Hugoton Basin in northwest
Oklahoma and southwest Kansas. Williams Field Services Group, Inc., through
subsidiaries, also markets natural gas and owns and operates natural gas
leasehold properties.
Williams Pipe Line Company, a wholly-owned subsidiary of Williams, operates
a petroleum products pipeline system which covers an eleven-state area extending
from Oklahoma in the south to North Dakota and Minnesota in the north and
Illinois in the east. The system is operated as a common carrier offering
transportation and terminalling services on a nondiscriminatory basis under
published tariffs. The system transports crude oil and products, including
gasolines, distillates, aviation fuels and LP-gases. At December 31, 1994, the
system traversed approximately 7,000 miles of right-of-way and included over
9,200 miles of pipeline. The system includes 81 pumping stations, 23 million
barrels of storage capacity and 47 delivery terminals.
Williams Telecommunications Systems, Inc., a wholly-owned subsidiary of
Williams, provides data, voice and video communications products and services to
an estimated 30,000 commercial, governmental and institutional customers
nationally. Another subsidiary offers switched, broadcast-quality, fiber-optic
television transmission services as an alternative to satellite and microwave
television transmission.
Williams was incorporated under the laws of the State of Nevada in 1949 and
was incorporated under the laws of the State of Delaware in 1987.
Sub. Sub is a newly incorporated Delaware corporation organized in
connection with the Merger and has not carried on any activities other than in
connection with the Merger. Sub is wholly-owned by Williams.
The executive offices of Williams and Sub are located at One Williams
Center, Tulsa, Oklahoma 74172, and the telephone number for Williams and Sub is
(918) 588-2000.
Additional information concerning Williams and its subsidiaries is
contained in the Williams Annual Report which is incorporated by reference
herein. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
BUSINESS OF TRANSCO
Transco is engaged primarily in the natural gas pipeline and the natural
gas marketing businesses. Transco also has investments in coal mining and
marketing operations, natural gas liquids processing, natural gas gathering and
a nonoperating interest in a coalbed methane project in Alabama. Transco's
pipeline business is conducted through TGPL and TXG. These companies, which are
regulated by the Federal Energy Regulatory Commission (the "FERC"), principally
transport natural gas from the Gulf of Mexico and the Gulf Coast regions to
markets in the eastern half of the United States through their respective 10,500
and 6,050 mile interstate pipeline systems. Transco's natural gas marketing
business is conducted through TGMC. TGMC, through agency agreements, manages all
jurisdictional sales of TGPL and Texas Gas, except for the sale of gas purchased
by Texas Gas under certain contracts, which is auctioned monthly. Jurisdictional
sales are sales made to local distribution customers located, in the case of
TGPL, in the eastern United States and, in the case of Texas Gas, in the
midwestern United States. TGMC also manages all non-jurisdictional sales of
2
<PAGE> 23
Transco Energy Marketing Company ("TEMCO") and TXG Gas Marketing Company ("TXG
Marketing"). TEMCO buys, arranges transportation for, and sells natural gas,
primarily in the eastern and midwestern United States and Gulf Coast region. TXG
Marketing markets natural gas, primarily to customers in the midwestern United
States. Transco's coal business is conducted through Transco Coal Company
("TCC"). TCC is engaged in the surface and deep mining, preparation and
marketing of various grades of bituminous steam coal. In addition, TCC purchases
minimal amounts of coal from independent producers for resale to customers.
Transco was organized under the laws of the State of Delaware in 1973. The
principal executive offices of Transco are located at 2800 Post Oak Boulevard,
Houston, Texas 77056 and the telephone number for Transco is (713) 439-2000.
Additional information concerning Transco and its subsidiaries is contained
in the Transco Annual Report which is incorporated by reference herein. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
THE TRANSCO SPECIAL MEETING
PLACE, TIME AND DATE
The Transco Special Meeting will be held at 10:00 a.m. (local time) on
April , 1995, at the principal executive offices of Transco, 2800 Post Oak
Boulevard, Houston, Texas 77056.
PURPOSE OF THE TRANSCO SPECIAL MEETING
At the Transco Special Meeting, holders of the Transco Common Shares will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the Merger and such other matters as may properly be brought before the meeting.
TRANSCO RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Transco Common Shares at the close of business on
March , 1995 are entitled to receive notice of and are entitled to vote at the
Transco Special Meeting. As of this record date, Transco had issued and
outstanding Transco Common Shares exclusive of shares held in its
treasury (which are not entitled to vote), and such shares were held by
approximately holders of record. Holders of issued and outstanding
shares of Transco preferred stock, including the Transco $3.50 Preferred Stock,
are not entitled to receive notice of and are not entitled to vote such shares
at the Transco Special Meeting.
The presence, in person or by proxy, of a majority of the outstanding
Transco Common Shares entitled to vote at the Transco Special Meeting shall
constitute a quorum for the transaction of business at such meeting. Since
Williams owns 60% of the outstanding Transco Common Shares, its presence at the
Transco Special Meeting will constitute a quorum even if no other Transco Common
Share is represented at the Transco Special Meeting.
VOTE REQUIRED; TRANSCO PROXIES NOT BEING SOLICITED
The affirmative vote of the holders of a majority of the issued and
outstanding Transco Common Shares entitled to vote thereon is required to
approve and adopt the Merger Agreement and the Merger. Each Transco Common Share
is entitled to one vote. Because approval of the Merger Agreement and the Merger
requires the vote of a majority of the issued and outstanding Transco Common
Shares, abstentions and broker non-votes will have the same effect as votes
against the Merger Agreement and the Merger. A vote of the holders of the issued
and outstanding shares of Transco preferred stock, including the Transco $3.50
Preferred Stock, is not required to approve and adopt either the Merger
Agreement or the Merger.
3
<PAGE> 24
As a result of the Offer, Williams now owns a sufficient number of Transco
Common Shares to approve and adopt the Merger Agreement and the Merger without
the vote of any other shareholder. Pursuant to the Merger Agreement, Williams
will vote all of its Transco Common Shares in favor of such approval and
adoption. ACCORDINGLY, TRANSCO SHAREHOLDERS ARE NOT BEING ASKED FOR, AND ARE
REQUESTED NOT TO SEND, PROXIES TO VOTE AT THE TRANSCO SPECIAL MEETING, AND FOR
THAT REASON NO PROXY CARD HAS BEEN ENCLOSED FOR SHAREHOLDERS.
At March , 1995, Transco's current directors and executive officers may
be deemed to be beneficial owners of approximately Transco Common Shares,
or approximately % of the then issued and outstanding Transco Common Shares.
See "OWNERSHIP OF VOTING SECURITIES."
THE MERGER
BACKGROUND OF THE MERGER
At several meetings between October 1991 and July 1992, as a result of
Transco's weak financial condition and highly leveraged capital structure, the
Transco Board considered, with the advice of management and Transco's financial
advisors, whether Transco should continue to implement its business plan as an
independent company or seek strategic alternatives including a possible sale or
merger of Transco. In July 1992, the Transco Board authorized Transco's
management and its financial advisors to contact four companies, which were
viewed as capable of acquiring Transco, on a confidential basis to explore their
interest in a potential acquisition of Transco. Two of the companies that were
contacted, including Williams, requested additional business and financial
information about Transco and entered into confidentiality agreements with
respect to non-public information that was furnished to them. The effort was
terminated when none of the four companies ultimately expressed interest in
pursuing a transaction with Transco.
On September 9, 1994, Keith E. Bailey, Chairman, President and Chief
Executive Officer of Williams, at a social occasion with John P. DesBarres,
Chairman, President and Chief Executive Officer of Transco, made a passing
comment about the possibility of a business combination of their respective
companies, to which Mr. DesBarres did not respond. At an informal meeting on
September 30, 1994, Mr. Bailey advised Mr. DesBarres of Williams' interest in
considering a business combination with Transco and sought to determine
Transco's interest in pursuing such discussions. Mr. DesBarres advised Mr.
Bailey that Transco would be willing to consider pursuing discussions with
Williams.
On October 10, 1994, Williams and Transco executed a mutual confidentiality
agreement, pursuant to which they agreed to maintain the confidentiality of
non-public information that was received from the other party. Over the next two
months, each company's management and advisors conducted due diligence
investigations of the other party.
At a meeting between Messrs. Bailey and DesBarres on November 23, 1994, Mr.
Bailey proposed that Williams acquire 51% of the Transco Common Shares for
$17.00 per share in cash, with the remaining Transco Common Shares to be
acquired in a merger for (i) 0.55 Williams Common Shares and (ii) a contingent
value right which would pay additional cash consideration of up to a maximum of
$2.00 per right if the Williams Common Shares did not reach specified trading
levels during any twenty consecutive trading days during a 12 to 18 month
period. Mr. Bailey also indicated that Williams would require a stock option and
certain termination fees to be paid by Transco in connection with any
transaction. Mr. Bailey also indicated that he would like Mr. DesBarres to
become President and a Director of Williams following the transaction. Mr.
DesBarres responded that he wanted to defer any discussions about his future
employment until after any transaction was finally agreed upon, and that in any
event he needed to consider personal and career issues before making any
decision.
On November 26, 1994, Mr. DesBarres, after consulting with Transco's
financial advisor, advised Mr. Bailey that the proposed consideration was
inadequate and that he was postponing the more extensive due diligence
investigations that had been planned to commence on November 27, 1994 until the
financial terms were more fully negotiated. After further discussions during the
following week between Messrs. Bailey and
4
<PAGE> 25
DesBarres and their respective financial advisors, Williams increased its
proposal on December 2, 1994 to $17.50 per Transco Common Share in cash for up
to 55% of the outstanding Transco Common Shares and 0.6 Williams Common Shares
for each remaining Transco Common Share acquired in the merger. Williams
rejected proposals by Transco's financial advisors for an adjustable exchange
ratio in the merger within a range or "collar". Williams also continued to
demand as part of its proposal that Transco grant Williams a stock option at
$17.50 per Transco Common Share for approximately 18% of the outstanding Transco
Common Shares with a $5 per share cap on its value and a separate termination
fee of $15 million. While Mr. DesBarres, after informal consultations with other
Transco Board members, advised Mr. Bailey that the proposal would require
additional improvement, he agreed to let the due diligence investigation
commence. Later that day, following further discussions with Mr. DesBarres, and
based upon the relative prices of the Transco Common Shares and Williams Common
Shares on December 2, 1994, Mr. Bailey agreed to increase the exchange ratio to
0.625 assuming that negotiations were successfully completed. Williams' counsel
delivered drafts of the agreements to representatives of Transco on December 3,
1994.
Over the next few days, the parties continued to negotiate the proposal and
Williams agreed to increase the percentage of Transco Common Shares acquired for
cash to approximately 60%. In addition, Williams replaced its demand for a $15
million termination fee with a provision for Transco to reimburse Williams for
its actual expenses (up to a maximum of $15 million) upon the occurrence of
certain events, including if Transco were to terminate the Merger Agreement to
accept a competing bid to acquire Transco. On December 8, 1994, the Transco
Board reviewed the proposal with its financial advisor and authorized management
to negotiate definitive terms and bring it before the Transco Board.
Representatives of Williams and Transco continued to negotiate the
agreements over the next three days. On December 11, 1994, Williams agreed to
reduce the cap on the value of its option to $2 per Option Share (as defined
herein) and agreed to Transco's request for the right to cancel the option
following any exercise by Williams for a cash payment not to exceed such cap. On
December 11, 1994, the Board of Directors of Williams and the Transco Board
approved the Merger Agreement and the Stock Option Agreement. On December 12,
1994, the Merger Agreement and the Stock Option Agreement were executed and the
parties issued a joint press release with respect thereto.
On December 16, 1994, Williams commenced the Offer. The Offer expired at
midnight on January 17, 1995, with approximately 86.7% of the outstanding
Transco Common Shares having been tendered pursuant to the Offer and not
withdrawn. On January 18, 1995, all conditions to the Offer having been deemed
satisfied, Williams accepted for payment 24,600,000 Transco Common Shares
validly tendered and not withdrawn pursuant to the Offer. As required by the
Merger Agreement, shortly before Williams' acceptance for payment of the Transco
Common Shares pursuant to the Offer, Transco redeemed the Transco Rights for
$0.05 per Transco Right. Pursuant to the terms of the Merger Agreement and the
Offer, all rights to the proceeds of such redemption, with respect to the
Transco Common Shares accepted for payment pursuant to the Offer, were assigned
to Williams.
Shortly after the Offer and the Merger were announced, seven purported
class actions were filed in the Delaware Court of Chancery alleging, among other
things, that the directors of Transco breached their fiduciary duties to the
shareholders of Transco in considering and approving the Offer and the Merger.
On January 9, 1995, an agreement was reached among all of the parties to such
litigation (the "Settlement Agreement") to settle all litigation which was
brought in the Delaware Court of Chancery concerning the Offer and the Merger.
Pursuant to the Settlement Agreement, Williams agreed to a reduction of the
expense reimbursement cap provided for in the Merger Agreement from $15 million
to $12 million. Also pursuant to the Settlement Agreement, Transco sought and
obtained from Merrill Lynch an opinion confirming that, as of January 9, 1995,
the consideration to be received by the shareholders of Transco (other than
Williams and its affiliates) pursuant to the Offer and the Merger, taken as a
whole, is fair to such shareholders from a financial point of view. In
connection with the Settlement Agreement, Transco also received an oral
representation from Merrill Lynch that, as of January 17, 1995, Merrill Lynch
had not become aware of any facts or circumstances which would have caused it to
withdraw its January 9, 1995 opinion to the Transco Board. In addition, the
Settlement Agreement, which is subject to court approval, contemplates that the
defendants will
5
<PAGE> 26
be released from the claims covered in the settlement, as described in the
Settlement Agreement, and that the claims against the defendants will be
dismissed with prejudice.
During January 1995, discussions commenced between the two companies
concerning various methods of recapitalizing Transco in the event the Offer was
consummated. After careful consideration of various alternatives, both the
Transco Board and the Williams Board of Directors (the "Williams Board"),
meeting separately, approved the Recapitalization with the following significant
consequences: (i) all of the 2,979,000 issued and outstanding shares of
Transco's $4.75 series Cumulative Convertible Preferred Stock, stated value $50
per share (the "Transco $4.75 Preferred Stock"), will be redeemed, effective
March 20, 1995, for $50.475 per share plus accrued dividends; (ii) Transco will
initiate a tender offer for up to 100% of Transco's 11 1/4% Notes due 1999 (the
"Transco Notes") conditioned upon a tender of at least 51% of the Transco Notes
and consents to certain amendments to the indenture relating to the Transco
Notes; (iii) upon successful completion of the tender for the Transco Notes,
Transco will cause TGPL to redeem all of its issued and outstanding preferred
stock; and (iv) certain other outstanding indebtedness of Transco will be
refinanced. The funds for the redemption of the Transco $4.75 Preferred Stock
may come from the proceeds of the issuance of the Transco New Preferred Stock,
all the shares of which will, if issued, be purchased by Williams. If issued,
the Transco New Preferred Stock will continue to be outstanding as preferred
stock of Transco immediately following the Merger. The funds for the other
elements of the Recapitalization, and the redemption of the Transco $4.75
Preferred Stock if the Transco New Preferred Stock is not issued, will be
provided to Transco in the form of capital contributions and loans from
Williams. On January 30, 1995, Williams and Transco consented, pursuant to the
Merger Agreement, to the actions contemplated by the Recapitalization.
TRANSCO BOARD RECOMMENDATIONS AND REASONS FOR THE ACQUISITION
On December 8 and 11, 1994, the Transco Board met to consider the proposed
business combination with Williams. At the meeting on December 11, the Transco
Board, by a unanimous vote of those directors present (with Mr. Bailar absent),
approved the Merger Agreement and the Stock Option Agreement, determined that
the Offer and the Merger, taken together, are fair to and in the best interests
of Transco's shareholders and recommended that shareholders accept the Offer,
tender their Transco Common Shares pursuant to the Offer and approve the Merger
and the Merger Agreement.
Prior to reaching its conclusions, the Transco Board received presentations
from, and reviewed the transactions contemplated by the Merger Agreement with,
Transco's management and financial advisor. In reaching its conclusions, the
Transco Board considered a number of factors, including, but not limited to, the
following:
(i) Transco's business, its current financial condition and results of
operations and its future prospects, including the effects of recent
regulatory developments on Transco's natural gas pipeline business. The
Transco Board considered the significant amounts of capital that will be
required to maintain and expand Transco's operations and the constraints
that Transco's high leverage imposes on Transco's ability to raise such
funds as an independent concern. The Transco Board also considered
Transco's efforts over the preceding three years to improve Transco's poor
financial performance which has been caused by its highly leveraged capital
structure, certain under-performing assets outside its core businesses and
the resolution of several regulatory and legal contingencies. The Transco
Board also reviewed Transco's long-range financial plans under several
scenarios to consider the alternative of Transco remaining an independent
public company, including the risks and uncertainties in meeting the
assumptions underlying such scenarios and the range of expected future
earnings and stock trading prices which may be expected if such performance
levels were achieved.
(ii) Presentations by Transco's management and Merrill Lynch to the
Transco Board at meetings held on December 8 and 11, 1994 as to various
financial and other considerations deemed relevant to the Transco Board's
evaluation of the Offer and the Merger, including, among other things, (1)
a review of Transco's and Williams' historical financial condition and
results of operations, (2) a review of Transco's and Williams' projected
financial performance under their respective business plans, (3) a review
of the
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historical and recent market prices for the Transco Common Shares and the
Williams Common Shares, including an analysis of Williams' recent
repurchase program in which it repurchased an aggregate of approximately
13.8 million Williams Common Shares during the period August 29, 1994
through November 30, 1994, (4) a comparison of Transco with selected
comparable public companies on the basis of certain financial and market
data, (5) a comparison of selected comparable acquisition transactions, (6)
a discounted cash flow analysis of Transco and its subsidiaries, (7) a
comparison of the premium to Transco's stock price compared to other large
transactions over the last four years as well as to recent transactions
involving energy companies, and (8) estimated pro forma financial
information for a combined Williams/Transco entity.
(iii) The oral opinion of Merrill Lynch delivered at the meeting on
December 11, 1994 and subsequently delivered to the Transco Board in
writing, that as of such date, the proposed consideration to be received by
the shareholders of Transco (other than Williams and its affiliates)
pursuant to the Offer and the Merger, taken as a whole, is fair to such
shareholders from a financial point of view. A copy of the opinion of
Merrill Lynch, setting forth the assumptions made, the matters considered,
and the limitations on the review undertaken, is attached as Annex B-1
hereto and is incorporated herein by reference. The Transco Board was aware
in this connection that Merrill Lynch would become entitled to the fees
described in the section entitled "THE MERGER -- Opinions of Transco's
Financial Advisor" in this Prospectus and Information Statement in
connection with its engagement by Transco upon consummation of the Offer.
(iv) Williams' obligation to consummate the Offer and the Merger was
subject to a limited number of conditions, including the fact that the
Offer was not conditioned on financing or the closing of the WNS Sale, and
that Williams had agreed in the Merger Agreement that, in the event it was
unable to consummate the Offer at any scheduled expiration thereof due to
the failure of certain conditions, it would continue to extend the Offer
for up to 90 days following commencement of the Offer.
(v) The Transco Board recognized that Williams had required as a
condition to its holding the discussions and negotiations with Transco that
led to the Merger Agreement that Transco and its representatives not
solicit possible acquisition interest from third parties and that no such
solicitation had been undertaken. In determining that this was an
appropriate course, the Transco Board considered (1) the uncertainties and
potential adverse impact that a "public" auction of Transco could have on
the business, employees and prospects of Transco, including its
relationships with third parties, (2) the fact that Williams had advised
that it would withdraw as a potential acquiror of Transco and pursue other
business strategies if such a process were undertaken, and that the Transco
Board was informed that Williams' actions in negotiations involving other
companies indicated that Williams' statement should be considered accurate,
(3) the lack of interest in an acquisition of Transco by any of the
potential qualified acquirors that had previously been solicited by Transco
in the third quarter of 1992 and (4) certain terms of the Merger Agreement
which permit Transco to terminate the Merger Agreement to allow Transco to
enter into any alternative transaction which the Transco Board determines
is more favorable to Transco's shareholders than the transactions
contemplated by the Merger Agreement (provided that upon such termination
Transco reimbursed Williams for up to $15 million in out-of-pocket expenses
(which amount was subsequently reduced to $12 million in connection with
the Settlement Agreement) and pays any amounts that could become payable
upon Williams' exercise of its rights under the Stock Option Agreement).
The Transco Board also took into account the view of management and Merrill
Lynch that, based on, among other things, Transco's large size and high
leverage, the market's limited interest generally in regulated gas pipeline
companies, antitrust considerations and an analysis of the theoretical
alternative bidders, it was unlikely that a third party bidder would be
prepared to pay a higher price for the Transco Common Shares than the
consideration offered in the Offer and the Merger, particularly without
assuming greater risks of non-consummation than apply to the Offer and the
Merger.
(vi) Transco may be required to pay Williams amounts pursuant to the
Stock Option Agreement and the reimbursement of expenses pursuant to the
Merger Agreement upon the occurrence of certain events, including if
Transco terminates the Merger Agreement to accept a proposal that is more
favorable to Transco's shareholders than the Offer and the Merger. The
Transco Board noted that, under the terms
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of the Merger Agreement, while Transco is prohibited from soliciting
acquisition proposals from third parties, Transco is free to engage in
discussions or negotiations with, and may furnish non-public information
to, a third party who makes a written acquisition proposal if either (1)
the Transco Board determines in good faith with the advice of its financial
advisors that such proposal may reasonably be expected to result in a
transaction that is financially superior to the transaction contemplated by
the Merger Agreement, or (2) the Transco Board determines in good faith
with the advice of outside counsel that failure to do so could reasonably
be expected to result in a breach of the Transco Board's fiduciary duties
under applicable law. The Transco Board also noted the terms of the Stock
Option Agreement, including the $2 cap per Option Share (which would only
be fully payable generally if and to the extent that an alternative
transaction provided at least $19.50 per share to the Transco
shareholders), the limited circumstances under which the Option (as defined
herein) becomes exercisable and the right of Transco to cancel the Option
following Williams' exercise for a cash payment (not in excess of the cap)
which could avoid any impediment to another transaction that might arise
from Williams owning approximately 15% of the outstanding Transco Common
Shares following exercise of the Option. In addition, the Merger Agreement
provided that the expense reimbursement would be limited to documented,
out-of-pocket expenses, which may be significantly below the maximum
limitation. In this regard, the Transco Board also recognized that the
Stock Option Agreement and the provisions of the Merger Agreement relating
to reimbursement of expenses and solicitation of acquisition proposals were
insisted upon by Williams as a condition to entering into the Merger
Agreement and making the Offer and had been substantially modified in
Transco's favor over the course of the negotiations. The Transco Board
considered the possible effect of the Stock Option Agreement and these
provisions of the Merger Agreement on third parties who might be interested
in exploring an acquisition of Transco and, based in part on Merrill
Lynch's advice, concluded that the Stock Option Agreement and expense
reimbursement provisions should not significantly deter a bona fide
interested third party from making a proposal for Transco and are
reasonable in light of the benefits of the Offer and the Merger.
(vii) The exchange ratio in the Merger is fixed at 0.625 Williams
Common Shares (and 0.3125 Williams Rights) for each Transco Common Share
without a "collar" in which the number of Williams Common Shares would
increase or decrease as the trading price of the Williams Common Shares
changed in the market and the effect on the combined value to be received
in the Offer and the Merger based on different trading prices for the
Williams Common Shares. The Transco Board noted that Williams had rejected
each effort by Transco's management and financial advisor to include a
collar. The Transco Board also considered that the effect of a collar is
not only to reduce the risk of a decline in the trading price of Williams
Common Shares, but also to reduce the benefit Transco's stockholders would
otherwise receive as a result of any increase in the trading price of
Williams Common Shares.
(viii) The Transco $3.50 Preferred Stock is being exchanged in the
Merger for a new series of Williams $3.50 Preferred Stock having
substantially equivalent terms. In particular, the Transco Board noted that
the conversion rate of the Williams $3.50 Preferred Stock into Williams
Common Shares is equal to the product of (a) the conversion rate of the
Transco $3.50 Preferred Stock into Transco Common Shares multiplied by (b)
the exchange ratio in the Merger of 0.625. The Transco Board also
recognized that the holders of Williams $3.50 Preferred Stock would have
the benefit of having a security issued by a company with a higher credit
rating than that of Transco.
See "THE MERGER -- Opinions of Transco's Financial Advisor" and
"-- Interests of Certain Persons in the Merger."
OPINIONS OF TRANSCO'S FINANCIAL ADVISOR
At its meeting on December 11, 1994 to consider the Merger Agreement and
the transactions contemplated thereby, the Transco Board received the oral
opinion of Merrill Lynch that, as of such date, the proposed consideration to be
received by the holders of the Transco Common Shares and the Transco $3.50
Preferred Stock (other than Williams and its affiliates) pursuant to the Offer
and Merger, taken as a whole, was fair to such shareholders from a financial
point of view. Such opinion was subsequently confirmed in
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writing to the Transco Board. On January 9, 1995, Merrill Lynch confirmed that,
as of such date, the consideration to be received by the holders of the Transco
Common Shares and the Transco $3.50 Preferred Stock (other than Williams and its
affiliates) pursuant to the Offer and Merger, taken as a whole, was fair to such
shareholders from a financial point of view. Merrill Lynch's opinions related
only to the consideration to be paid by or on behalf of Williams in connection
with the Offer and the Merger and do not constitute a recommendation to any
shareholder of Transco as to how such shareholder should vote at the Transco
Special Meeting or whether such shareholder should or should not have tendered
Transco Common Shares pursuant to the Offer. The full text of Merrill Lynch's
written opinions, which set forth the assumptions made, procedures followed and
matters considered in connection with such opinions, are attached as Annexes B-1
and B-2 to this Prospectus and Information Statement. Shareholders of Transco
are urged to read the opinions in their entirety.
In connection with rendering its opinions, Merrill Lynch, among other
things: (i) reviewed Williams' Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1993, its Forms 10-Q
and the related unaudited financial information for the quarterly periods ending
March 31, 1994, June 30, 1994 and September 30, 1994 and its Form 8-K dated
August 22, 1994; (ii) reviewed Transco's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1993, its
Forms 10-Q and the related unaudited financial information for the quarterly
periods ending March 31, 1994, June 30, 1994 and September 30, 1994 and its
Forms 8-K dated September 23, 1992, July 6, 1993, July 14, 1993, October 25,
1993 and April 7, 1994; (iii) reviewed certain information, including financial
forecasts, relating to the businesses, earnings, cash flows, assets and
prospects of Williams and of Transco, furnished to Merrill Lynch by Williams and
Transco, respectively; (iv) conducted discussions with members of senior
management of Williams and Transco; (v) reviewed the historical market prices
and trading activity for the Transco Common Shares and compared them with that
of certain publicly traded companies which Merrill Lynch deemed to be reasonably
similar to Transco and reviewed certain market prices and trading activity for
the Transco $3.50 Preferred Stock; (vi) reviewed the historical market prices
and trading activity for the Williams Common Shares and compared them with that
of certain publicly traded companies which Merrill Lynch deemed to be reasonably
similar to Williams, and reviewed Williams' share repurchase program and its
effect on the historical market prices and trading activity for the Williams
Common Shares; (vii) compared the results of operations of Transco and Williams
with that of certain companies which Merrill Lynch deemed to be reasonably
similar to Williams and Transco, respectively; (viii) compared to the proposed
financial terms of the transactions contemplated by the Merger Agreement with
the financial terms of certain other mergers and acquisitions which Merrill
Lynch deemed to be relevant; (ix) with respect to its December 11, 1994 opinion,
reviewed a draft of the Merger Agreement dated December 11, 1994, including the
form of the Certificate of Designation, Preferences and Rights of the Williams'
$3.50 Series Preferred Stock attached as an exhibit thereto and reviewed a draft
of the Stock Option Agreement dated December 11, 1994, and, with respect to its
January 9, 1995 opinion, reviewed the final versions of such documents; and (x)
reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as Merrill Lynch deemed
necessary, including its assessment of general economic, market and monetary
conditions.
In connection with orally advising the Transco Board of its opinion on
December 11, 1994, confirming such opinion in writing shortly thereafter,
issuing its opinion dated January 9, 1995 and making its presentations to the
Transco Board, Merrill Lynch performed a variety of financial and comparative
analyses, including those described below. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances. Consequently, such an opinion is not readily susceptible to
summary description. In arriving at its opinions, Merrill Lynch did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Merrill Lynch believes that, in each case, its
analyses must be considered as a whole and that the consideration of any
portions of such analyses or such factors without considering all analyses and
factors would create an incomplete or incorrect view of the process Merrill
Lynch undertook with respect to rendering its opinions. In its analyses, Merrill
Lynch made numerous assumptions with respect to general business, economic and
regulatory conditions, industry performance and other matters, many of which are
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beyond Transco's and Williams' control. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictions of
future results or values, which may be significantly more or less favorable than
as set forth therein.
The following summary does not purport to be a complete description of the
presentations made, or the opinions rendered, to the Transco Board or of the
analyses performed by Merrill Lynch in connection with the Offer and the Merger.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis of the future unleveraged free cash flows that Transco's
businesses could be expected to generate during various periods utilizing
projections provided to Merrill Lynch by Transco and certain other assumptions.
With respect to the information provided by Transco, Merrill Lynch assumed
that such information was reasonably prepared based upon the best available
estimates and judgments of Transco's management. In conjunction with Transco,
Merrill Lynch utilized the information provided and various assumptions
regarding future allowed returns on equity, debt costs, capital structures, book
and tax depreciation rates and capital expenditures, to project financial
results for Transco's pipeline subsidiaries through the year 2019 and for
Transco's non-pipeline assets through various other periods. The estimated
future unleveraged free cash flows generated in the analysis of Transco's
pipeline subsidiaries were discounted at after-tax discount rates of between 9%
and 12% and the cash flows generated by its non-pipeline assets were discounted
at after-tax discount rates deemed appropriate to such assets' growth prospects
and risk profiles, producing a reference valuation for the Transco Common Shares
of approximately $510.3 million to $760.3 million (or between approximately
$12.47 and $18.58 per Transco Common Share), net of long-term indebtedness and
other liabilities.
Analysis of Selected Comparable Acquisitions. Merrill Lynch also reviewed
publicly available information relating to certain acquisition transactions in
respect of companies with primarily domestic natural gas pipeline operations
which took place between October 1992 and March 1994. Additionally, Merrill
Lynch reviewed publicly available information relating to certain acquisition
transactions in respect of companies with primary operations comparable to those
of Transco's non-pipeline businesses.
With respect to Transco taken as a whole and to its various businesses,
Merrill Lynch examined multiples of the total consideration paid and
indebtedness assumed in each of the transactions to, among other measures, such
acquired companies' respective earnings before interest, taxes and depreciation,
and earnings before interest and taxes. The transactions that Merrill Lynch
deemed to be most comparable to the Merger were Panhandle Eastern Corporation's
acquisition of Texas Eastern Corporation, Transco Energy Company's acquisition
of Texas Gas Transmission, Texas Eastern Corporation's acquisition of Algonquin
Energy Inc., Arkla, Inc.'s acquisition of Mississippi River Transmission
Corporation, Occidental Petroleum Corporation's acquisition of MidCon Corp.,
MidCon Corp.'s acquisition of United Energy Resources, Coastal Corporation's
acquisition of American Natural Resources, Houston Natural Gas Corp.'s
acquisition of Transwestern Pipeline Co. and Houston Natural Gas Corp's
acquisition of Florida Gas Transmission (the "Comparable Mergers"). Merrill
Lynch also examined sixteen other comparable merger and acquisition transactions
in the natural gas pipeline industry. An analysis of the total consideration
paid in the Comparable Mergers as a multiple of latest twelve months earnings
before interest, taxes and depreciation, and earnings before interest and taxes
yielded an average of 6.5x and 11.6x, respectively, compared to ratios in the
Merger of 6.3x and 10.5x, respectively.
Merrill Lynch also reviewed certain recent acquisitions in a variety of
industries from January 1991 through October 1994 and examined the premiums paid
for the targets' equity over the targets' equity market value prior to
announcement of the transactions. Such analysis indicated premiums over the
targets' stock prices one day, one week and four weeks before the announcement
of each respective acquisition of 39.4%, 43.8% and 49.1%, respectively, compared
to premiums of Transco's stock price for similar periods before the announcement
of the Offer and the Merger of 36.4%, 40.6% and 31.2%, respectively. Merrill
Lynch believes that the relative difference in premium between the comparable
transactions and the Offer and the Merger may largely be due to changes in
market conditions and inherent differences between the operations and financial
conditions of Transco and the selected acquisitions.
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Because the reasons for, and circumstances surrounding, each of the
transactions analyzed were so diverse and due to the inherent differences
between the operations and financial conditions of Transco and the selected
companies, Merrill Lynch believes that a purely quantitative comparable
transaction analysis would not be dispositive in the context of the Offer and
the Merger. Merrill Lynch further believes that an appropriate use of a
comparable transaction analysis in this instance would involve qualitative
judgments concerning the differences between the characteristics of these
transactions and the Offer and the Merger that would affect the acquisition
value of the acquired companies and businesses and Transco, which judgments are
reflected in Merrill Lynch's opinions.
Analysis of Selected Publicly Traded Comparable Companies. Merrill Lynch
compared selected historical stock, financial and operating ratios for each of
Transco and Williams to the respective corresponding data and ratios of certain
similar publicly traded companies. With respect to each such analysis, Merrill
Lynch made such comparisons among the following companies (excluding the subject
company from the comparison): The Coastal Corporation, Consolidated Natural Gas
Company, El Paso Natural Gas Company, Enron Corp., Enserch Corporation, NorAm
Energy Corp., Panhandle Eastern Corporation, Sonat Inc., TransCanada PipeLines
Limited, Transco Energy Company and The Williams Companies, Inc.
With respect to Transco, an analysis of the ratio of the market value of
the common stock of the comparable companies at December 9, 1994 to their
respective estimated net earnings to common for 1994 yielded a range of 10.6x to
29.5x with an average of 14.9x, and for 1995 yielded a range of 9.8x to 17.3x
with an average of 12.3x, which compares with a ratio for Transco of 12.0x to
10.3x for 1994 and 1995, respectively. An analysis of the ratio of market
capitalization (defined as market value of common equity, plus debt, plus
liquidation value of preferred, less cash) (the "Market Capitalization") to
earnings before interest and taxes of the comparable companies for 1994 yielded
a range of 8.4x to 14.9x with an average of 10.9x, and for 1995 yielded a range
of 7.7x to 12.2x with an average of 9.9x, which compares with a ratio for
Transco of 8.9x and 8.3x for 1994 and 1995, respectively. An analysis of the
ratio of Market Capitalization to earnings before interest, taxes and
depreciation of the comparable companies for 1994 yielded a range of 6.0x to
7.3x with an average of 6.8x, and for 1995 yielded a range of 5.7x to 6.8x with
an average of 6.4x, which compares with a ratio for Transco of 5.3x and 5.0x for
1994 and 1995, respectively. An analysis of the ratio of Market Capitalization
to total assets of the comparable companies as of September 30, 1994 yielded a
range of 0.7x to 1.0x with an average of 0.8x, which compares with a ratio of
0.7x for Transco.
With respect to Williams, an analysis of the ratio of the market value of
the common stock of the comparable companies at December 9, 1994 to their
respective estimated net earnings to common for 1994 yielded a range of 10.6x to
29.5x with an average of 14.8x and for 1995 yielded a range of 9.8x to 17.3x
with an average of 12.1x, which compares with a ratio for Williams of 13.5x and
12.1x for 1994 and 1995, respectively. An analysis of the ratio of Market
Capitalization to earnings before interest and taxes of the comparable companies
for 1994 yielded a range of 8.4x to 14.9x with an average of 10.7x, and for 1995
yielded a range of 7.7x to 12.2x with an average of 9.7x, which compares with a
ratio for Williams of 11.3x and 9.9x for 1994 and 1995, respectively. An
analysis of the ratio of Market Capitalization to earnings before interest,
taxes and depreciation of the comparable companies for 1994 yielded a range of
6.0x to 7.3x with an average of 6.6x, and for 1995 yielded a range of 5.7x to
6.8x with an average of 6.2x, which compares with a ratio for Williams of 7.1x
and 6.5x for 1994 and 1995, respectively. An analysis of the ratio of Market
Capitalization to total assets of the comparable companies as of September 30,
1994 yielded a range of 0.7x to 1.0x with an average of 0.8x, which compares
with a ratio of 0.8x for Williams.
With respect to Transco's constituent businesses, Merrill Lynch performed
similar analyses.
Because of the inherent differences among the operations of Transco,
Williams and the selected comparable companies, Merrill Lynch believes that a
purely quantitative comparable company analysis would not be dispositive in the
context of the Offer and the Merger. Merrill Lynch believes that an appropriate
use of a comparable company analysis in this instance would involve qualitative
judgments concerning differences among the financial and operating
characteristics of Transco, Williams and the selected companies, which judgments
are reflected in Merrill Lynch's opinion.
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Purchase Price Analysis and Stock Trading History. Merrill Lynch performed
analyses relating to the consideration to be paid pursuant to the Merger
Agreement assuming various prices for the Williams Common Shares. Merrill Lynch
also examined the history of trading prices and volume for the Transco Common
Shares and the Williams Common Shares and various historical information
relating to such common stocks and reviewed certain market prices and trading
activity for the Transco $3.50 Preferred Stock.
Pro Forma Merger Analysis. Merrill Lynch analyzed certain pro forma
effects which could result from the Offer and the Merger. This analysis
indicated that the pro forma net income per share of the combined company would
be dilutive in 1995 and 1996 as compared to the comparable stand-alone
projections for Williams. Merrill Lynch also analyzed the effects of the Offer
and the Merger on the balance sheet of the combined company. The combined
company's estimated debt-to-debt-plus common equity and preferred stock ratio as
of December 31, 1994 would be 53.3% as compared to 38.3% for Williams on a
stand-alone basis.
On January 9, 1995, Merrill Lynch confirmed, as of such date, that the
consideration to be received by the holders of the Transco Common Shares and the
Transco $3.50 Preferred Stock (other than Williams and its affiliates) pursuant
to the Offer and the Merger, taken as a whole, was fair to such shareholders
from a financial point of view. In rendering such confirmation, Merrill Lynch
performed procedures to update certain of its analyses made in conjunction with
its December 11, 1994 opinion and reviewed the assumptions on which such
analyses were based and the factors considered in connection therewith. Merrill
Lynch considered, among other things, Transco's and Williams' recent financial
performances and recent market conditions and developments based on the
foregoing.
In connection with rendering its opinions, Merrill Lynch relied, without
independent verification, upon the accuracy and completeness of all of the
financial and other information supplied or otherwise made available to it by
Williams and/or Transco. With respect to forecasted financial information
furnished to Merrill Lynch by Transco and Williams, Merrill Lynch assumed such
information to have been reasonably prepared and to reflect the best currently
available estimates and judgments of the managements of Transco and Williams as
to the expected future financial performance of Transco or Williams as the case
may be. In rendering its opinion, Merrill Lynch did not make or receive an
independent evaluation or appraisal of the assets or liabilities of Transco or
Williams, nor did it independently verify any of the publicly available
information relating to Transco or Williams. The opinions of Merrill Lynch are
necessarily based upon market, economic, regulatory and other conditions as they
existed on, and could be evaluated as of, the respective dates of such opinions.
As described above, Merrill Lynch's opinion dated December 11, 1994 and
presentations to the Transco Board were one of the many factors taken into
consideration by the Transco Board in making its determination to approve the
Merger Agreement.
Merrill Lynch is an internationally recognized investment banking firm
which, as part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Transco selected Merrill
Lynch to act as its financial advisor in connection with the Offer and the
Merger on the basis of the firm's expertise.
Pursuant to the terms of an engagement letter dated October 5, 1994,
Transco paid Merrill Lynch $500,000 for financial advisory services in
connection with the Offer and the Merger upon the public announcement of the
Merger Agreement. In addition, Transco paid Merrill Lynch a fee in the amount of
$11,616,277 (equal to 0.4% of the aggregate purchase price (as defined in the
engagement letter) to be paid by Williams in the Offer and the Merger less the
$500,000 payment upon announcement of the Merger Agreement) on January 18, 1995
(the date of the closing of the Offer). Transco has also agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses, including all
reasonable fees and disbursements of counsel, and to indemnify Merrill Lynch and
certain related persons against certain liabilities relating to or arising out
of its engagement, including certain liabilities under the federal securities
laws.
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Merrill Lynch has performed investment banking services for Transco from
time to time and has been compensated therefor. Such services have included,
among others, acting as manager of, or participating as a syndicate member in,
various securities transactions of Transco and its subsidiaries and providing
financial advisory services to Transco. In the ordinary course of Merrill
Lynch's business, it may actively trade the securities of Transco and Williams
for its own account and for the accounts of its customers and, accordingly, may
at any time hold a long or short position in such securities.
WILLIAMS' REASONS FOR THE ACQUISITION
With the WNS Sale, Williams has undertaken a strategy to focus on its core
businesses. Williams believes that the acquisition of Transco will lead to the
creation of the premier interstate transporter of natural gas, a dynamic gas
marketing and trading company, and a range of other new investment
opportunities. The acquisition of Transco will provide Williams with access to
the major natural gas markets of the northeastern United States. In addition,
Williams will also gain access to the only major U.S. natural gas supply basins
to which it does not currently have access. The combination of Williams and
Transco would result in the second largest gas transmission company in the
United States, but the combined companies would rank first in terms of gas
volumes delivered.
In reaching its conclusions to enter into the Merger Agreement, the
Williams Board considered a number of factors, including, without limitation,
the following: (i) Williams' and Transco's businesses, assets, and competitive
position and the current conditions and trends in the market in which they
compete; (ii) Williams' and Transco's comparative financial condition and
results of operations, both on a historical basis and on a prospective basis
without giving effect to the Offer and the Merger; (iii) a review of possible
alternative expansion strategies available to Williams, and the costs thereof,
if the Offer and the Merger are not consummated; (iv) current market conditions
and historical market prices and trading information with respect to the Transco
Common Shares; (v) the complementary nature of Williams' and Transco's
businesses; (vi) the proposed terms and structure of the Offer and the Merger;
and (vii) a comparison of recent acquisition transactions within the natural gas
pipeline and the natural gas marketing businesses and selected acquisition
transactions generally.
PLANS FOR WILLIAMS AND TRANSCO AFTER THE MERGER
Williams presently intends to maintain and expand the existing core
businesses of Transco and to promptly pursue new business opportunities made
available as a result of the Merger. Due to its highly leveraged capital
structure, Transco has been unable to take full advantage of numerous growth
opportunities in its fast-growing markets which would enable it to maintain and
enhance its competitive edge. Williams expects to be able to finance, on
reasonable terms, the capital investment necessary to exploit these
opportunities, as well as additional opportunities to access the abundant and
long-lived natural gas supplies connected to some of Williams' existing natural
gas pipeline assets. In this regard, Williams estimates that during fiscal 1995
it will make capital expenditures of approximately $1.2 billion, of which
approximately $200 million will be devoted to existing Transco businesses and
approximately $200 million will be available for expansion by Transco into
non-regulated activities.
Williams anticipates that Transco or Williams or both, through their
respective subsidiaries, will promptly expand non-regulated activities in the
geographical areas served by Transco's pipeline subsidiaries and Williams'
existing systems. In order to facilitate this process, Williams intends to cause
Transco, as promptly as practicable following the Merger and subject to receipt
of any necessary consents, to declare and pay as dividends to Williams the
Operating Company Dividends. After giving effect to the Operating Company
Dividends, substantially all of Transco's remaining assets will be in
non-regulated activities. Certain of such assets are non-core assets which
Williams intends to dispose of during fiscal 1995 and derive cash proceeds and
related tax benefits, the amount of which will depend on the sale proceeds
received for such assets but is presently estimated to be in the range of
approximately $220 million to $235 million, net of certain retained liabilities.
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Williams and Transco have already begun to implement the Recapitalization
in order to restructure the finances of Transco so as to make the exploitation
of these opportunities possible. Given Williams' lower cost of capital, Williams
expects that the Recapitalization will result in a significant reduction of
consolidated interest and preferred dividend requirements, with the net cash
savings on a pre-tax basis of approximately $35 million, and to increase the
liquidity of Williams' equity and bond issues. The Recapitalization is also
expected, when taken together with the Operating Company Dividends, to provide
Williams somewhat greater ratemaking flexibility afforded by a stand alone
capital structure for the natural gas pipeline subsidiaries. Williams is also
considering various alternatives for offering to exchange the Williams $3.50
Preferred Stock to be issued in the Merger for a security structured so as to
minimize Williams' tax expense. See "THE MERGER -- Background of the Merger" and
"UNAUDITED PRO FORMA FINANCIAL STATEMENTS."
The Merger Agreement provides that the officers of Transco will continue to
be the officers of the Surviving Corporation. However, it is expected that a
realignment of functions resulting from, among other things, Transco's becoming
a wholly-owned subsidiary of Williams will occur following the Merger in order
to realize operating efficiencies and that some changes in the management of
Transco or its subsidiaries will occur in the process.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Transco Board with respect to the
Merger, Transco shareholders should be aware that certain members of Transco's
management and the Transco Board have certain interests that are described below
that may present them with actual or potential conflicts of interest in
connection with the Merger. Williams and Transco have agreed in the Merger
Agreement that Transco will maintain its current policy with respect to
indemnification and that such policy will not be amended, repealed or otherwise
modified for a period of six years after the Merger Date; provided that, in the
event any claim is asserted or made within such six-year period, all rights to
indemnification in respect of any such claim will continue until disposition of
any and all such claims. The Merger Agreement further provides that, for a
period of not less than six years after the Merger Date, Williams will, or will
cause the Surviving Corporation to provide, directors' and officers' liability
insurance having substantially the same terms and conditions and providing at
least the same coverage and amounts as the directors' and officers' liability
insurance that is currently maintained by Transco. See "THE MERGER -- The Merger
Agreement -- Indemnification and Directors' and Officers' Insurance." The Merger
Agreement also provides that, except as otherwise agreed with individual option
holders, at the consummation of the Offer, (i) each then outstanding option to
purchase Transco Common Shares (a "Transco Stock Option") under Transco's
employee stock incentive plans (the "Transco Plans"), whether vested or
unvested, will become fully exercisable and vested, (ii) each Transco Stock
Option which is then outstanding will be cancelled and (iii) in consideration of
such cancellation, at the election of the option holder, which may be allocated
to either or both elections, (a) Transco will pay to such holders of Transco
Stock Options an amount in respect thereof equal to the product of (x) the
excess, if any, of $17.50 over the respective exercise price thereof and (y) the
number of Transco Common Shares subject thereto, respectively, or (b) Williams
will issue a Replacement Option. See "THE MERGER -- The Merger
Agreement -- Transco Benefit Plans."
A Termination Agreement between Transco and Mr. DesBarres is currently in
effect. This Agreement provides that if a "change in control" (as defined
therein and including the Offer) occurs and Mr. DesBarres' employment with
Transco terminates within five years after the change in control and prior to
his 65th birthday, Transco will pay him, as a termination payment, a lump sum
equal to his annual salary, estimated bonus amounts based upon a certain target
award percentage which must equal at least 50 percent of his base salary and the
value of certain benefits under Transco's benefit plans and programs which would
have accrued during a period of up to five years after the change in control,
subject to certain adjustments and offsets. Larry J. Dagley, Senior Vice
President and Chief Financial Officer, Stephen R. Springer, President and Chief
Operating Officer of Transco Gas Marketing Company, David E. Varner, Senior Vice
President, General Counsel and Secretary, and Jay W. Elston, Vice President and
Associate General Counsel, have also entered into Termination Agreements with
provisions similar to those described above for Mr. DesBarres, except that
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each shall be entitled to receive, upon termination within three years after a
change in control, a lump sum amount equal to the sum of annual base salary,
estimated bonus amounts and certain benefits under Transco's employee benefit
plans and programs which would have accrued during a period of up to three years
after the change in control. In addition, a Termination Agreement is also in
effect for Nicholas J. Neuhausel, Senior Vice President, Human Resources and
Administration. Mr. Neuhausel's Termination Agreement has the same provisions as
the Agreements of Messrs. Dagley, Elston, Springer and Varner, except that (i)
his cash severance will include salary and bonus for the period through the
third anniversary of the date of the termination of his employment by Transco
without "cause" or by him for "good reason" and (ii) his total payments under
the Termination Agreement will be limited to an amount such that no payments to
him will be "excess parachute payments" for tax purposes.
Mr. DesBarres has also entered into a Severance Agreement which provides
benefits similar to the Termination Agreement for the period from the date of
termination and ending September 1996, but is not conditioned upon the
occurrence of a change in control of Transco. The Severance Agreement terminates
in September 1996, unless extended by mutual agreement. Robert W. Best, Senior
Vice President -- Natural Gas, has entered into a Severance Agreement with
provisions similar to those described for Mr. DesBarres, except that the
Severance Agreement provides, upon termination of employment by Transco, for the
payment by Transco of a lump sum equal to Mr. Best's annual base salary,
estimated bonus amounts and the value of certain benefits under Transco's
employee benefit plans and programs which would have accrued during a period of
up to three years after termination. Messrs. Dagley, Elston, Neuhausel, Springer
and Varner have entered into Severance Agreements with provisions similar to
those described above for Mr. Best, except that the Agreements provide for the
payment by Transco of benefits which would have accrued during a one-year period
after termination and the payment of the annual base salary amount is to be paid
in semi-monthly installments for twelve months and certain benefits for tax,
financial and outplacement counseling.
Transco, Williams and each of Messrs. DesBarres, Dagley, Elston, Neuhausel,
Springer and Varner entered into agreements dated as of December 11, 1994
providing that such executives agree to eliminate their rights under their
Severance Agreements (including, inter alia, their right to extend vesting and
exercisability of stock options for three years and to accelerate full vesting
of restricted stock units) upon any termination of their employment following a
change of control in which they receive benefits under their Termination
Agreements except that, (i) in the case of Messrs. DesBarres, Dagley, Elston,
Springer and Varner, to the extent they would receive less than one year's
salary as severance under their respective Termination Agreement, they will
continue to receive the balance of one year as severance under their Severance
Agreement, and (ii) in the case of Messrs. Dagley, Elston, Neuhausel, Springer
and Varner, they will continue to receive certain tax, financial counseling and
outplacement benefits provided under their Severance Agreements.
On December 11, 1994, the Transco Board established the Senior Executive
Special Bonus and Retention Plan (the "Senior Executive Plan"), under which the
participants will receive bonuses as a result of the consummation of the Offer
and following the consummation of the Merger or another Extraordinary
Transaction (as defined in the Senior Executive Plan) involving Transco, if such
event occurs on or before December 31, 1995. The bonuses payable under the
Senior Executive Plan consist of (i) a cash bonus (the "Transaction Bonus") upon
the consummation of the Offer, and (ii) a retention Bonus (the "Retention
Bonus") in an amount equal to the Transaction Bonus, also payable in cash, on
the later of December 31, 1995 or the sixth month anniversary of the Merger Date
or another Extraordinary Transaction. An individual participant will be eligible
to receive the Retention Bonus only if (i) he is employed by Transco on the date
the Retention Bonus becomes payable, (ii) his employment is terminated by
Transco before the Extraordinary Transaction in anticipation of, or at the
request of a party intending to consummate, the Extraordinary Transaction, or
(iii) his employment is terminated before the Retention Bonus becomes payable by
the participant for "good reason" or by Transco without "cause" (as defined in
the participant's Termination Agreement with Transco). The participants in the
program, and the aggregate amount of the combined Transaction Bonus and
Retention Bonus that each of them is eligible to receive under the Senior
Executive Plan are Messrs. DesBarres ($2,062,500), Best ($1,375,000), Dagley
($1,375,000) and Varner ($687,500). Pursuant to such participants' Termination
Agreements, (or in the case of Mr. Best, his Severance
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Agreement), Transco indemnifies the participants against golden parachute excise
taxes payable by them, which would include any such excise taxes payable on
bonuses under the Senior Executive Plan.
In addition, on December 11, 1994, the Transco Board adopted the Selected
Employee Retention Plan (the "Retention Plan"), under which participants would
receive a bonus, with a maximum aggregate amount for all participants of
$600,000, upon the earlier of (i) the 90th day following the Merger Date or
other change of control of Transco, or (ii) the date the participant's
employment is actually or constructively terminated by the successor company in
the change of control. The participants in the Retention Plan are those officers
and employees of Transco and its subsidiaries (other than participants in the
Senior Executive Plan) who have been designated by the Chief Executive Officer
of Transco as part of the change of control transition team, who are considered
key employees during the transition period.
The Transco Board also approved an amendment to the Key Management Employee
Severance Pay Plan, which provides for one year's severance pay to certain
officers of Transco and its subsidiaries who are not parties to Termination
Agreements or severance agreements with Transco. The Amendment provides that the
plan shall remain in effect until December 31, 1995, unless (i) extended beyond
such date with the approval of the Transco Board or (ii) a change of control
(including the consummation of the Offer) shall occur prior to such date in
which case the plan, as amended, shall remain in effect for a period of one year
following the date of the change in control.
As a result of the consummation of the Offer, all unvested restricted stock
and restricted stock units held by 15 officers of Transco and its subsidiaries
under the Transco Benefit Plans either vested, in cases where there were no
performance goals or where certain performance goals were met, or lapsed, in
cases where required performance goals were not met. Of such shares, 192,565
shares of restricted stock or restricted stock units vested and will be
cancelled in exchange for cash in an aggregate amount of $3,369,887 and 23,510
shares of restricted stock or restricted stock units lapsed.
On January 25, 1995, pursuant to the Merger Agreement, Williams designated
two directors to the Transco Board. In such connection, Williams has agreed that
(i) its designees will abstain from any action taken by Transco to amend or
terminate the Merger Agreement or waive any action by Williams, which actions
will be effective with the approval of a majority of the remaining directors,
and (ii) it will not effect any other changes to the Transco Board prior to the
Merger Date.
For further information in connection with the foregoing actual or
potential conflicts of interest and certain relationships and related
transactions, see "THE MERGER -- Background of the Merger," "-- The Merger
Agreement -- Indemnification and Directors' and Officers' Insurance," and
"-- The Merger Agreement -- Transco Benefit Plans."
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement
which are of continuing applicability and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached hereto as Annex A
and is incorporated herein by reference.
General. The Merger Agreement provides that, upon the terms and subject to
the conditions thereof, at the Merger Date, Sub will be merged with and into
Transco in accordance with Delaware Law. As a result of the Merger, the separate
corporate existence of Sub will cease and Transco will continue as the Surviving
Corporation. At the Merger Date of the Merger, each issued and then outstanding
Transco Common Share (other than Retired Transco Common Shares) will be
converted into the right to receive 0.625 Williams Common Shares together with
0.3125 attached Williams Rights. No fractional Williams Common Shares will be
issued in the Merger. In lieu of fractional shares, a cash adjustment will be
paid to such holder in an amount equal to the product of (i) the fraction of a
Williams Common Share to which such holder would have otherwise been entitled
(taking into account all Transco Common Shares then held of record by such
holder) and (ii) $28.00 (i.e., the $17.50 per Transco Common Share paid in the
Offer divided by the 0.625 exchange ratio in the Merger). In addition, also at
the Merger Date, each issued and outstanding share of Transco $3.50 Preferred
Stock (other than shares that are owned by Transco as treasury stock, or owned
by
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Williams or any wholly-owned subsidiary of Williams, all of which will be
cancelled in the Merger, and holders of Transco $3.50 Preferred Stock who demand
and perfect appraisal rights) will be converted into the right to receive one
share of Williams $3.50 Preferred Stock. The Retired Transco Common Shares will
be cancelled in the Merger. Any issued and outstanding shares of Transco New
Preferred Stock will, if issued, continue to be outstanding as preferred stock
of Transco immediately after the Merger Date. Williams has agreed to use its
reasonable best efforts to list the Williams Common Shares (and attached
Williams Rights) to be issued in the Merger on the NYSE.
The Merger Agreement requires Transco, through the Transco Board, to
recommend to its shareholders approval of the Merger Agreement, the Merger and
related matters; provided, however, that nothing contained in the Merger
Agreement will require the Transco Board to take any action or refrain from
taking any action which the Transco Board determines in good faith with the
advice of counsel could reasonably be expected to result in a breach of its
fiduciary duties under applicable law. Williams has agreed to cause all Transco
Common Shares acquired by it pursuant to the Offer or the Stock Option Agreement
to be represented at the Transco Special Meeting and to be voted in favor of
approval and adoption of the Merger Agreement and the Merger. As a result of the
Offer, Williams now owns a sufficient number of Transco Common Shares to approve
and adopt the Merger Agreement and the Merger without the vote of any other
shareholder.
The Merger Agreement provides that Transco and Williams will each use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, in each case consistent with the fiduciary duties of their
respective Boards of Directors as advised by counsel, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Merger Agreement and the Stock
Option Agreement.
Transco Board Representation by Williams Following the Offer. Transco
agreed in the Merger Agreement that, effective upon payment by Williams for the
Transco Common Shares accepted for payment pursuant to the Offer, Williams would
be entitled to designate two directors to the Transco Board. Williams has agreed
that (i) its designees will abstain from any action taken by Transco to amend or
terminate the Merger Agreement or waive any action by Williams, and (ii) it
would not effect any other changes to Transco Board prior to the Merger Date.
Pursuant to the Merger Agreement, Mr. Bailey and John C. Bumgarner, Jr.,
Williams' Senior Vice President -- Corporate Development and Planning, were
appointed as directors on the Transco Board on January 25, 1995.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by Transco and Williams as to the absence of certain changes or
events concerning their respective businesses, compliance with law, litigation
and other matters.
Certain Restrictions on Business Pending the Merger. Transco has agreed
that prior to the Merger Date, unless otherwise consented to in writing by
Williams, Transco will, and will cause each of its subsidiaries to, conduct its
operations only in the ordinary and usual course of business consistent with
past practice and will use all reasonable efforts, and will cause each of its
subsidiaries to use all reasonable efforts, to preserve intact its present
business organization, keep available the services of its present officers and
employees and preserve its relationships with licensors, licensees, customers,
suppliers, employees and any others having business dealings with it, in each
case in all material respects. Williams has also agreed to certain customary
limitations on its actions pending prior to the Merger Date.
Indemnification and Directors' and Officers' Insurance. Williams and
Transco have agreed in the Merger Agreement that the Certificate of
Incorporation of the Surviving Corporation or any successor by merger will
contain the provisions with respect to indemnification which are set forth in
the form of the Third Restated Certificate of Incorporation of Transco included
as an exhibit to the Merger Agreement, which provisions will not be amended,
repealed or otherwise modified for a period of six years after the Merger Date
provided that, in the event any claim is asserted or made within such six-year
period, all rights to indemnification in respect of any such claim will continue
until disposition of any and all such claims. The Merger Agreement further
provides that, for a period of not less than six years after the Merger Date,
Williams will, or will cause the Surviving Corporation to, provide, directors'
and officers' liability insurance
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having substantially the same terms and conditions and providing at least the
same coverage and amounts as the directors' and officers' liability insurance
that is maintained by Transco at the Merger Date for all directors and officers
of Transco and its subsidiaries who served as such at, or within one year prior
to, the Merger Date. However, Williams will not be required to pay an annual
premium for such insurance in excess of the last annual premium paid by Transco
prior to December 12, 1994 (but in such case will purchase as much coverage as
possible for such amount).
Transco Benefit Plans. The Merger Agreement provides that, except as
otherwise agreed with individual option holders, at the Merger Date, (i) each
then outstanding option to purchase Transco Common Shares (a "Transco Stock
Option") under Transco's stock incentive plans (the "Transco Plans"), whether
vested or unvested, will become fully exercisable and vested, (ii) each Transco
Stock Option which is then outstanding will be cancelled and (iii) in
consideration of such cancellation, at the election of the option holder, which
may be allocated to either or both elections, (a) Transco will pay to such
holders of Transco Stock Options an amount in respect thereof equal to the
product of (x) the excess, if any, of $17.50 over the respective exercise price
thereof and (y) the number of Transco Common Shares subject thereto,
respectively, or (b) Williams will issue an option as described below (a
"Replacement Option").
The Replacement Option with respect to each Transco Stock Option, the
exercise price for which exceeds $35 per Transco Common Share, will be an option
to acquire, on the same terms and conditions as were applicable under such
Transco Stock Option (except that it will be subject to a vesting period ending
on the first anniversary of the Merger Date), (i) an amount in cash equal to the
product of $10.50 times the number of Transco Common Shares purchasable under
such Transco Stock Option immediately prior to the Merger Date and (ii) the
number of Williams Common Shares equal to the product of .25 and the number of
Transco Common Shares purchasable under such Transco Stock Option immediately
prior to the Merger Date. Williams will cause such options to continue to vest
and to remain exercisable following the termination of the option holder's
employment with Williams and its affiliates in accordance with its past practice
relative to Williams' current employees; provided, that with respect to any
employee of Transco or its subsidiaries at the Merger Date (a "Current
Employee") whose employment with Williams or its affiliates is terminated other
than voluntarily by the employee or involuntarily for cause or as a result of
retirement, Williams will cause such options to continue to vest until the
earlier of (i) six months following such termination and (ii) the end of the
term of such option, as in effect immediately before such termination. All of
the foregoing payments and issuances of shares in connection with such
cancellations will be made either net of applicable withholding taxes or upon
payment of required withholding taxes by the option holders.
The Replacement Option with respect to each Transco Stock Option, the
exercise price for which is less than or equal to $35 per Transco Common Share,
will be an option to acquire, on the same terms and conditions as were
applicable under such Transco Stock Option, the same number of shares of
Williams Common Shares as the holder of such Transco Stock Option would have
been entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Merger Date (not taking into account
whether or not such option was in fact exercisable), at a price per share equal
to (i) the aggregate exercise price for the Transco Common Shares deemed
otherwise purchasable pursuant to such Transco Stock Option divided by (ii) the
number of full shares of Williams Common Shares deemed purchasable pursuant to
such Transco Stock Option. All of the foregoing payments and issuances of shares
in connection with such cancellations will be made either net of applicable
withholding taxes or upon payment of required withholding taxes by the
optionholders.
The Merger Agreement provides that the Transco Plans will generally
terminate as of the Merger Date and the provisions in any other plan, program or
arrangement, providing for the issuance or grant of any other interest in
respect of the capital stock of Transco or any of its subsidiaries will be
deleted as of the Merger Date. The Merger Agreement also provides that Transco's
other employee benefit plans, programs and policies other than salary
(collectively, the "Employee Benefit Plans") in effect at the date of the Merger
Agreement will, to the extent practicable, remain in effect until otherwise
determined after the Merger Date and, to the extent such Employee Benefit Plans
are not continued, Williams will maintain Employee Benefit Plans with respect to
employees of Transco and its subsidiaries which are no less favorable, in the
aggregate, than the least favorable of: (i) those Employee Benefit Plans
covering employees of Williams from time to time;
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(ii) those Employee Benefit Plans of Transco and its Subsidiaries that are in
effect on December 12, 1994 other than the Trans$tock Plan; or (iii) Employee
Benefit Plans that are reasonably competitive with respect to the industry in
which the employer of the affected employees competes; provided, that in any
event, until the first anniversary of the Merger Date, the Surviving Corporation
will provide Current Employees with Employee Benefit Plans, other than a
nonqualified, unfunded plan maintained primarily to provide deferred
compensation benefits to a select group of "management or highly compensated
employees" within the meaning of Sections 201, 301, and 401 of the Employee
Retirement Income Security Act of 1974, that are no less favorable in the
aggregate than those provided to Current Employees by Transco and for its
subsidiaries immediately before the Merger Date. In the case of benefit plans
which are continued and under which the employees' interests are based upon
Transco Common Shares, such interests will be based on Williams Common Shares in
an equitable manner.
In the Merger Agreement, Williams has agreed to cause the Surviving
Corporation to (i) honor (a) in accordance with their terms all individual
employment, severance, termination and indemnification agreements which by their
express terms may not be unilaterally amended by Transco or any of its
subsidiaries and (b) without modification all other specified employee severance
plans, policies, employment and severance agreements and indemnification
arrangements of Transco or any of its subsidiaries as such plans, policies, or
agreements were in effect on the date of the Merger Agreement through the later
of (x) December 31, 1995, (y) the termination date specified in such document or
(z) the date agreed to by Williams and Transco, (ii) waive any limitations
regarding pre-existing conditions of Current Employees and their eligible
dependents under any welfare or other employee benefit plans of Williams and its
affiliates in which they participate after the Merger Date (except to the extent
that such limitations would have applied under the analogous plan of Transco and
its subsidiaries immediately before the Merger Date), (iii) for all purposes
under the post-retirement welfare benefit plans and policies of Williams and its
affiliates, treat Current Employees in the same manner as similarly situated
employees of Williams who were hired by Williams before January 1, 1992 in
accordance with the terms of such plans and policies as then in effect, as any
such plans and policies are modified by Williams or such affiliates from time to
time, and (iv) for all other purposes under all Employee Benefit Plans
applicable to employees of Transco and its subsidiaries, treat all service with
Transco or any of its subsidiaries by Current Employees before the Merger Date
as service with Williams and its subsidiaries, except to the extent such
treatment would result in duplication of benefits or would violate applicable
law.
The Merger Agreement also provides that, except as otherwise agreed with
individual restricted shareholders, at the Merger Date, each Transco Common
Share which immediately prior to the Merger Date was subject to restrictions on
transfer, whether vested or unvested, will become fully vested, provided certain
performance requirements are otherwise met, and will be exchanged for a cash
payment in cancellation thereof equal to $17.50 per share.
With respect to all restricted stock and restricted stock units granted
under Transco's 1983 Incentive Plan or Transco's 1991 Stock Incentive Plan that
were not vested immediately before the consummation of the Offer, the
Performance Period (as defined in such Plans) was deemed to have ended as of the
day (the "Determination Date") immediately preceding the date of the
consummation of the Offer, and the number of shares of restricted stock that
vested (the "Vested Restricted Stock"), and the number of Transco Common Shares
that were issued in payment of restricted stock units (the "Vested RSUs"), was
computed based on Transco's total shareholder return through the Determination
Date, with the value of the Transco Common Shares being deemed to be $17.50 per
share and the Performance Criteria (as defined in such Plans) being those that
were in effect on the Determination Date. Shortly after the consummation of the
Offer, each employee (or beneficiary thereof) holding Vested Restricted Stock
and/or Vested RSUs was paid a cash payment in cancellation thereof equal to
$17.50 per share of Vested Restricted Stock and $17.50 per Transco Common Share
issuable pursuant to Vested RSUs.
Other Matters. In the Merger Agreement, Transco has agreed to declare a
dividend on each share of Transco $3.50 Preferred Stock to holders of record of
such shares as of the close of the business day next preceding the Merger Date
in an amount equal to the product of (i) a fraction, (x) the numerator of which
equals the number of days between the payment date with respect to the most
recent regular dividend paid by
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Transco and the Merger Date and (y) the denominator of which equals 91 and (ii)
the amount of the regular quarterly dividend paid by Transco on the Transco
$3.50 Preferred Stock.
Conditions to the Merger. The obligations of Williams and Transco to
consummate the Merger are subject to the satisfaction or, where legally
permissible, waiver of various conditions, including that (i) the Merger
Agreement (insofar as it relates to the Merger) and the Merger have been
approved and adopted by the affirmative vote of holders of Transco Common Shares
entitled to cast at least a majority of the total number of votes entitled to be
cast by holders of Transco Common Shares; (ii) the Registration Statement has
become effective under the Securities Act and is not the subject of any stop
order or proceeding seeking a stop order and Williams has received all material
state securities or blue sky permits and other authorizations necessary to issue
the Williams Common Shares (and attached Williams Rights) and the Williams $3.50
Preferred Stock pursuant to the Merger Agreement; (iii) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger is in effect (each party agreeing to use all
reasonable efforts to have any such order reversed or injunction lifted); (iv)
Williams Common Shares (and the attached Williams Rights) to be issued in the
Merger have been approved for listing on the NYSE, subject to official notice of
issuance; and (v) no action, suit or proceeding by any governmental entity
before any court or governmental or regulatory authority is pending against
Transco, Williams or Sub or any of their subsidiaries challenging the validity
or legality of the transactions contemplated by the Merger Agreement other than
actions, suits or proceedings as to which the Williams had actual knowledge at
the time of acceptance for payment of Transco Common Shares pursuant to the
Offer or which, in the reasonable opinion of counsel to the party asserting such
condition, do not have a substantial likelihood of resulting in a material
adverse judgment.
The obligations of Williams and Sub to effect the Merger and the
transactions contemplated by the Merger Agreement are further subject to Transco
not having failed to perform its material obligations required to be performed
by it under the provisions of the Merger Agreement relating to restrictions on
business pending the Merger at or prior to the Merger Date, other than any such
failures to perform as to which Williams had actual knowledge at the time of
acceptance for payment of Transco Common Shares pursuant to the Offer. The
obligation of Transco to effect the Merger is subject to Williams and Sub not
having failed to perform their material obligations required to be performed by
them under the provisions of the Merger Agreement relating to restrictions on
their businesses pending the Merger at or prior to the Merger Date, other than
such failures to perform as to which Transco had actual knowledge at the time of
acceptance of payment for Transco Common Shares pursuant to the Offer.
Termination; Fees and Expenses. The Merger Agreement may be terminated at
any time prior to the Merger Date, whether before or after approval of the
Merger Agreement and the Merger by the shareholders (i) by mutual consent of
Williams and Transco by action of their respective Boards of Directors (with any
members of the Transco Board who may be designated by Williams abstaining); (ii)
by either Williams or Transco if the Merger is not consummated before June 30,
1995 despite the good faith effort of such party to effect such consummation
(unless solely by reason of the conditions relating to the absence of certain
injunctions, restraining orders or litigation (in which case such date will be
September 30, 1995) or the failure to so consummate the Merger by such date is
due to the action or failure to act of the party seeking to terminate the Merger
Agreement, which action or failure to act constitutes a breach of the Merger
Agreement); or (iii) by either Williams or Transco if any court of competent
jurisdiction has issued an injunction permanently restraining, enjoining or
otherwise prohibiting the consummation of the Merger, which injunction has
become final and non-appealable.
In the event of termination of the Merger Agreement by either Williams or
Transco, the Merger Agreement will become void and there will be no liability or
obligation on the part of Williams, Sub or Transco or their respective officers
or directors other than under certain provisions of the Merger Agreement
relating to confidential treatment of non-public information and the payment of
fees and expenses, except to the extent such termination results from the
willful breach by a party of its covenants and agreements in the Merger
Agreement. Under the Merger Agreement, all costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred by Williams and Transco will be
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borne solely and entirely by the party which has incurred such costs and
expenses, other than as described above with respect to reimbursement by Transco
of expenses of Williams under certain circumstances.
Amendment and Waiver. Subject to applicable law, the Merger Agreement may
be amended by action taken by or on behalf of the respective Boards of Directors
of Williams or Transco at any time prior to the Merger Date. After approval of
the Merger by the shareholders, no amendment which under applicable law may not
be made without the approval of the shareholders, may be made without such
approval. At any time prior to the Merger Date, either Transco or Williams may
(i) extend the time for the performance of any of the obligations or other acts
of the other party, (ii) waive any inaccuracies in the representation and
warranties of the other party contained in the Merger Agreement or in any
document delivered pursuant thereto and (iii) waive compliance by the other
party with any of the agreements or conditions contained therein, provided, that
any representatives of Williams on the Transco Board will abstain from any such
action to be taken by Transco.
THE STOCK OPTION AGREEMENT
The following is a summary of certain provisions of the Stock Option
Agreement.
The Option. Pursuant to the Stock Option Agreement, Transco granted to
Williams the option (the "Option") to purchase, upon the terms and subject to
the conditions provided for therein, up to 7,500,000 Transco Common Shares (the
"Option Shares") at an exercise price of $17.50 per share (the "Option Purchase
Price"). If not sooner exercised, the Option will expire fifteen business days
following the termination of the Merger Agreement.
Exercise of the Option. Williams may exercise the Option, in whole or in
part, at any time and from time to time following the occurrence of certain
"Triggering Events" which are described in the Stock Option Agreement. No
Triggering Event has occurred as of the date of this Prospectus and Information
Statement, nor is it expected that any such Triggering Event will occur in the
future.
In the event that Williams acquires any Option Shares and within one year
following the date of purchase disposes of such shares (other than to a
wholly-owned subsidiary of Williams) through a sale, exchange, transfer, merger
or otherwise, for an amount per share which exceeds the Option Purchase Price by
more than $2.00 (the "Option Cap"), Williams will promptly return to Transco the
amount of such excess and thereby effect an upward adjustment to the Option
Purchase Price. Williams will not sell or otherwise dispose of Option Shares
except in compliance with the Securities Act and any applicable state securities
law.
Cancellation Rights. At any time the Option is exercisable, Williams will
have the right, upon prior written notice (a "Williams Cash-out Notice") to
Transco specifying the date of the closing (the "Cancellation Closing") thereof
(which date will not be earlier than ten business days nor later than twenty
business days after the receipt by Transco of such Williams Cash-out Notice), to
cause Transco to pay to Williams, in consideration for the cancellation of all
or that part of the Option to be cancelled, an aggregate cash cancellation price
(the "Cancellation Price") equal to the product of (i) the number of Transco
Common Shares as to which the Option is to be cancelled, multiplied by (ii) the
excess (but in no event more than the Option Cap) of (x) the Applicable Price
(as defined below) over (y) the Option Purchase Price.
At any time after Transco receives an exercise notice pursuant to the Stock
Option Agreement, Transco will have the right, upon prior written notice (a
Transco Cash-out Notice" and, together with any Williams Cash-out Notice, a
"Cash-out Notice") to Williams not later than two business days prior to the
applicable closing, specifying the date of the Cancellation Closing thereof
(which will not be earlier than five business days nor later than fifteen
business days after the receipt by Williams of the applicable Transco Cash-out
Notice), to pay to Williams in consideration for the cancellation of all or that
part of the Option subject to such exercise notice, in lieu of delivering Option
Shares, the Cancellation Price with respect to the Option Shares subject to such
exercise notice.
The "Applicable Price" will mean the average of the high and low sales
price (but in no event less than $17.50) of the Transco Common Shares as quoted
on the NYSE, or if not so quoted on the NYSE then the average of the high and
low sales prices on the principal national securities exchange on which the
Transco
21
<PAGE> 42
Common Shares are then listed, and if not so listed on any national securities
exchange, then the average of the high and low bid prices per Transco Common
Share as quoted on the NASDAQ, on the day prior to the date of the applicable
Williams Cash-out Notice or the applicable exercise notice, as the case may be
(the "Measurement Date"); provided, however, that if any person has entered into
an agreement with Transco for certain acquisition transactions or such a
transaction has otherwise been proposed, prior to the delivery of the applicable
Cash-out Notice, the Applicable Price shall mean the average consideration
proposed to be payable per outstanding Transco Common Share pursuant to such
acquisition transaction (or, if there is more than one such acquisition
transaction, pursuant to the acquisition transaction which yields the greater
average consideration) valued as of the Measurement Date (with any
non-marketable securities included in such consideration being valued at the
fair market value per share of such securities with such fair market value to be
determined in good faith by an independent investment banking firm selected by
Transco and Williams.
STOCK EXCHANGE LISTINGS
Williams intends to apply for listing of the Williams Common Shares to be
issued in the Merger on the NYSE and the PSE. Williams does not intend to apply
for a listing of the Williams $3.50 Preferred Stock on the NYSE or any other
national stock exchange.
CERTAIN EFFECTS OF THE MERGER
On the Merger Date, holders of Transco Common Shares (other than Retired
Transco Common Shares) will be entitled to receive the Merger Consideration and
holders of Transco $3.50 Preferred Stock (other than shares that are owned by
Transco as treasury stock, or owned by Williams or any wholly-owned subsidiary
of Williams, all of which will be cancelled in the Merger, and by holders of
Transco $3.50 Preferred Stock who demand and perfect appraisal rights) will be
entitled to receive shares of Williams $3.50 Preferred Stock. Thereafter, such
shareholders will cease to have any direct equity interest in Transco and will
continue their equity participation in Transco only indirectly through the
ownership of Williams Common Shares and Williams $3.50 Preferred Stock, as the
case may be. As a result of the termination of their direct equity interest,
such shareholders will not have the opportunity to share in any future earnings
or growth of Transco except indirectly through the earnings or growth of
Williams.
Following the Merger, the Transco $3.50 Preferred Stock will be delisted
from the NYSE and the Transco Common Shares will be delisted from the NYSE and
the PSE and will no longer trade publicly. Transco believes that such shares
will continue to be listed and traded on such exchanges until such dates.
Registration of either class of such shares under the Exchange Act may be
terminated upon application of Transco to the Commission if the shares of such
class are not listed on a national securities exchange and there are fewer than
300 record holders of the shares of such class. The Transco $3.50 Preferred
Stock and the Transco Common Shares will be deregistered under the Exchange Act
after the Merger.
Transco will be subject to the reporting requirements under the Exchange
Act as long as it has a registration statement outstanding under the Securities
Act or any securities that have been registered under the Securities Act are
held of record by at least 300 persons. Williams is subject to such reporting
requirements and will remain so as long as it has securities, such as the
Williams Common Shares, registered under the Exchange Act or held of record by
at least 300 persons.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In General. The exchanges of Transco Common Shares for Williams Common
Shares and Transco $3.50 Preferred Stock for Williams $3.50 Preferred Stock
pursuant to the Merger will be taxable to the holders of Transco Common Shares
and Transco $3.50 Preferred Stock for federal income tax purposes and may also
be taxable under applicable state, local and other tax laws. For federal income
tax purposes, (i) a holder of Transco Common Shares who receives Williams Common
Shares or cash in lieu of fractional Williams Common Shares as a result of the
Merger will recognize gain or loss equal to the difference between the tax basis
of the Transco Common Shares exchanged and the sum of the amount of cash and the
fair
22
<PAGE> 43
market value of the Williams Common Shares received therefor and (ii) a holder
of Transco $3.50 Preferred Stock who receives Williams $3.50 Preferred Stock as
a result of the Merger will recognize gain or loss equal to the difference
between the tax basis of the Transco $3.50 Preferred Stock exchanged and the
fair market value of Williams $3.50 Preferred Stock received. In each case, such
gain or loss will be capital gain or loss if the Transco shares exchanged are
held as capital assets by the shareholder. The gain or loss will be long-term
capital gain or loss if, on the Merger Date, the holder thereof has held the
Transco Common Shares or Transco $3.50 Preferred Stock, as the case may be, for
more than one year. For federal income tax purposes a shareholder's tax basis in
the Williams Common Shares and Williams $3.50 Preferred Stock received pursuant
to the Merger will be the fair market value of such Williams Common Shares and
Williams $3.50 Preferred Stock, respectively, on the Merger Date.
Distributions paid on the Williams Common Shares or Williams $3.50
Preferred Stock will be taxable to a shareholder as ordinary dividend income to
the extent of such shareholder's allocable share of Williams' current or
accumulated earnings and profits (as determined for federal income tax
purposes).
Generally no gain or loss will be recognized by a shareholder upon the
conversion of the shareholder's Williams $3.50 Preferred Stock into Williams
Common Shares (although gain or loss may be recognized to the extent such
shareholder receives cash in lieu of fractional shares of Williams Common
Shares, if any, and ordinary dividend income may be recognized to the extent
that a portion of the Williams Common Shares received is determined to
constitute a distribution with respect to the Williams $3.50 Preferred Stock for
dividends that Williams is obligated to pay). A shareholder who converts
Williams $3.50 Preferred Stock into Williams Common Shares will have an
aggregate tax basis in such Williams Common Shares equal to the shareholder's
aggregate tax basis in such converted shares, and the shareholder's holding
period for such Williams Common Shares will include the holding period for such
converted shares (provided such converted shares were held as a capital asset).
However, the portion (if any) of Williams Common Shares received by a
shareholder that is determined to constitute a distribution with respect to the
Williams $3.50 Preferred Stock will have a tax basis equal to its fair market
value at the time of conversion and a new holding period in the hands of the
shareholder commencing at such time.
The federal income tax discussion set forth above is included for general
information only and may not be applicable to certain shareholders in special
situations, such as shareholders who received their Transco Common Shares or
Transco $3.50 Preferred Stock upon the exercise of employee stock options or
otherwise as compensation and shareholders who are not United States persons.
Shareholders should consult their own tax advisors with respect to the specific
tax consequences to them of the Merger, including the application and effect of
state, local, foreign or other tax laws.
Real Estate Transfer Taxes. The New York State Real Property Transfer
Gains Tax, the New York State Real Estate Transfer Tax and the New York City
Real Property Transfer Tax (collectively, the "Real Estate Transfer Taxes") are
imposed on the transfer or acquisition, directly or indirectly, of controlling
interests in an entity which owns interests in real property located in New York
State or New York City, as the case may be. The Merger may result in the taxable
transfer of controlling interests in entities which own New York State or New
York City real property for purposes of the Real Estate Transfer Taxes. Although
any Real Estate Transfer Taxes could be imposed directly on the shareholders,
Williams and Transco will complete and file any necessary tax returns, and
Williams will pay all Real Estate Transfer Taxes that are imposed as a result of
the Merger. Upon receipt of the Merger Consideration, each Transco shareholder
will be deemed to have agreed to be bound by the Real Estate Transfer Tax
returns filed by Williams and Transco.
REGULATORY APPROVALS
Antitrust Matters. The HSR Act and the regulations thereunder require that
certain acquisition transactions not be consummated until certain information
has been furnished to the Antitrust Division of the United States Department of
Justice (the "Antitrust Division") and the Federal Trade Commission ("FTC") and
certain waiting period requirements have been satisfied. Pursuant to the HSR
Act, on December 19, 1994, Williams and Transco each filed Notification and
Report Forms with the Antitrust Division and the FTC for review in connection
with the Merger. At 11:59 P.M., New York City time, on January 3, 1995, the
waiting
23
<PAGE> 44
period required under the HSR Act expired without a request for an extension of
such waiting period having been received by either Williams or Transco from
either the Antitrust Division or the FTC.
Other Governmental Approvals. Williams and Transco are aware of no other
material regulatory requirements or approvals which have not been complied with
or obtained or which are not expected to be complied with or obtained prior to
consummation of the Merger.
APPRAISAL RIGHTS
Holders of Transco Common Shares will not be entitled to appraisal rights
in connection with the Merger.
In the event the Merger is consummated, record holders of Transco $3.50
Preferred Stock will be entitled to appraisal rights under Section 262 of the
DGCL because such persons hold stock of a constituent corporation in the Merger
and such holders are required by the terms of the Merger Agreement to accept for
such stock consideration other than shares of the Surviving Corporation or
shares of any other corporation either listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. and/or cash in
lieu of fractional shares. Holders of Transco $3.50 Preferred Stock will have
the right to obtain a cash payment for the "fair value" of their shares
(excluding any element of value arising from the accomplishment or expectation
of the Merger). Such "fair value" would be determined in judicial proceedings,
the result of which cannot be predicted. In order to exercise appraisal rights,
dissenting shareholders must comply with the procedural requirements of Section
262 of the DGCL, a description of which is provided immediately below and the
full text of which is attached to this Prospectus and Information Statement as
Annex C and is incorporated herein by reference. Failure to take any of the
steps required under Section 262 of the DGCL on a timely basis may result in the
loss of appraisal rights. Except as set forth above, shareholders of Transco
will have no appraisal rights in connection with Merger.
The appraisal rights described below are available to holders of record of
Transco $3.50 Preferred Stock. A person having a beneficial interest in shares
of Transco $3.50 Preferred Stock held of record in the name of another person,
such as a broker or nominee, must act promptly to cause the record holder to
follow the steps summarized below properly and in a timely manner to perfect
whatever appraisal rights the beneficial owner may have.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS ANNEX C TO THIS
PROSPECTUS AND INFORMATION STATEMENT. ALL REFERENCES IN SECTION 262 AND IN THIS
SUMMARY TO A "SHAREHOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF TRANSCO
$3.50 PREFERRED STOCK AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
Under the DGCL, holders of shares of Transco $3.50 Preferred Stock who
follow the procedures set forth in Section 262 will be entitled to have their
shares of Transco $3.50 Preferred Stock appraised by the Delaware Court of
Chancery and to receive payment of the "fair value" of such shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, as determined by such court.
Under Section 262, a corporation, not less than 20 days prior to the
meeting at which a proposed merger is to be voted on, must notify each of its
shareholders entitled to appraisal rights as of the record date of the meeting
that such appraisal rights are available and include in such notice a copy of
Section 262. This Prospectus and Information Statement shall constitute such
notice to the holders of shares of Transco $3.50 Preferred Stock and a copy of
Section 262 is attached to this Prospectus and Information Statement as Annex C.
Any shareholder who wishes to exercise such appraisal rights or who wishes to
preserve his right to do so, should review the following discussion and Annex C
carefully because failure to comply timely and properly with the procedures
specified will result in the loss of appraisal rights under the DGCL.
A holder of shares of Transco $3.50 Preferred Stock wishing to exercise his
appraisal rights must deliver to Transco, as the Surviving Corporation in the
Merger, prior to April , 1995 (being 20 days after the date of
24
<PAGE> 45
the mailing of this Prospectus and Information Statement), a written demand for
appraisal of his shares of Transco $3.50 Preferred Stock. In addition, a holder
of shares of Transco $3.50 Preferred Stock wishing to exercise his appraisal
rights must hold of record such shares on the date the written demand for
appraisal is made and must continue to hold such shares until the Merger Date.
Only a holder of record of shares of Transco $3.50 Preferred Stock is
entitled to assert appraisal rights for the shares of Transco $3.50 Preferred
Stock registered in that holder's name. A demand for appraisal should be
executed by or on behalf of the holder of record, fully and correctly, as his
name appears on his stock certificates. If the shares of Transco $3.50 Preferred
Stock are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity,
and if the shares of Transco $3.50 Preferred Stock are owned of record by more
than one person, as in a joint tenancy and tenancy in common, the demand should
be executed by or on behalf of all joint owners. An authorized agent, including
one or more joint owners, may execute a demand for appraisal on behalf of a
holder of record; however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, the agent is
agent for such owner or owners. A record holder, such as a broker, who holds
shares of Transco $3.50 Preferred Stock as nominee for several beneficial owners
may exercise appraisal rights with respect to the shares of Transco $3.50
Preferred Stock held for one or more beneficial owners while not exercising such
rights with respect to the shares of Transco $3.50 Preferred Stock held for
other beneficial owners; in such case, the written demand should set forth the
number of shares of Transco $3.50 Preferred Stock as to which appraisal is
sought and where no number of shares of Transco $3.50 Preferred Stock is
expressly mentioned the demand will be presumed to cover all shares of Transco
$3.50 Preferred Stock held in the name of the record owner. Shareholders who
hold their shares of Transco $3.50 Preferred Stock in brokerage accounts or
other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such a nominee. All written demands for
appraisal should be sent or delivered to Transco at 2800 Post Oak Boulevard,
P.O. Box 1396, Houston, Texas 77251-1396, Attention: Mr. David E. Varner, Senior
Vice President, General Counsel and Secretary.
Within 120 days after the Merger Date, but not thereafter, Transco or any
shareholder entitled to appraisal rights under Section 262 may file a petition
in the Delaware Court of Chancery demanding a determination of the "fair value"
of the shares of Transco $3.50 Preferred Stock held by any such shareholders.
Transco is under no obligation to and has no present intention to file a
petition with respect to the appraisal of the fair value of the shares of
Transco $3.50 Preferred Stock. Accordingly, it is the obligation of the holders
of the Transco $3.50 Preferred Stock to initiate all necessary action to perfect
their appraisal rights within the time prescribed in Section 262.
Within 120 days after the Merger Date, any holders of the Transco $3.50
Preferred Stock who have complied with the requirements for exercise of
appraisal rights will be entitled, upon written request, to receive from Transco
a statement setting forth the aggregate number of shares of Transco $3.50
Preferred Stock with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such statement must be
mailed to such holders of the Transco $3.50 Preferred Stock within ten days
after a written request therefor has been received by Transco or within ten days
after the expiration of the 20-day period for delivery of demands for appraisal
by holders of the Transco $3.50 Preferred Stock outlined above, whichever is
later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the shareholders
entitled to appraisal rights and will appraise the "fair value" of their shares
of Transco $3.50 Preferred Stock, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the "fair value."
Shareholders considering seeking appraisal should be aware that the "fair value"
of their shares of Transco $3.50 Preferred Stock as determined under Section 262
could be more than, the same as or less than the consideration they would
receive pursuant to the Merger Agreement if they did not seek appraisal of their
shares of Transco $3.50 Preferred Stock. The Delaware Supreme Court has stated
that "proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in the appraisal proceedings. In addition,
25
<PAGE> 46
Delaware courts have decided that the statutory appraisal remedy, depending on
factual circumstances, may or may not be a dissenter's exclusive remedy. The
costs of the action may be determined by the court and taxed upon the parties as
the court deems equitable. The court may also order that all or a portion of the
expenses incurred by any shareholder in connection with an appraisal, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the shares of Transco $3.50 Preferred Stock entitled to
appraisal.
Any holder of shares of Transco $3.50 Preferred Stock who has duly demanded
an appraisal in compliance with Section 262 will not, after the Merger Date, be
entitled to vote the shares of Transco $3.50 Preferred Stock subject to such
demand for any purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other distributions payable
to holders of record of shares of Transco $3.50 Preferred Stock as of a date on
or prior to the Merger Date).
If any shareholder who demands appraisal of his or its shares of Transco
$3.50 Preferred Stock under Section 262 fails to perfect, or effectively
withdraws or loses, his or its right to appraisal, as provided in the DGCL, the
shares of Transco $3.50 Preferred Stock of such shareholder will be converted
into the right to receive shares of Williams $3.50 Preferred Stock in accordance
with the Merger Agreement. A shareholder will fail to perfect, or effectively
lose or withdraw, his right to appraisal if no petition for appraisal is filed
within 120 days after the Merger Date, or if the shareholder delivers to Transco
a written withdrawal of his demand for appraisal and acceptance of the Merger,
except that any such attempt to withdraw made more than 60 days after the Merger
Date will require the written approval of Transco.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights (in which
event a holder of Transco $3.50 Preferred Stock will be entitled to receive one
share of Williams $3.50 Preferred Stock for each share of Transco $3.50
Preferred Stock held as of the Merger Date.)
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the "purchase" method of accounting
whereby the purchase price for Transco will be allocated to the identifiable
assets and liabilities of Transco and its subsidiaries based on their respective
fair values. See "UNAUDITED PRO FORMA FINANCIAL STATEMENTS."
FINANCING THE ACQUISITION
Set forth below are the sources and uses of funds for the Offer and the Merger:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS:
Proceeds of WNS Sale............................................ $ 2,500.0
==========
USES OF FUNDS:
Purchase of Transco Common Shares............................... $ 430.5
Estimated transaction costs and other(a)........................ 58.0
-------------
Total................................................. $ 488.5
==========
</TABLE>
- ---------------
(a) Includes fees payable to various lending institutions, investment banking,
legal, accounting and printing fees, severance costs and other fees and
expenses incurred or expected to be incurred in connection with the Offer
and the Merger.
26
<PAGE> 47
MARKET PRICES OF AND DIVIDENDS
ON WILLIAMS CAPITAL STOCK AND TRANSCO CAPITAL STOCK
The Williams Common Shares and the Transco Common Shares are each listed on
the NYSE and the PSE. The following table sets forth for the periods indicated
the high and low sales prices of the Williams Common Shares and the Transco
Common Shares on the NYSE Composite Tape and the amount of cash dividends paid
per share.
<TABLE>
<CAPTION>
WILLIAMS
COMMON SHARES TRANSCO COMMON SHARES
-------------------------- -------------------------
PRICE RANGE* CASH PRICE RANGE CASH
------------ DIVIDENDS ------------ DIVIDENDS
HIGH LOW PAID HIGH LOW PAID
---- --- --------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter............................ 24 3/16 17 15/16 0.19 17 13 0.15
Second Quarter........................... 27 9/16 23 3/8 0.19 16 7/8 13 7/8 0.15
Third Quarter............................ 31 7/8 26 1/4 0.19 17 7/8 15 3/4 0.15
Fourth Quarter........................... 31 13/16 24 3/8 0.21 18 13 7/8 0.15
1994
First Quarter............................ 27 3/8 22 1/2 0.21 16 7/8 14 1/8 0.15
Second Quarter........................... 30 5/8 22 1/8 0.21 16 1/2 14 0.15
Third Quarter............................ 33 3/8 28 0.21 16 1/4 14 1/2 0.15
Fourth Quarter........................... 30 1/2 23 1/4 0.21 16 7/8 11 3/4 0.15
1995
First Quarter (through March )......... 0.27 ** 0.20 ***
</TABLE>
- ---------------
* As adjusted for a two for one stock split and distribution effective
November 5, 1993.
** On January 22, 1995, the Williams Board approved an increase in the
quarterly dividend on the Williams Common Shares from $0.21 to $0.27 per
share. The first increased dividend was declared on the same date to holders
of record on March 3, 1995 and will be paid on March 27, 1995.
*** Includes $0.05 which was paid with respect to the redemption of the Transco
Rights and the regular quarterly dividend of $0.15 which was previously
declared and will be paid on March 1, 1995.
The following table sets forth the market prices per Williams Common Share
and Transco Common Share and the equivalent market price of the Merger
Consideration per Transco Common Share on December 9, 1994, the last trading day
prior to the public announcement of the Merger Agreement, and on March , 1995,
in each case based on the closing prices per share on such dates as reported on
the NYSE Composite Tape. Shareholders are urged to obtain current quotations for
the Williams Common Shares and the Transco Common Shares.
<TABLE>
<CAPTION>
WILLIAMS COMMON TRANSCO COMMON MERGER
SHARES SHARES CONSIDERATION
HISTORICAL HISTORICAL EQUIVALENT*
--------------- -------------- -------------
<S> <C> <C> <C>
December 9, 1994............................... $26.875 $ 12.625 $ 16.80
March , 1995.................................
</TABLE>
- ---------------
* Calculated based on the conversion ratio of 0.625 Williams Common Shares for
each Transco Common Share.
Since prior to the issuance of the Williams $3.50 Preferred Stock on the
Merger Date no shares of such stock will have been issued or outstanding,
historical data for such stock has not been included in this Prospectus and
Information Statement. Since the Transco $3.50 Preferred Stock is not publicly
traded, historical data for such stock also has not been included in this
Prospectus and Information Statement.
27
<PAGE> 48
HISTORICAL AND UNAUDITED PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the consolidated debt and stockholders' equity of
Williams and Transco at September 30, 1994 and the unaudited pro forma combined
debt and stockholders' equity as if the Acquisition, the WNS Sale and certain
elements of the Recapitalization had been consummated on that date. The table
should be read in conjunction with the historical and pro forma financial
information appearing elsewhere herein or incorporated by reference herein. See
"UNAUDITED PRO FORMA FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS, EXCEPT SHARES)
-------------------------------------------
PRO FORMA
----------------------
WILLIAMS TRANSCO ADJUSTMENTS COMBINED
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Short-term debt:
Notes payable................................... $ 135 $ $ (92)(6) $ 43
Long-term debt due within one year.............. 33 3 36
------ ------ ------ ------
$ 168 $ 3 $ (92) $ 79
====== ====== ====== ======
Long-term debt....................................... $1,544 $1,935 $ 114 (7) $3,232
(361)(7)
Preferred stock of subsidiary........................ 72 (72)(10)
Stockholders' equity:
Preferred stock................................. 100 265 (140)(11) 225
Common stock.................................... 104 21 (14)(12) 111
Capital in excess of par value.................. 990 519 (346)(12) 1,163
Retained earnings............................... 663 (112) 1,000 (1) 1,663
112 (12)
Unamortized deferred compensation............... (3) (16) 16 (12) (3)
------ ------ ------ ------
1,854 677 628 3,159
Less treasury stock............................. (106) (8) 114 (12)
------ ------ ------ ------
Total stockholders' equity...................... 1,748 669 742 3,159
------ ------ ------ ------
Total capitalization............................ $3,292 $2,676 $ 423 $6,391
====== ====== ====== ======
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
28
<PAGE> 49
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
WILLIAMS' UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Financial Statements of Williams
illustrate the effect of (i) Williams' acquisition of Transco pursuant to the
Acquisition, (ii) the WNS Sale and (iii) certain elements of the
Recapitalization as described in the next paragraph. The Unaudited Pro Forma
Combined Balance Sheet is prepared as of September 30, 1994 and illustrates the
effects of the Acquisition, the WNS Sale and the Recapitalization as if they had
occurred on that date. The Unaudited Pro Forma Combined Statements of Income are
prepared for the nine months ended September 30, 1994 and the year ended
December 31, 1993, and illustrate the effects of the Acquisition, the WNS Sale
and the Recapitalization as if they had occurred at the beginning of the
earliest period presented.
The Unaudited Pro Forma Combined Financial Statements reflect Williams
having acquired 60% of the outstanding Transco Common Shares pursuant to the
Offer and the assumption that the remaining outstanding Transco Common Shares
will be exchanged for 10.2 million Williams Common Shares pursuant to the
Merger. The Unaudited Pro Forma Combined Financial Statements also reflect
certain elements of the Recapitalization, including (i) the proposed cash
redemption by Transco of the Transco $4.75 Preferred Stock (such redemption
assumed to be financed by the purchase by Williams of the Transco New Preferred
Stock), (ii) the exchange, pursuant to the Merger, of the Transco $3.50
Preferred Stock into an equal number of shares of Williams $3.50 Preferred Stock
and (iii) the assumed cash extinguishment of certain Transco debt, including
100% of the Transco Notes pursuant to a proposed tender offer.
Williams' acquisition of Transco will be accounted for as a purchase. The
purchase price is approximately $1 billion, including fees related to the
Acquisition. The unaudited Pro Forma Combined Balance Sheet assumes the purchase
price is financed with $605 million of the $2.5 billion in proceeds Williams
received from the WNS Sale, the issuance of $286 million of Williams Common
Shares and the issuance of $125 million of Williams $3.50 Preferred Stock.
The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the historical financial statements of Williams and Transco,
which are incorporated by reference herein, and the Notes to the Unaudited Pro
Forma Combined Financial Statements. The pro forma adjustments are based on
preliminary information about Transco's assets, liabilities and results of
operations. Final purchase price allocations will be based on more complete
evaluations and may differ substantially from those shown below. However, the
management of Williams believes that the assumptions provide a reasonable basis
for presenting the significant effects of the Acquisition, the WNS Sale and the
Recapitalization and that the pro forma adjustments give appropriate effect to
those assumptions and are properly applied in the pro forma financial
information. The Unaudited Pro Forma Combined Financial Statements are not
intended to be indicative of actual operating results or financial position had
the transactions occurred as of the dates indicated above, nor do they purport
to indicate operating results or financial position which may be attained in the
future.
The Unaudited Pro Forma Combined Financial Statements do not include a
range of results because Williams has the ability through its current ownership
of 60% of the Transco Common Shares to compel the consummation of the Merger.
29
<PAGE> 50
THE WILLIAMS COMPANIES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
WILLIAMS TRANSCO ADJUSTMENTS COMBINED
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 28 $ 62 $ 1,599 (1) $ 398
(1,291)(2)
Net assets of discontinued operations............ 596 (596)(1)
Other current assets............................. 647 428 102 (3) 1,363
190 (4)
(4)(5)
------ ------ ------- ------
Total current assets.......................... 1,271 490 -- 1,761
Investments........................................ 372 33 405
Property, plant and equipment, net................. 3,049 2,832 (407)(4) 6,811
1,337 (12)
Other assets and deferred charges.................. 215 470 (145)(4) 677
145 (5)
(8)(7)
------ ------ ------- ------
Total assets $4,907 $3,825 $ 922 $9,654
====== ====== ======= ======
Current liabilities................................ $ 739 $ 637 $ (48)(4) $1,210
(118)(6)
Long-term debt..................................... 1,544 1,935 (247)(7) 3,232
Deferred income taxes.............................. 650 295 125 (4) 1,398
(72)(1)
400 (8)
Deferred income and other liabilities.............. 226 217 (18)(4) 655
155 (5)
75 (1)
Preferred stock of subsidiary...................... 72 (72)(9) --
Stockholders' equity:
Preferred stock.................................. 100 265 (140)(10) 225
Common stockholders' equity...................... 1,648 404 1,000 (1) 2,934
(118)(11)
------ ------ ------- ------
Total stockholders' equity.................... 1,748 669 742 3,159
------ ------ ------- ------
Total liabilities and stockholders' equity.... $4,907 $3,825 $ 922 $9,654
====== ====== ======= ======
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform to Williams classification.
See the accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
30
<PAGE> 51
THE WILLIAMS COMPANIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The adjustments to the Unaudited Pro Forma Combined Balance Sheet do not
give effect to any nonrecurring costs directly associated with the Acquisition
that might be incurred within the next twelve months. The pro forma financial
data also do not give effect to any potential cost savings and synergies that
could result from the Acquisition.
<TABLE>
<S> <C>
1. This adjustment reflects the WNS Sale which occurred on January 5, 1995. Cash and cash
equivalents were increased by $1.6 billion, representing the $2.5 billion sales
proceeds, net of estimated cash income taxes payable and transaction costs currently
payable, which exceed the $596 million net assets of discontinued operations. Common
stockholders' equity was increased by $1 billion from the estimated after tax gain on
the sale.
2. To record payment of $430 million for 60% of the Transco Common Shares, $58 million for
severance costs and transaction fees related to the acquisition and $803 million from
certain elements of the Recapitalization.
3. Reflects increase in receivables arising from the termination of Transco's programs to
sell receivables.
4. This adjustment reduces the carrying value of certain Transco businesses, including
coal operations, coal-bed methane operations and related assets, that Williams intends
to sell in 1995 to net realizable value and reclassifies such net assets to current
assets.
5. This adjustment represents the recording of a regulatory asset the excess of the
benefit obligations for Transco's pension and postretirement benefit plans over the
plan assets.
6. This adjustment records payment for the cancellation of a Williams' short-term
borrowing facility and payment of accrued interest and dividends on financing
transactions.
7. These adjustments (a) increase long-term debt by $114 million to reflect appropriate
current interest rates, (b) record payment of $361 million for termination of Transco's
revolver and interest rate swaps and the assumed purchase of 100% of the Transco Notes
pursuant to a proposed tender offer and (c) eliminate unamortized debt issuance costs
related to the Recapitalization.
8. This adjustment increases deferred income taxes by $400 million, representing (a) the
tax effect of the basis differences between the purchase price allocation and Transco's
net assets and (b) the reduction of unused alternative minimum tax credits, the tax
benefit of which had been previously recognized by Transco. It is assumed there will be
no change in the tax basis of Transco's assets and liabilities. The pro forma
adjustments assume a combined 40% Federal and state income tax rate.
9. This adjustment reflects the redemption of preferred stock of TGPL.
10. These adjustments reflect (a) the exchange of Transco $3.50 Preferred Stock, carried at
$121 million, for Williams $3.50 Preferred Stock, valued at $125 million and (b) the
cash redemption of Transco $4.75 Preferred Stock, carried at $144 million.
11. These adjustments increase common stockholders' equity by $286 million for Williams'
issuance of 10.2 million Williams Common Shares, including 3.4 million treasury shares,
to acquire the remaining 40% of the Transco Common Shares and eliminate Transco's
common stockholders' equity of $404 million.
</TABLE>
31
<PAGE> 52
<TABLE>
<S> <C>
12. This adjustment allocates to property, plant and equipment the remaining excess
purchase price of Transco's net assets after giving effect to the other necessary
balance sheet purchase price adjustments. The significant adjustments comprising the
purchase price allocated to property, plant and equipment are as follows (in millions):
Consideration paid in excess of Transco's net book value.... $ 316
Severance costs and transaction fees........................ 58
Reduction of carrying value of assets to be sold............ 421
Increase in long-term debt to reflect appropriate current
interest rates............................................ 114
Increase in deferred income taxes........................... 400
Other....................................................... 28
------
$1,337
======
Such allocation results in a property, plant and equipment value which is less than
depreciated replacement cost. Subsequent to the Acquisition, Williams will more fully
evaluate the assets acquired and, as a result, the allocation of purchase price to
property, plant and equipment may change.
</TABLE>
32
<PAGE> 53
THE WILLIAMS COMPANIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
WILLIAMS TRANSCO* ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues............................................ $1,274 $2,135 $(169)(1) $3,240
Costs and expenses.................................. 1,020 1,931 (171)(1) 2,806
26 (2)
------ ------ ----- ------
Operating profit.................................... 254 204 (24) 434
General corporate expense........................... 21 21
Interest expense, net............................... 101 146 (32)(3) 215
Investing income.................................... 39 9 48
Gain on sales of assets............................. 23 23
Other income (expense), net......................... 2 (6) 9 (4) 5
------ ------ ----- ------
Income from continuing operations before income
taxes............................................. 196 61 17 (8) 274
Provision for income taxes.......................... 65 22 4 (1) 96
5 (5)
------ ------ ----- ------
Income from continuing operations................... 131 39 8 178
Preferred stock dividends........................... 7 17 (11)(6) 13
------ ------ ----- ------
Income from continuing operations applicable to
common stock...................................... $ 124 $ 22 $ 19 $ 165
====== ====== ===== ======
Number of shares:
Primary........................................... 105 41 117(7)
====== ====== ======
Fully diluted..................................... 105 41 117(7)
====== ====== ======
Earnings per share from continuing operations:
Primary........................................... $ 1.19 $ .53 $ 1.41(7)
====== ====== ======
Fully diluted..................................... $ 1.19 $ .53 $ 1.41(7)
====== ====== ======
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform to Williams' classification.
See the accompanying Notes to Unaudited Pro Forma Combined Statements of Income.
33
<PAGE> 54
THE WILLIAMS COMPANIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
WILLIAMS TRANSCO* ADJUSTMENTS COMBINED
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Revenues........................................... $1,793 $2,922 $ (238)(1) $4,477
Costs and expenses................................. 1,479 2,780 (359)(1) 3,935
35 (2)
------ ------ ------ ------
Operating profit................................... 314 142 86 542
General corporate expense.......................... 38 38
Interest expense, net.............................. 141 191 (40)(3) 292
Investing income................................... 65 9 2 (1) 76
Gain (loss) on sales of assets..................... 98 (1) 1 (1) 98
Other income (expense), net........................ (12) 15 (4) 3
------ ------ ------ ------
Income (loss) from continuing operations before
income taxes..................................... 298 (53) 144 (8) 389
Provision (credit) for income taxes................ 113 (18) 48 (1) 147
4 (5)
------ ------ ------ ------
Income (loss) from continuing operations........... 185 (35) 92 242
Preferred stock dividends.......................... 12 25 (16)(6) 21
------ ------ ------ ------
Income (loss) from continuing operations applicable
to common stock.................................. $ 173 $ (60) $ 108 $ 221
====== ====== ====== ======
Number of shares:
Primary.......................................... 100 39 113(7)
====== ====== ======
Fully diluted.................................... 103 39 116(7)
====== ====== ======
Earnings (loss) per share from continuing
operations:
Primary.......................................... $ 1.74 $(1.54) $ 1.96(7)
====== ====== ======
Fully diluted.................................... $ 1.71 $(1.54) $ 1.93(7)
====== ====== ======
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform to Williams' classification.
See the accompanying Notes to Unaudited Pro Forma Combined Statements of Income.
34
<PAGE> 55
THE WILLIAMS COMPANIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The adjustments to the Unaudited Pro Forma Combined Statements of Income do
not give effect to any nonrecurring costs directly associated with the
Acquisition that might be incurred within the next twelve months. The pro forma
financial data also do not give effect to any potential cost savings and
synergies that could result from the Acquisition.
<TABLE>
<S> <C>
1. These adjustments eliminate historical results of operations for Transco operations
which Williams intends to sell within one year from the date of the Acquisition.
Earnings or losses from operations that Williams intends to sell will not be reported
in the Williams Consolidated Statement of Income during the holding period. Therefore,
their results of operations have been excluded from the Pro Forma Combined Statements
of Income consistent with the assumption that the Acquisition occurred at the beginning
of the earliest period presented.
2. This adjustment represents depreciation on the purchase price allocated to property,
plant and equipment over the existing net book value of those assets. A depreciation
life of 40 years is used which approximates the FERC approved rates for Transco's
regulated transmission facilities. Such life is supported by Williams' preliminary
analysis and intended use.
3. This adjustment represents amortization of premiums from revaluation of Transco's
existing long-term debt to reflect current interest rates and eliminates interest
expense and debt costs related to Transco's revolver, interest rate swaps, and the
Transco Notes and Williams' short-term borrowing facility.
4. These adjustments eliminate dividends on preferred stock of subsidiaries and other
expenses related to the Recapitalization.
5. This adjustment records the income tax effects of the pro forma adjustments. For
purposes of the pro forma calculations, a combined 40% Federal and state income tax
rate has been assumed.
6. This adjustment eliminates preferred stock dividends from the Transco $4.75 Preferred
Stock, which will be redeemed in the Recapitalization.
7. Pro forma per share data is calculated using the pro forma income from continuing
operations applicable to common shares divided by the pro forma primary and fully
diluted shares outstanding. The pro forma weighted average common shares outstanding
includes the assumed 10.2 million Williams Common Shares, including 3.4 million
treasury shares, to be issued to holders of Transco Common Shares under the terms of
the Merger and 2.6 million in common share equivalents attributable to certain deferred
shares granted by Williams to employees and former employees in connection with the WNS
Sale.
8. The following is a summary of the adjustments to income from continuing operations
before income taxes (in millions):
</TABLE>
<TABLE>
<CAPTION>
NINE
MONTHS YEAR
ENDED ENDED
SEPTEMBER DECEMBER
30, 1994 31, 1993
-------- --------
<S> <C> <C>
Eliminate losses from Transco operations
to be sold.............................. $ 2 $124
Depreciation.............................. (26) (35)
Interest and other costs from
financings.............................. 41 55
---- ----
$ 17 $144
==== ====
For the year ended December 31, 1993, Transco's costs and expenses include a charge of
$50 million from a certain legal settlement and $70 million from the write-down of
capitalized costs in excess of the ceiling limitation from a nonoperating interest in
certain coalbed methane properties. These charges are included in the pro forma
adjustments related to Transco operations to be sold.
</TABLE>
35
<PAGE> 56
TRANSCO'S PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements of
Transco illustrate the effect of Williams' acquisition of Transco pursuant to
the Acquisition and certain elements of the Recapitalization as described in the
next paragraph. The Unaudited Pro Forma Consolidated Balance Sheet is prepared
as of September 30, 1994 and illustrates the effects of the Acquisition and the
Recapitalization as if they had occurred on that date. The Unaudited Pro Forma
Consolidated Statements of Income are prepared for the nine months ended
September 30, 1994 and the year ended December 31, 1993, and illustrate the
effects of the Acquisition and the Recapitalization as if they occurred at the
beginning of the earliest period presented.
The Unaudited Pro Forma Consolidated Financial Statements reflect Williams
having acquired 60% of the outstanding Transco Common Shares pursuant to the
Offer and the assumption that the remaining outstanding Transco Common Shares
will be exchanged for 10.2 million Williams Common Shares pursuant to the
Merger. The Unaudited Pro Forma Consolidated Financial Statements also reflect
certain elements of the Recapitalization, including (i) the proposed cash
redemption by Transco of the Transco $4.75 Preferred Stock (such redemption
assumed to be financed by the purchase by Williams of the Transco New Preferred
Stock), (ii) the exchange, pursuant to the Merger, of the Transco $3.50
Preferred Stock into an equal number of shares of Williams $3.50 Preferred Stock
and (iii) the assumed cash extinguishment of certain Transco debt, including
100% of the Transco Notes pursuant to a proposed tender offer.
Williams' acquisition of Transco will be accounted for as a purchase. The
purchase price is approximately $1 billion, including fees related to the
Acquisition.
The Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical financial statements of Transco, which are
incorporated by reference herein, and the Notes to the Unaudited Pro Forma
Consolidated Financial Statements. The pro forma adjustments are based on
preliminary information about the effects of the Acquisition. Final purchase
price allocations will be based on more complete evaluations and may differ
substantially from those shown below. The Unaudited Pro Forma Consolidated
Financial Statements are not intended to be indicative of actual operating
results or financial position had the transactions occurred as of the dates
indicated above, nor do they purport to indicate operating results or financial
position which may be attained in the future.
The Unaudited Pro Forma Consolidated Financial Statements do not include a
range of results because Williams has the ability through its current ownership
of 60% of the Transco Common Shares to compel the consummation of the Merger.
36
<PAGE> 57
TRANSCO ENERGY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
HISTORICAL* ADJUSTMENTS AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 62 $ $ 62
Other current assets................................... 428 102 (1) 716
190 (2)
(4)(3)
------ ------ ------
Total current assets 490 288 778
Investments.............................................. 33 33
Property, plant and equipment, net....................... 2,832 (407) (2) 3,762
1,337 (10)
Other assets and deferred charges........................ 470 (145) (2) 462
145 (3)
(8)(5)
------ ------ ------
Total assets................................... $3,825 $1,210 $5,035
====== ====== ======
Current liabilities...................................... $ 637 $ (48) (2) $ 576
(13) (4)
Advances from Williams................................... 549 (5) 549
Long-term debt........................................... 1,935 (247) (5) 1,688
Deferred income taxes.................................... 295 125 (2) 820
400 (6)
Deferred income and other liabilities.................... 217 (18) (2) 354
155 (3)
Preferred stock of subsidiary............................ 72 (72) (7)
Stockholders' equity:
Preferred stock........................................ 265 (115) (8) 150
Common stockholders' equity............................ 404 494 (9) 898
------ ------ ------
Total stockholders' equity..................... 669 379 1,048
------ ------ ------
Total liabilities and stockholders' equity..... $3,825 $1,210 $5,035
====== ====== ======
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform to Williams' classification.
See the accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
37
<PAGE> 58
TRANSCO ENERGY COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The adjustments to the unaudited Pro Forma Consolidated Balance Sheet do
not give effect to any nonrecurring costs directly associated with the
Acquisition that might be incurred within the next twelve months. The pro forma
financial data also do not give effect to any potential costs savings and
synergies that could result from the Acquisition.
1. Reflects increase in receivables arising from the termination of Transco's
programs to sell receivables.
2. This adjustment reduces the carrying value of certain Transco businesses,
including coal operations, coal-bed methane operations and related assets,
that Williams intends to sell in 1995 to net realizable value and
reclassifies such net assets to current assets.
3. This adjustment represents the recording of a regulatory asset the excess of
the benefit obligations for Transco's pension and postretirement benefit
plans over the plan assets.
4. This adjustment records payment of accrued interest and dividends on
financing transactions.
5. These adjustments (a) increase long-term debt by $114 million to reflect
appropriate current interest rates, (b) record payment of $361 million for
termination of Transco's revolver and interest rate swaps and the assumed
purchase of 100% of the Transco Notes pursuant to a tender offer, (c)
eliminate unamortized debt issuance costs related to the financing
transactions and (d) proposed record advances from Williams to Transco to
fund certain financing transactions.
6. This adjustment increases deferred income taxes by $400 million,
representing (a) the tax effect of the basis difference between the purchase
price allocation and Transco's net assets and (b) reduction of unused
alternative minimum tax credits, the tax benefit of which had been
previously recognized by Transco. It is assumed there will be no change in
the tax basis of Transco's assets and liabilities. The pro forma adjustments
assume a combined 40% Federal and state income tax rate.
7. This adjustment reflects the redemption of preferred stock of TGPL.
8. These adjustments reflect (a) the exchange of Transco $3.50 Preferred Stock,
carried at $121 million, for Williams $3.50 Preferred, valued at $125
million, (b) the cash redemption of Transco $4.75 Preferred Stock, carried
at $144 million and (c) increase preferred stock by $150 million for the
proposed issuance of the Transco New Preferred Stock to Williams.
9. This adjustment increases common stockholders' equity for the consideration
issued by Williams for the Transco Common Shares and the Transco $3.50
Preferred Stock in excess of Transco's net book value.
10. This adjustment allocates to property, plant and equipment the remaining
excess purchase price of Transco's net assets after giving effect to the
other necessary balance sheet purchase price adjustments. The significant
adjustments comprising the purchase price allocated to property, plant and
equipment are as follows (in millions):
<TABLE>
<S> <C>
Consideration paid in excess of Transco's net book value............ $ 316
Severance costs and transaction fees................................ 58
Reduction of carrying value of assets to be sold.................... 421
Increase long-term debt to reflect appropriate current interest
rates............................................................. 114
Increase in deferred income taxes................................... 400
Other............................................................... 28
------
$1,337
======
</TABLE>
Such allocation results in a property, plant and equipment value which is
less than depreciated replacement cost. Subsequent to the Acquisition,
Williams will more fully evaluate the assets acquired and, as a result, the
allocation of purchase price to property, plant and equipment may change.
38
<PAGE> 59
TRANSCO ENERGY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
HISTORICAL* ADJUSTMENTS AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.................................................. $2,135 $(169)(1) $1,966
Costs and expenses........................................ 1,929 (171)(1) 1,784
26 (2)
------ ----- ------
Operating profit.......................................... 206 (24) 182
Interest expense.......................................... 142 (8)(3) 134
Investing income.......................................... 9 9
Other income (expense), net............................... (12) 13 (4) 1
------ ----- ------
Income from continuing operations before income taxes..... 61 (3)(7) 58
Provision for income taxes................................ 22 4 (1) 21
(5)(5)
------ ----- ------
Income from continuing operations......................... 39 (2) 37
Preferred stock dividends................................. 17 (9)(6) 8
------ ----- ------
Income from continuing operations applicable to common
stock................................................... $ 22 $ 7 $ 29
====== ===== ======
Number of shares:
Primary................................................. 41
======
Fully diluted........................................... 41
======
Earnings per share from continuing operations:
Primary................................................. $ .53
======
Fully diluted........................................... $ .53
======
</TABLE>
- ---------------
* Presentation format has been conformed to the Williams Statements of Income
presentation.
See the accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Income.
39
<PAGE> 60
TRANSCO ENERGY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
HISTORICAL* ADJUSTMENTS AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.................................................. $2,922 $(238)(1) $2,684
Costs and expenses........................................ 2,776 (359)(1) 2,452
35 (2)
------ ----- ------
Operating profit.......................................... 146 86 232
Interest expense.......................................... 190 (16)(3) 174
Investing income.......................................... 9 2 (1) 11
Gain (loss) on sales of assets............................ (1) 1 (1)
Other income (expense), net............................... (17) 19 (4) 2
------ ----- ------
Income (loss) from continuing operations before income
taxes................................................... (53) 124 (7) 71
Provision (credit) for income taxes....................... (18) 48 (1) 26
(4)(5)
------ ----- ------
Income (loss) from continuing operations.................. (35) 80 45
Preferred stock dividends................................. 25 (14)(6) 11
------ ----- ------
Income (loss) from continuing operations applicable to
common stock............................................ $ (60) $ 94 $ 34
====== ====== ======
Number of shares:
Primary................................................. 39
======
Fully diluted........................................... 39
======
Earnings (loss) per share from continuing operations:
Primary................................................. $(1.54)
======
Fully diluted........................................... $(1.54)
======
</TABLE>
- ---------------
* Presentation format has been conformed to the Williams' Statements of Income
presentation.
See the accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Income.
40
<PAGE> 61
TRANSCO ENERGY COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
The adjustments to the Unaudited Pro Forma Consolidated Statements of
Income do not give effect to any nonrecurring costs directly associated with the
Acquisition that might be incurred within the next twelve months. The pro forma
financial data also do not give effect to any potential cost savings and
synergies that could result from the Acquisition.
1. These adjustments eliminate historical results of operations for Transco
operations which Williams intends to sell within one year from the date of
the Acquisition. Earnings or losses from operations that Williams intends to
sell will not be reported in the Williams Consolidated Statement of Income
during the holding period. Therefore, their results of operations have been
excluded from Transco's Unaudited Pro Forma Consolidated Statements of Income
consistent with the assumption that the Acquisition occurred at the beginning
of the earliest period presented.
2. The adjustment represents depreciation on the purchase price allocated to
property, plant and equipment over the existing net book value of those
assets. A depreciation life of 40 years is used which approximates the FERC
approved rates for Transco's regulated transmission facilities. Such life is
supported by Williams preliminary analysis and intended use.
3. This adjustment represents amortization of premiums from the revaluation of
Transco's existing long-term debt to reflect current interest rates,
eliminates interest expense and debt costs related to Transco's revolver,
interest rate swaps and the Transco Notes and increases interest expense on
advances from Williams to Transco used to fund certain financing
transactions. The interest rate on the advances from Williams to Transco is
at a variable interest rate. A 1/8% variance in interest rates would change
interest expense on the advances from Williams by $0.3 million, net of tax,
for the first nine months of 1994 and $0.4 million, net of tax, for the year
1993.
4. These adjustments eliminate dividends on preferred stock of subsidiaries and
other expenses related to the Recapitalization.
5. This adjustment records the income tax effects of the pro forma adjustments.
For purposes of the pro forma calculations, a combined 40% Federal and state
income tax rate has been assumed.
6. These adjustments (a) eliminate preferred stock dividends from the Transco
$4.75 Preferred Stock, which will be redeemed in the Recapitalization, and
from the Transco $3.50 Preferred Stock exchanged for an equal number of
shares of Williams' $3.50 Preferred Stock and (b) increase preferred stock
dividends from the proposed issuance of the Transco New Preferred Stock to
Williams.
7. The following is a summary of the adjustments to income from continuing
operations before income taxes (in millions):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Eliminate losses from Transco operations to
be sold.................................. $ 2 $ 124
Depreciation............................... (26) (35)
Interest and other costs from financings... 21 35
----- -----
$ (3) $ 124
===== =====
</TABLE>
For the year ended December 31, 1993, Transco's costs and expenses include a
charge of $50 million from a certain legal settlement and $70 million from
the write-down of capitalized costs in excess of the ceiling limitation from
a nonoperating interest in certain coalbed methane properties. These charges
are included in the pro forma adjustments related to Transco operations to
be sold.
41
<PAGE> 62
OWNERSHIP OF VOTING SECURITIES
The following table sets forth certain information regarding the beneficial
ownership of the Transco Common Shares as of March , 1995 by (a) persons known
to Transco to be the beneficial owners of more than five percent of the
outstanding Transco Common Shares, (b) each director of Transco, (c) each of the
named executive officers of Transco and (d) all directors and executive officers
of Transco as a group. Except as otherwise noted, the persons named in the table
below have sole voting and investment power with respect to all shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
TRANSCO COMMON SHARES
-------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
------------------------- ------ -------
<S> <C> <C>
The Williams Companies, Inc................. 24,600,000(1) 60.0(1)
One Williams Center
Tulsa, Oklahoma 74172
Gordon F. Ahalt.............................
Benjamin F. Bailar..........................
Keith E. Bailey.............................
John Baumgarner.............................
John P. DesBarres...........................
Robert W. Fri...............................
J. David Grissom............................
Patricia L. Higgins.........................
William H. Leurs............................
Frederick H. Schultz........................
Robert W. Best..............................
Larry J. Dagley.............................
David E. Varner.............................
Nicholas J. Neuhausel.......................
Directors and executive officers as a group
(14 persons)..............................
</TABLE>
- ---------------
(1) Under the terms of the Stock Option Agreement, Williams has the right, under
certain circumstances to acquire up to 7,500,000 additional Transco Common
Shares for $17.50 per share. After acquiring such shares Williams would own
approximately 66.7% of the outstanding Transco Common Shares. Williams does
not expect that it will acquire any Transco Common Shares pursuant to the
Stock Option Agreement.
Neither Transco nor Williams is aware of any other holder of more than 5%
of either the outstanding Transco Common Shares or of the Transco $3.50
Preferred Stock.
Neither Williams, Sub nor Transco is aware of any material relationship
between Williams, Sub or their respective directors or executive officers and
Transco or its directors or executive officers, except as contemplated by the
Merger Agreement, the Stock Option Agreement or described herein.
DESCRIPTION OF WILLIAMS CAPITAL STOCK
The following description of the authorized capital stock of Williams does
not purport to be complete and is qualified in its entirety by reference to
Williams' Restated Certificate of Incorporation and By-laws. For information as
to how to obtain Williams' Restated Certificate of Incorporation and By-laws,
see "AVAILABLE INFORMATION."
The authorized capital stock of Williams consists of (a) 240,000,000
Williams Common Shares and (b) 30,000,000 shares of preferred stock, par value
$1.00 per share (the "Williams Preferred Stock" which
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<PAGE> 63
term as the context requires includes the Williams $3.50 Preferred Stock). As of
February 1, 1995, 90,966,076 Williams Common Shares and 3,741,200 shares of
Williams Preferred Stock, designated Williams $2.21 Series Cumulative Preferred
Stock, were issued and outstanding (excluding 964,988 Williams Common Shares
then held by Williams and 13,383,977 Williams Common Shares then held by WTG
Holdings, Inc., a wholly-owned subsidiary of Williams).
WILLIAMS COMMON SHARES
Holders of Williams Common Shares are entitled to dividends as declared by
the Williams Board. Certain of Williams' loan agreements contain provisions
restricting the payment of dividends. Under the most restrictive of such
provisions, Williams had approximately $808 million available at September 30,
1994, for the payment of dividends. Debt instruments of certain subsidiaries of
Williams limit the amount of dividend payments to Williams which may adversely
impact the funds available to Williams to pay dividends on the Williams Common
Shares.
Subject to the rights of the holders of any outstanding shares of Williams
Preferred Stock, holders of Williams Common Shares are entitled to cast one vote
for each share held of record on all matters. Voting securities do not have
cumulative voting rights. This means that the holders of more than 50 percent of
the voting power of all securities outstanding voting for the election of
directors can elect 100 percent of the directors if they choose to do so; and in
such event, the holders of the remaining voting power will not be able to elect
any person or persons to the Williams Board.
Shareholders have no preemptive or subscription rights upon the issuance of
additional shares of Williams' stock of any class or series. Upon liquidation or
dissolution of Williams, whether voluntary or involuntary, the holders of
Williams Common Shares are entitled to share ratably in the assets of Williams
available for distribution after provision for creditors and holders of
preferred stock. All of the issued and outstanding Williams Common Shares are
dully authorized, validly issued, fully paid and will not be subject to further
calls or assessments.
Each Williams Common Share has .5 Williams Rights attached unless and until
the Williams Rights are redeemed.
WILLIAMS RIGHTS
Williams Rights are evidenced by certificates for Williams Common Shares
and will automatically trade with such Williams Common Shares unless and until
they become exercisable or are redeemed. If and when the Williams Rights become
exercisable, Williams Rights certificates will be distributed and the Williams
Rights will become separately tradeable.
Each Williams Right entitles the holder thereof to purchase from Williams
one two-hundredth of a share of Williams' Series A Junior Participating
Preferred Stock, par value $1.00 per share, for a price of $75 subject to
adjustments. The Williams Rights become exercisable after the tenth day
following the date (the "Stock Acquisition Date") on which a public announcement
is made that any person (an "Acquiring Person") has acquired beneficial
ownership of 20 percent or more of the Williams Common Shares or 10 business
days following the commencement of (or a public announcement of an intention to
make) a tender or exchange offer if, upon consummation thereof, the person or
group proposing such offer would be beneficial owner of 30 percent or more of
the Williams Common Shares. The Williams Rights expire on the earlier of (i)
February 6, 1996 or (ii) the date on which the Williams Rights are redeemed.
Williams is entitled to redeem in whole, but not in part, the Williams Rights at
any time until 30 days following the Stock Acquisition Date, at a redemption
price of $.05 per Williams Right.
In the event that, at any time following the Stock Acquisition Date,
Williams is acquired in a merger or other business combination transaction or
50% or more of its assets or earning power is sold, provision shall be made so
that each holder of a Williams Right will thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price (as defined in the
rights agreement for the Williams Rights) of the Williams Right, common stock of
the acquiring entity which has a value of two times the Purchase Price of
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<PAGE> 64
the Williams Right. Following the occurrence of any of the events described
above in this paragraph, any Williams Rights that are or were beneficially owned
by an Acquiring Person or affiliates or associates of any Acquiring Person will
immediately become null and void.
Holders of the Williams Rights have no right to vote or to receive
dividends.
WILLIAMS $3.50 PREFERRED STOCK
Pursuant to the Merger Agreement, Williams will issue the Williams $3.50
Preferred Stock with the designation, rights and preferences provided for such
stock in the Form of Certificate of Designation, Preferences and Rights of
Williams $3.50 Preferred Stock (the "Certificate of Designation") included as
Exhibit 3.1(c) to the Merger Agreement. The Merger Agreement, including the
Certificate of Designation, is attached hereto as Annex A, and is incorporated
herein by reference. The following summary is qualified in its entirety by
reference to the Certificate of Designation.
The holders of the Williams $3.50 Preferred Stock will have no preemptive
rights with respect to any Williams Common Shares or any other securities of
Williams convertible into or carrying rights or options to purchase any such
shares.
Issuance. The Williams $3.50 Preferred Stock will be issued in exchange
for the Transco $3.50 Preferred Stock after the Merger Date at the rate of one
share of Williams $3.50 Preferred Stock for each share of Transco $3.50
Preferred Stock.
Ranking. The Williams $3.50 Preferred Stock will rank senior to the
Williams Common Shares with respect to dividends and the distribution of assets
upon liquidation, dissolution or winding up. The Williams $3.50 Preferred Stock
will rank equally with the currently outstanding Williams $2.21 Series
Cumulative Preferred Stock as to dividends and the distribution of assets upon
liquidation, dissolution or winding up.
Dividends. Holders of shares of Williams $3.50 Preferred Stock, would be
entitled to receive, when and as declared by the Williams Board, out of the
assets of Williams legally available for payment, an annual cash dividend of
$3.50 per share, payable in quarterly installments on February 1, May 1, August
1 and November 1, commencing the first such date following the Merger Date;
provided, however, dividends payable for any quarterly period less than the full
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months.
Unless full cumulative dividends on the Williams $3.50 Preferred Stock and
any stock ranking on parity with the Williams $3.50 Preferred Stock as to
dividends or upon liquidation ("Parity Stock") have been paid or funds have been
set apart for payment thereon through the current dividend period with respect
to the Williams $3.50 Preferred Stock and any Parity Stock, Williams may not (i)
declare or pay any dividend or distribution on any junior stock of Williams or
(ii) redeem or set apart funds for the purchase or redemption of any junior
stock.
Redemption. Shares of the Williams $3.50 Preferred Stock will not be
redeemable prior to November 1, 1999. On and after such date shares of the
Williams $3.50 Preferred Stock will be redeemable, at the option of Williams, in
whole or in part, at any time or from time to time, in not less than 30 nor more
than 60 days' notice, at the redemption prices set forth below per share if
redeemed during the 12 month period beginning November 1 of the year indicated
below; plus in each case an amount equal to accrued and unpaid dividends on the
Williams $3.50 Preferred Stock, to the redemption date.
<TABLE>
<CAPTION>
REDEMPTION PRICE
YEAR PER SHARE
---- ----------------
<S> <C>
1999........................................................... $51.40
2000........................................................... $51.05
2001........................................................... $50.70
2002........................................................... $50.35
2003 and thereafter............................................ $50.00
</TABLE>
44
<PAGE> 65
Liquidation Preference. Holders of shares of Williams $3.50 Preferred
Stock, will be entitled to a liquidation preference of $50.00 per share plus an
amount equal to all dividends accumulated and unpaid on the Williams $3.50
Preferred Stock as of the date of final distribution. Shares of Williams $3.50
Preferred Stock will rank equally as to dividends and the distribution of assets
upon liquidation, dissolution or winding up with the Williams $2.21 Series
Cumulative Preferred Stock.
Voting Rights. The holders of shares of Williams $3.50 Preferred Stock
will have no voting rights, other than any voting rights to which they may be
entitled under the laws of the State of Delaware, unless dividends payable on
the Williams $3.50 Preferred Stock or any other preferred stock of Williams
(collectively, the "Williams Preferred Stock") shall have been in arrears and
unpaid in an aggregate amount equal to or exceeding the amount of dividends
payable thereon for six quarterly periods. In such case, the number of directors
of Williams will be increased by two and the holders of Williams Preferred Stock
will have the right to elect two additional directors to the Williams Board at a
special meeting of the holders of Williams Preferred Stock or at any annual
meeting of Williams shareholders and at each subsequent annual meeting until all
such dividends have been paid in full.
Convertibility. Each share of Williams $3.50 Preferred Stock will be
convertible at the option of the holder thereof into 1.5625 shares of Williams
Common Stock, subject to certain anti-dilution adjustments.
Change of Control. In the event of any Change in Control (as defined in
the Certificate of Designation) of Williams, each holder of Williams $3.50
Preferred Stock shall have the right, at the holder's option, to require
Williams to redeem any or all of such holder's shares of Williams $3.50
Preferred Stock unless such Change in Control shall have been duly approved by
the Continuing Directors (as defined in the Certificate of Designation).
Transfer Agent. The transfer agent and registrar for the Williams $3.50
Preferred Stock will be First Chicago Trust Company of New York, P.O. Box 2543,
Jersey City, N.J. 07303-2535.
DESCRIPTION OF TRANSCO CAPITAL STOCK
The following description of the authorized capital stock of Transco does
not purport to be complete and is qualified in its entirety by reference to
Transco's Second Restated Certificate of Incorporation and By-laws. For
information as to how to obtain Transco's Restated Certificate of Incorporation
and By-laws, see "AVAILABLE INFORMATION."
The authorized capital stock of Transco consists of (i) 150,000,000 Transco
Common Shares of which, as of the Transco Record Date, shares
(including shares of restricted stock) were issued and outstanding,
(ii) 15,000,000 shares of Cumulative Preferred Stock, without par value, of
which, as of the Transco Record Date, shares of Transco $3.50
Preferred Stock were issued and outstanding, and 4,848,484 shares of Transco's
Cumulative Convertible Preferred Stock, 9.25% Series were authorized but none
outstanding, (iii) 2,000,000 shares of Cumulative Second Preferred Stock,
without par value, of which no shares are issued and outstanding, and (iv)
shares of Transco New Preferred Stock, of which
shares are issued and outstanding (each of the foregoing, except the Transco
Common Shares, are collectively, the "Transco Preferred Stock").
TRANSCO COMMON SHARES
The Transco Common Shares are entitled to one vote for each share held.
Subject to the rights of the Transco Preferred Stock, the Transco Common Shares
possess full voting power for election of directors and for all other purposes
except as provided by law and except that, so long as any shares of Transco
Preferred Stock are outstanding, Transco may not (a) amend, alter or repeal any
of the provisions of the Transco Restated Certificate of Incorporation or any
resolutions of the Transco Board providing for the issue of any series of
Transco Preferred Stock so as to affect adversely the rights, powers or
preferences of any one or more series of Transco Preferred Stock or of the
holders thereof, without the consent of the holders of two-thirds of the total
number of shares of all affected series or (b) increase the number of authorized
shares of Transco Preferred Stock or authorize or create any shares of stock
ranking on a parity with the Transco Preferred Stock
45
<PAGE> 66
as to dividends or as to distribution of assets, without the consent of the
holders of a majority of the Transco Preferred Stock. After payment has been
made in full to the holders of any Transco Preferred Stock in the event of any
liquidation, dissolution or winding up of the affairs of Transco, its remaining
assets shall be distributed among the holders of the Transco Common Shares,
according to their respective shares. The Transco Common Shares have no
preemptive rights and no conversion rights, are not subject to redemption and
have no sinking fund. Cumulative voting is not permitted in the election of
directors. The outstanding Transco Common Shares are fully paid and
nonassessable. Subject to the prior and superior rights of Transco Preferred
Stock, such dividends (payable in cash, stock or otherwise) as may be determined
by the Transco Board may be declared and paid on the Transco Common Shares from
time to time out of any funds legally available therefor. So long as any shares
of Transco Preferred Stock are outstanding, Transco may neither pay nor declare
dividends in cash, stock or otherwise (except for dividends paid in Transco
Common Shares) on Transco Common Shares, nor make any distribution upon Transco
Common Shares nor purchase, redeem or otherwise acquire for a valuable
consideration any Transco Common Shares, unless all obligations of Transco to
the holders of any shares of Transco Preferred Stock with respect to dividends
and with respect to any sinking fund or analogous arrangement for the benefit of
any Transco Preferred Stock have been met.
TRANSCO $3.50 PREFERRED STOCK
At the Merger Date, each of the 2,500,000 issued and outstanding shares of
Transco $3.50 Preferred Stock (other than shares held by Transco or Williams,
which will be cancelled, or by those who properly demand and perfect appraisal
rights, see "THE MERGER -- Appraisal Rights") will be converted into the right
to receive one share of Williams $3.50 Preferred Stock.
Except as described in "COMPARISON OF THE RIGHTS OF HOLDERS OF WILLIAMS
CAPITAL STOCK AND TRANSCO CAPITAL STOCK -- Comparison of Williams $3.50
Preferred Stock and Transco $3.50 Preferred Stock," the Transco $3.50 Preferred
Stock and the Williams $3.50 Preferred Stock have substantially the same rights
and restrictions and rank equally as to dividends and distribution of assets
upon liquidation, dissolution or winding up. See "DESCRIPTION OF WILLIAMS
CAPITAL STOCK -- Williams $3.50 Preferred Stock."
TRANSCO NEW PREFERRED STOCK
As part of the Recapitalization, Williams may purchase from Transco shares
of Transco New Preferred Stock. If purchased by Williams, Transco will use the
proceeds from the issuance of the Transco New Preferred Stock to redeem the
Transco $4.75 Preferred Stock, which redemption will be made on March 20, 1995.
If issued, each issued and outstanding share of the Transco New Preferred Stock
will continue to be outstanding as preferred stock of Transco immediately after
the Merger Date.
If issued, the Transco New Preferred Stock will be senior to the Transco
Common Shares, but junior to the Transco $3.50 Preferred Stock, with respect to
dividends and the distribution of assets upon liquidation, dissolution or
winding up. If issued, Williams, as the holder of the Transco New Preferred
Stock, will be entitled to receive, when and as declared by the Transco Board,
out of assets of Transco legally available for payment, an annual cash dividend
of $ per share, payable in quarterly installments. Each share of the Transco
New Preferred Stock will be entitled to a liquidation preference equal to the
amount per share that Williams pays for such stock. The Transco New Preferred
Stock will have no voting rights. The Transco New Preferred Stock will not be
redeemable, nor will it be exchangeable for, or convertible into, any other
security.
COMPARISON OF THE RIGHTS OF HOLDERS OF
WILLIAMS CAPITAL STOCK AND TRANSCO CAPITAL STOCK
COMPARISON OF WILLIAMS COMMON SHARES AND TRANSCO COMMON SHARES
Williams and Transco are both incorporated in the State of Delaware. The
rights of the holders of Transco Common Shares are currently governed by the
DGCL and by Transco's Second Restated Certificate of Incorporation and By-laws.
Such holders will receive Williams Common Shares in the Merger and become
46
<PAGE> 67
holders of Williams Common Shares ("Williams Shareholders") and their rights as
such will be governed by the DGCL and by the Williams Restated Certificate of
Incorporation and By-Laws, each of which is incorporated herein by reference.
Generally, the affirmative vote of a majority of all outstanding shares
entitled to vote is required to amend or change Williams' Restated Certificate
of Incorporation or Transco's Second Restated Certificate of Incorporation.
However, Transco's Second Restated Certificate of Incorporation provides that
the affirmative vote of 80% of all outstanding shares entitled to vote is
required to amend, alter, change or repeal certain of its articles, including
articles dealing with transactions with certain related persons, the
organization of the Transco Board, certain actions by shareholders, the
alteration of the Transco By-laws, indemnification policy and voting
requirements to alter the above mentioned articles. Williams' Restated
Certificate of Incorporation provides that the affirmative vote of the holders
of 75% of all outstanding shares entitled to vote is required to amend, alter,
change or repeal certain of its articles, including articles dealing with
certain management provisions, rules for the election of directors and certain
transactions with related persons. The By-laws of Williams may be altered,
amended or repealed at any annual or special meeting of the Williams
Shareholders by the affirmative vote of a majority of holders of shares at the
time entitled to vote generally in the election of directors. Transco's Second
Restated Certificate of Incorporation provides that By-laws of Transco are to be
made, adopted, altered, amended, repealed or rescinded by the vote of the
holders of not less than eighty percent of the total voting power of all Transco
Common Shares. By-laws of both Transco and Williams may also be made, adopted,
amended or repealed by resolution adopted by a majority of their respective
Boards of Directors, but any By-law adopted by the Williams Board or Transco
Board may be amended or repealed by the Williams Shareholders or the holders of
Transco Common Shares, as the case may be, entitled to vote thereon as described
above.
Neither Transco's nor Williams' By-laws or charters provide for cumulative
voting in the election of directors. Williams' Restated Certificate of
Incorporation and By-laws provide that the Williams Board shall consist of no
less than five members, divided into three classes, each class to have a
three-year term and to be as nearly equal in number of directors as possible.
The three-year terms of office of the directors shall expire at successive
annual meetings of the stockholders, so that one class shall be elected each
year. The Transco By-Laws contains a similar provision providing for a
classified board of directors.
Neither holders of Williams Common Shares nor holders of Transco Common
Shares are entitled to preemptive, subscriptive, conversion or cumulative voting
rights.
Transco's Second Restated Certificate of Incorporation and the Williams'
Restated Certificate of Incorporation both include certain "fair price"
provisions.
Williams' Restated Certificate of Incorporation requires that the
affirmative vote of the holders of not less than 75% of Williams' voting stock
shall be required for the approval or authorization of (a) the adoption of any
agreement for the merger or consolidation of Williams with or into any other
corporation, or (b) to authorize any sale or lease of all or any substantial
part of the assets of Williams to, or any sale or lease to Williams or any
subsidiary thereof in exchange for securities of Williams of any assets (except
assets having an aggregate fair market value of less than $6,000,000) of, any
other corporation, person or other entity, if, in either case, as of the record
date for the determination of stockholders entitled to notice thereof and to
vote thereon such other corporation, person or entity is the beneficial owner,
directly or indirectly, of more than five percent of the voting power of
Williams Common Shares. Such affirmative vote shall be in addition to the vote
of the Williams Shareholders otherwise required by law or any agreement between
Williams and any national securities exchange.
For the purpose, but only for the purpose, of determining whether a person,
corporation, or other entity is "the beneficial owner, directly or indirectly,
of more than five percent of the voting power of all Williams Common Shares,"
(x) any corporation, person or other entity shall be deemed to be the beneficial
owner of any Williams Common Shares (i) which it has the right to acquire
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, and whether for or without the payment of any
consideration therefor, or (ii) which are beneficially owned, directly or
indirectly (including shares deemed owned through application of clause (i),
above), by any other corporation, person or entity with which it or its
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<PAGE> 68
"affiliate" or "associate" (as therein defined) has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting, or disposing of
stock of Williams, or which is its "affiliate" or "associate" (as therein
defined), and (y) the outstanding shares of any class of stock of Williams shall
include shares deemed owned through application of clause (i), as if all such
acquisitions had been effected, and clause (ii) above.
The Williams Board shall have the power and duty to determine for the
purposes of the above paragraph on the basis of information known to Williams,
whether (i) such other corporation, person or other entity beneficially owns
more than five percent of the voting power of all Williams Common Shares, (ii) a
corporation, person or entity is an "affiliate" or "associate" (as therein
defined) of another, (iii) the assets being acquired by the corporation, or any
subsidiary thereof, have an aggregate fair market value of less than $6,000,000
and (iv) the memorandum of understanding referred to below is substantially
consistent with the transaction covered thereby.
Such provisions shall not be applicable to (i) any merger or consolidation
of Williams with or into any other corporation, or any sale or lease of all or
any substantial part of the assets of Williams to, or any sale or lease to
Williams or any subsidiary thereof in exchange for securities of Williams of any
assets of, any corporation if the Williams Board shall by resolution have
approved a memorandum of understanding with such other corporation with respect
to and substantially consistent with such transaction, prior to the time that
such other corporation shall have become a holder of more than five percent of
the voting power of all Williams shares; or (ii) any merger or consolidation of
Williams with, or any sale or lease to Williams or any subsidiary thereof of any
of the assets of, any corporation of which a majority of the outstanding shares
of all classes of stock entitled to vote in elections of Directors is owned of
record or beneficially by Williams and/or its subsidiaries.
The Transco Second Restated Certificate of Incorporation provides that the
affirmative vote of the holders of at least eighty percent of the voting power
of the Transco Common Shares entitled to vote regularly in the election of
directors, including the affirmative vote of the holders of not less than fifty
percent of the Transco Common Shares not owned directly or indirectly by any
Related Person, is needed to approve certain Business Combinations. The term
"Business Combination" is defined in Transco's Second Restated Certificate of
Incorporation to include certain transactions by Transco or any of its
subsidiaries including, without limitation, (i) any merger or consolidation with
a Related Person, (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of assets to a Related Person, (iii) any sale, lease,
exchange, transfer or other disposition of assets having a fair market value of
$5,000,000 or more of a Related Person to Transco or a subsidiary of Transco,
(iv) the issuance or transfers of securities of Transco or any subsidiary
thereof to a Related Person, (v) the adoption of a plan for liquidation or
dissolution of Transco proposed by or on behalf of a Related Person and (vi)
reclassifications or recapitalizations of Transco or other transactions having
the effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of Transco
or any subsidiary thereof which is directly or indirectly owned by a Related
Person. A "Related Person" is defined as any person and its affiliates and
associates who or which (i) is the beneficial owner, directly or indirectly, of
an aggregate of 10% or more of the Transco Common Shares. The fifty percent vote
of the Transco Common Shares not owned by a Related Person requirement referred
to above shall not be applicable if the Business Combination is approved by the
affirmative vote of the holders of not less than ninety percent of the Transco
Common Shares; provided further, that the eighty percent voting requirement
referred to above shall not be applicable if:
(1) The Transco Board by a vote of not less than eighty percent of the
directors then holding office (a) expressly approved in advance the
acquisition of Transco Common Shares that resulted in any Related Person
becoming a Related Person or (b) expressly approved the Business
Combination prior to the Related Person involved in the Business
Combination having become a Related Person;
(2) The Business Combination is solely between Transco and another
corporation, one hundred percent of the voting stock of which is owned
directly or indirectly by Transco; or
(3) All of the following conditions have been met: (a) the Business
Combination is a merger or consolidation proposed to be consummated within
one year after the date of the transaction pursuant to
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<PAGE> 69
which such Related Person became a Related Person, and the cash or fair
market value of the property, securities or other consideration to be
received per share by holders of Transco Common Shares in the Business
Combination is not less than the highest per share price (with appropriate
adjustments for recapitalizations, reclassifications, stock splits, reverse
stock splits and stock dividends) paid by the Related Person in acquiring
any of its holdings of Transco Common Shares; (b) the consideration to be
received by such holders is either cash or, if the Related Person Acquired
the majority of its holdings of Transco Common Shares for a form of
consideration other than cash, in the same form of consideration; (c) after
such Related Person has become a Related Person and prior to consummation
of such Business Combination: (i) except as approved by a majority of the
Continuing Directors (as therein defined), there shall have been no failure
to declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any Transco Preferred Stock, (ii)
there shall have been no reduction in the dividends paid on the Transco
Common Shares (adjusted as appropriate for recapitalizations,
reclassifications, stock splits, reverse stock splits and stock dividends),
except as approved by a majority of the Continuing Directors, (iii) such
Related Person shall not have become the beneficial owner of any additional
Transco Common Shares except as part of the transaction that results in
such Related Person becoming a Related Person, and (iv) such Related Person
shall not have received any benefit directly or indirectly (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges or other financial assistance or any tax credits or other tax
advantages provided by Transco, whether in anticipation of or in connection
with such Business Combination or otherwise; and (d) a proxy statement in
compliance with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder (or any subsequent provisions replacing
the Exchange Act, rules or regulations) shall be mailed to public
stockholders of Transco at least forty days prior to the consummation of
the Business Combination for the purpose of soliciting shareholder approval
of the Business Combination, and shall contain at the front thereof in a
prominent place any recommendations as to the advisability or
inadvisability of the Business Combination that the Continuing Directors or
any of them may choose to state and, if deemed advisable by a majority of
the Continuing Directors, an opinion of a reputable investment banking firm
as to the fairness (or otherwise) of the terms of such Business Combination
from the point of view of the remaining public shareholders of Transco
(such investment banking firm to be selected by a majority of the
Continuing Directors and to be paid a reasonable fee for its services by
Transco).
The By-laws of Williams provide for a special meeting of shareholders to be
called by either the Chairman of the Board, the President or the Secretary at
the request of the shareholders holding a majority of the Williams Common Shares
or a majority of the directors. Transco's By-laws provide for such meeting to be
called by the directors of Transco or by any officer instructed by the
directors.
COMPARISON OF WILLIAMS $3.50 PREFERRED STOCK AND TRANSCO $3.50 PREFERRED STOCK
Except as described below, the Williams $3.50 Preferred Stock and the
Transco $3.50 Preferred Stock have substantially the same rights and
restrictions and rank equally as to dividends and distribution of assets upon
liquidation, dissolution or winding up. The conversion ratio of Williams $3.50
Preferred Stock into Williams Common Shares represents the conversion ratio of
Transco $3.50 Preferred Stock into Transco Common Shares multiplied by 0.625,
the exchange ratio of Transco Common Shares into Williams Common Shares provided
for in the Merger. In the event that holders of the Transco $3.50 Preferred
Stock become entitled to elect directors to the Transco Board due to an
arrearage of dividends, no directors may be elected to the Transco Board by any
class of Transco stock unless a quorum of the holders of the Transco $3.50
Preferred Stock is present at any meeting of Transco shareholders where
directors will be elected. In the event that holders of the Williams $3.50
Preferred Stock become entitled to elect directors, a lack of a quorum of such
holders will not prevent holders of Williams Common Shares from electing
directors. A quorum for both purposes constitutes one third of the number of
such preferred stock outstanding. In addition, the approval of a majority of the
holders of the Transco $3.50 Preferred Stock is required before Transco may
engage in certain transactions, including the sale of substantially all of its
assets or its merger into another corporation with such other corporation being
the surviving corporation. No such approvals are required of the holders of the
Williams $3.50 Preferred Stock.
49
<PAGE> 70
VALIDITY OF COMMON STOCK AND PREFERRED STOCK
The validity of the Williams Common Shares and the Williams $3.50 Preferred
Stock offered by this Prospectus and Information Statement will be passed on by
J. Furman Lewis, Senior Vice President and General Counsel, The Williams
Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172. As of February 8,
1995, Mr. Lewis owned 31,947 Williams Common Shares, or less than 1% of the
total outstanding Williams Common Shares.
EXPERTS
The consolidated financial statements of Williams and its subsidiaries
appearing in the Williams Annual Report for the year ended December 31, 1993,
have been audited by Ernst & Young, LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements and schedules of Transco and its
subsidiaries as of December 31, 1993 and 1992 and for the three years in the
period ended December 31, 1993 incorporated by reference in this Prospectus and
Information Statement and elsewhere in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
50
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ANNEX A
===============================================================================
AGREEMENT AND PLAN OF MERGER*
DATED AS OF DECEMBER 12, 1994
BY AND AMONG
THE WILLIAMS COMPANIES, INC.,
WC ACQUISITION CORP.
AND
TRANSCO ENERGY COMPANY
===============================================================================
- ---------------
*As amended.
<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
ARTICLE I
THE TENDER OFFER.................................................................. 1
Section 1.1 The Offer........................................................ 1
Section 1.2 Company Action................................................... 2
ARTICLE II
THE MERGER........................................................................ 3
Section 2.1 Effective Time of the Merger..................................... 3
Section 2.2 Closing.......................................................... 3
Section 2.3 Effects of the Merger............................................ 3
Section 2.4 Certificate of Incorporation and By-Laws......................... 3
Section 2.5 Directors........................................................ 3
Section 2.6 Officers......................................................... 4
ARTICLE III
CONVERSION OF SECURITIES; DISSENTING SHARES....................................... 4
Section 3.1 Conversion of Capital Stock...................................... 4
Section 3.2 Exchange of Certificates and Cash................................ 5
Section 3.3 Dissenting Shares................................................ 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................... 7
Section 4.1 Organization..................................................... 7
Section 4.2 Capitalization................................................... 8
Section 4.3 Authority........................................................ 9
Section 4.4 Consents and Approvals; No Violations............................ 9
Section 4.5 SEC Reports and Financial Statements............................. 10
Section 4.6 Information in Disclosure Documents and Registration Statement... 11
Section 4.7 Litigation....................................................... 11
Section 4.8 No Material Adverse Change; Material Agreements.................. 11
Section 4.9 Taxes............................................................ 12
Section 4.10 Opinion of Financial Advisor..................................... 13
Section 4.11 Company Rights Agreement......................................... 13
Section 4.12 DGCL Section 203................................................. 13
Section 4.13 Change in Control Provisions..................................... 13
Section 4.14 Vote Required.................................................... 13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.................................. 13
Section 5.1 Organization..................................................... 13
Section 5.2 Capitalization................................................... 14
Section 5.3 Authority........................................................ 15
Section 5.4 Consents and Approvals; No Violations............................ 15
Section 5.5 SEC Reports and Financial Statements............................. 16
Section 5.6 Information in Disclosure Documents and Registration Statement... 16
Section 5.7 Litigation....................................................... 17
Section 5.8 No Material Adverse Change; Material Agreements.................. 17
Section 5.9 Taxes............................................................ 17
Section 5.10 Parent Not an Interested Stockholder or an Acquiring Person...... 18
Section 5.11 Interim Operations of Sub........................................ 18
</TABLE>
i
<PAGE> 73
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Section 5.12 Financing........................................................ 18
Section 5.13 Purchase of Option Shares........................................ 18
ARTICLE VI
COVENANTS......................................................................... 18
Section 6.1 Conduct of Business of the Company............................... 18
Section 6.2 Conduct of Business of Parent.................................... 20
Section 6.3 Reasonable Best Efforts.......................................... 20
Section 6.4 Letter of the Company's Accountants.............................. 21
Section 6.5 Letter of Parent's Accountants................................... 21
Section 6.6 Access to Information............................................ 21
Section 6.7 Company Stockholders Meeting..................................... 21
Section 6.8 Stock Exchange Listing........................................... 21
Section 6.9 Company Plans.................................................... 21
Section 6.10 Other Employee Benefit Plans..................................... 23
Section 6.11 Exclusivity...................................................... 24
Section 6.12 Fees and Expenses................................................ 24
Section 6.13 Brokers or Finders............................................... 24
Section 6.14 Company Rights Agreement......................................... 25
Section 6.15 Rule 145......................................................... 25
Section 6.16 Notification of Certain Matters.................................. 25
Section 6.17 Interim Company Preferred Stock Dividend......................... 25
Section 6.18 Company Debt Agreements.......................................... 25
ARTICLE VII
CONDITIONS........................................................................ 26
Section 7.1 Conditions to Each Party's Obligation To Effect the Merger....... 26
Section 7.2 Conditions of Obligations of Parent and Sub...................... 26
Section 7.3 Conditions of Obligations of the Company......................... 26
ARTICLE VIII
TERMINATION AND AMENDMENT......................................................... 27
Section 8.1 Termination...................................................... 27
Section 8.2 Effect of Termination............................................ 27
ARTICLE IX
MISCELLANEOUS..................................................................... 28
Section 9.1 Nonsurvival of Representations and Warranties.................... 28
Section 9.2 Amendment........................................................ 28
Section 9.3 Extension; Waiver................................................ 28
Section 9.4 Notices.......................................................... 28
Section 9.5 Interpretation................................................... 29
Section 9.6 Counterparts..................................................... 29
Section 9.7 Entire Agreement; No Third Party Beneficiaries................... 29
Section 9.8 Governing Law.................................................... 29
Section 9.9 Specific Performance............................................. 30
Section 9.10 Publicity........................................................ 30
Section 9.11 Assignment....................................................... 30
Section 9.12 Validity......................................................... 30
Section 9.13 Taxes............................................................ 30
</TABLE>
ii
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SCHEDULE OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Acquisition Transaction........................................................... 6.11(a)
Agreement......................................................................... Preamble
Certificate of Merger............................................................. 2.1
Certificates...................................................................... 3.2(b)
Certificates of Designation....................................................... 3.1(c)
Closing........................................................................... 2.2
Closing Date...................................................................... 2.2
Code.............................................................................. 3.2(h)
Common Stock Merger Consideration................................................. 3.2(b)
Company........................................................................... Preamble
Company Common Stock.............................................................. Preamble
Company Cumulative Preferred Stock................................................ 4.2
Company Disclosure Schedule....................................................... 4.2
Company Notes..................................................................... 6.1(e)
Company Plans..................................................................... 4.2
Company Preferred Stock........................................................... 3.1(c)
Company Rights.................................................................... 4.2
Company Rights Agreement.......................................................... 4.2
Company SEC Documents............................................................. 4.5
Company Stock Option.............................................................. 6.9(b)
Confidentiality Agreement......................................................... 6.6
Conversion Number................................................................. 3.1(d)
Corpus Christi Lease.............................................................. 4.2
Current Employees................................................................. 6.10(a)
DGCL.............................................................................. 2.1
Dissenting Shares................................................................. 3.3
Effective Time.................................................................... 2.1
Exchange Act...................................................................... 1.2(a)
Exchange Agent.................................................................... 3.2(a)
Exchange Fund..................................................................... 3.2(a)
Governmental Entity............................................................... 4.4(a)
HSR Act........................................................................... 4.4(a)
IRS............................................................................... 4.9(a)
Material Company Subsidiary....................................................... 4.1(b)
Material Parent Subsidiary........................................................ 5.1(b)
Merger............................................................................ Preamble
Merger Consideration.............................................................. 3.2(b)
NYSE.............................................................................. 1.1(a)
Offer............................................................................. Preamble
Offer Documents................................................................... 1.1(b)
Offer to Purchase................................................................. 1.1(a)
Parent............................................................................ Preamble
Parent Common Stock............................................................... 3.1(d)
Parent Disclosure Schedule........................................................ 5.9
Parent New Preferred stock........................................................ 3.1(c)
Parent Plans...................................................................... 5.2
</TABLE>
iii
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<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Parent Preferred Stock............................................................ 5.2
Parent Rights..................................................................... 5.2
Parent Rights Agreement........................................................... 5.2
Parent SEC Documents.............................................................. 5.5
Per Share Amount.................................................................. Preamble
Person............................................................................ 6.11(a)
Preferred Stock Merger Consideration.............................................. 3.2(b)
Proxy Statement................................................................... 4.6(c)
Replacement Option................................................................ 6.9(c)
S-4............................................................................... 4.6(b)
SAS............................................................................... 6.4
Schedule 14D-1.................................................................... 1.1(b)
Schedule 14D-9.................................................................... 1.2(a)
SEC............................................................................... 1.1(b)
Securities Act.................................................................... 4.4(a)
Stock Option Agreement............................................................ Preamble
Sub............................................................................... Preamble
Subsidiary........................................................................ 3.1(b)
Subsidiary Preferred Stock........................................................ 4.2
Surviving Corporation............................................................. Preamble
Tax Return........................................................................ 4.9(b)
Taxes............................................................................. 4.9(b)
TIA............................................................................... 4.4(a)
Voting Debt....................................................................... 4.2
</TABLE>
iv
<PAGE> 76
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 12, 1994 (this
"Agreement"), by and among The Williams Companies, Inc., a Delaware corporation
("Parent"), WC Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Sub"), and Transco Energy Company, a Delaware corporation
(the "Company").
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that the acquisition of the Company by Parent would be advantageous
and beneficial to their respective corporations and stockholders, and that such
transaction is consistent with and in furtherance of such entities' respective
long-term business strategies;
WHEREAS, in furtherance thereof, it is proposed that Parent will make a
cash tender (the "Offer") to acquire up to 24,600,000 shares of the Company's
common stock, par value $.50 per share (the "Company Common Stock"), together
with attached Company Rights (as defined in Section 4.2), for $17.50 per share
of Company Common Stock (and attached Right) (such amount, or any greater amount
per share pursuant to the Offer, being hereinafter referred to as the "Per Share
Amount"), net to the seller in cash, in accordance with the terms and subject to
the conditions provided herein and in the Offer Documents (as defined in Section
1.1(b));
WHEREAS, it is proposed that, following consummation of the Offer, there be
a merger of Sub with and into the Company (the "Merger") with the Company
surviving as a subsidiary of Parent (the "Surviving Corporation"); and
WHEREAS, as a condition to the willingness of Parent to enter into this
Agreement, Parent has required that the Company agree, and in order to induce
Parent to enter into this Agreement, the Company has entered into concurrently
with the execution of this Agreement a Stock Option Agreement (the "Stock Option
Agreement") providing for a grant of an option to Parent to purchase, at a per
share price of $17.50 per share and otherwise upon the terms and conditions
provided for therein, up to 7,500,000 shares of Company Common Stock.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE TENDER OFFER
Section 1.1 The Offer.
(a) Provided that this Agreement has not been terminated in accordance with
Section 8.1, Parent will commence the Offer as promptly as practicable after the
date hereof, but in no event later than December 16, 1994. The obligation of
Parent to accept for payment any shares of Company Common Stock (and attached
Company Rights) tendered pursuant to the Offer will be only subject to the
satisfaction of the conditions set forth in Annex I hereto. Parent expressly
reserves the right to (i) increase the Per Share Amount or (ii) increase on one
occasion the number of shares of Company Common Stock (and attached Company
Rights) to be purchased in the Offer; provided, that (x) any increase in the
number of shares to be purchased which requires an extension of the Offer beyond
its then applicable expiration date in accordance with applicable law must
provide for an increase of at least 4,000,000 shares and (y) any increase in the
number of shares sought at a time when the average closing sale prices on the
New York Stock Exchange (the "NYSE") for shares of Parent Common Stock (as
defined in Section 3.1(d)) for the ten trading days immediately preceding the
date of public notice of the increase exceeds $28.00 may only be made with the
consent of the Company. Without the prior written consent of the Company, Parent
will not (i) decrease the Per Share Amount, (ii) decrease or (other than as
permitted by the immediately preceding sentence) increase the number of shares
of Company Common Stock to be purchased in the Offer, (iii) change the form of
consideration payable in the Offer, (iv) add to or change the conditions to the
Offer set forth in Annex I hereto, (v) change or waive the Minimum Condition (as
defined in Annex I hereto) or (vi) make any other
<PAGE> 77
change in the terms or conditions of the Offer which is adverse to the holders
of shares of Company Common Stock. The conditions set forth in Annex I are for
the benefit of Parent, and may be asserted by Parent or, subject to the
immediately preceding sentence, may be waived by Parent, in whole or in part, at
any time and from time to time in its discretion. The Offer will be made by
means of an offer to purchase (the "Offer to Purchase") containing the terms set
forth in this Agreement and only the conditions set forth in Annex I hereto.
Subject to the terms of the Offer and this Agreement and the satisfaction of all
the conditions of the Offer set forth in Annex I hereto as of any expiration
date, Parent will accept for payment and pay for all shares of Company Common
Stock (and attached Company Rights) validly tendered and not withdrawn pursuant
to the Offer as soon as practicable after such expiration date of the Offer.
Subject to Section 8.1, if the conditions set forth in Annex I hereto are not
satisfied or, to the extent permitted by this Agreement, waived by Parent, as of
the date the Offer would otherwise have expired, Parent will extend the Offer
from time to time until the earlier of the consummation of the Offer or the date
which is 90 days from the commencement of the Offer.
(b) On the date of commencement of the Offer, Parent will file with the
Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
Schedule 14D-1 (together with all amendments and supplements thereto, the
"Schedule 14D-1") with respect to the Offer. The Schedule 14D-1 will contain
(including as an exhibit) or will incorporate by reference the Offer to Purchase
(or portions thereof) and forms of the related letter of transmittal and summary
advertisement (which Schedule 14D-1, Offer to Purchase and other documents,
together with any supplements or amendments thereto, are referred to herein
collectively as the "Offer Documents"). Parent will disseminate the Offer to
Purchase, related Letter of Transmittal and other related Offer Documents to
holders of shares of the Company Common Stock. Each of Parent and the Company
will promptly correct any information provided by it for use in the Offer
Documents that becomes false or misleading in any material respect and Parent
will take all steps necessary to cause the Schedule 14D-1 as so corrected to be
filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of shares of Company Common Stock, in each case as and
to the extent required by applicable law. Parent will provide the Company and
its counsel in writing with any comments Parent or its counsel may receive from
the SEC or its staff with respect to the Offer Documents promptly after the
receipt of such comments. Parent and its counsel will provide the Company and
its counsel with a reasonable opportunity to participate in all communications
with the SEC and its staff, including any meetings and telephone conferences
relating to the Offer Documents, the Offer, the Merger or this Agreement.
Section 1.2 Company Action.
(a) The Company hereby consents to the Offer. The Company will file with
the SEC, as promptly as practicable after the filing by Parent of the Schedule
14D-1, a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") reflecting the recommendation of the Company's Board of Directors that
holders of shares of Company Common Stock tender their shares pursuant to the
Offer and will disseminate the Schedule 14D-9 as required by Rule 14d-9
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), subject to the fiduciary duties of the Board of Directors of the Company
under applicable laws as advised by counsel. Each of the Company and Parent will
promptly correct any information provided by it for use in the Schedule 14D-9
that becomes false or misleading in any material respect, and the Company will
further take all steps necessary to cause the Schedule 14D-9 as so corrected to
be filed with the SEC and disseminated to holders of shares of Company Common
Stock, in each case as and to the extent required by applicable law. The Company
will provide Parent and its counsel in writing with any comments the Company or
its counsel may receive from the SEC or its staff with respect to the Schedule
14D-9 promptly after the receipt of such comments. The Company and its counsel
will provide Parent and its counsel with a reasonable opportunity to participate
in all communications with the SEC and its staff, including any meetings and
telephone conferences relating to the Schedule 14D-9, the Merger or this
Agreement.
(b) The Company will (i) promptly furnish Parent with mailing labels
containing the names and addresses of all record holders of shares of Company
Common Stock as of a recent date and of those persons becoming record holders
after such date, together with copies of all security position listings and
computer files and all other information in the Company's control regarding the
beneficial owners of shares of Company
2
<PAGE> 78
Common Stock that Parent may reasonably request and (ii) furnish to Parent such
other assistance as Parent or its agents may reasonably request in communicating
the Offer to holders of shares of Company Common Stock.
(c) Subject to the requirements of law, and except for such steps as are
necessary to disseminate the Offer Documents, Parent will, and will cause each
of its subsidiaries to, hold in confidence the information contained in any of
such labels and lists, use such information only in connection with the Offer
and, if this Agreement is terminated, deliver to the Company all copies of, and
extracts or summaries from, such information then in their possession.
(d) Effective upon payment by Parent for all shares of Company Common Stock
accepted for payment pursuant to the Offer, Parent will be entitled to designate
two directors on the Company's Board of Directors, and the Company will take all
action necessary to cause Parent's designees to be elected or appointed to the
Company's Board of Directors, including, without limitation, increasing the
number of directors or seeking and accepting resignations of incumbent
directors. Such designees will abstain from any action proposed to be taken by
the Company to amend or terminate this Agreement or waive any action by Parent,
which actions will be effective with the approval of a majority of the remaining
directors. Parent agrees not to effect any other changes in the Board of
Directors of the Company prior to the Effective Time.
ARTICLE II
THE MERGER
Section 2.1 Effective Time of the Merger. Upon the terms and subject to
the conditions hereof, a certificate of merger (the "Certificate of Merger") and
the Certificates of Designation (as defined in Section 3.1(c)) will be duly
prepared, executed and acknowledged by the Surviving Corporation and thereafter
delivered to the Secretary of State of the State of Delaware, for filing as
provided in the Delaware General Corporation Law (the "DGCL"), as soon as
practicable on the Closing Date (as defined in Section 2.2). The Merger will
become effective upon the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware (the "Effective Time").
Section 2.2 Closing. Unless this Agreement is terminated and the
transactions contemplated herein abandoned pursuant to Section 8.1 and assuming
the satisfaction or waiver of the conditions set forth in Article VII, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to
be specified by the parties, which will be no later than the second business day
following the date of the meeting of the Company's stockholders called for the
purpose of voting on matters with respect to this Agreement (the "Closing
Date"), at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022, unless another date or place is agreed to in
writing by the parties hereto.
Section 2.3 Effects of the Merger. The Merger will have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Sub will vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 2.4 Certificate of Incorporation and By-Laws.
(a) The Restated Certificate of Incorporation of the Company in effect at
the Effective Time will be the Restated Certificate of Incorporation of the
Surviving Corporation, as amended and restated substantially in the form set
forth in Exhibit 2.4 hereto, until amended in accordance with applicable law.
(b) The By-Laws of Sub in effect at the Effective Time will be the By-Laws
of the Surviving Corporation until amended in accordance with applicable law.
Section 2.5 Directors. The directors of Sub at the Effective Time will be
the initial directors of the Surviving Corporation, each to hold office from the
Effective Time in accordance with the Restated Certificate
3
<PAGE> 79
of Incorporation and By-Laws of the Surviving Corporation and until his or her
successor is duly elected and qualified.
Section 2.6 Officers. The officers of the Company at the Effective Time
will be the initial officers of the Surviving Corporation, each to hold office
from the Effective Time in accordance with the Restated Certificate of
Incorporation and By-Laws of the Surviving Corporation and until his or her
successor is duly appointed and qualified.
ARTICLE III
CONVERSION OF SECURITIES; DISSENTING SHARES
Section 3.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of capital stock of the Company or the holder of any capital stock of
Sub:
(a) Each issued and outstanding share of the capital stock, par value $.01
per share, of Sub will be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the Surviving
Corporation.
(b) All shares of capital stock of the Company that are owned by the
Company as treasury stock and any shares of Company Common Stock or Company
Preferred Stock owned by Parent, Sub or any other wholly owned Subsidiary (as
hereinafter defined) of Parent will be cancelled and retired and will cease to
exist and no stock of Parent or other consideration will be delivered in
exchange therefor. As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interest in such partnership) or (ii)
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party, by any
one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries. References to a wholly owned subsidiary of an entity include a
subsidiary all of the common equity of which is owned directly or through
"wholly owned" subsidiaries by such entity.
(c) Subject to Section 3.2(e), each issued and outstanding share of the
$3.50 series Cumulative Convertible Preferred Stock, stated value $50 per share
(the "Company Preferred Stock"), of the Company (other than shares to be
cancelled in accordance with Section 3.1(b) and Dissenting Shares) will be
converted into the right to receive (in accordance with Section 3.2(b)) one
share of preferred stock of Parent which will be designated Parent's $3.50
Series Cumulative Convertible Preferred Stock (the "Parent New Preferred Stock")
and be initially convertible into 1.5625 shares of Parent Common Stock and
otherwise have the designation, preferences and rights set forth in the Form of
Certificate of Designation, Preferences and Rights of Parent $3.50 Preferred
Stock attached hereto as Exhibit 3.1(c) (the "Certificate of Designation"). All
shares of Company Preferred Stock, when converted in accordance with this
Section 3.1(c), will no longer be outstanding and will automatically be
cancelled and retired and will cease to exist, and each holder of a certificate
representing any such shares will cease to have any rights with respect thereto,
except the right to receive the shares of Parent New Preferred Stock and any
cash or other property to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 3.2, without interest,
and the right to receive any dividend which such holder is entitled to be paid
pursuant to Section 6.17.
(d) Subject to Section 3.2(e), each issued and outstanding share of Company
Common Stock (other than shares to be cancelled in accordance with Section
3.1(b) and Dissenting Shares) will be converted into the right to receive (in
accordance with Section 3.2(b)) .625 of a share of Common Stock, $1.00 par value
per share (the "Parent Common Stock"), of Parent, (such fractional amount of a
share of Parent Common Stock, the "Conversion Number"). In the event that
between the date of this Agreement and the Effective Time the outstanding shares
of Company Common Stock or Parent Common Stock are changed into a
4
<PAGE> 80
different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Conversion Number (and number of attached Parent
Rights), the conversion rates applicable to the shares of Parent New Preferred
Stock issuable in the Merger, and the amount of cash payable in respect of
fractional shares pursuant to Section 3.2(e) will be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares. All shares of Company Common Stock,
when converted in accordance with this Section 3.1(d), will no longer be
outstanding and will automatically be cancelled and retired and will cease to
exist, and each holder of a certificate representing any such shares will cease
to have any rights with respect thereto, except the right to receive the shares
of Parent Common Stock (and attached Parent Rights) and any cash or other
property to be issued or paid in consideration therefor upon the surrender of
such certificate in accordance with Section 3.2, without interest.
(e) Each issued and outstanding share of Company Cumulative Preferred Stock
(other than shares to be cancelled in accordance with Section 3.1(b)) owned by
Parent and outstanding at the Effective Time will remain outstanding immediately
following the Effective Time as one fully paid and nonassessable share of
Cumulative Preferred Stock of the Surviving Corporation.
Section 3.2 Exchange of Certificates and Cash.
(a) Promptly following the Effective Time, Parent will deposit, or will
cause to be so deposited, with First Chicago Trust Company of New York or
another bank or trust company designated by Parent and reasonably acceptable to
the Company (the "Exchange Agent") for the benefit of the holders of shares of
Company Common Stock and Company Preferred Stock (other than any Dissenting
Shares), certificates evidencing the shares of Parent Common Stock and Parent
New Preferred Stock payable or issuable pursuant to Section 3.1 in exchange for
outstanding shares of Company Common Stock and Company Preferred Stock, as the
case may be (such certificates, together with any cash or other dividends or
distributions declared or made, and any other cash or other property paid or
issued through redemption, merger or otherwise, with respect thereto, being
hereinafter collectively referred to as the "Exchange Fund"). Subject to Section
3.2(g), the Exchange Agent will deliver the shares of Parent Common Stock (and
attached Parent Rights) and Parent New Preferred Stock to holders of shares of
Company Common Stock and Company Preferred Stock, as the case may be (other than
any Dissenting Shares), in accordance with Section 3.2(b) and the Exchange Fund
will not be used for any other purpose. Except as contemplated by Section
3.2(c), any interest, dividends or other income earned on the investment of cash
or other property held in the Exchange Fund will be for the account of Parent.
(b) As soon as practicable after the Effective Time, Parent will cause the
Exchange Agent to mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock or Company Preferred Stock (the "Certificates") whose
shares were converted pursuant to Section 3.1 (i) a letter of transmittal (which
will be in such form and have such provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock (and attached Parent Rights) or Parent New Preferred Stock, as the
case may be. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent and Sub,
together with such letter of transmittal, duly executed, the holder of such
Certificate will be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Parent Common Stock (and attached
Parent Rights) or Parent New Preferred Stock, as the case may be, which such
holder has the right to receive pursuant to the provisions of this Article III,
and (y) cash in lieu of fractional shares of Parent Common Stock (and attached
Parent Rights) to which such holder is entitled pursuant to Section 3.2(e) (the
shares of Parent Common Stock (and attached Parent Rights) and cash described in
clauses (x) and (y) above being collectively referred to herein as the "Common
Stock Merger Consideration", the shares of Parent New Preferred Stock described
in clause (x) above being collectively referred to herein as the "Preferred
Stock Merger Consideration" and the Common Stock Merger Consideration and the
Preferred Stock Merger Consideration being collectively referred to herein as
the "Merger Consideration") and the Certificate so surrendered will forthwith be
cancelled. In the event of a transfer of ownership of Company Common Stock or
Company Preferred Stock which is not registered in the transfer records of the
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Company, the certificates representing the proper number of shares of Parent
Common Stock (and attached Parent Rights) or Parent New Preferred Stock may be
paid or issued to a transferee if the Certificate representing such Company
Common Stock or Company Preferred Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer,
together with evidence that any applicable stock transfer taxes have been paid
and the payment of any required transfer taxes. Until surrendered as
contemplated by this Section 3.2, each Certificate will be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the relevant Merger Consideration.
(c) No dividends or other distributions declared or made, or any other cash
or other property paid or issued through redemption, merger or otherwise, after
the Effective Time with respect to shares of Parent Common Stock or Parent New
Preferred Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock or Parent New Preferred Stock which such holder is entitled to
receive upon the surrender thereof in accordance with this Section 3.2. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there will be paid to the record holder of the certificates representing whole
shares of Parent Common Stock or Parent New Preferred Stock issued in exchange
therefor, without interest, (i) the amount of dividends or other distributions,
or other cash or property paid or issued through redemption, merger or
otherwise, with a record date after the Effective Time theretofore paid or
issued with respect to such whole shares of Parent Common Stock or Parent New
Preferred Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, or other cash or property paid or issued
through redemption, merger or otherwise, with a record date after the Effective
Time but prior to such surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Parent Common Stock or Parent New
Preferred Stock.
(d) The Merger Consideration paid as provided above, together with any
dividends, other distributions or other property paid pursuant to Section
3.2(c), will be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock or Company Preferred Stock, as
the case may be, and there will be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock or Company Preferred Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they will be cancelled and
exchanged as provided in this Article III.
(e) No certificate or scrip representing fractional shares of Parent Common
Stock will be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Parent. In lieu of the issuance of any fractional
shares of Parent Common Stock pursuant to Section 3.1(d), a cash adjustment will
be paid to any holder of Company Common Stock in respect of any such fractional
shares that would otherwise be issuable to such holder in an amount equal to (i)
the product of (x) the fraction of a share of Parent Common Stock to which such
holder would otherwise be entitled to receive pursuant to Section 3.1(d) (after
taking into account all shares of Company Common Stock then held of record by
such holder) and (y) the Per Share Amount, divided by (ii) .625.
(f) Neither Parent nor the Company will be liable to any holder of shares
of Company Common Stock, Company Preferred Stock, Parent Common Stock (or
attached Parent Rights) or Parent New Preferred Stock for any such shares (or
dividends or distributions with respect thereto) or cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(g) Any portion of the Exchange Fund that remains undistributed to the
holders of shares of Company Common Stock and Company Preferred Stock for one
year after the Effective Time will be delivered to Parent, upon demand, and any
holders of shares of Company Common Stock and Company Preferred Stock who have
not theretofore complied with this Article III will thereafter look only to
Parent for the Merger Consideration and any unpaid dividends and distributions
payable pursuant to Section 3.2(c) to which they are entitled pursuant to this
Article III.
(h) Parent or the Exchange Agent will be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of shares of Company Common Stock or Company Preferred Stock such amounts
as Parent or the Exchange Agent is required to deduct and withhold
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with respect to the making of such payment under the Internal Revenue Code of
1986, as amended (the "Code"), or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange Agent,
such withheld amounts will be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock or Company
Preferred Stock in respect of which such deduction and withholding was made by
Parent or the Exchange Agent.
Section 3.3 Dissenting Shares. If required by the DGCL but only to the
extent required thereby, shares of Company Common Stock and Company Preferred
Stock which are issued and outstanding immediately prior to the Effective Time
and which are held by holders of such shares of Company Common Stock and Company
Preferred Stock, as the case may be, who have properly exercised appraisal
rights with respect thereto in accordance with Section 262 of the DGCL (the
"Dissenting Shares") will not be converted into or be exchangeable for the right
to receive the relevant Merger Consideration, and holders of such shares of
Company Common Stock and Company Preferred Stock will be entitled to receive
payment of the appraised value of such shares of Company Common Stock and
Company Preferred Stock, as the case may be, in accordance with the provisions
of such Section 262 unless and until such holders fail to perfect or effectively
withdraw or lose their rights to appraisal and payment under the DGCL. If, after
the Effective Time, any such holder fails to perfect or effectively withdraws or
loses such right, such shares of Company Common or Company Preferred Stock will
thereupon be treated as if they had been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration and any unpaid dividends and distributions payable pursuant to
Section 3.2(c) to which the holder of such shares of Company Common Stock or
Company Preferred Stock is entitled, without any interest thereon. The Company
will give Parent prompt notice of any demands received by the Company for
appraisal of shares of Company Common Stock or Company Preferred Stock and,
prior to the Effective Time, Parent will have the right to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company will not, except with the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such
demands.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 4.1 Organization.
(a) Each of the Company and each Material Company Subsidiary (as defined
below) is a corporation or other legal entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing or in good standing or to
have such power and authority would not, individually or in the aggregate, have
a material adverse effect on the Company and its Subsidiaries. As used in this
Agreement, any reference to any event, change or effect being material or having
a material adverse effect on or with respect to an entity (or such entity and
its subsidiaries) means such event, change or effect which is materially adverse
to the business, assets, results of operations or financial condition of such
entity (or, if with respect to such entity and its subsidiaries, such group of
entities taken as a whole). The Company and each Material Company Subsidiary is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a material adverse
effect on the Company and its Subsidiaries.
(b) Each of Transcontinental Gas Pipe Line Corporation ("TGPL"), Texas Gas
Transmission Corporation, Transco Gas Marketing Company, Transco Coal Company
and Transco Gas Company is referred to herein as a "Material Company
Subsidiary."
(c) The Company has heretofore made available to Parent a complete and
correct copy of the charter and by-laws or comparable organizational documents,
each as amended to date, of the Company and each
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Material Company Subsidiary. Such charters, by-laws and comparable
organizational documents are in full force and effect. Neither the Company nor
any Material Company Subsidiary is in violation of any provision of its charter,
by-laws or comparable organizational documents, except for such violations that
would not, individually or in the aggregate, have a material adverse effect on
the Company and its Subsidiaries.
Section 4.2 Capitalization. As of the date of this Agreement, the
authorized capital stock of the Company consists of (i) 150,000,000 shares of
Company Common Stock of which, as of December 9, 1994, 40,927,847 shares
(including 216,900 shares of restricted stock) were issued and outstanding and
514,444 shares were held in treasury, (ii) 15,000,000 shares of Cumulative
Preferred Stock, without par value ("Company Cumulative Preferred Stock"), of
which, as of December 9, 1994, 2,979,900 shares of the Company's $4.75 series
Cumulative Convertible Preferred Stock, stated rate $50 per share (the "Company
$4.75 Preferred Stock") were issued and outstanding, 2,500,000 shares of Company
Preferred Stock were issued and outstanding, 4,848,484 shares of the Company's
Cumulative Convertible Preferred Stock, 9.25% Series were authorized but none
outstanding all such shares ever outstanding having been repurchased by the
Company, and none of which shares were held in treasury, and (iii) 2,000,000
shares of Cumulative Second Preferred Stock, without par value, of which no
shares are issued and outstanding. As of December 9, 1994, 56,850,563 shares of
Company Common Stock were reserved for issuance in accordance with the Rights
Agreement, dated as of January 13, 1986, by and between the Company and First
Chicago Trust Company, as amended most recently as of January 24, 1991
(collectively, the "Company Rights Agreement"), pursuant to which the Company
has issued rights (the "Company Rights") to purchase shares of Company Common
Stock. Also as of December 9, 1994, the Company had reserved for issuance (i)
2,664,031 shares of Company Common Stock for conversion of Company $4.75
Preferred Stock at a conversion ratio of .894 of a share of Company Common Stock
for each share of Company $4.75 Preferred Stock, (ii) 6,295,000 shares of
Company Common Stock for conversion of Company Preferred Stock at a conversion
ratio of 2.5 shares of Company Common Stock for each share of Company Preferred
Stock, (iii) 3,322,078 shares of Company Common Stock upon exercise of then
outstanding options or in respect of outstanding restricted stock or restricted
or deferred stock units under the Company's stock option plans (the "Company
Plans"), (iv) 1,077,906 shares of Company Common Stock in respect of future
grants of options, restricted stock or restricted or deferred stock units which
may be made pursuant to the Company Plans, and (v) as of December 11, 1994,
7,500,000 shares of Company Common Stock issuable upon exercise by Parent of the
Stock Option Agreement. Since December 9, 1994, the Company has not issued any
shares of its capital stock, except for issuances of Company Common Stock upon
the exercise of options or vesting of restricted stock or deferred stock unit
awards granted under the Company Plans which were outstanding on December 9,
1994 and upon conversion of shares of Company Preferred Stock, and has not
repurchased, redeemed or otherwise retired any shares of its capital stock other
than (i) pursuant to Section 14.07 of the Lease Agreement, dated September 1,
1993, between Corpus Christi Transmission Company, a general partnership, and
Corpus Christi Industrial Pipeline Company, a general partnership, as lessor,
and Corpus Christi Natural Gas Company, as lessee (the "Corpus Christi Lease"),
or (ii) in connection with tax withholding features under the Company Plans. All
the outstanding shares of the Company's capital stock are, and all shares which
may be issued pursuant to the Company Plans, upon conversion of Company
Preferred Stock or upon exercise of the Stock Option Agreement will be, when
issued and paid for in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and nonassessable and not subject to any
preemptive rights of third parties in respect thereto. As of the date of this
Agreement, no bonds, debentures, notes or other indebtedness having the right to
vote under ordinary circumstances (or convertible into securities having such
right to vote) ("Voting Debt") of the Company or any of its Subsidiaries are
issued or outstanding. Except as set forth above and on Section 4.2 of the
Disclosure Schedule delivered by the Company to Parent pursuant to this
Agreement (the "Company Disclosure Schedule"), as of the date of this Agreement,
there are no existing options, warrants, calls, subscriptions or other rights or
other agreements or commitments of any character relating to the issued or
unissued capital stock or Voting Debt of the Company or any of its Subsidiaries
or obligating the Company or any of its Subsidiaries to issue, transfer or sell
or cause to be issued, transferred or sold any shares of capital stock or Voting
Debt of, or other equity interests in, the Company or of any of its Subsidiaries
or securities convertible into or exchangeable for such shares or equity
interests or obligating the Company or any of its Subsidiaries to grant, extend
or enter into any such option, warrant, call, subscription or
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such other right, agreement or commitment. As of the date of this Agreement,
there are no outstanding contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its Subsidiaries, other than (i) pursuant to the
Stock Option Agreement, (ii) pursuant to the Corpus Christi Lease, (iii) in
connection with tax withholding features under the Company Plans, (iv)
forfeitures of restricted stock in accordance with its terms, and (v) in
connection with the "change of control" put provisions of the Company Preferred
Stock and the preferred stock of TGPL (the "Subsidiary Preferred Stock"). Each
of the outstanding shares of capital stock of each of the Company's Subsidiaries
is duly authorized, validly issued, fully paid, nonassessable and free of any
preemptive rights in respect thereto, and, except as set forth on Section 4.2 of
the Company Disclosure Schedule, such shares are owned by the Company or by a
Subsidiary of the Company free and clear of any lien, claim, option, charge,
security interest, limitation on voting rights and encumbrance of any kind,
except as would not have a material adverse effect on the Company and its
Subsidiaries.
Section 4.3 Authority. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and the Stock Option Agreement
and to consummate the transactions contemplated hereby and thereby, subject to,
with respect to the Merger, the approval and adoption of this Agreement and the
Merger by the affirmative vote of the holders of Company Common Stock entitled
to cast at least a majority of the total number of votes entitled to be cast by
holders of Company Common Stock. The execution, delivery and performance of this
Agreement and the Stock Option Agreement by the Company and the consummation by
the Company of the Merger and of the other transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or the Stock Option Agreement or to
consummate the transactions so contemplated, other than, with respect to the
Merger, the approval and adoption of this Agreement and the Merger by the
affirmative vote of the holders of Company Common Stock entitled to cast at
least a majority of the total number of votes entitled to be cast by holders of
Company Common Stock, and the filing and recordation of the Certificate of
Merger with the Secretary of State of the State of Delaware. Each of this
Agreement and the Stock Option Agreement has been duly executed and delivered by
the Company and, assuming this Agreement and the Stock Option Agreement, as the
case may be, constitutes a valid and binding obligation of Parent and Sub, as
the case may be, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
Section 4.4 Consents and Approvals; No Violations.
(a) Except as set forth on Section 4.4 of the Company Disclosure Schedule
and except for filings, permits, authorizations, notices, consents and approvals
as may be required under, and other applicable requirements of, the Exchange
Act, the Securities Act of 1933, as amended (the "Securities Act"), the Trust
Indenture Act of 1939, as amended (the "TIA"), the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the DGCL, certain state
takeover statutes, state securities or blue sky laws, and state environmental
laws, neither the execution, delivery or performance of this Agreement or the
Stock Option Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby or thereby and compliance by the Company with
any of the provisions hereof or thereof will (i) conflict with or result in any
breach of any provisions of the certificate of incorporation or by-laws or
comparable organizational documents of the Company or any Material Company
Subsidiary, (ii) require any filing with, or permit, authorization, consent or
approval of, any court, arbitral tribunal, administrative agency or commission
or other governmental or other regulatory authority or agency (a "Governmental
Entity") (except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings would not prevent consummation of
the Offer or the Merger in any material respect and would not, individually or
in the aggregate, have a material adverse effect on the Company and its
Subsidiaries, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, or result
in the creation of any lien or other encumbrance on any property or asset of the
Company or any of its Subsidiaries pursuant to, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which the Company or any of its
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Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected, except, in the case of clauses (iii) and (iv), for
violations, breaches, defaults or other occurrences which would not prevent
consummation of the Offer or the Merger in any material respect and would not,
individually or in the aggregate, have a material adverse effect on the Company
and its Subsidiaries.
(b) Except as disclosed in the Company SEC Documents (as defined in Section
4.5) filed prior to the date of this Agreement or as set forth on Section 4.4 of
the Company Disclosure Schedule, to the best knowledge of the Company, neither
the Company nor any of its Subsidiaries is in default under or in violation of
(i) any order, writ, injunction, decree, statute, rule or regulation of any
Governmental Entity applicable to the Company or any of its Subsidiaries or by
which any of them or any of their properties or assets may be bound or (ii) any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
or affected, except in each case for any such defaults or violations which would
not have a material adverse effect on the Company and its Subsidiaries.
(c) To the best knowledge of the Company, except as disclosed in the
Company SEC Documents filed prior to the date of this Agreement or as set forth
on Section 4.4 of the Company Disclosure Schedule, the Company and its
Subsidiaries are in compliance with all applicable statutes, ordinances, rules
and regulations of any Governmental Entity relating to environmental matters,
and the Company is not aware of circumstances, which establish a likely basis
for a contingent liability, or a likely basis for the assertion of any such
liability, relating to any environmental matters against the Company or any of
its Subsidiaries, including the discharge, disposal, treatment, storage,
accumulation, transport, release, potential release, leakage, spillage or other
actions by the Company or any of its Subsidiaries or any third party for whom
the Company or any of its Subsidiaries is responsible with respect to hazardous
waste, toxic substances, hazardous substances or other pollutants or
contaminants, except for any such failures to comply or circumstances which have
not had and since December 31, 1993 would not have a material adverse effect on
the Company and its Subsidiaries.
Section 4.5 SEC Reports and Financial Statements. Since January 1, 1991,
the Company has filed with the SEC all forms, reports and documents required to
be filed by it under the Exchange Act or the Securities Act, and has heretofore
made available to Parent true and complete copies of all such forms, reports and
documents (as they have been amended since the time of their filing,
collectively, the "Company SEC Documents"). The Company SEC Documents, including
without limitation any financial statements or schedules included therein, at
the time filed, and any forms, reports or other documents filed by the Company
with the SEC after the date of this Agreement, (a) did not at the time they were
filed, or will not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied or will be prepared
in compliance in all material respects with the applicable requirements of the
Exchange Act or the Securities Act, as the case may be. The financial statements
of the Company included in the Company SEC Documents comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, to normal audit
adjustments) and fairly present (subject, in the case of the unaudited
statements, to normal audit adjustments) the consolidated financial position of
the Company and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. Except as reflected, reserved against or otherwise disclosed in the
financial statements of the Company included in the Company SEC Documents or as
otherwise disclosed in the Company SEC Documents, in each case filed prior to
the date of this Agreement, or as set forth on Section 4.5 of the Company
Disclosure Schedule, to the best knowledge of the Company, as of the date
hereof, neither the Company nor any of its Subsidiaries had any liabilities or
obligations (absolute, accrued, fixed, contingent or otherwise) material to the
Company and its Subsidiaries, other than liabilities incurred in the ordinary
course of business consistent with past practice.
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Section 4.6 Information in Disclosure Documents and Registration Statement.
(a) Neither the Schedule 14D-9 nor any of the information supplied by the
Company and any of its Subsidiaries specifically for inclusion in the Offer
Documents will, at the respective times the Schedule 14D-9 or the Offer
Documents are filed with the SEC or are first published, sent or given to
stockholders, as the case may be, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which there was made, not misleading. The Schedule 14D-9 will comply as to
form in all material respects with the applicable requirements of the Exchange
Act and the applicable rules and regulations thereunder.
(b) None of the information supplied or to be supplied by the Company from
time to time in writing specifically for inclusion or incorporation by reference
in the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock (and attached
Parent Rights) and, if required, Parent New Preferred Stock in the Merger or to
holders of Company Stock Options (as defined in Section 6.10(b)) (the "S-4")
will, at the time it becomes effective under the Securities Act and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(c) The proxy or information statement relating to the meeting of the
Company's stockholders to be held in connection with the Merger (as it may be
amended from time to time, the "Proxy Statement") will not, at the date mailed
to the Company's stockholders and at the time of the meeting of stockholders to
be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will, when filed with the SEC by the Company, comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
(d) Notwithstanding the foregoing, the Company makes no representation with
respect to statements made in any of the foregoing documents based on
information supplied by Parent or Sub specifically for inclusion therein.
Section 4.7 Litigation. Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or in Section 4.7 of the Company
Disclosure Schedule, there is as of the date hereof no suit, claim, action,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened, against the Company or any of its Subsidiaries before any
Governmental Entity which, individually or in the aggregate, would have a
material adverse effect on the Company and its Subsidiaries or a material
adverse effect on the ability of the Company to consummate the transactions
contemplated by this Agreement or by the Stock Option Agreement. Except as
disclosed in the Company SEC Documents filed prior to the date of this
Agreement, neither the Company nor any of its Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate, would have a material adverse effect on the Company and its
Subsidiaries or a material adverse effect on the ability of the Company to
consummate the transactions contemplated hereby or by the Stock Option
Agreement.
Section 4.8 No Material Adverse Change; Material Agreements. Except as
disclosed in the Company SEC Documents filed prior to the date of this Agreement
or as set forth on Section 4.8 of the Company Disclosure Schedule, (i) since
December 31, 1993, there has not been any action which would be prohibited under
Section 6.1 were it to occur after the date of this Agreement or any material
adverse change in the assets, business, results of operations or financial
condition of the Company and its Subsidiaries, other than changes arising from
general economic or industry conditions, and (ii) as of the date of this
Agreement, neither the Company nor any of its Subsidiaries has become a party to
any agreement or amendment to an existing agreement which would be required to
be filed by the Company as an exhibit to its next Annual Report on Form 10-K.
Except as set forth on Section 4.8 of the Company Disclosure Schedule, the
transactions contemplated by this Agreement or the Stock Option Agreement or
both will not constitute a "change of control" under, require the consent from
or the giving of notice to a third party pursuant to, or accelerate vesting or
repurchase rights under the terms, conditions or provisions of any (i) note,
bond,
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mortgage, indenture, license, lease, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound, except
where the adverse consequences resulting from such change of control or where
the failure to obtain such consents or provide such notices would not,
individually or in the aggregate, have a material adverse effect on the Company
and its Subsidiaries; provided, however, that the foregoing exception will not
be applicable to any (i) note, bond, mortgage, indenture, contract, agreement or
other instrument or obligation relating to indebtedness for borrowed money of
the Company or any of its Subsidiaries with an outstanding principal amount of
less than $5,000,000 or (ii) employment, compensation, termination or severance
agreement, or other instrument or obligation of the Company or any of its
Subsidiaries. The total amounts payable to the executives identified on Section
4.8 of the Company Disclosure Schedule, as a result of the transactions
contemplated by this Agreement and/or any subsequent employment termination
(excluding any cash-out or acceleration of options and restricted stock but
including any "gross-up" payments with respect thereto), based on compensation
data applicable as of the date hereof, calculated assuming effective tax rates
of 39.6%, and including, without limitation, amounts payable pursuant to
Termination Agreements, Severance Agreements and the Senior Executive Special
Bonus and Retention Plan and any "gross-up" payments, will not exceed the amount
set forth on such schedule.
Section 4.9 Taxes.
(a) The Company and each of its Subsidiaries has duly filed all federal,
state, local and foreign income Tax Returns (as defined in Section 4.9(b))
required to be filed by it, and all other material Tax Returns required to be
filed by it, and all other material Tax Returns required to be filed by it
except in the case of such other Tax Returns where the failure to so file will
not have a material adverse effect on the Company and its Subsidiaries, and
except as set forth in Section 4.9 of the Company Disclosure Schedule the
Company, in all material respects, has duly paid or caused to be paid all Taxes
(as defined in Section 4.9(b)) shown to be due on such Tax Returns in respect of
the periods covered by such returns and has made adequate provision in the
Company's financial statements for payment of all Taxes anticipated to be
payable in respect of all taxable periods or portions thereof ending on or
before the date hereof. Section 4.9 of the Company Disclosure Schedule lists the
periods through which the Tax Returns required to be filed by the Company have
been examined by the Internal Revenue Service (the "IRS") or other appropriate
taxing authority, or the period during which any assessments may be made by the
IRS or other appropriate taxing authority has expired. Except as set forth on
Section 4.9 of the Company Disclosure Schedule, all material deficiencies and
assessments asserted as a result of such examinations or other audits by
federal, state, local or foreign taxing authorities have been paid, fully
settled or adequately provided for in the Company's financial statements, and no
issue or claim has been asserted in writing for Taxes by any taxing authority
for any prior period, the adverse determination of which would result in a
deficiency which would have a material adverse effect on the Company and its
Subsidiaries, other than those heretofore paid or provided for in the Company's
Financial statements. Except as set forth on Section 4.9 of the Company
Disclosure Schedule, there are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax Return of the Company
or its Subsidiaries. Neither the Company nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(2) of the Code) owned by the Company or
any of its Subsidiaries. Except as set forth on Section 4.9 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to any agreement, contract or arrangement that could result, separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. Except as set forth on Section 4.9 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries (i)
has been a member of a group filing consolidated returns for federal income tax
purposes, or (ii) is a party to a tax sharing or tax indemnity agreement or any
other agreement of a similar nature that remains in effect.
(b) For purposes of this Agreement, the term "Taxes" means all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto. For
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purposes of this Agreement, the term "Tax Return" means any report, return or
other information or document required to be supplied to a taxing authority in
connection with Taxes.
Section 4.10 Opinion of Financial Advisor. The Company has received the
opinion of Merrill Lynch & Co., its financial advisor, to the effect that, as of
December 11, 1994, the consideration to be received in the Offer and the Merger,
taken as a whole, by the Company's stockholders is fair to the Company's
stockholders from a financial point of view.
Section 4.11 Company Rights Agreement. Assuming the accuracy of the
representation contained in Section 5.10 (without giving effect to the knowledge
qualification thereof), none of the transactions contemplated in this Agreement
or the Stock Option Agreement or both will result in a "Distribution Date" as
defined in the Company Rights Agreement, other than an exercise of the Stock
Option Agreement following which Parent beneficially owns 20% or more of the
outstanding shares of Company Common Stock.
Section 4.12 DGCL Section 203. Assuming the accuracy of Parent's
representation contained in Section 5.10 (without giving effect to the knowledge
qualification thereof), the Board of Directors of the Company has approved the
transaction to be effected in accordance with this Agreement and the Stock
Option Agreement, which will result in Parent becoming an "interested
stockholder" within the meaning of paragraph (a)(1) of Section 203 of the DGCL.
Section 4.13 Change in Control Provisions. Other than as set forth on
Section 4.13 of the Company Disclosure Schedule, the Board of Directors of the
Company has taken all actions necessary to render inoperative to the Offer, the
Merger and the other transactions contemplated by this Agreement and the Stock
Option Agreement the redemption rights afforded to the holders of the Company
Preferred Stock and the Subsidiary Preferred Stock or to the holders of or
trustees under indentures relating to indebtedness of the Company or any of its
subsidiaries in the event of a "change in control" as defined in the respective
Certificates of Designations, Preferences and Rights governing the Company
Preferred Stock and the Subsidiary Preferred Stock or in the related indentures
or other debt agreements, as the case may be.
Section 4.14 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote with
respect to the Merger is the only vote of the holders of any class or series of
the Company's capital stock necessary to approve the Merger and the transactions
contemplated hereby or by the Stock Option Agreement. Assuming the accuracy of
Parent's representations contained in Section 5.10 (without giving effect to the
knowledge qualification thereof), the Board of Directors of the Company has
taken all action necessary to render inoperative to the Offer, the Merger and
the other transactions contemplated by this Agreement and by the Stock Option
Agreement the voting requirements of Article EIGHTH of the Company's Restated
Certificate of Incorporation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 5.1 Organization.
(a) Each of Parent and each Material Parent Subsidiary (as defined below)
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing or in good standing or to have such power and authority would not,
individually or in the aggregate, have a material adverse effect on Parent and
its Subsidiaries taken as a whole. Parent and each Material Parent Subsidiary is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a material adverse
effect on Parent and its Subsidiaries.
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(b) Each of Northwest Pipeline Corporation, Williams Natural Gas Company,
Williams Field Services Group, Inc., Williams Pipe Line Company and WilTel
Communications Systems, Inc. is referred to herein as a "Material Parent
Subsidiary."
(c) Parent has heretofore made available to the Company a complete and
correct copy of the charter and by-laws or comparable organizational documents,
each as amended to date, of Parent and each Material Parent Subsidiary. Such
charters, by-laws and comparable organizational documents are in full force and
effect. Neither Parent nor any Material Parent Subsidiary is in violation of any
provision of its charter, by-laws or comparable organizational documents, except
for such violations that would not, individually or in the aggregate, have a
material adverse effect on Parent and its Subsidiaries.
Section 5.2 Capitalization. As of the date of this Agreement, the
authorized capital stock of Parent consists of (i) 240,000,000 shares of Parent
Common Stock of which, as of September 30, 1994, 100,904,625 shares were issued
and outstanding (excluding 3,442,189 shares then held by WTG Holdings, Inc., a
wholly-owned subsidiary of Parent), and (ii) 30,000,000 shares of preferred
stock, $1.00 per share (the "Parent Preferred Stock", which term, as the context
requires, includes the Parent New Preferred stock), of Parent of which, as of
September 30, 1994, 4,000,000 shares of Parent's $2.21 Cumulative Preferred
Stock were issued and outstanding. As of September 30, 1994, 400,000 shares of
Parent Preferred Stock were reserved for issuance in accordance with the Amended
and Restated Rights Agreement, dated as of July 12, 1988, by and between Parent
and First Chicago Trust Company of New York (collectively, the "Parent Rights
Agreement"), pursuant to which Parent has issued rights (the "Parent Rights") to
purchase shares of Parent Preferred Stock, with each share of Parent Common
Stock having one-half attached Parent Right. Also as of September 30, 1994,
Parent had reserved for issuance (i) 2,838,491 shares of Parent Common Stock
upon exercise of then outstanding options or in respect of then outstanding
deferred stock awards under Parent's employee benefit plans (the "Parent
Plans"), (ii) 3,208,171 shares of Parent Common Stock in respect of future
purchases or awards under the Parent Plans, and (iii) shares of Parent capital
stock (which could include shares of Parent Common Stock, Parent Preferred Stock
or both) with an initial offering price not to exceed $400,000,000. Since
September 30, 1994, Parent has not issued any shares of its capital stock,
except for issuances of Parent Common Stock under the Parent Plans, and Parent
and its Subsidiaries have not repurchased, redeemed or otherwise retired any
shares of its capital stock, other than 406,112 shares of Parent Common Stock
and 258,800 shares of Parent Preferred Stock acquired by Parent and 9,941,788
shares of Parent Common Stock acquired by WTG Holdings, Inc. (in each case as of
November 30, 1994) in the open market. No shares of Parent Common Stock or
Parent Preferred Stock have been acquired by Parent or its subsidiaries during
the period commencing December 1, 1994 through the date hereof. All the
outstanding shares of Parent's capital stock are, and all shares of Parent
Common Stock and Parent New Preferred Stock which are to be issued pursuant to
the Merger will be, when issued in exchange for shares of Company Common Stock
and Company Preferred Stock in accordance with the respective terms thereof and
the provisions of this Agreement, duly authorized, validly issued, fully paid
and nonassessable and not subject to any preemptive rights of third parties in
respect thereto. Parent has reserved and will keep available for issuance a
number of authorized but unissued shares of Parent Common Stock and Parent New
Preferred Stock equal to the maximum number of shares of Parent Common Stock and
Parent New Preferred Stock that may become issuable pursuant to the Merger and,
following the Merger, upon conversion of the shares of Parent New Preferred
Stock into Parent Common Stock, in each case in accordance with conversion rates
as in effect as of the date hereof. As of the date of this Agreement, no Voting
Debt of Parent or any of its Subsidiaries is issued or outstanding. As of the
date of this Agreement, except as indicated herein, there are no existing
options, warrants, calls, subscriptions or other rights or other agreements or
commitments of any character relating to the issued or unissued capital stock or
Voting Debt of Parent or any of its Subsidiaries or obligating Parent or any of
its Subsidiaries to issue, transfer or sell or cause to be issued, transferred
or sold any shares of capital stock or Voting Debt of, or other equity interests
in, Parent or of any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests or obligating Parent or any of
its Subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement or commitment. As of the date of this
Agreement, there are no outstanding contractual obligations of Parent or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Parent or any of its Subsidiaries. Each of the outstanding
shares of capital stock of each of the Parent's Subsidiaries is
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duly authorized, validly issued, fully paid and nonassessable, and such shares
as are owned by Parent or by a Subsidiary of Parent are free and clear of any
lien, claim, option, charge, security interest, limitation on voting rights and
encumbrance of any kind, except as would not have a material adverse effect on
Parent and its Subsidiaries. As of the date of this Agreement, the authorized
capital stock of Sub consists of 100 shares of Common Stock, par value $.01 per
share, all of which are validly issued, fully paid and nonassessable and are
owned by Parent.
Section 5.3 Authority. Parent and Sub each have the requisite corporate
power and authority to execute and deliver this Agreement and the Stock Option
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Stock Option
Agreement by each of Parent and Sub and the consummation by Sub of the Merger
and by Parent and Sub of the other transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Parent and Sub and no other corporate proceedings on the part of Parent or Sub
(including stockholder action) are necessary to authorize this Agreement or the
Stock Option Agreement or to consummate the transactions so contemplated, other
than the filing and recordation of the Certificate of Merger and Certificates of
Designation, Preferences and Rights with respect to the Parent New Preferred
Stock with the Secretary of State of the State of Delaware. Each of this
Agreement and the Stock Option Agreement has been duly executed and delivered by
each of Parent and Sub and, assuming each of this Agreement and the Stock Option
Agreement, as the case may be, constitutes a valid and binding obligation of the
Company, constitutes a valid and binding obligation of each of Parent and Sub,
enforceable against them in accordance with its terms.
Section 5.4 Consents and Approvals; No Violations.
(a) Except for filings, permits, authorizations, notices, consents and
approvals as may be required under, and other applicable requirements of, the
Exchange Act, the Securities Act, the TIA, the HSR Act, the DGCL, certain state
takeover statutes, state securities or blue sky laws, and state environmental
laws, neither the execution, delivery or performance of this Agreement by Parent
and Sub nor the consummation by Parent and Sub of the transactions contemplated
hereby nor compliance by Parent and Sub with any of the provisions hereof will
(i) conflict with or result in any breach of any provision of the respective
certificates of incorporation or by-laws or comparable organizational documents
of Parent or any Material Parent Subsidiary, (ii) require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity (except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings would not prevent consummation of the Merger in any
material respect and would not, individually or in the aggregate, have a
material adverse effect on Parent and its Subsidiaries), (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, or result in the creation of any lien or
other encumbrance on any property or asset of Parent or any of its Subsidiaries
pursuant to, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, lease, contract, agreement or other instrument or
obligation to which Parent or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or any of its Subsidiaries or by which any property or asset of Parent or
any of its Subsidiaries is bound or affected, except, in the case of clauses
(iii) and (iv), for violations, breaches, defaults or other occurrences which
would not prevent consummation of the Merger in any material respect and would
not, individually or in the aggregate, have a material adverse effect on Parent
and its Subsidiaries.
(b) Except as disclosed in the Parent SEC Documents (as defined in Section
5.5) filed prior to the date of this Agreement, to the best knowledge of Parent,
neither Parent nor any Material Parent Subsidiary is in default under or in
violation of (i) any order, writ, injunction, decree, statute, rule or
regulation of any Governmental Entity applicable to Parent or any of its
Subsidiaries or by which any of them or any of their properties or assets may be
bound or (ii) any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Parent or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound or affected, except in each case for any such defaults or
violations which have not had and are not likely to have a material adverse
effect on Parent and its Subsidiaries.
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(c) To the best knowledge of Parent, except as disclosed in the Parent SEC
Documents filed prior to the date of this Agreement, Parent and its Subsidiaries
are in compliance with all applicable statutes, ordinances, rules and
regulations of any Governmental Entity relating to environmental matters, and
Parent is not aware of circumstances which establish a likely basis for a
contingent liability, or a likely basis for the assertion of any such liability,
relating to any environmental matters, against Parent or any of its Subsidiaries
including the discharge, disposal, treatment, storage, accumulation, transport,
release, potential release, leakage, spillage or other actions by Parent or any
of its Subsidiaries or any third party for whom Parent or any of its
Subsidiaries is responsible with respect to hazardous waste, toxic substances,
hazardous substances or other pollutants or contaminants, except for any such
failures to comply or circumstances which have not had since December 31, 1993
and would not have a material adverse effect on Parent and its Subsidiaries.
Section 5.5 SEC Reports and Financial Statements. Since January 1, 1991,
Parent has filed with the SEC all forms, reports and other documents required to
be filed by it under the Exchange Act or the Securities Act and has heretofore
made available to the Company true and complete copies of all such forms,
reports and documents (as they have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). The Parent SEC Documents, including
without limitation any financial statements or schedules included therein, at
the time filed, and any forms, reports or other documents filed by Parent with
the SEC after the date of this Agreement, (a) did not at the time they were
filed, or will not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied or will be prepared
in compliance in all material respects with the applicable requirements of the
Exchange Act or the Securities Act, as the case may be. The financial statements
of Parent included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, to normal audit
adjustments) and fairly present (subject, in the case of the unaudited
statements, to normal audit adjustments) the consolidated financial position of
Parent and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. Except as reflected, reserved against or otherwise disclosed in the
financial statements of Parent included in the Parent SEC Documents or as
otherwise disclosed in the Parent SEC Documents, in each case filed prior to the
date of this Agreement, to the best knowledge of Parent, as of the date hereof,
neither Parent nor any of its Subsidiaries had any liabilities or obligations
(absolute, accrued, fixed, contingent or otherwise) material to Parent and its
Subsidiaries, other than liabilities incurred in the ordinary course of business
consistent with past practice.
Section 5.6 Information in Disclosure Documents and Registration Statement.
(a) None of the Offer Documents nor any of the information supplied by
Parent or any of its Subsidiaries specifically for inclusion in the Schedule
14D-9 will, at the respective times the Offer Documents (including any
amendments or supplements thereto) or the Schedule 14D-9 are filed with the SEC
or are first published, sent or given to stockholders, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements included therein, in light of the
circumstances under which they were made, not misleading. The Offer Documents
will comply as to form in all material respects with the applicable requirements
of the Exchange Act and the applicable rules and regulations thereunder.
(b) The S-4 will not, at the time it becomes effective under the Securities
Act and at the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The S-4 will, when filed with the SEC by Parent, comply as
to form in all material respects with the provisions of the Securities Act and
the rules and regulations thereunder.
(c) None of the information supplied by Parent or Sub from time to time in
writing specifically for inclusion or incorporation by reference in the Proxy
Statement will, at the date mailed to the Company's
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stockholders and at the time of the meeting of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
(d) Notwithstanding the foregoing, Parent and Sub make no representation
with respect to statements made in any of the foregoing documents based on
information supplied by the Company specifically for inclusion therein.
Section 5.7 Litigation. Except as disclosed in the Parent SEC Documents
filed prior to the date of this Agreement, there is as of the date hereof no
suit, claim, action, proceeding or investigation pending or, to the best
knowledge of Parent, threatened, against Parent or any of its Subsidiaries
before any Governmental Entity which, individually or in the aggregate, would
have a material adverse effect on Parent and its Subsidiaries or a material
adverse effect on the ability of Parent or Sub to consummate the transactions
contemplated by this Agreement. Except as disclosed in the Parent SEC Documents
filed prior to the date of this Agreement, neither Parent nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, would have a material adverse effect on
Parent and its Subsidiaries or a material adverse effect on the ability of
Parent or Sub to consummate the transactions contemplated hereby.
Section 5.8 No Material Adverse Change; Material Agreements. Except as
disclosed in the Parent SEC Documents filed prior to the date of this Agreement,
(i) since December 31, 1993, there has not been any action which would be
prohibited under Section 6.2 were it to occur after the date of this Agreement
or any material adverse change in the assets, business, results of operations or
financial condition of Parent and its Subsidiaries, other than changes arising
from general economic or industry conditions, and (ii) as of the date of this
Agreement, neither Parent nor any of its Subsidiaries has become a party to any
agreement or amendment to an existing agreement which would be required to be
filed by Parent as an exhibit to its next Annual Report on Form 10-K. The
transactions contemplated by this Agreement will not constitute a "change of
control" under, require the consent from or the giving of notice to a third
party pursuant to, or accelerate vesting or repurchase rights under the terms,
conditions or provisions of any note, bond, mortgage, indenture, license, lease,
contract, agreement or other instrument or obligation to which Parent or any of
its Subsidiaries is a party or by which any of them or any of their properties
or assets may be bound, except where the adverse consequences resulting from
such change of control or where the failure to obtain such consents or provide
such notices would not, individually or in the aggregate, have a material
adverse effect on Parent and its Subsidiaries; provided, however, that the
foregoing exception will not be applicable to any (i) note, bond, mortgage,
indenture, contract, agreement or other instrument or obligation relating to
indebtedness for borrowed money of Parent or any of its Subsidiaries with an
outstanding principal amount of less than $5,000,000 or (ii) employment,
compensation, termination or severance agreement, contract or other obligation
of Parent or any of its Subsidiaries.
Section 5.9 Taxes. Parent and each of its Subsidiaries has duly filed all
federal, state, local and foreign income Tax Returns required to be filed by it,
and all other material Tax Returns required to be filed by it, except in the
case of such other Tax Returns where the failure to file will not have a
material adverse effect on Parent and its Subsidiaries, and Parent, in all
material respects, has duly paid or caused to be paid all Taxes shown to be due
on such Tax Returns in respect of the periods covered by such returns and has
made adequate provision in Parent's financial statements for payment of all
Taxes anticipated to be payable in respect of all taxable periods or portions
thereof ending on or before the date hereof. Section 5.9 of the Disclosure
Schedule delivered by Parent to the Company pursuant to this Agreement (the
"Parent Disclosure Schedule") lists the taxable periods through which the income
Tax Returns required to be filed by Parent have been examined by the IRS or
other appropriate tax authority, or the period during which any assessments may
be made by the IRS or other tax authority has expired. All material deficiencies
and assessments asserted as a result of such examinations or other audits by
federal, state, local or foreign taxing authorities have been paid, fully
settled or adequately provided for in Parent's financial statements and no issue
or claim has been asserted in writing for Taxes by any taxing authority for any
prior period, the adverse determination of which would result in a deficiency
which would have a material adverse effect on Parent and its Subsidiaries, other
than those
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heretofore paid or provided for in Parent's financial statements. Except as set
forth on Section 5.9 of the Parent Disclosure Schedule, there are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any income Tax Return of Parent or its Subsidiaries.
Section 5.10 Parent Not an Interested Stockholder or an Acquiring
Person. As of the date of this Agreement, neither Parent nor, to the best
knowledge of Parent, any of its affiliates is an "Interested Stockholder" as
such term is defined in Section 203 of the DGCL, or an "Acquiring Person" as
such term is defined in the Company Rights Agreement.
Section 5.11 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
Section 5.12 Financing. Parent and Sub have, or will obtain on a timely
basis, all of the funds necessary to consummate the Offer and the Merger.
Section 5.13 Purchase of Option Shares. The Purchaser will acquire any
shares of Company Common Stock pursuant to the Stock Option Agreement for its
own account and not with a view to distribution thereof.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or with the prior written consent of Parent, which consent is
hereby given with respect to actions described in Section 6.1 of the Company
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time, the Company will, and will cause each of its Subsidiaries to,
conduct its operations only in the ordinary and usual course of business
consistent with past practice and will use all reasonable efforts, and will
cause each of its Subsidiaries to use all reasonable efforts, to preserve intact
its present business organization, keep available the services of its present
officers and employees and preserve its relationships with licensors, licensees,
customers, suppliers, employees and any others having business dealings with it,
in each case in all material respects. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, the
Company will not, and will not permit any of the Subsidiaries to, prior to the
Effective Time, without the prior written consent of Parent, not to be
unreasonably withheld:
(a) adopt any amendment to its certificate of incorporation or by-laws or
comparable organizational documents or to the Company Rights Agreement;
(b) except for issuances of capital stock of the Company's Subsidiaries to
the Company or a wholly-owned Subsidiary of the Company, issue, reissue, sell or
pledge or authorize or propose the issuance, reissuance, sale or pledge of
additional shares of capital stock of any class, or securities convertible into
capital stock of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock, other than the issuance of shares of
Company Common Stock (and attached Company Rights) upon the exercise of stock
options or vesting of restricted or deferred stock unit awards outstanding on
the date of this Agreement or upon conversion of Company Preferred Stock, in
each case in accordance with their present terms;
(c) declare, set aside or pay any dividend or other distribution (whether
in cash, securities or property or any combination thereof) in respect of any
class or series of its capital stock, except that (i) the Company may continue
to pay regular dividends on the Company Common Stock and Company Preferred Stock
consistent with past practice, (ii) TGPL may continue to pay regular dividends
and make annual sinking fund payments on its cumulative first preferred stock
consistent with past practice and (iii) any wholly owned Subsidiary of the
Company may pay dividends and make distributions to the Company or any of the
Company's wholly owned Subsidiaries;
(d) adjust, split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock, other than pursuant to the Corpus Christi Lease or
in connection with tax withholding features under the Company Plans;
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(e) (i) incur, assume or pre-pay any long-term debt or incur or assume any
short-term debt, except that the Company and its Subsidiaries may incur or
pre-pay debt in the ordinary course of business consistent with past practice or
the cash forecasts disclosure on Schedule 6.1 of the Company Disclosure Schedule
under existing lines of credit and may repurchase any of the Company's 11 1/4%
Notes due 1999 (the "Company Notes") in a manner consistent with the provisions
of Section 6.18, (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person except in the ordinary course of business consistent with past
practice, or (iii) make any loans, advances or capital contributions to, or
investments in, any other person except in the ordinary course of business
consistent with past practice and except for loans, advances, capital
contributions or investments between any wholly owned Subsidiary and the Company
or another wholly owned Subsidiary;
(f) settle or compromise any suit or claim or threatened suit or claim
relating to the transactions contemplated hereby;
(g) except for (i) increases in salary, wages and benefits of employees of
the Company or its Subsidiaries (other than executive or corporate officers of
the Company) in accordance with past practice, (ii) increases in salary, wages
and benefits granted to employees of the Company or its Subsidiaries (other than
executive or corporate officers of the Company) in conjunction with promotions
or other changes in job status consistent with past practice or required under
existing agreements, (iii) increases in salary, wages and benefits to employees
of the Company pursuant to collective bargaining agreements entered into in the
ordinary course of business consistent with past practice, and (iv) the
consummation of the pending merger of the Company's Tran$tock Employee Stock
Ownership Plan with the Company's Thrift Plan, increase the compensation or
fringe benefits payable or to become payable to its directors, officers or
employees (whether from the Company or any of its Subsidiaries), or pay any
benefit not required by any existing plan or arrangement (including, the
granting of, or waiver of performance or other vesting criteria under, stock
options, stock appreciation rights, shares of restricted stock or deferred stock
or performance units) or grant any severance or termination pay to (except
pursuant to existing agreements or policies), or enter into any employment or
severance agreement with, any director, officer or other key employee of the
Company or any of its Subsidiaries or establish, adopt, enter into, terminate or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, welfare, deferred
compensation, employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare of any
directors, officers or current or former employees, except to the extent such
termination or amendment is required by applicable law; provided, however, that
nothing herein will be deemed to prohibit the payment of benefits as they become
payable;
(h) except as set forth in Section 6.1 of the Company Disclosure Schedule,
acquire, sell, lease or dispose of any assets or securities which are material
to the Company and its Subsidiaries, or enter into any commitment to do any of
the foregoing or enter into any material commitment or transaction outside the
ordinary course of business consistent with past practice other than
transactions between a wholly owned Subsidiary and the Company or another wholly
owned Subsidiary;
(i) (i) modify, amend or terminate any contract, (ii) waive, release,
relinquish or assign any contract (including any insurance policy) or other
right or claim, or (iii) cancel or forgive any indebtedness owed to the Company
or its Subsidiaries, other than in each case in a manner in the ordinary course
of business consistent with past practice or which is not material to the
business of the Company and its Subsidiaries;
(j) make any tax election not required by law or settle or compromise any
tax liability, in either case that is material to the Company and its
Subsidiaries;
(k) change any of the accounting principles or practices used by it except
as required by the SEC, the Financial Accounting Standards Board or the Federal
Energy Regulatory Commission under the Uniform System of Accounts; or
(l) agree in writing or otherwise to take any of the foregoing actions or
any action which would make any representation or warranty in this Agreement
untrue or incorrect in any material respect.
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Section 6.2 Conduct of Business of Parent. Except as contemplated by this
Agreement, Parent will not, and will not permit any of its Subsidiaries to,
prior to the Effective Time, without the prior written consent of the Company,
not to be unreasonably withheld:
(a) adopt any amendment to its certificate of incorporation or by-laws or
comparable organizational documents;
(b) except for issuances of capital stock of Parent's Subsidiaries to
Parent or a wholly-owned Subsidiary of Parent and except as set forth on Section
6.2 of the Parent Disclosure Schedule, issue, reissue, sell or pledge or
authorize or propose the issuance, reissuance, sale or pledge of additional
shares of capital stock of any class, or securities convertible into capital
stock of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock, other than the issuance of shares of
Parent Common Stock upon the exercise of stock options or vesting of deferred
stock awards outstanding on the date of this Agreement in accordance with their
present terms;
(c) declare, set aside or pay any dividend or other distribution (whether
in cash, securities or property or any combination thereof) in respect of any
class or series of its capital stock, except that (i) Parent may continue to pay
regular cash dividends on the Parent Common Stock and the Parent Preferred Stock
and (ii) any Subsidiary of Parent may pay dividends or make distributions;
(d) other than purchases pursuant to its existing program to repurchase
shares of Parent Common Stock for an aggregate purchase price of up to
$800,000,000 and shares of Parent Preferred Stock for an aggregate purchase
price of up to $100,000,000 (under which approximately $406.8 million and $6.4
million, respectively, of purchases have been made as of the date hereof) and in
connection with the exercise of options under the Parent Plans, adjust, split,
combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or
propose to redeem or purchase or otherwise acquire, any shares of its capital
stock;
(e) except as set forth on Section 6.2 of the Parent Disclosure Schedule,
acquire, sell, lease or dispose of any assets or securities which are material
to Parent and its Subsidiaries, or enter into any commitment to do any of the
foregoing other than transactions between a wholly owned Subsidiary and Parent
or another wholly owned Subsidiary;
(f) settle or compromise any suit or claim or threatened suit or claim
relating to the transactions contemplated hereby;
(g) change any of the accounting principles or practices used by it except
as required by the SEC, the Financial Accounting Standards Board or the Federal
Energy Regulatory Commission under the Uniform Systems of Accounts; or
(h) agree in writing or otherwise to take any of the foregoing actions or
any action which would make any representation or warranty in this Agreement
untrue or incorrect in any material respect.
Section 6.3 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each of the parties hereto will use its reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, in each case consistent with the fiduciary duties of their respective
Boards of Directors as advised by counsel, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement or the Stock Option Agreement,
including (i) the prompt preparation and filing with the SEC of the S-4 and the
Proxy Statement, (ii) such actions as may be required to have the S-4 declared
effective under the Securities Act and the Proxy Statement cleared by the SEC,
in each case as promptly as practicable, including by consulting with each other
as to, and responding promptly to, any SEC comments with respect thereto, and
(iii) such actions as may be required to be taken under applicable state
securities or blue sky laws in connection with the issuance of shares of Parent
Common Stock (and the attached Parent Rights) and Parent New Preferred Stock
contemplated hereby. Each party will promptly consult with the other with
respect to, provide any necessary information with respect to and provide the
other (or its counsel) copies of, all filings made by such party with any
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby. In addition, if at any time prior to the Effective Time any
event or circumstance relating to either the Company
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<PAGE> 96
or Parent or any of their respective Subsidiaries, or any of their respective
officers or directors, should be discovered by the Company or Parent, as the
case may be, and which should be set forth in an amendment or supplement to the
S-4 or the Proxy Statement, the discovering party will promptly inform the other
party of such event or circumstance.
Section 6.4 Letter of the Company's Accountants. Following receipt by
Arthur Andersen LLP, the Company's independent auditors, of an appropriate
request from Parent pursuant to Statement on Auditing Standards ("SAS") No. 72,
the Company will use its reasonable best efforts to cause to be delivered to
Parent a letter of Arthur Andersen LLP, dated a date within two business days
before the date on which the S-4 will become effective and addressed to Parent,
in form and substance reasonably satisfactory to Parent and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the S-4, which letter will be
brought down to the Effective Time.
Section 6.5 Letter of Parent's Accountants. Following receipt by Ernst &
Young, LLP, Parent's independent auditors, of an appropriate request from the
Company pursuant to SAS No. 72, Parent will use its reasonable best efforts to
cause to be delivered to the Company a letter of Ernst & Young, LLP., dated a
date within two business days before the date on which the S-4 will become
effective and addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the S-4, which letter will be brought down to the
Effective Time.
Section 6.6 Access to Information. Upon reasonable notice, the Company and
Parent will each (and will cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, facilities, books,
contracts, commitments and records and other information as reasonably requested
by such party and, during such period, each of the Company and Parent will (and
will cause each of their respective Subsidiaries to) furnish promptly to the
other (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of United States federal securities laws or regulations, and (b) all other
information concerning its business, properties and personnel as such other
party may reasonably request. The parties will hold any such information which
is nonpublic in confidence in accordance with the terms of the Confidentiality
Agreement, dated October 10, 1994, between Parent and the Company (the
"Confidentiality Agreement"), and in the event of termination of this Agreement
for any reason each party will promptly comply with the terms of the
Confidentiality Agreement.
Section 6.7 Company Stockholders Meeting. The Company will call a meeting
of its stockholders for the purpose of voting upon this Agreement (insofar as it
relates to the Merger), the Merger and related matters and use its reasonable
best efforts to hold such meeting as soon as practicable following consummation
of the Offer. The Company will, through its Board of Directors, recommend to its
stockholders approval of such matters; provided, however, that nothing contained
in this Section 6.7 will require the Board of Directors of the Company to take
any action or refrain from taking any action which the Board determines in good
faith with advice of counsel could reasonably be expected to result in a breach
of its fiduciary duties under applicable law. Parent agrees to cause all shares
of Company Common Stock acquired by it pursuant to the Offer or pursuant to the
Stock Option Agreement or both to be represented at such meeting of the
Company's stockholders and to be voted at such meeting in favor of the approval
and adoption of this Agreement (insofar as it relates to the Merger) and the
Merger and the other transactions contemplated hereby.
Section 6.8 Stock Exchange Listing. Parent will use its reasonable best
efforts to cause the Parent Common Stock (and attached Parent Rights) to be
issued in the Merger to be approved for listing on the NYSE not later than the
Effective Time, subject to official notice of issuance.
Section 6.9 Company Plans.
(a) On or prior to the Effective Time, the Company and its Board of
Directors (or a committee thereof) will take all action necessary to implement
the provisions contained in Sections 6.9(b) and 6.9(c).
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<PAGE> 97
(b) Except as otherwise agreed with individual option holders, at the
Effective Time, (i) each then outstanding option to purchase shares of Company
Common Stock (a "Company Stock Option") under the Company Plans, whether vested
or unvested, will become fully exercisable and vested, (ii) each Company Stock
Option which is then outstanding will be cancelled and (iii) in consideration of
such cancellation, at the election of the option holder, which may be allocated
to either or both elections, (x) the Company will pay to such holders of Company
Stock Options an amount in respect thereof equal to the product of (A) the
excess, if any, of the Per Share Amount over the respective exercise price
thereof and (B) the number of shares of Company Common Stock subject thereto,
respectively, or (y) Parent will issue an option described in Section 6.9(c) or
6.9(d), as applicable (a "Replacement Option").
(c) The Replacement Option with respect to each Company Stock Option, the
exercise price for which exceeds $35 per share, will be an option to acquire, on
the same terms and conditions as were applicable under such Company Stock Option
(except that it will be subject to a vesting period ending on the first
anniversary of the Effective Time), (A) an amount in cash equal to the product
of $10.50 times the number of shares of Company Common Stock purchasable under
such Company Stock Option immediately prior to the Effective Time and (B) the
number of shares of Parent Common Stock equal to the product of .25 and the
number of shares of Company Common Stock purchasable under such Company Stock
Option immediately prior to the Effective Time. Parent will cause such options
to continue to vest and to remain exercisable following the termination of the
option holder's employment with Parent and its affiliates in accordance with its
past practice relative to Parent's current employees; provided, that with
respect to any Current Employee whose employment with Parent or its affiliates
is terminated other than voluntarily by the employee or involuntarily for cause
or as a result of retirement, Parent will cause such options to continue to vest
until the earlier of (i) six months following such termination and (ii) the end
of the term of such Option, as in effect immediately before such termination.
All of the foregoing payments and issuances of shares in connection with such
cancellations will be made either net of applicable withholding taxes or upon
payment of required withholding taxes by the option holders.
(d) The Replacement Option with respect to each Company Stock Option, the
exercise price for which is less than or equal to $35 per share, will be an
option to acquire, on the same terms and conditions as were applicable under
such Company Stock Option, the same number of shares of Parent Common Stock as
the holder of such Company Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full immediately
prior to the Effective Time (not taking into account whether or not such option
was in fact exercisable), at a price per share equal to (A) the aggregate
exercise price for the shares of Company Common Stock deemed otherwise
purchasable pursuant to such Company Stock Option divided by (B) the number of
full shares of Parent Common Stock deemed purchasable pursuant to such Company
Stock Option. All of the foregoing payments and issuances of shares in
connection with such cancellations will be made either net of applicable
withholding taxes or upon payment of required withholding taxes by the
optionholders.
(e) Except as provided herein or as otherwise agreed to by the parties, and
to the extent permitted by the Company Plans, (i) the Company Plans will
terminate as of the Effective Time and the provisions in any other plan, program
or arrangement, providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any of its Subsidiaries will be
deleted as of the Effective Time and (ii) the Company will use all reasonable
efforts to ensure that following the Effective Time no holder of Company Stock
Options or any participant in the Company Plans or any other plans, programs or
arrangements will have any right thereunder to acquire any equity securities of
the Company, the Surviving Corporation or any Subsidiary thereof.
(f) The Company will use reasonable efforts to obtain an agreement
substantially in the form attached to Section 6.9(f) of the Company Disclosure
Schedule on or prior to the date of commencement of the Offer with the employee
identified on such Schedule.
Section 6.10 Other Employee Benefit Plans.
(a) Except as otherwise contemplated by this Agreement, the employee
benefit plans (as defined in Section 3(3) of ERISA) and other employee plans,
programs and policies other than salary (collectively, the
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<PAGE> 98
"Employee Benefit Plans") of the Company and its Subsidiaries in effect at the
date of this Agreement will, to the extent practicable, remain in effect until
otherwise determined after the Effective Time and, to the extent such Employee
Benefit Plans are not continued, Parent will maintain Employee Benefit Plans
with respect to employees of the Company and its Subsidiaries which are no less
favorable, in the aggregate, than the least favorable of: (i) those Employee
Benefit Plans covering employees of Parent from time to time; (ii) those
Employee Benefit Plans of the Company and its Subsidiaries that are in effect on
the date of this Agreement other than the Tran$tock Plan; or (iii) Employee
Benefit Plans that are reasonably competitive with respect to the industry in
which the employer of the affected employees competes; provided, that in any
event, until December 31, 1995, the Surviving Corporation will provide
individuals who are employees of the Company and its Subsidiaries as of the
Effective Time ("Current Employees") with Employee Benefit Plans, other than a
nonqualified, unfunded plan maintained primarily to provide deferred
compensation benefits to a select group of "management or highly compensated
employees" within the meaning of Sections 201, 301, and 401 of ERISA, that are
no less favorable in the aggregate than those provided to Current Employees by
the Company and for its Subsidiaries immediately before the Closing Date. In the
case of benefit plans which are continued and under which the employees'
interests are based upon Company Common Stock, such interests will be based on
Parent Common Stock in an equitable manner.
(b) Without limiting the generality of Section 6.10(a), Parent will cause
the Surviving Corporation to (i) honor (A) in accordance with their terms all
individual employment, severance, termination and indemnification agreements
which by their express terms may not be unilaterally amended by the Company or
any of its Subsidiaries and (B) except as modified by Section 6.10(b)(i) of the
Company Disclosure Schedule, without modification all other employee severance
plans, policies, employment and severance agreements and indemnification
arrangements of the Company or any of its Subsidiaries that are set forth in
Section 6.10(b)(i) of the Company Disclosure Schedule as such plans, policies,
or agreements are in effect on the date of this Agreement through the later of
(1) December 31, 1995, (2) the termination date specified in such document or
(3) the date specified in Section 6.10(b)(i) of the Company Disclosure Schedule,
(ii) waive any limitations regarding pre-existing conditions of Current
Employees and their eligible dependents under any welfare or other employee
benefit plans of Parent and its affiliates in which they participate after the
Effective Time (except to the extent that such limitations would have applied
under the analogous plan of the Company and its subsidiaries immediately before
the Effective Time), (iii) for all purposes under the post-retirement welfare
benefit plans and policies of Parent and its affiliates, treat Current Employees
in the same manner as similarly situated employees of Parent who were hired by
Parent before January 1, 1992 in accordance with the terms of such plans and
policies as then in effect, as any such plans and policies are modified by
Parent or such affiliates from time to time, and (iv) for all other purposes
under all Employee Benefit Plans applicable to employees of the Company and its
subsidiaries, treat all service with the Company or any of its subsidiaries by
Current Employees before the Closing as service with Parent and its
Subsidiaries, except to the extent such treatment would result in duplication of
benefits or would violate applicable law.
(c) Except as otherwise agreed with individual restricted stockholders, at
the Effective Time, each share of Company Common Stock which immediately prior
to the Effective Time was subject to restrictions on transfer, whether vested or
unvested, will become fully vested and freely transferable and will be exchanged
for unrestricted shares of Parent Common Stock (with attached Parent Rights)
pursuant to Section 3.1(d). With respect to all Restricted Stock and Restricted
Stock Units granted under the Company's 1983 Incentive Plan or the Company's
1991 Stock Incentive Plan that were not vested immediately before the
consummation of the Offer, the Performance Period (as defined in such Plans)
shall be deemed to have ended as of the day (the "Determination Date")
immediately preceding the date of the consummation of the Offer, and the number
of shares of Restricted Stock that would be vested (the "Vested Restricted
Stock"), and the number of shares of Company Common Stock that would be issuable
in payment of Restricted Stock Units (the "Vested RSUs"), shall be computed, and
shall vest, based on the Company's total shareholder return through the
Determination Date, with the value of the Company Common Stock being deemed to
be $17.50 per share and the Performance Criteria (as defined in such Plans)
being those that were in effect on the Determination Date. As soon as
practicable after the consummation of the Offer, each employee (or beneficiary
thereof) holding Vested Restricted Stock and/or Vested RSUs shall be paid a cash
payment in cancellation thereof equal to
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<PAGE> 99
$17.50 per share of Vested Restricted Stock and $17.50 per share of Company
Common Stock issuable pursuant to Vested RSUs.
(d) Parent will cause the Surviving Corporation or its successor by merger
to continue in full force and effect for a period of not less than six years
from the Effective Time the indemnification provisions contained in Article
Eighth of the Third Restated Certificate of Incorporation attached as Exhibit
2.4 hereto provided that, in the event any claim is asserted or made within such
six-year period, all rights to indemnification in respect of any such claim will
continue until disposition of any and all such claims. For a period of six years
after the Effective Time, Parent will, or will cause the Company to, provide
directors' and officers' liability insurance having substantially the same terms
and conditions and providing at least the same coverage and amounts as the
directors' and officers' liability insurance maintained by the Company at the
Effective Time for all directors and officers of the Company and its
Subsidiaries, who served as such at or within one year prior to the Effective
Time, provided that Parent will not be required to pay an annual premium for
such insurance in excess of the last annual premium paid prior to the date
hereof (but in such case will purchase as much coverage as possible for such
amount).
Section 6.11 Exclusivity.
(a) Except as provided in Section 6.11(b), until the earlier of the
termination of this Agreement pursuant to Section 8.1 or the purchase of shares
of Company Common Stock pursuant to the Offer, the Company will not, nor will it
permit its officers, directors, Subsidiaries, representatives or agents,
directly or indirectly, to, do any of the following: (i) negotiate, undertake,
authorize, propose or enter into, either as the proposed surviving, merged,
acquiring or acquired corporation, any transaction (other than the Offer and the
Merger) involving any disposition or other change of ownership of a substantial
portion of the Company's stock or assets (an "Acquisition Transaction"); (ii)
solicit or initiate the submission of a proposal or offer in respect of, or
engage in negotiations concerning, an Acquisition Transaction; or (iii) furnish
or cause to be furnished to any corporation, partnership, person or other entity
or group (other than the other party and its representatives) (a "Person") any
non-public information concerning the business, operations, properties or assets
of the Company in connection with an Acquisition Transaction; provided, nothing
herein will prohibit the Company's Board of Directors from taking and disclosing
to the Company's stockholders a position with respect to a tender offer pursuant
to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. The Company will
inform Parent by telephone within two business days of its receipt of any
proposal or bid (including the terms thereof and the Person making such proposal
or bid) in respect of any Acquisition Transaction.
(b) Notwithstanding anything else contained in this Section 6.11, the
Company and its officers, directors, subsidiaries, representatives and agents
may engage in discussions or negotiations with, and may furnish information to,
a third party who, or representatives of a third party who, makes a written
proposal with respect to an Acquisition Transaction if (i) the Company's Board
of Directors determines in good faith after consultation with its financial
advisors that such proposal may reasonably be expected to result in a
transaction that is financially superior to the transactions contemplated by
this Agreement, or (ii) the Board of Directors of the Company determines in good
faith with advice of outside counsel that failure to do so could reasonably be
expected to result in a breach of its fiduciary duties under applicable law. If
the Company accepts a proposal for or otherwise engages in any Acquisition
Transaction (other than the Offer or the Merger), it will promptly pay to Parent
in reimbursement for Parent's expenses an amount in cash (not to exceed
$12,000,000) equal to the aggregate amount of Parent's documented out-of-pocket
expenses incurred in connection with pursuing the transactions contemplated by
this Agreement as certified in good faith by Parent and with reasonable detail.
Section 6.12 Fees and Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby will be paid by the party incurring such
expenses.
Section 6.13 Brokers or Finders. Each of Parent and the Company
represents, as to itself, its Subsidiaries and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any brokers' or finder's fee or any other commission or similar
fee in connection
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<PAGE> 100
with any of the transactions contemplated by this Agreement or the Stock Option
Agreement except Merrill Lynch & Co., whose fees and expenses will be paid by
the Company in accordance with the Company's agreement with such firm, a copy of
which has been provided to Parent, and Smith Barney Inc., whose fees and
expenses will be paid by Parent in accordance with Parent's agreement with such
firm, a copy of which has been provided to the Company, and each of Parent and
the Company will indemnify and hold the other harmless from and against any and
all claims, liabilities or obligations with respect to any other brokers' or
finders' fees, commissions or expenses asserted by any person on the basis of
any act or statement alleged to have been made by such party or its Subsidiary
or affiliate.
Section 6.14 Company Rights Agreement. The Company will redeem the Company
Rights effective immediately prior to Parent's acceptance for payment of shares
of Company Common Stock pursuant to the Offer and will not otherwise redeem the
Company Rights, or amend or terminate the Company Rights Agreement, unless in
each such case the Board determines in good faith with the advice of outside
counsel that complying with any such covenant could reasonably be expected to
result in a breach of its fiduciary duties under applicable law. The Company
agrees that the Offer will provide, and require that tendering stockholders
confirm, that Parent will be entitled to receive and retain the amounts paid in
redemption of all Company Rights attached to shares of Company Common Stock
acquired pursuant to the Offer.
Section 6.15 Rule 145. The Company will use its reasonable best efforts to
cause all persons who, at the time of the meeting of the Company's stockholders
to approve the Merger, may be deemed to be affiliates of the Company as that
term is used in Rule 145 under the Securities Act and who will become the
beneficial owners of Parent Common Stock (and attached Parent Rights) and Parent
New Preferred Stock pursuant to the Merger to execute "affiliates' letters" in
customary form prior to the Effective Time. Parent and the Surviving Corporation
will use their reasonable efforts to comply with the provisions of Rule 144(c)
under the Securities Act in order that such affiliates may resell such Parent
Common Stock (and attached Parent Rights) and Parent New Preferred Stock
pursuant to Rule 145(d) under the Securities Act.
Section 6.16 Notification of Certain Matters. The Company will give prompt
notice to Parent, and Parent will give prompt notice to the Company, of (a) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause (i) any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect or (ii) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied in any material respect and (b) any failure of the Company or
Parent, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that the delivery of any notice pursuant to this
Section 6.16 will not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
Section 6.17 Interim Company Preferred Stock Dividend. The Company will
declare a dividend on each share of the Company Preferred Stock to holders of
record of such shares as of the close of the business day next preceding the
Effective Time in an amount equal to the product of (i) a fraction, (x) the
numerator of which equals the number of days between the payment date with
respect to the most recent regular dividend paid by the Company and the
Effective Time and (y) the denominator of which equals 91 and (ii) the amount of
the regular quarterly dividend paid by the Company on the relevant series of
Company Preferred Stock.
Section 6.18 Company Debt Agreements. The Company will (a) promptly seek
agreement, on terms reasonably acceptable to Parent, of the banks party to the
Company's revolving credit and letter of credit reimbursement agreements to (i)
amend such agreements to provide that the execution by the Company of this
Agreement and the Stock Option Agreement and the purchase of shares of Company
Common Stock pursuant to the Offer or the Stock Option Agreement do not
constitute an event permitting the banks which are parties thereto to accelerate
the amounts outstanding under such agreements or establish cash collateral
accounts, (ii) amend such agreements to permit the consummation of the Merger,
and (iii) waive the interest rate increase otherwise applicable by reason of
such events, (b) select the latest notice and repurchase dates permitted under
the indenture governing the Company Notes in respect of the "change of control"
effected by consummation of the Offer and (c) in the event that such repurchase
date occurs prior to the Merger,
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<PAGE> 101
cooperate with Parent in arranging financing on terms reasonably acceptable to
Parent to finance any required repurchase of Company Notes.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligations of the parties to effect the Merger will be subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions:
(a) Offer. Parent has accepted for purchase and paid for shares of Company
Common Stock pursuant to the Offer; provided, that this condition will be deemed
satisfied with respect to Parent if Parent will have failed to purchase shares
of Company Common Stock pursuant to the Offer in violation of the terms of the
Offer.
(b) Stockholder Approval. This Agreement (insofar as it relates to the
Merger) and the Merger have been approved and adopted by the affirmative vote of
the holders of Company Common Stock entitled to cast at least a majority of the
total number of votes entitled to be cast by holders of Company Common Stock.
(c) HSR Approval. Any waiting period under the HSR Act applicable to the
Merger has expired or been terminated.
(d) Registration Statement. The S-4 has become effective under the
Securities Act and is not the subject of any stop order or proceeding seeking a
stop order. Parent has received all material state securities or blue sky
permits and other authorizations necessary to issue the shares of Parent Common
Stock (and attached Parent Rights) and Parent New Preferred Stock pursuant to
this Agreement.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger is in effect (each party agreeing to use all
reasonable efforts to have any such order reversed or injunction lifted).
(f) Listing Matters. The Parent Common Stock (and the attached Parent
Rights) has been approved for listing on the NYSE, subject to official notice of
issuance.
(g) No Action. No action, suit or proceeding by any Governmental Entity
before any court or governmental or regulatory authority is pending against the
Company, Parent or Sub or any of their Subsidiaries challenging the validity or
legality of the transactions contemplated by this Agreement other than actions,
suits or proceedings as to which Parent had actual knowledge at the time of
acceptance for payment of shares of Company Common Stock pursuant to the Offer
or which, in the reasonable opinion of counsel to the party asserting such
condition, do not have a substantial likelihood of resulting in a material
adverse judgment.
Section 7.2 Conditions of Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are further subject to the Company not
having failed to perform its material obligations required to be performed by it
under Section 6.1 at or prior to the Closing Date, other than any such failures
to perform as to which Parent had actual knowledge at the time of acceptance for
payment of shares of Company Common Stock pursuant to the Offer.
Section 7.3 Conditions of Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to Parent and Sub not having
failed to perform their material obligations required to be performed by them
under Section 6.2 at or prior to the Closing Date, other than any such failures
to perform as to which the Company had actual knowledge at the time of
acceptance of payment for shares of Company Common Stock pursuant to the Offer.
26
<PAGE> 102
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of the Company:
(a) by mutual consent of Parent and the Company by action of their
respective Boards of Directors (with any members of the Board of Directors of
the Company who may hereafter be designated by Parent abstaining);
(b) by the Company if (i) Parent fails to commence the Offer as provided in
Section 1.1, (ii) the Offer expires or is terminated without any shares of
Company Common Stock being purchased thereunder, or (iii) Parent fails to
purchase validly tendered shares of Company Common Stock in violation of the
terms and conditions of the Offer or this Agreement;
(c) by Parent if, due to an occurrence which has made it reasonably
impracticable to satisfy any of the conditions of the Offer set forth in Annex I
hereto at any time prior to the 90th day following the commencement of the
Offer, Parent (i) terminates the Offer or allows the Offer to expire without the
purchase of any shares of Company Common Stock thereunder, unless such
termination or expiration has been caused by or resulted from the failure of
Parent to perform in any material respect any of its covenants and agreements
contained in this Agreement or the Offer, or (ii) fails to pay for shares of
Company Common Stock pursuant to the Offer within 90 days after the date hereof,
unless such failure to pay for such shares is caused by or results from the
failure of Parent to perform in any material respect any of its covenants or
agreements contained in this Agreement or the Offer;
(d) by either Parent or the Company if the Merger is not consummated before
June 30, 1995 despite the good faith effort of such party to effect such
consummation (unless solely by reason of the conditions provided for in Section
7.1(e), and 7.1(g) (in which case such date will be September 30, 1995) or the
failure to so consummate the Merger by such date is due to the action or failure
to act of the party seeking to terminate this Agreement, which action or failure
to act constitutes a breach of this Agreement);
(e) by either Parent or the Company if any court of competent jurisdiction
has issued an injunction permanently restraining, enjoining or otherwise
prohibiting the consummation of the Offer or the Merger, which injunction has
become final and non-appealable;
(f) prior to the expiration of the Offer, by Parent if the Company rescinds
its redemption of the Company Rights and all other conditions to consummation of
the Offer are satisfied, or the Board of Directors of the Company withdraws,
amends or modifies in a manner adverse to Parent its favorable recommendation of
the Offer or the Merger or promulgates any recommendation with respect to an
Acquisition Transaction (including a determination to take no position) other
than a recommendation to reject such Acquisition Transaction; or
(g) prior to the expiration of the Offer, by the Company if (i) (A) any of
the representations and warranties of Parent contained in this Agreement were
incorrect in any material respect when made or have since become, and at the
time of termination remain, incorrect in any material respect, or (B) there has
been a material breach on the part of Parent in the covenants of Parent set
forth herein, or any failure on the part of Parent to comply with its material
obligations hereunder, or any other events or circumstances have occurred, such
that, in any such case, Parent could not satisfy on or prior to June 30, 1995,
any of the conditions to the Closing set forth in Sections 7.1 or 7.3, or (ii)
the Company receives a written offer with respect to an Acquisition Transaction
and the Board of Directors of the Company, after consulting with its outside
counsel and financial advisor, determines in good faith that such Acquisition
Transaction is more favorable to the Company's stockholders than the
transactions contemplated by this Agreement and, not later than the time of such
termination, the Company has paid the expense reimbursement required by Section
6.11(b).
Section 8.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or Parent as provided in Section 8.1, this
Agreement will forthwith become void and there will be no
27
<PAGE> 103
liability or obligation on the part of Parent, Sub or the Company or their
respective officers or directors, other than (a)(i) the provisions of the last
sentence of Section 6.11(b), which will survive for a period of one year from
the date of any such termination if and only if (A) Parent has not received the
payment pursuant to Section 6.11(b) and (B) such termination of this Agreement
is pursuant to Section 8.1(b)(ii) by reason of the Minimum Condition having
failed to be satisfied, Section 8.1(c) by reason of the failure to satisfy the
conditions set forth in paragraph (e) or (f) of Annex I hereto, Section 8.1(f)
or Section 8.1(g)(ii), (ii) Sections 6.12 and 6.13, and (iii) the last sentence
of Section 6.6, and (b) to the extent that such termination results from the
willful breach by a party hereto of any of its covenants or agreements set forth
in this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement will survive the Effective Time.
Section 9.2 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of the Company, but, after any such approval, no
amendment will be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 9.3 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by the respective Boards of
Directors, may to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained here. Any agreement on the
part of a party hereto to any such extension or waiver will be valid only if set
forth in a written instrument signed on behalf of such party.
Section 9.4 Notices. All notices and other communications hereunder will
be in writing and will be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as is specified by like notice):
(a) if to Parent or Sub, to
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Chief Executive Officer
Telecopy No.: (918) 588-2334
with a copy to
J. Furman Lewis
Senior Vice President
and General Counsel
One Williams Center
Tulsa, Oklahoma 74172
Telecopy No.: (918) 588-2334
and
28
<PAGE> 104
Randall H. Doud
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy No.: (212) 735-2000
and
(b) if to the Company, to
Transco Energy Company
2800 Post Oak Boulevard, 21st Floor
Houston, Texas 77056
Attention: Chief Executive Officer
Telecopy No.: (713) 439-4269
with a copy to
David E. Varner
Transco Energy Company
2800 Post Oak Boulevard
Houston, Texas 77056
Telecopy No: (713) 439-4269
and
Eric S. Robinson
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6118
Telecopy No.: (212) 403-2000
Section 9.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference will be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and will not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement they will be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof " and
terms of similar import, unless the context otherwise requires, will be deemed
to refer to December 12, 1994. References to "debt" in Sections 6.1(e) will not
include accrued expenses or trade payables.
Section 9.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
will become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.7 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein), the Stock
Option Agreement and the Confidentiality Agreement (a) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and
thereof, and (b) other than Sections 3.2 and 6.10(d), are not intended to confer
upon any person other than the parties hereto and thereto any rights or remedies
hereunder or thereunder.
Section 9.8 Governing Law. This Agreement will be governed and construed
in accordance with the laws of the State of Delaware applicable to contracts
made, executed, delivered and performed wholly within the State of Delaware,
without regard to any applicable conflicts of law. The Company, Parent and
Subsidiary hereby (w) submit to the jurisdiction of any State and Federal courts
sitting in Delaware with respect to matters arising out of or relating hereto,
(x) agree that all claims with respect to such matters may be heard and
determined in an action or proceeding in such Delaware State or Federal court
and no other court,
29
<PAGE> 105
(y) waive the defense of an inconvenient forum, and (z) agree that a final
judgment in any such action or proceeding will be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided
by law.
Section 9.9 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties will be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
Section 9.10 Publicity. Except as otherwise required by law or the rules
of the NYSE, for so long as this Agreement is in effect, neither the Company nor
Parent will, or will permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement without having consulted with
the other party.
Section 9.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other parties, except that Sub may assign, in its sole discretion, any or
all rights, interests and obligations hereunder to any direct or indirect wholly
owned Subsidiary of Parent incorporated under the laws of the State of Delaware.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
Section 9.12 Validity. The invalidity or unenforceability of any provision
of this Agreement or the Stock Option Agreement will not affect the validity or
enforceability of any other provisions hereof or thereof, which will remain in
full force and effect.
Section 9.13 Taxes. Any liability arising out of the New York State Real
Property Gains Tax and any other tax imposed by any domestic or foreign taxing
authority with respect to the property of the Company due with respect to the
Offer or the Merger will be borne by Parent and expressly will not be a
liability of the stockholders of the Company.
30
<PAGE> 106
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
THE WILLIAMS COMPANIES, INC.
By: /s/ KEITH E. BAILEY
------------------------------------
Name: Keith E. Bailey
Title: Chairman, President & Chief
Executive
Officer
WC ACQUISITION CORP.
By: /s/ J. FURMAN LEWIS
------------------------------------
Name: J. Furman Lewis
Title: Vice President, Assistant
Secretary and Assistant
Treasurer
TRANSCO ENERGY COMPANY
By: /s/ JOHN P. DESBARRES
------------------------------------
Name: John P. DesBarres
Title: Chairman of the Board,
President and Chief
Executive Officer
31
<PAGE> 107
EXHIBIT 3.1(c)
FORM OF CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF THE
CUMULATIVE CONVERTIBLE
PREFERRED STOCK, $3.50 SERIES
($1 PAR VALUE)
OF
THE WILLIAMS COMPANIES, INC.
------------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted on , 1995, by the Board of Directors (the "Board") of The
Williams Companies, Inc., a Delaware corporation (hereinafter called the
"Corporation"), in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware:
RESOLVED that pursuant to authority expressly granted to and vested in
the Board by provisions of the Restated Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, par value $1 per share (the "Preferred Stock"), which
shall consist of up to 2,500,000 of the shares of Preferred Stock
which the Corporation now has authority to issue, be, and the same hereby
is, authorized, and the powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of the shares of such series (in
addition to the powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation which may be applicable to the Preferred Stock) are fixed as
follows:
(i) The designation of such series of the Preferred Stock authorized by
this resolution shall be the $3.50 Cumulative Convertible Preferred Stock (the
"$3.50 Preferred Stock"). The total number of shares of the $3.50 Preferred
Stock shall be 2,500,000.
(ii) Holders of shares of $3.50 Preferred Stock will be entitled to
receive, when and as declared by the Board out of assets of the Corporation
legally available for payment, an annual cash dividend of $3.50 per share,
payable in quarterly installments on February 1, May 1, August 1 and November 1,
commencing [the first such date following the Effective Time] (each a "dividend
payment date"). Dividends on the $3.50 Preferred Stock will be cumulative from
the date of initial issuance of shares of $3.50 Preferred Stock. Dividends will
be payable to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the Board. When
dividends are not paid in full upon the $3.50 Preferred Stock and any other
Parity Preferred Stock (as defined in paragraph (ix)), all dividends declared
upon shares of Parity Preferred Stock will be declared pro rata so that in all
cases the amount of dividends declared per share on the $3.50 Preferred Stock
and such other Parity Preferred Stock shall bear to each other the same ratio
that accumulated and unpaid dividends per share on the shares of $3.50 Preferred
Stock and such other Parity Preferred Stock bear to each other. Except as set
forth in the preceding sentence, unless full cumulative dividends on the $3.50
Preferred Stock have been paid, no dividends (other than in Common Stock of the
Corporation) may be paid or declared and set aside for payment or other
distribution made upon the Common Stock or on any other
<PAGE> 108
stock of the Corporation ranking junior to or on a parity with the $3.50
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the $3.50 Preferred Stock
as to dividends be redeemed, purchased or otherwise acquired for any
consideration (or any payment made to or available for a sinking fund for the
redemption of any shares of such stock; provided, however, that any moneys
theretofore deposited in any sinking fund with respect to any Preferred Stock of
the Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such Preferred Stock in
accordance with the terms of such sinking fund regardless of whether at the time
of such application full cumulative dividends upon shares of the $3.50 Preferred
Stock outstanding to the last dividend payment date shall have been paid or
declared and set apart for payment) by the Corporation (except by conversion
into or exchange for stock of the Corporation ranking junior to the $3.50
Preferred Stock as to dividends). Dividends payable on the $3.50 Preferred Stock
for any period less than the full dividend period will be computed on the basis
of a 360-day year consisting of twelve 30-day months.
(iii) The shares of $3.50 Preferred Stock shall rank prior to the shares of
Common Stock and of any other class of stock of the Corporation ranking junior
to the $3.50 Preferred Stock upon liquidation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the $3.50 Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any other such junior stock, an
amount equal to $50 per share (the "Liquidation Preference" of a share of $3.50
Preferred Stock) plus an amount equal to all dividends (whether or not earned or
declared) accumulated and unpaid on the shares of $3.50 Preferred Stock to the
date of final distribution. After payment of the full amount of the Liquidation
Preference and such dividends, the holders of shares of $3.50 Preferred Stock
will not be entitled to any further participation in any distribution of assets
by the Corporation. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of shares of Parity Preferred Stock shall be insufficient to
pay in full the preferential amount aforesaid, then such assets, or the proceeds
thereof, shall be distributable among such holders ratably in accordance with
the respective amounts which would be payable on such shares if all amounts
payable thereon were payable in full. For the purposes hereof, neither a
consolidation or merger of the Corporation with or into any other corporation,
nor a merger of any other corporation with or into the Corporation, nor a sale
or transfer of all or any part of the Corporation's assets for cash or
securities shall be considered a liquidation, dissolution or winding up of the
Corporation.
(iv) The shares of the $3.50 Preferred Stock will not be redeemable prior
to November 1, 1999. On and after November 1, 1999, the $3.50 Preferred Stock
will be redeemable, in whole at any time or from time to time in part at the
option of the Corporation, upon not less than 30 nor more than 60 days' notice,
at the following redemption prices (the "Redemption Prices") per share if
redeemed during the twelve-month period beginning November 1 of the year
indicated below; plus, in each case, all dividends accrued and unpaid on the
$3.50 Preferred Stock up to the date fixed for redemption:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
YEAR PER SHARE
---- ----------
<S> <C>
1999.............................................................. $ 51.40
2000.............................................................. 51.05
2001.............................................................. 50.70
2002.............................................................. 50.35
2003 and thereafter............................................... 50.00
</TABLE>
In the event that the Corporation determines to redeem fewer than all of
the outstanding shares of the $3.50 Preferred Stock, the shares to be redeemed
shall be determined by lot or a substantially equivalent method.
If a notice of redemption has been given pursuant to this paragraph (iv)
and if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been set aside by the Corporation, separate
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<PAGE> 109
and apart from its other funds, in trust for the pro rata benefit of the holders
of the shares so called for redemption, then, notwithstanding that any
certificates for such shares have not been surrendered for cancellation, on the
redemption date dividends shall cease to accrue on the shares of $3.50 Preferred
Stock to be redeemed, and at the close of business on the redemption date the
holders of such shares shall cease to be stockholders with respect to such
shares and shall have no interest in or claims against the Corporation by virtue
thereof and shall have no voting or other rights with respect to such shares,
except the right to receive the moneys payable upon such redemption, without
interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares evidenced thereby shall no
longer be outstanding. Subject to applicable escheat laws, any moneys so set
aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
(v) The holders of shares of $3.50 Preferred Stock shall have no voting
rights whatsoever, except for any voting rights to which they may be entitled
under the laws of the State of Delaware, and except as follows:
(I) If and whenever at any time or times dividends payable on the
$3.50 Preferred Stock or on any other Preferred Stock shall have been in
arrears and unpaid in an aggregate amount equal to or exceeding the amount
of dividends payable thereon for six quarterly periods, then the holders of
the Preferred Stock shall have, in addition to the other voting rights set
forth herein, the exclusive right, voting separately as a class, to elect
two directors of the Corporation, such directors to be in addition to the
number of directors constituting the Board immediately prior to the accrual
of such right, the remaining directors to be elected by the other class or
classes of stock entitled to vote therefor at each meeting of stockholders
held for the purpose of electing directors. Such voting right shall
continue until such time as all cumulative dividends accumulated on all the
Preferred Stock having cumulative dividends shall have been paid in full
and until any noncumulative dividends payable on all the Preferred Stock
having noncumulative dividends shall have been paid regularly for at least
one year, at which time such voting right of the holders of the Preferred
Stock shall terminate, subject to revesting at such time as there shall
occur each and every subsequent event of default of the character indicated
above.
Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of the
Preferred Stock, called as hereinafter provided, or at any annual meeting
of stockholders held for the purpose of electing directors, and thereafter
at each successive annual meeting.
At such time when such voting right shall have vested in the holders
of the Preferred Stock, and if such right shall not already have been
initially exercised, a proper officer of the Corporation shall, upon the
written request of the holders of record of 10 percent in number of shares
of the Preferred Stock then outstanding, addressed to the Secretary of the
Corporation, call a special meeting of the holders of the Preferred Stock
and of any other class or classes of stock having voting power with respect
thereto for the purpose of electing directors. Such meeting shall be held
at the earliest practicable date upon the notice required for annual
meetings of stockholders at the place for holding of annual meetings of
stockholders of the Corporation, or, if none, at a place designated by the
Secretary of the Corporation. If such meeting shall not be called by the
proper officers of the Corporation within 30 days after the personal
service of such written request upon the Secretary of the Corporation, or
within 30 days after mailing the same within the United States of America,
by registered mail, addressed to the Secretary of the Corporation at its
principal office (such mailing to be evidenced by the registry receipt
issued by the postal authorities), then the holders of record of 10 percent
in number of shares of the Preferred Stock then outstanding may designate
in writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated
upon the notice required for annual meetings of stockholders and shall be
held at the same place as is elsewhere provided for in this subparagraph
(I). Any holder of the Preferred Stock shall have access to the stock books
of the Corporation for the purpose of causing a meeting of stockholders to
be called pursuant to the provisions of this paragraph. Notwithstanding the
provisions of this paragraph, however, no such special meeting shall be
called during a period within 90 days immediately preceding the date fixed
for the next annual meeting of stockholders.
3
<PAGE> 110
At any meeting held for the purpose of electing directors at which the
holders of the Preferred Stock shall have the right to elect directors as
provided herein, the presence in person or by proxy of the holders of
33 1/3 percent of the then outstanding shares of the Preferred Stock shall
be required and be sufficient to constitute a quorum of the Preferred Stock
for the election of directors by the Preferred Stock. At any such meeting
or adjournment thereof (A) the absence of a quorum of the holders of the
Preferred Stock shall not prevent the election of directors other than
those to be elected by the holders of the Preferred Stock and the absence
of a quorum or quorums of the holders of other classes of capital stock
entitled to elect such other directors shall not prevent the election of
directors to be elected by the holders of the Preferred Stock and (B) in
the absence of a quorum of the holders of any class of stock entitled to
vote for the election of directors, a majority of the holders present in
person or by proxy of such class shall have the power to adjourn the
meeting for the election of directors which the holders of such class are
entitled to elect, from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
The directors elected pursuant to this subparagraph (I) shall serve
until the next annual meeting or until their respective successors shall be
elected and shall qualify; provided, however, that when the right of the
holders of the Preferred Stock to elect directors as herein provided shall
terminate, the terms of office of all persons so elected by the holders of
the Preferred Stock shall terminate, and the number of directors of the
Corporation shall thereupon be such number as may be provided in the
By-laws of the Corporation irrespective of any increase made pursuant to
this subparagraph (I).
So long as any shares of $3.50 Preferred Stock are outstanding, the
By-laws of the Corporation shall contain provisions ensuring that the
number of directors of the Corporation shall at all times be such that the
exercise, by the holders of shares of $3.50 Preferred Stock and the holders
of other Preferred Stock, of the right to elect directors under the
circumstances provided in this subparagraph (I) will not contravene any
provisions of the Corporation's Certificate of Incorporation or By-laws.
(II) So long as any shares of the $3.50 Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly or
through merger or consolidation with any other corporation, without the
affirmative vote at a meeting or the written consent with or without a
meeting of the holders of at least 66 2/3 percent in number of shares of
the $3.50 Preferred Stock then outstanding, (A) create any class or classes
of stock ranking prior to or on a parity with the $3.50 Preferred Stock
either as to dividends or upon liquidation or increase the authorized
number of shares of any class or classes of stock ranking prior to or on a
parity with the $3.50 Preferred Stock either as to dividends or upon
liquidation, or create or authorize any obligation or security convertible
into shares of stock of any class ranking prior to or on a parity with the
Preferred Stock either as to dividends or upon liquidation, but may,
without such consent, create or authorize obligations or securities
convertible into shares of Preferred Stock, or (B) amend, alter or repeal
any of the provisions of the Certificate of Incorporation (including this
resolution) so as to affect adversely the preferences, special rights or
powers of the $3.50 Preferred Stock or of the holders thereof.
(vi) Except as provided in paragraph (v)(II), no consent of the holders of
the $3.50 Preferred Stock shall be required for (a) the creation of any
indebtedness of any kind of the Corporation, (b) the creation, or increase or
decrease in the amount, of any class or series of stock of the Corporation not
ranking prior to or on a parity with to the $3.50 Preferred Stock as to
dividends or upon liquidation or (c) any increase or decrease in the amount of
authorized Common Stock or any increase, decrease or change in the par value
thereof or in any other terms thereof.
(vii) Subject to the provisions of paragraph (iv) hereof, the Board
reserves the right by subsequent amendment of this resolution from time to time
to increase or decrease the number of shares which constitute the $3.50
Preferred Stock (but not below the number of shares thereof then outstanding)
and in other respects to amend this resolution within the limitations provided
by law, this resolution and the Certificate of Incorporation.
(viii) At the option of the holder thereof and upon surrender thereof for
conversion to the Corporation at the office of the Transfer Agent of the
Corporation's Common Stock in the Borough of Manhattan, the City of
4
<PAGE> 111
New York or in the City of Tulsa, each share of $3.50 Preferred Stock will be
convertible (or if such share is called or surrendered for redemption, then in
respect of such share to and including, but not after, the redemption date) into
fully paid and nonassessable shares of Common Stock at the initial conversion
rate of 1.5625 shares of Common Stock for each share of $3.50 Preferred Stock,
the conversion rate being subject to adjustment as hereinafter provided:
(I) In case the Corporation shall (A) pay a dividend in shares of its
capital stock, (B) subdivide its outstanding shares of Common Stock into a
greater number of shares, (C) combine its outstanding shares of Common
Stock into a smaller number of shares, or (D) issue by reclassification of
its shares of Common Stock any shares of its capital stock, the conversion
rate in effect immediately prior thereto shall be adjusted so that the
holder of a share of $3.50 Preferred Stock surrendered for conversion after
the record date fixing stockholders to be affected by such event shall be
entitled to receive upon conversion the number of such shares of Common
Stock which he would have been entitled to receive after the happening of
such event had such share of $3.50 Preferred Stock been converted
immediately prior to such record date. Such adjustment shall be made
whenever any of such events shall happen, but shall also be effective
retroactively as to shares of $3.50 Preferred Stock converted between such
record date and the date of the happening of any such event.
(II) In case the Corporation shall issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Current Market
Price Per Share (as defined in subparagraph (IV) below) of Common Stock at
the record date mentioned below, the number of shares of Common Stock into
which each share of $3.50 Preferred Stock shall thereafter be convertible
shall be determined by multiplying the number of shares of Common Stock
into which such share of $3.50 Preferred Stock was theretofore convertible
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for
subscription or purchase, and the denominator of which shall be the number
of the shares of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such
Current Market Price Per Share. Such adjustment shall be made whenever such
rights or warrants are issued, but shall also be effected retroactively as
to shares of $3.50 Preferred Stock converted between the record date for
the determination of stockholders entitled to receive such rights or
warrants and the date such rights or warrants are issued.
(III) In case the Corporation shall distribute to all holders of its
Common Stock evidences of its indebtedness or assets (excluding any cash
dividend or distribution made out of current or retained earnings) or
rights to subscribe other than as set forth in subparagraph (II) above,
then in each such case the number of shares of Common Stock into which each
share of $3.50 Preferred Stock shall thereafter be convertible shall be
determined by multiplying the number of shares of Common Stock into which
such share was theretofore convertible by a fraction, the numerator of
which shall be the Current Market Price Per Share of the Common Stock on
the record date fixed by the Board for such distribution, and the
denominator of which shall be such Current Market Price Per Share of the
Common Stock less the then fair market value (as determined by the Board,
whose determination shall be conclusive) of the portion of the assets,
evidences of indebtedness or subscription rights so distributed applicable
to one share of the Common Stock. Such adjustment shall be made whenever
any such distribution is made, but shall also be effective retroactively as
to shares of $3.50 Preferred Stock converted between the record date for
the determination of stockholders entitled to receive such distribution and
the date such distribution is made.
(IV) For the purpose of any computation under subparagraphs (II) and
(III) above and (VI) below, the "Current Market Price Per Share" of Common
Stock at any date shall be deemed to be the average of the daily closing
prices for the 15 consecutive trading days commencing 20 trading days
before the day in question. The closing price for each day shall be
reported on the New York Stock Exchange-Composite Transactions Tape or as
reported by any successor central market system.
5
<PAGE> 112
(V) No adjustment in the conversion rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in such
rate; provided, however, that any adjustments which by reason of this
subparagraph (V) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this paragraph (viii) shall be made to the nearest one-hundredth of a
share.
(VI) No fractional shares or scrip representing fractional shares of
Common Stock shall be issued upon the conversion of any share of $3.50
Preferred Stock. If the conversion thereof results in a fraction, an amount
equal to such fraction multiplied by the Current Market Price Per Share of
Common Stock (as defined in subparagraph (IV) above) as of the conversion
date shall be paid to such holder in cash by the Corporation.
(VII) In case the Corporation shall enter into any consolidation,
merger or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any
other property, then in each such case each share of $3.50 Preferred Stock
remaining outstanding at the time of consummation of such transaction shall
thereafter be convertible into the kind and amount of such stock or
securities, cash and/or other property receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock into which
such shares of $3.50 Preferred Stock might have been converted immediately
prior to consummation of such transaction, assuming in each case that such
holder of Common Stock failed to exercise rights of election, if any, as to
the kind or amount of securities, cash or other property receivable upon
consummation of such transaction (provided that if the kind or amount of
securities, cash or other property receivable upon consummation of such
transaction is not the same for each non-electing share, then the kind and
amount of securities, cash or other property receivable upon consummation
of such transaction for each non-electing share shall be deemed to be the
kind and amount as receivable per share by a plurality of the non-electing
shares).
(VIII) In the event of any Change in Control (as hereinafter defined)
of the Corporation, each holder of $3.50 Preferred Stock shall have the
right, at the holder's option, to require the Corporation to redeem all or
any number of such holder's shares of $3.50 Preferred Stock during the
period (the "Exercise Period") beginning on the 30th day and ending on the
90th day after the date of such Change in Control at the Redemption Price,
plus accrued and unpaid dividends to the date fixed for redemption;
provided, however, that such redemption right shall not be applicable in
the case of any Change in Control of the Corporation which shall have been
duly approved by the Continuing Directors (as hereinafter defined) during
the period (the "Approval Period") prior to or within 21 days after the
date on which such Change in Control shall have occurred. As used herein,
(a) "Acquiring Person" means any Person who is or becomes the Beneficial
Owner, directly or indirectly, of 10% or more of the outstanding Common
Stock, (b) "Beneficial Owner" has the meaning ascribed to such term in Rule
13d-3 adopted pursuant to the Securities Exchange Act of 1934, as amended,
(c) a "Change in Control" of the Corporation shall be deemed to have
occurred at such time as (i) any Person is or becomes the Beneficial Owner,
directly or indirectly, of 30% or more of the outstanding Common Stock or
(ii) individuals who constitute the Continuing Directors cease for any
reason to constitute at least a majority of the Board, (d) "Continuing
Director" means any member of the Board who is not affiliated with an
Acquiring Person and who was a member of the Board immediately prior to the
time that the Acquiring Person became an Acquiring Person and any successor
to a Continuing Director who is not affiliated with the Acquiring Person
and is recommended to succeed a Continuing Director by a majority of
Continuing Directors who are then members of the Board, and (e) "Person"
means any individual, corporation, partnership, limited partnership,
association, joint-stock company, trust, unincorporated organization,
syndicate or group (as such terms are used in Section 13d-3 adopted
pursuant to the Securities Exchange Act of 1934, as amended) or government
or political subdivision thereof.
On or before the seventh day after the termination of the Approval
Period, the Corporation shall mail to all holders of record of the $3.50
Preferred Stock as of the last day of the Approval Period, at their
respective addresses as the same shall appear on the books of the
Corporation as of such date, a notice disclosing (i) the Change in Control,
(ii) whether or not the Continuing Directors have approved the
6
<PAGE> 113
Change in Control, and (iii) if the Continuing Directors have not approved
the Change in Control, the respective dates on which the Exercise Period
commences and ends, the redemption price per share of the $3.50 Preferred
Stock applicable hereunder and the procedure which the holder must follow
to exercise the redemption right provided above. The Corporation shall
cause a copy of such notice to be published in a newspaper of general
circulation in the Borough of Manhattan, New York. To exercise such
redemption right, a holder of the $3.50 Preferred Stock must deliver during
the Exercise Period written notice to the Corporation (or an agent
designated by the Corporation for such purpose) of the holder's exercise of
such redemption right, and, to be valid, any such notice of exercise must
be accompanied by each certificate evidencing shares of the $3.50 Preferred
Stock with respect to which the redemption right is being exercised, duly
endorsed for transfer. On or prior to the seventh day after the close of
the Exercise Period, the Corporation shall accept for payment all shares of
$3.50 Preferred Stock properly surrendered to the Corporation (or an agent
designated by the Corporation for such purpose) during the Exercise Period
for redemption in connection with the valid exercise of such redemption
right and shall cause payment to be made in cash for such shares of $3.50
Preferred Stock.
(ix) For the purposes of this resolution, any stock of any class or classes
of the Corporation shall be deemed to rank:
(a) prior to shares of the $3.50 Preferred Stock, either as to
dividends or upon liquidation, if the holders of stock of such class or
classes shall be entitled by the terms thereof to the receipt of dividends
or of amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of the
$3.50 Preferred Stock;
(b) on a parity with shares of the $3.50 Preferred Stock, either as to
dividends or upon liquidation, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof be
different from those of the $3.50 Preferred Stock, if the holders of stock
of such class or classes shall be entitled by the terms thereof to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to their
respective dividend rates or liquidation prices, without preference or
priority of one over the other as between the holders of such stock and the
holders of shares of $3.50 Preferred Stock (the term "Parity Preferred
Stock" being used to refer to any stock on a parity with the shares of
$3.50 Preferred Stock, either as to dividends or upon liquidation as the
context may require); and
(c) junior to shares of the $3.50 Preferred Stock, either as to
dividends or upon liquidation, if such class shall be Common Stock or if
the holders of the $3.50 Preferred Stock shall be entitled to the receipt
of dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders of
stock of such class or classes.
(x) The $3.50 Preferred Stock shall rank on a parity with the $2.21
Cumulative Preferred Stock, par value $1 per share, of the Corporation as to
dividends and upon liquidation. The $3.50 Preferred Stock shall rank prior to
the Series A Junior Participating Preferred Stock, par value $1 per share, and
all other shares of capital stock of the Corporation outstanding at the time of
issuance of the $3.50 Preferred Stock.
7
<PAGE> 114
IN WITNESS WHEREOF, The Williams Companies, Inc. has caused this
Certificate to be made under the seal of the Corporation and signed by
, , and attested by ,
, this day of , 1995.
THE WILLIAMS COMPANIES, INC.
[SEAL]
Attest: By:
----------------------------------
- ----------------------------------------
8
<PAGE> 115
ANNEX B-1
[MERRILL LYNCH LETTERHEAD]
December 11, 1994
Board of Directors
Transco Energy Company
2800 Post Oak Blvd., 21st Floor
Houston, Texas 77056
Ladies and Gentlemen:
Transco Energy Company (the "Company"), The Williams Companies, Inc. (the
"Acquiror") and WC Acquisition Corp., a wholly owned subsidiary of the Acquiror
(the "Acquisition Sub"), propose to enter into an Agreement and Plan of Merger
(the "Agreement") pursuant to which the Acquiror will make a tender offer (the
"Offer") for up to 60% of the outstanding shares of the Company's common stock,
par value $0.50 per share (the "Shares"), and attached Company Rights, at $17.50
per Share (and attached Company Right), net to the seller in cash, subject to
certain conditions, including the Minimum Condition that at least 51% of the
outstanding Shares have been validly tendered and not withdrawn. The Offer is
expected to commence on December 16, 1994. The Agreement also provides that,
following consummation of the Offer, Acquisition Sub will be merged with and
into the Company in a transaction (the "Merger") in which (i) each remaining
Share will be converted into the right to receive the Conversion Number of
shares of common stock, $1.00 par value, of the Acquiror (the "Acquiror
Shares"), together with one-half of the Conversion Number of an attached Parent
Right, and cash, if any, in the amount of the Per Share Cash Amount, (ii) each
outstanding share of Cumulative Convertible Preferred Stock, $4.75 Series, of
the Company (the "Company $4.75 Preferred Stock") will be converted into one
share of $4.75 Series Cumulative Convertible Preferred Stock of Acquiror (the
"Acquiror 4.75 Preferred Stock") initially convertible into 0.5588 of an
Acquiror Share and (iii) each outstanding share of Cumulative Convertible
Preferred Stock, $3.50 Series, of the Company (the "Company $3.50 Preferred
Stock" and, together with the Company $4.75 Preferred Stock, the "Company
Preferred Stock") will be converted into one share of $3.50 Series Cumulative
Convertible Preferred Stock of Acquiror (the "Acquiror $3.50 Preferred Stock")
initially convertible into 1.5625 Acquiror Shares. In connection with the Offer
and the Merger, the Company also proposes to enter into a Stock Option Agreement
(the "Stock Option Agreement") with the Acquiror pursuant to which the Company
will grant Acquiror an option to purchase up to 7,500,000 Shares at an exercise
price of $17.50 per Share, representing approximately 15.5% of the total Shares
outstanding (assuming issuance of such 7,500,000 Shares), with respect to which
the Company may, upon exercise thereof, elect to cancel the option in lieu of
delivering Shares by making a cash payment to the Acquiror in an amount not to
exceed $2.00 per option Share. Capitalized terms used herein without definition
are defined in the Agreement and are used herein with the meanings ascribed to
such terms in the Agreement.
You have asked us whether, in our opinion, the proposed consideration to be
received by the holders of the Shares and the Company Preferred Stock other than
the Acquiror and its affiliates in the Offer and the Merger, taken as a whole,
is fair to such stockholders from a financial point of view as of the date
hereof.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1993,
the Company's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1994, June 30, 1994 and
September 30,
<PAGE> 116
1994, and the Company's Forms 8-K dated September 23, 1992, July 6, 1993,
July 14, 1993, October 25, 1993 and April 7, 1994;
(2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1993,
the Acquiror's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1994, June 30, 1994 and
September 30, 1994, and the Acquiror's Form 8-K dated August 22, 1994;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company and the Acquiror, furnished to us by the Company and the Acquiror,
respectively;
(4) Conducted discussions with members of senior management of the
Company and the Acquiror concerning their respective businesses, assets,
liabilities and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Company, and reviewed
certain market prices and trading activity for the Company Preferred Stock;
(6) Reviewed the historical market prices and trading activity for the
Acquiror Shares and compared them with that of certain publicly traded
companies which we deemed to be reasonably similar to the Acquiror, and
reviewed the Acquiror's stock repurchase program and its effect on the
historical market prices and trading activity for the Acquiror Shares;
(7) Compared the results of operations of the Company and the Acquiror
with that of certain companies which we deemed to be reasonably similar to
the Company and the Acquiror, respectively;
(8) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(9) Reviewed a draft of the Agreement dated December 11, 1994,
including the forms of Certificate of Designation, Preferences and Rights
of the Acquiror $4.75 Preferred Stock and the Acquiror $3.50 Preferred
Stock attached as exhibits thereto;
(10) Reviewed a draft of the Stock Option Agreement dated December 11,
1994; and
(11) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company and
the Acquiror, and we have not independently verified such information or
undertaken an independent appraisal of the assets of the Company or the
Acquiror. With respect to the financial forecasts furnished by the Company and
the Acquiror, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Company's or
the Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be. We have also assumed that the final
forms of the Agreement and the Stock Option Agreement will not differ in any
material respect from the draft forms of Agreement and Stock Option Agreement
reviewed by us.
In connection with the transactions contemplated by the Agreement, we have
not been requested by the Company or the Board of Directors to solicit, nor have
we solicited, third-party indications of interest for the acquisition of all or
any part of the Company.
We have, in the past, provided financial advisory and financing services to
the Company and have received fees for the rendering of such services. In the
ordinary course of business, we engage in trading the securities of the Company
and the Acquiror for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
<PAGE> 117
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the proposed consideration to be received by the holders
of the Shares and the Company Preferred Stock other than the Acquiror and its
affiliates pursuant to the Offer and the Merger, taken as a whole, is fair to
such stockholders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ RICHARD K. GORDON
----------------------------------------
Richard K. Gordon
Vice Chairman
Investment Banking Group
Merrill Lynch & Co.
<PAGE> 118
ANNEX B-2
[MERRILL LYNCH LETTERHEAD]
January 9, 1995
Board of Directors
Transco Energy Company
2800 Post Oak Blvd., 21st Floor
Houston, Texas 77056
Ladies and Gentlemen:
Transco Energy Company (the "Company"), The Williams Companies, Inc. (the
"Acquiror") and WC Acquisition Corp., a wholly owned subsidiary of the Acquiror
(the "Acquisition Sub"), have entered into an Agreement and Plan of Merger dated
as of December 12, 1994 (the "Agreement") pursuant to which the Acquiror has
commenced a tender offer (the "Offer") for up to 60% of the outstanding shares
of the Company's common stock, par value $0.50 per share (the "Shares"), and
attached Company Rights, at $17.50 per Share (and attached Company Right), net
to the seller in cash, subject to certain conditions, including the Minimum
Condition that at least 51% of the outstanding Shares have been validly tendered
and not withdrawn. The Offer was commenced on December 16, 1994 and is expected
to expire on January 17, 1995. The Agreement also provides that, following
consummation of the Offer, Acquisition Sub will be merged with and into the
Company in a transaction (the "Merger") in which (i) each remaining Share will
be converted into the right to receive the Conversion Number of shares of common
stock, $1.00 par value, of the Acquiror (the "Acquiror Shares"), together with
one-half of the Conversion Number of an attached Parent Right, and cash, if any,
in the amount of the Per Share Cash Amount, (ii) each outstanding share of
Cumulative Convertible Preferred Stock, $4.75 Series, of the Company (the
"Company $4.75 Preferred Stock") will be converted into one share of $4.75
Series Cumulative Convertible Preferred Stock of Acquiror (the "Acquiror $4.75
Preferred Stock") initially convertible into 0.5588 of an Acquiror Share and
(iii) each outstanding share of Cumulative Convertible Preferred Stock, $3.50
series, of the Company (the "Company $3.50 Preferred Stock" and, together with
the Company $4.75 Preferred Stock, the "Company Preferred Stock") will be
converted into one share of $3.50 Series Cumulative Convertible Preferred Stock
of Acquiror (the "Acquiror $3.50 Preferred Stock") initially convertible into
1.5625 Acquiror Shares. In connection with the Offer and the Merger, the Company
has also entered into a Stock Option Agreement dated as of December 12, 1994
(the "Stock Option Agreement") with the Acquiror pursuant to which the Company
has granted the Acquiror an option to purchase up to 7,500,000 Shares at an
exercise price of $17.50 per Share, representing approximately 15.5% of the
total Shares outstanding (assuming issuance of such 7,500,000 Shares), with
respect to which the Company may, upon exercise thereof, elect to cancel the
option in lieu of delivering Shares by making a cash payment to the Acquiror in
an amount not to exceed $2.00 per option Share. Capitalized terms used herein
without definition are defined in the Agreement and are used herein with the
meanings ascribed to such terms in the Agreement.
You have asked us whether, in our opinion, the consideration to be received
by the holders of the Shares and the Company Preferred Stock other than the
Acquiror and its affiliates in the Offer and the Merger, taken as a whole, is
fair to such stockholders from a financial point of view as of the date hereof.
<PAGE> 119
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1993,
the Company's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1994, June 30, 1994 and
September 30, 1994, and the Company's Forms 8-K dated September 23, 1992,
July 6, 1993, July 14, 1993, October 25, 1993 and April 7, 1994;
(2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1993,
the Acquiror's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1994, June 30, 1994 and
September 30, 1994, and the Acquiror's Form 8-K dated August 22, 1994;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company and the Acquiror, furnished to us by the Company and the Acquiror,
respectively;
(4) Conducted discussions with members of senior management of the
Company and the Acquiror concerning their respective businesses, assets,
liabilities and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Company, and reviewed
certain market prices and trading activity for the Company Preferred Stock;
(6) Reviewed the historical market prices and trading activity for the
Acquiror Shares and compared them with that of certain publicly traded
companies which we deemed to be reasonably similar to the Acquiror, and
reviewed the Acquiror's stock repurchase program and its effect on the
historical market prices and trading activity for the Acquiror Shares;
(7) Compared the results of operations of the Company and the Acquiror
with that of certain companies which we deemed to be reasonably similar to
the Company and the Acquiror, respectively;
(8) Compared the financial terms of the transactions contemplated by
the Agreement with the financial terms of certain other mergers and
acquisitions which we deem to be relevant;
(9) Reviewed the Agreement, including the forms of Certificate of
Designation, Preferences and Rights of the Acquiror $4.75 Preferred Stock
and the Acquiror $3.50 Preferred Stock attached as exhibits thereto;
(10) Reviewed the Stock Option Agreement, and
(11) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company and
the Acquiror, and we have not independently verified such information or
undertaken an independent appraisal of the assets of the Company or the
Acquiror. With respect to the financial forecasts furnished by the Company and
the Acquiror, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of the Company's or
the Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be.
In connection with the transactions contemplated by the Agreement, we have
not been requested by the Company or the Board of Directors to solicit, nor have
we solicited, third-party indications of interest for the acquisition of all or
any part of the Company.
We have, in the past, provided financial advisory and financing services to
the Company and have received fees for the rendering of such services. In the
ordinary course of business, we engage in trading the
<PAGE> 120
securities of the Company and the Acquiror for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the consideration to be received by the holders of the
Shares and the Company Preferred Stock other than the Acquiror and its
affiliates pursuant to the Offer and the Merger, taken as a whole, is fair to
such stockholders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ RICHARD K. GORDON
----------------------------------------
Richard K. Gordon
Vice Chairman
Investment Banking Group
Merrill Lynch & Co.
<PAGE> 121
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were neither (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect there
of;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will
be either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE> 122
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
this written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of
2
<PAGE> 123
their shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list at
the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger of
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall
3
<PAGE> 124
be dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
4
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Williams is empowered by Section 145 of the DGCL, 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 such person in connection with any
threatened, pending or completed action, suit or proceeding in which such person
is made a party by reason of such person 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 DGCL. 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.
The foregoing statements are subject to the detailed provisions of the
DGCL, Williams' Restated Certificate of Incorporation and Williams' By-laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibit
<TABLE>
<S> <C>
2 Agreement and Plan of Merger, dated as of December 12, 1994, by and among The
Williams Companies, Inc., WC Acquisition Corp. and Transco Energy Company, as
amended. (Included as Annex A to the Prospectus and Information Statement.)
3.1 Restated Certificate of Incorporation of Williams, as currently in effect.
(Previously filed as Exhibit 4(a) to Williams' Form 8-B Registration Statement,
filed August 20, 1987, and incorporated herein by reference.)
3.2 Certificate of Designation with respect to the Williams' $2.21 Cumulative
Preferred Stock. (Previously filed as Exhibit 4.3 to the Registration Statement
on Form S-3, filed August 19, 1992, and incorporated herein by reference.)
3.3 Certificate of Increase of Authorized Number of Shares of Series A Junior
Participating Preferred Stock. (Previously filed as Exhibit 3(c) to Williams'
Form 10-K for the year ended December 31, 1988, and incorporated herein by
reference.)
3.4* Certificate of Amendment of Restated Certificate of Incorporation of Williams,
dated May 20, 1994.
3.5 By-Laws of Williams, as currently in effect. (Previously filed as Exhibit 3 to
Williams' Form 10-Q for the quarter ended September 30, 1993, and incorporated
herein by reference.)
4.1 Form of Certificate of Designation, Preferences and Rights of the Williams
$3.50 Preferred Stock. (Included as part of Annex A to the Prospectus and
Information Statement.)
4.2 Amended and Restated Rights Agreement, dated as of July 12, 1988, between
Williams and First Chicago Trust Company of New York. (Previously filed as
Exhibit 4(c) to Williams' Form 8, dated July 28, 1988, and incorporated herein
by reference.)
</TABLE>
II-1
<PAGE> 126
<TABLE>
<S> <C>
4.3 Form of Senior Debt Indenture between Williams and Chemical Bank, Trustee,
relating to the 10 1/4% Debentures, due 2020; the 9 3/8% Debentures, due 2021;
the 8 1/4% Notes, due 1998; Medium-Term Notes (8.50%-9.31%), due 1996 through
2001; the 7 1/2% Notes due 1999, and the 8 7/8% Debentures, due 2012.
(Previously filed as Exhibit 4.1 to Form S-3 Registration Statement No.
33-33294, filed February 2, 1990, and incorporated herein by reference.)
4.4 U.S.$600,000,000 Credit Agreement, dated as of December 23, 1992, among
Williams and certain of its subsidiaries and the banks named therein and
Citibank, N.A., as agent. (Previously filed as Exhibit 4(d) to Form 10-K for
the year ended December 31, 1992, and incorporated herein by reference.)
5* Opinion of J. Furman Lewis, Senior Vice President and General Counsel of The
Williams Companies, Inc.
7* Opinion of J. Furman Lewis, Senior Vice President and General Counsel of The
Williams Companies, Inc.
10.1 The Williams Companies, Inc. Supplemental Retirement Plan, effective as of
January 1, 1998. (Previously filed as Exhibit 10(iii)(c) to Form 10-K for the
year ended December 31, 1987, and incorporated herein by reference.)
10.2 Form of Employment Agreement, dated January 1, 1990, between Williams and
certain executive officers. (Previously filed as Exhibit 10(iii)(d) to Form
10-K for the year ended December 31, 1989, and incorporated herein by
reference.)
10.3 Form of The Williams Companies, Inc. Change in Control Protection Plan between
Williams and employees (Previously filed as Exhibit 10(iii)(e) to Form 10-K for
the year ended December 31, 1989, and incorporated herein by reference.)
10.4 The Williams Companies, Inc. 1985 Stock Option Plan. (Previously filed as
Exhibit A to Williams' Proxy Statement, dated March 13, 1985, and incorporated
herein by reference.)
10.5 The Williams Companies, Inc. 1988 Stock Option Plan for Non-Employee Directors.
(Previously filed as Exhibit A to Williams' Proxy Statement, dated March 14,
1988, and incorporated herein by reference.)
10.6 The Williams Companies, Inc. 1990 Stock Plan. (Previously filed as Exhibit A to
Williams' Proxy Statement, dated March 12, 1990, and incorporated herein by
reference.)
10.7 Indemnification Agreement, effective as of August 1, 1986, between Williams and
members of the Board of Directors and certain officers of Williams. (Previously
filed as Exhibit 10(iii)(e) to Form 10-K for the year ended December 31, 1986,
and incorporated herein by reference.)
12 Statement regarding computation of ratio of earnings to combined fixed charges
and preferred stock dividends.
21* Subsidiaries of Williams.
23.1 Consent of Ernst & Young LLP, dated February 8, 1995.
23.2 Consent of Arthur Anderson LLP, dated February 6, 1995.
23.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated February
8, 1995.
24 Powers of Attorney
99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated December
12, 1994. (Included as Annex B-1 to the Prospectus and Information Statement.)
99.2 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated January 9,
1995. (Included as Annex B-2 to the Prospectus and Information Statement.)
</TABLE>
- ---------------
* To be filed by amendment
II-2
<PAGE> 127
(b) Financial Statement Schedules
The statement regarding computation of ratio of earnings to combined fixed
charges and preferred stock dividends is included as Exhibit 12 hereto. All
other schedules have been omitted either because they are not required or
applicable or because the information required is shown in the consolidated
financial statements or notes thereto which are included elsewhere in this
Registration Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act 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; and
(b) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(c) That every prospectus: (i) that is filed pursuant to paragraph (b)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
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.
(d) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(e) To respond to requests for information that is incorporated by
reference into the Prospectus and Information Statement pursuant to Items 4,
10(b), 11, or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(f) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-3
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Tulsa, State of Oklahoma,
on February 8, 1995.
The Williams Companies, Inc.
(Registrant)
By: /s/ J. FURMAN LEWIS
--------------------------------------
J. Furman Lewis
Senior Vice President and
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 INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------- -----------------
<S> <C> <C>
/s/ KEITH E. BAILEY Chairman of the Board, Chief February 8, 1995
- ------------------------------------- Executive Officer, President
Keith E. Bailey* and Director (principal
executive officer)
/s/ JACK D. MCCARTHY Senior Vice President Finance and February 8, 1995
- ------------------------------------- Chief Financial Officer
Jack D. McCarthy* (principal financial officer)
/s/ GARY R. BELITZ Controller (principal accounting February 8, 1995
- ------------------------------------- officer)
Gary R. Belitz*
/s/ HAROLD W. ANDERSON Director February 8, 1995
- -------------------------------------
Harold W. Anderson*
Director
- -------------------------------------
Ralph E. Bailey
/s/ GLENN A. COX Director February 8, 1995
- -------------------------------------
Glenn A. Cox*
/s/ THOMAS H. CRUIKSHANK Director February 8, 1995
- -------------------------------------
Thomas H. Cruikshank*
/s/ ERVIN S. DUGGAN Director February 8, 1995
- -------------------------------------
Ervin S. Duggan*
/s/ ROBERT J. LAFORTUNE Director February 8, 1995
- -------------------------------------
Robert J. LaFortune*
</TABLE>
II-4
<PAGE> 129
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES C. LEWIS Director February 8, 1995
- -------------------------------------
James C. Lewis*
/s/ JACK A. MACALLISTER Director February 8, 1995
- -------------------------------------
Jack A. MacAllister*
/s/ JAMES A. MCCLURE Director February 8, 1995
- -------------------------------------
James A. McClure*
/s/ PETER C. MEINIG Director February 8, 1995
- -------------------------------------
Peter C. Meinig*
/s/ KAY A. ORR Director February 8, 1995
- -------------------------------------
Kay A. Orr*
/s/ GORDON R. PARKER Director February 8, 1995
- -------------------------------------
Gordon R. Parker*
/s/ JOSEPH H. WILLIAMS Director February 8, 1995
- -------------------------------------
Joseph H. Williams*
* By: /s/ J. FURMAN LEWIS
- -------------------------------------
J. Furman Lewis
Attorney-in-fact
</TABLE>
II-5
<PAGE> 130
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ---- -----
<S> <C> <C>
2 Agreement and Plan of Merger, dated as of December 12, 1994, by and among The
Williams Companies, Inc., WC Acquisition Corp. and Transco Energy Company, as
amended. (Included as Annex A to the Prospectus and Information Statement.)...
3.1 Restated Certificate of Incorporation of Williams, as currently in effect.
(Previously filed as Exhibit 4(a) to Williams' Form 8-B Registration
Statement, filed August 20, 1987, and incorporated herein by reference.)......
3.2 Certificate of Designation with respect to the Williams' $2.21 Cumulative
Preferred Stock. (Previously filed as Exhibit 4.3 to the Registration
Statement on Form S-3, filed August 19, 1992, and incorporated herein by
reference.)...................................................................
3.3 Certificate of Increase of Authorized Number of Shares of Series A Junior
Participating Preferred Stock. (Previously filed as Exhibit 3(c) to Williams'
Form 10-K for the year ended December 31, 1988, and incorporated herein by
reference.)...................................................................
3.4* Certificate of Amendment of Restated Certificate of Incorporation of Williams,
dated May 20, 1994............................................................
3.5 By-Laws of Williams, as currently in effect. (Previously filed as Exhibit 3 to
Williams' Form 10-Q for the quarter ended September 30, 1993, and incorporated
herein by reference.).........................................................
4.1 Form of Certificate of Designation, Preferences and Rights of the Williams
$3.50 Preferred Stock. (Included as part of Annex A to the Prospectus and
Information Statement.).......................................................
4.2 Amended and Restated Rights Agreement, dated as of July 12, 1988, between
Williams and First Chicago Trust Company of New York. (Previously filed as
Exhibit 4(c) to Williams' Form 8, dated July 28, 1988, and incorporated herein
by reference.)................................................................
4.3 Form of Senior Debt Indenture between Williams and Chemical Bank, Trustee,
relating to the 10 1/4% Debentures, due 2020; the 9 3/8% Debentures, due 2021;
the 8 1/4% Notes, due 1998; Medium-Term Notes (8.50%-9.31%), due 1996 through
2001; the 7 1/2% Notes due 1999, and the 8 7/8% Debentures, due 2012.
(Previously filed as Exhibit 4.1 to Form S-3 Registration Statement No.
33-33294, filed February 2, 1990, and incorporated herein by reference.)......
4.4 U.S.$600,000,000 Credit Agreement, dated as of December 23, 1992, among
Williams and certain of its subsidiaries and the banks named therein and
Citibank, N.A., as agent. (Previously filed as Exhibit 4(d) to Form 10-K for
the year ended December 31, 1992, and incorporated herein by reference.)......
5* Opinion of J. Furman Lewis, Senior Vice President and General Counsel of The
Williams Companies, Inc.......................................................
7* Opinion of J. Furman Lewis, Senior Vice President and General Counsel of The
Williams Companies, Inc.......................................................
10.1 The Williams Companies, Inc. Supplemental Retirement Plan, effective as of
January 1, 1998. (Previously filed as Exhibit 10(iii)(c) to Form 10-K for the
year ended December 31, 1987, and incorporated herein by reference.)..........
10.2 Form of Employment Agreement, dated January 1, 1990, between Williams and
certain executive officers. (Previously filed as Exhibit 10(iii)(d) to Form
10-K for the year ended December 31, 1989, and incorporated herein by
reference.)...................................................................
10.3 Form of The Williams Companies, Inc. Change in Control Protection Plan between
Williams and employees (Previously filed as Exhibit 10(iii)(e) to Form 10-K
for the year ended December 31, 1989, and incorporated herein by
reference.)...................................................................
10.4 The Williams Companies, Inc. 1985 Stock Option Plan. (Previously filed as
Exhibit A to Williams' Proxy Statement, dated March 13, 1985, and incorporated
herein by reference.).........................................................
10.5 The Williams Companies, Inc. 1988 Stock Option Plan for Non-Employee
Directors. (Previously filed as Exhibit A to Williams' Proxy Statement, dated
March 14, 1988, and incorporated herein by reference.)........................
10.6 The Williams Companies, Inc. 1990 Stock Plan. (Previously filed as Exhibit A
to Williams' Proxy Statement, dated March 12, 1990, and incorporated herein by
reference.)...................................................................
</TABLE>
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ---- -----
<S> <C> <C>
10.7 Indemnification Agreement, effective as of August 1, 1986, between Williams
and members of the Board of Directors and certain officers of Williams.
(Previously filed as Exhibit 10(iii)(e) to Form 10-K for the year ended
December 31, 1986, and incorporated herein by reference.).....................
12 Statement regarding computation of ratio of earnings to combined fixed charges
and preferred stock dividends.................................................
21* Subsidiaries of Williams......................................................
23.1 Consent of Ernst & Young LLP, dated February 8, 1995..........................
23.2 Consent of Arthur Anderson LLP, dated February 6, 1995........................
23.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated February
8, 1995.......................................................................
24 Powers of Attorney............................................................
99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated December
12, 1994. (Included as Annex B-1 to the Prospectus and Information
Statement.)...................................................................
99.2 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated January
9, 1995. (Included as Annex B-2 to the Prospectus and Information
Statement.)...................................................................
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 12
THE WILLIAMS COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------- -------------------------------------------------
1994 1993* 1993* 1992* 1991* 1990* 1989*
---- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before income taxes.............. $196.0 $259.3 $298.0 $145.5 $ 93.1 $ 39.6 $ 32.6
Add:
Interest expense -- net.......... 100.7 106.4 140.8 136.5 134.2 108.5 146.5
Rental expense representative of
interest factor................ 6.5 5.9 8.1 8.3 5.3 3.0 4.0
Preferred dividends of
subsidiaries................... -- -- -- 0.3 0.8 1.6 2.6
Interest accrued -- 50% owned
company........................ 23.7 23.2 31.3 27.3 10.3 -- --
Other............................ 1.7 5.0 4.1 0.4 0.9 (0.7) 2.6
------ ------ ------ ------ ------ ------ ------
Total earnings as adjusted
plus fixed charges........ $328.6 $399.8 $482.3 $318.3 $244.6 $152.0 $188.3
====== ====== ====== ====== ====== ====== ======
Fixed charges and preferred stock
dividend requirements:
Interest expense -- net............ $100.7 $106.4 $140.8 $136.5 $134.2 $108.5 $146.5
Capitalized interest............... 4.4 8.3 10.4 8.9 4.7 2.8 2.0
Rental expense representative of
interest factor.................. 6.5 5.9 8.1 8.3 5.3 3.0 4.0
Pretax effect of dividends on
preferred stock of the Company... 9.9 15.8 19.1 19.4 15.9 15.4 11.2
Pretax effect of preferred
dividends of subsidiaries........ -- -- -- 0.4 1.2 2.5 4.1
Interest accrued -- 50% owned
company.......................... 23.7 23.2 31.3 27.3 10.3 -- --
------ ------ ------ ------ ------ ------ ------
Combined fixed charges and
preferred stock dividend
requirements..................... $145.2 $159.6 $209.7 $200.8 $171.6 $132.2 $167.8
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to combined fixed
charges and preferred stock
dividend requirements.............. 2.26 2.51 2.30 1.59 1.43 1.15 1.12
====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
* Restated to report operations sold in the WNS Sale as discontinued operations.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and to the incorporation by reference therein
of our report dated February 10, 1994, with respect to the consolidated
financial statements and schedules of The Williams Companies, Inc. included in
its Annual Report (Form 10-K) for the year ended December 31, 1993, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
Tulsa, Oklahoma
February 8, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-4 of our reports dated
February 18, 1994 included in Transco Energy Company's Form 10-K for the year
ended December 31, 1993 and to all references to our Firm included in this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP
HOUSTON, TEXAS
FEBRUARY 6, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the references to our firm under the captions
"Summary -- Transco Board Recommendations", "Summary -- Opinions of Transco's
Financial Advisor", "The Merger -- Background of the Merger", "The
Merger -- Transco Board Recommendations and Reasons for the Acquisition", and
"The Merger -- Opinions of Transco's Financial Advisor" in, and to the inclusion
of a copy of our opinion letters as Annex B-1 and B-2 to, the Prospectus and
Information Statement comprising part of the Registration Statement filed by The
Williams Companies, Inc. on Form S-4 under the Securities Act of 1933, as
amended. By giving this consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder nor do we thereby admit that we are experts with
respect to any part of such registration statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ GEORGE C. MORRIS III
-----------------------------------------
Name: George C. Morris III
Title: Director
February 8, 1995
<PAGE> 1
EXHIBIT 24
THE WILLIAMS COMPANIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned individuals, in
their capacity as a director or officer, or both, as hereinafter set forth below
their signature, or THE WILLIAMS COMPANIES, INC., a Delaware corporation
("Williams"), does hereby constitute and appoint J. FURMAN LEWIS, BOBBY E. POTTS
and DAVID M. HIGBEE their true and lawful attorneys and each of them (with full
power to act without the others) their true and lawful attorneys for them and in
their name and in their capacity as a director or officer, or both, of Williams,
as hereinafter set forth below their signature, to sign a registration statement
on Form S-4 for the registration under the Securities Act of 1933, as amended,
of shares of capital stock of Williams, and any and all amendments and
post-effective amendments to said registration statement and any and all
instruments necessary or incidental in connection therewith; and
THAT the undersigned Williams does hereby constitute and appoint J. FURMAN
LEWIS, BOBBY E. POTTS and DAVID M. HIGBEE its true and lawful attorneys and each
of them (with full power to act without the others) its true and lawful attorney
for it and in its name and on its behalf to sign said registration statement and
any and all amendments and post-effective amendments thereto and any and all
instruments necessary or incidental in connection therewith.
Each of said attorneys shall have full power of substitution and
resubstitution, and said attorneys or any of them or any substitute appointed by
any of them hereunder shall have full power and authority to do and perform in
the name and on behalf of each of the undersigned, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
to all intents and purposes as each of the undersigned might or could do in
person, the undersigned hereby ratifying and approving the acts of said
attorneys or any of them or of any such substitute pursuant hereto.
IN WITNESS WHEREOF, the undersigned have executed this instrument, all as
of the 22nd day of January, 1995.
/s/ KEITH E. BAILEY /s/ JACK D. MCCARTHY
- -------------------------------------- ------------------------------------
Keith E. Bailey Jack D. McCarthy
Chairman of the Board, Senior Vice President
President and (Principal Financial Officer)
Chief Executive Officer
(Principal Executive Officer)
/s/ GARY R. BELITZ
---------------------------------------------------
Gary R. Belitz
Controller
(Chief Accounting Officer)
/s/ HAROLD W. ANDERSEN
- -------------------------------------- ------------------------------------
Harold W. Andersen Ralph E. Bailey
Director Director
/s/ GLENN A. COX /s/ THOMAS H. CRUIKSHANK
- -------------------------------------- ------------------------------------
Glenn A. Cox Thomas H. Cruikshank
Director Director
<PAGE> 2
<TABLE>
<S> <C>
/s/ ERVIN S. DUGGAN /s/ ROBERT J. LAFORTUNE
- ------------------------------------- ------------------------------------
Ervin S. Duggan Robert J. LaFortune
Director Director
/s/ JAMES C. LEWIS /s/ JACK A. MACALLISTER
- ------------------------------------- -----------------------------------
James C. Lewis Jack A. MacAllister
Director Director
/s/ JAMES A. MCCLURE /s/ PETER C. MEINIG
- ------------------------------------- -----------------------------------
James A. McClure Peter C. Meinig
Director Director
/s/ KAY A. ORR /s/ GORDON R. PARKER
- ------------------------------------- -----------------------------------
Kay A. Orr Gordon R. Parker
Director Director
</TABLE>
/s/ JOSEPH H. WILLIAMS
---------------------------------------------------
Joseph H. Williams
Director
THE WILLIAMS COMPANIES, INC.
By /s/ J. FURMAN LEWIS
---------------------------------
J. Furman Lewis
Senior Vice President
ATTEST:
/s/ DAVID M. HIGBEE
- -----------------------------------
David M. Higbee
Secretary
<PAGE> 3
I, the undersigned, DAVID M. HIGBEE, Secretary of THE WILLIAMS COMPANIES,
INC., a Delaware company (hereinafter called the "Company"), do hereby certify
that at a meeting of the Board of Directors of the Company, duly convened and
held on December 11, 1994, at which a quorum of said Board was present and
acting throughout, the following resolution was duly adopted:
RESOLVED that the form of power of attorney submitted to this
meeting for use in connection with the execution and filing, for and
on behalf of the Company, of a Registration Statement and any such
amendments thereto with respect to the issuance of Common Stock by the
Company, under the terms of the Merger Agreement, is hereby approved,
and the Chairman of the Board, the President or any Vice President of
the Company is hereby authorized to execute said power of attorney in
the form so presented for and on behalf of the Company.
I further certify that the foregoing resolution has not been modified,
revoked or rescinded and is in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of THE
WILLIAMS COMPANIES, INC., this 6th day of February, 1995.
/s/ DAVID M. HIGBEE
--------------------------------------
David M. Higbee
Secretary
[CORPORATE SEAL]
