PURSUANT TO RULE 424(b)(2)
REGISTRATION NO. 333-73326
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 27, 2001)
40,000,000 FELINE PACS(SM)
(INITIALLY CONSISTING OF 40,000,000 INCOME PACS(SM))
(WILLIAMS LOGO)
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The Williams Companies, Inc. is offering 40,000,000 FELINE PACS. The FELINE
PACS initially will consist of units referred to as Income PACS, each with a
stated amount of $25. Each Income PACS will include a purchase contract pursuant
to which you will agree to purchase from us for $25 on February 16, 2005 a
number of shares of our common stock equal to the settlement rate. If the
applicable market value of our common stock as of the settlement date is less
than or equal to the appreciation cap price of $41.25, the settlement rate will
be 1.0000 shares, which is the $25 stated amount of the FELINE PACS divided by
the closing price of our common stock on the date of this prospectus supplement.
If the applicable market value of our common stock as of the settlement date is
greater than the appreciation cap price of $41.25, the settlement rate will be
equal to 1.0000 shares multiplied by the quotient of the appreciation cap price
of $41.25 divided by the applicable market value of our common stock as of the
settlement date. Under each purchase contract we will make quarterly contract
adjustment payments at the rate of 2.50% of the stated amount per year, as
described in this prospectus supplement. Each Income PACS also will include $25
principal amount of our senior notes due February 16, 2007. The notes will bear
interest at a rate of 6.50% per year, which rate is expected to be reset on or
after November 16, 2004. The notes will not trade separately from the Income
PACS unless and until a permitted substitution is made. At any time after the
issuance of the Income PACS, a holder may substitute U.S. Treasury securities
for the notes, in accordance with the terms described in this prospectus
supplement. A FELINE PACS that consists of the purchase contract and a
substituted Treasury security is referred to as a "Growth PACS(SM)."
The Income PACS have been approved for listing on the New York Stock
Exchange, or NYSE, under the symbol "WMB PrI," subject to official notice of
issuance. On January 7, 2002, the last reported sale price of our common stock
on the NYSE was $25.00 per share.
INVESTING IN THE FELINE PACS INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT.
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PER
INCOME PACS TOTAL
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Public offering price(1).................................... $25.00 $1,000,000,000
Underwriting discount....................................... $.75 $30,000,000
Proceeds, before expenses, to The Williams Companies,
Inc. ..................................................... $24.25 $970,000,000
(1) Plus accrued interest and accumulated contract adjustment payments from
January 14, 2002, if settlement occurs after that date
The underwriters also may purchase up to an additional 6,000,000 Income PACS
at the public offering price less the underwriting discount within 30 days of
the date of this prospectus supplement, subject to certain limitations, in order
to cover overallotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The Income PACS will be ready for delivery in book-entry form only through
The Depository Trust Company on or about January 14, 2002.
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Joint Book-Running Managers
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
----------------------
BANC OF AMERICA SECURITIES LLC CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS MIZUHO INTERNATIONAL PLC
ABN AMRO ROTHSCHILD LLC BMO NESBITT BURNS BARCLAYS CAPITAL
CIBC WORLD MARKETS COMMERZBANK SECURITIES
CREDIT LYONNAIS SECURITIES (USA) INC.
RBC CAPITAL MARKETS THE ROYAL BANK OF SCOTLAND
SCOTIA CAPITAL TD SECURITIES
----------------------
The date of this prospectus supplement is January 7, 2002.
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"FELINE PACS," "Income PACS" and "Growth PACS" are service marks of Merrill
Lynch & Co., Inc.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-1
Recent Developments......................................... S-12
Risk Factors................................................ S-13
Disclosure About Forward-Looking Statements................. S-21
Use of Proceeds............................................. S-23
Price Range of Common Stock and Dividends................... S-24
Capitalization.............................................. S-25
Accounting Treatment........................................ S-26
Description of the FELINE PACS.............................. S-27
Description of the Purchase Contracts....................... S-31
Description of the Purchase Contract Agreement and the
Pledge Agreement.......................................... S-41
Description of the Notes.................................... S-45
Certain United States Federal Income Tax Consequences....... S-50
ERISA Considerations........................................ S-58
Underwriting................................................ S-59
Legal Matters............................................... S-62
PROSPECTUS
Where You Can Find More Information......................... 1
Incorporation of Certain Documents by Reference............. 1
The Williams Companies, Inc. ............................... 2
Use of Proceeds............................................. 2
Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividend Requirements............................... 3
Description of Debt Securities.............................. 3
Description of Preferred Stock.............................. 13
Description of Common Stock................................. 18
Description of Warrants..................................... 19
Description of Purchase Contracts........................... 20
Description of Units........................................ 20
Plan of Distribution........................................ 20
Experts..................................................... 21
Legal Matters............................................... 22
THE ACCOMPANYING PROSPECTUS IS PART OF A REGISTRATION STATEMENT WE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD RELY ONLY ON THE
INFORMATION WE HAVE PROVIDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE AND THE UNDERWRITERS HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT INFORMATION. WE
ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS ACCURATE ONLY AS OF THE DATE ON
THE FRONT OF THE DOCUMENT AND THAT ANY INFORMATION WE HAVE INCORPORATED BY
REFERENCE IS ACCURATE ONLY AS OF THE DATE OF THE DOCUMENT INCORPORATED BY
REFERENCE. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS MAY HAVE CHANGED SINCE THESE DATES.
In this prospectus supplement and the accompanying prospectus, unless we
otherwise specify or the context otherwise requires, references to "Williams,"
"we," "us" and "our" are to The Williams Companies, Inc. and its subsidiaries.
PROSPECTUS SUPPLEMENT SUMMARY
You should read the following summary in conjunction with the more detailed
information contained in this prospectus supplement, the accompanying prospectus
and the documents incorporated by reference.
THE WILLIAMS COMPANIES, INC.
Williams, together with its subsidiaries, is a leading company in the
energy sector. Through Williams Gas Pipeline Company, LLC, Williams Energy
Services, LLC, and Williams Energy Marketing & Trading Company and their
subsidiaries, Williams engages in the following types of energy-related
activities:
- transportation and storage of natural gas and related activities through
operation and ownership of five wholly owned interstate natural gas
pipelines and several pipeline joint ventures;
- exploration and production of oil and gas through ownership of 3.1
trillion cubic feet of proved natural gas reserves primarily located in
Colorado, New Mexico, Wyoming and Kansas;
- natural gas gathering, processing, and treating activities through
ownership and operation of approximately 11,450 miles of gathering lines,
12 natural gas treating plants, and 17 natural gas processing plants
(three of which are partially owned) located in the United States and
Canada;
- natural gas liquids transportation through ownership and operation of
approximately 14,300 miles of natural gas liquids pipeline (4,568 miles
of which are partially owned);
- transportation of petroleum products and related terminal services
through ownership or operation of approximately 9,170 miles of petroleum
products pipeline and 80 petroleum products terminals (some of which are
partially owned);
- light hydrocarbon/olefin transportation through 300 miles of pipeline in
Southern Louisiana;
- ethylene production through a 5/12 interest in a 1.2 billion pound/year
facility in Geismar, Louisiana;
- production and marketing of ethanol and bio-products through operation
and ownership of two ethanol plants (one of which is partially owned) and
ownership of minority interests or investments in four other plants;
- refining of petroleum products through operation and ownership of two
refineries;
- retail marketing primarily through 50 travel centers; and
- energy commodity marketing and trading.
Williams, through subsidiaries, also directly invests in energy projects
primarily in Canada, South America and Lithuania and continues to explore and
develop additional projects for international investments. In addition, Williams
invests in energy and infrastructure development funds in Asia and Latin
America.
Williams is a holding company headquartered in Tulsa, Oklahoma. Williams
was originally incorporated under the laws of the State of Nevada in 1949 and
was reincorporated under the laws of the State of Delaware in 1987. Williams
maintains its principal executive offices at One Williams Center, Tulsa,
Oklahoma 74172, telephone (918) 573-2000.
For a discussion of certain recent developments involving Williams, please
see "Recent Developments."
S-1
THE OFFERING -- Q&A
WHAT ARE FELINE PACS?
The FELINE PACS consist of units referred to as Income PACS and Growth
PACS. The FELINE PACS offered will initially consist of 40,000,000 Income PACS
(46,000,000 Income PACS if the underwriters exercise their over-allotment option
in full), each with a stated amount of $25. From each Income PACS, the holder
may create a Growth PACS, as described below.
WHAT ARE THE COMPONENTS OF INCOME PACS?
Each Income PACS will consist of a purchase contract and, initially, $25
principal amount of our 6.50% senior notes due 2007. You will own the note that
is a component of each Income PACS, but it will be pledged to us to secure your
obligations under the purchase contract. If the notes are successfully
remarketed or a tax event redemption occurs, in each case as described in this
prospectus supplement, your applicable ownership interest in the Treasury
portfolio will replace your note as a component of each Income PACS and will be
pledged to us to secure your obligations under the purchase contract.
WHAT IS A PURCHASE CONTRACT?
Each purchase contract underlying a FELINE PACS obligates the holder of the
purchase contract to purchase, and obligates us to sell, on February 16, 2005,
for $25, a number of shares of our common stock equal to the "settlement rate."
The settlement rate will be calculated, subject to adjustment as described under
"Description of the Purchase Contracts -- Anti-dilution adjustments," as
follows:
- if the applicable market value of our common stock is less than or equal
to the appreciation cap price of $41.25, the settlement rate will be
1.0000 shares, which is the $25 stated amount of the FELINE PACS divided
by the closing price of our common stock on the date of this prospectus
supplement; and
- if the applicable market value of our common stock is greater than the
appreciation cap price of $41.25, the settlement rate will be equal to
1.0000 shares multiplied by the quotient of the appreciation cap price of
$41.25 divided by the applicable market value of our common stock.
"Applicable market value" means the average of the closing price per share
of our common stock on each of the twenty consecutive trading days ending on the
third trading day immediately preceding February 16, 2005.
CAN I SETTLE THE PURCHASE CONTRACT EARLY?
If we are involved in a merger in which at least 30% of the consideration
for our common stock consists of cash or cash equivalents, then each holder of a
purchase contract will have the right to accelerate and settle the purchase
contract at the settlement rate in effect immediately before the merger.
Your early settlement right is subject to the condition that, if required
under the U.S. federal securities laws, we have a registration statement under
the Securities Act of 1933 in effect covering any securities deliverable upon
settlement of a purchase contract.
WHAT ARE THE COMPONENTS OF GROWTH PACS?
Each Growth PACS will consist of a purchase contract and a 2.5% undivided
beneficial ownership interest in a Treasury security. You will own the ownership
interest in a Treasury security that is a component of each Growth PACS, but it
will be pledged to us to secure your obligations under the purchase contract.
The Treasury security is a zero-coupon U.S. Treasury security with a principal
amount at maturity of $1,000 that matures on February 15, 2005.
S-2
HOW CAN I CREATE GROWTH PACS FROM INCOME PACS?
Unless the Treasury portfolio has replaced the notes as a component of the
Income PACS as a result of a successful remarketing of the notes or as a result
of a tax event redemption, as described in this prospectus supplement, each
holder of Income PACS will have the right, on or at any time prior to the fifth
business day immediately preceding February 16, 2005, to substitute for the
related notes, zero-coupon Treasury securities (CUSIP No. 912820BM8) that mature
on February 15, 2005 in a total principal amount at maturity equal to the
aggregate principal amount of the notes for which substitution is being made.
This substitution will create a Growth PACS, at which point the applicable notes
will be released to the holder and be separately transferable from the Growth
PACS. Because U.S. Treasury securities are issued in multiples of $1,000,
holders of Income PACS may make such substitution only in integral multiples of
40 Income PACS. However, if the Treasury portfolio has replaced the notes as a
component of the Income PACS as a result of a successful remarketing of the
notes or a tax event redemption, holders of Income PACS may make substitutions
only in multiples of 32,000 Income PACS, on or at any time prior to the second
business day immediately preceding February 16, 2005. Following this
substitution, the appropriate applicable ownership interest in the Treasury
portfolio would be released to the holder.
HOW CAN I RECREATE INCOME PACS FROM GROWTH PACS?
Unless the Treasury portfolio has replaced the notes as a component of the
Income PACS as a result of a successful remarketing of the notes or a tax event
redemption, each holder of Growth PACS will have the right, on or at any time
prior to the fifth business day immediately preceding February 16, 2005, to
substitute notes for the related Treasury securities held by the collateral
agent in an aggregate principal amount of such notes equal to the aggregate
principal amount at maturity of the Treasury securities. This substitution will
create an Income PACS, at which point the applicable Treasury securities will be
released to the holder and be separately transferable from the Income PACS.
Because Treasury securities are issued in integral multiples of $1,000, holders
of Growth PACS may make such substitution only in integral multiples of 40
Growth PACS. However, if the Treasury portfolio has replaced the notes as a
component of the Income PACS as a result of a successful remarketing of the
notes or a tax event redemption, holders of Growth PACS may substitute for the
Treasury securities the applicable ownership interest in the Treasury portfolio
only in integral multiples of 32,000 Growth PACS on or at any time prior to the
second business day immediately preceding February 16, 2005.
WHAT PAYMENTS AM I ENTITLED TO AS A HOLDER OF INCOME PACS?
Subject to our right to defer contract adjustment payments described below,
each holder of Income PACS will be entitled to receive total cash payments at a
rate of 9.00% of the stated amount per year, payable quarterly in arrears. These
cash payments will consist of interest on the related notes or distributions on
the applicable ownership interest of the Treasury portfolio, at the rate of
6.50% of the stated amount per year, and distributions of contract adjustment
payments at the rate of 2.50% of the stated amount per year. In addition,
original issue discount for United States federal income tax purposes will
accrue on each related note.
WHAT PAYMENTS AM I ENTITLED TO AS A HOLDER OF GROWTH PACS?
Subject to our right to defer contract adjustment payments described below,
each holder of Growth PACS will be entitled to receive quarterly contract
adjustment payments payable by us at the rate of 2.50% of the stated amount per
year. In addition, original issue discount will accrue on each related Treasury
security.
DO YOU HAVE THE OPTION TO DEFER CURRENT PAYMENTS?
We have the right to defer the payment of contract adjustment payments
until February 16, 2005. Such deferred contract adjustment payments would accrue
additional contract adjustment payments at the
S-3
rate of 9.00% per year (equal to the initial interest rate on the notes plus the
rate of contract adjustment payments on the purchase contracts) until paid,
compounded quarterly up to but excluding February 16, 2005. We are not entitled
to defer payments of interest on the notes. In the event we exercise our option
to defer the payment of contract adjustment payments, then until the deferred
contract adjustment payments have been paid, we will not, and will not permit
any subsidiary of ours to, with certain exceptions, declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of our capital stock. We have no
present intention of exercising our right to defer the payment of the contract
adjustment payments.
WHAT ARE THE PAYMENT DATES FOR THE FELINE PACS?
The payments described above in respect of the Income PACS and Growth PACS
will be payable quarterly in arrears on February 16, May 16, August 16 and
November 16 of each year, commencing May 16, 2002. Contract adjustment payments
are payable until the earlier of February 16, 2005 and the most recent quarterly
payment date on or before any early settlement of the related purchase contracts
following a cash merger and are subject to the deferral provisions described in
this prospectus supplement. Interest payments on the notes are described below
under the questions and answers beginning with "What interest payments will I
receive on the notes?"
WHAT IS REMARKETING?
The notes of holders of Income PACS will be remarketed on the third
business day immediately preceding November 16, 2004. The remarketing agent will
use its reasonable efforts to remarket the notes (bearing the reset rate
discussed below) on such date for settlement on November 16, 2004 and to obtain
a price of approximately 100.5% of the Treasury portfolio purchase price. The
portion of the proceeds from the remarketing equal to the Treasury portfolio
purchase price will be applied to purchase the Treasury portfolio. The
applicable ownership interest in the Treasury portfolio will be substituted for
the notes and will be pledged to the collateral agent to secure the obligations
of Income PACS holders to purchase our common stock under the purchase
contracts. When paid at maturity, an amount of the Treasury portfolio equal to
the principal amount of the notes will automatically be applied to satisfy in
full the Income PACS holders' obligations to purchase common stock under the
purchase contracts.
In addition, the remarketing agent may deduct as a remarketing fee an
amount not exceeding 25 basis points (.25%) of the Treasury portfolio purchase
price from any amount of the proceeds in excess of the Treasury portfolio
purchase price. The remarketing agent will remit the remaining portion, if any,
of the proceeds from the remarketing for the benefit of the holders.
If the remarketing of the notes on the third business day preceding
November 16, 2004 fails because the remarketing agent cannot obtain a price of
at least 100% of the Treasury portfolio purchase price or a condition precedent
to the remarketing has not been satisfied, in either case resulting in a failed
remarketing, the notes will continue to be a component of Income PACS and
another remarketing will be attempted on the third business day preceding
February 16, 2005, as described below.
If there was a failed remarketing on the third business day preceding
November 16, 2004, the notes of holders of Income PACS who fail to notify
JPMorgan Chase Bank, who is the purchase contract agent for the holders of the
FELINE PACS, on or before the fifth business day before February 16, 2005 of
their intention to pay cash in order to satisfy their obligations under the
related purchase contracts, will be remarketed on the third business day
immediately preceding February 16, 2005. In this remarketing, the remarketing
agent will use its reasonable efforts to obtain a price of approximately 100.5%
of the aggregate principal amount of such notes. The portion of the proceeds
from the remarketing equal to the total principal amount of the notes will
automatically be applied to satisfy in full the obligations of the Income PACS
holders to purchase our common stock under the related purchase contracts.
The remarketing agent may deduct as a remarketing fee an amount not
exceeding 25 basis points (.25%) of the aggregate principal amount of the
remarketed notes from any amount of the proceeds in
S-4
excess of the aggregate principal amount of the remarketed notes. The
remarketing agent will remit the remaining portion, if any, of the proceeds from
the remarketing for the benefit of the holders.
If the remarketing of the notes on the third business day preceding
February 16, 2005 fails because the remarketing agent cannot obtain a price of
at least 100% of the total principal amount of the remarketed notes or a
condition precedent to the remarketing has not been satisfied, we will exercise
our rights as a secured party to dispose of the notes in accordance with
applicable law and to satisfy in full, from the proceeds of the disposition, the
Income PACS holders' obligations to purchase common stock under the related
purchase contracts. In addition, if such a failed remarketing occurs, holders of
notes that are not components of Income PACS will have the option to put their
notes to us at 100% of the principal amount of such notes, plus accrued and
unpaid interest, if any, as described in this prospectus supplement.
WHAT IS THE TREASURY PORTFOLIO?
The Treasury portfolio is a portfolio of zero-coupon U.S. Treasury
securities consisting of:
- interest or principal strips of U.S. Treasury securities that mature on
or prior to February 15, 2005 in an aggregate amount equal to the
principal amount of the notes included in the Income PACS; and
- with respect to the scheduled interest payment date on the notes that
occurs on February 16, 2005, in the case of a successful remarketing of
the notes, or in the case of a tax event redemption, with respect to each
scheduled interest payment date on the notes that occurs after the tax
event redemption date and on or before February 16, 2005, interest or
principal strips of U.S. Treasury securities that mature prior to that
interest payment date in an aggregate amount equal to the aggregate
interest payment that would be due on that interest payment date on the
principal amount of the notes included in the Income PACS assuming no
reset of the interest rate on the notes.
IF I AM HOLDING A NOTE AS A SEPARATED SECURITY, CAN I PARTICIPATE IN THE
REMARKETING?
Holders of the notes that are not components of Income PACS may elect, in
the manner described in this prospectus supplement, to have their notes
remarketed by the remarketing agent.
BESIDES PARTICIPATING IN A REMARKETING, HOW ELSE MAY I SATISFY MY OBLIGATIONS
UNDER THE PURCHASE CONTRACTS?
Holders of FELINE PACS may satisfy their obligations, or their obligations
will be terminated, under the purchase contracts:
- through early settlement, if we are involved in a merger in which at
least 30% of the consideration for our common stock consists of cash, by
the early delivery of cash to the purchase contract agent in the manner
described in this prospectus supplement; provided that at such time, if
so required under the U.S. federal securities laws, there is in effect a
registration statement covering any securities to be delivered in respect
of the purchase contracts being settled;
- by settling the related purchase contracts with cash on the business day
prior to February 16, 2005 pursuant to prior notification to the purchase
contract agent; or
- without any further action, upon the termination of the purchase
contracts as a result of our bankruptcy, insolvency or reorganization.
If a FELINE PACS holder's purchase contract is terminated as a result of
our bankruptcy, insolvency or reorganization, or settled early at the election
of the holder upon the occurrence of a cash merger, such holder will have no
right to receive any accrued contract adjustment payments or deferred contract
adjustment payments.
S-5
WHAT INTEREST PAYMENTS WILL I RECEIVE ON THE NOTES?
Interest payments on the notes will be payable initially at the annual rate
of 6.50% of the principal amount of $25 per note to, but excluding, November 16,
2004, or February 16, 2005, if the interest rate is not reset three business
days prior to November 16, 2004. Following a reset of the interest rate three
business days prior to November 16, 2004 or three business days prior to
February 16, 2005, the notes will bear interest from November 16, 2004, or
February 16, 2005, as applicable, at the reset rate to, but excluding February
16, 2007. If the interest rate is not reset as a result of a failed remarketing
three business days prior to February 16, 2005, the notes will continue to bear
interest at the initial interest rate. The original issue discount rules that
apply to contingent payment debt instruments should govern the income inclusions
with respect to the notes for United States federal income tax purposes.
WHAT ARE THE PAYMENT DATES ON THE NOTES?
Interest payments will be payable quarterly in arrears on each February 16,
May 16, August 16, and November 16, commencing May 16, 2002.
WHEN WILL THE INTEREST RATE ON THE NOTES BE RESET?
Unless a tax event redemption has occurred, the interest rate on the notes
will be reset on the third business day immediately preceding November 16, 2004,
and such reset rate will become effective on November 16, 2004. However, if the
remarketing of the notes on the third business day immediately preceding
November 16, 2004 results in a failed remarketing, the interest rate will not be
reset on that date and instead will be reset on the third business day
immediately preceding February 16, 2005, and such reset rate will become
effective on February 16, 2005. If the remarketing of the notes on the third
business day immediately preceding February 16, 2005 also results in a failed
remarketing, the interest rate will not be reset.
WHAT IS THE RESET RATE?
In the case of a reset on the third business day immediately preceding
November 16, 2004, the reset rate will be the rate determined by the reset agent
as the rate the notes should bear in order for the notes included in Income PACS
to have an approximate aggregate market value on the reset date of 100.5% of the
Treasury portfolio purchase price. In the case of a reset on the third business
day immediately preceding February 16, 2005, the reset rate will be the rate
determined by the reset agent as the rate the notes should bear in order for
each note to have an approximate market value of 100.5% of the principal amount
of the note. The reset rate may not exceed the maximum rate, if any, permitted
by applicable law.
WHEN MAY THE NOTES BE REDEEMED?
The notes are redeemable at our option, in whole but not in part, upon the
occurrence and continuation of a tax event under the circumstances described in
this prospectus supplement. Following any such redemption of the notes, which we
refer to as a tax event redemption, prior to February 16, 2005, investors that
own Income PACS will own the applicable ownership interest of the Treasury
portfolio as a component of their Income PACS.
WHAT IS THE RANK OF THE NOTES?
The notes will rank equally with all of our other senior unsecured debt.
The indenture does not limit the amount of debt that we or any of our
subsidiaries may incur. Because we are a holding company and we conduct all of
our operations through subsidiaries, the notes will be junior to the claims of
creditors and preferred stockholders of our subsidiaries.
S-6
WHAT ARE THE PRINCIPAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATED TO
THE INCOME PACS, GROWTH PACS AND NOTES?
A beneficial owner of Income PACS or notes, if separated from Income PACS,
will be treated as owning an interest in a debt instrument that should be
subject to the Treasury regulations that govern contingent payment debt
instruments. If the notes are subject to these rules, until November 16, 2004,
and possibly thereafter, a holder will be required to include in gross income an
amount in excess of the interest actually received, regardless of the holder's
usual method of tax accounting, and a holder will generally recognize ordinary
income or loss, rather than capital gain or loss, on the sale, exchange or
disposition of separate notes or Income PACS, to the extent such income or loss
is allocable to the notes. A beneficial owner of Growth PACS will generally be
required to include in gross income any original issue discount with respect to
the Treasury securities as it accrues on a constant yield to maturity basis. If
the Treasury portfolio has replaced the notes as a component of Income PACS as a
result of a successful remarketing of the notes or a tax event redemption, a
beneficial owner of Income PACS will generally be required to include in gross
income its allocable share of original issue discount on the Treasury portfolio
as it accrues on a constant yield to maturity basis. We intend to report
contract adjustment payments and deferred contract adjustment payments, if any,
as income to you, but you may want to consult your tax advisor concerning
possible alternative characterizations. We have no present intention of
exercising our right to defer the payment of the contract adjustment payments.
WHAT WILL THE PROCEEDS FROM THE OFFERING BE USED FOR?
We expect to use the net proceeds from the sale of the Income PACS,
estimated to be approximately $969.6 million (approximately $1,115.1 million if
the underwriters' over-allotment option is exercised in full) after deducting
the underwriting commissions and estimated expenses, to fund our capital
program, repay commercial paper and other short-term indebtedness, including
approximately $300 million owed to The Fuji Bank, Limited, and for other general
corporate purposes.
WHAT ARE THE RIGHTS AND PRIVILEGES OF THE COMMON STOCK?
The shares of common stock that you will be obligated to purchase under the
purchase contracts have one vote per share. For more information, please see the
discussion of our common stock in this prospectus supplement under the heading
"Risk Factors," and in the accompanying prospectus under the heading
"Description of the Common Stock."
S-7
THE OFFERING -- EXPLANATORY DIAGRAMS
The following diagrams demonstrate some of the key features of the purchase
contracts, the notes, the Income PACS and the Growth PACS, and the
transformation of Income PACS into Growth PACS and separate notes. The following
diagrams assume that the notes are successfully remarketed, the interest rate on
the notes is reset on the third business day immediately preceding November 16,
2004, early settlement does not occur and we do not defer payment of the
contract adjustment payments.
PURCHASE CONTRACT
Income PACS and Growth PACS both include a purchase contract under which
the investor agrees to purchase shares of our common stock on February 16, 2005.
In addition, these purchase contracts include unsecured contract adjustment
payments as shown in the diagrams on the following pages.
(CHART)
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(1) If the applicable market value of our common stock is less than or equal to
the appreciation cap price of $41.25, 1.0000 shares of our common stock will
be delivered for each purchase contract.
(2) If the applicable market value of our common stock is greater than the
appreciation cap price of $41.25, the number of shares to be delivered will
be calculated by multiplying 1.0000 shares by the quotient of the
appreciation cap price divided by the applicable market value.
(3) The "appreciation cap price" is $41.25.
(4) The "applicable market value" means the average of the closing price per
share of our common stock on each of the twenty consecutive trading days
ending on the third trading day immediately preceding February 16, 2005.
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INCOME PACS
Each Income PACS consists of two components as described below.
(CHART)
- The investor owns the note but will pledge it to us to secure the
investor's obligations under the purchase contract.
- Following the remarketing of the notes, the applicable ownership interest
in the Treasury portfolio will replace the note as a component of the
Income PACS.
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GROWTH PACS
Each Growth PACS consists of two components as described below:
(CHART)
- The investor owns the Treasury security but will pledge it to us to
secure the investor's obligations under the purchase contract.
NOTES
Each Note has the terms described below:
(CHART)
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TRANSFORMING INCOME PACS INTO GROWTH PACS AND NOTES
- To create a Growth PACS, the investor separates an Income PACS into its
components -- the purchase contract and the note -- and then combines the
purchase contract with an ownership interest in a zero-coupon Treasury
security that matures the business day immediately preceding the maturity
date of the purchase contract.
- The investor holds the ownership interest in the Treasury security but
will pledge it to us to secure its obligations under the purchase
contract.
- The Treasury security together with the purchase contract constitutes a
Growth PACS. The note, which is no longer a component of the Income PACS,
is tradeable as a separate security.
(CHART)
- Upon the transformation of an Income PACS into a Growth PACS following a
successful remarketing of the notes or a tax event redemption, the
applicable ownership interest in the Treasury portfolio, rather than the
note, is no longer a component of the Income PACS and each item in the
Treasury portfolio is tradeable as a separate security.
- The investor also can transform Growth PACS and notes into Income PACS.
Following that transformation, the Treasury security, which is no longer
a component of the Growth PACS, is tradeable as a separate security.
- The transformation of Income PACS into Growth PACS and notes and the
transformation of Growth PACS and notes into Income PACS, require certain
minimum amounts of securities, as more fully described in this prospectus
supplement.
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RECENT DEVELOPMENTS
On December 19, 2001, Williams announced that it plans to take several
steps that are intended to strengthen its balance sheet and maintain its
investment-grade debt rating. These steps include:
- A $1 billion reduction in planned capital spending for 2002. This 25%
reduction is expected to be split between infrastructure projects in
Williams' regulated and unregulated businesses.
- The issuance of the FELINE PACS that we are offering with this prospectus
supplement.
- Sales of certain non-core assets during 2002, from which Williams expects
to receive proceeds of between $250 million and $750 million.
- Expected recognition of an impairment loss in the range of $120 million
to $170 million related to its soda ash facility in Colorado. This loss
relates to operational start-up issues since initial production commenced
in November 2000. Williams is also taking steps to address these issues.
- Initiation of action to eliminate ratings triggers on certain obligations
and contingencies that do not appear as debt on our balance sheet,
including a contingent liability we have for Williams Communications'
debt.
On November 29, 2001, Williams announced that its estimated net exposure to
Enron, which subsequently filed for bankruptcy, is expected to be less than $100
million.
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RISK FACTORS
In addition to the other information contained in or incorporated by
reference into the accompanying prospectus, you should carefully consider the
following risk factors in deciding whether to make an investment in the FELINE
PACS.
RISKS RELATING TO WILLIAMS AND ITS BUSINESS
PRICING REGULATIONS FOR POWER SOLD IN CALIFORNIA AND THE WESTERN UNITED STATES
MAY ADVERSELY AFFECT WILLIAMS' PROFITABILITY.
The prices that Williams charges for power in California markets have been
challenged in various proceedings, including before the Federal Energy
Regulatory Commission, or the "FERC." In December 2000, the FERC issued an order
which provided that for the period between October 2, 2000 and December 31,
2002, it may order refunds from Williams and other similarly situated companies
if the FERC finds that the wholesale markets in California are unable to produce
competitive, just and reasonable prices, or that market power or other
individual seller conduct is exercised to produce an unjust and unreasonable
rate. Beginning on March 9, 2001, the FERC issued a series of orders directing
Williams and other similarly situated companies to provide refunds for any
prices charged in excess of FERC established proxy prices from January 1, 2001
to May 29, 2001 or to provide justification for the prices charged during those
months. According to the FERC, Williams' total potential refund liability for
this period is approximately $30 million. Commencing May 29, 2001, a new
prospective proxy price methodology was established by FERC that was further
adjusted by an order of June 19, 2001. Williams has filed justification for its
prices with the FERC and calculated its refund liability under the methodology
used by the FERC to compute refund amounts at approximately $11 million.
However, in its FERC filings, Williams continues its objections to refunds in
any amount. No assurances can be given that the FERC will not seek refunds of
additional amounts for the period commencing October 2, 2000 forward. A FERC
Administrative Law Judge held extensive settlement discussions in June and July,
2001 regarding refunds and after failing to reach a settlement, recommended a
refund methodology to the FERC. On July 25, 2001, the FERC adopted, to a
significant extent, the judge's methodology. On December 19, 2001, FERC
clarified the methodology on rehearing. This methodology will establish the
rates for October 2, 2000 through June 19, 2001 and will determine refunds and
offsets for that period. All refund amounts discussed above will be subsumed
within this proceeding. We do not expect that this proceeding would result in a
refund liability that will have a material financial impact on Williams.
However, there can be no assurance that Williams' refund exposure will not have
such an adverse impact. Certain parties have also asked the FERC to revoke
Williams' authority to sell power from California-based generating units at
market-based rates; to limit Williams to cost-based rates for future sales from
such units; and to order refunds of excessive rates, with interest, back to May
1, 2000, and possibly earlier. Although Williams believes these requests are
ill-founded and will be rejected by the FERC, there can be no assurance of such
action.
The June 19 order discussed above also implements a price mitigation and
market monitoring plan for wholesale power sales by all suppliers of
electricity, including Williams, in spot markets for a region that includes
California and ten other western states (the "Western Systems Coordinating
Council," or "WSCC"). In general, the plan, which will be in effect from June
20, 2001 through September 30, 2002, establishes a market clearing price for
spot sales in all hours of the day that is based on the bid of the highest-cost
gas-fired California generating unit that is needed to serve the California
Independent System Operator's load. When generation operating reserves fall
below 7% in California (a "reserve deficiency period"), absent cost based
justification for a higher price, the maximum price that Williams may charge for
wholesale spot sales in the WSCC is the market clearing price. When generation
operating reserves rise to 7% or above in California, absent cost based
justification for a higher price, Williams' maximum price will be limited to 85%
of the highest hourly price that was in effect during the most recent reserve
deficiency period. At this time, Williams does not believe that this price
mitigation plan will result in a material adverse effect on its results of
operations or its financial condition. However, there can be no assurance that
this plan will not have such an adverse impact.
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CREDIT EXPOSURE IN CALIFORNIA MAY ADVERSELY AFFECT WILLIAMS' PROFITABILITY.
Through a long-term contractual relationship with affiliates of AES Corp.,
Williams has marketing rights to nearly 4,000 megawatts of generation capacity
in the Los Angeles basin. Williams sells much of this capacity on a forward
basis through contracts with various counterparties. The remainder of its
available capacity is sold in the spot and short term market primarily through
the California Independent System Operator. During the period of the summer of
2000 through the winter of 2000-2001, tight supply and increased demand resulted
in higher wholesale power prices to California utilities. At the same time, two
of the three major utilities operated under a retail rate freeze. As a result,
there was significant underrecovery of costs by the utilities, one of which,
Pacific Gas & Electric, has filed for bankruptcy protection. In addition,
Southern California Edison has entered into an agreement with the State of
California regarding various arrangements that could prevent its bankruptcy. At
this time, Williams does not believe that its credit exposure to the California
utilities would result in a material adverse effect on its results of operations
or financial condition. However, there can be no assurance that Williams' credit
exposure will not have such an adverse impact.
CLASS ACTION LAWSUITS AND FEDERAL AND STATE INITIATIVES, INVESTIGATIONS AND
PROCEEDINGS RELATING TO WILLIAMS' ACTIVITIES IN CALIFORNIA MAY ADVERSELY
AFFECT WILLIAMS' PROFITABILITY.
A number of federal and state initiatives addressing the issues of the
California electric power industry are also ongoing and may result in
restructuring of various markets in California and elsewhere. Discussions in
California and other states have ranged from threats of re-regulation to
suspension of plans to move forward with deregulation. Allegations have also
been made that the wholesale price increases resulted from the exercise of
market power and collusion of the power generators and sellers, such as
Williams. These allegations have resulted in multiple state and federal
investigations as well as the filing of class-action lawsuits in which Williams
is a named defendant. In May 2001, the Department of Justice issued a Civil
Investigative Demand commencing an antitrust investigation relating to an
agreement between a subsidiary of Williams and AES Southland alleging that the
agreement limits the expansion of electric generating capacity at or near the
AES Southland plants that are subject to a long-term tolling agreement between
Williams and AES. Williams is cooperating with the investigation. Most of these
initiatives, investigations and proceedings are in their preliminary stages and
their likely outcome cannot be estimated. There can be no assurance that these
initiatives, investigations and proceedings will not have an adverse effect on
Williams' results of operations or financial condition.
WE MAY HAVE DIFFICULTY ACCESSING CAPITAL ON ATTRACTIVE TERMS OR AT ALL.
As a result of the occurrence of several recent events, including the
September 11, 2001 terrorist attack on the United States, the ongoing war
against terrorism by the United States, and the bankruptcy of Enron Corp., one
of Williams' major competitors, the financial markets have been disrupted in
general, and the availability and cost of capital for Williams' business and
that of its competitors has been adversely affected. In addition, the bankruptcy
of Enron has caused the credit ratings agencies to review the capital structure
and earnings power of energy companies, including Williams. These events have
constrained the capital available to the energy industry and could adversely
affect Williams' access to funding for its operations. Williams' business is
capital intensive, and achievement of its growth targets is dependent, at least
in part, upon its ability to access capital at rates and on terms it determines
to be attractive. If Williams' ability to access capital on attractive terms
becomes significantly constrained, Williams' financial condition and future
results of operations could be significantly adversely affected.
WILLIAMS WOULD BE SIGNIFICANTLY IMPACTED IF IT LOSES ITS INVESTMENT GRADE
RATINGS.
Williams' energy marketing and trading business relies on the investment
grade rating of Williams' senior unsecured long-term debt. Most energy marketing
and trading counterparties require the credit worthiness of an investment grade
company to stand behind transactions. If Williams' ratings were to decline below
investment grade, its ability to participate in energy marketing and trading
would be significantly limited.
S-14
In addition, Williams has approximately $2.4 billion of total exposure
under existing financing transactions, including contingent liabilities for
Williams Communications' debt, that contain triggers tied to Williams' credit
ratings. In the event Williams' senior unsecured long-term debt ratings decline
below investment grade, subject to certain limited exceptions, Williams'
obligations under those financing transactions could be accelerated.
CREDIT EXPOSURE TO ENRON MAY ADVERSELY AFFECT WILLIAMS' PROFITABILITY.
Through a variety of contractual arrangements, consisting primarily of
energy commodity and derivative trading contracts, Williams has credit exposure
to Enron Corp. and certain of its subsidiaries which have sought protection from
creditors under Chapter 11 of the U.S. bankruptcy code. While Williams can not
be certain about its exact ultimate exposure or its ability to net or set-off
certain obligations between Williams and Enron, Williams believes that its
ultimate net exposure related to Enron will be less than $100 million.
WILLIAMS MAY BE SUBJECT TO LIABILITIES PERTAINING TO ITS SPUN-OFF
TELECOMMUNICATIONS BUSINESS UNIT.
In April 2001, Williams spun off Williams Communications Group, Inc., its
telecommunications unit, which was subject to certain lawsuits and settlement
negotiations, including claims for damages, indemnification for royalties and
other contractual claims by third parties. Further, the unit was subject to a
putative class action brought on behalf of all landowners on whose property the
plaintiffs have alleged Williams' former telecommunications unit installed
fiber-optic cable without the permission of the landowner. Another potential
putative class action may challenge the unit's railroad or pipeline rights of
way. Williams cannot be certain that this purported class action and other
purported class actions against its former telecommunications unit, if
successfully brought against Williams, will not have a significant adverse
impact on Williams' business. However, in connection with the spin-off, the
telecommunications unit agreed to indemnify Williams for all liabilities arising
out of the unit's businesses, operations or assets, which may reduce the
ultimate impact on Williams.
In addition, Williams is providing indirect credit support for $1.4 billion
of Williams Communications' structured notes through a commitment to issue
Williams' equity in the event of any one of the following: (1) a Williams
Communications default; (2) downgrading of Williams' senior unsecured debt to
Bal or below by Moody's Investor's Service, or BB or below by Standard & Poor's,
or BB+ or below by Fitch if Williams' common stock closing price is below $30.22
for ten consecutive trading days while such downgrade is in effect, or (3) to
the extent proceeds from Williams Communications' refinancing or remarketing of
certain structured notes prior to March 2004 produces proceeds of less than $1.4
billion. The ability of Williams Communications to make payments on the notes is
dependent on its ability to raise additional capital and its subsidiaries'
ability to dividend cash to Williams Communications. Williams Communications,
however, is obligated to reimburse Williams for any payment Williams may be
required to make in connection with these notes, which may reduce the ultimate
impact on Williams.
Williams has provided a guarantee of Williams Communications' obligations
under a 1998 transaction in which Williams Communications entered into an
operating lease agreement covering a portion of its fiber-optic network. The
total cost of the network assets covered by the lease agreement is $750 million.
The lease terms initially totaled five years and, if renewed, could extend to
seven years. Williams Communications has an option to purchase the covered
network assets during the lease term at an amount approximating lessor's cost.
As a result of an agreement between Williams and Williams Communications'
revolving credit facility lenders, if Williams gains control of the network
assets covered by the lease, Williams is obligated to return the assets to
Williams Communications and the liability of Williams Communications to
compensate Williams for such property must be subordinated to the interests of
Williams Communications' revolving credit facility lenders and may not mature
any earlier than one year after the maturity of Williams Communications'
revolving credit facility.
Williams has received an initial private letter ruling from the Internal
Revenue Service (IRS) stating that the distribution of Williams Communications
common stock would be tax-free to Williams and its
S-15
stockholders. Although private letter rulings are generally binding on the IRS,
Williams will not be able to rely on this ruling if any of the factual
representations or assumptions that were made to obtain the ruling are, or
become, incorrect or untrue in any material respect. However, Williams is not
aware of any facts or circumstances that would cause any of the representations
or assumptions to be incorrect or untrue in any material respect. The
distribution could also become taxable to Williams, but not Williams
shareholders, under the Internal Revenue Code in the event that Williams' or
Williams Communications' business combinations were deemed to be part of a plan
contemplated at the time of distribution and would constitute a total cumulative
change of more than 50 percent of the equity interest in either company.
WILLIAMS' BUSINESS WILL BE IMPACTED BY THE LEVEL OF ACTIVITY IN THE OIL AND
GAS INDUSTRY, WHICH IS SIGNIFICANTLY AFFECTED BY VOLATILE OIL AND GAS PRICES.
Williams' business is impacted by the level of activity in oil and gas
exploration, development and production in markets worldwide. Oil and gas
prices, market expectations of potential changes in these prices and a variety
of political and economic factors significantly affect this level of activity.
Oil and gas prices are extremely volatile and are affected by numerous factors,
including:
- worldwide demand for oil and gas;
- the ability of the Organization of Petroleum Exporting Countries,
commonly called "OPEC," to set and maintain production levels and
pricing;
- the level of production in non-OPEC countries; and
- the policies of the various governments regarding exploration and
development of their oil and gas reserves.
WILLIAMS' OPERATIONS ARE SUBJECT TO OPERATIONAL HAZARDS, UNINSURED RISKS AND
ENVIRONMENTAL RISKS.
Williams' exploration, production, transportation, gathering, refining and
processing operations are subject to the inherent risks normally associated with
those operations, including explosions, pollution, release of toxic substances,
fires and other hazards, each of which could result in damage to or destruction
of Williams' facilities or damage to persons and property. If any of these
events were to occur, Williams could suffer substantial losses. Although
Williams maintains insurance against these types of risks to the extent and in
amounts that it believes are reasonable, its financial condition and operations
could be adversely affected if a significant event occurs that is not fully
covered by insurance.
Williams' current and former operations also involve management of
regulated materials and are subject to various environmental laws and
regulations. Certain of Williams' subsidiaries have been identified as
potentially responsible parties at hazardous materials disposal sites under the
federal environmental laws, and have incurred, or are alleged to have incurred,
various other hazardous materials removal and remediation obligations under
environmental laws. Further, certain of Williams' subsidiaries are currently
negotiating settlements with the U.S. Department of Justice and the U.S.
Environmental Protection Agency with respect to their waste management practices
and air emissions. In settlement of several of these matters, the relevant
Williams' subsidiary has agreed, during the fourth quarter of 2001, to pay
monetary fines and/or conduct supplemental environmental projects. These fines
and projects are estimated to cost approximately $2.9 million in the aggregate.
It is not possible for Williams to estimate with certainty the amount and timing
of all other future expenditures related to environmental matters.
TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED ON SEPTEMBER 11, 2001,
AND FUTURE WAR OR RISK OF WAR MAY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS,
OUR ABILITY TO RAISE CAPITAL OR OUR FUTURE GROWTH.
The impact that the terrorist attacks of September 11, 2001 may have on the
energy industry in general, and on Williams in particular, is not known at this
time. Uncertainty surrounding retaliatory military strikes or a sustained
military campaign may impact Williams' operations in unpredictable ways,
including changes in the insurance markets, disruptions of fuel supplies and
markets, particularly oil, and the possibility that infrastructure facilities,
including pipelines, production facilities, refineries, electric
S-16
generation, transmission and distribution facilities, could be direct targets
of, or indirect casualties of, an act of terror. War or risk of war may also
have an adverse effect on the economy. The terrorist attacks on September 11,
2001 and the changes in the insurance markets attributable to the terrorist
attacks have made it difficult for Williams to obtain certain types of insurance
coverage. Williams may be unable to secure the levels and types of insurance it
would otherwise have secured prior to September 11, 2001. There can be no
assurance that insurance will be available to Williams without significant
additional costs. A lower level of economic activity could also result in a
decline in energy consumption which could adversely affect Williams' revenues or
restrict its future growth. Instability in the financial markets as a result of
terrorism or war could also affect Williams' ability to raise capital.
RISKS RELATING TO FELINE PACS
YOU ASSUME THE RISK THAT THE MARKET VALUE OF OUR COMMON STOCK MAY DECLINE.
Although as a holder of FELINE PACS you will be the beneficial owner of the
related notes, Treasury portfolio or Treasury securities, as the case may be,
you do have an obligation pursuant to the purchase contract to buy our common
stock. Unless you pay cash to satisfy your obligation under the purchase
contract or the purchase contract is terminated prior to the settlement date due
to our bankruptcy, insolvency or reorganization, either the principal of the
appropriate applicable ownership interest of the Treasury portfolio when paid at
maturity or the proceeds derived from the remarketing of the notes, in the case
of Income PACS, or the principal of the related Treasury securities when paid at
maturity, in the case of Growth PACS, will automatically be used to purchase a
specified number of shares of our common stock on your behalf. The market value
of the common stock that you receive on February 16, 2005 may not equal or
exceed the effective price per share of $25.00 paid by you for our common stock
when you purchased your FELINE PACS. If the applicable market value of the
common stock is less than $25.00, the aggregate market value of the common stock
issued to you pursuant to each purchase contract on February 16, 2005 will be
less than the effective price per share paid by you for the common stock when
you purchased your FELINE PACS. Accordingly, you assume the risk that the market
value of the common stock may decline, and that the decline could be
substantial.
THE OPPORTUNITY FOR EQUITY APPRECIATION PROVIDED BY AN INVESTMENT IN THE
FELINE PACS IS LIMITED.
The appreciation potential of the FELINE PACS is limited to $41.25.
Although you will receive all of the benefit of the appreciation of our common
stock up to the appreciation cap price, you will not receive any thereafter. If
the applicable market value of our common stock as of the settlement date of the
purchase contracts is less than or equal to the appreciation cap price of
$41.25, you will receive 1.0000 shares of our common stock for each purchase
contract you hold. If the applicable market value of our common stock as of the
settlement date of the purchase contracts is greater than the appreciation cap
price of $41.25, you will receive for each purchase contract you hold shares of
our common stock having an applicable market value equal to $41.25. For a
description of the method of calculating the number of shares of our common
stock you will receive upon settlement of a purchase contract, see "Description
of the Purchase Contracts -- General." Because the applicable market value
represents a twenty day average and because of the three trading day delay
between the last day of the averaging period and the settlement date of the
purchase contracts, (i) if the applicable market value is less than or equal to
the appreciation cap price, the market price per share of the common stock you
receive on the settlement date may be greater or less than the applicable market
value per share as determined over the 20 day averaging period, and (ii) if the
applicable market value is greater than the appreciation cap price, the market
price per share of the common stock you receive on the settlement date may be
greater or less than the appreciation cap price.
THE TRADING PRICES FOR THE FELINE PACS WILL BE DIRECTLY AFFECTED BY THE
TRADING PRICE OF OUR COMMON STOCK.
The trading prices of Income PACS and Growth PACS in the secondary market
will be directly affected by the trading price of our common stock, the general
level of interest rates and our credit quality.
S-17
It is impossible to predict whether the price of our common stock or interest
rates will rise or fall. The trading price of our common stock will be
influenced by our operating results and prospects and by economic, financial and
other factors. In addition, general market conditions, including the level of,
and fluctuations in, the trading prices of stocks generally and sales of
substantial amounts of common stock by us or others in the market after the
offering of the FELINE PACS, or the perception that such sales could occur,
could affect the price of our common stock. Fluctuations in interest rates may
give rise to arbitrage opportunities based on changes in the relative value of
the common stock underlying the purchase contracts and of the other components
of the FELINE PACS. Any such arbitrage could, in turn, affect the trading prices
of the Income PACS, Growth PACS, notes and our common stock.
IF YOU HOLD FELINE PACS, YOU WILL NOT BE ENTITLED TO ANY RIGHTS WITH RESPECT
TO OUR COMMON STOCK, BUT YOU WILL BE BOUND BY ANY CHANGES AFFECTING OUR COMMON
STOCK.
If you hold FELINE PACS, you will not be entitled to any rights with
respect to our common stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions on our common stock), but
you will be subject to all changes affecting our common stock. You will only be
entitled to rights on the common stock if and when we deliver shares of common
stock upon settlement of the purchase contract on February 16, 2005, or as a
result of early settlement upon the occurrence of a merger in which at least 30%
of the consideration for our common stock consists of cash or cash equivalents,
which we refer to as a cash merger, as the case may be, and if the applicable
record date, if any, for the exercise of voting or other rights or the receipt
of dividends or other distributions occurs after that date. For example, in the
event that an amendment is proposed to our certificate of incorporation or
by-laws and the record date for determining the stockholders of record entitled
to vote on such amendment occurs prior to delivery of the common stock, you will
not be entitled to vote on the amendment, although any changes in the powers,
preferences or special rights of our common stock resulting from such amendment
will nevertheless be binding on you after the common stock is delivered to you
under the purchase contract.
WE MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK AND THEREBY MATERIALLY AND
ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
The number of shares of common stock that you are entitled to receive on
February 16, 2005, or as a result of early settlement of a purchase contract
following a cash merger, is subject to adjustment for certain events arising
from stock splits and combinations, stock dividends and certain other actions by
us that modify our capital structure. We will not adjust the number of shares of
common stock that you are to receive on February 16, 2005 or as a result of
early settlement of a purchase contract following a cash merger, for other
events, including offerings of common stock for cash by us or in connection with
acquisitions or tender offers by others to purchase our common stock. We are not
restricted from issuing additional common stock during the term of the purchase
contracts and have no obligation to consider your interests for any reason. If
we issue additional shares of common stock, it may materially and adversely
affect the price of our common stock and, because of the relationship of the
number of shares to be received on February 16, 2005 to the price of the common
stock, such other events may adversely affect the trading prices of Income PACS
and Growth PACS.
THE SECONDARY MARKET FOR THE FELINE PACS AND THE NOTES MAY BE ILLIQUID.
It is not possible to predict how the Income PACS, the Growth PACS or the
notes will trade in the secondary market or whether the market will be liquid or
illiquid. There is currently no secondary market for our Income PACS, our Growth
PACS or the notes. We will apply to list the Income PACS on the NYSE. If the
Growth PACS or the notes are separately traded to a sufficient extent that
applicable exchange listing requirements are met, we may endeavor to cause the
Growth PACS or notes to be listed on the exchange on which the Income PACS are
then listed but we are under no obligation to do so. There can be no assurance
as to the liquidity of any market that may develop for the Income PACS, the
Growth PACS or the notes, your ability to sell these securities or whether a
trading market, if it develops,
S-18
will continue. In addition, in the event you were to substitute Treasury
securities for notes or notes for Treasury securities, thereby converting your
Income PACS to Growth PACS or your Growth PACS to Income PACS, as the case may
be, the liquidity of Income PACS or Growth PACS could be adversely affected.
There can be no assurance that the Income PACS will not be delisted from the
NYSE or that trading in the Income PACS will not be suspended as a result of
your election to create Growth PACS by substituting collateral, which could
cause the number of Income PACS to fall below the requirement for listing
securities on the NYSE that at least 1,000,000 Income PACS be outstanding at any
time.
WE DEPEND ON PAYMENTS FROM OUR SUBSIDIARIES, AND CLAIMS OF HOLDERS RANK JUNIOR
TO THOSE OF CREDITORS OF OUR SUBSIDIARIES.
We are a holding company, and we conduct substantially all of our
operations through our subsidiaries. We perform management, legal, financial,
tax, consulting, administrative and other services for our subsidiaries. Our
principal sources of cash are from external financings, dividends and advances
from our subsidiaries, investments, payments by our subsidiaries for services
rendered, and interest payments from our subsidiaries on cash advances. The
amount of dividends available to us from our subsidiaries largely depends upon
each subsidiary's earnings and operating capital requirements. The terms of some
of our subsidiaries' borrowing arrangements limit the transfer of funds to us.
In addition, the ability of our subsidiaries to make any payments to us will
depend on our subsidiaries' earnings, business and tax considerations and legal
restrictions.
As a result of our holding company structure, the notes, which are one of
the components of the Income PACS, will effectively rank junior to all existing
and future debt, trade payables and other liabilities of our subsidiaries. Any
right of ours and our creditors to participate in the assets of any of our
subsidiaries upon any liquidation or reorganization of any such subsidiary will
be subject to the prior claims of that subsidiary's creditors, including trade
creditors, except to the extent that we may ourselves be a creditor of such a
subsidiary.
YOUR RIGHTS TO THE PLEDGED SECURITIES WILL BE SUBJECT TO OUR SECURITY
INTEREST.
Although you will be the beneficial owner of the related notes, Treasury
securities or Treasury portfolio (together, the "pledged securities"), as
applicable, that are components of FELINE PACS, those pledged securities will be
pledged to JPMorgan Chase Bank, as the collateral agent, to secure your
obligations under the related purchase contracts. Thus, your rights to the
pledged securities will be subject to our security interest. Additionally,
notwithstanding the automatic termination of the purchase contracts in the event
that we become the subject of a case under the U.S. Bankruptcy Code, the
delivery of the pledged securities to you may be delayed by the imposition of
the automatic stay of Section 362 of the U.S. Bankruptcy Code.
WE MAY REDEEM THE NOTES UPON THE OCCURRENCE OF A TAX EVENT.
We have the option to redeem the notes, on not less than 30 days nor more
than 60 days prior written notice, in whole but not in part, if a tax event
occurs and continues under the circumstances described in this prospectus
supplement (a "tax event redemption"). If we exercise this option to redeem the
notes, we will pay the redemption price, as described herein, thereof in cash to
the holders of the notes. If the tax event redemption occurs before November 16,
2004, or before February 16, 2005 if the notes are not successfully remarketed
on the third business day immediately preceding November 16, 2004, the
redemption price payable to you as a holder of Income PACS will be distributed
to the collateral agent, who in turn will apply a portion of the redemption
price to purchase the Treasury portfolio on your behalf, and will remit the
remainder of the redemption price, if any, to you, and the Treasury portfolio
will be substituted for the notes as collateral to secure your obligations under
the purchase contracts related to the Income PACS. If your notes are not
components of Income PACS, you will receive the redemption payment directly.
There can be no assurance as to the effect on the market price for the Income
PACS if we substitute the Treasury portfolio as collateral in place of any notes
so redeemed. A tax event redemption will be a taxable event to the holders of
the notes.
S-19
WE MAY DEFER CONTRACT ADJUSTMENT PAYMENTS.
We have the option to defer the payment of contract adjustment payments on
the purchase contracts forming a part of the FELINE PACS until February 16,
2005. However, deferred installments of contract adjustment payments will bear
interest at the rate of 9.00% per year (compounded quarterly) until paid. If the
purchase contracts are settled early following a cash merger or terminated due
to our bankruptcy, insolvency or reorganization, the right to receive contract
adjustment payments and deferred contract adjustment payments, if any, will also
terminate.
THE PURCHASE CONTRACT AGREEMENT WILL NOT BE QUALIFIED UNDER THE TRUST
INDENTURE ACT AND THE OBLIGATIONS OF THE PURCHASE CONTRACT AGENT ARE LIMITED.
The purchase contract agreement between the purchase contract agent and us
will not be qualified as an indenture under the Trust Indenture Act of 1939, and
the purchase contract agent will not be required to qualify as a trustee under
the Trust Indenture Act. Thus, you will not have the benefit of the protection
of the Trust Indenture Act with respect to the purchase contract agreement or
the purchase contract agent. The notes constituting a part of the Income PACS
will be issued pursuant to an indenture, which will be qualified under the Trust
Indenture Act. Accordingly, if you hold FELINE PACS, you will not have the
benefit of the protections of the Trust Indenture Act other than to the extent
applicable to a note included in an Income PACS. The protections generally
afforded the holder of a security issued under an indenture that has been
qualified under the Trust Indenture Act include:
- disqualification of the indenture trustee for "conflicting interests," as
defined under the Trust Indenture Act;
- provisions preventing a trustee that is also a creditor of the issuer
from improving its own credit position at the expense of the security
holders immediately prior to or after a default under such indenture; and
- the requirement that the indenture trustee deliver reports at least
annually with respect to certain matters concerning the indenture trustee
and the securities.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE FELINE PACS ARE UNCLEAR.
No statutory, judicial or administrative authority directly addresses the
treatment of the FELINE PACS or instruments similar to the FELINE PACS for
United States federal income tax purposes. As a result, the United States
federal income tax consequences of the purchase, ownership and disposition of
FELINE PACS are not entirely clear. In addition, any gain on a disposition of a
note prior to the purchase contract settlement date will generally be treated as
ordinary interest income; thus, the ability to offset such interest income with
a loss, if any, on a purchase contract may be limited. For additional tax-
related risks, see "Certain United States Federal Income Tax
Consequences -- Notes" in this prospectus supplement.
YOU WILL BE REQUIRED TO ACCRUE ORIGINAL ISSUE DISCOUNT ON THE NOTES FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES.
Because of the manner in which the interest rate on the notes is reset, the
notes should be classified as contingent payment debt instruments subject to the
"noncontingent bond method" for accruing original issue discount for United
States federal income tax purposes. Assuming that the notes are so treated, you
will be required to accrue original issue discount on the notes in your gross
income on a constant yield-to-maturity basis, regardless of your usual method of
tax accounting. For all accrual periods ending on or prior to November 16, 2004,
the original issue discount that accrues on the notes will exceed the stated
interest payments on the notes. In addition, any gain on the disposition of a
note before the date that is six months after the reset date generally will be
treated as ordinary interest income; thus, the ability to offset this interest
income with a loss, if any, on a purchase contract may be limited. For
additional tax-related risks relating to the notes, see "Certain United States
Federal Income Tax Consequences -- Notes" in this prospectus supplement.
S-20
DISCLOSURE ABOUT FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus supplement and accompanying
prospectus include forward-looking statements -- statements that discuss our
expected future results based on current and pending business operations. We
make these forward-looking statements in reliance on the safe harbor protections
provided under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by words such as
"anticipates," "believes," "expects," "planned," "scheduled" or similar
expressions. Although we believe these forward-looking statements are based on
reasonable assumptions, statements made regarding future results are subject to
numerous assumptions, uncertainties and risks that may cause future results to
be materially different from the results stated or implied in this prospectus
supplement and accompanying prospectus.
The following are 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 we are subject, including tax,
environmental and employment laws and regulations;
- The cost and effects of legal and administrative claims and proceedings
against Williams or its subsidiaries;
- Conditions of the capital markets we utilize to access capital to finance
operations;
- The direct or indirect effects on our business resulting from the
bankruptcy of Enron, including, but not limited to, its effects on
liquidity in the trading and energy industry, and its effects on the
capital markets' views of the energy or trading industry and our ability
to access the capital markets on terms as favorable as in the past;
- The ability to raise capital in a cost-effective way;
- The effect of changes in accounting policies;
- The ability to manage growth;
- The ability to control costs;
- The ability of each business unit to successfully implement key systems,
such as order entry systems and service delivery systems;
- Changes in foreign economies, currencies, laws and regulations, and
political climates, especially in Argentina, Brazil, Venezuela and
Lithuania, where we have made direct investments;
- 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;
- The ability of our energy businesses to develop expanded markets and
product offerings as well as their ability to maintain existing markets;
- The ability of both Williams Gas Pipeline Company, LLC and the Williams
Energy Services, LLC to obtain governmental and regulatory approval of
various expansion projects;
- The ability of customers of the energy marketing and trading business to
obtain governmental and regulatory approval of various projects,
including power generation projects;
S-21
- Future utilization of pipeline capacity, which can depend on energy
prices, competition from other pipelines and alternative 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; and
- The accuracy of estimated hydrocarbon reserves and seismic data.
S-22
USE OF PROCEEDS
We expect to receive net proceeds of approximately $969.6 million after
deducting the underwriting discount and expenses payable by us (or approximately
$1,115.1 million, if the underwriters exercise their over-allotment option in
full) in connection with this offering.
Approximately $300 million of the net proceeds of this offering will be
used to repay short-term indebtedness owed to The Fuji Bank, Limited, an
affiliate of Mizuho International plc, one of the underwriters. This short-term
indebtedness bears interest at a floating rate which is LIBOR plus 0.875% and
matures in January 2002. The remaining net proceeds from this offering will be
used to fund our capital program, repay commercial paper (which has interest
rates ranging from 3.10% to 3.68%) and for other general corporate purposes.
S-23
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock, $1.00 par value, is listed and traded on the New York
Stock Exchange under the ticker symbol "WMB." The following table sets forth the
high and low sales prices for transactions involving our common stock for each
calendar quarter, as reported on the New York Stock Exchange Composite Tape, and
related cash dividends paid per common share during such periods.
CASH
HIGH LOW DIVIDENDS
------ ------ ---------
2002:
First Quarter (through January 7, 2002)................. $26.35 $24.51 (1)
2001:
Fourth Quarter.......................................... $30.86 $20.80 $.20
Third Quarter........................................... 34.40 24.73 .18
Second Quarter.......................................... 44.17 31.90 .15(2)
First Quarter........................................... 46.43 32.62 .15
2000:
Fourth Quarter.......................................... $44.94 $30.25 $.15
Third Quarter........................................... 48.13 39.63 .15
Second Quarter.......................................... 45.13 34.25 .15
First Quarter........................................... 49.75 29.50 .15
1999:
Fourth Quarter.......................................... $39.88 $28.00 $.15
Third Quarter........................................... 46.38 34.19 .15
Second Quarter.......................................... 53.75 38.81 .15
First Quarter........................................... 41.00 28.75 .15
---------------
(1) We expect that our board of directors will declare a quarterly dividend of
$.20 per share in January 2002, which will be payable in March 2002 to
holders of record of our common stock on a specified date.
(2) In addition, on April 23, 2001, Williams distributed 398.5 million shares of
common stock of Williams Communications Group, Inc. to Williams'
shareholders, or .822399 of a share of Williams Communications for each
share of Williams' common stock, to complete the tax-free spin-off of
Williams' communications business.
On January 7, 2002 the last reported sale price of our common stock on the
New York Stock Exchange was $25.00 per share.
S-24
CAPITALIZATION
The following table sets forth the unaudited cash and cash equivalents,
short-term debt and capitalization of Williams as of September 30, 2001, on an
actual basis and as adjusted to give effect to the issuance and sale of the
FELINE PACS offered hereby and the application of the estimated net proceeds
therefrom, as discussed in "Use of Proceeds." We have assumed no exercise of the
underwriters' overallotment option. This information should be read in
conjunction with the consolidated financial statements and related notes
incorporated by reference in the accompanying prospectus. Please read "Where You
Can Find More Information" in the accompanying prospectus.
SEPTEMBER 30, 2001
--------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(IN MILLIONS)
Cash and cash equivalents................................... $ 413.9 $ 413.9
========= =========
Notes payable and current portion of long-term debt......... $ 2,456.4 $ 1,486.8
========= =========
Long-term debt.............................................. $ 8,821.4 $ 9,821.4
Minority and preferred interests of consolidated
subsidiaries.............................................. 1,075.0 1,075.0
Stockholders' equity:
Common stock, $1 par value, 960 million shares authorized,
518.4 million issued at September 30, 2001(2).......... 518.4 518.4
Capital in excess of par value(3)......................... 4,901.1 4,833.5
Retained earnings......................................... 1,763.8 1,763.8
Accumulated other comprehensive income.................... 377.2 377.2
Other..................................................... (65.8) (65.8)
Less treasury stock (at cost), 3.4 million shares of
common stock at September 30, 2001..................... (39.7) (39.7)
--------- ---------
Total stockholders' equity.................................. 7,455.0 7,387.4
--------- ---------
Total capitalization(4)..................................... $17,351.4 $18,283.8
========= =========
---------------
(1) Does not reflect adjustments for financing activities subsequent to
September 30, 2001.
(2) Amounts exclude the common stock issuable upon settlement of the purchase
contracts underlying the FELINE PACS and common stock issuable upon exercise
of outstanding options.
(3) Reflects an adjustment of approximately $67.6 million representing the
present value of the contract adjustment payments payable in connection with
the purchase contracts underlying the FELINE PACS.
(4) Consists of long-term debt, minority and preferred interests of consolidated
subsidiaries and stockholders' equity.
S-25
ACCOUNTING TREATMENT
The net proceeds from the sale of the FELINE PACS will be allocated between
the purchase contracts and the notes on our financial statements. The present
value of the FELINE PACS contract adjustment payments will be initially charged
to equity, with an offsetting credit to liabilities. Subsequent contract
adjustment payments are allocated between this liability account and interest
expense based on a constant rate calculation over the life of the transaction.
The FELINE PACS purchase contracts are forward transactions in our common
stock. Upon settlement of a purchase contract, we will receive $25 on that
purchase contract and will issue the requisite number of shares of common stock.
The $25 we receive will be credited to shareholders' equity allocated between
the common stock and paid-in-capital accounts.
Before the issuance of common stock upon settlement of the purchase
contracts, the FELINE PACS purchase contracts will be reflected in our diluted
earnings per share calculations using the treasury stock method. Under this
method, the number of shares of common stock used in calculating diluted
earnings per share is deemed to be increased by the excess, if any, of the
number of shares that would be issued upon settlement of the purchase contracts
less the number of shares that we could have purchased in the market, at the
average market price during the period, using the proceeds receivable upon
settlement. Consequently, we anticipate that there will be a deemed increase in
the number of shares of our common stock during periods when the average market
price of our common stock is above $25.00.
S-26
DESCRIPTION OF THE FELINE PACS
The following is a summary of some of the terms of the FELINE PACS. This
summary, together with the summary of some of the provisions of other related
documents described below, contains a description of all of the material terms
of the FELINE PACS but is not necessarily complete. We refer you to the copies
of those documents, including the definitions of terms, which are filed as
exhibits to the registration statement of which the accompanying prospectus
forms a part. This summary supplements the descriptions of the notes, the units
and the stock purchase contracts provided in the accompanying prospectus, and,
to the extent it is inconsistent with the accompanying prospectus, replaces the
descriptions in that prospectus.
The FELINE PACS will initially consist of 40,000,000 Income PACS
(46,000,000 Income PACS if the underwriters exercise their overallotment option
in full), each with a stated amount of $25.
INCOME PACS
Each Income PACS will consist of a unit comprised of
(a) a purchase contract under which
(1) the holder will purchase from us on February 16, 2005, for an
amount in cash equal to $25, a number of shares of our common stock
equal to the settlement rate described below under "Description of the
Purchase Contracts -- General" and
(2) we will pay the holder quarterly contract adjustment payments
at the rate of 2.50% of the stated amount per year and
(b) either
(1) a note having a principal amount equal to $25, or
(2) upon the successful remarketing of the notes on the third
business day immediately preceding November 16, 2004, or the occurrence
of a tax event redemption prior to February 16, 2005, the applicable
ownership interest in a portfolio of zero-coupon U.S. Treasury
securities, which we refer to as the Treasury portfolio.
"Applicable ownership interest" means, with respect to an Income PACS and
the U.S. Treasury securities in the Treasury portfolio,
(1) a 2.5% undivided beneficial ownership interest in a $1,000 face
amount of a principal or interest strip in a U.S. Treasury security
included in the Treasury portfolio that matures on or prior to February 15,
2005; and
(2) for the scheduled interest payment date on the notes that occurs
on February 16, 2005, in the case of a successful remarketing of the notes,
or, in the case of a tax event redemption, for each scheduled interest
payment date on the notes that occurs after the tax event redemption date
and on or before February 16, 2005, a .0406% undivided beneficial ownership
interest in a $1,000 face amount of a principal or interest strip in a U.S.
Treasury security included in the Treasury portfolio that matures prior to
that date.
The purchase price of each Income PACS will generally be allocated between
the related purchase contract and the related note, in proportion to their
respective fair market values at the time of purchase. We have determined that
the entire purchase price of an Income PACS will be allocable to the notes and
no amount will be allocable to the purchase contract. This position generally
will be binding on each beneficial owner of each Income PACS but not on the
Internal Revenue Service. As long as a FELINE PACS is in the form of an Income
PACS, the related note or the appropriate applicable ownership interest of the
Treasury portfolio, as applicable, will be pledged to the collateral agent to
secure your obligation to purchase our common stock under the related purchase
contract.
S-27
SUBSTITUTION OF PLEDGED SECURITIES TO CREATE GROWTH PACS
Unless the Treasury portfolio has replaced the notes as a component of the
Income PACS as the result of a successful remarketing of the notes or a tax
event redemption, each holder of an Income PACS will have the right, at any time
on or prior to the fifth business day immediately preceding February 16, 2005,
to substitute for the related notes held by the collateral agent, Treasury
securities having an aggregate principal amount at maturity equal to the
aggregate principal amount of the notes for which substitution is being made.
Each Growth PACS will consist of a unit comprised of
(a) a purchase contract under which
(1) the holder will purchase from us on February 16, 2005, for an
amount in cash equal to $25, a number of shares of our common stock
equal to the settlement rate described below under "Description of the
Purchase Contracts -- General" and
(2) we will pay the holder quarterly contract adjustment payments
at the rate of 2.50% of the stated amount per year and
(b) a 2.5% undivided beneficial ownership interest in a zero-coupon
U.S. Treasury security that matures on February 15, 2005.
The Treasury securities will be pledged with the collateral agent to secure
the holder's obligation to purchase our common stock under the related purchase
contracts. Because Treasury securities are issued in integral multiples of
$1,000, holders of Income PACS may make the substitution only in integral
multiples of 40 Income PACS.
FELINE PACS with respect to which Treasury securities have been substituted
for the related notes or the applicable ownership interest of the Treasury
portfolio, as the case may be, as collateral to secure that holder's obligation
under the related purchase contracts will be referred to as Growth PACS.
To create 40 Growth PACS, unless the Treasury portfolio has replaced the
notes as a component of the Income PACS as a result of a successful remarketing
of the notes or a tax event redemption, you must
(a) deposit with the collateral agent a Treasury security having a
principal amount at maturity of $1,000; and
(b) transfer 40 Income PACS to the purchase contract agent accompanied
by a notice stating that you have deposited a Treasury security with the
collateral agent and are requesting that the purchase contract agent
instruct the collateral agent to release to you the notes relating to the
40 Income PACS.
Upon that deposit and the receipt of an instruction from the purchase
contract agent, the collateral agent will effect the release of the 40 notes
from the pledge under the pledge agreement free and clear of our security
interest to the purchase contract agent, which will
(a) cancel the 40 Income PACS,
(b) transfer to you the related notes, and
(c) deliver to you 40 Growth PACS.
The substituted Treasury security will be pledged with the collateral agent
to secure your obligation to purchase our common stock under the related
purchase contracts. The related notes released to you will be able to be
transferred separately from the resulting Growth PACS. Contract adjustment
payments will be payable by us on those Growth PACS on each payment date and
shall accrue from the later of January 14, 2002 and the last payment date on
which contract adjustment payments were paid. In addition, original issue
discount for United States federal income tax purposes will accrue on the
related Treasury securities. Interest on any released notes will continue to be
payable quarterly.
S-28
RECREATING INCOME PACS
On or prior to the fifth business day immediately preceding February 16,
2005, a holder of Growth PACS may, unless the Treasury portfolio has replaced
the notes as a component of the Income PACS as a result of a successful
remarketing of the notes or a tax event redemption, recreate Income PACS by
(a) depositing with the collateral agent notes in an aggregate
principal amount of $1,000 and
(b) transferring 40 Growth PACS to the purchase contract agent
accompanied by a notice stating that the Growth PACS holder has deposited
with the collateral agent notes in an aggregate principal amount of $1,000
and requesting that the purchase contract agent instruct the collateral
agent to release to that holder the related Treasury security.
Upon the deposit and receipt of instructions from the purchase contract
agent, the collateral agent will effect the release of the related Treasury
security from the pledge under the pledge agreement free and clear of our
security interest to the purchase contract agent, which will
(a) cancel the 40 Growth PACS,
(b) transfer to you the Treasury security, and
(c) deliver to you 40 Income PACS.
The substituted notes will be pledged with the collateral agent to secure
the Income PACS holder's obligation to purchase common stock under the related
purchase contracts.
CREATING INCOME PACS OR GROWTH PACS AFTER A SUCCESSFUL REMARKETING OR TAX EVENT
REDEMPTION
If the Treasury portfolio has become a component of the Income PACS as a
result of a successful remarketing of the notes or a tax event redemption,
holders of Growth PACS or Income PACS, as applicable, may create or recreate
Income PACS or Growth PACS, as applicable, by substituting the appropriate
applicable ownership interest of the Treasury portfolio or Treasury security, as
the case may be, at any time on or prior to the second business day immediately
preceding February 16, 2005, but only in integral multiples of 32,000 Growth
PACS or Income PACS, as applicable.
The substituted ownership interest of the Treasury portfolio or a Treasury
security, as the case may be, will be pledged with the collateral agent to
secure your obligation to purchase our common stock under the related purchase
contracts, and the collateral agent will effect the release of the related
Treasury security or applicable ownership interest of the Treasury portfolio, as
the case may be, from the pledge under the pledge agreement free and clear of
our security interest.
Holders who elect to substitute pledged securities, before or after a tax
event redemption or remarketing, creating or recreating Growth PACS or Income
PACS, shall be responsible for any fees or expenses payable in connection with
the substitution.
CURRENT PAYMENTS
Holders of Income PACS are entitled to receive total cash payments at a
rate of 9.00% of the stated amount per year from and after January 14, 2002 up
to but excluding February 16, 2005, payable quarterly in arrears. The quarterly
payments on the Income PACS will consist of interest on the related note or cash
distributions on the applicable ownership interest of the Treasury portfolio, as
applicable, payable at the rate of 6.50% of the stated amount per year, and
quarterly contract adjustment payments payable by us at the rate of 2.50% of the
stated amount per year, subject to our right to defer the payment of such
contract adjustment payments. In addition, original issue discount for United
States federal income tax purposes will accrue on the related notes.
Each holder of Growth PACS will be entitled to receive quarterly contract
adjustment payments payable by us at the rate of 2.50% of the stated amount per
year, subject to our right to defer the payment of such contract adjustment
payments. In addition, original issue discount will accrue on the related
S-29
Treasury securities. Our obligations with respect to contract adjustment
payments will be subordinated and junior in right of payment to our obligations
under any senior debt.
Our obligations with respect to the notes will be senior and unsecured and
will rank equally in right of payment with all of our other senior unsecured
indebtedness. See "Description of Debt Securities" in the accompanying
prospectus.
VOTING AND OTHER RIGHTS
Holders of purchase contracts forming a part of the Income PACS or Growth
PACS, in their capacity as such holders, will have no voting or other rights in
respect of our common stock.
LISTING OF THE SECURITIES
We will endeavor to have the Income PACS approved for listing on the NYSE
under the symbol "WMB PrI," subject to official notice of issuance. If Growth
PACS or notes are separately traded to a sufficient extent that the applicable
listing requirements are satisfied, we may endeavor to cause such securities to
be listed on the exchange on which the Income PACS are then listed, including,
if applicable, the NYSE. We, however, have no obligation to do so.
MISCELLANEOUS
We or our affiliates may from time to time purchase any of the securities
offered in this prospectus supplement that are then outstanding by tender, in
the open market or by private agreement.
S-30
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each purchase contract underlying a FELINE PACS, unless earlier terminated,
will obligate you to purchase, and us to sell, on February 16, 2005, for an
amount in cash equal to $25, a number of shares of our common stock equal to the
settlement rate.
The settlement rate, which is the number of newly issued shares of our
common stock issuable upon settlement of a purchase contract on February 16,
2005, will be calculated, subject to adjustment as described under
"-- Anti-dilution adjustments" below, as follows:
(a) if the applicable market value of our common stock is less than or
equal to the appreciation cap price of $41.25, which is 65.00% above
$25.00, the last reported sale price of the common stock on January 7,
2002, the settlement rate will be 1.0000 shares, which is the $25 stated
amount of the FELINE PACS divided by the closing price of our common stock
or the date of this prospectus supplement; and
(b) if the applicable market value of our common stock is greater than
the appreciation cap price of $41.25, the settlement rate will be equal to
1.0000 shares multiplied by the quotient of the appreciation cap price of
$41.25 divided by the applicable market value of our common stock.
Accordingly, you are subject to any decrease in the value of our common
stock between the date of this prospectus supplement and the period during which
the applicable market value of our common stock is measured. You are also
entitled to any increase in the value of our common stock between the date of
this prospectus supplement and the period during which the applicable market
value of our common stock is measured, up to the appreciation cap price of
$41.25. You are not entitled to any appreciation in the value of our common
stock beyond the appreciation cap price.
The applicable market value of our common stock means the average of the
closing prices per share of our common stock on each of the twenty consecutive
trading days ending on the third trading day immediately preceding February 16,
2005. Because the applicable market value represents a twenty day average and
because of the three trading day delay between the last day of the averaging
period and the settlement date of the purchase contracts,
(a) in situations where the applicable market value is less than or
equal to the appreciation cap price, the market price per share of the
common stock you receive on the settlement date may be greater or less than
the applicable market value per share as determined over the 20 day
averaging period, and
(b) in situations where the applicable market value is greater than
the appreciation cap price, the market price per share of the common stock
you receive on the settlement date may be greater or less than the
appreciation cap price.
The closing price of the common stock on any date of determination means
the closing sale price or, if no closing price is reported, the last reported
sale price of the common stock on the NYSE on that date. If the common stock is
not listed for trading on the NYSE on any determination date, the closing price
of the common stock on any date of determination means the closing sales price
as reported in the composite transactions for the principal U.S. securities
exchange on which the common stock is so listed, or if the common stock is not
so listed on a U.S. national or regional securities exchange, as reported by the
Nasdaq stock market, or, if the common stock is not so reported, the last quoted
bid price for the common stock in the over-the-counter market as reported by the
National Quotation Bureau or similar organization or, if that bid price is not
available, the market value of the common stock on that date as determined by a
nationally recognized independent investment banking firm retained by us for
this purpose.
A trading day is a day on which the common stock (A) is not suspended from
trading on any national or regional securities exchange or association or
over-the-counter market at the close of business
S-31
and (B) has traded at least once on the national or regional securities exchange
or association or over-the-counter market that is the primary market for the
trading of the common stock.
We will not issue any fractional shares of common stock pursuant to the
purchase contracts. In place of fractional shares otherwise issuable, calculated
on an aggregate basis in respect of the purchase contracts you are settling, you
will be entitled to receive an amount of cash equal to the fractional share
times the applicable market value.
On the business day immediately preceding February 16, 2005, unless,
(a) you have previously settled the related purchase contracts upon
the occurrence of a cash merger through the early delivery of cash to the
purchase contract agent, in the manner described under "-- Early settlement
upon cash merger,"
(b) you have settled the related purchase contracts with cash having
given prior notice in the manner described under "-- Notice to settle with
cash,"
(c) in the case of Income PACS, you have had the notes related to your
purchase contracts remarketed in the manner described in this prospectus
supplement, or
(d) an event described under "-- Termination" below has occurred,
then
(1) in the case of Income PACS, unless the Treasury portfolio has
replaced the notes as a component of the Income PACS as a result of a
successful remarketing of the notes or a tax event redemption, we will
exercise our rights as a secured party to dispose of the notes in
accordance with applicable law and satisfy in full your obligation to
purchase our common stock under the related purchase contract and
(2) in the case of Income PACS, if the Treasury portfolio has replaced
the notes as a component of the Income PACS as a result of a successful
remarketing of the notes or a tax event redemption, or in the case of
Growth PACS, the principal amount of the applicable ownership interest of
the Treasury portfolio or the related Treasury securities, as applicable,
when paid at maturity, will automatically be applied to satisfy in full
your obligation to purchase common stock under the related purchase
contracts.
The common stock will then be issued and delivered to you or your designee,
upon presentation and surrender of the certificate evidencing the FELINE PACS
and payment by you of any transfer or similar taxes payable in connection with
the issuance of the common stock to any person other than you.
Where a holder of FELINE PACS effects the early settlement of the related
purchase contracts upon the occurrence of a cash merger through the delivery of
cash or settles the related purchase contracts with cash on the business day
immediately preceding February 16, 2005, the related notes, Treasury securities,
or the applicable ownership interest of the Treasury portfolio, as the case may
be, will be released to the holder as described in this prospectus supplement.
The funds received by the collateral agent on the business day immediately
preceding February 16, 2005, upon cash settlement of a purchase contract, will
be promptly invested in overnight permitted investments and paid to us on
February 16, 2005 to satisfy in full your obligation to purchase common stock
under the related purchase contracts. Any funds received by the collateral agent
in respect of the interest earned from the overnight investment in permitted
investments will be distributed to the purchase contract agent for payment to
the holders.
Prior to the date on which shares of common stock are issued in settlement
of purchase contracts, the common stock underlying the related purchase
contracts will not be deemed to be outstanding for any purpose and the holders
of those purchase contracts will not have any voting rights, rights to dividends
or other distributions, or other rights or privileges of a stockholder.
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As a holder of an Income PACS or Growth PACS purchased in this offering or
subsequently, you will, by acceptance and under the terms of the purchase
contract agreement and the related purchase contracts, be deemed to have:
(a) irrevocably agreed to be bound by the terms and provisions of the
related purchase contracts and the pledge agreement and agreed to perform
your obligations thereunder for so long as you remain a holder of that
FELINE PACS, and
(b) duly appointed the purchase contract agent as your
attorney-in-fact to enter into and perform the related purchase contracts
and pledge agreement on your behalf and in your name.
In addition, as a beneficial owner of Income PACS or Growth PACS, you, by
acceptance of the payments thereunder, will be deemed to have agreed to treat:
(a) yourself as the owner of the related note and the appropriate
applicable ownership interest of the Treasury portfolio or the Treasury
securities, as the case may be, and
(b) the notes as indebtedness for all tax purposes.
REMARKETING
Pursuant to the remarketing agreement and subject to the terms of the
supplemental remarketing agreement among the remarketing agent, the purchase
contract agent and us, unless a tax event redemption has occurred, the notes of
Income PACS holders will be remarketed on the third business day immediately
preceding November 16, 2004. Holders of notes that are not part of Income PACS
may also elect to have their notes remarketed.
The remarketing agent will use its reasonable efforts to remarket those
notes on that date at a price of approximately 100.5% of the Treasury portfolio
purchase price described below. The portion of the proceeds from the remarketing
equal to the Treasury portfolio purchase price will be applied to purchase a
Treasury portfolio consisting of:
(1) interest or principal strips of U.S. Treasury securities that
mature on or prior to February 15, 2005 in an aggregate amount equal to the
principal amount of the notes included in the Income PACS, and
(2) interest or principal strips of U.S. Treasury securities that
mature on or prior to February 15, 2005 in an aggregate amount equal to the
aggregate interest payment that would be due on that interest payment date
on the principal amount of the notes included in the Income PACS if the
interest rate on the notes was not reset as described in "Description of
the Notes -- Market Rate Reset."
The Treasury portfolio will be substituted for the notes and will be
pledged to the collateral agent to secure the obligations of Income PACS holders
to purchase our common stock under the purchase contracts.
In addition, the remarketing agent may deduct as a remarketing fee an
amount not exceeding 25 basis points (.25%) of the Treasury portfolio purchase
price from any amount of the proceeds in excess of the Treasury portfolio
purchase price. The remarketing agent will remit the remaining portion of the
proceeds, if any, for the benefit of the holders. Income PACS holders whose
notes are remarketed will not otherwise be responsible for payment of any
remarketing fee in connection with the remarketing.
As used in this context, the Treasury portfolio purchase price means the
lowest aggregate price quoted by a primary U.S. government securities dealer in
New York City to the quotation agent on the third business day immediately
preceding November 16, 2004 for the purchase of the Treasury portfolio described
above for settlement on November 16, 2004.
Quotation agent means Merrill Lynch Government Securities, Inc. or its
successor or any other primary U.S. government securities dealer in New York
City selected by us.
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If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related notes, other than to us, at a price equal to or greater
than 100% of the Treasury portfolio purchase price, or (2) a condition precedent
to the remarketing has not been satisfied, in each case resulting in a failed
remarketing, the notes will continue to be a component of Income PACS and
another remarketing may be attempted as described below.
If the remarketing of the notes on the third business day preceding
November 16, 2004 has resulted in a failed remarketing, unless a tax event
redemption has occurred, the notes of holders of Income PACS who fail to notify
the purchase contract agent on or before the fifth business day before February
16, 2005 of their intention to pay cash in order to satisfy their obligations
under the related purchase contracts, will be remarketed on the third business
day immediately preceding February 16, 2005.
The remarketing agent will then use its reasonable efforts to obtain a
price of approximately 100.5% of the aggregate principal amount of such notes.
The portion of the proceeds from the remarketing equal to the aggregate
principal amount of the notes will automatically be applied to satisfy in full
the obligations of the Income PACS holders to purchase our common stock under
the related purchase contracts.
In addition, the remarketing agent may deduct as a remarketing fee an
amount not exceeding 25 basis points (.25%) of the aggregate principal amount of
the remarketed notes from any amount of the proceeds in excess of the aggregate
principal amount of the remarketed notes. The remarketing agent will remit the
remaining portion of the proceeds, if any, for the benefit of the holders.
Income PACS holders whose notes are remarketed will not otherwise be responsible
for payment of any remarketing fee in connection with the remarketing.
If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related notes, other than to us, at a price equal to or greater
than 100% of the aggregate principal amount of the notes, or (2) a condition
precedent to the remarketing has not been satisfied, in each case resulting in a
failed remarketing, we will exercise our rights as a secured party to dispose of
the notes in accordance with applicable law and satisfy in full, from the
proceeds of that disposition, the holders' obligations to purchase common stock
under the related purchase contracts.
We will cause a notice of any failed remarketing to be published on the
second business day immediately preceding November 16, 2004 or February 16,
2005, as applicable, by publication in a daily newspaper in the English language
of general circulation in The City of New York, which is expected to be The Wall
Street Journal. In addition, we will request, not later than seven nor more than
15 calendar days prior to a remarketing date, that the depositary notify its
participants holding notes, Income PACS and Growth PACS of the remarketing,
including, in the case of a second failed remarketing, the procedures that must
be followed if a note holder wishes to exercise its right to put its note to us
as described in this prospectus supplement. If required by applicable law we
will endeavor to ensure that a registration statement with regard to the full
amount of the notes to be remarketed shall be effective in a form that will
enable the remarketing agent to rely on it in connection with the remarketing
process. It is currently anticipated that Merrill Lynch, Pierce, Fenner & Smith
Incorporated will be the remarketing agent.
NOTICE TO SETTLE WITH CASH
If you want to settle the purchase contract underlying a FELINE PACS with
cash on the business day immediately preceding February 16, 2005, you must
notify the purchase contract agent by presenting and surrendering the FELINE
PACS certificate evidencing those FELINE PACS. You must present the certificates
at the offices of the purchase contract agent with the form of "Notice to Settle
by Separate Cash" on the reverse side of the certificate completed and executed
as indicated. If you are an Income PACS holder, you must present the documents
on or prior to 5:00 p.m. New York City time on the fifth business day
immediately preceding February 16, 2005. If you are a Growth PACS holder, or you
are an Income PACS holder and the Treasury portfolio has replaced the notes as a
component of Income PACS as a result of a successful remarketing of the notes or
a tax event redemption, you must present the
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documents on or prior to 5:00 p.m., New York City time, on the second business
day immediately preceding February 16, 2005.
If you have given notice of your intention to settle the related purchase
contract with cash but fail to deliver the cash on the business day immediately
preceding February 16, 2005, we will exercise our right as a secured party to
dispose of, in accordance with applicable law, the related notes, the applicable
ownership interest of the Treasury portfolio or the Treasury securities, as the
case may be, to satisfy in full from the proceeds of that disposition your
obligation to purchase common stock under the related purchase contract.
EARLY SETTLEMENT UPON CASH MERGER
Prior to the settlement date, if we are involved in a merger in which at
least 30% of the consideration for our common stock consists of cash or cash
equivalents, which we refer to as a cash merger, then on or after the date of
the cash merger each holder of the FELINE PACS will have the right to accelerate
and settle the related purchase contract at the settlement rate in effect
immediately before the cash merger, provided that at such time, if so required
under the U.S. federal securities laws, there is in effect a registration
statement covering any securities to be delivered in respect of the purchase
contracts being settled. We refer to this right as the "merger early settlement
right." We will provide each of the holders with a notice of the completion of a
cash merger within five business days thereof. The notice will specify the early
settlement date, which shall be ten days after the date of the notice. The
notice will set forth, among other things, the formula for determining the
applicable settlement rate and the amount of the cash, securities and other
consideration receivable by the holder upon settlement. To exercise the merger
early settlement right, you must deliver to the purchase contract agent, not
later than one business day before the early settlement date, the certificate
evidencing your FELINE PACS, if the FELINE PACS are held in certificated form,
and payment of the applicable purchase price in the form of a certified or
cashier's check. If you exercise the merger early settlement right, we will
deliver to you on the early settlement date the kind and amount of securities,
cash or other property that you would have been entitled to receive if you had
settled the purchase contract immediately before the cash merger at the
settlement rate in effect at such time, determined using the average of the
closing prices per share of the common stock on each of the twenty consecutive
trading days ending on the third trading day immediately preceding the date of
the cash merger. You will also receive the notes or Treasury securities or
applicable ownership interests in the Treasury portfolio underlying the FELINE
PACS. Your receipt of the applicable ownership interests in the Treasury
portfolio will be subject to the purchase contract agent's disposition of the
subject securities for cash and the payment of the cash to you to the extent
that you would otherwise have been entitled to receive less than $1,000
principal amount at maturity of any security. If you do not elect to exercise
your merger early settlement right, your FELINE PACS will remain outstanding and
subject to normal settlement on the settlement date. We have agreed that, if
required under the U.S. federal securities laws, we will use commercially
reasonable efforts to (1) have in effect a registration statement covering any
securities to be delivered in respect of the purchase contracts being settled
and (2) provide a prospectus in connection therewith, in each case in a form
that may be used in connection with the early settlement upon a cash merger.
CONTRACT ADJUSTMENT PAYMENTS
Contract adjustment payments in respect of FELINE PACS will be fixed at a
rate per year of 2.50% of the stated amount. Contract adjustment payments
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. Contract adjustment payments will accrue from January 14, 2002
and will be payable quarterly in arrears on February 16, May 16, August 16, and
November 16 of each year, commencing May 16, 2002.
Contract adjustment payments will be payable to the holders of purchase
contracts as they appear on the books and records of the purchase contract agent
on the relevant record dates.
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As long as the FELINE PACS remain in book-entry only form, the record dates
will be the first day of each month in which the relevant contract adjustment
payment date falls. Those payments will be paid through the purchase contract
agent who will hold amounts received in respect of the contract adjustment
payments for your benefit relating to those FELINE PACS. Subject to any
applicable laws and regulations, each of those payments will be made as
described under "-- Book-entry system." If the FELINE PACS do not remain in
book-entry only form, we shall have the right to select relevant record dates,
which shall be more than one business day but less than 60 business days prior
to the relevant payment dates.
If any date on which contract adjustment payments are to be made on the
purchase contracts related to the FELINE PACS is not a business day, then
payment of the contract adjustment payments payable on that date will be made on
the next succeeding day that is a business day, and no interest or payment will
be paid in respect of the delay. A business day shall mean any day other than a
Saturday, Sunday or any other day on which banking institutions and trust
companies in The City of New York are permitted or required by any applicable
law to close.
Our obligations with respect to contract adjustment payments will be
subordinated and junior in right of payment to our obligations under any senior
debt.
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
We will have the right to defer payment of all or part of the contract
adjustment payments on the purchase contracts until no later than the purchase
contract settlement date. We will pay interest on any deferred contract
adjustment payment at a rate of 9.00% per year, compounded quarterly, until
paid. If the purchase contracts are settled early or terminated, you will have
no right to receive any deferred and unpaid contract adjustment payments. In the
event we exercise our option to defer the payment of contract adjustment
payments, then until the deferred contract adjustment payments have been paid,
we and our subsidiaries will not, with certain exceptions, declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of our capital
stock. We have no present intention of exercising our right to defer the payment
of the contract adjustment payments.
ANTI-DILUTION ADJUSTMENTS
The formula for calculating the settlement rate will be subject to
adjustment, without duplication, upon the occurrence of certain events,
including:
(a) issuances of our common stock as a dividend or distribution to all
holders of our common stock;
(b) the issuance to all holders of our common stock of rights,
warrants or options, other than pursuant to any dividend reinvestment plans
or share purchase plans, entitling them, for a period of up to 45 days, to
subscribe for or purchase our common stock at less than the current market
price at the time of announcement of such issuance;
(c) subdivisions, splits and combinations of our common stock;
(d) distributions to all holders of our common stock of evidences of
our indebtedness, shares of capital stock, securities, cash or property,
excluding any dividend or distribution covered by clause (a) or (b) above
and any dividend or distribution paid exclusively in cash;
(e) distributions consisting exclusively of cash to all holders of our
common stock in an aggregate amount that, together with
- other all-cash distributions made within the preceding 12 months and
- any cash and the fair market value, as of the expiration of the tender
or exchange offer referred to below, of consideration payable in
respect of any tender or exchange offer by us or
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a subsidiary of ours for our common stock concluded within the
preceding 12 months, exceeds 15% of our aggregate market
capitalization on the date of that distribution; the aggregate market
capitalization being the product of the current market price of the
common stock multiplied by the number of shares of common stock then
outstanding; and
(f) the successful completion of a tender or exchange offer made by us
or any subsidiary of ours for our common stock which involves an aggregate
consideration that, together with
- any cash and the fair market value of consideration payable in respect
of any tender or exchange offer by us or a subsidiary of ours for our
common stock concluded within the preceding 12 months and
- the aggregate amount of any all-cash distributions to all holders of
our common stock made within the preceding 12 months, exceeds 15% of
our aggregate market capitalization on the expiration of the tender or
exchange offer.
The current market price per share of common stock on any day means the
average of the daily closing prices for the ten consecutive trading days ending
not later than the earlier of the day in question and the day before the "ex
date" with respect to the issuance or distribution requiring the computation.
For purposes of this paragraph, the term "ex date," when used with respect to
any issuance or distribution, shall mean the first date on which the common
stock trades regular way on the applicable exchange or in the applicable market
without the right to receive the issuance or distribution.
The formula for calculating the settlement rate will not be adjusted for
other events, such as an offering of our common stock for cash, a third party
tender offer, or in connection with acquisitions.
In the case of reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions, which we refer to as merger events,
pursuant to which our common stock is converted into the right to receive
securities, cash or property, each purchase contract then outstanding would,
without the consent of the holders of the related Income PACS or Growth PACS, as
the case may be, become a contract to purchase only the kind and amount of
securities, cash and property receivable upon such merger event (except as
otherwise specifically provided, without any interest thereon and without any
right to dividends or distributions thereon which have a record date that is
prior to the purchase contract settlement date) which would have been received
by the holder of the related Income PACS or Growth PACS immediately prior to the
date of consummation of such transaction if such holder had then settled such
purchase contract.
If at any time (1) we make a distribution of property to our common
stockholders which would be taxable to those stockholders as a dividend for
United States federal income tax purposes, which includes generally
distributions of our evidences of indebtedness or assets, but generally not
stock dividends or rights to subscribe to capital stock and (2) according to the
settlement rate adjustment provisions of the purchase contract agreement, the
settlement rate is increased, that increase may give rise to a taxable dividend
to holders of FELINE PACS.
In addition, we may make increases to the settlement rate as our board of
directors deems advisable to avoid or diminish any income tax to holders of our
capital stock resulting from any dividend, distribution of capital stock,
distribution of rights to acquire capital stock or from any event treated
similarly for income tax purposes or for any other reasons.
Adjustments to the settlement rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the settlement rate shall be required
unless that adjustment would require an increase or decrease of at least one
percent in the settlement rate. We will carry forward and take into account in
any subsequent adjustment any adjustment that would otherwise be required to be
made but for its failure to exceed the percentage threshold.
We will be required to provide an officer's certificate to the purchase
contract agent setting forth the adjusted settlement rate and its calculation
and, within ten business days following the adjustment of the settlement rate,
to provide written notice to the holders of FELINE PACS of the occurrence of
that event
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and a statement specifying in reasonable detail the method by which the
adjustment to the settlement rate was determined and the revised settlement
rate.
Each adjustment to the settlement rate will result in a corresponding
adjustment to the number of shares of common stock issuable upon early
settlement of a purchase contract upon the occurrence of a cash merger.
TERMINATION OF PURCHASE CONTRACTS
The purchase contracts, our related rights and obligations and those of the
holders of the FELINE PACS, including the right and obligation to purchase
common stock and the right to receive accrued and unpaid contract adjustment
payments and deferred and unpaid contract adjustment payments, will
automatically terminate upon the occurrence of particular events of bankruptcy,
insolvency or reorganization with respect to us.
Upon termination, the collateral agent will release the related notes, the
appropriate applicable ownership interest of the Treasury portfolio or the
Treasury securities held by it to the purchase contract agent for distribution
to the holders. The release will be subject in the case of the Treasury
portfolio to the purchase contract agent's disposition of the subject securities
for cash and the payment of the cash to the holders to the extent that the
holders would otherwise have been entitled to receive less than $1,000 principal
amount at maturity of any security. Upon termination, however, the release and
distribution may be subject to a delay. If we become the subject of a case under
the Bankruptcy Code, a delay may occur as a result of the automatic stay under
the U.S. Bankruptcy Code and continue until the automatic stay has been lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The notes related to the Income PACS, the applicable ownership interest of
the Treasury portfolio if a successful remarketing of the notes or a tax event
redemption has occurred, or the Treasury securities related to the Growth PACS
(collectively, the pledged securities) will be pledged to the collateral agent,
for our benefit. Pursuant to the pledge agreement, the pledged securities will
secure the obligations of holders of FELINE PACS to purchase our common stock
under the related purchase contracts. Your rights to the related pledged
securities will be subject to our security interest created by the pledge
agreement. You will not be permitted to withdraw the pledged securities related
to the Income PACS or Growth PACS from the pledge arrangement except
(a) to substitute Treasury securities for the notes or the applicable
ownership interest of the Treasury portfolio,
(b) to substitute notes or the appropriate applicable ownership
interest of the Treasury portfolio for the related Treasury securities, or
(c) upon the termination or early settlement of the related purchase
contracts.
Subject to the security interest and the terms of the purchase contract
agreement and the pledge agreement, (1) each holder of Income PACS, unless the
Treasury portfolio has replaced the notes as a component of the Income PACS as a
result of a successful remarketing of the notes or a tax event redemption, will
be entitled through the purchase contract agent and the collateral agent to all
of the proportional rights and preferences of the related notes, including
distribution, voting, redemption, repayment and liquidation rights and (2) each
holder of Growth PACS or Income PACS, if the Treasury portfolio has replaced the
notes as a component of the Income PACS as a result of a successful remarketing
of the notes or a tax event redemption, will retain beneficial ownership of the
applicable ownership interest of the Treasury portfolio or the related Treasury
securities pledged in respect of the related purchase contracts. We will have no
interest in the pledged securities other than our security interest.
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Except as described in "Description of the Purchase Contracts -- General,"
the collateral agent will, upon receipt of payments on the pledged securities,
distribute those payments to the purchase contract agent, which will in turn
distribute them, together with contract adjustment payments received from us, to
the persons in whose names the related Income PACS or Growth PACS are registered
at the close of business on the record date immediately preceding the date of
payment.
BOOK-ENTRY SYSTEM
The Depository Trust Company, which we refer to along with its successors
in this capacity as the depositary, will act as securities depositary for the
FELINE PACS. The FELINE PACS will be issued only as fully-registered securities
registered in the name of Cede & Co., the depositary's nominee. One or more
fully-registered global security certificates, representing the total aggregate
number of FELINE PACS, will be issued and will be deposited with the depositary
and will bear a legend regarding the restrictions on exchanges and registration
of transfer referred to below.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer beneficial interests in the FELINE PACS so
long as the FELINE PACS are represented by global security certificates.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The depositary holds securities that its participants
deposit with the depositary. The depositary also facilitates the settlement
among participants of securities transactions, including transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. The depositary is owned by a number of its direct participants
and by the NYSE, the American Stock Exchange, Inc., and the National Association
of Securities Dealers, Inc. Access to the depositary's system is also available
to others, including securities brokers and dealers, banks and trust companies
that clear transactions through or maintain a direct or indirect custodial
relationship with a direct participant either directly or indirectly. The rules
applicable to the depositary and its participants are on file with the SEC.
No FELINE PACS represented by global security certificates may be exchanged
in whole or in part for FELINE PACS registered, and no transfer of global
security certificates in whole or in part may be registered, in the name of any
person other than the depositary or any nominee of the depositary except as set
forth below.
Ownership of beneficial interests in the global security certificates will
be limited to participants or persons that may hold beneficial interests through
institutions that have accounts with the depositary or its nominee. Ownership of
beneficial interests in global security certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the depositary or its nominee, with respect to participants'
interests, or any participant, with respect to interests of persons held by the
participant on their behalf.
Although the depositary has agreed to the foregoing procedures in order to
facilitate transfer of interests in the global security certificates among
participants, the depositary is under no obligation to perform or continue to
perform these procedures and these procedures may be discontinued at any time.
We will not have any responsibility for the performance by the depositary or its
direct participants or indirect participants under the rules and procedures
governing the depositary.
In the event that the depositary notifies us that it is unwilling or unable
to continue as a depositary for the global security certificates and no
successor depositary has been appointed within 90 days after this notice, or an
event of default under the purchase contract agreement or the indenture has
occurred and is
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continuing, certificates for the FELINE PACS will be printed and delivered in
exchange for beneficial interests in the global security certificates. Any
global note that is exchangeable pursuant to the preceding sentence shall be
exchangeable for FELINE PACS certificates registered in the names directed by
the depositary. We expect that these instructions will be based upon directions
received by the depositary from its participants with respect to ownership of
beneficial interests in the global security certificates.
As long as the depositary or its nominee is the registered owner of the
global security certificates, the depositary or the nominee, as the case may be,
will be considered the sole owner and holder of the global security certificates
and all FELINE PACS represented by these certificates for all purposes under the
FELINE PACS and the purchase contract agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in global
security certificates will not be entitled to have such global security
certificates or the FELINE PACS represented by these certificates registered in
their names, will not receive or be entitled to receive physical delivery of
FELINE PACS certificates in exchange for beneficial interests in global security
certificates and will not be considered to be owners or holders of the global
security certificates or any FELINE PACS represented by these certificates for
any purpose under the FELINE PACS or the purchase contract agreement.
All payments on the FELINE PACS represented by the global security
certificates and all transfers and deliveries of related notes, applicable
ownership interest of the Treasury portfolio, Treasury securities and common
stock will be made to the depositary or its nominee, as the case may be, as the
holder of the FELINE PACS.
Procedures for settlement of purchase contracts on February 16, 2005 or
upon early settlement upon the occurrence of a cash merger will be governed by
arrangements among the depositary, participants and persons that may hold
beneficial interests through participants designed to permit settlement without
the physical movement of certificates. Payments, transfers, deliveries,
exchanges and other matters relating to beneficial interests in global security
certificates may be subject to various policies and procedures adopted by the
depositary from time to time.
Neither we or any of our agents, nor the purchase contract agent or any of
its agents will have any responsibility or liability for any aspect of the
depositary's or any participant's records relating to, or for payments made on
account of, beneficial interests in global security certificates, or for
maintaining, supervising or reviewing any of the depositary's records or any
participant's records relating to these beneficial ownership interests.
The information in this section concerning the depositary and its
book-entry system has been obtained from sources that we believe to be reliable,
but we have not attempted to verify the accuracy of this information.
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DESCRIPTION OF THE PURCHASE CONTRACT AGREEMENT
AND THE PLEDGE AGREEMENT
The summary of the purchase contract agreement and pledge agreement set
forth below is not complete and is qualified in all respects by reference to
those agreements, forms of which have been filed as exhibits to the registration
statement of which this prospectus supplement and the accompanying prospectus
forms a part.
GENERAL
Except as described in "Description of the Purchase Contracts -- Book-entry
system," payments on the FELINE PACS will be payable, purchase contracts, and
documents related to the FELINE PACS and purchase contracts, will be settled,
and transfers of the FELINE PACS will be registrable, at the office of the
purchase contract agent in the Borough of Manhattan, The City of New York. In
addition, if the FELINE PACS do not remain in book-entry form, payment on the
FELINE PACS may be made, at our option, by check mailed to the address of the
person entitled to payment as shown on the security register.
Shares of our common stock will be delivered on February 16, 2005, or
earlier upon early settlement following a cash merger, or, if the purchase
contracts have terminated, the related pledged securities will be delivered,
potentially after a delay as a result of the imposition of the automatic stay
under the Bankruptcy Code, see "Description of the Purchase
Contracts -- Termination of purchase contracts," in each case upon presentation
and surrender of the FELINE PACS certificate at the office of the purchase
contract agent.
If you fail to present and surrender the FELINE PACS certificate evidencing
the Income PACS or Growth PACS to the purchase contract agent on February 16,
2005, the shares of common stock issuable in settlement of the related purchase
contract will be registered in the name of the purchase contract agent. The
shares of common stock, together with any related payment, will be held by the
purchase contract agent as agent for your benefit, until the FELINE PACS
certificate is presented and surrendered or you provide satisfactory evidence
that the certificate has been destroyed, lost or stolen, together with any
indemnity that may be required by the purchase contract agent and us.
If the purchase contracts have terminated prior to February 16, 2005, the
related pledged securities have been transferred to the purchase contract agent
for distribution to the holders, and a holder fails to present and surrender the
FELINE PACS certificate evidencing the holder's Income PACS or Growth PACS to
the purchase contract agent, the related pledged securities delivered to the
purchase contract agent and payments on the pledged securities will be held by
the purchase contract agent as agent for the benefit of the holder until the
FELINE PACS certificate is presented or the holder provides the evidence and
indemnity described above.
The purchase contract agent will have no obligation to invest or to pay
interest on any amounts held by the purchase contract agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the FELINE PACS, except for any tax or other governmental charge that may be
imposed in connection with a transfer or exchange.
MODIFICATION
The purchase contract agreement will contain provisions permitting us and
the purchase contract agent to modify the purchase contract agreement without
the consent of the holders for any of the following purposes:
- to evidence the succession of another person to our obligations,
- to evidence and provide for the acceptance of appointment of a successor
purchase contract agent,
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- to add to the covenants for the benefit of holders,
- to make provision with respect to the rights of holders pursuant to
adjustments in the settlement rate due to consolidations, mergers or
other reorganization events, or
- to cure any ambiguity, to correct or supplement any provisions that may
be inconsistent, or to make any other provisions with respect to such
matters or questions, provided that such action shall not adversely
affect the interest of the holders in any material respect.
The purchase contract agreement and the pledge agreement will contain
provisions permitting us and the purchase contract agent or collateral agent, as
the case may be, with the consent of the holders of not less than a majority of
the purchase contracts at the time outstanding, to modify the terms of the
purchase contracts, the purchase contract agreement and the pledge agreement.
However, no such modification may, without the consent of the holder of each
outstanding purchase contract affected by the modification,
- change any payment date,
- change the amount or type of pledged securities related to the purchase
contract, impair the right of the holder of any pledged securities to
receive distributions on the pledged securities or otherwise adversely
affect the holder's rights in or to those pledged securities,
- impair the right to institute suit for the enforcement of the purchase
contract, any contract adjustment payments or any deferred contract
adjustment payments,
- reduce the number of shares of common stock or the amount of any other
property purchasable under the purchase contract, increase the price to
purchase common stock or any other property upon settlement of the
purchase contract, change the purchase contract settlement date or the
right to early settlement following a cash merger or otherwise adversely
affect the holder's rights under the purchase contract,
- change the place or currency of payment or reduce any contract adjustment
payments or deferred contract adjustment payments, or
- reduce the above-stated percentage of outstanding purchase contracts the
consent of the holders of which is required for the modification or
amendment of the provisions of the purchase contracts, the purchase
contract agreement or the pledge agreement.
If any amendment or proposal referred to above would adversely affect only
the Income PACS or the Growth PACS, then only the affected class of holders will
be entitled to vote on the amendment or proposal and the amendment or proposal
will not be effective except with the consent of the holders of not less than a
majority of the affected class or all of the holders of the affected class, as
applicable.
NO CONSENT TO ASSUMPTION
Each holder of Income PACS or Growth PACS, by acceptance of these
securities, will under the terms of the purchase contract agreement and the
Income PACS or Growth PACS, as applicable, be deemed expressly to have withheld
any consent to the assumption, i.e., affirmance, of the related purchase
contracts by us or our trustee if we become the subject of a case under the
Bankruptcy Code or other similar state or federal law provisions for
reorganization or liquidation.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
We will covenant in the purchase contract agreement that we will not merge
or consolidate with or into any other entity or sell, assign, transfer, lease or
convey all or substantially all of our properties and assets to any person or
entity, unless (1) we are the continuing corporation or the successor entity is
a corporation organized and existing under the laws of the United States of
America or a U.S. State or the District of Columbia and such corporation
expressly assumes our obligations under the purchase contracts, the notes, the
purchase contract agreement, the pledge agreement, the indenture, including any
supplemental indenture, and the remarketing agreement and (2) we or the
successor corporation is not,
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immediately after the merger, consolidation, sale, assignment, transfer, lease
or conveyance, in default of our or its payment obligations under the purchase
contracts, the notes, the purchase contract agreement, the pledge agreement, the
indenture, including any supplemental indenture, and the remarketing agreement
or in material default in the performance of any of our or its other obligations
under these agreements.
TITLE
We, the purchase contract agent and the collateral agent may treat the
registered owner of any FELINE PACS as the absolute owner of the FELINE PACS for
the purpose of making payment and settling the related purchase contracts and
for all other purposes.
REPLACEMENT OF FELINE PACS CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PACS certificate will be replaced by us at the expense of the holder upon
surrender of the certificate to the purchase contract agent. FELINE PACS
certificates that become destroyed, lost or stolen will be replaced by us at the
expense of the holder upon delivery to us and the purchase contract agent of
evidence of the destruction, loss or theft satisfactory to us and the purchase
contract agent. In the case of a destroyed, lost or stolen FELINE PACS
certificate, an indemnity satisfactory to the purchase contract agent and us may
be required at the expense of the holder of the FELINE PACS evidenced by the
certificate before a replacement will be issued.
Notwithstanding the foregoing, we will not be obligated to issue any Income
PACS or Growth PACS on or after the business day immediately preceding February
16, 2005, or after early settlement with respect to a particular Income PACS or
Growth PACS, or after the purchase contracts have terminated. The purchase
contract agreement will provide that, in lieu of the delivery of a replacement
FELINE PACS certificate following February 16, 2005 or early settlement with
respect to a particular Income PACS or Growth PACS, the purchase contract agent,
upon delivery of the evidence and indemnity described above, will deliver the
common stock issuable pursuant to the purchase contracts included in the Income
PACS or Growth PACS evidenced by the certificate. If the purchase contracts have
terminated prior to February 16, 2005, the purchase contract agent will deliver
the notes, the appropriate applicable ownership interest of the Treasury
portfolio or the Treasury securities, as the case may be, included in the Income
PACS or Growth PACS evidenced by that certificate.
GOVERNING LAW
The purchase contract agreement, the pledge agreement and the purchase
contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
JPMorgan Chase Bank will be the purchase contract agent. The purchase
contract agent will act as your agent. The purchase contract agreement will not
obligate the purchase contract agent to exercise any discretionary actions in
connection with a default under the terms of the Income PACS and Growth PACS or
the purchase contract agreement.
The purchase contract agreement will contain provisions limiting the
liability of the purchase contract agent. The purchase contract agreement will
contain provisions under which the purchase contract agent may resign or be
replaced. This resignation or replacement would be effective upon the
appointment of a successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
JPMorgan Chase Bank will be the collateral agent. The collateral agent will
act solely as our agent and will not assume any obligation or relationship of
agency or trust for or with any of the holders of the
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Income PACS and Growth PACS except for the obligations owed by a pledgee of
property to the owner of the property under the pledge agreement and applicable
law.
The pledge agreement will contain provisions limiting the liability of the
collateral agent. The pledge agreement will contain provisions under which the
collateral agent may resign or be replaced. This resignation or replacement
would be effective upon the appointment of a successor.
Since JPMorgan Chase Bank is serving as both the collateral agent and the
purchase contract agent, if an event of default, except an event of default
occurring as a result of a failed remarketing on the third business day
immediately preceding February 16, 2005, occurs under the purchase contract
agreement or the pledge agreement, JPMorgan Chase Bank will resign as the
collateral agent, but remain as the purchase contract agent. We will then select
a new collateral agent in accordance with the terms of the pledge agreement.
MISCELLANEOUS
The purchase contract agreement will provide that we will pay all fees and
expenses other than underwriters' expenses (including counsel) related to the
offering of the FELINE PACS, the retention of the collateral agent and the
enforcement by the purchase contract agent of the rights of the holders of the
FELINE PACS.
Should you elect to substitute the related pledged securities, creating or
recreating Growth PACS or Income PACS, you shall be responsible for any fees or
expenses payable in connection with that substitution, as well as any
commissions, fees or other expenses incurred in acquiring the pledged securities
to be substituted, and we shall not be responsible for any of those fees or
expenses.
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DESCRIPTION OF THE NOTES
The following description is a summary of the terms of our 6.50% senior
notes due 2007. It supplements the description of the debt securities in the
accompanying prospectus and, to the extent it is inconsistent with the
prospectus, replaces the description in the prospectus. The notes will be issued
under the senior debt indenture between us and Bank One Trust Company, National
Association, as indenture trustee. The descriptions in this prospectus
supplement and the accompanying prospectus contain a description of the material
terms of the notes and the indenture but do not purport to be complete, and
reference is hereby made to the senior debt indenture, the supplemental
indenture, and the form of note that are or will be filed as exhibits or
incorporated by reference to the registration statement and to the Trust
Indenture Act.
GENERAL
The notes will be our direct, senior and unsecured obligations and will
rank without preference or priority among themselves and equally with all of our
existing and future unsecured and unsubordinated indebtedness. The notes
initially will be issued in aggregate principal amount equal to $1,000,000,000.
If the over-allotment option is exercised in full by the underwriters an
additional $150,000,000 of the notes will be issued.
The notes will not be subject to a sinking fund provision. Unless a tax
event redemption has occurred prior to February 16, 2007, the entire principal
amount of the notes will mature and become due and payable, together with any
accrued and unpaid interest, on February 16, 2007. Except for a tax event
redemption, we may not redeem the notes.
Notes forming a part of the Income PACS will be issued in certificated
form, will be in denominations of $25 and integral multiples of $25, without
coupons, and may be transferred or exchanged, without service charge but upon
payment of any taxes or other governmental charges payable in connection with
the transfer or exchange, at the offices described below. Payments on notes
issued as a global security will be made to the depositary, a successor
depositary or, in the event that no depositary is used, to a paying agent for
the notes. Principal and interest with respect to certificated notes will be
payable, the transfer of the notes will be registrable and notes will be
exchangeable for notes of other denominations of a like aggregate principal
amount, at the office or agency maintained by us for this purpose in the Borough
of Manhattan, The City of New York. However, at our option, payment of interest
may be made by check mailed to the address of the holder entitled to payment or
by wire transfer to an account appropriately designated by the holder entitled
to payment. We will appoint Bank One Trust Company as the initial paying agent,
transfer agent and registrar for the notes. We may at any time designate
additional transfer agents and paying agents with respect to the notes, and may
remove any transfer agent, paying agent or registrar for the notes. We will at
all times be required to maintain a paying agent and transfer agent for the
notes in the Borough of Manhattan, The City of New York.
Any monies deposited with the trustee or any paying agent, or held by us in
trust, for the payment of principal of or interest on any note and remaining
unclaimed for two years after such principal or interest has become due and
payable shall, at our request, be repaid to us or released from trust, as
applicable, and the holder of the note shall thereafter look, as a general
unsecured creditor, only to us for the payment thereof.
The indenture does not contain provisions that afford holders of the notes
protection in the event of a highly leveraged transaction or other similar
transaction involving us that may adversely affect the holders.
INTEREST
Each note shall bear interest initially at the rate of 6.50% per year from
the original issue date, payable quarterly in arrears on February 16, May 16,
August 16 and November 16 of each year, each an "interest payment date,"
commencing May 16, 2002 to the person in whose name the note is registered at
the close of business on the first day of the month in which the interest
payment date falls. The original
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issue discount rules that apply to contingent payment debt instruments should
govern the income inclusions with respect to the notes for United States federal
income tax purposes.
The applicable interest rate on the notes will be reset on the third
business day immediately preceding November 16, 2004 to the reset rate described
below under "-- Market rate reset," unless the remarketing of the notes on that
date fails. If the remarketing of the notes on that date fails, the interest
rate on the notes will not be reset at that time. However, in these
circumstances, the interest rate on the notes outstanding on and after November
16, 2004 will be reset on the third business day immediately preceding February
16, 2005 to the reset rate described below, unless the remarketing of the notes
on that date also fails, in which case the interest rate will not be reset.
The amount of interest payable for any period will be computed on the basis
of a 360-day year consisting of twelve 30-day months.
MARKET RATE RESET
The reset rate will be equal to the sum of the reset spread and the rate of
interest on the applicable benchmark Treasury in effect on the third business
day immediately preceding November 16, 2004 or February 16, 2005, as the case
may be, and will be determined by the reset agent. In the case of a reset on the
third business day immediately preceding November 16, 2004, the reset rate will
be the rate determined by the reset agent as the rate the notes should bear in
order for the notes included in Income PACS to have an approximate aggregate
market value on the reset date of 100.5% of the Treasury portfolio purchase
price described under "Description of the Purchase Contracts -- Remarketing." In
the case of a reset on the third business day immediately preceding February 16,
2005, the reset rate will be the rate determined by the reset agent as the rate
the notes should bear in order for each note to have an approximate market value
of 100.5% of the principal amount of the notes. The reset rate will in no event
exceed the maximum rate permitted by applicable law.
The applicable benchmark Treasury means direct obligations of the United
States, as agreed upon by us and the reset agent, which may be obligations
traded on a when-issued basis only, having a maturity comparable to the
remaining term to maturity of the notes, which will be two years or two and
one-quarter years as applicable. The rate for the applicable benchmark Treasury
will be the bid side rate displayed at 10:00 A.M., New York City time, on the
third business day immediately preceding November 16, 2004 or February 16, 2005,
as applicable, in the Telerate system, or if the Telerate system is (a) no
longer available on that date or (b) in the opinion of the reset agent, after
consultation with us, no longer an appropriate system from which to obtain the
rate, such other nationally recognized quotation system as, in the opinion of
the reset agent, after consultation with us, is appropriate. If this rate is not
so displayed, the rate for the applicable benchmark Treasury will be, as
calculated by the reset agent, the yield to maturity for the applicable
benchmark Treasury, expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis, and computed by taking
the arithmetic mean of the secondary market bid rates, as of 10:30 A.M., New
York City time, on the third business day immediately preceding November 16,
2004 or February 16, 2005, as applicable, of three leading United States
government securities dealers selected by the reset agent, after consultation
with us. These dealers may include the reset agent or an affiliate thereof. We
currently anticipate that Merrill Lynch, Pierce, Fenner & Smith Incorporated
will be the reset agent.
On the seventh business day immediately preceding November 16, 2004 or
February 16, 2005, which we refer to as the reset announcement date
(1) the applicable benchmark Treasury to be used to determine the
reset rate on the third business day prior to November 16, 2004 or February
16, 2005, as applicable, will be selected,
(2) the reset agent will establish the reset spread to be added to the
rate on the applicable benchmark Treasury in effect on the third business
day immediately preceding November 16, 2004 or February 16, 2005, as
applicable, and
(3) we will announce the reset spread and the applicable benchmark
Treasury.
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We will cause a notice of the reset spread and the applicable benchmark
Treasury to be published on the business day following the reset announcement
date by publication in a daily newspaper in the English language of general
circulation in New York City, which is expected to be The Wall Street Journal.
We will request, not later than seven nor more than 15 calendar days prior to
the reset announcement date, that the depositary notify its participants holding
notes, Income PACS or Growth PACS of the reset announcement date and of the
procedures that must be followed if any owner of FELINE PACS wishes to settle
the related purchase contract with cash on the business day immediately
preceding February 16, 2005.
OPTIONAL REMARKETING
On or prior to the fifth business day immediately preceding November 16,
2004, in the case of the remarketing to be conducted on the third business day
preceding November 16, 2004, or February 16, 2005, in the case of the
remarketing, if any, to be conducted on the third business day preceding
February 16, 2005, but no earlier than the interest payment date immediately
preceding November 16, 2004 or February 16, 2005, as applicable, holders of
notes that are not components of Income PACS may elect to have their notes
remarketed in the same manner as notes that are components of Income PACS by
delivering their notes along with a notice of this election to the collateral
agent. The collateral agent will hold the notes in an account separate from the
collateral account in which the pledged securities will be held. Holders of
notes electing to have their notes remarketed will also have the right to
withdraw the election on or prior to the fifth business day immediately
preceding November 16, 2004 or February 16, 2005, as applicable.
PUT OPTION UPON A FAILED REMARKETING
If the remarketing of the notes on the third business day immediately
preceding February 16, 2005 has occurred and has resulted in a failed
remarketing, holders of notes following February 16, 2005 will have the right to
put the notes to us until April 1, 2005, upon at least three business days'
prior notice, at a price equal to 100% of the principal amount, plus accrued and
unpaid interest, if any.
TAX EVENT REDEMPTION
If a tax event occurs and is continuing, we may, at our option, redeem the
notes in whole, but not in part, at any time at a price, which we refer to as
the redemption price, equal to, for each note, the redemption amount described
below plus accrued and unpaid interest, if any, to the date of redemption.
Installments of interest on notes which are due and payable on or prior to a
redemption date will be payable to the holders of the notes registered as such
at the close of business on the relevant record dates. If, following the
occurrence of a tax event, we exercise our option to redeem the notes, the
proceeds of the redemption will be payable in cash to the holders of the notes.
If the tax event redemption occurs prior to November 16, 2004, or if the notes
are not successfully remarketed on the third business day immediately preceding
November 16, 2004, prior to February 16, 2005, the redemption price for the
notes forming a part of the Income PACS will be distributed to the collateral
agent, who in turn will purchase the Treasury portfolio described below on
behalf of the holders of Income PACS and remit the remainder of the redemption
price, if any, to the purchase contract agent for payment to the holders. The
Treasury portfolio will be substituted for the notes and will be pledged to the
collateral agent to secure the Income PACS holders' obligations to purchase our
common stock under the purchase contracts.
Tax event means the receipt by us of an opinion of nationally recognized
independent tax counsel experienced in such matters to the effect that, as a
result of
- any amendment to, change in, or announced proposed change in, the laws,
or any regulations thereunder, of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation,
- any amendment to or change in an interpretation or application of any
such laws or regulations by any legislative body, court, governmental
agency or regulatory authority, or
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- any interpretation or pronouncement that provides for a position with
respect to any such laws or regulations that differs from the generally
accepted position on the date of this prospectus supplement, which
amendment, change or proposed change is effective or which interpretation
or pronouncement is announced on or after the date of this prospectus
supplement, there is more than an insubstantial risk that interest or
original issue discount on the notes would not be deductible, in whole or
in part, by us for United States federal income tax purposes.
The Treasury portfolio to be purchased on behalf of the holders of Income
PACS will consist of:
- interest or principal strips of U.S. Treasury securities that mature on
or prior to February 15, 2005 in an aggregate amount equal to the
aggregate principal amount of the notes included in Income PACS; and
- with respect to each scheduled interest payment date on the notes that
occurs after the tax event redemption date and on or before February 16,
2005, interest or principal strips of U.S. Treasury securities that
mature on or prior to that interest payment date in an aggregate amount
equal to the aggregate interest payment that would be due on the
aggregate principal amount of the notes on that date if the interest rate
of the notes was not reset on the applicable reset date.
Solely for purposes of determining the Treasury portfolio purchase price in
the case of a tax event redemption date occurring after November 16, 2004, if
there was a successful remarketing of the notes on the third business day
preceding such date, or February 16, 2005 if the remarketing of the notes on the
third business day preceding November 16, 2004 resulted in a failed remarketing,
"Treasury portfolio" shall mean a portfolio of zero-coupon U.S. Treasury
securities consisting of:
- principal or interest strips of U.S. Treasury securities which mature on
or prior to February 15, 2007 in an aggregate amount equal to the
aggregate principal amount of the notes outstanding on the tax event
redemption date; and
- with respect to each scheduled interest payment date on the notes that
occurs after the tax event redemption date, interest or principal strips
of U.S. Treasury securities which mature prior to that interest payment
date in an aggregate amount equal to the aggregate interest payment that
would be due on the aggregate principal amount of the notes outstanding
on the tax event redemption date if the interest rate of the notes was
not reset on the applicable reset date.
Redemption amount means
- in the case of a tax event redemption occurring prior to November 16,
2004, or prior to February 16, 2005 if the remarketing of the notes on
the third business day preceding November 16, 2004 resulted in a failed
remarketing, for each note the product of the principal amount of the
note and a fraction whose numerator is the Treasury portfolio purchase
price and whose denominator is the aggregate principal amount of notes
included in Income PACS; and
- in the case of a tax event redemption date occurring on or after November
16, 2004, or February 16, 2005 if the remarketing of the notes on the
third business day preceding November 16, 2004 resulted in a failed
remarketing, for each note the product of the principal amount of the
note and a fraction whose numerator is the Treasury portfolio purchase
price and whose denominator is the aggregate principal amount of the
notes outstanding on the tax event redemption date.
Treasury portfolio purchase price means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City to the quotation
agent on the third business day immediately preceding the tax event redemption
date for the purchase of the Treasury portfolio for settlement on the tax event
redemption date.
Quotation agent means Merrill Lynch Government Securities, Inc. or its
successor or any other primary U.S. government securities dealer in New York
City selected by us.
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Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of notes to be
redeemed at its registered address. Unless we default in payment of the
redemption price, on and after the redemption date interest shall cease to
accrue on the notes. In the event any notes are called for redemption, neither
we nor the trustee will be required to register the transfer of or exchange the
notes to be redeemed.
BOOK-ENTRY CLEARANCE AND SETTLEMENT
Notes which are released from the pledge following substitution or early
settlement will be issued in the form of one or more global certificates, which
we refer to as global securities, registered in the name of the depositary or
its nominee. Except under the limited circumstances described below or except
upon recreation of Income PACS, notes represented by the global securities will
not be exchangeable for, and will not otherwise be issuable as, notes in
certificated form. The global securities described above may not be transferred
except by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of the securities in certificated form. These
laws may impair the ability to transfer beneficial interests in such a global
security.
Except as provided below, owners of beneficial interests in such a global
security will not be entitled to receive physical delivery of notes in
certificated form and will not be considered the holders, as defined in the
indenture, thereof for any purpose under the indenture, and no global security
representing notes shall be exchangeable, except for another global security of
like denomination and tenor to be registered in the name of the depositary or
its nominee or a successor depositary or its nominee. Accordingly, each
beneficial owner must rely on the procedures of the depositary or if such person
is not a participant, on the procedures of the participant through which such
person owns its interest to exercise any rights of a holder under the indenture.
In the event that
- the depositary notifies us that it is unwilling or unable to continue as
a depositary for the global security certificates and no successor
depositary has been appointed within 90 days after this notice, or
- the depositary at any time ceases to be a clearing agency registered
under the Securities Exchange Act at which time the depositary is
required to be so registered to act as the depositary and no successor
depositary has been appointed within 90 days after we learn that the
depositary has ceased to be so registered, or
- we determine in our sole discretion that we will no longer have debt
securities represented by global securities or permit the global security
certificates to be exchangeable or an event of default under the
indenture has occurred and is continuing,
certificates for the notes will be printed and delivered in exchange for
beneficial interests in the global security certificates. Any global note that
is exchangeable pursuant to the preceding sentence shall be exchangeable for
note certificates registered in the names directed by the depositary. We expect
that these instructions will be based upon directions received by the depositary
from its participants with respect to ownership of beneficial interests in the
global security certificates.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of the FELINE
PACS, notes and common stock acquired under a purchase contract. This summary
deals only with FELINE PACS, notes and common stock that are held as capital
assets by holders that purchase FELINE PACS upon original issuance at their
issue price. This summary does not address all of the tax consequences that may
be relevant to holders in light of their particular circumstances, such as
holders that may be subject to special tax treatment such as banks, insurance
companies, broker dealers, tax-exempt organizations, holders that hold FELINE
PACS, notes or common stock as part of a straddle, hedge, conversion transaction
or other integrated investment and holders whose functional currency is not the
U.S. dollar. In addition, this summary does not address any aspects of state,
local or foreign tax laws. This summary is based on the United States federal
income tax laws, regulations, rulings and decisions in effect as of the date
hereof, all of which are subject to change or differing interpretations,
possibly on a retroactive basis.
No statutory, administrative or judicial authority directly addresses the
treatment of FELINE PACS or instruments similar to FELINE PACS for United States
federal income tax purposes. As a result, no assurance can be given that the
Internal Revenue Service will agree with the tax consequences described herein.
Each prospective investor should consult its tax advisor as to the particular
tax consequences of purchasing, owning and disposing of the FELINE PACS, notes
or common stock, including the application and effect of United States federal,
state, local and foreign tax laws.
U.S. HOLDERS
The following summary is addressed to U.S. holders. For purposes of this
summary, "U.S. holder" means (1) a person who is a citizen or resident of the
United States, (2) a corporation or partnership created or organized in or under
the laws of the United States or any state thereof or the District of Columbia,
(3) an estate the income of which is subject to United States federal income
taxation regardless of its source or (4) a trust if (a) a court within the
United States is able to exercise primary supervision over the administration of
such trust and one or more United States persons have the authority to control
all substantial decisions of the trust or (b) such trust has in effect a valid
election to be treated as a domestic trust for United States federal income tax
purposes. If a partnership holds FELINE PACS, notes or common stock, the tax
treatment of a partner will generally depend upon the status of the partner and
the activities of the partnership.
FELINE PACS
Allocation of Purchase Price. A holder's acquisition of an Income PACS
will be treated as an acquisition of a unit consisting of the note and the
purchase contract that constitute such Income PACS. The purchase price of each
Income PACS will be allocated between the two components in proportion to their
respective fair market values at the time of purchase. Such allocation will
establish the holder's initial tax basis in the note and the purchase contract.
We will report the fair market value of each note as $25 and the fair market
value of each purchase contract as $0. This position will be binding upon each
holder (but not on the Internal Revenue Service) unless such holder explicitly
discloses a contrary position on a statement attached to such holder's timely
filed United States federal income tax return for the taxable year in which an
Income PACS is acquired. Thus, absent such disclosure, a holder should allocate
the purchase price for an Income PACS in accordance with the foregoing. The
remainder of this discussion assumes that this allocation of purchase price will
be respected for United States federal income tax purposes.
Ownership of Notes or Treasury Securities. A holder will be treated as
owning the notes or Treasury securities constituting a part of the Income PACS
or Growth PACS, respectively, for United States federal income tax purposes. We
and, by acquiring FELINE PACS, each holder agree to treat the notes or Treasury
securities constituting a part of the FELINE PACS as owned by such holder for
all tax purposes, and the remainder of this summary assumes such treatment. The
United States federal income
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tax consequences of owning the notes or Treasury securities are discussed below
(see "Notes" and "Treasury Securities").
Sales, Exchanges or Other Taxable Dispositions of FELINE PACS. Upon a
sale, exchange or other taxable disposition of a FELINE PACS, a holder will be
treated as having sold, exchanged or disposed of the purchase contract and the
notes, the Treasury portfolio or the Treasury securities that constitute such
FELINE PACS and will generally recognize gain or loss equal to the difference
between the portion of the proceeds to such holder allocable to the purchase
contract and the notes, the Treasury portfolio or Treasury securities, as the
case may be, and such holder's respective adjusted tax basis in the purchase
contract and the notes, the Treasury portfolio or Treasury securities, except to
the extent such holder is treated as receiving an amount with respect to accrued
acquisition discount on the Treasury portfolio or Treasury securities, which
amount will be treated as ordinary income, or to the extent such holder is
treated as receiving an amount with respect to accrued contract adjustment
payments or deferred contract adjustment payments, which may be treated as
ordinary income, in each case, to the extent not previously included in income.
In the case of the purchase contract, the Treasury portfolio and Treasury
securities, such gain or loss will generally be capital gain or loss, and such
gain or loss will generally be long-term capital gain or loss if the holder held
such FELINE PACS for more than one year at the time of such disposition.
Long-term capital gains of individuals are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations.
If the disposition of a FELINE PACS occurs when the purchase contract has
negative value, the holder should be considered to have received additional
consideration for the notes, the Treasury portfolio or Treasury securities, as
the case may be, in an amount equal to such negative value and to have paid such
amount to be released from the holder's obligation under the purchase contract.
If such deemed additional consideration with respect to a note results in
income, such income should be ordinary and may not be offset by a loss realized
with respect to the purchase contract. The rules that govern the determination
of the character of gain or loss on the disposition of the notes are summarized
under "Notes -- Sales, Exchanges or Other Taxable Dispositions of Notes."
In determining gain or loss, payments to a holder of contract adjustment
payments or deferred contract adjustment payments that have not previously been
included in the income of such holder should either reduce such holder's
adjusted tax basis in the purchase contract or result in an increase in the
amount realized on the disposition of the purchase contract. Any contract
adjustment payments or deferred contract adjustment payments included in a
holder's income but not paid should increase such holder's adjusted tax basis in
the purchase contract (see "-- Purchase Contracts -- Contract Adjustment
Payments and Deferred Contract Adjustment Payments" below).
NOTES
Classification of the Notes. In connection with the issuance of the notes,
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion that, under
current law, and based on certain representations, facts and assumptions set
forth in such opinion, the notes will be classified as indebtedness for United
States federal income tax purposes. We and, by acquiring Income PACS, each
holder agree to treat the notes as our indebtedness for all tax purposes.
Original Issue Discount. Because of the manner in which the interest rate
on the notes is reset, the notes should be classified as contingent payment debt
instruments subject to the "noncontingent bond method" for accruing original
issue discount, as set forth in the applicable Treasury regulations. We intend
to treat the notes as such, and the remainder of this discussion assumes that
the notes will be so treated for United States federal income tax purposes. As
discussed more fully below, the effects of applying such method will be (1) to
require each holder, regardless of its usual method of tax accounting, to use an
accrual method with respect to the notes, (2) for all accrual periods until
November 16, 2004, to require each holder to accrue interest income in excess of
interest payments actually received and (3) generally to result in ordinary,
rather than capital, treatment of any gain or loss on the sale, exchange or
other taxable disposition of the notes. See "-- Sales, Exchanges or Other
Taxable Dispositions of Notes."
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A holder of notes will accrue original issue discount on a constant yield
to maturity basis based on the "comparable yield" of the notes. The comparable
yield of the notes will generally be the rate at which we would issue a fixed
rate debt instrument with terms and conditions similar to the notes. We have
determined that the comparable yield is 7.10% and the projected payments for the
notes per $25.00 of principal amount are $.55 on May 16, 2002, $.41 for each
subsequent quarter ending on or prior to November 16, 2004, and $.49 for each
quarter ending after November 16, 2004. We have also determined that the
projected payment for the notes, per $25.00 of principal amount, at the maturity
date is $25.49 (which includes the stated principal amount of the notes as well
as the final projected interest payment).
If after November 16, 2004, the remaining amounts of principal and interest
payable on the notes differ from the payments set forth on the foregoing
projected payment schedule, negative or positive adjustments reflecting such
difference should generally be taken into account by a holder as adjustments to
interest income in a reasonable manner over the period to which they relate. We
expect to account for any such difference with respect to a period as an
adjustment for that period.
Holders are generally bound by the comparable yield and projected payment
schedule provided by us unless either is unreasonable. A holder that uses its
own comparable yield and projected payment schedule must explicitly disclose
this fact and the reason that it has used its own comparable yield and projected
payment schedule. In general, this disclosure must be made on a statement
attached to the timely filed United States federal income tax return of the
holder for the taxable year that includes the date of its acquisition of the
note.
The foregoing comparable yield and projected payment schedule are supplied
solely for computing income under the noncontingent bond method for United
States federal income tax purposes and do not constitute a projection or
representation as to the amounts that a holder of notes or Income PACS will
actually receive.
Adjustment to Tax Basis in Notes. A holder's tax basis in a note will be
increased by the amount of original issue discount included in income with
respect to the note and decreased by the amount of projected payments with
respect to the notes through the computation date.
Sales, Exchanges or Other Taxable Dispositions of Notes. A holder will
recognize gain or loss on a disposition of a note (including a redemption for
cash or upon the remarketing thereof) in an amount equal to the difference
between the amount realized by the holder on the disposition of the note and the
holder's adjusted tax basis in such note. Selling expenses incurred by a holder,
including the remarketing fee, will reduce the amount of gain or increase the
amount of loss recognized by such holder upon a disposition of a note. Gain
recognized on the disposition of a note prior to the purchase contract
settlement date will be treated as ordinary interest income. Loss recognized on
the disposition of a note prior to the purchase contract settlement date will be
treated as ordinary loss to the extent of such holder's prior inclusions of
original issue discount on the note and as capital loss thereafter. In general,
gain recognized on the disposition of a note on or after the purchase contract
settlement date will be ordinary interest income to the extent attributable to
the excess, if any, of the total remaining principal and interest payments due
on the note over the total remaining payments set forth on the projected payment
schedule for the note. Any gain recognized in excess of such amount and any loss
recognized on such a disposition will generally be treated as a capital gain or
loss. Long-term capital gains of individuals are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations.
TREASURY SECURITIES
Original Issue Discount. A holder of Growth PACS will be required to treat
its ownership interest in the Treasury securities comprising a Growth PACS as an
interest in a bond that was originally issued on the date such holder acquired
the Treasury securities and that has original issue discount equal to the excess
of the amount payable at maturity of such Treasury securities over the purchase
price thereof. A holder will be required to include such original issue discount
in income on a constant yield to maturity basis over the period between the
purchase date of the Treasury securities and the maturity date of the
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Treasury securities, regardless of such holder's method of tax accounting and in
advance of the receipt of cash attributable to such original issue discount.
Amounts of original issue discount included in a holder's gross income will
increase such holder's adjusted tax basis in the Treasury securities.
Sales, Exchanges or Other Taxable Dispositions of Treasury Securities. As
discussed below, in the event that a holder obtains the release of Treasury
securities by delivering notes to the collateral agent, the holder will
generally not recognize gain or loss upon such substitution. The holder will
recognize gain or loss on a subsequent disposition of the Treasury securities in
an amount equal to the difference between the amount realized by the holder on
such disposition and the holder's adjusted tax basis in the Treasury securities,
except to the extent such holder is treated as receiving an amount with respect
to accrued acquisition discount on the Treasury securities, which amount will be
treated as ordinary income. Such gain or loss will generally be capital gain or
loss and will generally be long-term capital gain or loss if the holder held
such Treasury securities for more than one year at the time of the disposition.
Long-term capital gains of individuals are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations.
PURCHASE CONTRACTS
Contract Adjustment Payments and Deferred Contract Adjustment
Payments. There is no direct authority that addresses the treatment, under
current law, of contract adjustment payments or deferred contract adjustment
payments, and such treatment is, therefore, unclear. Contract adjustment
payments and deferred contract adjustment payments may constitute taxable income
to a holder of FELINE PACS when received or accrued, in accordance with the
holder's regular method of tax accounting. To the extent we are required to file
information returns with respect to contract adjustment payments or deferred
contract adjustment payments, we intend to report such payments as taxable
income to each holder. Holders should consult their tax advisors concerning the
treatment of contract adjustment payments and deferred contract adjustment
payments, including the possibility that any contract adjustment payment or
deferred contract adjustment payment may be treated as a loan, purchase price
adjustment, rebate or payment analogous to an option premium, rather than being
includible in income on a current basis. The treatment of contract adjustment
payments and deferred contract adjustment payments could affect a holder's
adjusted tax basis in a purchase contract or common stock received under a
purchase contract or the amount realized by a holder upon the sale or
disposition of a FELINE PACS or the termination of a purchase contract. See
"FELINE PACS -- Sales, Exchanges or Other Taxable Dispositions of FELINE PACS,"
"-- Acquisition of Common Stock Under a Purchase Contract" and "-- Termination
of Purchase Contract."
Acquisition of Common Stock Under a Purchase Contract. A holder of a
FELINE PACS will generally not recognize gain or loss on the purchase of common
stock under a purchase contract, including upon an early settlement upon a cash
merger, except with respect to any cash paid in lieu of a fractional share of
common stock. Subject to the following discussion, a holder's aggregate initial
tax basis in the common stock received under a purchase contract should
generally equal the purchase price paid for such common stock plus such holder's
adjusted tax basis in the purchase contract, if any, less the portion of such
purchase price and adjusted tax basis allocable to a fractional share. Payments
of contract adjustment payments or deferred contract adjustment payments that
have been received in cash by a holder but not included in income by such holder
should reduce such holder's adjusted tax basis in the purchase contract or the
common stock to be received thereunder (see "-- Contract Adjustment Payments and
Deferred Contract Adjustment Payments" above). The holding period for common
stock received under a purchase contract will commence on the date following the
acquisition of such common stock.
Ownership of Common Stock Acquired Under the Purchase Contract. Any
distribution on common stock we pay out of our current or accumulated earnings
and profits (as determined for United States federal income tax purposes) will
constitute a dividend and will be includible in income by a holder when
received. Any such dividend will be eligible for the dividends received
deduction if received by an otherwise qualifying corporate holder that meets the
holding period and other requirements for the dividends received deduction. Upon
a disposition of common stock, a holder will generally recognize
S-53
capital gain or loss equal to the difference between the amount realized and
such holder's adjusted tax basis in the common stock. Such capital gain or loss
will generally be long-term capital gain or loss if the holder held such common
stock for more than one year at the time of such disposition. Long-term capital
gains of individuals are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
Termination of Purchase Contract. If a purchase contract terminates, a
holder of a FELINE PACS will recognize gain or loss equal to the difference
between the amount realized, if any, upon such termination and such holder's
adjusted tax basis, if any, in the purchase contract at the time of such
termination. Any contract adjustment payments or deferred contract adjustment
payments received by a holder but not previously included in income by such
holder should either reduce such holder's adjusted tax basis in the purchase
contract or increase the amount realized on the termination of the purchase
contract. Any contract adjustment payments or deferred contract adjustment
payments included in a holder's income but not received should increase such
holder's adjusted tax basis in the purchase contract. Gain or loss recognized
will generally be capital gain or loss and will generally be long-term capital
gain or loss if the holder held such purchase contract for more than one year at
the time of such termination. Long-term capital gains of individuals are
eligible for reduced rates of taxation. The deductibility of capital losses is
subject to limitations. A holder will not recognize gain or loss on the receipt
of such holder's proportionate share of the notes, Treasury securities or the
Treasury portfolio upon termination of the purchase contract and will have the
same adjusted tax basis and holding period in such notes, Treasury securities or
the Treasury portfolio as before such termination.
Adjustment to Settlement Rate. A holder of FELINE PACS might be treated as
receiving a constructive dividend distribution from us if (l) the settlement
rate is adjusted and as a result of such adjustment the proportionate interest
of holders of FELINE PACS in our assets or earnings and profits is increased and
(2) the adjustment is not made pursuant to a bona fide, reasonable anti-dilution
formula. An adjustment in the settlement rate would not be considered made
pursuant to such a formula if the adjustment were made to compensate a holder
for certain taxable distributions with respect to the common stock.
SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE GROWTH PACS
A holder of an Income PACS that delivers Treasury securities to the
collateral agent in substitution for notes or the Treasury portfolio will
generally not recognize gain or loss upon the delivery of such Treasury
securities or the release of the notes or the Treasury portfolio to such holder.
Such holder will continue to take into account items of income or deduction
otherwise includible or deductible, respectively, by such holder with respect to
such Treasury securities and notes or the Treasury portfolio, and such holder's
adjusted tax bases in the Treasury securities and the notes or the Treasury
portfolio and the purchase contract will not be affected by such delivery and
release.
SUBSTITUTION OF NOTES TO RECREATE INCOME PACS
A holder of a Growth PACS that delivers notes to the collateral agent in
substitution for Treasury securities will generally not recognize gain or loss
upon the delivery of such notes or the release of the Treasury securities to the
holder. Such holder will continue to take into account items of income or
deduction otherwise includible or deductible, respectively, by such holder with
respect to such Treasury securities and notes, and such holder's adjusted tax
bases in the Treasury securities, the notes and the purchase contract will not
be affected by such delivery and release.
REMARKETING AND TAX EVENT REDEMPTION OF NOTES
A remarketing or tax event redemption will be a taxable event for holders
of notes which will have the United States federal income tax consequences
described under "Notes -- Sales, Exchanges or Other Taxable Dispositions of
Notes."
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Ownership of Treasury Portfolio. We and, by acquiring FELINE PACS, each
holder agree to treat such holder as the owner, for United States federal income
tax purposes, of the applicable ownership interest of the Treasury portfolio
constituting a part of the Income PACS beneficially owned by such holder in the
event of a remarketing of the notes on the third business day preceding November
16, 2004 or a tax event redemption prior to the purchase contract settlement
date. Each holder will include in income any amount earned on such pro rata
portion of the Treasury portfolio for all tax purposes. The remainder of this
summary assumes that holders of Income PACS will be treated as the owners of the
applicable ownership interest of the Treasury portfolio that constitutes a part
of such Income PACS for United States federal income tax purposes.
Interest Income and Original Issue Discount. Following a remarketing of
the notes on the third business day preceding November 16, 2004 or a tax event
redemption prior to the purchase contract settlement date, a holder of Income
PACS will be required to treat its pro rata portion of each Treasury security in
the Treasury portfolio as a bond that was originally issued on the date the
collateral agent acquired the relevant Treasury securities and that has original
issue discount (or, in the case of short-term Treasury securities, as defined
below, acquisition discount) equal to the holder's pro rata portion of the
excess of the amounts payable on such Treasury securities over the value of the
Treasury securities at the time the collateral agent acquired them on behalf of
holders of Income PACS. A holder, whether on the cash or accrual method of tax
accounting, will be required to include original issue discount (other than
original issue discount on short-term Treasury securities, as defined below) in
income for United States federal income tax purposes as it accrues on a constant
yield to maturity basis. The amount of such excess will constitute only a
portion of the total amounts payable in respect of the Treasury portfolio.
Consequently, a portion of each scheduled payment to holders will be treated as
a return of such holders' investment in the Treasury portfolio and will not be
considered current income for United States federal income tax purposes.
In the case of any Treasury security with a maturity of one year or less
from the date of its issue (a "short-term Treasury security"), in general, only
accrual basis taxpayers will be required to include acquisition discount in
income as it accrues. Unless such accrual basis holder elects to accrue the
acquisition discount on a short-term Treasury security on a constant yield to
maturity basis, such acquisition discount will be accrued on a straight-line
basis. A holder that obtains the release of its applicable ownership interest of
the Treasury portfolio and subsequently disposes of such interest will recognize
ordinary income on such disposition to the extent of any gain realized that does
not exceed an amount equal to the ratable share of the acquisition discount on
the Treasury securities not previously included in income.
Tax Basis of the Treasury Portfolio. A holder's initial tax basis in such
holder's applicable ownership interest of the Treasury portfolio will equal such
holder's pro rata portion of the amount paid by the collateral agent for the
Treasury portfolio. A holder's adjusted tax basis in the Treasury portfolio will
be increased by the amount of original issue discount or acquisition discount
included in income with respect thereto and decreased by the amount of cash
received with respect to the Treasury portfolio.
NON-U.S. HOLDERS
The following summary is addressed to non-U.S. holders. A non-U.S. holder
is a holder that is not a U.S. holder as defined under "-- U.S. Holders."
Special rules may apply if such non-U.S. holder is a "controlled foreign
corporation," "passive foreign investment company" or "foreign personal holding
company" and is subject to special treatment under the Internal Revenue Code. In
addition, this summary does not address holders that at any time beneficially
and/or constructively own more than 5% of the FELINE PACS or the common stock.
If we were at any time during the past five years, we are or we become, a United
States real property holding corporation, such holders, or, if our common stock
ceases to be regularly traded, any non-U.S. holder, may be subject to United
States federal withholding and/or income tax on the sale of a FELINE PACS or
common stock. A non-U.S. holder that falls within any of the foregoing
categories should consult its tax advisor to determine the United States
federal, state, local and foreign tax consequences that may be relevant to it.
S-55
UNITED STATES FEDERAL WITHHOLDING TAX
United States federal withholding tax will not apply to any payment of
principal or interest (including original issue discount and acquisition
discount) on the notes, the Treasury securities or the Treasury portfolio
provided that:
- the non-U.S. holder does not actually (or constructively) own 10% or more
of the total combined voting power of all classes of our voting stock
within the meaning of the Internal Revenue Code and the Treasury
regulations;
- the non-U.S. holder is not a controlled foreign corporation that is
related to us through stock ownership; and
- (a) the non-U.S. holder provides its name, address and certain other
information on an Internal Revenue Service Form W-8BEN (or a suitable
substitute form), and certifies, under penalties of perjury, that it is
not a United States person or (b) the non-U.S. holder holds its notes,
Treasury securities or Treasury portfolio through certain foreign
intermediaries or certain foreign partnerships and certain certification
requirements are satisfied.
We will generally withhold tax at a rate of 30% on the dividends, if any,
paid on the shares of common stock acquired under the purchase contract and on
any contract adjustment payments or deferred contract adjustment payments made
with respect to a purchase contract. If a tax treaty applies, a non-U.S. holder
may be eligible for a reduced rate of withholding. Similarly, contract
adjustment payments, deferred contract adjustment payments or dividends that are
effectively connected with the conduct of a trade or business by a non-U.S.
holder within the United States (and, where a tax treaty applies, are also
attributable to a United States permanent establishment maintained by the
non-U.S. holder) are not subject to the withholding tax, but instead are subject
to United States federal income tax, as described below. In order to claim any
such exemption or reduction in the 30% withholding tax, a non-U.S. holder should
provide a properly executed Internal Revenue Service Form W-8BEN (or suitable
substitute form) claiming a reduction of or an exemption from withholding under
an applicable tax treaty or a properly executed Internal Revenue Service Form
W-8ECI (or a suitable substitute form) stating that such payments are not
subject to withholding tax because they are effectively connected with the
non-U.S. holder's conduct of a trade or business in the United States.
In general, United States federal withholding tax will not apply to any
gain or income realized by a non-U.S. holder on the sale, exchange or other
disposition of the FELINE PACS, notes, purchase contracts, Treasury securities,
Treasury portfolio or common stock acquired under the purchase contracts.
UNITED STATES FEDERAL INCOME TAX
If a non-U.S. holder is engaged in a trade or business in the United States
(and, if a tax treaty applies, if the non-U.S. holder maintains a permanent
establishment within the United States) and interest (including original issue
discount and acquisition discount) on the notes, the Treasury securities and the
Treasury portfolio, dividends on the common stock and, to the extent they
constitute taxable income, contract adjustment payments and deferred contract
adjustment payments made with respect to the purchase contracts are effectively
connected with the conduct of that trade or business (and, if a tax treaty
applies, that permanent establishment), such non-U.S. holder will be subject to
United States federal income tax (but not withholding tax), on the interest,
original issue discount, acquisition discount, dividends, contract adjustment
payments and deferred contract adjustment payments on a net income basis in the
same manner as if such non-U.S. holder were a U.S. holder. In addition, a
non-U.S. holder that is a foreign corporation may be subject to a 30% (or, if a
tax treaty applies, such lower rate as provided) branch profits tax.
S-56
Any gain or income realized on the disposition of a FELINE PACS, a purchase
contract, a note, a Treasury security, the Treasury portfolio or common stock
acquired under the purchase contract generally will not be subject to United
States federal income tax unless:
- that gain or income is effectively connected with the non-U.S. holder's
conduct of a trade or business in the United States; or
- the non-U.S. holder is an individual who is present in the United States
for 183 days or more in the taxable year of the disposition and certain
other conditions are met.
BACKUP WITHHOLDING TAX
In general, no backup withholding will be required with respect to payments
we make with respect to the FELINE PACS or the notes if a non-U.S. holder has
provided us with an Internal Revenue Service Form W-8BEN (or a suitable
substitute form) described above and we do not have actual knowledge or reason
to know that a holder is a United States person. In addition, no backup
withholding will be required regarding the sale of FELINE PACS, notes, Treasury
securities, the Treasury portfolio or common stock acquired under the purchase
contracts even if made within the United States or conducted though certain
United States financial intermediaries if the payor receives the statement
described above and does not have actual knowledge or reason to know that the
holder is a United States person or the holder can otherwise establish an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a credit against a holder's United States federal income tax liability provided
that the required information is furnished to the Internal Revenue Service.
S-57
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the United States Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on (a) employee benefit plans (as defined in Section
3(3) of ERISA), (b) plans described in section 4975(e)(1) of the Code, including
individual retirement accounts or Keogh plans, (c) any entities whose underlying
assets include plan assets by reason of a plan's investment in such entities
(each a "Plan") and (d) persons who have certain specified relationships to such
Plans ("Parties in Interest" under ERISA and "Disqualified Persons" under the
Code). Moreover, based on the reasoning of the United States Supreme Court in
John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 510 U.S. 86 (1993), an
insurance company's general account may be deemed to include assets of the Plans
investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a Party in Interest
with respect to a Plan by virtue of such investment. ERISA also imposes certain
duties on persons who are fiduciaries of Plans subject to ERISA and prohibits
certain transactions between a Plan and Parties-in-Interest or Disqualified
Persons with respect to such Plans.
If Williams were a Party in Interest or Disqualified Person with respect to
an investing Plan (or becomes a Party in Interest or Disqualified Person in
connection with this transaction), such Plan's acquisition or holding of the
FELINE PACS could be deemed to constitute a transaction prohibited under Title I
of ERISA or Section 4975 of the Code (e.g., the extension of credit between a
Plan and a Party in Interest or Disqualified Person). Such transactions may,
however, be subject to a statutory or administrative exemption such as
Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts certain
transactions involving insurance company pooled separate accounts; PTCE 95-60,
which exempts certain transactions involving insurance company general accounts;
PTCE 91-38, which exempts certain transactions involving bank collective
investment funds; and PTCE 84-14, which exempts certain transactions effected on
behalf of a Plan by a "qualified professional asset manager;" PTCE 96-23, which
exempts certain transactions effected on behalf of a Plan by an "in-house asset
manager;" PTCE 81-8, which exempts certain short-term investment transactions;
Section 408(e) of ERISA and 4975(d)(13) of the Code, which exempt the
acquisition or disposition of "qualifying employer securities" (as such term is
defined in Section 407(d)(5) of ERISA) or pursuant to any other available
exemption. There can be no assurance, however, that all of the conditions of any
such exemption will be satisfied.
By its purchase of the FELINE PACS (or an interest therein), each purchaser
of the FELINE PACS will be deemed to have represented and agreed that either (i)
it is not purchasing the FELINE PACS with the assets of any Plan or (ii) one or
more exemptions apply such that the use of such assets will not constitute a
non-exempt prohibited transaction under ERISA or the Code. Additionally, each
purchaser of the FELINE PACS (or an interest therein) will be deemed to have
directed the remarketing agent to take such actions as set forth in this
prospectus supplement. Any Plan fiduciary that proposes to cause a Plan to
purchase the FELINE PACS should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and whether any
exemption would be applicable and determine on its own whether all conditions of
such exemption or exemptions have been satisfied.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
Any investor that is an insurance company using the assets of an insurance
company general account should note that the Small Business Job Protection Act
of 1996 added new Section 401(c) of ERISA relating to the status of the assets
of insurance company general accounts under ERISA and Section 4975 of the Code.
Pursuant to Section 401(c), the DOL issued final regulations effective January
5, 2000 (the "General Account Regulations") with respect to insurance policies
issued on or before December 31, 1998, that are supported by an insurer's
general account. As a result of the General Account Regulations, assets of an
insurance company general account will not be treated as "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of
the Code to the extent such assets relate to contracts issued to employee
benefit plans on or before December 31, 1998 and the insurer satisfies various
conditions. The plan asset status of insurance company separate accounts is
unaffected by new Section 401(c) of ERISA, and separate account assets continue
to be treated as the plan assets of any such plan invested in a separate
account.
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UNDERWRITING
We intend to offer the Income PACS through the underwriters. Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc. are acting as
representatives of the underwriters named below. Subject to the terms and
conditions in a purchase agreement between us and the underwriters, we have
agreed to sell to the underwriters, and the underwriters have severally agreed
to purchase from us, the number of Income PACS set forth opposite their names
below.
NUMBER OF
UNDERWRITER INCOME PACS
----------- -----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 14,000,000
Salomon Smith Barney Inc. .................................. 14,000,000
Banc of America Securities LLC.............................. 1,800,000
Credit Suisse First Boston Corporation...................... 1,800,000
Lehman Brothers Inc. ....................................... 1,800,000
Mizuho International plc.................................... 1,800,000
ABN AMRO Rothschild LLC..................................... 480,000
BMO Nesbitt Burns Corp. .................................... 480,000
Barclays Bank PLC........................................... 480,000
CIBC World Markets Corp. ................................... 480,000
Commerzbank Capital Markets Corp. .......................... 480,000
Credit Lyonnais Securities (USA) Inc. ...................... 480,000
RBC Dain Rauscher Inc. ..................................... 480,000
The Royal Bank of Scotland plc.............................. 480,000
Scotia Capital (USA) Inc. .................................. 480,000
TD Securities (USA) Inc. ................................... 480,000
-----------
Total.......................................... 40,000,000
===========
The underwriters have agreed to purchase all of the Income PACS sold
pursuant to the purchase agreement if any of the Income PACS are purchased. If
an underwriter defaults, the purchase agreement provides that the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The underwriters are offering the Income PACS, subject to prior sale, when,
as and if issued to and accepted by them, subject to approval of legal matters
by their counsel, including the validity of the Income PACS, and other
conditions contained in the purchase agreement, such as the receipt by the
underwriters of officers' certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The underwriters have advised us that they propose initially to offer the
Income PACS to the public at the public offering price on the cover page of this
prospectus supplement and to dealers at that price less a concession not in
excess of $.45 per Income PACS. The underwriters may allow, and the dealers may
reallow, a discount not in excess of $.10 per Income PACS to other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
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The expenses of the offering, not including the underwriting commission,
are estimated to be $400,000 and are payable by us.
The following table shows the per unit and total public offering price,
underwriting discount to be paid by us to the underwriters and proceeds before
expenses to us. The information is presented assuming either no exercise or full
exercise by the underwriters of the overallotment option.
PER INCOME PACS WITHOUT OPTION WITH OPTION
--------------- -------------- --------------
Public offering price................. $25.00 $1,000,000,000 $1,150,000,000
Underwriting discount................. $.75 $30,000,000 $34,500,000
Proceeds, before expenses, to us...... $24.25 $970,000,000 $1,115,500,000
OVERALLOTMENT OPTION
We have granted an option to the underwriters to purchase up to an
additional 6,000,000 Income PACS at the public offering price less the
underwriting discount. If the underwriters exercise this option, solely to cover
any overallotments, they must purchase the additional Income PACS within 30 days
from the date of this prospectus supplement, subject to certain limitations. If
the underwriters exercise this option, each will be obligated, subject to
conditions contained in the purchase agreement, to purchase approximately the
same percentage of additional Income PACS as the number set forth next to the
underwriter's name in the preceding table bears to the total number of Income
PACS set forth next to the names of all underwriters in the preceding table.
NO SALE OF SIMILAR SECURITIES
We have agreed, with some exceptions, not to directly or indirectly,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated on behalf of the underwriters, for a period of 90 days after the
date of this prospectus supplement:
- offer, pledge, sell or contract to sell any FELINE PACS, purchase
contracts, common stock or any similar securities or any security
convertible into such securities;
- sell any option or contract to purchase any FELINE PACS, purchase
contracts, common stock or any similar securities or any security
convertible into such securities;
- purchase any option or contract to sell any FELINE PACS, purchase
contracts, common stock or any similar securities or any security
convertible into such securities;
- grant any option, right or warrant for the sale of any FELINE PACS,
purchase contracts, common stock or any similar securities or any
security convertible into such securities;
- lend or otherwise dispose of or transfer any FELINE PACS, purchase
contracts, common stock or any similar securities or any security
convertible into such securities; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of FELINE PACS, purchase
contracts, common stock or any similar securities or any security
convertible into such securities.
This agreement does not apply to issuances under our employee or director
compensation plans or our employee or shareholder investment plans or to
issuances as consideration in connection with previously announced acquisitions.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, in its sole discretion, may
release any of the securities subject to these lock-up agreements at any time
without notice.
NEW YORK STOCK EXCHANGE LISTING
The Income PACS are a new issue of securities with no established trading
market. The Income PACS have been approved for listing on the NYSE, under the
symbol "WMB PrI," subject to official notice of issuance. We have been advised
by the underwriters that they intend to make a market in the
S-60
securities, but they are not obligated to do so and may discontinue
market-making at any time without notice. We can provide no assurance as to the
liquidity of, or any trading market for, the securities.
REMARKETING
This prospectus supplement, as amended or supplemented, may be used by the
remarketing agent for remarketing of the securities at such time as is necessary
or upon early settlement of the stock purchase contracts.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the Income PACS offered hereby is completed, SEC
rules may limit the underwriters and selling group members from bidding for or
purchasing the Income PACS or shares of our common stock. However, the
representatives may engage in transactions that stabilize the price of the
Income PACS or our common stock, such as bids or purchases that peg, fix or
maintain the price of the Income PACS or our common stock.
In connection with the offering, the representatives may make short sales
of our Income PACS. Short sales involve the sale by the underwriters, at the
time of the offering, of a greater number of Income PACS than they are required
to purchase in the offering. Covered short sales are sales made in an amount not
greater than the overallotment option. The underwriters may close out any
covered short position by either exercising the overallotment option or
purchasing Income PACS in the open market. In determining the source of Income
PACS to close out the covered short position, the representatives will consider,
among other things, the price of Income PACS available for purchase in the open
market as compared to the price at which they may purchase the Income PACS
through the overallotment option. Naked short sales are sales in excess of the
overallotment option. The representatives must close out any naked short
position by purchasing Income PACS in the open market. A naked short position is
more likely to be created if the representatives are concerned that there may be
downward pressure on the price of the Income PACS or our common stock in the
open market after pricing that could adversely affect investors who purchase in
the offering. Similar to other purchase transactions, purchases by the
representatives to cover syndicate short positions may have the effect of
raising or maintaining the market price of the Income PACS and our common stock
or preventing or retarding a decline in the market price of the Income PACS and
our common stock. As a result, the prices of the Income PACS and our common
stock may be higher than they would otherwise be in the absence of these
transactions.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Income PACS or our common stock. In
addition, neither we nor any of the underwriters make any representation that
the representatives will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.
ELECTRONIC PROSPECTUS
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations. Merrill Lynch will be facilitating distribution for
this offering to certain of their internet subscription customers. Merrill Lynch
intends to allocate a limited number of shares for sale to their online
brokerage customers. An electronic preliminary prospectus supplement is
available on the internet website maintained by Merrill Lynch. Other than the
preliminary prospectus supplement in electronic format, the information on the
Merrill Lynch website is not intended to be part of this prospectus supplement,
as amended or supplemented.
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OTHER RELATIONSHIPS
In the ordinary course of business, certain of the underwriters and their
affiliates have provided financial advisory, investment banking and general
financing and banking services to us and certain of our affiliates for customary
fees. Approximately $300 million of the net proceeds of this offering will be
used to repay short-term indebtedness owed to The Fuji Bank, Limited, an
affiliate of Mizuho International plc, one of the underwriters.
LEGAL MATTERS
William G. von Glahn, Senior Vice President and General Counsel of Williams
and Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, will pass upon
certain legal matters for Williams in connection with the securities offered by
this prospectus supplement and accompanying prospectus. Davis Polk & Wardwell,
New York, New York, will pass upon certain legal matters for the underwriters in
connection with the securities offered by this prospectus supplement and
accompanying prospectus. Davis Polk & Wardwell has from time to time
represented, and may continue to represent, Williams and its affiliates in
certain legal matters. As of the date of this prospectus supplement, Mr. von
Glahn beneficially owns, directly or indirectly, approximately 235,659 shares of
Williams' common stock and also has exercisable options to purchase an
additional 147,600 shares of Williams' common stock.
S-62
PROSPECTUS
THE WILLIAMS COMPANIES, INC.
$2,500,000,000
DEBT SECURITIES,
PREFERRED STOCK,
COMMON STOCK,
WARRANTS,
PURCHASE CONTRACTS AND
UNITS
---------------------
We will provide the specific terms of each series or issue of securities in
supplements to this prospectus. You should read this prospectus and the
supplements carefully before you invest.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is December 27, 2001
WHERE YOU CAN FIND MORE INFORMATION
Williams has filed with the Securities and Exchange Commission in
Washington, D.C., a registration statement on Form S-3 under the Securities Act
of 1933 for the securities offered in this prospectus. Williams has not included
certain portions of the registration statement in this prospectus, as permitted
by the Commission's rules and regulations. For further information, you should
refer to the registration statement and its exhibits. Williams is subject to the
informational requirements of the Securities Exchange Act of 1934, and therefore
files reports and other information with the Commission. Williams' file number
with the Commission is 1-4174.
You may inspect and copy the registration statement and its exhibits, as
well as such reports and other information which Williams files with the
Commission, at the public reference facilities of the Commission at its
principal offices at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and its regional offices at Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 233 Broadway,
New York, New York 10005. You can obtain information on the operation of the
Commission's public reference facilities by calling 1-800-SEC-0330. Information
filed by Williams is also available at the Commission's worldwide web site at
http://www.sec.gov. You can also obtain these materials at set rates from the
Public Reference Section of the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS AND ITS SUPPLEMENT(S). WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
---------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Williams is incorporating by reference its annual report on Form 10-K for
the fiscal year ended December 31, 2000, its quarterly reports on Form 10-Q for
the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001 and its
current reports on Form 8-K filed January 5, 2001, January 31, 2001, February 8,
2001, March 16, 2001, March 19, 2001, April 2, 2001, April 12, 2001, April 27,
2001, May 1, 2001, May 3, 2001, May 7, 2001, May 22, 2001 (restatement of
financial statements for the year ended December 31, 2000 to reflect Williams
Communications Group, Inc. as discontinued operations due to a tax-free
spinoff), June 13, 2001, July 30, 2001, August 2, 2001, September 17, 2001,
September 25, 2001, October 26, 2001, November 29, 2001, December 19, 2001, and
December 21, 2001.
All documents which Williams files pursuant to Sections 13, 14, or 15(d) of
the Exchange Act after the date of this prospectus and prior to the termination
of this offering shall be deemed to be incorporated by reference in this
prospectus and to be a part of this prospectus from the date of filing of such
documents. Any statement contained in a document incorporated by reference in
this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement in this prospectus or in any
subsequently filed document that also is or is deemed to be incorporated by
reference modifies or replaces such statement.
Williams will provide without charge to each person to whom a copy of this
prospectus has been delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated by reference herein,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this prospectus
incorporates. You should direct written or oral requests for such copies to: The
Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172, Attention:
Corporate Secretary, telephone (918) 573-2000.
1
THE WILLIAMS COMPANIES, INC.
Williams, together with its subsidiaries, is a leading company in the
energy sector. Through Williams Gas Pipeline Company, LLC, Williams Energy
Services, LLC, and Williams Energy Marketing & Trading Company and their
subsidiaries, Williams engages in the following types of energy-related
activities:
- transportation and storage of natural gas and related activities through
operation and ownership of five wholly owned interstate natural gas
pipelines and several pipeline joint ventures;
- exploration and production of oil and gas through ownership of 3.1
trillion cubic feet of proved natural gas reserves primarily located in
Colorado, New Mexico, Wyoming and Kansas;
- natural gas gathering, processing, and treating activities through
ownership and operation of approximately 11,450 miles of gathering lines,
12 natural gas treating plants, and 17 natural gas processing plants
(three of which are partially owned) located in the United States and
Canada;
- natural gas liquids transportation through ownership and operation of
approximately 14,300 miles of natural gas liquids pipeline (4,568 miles
of which are partially owned);
- transportation of petroleum products and related terminal services
through ownership or operation of approximately 9,170 miles of petroleum
products pipeline and 80 petroleum products terminals (some of which are
partially owned);
- light hydrocarbon/olefin transportation through 300 miles of pipeline in
Southern Louisiana;
- ethylene production through a 5/12 interest in a 1.2 billion pound/year
facility in Geismar, Louisiana;
- production and marketing of ethanol and bio-products through operation
and ownership of two ethanol plants (one of which is partially owned) and
ownership of minority interests or investments in four other plants;
- refining of petroleum products through operation and ownership of two
refineries;
- retail marketing primarily through 50 travel centers; and
- energy commodity marketing and trading.
Williams, through subsidiaries, also directly invests in energy projects
primarily in Canada, South America and Lithuania and continues to explore and
develop additional projects for international investments. In addition, Williams
invests in energy and infrastructure development funds in Asia and Latin
America.
Williams is a holding company headquartered in Tulsa, Oklahoma. Williams
was originally incorporated under the laws of the State of Nevada in 1949 and
was reincorporated under the laws of the State of Delaware in 1987. Williams
maintains its principal executive offices at One Williams Center, Tulsa,
Oklahoma 74172, telephone (918) 573-2000.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement,
Williams will use the net proceeds from the sale of the securities for general
corporate purposes, including repayment of outstanding debt. Williams
anticipates that it will raise additional funds from time to time through debt
financings, including borrowings under its bank credit agreements.
2
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
The following table presents Williams' consolidated ratio of earnings to
combined fixed charges and preferred stock dividend requirements for the periods
shown.
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------
2001 2000 1999 1998 1997 1996
------------- ---- ---- ---- ---- ----
3.52 2.98 1.86 1.70 2.36 2.63
For purposes of computing these ratios, earnings means income (loss) from
continuing operations before:
- income taxes;
- extraordinary gain (loss);
- minority interest in income (loss) and preferred returns of consolidated
subsidiaries;
- interest expense, net of interest capitalized;
- interest expense of 50 percent-owned companies;
- that portion of rental expense that we believe to represent an interest
factor;
- adjustment to equity earnings to exclude equity investments with losses;
and
- adjustment to equity earnings to reflect actual distributions from equity
investments.
Fixed charges means the sum of the following:
- interest expense;
- that portion of rental expense that we believe to represent an interest
factor;
- pretax effect of dividends on preferred stock of Williams (1999 and
prior);
- pretax effect of dividends or preferred stock and other preferred returns
of consolidated subsidiaries; and
- interest expense of 50 percent-owned companies.
DESCRIPTION OF DEBT SECURITIES
The debt securities will constitute either senior or subordinated debt of
Williams. Williams will issue debt securities that will be senior debt under the
senior debt indenture between Williams and Bank One Trust Company, National
Association, as Trustee. Williams will issue debt securities that will be
subordinated debt under the subordinated debt indenture between Williams and
Bank One Trust Company, National Association, as trustee. This prospectus refers
to the senior debt indenture and the subordinated debt indenture individually as
the indenture and collectively as the indentures. This prospectus refers to Bank
One Trust Company, National Association, as the trustee. Williams has filed the
forms of the indentures as exhibits to the registration statement.
THE FOLLOWING SUMMARIES OF CERTAIN PROVISIONS OF THE INDENTURES AND THE
DEBT SECURITIES ARE NOT COMPLETE AND THESE SUMMARIES ARE SUBJECT TO THE DETAILED
PROVISIONS OF THE APPLICABLE INDENTURE. FOR A FULL DESCRIPTION OF THESE
PROVISIONS, INCLUDING THE DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS,
AND FOR OTHER INFORMATION REGARDING THE DEBT SECURITIES, SEE THE INDENTURES.
Wherever this prospectus refers to particular sections or defined terms of the
applicable indenture, these sections or defined terms are incorporated by
reference in this prospectus as part of the statement made, and the statement is
qualified in its entirety by such reference. The indentures are substantially
identical, except for the provisions relating to subordination and Williams'
limitation on liens. See "-- Subordinated Debt" and "-- Certain Covenants of
Williams." Neither
3
indenture contains any covenant or provision which affords debt holders
protection in the event of a highly leveraged transaction.
CERTAIN DEFINITIONS
Certain terms in Article One of the senior debt indenture are summarized as
follows:
"Consolidated Funded Indebtedness" means the aggregate of all outstanding
Funded Indebtedness of Williams and its consolidated Subsidiaries determined on
a consolidated basis in accordance with accounting principles generally accepted
in the United States.
"Consolidated Net Tangible Assets" means the total assets appearing on a
consolidated balance sheet of Williams and its consolidated subsidiaries less,
in general:
- intangible assets;
- current and accrued liabilities (other than Consolidated Funded
Indebtedness and capitalized rentals or leases), deferred credits,
deferred gains, and deferred income;
- reserves;
- advances to finance oil or natural gas exploration and development to the
extent that the indebtedness related thereto is excluded from Funded
Indebtedness;
- an amount equal to the amount excluded from Funded Indebtedness
representing "production payment" financing of oil or natural gas
exploration and development; and
- minority stockholder interests.
"Funded Indebtedness" means any indebtedness which matures more than one
year after the date the amount of Funded Indebtedness is being determined, less
any such indebtedness as will be retired by any deposit or payment required to
be made within one year from such date under any prepayment provision, sinking
fund, purchase fund, or otherwise. Funded Indebtedness does not, however,
include indebtedness of Williams or any of its subsidiaries incurred to finance
outstanding advances to others to finance oil or natural gas exploration and
development, to the extent that the latter are not in default in their
obligations to Williams or such subsidiary. Funded Indebtedness also does not
include indebtedness of Williams or any of its subsidiaries incurred to finance
oil or natural gas exploration and development through what is commonly referred
to as a "production payment" to the extent that Williams or any of its
subsidiaries have not guaranteed the repayment of the production payment.
You should note that the term "subsidiary," as used in this section
describing the debt securities, refers only to a corporation in which Williams,
or another subsidiary or subsidiaries of Williams, owns at least a majority of
the outstanding securities which have voting power.
GENERAL TERMS OF THE DEBT SECURITIES
Neither of the indentures limits the amount of debt securities, debentures,
notes, or other evidences of indebtedness that Williams or any of its
subsidiaries may issue. The debt securities will be unsecured senior or
subordinated obligations of Williams. Williams' subsidiaries own all of the
operating assets of Williams and its subsidiaries. Therefore, Williams' rights
and the rights of Williams' creditors, including holders of debt securities, to
participate in the assets of any subsidiary upon the subsidiary's liquidation or
recapitalization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that Williams may itself be a creditor with
recognized claims against the subsidiary. The ability of Williams to pay
principal of and interest on the debt securities is, to a large extent,
dependent upon dividends or other payments from its subsidiaries.
The indentures provide that Williams may issue debt securities from time to
time in one or more series and that Williams may denominate the debt securities
and make them payable in foreign currencies. The relevant prospectus supplement
will describe special United States federal income tax considerations applicable
to any debt securities denominated and payable in a foreign currency.
4
TERMS YOU WILL FIND IN THE PROSPECTUS SUPPLEMENT
The prospectus supplement will provide information relating to the debt
securities and the following terms of the debt securities, to the extent such
terms are applicable to the debt securities described in a particular prospectus
supplement:
- classification as senior or subordinated debt securities;
- ranking of the specific series of debt securities relative to other
outstanding indebtedness, including subsidiaries' debt;
- if the debt securities are subordinated, the aggregate amount of
outstanding indebtedness, as of a recent date, that is senior to the
subordinated securities, and any limitation on the issuance of additional
senior indebtedness;
- the specific designation, aggregate principal amount, purchase price, and
denomination of such debt securities;
- currency or units based on or relating to currencies in which such debt
securities are denominated and/or in which principal, premium, if any,
and/or any interest will or may be payable;
- maturity date;
- interest rate or rates, if any, or the method by which the rate will be
determined;
- the dates on which any interest will be payable;
- the place or places where the principal of and interest, if any, on the
debt securities will be payable;
- any redemption or sinking fund provisions;
- whether the debt securities will be issuable in registered or bearer form
or both and, if debt securities in bearer form are issuable, restrictions
applicable to the exchange of one form for another and to the offer,
sale, and delivery of debt securities in bearer form;
- whether Williams will issue the debt securities by themselves or as part
of a unit together with other securities;
- any applicable United States federal income tax consequences, including
whether and under what circumstances Williams will pay additional amounts
on debt securities held by a person who is not a U.S. person, as defined
in the prospectus supplement, in respect of any tax, assessment, or
governmental charge withheld or deducted, and if so, whether Williams
will have the option to redeem such debt securities rather than pay such
additional amounts; and
- any other specific terms of the debt securities, including any additional
events of default or covenants with respect to such debt securities.
Holders of debt securities may present debt securities for exchange in the
manner, at the places, and subject to the restrictions set forth in the debt
securities and the prospectus supplement. Holders of registered debt securities
may present debt securities for transfer in the manner, at the places, and
subject to the restrictions set forth in the debt securities and the prospectus
supplement. Williams will provide these services without charge, other than any
tax or other governmental charge payable in connection therewith, but subject to
the limitations provided in the applicable indenture. Debt securities in bearer
form and the coupons, if any, appertaining thereto will be transferable by
delivery.
INTEREST RATE
Debt securities that bear interest will do so at a fixed rate or a floating
rate. Williams will sell, at a discount below the stated principal amount, any
debt securities which bear no interest or which bear interest at a rate that at
the time of issuance is below the prevailing market rate.
5
The relevant prospectus supplement will describe the special United States
federal income tax considerations applicable to:
- any discounted debt securities; or
- certain debt securities issued at par which are treated as having been
issued at a discount for United States federal income tax purposes.
REGISTERED GLOBAL SECURITIES
Williams may issue registered debt securities of a series in the form of
one or more fully registered global securities. Williams will deposit the
registered global security with a depositary or with a nominee for a depositary
identified in the prospectus supplement relating to such series. Williams will
then issue one or more registered global securities in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding registered debt securities of the series to be represented by the
registered global security or securities. Unless and until it is exchanged in
whole or in part for debt securities in definitive registered form, a registered
global security may not be transferred, except as a whole in three cases:
- by the depositary for the registered global security to a nominee of the
depositary;
- by a nominee of the depositary to the depositary or another nominee of
the depositary; or
- by the depositary or any nominee to a successor of the depositary or a
nominee of the successor.
The prospectus supplement relating to a series of debt securities will
describe the specific terms of the depositary arrangement concerning any portion
of the debt securities to be represented by a registered global security.
Williams anticipates that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a registered global security, the depositary for the
registered global security will credit, on its book-entry registration and
transfer system, the principal amounts of the debt securities represented by the
registered global security to the accounts of persons that have accounts with
the depositary. These persons are referred to as "participants." Any
underwriters or agents participating in the distribution of debt securities
represented by the registered global security will designate the accounts to be
credited. Only participants or persons that hold interests through participants
will be able to beneficially own interests in a registered global security. The
depositary for a global security will maintain records of beneficial ownership
interests in a registered global security for participants. Participants or
persons that hold through participants will maintain records of beneficial
ownership interests in a global security for persons other than participants.
These records will be the only means to transfer beneficial ownership in a
registered global security.
So long as the depositary for a registered global security, or its nominee,
is the registered owner of a registered global security, the depositary or its
nominee will be considered the sole owner or holder of the debt securities
represented by the registered global security for all purposes under the
applicable indenture. Except as set forth below, owners of beneficial interests
in a registered global security:
- may not have the debt securities represented by a registered global
security registered in their names;
- will not receive or be entitled to receive physical delivery of debt
securities represented by a registered global security in definitive
form; and
- will not be considered the owners or holders of debt securities
represented by a registered global security under the applicable
indenture.
PAYMENT OF INTEREST ON AND PRINCIPAL OF REGISTERED GLOBAL SECURITIES
Williams will make principal, premium, if any, and interest payments on
debt securities represented by a registered global security registered in the
name of a depositary or its nominee to the depositary or its nominee
6
as the registered owner of the registered global security. None of Williams, the
trustee, or any paying agent for debt securities represented by a registered
global security will have any responsibility or liability for:
- any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in such registered global security; or
- maintaining, supervising, or reviewing any records relating to beneficial
ownership interests.
Williams expects that the depositary, upon receipt of any payment of
principal, premium or interest, will immediately credit participants' accounts
with payments in amounts proportionate to their beneficial interests in the
principal amount of a registered global security as shown on the depositary's
records. Williams also expects that payments by participants to owners of
beneficial interests in a registered global security held through participants
will be governed by standing instructions and customary practices. This is
currently the case with the securities held for the accounts of customers
registered in "street name." Williams also expects that this payout will be the
responsibility of participants.
EXCHANGE OF REGISTERED GLOBAL SECURITIES
Williams will issue debt securities in definitive form in exchange for the
registered global security if:
- the depositary for any debt securities represented by a registered global
security is at any time unwilling or unable to continue as depositary;
and
- Williams does not appoint a successor depositary within ninety days.
In addition, Williams may, at any time, determine not to have any of the
debt securities of a series represented by one or more registered global
securities. In this event, Williams will issue debt securities of a series in
definitive form in exchange for all of the registered global security or
securities representing these debt securities.
SENIOR DEBT
Williams will issue under the senior debt indenture the debt securities and
any coupons that will constitute part of the senior debt of Williams. These
senior debt securities will rank equally and ratably with all other unsecured
and unsubordinated debt of Williams.
SUBORDINATED DEBT
Williams will issue under the subordinated debt indenture the debt
securities and any coupons that will constitute part of the subordinated debt of
Williams. These subordinated debt securities will be subordinate and junior in
right of payment, to the extent and in the manner set forth in the subordinated
debt indenture, to all "senior indebtedness" of Williams. The subordinated debt
indenture defines "senior indebtedness" as obligations of, or guaranteed or
assumed by, Williams for borrowed money or evidenced by bonds, debentures,
notes, or other similar instruments, and amendments, renewals, extensions,
modifications, and refundings of any such indebtedness or obligation. "Senior
indebtedness" does not include nonrecourse obligations, the subordinated debt
securities, or any other obligations specifically designated as being
subordinate in right of payment to senior indebtedness. See subordinated debt
indenture, section 1.1.
In general, the holders of all senior indebtedness are entitled to receive
payment of the full amount unpaid on senior indebtedness before the holders of
any of the subordinated debt securities or coupons are entitled to receive a
payment on account of the principal or interest on the indebtedness evidenced by
the subordinated debt securities in certain events. These events include:
- any insolvency or bankruptcy proceedings, or any receivership,
liquidation, reorganization, or other similar proceedings which concern
Williams or a substantial part of its property;
- a default having occurred for the payment of principal, premium, if any,
or interest on or other monetary amounts due and payable on any senior
indebtedness or any other default having occurred concerning any senior
indebtedness, which permits the holder or holders of any senior
indebtedness to
7
accelerate the maturity of any senior indebtedness with notice or lapse
of time, or both. This type of an event of default must have continued
beyond the period of grace, if any, provided for this type of an event of
default under the senior indebtedness, and this type of an event of
default shall not have been cured or waived or shall not have ceased to
exist; or
- the principal of, and accrued interest on, any series of the subordinated
debt securities having been declared due and payable upon an event of
default contained in the subordinated debt indenture. This declaration
must not have been rescinded and annulled as provided in the subordinated
debt indenture.
If this prospectus is being delivered in connection with a series of
subordinated debt securities, the accompanying prospectus supplement or the
information incorporated in this prospectus by reference will set forth the
approximate amount of senior indebtedness outstanding as of the end of the most
recent fiscal quarter.
CERTAIN COVENANTS OF WILLIAMS
Liens. The senior debt indenture refers to any instrument securing
indebtedness, such as a mortgage, pledge, lien, security interest, or
encumbrance on any property of Williams, as a "mortgage." The senior debt
indenture further provides that, subject to certain exceptions, Williams will
not, nor will it permit any subsidiary to, issue, assume, or guarantee any
indebtedness secured by a mortgage unless Williams provides equal and
proportionate security for the senior debt securities Williams issues under the
senior debt indenture. Among these exceptions are:
- certain purchase money mortgages;
- certain preexisting mortgages on any property acquired or constructed by
Williams or a subsidiary;
- certain mortgages created within one year after completion of such
acquisition or construction;
- certain mortgages created on any contract for the sale of products or
services related to the operation or use of any property acquired or
constructed within one year after completion of such acquisition or
construction;
- mortgages on property of a subsidiary existing at the time it became a
subsidiary of Williams; and
- mortgages, other than as specifically excepted, in an aggregate amount
which, at the time of, and after giving effect to, the incurrence does
not exceed five percent of Consolidated Net Tangible Assets. See the
senior debt indenture, section 3.6.
Consolidation, Merger, Conveyance of Assets. Each indenture provides, in
general, that Williams will not consolidate with or merge into any other entity
or convey, transfer, or lease its properties and assets substantially as an
entirety to any person unless:
- the corporation, limited liability company, limited partnership, joint
stock company, or trust formed by such consolidation or into which
Williams is merged or the person which acquires such assets expressly
assumes Williams' obligations under the applicable indenture and the debt
securities issued under this indenture; and
- immediately after giving effect to such transaction, no event of default,
and no event which, after notice or lapse of time or both, would become
an event of default, shall have happened and be continuing. See section
9.1 of the indentures.
Event Risk. Except for the limitations on liens described above, neither
indenture nor the debt securities contains any covenants or other provisions
designed to afford holders of the debt securities protection in the event of a
highly leveraged transaction involving Williams.
8
EVENT OF DEFAULT
In general, each indenture defines an event of default with respect to debt
securities of any series issued under the indenture as being:
(a) default in payment of any principal of the debt securities of such
series, either at maturity, upon any redemption, by declaration, or
otherwise;
(b) default for 30 days in payment of any interest on any debt
securities of such series unless otherwise provided;
(c) default for 90 days after written notice in the observance or
performance of any covenant or warranty in the debt securities of that
series or that Indenture other than:
- default in or breach of a covenant which is dealt with otherwise
below, or
- if certain conditions are met, if the events of default described in
this clause (c) are the result of changes in generally accepted
accounting principles; or
(d) certain events of bankruptcy, insolvency, or reorganization of
Williams. See section 5.1 of the indentures.
In general, each indenture provides that if an event of default described
in clauses (a), (b), or (c) above occurs and does not affect all series of debt
securities then outstanding, the trustee or the holders of debt securities of
the relevant series may then declare the following amounts to be due and payable
immediately:
- the entire principal of all debt securities of each series affected by
the event of default; and
- the interest accrued on such principal.
Such a declaration by the holders requires the approval of at least 25
percent in principal amount of the debt securities of each series issued under
the applicable indenture and then outstanding, treated as one class, which are
affected by the event of default.
Each indenture also generally provides that if a default described in
clause (c) above which is applicable to all series of debt securities then
outstanding or certain events of bankruptcy, insolvency, and reorganization of
Williams occur and are continuing, the trustee or the holders of debt securities
may declare the entire principal of all such debt securities and interest
accrued thereon to be due and payable immediately. This declaration by the
holders requires the approval of at least 25 percent in principal amount of all
debt securities issued under the applicable indenture and then outstanding,
treated as one class. Upon certain conditions, the holders of a majority in
aggregate principal amount of the debt securities of all such affected series
then outstanding may annul such declarations and waive the past defaults.
However, the majority holders may not annul or waive a continuing default in
payment of principal of, premium, if any, or interest on such debt securities.
See sections 5.1 and 5.10 of the indentures.
Each indenture provides that the holders of debt securities issued under
that indenture, treated as one class, will indemnify the trustee before the
trustee exercises any of its rights or powers under the indenture. This
indemnification is subject to the trustee's duty to act with the required
standard of care during a default. See section 6.2 of the indentures. The
holders of a majority in aggregate principal amount of the outstanding debt
securities of each series affected, treated as one class, issued under the
applicable indenture may direct the time, method, and place of:
- conducting any proceeding for any remedy available to the trustee; or
- exercising any trust or power conferred on the trustee.
This right of the holders of debt securities is, however, subject to the
provisions in each indenture providing for the indemnification of the trustee
and other specified limitations. See section 5.9 of the indentures.
9
In general, each indenture provides that holders of debt securities issued
under that indenture may only institute an action against Williams under the
indenture if the following four conditions are fulfilled:
- the holder previously has given to the trustee written notice of default
and the default continues;
- the holders of at least 25 percent in principal amount of the debt
securities of each affected series (treated as one class) issued under
the applicable indenture and then outstanding have requested the trustee
to institute such action and have offered the trustee reasonable
indemnity;
- the trustee has not instituted such action within 60 days of receipt of
such request; and
- the trustee has not received direction inconsistent with such written
request by the holders of a majority in principal amount of the debt
securities of each affected series (treated as one class) issued under
the applicable indenture and then outstanding. See sections 5.6, 5.7, and
5.9 of the indentures.
The above four conditions do not apply to actions by holders of the debt
securities under the applicable indenture against Williams for payment of
principal or interest on or after the due date provided. Each indenture contains
a covenant that Williams will file annually with the trustee a certificate of no
default or a certificate specifying any default that exists. See section 3.5 of
the indentures.
DISCHARGE, DEFEASANCE, AND COVENANT DEFEASANCE
Williams can discharge or defease its obligations under each indenture as
set forth below. See section 10.1 of the indentures.
Under terms satisfactory to the trustee, Williams may discharge certain
obligations to holders of any series of debt securities issued under the
applicable indenture which have not already been delivered to the trustee for
cancellation. These debt securities must also:
- have become due and payable;
- be due and payable by their terms within one year; or
- be scheduled for redemption by their terms within one year.
Williams may redeem any series of debt securities by irrevocably depositing
an amount certified to be sufficient to pay, at maturity or upon redemption, the
principal of and interest on such debt securities. Williams may make such
deposit in cash or, in the case of debt securities payable only in U.S. dollars,
U.S. Government Obligations, as defined in the applicable indenture.
Williams may also, upon satisfaction of the conditions listed below,
discharge certain obligations to holders of any series of debt securities issued
under such indenture at any time ("Defeasance"). Under terms satisfactory to the
trustee, Williams may be released with respect to any outstanding series of debt
securities issued under the relevant indenture from the obligations imposed by
sections 3.6 and 9.1, in the case of the senior debt indenture, and section 9.1,
in the case of the subordinated debt indenture. These sections contain the
covenants described above limiting liens and consolidations, mergers and
conveyances of assets. Also under terms satisfactory to the trustee, Williams
may omit to comply with these sections without creating an event of default
("Covenant Defeasance"). Defeasance or Covenant Defeasance may be effected only
if, among other things:
- Williams irrevocably deposits with the trustee cash or, in the case of
debt securities payable only in U.S. dollars, U.S. Government obligations
as trust funds in an amount certified to be sufficient to pay at maturity
or upon redemption the principal of and interest on all outstanding debt
securities of the series issued under the applicable indenture;
- Williams delivers to the trustee an opinion of counsel to the effect that
the holders of the series of debt securities will not recognize income,
gain, or loss for United States federal income tax purposes as a result
of such Defeasance or Covenant Defeasance. Such opinion must further
state that these holders will be subject to United States federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if Defeasance or Covenant Defeasance had not
occurred.
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In the case of a Defeasance, this opinion must be based on a ruling of
the Internal Revenue Service or a change in United States federal income
tax law occurring after the date of the applicable indenture, since this
result would not occur under current tax law;
- in the case of the subordinated debt indenture, no event or condition
shall exist that, pursuant to certain provisions described under
"-- Subordinated Debt" above, would prevent Williams from making payments
of principal of or interest on the subordinated debt securities at the
date of the irrevocable deposit referred to above or at any time during
the period ending on the 91st day after the deposit date; and
- in the case of the subordinated indenture, Williams delivers to the
trustee for the subordinated debt indenture an opinion of counsel to the
effect that:
(1) the trust funds will not be subject to any rights of holders of
senior indebtedness; and
(2) after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or similar laws affecting creditors' rights generally.
If a court were to rule under any such law in any case or proceeding that
the trust funds remained property of Williams, counsel must give its opinion
only with respect to:
(1) the trustee's valid and perfected security interest in these trust
funds;
(2) adequate protection of holders of the subordinated debt securities
interests in these funds; and
(3) no prior rights of holders of senior debt securities in property
or interests granted to the trustee or holders of the subordinated debt
securities in exchange for or with respect to these trust funds.
MODIFICATION OF THE INDENTURES
Each indenture provides that Williams and the trustee may enter into
supplemental indentures, which conform to the provisions of the Trust Indenture
Act of 1939, without the consent of the holders to, in general:
- secure any debt securities;
- evidence the assumption by a successor person of the obligations of
Williams;
- add further covenants for the protection of the holders;
- cure any ambiguity or correct any inconsistency in that indenture, so
long as the action will not adversely effect the interests of the
holders;
- establish the form or terms of debt securities of any series; and
- evidence the acceptance of appointment by a successor trustee. See
section 8.1 of the indentures.
Each indenture also permits Williams and the trustee to:
- add any provisions to that indenture;
- change in any manner that indenture;
- eliminate any of the provisions of that indenture; and
- modify in any way the rights of the holders of debt securities of each
series affected.
All of the above actions require the consent of the holders of at least a
majority in principal amount of debt securities of each series issued under that
indenture then outstanding and affected. These holders will vote as one class to
approve such changes.
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Such changes must, however, conform to the Trust Indenture Act of 1939 and
Williams and the trustee may not, without the consent of each holder of
outstanding debt securities affected thereby:
- extend the final maturity of the principal of any debt securities;
- reduce the principal amount of any debt securities;
- reduce the rate or extend the time of payment of interest on any debt
securities;
- reduce any amount payable on redemption of any debt securities;
- change the currency in which the principal, including any amount in
respect of original issue discount, or interest on any debt securities is
payable;
- reduce the amount of any original issue discount security payable upon
acceleration or provable in bankruptcy;
- alter certain provisions of the indenture relating to debt securities not
denominated in U.S. dollars or for which conversion to another currency
is required to satisfy the judgment of any court;
- impair the right to institute suit for the enforcement of any payment on
any debt securities when due; or
- reduce the percentage in principal amount of debt securities of any
series issued under the applicable indenture, the consent of the holders
of which is required for any such modification. See section 8.2 of the
indentures.
The subordinated debt indenture may not be amended to alter the
subordination of any outstanding subordinated debt securities without the
consent of each holder of senior indebtedness then outstanding that would be
adversely affected by such an amendment. See the subordinated debt indenture,
section 8.6.
CONVERSION RIGHTS
The prospectus supplement will provide if a series of securities is
convertible into our common stock and the initial conversion price per share at
which the securities may be converted. Unless we specify other conversion
provisions in the prospectus supplement, the following provisions will be
applicable to our convertible securities.
If we have not redeemed a convertible security, the holder of the
convertible security may convert the security, or any portion of the principal
amount in integral multiples of $1,000, at the conversion price in effect at the
time of conversion, into shares of Williams' common stock. Conversion rights
expire at the close of business on the date specified in the prospectus
supplement for a series of convertible securities. Conversion rights expire at
the close of business on the redemption date in the case of any convertible
securities that we call for redemption.
In order to exercise the conversion privilege, the holder of the
convertible security must surrender to us, at any office or agency maintained
for that purpose, the security with a written notice of the election to convert
the security, and, if the holder is converting less than the entire principal
amount of the security, the amount of security to be converted. In addition, if
the convertible security is converted during the period between a record date
for the payment of interest and the related interest payment date, the person
entitled to convert the security must pay us an amount equal to the interest
payable on the principal amount being converted.
We will not pay any interest on converted securities on any interest
payment date after the date of conversion except for those securities
surrendered during the period between a record date for the payment of interest
and the related interest payment date.
Convertible securities shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of the security. We will
not issue any fractional shares of stock upon conversion, but we will make an
adjustment in cash based on the market price at the close of business on the
date of conversion.
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The conversion price will be subject to adjustment in the event of:
- payment of stock dividends or other distributions of our common stock;
- issuance of rights or warrants to all our stockholders entitling them to
subscribe for or purchase our stock at a price less than the market price
of our common stock;
- the subdivision of our common stock into a greater or lesser number of
shares of stock;
- the distribution to all stockholders of evidences of our indebtedness or
assets, excluding stock dividends or other distributions and rights or
warrants; or
- the reclassification of our common stock into other securities.
We may also decrease the conversion price as we consider necessary so that any
event treated for Federal income tax purposes as a dividend of stock or stock
rights will not be taxable to the holders of our common stock.
We will pay any and all transfer taxes that may be payable in respect of
the issue or delivery of shares of common stock on conversion of the securities.
We are not required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares in a name other than that
of the holder of the security to be converted and no issue and delivery shall be
made unless and until the person requesting the issue has paid the amount of any
such tax or established to our satisfaction that such tax has been paid.
After the occurrence of:
- consolidation with or merger of Williams into any other corporation,
- any merger of another corporation into Williams, or
- any sale or transfer of substantially all of the assets of Williams,
which results in any reclassification, change or conversion of our common stock,
the holders of any convertible securities will be entitled to receive on
conversion the kind and amount of shares of common stock or other securities,
cash or other property receivable upon such event by a holder of our common
stock immediately prior to the occurrence of the event.
CONCERNING THE TRUSTEE
The trustee is one of a number of banks with which Williams and its
subsidiaries maintain ordinary banking relationships and with which Williams and
its subsidiaries maintain credit facilities.
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES
Debt securities in bearer form are subject to special U.S. tax requirements
and may not be offered, sold, or delivered within the United States or its
possessions or to a U.S. person, except in certain transactions permitted by
U.S. tax regulations. Investors should consult the prospectus supplement in the
event that bearer debt securities are issued for special procedures and
restrictions that will apply to such an offering.
DESCRIPTION OF PREFERRED STOCK
Under the Williams' certificate of incorporation, as amended, Williams is
authorized to issue up to 30,000,000 shares of preferred stock, par value $1.00
per share, in one or more series. At September 30, 2001, no shares of preferred
stock were outstanding outside of our consolidated group. See "Outstanding
Preferred Stock Within the Consolidated Group" below. The following description
of preferred stock sets forth certain general terms and provisions of the series
of preferred stock to which any prospectus supplement may relate. The prospectus
supplement relating to a particular series of preferred stock will describe
certain other terms of such series of preferred stock. If so indicated in the
prospectus supplement relating to a particular series of preferred stock, the
terms of any such series of preferred stock may differ from the terms set forth
below. The description of preferred stock set forth below and the description of
the terms of a particular series of preferred
13
stock set forth in the related prospectus supplement are not complete and are
qualified in their entirety by reference to the certificate of incorporation and
to the certificate of designation relating to that series of preferred stock.
The rights of the holders of each series of preferred stock will be
subordinate to those of Williams' general creditors.
GENERAL TERMS OF THE PREFERRED STOCK
The certificate of incorporation will set forth the designations,
preferences, and relative, participating, optional and other special rights, and
the qualifications, limitations, and restrictions of the preferred stock of each
series. To the extent the certificate of incorporation does not set forth the
rights and limitations, they shall be fixed by the certificate of designation
relating to the series. A prospectus supplement, relating to each series, shall
specify the terms of the preferred stock as follows:
- the distinctive designation of the series and the number of shares which
shall constitute the series;
- the rate of dividends, if any, payable on shares of the series, the date,
if any, from which the dividends shall accrue, the conditions upon which
and the date when the dividends shall be payable, and whether the
dividends shall be cumulative or noncumulative;
- the amounts which the holders of the preferred stock of the series shall
be entitled to be paid in the event of a voluntary or involuntary
liquidation, dissolution, or winding up of Williams; and
- whether or not the preferred stock of the series shall be redeemable and
at what times and under what conditions and the amount or amounts payable
thereon in the event of redemption.
The prospectus supplement may, in a manner not inconsistent with the
provisions of the certificate of incorporation:
- limit the number of shares of the series that may be issued;
- provide for a sinking fund for the purchase or redemption or a purchase
fund for the purchase of shares of the series, set forth the terms and
provisions governing the operation of any fund, and establish the status
as to reissue of shares of preferred stock purchased or otherwise
reacquired or redeemed or retired through the operation of the sinking or
purchase fund;
- grant voting rights to the holder of shares of the series, in addition to
and not inconsistent with those granted by the certificate of
incorporation to the holders of preferred stock;
- impose conditions or restrictions upon the creation of indebtedness of
Williams or upon the issue of additional preferred stock or other capital
stock ranking equally with or prior to the preferred stock or capital
stock as to dividends or distribution of assets on liquidation;
- impose conditions or restrictions upon the payment of dividends upon, the
making of other distributions to, or the acquisition of junior stock;
- grant to the holders of the preferred stock of the series the right to
convert the preferred stock into shares of another series or class of
capital stock; and
- grant other special rights to the holders of shares of the series as the
board of directors may determine and as shall not be inconsistent with
the provisions of the certificate of incorporation.
DIVIDENDS
Holders of the preferred stock of any series shall be entitled to receive,
when and as declared by the board of directors, preferential dividends in cash
at the rate per annum, if any, fixed for the series. Their entitlement will be
subject to any limitations specified in the certificate of designation providing
for the issuance of a particular series of preferred stock. The certificate of
designation providing for the issuance of preferred stock of the series may
specify the date on which the preferential dividends are payable. The
preferential dividends
14
shall further be payable to stockholders of record on a date which precedes each
dividend payment date which the board of directors has fixed in advance of each
particular dividend.
Each share of preferred stock shall rank on a parity with each other share
of preferred stock, irrespective of series, with respect to preferential
dividends accrued on the shares of the series. Williams will not declare or pay
any dividend nor will it set apart a dividend for payment for the preferred
stock of any series unless at the same time Williams declares, pays, or sets
apart a dividend in like proportion to the dividends accrued upon the preferred
stock of each other series. This does not, however, prevent Williams from
authorizing or issuing one or more series of preferred stock bearing dividends
subject to contingencies as to the existence or amount of earnings of Williams
during one or more fiscal periods, or as to other events, to which dividends on
other series of preferred stock are not subject.
So long as any shares of preferred stock remain outstanding, Williams will
not, unless all dividends accrued on outstanding shares of preferred stock for
all past dividend periods shall have been paid, or declared and a sum sufficient
for the payment of the dividends set apart:
- pay or declare any dividends whatsoever, whether in cash, stock, or
otherwise;
- make any distribution on any class of junior stock;
- purchase, retire, or otherwise acquire for valuable consideration any
shares of preferred stock (subject to certain limitations) or junior
stock.
The ability of Williams, as a holding company, to pay dividends on the
preferred stock will depend upon the payment of dividends, interest, or other
charges by subsidiaries to it. Debt instruments of certain subsidiaries of
Williams limit the amount of payments to Williams, which could affect the amount
of funds available to Williams to pay dividends on the preferred stock.
Bank One Trust Company, National Association, is the registrar, transfer
agent, and dividend disbursing agent for the shares of the preferred stock.
REDEMPTION
With the approval of its board of directors, Williams may redeem all or any
part of the preferred stock of any series that by its terms is redeemable.
Redemption will take place at the time or times and on the terms and conditions
fixed for the series. Williams must duly give notice in the manner provided in
the certificate of designation providing for this series. Williams must pay for
preferred stock in cash the sum fixed for this series, together, in each case,
with an amount equal to accrued and unpaid dividends on the series of preferred
stock. The certificate of designation providing for a series of preferred stock
which is subject to redemption may provide, upon the two conditions discussed
below, that the shares will no longer be deemed outstanding, and all rights with
respect to the shares will cease, including the accrual of further dividends,
other than the right to receive the redemption price of the shares without
interest, when:
- Williams has given notice of redemption of all or part of the shares of
the series; and
- Williams has set aside or deposited with a suitable depositary for the
proportionate benefit of the shares called for redemption the redemption
price of these shares, together with accrued dividends to the date fixed
as the redemption date.
Redemption will terminate the right of holders of the preferred stock to
accrual of further dividends. Redemption will not, however, terminate the right
of holders of the shares redeemed to receive the redemption price for these
shares without interest.
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VOTING RIGHTS
The preferred stock will have no right or power to vote on any question or
in any proceeding or to be represented at or to receive notice of any meeting of
stockholders, except as:
- stated in this prospectus;
- expressly provided by law; or
- provided in the certificate of designation of the series of preferred
stock.
On any matters on which the holders of the preferred stock or any series
thereof shall be entitled to vote separately as a class or series, they shall be
entitled to one vote for each share held.
So long as any shares of preferred stock are outstanding, Williams must
not, during the continuance of any default in the payment of dividends on the
preferred stock, redeem or otherwise acquire for value any shares of the
preferred stock or of any other stock ranking on a parity with the preferred
stock concerning dividends or distribution of assets on liquidation. Holders of
a majority of the number of shares of preferred stock outstanding at the time
may, however, permit such a redemption by giving their consent in person or by
proxy, either in writing or by vote at any annual meeting or any special meeting
called for the purpose.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution, or winding up of the affairs
of Williams, voluntary or involuntary, the holders of the preferred stock of the
respective series are entitled to be paid in full the following amounts:
- the amount fixed in the certificate of designation providing for the
issue of shares of the series; plus
- a sum equal to all accrued and unpaid dividends on the shares of
preferred stock to the date of payment of the dividends.
Williams must have made this payment in full to the holders of the
preferred stock before it may make any distribution or payment to the holders of
any class of stock of Williams ranking junior to the preferred stock as to
dividends or distribution of assets on liquidation. After Williams has made this
payment in full to the holders of the preferred stock, the remaining assets and
funds of Williams will be distributed among the holders of the stock of Williams
ranking junior to the preferred stock according to their rights. If the assets
of Williams available for distribution to holders of preferred stock are
sufficient to make the payment required to be made in full, these assets will be
distributed to the holders of shares of preferred stock proportionately to the
amounts payable upon each share of preferred stock.
PREFERRED STOCK PURCHASE RIGHTS
On February 6, 1996, Williams entered into a rights agreement with The
First Chicago Trust Company of New York, as rights agent, which currently
provides for a dividend of one-third preferred stock purchase right for each
outstanding share of Williams' common stock. The rights trade automatically with
shares of common stock and become exercisable only under the circumstances
described below. The rights are designed to protect the interests of Williams
and its stockholders against coercive takeover tactics. The purpose of the
rights is to encourage potential acquirers to negotiate with the board of
directors of Williams prior to attempting a takeover and to provide the board
with leverage in negotiating on behalf of all stockholders the terms of any
proposed takeover. The rights may have anti-takeover effects. The rights should
not, however, interfere with any merger or other business combination approved
by the board of directors of Williams.
Until a right is exercised, the right does not entitle the holder to
additional rights as a Williams' stockholder, including, without limitation, the
right to vote or to receive dividends. Upon becoming exercisable, each right
entitles its holder to purchase from Williams one two-hundredth of a share of
Series A Junior Participating Preferred Stock at an exercise or purchase price
of $140.00 per right, subject to
16
adjustment. Each one two-hundredth of a share of Series A Junior Participating
Preferred Stock entitles the holder to receive quarterly dividends payable in
cash of an amount per share equal to:
- the greater of (a) $120, or (b) 1200 times the aggregate per share amount
of all cash dividends; plus
- 1200 times the aggregate per share amount payable in kind of all non-cash
dividends or other distributions other than dividends payable in common
stock, since the immediately preceding quarterly dividend payment date.
The dividends on the Junior Participating Preferred Stock are cumulative.
Holders of Junior Participating Preferred Stock have voting rights entitling
them to 1200 votes per share on all matters submitted to a vote of the
stockholders of Williams.
In general, the rights will not be exercisable until the distribution date,
which is the earlier of (a) the close of business on the 10th business day after
Williams learns that a person or group has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of our outstanding common stock,
(b) the close of business on the 10th business day after the commencement of a
tender or exchange offer for 15% or more of Williams' outstanding common stock,
or (c) the close of business on the 10th business day after the board of
directors of Williams determines that any adverse person or group has become the
beneficial owner of an amount of common stock which the board of directors
determines to be substantial. Below we refer to the person or group acquiring at
least 15% of our common stock as an acquiring person.
In the event that a person or group acquires beneficial ownership of 15% or
more of Williams' outstanding common stock or the board of directors of Williams
determines that any adverse person or group has become the beneficial owner of a
substantial amount of common stock, each holder of a right will have the right
to exercise and receive common stock having a value equal to two times the
exercise price of the right. The exercise price is the purchase price times the
number of shares of common stock associated with each right. Any rights that are
at any time beneficially owned by an acquiring person will be null and void and
any holder of such right will be unable to exercise or transfer the right.
In the event that someone becomes an acquiring person and either (a)
Williams is involved in a merger or other business combination in which Williams
is not the surviving corporation, (b) Williams is involved in a merger or other
business combination in which Williams is the surviving corporation but all or a
part of its common stock is changed or exchanged, or (c) 50% or more of
Williams' assets, cash flow or earning power is sold or transferred, each right
becomes exercisable and each right will entitle its holder to receive common
stock of the acquiring person having a value equal to two times the exercise
price of the right.
The rights will expire at the close of business on February 6, 2006, unless
redeemed before that time. At any time prior to the earlier of (a) 10 days
following the stock acquisition date, as defined in the rights agreement, and
(b) the expiration date, the board of directors of Williams may redeem the
rights in whole, but not in part, at a price of $.01 per right. Prior to the
distribution date, Williams may amend the rights agreement in any respect
without the approval of the rights holders. However, after the distribution
date, the rights agreement may not be amended in any way that would adversely
affect the holders of rights (other than any acquiring person or group) or cause
the rights to again become redeemable. The Junior Participating Preferred Stock
ranks junior to all other series of Williams' preferred stock as to the payment
of dividends and the distribution of assets unless the terms of the series
specify otherwise.
You should refer to the applicable provisions of the rights agreement,
which is incorporated by reference as Exhibit 4 to Form 8-K filed January 24,
1996.
OUTSTANDING PREFERRED STOCK WITHIN THE CONSOLIDATED GROUP
On March 28, 2001, Williams issued 14,000 shares of its March 2001
Mandatorily Convertible Single Reset Preferred Stock (the "March 2001 Preferred
Stock") to a wholly owned subsidiary as part of a transaction to provide
indirect credit support for $1.4 billion of Williams Communications Group, Inc.
structured notes through a commitment to issue Williams' equity in the event of
a Williams Communications default, the downgrading of Williams' senior unsecured
debt to Ba1 or below by Moody's, BB or below by
17
S&P, or BB+ or below by Fitch if Williams' common stock closing price is below
$30.22 for ten consecutive trading days while such downgrade is in effect or to
the extent proceeds from Williams Communications' refinancing or remarketing of
other structured notes prior to March 2004 produces proceeds of less than $1.4
billion. For a full description of the March 2001 Preferred Stock, please refer
to Williams' certificate of incorporation and the certificate of designation of
the March 2001 Preferred Stock, which has been filed as part of Exhibit 3(I)(a)
to Form 10-Q filed by Williams on May 15, 2001 and incorporated by reference
herein.
On December 28, 2000, in connection with the purchase of various
energy-related assets in Canada and formation of Snow Goose Associates, L.L.C.
and Arctic Fox Assets, L.L.C., Williams issued 342,000 shares of Williams'
December 2000 cumulative convertible preferred stock ("December 2000 Preferred
Stock") to Arctic Fox Assets, L.L.C., a wholly owned subsidiary of Williams. For
a full description of the December 2000 Preferred Stock, please refer to
Williams' certificate of incorporation and the certificate of designation of the
December 2000 Preferred Stock, which has been filed as part of Exhibit 3(I)(a)
to Form 10-Q filed by Williams on May 15, 2001 and incorporated by reference
herein.
DESCRIPTION OF COMMON STOCK
As of the date of this prospectus, Williams is authorized to issue up to
960,000,000 shares of common stock. As of September 30, 2001, Williams had
515,078,748 issued and outstanding shares of common stock. In addition, at
September 30, 2001 options to purchase 26,479,917 shares of common stock were
outstanding under various stock and compensation incentive plans. The
outstanding shares of Williams' common stock are fully paid and nonassessable.
The holders of Williams' common stock are not entitled to preemptive or
redemption rights. Shares of Williams' common stock are not convertible into
shares of any other class of capital stock. First Chicago Trust Company of New
York, a division of EquiServe, is the transfer agent and registrar for our
common stock.
Williams currently has the following provisions in its charter or bylaws
which could be considered to be "anti-takeover" provisions: (i) an article in
its charter providing for a classified board of directors divided into three
classes, one of which is elected for a three-year term at each annual meeting of
stockholders, (ii) an article in its charter providing that directors cannot be
removed except for cause and by the affirmative vote of three-fourths of the
outstanding shares of common stock, (iii) an article in its charter requiring
the affirmative vote of three-fourths of the outstanding shares of common stock
for certain merger and asset sale transactions with holders of more than five
percent of the voting power of Williams, and (iv) a bylaw requiring stockholders
to provide prior notice for nominations for election to the board of directors
or for proposing matters which can be acted upon at stockholders meetings.
Williams is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an interested
stockholder (defined generally as a person owning 15% or more of Williams'
outstanding voting stock) from engaging in a business combination with Williams
for three years following the date that person became an interested stockholder
unless: (i) before that person became an interested stockholder, the board of
directors of Williams approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of Williams outstanding at
the time the transaction commenced (excluding stock held by persons who are both
directors and officers of Williams or by certain employee stock plans); or (iii)
on or following the date on which that person became an interested stockholder,
the business combination is approved by Williams' board of directors and
authorized at a meeting of stockholders by the affirmative vote of the holders
of a least 66 2/3% of the outstanding voting stock of Williams (excluding shares
held by the interested stockholder). A business combination includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder.
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DIVIDENDS
The holders of Williams' common stock are entitled to receive dividends
when, as, and if declared by the board of directors of Williams, out of funds
legally available for their payment subject to the rights of holders of any
outstanding preferred stock.
VOTING RIGHTS
The holders of Williams' common stock are entitled to one vote per share on
all matters submitted to a vote of stockholders.
RIGHTS UPON LIQUIDATION
In the event of Williams' voluntary or involuntary liquidation,
dissolution, or winding up, the holders of Williams' common stock will be
entitled to share equally in any assets available for distribution after the
payment in full of all debts and distributions and after the holders of all
series of outstanding preferred stock have received their liquidation
preferences in full.
DESCRIPTION OF WARRANTS
Williams may issue warrants to purchase its debt or equity securities or
securities of third parties or other rights, including rights to receive payment
in cash or securities based on the value, rate or price of one or more specified
commodities, currencies, securities or indices, or any combination of the
foregoing. Warrants may be issued independently or together with any other
securities and may be attached to, or separate from, such securities. Each
series of warrants will be issued under a separate warrant agreement to be
entered into between Williams and a warrant agent. The terms of any warrants to
be issued and a description of the material provisions of the applicable warrant
agreement will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the following terms of
any warrants in respect of which this prospectus is being delivered:
- the title of such warrants;
- the aggregate number of such warrants;
- the price or prices at which such warrants will be issued;
- the currency or currencies, in which the price of such warrants will be
payable;
- the securities or other rights, including rights to receive payment in
cash or securities based on the value, rate or price of one or more
specified commodities, currencies, securities or indices, or any
combination of the foregoing, purchasable upon exercise of such warrants;
- the price at which and the currency or currencies, in which the
securities or other rights purchasable upon exercise of such warrants may
be purchased;
- the date on which the right to exercise such warrants shall commence and
the date on which such right shall expire;
- if applicable, the minimum or maximum amount of such warrants which may
be exercised at any one time;
- if applicable, the designation and terms of the securities with which
such warrants are issued and the number of such warrants issued with each
such security;
- if applicable, the date on and after which such warrants and the related
securities will be separately transferable;
- information with respect to book-entry procedures, if any;
19
- if applicable, a discussion of any material United States Federal income
tax considerations; and
- any other terms of such warrants, including terms, procedures and
limitations relating to the exchange and exercise of such warrants.
DESCRIPTION OF PURCHASE CONTRACTS
Williams may issue purchase contracts for the purchase or sale of:
- debt or equity securities issued by Williams or securities of third
parties, a basket of such securities, an index or indices of such
securities or any combination of the above as specified in the applicable
prospectus supplement;
- currencies; or
- commodities.
Each purchase contract will entitle the holder thereof to purchase or sell,
and obligate us to sell or purchase, on specified dates, such securities,
currencies or commodities at a specified purchase price, which may be based on a
formula, all as set forth in the applicable prospectus supplement. Williams may,
however, satisfy its obligations, if any, with respect to any purchase contract
by delivering the cash value of such purchase contract or the cash value of the
property otherwise deliverable or, in the case of purchase contracts on
underlying currencies, by delivering the underlying currencies, as set forth in
the applicable prospectus supplement. The applicable prospectus supplement will
also specify the methods by which the holders may purchase or sell such
securities, currencies or commodities and any acceleration, cancellation or
termination provisions or other provisions relating to the settlement of a
purchase contract.
The purchase contracts may require Williams to make periodic payments to
the holders thereof or vice versa, which payments may be deferred to the extent
set forth in the applicable prospectus supplement, and those payments may be
unsecured or prefunded on some basis. The purchase contracts may require the
holders thereof to secure their obligations in a specified manner to be
described in the applicable prospectus supplement. Alternatively, purchase
contracts may require holders to satisfy their obligations thereunder when the
purchase contracts are issued. Williams' obligation to settle such pre-paid
purchase contracts on the relevant settlement date may constitute indebtedness.
Accordingly, pre-paid purchase contracts will be issued under either the senior
indenture or the subordinated indenture.
DESCRIPTION OF UNITS
As specified in the applicable prospectus supplement, Williams may issue
units consisting of one or more purchase contracts, warrants, debt securities,
shares of preferred stock, shares of common stock or any combination of such
securities. The applicable prospectus supplement will describe:
- the terms of the units and of the purchase contracts, warrants, debt
securities, preferred stock and common stock comprising the units,
including whether and under what circumstances the securities comprising
the units may be traded separately;
- a description of the terms of any unit agreement governing the units; and
- a description of the provisions for the payment, settlement, transfer or
exchange of the units.
PLAN OF DISTRIBUTION
Williams may sell the securities through agents, through underwriters,
through dealers, and directly to purchasers.
Agents designated by Williams from time to time may solicit offers to
purchase the securities. The prospectus supplement will name any such agent who
may be deemed to be an underwriter, as that term is defined in the Securities
Act, involved in the offer or sale of the securities in respect of which this
prospectus is
20
delivered. The prospectus supplement will also set forth any commissions payable
by Williams to such agent. Unless otherwise indicated in the prospectus
supplement, any such agent will be acting on a best efforts basis for the period
of its appointment.
If Williams uses any underwriters in the sale, Williams will enter into an
underwriting agreement with the underwriters at the time of sale to them. The
prospectus supplement which the underwriter will use to make resales to the
public of the securities in respect of which this prospectus is delivered will
set forth the names of the underwriters and the terms of the transaction.
If a dealer is utilized in the sale of the securities in respect of which
this prospectus is delivered, Williams will sell the securities to the dealer,
as principal. The dealer may then resell the securities to the public at varying
prices to be determined by the dealer at the time of resale.
Agents, dealers, and underwriters may be entitled under agreements entered
into with Williams to indemnification by Williams against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such agents, dealers, or underwriters may be
required to make in respect of such civil liabilities. Agents, dealers, and
underwriters may be customers of, engage in transactions with, or perform
services for Williams in the ordinary course of business.
One or more firms, referred to as "remarketing firms," may also offer or
sell the securities, if the prospectus supplement so indicates, in connection
with a remarketing arrangement upon their purchase. Remarketing firms will act
as principals for their own accounts or as agents for Williams. These
remarketing firms will offer or sell the securities in accordance with a
redemption or repayment pursuant to the terms of the securities. The prospectus
supplement will identify any remarketing firm and the terms of its agreement, if
any, with Williams and will describe the remarketing firm's compensation.
Remarketing firms may be deemed to be underwriters in connection with the
securities they remarket. Remarketing firms may be entitled under agreements
that may be entered into with Williams to indemnification by Williams against
certain civil liabilities, including liabilities under the Securities Act, and
may be customers of, engage in transactions with or perform services for
Williams in the ordinary course of business.
If the prospectus supplement so indicates, Williams will authorize agents
and underwriters or dealers to solicit offers by certain purchasers to purchase
the securities from Williams at the public offering price set forth in the
prospectus supplement. The solicitation will occur pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
These contracts will be subject to only those conditions set forth in the
prospectus supplement, and the prospectus supplement will set forth the
commission payable for solicitation of such offers.
Each series of debt securities offered will be a new issue of securities
and will have no established trading market. The debt securities offered may or
may not be listed on a national securities exchange. Williams cannot be sure as
to the liquidity of or the existence of trading markets for any debt securities
offered.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the securities.
Specifically, the underwriters, if any, may overallot in connection with the
offering, and may bid for, and purchase, the securities in the open market.
EXPERTS
The consolidated financial statements and schedules of Williams at December
31, 2000 and 1999 and for each of the three years in the period ended December
31, 2000 appearing in Williams' Form 8-K filed with the Securities and Exchange
Commission on May 22, 2001, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements and schedules are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
21
LEGAL MATTERS
William G. von Glahn, Senior Vice President and General Counsel of Williams
will pass upon certain legal matters for Williams in connection with the
securities offered by this prospectus. Davis Polk & Wardwell, New York, New York
will pass upon certain legal matters for the underwriters in connection with the
securities offered by this prospectus. As of September 30, 2001, Mr. von Glahn
beneficially owned, directly or indirectly approximately 236,340 shares of
Williams' common stock and also has exercisable options to purchase an
additional 147,600 shares of Williams' common stock.
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40,000,000 FELINE PACS(SM)
(INITIALLY CONSISTING OF 40,000,000 INCOME PACS(SM))
(LOGO)
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO. SALOMON SMITH BARNEY
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JANUARY 7, 2002
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