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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(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, 1998
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
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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 74172
TULSA, OKLAHOMA (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (918) 573-2000
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
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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, 1999, 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. was incorporated under the laws of the
State of Delaware in 1994. The principal executive offices of Williams Holdings
are located at One Williams Center, Tulsa, Oklahoma 74172 (telephone (918)
573-2000). Unless the context otherwise requires, references to Williams
Holdings herein include its subsidiaries. Williams Holdings is a wholly owned
subsidiary of The Williams Companies, Inc. (Williams).
On March 24, 1999, Williams disclosed that its Board of Directors had
authorized the merger of Williams Holdings with and into Williams and the
assumption by Williams of liabilities and obligations of Williams Holdings.
Management expects the merger to be completed in the second or third quarter of
1999.
On November 19, 1998, Williams announced that its board of directors had
authorized an initial public offering of a minority interest in its
communications subsidiary, Williams Communications Group, Inc. Williams expects
to file a registration statement for this offering with the Securities and
Exchange Commission in the second quarter of 1999. In addition, on February 8,
1999, Williams announced it had entered into an agreement with SBC
Communications under which SBC would acquire the lesser of the number of shares
of common stock valued at $500 million or ten percent of the common stock of
Williams Communications in a private placement expected to occur simultaneously
with the initial public offering.
On March 28, 1998, Williams acquired MAPCO Inc. 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 for each share of
MAPCO common stock and associated preferred stock purchase rights. See Note 2 to
Notes to Consolidated Financial Statements. Management believes the acquisition
furthers its strategy of seeking growth through strategic acquisitions and
alliances and that MAPCO's assets and operations complement Williams' existing
lines of business. Williams operates the MAPCO businesses through Williams
Energy Services.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Part II, Item 8 -- Financial Statements and Supplementary Data.
(C) NARRATIVE DESCRIPTION OF BUSINESS
Williams Holdings, through Williams Energy Services and its subsidiaries,
engages in the following types of energy-related activities:
- exploration and production of oil and gas through ownership of 708 Bcf of
proved natural gas reserves primarily located in the San Juan Basin of
Colorado and New Mexico;
- natural gas gathering, processing, and treating activities through
ownership and operation of approximately 7,500 miles of gathering lines
and ownership or operation of ten gas treating plants and 11 gas
processing plants (one of which is partially owned);
- ---------------
* 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.
<PAGE> 3
- natural gas liquids transportation through ownership and operation of
approximately 10,300 miles of natural gas liquids pipeline;
- transportation of petroleum products and related terminal services
through ownership or operation of approximately 9,100 miles of petroleum
products pipeline and 68 petroleum products terminals;
- production and marketing of ethanol through operation and ownership of
two ethanol plants (one of which is partially owned);
- petroleum products and propane distribution services through operation
and ownership of a petroleum trucking company;
- refining of petroleum products through operation and ownership of two
refineries;
- retail marketing through 256 convenience stores; and
- energy commodity marketing and trading.
Williams Holdings, through Williams Communications Group, Inc. and its
subsidiaries, engages in the following types of communications-related
activities:
- owner and operator of a 19,000-route mile telecommunications fiber optic
network;
- data-, voice-, and video-related products and services;
- advertising distribution services;
- video services and other multimedia services for the broadcast industry;
- enhanced audio- and video-conferencing services for businesses;
- customer-premise voice and data equipment, sales, and services including
installation, maintenance, and integration; and
- network integration and management services nationwide.
Williams Holdings, through subsidiaries of Williams International Company,
directly invests in energy and telecommunications projects primarily in South
America and Australia and continues to explore and develop additional projects
for international investments. It also invests in energy, telecommunications,
and infrastructure development funds in Asia and Latin America.
Substantially all operations of Williams Holdings are conducted through
subsidiaries. Williams performs management, legal, financial, tax, consultative,
administrative, and other services for its subsidiaries. Williams Holdings'
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 Williams Holdings 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
Williams Holdings.
The energy operations of Williams Holdings are grouped into a wholly owned
subsidiary, Williams Energy Services; its communications operations are grouped
into a wholly owned subsidiary, Williams Communications Group, Inc.; and its
international operations are grouped into a wholly owned subsidiary, Williams
International Company. Item 1 of this report is formatted to reflect this
structure.
WILLIAMS ENERGY SERVICES
Williams Energy is comprised of four major business units: Exploration &
Production, Midstream Gas & Liquids, Petroleum Services, and Energy Marketing &
Trading. Through its business units, Williams Energy engages in energy
production and exploration activities; natural gas gathering, processing, and
treating; natural gas liquids transportation, fractionation, and storage;
petroleum products transportation and terminal services;
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<PAGE> 4
ethanol production; refining; convenience retailing; mobile information
management systems; fleet fuel management services; and energy commodity
marketing and trading.
Williams Energy, through its subsidiaries, owns 708 Bcf of proved natural
gas reserves located primarily in the San Juan Basin of Colorado and New Mexico
and owns and operates approximately 7,500 miles of gathering pipelines,
approximately 10,300 miles of natural gas liquids pipelines, owns or operates
ten gas treating plants and 11 gas processing plants (one of which is partially
owned), 68 petroleum products terminals, two ethanol production facilities (one
of which is partially owned), two refineries, 256 convenience stores/travel
centers, and approximately 9,100 miles of petroleum products pipeline. Physical
and notional volumes marketed and traded by subsidiaries of Williams Energy
approximated 15,873 TBtu equivalents in 1998. Williams Energy, through its
subsidiaries, employs approximately 9,150 employees.
Segment revenues and segment profit for Williams Energy are reported in
Note 19 of Notes to Consolidated Financial Statements herein.
A business description of each of Williams Energy's business units follows.
EXPLORATION & PRODUCTION
Williams Energy, through its wholly owned subsidiary Williams Production
Company in its Exploration & Production unit (E&P), owns and operates producing
natural gas leasehold properties in the United States. In addition, E&P is
actively exploring for oil and gas.
Oil and gas properties. E&P's 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 are located in Louisiana, east and south Texas, and offshore Gulf of
Mexico.
Gas Reserves. At December 31, 1998, 1997, and 1996, E&P had proved
developed natural gas reserves of 476 Bcf, 362 Bcf, and 323 Bcf, respectively,
and proved undeveloped reserves of 232 Bcf, 238 Bcf, and 208 Bcf, respectively.
Of E&P's total proved reserves, 90 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. At December 31, 1998, the gross and net developed
leasehold acres owned by E&P totaled 312,939 and 131,303, respectively, and the
gross and net undeveloped acres owned were 444,916 and 111,926, respectively. At
December 31, 1998, E&P owned interests in 3,393 gross producing wells (632 net)
on its leasehold lands.
Operating Statistics. The following tables summarize drilling activity for
the periods indicated:
<TABLE>
<CAPTION>
1998 WELLS GROSS NET
---------- ----- -----
<S> <C> <C>
Development
Drilled................................................... 173 46.7
Completed................................................. 173 46.7
Exploration
Drilled................................................... 5 3.1
Completed................................................. 4 2.5
</TABLE>
<TABLE>
<CAPTION>
GROSS NET
COMPLETED DURING WELLS WELLS
- ---------------- ----- -----
<S> <C> <C>
1998........................................................ 177 49
1997........................................................ 207 35
1996........................................................ 65 11
</TABLE>
The majority of E&P's gas production is currently being sold in the spot
market at market prices. Total net production sold during 1998, 1997, and 1996
was 43.2 Bcf, 37.1 Bcf, and 31.0 Bcf, respectively. The average production
costs, including production taxes, per Mcf of gas produced were $.37, $.42, and
$.23, in
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1998, 1997, and 1996, respectively. The average wellhead sales price per Mcf was
$1.31, $1.62, and $.98, respectively, for the same periods.
In 1993 E&P 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 E&P's interest in these Units.
MIDSTREAM GAS & LIQUIDS
Williams Energy, through Williams Field Services Group, Inc. and its
subsidiaries (Midstream Gas & Liquids), owns and operates natural gas gathering,
processing, treating, transportation, fractionation, and storage facilities
located in northwestern New Mexico, southwestern Colorado, southwestern Wyoming,
eastern Utah, northwestern Oklahoma, Kansas, northern Missouri, eastern
Nebraska, Iowa, southern Minnesota, Tennessee, and also in areas offshore and
onshore in Texas, Alabama, Mississippi, and Louisiana. Midstream Gas & Liquids
also operates gathering facilities, owned by Transcontinental Gas Pipe Line
Corporation, an affiliated interstate natural gas pipeline company, that are
currently regulated by the FERC.
As a result of the MAPCO merger in 1998, Williams Energy acquired an
approximately 4.8 percent investment interest in Alliance Pipeline. Effective
January 1, 1999, this interest was transferred to subsidiaries of the Williams
Companies, Inc. Alliance consists of two proposed segments, a Canadian segment
and a United States segment. Alliance has filed applications for approval with
the FERC in the United States and the National Energy Board (NEB) in Canada, to
construct and operate an approximately 1,800 mile natural gas pipeline system
extending from northeast British Columbia to the Chicago, Illinois, area market
center, where it will interconnect with the North American pipeline grid. On
September 17, 1998, the FERC granted a Certificate of Public Convenience and
Necessity (CPCN) for the United States portion of the Alliance pipeline, and on
December 3, 1998, the NEB granted a CPCN for the Canadian portion. Construction
is expected to begin in the spring of 1999 with an anticipated in-service date
of October 2000. Total estimated cost of the Alliance project is approximately
$3 billion. At December 31, 1998, Williams Energy had invested approximately $19
million in Alliance.
Expansion Projects. During 1998 Midstream Gas & Liquids continued to expand
its operations in the Gulf Coast region through the Mobile Bay and Discovery
projects. Discovery, a 50 percent owned joint venture, began operations during
1997 with the completion of its 150-mile gas gathering system, Larose cryogenic
plant with 600 MMcf per day of capacity, and Paradis fractionation facility with
42,000 bbl per day of capacity. Construction on the Mobile Bay gathering and
processing facilities has remained on schedule, with the processing plant's
commissioning and performance testing expected to begin in the second quarter of
1999. Contracts are currently in place to supply approximately 70 percent of the
processing plant's 600 MMcf per day of capacity. Liquids from this plant will be
handled by three separate joint ventures including the Tri-States Pipeline, a
16.7 percent owned system with a capacity of 80,000 bbl per day, Wilprise
Pipeline, a 33 percent owned system with capacity of 75,000 bbl per day, and a
26.7 percent owned fractionation facility with a capacity of 60,000 bbl per day.
In addition, Midstream Gas & Liquids began construction on an expansion of its
Rocky Mountain natural gas liquids pipeline which will increase capacity from
75,000 bbl per day to 125,000 bbl per day through construction of a 412-mile
pipeline parallel to the existing Mid-America System. Completion is expected in
July 1999.
Customers and Operations. Facilities owned and operated by Midstream Gas &
Liquids consist of approximately 7,500 miles of gathering pipelines and owns or
operates ten gas treating plants and 11 gas processing plants (one of which is
partially owned), and approximately 10,300 miles of natural gas liquids
pipeline, of which approximately 1,600 miles are partially owned. The aggregate
daily inlet capacity is approximately 7.9 Bcf for the gathering systems and 6.7
Bcf for the gas processing, treating, and dehydration facilities. Midstream Gas
& Liquids' pipeline operations provide customers with one of the nation's
largest NGL transportation systems, while gathering and processing customers
have direct access to interstate pipelines, including affiliated pipelines,
which provide access to multiple markets.
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During 1998 Midstream Gas & Liquids gathered gas for 288 customers,
processed gas for 140 customers, and provided transportation to 87 customers.
The two largest customers accounted for approximately 24 percent and 11 percent,
respectively, of total gathered volumes, and the largest customer accounted for
approximately 23 percent of processed volumes. The two largest transportation
customers accounted for 23 percent and 12 percent, respectively, of
transportation volumes. No other customer accounted for more than ten percent of
gathered, processed, or transported volumes. Midstream Gas & Liquids' 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 Midstream Gas & Liquids. The
natural gas liquids transportation contracts are tariff-based and generally
short-term in nature with some long-term contracts for system-connected
processing plants.
Operating Statistics. The following table summarizes gathering, processing,
natural gas liquid sales, and transportation volumes for the periods indicated.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Gas volumes:
Gathering (TBtu).......................................... 1,204 1,170 1,119
Processing (TBtu)......................................... 536 520 484
Natural gas liquid sales (millions of gallons)............ 576 551 403
Natural gas liquids transportation (MMBbbl)............... 401 414 397
</TABLE>
PETROLEUM SERVICES
Williams Energy, through wholly owned subsidiaries in its Petroleum
Services unit, owns and operates a petroleum products pipeline system, two
ethanol production plants (one of which is partially owned), and petroleum
products terminals and provides services and markets products related thereto.
Included in this business unit are two refineries, 256 convenience stores/travel
centers, trucking and rail operations for propane and refined products, mobile
information management systems, and fleet fuel management services.
Transportation. A subsidiary in the Petroleum Services unit, Williams Pipe
Line Company, owns and operates a petroleum products pipeline system which
covers an 11-state area extending from Oklahoma to North Dakota and Minnesota
and Illinois. The system is operated as a common carrier offering transportation
and terminalling services on a nondiscriminatory basis under published tariffs.
The system transports refined products and liquefied petroleum gases.
At December 31, 1998, the system traverses approximately 7,100 miles of
right-of-way and includes approximately 9,100 miles of pipeline in various sizes
up to 16 inches in diameter. The system includes 77 pumping stations, 22.4
million barrels of storage capacity, and 39 delivery terminals. The terminals
are equipped to deliver refined products into tank trucks and tank rail cars.
The maximum number of barrels that 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. In 1998 total system shipments averaged 614 thousand
barrels per day.
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. Pipeline construction is nearly complete, but operations are
not expected to commence until the third quarter of 1999, pending review and
approval of an environmental assessment. Williams Pipe Line has designed and
constructed and will operate the pipeline, and LETI has contributed a total of
$92.4 million to the joint venture.
On February 25, 1999, Williams Energy announced it had reached an agreement
to purchase Union Texas Petrochemicals Corporation, a wholly owned subsidiary of
ARCO, with a closing expected on March 31, 1999. UTP's assets include a 215-mile
light hydrocarbon transportation and 85-mile olefin pipeline and storage
network, which connects, either directly or indirectly, most major natural gas
liquids producers and olefin consumers in Louisiana. UTP also is the leading
merchant marketer of ethylene in Louisiana and
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owns and operates a 5/12th interest in a 1.25 billion pounds per year ethylene
plant near Geismar, Louisiana. In connection with the acquisition, the Energy
Marketing & Trading unit anticipates entering into a financial agreement, backed
by an A credit-rated third party, intended to manage the risks related to the
earnings volatility typically associated with ethylene production. The expected
cost of this transaction is $166.5 million.
The operating statistics set forth below relate to the system's operations
for the periods indicated:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Shipments (thousands of barrels):
Refined products:
Gasolines............................................. 131,600 132,428 134,296
Distillates........................................... 72,471 71,694 68,628
Aviation fuels........................................ 10,038 10,557 11,189
LP-Gases.............................................. 8,644 13,322 15,618
Lube extracted fuel oil............................... 1,246 7,471 8,555
Crude oil............................................. 0 31 891
------- ------- -------
Total Shipments............................... 223,999 235,503 239,177
======= ======= =======
Daily average (thousands of barrels).................... 614 645 655
Barrel miles (millions)................................. 61,043 61,086 61,969
</TABLE>
Terminal Services and Development. Williams Energy, through its wholly
owned subsidiary Williams Energy Ventures, provides independent terminal
services to the refining and marketing industries via distribution of petroleum
products through wholly owned and joint interest terminals. WEV owns and/or
operates 29 strategically located independent terminals covering a
thirteen-state area in the South, Southeast, Southwest, and Midwest.
The terminals are supplied with refined products and ethanol by barge,
tanker, truck, rail, and various common carrier pipelines. WEV provides
scheduling and inventory management, access to an expanded transportation and
information services network, additive injection services, and custom
terminalling services such as octane and oxygenate blending. On a selective
basis, WEV provides temporary leased storage.
In 1996 WEV acquired a 45.5 percent interest in eight Southeastern
terminals and in 1998 increased that ownership percentage to 68.94 percent. In
late 1997 WEV acquired a terminal in Dallas, Texas, and in 1998 acquired a
terminal in Atlanta, Georgia. In early 1999 WEV purchased 12 terminals in the
Southeast from Amoco and two Memphis, Tennessee, area terminals from Truman
Arnold Companies. These acquisitions have allowed WEV to increase its core
business and to offer multi-market terminal services to its customers.
Terminal barrels delivered for the periods indicated are noted below.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Terminal Barrels Delivered (mbbls)...................... 28,787 17,336 5,426
</TABLE>
Ethanol. 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 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 74.9 percent
interest) has an annual production capacity of 30 million gallons. WEV also
markets ethanol produced by third parties. Coproducts, mainly flavor enhancers,
produced at the Pekin plant are marketed primarily to food processing companies.
The sales volumes set forth below include ethanol produced by third parties
as well as by WEV for the periods indicated:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Ethanol sold (thousands of gallons)..................... 172,056 145,612 119,800
</TABLE>
Distribution Services. Petroleum Services, through its distribution
services group, provides petroleum trucking, propane trucking, and rail car
operations for Williams Energy and third parties. The petroleum
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trucking operation, operated out of Memphis, Tennessee, under the name "GENI
Transport," works with local jobbers to supply their retail outlets and with
several of Williams Energy's Energy Marketing & Trading unit's wholesale
customers to develop transportation arrangements. GENI Transport is also the
primary transportation provider to Petroleum Services' retail petroleum group.
The propane trucking and rail car operations are the primary transportation
providers for the Energy Marketing & Trading unit's retail propane group.
Refining. Petroleum Services, through its subsidiaries, owns and
operates two refineries: the North Pole, Alaska, refinery and the Memphis,
Tennessee, refinery.
North Pole Refinery. The North Pole Refinery includes the refinery
located at North Pole, Alaska, and a terminal facility at Anchorage,
Alaska. The refinery, the largest in the state, is located approximately
two miles from its supply point for crude oil, the Trans-Alaska Pipeline
System (TAPS). The refinery's processing capability is approximately
215,000 barrels per day. At maximum crude throughput, the refinery can
produce 67,000 barrels per day of refined products. These products are jet
fuel, gasoline, diesel fuel, heating oil, fuel oil, naphtha, and asphalt.
Williams Energy's Energy Marketing & Trading unit markets these refined
products in Alaska, Western Canada, and the Pacific Rim principally to
wholesale, commercial, industrial, and governmental customers and Petroleum
Services' retail petroleum group. The retail petroleum group accounted for
about eight percent of the North Pole Refinery's 1998 product sales volume
and 64 percent of the North Pole Refinery's gasoline production. Petroleum
Services completed construction of a third crude unit at the refinery that
can produce an additional 17,000 barrels per day of refined products,
including 14,000 barrels per day of jet fuel. The new crude unit
construction was completed in October 1998 at a cost of $74.5 million.
Average daily throughput and barrels processed and transferred by the
North Pole Refinery are noted below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Throughput (bbl)................................ 142,471 132,238 132,912
Barrels Processed and Transferred (bbl)......... 44,561 42,201 43,392
</TABLE>
The North Pole Refinery's crude oil is purchased through Williams
Energy's Energy Marketing & Trading unit from the state of Alaska or is
purchased or received on exchanges from crude oil producers. The refinery
has a long-term agreement with the state of Alaska for the purchase of
royalty oil, which is scheduled to expire on December 31, 2003. The
agreement provides for the purchase of up to 35,000 barrels per day
(approximately 17 percent of the refinery's supply) of the state's royalty
share of crude oil produced from Prudhoe Bay, Alaska. These volumes, along
with crude oil either purchased from crude oil producers or received under
exchange agreements or other short-term supply agreements with the state of
Alaska, are utilized as throughput in the production of products at the
refinery. Approximately 34 percent of the throughput is refined and sold as
finished product and the remainder of the throughput is returned to the
TAPS and either delivered to repay exchange obligations or sold.
Memphis Refinery. The Memphis Refinery is the only refinery in the
state of Tennessee and has a throughput capacity of approximately 140,000
barrels per day. In January 1998 Petroleum Services completed construction
of a splitter, increasing the refinery's capacity for propylene production
from 2,000 barrels per day to 6,000 barrels per day. In November 1998
Petroleum Services commissioned an expansion of its East Crude Unit,
increasing crude production capacity by approximately 20,000 barrels per
day to 140,000 barrels per day. Williams Energy is currently in the process
of making significant plant modifications for further increasing the
refinery's crude oil flexibility. In late 1998 a $123 million project to
increase crude processing capacity of the refinery to 160,000 barrels per
day and construct a 36,000 barrels per day continuous catalyst regeneration
reformer was approved. Both projects are slated for completion in the year
2000 and will enable the refinery to produce 100 percent of customer demand
for premium gasoline in the mid-South region of the United States while
significantly enhancing crude flexibility.
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<PAGE> 9
The Memphis Refinery produces gasoline, low sulfur diesel fuel, jet
fuel, K-1 kerosene, propylene, No. 6 fuel oil, propane, and elemental
sulfur. These products are exchanged or marketed primarily in the Mid-South
region of the United States by Williams Energy's Energy Marketing & Trading
unit to wholesale customers, such as industrial, governmental, and
commercial consumers, jobbers, independent dealers, other
refiner/marketers, and to Petroleum Services' retail petroleum group.
The Memphis Refinery has access to crude oil from the Gulf Coast via
common carrier pipeline and by river barges. In addition to domestic crude
oil, the Memphis Refinery has the capability of receiving and processing
certain foreign crudes. During 1998, following the MAPCO merger, Williams
Energy's Energy Marketing & Trading unit purchased all of the crude oil
processed at the Memphis Refinery. Although this method of purchase reduces
the financial effect of volatile crude oil market prices, the financial
results of the Memphis Refinery may be significantly impacted by changes in
the market prices for crude oil and refined products. Petroleum Services
cannot with any assurance predict the future of crude oil and product
prices or their impact on its financial results.
Average daily barrels processed and transferred by the Memphis
Refinery are noted below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Barrels Processed and Transferred (bbl)......... 120,985 113,040 104,129
</TABLE>
Retail Petroleum. Petroleum Services, primarily under the brand names
"Williams TravelCenters" and "MAPCO Express," is engaged in the retail marketing
of gasoline, diesel fuel, other petroleum products, convenience merchandise, and
restaurant and fast food items. The retail petroleum group operates 29
interstate TravelCenter locations and 227 convenience stores. The TravelCenter
sites consist of 11 modern facilities providing gasoline and diesel fuel,
merchandise, and restaurant offerings for both traveling consumers and
professional drivers, and 18 locations providing fuel and merchandise. The
convenience store sites are primarily concentrated in the vicinities of
Nashville and Memphis, Tennessee, and the state of Alaska. MAPCO Express stores
represent 38 percent of the convenience store market in Alaska. All of the motor
fuel sold by Williams TravelCenters and MAPCO Express stores is supplied either
by exchanges, directly from either the Memphis or North Pole Refineries or
through Williams Energy's Energy Marketing & Trading unit.
Convenience merchandise and fast food accounted for approximately 57
percent of the retail petroleum group's gross margins in 1998 and 55 percent in
1997. Gasoline and diesel sales volumes for the periods indicated are noted
below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Gasoline (mgals)...................................... 329,821 292,644 279,708
Diesel (mgals)........................................ 188,401 137,219 147,548
</TABLE>
ENERGY MARKETING & TRADING
Williams Energy, through subsidiaries, primarily Williams Energy Marketing
& Trading Company and its subsidiaries (EM&T), 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, propane, liquefied natural gas, and liquefied petroleum gas on a wholesale
and retail level, serving over 300,000 customers. In addition, EM&T provides
price-risk management services through a variety of financial instruments
including exchange-traded futures, as well as over-the-counter forwards,
options, and swap agreements related to various energy commodities and provides
capital services to the diverse energy industry. See Note 16 of Notes to
Consolidated Financial Statements.
EM&T markets natural gas throughout North America and grew its total
volumes (physical and notional) to an average of 27.7 Bcf per day in 1998.
EM&T's core business has traditionally been natural gas marketing in the Gulf
Coast and Eastern regions of the United States, using the pipeline systems owned
by Williams, but also includes marketing on approximately 50 non-Williams'
pipelines. EM&T's natural gas customers include producers, industrials, local
distribution companies, utilities, and other gas marketers.
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<PAGE> 10
In February 1999 EM&T and AES Ironwood, L.L.C. executed an amended and
restated 20-year power purchase agreement under which EM&T is to provide fuel to
and market up to approximately 655 megawatts of electricity output from a
generating facility to be built and owned by AES in Southern Pennsylvania. In
December 1998 EM&T reached agreement with Hoosier Energy Rural Electric
Cooperative, Inc. to supply a part of its wholesale energy needs and manage its
energy portfolio.
In May 1998 EM&T and The AES Corporation signed a 15-year agreement under
which EM&T provides fuel to and markets up to approximately 4,000 megawatts of
electricity output from three southern California generating sites with 14 units
owned and operated by AES. During 1998 EM&T marketed 16.9 GW per hour (physical
and notional) of electricity.
In 1998 EM&T provided supply, distribution, and related risk management
services to petroleum producers, refiners, and end-users in the United States
and various international regions. During 1998 EM&T's total crude and petroleum
products (physical and notional) marketed averaged 2,153 Mbbl per day. During
1998 EM&T also marketed natural gas liquids with total volumes (physical and
notional) averaging 480.3 Mbbl per day.
EM&T markets and distributes propane and appliances to approximately
300,000 customers at the retail level. Propane is used principally as a fuel in
various domestic, commercial, industrial, agricultural, and vehicle motor fuel
applications. Residential customers, who account for the majority of sales, use
propane for home heating, cooking, and other domestic purposes. The primary
agricultural use is crop drying. Commercial and industrial sales include fuel
for shopping centers and industrial plants. During 1998 EM&T marketed 262.6
million gallons of propane.
EM&T is currently refocusing its retail natural gas and electric business
to concentrate on large end-use customers and away from sales to commercial and
residential customers. See Note 5 of Notes to Consolidated Financial Statements.
Operating Statistics. The following table summarizes marketing and trading
volumes for the periods indicated, including propane totals during 1996, 1997,
and a portion of 1998 during which Williams did not own MAPCO:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
Average marketing and trading volumes (physical and
notional):
Natural gas (Bcf per day).............................. 27.7 22.3 15.9
Refined products, natural gas liquids, crude (mbbl per
day)................................................ 2,633.3 1,549.0 616.0
Electricity (GW per hour).............................. 16.9 8.3 0.5
Propane gallons (millions)............................. 262.6 297.2 331.4
</TABLE>
REGULATORY MATTERS
Midstream Gas & Liquids. In May 1994 after reviewing its legal authority in
a Public Comment Proceeding, the 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 the
FERC's determination and the United States Supreme Court has denied requests for
certiorari. As a result of these FERC decisions, some of the individual states
in which Midstream Gas & Liquids 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.
In February 1996 Midstream Gas & Liquids and Transco filed applications
with the FERC to spindown all of Transco's gathering facilities to Midstream Gas
& Liquids. The FERC subsequently denied the request in September 1996. Midstream
Gas & Liquids and Transco sought rehearing in October 1996. In August 1997
Midstream Gas & Liquids and Transco filed a second request for expedited
treatment of the rehearing request.
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<PAGE> 11
The FERC has yet to rule on this request for rehearing. In February 1998
Midstream Gas & Liquids and Transco filed a separate application to spindown an
onshore gathering system located in Texas, the Tilden/ McMillen gathering
system, which was also one of the subjects of the pending rehearing request. The
FERC has not ruled on this request. In June 1998 the FERC issued a Notice of
Inquiry into its policy related to pipeline facilities located on the Outer
Continental Shelf. No policy or rule has been issued from that proceeding.
Midstream Gas & Liquids' natural gas liquids group is subject to various
federal, state, and local environmental and safety laws and regulations.
Midstream Gas & Liquids' pipeline operations are subject to the provisions of
the Hazardous Liquid Pipeline Safety Act. In addition, the tariff rates,
shipping regulations, and other practices of the Mid-America, Rio Grande, and
Seminole pipelines are regulated by the FERC pursuant to the provisions of the
Interstate Commerce Act applicable to interstate common carrier petroleum and
petroleum products pipelines. The tariff rates and practices of the ammonia
system are regulated by the Surface Transportation Board under the provisions of
the Interstate Commerce Commission Termination Act of 1995 applicable to
pipeline carriers. Both of these statutes require the filing of reasonable and
nondiscriminatory tariff rates and subject Midstream Gas & Liquids to certain
other regulations concerning its terms and conditions of service. The
Mid-America, Rio Grande, and Seminole pipelines also file tariff rates covering
intrastate movements with various state commissions. The United States
Department of Transportation has prescribed safety regulations for common
carrier pipelines. The pipeline systems are subject to various state laws and
regulations concerning safety standards, exercise of eminent domain, and similar
matters.
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 the FERC, to keep its records and accounts pursuant to the Uniform
System of Accounts for Oil Pipeline Companies, to make annual reports to the
FERC, and to submit to examination of its records by the audit staff of the
FERC. Authority to regulate rates, shipping rules, and other practices and to
prescribe depreciation rates for common carrier pipelines is exercised by the
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 and had effectively frozen Williams Pipe Line's rates for the
previous five years, expired. Williams Pipe Line filed a revised tariff on
January 16, 1990, with the 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 the FERC alleging that the
revised rates were not just and reasonable and were unlawfully discriminatory.
Williams Pipe Line elected to bifurcate this proceeding in accordance with the
then-current FERC policy. Phase I of the FERC's bifurcated proceeding provided
Williams Pipe Line the opportunity to justify its rates and rate structure by
demonstrating that its markets were workably competitive. Rates to markets that
were not deemed workably competitive in Phase I required cost justification in
Phase II. Subsequent rate increases filed by Williams Pipe Line were stayed
pending ultimate resolution of Phase II.
In the Phase I proceeding, the FERC found all but 12 of Williams Pipe
Line's markets to be workably competitive and, thus, eligible for market-based
rates. On July 15, 1998, the FERC issued its decision in Phase II finding 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. Williams Pipe Line sought rehearing of the July 15, 1998, order and
has been granted leave to stay the order's refund requirement until the FERC
acts on rehearing. A shipper has appealed the Phase I order in the United States
Court of Appeals for the District of Columbia Circuit and the appeal has been
stayed pending the completion of Phase II. Williams Pipe Line took appropriate
reserves in 1998 for the July 15, 1998, order, but continues to believe that
subsequently revised tariffs will be found lawful. See Note 17 of Notes to
Consolidated Financial Statements.
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<PAGE> 12
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 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.
Energy Marketing & Trading. Management believes that EM&T'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. EM&T has taken steps to ensure it does not
share employees or officers with affiliated interstate natural gas pipelines and
does not receive information from affiliated interstate natural gas pipelines
that is not also available to unaffiliated natural gas trading companies.
COMPETITION
Exploration & Production. Williams Energy unit competes with a wide variety
of independent producers as well as integrated oil and gas companies for markets
for its production. E&P has three general phases of operations: acquiring
non-producing properties, developing non-producing properties, and operating
producing properties. In the process of acquiring minerals, the primary methods
of competition are on acquisition price and terms such as duration of the
mineral lease, the amount of the royalty payment, and special conditions related
to rights to use the surface of the land under which the mineral interest lies.
In the process of developing non-producing properties, E&P does not face
significant competition. In the operating phase, the primary method of
competition involves operating efficiencies related to the cost to produce the
hydrocarbons from the reservior.
Midstream Gas & Liquids. 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. Competition for the natural gas liquids pipelines include other
pipelines, tank cars, trucks, barges, local sources of supply (refineries,
gasoline plants, and ammonia plants), and other sources of energy such as
natural gas, coal, oil, and electricity. Factors that influence customer
transportation decisions include rate, location, and timeliness of delivery.
Petroleum Services. Williams Energy's 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. These 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
these 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
11
<PAGE> 13
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.
The principal competitive forces affecting Williams Energy's refining
businesses are feedstock costs, refinery efficiency, refinery product mix, and
product distribution. Some of Memphis Refinery's competitors can more easily
process sour crudes, and accordingly, are more flexible in the crudes which they
can process. Williams Energy has no crude oil reserves and does not engage in
crude oil exploration, and it must therefore obtain its crude oil requirements
from unaffiliated sources. Williams Energy believes that it will be able to
obtain adequate crude oil and other feedstocks at generally competitive prices
for the foreseeable future.
The principal competitive factors affecting Williams Energy's retail
petroleum business are location, product price and quality, appearance and
cleanliness of stores, and brand-name identification. Competition in the
convenience store industry is intense. Within the travel center industry,
Williams TravelCenters are recognized as leaders in customer service by the
local consumer, traveling consumer, and professional driver. Averaging 10,000
square feet, the facilities seamlessly blend these customer groups, resulting in
greater revenue and income diversification than traditional convenience stores.
Williams Energy intends to construct ten new travel centers in 1999, in addition
to six sites currently scheduled to open during the first and second quarters in
1999.
Energy Marketing & Trading. Williams Energy's operations directly compete
with large independent energy marketers, marketing affiliates of regulated
pipelines and utilities, propane wholesalers and retailers, and natural gas
producers. The financial trading business competes with other energy-based
companies offering similar services as well as certain brokerage houses. This
level of competition contributes to a business environment of constant pricing
and margin pressure.
OWNERSHIP OF PROPERTY
The majority of Williams Energy's ownership interests in exploration and
production properties are held as working interests in oil and gas leaseholds.
Williams Energy's gathering and processing facilities and natural gas
liquids pipelines are owned in fee. Midstream Gas & Liquids constructs and
maintains gathering and natural gas liquids pipeline systems 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 owns its petroleum pipeline system 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. The North Pole Refinery is
located on land leased from the state of Alaska under a long-term lease
scheduled to expire in 2025 and renewable at that time by Williams Energy. The
Anchorage, Alaska, terminal is located on land leased from the Alaska Railroad
Corporation under two long-term leases. The Memphis Refinery is located on land
owned by Williams Energy. Williams Energy owns approximately one-half of the
properties upon which its Retail Petroleum stores are located and leases the
remainder from third parties. Williams Energy management believes its assets are
in such a condition and maintained in such a manner that they are adequate and
sufficient for the conduct of business.
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<PAGE> 14
The primary assets of Williams Energy's energy marketing and trading unit
are its term contracts, employees, related systems and technological support,
and 180 retail propane outlets located in 18 states including Alabama, Arkansas,
Colorado, Florida, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri,
Mississippi, North Carolina, Ohio, Oklahoma, South Dakota, Tennessee, and
Wisconsin.
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
existing environmental legal requirements will not have a material adverse
effect on the capital expenditures, earnings, and competitive position of
Williams Energy. See Note 17 of Notes to Consolidated Financial Statements.
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 submitted a report of results to the EPA, which
published a Notice of Intent to delete the Sioux Falls site in the January 4,
1999, Federal Register. The public comment period has ended with no significant
comments needing to be addressed. Williams Pipe Line expects a closure letter
from the EPA in the near future, which will effectively complete the EPA's
interest in the site.
Groundwater monitoring and remediation are ongoing at both refineries and
air and water pollution control equipment is operating at both refineries to
comply with applicable regulations. The Clean Air Act Amendments of 1990
continue to impact Williams Energy's refining businesses through a number of
programs and provisions. The provisions include Maximum Achievable Control
Technology rules which are being developed for the refining industry, controls
on individual chemical substances, new operating permit rules and new fuel
specifications to reduce vehicle emissions. The provisions impact other
companies in the industry in similar ways and are not expected to adversely
impact Williams Energy's competitive position.
WILLIAMS COMMUNICATIONS GROUP, INC.
Williams Communications is comprised of three business units: Network,
which owns and operates Williams Communications' fiber optic network; Solutions,
which provides customer-premise voice and data equipment, sales, and services
including installation, integration, and maintenance; and Applications, which
provides video services and other multimedia services for the broadcast
industry, advertising distribution, business television applications, audio-,
and video-conferencing services for businesses. In Canada, Solutions operates
through its subsidiary, WilTel Communications (Canada), Inc. In 1998 Williams
Communications sold the product business segment of Williams Learning Network,
Inc. and withdrew from the Business Channel partnership. See Note 5 of Notes to
Consolidated Financial Statements. Williams Communications also enters into
strategic alliances and makes strategic investments in order to secure
long-term, high volume customer contracts and gain additional capabilities to
better serve its customers.
Williams Communications and its subsidiaries own approximately 19,000-route
miles of fiber optic communications network (with an additional 13,000-route
miles planned or under construction), maintain 120 offices primarily across
North America, but also in London, Singapore, and Australia, and service
approximately 100,000 customer sites. In addition, Williams Communications owns
four teleports in the United States and has rights to capacity on domestic and
international satellite transponders. Williams Communications employed
approximately 8,300 employees as of December 31, 1998.
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<PAGE> 15
Consolidated segment revenues by business unit and segment profit/loss for
Williams Communications were as follows for 1998 (dollars in millions):
<TABLE>
<S> <C>
Segment revenues:
Solutions................................................. $1,366.8
Network................................................... 194.9
Applications.............................................. 206.5
--------
Total............................................. $1,768.2
========
Segment loss................................................ $ (175.0)
========
</TABLE>
A business description of each of Williams Communications' business units
follows.
NETWORK
The Network unit of Williams Communications, through Williams
Communications, Inc., owns and operates approximately 19,000-route miles of
fiber optic communications network, 10,000-route miles of which are restricted
until July 1, 2001, to multi-media applications including Internet services, and
4,300-route miles of which are not restricted and were acquired from IXC
Communications. Network has constructed 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. 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.
"Dark fibers" are optical fibers contained within fiber-optic cables installed
along Williams' rights-of-way, which do not have transmission equipment
attached. Purchasers of the right to use dark fibers connect their own
transmission equipment and transmit their own communications signals over the
fibers. Williams Communications, Inc. has also acquired a 350-mile fiber network
in Florida and plans to construct additional fiber to connect the Florida
network to its existing network in the Southeast and to construct a new fiber
route in the midwest region of the United States from Chicago westward. Network
has ultimate plans for a 32,000-route mile network.
In January 1998 upon the expiration of the non-compete agreement related to
Williams' 1995 sale of its network services operations, Williams Communications
announced that it was re-entering the long-distance communications market as a
wholesale provider of telecommunications services. Network serves companies that
are communications carriers, including long distance telephone companies, local
telephone service providers, Internet service providers, and utilities entering
the telecommunications market. Network provides these customers with a full
range of carrier services, including nationwide transmission of
telecommunications signals, Internet transmission services, the origination and
termination of a long distance call, local access services, consulting, and
operational assistance services.
Customers. Network's customers are primarily other carriers. Network is a
carrier to other telecommunications companies, providing dedicated line and
switched services to other carriers over its owned or leased fiber optic network
facilities. Network's customers currently include regional bell operating
companies, Internet service providers, other local service providers, utilities,
and competitive local access providers and other providers who desire high speed
connectivity to the Internet; asynchronous transfer mode (ATM), which is a
switching and transmission technology based on sending various types of
information, including voice, data, and video, in packets; or frame relay;
private lines; or long distance voice services on a wholesale basis. Sales to
Intermedia Communications Inc. accounted for approximately 82.5 percent of
Network's revenues in 1998. Sales to the next three largest customers accounted
for approximately 13.5 percent of Network's revenues in 1998.
Strategic Alliances. Effective January 1998 Network entered into an
agreement with US West, which provides that the two companies will work together
to provide data networking services and vertical applications to a variety of
customers. US West has agreed to use Network on a preferred provider basis
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<PAGE> 16
through 2002 and is required to purchase at least $36.6 million of services and
equipment from Network over the five-year term.
Network also entered into an agreement with Concentric Network Corporation
to provide wholesale communications services. Williams Communications owns
approximately 16 percent of Concentric. Under the agreement with Concentric,
Concentric has agreed to purchase either services or equipment from Network or
Solutions, respectively, valued at a minimum of $21 million over the five-year
contract term. Concentric has also agreed that Network or Solutions,
respectively, will be its preferred provider for these services and equipment.
In April 1998 Intermedia Communications Inc. purchased a 20-year
indefeasible right of use for Network's nationwide transmission capacity with a
value of approximately $450 million. An indefeasible right of use is an
exclusive, indefeasible right to use the specified property for a term
essentially representing the economic life of the property. The $450 million
represents the present value of the minimum amount Intermedia will pay over the
life of the agreement. Network will provide Intermedia with transmission
capacity at rates up to 9.952 billion bits per second.
In October 1998 Network purchased shares of preferred stock of UniDial
Communications, Inc. for a purchase price of $27 million. Dividends begin to
accrue at the rate of ten percent per annum beginning October 1, 1999. The
shares are convertible into shares of common stock under certain circumstances,
with Network's resulting percentage of UniDial being subject to various formulas
and timing elements. UniDial markets a variety of long distance and other
communications products including frame relay, Internet, and conferencing
services. UniDial has agreed to use Network as a preferred provider and has also
agreed to allow Solutions to sell UniDial's products and services at competitive
prices and for UniDial to handle the billing and collection relating to
Solution's sales of their services.
On December 17, 1998, Network entered into two agreements with WinStar
Wireless, Inc., a provider of communications services that uses wireless
technology to provide high capacity local exchange and Internet access services
to companies located in buildings not served by fiber optic cable. The
agreements give Network a 25-year right to use approximately two percent of
WinStar's wireless capacity in exchange for installment payments totaling $400
million over approximately two years, and give WinStar a 25-year right to use
four strands of Network's fiber over 15,000-route miles in exchange for a seven
year $476 million obligation.
In February 1999 Network entered into a strategic alliance with SBC
Communications under which Network will be SBC's preferred provider for domestic
voice and data long distance services for 20 years, SBC will be Network's
preferred provider for selected international wholesale services, toll-free
operator, calling card, and directory assistance services for 20 years,
Solutions will sell SBC's products to its customers, and SBC may sell Network's
services to its customers. Additionally, SBC agreed to make an equity investment
by purchasing the lesser of $500 million or ten percent of the common stock of
Williams Communications at the time of the initial public offering.
SOLUTIONS
The Solutions unit of Williams Communications, operated primarily through
Williams Communications Solutions, LLC (WCS), provides services and sells and
installs equipment for the voice, video, and data networks of its customers. WCS
was formed in April 1997 following the merger of subsidiaries of Williams
Communications and Northern Telecom, Inc. Williams Communications now holds a 70
percent interest in WCS, and Northern Telecom owns the remaining 30 percent.
Williams Communications continues to address challenges following the
combination related to integration of software systems, related processes, and
business issues.
Williams Communications, through subsidiaries including WCS, serves
customers at approximately 100,000 business locations throughout the United
States consisting of small, medium, and large businesses and governmental,
educational, and non-profit institutions. Solutions' customer base ranges from
large, publicly-held corporations and the federal government to small,
privately-owned entities. Solutions' top 25 customers
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<PAGE> 17
combined accounted for approximately 12 percent of its revenue in 1998.
Solutions' employs approximately 6,400 employees, including sales employees,
billable engineers, design specialists, and service technicians.
Solutions also helps its customers reduce the complexity and cost of their
communications decisions by combining components from a variety of manufacturers
into the communications solutions required by its customers. Solutions' broad
range of voice, video, and data solutions allow Solutions to serve as a
single-source provider for its customers' communications needs. Solutions
distributes the products and services of a number of leading communications
suppliers including Nortel, SBC Communications, Cisco Systems, Lucent
Technologies, NEC, US West, and Bell Atlantic. Solutions also provides service
and maintenance support for these products.
Operating Statistics. The following table summarizes the results of
operations for the Solutions unit of Williams Communications for the periods
indicated (dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Segment revenues....................................... $1,366.8 $1,206.5 $568.1
Percentage of revenues by type of service:
New system sales..................................... 43% 52% 40%
System modifications................................. 34 28 34
Maintenance.......................................... 22 19 24
Other................................................ 1 1 2
Backlog................................................ $ 227.0 $ 202.5 $112.2
Segment profit (loss).................................. $ (54.1) $ 47.3 $ 14.3
</TABLE>
In 1998 Solutions derived approximately 56 percent of its revenues from its
existing customer base through system modifications and maintenance and
approximately 43 percent from the sale of new telecommunications systems to its
existing customer base and new customers. Solutions' three largest suppliers
accounted for approximately 91 percent of equipment sold in 1998. A single
manufacturer, Northern Telecom, supplied approximately 83 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. 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.
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 19,000-mile multimedia network, four satellite
teleport facilities located near Atlanta, Denver, Los Angeles, and New York, and
satellite transponders capacity. 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.
Conferencing
Global Access, offers multi-point videoconferencing and audio-conferencing,
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 and video by utilizing Williams
Communications' existing fiber-optic and satellite services.
In 1998 Williams Communications withdrew from The Business Channel, a joint
venture with the Public Broadcast Services (PBS). See Note 5 of Notes to
Consolidated Financial Statements.
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<PAGE> 18
REGULATORY MATTERS
Network. Williams Communications, Inc. is subject to Federal Communications
Commission regulations as a common carrier with regard to certain of its
transmission services and is subject to the laws of certain states governing
public utilities. An FCC rulemaking to eliminate domestic, common carrier
tariffs has been stayed pending judicial review. In the interim, the FCC is
requiring such carriers to operate under traditional tariff rules. Operations of
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.
Solutions. The equipment WCS sells must meet the requirements of Part 68 of
the 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'
operations.
COMPETITION
Network. In the market for network transmission services, Williams
Communications faces competition from three major facilities-based long distance
fiber optic network companies. In addition, several other companies have just
completed or are in the process of constructing regional and nationwide fiber
optic networks that will compete with Williams Communications in the wholesale
network market. Because Williams Communications has focused its efforts on the
market for wholesale network services, it does not compete with these networks
in the retail sector of the market. Network intends to compete by being the
lowest cost provider in the market for technologically advanced network services
and by pursuing only wholesale opportunities. By avoiding the retail market, it
seeks to avoid the situation of competing with its customers who purchase
wholesale services for resale in the retail market.
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
Networks' operations.
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. If
Regional Bell Operating Companies are permitted to compete in the market for
long-distance services, they will require nationwide fiber networks to provide
services. If any such Regional Bell Operating Company chooses to contract with
Williams Communications for use of its network, it could create opportunities
for Williams Communications to sell fiber or to lease long distance, high volume
capacity. If any such Regional Bell Operating Company chooses either to
construct its own network or to contract with one of Williams Communications'
competitors, it would be in a position to provide nationwide long distance
services in direct competition with Williams Communications.
Solutions. For the Solutions business, Williams Communications is the
largest independent provider of integrated communications solutions to
businesses throughout North America. Though 30 percent owned by Northern
Telecom, Solutions maintains strong relationships with other manufacturers of
products that it sells to its customers. Solutions' competitors include
communications equipment distributors, network integrators,
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and manufacturers of equipment (including in some instances those manufacturers
whose products Solutions also sells). WCS has many competitors ranging from
Lucent Technologies, Siemens, and Cisco Systems to small individually-owned
companies that sell and service customer-premise equipment. Because WCS sells
and installs equipment manufactured by third parties and provides maintenance
services on the equipment it sells, it seeks to compete by giving customers
their choice of high quality, technologically advanced equipment along with high
quality service.
Applications. 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. Vyvx
competes by providing high quality services in its niche market.
OWNERSHIP OF PROPERTY
Network. Williams Communications owns part of the fiber-optic transmission
facilities and leases the remainder. Approximately 10,000-route miles of its
owned facilities are comprised of a single fiber, which is on a portion of the
fiber optic network of MCI WorldCom, Inc. and is restricted until July 1, 2001,
to multimedia content usage. Williams Communications retained this fiber when a
predecessor of MCI WorldCom purchased Williams Communications' network services
operations in 1995. 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.
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. Specifically, an IRU is an exclusive, indefeasible right to use
the specified property for a term essentially representing the economic life of
the property. The grant of an IRU transfers the risks and rewards of ownership
but does not convey title, ownership, or rights of possession in the network,
the individual fibers comprising the network, the related right-of-way
agreements, or any other real or personal property. The transferee of an IRU
typically has a right to retake possession at the end of the contract term,
which generally exceeds 20 years.
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.
WILLIAMS INTERNATIONAL COMPANY
Williams International Company, through subsidiaries, has made direct
investments in energy and telecommunications projects primarily in South America
and Australia and continues to explore and develop additional projects for
international investment. Williams International also has investments in energy,
telecommunications, and infrastructure development funds in Asia and Latin
America.
El Furrial. Williams International owns a 67 percent interest in a venture
near the El Furrial field in eastern Venezuela that constructs, owns, and
operates medium and high pressure gas compression facilities for Petroleos de
Venezuela (PDVSA), the state owned petroleum corporation of Venezuela.
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The medium pressure facility compresses 130 MMcf per day of raw natural gas
from 100 to 1,200 p.s.i.g. for delivery into a natural gas processing plant
owned by PDVSA. The high pressure facility compresses 450 MMcf per day of
processed natural gas from 1,100 to 7,500 p.s.i.g. for injection into PDVSA's El
Furrial producing field.
The medium pressure facility began operations in November 1997. The high
pressure facility began operations in September 1998. An expansion of the high
pressure facility to 650 MMcf per day is underway, and Williams International
anticipates that the expansion will be complete in the second half of 1999.
Jose Terminal. In November 1998 a consortium in which Williams
International owns 45 percent, entered into an agreement with PDVSA to purchase
the Jose Terminal, an 800,000 Bbp per day petroleum storage and shiploading
facility in northeastern Venezuela, for a 20-year renewable term. As part of the
transaction, PDVSA, directly and indirectly through its partners, has committed
to store and shipload an average of 873,000 Bbp per day of crude oil during the
first 20 years of the transaction. The interim operations began in the first
quarter of 1999, and formal closing is expected in the second quarter of 1999.
Apco Argentina. Williams International also owns an interest in Apco
Argentina Inc., an oil and gas exploration and production company with
operations in Argentina. Apco Argentina's principal business is its 47.6 percent
interest in the Entre Lomas concession in southwest Argentina. It also owns a 45
percent interest in the Canadon Ramirez concession and a 1.5 percent interest in
the Acambuco concession.
At December 31, 1998, 1997, and 1996, estimated developed, proved reserves
net to Apco Argentina were 15.5, 23.7, and 24.2 million barrels, respectively,
of oil, condensate, and plant products, and 26.8, 35.8, and 44.3 Bcf,
respectively, of natural gas. Estimated undeveloped, proved reserves net to Apco
Argentina were 5.1, 9.5, and 10.5 million barrels, respectively, of oil,
condensate, and plant products, and 700 MMcf, 800 MMcf, and 2.5 Bcf,
respectively, of natural gas.
At December 31, 1998, the gross and net developed concession acres owned by
Apco Argentina totaled 37,140 acres and 17,093 acres, respectively, and the
gross and net undeveloped concession acres owned were 504,860 acres and 115,493
acres, respectively. At December 31, 1998, Apco Argentina owned interests in 452
gross producing wells and 212 net producing wells on its concession acreage.
Total net production sold during 1998, 1997, and 1996 was 1.7, 1.8, and 1.6
million barrels, respectively, of oil, condensate, and plant products, and 7.7,
7.7, and 8.4 Bcf, respectively, of natural gas. The average production costs,
including all costs of operations such as remedial well workovers and
depreciation of property and equipment, per barrel of oil produced were $9.09,
$8.27, and $8.15, respectively, and per Mcf of natural gas produced were $.23,
$.21, and $.22, respectively. The average wellhead sales price per barrel of oil
sold were $12.71, $19.52, and $20.87, respectively, and per Mcf of natural gas
sold were $1.33, $1.34, and $1.33, respectively, for the same periods.
Lightel and Brazilian Cellular Project. Williams International owns a 20
percent equity interest in Lightel, S.A., a company that owns interests in a
local exchange carrier, a cable television company, and cellular telephone
companies in Brazil. In April 1998 Williams International participated in
Lightel's acquisition of licenses to provide cellular telephone service in the
States of Sao Paulo, Rio de Janeiro, and Espirito Santo by issuing convertible
debt to Lightel to help fund the investment and by directly investing in
ATL -- Algar Telecom Leste, S.A. which holds the Rio de Janeiro and Espirito
Santo concession in exchange for a 30 percent equity ownership interest in ATL.
Construction on the cellular network began in 1998 and is expected to be
complete in the first quarter of 1999. In February 1999 Williams International
exercised its right of first refusal to acquire an additional 35 percent equity
interest in ATL. It anticipates completing the transaction before the end of the
first quarter of 1999.
PowerTel. In August 1998 Williams International closed a transaction under
which it will eventually own an approximate 45 percent direct and 2.4 percent
indirect interest in PowerTel Limited (a publicly traded corporation in which
three Australian electric utilities will own a 30 percent interest) to build,
own, and operate a fiber optic telecommunications network in Australia serving
the cities of Brisbane, Sydney, and Melbourne, as well as other cities.
Engineering and construction work on the network began in the fourth quarter of
1998, and commercial operations are expected to commence midyear 1999.
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MetroCom. In March 1999 Williams International plans to acquire a 19.9
percent equity interest in Metrocom, S.A., a Chilean company formed by Metrogas,
S.A., to build, own, and operate a telecommunications network providing
high-quality, low-cost local, Internet, data, and voice services to businesses
and residences in the Santiago metropolitan area, focusing on the commercial and
high-end residential markets. Metrogas, S.A., whose shareholders consist of
several large international and Chilean electric utilities and energy companies,
is installing a natural gas distribution network in Santiago along with
telecommunications ducts for the installation of the fiber optic network. The
estimated cost of the investment is approximately U.S. $24.5 million.
OTHER INFORMATION
Williams Holdings 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, 1998, Williams Holdings
had approximately 17,450 full-time employees, of whom approximately 1,312 were
represented by unions and covered by collective bargaining agreements. In
September 1998 Williams created three new companies in order to streamline
payroll processing and reduce costs. In connection with this, Williams
transferred its employees to one of these companies, and the employees are now
jointly employed by Williams and one of these new companies. This change had no
impact on Williams' management structure or on its employees' seniority and
benefits. Williams 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 Williams Holdings believes these
forward-looking statements are based on reasonable assumptions, it cannot give
any assurance that it will reach every objective. Williams Holdings is making
these forward-looking statements in reliance on the safe harbor protections
provided under the Private Securities Litigation Reform Act of 1995.
As required by the Act, Williams Holdings identifies the following
important factors that could cause actual results to differ materially from any
results projected, forecasted, estimated, or budgeted:
- changes in general economic conditions in the United States
- changes in laws and regulations to which Williams Holdings is subject,
including tax, environmental, and employment laws and regulations
- the cost and effects of legal and administrative claims and proceedings
against Williams Holdings or its subsidiaries
- conditions of the capital markets Williams Holdings utilizes to access
capital to finance operations
- the ability to raise capital in a cost effective way
- Year 2000 readiness of Williams Holdings, its customers, and its vendors
- the effect of changes in accounting policies
- the ability to manage rapid growth
- the ability to control costs
- changes in foreign economies, laws, and regulations, especially in
Brazil, Argentina, Venezuela, and Australia where Williams Holdings has
made direct investments
- political developments in foreign countries, especially in Brazil,
Argentina, Venezuela, and Australia where Williams Holdings has made
direct investments
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- the impact of future federal and state regulations of business
activities, including allowed rates of return, the pace of deregulation
in retail natural gas and electricity markets, and the resolution of
other regulatory matters discussed herein
- fluctuating energy commodity prices
- fluctuating corn prices, which affect Williams Holdings' ethanol business
- the ability of Williams Holdings' energy businesses to develop expanded
markets and product offerings as well as their ability to maintain
existing markets
- 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, decisions by customers not
to renew expiring natural gas transportation contracts, and weather
conditions
- the accuracy of estimated hydrocarbon reserves and seismic data
- successful completion of the communications network build
- the ability to successfully market capacity on the communications network
- technological developments, high levels of competition, lack of customer
diversification, and general uncertainties of governmental regulation in
the communications industry
- significant competition on pricing and product offerings for the
Solutions business unit
- the ability of the Solutions business unit to introduce and market
competitive products and services
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Williams Holdings has no significant amounts of revenue or segment profit
or loss attributable to export sales. See Item 1(c) for a description of
Williams Energy's and Williams International's export sales activities.
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.
Williams Holdings is also subject to other ordinary routine litigation
incidental to its businesses.
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 Midstream Gas & Liquids unit of Williams Energy had recorded an
aggregate liability of approximately $10 million, representing the current
estimate of future environmental and remediation costs. Williams Energy also
accrues environmental remediation costs for its petroleum products pipelines,
retail petroleum, refining, and propane marketing operations primarily related
to soil and groundwater contamination. At December 31, 1998, Williams Energy and
its subsidiaries had reserves, in addition to the reserves listed above,
totaling approximately $31 million. Williams Energy recognizes receivables
related to environmental remediation costs from state funds as a result of laws
permitting states to reimburse certain expenses associated with underground
storage tank problems and repairs. At December 31, 1998, Williams Energy and its
subsidiaries had receivables totaling $14 million. Actual costs incurred will
depend on the actual number of
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<PAGE> 23
contaminated sites identified, the actual amount and extent of contamination
discovered, the final cleanup standards mandated by the EPA and other
governmental authorities and other factors.
Other legal matters
On April 7, 1992, a liquefied petroleum gas explosion occurred near an
underground salt dome storage facility located near Brenham, Texas, and owned by
an affiliate of MAPCO Inc., Seminole Pipeline Company. MAPCO Inc., as well as
Seminole, Mid-America Pipeline Company, MAPCO Natural Gas Liquids Inc., and
other non-MAPCO entities were named as defendants in civil action lawsuits filed
in state district courts located in four Texas counties. Seminole and the
above-mentioned subsidiaries of MAPCO Inc. have settled in excess of 1,600
claims in these lawsuits. The only lawsuit remaining is the Dallmeyer case which
was tried before a jury in Harris County, Texas. In Dallmeyer, the judgment
rendered in March 1996 against defendants Seminole and MAPCO Inc. and its
subsidiaries totaled approximately $72 million, which included nearly $65
million of punitive damages awarded to the 21 plaintiffs. Both plaintiffs and
defendants have appealed the Dallmeyer judgment to the Court of Appeals for the
Fourteenth District of Texas in Harris County. The defendants seek to have the
judgment modified in many respects, including the elimination of punitive
damages as well as a portion of the actual damages awarded. If the defendants
prevail on appeal, it will result in an award significantly less than the
judgment. The plaintiffs have cross-appealed and seek to modify the judgment to
increase the total award plus interest to exceed $155 million. In February and
March 1998, the defendants entered into settlement agreements involving 17 of
the 21 plaintiffs to finally resolve their claims against all defendants for an
aggregate payment of approximately $10 million. These settlements have satisfied
and reduced the judgment on appeal by approximately $42 million. As to the
remaining four plaintiffs, the Court of Appeals issued its decision on October
15, 1998, which, while denying all of the plaintiffs' cross-appeal issues,
affirmed in part and reversed in part the trial court's judgment. The defendants
had entered into settlement agreements with the remaining plaintiffs which, in
light of the decision, Williams believes will provide for aggregate payments of
approximately $13.6 million, the full amount of which has been previously
accrued.
In 1991 the Southern Ute Indian Tribe filed a lawsuit against Williams
Production Company, a wholly owned subsidiary of Williams, and other gas
producers in the San Juan Basin area, alleging that certain coal strata were
reserved by the United States for the benefit of the Tribe and that the
extraction of coal-seam gas from the coal strata was wrongful. The Tribe sought
compensation for the value of the coal-seam gas. The Tribe also sought 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 against any losses that may arise in respect of certain properties
subject to the lawsuit. On July 16, 1997, the Court of Appeals 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 July 20,
1998, the Court of Appeals sitting en banc affirmed the panel's decision. The
U.S. Supreme Court has granted a writ of certiorari in respect of this decision.
In late March 1999 Williams Production, BP Amoco, and the Tribe announced
that they are in settlement negotiations to finalize the terms of an agreement
in connection with the claims asserted against Williams. Under the proposed
settlement, Williams Production will convert its net profits interest in the
production from the oil and gas leases in dispute into a working interest. A
portion of Williams Production's working interest will then be transferred to
the Tribe effective January 1, 1999. The Tribe will release Williams Production
from all other claims asserted in the lawsuit. This pending settlement agreement
does not address key issues still being pursued on appeal to the Supreme Court,
including the ownership of the natural gas in the coal formation, tribal
severance tax payments, and other matters. The Supreme Court is expected to
render its decision by mid-1999. The details of this settlement are still being
negotiated, and it must be
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approved by the District Court after an opportunity for review and comment.
Williams believes the parties will be successful in reaching a final agreement
on the partial settlement in principal and that it will be approved by the
District Court.
In 1998 the United States Department of Justice informed Williams that Jack
Grynberg, an individual, had filed claims in the United States District Court
for the District of Colorado under the False Claims Act against Williams and
certain of its wholly owned subsidiaries including Williams Field Services
Company and Williams Production Company. Mr. Grynberg has also filed claims
against approximately 300 other energy companies and alleges that the defendants
violated the False Claims Act in connection with the measurement and purchase of
hydrocarbons. The relief sought is an unspecified amount of royalties allegedly
not paid to the federal government, treble damages, civil penalty, attorneys'
fees, and costs.
In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries which are incidental to their operations.
Summary
While no assurances may be given, Williams Holdings does not believe that
the ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, insurance coverage, recovery from customers,
or other indemnification arrangements, will have a materially adverse effect
upon Williams Holdings' future financial position, results of operations, or
cash flow requirements.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of December 31, 1998, all of the outstanding shares of Williams
Holdings' Common Stock were owned by Williams. Williams Holdings' Common Stock
is not publicly traded, and there is no market for such shares.
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<PAGE> 26
ITEM 6. SELECTED FINANCIAL DATA
The following financial data as of December 31, 1998 and 1997 and for the
three years ended December 31, 1998 are an integral part of, and should be read
in conjunction with, the consolidated financial statements and notes thereto.
All other amounts have been prepared from the company's financial records.
Amounts below reflect the combined operations and financial position of Williams
Holdings and MAPCO and the adoption of the Statement of Financial Accounting
Standards No. 131 (see Note 19). 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-15 of this report.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues(1)........................ $5,942.6 $6,520.3 $5,157.2 $4,161.7 $3,878.5
Income (loss) from continuing
operations(2).................... (10.3) 301.0 358.9 276.0 175.7
Income (loss) from discontinued
operations(3).................... (14.3) (6.3) (32.7) 1,029.3 122.9
Total assets....................... 11,850.6 9,134.5 7,334.6 6,515.5 5,555.7
Long-term debt..................... 2,917.0 1,525.5 1,421.5 1,021.7 1,169.2
Stockholder's equity............... 3,923.6 3,525.5 3,152.7 2,849.0 2,422.5
</TABLE>
- ---------------
(1) See Note 1 for discussion of the 1998 change in the reporting of certain
marketing activities from a "gross" basis to a "net" basis consistent with
fair value accounting. See Note 2 for discussion of Williams Holdings' 1997
acquisition of Nortel's customer-premise equipment sales and service
operations.
(2) See Notes 2 and 5 for discussion of the gain on sale of interest in
subsidiary, significant asset sales, write-offs and other accruals in 1998,
1997 and 1996. Income from continuing operations in 1995 includes a $41.4
million pre-tax charge related to the cancellation of a commercial coal
gasification venture and a $16 million after-tax gain related to the sale of
Williams Holdings' 15 percent interest in Texasgulf Inc. 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. and a $68.7 million pre-tax charge related to the settlement
of a dispute with the State of Alaska related to royalty oil purchase
agreements. In addition, the 1994 amounts include a pre-tax gain of $25.4
million related to the exchange of 36.6 million shares of Williams common
stock for Williams convertible debentures and warrants and a pre-tax gain on
the sale of Williams common stock of $10.8 million.
(3) See Note 3 for discussion of the losses from discontinued operations for
1998, 1997 and 1996. The income from discontinued operations for 1995
primarily relates to the gain from the 1995 sale of Williams Holdings'
network services operations, while the 1994 amount reflects the operating
results of the network services operations and the MAPCO Coal operations.
F-1
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 vs. 1997
CONSOLIDATED OVERVIEW. Williams Holdings' revenues decreased $578 million,
or 9 percent, due primarily to the $384 million impact in 1998 of reporting
certain revenues net of costs within Energy Services (see Note 1 of Notes to
Consolidated Financial Statements) and lower petroleum products and natural gas
liquids sales prices. Favorably effecting revenues were higher revenues from
Communications' equipment sales and services activities and excess fiber sales,
higher power services revenues and increased petroleum products sales volumes.
Segment costs and expenses decreased $258 million, or 4 percent, due
primarily to the $384 million impact in 1998 of reporting certain costs net in
revenues within Energy Services (see Note 1) and lower purchase prices for
petroleum products. Partially offsetting these decreases were higher costs and
expenses within Communications, costs associated with increased petroleum
products sales volumes, higher power services costs and $77 million of higher
charges in 1998 as compared to 1997. The 1998 charges include $37 million of
asset impairments, $51 million of MAPCO merger-related expenses, a $16 million
accrual for potential transportation rate refunds and a $23 million accrual for
modification of an employee benefit program associated with vesting of paid time
off. Included in 1997 are charges totaling $50 million for asset impairments.
Operating income decreased $308 million, or 70 percent, reflecting the
change in revenues and segment costs and expenses discussed above and comprised
primarily of a $176 million decrease at Energy Services and a $117 million
decrease at Communications. Income from continuing operations before
extraordinary loss and income taxes decreased $451 million, or 99 percent, due
primarily to the lower operating income, $43 million higher interest expense
resulting from continued expansion and new projects, the effect of a $45 million
gain in 1997 on the sale of interest in subsidiary and the effect of a $66
million gain in 1997 on the sale of assets.
ENERGY MARKETING & TRADING'S revenues decreased $337.7 million, or 15
percent, due primarily to the $384 million impact in 1998 of reporting revenues
on a net basis for certain natural gas liquids trading operations previously
reported on a "gross" basis (see Note 1) and $95 million lower crude and refined
products marketing and trading revenues. In addition, revenues associated with
natural gas origination, price-risk management and physical trading decreased
$50 million reflecting lower margins, the unfavorable market movement against
the natural gas portfolio and the adverse market and supply conditions which
resulted from Hurricane Georges in September 1998, partially offset by the $24
million favorable effect of certain contract settlements and terminations.
Retail propane revenues decreased $59 million due to the $35 million effect of
lower volumes following unseasonably warm weather in 1998 as compared to 1997
and the $24 million effect of lower average propane sales prices. Partially
offsetting these decreases were $243 million higher power services revenues
including $220 million from new power activity in southern California and
additional business growth.
Costs and operating expenses decreased $407 million, or 19 percent, due
primarily to the $384 million impact in 1998 of reporting revenues on a net
basis for certain natural gas liquids trading operations previously reported on
a "gross" basis (see Note 1) and $104 million lower product purchases associated
with the marketing and trading of crude and refined products. In addition,
retail propane cost of sales decreased $55 million due to the $21 million effect
of lower volumes and the $34 million effect of lower average propane purchase
costs. These decreases were partially offset by $156 million of costs related to
new power activity in southern California.
Segment profit decreased $14.4 million, or 27 percent, due primarily to the
$50 million decline in revenues from natural gas trading activities discussed
above, $43 million of additional losses from retail natural gas and electric
activities and the effect of a $6 million recovery in 1997 of an account
previously written off as a bad debt. The $43 million of losses from retail
natural gas and electric activities includes $17 million of credit losses and
$14 million of asset impairments (included in other (income) expense -- net).
The $14 million asset impairment is associated with the company's decision to
change focus from selling to small
F-2
<PAGE> 28
commercial and residential customers to large end users (see Note 5). The retail
natural gas and electric losses also reflect costs incurred to penetrate new
markets. Offsetting these decreases were $60 million of higher electric power
marketing and trading profits, $17 million lower retail propane operating
expenses and $7 million higher natural gas liquids trading profits.
EXPLORATION & PRODUCTION'S revenues increased $9.2 million, or 7 percent,
due primarily to the recognition of $22 million of additional deferred income
resulting from a 1997 transaction that transferred certain nonoperating economic
benefits to a third party and $8 million from a 14 percent increase in company-
owned production, partially offset by the $25 million effect of lower average
natural gas sales prices for company-owned production and for sales of volumes
from the Williams Coal Seam Gas Royalty Trust (Royalty Trust) and royalty
interest owners.
Segment profit decreased $3.1 million, or 10 percent, due primarily to $13
million higher depreciation, depletion and amortization, $6 million higher
nonproducing leasehold amortization, $2 million higher dry hole costs and $2
million of leasehold impairment costs, partially offset by the $22 million
increased recognition of deferred income.
MIDSTREAM GAS & LIQUIDS' revenues decreased $143.8 million, or 15 percent,
due primarily to $60 million lower natural gas liquids sales from processing
activities reflecting a decline in average liquids sales prices, and the $44
million effect of the shutdown of the Canadian liquids marketing operations in
late 1997. Revenues also declined due to $18 million lower natural gas liquids
pipeline transportation revenues reflecting 3 percent lower shipments, the
passthrough of $9 million lower operating costs to customers and the effect of
an $8 million receipt in 1997 of business interruption insurance proceeds,
slightly offset by $9 million higher gathering revenues and $8 million
associated with a 4 percent increase in natural gas liquids sales volumes.
Costs and operating expenses decreased $88 million, or 15 percent, due
primarily to the $50 million effect of the shutdown of the Canadian liquids
marketing operations, $9 million lower costs passed through to customers, $15
million lower fuel and replacement gas purchases, and lower natural gas liquids
pipeline transportation costs.
Other (income) expense -- net in 1998 includes a loss of approximately $9
million related to the retirement of certain assets and $6 million of
unfavorable litigation loss provisions, partially offset by a $6 million gain
from the settlement of product imbalances.
Segment profit decreased $60.2 million, or 22 percent, due primarily to $45
million of lower per-unit liquids margins, decreased pipeline transportation
shipments, the $9 million loss related to the retirement of certain assets and
the effect of an $8 million business interruption insurance receipt in 1997,
slightly offset by $9 million higher gathering revenues.
PETROLEUM SERVICES' revenues decreased $20.5 million, or 1 percent, due
primarily to a $213 million decrease in revenues from refining operations and
$17 million lower product sales from transportation activities, significantly
offset by $107 million higher pipeline construction revenue, $54 million higher
convenience store sales, and $37 million higher revenues from fleet management
and mobile computer technology operations initiated in mid-1997. The $213
million decline in refining revenues reflects $386 million from lower average
sales prices, partially offset by $173 million from a 13 percent increase in
refined product volumes sold. The $54 million increase in convenience store
sales is due primarily to the May 1997 EZ-Serve acquisition, additional travel
centers and increased per-store merchandise sales. Increases of $101 million in
gasoline and diesel sales volumes and $47 million higher merchandise sales were
partially offset by a $94 million impact of lower average retail gasoline and
diesel sales prices.
Costs and expenses increased $27 million, or 1 percent, due primarily to
$102 million of pipeline construction costs, $46 million higher convenience
store merchandise purchases and operating costs resulting from the EZ-Serve
acquisition, additional travel centers and increased per-store sales, $41
million higher costs from fleet management and mobile computer technology
operations, $24 million higher general and administrative expenses and a $15.5
million accrual for potential transportation rate refunds to customers (included
in other (income) expense -- net) (see Note 17). Substantially offsetting these
increases were a $194 million decrease from refining operations and $15 million
lower cost of product sales from transportation
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<PAGE> 29
activities. The $24 million increase in general and administrative expenses is
due, in part, to increased activities in human resources development,
investor/media/customer relations and business development. The $194 million
decrease from refining operations reflects a $343 million decrease due to lower
average crude oil purchase prices, partially offset by a $143 million increase
related to an increase in processed barrels sold and $7 million higher operating
costs at the Memphis refinery. Convenience store gasoline and diesel cost of
sales remained flat as a $90 million increase from higher sales volumes was
offset by lower average purchase prices.
Segment profit decreased $47.5 million, or 24 percent, due primarily to the
$15.5 million accrual for potential refunds to transportation customers, $13
million lower refinery gross margins, $7 million higher operating costs due to
increased production levels at the Memphis refinery, approximately $24 million
higher general and administrative expenses and a $4.4 million accrual for
modification of an employee benefit program associated with vesting of paid time
off, partially offset by $6 million higher product transportation revenues, $7
million increased profits from convenience store operations and $5 million from
pipeline construction activities.
COMMUNICATIONS SOLUTIONS' revenues increased $160.3 million, or 13 percent,
due primarily to the April 30, 1997, combination of the Nortel customer premise
equipment sales and services operations, which contributed an additional $196
million of revenue during the first four months of 1998. A $30 million increase
in maintenance contract revenues was more than offset by $46 million lower new
system sales and $31 million lower customer service orders due, in part, to
competitive pressures.
Costs and operating expenses increased $116 million, or 13 percent, and
selling, general and administrative expenses increased $138 million, or 53
percent, due primarily to the combination with Nortel. Included in the overall
increase in selling, general and administrative expenses are $23 million of
increased information systems costs associated with expansion and enhancement of
the infrastructure and continued costs of maintaining multiple systems while
common systems are being developed, $36 million higher selling costs including
the effects of large increases in sales and support staff and higher sales
commissions in anticipation of a higher revenue base than actually achieved, $12
million increased provision for bad debts, and a $6 million accrual for
modification of an employee benefit program associated with vesting of paid time
off.
Segment profit decreased $101.4 million from a $47.3 million segment profit
in 1997 to a $54.1 million segment loss in 1998, due primarily to the increase
in selling, general and administrative costs as described above, $6 million
related to information systems cancellations and $7 million of obsolete
equipment write-downs, severance and contract loss accruals.
NETWORK APPLICATIONS' revenues decreased $9.1 million, or 4 percent, due
primarily to the $14 million effect of the decision to exit the learning content
business in November 1997. Partially offsetting this decline was a $9 million
increase in audio and video conferencing and business television revenues.
Costs and operating expenses increased $9 million, or 5 percent, due
primarily to $8 million higher costs of providing network services following the
transfer of fiber assets to Network Services in October 1997 and the $7 million
effect of increased audio and video conferencing and business television
activities, partially offset by $8 million lower costs as a result of the
decision to exit the learning content business in November 1997. A $10 million,
or 11 percent, decrease in selling, general and administrative expenses was also
due to the decision to exit the learning content business.
Other (income) expense -- net in 1998 includes a $23.2 million write-down
related to the abandonment of a venture involved in the technology and
transmission of business information for news and educational purposes (see Note
5). Other (income) expense -- net in 1997 includes charges totaling $49.8
million related to the decision and formulation of a plan to sell the learning
content business ($28 million), and the write-down of assets and development
costs associated with certain advanced applications (see Note 5). During 1998, a
substantial portion of the learning content business was sold at its approximate
carrying value.
Segment loss decreased $14.1 million from a $108.7 million segment loss in
1997 to a $94.6 million segment loss in 1998, due primarily to the effect of
$49.8 million of charges in 1997, partially offset by the $23.2 million
write-down in 1998, $7 million higher network access costs and a $3 million
accrual for modification of an employee benefit program associated with vesting
of paid time off.
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NETWORK SERVICES' revenues increased $151.9 million from $43 million in
1997, due primarily to $64 million of revenue in 1998 from the sale of excess
fiber capacity on the newly constructed digital fiber-optic network, $49 million
of revenues from providing fiber services to new long-term customers and $27
million higher revenue following the transfer of fiber assets from Network
Applications in October 1997.
Costs and operating expenses increased $136 million from $32 million in
1997, due primarily to $38 million of cost of sales of excess fiber capacity,
$55 million of leased capacity costs associated with providing customer services
prior to completion of the new network, and $17 million higher operating
expenses. Selling, general and administrative expenses increased $45 million due
primarily to the expansion of the infrastructure to support the new national
digital fiber-optic network, including $8 million of increased information
systems costs and $8 million for a new national advertising campaign.
Segment profit decreased $29.6 million from a $3.3 million segment profit
in 1997 to a $26.3 million segment loss in 1998, due primarily to the cost of
expanding the infrastructure in support of the network expansion and losses
experienced from providing customer services prior to completion of the new
network, partially offset by $26 million of profit from selling excess fiber
capacity.
As each phase of the ongoing construction of the planned 32,000 mile
full-service wholesale communications network goes into service, revenues and
costs are expected to increase. During 1998, 9,000 miles of new network were
added increasing the network to 19,000 cable miles at December 31, 1998. The
remaining 13,000 miles are planned to come online during 1999 and 2000. This
business is expected to contribute an increasing percentage of consolidated
revenues but is not expected to contribute significantly to segment profit until
2001. The February 8, 1999, announcement by Williams of a 20-year agreement with
SBC Communications, under which Network Services will become the preferred
provider of nationwide long-distance voice and data services for SBC
Communications, will contribute to the expected network revenue increase in
2000. Additional sales of excess dark fiber capacity along the new network are
expected to generate increasing revenues and segment profit during 1999 and
2000.
OTHER segment loss of $14.5 million in 1998 compares to $12.7 million of
segment profit in 1997. The 1998 segment loss includes equity losses of $14.8
million from investing activities in a Brazilian communication business in which
Williams has a 30 percent interest. This business is constructing a cellular
phone network scheduled to be in operation during 1999. In addition, 1998
includes $8 million higher general and administrative expenses as compared to
1997 and $5.6 million of write-downs of international cost investments to
market.
GENERAL CORPORATE EXPENSES decreased $11.6 million, or 16 percent, due
primarily to expense savings realized following the MAPCO merger, largely offset
by MAPCO merger-related costs of $21 million in 1998 compared to $10 million in
1997. An additional $51 million of merger-related costs are included as a
component of Energy Services' segment profit (see Note 19). Interest accrued
increased $49.8 million, or 38 percent, due primarily to higher borrowing levels
including Williams Holdings' commercial paper program and advances from
affiliates, partially offset by the $9 million effect of a lower average
interest rate. Interest capitalized increased $7.3 million, or 38 percent, due
primarily to increased capital expenditures for the fiber-optic network, the
Venezuelan gas injection plant and international investment activities.
Investing income decreased $3.6 million, or 8 percent, due primarily to $14
million lower interest earned on advances to Williams largely offset by higher
interest income on advances to affiliates and long-term notes receivable. For
information concerning the $44.5 million gain on sale of interest in subsidiary
in 1997, see Note 2. The $66 million gain on sales of assets in 1997 results
from the sale of Williams Holdings' interest in the liquids and condensate
reserves in the West Panhandle field of Texas (see Note 5). Minority interest in
(income) loss of consolidated subsidiaries in 1998 is $30.2 million favorable as
compared to 1997 due primarily to losses experienced by Williams Communications
Solutions, LLC which has a 30 percent interest held by minority shareholders.
Other income (expense) -- net is $15.7 million unfavorable as compared to 1997
due primarily to 1998 litigation accruals and loss provisions totaling $11
million related to assets previously sold, and the effect of a 1997 gain of $4
million on the termination of interest-rate swap agreements.
The $139.2 million, or 90 percent, decrease in the provision for income
taxes on continuing operations is primarily a result of lower pre-tax income,
partially offset by a higher effective income tax rate in 1998. The
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<PAGE> 31
effective income tax rate in 1998 exceeds the federal statutory rate due
primarily to the effects of state income taxes and the effects of non-deductible
costs, including goodwill. The effective 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 1998 and 1997 losses on discontinued operations are attributable to
loss provisions for contractual obligations related to the sale of the net
assets of the MAPCO coal business in 1996 (see Note 3).
The 1998 and 1997 extraordinary losses result from the early extinguishment
of debt (see Note 7).
1997 vs. 1996
CONSOLIDATED OVERVIEW. Williams Holdings' revenues increased $1.4 billion,
or 26 percent, due primarily to increased marketing of crude oil and refined
products and higher revenues at Communications reflecting increased business
activity and revenue contributed by acquisitions, including the 1997 combination
of the Nortel customer premise equipment sales and services operations.
Partially offsetting these increases was the $141 million impact in 1997 of
reporting certain revenues net of costs within Energy Services (see Note 1).
Segment costs and expenses increased $1.4 billion, or 31 percent, due
primarily to costs associated with the increased marketing of crude oil and
refined products, higher costs and expenses at Communications and $50 million
for asset impairments, partially offset by the $141 million impact in 1997 of
reporting certain costs net in revenues within Energy Services (see Note 1).
Operating income decreased $95 million, or 18 percent, reflecting the
change in revenues and segment costs and expenses discussed above and comprised
primarily of a $63 million decrease at Communications and a $20 million decrease
at Energy Services. Income from continuing operations before extraordinary loss
and income taxes decreased $75 million, or 14 percent, reflecting the lower
operating income, increased interest accrued resulting from higher capital
expenditures and the effect of the $37 million gain in 1996 on sales of assets,
partially offset by a $45 million gain in 1997 on the sale of interest in
subsidiary and a $66 million gain in 1997 on the sale of assets.
ENERGY MARKETING & TRADING'S revenues increased $276.4 million, or 14
percent, due primarily to a $488 million increase in marketing of crude oil and
refined products from the Memphis refinery. This increase reflects increased
demand for petroleum products, aggressive marketing in the Memphis and Ohio
River Valley areas and $183 million from the inclusion of Lexas Oil operations,
which prior to July 1997 were unconsolidated. Partially offsetting this increase
was a $125 million decrease in revenues from energy trading and price-risk
management activities, $77 million lower marketing of natural gas liquids
associated with Midstream's natural gas liquids transportation activities and a
$16 million decrease in revenues from the propane marketing business. The $125
million decrease in revenues from energy trading and price-risk management
activities resulted from 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, energy trading and
price-risk management 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, higher petroleum trading volumes, revenues from new project
financing services for energy producers and the sale of excess transportation
capacity, partially offset by lower natural gas trading margins as a result of
decreased price volatility. The $77 million decrease in marketing of natural gas
liquids results mainly from significantly lower natural gas liquids sales
prices. The $16 million decrease in revenues from the propane marketing business
resulted from the $24 million effect of the sale of certain propane and liquid
fertilizer assets in 1996, partially offset by increased propane sales volumes
primarily from acquisitions.
Costs and operating expenses increased $335 million, or 19 percent, due
primarily to $526 million of additional costs associated with the marketing of
crude oil and refined products from the Memphis refinery, $23 million of
increased operating expenses associated with propane marketing acquisitions and
growth initiatives and a $16 million increase in propane purchase costs relating
to increased volumes, partially offset by the $141 million effect of the 1997
reporting on a net margin basis of certain natural gas and gas liquids
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marketing operations previously not considered to be included in trading
operations, $73 million lower costs of marketing natural gas liquids associated
with Midstream's natural gas liquids transportation activities and $21 million
associated with the sale of certain propane and liquid fertilizer assets.
Selling, general and administrative expenses increased $32 million, or 52
percent, due primarily to propane business acquisitions and the expenses
associated with expansion of certain business growth platforms.
Segment profit decreased $85.1 million, or 61 percent, due primarily to $38
million lower gross margins on the marketing of crude oil and refined products
from the Memphis refinery, $32 million higher selling, general and
administrative expenses, $23 million of increased operating expenses associated
with propane marketing acquisitions and growth initiatives, and $10 million
lower gross margins on propane marketing operations, partially offset by the $16
million increase in net energy trading and price-risk management revenues and a
$6 million recovery of an account previously written off as a bad debt.
EXPLORATION & PRODUCTION'S revenues increased $47.7 million, or 58 percent,
due primarily to the $20 million effect of higher average natural gas sales
prices for company-owned production, the $14 million effect of higher average
natural gas sales prices from the sale of volumes from the Royalty Trust and
royalty interest owners, and the $9 million effect of a 21 percent increase in
company-owned production volumes.
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.
Segment profit increased $27.5 million, from $2.8 million in 1996, due
primarily to the increase in average natural gas sales prices and company-owned
production volumes, partially offset by higher expenses associated with
increased activity levels.
MIDSTREAM GAS & LIQUIDS' revenues increased $155.2 million, or 20 percent,
due primarily to $53 million related to a full year of Canadian marketing
operations in 1997 as compared to four months in 1996, $44 million of higher
natural gas liquids sales from processing activities, 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. These increases were slightly offset by the impact of the
January 1997 sale of the West Panhandle operations. The $44 million increase in
natural gas liquids sales from processing activities is 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 (a wholly-owned subsidiary of
Williams Holdings' parent) gathering assets to Midstream Gas & Liquids in the
last half of 1996.
Costs and operating expenses increased $154.4 million, or 35 percent, due
primarily to higher fuel and replacement gas purchases associated with gathering
and processing activities, the $52 million impact of a full year of Canadian
marketing operations, costs associated with the gathering assets transferred to
Midstream Gas & Liquids from Williams Gas Pipelines Central and higher operating
and maintenance and depreciation expenses, slightly offset by the $13 million
effect of the sale of the West Panhandle 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.
Segment profit decreased $23.2 million, or 8 percent, due primarily to the
$30 million effect of lower per-unit liquids margins, an $18 million impact of
the sale of the West Panhandle operations, and $12 million lower insurance
recoveries in 1997 as compared to 1996, partially offset by the $24 million
effect of increased liquids volumes sold and the transfer of gathering assets
from Williams Gas Pipelines Central.
PETROLEUM SERVICES' revenues increased $100.8 million, or 4 percent, due
primarily to a $27 million increase in ethanol sales, $25 million from new fleet
management and mobile computer technology operations, a $24 million increase in
product sales from transportation activities and $18 million higher retail sales
revenues. 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. The retail sales increase reflects higher gasoline and merchandise
sales
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following the EZ-Serve convenience stores acquisition, partially offset by lower
diesel sales. A 5 percent increase in processed volumes sold was offset by
slightly lower average refined product sales prices. Products pipeline shipments
and average rates were comparable to 1996.
Costs and operating expenses increased $33.6 million, or 1 percent, due
primarily to a $35 million increase in retail costs following the EZ-Serve
convenience stores acquisition, $33 million associated with the new fleet
management and mobile computer technology operations, $23 million higher product
purchases associated with transportation activities, $15 million higher
operating expenses associated with increased refinery throughput and maintenance
activity, and $9 million higher costs from increased ethanol production, largely
offset by $84 million lower crude oil costs at the refineries.
Segment profit increased $60.8 million, or 43 percent, due primarily to a
$71 million increase from petroleum refining operations and a $15 million
increase related to increased ethanol sales volumes and per-unit margins,
partially offset by an $18 million decrease from retail operations and $9
million of losses associated with the new fleet management and mobile computer
technology operations. The $71 million petroleum refining increase reflects
higher per-unit margins and 5 percent higher volumes processed, partially offset
by $10 million of higher costs associated with increased maintenance activity.
The retail operations decrease reflects the additional costs associated with the
implementation of strategic growth initiatives and lower per-unit margins on
gasoline sales.
COMMUNICATIONS SOLUTIONS' revenues increased $638.4 million, or 112
percent, due primarily to acquisitions which contributed revenues of
approximately $556 million, including $536 million from the April 30, 1997,
combination of the Nortel customer premise equipment sales and services
operations. 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.
Costs and operating expenses increased $460 million, or 105 percent, due
primarily to the $393 million impact of the combination with Nortel. In
addition, costs and operating expenses increased due to $50 million of higher
costs associated with increased new systems sales activity and $16 million of
higher costs related to system modification activity. Selling, general and
administrative expenses increased $148 million, or 129 percent, due primarily to
the combination with Nortel in addition to costs associated with expanding the
infrastructure for future growth.
Segment profit increased $33 million from $14.3 million in 1996, due
primarily to the combination with Nortel, partially offset by increased expenses
associated with expanding the infrastructure.
NETWORK APPLICATIONS' revenues increased $84.7 million, or 65 percent, due
primarily to 1997 acquisitions which contributed revenues of approximately $81
million.
Costs and operating expenses increased $83 million, or 86 percent, due
primarily to the $68 million impact of acquisitions and higher expenses for
developing and expanding video transmission services. Selling, general and
administrative expenses increased $46 million, or 94 percent, due primarily to
acquisitions and higher expenses for expanding the infrastructure for future
growth.
Other (income) expense -- net in 1997 includes charges totaling $49.8
million related to the decision and formulation of a plan to sell the learning
content business ($28 million), and the write-down of assets and development
expenses associated with certain advanced applications (see Note 5).
Segment loss increased $93.6 million to $108.7 million, due primarily to
the $49.8 million in charges described above and the expense of developing
infrastructure while integrating the most recent acquisitions.
NETWORK SERVICES' revenues increased $31.9 million to $43 million in 1997,
reflecting $14 million contributed by a March 1997 acquisition, $11 million from
fiber assets transferred from Network Applications in late 1997 and internal
growth.
Costs and operating expenses increased $27 million from $5 million in 1996,
reflecting a $15 million effect of the transfer of fiber assets from Network
Applications late in 1997 and $8 million from the March 1997 acquisition.
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<PAGE> 34
Segment profit decreased $2.5 million, or 43 percent, due primarily to an
increase in selling, general and administrative expenses.
GENERAL CORPORATE EXPENSES increased $20.5 million, or 41 percent, due
primarily to higher employee compensation expense, $10 million of costs related
to the 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 $38.6 million, or 41 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 $14.5 million, from $4.8 million in 1996, due primarily to
capital expenditures for the Discovery pipeline project and Communications'
fiber-optic network. Investing income increased $5.2 million, or 13 percent, due
primarily to interest earned on increased advances to Williams. For information
concerning the $44.5 million 1997 gain on sale of interest in subsidiary, see
Note 2. The $66 million 1997 gain on sales of assets results from the sale of
Williams Holdings' interest in the liquids and condensate in the West Panhandle
field of Texas (see Note 5). The $36.5 million 1996 gain on sales of assets
results from the sale of the fertilizer and Iowa propane assets and the sale of
certain communication rights (see Note 5). The $18.2 million 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 $17.4 million unfavorable change in other income
(expense) -- net in 1997 is due primarily to $9 million of costs associated with
Williams Holdings' sales of receivables program started in 1997, and the effects
of gains realized on the sale of corporate aircraft in 1996 and $5 million of
favorable accrual adjustments in 1996.
The provision for income taxes on continuing operations decreased $16.6
million, or 10 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, the 1996 tax provision
includes recognition of favorable state income tax adjustments of $6 million.
On September 10, 1996, Williams Holdings sold the net assets of the MAPCO
coal business to Alliance Coal Corporation for $236 million in cash. The sale
resulted in losses in 1997 and 1996 which are reported as discontinued
operations along with the operating results for 1996 (see Note 3).
The 1997 extraordinary loss results from the early extinguishment of debt
(see Note 7).
FINANCIAL CONDITION AND LIQUIDITY
MAPCO Acquisition
On March 28, 1998, Williams (Williams Holdings' parent) completed the
acquisition of MAPCO Inc. by exchanging 1.665 shares of Williams common stock
for each outstanding share of MAPCO common stock. In addition, outstanding MAPCO
employee stock options were converted into 5.7 million shares of Williams common
stock. Upon completion, 98.8 million shares of Williams common stock were
issued. MAPCO was engaged in the NGL pipeline, petroleum refining and marketing,
and propane marketing businesses. Upon completion of the merger, Williams
transferred its interest in MAPCO to Williams Holdings, and MAPCO became part of
the Energy Services business unit.
The merger constituted a tax-free reorganization and has been accounted for
as a pooling of interests. Accordingly, all prior period financial information
presented includes the combined results of operations, financial condition and
liquidity of MAPCO and Williams Holdings.
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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, as amended in January 1999. Williams
Holdings is a participant in Williams' $1 billion bank-credit facility and has
access to the entire $1 billion facility, subject to borrowing by other
affiliated companies. At December 31, 1998, Williams Holdings had access to $361
million of liquidity including $306 million available under the $1 billion
bank-credit facility. This compares with liquidity of $165 million at December
31, 1997, and $290 million at December 31, 1996.
During 1998, Williams Holdings increased its commercial paper program to $1
billion from $650 million. The commercial paper program is backed by short-term
bank-credit facilities totaling $1 billion. At December 31, 1998, $903 million
of commercial paper was outstanding under the program. In January 1999, Williams
Holdings' commercial paper program was increased to $1.4 billion with the
short-term bank-credit facilities increased to the same amount.
In addition, Williams Holdings and its subsidiaries had net amounts
receivable from Williams totaling $1 billion at December 31, 1998, excluding
parent company debentures with a face value of $360 million (see Note 4),
compared to $231 million at December 31, 1997, and $124 million at December 31,
1996. The increase in amounts receivable from Williams at December 31, 1998 from
December 31, 1997, reflects additional advances to the parent under Williams'
cash-management system, primarily due to proceeds from Williams Holdings'
commercial paper program, long-term debt issuances and proceeds from the sale of
limited partnership member interest.
Williams Holdings believes its parent can meet its cash needs. Williams has
access to $738 million of liquidity at December 31, 1998 including $306 million
available under its $1 billion bank-credit facility previously discussed, as
compared to liquidity of $166 million and $630 million at December 31, 1997 and
1996, respectively. The lower liquidity level at December 31, 1997, reflected
the use of the $1 billion bank-credit facility to provide interim financing
related to a debt restructuring program. This restructuring program was
completed during the first quarter of 1998 and a significant portion of the $1
billion bank-credit facility was repaid with the proceeds from long-term
financings.
At December 31, 1998, Williams Holdings has $595 million of shelf
availability remaining under registration statements filed with the Securities
and Exchange Commission. These registration statements may be used to issue a
variety of debt or equity securities. Interest rates and market conditions will
affect amounts borrowed, if any, under these arrangements. In addition, Williams
Holdings uses short-term uncommitted bank lines to manage liquidity. Williams
Holdings believes any additional financing arrangements can be obtained on
reasonable terms if required.
On November 19, 1998, Williams Holdings announced that it intends to sell a
minority interest in its communications business. The initial equity offering is
expected to be filed in the second quarter of 1999 and yield proceeds of $500
million to $750 million. In addition, Williams Holdings expects Communications
to issue high-yield public debt of approximately $1.3 billion to $1.5 billion in
1999. On February 8, 1999, Williams Holdings announced that, simultaneously with
the public equity offering, SBC Communications plans to acquire up to a 10
percent interest in Williams Holdings' communications business for an investment
of up to $500 million. Proceeds from these transactions will be reinvested in
the continued construction of Williams Holdings' national fiber-optic network
and other expansion opportunities.
During 1998, Williams Holdings entered into an agreement described as a
securitized asset lease program designed to fund up to $750 million of capital
expenditures for the fiber-optic network. A total of $463 million remains
available under this agreement. See Note 12 for additional information.
Williams Holdings had a net working-capital deficit of $640 million at
December 31, 1998, compared with $352 million at December 31, 1997. The increase
in the working-capital deficit at December 31, 1998, 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
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relied on bank-credit facilities to provide flexibility for its cash needs. As a
result, it historically has reported negative working capital.
During 1999, Williams Holdings expects to finance capital expenditures,
investments and working-capital requirements through cash generated from
operations, Communications' initial equity and high-yield debt offerings, and
the use of the available portion of its $1 billion bank-credit facility and
asset lease program, commercial paper, short-term uncommitted bank lines,
private borrowings, advances from its parent or debt offerings.
Operating Activities
Cash provided by continuing operating activities was: 1998 -- $86 million;
1997 -- $560 million; and 1996 -- $390 million. Cash provided by operating
activities in 1997 includes $200 million of proceeds from the sale of
receivables program begun in 1997. Energy trading assets and liabilities
increased in 1998 due primarily to increased physical power trading activity.
Financing Activities
Net cash provided by financing activities was: 1998 -- $2.3 billion;
1997 -- $575 million; and 1996 -- $265 million. Long-term debt proceeds, net of
principal payments, were $567 million, $122 million and $573 million during
1998, 1997 and 1996, respectively. Notes payable proceeds, net of notes payable
payments, were $210 million and $542 million during 1998 and 1997, respectively.
Notes payable payments, net of notes payable proceeds, were $161 million during
1996. The increase in net new borrowings during 1998, 1997 and 1996 reflects
borrowings to fund capital expenditures, investments and acquisition of
businesses.
Long-term debt, at December 31, 1998, was $2.9 billion, including $948
million in advances from affiliates, compared with $1.5 billion at December 31,
1997, and $1.4 billion at December 31, 1996. At December 31, 1997 and 1996, $162
million and $129 million, respectively, in current debt obligations were
classified as non-current obligations based on Williams Holdings' intent and
ability to refinance on a long-term basis. The 1998 increase in long-term debt
is due primarily to $425 million of public debt issued and $948 million of
advances from affiliates. The long-term debt to debt-plus-equity ratio was 42.6
percent at December 31, 1998 compared to 30.2 percent and 31.1 percent at
December 31, 1997 and 1996, respectively. If short-term notes payable and
long-term debt due within one year are included in the calculations, these
ratios would be 51.1 percent, 39.5 percent and 31.8 percent, respectively.
Williams Holdings paid cash dividends to Williams of $14 million, $114
million and $148 million in 1998, 1997 and 1996, respectively, and received cash
capital contributions from Williams of $213 million, $10 million and $2 million
in 1998, 1997 and 1996, respectively.
During 1998, Williams Holdings received proceeds of $200 million from the
sale of a limited partnership minority interest to an outside investor (see Note
13).
Investing Activities
Net cash used by investing activities was: 1998 -- $2.4 billion;
1997 -- $1.2 billion; and 1996 -- $590 million. Capital expenditures of Energy
Services, primarily to expand and modernize gathering and processing facilities
and refineries, were $701 million in 1998, $451 million in 1997, and $398
million in 1996. Capital expenditures of Communications were $304 million in
1998, $276 million in 1997, and $67 million in 1996. The 1998 and 1997
expenditures include the expansion of the fiber-optic network. Budgeted capital
expenditures and investments for all business units for 1999 are estimated to be
approximately $4.4 billion, including $2.2 billion for the fiber-optic network
expansion and expenditures to expand and modernize gathering and processing
facilities, refineries and other international investment activities. Capital
expenditures for 1999 and 2000 for the fiber-optic network are expected to total
$3.4 billion.
During 1998, Williams Holdings made a $100 million advance and a $150
million investment in a telecommunications business in Brazil. In addition,
during 1998 Williams Holdings made an $85 million investment in a Texas refined
petroleum products pipeline joint venture.
F-11
<PAGE> 37
Subsequent to December 31, 1998, Williams Holdings exercised an option to
increase its investment in the Brazilian cellular phone venture. Negotiations
are currently underway, and the company could invest up to $265 million, which
is included in budgeted capital expenditures above, during the first quarter of
1999.
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. In addition, Williams
Holdings paid $68 million to Nortel. See Note 2 for additional information.
During 1997, Williams Holdings also purchased a 20 percent interest in a foreign
telecommunications business for $65 million in cash and made a $59 million cash
investment in the 50 percent owned Discovery pipeline project. During 1996
Williams Holdings acquired various communications technology businesses totaling
$165 million in cash.
During 1997, Williams Holdings received proceeds of $66 million from the
sale of interests in the West Panhandle field. During 1996, Williams Holdings
received proceeds of $236 million from the sale of its MAPCO coal operations
(see Note 3).
Other Commitments
During 1998, Energy Marketing & Trading entered into a 15-year contract
giving Williams Holdings the right to receive fuel conversion services for
purposes of generating electricity. This contract also gives Williams Holdings
the right to receive installed capacity as well as certain ancillary services.
Annual committed payments under the contract range from $140 million to $165
million, resulting in total committed payments of approximately $2.3 billion.
Williams Holdings' intent is to resell power generated as a result of this
service into markets in the western region of the United States. Williams
Holdings also intends to resell capacity and ancillary services into such
markets as the opportunities arise.
Subsequent event
On March 18, 1999, Williams' board of directors approved the merger of
Williams Holdings with Williams. Upon completion of the merger, which is
expected to be in the second or third quarter of 1999, Williams will assume all
liabilities and obligations of Williams Holdings.
NEW ACCOUNTING STANDARDS
See Note 1 for the effects of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" and
Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities."
EFFECTS OF INFLATION
Williams Holdings' cost increases in recent years have benefited from
relatively low inflation rates during that time. Approximately 62 percent of
Williams Holdings' property, plant and equipment was acquired or constructed
during the last seven years, a period of relatively low inflation. Within Energy
Services, operating costs are influenced to a greater extent by specific price
changes in oil and gas and related commodities than by changes in general
inflation. Crude, refined product and natural gas liquids prices are
particularly sensitive to OPEC production levels and/or the market perceptions
concerning the supply and demand balance in the near future. See Market Risk
Disclosures in Item 7a for additional information concerning the impact of
commodity price risk. The activities of Communications have historically not
been significantly affected by the effects of inflation.
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
F-12
<PAGE> 38
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 $47 million, all of which is accrued at December 31, 1998.
Williams Holdings expects to seek recovery of approximately $14 million of
accrued costs from states in accordance with laws permitting reimbursement of
certain expenses associated with underground storage tank containment problems
and repairs. 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, initiated an enterprise-wide project in 1997 to address the year 2000
compliance issue for both traditional information technology areas and
non-traditional areas, including embedded technology which is prevalent
throughout the company. This project focuses on all technology hardware and
software, external interfaces with customers and suppliers, operations process
control, automation and instrumentation systems, and facility items. The phases
of the project are awareness, inventory and assessment, renovation and
replacement, testing and validation. The awareness and inventory/assessment
phases of this project as they relate to both traditional and non-traditional
information technology areas have been substantially completed. During the
inventory and assessment phase, all systems with possible year 2000 implications
were inventoried and classified into five categories: 1) highest, business
critical, 2) high, compliance necessary within a short period of time following
January 1, 2000, 3) medium, compliance necessary within 30 days from January 1,
2000, 4) low, compliance desirable but not required, and 5) unnecessary.
Categories 1 through 3 were designated as critical and are the major focus of
this project. Renovation/replacement and testing/validation of critical systems
is expected to be completed by June 30, 1999, except for replacement of certain
critical systems scheduled for completion by September 1, 1999. Some
non-critical systems may not be compliant by January 1, 2000.
Testing and validation activities have begun and will continue throughout
the process. Year 2000 test labs are in place and operational. As expected, few
problems have been detected during testing for items believed to be compliant.
The following table indicates the project status for traditional information
technology and non-traditional areas by business unit. The tested category
indicates the percentage that has been fully tested or otherwise validated as
compliant. The untested category includes items that are believed to be
compliant but which have not yet been validated. The not compliant category
includes items which have been identified as not year 2000 compliant. The
unknown category includes items identified during the assessment phase which
require additional follow-up to determine whether they are compliant.
<TABLE>
<CAPTION>
BUSINESS UNIT TESTED UNTESTED NOT COMPLIANT UNKNOWN
------------- ------ -------- ------------- -------
<S> <C> <C> <C> <C>
Traditional Information Technology:
Energy Services.................................... 32% 49% 13% 6%
Communications..................................... 32 47 21 0
Corporate/Other.................................... 71 21 7 1
Non-Traditional Information Technology:
Energy Services.................................... 32 63 2 3
Communications..................................... 21 57 17 5
Corporate/Other.................................... 84 12 2 2
</TABLE>
Williams Holdings initiated a formal communications process with other
companies in 1998 to determine the extent to which those companies are
addressing year 2000 compliance. In connection with this process, Williams
Holdings has sent approximately 10,000 letters and questionnaires to third
parties including customers, vendors and service providers. Additional
communications are being mailed during 1999. Williams Holdings is evaluating
responses as they are received or otherwise investigating the status of these
companies'
F-13
<PAGE> 39
year 2000 compliance efforts. As of December 31, 1998, approximately 38 percent
of the companies contacted have responded and virtually all of these have
indicated that they are already compliant or will be compliant on a timely
basis. Where necessary, Williams Holdings will be working with key business
partners to reduce the risk of a break in service or supply and with
non-compliant companies to mitigate any material adverse effect on Williams
Holdings.
Williams Holdings expects to utilize both internal resources and external
contractors to complete the year 2000 compliance project. Williams Holdings has
a core group of 106 people involved in this enterprise-wide project. This
includes 13 individuals responsible for coordinating, organizing, managing,
communicating, and monitoring the project and another 93 staff members
responsible for completing the project. Depending on which phase the project is
in and what area is being focused on at any given point in time, there can be up
to an additional 1,000 employees who are also contributing a portion of their
time to the completion of this project. The Communications business unit has
contracted with an external contractor at a cost of approximately $3 million to
assist in all phases and various areas of the project. Within Energy Services,
two external contractors are being utilized at a total cost of approximately $1
million.
Several previously planned system implementations are scheduled for
completion on or before September 1, 1999, which will lessen possible year 2000
impacts. For example, a new year 2000 compliant payroll/human resources system,
was implemented January 1, 1999. It replaced multiple human resources
administration and payroll processing systems previously in place. The
Communications business unit has a major service information management system
implementation and other system implementations currently in process necessary
to integrate the operations of its many components acquired in past
acquisitions. These systems will address the year 2000 compliance issues in
certain areas. Within the Energy Services business unit, major applications had
been replaced or were being replaced by MAPCO prior to its acquisition by
Williams Holdings. Those applications have been incorporated into the
enterprise-wide project and remaining system replacements are proceeding on
schedule. In situations where planned system implementations will not be in
service timely, alternative steps are being taken to make existing systems
compliant.
Although all critical systems over which Williams Holdings has control are
planned to be compliant and tested before the year 2000, Williams Holdings has
identified two areas that would equate to a most reasonably likely worst case
scenario. First is the possibility of service interruptions due to
non-compliance by third parties. For example, power failures along the
communications network or transportation systems would cause service
interruptions. This risk should be minimized by the enterprise-wide
communications effort and evaluation of third-party compliance plans. Another
area of risk for non-compliance is the delay of system replacements scheduled
for completion during 1999. The status of these systems is being closely
monitored to reduce the chance of delays in completion dates. It is not possible
to quantify the possible financial impact if this most reasonably likely worst
case scenario were to come to fruition.
Initial contingency planning began during 1998; however, significant focus
on that phase of the project will take place in 1999. Guidelines for that
process were issued in January 1999 in the form of a formal business continuity
plan. Contingency plans are being developed for critical business processes,
critical business partners, suppliers and system replacements that experience
significant delays. These plans are expected to be defined by August 31, 1999
and implemented where appropriate.
Costs incurred for new software and hardware purchases are being
capitalized and other costs are being expensed as incurred. Williams Holdings
currently estimates the total cost of the enterprise-wide project, including any
accelerated system replacements, to be approximately $42 million. Prior to 1998
and during the first quarter of 1998, Williams Holdings was conducting the
project awareness and inventory/assessment phases of the project and incurred
costs totaling $2 million. During the second quarter of 1998, $2 million was
spent on the renovation/replacement and testing/validation phases and completion
of the inventory/assessment phase. The third and fourth quarters of 1998 focused
on the renovation/replacement and testing/validation phases, and $7 million was
incurred. During the first-quarter 1999, renovation/replacement and
testing/validation will continue, contingency planning will begin and $11
million is expected to be spent. During the second quarter of 1999, the primary
focus is expected to shift to testing/validation and contingency planning, and
$10 million is expected to be spent. The third and fourth quarters of 1999 will
focus mainly on
F-14
<PAGE> 40
contingency planning and final testing with $10 million expected to be spent. Of
the $11 million incurred to date, approximately $9 million has been expensed,
and approximately $2 million has been capitalized. Of the $31 million of future
costs necessary to complete the project within the schedule described,
approximately $28 million will be expensed and the remainder capitalized. This
estimate does not include Williams Holdings' potential share of year 2000 costs
that may be incurred by partnerships and joint ventures in which the company
participates but is not the operator. The costs of previously planned system
replacements are not considered to be year 2000 costs and are, therefore,
excluded from the amounts discussed above.
The preceding discussion contains forward-looking statements including,
without limitation, statements relating to the company's plans, strategies,
objectives, expectations, intentions, and adequate resources, that are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward-looking statements
contained in the year 2000 update are based on certain assumptions which may
vary from actual results. Specifically, the dates on which the company believes
the year 2000 project will be completed and computer systems will be implemented
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 modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, or that there will not be
a delay in, or increased costs associated with, the implementation of the year
2000 project. Other specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in large part from the
uncertainty of the year 2000 readiness of third parties, the company cannot
ensure its ability to timely and cost effectively resolve problems associated
with the year 2000 issue that may affect its operations and business, or expose
it to third-party liability.
ITEM 7A. MARKET RISK DISCLOSURES
INTEREST RATE RISK
Affiliate Debentures
Williams Holdings holds an investment in Williams convertible debentures
with a face value of $360 million, bearing interest at a fixed rate of 6 percent
and maturing in 2005 (see Note 4). The fair value of Williams Holdings'
investment is based on the prices of similar securities with similar terms and
credit ratings (see Note 15).
Due From Parent
Williams Holdings has interest rate risk exposure related to the advances
from and to Williams depending on the cash position of each subsidiary and/or
for other specified business requirements (see Notes 15 and 16). Amounts are
payable on demand, however, the net amount due from Williams at December 31,
1998, is classified as long-term as there is no expectation that Williams
Holdings and its subsidiaries will demand payment in the next year. Interest
rates for these advances vary with current market conditions. Accordingly fair
value is estimated to approximate historically recorded amounts.
Debt
Williams Holdings' interest rate risk exposure primarily results from its
debt portfolio which is influenced by short-term rates, primarily LIBOR-based
borrowings from commercial banks and the issuance of commercial paper, and
long-term U.S. Treasury rates. To mitigate the impact of fluctuations in
interest rates, Williams Holdings targets to maintain a significant portion of
its debt portfolio, including debt with Williams, in fixed rate debt. Williams
Holdings also utilizes interest-rate swaps to change the ratio of its fixed and
variable rate debt portfolio based on management's assessment of future interest
rates, volatility of the yield curve and Williams Holdings' ability to access
the capital markets in a timely manner. Williams Holdings periodically enters
into interest rate forward contracts to establish an effective borrowing rate
for anticipated
F-15
<PAGE> 41
long-term debt issuances. The maturity of Williams Holdings' long-term debt
portfolio is influenced by the life of its operating assets.
At December 31, 1998, the amount of Williams Holdings' fixed and variable
rate debt was at targeted levels. Williams Holdings has traditionally maintained
an investment grade credit rating as one aspect of managing its interest rate
risk. In order to fund its 1999 capital expenditure plan, Williams Holdings will
need to access various sources of liquidity, which will likely include
traditional borrowing and leasing markets, while its Telecommunications business
also anticipates accessing high yield debt markets and equity markets.
The following table provides information as of December 31, 1998, about
Williams Holdings' external notes payable, long-term debt and interest-rate
swaps that are subject to interest rate risk. For notes payable and long-term
debt, the table presents principal cash flows and weighted-average interest
rates by expected maturity dates. For interest-rate swaps, the table presents
notional amounts and weighted-average interest rates by contractual maturity
dates. Notional amounts are used to calculate the contractual cash flows to be
exchanged under the interest-rate swaps.
<TABLE>
<CAPTION>
FAIR VALUE
DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
------ ---- ---- ---- ---- ---------- ------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable............. $1,053 $ -- $ -- $ -- $ -- $ -- $1,053 $1,053
Interest rate............. 5.9%
Long-term debt, including
current portion:
Fixed rate.............. $ 67 $ 97 $ 50 $129 $220 $ 923 $1,486 $1,526
Interest rate........... 7.0% 7.0% 7.0% 7.0% 7.0% 7.5%
Variable rate........... $ -- $ -- $ -- $550 $ -- $ -- $ 550 $ 550
Interest rate(1)........
Interest rate swaps:
Pay variable/ receive
fixed................ $ -- $ -- $ -- $ -- $ -- $ 250 $ 250 $ 4
Pay rate(2).............
Receive rate............ 6.3% 6.3% 6.3% 6.3% 6.3% 6.3%
</TABLE>
- ---------------
(1) LIBOR plus .33 percent.
(2) LIBOR less 1.04 percent.
Debt With Affiliates
Williams Holdings has approximately $1 billion of long-term debt, including
the current portion, with other Williams subsidiaries at December 31, 1998,
bearing interest at a fixed rate of 5.57 percent and maturing in 2002. The fair
value of the debt approximates the carrying value (see Notes 15 and 16).
COMMODITY PRICE RISK
Energy Marketing & Trading has trading operations that incur commodity
price risk as a consequence of providing price risk management services to
third-party customers. The trading operations have commodity price risk exposure
associated with the crude oil, natural gas, refined products, natural gas
liquids and electricity energy markets in the United States and the natural gas
markets in Canada. The trading operations enter into energy contracts which
include forward contracts, futures contracts, option contracts, swap agreements,
commodity inventories and short- and long-term purchase and sale commitments
which involve the physical delivery of an energy commodity. These energy
contracts are valued at fair value and unrealized gains and losses from changes
in fair value are recognized in income. The trading operations are subject to
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, changes in interest rates and credit risk.
Energy Marketing & Trading manages market risk on a portfolio basis subject to
the parameters established in its trading policy. A Risk Control Group,
independent of the trading operations,
F-16
<PAGE> 42
monitors compliance with the established trading policy and measures the risk
associated with the trading portfolio.
Energy Marketing & Trading measures the market risk in its trading
portfolio on a daily basis utilizing a value at risk methodology to estimate the
potential one day loss from adverse changes in the fair value of its trading
operations. At December 31, 1998, the value at risk for the trading operations
was $8 million. Value at risk requires a number of key assumptions and is not
necessarily representative of actual losses in fair value that could be incurred
from the trading portfolio. Energy Marketing & Trading's value-at-risk model
includes all financial instruments and physical positions and commitments in its
trading portfolio and assumes that as a result of changes in commodity prices,
there is a 97.5 percent probability that the one day loss in the fair value of
the trading portfolio will not exceed the value at risk. The value-at-risk model
uses historical simulation to estimate hypothetical movements in future market
prices assuming normal market conditions based upon historical market prices.
Value-at-risk does not consider that changing our trading portfolio in response
to market conditions could affect market prices and could take longer to execute
than the one-day holding period assumed in the value-at-risk model.
FOREIGN CURRENCY RISK
Williams Holdings has investments in companies whose operations are located
in foreign countries, of which $95 million are accounted for using the cost
method. Fair value for the cost-method investments is deemed to approximate
their carrying amount, because estimating cash flows by year is not practicable
given that the time frame for selling these investments is uncertain. Williams
Holdings' financial results could be affected if the investments incur a
permanent decline in value as a result of changes in foreign currency exchange
rates and the economic conditions in foreign countries. Williams Holdings
attempts to mitigate these risks by investing in different countries and
business segments. Approximately 69 percent of the cost-method investments are
in Asian countries and 27 percent in South American countries. Approximately 50
percent of the Asian investments and approximately 25 percent of the South
American investments are in countries whose currencies have recently suffered
significant devaluations and volatility. The ultimate duration and severity of
the conditions in Asia and South America remain uncertain as does the long-term
impact on Williams Holdings' investments.
F-17
<PAGE> 43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-19
Consolidated Statement of Operations........................ F-20
Consolidated Balance Sheet.................................. F-21
Consolidated Statement of Stockholder's Equity.............. F-22
Consolidated Statement of Cash Flows........................ F-23
Notes to Consolidated Financial Statements.................. F-24
Quarterly Financial Data (Unaudited)........................ F-50
</TABLE>
F-18
<PAGE> 44
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, 1998 and 1997, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998. 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 did not audit the financial
statements and schedules of MAPCO Inc., a wholly owned subsidiary (see Note 2),
which statements reflect total assets constituting 26% of the related
consolidated financial statement total for 1997, and which reflect net income
constituting approximately 33% and 30% of the related consolidated financial
statement totals for the years ended December 31, 1997 and 1996, respectively.
Those statements and schedules were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to data included
for MAPCO Inc. for those periods, is based solely on the report of the other
auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, based on our audits and the report of other
auditors, the financial statement schedule referred to above, 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 26, 1999,
except for Note 20, as to which the date is
March 18, 1999
F-19
<PAGE> 45
WILLIAMS HOLDINGS OF DELAWARE, INC
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997* 1996*
--------- --------- ---------
(MILLIONS)
<S> <C> <C> <C>
Revenues (Notes 16 and 19):
Energy Services**......................................... $ 5,520.0 $ 6,012.8 $ 5,432.7
Communications (Note 2)................................... 1,768.2 1,465.1 710.1
Other..................................................... 64.8 53.4 58.3
Intercompany eliminations................................. (1,410.4) (1,011.0) (1,043.9)
--------- --------- ---------
Total revenues..................................... 5,942.6 6,520.3 5,157.2
--------- --------- ---------
Segment costs and expenses (Note 16):
Costs and operating expenses**............................ 4,754.6 5,381.2 4,240.6
Selling, general and administrative expenses.............. 865.0 587.6 351.1
Other (income) expense -- net (Notes 2 and 5)............. 133.1 41.6 (19.3)
--------- --------- ---------
Total segment costs and expenses................... 5,752.7 6,010.4 4,572.4
--------- --------- ---------
General corporate expenses (Notes 2 and 16)................. 58.8 70.4 49.9
--------- --------- ---------
Operating income (loss) (Notes 5 and 19):
Energy Services (Note 2).................................. 379.4 555.3 575.3
Communications (Note 2)................................... (175.0) (58.1) 5.0
Other..................................................... (14.5) 12.7 4.5
General corporate expenses................................ (58.8) (70.4) (49.9)
--------- --------- ---------
Total operating income............................. 131.1 439.5 534.9
Interest accrued (Note 16).................................. (181.9) (132.1) (93.5)
Interest capitalized........................................ 26.6 19.3 4.8
Investing income (Notes 4 and 16)........................... 40.9 44.5 39.3
Gain on sale of interest in subsidiary (Note 2)............. -- 44.5 --
Gain on sales of assets (Note 5)............................ -- 66.0 36.5
Minority interest in (income) loss of consolidated
subsidiaries (Note 2)..................................... 12.0 (18.2) (1.4)
Other income (expense) -- net............................... (24.1) (8.4) 9.0
--------- --------- ---------
Income from continuing operations before extraordinary loss
and income taxes.......................................... 4.6 455.1 529.6
Provision for income taxes (Note 6)......................... 14.9 154.1 170.7
--------- --------- ---------
Income (loss) from continuing operations before
extraordinary loss........................................ (10.3) 301.0 358.9
Loss from discontinued operations (Note 3).................. (14.3) (6.3) (32.7)
--------- --------- ---------
Income (loss) before extraordinary loss..................... (24.6) 294.7 326.2
Extraordinary loss (Note 7)................................. (4.8) (3.6) --
--------- --------- ---------
Net income (loss)........................................... $ (29.4) $ 291.1 $ 326.2
========= ========= =========
</TABLE>
- ---------------
* Reclassified as described in Note 1.
** Includes consumer excise taxes of $192.9 million, $157.8 million and $155.9
million in 1998, 1997 and 1996, respectively.
See accompanying notes.
F-20
<PAGE> 46
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 1998 1997
----------------------------------------------- --------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 109.7 $ 96.0
Receivables:
Trade less allowance of $29.8 ($20.7 in 1997) (Note
1)..................................................... 1,490.8 1,450.6
Affiliates.............................................. 14.0 43.8
Due from parent (Note 16)................................. - 93.0
Inventories (Note 9)...................................... 384.2 315.6
Energy trading assets..................................... 354.5 180.3
Deferred income taxes -- affiliates (Note 6).............. 91.8 86.1
Other..................................................... 150.2 113.9
--------- --------
Total current assets............................... 2,595.2 2,379.3
Due from parent (Note 16)................................... 1,066.2 181.3
Investments, partially in affiliates (Note 4)............... 1,738.0 1,175.9
Property, plant and equipment -- net (Note 10).............. 5,464.0 4,533.6
Goodwill and other intangible assets -- net (Note 1)........ 583.6 600.6
Non-current energy trading assets........................... 185.8 141.4
Other assets and deferred charges........................... 217.8 122.4
--------- --------
Total assets....................................... $11,850.6 $9,134.5
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable (Note 12)................................... $ 1,052.7 $ 701.0
Accounts payable:
Trade (Note 11)......................................... 1,059.3 1,143.7
Affiliates.............................................. 51.0 69.2
Accrued liabilities (Notes 1 and 11)...................... 649.7 560.0
Energy trading liabilities................................ 290.1 182.0
Long-term debt due within one year (Notes 12 and 16):
Affiliates.............................................. 65.4 --
Other................................................... 67.0 75.7
--------- --------
Total current liabilities.......................... 3,235.2 2,731.6
Long-term debt (Notes 12 and 16):
Affiliates................................................ 948.4 --
Other..................................................... 1,968.6 1,525.5
Deferred income taxes -- affiliates (Note 6)................ 880.5 807.8
Non-current energy trading liabilities...................... 201.5 201.7
Other liabilities........................................... 319.6 197.6
Minority interest in consolidated subsidiaries (Notes 2 and
13)....................................................... 373.2 144.8
Contingent liabilities and commitments (Notes 10 and 17)
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized and
outstanding............................................. -- --
Capital in excess of par value............................ 2,038.1 1,664.8
Retained earnings......................................... 1,568.8 1,616.6
Accumulated other comprehensive income (Note 18).......... 316.7 244.1
--------- --------
Total stockholder's equity......................... 3,923.6 3,525.5
--------- --------
Total liabilities and stockholder's equity......... $11,850.6 $9,134.5
========= ========
</TABLE>
See accompanying notes.
F-21
<PAGE> 47
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER
COMMON EXCESS OF RETAINED COMPREHENSIVE
STOCK PAR VALUE EARNINGS INCOME TOTAL
------ ---------- -------- ------------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995........................ $ -- $1,533.1 $1,262.5 $ 53.4 $2,849.0
Comprehensive income:
Net income -- 1996.............................. -- -- 326.2 -- 326.2
Other comprehensive income (Note 18):
Unrealized appreciation on marketable
securities................................. -- -- -- 51.2 51.2
--------
Total comprehensive income........................ 377.4
Dividends --
Cash............................................ -- -- (147.6) -- (147.6)
Other........................................... -- -- (.4) -- (.4)
Contributions --
Cash............................................ -- 2.4 -- -- 2.4
Noncash......................................... -- 71.5 -- -- 71.5
Other............................................. -- .1 .3 -- .4
-- -------- -------- ------ --------
Balance, December 31, 1996........................ -- 1,607.1 1,441.0 104.6 3,152.7
Comprehensive income:
Net income -- 1997.............................. -- -- 291.1 -- 291.1
Other comprehensive income (Note 18):
Unrealized appreciation on marketable
securities................................. -- -- -- 139.5 139.5
--------
Total comprehensive income........................ 430.6
Dividends --
Cash............................................ -- -- (114.0) -- (114.0)
Other........................................... -- -- (2.2) -- (2.2)
Contributions --
Cash............................................ -- 10.1 -- -- 10.1
Noncash......................................... -- 47.4 -- -- 47.4
Other............................................. -- .2 .7 -- .9
-- -------- -------- ------ --------
Balance, December 31, 1997........................ -- 1,664.8 1,616.6 244.1 3,525.5
Comprehensive income:
Net loss -- 1998................................ -- -- (29.4) -- (29.4)
Other comprehensive income (Note 18):
Unrealized appreciation on marketable
securities................................. -- -- -- 77.6 77.6
Foreign currency translation adjustments..... -- -- -- (5.0) (5.0)
--------
Total other comprehensive income........ 72.6
--------
Total comprehensive income........................ 43.2
Dividends --
Cash............................................ -- -- (14.0) -- (14.0)
Other........................................... -- -- (4.4) -- (4.4)
Contributions --
Cash............................................ -- 212.7 -- -- 212.7
Noncash......................................... -- 160.6 -- -- 160.6
-- -------- -------- ------ --------
Balance, December 31, 1998........................ $ -- $2,038.1 $1,568.8 $316.7 $3,923.6
==== ======== ======== ====== ========
</TABLE>
See accompanying notes.
F-22
<PAGE> 48
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- -------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (29.4) $ 291.1 $ 326.2
Adjustments to reconcile to cash provided from operations:
Discontinued operations................................. 14.3 6.3 32.7
Extraordinary loss...................................... 4.8 3.6 --
Depreciation, depletion and amortization................ 340.7 276.1 217.5
Provision for deferred income taxes..................... 30.2 50.9 104.2
Provision for loss on property and other assets......... 68.4 49.8 --
(Gain) loss on dispositions of property and interest in
subsidiary............................................ 9.5 (107.0) (65.7)
Provision for uncollectible accounts.................... 39.8 13.3 5.3
Minority interest in income (loss) of consolidated
subsidiaries.......................................... (12.0) 18.2 1.4
Cash provided (used) by changes in assets and
liabilities:
Receivables sold...................................... (14.9) 200.0 --
Receivables........................................... (92.8) (293.0) (444.4)
Inventories........................................... (66.4) (74.8) (1.1)
Other current assets.................................. (58.4) (14.0) (21.9)
Accounts payable...................................... (155.0) 165.9 425.3
Accrued liabilities................................... 66.5 7.5 (58.3)
Receivables/payables with affiliates.................. 23.5 44.7 (70.1)
Changes in current energy trading assets and
liabilities........................................... (66.2) 11.0 (29.7)
Changes in non-current energy trading assets and
liabilities........................................... (44.6) (47.7) (37.7)
Other, including changes in non-current assets and
liabilities........................................... 28.6 (41.5) 5.8
--------- --------- -------
Net cash provided by continuing operations......... 86.6 560.4 389.5
Net cash provided by discontinued operations....... -- -- 21.8
--------- --------- -------
Net cash provided by operating activities.......... 86.6 560.4 411.3
--------- --------- -------
FINANCING ACTIVITIES:
Proceeds from notes payable............................... 501.9 858.7 60.0
Payments of notes payable................................. (292.0) (316.3) (221.3)
Proceeds from long-term debt.............................. 1,121.0 669.2 607.6
Payments of long-term debt................................ (554.2) (546.8) (34.2)
Dividends................................................. (14.0) (114.0) (147.6)
Capital contributions..................................... 212.7 10.1 2.4
Proceeds from sale of limited partnership interest........ 200.0 -- --
Changes in advances from affiliates....................... 1,140.1 -- --
Other -- net.............................................. (10.1) 13.9 (1.9)
--------- --------- -------
Net cash provided by financing activities.......... 2,305.4 574.8 265.0
--------- --------- -------
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures.................................... (1,226.1) (874.9) (521.5)
Proceeds from dispositions.............................. 23.2 78.0 61.2
Changes in accounts payable and accrued liabilities..... 88.4 (.6) 2.2
Acquisition of businesses, net of cash acquired........... (9.6) (146.2) (170.5)
Proceeds from sales of businesses......................... -- -- 236.4
Income tax and other payments related to discontinued
operations.............................................. (12.0) (12.6) (270.5)
Proceeds from sales of assets............................. 10.7 71.2 66.0
Purchase of investments/advances to affiliates............ (466.6) (200.7) (97.4)
Changes in advances to parent company..................... (791.9) (123.0) 95.4
Other -- net.............................................. 5.6 20.4 8.8
--------- --------- -------
Net cash used by investing activities.............. (2,378.3) (1,188.4) (589.9)
--------- --------- -------
Increase (decrease) in cash and cash equivalents... 13.7 (53.2) 86.4
Cash and cash equivalents at beginning of year.............. 96.0 149.2 62.8
--------- --------- -------
Cash and cash equivalents at end of year.................... $ 109.7 $ 96.0 $ 149.2
========= ========= =======
</TABLE>
See accompanying notes.
F-23
<PAGE> 49
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
Williams Holdings of Delaware, Inc. (Williams Holdings) is a wholly owned
subsidiary of The Williams Companies, Inc. (Williams). Operations of Williams
Holdings are located principally in the United States and are organized into two
industry groups: Energy Services and Communications.
Energy Services includes four operating segments: Energy Marketing &
Trading, Exploration & Production, Midstream Gas & Liquids, and Petroleum
Services. Energy Marketing & Trading offers price-risk management services and
buys, sells and arranges for transportation/transmission of energy
commodities -- including natural gas and gas liquids, crude oil and refined
products, and electricity -- to local distribution companies and large
industrial and commercial customers in North America and retail propane
marketing in the upper midwest and southwest regions. Exploration & Production
includes hydrocarbon exploration and production activities in the Rocky Mountain
and Gulf Coast regions. Midstream Gas & Liquids is comprised of natural gas
gathering and processing facilities in the Rocky Mountain, midwest and Gulf
Coast regions, natural gas liquids pipelines in the Rocky Mountain, southwest,
midwest and Gulf Coast regions and an anhydrous ammonia pipeline in the midwest.
Petroleum Services includes petroleum refining and marketing in Alaska and the
southeast, a petroleum products pipeline and ethanol production and marketing
operations in the midwest region.
Communications consists of three operating segments: Communications
Solutions, Network Applications, and Network Services. Communications Solutions
includes consulting, installation and maintenance of customer-premise voice,
data and video equipment and services for customers throughout North America.
Network Applications' operations are located principally in the United States
and include video, advertising distribution, and other multimedia transmission
services (via terrestrial and satellite links) for the broadcast industry as
well as business audio and video conferencing services. Network Services
provides fiber-optic construction, transmission and management services
throughout the United States.
Basis of presentation
Williams Holdings adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information," during the fourth quarter of 1998. SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas, and major customers.
Prior year financial statements and notes were reclassified to conform to the
requirements of SFAS No. 131. (See Note 19 for segment disclosures.)
Certain balance sheet and cash flow amounts for 1997 have been reclassified
to conform to current classifications.
On March 28, 1998, Williams completed the acquisition of MAPCO Inc. (see
Note 2). Upon completion of the merger, Williams transferred its interest in
MAPCO to Williams Holdings, and MAPCO became part of the Energy Services
business unit. The transaction has been accounted for as a pooling of interests
and, accordingly, the consolidated financial statements and notes reflect the
results of operations, financial position and cash flows as if the companies had
been combined throughout the periods presented. The restated 1997 annual
financial statements were filed with the Securities and Exchange Commission in a
Form 8-K dated May 18, 1998. MAPCO was engaged in the natural gas liquids
pipeline, petroleum refining and marketing and propane marketing businesses.
Effective April 1, 1998, certain marketing activities of natural gas liquids
(previously reported in Midstream Gas & Liquids) and petroleum refining
(previously reported in Petroleum Services) were transferred to Energy Marketing
& Trading and combined with its energy risk trading operations. As a result,
revenues and segment profit amounts for 1997 and 1996 have been reclassified and
reported within Energy Marketing & Trading. These marketing activities are
reported through first-quarter 1998 on a "gross" basis in the Consolidated
Statement of Operations as revenues and segment costs within
F-24
<PAGE> 50
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Energy Marketing & Trading. Concurrent with completing the combination of such
activities with the energy risk trading operations of Energy Marketing &
Trading, the related contract rights and obligations of certain of these
operations were recorded in the Consolidated Balance Sheet on a market-value
basis consistent with Energy Marketing & Trading's accounting policy, and the
statement of operations presentation relating to these operations was changed
effective April 1, 1998, on a prospective basis, to reflect these revenues net
of the related costs to purchase such items.
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) (see Note 2).
Communications Solutions' revenues and segment profit amounts for 1997 include
the operating results of the LLC beginning May 1, 1997.
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.
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.
Inventory valuation
Inventories are stated at cost, which is not in excess of market, except
for certain assets held for energy trading activities by Energy Marketing &
Trading, which are primarily stated at fair value. The cost of inventories is
primarily determined using the average-cost method, except for certain crude
oil, refined products, and general merchandise inventories which are determined
using the last-in, first-out (LIFO) 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 other
accumulated comprehensive income in 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
F-25
<PAGE> 51
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equipment for the regulated pipelines are credited or charged to accumulated
depreciation; other gains or losses are recorded in net income (loss).
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 from 10
to 30 years. Other intangible assets are amortized on a straight-line basis over
periods from three to 11 years. Accumulated amortization at December 31, 1998
and 1997 was $128.9 million and $72.2 million, respectively. Amortization of
intangible assets was $49.7 million, $29.2 million and $15.2 million in 1998,
1997 and 1996, respectively.
Revenue recognition
Revenues generally are recorded when services have been performed or
products have been delivered. Communications Solutions primarily uses the
percentage-of-completion method of recognizing revenues for services provided.
At December 31, 1998 and 1997, costs in excess of billings, included in trade
receivables, were $185.9 million and $144.6 million, respectively, and billings
in excess of costs, included in accrued liabilities, were $49.4 million and
$48.1 million, respectively. Network Services records revenues related to the
sale of portions of its fiber-optic network upon completion of the construction
of the respective network segments and upon acceptance of the fiber by the
purchaser. Certain of Energy Marketing & Trading's activities are accounted for
at fair value as described in Energy Trading Activities.
Energy trading activities
Energy Marketing & Trading has trading operations that enter into energy
contracts to provide price-risk management services to its third-party
customers. Energy contracts include forward contracts, futures contracts, option
contracts, swap agreements, commodity inventories and short- and long-term
purchase and sale commitments which involve physical delivery of an energy
commodity. These energy contracts are valued at fair value and, with the
exception of commodity inventories, are recorded in energy trading assets and
energy trading liabilities in the Consolidated Balance Sheet. The net change in
the fair value representing unrealized gains and losses is recognized in income
currently and is recorded as revenues in the Consolidated Statement of
Operations. Fair value, which is subject to change in the near term, reflects
management's estimates using valuation techniques that reflect the best
information available in the circumstances. This information includes various
factors such as quoted market prices, estimates of market prices in the absence
of quoted market prices, contractual volumes, estimated volumes under option and
other arrangements that result in varying volumes, other contract terms,
liquidity of the market in which the contract is transacted, 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 fair value
accounting for such trading activities.
Williams Holdings also enters into energy 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 in the same manner as the hedged item. These contracts are initially
and regularly evaluated to determine that there is a high correlation between
changes in the fair value of the hedge contract and fair value of the hedged
item.
Impairment of long-lived assets
Williams Holdings evaluates the long-lived assets, including related
intangibles, of identifiable business activities for impairment when events or
changes in circumstances indicate, in management's judgment, that the carrying
value of such assets may not be recoverable. The determination of whether an
impairment has
F-26
<PAGE> 52
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occurred is based on management's estimate of undiscounted future cash flows
attributable to the assets as compared to the carrying value of the assets. If
an impairment has occurred, the amount of the impairment recognized is
determined by estimating the fair value for the assets and recording a provision
for loss if the carrying value is greater than fair value.
For assets identified to be disposed of in the future, the carrying value
of these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.
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.
Gains and losses from terminations of interest-rate swap agreements are deferred
and amortized as an adjustment of the interest expense on the outstanding debt
over the remaining original term of the terminated swap agreement. In the event
the designated debt is extinguished, gains and losses from terminations of
interest-rate swap agreements are recognized in income.
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 referenced security underlying 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.
Income taxes
The operations of Williams Holdings and its subsidiaries, except for MAPCO
Inc., are included in Williams' consolidated federal income tax return. MAPCO
filed a separate consolidated federal income tax return during the period prior
to the merger. Subsequent to the date of the merger, MAPCO's operations will be
included in Williams' consolidated federal income tax return.
The provision for income taxes is computed on a separate-company basis for
Williams Holdings. Prior to the merger, income taxes were computed separately
for the Williams Holdings and MAPCO consolidated groups and then combined.
Williams Holdings makes payments to Williams under the same timing and minimum
amount requirements as if the payments are 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.
F-27
<PAGE> 53
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New accounting standards
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. This standard requires that all
derivatives be recognized as assets or liabilities in the balance sheet and that
those instruments be measured at fair value. The effect of this standard on
Williams Holdings' results of operations and financial position will be
evaluated in 1999.
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities," effective
for fiscal years beginning after December 15, 1998. The SOP requires that all
start-up costs be expensed and that the effect of adopting the SOP be reported
as the cumulative effect of a change in accounting principle. Williams Holdings
will adopt this SOP effective January 1, 1999. The effect of adopting the SOP on
Williams Holdings' results of operations and financial position is not expected
to be material.
The Emerging Issues Task Force (EITF) reached a consensus on Issue No.
98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities," which is effective for fiscal years beginning after December 15,
1998. The effect of initially applying the Consensus must be reported as a
cumulative effect of a change in accounting principle, and financial statements
for periods prior to initial application of the Consensus may not be restated.
The EITF concluded that energy trading contracts should be recorded at fair
value in the balance sheet, with changes in fair value included in earnings.
Energy Marketing & Trading records its energy contracts at estimated fair value,
except for certain types of contracts that are not currently considered to be
trading in nature. The effect of the Consensus on Williams Holdings' results of
operations and financial position has yet to be determined.
NOTE 2. ACQUISITIONS
MAPCO
On March 28, 1998, Williams completed the acquisition of MAPCO Inc. by
exchanging 1.665 shares of Williams common stock for each outstanding share of
MAPCO common stock. In addition, outstanding MAPCO employee stock options were
converted into 5.7 million shares of Williams common stock. Upon completion,
98.8 million shares of Williams common stock valued at $3.1 billion, based on
the closing price of Williams common stock on March 27, 1998, were issued. Upon
completion of the merger, Williams transferred its interest in MAPCO to Williams
Holdings, and MAPCO became part of the Energy Services business unit.
The merger constituted a tax-free reorganization and has been accounted for
as a pooling of interests. Accordingly, all prior period consolidated financial
statements presented include the combined results of operations, financial
position and cash flows of MAPCO and Williams Holdings. Intercompany
transactions between Williams Holdings and MAPCO prior to the merger have been
eliminated, and no material adjustments were necessary to conform MAPCO's
accounting policies.
In connection with the merger, Williams Holdings has recognized
approximately $72 million in merger-related costs in 1998, comprised primarily
of outside professional fees and early retirement and severance costs.
Approximately $51 million of these merger-related costs is included in other
(income) expense-net as a component of segment profit within Energy Services for
1998 (see Note 19), and approximately $21 million, unrelated to segments, is
included in general corporate expenses. During 1997, payments of $32.6 million
were made for non-compete agreements. These costs are being amortized over one
to three years from the merger completion date.
F-28
<PAGE> 54
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations for the separate companies prior to the merger
date and the combined amounts included in the Consolidated Statement of
Operations follow:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
THREE MONTHS ENDED ----------------------
MARCH 31, 1998 1997 1996
------------------ ---------- --------
(MILLIONS)
<S> <C> <C> <C>
Revenues:
Williams Holdings.................................. $ 681.0 $2,688.3 $1,845.5
MAPCO.............................................. 823.8 3,847.5 3,353.1
Intercompany eliminations.......................... (1.3) (15.5) (41.4)
-------- -------- --------
Combined................................... $1,503.5 $6,520.3 $5,157.2
======== ======== ========
Net income (loss):
Williams Holdings.................................. $ (2.7) $ 194.2 $ 228.7
MAPCO.............................................. 8.4 96.9 97.5
-------- -------- --------
Combined................................... $ 5.7 $ 291.1 $ 326.2
======== ======== ========
</TABLE>
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 Operations. 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, were 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
$6,768 million and $5,894 million, respectively. The pro forma effect of the
transaction on Williams Holdings' net income (loss) 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.
NOTE 3. DISCONTINUED OPERATIONS
On September 10, 1996, substantially all of the net assets of the MAPCO
coal business were sold to Alliance Coal Corporation, a corporation formed by
The Beacon Group Energy Investment Fund, L.P. ("Beacon"), for $236 million in
cash. The sale resulted in losses of $14.3 million, $6.3 million and $47.2
million in 1998, 1997 and 1996, respectively (net of income tax benefits of $7.4
million, $.7 million and $30 million, respectively). The losses in 1998 and 1997
include cost accruals for contractual obligations related to financial
performance of the assets sold to Beacon and a 1997 income tax adjustment to the
1996 loss amount.
F-29
<PAGE> 55
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INVESTING ACTIVITIES
Investments at December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(MILLIONS)
<S> <C> <C>
Williams convertible debentures............................. $ 855.8 $ 770.7
Williams warrants........................................... 25.4 25.4
Equity:
Brazilian Telecommunications:
Algar Telecom Leste, S.A. -- 30%....................... 142.7 --
Lightel -- S.A. Tecnologia da Informacao -- 20%........ 68.7 68.5
Longhorn Partners Pipeline, L.P. -- 48%................... 90.0 5.0
Discovery Pipeline -- 50%................................. 78.0 59.3
Other....................................................... 138.7 115.9
-------- --------
518.1 248.7
Cost........................................................ 156.7 112.3
Advances to affiliates and other............................ 182.0 18.8
-------- --------
$1,738.0 $1,175.9
======== ========
</TABLE>
Williams 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. The warrants are
exercisable immediately and mature in 2000.
Earnings related to equity investments are included in revenues (see Note
19).
Summarized unaudited financial position and results of operations of
Williams Holdings' equity-basis affiliates are as follows:
<TABLE>
<CAPTION>
1998
----------
(MILLIONS)
<S> <C>
Current assets.............................................. $ 202.0
Non-current assets.......................................... 4,938.6
Current liabilities......................................... 1,030.8
Non-current liabilities..................................... 2,546.7
Revenues.................................................... 347.0
Costs and operating expenses................................ 164.6
Net income.................................................. 70.1
</TABLE>
The non-current assets consist primarily of communication and interstate
natural gas pipeline assets.
Dividends and distributions received from investments carried on an equity
basis were $12 million in 1998 and $7 million in both 1997 and 1996.
At December 31, 1998, certain equity investments, with a carrying value of
$45 million, have a market value of $100 million.
Investing income for all of the years presented is comprised primarily of
interest income.
F-30
<PAGE> 56
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. ASSET SALES, WRITE-OFFS AND OTHER ACCRUALS
Included in the 1998 segment profit for all of the respective business
units and general corporate expenses are accruals totaling approximately $23
million related to the modification of Williams' employee benefit program
associated with vesting of paid time off.
Included in the 1998 other (income) expense-net and segment profit for
Energy Marketing & Trading are asset impairments totaling approximately $14
million related to the decision to focus its retail natural gas and electric
business from sales to small commercial and residential customers to large end
users. The impairment primarily reflects the reduction in value of a software
system and certain intangible assets associated specifically with retail energy
applications that will no longer be utilized by Energy Marketing & Trading and
for which management estimates the fair value to be insignificant.
Included in the 1998 other (income) expense-net and segment profit for
Petroleum Services is a $15.5 million loss provision, including interest, for
potential refunds to customers from a recent order from the Federal Energy
Regulatory Commission (see Note 17 for additional information).
Included in the 1998 other (income) expense-net in segment costs and
expenses and Network Applications' segment loss is a $23.2 million loss related
to a venture involved in the technology and transmission of business information
for news and educational purposes. The loss occurred as a result of Williams
Holdings' re-evaluation and decision to exit the venture as Williams Holdings
decided against making further investments in the venture. The loss was recorded
in the third quarter, and Williams Holdings abandoned the venture during the
fourth quarter. The loss primarily consists of $17 million from impairing the
total carrying amount of the investment and $5 million from recognition of
contractual obligations that will continue after the abandonment. During the
fourth quarter of 1998, $2 million of contractual obligations was paid. Williams
Holdings' share of losses from the venture was $3.7 million in 1998 and $2.3
million in 1997.
Included in the 1997 other (income) expense-net in segment costs and
expenses and Network Applications' segment loss are impairments and other
charges totaling $49.8 million. In the fourth quarter of 1997, Communications
made the decision and committed to a plan to sell the learning content business,
which resulted in a loss of $28 million. The loss consisted of a $21 million
impairment of the assets to fair value less cost to sell and recognition of $7
million in exit costs primarily consisting of employee-related costs and
contractual obligations. Fair value was based on management's estimate of the
expected net proceeds to be received. During 1998, the learning content business
was sold with a resulting $2 million reduction in 1998 expenses. During 1998, $5
million of exit costs was paid. The results of operations and the effect of
suspending amortization for the learning content business included in
consolidated net income (loss) are not significant for any of the periods
presented.
Additionally in the fourth quarter of 1997, Communications' management
evaluated certain Network Applications' business activities because of
indications that their carrying values may not be recoverable. This resulted in
impairments of $17 million, based upon management's estimate as to the ultimate
recovery of these evaluated activities.
In 1997, Williams Holdings sold its interest in the natural gas liquids and
condensate reserves in the West Panhandle field of Texas for $66 million in
cash. The sale resulted in a $66 million pre-tax gain on the transaction because
the related reserves had no book value.
In 1996, Williams Holdings recognized a pre-tax gain of $15.7 million from
the sale of certain communication rights for approximately $38 million.
Also in 1996, Williams Holdings sold its Iowa propane and liquid fertilizer
assets as well as its remaining liquid fertilizer assets in Arkansas, Illinois,
Indiana, Minnesota, Ohio and Wisconsin for $43 million in cash, resulting in a
pre-tax gain of $20.8 million.
F-31
<PAGE> 57
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. PROVISION FOR INCOME TAXES
The provision (credit) for income taxes from continuing operations
includes:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Current:
Federal.................................................. $(13.4) $ 88.3 $ 66.3
State.................................................... (6.5) 12.6 .2
Foreign.................................................. 4.6 2.3 --
------ ------ ------
(15.3) 103.2 66.5
------ ------ ------
Deferred:
Federal.................................................. 20.5 41.7 100.4
State.................................................... 9.7 9.2 3.8
------ ------ ------
30.2 50.9 104.2
------ ------ ------
Total provision............................................ $ 14.9 $154.1 $170.7
====== ====== ======
</TABLE>
Reconciliations from the provision for income taxes from continuing
operations at the federal statutory rate to the provision for income taxes are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Provision at federal statutory rate......................... $ 1.6 $159.2 $185.3
Increases (reductions) in taxes resulting from:
State income taxes (net of federal benefit)............... 2.1 15.2 4.5
Income tax credits........................................ (4.0) (16.5) (19.0)
Non-taxable gain from sale of interest in subsidiary (Note
2)..................................................... -- (15.6) --
Non-deductible costs, including goodwill amortization..... 9.8 6.9 2.6
Other -- net.............................................. 5.4 4.9 (2.7)
----- ------ ------
Provision for income taxes.................................. $14.9 $154.1 $170.7
===== ====== ======
</TABLE>
Significant components of deferred tax liabilities and assets as of
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997*
-------- --------
(MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............................. $ 902.3 $ 849.7
Other..................................................... 252.6 197.1
-------- --------
Total deferred tax liabilities.................... 1,154.9 1,046.8
-------- --------
Deferred tax assets:
Accrued liabilities....................................... 95.4 54.4
Minimum tax credits....................................... 192.7 134.2
Other..................................................... 78.1 136.5
-------- --------
Total deferred tax assets......................... 366.2 325.1
-------- --------
Net deferred tax liabilities................................ $ 788.7 $ 721.7
======== ========
</TABLE>
- ---------------
* Reclassified to conform to current classification.
F-32
<PAGE> 58
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash refunds for income taxes (net of payments) from Williams and certain
federal and state taxing authorities were $3 million in 1998. Cash payments for
income taxes (net of refunds) to Williams and certain federal and state taxing
authorities were $108 million and $371 million in 1997 and 1996, respectively.
NOTE 7. EXTRAORDINARY LOSS
During 1998, Williams Holdings paid $54.4 million to redeem higher interest
rate debt for a $4.8 million net loss (net of a $2.6 million benefit for income
taxes).
During 1997, Williams Pipe Line, a subsidiary of Williams Holdings, paid
approximately $55 million to redeem $50 million of debt with a stated interest
rate of 9.78 percent, resulting in a loss of $3.6 million (net of a $2.4 million
benefit for income taxes).
NOTE 8. EMPLOYEE BENEFIT PLANS
Substantially all of Williams Holdings' employees are covered by
non-contributory defined-benefit pension plans. Williams Pipe Line and Pekin
Energy, subsidiaries of Williams Holdings, have separate plans for their union
employees. At December 31, 1997 and 1996, MAPCO had separate plans covering
substantially all of its employees including certain employees of the coal
business sold in 1996 (see Note 3). During 1998, one of the MAPCO plans merged
into a Williams plan, and the other plan transferred to Williams. 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). Substantially all of the remaining Williams
Holdings' employees are covered by Williams' non-contributory defined-benefit
pension plans in which Williams Holdings is included. Williams Holdings is also
included in Williams' health care plan that provides postretirement medical
benefits to certain retired employees. Contributions for pension and
postretirement medical benefits related to Williams Holdings' participation in
the Williams plans were $10 million in 1998, $3 million in 1997, and $29 million
in 1996. The change in contributions from year to year is due to a change in the
rate of pension contributions during the periods. Contributions in excess of the
minimum funding requirements were made in 1996, and the resulting credit
balances were used to reduce the required pension contributions in 1997.
F-33
<PAGE> 59
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the changes in benefit obligations and plan
assets for pension benefits for the MAPCO, Williams Pipe Line, Pekin Energy, and
LLC plans for the years indicated. It also presents a reconciliation of the
funded status of these benefits to the amount recognized in the Consolidated
Balance Sheet at December 31 of each year indicated.
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------
1998 1997
------- ------
(MILLIONS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 277.0 $203.3
Service cost.............................................. 6.8 6.5
Interest cost............................................. 8.1 16.4
Amendments................................................ -- .2
Acquisition............................................... -- 38.7
Actuarial loss............................................ .1 21.9
Benefits paid............................................. (7.8) (10.0)
Transfer.................................................. (208.1) --
------- ------
Benefit obligation at end of year........................... 76.1 277.0
------- ------
Change in plan assets:
Fair value of plan assets at beginning of year............ 305.9 230.0
Actual return on plan assets.............................. 33.9 42.0
Acquisition............................................... .1 43.9
Employer contributions.................................... 23.8 --
Benefits paid............................................. (7.8) (10.0)
Transfer.................................................. (282.6) --
------- ------
Fair value of plan assets at end of year.................... 73.3 305.9
------- ------
Funded status............................................... (2.8) 28.9
Unrecognized net actuarial loss............................. 7.1 .3
Unrecognized prior service cost (credit).................... (.5) .4
Unrecognized transition asset............................... (.4) (.5)
------- ------
Prepaid benefit cost........................................ $ 3.4 $ 29.1
======= ======
Prepaid benefit cost........................................ $ 5.6 $ 30.6
Accrued benefit cost........................................ (2.2) (1.5)
------- ------
$ 3.4 $ 29.1
======= ======
</TABLE>
Net pension expense for the MAPCO, Williams Pipe Line, Pekin Energy, and
LLC plans consists of the following:
<TABLE>
<CAPTION>
PENSION BENEFITS
------------------------
1998 1997 1996
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Components of net periodic pension expense:
Service cost............................................. $ 6.8 $ 6.5 $ 7.0
Interest cost............................................ 8.1 16.4 14.1
Expected return on plan assets........................... (11.6) (21.8) (18.6)
Amortization of transition asset......................... (.1) (.1) (3.7)
Amortization of prior service cost (credit).............. (.2) .3 .5
Recognized net actuarial loss............................ -- .3 .7
------ ------ ------
Net periodic pension expense............................... $ 3.0 $ 1.6 $ --
====== ====== ======
</TABLE>
F-34
<PAGE> 60
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are the weighted-average assumptions utilized as of December
31 of the year indicated.
<TABLE>
<CAPTION>
PENSION BENEFITS
----------------
1998 1997
----- -----
<S> <C> <C>
Discount rate............................................... 7.0% 7.1%
Expected return on plan assets.............................. 10 10
Rate of compensation increase............................... 5 5
</TABLE>
Williams maintains various defined-contribution plans in which Williams
Holdings is included. Williams Holdings' costs related to these plans were $29
million in 1998, $21 million in 1997 and $15 million in 1996.
NOTE 9. INVENTORIES
<TABLE>
<CAPTION>
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
Raw materials:
Crude oil................................................. $ 43.2 $ 30.5
Other..................................................... 2.0 5.2
------ ------
45.2 35.7
------ ------
Finished goods:
Refined products.......................................... 104.1 122.3
Natural gas liquids....................................... 58.6 43.8
General merchandise and communications equipment.......... 99.1 90.0
------ ------
261.8 256.1
------ ------
Materials and supplies...................................... 29.8 19.0
Natural gas in underground storage.......................... 46.1 3.0
Other....................................................... 1.3 1.8
------ ------
$384.2 $315.6
====== ======
</TABLE>
As of December 31, 1998 and 1997, approximately 37 percent and 23 percent
of inventories, respectively, were stated at market. As of December 31, 1998 and
1997, approximately 16 percent and 26 percent of inventories, respectively, were
determined using the last-in, first-out (LIFO) method. The remaining inventories
were primarily determined using the average-cost method.
If inventories valued on the LIFO method at December 31, 1998 and 1997,
were valued at current average cost, the amounts would increase by approximately
$14 million and $7 million, respectively.
During 1998, lower of cost or market reductions of approximately $10
million were recognized with respect to certain crude oil and refined products
inventories.
F-35
<PAGE> 61
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(MILLIONS)
<S> <C> <C>
Cost:
Energy Services:
Energy Marketing & Trading............................. $ 434.0 $ 345.2
Exploration & Production............................... 368.3 318.5
Midstream Gas & Liquids................................ 3,165.2 2,899.0
Petroleum Services..................................... 2,114.7 1,826.7
Communications:
Communications Solutions............................... 161.2 121.1
Network Applications................................... 203.6 178.2
Network Services....................................... 541.2 235.7
Other..................................................... 417.1 299.5
--------- ---------
7,405.3 6,223.9
Accumulated depreciation and depletion...................... (1,941.3) (1,690.3)
--------- ---------
$ 5,464.0 $ 4,533.6
========= =========
</TABLE>
Commitments for construction and acquisition of property, plant and
equipment are approximately $1.3 billion at December 31, 1998. Included in this
amount is $316 million for the purchase of wireless network capacity.
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
$100 million at December 31, 1998, and $69 million at December 31, 1997.
<TABLE>
<CAPTION>
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
Accrued liabilities:
Employee costs............................................ $121.9 $ 84.6
Deferred revenue.......................................... 85.7 61.7
Taxes other than income taxes............................. 81.4 66.4
Income taxes payable...................................... 28.8 46.1
Other..................................................... 331.9 301.2
------ ------
$649.7 $560.0
====== ======
</TABLE>
Income taxes payable include $24.8 million and $44.7 million payable to
Williams at December 31, 1998 and 1997, respectively.
F-36
<PAGE> 62
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. DEBT, LEASES AND BANKING ARRANGEMENTS
Notes payable
During 1998, Williams Holdings' commercial paper program was increased to
$1 billion. At December 31, 1998 and 1997, $903 million and $645 million,
respectively, of commercial paper was outstanding under the program. In January
1999, the commercial paper program was increased to $1.4 billion. In addition,
Williams Holdings has entered into various other short-term credit agreements
with amounts outstanding totaling $150 million and $56 million at December 31,
1998 and 1997, respectively. The weighted-average interest rate on the
outstanding short-term borrowings at December 31, 1998 and 1997, was 5.92
percent and 6.51 percent, respectively.
Debt
<TABLE>
<CAPTION>
DECEMBER 31,
INTEREST -------------------
RATE* 1998 1997
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Williams Holdings of Delaware, Inc.
Revolving credit loans.................................... 5.7% $ 550.0 $ 200.0
Debentures, 6.25% and 7.7%, payable 2006 and 2027......... 5.6 351.9 351.8
Notes, 6.013% -- 8.87%, payable through 2022.............. 7.1 960.1 572.3
MAPCO Inc.
Commercial paper and bank money market lines.............. -- -- 135.8
MAPCO Natural Gas Liquids, Inc.
Notes, 6.67% -- 8.95%, payable through 2022............... 7.8 165.0 165.0
Williams Communications Solutions, LLC
Revolving credit loans.................................... -- -- 125.0
Other, payable through 2005................................. 8.3 8.6 51.3
-------- --------
2,035.6 1,601.2
Current portion of long-term debt........................... (67.0) (75.7)
-------- --------
$1,968.6 $1,525.5
======== ========
</TABLE>
- ---------------
* Weighted-average at December 31, 1998, including the effects of interest-rate
swaps.
Williams Holdings and Williams Communications Solutions, LLC participate in
Williams' $1 billion credit agreement under which the LLC has access to $300
million and Williams Holdings has access to all unborrowed amounts, subject to
borrowings by other affiliated companies, including Williams (parent). At
December 31, 1998, the amount available under the agreement was $306 million.
Interest rates vary with current market conditions. In January 1999, the $1
billion bank credit agreement was amended, adding Williams Communications Group,
Inc. to the subsidiaries with access to the facility.
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 4.7
percent at December 31, 1998.
F-37
<PAGE> 63
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments and payments on long-term debt with affiliates, for each of the next
five years are as follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
1999........................................................ $ 67
2000........................................................ 97
2001........................................................ 50
2002........................................................ 679
2003........................................................ 220
</TABLE>
Cash payments for interest (net of amounts capitalized) are as follows:
1998 -- $155 million; 1997 -- $117 million and 1996 -- $93 million, including
payments to Williams and affiliates of $36 million in 1998 and $7 million in
1997 and 1996.
Leases
Future minimum annual rental payments under non-cancelable operating leases
(including a total of $15 million to affiliates) are $174 million in 1999, $192
million in 2000, $145 million in 2001, $123 million in 2002, $77 million in 2003
and $71 million thereafter. Future minimum annual rentals to be received from
affiliates under sublease agreements are $26 million in 1999 through 2002, and
$6 million in 2003.
Total rent expense was $174 million in 1998, $111 million in 1997 and $70
million in 1996, including $2 million in each year paid to Williams and
affiliates.
During 1998, Williams Holdings entered into an operating lease agreement
covering a portion of its fiber-optic network. The total estimated cost of the
network assets to be covered by the lease agreement is $750 million. The lease
term will include an interim term, during which the covered network assets will
be constructed, that is anticipated to end no later than December 31, 1999 and a
base term. The interim and base terms are expected to total five years and, if
renewed, could total seven years.
Williams Holdings has an option to purchase the covered network assets
during the lease term at an amount approximating the lessor's cost. Williams
Holdings provides a residual value guarantee, the present value of which is
equal to a maximum of 89.9 percent of the cost of the assets under lease. The
residual value guarantee is reduced by the present value of actual lease
payments. In the event that Williams Holdings does not exercise its purchase
option, Williams Holdings expects the fair market value of the covered network
assets to substantially reduce Williams Holdings' obligation under the residual
value guarantee. Williams Holdings' disclosures for future minimum annual
rentals under non-cancelable operating leases do not include amounts for the
residual value guarantee. As of December 31, 1998, $287 million of costs have
been incurred by the lessor.
NOTE 13. MINORITY INTEREST
During 1998, Williams Holdings formed separate legal entities and
contributed various assets to a newly-formed limited partnership, Castle
Associates L.P. ("Castle"), as a part of a transaction that generated funds for
Williams' and Williams Holdings' general corporate use. An outside investor
purchased from Williams Holdings a non-controlling preferred interest in the
newly formed entity for $200 million. The assets and liabilities of Castle are
consolidated for financial reporting purposes. The outside investor's interest
of $200 million is reflected in "Minority interest in consolidated subsidiaries"
in the Consolidated Balance Sheet. The transaction did not result in any gain or
loss for Williams Holdings.
F-38
<PAGE> 64
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The preferred interest holders in Castle are entitled to a priority return
based on a variable rate structure, currently approximately seven percent, in
addition to their participation in the operating results of the partnership.
The Castle limited partnership agreement and associated operating documents
included certain restrictive covenants and guarantees of Williams Holdings and
certain of its subsidiaries. These restrictions are similar to those in the
Williams Holdings' credit agreement and other debt instruments.
NOTE 14. 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 or based on
certain financial performance targets being achieved. The purchase price per
share for stock options and the grant price for stock-appreciation rights may
not be less than the market price of the underlying stock on the date of grant.
Depending upon terms of the respective plans, stock options become exercisable
after three or five years, subject to accelerated vesting if certain future
stock prices or specific financial performance targets 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
(loss) assuming that the fair-value method in SFAS No. 123 had been applied in
measuring compensation cost. Pro forma net income (loss) for Williams Holdings
was $(74.4) million, $261.4 million and $320.5 million for 1998, 1997 and 1996,
respectively. Reported net income (loss) was $(29.4) million, $291.1 million and
$326.2 million for 1998, 1997 and 1996, respectively. Pro forma amounts for 1998
include the previously unrecognized compensation expense related to the MAPCO
options converted at the time of the merger (see Note 2) and the remaining total
compensation expense from the awards made in 1997, as these awards fully vested
in 1998 as a result of the accelerated vesting provision. Pro forma amounts for
1997 include compensation expense from approximately 65 percent of the awards
made in 1996, as these awards fully vested in 1997 as a result of the
accelerated vesting provision. Since compensation expense from stock options is
recognized over the future years' vesting period for pro forma disclosure
purposes, 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 1998, 1997 and
1996:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(OPTIONS IN MILLIONS)
<S> <C> <C> <C>
Options granted............................................. 3.7 10.3 6.5
Weighted-average grant date fair value...................... $8.19 $7.15 $4.80
Options outstanding -- December 31.......................... 12.0 24.4 19.0
Options exercisable -- December 31.......................... 8.5 10.6 9.4
</TABLE>
F-39
<PAGE> 65
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. 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 and long-term debt with affiliates: 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, advances to affiliates and other: Fair value is
estimated to approximate historically recorded amounts as the operations
underlying these investments are in their developmental phases.
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, 1998 and
1997, 64 percent and 54 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: Energy-related trading includes
forwards, options, swaps and purchase and sales commitments. Energy-related
hedging includes options and swaps. Fair value reflects management's best
estimates using valuation techniques that reflect the best information
available in the circumstances. This information includes various factors
such as quoted market prices, estimates of market prices in absence of
quoted market prices, contractual volumes, estimated volumes under option
and other arrangements that result in varying volumes, other contract
terms, liquidity of the market in which the contract is transacted, credit
considerations, time value and volatility factors underlying the positions.
F-40
<PAGE> 66
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Carrying amounts and fair values of Williams Holdings' financial instruments
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
ASSET (LIABILITY) AMOUNT VALUE AMOUNT VALUE
----------------- --------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 109.7 $ 109.7 $ 96.0 $ 96.0
Notes and other non-current receivables...... 7.4 7.4 20.9 20.9
Due from parent.............................. 1,066.2 1,066.2 274.3 274.3
Investment in Williams debentures............ 855.8 855.8 770.7 770.7
Investments-cost, advances to affiliate and
other...................................... 325.2 325.2 101.2 101.2
Notes payable................................ (1,052.7) (1,052.7) (701.0) (701.0)
Long-term debt, including current portion.... (2,035.4) (2,075.9) (1,600.1) (1,640.8)
Long-term debt with affiliates, including
current portion............................ (1,013.8) (1,013.8) -- --
Interest-rate swap........................... 1.6 3.6 1.5 6.5
Interest-rate locks.......................... -- -- -- (.5)
Energy-related trading:
Assets..................................... 548.1 548.1 324.9 324.9
Liabilities................................ (491.6) (491.6) (383.7) (383.7)
Energy-related hedging:
Assets..................................... -- 7.0 .9 13.3
Liabilities................................ (.7) (10.2) (.3) (8.8)
</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 1998 average fair value of the energy-related trading assets and
liabilities is $485 million and $518 million, respectively. The 1997 average
fair value of the energy-related trading assets and liabilities is $258 million
and $345 million, respectively.
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 agreements to sell, on an ongoing
basis, certain of their accounts receivables. At December 31, 1998 and 1997,
$185 million and $200 million, respectively, have been sold under these
agreements.
In connection with the 1995 sale of its network services operations,
Williams has been indemnified by LDDS against any losses related to retained
guarantees of $113 million and $135 million at December 31, 1998 and 1997,
respectively, for lease rental obligations.
Williams Holdings has issued other guarantees and letters of credit with
off-balance-sheet risk that total approximately $81 million and $54 million at
December 31, 1998 and 1997, 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.
F-41
<PAGE> 67
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Energy trading activities
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 energy contracts 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 $112.6 million,
$125.8 million and $99.2 million in 1998, 1997 and 1996, respectively.
Energy Marketing & Trading enters into contracts which involve physical
delivery of an energy commodity. Prices under these contracts are both fixed and
variable. These contracts involve both firm commitments requiring fixed volumes
and option and other arrangements that result in varying volumes. Swap
arrangements 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. Energy Marketing &
Trading buys and sells financial 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 prices used for
forwards, swap, option and physical contracts consider exchange quoted prices or
management's estimates based on the best information available. 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 on a portfolio basis 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.
The notional quantities for trading activities at December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997*
------------------ ------------------
PAYOR RECEIVER PAYOR RECEIVER
------- -------- ------- --------
<S> <C> <C> <C> <C>
Fixed price:
Natural gas (TBtu)............................. 1,310.1 1,413.9 1,262.5 1,400.4
Refined products, NGL's and crude (MMBbls)..... 185.2 167.5 68.7 59.6
Power (Terawatt Hrs)........................... 28.6 23.6 15.0 14.0
Variable price:
Natural gas (TBtu)............................. 1,749.4 1,537.4 1,898.3 1,322.4
Refined products, NGL's and crude (MMBbls)..... 48.5 44.8 1.9 1.9
Power (Terawatt Hrs)........................... -- .8 .1 1.6
</TABLE>
- ---------------
*Restated
The net cash inflow related to these contracts at December 31, 1998 was $96
million, and the net cash requirement at December 31, 1997, was $92 million. At
December 31, 1998, the cash inflows extend primarily through 2007.
F-42
<PAGE> 68
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
insurer/obligor.
At December 31, 1998 and 1997, approximately 46 percent and 30 percent,
respectively, of receivables are for communications and related services.
Approximately 25 percent and 40 percent of receivables at December 31, 1998 and
1997, respectively, are for the sale of natural gas and related products or
services. Approximately 21 percent and 24 percent of receivables at December 31,
1998 and 1997, respectively, are for petroleum products and related services.
Communications' customers include numerous corporations. Natural gas customers
include pipelines, distribution companies, producers, gas marketers and
industrial users primarily located in the eastern, northwestern and midwestern
United States. Petroleum products customers include wholesale, commercial,
governmental, industrial and individual consumers and independent dealers
located primarily in Alaska and the mid-south and southeastern United States. As
a general policy, collateral is not required for receivables, but customers'
financial condition and credit worthiness are evaluated regularly.
NOTE 16. 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>
1998 1997 1996
----- ---------- -----
(MILLIONS)
<S> <C> <C> <C>
Direct costs............................................... $61.0 $27.1 $21.2
Allocated parent company expenses.......................... 37.4 21.4 18.8
</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) related to the MAPCO merger (see Note 2) are
reflected in general corporate expenses. Allocated parent company expenses are
included in general corporate expenses in the Consolidated Statement of
Operations.
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 on demand; however,
the net amount outstanding at December 31, 1998, has been classified as
long-term as there are no expectations for Williams and Williams Holdings and
its subsidiaries to demand payment in the next year. The agreements do not
require commitment fees. Interest is payable monthly, and rates vary with market
conditions. The interest rates were 5.83 percent and 6.29 percent at December
31, 1998 and 1997, respectively.
Interest accrued includes $22 million in 1998 resulting from advances from
Williams. Investing income includes $22 million, $36 million and $31 million for
1998, 1997 and 1996, respectively, resulting from advances to Williams.
During 1998, Williams Holdings utilized advances from other Williams'
subsidiaries to repay external debt obligations and to fund additional capital
expenditures. The advances are due in 2002, and the interest rate was 5.57
percent at December 31, 1998. The balance at December 31, 1998 was approximately
$1 billion including $65.4 million classified as current. Interest accrued in
1998 includes $14.4 million related to these advances.
F-43
<PAGE> 69
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998, two of Williams Holdings' subsidiaries issued two separate
notes totaling $198 million to Williams. The notes are payable on demand,
however, amounts outstanding have been classified as long-term as these
subsidiaries are not expected to demand payment from Williams within the next
year. Interest rates vary with market conditions. The interest rate for these
notes at December 31, 1998, was 6.5 percent.
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 $332 million, $429 million
and $499 million for 1998, 1997 and 1996, respectively. Energy Marketing &
Trading also incurred costs and operating expenses, including transportation and
certain other costs, from affiliates of $93 million, $96 million and $157
million for 1998, 1997 and 1996, 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 17. CONTINGENT LIABILITIES AND COMMITMENTS
Rate and regulatory matters
Williams Pipe Line (WPL) has various regulatory proceedings pending. On
July 15, 1998, WPL received an Order from the Federal Energy Regulatory
Commission (FERC) which affirmed an administrative law judge's 1996 initial
decision regarding rate-making proceedings for the period September 15, 1990
through May 1, 1992. The FERC has ruled that WPL did not meet its burden of
establishing that its transportation rates in its 12 noncompetitive markets were
just and reasonable for the period and has ordered refunds. WPL continues to
believe it should prevail upon appeal regarding collected rates for that period.
However, due to this FERC decision, WPL accrued $15.5 million, including
interest, in the second quarter of 1998, for potential refunds to customers for
the issues described above. Since May 1, 1992, WPL has collected and recognized
as revenues $151 million in noncompetitive markets that are in excess of tariff
rates previously approved by the FERC and that are subject to refund with
interest. WPL believes that the tariff rates collected in these markets during
this period will be justified in accordance with the FERC's cost-basis
guidelines and will be making the appropriate filings with the FERC to support
this position.
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 Midstream Gas & Liquids unit of Energy Services (WES) had recorded an
aggregate liability of approximately $10 million, representing the current
estimate of future environmental and remediation costs. WES also accrues
environmental remediation costs for its petroleum products pipeline, retail
petroleum, refining and propane marketing operations primarily related to soil
and groundwater contamination. At December 31, 1998, WES and its subsidiaries
had reserves, in addition to other reserves listed above, totaling approximately
$31 million. WES recognizes receivables related to environmental remediation
costs from state funds as a result of laws permitting states to reimburse
certain expenses associated with underground storage tank problems and repairs.
At December 31, 1998, WES and its subsidiaries had receivables totaling $14
million. Actual costs incurred will depend on the actual number of contaminated
sites identified, the actual amount and extent of contamination discovered, the
final cleanup standards mandated by the EPA and other governmental authorities
and other factors.
F-44
<PAGE> 70
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other legal matters
In 1998, certain royalty owners in a producing field in Cameron Parish,
Louisiana, brought suit against a Williams Holdings subsidiary and other working
interest owners seeking additional royalties or lease cancellation. An amended
petition later added a second Williams Holdings subsidiary, Williams and
additional working interest owners. All other defendants have been dismissed or
have settled with plaintiffs. In their recently amended damage claim, the
plaintiffs asserted royalty underpayments plus interest of approximately $12
million. The claimed damages are attributable to all working interests for a
period of about 15 years. One of the two Williams Holdings subsidiaries sued
owned a one-half interest in the field and served as operator for approximately
eight years. The other subsidiary purchased produced gas from the field.
Plaintiffs also request punitive damages equal to double the alleged damages and
attorneys' fees. Williams Holdings believes all royalties due from its
subsidiaries were properly paid, that the field was properly operated, and that
it is not responsible for any amounts due from any other working interests or
for the period after its subsidiary had sold its interest and terminated its
status as operator of the field. The litigation pending in Cameron Parish,
Louisiana, has recently been settled for payments aggregating approximately $9
million, for which reserves have been fully accrued.
On April 7, 1992, a liquefied petroleum gas explosion occurred near an
underground salt dome storage facility located near Brenham, Texas and owned by
an affiliate of MAPCO Inc., Seminole Pipeline Company ("Seminole"). MAPCO Inc.,
as well as Seminole, Mid-America Pipeline Company, MAPCO Natural Gas Liquids
Inc., and other non-MAPCO entities were named as defendants in civil action
lawsuits filed in state district courts located in four Texas counties. Seminole
and the above-mentioned subsidiaries of MAPCO Inc. have settled in excess of
1,600 claims in these lawsuits. The only lawsuit remaining is the Dallmeyer case
which was tried before a jury in Harris County. In Dallmeyer, the judgment
rendered in March 1996 against defendants Seminole and MAPCO Inc. and its
subsidiaries totaled approximately $72 million which included nearly $65 million
of punitive damages awarded to the 21 plaintiffs. Both plaintiffs and defendants
have appealed the Dallmeyer judgment to the Court of Appeals for the Fourteenth
District of Texas in Harris County. The defendants seek to have the judgment
modified in many respects, including the elimination of punitive damages as well
as a portion of the actual damages awarded. If the defendants prevail on appeal,
it will result in an award significantly less than the judgment. The plaintiffs
have cross-appealed and seek to modify the judgment to increase the total award
plus interest to exceed $155 million. In February and March 1998, the defendants
entered into settlement agreements involving 17 of the 21 plaintiffs to finally
resolve their claims against all defendants for an aggregate payment of
approximately $10 million. These settlements have satisfied and reduced the
judgment on appeal by approximately $42 million. As to the remaining four
plaintiffs, the Court of Appeals issued its decision on October 15, 1998, which,
while denying all of the plaintiffs' cross-appeal issues, affirmed in part and
reversed in part the trial court's judgment. The defendants had entered into
settlement agreements with the remaining plaintiffs which, in light of the
decision, Williams Holdings believes will provide for aggregate payments of
approximately $13.6 million, the full amount of which has been previously
accrued.
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. 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
F-45
<PAGE> 71
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 July 20, 1998, the Court of Appeals sitting en banc affirmed the
panel's decision. The Supreme Court has granted a writ of certiorari in respect
of this decision.
Williams Communications, Inc. filed suit on March 20, 1998, against
WorldCom Network Services, Inc. (WorldCom) in district court in Tulsa County in
order to prevent WorldCom from disconnecting any Williams' equipment on the
WorldCom network. This suit sought a declaratory judgment that the single fiber
retained by Williams Holdings on the WorldCom network could be used for
specified multimedia uses, and that WorldCom was required to permit Williams
Holdings to purchase additional fiber either acquired or constructed by
WorldCom. WorldCom had denied Williams Holdings' claim and had asserted various
counterclaims for monetary damages, rescission and injunctive relief. This
lawsuit was settled on July 9, 1998. The settlement resolves all claims for
monetary damages, permitted uses of Williams Holdings' fiber on the WorldCom
network and Williams Holdings' right to purchase additional fiber on WorldCom
fiber builds. There was no significant financial impact to Williams Holdings as
a result of the settlement.
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. As a
result of such settlements, Transcontinental Gas Pipe Line is currently
defending two lawsuits brought by producers. In one of the cases, a jury verdict
found that Transcontinental Gas Pipe Line was required to pay a producer damages
of $23.3 million including $3.8 million in attorneys' fees. Transcontinental Gas
Pipe Line is pursuing an appeal. In the other case, a producer has asserted
damages, including interest calculated through December 31, 1997, 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 connection with the sale of certain coal assets in 1996, MAPCO entered
into a Letter Agreement with the buyer providing for indemnification by MAPCO
for reductions in the price or tonnage of coal delivered under a certain
pre-existing Coal Sales Agreement dated December 1, 1986. The Letter Agreement
is effective for reductions during the period July 1, 1996, through December 31,
2002, and provides for indemnification for such reductions as incurred on a
quarterly basis. The buyer has stated it is entitled to indemnification from
MAPCO for amounts of $7.8 million through June 30, 1998, and may claim
indemnification for additional amounts in the future. MAPCO has filed for
declaratory relief as to certain aspects of the buyer's claims. MAPCO also
believes it would be entitled to substantial set-offs and credits against any
amounts determined to be due and has accrued a liability representing an
estimate of amounts it expects to incur in satisfaction of this indemnity. The
parties are currently pursuing settlement negotiations as part of a mediation.
In 1998, the United States Department of Justice informed Williams Holdings
that Jack Grynberg, an individual, had filed claims in the United States
District Court for the District of Colorado under the False Claims Act against
Williams Holdings and certain of its wholly owned subsidiaries including
Williams Field Services Company and Williams Production Company. Mr. Grynberg
has also filed claims against approximately 300 other energy companies and
alleges that the defendants violated the False Claims Act in connection with the
measurement and purchase of hydrocarbons. The relief sought is an unspecified
amount
F-46
<PAGE> 72
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of royalties allegedly not paid to the federal government, treble damages, a
civil penalty, attorneys' fees, and costs.
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.
Other matters
During the second quarter of 1998, Energy Marketing & Trading entered into
a 15-year contract giving Williams Holdings the right to receive fuel conversion
services for purposes of generating electricity. This contract also gives
Williams Holdings the right to receive installed capacity and certain ancillary
services. Annual committed payments under the contract range from $140 million
to $165 million, resulting in total committed payments of approximately $2.3
billion.
NOTE 18. ACCUMULATED OTHER COMPREHENSIVE INCOME
The table below presents changes in the components of accumulated other
comprehensive income.
<TABLE>
<CAPTION>
INCOME(LOSS)
------------------------------------
UNREALIZED FOREIGN
APPRECIATION CURRENCY
ON SECURITIES TRANSLATION TOTAL
------------- ----------- ------
(MILLIONS)
<S> <C> <C> <C>
Balance at December 31, 1995................................ $ 53.4 $ -- $ 53.4
1996 change:
Pre-income tax amount..................................... 85.4 -- 85.4
Income tax expense........................................ (34.2) -- (34.2)
------ ----- ------
51.2 -- 51.2
------ ----- ------
Balance at December 31, 1996................................ 104.6 -- 104.6
1997 change:
Pre-income tax amount..................................... 232.4 -- 232.4
Income tax expense........................................ (92.9) -- (92.9)
------ ----- ------
139.5 -- 139.5
------ ----- ------
Balance at December 31, 1997................................ 244.1 -- 244.1
1998 change:
Pre-income tax amount..................................... 124.4 (5.0) 119.4
Income tax expense........................................ (46.8) -- (46.8)
------ ----- ------
77.6 (5.0) 72.6
------ ----- ------
Balance at December 31, 1998................................ $321.7 $(5.0) $316.7
====== ===== ======
</TABLE>
NOTE 19. SEGMENT DISCLOSURES
Williams Holdings evaluates performance based upon segment profit or loss
from operations which includes revenues from external and internal customers,
equity earnings, operating costs and expenses, and
F-47
<PAGE> 73
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation, depletion and amortization. The accounting policies of the
segments are the same as those described in Note 1, Summary of Significant
Accounting Policies. Intersegment sales are generally accounted for as if the
sales were to unaffiliated third parties, that is, at current market prices.
Williams Holdings' reportable segments are strategic business units that
offer different products and services. The segments are managed separately
because each segment requires different technology, marketing strategies and
industry knowledge. Other includes investments in international energy and
communications-related ventures, as well as corporate operations.
The following table reflects the reconciliation of segment profit, per the
table on the following page, to operating income as reported on the Consolidated
Statement of Operations.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Segment profit......................................... $ 189.9 $ 509.9 $ 584.8
General corporate expenses............................. (58.8) (70.4) (49.9)
-------- -------- --------
Operating income............................. $ 131.1 $ 439.5 $ 534.9
======== ======== ========
</TABLE>
The following geographic area data includes revenues from external
customers based on product shipment origin and long-lived assets based upon
physical location.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Revenues from external customers:
United States........................................ $5,772.7 $6,372.4 $5,147.9
Other................................................ 181.0 140.5 5.1
-------- -------- --------
Total........................................ $5,953.7 $6,512.9 $5,153.0
======== ======== ========
Long-lived assets:
United States........................................ $5,796.8 $5,007.3 $4,205.5
Other................................................ 250.8 126.9 2.0
-------- -------- --------
Total........................................ $6,047.6 $5,134.2 $4,207.5
======== ======== ========
</TABLE>
Long-lived assets are comprised of property, plant and equipment, goodwill
and other intangible assets.
F-48
<PAGE> 74
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
REVENUES
--------------------------------------------
EQUITY EQUITY
EXTERNAL INTER- EARNINGS SEGMENT TOTAL METHOD
CUSTOMERS SEGMENT (LOSSES) TOTAL PROFIT (LOSS) ASSETS INVESTMENTS
--------- --------- -------- --------- ------------- --------- -----------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Energy Services
Energy, Marketing & Trading...... $2,007.5 $ (93.7)* $ (6.7) $ 1,907.1 $ 39.0 $ 2,596.8 $ .8
Exploration & Production......... 33.5 105.8 -- 139.3 27.2 359.1 --
Midstream Gas & Liquids.......... 726.2 63.7 8.2 798.1 210.6 2,688.4 129.1
Petroleum Services............... 1,417.2 1,257.9 .4 2,675.5 153.3 2,525.2 96.0
Merger-related costs............. -- -- -- -- (50.7) -- --
-------- --------- ------ --------- ------- --------- ------
4,184.4 1,333.7 1.9 5,520.0 379.4 8,169.5 225.9
-------- --------- ------ --------- ------- --------- ------
Communications
Communications Solutions......... 1,366.8 -- -- 1,366.8 (54.1) 946.4 --
Network Applications............. 209.6 .6 (3.7) 206.5 (94.6) 295.6 .5
Network Services................. 145.2 49.7 -- 194.9 (26.3) 822.9 --
-------- --------- ------ --------- ------- --------- ------
1,721.6 50.3 (3.7) 1,768.2 (175.0) 2,064.9 .5
Other.............................. 47.7 26.4 (9.3) 64.8 (14.5) 6,648.6 291.7
Eliminations....................... -- (1,410.4) -- (1,410.4) -- (5,032.4) --
-------- --------- ------ --------- ------- --------- ------
Total...................... $5,953.7 $ -- $(11.1) $ 5,942.6 $ 189.9 $11,850.6 $518.1
======== ========= ====== ========= ======= ========= ======
1997
Energy Services
Energy, Marketing & Trading...... $1,995.8 $ 254.6 $ (5.6) $ 2,244.8 $ 53.4 $ 1,688.8 $ 1.8
Exploration & Production......... 3.6 126.5 -- 130.1 30.3 367.2 --
Midstream Gas & Liquids.......... 841.4 100.5 -- 941.9 270.8 2,650.1 87.5
Petroleum Services............... 2,192.9 502.7 .4 2,696.0 200.8 1,836.8 9.6
-------- --------- ------ --------- ------- --------- ------
5,033.7 984.3 (5.2) 6,012.8 555.3 6,542.9 98.9
-------- --------- ------ --------- ------- --------- ------
Communications
Communications Solutions......... 1,206.5 -- -- 1,206.5 47.3 869.0 --
Network Applications............. 216.9 1.1 (2.4) 215.6 (108.7) 329.6 3.8
Network Services................. 22.0 21.0 -- 43.0 3.3 240.1 2.3
-------- --------- ------ --------- ------- --------- ------
1,445.4 22.1 (2.4) 1,465.1 (58.1) 1,438.7 6.1
Other.............................. 33.8 4.6 15.0 53.4 12.7 3,497.0 143.7
Eliminations....................... -- (1,011.0) -- (1,011.0) -- (2,344.1) --
-------- --------- ------ --------- ------- --------- ------
Total...................... $6,512.9 $ -- $ 7.4 $ 6,520.3 $ 509.9 $ 9,134.5 $248.7
======== ========= ====== ========= ======= ========= ======
1996
Energy Services
Energy, Marketing & Trading...... $1,584.1 $ 389.1 $ (4.8) $ 1,968.4 $ 138.5 $ 1,544.7 $ .9
Exploration & Production......... 25.3 57.1 -- 82.4 2.8 256.8 --
Midstream Gas & Liquids.......... 696.3 90.3 .1 786.7 294.0 2,401.8 47.4
Petroleum Services............... 2,091.6 503.4 .2 2,595.2 140.0 1,705.8 4.3
-------- --------- ------ --------- ------- --------- ------
4,397.3 1,039.9 (4.5) 5,432.7 575.3 5,909.1 52.6
-------- --------- ------ --------- ------- --------- ------
Communications
Communications Solutions......... 568.1 -- -- 568.1 14.3 344.6 -
Network Applications............. 132.1 .4 (1.6) 130.9 (15.1) 148.6 6.6
Network Services................. 11.1 -- -- 11.1 5.8 212.7 --
-------- --------- ------ --------- ------- --------- ------
711.3 .4 (1.6) 710.1 5.0 705.9 6.6
Other.............................. 44.4 3.6 10.3 58.3 4.5 2,353.8 59.8
Eliminations....................... -- (1,043.9) -- (1,043.9) -- (1,634.2) --
-------- --------- ------ --------- ------- --------- ------
Total...................... $5,153.0 $ -- $ 4.2 $ 5,157.2 $ 584.8 $ 7,334.6 $119.0
======== ========= ====== ========= ======= ========= ======
<CAPTION>
ADDITIONS
TO LONG- DEPRECIATION,
LIVED DEPLETION &
ASSETS AMORTIZATION
--------- -------------
(MILLIONS)
<S> <C> <C>
1998
Energy Services
Energy, Marketing & Trading...... $ 27.3 $ 30.1
Exploration & Production......... 58.1 26.0
Midstream Gas & Liquids.......... 336.8 105.1
Petroleum Services............... 264.2 70.8
Merger-related costs............. -- --
-------- ------
686.4 232.0
-------- ------
Communications
Communications Solutions......... 68.5 36.9
Network Applications............. 55.3 33.7
Network Services................. 283.8 13.2
-------- ------
407.6 83.8
Other.............................. 189.6 24.9
Eliminations....................... -- --
-------- ------
Total...................... $1,283.6 $340.7
======== ======
1997
Energy Services
Energy, Marketing & Trading...... $ 102.4 $ 20.8
Exploration & Production......... 63.3 12.6
Midstream Gas & Liquids.......... 194.6 97.1
Petroleum Services............... 150.5 67.8
-------- ------
510.8 198.3
-------- ------
Communications
Communications Solutions......... 247.5 29.7
Network Applications............. 98.9 33.1
Network Services................. 178.2 4.0
-------- ------
524.6 66.8
Other.............................. 179.9 11.0
Eliminations....................... -- --
-------- ------
Total...................... $1,215.3 $276.1
======== ======
1996
Energy Services
Energy, Marketing & Trading...... $ 26.3 $ 16.9
Exploration & Production......... 30.3 10.5
Midstream Gas & Liquids.......... 236.7 85.8
Petroleum Services............... 111.0 64.1
-------- ------
404.3 177.3
-------- ------
Communications
Communications Solutions......... 36.9 16.0
Network Applications............. 193.0 14.9
Network Services................. -- --
-------- ------
229.9 30.9
Other.............................. 35.0 9.3
Eliminations....................... -- --
-------- ------
Total...................... $ 669.2 $217.5
======== ======
</TABLE>
- ---------------
* Energy Marketing & Trading intercompany cost of sales, which are netted in
revenues consistent with fair-value accounting, exceed intercompany revenues
in 1998.
NOTE 20. SUBSEQUENT EVENT
On March 18, 1999, Williams' board of directors approved the merger of
Williams Holdings with Williams. Upon completion of the merger, which is
expected to be in the second or third quarter of 1999, Williams will assume all
liabilities and obligations of Williams Holdings.
F-49
<PAGE> 75
WILLIAMS HOLDINGS OF DELAWARE, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows. Certain amounts have
been reclassified as described in Note 1 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C>
1998
Revenues................................... $1,503.5 $1,377.4 $1,476.4 $1,585.3
Costs and operating expenses............... 1,225.2 1,078.7 1,178.0 1,272.7
Income (loss) before extraordinary loss.... 10.5 22.9 .2 (58.2)
Net income (loss).......................... 5.7 22.9 .2 (58.2)
1997
Revenues................................... $1,459.0 $1,487.4 $1,691.7 $1,882.2
Costs and operating expenses............... 1,198.0 1,227.5 1,408.6 1,547.1
Income before extraordinary loss........... 125.0 96.2 53.4 20.1
Net income................................. 125.0 96.2 53.4 16.5
</TABLE>
First-quarter, second-quarter, third-quarter, and fourth-quarter 1998 net
income (loss) includes approximately $52 million, $9 million, $6 million and $5
million, respectively, of pre-tax merger-related costs (see Note 2).
Second-quarter 1998 net income (loss) also includes a pre-tax $15.5 million loss
provision for potential refunds to customers (see Note 5). Third-quarter 1998
net income (loss) includes $17 million in pre-tax credit loss accruals for
certain retail energy activities. In addition, third-quarter 1998 includes a
$23.2 million pre-tax loss related to a venture involved in the technology and
transmission of business information for news and educational purposes (see Note
5). Fourth-quarter 1998 net income (loss) includes pre-tax accruals totaling
approximately $23 million related to the modification of Williams Holdings'
employee benefit program (see Note 5). Fourth-quarter 1998 net income (loss)
also includes pre-tax charges of $14 million for asset impairments related to
the decision to change the focus of its retail natural gas and electric business
(see Note 5). Fourth-quarter 1998 net income (loss) also reflects the impact of
the decline in the energy market for Energy Services results and higher than
expected commissions expense, an increase in reserves required and higher
selling, general and administrative expenses at Communications Solutions.
First-quarter 1997 net income includes a pre-tax $66 million gain related
to the sale of the interest in the West Panhandle field (see Note 5).
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 business (see Note 2). Fourth-quarter 1997 net income includes
pre-tax charges totaling approximately $49.8 million, related to the decision
and commitment to a plan to sell the learning content business, and the
impairment of several advanced applications projects (see Note 5).
Fourth-quarter 1997 net income also includes approximately $10 million in
pre-tax costs related to the MAPCO acquisition (see Note 2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
F-50
<PAGE> 76
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 operations for the three years
ended December 31, 1998................................ F-20
Consolidated balance sheet at December 31, 1998 and
1997................................................... F-21
Consolidated statement of stockholder's equity for the
three years ended December 31, 1998.................... F-22
Consolidated statement of cash flows for the three years
ended December 31, 1998................................ F-23
Notes to consolidated financial statements................ F-24
Schedule for the three years ended December 31, 1998:
II -- Valuation and qualifying accounts................ F-52
Not covered by report of independent auditors:
Quarterly financial data (unaudited)...................... F-50
</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-51
<PAGE> 77
WILLIAMS HOLDINGS OF DELAWARE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(A)
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(B) BALANCE
--------- -------- ------ ------------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts --
Receivables............................ $20.7 $39.8 $ -- $30.7 $29.8
Other assets........................... 4.6 -- -- 4.6 --
Price-risk management credit reserves..... 7.7 5.3 -- -- 13.0
Year ended December 31, 1997:
Allowance for doubtful accounts --
Receivables............................ 10.5 13.3 7.0(c) 10.1 20.7
Other assets........................... 4.6 -- -- -- 4.6
Price-risk management credit reserves..... 7.6 .1 -- -- 7.7
Year ended December 31, 1996:
Allowance for doubtful accounts --
Receivables............................ 11.8 5.3 1.4(c) 8.0 10.5
Other assets........................... 1.6 3.0 -- -- 4.6
Price-risk management credit reserves..... 8.3 (.7) -- -- 7.6
</TABLE>
- ---------------
(a) Deducted from related assets.
(b) Represents balances written off, net of recoveries and reclassifications.
(c) Primarily relates to acquisitions of businesses.
F-52
<PAGE> 78
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 NO. DESCRIPTION
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 Williams' Registration Statement
on Form S-4 filed January 27, 1998).
Exhibit 3 --
*(a) Certificate of Incorporation of Williams Holdings (filed as Exhibit
3.2 to Williams Holdings' Form 10-Q dated October 18, 1995).
*(b) By-laws of the Company (filed as Exhibit 3.2 to Williams Holdings'
Form 10-Q dated October 18, 1995).
Exhibit 4 --
*(a) Form of Senior Debt Indenture between Williams Holdings and Citibank,
N.A., relating to the 6 1/4% Senior Debentures, due 2006, and Medium-Term Notes
(6.40%-6.91%), due 1999-2002 (filed as Exhibit 4.1 to Williams Holdings' Form
10-Q dated October 18, 1995).
*(b) Second Amended and Restated Credit Agreement dated July 23, 1997,
among The Williams Companies, Inc., Williams Holdings, and certain of its
subsidiaries, the lenders named therein, and Citibank, N.A., as agent (filed as
Exhibit 4(c) to The Williams Companies, Inc.'s Form 10-K for the fiscal year
ended December 31, 1997).
*(c) Amendment dated January 26, 1999, to Second Amended and Restated
Credit Agreement dated July 23, 1997, among The Williams Companies, Inc.,
Williams Holdings, and certain of its subsidiaries, the lenders named therein,
and Citibank, N.A., as agent (filed as Exhibit 4(c) to The Williams Companies,
Inc.'s Form 10-K for the fiscal year ended December 31, 1998).
(d) Amended and Restated Credit Agreement dated January 26, 1999, among
Williams Holdings, the lenders named therein, and Citibank, N.A., as agent.
*(e) Indenture dated March 31, 1990, between MAPCO Inc. and Bankers Trust
Company, Trustee (filed as Exhibit 4.0 to MAPCO Inc.'s Current Report on Form
8-K dated February 19, 1991).
(f) First Supplemental Indenture dated March 31, 1998, among MAPCO, Inc.,
Williams Holdings, and Bankers Trust Company, Trustee, relating to the
Medium-Term Notes (7.60%-8.87%), due 1999-2022.
*(g) Senior Indenture dated February 25, 1997, between MAPCO Inc. and The
First National Bank of Chicago, Trustee (filed as Exhibit 4.5.1 to MAPCO Inc.'s
Amendment No. 1 to Form S-3 Registration Statement dated February 25, 1997).
*(h) Supplemental Indenture No. 1 dated March 5, 1997, between MAPCO Inc.
and The First National Bank of Chicago (filed as Exhibit 4.(o) to MAPCO Inc.'s
Form 10-K for the fiscal year ended December 31, 1997).
*(i) Supplemental Indenture No. 2 dated March 5, 1997, between MAPCO Inc.
and The First National Bank of Chicago (filed as Exhibit 4.(p) to MAPCO Inc.'s
Form 10-K for the fiscal year ended December 31, 1997).
F-53
<PAGE> 79
(j) Supplemental Indenture No. 3 dated March 31, 1998, among MAPCO Inc.,
Williams Holdings, and The First National Bank of Chicago, relating to the
7 1/4% Notes, due 2009, the 7.70% Debentures, due 2027, the 6 1/8% Notes, due
2003, and the 6 1/2% Notes, due 2008.
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges.
Exhibit 23 --
(a) Consent of Independent Auditors, Ernst & Young LLP.
(b) Consent of Independent Auditors, Deloitte & Touche LLP.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule.
Exhibit 27.1 -- Restated Financial Data Schedule for the quarters ended
March 30, June 30, and September 30, 1997.
Exhibit 27.2 -- Restated Financial Data Schedule for the quarters ended
March 30, June 30, and September 30, 1996.
Exhibit 99 -- Opinion of Independent Auditors, Deloitte & Touche LLP.
(b) Reports on Form 8-K.
On November 23, 1998, Williams Holdings filed a report on Form 8-K to
report that the Board of Directors of The Williams Companies, Inc. has
authorized Williams Communications Group, Inc., a wholly owned subsidiary of
Williams Holdings, to sell a minority interest in its business to the public.
(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-54
<PAGE> 80
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, 1999
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/ STEVEN J. MALCOLM* Director
- -----------------------------------------------------
Steven J. Malcolm
/s/ HOWARD E. JANZEN* Director
- -----------------------------------------------------
Howard E. Janzen
By: /s/ SHAWNA L. GEHRES
- -----------------------------------------------------
Shawna L. Gehres
Attorney-in-fact
</TABLE>
Dated: March 30, 1999
<PAGE> 81
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4(d) -- Amended and Restated Credit Agreement dated January 26,
1999, among Williams Holdings, the lenders named therein,
and Citibank, N.A., as agent.
4(f) -- First Supplemental Indenture dated March 31, 1998, among
MAPCO, Inc., Williams Holdings, and Bankers Trust
Company, Trustee, relating to the Medium-Term Notes
(7.60%-8.87%), due 1999-2022.
4(j) -- Supplemental Indenture No. 3 dated March 31, 1998, among
MAPCO Inc., Williams Holdings, and The First National
Bank of Chicago, relating to the 7 1/4% Notes, due 2009,
the 7.70% Debentures, due 2027, the 6 1/8% Notes, due
2003, and the 6 1/2% Notes, due 2008.
12 -- Computation of Ratio of Earnings to Fixed Charges.
23(a) -- Consent of Independent Auditors, Ernst & Young LLP.
23(b) -- Consent of Independent Auditors, Deloitte & Touche LLP
24 -- Power of Attorney together with certified resolution.
27 -- Financial Data Schedule.
27.1 -- Restated Financial Data Schedule for the quarters ended
March 31, June 30, and September 30, 1997.
27.2 -- Restated Financial Data Schedule for the quarters ended
March 30, June 30, and September 30, 1996.
99 -- Opinion of Independent Auditors, Deloitte & Touche LLP.
</TABLE>
<PAGE> 1
EXHIBIT 4(d)
U.S. $1,400,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of JANUARY 26, 1999
Among
WILLIAMS HOLDINGS OF DELAWARE, INC.
as Borrower
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRELIMINARY STATEMENTS...........................................................................1
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS...............................................2
Section 1.1 Certain Defined Terms...................................................2
Section 1.2 Computation of Time Periods............................................12
Section 1.3 Accounting Terms.......................................................12
Section 1.4 Miscellaneous..........................................................12
Section 1.5 Ratings................................................................12
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES.............................................13
Section 2.1 The A Advances.........................................................13
Section 2.2 Making the A Advances..................................................13
Section 2.3 Fees...................................................................15
Section 2.4 Reduction of the Commitments...........................................16
Section 2.5 Repayment of A Advances................................................16
Section 2.6 Interest on A Advances.................................................16
Section 2.7 Additional Interest on Eurodollar Rate Advances........................17
Section 2.8 Interest Rate Determination............................................17
Section 2.9 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...................................................26
ARTICLE III CONDITIONS....................................................................26
Section 3.1 Conditions Precedent to Initial Advances...............................26
Section 3.2 Additional Conditions Precedent to Each A Borrowing....................27
Section 3.3 Conditions Precedent to Each B Borrowing...............................28
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................................29
Section 4.1 Representations and Warranties of the Borrower.........................29
ARTICLE V COVENANTS OF THE BORROWER.....................................................32
Section 5.1 Affirmative Covenants..................................................32
Section 5.2 Negative Covenants.....................................................35
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI EVENTS OF DEFAULT.............................................................38
Section 6.1 Events of Default......................................................38
ARTICLE VII THE AGENT.....................................................................41
Section 7.1 Authorization and Action...............................................41
Section 7.2 Agent's Reliance, Etc..................................................41
Section 7.3 Citibank and Affiliates................................................41
Section 7.4 Bank Credit Decision...................................................42
Section 7.5 Indemnification........................................................42
Section 7.6 Successor Agent........................................................42
ARTICLE VIII MISCELLANEOUS.................................................................43
Section 8.1 Amendments, Etc........................................................43
Section 8.2 Notices, Etc...........................................................43
Section 8.3 No Waiver; Remedies....................................................44
Section 8.4 Costs, Expenses and Taxes..............................................44
Section 8.5 Right of Set-off.......................................................45
Section 8.6 Binding Effect; Transfers..............................................45
Section 8.7 Governing Law..........................................................48
Section 8.8 Interest...............................................................48
Section 8.9 Execution in Counterparts..............................................48
Section 8.10 Survival of Agreements, Representations and Warranties, Etc............48
Section 8.11 Borrower's Right to Apply Deposits.....................................49
Section 8.12 Confidentiality........................................................49
Section 8.13 WAIVER OF JURY TRIAL...................................................50
</TABLE>
ii
<PAGE> 4
Schedules and Exhibits
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 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
iii
<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of January 26, 1999
This Amended and Restated Credit Agreement, dated as of January 26,
1999 (as may be amended, modified, supplemented, renewed, extended or restated
from time to time, this "Agreement"), is by and among WILLIAMS HOLDINGS OF
DELAWARE, INC., a Delaware corporation (the "Borrower"), the various banks as
are or may become parties hereto (collectively, the "Banks"), and CITIBANK,
N.A., as Agent (in such capacity, together with any successors thereto in such
capacity, the "Agent"). In consideration of the mutual covenants and agreements
contained herein, the Borrower, the Agent and the Banks hereby agree as set
forth herein.
PRELIMINARY STATEMENTS
1. The Borrower, the Agent, and certain of the Banks are parties to a
credit agreement dated as of March 30, 1998 (the "3/98 Credit Agreement") and
the Borrower, the Agent and certain of the Banks are parties to a credit
agreement dated as of July 23, 1997, as amended on July 21, 1998, (the "7/97
Credit Agreement"). The Banks party to the 3/98 Credit Agreement and the Banks
party to the 7/97 Credit Agreement (each Bank party to either of such
agreements an "Original Bank" and collectively, the "Original Banks") have made
certain advances pursuant to each such agreement (the "Original Advances") and
the Banks, the Borrower and the Agent intend that all Original Advances
comprising A Advances, which have not heretofore been repaid, shall, on the
date of this Agreement, be continued, amended, renewed, restated and converted
into A Advances of the same Type under this Agreement (but shall not be deemed
to be repaid).
2. The Borrower has requested that the 3/98 Credit Agreement and the
7/97 Credit Agreement each be amended, and, as so amended, be restated in their
entirety as a single agreement.
3. The Borrower, the Banks and the Agent have agreed that, as part of
the restructuring of the outstanding Original Advances (if any) and a
restructuring of the Commitments of the Original Banks under the 3/98 Credit
Agreement and the 7/97 Credit Agreement, the Original Banks shall assign, and
the Original Banks do hereby assign, portions of their Commitments and Original
Advances (if any) to the Banks shown on Schedule IV such that each Bank party
hereto shall have, as of the date of this Agreement, Commitments as shown on
Schedule IV hereto.
4. The parties hereto have agreed to restate the 3/98 Credit Agreement
and the 7/97 Credit Agreement in their entireties as a single agreement, and
this Amended and Restated Credit Agreement constitutes for all purposes an
amendment to the 3/98 Credit Agreement and the 7/97 Credit Agreement, and each
reference to an Advance or Borrowing herein shall include each
<PAGE> 6
Original Advance or borrowing made heretofore under the 3/98 Credit Agreement
and the 7/97 Credit Agreement as well as each Advance or Borrowing made
hereafter under this Agreement.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 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):
"3/98 Credit Agreement" is defined in the first recital.
"7/97 Credit Agreement" is defined in the first recital.
"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 2.1.
"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 7.6.
"Agreement" has the meaning specified in the Preamble.
"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 the Borrower from time
to time. The Applicable Commitment Fee Rate shall change when and as
the relevant Rating Category applicable to the Borrower changes.
"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.
2
<PAGE> 7
"Applicable Margin" means the rate per annum set forth in
Schedule V under the heading "Applicable Margin" for the relevant
Rating Category applicable to the 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 2.1.
"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 8.6(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
(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
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<PAGE> 8
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 2.6(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.
"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 8.6(a) and as reflected in the relevant Transfer Agreement
referred to in such sentence) to be set opposite such Bank's name on
Schedule IV as such amount may be terminated, reduced or increased
after the date hereof, pursuant to Section 2.4, Section 2.17, Section
6.1 or Section 8.6(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.
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<PAGE> 9
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.2, 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 Lease-Back 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 8.6(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.
9601(8) as defined on the date of this Agreement and "Environmental"
shall mean pertaining or relating to the Environment.
"Environmental Protection Statute" shall mean any United
States local, state or federal, or any foreign, law, statute,
regulation, order, consent decree or other agreement or Governmental
Requirement arising from or in connection with or relating to the
protection or regulation of the Environment, including, without
limitation, those laws, statutes, regulations, orders, decrees,
agreements and other Governmental Requirements relating to the
disposal, cleanup, production, storing, refining, handling,
transferring, processing or transporting of Hazardous Waste, Hazardous
Substances or any pollutant or contaminant, wherever located.
"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.
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<PAGE> 10
"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 8.6(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 2.6(b).
"Eurodollar Rate Reserve Percentage" of any Bank for any
Interest Period for any Eurodollar Rate Advance means the reserve
percentage applicable during such Interest Period (or if more than one
such percentage shall be so applicable, the daily average of such
percentages for those days in such Interest Period during which any
such percentage shall be so applicable) under regulations issued from
time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for such Bank with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.1.
"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.
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<PAGE> 11
"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. 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. 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. 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 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
7
<PAGE> 12
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, 6.1 and 7.1 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.
"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.
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<PAGE> 13
"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 the Borrower or any
Subsidiary of the Borrower (other than the Subsidiary that is to
acquire or construct such project) or any property or asset of the
Borrower of any Subsidiary of the 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
2.2(a).
"Notice of B Borrowing" has the meaning specified in Section
2.16(a).
"NWP" means Northwest Pipeline Corporation, a Delaware
corporation.
"Original Advance" is defined in the first recital.
"Original Bank" is defined in the first recital.
"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 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, 1997.
"Rating Category" means, as to the Borrower, the relevant
category applicable to the Borrower from time to time as set forth on
Schedule V, which is based on the ratings (or lack thereof) of the
Borrower's senior unsecured long-term debt by S&P or Moody's. In the
event there is a split between the ratings of the Borrower's senior
unsecured long-term debt by S&P and Moody, "Rating Category" shall
mean, as to the Borrower, the relevant category applicable to the
Borrower from time to time as set forth on Schedule V, which is based
on
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<PAGE> 14
the higher of the ratings of the Borrower's senior unsecured
long-term debt by S&P and Moody.
"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 Services, a division of
the McGraw Hill Companies 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.
"Stated Termination Date" means January 25, 2000, 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
10
<PAGE> 15
(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 2.4, 2.17 or 6.1.
"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.
"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
8.6.
"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.
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<PAGE> 16
"WFS" means Williams Field Services Group, Inc., a Delaware
corporation.
"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.
"WilTel" means Williams Communications Solutions, LLC, a
Delaware limited liability company.
"Withdrawal Liability" shall have the meaning given such term
under Part I of Subtitle E of Title IV of ERISA.
"WPL" means Williams Pipe Line Company, a Delaware
corporation.
Section 1.2 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 1.3 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 4.1(e).
Section 1.4 Miscellaneous. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified.
Section 1.5 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
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<PAGE> 17
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 2.1 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 2.3(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 2.1.
Section 2.2 Making the A Advances. (a) Each A Borrowing shall be made
on notice, given not later than (1) in the case of a proposed Borrowing
comprised of Eurodollar Rate Advances, 11:00 A.M. (New York City time) at least
three Business Days prior to the date of the proposed Borrowing, and (2) in the
case of a proposed Borrowing comprised of Base Rate Advances, 10:00 A.M. (New
York City time) on the date of the proposed Borrowing, by the Borrower 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 8.2,
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;
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<PAGE> 18
(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 2.2(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
provided in Section 2.2(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 2.2(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 canceled 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
2.2(c).
(c) Each Notice of A Borrowing shall be irrevocable and binding on the
Borrower, except as set forth in Section 2.2(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
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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 2.2(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 2.2 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
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 2.3 Fees.
(a) Commitment Fee. The 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 2.3(a), B Advances shall not, for purposes of this
Section 2.3(a), be considered to be usage of any Commitment) portion of such
Bank's Commitment to the 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; and Borrower agrees that it shall also pay to the
Agent on March 31, 1999 for the account of the Original Banks all commitment
fees which are accrued and unpaid as of the date hereof pursuant to Section
2.03(a) of the 7/97 Credit Agreement or Section 2.3(a) of the 3/98 Credit
Agreement.
(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 by the
Borrower and the Agent.
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(c) Participation and Amendment Fees. The Borrower agrees to pay on
the date of this Agreement to the Agent for the account of each Bank the
participation or amendment fee due such Bank pursuant to that certain
Memorandum to Prospective Lenders dated November 11, 1998 from Citicorp
Securities, Inc.
Section 2.4 Reduction of the Commitments. The Borrower shall have the
right, upon at least five 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 2.5 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 2.6 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 (other than principal of any
Eurodollar Rate Advance) which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest, from the date on
which such amount is due until such amount is paid in full, payable on demand,
at a rate per annum equal at all times to the sum of the Base Rate in effect
from time to time plus 2% per annum.
(b) Eurodollar Rate Advances. At such times as such A Advance is a
Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such A Advance to the sum of the Eurodollar Rate for such
Interest Period plus the Applicable Margin in effect from time to time for such
A Advance, payable on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on each day which
occurs during such Interest Period every three months from the first day of
such Interest Period; provided that any amount of principal of any Eurodollar
Rate Advance which is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times to the greater of (x) the sum of the Base Rate in
effect from time to time plus 2% per annum and (y) the sum of the rate per
annum required to be paid on such A Advance immediately prior to the date on
which such amount became due plus 2% per annum.
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Section 2.7 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 2.7 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 2.7.
Section 2.8 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 2.6(b).
Section 2.9 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.
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 shall (i) 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 (ii) 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, 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 8.4(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 (1) no A Borrowing comprised of Base Rate Advances shall
have a principal amount outstanding of less than $5,000,000 and (2) no A
Borrowing comprised of Eurodollar Rate Advances shall have a principal amount
outstanding of less than $20,000,000.
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(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. 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.
(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 2.7 or this Section 2.11, the Borrower may within ninety (90) 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 8.6(a) (including execution of an
appropriate Transfer Agreement); provided that (i) all obligations of such Bank
to lend hereunder shall be terminated and
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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 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 8.4(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
8.2 in same day funds, without deduction, counterclaim or offset of any kind.
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 2.7, 2.11, 2.14, 2.16 or 8.4(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
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to share any fee paid to the Agent pursuant to Section 2.3(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) (i) 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
(ii) 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 2.7 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 2.7, by a Bank) of an
interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or commitment fee, as the
case may be; provided, however, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(e) Unless the Agent shall have received notice from 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
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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 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
therefore.
(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 8.2, 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 2.7, 2.11, 2.14 or 8.4(b)) in excess of its ratable share
of payments on account of the A Advances obtained by all the Banks, such Bank
shall
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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 (1) the Termination Date or (2) the
date occurring thirty (30) days prior to the Stated Termination Date in the
manner set forth below; provided that, following the making of each B
Borrowing, the aggregate amount of the Advances then outstanding to 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 (1) 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 (5) 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
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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 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
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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 canceled 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 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 8.2 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 Agents 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
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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.
(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 (i) 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 l3d-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 (ii) 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 (iii) 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.
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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 January 1 of any year after 1999, the Borrower may request the Banks to
extend the Stated Termination Date for an additional period to a date which is
364 days after the then current 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.
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 2.2 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 1.1, 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 3.1 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:
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(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.
(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 Mayer, Brown & Platt, 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.
(g) Payment for the account of the Banks of those participation fees
and amendment fees as set forth in Section 2.3(c) hereof.
Section 3.2 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
4.1 pertaining to the 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
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(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.
Section 3.3 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
4.1 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.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(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.
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(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 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 September
30, 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 September 30, 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 operation s 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 September 30, 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 has been or will be used for any
purpose or in any manner not permitted by Section 5.2(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 5.2(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 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.
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(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 4.1(e) and delivered to each Bank) which are reasonably expected to
arise in connection with (i) the requirements of Environmental Protection
Statutes or (ii) any obligation or liability to any Person in connection with
any Environmental matters (including, without limitation, any release or
threatened release (as such terms are defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980) of any
Hazardous Waste, Hazardous Substance, other waste, petroleum or petroleum
products into the Environment) does not exceed 10% of the Consolidated Tangible
Net Worth of 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).
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(n) The Borrower has (i) reviewed the areas within its business and
operations and those of its Subsidiaries which could be adversely affected by
failure to become "Year 2000 Compliant" (that is, that computer applications,
imbedded microchips and other systems used by any of the Borrower or its
Subsidiaries or their material vendors, will be able properly to recognize and
perform date-sensitive functions involving certain dates prior to and any date
after December 31, 1999); (ii) developed a detailed plan and timetable to
become Year 2000 Compliant in a timely manner; and (iii) committed adequate
resources to support its plan to become Year 2000 Compliant in a timely manner.
Based on such review and plan the Borrower reasonably believes that it and its
Subsidiaries will become Year 2000 Compliant on a timely basis except to the
extent that a failure to do so would not reasonably be expected to have a
material adverse effect on the business, assets or financial condition of the
Borrower and its Subsidiaries, taken as a whole, or on the ability of the
Borrower to perform its obligations hereunder.
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.1 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;
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(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 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 5.2(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 5.2(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
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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 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 any
letter of credit, guaranty, insurance or other credit enhancement
referred to in the second to last sentence of Section 1.5 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 5.2 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 (1) 0.6 to
1.0 at any time during the period beginning on January 1, 1999 through December
31, 2000, (2) 0.575 to 1.0 at any time during the period beginning January 1,
2001 through December 31, 2001 or (3) 0.55 to 1.0 at any time on or after
January 1, 2002.
(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 5.2(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 of time or
both would constitute an Event of
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<PAGE> 40
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 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 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).
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(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, WFS, WPL, WCG, 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, WFS, WPL, WCG, TGPL, TGT or NWP or any of their
respective material Subsidiaries; provided, however, that this Section 5.2(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 $5,000.00.
(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 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 a guaranty of the
obligations of Williams Communications Group, Inc. pursuant to that certain
Second Amended and Restated Credit Agreement dated July 23, 1997 among the
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Borrowers as named therein, certain financial institutions party thereto (the
"Banks"), certain Co-Agents identified therein, and Citibank, N.A., as Agent
for the Banks, as amended by an Amendment dated as of the date hereof, and as
the same may be otherwise amended, supplemented, restated or modified and
guaranties of obligations of 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 6.1 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 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 3.2 or 3.3)
shall prove to have been incorrect in any material respect when made or deemed
made; or
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(c) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5. 1 (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. 1 (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 6.1(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
proceeding instituted against it (but not instituted by it), shall remain
undismissed or unstaved 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
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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 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 6.1(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.
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ARTICLE VII
THE AGENT
Section 7.1 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 7.2 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 8.6(a); (ii) may consult with legal counsel
(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 7.3 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
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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 7.4 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 4.1(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 7.5 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 liable to the Agent for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agents
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 7.6 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
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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 Agents resignation or removal hereunder as Agent, the provisions
of this Article VII shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 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, (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 8.1; 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 8.2 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 8.6(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,
43
<PAGE> 48
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 11 or specified pursuant to Section 8.6(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 8.6(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 8.3 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 8.4 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 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
8.6(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 6.1 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
44
<PAGE> 49
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 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 8.4(c) or any of its directors, officers,
employees or agents).
Section 8.5 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 6.1 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.1,
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 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 8.6 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;
provided 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) (i) such Bank's obligations under this Agreement,
including, without limitation, its Commitment hereunder, shall remain
unchanged, (ii)
45
<PAGE> 50
such Bank shall remain responsible for the performance thereof, (iii) such Bank
shall remain the holder of any such Note or Notes for all purposes under this
Agreement, and (iv) 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 8.6(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 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 8.6(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
46
<PAGE> 51
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 8.2 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.
(b) If the Borrower does not consent to a proposed assignment by a
Bank pursuant to the last sentence of Section 8.6(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 8.6(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 8.6(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 8.6(b) by nominating another bank for purposes
of this Section 8.6(b) by notice to the Agent and such Bank. If (i) 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 (ii) the Borrower fails to
nominate another bank following such a failure to purchase or (iii) such second
nominated bank fails to purchase in accordance with the terms of an offer
complying with the first sentence of this Section 8.6(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 8.6(b) as to
a particular proposed assignment, the Borrower shall not be deemed to have
relinquished its right to consent to such assignment.
47
<PAGE> 52
(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 paragraph of Section 8.6(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 8.7 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 8.8 Interest. It is the intention of the parties hereto that
the Agent and each Bank shall conform strictly to usury laws applicable to it,
if any. Accordingly, if the transactions with the Agent or any Bank
contemplated hereby would be usurious under applicable law, then, in that
event, notwithstanding anything to the contrary in the Notes, this Agreement or
any other agreement entered into in connection with or as security for this
Agreement or the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is
contracted for, taken, reserved, charged or received by the Agent or such Bank,
as the case may be, under the Notes, this Agreement or under any other
agreement entered into in connection with or as security for this Agreement or
the Notes shall under no circumstances exceed the maximum amount allowed by
such applicable law and any excess shall be canceled 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 canceled 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 8.9 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
48
<PAGE> 53
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 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 4.1(e) or Section 5.1(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.
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<PAGE> 54
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.
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: /s/ JAMES IVEY
-----------------------------------
Name: James Ivey
Title: Treasurer
AGENT:
CITIBANK, N.A., as Agent
By: [ILLEGIBLE]
-----------------------------------
Title: V.P.
--------------------------------
BANKS:
CITIBANK, N.A.
By: [ILLEGIBLE]
-----------------------------------
Title: V.P.
--------------------------------
THE CHASE MANHATTAN BANK
By: /s/ PETER M. LING
-----------------------------------
Title: Vice President
--------------------------------
CIBC INC.
By: /s/ [ILLEGIBLE]
-----------------------------------
Title:
--------------------------------
50
<PAGE> 55
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ CLAIRE M. LIU
-----------------------------------
Title: Managing Director
--------------------------------
BANK OF MONTREAL
By: /s/ MARY LEE LATTA
-----------------------------------
Title: Director
--------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ PHILIPPE SOUSTRA
-----------------------------------
Title: Senior Vice President
--------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: First Vice President
--------------------------------
ABN AMRO BANK N.V.
By:
-----------------------------------
Title:
--------------------------------
BANKBOSTON, N.A.
By: /s/ R. STEVE SCHAUER
-----------------------------------
Title: Director
--------------------------------
THE BANK OF NEW YORK
By: /s/ RAYMOND J. PALMER
-----------------------------------
Title: Vice President
--------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
-----------------------------------
Title: Senior Manager, Loan Operations
--------------------------------
51
<PAGE> 56
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
By: /s/ ICHIRO OTANI
-----------------------------------
Title: Deputy General Manager
--------------------------------
BARCLAYS BANK PLC
By: /s/ RICHARD B. WILLIAMS
-----------------------------------
Title: Director
--------------------------------
INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By: /s/ MIKE OAKS
-----------------------------------
Title: Senior Vice President
--------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED
HOUSTON OFFICE
(Authorized Representative)
MELLON BANK, N.A.
By: /s/ MARK W. ROGERS
-----------------------------------
Title: Vice President
--------------------------------
ROYAL BANK OF CANADA
By: /s/ J. D. FROST
-----------------------------------
Title: Senior Manager
--------------------------------
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ RICHARD M. LEWIS
-----------------------------------
Title: Director
--------------------------------
THE SUMITOMO BANK, LIMITED
By:
-----------------------------------
Title:
--------------------------------
COMMERZBANK AKTIENGESELLSCHAFT,
ATLANTA AGENCY
By:
-----------------------------------
Title:
--------------------------------
52
<PAGE> 57
FIRST AMERICAN NATIONAL BANK
By:
-----------------------------------
Title:
--------------------------------
BANQUE NATIONALE DE PARIS, HOUSTON
AGENCY
By:
-----------------------------------
Title:
--------------------------------
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ STEPHEN A. PLAUCHE
-----------------------------------
Title: Vice President
--------------------------------
BW CAPITAL MARKETS, INC.
By:
-----------------------------------
Title:
--------------------------------
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
By:
-----------------------------------
Title:
--------------------------------
SUNTRUST BANK
By: /s/ TODD C. DAVIS
-----------------------------------
Title: Assistant Vice President
--------------------------------
By: /s/ STEVEN J. NEWBY
-----------------------------------
Title: Corporate Banking Officer
--------------------------------
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
AG, CAYMAN ISLAND BRANCH
By:
-----------------------------------
Title:
--------------------------------
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
By:
-----------------------------------
Title:
--------------------------------
53
<PAGE> 58
BANK OF OKLAHOMA, N.A.
By: /s/ ROBERT D. MATTAX
-----------------------------------
Title: Senior Vice President
--------------------------------
COMMERCE BANK, N.A.
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: Senior Vice President
--------------------------------
CREDIT AGRICOLE INDOSUEZ
By: /s/ DAVID BODHL
-----------------------------------
Title: F.V.P. Head of Corporate
--------------------------------
Banking Chicago
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By: /s/ RAYMOND VENTURA
-----------------------------------
Title: Vice President & Manager
--------------------------------
54
<PAGE> 59
SCHEDULE I
APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
Citibank N.A. Citibank N.A. Citibank N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Notices: Notices:
Citibank, N.A. Citibank, N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Telecopier: (212) 527-1084 Telecopier: (212) 527-1084
Telex: None Telex: None
Attn: Christine Grundel Attn: Christine Grundel
Dept: Medium Term Finance Dept: Medium Term Finance
with copies to: with copies to:
Citicorp North America, Inc. Citicorp North America, Inc.
1200 Smith Street, Suite 2000 1200 Smith Street, Suite 2000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 654-2849 Telecopier: (713) 654-2849
Telex: 127001 Telex: 127001
(Attn. Route Code HOUAA) (Attn. Route Code HOUAA)
Attn: The Williams Companies, Inc. Attn: The Williams Companies, Inc.
Account Officer Account Officer
The Chase The Chase Manhattan Bank The Chase Manhattan Bank
Manhattan 270 Park Avenue, 21st Floor 270 Park Avenue, 21st Floor
Bank New York, New York 10017 New York, New York 10017
Telecopier: (212) 270-3897 Telecopier: (212) 270-3897
Telephone: (212) 270-4676 Telephone: (212) 270-4676
Attn: Peter Ling Attn: Peter Ling
The Fuji Bank, The Fuji Bank, Limited The Fuji Bank, Limited
Limited (New York Branch) (New York Branch)
(New York Branch) 2 World Trade Center 2 World Trade Center
79th Floor 79th Floor
New York, New York 10048 New York, New York 10048
Telecopier: (212) 321-9407 Telecopier: (212) 321-9407
Telephone: (212) 898-2597 Telephone: (212) 898-2597
Attn: Felix Amerasinghe Attn: Felix Amerasinghe
</TABLE>
Schedule I-1
<PAGE> 60
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- ---------------
<S> <C> <C>
Bank of Montreal Bank of Montreal Bank of Montreal
115 S. LaSalle St., 11W 115 S. LaSalle St., 11W
Chicago, Illinois 60603 Chicago, Illinois 60603
Telecopier: (312) 750-6061 Telecopier: (312) 750-6061
Telephone: (312) 750-6047 Telephone: (312) 750-6047
Attn: Craig Reynolds - Client Services Attn: Craig Reynolds - Client Services
Commerzbank AG, Commerzbank AG, Atlanta Agency Commerzbank AG, Atlanta Agency
Atlanta Agency 1230 Peachtree St., NE 1230 Peachtree St., NE
Suite 3500 Suite 3500
Atlanta, Georgia 30309 Atlanta, Georgia 30309
Telephone: (404) 888-6518 Telephone: (404) 888-6518
Telecopier: (404) 888-6539 Telecopier: (404) 888-6539
Attn: Brian Campbell Attn: Brian Campbell
Credit Lyonnais Credit Lyonnais New York Branch Credit Lyonnais New York Branch
New York Branch 1301 Avenue of the Americas 1301 Avenue of the Americas
New York, New York 10019 New York, New York 10019
Telecopier: (713) 759-9766 Telecopier: (713) 759-9766
Telephone: (713) 751-0500 Telephone: (713) 751-0500
Attn: Bernadette Archie Attn: Bernadette Archie
The First National The First National Bank of Chicago The First National Bank of Chicago
Bank of Chicago One First National Plaza One First National Plaza
0634, 1FNP, 10 0634, 1FNP, 10
Chicago, Illinois 60670 Chicago, Illinois 60670
Telecopier: (312) 732-5219 Telecopier: (312) 732-5219
Telephone: (312) 732-4840 Telephone: (312) 732-4840
Attn: Mattie Reed Attn: Mattie Reed
ABN AMRO Bank ABN AMRO Bank, N.V. ABN AMRO Bank, N.V.
N.V. 208 South LaSalle, Suite 1500 208 South LaSalle, Suite 1500
Chicago, Illinois 60604-1003 Chicago, Illinois 60604-1003
Telephone: (312) 992-5110 Telephone: (312) 992-5110
Facsimile: (312) 992-5111 Facsimile: (312) 992-5111
Attn: Credit Administration Attn: Credit Administration
with copies to: with copies to:
ABN AMRO Bank, N.V. ABN AMRO Bank, N.V.
208 South LaSalle, Suite 1500 208 South LaSalle, Suite 1500
Chicago, Illinois 60604-1003 Chicago, Illinois 60604-1003
Telephone: (312) 992-5152 Telephone: (312) 992-5152
Facsimile: (312) 992-5157 Facsimile: (312) 992-5157
Attn: Loan Administration Attn: Loan Administration
</TABLE>
Schedule I-2
<PAGE> 61
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
ABN AMRO North America, Inc. ABN AMRO North America, Inc.
Three Riverway, Suite 1700 Three Riverway, Suite 1700
Houston, Texas 77056 Houston, Texas 77056
Telephone: (713) 964-3316 Telephone: (713) 964-3316
Facsimile: (713) 621-5810 Facsimile: (713) 621-5810
Attn: Michael Nepreux Attn: Michael Nepreux
BankBoston, N.A. BankBoston, N.A. BankBoston, N.A.
100 Federal Street, M/S 01-08-02 100 Federal Street, M/S 01-08-02
Boston, MA 02110 Boston, MA 02110
Telephone: (617) 434-4655 Telephone: (617) 434-4655
Telecopier: (617) 434-9820 Telecopier: (617) 434-9820
Attn: Leah Hardy Attn: Leah Hardy
The Bank of The Bank of Toyko-Mitsubishi, The Bank of Toyko-Mitsubishi,
Toyko-Mitsubishi, Ltd., Houston Agency Ltd., Houston Agency
Ltd., Houston 1100 Louisiana St., Suite 2800 1100 Louisiana St., Suite 2800
Agency Houston, Texas 77002-5216 Houston, Texas 77002-5216
Telephone: (713) 655-3845 Telephone: (713) 655-3845
Telecopier: (713) 655-3855 Telecopier: (713) 655-3855
Attn: J.M. McIntyre Attn: J.M. McIntyre
Barclays Bank PLC Barclays Bank PLC-New York Branch Barclays Bank PLC-New York Branch
222 Broadway, 11th Floor 222 Broadway, 11th Floor
New York, New York 10038 New York, New York 10038
Telephone: (212) 412-3717 Telephone: (212) 412-3717
Telecopier: (212) 412-5307 Telecopier: (212) 412-5307
Attn: Judy Kwong Attn: Judy Kwong
First American First American National Bank First American National Bank
National Bank First American Center First American Center
Fourth & Union St. NA-0310 Fourth & Union St. NA-0310
Nashville, Tennessee 37237-0310 Nashville, Tennessee 37237-0310
Telephone: (615) 736-6223 Telephone: (615) 736-6223
Telecopier: (615) 748-2485 Telecopier: (615) 748-2485
Attn: Stephen Arnold Attn: Stephen Arnold
Banque Nationale Banque Nationale de Paris, Houston Banque Nationale de Paris, Houston
de Paris, Houston Agency Agency
Agency 333 Clay Street, Suite 3400 333 Clay Street, Suite 3400
Houston, Texas 77002 Houston, Texas 77002
Telephone: (713) 951-1240 Telephone: (713) 951-1240
Telecopier: (713) 659-1414 Telecopier: (713) 659-1414
Attn: Donna Rose Attn: Donna Rose
</TABLE>
Schedule I-3
<PAGE> 62
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
Arab Banking Arab Banking Corp. Arab Banking Corp. (Grand Cayman)
Corporation 277 Park Avenue, 32nd Floor 277 Park Avenue, 32nd Floor
(B.S.C.) New York, New York 10172 New York, New York 10172
Telephone: (212) 583-4771 Telephone: (212) 583-4770
Telecopier: (212) 583-0932 Telecopier: (212) 583-0932
Attn: Loan Administration Attn: Loan Administration
BW Capital BW Capital Markets, Inc. BW Capital Markets, Inc.
Markets, Inc. 630 Fifth Avenue 630 Fifth Avenue
Rockefeller Center Rockefeller Center
Suite 1919 Suite 1919
New York, New York 10111 New York, New York 10111
Telecopier: (212) 218-1810 Telecopier: (212) 218-1810
Attn: Thomas A. Lowe Attn: Thomas A. Lowe
Westdeutsche Westdeutsche Landesbank Girozentrale, Westdeutsche Landesbank Girozentrale,
Landesbank New York Branch New York Branch
Girozentrale, 1211 Avenue of the Americas 1211 Avenue of the Americas
New York New York, New York 10038 New York, New York 10038
Branch Telecopier: (212) 302-7946 Telecopier: (212) 302-7946
Telephone: (212) 852-6113 Telephone: (212) 852-6113
Attn: Phil Green Attn: Phil Green
SunTrust Bank SunTrust Bank, Atlanta SunTrust Bank, Atlanta
25 Park Place, 24th Floor MC120 25 Park Place, 24th Floor MC120
Atlanta, Georgia 30303 Atlanta, Georgia 30303
Telephone: (404) 658-4917 Telephone: (404) 658-4917
Telecopier: (404) 827-6270 Telecopier: (404) 827-6270
Attn: Todd C. Davis Attn: Todd C. Davis
DG Bank DG Bank DG Bank
609 Fifth Avenue 609 Fifth Avenue
New York, New York 10017 New York, New York 10017
Telephone: (212) 745-1560 Telephone: (212) 745-1560
Telecopier: (212) 745-1556 Telecopier: (212) 745-1556
Attn: Mark K. Connelly Attn: Mark K. Connelly
Societe Generale, Societe Generale, Southwest Agency Societe Generale, Southwest Agency
Southwest Agency 2001 Ross Avenue, Suite 4800 2001 Ross Avenue, Suite 4800
Dallas, Texas 75201 Dallas, Texas 75201
Telecopier: (214) 754-0171 Telecopier: (214) 754-0171
Telephone: (214) 979-2767 Telex: (214) 979-2767
Attn: Tequlla English Attn: Tequlla English
Loan Specialist Loan Specialist
</TABLE>
Schedule I-4
<PAGE> 63
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
The Sumitomo The Sumitomo Bank, Limited The Sumitomo Bank, Limited
Bank, Limited 277 Park Avenue 277 Park Avenue
New York, NY 10172 New York, NY 10172
Telex: SUMBK 420515/SUMBK Telex: SUMBK 420515/SUMBK
Telecopier: (212) 224-5188 Telecopier: (212) 224-5188
with copies to: with copies to:
The Sumitomo Bank, Limited The Sumitomo Bank, Limited
700 Louisiana, Suite 1750 700 Louisiana, Suite 1750
Houston, Texas 77002 Houston, Texas 77002
Attn: William McKown, III Attn: William McKown, III
The Sumitomo Bank, Limited The Sumitomo Bank, Limited
277 Park Avenue 277 Park Avenue
New York, NY 10172 New York, NY 10172
Attn: Ms. Andrea Wei, V.P. Attn: Ms. Andrea Wei, V.P.
PANA - Legal Department PANA - Legal Department
National National Westminster Bank PLC National Westminster Bank PLC
Westminster 600 Travis St., Suite 6070 600 Travis St., Suite 6070
Bank PLC Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 221-2430 Telecopier: (713) 221-2430
Telephone: (713) 221-2404 Telephone: (713) 221-2404
Attn: Kevin Howard Attn: Kevin Howard
The Bank of Nova The Bank of Nova Scotia The Bank of Nova Scotia
Scotia 600 Peachtree St., N.E. 600 Peachtree St., N.E.
Suite 2700 Suite 2700
Atlanta, Georgia 30308 Atlanta, Georgia 30308
Telecopier: (404) 888-8998 Telecopier: (404) 888-8998
Telex: 00542319 Telex: 00542319
Attn: Robert L. Ahern Attn: Robert L. Ahern
with copy to: with copy to:
1100 Louisiana, Suite 3000 1100 Louisiana, Suite 3000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 752-2425 Telecopier: (713) 752-2425
Telephone: (713) 759-3440 Telephone: (713) 759-3440
Attn: Greg Smith Attn: Greg Smith
</TABLE>
Schedule I-5
<PAGE> 64
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
Bank of America Bank of America National Trust Bank of America National Trust
National Trust and Savings Association and Savings Association
and Savings Account Administration Account Administration
Association 231 South LaSalle Street 231 South LaSalle Street
Chicago, Illinois 60697 Chicago, Illinois 60697
Telecopier: (312) 974-9626 Telecopier: (312) 974-9626
Telephone: (312) 828-3793 Telephone: (312) 828-3793
Attn: Debbie Aguilar Attn: Debbie Aguilar
with copy to: with copy to:
Bank of America Bank of America
Three Allen Center, Suite 4550 Three Allen Center, Suite 4550
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 651-4807 Telecopier: (713) 651-4807
Telephone: (713) 651-4855 Telephone: (713) 651-4855
Bank of New York Bank of New York Bank of New York
One Wall St., 19th Floor One Wall St., 19th Floor
New York, New York 10286 New York, New York 10286
Telecopier: (212) 635-7923 Telecopier: (212) 635-7923
Telephone: (212) 635-7834 Telephone: (212) 635-7834
Attn: Raymond Palmer (Ray) Attn: Raymond Palmer (Ray)
Bank of Oklahoma, Bank of Oklahoma, N.A. Bank of Oklahoma, N.A.
N.A. One Williams Center, 8th Floor One Williams Center, 8th Floor
Tulsa, Oklahoma 74192 Tulsa, Oklahoma 74192
Telecopier: (918) 588-6880 Telecopier: (918) 588-6880
Telephone: (918) 588-6217 Telephone: (918) 588-6217
Attn: Robert Mattax (Bob) Attn: Robert Mattax (Bob)
Canadian Imperial Canadian Imperial Bank of Commerce Canadian Imperial Bank of Commerce
Bank of Commerce Two Paces West Two Paces West
2727 Paces Ferry Road, Suite 1200 2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339 Atlanta, Georgia 30339
Telecopier: (770) 319-4950 Telecopier (770) 319-4950
Telephone: (770) 319-4821 Telephone: (770) 319-4821
Attn: Katherine McGovern Attn: Katherine McGovern
with a copy to: with a copy to:
1600 Smith, Ste. 3000 1600 Smith, Ste. 3000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 650-3727 Telecopier: (713) 650-3727
Telephone: (713) 650-2588 Telephone: (713) 650-2588
Attn: Mark Wolf Attn: Mark Wolf
</TABLE>
Schedule I-6
<PAGE> 65
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
Commerce Bank, Commerce Bank, N.A. Commerce Bank, N.A.
N.A. 1000 Walnut Street, 17th Floor 1000 Walnut Street, 17th Floor
Kansas City, Missouri 64106 Kansas City, Missouri 64106
Telecopier: (816) 234-7290 Telecopier: (816) 234-7290
Telephone: (816) 234-2477 Telephone: (816) 234-2477
Attn: Dennis Block Attn: Dennis Block
Industrial Bank Industrial Bank of Japan Trust Industrial Bank of Japan Trust
of Japan Trust 1251 Avenue of the Americas 1251 Avenue of the Americas
New York, New York 10020 New York, New York 10020
Telecopier: (212) 282-4480 Telecopier: (212) 282-4480
Telephone: (212) 282-4067 Telephone: (212) 282-4067
Attn: Bob Cummings Attn: Bob Cummings
Credit Agricole Credit Agricole Indosuez Credit Agricole Indosuez
Indosuez Texas Commerce Tower Texas Commerce Tower
600 Travis, Suite 2340 600 Travis, Suite 2340
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 223-7029 Telecopier: (713) 223-7029
Telephone: (713) 223-7001 Telephone: (713) 223-7001
Attn: Brian Knezeak Attn: Brian Knezeak
Mellon Bank, N.A. Mellon Bank, N.A. Mellon Bank, N.A.
One Mellon Center, 44th Floor One Mellon Center, 44th Floor
Pittsburgh, Pennsylvania 15258 Pittsburgh, Pennsylvania 15258
Telecopier: (412) 236-1840 Telecopier: (412) 236-1840
Telephone: (412) 236-2786 Telephone: (412) 236-2786
Attn: A. Gary Chase Attn: A. Gary Chase
NationsBank NationsBank NationsBank
515 S. Boulder 515 S. Boulder
Tulsa, Oklahoma 74103 Tulsa, Oklahoma 74103
Telecopier: (918) 591-8221 Telecopier: (918) 591-8221
Telephone: (918) 591-8518 Telephone: (918) 591-8518
Attn: Linda Parish Attn: Linda Parish
Royal Bank of Royal Bank of Canada, New York Royal Bank of Canada, New York
Canada One Liberty Plaza, 4th Floor One Liberty Plaza, 4th Floor
New York, New York 10006 New York, New York 10006
Telecopier: (212) 428-2372 Telecopier: (212) 428-2372
Telephone: (212) 428-6321 Telephone: (212) 428-6321
Attn: Assistant Manager, Loan Attn: Assistant Manager, Loan
Processing Processing
</TABLE>
Schedule I-7
<PAGE> 66
SCHEDULE II
BORROWER INFORMATION
<TABLE>
<CAPTION>
Name of Borrower Information for Notices
- ---------------- -----------------------
<S> <C>
The Williams Companies, Inc. The Williams Companies, Inc.
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Patti J. Kastl
Telecopier: (918) 588-4755
Williams Holdings of Delaware, Inc. Williams Holdings of Delaware, Inc.
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Patti J. Kastl
Telecopier: (918) 588-4755
Northwest Pipeline Corporation Northwest Pipeline Corporation
295 Chipeta Way
Salt Lake City, Utah 84158
Attention: Curtis C. Kennedy
Telecopier: (801) 584-6726
Transcontinental Gas Pipe Line Corporation Transcontinental Gas Pipe Line Corporation
2800 Post Oak Boulevard, 21st Floor
Houston, Texas 77056
Attention: Nick Bacile
Telecopier: (713) 439-2440
Texas Gas Transmission Corporation Texas Gas Transmission Corporation
3800 Frederica St.
Owensboro, Kentucky 42302
Attention: Susanne W. Harris
Telecopier: (502) 683-5657
Williams Pipe Line Company Williams Pipe Line Company
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Paul W. Nelson
Telecopier: (918) 588-3371
WilTel Communications, LLC WilTel Communications, LLC
2800 Post Oak Boulevard
Houston, Texas 77056
Attention: G.L. Best
Telecopier: (713) 307-4880
</TABLE>
<PAGE> 67
SCHEDULE III
PERMITTED WHD LIENS
a) Any purchase money Lien created by WHD or any of its Subsidiaries to
secure all or part of the purchase price of any property (or to secure
a loan made to enable WHD or any of its Subsidiaries to acquire the
property secured by such Lien); provided that the principal amount of
the Debt secured by any such Lien, together with all other Debt secured
by a Lien on such property, shall not exceed the purchase price of the
property acquired.
b) Any Lien existing on any property at the time of the acquisition
thereof by WHD or any of its Subsidiaries, whether or not assumed by
WHD or any of its Subsidiaries, and any Lien on any property acquired
or constructed by WHD or any of its Subsidiaries and created not later
than 12 months after (i) such acquisition or completion of such
construction or (ii) commencement of full operation of such property,
whichever is later; provided, however, that if assumed or created by
WHD or any of its Subsidiaries, the principal amount of the Debt
secured by such Lien, together with all other Debt secured by a Lien on
such property, shall not exceed the purchase price of the property
acquired and/or the cost of the property constructed.
c) Any Lien created or assumed by WHD or any of its Subsidiaries on any
contract for the sale of any product or service or any rights
thereunder or any proceeds therefrom, including accounts and other
receivables, related to the operation or use of any property acquired
or constructed by WHD or any of its Subsidiaries and created not later
than 12 months after (i) such acquisition or completion of such
construction or (ii) commencement of full operation of such property,
whichever is later; provided, however, that the principal amount of the
Debt secured by such mortgage together with all other Debt secured by
any such contract, rights or property, shall not exceed the purchase
price of the property acquired and/or the cost of the property
constructed.
d) Any Lien existing on any property of a Subsidiary of WHD at the time it
becomes a Subsidiary of WHD.
e) Any refunding or extension of maturity, in whole or in part, of any
Lien created or assumed in accordance with the provisions of paragraph
(a), (b), (c) or (d) above or (j) below; provided that the principal
amount of the Debt secured by such refunding Lien or extended Lien
shall not exceed the principal amount of the Debt secured by the Lien
to be refunded or extended outstanding at the time of such refunding or
extension and that such refunding Lien or extended Lien shall be
limited to the same property that secured the Lien so refunded or
extended.
f) Mechanics' or materialmen's liens arising in the ordinary course of
business which are not more than 90 days past due or are being
contested in good faith by appropriate proceedings or any Lien arising
by reason of pledges or deposits to secure payment of workmen's
<PAGE> 68
compensation or other insurance, good faith deposits in connection with
tenders or leases of real estate, bids or contracts (other than
contracts for the payment of money), in each case to secure obligations
of TWC or any of its Subsidiaries.
g) Deposits to secure public or statutory obligations, deposits to secure
or in lieu of surety, stay or appeal bonds and deposits as security for
the payment of taxes or assessments or other similar charges, in each
case to secure obligations of TWC or any of its Subsidiaries; provided,
however, that the aggregate amount of obligations secured by Liens
permitted by this paragraph (g) shall not exceed 10% of Consolidated
Tangible Net Worth of TWC.
h) Any Lien arising by reason of deposits with or the giving of any form
of security to any governmental agency or any body created or approved
by law or governmental regulation for any purpose at any time as
required by law or governmental regulation (i) as a condition to the
transaction by TWC or any of its Subsidiaries of any business or the
exercise by TWC or any of its Subsidiaries of any privilege or license,
(ii) to enable TWC or any of its Subsidiaries to maintain
self-insurance or to participate in any fund for liability on any
insurance risks or (iii) in connection with workmen's compensation,
unemployment insurance, old age pensions or other social security with
respect to TWC or any of its Subsidiaries to share in the privileges or
benefits required for companies participating in such arrangements.
i) Any Lien which is payable, both with respect to principal and interest,
solely out of the proceeds of oil, gas, coal or other minerals or
timber to be produced from the property subject thereto and to be sold
or delivered by WHD or any of its Subsidiaries, including any interest
of the character commonly referred to as a "production payment".
j) Any Lien created or assumed by a Subsidiary of WHD on oil, gas, coal or
other mineral or timber property, owned or leased by such Subsidiary to
secure loans to such Subsidiary for the purposes of developing such
properties, including any interest of the character commonly referred
to as a "production payment"; provided, however, that neither WHD nor
any other Subsidiary of WHD shall assume or guarantee such loans or
otherwise be liable in respect thereto.
k) Liens incurred in the ordinary course of business upon rights-of-way.
l) Undetermined mortgages and charges incidental to construction or
maintenance arising in the ordinary course of business which are not
more than 90 days past due or are being contested in good faith by
appropriate proceedings.
m) The right reserved to, or vested in, any municipality or governmental
or other public authority or railroad by the terms of any right, power,
franchise, grant, license, permit or by any provision of law, to
terminate or to require annual or other periodic payments as a
condition to the continuance of such right, power, franchise, grant,
license or permit.
Page III-2
<PAGE> 69
n) The Lien of taxes and assessments which are not at the time delinquent.
o) The Lien of specified taxes and assessments which are delinquent but
the validity of which is being contested in good faith by WHD or any of
its Subsidiaries by appropriate proceedings and with respect to which
reserves in conformity with generally accepted accounting principles,
if required by such principles, have been provided on the books of WHD
or the relevant Subsidiary of WHD, as the case may be.
p) The Lien reserved in leases entered into in the ordinary course of
business for rent and for compliance with the terms of the lease in the
case of real property leasehold estates.
q) Defects and irregularities in the titles to any property (including
rights-of-way and easements) which are not material to the business,
assets, operations or financial condition of WHD and its Subsidiaries
considered as a whole.
r) Any Liens securing Debt neither assumed nor guaranteed by WHD or any of
its Subsidiaries nor on which any of them customarily pays interest,
existing upon real estate or rights in or relating to real estate
(including rights-of-way and easements) acquired by WHD or any of its
Subsidiaries for pipeline, metering station or right-of-way purposes,
which Liens were not created in anticipation of such acquisition and do
not materially impair the use of such property for the purposes for
which it is held by WHD or such Subsidiary.
s) Easements, exceptions or reservations in any property of WHD or any of
its Subsidiaries granted or reserved in the ordinary course of business
for the purpose of pipelines, roads, telecommunication equipment and
cable, streets, alleys, highways, railroads, the removal of oil, gas,
coal or other minerals or timber, and other like purposes, or for the
joint or common use of real property, facilities and equipment, which
do not materially impair the use of such property for the purposes for
which it is held by WHD or such Subsidiary.
t) Rights reserved to or vested in any municipality or public authority to
control or regulate any property of WHD or any of its Subsidiaries, or
to use such property in any manner which does not materially impair the
use of such property for the purposes for which it is held by WHD or
such Subsidiary.
u) Any obligations or duties, affecting the property of WHD or any of its
Subsidiaries, to any municipality or public authority with respect to
any franchise, grant, license or permit.
v) The Liens of any judgments in an aggregate amount for WHD and all of
its Subsidiaries (i) not in excess of $5,000,000, the execution of
which has not been stayed and (ii) not in excess of $25,000,000, the
execution of which has been stayed and which have been appealed and
secured, if necessary and permitted hereby, by the filing of an appeal
bond.
w) Zoning laws and ordinances.
Page III-3
<PAGE> 70
x) Any Lien on any office equipment, data processing equipment (including
computer and computer peripheral equipment), motor vehicles, aircraft,
marine vessels or similar transportation equipment.
y) Any Lien consisting of interests in receivables in connection with
agreements for sales of receivables of any kind by WHD or any of its
Subsidiaries for cash.
z) Any Lien not permitted by paragraphs (a) through (y) above or (aa)
below securing Debt of WHD and its Subsidiaries or securing any Debt of
WHD and its Subsidiaries which constitutes a refunding or extension of
any such Debt if at the time of, and after giving effect to, the
creation or assumption of any such Lien, the sum of aggregate of all
Debt of WHD and its Subsidiaries secured by all such Liens not so
permitted by paragraphs (a) through (y) above or (aa) below plus the
amount of Attributable Obligations of WHD and its Subsidiaries in
respect of Sale and Lease-Back Transactions permitted by Section 5.2(j)
does not exceed 5% of the sum of (i) Consolidated Tangible Net Worth of
WHD plus (ii) Debt of WHD and its Subsidiaries on a Consolidated basis.
aa) Any Lien resulting from any sale and lease-back of cushion gas by WHD
or any of its Subsidiaries.
bb) Any Lien created by WHD or any of its Subsidiaries on any contract (or
any rights thereunder or proceeds therefrom) providing for advances by
WHD or any of its Subsidiaries to finance gas exploration and
development, which Lien is created to secure only indebtedness incurred
to finance such advances.
<PAGE> 71
SCHEDULE IV
COMMITMENTS
AS OF ___________________
<TABLE>
<CAPTION>
BANKS WHD COMMITMENT
<S> <C>
Citibank, N.A $ 89,000,000
Arab Banking Corporation $ 35,000,000
BW Capital Markets, Inc. $ 50,000,000
The Chase Manhattan Bank $ 89,000,000
CIBC Inc. $ 89,000,000
The Fuji Bank, Limited - Houston Agency $ 62,000,000
Bank of America $ 49,000,000
Banque Nationale de Paris $ 25,000,000
Commerce Bank, N.A $ 5,000,000
Commerzbank $ 25,000,000
Credit Agricole Indosuez $ 30,000,000
SunTrust $ 16,000,000
Westdeutsche Landesbank $ 40,000,000
DG Bank $ 25,000,000
Greenwich NatWest $ 35,000,000
First American National $ 20,000,000
Bank of Oklahoma $ 6,000,000
Bank of Montreal $ 50,000,000
Credit Lyonnais New York Branch $ 89,000,000
The First National Bank of Chicago $ 89,000,000
ABN Amro Bank NV $ 70,000,000
BankBoston, N.A $ 20,000,000
The Bank of New York $ 65,000,000
The Bank of Nova Scotia $ 89,000,000
The Bank of Tokyo-Mitsubishi, Ltd. - Houston Agency $ 20,000,000
Barclays Bank PLC $ 65,000,000
Industrial Bank of Japan Trust Company $ 25,000,000
Mellon Bank, N.A $ 33,000,000
Royal Bank of Canada $ 45,000,000
Societe Generale - Southwest Agency $ 40,000,000
The Sumitomo Bank, Limited $ 10,000,000
================
COMMITMENTS $ 1,400,000,000
================
</TABLE>
Page IV-1
<PAGE> 72
SCHEDULE V
RATING CATEGORIES
<TABLE>
<CAPTION>
Rating Category S&P or Moody's ratings of the senior unsecured Applicable Applicable
of the Borrower long-term debt of the Borrower* Margin Commitment
Fee Rate
<S> <C> <C> <C>
One A or better by S&P or A2 or better by Moody's .50% .075%
Two A- by S&P or A3 by Moody's .625% .085%
Three BBB+ by S&P or Baa1 by Moody's .75% .095%
Four BBB by S&P or Baa2 by Moody's .875% .10%
Five BBB- by S&P and Baa3 by Moody's 1.125% .15%
Six BBB- by S&P or Baa3 by Moody's 1.5% .20%
Seven Borrower is Unrated or none of the above applies to 2.0% .25%
Borrower
</TABLE>
*If split-rated, the higher rating will apply.
Page V-1
<PAGE> 73
EXHIBIT A-1
A PROMISSORY NOTE
U.S. $__________________ January 26, 1999
FOR VALUE RECEIVED, the undersigned, Williams Holdings of Delaware,
Inc., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the
order of ____________________ (the "Bank"), for the account of its Applicable
Lending Office (as defined in the Credit Agreement referred to below), on the
Stated Termination Date (as defined in the Credit Agreement referred to below),
the principal amount of $______________, or, if less, the aggregate principal
amount of the A Advances (as defined in the Credit Agreement referred to below)
owed to the Bank by the Borrower on such Stated Termination Date.
The Borrower promises to pay interest on the unpaid principal amount
hereof until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Credit Agreement referred to
below. Both principal and interest are payable in lawful money of the United
States of America to Citibank, N.A., as Agent, at 399 Park Avenue, New York, New
York 10043, in same day funds. Each A Advance owed to the Bank by the Borrower,
and all payments made on account of principal thereof, shall be recorded by the
Bank and, prior to any transfer hereof, endorsed on the grid attached hereto
which is part of this A Promissory Note.
This A Promissory Note is one of the A Notes referred to in, and is
subject to and entitled to the benefits of the Amended and Restated Credit
Agreement, dated as of January 26, 1999 (as amended or otherwise modified from
time to time, the "Credit Agreement"), by and among the Borrower, the Bank,
certain other financial institutions parties thereto and Citibank, N.A., as
Agent for the Bank and such other financial institutions. The Credit Agreement
provides, among other things, for (i) the making of advances to the Borrower
from time to time pursuant to Section 2.1 of the Credit Agreement in an
aggregate outstanding amount not to exceed at any time the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
advance owed to the Bank being evidenced by this A Promissory Note, (ii)
acceleration of the maturity hereof upon the happening of certain stated events
and (iii) prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. Capitalized terms used
herein which are not defined herein and are defined in the Credit Agreement are
used herein as therein defined.
[This A Promissory Note is [in part] in extension, continuation and
renewal of, and not in satisfaction of, outstanding amounts under the Borrower's
note(s) dated [July 23, 1997] [and] [March 30, 1998] in the original principal
amount(s) of [$________________] [and $__________, respectively].]
The Borrower hereby waives presentment, demand, protest, notice of
intent to accelerate, notice of acceleration and any other notice of any kind,
except as provided in the Credit Agreement.
<PAGE> 74
No failure to exercise, and no delay in exercising, any rights hereunder on the
part of the holder hereof shall operate as a waiver of such rights.
This A Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
WILLIAMS HOLDINGS OF DELAWARE, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Page A-1-2
<PAGE> 75
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount Principal Unpaid
of Paid or Principal Notation
Date Advance Prepaid Balance Made By
---- ------- ---------- --------- --------
<S> <C> <C> <C> <C>
</TABLE>
Page A-1-3
<PAGE> 76
EXHIBIT A-2
B PROMISSORY NOTE
U.S. $__________________ Dated: ____________, _____
FOR VALUE RECEIVED, the undersigned, Williams Holdings of
Delaware, Inc., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY
to the order of ____________________ (the "Bank"), for the account of its
Applicable Lending Office (as defined in the Credit Agreement referred to
below), on _________, the principal amount of _____________ U.S. Dollars
($______________).
The Borrower promises to pay interest on the unpaid principal amount
hereof from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:
Interest Rate: ______% per annum (calculated on the basis
of a year of _____ days for the actual number of
days elapsed).
Interest Payment
Date or Dates: ___________________
Both principal and interest are payable in lawful money of the United
States of America to Citibank, N.A., as Agent, for the account of the Bank at
the office of Citibank, N.A., at 399 Park Avenue, New York, New York 10043, in
same day funds.
This B Promissory Note is one of the B Notes referred to in, and is
entitled to the benefits of the Amended and Restated Credit Agreement, dated as
of January 26, 1999 (as amended or otherwise modified from time to time, the
"Credit Agreement"), by and among the Borrower, the Bank, certain other
financial institutions parties thereto and Citibank, N.A., as Agent for the Bank
and such other financial institutions. The Credit Agreement contains, among
other things, provisions for acceleration of the maturity hereof upon the
happening of certain stated events. Capitalized terms used herein which are not
defined herein and are defined in the Credit Agreement are used herein as
therein defined.
The Borrower hereby waives presentment, demand, protest, notice of
intent to accelerate, notice of acceleration and any other notice of any kind,
except as provided in the Credit Agreement. No failure to exercise, and no delay
in exercising, any rights hereunder on the part of the holder hereof shall
operate as a waiver of such rights.
<PAGE> 77
This B Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
WILLIAMS HOLDINGS OF DELAWARE, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Page A-2-2
<PAGE> 78
EXHIBIT B-1
NOTICE OF A BORROWING
[Date]
Citibank, N.A., as Agent
for the Banks parties to the Credit
Agreement referred to below
399 Park Avenue
New York, New York 10043
ATTENTION: John Sahr
Ladies and Gentlemen:
The undersigned, Williams Holdings of Delaware, Inc. (the "Borrower"),
(a) refers to the Amended and Restated Credit Agreement, dated as of January 26,
1999 (as amended or otherwise modified from time to time, the "Credit
Agreement"; the terms defined therein and not defined herein being used herein
as therein defined), by and among the undersigned, certain Banks parties thereto
and Citibank, N.A., as Agent for such Banks; (b) hereby gives you notice,
irrevocably, pursuant to Section 2.2 of the Credit Agreement that the
undersigned hereby requests an A Borrowing under the Credit Agreement and (c) in
that connection sets forth below the information relating to such A Borrowing
(the "Proposed A Borrowing") as required by Section 2.2 (a) of the Credit
Agreement:
(i) The Business Day of the Proposed A Borrowing is
______________, 19____.
(ii) The Type of A Advances comprising the Proposed A Borrowing is
[Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed A Borrowing is
$__________________.
[(iv) The Interest Period for each A Advance made as part of the
Proposed A Borrowing is ______ months.]
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed A Borrowing:
(a) the representations and warranties contained in Section 4.1 of
the Credit Agreement as to the Borrower and its Subsidiaries
are correct on and as of the date of the Proposed A Borrowing,
before and after giving effect to the Proposed A Borrowing and
to the application of the proceeds therefrom, as though made
on and as of such date;
<PAGE> 79
Citibank, N.A., as Agent
- ---------------,-------
Page 2
(b) no event has occurred and is continuing, or would result from
the Proposed A Borrowing or from the application of the
proceeds therefrom, which constitutes an Event of Default or
which would constitute an Event of Default but for the
requirement that notice be given or time elapse or both; and
(c) after giving effect to the Proposed A Borrowing and all other
Borrowings which have been requested on or prior to the date
of the Proposed A Borrowing but which have not been made prior
to such date, the aggregate principal amount of all Advances
will not exceed the aggregate of the Commitments of the Banks
to the Borrower (computed without regard to any B Reduction).
Very truly yours,
WILLIAMS HOLDINGS OF DELAWARE, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
cc: Citicorp North America, Inc.
1200 Smith Street, Suite 2000
Houston, Texas 77002
Attn: The Williams Companies, Inc.
Account Officer
Page B-1-2
<PAGE> 80
EXHIBIT B-2
NOTICE OF B BORROWING
[Date]
Citibank, N.A., as Agent
for the Banks parties to the
Amended and Restated Credit
Agreement referred to below
399 Park Avenue
New York, New York 10043
ATTENTION: John Sahr
Ladies and Gentlemen:
The undersigned, Williams Holdings of Delaware, Inc. (the "Borrower"),
(a) refers to the Amended and Restated Credit Agreement, dated as of January 26,
1999 (as amended or otherwise modified from time to time, the "Credit
Agreement"; the terms defined therein and not defined herein being used herein
as therein defined), by and among the undersigned, certain Banks parties thereto
and Citibank, N.A., as Agent for such Banks; (b) hereby gives you notice,
irrevocably, pursuant to Section 2.16 of the Credit Agreement that the
undersigned hereby requests a B Borrowing under the Credit Agreement and (c) in
that connection sets forth the terms on which such B Borrowing (the "Proposed B
Borrowing") is requested to be made:
(A) Date of B Borrowing _________________________
(B) Amount of B Borrowing _________________________
(C) Maturity Date _________________________
(D) Interest Rate Basis _________________________
(E) Interest Payment Date(s) _________________________
(F) Prepayment Permitted [Yes/No] [Conditions]
(G) ____________________ _________________________
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed B Borrowing:
(a) the representations and warranties contained in Section 4.1 of
the Credit Agreement as to the Borrower and its Subsidiaries
are correct on and as of the date of the Proposed B Borrowing,
before and after giving effect to the Proposed B Borrowing and
to the application of the proceeds therefrom, as though made
on and as of such date;
<PAGE> 81
Citibank, N.A., as Agent
- -------------, -----
Page 2
(b) no event has occurred and is continuing, or would result from
the Proposed B Borrowing or from the application of the
proceeds therefrom, which constitutes an Event of Default or
which would constitute an Event of Default but for the
requirement that notice be given or time elapse or both;
(c) following the making of the Proposed B Borrowing and all other
Borrowings to be made on the same day under the Credit
Agreement, the aggregate principal amount of all Advances of
the Banks to the Borrower then outstanding will not exceed the
aggregate amount of the Commitments of the Banks to the
Borrower (computed without regard to any B Reduction); and
(d) after giving effect to the Proposed B Borrowing and all other
Borrowings which have been requested on or prior to the date
of the Proposed B Borrowing but which have not been made prior
to such date, the aggregate principal amount of all Advances
will not exceed the aggregate of the Commitments of the Banks.
The undersigned hereby confirms that the Proposed B Borrowing is to be
made available to it in accordance with Section 2.16(a)(v) of the Credit
Agreement.
Very truly yours,
WILLIAMS HOLDINGS OF DELAWARE, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
cc: Citicorp North America, Inc.
1200 Smith Street, Suite 2000
Houston, Texas 77002
Attn: The Williams Companies, Inc.
Account Officer
Page B-2-2
<PAGE> 82
EXHIBIT C
January ___, 1999
To each of the Banks parties to the Amended
and Restated Credit Agreement, dated as of
January 26, 1999, by and among
Williams Holdings of Delaware, Inc.,
the Banks parties thereto and Citibank, N.A.,
as Agent for the Banks
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.1(d) of the
Amended and Restated Credit Agreement, dated as of January 26, 1999 (the "Credit
Agreement"), by and among Williams Holdings of Delaware, Inc., a Delaware
corporation (the "Borrower"), the Banks parties thereto and Citibank, N.A., as
Agent for the Banks. Terms defined in the Credit Agreement are used herein as
therein defined.
I am General Counsel of TWC, and I have acted as counsel for the
Borrower in connection with the preparation, execution and delivery of the
Credit Agreement and the A Notes.
In that connection, either I or the attorneys acting under my
supervision have examined:
(1) Original counterparts of the Credit Agreement executed by the
Agent and the Borrower and the ___ original A Notes dated
January 26, 1999 executed by the Borrower ("Executed Notes").
(2) The documents furnished by the Borrower pursuant to Section
3.1 of the Credit Agreement.
(3) The Certificate of Incorporation of the Borrower and all
amendments thereto (the "Charter" of the Borrower).
(4) The by-laws of the Borrower and all amendments thereto (the
"By-laws").
(5) Certificates of the Secretary of State of the State of
Delaware, dated ____________, 1999, attesting to the continued
corporate existence and good standing of the Borrower in that
State.
I have also examined the originals, or copies certified to my
satisfaction, of such corporate records of the Borrower, certificates of public
officials and of officers of the Borrower, and agreements, instruments, and
other documents, as I have deemed necessary as a basis for the
<PAGE> 83
_______________________, 1999
Page 2
opinions expressed below. As to questions of fact material to such opinions, I
have, when relevant facts were not independently established by me, relied upon
certificates of officers of the Borrower or of public officials. I have assumed
(i) the genuineness of all signatures of the Banks and the Agent, (ii) the
capacity of the signing officers of each of the Banks and the Agent, (iii) the
authenticity of all documents submitted to me as original and the conformity
with the authentic originals of all documents submitted to me as copies and (iv)
the due execution and delivery, pursuant to due authorization, of the Credit
Agreement by the Banks and the Agent and the enforceability (subject to
limitations on enforceability of the types referred to in paragraphs (a) through
(c) of this opinion) of the Credit Agreement against the Banks and the Agent.
Based upon the following and upon such investigation as I have deemed
necessary, I am of the following opinion:
(1) The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(2) The execution, delivery, and performance by the Borrower of
the Credit Agreement, the Executed Notes executed by the
Borrower, and the Notes to be executed by the Borrower and the
consummation of the transactions contemplated by the Credit
Agreement are within the Borrower's corporate powers, (a) have
been duly authorized by all necessary corporate action, (b) do
not contravene (i) the Charter or the By-laws of the Borrower,
(ii) any law, rule, or regulation applicable to the Borrower
(including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System) or (iii) any
contractual or legal restriction and (c) will not result in or
require the creation or imposition of any Lien prohibited by
the Credit Agreement. With respect to the Notes to be executed
after the date hereof by the Borrower, this opinion is limited
to the law, the Charter and By-laws of the Borrower and
restrictions in effect on the date hereof. The Credit
Agreement has been duly executed and delivered by the Borrower
and the Executed Notes have been duly executed and delivered
by the Borrower. The Borrower has duly executed and delivered
to the Agent an A Note payable to each Bank.
(3) No authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery, and
performance by the Borrower of the Credit Agreement and the
respective Notes or the consummation of the transactions
contemplated by the Credit Agreement, except in the case of
such performance for (A) such authorizations, approvals,
actions, notices, and filings which have been made or obtained
and (B) such authorizations, approvals, actions, notices, and
filings that are required by the terms of the Credit Agreement
(such as filings made under the Securities Exchange
Page C-2
<PAGE> 84
_______________________, 1999
Page 3
Act of 1934) which would not customarily be made or obtained
prior to the time when they are required.
(4) Each of the Executed Notes executed by, and the other Notes
when funded and when executed and delivered by, the Borrower
and the Credit Agreement constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms.
(5) Except as set forth in the Public Filings, to my knowledge
there are no pending or overtly threatened actions or
proceedings against the Borrower or any of its Subsidiaries
before any court, governmental agency or arbitrator that
purport to affect the legality, validity, binding effect, or
enforceability of the Credit Agreement or any of the Notes or
that could reasonably be expected to have a materially adverse
effect upon the financial condition or operations of the
Borrower and its Subsidiaries, taken as a whole.
(6) The Borrower is not an "investment company" or a company
"controlled" by an "investment company" within the meaning off
the Investment Company Act of 1940, as amended. 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.
(7) In any action or proceeding arising out of or relating to the
Credit Agreement or any of the Notes in any court of the State
of Oklahoma or in any Federal court sitting in the State of
Oklahoma, assuming (i) proper venue, jurisdiction, and a full
and proper presentation of the issue and the law to the court,
(ii) such action or proceeding is not dismissed on the basis
of an inconvenient forum and (iii) that the court properly
applies Oklahoma law, such court would (a) recognize and give
effect to the provisions of Section 8.7 of the Credit
Agreement and (b) construe the Credit Agreement and the Notes
in accordance with the internal laws of the State of New York.
Subject to the foregoing and without limiting the generality
thereof, a court of the State of Oklahoma or a Federal court
sitting in the State of Oklahoma would apply the usury law of
the State of New York, and would not apply the usury law of
the State of Oklahoma, to the Credit Agreement and the Notes.
However, if a court were to hold that the Credit Agreement or
any of the Notes are governed by, or to be construed in
accordance with, the laws of the State of Oklahoma, the Credit
Agreement, the Executed Notes, and the other Notes, when
executed, delivered and funded, would be, under the laws of
the State of Oklahoma, legal, valid and binding obligations of
the Borrower signatory thereto and enforceable against the
Borrower in accordance with their respective terms.
Page C-3
<PAGE> 85
_______________________, 1999
Page 4
The opinions set forth above are subject to the following
qualifications:
(a) My opinions in paragraph 4 above and my opinion in the last
sentence of paragraph 7 above are subject, insofar as
enforceability is concerned, to the effect of any applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar law affecting creditors' rights and
remedies generally.
(b) My opinions in paragraph 4 above and my opinion in the last
sentence of paragraph 7 above are subject, insofar as
enforceability is concerned, to the effect of general
principles of equity including principles of commercial
reasonableness, good faith, and fair dealing (regardless of
whether considered in a proceeding in equity or at law).
(c) I express no opinion with respect to the enforceability of any
of the following: (i) indemnification provisions to the extent
the same are violative of federal or state securities laws,
rules, or regulations or of public policy, (ii) clauses
waiving right to trial by jury, exculpation clauses, or
clauses granting offset rights to the Banks or against any
deposits or in respect of matured claims, (iii) clauses
relating to recovery of attorneys' fees in connection with the
enforcement of obligations, (iv) clauses relating to release
of unmatured claims, integration clauses to the effect that no
representation was made other than as appears in the Credit
Agreement, (v) clauses purporting to waive unmatured rights,
representations, warranties or affirmative or negative
covenants to the extent such representations, warranties, or
covenants can be construed to be independent clauses which
purport to be legal, valid, binding, and enforceable by
themselves, as distinguished from being clauses that trigger
an event of default, and severability and similar clauses, and
(vi) clauses that incorporate by reference a document or
instrument or agreement not in existence on the date hereof to
the extent that any such document, instrument, or agreement is
the basis of an effort to enforce the Notes or Credit
Agreement, insofar as any of the foregoing are contained in
the Credit Agreement or the Notes.
(d) I express no opinion as to the effect on the opinions herein
stated of compliance or non-compliance by any Bank with any
applicable state, federal, or other laws or regulations
applying only to banks, or the legal or regulatory status of
any Bank.
(e) My opinion in paragraph 4 above and my opinion in paragraph 7
above assumes (i) application of New York law would not be
found to be contrary to a fundamental policy of a state with a
materially greater interest in determining the question
presented and the laws of which would govern in absence of an
effective choice of law, (ii) Citibank, N.A. has a place of
business located in the State of New York and (iii) the
Borrower is required to perform a part of its obligations
relating to the
Page C-4
<PAGE> 86
_______________________, 1999
Page 5
transaction contemplated by the Credit Agreement, such as
delivery of payment, in the State of New York.
(f) [I am admitted to practice law in the State of Oklahoma and
the State of New York, and, accordingly, the opinions
expressed herein are based upon and limited exclusively to the
laws of the State of Oklahoma, the laws of the State of New
York, the General Corporation Law of the State of Delaware and
the laws of the United States of America insofar as any of
such laws are applicable. I render no opinion with respect to
any other laws [except the laws of Utah, insofar as such laws
are applicable to the matters opined upon herein. In giving
the opinions expressed herein as to the laws of the State of
Utah, I have, with your approval and without independent
investigation, relied solely upon attorneys acting under my
supervision admitted to practice law in that State].
(g) My opinion in paragraph 1 above as to the due qualification
and good standing of the Borrower is based solely on
certificates, dated as of _______________, 1999 from the
Secretary of State of the State of Delaware certifying as to
such matters.
This opinion is solely for the benefit of the Banks and the Agent,
their respective successors, assigns, participants, and other transferees and
counsel for the Persons referred to in this sentence, and may be relied upon
only by such Persons and such counsel. This opinion speaks as of its date, and I
undertake no, and hereby expressly disclaim any, duty to advise you as to any
changes of fact or law coming to my attention after the date hereof.
Very truly yours,
William G. von Glahn
Page C-5
<PAGE> 87
EXHIBIT D
January _____, 1999
To each of the Banks party to the
Credit Agreement described below and
Citibank, N.A., as Agent
Ladies and Gentlemen:
We have acted as special counsel to Citibank, N.A., acting for itself
and as Agent, in connection with the preparation, execution and delivery of the
Amended and Restated Credit Agreement, dated as of January ____, 1999 (the
"Credit Agreement"), by and among Williams Holdings of Delaware, Inc., a
Delaware corporation (the "Borrower"), and each of you. Terms defined in the
Credit Agreement are used herein as therein defined.
In that connection, we have examined the following documents:
(1) Counterparts of the Credit Agreement, executed by the
Agent and the Borrower, respectively.
(2) The documents furnished by the Borrower pursuant to
Section 3.1 of the Credit Agreement and listed on Annex A hereto,
including the opinion of William G. von Glahn ("Opinion").
In our examination of the documents referred to above, we have assumed
(i) the authenticity of all such documents submitted to us as originals, (ii)
the genuineness of all signatures and (iii) the conformity to the originals of
all such documents submitted to us as copies. We have also assumed the accuracy
of all matters set forth in the certificates referred to on Annex A hereto and
assumed that the Borrower, the Banks and the Agent have duly executed and
delivered, with all necessary power and authority (corporate and otherwise), the
Credit Agreement and that the Borrower has duly executed and delivered, with all
necessary power and authority (corporate and otherwise), the respective A Notes.
We have also assumed that no Bank has requested that the opinion required by
Section 3.1(d) of the Credit Agreement contain any matter not contained in the
form of opinion set forth as Exhibit C to the Credit Agreement.
Based upon the foregoing examination of documents and assumptions and
upon such other investigation as we have deemed necessary, we are of the opinion
that the Opinion and the other documents referred to in item (2) above are
substantially responsive to the requirements of the Credit Agreement.
This opinion (i) is furnished solely for the benefit of the Banks, the
Agent, their respective successors, assigns, participants and other transferees
and solely in connection with the transactions described above and (ii) may not
be relied upon by, or communicated to, any other Person or for any
<PAGE> 88
other purpose, nor may it be quoted, circulated or published or made public, in
whole or in part, or furnished, without our prior written consent, to any
Person. This opinion is rendered as of the date hereof, and we express no
opinion as to, and disclaim any undertaking or obligation to update this opinion
in respect of changes in laws or interpretations thereof or in circumstances or
events that occur subsequent to this date.
Very truly yours,
Mayer, Brown & Platt
Page D-2
<PAGE> 89
ANNEX A
(1) The respective A Notes dated January _____, 1999 of the Borrower
payable to the order of the respective Banks.
(2) Certified copies of resolutions of the Board of Directors of the
Borrower pertaining to the Credit Agreement and the Notes.
(3) A certificate of the Secretary or an Assistant Secretary of the
Borrower certifying (a) the names and the signatures of officers of the
Borrower authorized to sign the Credit Agreement and the respective
Notes of the Borrower and (b) copies of the Certificate of
Incorporation and Bylaws of the Borrower.
(4) The opinion of William G. von Glahn, Esq., substantially in the form of
Exhibit C to the Credit Agreement.
(5) 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 January ____, 1999.
Page D-3
<PAGE> 90
EXHIBIT E
RESTRICTIONS DESCRIBED IN
PARAGRAPH 5.2(d) OF THE CREDIT AGREEMENT
None.
<PAGE> 91
EXHIBIT F
TRANSFER AGREEMENT
This Transfer Agreement, dated as of ___________________ (this
"Agreement"), is made by and among (a) Williams Holdings of Delaware, Inc., a
Delaware corporation ("Borrower"); (b) Citibank, N.A., as Agent for the banks
party to the Amended and Restated Credit Agreement, dated as of January 26, 1999
(as may be amended from time to time, the "Credit Agreement"), by and among the
Borrower, such Agent and such banks; (c) ___________________ ("Assignor") and
(d) _______________ ("Assignee"). In consideration of the mutual covenants
herein contained, the parties hereto agree as set forth herein.
1. Transfer. Pursuant to the last sentence of Section 8.6(a) of the
Credit Agreement, Assignor hereby assigns to Assignee (without representation or
warranty to Assignee and without Assignee having recourse against Assignor as a
result of such assignment), and Assignee hereby assumes, a constant ____% of
each of the Assignor's Commitments (such term used throughout this Agreement
without giving effect to any B Reduction) to the Borrower under the Credit
Agreement, such assignment from Assignor to Assignee being [all of Assignor's
Commitments to the Borrower][$___________ of Assignor's $____________ Commitment
to the Borrower] (the amount of such Commitment to the Borrower so assigned is
called the "Assigned Portion" of such Commitment). [The Assignee is already a
Bank under the Credit Agreement with a Commitment of $___________ to the
Borrower prior to the assumption contemplated hereby.] [The Assignee is hereby
approved by the Agent [and the Borrower] for purposes of the assignment and
assumption contemplated hereby.] As contemplated by such Section 8.6, it is
hereby agreed that:
(i) the Assignor is hereby released from all of its obligations
under the Credit Agreement with respect to or arising as a
result of the Assigned Portions of its Commitment assigned
hereby;
(ii) the Assignee hereby becomes obligated for the Assigned
Portions of such Commitment and all other obligations of the
Assignor (including, without limitation, obligations to the
Agent under Section 7.5 of the Credit Agreement or otherwise)
under the Credit Agreement with respect to or arising as a
result of the Assigned Portions of such Commitments;
(iii) the Assignee is hereby assigned the right to vote or consent
under the Credit Agreement and the other rights and
obligations of the Assignor under the Credit Agreement, in
each case to the extent of the Assigned Portions of such
Commitment;
(iv) The Borrower, contemporaneously with its execution and
delivery hereof, will deliver, in replacement of the A Note of
the Assignor currently outstanding [(and in replacement of
Assignee's existing $___________ A Note)] (a) to the Assignee,
a new A Note in the amount of $____________ [(and the Assignee
agrees to cancel and return to the Borrower, with reasonable
promptness following such delivery, the
<PAGE> 92
A Note of the Assignee being replaced thereby)], (b) to the
Assignor, a new A Note in the amount of $____________ (and the
Assignor agrees to cancel and return to the Borrower, with
reasonable promptness following delivery of such new A Note,
the A Note of the Assignor being replaced thereby), and (c) to
the Agent, photocopies of all such new A Notes and of all such
canceled A Notes;
[(v) inasmuch as there are currently no outstanding A Advances, no
transfer of A Advances is hereby made];
[(vi) $__________ of the Assignor's outstanding A Advances to the
Borrower are hereby transferred to the Assignee, which amounts
represent [the aggregate amount of all of the Assignor's
outstanding A Advances to the Borrower respectively,] [the
amount of the assigned portions of the outstanding A Advances
of the Assignor to the Borrower being hereby assigned to
Assignee a portion of each such A Advance with the assigned
portion of each such A Advance being equal to the amount of
such A Advance multiplied by a fraction, the numerator of
which is the amount of the Assignor's Commitments assumed
hereby by the Assignee and the denominator of which is the
amount of the Assignor's Commitments (without giving effect to
any B Reduction) immediately prior to such assumption]; [and]
(vii) the Assignee hereby confirms that it is a party to the Credit
Agreement as a Bank and agrees that after giving effect to
this Agreement its Commitments will be $_______________ to the
Borrower; [and]
(viii) the Assignee hereby specifies the following offices as its
Applicable Lending Offices under the Credit Agreement:
<TABLE>
<CAPTION>
Domestic Eurodollar
Lending Office Lending Office
-------------- --------------
<S> <C>
Attention: Attention:
-------------- ----------------
Telephone: Telephone:
-------------- ----------------
Telecopy: Telecopy:
--------------- -----------------
Answerback: Answerback:
------------- ---------------
</TABLE>
[(ix) the Assignee hereby specifies the following as its address for
notices and communications under the Credit Agreement:
<TABLE>
<CAPTION>
[Assignee]
<S> <C>
Attention:
------------------------
Telephone:
------------------------
Telecopy:
-------------------------
Answerback: ]
-----------------------
</TABLE>
Page F-2
<PAGE> 93
2. Miscellaneous.
2.1 Amendments, Etc. This Agreement shall not be amended,
waived or otherwise modified except in writing executed by the parties hereto.
2.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
2.3 Definitions. Capitalized terms used herein which are
defined in the Credit Agreement and not defined herein are used herein as
defined in the Credit Agreement.
2.4 Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
2.5 Effective Date. This Agreement shall be effective as of
the date first above written for purposes of computation of commitment fees
under the Credit Agreement and for all other relevant purposes.
2.6 Assignee Credit Decision. The Assignee acknowledges that
it has, independently and without reliance upon the Agent or any other Bank and
based on such financial statements and such other documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. The Assignee also acknowledges that it will, independently
and without reliance upon the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under any Note, the
Credit Agreement or this Agreement.
2.7 Indemnity. The Assignee agrees to indemnify and hold the
Assignor harmless against any and all losses, costs and expenses (including
without limitation reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's
performance or non-performance of obligations assumed by Assignee under this
Agreement.
Page F-3
<PAGE> 94
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.
[NAME OF ASSIGNEE] WILLIAMS HOLDINGS OF DELAWARE, INC.
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
[NAME OF ASSIGNOR] CITIBANK, N.A., AS AGENT
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
Page F-4
<PAGE> 1
EXHIBIT 4(f)
- --------------------------------------------------------------------------------
MAPCO, INC.
WILLIAMS HOLDINGS OF DELAWARE, INC.
AND
BANKERS TRUST COMPANY
TRUSTEE
--------------------------------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 31, 1998
- --------------------------------------------------------------------------------
SUPPLEMENTING THE INDENTURE DATED AS OF
MARCH 31, 1990
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental Indenture"),
dated as of March 31, 1998, by and among MAPCO, Inc. ("MAPCO"), a Delaware
corporation, Williams Holdings of Delaware, Inc. ("WHD"), a Delaware
corporation, and Bankers Trust Company, a New York banking corporation, as
Trustee (the "Trustee").
WITNESSETH:
WHEREAS, MAPCO and the Trustee have entered into an Indenture dated as
of March 31, 1990 (the "Indenture"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of
November 23, 1997 by and among MAPCO, The Williams Companies, Inc. ("Williams")
and TML Acquisition Corp., a wholly-owned subsidiary of Williams ("Sub"), Sub
has been merged into MAPCO; and
WHEREAS, effective as of the date hereof, the stock of MAPCO has been
transferred to WHD, a wholly-owned subsidiary of Williams and all of the
outstanding capital stock of MAPCO Petroleum, Inc. and MAPCO Natural Gas Liquids
Inc. have been sold by MAPCO to WHD; and
WHEREAS, Section 9.01 of the Indenture permits MAPCO and the Trustee to
amend or supplement the Indenture without notice to or the consent of any Holder
of Securities (as defined) to comply with Article Five of the Indenture;
WHEREAS, Article Five of the Indenture requires, in the event of
a transfer of MAPCO's properties and assets substantially as an entirety, that
the successor to such assets expressly assume, by supplemental indenture, all of
MAPCO's obligations in respect of the Indenture;
WHEREAS, MAPCO Petroleum, Inc and MAPCO Natural Gas Liquids, Inc.
together constitute MAPCO's properties and assets substantially as an entirety.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and in the Indenture and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
MAPCO, WHD, and the Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms which are used but not
defined herein shall have the meanings ascribed to such terms in the Indenture.
1
<PAGE> 3
Section 2. Assumption of Certain Obligations.
(a) WHD hereby expressly assumes (i) the due and punctual payment
of the principal of, premium, if any, on, interest on, and any additional
amounts payable under the Indenture in respect of, the Indenture and (ii) the
performance of all of the covenants provided for in the Indenture to be
performed or observed by MAPCO.
(b) MAPCO and the Trustee hereby acknowledge that WHD shall
succeed to, and be substituted for, and may exercise every right and power of,
MAPCO under the Indenture with the same effect as if WHD had been named therein.
Section 3. Effect of First Supplemental Indenture. From and after the
execution and delivery of this First Supplemental Indenture, the Indenture shall
be deemed to be modified as herein provided, but except as modified hereby, the
Indenture shall continue in full force and effect. The Indenture as modified
hereby shall be read, taken and construed as one and the same instrument.
Section 4. Notice. Any notice or communication by the Trustee to WHD is
duly given if in writing and delivered in person or by express mail service to
the address set forth below:
Williams Holdings of Delaware, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Treasurer
Section 5. Governing Law. This First Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws) as to all matters, including, without limitation, matters
of validity, construction, effect, performance and remedies.
Section 6. Counterparts. This First Supplemental Indenture may be
executed in any number of counterparts, each of which, when so executed and
delivered, shall be an original, but such counterparts shall together constitute
but one and the same instrument.
2
<PAGE> 4
IN WITNESS WHEREOF, each of MAPCO, WHD and the Trustee has caused this
first Supplemental Indenture to be executed on its behalf by its duly authorized
officer and has caused its official seal to be impressed hereon and attested by
one of its duly authorized officers, all as of the day and year first above
written.
[SEAL] MAPCO, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ PHILLIP D. WRIGHT
- -------------------------------- --------------------------------
Name: Shawna L. Gehres Name: Phillip D. Wright
Title: Assistant Secretary Title: Senior Vice President
[SEAL] WILLIAMS HOLDINGS OF DELAWARE, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ JAMES G. IVEY
- -------------------------------- --------------------------------
Name: Shawna L. Gehres Name: James G. Ivey
Title: Assistant Treasurer Title: Treasurer
[SEAL] BANKERS TRUST COMPANY, AS TRUSTEE
Attest
/s/ MARC PARILLA By: /s/ SUSAN JOHNSON
- -------------------------------- --------------------------------
Name: Marc Parilla Name: Susan Johnson
Title: Assistant Treasurer Title: Assistant Vice President
3
<PAGE> 1
EXHIBIT 4(j)
- --------------------------------------------------------------------------------
MAPCO, INC.
WILLIAMS HOLDINGS OF DELAWARE, INC.
AND
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
--------------------------------
THIRD SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 31, 1998
- --------------------------------------------------------------------------------
SUPPLEMENTING THE INDENTURE DATED AS OF
FEBRUARY 25, 1997, AS AMENDED
<PAGE> 2
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE (the "Third Supplemental Indenture"),
dated as of March 31, 1998, by and among MAPCO, Inc. ("MAPCO"), a Delaware
corporation, Williams Holdings of Delaware, Inc. ("WHD"), a Delaware
corporation, and The First National Bank of Chicago, a national banking
association, as Trustee (the "Trustee")
WITNESSETH:
WHEREAS, MAPCO and the Trustee have entered into an Indenture dated as
of February 25, 1997, as amended by a Supplemental Indenture No. 1 dated March
5, 1997, and a Supplemental Indenture No. 2 dated March 5, 1997 (the
"Indenture"), pursuant to which Indenture MAPCO has issued certain 7.25% Notes
due 2009 and 7.70% Debentures due 2027 (collectively, the "Notes"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of
November 23, 1997 by and among MAPCO, The Williams Companies, Inc. ("Williams")
and TML Acquisition Corp., a wholly-owned subsidiary of Williams ("Sub"), Sub
has been merged into MAPCO; and
WHEREAS, effective as of the date hereof, the stock of MAPCO has been
transferred to WHD, a wholly-owned subsidiary of Williams and all of the
outstanding capital stock of MAPCO Petroleum, Inc. and MAPCO Natural Gas
Liquids, Inc. have been sold by MAPCO to WHD;
WHEREAS, MAPCO Petroleum, Inc., MAPCO Natural Gas Liquids, Inc.
together constitute MAPCO's properties and assets substantially as an entirety;
and
WHEREAS, Section 8.1 of the Indenture permits the Trustee and MAPCO to
enter into indentures supplemental to evidence succession of another person to
MAPCO and the assumption by such successor of the covenants and obligations of
MAPCO under the Indenture.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and in the Indenture and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
MAPCO,WHD, and the Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms which are used but not
defined herein shall have the meanings ascribed to such terms in the Indenture.
<PAGE> 3
Section 2. Assumption of Certain Obligations.
(a) WHD hereby expressly assumes (i) the due and punctual payment
of the principal of, premium, if any, on, interest on, and any additional
amounts payable under the Indenture in respect of, the Notes and (ii) the
performance of all of the covenants provided for in the Indenture to be
performed or observed by MAPCO.
(b) MAPCO and the Trustee hereby acknowledge that WHD shall
succeed to, and be substituted for, and may exercise every right and power of,
MAPCO under the Indenture with the same effect as if WHD had been named therein.
Section 3. Effect of Third Supplemental Indenture. From and after the
execution and delivery of this Third Supplemental Indenture, the Indenture shall
be deemed to be modified as herein provided, but except as modified hereby, the
Indenture shall continue in full force and effect. The Indenture as modified
hereby shall be read, taken and construed as one and the same instrument.
Section 4. Notice. Any notice or communication by the Trustee to WHD is
duly given if in writing and delivered in person or by express mail service to
the address set forth below:
Williams Holdings of Delaware, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Treasurer
Section 5. Governing Law. This Third Supplemental Indenture shall be
governed by and construed in accordance with the laws bf the State of New York
(regardless of the laws that might otherwise govern underapplicable principles
of conflicts of laws) as to all matters, including, without limitation, matters
of validity, construction, effect, performance and remedies.
Section 6. Counterparts. This Third Supplemental Indenture may be
executed in any number of counterparts, each of which, when so executed.and
delivered, shall be an original, but such counterparts shall together constitute
but one and the same instrument.
-2-
<PAGE> 4
IN WITNESS WHEREOF, each of MAPCO, WHD and the Trustee has caused this
Third Supplemental Indenture to be executed on its behalf by its duly authorized
officer and has caused its official seal to be impressed hereon and attested by
one of its duly authorized officers, all as of the day and year first above
written.
[SEAL] MAPCO, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ PHILLIP D. WRIGHT
- -------------------------------- --------------------------------
Name: Shawna L. Gehres Name: Phillip D. Wright
Title: Assistant Secretary Title: Senior Vice President
[SEAL] WILLIAMS HOLDINGS OF DELAWARE, INC.
Attest
/s/ DAVID M. HIGBEE By: /s/ JAMES G. IVEY
- -------------------------------- --------------------------------
Name: David M. Higbee Name: James G. Ivey
Title: Secretary Title: Treasurer
[SEAL] THE FIRST NATIONAL BANK OF CHICAGO,
AS TRUSTEE
Attest
/s/ ANN LONGINO By: /s/ JOHN R. PRENDIVILLE
- -------------------------------- --------------------------------
Name: Ann Longino Name: John R. Prendiville
Title: Trust Officer Title: Vice President
-3-
<PAGE> 1
EXHIBIT 12
WILLIAMS HOLDINGS OF DELAWARE, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations before extraordinary
loss and income taxes $ 4.6 $ 455.1 $ 529.6 $ 372.3 $ 258.4
Add:
Interest expense-net 155.3 113.2 89.3 89.5 74.6
Rental expense representative
of interest factor 26.0 20.2 11.9 18.7 11.0
Preferred dividends of
subsidiaries -- -- -- 5.4 --
Minority interest (income) loss of
consolidated subsidiaries (12.0) 18.2 1.4 2.3 1.6
Interest accrued--50% owned company 6.1 -- -- -- --
Other 16.5 (.4) 3.3 3.1 3.3
-------- -------- -------- -------- --------
Total earnings as adjusted plus
fixed charges $ 196.5 $ 606.3 $ 635.5 $ 491.3 $ 348.9
======== ======== ======== ======== ========
Combined fixed charges:
Interest expense-net $ 155.3 $ 113.2 $ 89.3 $ 89.5 $ 74.6
Capitalized interest 26.6 19.3 4.8 11.5 4.7
Rental expense representative
of interest factor 26.0 20.2 11.9 18.7 11.0
Pretax effect of dividends on
preferred stock of subsidiaries -- -- -- 7.7 --
Interest accrued--50% owned company 6.1 -- -- -- --
-------- -------- -------- -------- --------
Total fixed charges $ 214.0 $ 152.7 $ 106.0 $ 127.4 $ 90.3
======== ======== ======== ======== ========
Ratio of earnings to fixed
charges -- (1) 3.97 6.00 3.86 3.86
======== ======== ======== ======== ========
</TABLE>
(1) Earnings were insufficient to cover fixed charges by approximately $17.5
million for the year ended December 31, 1998.
<PAGE> 1
EXHIBIT 23(a)
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 in the related
prospectuses of our report dated February 26, 1999, except for Note 20, as to
which the date is March 18, 1999, with respect to the consolidated financial
statements and schedule of Williams Holdings of Delaware, Inc. included in this
Annual Report (Form 10-K) for the year ended December 31, 1998.
Form S-3: Registration No. 333-20927
Registration No. 333-24683
Registration No. 333-35097
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 26, 1999
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statements
of Williams Holdings of Delaware, Inc. shown below of our report dated
January 27, 1998 (March 3, 1998, as to Notes 2 and 16 to the MAPCO Inc.
consolidated financial statements) with respect to the consolidated financial
statements of MAPCO Inc., which report includes explanatory paragraphs relating
to certain litigation to which MAPCO Inc. is a defendant and the change in its
method of accounting for business process reengineering activities to conform to
the consensus reached by the Emerging Issues Task Force in Issue No. 97-13,
appearing in this Annual Report of Williams Holdings of Delaware, Inc. on Form
10-K for the year ended December 31, 1998.
Form S-3: Registration No. 333-20927
Registration No. 333-24683
Registration No. 333-35097
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Tulsa, Oklahoma
March 26, 1999
<PAGE> 1
EXHIBIT 24
WILLIAMS HOLDING 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 HOLDING OF DELAWARE, INC., a
Delaware corporation ("WHD"), does hereby constitute and appoint WILLIAM G. VON
GLAHN, SHAWNA L. GEHRES AND REBECCA H. HILBORNE their true and lawful attorneys
and each of them (with full power to act without the other) 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, 1998, 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, SHAWNA L. GEHRES AND REBECCA H. HILBORNE its true and lawful
attorneys and each of them (with full power to act without the other) 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, 1999.
/s/ Keith E. Bailey /s/ Jack S. McCarthy
------------------- --------------------
Keith E. Bailey Jack D. McCarthy
Chairman of the Board Senior Vice President
President, Chief Executive and Director
Officer, and Director (Principal Financial Officer)
(Principal Executive Officer)
<PAGE> 2
/s/ Gary R. Belitz
------------------
Gary R. Belitz
Controller
(Principal Accounting Officer)
/s/ John C. Bumgarner, Jr. /s/ Steven J. Malcolm
-------------------------- ---------------------
John C. Bumgarner, Jr. Steven J. Malcolm
Director Director
/s/ Howard E. Janzen
--------------------
Howard E. Janzen
Director
WILLIAMS HOLDING OF DELAWARE, INC.
By /s/ William G. von Glahn
------------------------
William G. von Glahn
Senior Vice President
ATTEST:
/s/ Shawna L. Gehres
--------------------
Shawna L. Gehres
Secretary
<PAGE> 3
WILLIAMS HOLDINGS OF DELAWARE, INC.
I, the undersigned, Shawna L. Gehres, Secretary of WILLIAMS HOLDINGS OF
DELAWARE, INC., a Delaware company (hereinafter called the "Company"), 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, 1999, to the following:
RESOLVED that the Chairman of the Board, the President or any
Vice President of the Company be, and each of them hereby is,
authorized and empowered to execute a Power of Attorney for use in
connection with the execution and filing, for and on behalf of the
Company, under the Securities Exchange Act of 1934, of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
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 11th day of March 1999.
/s/ Shawna L. Gehres
--------------------
Shawna L. Gehres
Secretary
[CORPORATE SEAL]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 109,673
<SECURITIES> 0
<RECEIVABLES> 1,520,627
<ALLOWANCES> 29,839
<INVENTORY> 384,190
<CURRENT-ASSETS> 2,595,157
<PP&E> 7,405,265
<DEPRECIATION> 1,941,245
<TOTAL-ASSETS> 11,850,637
<CURRENT-LIABILITIES> 3,235,173
<BONDS> 1,968,609
0
0
<COMMON> 1
<OTHER-SE> 3,923,640
<TOTAL-LIABILITY-AND-EQUITY> 11,850,637
<SALES> 0
<TOTAL-REVENUES> 5,942,608
<CGS> 0
<TOTAL-COSTS> 5,752,741
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 39,827
<INTEREST-EXPENSE> 181,884
<INCOME-PRETAX> 4,562
<INCOME-TAX> 14,909
<INCOME-CONTINUING> (10,347)
<DISCONTINUED> (14,300)
<EXTRAORDINARY> (4,762)
<CHANGES> 0
<NET-INCOME> (29,409)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE AMOUNTS HAVE BEEN RESTATED FOR THE ACQUISITION OF MAPCO INC., WHICH WAS
ACCOUNTED FOR AS A POOLING OF INTERESTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 173 165 121
<SECURITIES> 0 0 0
<RECEIVABLES> 855 1,051 1,204
<ALLOWANCES> 10 11 11
<INVENTORY> 221 288 320
<CURRENT-ASSETS> 1,499 1,785 1,969
<PP&E> 5,481 5,715 6,013
<DEPRECIATION> 1,544 1,595 1,647
<TOTAL-ASSETS> 7,257 8,032 8,439
<CURRENT-LIABILITIES> 1,350 1,431 2,157
<BONDS> 1,491 1,982 1,561
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 3,301 3,368 3,443
<TOTAL-LIABILITY-AND-EQUITY> 7,257 8,032 8,439
<SALES> 0 0 0
<TOTAL-REVENUES> 1,459 2,946 4,638
<CGS> 0 0 0
<TOTAL-COSTS> 1,302 2,666 4,226
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 1 2 7
<INTEREST-EXPENSE> 26 60 95
<INCOME-PRETAX> 195 318 406
<INCOME-TAX> 70 97 132
<INCOME-CONTINUING> 125 221 275
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 125 221 275
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE AMOUNTS HAVE BEEN RESTATED FOR THE ACQUISITION OF MAPCO INC., WHICH WAS
ACCOUNTED FOR AS A POOLING OF INTERESTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 59 59 85
<SECURITIES> 0 0 0
<RECEIVABLES> 880 855 872
<ALLOWANCES> 15 16 17
<INVENTORY> 211 255 241
<CURRENT-ASSETS> 1,706 1,670 1,489
<PP&E> 5,017 5,113 5,297
<DEPRECIATION> 1,424 1,471 1,514
<TOTAL-ASSETS> 6,764 6,632 6,628
<CURRENT-LIABILITIES> 1,474 1,258 1,272
<BONDS> 1,257 1,305 1,235
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 2,958 2,975 3,018
<TOTAL-LIABILITY-AND-EQUITY> 6,764 6,632 6,628
<SALES> 0 0 0
<TOTAL-REVENUES> 1,164 2,356 3,585
<CGS> 0 0 0
<TOTAL-COSTS> 1,003 2,072 3,173
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 1 1 1
<INTEREST-EXPENSE> 22 44 69
<INCOME-PRETAX> 157 255 363
<INCOME-TAX> 57 87 121
<INCOME-CONTINUING> 100 169 242
<DISCONTINUED> 8 (31) (33)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 108 138 210
<EPS-PRIMARY> 0.00 0.00 0.00
<EPS-DILUTED> 0.00 0.00 0.00
</TABLE>
<PAGE> 1
EXHIBIT 99
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
MAPCO Inc.:
We have audited the consolidated balance sheet of MAPCO Inc. and subsidiaries
as of December 31, 1997, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the two
years in the period ended December 31, 1997 (none of which are presented
herein). Our audits also included the financial statement schedules listed at
Item 14(a)2 in the MAPCO Inc. 1997 Annual Report on Form 10-K (not presented
herein). These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules 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 financial position of MAPCO Inc. and
subsidiaries at December 31, 1997, and the results of their operations
and their cash flows for each of the two years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As discussed in Note 16 to the MAPCO Inc. consolidated financial statements
(Note 17 to the consolidated financial statements of Williams Holdings of
Delaware, Inc.), MAPCO Inc. is a defendant in litigation relating to an LPG
explosion in April 1992, that occurred near an underground salt dome storage
facility located near Brenham, Texas.
Effective October 1, 1997, MAPCO Inc. changed its method of accounting for
business process reengineering activities to conform to the consensus reached
by the Emerging Issues Task Force in Issue No. 97-13.
Deloitte & Touche LLP
Tulsa, Oklahoma
January 27, 1998
(March 3, 1998, as to Notes 2 and 16 to the
MAPCO Inc. consolidated financial statements)
