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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, 1997
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 000-20555
WILLIAMS HOLDINGS OF DELAWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 73-1455707
(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:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $1.00 par value
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 number of shares of the registrant's Common Stock outstanding at March
30, 1998, was 1,000 Shares, all of which are owned by The Williams Companies,
Inc.
The registrant meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the
reduced disclosure format.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Williams Holdings of Delaware, Inc. (the "Company") was incorporated under
the laws of the State of Delaware in 1994. 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" herein include subsidiaries of the Company. The Company is a wholly
owned subsidiary of The Williams Companies, Inc. ("Williams").
On November 24, 1997, Williams announced that it had entered into a
definitive merger agreement to acquire MAPCO Inc. ("MAPCO") in a stock-for-stock
transaction based upon a fixed exchange ratio of 1.665 shares of Williams'
Common Stock and .555 associated preferred stock purchase rights (adjusted to
reflect the Company's two-for-one stock split on December 29, 1997) for each
share of MAPCO Common Stock and associated preferred stock purchase rights.
Williams' and MAPCO's shareholders approved actions necessary to complete the
transaction at special stockholder meetings on February 26, 1998. See Note 18 to
Notes to Consolidated Financial Statements. The Federal Trade Commission
announced on March 27, 1998, that it would allow the parties to consummate the
transaction, and the parties closed the transaction on March 28, 1998.
MAPCO is a Tulsa, Oklahoma-based diversified energy company. Subsidiaries
of MAPCO engage in the transportation by pipeline of natural gas liquids
("NGLs"), anhydrous amonia, crude oil, and refined petroleum products; the
transportation by truck and rail of NGLs and refined petroleum products; the
refining of crude oil; the marketing and trading of NGLs, refined petroleum
products and crude oil; NGL storage; and the marketing of motor fuel and
merchandise through convenience store operations. MAPCO's subsidiary,
Mid-America Pipeline Company, owns and operates 7,668 miles of pipeline and
related pumping, metering, and storage facilities. Subsidiaries of MAPCO also
own and operate two petroleum products refineries, one in Alaska, which markets
approximately 44,000 barrels of refined products per day in Alaska, Canada, and
the Pacific Rim, and one in Tennessee, which markets approximately 110,000
barrels of refined products per day. MAPCO's subsidiary, Thermogas Company, is
the fourth largest propane marketer in the United States and sells propane in 18
states to more than 350,000 customers. Its MAPCO Express subsidiaries operate
approximately 230 convenience stores and travel centers primarily in Tennessee
and Alaska. MAPCO also owns subsidiaries providing fleet operators with motor
fuel and data management and providing energy-related information services.
MAPCO also holds equity investments in other businesses.
Management believes the acquisition furthers its strategy of seeking growth
through strategic acquisitions and alliances and that MAPCO's assets and
operations complement the Company's existing lines of business. Following the
acquisition, Williams intends to transfer MAPCO and its subsidiaries to the
Company, and the Company will operate the MAPCO businesses through Williams
Energy Group.
On January 5, 1998, the Williams' three-year non-compete agreement
resulting from the 1995 sale of the network services operations of its
telecommunications subsidiary expired, and Williams Communications Group, Inc.,
a subsidiary of the Company, announced plans to re-enter the long-distance
telecommunications market as a provider of wholesale communications services
over an 18,000-mile network expected to be in operation by the beginning of
1999.
In April 1997, the Company merged its wholly owned subsidiary, Williams
Telecommunications Systems, Inc. with Nortel Communications Systems, Inc., which
was a wholly owned subsidiary of Northern Telecom, Inc. The Company holds a 70
percent interest in the newly formed entity, Williams Communications Solutions,
LLC. See Note 2 of Notes to Consolidated Financial Statements.
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(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 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 marketing and trading
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 1997, the Company's energy subsidiaries owned and
operated: (i) natural gas production properties; (ii) natural gas gathering and
processing facilities; (iii) a common carrier petroleum products and crude oil
pipeline system; (iv) petroleum products terminals; and (v) ethanol production
facilities. 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) enhanced facsimile and audio- and videoconferencing services for
businesses; (v) customer-premise voice and data equipment, including
installation, maintenance, and integration; and (vi) network integration and
management services nationwide. The Company also has investments in the equity
of certain other companies.
Substantially all operations of the Company are conducted through
subsidiaries. Williams performs management, legal, financial, tax, consultative,
administrative, and other services for its subsidiaries. The Company's principal
sources of cash are from external financings, 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 the Company 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.
WILLIAMS ENERGY GROUP (WILLIAMS ENERGY)
In 1996, the Company reorganized its energy operations under a newly
created, wholly owned subsidiary, Williams Energy Group, and began reporting
such operations for financial reporting purposes on this basis in the fourth
quarter of 1996.
Williams Energy is comprised of four major business units: Exploration and
Production, Field Services, Petroleum Services, and Energy Marketing and
Trading. 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 600 Bcf* of proved natural
gas reserves located primarily in the San Juan Basin of Colorado and New Mexico
and owns or operates approximately 7,500 miles of gathering pipelines (including
certain gathering lines owned by an affiliate but operated by Field Services),
10 gas treating plants, 10 gas processing plants, 53 petroleum products
terminals, and approximately 9,100 miles of liquids pipeline. Physical and
notional volumes marketed and traded by Williams Energy's Energy Marketing and
Trading unit approximated 11,018 TBtu equivalents in 1997. In support of its
power marketing activities, Williams Energy acquired a cogeneration plant in
Hazleton, Pennsylvania, in 1997 and also owns a cogeneration plant in
northwestern New Mexico. These facilities add approximately 113 megawatts of
capacity to its portfolio. Williams Energy, through its subsidiaries, employs
approximately 2,800 employees.
Revenues and operating profit for Williams Energy by business unit are
reported in the Consolidated Financial Statements herein.
A business description of each of Williams Energy's business units 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. The term "Dth" means dekatherm. The term "Mbbl" means one thousand
barrels. The term "GWh" means gigawatt hour.
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EXPLORATION AND PRODUCTION
Williams Energy, through its wholly owned subsidiary Williams Production
Company (Williams Production), owns and operates producing natural gas leasehold
properties in the United States. In addition, Williams Production is actively
exploring for oil and gas.
Oil and gas properties. Exploration and production properties are located
primarily in the Rocky Mountains and Gulf Coast areas. Rocky Mountain properties
are located in the San Juan Basin in New Mexico and Colorado, in Wyoming, and in
Utah. Gulf Coast properties include North Louisiana, the Houma Embayment and
Transition Zone in Southern Louisiana, Pinnacle Reef play in East Texas, Sligo
and Wilcox trends in South Texas, and offshore Gulf of Mexico.
Gas Reserves. As of December 31, 1997, 1996, and 1995, Williams Production
had proved developed natural gas reserves of 362 Bcf, 323 Bcf, and 292 Bcf,
respectively, and proved undeveloped reserves of 238 Bcf, 208 Bcf, and 222 Bcf,
respectively. Of Williams Production's total proved reserves, 89 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.
Customers and Operations. As of December 31, 1997, the gross and net
developed leasehold acres owned by Williams Production totaled 268,331 and
115,728 respectively, and the gross and net undeveloped acres owned were 447,458
and 121,351 respectively. As of such date, Williams Production owned interests
in 3,113 gross producing wells (558 net) on its leasehold lands. The following
tables summarize drilling activity for the periods indicated:
<TABLE>
<CAPTION>
1997 WELLS GROSS NET
---------- ----- -----
<S> <C> <C>
Development
Drilled............................................. 198 32.6
Completed........................................... 198 32.6
Exploration
Drilled............................................. 12 4.6
Completed........................................... 9 2.8
</TABLE>
<TABLE>
<CAPTION>
COMPLETED GROSS NET
DURING WELLS WELLS
--------- ----- -----
<S> <C> <C>
1997................................................ 207 35
1996................................................ 65 11
1995................................................ 61 22
</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 1997,
1996, and 1995 was 37.1 Bcf, 31.0 Bcf, and 30.0 Bcf, respectively. The average
production costs, including production taxes, per Mcf of gas produced were $.42,
$.23, and $.23, in 1997, 1996, and 1995, respectively. The average wellhead
sales price per Mcf was $1.62, $.98, and $.88, respectively, for the same
periods. Net production sold and average production costs for 1996 and 1995 have
been restated to include net profits volumes not previously reported.
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 owns 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. 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 natural gas gathering,
processing, and treating facilities located in northwestern New Mexico,
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southwestern Colorado, southwestern Wyoming, northwestern Oklahoma, southwestern
Kansas, and also in areas offshore and onshore in Texas and Louisiana. Field
Services also operates gathering facilities that are owned by Transcontinental
Gas Pipe Line Corporation (Transco), an affiliated company, and that are
currently regulated by the FERC. 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 the request in September 1996. Field
Services and Transco sought rehearing in October 1996. In August 1997, Field
Services and Transco filed a second request for expedited treatment of the
rehearing request. FERC has yet to rule on this request for rehearing.
Expansion Projects. Field Services continued to expand its operations in
the gulf coast region during 1997 primarily through the Mobile Bay Project.
During the year, Field Services obtained a life-of-reserves commitment from SOCO
Offshore to anchor the construction of the Field Services' facilities required
to gather and process near the Outer Continental Shelf. These committed reserves
along with existing production from the Mobile Bay area will more than
adequately supply this plant, scheduled to begin operations in early 1999. In
addition, Field Services has acquired the remaining 50 percent interest in the
500 MMcfd Cameron Meadows processing plant in south Texas, has reached an
agreement to partner in a 200 MMcfd processing plant in Louisiana, and finalized
construction plans for a deep water gathering line to Green Canyon Federal Block
205 off Transco's Southeast Louisiana gathering system where planned capacity is
expected to reach 90 MMcfd in the fourth quarter of 1998.
Customers and Operations. Facilities owned and operated by Field Services
consist of approximately 7,500 miles of gathering pipelines, 4 gas treating
plants and 10 gas processing plants (one of which is partially owned). The
aggregate daily inlet capacity is approximately 3.9 Bcf of gas. Gathering and
processing customers have direct access to interstate pipelines, including
affiliated pipelines, which provide access to multiple markets.
During 1997, Field Services gathered natural gas for 176 customers. The two
largest gathering customers accounted for approximately 29 percent and 11
percent respectively of total gathered volumes. During 1997, Field Services
processed natural gas for a total of 130 customers. The largest customer
accounted for approximately 24 percent 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 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:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gas volumes (TBtu, except liquids sales):
Gathering................................................. 1,170 1,119 810
Processing................................................ 520 484 406
Natural gas liquid sales (millions of gallons)............ 551 403 284
</TABLE>
PETROLEUM SERVICES
Williams Energy, through wholly owned subsidiaries in its Petroleum
Services unit, owns and operates a petroleum products and crude oil pipeline
system, 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.
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At December 31, 1997, the system traversed approximately 7,100 miles of
right-of-way and included approximately 9,100 miles of pipeline in various sizes
up to 16 inches in diameter. The system includes 77 pumping stations, 23 million
barrels of storage capacity, and 40 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.
An affiliate of Williams Pipe Line, Longhorn Enterprises of Texas, Inc.
("LETI"), owns a 31.5 percent interest in Longhorn Partners Pipeline, LP, a
joint venture formed to construct and operate a refined products pipeline from
Houston to El Paso, Texas. The pipeline is expected to commence operations in
1998. Williams Pipe Line will design, construct, and operate the pipeline, and
LETI has irrevocably committed to contribute $87.4 million to the joint venture
in 1998.
Operating Statistics. The operating statistics set forth below relate to
the system's operations for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Shipments (thousands of barrels):
Refined products:
Gasolines........................................ 132,428 134,296 125,060
Distillates...................................... 71,694 68,628 61,238
Aviation fuels................................... 10,557 11,189 12,535
LP-Gases......................................... 13,322 15,618 12,839
Lube extracted fuel oil.......................... 7,471 8,555 4,462
Crude oil........................................ 31 891 860
------- ------- -------
Total Shipments............................. 235,503 239,177 216,994
======= ======= =======
Daily average (thousands of barrels).................. 645 655 595
Average haul (miles).................................. 259 259 269
Barrel miles (millions)............................... 61,086 61,969 58,326
</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 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 cannot predict how future changes in the
marketplace will affect its 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 74.68 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.
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The sales volumes set forth below include ethanol produced by third parties
as well as by WEV for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Ethanol sold (thousands of gallons).................... 145,612 119,800 53,500
Coproducts sold (thousands of tons).................... 494 398 159
</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. In 1997,
these terminals loaded approximately 17.3 million barrels of refined products.
In December 1997, WEV acquired a terminal in Dallas, Texas. The preceding volume
data do not reflect activity at this terminal.
ENERGY MARKETING AND TRADING
Williams Energy, through subsidiaries, primarily Williams Energy Services
Company and its subsidiaries ("WESCO"), is a national energy services provider
that buys, sells, and transports a full suite of energy commodities, including
natural gas, electricity, refined products, natural gas liquids, crude oil, and
liquefied natural gas, on a wholesale and retail level, serving over 3,500
companies. 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 22.3 Bcf per day in 1997. 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 50 non-Williams' pipelines. During 1997,
approximately one-third of WESCO's volumes were from the Mid-Continent region,
up from 10 percent in 1996. WESCO's natural gas customers include producers,
industrials, local distribution companies, utilities, and other marketers.
During 1997, WESCO also marketed refined products, natural gas liquids,
crude, and liquefied natural gas with total volumes (physical and notional)
averaging 1,208.2 Mbbl per day. WESCO's acquisition in 1997 of the wholesale
propane business of Level Energy significantly enhanced its natural gas liquids
marketing effort.
WESCO entered the power marketing and trading business in 1996. During
1997, WESCO marketed 8.3 GWh per hour (physical and notional) of electricity.
WESCO provides price-risk management services through a variety of
financial instruments including forwards, futures, and option and swap
agreements related to various energy commodities. Through its energy capital
services, WESCO provides participants in both the upstream and downstream
portions of the energy industry with capital for energy-related projects
including acquisitions of proved reserves and related drilling projects.
During 1997, WESCO has continued to develop its retail energy services
group through acquisitions and alliances. As part of that strategy, WESCO
acquired Utility Management Corporation, an energy management services and
marketing company in the southeastern United States, serving small- to mid-sized
commercial, industrial, and municipal customers. WESCO also has signed a letter
of intent with GPU Advanced Resources to form an alliance which will serve
markets in six mid-Atlantic states.
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Operating Statistics. The following table summarizes operating profit and
marketing volumes for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Average marketing volumes (physical and notional):
Natural gas (Bcfd)...................................... 22.3 15.9 10.2
Refined products, natural gas liquids, crude (MBpd)..... 1,208 384 19
Electricity (GWh/hr).................................... 8.3 0.5 --
</TABLE>
REGULATORY MATTERS
Field Services. In May 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
and the U.S. Supreme Court has denied requests for certiorari. As a result of
these FERC decisions, some of the individual states in which Field Services
conducts its operations have considered whether to impose regulatory
requirements on gathering companies. Kansas, Oklahoma, and Texas currently
regulate gathering activities using complaint mechanisms under which the state
commission may resolve disputes involving an individual gathering arrangement.
Other states may also consider whether to impose regulatory requirements on
gathering companies.
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 1995 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
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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.
Energy Marketing and Trading. 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.
Energy Marketing and Trading. Williams Energy's energy marketing and
trading 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.
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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.
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 energy marketing and trading 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 completed monitoring in
the second quarter of 1997 and has submitted a report of results to the EPA.
Management believes no significant additional expenditures will be required for
investigation and follow-up at this site.
WILLIAMS COMMUNICATIONS GROUP, INC. (WILLIAMS COMMUNICATIONS)
As of December 31, 1997, Williams Communications has organized its
operating companies into three business units: Solutions, which provides
customer-premise voice and data equipment, including installation, integration,
and maintenance; Network, which operates the Company's fiber optic network; and
Applications, which provides video services and other multimedia services for
the broadcast industry; advertising distribution; business television
applications; and audio- and videoconferencing services and enhanced facsimile
services for businesses. Management believes that the new structure will better
position it to provide total enterprise network solutions and superior customer
service. 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. In Canada, Solutions operates
through its subsidiary, WilTel Communications (Canada), Inc. In late 1997,
Williams Communications announced plans to sell its product and content training
services business, Williams Learning Network, Inc. See Note 5 to Notes to
Consolidated Financial Statements.
Williams Communications and its subsidiaries own an approximately
11,000-mile communications network (with an additional 21,000-route miles
planned or under construction), maintain 155 offices primarily across North
America but also in London, Singapore, and Australia, service approximately
133,000 customer
9
<PAGE> 11
sites with approximately 11 million customer ports. In addition, Williams
Communications owns or manages five teleports in the United States and has
rights to capacity on domestic and international satellite transponders.
Williams Communications employed approximately 8,000 employees as of December
31, 1997.
Consolidated revenues by business unit and operating profit/loss for
Williams Communications were as follows for 1997 (dollars in millions):
<TABLE>
<S> <C>
Revenues:
Solutions................................................ $1,206.5
Network.................................................. 43.0
Applications............................................. 222.4
Eliminations............................................. (26.6)
--------
Total.................................................... $1,445.3
========
Operating loss............................................. $ (55.7)
========
</TABLE>
The revenues for the Solutions business unit include only eight months of
revenues resulting from the merger, which is discussed below, with Nortel
Communications Systems, Inc., effective April 30, 1997. The operating loss
includes $49.8 million in fourth quarter charges related to the previously noted
decision to sell the learning content business and the write-down of assets and
the development costs associated with certain advanced applications.
A business description of each of Williams Communications' business units
follows.
SOLUTIONS
The Solutions unit of Williams Communications provides data, voice and
video communications products and services to customers in the United States and
Canada. In April 1997, Williams Communications merged its wholly owned
subsidiary, Williams Telecommunications Systems, Inc. with Nortel Communications
Systems Inc., which was a wholly owned subsidiary of Northern Telecom, Inc.
(Northern Telecom). Williams Communications holds a 70 percent interest in the
newly formed entity, Williams Communications Solutions, LLC (WCS). Northern
Telecom owns the remaining 30 percent. This merger effectively doubled the size
of Williams Communications Solutions Customer premise and network solutions
operations.
Williams Communications, through subsidiaries including WCS, serves its
customers through more than 120 sales and service locations throughout the
United States, over 6,000 employees and over 2,200 stocked service vehicles. WCS
employs more than 2,500 technicians and more than 700 sales representatives and
sales support personnel to serve an estimated 133,000 commercial, governmental
and institutional customer sites. WCS's customer base ranges from large,
publicly-held corporations and the federal government to small privately-owned
entities.
WCS 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. WCS's services also include the design, configuration and installation
of voice and data networks and call centers and the management of customers'
telecommunications operations and facilities. WCS'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.
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<PAGE> 12
Operating Statistics. The following table summarizes the results of
operations for Williams Communications Solutions for the periods indicated
(dollars and ports in millions):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------ ------
<S> <C> <C> <C>
Revenues................................................... $1,206.5 $568.1 $494.9
Percentage of revenues by type of service:
New system sales......................................... 52% 40% 34%
System modifications..................................... 28 34 36
Maintenance.............................................. 19 24 25
Other.................................................... 1 2 2
Backlog.................................................... $ 202.5 $112.2 $ 85.0
Total ports................................................ 11.0 5.1 4.7
</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 1997, WCS derived approximately 47.8 percent of its revenues from its
existing customer base and approximately 52.2 percent from the sale of new
telecommunications systems. WCS's three largest suppliers accounted for
approximately 86 percent of equipment sold in 1997. A single manufacturer,
Northern Telecom, supplied 73 percent of all equipment sold. In this case, WCS
is the largest independent distributor in the United States of certain of this
company's products. About 63 percent of WCS'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.
NETWORK
The Network unit of Williams Communications owns and operates an
approximately 11,000-route mile communications network, which is restricted to
multi-media applications, and is currently constructing an unrestricted network
along a 1,600 mile route from Houston to Washington, D.C. in proximity to
pipeline right-of-way owned by an affiliated company. Williams Communications,
Inc., a subsidiary of Williams Communications, has entered into an exchange
agreement with IXC Communications under which it will provide IXC Communications
rights to use dark fiber along the Houston-to-Washington, D.C. route and obtain
rights to use dark fiber along a 4,500-mile route from Los Angeles to New York,
which IXC Communications is constructing. In addition, Williams Communications,
Inc. also owns an interest in a joint venture constructing a 1,600-mile fiber
optic network on a route connecting Portland, Salt Lake City, and Las Vegas,
with a dark fiber agreement extending the network to Los Angeles. With these
construction projects and dark fiber agreements and other projects, Williams
Communications, Inc. anticipates having an 18,000-route mile fiber optic network
in operation by the end of 1998. Williams Communications, Inc. has also signed
an agreement to acquire a 350-mile fiber network in Florida and plans to
construct additional fiber to connect the Florida network to its existing
network in the southeastern United States, and to construct a new fiber route in
the Midwestern United States from Chicago westward. The Network unit has
ultimate plans for a 32,000-route mile network.
Upon the expiration of the non-compete agreement related to the Company's
1995 sale of its network services operations on January 5, 1998, Williams
Communications announced that it was re-entering the long-distance
communications market as a wholesale provider of telecommunications services and
had entered into a five-year, multimillion dollar agreement with U S WEST
Communications Group to provide wholesale services using its fiber optic
network. Williams Communications has also entered into an agreement with
Concentric Network Corporation to provide wholesale communications services.
During 1997, Williams Communications acquired Critical Technologies, Inc.,
a professional services company deriving revenue from integrating, designing,
building, implementing, and maintaining large-scale business communications
systems. In addition, Williams Communications acquired a 12.5 percent interest
in Concentric Network Corporation, a provider of Internet protocol-based
networking services for business and consumer markets.
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<PAGE> 13
APPLICATIONS
Vyvx
Vyvx, an unincorporated business unit of Williams Communications, Inc.,
offers broadcast-quality television and multimedia transmission services
nationwide by means of Network's 11,000-mile multimedia network, five satellite
uplink/downlink facilities and satellite capacity on 30 transponders. Vyvx owns
53 television switching centers, 20 sales and service locations in the United
States, and sales and service offices in London, Singapore, and Australia. Vyvx
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.
Vyvx owns four teleports (including satellite earth station facilities)
located near Atlanta, Denver, Los Angeles, and New York and operates a fifth
teleport in Kansas City. Vyvx also owns assets for the distribution of
television advertising, which provide connectivity and presence in more than 550
television broadcast stations around the country.
Global Access
Global Access, offers multi-point videoconferencing, audioconferencing and
enhanced facsimile services as well as single point to multi-point business
television services. Global Access enables Williams Communications to provide
customers with integrated media conferences, bringing together voice, video and
facsimile by utilizing Williams Communications's existing fiber-optic and
satellite services.
In March 1997, Global Access acquired Satellite Management, Inc., a
U.S.-based satellite integrator for business television applications,
interactive long distance learning, and corporate communications.
In December 1996, Williams Communications announced the formation of The
Business Channel, a joint venture with the Public Broadcast Service (PBS), to
utilize Internet, video-on-demand, fiber-optic and satellite technologies to
bring professional development and training services to the business community.
REGULATORY MATTERS
The equipment WCS 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. WCS
relies on the equipment manufacturers' compliance with these requirements for
its own compliance regarding the equipment it distributes. These regulations
have a minimal impact on WCS's operations.
Williams Communications, Inc. is subject to FCC regulations as common
carriers with regard to certain of their transmission services and are 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 intrastate microwave communications,
satellite earth stations and certain other related transmission facilities are
also subject to FCC licensing and other regulations. These regulations do not
significantly impact Williams Communications, Inc.'s operations. In 1997, the
FCC began implementation of the Universal Service Fund contemplated in the
Telecommunications Act of 1996. Williams Communications, Inc. is required to
contribute to this fund based upon certain revenues. Although Williams
Communications, Inc. intends to pass on such charges to its customers, FCC
rulings raise questions about the right of companies like Williams
Communications, Inc. to do so.
COMPETITION
WCS 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.
12
<PAGE> 14
Competitors include companies that sell equipment comparable or identical to
that sold by WCS. 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.
Network faces existing competition from a number of large, well-established
interexchange carriers, some with extensive fiber optic networks. Several other
carriers are constructing or have plans to construct new fiber optic networks or
are establishing networks based on dark fiber rights obtained from
facilities-based carriers.
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 provide
telecommunications services, including long distance services, through separate
subsidiaries. The legislation also calls for elimination of federal tariff
filing requirements 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, Inc.
In late 1997, a Federal District Court decision, which has been stayed
pending appeal, invalidated provisions of the 1996 federal legislation. While
legislation or rulings by appellate courts may overturn this lower court ruling,
the Regional Bell Operating companies continue to seek regulatory approval to
provide national long distance services. As courts or regulators remove
restrictions on the Regional Bell Operating Companies, they will be both
important potential customers and important potential competitors of Network.
OWNERSHIP OF PROPERTY
Williams Communications owns part of its fiber-optic transmission
facilities and leases the remainder. Approximately 11,000-route miles of its
owned facilities are comprised of a single fiber, which is on a portion of the
fiber optic network of WorldCom, Inc. ("WorldCom") and is restricted to
multimedia content usage. Williams Communications retained this fiber when a
predecessor of WorldCom purchased the Company's network services operations in
1995. Williams Communications and WorldCom are currently in litigation to
clarify, among other things, whether the usage restriction would permit internet
services and Williams Communications' right to purchase additional WorldCom
fiber. Williams Communications 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.
Williams Communications holds its satellite transponder capacity under various
agreements. Williams Communications owns part of its teleport facilities and
holds the remainder under either a management agreement or long-term facilities
leases.
Williams Network intends to obtain capacity primarily by means of the fiber
optic networks Williams Communications is constructing or plans to construct or
acquire, as well as acquiring dark fiber rights on fiber optic facilities of
other carriers. Network obtains dark fiber rights in the form of the purchase or
lease of "indefeasible rights of use" or "IRUs" in specific fiber strands.
Purchased IRUs have many of the characteristics of ownership, including many of
the associated risks, but the owner of the fiber optic cable retains legal title
to the fibers.
ENVIRONMENTAL MATTERS
Williams Communications is subject to federal, state, and local laws and
regulations relating to the environmental aspects of its business. Management
believes that Williams Communications' 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.
13
<PAGE> 15
OTHER INFORMATION
The Company 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.
At December 31, 1997, the Company had approximately 11,000 full-time
employees, of whom approximately 2,000 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 relate to changes in general economic conditions in the United States;
the availability and cost of capital; 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 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
regulations of business activities, including allowed rates of return and the
resolution of other matters discussed herein; and (iii) risks and uncertainties
associated with the Company's unregulated businesses primarily relate to energy
prices and the ability of such entities to develop expanded markets and product
offerings as well as their ability to maintain 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 profit, may fluctuate in unpredictable
ways as may corn prices, which directly affect the Company's ethanol business.
Factors impacting future results of the Company's communications business
include successful completion of its network build, technological developments,
high levels of competition, lack of customer diversification, and general
uncertainties of governmental regulation.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company has no significant foreign operations.
ITEM 2. PROPERTIES
See Item 1(c) for description of properties.
ITEM 3. LEGAL PROCEEDINGS
For information regarding certain proceedings pending before federal
regulatory agencies, see Note 17 of Notes to Consolidated Financial Statements.
The Company is also subject to other ordinary routine litigation incidental to
its businesses.
Environmental matters
Certain of the Company's subsidiaries have been identified as potentially
responsible parties (PRP) at various Superfund and state waste disposal sites.
In addition, these subsidiaries have incurred, or are alleged to have incurred,
various other hazardous materials removal or remediation obligations under
environmental
14
<PAGE> 16
laws. Although no assurances can be given, the Company 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.
The Field Services unit of Williams Energy had recorded an aggregate
liability of approximately $12 million, representing the current estimate of
future environmental and remediation costs, including approximately $5 million
relating to former facilities of an affiliate, Williams Gas Pipelines Central,
Inc.
Other legal matters
Williams Communications owns one fiber, which is restricted to multimedia
content usage, on a portion of the fiber optic network of WorldCom, Inc.
("WorldCom"). Williams Communications retained this fiber, along with an option
to purchase additional fiber from WorldCom in connection with WorldCom's
subsequent fiber builds, acquisitions, and expansions, when a predecessor of
Worldcom purchased the Company's network services operations in 1995. On March
20, 1998, Williams Communications filed suit in Oklahoma District Court in Tulsa
County against WorldCom claiming that WorldCom had failed to fulfill its
obligations associated with the single fiber as well as a number of other
obligations arising from the agreements entered into in 1995 in conjunction with
the network services operations sale.
In 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit against
Williams Production Company (Williams Production), a wholly-owned subsidiary of
the Company, 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. On July 16, 1997, the
U.S. Court of Appeals for the Tenth Circuit reversed the decision of the
district court, held that the Tribe owns the coal-seam gas produced from certain
coal strata on fee lands within the exterior boundaries of the Tribe's
reservation, and remanded the case to the district court for further
proceedings. On September 16, 1997, Amoco Production Company, the class
representative for the defendant class (of which Williams Production is a part),
filed its motion for rehearing en banc before the Court of Appeals. On December
4, 1997, the Tenth Circuit Court of Appeals agreed to rehear the appeal.
In connection with agreements to resolve take-or-pay and other contract
claims and to amend gas purchase contracts, affiliates of the Company,
Transcontinental Gas Pipe Line Corporation and Texas Gas Transmission
Corporation, 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. Transco Energy
Company and Transco Gas Supply Company (wholly-owned subsidiaries of the
Company) have also been named as defendants in certain of these lawsuits. In one
of the two remaining cases, a jury verdict found that Transcontinental Gas Pipe
Line Corporation was required to pay $23.3 million including $3.8 million in
attorneys' fees. Transcontinental Gas Pipe Line Corporation is considering an
appeal. In the other remaining case, a producer has asserted damages, including
interest calculated through December 31, 1996, of approximately $6 million.
Summary
While no assurances may be given, the Company does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, insurance coverage or other indemnification
arrangements, will have a materially adverse effect upon the Company's future
financial position, results of operations or cash flow requirements.
15
<PAGE> 17
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 31, 1997, all of the outstanding shares of the Company's
Common Stock were owned by Williams. The Company's Common Stock is not publicly
traded, and there is no market for such shares.
16
<PAGE> 18
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<PAGE> 19
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-8 of this report.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues............................. $2,680.9 $1,841.3 $1,354.0 $1,264.3 $1,221.0
Income from continuing operations*... 197.8 228.7 211.8 125.5 152.3
Income from discontinued
operations**....................... -- -- 1,018.8 94.0 46.4
Total assets......................... 6,704.3 5,163.9 4,232.8 3,440.1 2,989.4
Long-term debt....................... 780.3 860.4 273.9 507.0 229.4
Stockholder's equity................. 2,798.6 2,482.8 2,151.6 1,739.9 1,818.0
</TABLE>
- ---------------
* See Notes 2, 4 and 5 of Notes to Consolidated Financial Statements for
discussion of the gain on sale of interest in subsidiary, significant asset
sales and write-offs in 1997, 1996 and 1995. Income from continuing
operations in 1994 includes a $22.7 million pre-tax gain from the sale of a
portion of Williams Holdings' interest in Northern Border Partners, L.P.
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.
** 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 of the network services' operations.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1997 vs. 1996
ENERGY MARKETING & TRADING'S revenues decreased $125.3 million, or 48
percent, and costs and operating expenses decreased $141 million, or 93 percent,
due primarily to the 1997 reporting on a net margin basis of certain natural gas
and gas liquids marketing operations previously not considered to be included in
trading operations. Excluding this decrease, revenues increased $16 million due
primarily to the initial income recognition from long-term electric power
contracts, increased physical and notional natural gas volumes of 22 percent and
44 percent, respectively, and higher petroleum trading volumes, partially offset
by lower natural gas trading margins as a result of decreased price volatility.
Revenues also increased from project financing services for energy producers and
the sale of excess transportation capacity.
Operating profit increased $4.2 million, or 6 percent, due primarily to the
$16 million increase in net revenues and a $6.3 million recovery of an account
previously written off, largely offset by the expenses associated with expansion
of business growth platforms.
Energy Marketing & Trading's 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. Energy Marketing & Trading manages risk by maintaining its
portfolio within established trading policy guidelines.
EXPLORATION & PRODUCTION'S revenues increased $47.7 million, or 58 percent,
due primarily to higher average natural gas sales prices for company-owned
production and from the marketing of Williams Coal Seam Gas Royalty Trust
(Royalty Trust) natural gas, and a 21 percent increase in company-owned
production volumes.
F-1
<PAGE> 20
Costs and operating expenses increased $23 million, or 32 percent, due
primarily to higher Royalty Trust natural gas purchase prices, increased
production activities and higher dry hole costs.
Operating profit increased $27.5 million, from $2.8 million in 1996, due
primarily to the increase in average natural gas prices and company-owned
production volumes, partially offset by higher expenses associated with
increased activity levels.
FIELD SERVICES' revenues increased $107.8 million, or 22 percent, due
primarily to higher natural gas liquids sales of $44 million, the receipt of $8
million of business interruption insurance proceeds related to a 1996 claim and
higher gathering, processing and condensate revenues of $40 million, $5 million
and $11 million, respectively. Natural gas liquids sales increased due to a 37
percent increase in volumes, slightly offset by lower average sales prices.
Gathering revenues increased as a result of a 16 percent increase in volumes
following the transfer of Williams Gas Pipelines Central (formerly Williams
Natural Gas, a wholly-owned subsidiary of Williams Holdings' parent) gathering
assets to Field Services in the last half of 1996.
Costs and operating expenses increased $95 million, or 32 percent, due
primarily to higher fuel and replacement gas purchases and costs and expenses
associated with the gathering assets transferred to Field Services from Williams
Gas Pipelines Central.
Other (income) expense -- 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.
Operating profit decreased $7.9 million, or 5 percent, due primarily to the
$12 million net lower impact of insurance recoveries between 1997 and 1996, $30
million from lower per-unit liquids margins, and higher gathering fuel and
replacement gas purchases, significantly offset by $24 million from higher
natural gas liquids volumes, the transfer of Williams Gas Pipelines Central
gathering assets to Field Services and a 7 percent increase in processing
volumes.
PETROLEUM SERVICES' revenues increased $55.4 million, or 11 percent, due
primarily to a $24 million increase in product sales from transportation
activities and a $27 million increase in ethanol sales. Ethanol sales increased
as a result of 22 percent higher sales volumes, partially offset by lower
average ethanol sales prices. Ethanol production was reduced during the second
half of 1996 due to unfavorable market conditions. Pipeline shipments and
average rates were comparable to 1996.
Costs and operating expenses increased $33 million, or 9 percent, due
primarily to the increase in refined product sales and ethanol production,
partially offset by lower corn costs.
Operating profit increased $21.3 million, or 28 percent, due primarily to
increased ethanol sales volumes and per-unit margins.
COMMUNICATIONS' revenues increased $734 million, or 103 percent, due
primarily to acquisitions which contributed revenues of approximately $650
million, including $536 million from the acquisition of the customer-premise
equipment sales and services operations of Northern Telecom. Additionally,
increased business activity resulted in a $119 million revenue increase in new
system sales, partially offset by a $46 million decrease in system modification
revenues. The number of ports in service at December 31, 1997, more than doubled
as compared to December 31, 1996, due primarily to the Nortel acquisition. Fiber
billable minutes from occasional service increased 47 percent. Dedicated service
voice-grade equivalent miles at December 31, 1997, increased 26 percent as
compared with December 31, 1996.
Costs and operating expenses increased $550 million, or 102 percent, due
primarily to acquired operations, the overall increase in business activity,
higher expenses for developing advanced network applications and increased
depreciation associated with added capacity. Selling, general and administrative
expenses increased $198 million, or 121 percent, due primarily to acquired
operations, the overall increase in business activity, higher expenses for
developing advanced network applications and expanding the infrastructure of
this business for future growth.
F-2
<PAGE> 21
Other (income) expense -- net includes $49.8 million of charges in 1997
related to the decision to sell the learning content business, and the
write-down of assets and the development expenses associated with certain
advanced applications.
Operating profit decreased $62.3 million from a $6.6 million operating
profit in 1996 to a $55.7 million operating loss in 1997, due primarily to the
other expense charges of $49.8 million and the expense of developing
infrastructure while integrating the most recent acquisitions, partially offset
by improved operating profit from Communications Solutions including the impact
of the Nortel acquisition.
GENERAL CORPORATE EXPENSES increased $7.4 million, or 39 percent, due
primarily to costs related to the pending MAPCO acquisition and a higher cost
allocation percentage from Williams resulting from the combination of
customer-premise equipment sales and service operations with Nortel and an
increased level of other operations. Interest accrued increased $37.8 million,
or 107 percent, due primarily to higher borrowing levels including increased
borrowing under the $1 billion bank-credit facility and commercial paper
program, partially offset by a lower average interest rate. The lower average
interest rate reflects lower rates on new 1997 borrowings as compared to
previously outstanding borrowings. Interest capitalized increased $8.4 million,
from $3.5 million in 1996, due primarily to capital expenditures for
Communications' fiber-optic network. Investing income increased $11 million, or
28 percent, due primarily to interest earned on increased advances to Williams.
For information concerning the 1997 gain on sale of interest in subsidiary, see
Note 2. The 1996 gain on sales/exchange of assets -- net results from the sale
of certain communication rights (see Note 5). The minority interest in income of
consolidated subsidiaries in 1997 is related primarily to the 30 percent
interest held by Williams Communications Solutions, LLC's minority shareholder
(see Note 2). The $16.7 million unfavorable change in other expense -- net in
1997 is due primarily to $9.2 million of costs associated with Williams
Holdings' sales of receivables program started in 1997 and the effect of $5
million of reserve reversals in 1996.
The provision for income taxes on continuing operations decreased $7
million, or 8 percent. The effective income tax rate in 1997 is less than the
federal statutory rate due primarily to the effect of the non-taxable gain
recognized in 1997 (see Note 2) and income tax credits from coal-seam gas
production, partially offset by the effects of state income taxes. The effective
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 state income tax adjustments of $6 million.
The 1997 extraordinary loss results from the early extinguishment of debt
(see Note 7).
1996 vs. 1995
ENERGY MARKETING & TRADING'S 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 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.
EXPLORATION & PRODUCTION'S revenues increased $19.5 million, or 31 percent,
due primarily to higher revenues from the marketing of production from the
Royalty Trust and increased production revenues of
F-3
<PAGE> 22
$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) expense -- 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.
FIELD SERVICES' revenues increased $126.9 million, or 34 percent, due
primarily to higher natural gas liquids sales revenues of $64 million combined
with higher gathering and processing revenues of $46 million and $13 million,
respectively. Natural gas liquids sales revenues increased due to a 36 percent
increase in sales volumes combined with higher average prices. Gathering and
processing volumes increased 18 percent and 19 percent, respectively.
Costs and operating expenses increased $99 million, or 49 percent, due
primarily to higher fuel and replacement gas purchases, expanded facilities and
increased operations.
Other (income) expense -- 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) expense -- 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 $16 million, or 11 percent, due primarily to
higher natural gas liquids margins and increased gathering and processing
activities. Operating profit was favorably impacted in both 1996 and 1995 by
approximately $20 million of other income.
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.
COMMUNICATIONS' 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.
F-4
<PAGE> 23
GENERAL CORPORATE EXPENSES increased $5.8 million, or 44 percent, due
primarily to a higher cost allocation percentage from Williams resulting from an
increased level of operations. Interest accrued decreased $5.6 million, or 14
percent, due primarily to Williams' May 1, 1995, assumption of approximately
$770 million of Transco Energy's outstanding debt previously assumed by Williams
Holdings as a result of the Transco Energy acquisition, substantially offset by
higher Williams Holdings' borrowing levels. Interest capitalized decreased $6.3
million, or 64 percent, due primarily to lower capital expenditures for
gathering and processing facilities. Investing income decreased $35.7 million,
or 47 percent, due primarily to lower interest earned on decreased advances to
Williams and the effects of a $15 million dividend in 1995 from Texasgulf Inc.
(sold in 1995) and $5 million of dividends in 1995 on Williams common stock held
by Williams Holdings (see Note 4). The 1996 gain on sales/exchange of
assets -- net results from the sale of certain communications rights (see Note
5). The 1995 gain on sales/exchange of assets -- net includes a $12.6 million
pre-tax loss on the sale of the 15 percent interest in Texasgulf Inc., a $25.4
million pre-tax gain recognized as a result of the exchange of Williams common
stock for Williams convertible debentures and warrants to purchase Williams
common stock, and a $10.8 million pre-tax gain from the sale of Williams
Holdings' remaining investment in Williams common stock (see Notes 4 and 5). The
1995 write-off of project costs results from the cancellation of an underground
coal gasification project in Wyoming (see Note 5). Other expense -- net in 1996
includes expenses of international activities offset by $5 million of reserve
reversals. Other expense -- net in 1995 includes approximately $5 million of
dividends from Transco Energy's preferred and minority interest common
stockholders and $4 million related to the wind down of Transco Energy's
corporate activities.
The $31 million, or 55 percent, increase in the provision for income taxes
is primarily a result of higher pre-tax income and a higher effective income tax
rate. The lower effective income tax rate in 1995 is the result of the $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 state income tax adjustments of $6 million 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. In addition, 1995 includes the previously
unrecognized tax benefits related to the sale of Texasgulf Inc. (see Note 6).
On January 5, 1995, Williams Holdings 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).
FINANCIAL CONDITION AND LIQUIDITY
Liquidity
Williams Holdings 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 and its commercial paper program, which can be utilized without
limitation under existing loan covenants. In July 1997, Williams entered into a
new $1 billion bank-credit facility, replacing its previous bank-credit
facility. Under the new agreement, Williams Holdings has access to the entire $1
billion facility, subject to borrowing by other affiliated companies.
Previously, Williams Holdings had access to $700 million under the facility. At
December 31, 1997, Williams Holdings has access to $154 million of liquidity
including $132 million available under the $1 billion bank-credit facility. This
compares to $210 million at December 31, 1996, and $550 million at December 31,
1995. During 1997, Williams Holdings entered into a commercial paper program
backed by $650 million of new short-term bank-credit facilities. At December 31,
1997, $645 million of commercial paper was outstanding under the program.
In addition, Williams Holdings and its subsidiaries had net amounts
receivable from Williams totaling $231 million at December 31, 1997, excluding
parent company debentures with a face value of $360 million (see Note 4),
compared to $124 million at December 31, 1996, and $151 million at December 31,
1995. The
F-5
<PAGE> 24
increase in amounts receivable from Williams at December 31, 1997 from December
31, 1996, reflects additional advances to the parent under Williams'
cash-management system, primarily due to proceeds from Williams Holdings'
commercial paper program.
Williams Holdings believes its parent can meet its cash needs. Williams has
access to $155 million of liquidity at December 31, 1997, including $132 million
available under its $1 billion bank-credit facility previously discussed, as
compared to $550 million and $656 million at December 31, 1996 and 1995,
respectively. The decrease at December 31, 1997, was temporary because it was
due in part to additional borrowings under the bank-credit facility to provide
interim financing related to Williams' debt restructuring program which began in
September 1997. In January and February 1998, Williams issued approximately $1
billion additional debt securities pursuant to the restructuring program and
repaid a significant portion of the $1 billion bank-credit facility, thus
increasing its liquidity available to meet cash needs.
In April 1997, Williams Holdings filed a $350 million registration
statement with Securities and Exchange Commission and subsequently issued $180
million of medium-term notes. In September 1997, Williams Holdings filed an
additional registration statement to increase its total shelf financing
availability to $820 million. Williams Holdings also uses short-term uncommitted
bank lines to manage liquidity. Williams Holdings believes any additional
financing arrangements can be obtained on reasonable terms if required.
Williams Holdings had a net working-capital deficit of $401 million at
December 31, 1997, compared with working capital of $260 million at December 31,
1996. The decrease in the working-capital at December 31, 1997, as compared to
prior year-end is primarily a result of short-term borrowings under the
commercial paper program. Williams Holdings 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.
During 1998, Williams Holdings expects to finance capital expenditures,
investments and working-capital requirements through cash generated from
operations, the use of the available portion of the $1 billion bank-credit
facility and commercial paper, short-term uncommitted bank lines, advances from
its parent or debt offerings.
Operating Activities
Cash provided by operating activities was: 1997 -- $492 million;
1996 -- $149 million; and 1995 -- $77 million. The increase in cash provided by
operating activities in 1997 includes $200 million of proceeds from the sales of
receivables program begun in 1997. The increase in receivables, inventories, and
accounts payable is due primarily to the combination of customer-premise
equipment sales and service operations with Nortel and increased trading
activities by Energy Marketing & Trading.
Financing Activities
Net cash provided (used) by financing activities was 1997 -- $468 million;
1996 -- $570 million; and 1995 -- ($1.5) billion. Long-term debt principal
payments, net of debt proceeds, were $57 million during 1997, and notes payable
proceeds, net of notes payable payments, were $535 million during 1997. The
increase in notes payable at December 31, 1997, reflects borrowings under the
new commercial paper program. Long-term debt proceeds, net of principal
payments, were $590 million during 1996. The increase in net new borrowings
during 1997 and 1996 was primarily to fund capital expenditures, investments,
and acquisition of businesses. Long-term debt principal payments, net of debt
proceeds, were $221 million during 1995.
Long-term debt at December 31, 1997, was $780 million, compared to $860
million at December 31, 1996, and $274 million at December 31, 1995. At December
31, 1997, $26 million in current debt obligations have been classified as
non-current obligations based on Williams Holdings' intent and ability to
refinance on a long-term basis. The 1996 increase in long-term debt is due
primarily to $350 million in additional borrowings under the bank-credit
facility and the issuance of $250 million of debentures in 1996. The long-term
debt to debt-plus-equity ratio was 21.8 percent for 1997, compared to 25.7
percent and 11.3 percent at December 31, 1996 and 1995, respectively. If
short-term notes payable and long-term debt due within one year are included in
the calculations, these ratios would be 35.3 percent, 26.2 percent and 11.8
percent, respectively. The increases in these ratios reflect the increases in
borrowing levels during 1997 and 1996.
F-6
<PAGE> 25
Williams Holdings paid dividends to Williams of $31 million, $19 million
and $1 billion in 1997, 1996 and 1995, respectively, and received cash capital
contributions from Williams of $792 million in 1995. The 1995 dividends were
paid primarily from the proceeds from the sale of the network services
operations. The 1995 capital contributions were made in connection with the
merger of Transco Energy and were used to retire and/or terminate various
Transco Energy borrowings, preferred stock and interest-rate swaps.
Investing Activities
Net cash provided (used) by investing activities was: 1997 -- ($949)
million; 1996 -- ($703) million; and 1995 -- $1.4 billion. Capital expenditures
in all years include the expansion and modernization of gathering and processing
facilities. Capital expenditures in 1997 also include Communications'
fiber-optic network. Budgeted capital expenditures and investments for 1998 are
approximately $1.9 billion, primarily to expand gathering and processing
facilities and the fiber-optic network. If the pending MAPCO acquisition is
completed, budgeted capital expenditures will increase an estimated $400
million.
On April 30, 1997, Williams Holdings and Northern Telecom (Nortel) combined
their customer-premise equipment sales and services operations into a limited
liability company, Williams Communications Solutions, LLC (LLC). In addition,
Williams Holdings paid $68 million to Nortel. Williams Holdings has accounted
for its 70 percent interest in the operations that Nortel contributed to the LLC
as a purchase business combination. Williams Holdings recorded the 30 percent
reduction in its operations contributed to the LLC as a sale to the minority
shareholder of the LLC (see Note 2). During 1997, Williams Holdings also
purchased a 20 percent interest in a foreign telecommunications business for $65
million in cash. During 1996, Williams Holdings acquired various communications
technology businesses totaling $165 million in cash. During 1995, in addition to
the Transco Energy acquisition (see Note 2), Williams Holdings acquired the Gas
Company of New Mexico's natural gas gathering and processing assets in the San
Juan and Permian basins for $154 million and Pekin Energy Co., the nation's
second largest ethanol producer, for $167 million in cash. During 1995, Williams
Holdings also purchased the BOk Tower, an approximate 1.1 million square foot
commercial office building located in Tulsa, Oklahoma. The building serves as
headquarters for Williams and it subsidiaries, including Williams Holdings. In
connection with the $60 million purchase, Williams Holdings assumed intercompany
debt payable to its parent of an equal amount.
During 1995, Williams Holdings received proceeds of $2.5 billion from the
sale of its network services operations (see Note 3), $124 million from the sale
of its 15 percent interest in Texasgulf Inc. and $46 million from the sale of
its remaining investment in Williams common stock (see Note 4).
MAPCO Acquisition
On November 24, 1997, Williams and MAPCO Inc. announced that they had
entered into a definitive merger agreement whereby Williams would acquire MAPCO
by exchanging 1.665 share of Williams common stock for each outstanding share of
MAPCO common stock. In addition, outstanding MAPCO employee stock options would
be converted into Williams common stock. Based on the closing market price of
Williams common stock on December 31, 1997, approximately 96.8 million shares of
Williams common stock valued at approximately $2.8 billion would be issued in
the transaction. Upon completion of the merger, Williams will make a capital
contribution of its interest in MAPCO to Williams Holdings, and MAPCO will
become part of the Energy Services business unit (see Note 18). The transaction
closed on March 28, 1998.
Effects of Inflation
Williams Holdings has experienced increased costs in recent years due to
the effects of inflation. However approximately 64 percent of Williams Holdings'
property, plant and equipment was acquired or constructed during the last seven
years, a period of relatively low inflation.
F-7
<PAGE> 26
Environmental
Williams Holdings is a participant in certain environmental activities in
various stages involving assessment studies, cleanup operations and/or remedial
processes. The sites are being monitored by Williams Holdings, other potentially
responsible parties, the U.S. Environmental Protection Agency (EPA), or other
governmental authorities in a coordinated effort. In addition, Williams Holdings
maintains an active monitoring program for its continued remediation and cleanup
of certain sites connected with its refined products pipeline activities.
Williams Holdings 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 $19 million, all of which is accrued at December 31, 1997.
Williams Holdings 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.
Year 2000 Compliance
Williams and its wholly-owned subsidiaries, which includes Williams
Holdings, has initiated an enterprise-wide project to address the year 2000
compliance issue for all technology hardware and software, external interfaces
with customers and suppliers, operations process control, automation and
instrumentation systems, and facility items. The assessment phase of this
project as it relates to traditional information technology areas should be
substantially complete by the end of the first quarter of 1998. Completion of
the assessment phase for non-traditional information technology areas is
expected in mid-1998. Necessary conversion and replacement activities will begin
in 1998 and continue through mid-1999. Testing of systems has begun and will
continue throughout the process. Williams Holdings has initiated a formal
communications process with other companies with which Williams Holdings'
systems interface or rely on to determine the extent to which those companies
are addressing their year 2000 compliance, and where necessary, Williams
Holdings will be working with those companies to mitigate any material adverse
effect on Williams Holdings.
Williams Holdings expects to utilize both internal and external resources
to complete this process. Existing resources will be redeployed and previously
planned system replacements will be accelerated during this time. For example,
implementation of previously planned financial and human resources systems is
currently in process. These systems will address the year 2000 compliance issues
in certain areas. Costs incurred for new software and hardware purchases will be
capitalized and other costs will be expensed as incurred. While the total cost
of this project is still being evaluated, Williams Holdings estimates that
external costs, excluding previously planned system replacements, necessary to
complete the project within the schedule described will total at least $10
million. Williams Holdings will update this estimate as additional information
becomes available. The costs of the project and the completion dates are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party year 2000 compliance modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from these estimates.
F-8
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-10
Consolidated Statement of Income............................ F-11
Consolidated Balance Sheet.................................. F-12
Consolidated Statement of Stockholder's Equity.............. F-13
Consolidated Statement of Cash Flows........................ F-14
Notes to Consolidated Financial Statements.................. F-15
Quarterly Financial Data (Unaudited)........................ F-34
</TABLE>
F-9
<PAGE> 28
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Williams Holdings of Delaware, Inc.
We have audited the accompanying consolidated balance sheet of Williams
Holdings of Delaware, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1997. 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
Williams Holdings of Delaware, Inc. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, 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 13, 1998
F-10
<PAGE> 29
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Revenues (Note 15):
Energy Services:
Energy Marketing & Trading............................. $ 135.8 $ 261.1 $ 153.5
Exploration & Production............................... 130.1 82.4 62.9
Field Services......................................... 602.6 494.8 367.9
Petroleum Services..................................... 548.7 493.3 328.1
Communications (Note 2)................................... 1,445.3 711.3 538.9
Other..................................................... 38.4 48.0 17.4
Intercompany eliminations (Note 16)....................... (220.0) (249.6) (114.7)
-------- -------- --------
Total revenues.................................... 2,680.9 1,841.3 1,354.0
-------- -------- --------
Profit-center costs and expenses (Note 15):
Costs and operating expenses.............................. 1,818.5 1,240.8 876.6
Selling, general and administrative expenses.............. 518.8 307.6 224.6
Other (income) expense -- net (Note 5).................... 41.6 (19.3) (10.7)
-------- -------- --------
Total profit-center costs and expenses............ 2,378.9 1,529.1 1,090.5
-------- -------- --------
Operating profit:
Energy Services:
Energy Marketing & Trading............................. 70.6 66.4 33.2
Exploration & Production............................... 30.3 2.8 (5.9)
Field Services......................................... 151.5 159.4 143.4
Petroleum Services..................................... 97.0 75.7 69.2
Communications (Notes 2 and 5)............................ (55.7) 6.6 25.0
Other..................................................... 8.3 1.3 (1.4)
-------- -------- --------
Total operating profit............................ 302.0 312.2 263.5
General corporate expenses (Note 15)........................ (26.2) (18.8) (13.0)
Interest accrued (Note 15).................................. (73.1) (35.3) (40.9)
Interest capitalized........................................ 11.9 3.5 9.8
Investing income (Notes 4 and 15)........................... 50.6 39.6 75.3
Gain on sale of interest in subsidiary (Note 2)............. 44.5 -- --
Gain on sales/exchange of assets -- net (Notes 4 and 5)..... -- 15.7 23.6
Write-off of project costs (Note 5)......................... -- -- (41.4)
Minority interest in income of consolidated subsidiaries
(Note 2).................................................. (14.0) -- --
Other expense -- net........................................ (17.0) (.3) (8.2)
-------- -------- --------
Income from continuing operations before income taxes....... 278.7 316.6 268.7
Provision for income taxes (Note 6)......................... 80.9 87.9 56.9
-------- -------- --------
Income from continuing operations........................... 197.8 228.7 211.8
Income from discontinued operations (Note 3)................ -- -- 1,018.8
-------- -------- --------
Income before extraordinary loss............................ 197.8 228.7 1,230.6
Extraordinary loss (Note 7)................................. (3.6) -- --
-------- -------- --------
Net income.................................................. $ 194.2 $ 228.7 $1,230.6
======== ======== ========
</TABLE>
See accompanying notes.
F-11
<PAGE> 30
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN MILLIONS,
EXCEPT PER-SHARE
AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 55.2 $ 44.4
Receivables:
Trade less allowance of $18.5 ($8.8 in 1996)........... 1,035.0 852.9
Affiliates............................................. 43.8 71.9
Due from parent (Note 15)................................. 93.0 --
Inventories (Note 9)...................................... 182.2 101.0
Commodity trading assets.................................. 180.3 147.2
Deferred income taxes -- affiliates (Note 6).............. 74.1 66.7
Other..................................................... 76.0 69.4
-------- --------
Total current assets.............................. 1,739.6 1,353.5
Due from parent (Note 15)................................... 181.3 151.4
Investments, primarily in affiliates (Note 4)............... 1,079.2 743.3
Property, plant and equipment -- net (Note 10).............. 3,052.4 2,540.4
Goodwill and other intangible assets -- net (Notes 1 and
2)........................................................ 435.2 198.1
Non-current commodity trading assets........................ 141.4 93.0
Other assets and deferred charges........................... 75.2 84.2
-------- --------
Total assets...................................... $6,704.3 $5,163.9
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable (Note 12)................................... $ 701.0 $ --
Accounts payable:
Trade (Note 11)........................................ 741.5 550.6
Affiliates............................................. 69.2 53.4
Accrued liabilities (Note 11)............................. 404.1 331.7
Commodity trading liabilities............................. 182.0 137.9
Long-term debt due within one year (Note 12).............. 42.9 19.7
-------- --------
Total current liabilities......................... 2,140.7 1,093.3
Long-term debt (Note 12).................................... 780.3 860.4
Deferred income taxes -- affiliates (Note 6)................ 523.8 395.9
Non-current commodity trading liabilities................... 201.7 201.2
Other liabilities........................................... 142.1 123.1
Minority interest in consolidated subsidiaries (Note 2)..... 117.1 7.2
Contingent liabilities and commitments (Note 17)
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized and
outstanding............................................ -- --
Capital in excess of par value............................ 1,718.0 1,705.0
Retained earnings......................................... 836.5 673.2
Net unrealized gain on marketable securities (Note 4)..... 244.1 104.6
-------- --------
Total stockholder's equity........................ 2,798.6 2,482.8
-------- --------
Total liabilities and stockholder's equity........ $6,704.3 $5,163.9
======== ========
</TABLE>
See accompanying notes.
F-12
<PAGE> 31
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CAPITAL IN NET
COMMON EXCESS OF RETAINED UNREALIZED
STOCK PAR VALUE EARNINGS GAIN (LOSS) TOTAL
------ ---------- --------- ----------- ---------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994................. $ -- $ 1,531.4 $ 244.3 $(35.8) $ 1,739.9
Net income -- 1995......................... -- -- 1,230.6 -- 1,230.6
Dividends --
Cash..................................... -- -- (1,010.7) -- (1,010.7)
Other.................................... -- -- (.1) -- (.1)
Acquisition of Transco Energy --
Cash contributions....................... -- 791.9 -- -- 791.9
Noncash contributions.................... -- 911.2 -- -- 911.2
Allocation of purchase price............. -- (1,608.1) -- -- (1,608.1)
Other noncash contributions................ -- 7.7 -- -- 7.7
Unrealized gain on marketable securities... -- -- -- 89.2 89.2
---- --------- --------- ------ ---------
Balance, December 31, 1995................. -- 1,634.1 464.1 53.4 2,151.6
Net income -- 1996......................... -- -- 228.7 -- 228.7
Dividends --
Cash..................................... -- -- (19.2) -- (19.2)
Other.................................... -- -- (.4) -- (.4)
Noncash contributions...................... -- 70.9 -- -- 70.9
Unrealized gain on marketable securities... -- -- -- 51.2 51.2
---- --------- --------- ------ ---------
Balance, December 31, 1996................. -- 1,705.0 673.2 104.6 2,482.8
Net income -- 1997......................... -- -- 194.2 -- 194.2
Cash dividends............................. -- -- (30.9) -- (30.9)
Noncash contributions...................... -- 15.2 -- -- 15.2
Noncash return of capital.................. -- (2.2) -- -- (2.2)
Unrealized gain on marketable securities... -- -- -- 139.5 139.5
---- --------- --------- ------ ---------
Balance, December 31, 1997................. $ -- $ 1,718.0 $ 836.5 $244.1 $ 2,798.6
==== ========= ========= ====== =========
</TABLE>
See accompanying notes.
F-13
<PAGE> 32
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- ---------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 194.2 $ 228.7 $ 1,230.6
Adjustments to reconcile to cash provided from operations:
Discontinued operations................................ -- -- (1,018.8)
Extraordinary loss..................................... 3.6 -- --
Depreciation, depletion and amortization............... 189.7 138.2 100.5
Provision for deferred income taxes.................... 28.4 83.9 121.5
Provision for loss on property and other assets........ 49.8 -- 41.4
Gain on dispositions of property and interest in
subsidiary........................................... (42.8) (43.2) (25.8)
Minority interest in income of consolidated
subsidiaries......................................... 14.0 -- --
Changes in receivables sold............................ 200.0 -- --
Changes in receivables................................. (264.2) (297.6) (16.1)
Changes in inventories................................. (59.0) (5.3) 10.4
Changes in other current assets........................ (5.2) (25.7) (30.8)
Changes in accounts payable............................ 176.4 282.1 (3.0)
Changes in accrued liabilities......................... 5.6 (75.8) (69.5)
Changes in receivables/payables with affiliates........ 44.7 (70.1) (188.1)
Changes in current commodity trading assets and
liabilities.......................................... 11.0 (29.7) 28.1
Changes in non-current commodity trading assets and
liabilities.......................................... (47.7) (37.7) (82.1)
Other, including changes in non-current assets and
liabilities.......................................... (6.7) .8 (21.3)
------- ------- ---------
Net cash provided by operating activities......... 491.8 148.6 77.0
------- ------- ---------
FINANCING ACTIVITIES:
Proceeds from notes payable............................... 791.7 10.0 --
Payments of notes payable................................. (256.7) (10.0) (398.2)
Proceeds from long-term debt.............................. 459.5 603.8 179.0
Payments of long-term debt................................ (516.8) (13.4) (399.7)
Dividends paid to parent.................................. (30.9) (19.2) (1,010.7)
Capital contributions from parent......................... -- -- 791.9
Changes in parent company advances........................ -- -- (474.8)
Subsidiary preferred stock redemptions.................... -- -- (144.0)
Other -- net.............................................. 21.0 (1.4) 3.8
------- ------- ---------
Net cash provided (used) by financing
activities...................................... 467.8 569.8 (1,452.7)
------- ------- ---------
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures................................... (696.5) (370.0) (375.2)
Proceeds from dispositions............................. 74.1 47.6 19.1
Acquisition of businesses, net of cash acquired........... (86.5) (164.9) (360.8)
Proceeds from sales of businesses......................... -- -- 2,588.3
Income tax and other payments related to discontinued
operations............................................. (12.6) (270.5) (349.8)
Purchase of investments/advances to affiliates............ (129.3) (74.3) (48.3)
Proceeds from sales of assets............................. 5.2 23.0 171.2
Changes in advances to parent company..................... (123.0) 95.4 (257.8)
Other -- net.............................................. 19.8 10.2 .6
------- ------- ---------
Net cash provided (used) by investing
activities...................................... (948.8) (703.5) 1,387.3
------- ------- ---------
Increase in cash and cash equivalents............. 10.8 14.9 11.6
Cash and cash equivalents at beginning of year.............. 44.4 29.5 17.9
------- ------- ---------
Cash and cash equivalents at end of year.................... $ 55.2 $ 44.4 $ 29.5
======= ======= =========
</TABLE>
See accompanying notes.
F-14
<PAGE> 33
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Operations of Williams Holdings of Delaware, Inc. (Williams Holdings) are
located principally in the United States and are organized into two operating
groups as follows: (1) Energy Services, which is comprised of natural gas
gathering and processing facilities in the Rocky Mountain, midwest and Gulf
Coast regions, energy trading and price-risk management activities throughout
the United States, a petroleum products pipeline and ethanol
production/marketing operations in the midwest region, and hydrocarbon
exploration and production activities in the Rocky Mountain and Gulf Coast
regions; and (2) Communications, which includes network integration and
management services; video and other multimedia transmission services for the
broadcast industry; business audio and video conferencing services; and
installation and maintenance of customer-premise voice and data equipment.
Additional information about these businesses is contained throughout the
following notes.
Organization and basis of presentation
Williams Holdings is a wholly-owned subsidiary of The Williams Companies,
Inc. (Williams). Williams has made capital contributions based on historical
carrying amounts to Williams Holdings of its ownership interests in all
subsidiaries, excluding its interstate natural gas pipelines and related
subsidiaries, effective April 1, 1995. The consolidated financial statements of
Williams Holdings include the subsidiaries contributed by Williams for all
periods presented.
Revenues and operating profit amounts previously reported as Merchant
Services are now reported as Energy Marketing & Trading.
On April 30, 1997, Williams Holdings and Northern Telecom (Nortel) combined
their customer-premise equipment sales and service operations into a limited
liability company, Williams Communications Solutions, LLC (LLC), formerly WilTel
Communications, LLC (see Note 2). Communications' revenues and operating profit
amounts for 1997 include the operating results of the LLC beginning May 1, 1997.
On January 18, 1995, Williams acquired 60 percent of Transco Energy
Company's (Transco Energy) outstanding common stock and on May 1, 1995, acquired
the remaining 40 percent of Transco Energy's outstanding common stock (see Note
2). On May 1, 1995, Transco Energy dividended to Williams all of Transco
Energy's interests in two Transco Energy subsidiaries, Transcontinental Gas Pipe
Line Corporation and Texas Gas Transmission Corporation. Also effective May 1,
1995, Williams made a capital contribution of its interest in Transco Energy and
Transco Energy's subsidiaries, except Transcontinental Gas Pipe Line and Texas
Gas, to Williams Holdings. Revenues and operating profit amounts include the
operating results of the Transco Energy entities contributed to Williams
Holdings since the January 18, 1995, acquisition. Transco Energy's gas gathering
operations (except those related operations of Transcontinental Gas Pipe Line
and Texas Gas) are included as part of Field Services, and its gas marketing
operations are included in Energy Marketing & Trading.
Principles of consolidation
The consolidated financial statements include the accounts of Williams
Holdings and its majority-owned subsidiaries. Companies in which Williams
Holdings 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.
F-15
<PAGE> 34
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
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.
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
Certain Williams Holdings' 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.
Inventory valuation
Inventories are stated at cost, which is not in excess of market, except
for those held by Energy Marketing & Trading, which are primarily stated at
market. The cost of inventories is primarily determined using the average-cost
method.
Investments
Williams Holdings' investment in subordinated debentures of Williams is
classified as "available for sale" and is recorded at current market value with
unrealized gains and losses reported net of income taxes as a component of
stockholder's equity. Average cost is used to determine realized gains and
losses. Williams Holdings' investment in Williams warrants is recorded at cost
since the warrants are not traded on a securities exchange. As such, the fair
value of the warrants is not readily determinable under generally accepted
accounting principles, and Williams Holdings has no current intention of
exercising the warrants in the future.
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
Petroleum Services' regulated pipelines are credited or charged to accumulated
depreciation; other gains or losses are recorded in net income.
Goodwill and other intangible assets
Goodwill, which represents the excess of cost over fair value of assets of
businesses acquired, is amortized on a straight-line basis over periods not
exceeding 25 years. Other intangible assets are amortized on a straight-line
basis over periods not exceeding 11 years. Accumulated amortization at December
31, 1997 and 1996 was $56 million and $31.8 million, respectively. Amortization
of intangible assets was $24.2 million, $9.6 million and $6.2 million in 1997,
1996 and 1995, respectively.
F-16
<PAGE> 35
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
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.
Communications' customer-premise equipment sales and service business primarily
uses the percentage-of-completion method of recognizing revenues for services
provided.
Commodity price-risk management activities
Energy Marketing & Trading has trading operations that enter into
energy-related derivative financial instruments and derivative commodity
instruments (forward contracts, futures contracts, option contracts and swap
agreements) to provide price-risk management services to its third-party
customers. This trading operation also has commodity inventories and enters into
short- and long-term energy-related purchase and sale commitments which involve
physical delivery of an energy commodity. These financial instruments, physical
inventories and commitments are valued at market and are recorded in commodity
trading assets and commodity trading 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, liquidity of the
market in which the contract is transacted, the terms of the contract, credit
considerations, time value and volatility factors underlying the positions.
Energy Marketing & Trading reports its trading operations' physical sales
transactions net of the related purchase costs, consistent with market value
accounting for such trading activities.
Certain Energy Marketing & Trading revenues were not considered to be
trading operations in 1996 and 1995 and, therefore, were not reported net of
related costs to purchase such items.
Williams Holdings' operations also enter into energy-related derivative
financial instruments and derivative commodity 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
and recorded with the related hedged item. These contracts are initially and
regularly evaluated to determine that there is a high correlation between
changes in the market value of the hedge contract and market value of the hedged
item.
Interest-rate derivatives
Williams Holdings enters into interest-rate swap agreements to modify the
interest characteristics of its long-term debt. These agreements are designated
with all or a portion of the principal balance and term of specific debt
obligations. These agreements involve the exchange of amounts based on a
fixed-interest rate for amounts based on variable interest rates without an
exchange of the notional amount upon which the payments are based. The
difference to be paid or received is accrued and recognized as an adjustment of
interest expense.
Williams Holdings enters into interest-rate forward contracts to lock-in
underlying treasury rates on anticipated long-term debt issuances. The
settlement amounts upon termination of the contracts are deferred and amortized
as an adjustment to interest expense of the issued long-term debt over the term
of the settled forward contract.
Capitalization of interest
Williams Holdings capitalizes interest on major projects during
construction. Interest is capitalized on borrowed funds at rates that
approximate the average interest rate on related debt.
F-17
<PAGE> 36
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Income taxes
Williams Holdings and its subsidiaries are included in Williams'
consolidated federal income tax return. The provision for income taxes is
computed on a separate company basis for Williams Holdings. Payments are made
under the same timing and minimum amount requirements as if the payments were
being made directly to the taxing authorities. 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 Holdings'
assets and liabilities.
Related party transactions
Williams charges its subsidiaries, including Williams Holdings and its
subsidiaries, for certain corporate general and administrative expenses which
are directly identifiable or allocable to the subsidiaries and other general
corporate expenses utilizing a combination of revenues, property at cost and
payroll for the allocation base. Williams Holdings, as a separate corporate
entity, does not receive such an allocation because it has no revenues, property
or employees. Management believes that the method used for these allocations is
reasonable.
New accounting standards
In June 1997, the Financial Accounting Standards Board issued two new
Statement of Financial Accounting Standards, (SFAS) No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Both standards, effective for fiscal years
beginning after December 15, 1997, are disclosure-oriented standards. Therefore,
neither standard will affect Williams Holdings' reported consolidated net income
or cash flows.
NOTE 2 -- ACQUISITIONS
Nortel
On April 30, 1997, Williams Holdings and Nortel combined their
customer-premise equipment sales and service operations into a limited liability
company, Williams Communications Solutions, LLC. In addition, Williams Holdings
paid $68 million to Nortel. Williams Holdings has accounted for its 70 percent
interest in the operations that Nortel contributed to the LLC as a purchase
business combination, and beginning May 1, 1997, has included the results of
operations of the acquired company in Williams Holdings' Consolidated Statement
of Income. Accordingly, the acquired assets and liabilities, including $168
million in accounts receivable, $68 million in accounts payable and accrued
liabilities and $150 million in debt obligations, have been recorded based on an
allocation of the purchase price, with substantially all of the cost in excess
of historical carrying values allocated to goodwill.
Williams Holdings recorded the 30 percent reduction in its operations
contributed to the LLC as a sale to the minority shareholder of the LLC.
Williams Holdings recognized a gain of $44.5 million based on the excess of the
fair value over the net book value (approximately $71 million) of its operations
conveyed to the LLC minority interest. Income taxes were not provided on the
gain, because the transaction did not affect the difference between the
financial and tax bases of identifiable assets and liabilities.
If the transaction occurred on January 1, 1996, Williams Holdings'
unaudited pro forma revenues for the years ended 1997 and 1996 would have been
$2,929 million and $2,578 million, respectively. The pro forma effect of the
transaction on Williams Holdings' net income is not significant. Pro forma
financial information is not necessarily indicative of results of operations
that would have occurred if the transaction had occurred on January 1, 1996, or
of future results of operations of the combined companies.
F-18
<PAGE> 37
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Transco
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 31.2 million shares of Williams common stock
valued at $334 million. The acquisition was accounted for as a purchase. The
results of operations of the Transco Energy entities contributed to Williams
Holdings beginning January 18, 1995, were included 100 percent in Williams
Holdings' Consolidated Statement of Income due to the losses from these
entities. An allocation of the purchase price was assigned to the assets and
liabilities of the Transco Energy entities contributed to Williams Holdings
based on their estimated fair values.
Williams made cash contributions during 1995 of approximately $792 million
to Transco Energy primarily to retire and/or terminate certain Transco Energy
borrowings, $4.75 preferred stock and interest-rate swaps, to advance funds to
Transcontinental Gas Pipe Line and Texas Gas for the termination of sale of
receivables facilities and to assume all amounts payable by Transco Energy to
Transcontinental Gas Pipe Line and Texas Gas. Effective with the May 1, 1995,
merger, Transco Energy's $3.50 cumulative convertible preferred stock was
exchanged for Williams' $3.50 cumulative convertible preferred stock, and
Williams assumed all Transco Energy external debt, except Transcontinental Gas
Pipe Line and Texas Gas debt. These noncash transactions totaled approximately
$911 million and were capital contributions by Williams to Williams Holdings.
NOTE 3 -- DISCONTINUED OPERATIONS
On January 5, 1995, Williams Holdings 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.
NOTE 4 -- INVESTING ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
-------- ------
(MILLIONS)
<S> <C> <C>
Investments:
Williams debentures.................................. $ 770.7 $534.5
Williams warrants.................................... 25.4 25.4
Equity............................................... 168.4 100.4
Cost................................................. 114.7 83.0
-------- ------
$1,079.2 $743.3
======== ======
</TABLE>
During 1995, Williams Holdings exchanged 36.6 million shares of Williams
common stock with a market value at exchange date of $385 million and a cost
basis of $360 million for Williams convertible debentures and warrants having a
total fair value of $385 million at the time of the exchange. The exchange
resulted in the recognition of a pre-tax gain of $25.4 million. The convertible
debentures, with a face value of $360 million, bear interest at 6 percent,
mature in 2005 and are convertible at any time into approximately 28 million
shares of Williams common stock at $12.86 per share. The warrants give Williams
Holdings the right to purchase approximately 22.6 million shares of Williams
common stock at $15.56 per share and were recorded at appraised value of $25
million. The warrants are exercisable immediately and mature five years from
date of issuance. During 1995, Williams Holdings sold its remaining investment
in Williams common stock for $46.2 million in cash resulting in a pre-tax gain
of approximately $11 million.
F-19
<PAGE> 38
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
On November 20, 1997, Williams board of directors declared a two-for-one
common stock split, effective December 29, 1997. References in the Notes to
Consolidated Financial Statements to Williams common stock have been restated to
reflect the effect of the stock split.
Investing income for the years ended December 31, 1997, 1996 and 1995, is
as follows (see Note 15):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Interest.................................................... $41.8 $33.8 $46.1
Dividends................................................... 1.4 1.6 20.8
Equity earnings............................................. 7.4 4.2 8.4
----- ----- -----
$50.6 $39.6 $75.3
===== ===== =====
</TABLE>
Dividends and distributions received from companies carried on an equity
basis were $7 million in 1997 and 1996, and $11 million in 1995.
At December 31, 1997, certain equity investments, with a carrying value of
$46 million, have a market value of $175 million.
NOTE 5 -- ASSET SALES AND WRITE-OFFS
In the fourth quarter of 1997, Communications incurred charges totaling
$49.8 million, related to the decision to sell the learning content business,
and the write-down of assets and the development costs associated with certain
advanced applications.
In 1996, Williams Holdings 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.
In 1995, Williams Holdings 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.
NOTE 6 -- PROVISION FOR INCOME TAXES
The provision (credit) for income taxes from continuing operations
includes:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ------
(MILLIONS)
<S> <C> <C> <C>
Current:
Federal.................................................. $42.7 $ 8.5 $(49.4)
State.................................................... 7.9 (4.5) (15.2)
Foreign.................................................. 1.9 -- --
----- ----- ------
52.5 4.0 (64.6)
----- ----- ------
Deferred:
Federal.................................................. 21.7 85.8 96.4
State.................................................... 6.7 (1.9) 25.1
----- ----- ------
28.4 83.9 121.5
----- ----- ------
Total provision............................................ $80.9 $87.9 $ 56.9
===== ===== ======
</TABLE>
F-20
<PAGE> 39
WILLIAMS HOLDINGS OF DELAWARE, 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>
1997 1996 1995
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Provision at statutory rate.............................. $ 97.5 $110.8 $ 94.0
Increases (reductions) in taxes resulting from:
State income taxes..................................... 9.7 (4.2) 10.6
Income tax credits..................................... (16.5) (19.0) (18.7)
Non-taxable gain from sale of interest in subsidiary
(Note 2)............................................ (15.6) -- --
Decrease in valuation allowance for deferred tax
assets.............................................. -- -- (29.8)
Other -- net........................................... 5.8 .3 .8
------ ------ ------
Provision for income taxes............................... $ 80.9 $ 87.9 $ 56.9
====== ====== ======
</TABLE>
Significant components of deferred tax liabilities and assets as of
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996*
------ ------
(MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............................. $559.1 $469.8
Investments............................................... 163.8 44.4
Other..................................................... 34.5 91.7
------ ------
Total deferred tax liabilities.................... 757.4 605.9
------ ------
Deferred tax assets:
Deferred revenues......................................... 71.9 20.9
Accrued liabilities....................................... 41.1 58.6
Minimum tax credits....................................... 134.8 117.4
Other..................................................... 59.9 79.8
------ ------
Total deferred tax assets......................... 307.7 276.7
------ ------
Net deferred tax liabilities................................ $449.7 $329.2
====== ======
</TABLE>
- ---------------
* Reclassified to conform to current classifications.
Cash payments to Williams and certain state taxing authorities for income
taxes (net of refunds) were $30 million, $294 million, and $336 million in 1997,
1996 and 1995, respectively.
NOTE 7 -- EXTRAORDINARY LOSS
In September 1997, Williams initiated a restructuring of its debt portfolio
(see Note 12). In the fourth quarter of 1997, Williams Pipe Line paid
approximately $55 million to redeem $50 million of debt with a stated interest
rate of 9.78 percent, resulting in an extraordinary loss of $3.6 million (net of
a $2.4 million benefit for income taxes).
NOTE 8 -- EMPLOYEE BENEFIT PLANS
Pensions
Williams Holdings is included in Williams' non-contributory defined-benefit
pension plans covering the majority of employees. Williams Pipe Line and Pekin
Energy have separate plans for their union employees. Effective August 1, 1997,
separate plans were established for the Williams Communications Solutions, LLC
union employees and the Williams Communications Solutions, LLC salaried
employees (LLC plans). At
F-21
<PAGE> 40
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
December 31, 1995, Pekin Energy also had a separate plan for its salaried
employees. That plan was merged into one of the Williams' plans during 1996.
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 related to Williams Holdings' participation in the
Williams' plan was $14.1 million in 1997; $19.3 million in 1996; and $5.1
million in 1995.
Net pension expense decreased in 1997 from 1996 as a result of $4.4 million
of settlement losses in 1996. 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,
an increase in the number of plan participants and the 1996 settlement losses.
Net pension expense for the Williams Pipe Line, Pekin Energy and LLC plans
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the year............ $ 2.5 $ .7 $ .6
Interest cost on projected benefit obligation............... 2.6 1.5 1.6
Actual return on plan assets................................ (2.1) (3.1) (3.8)
Amortization and deferrals.................................. (1.5) 1.3 1.8
----- ----- -----
Net pension expense......................................... $ 1.5 $ .4 $ .2
===== ===== =====
</TABLE>
The following table presents the funded status of the Williams Pipe Line,
Pekin Energy and LLC plans:
<TABLE>
<CAPTION>
1997 1996
----- -----
(MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $51.1 $15.8
Non-vested benefits....................................... 4.7 1.2
----- -----
Accumulated benefit obligations........................... 55.8 17.0
Effect of projected salary increases...................... 8.8 3.6
----- -----
Projected benefit obligations............................. 64.6 20.6
Assets at market value...................................... 66.5 22.4
----- -----
Assets in excess of projected benefit obligations........... (1.9) (1.8)
Unrecognized net loss....................................... (5.3) (2.1)
Unrecognized prior-service (cost) credit.................... .7 (.7)
Unrecognized transition asset............................... .5 .7
----- -----
Pension asset............................................... $(6.0) $(3.9)
===== =====
</TABLE>
The discount rate used to measure the present value of benefit obligations
is 7 1/4 percent (7 1/2 percent in 1996); 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 two master trusts. The master trusts are comprised primarily of
cash equivalents, domestic and foreign common and preferred stocks, corporate
bonds, United States government securities and commercial paper.
Postretirement benefits other than pensions
Williams Holdings is included in Williams' health care plan that provides
postretirement medical benefits to retired 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.
F-22
<PAGE> 41
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Net postretirement benefit expense related to Williams Holdings'
participation in the Williams' plan was $8.1 million in 1997; $7.8 million in
1996; and $5.7 million in 1995.
Other
Williams Holdings is included in Williams' defined-contribution plans
covering substantially all employees. Williams Holdings' contributions are
invested primarily in Williams common stock, are based on employees'
compensation and, in part, match employee contributions. Williams Holdings'
contributions to these plans were $17 million in 1997, $12 million in 1996, and
$9 million in 1995.
NOTE 9 -- INVENTORIES
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Natural gas in underground storage:
Energy Marketing & Trading........................... $ 3.0 $ 1.5
Petroleum products:
Energy Marketing & Trading........................... 68.6 12.7
Other................................................ 30.1 33.7
Materials and supplies................................. 76.8 47.2
Other.................................................. 3.7 5.9
------ ------
$182.2 $101.0
====== ======
</TABLE>
NOTE 10 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
-------- --------
(MILLIONS)
<S> <C> <C>
Cost:
Energy Services:
Energy Marketing & Trading........................ $ 43.0 $ 5.4
Exploration & Production.......................... 318.5 255.1
Field Services.................................... 1,709.5 1,545.4
Petroleum Services................................ 1,055.2 1,073.1
Communications....................................... 535.0 257.3
Other................................................ 242.0 114.7
-------- --------
3,903.2 3,251.0
Accumulated depreciation and depletion................. (850.8) (710.6)
-------- --------
$3,052.4 $2,540.4
======== ========
</TABLE>
Commitments for construction and acquisition of property, plant and
equipment are approximately $455 million at December 31, 1997.
F-23
<PAGE> 42
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
NOTE 11 -- 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
$48 million at December 31, 1997, and $69 million at December 31, 1996.
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Accrued liabilities:
Employee costs....................................... $ 70.7 $ 67.0
Deferred revenue..................................... 61.7 32.6
Federal income taxes payable-affiliate............... 44.7 --
Transportation and exchange gas payable.............. 33.6 21.2
Taxes other than income taxes........................ 26.1 24.2
State and foreign income taxes payable............... 7.8 34.0
Other................................................ 159.5 152.7
------ ------
$404.1 $331.7
====== ======
</TABLE>
NOTE 12 -- DEBT, LEASES AND BANKING ARRANGEMENTS
Notes payable
During 1997, Williams Holdings entered into a commercial paper program
backed by new short-term bank-credit facilities totaling $650 million. At
December 31, 1997, $645 million of commercial paper was outstanding under the
program. In addition, Williams Holdings has entered into various other
short-term credit agreements with amounts outstanding totaling $56 million at
December 31, 1997. The weighted-average interest rate on the outstanding
short-term borrowings at December 31, 1997 was 6.51 percent. There were no
short-term borrowings outstanding at December 31, 1996.
Debt
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE DECEMBER 31,
INTEREST ---------------
RATE* 1997 1996
--------- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Williams Holdings of Delaware, Inc.
Revolving credit loans.................................... 6.3% $200.0 $500.0
Debentures, 6.25%, payable 2006........................... 4.8 248.9 248.8
Notes, 6.40%-6.91%, payable through 2002.................. 6.8 205.6 --
Williams Pipe Line
Notes, 8.95% and 9.78%, payable through 2001.............. 9.0 40.0 100.0
Williams Energy Ventures
Adjustable rate notes..................................... -- -- 25.6
Williams Communications Solutions, LLC
Revolving credit loans.................................... 6.2 125.0 --
Other, payable through 2000................................. 7.8 3.7 5.7
------ ------
823.2 880.1
Current portion of long-term debt........................... (42.9) (19.7)
------ ------
$780.3 $860.4
====== ======
</TABLE>
- ---------------
* At December 31, 1997, including the effects of interest-rate swap.
F-24
<PAGE> 43
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
In September 1997, Williams and certain of its consolidated subsidiaries
initiated a restructuring of its debt portfolio. In conjunction with this
restructuring, during 1997 Williams Pipe Line redeemed $50 million of debt with
a stated interest rate of 9.78 percent. In January 1998, Williams Pipe Line
redeemed an additional $40 million of debt obligations. The restructuring was
temporarily financed with the combination of short-term bank agreements,
commercial paper and the $1 billion bank-credit agreement, including $203
million of short-term borrowings and commercial paper at Williams Holdings. In
January 1998, these short-term borrowings were repaid with funds previously
advanced to Williams.
In July 1997, Williams, Williams Holdings, Williams Communications
Solutions, LLC, and other affiliates entered into a new $1 billion bank-credit
agreement. Under the terms of the new credit agreement, Williams Communications
Solutions, LLC and the other affiliates have access to varying amounts of the
facility, while Williams (parent) and Williams Holdings (parent) have access to
all unborrowed amounts. Interest rates vary with current market conditions.
For financial statement purposes at December 31, 1997, current debt
obligations of $26 million have been classified as non-current obligations based
on Williams Holdings' intent and ability to refinance on a long-term basis. At
December 31, 1997, the amount available on the existing credit agreement of $132
million is sufficient to complete these refinancings.
An interest-rate swap with a notional value of $250 million is currently
being utilized to convert certain fixed-rate debt obligations to variable rate
obligations resulting in an effective weighted-average floating rate of 4.8
percent at December 31, 1997.
Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments and considering the reclassification of current obligations as
previously described, for each of the next five years are as follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
1998.............................................. $ 42
1999.............................................. 20
2000.............................................. 80
2001.............................................. --
2002.............................................. 431
</TABLE>
Cash payments for interest (net of amounts capitalized) are as follows:
1997 -- $63 million; 1996 -- $34 million and 1995 -- $51 million, including
payments to Williams of $7 million in 1997 and 1996, and $25 million in 1995.
Leases
Future minimum annual rentals under non-cancelable operating leases
(including a total of $15 million to affiliates) are $80 million in 1998, $67
million in 1999, $52 million in 2000, $27 million in 2001, $23 million in 2002
and $67 million thereafter.
Total rent expense was $100 million in 1997, $51 million in 1996 and $39
million in 1995, including $2 million in 1997 and 1996, and $4 million in 1995
paid to Williams and affiliates.
NOTE 13 -- STOCK-BASED COMPENSATION
Williams has several plans providing for common stock-based awards to its
employees and employees of its subsidiaries. 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 may not be
F-25
<PAGE> 44
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
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 ten
years after grant.
Williams' employee stock-based awards are accounted for under provisions of
Accounting Principles Board (APB) 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.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
companies who continue to apply APB Opinion No. 25 disclose pro forma net income
assuming that the fair-value method in SFAS No. 123 had been applied in
measuring compensation cost. Pro forma net income for Williams Holdings,
beginning with 1995 employee stock-based awards, was $183.2 million, $227.5
million and $1,225.2 million for 1997, 1996 and 1995, respectively. Reported net
income was $194.2 million, $228.7 million and $1,230.6 million for 1997, 1996
and 1995, respectively. Pro forma amounts for 1997 include the remaining total
compensation expense from the awards made in 1996, as these awards fully vested
in 1997 as a result of the accelerated vesting provisions. Pro forma amounts for
1995 include total compensation expense from the awards made in 1995, as these
awards fully vested in 1995 as a result of the accelerated vesting provisions.
Since compensation expense from stock options is recognized over the future
years' vesting period, and additional awards generally are made each year, pro
forma amounts may not be representative of future years' amounts.
The following summary reflects stock options related to 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
(OPTIONS IN MILLIONS)
<S> <C> <C>
Options granted............................................. 4.1 4.2
Weighted-average grant date fair value...................... $5.98 $3.92
Options outstanding -- December 31.......................... 11.5 9.5
Options exercisable -- December 31.......................... 7.4 5.0
</TABLE>
NOTE 14 -- FINANCIAL INSTRUMENTS
Fair-value methods
The following methods and assumptions were used by Williams Holdings 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.
Due from parent: The amounts bear interest at rates approximating
market; therefore, fair value is estimated to approximate historically
recorded amounts.
Investment in Williams debentures: The fair value of Williams
Holdings' investment is based on the prices of similar securities with
similar terms and credit ratings. Williams Holdings used the expertise of
an outside investment banking firm to estimate fair value.
Investments -- cost: Fair value is estimated to approximate
historically recorded amounts as the operations underlying these
investments are in their initial phases.
F-26
<PAGE> 45
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Long-term debt: The fair value of Williams Holdings' 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, 1997 and
1996, 52 percent and 27 percent, respectively, of Williams Holdings'
long-term debt was publicly traded. Williams Holdings used the expertise of
an outside investment banking firm to estimate the fair value of long-term
debt.
Interest-rate swap: Fair value is determined by discounting estimated
future cash flows using forward interest rates derived from the year-end
yield curve. Fair value was calculated by the financial institution that is
the counterparty to the swap.
Interest-rate locks: Fair value is determined using year-end traded
market prices for the referenced U.S. Treasury securities underlying the
contracts. Fair value was calculated by the financial institutions that are
parties to the locks.
Energy-related trading and hedging: Includes forwards, 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, liquidity of the market in which
the contract is transacted, the terms of the contract, credit
considerations, time value and volatility factors underlying the positions.
Carrying amounts and fair values of Williams Holdings' financial instruments
Asset (liability)
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........................ $ 55.2 $ 55.2 $ 44.4 $ 44.4
Notes and other non-current receivables.......... 19.9 19.9 22.0 22.0
Due from parent.................................. 274.3 274.3 151.4 151.4
Investment in Williams debentures................ 770.7 770.7 534.5 534.5
Investments -- cost.............................. 101.2 101.2 69.5 69.5
Notes payable.................................... (701.0) (701.0) -- --
Long-term debt, including current portion........ (822.1) (821.9) (878.8) (874.7)
Interest-rate swap............................... 1.5 6.5 1.6 (1.8)
Interest-rate locks.............................. -- (.5) -- --
Energy-related trading:
Assets......................................... 324.9 324.9 253.6 253.6
Liabilities.................................... (383.7) (383.7) (339.1) (339.1)
Energy-related hedging:
Assets......................................... .9 11.0 .9 11.2
Liabilities.................................... -- (3.6) (1.3) (12.2)
</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 1997 average fair value of the energy-related trading assets and
liabilities is $258 million and $345 million, respectively. The 1996 average
fair value of the energy-related trading assets and liabilities is $196 million
and $322 million, respectively.
F-27
<PAGE> 46
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Off-balance-sheet credit and market risk
Williams Holdings 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.
In 1997, Williams Holdings entered into an agreement to sell, on an ongoing
basis, certain of their accounts receivables. At December 31, 1997, $200 million
has been sold.
In connection with the sale of the network services operations, Williams
has been indemnified by LDDS against any losses related to retained guarantees
of $135 million and $158 million at December 31, 1997 and 1996, respectively,
for lease rental obligations.
Williams Holdings has issued other guarantees and letters of credit with
off-balance-sheet risk that total approximately $54 million and $7 million at
December 31, 1997 and 1996, respectively. Williams Holdings 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 Holdings, through Energy Marketing & Trading, 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. The net gain from trading activities was $125.8
million, $99.2 million and $65.8 million in 1997, 1996 and 1995, respectively.
Energy Marketing & Trading 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
Energy Marketing & Trading 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. Energy Marketing
& Trading 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
option contracts are generally exchange quotations. Energy Marketing & Trading
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.
Energy Marketing & Trading is subject to market risk from changes in energy
commodity market prices, the portfolio position of its financial instruments and
physical commitments, the liquidity of the market in which the contract is
transacted, and changes in interest rates and credit risk.
Energy Marketing & Trading manages market risk through established trading
policy guidelines, which are monitored on an ongoing basis. Energy Marketing &
Trading 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.
F-28
<PAGE> 47
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
The notional quantities for trading activities at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
PAYOR RECEIVER PAYOR RECEIVER
------- -------- ------- --------
<S> <C> <C> <C> <C>
Fixed price:
Natural gas (TBtu)............................ 1,327.9 1,702.5 1,066.6 1,196.8
Refined products and crude (MMBbls)........... 337.2 230.7 34.4 26.3
Power (Terawatt Hrs).......................... 20.0 16.7 -- --
Variable price:
Natural gas (TBtu)............................ 2,091.1 1,508.2 1,584.9 1,123.8
Refined products and crude (MMBbls)........... 4.5 3.1 3.7 3.3
Power (Terawatt Hrs).......................... .2 2.1 -- --
</TABLE>
The net cash flow requirement related to these contracts at December 31,
1997 and 1996, was $92 million and $117 million, respectively. At December 31,
1997, the cash flow requirements extend primarily through 2007.
Concentration of credit risk
Williams Holdings' cash equivalents consist of high quality securities
placed with various major financial institutions with high credit ratings.
Williams Holdings' investment policy limits its credit exposure to any one
financial institution.
At December 31, 1997 and 1996, approximately 40 percent and 27 percent,
respectively, of receivables are for communications and related services;
approximately 49 percent and 64 percent, respectively, of receivables are for
the sale of natural gas and related products or services; and approximately 10
percent and 7 percent, respectively, of receivables are for petroleum products
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. Communications'
customers include numerous corporations. Petroleum products customers include
refiners and marketers primarily in the central United States. As a general
policy, collateral is not required for receivables, but customers' financial
condition and credit worthiness are evaluated regularly.
NOTE 15 -- RELATED PARTY TRANSACTIONS
Williams charges its subsidiaries, including Williams Holdings and its
subsidiaries, for certain corporate general and administrative expenses, which
are directly identifiable or allocable to the subsidiaries and for other general
corporate expenses utilizing a combination of revenues, property at cost and
payroll for the allocation base. Details of such charges are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Direct costs................................................ $27.1 $21.2 $16.6
Allocated parent company expenses........................... 21.4 18.8 13.0
</TABLE>
The direct costs charged to Williams Holdings' subsidiaries are reflected
in selling, general and administrative expenses and the direct costs charged to
Williams Holdings (parent) are reflected in general corporate expenses.
Allocated parent company expenses are included in general corporate expenses in
the Consolidated Statement of Income.
Williams Holdings and its subsidiaries maintain promissory notes with
Williams for both advances from and advances to Williams depending on the cash
position of each subsidiary. Amounts outstanding are payable
F-29
<PAGE> 48
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
on demand, however, amounts outstanding have been classified as long-term to the
extent there are no expectations for Williams and Williams Holdings and its
subsidiaries to demand payment in the next year. The current amount due from
parent was $93 million on December 31, 1997, reflecting Williams' payment to
Williams Holdings in January 1998. The agreements do not require commitment
fees. Interest is payable monthly and rates vary with market conditions. The
interest rates were 6.29 percent and 5.73 percent at December 31, 1997 and 1996,
respectively.
Investing income includes $36 million, $31 million and $43 million for
1997, 1996 and 1995, respectively, resulting from advances to affiliates, while
interest accrued includes $3 million for 1995 resulting from advances from
affiliates.
Investing income also includes dividends received on the investment in
Williams common stock of $5 million in 1995.
Williams Holdings' subsidiaries have transactions primarily with the
following affiliates: Northwest Pipeline, Williams Gas Pipelines Central,
Transcontinental Gas Pipe Line and Texas Gas. Energy Marketing & Trading's
revenues include natural gas sales to affiliates of $429 million, $499 million
and $145 million for 1997, 1996 and 1995, respectively. Energy Marketing &
Trading also incurred costs and operating expenses, including transportation and
certain other costs, from affiliates of $96 million, $157 million and $194
million for 1997, 1996 and 1995, respectively. These sales and costs are
included in Energy Marketing & Trading revenues consistent with a "net" basis of
reporting these activities. Transactions with affiliates are at prices that
generally apply to unaffiliated parties.
NOTE 16 -- OTHER FINANCIAL INFORMATION
Intercompany revenues (at prices that generally apply to sales to
unaffiliated parties) are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Energy Services:
Energy Marketing & Trading*............................ $(24.7) $ 94.9 $ 51.3
Exploration & Production............................... 126.5 57.1 4.9
Field Services......................................... 32.3 26.2 14.0
Petroleum Services..................................... 81.6 67.7 44.5
Other.................................................... 4.3 3.7 --
------ ------ ------
$220.0 $249.6 $114.7
====== ====== ======
</TABLE>
- ---------------
* Energy Marketing & Trading intercompany cost of sales, which are netted in
revenues consistent with market value accounting, exceeded intercompany
revenues in 1997.
F-30
<PAGE> 49
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Information for business segments is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Identifiable assets at December 31:
Energy Services:
Energy Marketing & Trading...................... $ 759.2 $ 901.7 $ 484.9
Exploration & Production........................ 247.1 200.3 164.6
Field Services.................................. 1,504.5 1,425.5 1,260.8
Petroleum Services.............................. 904.6 906.5 863.2
Communications..................................... 1,313.3 671.3 401.5
Investments........................................ 1,079.2 743.3 599.1
General corporate and other........................ 896.4 315.3 458.7
-------- -------- --------
Consolidated.................................... $6,704.3 $5,163.9 $4,232.8
======== ======== ========
Additions to property, plant and equipment:
Energy Services:
Energy Marketing & Trading...................... $ 37.6 $ .6 $ .4
Exploration & Production........................ 63.3 30.3 15.6
Field Services.................................. 141.4 197.2 227.3
Petroleum Services.............................. 45.0 55.8 87.9
Communications..................................... 276.3 66.9 32.4
Other.............................................. 132.9 19.2 11.6
-------- -------- --------
Consolidated.................................... $ 696.5 $ 370.0 $ 375.2
======== ======== ========
Depreciation, depletion and amortization:
Energy Services:
Energy Marketing & Trading...................... $ .7 $ .6 $ 1.2
Exploration & Production........................ 12.6 10.5 9.8
Field Services.................................. 67.9 56.2 39.7
Petroleum Services.............................. 35.0 34.1 26.4
Communications..................................... 66.8 30.9 20.3
Other.............................................. 6.7 5.9 3.1
-------- -------- --------
Consolidated.................................... $ 189.7 $ 138.2 $ 100.5
======== ======== ========
</TABLE>
Identifiable assets are gross assets used by a business segment, including
an allocated portion of assets used jointly by more than one business segment.
Items such as investments are considered to be general corporate assets rather
than identifiable assets of individual business segments.
NOTE 17 -- CONTINGENT LIABILITIES AND COMMITMENTS
Rate and regulatory matters
Williams Pipe Line has various regulatory proceedings pending. As a result
of rulings in these proceedings, a portion of its revenues has been collected
subject to refund. Such revenues were $328 million at December 31, 1997. As a
result of various Federal Energy Regulatory Commission (FERC) rulings in these
and other proceedings, Williams Pipe Line does not expect that the amount of any
refunds ordered would be significant. Accordingly, no portion of these revenues
has been reserved for refund.
F-31
<PAGE> 50
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Environmental matters
Certain Williams Holdings' subsidiaries have been identified as potentially
responsible parties (PRP) at various Superfund and state waste disposal sites.
In addition, these subsidiaries have incurred, or are alleged to have incurred,
various other hazardous materials removal or remediation obligations under
environmental laws. Although no assurances can be given, Williams Holdings 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.
The Field Services unit of Energy Services had recorded an aggregate
liability of approximately $12 million, representing the current estimate of
future environmental and remediation costs, including approximately $5 million
relating to former Williams Gas Pipelines Central facilities.
Other legal matters
In 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit against
Williams Production Company (Williams Production), a wholly-owned subsidiary of
Williams Holdings, 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. On July 16, 1997, the
U.S. Court of Appeals for the Tenth Circuit reversed the decision of the
district court, held that the Tribe owns the coal-seam gas produced from certain
coal strata on fee lands within the exterior boundaries of the Tribe's
reservation, and remanded the case to the district court for further
proceedings. On September 16, 1997, Amoco Production Company, the class
representative for the defendant class (of which Williams Production is a part),
filed its motion for rehearing en banc before the Court of Appeals. On December
4, 1997, the Tenth Circuit Court of Appeals agreed to rehear the appeal.
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. Transco Energy
Company and Transco Gas Supply Company (wholly-owned subsidiaries of Williams
Holdings) have also been named as defendants in certain of these lawsuits. In
one of the two remaining cases, a jury verdict found that Transcontinental Gas
Pipe Line was required to pay $23.3 million including $3.8 million in attorneys'
fees. Transcontinental Gas Pipe Line is considering an appeal. In the other
remaining case, a producer has asserted damages, including interest calculated
through December 31, 1996, of approximately $6 million.
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 FERC 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 Hazleton, Pennsylvania (the Facility).
F-32
<PAGE> 51
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Hazleton Fuel Management Company (HFMC), a subsidiary of Transco Energy Company,
formerly supplied natural gas and fuel oil to the Facility. Pursuant to a
court-approved Plan of Reorganization, all litigation involving HFMC has been
fully settled, and HFMC received $6.3 million from the bankruptcy estate,
leaving it with approximately $14 million of outstanding receivables, all of
which have been fully reserved.
In addition to the foregoing, various other proceedings are pending against
Williams Holdings or its subsidiaries, which are incidental to their operations.
Summary
While no assurances may be given, Williams Holdings does not believe that
the ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, insurance coverage or other indemnification
arrangements, will have a materially adverse effect upon Williams Holdings'
future financial position, results of operations or cash flow requirements.
NOTE 18 -- MAPCO ACQUISITION
On November 24, 1997, Williams and MAPCO Inc. announced that they had
entered into a definitive merger agreement whereby Williams would acquire MAPCO
by exchanging approximately 1.665 shares of Williams common stock for each
outstanding share of MAPCO common stock. In addition, outstanding MAPCO employee
stock options would be converted into Williams common stock. Approximately 96.8
million shares of Williams common stock valued at approximately $2.8 billion,
based on the closing market price of Williams common stock on December 31, 1997,
would be issued in the transaction. The transaction, subject to approval by both
Williams and MAPCO stockholders and review under federal antitrust laws, is
expected to close during the first quarter of 1998. MAPCO is engaged in the NGL
pipeline, petroleum refining and marketing and propane marketing business. Upon
completion of the merger, Williams will make a capital contribution of its
interest in MAPCO to Williams Holdings, and MAPCO will become part of the Energy
Services business unit.
The merger will be accounted for as a pooling of interests. Anticipated
changes in accounting methods as a result of the merger are not expected to have
a material impact on the financial position or results of operations of the
combined entity.
The following unaudited pro forma information combines the results of
operations of Williams Holdings and MAPCO as if the companies had been combined
throughout the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Revenues.................................................... $6,512.9 $5,153.0 $4,153.3
Income from continuing operations........................... 301.0 358.9 276.0
Net income.................................................. 291.1 326.2 1,305.3
</TABLE>
Pro forma financial information is not necessarily indicative of results of
operations that would have occurred if the companies had been combined
throughout the periods presented or of future results of operations of the
combined companies.
F-33
<PAGE> 52
WILLIAMS HOLDINGS OF DELAWARE, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (millions):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues........................................... $529.2 $635.3 $711.9 $804.5
Costs and operating expenses....................... 353.7 433.4 504.4 527.0
Income before extraordinary loss................... 52.3 85.5 31.3 28.7
Net income......................................... 52.3 85.5 31.3 25.1
</TABLE>
<TABLE>
<CAPTION>
1996
----
<S> <C> <C> <C> <C>
Revenues........................................... $433.5 $421.0 $442.8 $544.0
Costs and operating expenses....................... 282.5 280.1 299.0 379.2
Net income......................................... 53.1 50.3 51.0 74.3
</TABLE>
Second-quarter 1997 net income includes a $44.5 million gain related to the
combination of Williams Holdings' and Nortel's customer-premise equipment sales
and service operations (see Note 2 of Notes to Consolidated Financial
Statements). Fourth-quarter 1997 net income includes charges totaling
approximately $49.8 million, related to the decision to sell the learning
content business, and the write-down of assets and the development costs
associated with advanced applications (see Note 5 of Notes to Consolidated
Financial Statements). Fourth-quarter 1997 net income also includes
approximately $5 million in costs related to the MAPCO acquisition (see Note 18
of Notes to Consolidated Financial Statements) and an extraordinary loss of $3.6
million related to the restructuring of Williams' debt portfolio (see Note 7 of
Notes to Consolidated Financial Statements).
Second-quarter 1996 net income includes a favorable income tax adjustment
of $3 million related to research credits. Third-quarter 1996 net income
includes approximately $6 million, net of federal income tax, from the effects
of state income tax adjustments related to 1995. Fourth-quarter 1996 net income
includes a gain of approximately $20 million from the property insurance
coverage associated with construction of replacement gathering facilities and a
pre-tax gain of $15.7 million from the sale of certain communication rights,
partially offset by approximately $7 million related to an all-employee bonus
that was linked to achieving record financial performance.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
F-34
<PAGE> 53
WILLIAMS HOLDINGS OF DELAWARE, 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, 1997...................................... F-11
Consolidated balance sheet at December 31, 1997 and
1996................................................... F-12
Consolidated statement of stockholder's equity for the
three years ended December 31, 1997.................... F-13
Consolidated statement of cash flows for the three years
ended December 31, 1997................................ F-14
Notes to consolidated financial statements................ F-15
Schedule for the three years ended December 31, 1997:
II -- Valuation and qualifying accounts................ F-36
Not covered by report of independent auditors:
Quarterly financial data (unaudited)...................... F-34
</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-35
<PAGE> 54
WILLIAMS HOLDINGS OF DELAWARE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(a)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER(C) DEDUCTIONS(B) BALANCE
--------- -------- ---------- ------------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1997...................................... $ 8.8 $8.8 $7.8 $6.9 $18.5
1996...................................... 10.3 4.1 1.3 6.9 8.8
1995...................................... 7.2 3.6 1.5 2.0 10.3
</TABLE>
- ---------------
(a) Deducted from related assets.
(b) Represents balances written off, net of recoveries and reclassifications.
(c) Primarily relates to acquisitions of businesses.
F-36
<PAGE> 55
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) Agreement and Plan of Merger, dated as of November 23, 1997, and
as amended on January 25, 1998, among The Williams Companies, Inc., MAPCO
Inc. and TML Acquisition Corp. (filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-4, filed January 27, 1998).
Exhibit 3 --
*(a) Certificate of Incorporation of the Company (filed as Exhibit 3.2
to the Company's Form 10, dated October 18, 1995).
*(b) By-laws of the Company (filed as Exhibit 3.2 to the Company's
Form 10, dated October 18, 1995).
Exhibit 4 --
<TABLE>
<CAPTION>
<C> <S>
*4.1 -- Form of Senior Debt Indenture between the Company and
Citibank, N.A., relating to the 6 1/4% Senior Debentures
due 2006 (filed as Exhibit 4.1 to the Company's Form 10,
dated October 18, 1995).
*4.2 -- U.S. $1,000,000,000 Amended and Restated Credit
Agreement, dated as of July 23, 1997, among the Company
and certain of its subsidiaries, and the lenders named
therein and Citibank, N.A., as agent (filed as Exhibit
4(c) to Williams' Form 10-K for the fiscal year ended
December 31, 1997).
4.3 -- U.S. $500,000,000 Credit Agreement, dated as of July 23,
1997, among the Company and the lenders named therein and
Citibank, N.A., as agent.
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges.
Exhibit 23 -- Consent of Independent Auditors.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company with the Securities
and Exchange Commission during the fourth quarter of 1997.
(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-37
<PAGE> 56
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.
WILLIAMS HOLDINGS OF DELAWARE, INC.
(Registrant)
By: /s/ SHAWNA L. GEHRES
----------------------------------
Shawna L. Gehres
Attorney-in-fact
Dated: March 30, 1998
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) and Director
Jack D. McCarthy
/s/ GARY R. BELITZ* Controller (Principal Accounting Officer)
- -----------------------------------------------------
Gary R. Belitz
/s/ JOHN C. BUMGARNER, JR.* Director
- -----------------------------------------------------
John C. Bumgarner, Jr.
/s/ STEPHEN L. CROPPER* Director
- -----------------------------------------------------
Stephen L. Cropper
/s/ HOWARD E. JANZEN* Director
- -----------------------------------------------------
Howard E. Janzen
By: /s/ SHAWNA L. GEHRES
-------------------------------------------------
Shawna L. Gehres
Attorney-in-fact
</TABLE>
Dated: March 30, 1998
II-1
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*4.1 -- Form of Senior Debt Indenture between the Company and
Citibank, N.A., relating to the 6 1/4% Senior Debentures
due 2006 (filed as Exhibit 4.1 to the Company's Form 10,
dated October 18, 1995).
*4.2 -- U.S. $1,000,000,000 Amended and Restated Credit
Agreement, dated as of July 23, 1997, among the Company
and certain of its subsidiaries, and the lenders named
therein and Citibank, N.A., as agent (filed as Exhibit
4(c) to Williams' Form 10-K for the fiscal year ended
December 31, 1997).
4.3 -- U.S. $500,000,000 Credit Agreement, dated as of July 23,
1997, among the Company and the lenders named therein and
Citibank, N.A., as agent.
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges.
Exhibit 23 -- Consent of Independent Auditors.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 4.3
U.S. $500,000,000
CREDIT AGREEMENT
Dated as of July 23, 1997
Among
WILLIAMS HOLDINGS OF DELAWARE, INC.
as Borrower
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
Co-Agents:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
BANK OF MONTREAL
CREDIT LYONNAIS NEW YORK BRANCH
THE CHASE MANHATTAN BANK
CIBC INC.
THE FIRST NATIONAL BANK OF CHICAGO
ROYAL BANK OF CANADA
<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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.05. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.02. Making the A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.04. Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.05. Repayment of A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.06. Interest on A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.07. Additional Interest on Eurodollar Rate Advances . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.08. Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.09. Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.10. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.11. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.13. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.15. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.16. The B Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.17. Optional Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.18. Extension of Termination Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.19. Voluntary Conversion of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.20. Automatic Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.02. Additional Conditions Precedent to Each A Borrowing . . . . . . . . . . . . . . . . . . . . . 28
Section 3.03. Conditions Precedent to Each B Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrower . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V
COVENANTS OF THE BORROWER
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.03. Citibank and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.04. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.05. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.06. Binding Effect; Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.08. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.09. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.10. Survival of Agreements, Representations and Warranties, Etc. . . . . . . . . . . . . . . . . 51
Section 8.11. Borrower's Right to Apply Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
Schedule I - Bank Information
Schedule II - Borrower Information
Schedule III - Permitted Liens
Schedule IV - Commitments
Schedule V - Rating Categories
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
<PAGE> 5
CREDIT AGREEMENT
Dated as of July 23, 1997
This Credit Agreement dated as of July 23, 1997, is by and among the
Borrower, the Agent and the Banks. In consideration of the mutual covenants
and agreements contained herein, the Borrower, the Agent and the Banks hereby
agree as set forth herein.
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 the 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 Borrower made by each of the Banks
pursuant to Section 2.01.
"A Note" means a promissory note of the Borrower payable to
the order of any Bank, in substantially the form of Exhibit A-1
hereto, evidencing the aggregate indebtedness of the Borrower to such
Bank resulting from the A Advances to the 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.
"Agreement" means this Credit Agreement dated as of July 23,
1997, among the Borrower, the Agent and the Banks, as amended or
modified from time to time.
"Applicable Commitment Fee Rate" means the rate per annum set
forth on Schedule V under the heading "Applicable Commitment Fee Rate"
for the relevant Rating Category applicable to Borrower from time to
time. The Applicable Commitment Fee Rate shall change when and as the
relevant Rating Category applicable to Borrower changes.
<PAGE> 6
"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 the rate per annum set forth in
Schedule V under the heading "Applicable Margin" for the relevant
Rating Category applicable to Borrower from time to time. The
Applicable Margin for any Eurodollar Rate Advance shall change when
and as the relevant applicable Rating Category changes.
"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 the 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 Borrower from each of the Banks whose offer to make
one or more B Advances as part of such borrowing has been accepted by
the Borrower under the auction bidding procedure described in Section
2.16.
"B Note" means a promissory note of the Borrower payable to
the order of any Bank, in substantially the form of Exhibit A-2
hereto, evidencing the indebtedness of the Borrower to such Bank
resulting from a B Advance made to the 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:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate; or
-2-
<PAGE> 7
(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).
"Borrower" means Williams Holdings of Delaware, Inc., a
Delaware corporation.
"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.
"Co-Agent" means each of Bank of America National Trust and
Savings Association, Bank of Montreal, Credit Lyonnais New York
Branch, The Chase Manhattan Bank, CIBC Inc., The First National Bank
of Chicago, and Royal Bank of Canada.
"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 means at any time 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 on
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Schedule IV as such amount may be terminated, reduced or increased
after July 23, 1997, pursuant to Section 2.04, Section 2.17, Section
6.01 or Section 8.06(a).
"Consolidated" refers to the consolidation of the accounts of
any Person and its subsidiaries in accordance with generally accepted
accounting principles.
"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 that
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 or under or resulting
from any sale and leaseback referred to in paragraph (aa) of Schedule
III.
"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 Borrower 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
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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.
"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" means any trade or business (whether or not
incorporated) which is a member of a group of which the 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 Borrower 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 that 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
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<PAGE> 10
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.
"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 Eurodollar Rate Advance
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 the 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 the Borrower pursuant to the provisions
below. The duration of each Interest Period shall be one, two, three
or six months, in each case as the 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
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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;
(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) the Borrower may not select any Interest
Period that ends after the Termination Date, and the Borrower
may not select any Interest Period if any Event of Default
exists.
"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 the Borrower nor any Subsidiary or Related Party of the
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.
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"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate 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 the
Borrower or any ERISA Affiliate, and one or more employers other than
the Borrower or an ERISA Affiliate, is making or accruing an
obligation to make contributions or, in the event that any such plan
has been terminated, to which the Borrower or any ERISA Affiliate made
or accrued an obligation to make contributions during any of the five
plan years preceding the date of termination of such plan.
"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.
"Non-Recourse Debt" means Debt incurred by any non-material
Subsidiary to finance the acquisition (other than any acquisition from
TWC or any Subsidiary) or construction of a project, which Debt does
not permit or provide for recourse against Borrower or any Subsidiary
of Borrower (other than the Subsidiary that is to acquire or construct
such project) or any property or asset of Borrower of any Subsidiary
of Borrower (other than the property or assets of the Subsidiary that
is to acquire or construct such project).
"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 Liens" means Liens specifically described on
Schedule III.
"Person" means an individual, partnership, corporation,
limited liability company, 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
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<PAGE> 13
been made at any time after December 31, 1984, by, the Borrower or any
ERISA Affiliate for employees of the Borrower or any 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 annual report on Form 10-K for
the year ended December 31, 1996, and TWC's quarterly report on Form
10-Q for the quarter ended March 31, 1997.
"Rating Category" means, as to Borrower, the relevant category
applicable to Borrower from time to time as set forth on Schedule V,
which is based on the ratings (or lack thereof) of Borrower's senior
unsecured long-term debt by S&P or Moody's.
"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 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 the Borrower) shall not be considered to be a
Sale and Lease-Back Transaction.
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<PAGE> 14
"Stated Termination Date" means July 21, 1998, or such later
date, if any as may be agreed to by the Borrower and the Banks
pursuant to Section 2.18.
"Subordinated Debt" means any Debt of the Borrower which is
effectively subordinated to the obligations of the 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.
"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 the Borrower or any ERISA Affiliate 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 the Borrower or any ERISA Affiliate 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.
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"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 that no senior unsecured long-term debt of the
Borrower is rated by S&P and no senior unsecured long-term debt of the
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.
"WFS" means Williams Field Services Group, Inc., a Delaware
corporation.
"WilTel" means WilTel Communications, LLC, a Delaware limited
liability company.
"WNG" means Williams Natural Gas Company, a Delaware
corporation.
"WPL" means Williams Pipe Line Company, a Delaware
corporation.
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).
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
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<PAGE> 16
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 the Borrower, the lowest such rating shall be
applicable for purposes hereof. For example, if Moody's rates some senior
unsecured long-term debt of the Borrower Ba1 and other such debt of the
Borrower Ba2, the senior unsecured long-term debt of the 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 the
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, provided that the aggregate amount
of the Commitments of the Banks shall, except for purposes of Section 2.03(a),
be deemed used from time to time to the extent of the aggregate amount of the B
Advances then outstanding to the Borrower and such deemed use of the aggregate
amount of such Commitments shall be applied to the Banks ratably according to
their respective Commitments (such deemed use of the aggregate amount of the
Commitments being a "B Reduction"). 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 Borrower
on the same day by the Banks ratably according to their respective Commitments.
Within the limits of each Bank's Commitment, the 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
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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 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 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 at the Agent's aforesaid
address.
(b) Anything herein to the contrary notwithstanding:
(i) at no time shall there be outstanding to the
Borrower more than six A Borrowings comprised of Eurodollar Rate
Advances;
(ii) the Borrower may not select Eurodollar Rate
Advances for any Borrowing if the aggregate amount of such Borrowing
is less than $20,000,000;
(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 Borrower 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 Borrower
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 Borrower and the
Banks that the circumstances causing such suspension no longer exist,
and, except as
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provided in Section 2.02(b)(v), each Advance comprising any requested
A Borrowing shall be a Base Rate Advance; and
(v) if the 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, the 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 the 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 Borrower, except as set forth in Section 2.02(b)(v). In the
case of any A Borrowing which the related Notice of A Borrowing specifies is to
be comprised of Eurodollar Rate Advances, the 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 the 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
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), the 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 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 the
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 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 the
Borrower 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 the 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 the Borrower until the date such amount
is repaid to the
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Agent, at (i) in the case of the 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. Borrower 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), B Advances 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 Borrower from the date hereof until the Termination
Date at a rate per annum from time to time equal to the Applicable Commitment
Fee Rate from time to time, payable in arrears on the last day of each March,
June, September and December during the term such Bank has any Commitment and
on the Termination Date.
(b) Agent's Fees. The Borrower agrees to pay to the
Agent, for its sole account, such fees as may be separately agreed to in
writing the Borrower and the Agent.
Section 2.04. Reduction of the Commitments. The 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
respective Commitments of the Banks, 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 shall not be reduced to an
amount which is less than the aggregate principal amount of the Advances then
outstanding to the Borrower.
Section 2.05. Repayment of A Advances. The 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 the Borrower.
Section 2.06. Interest on A Advances. The Borrower shall pay
interest on the unpaid principal amount of each A Advance made by each Bank to
the 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
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(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.
Section 2.07. Additional Interest on Eurodollar Rate
Advances. The 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, 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 the
Borrower through the Agent. A certificate as to the amount of such additional
interest submitted to the 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
Borrower 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 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 the
Borrower resulting from the A Advances owed to each Bank by the Borrower shall
be evidenced by an A Note of the Borrower payable to the order of such Bank.
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Section 2.10. Prepayments.
(a) The Borrower shall not have any right to prepay any
principal amount of any A Advance except as provided in this Section 2.10.
(b) The 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 the 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
$20,000,000.
(c) The Borrower will give notice to the Agent at or
before the time of each prepayment by the 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 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 the Borrower, then the 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 the 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 Borrower of
any such introduction, change, compliance or proposed compliance.
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(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 the Borrower hereunder and other commitments of this type, then,
upon demand by such Bank (with a copy of such demand to the Agent), the
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 the
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, the Borrower 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 (i) 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,
(ii) such replacement bank shall be reasonably satisfactory to the Agent and
the Majority Banks, (iii) such replacement bank shall, from and after such
replacement, be deemed for all purposes to be a "Bank" hereunder with a
Commitment in the amount of the Commitment of such Bank immediately prior to
such replacement (plus, if such replacement bank is already a Bank prior to
such replacement the respective Commitment of such Bank to the 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 (iv) such other actions shall be taken by the
Borrower, 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
to such replacement bank, redelivery to the Borrower in due course of the Notes
of the 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
Borrower
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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 Borrower and the Banks that
the circumstances causing such suspension no longer exist, and (ii) the
Borrower 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, Convert 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) The 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) The Borrower hereby authorizes each Bank, if and to
the extent payment owed to such Bank by the Borrower is not made when due
hereunder or under any Note held by such Bank, to charge from time to time
against any or all of the Borrower's accounts with such Bank any amount so due.
(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
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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 the
Borrower prior to the date on which any payment is due by the Borrower to any
Bank hereunder that the Borrower will not make such payment in full, the Agent
may assume that the 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 hereunder. If and to the extent the 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 the 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 the 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) the Borrower shall make such deductions and (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, the 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 the 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) The 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
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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 the Borrower, the 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 the 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 the 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 Borrower hereunder, the agreements and obligations of the
Borrower 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. The 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 the Borrower in the amount of such
participation.
Section 2.16. The B Advances.
(a) Each Bank severally agrees that the 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
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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 the Borrower shall not exceed the aggregate amount of the
Commitments of the Banks (computed without regard to any B Reduction).
(i) The 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 the 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
the Borrower by sending such Bank a copy of the related Notice of B
Borrowing. Each time that the Borrower gives a Notice of B Borrowing,
the 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 the
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 the 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 the
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
discretion, elect to make any such offer, it shall notify the 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
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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 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 the 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 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 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
the 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
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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 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 the 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 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. The 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, the 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 the Borrower within three Business Days of the
date of another B Borrowing.
(d) The Borrower shall repay to the Agent for the account
of each Bank which has made a B Advance to the Borrower, or each other
holder of a B Note of the Borrower, on the maturity date of each B
Advance made to the Borrower (such maturity date being that specified
by the 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. The Borrower shall not have any
right to prepay any principal amount of any B Advance unless, and then
only on the terms, specified by the 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) The Borrower shall pay interest on the unpaid
principal amount of each B Advance made to the 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 the 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.
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(f) The indebtedness of the Borrower resulting from each
B Advance made to the Borrower as part of a B Borrowing shall be
evidenced by a separate B Note of the Borrower payable to the order of
the Bank making such B Advance.
(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 (v) 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 (vi) 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 (vii) 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 the 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
Borrower, 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 the Borrower shall not 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 July 1 of any year after 1997, the Borrower 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 Borrower
and the Agent that it so agrees, and if all Banks so agree the Stated
Termination Date shall be so extended.
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Section 2.19. Voluntary Conversion of Advances. The Borrower
may on any Business Day, if no Event of Default then exists, 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 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 the 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 the Borrower and the Banks, 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 the 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 by the Borrower to the order of
each of the respective Banks and this Agreement executed by the
Borrower.
(b) Certified copies of the resolutions of the Board of
Directors, or the Executive Committee thereof, of the Borrower
authorizing the execution of this Agreement and the Notes.
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(c) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying (i) that attached thereto are
true and correct copies of the Certificate of Incorporation and Bylaws
of the Borrower, and (ii) the names and true signatures of the
officers of the Borrower authorized to sign this Agreement, Notices of
A Borrowing, Notices of B Borrowing and the Notes to be executed by
the Borrower and any other documents to be delivered hereunder by the
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.
(f) A certificate of an officer of the Borrower stating
the respective ratings by each of S&P and Moody's of the senior
unsecured long-term debt of the Borrower as in effect on the date of
this Agreement.
Section 3.02. Additional Conditions Precedent to Each A
Borrowing. The obligation of each Bank to make an A Advance 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 the Borrower of the proceeds of
such A Borrowing shall constitute a representation and warranty by the 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 (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.
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Section 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Bank which is to make a B Advance to the 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 the 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 the Borrower of the
proceeds of such B Borrowing shall constitute a representation and warranty by
the Borrower that on the date of such B Borrowing such statements are true):
(1) The representations and warranties contained in
Section 4.01 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 the Borrower under this
Agreement, the aggregate principal amount of all Advances to the
Borrower then outstanding will not exceed the aggregate amount of the
Commitments (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 (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 Borrower.
The Borrower represents and warrants as follows:
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(a) The 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 the Borrower and its Subsidiaries taken as a whole. Each
Subsidiary of the Borrower is duly organized or validly formed,
validly existing and (if applicable) in good standing under the laws
of its jurisdiction of incorporation or formation, 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 the Borrower and its
Subsidiaries taken as a whole. Each Subsidiary of the 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 the Borrower
and its Subsidiaries taken as a whole.
(b) The execution, delivery and performance by the
Borrower of this Agreement and the Notes and the consummation of the
transactions contemplated by this Agreement are within the Borrower's
corporate powers, have been duly authorized by all necessary corporate
action, do not contravene (i) the Borrower's charter or by-laws or
(ii) law or any contractual restriction binding on or affecting the
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 the Borrower, such borrowing and the use
of the proceeds of such Advance will be within the Borrower's
corporate powers, will have been duly authorized by all necessary
corporate action, will not contravene (i) the Borrower's charter or
by-laws or (ii) law or any contractual restriction binding on or
affecting the 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
the 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 the 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 the Borrower. This Agreement is the legal, valid and binding
obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law
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<PAGE> 34
affecting creditors' rights generally and by general principles of
equity. The A Notes are, and when executed the B Notes will be, the
legal, valid and binding obligations of the Borrower enforceable
against the 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) The Consolidated balance sheet of the Borrower and
its Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of the Borrower and its
Subsidiaries for the fiscal year then ended, copies of which have been
furnished to each Bank, and the Consolidated balance sheet of the
Borrower and its Subsidiaries as at March 31, 1997, and the related
Consolidated statement of income and cash flows of the Borrower and
its Subsidiaries for the three months then ended, duly certified by an
authorized financial officer of the Borrower, copies of which have
been furnished to each Bank, fairly present, subject, in the case of
such balance sheet as at March 31, 1997, and such statement of income
and cash flows for the three months then ended, to year-end audit
adjustments, the Consolidated financial condition of the Borrower and
its Subsidiaries as at such dates and the Consolidated results of
operations of the Borrower and its Subsidiaries for the year and three
month period, respectively, ended on such dates, all in accordance
with generally accepted accounting principles consistently applied.
Since March 31, 1997, there has been no material adverse change in the
condition or operations of the Borrower or its Subsidiaries.
(f) Except as set forth in the Public Filings or as
otherwise disclosed in writing by the Borrower to the Banks and the
Agent after the date hereof and approved by the Majority Banks, there
is no pending or, to the knowledge of the Borrower, threatened action
or proceeding affecting the Borrower or any material Subsidiary of the
Borrower before any court, governmental agency or arbitrator, which
could reasonably be expected to materially and adversely affect the
financial condition or operations of the 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) The Borrower is not 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 the Borrower will be
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represented by such margin stock and not more than 25% of the value of
the assets of the Borrower and its Subsidiaries will be represented by
such margin stock.
(i) The Borrower is not 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. Neither the Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has
been terminated, within the meaning of Title IV of ERISA, and the
Borrower is not 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) The Borrower and the Subsidiaries of the 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 the 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 the Borrower and
the material Subsidiaries of the Borrower in respect of taxes are
adequate.
(l) The Borrower is not 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 the Borrower to the Banks and the
Agent after the date hereof and approved by the Majority Banks, the
Borrower and its material 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 the 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 the Borrower and its Subsidiaries
(other than those reserved for in accordance with generally accepted
accounting principles and set forth in the financial statements
regarding the 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
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<PAGE> 36
Consolidated Tangible Net Worth of the Borrower (excluding liabilities
to the extent covered by insurance if the insurer has confirmed that
such insurance covers such liabilities or which the Borrower
reasonably expects to recover from ratepayers).
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.01. Affirmative Covenants. So long as any Note
shall remain unpaid or any Bank shall have any Commitment hereunder, the
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 the 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 neither the Borrower nor any Subsidiary
of the 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
the 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 the Borrower setting forth the details of such
Event of Default or event and the actions, if any, which the
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 the Borrower, the Consolidated balance
sheets of the Borrower and its Subsidiaries as of the end of
such quarter and the Consolidated statements of income and
cash flows of the 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 the Borrower as having been
prepared in accordance with generally accepted
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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 the Borrower proposes to
take with respect thereto, and (b) showing in detail the
calculation supporting such statement in respect of Section
5.02(b);
(iii) as soon as available and in any event not later
than 105 days after the end of each fiscal year of the
Borrower, a copy of the annual audit report for such year for
the Borrower and its Subsidiaries, including therein
Consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such fiscal year and
Consolidated statements of income and cash flows of the
Borrower and its Subsidiaries for such fiscal year, in each
case prepared in accordance with generally accepted accounting
principles and certified by Ernst & Young, LLP 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
the 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);
(iv) such other information respecting the business
or properties, or the condition or operations, financial or
otherwise, of the Borrower or any of its material 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 the Borrower sends to any of its security holders, and
copies of all final reports and final registration statements
which the Borrower or any material Subsidiary of the 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 the Borrower or any ERISA Affiliate
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 the Borrower or any ERISA Affiliate knows
or has reason to know that any other Termination Event with
respect to any Plan has occurred or is reasonably expected
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to occur, a statement of the chief financial officer or chief
accounting officer of the Borrower describing such Termination
Event and the action, if any, which the Borrower or such ERISA
Affiliate proposes to take with respect thereto;
(vii) promptly and in any event within 25 Business
Days after receipt thereof by the Borrower or any ERISA
Affiliate, copies of each notice received by the Borrower or
any ERISA Affiliate 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 the Borrower or any
ERISA Affiliate with respect to each Plan;
(ix) promptly and in any event within 25 Business
Days after receipt thereof by the Borrower or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, a copy of
each notice received by the Borrower or any ERISA Affiliate
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 the Borrower or any ERISA Affiliate in connection
with any event described in clause (A), (B) or (C) above;
(x) not more than 60 days (or 105 days in the case
of the last fiscal quarter of a fiscal year of the Borrower)
after the end of each fiscal quarter of the Borrower, a
certificate of an authorized financial officer of the Borrower
stating the respective ratings, if any, by each of S&P and
Moody's of the senior unsecured long-term debt of the Borrower
as of 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 the Borrower by S&P or Moody's, notice thereof.
(c) Maintenance of Insurance. Maintain, and cause each
of its material 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 the Borrower or its Subsidiaries operate, provided that
the 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.
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(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 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
Subsidiary of the 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 the Borrower and its Subsidiaries taken as
a whole and (2) in the case of the Borrower, where the failure of the
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 the 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 hereunder, the Borrower
will not, 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 the Borrower may
create, incur, assume or suffer to exist Permitted Liens.
(b) Debt. Permit the ratio of (A) the aggregate amount
of all Debt of the Borrower and its Subsidiaries on a Consolidated
basis to (B) the sum of the Consolidated Net Worth of the Borrower
plus the aggregate amount of all Debt of the Borrower and its
Subsidiaries on a Consolidated basis to exceed 0.55 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 material
Subsidiaries 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) the Borrower and its Subsidiaries from
selling, leasing or otherwise transferring their respective
assets in the ordinary course of business;
(ii) any merger, consolidation or sale, lease or
other transfer of assets involving only the Borrower and its
Subsidiaries; provided, however, that transactions under this
paragraph (ii) shall be permitted if, and only if, (x) there
shall not exist or result an Event of Default or an event
which with notice or lapse
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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 the Borrower or any of its Subsidiaries, such
transaction could not reasonably be expected to impair
materially the ability of the Borrower to perform its
obligations hereunder and under the Notes and the Borrower
shall continue to exist;
(iii) the 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; provided, however, that transactions under this
paragraph (iii) shall be permitted if, and only if, there
shall not exist or such transaction shall not result in an
Event of Default or an event which with notice or lapse of
time or both would constitute an Event of Default;
(iv) any sale and lease-back of cushion gas by the
Borrower or any of its Subsidiaries or any sale and lease-back
of inventory by WPL or any of its Subsidiaries (other than the
Borrower);
(v) sales of receivables of any kind; or
(vi) any sale, lease or other transfer of any
stock or assets of Transco Energy Company and its
Subsidiaries; provided, however, that transactions under this
paragraph (vi) shall be permitted if, and only if, prior to
the time of such transaction Transco Energy Company and its
Subsidiaries shall have transferred to TWC all of their
respective interests in TGPL and TGT and shall not have
reacquired any such interest and 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.
(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 the
Borrower (i) 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 the Borrower or to any Subsidiary of the
Borrower; or (ii) to make loans or advances to the Borrower or any
Subsidiary of the Borrower, except (1) encumbrances and restrictions
on any immaterial Subsidiary of the Borrower (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 the Borrower or any of its Subsidiaries
that are not more restrictive in any material respect than the
encumbrances and restrictions with respect to the Borrower or its
Subsidiaries described in Exhibit E, and (4) any encumbrances and
restrictions created
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in connection with any sale and lease-back of cushion gas by the
Borrower or any Subsidiary of the Borrower or any sale and lease-back
of inventory by WPL or any of its Subsidiaries (other than the
Borrower).
(e) Loans and Advances. Borrow or otherwise receive or
permit to remain outstanding any loan or advance from TWC, or own,
purchase or acquire any obligations or debt securities of, any
Subsidiary of TWC, except that the Borrower and its Subsidiaries may
borrow or otherwise receive loans and advances from TWC, 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 or interest in
(1) the Borrower, WNG, WFS, WPL, TGPL, TGT, NWP, or WilTel 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 the Borrower, WNG, WFS, WPL, TGPL, TGT or NWP or any
of their respective material Subsidiaries; provided, however, that,
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 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 the
Borrower or any of its Subsidiaries, such sale or other disposition
could not reasonably be expected to impair materially the ability of
the Borrower to perform its obligations hereunder and under the Notes
and the Borrower shall continue to exist.
(g) Compliance with ERISA. (i) Terminate, or permit any
ERISA Affiliate to terminate, any Plan so as to result in any
liability of the Borrower or any 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
material Subsidiary of the 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 the
Borrower or of such Subsidiary
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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 the Borrower or such Subsidiary in the
good faith judgment of the 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 any
Subsidiary of Williams Energy Company that is not the Borrower) 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 the Borrower would not be
permitted to incur at least $1.00 of additional Debt secured by a Lien
permitted by paragraph (z) of Schedule III.
(k) Use of Proceeds. Use any proceeds of any Advance for
any purpose other than general corporate purposes (including, without
limitation, working capital and capital expenditures) or use any such
proceeds in any manner which violates or results in a violation of
law; provided, however that 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 the Board of Governors of the
Federal Reserve System).
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) The 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
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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
the Borrower herein or by the Borrower (or any officer of the
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) The 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 the Borrower by the Agent or any Bank or the date the
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) The Borrower or any Subsidiary of the 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 $60,000,000 in the
aggregate (excluding Debt evidenced by the Notes) of the 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; provided, however, that the provisions of this
Section 6.01(d) shall not apply to any Non-Recourse Debt of any
Subsidiary of the Borrower; or
(e) The Borrower or any material Subsidiary of the
Borrower 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 the Borrower or any
material Subsidiary of the Borrower 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
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proceeding instituted against it (but not instituted by it), shall
remain undismissed or unstayed for a period of 30 days; or the
Borrower or any material Subsidiary of the Borrower shall take any
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 $60,000,000 shall be rendered against the Borrower or any
material Subsidiary of the Borrower 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 the 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) The Borrower or any ERISA Affiliate 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) The Borrower or any ERISA Affiliate 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 Borrower and the ERISA Affiliates to all Multiemployer Plans which
are then in reorganization or being terminated have been or will be
increased over the amounts 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 Borrower, 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
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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, declare the
Notes, all interest thereon and all other amounts payable by the 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 the 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 the 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 the Borrower pursuant to the terms of this Agreement.
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 the 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
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(including counsel for the 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 the Borrower or to
inspect the property (including the books and records) of the 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, the Borrower, any Subsidiary of the Borrower, any
Person who may do business with or own, directly or indirectly, securities of
the 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 Borrower), 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, or (ii) if all Commitments have terminated, the respective
amounts of the Commitments immediately prior to the time the Commitments
terminated), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, 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
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<PAGE> 47
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 Borrower.
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 Borrower 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 the Borrower (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.
Section 7.07. Liability of Co-Agents. No Co-Agent, in its
capacity as Co-Agent hereunder, shall have any duty or liability hereunder.
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 the
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,
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(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 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 the 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
the 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 Borrower 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) The Borrower
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
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<PAGE> 49
Note and this Agreement, and (ii) the 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 the Borrower of any Note
of the Borrower or this Agreement and the other documents to be delivered by
the Borrower under this Agreement.
(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 the 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, the 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) The 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 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 the Borrower against any and all of the obligations of the
Borrower now or hereafter existing under this Agreement and the Notes held by
such Bank, irrespective of
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<PAGE> 50
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 the 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 Borrower 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 this Agreement and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agent and each Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign any of its rights hereunder or any interest herein without the prior
written consent of all 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 Commitment
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 Borrower, 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 is an
affiliate of a Bank or (2) is approved in writing by the Agent and the Borrower
or (3) is approved in writing by the Agent and either an Event of Default
exists or the Borrower has 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 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 the Borrower for such assignment) of the Commitment of
such
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<PAGE> 51
assigning Bank 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 Borrower (unless an Event of Default exists or the Borrower has
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) the Borrower shall deliver, in replacement of the A
Note of the Borrower to such assigning Bank then outstanding (a) to such
assignee, a new A Note of the Borrower in the amount of the Commitment of such
assigning Bank 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 immediately prior to such assignment (any such assignee which is
already a Bank hereunder agrees to cancel and return to the 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 the
Borrower (without giving effect to any B Reduction) retained by such assigning
Bank (and such assigning Bank agrees to cancel and return to the 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 Commitment, 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 the 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 so assumed and the denominator of which is the
amount of the Commitment of such assigning Bank (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 the Borrower, and the
balance of such A Advance shall be evidenced by such assigning Bank's new A
Note from the 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 so assumed shall be deemed to be the amount set
opposite such assigning Bank's name on Schedule IV 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 Commitment assumed thereby.
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<PAGE> 52
(b) If the Borrower does not consent to a proposed assignment by a
Bank pursuant to the last sentence of Section 8.06(a), the Borrower 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 Commitment) 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 the Borrower
pursuant to this Section 8.06(b) fails to purchase such rights and interest on
such specified date in accordance with the terms of such offer, the Borrower
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 the Borrower
does not so nominate such a bank within 15 days of its receipt of such request
that it consent to such assignment or if the Borrower 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 Borrower shall be deemed to have
relinquished its 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 Borrower shall not be deemed to have relinquished its
right to consent to such assignment.
(c) The Borrower agrees to promptly execute the Transfer Agreement
pertaining to any assignment as to which approval by the Borrower 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 the 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
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<PAGE> 53
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 Borrower or refunded by the Agent or such Bank, as the case may
be, to the 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 Agent or such
Bank, as the case may be, by the Borrower or refunded by the Agent or such
Bank, as the case may be, to the 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 the
Borrower or any officer of the 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 the 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. Borrower's Right to Apply Deposits. In the
event that any Bank is placed in receivership or enters a similar proceeding,
the 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 the 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, the 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
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<PAGE> 54
of the Borrower (other than to employees, auditors, accountants, counsel or
other professional advisors of the Agent or any Bank) any information with
respect to the Borrower or its Subsidiaries which is furnished pursuant to this
Agreement and which (i) the Borrower in good faith considers to be confidential
and (ii) is either clearly marked confidential or is designated by the Borrower
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 Borrower 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 paragraph (iv)
thereof), and (ii) if prior notice of the delivery thereof is given to the
Borrower, 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 Borrower containing provisions substantially
identical to those contained in this Section 8.12.
Section 8.13. WAIVER OF JURY TRIAL. THE BORROWER, 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.
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<PAGE> 55
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.
BORROWER:
WILLIAMS HOLDINGS OF DELAWARE, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
AGENT:
CITIBANK, N.A., as Agent
By:
----------------------------------
Authorized officer
BANKS:
CITIBANK, N.A.
By:
----------------------------------
Authorized Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
----------------------------------
Authorized Officer
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<PAGE> 56
THE CHASE MANHATTAN BANK
By:
----------------------------------
Authorized Officer
CIBC INC.
By:
----------------------------------
Authorized Officer
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
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<PAGE> 57
THE BANK OF NOVA SCOTIA
By:
----------------------------------
Authorized Officer
BARCLAYS BANK PLC
By:
----------------------------------
Authorized Officer
NATIONSBANK, N.A.
By:
----------------------------------
Authorized Officer
BANKBOSTON, N.A.
By:
----------------------------------
Authorized Officer
THE FUJI BANK, LIMITED,
HOUSTON AGENCY
By:
----------------------------------
Authorized Officer
MELLON BANK, N.A.
By:
----------------------------------
Authorized Officer
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<PAGE> 58
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
----------------------------------
Authorized Officer
ROYAL BANK OF CANADA
By:
----------------------------------
Authorized Officer
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
----------------------------------
Authorized Officer
WELLS FARGO BANK ("TEXAS"), N.A.
By:
----------------------------------
Authorized Officer
BANK OF OKLAHOMA, N.A.
By:
----------------------------------
Authorized Officer
COMMERCE BANK, N.A.
By:
----------------------------------
Authorized Officer
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<PAGE> 59
CAISSE NATIONALE DE CREDIT AGRICOLE
By:
----------------------------------
Authorized Officer
UNION BANK OF SWITZERLAND
By:
----------------------------------
Authorized Officer
By:
----------------------------------
Authorized Officer
SUNTRUST BANK, ATLANTA
By:
----------------------------------
Authorized Officer
By:
----------------------------------
Authorized Officer
THE INDUSTRIAL BANK OF JAPAN TRUST
COMPANY
By:
----------------------------------
Authorized Officer
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<PAGE> 60
THE SAKURA BANK, LIMITED
By:
----------------------------------
Authorized Officer
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
By:
----------------------------------
Authorized Officer
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<PAGE> 1
Exhibit 12
WILLIAMS HOLDINGS OF DELAWARE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations before income taxes $ 278.7 $ 316.6 $ 268.7 $ 179.1 $ 244.9
Add:
Interest expense-net 61.2 31.8 31.1 21.1 9.4
Rental expense representative
of interest factor 14.9 6.8 13.1 4.9 3.4
Preferred dividends of
subsidiaries -- -- 5.4 -- --
Minority interest income of
consolidated subsidiaries 14.0 -- -- -- --
Other (2.8) 1.2 .6 .8 (1.0)
--------- --------- --------- --------- ---------
Total earnings as adjusted plus
fixed charges $ 366.0 $ 356.4 $ 318.9 $ 205.9 $ 256.7
========= ========= ========= ========= =========
Fixed charges:
Interest expense-net $ 61.2 $ 31.8 $ 31.1 $ 21.1 $ 9.4
Capitalized interest 11.9 3.5 9.8 4.7 5.4
Rental expense representative
of interest factor 14.9 6.8 13.1 4.9 3.4
Pretax effect of dividends on
preferred stock of subsidiaries -- -- 7.7 -- --
--------- --------- --------- --------- ---------
Total fixed charges $ 88.0 $ 42.1 $ 61.7 $ 30.7 $ 18.2
========= ========= ========= ========= =========
Ratio of earnings to fixed
charges 4.16 8.47 5.17 6.71 14.10
========= ========= ========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements on Form S-3 of Williams Holdings of Delaware, Inc. and the related
prospectuses of our report dated February 13, 1998, with respect to the
consolidated financial statements and schedule of the Williams Holdings of
Delaware, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
Form S-3: Registration No. 33-63495
Registration No. 333-20927
Registration No. 333-24683
Registration No. 333-35097
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 26, 1998
<PAGE> 1
EXHIBIT 24
WILLIAMS HOLDINGS OF DELAWARE, 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 WILLIAMS HOLDINGS OF DELAWARE, INC., a
Delaware corporation ("WHD"), does hereby constitute and appoint WILLIAM G. VON
GLAHN, DAVID M. HIGBEE AND SHAWNA L. GEHRES 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 WHD, as hereinafter set forth below their signature, to
sign WHD's Annual Report to the Securities and Exchange Commission on Form 10-K
for the fiscal year ended December 31, 1997, and any and all amendments thereto
or all instruments necessary or incidental in connection therewith; and
THAT the undersigned WHD does hereby constitute and appoint
WILLIAM G. VON GLAHN, DAVID M. HIGBEE, AND SHAWNA L. GEHRES 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 11th day of March, 1998.
/s/ KEITH E. BAILEY /s/ JACK D. MCCARTHY
- ------------------------------- -------------------------------
Keith E. Bailey Jack D. McCarthy
Chairman of the Board, Senior Vice President
President and and Director
Chief Executive Officer (Principal Financial Officer)
(Principal Executive Officer)
/s/ GARY R. BELITZ
-------------------------------
Gary R. Belitz
Controller
(Principal Accounting Officer)
/s/ JOHN C. BUMGARNER, JR. /s/ STEPHEN L. CROPPER
- ------------------------------- -------------------------------
John C. Bumgarner, Jr. Stephen L. Cropper
Director Director
/s/ HOWARD E. JANZEN
-------------------------------
Howard E. Janzen
Director
WILLIAMS HOLDINGS OF DELAWARE, INC.
----------------------------------
By /s/ WILLIAM G. VON GLAHN
William G. von Glahn
ATTEST: Senior Vice President
/s/ SHAWNA L. GEHRES
- ---------------------------------
Shawna L. Gehres
Assistant Secretary
<PAGE> 2
WILLIAMS HOLDINGS OF DELAWARE, INC.
I, the undersigned, Shawna L. Gehres, Assistant Secretary of
WILLIAMS HOLDINGS OF DELAWARE, INC., a Delaware corporation (hereinafter called
the "Corporation"), do hereby certify that pursuant to Section 141(f) of the
General Corporation Law of Delaware, the Board of Directors of this Corporation
unanimously consented, as of March 11, 1998, to the following:
RESOLVED that the Chairman of the Board, the President
or any Vice President of the Corporation 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 Corporation, under the Securities Exchange Act of
1934, of the Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
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 corporate seal of WILLIAMS HOLDINGS OF DELAWARE, INC., this 27th day of
March, 1998.
/s/ SHAWNA L. GEHRES
----------------------------
Shawna L. Gehres
Assistant Secretary
(CORPORATE SEAL)
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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0
0
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