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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4174
THE WILLIAMS COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<C> <C>
DELAWARE 73-0569878
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code:
(918) 588-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<C> <C>
Common Stock, $1.00 par value New York Stock Exchange and the
Preferred Stock Purchase Rights Pacific Stock Exchange
$2.21 Cumulative Preferred Stock, New York Stock Exchange
$1.00 par value
9.60% Subordinated Deferrable Interest New York Stock Exchange
Debentures due 2025
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by
nonaffiliates as of the close of business on March 21, 1997, was approximately
$7.2 billion.
The number of shares of the registrant's Common Stock outstanding at March
21, 1997, was 158,712,481, excluding 3,637,560 shares held by the Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement prepared for the solicitation
of proxies in connection with the Annual Meeting of Stockholders of the Company
for 1997 are incorporated by reference in Part III.
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THE WILLIAMS COMPANIES, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
The Williams Companies, Inc. (the "Company" or "Williams") was incorporated
under the laws of the State of Nevada in 1949 and was reincorporated under the
laws of the State of Delaware in 1987. The principal executive offices of the
Company are located at One Williams Center, Tulsa, Oklahoma 74172 (telephone
(918) 588-2000). Unless the context otherwise requires, references to the
"Company" and "Williams" herein include The Williams Companies, Inc. and its
subsidiaries.
On January 16, 1996, the Company acquired a 49.9 percent interest from its
partner in Kern River Gas Transmission Company giving the Company 99.9 percent
ownership of this natural gas pipeline system. The purchase price was $206
million. See Note 2 of Notes to Consolidated Financial Statements. The Company
acquired the remaining 0.1 percent interest in the partnership on February 28,
1997, for $387,600.
Also in 1996, the Company combined its energy operations, other than its
interstate natural gas pipelines, under a newly created, wholly owned, indirect
subsidiary, Williams Energy Group, and began reporting such operations for
financial reporting purposes on this basis in the fourth quarter of 1996. In
addition, the Company organized the reporting for its communications operations
under a single communications reporting entity, Williams Communications Group,
Inc., and has reported such operations for financial reporting purposes on this
basis since the third quarter of 1996.
In January 1995, the Company sold the network services operations of its
telecommunications subsidiary to LDDS Communications, Inc. for $2.5 billion in
cash (the "WNS Sale"). The Company has reported the network services operations
as discontinued operations for financial reporting purposes. See Note 3 of Notes
to Consolidated Financial Statements. The Company used the proceeds from the WNS
Sale to pay off short-term credit facilities, to fund the acquisition of Transco
Energy Company discussed below, to finance its ongoing capital program and for
other uses.
In December 1994, the Company entered into a merger agreement with Transco
Energy Company. Under the agreement, the Company acquired approximately 60
percent of Transco Energy Company's common stock through a cash tender offer
completed in January 1995. On April 28, 1995, the Transco Energy Company
stockholders approved an agreement and plan of merger whereby Transco Energy
Company became a wholly owned subsidiary of the Company effective May 1, 1995.
Total value of the transaction was more than $3 billion, including cash, stock
and the assumption of Transco Energy Company debt. As of May 1, 1995, the
Company caused Transco Energy Company to declare and pay as dividends to the
Company all of Transco Energy Company's interest in Transcontinental Gas Pipe
Line Corporation and Texas Gas Transmission Corporation. See Note 2 of Notes to
Consolidated Financial Statements.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Part II, Item 8 -- Financial Statements and Supplementary Data.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company, through subsidiaries, engages in the transportation and sale
of natural gas and related activities; natural gas gathering, processing, and
treating activities; the transportation and terminaling of petroleum products;
hydrocarbon exploration and production activities; the production and marketing
of ethanol; and energy commodity trading and marketing and provides a variety of
other products and services, including price risk management services, to the
energy industry. The Company also engages in the communications business. In
1996, the Company's energy subsidiaries owned and operated: (i) five interstate
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natural gas pipeline systems; (ii) natural gas production properties; (iii)
natural gas gathering and processing facilities; (iv) a common carrier petroleum
products and crude oil pipeline system; (v) petroleum products terminals; and
(vi) ethanol production facilities. The Company also trades and markets energy
commodities and offers price-risk management services. The Company's
communications subsidiaries offer: (i) data-, voice- and video-related products
and services; (ii) advertising distribution services; (iii) video services and
other multimedia services for the broadcast industry; (iv) broadcast facsimile
and audio- and videoconferencing services for businesses; (v) interactive,
computer-based training and services; (vi) customer-premise voice and data
equipment, including installation and maintenance; and (vii) network integration
and management services nationwide. The Company also has investments in the
equity of certain other companies.
Substantially all operations of Williams are conducted through
subsidiaries. Williams performs management, legal, financial, tax, consultative,
administrative and other services for its subsidiaries. Williams' principal
sources of cash are from dividends and advances from its subsidiaries,
investments, payments by subsidiaries for services rendered and interest
payments from subsidiaries on cash advances. The amount of dividends available
to Williams from subsidiaries largely depends upon each subsidiary's earnings
and operating capital requirements. The terms of certain subsidiaries' borrowing
arrangements limit the transfer of funds to the Company.
------------------------------
To achieve organizational and operating efficiencies, the Company's
interstate natural gas pipelines are grouped together and are referred to
internally as the interstate natural gas systems. All other operating companies
are owned directly by Williams Holdings of Delaware, Inc., a wholly-owned
subsidiary of the Company. The energy operations of Williams Holdings of
Delaware, Inc. are grouped into a wholly-owned subsidiary, Williams Energy
Group, and its communications operations are grouped into a wholly-owned
subsidiary, Williams Communications Group, Inc. Item 1 of this report is
formatted to reflect this structure.
WILLIAMS INTERSTATE NATURAL GAS SYSTEMS
The Company's interstate natural gas pipeline group owns and operates a
combined total of approximately 28,000 miles of pipelines with a total annual
throughput of approximately 3,800 TBtu* of natural gas and peak-day delivery
capacity of approximately 15 Bcf of natural gas. The interstate natural gas
pipeline group consists of Transcontinental Gas Pipe Line Corporation, Northwest
Pipeline Corporation, Kern River Gas Transmission Company, Texas Gas
Transmission Corporation and Williams Natural Gas Company, owners and operators
of interstate natural gas pipeline systems. As previously noted, the Company
acquired Transcontinental Gas Pipe Line Corporation and Texas Gas Transmission
Corporation in 1995. For the accounting treatment of the acquisition, see Note 2
of Notes to Consolidated Financial Statements. Also as noted above, the Company
acquired an additional 49.9 percent interest in Kern River Gas Transmission
Company in January 1996 and the remaining 0.1 percent interest in February 1997.
The interstate natural gas pipeline group's transmission and storage
activities are subject to regulation by the Federal Energy Regulatory Commission
("FERC") under the Natural Gas Act of 1938 ("Natural Gas Act") and under the
Natural Gas Policy Act of 1978 ("NGPA"), and, as such, their rates and charges
for the transportation of natural gas in interstate commerce, the extension,
enlargement or abandonment of jurisdictional facilities, and accounting, among
other things, are subject to regulation. Each pipeline holds certificates of
public convenience and necessity issued by FERC authorizing ownership and
operation of all pipelines, facilities and properties considered jurisdictional
for which certificates are required under the Natural Gas Act. Each pipeline is
also subject to the Natural Gas Pipeline Safety Act of 1968, as amended by Title
I of the Pipeline Safety Act of 1979, which regulates safety requirements in the
design, construction, operation and maintenance of interstate gas transmission
facilities.
A business description of each company in the interstate natural gas
pipeline group follows.
- ---------------
* The term "Mcf" means thousand cubic feet, "MMcf" means million cubic feet and
"Bcf" means billion cubic feet. All volumes of natural gas are stated at a
pressure base of 14.73 pounds per square inch absolute at 60 degrees
Fahrenheit. The term "Btu" means British Thermal Unit, "MMBtu" means one
million British Thermal Units and "TBtu" means one trillion British Thermal
Units.
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TRANSCONTINENTAL GAS PIPE LINE CORPORATION (TRANSCO)
Transco is an interstate natural gas transmission company that owns a
10,500-mile natural gas pipeline system extending from Texas, Louisiana,
Mississippi and the offshore Gulf of Mexico through the states of Alabama,
Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania and
New Jersey to the New York City metropolitan area. The system serves customers
in Texas and eleven southeast and Atlantic seaboard states, including major
metropolitan areas in Georgia, North Carolina, New York, New Jersey and
Pennsylvania. Effective May 1, 1995, Transco transferred the operation of
certain production area facilities to Williams Field Services Group, Inc., an
affiliated company.
Pipeline System and Customers
At December 31, 1996, Transco's system had a mainline delivery capacity of
approximately 3.6 Bcf of gas per day from production areas to its primary
markets. Using its Leidy Line and market-area storage capacity, Transco can
deliver an additional 2.9 Bcf of gas per day for a system-wide delivery capacity
total of approximately 6.5 Bcf of gas per day. Excluding the production area
facilities operated by Williams Field Services Group, Inc., Transco's system is
composed of approximately 7,300 miles of mainline and branch transmission
pipelines, 37 compressor stations and six storage locations. Compression
facilities at a sea level-rated capacity total approximately 1.2 million
horsepower.
Transco's major gas transportation customers are public utilities and
municipalities that provide service to residential, commercial, industrial and
electric generation end users. Shippers on Transco's pipeline system include
public utilities, municipalities, intrastate pipelines, direct industrial users,
electrical generators, marketers and producers. Transco's largest customer in
1996 accounted for approximately 11 percent of Transco's total operating
revenues. No other customer accounted for more than 10 percent of total
operating revenues. Transco's firm transportation agreements are generally
long-term agreements with various expiration dates and account for the major
portion of Transco's business. Additionally, Transco offers interruptible
transportation services under shorter term agreements.
Transco has natural gas storage capacity in five underground storage fields
located on or near its pipeline system and/or market areas and operates three of
these storage fields and a liquefied natural gas (LNG) storage facility. The
total storage capacity available to Transco and its customers in such storage
fields and LNG facility is approximately 216 Bcf of gas. Storage capacity
permits Transco's customers to inject gas into storage during the summer and
off-peak periods for delivery during peak winter demand periods.
Expansion Projects
In August 1996, Transco filed for FERC approval to expand the offshore
portion of its existing Southeast Louisiana Gathering System in two phases to
provide a total of 660 MMcf of gas per day of additional firm transportation
capacity. Transco estimates the cost of the expansion to be approximately $129
million and expects to invest approximately $95 million in 1997.
In November 1996, Transco filed for FERC approval to extend and expand its
Mobile Bay lateral. The project will include expansion of Transco's existing
123-mile Mobile Bay lateral and construction of a new 77-mile offshore pipeline
extension to an area near the outer continental shelf. The project, which would
increase capacity as much as 600 MMcf of gas per day at an estimated cost of
$171 million, is targeted to be in service by the 1998-99 winter heating season.
In December, Transco received nominations for 300 MMcf of gas per day of
capacity in the project.
In November 1996, Transco completed and placed into service the Southeast
Expansion Project. Since late 1994, the project has added 205 MMcf of gas per
day of firm transportation capacity to Transco's customers in the southeast. The
total cost of the expansion was approximately $106 million, of which
approximately $22 million was invested in 1996.
In November 1996, FERC approved the Pine Needle LNG storage project.
Transco and several of its major customers will construct and own the facility,
which will be located near Transco's mainline system in Guilford, North
Carolina. The project will have 4 Bcf of storage capacity and 400 MMcf of gas
per day of
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<PAGE> 5
withdrawal capacity. Transco will operate the facility and have a 35 percent
ownership interest. Construction began in February 1997, and the project is
expected to be in service by the second quarter of 1999. The FERC application
estimates the total cost of the project to be $107 million.
In December 1996, Transco and several major customers announced the filing
with the North Carolina Utilities Commission for approval of the Cardinal
Pipeline System project. The project involves the acquisition of an existing
37-mile pipeline in North Carolina and construction of a 67-mile pipeline
extension. Transco expects to complete construction of the pipeline extension by
the end of 1999. Transco will operate the expanded pipeline system and have a 45
percent ownership interest. Transco expects to make equity investments of
approximately $22 million in this project.
In December 1996, FERC approved the SunBelt Expansion Project, which will
provide additional firm transportation capacity to markets in Georgia, South
Carolina and North Carolina. The SunBelt Expansion Project will provide a total
of 146 MMcf of gas per day of firm transportation capacity to existing and new
Transco customers by the 1997-1998 winter heating season. Transco estimates the
cost of the expansion to be approximately $85 million. Transco spent
approximately $12 million on the project in 1996 and expects to invest
approximately $68 million in 1997.
In November 1996, FERC made a preliminary determination that public
convenience and necessity requires Transco's SeaBoard Expansion Project but
denied Transco's request for rolled-in rate treatment. Transco has spent
approximately $6 million on the project to date. In response to FERC's denial of
rolled-in rate treatment, Transco has plans to significantly modify this
project.
Operating Statistics. The following table summarizes transportation data
for the periods indicated, including periods during which the Company did not
own Transco:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
System Deliveries (TBtu)
Market-area deliveries:
Long-haul transportation............................ 948.9 858.4 805.1
Market-area transportation.......................... 428.1 467.3 453.6
------- ------- -------
Total market-area deliveries................... 1,377.0 1,325.7 1,258.7
Production-area transportation......................... 210.0 165.9 185.9
------- ------- -------
Total system deliveries................................ 1,587.0 1,491.6 1,444.6
======= ======= =======
Average Daily Transportation Volumes (TBtu).............. 4.3 4.1 4.0
Average Daily Firm Reserved Capacity (TBtu).............. 5.2 5.2 4.9
</TABLE>
NORTHWEST PIPELINE CORPORATION (NORTHWEST PIPELINE)
Northwest Pipeline is an interstate natural gas transmission company that
owns and operates a pipeline system for the mainline transmission of natural gas
extending 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. Northwest Pipeline provides
services for markets in California, New Mexico, Colorado, Utah, Nevada, Wyoming,
Idaho, Oregon and Washington, directly or indirectly through interconnections
with other pipelines.
Pipeline System and Customers
At December 31, 1996, Northwest Pipeline's system, having an aggregate
mainline deliverability of approximately 2.5 Bcf of gas per day, was composed of
approximately 3,900 miles of mainline and branch transmission pipelines and 40
mainline compressor stations with a combined capacity of approximately 307,000
horsepower.
In 1996, Northwest Pipeline transported natural gas for a total of 143
customers. Transportation customers include distribution companies,
municipalities, interstate and intrastate pipelines, gas marketers and
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direct industrial users. The three largest customers of Northwest Pipeline in
1996 accounted for approximately 15.5 percent, 15.3 percent and 10.4 percent,
respectively, of total operating revenues. No other customer accounted for more
than 10 percent of total operating revenues. Northwest Pipeline's firm
transportation agreements are generally long-term agreements with various
expiration dates and account for the major portion of Northwest Pipeline's
business. Additionally, Northwest Pipeline offers interruptible transportation
service under agreements that are generally short term.
As a part of its transportation services, Northwest Pipeline utilizes
underground storage facilities in Utah and Washington enabling it to balance
daily receipts and deliveries. Northwest Pipeline also owns and operates a
liquefied natural gas storage facility in Washington that provides a
needle-peaking service for the system. These storage facilities have an
aggregate delivery capacity of approximately 973 MMcf of gas per day.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtus):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Transportation Volumes...................................... 834 826 679
Average Daily Transportation Volumes........................ 2.3 2.3 1.9
Average Daily Firm Reserved Capacity........................ 2.5 2.4 2.4
</TABLE>
KERN RIVER GAS TRANSMISSION COMPANY (KERN RIVER)
Kern River is an interstate natural gas transmission company that owns and
operates a natural gas pipeline system extending from Wyoming through Utah and
Nevada to California. Kern River had been jointly owned and operated by Williams
Western Pipeline Company, a subsidiary of the Company, and a subsidiary of an
unaffiliated company. As previously indicated, the Company acquired an
additional 49.9 percent interest in Kern River in January 1996. See Note 2 of
Notes to Consolidated Financial Statements. In February 1997, the Company
acquired the remaining 0.1 percent interest in Kern River. The transmission
system, which commenced operations in February 1992 following completion of
construction, delivers natural gas primarily to the enhanced oil recovery fields
in southern California. The system also transports natural gas for utilities,
municipalities and industries in California, Nevada and Utah.
Pipeline System and Customers
As of December 31, 1996, Kern River's pipeline system was composed of
approximately 705 miles of mainline and branch transmission and five compressor
stations having an aggregate mainline delivery capacity of 700 MMcf of gas per
day. The pipeline system interconnects with the pipeline facilities of another
pipeline company at Daggett, California. From the point of interconnection, Kern
River and the other pipeline company have a common 219-mile pipeline which is
owned 63.6 percent by Kern River and 36.4 percent by the other pipeline company,
as tenants in common, and is designed to accommodate the combined throughput of
both systems. This common facility has a capacity of 1.1 Bcf of gas per day.
Gas is transported for others under firm long-term transportation contracts
totaling 682 MMcf of gas per day. In 1996, Kern River transported natural gas
for customers in California, Nevada and Utah. Gas was transported for five
customers in Kern County, California, for reinjection as a part of enhanced oil
recovery operations and for 28 local distribution customers, electric utilities,
cogeneration projects and commercial and other industrial customers. The five
largest customers of Kern River in 1996 accounted for approximately 14 percent,
13 percent, 12 percent, 11 percent and 11 percent, respectively, of operating
revenues. Three of these customers serve the enhanced oil recovery fields. No
other customer accounted for more than 10 percent of operating revenues in 1996.
During 1995, Kern River executed a seasonal firm transportation contract to
deliver natural gas into the Las Vegas, Nevada, market area during the winter
months. Kern River expects to begin deliveries of 10 MMcf of gas per day in
December 1997 and to escalate such deliveries to 40 MMcf of gas per day on a
seasonal basis in 1999.
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Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtus):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Transportation Volumes...................................... 281 286 278
Average Daily Transportation Volumes........................ .77 .78 .76
Average Daily Firm Reserved Capacity........................ .71 .72 .74
</TABLE>
TEXAS GAS TRANSMISSION CORPORATION (TXG)
TXG is an interstate natural gas transmission company that owns and
operates a natural gas pipeline system originating in the Louisiana Gulf Coast
area and in east Texas and running generally north and east through Louisiana,
Arkansas, Mississippi, Tennessee, Kentucky, Indiana and into Ohio, with smaller
diameter lines extending into Illinois. TXG's direct market area encompasses
eight states in the South and Midwest, and includes the Memphis, Tennessee;
Louisville, Kentucky; Cincinnati and Dayton, Ohio; and Indianapolis, Indiana,
metropolitan areas. TXG also has indirect market access to the Northeast through
interconnections with unaffiliated pipelines.
Pipeline System and Customers
At December 31, 1996, TXG's system, having a mainline delivery capacity of
approximately 2.8 Bcf of gas per day, was composed of approximately 6,000 miles
of mainline and branch transmission pipelines and 32 compressor stations having
a sea level-rated capacity totaling approximately 549,000 horsepower.
In 1996, TXG transported gas to customers in Louisiana, Arkansas,
Mississippi, Tennessee, Kentucky, Indiana, Illinois and Ohio and to customers in
the Northeast served indirectly by TXG. TXG transported gas for 133 distribution
companies and municipalities for resale to residential, commercial and
industrial users. TXG provided transportation services to approximately 102
industrial customers located along the system. At December 31, 1996, TXG had
transportation contracts with approximately 559 shippers. Transportation
shippers include distribution companies, municipalities, intrastate pipelines,
direct industrial users, electrical generators, marketers and producers. No
customer of TXG accounted for more than 10 percent of total operating revenues
during 1996. TXG's firm transportation agreements are generally long-term
agreements with various expiration dates and account for the major portion of
TXG's business. Additionally, TXG offers interruptible transportation services
under agreements that are generally short-term.
TXG owns and operates natural gas storage reservoirs in 10 underground
storage fields located on or near its pipeline system and/or market areas. The
storage capacity of TXG's certificated storage fields is approximately 177 Bcf
of gas. TXG's storage gas is used in part to meet operational balancing needs on
its system, and in part to meet the requirements of TXG's "no-notice"
transportation service, which allows TXG's customers to temporarily draw from
TXG's storage gas to be repaid in-kind during the following summer season. A
large portion of the gas delivered by TXG to its market area is used for space
heating, resulting in substantially higher daily requirements during winter
months.
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Operating Statistics. The following table summarizes total system
transportation volumes for the periods indicated, including periods during which
the Company did not own TXG:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
System deliveries (TBtu):
Long-haul transportation.................................. 736.0 635.7 618.8
Short-haul transportation................................. 58.5 57.6 188.6
----- ----- -----
Total system deliveries................................... 794.5 693.3 807.4
===== ===== =====
Average Daily Transportation Volumes (TBtu)................. 2.2 1.9 2.2
Average Daily Firm Reserved Capacity (TBtu)................. 2.1 2.0 2.1
</TABLE>
WILLIAMS NATURAL GAS COMPANY (WILLIAMS NATURAL GAS)
Williams Natural Gas is an interstate natural gas transmission company that
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.
Pipeline System and Customers
At December 31, 1996, Williams Natural Gas's system, having a mainline
delivery capacity of approximately 2.2 Bcf of gas per day, was composed of
approximately 6,000 miles of mainline and branch transmission and storage
pipelines and 41 compressor stations having a sea level-rated capacity totaling
approximately 227,000 horsepower.
In 1996, Williams Natural Gas transported gas to customers in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. Gas was transported for
78 distribution companies and municipalities for resale to residential,
commercial and industrial users in approximately 530 cities and towns.
Transportation services were provided to approximately 340 industrial customers,
federal and state institutions and agricultural processing plants located
principally in Kansas, Missouri and Oklahoma. At December 31, 1996, Williams
Natural Gas had transportation contracts with approximately 196 shippers.
Transportation shippers included distribution companies, municipalities,
intrastate pipelines, direct industrial users, electrical generators, marketers
and producers.
In 1996, approximately 70 percent (approximately 35 percent each) of total
operating revenues were generated from gas transportation services to Williams
Natural Gas's two largest customers, Western Resources, Inc. and Missouri Gas
Energy Company. Western Resources sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Kansas. Missouri Gas Energy sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Missouri. No other customer accounted for more than 10 percent of
operating revenues during 1996.
Williams Natural Gas provides a significant portion of its transportation
services to Western Resources pursuant to a 20-year transportation service
agreement. After the initial two-year period which ended in November 1996, the
contract allows Western Resources, on twelve-months prior notice, to reduce
contracted capacity if Williams Natural Gas does not meet the terms of a
competing offer from another natural gas pipeline to serve such capacity. To
date, Williams Natural Gas has not received such a notice from Western
Resources. Williams Natural Gas provides transportation services to Missouri Gas
Energy under contracts primarily varying in terms from two to five years. These
contracts do not have competitive out provisions as described in connection with
the Western Resources' contract. During 1995, these two customers entered into
contracts with a competitor as part of a litigation settlement. Following a
decision by the Kansas Court of Appeals, the Western Resources contracts were
deemed approved by operation of law. Subsequently, the competitor assigned the
contracts with Western Resources and Missouri Gas Energy to another competitor
of Williams Natural Gas. The two competitors are engaged in the acquisition of
right-of-way and other acts to
7
<PAGE> 9
begin construction under the contracts with Western Resources and Missouri Gas
Energy. Up to 25 percent of the firm capacity now transported by Williams
Natural Gas into the Kansas City market could be at risk if the pipeline
contemplated by the contracts is built. Certain landowners whose property must
be condemned to complete the project are challenging completion of the
facilities. The contracts may be subject to termination if certain completion
dates are not met.
Williams Natural Gas operates nine underground storage fields with an
aggregate working gas storage capacity of approximately 43 Bcf and an aggregate
delivery capacity of approximately 1.2 Bcf of gas per day. Williams Natural
Gas's customers inject gas in these fields when demand is low and withdraw it to
supply their peak requirements. During periods of peak demand, approximately
two-thirds of the firm gas delivered to customers is supplied from these storage
fields. Storage capacity enables the system to operate more uniformly and
efficiently during the year.
In 1996, Williams Natural Gas entered firm transportation contracts to
serve two electrical generation plants in the Kansas City area for potential
daily usage of up to 100,000 MMBtu per day.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtus):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Transportation Volumes...................................... 341 334 346
Average Daily Transportation Volumes........................ .9 .9 .9
Average Daily Firm Reserved Capacity........................ 1.9 2.0 2.0
</TABLE>
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REGULATORY MATTERS
In 1992, FERC issued Order 636, which required interstate pipeline
companies to restructure their tariffs to eliminate traditional on-system sales
services. In addition, the Order required implementation of various changes in
forms of service, including unbundling of gathering, transmission and storage
services; terms and conditions of service; rate design; gas supply realignment
cost recovery; and other major rate and tariff revisions. Kern River implemented
its restructuring on August 1, 1993; Williams Natural Gas implemented its
restructuring on October 1, 1993; and Transco, Northwest Pipeline and TXG
implemented their restructurings on November 1, 1993. Certain aspects of four
pipeline company's Order 636 restructurings are under appeal.
Each interstate natural gas pipeline has various regulatory proceedings
pending. Rates are established primarily through FERC's ratemaking process. Key
determinants in the ratemaking process are (1) costs of providing service,
including depreciation rates, (2) allowed rate of return, including the equity
component of the capital structure, and (3) volume throughput assumptions. FERC
determines the allowed rate of return in each rate case. Rate design and the
allocation of costs between the demand and commodity rates also impact
profitability. As a result of such proceedings, the pipeline companies have
collected a portion of their revenues subject to refund. See Note 12 of Notes to
Consolidated Financial Statements for the amount of revenues reserved for
potential refund as of December 31, 1996.
Each interstate natural gas pipeline company, except Kern River, has
undertaken the reformation of its respective gas supply contracts. None of the
pipelines have any significant pending supplier take-or-pay, ratable-take or
minimum-take claims. For information on outstanding issues with respect to
contract reformation, gas purchase deficiencies and related regulatory issues,
see Note 17 of Notes to Consolidated Financial Statements.
COMPETITION
Competition for natural gas transportation has intensified in recent years
due to customer access to other pipelines, rate competitiveness among pipelines,
customers' desire to have more than one transporter and regulatory developments.
FERC's stated purpose for implementing Order 636 was to improve the competitive
8
<PAGE> 10
structure of the natural gas pipeline industry. Future utilization of pipeline
capacity will depend on competition from other pipelines, use of alternative
fuels, the general level of natural gas demand and weather conditions.
Electricity and distillate fuel oil are primary competitive forms of energy for
residential and commercial markets. Coal and residual fuel oil compete for
industrial and electric generation markets. Nuclear and hydroelectric power and
power purchased from grid arrangements among electric utilities also compete
with gas-fired power generation in certain markets.
As mentioned, when restructured tariffs became effective under Order 636,
all suppliers of natural gas were able to compete for any gas markets capable of
being served by the pipelines using nondiscriminatory transportation services
provided by the pipelines. As the Order 636 regulated environment has matured,
many pipelines have faced reduced levels of subscribed capacity as contractual
terms expire and customers opt to reduce firm capacity under contract in favor
of alternative sources of transmission and related services. This situation,
known in the industry as "capacity turnback," is forcing the pipelines to
evaluate the consequences of major demand reductions on system utilization and
cost structure to remaining customers.
The Company is aware that several state jurisdictions have been involved in
implementing changes similar to the changes that have occurred at the federal
level under Order 636. Such activity, frequently referred to as "LDC
unbundling," has been most pronounced in the states of New York, New Jersey and
Pennsylvania. New York and New Jersey enacted regulations regarding LDC
unbundling in 1995. Pennsylvania is expected to enact an LDC unbundling program
in 1997. In addition, Maryland currently has a pilot unbundling program for
industrial, commercial, and residential end-users and may take additional steps
toward unbundling in 1997. Georgia may also act in 1997 to implement an LDC
unbundling program. Management expects these regulations to encourage greater
competition in the natural gas marketplace.
OWNERSHIP OF PROPERTY
Each of the Company's interstate natural gas pipeline subsidiaries
generally owns its facilities in fee. However, a substantial portion of each
pipeline's facilities is constructed and maintained pursuant to rights-of-way,
easements, permits, licenses or consents on and across properties owned by
others. Compressor stations, with appurtenant facilities, are located in whole
or in part either on lands owned or on sites held under leases or permits issued
or approved by public authorities. The storage facilities are either owned or
contracted under long-term leases or easements.
ENVIRONMENTAL MATTERS
Each interstate natural gas pipeline is subject to the National
Environmental Policy Act and federal, state and local laws and regulations
relating to environmental quality control. Management believes that, with
respect to any capital expenditures and operation and maintenance expenses
required to meet applicable environmental standards and regulations, FERC would
grant the requisite rate relief so that, for the most part, the pipeline
subsidiaries could recover such expenditures in their rates. For this reason,
management believes that compliance with applicable environmental requirements
by the interstate pipelines is not likely to have a material effect upon the
Company's earnings or competitive position.
For a discussion of specific environmental issues involving the interstate
pipelines, including estimated cleanup costs associated with certain pipeline
activities, see "Environmental" under Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 17 of Notes to
Consolidated Financial Statements.
WILLIAMS HOLDINGS OF DELAWARE, INC. (WILLIAMS HOLDINGS)
In 1994, the Company established Williams Holdings to be a holding company
for its assets other than its interstate natural gas pipelines and related
assets. Virtually all of Williams Holdings' assets were operated by other
subsidiaries of the Company prior to January 1, 1995.
9
<PAGE> 11
Williams Holdings' energy subsidiaries are engaged in exploration and
production; natural gas gathering and processing; petroleum products
transportation and terminaling; ethanol production; and energy commodity
marketing and trading and price risk management services. In addition, these
subsidiaries provide a variety of other products and services to the energy
industry. Williams Holdings' communications subsidiaries offer data-, voice-,
and video-related products and services and customer premise voice and data
equipment, including installation and maintenance, nationwide. Williams Holdings
also has certain other equity investments.
WILLIAMS ENERGY GROUP (WILLIAMS ENERGY)
In 1996, Williams Holdings reorganized its energy operations under a newly
created, wholly owned subsidiary, Williams Energy, and began reporting such
operations for financial reporting purposes on this basis in the fourth quarter
of 1996. Management believes the new structure will better position it to offer
customers a full range of energy products and services by capitalizing on
synergies of the combined business units.
Williams Energy is comprised of four major business units: Exploration and
Production, Field Services, Petroleum Services, and Merchant Services. Through
its business units, Williams Energy engages in energy production and exploration
activities; natural gas gathering, processing, and treating; petroleum liquids
transportation and terminal services; ethanol production; and energy commodity
marketing and trading.
Williams Energy, through its subsidiaries, owns 531 Bcf of proved natural
gas reserves located primarily in the San Juan Basin of Colorado and New Mexico
and owns and operates approximately 11,000 miles of gathering pipelines, eight
gas treating plants, 10 gas processing plants, 57 petroleum products terminals,
and approximately 9,300 miles of liquids pipeline. Physical and notional volumes
traded by Williams Energy's merchant services unit approximated 6,552 TBtu
equivalents in 1996. Williams Energy, through its subsidiaries, employs
approximately 2,500 employees.
Revenues and operating profit for Williams Energy by business unit are
reported in Note 4 of Notes to Consolidated Financial Statements herein.
A business description of each of Williams Energy's business units follows.
EXPLORATION AND PRODUCTION
Williams Energy, through its wholly owned subsidiary Williams Production
Company (Williams Production), owns and operates producing gas leasehold
properties in Colorado, Louisiana, New Mexico, Texas, Utah, Wyoming, and
offshore in the Gulf of Mexico.
In December 1996, Williams Production entered into an agreement with an
unaffiliated exploration company for the joint exploration of 27,000 acres in
the Houma Embayment Area of southern Louisiana. Williams Production will earn a
50 percent working interest in the leasehold block by drilling up to eight
exploratory wells within a 125-square mile 3-D seismic survey during the next
12-18 months. Williams Production also purchased 50 percent of this company's
working interest in 23 producing wells and associated facilities in the area
with daily production of approximately 9,000 MMBtus per day. Also in 1996,
Williams Production acquired leasehold interests in the East Texas Haynesville
Cotton Valley Reef and now controls, along with unaffiliated partners, in excess
of 135,000 gross acres in this area.
Gas Reserves. As of December 31, 1996, 1995, and 1994, Williams Production
had proved developed natural gas reserves of 323 Bcf, 292 Bcf, 269 Bcf,
respectively, and proved undeveloped reserves of 208 Bcf, 222 Bcf, and 220 Bcf,
respectively. Of Williams Production's total proved reserves, 87 percent are
located in the San Juan Basin of Colorado and New Mexico. No major discovery or
other favorable or adverse event has caused a significant change in estimated
gas reserves since year end.
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<PAGE> 12
Customers and Operations. As of December 31, 1996, the gross and net
developed leasehold acres owned by Williams Production totaled 263,869 and
114,183, respectively, and the gross and net undeveloped acres owned were
339,540 and 76,722, respectively. As of such date, Williams Production owned
interests in 2,911 gross producing wells (523 net) on its leasehold lands. The
following table summarizes drilling activity for the periods indicated:
<TABLE>
<CAPTION>
DEVELOPMENT
--------------
COMPLETED GROSS NET
DURING WELLS WELLS
- --------- ----- -----
<S> <C> <C> <C>
1996................................................................ 65 11
1995................................................................ 61 22
1994................................................................ 66 19
</TABLE>
The majority of Williams Production's gas production is currently being
sold in the spot market at market prices. Total net production sold during 1996,
1995, and 1994 was 26.8 Bcf, 26.3 Bcf, and 23.2 Bcf, respectively. The average
production costs, including production taxes, per Mcf of gas produced were $.27,
$.26, and $.30, in 1996, 1995, and 1994, respectively. The average wellhead
sales price per Mcf was $.98, $.88, and $1.19, respectively, for the same
periods.
In 1993, Williams Production conveyed a net profits interest in certain of
its properties to the Williams Coal Seam Gas Royalty Trust. Williams
subsequently sold Trust Units to the public in an underwritten public offering.
Williams Holdings holds 3,568,791 Trust Units representing 36.8 percent of
outstanding Units. Substantially all of the production attributable to the
properties conveyed to the Trust was from the Fruitland coal formation and
constituted coal seam gas. Proved developed coal seam gas reserves at December
31, 1996, attributed to the properties conveyed were 149 Bcf. Production
information reported herein includes Williams Production's interest in such
Units.
FIELD SERVICES
Williams Energy, through Williams Field Services Group, Inc. and its
subsidiaries (Field Services), owns and operates nonregulated natural gas
gathering, processing, and treating facilities located in northwestern New
Mexico, southwestern Colorado, southwestern Wyoming, northwestern Oklahoma,
southwestern Kansas, and also in areas offshore and onshore in Texas and
Louisiana. Field Services also operates regulated gathering facilities owned by
Transco, an affiliated company. In February 1996, Field Services and Transco
filed applications with FERC to spindown all of Transco's gathering facilities
to Field Services. FERC subsequently denied these requests and Field Services
and Transco have filed a request for rehearing of this denial. Gathering
services provided include the gathering of gas and the treating of coal seam
gas.
Expansion Projects. Field Services expanded its gulf coast operations in
1996 primarily through acquisitions. In July, Field Services acquired a 70 MMcf
per day processing plant in south-central Louisiana. In November, Field Services
signed a letter of intent to acquire the remaining 50 percent interest in a 500
MMcf per day processing plant in southwestern Louisiana and acquired a majority
portion in a south Texas gathering system. In addition, Field Services expanded
its gathering system in the San Juan Basin, completed construction of a 50 MMcf
per day CO(2) treating facility in the Oklahoma Panhandle, and acquired the
remaining 50 percent interest in a 60 MMcf per day processing plant in southern
Texas.
Customers and Operations. Facilities owned and operated by Field Services
consist of approximately 11,000 miles of gathering pipelines, eight gas treating
plants and 10 gas processing plants (five of which are partially owned). The
aggregate daily inlet capacity is approximately 7.9 Bcf and 6.9 Bcf of gas for
the gathering systems and gas processing, treating, and dehydration facilities,
respectively. Gathering and processing customers have direct access to
interstate pipelines, including affiliated pipelines, which provide access to
multiple markets.
During 1996, Field Services gathered natural gas for 314 customers. The
largest gathering customer accounted for approximately 15 percent of total
gathered volumes. During 1996, Field Services processed natural gas for a total
of 119 customers. The three largest customers accounted for approximately 25
percent, 12 percent, and 10 percent, respectively, of total processed volumes.
No other customer accounted for more than 10 percent of gathered or processed
volumes. Field Services' gathering and processing agreements with
11
<PAGE> 13
large customers are generally long-term agreements with various expiration
dates. These long-term agreements account for the majority of the gas gathered
and processed by Field Services.
Operating Statistics. The following table summarizes gathering, processing,
and natural gas liquid sales volumes for the periods indicated. The information
includes operations attributed to facilities owned by affiliated entities but
operated by Field Services:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Gas volumes (TBtu, except liquids sales):
Gathering................................................. 2,155 1,806 895
Processing................................................ 484 406 392
Natural gas liquid sales (millions of gallons)............ 391 284 281
</TABLE>
PETROLEUM SERVICES
Williams Energy, through wholly owned subsidiaries in its Petroleum
Services unit, owns and operates a petroleum products and crude oil pipeline,
two ethanol production plants (one of which is partially owned), and petroleum
products terminals and provides services and markets products related thereto.
Transportation. A subsidiary in the Petroleum Services unit, Williams Pipe
Line Company (Williams Pipe Line), owns and operates a petroleum products and
crude oil pipeline system which covers an 11-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
terminaling services on a nondiscriminatory basis under published tariffs. The
system transports refined products, LP-gases, lube extracted fuel oil, and crude
oil.
At December 31, 1996, the system traversed approximately 7,300 miles of
right-of-way and included approximately 9,300 miles of pipeline in various sizes
up to 16 inches in diameter. The system includes 82 pumping stations, 23 million
barrels of storage capacity, and 47 delivery terminals. The terminals are
equipped to deliver refined products into tank trucks and tank cars. The maximum
number of barrels which the system can transport per day depends upon the
operating balance achieved at a given time between various segments of the
system. Because the balance is dependent upon the mix of products to be shipped
and the demand levels at the various delivery points, the exact capacity of the
system cannot be stated.
Operating Statistics. The operating statistics set forth below relate to
the system's operations for the periods indicated:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Shipments (thousands of barrels):
Refined products:
Gasolines........................................ 134,296 125,060 120,682
Distillates...................................... 68,628 61,238 61,129
Aviation fuels................................... 11,189 12,535 9,523
LP-Gases......................................... 15,618 12,839 10,849
Lube extracted fuel oil.......................... 8,555 4,462 0
Crude oil........................................ 891 860 1,062
------- ------- -------
Total Shipments............................. 239,177 216,994 203,245
======= ======= =======
Daily average (thousands of barrels).................. 655 595 557
Average haul (miles).................................. 259 269 284
Barrel miles (millions)............................... 61,969 58,326 57,631
</TABLE>
Environmental regulations and changing crude supply patterns continue to
affect the refining industry. The industry's response to environmental
regulations and changing supply patterns will directly affect volumes and
products shipped on the Williams Pipe Line system. Environmental Protection
Agency ("EPA") regulations, driven by the Clean Air Act, require refiners to
change the composition of fuel manufactured. A pipeline's ability to respond to
the effects of regulation and changing supply patterns will determine its
ability
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<PAGE> 14
to maintain and capture new market shares. Williams Pipe Line has successfully
responded to changes in diesel fuel composition and product supply and has
adapted to new gasoline additive requirements. Reformulated gasoline regulations
have not yet significantly affected Williams Pipe Line. Williams Pipe Line will
continue to attempt to position itself to respond to changing regulations and
supply patterns, but the Company cannot predict how future changes in the
marketplace will affect Williams Pipe Line's market areas.
Ethanol. Williams Energy, through its wholly owned subsidiary Williams
Energy Ventures, Inc. (WEV), is engaged in the production and marketing of
ethanol. WEV owns and operates two ethanol plants of which corn is the principal
feedstock. The Pekin, Illinois, plant, which WEV purchased in 1995, has an
annual production capacity of 100 million gallons of fuel-grade and industrial
ethanol and also produces various coproducts. The Aurora, Nebraska, plant (in
which WEV owns a 75 percent interest) began operations in November 1995 and has
an annual production capacity of 30 million gallons. WEV also markets ethanol
produced by third parties.
The sales volumes set forth below include ethanol produced by third parties
as well as by WEV for the periods indicated:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ----
<S> <C> <C> <C>
Ethanol sold (thousands of gallons)...................... 119,800 53,500 n/a
Coproducts sold (thousands of tons)...................... 398 159 n/a
</TABLE>
Terminals and Services Williams Energy, through its subsidiary WEV,
operates petroleum products terminals in the western and southeastern United
States and provides services including performance additives and ethanol
blending. In September 1996, WEV acquired a 45.5 percent interest in eight
petroleum products terminals located in the southeast United States. During the
last four months of the year, these terminals loaded 7.8 million barrels of
refined products.
MERCHANT SERVICES
Williams Energy, through subsidiaries, primarily Williams Energy Services
Company and its subsidiaries ("WESCO"), offers a full suite of energy products
and services throughout North America and serves over 2,000 companies. WESCO's
business includes natural gas and energy commodity marketing activities, at both
the wholesale and retail levels. In addition, WESCO offers a comprehensive array
of price-risk management products and services and capital services to the
diverse energy industry.
WESCO markets natural gas throughout North America and grew its total
volumes (physical and notional) to an average of 15.9 TBtu per day in 1996. The
core of WESCO's business has traditionally been the Gulf Coast and eastern
regions, using the pipeline systems owned by the Company, but also includes
marketing on approximately 30 non-Williams' pipelines. WESCO's natural gas
customers include producers, industrials, local distribution companies,
utilities, and other marketers.
During 1996, WESCO also marketed natural gas liquids, crude, refined
products, and liquefied natural gas with total volumes (physical and notional)
averaging 2.0 TBtu per day.
WESCO entered the power marketing and trading business in 1996. During its
first year of operations, WESCO's power group marketed over 4 million megawatt
hours (physical and notional) of power.
WESCO provides price risk management services through a variety of
financial instruments including option and swap agreements related to various
energy commodities. Through its capital financing services, WESCO also provides
participants in the energy industry with capital for energy-related projects
including acquisitions of proved reserves and re-working of wells.
In 1996, WESCO established a retail energy services group. As a part of
this strategy, WESCO acquired a 50 percent interest in Volunteer Energy
Corporation, a natural gas marketing company with experience in end-use markets.
WESCO has also aligned with Boston Edison Company to form EnergyVision, an
enterprise designed to provide access to retail energy markets in the New
England area.
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<PAGE> 15
Operating Statistics. The following table summarizes operating profit and
marketing volumes for the periods indicated (dollars in million, volumes in TBtu
equivalents):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Operating profit......................................... $ 66.4 $ 33.2 $ 3.4
Total marketing volumes (physical and notional).......... 6,552 3,822 1,642
</TABLE>
---------------------
REGULATORY MATTERS
Field Services. Historically, an issue has existed as to whether FERC has
authority under the Natural Gas Act to regulate gathering and processing prices
and services. During 1994, after reviewing its legal authority in a Public
Comment Proceeding, FERC determined that while it retains some regulatory
jurisdiction over gathering and processing performed by interstate pipelines,
pipeline-affiliated gathering and processing companies are outside its authority
under the Natural Gas Act. An appellate court has affirmed FERC's determination.
As a result of these FERC decisions, several of the individual states in which
Field Services conducts its operations may consider whether to impose regulatory
requirements on gathering companies. No state currently regulates Field
Services' gathering or processing rates or services.
Petroleum Services. Williams Pipe Line, as an interstate common carrier
pipeline, is subject to the provisions and regulations of the Interstate
Commerce Act. Under this Act, Williams Pipe Line is required, among other
things, to establish just, reasonable and nondiscriminatory rates, to file its
tariffs with FERC, to keep its records and accounts pursuant to the Uniform
System of Accounts for Oil Pipeline Companies, to make annual reports to FERC
and to submit to examination of its records by the audit staff of FERC.
Authority to regulate rates, shipping rules, and other practices and to
prescribe depreciation rates for common carrier pipelines is exercised by FERC.
The Department of Transportation, as authorized by the 1992 Pipeline Safety
Reauthorization Act, is the oversight authority for interstate liquids
pipelines. Williams Pipe Line is also subject to the provisions of various state
laws applicable to intrastate pipelines.
On December 31, 1989, a rate cap, which resulted from a settlement with
several shippers, effectively freezing Williams Pipe Line's rates for the
previous five years, expired. Williams Pipe Line filed a revised tariff on
January 16, 1990, with FERC and the state commissions. The tariff set an average
increase in rates of 11 percent and established volume incentives and
proportional rate discounts. Certain shippers on the Williams Pipe Line system
and a competing pipeline carrier filed protests with FERC alleging that the
revised rates are not just and reasonable and are unlawfully discriminatory.
Williams Pipe Line elected to bifurcate this proceeding in accordance with the
then-current FERC policy. Phase I of FERC's bifurcated proceeding provides a
carrier the opportunity to justify its rates and rate structure by demonstrating
that its markets are workably competitive. Any issues unresolved in Phase I
require cost justification in Phase II.
FERC's Presiding Judge issued the Initial Decision in Phase II on May 29,
1996. The Judge ruled that Williams Pipe Line failed to demonstrate that the
rates at issue for the 12 less competitive markets were just and reasonable and
that Williams Pipe Line must roll back those rates to pre-1990 levels and pay
refunds with interest to its shippers. The Initial Decision held that Williams
Pipe Line's individual rates must be judged on the basis of cost allocations,
although Williams Pipe Line was given no notice of this particular basis of
judgment and the Commission expressly declined to adopt such standards in its
Opinion No. 391. Moreover, the Commission clarified its final order in Phase I
(Opinion No. 391-A) by stating that Williams Pipe Line was not required to
defend its rates with cost allocations. Primarily on this basis, Williams Pipe
Line sought a review of the Initial Decision by the full Commission by filing a
brief on exceptions on June 28, 1996. The review of the Phase II Initial
Decision is pending before the Commission, and a shipper's appeal of the Phase I
order in the United States Court of Appeals for the District of Columbia Circuit
has been stayed pending the completion of Phase II. Williams Pipe Line is not
required to comply with the Initial Decision in Phase II prior to the
Commission's issuance of a final order. Williams Pipe Line continues to believe
that its revised tariffs will ultimately be found lawful. See Note 17 of Notes
to Consolidated Financial Statements.
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<PAGE> 16
Merchant Services. Management believes that WESCO's activities are
conducted in substantial compliance with the marketing affiliate rules of FERC
Order 497. Order 497 imposes certain nondiscrimination, disclosure, and
separation requirements upon interstate natural gas pipelines with respect to
their natural gas trading affiliates. WESCO has taken steps to ensure it does
not share employees with affiliated interstate natural gas pipelines and does
not receive information from such affiliates that is not also available to
unaffiliated natural gas trading companies.
COMPETITION
Exploration and Production. Williams Energy's exploration and production
unit competes with a wide variety of independent producers as well as integrated
oil and gas companies for markets for its production.
Field Services. Williams Energy competes for gathering and processing
business with interstate and intrastate pipelines, producers, and independent
gatherers and processors. Numerous factors impact any given customer's choice of
a gathering or processing services provider, including rate, term, timeliness of
well connections, pressure obligations, and the willingness of the provider to
process for either a fee or for liquids taken in-kind.
Petroleum Services. Williams Energy's petroleum services operations are
subject to competition because Williams Pipe Line operates without the
protection of a federal certificate of public convenience and necessity that
might preclude other entrants from providing like service in its area of
operations. Further, Williams Pipe Line must plan, operate and compete without
the operating stability inherent in a broad base of contractually obligated or
owner-controlled usage. Because Williams Pipe Line is a common carrier, its
shippers need only meet the requirements set forth in its published tariffs in
order to avail themselves of the transportation services offered by Williams
Pipe Line.
Competition exists from other pipelines, refineries, barge traffic,
railroads, and tank trucks. Competition is affected by trades of products or
crude oil between refineries that have access to the system and by trades among
brokers, traders and others who control products. Such trades can result in the
diversion from the Williams Pipe Line system of volume that might otherwise be
transported on the system. Shorter, lower revenue hauls may also result from
such trades. Williams Pipe Line also is exposed to interfuel competition whereby
an energy form shipped by a liquids pipeline, such as heating fuel, is replaced
by a form not transported by a liquids pipeline, such as electricity or natural
gas. While Williams Pipe Line faces competition from a variety of sources
throughout its marketing areas, the principal competition is other pipelines. A
number of pipeline systems, competing on a broad range of price and service
levels, provide transportation service to various areas served by the system.
The possible construction of additional competing products or crude oil
pipelines, conversions of crude oil or natural gas pipelines to products
transportation, changes in refining capacity, refinery closings, changes in the
availability of crude oil to refineries located in its marketing area, or
conservation and conversion efforts by fuel consumers may adversely affect the
volumes available for transportation by Williams Pipe Line.
Williams Energy's ethanol operations compete in local, regional, and
national fuel additive markets with one large ethanol producer, numerous smaller
ethanol producers, and other fuel additive producers, such as refineries.
Merchant Services. Williams Energy's merchant services operations directly
compete with large independent energy marketers, marketing affiliates of
regulated pipelines and utilities, electric wholesalers and retailers, and
natural gas producers. The financial trading business competes with other
energy-based companies offering similar services as well as certain brokerage
houses. This level of competition contributes to a business environment of
constant pricing and margin pressure.
OWNERSHIP OF PROPERTY
The majority of Williams Energy's ownership interests in exploration and
production properties are held as working interests in oil and gas leaseholds.
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<PAGE> 17
Williams Energy's gathering and processing facilities are owned in fee.
Gathering systems are constructed and maintained pursuant to rights-of-way,
easements, permits, licenses, and consents on and across properties owned by
others. The compressor stations and gas processing and treating facilities are
located in whole or in part on lands owned by subsidiaries of Williams Energy or
on sites held under leases or permits issued or approved by public authorities.
Williams Energy's petroleum pipeline system is owned in fee. However, a
substantial portion of the system is operated, constructed and maintained
pursuant to rights-of-way, easements, permits, licenses, or consents on and
across properties owned by others. The terminals, pump stations, and all other
facilities of the system are located on lands owned in fee or on lands held
under long-term leases, permits, or contracts. Management believes that the
system is in such a condition and maintained in such a manner that it is
adequate and sufficient for the conduct of business.
The primary assets of Williams Energy's merchant services unit are its term
contracts, employees, and related systems and technological support.
ENVIRONMENTAL MATTERS
Williams Energy is subject to various federal, state, and local laws and
regulations relating to environmental quality control. Management believes that
Williams Energy's operations are in substantial compliance with existing
environmental legal requirements. Management expects that compliance with such
existing environmental legal requirements will not have a material adverse
effect on the capital expenditures, earnings, and competitive position of
Williams Energy.
The EPA has named Williams Pipe Line as a potentially responsible party as
defined in Section 107(a) of the Comprehensive Environmental Response,
Compensation, and Liability Act, for a site in Sioux Falls, South Dakota. The
EPA placed this site on the National Priorities List in July 1990. In April
1991, Williams Pipe Line and the EPA executed an administrative consent order
under which Williams Pipe Line agreed to conduct a remedial investigation and
feasibility study for this site. The EPA issued its "No Action" Record of
Decision in 1994, concluding that there were no significant hazards associated
with the site subject to two additional years of monitoring for arsenic in
certain existing monitoring wells. Williams Pipe Line should complete monitoring
in the second quarter of 1997.
WILLIAMS COMMUNICATIONS GROUP, INC. (WILLIAMS COMMUNICATIONS GROUP)
The Company organized the reporting for its communications operations under
a single communications reporting entity in 1996 and has reported such
operations for financial reporting purposes on a consolidated basis since the
third quarter of 1996. Management believes that the new structure will better
position it to provide total enterprise network solutions and superior customer
service on a global basis. In addition, management believes this structure will
facilitate growth and diversification while recognizing the convergence of
customers, markets and product offerings of its communications entities.
Management also believes the combination creates a vehicle to better establish
name recognition and presence in the communications industry.
The new entity, Williams Communications Group, Inc. ("Williams
Communications Group"), is comprised of four major business units: Williams
Telecommunications Systems, Inc.; Vyvx, Inc.; Global Access Telecommunications
Services, Inc. (formerly known as ITC mediaConferencing Company); and Williams
Learning Network, Inc. Through its business units, Williams Communications Group
provides customer-premise voice and data equipment, including installation and
maintenance; advertising distribution; network integration and management
services; video services and other multimedia services for the broadcasting
industry; broadcast facsimile, audio- and videoconferencing services for
businesses; and interactive, computer-based training programs and services for a
variety of industries.
In March 1997, Williams Communications Group acquired the stock of Critical
Technologies, Incorporated, a network systems integrator that designs, builds,
implements, and maintains large-scale business communications systems.
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<PAGE> 18
Williams Communications Group, through its subsidiaries, owns approximately
11,000 fiber miles of fiber-optic network, approximately 53 television switching
centers, more than 1,300 fully equipped service vehicles, and 120 sales and
services locations nationwide plus international offices serving Europe, South
America and the Pacific Rim. In addition, Williams Communications Group owns or
manages five teleports in the United States and has rights to capacity on
domestic and international satellite transponders. Williams Communications Group
employed approximately 4,300 employees as of December 31, 1996.
Consolidated revenues by business unit and operating profit for Williams
Communications Group for 1996 were as follows (dollars in millions):
<TABLE>
<S> <C>
Revenues:
WilTel
WilTel Voice......................................... $520.6
WilTel Data.......................................... 47.5
Vyvx................................................... 100.0
Williams Learning Network.............................. 17.9
Global Access.......................................... 7.6
Other.................................................. 17.7
------
Total............................................. $711.3
======
Operating profit............................................ $ 6.6
======
</TABLE>
A business description of each of Williams Communications Group's business
units follows.
WILLIAMS TELECOMMUNICATIONS SYSTEMS, INC. (WILTEL)
WilTel provides data, voice and video communications products and services
to a wide variety of customers nationally. WilTel serves its customers through
more than 100 sales and service locations throughout the United States, over
3,100 employees and over 1,300 stocked service vehicles. WilTel employs more
than 1,400 technicians and more than 500 sales representatives and sales support
personnel to serve an estimated 41,000 commercial, governmental and
institutional customer sites. WilTel's customer base ranges from large,
publicly-held corporations and the federal government to small privately-owned
entities.
WilTel offers its customers a full array of data, multimedia, voice and
video network interconnect products including digital key systems (generally
designed for voice applications with fewer than 100 lines), private branch
exchange (PBX) systems (generally designed for voice applications with greater
than 100 lines), voice processing systems, interactive voice response systems,
automatic call distribution applications, call accounting systems, network
monitoring and management systems, desktop video, routers, channel banks,
intelligent hubs and cabling. WilTel's services also include the design,
configuration and installation of voice and data networks and the management of
customers' telecommunications operations and facilities. WilTel's National
Technical Resource Center provides customers with on-line order entry and
trouble reporting services, advanced technical assistance and training. Other
service capabilities include Local Area Network and PBX remote monitoring and
toll fraud detection.
In 1994, WilTel acquired BellSouth's customer premise equipment sales and
service operations in 29 states outside of BellSouth's local operating region in
the nine southeastern-most states and Jackson Voice Data, a New York City-based
customer premise equipment company. In 1996, WilTel acquired Comlink, Inc., a
Marlborough, Massachusetts, based voice and network systems integrator. Comlink
services approximately 5,000 customers in Vermont, New Hampshire, Maine,
Massachusetts, Rhode Island and Connecticut. Also in 1996, WilTel acquired
SoftIRON Systems, Inc., a network systems integrator based in California.
SoftIRON works with organizations to design, procure, install and support
complex data systems. SoftIRON maintains more than 200 sites with high-speed
data switches, 5,000 remote access ports and extensive networks managing more
than 15,000 devices. These acquisitions have enabled WilTel to capitalize on its
existing infrastructure, strengthen its national market presence and geographic
customer density and has provided more diversity in product offerings.
17
<PAGE> 19
Operating Statistics. The following table summarizes the results of
operations for the periods indicated (dollars and ports in millions):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenues................................................. $568.1 $494.9 $396.6
Percentage of revenues by type of service:
New system sales....................................... 40% 34% 33%
System modifications................................... 34 39 36
Maintenance............................................ 24 25 24
Other.................................................. 2 2 7
Backlog.................................................. $112.2 $ 85.0 $ 92.4
Total ports.............................................. 5.1 4.7 4.1
</TABLE>
A port is defined as an electronic address resident in a customer's PBX or
key system that supports a station, trunk or data port.
In 1996, WilTel derived approximately 59.7 percent of its revenues from its
existing customer base and approximately 40.3 percent from the sale of new
telecommunications systems. WilTel's three largest suppliers accounted for
approximately 86 percent of equipment sold in 1996. A single manufacturer
supplied 73 percent of all equipment sold. In this case, WilTel is the largest
independent distributor in the United States of certain of this company's
products. About 63 percent of WilTel's active customer base consists of this
manufacturer's products. The distribution agreement with this supplier is
scheduled to expire at the end of 2000. Management believes there is minimal
risk as to the availability of products from suppliers.
VYVX, INC. (VYVX)
Vyvx offers broadcast-quality television and multimedia transmission
services nationwide by means of its 11,000-mile fiber optic cable system,
satellite uplink/downlink facilities and satellite transponder capacity. Vyvx
fiber primarily provides backhaul or point-to-point transmission of sports, news
and other programming between two or more customer locations. With satellite
facilities, Vyvx provides point-to-multipoint transmission service. Vyvx's
customers include all of the major broadcast and cable networks. Vyvx is also
engaged in the business of advertising distribution and is exploring other
multimedia communication opportunities through its fiber optic network.
In 1996, Vyvx acquired four teleports (including satellite earth station
facilities) from ICG Wireless Services. The teleports are located in Atlanta,
Denver, Los Angeles and New York (Carteret, New Jersey). Also in 1996, Vyvx
acquired Global Access Telecommunications Services, Inc., a reseller of
worldwide video transmission services, which resulted in the management of a
fifth teleport in Kansas City. The business television operations were
transferred to ITC mediaConferencing, and Vyvx continues to operate the
satellite and transponder facilities of the former Global Access. As discussed
below, ITC mediaConferencing has adopted the Global Access name. These
acquisitions enabled Vyvx to become a full-service fiber-optic and satellite
video transmission provider.
In November and December, 1996, respectively, Vyvx acquired the assets of
Cycle-Sat, Inc. and Viacom MGS Services Inc., both distributors of television
advertising. These acquisitions provide connectivity and presence in more than
550 television broadcast stations around the country.
Under an agreement with IXC Communications entered into in the fourth
quarter 1996, Vyvx will build a 1,600-mile fiber-optic network from Houston to
Washington, D.C., in proximity to pipeline right-of-way owned by an affiliated
company. Vyvx will then exchange rights to use a portion of the unlit fiber for
usage rights to IXC's existing 4,500-mile Los Angeles-to-New York route. It is
estimated that by mid-1998, Vyvx will have added 6,100 miles of new,
unrestricted network to its existing 11,000-mile system, which is limited to
multimedia applications.
18
<PAGE> 20
WILLIAMS LEARNING NETWORK, INC. (WILLIAMS LEARNING NETWORK)
Williams Learning Network, formerly Williams Knowledge Systems, provides
multimedia-based training products for the chemical, refining, utility and
manufacturing industries. Williams Learning Network serves approximately 6,500
customers in these industries.
In December 1996, Williams Learning Network announced the formation of a
joint venture with the Public Broadcast Service to utilize Internet,
video-on-demand, fiber-optic and satellite technologies to bring professional
development and training services to the business community. The 20-year
agreement provides for a management committee to operate the new entity.
GLOBAL ACCESS TELECOMMUNICATIONS SYSTEMS, INC. (GLOBAL ACCESS)
(FORMERLY ITC MEDIACONFERENCING COMPANY)
In October 1995, a business unit of Williams Communications Group acquired
a 22 percent interest in ITC mediaConferencing Company ("ITC") and acquired the
remaining interest in ITC in 1996. ITC, which has changed its name to Global
Access, offers multi-point videoconferencing, audioconferencing and enhanced fax
services as well as single point to multi-point business television services.
The acquisition enables Williams Communications Group to provide customers with
integrated media conferences, bringing together voice, video and facsimile by
utilizing Williams Communications Group's existing fiber-optic and satellite
services.
In March 1997, Global Access acquired Satellite Management, Inc., a systems
integrator for business television and provider of other satellite-based
services.
---------------------
REGULATORY MATTERS
The equipment WilTel sells must meet the requirements of Part 68 of the
Federal Communications Commission (FCC) rules governing the equipment
registration, labeling and connection of equipment to telephone networks. WilTel
relies on the equipment manufacturers' compliance with these requirements for
its own compliance regarding the equipment it distributes. A subsidiary of
WilTel, which provides intrastate microwave communications services for a
Federal agency, is subject to FCC regulations as a common carrier microwave
licensee. These regulations have a minimal impact on WilTel's operations.
Vyvx is subject to FCC regulations as a common carrier with regard to
certain of its transmission services and is subject to the laws of certain
states governing public utilities. An FCC rulemaking to eliminate domestic,
common carrier tariffs has been stayed pending judicial review. In the interim,
the FCC is requiring such carriers to operate under traditional tariff rules.
Operations of satellite earth stations and certain other related transmission
facilities are also subject to FCC licensing and other regulations. These
regulations do not significantly impact Vyvx's operations.
COMPETITION
WilTel has many competitors ranging from Lucent Technologies and the
Regional Bell Operating Companies to small individually-owned companies that
sell and service customer premise equipment. Competitors include companies that
sell equipment comparable or identical to that sold by WilTel. There are
virtually no barriers to entry into this market.
Vyvx's video and multimedia transmission operations compete primarily with
companies offering video or multimedia transmission services by means of
satellite facilities and to a lesser degree with companies offering transmission
services via microwave facilities or fiber-optic cable.
Federal telecommunications reform legislation enacted in February 1996 is
designed to increase competition both in the long distance market and local
exchange market by significantly liberalizing current restrictions on market
entry. In particular, the legislation establishes procedures permitting Regional
Bell Operating Companies to provide long distance services including, but not
limited to, video transmission services, subject to certain restrictions and
conditions precedent. Moreover, electric and gas utilities may
19
<PAGE> 21
provide telecommunications services, including long distance services, through
separate subsidiaries. The legislation also calls for tariff forbearance and
relaxation of regulation over common carriers. At this time, management cannot
predict the impact such legislation may have on the operations of Williams
Communications Group.
OWNERSHIP OF PROPERTY
Vyvx owns part of its fiber-optic transmission facilities and leases the
remainder. Vyvx carries signals by means of its own fiber-optics facilities, as
well as carrying signals over fiber-optic facilities leased from third-party
interexchange carriers and the various local exchange carriers. Vyvx holds its
satellite transponder capacity under various agreements. Vyvx owns part of its
teleport facilities and holds the remainder under either a management agreement
or long-term facilities leases.
ENVIRONMENTAL MATTERS
Williams Communications Group is subject to federal, state and local laws
and regulations relating to the environmental aspects of its business.
Management believes that Williams Communications Group's operations are in
substantial compliance with existing environmental legal requirements.
Management expects that compliance with such existing environmental legal
requirements will not have a material adverse effect on the capital
expenditures, earnings and competitive position of Williams Communications
Group.
OTHER INFORMATION
Williams believes that it has adequate sources and availability of raw
materials to assure the continued supply of its services and products for
existing and anticipated business needs. Williams' pipeline systems are all
regulated in various ways resulting in the financial return on the investments
made in the systems being limited to standards permitted by the regulatory
bodies. Each of the pipeline systems has ongoing capital requirements for
efficiency and mandatory improvements, with expansion opportunities also
necessitating periodic capital outlays.
A plant site in Pensacola, Florida, that was previously operated by a
former subsidiary of Williams, has been placed on the National Priorities List.
This former subsidiary has also been identified as a potentially responsible
party at a National Priorities List cleanup site in Michigan. A third site,
located in Lakeland, Florida, which was formerly owned and operated by this
subsidiary, is under investigation by the Florida Department of Environmental
Protection and cleanup is anticipated. Williams does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of insurance coverage, contribution or other indemnification
arrangements, will have a material adverse financial effect on the Company. See
Note 17 of Notes to Consolidated Financial Statements.
At December 31, 1996, the Company had approximately 11,000 full-time
employees, of whom approximately 1,200 were represented by unions and covered by
collective bargaining agreements. The Company considers its relations with its
employees to be generally good.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although the Company believes such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that every objective will be reached. Such statements are made in
reliance on the safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995.
As required by such Act, the Company hereby identifies the following
important factors that could cause actual results to differ materially from any
results projected, forecasted, estimated or budgeted by the Company in
forward-looking statements: (i) risks and uncertainties impacting the Company as
a whole primarily relate to changes in general economic conditions in the United
States; changes in laws and regulations to which the Company is subject,
including tax, environmental and employment laws and regulations; the cost and
effects of legal and administrative claims and proceedings against the Company
or its
20
<PAGE> 22
subsidiaries or which may be brought against the Company or its subsidiaries;
conditions of the capital markets utilized by the Company to access capital to
finance operations; and, to the extent the Company increases its investments and
activities abroad, such investments and activities will be subject to foreign
economies, laws, and regulations; (ii) for the Company's regulated businesses,
risks and uncertainties primarily relate to the impact of future federal and
state regulation of business activities, including allowed rates of return; and
(iii) risks and uncertainties associated with the Company's unregulated
businesses primarily relate to the ability of such entities to develop expanded
markets and product offerings as well as maintaining existing markets. It is
also possible that certain aspects of the Company's businesses that are
currently unregulated may be subject to both federal and state regulation in the
future. In addition, future utilization of pipeline capacity will depend on
energy prices, competition from other pipelines and alternate fuels, the general
level of natural gas and petroleum product demand and weather conditions, among
other things. Further, gas prices which directly impact transportation and
gathering and processing throughput and operating profits may fluctuate in
unpredictable ways as may corn prices, which directly affect the Company's
ethanol business. It is also not possible to predict which of many possible
future products and service offerings will be important to maintaining a
competitive position in the communications business or what expenditures will be
required to develop and provide such products and services.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Williams has no significant foreign operations.
ITEM 2. PROPERTIES
See Item 1(c) for description of properties.
ITEM 3. LEGAL PROCEEDINGS
Other than as described under Item 1 -- Business and in Note 17 of Notes to
Consolidated Financial Statements, there are no material pending legal
proceedings. Williams is subject to ordinary routine litigation incidental to
its businesses.
Subsequent Developments. On February 27, 1997, FERC issued Order 636-C in
response to the court's remand affirming that pipelines may recover all of their
gas supply realignment costs but requiring pipelines to individually propose the
percentage of such costs to be allocated to interruptible transportation
services, instead of a uniform 10 percent allocation. The order also
prospectively relaxes the eligibility requirements for receiving no-notice
service and reduces the right of first refusal matching period from 20 years to
five years. Order 636-C is still subject to potential rehearing at FERC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
21
<PAGE> 23
EXECUTIVE OFFICERS OF WILLIAMS
The names, ages, positions and earliest election dates of the executive
officers of Williams are:
<TABLE>
<CAPTION>
HELD OFFICE
NAME AGE POSITIONS AND OFFICES HELD SINCE
---- --- -------------------------- -----------
<S> <C> <C> <C>
Keith E. Bailey................. 54 Chairman of the Board, President, Chief 05-19-94
Executive Officer and Director (Principal
Executive Officer)
John C. Bumgarner, Jr........... 54 Senior Vice President -- Corporate Development 01-01-79
and Planning; President -- Williams
International Company
James R. Herbster............... 55 Senior Vice President -- Administration 01-01-92
Jack D. McCarthy................ 54 Senior Vice President -- Finance (Principal 01-01-92
Financial Officer)
William G. von Glahn............ 53 Senior Vice President and General Counsel 08-01-96
Gary R. Belitz.................. 47 Controller (Principal Accounting Officer) 01-01-92
Stephen L. Cropper.............. 47 President -- Williams Energy Group 10-01-96
Henry C. Hirsch................. 54 Vice Chairman and Chief Executive 02-11-97
Officer -- Williams Communications Group
Howard E. Janzen................ 42 President and Chief Operating Officer -- 02-11-97
Williams Communications Group
Brian E. O'Neill................ 61 President -- Transco, Northwest Pipeline, Kern 01-01-88
River, TXG and Williams Natural Gas
</TABLE>
All of the above officers have been employed by Williams or its
subsidiaries as officers or otherwise for more than five years and have had no
other employment during such period.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Williams' Common Stock is listed on the New York and Pacific Stock
Exchanges under the symbol "WMB." At the close of business on December 31, 1996,
Williams had 12,386 holders of record of its Common Stock. The daily closing
price ranges (composite transactions) and dividends declared by quarter for each
of the past two years (adjusted to reflect the three-for-two stock split
discussed below) are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ------- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
1st.................................. $34 $28 1/2 $.227 $207/12 $167/12 $.18
2nd.................................. $355/12 $311/6 $.227 $237/12 $201/6 $.18
3rd.................................. $347/12 $30 1/2 $.227 $261/12 $231/12 $.18
4th.................................. $38 1/3 $32 1/2 $ .26 $29 2/3 $251/12 $.18
</TABLE>
On December 30, 1996, the Company distributed one share of Common Stock of
the Company, $1 par value, for every two shares of Common Stock outstanding on
December 6, 1996, pursuant to a three-for-two stock split.
Terms of certain subsidiaries' borrowing arrangements limit transfer of
funds to Williams. These terms have not impeded, nor are they expected to in the
future, Williams' ability to meet its cash obligations.
22
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
The following financial data are an integral part of, and should be read in
conjunction with, the consolidated financial statements and notes thereto.
Information concerning significant trends in the financial condition and results
of operations is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages F-1 through F-9 of this report.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- -------- -------- --------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 3,531.2 $ 2,855.7 $1,751.1 $1,793.4 $1,983.5
Income from continuing operations*....... 362.3 299.4 164.9 185.4 103.1
Income from discontinued operations**.... -- 1,018.8 94.0 46.4 25.2
Fully diluted earnings per share:***
Income from continuing operations...... 2.14 1.84 1.02 1.14 .65
Income from discontinued operations.... -- 6.48 .61 .30 .19
Cash dividends per common share ***...... .94 .72 .56 .52 .51
Total assets at December 31.............. 12,418.8 10,561.2 5,226.1 5,020.4 4,982.3
Long-term obligations at December 31..... 4,376.9 2,874.0 1,307.8 1,604.8 1,683.2
Stockholders' equity at December 31...... 3,421.0 3,187.1 1,505.5 1,724.0 1,518.3
</TABLE>
- ---------------
* See Note 6 of Notes to Consolidated Financial Statements for discussion of
significant asset sales and write-off of project costs in 1996, 1995 and
1994. Income from continuing operations in 1993 includes a pre-tax gain of
$51.6 million as a result of the sale of 6.1 million units in the Williams
Coal Seam Gas Royalty Trust and a pre-tax gain of $45.9 million as a result
of the sale of its intrastate natural gas pipeline system and other related
assets in Louisiana.
** See Note 3 of Notes to Consolidated Financial Statements for discussion of
the 1995 gain on the sale of discontinued operations. Amounts prior to 1995
reflect operating results for the network services operations.
*** Per-share amounts have been restated to reflect the effect of the December
30, 1996, 3-for-2 common stock split and distribution as discussed in Note
14 of Notes to Consolidated Financial Statements.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1996 vs. 1995
Northwest Pipeline's revenues increased $14.5 million, or 6 percent, due
primarily to increased transportation rates, effective February 1, 1996,
associated with the expansion of mainline capacity placed into service on
December 1, 1995. In addition, $9 million of revenue in 1996 associated with
reserve reversals and favorable regulatory decisions was more than offset by the
effect of the 1995 reversal of approximately $16 million of accrued liabilities
for estimated rate refund accruals. Total throughput increased 8 TBtu, or 1
percent. Operating profit increased $9.2 million, or 8 percent, due primarily to
increased transportation rates associated with the expansion of mainline
capacity, and the reserve reversals and favorable regulatory decisions.
Partially offsetting were higher depreciation expense associated with the
mainline expansion and the approximate $11 million net favorable effect of two
1995 reserve accrual adjustments. The 1995 reserve accrual adjustments included
a $16 million favorable adjustment of rate refund accruals based on a favorable
rate case order, partially offset by a loss accrual (included in other
income -- net) in connection with a lawsuit involving a former transportation
customer.
Williams Natural Gas' revenues increased $4.1 million, or 2 percent, due
primarily to increased transportation revenue resulting from new tariff rates
that became effective August 1, 1995. Total throughput increased 6.9 TBtu, or 2
percent. Operating profit was substantially the same as the prior year as the
effect of a $4 million 1995 reversal of a regulatory accrual was offset by new
tariff rates that became effective August 1, 1995.
F-1
<PAGE> 25
Transcontinental Gas Pipe Line's (Transco) revenues increased $35.1
million, or 5 percent, due primarily to higher natural gas transportation
revenues and liquids and liquefiable transportation revenues of $20 million and
$9 million, respectively. Additionally, revenue for 1996 reflects a full year of
operations compared with 1995, which reflected operations from January 18, 1995,
when Williams acquired a majority interest in Transco Energy. Revenues
associated with the period January 1 through January 17, 1995, were
approximately $36 million. Offsetting these increases were lower revenues
resulting from lower transportation costs charged to Transco by others and
passed through to customers as provided in Transco's rates. Transportation
revenues increased due primarily to increased long-haul throughput, which
benefitted from a two-phase system expansion placed in service in late 1996 and
late 1995, and new rates effective September 1, 1995, which allowed the
passthrough of increased costs. Total throughput increased 176.1 TBtu, or 12
percent, due primarily to a full year of operations in 1996 compared to a
partial year in 1995. Operating profit increased $29.6 million, or 18 percent,
due primarily to increased transportation revenues, lower general and
administrative expenses and a full year of operations in 1996, partially offset
by higher operation and maintenance expenses and higher taxes other than income
taxes.
Texas Gas Transmission's revenues and operating profit increased $29.8
million, or 11 percent, and $21.1 million, or 33 percent, respectively, due
primarily to new rates that became effective April 1, 1995, and an adjustment to
regulatory accruals based upon a recent rate case settlement. Also, 1995
reflected operations from January 18, when Williams acquired a majority interest
in Transco Energy. Revenues associated with the period January 1 through January
17, 1995, were $16 million. Total throughput increased 141.1 TBtu, or 22
percent, due primarily to a full year of operations in 1996 compared to a
partial year in 1995 and the impact of a colder winter in 1996.
Kern River Gas Transmission's (Kern River) remaining interest was acquired
by Williams on January 16, 1996. Revenues and operating profit amounts for 1996
include the operating results of Kern River since the acquisition date. Kern
River's revenues were $160.6 million for 1996, while costs and operating
expenses were $35 million, selling, general and administrative expenses were $13
million and operating profit was $113 million. Prior to the acquisition,
Williams accounted for its 50 percent ownership in Kern River using the equity
method of accounting, with its share of equity earnings recorded in investing
income. Throughput was 269.9 TBtu during 1996 (for the period subsequent to the
acquisition date). Throughput for 1996 is comparable to 1995.
Field Services' revenues increased $83.4 million, or 16 percent, due
primarily to higher natural gas liquids sales revenues of $64 million combined
with higher gathering and processing revenues of $6 million and $13 million,
respectively. Natural gas liquids sales revenues increased due to a 36 percent
increase in volumes combined with higher average prices. Gathering and
processing volumes each increased 19 percent while average gathering rates
decreased. Costs and operating expenses increased $52 million, or 15 percent,
due primarily to higher fuel and replacement gas purchases, expanded facilities
and increased operations. Other income -- net for 1996 includes a $20 million
gain from the property insurance coverage associated with construction of
replacement gathering facilities and $6 million of gains from the sale of two
small gathering systems, partially offset by $5 million of environmental
remediation accruals. Other income -- net for 1995 includes $20 million in
operating profit from a favorable resolution of contingency issues involving
previously regulated gathering and processing assets. Operating profit increased
$26.4 million, or 16 percent, due primarily to higher natural gas liquids
margins and higher gathering and processing revenues, partially offset by higher
costs and operating expenses. Operating profit was favorably impacted in both
1996 and 1995 by approximately $20 million of other income.
Merchant Services' revenues increased $107.6 million, or 70 percent, due
primarily to higher natural gas and gas liquids marketing, price-risk management
activities and petroleum product marketing of $77 million, $24 million and $18
million, respectively, partially offset by lower contract origination revenues
of $10 million. Natural gas and gas liquids marketing revenues increased due to
higher marketing volumes and prices. In addition, net physical trading revenues
increased $3 million, due to a 19 percent increase in natural gas physical
trading volumes from 754 TBtu to 896 TBtu largely offset by lower physical
trading margins. Costs and operating expenses increased $73 million, or 94
percent, due primarily to higher natural gas purchase volumes and prices.
Operating profit increased $33.2 million, or 100 percent, due primarily to
higher price-risk
F-2
<PAGE> 26
management revenues, a reduction of development costs associated with its
information products business and increased natural gas marketing volumes.
Partially offsetting were higher selling, general and administrative expenses
and lower contract origination revenues resulting from the impact of profits
realized from certain long-term natural gas supply obligations in 1995. Merchant
Services' price-risk management and trading activities are subject to risk from
changes in energy commodity market prices, the portfolio position of its
financial instruments and physical commitments, and credit risk. Merchant
Services manages risk by maintaining its portfolio within established trading
policy guidelines.
Petroleum Services' revenues increased $165.2 million, or 50 percent, due
primarily to an increase in transportation activities and ethanol sales of $31
million and $133 million, respectively. Revenues from transportation activities
increased due primarily to a 10 percent increase in shipments and a $14 million
increase in product sales. Shipments increased as a result of new business and
the 1995 impacts of unfavorable weather conditions and a fire at a truck-loading
rack. Average length of haul and transportation rate per barrel were slightly
below 1995 due primarily to shorter haul movements. Ethanol revenues increased
following the August 1995 acquisition of Pekin Energy and the fourth-quarter
1995 completion of the Aurora plant. Costs and operating expenses increased $155
million, or 68 percent, due primarily to a full year of ethanol production
activities. Operating profit increased $6.5 million, or 9 percent, due primarily
to increased shipments, partially offset by lower ethanol margins and production
levels as a result of record high corn prices.
Exploration and Production's revenues increased $19.5 million, or 31
percent, due primarily to higher revenues from the marketing of production from
the Williams Coal Seam Gas Royalty Trust (Royalty Trust) and increased
production revenues of $9 million and $8 million, respectively. The increase in
marketing revenues reflects both increased volumes and higher average gas
prices. The increase in production revenues reflects higher average gas prices.
Costs and operating expenses increased $18 million due primarily to higher
Royalty Trust natural gas purchase costs. Other income -- net in 1995 includes
an $8 million loss accrual for a future minimum price natural gas commitment.
Operating profit increased $8.7 million to $2.8 million in 1996 due primarily to
the effect of the $8 million 1995 loss accrual.
Williams Communications Group's revenues increased $172.4 million, or 32
percent, due primarily to the 1996 acquisitions which contributed revenues of
$95 million. Additionally, increased business activity resulted in a $36 million
revenue increase in new systems sales and a $16 million increase in digital
fiber television services. The number of ports in service at December 31, 1996,
increased 8 percent and billable minutes from occasional service increased 16
percent. Dedicated service voice-grade equivalent miles at December 31, 1996,
decreased 6 percent as compared with December 31, 1995, which in part reflects a
shift to occasional service. Costs and operating expenses increased $126
million, or 31 percent, and selling, general and administrative expenses
increased $63 million, or 62 percent, due primarily to the overall increase in
business activity and higher expenses for developing additional products and
services, including the cost of integrating the most recent acquisitions.
Operating profit decreased $18.4 million, or 74 percent, due primarily to the
expenses of developing additional products and services along with integrating
the most recent acquisitions.
General corporate expenses increased $3.7 million, or 10 percent, due
primarily to higher employee compensation expense and consulting fees, partially
offset by the effect of a $5 million contribution in 1995 to The Williams
Companies Foundation. Interest accrued increased $82 million, or 30 percent, due
primarily to higher borrowing levels including debt associated with the January
1996 acquisition of the remaining interest in Kern River (see Note 2), slightly
offset by lower average interest rates. Interest capitalized decreased $7.6
million, or 53 percent, due primarily to lower capital expenditures for
gathering and processing facilities and the 1995 completion of Northwest
Pipeline's mainline expansion. Investing income decreased $75.1 million, or 80
percent, due primarily to the effect of interest earned in 1995 on the invested
portion of the cash proceeds from the sale of Williams' network services
operations, a $15 million dividend in 1995 from Texasgulf Inc. (sold in 1995),
and $31 million lower equity earnings from Williams' 50 percent ownership in
Kern River. Kern River's 1996 operating results are included in operating profit
since the acquisition date (see Note 2). The 1996 gain on sales of assets
results from the sale of certain communication rights. The 1995 loss on sales of
assets results from the sale of the 15 percent interest in Texasgulf Inc. The
1995 write-off of project costs results from the cancellation of an underground
coal gasification project in Wyoming (see Note 6). The $12 million favorable
change in other income (expense) -- net in 1996 is due primarily to the 1995
effect of
F-3
<PAGE> 27
approximately $10 million of minority interest expense associated with the
Transco merger and approximately $10 million of reserve reversals in 1996,
partially offset by higher environmental accruals of $4 million and additional
expense of international activities.
The $81.1 million, or 79 percent, increase in the provision for income
taxes on continuing operations is primarily a result of higher pre-tax income
and a higher effective income tax rate. The increase in the effective income tax
rate is the result of the 1995 recognition of $29.8 million of previously
unrecognized tax benefits realized as a result of the sale of Texasgulf Inc.
(see Note 6). The effective income tax rate in 1996 is less than the federal
statutory rate due primarily to income tax credits from research activities and
coal-seam gas production, partially offset by the effects of state income taxes.
In addition, 1996 includes recognition of favorable adjustments totaling $13
million related to previously provided deferred income taxes on certain
regulated capital projects and state income tax adjustments related to 1995. The
effective income tax rate in 1995 is less than the federal statutory rate due
primarily to income tax credits from coal-seam gas production, partially offset
by the effects of state income taxes and minority interest. In addition, 1995
includes the previously unrecognized tax benefits related to the sale of
Texasgulf Inc. (see Note 6) and recognition of an $8 million income tax benefit
resulting from settlements with taxing authorities (see Note 7).
On January 5, 1995, Williams sold its network services operations to LDDS
Communications, Inc. for $2.5 billion in cash. The sale yielded an after-tax
gain of approximately $1 billion, which is reported as income from discontinued
operations (see Note 3).
Preferred stock dividends decreased $4.9 million, or 32 percent, due
primarily to the 1995 effect of a difference in the fair value of subordinated
debentures issued and the carrying value of the exchanged $2.21 cumulative
preferred stock (see Note 14).
1995 vs. 1994
Northwest Pipeline's revenues increased $16.7 million, or 7 percent, due
primarily to the $16 million reversal of a portion of certain rate refund
accruals and increased transportation rates put into effect in November 1994,
partially offset by the completion in 1994 of billing contract-reformation
surcharges. Mainline throughput increased 22 percent; however, revenues were not
significantly affected due to the effects of the straight-fixed-variable rate
design prescribed by the Federal Energy Regulatory Commission. Operating profit
increased $11.6 million, or 11 percent, due primarily to higher transportation
rates and the approximate $11 million net effect of two reserve accrual
adjustments, partially offset by $5 million, or 13 percent, higher operations
and maintenance expenses. The reserve accrual adjustments involved a $16 million
adjustment to rate refund accruals because of favorable rate case developments,
partially offset by a loss accrual (included in other income -- net) in
connection with a lawsuit involving a former transportation customer.
Williams Natural Gas' revenues decreased $57 million, or 25 percent, and
costs and operating expenses decreased $62 million, or 40 percent, due primarily
to $36 million lower direct billing of purchased gas adjustments and lower
contract-reformation recovery of $21 million. Operating profit decreased $3.8
million, or 8 percent, due primarily to the effect of the 1994 reversal of
excess contract-reformation accruals of $7.4 million (included in other
income -- net) and $3.2 million from lower 1995 average firm reserved capacity,
partially offset by $4.6 million resulting from higher average firm reserved
capacity rates, effective August 1, 1995, and higher storage revenues of $3.7
million.
Transcontinental Gas Pipe Line's revenues were $725.3 million in 1995,
while costs and expenses were $560 million and operating profit was $165
million. Throughput was 1,410.9 TBtu in 1995 (for the period subsequent to the
acquisition date). Transcontinental Gas Pipe Line placed new, higher rates into
effect September 1, 1995, subject to refund. Market-area deliveries in 1995 and
1994 were approximately the same.
Texas Gas Transmission's revenues were $276.3 million in 1995, while costs
and expenses were $212 million and operating profit was $64 million. Throughput
was 653.4 TBtu in 1995 (for the period subsequent to the acquisition date).
Texas Gas placed new, higher rates into effect April 1, 1995, subject to refund.
F-4
<PAGE> 28
Field Services' revenues increased $204.2 million, or 62 percent, due
primarily to $172 million higher gathering revenues. Gathering revenues
increased due primarily to a 102 percent increase in gathering volumes,
including $131 million attributable to Transco Energy's Gulf Coast gathering
operations, combined with an increase in average gathering prices, excluding
Gulf Coast operations. Liquids and processing volumes increased 6 percent and 4
percent, respectively. Costs and operating expenses increased $149 million, or
78 percent, and selling, general and administrative expenses increased $25
million, or 91 percent, with Transco Energy's activities contributing $102
million and $13 million, respectively. In addition, costs and operating expenses
increased due to expanded facilities. Other income -- net for 1995 includes $20
million in operating profit from the favorable resolution of contingency issues
involving previously regulated gathering and processing assets. Operating profit
increased $48.1 million, or 43 percent, primarily resulting from the $20 million
in other income and a doubling of gathering volumes, primarily a result of
Transco Energy's gathering activities. Operating profit in 1994 included
approximately $7 million in favorable settlements and adjustments of certain
prior period accruals, including income of $4 million from an adjustment to
operating taxes.
Merchant Services' revenues and costs and operating expenses decreased
$228.2 million and $289 million, respectively. The addition of Transco Energy's
gas trading activities was more than offset by the reporting of 1995 natural gas
marketing activities on a net-margin basis (see Note 15) and $72 million in
lower petroleum services operations resulting from adverse market conditions.
Natural gas physical trading volumes increased to 754 TBtu in 1995 compared to
148 TBtu in 1994, primarily from the effect of the Transco Energy acquisition.
Selling, general and administrative expenses increased $28 million due primarily
to the increase in trading activity. Operating profit increased $29.8 million
from $3.4 million in 1994. Trading activities' operating profit increased $34
million, attributable primarily to income recognition from long-term natural gas
supply obligations and no-notice service provided to local distribution
companies. Included in trading activities is a price-risk management adjustment
of $4 million from the valuation of certain natural gas supply and sales
contracts previously excluded from trading activities. These increases were
partially offset by $6 million of loss provisions, primarily accruals for
contract disputes, and increased costs of supporting its information services
business.
Petroleum Services' revenues increased $111.2 million, or 51 percent, due
to an increase in transportation activities and ethanol sales of $33 million and
$84 million, respectively. Revenue from transportation activities increased due
primarily to higher shipments and a $15 million increase in product sales.
Shipments, while 7 percent higher than 1994, were reduced by the November 1994
fire at a truck-loading rack and unfavorable weather conditions in the first
half of 1995. The average transportation rate per barrel and average length of
haul were slightly below 1994 due primarily to shorter haul movements. Ethanol
revenues increased following the acquisition of Pekin Energy in August 1995.
Costs and operating expenses increased $93 million, or 69 percent, due primarily
to increased operating expenses associated with transportation and ethanol
activities. Operating profit increased $17.3 million, or 33 percent, due
primarily to increased shipments, higher product sales margins of $4 million, $3
million related to the operations of Pekin Energy and the effect of $5 million
of costs in 1994 for evaluating and determining whether to build an oil refinery
near Phoenix.
Exploration and Production's revenues increased $23.7 million, or 61
percent, due primarily to $35 million higher revenue from the marketing of
production from the Royalty Trust and a 14 percent increase in production
volumes, partially offset by a decrease in average gas sales prices. Costs and
operating expenses increased $33 million due primarily to higher Royalty Trust
natural gas purchase costs. Other income -- net in 1995 includes an $8 million
loss accrual for a future minimum price natural gas commitment. Operating profit
decreased $19.5 million to a $5.9 million operating loss in 1995 due primarily
to the $8 million loss accrual, lower average gas sales prices and $3 million
higher selling, general and administrative expenses.
Williams Communications Group's revenues increased $122.3 million, or 29
percent, due primarily to $30 million from new systems, $28 million from
existing system enhancements, $37 million from contract maintenance, moves, adds
and changes, and $15 million in digital fiber television services. These amounts
include the effect of the acquisitions of BellSouth Communications Systems in
March 1994 and Jackson Voice Data, completed in October 1994. The number of
ports in service at December 31, 1995, increased 14 percent, billable minutes
from occasional service increased 110 percent and dedicated service voice-grade
F-5
<PAGE> 29
equivalent miles at December 31, 1995, increased 50 percent as compared with
December 31, 1994. Costs and operating expenses increased $84 million, or 26
percent, and selling, general and administrative expenses increased $21 million,
or 27 percent, due primarily to the overall increase in volume of sales and
services and higher expenses for developing additional products and services.
Operating profit increased $17.4 million from $7.6 million in 1994 due primarily
to increased activity in new system sales, enhancements to existing systems,
maintenance, digital television services and the full-year 1995 impact of two
1994 acquisitions.
General corporate expenses increased $9.7 million, or 35 percent, due
primarily to a $6.4 million increase in charitable contributions, including $5
million to The Williams Companies Foundation. Interest accrued increased $132.1
million, or 91 percent, due primarily to the $2 billion outstanding debt assumed
as a result of the Transco Energy acquisition. Interest capitalized increased
$8.5 million, or 143 percent, due primarily to increased expenditures for
gathering and processing facilities and Northwest Pipeline's expansion projects.
Investing income increased $44.3 million, or 89 percent, due primarily to
interest earned on the invested portion of the cash proceeds from the sale of
Williams' network services operations in addition to an $11 million increase in
the dividend from Texasgulf Inc. The 1995 loss on sales of assets results from
the sale of the 15 percent interest in Texasgulf Inc. The 1994 gain on sales of
assets results from the sale of 3,461,500 limited partner common units in
Northern Border Partners, L.P. The 1995 write-off of project costs results from
the cancellation of an underground coal gasification project in Wyoming (see
Note 6). Other income (expense) -- net in 1995 includes approximately $10
million of minority interest expense associated with the Transco Energy merger,
$4 million of dividends on subsidiary preferred stock and $4 million of losses
on sales of receivables, partially offset by $11 million of equity allowance for
funds used during construction (AFUDC). Other income (expense) -- net in 1994
includes a credit for $4.8 million from the reversal of previously accrued
liabilities associated with certain Royalty Trust contingencies that expired.
Also included is approximately $4 million of expense related to Statement of
Financial Accounting Standards (FAS) No. 112, "Employers' Accounting for
Postemployment Benefits," which relates to postemployment benefits being paid to
employees of companies previously sold.
The $20.3 million, or 25 percent, increase in the provision for income
taxes on continuing operations is primarily a result of higher pre-tax income,
partially offset by a lower effective income tax rate resulting from $29.8
million of previously unrecognized tax benefits realized as a result of the sale
of Texasgulf Inc. (see Note 6) and an $8 million income tax benefit resulting
from settlements with taxing authorities. The effective income tax rate in 1995
is significantly less than the federal statutory rate, due primarily to the
previously unrecognized tax benefits realized as a result of the sale of the
investment in Texasgulf Inc., income tax credits from coal-seam gas production
and recognition of an $8 million income tax benefit resulting from settlements
with taxing authorities, partially offset by the effects of state income taxes
and minority interest. The effective income tax rate in 1994 is lower than the
statutory rate primarily because of income tax credits from coal-seam gas
production, partially offset by state income taxes (see Note 7).
On January 5, 1995, Williams sold its network services operations to LDDS
Communications, Inc. for $2.5 billion in cash. The sale yielded an after-tax
gain of approximately $1 billion, which is reported as income from discontinued
operations. Prior period operating results for the network services operations
are reported as discontinued operations (see Note 3).
The 1994 extraordinary loss results from the early extinguishment of debt
(see Note 8).
Preferred stock dividends increased $6.5 million as a result of the May
1995 issuance of 2.5 million shares of Williams $3.50 cumulative convertible
preferred stock in exchange for Transco Energy's $3.50 cumulative convertible
preferred stock (see Note 14) in addition to the $3.5 million premium on
exchange of $2.21 cumulative preferred stock for debentures.
FINANCIAL CONDITION AND LIQUIDITY
Liquidity
Williams considers its liquidity to come from two sources: internal
liquidity, consisting of available cash investments, and external liquidity,
consisting of borrowing capacity from available bank-credit facilities,
F-6
<PAGE> 30
which can be utilized without limitation under existing loan covenants. At
December 31, 1996, Williams had access to $550 million of liquidity representing
the available portion of its $1 billion bank-credit facility plus
cash-equivalent investments. This compares with liquidity of $656 million at
December 31, 1995, and $495 million at December 31, 1994. The decrease in 1996
is due primarily to additional borrowings under the bank-credit facility,
partially offset by a $200 million increase in the capacity of the bank-credit
facility (see Note 13). At December 31, 1996, $200 million in current debt
obligations have been classified as non-current obligations based on Williams'
intent and ability to refinance on a long-term basis. At December 31, 1996, the
amount available on the $1 billion bank-credit facility of $500 million is
sufficient to complete these refinancings. In January 1997, Williams filed a
$200 million shelf registration statement with the Securities and Exchange
Commission to issue trust preferred securities. During 1996, Williams Holdings
of Delaware, Inc., a wholly-owned subsidiary of Williams, filed a $400 million
shelf registration statement with the Securities and Exchange Commission and
issued $250 million of debt securities. During 1993, Williams filed a $300
million shelf registration statement with the Securities and Exchange
Commission, increasing the total amount available to $400 million. The
registration statement may be used to issue Williams common or preferred stock,
preferred stock purchase rights, debt securities, warrants to purchase Williams
common stock or warrants to purchase debt securities. In addition, short-term
uncommitted bank lines are utilized in managing liquidity. Williams believes any
additional financing arrangements can be obtained on reasonable terms if
required.
Williams had a net working-capital deficit of $309 million at December 31,
1996, compared with $715 million at December 31, 1995. Williams manages its
borrowings to keep cash and cash equivalents at a minimum and has relied on
bank-credit facilities to provide flexibility for its cash needs. As a result,
it historically has reported negative working capital. The decrease in the
working-capital deficit at December 31, 1996, as compared to the prior year-end
is primarily a result of higher 1996 levels of receivables.
Terms of certain borrowing agreements limit transfer of funds to Williams
from its subsidiaries. The restrictions have not impeded, nor are they expected
to impede, Williams' ability to meet its cash requirements in the future.
During 1997, Williams expects to finance capital expenditures, investments
and working-capital requirements through cash generated from operations and the
use of the available portion of its $1 billion bank-credit facility, short-term
uncommitted bank lines or public debt/equity offerings.
Operating Activities
Cash provided by operating activities was: 1996 -- $710 million;
1995 -- $829 million; and 1994 -- $349 million. The increase in receivables,
commodity trading assets and accounts payable is due primarily to increased
trading activities by Williams Energy Group's Merchant Services. The increase in
property, plant and equipment primarily reflects the consolidation of Kern River
following the January 1996 acquisition (see Note 2).
Financing Activities
Net cash provided (used) by financing activities was: 1996 -- $734 million;
1995 -- ($1.4) billion; and 1994 -- $50 million. Long-term debt proceeds, net of
principal payments were $609 million during 1996. Long-term debt principal
payments net of debt proceeds were $610 million during 1995. Long-term debt
proceeds, net of principal payments and early extinguishment of debt were $24
million during 1994. The increase in net new borrowings during 1996 was
primarily to fund capital expenditures, investments and acquisitions of
businesses.
The majority of the proceeds from issuance of common stock in 1996 resulted
from Williams benefit plan stock purchases and exercise of stock options under
Williams' stock plan. The 1995 proceeds from issuance of common stock includes
$46.2 million from the sale of 1.8 million shares of Williams common stock, held
by a subsidiary of Williams and previously classified as treasury stock in the
Consolidated Balance Sheet, in addition to Williams benefit plan stock purchases
and exercise of stock options under Williams' stock plans.
F-7
<PAGE> 31
The majority of the proceeds from issuance of common stock in 1994 resulted from
Williams benefit plan stock purchases and exercise of stock options under
Williams' stock plan (see Note 14).
The 1996 purchases of Williams' treasury stock include 957,750 shares of
common stock on the open market for $31 million. The Williams board of directors
has authorized up to $800 million of such purchases. During 1994, Williams and
one of its subsidiaries purchased 20.7 million shares of Williams common stock
on the open market for $407 million. Substantially all of the purchases were
financed with a $400 million bank-credit agreement. In 1995, the outstanding
amounts under the credit agreement were repaid from the proceeds of the sale of
Williams' network services operations, and the credit agreement was terminated.
Williams also repurchased 96,300, 142,800 and 258,800 shares of its $2.21
cumulative preferred stock on the open market for $3 million, $4 million and $6
million in 1996, 1995 and 1994, respectively.
On January 18, 1995, Williams acquired 60 percent of Transco Energy's
outstanding common stock in a cash tender offer for $430.5 million. Williams
acquired the remaining 40 percent of Transco Energy's outstanding common stock
on May 1, 1995, through a merger by exchanging the remaining Transco Energy
common stock for approximately 15.6 million shares of Williams common stock
valued at $334 million. Additionally, $2.3 billion in preferred stock and debt
obligations of Transco Energy was assumed by Williams. Williams made payments to
retire and/or terminate approximately $700 million of Transco Energy's
borrowings, preferred stock, interest-rate swaps and sale of receivable
facilities. As part of the merger, Williams exchanged Transco Energy's $3.50
cumulative convertible preferred stock for Williams' $3.50 cumulative
convertible preferred stock (see Note 2). The cash portion of the acquisition
and the payments to retire and/or terminate various Transco Energy facilities
were financed with the proceeds from the sale of Williams' network services
operations (see Note 3).
During 1995, Williams exchanged 2.8 million shares of its $2.21 cumulative
preferred stock with a carrying value of $69 million for 9.6 percent debentures
with a fair value of $72.5 million (see Note 14).
Long-term debt at December 31, 1996, was $4.4 billion, compared with $2.9
billion at December 31, 1995, and $1.3 billion at December 31, 1994. At December
31, 1996, $200 million in current debt obligations have been classified as
non-current obligations based on Williams' intent and ability to refinance on a
long-term basis. The 1996 increase in long-term debt is due primarily to the
$643 million outstanding debt assumed with the acquisition of Kern River (see
Note 2), $300 million in additional borrowings under the $1 billion bank-credit
facility and $250 million of debt issued by Williams Holdings. The 1995 increase
in long-term debt is due primarily to the $2 billion outstanding debt assumed as
a result of the Transco Energy acquisition. The long-term debt to
debt-plus-equity ratio was 56.1 percent at year-end, compared with 47.4 percent
and 46.5 percent at December 31, 1995 and 1994, respectively. Included in
long-term debt due within one year at December 31, 1994, was $350 million
outstanding under Williams' revolving credit facility.
See Note 8 for information regarding early extinguishment of debt by
Williams and one of its subsidiaries during 1994.
Investing Activities
Net cash provided (used) by investing activities was: 1996 -- ($1.4)
billion; 1995 -- $585 million; and 1994 -- ($427) million. Capital expenditures
of pipeline subsidiaries, primarily to expand and modernize systems, were $441
million in 1996; $445 million in 1995; and $96 million in 1994. Expenditures in
1996 include Transcontinental Gas Pipe Line's expansion; expenditures in 1995
include Transcontinental Gas Pipe Line and Northwest Pipeline's expansions; and
expenditures in 1994 include Northwest Pipeline's additional mainline expansion.
Capital expenditures of Williams Energy Group, primarily to expand and modernize
gathering and processing facilities, were $292 million in 1996; $336 million in
1995; and $214 million in 1994. Capital expenditures for discontinued operations
were $143 million in 1994, primarily to expand and enhance Williams' network
services operations network. Budgeted capital expenditures and investments for
1997 are approximately $1.7 billion, primarily to expand pipeline systems,
gathering and processing facilities and the fiber-optic network.
F-8
<PAGE> 32
On January 16, 1996, Williams acquired the remaining interest in Kern River
for $206 million in cash (see Note 2). In addition, during 1996 Williams
acquired various communications technology businesses totaling $165 million in
cash. During 1995, in addition to the Transco Energy acquisition (see Note 2),
Williams acquired the Gas Company of New Mexico's natural gas gathering and
processing assets in the San Juan and Permian basins for $154 million (including
approximately 10 percent of which was immediately sold to a third party) and
Pekin Energy Co., the nation's second largest ethanol producer, for $167 million
in cash.
During 1996, Williams received proceeds of $23 million from the sale of
certain communications rights. During 1995, Williams received proceeds of $124
million from the sale of its 15 percent interest in Texasgulf Inc. During 1994,
Williams received net proceeds of $80 million from the sale of limited partner
units in Northern Border Partners, L.P. (see Note 6).
EFFECTS OF INFLATION
Williams has experienced increased costs in recent years due to the effects
of inflation. However, approximately 62 percent of Williams' property, plant and
equipment was acquired or constructed during 1996 and 1995. A substantial
portion of Williams' property, plant and equipment is subject to regulation,
which limits recovery to historical cost. While Williams believes it will be
allowed the opportunity to earn a return based on the actual cost incurred to
replace existing assets, competition or other market factors may limit the
ability to recover such increased costs.
ENVIRONMENTAL
Williams is a participant in certain environmental activities in various
stages involving assessment studies, cleanup operations and/or remedial
processes. The sites, some of which are not currently owned by Williams (see
Note 17), are being monitored by Williams, other potentially responsible
parties, the U.S. Environmental Protection Agency (EPA), or other governmental
authorities in a coordinated effort. In addition, Williams maintains an active
monitoring program for its continued remediation and cleanup of certain sites
connected with its refined products pipeline activities. Williams has both joint
and several liability in some of these activities and sole responsibility in
others. Current estimates of the most likely costs of such cleanup activities,
after payments by other parties, are approximately $80 million, all of which is
accrued at December 31, 1996. Williams expects to seek recovery of approximately
$42 million of the accrued costs through future natural gas transmission rates.
Williams will fund these costs from operations and/or available bank-credit
facilities. The actual costs incurred will depend on the final amount, type and
extent of contamination discovered at these sites, the final cleanup standards
mandated by the EPA or other governmental authorities, and other factors.
F-9
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-11
Consolidated Statement of Income............................ F-12
Consolidated Balance Sheet.................................. F-14
Consolidated Statement of Stockholders' Equity.............. F-15
Consolidated Statement of Cash Flows........................ F-16
Notes to Consolidated Financial Statements.................. F-17
Quarterly Financial Data (Unaudited)........................ F-43
</TABLE>
F-10
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
To The Stockholders of
The Williams Companies, Inc.
We have audited the accompanying consolidated balance sheet of The Williams
Companies, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Williams Companies, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 10, 1997
F-11
<PAGE> 35
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995* 1994*
-------- -------- --------
(MILLIONS, EXCEPT
PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Williams Interstate Natural Gas Systems (Note 4).......... $1,675.2 $1,431.1 $ 469.8
Williams Energy Group (Note 4)............................ 1,453.1 1,077.4 966.5
Williams Communications Group............................. 711.3 538.9 416.6
Other..................................................... 48.0 17.4 --
Intercompany eliminations (Note 16)....................... (356.4) (209.1) (101.8)
-------- -------- --------
Total revenues.................................... 3,531.2 2,855.7 1,751.1
-------- -------- --------
Profit-center costs and expenses:
Costs and operating expenses.............................. 2,064.1 1,700.7 1,187.7
Selling, general and administrative expenses.............. 585.5 488.8 229.2
Other income -- net....................................... (19.8) (4.5) (8.1)
-------- -------- --------
Total profit-center costs and expenses............ 2,629.8 2,185.0 1,408.8
-------- -------- --------
Operating profit:
Williams Interstate Natural Gas Systems (Note 4).......... 562.4 389.7 152.9
Williams Energy Group (Note 4)............................ 332.3 257.5 181.8
Williams Communications Group............................. 6.6 25.0 7.6
Other..................................................... .1 (1.5) --
-------- -------- --------
Total operating profit............................ 901.4 670.7 342.3
General corporate expenses.................................. (41.4) (37.7) (28.0)
Interest accrued............................................ (359.9) (277.9) (145.8)
Interest capitalized........................................ 6.9 14.5 6.0
Investing income (Note 5)................................... 18.8 93.9 49.6
Gain (loss) on sales of assets (Note 6)..................... 15.7 (12.6) 22.7
Write-off of project costs (Note 6)......................... -- (41.4) --
Other income (expense) -- net............................... 3.9 (8.1) (.2)
-------- -------- --------
Income from continuing operations before income taxes....... 545.4 401.4 246.6
Provision for income taxes (Note 7)......................... 183.1 102.0 81.7
-------- -------- --------
Income from continuing operations........................... 362.3 299.4 164.9
Income from discontinued operations (Note 3)................ -- 1,018.8 94.0
-------- -------- --------
Income before extraordinary loss............................ 362.3 1,318.2 258.9
Extraordinary loss (Note 8)................................. -- -- (12.2)
-------- -------- --------
Net income.................................................. 362.3 1,318.2 246.7
Preferred stock dividends (Note 14)......................... 10.4 15.3 8.8
-------- -------- --------
Income applicable to common stock........................... $ 351.9 $1,302.9 $ 237.9
======== ======== ========
</TABLE>
- ---------------
* Certain amounts have been restated or reclassified as described in Note 1.
See accompanying notes.
F-12
<PAGE> 36
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME (CONCLUDED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995* 1994*
------ ------ ------
<S> <C> <C> <C>
Primary earnings per common and common-equivalent share
(Notes 1, 3 and 8):
Income from continuing operations...................... $2.17 $1.86 $1.02
Income from discontinued operations.................... -- 6.65 .61
----- ----- -----
Income before extraordinary loss....................... 2.17 8.51 1.63
Extraordinary loss..................................... -- -- (.08)
----- ----- -----
Net income............................................. $2.17 $8.51 $1.55
===== ===== =====
Fully diluted earnings per common and common-equivalent
share
(Notes 1, 3 and 8):
Income from continuing operations...................... $2.14 $1.84 $1.02
Income from discontinued operations.................... -- 6.48 .61
----- ----- -----
Income before extraordinary loss....................... 2.14 8.32 1.63
Extraordinary loss..................................... -- -- (.08)
----- ----- -----
Net income............................................. $2.14 $8.32 $1.55
===== ===== =====
</TABLE>
- ---------------
* Amounts have been restated as described in Note 1.
See accompanying notes.
F-13
<PAGE> 37
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
----------- -----------
(DOLLARS IN MILLIONS, EXCEPT
PER-SHARE AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 115.3 $ 90.4
Receivables less allowance of $9.7 ($11.3 in 1995)........ 952.9 525.0
Transportation and exchange gas receivable................ 117.7 152.3
Inventories (Note 10)..................................... 204.6 189.0
Commodity trading assets (Note 15)........................ 147.2 66.8*
Deferred income taxes (Note 7)............................ 199.5 213.9
Other..................................................... 152.9 140.3*
--------- ---------
Total current assets.............................. 1,890.1 1,377.7
Investments (Note 5)........................................ 190.6 307.6
Property, plant and equipment -- net (Note 11).............. 9,386.3 8,014.7
Other assets and deferred charges........................... 951.8 861.2*
--------- ---------
Total assets...................................... $12,418.8 $10,561.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 13)................................... $ 269.5 $ --
Accounts payable (Note 12)................................ 683.3 472.0
Transportation and exchange gas payable................... 73.7 127.8
Accrued liabilities (Note 12)............................. 975.3 1,086.2*
Commodity trading liabilities (Note 15)................... 137.9 87.2*
Long-term debt due within one year (Note 13).............. 59.6 319.9
--------- ---------
Total current liabilities......................... 2,199.3 2,093.1
Long-term debt (Note 13).................................... 4,376.9 2,874.0
Deferred income taxes (Note 7).............................. 1,626.6 1,568.2
Other liabilities........................................... 795.0 838.8*
Contingent liabilities and commitments (Note 17)
Stockholders' equity (Note 14):
Preferred stock, $1 par value, 30,000,000 shares
authorized, 3,241,552 shares issued in 1996 and
3,739,452 shares issued in 1995........................ 161.0 173.5
Common stock, $1 par value, 240,000,000 shares authorized,
160,214,163 shares issued in 1996 and 158,006,922
shares issued in 1995.................................. 160.2 158.0
Capital in excess of par value............................ 1,047.7 998.4
Retained earnings......................................... 2,119.5 1,915.6
Unamortized deferred compensation......................... (2.2) (2.3)
--------- ---------
3,486.2 3,243.2
Less treasury stock (at cost), 2,737,337 shares of common
stock in 1996, 2,359,804 shares of common stock in 1995
and 401,600 shares of preferred stock in 1995.......... (65.2) (56.1)
--------- ---------
Total stockholders' equity........................ 3,421.0 3,187.1
--------- ---------
Total liabilities and stockholders' equity........ $12,418.8 $10,561.2
========= =========
</TABLE>
- ---------------
* Reclassified to conform to current classifications.
See accompanying notes.
F-14
<PAGE> 38
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN UNAMORTIZED
PREFERRED COMMON EXCESS OF RETAINED DEFERRED TREASURY
STOCK STOCK PAR VALUE EARNINGS COMPENSATION STOCK TOTAL
--------- ------ ---------- -------- ------------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.............. $100.0 $154.6 $ 907.6 $ 563.7 $(1.9) $ -- $1,724.0
Net income -- 1994...................... -- -- -- 246.7 -- -- 246.7
Cash dividends --
Common stock ($.56 per share)......... -- -- -- (85.1) -- -- (85.1)
Preferred stock (Note 14)............. -- -- -- (8.8) -- -- (8.8)
Issuance of shares --
2,394,613 common...................... -- 2.0 29.4 -- (1.3) 8.1 38.2
Purchase of treasury stock --
20,685,133 common..................... -- -- -- -- -- (406.8) (406.8)
258,800 preferred..................... -- -- -- -- -- (6.4) (6.4)
Tax benefit of stock-based awards....... -- -- 1.8 -- -- -- 1.8
Amortization of deferred compensation... -- -- -- -- 1.9 -- 1.9
------ ------ -------- -------- ----- ------- --------
Balance, December 31, 1994.............. 100.0 156.6 938.8 716.5 (1.3) (405.1) 1,505.5
Net income -- 1995...................... -- -- -- 1,318.2 -- -- 1,318.2
Cash dividends --
Common stock ($.72 per share)......... -- -- -- (107.2) -- -- (107.2)
Preferred stock (Note 14)............. -- -- -- (11.9) -- -- (11.9)
Issuance of shares --
19,319,881 common..................... -- 1.4 58.3 -- (1.7) 352.7 410.7
2,500,000 preferred................... 142.5 -- -- -- -- -- 142.5
Exchange of shares for debentures --
2,760,548 preferred (Note 14)......... (69.0) -- (3.5) -- -- -- (72.5)
Purchase of treasury stock --
142,800 preferred..................... -- -- -- -- -- (3.7) (3.7)
Tax benefit of stock-based awards....... -- -- 4.8 -- -- -- 4.8
Amortization of deferred compensation... -- -- -- -- .7 -- .7
------ ------ -------- -------- ----- ------- --------
Balance, December 31, 1995.............. 173.5 158.0 998.4 1,915.6 (2.3) (56.1) 3,187.1
Net income -- 1996...................... -- -- -- 362.3 -- -- 362.3
Cash dividends --
Common stock ($.94 per share)......... -- -- -- (148.0) -- -- (148.0)
Preferred stock (Note 14)............. -- -- -- (10.4) -- -- (10.4)
Issuance of shares --
2,787,458 common...................... -- 2.2 33.6 -- (.6) 12.0 47.2
Purchase of treasury stock --
957,750 common........................ -- -- -- -- -- (31.3) (31.3)
96,300 preferred...................... -- -- -- -- -- (2.6) (2.6)
Retirement of treasury stock --
497,900 preferred..................... (12.5) -- (.3) -- -- 12.8 --
Tax benefit of stock-based awards....... -- -- 16.0 -- -- -- 16.0
Amortization of deferred compensation... -- -- -- -- .7 -- .7
------ ------ -------- -------- ----- ------- --------
Balance, December 31, 1996.............. $161.0 $160.2 $1,047.7 $2,119.5 $(2.2) $ (65.2) $3,421.0
====== ====== ======== ======== ===== ======= ========
</TABLE>
Note: Certain amounts have been restated to reflect the December 30, 1996
three-for-two common stock split and distribution.
See accompanying notes.
F-15
<PAGE> 39
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- -------
(MILLIONS)
<S> <C> <C> <C>
Operating Activities:
Net income............................ $ 362.3 $ 1,318.2 $ 246.7
Adjustments to reconcile to cash
provided from operations:
Discontinued operations............. -- (1,018.8) (94.0)
Extraordinary loss.................. -- -- 12.2
Depreciation and depletion.......... 411.4 369.4 150.3
Provision for deferred income
taxes.............................. 72.4 125.4 25.8
Write-off of project costs.......... -- 41.4 --
(Gain) loss on dispositions of
property, plant and equipment...... (30.7) (2.1) .9
(Gain) loss on sale of assets....... (15.7) 12.6 (22.7)
Changes in receivables sold......... (13.1) 55.9 --
Changes in receivables.............. (214.2) 33.2 (175.0)
Changes in inventories.............. (16.1) 11.9 10.2
Changes in other current assets..... 3.8 1.1* 13.8*
Changes in accounts payable......... 204.0 (6.5) 20.7
Changes in accrued liabilities...... (24.9) (33.4)* 7.3*
Changes in current commodity trading
assets and liabilities............. (29.7) 28.1* (15.9)*
Changes in non-current commodity
trading assets and liabilities..... (37.7) (82.1)* (2.4)
Other, including changes in
non-current assets and
liabilities........................ 38.6 (25.6) 1.7
--------- --------- -------
Net cash provided by continuing
operations...................... 710.4 828.7 179.6
Net cash provided by
discontinued operations......... -- -- 169.4
--------- --------- -------
Net cash provided by operating
activities...................... 710.4 828.7 349.0
--------- --------- -------
Financing Activities:
Proceeds from notes payable........... 356.8 116.8 507.0
Payments of notes payable............. (87.3) (623.8) --
Proceeds from long-term debt.......... 1,996.7 399.0 480.0
Payments of long-term debt............ (1,387.7) (1,009.4) (456.5)
Proceeds from issuance of common
stock............................... 54.3 78.1 26.4
Purchases of treasury stock........... (33.9) (3.7) (413.2)
Dividends paid........................ (158.4) (119.1) (93.9)
Subsidiary preferred stock
redemptions......................... -- (193.7) --
Other -- net.......................... (6.3) (3.5) --
--------- --------- -------
Net cash provided (used) by
financing activities............ 734.2 (1,359.3) 49.8
--------- --------- -------
</TABLE>
Investing Activities:
Property, plant and equipment:
Capital expenditures:
Continuing operations............. (818.9) (827.5) (325.5)
Discontinued operations........... -- -- (142.8)
Proceeds from dispositions.......... 60.2 28.2 1.6
Acquisition of businesses, net of cash
acquired............................ (366.2) (858.9) (56.5)
Proceeds from sales of businesses..... -- 2,588.3 --
Income tax and other payments related
to discontinued operations.......... (261.7) (350.4) (1.5)
Proceeds from sales of assets......... 23.0 125.1 80.6
Purchase of investments/advances to
affiliates.......................... (76.9) (49.7) (3.3)
Purchase of note receivable........... -- (75.1) --
Other -- net.......................... 20.8 4.9 20.4
--------- --------- -------
Net cash provided (used) by
investing activities............ (1,419.7) 584.9 (427.0)
--------- --------- -------
Increase (decrease) in cash and
cash equivalents................ 24.9 54.3 (28.2)
Cash and cash equivalents at beginning
of year............................... 90.4 36.1 64.3
--------- --------- -------
Cash and cash equivalents at end of
year.................................. $ 115.3 $ 90.4 $ 36.1
========= ========= =======
- ---------------
* Reclassified to conform to current classifications.
See accompanying notes.
F-16
<PAGE> 40
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Operations of The Williams Companies, Inc. (Williams) are located in the
United States and are organized into three operating groups as follows: Williams
Interstate Natural Gas Systems, which is comprised of five interstate natural
gas pipelines located in the eastern, midsouth, Gulf Coast, midwest and
northwest regions; Williams Energy Group, which is comprised of natural gas
gathering and processing facilities in the Rocky Mountain, midwest and Gulf
Coast regions, energy commodity trading and price-risk management activities
throughout the United States, a petroleum products pipeline in the midwest
region, and hydrocarbon exploration and production activities in the Rocky
Mountain and Gulf Coast regions; and Williams Communications Group, which
includes Williams' national data, voice, video and Internet communication
products and network integration services and fiber-optic and satellite
multimedia transmission services. Additional information about these businesses
is contained throughout the following notes.
Basis of presentation
Williams Energy Group is comprised of four units. Field Services includes
Williams' natural gas gathering and processing activities previously reported in
Williams Field Services Group. Merchant Services includes Williams' energy
commodity trading and price-risk management activities previously reported in
Williams Energy Services. Certain natural gas and natural gas liquids marketing
operations formerly reported in Williams Field Services Group are also included
in Merchant Services. Petroleum Services includes Williams' interstate petroleum
products pipeline, ethanol-producing facilities and petroleum terminals
previously reported in Williams Pipe Line. Exploration and Production includes
exploration for and production of hydrocarbons previously reported as a
component of Williams Field Services Group. Williams Communications Group is the
combination of WilTel and WilTech Group, previously reported separately.
Revenues and operating profit amounts for 1995 and 1994 have been reclassified
to conform to current year classifications.
Revenues and operating profit amounts include the operating results of Kern
River Gas Transmission Company (Kern River) since the January 16, 1996,
acquisition by Williams of the remaining interest (see Note 2). Prior to this
acquisition, Williams accounted for its 50 percent ownership in Kern River using
the equity method of accounting, with its share of equity earnings recorded in
investing income.
Revenues and operating profit amounts include the operating results of
Transco Energy Company (Transco Energy) since its January 18, 1995, acquisition
by Williams (see Note 2). The transportation operations from Transco Energy's
two interstate natural gas pipelines are reported separately within Williams
Interstate Natural Gas Systems. Transco Energy's gas gathering operations are
included in Field Services, and its gas marketing operations are included in
Merchant Services.
Principles of consolidation
The consolidated financial statements include the accounts of Williams and
its majority-owned subsidiaries. Companies in which Williams and its
subsidiaries own 20 percent to 50 percent of the voting common stock, or
otherwise exercise sufficient influence over operating and financial policies of
the company, are accounted for under the equity method.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-17
<PAGE> 41
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and cash equivalents
Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.
Transportation and exchange gas imbalances
In the course of providing transportation services to customers, the
natural gas pipelines may receive different quantities of gas from shippers than
the quantities delivered on behalf of those shippers. Additionally, the
pipelines and other Williams subsidiaries transport gas on various pipeline
systems which may deliver different quantities of gas on their behalf than the
quantities of gas received. These transactions result in gas transportation and
exchange imbalance receivables and payables which are recovered or repaid in
cash or through the receipt or delivery of gas in the future. Settlement of
imbalances requires agreement between the pipelines and shippers as to
allocations of volumes to specific transportation contracts and timing of
delivery of gas based on operational conditions. Transcontinental Gas Pipe
Line's imbalances predating August 1, 1991, are being recovered or repaid in
cash or through the receipt or delivery of gas upon agreements of allocation.
Inventory valuation
Inventories are stated at cost, which is not in excess of market, except
for those held by Merchant Services, which are primarily stated at market.
Inventories of natural gas are determined using the last-in, first-out (LIFO)
method by Transcontinental Gas Pipe Line and the average-cost method by other
subsidiaries. Except for Merchant Services, inventories of petroleum products
are determined using average cost. The cost of materials and supplies
inventories is determined using the first-in, first-out method (FIFO) by
Williams Communications Group and principally using the average-cost method by
other subsidiaries.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation is provided
primarily on the straight-line method over estimated useful lives. Gains or
losses from the ordinary sale or retirement of property, plant and equipment for
regulated pipeline subsidiaries are credited or charged to accumulated
depreciation; other gains or losses are recorded in net income.
Treasury stock
Treasury stock purchases are accounted for under the cost method whereby
the entire cost of the acquired stock is recorded as treasury stock. Gains and
losses on the subsequent reissuance of shares are credited or charged to capital
in excess of par value using the average-cost method.
Revenue recognition
Revenues generally are recorded when services have been performed or
products have been delivered. Petroleum Services bills customers when products
are shipped and defers the estimated revenues for shipments in transit. Williams
interstate natural gas pipelines recognize revenues based upon contractual terms
and the related transportation volumes through month-end. These pipelines are
subject to Federal Energy Regulatory Commission (FERC) regulations and,
accordingly, certain revenues are subject to possible refunds pending final FERC
orders. Williams records rate refund accruals based on management's estimate of
the expected outcome of these proceedings.
Commodity price-risk management activities
Merchant Services has trading operations that enter into energy-related
financial instruments (forward contracts, futures contracts, option contracts
and swap agreements) to provide price-risk management services
F-18
<PAGE> 42
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to its third-party customers. This operation also enters into short- and
long-term energy-related purchase and sale commitments as part of its trading
business. All of these investments and commitments are valued at market and are
recorded in commodity trading assets, other assets and deferred charges,
commodity trading liabilities and other liabilities in the Consolidated Balance
Sheet. The change in unrealized market gains and losses is recognized in income
currently and is recorded as revenues in the Consolidated Statement of Income.
Such market values are subject to change in the near term and reflect
management's best estimate of market prices considering various factors
including closing exchange and over-the-counter quotations, the terms of the
contract, credit considerations, time value and volatility factors underlying
the positions. Merchant Services reports its trading operations sales of natural
gas, refined products and crude oil net of the related costs to purchase such
items, consistent with mark-to-market accounting for such trading activities.
Certain Merchant Services' natural gas, natural gas liquids and refined
product marketing revenues previously reported in Williams Field Services Group
and/or Williams Pipe Line were not included in trading operations and therefore
are not reported net of related costs to purchase such items.
Other Williams operations enter into energy-related financial instruments
(primarily futures contracts, option contracts and swap agreements) to hedge
against market price fluctuations of certain commodity inventories and sales and
purchase commitments. Unrealized and realized gains and losses on these hedge
contracts are deferred and recognized in income when the related hedged item is
recognized. These contracts are regularly evaluated to determine that there is a
high correlation between changes in the market value of the hedge contract and
fair value of the hedged item.
Capitalization of interest
Williams capitalizes interest on major projects during construction.
Interest is capitalized on borrowed funds and, where regulation by the FERC
exists, on internally generated funds. The rates used by regulated companies are
calculated in accordance with FERC rules. Rates used by unregulated companies
approximate the average interest rate on related debt. Interest capitalized on
internally generated funds is included in other income (expense) -- net.
Employee stock-based awards
Employee stock-based awards are accounted for under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Williams' fixed plan common stock options do not result in
compensation expense, because the exercise price of the stock options equals the
market price of the underlying stock on the date of grant.
Income taxes
Williams includes the operations of its subsidiaries in its consolidated
federal income tax return. Deferred income taxes are computed using the
liability method and are provided on all temporary differences between the
financial basis and the tax basis of Williams' assets and liabilities.
Earnings per share
Primary earnings per share are based on the sum of the average number of
common shares outstanding and common-share equivalents resulting from stock
options and deferred shares. Fully diluted earnings per share for 1996 and 1995
assumes conversion of the $3.50 convertible preferred stock into common stock
effective May 1, 1995. Shares used in determination of primary earnings per
share are as follows (in thousands): 1996 -- 162,118; 1995 -- 153,069; and
1994 -- 153,704. Shares used in determination of fully diluted earnings per
share are as follows (in thousands): 1996 -- 168,199; 1995 -- 157,280; and
1994 --
F-19
<PAGE> 43
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
153,753. The number of shares for 1995 and 1994 have been restated to reflect
the effect of a three-for-two common stock split and distribution (see Note 14).
NOTE 2 -- ACQUISITIONS
On January 16, 1996, Williams acquired the remaining interest in Kern River
for $206 million in cash. The acquisition was accounted for as a purchase, and
the acquired assets and liabilities have been recorded based on an allocation of
the purchase price, with substantially all of the cost in excess of Kern River's
historical carrying value allocated to property, plant and equipment.
On January 18, 1995, Williams acquired 60 percent of Transco Energy's
outstanding common stock in a cash tender offer for $430.5 million. Williams
acquired the remaining 40 percent of Transco Energy's outstanding common stock
on May 1, 1995, through a merger by exchanging the remaining Transco Energy
common stock for approximately 15.6 million shares of Williams common stock
valued at $334 million. The acquisition was accounted for as a purchase with 60
percent of Transco Energy's results of operations included in Williams'
Consolidated Statement of Income for the period January 18, 1995, through April
30, 1995, and 100 percent included beginning May 1, 1995. The purchase price,
including transaction fees and other related costs, was approximately $800
million, excluding $2.3 billion in preferred stock and debt obligations of
Transco Energy. The acquired assets and liabilities were recorded based on an
allocation of the purchase price with substantially all of the cost in excess of
Transco Energy's historical carrying amounts allocated to property, plant and
equipment of the two interstate natural gas pipeline systems. The cash portion
of the acquisition was financed with the proceeds from the sale of Williams'
network services operations (see Note 3).
Transco Energy was engaged primarily in the natural gas pipeline and
natural gas marketing businesses. Williams has sold substantially all of Transco
Energy's coal operations, coalbed methane properties and certain pipeline and
gathering operations. Results of operations and changes in the carrying amount
of these businesses during the holding period and from the ultimate dispositions
are reflected in the purchase price and are not material.
In connection with the acquisition, Williams made payments to retire and/or
terminate approximately $700 million of Transco Energy borrowings, preferred
stock, interest-rate swaps and sale of receivable facilities. As a part of the
merger, Williams exchanged Transco Energy's $3.50 preferred stock for Williams'
$3.50 preferred stock.
F-20
<PAGE> 44
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma information combines the results of
operations of Williams and Transco Energy as if the purchase of 100 percent of
Transco Energy occurred January 1, 1994.
<TABLE>
<CAPTION>
UNAUDITED
--------------------
1995 1994
-------- --------
(MILLIONS, EXCEPT
PER-SHARE AMOUNTS)
<S> <C> <C>
Revenues.................................................... $2,916.4 $2,660.3
Income from continuing operations........................... 314.4 191.0
Income before extraordinary loss............................ 1,333.2 285.0
Net income.................................................. 1,333.2 272.8
Primary earnings per share:
Income from continuing operations......................... 1.95 1.18
Income before extraordinary loss.......................... 8.61 1.79
Net income................................................ 8.61 1.71
Fully diluted earnings per share:
Income from continuing operations......................... 1.93 1.18
Income before extraordinary loss.......................... 8.41 1.79
Net income................................................ 8.41 1.71
</TABLE>
Pro forma financial information is not necessarily indicative of results of
operations that would have occurred if the acquisition had occurred on January
1, 1994, or of future results of operations of the combined companies.
NOTE 3 -- DISCONTINUED OPERATIONS
On January 5, 1995, Williams sold its network services operations to LDDS
Communications, Inc. for $2.5 billion in cash. The sale yielded a gain of $1
billion (net of income taxes of approximately $732 million) which is reported as
income from discontinued operations. Operating results for 1994 for the network
services operations are reported as discontinued operations. Under the terms of
the agreement, Williams retained Williams Telecommunications Systems, Inc., a
national telecommunications equipment supplier and service company, and Vyvx,
Inc., which operates a national video network specializing in broadcast
television applications and satellite transmission. These operations are
included in Williams Communications Group.
Summarized operating results of discontinued operations for 1994 were as
follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Revenues.................................................... $921.8
Operating profit............................................ 163.1
Provision for income taxes.................................. 60.9
Income from discontinued operations......................... 94.0
</TABLE>
F-21
<PAGE> 45
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- REVENUES AND OPERATING PROFIT
Revenues and operating profit of Williams Interstate Natural Gas Systems
and Williams Energy Group for the years ended December 31, 1996, 1995 and 1994,
are as follows:
<TABLE>
<CAPTION>
REVENUES OPERATING PROFIT
---------------------------- ------------------------
1996 1995* 1994* 1996 1995* 1994*
-------- -------- ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Williams Interstate Natural Gas Systems:
Northwest Pipeline.................... $ 269.7 $ 255.2 $238.5 $124.9 $115.7 $104.1
Williams Natural Gas.................. 178.4 174.3 231.3 44.8 45.0 48.8
Transcontinental Gas Pipe Line........ 760.4 725.3 -- 194.6 165.0 --
Texas Gas Transmission................ 306.1 276.3 -- 85.1 64.0 --
Kern River Gas Transmission........... 160.6 -- -- 113.0 -- --
-------- -------- ------ ------ ------ ------
$1,675.2 $1,431.1 $469.8 $562.4 $389.7 $152.9
======== ======== ====== ====== ====== ======
Williams Energy Group:
Field Services........................ $ 616.3 $ 532.9 $328.7 $187.4 $161.0 $112.9
Merchant Services..................... 261.1 153.5 381.7 66.4 33.2 3.4
Petroleum Services.................... 493.3 328.1 216.9 75.7 69.2 51.9
Exploration and Production............ 82.4 62.9 39.2 2.8 (5.9) 13.6
-------- -------- ------ ------ ------ ------
$1,453.1 $1,077.4 $966.5 $332.3 $257.5 $181.8
======== ======== ====== ====== ====== ======
</TABLE>
- ---------------
* Certain amounts have been reclassified as described in Note 1.
NOTE 5 -- INVESTING ACTIVITIES
<TABLE>
<CAPTION>
1996 1995
------ ------
(MILLIONS)
<S> <C> <C>
Investments:
Kern River Gas Transmission Company, at equity (50%) (see
Note 2)................................................ $ -- $178.6
Other, at equity.......................................... 105.9 84.2
Cost...................................................... 84.7 44.8
------ ------
$190.6 $307.6
====== ======
</TABLE>
At December 31, 1996, certain equity investments, with a carrying value of
$36 million, have a market value of $126 million.
In 1996, Williams acquired the remaining interest in Kern River (see Note
2). Summarized financial position and results of operations for Kern River for
1995 and 1994 are presented below.
<TABLE>
<CAPTION>
1995 1994
------- --------
(MILLIONS)
<S> <C> <C>
Current assets.............................................. $ 55.4 $ 98.3
Non-current assets, principally natural gas transmission
plant..................................................... 994.5 1,026.3
Current liabilities......................................... (47.3) (86.9)
Long-term debt.............................................. (620.5) (643.2)
Other non-current liabilities............................... (124.1) (109.5)
------- --------
Partners' equity............................................ $ 258.0 $ 285.0
======= ========
Revenues.................................................... $ 187.0 $ 179.0
Costs and expenses.......................................... 65.7 54.9
Net income.................................................. 38.0 38.1
</TABLE>
F-22
<PAGE> 46
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investing income from continuing operations:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Interest.................................................... $11.1 $37.2 $ 5.5
Dividends................................................... 1.6 16.1 4.5
Equity earnings............................................. 6.1 40.6 39.6
----- ----- -----
$18.8 $93.9 $49.6
===== ===== =====
</TABLE>
Dividends and distributions received from companies carried on an equity
basis were $7 million in 1996; $44 million in 1995; and $43 million in 1994.
NOTE 6 -- ASSET SALES AND WRITE-OFF OF PROJECT COSTS
In the fourth quarter of 1996, Williams recognized a pre-tax gain of $15.7
million from the sale of certain communication rights for approximately $38
million.
In 1995, the development of a commercial coal gasification venture in
south-central Wyoming was canceled, resulting in a $41.4 million pre-tax charge.
This amount includes what management believes to be a reasonable estimate of
future costs of $4 million to reclaim the site, of which approximately $3
million remains to be incurred over a five-year period. Williams continues to
perform the reclamation of the site in coordination with various governmental
agencies and expects to receive necessary environmental releases and approvals
upon completion of the reclamation.
In 1995, Williams sold its 15 percent interest in Texasgulf Inc. for
approximately $124 million in cash, which resulted in an after-tax gain of
approximately $16 million because of previously unrecognized tax benefits
included in the provision for income taxes.
In 1994, Williams sold 3,461,500 limited partner common units in Northern
Border Partners, L.P. Net proceeds from the sale were approximately $80 million,
and the sale resulted in a pre-tax gain of $22.7 million. As a result of the
sale, Williams' original 12.25 percent interest in Northern Border partnerships
has been reduced to 3.2 percent.
NOTE 7 -- PROVISION FOR INCOME TAXES
The provision (credit) for income taxes from continuing operations
includes:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
(MILLIONS)
<S> <C> <C> <C>
Current:
Federal................................................. $ 96.3 $(26.5) $45.8
State................................................... 14.4 3.1 10.1
------ ------ -----
110.7 (23.4) 55.9
------ ------ -----
Deferred:
Federal................................................. 61.9 114.2 23.7
State................................................... 10.5 11.2 2.1
------ ------ -----
72.4 125.4 25.8
------ ------ -----
Total provision........................................... $183.1 $102.0 $81.7
====== ====== =====
</TABLE>
F-23
<PAGE> 47
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations from the provision for income taxes from continuing
operations at the statutory rate to the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Provision at statutory rate.............................. $190.9 $140.5 $ 86.3
Increases (reductions) in taxes resulting from:
State income taxes..................................... 16.1 13.5 8.0
Income tax credits..................................... (19.0) (18.7) (14.9)
Decrease in valuation allowance for deferred tax
assets.............................................. -- (29.8) --
Reversal of prior tax accruals......................... -- (8.0) --
Other -- net........................................... (4.9) 4.5 2.3
------ ------ ------
Provision for income taxes............................... $183.1 $102.0 $ 81.7
====== ====== ======
</TABLE>
Significant components of deferred tax liabilities and assets as of
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............................. $1,748.3 $1,669.2
Investments............................................... 119.8 96.9
Other..................................................... 230.6 299.1*
-------- --------
Total deferred tax liabilities.................... 2,098.7 2,065.2
Deferred tax assets:
Deferred revenues......................................... 29.1 23.5
Investments............................................... 31.1 31.3
Rate refunds.............................................. 111.4 70.7
Accrued liabilities....................................... 183.2 226.4
Minimum tax credits....................................... 86.8 93.9
Other..................................................... 230.0 265.1*
-------- --------
Total deferred tax assets......................... 671.6 710.9
-------- --------
Net deferred tax liabilities................................ $1,427.1 $1,354.3
======== ========
</TABLE>
- ---------------
* Reclassified to conform to current classifications.
A valuation allowance for deferred tax assets decreased $23.4 million
during 1995.
Cash payments for income taxes (net of refunds) were $395 million, $339
million and $107 million in 1996, 1995 and 1994, respectively.
NOTE 8 -- EXTRAORDINARY LOSS
The extraordinary loss in 1994 resulted from early extinguishment of debt.
Williams and one of its subsidiaries paid $316.7 million to redeem higher
interest rate debt for a $12.2 million net loss (net of a $7.7 million benefit
for income taxes).
F-24
<PAGE> 48
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- EMPLOYEE BENEFIT PLANS
Pensions
Williams maintains non-contributory defined-benefit pension plans covering
the majority of its employees. Benefits are based on years of service and
average final compensation. Pension costs are funded to satisfy minimum
requirements prescribed by the Employee Retirement Income Security Act of 1974.
Net pension expense consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the year.......... $ 30.3 $ 19.5 $13.9
Interest cost on projected benefit obligation............. 43.9 40.1 21.8
Actual return on plan assets.............................. (100.6) (120.3) 3.1
Amortization and deferrals................................ 61.3 82.0 (24.2)
------ ------ -----
Net pension expense....................................... $ 34.9 $ 21.3 $14.6
====== ====== =====
</TABLE>
Net pension expense increased in 1996 from 1995 as a result of a decrease
in the discount rate from 8 1/2 percent to 7 1/4 percent and an increase in the
number of plan participants. Net pension expense increased in 1995 from 1994 as
a result of the Transco Energy plans' participants.
The following table presents the funded status of the plans:
<TABLE>
<CAPTION>
1996 1995
---- ----
(MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $407 $422
Non-vested benefits....................................... 37 21
---- ----
Accumulated benefit obligations........................... 444 443
Effect of projected salary increases...................... 167 137
---- ----
Projected benefit obligations............................. 611 580
Assets at market value...................................... 637 550
---- ----
Assets (in excess of) less than projected benefit
obligations............................................... (26) 30
Unrecognized net gain....................................... 37 --
Unrecognized prior-service cost............................. (8) (11)
Unrecognized transition asset............................... 3 4
---- ----
Pension liability........................................... $ 6 $ 23
==== ====
</TABLE>
The discount rate used to measure the present value of benefit obligations
is 7 1/2 percent (7 1/4 percent in 1995); the assumed rate of increase in future
compensation levels is 5 percent; and the expected long-term rate of return on
assets is 10 percent. Plan assets consist primarily of commingled funds and
assets held in a master trust. The master trust is comprised primarily of
domestic and foreign common and preferred stocks, United States government
securities, corporate bonds and commercial paper.
Williams has retained all liabilities and obligations for service of its
network services operations' plan participants up to the date of sale (see Note
3).
F-25
<PAGE> 49
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Postretirement benefits other than pensions
Williams sponsors health care plans that provide postretirement medical
benefits to retired Williams employees who were employed full time, hired prior
to January 1, 1992 (January 1, 1996, for Transco Energy employees) and have met
certain other requirements.
The plans provide for retiree contributions and contain other cost-sharing
features such as deductibles and coinsurance. The accounting for the plans
anticipates future cost-sharing changes to the written plans that are consistent
with Williams' expressed intent to increase the retiree contribution rate
annually, generally in line with health care cost increases, except for certain
retirees whose premiums are fixed. A portion of the cost has been funded in
trusts by Williams' FERC-regulated natural gas pipeline subsidiaries to the
extent recovery from customers can be achieved. Plan assets consist of assets
held in two master trusts and money market funds. One of the master trusts was
previously described, and the other consists primarily of domestic and foreign
common stocks, government bonds and commercial paper.
Net postretirement benefit expense consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during
the year.............................. $ 6.4 $ 7.4 $ 3.9
Interest cost on accumulated
postretirement benefit obligation..... 22.7 23.9 7.8
Actual return on plan assets............ (16.4) (17.9) (.6)
Amortization of unrecognized transition
obligation............................ 5.0 5.0 5.1
Amortization and deferrals.............. 19.7 23.1 .1
------ ------ -----
Net postretirement benefit expense...... $ 37.4 $ 41.5 $16.3
====== ====== =====
</TABLE>
Net postretirement benefit expense increased $26 million in 1995 from 1994
for the Transco Energy participants.
The following table presents the funded status of the plans:
<TABLE>
<CAPTION>
1996 1995
---- ----
(MILLIONS)
<S> <C> <C>
Actuarial present value of
postretirement benefit obligation:
Retirees.............................. $200 $227
Fully eligible active plan
participants....................... 26 24
Other active plan participants........ 89 85
---- ----
Accumulated postretirement benefit
obligation......................... 315 336
Assets at market value.................. 155 124
---- ----
Assets less than accumulated
postretirement benefit obligation..... 160 212
Unrecognized net gain................... 60 25
Unrecognized prior-service credit
(cost)................................ 1 (6)
Unrecognized transition obligation...... (65) (71)
---- ----
Postretirement benefit liability........ $156 $160
==== ====
</TABLE>
During fourth-quarter 1996, the plans were amended, effective January 1,
1997, to increase the cost-sharing provisions. This amendment decreased the
accumulated postretirement benefit obligation approximately $10 million. The
amount of postretirement benefit costs deferred as a regulatory asset at
December 31, 1996 and 1995, is $118 million and $133 million, respectively, and
is expected to be recovered through rates over approximately 15 years.
F-26
<PAGE> 50
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The discount rate used to measure the present value of benefit obligations
is 7 1/2 percent (7 1/4 percent in 1995). The expected long-term rate of return
on plan assets is 10 percent (6 percent after taxes). The annual assumed rate of
increase in the health care cost trend rate for 1997 is 9 to 10 percent,
systematically decreasing to 5 percent by 2004. The health care cost trend rate
assumption has a significant effect on the amounts reported. Increasing the
assumed health care cost trend rate by 1 percent in each year would increase the
aggregate of the service and interest cost components of postretirement benefit
expense for the year ended December 31, 1996, by $4 million and the accumulated
postretirement benefit obligation as of December 31, 1996, by $27 million.
Other
Williams maintains various defined-contribution plans covering
substantially all employees. Company contributions are based on employees'
compensation and, in part, match employee contributions. Company contributions
are invested primarily in Williams common stock. Williams' contributions to
these plans were $23 million in 1996, $19 million in 1995 and $14 million in
1994. Contributions to these plans made by discontinued operations were $3
million in 1994.
NOTE 10 -- INVENTORIES
<TABLE>
<CAPTION>
1996 1995*
------ ------
(MILLIONS)
<S> <C> <C>
Natural gas in underground storage:
Transcontinental Gas Pipe Line (LIFO)..................... $ 38.8 $ 21.4
Merchant Services......................................... 1.5 6.0
Other..................................................... -- 2.2
Petroleum products:
Merchant Services......................................... 12.7 16.5
Other..................................................... 33.7 23.7
Materials and supplies:
Williams Communications Group............................. 32.7 28.2
Other..................................................... 79.3 87.8
Other....................................................... 5.9 3.2
------ ------
$204.6 $189.0
====== ======
</TABLE>
- ---------------
*Certain amounts have been reclassified as described in Note 1.
Inventories valued on the LIFO method at December 31, 1996 and 1995,
approximate current average cost.
F-27
<PAGE> 51
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995*
--------- ---------
(MILLIONS)
<S> <C> <C>
Cost:
Williams Interstate Natural Gas
Systems:
Northwest Pipeline................. $ 1,447.9 $ 1,403.5
Williams Natural Gas............... 787.4 761.6
Transcontinental Gas Pipe Line..... 3,095.7 2,756.7
Texas Gas Transmission............. 958.9 917.3
Kern River Gas Transmission........ 990.5 --
Williams Energy Group:
Field Services..................... 2,188.3 2,099.9
Merchant Services.................. 5.4 4.3
Petroleum Services................. 1,073.1 1,023.3
Exploration and Production......... 255.1 225.0
Williams Communications Group......... 257.3 145.9
Other................................. 152.7 141.2
--------- ---------
11,212.3 9,478.7
Accumulated depreciation and
depletion............................. (1,826.0) (1,464.0)
--------- ---------
$ 9,386.3 $ 8,014.7
========= =========
</TABLE>
- ---------------
* Certain amounts have been reclassified as described in Note 1.
Commitments for construction and acquisition of property, plant and
equipment are approximately $268 million at December 31, 1996.
Effective January 1, 1996, Williams adopted Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." Adoption of the standard had no
effect on Williams' financial position or results of operations.
NOTE 12 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Under Williams' cash-management system, certain subsidiaries' cash accounts
reflect credit balances to the extent checks written have not been presented for
payment. The amounts of these credit balances included in accounts payable are
$95 million at December 31, 1996, and $136 million at December 31, 1995.
<TABLE>
<CAPTION>
1996 1995
------ --------
(MILLIONS)
<S> <C> <C>
Accrued liabilities:
Rate refunds.............................................. $305.1 $ 180.6
Employee costs............................................ 178.1 135.9
Interest.................................................. 95.2 72.9
Income taxes payable...................................... 77.6 371.6
Taxes other than income taxes............................. 66.2 51.2
Other..................................................... 253.1 274.0*
------ --------
$975.3 $1,086.2
====== ========
</TABLE>
- ---------------
* Reclassified to conform to current classifications.
F-28
<PAGE> 52
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- DEBT, LEASES AND BANKING ARRANGEMENTS
Notes payable
Williams has entered into various short-term credit agreements with amounts
outstanding totaling $269.5 million at December 31, 1996. The weighted average
interest rate on the outstanding short-term borrowings at December 31, 1996, was
7.85 percent.
Debt
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE DECEMBER 31,
INTEREST -------------------
RATE* 1996 1995
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
The Williams Companies, Inc. Revolving credit loans......... --% $ -- $ 50.0
Debentures, 8.875% -- 10.25%, payable 2012, 2020, 2021 and
2025................................................... 9.6 587.5 587.7
Notes, 7.5% -- 9.625%, payable 1998 through 2001.......... 8.8 817.5 842.4
Northwest Pipeline Debentures, 7.125% -- 10.65%, payable
through 2025.............................................. 9.0 360.0 369.2
Adjustable rate notes, payable through 2002............... 9.0 10.0 11.7
Williams Natural Gas Variable rate notes, payable 1999...... 8.2 130.0 130.0
Transcontinental Gas Pipe Line Debentures, 7.25% and 9.125%,
payable 1998 through 2026................................. 8.1 352.4 153.0
Debentures, 7.08%, payable 2026 (subject to debtholder
redemption in 2001).................................... 7.1 200.0 --
Notes, 8.125% and 8.875%, payable 1997 and 2002........... 8.5 227.7 381.1
Adjustable rate notes..................................... -- -- 125.1
Texas Gas Transmission Notes, 9.625% and 8.625%, payable
1997 and 2004............................................. 9.0 253.6 255.9
Kern River Gas Transmission Notes, 6.42% and 6.72%, payable
through 2001.............................................. 6.6 617.7 --
Williams Holdings of Delaware Revolving credit loans........ 6.0 500.0 150.0
Debentures, 6.25%, payable 2006........................... 4.7 248.8 --
Williams Pipe Line Notes, 8.95% and 9.78%, payable through
2001...................................................... 9.4 100.0 110.0
Williams Energy Ventures Adjustable rate notes, payable
through 2002.............................................. 8.1 25.6 21.0
Other, payable through 1999................................. 7.7 5.7 6.8
-------- --------
4,436.5 3,193.9
Current portion of long-term debt........................... (59.6) (319.9)
-------- --------
$4,376.9 $2,874.0
======== ========
</TABLE>
- ---------------
*At December 31, 1996, including the effects of interest-rate swaps.
In December 1996, Williams increased the amounts available under its
existing credit agreement to $1 billion from $800 million. Under the credit
agreement, Northwest Pipeline, Transcontinental Gas Pipe Line, Texas Gas
Transmission, Williams Pipe Line and Williams Holdings of Delaware, Inc.
(Williams
F-29
<PAGE> 53
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holdings) have access to various amounts of the facility, while Williams
(parent) has access to all unborrowed amounts. Interest rates vary with current
market conditions.
For financial statement reporting purposes at December 31, 1996, $200
million in current debt obligations have been classified as non-current
obligations based on Williams' intent and ability to refinance on a long-term
basis. At December 31, 1996, the amount available on the $1 billion credit
agreement of $500 million is sufficient to complete these refinancings.
During March 1996, the Kern River floating-rate bank loan was refinanced
through the issuance of 6.42 percent and 6.72 percent fixed-rate notes.
Interest-rate swap agreements entered into by Kern River in prior years, which
converted floating-rate debt to fixed-rate debt, remain outstanding. Concurrent
with the refinancing, Kern River entered into additional interest-rate swap
agreements where Kern River receives a fixed interest rate and pays a floating
interest rate. The interest-rate swaps are recorded at market with an offsetting
deferral of costs as a regulatory asset that is expected to be recovered in
transportation rates. The effect is to adjust the new fixed-rate notes to an
effective interest rate of 8.5 percent.
In January 1996, Williams Holdings issued $250 million of 6.25 percent
debentures due 2006. In April 1996, Williams Holdings entered into an
interest-rate swap agreement, which effectively converted its 6.25 percent
fixed-rate debentures to floating-rate debt (4.66 percent at December 31, 1996).
The difference between the fixed and variable rate is included in interest
expense.
In conjunction with the issuance of $130 million of variable rate debt by
Williams Natural Gas in November 1994, Williams entered into an interest-rate
swap agreement under which Williams pays a 7.78 percent fixed rate in exchange
for a variable rate (5.5 percent at December 31, 1996). The difference between
the fixed and variable rate is included in interest expense.
Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments, for each of the next five years are as follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
1997........................................................ $ 59
1998........................................................ 377
1999........................................................ 355
2000........................................................ 252
2001........................................................ 1,610
</TABLE>
Cash payments for interest (net of amounts capitalized) related to
continuing operations are as follows: 1996 -- $347 million; 1995 -- $266
million; and 1994 -- $143 million. Cash payments for interest (net of amounts
capitalized) related to discontinued operations are $6 million in 1994.
Leases
Future minimum annual rentals under non-cancelable operating leases related
to continuing operations are $59 million in 1997, $54 million in 1998, $48
million in 1999, $42 million in 2000, $40 million in 2001 and $161 million
thereafter.
Total rent expense from continuing operations was $78 million in 1996 and
1995 and $26 million in 1994. Total rent expense from discontinued operations
was $70 million in 1994.
NOTE 14 -- STOCKHOLDERS' EQUITY
On November 21, 1996, the board of directors of Williams declared a
three-for-two common stock split and distribution; 53.8 million shares were
issued on December 30, 1996. All references in the financial
F-30
<PAGE> 54
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements and notes to the number of common shares outstanding and per-share
amounts reflect the effect of the split.
In the third quarter of 1996, the Williams' board of directors authorized
the open-market purchase of up to $800 million of Williams common stock. At
December 31, 1996, 957,750 shares had been purchased at a total cost of
approximately $31 million.
In connection with the 1995 merger with Transco Energy, Williams exchanged
all of Transco Energy's outstanding $3.50 cumulative convertible preferred stock
for 2.5 million shares of Williams' $3.50 cumulative convertible preferred
stock. These shares are redeemable by Williams beginning in November 1999, at an
initial price of $51.40 per share. Each share of $3.50 preferred stock is
convertible at the option of the holder into 2.34375 shares of Williams common
stock. Dividends per share of $3.50 and $2.33 were recorded during 1996 and
1995, respectively.
During 1995, Williams exchanged 2.8 million shares of its $2.21 cumulative
preferred stock with a carrying value of $69 million for 9.6 percent debentures
with a fair value of $72.5 million. The difference in the fair value of the new
securities and the carrying value of the preferred stock exchanged is recorded
as a decrease in capital in excess of par value. This amount did not impact net
income, but is included in preferred stock dividends on the Consolidated
Statement of Income and in the computation of earnings per share. The 741,552
outstanding shares of $2.21 cumulative preferred stock are redeemable by
Williams at a price of $25 beginning in September 1997. Dividends per share of
$2.21 were recorded each year during 1996, 1995 and 1994.
In January 1996, the board of directors adopted a Stockholder Rights Plan
(the Rights Plan) to replace its existing rights plan, which expired on February
6, 1996. Under the Rights Plan, each outstanding share of common stock has
two-thirds of a preferred stock purchase right attached. Under certain
conditions, each right may be exercised to purchase, at an exercise price of
$140 (subject to adjustment), one two-hundredth of a share of junior
participating preferred stock. The rights may be exercised only if an Acquiring
Person acquires (or obtains the right to acquire) 15 percent or more of Williams
common stock; or commences an offer for 15 percent or more of Williams common
stock; or the board of directors determines an Adverse Person has become the
owner of 10 percent or more of Williams common stock. The rights, which do not
have voting rights, expire in 2006 and may be redeemed at a price of $.01 per
right prior to their expiration, or within a specified period of time after the
occurrence of certain events. In the event a person becomes the owner of more
than 15 percent of Williams common stock or the board of directors determines
that a person is an Adverse Person, each holder of a right (except an Acquiring
Person or an Adverse Person) shall have the right to receive, upon exercise,
common stock having a value equal to two times the exercise price of the right.
In the event Williams is engaged in a merger, business combination or 50 percent
or more of Williams' assets, cash flow or earnings power is sold or transferred,
each holder of a right (except an Acquiring Person or an Adverse Person) shall
have the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the right.
Williams has several plans providing for common-stock-based awards to
employees and to non-employee directors. The plans permit the granting of
various types of awards including, but not limited to, stock options,
stock-appreciation rights, restricted stock and deferred stock. Awards may be
granted for no consideration other than prior and future services. The purchase
price per share for stock options and stock-appreciation rights may not be less
than the market price of the underlying stock on the date of grant. Stock
options generally become exercisable after five years, subject to accelerated
vesting if certain future stock prices are achieved. Stock options expire 10
years after grant. At December 31, 1996, 19,618,842 shares of common stock were
reserved for issuance pursuant to existing and future stock awards, of which
7,813,768 shares were available for future grants (4,048,199 at December 31,
1995).
F-31
<PAGE> 55
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary reflects stock option activity and related
information for 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding -- December 31, 1995........................ 7,868,900 $20.03
Granted................................................. 4,101,144 33.41
Exercised............................................... (2,035,349) 18.28
Canceled................................................ (104,516) 42.02
----------
Outstanding -- December 31, 1996........................ 9,830,179 25.70
==========
Exercisable -- December 31, 1996........................ 5,461,482 $20.57
==========
Weighted average grant date fair value of options
granted during the year............................... $7.84
==========
</TABLE>
The following summary provides information about stock options outstanding
and exercisable at December 31, 1996:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
----------------------------------------------- ---------------------------
WEIGHTED WEIGHTED
RANGE OF WEIGHTED AVERAGE AVERAGE
EXERCISE AVERAGE REMAINING PRICE
PRICES OPTIONS EXERCISE PRICE CONTRACTUAL LIFE OPTIONS EXERCISE
-------- --------- -------------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.25 to $28.38........... 5,634,510 $19.29 7.2 years 5,255,664 $19.35
$32.25 to $98.67........... 4,195,669 34.32 9.3 years 205,818 51.76
--------- ---------
Total............ 9,830,179 $25.70 8.1 years 5,461,482 $20.57
========= =========
</TABLE>
The fair value of the stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: expected life of the stock options of five years; volatility of the
expected market price of Williams common stock of 24 percent; risk-free interest
rate of 6.2 percent; and a dividend yield of 3 percent.
Williams granted 195,376, 98,168 and 191,559 deferred shares in 1996, 1995
and 1994, respectively. The weighted average grant date fair value of the shares
issued in 1996 is $31.55. Deferred shares are valued at the date of award and
are generally charged to expense in the year of award. Williams issued 109,516,
105,183 and 67,947 previously deferred shares in 1996, 1995 and 1994,
respectively. Williams also issued 19,650, 82,950 and 67,200 shares of
restricted stock in 1996, 1995 and 1994, respectively. The weighted average
grant date fair value of the shares issued in 1996 is $29.50. Restricted stock
is valued on the issuance date and the related expense is amortized over varying
periods of three to 10 years.
Pro forma net income and earnings per share, assuming Williams had applied
the fair-value method of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" in measuring compensation cost beginning with 1995
employee stock-based awards, are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
PRO FORMA REPORTED PRO FORMA REPORTED
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income (millions)................... $359.9 $362.3 $1,306.1 $1,318.2
Earnings per share:
Primary............................... $ 2.16 $ 2.17 $ 8.45 $ 8.51
Fully diluted......................... $ 2.13 $ 2.14 $ 8.24 $ 8.32
</TABLE>
Pro forma amounts for 1995 reflect total compensation expense from the
awards made in 1995 as these awards fully vested as a result of the accelerated
vesting provisions. Since compensation expense from stock
F-32
<PAGE> 56
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options is recognized over the future years' vesting period, and additional
awards generally are made each year, pro forma amounts for 1996 may not be
representative of future years' amounts.
During November 1994, Williams entered into a deferred share agreement (the
Agreement) in connection with the sale of its network services operations. Under
the terms of the Agreement, Williams has approximately 1.6 million shares of
Williams common stock remaining to distribute to key employees of the network
services operations over various periods through 2002, less amounts necessary to
meet minimum tax withholding requirements. Williams distributed 637,361, 471,608
and 409,643 shares during 1996, 1995 and 1994, respectively.
NOTE 15 -- FINANCIAL INSTRUMENTS
Fair-value methods
The following methods and assumptions were used by Williams in estimating
its fair-value disclosures for financial instruments:
Cash and cash equivalents and notes payable: The carrying amounts
reported in the balance sheet approximate fair value due to the short-term
maturity of these instruments.
Notes and other non-current receivables: For those notes with interest
rates approximating market or maturities of less than three years, fair
value is estimated to approximate historically recorded amounts. For those
notes with maturities beyond three years and fixed interest rates, fair
value is calculated using discounted cash flow analysis based on current
market rates.
Investments -- cost: Fair value is estimated to approximate
historically recorded amounts as the operations underlying these
investments are in their initial phases.
Long-term debt: The fair value of Williams' long-term debt is valued
using indicative year-end traded bond market prices for publicly traded
issues, while private debt is valued based on the prices of similar
securities with similar terms and credit ratings. At December 31, 1996 and
1995, 69 percent and 85 percent, respectively, of Williams' long-term debt
was publicly traded. Williams used the expertise of an outside investment
banking firm to estimate the fair value of long-term debt.
Interest-rate swaps: Fair value is determined by discounting estimated
future cash flows using forward interest rates implied by the year-end
yield curve. Fair value was calculated by the financial institutions that
are the counterparties to the swaps.
Energy-related trading and hedging: Includes forwards, futures,
options, swaps and purchase and sales commitments. Fair value reflects
management's best estimate of market prices considering various factors
including closing exchange and over-the-counter quotations, the terms of
the contract, credit considerations, time value and volatility factors
underlying the positions.
F-33
<PAGE> 57
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Carrying amounts and fair values of Williams' financial instruments
Asset (liability)
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ 115.3 $ 115.3 $ 90.4 $ 90.4
Notes and other non-current
receivables........................... 27.4 27.4 25.7 25.8
Investments -- cost..................... 71.2 71.2 31.3 31.3
Notes payable........................... (269.5) (269.5) -- --
Long-term debt, including current
portion............................... (4,435.1) (4,594.4) (3,193.1) (3,476.7)
Interest-rate swaps..................... (54.8) (63.7) (.4) (10.4)
Energy-related trading:
Assets................................ 253.6 253.6 171.4 171.4
Liabilities........................... (339.1) (339.1) (343.6) (343.6)
Energy-related hedging:
Assets................................ .9 11.2 -- 1.7
Liabilities........................... (1.3) (12.2) -- (2.6)
</TABLE>
The preceding asset and liability amounts for energy-related hedging
represent unrealized gains or losses and do not include the related deferred
amounts.
The 1996 average fair value of the energy-related trading assets and
liabilities is $196 million and $322 million, respectively. The 1995 average
fair value of the energy-related trading assets and liabilities is $97 million
and $181 million, respectively.
Williams has recorded liabilities of $18 million and $24 million at
December 31, 1996 and 1995, respectively, for certain guarantees that represent
the estimated fair value of these financial instruments.
Off-balance-sheet credit and market risk
Williams is a participant in the following transactions and arrangements
that involve financial instruments that have off-balance-sheet risk of
accounting loss. It is not practicable to estimate the fair value of these off-
balance-sheet financial instruments because of their unusual nature and unique
characteristics.
Williams sold certain receivables. The aggregate limit under revolving
receivables facilities was $135 million at December 31, 1996 and 1995. Williams
received $47 million of proceeds in 1996, $196 million in 1995 and $110 million
in 1994. At December 31, 1996 and 1995, $152 million and $166 million of
receivables had been sold, respectively, under the revolving receivables
facilities and another arrangement. Based on amounts outstanding at December 31,
1996 and 1995, the maximum contractual credit loss under these arrangements is
approximately $28 million, but the likelihood of loss is remote. In January
1997, Williams expanded their revolving receivables facilities and sold $200
million of receivables. The Financial Accounting Standards Board has issued a
new accounting standard FAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," effective for transactions
occurring after December 31, 1996. The adoption of this standard is not expected
to impact Williams' consolidated results of operations, financial position or
cash flows.
In connection with the sale of units in the Williams Coal Seam Gas Royalty
Trust (Trust), Williams indemnified the Trust against losses from certain
litigation (see Note 17) and guaranteed minimum gas prices through 1997. At
December 31, 1996 and 1995, Williams has a recorded liability of $5 million and
$10 million, respectively, for these items, representing the maximum amount for
the first guarantee and an
F-34
<PAGE> 58
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimate of the gas price exposure based on historical operating trends and an
assessment of market conditions. While Williams' maximum exposure from this
guarantee exceeds amounts accrued, it is not possible to determine such amount
because it is dependent on future events.
In connection with the sale of Williams' network services operations,
Williams has been indemnified by LDDS against any losses related to retained
guarantees of $158 million and $180 million at December 31, 1996 and 1995,
respectively, for lease rental obligations. LDDS has advised that it is
negotiating with the guaranteed parties to remove Williams as guarantor.
Williams has issued other guarantees and letters of credit with
off-balance-sheet risk that total approximately $10 million and $8 million at
December 31, 1996 and 1995, respectively. Williams believes it will not have to
perform under these agreements because the likelihood of default by the primary
party is remote and/or because of certain indemnifications received from other
third parties.
Commodity price-risk management services
Williams, through its Merchant Services group, provides price-risk
management services associated with the energy industry to its customers. These
services are provided through a variety of financial instruments, including
forward contracts, futures contracts, option contracts, swap agreements and
purchase and sale commitments. See Note 1 for a description of the accounting
for these trading activities.
Merchant Services enters into forward contracts and purchase and sale
commitments which involve physical delivery of an energy commodity. Prices under
these contracts are both fixed and variable. Swap agreements call for Merchant
Services to make payments to (or receive payments from) counterparties based
upon the differential between a fixed and variable price or variable prices for
different locations. The variable prices are generally based on either industry
pricing publications or exchange quotations. Merchant Services buys and sells
option contracts which give the buyer the right to exercise the options and
receive the difference between a predetermined strike price and a market price
at the date of exercise. The market prices used for natural-gas-related option
contracts are generally exchange quotations. Merchant Services also enters into
futures contracts, which are commitments to either purchase or sell a commodity
at a future date for a specified price and are generally settled in cash, but
may be settled through delivery of the underlying commodity. The market prices
for futures contracts are based on exchange quotations.
Merchant Services manages risk from financial instruments by making various
logistical commitments and manages profit margins through offsetting financial
instruments. As a result, price movements can result in losses on certain
contracts offset by gains on others.
Merchant Services takes an active role in managing and controlling market
and counterparty risks and has established formal control procedures, which are
reviewed on an ongoing basis. Merchant Services attempts to minimize credit-risk
exposure to trading counterparties and brokers through formal credit policies
and monitoring procedures. In the normal course of business, collateral is not
required for financial instruments with credit risk.
The notional quantities for trading financial instruments at December 31,
1996, and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
PAYOR RECEIVER PAYOR RECEIVER
------- -------- ------- --------
<S> <C> <C> <C> <C>
Fixed price:
Natural gas (TBtu)............................. 1,066.6 1,196.8 873.2 847.3
Refined products and crude (MMBbls)............ 34.4 26.3 15.9 14.9
Variable price:
Natural gas (TBtu)............................. 1,584.9 1,123.8 1,841.2 1,517.2
Refined products and crude (MMBbls)............ 3.7 3.3 2.8 2.5
</TABLE>
F-35
<PAGE> 59
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net cash flow requirement related to these contracts at December 31,
1996 and 1995, was $117 million and $215 million, respectively. At December 31,
1996, the cash flow requirements extend primarily through 2006.
In 1995, certain gas marketing operations of Merchant Services, along with
gas marketing operations from Transco Energy, were combined with the commodity
price-risk management and trading activities of Merchant Services. Such
combination in 1995 involves managing the price and other business risks and
opportunities of such physical gas trading activities and any related financial
instruments previously accounted for as hedges in common-risk portfolios with
Merchant Services' other financial instruments. These former marketing
activities, consisting of buying and selling natural gas, through 1994 were
reported on a "gross" basis in the Consolidated Statement of Income as revenues
and profit-center costs. Concurrent with completing the combination of such
activities with the commodity price-risk management operations in the third
quarter of 1995, the related contract rights and obligations along with any
related financial instruments, previously accounted for as hedges, were recorded
in the Consolidated Balance Sheet on a current-market-value basis and the
related income statement presentation was changed to a net basis. Such revenues
reported on a gross basis through the first two quarters of 1995 were
reclassified to a net basis concurrent with this change in the third quarter of
1995.
Following is a summary of Merchant Services' revenues:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Financial instrument and physical trading market
gains -- net.......................................... $ 99.2 $ 65.8 $ 14.2
Gross marketing revenues................................ -- 617.7* 249.2
Gross marketing costs................................... -- (599.2)* --
Marketing activities not included in trading
operations............................................ 161.9 67.7 118.0
Other................................................... -- 1.5 .3
------ ------- ------
$261.1 $ 153.5 $381.7
====== ======= ======
</TABLE>
- ---------------
*Through June 30, 1995.
Concentration of credit risk
Williams' cash equivalents consist of high quality securities placed with
various major financial institutions with high credit ratings. Williams'
investment policy limits its credit exposure to any one financial institution.
At December 31, 1996 and 1995, approximately 69 percent and 62 percent,
respectively, of receivables are for the sale or transportation of natural gas
and related products or services. Approximately 23 percent and 27 percent of
receivables at December 31, 1996 and 1995, respectively, are for
telecommunications and related services. Natural gas customers include
pipelines, distribution companies, producers, gas marketers and industrial users
primarily located in the eastern, northwestern and midwestern United States.
Telecommunications customers include numerous corporations. As a general policy,
collateral is not required for receivables, but customers' financial condition
and credit worthiness are evaluated regularly.
F-36
<PAGE> 60
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- OTHER FINANCIAL INFORMATION
Intercompany revenues (at prices that generally apply to sales to
unaffiliated parties) are as follows:
<TABLE>
<CAPTION>
1996 1995* 1994*
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Williams Interstate Natural Gas Systems:
Northwest Pipeline................................ $ 1.1 $ 1.8 $ 3.4
Williams Natural Gas.............................. 9.2 9.5 14.2
Transcontinental Gas Pipe Line.................... 34.6 34.2 --
Texas Gas Transmission............................ 20.5 37.7 --
Williams Energy Group:
Field Services.................................... 26.2 14.0 15.1
Merchant Services................................. 130.7 62.2 22.0
Petroleum Services................................ 67.7 44.6 28.6
Exploration and Production........................ 57.1 4.9 18.1
Other.................................................. 9.3 .2 .4
------ ------ ------
$356.4 $209.1 $101.8
====== ====== ======
</TABLE>
- ---------------
* Certain amounts have been reclassified as described in Note 1.
F-37
<PAGE> 61
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for business segments is as follows:
<TABLE>
<CAPTION>
1996 1995* 1994*
--------- --------- --------
(MILLIONS)
<S> <C> <C> <C>
Identifiable assets at December 31:
Williams Interstate Natural Gas Systems:
Northwest Pipeline.................................. $ 1,153.9 $ 1,147.5 $1,028.0
Williams Natural Gas................................ 704.8 709.2 719.8
Transcontinental Gas Pipe Line...................... 3,305.4 3,159.5 --
Texas Gas Transmission.............................. 1,132.2 1,151.8 --
Kern River Gas Transmission......................... 1,081.6 -- --
Williams Energy Group:
Field Services...................................... 1,995.0 1,939.3 935.9
Merchant Services................................... 839.1 438.2 114.6
Petroleum Services.................................. 906.5 863.2 674.6
Exploration and Production.......................... 200.3 164.6 145.4
Williams Communications Group......................... 670.6 401.0 315.7
Investments........................................... 190.6 307.6 379.1
General corporate and other........................... 238.8 279.3 169.4
Discontinued operations............................... -- -- 743.6
--------- --------- --------
Consolidated..................................... $12,418.8 $10,561.2 $5,226.1
========= ========= ========
Additions to property, plant and equipment:
Williams Interstate Natural Gas Systems:
Northwest Pipeline.................................. $ 62.8 $ 130.5 $ 62.6
Williams Natural Gas................................ 50.9 43.5 32.9
Transcontinental Gas Pipe Line...................... 272.1 238.7 --
Texas Gas Transmission.............................. 50.1 32.1 --
Kern River Gas Transmission......................... 4.7 -- --
Williams Energy Group:
Field Services...................................... 205.7 232.1 150.0
Merchant Services................................... .6 .4 3.5
Petroleum Services.................................. 55.8 87.9 46.6
Exploration and Production.......................... 30.3 15.6 13.5
Williams Communications Group......................... 66.9 32.4 12.9
General corporate and other........................... 19.0 14.3 3.5
--------- --------- --------
Consolidated..................................... $ 818.9 $ 827.5 $ 325.5
========= ========= ========
Depreciation and depletion:
Williams Interstate Natural Gas Systems:
Northwest Pipeline.................................. $ 43.2 $ 34.9 $ 33.9
Williams Natural Gas................................ 27.5 27.3 27.2
Transcontinental Gas Pipe Line...................... 113.7 109.1 --
Texas Gas Transmission.............................. 41.5 38.9 --
Kern River Gas Transmission......................... 15.5 -- --
Williams Energy Group:
Williams Field Services............................. 94.7 100.4 37.1
Merchant Services................................... .6 1.2 .5
Petroleum Services.................................. 34.1 26.4 22.4
Exploration and Production.......................... 10.5 9.8 9.6
Williams Communications Group......................... 21.3 14.2 12.7
General corporate and other........................... 8.8 7.2 6.9
--------- --------- --------
Consolidated..................................... $ 411.4 $ 369.4 $ 150.3
========= ========= ========
</TABLE>
- ---------------
* Certain amounts have been reclassified as described in Note 1.
F-38
<PAGE> 62
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- CONTINGENT LIABILITIES AND COMMITMENTS
Rate and regulatory matters and related litigation
Williams interstate pipeline subsidiaries, including Williams Pipe Line,
have various regulatory proceedings pending. As a result of rulings in certain
of these proceedings, a portion of the revenues of these subsidiaries has been
collected subject to refund. As to Williams Pipe Line, revenues collected
subject to refund were $251 million at December 31, 1996; it is not expected
that the amount of any refunds ordered would be significant. Accordingly, no
portion of these revenues has been reserved for refund. As to the other
pipelines, see Note 12 for the amount of revenues reserved for potential refund
as of December 31, 1996.
In 1992, the Federal Energy Regulatory Commission (FERC) issued Order 636,
Order 636-A and Order 636-B. These orders, which were challenged in various
respects by various parties in proceedings recently ruled on by the U.S. Court
of Appeals for the D.C. Circuit, require interstate gas pipeline companies to
change the manner in which they provide services. Kern River Gas Transmission
implemented its restructuring on August 1, 1993; Williams Natural Gas
implemented its restructuring on October 1, 1993; and Northwest Pipeline, Texas
Gas and Transcontinental Gas Pipe Line implemented their restructurings on
November 1, 1993. Certain aspects of four pipeline companies' restructuring are
under appeal.
On July 16, 1996, the U.S. Court of Appeals for the D.C. Circuit issued an
order which in part affirmed and in part remanded Order 636. However, the court
stated that Order 636 would remain in effect until FERC issued a final order on
remand after considering the remanded issues. With the issuance of this
decision, the stay on the appeals of individual pipeline's restructuring cases
will be lifted. The only appeal challenging Northwest Pipeline's restructuring
has been dismissed.
Contract reformations and gas purchase deficiencies
As a result of FERC Order 636, which requires interstate gas pipelines to
change the way they do business, each of the natural gas pipeline subsidiaries
has undertaken the reformation or termination of its respective gas supply
contracts. None of the pipelines has any significant pending supplier
take-or-pay, ratable take or minimum take claims.
Current FERC policy associated with Orders 436 and 500 requires interstate
gas pipelines to absorb some of the cost of reforming gas supply contracts
before allowing any recovery through direct bill or surcharges to transportation
as well as sales commodity rates. Under Orders 636, 636-A and 636-B, costs
incurred to comply with these rules are permitted to be recovered in full,
although 10 percent of such costs must be allocated to interruptible
transportation service.
The previously mentioned July 16, 1996, D.C. Circuit Court of Appeals
decision concerning Order 636 has remanded to FERC the issues of whether
pipelines should absorb any portion of Order 636 transition costs and whether 10
percent of such costs should have been allocated to interruptible transportation
services.
Pursuant to a stipulation and agreement approved by the FERC, Williams
Natural Gas has made seven filings to direct bill take-or-pay and gas supply
realignment costs. The first provided for the offset of certain amounts
collected subject to refund against previous take-or-pay direct-billed amounts
and, in addition, covered $24 million in new costs. This filing was approved,
and the final direct-billed amount, taking into consideration the offset, was
$15 million. The second filing covered $18 million in gas supply realignment
costs, and provided for an offset of $3 million. The third filing covered $6.5
million in gas supply realignment costs. The remaining filings covered
additional costs of approximately $15 million, which are similar in nature to
the costs in the second filing. An intervenor has filed a protest seeking to
have the Commission review the prudence of certain of the costs covered by these
filings. On July 31, 1996, the administrative law judge issued an initial
decision rejecting the intervenor's prudency challenge. As of December 31, 1996,
this subsidiary had an accrual of $75 million for its then-estimated remaining
contract-reformation and gas supply realignment
F-39
<PAGE> 63
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs. Williams Natural Gas will make additional filings under the applicable
FERC orders to recover such further costs as may be incurred in the future.
Williams Natural Gas has recorded a regulatory asset of approximately $73
million for estimated future recovery of the foregoing costs.
In September 1995, Texas Gas received FERC approval of a settlement
regarding Texas Gas' recovery of gas supply realignment costs. The settlement
provides that Texas Gas will recover 100 percent of such costs up to $50
million, will share in costs incurred between $50 million and $80 million, and
will absorb any such costs above $80 million. Through December 31, 1996, Texas
Gas has paid approximately $76 million and expects to pay no more than $80
million for gas supply realignment costs, primarily as a result of contract
terminations. Texas Gas has recovered approximately $59 million, plus interest,
in gas supply realignment costs and has recorded a regulatory asset of
approximately $9 million for the estimated future recovery of such costs, most
of which will be collected from customers prior to December 31, 1997. Ninety
percent of the cost recovery is collected through demand surcharges on Texas
Gas' firm transportation rates; the remaining 10 percent is recoverable from
interruptible transportation service.
The foregoing accruals are in accordance with Williams' accounting policies
regarding the establishment of such accruals, which take into consideration
estimated total exposure, as discounted and risk-weighted, as well as costs and
other risks associated with the difference between the time costs are incurred
and the time such costs are recovered from customers. The estimated portion of
such costs recoverable from customers is deferred or recorded as a regulatory
asset based on an estimate of expected recovery of the amounts allowed by FERC
policy. While Williams believes that these accruals are adequate and the
associated regulatory assets are appropriate, costs actually incurred and
amounts actually recovered from customers will depend upon the outcome of
various court and FERC proceedings, the success of settlement negotiations and
various other factors, not all of which are presently foreseeable.
Environmental matters
Since 1989, Texas Gas and Transcontinental Gas Pipe Line have had studies
under way to test certain of their facilities for the presence of toxic and
hazardous substances to determine to what extent, if any, remediation may be
necessary. Transcontinental Gas Pipe Line has responded to data requests
regarding such potential contamination of certain of its sites. The costs of any
such remediation will depend upon the scope of the remediation. At December 31,
1996, these subsidiaries had reserves totaling approximately $29 million for
these costs.
Certain Williams subsidiaries, including Texas Gas and Transcontinental Gas
Pipe Line, have been identified as potentially responsible parties (PRP) at
various Superfund and state waste disposal sites. Although no assurances can be
given, Williams does not believe that the PRP status of these subsidiaries will
have a material adverse effect on its financial position, results of operations
or net cash flows.
Transcontinental Gas Pipe Line, Texas Gas and Williams Natural Gas have
identified polychlorinated biphenyl (PCB) contamination in air compressor
systems, soils and related properties at certain compressor station sites.
Transcontinental Gas Pipe Line, Texas Gas and Williams Natural Gas have also
been involved in negotiations with the U.S. Environmental Protection Agency
(EPA) and state agencies to develop screening, sampling and cleanup programs. In
addition, negotiations with certain environmental authorities and other programs
concerning investigative and remedial actions relative to potential mercury
contamination at certain gas metering sites have been commenced by Williams
Natural Gas, Texas Gas and Transcontinental Gas Pipe Line. As of December 31,
1996, Williams Natural Gas had recorded a liability for approximately $18
million, representing the current estimate of future environmental cleanup costs
to be incurred over the next six to 10 years. The Field Services unit of
Williams Energy Group has recorded an aggregate liability of approximately $15
million, representing the current estimate of their future environmental and
remediation costs, including approximately $6 million relating to former
Williams Natural Gas facilities. Texas Gas and Transcontinental Gas Pipe Line
likewise have recorded liabilities for these costs which are included in the
F-40
<PAGE> 64
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$29 million reserve mentioned above. Actual costs incurred will depend on the
actual number of contaminated sites identified, the actual amount and extent of
contamination discovered, the final cleanup standards mandated by the EPA and
other governmental authorities and other factors. Texas Gas, Transcontinental
Gas Pipe Line and Williams Natural Gas have deferred these costs pending
recovery as incurred through future rates and other means.
In connection with the 1987 sale of the assets of Agrico Chemical Company,
Williams agreed to indemnify the purchaser for environmental cleanup costs
resulting from certain conditions at specified locations, to the extent such
costs exceed a specified amount. It appears certain that such costs will exceed
this amount. At December 31, 1996, Williams had approximately $10 million
accrued for such excess costs. The actual costs incurred will depend on the
actual amount and extent of contamination discovered, the final cleanup
standards mandated by the EPA or other governmental authorities, and other
factors.
A lawsuit was filed in May 1993, in a state court in Colorado in which
certain claims have been made against various defendants, including Northwest
Pipeline, contending that gas exploration and development activities in portions
of the San Juan Basin have caused air, water and other contamination. The
plaintiffs in the case sought certification of a plaintiff class. In June 1994,
the lawsuit was dismissed for failure to join an indispensable party over which
the state court had no jurisdiction. The Colorado Court of Appeals has affirmed
the dismissal and remanded the case to Colorado district court for action
consistent with the appeals court's decision. Since June 1994, eight individual
lawsuits have been filed against Northwest Pipeline and others in U.S. District
Court in Colorado, making essentially the same claims. Northwest Pipeline is
vigorously defending these lawsuits.
Other legal matters
In 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit against
Williams Production, a wholly owned subsidiary of Williams, and other gas
producers in the San Juan Basin area, alleging that certain coal strata were
reserved by the United States for the benefit of the Tribe and that the
extraction of coal-seam gas from the coal strata was wrongful. The Tribe seeks
compensation for the value of the coal-seam gas. The Tribe also seeks an order
transferring to the Tribe ownership of all of the defendants' equipment and
facilities utilized in the extraction of the coal-seam gas. In September 1994,
the court granted summary judgment in favor of the defendants and the Tribe
lodged an interlocutory appeal with the U.S. Court of Appeals for the Tenth
Circuit. Williams Production agreed to indemnify the Williams Coal Seam Gas
Royalty Trust (Trust) against any losses that may arise in respect of certain
properties subject to the lawsuit. In addition, if the Tribe is successful in
showing that Williams Production has no rights in the coal-seam gas, Williams
Production has agreed to pay to the Trust for distribution to then-current
unitholders, an amount representing a return of a portion of the original
purchase price paid for the units. While Williams believes that such a payment
is not probable, it has reserved a portion of the proceeds from the sale of the
units in the Trust.
In October 1990, Dakota Gasification Company (Dakota), the owner of the
Great Plains Coal Gasification Plant (Plant), filed suit in the U.S. District
Court in North Dakota against Transcontinental Gas Pipe Line and three other
pipeline companies alleging that the pipeline companies had not complied with
their respective obligations under certain gas purchase and gas transportation
contracts. In September 1992, Dakota and the Department of Justice on behalf of
the Department of Energy filed an amended complaint adding as defendants in the
suit, Transco Energy Company, Transco Coal Gas Company and all of the other
partners in the partnership that originally constructed the Plant and each of
the parent companies of these entities. Dakota and the Department of Justice
sought declaratory and injunctive relief and the recovery of damages, alleging
that the four pipeline defendants underpaid for gas, collectively, as of June
30, 1992, by more than $232 million plus interest and for additional damages for
transportation services and costs and expenses including attorneys' fees. By
order dated December 18, 1996, the FERC approved a settlement of the
F-41
<PAGE> 65
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
litigation. No party to the FERC proceeding has sought review of this order. The
final settlement terms went into effect February 1, 1997, which will allow
Transcontinental Gas Pipe Line to recover its cost.
In connection with agreements to resolve take-or-pay and other contract
claims and to amend gas purchase contracts, Transcontinental Gas Pipe Line and
Texas Gas each entered into certain settlements with producers, which may
require the indemnification of certain claims for additional royalties which the
producers may be required to pay as a result of such settlements. As a result of
such settlements, Transcontinental Gas Pipe Line and Texas Gas were named as
defendants in, respectively, six and two lawsuits. Six of the eight lawsuits
have been settled for cash payments aggregating approximately $9 million, all of
which have previously been accrued, and of which approximately $3 million is
recoverable as transition costs under Order 636. Damages, including interest, of
approximately $29 million have been asserted in the remaining cases. Producers
have received and may receive other demands, which could result in additional
claims. Indemnification for royalties will depend on, among other things, the
specific lease provisions between the producer and the lessor and the terms of
the settlement between the producer and either Transcontinental Gas Pipe Line or
Texas Gas. Texas Gas may file to recover 75 percent of any such additional
amounts it may be required to pay pursuant to indemnities for royalties under
the provisions of Order 528.
In November 1994, Continental Energy Associates Limited Partnership (the
Partnership) filed a voluntary petition under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court, Middle District of Pennsylvania. The Partnership
owns a cogeneration facility in Hazelton, Pennsylvania (the Facility). Hazelton
Fuel Management Company (HFMC), a subsidiary of Transco Energy, formerly
supplied natural gas and fuel oil to the Facility. As of December 31, 1996, HFMC
had current outstanding receivables from the Partnership of approximately $20
million, all of which have been reserved. The Partnership recently negotiated
settlements of its power purchase agreements with two electric utilities. The
settlements have been approved by the Bankruptcy Court and Pennsylvania Public
Utility Commission. The time for appealing the Pennsylvania Public Utility
Commission approval of the settlements expires on February 23, 1997. Assuming no
appeals are filed the settlements will become binding. A Plan of Reorganization
(the Plan) acceptable to all parties has been negotiated and drafted. The Plan
is contingent upon the power purchase agreement settlements being approved. It
is anticipated the Plan will be filed with the Bankruptcy Court for approval on
or before February 28, 1997. Under the Plan, all litigation involving HFMC will
be fully settled, and a net payment in some amount to HFMC is anticipated under
the Plan. It is not possible to predict with certainty the amount of such a
payment.
On July 18, 1996, an individual filed a lawsuit in the U.S. District Court
for the District of Columbia against 70 natural gas pipelines and other gas
purchasers or former gas purchasers. All of Williams' natural gas pipeline
subsidiaries are named as defendants in the lawsuit. The plaintiff claims, on
behalf of the United States under the False Claims Act, that the pipelines have
incorrectly measured the heating value or volume of gas purchased by the
defendants. The plaintiff claims that the United States has lost royalty
payments as a result of these practices. The pipelines are vigorously defending
against these claims.
In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries which are incidental to their operations.
Summary
While no assurances may be given, Williams does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, insurance coverage, recovery from customers or
other indemnification arrangements, will have a materially adverse effect upon
Williams' future financial position, results of operations and cash flow
requirements.
F-42
<PAGE> 66
THE WILLIAMS COMPANIES, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (millions, except
per-share amounts). Per-share amounts have been restated to reflect the effect
of the three-for-two common stock split and distribution (see Note 14).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues...................................... $ 893.7 $837.5 $842.2 $957.8
Costs and operating expenses.................. 499.4 493.9 509.3 561.5
Net income.................................... 104.9 80.4 71.0 106.0
Primary earnings per common and common-
equivalent share............................ .63 .48 .42 .64
Fully diluted earnings per common and common-
equivalent share............................ .62 .47 .42 .63
</TABLE>
<TABLE>
<CAPTION>
1995
----
<S> <C> <C> <C> <C>
Revenues...................................... $ 642.4 $663.9 $712.4 $837.0
Costs and operating expenses.................. 351.1 400.1 438.9 510.6
Net income.................................... 1,088.9 83.3 68.5 77.5
Primary earnings per common and common-
equivalent share............................ 7.71 .52 .39 .47
Fully diluted earnings per common and common-
equivalent share............................ 7.70 .52 .39 .46
</TABLE>
The sum of earnings per share for the four quarters may not equal the total
earnings per share for the year due to changes in the average number of common
shares outstanding.
Second-quarter 1996 net income includes recognition of favorable income tax
adjustments totaling $10 million related to research credits and previously
provided deferred income taxes on certain regulated capital projects.
Third-quarter 1996 net income includes approximately $6 million, net of federal
income tax effect, from the effects of state income tax adjustments related to
1995.
First-quarter 1995 net income includes the after-tax gain of $1 billion on
the sale of Williams' network services operations (see Note 3 of Notes to
Consolidated Financial Statements). The second quarter of 1995 includes a $16
million after-tax gain from the sale of Williams' 15 percent interest in
Texasgulf Inc. (see Note 6 of Notes to Consolidated Financial Statements) and an
$8 million income tax benefit resulting from settlements with taxing
authorities. Northwest Pipeline's third-quarter 1995 operating profit includes
the approximate $11 million net favorable effect of two reserve accrual
adjustments. In third-quarter 1995, Field Services recorded $20 million of
income from the favorable resolution of contingency issues involving previously
regulated gathering and processing assets. In third-quarter 1995, Exploration
and Production recorded an $8 million loss accrual for a future minimum price
natural gas purchase commitment.
F-43
<PAGE> 67
Selected comparative fourth-quarter data are as follows (millions, except
per-share amounts). Certain 1995 amounts have been restated and/or reclassified
as described in Note 1 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Operating profit (loss):
Williams Interstate Natural Gas Systems:
Northwest Pipeline..................................... $ 21.8 $ 25.1
Williams Natural Gas................................... 10.9 15.5
Transcontinental Gas Pipe Line......................... 61.0 47.4
Texas Gas Transmission................................. 29.5 28.6
Kern River Gas Transmission............................ 29.3 --
Williams Energy Group:
Field Services......................................... 56.3 41.6
Merchant Services...................................... 13.6 1.6
Petroleum Services..................................... 18.3 19.1
Exploration and Production............................. 3.7 .4
Williams Communications Group............................. .6 8.0
Other..................................................... (2.9) (.1)
------ ------
Total operating profit............................ 242.1 187.2
General corporate expenses.................................. (11.6) (12.1)
Interest expense -- net..................................... (91.9) (69.7)
Investing income............................................ 4.1 12.7
Gain on sale of asset....................................... 15.7 --
Write-off of project costs.................................. -- (41.4)
Other income -- net......................................... 8.0 5.2
------ ------
Income from continuing operations before income taxes....... 166.4 81.9
Provision for income taxes.................................. 60.4 17.5
------ ------
Income from continuing operations........................... 106.0 64.4
Income from discontinued operations......................... -- 13.1
------ ------
Net income.................................................. $106.0 $ 77.5
====== ======
Primary earnings per common and common-equivalent share..... $ .64 $ .47
====== ======
Fully diluted earnings per common and common-equivalent
share..................................................... $ .63 $ .46
====== ======
</TABLE>
Field Services' fourth-quarter 1996 operating profit includes a gain of
approximately $20 million from the property insurance coverage associated with
construction of replacement gathering facilities. In addition, 1996 segment
operating profit and general corporate expenses together include approximately
$10 million related to an all-employee bonus that was linked to achieving record
financial performance. In fourth-quarter 1996, Williams recognized a pre-tax
gain of $15.7 million from the sale of certain communication rights.
Merchant Services' fourth-quarter 1995 operating profit includes loss
accruals of approximately $6 million, primarily related to contract disputes. In
fourth-quarter 1995, the development of a commercial coal gasification venture
in south-central Wyoming was canceled, resulting in a $41.4 million pre-tax
charge (see Note 6 of Notes to Consolidated Financial Statements).
Fourth-quarter 1995 income from discontinued operations reflects the after-tax
effect of the reversal of accruals established at the time of the sale of the
network services operations (see Note 3 of Notes to Consolidated Financial
Statements).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
F-44
<PAGE> 68
THE WILLIAMS COMPANIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 14(A) 1 AND 2
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Covered by report of independent auditors:
Consolidated statement of income for the three years ended
December 31, 1996...................................... F-12
Consolidated balance sheet at December 31, 1996 and
1995................................................... F-14
Consolidated statement of stockholders' equity for the
three years ended December 31, 1996.................... F-15
Consolidated statement of cash flows for the three years
ended December 31, 1996................................ F-16
Notes to consolidated financial statements................ F-17
Schedule for the three years ended December 31, 1996:
II -- Valuation and qualifying accounts................ F-46
Not covered by report of independent auditors:
Quarterly financial data (unaudited)...................... F-43
</TABLE>
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
F-45
<PAGE> 69
THE WILLIAMS COMPANIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(a)
<TABLE>
<CAPTION>
ADDITIONS
------------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(B) BALANCE
--------- -------- ----- ------------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1996.................................. $11.3 $4.1 $1.3(c) $7.0 $ 9.7
1995.................................. 7.9 3.8 1.6(c) 2.0 11.3
1994.................................. 10.2 4.2(d) -- 6.5(e) 7.9
</TABLE>
- ---------------
(a) Deducted from related assets.
(b) Represents balances written off, net of recoveries and reclassifications.
(c) Primarily relates to acquisitions of businesses.
(d) Excludes $5.7 million related to discontinued operations.
(e) Includes the discontinued operations beginning balance reclassification of
$3.6 million.
F-46
<PAGE> 70
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Directors and nominees for Director of
Williams required by Item 401 of Regulation S-K is presented under the heading
"Election of Directors" in Williams' Proxy Statement prepared for the
solicitation of proxies in connection with the Annual Meeting of Stockholders of
the Company for 1997 (the "Proxy Statement"), which information is incorporated
by reference herein. A copy of the Proxy Statement is filed as an exhibit to the
Form 10-K. Information regarding the executive officers of Williams is presented
following Item 4 herein, as permitted by General Instruction G(3) to Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item
405 of Regulation S-K is included under the heading "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement, which
information is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K regarding executive
compensation is presented under the headings "Election of Directors" and
"Executive Compensation and Other Information" in the Proxy Statement, which
information is incorporated by reference herein. Notwithstanding the foregoing,
the information provided under the headings "Compensation Committee Report on
Executive Compensation" and "Stockholder Return Performance Presentation" in the
Proxy Statement are not incorporated by reference herein. A copy of the Proxy
Statement is filed as an exhibit to the Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding the security ownership of certain beneficial
owners and management required by Item 403 of Regulation S-K is presented under
the headings "Security Ownership of Certain Beneficial Owners and Management" in
the Proxy Statement, which information is incorporated by reference herein. A
copy of the Proxy Statement is filed as an exhibit to the Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is no information regarding certain relationships and related
transactions required by Item 404 of Regulation S-K to be reported.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. The financial statements and schedule listed in the
accompanying index to consolidated financial statements are filed as part of
this annual report.
(a) 3 and (c). The exhibits listed below are filed as part of this annual
report.
Exhibit 2 --
*(a) Stock Purchase Agreement by and among LDDS Communications,
Inc., The Williams Companies, Inc., and WTG Holdings, Inc., dated as of
August 22, 1994 (filed as Exhibit 2 to Williams Form 8-K, filed August
22, 1994).
*(b) Agreement and Plan of Merger, dated as of December 12, 1994,
among Williams, WC Acquisition Corp. and Transco (filed as Exhibit
(c)(1) to Schedule 14D-1, dated December 16, 1994).
*(c) Amendment to Agreement and Plan of Merger, dated as of
February 17, 1995 (filed as Exhibit 6 to Amendment No. 8 to Schedule
13D, dated February 23, 1995).
F-47
<PAGE> 71
Exhibit 3 --
*(a) Restated Certificate of Incorporation of Williams (filed as
Exhibit 4(a) to Form 8-B Registration Statement, filed August 20, 1987).
*(b) Certificate of Designation with respect to the $2.21
Cumulative Preferred Stock (filed as Exhibit 4.3 to the Registration
Statement on Form S-3, filed August 19, 1992).
*(c) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 20, 1994 (filed as Exhibit 3(d) to Form 10-K
for the fiscal year ended December 31, 1994).
*(d) Certificate of Designation with respect to the $3.50
Cumulative Convertible Preferred Stock (filed as Exhibit 3.1(c) to the
Prospectus and Information Statement to Amendment No. 2 to the
Registration Statement on Form S-4, filed March 30, 1995).
*(e) Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock (filed as Exhibit 3(f) to
Form 10-K for the fiscal year ended December 31, 1995).
*(f) Rights Agreement, dated as of February 6, 1996, between
Williams and First Chicago Trust Company of New York (filed as Exhibit 4
to Williams Form 8-K, filed January 24, 1996).
*(g) By-laws of Williams, as amended (filed, as amended, as Exhibit
3 to Form 10-Q for the quarter ended September 30, 1996).
Exhibit 4 --
*(a) Form of Senior Debt Indenture between the Company and Chase
Manhattan Bank (formerly 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 1998
through 2001; the 7 1/2% Notes, due 1999, and the 8 7/8% Debentures, due
2012 (filed as Exhibit 4.1 to Form S-3 Registration Statement No.
33-33294, filed February 2, 1990).
*(b) Form of Subordinated Debt Indenture between the Company and
Chase Manhattan Bank (formerly Chemical Bank), Trustee, relating to
9.60% Quarterly Income Capital Securities, due 2025 (filed as Exhibit
4.2 to Form S-3 Registration Statement No. 33-60397, filed June 20,
1995).
(c) U.S. $1,000,000,000 Amended and Restated Credit Agreement,
dated as of December 20, 1996, among Williams and certain of its
subsidiaries and the banks named therein and Citibank, N.A., as agent.
Exhibit 10(iii) -- Compensatory Plans and Management Contracts
*(a) The Williams Companies, Inc. Supplemental Retirement Plan,
effective as of January 1, 1988 (filed as Exhibit 10(iii)(c) to Form
10-K for the year ended December 31, 1987).
*(b) Form of Employment Agreement, dated January 1, 1990, between
Williams and certain executive officers (filed as Exhibit 10(iii)(d) to
Form 10-K for the year ended December 31, 1989).
*(c) Form of The Williams Companies, Inc. Change in Control
Protection Plan between Williams and employees (filed as Exhibit
10(iii)(e) to Form 10-K for the year ended December 31, 1989).
*(d) The Williams Companies, Inc. 1985 Stock Option Plan (filed as
Exhibit A to Williams' Proxy Statement, dated March 13, 1985).
*(e) The Williams Companies, Inc. 1988 Stock Option Plan for
Non-Employee Directors (filed as Exhibit A to Williams' Proxy Statement,
dated March 14, 1988).
*(f) The Williams Companies, Inc. 1990 Stock Plan (filed as Exhibit
A to Williams' Proxy Statement, dated March 12, 1990).
F-48
<PAGE> 72
*(g) The Williams Companies, Inc. Stock Plan for Non-Officer
Employees (filed as Exhibit 10(iii)(g) to Form 10-K for the fiscal year
ended December 31, 1995).
*(h) The Williams Companies, Inc. 1996 Stock Plan (filed as Exhibit
A to Williams' Proxy Statement, dated March 27, 1996).
*(i) The Williams Companies, Inc. 1996 Stock Plan for Non-Employee
Directors (filed as Exhibit B to Williams' Proxy Statement, dated March
27, 1996).
*(j) Indemnification Agreement, effective as of August 1, 1986,
between Williams and members of the Board of Directors and certain
officers of Williams (filed as Exhibit 10(iii)(e) to Form 10-K for the
year ended December 31, 1986).
Exhibit 11 -- Computation of Earnings Per Common and Common-equivalent
Share.
Exhibit 12 -- Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements.
Exhibit 20 -- Definitive Proxy Statement of Williams for 1997 (as filed
with the Commission on March 26, 1997).
Exhibit 21 -- Subsidiaries of the registrant.
Exhibit 23 -- Consent of Independent Auditors.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule.
Exhibit 27.1 -- Restated Financial Data Schedule for the year ended
December 31, 1995.
(b) Reports on Form 8-K.
On December 30, 1996, the Company filed a report on Form 8-K to report
the Company's distribution of one share of Common Stock of the Company, $1
par value, for every two shares of Common Stock outstanding on December 6,
1996, pursuant to a three-for-two stock split.
(d) The financial statements of partially-owned companies are not presented
herein since none of them individually, or in the aggregate, constitute a
significant subsidiary.
- ---------------
* Each such exhibit has heretofore been filed with the Securities and Exchange
Commission as part of the filing indicated and is incorporated herein by
reference.
F-49
<PAGE> 73
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
THE WILLIAMS COMPANIES, INC.
(Registrant)
By: /s/ SHAWNA L. BARNARD
----------------------------------
Shawna L. Barnard
Attorney-in-fact
Dated: March 26, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KEITH E. BAILEY* Chairman of the Board, President, Chief
- ----------------------------------------------------- Executive Officer (Principal Executive
Keith E. Bailey Officer) and Director
/s/ JACK D. MCCARTHY* Senior Vice President -- Finance (Principal
- ----------------------------------------------------- Financial Officer)
Jack D. McCarthy
/s/ GARY R. BELITZ* Controller (Principal Accounting Officer)
- -----------------------------------------------------
Gary R. Belitz
/s/ GLENN A. COX* Director
- -----------------------------------------------------
Glenn A. Cox
/s/ THOMAS H. CRUIKSHANK* Director
- -----------------------------------------------------
Thomas H. Cruikshank
/s/ PATRICIA L. HIGGINS* Director
- -----------------------------------------------------
Patricia L. Higgins
Director
- -----------------------------------------------------
W. R. Howell
/s/ ROBERT J. LAFORTUNE* Director
- -----------------------------------------------------
Robert J. LaFortune
/s/ JAMES C. LEWIS* Director
- -----------------------------------------------------
James C. Lewis
/s/ JACK A. MACALLISTER* Director
- -----------------------------------------------------
Jack A. MacAllister
/s/ JAMES A. MCCLURE* Director
- -----------------------------------------------------
James A. McClure
</TABLE>
II-1
<PAGE> 74
<TABLE>
<C> <S>
/s/ PETER C. MEINIG* Director
- ------------------------------------------------------
Peter C. Meinig
/s/ KAY A. ORR* Director
- ------------------------------------------------------
Kay A. Orr
/s/ GORDON R. PARKER* Director
- ------------------------------------------------------
Gordon R. Parker
/s/ JOSEPH H. WILLIAMS* Director
- ------------------------------------------------------
Joseph H. Williams
</TABLE>
*By /s/ SHAWNA L. BARNARD
--------------------------------
Shawna L. Barnard
Attorney-in-fact
Dated: March 26, 1997
II-2
<PAGE> 75
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4(c) -- Amended Restated Credit Agreement
11 -- Computation of Earnings Per Common and Common-equivalent
Share.
12 -- Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements.
21 -- Subsidiaries of the registrant.
23 -- Consent of Independent Auditors.
24 -- Power of Attorney together with certified resolution.
27 -- Financial Data Schedule.
27.1 -- Restated Financial Data Schedule for the year ended
December 31, 1995.
</TABLE>
II-3
<PAGE> 1
Exhibit 4 (c)
U.S. $1,000,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 20, 1996
Among
THE WILLIAMS COMPANIES, INC.
NORTHWEST PIPELINE CORPORATION
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
TEXAS GAS TRANSMISSION CORPORATION
WILLIAMS PIPE LINE COMPANY
WILLIAMS HOLDINGS OF DELAWARE, INC.
as Borrowers
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C> <C>
Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.05. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.02. Making the A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.04. Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.05. Repayment of A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.06. Interest on A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.07. Additional Interest on Eurodollar Rate Advances . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.08. Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.09. Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.10. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.11. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.13. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.15. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.16. The B Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.17. Optional Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.18. Extension of Termination Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.19. Voluntary Conversion of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.20. Automatic Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.02. Additional Conditions Precedent to Each A Borrowing . . . . . . . . . . . . . . . . . . . . . 27
Section 3.03. Conditions Precedent to Each B Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.02. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.03. Citibank and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.04. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.05. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.06. Binding Effect; Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.08. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.09. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.10. Survival of Agreements, Representations and Warranties, Etc. . . . . . . . . . . . . . . . . 49
Section 8.11. Borrowers' Right to Apply Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.14. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
-ii-
<PAGE> 4
Schedule I - Bank Information
Schedule II - Borrower Information
Schedule III - Permitted NWP Liens
Schedule IV - Permitted TGPL Liens
Schedule V - Permitted TGT Liens
Schedule VI - Permitted TWC Liens
Schedule VII - Permitted WPL Liens
Schedule VIII - Permitted WHD Liens
Schedule IX - Commitments
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Notice of A Borrowing
Exhibit B-2 - Notice of B Borrowing
Exhibit C - Opinion of William G. von Glahn
Exhibit D - Opinion of Special Counsel to Agent
Exhibit E - Existing Transfer Restrictions
Exhibit F - Form of Transfer Agreement
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<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 20, 1996
This Amended and Restated Credit Agreement dated as of December 20,
1996, is by and among the Borrowers, the Agent and the Banks. In consideration
of the mutual covenants and agreements contained herein, the Borrowers, the
Agent and the Banks hereby agree as set forth herein.
PRELIMINARY STATEMENTS
1. The Borrowers, the Agent and the Banks are parties to the
Credit Agreement dated as of February 23, 1995 (as previously amended, the
"1995 Credit Agreement").
2. The Borrowers have requested that the 1995 Credit Agreement be
further amended and, as so further amended, be restated in its entirety, and
the parties hereto have agreed to do so on the terms and conditions set forth
herein.
3. The parties hereto have agreed to restate the 1995 Credit
Agreement in its entirety for convenience, and this Amended and Restated Credit
Agreement constitutes for all purposes an amendment to the 1995 Credit
Agreement, and each reference to an Advance or Borrowing herein shall include
each advance or borrowing made heretofore under the 1995 Credit Agreement as
well as each Advance or Borrowing made hereafter under this Agreement.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"A Advance" means an advance by a Bank to a Borrower as part
of an A Borrowing and refers to a Base Rate Advance or a Eurodollar
Rate Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
Advances of the same Type to the same Borrower made by each of the
Banks pursuant to Section 2.01.
"A Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of such Borrower to such Bank
resulting from the A Advances to such Borrower owed to such Bank.
"Advance" means an A Advance or a B Advance.
"Agent" means Citibank, N.A. in its capacity as agent pursuant
to Article VII hereof and any successor Agent pursuant to Section
7.06.
<PAGE> 6
"Agreement" means this Amended and Restated Credit Agreement
dated as of December 20, 1996 among the Borrowers, the Agent and the
Banks, as amended or modified from time to time.
"Applicable Lending Office" means, with respect to each Bank,
such Bank's Domestic Lending Office in the case of a Base Rate Advance
and such Bank's Eurodollar Lending Office in the case of a Eurodollar
Rate Advance and, in the case of a B Advance, the office of such Bank
notified by such Bank to the Agent as its Applicable Lending Office
with respect to such B Advance.
"Applicable Margin" means
(i) as to any Eurodollar Rate Advance to any Borrower (other than WPL
during such times as WPL is Unrated), the rate per annum set forth in
the following table for the relevant Rating Category applicable to
such Borrower from time to time:
<TABLE>
<CAPTION>
Rating Applicable
Category Margin
------------------ ----------------
<S> <C>
One .25%
Two .30%
Three .35%
Four .45%
Five .65%
Six .75%
Seven 1.00%
</TABLE>
and (ii) for each day during such times as WPL is Unrated, as to any
Eurodollar Rate Advance to WPL, the rate per annum set forth in the
following table for the relevant amount of the Applicable WPL Debt to
TNW Ratio for such day:
<TABLE>
<CAPTION>
Applicable
WPL Debt to Applicable
TNW Ratio Margin
----------- --------------
<S> <C>
Less than .55 .35%
.55 or greater and
less than .60 .45%
.60 or greater .75%
</TABLE>
The Applicable Margin determined pursuant to clause (i) of this
definition for any Eurodollar Rate Advance to any Borrower shall
change when and as the relevant Rating Category applicable to such
Borrower changes. Furthermore, the applicability of clause (i) or
(ii) of this definition to WPL shall change when and as the status of
WPL as Unrated or not Unrated changes. For example, if WPL borrows on
September 15 of a year a Eurodollar
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Rate Advance with a three month Interest Period and WPL is Unrated
from September 15 through October 15 of such year and is not Unrated
thereafter, then the Applicable Margin for such Advance will be
determined (1) pursuant to the foregoing clause (ii) from September 15
through October 15 of such year (and the Applicable WPL Debt to TNW
Ratio (a) for the days from September 15 through September 30 will be
the WPL Debt to TNW Ratio on March 31 of such year and (b) for the
days after September 30 will be the WPL Debt to TNW Ratio on June 30
of such year), and (2) pursuant to the foregoing clause (i) during the
other days of such Interest Period. Furthermore if, in such example,
the Rating Category applicable to WPL from October 16 through October
20 was Rating Category Five and thereafter was Rating Category Four,
the Applicable Margin for such Advance would be .65% from October 16
through October 20 and .45% thereafter.
"Applicable WPL Debt to TNW Ratio" for any day means the WPL
Debt to TNW Ratio as of the end of the calendar quarter which is the
second calendar quarter prior to such day. For example, the
Applicable WPL Debt to TNW Ratio for any day in the calendar quarter
ending September 30 of a year will be the WPL Debt to TNW Ratio as of
March 31 of such year.
"Arranger" means Citicorp Securities, Inc.
"Attributable Obligation" of any Person means, with respect to
any Sale and Lease-Back Transaction of such Person as of any
particular time, the present value at such time discounted at the rate
of interest implicit in the terms of the lease of the obligations of
the lessee under such lease for net rental payments during the
remaining term of the lease (including any period for which such lease
has been extended or may, at the option of such Person, be extended).
"B Advance" means an advance by a Bank to a Borrower as part
of a B Borrowing resulting from the auction bidding procedure
described in Section 2.16.
"B Borrowing" means a borrowing consisting of simultaneous B
Advances to the same Borrower from each of the Banks whose offer to
make one or more B Advances as part of such borrowing has been
accepted by such Borrower under the auction bidding procedure
described in Section 2.16.
"B Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-2 hereto,
(or, in the case of B Advances outstanding on December 20, 1996, in
substantially the form of Exhibit A-2 to the 1995 Credit Agreement)
evidencing the indebtedness of such Borrower to such Bank resulting
from a B Advance made to such Borrower by such Bank.
"B Reduction" has the meaning specified in Section 2.01.
"Banks" means the lenders listed on the signature pages hereof
and each other Person that becomes a Bank pursuant to the last
sentence of Section 8.06(a).
"Base Rate" means a fluctuating interest rate per annum as
shall be in effect from time to time which rate per annum shall at all
times be equal to the highest of:
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(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate; or
(b) 1/2 of one percent per annum above the latest
three-week moving average of secondary market morning offering
rates in the United States for three-month certificates of
deposit of major United States money market banks, such
three-week moving average being determined weekly on each
Monday (or, if any such day is not a Business Day, on the next
succeeding Business Day) for the three-week period ending on
the previous Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of quotations
for such rates received by Citibank from three New York
certificate of deposit dealers of recognized standing selected
by Citibank, in either case adjusted to the nearest 1/4 of one
percent or, if there is no nearest 1/4 of one percent, to the
next higher 1/4 of one percent; or
(c) 1/2 of one percent per annum above the
Federal Funds Rate in effect from time to time.
"Base Rate Advance" means an A Advance which bears interest as
provided in Section 2.06(a).
"Borrowers" means TWC, WHD, NWP, TGPL, TGT and WPL.
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances or
relates to any B Advance as to which the related Notice of B Borrowing
is delivered pursuant to clause (B) of Section 2.16(a)(i), on which
dealings are carried on in the London interbank market.
"Citibank" means Citibank, N.A.
"Code" means, as appropriate, the Internal Revenue Code of
1986, as amended, or any successor Federal tax code, and any reference
to any statutory provision shall be deemed to be a reference to any
successor provision or provisions.
"Commitment" of any Bank to any Borrower means at any time the
lesser of (i) the amount set opposite or deemed (pursuant to clause
(vii) of the last sentence of Section 8.06(a) and as reflected in the
relevant Transfer Agreement referred to in such sentence) to be set
opposite such Bank's name for such Borrower on Schedule IX hereof as
such amount may be terminated, reduced or increased after December 20,
1996 pursuant to Section 2.04, Section 2.17, Section 6.01 or Section
8.06(a), or (ii) the amount of the Commitment of such Bank to TWC at
such time.
"Consolidated" refers to the consolidation of the accounts of
any Person and its subsidiaries in accordance with generally accepted
accounting principles.
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"Consolidated Net Worth" of any Person means the Net Worth of
such Person and its Subsidiaries on a Consolidated basis.
"Consolidated Tangible Net Worth" of any Person means the
Tangible Net Worth of such Person and its Subsidiaries on a
Consolidated basis.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.02, Section 2.19 or Section 2.20.
"Debt" means, in the case of any Person, (i) indebtedness of
such Person for borrowed money, (ii) obligations of such Person
evidenced by bonds, debentures or notes, (iii) obligations of such
Person to pay the deferred purchase price of property or services,
(iv) monetary obligations of such Person as lessee under leases which
are, in accordance with generally accepted accounting principles,
recorded as capital leases, (v) obligations of such Person under
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) or clause (vii) of
this definition, (vi) indebtedness or obligations of others of the
kinds referred to in clauses (i) through (v) or clause (vii) of this
definition secured by any Lien on or in respect of any property of
such Person, and (vii) all liabilities of such Person in respect of
unfunded vested benefits under any Plan; provided, however, that Debt
shall not include any obligation under or resulting from any agreement
referred to in paragraph (y) of Schedule III, paragraph (y) of
Schedule IV, paragraph (y) of Schedule V, paragraph (y) of Schedule
VI, paragraph (h) of Schedule VII or paragraph (y) of Schedule VIII or
under or resulting from any sale and leaseback referred to in
paragraph (aa) of Schedule III, paragraph (aa) of Schedule IV,
paragraph (aa) of Schedule V, paragraph (bb) of Schedule VI, paragraph
(j) of Schedule VII or paragraph (aa) of Schedule VIII.
"Domestic Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office"
opposite its name on Schedule I hereto or pursuant to Section 8.06(a),
or such other office of such Bank as such Bank may from time to time
specify to the Borrowers and the Agent.
"Environment" shall have the meaning set forth in 42 U.S.C.
Section 9601(8) as defined on the date of this Agreement, and
"Environmental" shall mean pertaining or relating to the Environment.
"Environmental Protection Statute" shall mean any United
States local, state or federal, or any foreign, law, statute,
regulation, order, consent decree or other agreement or Governmental
Requirement arising from or in connection with or relating to the
protection or regulation of the Environment, including, without
limitation, those laws, statutes, regulations, orders, decrees,
agreements and other Governmental Requirements relating to the
disposal, cleanup, production, storing, refining, handling,
transferring, processing or transporting of Hazardous Waste, Hazardous
Substances or any pollutant or contaminant, wherever located.
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"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated
and rulings issued thereunder from time to time.
"ERISA Affiliate" of any Borrower means any trade or business
(whether or not incorporated) which is a member of a group of which
such Borrower is a member and which is under common control within the
meaning of the regulations under Section 414 of the Code.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Bank,
the office of such Bank specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or pursuant to Section 8.06(a)
(or, if no such office is specified, its Domestic Lending Office) or
such other office of such Bank as such Bank may from time to time
specify to the Borrowers and the Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same A Borrowing, an
interest rate per annum (rounded upward to the nearest whole multiple
of 1/16 of 1% per annum, if such rate is not such a multiple) equal to
the rate per annum at which deposits in U.S. dollars are offered by
the principal office of Citibank in London, England to prime banks in
the London interbank market at 11:00 A.M. (London time) two Business
Days before the first day of such Interest Period in an amount
substantially equal to the amount of the Eurodollar Rate Advance of
Citibank comprising part of such A Borrowing to be outstanding during
such Interest Period and for a period equal to such Interest Period.
"Eurodollar Rate Advance" means an A Advance which bears
interest as provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" of any Bank for any
Interest Period for any Eurodollar Rate Advance means the reserve
percentage applicable during such Interest Period (or if more than one
such percentage shall be so applicable, the daily average of such
percentages for those days in such Interest Period during which any
such percentage shall be so applicable) under regulations issued from
time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for such Bank with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
For purposes of clause (iv) of the definition herein of "Interest
Period", Section 2.19 and Section 6.01, an Event of Default exists as
to a particular Borrower if such Event of Default exists wholly or in
part as a result of any event, condition, action, inaction,
representation or other matter of, by or otherwise directly or
indirectly pertaining to such Borrower or any Subsidiary of such
Borrower. Without limiting the foregoing and for purposes of further
clarification, it is agreed that inasmuch as each of WHD, NWP, WPL,
TGPL and TGT is a Subsidiary of
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TWC, any Event of Default that exists as to any of WHD, NWP, WPL, TGPL
or TGT also exists as to TWC.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Governmental Requirements" means all judgments, orders,
writs, injunctions, decrees, awards, laws, ordinances, statutes,
regulations, rules, franchises, permits, certificates, licenses,
authorizations and the like and any other requirements of any
government or any commission, board, court, agency, instrumentality or
political subdivision thereof.
"Hazardous Substance" shall have the meaning set forth in 42
U.S.C. Section 9601(14) and shall also include each other substance
considered to be a hazardous substance under any Environmental
Protection Statute.
"Hazardous Waste" shall have the meaning set forth in 42
U.S.C. Section 6903(5) and shall also include each other substance
considered to be a hazardous waste under any Environmental Protection
Statute (including, without limitation 40 C.F.R. Section 261.3).
"Insufficiency" means, with respect to any Plan, the amount,
if any, by which the present value of the vested benefits under such
Plan exceeds the fair market value of the assets of such Plan
allocable to such benefits.
"Interest Period" means, for each A Advance to a Borrower
comprising part of the same A Borrowing, the period commencing on the
date of such A Advance or the date of the Conversion of any Base Rate
Advance into a Eurodollar Rate Advance and ending on the last day of
the period selected by such Borrower pursuant to the provisions below
and, thereafter, each subsequent period commencing on the last day of
the immediately preceding Interest Period and ending on the last day
of the period selected by such Borrower pursuant to the provisions
below. The duration of each Interest Period shall be one, two, three
or six months, in each case as such Borrower may, upon notice received
by the Agent not later than 11:00 A.M. (New York City time) on the
third Business Day prior to the first day of such Interest Period,
select (it being agreed that selection of a subsequent Interest Period
for an outstanding Eurodollar Rate Advance does not require that a
Notice of A Borrowing be given, inasmuch as no Advance is being
requested or made as a result of such selection); provided, however,
that:
(i) Interest Periods commencing on the same date
for A Advances comprising part of the same A Borrowing shall
be of the same duration;
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(ii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided that if such
extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding
Business Day;
(iii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have
ended if there were a numerically corresponding day in such
calendar month; and
(iv) no Borrower may select any Interest Period
which ends after the Termination Date, and no Borrower may
select any Interest Period if any Event of Default exists as
to such Borrower.
"Lien" means any mortgage, lien, pledge, charge, deed of
trust, security interest, encumbrance or other type of preferential
arrangement to secure or provide for the payment of any obligation of
any Person, whether arising by contract, operation of law or otherwise
(including, without limitation, the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title
retention agreement).
"Majority Banks" means at any time Banks holding at least
66-2/3% of the then aggregate unpaid principal amount of the A Notes
held by Banks, or, if no such principal amount is then outstanding,
Banks having at least 66-2/3% of the Commitments or, if no such
principal amount is then outstanding and all Commitments have
terminated, Banks holding at least 66-2/3% of the then aggregate
unpaid principal amount of the B Notes held by Banks (provided that
for purposes of this definition and Sections 2.17, 6.01 and 7.01
neither any Borrower nor any Subsidiary or Related Party of any
Borrower, if a Bank, shall be included in (i) the Banks holding the A
Notes or B Notes or (ii) determining the aggregate unpaid principal
amount of the A Notes or the B Notes or the amount of the
Commitments).
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which any Borrower or any ERISA
Affiliate of any Borrower is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made
or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit plan, other
than a Multiemployer Plan, subject to Title IV of ERISA to which any
Borrower or any ERISA Affiliate of any Borrower, and one or more
employers other than any Borrower or an ERISA Affiliate of any
Borrower, is making or accruing an obligation to make contributions
or, in the event that any such plan has been terminated, to which any
Borrower or any ERISA Affiliate of any Borrower made or accrued an
obligation to make contributions during any of the five plan years
preceding the date of termination of such plan.
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"Net Worth" of any Person means, as of any date of
determination, the excess of total assets of such Person over total
liabilities of such Person, total assets and total liabilities each to
be determined in accordance with generally accepted accounting
principles.
"1995 Credit Agreement" has the meaning specified in the
preliminary statements of this Agreement.
"Non-Borrowing Subsidiary" of any Borrower means a Subsidiary
of such Borrower which Subsidiary is not itself a Borrower.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section
2.02(a).
"Notice of B Borrowing" has the meaning specified in Section
2.16(a).
"NWP" means Northwest Pipeline Corporation, a Delaware
corporation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted NWP Liens" means Liens specifically described on
Schedule III.
"Permitted TGPL Liens" means Liens specifically described on
Schedule IV.
"Permitted TGT Liens" means Liens specifically described on
Schedule V.
"Permitted TWC Liens" means Liens specifically described on
Schedule VI.
"Permitted WHD Liens" means Liens specifically described on
Schedule VIII.
"Permitted WPL Liens" means Liens specifically described on
Schedule VII.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any
political subdivision or agency thereof.
"Plan" means an employee pension benefit plan (other than a
Multiemployer Plan) as defined in Section 3(2) of ERISA currently
maintained by, or to which contributions have been made at any time
after December 31, 1984 by, any Borrower or any ERISA Affiliate of any
Borrower for employees of a Borrower or any such ERISA Affiliate and
covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code.
"Public Filings" means TWC's, NWP's, TGPL's and TGT's
respective annual reports on Form 10-K for the year ended December 31,
1995 and TWC's, NWP's, TGPL's and TGT's respective quarterly reports
on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996.
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"Rating Category" means any of Rating Category One, Rating
Category Two, Rating Category Three, Rating Category Four, Rating
Category Five, Rating Category Six or Rating Category Seven.
"Rating Category One" is applicable to a Borrower at such
times as the senior unsecured long-term debt of such Borrower is rated
A- or better by S&P or A3 or better by Moody's.
"Rating Category Two" is applicable to a Borrower at such
times as (i) Rating Category One is not applicable to such Borrower
and (ii) the senior unsecured long-term debt of such Borrower is rated
BBB+ by S&P or Baa1 by Moody's.
"Rating Category Three" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category Two is
applicable to such Borrower and (ii) the senior unsecured long-term
debt of such Borrower is rated BBB by S&P or Baa2 by Moody's.
"Rating Category Four" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category Two nor
Rating Category Three is applicable to such Borrower and (ii) the
senior unsecured long-term debt of such Borrower is rated BBB- by S&P
or Baa3 by Moody's.
"Rating Category Five" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category Two nor
Rating Category Three nor Rating Category Four is applicable to such
Borrower and (ii) the senior unsecured long-term debt of such Borrower
is rated BB+ by S&P or Ba1 by Moody's.
"Rating Category Six" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category Two nor
Rating Category Three nor Rating Category Four nor Rating Category
Five is applicable to such Borrower and (ii) the senior unsecured
long-term debt of such Borrower is rated BB by S&P or Ba2 by Moody's.
"Rating Category Seven" is applicable to a Borrower at such
times as neither Rating Category One nor Rating Category Two nor
Rating Category Three nor Rating Category Four nor Rating Category
Five nor Rating Category Six is applicable to such Borrower.
"Related Party" of any Person means any corporation,
partnership, joint venture or other entity of which more than 10% of
the outstanding capital stock or other equity interests having
ordinary voting power to elect a majority of the board of directors of
such corporation, partnership, joint venture or other entity or others
performing similar functions (irrespective of whether or not at the
time capital stock or other equity interests of any other class or
classes of such corporation, partnership, joint venture or other
entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such
Person or which owns at the time directly or indirectly more than 10%
of the outstanding capital stock or other equity interests having
ordinary voting power to elect a majority of the board of directors of
such Person or others performing similar functions (irrespective of
whether or not at the time capital stock or other equity interests of
any other class or classes of such corporation, partnership, joint
venture or other entity
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shall or might have voting power upon the occurrence of any
contingency); provided, however, that neither TWC nor any Subsidiary
of TWC shall be considered to be a Related Party of TWC or any
Subsidiary of TWC.
"S&P" means Standard & Poor's Ratings Group, a division of
Mc-Graw Hill, Inc. on the date hereof.
"Sale and Lease-Back Transaction" of any Person means any
arrangement entered into by such Person or any Subsidiary of such
Person, directly or indirectly, whereby such Person or any Subsidiary
of such Person shall sell or transfer any property, whether now owned
or hereafter acquired, and whereby such Person or any Subsidiary of
such Person shall then or thereafter rent or lease as lessee such
property or any part thereof or other property which such Person or
any Subsidiary of such Person intends to use for substantially the
same purpose or purposes as the property sold or transferred;
provided, however, that any sale and lease-back of cushion gas,
whether now or hereafter existing, shall not be considered to be a
Sale and Lease-Back Transaction and any sale and lease-back of
inventory, whether now or hereafter existing, by WPL or any of its
Subsidiaries (other than another Borrower) shall not be considered to
be a Sale and Lease-Back Transaction.
"Stated Termination Date" means October 31, 2001 or such later
date, if any as may be agreed to by the Borrowers and the Banks
pursuant to Section 2.18.
"Subordinated Debt" means any Debt of any Borrower which is
effectively subordinated to the obligations of such Borrower hereunder
and under the Notes.
"Subsidiary" of any Person means any corporation, partnership,
joint venture or other entity of which more than 50% of the
outstanding capital stock or other equity interests having ordinary
voting power to elect a majority of the board of directors of such
corporation, partnership, joint venture or other entity or others
performing similar functions (irrespective of whether or not at the
time capital stock or other equity interests of any other class or
classes of such corporation, partnership, joint venture or other
entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such
Person.
"Tangible Net Worth" of any Person means, as of any date of
determination, the excess of total assets of such Person over total
liabilities of such Person, total assets and total liabilities each to
be determined in accordance with generally accepted accounting
principles, excluding, however, from the determination of total assets
(i) patents, patent applications, trademarks, copyrights and trade
names, (ii) goodwill, organizational, experimental, research and
development expense and other like intangibles, (iii) treasury stock,
(iv) monies set apart and held in a sinking or other analogous fund
established for the purchase, redemption or other retirement of
capital stock or Subordinated Debt, and (v) unamortized debt discount
and expense.
"Termination Date" means the earlier of (i) the Stated
Termination Date or (ii) the date of termination in whole of the
Commitments pursuant to Section 2.04, 2.17 or 6.01.
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"Termination Event" means (i) a "reportable event", as such
term is described in Section 4043 of ERISA (other than a "reportable
event" not subject to the provision for 30-day notice to the PBGC), or
an event described in Section 4062(f) of ERISA, or (ii) the withdrawal
of any Borrower or any ERISA Affiliate of any Borrower from a Multiple
Employer Plan during a plan year in which it was a "substantial
employer", as such term is defined in Section 4001(a)(2) of ERISA, or
the incurrence of liability by any Borrower or any ERISA Affiliate of
any Borrower under Section 4064 of ERISA upon the termination of a
Plan or Multiple Employer Plan, or (iii) the distribution of a notice
of intent to terminate a Plan pursuant to Section 4041(a)(2) of ERISA
or the treatment of a Plan amendment as a termination under Section
4041 of ERISA, or (iv) the institution of proceedings to terminate a
Plan by the PBGC under Section 4042 of ERISA, or (v) any other event
or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan.
"TGPL" means Transcontinental Gas Pipe Line Corporation, a
Delaware corporation.
"TGT" means Texas Gas Transmission Corporation, a Delaware
corporation.
"Transfer Agreement" has the meaning specified in Section
8.06.
"TWC" means The Williams Companies, Inc., a Delaware
corporation.
"Type" has the meaning set forth in the definition herein of A
Advance.
"Unrated" means, as to any Borrower, that no senior unsecured
long-term debt of such Borrower is rated by S&P and no senior
unsecured long-term debt of such Borrower is rated by Moody's.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary
of such Person all of the capital stock and other equity interests of
which is owned by such Person or any Wholly-Owned Subsidiary of such
Person.
"Withdrawal Liability" shall have the meaning given such term
under Part I of Subtitle E of Title IV of ERISA.
"WEV" means Williams Energy Ventures, Inc., a Delaware
corporation.
"WFS" means Williams Field Services Group, Inc., a Delaware
corporation.
"WHD" means Williams Holdings of Delaware, Inc., a Delaware
corporation.
"WNG" means Williams Natural Gas Company, a Delaware
corporation.
"WPL" means Williams Pipe Line Company, a Delaware
corporation.
"WPL Debt to TNW Ratio" means at any date the ratio of (i) the
aggregate amount at such date of all Debt of WPL and its Subsidiaries
on a Consolidated basis to (ii) the sum
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of the Consolidated Tangible Net Worth at such date of WPL plus the
aggregate amount at such date of all Debt of WPL and its Subsidiaries
on a Consolidated basis.
Section 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding."
Section 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles, and each reference herein to "generally
accepted accounting principles" shall mean generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in Section 4.01(e)(i).
Section 1.04. Miscellaneous. The words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified.
Section 1.05. Ratings. A rating, whether public or private,
by S&P or Moody's shall be deemed to be in effect on the date of announcement
or publication by S&P or Moody's, as the case may be, of such rating, or, in
the absence of such announcement or publication, on the effective date of such
rating and will remain in effect until the announcement or publication of, or
in the absence of such announcement or publication, the effective date of, any
change in, or withdrawal or termination of, such rating. In the event the
standards for any rating by Moody's or S&P are revised, or any such rating is
designated differently (such as by changing letter designations to different
letter designations or to numerical designations), the references herein to
such rating shall be deemed to refer to the revised or redesignated rating for
which the standards are closest to, but not lower than, the standards at the
date hereof for the rating which has been revised or redesignated, all as
determined by the Majority Banks in good faith. Long-term debt supported by a
letter of credit, guaranty, insurance or other similar credit enhancement
mechanism shall not be considered as senior unsecured long-term debt. If
either Moody's or S&P has at any time more than one rating applicable to senior
unsecured long-term debt of a Borrower, the lowest such rating shall be
applicable for purposes hereof. For example, if Moody's rates some senior
unsecured long-term debt of a Borrower Ba1 and other such debt of such Borrower
Ba2, the senior unsecured long-term debt of such Borrower shall be deemed to be
rated Ba2 by Moody's.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances. Each Bank severally agrees, on
the terms and conditions hereinafter set forth, to make A Advances to each
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate amount outstanding not to
exceed at any time such Bank's Commitment to such Borrower, provided that the
aggregate amount of the Commitments of the Banks to any Borrower shall, except
for purposes of Section 2.03(a), be deemed used from time to time to the extent
of the aggregate amount
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of the B Advances then outstanding to such Borrower and such deemed use of the
aggregate amount of such Commitments shall be applied to the Banks ratably
according to their respective Commitments to such Borrower (such deemed use of
the aggregate amount of the Commitments of any Borrower being a "B Reduction"),
and provided further that the aggregate amount of all A Advances to all
Borrowers by any Bank shall not exceed at any time outstanding such Bank's
Commitment to TWC (determined after giving effect to such Bank's ratable share
of all B Reductions). Each A Borrowing shall be in an aggregate amount not
less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof,
and shall consist of A Advances of the same Type made to the same Borrower on
the same day by the Banks ratably according to their respective Commitments.
Within the limits of each Bank's Commitment to a Borrower, such Borrower may
borrow, prepay pursuant to Section 2.10 and reborrow under this Section 2.01.
Section 2.02. Making the A Advances. (a) Each A Borrowing
shall be made on notice, given not later than (1) in the case of a proposed
Borrowing comprised of Eurodollar Rate Advances, 11:00 A.M. (New York City
time) at least three Business Days prior to the date of the proposed Borrowing,
and (2) in the case of a proposed Borrowing comprised of Base Rate Advances,
10:00 A.M. (New York City time) on the date of the proposed Borrowing, by the
Borrower requesting such A Borrowing to the Agent, which shall give to each
Bank prompt notice thereof by telecopy, telex or cable. Each such notice of an
A Borrowing (a "Notice of A Borrowing") shall be by telecopy, telex or cable,
confirmed immediately in writing, in substantially the form of Exhibit B-1
hereto, executed by the Borrower requesting such A Borrowing and specifying
therein the requested (i) date of such A Borrowing (which shall be a Business
Day), (ii) initial Type of A Advances comprising such A Borrowing, (iii)
aggregate amount of such A Borrowing, and (iv) in the case of an A Borrowing
comprised of Eurodollar Rate Advances, initial Interest Period for each such A
Advance. Each Bank shall, before 11:00 A.M. (New York City time) on the date
of such A Borrowing, make available for the account of its Applicable Lending
Office to the Agent at its New York address referred to in Section 8.02, in
same day funds, such Bank's ratable portion of such A Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Agent will make such funds available to the
Borrower requesting such A Borrowing at the Agent's aforesaid address.
Notwithstanding the other provisions hereof, each Bank that is to be paid by
any Borrower on December 20, 1996 any principal amount outstanding under the
1995 Credit Agreement as contemplated by Section 8.14 shall apply the proceeds
of any Advance to be made by it to such Borrower on such date to pay such
amount and only an amount equal to the difference (if any) between the amount
of such Advance and the principal amount being so paid shall be made available
by such Bank to the Agent as provided herein, or remitted by such Borrower to
the Agent as provided in Section 2.13, as the case may be.
(b) Anything herein to the contrary notwithstanding:
(i) at no time shall there be outstanding to any
one Borrower more than six A Borrowings comprised of Eurodollar Rate
Advances;
(ii) no Borrower may select Eurodollar Rate Advances
for any Borrowing if the aggregate amount of such Borrowing is less
than (x) if such Borrowing is made by WPL, $5,000,000, and (y) if such
Borrowing is made by any other Borrower, $20,000,000;
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<PAGE> 19
(iii) if the Majority Banks shall notify the Agent
that either (A) the Eurodollar Rate for any Interest Period for any
Eurodollar Rate Advances will not adequately reflect the cost to such
Banks of making or funding their respective Eurodollar Rate Advances
for such Interest Period, or (B) that U.S. dollar deposits for the
relevant amounts and Interest Period for their respective Advances are
not available to them in the London interbank market, or it is
otherwise impossible to have Eurodollar Rate Advances, the Agent shall
forthwith so notify the Borrowers and the Banks, whereupon (I) each
Eurodollar Rate Advance will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Base Rate
Advance, and (II) the obligations of the Banks to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Agent, at the request of the Majority Banks, shall notify the
Borrowers and the Banks that the circumstances causing such suspension
no longer exist, and, except as provided in Section 2.02(b)(v), each
Advance comprising any requested A Borrowing shall be a Base Rate
Advance;
(iv) if the Agent is unable to determine the
Eurodollar Rate for Eurodollar Rate Advances, the obligation of the
Banks to make, or to Convert Advances into, Eurodollar Rate Advances
shall be suspended until the Agent shall notify the Borrowers and the
Banks that the circumstances causing such suspension no longer exist,
and, except as provided in Section 2.02(b)(v), each Advance comprising
any requested A Borrowing shall be a Base Rate Advance; and
(v) if a Borrower has requested a proposed A
Borrowing consisting of Eurodollar Rate Advances and as a result of
circumstances referred to in Section 2.02(b)(iii) or (iv) such A
Borrowing would not consist of Eurodollar Rate Advances, such Borrower
may, by notice given not later than 3:00 P.M. (New York City time) at
least one Business Day prior to the date such proposed A Borrowing
would otherwise be made, cancel such A Borrowing, in which case such A
Borrowing shall be cancelled and no Advances shall be made as a result
of such requested A Borrowing, but such Borrower shall indemnify the
Banks in connection with such cancellation as contemplated by Section
2.02(c).
(c) Each Notice of A Borrowing shall be irrevocable and
binding on the Borrowers, except as set forth in Section 2.02(b)(v). In the
case of any A Borrowing requested by a Borrower which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, such
Borrower shall indemnify each Bank against any loss, cost or expense incurred
by such Bank as a result of any failure to fulfill on or before the date
specified in such Notice of A Borrowing for such A Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of reasonably anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Bank to fund the A Advance to be made by such Bank as part of such A
Borrowing when such A Advance, as a result of such failure, is not made on such
date. A certificate in reasonable detail as to the basis for and the amount of
such loss, cost or expense submitted to such Borrower and the Agent by such
Bank shall be prima facie evidence of the amount of such loss, cost or expense.
If an A Borrowing requested by a Borrower which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances is not made
as an A Borrowing comprised of Eurodollar Rate Advances as a result of Section
2.02(b), such Borrower shall indemnify each Bank against any loss (excluding
loss of profits), cost or expense incurred by such Bank by reason of the
liquidation or reemployment of deposits or other funds acquired by such Bank
prior to the time such Bank is
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<PAGE> 20
actually aware that such A Borrowing will not be so made to fund the A Advance
to be made by such Bank as part of such A Borrowing. A certificate in
reasonable detail as to the basis for and the amount of such loss, cost or
expense submitted to such Borrower and the Agent by such Bank shall be prima
facie evidence of the amount of such loss, cost or expense.
(d) Unless the Agent shall have received notice from a
Bank prior to the date of any A Borrowing to a Borrower that such Bank will not
make available to the Agent such Bank's ratable portion of such A Borrowing,
the Agent may assume that such Bank has made such portion available to the
Agent on the date of such A Borrowing in accordance with subsection (a) of this
Section 2.02 and the Agent may, in reliance upon such assumption, make
available to such Borrower requesting such A Borrowing on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such ratable portion available to the Agent, such Bank and such Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to such Borrower until the date such amount is repaid to the
Agent, at (i) in the case of such Borrower, the interest rate applicable at the
time to A Advances comprising such A Borrowing and (ii) in the case of such
Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's A
Advance as part of such A Borrowing for purposes of this Agreement.
(e) The failure of any Bank to make the A Advance to be
made by it as part of any A Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Bank shall be responsible for the failure of any other Bank
to make the A Advance to be made by such other Bank on the date of any A
Borrowing.
Section 2.03. Fees.
(a) Commitment Fee. TWC agrees to pay to the Agent for
the account of each Bank a commitment fee on the average daily unused (for the
purposes of this Section 2.03(a) A Advances made to any Borrower shall be
considered to have been made to TWC, but B Advances to any Borrower shall not,
for purposes of this Section 2.03(a), be considered to be usage of any
Commitment) portion of such Bank's Commitment to TWC from the date hereof until
the Termination Date at a rate per annum from time to time equal to (i) at such
times as Rating Category One is applicable to TWC, .08%, (ii) at such times as
Rating Category Two is applicable to TWC, .10%, (iii) at such times as Rating
Category Three is applicable to TWC, .11%, (iv) at such times as Rating
Category Four is applicable to TWC, .15%, (v) at such times as Rating Category
Five is applicable to TWC, .20%, (vi) at such times as Rating Category Six is
applicable to TWC, .25% and (vii) at such times as Rating Category Seven is
applicable to TWC, .375%, payable in arrears on the last day of each March,
June, September and December during the term such Bank has any Commitment to
any Borrower and on the Termination Date.
(b) Agent's Fees. TWC agrees to pay to the Agent, for its
sole account, such fees as may be separately agreed to in writing by TWC and
the Agent.
Section 2.04. Reduction of the Commitments.
(a) Optional. Each Borrower shall have the right, upon
at least three Business Days notice to the Agent, to terminate in whole or
reduce ratably in part the unused portions of the
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respective Commitments of the Banks to such Borrower, provided that each
partial reduction shall be in the aggregate amount of at least $20,000,000, and
provided further, that the aggregate amount of the Commitments of the Banks to
any Borrower shall not be reduced to an amount which is less than the aggregate
principal amount of the Advances then outstanding to such Borrower, and
provided further, that the aggregate amount of the Commitments of the Banks to
TWC shall not be reduced to an amount which is less than the aggregate
principal amount of the Advances then outstanding to the Borrower as to which
the aggregate outstanding principal amount of Advances is then the largest.
(b) Termination. If all of the Commitments of the Banks
to a Borrower (other than TWC) are terminated pursuant to Section 2.04(a) and
such Borrower has paid all principal, interest, fees, costs and other amounts
owed by it hereunder and under the Notes executed by it, such Borrower shall
have the right, upon at least three Business Days notice to the Agent, to elect
to cease to be a Borrower hereunder, except for purposes of the definition
herein of Majority Banks and for purposes of Sections 2.11, 2.14 and 8.04.
Section 2.05. Repayment of A Advances. Each Borrower shall
repay, on the Stated Termination Date or such earlier date as the Notes may be
declared due pursuant to Article VI, the unpaid principal amount of each A
Advance made by each Bank to such Borrower.
Section 2.06. Interest on A Advances. Each Borrower shall
pay interest on the unpaid principal amount of each A Advance made by each Bank
to such Borrower from the date of such A Advance until such principal amount
shall be paid in full, at the following rates per annum:
(a) Base Rate Advances. At such times as such A Advance
is a Base Rate Advance, a rate per annum equal at all times to the
Base Rate in effect from time to time, payable quarterly in arrears on
the last day of each March, June, September and December and on the
date such Advance shall be Converted or paid in full; provided that
any amount of principal of any Base Rate Advance, interest, fees and
other amounts payable hereunder (other than principal of any
Eurodollar Rate Advance) which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest, from the
date on which such amount is due until such amount is paid in full,
payable on demand, at a rate per annum equal at all times to the sum
of the Base Rate in effect from time to time plus 2% per annum.
(b) Eurodollar Rate Advances. At such times as such A
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such A Advance to the sum of the
Eurodollar Rate for such Interest Period plus the Applicable Margin in
effect from time to time for such A Advance, payable on the last day
of such Interest Period and, if such Interest Period has a duration of
more than three months, on each day which occurs during such Interest
Period every three months from the first day of such Interest Period;
provided that any amount of principal of any Eurodollar Rate Advance
which is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the greater of (x)
the sum of the Base Rate in effect from time to time plus 2% per annum
and (y) the sum of the rate per annum required to be paid on such A
Advance immediately prior to the date on which such amount became due
plus 2% per annum.
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Section 2.07. Additional Interest on Eurodollar Rate
Advances. Each Borrower shall pay to each Bank, so long as such Bank shall be
required under regulations of the Board of Governors of the Federal Reserve
System to maintain reserves with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities, additional interest on the unpaid
principal amount of each Eurodollar Rate Advance of such Bank to such Borrower,
from the date of such Advance until such principal amount is paid in full, at
an interest rate per annum equal at all times to the remainder obtained by
subtracting (i) the Eurodollar Rate for the Interest Period for such Advance
from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve Percentage of such Bank for
such Interest Period, payable on each date on which interest is payable on such
Advance. Such additional interest shall be determined by such Bank and
notified to such Borrower through the Agent. A certificate as to the amount of
such additional interest submitted to such Borrower and the Agent by such Bank
shall be conclusive and binding for all purposes, absent manifest error. No
Bank shall have the right to recover any additional interest pursuant to this
Section 2.07 for any period more than 90 days prior to the date such Bank
notifies the Borrowers that additional interest may be charged pursuant to this
Section 2.07.
Section 2.08. Interest Rate Determination. The Agent shall
give prompt notice to the Borrower to which an A Advance is made and the Banks
of the applicable interest rate for each Eurodollar Rate Advance determined by
the Agent for purposes of Section 2.06(b).
Section 2.09. Evidence of Debt. The indebtedness of each
Borrower resulting from the A Advances owed to each Bank by such Borrower shall
be evidenced by an A Note of such Borrower payable to the order of such Bank.
Section 2.10. Prepayments.
(a) No Borrower shall have any right to prepay any
principal amount of any A Advance except as provided in this Section 2.10.
(b) Any Borrower may, in respect of Base Rate Advances
upon notice to the Agent before 10:00 A.M. (New York City time) on the date of
prepayment, and in respect of Eurodollar Rate Advances upon at least three
Business Days' notice to the Agent, in each case stating the proposed date
(which shall be a Business Day) and aggregate principal amount of the
prepayment, and if such notice is given such Borrower shall, prepay the
outstanding principal amounts of the A Advances comprising part of the same A
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid and amounts, if any,
required to be paid pursuant to Section 8.04(b) as a result of such prepayment;
provided, however, that each partial prepayment pursuant to this Section
2.10(b) shall be in an aggregate principal amount not less than $5,000,000 and
in an aggregate principal amount such that after giving effect thereto no A
Borrowing comprised of Base Rate Advances shall have a principal amount
outstanding of less than $5,000,000 and no A Borrowing comprised of Eurodollar
Rate Advances shall have a principal amount outstanding of less than (i) if
such A Borrowing was made by WPL, $5,000,000, and (ii) if such A Borrowing was
made by any other Borrower, $20,000,000.
(c) Each Borrower will give notice to the Agent at or
before the time of each prepayment by such Borrower of Advances pursuant to
this Section 2.10 specifying the Advances which are to be prepaid and the
amount of such prepayment to be applied to such Advances, and
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each payment of any Advance pursuant to this Section 2.10 or any other
provision of this Agreement shall be made in a manner such that all Advances
comprising part of the same Borrowing are paid in whole or ratably in part.
Section 2.11. Increased Costs.
(a) If, due to either (i) the introduction of or any
change (other than any change by way of imposition or increase of reserve
requirements included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation, application or applicability of any law or regulation or (ii)
the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Bank of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances to any Borrower, then such Borrower shall
from time to time, upon demand by such Bank (with a copy of such demand to the
Agent), pay to the Agent for the account of such Bank additional amounts
sufficient to compensate such Bank for such increased cost. A certificate as
to the amount of such increased cost, submitted to such Borrower and the Agent
by such Bank, shall be prima facie evidence of the amount of such increased
cost. No Bank shall have the right to recover any such increased costs for any
period more than 90 days prior to the date such Bank notifies the Borrowers of
any such introduction, change, compliance or proposed compliance.
(b) If any Bank determines that compliance with any law
or regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by
such Bank or any corporation controlling such Bank and that the amount of such
capital is increased by or based upon the existence of such Bank's commitment
to lend to any Borrower hereunder and other commitments of this type, then,
upon demand by such Bank (with a copy of such demand to the Agent), such
Borrower shall immediately pay to the Agent for the account of such Bank, from
time to time as specified by such Bank, additional amounts sufficient to
compensate such Bank or such corporation in the light of such circumstances, to
the extent that such Bank reasonably determines such increase in capital to be
allocable to the existence of such Bank's commitment to lend hereunder. A
certificate as to the amount of such additional amounts, submitted to such
Borrower and the Agent by such Bank, shall be prima facie evidence of the
amount of such additional amounts. No Bank shall have any right to recover any
additional amounts under this Section 2.11(b) for any period more than 90 days
prior to the date such Bank notifies the Borrower of any such compliance.
(c) In the event that any Bank makes a demand for payment
under Section 2.07 or this Section 2.11, TWC may within ninety days of such
demand, if no Event of Default or event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default then exists,
replace such Bank with another commercial bank in accordance with all of the
provisions of the last sentence of Section 8.06(a) (including execution of an
appropriate Transfer Agreement) provided that (v) all obligations of such Bank
to lend hereunder shall be terminated and the Notes payable to such Bank and
all other obligations owed to such Bank hereunder shall be purchased in full
without recourse at par plus accrued interest at or prior to such replacement,
(vi) such replacement bank shall be reasonably satisfactory to the Agent and
the Majority Banks, (vii) such replacement bank shall, from and after such
replacement, be deemed for all purposes to be a "Bank" hereunder with a
Commitment to each Borrower in the amount of the respective Commitment of such
Bank to such Borrower immediately prior to such replacement (plus, if such
replacement bank
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<PAGE> 24
is already a Bank prior to such replacement the respective Commitment of such
Bank to such Borrower prior to such replacement), as such amount may be changed
from time to time pursuant hereto, and shall have all of the rights, duties and
obligations hereunder of the Bank being replaced, and (viii) such other actions
shall be taken by the Borrowers, such Bank and such replacement bank as may be
appropriate to effect the replacement of such Bank with such replacement bank
on terms such that such replacement bank has all of the rights, duties and
obligations hereunder as such Bank (including, without limitation, execution
and delivery of new Notes of each Borrower to such replacement bank, redelivery
to each Borrower in due course of the Notes of such Borrower payable to such
Bank and specification of the information contemplated by Schedule I as to such
replacement bank).
Section 2.12. Illegality. Notwithstanding any other
provision of this Agreement, if any Bank shall notify the Agent that the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or that any central bank or other
governmental authority shall assert that it is unlawful, for any Bank or its
Eurodollar Lending Office to perform its obligations hereunder to make, or
Convert a Base Rate Advance into, a Eurodollar Rate Advance or to continue to
fund or maintain any Eurodollar Rate Advance, then, on notice thereof to the
Borrowers by the Agent, (i) the obligation of each of the Banks to make, or to
Convert Advances into, Eurodollar Rate Advances shall be suspended until the
Agent, at the request of the Majority Banks, shall notify the Borrowers and the
Banks that the circumstances causing such suspension no longer exist, and (ii)
the Borrowers shall forthwith prepay in full all Eurodollar Rate Advances of
all Banks then outstanding together with all accrued interest thereon and all
amounts payable pursuant to Section 8.04(b), unless each Bank shall determine
in good faith in its sole opinion that it is lawful to maintain the Eurodollar
Rate Advances made by such Bank to the end of the respective Interest Periods
then applicable thereto or unless the Borrower, within five Business Days of
notice from the Agent, Converts all Eurodollar Rate Advances of all Banks then
outstanding into Base Rate Advances in accordance with Section 2.19.
Section 2.13. Payments and Computations.
(a) Each Borrower shall make each payment hereunder and
under the Notes to be made by it not later than 11:00 A.M. (New York City time)
on the day when due in U.S. dollars to the Agent at its New York address
referred to in Section 8.02 in same day funds. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal, interest or commitment fees ratably (other than amounts payable
pursuant to Section 2.07, 2.11, 2.14, 2.16 or 8.04(b)) to the Banks for the
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Bank to such Bank for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. In no event shall any Bank be
entitled to share any fee paid to the Agent pursuant to Section 2.03(b), any
auction fee paid to the Agent pursuant to Section 2.16(a)(i) or any other fee
paid to the Agent, as such.
(b) Each Borrower hereby authorizes each Bank, if and to
the extent payment owed to such Bank by such Borrower is not made when due
hereunder or under any Note of such Borrower held by such Bank, to charge from
time to time against any or all of such Borrower's accounts with such Bank any
amount so due.
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(c) All computations of interest based on clause (a) or
clause (b) of the definition herein of Base Rate and of commitment fees shall
be made by the Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the Eurodollar Rate, the Federal
Funds Rate or clause (c) of the definition herein of Base Rate shall be made by
the Agent, and all computations of interest pursuant to Section 2.07 shall be
made by a Bank, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring
in the period for which such interest or commitment fees are payable. Each
determination by the Agent (or, in the case of Section 2.07, by a Bank) of an
interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes
shall be stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of payment of interest or
commitment fee, as the case may be; provided, however, if such extension would
cause payment of interest on or principal of Eurodollar Rate Advances to be
made in the next following calendar month, such payment shall be made on the
next preceding Business Day.
(e) Unless the Agent shall have received notice from a
Borrower prior to the date on which any payment is due by such Borrower to any
Bank hereunder that such Borrower will not make such payment in full, the Agent
may assume that such Borrower has made such payment in full to the Agent on
such date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then
due such Bank. If and to the extent such Borrower shall not have so made such
payment in full to the Agent, each Bank shall repay to the Agent forthwith on
demand such amount distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such Bank until the date
such Bank repays such amount to the Agent, at the Federal Funds Rate.
Section 2.14. Taxes.
(a) Any and all payments by any Borrower hereunder or
under the Notes shall be made, in accordance with Section 2.13, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings with respect thereto, and all
liabilities with respect thereto, excluding in the case of each Bank and the
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Agent (as the case may
be) is organized or any political subdivision thereof and, in the case of each
Bank, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If any Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any Note to any Bank or the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.14) such Bank or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions and (iii)
such Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
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(b) In addition, each Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made by such Borrower
hereunder or under the Notes executed by it or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or such Notes
(hereinafter referred to as "Other Taxes").
(c) Each Borrower will indemnify each Bank and the Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.14) owed and paid by such Bank or the Agent (as the case may be) and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto. This indemnification shall be made within 30 days from
the date such Bank or the Agent (as the case may be) makes written demand
therefor.
(d) Within 30 days after the date of the payment of Taxes
by or at the direction of any Borrower, such Borrower will furnish to the
Agent, at its address referred to in Section 8.02, the original or a certified
copy of a receipt evidencing payment thereof. Should any Bank or the Agent
ever receive any refund, credit or deduction from any taxing authority to which
such Bank or the Agent would not be entitled but for the payment by a Borrower
of Taxes as required by this Section 2.14 (it being understood that the
decision as to whether or not to claim, and if claimed, as to the amount of any
such refund, credit or deduction shall be made by such Bank or the Agent, as
the case may be, in its sole discretion), such Bank or the Agent, as the case
may be, thereupon shall repay to such Borrower an amount with respect to such
refund, credit or deduction equal to any net reduction in taxes actually
obtained by such Bank or the Agent, as the case may be, and determined by such
Bank or the Agent, as the case may be, to be attributable to such refund,
credit or deduction.
(e) Without prejudice to the survival of any other
agreement of the Borrowers hereunder, the agreements and obligations of the
Borrowers contained in this Section 2.14 shall survive the payment in full of
principal and interest hereunder and under the Notes.
Section 2.15. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary or involuntary, or through the exercise
of any right of set-off or otherwise) on account of the A Advances made by it
(other than pursuant to Section 2.07, 2.11, 2.14 or 8.04(b)) in excess of its
ratable share of payments on account of the A Advances obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in the A Advances owed to them as shall be necessary to cause
such purchasing Bank to share the excess payment ratably with each of them,
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the
purchase price to the extent of such Bank's ratable share (according to the
proportion of (i) the amount of the participation purchased from such Bank as a
result of such excess payment to (ii) the total amount of such excess payment)
of such recovery together with an amount equal to such Bank's ratable share
(according to the proportion of (i) the amount of such Bank's required
repayment to (ii) the total amount so recovered from the purchasing Bank) of
any interest or other amount paid or payable by the purchasing Bank in respect
of the total amount so recovered. Each Borrower agrees that any Bank so
purchasing a participation from another Bank pursuant to this Section 2.15 may,
to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Bank were the direct creditor of such Borrower in the amount of such
participation.
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Section 2.16. The B Advances.
(a) Each Bank severally agrees that each Borrower may
make B Borrowings under this Section 2.16 from time to time on any Business Day
during the period from the date hereof until the earlier of (I) the Termination
Date or (II) the date occurring 30 days prior to the Stated Termination Date in
the manner set forth below; provided that, following the making of each B
Borrowing, the aggregate amount of the Advances then outstanding to such
Borrower shall not exceed the aggregate amount of the Commitments of the Banks
to such Borrower (computed without regard to any B Reduction) and the aggregate
amount of all Advances then outstanding shall not exceed the aggregate amount
of the Commitments of the Banks to TWC (computed without regard to any B
Reduction).
(i) A Borrower may request a B Borrowing under this
Section 2.16 by delivering to the Agent, by telecopier, telex or
cable, confirmed immediately in writing, a notice of a B Borrowing (a
"Notice of B Borrowing"), in substantially the form of Exhibit B-2
hereto, specifying the date and aggregate amount of the proposed B
Borrowing, the maturity date for repayment of each B Advance to be
made as part of such B Borrowing (which maturity date may not be
earlier than the date occurring 14 days after the date of such B
Borrowing or later than the earlier of (x) 6 months after the date of
such B Borrowing or (y) the Stated Termination Date), the interest
payment date or dates relating thereto, and any other terms to be
applicable to such B Borrowing (including, without limitation, the
basis to be used by the Banks in determining the rate or rates of
interest to be offered by them as provided in paragraph (ii) below and
prepayment terms, if any, but excluding any waiver or other
modification to any of the conditions set forth in Article III), not
later than 10:00 A.M. (New York City time) (A) at least one Business
Day prior to the date of the proposed B Borrowing, if such Borrower
shall specify in the Notice of B Borrowing that the rates of interest
to be offered by the Banks shall be fixed rates per annum and (B) at
least five Business Days prior to the date of the proposed B
Borrowing, if the Borrower shall instead specify in the Notice of B
Borrowing the basis to be used by the Banks in determining the rates
of interest to be offered by them. The Agent shall in turn promptly
notify each Bank of each request for a B Borrowing received by it from
a Borrower by sending such Bank a copy of the related Notice of B
Borrowing. Each time that a Borrower gives a Notice of B Borrowing,
such Borrower shall pay to the Agent an auction fee equal to $2000.
(ii) Each Bank may, if in its sole discretion it elects to
do so, irrevocably offer to make one or more B Advances to a Borrower
as part of such proposed B Borrowing at a rate or rates of interest
specified by such Bank in its sole discretion, by notifying the Agent
(which shall give prompt notice thereof to such Borrower), before
10:00 A.M. (New York City time) (x) on the date of such proposed B
Borrowing, in the case of a Notice of B Borrowing delivered pursuant
to clause (A) of paragraph (i) above, and (y) three Business Days
before the date of such proposed B Borrowing in the case of a Notice
of B Borrowing delivered pursuant to clause (B) of paragraph (i)
above, of the minimum amount and maximum amount of each B Advance
which such Bank would be willing to make as part of such proposed B
Borrowing (which amounts may, subject to the proviso to the first
sentence of this Section 2.16(a), exceed such Bank's Commitment to
such Borrower), the rate or rates of interest therefor and such Bank's
Applicable Lending Office with respect to such B Advance; provided
that if the Agent in its capacity as a Bank shall, in its sole
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discretion, elect to make any such offer, it shall notify such
Borrower of such offer before 9:45 A.M. (New York City time) on the
date on which notice of such election is to be given to the Agent by
the other Banks. If any Bank shall elect not to make such an offer,
such Bank shall so notify the Agent, before 10:00 A.M. (New York City
time) on the date on which notice of such election is to be given to
the Agent by the other Banks, and such Bank shall not be obligated to,
and shall not, make any B Advance as part of such B Borrowing;
provided that the failure by any Bank to give such notice shall not
cause such Bank to be obligated to make any B Advance as part of such
proposed B Borrowing.
(iii) The Borrower requesting such proposed B Borrowing
shall, in turn, before 11:00 A.M. (New York City time) (x) on the date
of such proposed B Borrowing in the case of a Notice of B Borrowing
delivered pursuant to clause (A) of paragraph (i) above and (y) three
Business Days before the date of such proposed B Borrowing in the case
of a Notice of B Borrowing delivered pursuant to clause (B) of
paragraph (i) above, either
(A) cancel such B Borrowing by giving the Agent
notice to that effect, or
(B) accept one or more of the offers made by any
Bank or Banks pursuant to paragraph (ii) above, in order of
the lowest to highest rates of interest or margins (or, if two
or more Banks bid at the same rates of interest, and the
amount of accepted offers is less than the aggregate amount of
such offers, the amount to be borrowed from such Banks as part
of such B Borrowing shall be allocated among such Banks pro
rata on the basis of the maximum amount offered by such Banks
at such rates or margin in connection with such B Borrowing),
in any aggregate amount up to the aggregate amount initially
requested by the Borrower in the relevant Notice of B
Borrowing, by giving notice to the Agent of the amount of each
B Advance (which amount shall be equal to or greater than the
minimum amount, and equal to or less than the maximum amount,
notified to such Borrower by the Agent on behalf of such Bank
for such B Advance pursuant to paragraph (ii) above) to be
made by each Bank as part of such B Borrowing, and reject any
remaining offers made by Banks pursuant to paragraph (ii)
above by giving the Agent notice to that effect.
(iv) If the Borrower requesting such B Borrowing notifies
the Agent that such B Borrowing is cancelled pursuant to paragraph
(iii)(A) above, the Agent shall give prompt notice thereof to the
Banks and such B Borrowing shall not be made.
(v) If the Borrower requesting such B Borrowing accepts
one or more of the offers made by any Bank or Banks pursuant to
paragraph (iii)(B) above, the Agent shall in turn promptly notify (A)
each Bank that has made an offer as described in paragraph (ii) above,
of the date and aggregate amount of such B Borrowing and whether or
not any offer or offers made by such Bank pursuant to paragraph (ii)
above have been accepted by such Borrower, (B) each Bank that is to
make a B Advance as part of such B Borrowing, of the amount of each B
Advance to be made by such Bank as part of such B Borrowing, and (C)
each Bank that is to make a B Advance as part of such B Borrowing,
upon receipt, that the Agent has received forms of documents appearing
to fulfill the applicable conditions set forth in Article III. Each
Bank that is to make a B Advance as part of such B Borrowing
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<PAGE> 29
shall, before 12:00 noon (New York City time) on the date of such B
Borrowing specified in the notice received from the Agent pursuant to
clause (A) of the preceding sentence or any later time when such Bank
shall have received notice from the Agent pursuant to clause (C) of
the preceding sentence, make available for the account of its
Applicable Lending Office to the Agent at its New York address
referred to in Section 8.02 such Bank's portion of such B Borrowing,
in same day funds. Upon fulfillment of the applicable conditions set
forth in Article III and after receipt by the Agent of such funds, the
Agent will make such funds available to such Borrower at the Agent's
aforesaid address. Promptly after each B Borrowing the Agent will
notify each Bank of the amount of the B Borrowing, the Borrower to
which such B Borrowing was made, the consequent B Reduction and the
dates upon which such B Reduction commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount of
not less than $5,000,000 or an integral multiple of $1,000,000 in
excess thereof. Each Borrower agrees that it will not request a B
Borrowing unless, upon the making of such B Borrowing, the limitations
set forth in the proviso to the first sentence of Section 2.16(a) are
complied with.
(c) Within the limits and on the conditions set forth in
this Section 2.16, each Borrower may from time to time borrow under
this Section 2.16, repay or prepay pursuant to subsection (d) below,
and reborrow under this Section 2.16, provided that a B Borrowing
shall not be made by any Borrower within three Business Days of the
date of another B Borrowing to such Borrower.
(d) Each Borrower shall repay to the Agent for the
account of each Bank which has made a B Advance to such Borrower, or
each other holder of a B Note of such Borrower, on the maturity date
of each B Advance made to such Borrower (such maturity date being that
specified by such Borrower for repayment of such B Advance in the
related Notice of B Borrowing delivered pursuant to subsection (a)(i)
above and provided in the B Note evidencing such B Advance) the then
unpaid principal amount of such B Advance. No Borrower shall have any
right to prepay any principal amount of any B Advance unless, and then
only on the terms, specified by such Borrower for such B Advance in
the related Notice of B Borrowing delivered pursuant to subsection
(a)(i) above and set forth in the B Note evidencing such B Advance.
(e) Each Borrower shall pay interest on the unpaid
principal amount of each B Advance made to such Borrower from the date
of such B Advance to the date the principal amount of such B Advance
is repaid in full, at the rate of interest for such B Advance
specified by the Bank making such B Advance in its notice with respect
thereto delivered pursuant to subsection (a)(ii) above, payable on the
interest payment date or dates specified by such Borrower for such B
Advance in the related Notice of B Borrowing delivered pursuant to
subsection (a)(i) above, as provided in the B Note evidencing such B
Advance.
(f) The indebtedness of each Borrower resulting from each
B Advance made to such Borrower as part of a B Borrowing shall be
evidenced by a separate B Note of such Borrower payable to the order
of the Bank making such B Advance.
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<PAGE> 30
(g) The failure of any Bank to make the B Advance to be
made by it as part of any B Borrowing shall not relieve any other Bank
of its obligation, if any, hereunder to make its B Advance on the date
of such B Borrowing, but no Bank shall be responsible for the failure
of any other Bank to make the B Advance to be made by such other Bank
on the date of any B Borrowing.
Section 2.17. Optional Termination. Notwithstanding anything
to the contrary in this Agreement, if (ix) any Person (other than a trustee or
other fiduciary holding securities under an employee benefit plan of TWC or of
any Subsidiary of TWC) or two or more Persons acting in concert (other than any
group of employees of TWC or of any of its Subsidiaries) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934), directly or
indirectly, of securities of TWC (or other securities convertible into such
securities) representing 20% or more of the combined voting power of all
securities of TWC entitled to vote in the election of directors, other than
securities having such power only by reason of the happening of a contingency,
or (x) during any period of up to 24 consecutive months, commencing before or
after the date of this Agreement, individuals who at the beginning of such
24-month period were directors of TWC or who were elected by individuals who at
the beginning of such period were such directors or by individuals elected in
accordance with this clause (ii) shall cease for any reason to constitute a
majority of the board of directors of TWC, or (xi) any Person (other than TWC
or a Wholly-Owned Subsidiary of TWC) or two or more Persons acting in concert
shall have acquired by contract or otherwise, or shall have entered into a
contract or arrangement which upon consummation will result in its or their
acquisition of, the power to exercise, directly or indirectly, a controlling
influence over the management or policies of any Borrower; then the Agent shall
at the request, or may with the consent, of the holders of at least 66-2/3% in
principal amount of the A Notes then outstanding or, if no A Notes are then
outstanding, Banks having at least 66-2/3% of the Commitments, by notice to the
Borrowers, declare all of the Commitments and the obligation of each Bank to
make Advances to be terminated, whereupon all of the Commitments and each such
obligation shall forthwith terminate, and no Borrower shall have any further
right to borrow hereunder.
Section 2.18. Extension of Termination Date. By notice given
to the Agent and the Banks, at least thirty days but not more than forty-five
days before October 1 of any year after 1999, the Borrowers may request the
Banks to extend the Stated Termination Date for an additional year to a date
which is an anniversary date of the Stated Termination Date. Within thirty
days after receipt of such request, each Bank that agrees, in its sole and
absolute discretion, to so extend the Stated Termination Date shall notify the
Borrowers and the Agent that it so agrees, and if all Banks so agree the Stated
Termination Date shall be so extended.
Section 2.19. Voluntary Conversion of Advances. Any Borrower
may on any Business Day, if no Event of Default then exists as to such
Borrower, upon notice (which shall be irrevocable) given to the Agent not later
than 11:00 A.M. (x) in the case of a proposed Conversion into Eurodollar Rate
Advances, on the third Business Day prior to the date of the proposed
conversion, and (y) in the case of a proposed Conversion into Base Rate
Advances, on the date of the proposed Conversion, and subject to the provisions
of Sections 2.02 and 2.12, Convert all Advances of one Type comprising the same
A Borrowing into Advances of the other Type; provided that (i) no Conversion of
any Eurodollar Rate Advances shall occur on a day other than the last day of an
Interest Period for such Eurodollar Rate Advances, except as contemplated by
Section 2.12, and (ii) Advances may not be Converted into Eurodollar Rate
Advances if the aggregate unpaid
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<PAGE> 31
principal amount of the Advances is less than $20,000,000. Each such notice of
a Conversion shall, within the restrictions specified above, specify (i) the
date of such Conversion, (ii) the A Advances to be Converted, and (iii) if such
Conversion is into Eurodollar Rate Advances, the duration of the Interest
Period for each such Advance.
Section 2.20. Automatic Provisions.
(a) If any Borrower shall fail to select the duration of
any Interest Period for Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01,
the Agent will forthwith so notify such Borrower and the Lenders, and such
Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(b) On the date on which the aggregate unpaid principal
amount of the Eurodollar Rate Advances of any Borrower shall be reduced to less
than $20,000,000, all of such Eurodollar Rate Advances shall automatically
Convert into Base Rate Advances.
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances. The
obligation of each Bank to make its initial Advance on or after the date hereof
is subject to the condition precedent that the Agent shall have received on or
before the date hereof, each dated on or before such date, in form and
substance satisfactory to the Agent and (except for the Notes) in sufficient
copies for each Bank:
(a) The A Notes executed severally by each of the
respective Borrowers to the order of each of the respective Banks and
this Agreement executed by the Borrowers.
(b) Certified copies of the resolutions of the Board of
Directors, or the Executive Committee thereof, of each Borrower
authorizing the execution of this Agreement and the Notes to be
executed by such Borrower.
(c) A certificate of the Secretary or an Assistant
Secretary of each Borrower certifying (i) all changes, if any, that
have been made to the Certificate of Incorporation or Bylaws of such
Borrower on or after June 15, 1995, and (ii) the names and true
signatures of the officers of such Borrower authorized to sign this
Agreement, Notices of A Borrowing, Notices of B Borrowing and the
Notes to be executed by such Borrower and any other documents to be
delivered hereunder by such Borrower.
(d) An opinion of William G. von Glahn, General Counsel
of TWC, substantially in the form of Exhibit C hereto and as to such
other matters as any Bank through the Agent may reasonably request.
(e) An opinion of Bracewell & Patterson, L.L.P., special
counsel to the Agent, substantially in the form of Exhibit D hereto.
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<PAGE> 32
(f) A certificate of an officer of each Borrower (other
than WPL) stating the respective ratings by each of S&P and Moody's of
the senior unsecured long-term debt of such Borrower as in effect on
the date of this Agreement and a certificate of an officer of WPL
stating (and showing the calculation of) the WPL Debt to TNW Ratio as
of September 30, 1996.
Section 3.02. Additional Conditions Precedent to Each A
Borrowing. The obligation of each Bank to make an A Advance to a Borrower on
the occasion of any A Borrowing (including the initial A Borrowing) shall be
subject to the further conditions precedent that on the date of such A
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of A Borrowing and the acceptance by such Borrower of the
proceeds of such A Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such A Borrowing such statements are true):
(i) The representations and warranties contained in
Section 4.01 pertaining to such Borrower and its Subsidiaries are
correct on and as of the date of such A Borrowing, before and after
giving effect to such A Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date,
(ii) No event has occurred and is continuing, or would
result from such A Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both, and
(iii) After giving effect to such A Borrowing and all other
Borrowings which have been requested on or prior to such date but
which have not been made prior to such date, the aggregate principal
amount of all Advances will not exceed the aggregate of the
Commitments of the Banks to TWC (computed without regard to any B
Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
Section 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Bank which is to make a B Advance to a Borrower on the
occasion of a B Borrowing (including the initial B Borrowing) to make such B
Advance as part of such B Borrowing is subject to the further conditions
precedent that (i) at or before the time required by paragraph (iii) of Section
2.16(a), the Agent shall have received the written confirmatory notice of such
B Borrowing contemplated by such paragraph, (ii) on or before the date of such
B Borrowing, but prior to such B Borrowing, the Agent shall have received a B
Note executed by such Borrower payable to the order of such Bank for each of
the one or more B Advances to be made by such Bank as part of such B Borrowing,
in a principal amount equal to the principal amount of the B Advance to be
evidenced thereby and otherwise on such terms as were agreed to for such B
Advance in accordance with Section 2.16, and (iii) on the date of such B
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of B Borrowing and the acceptance by such Borrower of the
proceeds of such B Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such B Borrowing such statements are true):
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<PAGE> 33
(1) The representations and warranties contained in
Section 4.01 pertaining to such Borrower and its Subsidiaries are
correct on and as of the date of such B Borrowing, before and after
giving effect to such B Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date,
(2) No event has occurred and is continuing, or would
result from such B Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both,
(3) Following the making of such B Borrowing and all
other Borrowings to be made on the same day to such Borrower under
this Agreement, the aggregate principal amount of all Advances to such
Borrower then outstanding will not exceed the aggregate amount of the
Commitments to such Borrower (computed without regard to any B
Reduction), and
(4) After giving effect to such B Borrowing and all other
Borrowings which have been requested on or prior to such date but
which have not been made prior to such date, the aggregate principal
amount of all Advances will not exceed the aggregate of the
Commitments of the Banks to TWC (computed without regard to any B
Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the
Borrowers. Each Borrower represents and warrants as to itself and its
Subsidiaries as follows:
(a) Each Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has all corporate powers and all governmental licenses,
authorizations, certificates, consents and approvals required to carry
on its business as now conducted in all material respects, except for
those licenses, authorizations, certificates, consents and approvals
the failure to have which could not reasonably be expected to have a
material adverse effect on the business, assets, condition or
operation of such Borrower and its Subsidiaries taken as a whole.
Each Subsidiary of each Borrower is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation, except where the failure to be so
organized, existing and in good standing could not reasonably be
expected to have a material adverse effect on the business, assets,
condition or operations of such Borrower and its Subsidiaries taken as
a whole. Each Subsidiary of a Borrower has all corporate powers and
all governmental licenses, authorizations, certificates, consents and
approvals required to carry on its business as now conducted in all
material respects, except for those licenses, authorizations,
certificates, consents and approvals the failure to have which could
not reasonably be expected to have a material adverse effect on the
business, assets, condition or operation of such Borrower and its
Subsidiaries taken as a whole.
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(b) The execution, delivery and performance by each
Borrower of this Agreement and the Notes and the consummation of the
transactions contemplated by this Agreement are within such Borrower's
corporate powers, have been duly authorized by all necessary corporate
action, do not contravene (i) such Borrower's charter or by-laws or
(ii) law or any contractual restriction binding on or affecting such
Borrower and will not result in or require the creation or imposition
of any Lien prohibited by this Agreement. At the time of each
borrowing of any Advance by a Borrower, such borrowing and the use of
the proceeds of such Advance will be within such Borrower's corporate
powers, will have been duly authorized by all necessary corporate
action, will not contravene (i) such Borrower's charter or by-laws or
(ii) law or any contractual restriction binding on or affecting such
Borrower and will not result in or require the creation or imposition
of any Lien prohibited by this Agreement.
(c) No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
any Borrower of this Agreement or the Notes or the consummation of the
transactions contemplated by this Agreement. At the time of each
borrowing of any Advance by a Borrower, no authorization or approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body will be required for such borrowing or
the use of the proceeds of such Advance.
(d) This Agreement has been duly executed and delivered
by each Borrower. This Agreement is the legal, valid and binding
obligation of each Borrower enforceable against each Borrower in
accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally and by
general principles of equity. The A Notes of each Borrower are, and
when executed the B Notes of such Borrower will be, the legal, valid
and binding obligations of such Borrower enforceable against such
Borrower in accordance with their respective terms, except as such
enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally and by general principles of equity.
(e) (i) The Consolidated and consolidating balance sheets
of TWC and its Subsidiaries as at December 31, 1995, and the related
Consolidated and consolidating statements of income and cash flows of
TWC and its Subsidiaries for the fiscal year then ended, copies of
which have been furnished to each Bank, and the Consolidated and
consolidating balance sheets of TWC and its Subsidiaries as at
September 30, 1996 and the related Consolidated and consolidating
statements of income and cash flows of TWC and its Subsidiaries for
the nine months then ended, duly certified by an authorized financial
officer of TWC, copies of which have been furnished to each Bank,
fairly present, subject, in the case of such balance sheets as at
September 30, 1996 and such statements of income and cash flows for
the nine months then ended, to year-end audit adjustments, the
Consolidated and consolidating financial condition of TWC and its
Subsidiaries as at such dates and the Consolidated and consolidating
results of operations of TWC and its Subsidiaries for the year and
nine month period, respectively, ended on such dates, all in
accordance with generally accepted accounting principles consistently
applied. Since September 30, 1996, there has been no material adverse
change in the condition or operations of TWC or its Subsidiaries.
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(ii) The consolidating balance sheets of TWC and
its Subsidiaries as at December 31, 1995 and September 30, 1996
referred to in Section 4.01(e)(i), and the related consolidating
statements of income and cash flows of TWC and its Subsidiaries for
the fiscal year and nine months, respectively, then ended referred to
in Section 4.01(e)(i), to the extent such balance sheets and
statements pertain to NWP, fairly present (subject, in the case of
such balance sheet as at September 30, 1996 and such statements of
income and cash flows for the nine months then ended, to year-end
audit adjustments) the Consolidated financial condition of NWP and its
Subsidiaries as at such dates and the Consolidated results of
operations of NWP and its Subsidiaries for the year and nine month
period, respectively, ended on such dates, all in accordance with
generally accepted accounting principles consistently applied. Since
September 30, 1996, there has been no material adverse change in the
condition or operations of NWP or its Subsidiaries.
(iii) The Consolidated balance sheet of WPL and its
Subsidiaries as at December 31, 1995, and the related Consolidated
statement of income and cash flows of WPL and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each
Bank, and the Consolidated balance sheet of WPL and its Subsidiaries
as at September 30, 1996 and the related Consolidated statement of
income and cash flows of WPL and its Subsidiaries for the nine months
then ended, duly certified by an authorized financial officer of WPL,
copies of which have been furnished to each Bank, fairly present,
subject, in the case of such balance sheet as at September 30, 1996
and such statement of income and cash flows for the nine months then
ended, to year-end audit adjustments, the Consolidated financial
condition of WPL and its Subsidiaries as at such dates and the
Consolidated results of operations of WPL and its Subsidiaries for the
year and nine month period, respectively, ended on such dates, all in
accordance with generally accepted accounting principles consistently
applied. Since September 30, 1996, there has been no material adverse
change in the condition or operations of WPL or its Subsidiaries.
(iv) The Consolidated balance sheet of TGPL and
its Subsidiaries as at December 31, 1995, and the related Consolidated
statement of income and cash flows of TGPL and its Subsidiaries for
the fiscal year then ended, copies of which have been furnished to
each Bank, and the Consolidated balance sheet of TGPL and its
Subsidiaries as at September 30, 1996 and the related Consolidated
statement of income and cash flows of TGPL and its Subsidiaries for
the nine months then ended, duly certified by an authorized financial
officer of TGPL, copies of which have been furnished to each Bank,
fairly present, subject, in the case of such balance sheet as at
September 30, 1996 and such statement of income and cash flows for the
nine months then ended, to year-end audit adjustments, the
Consolidated financial condition of TGPL and its Subsidiaries as at
such dates and the Consolidated results of operations of TGPL and its
Subsidiaries for the year and nine month period, respectively, ended
on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1996, there has
been no material adverse change in the condition or operations of TGPL
or its Subsidiaries.
(v) The Consolidated balance sheet of TGT and its
Subsidiaries as at December 31, 1995, and the related Consolidated
statement of income and cash flows of TGT and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each
Bank, and the Consolidated balance sheet of TGT and its Subsidiaries
as at September 30, 1996, and the related Consolidated statement of
income and cash flows of
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<PAGE> 36
TGT and its Subsidiaries for the nine months then ended, duly
certified by an authorized financial officer of TGT, copies of which
have been furnished to each Bank, fairly present, subject, in the case
of such balance sheet as at September 30, 1996 and such statement of
income and cash flows for the nine months then ended, to year-end
audit adjustments, the Consolidated financial condition of TGT and its
Subsidiaries as at such dates and the Consolidated results of
operations of TGT and its Subsidiaries for the year and nine month
period, respectively, ended on such dates, all in accordance with
generally accepted accounting principles consistently applied. Since
September 30, 1996, there has been no material adverse change in the
condition or operations of TGT or its Subsidiaries.
(vi) The Consolidated balance sheet of WHD and its
Subsidiaries as at December 31, 1995, and the related Consolidated
statement of income and cash flows of WHD and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each
Bank, and the Consolidated balance sheet of WHD and its Subsidiaries
as at September 30, 1996 and the related Consolidated statement of
income and cash flows of WHD and its Subsidiaries for the nine months
then ended, duly certified by an authorized financial officer of WHD,
copies of which have been furnished to each Bank, fairly present,
subject, in the case of such balance sheet as at September 30, 1996
and such statement of income and cash flows for the nine months then
ended, to year-end audit adjustments, the Consolidated financial
condition of WHD and its Subsidiaries as at such dates and the
Consolidated results of operations of WHD and its Subsidiaries for the
year and nine month period, respectively, ended on such dates, all in
accordance with generally accepted accounting principles consistently
applied. Since September 30, 1996, there has been no material adverse
change in the condition or operations of WHD or its Subsidiaries.
(f) Except as set forth in the Public Filings or as
otherwise disclosed in writing by a Borrower to the Banks and the
Agent after the date hereof and approved by the Majority Banks, there
is, as to each Borrower, no pending or, to the knowledge of such
Borrower, threatened action or proceeding affecting such Borrower or
any Subsidiary of such Borrower before any court, governmental agency
or arbitrator, which could reasonably be expected to materially and
adversely affect the financial condition or operations of such
Borrower and its Subsidiaries taken as a whole or which purports to
affect the legality, validity, binding effect or enforceability of
this Agreement or any Note.
(g) No proceeds of any Advance will be used for any
purpose or in any manner not permitted by Section 5.02(k).
(h) No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Advance will be used
to purchase or carry any such margin stock (other than purchases of
common stock expressly permitted by Section 5.02(k)) or to extend
credit to others for the purpose of purchasing or carrying any such
margin stock. Following the application of the proceeds of each
Advance, not more than 25% of the value of the assets of any Borrower
will be represented by such margin stock and not more than 25% of the
value of the assets of any Borrower and its Subsidiaries will be
represented by such margin stock.
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(i) No Borrower is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(j) No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan for which an Insufficiency
exists. No Borrower nor any ERISA Affiliate of any Borrower has
received any notification that any Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV
of ERISA, and no Borrower is aware of any reason to expect that any
Multiemployer Plan is to be in reorganization or to be terminated
within the meaning of Title IV of ERISA.
(k) As of the date of this Agreement, the United States
federal income tax returns of each Borrower (other than WHD) and the
Subsidiaries of each Borrower (other than Subsidiaries not in
existence on December 31, 1989) have been examined through the fiscal
year ended December 31, 1989. Each Borrower and the Subsidiaries of
each Borrower have filed all United States Federal income tax returns
and all other material domestic tax returns which are required to be
filed by them and have paid, or provided for the payment before the
same become delinquent of, all taxes due pursuant to such returns or
pursuant to any assessment received by any Borrower or any such
Subsidiary, other than those taxes contested in good faith by
appropriate proceedings. The charges, accruals and reserves on the
books of each Borrower and the Subsidiaries of each Borrower in
respect of taxes are adequate.
(l) No Borrower is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", or a
"public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(m) Except as set forth in the Public Filings or as
otherwise disclosed in writing by a Borrower to the Banks and the
Agent after the date hereof and approved by the Majority Banks, the
Borrowers and their respective Subsidiaries are in compliance in all
material respects with all Environmental Protection Statutes to the
extent material to their respective operations or financial condition.
Except as set forth in the Public Filings or as otherwise disclosed in
writing by a Borrower to the Banks and the Agent after the date hereof
and approved by the Majority Banks, the aggregate contingent and
non-contingent liabilities of each Borrower and its Subsidiaries
(other than those reserved for in accordance with generally accepted
accounting principles and set forth in the financial statements
regarding such Borrower referred to in Section 4.01(e) and delivered
to each Bank) which are reasonably expected to arise in connection
with (i) the requirements of Environmental Protection Statutes or (ii)
any obligation or liability to any Person in connection with any
Environmental matters (including, without limitation, any release or
threatened release (as such terms are defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980) of any
Hazardous Waste, Hazardous Substance, other waste, petroleum or
petroleum products into the Environment) does not exceed 10% of the
Consolidated Tangible Net Worth of such Borrower (excluding
liabilities to the extent covered by insurance if the insurer has
confirmed that such insurance covers such liabilities or which such
Borrower reasonably expects to recover from ratepayers).
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ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants. So long as any Note
shall remain unpaid or any Bank shall have any Commitment to any Borrower
hereunder, each Borrower will, unless the Majority Banks shall otherwise
consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of
its Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (except where failure to comply could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operations of such Borrower and its Subsidiaries taken as
a whole), such compliance to include, without limitation, the payment and
discharge before the same become delinquent of all taxes, assessments and
governmental charges or levies imposed upon it or any of its Subsidiaries or
upon any of its property or any property of any of its Subsidiaries, and all
lawful claims which, if unpaid, might become a Lien upon any property of it or
any of its Subsidiaries, provided that no Borrower nor any Subsidiary of a
Borrower shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings and with
respect to which reserves in conformity with generally accepted accounting
principles, if required by such principles, have been provided on the books of
such Borrower or such Subsidiary, as the case may be.
(b) Reporting Requirements. Furnish to each of the
Banks:
(i) as soon as possible and in any event within
five days after the occurrence of each Event of Default or
each event which, with the giving of notice or lapse of time
or both, would constitute an Event of Default, continuing on
the date of such statement, a statement of an authorized
financial officer of such Borrower setting forth the details
of such Event of Default or event and the actions, if any,
which such Borrower has taken and proposes to take with
respect thereto;
(ii) as soon as available and in any event not
later than 60 days after the end of each of the first three
quarters of each fiscal year of such Borrower, the
Consolidated and, in the case of TWC, consolidating balance
sheets of such Borrower and its Subsidiaries as of the end of
such quarter and the Consolidated and, in the case of TWC,
consolidating statements of income and cash flows of such
Borrower and its Subsidiaries for the period commencing at the
end of the previous year and ending with the end of such
quarter, all in reasonable detail and duly certified (subject
to year-end audit adjustments) by an authorized financial
officer of such Borrower as having been prepared in accordance
with generally accepted accounting principles, together with a
certificate of said officer (a) stating that he has no
knowledge that an Event of Default, or an event which, with
notice or lapse of time or both, would constitute an Event of
Default has occurred and is continuing or, if an Event of
Default or such an event has occurred and is continuing, a
statement as to the nature thereof and the action, if any,
which such Borrower proposes to take with respect thereto, and
(b) showing in detail the calculation supporting such
statement in respect of Section 5.02(b);
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<PAGE> 39
(iii) as soon as available and in any event not
later than 105 days after the end of each fiscal year of such
Borrower, a copy of the annual audit report for such year for
such Borrower and its Subsidiaries, including therein
Consolidated and, in the case of TWC, consolidating balance
sheets of such Borrower and its Subsidiaries as of the end of
such fiscal year and Consolidated and, in the case of TWC,
consolidating statements of income and cash flows of such
Borrower and its Subsidiaries for such fiscal year, in each
case prepared in accordance with generally accepted accounting
principles and certified by Ernst & Young or other independent
certified public accountants of recognized standing acceptable
to the Majority Banks, together with a certificate of such
accounting firm to the Banks (a) stating that, in the course
of the regular audit of the business of such Borrower and its
Subsidiaries, which audit was conducted by such accounting
firm in accordance with generally accepted auditing standards,
such accounting firm has obtained no knowledge that an Event
of Default or an event which, with notice or lapse of time or
both, would constitute an Event of Default, has occurred and
is continuing, or if, in the opinion of such accounting firm,
an Event of Default or such an event has occurred and is
continuing, a statement as to the nature thereof, and (b)
showing in detail the calculations supporting such statement
in respect of Section 5.02(b); provided, however, that in the
case of NWP the primary audited financial statements required
by this Section 5.01(b)(iii) may be presented on a historical
cost basis, but such audited financial statements shall
include, as additional information, on a push-down basis
reflecting the purchase price of NWP paid by TWC, a
Consolidated balance sheet, a Consolidated statement of income
and a Consolidated cash flow statement of NWP and its
Subsidiaries as of the end of and for the relevant fiscal
year, all prepared in accordance with generally accepted
accounting principles but excluding footnotes for the
push-down financial statements;
(iv) such other information respecting the
business or properties, or the condition or operations,
financial or otherwise, of such Borrower or any of its
Subsidiaries as any Bank through the Agent may from time to
time reasonably request;
(v) promptly after the sending or filing thereof,
copies of all proxy material, reports and other information
which such Borrower sends to any of its security holders, and
copies of all final reports and final registration statements
which such Borrower or any Subsidiary of such Borrower files
with the Securities and Exchange Commission or any national
securities exchange;
(vi) as soon as possible and in any event (A) within
30 Business Days after such Borrower or any ERISA Affiliate of
such Borrower knows or has reason to know that any Termination
Event described in clause (i) of the definition of Termination
Event with respect to any Plan has occurred and (B) within 30
Business Days after such Borrower or any ERISA Affiliate of
such Borrower knows or has reason to know that any other
Termination Event with respect to any Plan has occurred or is
reasonably expected to occur, a statement of the chief
financial officer or chief accounting officer of such Borrower
describing such Termination Event and the action, if any,
which such Borrower or such ERISA Affiliate of such Borrower
proposes to take with respect thereto;
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<PAGE> 40
(vii) promptly and in any event within 25 Business
Days after receipt thereof by such Borrower or any ERISA
Affiliate of such Borrower, copies of each notice received by
such Borrower or any ERISA Affiliate of such Borrower from the
PBGC stating its intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(viii) within 30 days following request therefor by
any Bank, copies of each Schedule B (Actuarial Information) to
each annual report (Form 5500 Series) of such Borrower or any
ERISA Affiliate of such Borrower with respect to each Plan;
(ix) promptly and in any event within 25 Business
Days after receipt thereof by such Borrower or any ERISA
Affiliate of such Borrower from the sponsor of a Multiemployer
Plan, a copy of each notice received by such Borrower or any
ERISA Affiliate of such Borrower concerning (A) the imposition
of a Withdrawal Liability by a Multiemployer Plan, (B) the
determination that a Multiemployer Plan is, or is expected to
be, in reorganization within the meaning of Title IV of ERISA,
(C) the termination of a Multiemployer Plan within the meaning
of Title IV of ERISA, or (D) the amount of liability incurred,
or expected to be incurred, by such Borrower or any ERISA
Affiliate of such Borrower in connection with any event
described in clause (A), (B) or (C) above;
(x) not more than 45 days (or 90 days in the case of
the last fiscal quarter of a fiscal year of such Borrower)
after the end of each fiscal quarter of such Borrower, a
certificate of an authorized financial officer of such
Borrower (a) stating the respective ratings, if any, by each
of S&P and Moody's of the senior unsecured long-term debt of
such Borrower as of the last day of such quarter, and (b) if
such Borrower is WPL, stating (and showing the calculation of)
the WPL Debt to TNW Ratio on the last day of such quarter; and
(xi) promptly after any withdrawal or termination of
the letter referred to in the second to last sentence of
Section 1.05 or any change in the indicated rating set forth
therein or any change in, or issuance, withdrawal or
termination of, the rating of any senior unsecured long-term
debt of such Borrower by S&P or Moody's, notice thereof.
(c) Maintenance of Insurance. Maintain, and cause each
of its Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and
covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general
areas in which such Borrower or its Subsidiaries operate, provided
that such Borrower or any of its Subsidiaries may self-insure to the
extent and in the manner normal for companies of like size, type and
financial condition.
(d) Preservation of Corporate Existence, Etc. Preserve
and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each
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<PAGE> 41
jurisdiction in which qualification is necessary or desirable in view
of its business and operations or the ownership of its properties,
except (1) in the case of any Non-Borrowing Subsidiary of such
Borrower, where the failure of such Subsidiary to so preserve,
maintain, qualify and remain qualified could not reasonably be
expected to have a material adverse effect on the business, assets,
condition or operations of such Borrower and its Subsidiaries taken as
a whole and (2) in the case of such Borrower, where the failure of
such Borrower to preserve and maintain such rights, franchises and
privileges and to so qualify and remain qualified could not reasonably
be expected to have a material adverse effect on the business, assets,
condition or operations of such Borrower and its Subsidiaries taken as
a whole.
Section 5.02. Negative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
no Borrower will, without the written consent of the Majority Banks:
(a) Liens, Etc. Create, assume, incur or suffer to
exist, or permit any of its Subsidiaries to create, assume, incur or
suffer to exist, any Lien on or in respect of any of its property,
whether now owned or hereafter acquired, or assign or otherwise
convey, or permit any such Subsidiary to assign or otherwise convey,
any right to receive income, in each case to secure or provide for the
payment of any Debt of any Person, except that:
(i) TWC and its Non-Borrowing Subsidiaries which
are not Subsidiaries of any other Borrower may create, incur,
assume or suffer to exist Permitted TWC Liens;
(ii) WHD and its Non-Borrowing Subsidiaries which
are not Subsidiaries of any other Borrower (other than TWC)
may create, incur, assume or suffer to exist Permitted WHD
Liens;
(iii) NWP and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted NWP Liens;
(iv) TGPL and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted TGPL Liens;
(v) TGT and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted TGT Liens;
and
(vi) WPL and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted WPL Liens.
(b) Debt. (i) In the case of TWC, permit the ratio of
(A) the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to (B) the sum of the Consolidated Net Worth of TWC
plus the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to exceed 0.65 to 1.0 at any time;
(ii) In the case of WHD, permit the ratio of (A) the aggregate
amount of all Debt of WHD and its Subsidiaries on a Consolidated basis
to (B) the sum of the Consolidated Net
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<PAGE> 42
Worth of WHD plus the aggregate amount of all Debt of WHD and its
Subsidiaries on a Consolidated basis to exceed 0.55 to 1.0 at any
time; and
(iii) In the case of any Borrower (other than TWC and WHD),
permit the ratio of (A) the aggregate amount of all Debt of such
Borrower and its Subsidiaries on a Consolidated basis to (B) the sum
of the Consolidated Net Worth of such Borrower plus the aggregate
amount of all Debt of such Borrower and its Subsidiaries on a
Consolidated basis to exceed 0.60 to 1.0 at any time.
(c) Merger and Sale of Assets. Merge or consolidate with
or into any other Person, or sell, lease or otherwise transfer all or
substantially all of its assets, or permit any of its Subsidiaries
(except immaterial Subsidiaries (other than WNG and WFS) that are not
Borrowers) to merge or consolidate with or into any other Person, or
sell, lease or otherwise transfer all or substantially all of its
assets, except that this Section 5.02(c) shall not prohibit:
(i) any Borrower and its Subsidiaries from selling,
leasing or otherwise transferring their respective assets in
the ordinary course of business;
(ii) if, but only if, (x) there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default and
(y) in the case of each transaction referred to in this
paragraph (ii) involving any Borrower or any of its
Subsidiaries, such transaction could not reasonably be
expected to impair materially the ability of such Borrower to
perform its obligations hereunder and under the Notes and such
Borrower shall continue to exist, any merger, consolidation or
sale, lease or other transfer of assets that does not involve
any Person other than TWC and its Subsidiaries;
(iii) if, but only if, there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default,
any Borrower and its Subsidiaries from selling, leasing or
otherwise transferring their respective gathering assets and
other production area facilities, or the stock of any Person
substantially all of the assets of which are gathering assets
and other production area facilities, to TWC or to any
Subsidiary of TWC for consideration that is not materially
less than the net book value of such assets and facilities;
(iv) any sale and lease-back of cushion gas by any
Borrower or any of its Subsidiaries or any sale and lease-back
of inventory by WPL or any of its Subsidiaries (other than
another Borrower);
(v) sales of receivables of any kind; or
(vi) if, but only if, there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default,
any sale, lease or other transfer of any stock or assets of
Transco Energy Company and its Subsidiaries so long as prior
to the time of such sale, lease or other transfer Transco
Energy Company and its Subsidiaries shall have transferred to
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TWC all of their respective interests in TGPL and TGT and
shall not have reacquired any such interest.
(d) Agreements to Restrict Dividends and Certain
Transfers. Enter into or suffer to exist, or permit any of its
Subsidiaries to enter into or suffer to exist, any consensual
encumbrance or restriction on the ability of any Subsidiary of TWC
(iii) to pay, directly or indirectly, dividends or make any other
distributions in respect of its capital stock or pay any Debt or other
obligation owed to TWC or to any Subsidiary of TWC; or (iv) to make
loans or advances to TWC or any Subsidiary of TWC, except (1)
encumbrances and restrictions on any immaterial Non-Borrowing
Subsidiary of TWC (other than WNG and WFS), (2) those encumbrances and
restrictions existing on the date hereof and described in Exhibit E,
(3) other encumbrances and restrictions now or hereafter existing of
any Borrower or any of its Subsidiaries that are not more restrictive
in any material respect than the encumbrances and restrictions with
respect to such Borrower or its Subsidiaries described in Exhibit E,
and (4) any encumbrances and restrictions created in connection with
any sale and lease-back of cushion gas by any Borrower or any
Subsidiary of any Borrower or any sale and lease-back of inventory by
WPL or any of its Subsidiaries (other than another Borrower).
(e) Loans and Advances. Borrow or otherwise receive any
loan or advance from TWC, and TWC will not make or permit to remain
outstanding any loan or advance to, or own, purchase or acquire any
obligations or debt securities of, any Subsidiary of TWC, except that
TWC may make and permit to remain outstanding loans and advances to
its Subsidiaries (and such Subsidiaries may borrow or otherwise
receive such loans and advances) if each such loan or advance
(excluding loans and advances to a Subsidiary of TWC if the aggregate
principal amount of all such excluded loans and advances to such
Subsidiary does not exceed $100,000) is evidenced by a written
instrument duly executed by the Subsidiary of TWC to which such loan
or advance is made, bears interest at TWC's or such Subsidiary's
market rate of interest and matures on or before the Termination Date.
(f) Maintenance of Ownership of Certain Subsidiaries.
Sell, issue or otherwise dispose of, or create, assume, incur or
suffer to exist any Lien on or in respect of, or permit any of its
Subsidiaries to sell, issue or otherwise dispose of or create, assume,
incur or suffer to exist any Lien on or in respect of, any shares of
or any interest in any shares of the capital stock of (1) WHD, WNG,
WFS, WPL, TGPL, TGT or NWP or any of their respective material
Subsidiaries or (2) any Subsidiary of TWC at the time it owns any
shares of or any interest in any shares of the capital stock of WHD,
WNG, WFS, WPL, TGPL, TGT or NWP or any of their respective material
Subsidiaries; provided, however, that if, but only if, (x) there shall
not exist or result an Event of Default or an event which with notice
or lapse of time or both would constitute an Event of Default and (y)
in the case of each sale or other disposition referred to in this
proviso involving any Borrower or any of its Subsidiaries, such sale
or other disposition could not reasonably be expected to impair
materially the ability of such Borrower to perform its obligations
hereunder and under the Notes and such Borrower shall continue to
exist, this Section 5.02(f) shall not prohibit the sale or other
disposition of the stock of any Subsidiary of TWC to TWC or any
Wholly-Owned Subsidiary of TWC.
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(g) Compliance with ERISA. (i) Terminate, or permit any
ERISA Affiliate of such Borrower to terminate, any Plan so as to
result in any liability of such Borrower or any such ERISA Affiliate
to the PBGC in excess of $5,000,000, or (ii) permit to exist any
occurrence of any Termination Event with respect to a Plan for which
there is an Insufficiency in excess of $5,000,000.
(h) Transactions with Related Parties. Make any sale to,
make any purchase from, extend credit to, make payment for services
rendered by, or enter into any other transaction with, or permit any
Subsidiary of such Borrower to make any sale to, make any purchase
from, extend credit to, make payment for services rendered by, or
enter into any other transaction with, any Related Party of such
Borrower or of such Subsidiary unless as a whole such sales,
purchases, extensions of credit, rendition of services and other
transactions are (at the time such sale, purchase, extension of
credit, rendition of services or other transaction is entered into) on
terms and conditions reasonably fair in all material respects to such
Borrower or such Subsidiary in the good faith judgment of such
Borrower.
(i) Guarantees. Guarantee or otherwise become
contingently liable for, or permit any of its Subsidiaries to
guarantee or otherwise become contingently liable for, Debt of any
Subsidiary of TWC (other than Williams Energy Company and its
Subsidiaries which are not Borrowers) while an Event of Default is
continuing.
(j) Sale and Lease-Back Transactions. Enter into, or
permit any of its Subsidiaries to enter into, any Sale and Lease-Back
Transaction, if after giving effect thereto such Borrower would not be
permitted to incur at least $1.00 of additional Debt secured by a Lien
permitted by (i) paragraph (z) of Schedule III in the case of NWP and
its Subsidiaries, (ii) paragraph (z) of Schedule VI in the case of TWC
and its Non-Borrowing Subsidiaries which are not Subsidiaries of any
other Borrower, (iii) paragraph (z) of Schedule IV in the case of TGPL
and its Subsidiaries, (iv) paragraph (z) of Schedule V in the case of
TGT and its Subsidiaries, (v) paragraph (i) of Schedule VII in the
case of WPL and its Subsidiaries and (vi) paragraph (z) of Schedule
VIII in the case of WHD and its Subsidiaries.
(k) Use of Proceeds. Use any proceeds of any Advance for
any purpose other than general corporate purposes (including, without
limitation, repurchases by TWC of its capital stock, working capital
and capital expenditures) or use any such proceeds in any manner which
violates or results in a violation of law; provided, howeverthat no
proceeds of any Advance will be used to acquire any equity security of
a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, (other than any purchase of common
stock of any corporation, if such purchase is not subject to Sections
13 and 14 of the Securities Exchange Act of 1934 and is not opposed,
resisted or recommended against by such corporation or its management
or directors, provided that the aggregate amount of common stock of
any corporation (other than Apco Argentina Inc., a Cayman Islands
corporation) purchased during any calendar year shall not exceed 1% of
the common stock of such corporation issued and outstanding at the
time of such purchase) or in any manner which contravenes law, and no
proceeds of any Advance will be used to purchase or carry any margin
stock (within the meaning of Regulation G or Regulation U issued by
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the Board of Governors of the Federal Reserve System), except
purchases by TWC of its capital stock if, after giving effect thereto,
none of the Advances would constitute purpose credit within the
meaning of such Regulation U or purpose credit within the meaning of
such Regulation G.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any
Note executed by it when the same becomes due and payable, or shall
fail to pay any interest on any such Note or any fee or other amount
to be paid by it hereunder within ten days after the same becomes due
and payable; or
(b) Any certification, representation or warranty made by
any Borrower herein or by any Borrower (or any officer of any
Borrower) in writing under or in connection with any Note or this
Agreement (including, without limitation, representations and
warranties deemed made pursuant to Section 3.02 or 3.03) shall prove
to have been incorrect in any material respect when made or deemed
made; or
(c) Any Borrower shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 5.01(b) on its part
to be performed or observed and such failure shall continue for five
Business Days after the earlier of the date notice thereof shall have
been given to such Borrower by the Agent or any Bank or the date such
Borrower shall have knowledge of such failure, or (ii) any term,
covenant or agreement contained in this Agreement (other than a term,
covenant or agreement contained in Section 5.01(b)) or any Note on its
part to be performed or observed; or
(d) Any Borrower or any Subsidiary of any Borrower shall
fail to pay any principal of or premium or interest on any Debt which
is outstanding in a principal amount of at least $20,000,000 in the
aggregate (excluding Debt evidenced by the Notes) of such Borrower or
such Subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to
any such Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be
due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment or as required pursuant to an illegality
event of the type set forth in Section 2.12), prior to the stated
maturity thereof; or
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(e) Any Borrower or any Subsidiary of any Borrower
(except any immaterial Subsidiary of such Borrower other than WNG, WEV
and WFS) shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against any Borrower or any
Subsidiary of any Borrower (except any immaterial Subsidiary of such
Borrower other than WNG, WEV and WFS) seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted
against it (but not instituted by it), shall remain undismissed or
unstayed for a period of 30 days; or any Borrower or any Subsidiary of
any Borrower (except any immaterial Subsidiary of such Borrower other
than WNG, WEV and WFS) shall take any corporate action to authorize
any of the actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in
excess of $20,000,000 shall be rendered against any Borrower or any
Subsidiary of any Borrower (except any immaterial Subsidiary of such
Borrower other than WEV, WNG and WFS) and remain unsatisfied and
either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period
of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(g) Any Termination Event with respect to a Plan shall
have occurred and, 30 days after notice thereof shall have been given
to any Borrower by the Agent, (i) such Termination Event shall still
exist and (ii) the sum (determined as of the date of occurrence of
such Termination Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and then exist (or in the case
of a Plan with respect to which a Termination Event described in
clause (ii) of the definition of Termination Event shall have occurred
and then exist, the liability related thereto) is equal to or greater
than $5,000,000; or
(h) Any Borrower or any ERISA Affiliate of any Borrower
shall have been notified by the sponsor of a Multiemployer Plan that
it has incurred Withdrawal Liability to such Multiemployer Plan in an
amount which, when aggregated with all other amounts required to be
paid to Multiemployer Plans in connection with Withdrawal Liabilities
(determined as of the date of such notification), exceeds $15,000,000
in the aggregate or requires payments exceeding $10,000,000 per annum;
or
(i) Any Borrower or any ERISA Affiliate of any Borrower
shall have been notified by the sponsor of a Multiemployer Plan that
such Multiemployer Plan is in reorganization or is being terminated,
within the meaning of Title IV of ERISA, if as a result of such
reorganization or termination the aggregate annual contributions of
the Borrowers and their respective ERISA Affiliates to all
Multiemployer Plans which are then in reorganization or being
terminated have been or will be increased over the amounts
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contributed to such Multiemployer Plans for the respective plan years
which include the date hereof by an amount exceeding $5,000,000;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the holders of at least 66-2/3% in principal amount of the A
Notes then outstanding or, if no A Notes are then outstanding, Banks having at
least 66-2/3% of the Commitments, by notice to the Borrowers, declare all of
the Commitments and the obligation of each Bank to make Advances to be
terminated, whereupon all of the Commitments and each such obligation shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the holders of at least 66-2/3% in principal amount of the A Notes then
outstanding or if no A Notes are then outstanding, Banks having at least
66-2/3% of the Commitments, or, if no A Notes are then outstanding and all
Commitments have terminated, the holders of at least 66-2/3% in principal
amount of the B Notes then outstanding, by notice to the Borrower as to which
an Event of Default exists (determined as contemplated by the definition herein
of Events of Default), declare the Notes of such Borrower, all interest thereon
and all other amounts payable by such Borrower under this Agreement to be
forthwith due and payable, whereupon such Notes, such interest and all such
amounts shall become and be forthwith due and payable, without requirement of
any presentment, demand, protest, notice of intent to accelerate, further
notice of acceleration or other further notice of any kind (other than the
notice expressly provided for above), all of which are hereby expressly waived
by each Borrower; provided, however, that in the event of any Event of Default
described in Section 6.01(e), (A) the obligation of each Bank to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or any other notice of any kind, all of which are hereby expressly
waived by each Borrower.
ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action. Each Bank hereby
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Notes), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of
holders of at least 66-2/3% in principal amount of the A Notes then outstanding
or, if no A Notes are then outstanding, Banks having at least 66-2/3% of the
Commitments (or, if no A Notes are then outstanding and all Commitments have
terminated, upon the instructions of holders of at least 66-2/3% in principal
amount of the B Notes then outstanding), and such instructions shall be binding
upon all Banks and all holders of Notes; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to any Note, this Agreement or applicable law.
The Agent agrees to give to each Bank prompt notice of each notice given to it
by any Borrower pursuant to the terms of this Agreement.
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Section 7.02. Agent's Reliance, Etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
any Note or this Agreement, except for its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing, the
Agent: (i) may treat the payee of any Note as the holder thereof until the
Agent receives and accepts a Transfer Agreement executed by a Borrower, the
Bank which is the payee of such Note, as assignor, and the assignee in
accordance with the last sentence of Section 8.06(a); (ii) may consult with
legal counsel (including counsel for any Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations (whether written or oral) made in or
in connection with any Note or this Agreement; (iv) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of any Note or this Agreement on the part of any
Borrower or to inspect the property (including the books and records) of any
Borrower; (v) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of any
Note or this Agreement or any other instrument or document furnished pursuant
hereto; and (vi) shall incur no liability under or in respect of any Note or
this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopier, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
Section 7.03. Citibank and Affiliates. With respect to its
Commitments, the Advances made by it and the Notes issued to it, Citibank shall
have the same rights and powers under any Note and this Agreement as any other
Bank and may exercise the same as though it was not the Agent; and the term
"Bank" or "Banks" shall, unless otherwise expressly indicated, include Citibank
in its individual capacity. Citibank and its affiliates may accept deposits
from, lend money to, act as trustee under indentures of, and generally engage
in any kind of business with, any Borrower, any Subsidiary of any Borrower, any
Person who may do business with or own, directly or indirectly, securities of
any Borrower or any such Subsidiary and any other Person, all as if Citibank
were not the Agent and without any duty to account therefor to the Banks.
Section 7.04. Bank Credit Decision. Each Bank acknowledges
that it has, independently and without reliance upon the Agent or any other
Bank and based on the financial statements referred to in Section 4.01(e) and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under any Note or this Agreement.
Section 7.05. Indemnification. The Banks agree to indemnify
the Agent (to the extent not reimbursed by the Borrowers), ratably according to
the respective principal amounts of the A Notes then held by each of them (or
if no A Notes are at the time outstanding or if any A Notes are held by Persons
which are not Banks, ratably according to either (i) the respective amounts of
their Commitments to TWC, or (ii) if all Commitments to TWC have terminated,
the respective amounts of the Commitments to TWC immediately prior to the time
the Commitments to TWC terminated), from and against any and all liabilities,
obligations, losses, damages, penalties, actions,
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judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the Agent
in any way relating to or arising out of any Note or this Agreement or any
action taken or omitted by the Agent under any Note or this Agreement, provided
that no Bank shall be liable to the Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including counsel fees) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, any Note or this Agreement to the extent that the Agent
is not reimbursed for such expenses by the Borrowers.
Section 7.06. Successor Agent. The Agent may resign at any
time as Agent under this Agreement by giving written notice thereof to the
Banks and the Borrowers and may be removed at any time with or without cause by
the Majority Banks. Upon any such resignation or removal, the Majority Banks
shall have the right to appoint, with the consent of TWC (which consent shall
not be unreasonably withheld), a successor Agent from among the Banks. If no
successor Agent shall have been so appointed by the Majority Banks with such
consent, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Majority Banks' removal
of the retiring Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a Bank which is a commercial bank
organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Agent under this Agreement by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and shall function as the Agent under this Agreement, and the retiring Agent
shall be discharged from its duties and obligations as Agent under this
Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article VII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Note or this Agreement, nor consent to any departure by any
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Banks, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, do any of the following: (a)
waive any of the conditions specified in Article III, (b) increase the
Commitments of the Banks or subject the Banks to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (e) take any action which requires the signing of all
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the Banks pursuant to the terms of this Agreement, (f) change the percentage of
the Commitments or of the aggregate unpaid principal amount of the A Notes or B
Notes, or the number of Banks, which shall be required for the Banks or any of
them to take any action under this Agreement, or (g) amend this Section 8.01;
and provided, further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Banks required above to take
such action, affect the rights or duties of the Agent under any Note or this
Agreement.
Section 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopy,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered, if to any Bank, as specified opposite its name on
Schedule I hereto or specified pursuant to Section 8.06(a); if to any Borrower,
as specified opposite its name on Schedule II hereto; and if to Citibank, as
Agent, to its address at 399 Park Avenue, New York, New York 10043,
(telecopier number: (212) 527-1084), Attention: John Sahr, with a copy to
Citicorp North America, Inc., 1200 Smith Street, Suite 2000, Houston, Texas
77002 (telecopier number: (713) 654-2849; telex number 127001 (Attn: Route Code
HOUAA)), Attention: The Williams Companies, Inc. Account Officer; or, as to
any Borrower or the Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party, at
such other address as shall be designated by such party in a written notice to
the Borrowers and the Agent. All such notices and communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when received
in the mail, sent by telecopier to any party to the telecopier number as set
forth herein or on Schedule I or Schedule II or specified pursuant to Section
8.06(a) (or other telecopy number specified by such party in a written notice
to the other parties hereto), delivered to the telegraph company, telexed to
any party to the telex number set forth herein or on Schedule I or Schedule II
or specified pursuant to Section 8.06(a) (or other telex number designated by
such party in a written notice to the other parties hereto), confirmed by telex
answerback, or delivered to the cable company, respectively, except that
notices and communications to the Agent shall not be effective until received
by the Agent.
Section 8.03. No Waiver; Remedies. No failure on the part of
any Bank or the Agent to exercise, and no delay in exercising, any right under
any Note or this Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
any Note and this Agreement are cumulative and not exclusive of any remedies
provided by law.
Section 8.04. Costs, Expenses and Taxes. (a)(i) TWC agrees
to pay on demand all reasonable out-of- pocket costs and expenses of the
Arranger and the Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered under this Agreement, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Agent with respect thereto and with respect to advising the Agent as to its
rights and responsibilities under any Note and this Agreement, and (ii) each
Borrower agrees to pay on demand all costs and expenses, if any (including,
without limitation, reasonable counsel fees and expenses, which may include
allocated costs of in-house counsel), of the Agent and each Bank in connection
with the enforcement (whether through negotiations, legal proceedings or
otherwise) against such Borrower of any Note of such Borrower or this Agreement
and the other documents to be delivered by such Borrower under this Agreement.
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(b) If any payment (or purchase pursuant to Section
2.11(c) or Section 8.06(b)) of principal of, or Conversion of, any Eurodollar
Rate Advance or B Advance made to any Borrower is made other than on the last
day of an Interest Period relating to such Advance (or in the case of a B
Advance, other than on the original scheduled maturity date thereof), as a
result of a payment pursuant to Section 2.10 or 2.12 or acceleration of the
maturity of the Notes pursuant to Section 6.01 or for any other reason or as a
result of any such purchase or any Conversion, such Borrower shall, upon demand
by any Bank (with a copy of such demand to the Agent), pay to the Agent for the
account of such Bank any amounts required to compensate such Bank for any
additional losses, costs or expenses which it may reasonably incur as a result
of any such payment, purchase or Conversion, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Bank to fund or maintain such Advance.
(c) Each Borrower agrees, to the fullest extent permitted
by law, to indemnify and hold harmless the Agent, the Arranger and each Bank
and each of their respective directors, officers, employees and agents from and
against any and all claims, damages, liabilities and out-of-pocket expenses
(including, without limitation, reasonable fees and disbursements of counsel)
for which any of them may become liable or which may be incurred by or asserted
against the Agent, the Arranger or such Bank or any such director, officer,
employee or agent (other than by another Bank or any successor or assign of
another Bank), in each case in connection with or arising out of or by reason
of any investigation, litigation, or proceeding, whether or not the Agent, the
Arranger or such Bank or any such director, officer, employee or agent is a
party thereto, arising out of, related to or in connection with this Agreement
or the Notes or any transaction in which any proceeds of all or any part of the
Advances are applied (other than any such claim, damage, liability or expense
to the extent attributable to the gross negligence or willful misconduct of, or
violation of any law or regulation by, either the party seeking indemnity under
this Section 8.04(c) or any of its directors, officers, employees or agents).
Section 8.05. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Agent to declare the Notes of a Borrower due and payable pursuant to the
provisions of Section 6.01, each Bank is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Bank to or for
the credit or the account of such Borrower against any and all of the
obligations of such Borrower now or hereafter existing under this Agreement and
the Notes held by such Bank, irrespective of whether or not such Bank shall
have made any demand under this Agreement or such Notes and although such
obligations may be unmatured. Each Bank agrees promptly to notify such
Borrower after such set-off and application made by such Bank, provided that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of each Bank under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which such Bank may have.
Section 8.06. Binding Effect; Transfers. (a) This Agreement
shall become effective when it shall have been executed by the Borrowers and
the Agent and when each Bank listed on the signature pages hereof has delivered
an executed counterpart hereof to the Agent, has sent to the Agent a facsimile
copy of its signature hereon or has notified the Agent that such Bank has
executed
-47-
<PAGE> 52
this Agreement and thereafter shall be binding upon and inure to the benefit of
the Borrowers, the Agent and each Bank and their respective successors and
assigns, except that the Borrowers shall not have the right to assign any of
their respective rights hereunder or any interest herein without the prior
written consent of the Banks. Each Bank may assign to one or more banks,
financial institutions or government entities all or any part of, or may grant
participations to one or more banks, financial institutions or government
entities in or to all or any part of, any Advance or Advances owing to such
Bank, any Note or Notes held by such Bank and all or any portion of such Bank's
Commitments, and to the extent of any such assignment or participation (unless
otherwise stated therein) the assignee or purchaser of such assignment or
participation shall, to the fullest extent permitted by law, have the same
rights and benefits hereunder and under such Note or Notes as it would have if
it were such Bank hereunder, provided that, except in the case of an assignment
meeting the requirements of the next sentence hereof, (1) such Bank's
obligations under this Agreement, including, without limitation, its
Commitments to the Borrowers hereunder, shall remain unchanged, such Bank shall
remain responsible for the performance thereof, such Bank shall remain the
holder of any such Note or Notes for all purposes under this Agreement, and the
Borrowers, the other Banks and the Agent shall continue to deal solely with and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement; and (2) no Bank shall assign or grant a participation
that conveys to the assignee or participant the right to vote or consent under
this Agreement, other than the right to vote upon or consent to (i) any
increase in the amount of any Commitment of such Bank; (ii) any reduction of
the principal amount of, or interest to be paid on, such Bank's Advance or
Advances or Note or Notes; (iii) any reduction of any fee or other amount
payable hereunder to such Bank; or (iv) any postponement of any date fixed for
any payment of principal of, or interest on, such Bank's Advance or Advances or
Note or Notes or any fee or other amount payable hereunder to such Bank.
If (I) the assignee of any Bank either (1) is another Bank or (2) is
approved in writing by the Agent and the Borrowers or (3) is approved in
writing by the Agent and either an Event of Default exists or the Borrowers
have relinquished the right to approve the assignment pursuant to Section
8.06(b), and (II) such assignee assumes all or any portion (which portion shall
be a constant, and not a varying, percentage, and the amount of the Commitment
to TWC assigned, whether all or a portion, shall be in a minimum amount of
$5,000,000 or such lesser amount as may be approved in writing by the Agent and
TWC for such assignment) of each of the Commitments of such assigning Bank to
the respective Borrowers (either all of each such Commitment shall be assigned
or the percentage portion of each such Commitment assigned shall be the same as
to each Borrower) by executing a document in the form of Exhibit F (or with
such changes thereto as have been approved in writing by the Agent in its sole
discretion as evidenced by its execution thereof) duly executed by the Agent,
the Borrowers (unless an Event of Default exists or the Borrowers have
relinquished the right to approve the assignment pursuant to Section 8.06(b)),
such assigning Bank and such assignee and delivered to the Agent ("Transfer
Agreement"), then upon such delivery, (i) such assigning Bank shall be released
from its obligations under this Agreement with respect to all or such portion,
as the case may be, of its Commitments, (ii) such assignee shall become
obligated for all or such portion, as the case may be, of such Commitments and
all other obligations of such assigning Bank hereunder with respect to or
arising as a result of all or such portion, as the case may be, of such
Commitments, (iii) such assignee shall be assigned the right to vote or consent
under this Agreement, to the extent of all or such portion, as the case may be,
of such Commitments, (iv) each Borrower shall deliver, in replacement of the A
Note of such Borrower to such assigning Bank then
-48-
<PAGE> 53
outstanding (a) to such assignee, a new A Note of such Borrower in the amount
of the Commitment of such assigning Bank to such Borrower which is being so
assumed by such assignee plus, in the case of any assignee which is already a
Bank hereunder, the amount of such assignee's Commitment to such Borrower
immediately prior to such assignment (any such assignee which is already a Bank
hereunder agrees to cancel and return to such Borrower, with reasonable
promptness following the delivery of such new A Note, the A Note being replaced
thereby), (b) to such assigning Bank, a new A Note in the amount of the
balance, if any, of the Commitment of such assigning Bank to such Borrower
(without giving effect to any B Reduction) retained by such assigning Bank (and
such assigning Bank agrees to cancel and return to such Borrower, with
reasonable promptness following delivery of such new A Notes, the A Note being
replaced thereby), and (c) to the Agent, photocopies of such new A Notes, (v)
if such assignment is of all of such assigning Bank's Commitments to the
Borrowers, all of the outstanding A Advances made by such assigning Bank shall
be transferred to such assignee, (vi) if such assignment is not of all of such
Commitments, a part of each A Advance to each Borrower equal to the amount of
such Advance multiplied by a fraction, the numerator of which is the amount of
such portion of such assigning Bank's Commitment to such Borrower so assumed
and the denominator of which is the amount of the Commitment of such assigning
Bank to such Borrower (without giving effect to any B Reduction) immediately
prior to such assumption, shall be transferred to such assignee and evidenced
by such assignee's A Note from such Borrower, and the balance of such A Advance
shall be evidenced by such assigning Bank's new A Note from such Borrower
delivered pursuant to clause (iv)(b) of this sentence, (vii) if such assignee
is not a "Bank" hereunder prior to such assignment, such assignee shall become
a party to this Agreement as a Bank and shall be deemed to be a "Bank"
hereunder, and the amount of all or such portion, as the case may be, of the
Commitment to each of the respective Borrowers so assumed shall be deemed to be
the amount for such Borrower set opposite such assigning Bank's name on
Schedule IX for purposes of this Agreement, and (viii) if such assignee is not
a Bank hereunder prior to such assignment, such assignee shall be deemed to
have specified the offices of such assignee named in the respective Transfer
Agreement as its "Domestic Lending Office" and "Eurodollar Lending Office" for
all purposes of this Agreement and to have specified for purposes of Section
8.02 the notice information set forth in such Transfer Agreement; and the Agent
shall promptly after execution of any Transfer Agreement by the Agent and the
other parties thereto notify the Banks of the parties to such Transfer
Agreement and the amounts of the assigning Bank's Commitments assumed thereby.
(b) If the Borrowers do not consent to a proposed assignment by a
Bank pursuant to the last sentence of Section 8.06(a), TWC may, within 15 days
of its receipt of a request that it consent to such assignment nominate by
notice to the Agent and such Bank a bank which, if it is not a Bank, is
acceptable to the Agent, and which unconditionally offers in writing (with a
copy to the Agent) to purchase and assume, to the extent of the amount of such
proposed assignment, in accordance with all of the provisions of the last
sentence of Section 8.06(a) (including execution of an appropriate Transfer
Agreement), all of such Bank's rights and obligations (including, without
limitation, its Commitments) hereunder and interest in the Advances owing to
such Bank and the Notes held by such Bank without recourse at par plus interest
accrued thereon to the date of such purchase on a date therein specified (not
less than three nor greater than five Business Days after such nomination).
Such Bank at its option may elect to accept or not accept such purchase offer.
If a Bank accepts such an offer and the bank first nominated by TWC pursuant to
this Section 8.06(b) fails to purchase such rights and interest on such
specified date in accordance with the terms
-49-
<PAGE> 54
of such offer, TWC may, within 15 days of such failure, repeat the process
contemplated by the first sentence of this Section 8.06(b) by nominating
another bank for purposes of this Section 8.06(b) by notice to the Agent and
such Bank. If TWC does not so nominate such a bank within 15 days of its
receipt of such request that it consent to such assignment or if TWC fails to
nominate another bank following such a failure to purchase or if such second
nominated bank fails to purchase in accordance with the terms of an offer
complying with the first sentence of this Section 8.06(b), the Borrowers shall
be deemed to have relinquished their right to consent to such assignment. If
such Bank elects to not accept such a purchase offer under this Section 8.06(b)
as to a particular proposed assignment, the Borrowers shall not be deemed to
have relinquished their right to consent to such assignment.
(c) The Borrowers agree to promptly execute the Transfer Agreement
pertaining to any assignment as to which approval by the Borrowers of the
assignee is not required by clause (I) of the last sentence of Section 8.06(a).
(d) Any Bank may assign, as collateral or otherwise, any of its
rights (including, without limitation, rights to payments of principal of
and/or interest on the Notes) under this Agreement or any of the Notes to any
Federal Reserve Bank without notice to or consent of any Borrower or the Agent.
Section 8.07. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State
of New York.
Section 8.08. Interest. It is the intention of the parties
hereto that the Agent and each Bank shall conform strictly to usury laws
applicable to it, if any. Accordingly, if the transactions with the Agent or
any Bank contemplated hereby would be usurious under applicable law, then, in
that event, notwithstanding anything to the contrary in the Notes, this
Agreement or any other agreement entered into in connection with or as security
for this Agreement or the Notes, it is agreed as follows: (i) the aggregate of
all consideration which constitutes interest under applicable law that is
contracted for, taken, reserved, charged or received by the Agent or such Bank,
as the case may be, under the Notes, this Agreement or under any other
agreement entered into in connection with or as security for this Agreement or
the Notes shall under no circumstances exceed the maximum amount allowed by
such applicable law and any excess shall be cancelled automatically and, if
theretofore paid, shall at the option of the Agent or such Bank, as the case
may be, be credited by the Agent or such Bank, as the case may be, on the
principal amount of the obligations owed to the Agent or such Bank, as the case
may be, by the appropriate Borrower or refunded by the Agent or such Bank, as
the case may be, to the appropriate Borrower, and (ii) in the event that the
maturity of any Note or other obligation payable to the Agent or such Bank, as
the case may be, is accelerated or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to the Agent or such Bank, as the case may be, may never include
more than the maximum amount allowed by such applicable law and excess
interest, if any, to the Agent or such Bank, as the case may be, provided for
in this Agreement or otherwise shall be cancelled automatically as of the date
of such acceleration or prepayment and, if theretofore paid, shall, at the
option of the Agent or such Bank, as the case may be, be credited by the Agent
or such Bank, as the case may be, on the principal amount of the obligations
owed to the
-50-
<PAGE> 55
Agent or such Bank, as the case may be, by the appropriate Borrower or refunded
by the Agent or such Bank, as the case may be, to the appropriate Borrower.
Section 8.09. Execution in Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Section 8.10. Survival of Agreements, Representations and
Warranties, Etc. All warranties, representations and covenants made by any
Borrower or any officer of any Borrower herein or in any certificate or other
document delivered in connection with this Agreement shall be considered to
have been relied upon by the Banks and shall survive the issuance and delivery
of the Notes and the making of the Advances regardless of any investigation.
The indemnities and other payment obligations of each Borrower contained in
this Agreement, and the indemnities by the Banks in favor of the Agent and its
officers, directors, employees and agents, will survive the repayment of the
Advances and the termination of this Agreement.
Section 8.11. Borrowers' Right to Apply Deposits. In the
event that any Bank is placed in receivership or enters a similar proceeding,
each Borrower may, to the full extent permitted by law, make any payment due to
such Bank hereunder, to the extent of finally collected unrestricted deposits
of such Borrower in U.S. dollars held by such Bank, by giving notice to the
Agent and such Bank directing such Bank to apply such deposits to such
indebtedness. If the amount of such deposits is insufficient to pay such
indebtedness then due and owing in full, such Borrower shall pay the balance of
such insufficiency in accordance with this Agreement.
Section 8.12. Confidentiality. Each Bank agrees that it will
use best efforts, to the extent not inconsistent with practical business
requirements, not to disclose without the prior consent of TWC (other than to
employees, auditors, accountants, counsel or other professional advisors of the
Agent or any Bank) any information with respect to the Borrowers or their
Subsidiaries which is furnished pursuant to this Agreement and which (i) the
Borrowers in good faith consider to be confidential and (ii) is either clearly
marked confidential or is designated by the Borrowers to the Agent or the Banks
in writing as confidential, provided that any Bank may disclose any such
information (a) as has become generally available to the public, (b) as may be
required or appropriate in any report, statement or testimony submitted to or
required by any municipal, state or Federal regulatory body having or claiming
to have jurisdiction over such Bank or submitted to or required by the Board of
Governors of the Federal Reserve System or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or appropriate in
response to any summons or subpoena in connection with any litigation, (d) in
order to comply with any law, order, regulation or ruling applicable to such
Bank, (e) to the prospective transferee in connection with any contemplated
transfer of any of the Notes or any interest therein by such Bank, provided
that such prospective transferee executes an agreement with or for the benefit
of the Borrowers containing provisions substantially identical to those
contained in this Section 8.12, and provided further that if the contemplated
transfer is a grant of a participation in a Note (and not an assignment), no
such information shall be authorized to be delivered to such participant
pursuant to this clause (e) except (i) such information delivered pursuant to
Section 4.01(e) or Section 5.01(b) (other than
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<PAGE> 56
paragraph (iv) thereof), and (ii) if prior notice of the delivery thereof is
given to TWC, such information as may be required by law or regulation to be
delivered, (f) in connection with the exercise of any remedy by such Bank
pertaining to this Agreement, any of the Notes or any other document delivered
in connection herewith, (g) in connection with any litigation involving such
Bank pertaining to this Agreement, any of the Notes or any other document
delivered in connection herewith, (h) to any Bank or the Agent, or (i) to any
affiliate of any Bank, provided that such affiliate executes an agreement with
or for the benefit of the Borrowers containing provisions substantially
identical to those contained in this Section 8.12.
Section 8.13. WAIVER OF JURY TRIAL. THE BORROWERS, THE
AGENT, AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY
NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 8.14. Miscellaneous. This Agreement shall become
effective in accordance with the first sentence of Section 8.06(a). Subject to
compliance with such sentence, the amendments to the 1995 Credit Agreement
effected by this Agreement (including, without limitation, the amendments to
the definition of "Applicable Margin") shall for all purposes be effective as
of December 20, 1996. On December 20, 1996, each Borrower will pay in full all
principal, interest and fees owed by it outstanding under the 1995 Credit
Agreement.
-52-
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
BORROWERS:
- ---------
THE WILLIAMS COMPANIES, INC. NORTHWEST PIPELINE CORPORATION
By: By:
---------------------------- ------------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
TRANSCONTINENTAL GAS PIPE LINE TEXAS GAS TRANSMISSION
CORPORATION CORPORATION
By: By:
---------------------------- ------------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
WILLIAMS HOLDINGS OF DELAWARE, INC. WILLIAMS PIPE LINE COMPANY
By: By:
---------------------------- ------------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
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<PAGE> 58
AGENT:
-----
CITIBANK, N.A., as Agent
By:
-----------------------------------
J Christopher Lyons
Vice President
BANKS:
CITIBANK, N.A.
By:
-----------------------------------
J. Christopher Lyons
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
-----------------------------------
Authorized Officer
THE CHASE MANHATTAN BANK
By:
-----------------------------------
Authorized Officer
CIBC INC.
By:
-----------------------------------
Authorized Officer
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<PAGE> 59
CREDIT LYONNAIS NEW YORK BRANCH
By:
-----------------------------------
Authorized Officer
THE FIRST NATIONAL BANK OF CHICAGO
By:
-----------------------------------
Authorized Officer
BANK OF MONTREAL
By:
-----------------------------------
Authorized Officer
THE BANK OF NEW YORK
By:
-----------------------------------
Authorized Officer
THE BANK OF NOVA SCOTIA
By:
-----------------------------------
Authorized Officer
BARCLAYS BANK PLC
By:
-----------------------------------
Authorized Officer
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<PAGE> 60
BOATMEN'S NATIONAL BANK
OF OKLAHOMA
By:
-----------------------------------
Authorized Officer
THE FIRST NATIONAL BANK OF BOSTON
By:
-----------------------------------
Authorized Officer
THE FUJI BANK, LIMITED,
HOUSTON AGENCY
By:
-----------------------------------
Authorized Officer
MELLON BANK, N.A.
By:
-----------------------------------
Authorized Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
-----------------------------------
Authorized Officer
ROYAL BANK OF CANADA
By:
-----------------------------------
Authorized Officer
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<PAGE> 61
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
-----------------------------------
Authorized Officer
WELLS FARGO BANK, N.A.
By:
-----------------------------------
Authorized Officer
BANK OF OKLAHOMA, N.A.
By:
-----------------------------------
Authorized Officer
COMMERCE BANK, N.A.
By:
-----------------------------------
Authorized Officer
-57-
<PAGE> 62
SCHEDULE I
APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
Citibank N.A. Citibank N.A. Citibank N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Notices: Citibank, N.A. Notices: Citibank, N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Telecopier: (212) 527-1084 Telecopier: (212) 527-1084
Telex: None Telex: None
Attn: Christine Grundel Attn: Christine Grundel
Dept: Medium Term Finance Dept: Medium Term Finance
with copies to: with copies to:
Citicorp North America, Inc. Citicorp North America, Inc.
1200 Smith Street, Suite 2000 1200 Smith Street, Suite 2000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 654-2849 Telecopier: (713) 654-2849
Telex: 127001 Telex: 127001
(Attn. Route Code HOUAA) (Attn. Route Code HOUAA)
Attn: The Williams Companies, Inc. Attn: The Williams Companies, Inc.
Account Officer Account Officer
Bank of America National Bank of America National Trust and Bank of America National Trust and
Trust and Savings Savings Association Savings Association
Association Corporate Service Center #1233 Corporate Service Center #1233
1850 Gateway Boulevard 1850 Gateway Boulevard
Concord, California 94520 Concord, California 94520
Telecopier: (415) 675-7531 Telecopier: (415) 675-7531
Telex: 34346 Telex: 34346
Attn: Camille Gabby Attn: Camille Gabby
Bank of Montreal Bank of Montreal Bank of Montreal
700 Louisiana, Suite 4400 700 Louisiana, Suite 4400
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 225-1845 Telecopier: (713) 225-1845
Telex: 77-5640 Telex: 77-5640
Attn: Doug Deal Attn: Doug Deal
The Bank of New York The Bank of New York The Bank of New York
1 Wall Street, 19th Floor 1 Wall Street, 19th Floor
New York, New York 10286 New York, New York 10286
Telecopier: (212) 635-7923 Telecopier: (212) 635-7923
Telex: 420268 Telex: 420268
Attn: Annamarie Schron Attn: Annamarie Schron
Administrator Administrator
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
The Bank of Nova Scotia The Bank of Nova Scotia The Bank of Nova Scotia
600 Peachtree St., N.E., Suite 2700 600 Peachtree St., N.E., Suite 2700
Atlanta, Georgia 30308 Atlanta, Georgia 30308
Telecopier: (404) 888-8889 Telecopier: (404) 888-8889
Telex: 00542319 Telex: 00542319
Attn: Robert L. Ahern Attn: Robert L. Ahern
with a copy to: with a copy to:
The Bank of Nova Scotia The Bank of Nova Scotia
Houston Representative Office Houston Representative Office
1100 Louisiana, Suite 3000 1100 Louisiana, Suite 3000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 752-2425 Telecopier: (713) 752-2425
Telex: RCA 216312 Telex: RCA 216312
Attn: Michael Nepveux Attn: Michael Nepveux
Bank of Oklahoma, N.A. Bank of Oklahoma, N.A. Bank of Oklahoma, N.A.
Bank of Oklahoma Tower Bank of Oklahoma Tower
Tulsa, Oklahoma 74192 Tulsa, Oklahoma 74192
Telecopier: (918) 588-6880 Telecopier: (918) 588-6880
Telex: None Telex: None
Attn: Beverly Smith Attn: Beverly Smith
Barclays Bank PLC Barclays Bank PLC Barclays Bank PLC
222 Broadway, 12th Floor 222 Broadway, 12th Floor
New York, New York 10038 New York, New York 10038
Telecopier: (212) 412-5002 Telecopier: (212) 412-5002
Telex: 126195 Telex: 126195
Answerback: BARCLADOM NYK Answerback: BARCLADOM NYK
Attn: Anand Chand-Sui Attn: Anand Chand-Sui
Boatmen's National Bank of Boatmen's National Bank of Oklahoma Boatmen's National Bank of Oklahoma
Oklahoma 515 South Boulder, 9th Floor 515 South Boulder, 9th Floor
Tulsa, Oklahoma 74103 Tulsa, Oklahoma 74103
Telecopier: (918) 591-8221 Telecopier: (918) 591-8221
Telex: 796112 Telex: 796112
Answerback: FIRSTINTLOKC Answerback: FIRSTINTLOKC
Attn: Barry Woods Attn: Barry Woods
The Chase Manhattan Bank The Chase Manhattan Bank The Chase Manhattan Bank
270 Park Avenue, 8th Floor Nassau Branch
New York, New York 10017 55 Water Street, Room 1812
Telecopier: (212) 888-9515 New York, New York 10041
Telex: None Telex: None
Attn: John Gehebe Telecopier: (212) 888-9515
Attn: Bob Cumming
</TABLE>
-2-
<PAGE> 64
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
CIBC Inc. CIBC Inc. CIBC Inc.
Two Paces West Two Paces West
2727 Paces Ferry Road., Suite 1200 2727 Paces Ferry Road., Suite 1200
Atlanta, Georgia 30339 Atlanta, Georgia 30339
Telecopier: (404) 955-1185 Telecopier: (404) 955-1185
Telex: 542413 Telex: 542413
Answerback: CANBANK ATL Answerback: CANBANK ATL
Attn: Mary Ann Stathis Attn: Mary Ann Stathis
Commerce Bank, N.A. Commerce Bank, N.A. Commerce Bank, N.A.
1000 Walnut Street, 17th Floor 1000 Walnut Street, 17th Floor
Kansas City, Missouri 64141 Kansas City, Missouri 64141
Telecopier: (816) 234-7290 Telecopier: (816) 234-7290
Telex: None Telex: None
Attn: Dennis Block Attn: Dennis Block
Credit Lyonnais New York Credit Lyonnais New York Branch Credit Lyonnais New York Branch
Branch 1000 Louisiana, Suite 5360 1000 Louisiana, Suite 5360
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 751-0307 Telecopier: (713) 751-0307
Telex: 6868674 Telex: 6868674
Attn: Nicole H. Johnson, A.S. Attn: Nicole H. Johnson, A.S.
The First National Bank of The First National Bank of Chicago The First National Bank of Chicago
Chicago Two First National Plaza, Suite 0363 Two First National Plaza, Suite 0363
Chicago, Illinois 60670-0363 Chicago, Illinois 60670-0363
Telecopier: (312) 732-3055 Telecopier: (312) 732-3055
Telex: 4330253 Telex: 4330253
Answerback: FNBCUI Answerback: FNBCUI
Attn: Marilyn Pelkowski Attn: Marilyn Pelkowski
with copies to: with copies to:
The First National Bank of Chicago The First National Bank of Chicago
One First National Plaza, Suite 0363 One First National Plaza, Suite 0363
Chicago, Illinois 60670-0363 Chicago, Illinois 60670-0363
Telecopier: (312) 732-3055 Telecopier: (312) 732-3055
Telex: 4330253 Telex: 4330253
Answerback: FNBCUI Answerback: FNBCUI
Attn: Jackie Reitz Attn: Jackie Reitz
The First National Bank of The First National Bank of Boston The First National Bank of Boston
Boston 100 Federal Street, M/S 01-08-04 100 Federal Street, M/S 01-08-04
Boston, MA 02110 Boston, MA 02110
Telephone: (617) 434-9623 Telephone: (617) 434-9623
Telecopier: (617) 434-9821/9820 Telecopier: (617) 434-9821/9820
Telex: 4996527 Telex: 4996527
Attn: Debora Williams Attn: Debora Williams
</TABLE>
-3-
<PAGE> 65
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
The Fuji Bank, Limited, The Fuji Bank, Limited, Houston The Fuji Bank, Limited, Houston
Houston Agency Agency Agency
1221 McKinney Street, Suite 4100 1221 McKinney Street, Suite 4100
One Houston Center One Houston Center
Houston, Texas 77010 Houston, Texas 77010
Telecopier: (713) 759-0048 Telecopier: (713) 759-0048
Telex: 790026 Telex: 790026
Attn: Jenny Lin Attn: Jenny Lin
Morgan Guaranty Trust Morgan Guaranty Trust Company of Morgan Guaranty Trust Company of
Company of New York New York New York
60 Wall Street Nassau, Bahamas Office
New York, New York 10260 c/o Morgan Christiana Corp.
Telecopier: (212) 648-5163 Euro-Loan Servicing Unit
Telex: 177 615 902 Market Street
Answerback: MTG UI Wilmington, Delaware 19801
Attn: Loan Department Telecopier: (302) 634-1094
Telex: 0835 383
Answerback: JPM DELA WIL
Attn: Multi-Options Facilities Unit
Royal Bank of Canada Royal Bank of Canada Cayman Branch Royal Bank of Canada Cayman Branch
c/o Royal Bank of Canada c/o Royal Bank of Canada
1 Financial Square, 24th Floor 1 Financial Square, 24th Floor
New York, New York 10005-3531 New York, New York 10005-3531
Telecopier: (718) 428-2372 Telecopier: (718) 428-2372
Telex: 420464 Telex: 420464
Attn: Linda Smith Attn: Linda Smith
with copies to: with copies to:
Royal Bank of Canada Royal Bank of Canada
600 Wilshire Boulevard, Suite 800 600 Wilshire Boulevard, Suite 800
Los Angeles, California 90017-3220 Los Angeles, California 90017-3220
Telecopier: (213) 955-5350 Telecopier: (213) 955-5350
Attn: J. D. Frost Attn: J. D. Frost
Mellon Bank, N.A. Mellon Bank, N.A. Mellon Bank, N.A.
Three Mellon Bank Center, Room 2332 Three Mellon Bank Center, Room 2332
Pittsburgh, Pennsylvania 15259 Pittsburgh, Pennsylvania 15259
Telecopier: (412) 234-5049 Telecopier: (412) 234-5049
Telex: 812 367 Telex: 812 367
Attn: Theresa Hayward Attn: Theresa Hayward
Loan Administrator Loan Administrator
Societe Generale, Societe Generale, Southwest Agency Societe Generale, Southwest Agency
Southwest Agency 2001 Ross Avenue, Suite 4800 2001 Ross Avenue, Suite 4800
Dallas, Texas 75201 Dallas, Texas 75201
Telecopier: (214) 754-0171 Telecopier: (214) 754-0171
Telex: 170494 Telex: 170494
Attn: Angela Batson Attn: Angela Batson
Loan Specialist Loan Specialist
</TABLE>
-4-
<PAGE> 66
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. Wells Fargo Bank, N.A.
707 Wilshire Blvd., W7-21 707 Wilshire Blvd., W7-21
Los Angeles, CA 90017 Los Angeles, CA 90017
Telecopier: (213) 688-9909 Telecopier: (213) 688-9909
Telex: None Telex: None
Attn: Josephine Lai Attn: Josephine Lai
</TABLE>
-5-
<PAGE> 67
SCHEDULE II
BORROWER INFORMATION
<TABLE>
<CAPTION>
Name of Borrower Information for Notices
---------------- -----------------------
<S> <C>
The Williams Companies, Inc. The Williams Companies, Inc.
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Patti J. Kastl
Telecopier: (918) 588-4755
Telex: 910-845-2325
Answerback: WILLIAMS-TUL
Williams Holdings of Delaware, Inc. Williams Holdings of Delaware, Inc.
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Patti J. Kastl
Telecopier: (918) 588-4755
Telex: 910-845-2325
Answerback WILLIAMS-TUL
Northwest Pipeline Corporation Northwest Pipeline Corporation
295 Chipeta Way
Salt Lake City, Utah 84158
Attention: Curtis C. Kennedy
Telecopier: (801) 584-6726
Transcontinental Gas Pipe Line Corporation Transcontinental Gas Pipe Line Corporation
2800 Post Oak Boulevard, 21st Floor
Houston, Texas 77056
Attention: Nick Bacile
Telecopier: (713) 439-2440
Telex: 792013
Answerback: TRANSCO HOU A
Texas Gas Transmission Corporation Texas Gas Transmission Corporation
3800 Frederica St.
Owensboro, Kentucky 42302
Attention: Jack Ralph
Telecopier: (502) 683-5657
Williams Pipe Line Company Williams Pipe Line Company
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Paul W. Nelson
Telecopier: (918) 588-3371
Telex: 910-845-2325
Answerback: WILLIAMS-TUL
</TABLE>
<PAGE> 68
SCHEDULE III
PERMITTED NWP LIENS
(a) Any purchase money Lien created by NWP or any of its
Subsidiaries to secure all or part of the purchase price of any property (or to
secure a loan made to enable NWP or any of its Subsidiaries to acquire the
property secured by such Lien), provided that the principal amount of the Debt
secured by any such Lien, together with all other Debt secured by a Lien on
such property, shall not exceed the purchase price of the property acquired.
(b) Any Lien existing on any property at the time of the
acquisition thereof by NWP or any of its Subsidiaries, whether or not assumed
by NWP or any of its Subsidiaries, and any Lien on any property acquired or
constructed by NWP or any of its Subsidiaries and created not later than 12
months after (i) such acquisition or completion of such construction or (ii)
commencement of full operation of such property, whichever is later; provided,
however, that if assumed or created by NWP or any of its Subsidiaries, the
principal amount of the Debt secured by such Lien, together with all other Debt
secured by a Lien on such property, shall not exceed the purchase price of the
property acquired and/or the cost of the property constructed.
(c) Any Lien created or assumed by NWP or any of its Subsidiaries
on any contract for the sale of any product or service or any rights thereunder
or any proceeds therefrom, including accounts and other receivables, related to
the operation or use of any property acquired or constructed by NWP or any of
its Subsidiaries and created not later than 12 months after (i) such
acquisition or completion of such construction or (ii) commencement of full
operation of such property, whichever is later; provided, however, that the
principal amount of the Debt secured by such mortgage together with all other
Debt secured by any such contract, rights or property, shall not exceed the
purchase price of the property acquired and/or the cost of the property
constructed.
(d) Any Lien existing on any property of a Subsidiary of NWP at
the time it becomes a Subsidiary of NWP.
(e) Any refunding or extension of maturity, in whole or in part,
of any Lien created or assumed in accordance with the provisions of paragraph
(a), (b), (c) or (d) above or (j) below, provided that the principal amount of
the Debt secured by such refunding Lien or extended Lien shall not exceed the
principal amount of the Debt secured by the Lien to be refunded or extended
outstanding at the time of such refunding or extension and that such refunding
Lien or extended Lien shall be limited to the same property that secured the
Lien so refunded or extended.
(f) Mechanics' or materialmen's liens arising in the ordinary
course of business which are not more than 90 days past due or are being
contested in good faith by appropriate proceedings or any Lien arising by
reason of pledges or deposits to secure payment of workmen's compensation or
other insurance, good faith deposits in connection with tenders or leases of
real estate, bids or contracts (other than contracts for the payment of money),
in each case to secure obligations of TWC or any of its Subsidiaries.
(g) Deposits to secure public or statutory obligations, deposits
to secure or in lieu of surety, stay or appeal bonds and deposits as security
for the payment of taxes or assessments or other
<PAGE> 69
similar charges, in each case to secure obligations of TWC or any of its
Subsidiaries; provided, however, that the aggregate amount of obligations
secured by Liens permitted by this paragraph (g) shall not exceed 10% of
Consolidated Tangible Net Worth of TWC.
(h) Any Lien arising by reason of deposits with or the giving of
any form of security to any governmental agency or any body created or approved
by law or governmental regulation for any purpose at any time as required by
law or governmental regulation (i) as a condition to the transaction by TWC or
any of its Subsidiaries of any business or the exercise by TWC or any of its
Subsidiaries of any privilege or license, (ii) to enable TWC or any of its
Subsidiaries to maintain self-insurance or to participate in any fund for
liability on any insurance risks or (iii) in connection with workmen's
compensation, unemployment insurance, old age pensions or other social security
with respect to TWC or any of its Subsidiaries or to enable TWC or any of its
Subsidiaries to share in the privileges or benefits required for companies
participating in such arrangements.
(i) Any Lien which is payable, both with respect to principal and
interest, solely out of the proceeds of oil, gas, coal or other minerals or
timber to be produced from the property subject thereto and to be sold or
delivered by NWP or any of its Subsidiaries, including any interest of the
character commonly referred to as a "production payment".
(j) Any Lien created or assumed by a Subsidiary of NWP on oil,
gas, coal or other mineral or timber property, owned or leased by such
Subsidiary to secure loans to such Subsidiary for the purposes of developing
such properties, including any interest of the character commonly referred to
as a "production payment"; provided, however, that neither NWP nor any other
Subsidiary of NWP shall assume or guarantee such loans or otherwise be liable
in respect thereto.
(k) Liens incurred in the ordinary course of business upon
rights-of-way.
(l) Undetermined mortgages and charges incidental to construction
or maintenance arising in the ordinary course of business which are not more
than 90 days past due or are being contested in good faith by appropriate
proceedings.
(m) The right reserved to, or vested in, any municipality or
governmental or other public authority or railroad by the terms of any right,
power, franchise, grant, license, permit or by any provision of law, to
terminate or to require annual or other periodic payments as a condition to the
continuance of such right, power, franchise, grant, license or permit.
(n) The Lien of taxes and assessments which are not at the time
delinquent.
(o) The Lien of specified taxes and assessments which are
delinquent but the validity of which is being contested in good faith by NWP or
any of its Subsidiaries by appropriate proceedings and with respect to which
reserves in conformity with generally accepted accounting principles, if
required by such principles, have been provided on the books of NWP or the
relevant Subsidiary of NWP, as the case may be.
-2-
<PAGE> 70
(p) The Lien reserved in leases entered into in the ordinary
course of business for rent and for compliance with the terms of the lease in
the case of real property leasehold estates.
(q) Defects and irregularities in the titles to any property
(including rights-of-way and easements) which are not material to the business,
assets, operations or financial condition of NWP and its Subsidiaries
considered as a whole.
(r) Any Liens securing Debt neither assumed nor guaranteed by NWP
or any of its Subsidiaries nor on which any of them customarily pays interest,
existing upon real estate or rights in or relating to real estate (including
rights-of-way and easements) acquired by NWP or any of its Subsidiaries for
pipeline, metering station or right-of-way purposes, which Liens were not
created in anticipation of such acquisition and do not materially impair the
use of such property for the purposes for which it is held by NWP or such
Subsidiary.
(s) Easements, exceptions or reservations in any property of NWP
or any of its Subsidiaries granted or reserved in the ordinary course of
business for the purpose of pipelines, roads, telecommunication equipment and
cable, streets, alleys, highways, railroads, the removal of oil, gas, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real property, facilities and equipment, which do not materially impair
the use of such property for the purposes for which it is held by NWP or such
Subsidiary.
(t) Rights reserved to or vested in any municipality or public
authority to control or regulate any property of NWP or any of its
Subsidiaries, or to use such property in any manner which does not materially
impair the use of such property for the purposes for which it is held by NWP or
such Subsidiary.
(u) Any obligations or duties, affecting the property of NWP or
any of its Subsidiaries, to any municipality or public authority with respect
to any franchise, grant, license or permit.
(v) (i) The Liens of any judgments in an aggregate amount for NWP
and all of its Subsidiaries not in excess of $5,000,000, the execution of which
has not been stayed and (ii) the Liens of any judgments in an aggregate amount
for NWP and all of its Subsidiaries not in excess of $25,000,000, the execution
of which has been stayed and which have been appealed and secured, if necessary
and permitted hereby, by the filing of an appeal bond.
(w) Zoning laws and ordinances.
(x) Any Lien existing on any office equipment, data processing
equipment (including computer and computer peripheral equipment), motor
vehicles, aircraft, marine vessels or similar transportation equipment.
(y) Any Lien consisting of interests in receivables in connection
with agreements for sales of receivables of any kind by NWP or any of its
Subsidiaries for cash.
-3-
<PAGE> 71
(z) Any Lien not permitted by paragraphs (a) through (y) above or
(aa) below securing Debt of NWP and its Subsidiaries or securing any Debt of
NWP and its Subsidiaries which constitutes a refunding or extension of any such
Debt if at the time of, and after giving effect to, the creation or assumption
of any such Lien, the sum of the aggregate of all Debt of NWP and its
Subsidiaries secured by all such Liens not so permitted by paragraphs (a)
through (y) above or (aa) below plus the amount of Attributable Obligations of
NWP and its Subsidiaries in respect of Sale and Lease-Back Transactions
permitted by Section 5.02(j) does not exceed 10% of the sum of (i)
Consolidated Tangible Net Worth of NWP plus (ii) Debt of NWP and its
Subsidiaries on a Consolidated basis.
(aa) Any Lien resulting from any sale and lease-back of cushion gas
by NWP or any of its Subsidiaries.
-4-
<PAGE> 72
SCHEDULE IV
PERMITTED TGPL LIENS
(a) Any purchase money Lien created by TGPL or any of its
Subsidiaries to secure all or part of the purchase price of any property (or to
secure a loan made to enable TGPL or any of its Subsidiaries to acquire the
property secured by such Lien), provided that the principal amount of the Debt
secured by any such Lien, together with all other Debt secured by a Lien on
such property, shall not exceed the purchase price of the property acquired.
(b) Any Lien existing on any property at the time of the
acquisition thereof by TGPL or any of its Subsidiaries, whether or not assumed
by TGPL or any of its Subsidiaries, and any Lien on any property acquired or
constructed by TGPL or any of its Subsidiaries and created not later than 12
months after (i) such acquisition or completion of such construction or (ii)
commencement of full operation of such property, whichever is later; provided,
however, that if assumed or created by TGPL or any of its Subsidiaries, the
principal amount of the Debt secured by such Lien, together with all other Debt
secured by a Lien on such property, shall not exceed the purchase price of the
property acquired and/or the cost of the property constructed.
(c) Any Lien created or assumed by TGPL or any of its Subsidiaries
on any contract for the sale of any product or service or any rights thereunder
or any proceeds therefrom, including accounts and other receivables, related to
the operation or use of any property acquired or constructed by TGPL or any of
its Subsidiaries and created not later than 12 months after (i) such
acquisition or completion of such construction or (ii) commencement of full
operation of such property, whichever is later; provided, however, that the
principal amount of the Debt secured by such mortgage together with all other
Debt secured by any such contract, rights or property, shall not exceed the
purchase price of the property acquired and/or the cost of the property
constructed.
(d) Any Lien existing on any property of a Subsidiary of TGPL at
the time it becomes a Subsidiary of TGPL.
(e) Any refunding or extension of maturity, in whole or in part,
of any Lien created or assumed in accordance with the provisions of paragraph
(a), (b), (c) or (d) above or (j) below, provided that the principal amount of
the Debt secured by such refunding Lien or extended Lien shall not exceed the
principal amount of the Debt secured by the Lien to be refunded or extended
outstanding at the time of such refunding or extension and that such refunding
Lien or extended Lien shall be limited to the same property that secured the
Lien so refunded or extended.
(f) Mechanics' or materialmen's liens arising in the ordinary
course of business which are not more than 90 days past due or are being
contested in good faith by appropriate proceedings or any Lien arising by
reason of pledges or deposits to secure payment of workmen's compensation or
other insurance, good faith deposits in connection with tenders or leases of
real estate, bids or contracts (other than contracts for the payment of money),
in each case to secure obligations of TWC or any of its Subsidiaries.
(g) Deposits to secure public or statutory obligations, deposits
to secure or in lieu of surety, stay or appeal bonds and deposits as security
for the payment of taxes or assessments or other similar charges, in each case
to secure obligations of TWC or any of its Subsidiaries; provided,
<PAGE> 73
however, that the aggregate amount of obligations secured by Liens permitted by
this paragraph (g) shall not exceed 10% of Consolidated Tangible Net Worth of
TWC.
(h) Any Lien arising by reason of deposits with or the giving of
any form of security to any governmental agency or any body created or approved
by law or governmental regulation for any purpose at any time as required by
law or governmental regulation (i) as a condition to the transaction by TWC or
any of its Subsidiaries of any business or the exercise by TWC or any of its
Subsidiaries of any privilege or license, (ii) to enable TWC or any of its
Subsidiaries to maintain self-insurance or to participate in any fund for
liability on any insurance risks or (iii) in connection with workmen's
compensation, unemployment insurance, old age pensions or other social security
with respect to TWC or any of its Subsidiaries or to enable TWC or any of its
Subsidiaries to share in the privileges or benefits required for companies
participating in such arrangements.
(i) Any Lien which is payable, both with respect to principal and
interest, solely out of the proceeds of oil, gas, coal or other minerals or
timber to be produced from the property subject thereto and to be sold or
delivered by TGPL or any of its Subsidiaries, including any interest of the
character commonly referred to as a "production payment".
(j) Any Lien created or assumed by a Subsidiary of TGPL on oil,
gas, coal or other mineral or timber property, owned or leased by such
Subsidiary to secure loans to such Subsidiary for the purposes of developing
such properties, including any interest of the character commonly referred to
as a "production payment"; provided, however, that neither TGPL nor any other
Subsidiary of TGPL shall assume or guarantee such loans or otherwise be liable
in respect thereto.
(k) Liens incurred in the ordinary course of business upon
rights-of-way.
(l) Undetermined mortgages and charges incidental to construction
or maintenance arising in the ordinary course of business which are not more
than 90 days past due or are being contested in good faith by appropriate
proceedings.
(m) The right reserved to, or vested in, any municipality or
governmental or other public authority or railroad by the terms of any right,
power, franchise, grant, license, permit or by any provision of law, to
terminate or to require annual or other periodic payments as a condition to the
continuance of such right, power, franchise, grant, license or permit.
(n) The Lien of taxes and assessments which are not at the time
delinquent.
(o) The Lien of specified taxes and assessments which are
delinquent but the validity of which is being contested in good faith by TGPL
or any of its Subsidiaries by appropriate proceedings and with respect to which
reserves in conformity with generally accepted accounting principles, if
required by such principles, have been provided on the books of TGPL or the
relevant Subsidiary of TGPL, as the case may be.
-2-
<PAGE> 74
(p) The Lien reserved in leases entered into in the ordinary
course of business for rent and for compliance with the terms of the lease in
the case of real property leasehold estates.
(q) Defects and irregularities in the titles to any property
(including rights-of-way and easements) which are not material to the business,
assets, operations or financial condition of TGPL and its Subsidiaries
considered as a whole.
(r) Any Liens securing Debt neither assumed nor guaranteed by TGPL
or any of its Subsidiaries nor on which any of them customarily pays interest,
existing upon real estate or rights in or relating to real estate (including
rights-of-way and easements) acquired by TGPL or any of its Subsidiaries for
pipeline, metering station or right-of-way purposes, which Liens were not
created in anticipation of such acquisition and do not materially impair the
use of such property for the purposes for which it is held by TGPL or such
Subsidiary.
(s) Easements, exceptions or reservations in any property of TGPL
or any of its Subsidiaries granted or reserved in the ordinary course of
business for the purpose of pipelines, roads, telecommunication equipment and
cable, streets, alleys, highways, railroads, the removal of oil, gas, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real property, facilities and equipment, which do not materially impair
the use of such property for the purposes for which it is held by TGPL or such
Subsidiary.
(t) Rights reserved to or vested in any municipality or public
authority to control or regulate any property of TGPL or any of its
Subsidiaries, or to use such property in any manner which does not materially
impair the use of such property for the purposes for which it is held by TGPL
or such Subsidiary.
(u) Any obligations or duties, affecting the property of TGPL or
any of its Subsidiaries, to any municipality or public authority with respect
to any franchise, grant, license or permit.
(v) (i) The Liens of any judgments in an aggregate amount for TGPL
and all of its Subsidiaries not in excess of $5,000,000, execution of which has
not been stayed and (ii) the Liens of any judgments in an aggregate amount for
TGPL and all of its Subsidiaries not in excess of $25,000,000, the execution of
which has been stayed and which have been appealed and secured, if necessary
and permitted hereby, by the filing of an appeal bond.
(w) Zoning laws and ordinances.
(x) Any Lien existing on any office equipment, data processing
equipment (including computer and computer peripheral equipment), motor
vehicles, aircraft, marine vessels or similar transportation equipment.
(y) Any Lien consisting of interests in receivables in connection
with agreements for sales of receivables of any kind by TGPL or any of its
Subsidiaries for cash.
-3-
<PAGE> 75
(z) Any Lien not permitted by paragraphs (a) through (y) above or
(aa) below securing Debt of TGPL and its Subsidiaries or securing any Debt of
TGPL and its Subsidiaries which constitutes a refunding or extension of any
such Debt if at the time of, and after giving effect to, the creation or
assumption of any such Lien, the sum of the aggregate of all Debt of TGPL and
its Subsidiaries secured by all such Liens not so permitted by paragraphs (a)
through (y) above or (aa) below plus the amount of Attributable Obligations of
TGPL and its Subsidiaries in respect of Sale and Lease-Back Transactions
permitted by Section 5.02(j) does not exceed 5% of the sum of (i) Consolidated
Tangible Net Worth of TGPL plus (ii) Debt of TGPL and its Subsidiaries on a
Consolidated basis.
(aa) Any Lien resulting from any sale and lease-back of cushion gas
by TGPL or any of its Subsidiaries.
-4-
<PAGE> 76
SCHEDULE V
PERMITTED TGT LIENS
(a) Any purchase money Lien created by TGT or any of its
Subsidiaries to secure all or part of the purchase price of any property (or to
secure a loan made to enable TGT or any of its Subsidiaries to acquire the
property secured by such Lien), provided that the principal amount of the Debt
secured by any such Lien, together with all other Debt secured by a Lien on
such property, shall not exceed the purchase price of the property acquired.
(b) Any Lien existing on any property at the time of the
acquisition thereof by TGT or any of its Subsidiaries, whether or not assumed
by TGT or any of its Subsidiaries, and any Lien on any property acquired or
constructed by TGT or any of its Subsidiaries and created not later than 12
months after (i) such acquisition or completion of such construction or (ii)
commencement of full operation of such property, whichever is later; provided,
however, that if assumed or created by TGT or any of its Subsidiaries, the
principal amount of the Debt secured by such Lien, together with all other Debt
secured by a Lien on such property, shall not exceed the purchase price of the
property acquired and/or the cost of the property constructed.
(c) Any Lien created or assumed by TGT or any of its Subsidiaries
on any contract for the sale of any product or service or any rights thereunder
or any proceeds therefrom, including accounts and other receivables, related to
the operation or use of any property acquired or constructed by TGT or any of
its Subsidiaries and created not later than 12 months after (i) such
acquisition or completion of such construction or (ii) commencement of full
operation of such property, whichever is later; provided, however, that the
principal amount of the Debt secured by such mortgage together with all other
Debt secured by any such contract, rights or property, shall not exceed the
purchase price of the property acquired and/or the cost of the property
constructed.
(d) Any Lien existing on any property of a Subsidiary of TGT at
the time it becomes a Subsidiary of TGT.
(e) Any refunding or extension of maturity, in whole or in part,
of any Lien created or assumed in accordance with the provisions of paragraph
(a), (b), (c) or (d) above or (j) below, provided that the principal amount of
the Debt secured by such refunding Lien or extended Lien shall not exceed the
principal amount of the Debt secured by the Lien to be refunded or extended
outstanding at the time of such refunding or extension and that such refunding
Lien or extended Lien shall be limited to the same property that secured the
Lien so refunded or extended.
(f) Mechanics' or materialmen's liens arising in the ordinary
course of business which are not more than 90 days past due or are being
contested in good faith by appropriate proceedings or any Lien arising by
reason of pledges or deposits to secure payment of workmen's compensation or
other insurance, good faith deposits in connection with tenders or leases of
real estate, bids or contracts (other than contracts for the payment of money),
in each case to secure obligations of TWC or any of its Subsidiaries.
(g) Deposits to secure public or statutory obligations, deposits
to secure or in lieu of surety, stay or appeal bonds and deposits as security
for the payment of taxes or assessments or other similar charges, in each case
to secure obligations of TWC or any of its Subsidiaries; provided,
<PAGE> 77
however, that the aggregate amount of obligations secured by Liens permitted by
this paragraph (g) shall not exceed 10% of Consolidated Tangible Net Worth of
TWC.
(h) Any Lien arising by reason of deposits with or the giving of
any form of security to any governmental agency or any body created or approved
by law or governmental regulation for any purpose at any time as required by
law or governmental regulation (i) as a condition to the transaction by TWC or
any of its Subsidiaries of any business or the exercise by TWC or any of its
Subsidiaries of any privilege or license, (ii) to enable TWC or any of its
Subsidiaries to maintain self-insurance or to participate in any fund for
liability on any insurance risks or (iii) in connection with workmen's
compensation, unemployment insurance, old age pensions or other social security
with respect to TWC or any of its Subsidiaries or to enable TWC or any of its
Subsidiaries to share in the privileges or benefits required for companies
participating in such arrangements.
(i) Any Lien which is payable, both with respect to principal and
interest, solely out of the proceeds of oil, gas, coal or other minerals or
timber to be produced from the property subject thereto and to be sold or
delivered by TGT or any of its Subsidiaries, including any interest of the
character commonly referred to as a "production payment".
(j) Any Lien created or assumed by a Subsidiary of TGT on oil,
gas, coal or other mineral or timber property, owned or leased by such
Subsidiary to secure loans to such Subsidiary for the purposes of developing
such properties, including any interest of the character commonly referred to
as a "production payment"; provided, however, that neither TGT nor any other
Subsidiary of TGT shall assume or guarantee such loans or otherwise be liable
in respect thereto.
(k) Liens incurred in the ordinary course of business upon
rights-of-way.
(l) Undetermined mortgages and charges incidental to construction
or maintenance arising in the ordinary course of business which are not more
than 90 days past due or are being contested in good faith by appropriate
proceedings.
(m) The right reserved to, or vested in, any municipality or
governmental or other public authority or railroad by the terms of any right,
power, franchise, grant, license, permit or by any provision of law, to
terminate or to require annual or other periodic payments as a condition to the
continuance of such right, power, franchise, grant, license or permit.
(n) The Lien of taxes and assessments which are not at the time
delinquent.
(o) The Lien of specified taxes and assessments which are
delinquent but the validity of which is being contested in good faith by TGT or
any of its Subsidiaries by appropriate proceedings and with respect to which
reserves in conformity with generally accepted accounting principles, if
required by such principles, have been provided on the books of TGT or the
relevant Subsidiary of TGT, as the case may be.
(p) The Lien reserved in leases entered into in the ordinary
course of business for rent and for compliance with the terms of the lease in
the case of real property leasehold estates.
(q) Defects and irregularities in the titles to any property
(including rights-of-way and easements) which are not material to the business,
assets, operations or financial condition of TGT and its Subsidiaries
considered as a whole.
-2-
<PAGE> 78
(r) Any Liens securing Debt neither assumed nor guaranteed by TGT
or any of its Subsidiaries nor on which any of them customarily pays interest,
existing upon real estate or rights in or relating to real estate (including
rights-of-way and easements) acquired by TGT or any of its Subsidiaries for
pipeline, metering station or right-of-way purposes, which Liens were not
created in anticipation of such acquisition and do not materially impair the
use of such property for the purposes for which it is held by TGT or such
Subsidiary.
(s) Easements, exceptions or reservations in any property of TGT
or any of its Subsidiaries granted or reserved in the ordinary course of
business for the purpose of pipelines, roads, telecommunication equipment and
cable, streets, alleys, highways, railroads, the removal of oil, gas, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real property, facilities and equipment, which do not materially impair
the use of such property for the purposes for which it is held by TGT or such
Subsidiary.
(t) Rights reserved to or vested in any municipality or public
authority to control or regulate any property of TGT or any of its
Subsidiaries, or to use such property in any manner which does not materially
impair the use of such property for the purposes for which it is held by TGT or
such Subsidiary.
(u) Any obligations or duties, affecting the property of TGT or
any of its Subsidiaries, to any municipality or public authority with respect
to any franchise, grant, license or permit.
(v) (i) The Liens of any judgments in an aggregate amount for TGT
and all of its Subsidiaries not in excess of $5,000,000, execution of which has
not been stayed and (ii) the Liens of any judgments in an aggregate amount for
TGT and all of its Subsidiaries not in excess of $25,000,000, the execution of
which has been stayed and which have been appealed and secured, if necessary
and permitted hereby, by the filing of an appeal bond.
(w) Zoning laws and ordinances.
(x) Any Lien existing on any office equipment, data processing
equipment (including computer and computer peripheral equipment), motor
vehicles, aircraft, marine vessels or similar transportation equipment.
(y) Any Lien consisting of interests in receivables in connection
with agreements for sales of receivables of any kind by TGT or any of its
Subsidiaries for cash.
(z) Any Lien not permitted by paragraphs (a) through (y) above or
(aa) below securing Debt of TGT and its Subsidiaries or securing any Debt of
TGT and its Subsidiaries which constitutes a refunding or extension of any such
Debt if at the time of, and after giving effect to, the creation or assumption
of any such Lien, the sum of the aggregate of all Debt of TGT and its
Subsidiaries secured by all such Liens not so permitted by paragraphs (a)
through (y) above or (aa) below plus the amount of Attributable Obligations of
TGT and its Subsidiaries in respect of Sale and Lease-Back Transactions
permitted by Section 5.02(j) does not exceed 5% of the sum of (i) Consolidated
Tangible Net Worth of TGT plus (ii) Debt of TGT and its Subsidiaries on a
Consolidated basis.
(aa) Any Lien resulting from any sale and lease-back of cushion gas
by TGT or any of its Subsidiaries.
-3-
<PAGE> 79
SCHEDULE VI
PERMITTED TWC LIENS
(a) Any purchase money Lien created by TWC or any of its
Subsidiaries to secure all or part of the purchase price of any property (or to
secure a loan made to enable TWC or any of its Subsidiaries to acquire the
property secured by such Lien), provided that the principal amount of the Debt
secured by any such Lien, together with all other Debt secured by a Lien on
such property, shall not exceed the purchase price of the property acquired.
(b) Any Lien existing on any property at the time of the
acquisition thereof by TWC or any of its Subsidiaries, whether or not assumed
by TWC or any of its Subsidiaries, and any Lien on any property acquired or
constructed by TWC or any of its Subsidiaries and created not later than 12
months after (i) such acquisition or completion of such construction or (ii)
commencement of full operation of such property, whichever is later; provided,
however, that if assumed or created by TWC or any of its Subsidiaries, the
principal amount of the Debt secured by such Lien, together with all other Debt
secured by a Lien on such property, shall not exceed the purchase price of the
property acquired and/or the cost of the property constructed.
(c) Any Lien created or assumed by TWC or any of its Subsidiaries
on any contract for the sale of any product or service or any rights thereunder
or any proceeds therefrom, including accounts and other receivables, related to
the operation or use of any property acquired or constructed by TWC or any of
its Subsidiaries and created not later than 12 months after (i) such
acquisition or completion of such construction or (ii) commencement of full
operation of such property, whichever is later; provided, however, that the
principal amount of the Debt secured by such mortgage together with all other
Debt secured by any such contract, rights or property, shall not exceed the
purchase price of the property acquired and/or the cost of the property
constructed.
(d) Any Lien existing on any property of a Subsidiary of TWC at
the time it becomes a Subsidiary of TWC.
(e) Any refunding or extension of maturity, in whole or in part,
of any Lien created or assumed in accordance with the provisions of paragraph
(a), (b), (c) or (d) above or (j) below, provided that the principal amount of
the Debt secured by such refunding Lien or extended Lien shall not exceed the
principal amount of the Debt secured by the Lien to be refunded or extended
outstanding at the time of such refunding or extension and that such refunding
Lien or extended Lien shall be limited to the same property that secured the
Lien so refunded or extended.
(f) Mechanics' or materialmen's liens arising in the ordinary
course of business which are not more than 90 days past due or are being
contested in good faith by appropriate proceedings or any Lien arising by
reason of pledges or deposits to secure payment of workmen's compensation or
other insurance, good faith deposits in connection with tenders or leases of
real estate, bids or contracts (other than contracts for the payment of money),
in each case to secure obligations of TWC or any of its Subsidiaries.
(g) Deposits to secure public or statutory obligations, deposits
to secure or in lieu of surety, stay or appeal bonds and deposits as security
for the payment of taxes or assessments or other
<PAGE> 80
similar charges, in each case to secure obligations of TWC or any of its
Subsidiaries; provided, however, that the aggregate amount of obligations
secured by Liens permitted by this paragraph (g) shall not exceed 10% of
Consolidated Tangible Net Worth of TWC.
(h) Any Lien arising by reason of deposits with or the giving of
any form of security to any governmental agency or any body created or approved
by law or governmental regulation for any purpose at any time as required by
law or governmental regulation (i) as a condition to the transaction by TWC or
any of its Subsidiaries of any business or the exercise by TWC or any of its
Subsidiaries of any privilege or license, (ii) to enable TWC or any of its
Subsidiaries to maintain self-insurance or to participate in any fund for
liability on any insurance risks or (iii) in connection with workmen's
compensation, unemployment insurance, old age pensions or other social security
with respect to TWC or any of its Subsidiaries or to enable TWC or any of its
Subsidiaries to share in the privileges or benefits required for companies
participating in such arrangements.
(i) Any Lien which is payable, both with respect to principal and
interest, solely out of the proceeds of oil, gas, coal or other minerals or
timber to be produced from the property subject thereto and to be sold or
delivered by TWC or any of its Subsidiaries, including any interest of the
character commonly referred to as a "production payment".
(j) Any Lien created or assumed by a Subsidiary of TWC on oil,
gas, coal or other mineral or timber property, owned or leased by such
Subsidiary to secure loans to such Subsidiary for the purposes of developing
such properties, including any interest of the character commonly referred to
as a "production payment"; provided, however, that neither TWC nor any other
Subsidiary of TWC shall assume or guarantee such loans or otherwise be liable
in respect thereto.
(k) Liens incurred in the ordinary course of business upon
rights-of-way.
(l) Undetermined mortgages and charges incidental to construction
or maintenance arising in the ordinary course of business which are not more
than 90 days past due or are being contested in good faith by appropriate
proceedings.
(m) The right reserved to, or vested in, any municipality or
governmental or other public authority or railroad by the terms of any right,
power, franchise, grant, license, permit or by any provision of law, to
terminate or to require annual or other periodic payments as a condition to the
continuance of such right, power, franchise, grant, license or permit.
(n) The Lien of taxes and assessments which are not at the time
delinquent.
(o) The Lien of specified taxes and assessments which are
delinquent but the validity of which is being contested in good faith by TWC or
any of its Subsidiaries by appropriate proceedings and with respect to which
reserves in conformity with generally accepted accounting principles, if
required by such principles, have been provided on the books of TWC or the
relevant Subsidiary of TWC, as the case may be.
(p) The Lien reserved in leases entered into in the ordinary
course of business for rent and for compliance with the terms of the lease in
the case of real property leasehold estates.
-2-
<PAGE> 81
(q) Defects and irregularities in the titles to any property
(including rights-of-way and easements) which are not material to the business,
assets, operations or financial condition of TWC and its Subsidiaries
considered as a whole.
(r) Any Liens securing Debt neither assumed nor guaranteed by TWC
or any of its Subsidiaries nor on which any of them customarily pays interest,
existing upon real estate or rights in or relating to real estate (including
rights-of-way and easements) acquired by TWC or any of its Subsidiaries, which
Liens were not created in anticipation of such acquisition and do not
materially impair the use of such property for the purposes for which it is
held by TWC or such Subsidiary.
(s) Easements, exceptions or reservations in any property of TWC
or any of its Subsidiaries granted or reserved in the ordinary course of
business for the purpose of pipelines, roads, telecommunication equipment and
cable, streets, alleys, highways, railroads, the removal of oil, gas, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real property, facilities and equipment, which do not materially impair
the use of such property for the purposes for which it is held by TWC or such
Subsidiary.
(t) Rights reserved to or vested in any municipality or public
authority to control or regulate any property of TWC or any of its
Subsidiaries, or to use such property in any manner which does not materially
impair the use of such property for the purposes for which it is held by TWC or
such Subsidiary.
(u) Any obligations or duties, affecting the property of TWC or
any of its Subsidiaries, to any municipality or public authority with respect
to any franchise, grant, license or permit.
(v) (i) The Liens of any judgments in an aggregate amount for TWC
and all of its Subsidiaries not in excess of $5,000,000, the execution of which
has not been stayed and (ii) the Liens of any judgments in an aggregate amount
for TWC and all of its Subsidiaries not in excess of $25,000,000, the execution
of which has been stayed and which have been appealed and secured, if necessary
and permitted hereby, by the filing of an appeal bond.
(w) Zoning laws and ordinances.
(x) Any Lien existing on any office equipment, data processing
equipment (including computer and computer peripheral equipment), motor
vehicles, aircraft, marine vessels or similar transportation equipment.
(y) Any Lien consisting of interests in receivables in connection
with agreements for sales of receivables of any kind by TWC or any of its
Subsidiaries for cash.
(z) Any Lien not permitted by paragraphs (a) through (y) above or
(aa) or (bb) below securing Debt of TWC and its Subsidiaries or securing any
Debt of TWC and its Subsidiaries which constitutes a refunding or extension of
any such Debt if at the time of, and after giving effect to, the creation or
assumption of any such Lien, the sum of the aggregate of all Debt of TWC and
its Subsidiaries secured by all such Liens not so permitted by paragraphs (a)
through (y) above or (aa) or (bb) below plus the amount of Attributable
Obligations of TWC and its Subsidiaries in respect
-3-
<PAGE> 82
of Sale and Lease-Back Transactions permitted by Section 5.02(j) does not
exceed 5% of the sum of (i) Consolidated Tangible Net Worth of TWC plus (ii)
Debt of TWC and its Subsidiaries on a Consolidated basis.
(aa) Any overriding royalties or other rights of Pacific Northwest
Pipeline Corporation, a Delaware corporation ("Pacific") and Phillips Petroleum
Company ("Phillips") or their respective successors in interest under a
contract dated January 9, 1953, as amended, between Phillips and Pacific, to
which TWC is successor in interest; and the obligations of TWC to surrender,
transfer, release or reassign the leases or interests or rights to which said
instruments relate under the conditions and upon the occurrence of the events
specified in said instruments.
(bb) Any Lien resulting from any sale and lease-back of cushion gas
by TWC or any of its Subsidiaries or from any sale and lease-back of inventory
by WPL or any of its Subsidiaries (other than another Borrower).
-4-
<PAGE> 83
SCHEDULE VII
PERMITTED WPL LIENS
(a) Any liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary course of
business which are not more than 90 days past due or are being contested in
good faith by appropriate proceedings or any Lien arising by reason of pledges
or deposits to secure payment of workmen's compensation, unemployment
insurance, old age pensions or other social security or retirement benefits or
benefits under similar legislation, in each case to secure obligations of TWC
or any of its Subsidiaries.
(b) Liens for taxes, assessments or governmental charges or levies
which are not delinquent or thereafter can be paid without penalty or which are
being contested in good faith by WPL or any of its Subsidiaries by appropriate
proceedings and with respect to which reserves in conformity with generally
accepted accounting principles, if required by such principles, have been
provided on the books of WPL or the relevant Subsidiary of WPL, as the case may
be.
(c) Other Liens incidental to the conduct of the business of, or
the ownership of the property and assets of, WPL or any of its Subsidiaries
which do not secure Debt, which were incurred in the ordinary course of
business and which do not in the aggregate materially detract from the value of
such property or assets or materially impair the use thereof in the operation
of such business.
(d) Liens on the assets or properties of a Subsidiary of WPL in
favor of WPL to secure Debt of such Subsidiary to WPL.
(e) Liens existing on any property of any corporation at the time
it becomes a Subsidiary of WPL, or existing prior to the time of acquisition,
upon any property acquired by WPL or any of its Subsidiaries through purchase,
merger, consolidation or otherwise, whether or not assumed by WPL or any of its
Subsidiaries, to secure a portion of the purchase price thereof; provided that
(i) any such Lien shall not encumber any other property of WPL or any of its
Subsidiaries, (ii) the aggregate principal amount of Debt secured by all Liens
permitted by this clause (e) and any Liens permitted by clause (f) below does
not exceed an amount equal to 20% of Consolidated Tangible Net Worth of WPL
and, provided further that the Debt secured thereby is permitted hereby.
(f) Any Lien renewing, extending or refunding any Lien permitted
by clause (e) above, provided that the principal amount secured is not
increased, and the Lien is not extended to any other property.
(g) Any Lien created by any Person other than WPL or any of its
Subsidiaries or any renewal or extension of any such Lien which is a Lien upon
the lands over which easements or rights-of-way for pipeline purposes are held,
securing Debt which has not been assumed or
<PAGE> 84
guaranteed by WPL or any of its Subsidiaries and on which Debt neither WPL nor
any of its Subsidiaries pays interest charges.
(h) Any Lien consisting of interests in receivables in connection
with agreements for sales of receivables of any kind by WPL or any of its
Subsidiaries for cash.
(i) Any Lien not permitted by paragraphs (a) through (h) above or
(j) below securing Debt of WPL and its Subsidiaries or securing any Debt of WPL
and its Subsidiaries which constitutes a refunding or extension of any such
Debt if at the time of, and after giving effect to, the creation or assumption
of any such Lien, the sum of the aggregate of all Debt of WPL and its
Subsidiaries secured by all such Liens not so permitted by paragraphs (a)
through (h) above or (j) below plus Debt secured by Liens permitted by
paragraph (e) or by paragraph (f) of this Schedule VI plus the amount of
Attributable Obligations of WPL and its Subsidiaries in respect of Sale and
Lease-Back Transactions permitted by Section 5.02(j) does not exceed 10% of
the sum of (i) Consolidated Tangible Net Worth of WPL plus (ii) Debt of WPL and
its Subsidiaries on a Consolidated basis.
(j) Any Lien resulting from any sale and lease-back of inventory
by WPL or any of its Subsidiaries (other than another Borrower).
-2-
<PAGE> 85
SCHEDULE VIII
PERMITTED WHD LIENS
(a) Any purchase money Lien created by WHD or any of its
Subsidiaries to secure all or part of the purchase price of any property (or to
secure a loan made to enable WHD or any of its Subsidiaries to acquire the
property secured by such Lien), provided that the principal amount of the Debt
secured by any such Lien, together with all other Debt secured by a Lien on
such property, shall not exceed the purchase price of the property acquired.
(b) Any Lien existing on any property at the time of the
acquisition thereof by WHD or any of its Subsidiaries, whether or not assumed
by WHD or any of its Subsidiaries, and any Lien on any property acquired or
constructed by WHD or any of its Subsidiaries and created not later than 12
months after (i) such acquisition or completion of such construction or (ii)
commencement of full operation of such property, whichever is later; provided,
however, that if assumed or created by WHD or any of its Subsidiaries, the
principal amount of the Debt secured by such Lien, together with all other Debt
secured by a Lien on such property, shall not exceed the purchase price of the
property acquired and/or the cost of the property constructed.
(c) Any Lien created or assumed by WHD or any of its Subsidiaries
on any contract for the sale of any product or service or any rights thereunder
or any proceeds therefrom, including accounts and other receivables, related to
the operation or use of any property acquired or constructed by WHD or any of
its Subsidiaries and created not later than 12 months after (i) such
acquisition or completion of such construction or (ii) commencement of full
operation of such property, whichever is later; provided, however, that the
principal amount of the Debt secured by such mortgage together with all other
Debt secured by any such contract, rights or property, shall not exceed the
purchase price of the property acquired and/or the cost of the property
constructed.
(d) Any Lien existing on any property of a Subsidiary of WHD at
the time it becomes a Subsidiary of WHD.
(e) Any refunding or extension of maturity, in whole or in part,
of any Lien created or assumed in accordance with the provisions of paragraph
(a), (b), (c) or (d) above or (j) below, provided that the principal amount of
the Debt secured by such refunding Lien or extended Lien shall not exceed the
principal amount of the Debt secured by the Lien to be refunded or extended
outstanding at the time of such refunding or extension and that such refunding
Lien or extended Lien shall be limited to the same property that secured the
Lien so refunded or extended.
(f) Mechanics' or materialmen's liens arising in the ordinary
course of business which are not more than 90 days past due or are being
contested in good faith by appropriate proceedings or any Lien arising by
reason of pledges or deposits to secure payment of workmen's compensation or
other insurance, good faith deposits in connection with tenders or leases of
real estate, bids or contracts (other than contracts for the payment of money),
in each case to secure obligations of TWC or any of its Subsidiaries.
<PAGE> 86
(g) Deposits to secure public or statutory obligations, deposits
to secure or in lieu of surety, stay or appeal bonds and deposits as security
for the payment of taxes or assessments or other similar charges, in each case
to secure obligations of TWC or any of its Subsidiaries; provided, however,
that the aggregate amount of obligations secured by Liens permitted by this
paragraph (g) shall not exceed 10% of Consolidated Tangible Net Worth of TWC.
(h) Any Lien arising by reason of deposits with or the giving of
any form of security to any governmental agency or any body created or approved
by law or governmental regulation for any purpose at any time as required by
law or governmental regulation (i) as a condition to the transaction by TWC or
any of its Subsidiaries of any business or the exercise by TWC or any of its
Subsidiaries of any privilege or license, (ii) to enable TWC or any of its
Subsidiaries to maintain self-insurance or to participate in any fund for
liability on any insurance risks or (iii) in connection with workmen's
compensation, unemployment insurance, old age pensions or other social security
with respect to TWC or any of its Subsidiaries or to enable TWC or any of its
Subsidiaries to share in the privileges or benefits required for companies
participating in such arrangements.
(i) Any Lien which is payable, both with respect to principal and
interest, solely out of the proceeds of oil, gas, coal or other minerals or
timber to be produced from the property subject thereto and to be sold or
delivered by WHD or any of its Subsidiaries, including any interest of the
character commonly referred to as a "production payment".
(j) Any Lien created or assumed by a Subsidiary of WHD on oil,
gas, coal or other mineral or timber property, owned or leased by such
Subsidiary to secure loans to such Subsidiary for the purposes of developing
such properties, including any interest of the character commonly referred to
as a "production payment"; provided, however, that neither WHD nor any other
Subsidiary of WHD shall assume or guarantee such loans or otherwise be liable
in respect thereto.
(k) Liens incurred in the ordinary course of business upon
rights-of-way.
(l) Undetermined mortgages and charges incidental to construction
or maintenance arising in the ordinary course of business which are not more
than 90 days past due or are being contested in good faith by appropriate
proceedings.
(m) The right reserved to, or vested in, any municipality or
governmental or other public authority or railroad by the terms of any right,
power, franchise, grant, license, permit or by any provision of law, to
terminate or to require annual or other periodic payments as a condition to the
continuance of such right, power, franchise, grant, license or permit.
(n) The Lien of taxes and assessments which are not at the time
delinquent.
(o) The Lien of specified taxes and assessments which are
delinquent but the validity of which is being contested in good faith by WHD or
any of its Subsidiaries by appropriate proceedings and with respect to which
reserves in conformity with generally accepted accounting principles, if
required by such principles, have been provided on the books of WHD or the
relevant Subsidiary of WHD, as the case may be.
(p) The Lien reserved in leases entered into in the ordinary
course of business for rent and for compliance with the terms of the lease in
the case of real property leasehold estates.
-2-
<PAGE> 87
(q) Defects and irregularities in the titles to any property
(including rights-of-way and easements) which are not material to the business,
assets, operations or financial condition of WHD and its Subsidiaries
considered as a whole.
(r) Any Liens securing Debt neither assumed nor guaranteed by WHD
or any of its Subsidiaries nor on which any of them customarily pays interest,
existing upon real estate or rights in or relating to real estate (including
rights-of-way and easements) acquired by WHD or any of its Subsidiaries for
pipeline, metering station or right-of-way purposes, which Liens were not
created in anticipation of such acquisition and do not materially impair the
use of such property for the purposes for which it is held by WHD or such
Subsidiary.
(s) Easements, exceptions or reservations in any property of WHD
or any of its Subsidiaries granted or reserved in the ordinary course of
business for the purpose of pipelines, roads, telecommunication equipment and
cable, streets, alleys, highways, railroads, the removal of oil, gas, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real property, facilities and equipment, which do not materially impair
the use of such property for the purposes for which it is held by WHD or such
Subsidiary.
(t) Rights reserved to or vested in any municipality or public
authority to control or regulate any property of WHD or any of its
Subsidiaries, or to use such property in any manner which does not materially
impair the use of such property for the purposes for which it is held by WHD or
such Subsidiary.
(u) Any obligations or duties, affecting the property of WHD or
any of its Subsidiaries, to any municipality or public authority with respect
to any franchise, grant, license or permit.
(v) (i) The Liens of any judgments in an aggregate amount for WHD
and all of its Subsidiaries not in excess of $5,000,000, execution of which has
not been stayed and (ii) the Liens of any judgments in an aggregate amount for
WHD and all of its Subsidiaries not in excess of $25,000,000, the execution of
which has been stayed and which have been appealed and secured, if necessary
and permitted hereby, by the filing of an appeal bond.
(w) Zoning laws and ordinances.
(x) Any Lien existing on any office equipment, data processing
equipment (including computer and computer peripheral equipment), motor
vehicles, aircraft, marine vessels or similar transportation equipment.
(y) Any Lien consisting of interests in receivables in connection
with agreements for sales of receivables of any kind by WHD or any of its
Subsidiaries for cash.
(z) Any Lien not permitted by paragraphs (a) through (y) above or
(aa) below securing Debt of WHD and its Subsidiaries or securing any Debt of
WHD and its Subsidiaries which constitutes a refunding or extension of any such
Debt if at the time of, and after giving effect to, the creation or assumption
of any such Lien, the sum of the aggregate of all Debt of WHD and its
Subsidiaries secured by all such Liens not so permitted by paragraphs (a)
through (y) above or (aa) below plus the amount of Attributable Obligations of
WHD and its Subsidiaries in respect of Sale and Lease-Back Transactions
permitted by Section 5.02(j) does not exceed 5% of the sum of (i) Consolidated
Tangible Net Worth of WHD plus (ii) Debt of WHD and its Subsidiaries on a
Consolidated basis.
-3-
<PAGE> 88
(aa) Any Lien resulting from any sale and lease-back of cushion gas
by WHD or any of its Subsidiaries.
(bb) Any Lien created by WHD or any of its Subsidiaries on any
contract (or any rights thereunder or proceeds therefrom) providing for
advances by WHD or any of its Subsidiaries to finance gas exploration and
development, which Lien is created to secure only indebtedness incurred to
finance such advances.
-4-
<PAGE> 89
SCHEDULE IX
COMMITMENTS
as of December 20, 1996
<TABLE>
<CAPTION>
=================================================================================================================================
TWC WHD NWP TGPL TGT WPL
Banks Commitment Commitment Commitment Commitment Commitment Commitment
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Citibank, N.A. $ 65,000,000 $ 39,000,000 $ 26,000,000 $ 26,000,000 $ 13,000,000 6,500,000
- ---------------------------------------------------------------------------------------------------------------------------------
Bank of America 60,000,000 36,000,000 24,000,000 24,000,000 12,000,000 6,000,000
National Trust and
Savings Association
- ---------------------------------------------------------------------------------------------------------------------------------
The Chase Manhattan 60,000,000 36,000,000 24,000,000 24,000,000 12,000,000 6,000,000
Bank
- ---------------------------------------------------------------------------------------------------------------------------------
CIBC Inc. 60,000,000 36,000,000 24,000,000 24,000,000 12,000,000 6,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
Credit Lyonnais New 60,000,000 36,000,000 24,000,000 24,000,000 12,000,000 6,000,000
York Branch
- ---------------------------------------------------------------------------------------------------------------------------------
The First National Bank 60,000,000 36,000,000 24,000,000 24,000,000 12,000,000 6,000,000
of Chicago
Bank of Montreal 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
The Bank of New York 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
The Bank of Nova 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
Scotia
- ---------------------------------------------------------------------------------------------------------------------------------
Barclays Bank Plc 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
Boatmen's National 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
Bank of Oklahoma
- ---------------------------------------------------------------------------------------------------------------------------------
The First National Bank 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
of Boston
- ---------------------------------------------------------------------------------------------------------------------------------
The Fuji Bank, Limited, 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
Houston Agency
- ---------------------------------------------------------------------------------------------------------------------------------
Mellon Bank, N.A. 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
Morgan Guaranty Trust 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
Company of New York
- ---------------------------------------------------------------------------------------------------------------------------------
Royal Bank of Canada 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
Societe Generale, 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
Southwest Agency
- ---------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Bank, N.A. 50,000,000 30,000,000 20,000,000 20,000,000 10,000,000 5,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
Bank of Oklahoma, N.A. 20,000,000 12,000,000 8,000,000 8,000,000 4,000,000 2,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
Commerce Bank, N.A. 15,000,000 9,000,000 6,000,000 6,000,000 3,000,000 1,500,000
COMMITMENTS $1,000,000,000 $600,000,000 $400,000,000 $400,000,000 $200,000,000 $100,000,000
=================================================================================================================================
</TABLE>
<PAGE> 90
EXHIBIT A-1
A PROMISSORY NOTE
U.S. $_______________________________ Dated: ________________________, ____
FOR VALUE RECEIVED, the undersigned, [Borrower] , a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
__________________________________________________ (the "Bank"), for the
account of its Applicable Lending Office (as defined in the Credit Agreement
referred to below), on the Stated Termination Date (as defined in the Credit
Agreement referred to below), the principal amount of $_______________________,
or, if less, the aggregate principal amount of the A Advances (as defined in
the Credit Agreement referred to below) owed to the Bank by the Borrower on
such Stated Termination Date.
The Borrower promises to pay interest on the unpaid principal amount
hereof until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Credit Agreement referred to
below. Both principal and interest are payable in lawful money of the United
States of America to Citibank, N.A., as Agent, at 399 Park Avenue, New York,
New York 10043, in same day funds. Each A Advance owed to the Bank by the
Borrower, and all payments made on account of principal thereof, shall be
recorded by the Bank and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this A Promissory Note.
This A Promissory Note is one of the A Notes referred to in, and is
subject to and entitled to the benefits of, the Amended and Restated Credit
Agreement dated as of December 20, 1996 (as amended or otherwise modified from
time to time, the "Credit Agreement") among the Borrower, the Bank, certain
other borrowers parties thereto, certain other banks parties thereto and
Citibank, N.A., as Agent for the Bank and such other banks. The Credit
Agreement, among other things, (i) provides for the making of advances to the
Borrower from time to time pursuant to Section 2.01 of the Credit Agreement in
an aggregate outstanding amount not to exceed at any time the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
each such advance owed to the Bank being evidenced by this A Promissory Note,
and (ii) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified. Capitalized terms used herein which are not defined herein
and are defined in the Credit Agreement are used herein as therein defined.
The Borrower hereby waives presentment, demand, protest, notice of
intent to accelerate, notice of acceleration and any other notice of any kind,
except as provided in the Credit Agreement. No failure to exercise, and no
delay in exercising, any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights.
This A Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
[BORROWER]
________________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
<PAGE> 91
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount Principal Unpaid
of Paid or Principal Notation
Date Advance Prepaid Balance Made By
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 92
EXHIBIT A-2
B PROMISSORY NOTE
U.S. $_______________ Dated: __________, ____
FOR VALUE RECEIVED, the undersigned, [Borrower] , a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
__________________________ (the "Bank") for the account of its Applicable
Lending Office (as defined in the Credit Agreement referred to below), on
_____________, the principal amount of ____________________ U.S. Dollars
($__________).
The Borrower promises to pay interest on the unpaid principal
amount hereof from the date hereof until such principal amount is paid in full,
at the interest rate and payable on the interest payment date or dates provided
below:
Interest Rate: _____% per annum (calculated on the basis of a year of
____ days for the actual number of days elapsed).
Interest Payment Date or Dates: ______________________
Both principal and interest are payable in lawful money of the
United States of America to Citibank, N.A., as Agent, for the account of the
Bank at the office of Citibank, N.A., at 399 Park Avenue, New York, New York
10043, in same day funds.
This B Promissory Note is one of the B Notes referred to in,
and is entitled to the benefits of, the Amended and Restated Credit Agreement
dated as of December 20, 1996 (as amended or otherwise modified from time to
time, the "Credit Agreement") among the Borrower, the Bank, certain other
borrowers parties thereto, certain other banks parties thereto and Citibank,
N.A., as Agent for the Bank and such other banks. The Credit Agreement, among
other things, contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events. Capitalized terms used herein which
are not defined herein and are defined in the Credit Agreement are used herein
as therein defined.
The Borrower hereby waives presentment, demand, protest,
notice of intent to accelerate, notice of acceleration and any other notice of
any kind, except as provided in the Credit Agreement. No failure to exercise,
and no delay in exercising, any rights hereunder on the part of the holder
hereof shall operate as a waiver of such rights.
This B Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
[BORROWER]
________________________________________
By:_____________________________________
Name:___________________________________
Title: _________________________________
<PAGE> 93
EXHIBIT B-1
NOTICE OF A BORROWING
Citibank, N.A., as Agent
for the Banks parties
to the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043 [Date]
Attention: John Sahr
Ladies and Gentlemen:
The undersigned, [Borrower] (the "Borrower"), refers to the
Amended and Restated Credit Agreement, dated as of December 20, 1996 (as
amended or otherwise modified from time to time, the "Credit Agreement"; the
terms defined therein and not defined herein being used herein as therein
defined), among the undersigned, certain other borrowers parties thereto,
certain Banks parties thereto and Citibank, N.A., as Agent for such Banks, and
hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit
Agreement that the undersigned hereby requests an A Borrowing under the Credit
Agreement, and in that connection sets forth below the information relating to
such A Borrowing (the "Proposed A Borrowing") as required by Section 2.02(a) of
the Credit Agreement:
(i) The Business Day of the Proposed A Borrowing is
________________, 19___.
(ii) The Type of A Advances comprising the Proposed A
Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed A Borrowing is
$____________.
[(iv) The Interest Period for each A Advance made as part
of the Proposed A Borrowing is _______ months.]
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed A
Borrowing:
(a) the representations and warranties contained in
Section 4.01 of the Credit Agreement as to the Borrower and its
Subsidiaries are correct on and as of the date of the Proposed A
Borrowing, before and after giving effect to the Proposed A Borrowing
and to the application of the proceeds therefrom, as though made on
and as of such date;
(b) no event has occurred and is continuing, or would
result from the Proposed A Borrowing or from the application of the
proceeds therefrom, which constitutes an Event of Default or which
would constitute an Event of Default but for the requirement that
notice be given or time elapse or both; and
(c) after giving effect to the Proposed A Borrowing and
all other Borrowings which have been requested on or prior to the date
of the Proposed A Borrowing but which have not been made
<PAGE> 94
Citibank, N.A., as Agent
__________, ____
Page 2
prior to such date, the aggregate principal amount of all Advances
will not exceed the aggregate of the Commitments of the Banks to TWC
(computed without regard to any B Reduction).
Very truly yours,
[BORROWER]
----------------------------------------
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
cc: Citicorp North America, Inc.
1200 Smith Street, Suite 2000
Houston, Texas 77002
Attn: The Williams Companies, Inc.
Account Officer
<PAGE> 95
EXHIBIT B-2
NOTICE OF B BORROWING
Citibank, N.A., as Agent
for the Banks parties
to the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043 [Date]
Attention: John Sahr
Ladies and Gentlemen:
The undersigned, [Borrower] (the "Borrower"), refers to the
Amended and Restated Credit Agreement, dated as of December 20, 1996 (as
amended or otherwise modified from time to time, the "Credit Agreement"; the
terms defined therein and not defined herein being used herein as therein
defined), among the undersigned, certain other borrowers parties thereto,
certain Banks parties thereto and Citibank, N.A., as Agent for such Banks, and
hereby gives you notice, irrevocably, pursuant to Section 2.16 of the Credit
Agreement that the undersigned hereby requests a B Borrowing under the Credit
Agreement, and in that connection sets forth the terms on which such B
Borrowing (the "Proposed B Borrowing") is requested to be made:
(A) Date of B Borrowing __________________________________
(B) Amount of B Borrowing __________________________________
(C) Maturity Date __________________________________
(D) Interest Rate Basis __________________________________
(E) Interest Payment Date(s) __________________________________
(F) Prepayment Permitted [Yes/No] [Conditions]
(G) __________________________ __________________________________
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed B
Borrowing:
(a) the representations and warranties contained in
Section 4.01 of the Credit Agreement as to the Borrower and its
Subsidiaries are correct on and as of the date of the Proposed B
Borrowing, before and after giving effect to the Proposed B Borrowing
and to the application of the proceeds therefrom, as though made on
and as of such date;
(b) no event has occurred and is continuing, or would
result from the Proposed B Borrowing or from the application of the
proceeds therefrom, which constitutes an Event of Default or which
would constitute an Event of Default but for the requirement that
notice be given or time elapse or both;
(c) following the making of the Proposed B Borrowing and
all other Borrowings to be made on the same day under the Credit
Agreement, the aggregate principal amount of all
<PAGE> 96
___________, ____
Page 2
Advances of the Banks to the Borrower then outstanding will not exceed
the aggregate amount of the Commitments of the Banks to the Borrower
(computed without regard to any B Reduction); and
(d) after giving effect to the Proposed B Borrowing and
all other Borrowings which have been requested on or prior to the date
of the Proposed B Borrowing but which have not been made prior to such
date, the aggregate principal amount of all Advances will not exceed
the aggregate of the Commitments of the Banks to TWC (computed without
regard to any B Reduction).
The undersigned hereby confirms that the Proposed B Borrowing is to be
made available to it in accordance with Section 2.16(a)(v) of the Credit
Agreement.
Very truly yours,
[BORROWER]
----------------------------------------
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
cc: Citicorp North America, Inc.
1200 Smith Street, Suite 2000
Houston, Texas 77002
Attn: The Williams Companies, Inc.
Account Officer
<PAGE> 97
EXHIBIT C
December 20, 1996
To each of the Banks parties to the Amended and
Restated Credit Agreement, dated as of December 20,
1996 among The Williams Companies, Inc., Northwest
Pipeline Corporation, Transcontinental Gas Pipe
Line Corporation, Texas Gas Transmission Corporation,
Williams Pipe Line Company, Williams Holdings of
Delaware, Inc., the Banks and Citibank, N.A., as
Agent for the Banks, and to Citibank, N.A., as Agent
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(d) of the Amended and
Restated Credit Agreement dated as of December 20, 1996 (the "Credit
Agreement"), among The Williams Companies, Inc. ("TWC"), Northwest Pipeline
Corporation, Transcontinental Gas Pipe Line Corporation, Texas Gas Transmission
Corporation, Williams Holdings of Delaware, Inc., and Williams Pipe Line
Company, each a Delaware corporation (collectively, the "Borrowers"), the Banks
parties thereto and Citibank, N.A., as Agent for the Banks. Terms defined in
the Credit Agreement are used herein as therein defined.
I am General Counsel of TWC, and I have acted as counsel for the Borrowers in
connection with the preparation, execution and delivery of the Credit Agreement
and the A Notes.
In that connection, I or attorneys acting under my supervision have examined:
(1) Original counterparts of the Credit Agreement
executed by the Agent and the Borrowers and one hundred twenty
original A Notes dated December 20, 1996 executed by the respective
Borrowers, consisting of one A Note executed severally by each
Borrower payable to each Bank ("Executed Notes").
(2) The documents furnished by the Borrowers pursuant to
Section 3.01 of the Credit Agreement.
(3) The Certificate of Incorporation of each Borrower and
all amendments thereto (the "Charter" of such Borrower).
(4) The by-laws of each Borrower and all amendments
thereto (the "By-laws" of such Borrower).
(5) Certificates of the Secretary of State of the State
of Delaware, dated December ___, 1996, attesting to the continued
corporate existence and good standing of each of the Borrowers in that
State.
<PAGE> 98
December 20, 1996
Page 2
I have also examined the originals, or copies certified to my satisfaction, of
such corporate records of the Borrowers, certificates of public officials and
of officers of the Borrowers, and agreements, instruments, and other documents,
as I have deemed necessary as a basis for the opinions expressed below. As to
questions of fact material to such opinions, I have, when relevant facts were
not independently established by me, relied upon certificates of officers of
the Borrowers or of public officials. I have assumed (i) the genuineness of
all signatures of the Banks and the Agent, (ii) the capacity of the signing
officers of each of the Banks and the Agent, (iii) the authenticity of all
documents submitted to me as original and the conformity with the authentic
originals of all documents submitted to me as copies and (iv) the due execution
and delivery, pursuant to due authorization, of the Credit Agreement by the
Banks and the Agent and the enforceability (subject to limitations on
enforceability of the types referred to in paragraphs (a) through (c) of this
opinion) of the Credit Agreement against the Banks and the Agent.
Based upon the foregoing and upon such investigation as I have deemed
necessary, I am of the following opinion:
(1) Each of the Borrowers is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
(2) The execution, delivery, and performance by each
Borrower of the Credit Agreement, the Executed Notes executed by such
Borrower, and the Notes to be executed by such Borrower and the
consummation of the transactions contemplated by the Credit Agreement
are within such Borrower's corporate powers, have been duly authorized
by all necessary corporate action, do not contravene (i) the Charter
or the By-laws of such Borrower or (ii) any law, rule, or regulation
applicable to such Borrower (including, without limitation, Regulation
X of the Board of Governors of the Federal Reserve System) or (iii)
any contractual or legal restriction and will not result in or require
the creation or imposition of any Lien prohibited by the Credit
Agreement. With respect to the Notes to be executed after the date
hereof by any Borrower, this opinion is limited to law, the Charter
and By-laws of such Borrower and restrictions in effect on the date
hereof. The Credit Agreement has been duly executed and delivered by
each of the Borrowers and each of the Executed Notes has been duly
executed and delivered by the appropriate Borrower. Each Borrower has
duly executed and delivered to the Agent an A Note payable to each
Bank.
(3) No authorization, approval, or other action by, and
no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery, and performance by
any of the Borrowers of the Credit Agreement and the respective Notes
or the consummation of the transactions contemplated by the Credit
Agreement except in the case of such performance (A) for such
authorizations, approvals, actions, notices, and filings which have
been made or obtained and (B) such authorizations, approvals, actions,
notices, and filings that are required by the terms of the Credit
Agreement (such as filings made under the Securities Exchange Act of
1934) which would not customarily be made or obtained prior to the
time when they are required.
(4) Each of the Executed Notes executed by, and the other
Notes when funded and when executed and delivered by a Borrower and
the Credit Agreement constitute a legal, valid
<PAGE> 99
December 20, 1996
Page 3
and binding obligation of such Borrower enforceable against such
Borrower in accordance with its respective terms.
(5) Except as set forth in the Public Filings, to my
knowledge there are no pending or overtly threatened actions or
proceedings against any Borrower or any of its Subsidiaries before any
court, governmental agency or arbitrator that purport to affect the
legality, validity, binding effect, or enforceability of the Credit
Agreement or any of the Notes or that could reasonably be expected to
have a materially adverse effect upon the financial condition or
operations of such Borrower and its Subsidiaries, taken as a whole.
(6) No Borrower is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. No Borrower is a "holding
company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company," or of a "subsidiary company" of a
"holding company," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(7) In any action or proceeding arising out of or
relating to the Credit Agreement or any of the Notes in any court of
the State of Oklahoma or in any Federal court sitting in the State of
Oklahoma, assuming proper venue, jurisdiction, and a full and proper
presentation of the issue and the law to the court, assuming such
action or proceeding is not dismissed on the basis of an inconvenient
forum and assuming that the court properly applies Oklahoma law, such
court would recognize and give effect to the provisions of Section
8.07 of the Credit Agreement, and construe the Credit Agreement and
the Notes in accordance with the internal laws of the State of New
York. Subject to the foregoing and without limiting the generality
thereof, a court of the State of Oklahoma or a Federal court sitting
in the State of Oklahoma would apply the usury law of the State of New
York, and would not apply the usury law of the State of Oklahoma, to
the Credit Agreement and the Notes. However, if a court were to hold
that the Credit Agreement or any of the Notes are governed by, or to
be construed in accordance with, the laws of the State of Oklahoma,
the Credit Agreement, the Executed Notes, and the other Notes, when
executed, delivered and funded, would be, under the laws of the State
of Oklahoma, legal, valid and binding obligations of the Borrower
signatory thereto enforceable against such Borrower in accordance with
their respective terms.
(8) In any action or proceeding arising out of or
relating to the Credit Agreement or any of the Notes in any court of
the State of Utah or in any Federal court sitting in the State of
Utah, assuming proper venue, jurisdiction and a full and proper
presentation of the issue and the law to the court, assuming such
action or proceeding is not dismissed on the basis of an inconvenient
forum and assuming the court properly applies Utah law, such court
would recognize and give effect to the provisions of Section 8.07 of
the Credit Agreement wherein the parties thereto agree that the Credit
Agreement and the Notes shall be governed by, and construed in
accordance with, the laws of the State of New York. Subject to the
foregoing and without limiting the generality thereof, a court of the
State of Utah or a Federal court sitting in the State of Utah would
apply the usury law of the State of New York, and would not apply the
usury law of the State Utah to the Credit Agreement and the Notes.
However, if a court were to hold that the Credit Agreement or any of
the Notes are governed by, or to be construed in
<PAGE> 100
December 20, 1996
Page 4
accordance with, the laws of the State of Utah, the Credit Agreement,
the Executed Notes and other Notes, when executed, delivered and
funded, would be, under the laws of the State of Utah, legal, valid
and binding obligations of the Borrower signatory thereto enforceable
against such Borrower in accordance with their respective terms.
The opinions set forth above are subject to the following qualifications:
(a) My opinions in paragraph 4 above and my opinion in
the last sentence of each of paragraph 7 and paragraph 8 above are
subject, insofar as enforceability is concerned, to the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar law affecting creditors' rights and
remedies generally.
(b) My opinions in paragraph 4 above and my opinion in
the last sentence of each of paragraph 7 and paragraph 8 above are
subject, insofar as enforceability is concerned, to the effect of
general principles of equity including principles of commercial
reasonableness, good faith, and fair dealing (regardless of whether
considered in a proceeding in equity or at law).
(c) I express no opinion with respect to the
enforceability of any of the following: indemnification provisions to
the extent same are violative of federal or state securities laws,
rules, or regulations or of public policy, clauses waiving right to
trial by jury, exculpation clauses, or clauses granting offset rights
to the Banks or against any deposits or in respect of matured claims,
clauses relating to recovery of attorney's fees in connection with the
enforcement of obligations, clauses relating to release of unmatured
claims, integration clauses to the effect that no representation was
made other than as appears in the Credit Agreement, clauses purporting
to waive unmatured rights, representations, warranties or affirmative
or negative covenants to the extent such representations, warranties,
or covenants can be construed to be independent clauses which purport
to be legal, valid, binding, and enforceable by themselves, as
distinguished from being clauses that trigger an event of default, and
severability and similar clauses, and clauses that incorporate by
reference a document or instrument or agreement not in existence on
the date hereof to the extent that any such document, instrument, or
agreement is the basis of an effort to enforce the Notes or Credit
Agreement, insofar as any of the foregoing are contained in the Credit
Agreement or the Notes.
(d) I express no opinion as to the effect on the opinions
herein stated of compliance or non-compliance by any Bank with any
applicable state, federal, or other laws or regulations applying only
to banks, or the legal or regulatory status of any Bank.
(e) My opinion in paragraph 4 above and my opinion in
each of paragraph 7 and paragraph 8 above assumes (i) application of
New York law would not be found to be contrary to a fundamental policy
of a state with a materially greater interest in determining the
question presented and the laws of which would govern in absence of an
effective choice of law, (ii) Citibank, N.A. has a place of business
located in the State of New York, and (iii) the Borrowers are required
to perform a part of their respective obligations relating to the
transaction contemplated by the Credit Agreement, such as delivery of
payment, in the State of New York.
<PAGE> 101
December 20, 1996
Page 5
(f) I am admitted to practice law in the State of
Oklahoma and the State of New York, and, accordingly, the opinions
expressed herein are based upon and limited exclusively to the laws of
the State of Oklahoma, the laws of the State of New York, the General
Corporation Law of the State of Delaware and the laws of the United
States of America insofar as any of such laws are applicable, and I
render no opinion with respect to any other laws except the laws of
Utah, insofar as such laws are applicable to the matters opined upon
herein. In giving the opinions expressed herein as to the laws of the
State of Utah, I have, with your approval and without independent
investigation, relied solely upon attorneys acting under my
supervision admitted to practice law in that State.
(g) My opinion in paragraph 1 above as to the due
qualification and good standing of the Borrowers in based solely on
certificates, dated as of December __, 1996, from the Secretary of
State of the State of Delaware certifying as to such matters.
This opinion is solely for the benefit of the Banks, the Agent, their
respective successors, assigns, participants, and other transferees and counsel
for the Persons referred to in this sentence, and may be relied upon only by
such Persons and such counsel. This opinion speaks as of its date, and I
undertake no, and hereby expressly disclaim any, duty to advise you as to any
changes of fact or law coming to my attention after the date hereof.
Very truly yours,
William G. von Glahn
<PAGE> 102
EXHIBIT D
December 20, 1996
To each of the Banks party to
the Credit Agreement described
below and to Citibank, N.A., as Agent
Ladies and Gentlemen:
We have acted as special counsel to Citibank, N.A., acting for itself and as
Agent, in connection with the preparation, execution and delivery of the
Amended and Restated Credit Agreement, dated as of December 20, 1996 (the
"Credit Agreement"), among The Williams Companies, Inc., Williams Holdings of
Delaware, Inc., Northwest Pipeline Corporation, Transcontinental Gas Pipe Line
Corporation, Texas Gas Transmission Corporation, Williams Pipe Line Company,
each a Delaware corporation (collectively, the "Borrowers"), and each of you.
Terms defined in the Credit Agreement are used herein as therein defined.
In that connection, we have examined the following documents:
(1) Counterparts of the Credit Agreement, executed
by the Agent and the Borrowers, respectively.
(2) The documents furnished by the Borrowers
pursuant to Section 3.01 of the Credit Agreement and listed on
Annex A hereto, including the opinion of William G. von Glahn
("Opinion").
In our examination of the documents referred to above, we have assumed the
authenticity of all such documents submitted to us as originals, the
genuineness of all signatures and the conformity to the originals of all such
documents submitted to us as copies. We have also assumed the accuracy of all
matters set forth in the certificates referred to on Annex A hereto and assumed
that each of the Borrowers, the Banks and the Agent has duly executed and
delivered, with all necessary power and authority (corporate and otherwise),
the Credit Agreement and that each of the Borrowers has duly executed and
delivered, with all necessary power and authority (corporate and otherwise),
the respective A Notes. We have also assumed that no Bank has requested that
the opinion required by Section 3.01(d) of the Credit Agreement contain any
matter not contained in the form of opinion set forth as Exhibit C to the
Credit Agreement.
Based upon the foregoing examination of documents and assumptions and upon such
other investigation as we have deemed necessary, we are of the opinion that the
Opinion and the other documents referred to in item (2) above are substantially
responsive to the requirements of the Credit Agreement.
<PAGE> 103
This opinion is solely for the benefit of the Banks, the Agent, their
respective successors, assigns, participants and other transferees and may be
relied upon only by such Persons.
Very truly yours,
Bracewell & Patterson, L.L.P.
<PAGE> 104
ANNEX A
(1) The respective A Notes dated December 20, 1996 of each of the
Borrowers payable to the order of the respective Banks.
(2) Certified copies of resolutions of the Board of Directors of each
Borrower pertaining to the Credit Agreement and the respective A Notes
of such Borrower.
(3) A certificate of the Secretary or an Assistant Secretary of each
Borrower certifying the name and the signature of an officer of such
Borrower authorized to sign the Credit Agreement and the respective A
Notes of such Borrower and certifying copies of the Certificate of
Incorporation and Bylaws of such Borrower.
(4) The opinion of William G. von Glahn, Esq., substantially in the form
of Exhibit C to the Credit Agreement.
<PAGE> 105
EXHIBIT E
RESTRICTIONS DESCRIBED IN
PARAGRAPH 5.02(d) OF THE CREDIT AGREEMENT
1. Transco Energy Company Indenture dated as of May 1, 1990, as amended
by the First Supplemental Indenture dated as of June 20, 1990, the
Second Supplemental Indenture dated as of November 29, 1990, the Third
Supplemental Indenture dated as of April 23, 1991, the Fourth
Supplemental Indenture dated as of August 22, 1991 and the Fifth
Supplemental Indenture dated as of May 1, 1995, which has been assumed
by The Williams Companies, Inc. as of May 1, 1995.
2. Northwest Pipeline Corporation Note Purchase Agreement dated as of
April 15, 1982.
3. Northwest Pipeline Corporation Debenture Agreement dated as of June 6,
1986.
4. Northwest Pipeline Corporation Indenture dated as of November 15,
1988.
5. Northwest Pipeline Corporation Senior Indenture dated as of August 1,
1992.
6. Texas Gas Transmission Corporation Indenture dated as of July 1, 1992.
7. Texas Gas Transmission Corporation Indenture dated as of April 11,
1994.
8. Transcontinental Gas Pipeline Corporation Indenture dated as of June
1, 1983, as amended by the First Supplemental Indenture dated as of
September 20, 1984, the Second Supplemental Indenture dated as of May
31, 1985, the Third Supplemental Indenture dated as of December 3,
1985, the Fourth Supplemental Indenture dated as of November 7, 1986,
the Fifth Supplemental Indenture dated as of January 15, 1987 and the
Sixth Supplemental Indenture dated as of September 15, 1987.
9. Transcontinental Gas Pipeline Corporation Indenture dated as of
September 15, 1992.
10. Williams Natural Gas Company $130,000,000 Credit Agreement dated as of
November 14, 1994.
11. Williams Pipe Line Company Senior Note Agreement dated July 28, 1986.
12. Williams Pipe Line Company Senior Note Agreement dated July 13, 1990.
13. Kern River Funding Corporation Trust Indenture dated as of March 15,
1996.
<PAGE> 106
EXHIBIT F
TRANSFER AGREEMENT
This Transfer Agreement dated as of ________________ (this
"Agreement"), is made by and among The Williams Companies, Inc. ("TWC"),
Williams Holdings of Delaware, Inc. ("WHD"), Northwest Pipeline Corporation
("NWP"), Transcontinental Gas Pipe Line Corporation ("TGPL"), Texas Gas
Transmission Corporation ("TGT"), Williams Pipe Line Company ("WPL"), each a
Delaware corporation (TWC, WHD, NWP, TGPL, TGT and WPL being each a "Borrower"
and collectively, the "Borrowers"), Citibank, N.A., as Agent for the banks
party to the Amended and Restated Credit Agreement dated as of December 20,
1996 (as may be amended from time to time, the "Credit Agreement") among the
Borrowers, such Agent and such banks, __________________ ("Assignor") and
___________________ ("Assignee"). In consideration of the mutual covenants
herein contained, the parties hereto agree as set forth herein.
1. Transfer. Pursuant to the last sentence of Section 8.06(a) of the
Credit Agreement, Assignor hereby assigns to Assignee (without representation
or warranty to Assignee and without Assignee having recourse against Assignor
as a result of such assignment), and Assignee hereby assumes, a constant _____%
of each of the Assignor's Commitments (such term used throughout this Agreement
without giving effect to any B Reduction) to each of the Borrowers under the
Credit Agreement, such assignment from Assignor to Assignee being [all of
Assignor's Commitments to each of the Borrowers] [(a) $__________ of Assignor's
$__________ Commitment to TWC, (b) $____________ of Assignor's Commitment to
WHD, (c) $__________ of Assignor's $__________ Commitment to NWP, (d)
$__________ of Assignor's $__________ Commitment to TGPL, (e) $__________
Assignor's $___________ Commitment to TGT, and (f) $__________ of Assignor's
$__________ Commitment to WPL, (the amount of each such Commitment to a
Borrower so assigned is called the "Assigned Portion" of such Commitment).
[The Assignee is already a Bank under the Credit Agreement with a Commitment of
$_________, $________, $________, $________, $__________ and $________, to TWC,
WHD, NWP, TGPL, TGT and WPL, respectively, prior to the assumption contemplated
hereby.] [The Assignee is hereby approved by the Agent [and the Borrowers] for
purposes of the assignment and assumption contemplated hereby.] As
contemplated by such Section 8.06, it is hereby agreed that:
(i) the Assignor is hereby released from all of its obligations
under the Credit Agreement with respect to or arising as a
result of the Assigned Portions of its Commitments assigned
hereby;
(ii) the Assignee hereby becomes obligated for the Assigned
Portions of such Commitments and all other obligations of
the Assignor (including, without limitation, obligations to
the Agent under Section 7.05 of the Credit Agreement or
otherwise) under the Credit Agreement with respect to or
arising as a result of the Assigned Portions of such
Commitments;
(iii) the Assignee is hereby assigned the right to vote or consent
under the Credit Agreement and the other rights and
obligations of the Assignor under the Credit Agreement, in
each case to the extent of the Assigned Portions of such
Commitments;
(iv) TWC, contemporaneously with its execution and delivery
hereof, will deliver, in replacement of the A Note of the
Assignor currently outstanding [(and in replacement
<PAGE> 107
of Assignee's existing $____________ A Note)] (a) to the
Assignee, a new A Note in the amount of $__________, [(and
the Assignee agrees to cancel and return to TWC, with
reasonable promptness following such delivery, the A Note of
the Assignee being replaced thereby)] (b) to the Assignor, a
new A Note in the amount of $____________ (and the Assignor
agrees to cancel and return to TWC, with reasonable
promptness following delivery of such new A Note, the A Note
of the Assignor being replaced thereby), and (c) to the
Agent, photocopies of all such new A Notes and of all such
cancelled A Notes;
(v) WHD, contemporaneously with its execution and delivery
hereof, will deliver, in replacement of the A Note of the
Assignor currently outstanding [(and in replacement of
Assignee's existing $____________ A Note)] (a) to the
Assignee, a new A Note in the amount of $__________, [(and
the Assignee agrees to cancel and return to WHD, with
reasonable promptness following such delivery, the A Note of
the Assignee being replaced thereby)] (b) to the Assignor, a
new A Note in the amount of $____________ (and the Assignor
agrees to cancel and return to WHD, with reasonable
promptness following delivery of such new A Note, the A Note
of the Assignor being replaced thereby), and (c) to the
Agent, photocopies of all such new A Notes and of all such
cancelled A Notes;
(vi) NWP, contemporaneously with its execution and delivery
hereof, will deliver, in replacement of the A Note of the
Assignor currently outstanding [(and in replacement of
Assignee's existing $____________ A Note)] (a) to the
Assignee, a new A Note in the amount of $__________, [(and
the Assignee agrees to cancel and return to NWP, with
reasonable promptness following such delivery, the A Note of
the Assignee being replaced thereby)] (b) to the Assignor, a
new A Note in the amount of $____________ (and the Assignor
agrees to cancel and return to NWP, with reasonable
promptness following delivery of such new A Note, the A Note
of the Assignor being replaced thereby), and (c) to the
Agent, photocopies of all such new A Notes and of all such
cancelled A Notes;
(vii) TGPL, contemporaneously with its execution and delivery
hereof, will deliver, in replacement of the A Note of the
Assignor currently outstanding [(and in replacement of
Assignee's existing $____________ A Note)] (a) to the
Assignee, a new A Note in the amount of $__________, [(and
the Assignee agrees to cancel and return to TGPL, with
reasonable promptness following such delivery, the A Note of
the Assignee being replaced thereby)] (b) to the Assignor, a
new A Note in the amount of $____________ (and the Assignor
agrees to cancel and return to TGPL, with reasonable
promptness following delivery of such new A Note, the A Note
of the Assignor being replaced thereby), and (c) to the
Agent, photocopies of all such new A Notes and of all such
cancelled A Notes;
(viii) TGT, contemporaneously with its execution and delivery
hereof, will deliver, in replacement of the A Note of the
Assignor currently outstanding [(and in replacement of
Assignee's existing $____________ A Note)] (a) to the
Assignee, a new A Note in the amount of $__________, [(and
the Assignee agrees to cancel and return to TGT, with
reasonable promptness following such delivery, the A Note of
the Assignee being replaced thereby)] (b) to the Assignor, a
new A Note in the amount of $____________ (and the Assignor
agrees to cancel and return to TGT, with reasonable
promptness following delivery of such new A Note, the A Note
of the Assignor being replaced
-2-
<PAGE> 108
thereby), and (c) to the Agent, photocopies of all such new
A Notes and of all such cancelled A Notes;
(ix) WPL, contemporaneously with its execution and delivery
hereof, will deliver, in replacement of the A Note of the
Assignor currently outstanding [(and in replacement of
Assignee's existing $____________ A Note)] (a) to the
Assignee, a new A Note in the amount of $__________, [(and
the Assignee agrees to cancel and return to WPL, with
reasonable promptness following such delivery, the A Note of
the Assignee being replaced thereby)] (b) to the Assignor, a
new A Note in the amount of $____________ (and the Assignor
agrees to cancel and return to WPL, with reasonable
promptness following delivery of such new A Note, the A Note
of the Assignor being replaced thereby), and (c) to the
Agent, photocopies of all such new A Notes and of all such
cancelled A Notes;
[(x) in as much as there are currently no outstanding A Advances,
no transfer of A Advances is hereby made];
[(x) $____________, $____________, $____________, $_____________,
$__________ and $____________, of the Assignor's outstanding
A Advances to TWC, WHD, NWP, TGPL, TGT and WPL,
respectively, are hereby transferred to the Assignee, which
amounts represent [the aggregate amount of all of the
Assignor's outstanding A Advances to TWC, WHD, NWP, TGPL,
TGT and WPL, respectively,] [the amount of the assigned
portions of the outstanding A Advances of the Assignor to
TWC, WHD, NWP, TGPL, TGT and WPL, respectively, there being
hereby assigned to Assignee a portion of each such A Advance
with the assigned portion of each such A Advance being equal
to the amount of such A Advance multiplied by a fraction,
the numerator of which is the amount of the Assignor's
Commitments assumed hereby by the Assignee and the
denominator of which is the amount of the Assignor's
Commitments (without giving effect to any B Reduction)
immediately prior to such assumption]; [and]
(xi) the Assignee hereby confirms that it is a party to the
Credit Agreement as a Bank and agrees that after giving
effect to this Agreement its Commitments will be
$____________, $____________, $____________________,
$____________, $_____________ and $____________, to TWC,
WHD, NWP, TGPL, TGT and WPL; [and]
[(xii) the Assignee hereby specifies the following offices as its
Applicable Lending Offices under the Credit Agreement:
<TABLE>
<CAPTION>
Domestic Eurodollar
Lending Office Lending Office
-------------- --------------
<S> <C>
----------------------------- -------------------------
Attention: Attention:
------------------ --------------
Telephone: Telephone:
------------------ --------------
Telecopy: Telecopy:
------------------- --------------
Telex: Telex:
---------------------- ------------------
Answerback: Answerback:
----------------- -------------
</TABLE>
-3-
<PAGE> 109
[(xiii) the Assignee hereby specifies the following as its address
for notices and communications under the Credit Agreement:
<TABLE>
<CAPTION>
[Assignee]
<S> <C>
-----------------------------
Attention:
------------------
Telephone:
------------------
Telecopy:
-------------------
Telex:
----------------------
Answerback:
-----------------
</TABLE>
2. Miscellaneous.
2.1 Amendments, Etc. This Agreement shall not be amended,
waived or otherwise modified except in writing executed by the parties hereto.
2.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
2.3 Definitions. Capitalized terms used herein which are
defined in the Credit Agreement and not defined herein are used herein as
defined in the Credit Agreement.
2.4. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
2.5. Effective Date. This Agreement shall be effective as of
the date first above written for purposes of computation of commitment fees
under the Credit Agreement and for all other relevant purposes.
2.6. Assignee Credit Decision. The Assignee acknowledges that
it has, independently and without reliance upon the Agent or any other Bank and
based on such financial statements and such other documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. The Assignee also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
any Note, the Credit Agreement or this Agreement.
2.7. Indemnity. The Assignee agrees to indemnify and hold the
Assignor harmless against any and all losses, costs and expenses (including
without limitation reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's
performance or non-performance of obligations assumed by Assignee under this
Agreement.
-4-
<PAGE> 110
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
<TABLE>
<CAPTION>
THE WILLIAMS COMPANIES, INC. NORTHWEST PIPE LINE CORPORATION
<S> <C>
By: By:
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- -------------------------
TRANSCONTINENTAL GAS TEXAS GAS TRANSMISSION
PIPE LINE CORPORATION CORPORATION
By: By:
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- -------------------------
WILLIAMS PIPE LINE COMPANY WILLIAMS HOLDINGS OF DELAWARE, INC.
By: By:
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- -------------------------
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By: By:
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- -------------------------
CITIBANK, N.A., as Agent
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
</TABLE>
-5-
<PAGE> 1
EXHIBIT 11
THE WILLIAMS COMPANIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- ---------- --------
(THOUSANDS, EXCEPT PER-SHARE
AMOUNTS)
<S> <C> <C> <C>
Primary earnings:
Income from continuing operations......................... 362,300 299,400 164,900
Preferred stock dividends:
$2.21 cumulative preferred stock....................... 1,600 6,000 8,800
$3.50 cumulative convertible preferred stock........... 8,800 5,800 --
Effect of preferred stock exchange..................... -- 3,500 --
-------- ---------- --------
Income from continuing operations, net of preferred stock
dividends.............................................. 351,900 284,100 156,100
Income from discontinued operations....................... -- 1,018,800 94,000
-------- ---------- --------
Income before extraordinary loss, net of preferred stock
dividends.............................................. 351,900 1,302,900 250,100
Extraordinary loss........................................ -- -- (12,200)
-------- ---------- --------
Income applicable to common stock......................... 351,900 1,302,900 237,900
======== ========== ========
Primary shares:
Average number of common shares outstanding during the
period................................................. 157,079 148,069 151,853
Common-equivalent shares attributable to options and
deferred stock......................................... 5,039 5,000 1,851
-------- ---------- --------
Total common and common-equivalent shares................. 162,118 153,069 153,704
======== ========== ========
Primary earnings per common and common-equivalent share:
Income from continuing operations......................... $ 2.17 $ 1.86 $ 1.02
Income from discontinued operations....................... -- 6.65 .61
-------- ---------- --------
Income before extraordinary loss.......................... 2.17 8.51 1.63
Extraordinary loss........................................ -- -- (.08)
-------- ---------- --------
Net income........................................ $ 2.17 $ 8.51 $ 1.55
======== ========== ========
Fully diluted earnings:
Income from continuing operations......................... 362,300 299,400 164,900
Preferred stock dividends:
$2.21 cumulative preferred stock....................... 1,600 6,000 8,800
Effect of preferred stock exchange..................... -- 3,500 --
-------- ---------- --------
Income from continuing operations, net of preferred stock
dividends.............................................. 360,700 289,900 156,100
Income from discontinued operations....................... -- 1,018,800 94,000
-------- ---------- --------
Income before extraordinary loss, net of preferred stock
dividends.............................................. 360,700 1,308,700 250,100
Extraordinary loss..................................... -- -- (12,200)
-------- ---------- --------
Income applicable to common stock......................... 360,700 1,308,700 237,900
======== ========== ========
Fully diluted shares:
Average number of common shares outstanding during the
period................................................. 157,079 148,069 151,853
Common-equivalent shares attributable to options and
deferred stock......................................... 5,260 5,278 1,900
Dilutive preferred shares................................. 5,860 3,933 --
-------- ---------- --------
Total common and common-equivalent shares................. 168,199 157,280 153,753
======== ========== ========
Fully diluted earnings per common and common-equivalent
share:
Income from continuing operations...................... $ 2.14 $ 1.84 $ 1.02
Income from discontinued operations.................... -- 6.48 .61
-------- ---------- --------
Income before extraordinary loss....................... 2.14 8.32 1.63
Extraordinary loss..................................... -- -- (.08)
-------- ---------- --------
Net income........................................ $ 2.14 $ 8.32 $ 1.55
======== ========== ========
</TABLE>
Note: Share and per-share amounts have been restated to reflect the effect of
the December 30, 1996, 3-for-2 common stock split and distribution.
II-4
<PAGE> 1
EXHIBIT 12
THE WILLIAMS COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations before
income taxes.............................. $545.4 $401.4 $246.6 $298.0 $145.5
Add:
Interest expense -- net...................... 353.0 263.4 139.8 140.8 136.5
Rental expense representative of interest
factor.................................... 27.7 26.9 9.2 8.1 8.3
Preferred dividends of subsidiaries.......... -- 3.7 -- -- .3
Interest accrued -- 50% owned company........ 1.3 30.7 31.7 31.3 27.3
Minority interest expense.................... -- 10.0 -- -- --
Other........................................ 4.2 5.5 2.0 4.1 .4
------ ------ ------ ------ ------
Total earnings as adjusted plus fixed
charges............................ $931.6 $741.6 $429.3 $482.3 $318.3
====== ====== ====== ====== ======
Combined fixed charges and preferred stock
dividend requirements:
Interest expense -- net...................... $353.0 $263.4 $139.8 $140.8 $136.5
Capitalized interest......................... 6.9 14.5 6.0 10.4 8.9
Rental expense representative of interest
factor.................................... 27.7 26.9 9.2 8.1 8.3
Pretax effect of dividends on preferred stock
of the Company............................ 16.2 18.0 13.1 19.1 19.4
Pretax effect of dividends on preferred stock
of subsidiaries........................... -- 5.8 -- -- .4
Interest accrued -- 50% owned company........ 1.3 30.7 31.7 31.3 27.3
------ ------ ------ ------ ------
Combined fixed charges and preferred
stock dividend requirements........ $405.1 $359.3 $199.8 $209.7 $200.8
====== ====== ====== ====== ======
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements........ 2.30 2.06 2.15 2.30 1.59
====== ====== ====== ====== ======
</TABLE>
II-5
<PAGE> 1
EXHIBIT 21
THE WILLIAMS COMPANIES, INC. & AFFILIATES
March 24, 1997
<TABLE>
<CAPTION>
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- ---------
<S> <C> <C>
THE WILLIAMS COMPANIES, INC. ............................................. Delaware
KERN RIVER ACQUISITION CORPORATION.................................... Delaware 100%
Kern River Gas Transmission Company.............................. Texas (Partnership) 49.9%
Kern River Funding Corporation.............................. Delaware 100%
NORTHWEST PIPELINE CORPORATION........................................ Delaware 100%
Apco Liquidating Trust........................................... Delaware 35.33%
NWP Enterprises, Inc............................................. Delaware 100%
TEXAS GAS TRANSMISSION CORPORATION.................................... Delaware 100%
TGT Enterprises, Inc............................................. Delaware 100%
TRANSCONTINENTAL GAS PIPE LINE CORPORATION............................ Delaware 100%
Cardinal Operating Company....................................... Delaware 100%
Pine Needle Operating Company.................................... Delaware 100%
TGPL Enterprises, Inc........................................... Delaware 100%
TransCardinal Company........................................... Delaware 100%
TransCarolina LNG Company........................................ Delaware 100%
WGP Enterprises, Inc............................................. Delaware 100%
WILLIAMS HOLDINGS OF DELAWARE, INC.................................... Delaware 100%
Apco Argentina Inc. ............................................. Cayman Islands 64.51%
Apco Properties Ltd. ....................................... Cayman Islands 100%
Beech Grove Processing Company................................... Tennessee 100%
Inland Ports, Inc................................................ Tennessee 100%
Langside Limited................................................. Bermuda 100%
Longhorn Enterprises of Texas, Inc.............................. Delaware 100%
Northwest Exploration Company.................................... Delaware 100%
Realco Realty Corp. ............................................. Delaware 100%
Realco of Crown Center, Inc. ............................... Delaware 100%
Realco of San Antonio, Inc. ................................ Delaware 100%
Realco Realty Developments, Inc. ........................... Delaware 100%
The Tennessee Coal Company....................................... Delaware 100%
Williams Communications Group, Inc............................... Delaware 100%
Global Access Telecommunications Services, Inc.............. Delaware 100%
Technologies Acquisition Corporation........................ Missouri 100%
Vyvx, Inc. ................................................. Delaware 100%
Global Access Telecommunications Services, Inc......... Massachusetts 100%
Vyvx of Virginia, Inc.................................. Virginia 100%
WCG Teleservices, Inc....................................... Delaware 100%
WCS Communications Systems, Inc............................. Delaware 100%
Williams Learning Network, Inc. ............................ Delaware 100%
Williams Telecommunications Systems, Inc.................... Delaware 100%
WCS, Inc.............................................. Delaware 100%
WCS Microwave Services, Inc........................... Nevada 100%
Williams Wireless, Inc...................................... Delaware 100%
WilTech Cable Television Services, Inc...................... Delaware 100%
CVS Partners........................................... Delaware 25%
WilTel Financial Corporation................................ Delaware 100%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Percent
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- ---------
<S> <C> <C>
Transco Energy Company .......................................... Delaware 100%
Energy Tech, Inc............................................ Delaware 100%
Gasco Insurance Company Limited............................. Bermuda 100%
Hazleton Fuel Management Company............................ Delaware 100%
Hazleton Pipeline Company.............................. Delaware 100%
TM Cogeneration Company................................ Delaware 100%
Transco Coal Gas Company.................................... Delaware 100%
Transco Energy Investment Company........................... Delaware 100%
Transco Exploration Company................................. Delaware 100%
Transco Gas Company......................................... Delaware 100%
Border Gas, Inc........................................ Delaware 10%
Liberty Operating Company.............................. Delaware 100%
NESP Supply Corp....................................... Delaware 33.33%
Transco Liberty Pipeline Company....................... Delaware 100%
Transeastern Gas Pipeline Company, Inc................. Delaware 100%
Transco P-S Company......................................... Delaware 100%
Transco Resources, Inc...................................... Delaware 100%
Magnolia Methane Corp.................................. Delaware 100%
Tubexpress, Inc........................................ Delaware 50%
Transco Terminal Company.................................... Delaware 100%
Transco Tower Realty, Inc................................... Delaware 100%
Tulsa Williams Company........................................... Delaware 100%
Valley View Coal, Inc............................................ Tennessee 100%
WHD Enterprises, Inc............................................. Delaware 100%
Willco, Inc. .................................................... Delaware 100%
Williams Acquisition Holding Company, Inc........................ Delaware 100%
Williams Acquisition Holding Company, Inc........................ New Jersey 100%
Agrico Foreign Sales Corporation............................ Guam 100%
Fishhawk Ranch, Inc. ....................................... Florida 100%
Reserveco Inc. ............................................. Delaware 15%
Williams Aircraft, Inc........................................... Delaware 100%
Williams Energy Company.......................................... Delaware 100%
Williams Energy Group ........................................... Delaware 100%
Williams Energy Group Services, Inc......................... Delaware 100%
Williams Energy Ventures, Inc............................... Delaware 100%
Nebraska Energy, L.L.C................................. Kansas 71%
Wiljet, LLC............................................ Arizona 50%
Williams Ethanol Production Company.................... Delaware 100%
Pekin Energy Company.............................. Illinois (General Partnership) 99%
Williams Ethanol Services, Inc......................... Delaware 100%
Pekin Energy Company.............................. Illinois (General Partnership) 1%
Williams Field Services Group, Inc.......................... Delaware 100%
Carbon County UCG, Inc................................. Delaware 100%
Trans-Jeff Chemical Corporation........................ Delaware 100%
WFS Enterprises, Inc. ................................ Delaware 100%
Williams Field Services - Gulf Coast Company, L.P. Delaware 99%
WFS - Gas Gathering Company............................ Delaware 100%
WFS - Offshore Gathering Company.................. Delaware 100%
WFS - Pipeline Company............................ Delaware 100%
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Percent
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- ---------
<S> <C> <C>
WFS Investment Co...................................... Delaware 100%
WFS - Liquids Company.................................. Delaware 100%
HI-BOL Pipeline Company........................... Delaware 100%
WFS Management Co...................................... Delaware 100%
WFS - Nuval Gathering Co. ............................. Delaware 100%
WFS - OCS Gathering Co. ............................... Delaware 100%
WFS - Power Services Company........................... Delaware 100%
Energy International Corporation.................. Pennsylvania 100%
WFS - Production Services Company...................... Delaware 100%
Williams CNG Company................................... Delaware 100%
Williams Field Services Company........................ Utah 100%
Williams Field Services - Gulf Coast Company, L.P. Delaware 1%
Williams Gas Processing - Blanco, Inc.................. Delaware 100%
Williams Gas Processing Company........................ Delaware 100%
Williams Gas Processing - Kansas Hugoton Company....... Delaware 100%
Williams Gas Processing - Mid-Continent Region
Company........................................... Delaware 100%
Williams Gas Processing - Wamsutter Company............ Delaware 100%
Williams Power Company ................................ Delaware 100%
Williams Merchant Services Company, Inc..................... Delaware 100%
Williams Energy Services Company....................... Delaware 100%
Rio Bravo Energy Marketing Company L.L.C.......... Delaware 50%
Transco Energy Marketing Company.................. Delaware 100%
TXG Gas Marketing Company.................... Delaware 100%
Williams Gas Company......................... Delaware 100%
TransNetwork Holding Company...................... Delaware 100%
Altra Energy Technologies L.L.C.............. Delaware 50%
Williams Energy Network, Inc...................... Delaware 100%
F T & T, Inc. .................................... Delaware 100%
Volunteer Energy Corporation...................... Delaware 50%
Williams Pipe Line Company.................................. Delaware 100%
WillBros Terminal Company.............................. Delaware 100%
Williams Pipe Line Company of Wisconsin................ Wisconsin 100%
Williams Terminals Company............................. Delaware 100%
Williams Production Company................................. Delaware 100%
WFS Gas Resources Company.............................. Delaware 100%
Williams Production Gulf Coast Company, L.P............ Delaware 1%
WPX Enterprises, Inc........................................ Delaware 100%
Williams Production Gulf Coast Company, L.P............ Delaware 99%
Williams Energy Projects, Inc.................................... Delaware 100%
Williams Enterprises of Delaware, Inc............................ Delaware 100%
Williams Environmental Services Company.......................... Delaware 100%
Williams Exploration Company..................................... Delaware 100%
Rainbow Resources, Inc. .................................... Colorado 100%
Williams Headquarters Acquisition Company........................ Delaware 100%
Williams Headquarters Building Company........................... Delaware 100%
Parkco, L.L.C............................................... Oklahoma 50%
Williams Headquarters Management Company......................... Delaware 100%
Williams Information Services Corporation........................ Delaware 100%
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
Percent
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- ---------
<S> <C> <C>
Williams International Company................................... Delaware 100%
Williams International Australian Telecom Limited........... Cayman Islands 100%
Williams International (Bermuda) Limited.................... Bermuda 100%
Williams International El Furrial Limited................... Cayman Islands 100%
Williams International Investment Ventures (Cayman)
Limited................................................ Cayman Islands 100%
Williams International Investments (Cayman) Limited......... Cayman Islands 100%
Williams International Telecom Limited...................... Cayman Islands 100%
Williams International Ventures (Bermuda) Limited........... Bermuda 100%
Free Port Terminal Company Limited..................... Bermuda (Ltd. Partnership) 65%
Williams International Pipeline Company..................... Delaware 100%
Williams International Pipeline Company - Colombia..... Delaware 100%
Williams International Telecommunications Investments
(Cayman) Limited....................................... Cayman Islands 100%
Williams International Ventures Company..................... Delaware 100%
Williams International Indonesia Ventures Company...... Delaware 100%
Williams Learning Network (UK) Limited...................... England 100%
Williams Learning Center, Inc.................................... Delaware 100%
Williams Pipeline Services Company............................... Delaware 100%
Williams Relocation Management, Inc. ............................ Delaware 100%
Williams Sodium Products Company................................. Delaware 100%
American Soda, L.L.P........................................ Colorado 60%
Williams Underground Gas Storage Company......................... Delaware 100%
Kiowa Gas Storage, L.L.C.................................... Delaware 50%
Williams Western Holding Company, Inc. .......................... Delaware 100%
Northwest Alaskan Pipeline Company.......................... Delaware 100%
Northwest Argentina Corporation............................. Utah 100%
Northwest Border Pipeline Company........................... Delaware 100%
Northern Border Partners, L.P.......................... Delaware(Limited Partnership) 4.375%
Northern Border Intermediate Limited Partnership....... Delaware(Limited Partnership) 0.175%
Northwest Land Company...................................... Delaware 100%
WilMart, Inc. ................................................... Delaware 100%
WILLIAMS NATURAL GAS COMPANY.......................................... Delaware 100%
Williams Hugoton Compression Services, Inc....................... Delaware 100%
WILLIAMS STORAGE COMPANY.............................................. Delaware 100%
WILLIAMS WESTERN PIPELINE COMPANY..................................... Delaware 100%
Kern River Gas Transmission Company.............................. Texas (Partnership) 50%
</TABLE>
4
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements on Form S-3 and related prospectuses and in the following
registration statements on Form S-8 of The Williams Companies, Inc. of our
report dated February 10, 1997, with respect to the consolidated financial
statements and schedule of The Williams Companies, Inc. included in this Annual
Report (Form 10-K) for the year ended December 31, 1996.
Form S-3: Registration No. 33-47061; Registration No. 33-53662; Registration No.
33-49835; Registration No. 333-20929
Form S-8: Registration No. 33-2442; Registration No. 33-24322; Registration No.
33-36770; Registration No. 33-44381; Registration No. 33-40979;
Registration No. 33-45550; Registration No. 33-43999; Registration No.
33-51539; Registration No. 33-51543; Registration No. 33-51551;
Registration No. 33-51549; Registration No. 33-51547; Registration No.
33-51545; Registration No. 33-56521; Registration No. 333-03957;
Registration No. 333-11151
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 26, 1997
II-6
<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, of THE WILLIAMS COMPANIES, INC., a
Delaware corporation ("Williams"), does hereby constitute and appoint WILLIAM
G. VON GLAHN, DAVID M. HIGBEE and SHAWNA L. BARNARD 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 Williams' Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments thereto or all instruments necessary or incidental in
connection therewith; and
THAT the undersigned Williams does hereby constitute and
appoint WILLIAM G. VON GLAHN, DAVID M. HIGBEE and SHAWNA L. BARNARD 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 Form 10-K and any and all 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 26th day of January, 1997.
/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
(Principal Accounting Officer)
<PAGE> 2
Page 2
/s/ Glenn A. Cox /s/ Thomas H. Cruikshank
- ----------------------------- -----------------------------
Glenn A. Cox Thomas H. Cruikshank
Director Director
/s/ Patricia L. Higgins /s/ Robert J. LaFortune
- ----------------------------- -----------------------------
Patricia L. Higgins 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
/s/ Joseph H. Williams
------------------------
Joseph H. Williams
Director
THE WILLIAMS COMPANIES, INC.
By /s/ William G. von Glahn
-----------------------------
William G. von Glahn
ATTEST: Senior Vice President
/s/ David M. Higbee
- -------------------------------
David M. Higbee
Secretary
<PAGE> 3
I, the undersigned, SHAWNA L. BARNARD, Assistant 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 January 26, 1997, at which a quorum of
said Board was present and acting throughout, the following resolution was duly
adopted:
RESOLVED that the Chairman of the Board, the President or any
Vice President of the Company be, and each of them hereby is,
authorized and empowered to execute a Power of Attorney for use in
connection with the execution and filing, for and on behalf of the
Company, under the Securities Exchange Act of 1934, of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
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 25th day of March, 1997.
/s/ Shawna L. Barnard
--------------------------
Shawna L. Barnard
Assistant Secretary
(CORPORATE SEAL)
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 115,344
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<ALLOWANCES> (9,743)
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<CURRENT-ASSETS> 1,890,102
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161,039
<COMMON> 160,213
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<INCOME-TAX> 183,067
<INCOME-CONTINUING> 362,339
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<FN>
<F1>A 3-for-2 common stock split and distribution occurred effective December 30,
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</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<DEPRECIATION> (1,463,987)
<TOTAL-ASSETS> 10,561,201
<CURRENT-LIABILITIES> 2,093,080
<BONDS> 2,874,042
0
173,486
<COMMON> 105,337
<OTHER-SE> 2,908,275
<TOTAL-LIABILITY-AND-EQUITY> 10,561,201
<SALES> 0
<TOTAL-REVENUES> 2,855,674
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<LOSS-PROVISION> 3,767
<INTEREST-EXPENSE> 277,924
<INCOME-PRETAX> 401,360
<INCOME-TAX> 101,988
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<NET-INCOME> 1,318,177
<EPS-PRIMARY> 12.77
<EPS-DILUTED> 12.48
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